Local in Ann Arbor

One of the peculiarities of transportation funding is that the true cost of transportation is almost never borne by the actual users.  There is a superstructure of taxes and fees that make up most of the costs, while the actual users do not pay proportionately, even those using roads and bridges.  In the case of public transit, fares may seem significant to the riders but generally do not pay for more than a fraction of the service.  Further, fares have to be kept relatively low or ridership declines.  (The most recent statement of cost per passenger for AATA buses is $3.16, while the full fare is $1.50.  How many people would ride the bus at a cost of $6 per round trip?)

Local taxes and fees that are paid for transportation often are perceived by those paying to be really burdensome, and the related service is considered inadequate. (Key the complaints about the Road Commission and Ann Arbor potholes.) Yet, those are usually only a small fraction of the cost.  The main cost is borne by the Federal Government, and the State of Michigan.

Federal Funding

The Federal transportation bills which provide for transportation are always contentious and provide Congress with some good old-fashioned wrangling, as legislators try to get the best for their own regions.  In spite of this, Congress managed to pass a new surface transportation bill, known as MAP-21, in the summer of 2012.  It expires at the end of FY 2014 (September 30, 2014).  Here is SEMCOG’s page on MAP-21.  MAP-21, or the surface transportation act, is basically what we think of as the “gas tax”.  The formal name is the Highway Trust Fund, and the money available has been shrinking as (believe it or not) total gas consumption has been declining.  There are efforts to recast the funding mechanism but this will be contentious. Much of MAP-21 relates to roads and bridges, but it is crucial to transit systems because this is where Federal formula funds for day-to-day operation, and also capital funds for transit purposes, are allocated.  See a helpful memo by AATA’s Chris White about the effects of MAP-21 on AATA’s finances.

General note: it is helpful to remember that all transportation agencies have fiscal years consistent with the Federal fiscal year, which begins October 1 each year.  Many municipalities in Michigan use either a calendar year FY (January) or a mid-year FY (July).  This can cause some coordination issues.

There are many other Federal transportation funds. This has become very significant because of the Federal funds sequester, which has affected most funds EXCEPT MAP-21.  For a pdf of this chart showing the effects of sequestration on Federal transportation funding,  see here. (Click on the picture to see a larger version.)

Note that most MAP-21 funds were not reduced by the sequester, but others were. Also, a couple of funds that AATA has benefited from in the past did not survive the last Congress at all.  They are the Sustainable Communities grants (which funded ReImagine Washtenaw; see our post) and the High Speed Rail, also known as HSIPR, program.  These were both “zeroed out”.  The grant for design of the Fuller Road Station was from HSIPR.  TIGER grants, which have been used for many capital projects involving transit, have been cut, as was New Starts.  (New Starts is the program that would usually pay for a new rail line or other new transit line.)

In a recent audit of infrastructure by the American Society of Civil Engineers, the country’s roads and transit systems each got a grade of D.  Bridges and rail were upgraded to C+, two of the brightest spots in the overall audit, which is not saying much.  For most observers, the state of the nation’s roads and bridges is a higher concern than transit systems, and most of MAP-21 is directed to roads.

In addition to these funds, transportation projects got a big boost from President Obama’s stimulus program, the American Reinvestment and Recovery Act of 2009, commonly called ARRA.  This was quite a bonanza for local governments.  AATA received $6,474,089 (some of this was spent on Park and Ride improvements, some on the UM transit center, and new buses were purchased; ARRA also helped with some operating funds).  (For an overview of AATA grant proceeds through FY 2011, see AATA Grant History 2007 to 2011.)  It is important to remember that ARRA expired at the end of 2010 and Congress seems unlikely ever to renew it.  Some funds may still be disbursed within separate grant awards, though Congress did withdraw some unexpended funds as part of the budget cuts of 2011.

With MAP-21 scheduled to expire in 2014, and with Federal budget talks continuing, it seems most prudent to assume that current funding may not continue forever.  Here is a provocative article that discusses Federal vs. state and local funding.

