Rethinking transit: Funding and equity

A discussion of funding and equity in transit.

After a whole lot of conversation on the particulars of TriMet and the agency’s present situation, time to take a few steps back, and give some thought to how things might be different. We’ll start with two issues which are frequently conflated (and some say, rightly so)–funding and equity. By “funding”, for purposes of this post, I speak mainly of operational subsidies coming from general taxes–capital projects are a different ball of wax. I do assume that some subsidy is required–there are few first-world cities out there who have complete transit systems which are operationally profitable. I also assume that this is OK–transit is a public good, and on that basis ought to be entitled to some level of public subsidy. I know that some readers object to this, but that debate is not the topic of this thread.

Equity, in this context, refers to the levels of service provided to different parts of the metro area. Chris has been spending a great deal of time mapping service levels, and analyzing the results; here we consider the question of what should be, rather than what is.

There’s a reason these two topics are lumped together in this thread. One common “formula” for equity is that transit service ought to, in some fashion, be proportional to taxes paid. This is a common refrain heard often from taxpayers in suburban areas with high payrolls and minimal transit service; recently we received news that some business leaders in Boring want to withdraw from TriMet. We’ll get to that debate in a moment.

What sort of taxes?

If one makes the assumption that transit is to be partially funded by general taxation (an assumption that is being made for purposes of this discussion)–the first question becomes: What sort of taxes? Ad valorem property taxes? Income taxes? Payroll taxes? Sales tax? Other forms of consumption tax? Fees on unrelated activity (i.e. development charges)?

TriMet, of course, uses the payroll tax as its primary funding source–according to PortlandAfoot, the payroll tax provides around 55% of TriMet’s operating revenue. Payroll taxes have some advantages–they’re easy to collect (businesses who pay them have to process payroll taxes for other purposes such as Social Security and Medicare; and employees need not do a thing); they have less effect on minimum-wage employees (as the taxes collected don’t count towards the wage paid); and they are relatively stable. On the down side, they are less stable than property taxes.

Other common forms of taxation would be difficult to apply in Oregon.

  • Levying a local income tax would be a big headache for taxpayers, who would have to prepare (potentially) a third set of tax returns in addition to the state and federal forms they have to fill out now. (Four years ago, the City of Portland considered a city income tax to help fund schools–an idea which was quickly rejected).
  • Property taxes have the advantage of stability, and many transit authorities use these for funding. A major limitation on use of property taxes in Oregon is 1990’s Ballot Measure 5, which limits property taxes to 1.5% of value (0.5% for schools, 1.0% for other services), excluding bonded indebtedness. This is a total limit; not a per-agency limit.
  • Use of sales taxes to fund transit is also common. Sales taxes have a tendency to be regressive, unstable, are far less deductible from federal income tax. And Oregon’s anti-sales-tax tradition almost assures that TriMet will not be collecting revenue from the region’s cash registers any time soon.

The payroll tax has one other interesting attribute–which is both a strength and a weakness. It relates directly to employment–being paid by employers on payrolls–and many consider that equitable because a primary class of transit users are commuters paying to get to and from work; thus employers are “paying” to have transit provided to their employees. On the other hand, employers are not similarly charged for roads and highways (which are funded via other means). And, as the Boring situation shows (as does the withdrawal of Wilsonville from TriMet two decades ago), this gives employers–especially those located in areas with high concentrations of jobs a lot of leverage. In both cases, high-employment communities are asserting an unfair allocation of service hours–claiming that because their community provides a high proportion of payroll tax revenue (relative to population), it is entitled to a higher “share” of transit service.

The funding mechanisms for roads, on the other hand, aren’t employer based–payroll taxes do not fund road construction. Instead, the funding mechanisms for these come primarily from general fund sources (city/county property taxes), fees (construction assessments, license/registration fees), and fuel taxes–a kindasorta user fee; none of which has anything to do with where one works. Other than providing free parking at the job, employers generally don’t subsidize employees who drive to work. While roads are subsidized (how much is an interesting debate), the sources of the subsidy are generally unrelated to the workplace.
How to assign service hours, anyway?

That brings us to the whole concept of equity: TriMet has a limited budget, and thus a limited number of service hours. Let’s take a look at the map which Chris worked so hard to create:

View Larger Map

The first thing you notice is: Most of it’s blue or cyan, and the cooler colors on the map mean “lousy transit”. The only red or orange (“excellent transit”) is downtown and along the Banfield corridor. Green (“decent transit”) is found in much of the City of Portland, in East County, along the Westside MAX line, and to a lesser extent along the Barbur and McLoughlin corridors to the south. But much of the area in the Portland metro area is ill-served by transit.

For many, though, that’s the way it ought to be. Providing decent bus service to low-density sprawl is difficult and expensive, and such places are designed around the automobile–the vast majority of transit users in these places are those who cannot drive. Providing good service to high density areas is easy–there’s lots of potential passengers, and owning an auto in these places is often more expensive or inconvenient, so a higher percentage of residents are likely to take transit. If one views the payroll tax as being paid by employees instead of by employers (an argument could be made that if the payroll tax didn’t exist, wages would rise somewhat), this is equitable from a funding point of view as well–high density areas contribute more dollars, and thus “deserve” more service hours allotted to them.

