Public Transit Funding: Fares, Sales Taxes and the Fiscal Cliff

If you want to understand why your bus comes every 12 minutes instead of every 30 — or why it stopped coming on Sundays — you have to follow the money. Transit budgets are one of the least understood parts of local government, and the past three years have turned them into one of the most contested.

Here is how transit gets paid for, why so many agencies hit a wall at the same time, and what the options look like when the money runs short.

Where the money comes from

Transit agencies keep two separate budgets, and confusing them is the single most common mistake in a public hearing.

• Operating budget: drivers, mechanics, fuel and power, maintenance, security, insurance. This pays for service — how often buses and trains run.
• Capital budget: buses, railcars, track, signals, stations, garages. This pays for assets.

Federal money leans heavily toward capital. According to the Congressional Research Service, in 2019 US transit operating expenses were covered roughly as follows: fares 34%, local government 35%, state government 23%, and the federal government about 8%. Since 1998, agencies in urbanized areas above 200,000 residents generally cannot use federal formula funds for operating expenses, though agencies with 75 or fewer fixed-route buses may use up to 75% of formula funds for operations and those with 76 to 100 buses may use up to 50% — the so-called 100-bus rule. Smaller urbanized areas keep full flexibility.

That is why a mayor can cut a ribbon on a new federally funded rail line in the same year the agency cuts bus frequency. The federal grant bought the train; nobody funded the operator’s overtime.

Local and state sources vary widely:

• Dedicated sales taxes are the workhorse in most metros, often approved by voters for a fixed number of years.
• Property taxes and parcel taxes, common in California and the Midwest.
• Payroll or business taxes, used in Portland and parts of Oregon and Washington.
• Motor fuel taxes, vehicle fees, tolls and parking revenue.
• Congestion pricing, now operating in Manhattan and closely watched elsewhere.
• Advertising, real estate and fare revenue from the agency itself.

Key takeaway: Fares have never paid the full cost of transit anywhere in the United States, just as gas taxes have never paid the full cost of roads. The real question is which public source fills the gap and who pays it.

Why the fiscal cliff arrived all at once

Three things happened together.

First, ridership fell off a cliff in 2020 and recovered slowly and unevenly. The American Public Transportation Association reported 8.1 billion trips in 2025, up 6% from 2024 but still about 81% of pre-pandemic levels for the year, rising to 83% by December 2025. Recovery varies by mode: bus ridership has come back faster than commuter rail, which depends on five-day-a-week downtown commuting that has not returned.

Second, federal relief masked the problem. Congress appropriated about $69.5 billion in supplemental transit aid in 2020 and 2021 — roughly five times normal annual federal support. Agencies used it to keep service running. When it ran out, the underlying structural gap reappeared, larger because costs had risen.

Third, costs grew. Labor shortages pushed up wages and overtime, insurance and parts got more expensive, and paratransit — which agencies are legally required to provide — is expensive per trip and growing.

What a cliff looks like in practice

Philadelphia

SEPTA faced a $213 million operating deficit and, after the state budget stalled, implemented service cuts starting in late August 2025 along with a 21.5% fare increase projected to raise about $31 million. A Philadelphia judge ordered the cuts reversed. In September, the Shapiro administration allowed SEPTA to redirect $394 million in capital assistance to operations, with full service restoration expected by mid-September, WHYY reported.

That fix bought roughly two years — and it came out of the money that repairs tracks and replaces aging railcars. Senate Democratic Leader Jay Costa called it “the last, worst step that was available.” Senate Republican Leader Joe Pittman blamed Democrats for not backing an earlier House bill. In November 2025, the governor directed an additional $219.9 million in capital funding to address urgent safety needs. Follow developments on the Philadelphia page.

Chicago

Northern Illinois transit agencies projected deficits of $230 million in 2026, $834 million in 2027 and $937 million in 2028, with warnings of service cuts as deep as 40%. In December 2025, the governor signed a roughly $1.5 billion package, Capitol News Illinois reported. It draws about $860 million from redirected motor fuel sales tax revenue that previously went to road projects, about $200 million from Road Fund interest, and about $478 million from an RTA sales tax increase — a quarter-point in the suburban collar counties and a half-point in Cook County — plus a possible toll increase.

