Biden Administration Proposes Temporary Operating Assistance Authority for Larger Transit Agencies

Biden Administration Proposes Temporary Operating Assistance Authority for Larger Transit Agencies

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INSIGHTi

Biden Administration Proposes Temporary
Operating Assistance Authority for Larger
Transit Agencies
March 31, 2023
In the FY2024 budget, the Biden Administration proposes allowing larger public transportation agencies
greater flexibility in the use of Urbanized Area Formula funds to cope with the larger operating deficits
caused by the Coronavirus Disease 2019 (COVID-19) pandemic. Currently, agencies in urbanized areas
with populations above 200,000 can use federal funds only for capital expenses or maintenance, unless
they operate 100 buses or fewer. This excludes the main operating expenses of labor and fuel. Small bus
agencies along with public transportation providers in small urbanized areas and rural areas are already
permitted to use federal funding for all types of operating expenses.
The Administration’s proposal includes a few other elements: it would exempt operating expenses from
inclusion in transportation plans; it would allow federal highway program funding transferred (“flexed”)
to the public transportation program to be used for operating expenses; and it would also require a
“maintenance-of-effort” for state and local funding. Maintenance-of-effort requirements typically attempt
to address the possibility that federal dollars would replace state and local dollars. The FY2024 budget
does not propose changing the minimum non-federal matching share for operating costs, which at 50% is
higher than the 20% non-federal minimum for capital costs. However, current law generally allows flexed
highway funds to be used with a non-federal matching share of 20%.
Background
COVID-19 had an unprecedented effect on public transportation ridership, operating revenues, and public
transportation agency budgets. Taxes and tolls dedicated to public transportation agencies recovered
relatively quickly from the disruptions, but ridership and fare revenue have been slower to bounce back.
Ridership in 2020 was about half of what it had been pre-pandemic. Consequently, fares collected in 2020
amounted to $9 billion, down from $16 billion in 2019, and total operating revenue was $11 billion in
2020, down from $19 billion in 2019. Ridership remained at about 50% of its pre-pandemic level in 2021,
rising to 62% in 2022. Subway and commuter rail ridership declined more than bus ridership due to
COVID-19, particularly early in the pandemic (Figure 1).
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Figure 1. Quarterly Public Transportation Ridership by Mode

Source: American Public Transportation Association (APTA), Public Transportation Ridership Report.
To maintain services and jobs, public transportation agency budgets were supported by federal
supplemental appropriations in FY2020 and FY2021 totaling $69.5 billion, about five times the pre-
pandemic $12 billion in annual federal public transportation support and more than three times the $19
billion coming from fares and other operating revenue annually. Many transit agencies, including some of
the largest, expect the emergency operating support they received from the federal government to be
exhausted by FY2025.
Federal Funding for Operations
Without a new source of support, keeping transit operations ongoing in the face of larger sustained
operating deficits may require fare increases, service cuts, fewer employees, or a combination of these
measures. Some transit agencies are currently struggling with staff shortages, a situation that complicates
their financial outlook. Reduced or more expensive service could lead to falling ridership, requiring
further fare hikes and service cuts. These difficulties are likely to fall most heavily on public
transportation agencies that operate rail systems. Not only has rail ridership suffered greater disruption
than bus ridership, but rail systems have traditionally had a greater share of their expenses covered by
fares than bus systems.
Federal operating support has been of concern since the creation of the federal public transportation
program in the 1960s. Issues include its effects on service, productivity (i.e., service provided per dollar
of input), and asset condition. Research on the rapid expansion of operating support in the 1970s
generally concluded that it allowed transit agencies to maintain a higher level of transit service than
would have prevailed without it, but such support also caused productivity to decline. The decline was
related to the increased cost of providing service, particularly in wages and fringe benefits. The effects of
operating support on asset condition are less clear. It is possible that transit systems using federal funding
for operating expenses may neglect bus and rail replacement.
The effect of the proposal on highways would depend on the amount of money flexed to support the
operations of public transportation agencies. For the past five years, an average of about $1.3 billion was
flexed from highway programs to public transportation, about 3% of outlays from the highway account of
the Highway Trust Fund.

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Maintenance-of-Effort Requirements
The Administration’s maintenance-of-effort proposal raises several possible issues. A transit agency
would have to certify that it is continuing non-federal spending at a comparable level under the Urbanized
Area Formula program. It is not clear whether a maintenance-of-effort requirement is necessary when the
minimum non-federal match of 50% for operational expenditures is higher than the 20% for capital
expenditures. Nevertheless, the provision might also allow transit agencies to transfer state and local
funds under other transit programs to meet the requirement. Another issue is that there would be no
highway spending maintenance-of-effort associated with additional funding flexed to support operational
expenditures.
A maintenance-of-effort requirement in the American Recovery and Reinvestment Act (ARRA; P.L. 111-
5) was linked to the $48 billion in additional support it provided for transportation programs and because
the federal share of transportation projects using ARRA funds was generally 100%. Governors were
required to certify that their state would spend amounts already planned.
In a study of transportation ARRA funding, the Government Accountability Office found that although
maintenance-of-effort requirements might keep non-federal spending from falling, they were challenging
to comply with and to administer. Certification involved multiple transportation programs—some
administered by the state and some administered by local governments and independent authorities—and
they typically had different and complex revenue sources. In many cases, states did not have a way to
identify planned expenditures. Because of ambiguities in the law and practicalities that became known
with experience, DOT issued maintenance-of-effort guidance to the states seven times in the first year
after ARRA enactment.

Author Information

William J. Mallett

Specialist in Transportation Policy

Disclaimer
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to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
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