Some urbanists go further, and propose that dense areas receive levels of service that scale greater than linearily with population density.

However, the payroll tax isn’t paid by the workers, it’s paid by the boss–and levied at the place of employment. People who live outside of the TriMet service district, but work inside it, have payroll tax paid on their behalf; people who do the opposite (live in town but work elsewhere, i.e. in Washington) do not. Thus, attempts by areas with a large concentration of industry to withdraw from the service district are a credible threat.

And, there are quite a few TriMet lines with extremely low ridership–whose only purpose, it seems, is to maintain a minimal level of service to a given geographical area in order to justify collecting taxes from that area. One of those lines, the 84, is the subject of the next section.

The Boring situation

At the present time, the idea of Boring withdrawing from TriMet is still an idea–but it might have some legs. The city of Damascus to the west has long been outside the TriMet boundary (despite being surrounded by it). Some of the complaints lodged by the Boring business owners are entirely legitimate–the service to Boring is very limited, and is designed for Boring residents to get to jobs in the urban parts of the Metro area, not the reverse. (One line, the 84, provides weekday-only service to the are, and only three runs per day). It’s nearly impossible, given current scheduling, for a Gresham resident to take the bus to a job in Bornig. And given Boring’s extremely low density–it’s a small town surrounded by rural lands; more of an exurb of Portland than part of the continuous metropolitan area, providing good service would be difficult.

From a point of view of number of users, Boring isn’t entitled to very much service at all; but from a point of view of who pays the bills, Boring has a decent gripe. The annual payroll tax contribution from the community is $2 million; but operating the 84 only costs a fraction of that. Were Boring to withdraw, it would likely mean service cuts elsewhere in the metro area. (An unanswered question, though one which may be mooted by the current service patterns as indicated above: How many employees who work in Boring live there, vs. how many travel there from other parts of the metro area, vs. how many live outside the current TriMet service boundaries?)

Several other exurbs, more distant from Portland than Boring is–have withdrawn from the district over the years. Canby, Sandy, and Molalla all now operate their own transit agencies, which focus on their respective communities. Given Boring’s present exurban nature, I’m not entirely unsympathetic to their situation. Were Boring to withdraw from TriMet and form their own transit district (perhaps providing service to Damascus as well), that might produce a net benefit for transit users in the region, even if it produces a small negative for TriMet. (If such a district could reach a transfer agreement with TriMet, so interchanging between the systems doesn’t cost riders extra money, so much the better).

On the other hand, it might well be the case that the business owners in question simply want to take the money and run–we’ll see.

What about Wilsonville?

A more controversial departure from TriMet occurred in the city of Wilsonville in 1988, when the city elected to withdraw from the TriMet service district, and form its own city-run transit authority, nowadays called SMART, or South Metro Area Rapid Transit. SMART operates six bus lines (providing six-day service; no busses run on Sunday)–three of which provide half-hourly service within the city, and three of which provide connecting service to neighboring transit agencies (TriMet, Canby Area Transit, and Cherriots in Salem). Like the current situation with Boring, Wilsonville businesses complained that payroll tax dollars collected in the city of Wilsonville were being unfairly diverted to subsidize transit service in Portland–and indeed, TriMet did not, at the time, provide significant levels of service to the city. (At the time, Wilsonville had not experienced a major residential boom, and had the unusual distinction of more jobs than residents within City limits). So the city withdrew and started WART, later renamed to SMART. Intra-city service is free (the lines to Tigard, Canby, and Salem are not)–and the city’s employers got a tax cut in the bargain as well

The relationship between the two agencies has been somewhat fractious over the years. Early this year, when TriMet discussed reducing service frequencies on WES to deal with its budget crisis, Wilsonville leaders blew a gasket. WES, despite its many faults, is a useful way for TriMet commuters seeking to reach Wilsonville, as one can get to the Wilsonville transit center on a single TriMet ticket, and then transfer to SMART’s free intra-city lines. (Use of the SMART 2X line, between Barbur TC and Wilsonville, requires paying an extra fare to SMART–the two agencies do not honor transfers from each other).


Given all of that–how should TriMet (or transit agencies in general) be funded, and how should it (they) allocate service? Is the payroll tax fair, or should something else be used? Is the current service too Portland-focused? Or, is too much money being wasted on unproductive routes to suburban areas (particularly wealthier neighborhoods without much in the way of transit-dependent populations)? Should political subdivisions receive “level of service” guarantees from the agency?