The law also replaces the RTA with a new Northern Illinois Transit Authority beginning in September 2026, with power to set unified fares and coordinate schedules across CTA, Metra and Pace. Republicans called it a Chicago bailout paid for by suburban taxpayers, and suburban officials objected that only five of 20 board seats are reserved for members from outside Cook County. Downstate transit systems received $129 million rather than the $200 million advocates sought. See what is scheduled in Chicago.

The Bay Area

California’s 2025 Connect Bay Area Act (SB 63) authorizes a regional measure for the November 2026 ballot covering Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara counties: a half-cent sales tax in most participating counties with San Francisco authorized to go higher, lasting 14 years and sunsetting in 2041, raising roughly $1 billion a year to stabilize BART, Muni, AC Transit and Caltrain, SPUR explains. Threshold rules matter: a measure placed by government action needs two-thirds approval, while a citizen-initiated measure may need only a simple majority. Critics warn the measure consumes limited sales tax capacity that cities may need later. Watch the San Francisco page.

Ballot measures: transit’s most common lifeline

For most metro areas, the decisive vote is not in a council chamber but on a ballot. And voters say yes more often than the conventional wisdom suggests: APTA counted 46 of 53 transit-related measures approved in 2024, securing over $25 billion, per Tennessee Lookout’s summary.

Nashville is the instructive case. A 2018 transit referendum failed 64%-36%. In November 2024, a half-cent sales tax funding a $3.1 billion, 15-year program passed with 65.5% support. The 2024 version leaned on sidewalks, traffic signals, bus frequency and safety improvements that residents could picture on their own street, rather than a single large rail project. Measures also failed that year — in Charleston and Beaufort counties in South Carolina, Gwinnett and Cobb counties in Georgia, and San Diego — so this is not a guaranteed path. Local information is on the Nashville page.

Sales taxes carry a well-known criticism: they take a larger share of income from lower-income households, who are also more likely to ride the bus. Supporters answer that the service funded is progressive even if the tax is not. That tradeoff deserves an honest hearing rather than a slogan.

The service tradeoffs nobody escapes

When money is fixed, agencies choose among:

Arguments for and against new local transit funding

Questions to ask at your next public hearing

• What is the projected operating deficit for each of the next three fiscal years, and what assumptions about ridership and cost growth is it based on?
• Is this proposal funding operations, capital, or both — and can the funding source legally pay for drivers?
• If service is cut, which routes and time periods, and how many riders are affected by route?
• What was the farebox recovery ratio before the pandemic, and what is it now?
• If a tax measure is proposed: what is the rate, the duration, the annual revenue estimate, the sunset date, and who audits the spending?
• What service, specifically, will riders get in year one, year three and year five if this passes?
• What happens if it fails — what is the fallback plan, and when would cuts take effect?
• How much deferred maintenance exists, and does this proposal address it or postpone it?
• Who sits on the governing board, how are they selected, and how can riders raise problems between meetings?

Key takeaway: The most useful question in a transit budget hearing is boring and specific: “Which fund pays for this, and can that fund legally pay for service?” A surprising number of proposals fall apart on that question.

What you can do next

• See the numbers yourself. Agency budgets and service change proposals are public. Our guide to how city budgets work explains how to read them, and public records requests will get you route-level ridership data.
• Show up where service decisions happen. Transit board meetings are usually separate from city council. Find dates on the town hall calendar and officials in the directory.
• Debate the tradeoff directly. Start a debate on frequency versus coverage, or on a proposed tax measure, and let neighbors test the arguments in open debates.
• Know who represents you on the board. My District can help you identify the elected officials who appoint transit board members.
• Build support for a specific ask. If a route restoration or a ballot measure needs momentum, start a petition or initiative with a clear, costed request.