by
Philip W. Alderfer, Fiscal Analyst
Senate Fiscal Agency
November 1998
TABLE OF CONTENTS
Acknowledgments
Preface
Background
State And Public
Transit
State
Public Transit Assistance
Appropriations
History
Public
Transit Assistance Formulas
Funding
Formula Alternatives
Incentives For State
Support of Public Transit
Conclusions And
Recommendations
Figures
Figure 1 - Michigan
Local Public Transit Agencies
Figure 2 - Local Bus
Operating Assistance Appropriations
Tables
Table 1 - Comprehensive
Transportation Fund Revenue Sources
Table 2 - Annual Public
Transportation Appropriations
This report was prepared with data collected
from the Michigan Department of Transportation, American Association of
State and Highway Transportation Officials, and American Public Transit
Association. Particular thanks are due to Phil Kazmierski, Kip Grimes,
and Kim Johnson within the Department of Transportation who provided their
expertise and insights on this project. Public transit authorities across
the State also provided critical information throughout the compilation
of this report. Special mention goes to the Jackson, Battle Creek, Kalamazoo,
Flint, Roscommon County, and Capital Area transit authorities for sharing
their insights on the current state of public transportation in Michigan.
Bill Bowerman, Suzanne Lowe, and Gary Olson lent welcome editing skills
and Pat Stinton-Harper prepared the report, tables, and figures. Though
this project could not have been completed without the help of those mentioned
above, I alone remain responsible for any errors contained within.
The Wheels on the Bus
Go Round and Round
Michigan's Support for
Local Public Transportation
This Senate Fiscal Agency Issue Paper examines public transit programs in the State of Michigan. Its purpose is three-fold: to outline the history of recent public transit appropriations; examine the incentives that motivate continued support for public transportation assistance; and, make recommendations to help guide future legislative debates on public transit.
The paper is divided into four sections.
The first provides some background information on public transportation
in Michigan. The State's role in public transportation is outlined in section
two. This section also examines the history of State transit appropriations,
the current formula used to fund public transportation, and discusses some
funding formula alternatives. Section three compares arguments used to
support public transportation and, more specifically, the State's role
in providing these services. The final section makes several recommendations
regarding future State support for public transportation.
Throughout this report "public transit" will refer to local public bus programs, such as those administered by the Capital Area Transportation Authority in Lansing (CATA), Grand Rapids Area Transit Authority (GRATA), or Detroit Department of Transportation (DDOT). These programs will be contrasted with "public transportation" initiatives also sponsored by the State. Michigan currently supports a wide variety of public transportation programs, including intercity bus and passenger rail service. Local public bus assistance dominates annual State public transportation appropriations, however, and will be the focus of this paper.
Historically, private companies ran local transit systems, most of which were in urban areas. Gradually, local and State government participation grew more common. Government involvement developed in response to a number of factors, including increased demand for affordable transportation, growing concerns over traffic and air pollution, the shift of economic growth centers from cities to the suburbs, and the desire to coordinate sometimes disparate transit services.
Economic factors, however, propelled government support for public transit. A basic tenet of public transportation is that most systems, whether rail or bus, operate at a loss. That is, the revenues they generate on the sale of low-cost passenger tickets are insufficient to meet the costs of maintaining comprehensive, public transportation services. Ticket revenues do support many private taxi, charter, and intercity transit companies. The operating expenses associated with most local public transit programs, however, far exceed the revenues they can generate from fare-box receipts.
As a result, most transit programs are now administered by public entities such as independent transit authorities, municipal governments, nonprofit groups, or charitable organizations. These transit operators rely on a combination of fare-box revenues, local millages, municipal appropriations, as well as State and Federal government subsidies, to meet the transportation needs of their communities(1).
Michigan's transit providers offer a variety of scheduled, "fixed-route" services, on-call, "demand-response" services, and "specialized services" for the elderly or disabled. In addition, some authorities also offer customized transit programs, including service to regional job training centers or local hospitals.
Currently, there are 143 different public transit providers in Michigan, including 110 that are eligible for Federal transportation assistance(2). In 1997, the Michigan Department of Transportation (MDOT) provided operating assistance to 73 different transit providers, including 16 urban agencies and 57 different rural service agencies(3). These State-funded transit agencies are spread throughout the Upper and Lower Peninsulas, as shown in Figure 1.
Figure 1 shows that public transit
agencies operate in every county in Michigan. These agencies range in size
from the 300-bus fleet of the Flint Metropolitan Transit Authority, to
single bus programs run by Area Agencies on Aging.
While all counties have some type of public transit program, their programs' scope of service varies, sometimes dramatically. For example, in fiscal year (FY) 1997-98, 37 of Michigan's 83 counties (45%) had no county-wide public transit services. This group includes Kent, Ottawa, and Washtenaw Counties, three of the 10 most populated in the State(4). While municipal and specialized services are available in these areas, no transit provider offers comprehensive, county-wide service.
