VI. Public Transportation Development

Program: Public Transportation Development (section 118)


Federal Funds:



Special Revenue Funds:





Program Description:

This appropriation funds and promotes a number of different types of public transportation programs including capital grants to local systems to buy new buses, car and van pooling, service to the disabled and elderly, and a transportation initiative to facilitate the welfare to work program.

Recommended Action:

The programs in this section could be eliminated in favor of private-sector alternatives.

Municipal Credit Program.  This program subsidizes public transportation programs in southeast Michigan.  The program could be terminated and the public transit users required to pay the cost of services they receive.  Savings: $2,000,000.

Bus Capital.  In addition to the $158.5 million in bus operating subsidies provided by MDOT, the department also provides the funds to help buy the buses whose operation the other program subsidizes.  Users of the bus system should be expected to pay fares that cover the full costs of the service they receive — both operating and capital costs — and local systems should strive to keep costs down by renegotiating labor contracts and improving management.  If the users are unwilling to pay the full costs, it would constitute a strong signal to officials that the service is not sufficiently important to sustain.

Because public transit use in Michigan is well below national averages and accounts for only a tiny fraction of riders, the loss or shrinkage of this service will have a negligible impact on mobility opportunities and congestion.  One alternative for cities is to encourage rather than prohibit the use of private jitney cabs among its citizens.[15] Jitneys are a low-cost, flat-fee alternative to public transit.  Savings: $48,849,500.

Service Development and New Technology.  This program funds public transit research, training and demonstration programs.  With Michigan’s public transit programs being terminated, devolved and privatized, continued state involvement in ancillary transit services would be unneeded.  The program should be terminated. Savings: Savings $1,550,000. 

Further Reforms and Cost Savings

Opportunities to reform Michigan’s transportation programs are constrained by many federal factors.  They include costly and counterproductive regulations and fund diversions effectively imposed on Michigan by the Federal Highway Administration, Federal Aviation Administration, Federal Railroad Administration and the Federal Transit Administration.  All of the money routed to states by these agencies has numerous strings attached that cause states to spend funds in ways that are of no value, or limited value, to the average motorist or passenger.

In addition, Michigan fares relatively poorly in federal transportation programs compared to other states.  The federal highway program, for example, is funded by a federal fuel tax of 18.4 cents per gallon that each motorist pays on the gasoline purchased.  Although, over the long run, states could receive as much from the fund as they pay in, Michigan’s motorists pay much more into the highway trust fund than the state receives back from it.

Since the fund was created in 1956, Michigan has received back only 81 percent of what it paid in compared to, say, West Virginia, which received 169 percent of what it paid in.[16] Although efforts have been made in recent years to reduce such regional inequities, in 2000 Michigan received only a 87 percent share of what it paid in, and that missing 10 percent amounted to a deficiency of $107 million in 2001 alone.  Obviously, if Michigan received even the average state’s share, it could reduce or defray its transportation spending by hundreds of millions dollars over a short time.

However deficient the return of federal dollars, the federal government mandates that a portion of the money paid back to the states be spent on programs that have little impact on citizens’ mobility.  For example, nationwide 20 percent of the highway trust fund must be spent on public transit, even though less than 5 percent of travelers use it.  Worse, this 20 percent tends to be directed to those few states where public transit ridership is greatest — specifically to the seven metropolitan areas that account for 75 percent of all U.S. public transit passengers.  Because Michigan’s public transit use is below average, so is its federal transit funding, meaning that Michigan motorists are also subsidizing transit riders in New York, Chicago and Washington, D.C. 

Federal requirements on state matching funds divert even locally raised transportation funding to ineffective uses. In addition to public transit spending, states are required to spend some of the money on congestion mitigation and air-quality programs, which generally leads to more spending on public transit.  States also have to build bicycle and hiking paths, and some of the money must be devoted to historic preservation.  Another program diverts money to covered bridges. 

Among the many regulations attached to federal highway dollars is the requirement that all projects funded with federal money be subject to the Davis-Bacon wage provisions, which generally require that workers building highways receive wages above market rates.  Federal money spent on public transit generally allows the public transit system to act as a monopoly, which keeps out competition that could otherwise lower costs. Section 13(c) of the Urban Mass Transit Act requires local systems to act with a pro-union bias and mandate a union-approved contract with employees.  Consequently, public transit employees have high wages and relatively low productivity compared to workers in similar positions elsewhere.  There are also significant federal obstacles and prohibitions erected against toll roads and highway and airport privatization efforts. 

As a consequence of these regulations and the diversion of the federal money returned to Michigan, the state is forced to spend more of its own money on costly programs that do little to ease traffic congestion or improve mobility.

In 2003 the federal highway and transit programs must be reauthorized, and this offers an opportunity to reform the legislation in ways that ease the burdens and distortions the program creates in the states.  One promising proposal that will be under consideration is called “turn back,” because the proposal would turn back to the states the transportation responsibilities and discretionary powers, as well as the federal fuel tax revenues, that they had prior to 1956 when the federal program was created.  In 2002, Sen. James Inhofe R-Okla. introduced legislation in the 107th Congress (S.2861, Transportation Empowerment Act) that would do just this.  Elected officials in “donor” states like Michigan should support such legislation and seek its enactment.