How we raise funds and what we spend them on has a profound impact on how our transportation network functions, how efficiently it performs, what it looks like, and even how people travel. Unfortunately, both our state and national system of transportation finance is complicated even for policymakers to understand. What follows is a brief explanation of transportation finance mechanisms, in addition to several key issues that are important to understanding California's transportation funding picture.
Transportation funding is unique when compared to many other publicly funded programs in the United States in that historically it has been supported by "user fee" financing, notably taxes on gasoline and other vehicle-related programs. California is no exception to this, and has since the 1920s relied primarily on state gasoline taxes to fund road construction and maintenance statewide. For various reasons, this historical trend began to shift in the 1990s with an increasing reliance on statewide bonds and county-level sales taxes.
California still receives most of its transportation revenues from the current state gasoline tax of 18 cents per gallon. This tax produces a little more than $5 billion a year in transportation revenues, accounting for nearly half of all roadway-related revenues in the state. The federal government also levies an 18.3 cent per gallon tax on gasoline. California receives roughly $2.4 billion a year in federal highway funds and $500 million in public transit funding. Additional sources of revenue for transportation statewide include local county sales taxes (levied in 16 of the state's more populous counties and worth about $1.7 billion annually),bond receipts, local general fund monies, local property taxes, and road and bridge tolls.
Funding for public transit was historically kept quite separate from street and highway financing, until recently. Many of the local streetcar, trolley and motorbus services that operated in the early 20th century, both in California and nationwide, were often largely privately financed, with some support from local public funds. Federal funding for public transit systems arrived much later than it did for highways, with the first smaller grant programs starting in the 1960s and annual federal appropriations for local public transit beginning in the 1970s.
Today, California's public transit systems are funded by a wide range of sources, many of which fluctuate dramatically from year to year. The largest single source of revenue is passenger fares, which comprise 28 percent of all operating revenues and 23 percent of total transit revenues including capital grants. Transit is also funded by a portion of the statewide sales tax (roughly 20 percent of all revenues), federal grants (roughly 13 percent of all revenues), countywide sales taxes (12 percent), local transit district sales taxes, property taxes, general fund monies and other local and state grants.
Public transit agencies saw the elimination of federal support for operations in the mid-1990s. Along with the loss of federal operating assistance, transit agencies are severely hampered financially by state laws prohibiting the expenditure of state gas tax revenues or bonds on the day-to-day operations of transit services. This has created a Catch-22 for transit agencies: growth in capital expenditures, or the ability to buy train cars and buses for public transit systems, but a loss of revenue with which to operate those trains and buses.
It has also fueled a disparity between urban and suburban services. There has been increased funding for commuter systems that need to buy equipment to serve largely wealthier, suburban populations, but cutbacks to urban bus transit systems that don't need much new equipment, but require much more funding for repair, maintenance and operations.
