Analysis of the Allocation Formula for Federal Mass Transit Subsidies

Gao ID: PAD-79-47 October 9, 1979

The federal government has granted funds to urban areas to subsidize mass transit operating expenses. These funds are allocated on the basis of a congressionally determined formula. GAO has developed criteria by which various factors included in such a formula can be evaluated. Although no single factor satisfies all criteria, some are clearly unsatisfactory, and GAO has indicated the type of formula which satisfies the criteria reasonably well.

Potential allocation formulas can be evaluated according to the following criteria: (1) interjurisdictional equity whereby each area receives an allocation appropriate to its relative need; (2) attainment of federal program objectives; (3) creation and maintenance of incentives for efficiency; and (4) availability of data. Conflicts exist among these criteria, however, and potential factors must be considered. The potential factors fall into four categories: transit supply factors; transit demand factors; joint transit supply and demand factors; and urban factors such as population, employment density, per capita income, and age of the city. GAO believes that a good formula should include at least one factor that ensures that the largest shares go to urban areas with the greatest need and at least one factor that creates incentives for desirable responses by operators. One possible formula includes the following measures: population; population density; revenue-seat-hours of service; and transit availability. A formula based on these measures is a reasonable way to allocate operating assistance because: (1) existing incentives for cost efficiency are maintained; (2) reliable data are generally available; (3) the largest shares can be allocated to areas with the greatest need; (4) incentives are created to attain federal program objectives; and (5) the formula is neutral with respect to the use of farebox revenues and state and local subsidies to finance the nonfederally funded portion of transit costs.

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