On the other hand, some counties have extensive
public transportation networks. One example is Genesee. Here, the Flint
Mass Transit Authority (MTA) has undertaken a dramatic service expansion
that resulted from a county-wide community planning initiative. The Flint
MTA now offers comprehensive public transit services throughout Genesee
County and "work-trip" services to the six surrounding counties. In addition,
the MTA coordinates routes to coincide with area school schedules and offers
extensive dial-a-ride and demand-response services.
State public transportation programs in Michigan are administered by the Michigan Department of Transportation. Within the MDOT, the Bureau of Urban and Public Transportation (UPTRAN) is responsible for planning and promoting public transportation initiatives throughout the State. The Bureau was established in 1973 and today comprises approximately 100 of the Department's 3,200 total full-time equated positions (3.1%).
The Bureau oversees a wide variety of public transportation activities, many of which are outlined in State and Federal statute. Some of these programs include commercial passenger vehicle inspections, rail freight safety programs, and rail freight development initiatives.
In addition to these regulatory responsibilities,
UPTRAN also distributes public transportation subsidies. The State currently
provides capital and operating assistance to a variety of public transportation
providers, including intercity bus operators (Greyhound and Indian Trails),
passenger rail (Amtrak), and local public transit authorities.
The next two sections examine recent public
transit appropriations in greater detail.
State Public Transit Assistance
The primary source of State transit dollars in Michigan is the Comprehensive Transportation Fund (CTF)(5). The CTF was created in 1972 in an amendment to Public Act 51 of 1951. (6) The CTF receives funds from two sources, the Michigan Transportation Fund (MTF) and a portion of the sales taxes collected from businesses that primarily sell motor fuels, new and used cars, and automobile parts and accessories. (MCL 205.75) Like other State transportation funds, Public Act 51 specifies that CTF revenues are restricted for "transportation purposes" and cannot be spent on other programs.
The MTF is the primary repository of State motor fuel taxes and vehicle registration fees. These revenues are divided among different State transportation programs, including debt service, planning, public transit, and roads. Public Act 51 states that 10% of the Michigan Transportation Fund shall be transferred to the Comprehensive Transportation Fund, after collection costs and specific statutory earmarks are distributed. The CTF's share of MTF funds, however, is now less than 10% of total MTF collections as a result of the 1997 agreement to increase motor fuel taxes.
In August 1997 the State gasoline tax was increased from 15 to 19 cents per gallon(7). In concert with this decision, Public Act 51 was amended to earmark these new revenues for road and bridge programs. These funds are now directly distributed to State, county, and city road and bridge line items within appropriation bills, rather than through the distribution formula contained in Public Act 51. As a result, the Comprehensive Transportation Fund is excluded from this new revenue stream. Consequently, the CTF receives only 7.9%, or 1.5 cents per gallon, of taxable motor fuel sold, plus 10% of other MTF revenue sources.
The CTF also receives a share of State sales tax collections on certain purchases of fuel and automotive items. Current law allows the State to collect a sales tax of 6% on certain purchases of motor fuel, automobiles, and automotive related items, such as replacement parts and accessories. One-third of these revenues (2 percentage points of the 6% tax) are directly distributed to the School Aid Fund, as required in the General Sales Tax Act (MCL 205.75, Sec. 25(3)). The remainder (4 percentage points of the 6% tax) are distributed for revenue sharing, School Aid, the Comprehensive Transportation Fund, and the General Fund. Current law allows 7% of the 4% sales tax collected on these purchase to go to the CTF(8). Table 1, illustrates how these revenue streams have changed over time.
| Table 1 | ||||
| Comprehensive Transportation Fund Revenue Sources(9) | ||||
| Fiscal Year | Sales Tax(10) | Transfer from MTF | Federal Funds | Total |
| 1998-99(11) | $65,600,000 | $147,569,200 | $31,146,000 | $244,315,200 |
| 1997-9811 | 65,900,000 | 141,406,700 | 31,146,000 | 238,452,700 |
| 1996-97 | 58,826,258 | 132,187,287 | 30,095,998 | 221,109,543 |
| 1995-96 | 58,413,786 | 129,004,489 | 21,721,323 | 209,139,598 |
| 1994-95 | 55,646,263 | 125,778,424 | 17,858,432 | 199,283,119 |
| Average | $60,877,000 | $135,189,000 | $26,394,000 | |
Column 1 lists the fiscal year in which these revenues were appropriated. The CTF's share of sales tax collections on fuel, automobile, and automobile part purchases is contained in Column 2. Column 3 shows the amount of MTF revenues from motor fuel tax collections, distributed to the CTF each year. Federal revenues are shown in Column 4.
Table 1 shows that MTF distributions
are the largest share of annual CTF revenues. Between FY 1994-95 and 1998-99,
MTF distributions accounted for approximately $135,189,000 per year, or
60.8% of the total. Sales tax collections averaged $60,877,000 per year
(27.4%), while Federal transportation funds were approximately $26,394,00
per year, or 11.8% of the total.
