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The purpose of using a formula to allocate federal assistance for transit is to ensure that such funds are distributed in a fair, objective, and equitable manner. Fundamentally, this means that the formula should allocate more funds to areas that have proportionally greater transit needs. The factors used in the formula are intended to reflect these underlying needs while retaining some degree of simplicity and ease of measurement and reporting.1 The formula is also intended to encourage cost effectiveness in the provision of transit services. In understanding how the formula reflects these needs, it is important to understand the difference between two kinds of need: potential need and existing need.
3.1 Existing Need
Urbanized areas within the United States vary considerably in their levels of mass transit service provision and usage, ranging from large systems utilizing multiple rail and non-rail modes, to simple bus and/or demand response systems, to no public transit service whatsoever. Areas that provide a high level of transit service will naturally have greater needs for both operating assistance (to make up for the gap between passenger fares and operating costs) and capital funding (to replace and rehabilitate vehicles, guideways, and support structures which deteriorate from use). Areas with high levels of vehicle utilization by transit passengers will have needs to expand their systems to relieve crowding and excessive wear and tear on their transit vehicles. High levels of existing transit service also typically reflect a local commitment to transit through both funding and land use planning, as well as local geographic and demographic factors. Federal assistance in this case can be seen as reinforcing such local commitment. Formula factors intended to reflect existing needs include route mileage and vehicle revenue miles (service provision) and passenger miles (service consumption).2
3.2 Potential Need
Urbanized areas also vary widely in their potential for mass transit usage. Larger cities tend to have more urban travel, some of which could be best served by mass transit. Cities with more compact land use have greater potential for effective and efficient public transit service as residential and activity locations are more concentrated, making mass transit an effective alternative to the private automobile. Federal assistance in such instances can be seen as helping local governments to tap into such potential needs. Many urbanized areas, particularly those that have grown rapidly in recent decades, lack a strong post-war local tradition of transit service. Federal assistance helps such areas to build and sustain a minimal transit service level, enabling them to build local support of and for mass transit to achieve the potential transit service that could be sustained in such areas. Many local governments also find that local funding sources for transit are limited by constitutional or legal factors, thereby increasing their reliance on federal assistance. Such potential transit needs are reflected in the formula by population and population density factors.
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1 It should be noted that no explicit needs assessment is made in allocating formula funding among urbanized areas. Instead, the formula factors used can be viewed as surrogates for the basic transit needs of local communities.
2 One frequently expressed concern regarding needs-based federal subsidy programs is that they may encourage inefficiency in the provision of local public services. For example, it has often been argued that the inclusion of service provision factors in the formula encourages local transit operators to inefficiently run transit vehicles regardless of ridership. There are several ways in which this issue can be addressed. First, under TEA-21, operators in large urbanized areas (whose formula allocations are based in part on service levels) are no longer eligible for federal operating assistance, which had been declining in real terms for several years. Since the funds can only be used for capital and preventive maintenance expenditures, their effect on operations is limited. Second, the formula includes a so-called incentive tier, in which transit service consumption (passenger miles) is weighted by the average operating cost per passenger mile. This provides an incentive for efficient service provision, since an operator that provides service at a lower average operating cost can receive more federal capital assistance. Finally, it can be argued that a high level of transit service provision is a worthy public policy goal in its own right. High-frequency service, even in off-peak hours, provides a significant quality of life benefit to those who are dependent on public transit for their mobility needs. High frequency, reliable transit service also provides an incentive for efficient, transit-supportive land use. For these reasons, the socially optimal level of transit service provision may be higher than would be dictated by a strict economic efficiency calculation, and this is reflected in the formula's use of service level factors.
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