The U.S. Government Accountability Office (GAO) recently released a report on local funding sources for the New Starts program, which provides federal support for transit expansion projects. GAO found that local and state sources account for the majority of funding for New Starts projects (48.1 percent and 6.9 percent, respectively), with federal aid accounting for 45 percent of the total program. For Small and Very Small Starts projects (i.e., those with total capital costs less than $250 million and $50 million, respectively), federal aid represents a larger slice of the pie, accounting for 67 percent of total funding. Local and state sources account for the remaining third (24.1 percent and 8.8 percent, respectively). New Starts projects tend to focus on rail transit, while Small and Very Small Starts projects tend to focus on bus transit.

Federal sources for New, Small, and Very Small Starts projects overwhelmingly come from the New Starts program itself, with the remaining support coming from other Federal Transit Administration (FTA) programs, "flexed" highway funds, or other sources. State sources largely include debt and bonds, but also lottery, general revenues, state transit funds, and other sources. Local sources include sales taxes most prominently, but also a variety of other sources including tolls, municipal or county funds, property taxes, value capture, debt, and public-private partnerships, among others.

The relatively large share of state and local funding for New Starts projects stems in part from the New Starts program's administration. New Starts grantees must provide a statutorily required local match of 20 percent, and the Congressional Conference Report that accompanied the FY 2002 U.S. Department of Transportation Appropriations Act instructedthe FTA to lower the federal share to 60 percent. GO TO 2040 notes that, in contrast, highway projects are generally funded with a federal share of 90 percent for Interstate maintenance and improvements, and 80 percent for most other projects. This higher federal share creates a funding advantage for highway projects. GO TO 2040 recommended that the criteria for federal New Starts grants should be expanded to support reinvestment in existing infrastructure rather than solely new expansions. The plan also called for revision of FTA regulations concerning use of funds for engineering of transit projects to create a "level playing field" with regulations governing highway projects.

The discretionary New Starts program is the largest federal funding source for transit capital projects. As discussed in this Policy Update, Moving Ahead for Progress in the 21^st Century (MAP-21), the two-year transportation reauthorization bill passed this summer, expanded the eligibility for projects to be funded from the New Starts program. The program had traditionally focused on expansion projects such as new rail lines or extensions to existing facilities, but MAP-21 now defines "core capacity" projects -- improvements to existing transit lines that result in at least a 10 percent increase to capacity -- and bus rapid transit (BRT) projects to be eligible for New Starts funding.