Though the CTF receives less than 10% of annual transportation revenues, public transportation has been an important, and often controversial, component of the State's overall transportation program. This section examines recent public transportation appropriations in greater detail.
For example, the FY 1998-99 MDOT appropriations bill contains 24 different public transportation program lines totaling more than $229.4 million in State and Federal funds, excluding debt service and administrative costs. These line items are divided among three different units within the bill: Bus Transit, Statutory Operating Assistance; Intercity Passenger and Freight; and Public Transportation Development.
Some public transportation expenditures are mandated by statute. For example, Public Act 51 requires that at least 10% of all CTF distributions be made for "intercity passenger and intercity freight transportation purposes" (MCL 247.660e). Consequently, the annual appropriation bill contains a variety of intercity programs, including capital and operating assistance to intercity bus carriers, low interest loans for rail line development, operating assistance for passenger rail service, and ferry boat subsidies. The annual appropriations for this unit are shown in column three of Table 2, below.
| Table 2 | ||||
| Annual Public
Transportation Appropriations From All Fund Sources,
Excluding Debt Service and Administration |
||||
| Fiscal Year | Bus Transit Division; Statutory Operating | Intercity Passenger
& Freight |
Public Transportation Development | Total |
| 1998-99 | $161,596,200 | $26,719,100 | $40,922,400 | $229,237,700 |
| 1997-98 | 168,880,800 | 28,297,800 | 45,595,400 | 242,774,000 |
| 1996-97 | 117,710,000 | 22,952,000 | 55,604,000 | 196,266,000 |
| 1995-96 | 113,546,400 | 19,335,800 | 54,171,500 | 187,053,700 |
| 1994-95 | 106,247,900 | 16,757,100 | 51,786,200 | 174,791,200 |
| Total | $667,981,300 | $114,061,800 | $248,079,500 | $1,030,122,600 |
Another component of the State's public transit program is public transportation development. From this appropriation unit the State provides funds for transit expansion and service development initiatives. The largest line item in this unit is the State's bus capital purchase program which provides Federal matching funds for bus capital purchases. This unit also supports specialized transit programs for the elderly, aids regional service coordination initiatives, and funds Work First, van pooling, and ride sharing initiatives. Column four of Table 2 shows the annual appropriations for these activities.
Column 2 of Table 2 shows how the local bus operating subsidies dominate annual public transportation appropriations. Between FY 1994-95 and FY 1998-99, the Legislature appropriated $1,030,122,600 in Federal, State, and local funds for public transportation programs, excluding administration and debt service. Of this amount, $667,981,300 (64.8%) was allocated for local bus operating assistance.
This table also shows how public transportation appropriations have shifted from public transit development toward increased local bus operating assistance. Between FY 1994-95 and FY 1998-99, total public transportation appropriations in these three units increased $54.4 million, from $174.8 million to $229.2 million (31.1%). Over the same period, the local bus operating subsidy increased $55.3 million, from $106.2 million to $161.5 (52.0%). Appropriations for the Intercity Passenger and Freight unit increased $9.9 million (59.4%), while Public Transportation Development funding actually decreased $10.9 million (21%). In other words, these shifts reflect the Legislature's emphasis on operating support over capital assistance.
Table 2 shows that the appropriation of public transportation funds in Michigan has shifted towards greater operating assistance for local bus operators over the last five years. One can ask, however, whether these increases might not have resulted from changes in Federal funding priorities, rather than State priorities. The answer is "no". Figure 2 illustrates how the State's share of local bus operating assistance appropriations has increased in the past 10 years.
Figure 2 shows that the increases
seen in local bus operating appropriations (Table 2, column 2) are
due to increased State funding, rather than increased Federal assistance.
In FY 1989-90 and 1990-91, State funded local bus operating assistance
appropriations were approximately $103 million per year. In FY 1991-92
these appropriations decreased 11.1% , to $92,116,000, as result of general
budgetary downturns and reductions in overall State spending. As the State
recovered, so too did the local bus assistance program. Between FY 1992-93
and FY 1996-97, local bus operating appropriations increased by an average
of 3.8% per year. During the same period, Federal transit operating assistance
remained constant, averaging $5.7 million per year(12).
Controversy over the levels of local bus operating assistance developed in 1997 during negotiations on an increase in the motor fuel tax rate. As mentioned earlier, the Comprehensive Transportation Fund was denied a share of the additional 4-cent per gallon tax implemented on the sale of gasoline. Under separate legislation, however, funds for both road construction and public transit programs were appropriated from the unencumbered and unreserved balance in the Comprehensive Transportation Fund.
