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September 2007

Rail News: Passenger Rail

Grow with the flow

The U.S. economic downturn of the early 2000s hit the transit industry hard. Sales tax revenues that many agencies rely on to help fund their operating and/or capital budgets plummeted, leaving them even more cash-strapped. Few made it through those tough years fare-increase or service-cut free.

A lot has changed — and a lot hasn’t. Ridership at many agencies has risen to all-time highs as congestion has worsened and gas prices have skyrocketed. Sales tax and farebox revenues are up and the industry is growing. But with that growth comes new challenges. Agencies now need to pay for service additions and infrastructure expansion projects. In many cases, funding has remained flat while construction costs have soared.

“The overall state of public transportation is better, but budget pressures are probably just as formidable, and maybe more so,” says Art Guzzetti, vice president of policy for the American Public Transportation Association. “As the industry grows, funding support has to grow or you have a hole.”

Any agency will attest to that. From Virginia Railway Express (VRE) and the Port Authority of Allegheny County, which recently obtained dedicated state funding; to the South Florida Regional Transportation Authority (SFRTA), which is trying to land a dedicated funding source; to the Los Angeles County Metropolitan Transportation Authority (LA MTA), which is facing budget challenges as the state of California proposes to cut transit funding, every agency has its own set of funding challenges — and likely will always struggle to get enough of it.

For VRE at least, things might begin to get a little less challenging in coming years. After raising fares five of the past six years to make up budget shortfalls, the agency finally has some additional funding headed its way.

VRE hasn’t had a dedicated funding source since its 1992 inception and relies on local jurisdictions — which have money issues of their own — to fund the commuter-rail service.

But in July, the Virginia legislature approved a bill that authorizes eight northern Virginia jurisdictions to approve fees and taxes that will generate up to $400 million for transportation projects. Each year, VRE will receive $25 million out of the pot, and it can be used for either operating or capital expenditures.

“We’re very, very happy with it — $25 million is a lot for us and it’s more than I expected,” says VRE Chief Executive Officer Dale Zehner. “And the fact that they designated it for capital or operating gives us a lot of flexibility. You can get new locomotives and add more trains, but you have to be able to pay for the corresponding increase in operating expenses.”

Wish List
The agency expects to receive the first round of funding in fiscal-year 2009. Officials already have compiled a “wish list” for the first $25 million that includes purchasing new locomotives, creating an insurance trust fund, adding service and dedicating additional funds for fuel. VRE also will consider expanding service. First up: a proposed 11-mile extension from Manassas to Haymarket, which Zehner says could double ridership on the Manassas line.

The Utah Transit Authority (UTA) also will be positioned to fund several line extensions. The agency currently receives sales tax revenue from each of the five counties it operates in, ranging from a quarter-cent up to three-quarters of a cent. In November 2006, voters in Salt Lake and Utah counties approved a referendum that calls for a quarter-cent sales tax increase to be used to fund two light-rail extensions, as well as extend the agency’s 44-mile FrontRunner commuter-rail line (scheduled to open in spring 2008) from Salt Lake City south to Provo.

Taking priority
And since UTA now has dedicated dollars for those extensions, the agency can use other funds for two additional light-rail extensions, enabling the agency to accelerate the lines’ opening from 2030 to 2015.

“Transit is definitely being seen as more of a priority in the region,” says UTA spokesman Chad Saley.

Ditto for the Dallas area, where Dallas Area Rapid Transit (DART) is working to double its light-rail system to more than 90 miles by 2013. The multi-billion-dollar project is being funded primarily through a Full Funding Grant Agreement from the Federal Transit Administration and DART’s existing dedicated revenue source — a 1 percent sales tax the agency collects from 13 member cities.

But it’ll be a challenge for DART to grow beyond those 13 cities. In 1983, the state legislature approved a bill that allowed cities to dedicate 1 percent of their sales tax to transit — legislation the city of Dallas and its first-ring suburbs subsequently approved.

“At the time, it made all the sense in the world as far as who voted in and who didn’t,” says DART President and Executive Director Gary Thomas. “But now, a lot of the cities that 24 years ago didn’t make sense to be part of DART, those second-ring and in some cases third-ring suburbs, are growing by leaps and bounds, so now there’s a lot of interest in becoming part of the agency.”