Rail Funding

Rail transportation (including passenger rail) is not included in MAP-21.  That has two immediate consequences: one is that rail is more vulnerable to Congressional cuts, and the other is that it is not treated as part of a comprehensive transportation system. (A recent analysis calls it a “blow to multimodalism”.) The Passenger Rail Investment and Improvement Act of 2008 (PRIIA) governs funding for passenger rail systems, especially Amtrak.  (PRIIA expires at the end of this fiscal year – that is September 2013.)  The biggest shot in the arm for capital projects relating to rail was ARRA (the HSIPR was part of the stimulus.)

Note the distinction between “appropriated” and “authorized”.  Congress appropriates funds within budget bills, but the agency must authorize their use through grants.  As can be seen from this graph from a report of DOT’s Inspector General, the big injection of capital grants ($8 billion) was during the 2009 stimulus, but little has been made available since then.

As shown in the table, Amtrak funding has been cut. PRIIA has changed the rules on funding shorter lines, which include the Wolverine (the line that goes through Ann Arbor between Detroit and Chicago).  Beginning this year, Michigan is obligated to make up the difference between revenue and operation of the Wolverine (the operating deficit).  According to this summary, that is $17 million. (Ridership on the Wolverine has increased 15% since 1997, but that does not erase the operating deficit.)  This is significant to us locally, because though the Governor’s budget calls for rail funding, the revenue to pay for it has not yet been identified.  More on that when we discuss State of Michigan funding.

For a history of passenger rail and much useful data, see the recent Brookings Institution study.

Making Local Borrowing Easy

With the availability of grant funds limited, the Obama administration has been shifting emphasis to loan programs.  These make it easy for local governments to obtain low-interest loans for big projects.  Of course, it also means that these governments can commit to projects that will put them into long-term debt without assurance of success in the final operational mode.  (Even after all the construction is done, there is still a cost of operation – as with Amtrak.)  The best-known program is TIFIA, which “provides improved access to capital markets, flexible repayment terms, and potentially more favorable interest rates than can be found in private capital markets for similar instruments”. As noted, “TIFIA can help advance qualified, large-scale projects that otherwise might be delayed or deferred because of size, complexity, or uncertainty over the timing of revenues.”

President Obama has recently proposed a more expansive approach to offering credit for transportation projects.  “Among other things, new “America Fast Forward Bonds” would help state and local governments borrow money for projects, while foreign pension and retirement funds would have a tax penalty eliminated so they could invest in infrastructure in the United States on a similar basis as American funds.”

AATA has traditionally not used credit (floating bonds, etc.) for projects, but has relied on Federal grants for capital projects.  Those traditional grants required a 20% “local match” but were otherwise found money.  If they began to take on debt (which was proposed in the implementation plan for the TMP), they could encumber fares and tax revenues to pay off that debt.  That could potentially change the landscape quite a bit.

Still to come: State of Michigan transportation funding, still unknown territory.

UPDATE: TIGER Grants

The Transportation Investment Generating Economic Recovery (TIGER) grants have been an important source of capital investment for transportation projects, and were originally part of ARRA.  However, they have survived, though with reduced amounts, into the present day.

As indicated in the comment, Ann Arbor received $13.9 million in FY 2010 for the Stadium Bridges.  That was very nice, since these grants are highly competitive.  In the FY 2012 round, DOT received 703 applications requesting a total of $10.2 billion.  They awarded 47 applicants grants of a total of $500 million.  In other words, about 1 in 15 applicants received grants.

According to Transportation Issues Daily, 16% of the funding went to transit projects, and 13% to passenger rail projects.  Roads and bridges got 35%, with the rest divided between ports, multimodal (includiing bicycle and pedestrian) projects, freight rail, and special set-asides for rural areas and tribal governments.

The FY 2013 TIGER projects will evidently be advertised in May.  Look for an avalanche of applications.

SECOND UPDATE: Here is an article from the Atlantic with a brief discussion of President Obama’s transportation budget.  Keep in mind that his budget probably bears very little congruence to anything finally approved by Congress.

THIRD UPDATE: MAP-21, the Federal Highway Trust Fund enabling legislation, is due to expire at the end of September 2014.  The DOT has published a chart showing the decline of funding both for highway projects and for mass transit to zero by then.

This entry was posted on March 31, 2013 at 5:50 pm and is filed under civic finance, Transportation. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.