Between FY 1990-91 and FY 1995-96, the unencumbered and unspent balance in the CTF grew in excess of $68 million. This resulted from UPTRAN's attempt to stabilize subsidy payment distributions to local bus operators. This fund balance was used to ensure that State funds were available for subsidy payments, regardless of CTF revenue collection cycles. These funds remained in the CTF because they, like Michigan's other transportation-related revenues, are reserved for transportation purposes and cannot be spent on other programs.
In FY 1997-98, $50 million of this unencumbered balance was appropriated for various transportation initiatives. Half of this balance, $25 million, was distributed for road and bridge projects. The other $25 million was appropriated for local bus operating assistance. This one-time distribution brought the State's share of local bus operating assistance to $162.1 million in FY 1997-98, a 46.2% increase over the FY 1996-97 level of $110.9 million.
In June 1997 the remaining unencumbered balance in the CTF was again appropriated for local bus operating assistance(13). In addition, funds from other CTF funded line items within the budget were reduced and estimated FY 1997-98 lapses were used to fund the local bus operating assistance program. This will bring State-funded local bus operating assistance to approximately $154.9 million in FY 1998-99. This is a decrease of 4.4% compared with FY 1997-98, though still $44.0 million more than in FY 1996-97.
It is anticipated that the appropriation
of funds in FY 1997-98 and FY 1998-99 will effectively eliminate the unencumbered
CTF balance. Therefore, what might State local bus operating funding levels
be in FY 1999-2000 without this source of funds? Figure 2 shows
that the State share of local bus operating assistance could be as low
as $125 million. This estimate was calculated using the FY 1991-92 appropriation
as a base. It assumes that annual appropriation increases remain at the
levels observed between FY 1991-92 and FY 1996-97 (3.8%) and no program
changes are adopted by the Legislature. Figure 2 shows that this
estimate would result in a $37.1 million reduction (22.8%) in local bus
operating assistance from FY 1997-98(14).
However, increased revenues, lapsed funds from previous years, or legislative
efforts to further prioritize local bus operating subsidies, make estimating
future appropriations difficult.
Public Transit Assistance Formulas
The increases in local bus operating assistance noted above coincided with controversial changes in the formulas used to distribute funds to public transit authorities. Currently, the State provides public transit assistance in the form of grants to local transit authorities. The level of each grant is determined by four factors: balanced budgets that transit authorities submit to the State, annual local bus operating assistance appropriations, whether that authority is in an "urban" or "rural" area, and an audit of eligible expenses at year-end.
Prior to the beginning of each fiscal year, eligible public transit authorities submit their estimated annual budgets to the Transportation Department. Then UPTRAN calculates approximate grant distributions for each authority as a percentage of the total funds available for urban and rural transit providers. Though actual grant amounts vary across transit authorities, each is an equal percentage of the authorities' operating budgets(15). The remainder of each authority's operating budget is generated from passenger revenues, Federal, and local funds.
The differences among State-funded transit authorities were discussed earlier. In order to compensate for these differences, the State differentiates reimbursement rates between "urban" and "rural" authorities. The reimbursement rate is smaller for urban agencies, which can better generate local revenues than their rural counterparts.
Urban transit authorities are defined as those that serve population centers of 100,000 or more. Prior to FY 1997-98 these authorities were eligible for grants of up to 40% of their operating budgets. Rural agencies and small/medium urban authorities, which serve population centers of less than 100,000, were eligible for grants of up to 50% of their annual operating budgets during the same period.
Beginning in FY 1997-98, however, transit authorities were made eligible for increased operating assistance grants. Public Act 79 of 1997 amended Public Act 51 and allowed reimbursements of up to 50% of the eligible operating budgets in urban areas and 60% in rural areas. One argument used to increase gross annual local bus appropriations, was that these funds were now necessary to meet the State subsidy targets outlined in this amendment.
Based on the budget submitted earlier, the Bureau of Urban and Public Transportation anticipates that it will fully meet the 50%/60% operating support targets established in the FY 1997-98 appropriations bill. It is unlikely that UPTRAN will be able to do so in FY 1998-99 because submitted budget requests will likely outpace available funds.
For example, the local bus appropriation fell 4.4% between FY 1997-98 and FY 1998-99 though the demand for operating assistance grew dramatically. In FY 1997-98 $161.1 million worth of operating expenses were subject to State reimbursement. In FY 1998-99 that figure was $179.2 million, or 11.2% higher than the previous year. Based on the FY 1998-99 appropriation of $154.9 million, urban bus authorities will receive grants of approximately 43.2% of their eligible expenses, and rural authorities will receive grants of approximately 51.9% of their eligible expenses. Though Public Act 51 was amended to allow for reimbursements of up to 50% and 60% of eligible operating expenses, increased requests and decreased revenues make meeting those targets unlikely(16).