But extending service to those areas is easier said than done. In Texas, the sales tax is capped at 8.25 percent — the state gets 6.25 percent, the city receives 1 percent and the remaining 1 percent can be used for things like transit, roads or parks, says Thomas. DART’s 13 member cities voted to use their top 1 percent for transit, but Dallas’ outer suburbs already have their penny tax committed to other services. So, the only way they could become part of DART’s service area is if the legislature lifts or expands the sales tax cap.

And that’s exactly what DART and other local agencies Fort Worth Transportation Authority and Denton County Transportation Authority proposed to the state legislature earlier this year. Cities and chambers of commerce supported the proposal to raise the sales tax cap, but the legislature didn’t approve it. Now, the agencies are regrouping and will propose a similar measure when the legislature meets again in 2009, says Thomas.

“The problem doesn’t go away — air quality doesn’t get any better, people still need to get around and the population is going nowhere but up,” says Thomas. “This is a regional solution and has potential for DART to go from 13 member cities to 20 or 21 member cities relatively quickly.”

At the Metropolitan Atlanta Rapid Transit Authority (MARTA), the focus is on expansion of a different sort.

The authority will reinstate service it cut in the years following 9/11 after the agency’s sales tax revenue dropped about 12 percent. The authority relies on a one-cent sales tax in Fulton and DeKalb counties, and the city of Atlanta to fund its capital and operating budgets. Today, that tax is back to generating $375 million annually, says Davis Allen, MARTA’s assistant general manager of finance.

But under the Metropolitan Atlanta Rapid Transit Authority Act of 1965, which created MARTA, 50 percent of the sales tax revenue has to go toward capital expenditures and 50 percent, toward operating costs.

“That’s a disadvantage because we’re hurting operationally,” says Allen.

While MARTA’s devoting those capital dollars to rehabilitate the rail line, renovate stations and overhaul rail cars, the authority had a decade’s worth of deficits on the operating side, ranging from $5 million to $21.4 million, says Allen.

Back on track
So, about five years ago, MARTA officials implemented a cost-containment program that included service cuts, early retirement programs and furloughs that slashed expenses by $275 million. MARTA officials also asked the state legislature to temporarily change the sales tax split from 50/50 to 55 percent for operating expenses and 45 percent for capital. The legislature agreed, and extended the 55/45 split to Dec. 31, 2008.

The cost cuts and revenue distribution changes helped MARTA get back in the black, and the agency ended FY2006 with a $20 million budget surplus. As of early August, MARTA was closing the books on FY2007 and Allen expected another surplus of about $13 million, which will be applied to the FY2008 budget. As ridership continues to increase, MARTA is anticipating a “big revenue increase” in FY2008, says Allen, adding that the agency will restore about two-thirds of the service that’s been cut.

“We’re getting things back together now,” says Allen. “Our budget situation has improved tremendously.”

So has the Port Authority of Allegheny County’s — relatively speaking. For the past several years, the agency has struggled with budget deficits resulting from flat state funding. In Pennsylvania, the state historically has provided the lion’s share of transit funding because laws largely restrict local governments’ revenue-raising options to property taxes, says Port Authority Chief Executive Officer Steve Bland.

But state funding hasn’t kept up with transit agency needs, forcing the port authority to cut expenditures and freeze wages. The agency needed to take even more drastic measures this year. Facing a $50 million FY2008 budget deficit, the authority in June implemented a 15 percent service reduction and laid off more than 200 employees.

In mid-July, after years of debate, Pennsylvania’s legislature approved a dedicated revenue source for public transportation. House Bill 1590 calls on the Pennsylvania Turnpike Commission to issue bonds, the proceeds of which would provide money for a trust fund allocated for transit, roads and bridges. The commission then will increase tolls on the turnpike and implement tolling on portions of Pennsylvania’s Interstate 80.

The measure will provide transit agencies an additional $300 million for in FY2008, $350 million in FY2009 and $400 million in FY2010. Funding would increase about 2.5 percent annually thereafter.

For the port authority, the funding bill translates to $55.6 million in operating funds and $12.8 million in capital funds for FY2008.