A few specific ideas to consider:

  • Should cities (or smaller-scale entities such as neighborhoods) have the ability to “purchase” more frequent service than their population or density might otherwise merit, through some sort of local assessment? (We see this already with some types of capital improvements–Portland Streetcar, for instance, was largely funded with a Local Improvement District).
  • Could the Dial-a-ride program be expanded to other classes of transit-dependent riders (beyond the elderly or disabled) to permit the elimination of unprofitable bus lines?
  • Are more smaller transit agencies a good thing? Or is it better to have a single region-wide agency? (Or what of the Seattle model, where numerous local agencies–KC Metro, Community Transit, Pierce Transit–provide local service, and a separate agency–Sound Transit–focuses on regional trips?)
  • Is “local control” a value worth defending (in the transit context)–or does it lead to inequitable results, particularly when wealthy areas try to separate themselves from poorer areas in order to avoid subidizing them?

Keep in mind: The assumption of this site is that public transit is a useful thing–so this thread is not an invitation to discuss proposals to privatize or defund it altogether (i.e. fares should pay 100%).


3 responses to “Rethinking transit: Funding and equity”

  1. First, I would like to see Metro take over Trimet and designate the entire area served by Metro as the boundaries for the transit service district. I’m not a fan of a hodge-podge of tiny little agencies providing a patchwork of service in lieu of the regional authority. I’m also not a fan of monopolies, so smaller jurisdictions can provide their own transit service as their voters see fit and their taxpayers are willing to fund. No jurisdiction should be prevented from better serving their constituency, but I don’t like the idea of them opting out of a regional district when they are clearly part of the region (so I am not concerned about Sandy, Canby, et al., from opting out; just Wilsonville and Boring). A city or county can’t “opt-out” of the State of Oregon and provide it’s citizens and businesses a tax shelter from their responsibilities to the State. They can, however, provide additional services or augment services provided by the State or lobby the State to enhance the quality of life or business climate for their constituents as they see fit.

    Revenues for regional transit should come from a well-diversified collection of sources:
    Property taxes
    Payroll taxes
    Hotel taxes
    Sporting event/spectator fees
    Airport passenger fees
    Parking meter revenue
    Congestion pricing on limited-access highways in the Metro area

    Systems development charges should be levied for capital expenditures and service enhancements, not maintenance and operations. Sales taxes are too regressive, but I would consider an argument for a truly progressive sales tax (such as some form of a luxury tax) or a fuel sales tax or air pollution tax. Drivers benefit from people riding buses and trains, so I am not opposed to drivers explicitly paying for the transit system.

    This would diversify the transit district’s income, but it’s not likely these sources alone would have prevented the substantial revenue shortfalls of the Great Recession that resulted in massive service cuts. Other, perhaps unconventional (for government agencies, at least) income sources should be considered that could augment revenue streams during cycles of economic downturn that affect one or more of the aforementioned revenue sources.

    In addition to greater revenue stability, those in charge of the transit district (the Metro council) could actually be held accountable by the voters. Contrast this with the present Trimet Board, serving omnipotently at the pleasure of the governor. If part of the region is underserved by transit, voters will have a local representative to whom they can engage to demand better service, and recall or usurp through a popular election if they don’t deliver what their people demand.

    The equity issue is certainly more challenging given the geography and low- density development patterns in this region. However, jurisdictions that have allowed – alas, often mandated – development to occur in a fashion that is not conducive to providing their constituents access to regional transit service should be held accountable by their constituents for that failure. They can compensate for this by augmenting the regional service that travels to or through their jurisdiction with local service designed for the needs of their constituents, which could be a combination of fixed-route and dial-a-ride service to local destinations and local hubs for the regional transit service. Who pays for this enhanced service? Presumably the taxpayers that elected (or chose to move to jurisdictions represented by) politicians that enacted, enabled or otherwise supported the policies that led to the very development patterns that makes it difficult to provide transit service to their jurisdiction.

    This will probably be very expensive, but the regional authority should guarantee that all properties in the region will see hourly weekday service at an accessible stop within 1/2 mile walking distance and hourly Sunday service at an accessible stop within 1 mile. Properties that are not provided this minimum level of service could be eligible for a reduced property tax liability, but not a full exemption. Employers should not be eligible for any reduction in payroll tax liability. Perhaps properties within 1/4 mile of frequent service could be levied an additional tax or higher tax rate to fund frequent service operations. With farebox receipts eliminated as a source of revenue we implicitly prevent any routes from turning a profit, so additional money would have to be found to afford “frequent” service along some routes when such an emphasis is placed on providing service throughout the entire region. Also, effectively raising the cost of land along frequent service routes should increase the demand for greater density along the corridors that can best support it.

    This isn’t meant to be a comprehensive report on the viability of this plan, but rather a concept for funding stability and a (somewhat rambling) statement that we need to get serious about stabilizing long-term transit funding, our responsibilities to each other in the region, and providing a reasonable level of service to everybody who pays into the system.

  2. Scott, where do you get $2M for Boring’s payroll contribution? Per a back of the envelope calculation that’s about equal to what would be paid if everyone who lived in Boring worked in Boring. I’d expect more ‘outflow’, ie more money earned by residents going out for work then non-residents coming in.

    If those flows balance it’s a stretch to say Boring is an “exurb”, rather then an autonomous rural community.

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