Increasing the reimbursement ratio was one recent change to the local bus assistance funding formula. A second was eliminating the annual assistance "growth cap" formerly contained in Public Act 51. This was also eliminated as part of the 1997 gasoline tax package. This amendment has led to additional funding problems for local bus authorities. Prior to FY 1997-98, Public Act 51 provided that changes in annual local bus operating assistance be no more (or less) than the percentage change in the CTF itself. For example, if CTF revenues increased by 3.5%, each transit authority was eligible for an operating assistance increase of no more than 3.5% in that fiscal year.
Though it was an effective cash management tool for the State, the growth cap was a disadvantage for local transit authorities, especially those in fast-growing areas or interested in expanding services. For example, if a transit authority adopted a local millage, secured increased funds from local sources, or more effectively generated fare-box revenues, it might experience growth faster than that of the CTF within any given year. The authority was prevented, however, from receiving increased State support to match its local expenditures because of the growth cap restriction. Predictably, this discouraged new service development and expansion.
But eliminating the growth cap was not also without risk to public transit authorities. Doing so forces transit agencies to compete among themselves for operating assistance increases. Transit authorities that submit larger budgets are able to capture a larger share of available operating assistance at the expense of those that do not submit similarly increased annual budgets(17). Over time this will likely work to the disadvantage of smaller authorities and those with more limited service areas.
Local demand for public transit, and the
requirement to match State funds with local revenues, will act as a natural
governor on bus service expansion. Recent amendments to the local bus operating
formula and the one-time appropriation of CTF balances have created incentives
for bus operators to increase their annual operating budgets. An analysis
of future annual budget requests will indicate whether bus operators act
on these new inducements.
Under Michigan's current public transit assistance formula, eligible authorities receive State support based on the budgets they submit to the Department. The mechanics of this system were discussed above. This "budget-based" approach has both advantages and disadvantages to the participants. This section addresses some of these issues and highlights possible funding formula alternatives.
One advantage of a budget-based system is that it is relatively easy to administer. Few subjective decisions need to be made since the annual distributions can be easily calculated once final budgets are submitted by local transit authorities(18). Second, these estimates can be audited against actual expenditures. This allows the State and a local transit authority to agree on the level of funding it should receive and make adjustments accordingly. Third, it provides an equal percent of annual operating costs to all State-supported transit agencies. Finally, State expenditures can then be tied to the actual costs of providing the service. The simplicity of a budget-based formula, however, does little to differentiate between the type, and quality, of local public transit supported by the State.
One problem is that annual budgets do not equate to system "activity". Though a transit authority might have a large annual budget there is not a necessary connection between that budget and the provision of affordable public transportation. A simple example illustrates this point. For most transit authorities labor is a significant share of their annual costs. If labor costs were equal across all public transit authorities, this would not be a concern. Labor costs, however, can vary dramatically between transit authorities because of differences in the size and skill of the regional labor pool, degree of union membership, or seasonal employment pressure.
For example, imagine that two small transit authorities operate with identical annual budgets. One provides limited fixed route service, but relies on a unionized labor force and offers a competitive benefits package. The other provides county-wide service and 24-hour-a-day transportation for job trainees, but does so by keeping the salaries paid to its staff below prevailing union levels and offering no benefits package to its employees. Each authority would receive the same level of State support, but for reasons unrelated to the scope of transit services it offers(19).
A second problem with the current budget-based formula is that it does not address provider performance or whether State funds are being used efficiently. A budget-based program does little to differentiate innovative transit operators or those that are better stewards of taxpayers' dollars. Assessing performance and efficiency is a notoriously difficult task, however. Assuming that the State would choose to reward transit authorities that had "performed well", how should that performance be measured? One commonly used measurement is ridership. For example, State funding could be based on the number of passengers a system carries.
Unfortunately, that metric is not very clear-cut. One problem is that accurate ridership figures are notoriously difficult to collect. Second, though ridership might measure the ability of a transit authority to meet popular demands, it need not do so. To its proponents ridership is an easy way to measure consumers' support for their local public transit service. Therefore, the State could compare (and thus fund) the quality and performance of a transit system by comparing ridership rates among different transit agencies.
Ridership figures, however, might be based less on service quality than on other factors, such as population density. For example, rural transit providers must travel longer distances to collect the same number of passengers as would urban authorities. A ridership reimbursement formula could then result in the State providing for more (or for less) support than is necessary to meet the cost of providing the service. Moreover, even though the current formula distinguishes urban transit providers from those in rural areas, it does not separate large providers from the smaller ones. In other words, if ridership figures were used to distribute funds, they would need to be balanced by a measure of potential riders in order to assess system performance accurately.
In addition, historical data have shown a clear correlation between economic conditions and transit ridership rates. During periods of strong economic growth, transit ridership increases. During economic slowdowns ridership declines. Rather than being a measure of service efficiency, ridership might simply reflect the availability (or lack) of transportation alternatives(20).
These difficulties are not particular to
the measures discussed here. Other comparisons of transit performance,
such as hours of service, square miles of service area, and so forth, would
have to be carefully evaluated before being incorporated into a new funding
formula. The current budget-based system is subject to criticism, but perhaps
no more so than an alternative would be.
