The panel’s report noted that  WMATA—unlike almost all other large transit systems—does not have a  substantial dedicated source of revenue, such as a local sales tax, whose  receipts are directed to the transit authority. As a result, the panel  concluded that the Washington, D.C., region needs to develop a dedicated  source of funding for WMATA, and recommended specifically that a  regionwide sales tax be implemented. Dedicated Funding Is an Important Part of Transit Agencies’ Overall Funding and Commonly Includes a Basket of Revenue Sources Used for Both Operations and Capital Expenditures

		Definition of Dedicated Funding Has Some Common Characteristics, but There Is Variation in How It Is Structured

Using the definition in FTA’s National Transit Database (NTD), we  identified the following characteristics of dedicated funding: (1) specific  revenue sources are designated, (2) the revenue is designated to be  provided to the transit agency, and (3) the revenue is not subject to  appropriations. As of April 2006, this legislation  had not been enacted. Although the NTD provides a description of dedicated funding, the  revenue that transit agencies report as dedicated may or may not have the  characteristics described by the NTD. Having the flexibility to spend  dedicated revenues on operations or capital has advantages for transit  agencies, according to agencies and transportation experts we spoke with. 3496), state and local officials are faced with two main  issues, should they choose to enact dedicated funding for WMATA: (1)  which revenue source or sources to dedicate to WMATA and (2) whether  and how to address a WMATA budgetary shortfall. State and local governments could establish a dedicated funding  source for WMATA without increasing their revenue collections. For example, H.R. Legislation that would amend the WMATA Compact as required by H.R. Such legislation was introduced in the  Maryland General Assembly in February 2006, but was later withdrawn. Currently, the jurisdictions are more focused on enacting legislation to  establish dedicated funding. WMATA Funding Partners Have Yet to Resolve Several Issues Related to Dedicated Funding

WMATA’s funding partners face a number of issues that will need to be  resolved should they choose to provide WMATA with dedicated funding. In addition  to addressing this fundamental issue, the jurisdictions must also resolve  the following issues:     what proportion of the jurisdictions’ payments to WMATA would come  from dedicated sources and how to mitigate the risk associated with  dependence on these sources;    whether dedicated funding would result in a net increase in the amount  WMATA receives from the Compact jurisdictions and what portion of the  total amount dedicated to WMATA each jurisdiction would pay;    whether dedicated funding should be used exclusively for WMATA’s  capital or operating needs, or both; and    whether increased oversight of WMATA is needed to ensure adequate  accountability for dedicated funds. Agency Comments

We provided copies of a draft of this report to WMATA and the U.S.  Department of Transportation for their review and comment. These officials also  provided technical clarifications, which we incorporated in the report, as  appropriate. We will also make copies available to  others upon request. We analyzed financial  data for the 25 largest transit agencies using information in the Federal  Transit Administration’s (FTA) National Transit Database (NTD). The NTD  contains financial data reported to FTA by transit agencies. To compare potential revenue sources that could be used as dedicated  funding for WMATA, we reviewed literature on the economics of state and  local public finance and mass transit funding and the Metro Funding Panel  report, and met with experts in state and local public finance and the  financing of transportation and with staff from the Metro Funding Panel. Based on that review and those discussions, we  identified year-to-year revenue stability, longer-run revenue adequacy, and  the tax or fee rate necessary to yield a specified amount of revenue as key  considerations for choosing a revenue source to dedicate to WMATA; identified equity, efficiency, and administrative cost as additional  considerations that could be affected if there are tax and fee increases to  provide additional funding to WMATA; identified the sales tax, the payroll or income tax, the motor vehicle fuel  tax, the property tax, access fees, and vehicle registration fees as revenue  sources that we would compare; and   assessed these revenue sources based on the considerations identified. To determine the major actions required to establish dedicated funding for  WMATA, what progress on these actions has been made so far, and what  issues related to dedicated funding have emerged, we interviewed the  following state, local, and regional officials, including the chief administrative officers or other appropriate official from each of  the eight local Compact jurisdictions or their representatives; the Director of Transportation from the District of Columbia and the  Secretaries of Transportation from Maryland and Virginia;   members of the Maryland General Assembly, the Virginia General  Assembly, and the City Council of the District of Columbia—we selected  officials who sit on committees that would be involved in dedicated  funding legislation;    officials from the Offices of the Parliamentarian at the U.S. House of  Representatives and the U.S. Senate; representatives from the Northern Virginia Transportation Commission;  and   WMATA officials, including representatives from the Board of Directors,  the Office of Policy and Intergovernmental Relations, and the Office of  General Counsel.
Why GAO Did This Study

