Shaping the Future: Funding

photo courtesy of: BC Transit

Experiences in the transit industry suggest that major change in transportation behaviour (people switching from cars to transit) and transit systems requires initial substantial investment and takes place over long timelines, such as 20 years. During that period, funding formulas often have to evolve to remain successful and sustainable.

BC Transit funding sources

The two main sources of funding for BC Transit are government (provincial and municipal), and passenger fares. The federal government also contributes funding for capital infrastructure.

  Figure 8 - Sources of funding for BC Transit (click image to enlarge)

 Funding for transit comes from these main sources in most of BC Transit’s service area:

  1. provincial government
  2. municipal government 
  3. passenger fare revenues (plus a small contribution from advertising and investment income)

In the Victoria Regional Transit System, fuel tax is an additional source of funding.

The federal government also contributes to some transit capital projects.

 

Text box H - How transit service levels and budgets are set (click image to enlarge)

Passenger fares offset the amount municipal governments fund. This means that if passenger revenues increase, municipal governments have to cover less of their transit costs through other sources, such as property taxes.

Provincial and municipal funding are tied to each other through a legislated cost-sharing formula.The formula requires that each party pay a specific proportion of transit costs each year; therefore, if one funding partner wishes to expand transit services, the other partner has to pay their portion of the associated costs.

Provincial funding levels are set based on a formula in the Transit Act regulations. The formula requires the following cost-sharing:

  Figure 9 - Transit cost sharing formula (click image to enlarge)

For an explanation of different types of transit, see Text Box A.

Victoria’s conventional transit system receives a lower provincial share because there is a fuel tax that supplements funding for the system.

Over the past five years since the announcement of the Provincial Transit Plan, transit expansion has been impacted by the ability of either the Province or local governments to fund its share of a proposed transit expansion. Overall, the provincial government’s proportion of transit funding has generally increased since 2008.

 Figure 10 - Changes in BC Transit funding sources (click image to enlarge)

 

British Columbia’s provincial government is above the Canadian average in its contributions to transit operating revenues. 

Text box I - Transit funding sources: Comparison of British Columbia to the Canadian average (click to read)

 

Transit funding is fairly complex and varies greatly across the country, making it challenging to develop clear comparisons between transit agencies in different provinces. Nonetheless, some comparisons have been made that can provide insight into differences between provincial approaches.

 

British Columbia’s government is one of five Canadian provinces and territories that provides operating funding for conventional transit. From the chart, we see that the provincial contribution in B.C. is higher than the Canadian average, while the proportion provided by municipal contribution is roughly similar, and the proportion covered by passenger fares is lower in B.C. than the average.

 

Text box I-a - Source of transit operating revenues (click image to enlarge)

  

 

If we look at the funding sources on a per capita basis, however, the figures suggest that British Columbia’s municipalities are among the lowest contributors in Canada. This emphasizes the high level of provincial funding for operating costs in British Columbia.

 

This high level of provincial funding enables BC Transit to provide transit services in a wider range of communities than in much of the rest of Canada, including communities that would normally be considered too small to afford public transit. This wider scope of communities with transit can contribute towards meeting the social goal of improving mobility. But at the same time, passenger fares do not cover transit costs due to lower ridership.

 

To consider: What is the most appropriate funding model for BC Transit to meet long-term transit goals and objectives?

 

Costs and trends of transit funding

The Ministry of Transportation and Infrastructure and BC Transit projected that achieving transit growth would require an injection of financial resources for capital projects such as rapid transit infrastructure, new buses and building or expanding transit exchanges, bus garages and maintenance facilities. In addition to the cost of expanding transit to achieve the growth targets, there are substantial capital costs just to maintain existing services. For example, fleet replacement costs were 75 percent of BC Transit’s capital budget during the period from 2007/08 to 2011/12.

Along with capital investment, expanding transit services also entails an increase in operating funds, at least until the time when ridership growth is significant enough that passenger fares cover the costs of transit services.

In 2007, the Ministry of Transportation and Infrastructure’s estimate was that to achieve their goals of increased transit usage by 2020, capital and operating costs would amount to approximately $2.6 billion. 

This translates to an average annual increase of 4.1  percent.