The additional money won’t enable the agency to reinstate the service it cut or workers it laid off in June, but the funds will allow it to rescind a second round of cuts slated for September.

And while the agency will proceed with its North Shore Connector light-rail expansion project that’s already under way, additional expansions will be put on hold for the foreseeable future. Bottom line: The additional state funding provides the port authority just what it needed to get by.

“For the moment, the conversation here is about stabilizing,” says Bland.

Exploring their options
At the South Florida Regional Transportation Authority (SFRTA), the conversation is about obtaining a dedicated funding source. The agency currently negotiates funding annually with the three counties in which it operates, and the combined funds are matched by the Florida Department of Transportation.

“There’s a big difference between that and dedicated funding coming in that pays for operations,” says SFRTA Executive Director Joe Giulietti.

The authority has been working with the state legislature the past six years to obtain dedicated funds. Two years ago, they came close. Florida’s House and Senate passed a $2 car rental fee that would have generated enough money for a dedicated operating revenue stream as well as some capital dollars, but the measure was vetoed by then-Gov. Jeb Bush.

Obtaining a dedicated revenue source will be critical for SFRTA to expand and add service, says Giulietti.

“Eventually, we have to identify a dedicated funding source or we’re not going to get federal grants,” he says. “And, you’re not truly able to develop investment strategies with a financial plan that supports it.”

Although SFRTA has received adequate financial support the past couple of years, things might get tough in coming years. Massive state and county budget cuts will affect the agency’s funding partners and, in turn, the amount of money SFRTA obtains from the counties.

“We’re OK for this fiscal year, but we don’t know come next fiscal year what the new revenues are going to be,” says Giulietti.

Funding uncertainty also is an issue for California transit agencies. As of early August, the state had yet to approve a budget for FY2008, which began July 1, but things weren’t looking good for transit. Gov. Arnold Schwarzenegger had proposed diverting $1.3 billion in state gas tax money from transit agencies and using it to balance the general fund.

If the measure passes, Los Angeles County, for one, would lose $336 million in state funds, says LA MTA spokesman Rick Jager.

How would it make up the shortfall? The governor has proposed agencies use funds from Proposition 1B, a statewide bond measure approved by voters in November 2006 that will provide about $20 billion in transportation funding. But that money was supposed to be dedicated for transportation improvement projects and not meant to make up for state funding shortfalls.

“This is like a bait and switch: Voters were told the $20 billion would be used for transit and highway projects, but now the governor’s saying to take the [gas funds] to balance this year’s budget and use this [bond] money to backfill what we’re not getting from the state,” says Jager. “We’re working with the legislature, but it doesn’t look good.”

An unstable ship
All California transit agencies are in the same boat. The Southern California Regional Rail Authority, which operates Metrolink commuter-rail service, is made up of five member agencies in Los Angeles, Ventura, San Bernardino, Riverside and Orange counties that provide the bulk of Metrolink’s operating funds. So if those transit agencies are hurting for cash, it could affect Metrolink, depending on where the agency’s services fall on other agencies’ priority lists, says Metrolink Manager of Budgets Drew Phillips.

“It’s a Catch-22 because we don’t receive any operating funds from the state or federal government, but when the member agencies are hurting, it does trickle down to us,” he says.

For now, Metrolink member agency LA MTA is concerned about how the state funding shortfall could impact some of its own projects. The board currently is in the midst of reviewing the agency’s long-range transportation plan to determine which projects might have to be deferred, says Jager.

In the meantime, the agency does have some funds it can count on. LA MTA receives two half-cent sales taxes in L.A. County that generated about $1.4 billion for the agency in FY2007.

“The voters recognize transportation is a huge issue here in California and they’re willing to pay for it, but trying to match that money with the state and federal government is a hard task,” says Jager.

Ultimately, no matter where the funding issues lie — at the local, state or federal levels — transit agencies need the right mix of funding support to carry out service and expansion plans that meet today’s transportation demands, says APTA’s Guzzetti.

“There’s no way we can satisfy growing mobility needs and growing economies without a sizable piece of public transportation. There’s no denying that, and I think it’s being recognized,” he says. “But how to pay for it? That’s not a slam dunk.”


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