Order Code RS22176
June 27, 2005
CRS Report for Congress
Received through the CRS Web
Transit Reauthorization in the 109th Congress
David Randall Peterman
Analyst in Transportation
Resources, Science, and Industry Division
Summary
Consideration of the future direction, scope, and funding level of federal transit
programs is part of the debate over surface transportation reauthorization.1 Congress is
now conferencing a surface transportation reauthorization bill (H.R. 3). The House
version of H.R. 3 would authorize $52.4 billion for transit over FY2004-FY2009; the
Senate version would authorize the equivalent of $53.8 billion. Both the House and
Senate bills would generally retain the current structure of the federal transit program.
Both bills, however, propose some additions and modifications to the current transit
program funding structure. Both would eliminate the combined Trust Fund-General
Fund funding of individual federal transit programs, which due to accounting rules
threatens to deplete the Mass Transit Account of the Highway Trust Fund. They would
both create a new funding category within the New Starts program, which would
provide streamlined review requirements for transit projects seeking less than $75
million in federal funding. And both bills would create a new funding category within
the Urbanized Area Formula Program for small cities that provide higher than average
levels of transit service. Differences between the bills include the House’s proposal to
create a New Freedom Initiatives Program to provide access to jobs for persons with
disabilities, in contrast to the Senate’s New Freedom Initiatives emphasis on access to
health care services; and the House’s proposal to convert the existing Job Access and
Reverse Commute Program to a formula basis. This report will be updated.
Congress is conferencing the House and Senate proposals for reauthorization of
surface transportation programs, which includes federal transit programs. This report
reviews the current structure and financing of federal transit programs, and briefly
examines the financing issues and program changes proposed in the reauthorization bills.
1 The current surface transportation authorization legislation, the Transportation Equity Act for
the 21st Century (TEA-21; P.L. 105-178), was scheduled to expire at the end of FY2003
(September 2003). It has been extended seven times, most recently to June 30, 2005.
Congressional Research Service ˜ The Library of Congress

---

CRS-2
Federal Transit Program: Current Structure and Financing
Current Structure. Federal transit programs are overseen by the Federal Transit
Administration (FTA) of the Department of Transportation (DOT). The majority of
federal transit funding is provided through two programs: the Urbanized Areas Formula
Program and the Capital Investment Grants and Loans Program. The Urbanized Areas
Formula Program provides funding to urbanized areas (i.e., areas defined by the Census
Bureau with populations over 50,000), distributed according to formula, which may
beused for capital expenses.2 The Capital Investment Grants and Loans Program has three
component programs: New Starts, which funds new fixed-guideway3 transit lines or
extensions to existing lines through a merit-based recommendation process; Fixed
Guideway Modernization, which distributes funds by formula for the upkeep of fixed-
guideway lines that are over seven years old; and Bus and Bus Facilities, which provides
funds on a discretionary basis for the purchase of buses and construction of bus facilities.4
Customarily, the Capital Investment Grants and Loans Program funding has been divided
among these three programs on a 40-40-20 ratio, though in the past few years the share
going to the New Starts program has grown. There are also a number of smaller transit
programs that provide funding for other activities including planning, rural transit service,
and service for the elderly and disabled, but the Urbanized Areas Formula program and
the Capital Investment Grants and Loan Program represent around 90% of FTA’s annual
funding.
Financing. Funding for the transit program comes from a combination of trust
funds and general funds. The Mass Transit Account within the Highway Trust Fund
receives 2.84 cents of the 18.4 cents per gallon federal excise tax on gasoline and 24.4
cents per gallon tax on diesel fuel. Revenue from the Mass Transit Account customarily
provides around 80% of annual transit funding. The remaining 20% comes from
appropriations from the General Fund.
Not only is the overall transit program financed by a combination of trust funds and
general funds, but so are most of the individual transit programs under the FTA. Under
federal budgetary rules, this results in a more-rapid depletion of the Mass Transit Account
than would be the case if individual programs were funded entirely from either the trust
fund or general fund alone. The Congressional Budget Office has estimated that the Mass
Transit Account will be entirely depleted by FY2007 if the current financing structure of
FTA’s programs is not changed. Both the House and the Senate version of H.R. 3 would
prevent this by funding most, if not all, transit programs entirely from one or the other
source. This change would forestall the depletion of the Mass Transit Account for the
foreseeable future.
2 For urbanized areas with populations under 200,000, operating expenses are also an eligible
expense for their federal funds.
3 Fixed-guideway refers to systems whose vehicles operate only on a right-of-way dedicated to
that purpose; e.g., heavy rail (subways), light rail, commuter rail. Bus rapid transit systems that
operate on dedicated lanes separated from other traffic lanes are included under this definition.
4 In practice, all of the Bus and Bus Facilities funding is earmarked each year.