A regional panel estimated that the Washington Metropolitan Area Transit Authority (WMATA)--Washington, D.C.'s, transit system--will have total budgetary shortfalls of $2.4 billion over 10 years. The panel and others have noted that WMATA's lack of a significant dedicated revenue source may affect its ability to keep the system in good working order. Proposed federal legislation would make $1.5 billion available to WMATA if the local governments established dedicated funding. This report addresses (1) the characteristics of dedicated funding and its effects on transit agencies and governments; (2) how potential revenue sources compare in terms of stability, adequacy, and other factors; (3) major actions needed to establish dedicated funding for WMATA and the progress made to date; and (4) issues that dedicated funding poses for the region and WMATA. To address these issues, GAO reviewed financial data for the nation's 25 largest transit agencies, interviewed officials from 6 transit agencies and from the state and local governments that support WMATA, and reviewed literature on the financing of mass transit. GAO provided a draft of this report to WMATA and the Department of Transportation for review. Officials from these agencies provided technical clarifications that were incorporated in the report, as appropriate.

What GAO Found

Dedicated funding, an important source of revenue for many transit agencies, is described by the Federal Transit Administration (FTA) as a specific revenue source--such as a sales or gas tax--that is designated to be used for transit and is not subject to appropriations. According to data transit agencies report to FTA, 23 of the 25 largest transit agencies have dedicated funding, although the transit agencies GAO spoke with vary in the extent to which their dedicated funding corresponds to FTA's description. Most transit agencies with dedicated funding receive such funding from multiple sources and use it on both operations and capital expenses. Generally, dedicated funding is subject to the same oversight as other expenditures and is viewed by transit agencies as having a positive effect on their financial health, particularly with regard to long-range planning. However, dedicated funding has potential drawbacks: For example, it is vulnerable to economic cycles, and it limits the budgetary flexibility of state and local governments. Selecting a dedicated funding source for WMATA involves consideration of the funding source's year-to-year stability and its longer-run adequacy. For state and local governments, another consideration is the political feasibility of the tax or fee rate required to collect a specified amount of revenue from a particular funding source. Revenue sources that GAO analyzed--the sales tax, payroll or income tax, motor vehicle fuels tax, property tax, access fees, and vehicle registration fees--have different characteristics when assessed using these considerations. If governments increase their overall tax and fee revenues to provide additional funding for WMATA, there may be equity, efficiency, and administrative cost issues for their tax systems. To establish dedicated funding and conform to the requirements of the proposed federal legislation, WMATA's supporting jurisdictions would need to enact separate legislation to direct a specific revenue source to WMATA and to amend the WMATA Compact. As of April 2006, legislation to dedicate a portion of sales tax revenues to WMATA had been enacted in the District of Columbia, but neither Maryland nor Virginia had enacted comparable legislation. The only jurisdiction to introduce a bill to amend the Compact has been Maryland, and this legislation was later withdrawn. The District of Columbia and Virginia have not begun steps to amend the Compact. The federal government and the jurisdictions that support WMATA will need to resolve several issues should they choose to provide WMATA with dedicated funding, including (1) the proportion of the jurisdictions' payments to WMATA that come from dedicated funding and how to mitigate its risks; (2) whether dedicated funding will result in a net increase in payments to WMATA and how the size of each jurisdiction's payment will be determined; (3) whether dedicated funding should be used for operations, capital expenditures, or both; and (4) whether increased oversight of WMATA is needed to ensure dedicated funds are properly accounted for.