Financing Rural Transit

Rising gas prices, concerns about global warming, congestion and the country’s aging infrastructure has created a resurgence in transit demand, and with that, ideas for financing the transit systems of the future. While most strategies have been focused on funding systems in large metropolitan areas, local governments also face challenges in funding small systems in rural America.

State government in Minnesota spent $30.3 million last year to fund transit in Greater Minnesota. Outside the seven county metro there are 66 systems statewide operating in 76 counties. This includes urbanized systems serving cities of 50,000 or more, small urban as well as rural transit systems and services for the elderly and persons with disabilities.

Rural transit is financed through a combination of federal, state and local contributions. Minnesota receives federal funding from the Federal Transit Administration in the form of categorical grants for programs. State funds are appropriated through the General Fund and the dedicated Motor Vehicle Sales Tax (MVST). Each local government pays a fixed share of its’ operating cost. Urbanized and small urban systems pay 20% and rural systems and those serving the elderly and disabled pay 15%.

The recession has taken a toll on all areas of local and state government, including rural transit. Last fall MnDOT cut $400,000 to rural transit providers, with another cut of a million and half dollars on the horizon. The state funded sources of revenue – the General Fund and MVST – are especially susceptible to fluctuations and decreased receipts exacerbated by the recession.

While current funding is being cut, future transit use is projected to grow due to demographic changes. Future demand and cost are outlined by MnDOT in their “Greater Minnesota Transit Plan 2010 – 2030” report. The state’s population is increasing, but more importantly for rural transit, whose users are primarily over the age of 65, it is also aging. MnDOT projects that demand for annual trips will rise from 14.2 million in 2010 to 17.8 million in 2030. Using this projection they estimate that by 2030 annual operating cost will be $184,152,960. This is a 119% increase from the projected 2010 costs of $83,794,200.

While there are many innovative ideas for transit financing like value capture, vehicle miles traveled tax and congestion pricing, none specifically fit the context of rural transit. Most suggestions for rural transit have focused on ways to make systems more efficient and save costs by emphasizing multi-purpose uses and coordinating existing programs for the elderly, low-come and disabled populations that they serve.

Rural transportation funding is an example of why state and federal equalization and redistribution can be crucial in providing services. Recession or no, it’s unlikely that local governments would have the tax base to pay more than the fixed rates, especially considering rural transit typically only benefits a small portion of the population. As costs and use increases, local jurisdictions should coordinate services and utilize technology, but in the future there has to be continued support from state and federal governments.