---

CRS-3
Financing Issues
Transit finance issues in reauthorization include transit’s total funding, its share of
overall surface transportation funding, the share of transit funding derived from the
General Fund, the division of funding among the components of the Capital Grants and
Loans Program, and the share of transit funding going to rural areas.
Total Transit Funding. The House bill would authorize $52.4 billion in
guaranteed5 funding for transit over the period FY2004-FY2009; the Senate bill would
authorize the equivalent of $53.8 billion in guaranteed funding.6 These funds are
important to state and local governments because federal funding represents nearly half
of annual total national capital expenditures for transit.7
Transit’s Share of Authorized Surface Transportation Funding. The
major obstacle to surface transportation reauthorization has been the level of funding to
be authorized. The House and Senate leadership has supported the Administration’s limit
of $284 billion over six years, while a majority in the Senate has sought more funding.
One of the tradeoffs authorizers have struggled with is the division of funding between
highway and transit programs. Under TEA-21, transit’s share of the overall guaranteed
surface transportation authorization was 18.29%. While the Senate bill provides $1.4
billion more for transit than the House bill, the House bill provides a slightly higher share
of overall funding to transit: 18.66%, compared to 18.48% in the Senate bill.8
Transit Funding from the General Fund. As noted above, around 20% of
federal transit funding customarily comes from the General Fund. The House bill stays
closer to that division than does the Senate bill, drawing 18.90% of transit funding from
the General Fund compared to the Senate’s 15.65%. The policy rationale for drawing a
portion of transit’s funding from the General Fund is that transit benefits the public,
including people who do not use transit, by providing (slight) reductions in auto usage and
thus traffic congestion and air pollution. Reducing the share of General Fund moneys
going to transit provides more flexibility in annual appropriations bills, since the General
5 Provisions in TEA-21, and similar provisions in both versions of H.R. 3, ‘guarantee’ that the
highway and transit programs will receive their authorized level of funding by, in part, making
it out of order to approve an appropriations bill providing less than the authorized funding level.
6 The House bill includes authorization figures for FY2004-FY2009; the Senate bill provides
authorization figures for FY2005-FY2009. The FY2004 transit appropriation figure has been
added to the Senate total for purposes of comparison.
7 The majority of federal transit funding is used for capital expenditures. As a result, federal
funding represents a significant share of total national transit capital funding, but a small share
of total transit operating funding. Over the period FY1998-FY2002, federal funding accounted
for 46% of total capital expenditures for transit ($23.4 billion of $50.7 billion), but only 4% of
total operating expenditures for transit ($5.1 billion of $119.5 billion). However, this distinction
has been made less clear by a provision in TEA-21 defining “preventive maintenance” expenses,
an operational cost, as an eligible capital expense. Combining both categories, federal funding
represented 17% of total transit funding during FY1998-FY2002.
8 Both the House and Senate bills continue the current flexibility that states have to transfer
(“flex”) highway funding to transit projects and vice versa. In practice, states have transferred
considerably more funding from highway to transit projects than from transit to highway projects.