Incentives for State Support of Public Transit
Debates over the level of local bus operating assistance, and the formulas used to distribute those funds, have raised several questions the Legislature will have to address in the next two years(21). None, however, is more important than the most simple: What is the State's role in supporting local public transit? Should public transit be a State budget priority or should local units of government bear the responsibility to provide public transportation in their areas?(22)
Moreover, if State funds are used to support local public transit programs, to what degree should the State administer, oversee, or regulate those services? Should the State regulate local transit systems or should public transit assistance simply be annual grants to service providers? If so, how can the State ensure the effective use of dedicated transportation resources? Answers to these questions will help legislators identify the level of funding necessary to meet State goals and the best methods to distribute those funds.
Many arguments have been put forward to explain State support for local public transit. Policy makers often suggest that local public transportation is a "public good" whose provision benefits the State as a whole. For example, passenger cars can exacerbate air pollution, congest busy freeways, and accelerate the degradation of roads owned and maintained by the State. One proposed solution to these problems is the increased use of public transit. If State assistance lowers public transit costs and enhances service quality, then the social and economic burden to the State as a whole might be reduced by these investments in public transit programs.
If these were the primary motivations behind State support for public transportation, one would assume that the State would target its public transit investments in problem areas. For example, priority could be given to areas with reduced air quality and eliminated where smog is at a minimum. Moreover, if public transit actually reduces highway congestion and annual road maintenance costs, transit assistance programs should target the most trafficked State roads.
The State has not done so, however. As shown above, current State public transit appropriations are dominated by local bus programs, rather than regional high volume initiatives, such as intercity bus or commuter passenger rail service. Moreover, the State makes no effort to distinguish between geographic areas when distributing public transit assistance. Transit agencies across the State are eligible for operating assistance whether or not they can show a discernable reduction in traffic congestion, annual highway maintenance costs, or air pollution as a result of their efforts.
Clearly, then, solving these problems appears not to have been the primary goal of Michigan's public transit initiatives. While public transit helps alleviate these problems, it alone does not motivate State support for public transportation. To date, these outcomes have been positive, but ancillary consequences of the State's public transit investments.
Why else might the State support local public transit programs? Transportation's role in economic development is an argument that has recently gained favor. By providing transportation assistance the State facilitates opportunities for economic competition. Efficient public transit programs might expand the area from which employers can draw employees and from which employees can seek jobs. This is particularly important for people who will no longer be eligible for public assistance or who participate in Michigan's Project Zero program(23). Therefore, the State could recoup its investment in public transit through increased tax revenues and job creation.
To that end the Michigan Jobs Commission (MJC) provides transportation assistance through its Work First and Welfare-to-Work programs. For example, in FY 1996-97 the MJC spent $8.2 million on client supportive services, including transportation(24). These transportation expenditures were not limited to transit programs, however, nor were they even public in nature. For example, local Workforce Development Boards are allowed to use Work First funds to cover a variety of transportation expenses, including private vehicle mileage reimbursements, vehicle repairs, and down payments on the purchase of an automobile.
The same is true in the Family Independence Agency (FIA). Through Project Zero contracts and its MOST and EDGE programs, the FIA provided $13.08 million in transportation assistance between FY 1994-95 and FY 1997-98(25). Like the MJC funding, these funds were distributed by local agencies for an identified transportation need and were not limited to the types of State-supported public transit programs discussed here.
These two cases show that access to transportation is a concern for a number of State agencies. The MJC and the FIA, however, both recognize that local public transit programs are sometimes insufficient to meet the needs of their clients. While access to affordable transportation may be a problem, State-supported local public transit services are not always the solution.
Finally, public transit advocates also suggest that affordable public transit enhances the "quality of life" in a community. For example, access to low-cost, comprehensive transportation services facilitates all residents' access to health care, shopping, and so forth, regardless of economic status. This promotes the development of more closely knit neighborhoods and encourages community development. Nevertheless, this argument begs the question as to whether those public transportation services are a State or local responsibility. Should access to affordable public transportation be a feature that distinguishes one community from another, or should it be a universal element of every locale? Moreover, are comprehensive community transit programs better able to encourage community development than other potentially State-funded transportation activities? Is public transit the best use of State funds or might those dollars be better invested in other public transportation programs?
Though it is difficult to identify a singular motive behind State support for local public transit, these programs have remained an integral component of annual transportation appropriations. Policy makers have identified a wide variety of social and economic benefits that result from popular access to affordable transportation. As the Legislature wrestles with a successor to Public Act 51 of 1951, however, officials will again be challenged to articulate the motives behind State support for local public transit.
