Pots of money for transportation are usually restricted in the kinds of expenditures they can be used for.
Understanding Transit Expenditures
Transit expenditures are classified into two general categories: capital and operating. Capital costs generally include long-term sunk costs such as system expansion, station upgrades, and fleet replacement. Operating costs typically refer to labor, fuel, and other costs of regular service and maintenance.
An analogy might be, if you buy a house, the cost of purchasing the house, including list price and interest on the mortgage, is considered a capital cost, whereas your monthly electric, gas, and water payments, which vary depending on your usage and stewardship of resources, are part of your operating cost.
Then there are fuzzy expenses that could potentially be either, and are sometimes called "capital[ized] maintenance" cost, and which are generally classified as a capital cost. Continuing with the house analogy, think of replacing the roof, which needs to be done on an infrequent yet known periodic basis. You may know, for example, that your roof needs to be replaced every 25 years, and so each year you contribute some money to a fund so that you'll have the $30,000 you need to do this anticipated work when the day comes that it needs to be done, before the disrepair makes your house uninhabitable and without having to take out a huge loan. Similarly, bus and rail agencies know that they have to do a mid-life overhaul and entirely replace their vehicles after a certain number of years as it wears out. If money is tight, there's a strong temptation to ignore the need and not put aside money each year for this future expense. Some transit agencies have been really undisciplined about this. MTC has been clamping down on agencies like BART that have large capital maintenance shortfalls to prevent them from demanding a bailout later that will bankrupt the region.
BART's capital maintenance shortfall has exceeded $6 billion through 2030 to renovate and replace facilities and vehicles, a worrisome figure indeed.
Transit Funding and Expenditure Type
Most state and federal funds are restricted to capital expenditures. Politics being what it is, they want the money to produce shiny new equipment or facilities for a nice ribbon-cutting, rather than something less visible and tangible. They also feel that paying for operations is a local responsibility and don't want to encourage inefficiency (going back to our analogy, it's like free money from your uncle results in you leaving certain lights on all the time, instead of using the money to operate more light bulbs in rooms that really need it).
This commonly creates a problem when local agencies pursue these capital funds but lack sufficient operating funds to actually operate the new service. The federal government has in some cases recognized this as a problem and have implemented criteria, such as in the federal New Starts program, to prevent fiascos that have occurred, such as the BART-Millbrae extension shutting down a leg of the service entirely (the branch of the wye that links San Bruno to Millbrae directly (bypassing SFO) is still shuttered), soon after start of service, while the concrete has barely dried and well before the loans have been paid off, because neither SamTrans nor BART has enough money to operate it. It really doesn't look good when they spend hundreds of millions to build something that isn't used.
Transit funding
Transit funding comes from a variety of sources, from passenger fares, local tax revenue, as well as state and federal grants. Most state and federal grants require local entities to provide some matching funds.
Passenger fares
While passenger fares don’t cover the operating cost of the transit service, they're an important source of revenue. Providing free rides on public transit for six of the region's most polluted "Spare-The-Air" commute days in the summer of 2006,
cost the Metropolitan Transportation Commission $13.3 million ($2.2 million/day) to compensate Bay Area transit agencies for lost fare revenue.
The ratio between the passenger fares paid and the operating cost is called the “farebox recovery” ratio. Local bus transit agencies typically have a farebox recovery ratio of about 20%, which means that 20% of the operating cost comes from passenger fares, and 80% is subsidized by various taxes and grants. Some of our regional rail operators have a farebox recovery rate closer to 50% or even higher. High fare-box recovery ratio, however, does not necessarily mean a lower public subsidy per ride -- a $5.00 rail fare for a line with a 50% farebox recovery, for example, requires a public subsidy of $5.00 per ride, but a $1.25 bus fare at 20% farebox recovery ratio also means a subsidy of $5.00 per ride.
Local tax revenue
Almost all Bay Area counties have specific local sales taxes that support public transportation. In San Mateo and Santa Clara counties, a permanent half-cent local sales tax provides operating funds to each of the local transit operators, SamTrans and VTA, respectively. A permanent half-cent local sales tax is also levied in Alameda, Contra
Costa, and San Francisco counties to support BART, AC Transit and Muni operations.
Besides sales taxes, AC Transit is additionally supported by property taxes within its special district, and Muni is supported through general city funding and various parking and impact fees.
On a statewide basis, a quarter-cent sales tax is collected through the Transportation Development Act (TDA) and is redistributed to the counties. The TDA funds support urban and rural transit operations, as well as pedestrian and bicycle projects throughout the state.
Caltrain lacks a dedicated local transit tax. Caltrain’s operating subsidies are paid by the three county transit agencies (SamTrans, Muni, and VTA), which have their own dedicated taxes. This has always created a problem for Caltrain in that it's had to limp along hoping for the good graces of these agencies every year. When SamTrans, Muni, and VTA suffer their own financial troubles, Caltrain suffers also.
"Temporary" local sales taxes for transit
Most Bay Area counties also collect a temporary countywide ½-cent transportation sales tax for various projects. These temporary sales taxes have generally a life of 10 to 30 years and require voter approval to renew when the taxes approach expiration. These taxes, when placed to the voters for approval, generally have a list of transit and highway projects that would be funded. Typically, special oversight boards, not the transit agencies, oversee the expenditure of these taxes.
The 2000 Measure A in Santa Clara County is a 30-year temporary sales tax, but is controlled by the local transit agency, VTA.
These taxes, due to their temporary nature and desire to promote very visible improvements to voters to assure passage, have historically specified that funding will go for capital projects and not operating costs. As new service is added and the demand for operating subsidies continues to grow, these taxes when up for renewal have frequently been adjusted to specify that a portion of the revenue will go to fund transit operations and maintenance.
Alameda County transportation revenue sources
Santa Clara County transportation revenue sources
State and Federal Assistance
STIP
TDA
SAFETEA-LU
