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The Implications of the Fiscal Cliff and the Fiscal Cliff Bill for Transit

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The Implications of the Fiscal Cliff and the Fiscal Cliff Bill for Public Transportation

On Tuesday, January 1, 2013, Congress passed legislation avoiding the so-called "fiscal cliff" in which taxes would have been raised across the board and significant spending reductions would have been enacted. This bill was signed by Obama on Thursday, January 3. While many have written about the effect of the fiscal cliff and the bill preventing it in general, what are the implications of the fiscal cliff and the fiscal cliff bill for public transportation?

The Good News - the Public Transit Pass Benefit Has Been Increased

In a stroke of good news for public transit commuters, the fiscal cliff bill restored parity between transit commuters and auto commuters in regards to the amount of pre-tax dollars that can be spent on transit passes in comparison to parking. For 2012, the amount of money that could be set aside pre-tax for transit passes was $125 per month; in comparison, auto commuters could spend $240 per month pre-tax in parking charges. In 2013 (and retroactively for 2012), the maximum for both will be set at $240 per month. Note that this change is not permanent - unless Congress acts again the public transit pre-tax benefit will return to $125 per month in 2014. In order to get these benefits your employer must participate in a federal commuter benefits program.

The Bad News - Scheduled Sequestration Cuts Have Been Postponed, Not Eliminated

The so-called "sequester" would have resulted in an 8% across the board reduction on discretionary spending. This would have resulted in a decreased subsidy to Amtrak and the New Starts Program . Note that transit formula programs - money that pays for such things as operating assistance for small transit agencies and new buses - is exempt from this process because since the funding comes from gas tax receipts it is not considered discretionary. While the cuts have been postponed, they have only been postponed for a couple of months, and could still be implemented in March, perhaps in part of a deal to increase the debt ceiling.

It is estimated that these cuts would reduce the annual New Starts appropriation by $156 million. In addition, the TIGER program would be cut by $41 million. AMTRAK would lose $38 million from its operating subsidy and $78 million from its capital budget.

How would the $156 million be cut from the New Starts Program? According to its annual report, "to the extent that funds can be obligated in the coming fiscal year under existing FFGAs and PCGAs, these commitments should be honored before any new funding recommendations are made." I take that to mean that existing projects would continue to be fully funded, but new projects might not be funded until existing ones are completed. This result would be very bad news for Los Angeles, which has two projects - the Regional Connector and the Westside Subway Extension - that are about ready for a full funding grant agreement, as well as for Charlotte, NC, which has a project (the Northeast LYNX extension) ready for one this year. Those three projects are slated to receive $151 million in New Starts funding for FY13.

How would AMTRAK be able to reduce its operations costs by $38 million and its capital budget by $78 million? Most commentators believe that it will be able to absorb such a hit without much effect, although it may result in fare increases and the possibility of a poorly utilized train being cut. Note that since AMTRAK already has a farebox recovery rate of 79%, any fare increases would make it even more efficient. I would also like to see state support of AMTRAK routes increase; state-supported corridors already carry nearly half of all AMTRAK passengers.

Transit's Own Fiscal Cliff Is Looming in 2014

Without any new revenues such as an increase in the federal gas or diesel tax or without any reductions in outlays, the Mass Transit Account of the Highway Trust Fund will be bankrupt in 2014 - a fate that the Highway Account will experience in 2015. While MAP-21 was overall a good bill, it did not address this problem - here's hoping that Congress will.

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