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A Guide to Transportation Funding Options

Transit Funding – Summary of Funding Strategies

TCRP Report 89

For more detailed information on financing capital investment for transit, please see the Transit Cooperative Research Program's report Financing Capital Investment: A Primer for the Transit Practitioner (pictured at right).

Federal Transit Funding Process

Federal funding for transit comes primarily through the U.S. Department of Transportation and is administered by the Federal Transit Administration. These funds are appropriated from either the Highway Trust Fund or the general fund.

The Safe, Accountable, Flexible, Efficient Transportation Act: A Legacy for Users (SAFETEA-LU) authorized $286.4 billion in funding for federal surface transportation programs including $52.6 billion to be administered by the Federal Transit Administration (FTA) to support locally planned and operated public mass transit systems for 2004 through 2009. According to FTA, fare box revenues account for only about 40 percent of public transit system operating costs, so transit systems must generally rely on additional funding from Federal, state and local sources as well as private investment. Since 1997, 2.86 cents on every gallon of federal fuel taxes collected has been dedicated to the Mass Transit Account (MTA). Funding from state and local authorities may come from numerous sources including sales taxes, property taxes, income taxes, and direct transit system taxing authority.

As is the case with state highway programs, state transit programs receive a large percentage of funding from federal sources. This funding is in turn awarded in the form of grants that typically require matching funds depending on the type of program, to individual transit systems by formulas which may vary from year to year. States generally do not own capital equipment for transit and do not provide direct transit services. State and federal funds are disbursed to cities, counties, transit authorities and transit providers on a reimbursement basis, so expenses must be incurred by the provider prior to disbursement by the State or the Federal Transit Administration (FTA). State funds may be used by providers to meet the matching requirements of federal grants.

State and Local Transit Funding Strategies

General fund expenditures


The following receive support for transit operations from General Fund expenditures:

The Potomac and Rappahannock Transportation Commission, Washington, DC

Metro Transit, Oklahoma City, OK

Jefftran, Jefferson City, MO

Eureka Springs Transit System, Eureka, AR

States may appropriate funds for transit services from their General Fund. These funds may be made up of revenues from a number of sources including state sales taxes, property taxes and income taxes. Transit funding from general revenue sources often varies from budget cycle to budget cycle, depending on local priorities and are thus less predictable and reliable than revenues from other, more specific sources.

Vehicle registration fees


The following receive support for transit operations from vehicle registration fee revenues:

Sound Transit, Seattle, WA

Bay Area Rapid Transit, San Francisco, CA

All states impose annual vehicle registration fees or other related fees. Vehicle registration fees are the second most common source of transportation program related revenues at the state level, as more than half of states raise more than a quarter of their dedicated transportation revenues with these mechanisms. The structure of these fees varies from state to state. Many impose a simple, flat fee per vehicle registered, while others vary the fee based on factors such as vehicle type, value, weight and age.

Employer/payroll taxes


The following receive support for transit operations from employer and payroll tax revenues:

City of Portland, OR

Transit Authority of River City, Louisville, KY

Employer taxes, levied on the amount of gross payroll for an employer, may be levied within transit districts for the generation of revenue but are usually administered by a state revenue agency on behalf of the transit district.



The State of Pennsylvania intends on utilizing a portion of the $750 million it hopes to receive as part of a concession agreement involving Interstate 80 and the Pennsylvania Turnpike to fund transit services throughout the state. The plan was approved with passage of Act 44, which also established the Public Transportation Fund to provide funding for transit projects in the state.

The leasing of transportation facilities to private entities for a large, upfront payment is becoming an increasingly popular alternative for states facing transportation financing shortfalls. These upfront payments can be used to fund other projects and services, such as public transit.

General sales taxes


The following receive support for transit operations from sales tax revenues:

Regional Transportation District, Denver, CO

Capital Metro, Austin, TX

Athens Transit, Athens County, GA

Park City, UT

Sales tax revenues from the passage of Proposition K will help fund the development of the Metro East Light Rail Maintenance and Operations Facility in San Francisco, CA.

TransNet is a one-half cent sales tax that funds transportation projects in the San Diego region.

Sales taxes are the most common source of funding for local and regional transit services. They generally provide the greatest revenue yield and stability and are broadly accepted as a source of revenue for public transportation.

Lottery and/or casino revenues

States (and municipalities within states) with a statewide lottery or legalized gambling may designate revenues generated through these activities for the provision of public transportation services.

The State of New Jersey taxes 8 percent of casino gross revenues, roughly $30 million per month in 2007, and places these funds into the Casino Revenue Fund. A portion of this fund is dedicated to supporting a Senior Citizens and Disabled Residents Transportation Assistance Program.

The state of Pennsylvania dedicates a percentage of lottery revenues to a free transit program for persons over 65 years old traveling in off-peak hours.

Vehicle leasing and rental fees


Allegheny County in Pennsylvania has enacted a $2 rental car fee to help support transit services provided by Port Authority Transit Services in the Pittsburgh metropolitan region.

Municipal and regional authorities may opt to use revenues from locally imposed taxes on the rental of vehicles to fund transit services. Vehicle rental companies are typically responsible for reporting and remitting these taxes to the regional authority. Similar taxes may also be levied on the leasing of vehicles, which generally take the form of a sales tax on the monthly lease payment.

Tollway revenues


Revenues from the I-15 FasTrak facility in northern San Diego, CA partially fund bus service within the corridor.

