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Tipping the Playing Field:
How America's Federal Funding Policy Heavily Favors Roads Over Transit

Susan Pantell with Light Rail Now Project Team · May 2009

It should come as no great surprise that the federal government gives substantially more financial support to roads than to transit. However, what's really disturbing – especially in a new political environment where the pursuit of "green" policies is now widely celebrated – is that, in addition to much lower authorizations for transit, the federal match (percentage of project cost covered) for transit grants has in practice been considerably less than for highway grants. Nominally, federal legislation authorizes a match of 80% for most capital projects, both highway and transit. However, in practice, highway matches are at least 80%, and can be as high as 90%, for interstate projects. In contrast, federal matches for transit projects have decreased dramatically, with projects that request lower matches receiving favorable treatment – indeed, the Federal Transit Administration (FTA) has typically been funding projects at the 50% match level or lower.

The Bush administration's Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) of 2005, providing funding levels for transportation programs, authorized an average of $39.9 billion each year between 2005 and 2009 to federal highway aid programs. [Title 1, Federal-Aid Highways.] For transit, Section 5309, the Capital Investment Grants program, including the New Starts Program, which funds major fixed-guideway projects, such as rapid rail, light rail, regional passenger rail ("commuter rail"), and bus rapid transit, was allocated $7.4 billion over the five years, or an average of $1.48 billion per year. The Small Starts Program, which provides funds up to $75 million for transit capital projects costing less than $250 million, was allocated $600 million of the New Starts funding. (These allocations may now be increased under the more transit-friendly Obama administration.)

For most Federal Highway Administration (FHWA) programs, the federal share is 80%. When the funds are used for interstate projects to add High Occupancy Vehicle (HOV) or auxiliary lanes, but not other lanes, and for the Interstate Maintenance and Highway Safety Improvement Programs, the federal share may be 90%. These programs are subject to the sliding scale adjustment, which is an additional percentage federal match equal to the percentage of unappropriated and unreserved public lands and nontaxable Indian Lands in the state; the only catch is that the federal match in any state may not exceed 95% of the total cost.

 Highway construction US highway projects are routinely funded by predominantly federal grants – mostly at a federal match of 80% or even as high as 95%.
[Photo: Texas A&M University – Texas Transportation Institute]

For transit, however, it's a very different ballgame. Although SAFETEA-LU did not change the nominal federal match of 80% for New Starts projects, in practice, FTA guidance sets a much lower de facto limit:

For many years FTA has encouraged projects seeking New Starts funding to pursue no more than 50% of the total project costs using New Starts funds. This is because the demand for New Starts funding has historically been far in excess of the funding available.
[FTA website, Proposed Guidance on New Starts/Small Starts Policies and Procedures, 5 Feb., 2007.]

For most of the past 8 years of the previous administration, a conservative-dominated US Congress has also severely limited the percentage of federal match for major new transit investments. According to the American Public Transportation Association (APTA), in practice, "Congress and regulations have discouraged a federal match of more than 60 percent."
[Primer on Transit Provisions, SAFETEA-LU, 20 Feb. 2007]

On 4 June 2007, FTA adopted a new transit funding policy document, Final Guidance on New Starts/Small Starts Policies and Procedures and Notice of Availability of Updated Reporting Instructions [Docket Number: FTA-2007-27172], which extends the preference given to projects requesting a lower, 50% match to Small Starts projects:

FTA adopts as final its policy to add a decision rule that Small Starts and Very Small Starts projects that meet the conditions for a simplified financial rating be given a rating of "high" if their sponsors request no more than a 50% Small Starts share, while those requesting between 50% and 80% share receive no less than a "medium" rating.

Bush's FTA justified this decision by what might be called the "earnest money" or "willingness to sacrifice" rationale:

FTA believes that the ability of project sponsors to contribute a higher non-Small Starts funding share represents a measure of local commitment to a project that should be recognized in the ratings. FTA further believes that providing higher ratings for requests of less Small Starts funding is entirely consistent with SAFETEA-LU provisions that specify local share as an evaluation consideration.

 Seattle LRT In contrast to high federal match for highways, US rail transit projects – such as Seattle's Link light rail transit project, shown here – have typically been allotted well under 50% federal funding.
[Photo: Mac Photography]

Under Section 5307, the Urbanized Area Formula Grants, funds are allocated based on a complex formula that accounts for population, density, fleet size, ridership, etc. Urbanized area formula funds can be used for relatively smaller-scale transit capital expenditures, planning, minor transit enhancements, capital maintenance items, and operating costs in urbanized areas with populations of less than 200,000. The federal match for a capital project (including associated capital maintenance items) is 80% of the net "project" cost (where "projects" can include replacing buses, installing passenger shelters or transfer facilities, conbstructing maintenance facilities, etc.)

For operating expenses, the federal share is not more than 50% of the cost. Annual authorizations for Urbanized Area Formula Grants average $3.8 billion between 2005 and 2009.

Certain other programs that provide funding for comparatively more modest transit-related activities do have an 80% match. One is the Capital Expenditures Program, under Section 5302, which includes funding for: acquisition or construction of transit facilities for ongoing operations and maintenance, such as buildings, stations, and rights-of-way; payments for the capital portion of rail trackage rights agreements; overhauling rail rolling stock; preventive maintenance; some transit equipment and facility leases; transit improvements that enhance economic development or incorporate private investment; and introduction of new technology through innovative or improved transit products.

Other programs with an 80% match include the Surface Transportation Program, which provides funding that may be used for projects on any federal-aid highway, including transit capital projects and intracity and intercity bus terminals and facilities; the Statewide Planning Process, which is administered jointly by the Federal Highway Administration and the Federal Transit Administration, and the Municipal Planning Process; and the Transportation, Community and System Preservation (TCSP) program, which funds transit-oriented development plans.

For state-owned railroads, the federal match is the same as for highways, 80%, subject to the sliding scale, and 90% for interstate projects. For the Railway-Highway Crossings program, which is designed to reduce the number of fatalities and injuries at public highway-rail grade crossings through the elimination of hazards and/or the installation/upgrade of protective devices at crossings, the federal share is 90%. However, federal funding authorizations for these programs have been relatively small.

A couple of highway programs receive an 100% federal match, including certain safety improvements listed in the code; the Future Strategic Highway Research Program, which provides for time-specific research programs focused on highway safety, reliability, capacity, and renewal; and the Highways for Life Pilot Program, a new discretionary program that provides funding to demonstrate and promote state-of-the-art technologies, elevated performance standards, and new business practices in the highway construction process.

As this brief summary shows, not only does transit receive significantly less federal funding than roads, but the match provided has, in practice, been considerably less as well. The federal match applies only to a portion of the total project costs.

As reported by APTA,

the matching ratio applies only to the portion of a project funded jointly by federal and state and local governments. The portion of total project costs funded by the federal government is, in practice, often much less than the matching ratio allowed by law. For example, the federal share of all capital revenue for transit in FY 2003 was 39.9 percent, not 80 percent and the federal share of all operating revenue for transit in FY 2003 was 5.8 percent, not 50 percent."
[APTA, Primer on Transit Provisions, SAFETEA-LU, 20 Feb., 2007.]

These low levels of federal support make it extremely difficult to start up new light rail projects despite the increasing demand for them around the country.

The basic research and preparation of this report were performed by Research Associate Susan Pantell; additional material and analysis were added by other members of the Light Rail Now team.

Light Rail Now! website
Updated 2008/05/20

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