Public-transit service in the United States once was provided by unsubsidized private companies under public franchise. But, for more than two-and-a-half decades, most urban public-transit services have been provided by public authorities and supported by public subsidies. Much of the public aid has been consumed by costs that have escalated well ahead of the inflation rate. Public transit provides mobility for an ever-smaller minority of the general population, while increasing public transit unit costs have resulted in increasingly higher fares and federal, state, and, predominantly, local subsidies (see Figure 1).
Transit operating costs per vehicle mile increased 418 percent from 1970 to 1990—twice the rate of inflation and two-and-a-half times the cost of similar service in the private bus industry.
Since the public sector began to produce transit service, transit cost increases have outstripped every element of the consumer price index, including fuel and medical care costs.
Nationwide, fares cover about one-third of transit's operating costs and none of transit's capital costs. Since 1956, transit has consumed nearly $200 billion in federal, state, and local subsidies. Fares, which lagged behind inflation during the 1970s and 1980s, are high and rising in large metropolitan areas, further eroding transit's small market share. Yet, many transit agencies face or will face budget shortfalls despite proposed increases in federal transit subsidies. These growing deficits will increase the pressure for more state and local aid to transit.
Transit's problem is not lack of funding; increased subsidies have contributed
to rising transit costs. Three-quarters of all new inflation-adjusted monies received by transit has been used to fund costs that have exceeded inflation. Most of the subsidies have been consumed by declining worker productivity and wages and benefits that are two or more times those of similar private-sector workers.