Revenues from toll facilities are often dedicated to providing for enhanced transit services within the tolled corridor.

Cigarette tax

Taxes levied on the sale of cigarettes are a common state revenue generating mechanisms and may also be employed by municipalities.

Parking fees and fines


The San Francisco Metropolitan Transportation Agency (Muni) receives a significant amount of revenues for the provision of transit services through parking fees and fines. Eighty percent of city revenues are dedicated to Muni operations.

Parking fees may be imposed to achieve a number of municipal goals including revenue generation, traffic management and mode shift. Local transit agencies may receive significant levels of funding for operations from the parking fees and parking fines levied by the city or other regional government or they may receive parking related revenues generated at facilities owned by the transit authority.

Property taxes


The following receive support for transit operations from property tax revenues:

Metro Transit, Minneapolis, MN

The Ride, Ann Arbor, MI

Lafayette Transit System, Lafayette, IN

Advance Transit, Hanover, NH

Property taxes are assessed on the value of land and buildings and are the principle source of revenue for local governments. Portions of local property tax revenues may be authorized for use by special districts and authorities such as transit authorities.

Fares and fair related income

Fare collection is an integral part of transit service delivery but rarely covers the entire cost of providing transit services.

Contracts or purchase of service

More Information

The Federal Transit Administration offers charter bus guidance to aid transit agencies in developing purchase of service contracts and policies.

Transit systems often receive revenues by providing additional transit related services to various entities outside of normal regularly scheduled services. Municipal governments, private businesses, health and social service agencies and educational intuitions often contract with transit agencies to provide specialized services.


The following help support transit operations through contracts and purchase of services:

LYNX, Orlando, FL

Corpus Christi Regional Transportation Authority, Corpus Christi, TX

Annapolis Transportation Department, Annapolis, MD

Lease revenues


The following help support transit operations through the leasing of various facilities:

Chicago Transit Authority, Chicago, IL

Capital Area Transportation Authority, Lansing, MI

Transit service providers often generate revenue by leasing various portions of their operations, such as parking facilities and terminal stations, for use by private enterprises.



The following help support transit operations with advertising revenues:

Chicago Transit Authority, Chicago, IL

San Francisco Metropolitan Transportation Agency, San Francisco, CA

LYNX, Orlando, FL

A common source of revenue for transit providers is income from advertisements placed on vehicles, facilities and transit related materials such as schedules and maps. These revenues; however, are generally modest, accounting for anywhere between 0.1 and 3 percent of total operating income.

Concessions/rental income


The following help support transit operations with lease revenues:

Chicago Transit Authority, Chicago, IL

Bay Area Rapid Transit, San Francisco, CA

Metropolitan Transportation Authority, New York, NY

Transit agencies may generate revenue by leasing space within facilities for use by private sector interests. These may include newsstands, food stands, gift shops and vending operations. Larger transit agencies, with significant terminal space or extensive facilities, tend to benefit more from concession agreements.

Realty transfer taxes/mortgage recording fees

These types of fees are generally levied on the sale of residential, commercial and industrial property. These fees may be levied at the state and local level and revenues are used for a variety of purposes, including transit services.

Corporate franchise taxes


Corporate franchise fees are one of several taxes used to support operations for the New York Metropolitan Transportation Authority.

Franchise taxes are generally levied on the profits and other taxable assets of a corporation. It is considered to be a tax on business operations and is most often based on the par value of the corporation's outstanding shares and surplus. Franchise taxes are often targeted at specific types of industries and economic activity.

Hotel/motel taxes

Hotel/motel taxes are common revenue generating mechanism employed by municipal and county governments. They are often only applied on certain days of the week, month or year and revenues are often used in the development and operation of tourism related facilities.

Utility fees

Utility fees are another common source of income for municipalities and county governments. They may be applied to a wide range of service such as water, electricity, waste collection and disposal, and sewage services. Revenues are typically deposited into general revenue and from there may be used to fund transit activities.

Public Private Partnerships (PPP)

The US DOT has prepared model legislation. The model provides states with examples of the basic elements to consider in authorizing PPP legislation.

Tax-increment Financing Districts

Tax-increment Financing Districts (TIF) are focused on capturing the added increment of a future stream of increased taxes that result from an increase in property values due to public investments. The excess tax increment is used to repay the public improvement bonds used to fund the improvements that led to the increase in value and tax returns. The revenues derived from these districts may be used for a number of purposes, including transit development.

Transportation Development Districts


Examples of tax increment procedures:

City of Lenexa [PDF] , KS

Knox County [PDF] , TN

State of New Mexico

Transportation Development Districts (TDDs) are a form of community improvement or community facilities district that is intended to provide a means of raising funds specifically for transportation improvements. They are generally aimed at financing the cost of a specific project and may be applied to developing or improving transit services. These districts typically raise funds through the issuance of bonds, which are generally supported by tax increment procedures or dedicated sales taxes. Tax increment procedures are established by various state and local entities as a process for determining the value of land prior to development so that the incremental increase in value due to development can be appropriately credited to the desired programs. Bonds are issued based on the expected incremental increase and the revenues directed to the project.


Examples of TDDs include:

Mercer County, NJ

The State of Missouri [PDF] has made extensive use of TDDs for local area projects:

Audit Report on Transportation Development Districts [PDF] , State of Missouri
Creve Coeur, MO
Kansas City, MO

City of Olathe, KS

The enabling legislation that is required for the development of TDDs vary based on the entity seeking to establish the district.

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