These challenges will become even greater as the demographics of the State changes. The population shift from the urban centers to the suburbs already has been seen. This has coincided with the development of a service-based economy and a decline in centralized manufacturing facilities. In addition, Michigan's population is getting older. Simultaneously, comprehensive medical facilities are becoming more centralized. These factors will put even greater demands on specialized transportation services, especially in the rural areas.
Finally, the State has emphasized the elimination
of public welfare and the creation of jobs as two of its public policy
priorities. What sort of transportation network should the State encourage
to meet these policy targets? Legislators and policy makers will have to
determine the role, if any, that public transit plays in meeting these
challenges.
Conclusions and Recommendations
This final section provides recommendations to help guide future debates on the State's role in public transportation. It does not assume that local public transit programs should be either continued or eliminated. Instead, it suggests an agenda by which some of the questions raised above might be answered.
First, the State should undertake a comprehensive review of local transportation demands among State agencies. These discussions would include the Michigan Department of Transportation, Michigan Jobs Commission, Family Independence Agency, and Department of Community Health(26). This review should address such questions as:
Second, State policy makers should clearly explain their expectations and policy agenda to local public transit agencies. Enhanced communications between the State and local transit agencies, especially in the areas of goal-setting and long-range planning at the State level, will go far to stem the tide of what have often been rancorous debates (and misunderstandings) between these two partners.
Third, the Legislature must remain an active partner in future transit planning and enact a new transit funding formula that (1) encourages efficiency and effectiveness in local transit operations; (2) maximizes State-level transit goals; (3) reduces future funding uncertainties for local transit authorities; and (4) is simple to administer. This might include a shift toward a formula based on capital support and replacement rather that operating subsidies or a formula that incorporates objective performance and efficiency measures.
Some specific initiatives might include:
This Senate Fiscal Agency Issue Paper has
examined the complex issue of local public transportation. It has illustrated
the history of State support for public transit, examined the current transit
funding formulas, and proposed alternative ways to distribute those funds.
The primary goal of this paper, however, was to initiate a discussion on
the State's role in local public transit. This question is especially important
in advance of debates on the extension of Public Act 51 of 1951. It is
hoped that policy makers and the Legislature can use this report to guide
these important discussions.
Prior to 1997, two-thirds of the State Sales Tax (4 percentage points of the 6% tax) was distributed among four different programs: revenue sharing (15% of the 4% balance), School Aid Fund (60% ), CTF (7%), and General Fund (18%).
However, the revenue sharing statutes were amended in FY 1996-97. These amendments gave revenue sharing an additional 21.3% of State sales tax collections not already distributed to the School Aid Fund. This increase was compensation for the repeal of other statutory earmarks to revenue sharing from the income tax, single business tax, and intangibles tax. However, language describing CTF distributions from these sales tax collections were not amended at the same time. This omission resulted in the over-allocation of these automotive related State sales tax collections.
Current law now requires that two-thirds of sales tax revenues collected on sales by motor fuel, automobile, and automotive part businesses be distributed as follows: 60% to the School Aid Fund, 36.3% to revenue sharing package (the original 15%, plus the 21.3% added in FY 1996-97), and 7% to the CTF. However, revenue sharing amendments left only 3.7% of these revenues unaccounted for. In other words, statutory earmarks now distribute 103.3% of these sales tax collections. Since this additional 3.3% obviously does not exist, the balance of the CTF's share is deducted from what otherwise would be the General Fund's share of sales tax collections from other sources. We estimate that this amount was $29.7 million in FY 1997-98. This figure was calculated as follows:
Final revenue collections for FY 1997-98 have not yet been released. However, fourth quarter consensus revenue estimates maintained that $62.8 million in sales tax collections will flow to the CTF in FY 1997-98. This figure would represent 27.9% of 25% of the $900.4 million sales tax collections on motor fuel and automotive accessories at the 4% rate, assuming the over allocation problem was not addressed. Therefore, an amount equal to approximately 3.3% of this total collection, $29.7 million, will have to be transferred from General Fund-bound revenue collections to make up for this estimated shortfall.
1. For example, the American Public Transit Association (APTA) reported that $19.8 billion in transit operating funds were received by public transit authorities throughout the country in 1996. Approximately 37.6% of these funds came from passenger revenues, 21.8% came from local governments, 22.2% came from state governments, 2.9% came from the Federal government, and 15.5% was raised by transit agencies from directly levied taxes, advertising, interest income, and other sources. (APTA, 1998 Transit Fact Book, 51)
2. APTA identifies 16 different urbanized area agencies, 52 different rural agencies, and 42 agencies that offer specialized transportation services. (APTA, 1998 Transit Fact Book, 25)
3. Source: FY 1996-97 local bus operating assistance distribution report.
4. Source: U.S. Census estimated 1997 county population figures. The current list of 37 was increased in 1998 when Oscoda County disbanded its county-wide service in favor of a more limited specialized transit program.
5. Transit programs also receive approximately $31.1 million in annual Federal transit assistance. An extensive discussion of Federal transit programs, however, is beyond the scope of this paper.
