California, Transit Funding

In Search of a Stable Equilibrium

The elimination of State Transit Assistance (STA) funds in California has forced transit operators throughout California to scrape the bottom of the barrel, so to speak, in search of replacement money for operations; this has resulted in controversial proposals to raise fares while trimming service. But if there is any silver lining to be found here, it’s this: now that we have reached the bottom of the barrel, we have the opportunity to start anew — and to think critically about stable sources of money to fund transit for the long haul. The Commission on the 21st Century Economy has been charged by Governor Schwarzenegger to issue a report by July 31, 2009. That report will detail the Commission’s suggested revisions to local and state revenues so as to stabilize those revenue streams — including, but of course not limited to, funding for transit. Meanwhile, the California Transit Association has compiled a list of recommendations for the Commission to consider for the transit portion of the discussion. Reflecting on the current state of things — the need to support and stimulate a dynamic economy, the need to reduce emissions and comply with SB 375 and AB 32, and the fact that the State has pillaged some $5 billion of transit funding in the past decade — the CTA urged the Commission to pursue stable funding for transit.

The Transportation Development Act (TDA) of 1971 is the vehicle through which transportation in California has traditionally been funded. TDA funds consist of the Local Transportation Fund (LTF) coming from a 0.25% general sales tax, and the State Transit Assistance (STA) funds coming from the statewide gasoline tax. Each county in California has an LTF, to which the Board of Equalization disburses money collected from sales taxes in that county. LTF funds are generally used for public transportation, related planning and facilities, bike-ped improvements, and sometimes for road maintenance. STA funds, by contrast, are split halfway into population-based and revenue-based funds to be used specifically for transit. In the past two years, the State has yanked about $3 billion of funding from the Public Transportation Account — which voters mandated be used solely for public transportation (see here and here) — choosing instead to use that money to backfill General Fund programs unrelated to transit. The now-dry STA funds, consisting of both tax and spillover revenue, were sourced from the depleted account. The notable lack of this money has contributed to the current situation, in which operators are scrambling to balance their budgets in any way they can, typically by increasing the cost and inconvenience to riders. Naturally, then, the CTA has urged the Commission to restore this revenue to transit — and to strengthen the language in the Public Utilities Code, so as to protect transit monies from any future leaks. A further CTA recommendation is to standardize and simplify the application and coverage of state and local taxes.

But none of this really breaks new ground. Reaffirming the meaning of the Public Transportation Account would simply turn back time a few years, restoring money that has long been used to fund transit. To work toward breaking truly new ground, the CTA suggested that the Commission examine a number of more innovative sources of funding, many of which we have discussed here previously, including congestion pricing and climate change impact fees. These additional sources would either replace or augment the TDA funds that have traditionally been used:

  • Voter approved mechanisms with clear expenditure plans and accountability measures such as local or regional sales taxes, vehicle registration fees, environmental impact fees, gas taxes, or carbon taxes.
  • Inclusion of transit operations as an eligible expenditure if the Legislature decides to expand the excise tax on gasoline.
  • Enactment of voter approved tax increment financing for transit-oriented development projects in designated Transit Planning Villages zones.
  • Consider allowing transit as an eligible expenditure when approving new congestion pricing, parking, vehicle miles traveled, or other revenues.
  • Transit should be an eligible recipient of any market-based mechanisms considered as part of the implementation of AB 32 and SB 375 related to greenhouse gas emission reductions.
  • Shifting to counties a greater portion of the sales tax rate, for transportation purposes, under the Transportation Development Act.
  • Expanding the state sales tax to include other goods or services, thereby automatically increasing the revenue flowing to counties for transportation purposes through the existing TDA rate structure.

Lastly, the CTA turned its attention to local tax revenue. It suggested that the Commission create incentives for local jurisdictions to establish additional taxes, whose proceeds would be dedicated to transit. Lastly, the CTA encouraged the Commission to support an amendment to the state Constitution, which would lower the 2/3 majoity vote requirement for establishing new local taxes, thus easing the passage of new transportation taxes.

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