In this episode of "High Frequency," host Kapish Singla explores the state of transit funding with Yonah Freemark, senior research associate at the Urban Institute. Based on insights from the recent Urban Institute report, “Surmounting the Fiscal Cliff,” the interview delves into the reasons behind transit’s current fiscal cliff, and the policy choices that have perpetually put transit agency finances on precarious footing. The episode advances sustainable funding solutions that could finally disrupt this vicious cycle of underinvestment, and ensure that the current crisis is transit’s last fiscal cliff.
In this episode of "High Frequency," host Kapish Singla explores the state of transit funding with Yonah Freemark, senior research associate at the Urban Institute. Based on insights from the recent Urban Institute report, “Surmounting the Fiscal Cliff,” the interview delves into the reasons behind transit’s current fiscal cliff, and the policy choices that have perpetually put transit agency finances on precarious footing. The episode advances sustainable funding solutions that could finally disrupt this vicious cycle of underinvestment, and ensure that the current crisis is transit’s last fiscal cliff.
“Transit is key to our society, and transit is going to come back from the pandemic at higher ridership levels if we give our transit systems the opportunity to provide the services they need. Transit systems that have invested in improved quality of service have benefited from increased ridership, including higher levels of ridership than pre-pandemic, and a number of systems. We don't have to give up on transit. In fact, we should be thinking about the future as a more transit-heavy future than even before the pandemic.” - Yonah Freemark
To read “Surmounting the Fiscal Cliff,” click here.
To watch a webinar with the report researchers, click here.
For more on TransitCenter, visit us here.
Hosted by Kapish Singla
Edited by Melanie Marich & Kapish Singla
Produced by TransitCenter
Music: “Comma” - Blue Dot Sessions
Disclaimer: Political views raised by guests on the podcast do not reflect the views of TransitCenter.
Kapish Singla: From TransitCenter. I'm Kapish Singla. This is High Frequency. This is a special episode about money. Fiscal cliffs, Doom loops, debt spirals. These foreboding terms have recently described the state of many transit systems in state legislatures, city halls and newspapers across the country. WMATA in Washington, DC will need to close a $750 million budget shortfall for fiscal year 2025. Chicago Transit Authority will face an estimated $730 million budget shortfall in 2026, and the MTA in Boston forecasts a budget gap of somewhere between 341 and 551 million by fiscal year 2027. Transit agencies are in this position because transit ridership and the fare revenue that comes with it massively declined during COVID. And in most big cities, ridership has yet to recover. Temporary emergency funding from the federal government covered this gap in revenues, but that money will soon be exhausted. Although this particular budget crisis is specific to the moment, it's part of a much larger story about the precarity of transit agency finances. We only have to look back to the Great Recession to locate a time when agencies found themselves on similarly unstable footing. Transit agencies have careened from crisis to crisis not because of mismanagement, but because how we fund transit in the U.S. is fundamentally flawed. Over the past few decades, decision-makers at the federal, state, and local levels have chosen to underfund transit operations and force agencies to rely on unstable sources of revenue. Quite simply, it's a political choice to put agencies in this position. The good news is that we can make other choices that will allow transit to survive the current crisis and thrive into the future. To learn how we can escape the transit doom loop, I spoke with Yonah Freemark, senior research associate at Urban Institute and co-author of the recent report Surmounting the Fiscal Cliff. The report assesses the financial situations of U.S. transit agencies post-COVID. It delves into the historical factors causing fiscal instability and explores diverse funding models that could stabilize transit operations. Our conversation starts now.
Kapish Singla: Yonah, what's problematic about how we fund transit in this country?
Yonah Freemark: The United States has made the transportation system primarily about funding people who use automobiles for the last century. The federal government, but also state and local governments have been spending far more money on highways and roadways. You have places like Texas that are spending up to $10 billion on a single highway expansion project and spending almost nothing on public transportation in their own states. So that's the situation that we face in, you know, states all across the country. And it's an issue that we have to combat if we're going to encourage better use of public transportation, less climate emissions and more equitable access to people throughout the country.
Kapish Singla: How has the federal government historically supported transit?