6. Public Act 51 of 1951 defines the collection of restricted State transportation funds and outlines the ways in which those funds can be spent.
7. This increase was applied to gasoline; diesel fuel and motor carrier fuel taxes were excluded.
8. Technically, the statute requires "not less than 27.9% of 25% of motor fuel and vehicle -related sales tax collections to be distributed to the CTF."
9. Excludes local revenues, State restricted funds from loan repayments, CTF interest, and miscellaneous revenues from other sources. The annual amount of these additional revenue collections vary, though they account for an average of only $8.6 million per year between FY 1994-95 and FY 1998-99.
10. See Appendix A for a technical discussion regarding the distribution of these sales tax revenues.
11. Appropriated amount, not year-end totals.
12. It is important to note that these figures reflect only local bus operating assistance for Federal, "nonurbanized" systems through the former rural bus assistance program. Large, urban transit providers, such as DDOT, CATA, GRATA, or Flint MTA, receive Federal transit assistant directly from the Federal Transit Administration (FTA). Unlike Federal road dollars, these funds do not flow through State departments and are not appropriated by State legislators.
13. This amount was estimated to be approximately $13 million. Calculations varied, however, based on estimated revenue collections, lapses, and the over appropriation of CTF revenues in FY 1997-98. Additional funds might remain in the CTF once book-closing has been completed.
14. Though conservative, this estimate is only $9 million less than the $134 million request contained in the FY 1998-99 Governor's recommended budget which did not include the appropriation of unreserved balances in the CTF.
15. Actual payments are distributed throughout the fiscal year and adjusted to reflect changes in the availability of local funds and actual expenditures.
16. During recent budget negotiations amendments were proposed to eliminate the phrase "up to" in the description of eligible budget reimbursement rates. Should this amendment be approved, the State would be required to fund fully 50% (or 60%) of each authority's eligible budget. Had this amendment been approved in FY 1998-99, for example, there would have been a $24.3 million gap between eligible reimbursements and local bus line item appropriations. This would have required the elimination of 56% of the other CTF-funded line items within the budget, especially the $29,500,000 bus capital purchase line item, and put at risk the State's ability to match fully Federal transit assistance programs.
17. In the event that a transit agency does not spend the funds allotted to it within a given fiscal year, that agency is obligated to return those funds to UPTRAN. Because they come from a restricted State source, UPTRAN can then redistribute those funds to other transit agencies in future years. Other transit authorities, however, will lose the opportunity to use those funds in the current year.
18. Although UPTRAN does determine which expenses are eligible for reimbursement, this is less controversial than would be random distributions without connection to annual, auditable budgets.
19. Labor costs need not be the only distinction between similar authorities. For example, the age and type of an authority's bus fleet, facility costs, or overhead might differentiate annual costs among two equal transit providers.
20. Attempts have been made to distinguish "voluntary" consumers of public transit services from the "transit dependent" when assessing ridership figures, though these results have so far been controversial and unsatisfactory.
21. As noted above, the transportation funding formulas contained in Public Act 51 were due to expire at the end of the 1997-98 fiscal year. During negotiations on the FY 1998-99 budget a compromise bill was adopted, extending this Act for two years, until October 1, 2000.
22. Answers to this question could have a significant impact on public transportation funding throughout the State. For example, between FY 1993-94 and 1995-96, the 73 State-supported public transit authorities received $792,490,114 in revenue from State, Federal, and local sources. One-fifth of these funds, $176,124,277 (22.2%) came from fare box revenues. Federal grants accounted for $90,471,768 (11.4%), while State grants totaled $304,893,502 (38.5%) of all revenues. Local millages, local general fund appropriations, and miscellaneous local revenues comprised the remainder, $221,000,567 (27.9%). (Source: UPTRAN)
23. Project Zero is the name given to Governor Engler's welfare reform initiative. Project Zero's primary goal is to "reduce to zero the number of Family Independence Program households that have no earned income". (PROJECT ZERO Data Monitoring Packet, September 1998, 3) This initiative covers 35 different counties and districts throughout the State.
24. In a letter to former Representative Morris Hood, however, the MJC noted that it was unable to identify how much of those funds was spent on transportation services since local authorities distributed the funds and were not required to identify specific expenses.
25. It is assumed that FIA will no longer spend State appropriations for transportation assistance after FY 1997-98. This change is in response to the MJC's assuming greater responsibility for the transportation needs for Work First/Family Independence Program clients.
26. Public Act 51 requires that a comprehensive transportation needs study committee be appointed every four years to examine the overall transportation needs of the State. Though the Governor has not done so, the specific review proposed here might be conducted as an corollary to this planning process.
27. Prior regional
initiatives have been stymied over concerns that locally generated transit
funds in one community could be used to subsidize operations in other areas.
The Department has been cognizant of these issues, but should encourage
the coordination of transit operations in underserved regions of the State.
