6. Analysis of Funding Alternatives

This section addresses the mandate in Section 3033 of TEA-21 to examine the effects of changes in the Section 5336 funding formulas or other funding mechanisms that would assist small transit intensive cities. Two categories of funding changes are addressed. The first illustrates how formula funding for each small urbanized area would be altered if the formula included service factors for small urbanized areas as well as large urbanized areas. The second, originating from members of the transit industry, briefly describes how the Section 5309 Bus program could be used to steer more funding toward small transit intensive cities

6.1 Applying Service Factors to Small Urbanized Area Formula Apportionments

In order to assess the effects of applying service factors to formula apportionments for small urbanized areas, two alternative scenarios for the FY 2000 apportionments were generated. In the first scenario, service factors were applied to small urbanized areas as a separate tier (9.32 percent of the total for Section 5307 funds). In the second, all urbanized areas were grouped together in a single Bus tier, and the formula was applied across the board. The service factors used were those from the current Bus incentive and Bus non-incentive tiers used in the large urbanized area apportionments.

The same data caveats discussed above in the section on Small Transit Intensive Cities apply here. The data reported by operators in small urbanized areas may include service provided in nonurbanized areas and/or in other urbanized areas, thereby inflating the formula apportionments attributed to that urbanized area relative to what they would actually receive if the data were reported in the same way as it is for large urbanized areas. See Appendix A for more detail on the data and methodology used in this section.

6.1.1 Applying Service Factors to Small Urbanized Areas as a Group

Exhibit 4 shows the net effect on each small urbanized area's FY 2000 formula apportionment of applying service factors to small urbanized areas in their own tier. The urbanized areas are grouped and their apportionments totaled by state, as in FTA's annual funding notice.11 As expected, urbanized areas with very high transit service levels would gain considerably under such an approach, while densely populated small urbanized areas with no currently reported transit service would see large decreases in Section 5307 funding. The 20 small transit intensive cities identified in the previous section would see their combined share of formula funding double, from $26.2 million to $52.4 million, and their share of formula funding among all small urbanized areas would rise from 10.17 percent to 20.34 percent.

6.1.2 Applying the Bus Formula to All Urbanized Areas in a Single Tier

Exhibit 5 shows what the effect on small urbanized areas would be if the current bus formula were applied to all urbanized areas as a single tier. As a group, small urbanized areas would receive $33.5 million less in formula funding under this scenario than they actually did.12 However, most small transit intensive cities would still gain, even when competing in the same pool as larger urbanized areas. Of the 20 small transit intensive cities, 17 would increase their funding levels, and their combined total would rise from $26.2 million to $41.1 million. Their overall share of bus formula money would rise from 1.4 percent to 2.1 percent.

Exhibit 4: Net Effect of Applying Service Factors to the Formula Apportionments to Small Urbanized Areas

Exhibit 5: Net Effect on the Formula Apportionments to Small Urbanized Areas of Applying the Bus Formula Uniformly to All Urbanized Areas

6.2 Alternative Proposal: Targeting Section 5309 Bus Program Funding to Small Transit Intensive Cities

An alternative mechanism to changing the Section 5336 formula, suggested by commenters on this study, involves a takedown from the Section 5309 Bus Program. Such an approach would be consistent with the stated concerns of operators in small transit intensive cities that their needs are primarily on the capital side, rather than on the operating side. It would also have the advantage of only imposing new data reporting requirements on operators that would apply for the funding, rather than subjecting operators in all small urbanized areas to the same requirements faced by transit operators in large urbanized areas.

Some broad outlines for how such a program could be structured were suggested. First, funding would come from a takedown from the total amount available for the bus portion of Section 5309, which would be reserved exclusively for use in small urbanized areas. Two options for distributing this funding were suggested. In one, a formula, similar in spirit to the Fixed Guideway Modernization Program of Section 5309, would be applied to all small urbanized areas. The formula might include the service factor components of the Section 5336 formula, or something relating to vehicle utilization rates. Small transit intensive cities would obviously be the prime beneficiaries of such a formula. Another option for distributing the takedown funds would be through discretionary grants to a criteria-limited applicant pool. Such criteria might include minimum vehicle utilization or service intensity rates. Other criteria, such as the creation of a Transportation Management Area in the small urbanized area or minimum uses of flexible funding13 for mass transit (where applicable) might also be applied.
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11 The state totals are the actual apportionments made by FTA to the governors. The actual formula funding allocated to each small urbanized area may or may not equal the totals listed here. Any minor differences between the amounts calculated here and those reported in the apportionments notice are due to rounding.

12 Major urbanized areas over 1 million would gain $74.8 million, while urbanized areas between 200,000 and 1 million in population would lose $41.4 million. Incidentally, every major urbanized area would gain, while every other large urbanized area would lose. This is due to the current two-tier structure in the Bus Non-Incentive tier.

13 Surface Transportation Program (STP) and Congestion Mitigation and Air Quality Program (CMAQ) funds.