Yonah Freemark: So the federal government had a period in the 1970s and 1980s, for the most part, where it was spending some money on allowing transit agencies to run their services. This was money that it referred to as operating dollars. And these operating dollars could be spent on things like paying drivers, paying for fuel, paying for electricity. But in the years since the 1980s, there was actually a big clawback in the federal government being willing to spend money on operating. And the federal government should have to reserve its spending on capital costs. And those capital costs are things like buying a new bus, buying a new train, building a new train line, installing a new signal system. So the federal government has been very strict in separating out operating from capital costs. And that's actually an issue for transit agencies because they get money from one pot and it's difficult to move that money into another pot. And so they can have a lot of money, for example, to spend on a new transit construction project and not very much money to actually run a train or bus on that system. Now, during the COVID crisis, the federal government made a major exception to that rule, and it said the federal government money can be spent on operating costs. This has been really important for transit agencies around the country, but for a lot of them, for the biggest ones, that money is now coming to an end.
Kapish Singla: The Urban Institute report makes the case that we can generate a virtuous cycle for transit agencies to thrive. What does that look like?
Yonah Freemark: The concept of the vicious cycle, which I'll begin with, is this idea that when you cut transit service, the first effect you're likely to see is a reduction in the number of people who are riding your service. And when you cut ridership, you're cutting fare revenues. When you cut fare revenues, you're going to have to cut transit service even further. And so that's a vicious cycle because what it means is every time you cut transit service, you're making the service worse. You're discouraging people from taking transit and you're ultimately digging a hole in the ground for your system overall. So a virtuous cycle basically means the opposite: you increase the quality of transit service, which increases the number of riders on your system, results in more fare revenues, which allows the transit agency to increase transit service even further. Now, in the virtuous cycle, you actually are able to generate increased political support for transit as well. Because when you have more people in a community using the transit system, you're going to get people in elected office who are willing to find additional revenue to pay for increased transit service. So more riders means more political support for transit, which means additional revenues from other sources of funding for transit, which can then go to increase transit service, which means more riders. If you have more people riding transit and not driving, you end up with a better environment thanks to fewer people in their cars and less pollution in the air. But also you end up with a more equitable society where more people are able to access the jobs and other opportunities in their communities.
Kapish Singla: And are there promising case study agencies that you've come across that have begun to employ some of these strategies since the pandemic?
Yonah Freemark: [00:06:21] One example that we looked at as part of our report was the transit system in Cincinnati, Ohio, which is called SORTA. And that transit system made a series of really good decisions about raising funds and then using those funds that has paid off really spectacularly in terms of producing a virtuous cycle. So let me give you some examples of that. Number one, the transit system worked with local stakeholders at the county and city levels in Cincinnati and Hamilton County, Ohio, to replace an older tax source with a new one that imposed a county-wide new revenue source. And this substantially increased the amount of money that SORTA was able to receive to fund its transit services. Now, the transit system then took these additional revenues and invested them in substantially improving its transit services. So they introduced a series of bus lines that provide frequent service throughout the community. They also expanded the number of routes going out into suburban areas so that more of the community was actually covered by transit service. And the result has been that Cincinnati's transit service is now serving more riders than it did back pre-pandemic.
Kapish Singla: The report lays out a few potential solutions for stabilizing transit finances. Could you walk us through some of those recommendations?
Yonah Freemark: Transit agencies over the past few decades have increasingly looked to local governments to institute sales taxes. The problem with the reliance on sales taxes is that sales taxes are incredibly variable and they can be particularly problematic during economic recessions. That said, there are a few opportunities that I think are worth getting into. We looked at libraries, fire departments and parks, and one of the things we found was that they were able to rely on revenues from things like property taxes and income taxes, which are substantially more stable over time in terms of the amount of revenue that's coming in. Another key area where I think communities have an opportunity is through instituting additional fees on car use, which I think is a fair thing to do given the negative outcomes that cars produce in terms of pollution and communities should be looking towards instituting things like increasing car license fees or in some cases introducing tolls on major highways to ensure that they can provide new funding for their transit system. The last area that I think is really potentially exciting from the perspective of raising new funds for transit is federal capital dollars for transit operations.
Kapish Singla: And how could that work?