The provincial government put forward a vision for, and commitment to, public transit in the province in the Provincial Transit Plan, and called upon its government partners at federal and municipal levels to join in the vision. BC Transit has worked towards achieving the goals of the Provincial Transit Plan through its partnerships with local governments, and relies strongly on their support to meet the targets.

Actual total expenditures from 2007/08 to 2012/13 have increased by an annual average of 9 percent. This increase is higher than what the ministry initially projected would be required, but lower than what BC Transit anticipated in its service plans during the first three years after the launch of the Provincial Transit Plan. BC Transit considers that the economic downturn has been a constraint on the availability of funding for transit expansion.

Figure 12 - Expenditure trends for transit provision from 2007/08 (click image to enlarge)

 

 

Total expenditures are comprised of capital and operating expenditures, and the trends have been different for each type. Actual capital expenditures from 2007/08 to 2012/13 are lower than projected, assuming an even distribution to 2020. Operating expenditures are higher than what the Ministry of Transportation and Infrastructure originally projected would be required to meet their goals for 2020. However, BC Transit’s projection from its service plans anticipated higher operating expenditures than what was actually spent for four of the five years since the plan was launched.

A large proportion of operating expenditures is the delivery of transit service hours— that is, the number of hours the buses are on the road. The number of transit service hours delivered during the period since the Provincial Transit Plan was launched was lower than anticipated.

This is likely related to an increase in the cost of providing transit services.

Therefore, achieving 2020 targets will require even more funding for operating costs than anticipated in the 2008 Provincial Transit Plan.

To consider: Are existing funding commitments and sources sustainable given the long-term objectives and timeframes targeted?

The understanding and estimation of transit development costs is more advanced than the quantification of transit benefits. As the Freiburg example in Text box B has shown, there are real economic benefits, ranging from higher cost recovery in transit operations to reduced health care costs from safer means of mobility, that accrue to society. However, the distribution of transit costs and benefits is not symmetrical. Many of transit’s benefits will accrue to government departments outside transportation (e.g. health and social services departments), while the costs for developing public transportation are concentrated within the transport department’s budget. In addition, the economic benefits from investing in public transportation often lag behind the costs by a decade or more.

Funding challenges of long-term transit planning

In addition to challenges related to annual funding and decision-making, the funding aspect of long-term transit planning can also be difficult. For instance, government budget commitments are made on 12 month cycles, yet it takes approximately 18 months from ordering to receiving a new bus, thereby running costs through multiple financial years. Given the limited production capacity for transit vehicles in North America, if many other transit agencies pursue similar goals of significantly increasing transit ridership, the lag time for acquiring the vehicles and other facilities could grow. BC Transit is working with its partners to develop processes to address some of the challenges related to long-term transit planning.

To consider: What long-term funding commitments are required to facilitate effective and efficient long-term planning?

To consider: What is the capacity of the transit supply industry to produce additional buses or respond to demand for different types of buses to meet transit expansion plans?

Transit funding as a tool to achieve goals

Transportation funding can be used as a tool to achieve the goal of increasing transit use and decreasing vehicle use, if it is designed to send market signals to customers that influence their travel choices.

Currently, BC Transit has a funding source that is directly linked to transportation behaviour for the Victoria regional transit system, which is the gas tax. The gas tax is added to the price of gasoline, which raises the cost for customers at the pump (3.50 cents dedicated motor fuel tax – BC Transit Victoria). Raising the cost of gasoline tends to reduce consumer use, encouraging people to use alternative transportation methods, such as transit. At the same time, the money collected from the gas tax goes directly to fund transit. In the rest of the province, BC Transit’s funding comes from property tax and provincial contributions from income taxes.

To consider: How can transit funding sources be designed to achieve the greatest positive influence on transportation behaviour?

Funding: Questions for key stakeholders to consider

1. What is the most appropriate funding model for BC Transit to meet long-term transit goals and objectives?

2. Are existing funding commitments and sources sustainable given the long-term objectives and timeframes targeted?

3. What long-term funding commitments are required to facilitate effective and efficient long-term planning?

4. What is the capacity of the transit supply industry to produce additional buses or respond to demand for different types of buses to meet transit expansion plans?

5. How can transit funding sources be designed to achieve the greatest positive influence on transportation behaviour?