---

CRS-4
Fund moneys for transit count against the discretionary allocations provided to
appropriations subcommittees, while the funds coming from the Mass Transit Account
do not.
Division of Funding Within the Transit Capital Grants and Loans
Program. The Senate bill would alter the customary 40-40-20 split in funding for the
components of the Capital Grants and Loan program: New Starts, Fixed Guideway
Modification, and Bus and Bus Facilities. The Senate bill would increase the share going
to New Starts to 43%. Proponents of increasing the share going to New Starts argue that
the share for New Starts should be increased because the demand for New Starts funding
far exceeds the available level of funding. But that change requires reducing the share of
funding going to one or both of the other components of the Capital Grants and Loans
Program. Opponents of reducing the share going to Fixed-Guideway Modification argue
that as more new fixed-guideway systems are built, more funding needs to be provided
to maintain those systems, since with each passing year the number of projects qualifying
for funding under the Fixed-Guideway Modification formula program increases.
Opponents of reducing the share going to the Bus and Bus Facilities program note that
most transit service is provided by buses rather than by fixed guideways. The House bill
retains the customary 40-40-20 funding split between these programs.
Transit Funding For Rural Areas. Transit funding is concentrated in urban
areas, where usage is highest. Yet rural areas have populations of older and less affluent
people who may lack mobility and who might use transit service. The Administration has
estimated that 40% of rural counties have no transit service, and in the 60% of rural
counties that do provide public transit, one-third of the riders are transit-dependent.9 Both
the House and Senate bills would increase the share of federal transit funding going to
support transit service in rural areas. Under TEA-21, the Non-Urbanized Area Formula
program (Section 5311) received $1.2 billion (3.2% of total transit funding); the House
bill would provide $2.1 billion (4.0% of total transit funding), the Senate bill $2.2 billion
(4.0% of total transit funding) for that program.10
Program Changes
Program changes proposed in the House bill, the Senate bill, or both, include a new
“Small Starts” program within the New Starts capital program to assist the development
of less-costly transit systems; a High-Intensity Small Urbanized Area Program to reward
small communities that provide a high level of transit service; a New Freedom Initiative
to assist persons with disabilities with transportation access to employment opportunities;
and changing the Job Access and Reverse Commute Program from a discretionary
program to a formula program.
9 Jennifer L. Dorn, FTA Administrator, Budget Briefing Remarks, February 3, 2003. “Transit
dependent population” is defined, in the study from which this statistic was taken — The Status
of Rural Public Transportation 2000, prepared for FTA by the Community Transportation
Association of America – as persons in households whose household income is below the poverty
level, persons with a mobility impairment, or persons age 65 and older.
10 Rural areas also receive some funding from other transit programs.

---

CRS-5
Small Starts. Both the House and Senate bills would create a new program —
Small Starts — within the existing New Starts Program, which funds new fixed-guideway
lines or extensions to existing lines. Under current law, New Starts projects are evaluated
by FTA at several stages of development, and must receive a recommendation from FTA
to proceed to the next stage. Projects requesting less than $25 million in federal funding
are currently exempted from the approval requirement. The Small Starts program would
provide a simpler evaluation process, with fewer review stages and fewer justification
requirements, for projects requesting less than $75 million in federal funding. The Senate
bill would eliminate the existing exception for projects under $25 million; the House bill
would retain it. The Small Starts program would include bus rapid transit projects as
eligible projects; depending on their design, bus rapid transit projects may not be eligible
for funding under the existing New Starts program.
High-Intensity Small Urbanized Area Program. Both the House and Senate
bills would create a new High-Intensity Small Urbanized Area program within the
framework of the Urbanized Area Formula Program. This program responds to an issue
regarding the formula for apportioning funds to communities under 200,000 in
population. For communities larger than that, the apportionment formula includes several
measures of transit activity, but for communities under 200,000, the apportionment
formula considers only population size and population density. As a result, the current
formula does not reward small communities that provide a higher than average level of
transit service. This new program would provide additional resources to those
communities; it does not, however, change the existing formula for the small communities
tier under the Urbanized Area Formula Program.
New Freedom Initiative. Both the House and Senate bills would create a New
Freedom Initiative program. This program would increase availability of transportation
services to persons with disabilities. The House bill reflects the emphasis of the
Administration’s proposal for this program, which was to help persons with disabilities
get and keep jobs by improving their transportation options.11 This program would be in
addition to the existing Elderly and Persons with Disabilities Formula Program. The
Senate bill replaces the existing Elderly and Persons with Disabilities Formula Program
with a New Freedom Initiative program, and emphasizes assistance with transportation
to health care rather than to employment.
Job Access and Reverse Commute Program. This program is designed to
increase access to jobs for low-income persons and to increase access to suburban work
sites for all riders. The House bill would change the existing Job Access and Reverse
Commute Program from a discretionary program to a formula program. The Senate bill
does not propose such a change. In recent years the program’s funding has been entirely
earmarked in the annual appropriations process.
11 The Administration, in proposing this program, claimed that 70% of persons with disabilities
are unemployed, in part due to difficulties with transportation.

---