Yonah Freemark: Flexible funds from federal highway dollars work in two ways. The first way is that you use federal roadway funding directly for a transit project. The National Highway Performance Program, you can use money from that program directly on investments that are in the federal roadway right of way. So that can be things like bus rapid transit stations, bus rapid transit lines. Now, the second way that you can use flexible federal dollars for transit costs is by flexing federal highway program dollars into federal transit program dollars. This requires the state government to ask the U.S. Department of Transportation to, quote, flex the dollars from one program to the other. And this is perfectly legal. And what this can do is allow a state which has gotten a lot of highway dollars to move some of those money into transit programs and then use them for transit expenses, like paying for a new bus, paying for a new rail line. Now, the way this can benefit transit operations is that when the state agrees to move some of its highway dollars into transit dollars, it can at the same time move money that is generated by state and local sources that would otherwise pay for capital expenses into the transit operating costs that individual agencies have. And basically what this means is you fund your operating costs with money that was raised at the state and local level, previously spent on capital and now has moved into operations. When we modeled this out for SEPTA in Philadelphia, we found that this could increase funding by 23% for that agency for their operating costs. We found something very similar in Atlanta where we saw that we could increase MARTA's operating budget by 30% if you moved federal highway dollars into the transit capital pot. Now this requires a number of different stakeholders to be involved. You have to get state Departments of Transportation to want to invest in improved public transportation instead of highways, which is, by the way, quite difficult in a lot of states that are really focused on roadways instead of public transportation. It also requires transit agencies themselves to be really agile in moving their funds around to the appropriate pots. This is really a bureaucratic issue and an accounting one, but it's one that could make a huge difference for transit agencies that really want to improve quality of service.
Kapish Singla: What's at stake if we don't solve this crisis?
Yonah Freemark: The agencies that are likely to suffer most is the group of agencies that have historically relied most on transit riders paying fares: BART in San Francisco, WMATA in Washington, D.C., MBTA in Boston. All of these transit systems have collected 30% or more of their operating costs historically from fares. Now, these are also usually the agencies that have the highest number of riders throughout the country. So the agencies that rely most on fare revenues in the past are those that would have to cut the most if their fare revenues do not come back. So just to give you an example of that, in the case of Washington, D.C., the transit agency has predicted that without a new revenue source beginning in 2025, rail and bus service would have to experience cuts of 67%. They would have to cut 98 of 135 of the system's bus routes, and their rail systems would only be able to come every 30 minutes if the situation continues as it is. This is hugely damaging for the transit system because essentially it would mean that the system ceases to be the provider of service that folks can rely on to get to and from work.
Kapish Singla: What do you hope decision-makers and stakeholders take away from reading the report?
Yonah Freemark: [00:13:30] So the first takeaway we really want to share is that addressing the fiscal cliff is essential to ensure the quality of transit service that we had relied on over the past ten years. Without finding the means to fund the costs of transit, we're going to have a situation where transit agencies cut service in many, many communities, and the result is lower quality of life, higher transportation expenditures, worse pollution and less social equity. We have to find ways to fill the fiscal cliff. Now, the ways to do that are varied and probably locally specific. But I do encourage folks all around the country, from advocates to policymakers, to really look towards flexing those federal dollars to be used for public transportation uses. We have a huge opportunity to use the billions and billions of dollars that every state is getting from the federal government in infrastructure dollars for highways to use those for public transportation. And then the last thing I encourage folks to think about is how can they identify sources of revenue that are more stable over time. So not only do we need more revenue, but also we need revenue that is consistent and won't drop every time, you know, we happen to run into a problematic economic environment. And so I'm hoping that communities across across the country consider other opportunities like income and property taxes, as well as fees on cars to help fill the gap.
Kapish Singla: Finally, what do you hope a broader public takes away from this conversation?
Yonah Freemark: Transit is key to our society, and transit is going to come back from the pandemic at higher ridership levels if we give our transit systems the opportunity to provide the services they need. Transit systems that have invested in improved quality of service have benefited from increased ridership, including higher levels of ridership than pre-pandemic in a number of systems. We don't have to give up on transit. In fact, we should be thinking about the future as a more transit heavy future than even before the pandemic.
Kapish Singla: That's all for today's episode. I'm your host, Kapish Singla, and I have an announcement to make. This will be the final episode of High Frequency. It's been an honor for me to create and host this show. I want to thank all the guests, the advocates, the transit agency practitioners and the researchers who have been in conversation with me through the years. I have received so much wisdom from these interviews. My understanding of transit equity has deepened, particularly as it intersects with other social and racial justice movements like housing and public safety. I am left with so much optimism after having been able to chronicle the many victories of the past few years, from successful ballot measures to innovative safety initiatives to bus priority improvements. And I'm so grateful to have been in a position to share those stories with you all: the listeners of High Frequency. It's been my privilege to have kept you in mind as I edited and crafted these interviews and to bite-sized episodes. Thank you for lending your ears. Finally, I thank Hayley Richardson and the rest of my team at TransitCenter for shepherding and supporting the production of this series. This episode has been edited by Melanie Marich and Kapish Singla. High Frequency is a TransitCenter production. Please visit us at transitcenter dot org.