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U.S. Department of Transportation U.S. Department of Transportation Icon United States Department of Transportation United States Department of Transportation

II. Federal Subsidies to Passenger Transportation

Wednesday, December 21, 2011

II. Federal Subsidies to Passenger Transportation

The federal government spends billions of dollars every year on the passenger transportation system. Net federal subsidies (spending minus revenues) vary across different modes of transportation.

Net Federal subsidies have varied over time as well, as shown in Figure 1.

The pattern of Net Federal Subsidies changes when we look at subsidies per Thousand Passenger-Miles, as shown in (Figure 2).

Highways

  • The net federal subsidy to highway passenger transportation shows negative values for the entire period, indicating excess user charge payments (e.g., fuel taxes) by highway users over their allocated cost (Figure 1)[2]. Users of the highway passenger transportation system paid significantly greater amounts of money to the federal government than their allocated costs in 1994-2000. This was a result of the increase in the deficit reduction motor fuel tax rates between October 1993 and September 1997, and the increase in Highway Trust Fund fuel tax rates starting in October 1997[3].
  • In discussing highways, it should be borne in mind that the Highway Trust Fund is governed by the Byrd amendment, which mandates a long term zero balance in the fund (i.e. that any unfunded authorizations at the end of a fiscal year must be less than the revenues anticipated to be earned in the following 24 months). This means that, apart from the funds transferred from the Highway Trust Fund to mass transit, any positive or negative subsidies for the highway mode should be short term, primarily reflecting fluctuations in revenue patterns to which expenditures adjust only after a time lag[4].
  • Not all users of the highway passenger transportation system have had negative federal subsidies during the period under consideration. School and transit buses received positive net federal subsidies over the 1990-2002 period, but autos, motorcycles, pickups and vans, and intercity buses paid more than their allocated cost (in the form of user charges) to the federal government (Figure 3).
  • On average, highway users paid $1.91 per thousand passenger-miles to the federal government over their highway allocated cost during 1990-2002 (Figure 2). While net federal subsidy per thousand passenger-miles for buses (including school, transit, and intercity buses) has been positive during 1990-2002, it has been negative for autos, pickups, and vans (Figure 4). Autos, pickups, and vans paid on average about $2.03 per thousand passenger-miles more each year than their allocated cost.

Passenger Rail

  • The net federal subsidy to passenger railroads was the third largest, except for the years 1998-2000 (Figure 1), when it was second. The Taxpayer Relief Act of 1997 provided Amtrak with a tax credit in the amount of $2.18 billion in current dollars that caused the net federal subsidy to increase dramatically in 1998 and 1999[5].
  • On average, passenger rail received the largest subsidy per thousand passenger-miles, averaging $186.35 (in year 2000 chained dollars) per thousand passenger-miles during 1990-2002 (Figure 2).

Transit

  • Between 1990 and 2002, transit received the largest amount of net federal subsidy, increasing from $5.09 billion to $7.31 billion in chained 2000 dollars (Figure 1), an increase of 3% per year.
  • On a per thousand passenger-miles basis, transit received the second highest net federal subsidy, second to passenger rail, averaging $118.26 in year 2000 chained dollars (Figure 2).

Air

  • After transit, air transportation received the next largest net federal subsidy, except for the period from 1998 to 2000 (Figure 1). The amount of net subsidy to air transportation was greater in 1996 and 1997 than in any other year because of an interruption in tax collections from aviation users. Tax collections were interrupted from January to July 1996 and from January to March 1997 due to delays in reenacting the authority of the FAA to collect aviation taxes[6]. The FAA estimated that about $5.6 billion in tax revenue was lost due to the lapse in tax collections in these years. Net federal subsidies declined in 1998-2000 as a result of the increase in federal receipts from aviation users. The higher federal receipts from aviation users in those years were due to the Taxpayer Relief Act of 1997, which increased existing aviation excise tax rates and introduced new taxes as of October 1, 1997[7].
  • A large proportion of the federal subsidy to passenger air transportation was directed to the commercial aviation system in most of the years of the analysis period (Figure 5). However, subsidies for general aviation exceeded those for commercial aviation during the three-year period from 1998 to 2000 when increased excise taxes on commercial aviation took effect.
  • Net federal subsidy per thousand passenger-miles for air increased between 1990 and 1996 and then declined from 1997 to 2000, before rising again in 2001 and 2002 (Figure 2). As indicated above, the decline during 1997-2000 was caused by the increase in federal receipts from aviation users as a result of the increase in the existing excise tax rates and the introduction of new taxes in 1997, which preceded increases in expenditures.
  • The federal government provided more subsidies to the general aviation system per thousand passenger-miles than for commercial aviation for the entire period 1990-2002 (Figure 6). Federal subsidy per thousand passenger-miles for general aviation grew rapidly between 1990 and 1993 and then fell between 1994 and 2000, before rising afterwards.

[2] Tables at the end of this report provide detailed subsidy data.

[3] Congressional Research Service (CRS), "Transportation Fuel Taxes, Legislative Issues, and the Transportation Equity Act," CRS Report for Congress, June 17, 1998.; and U.S. DOT, Federal Highway Administration (FHWA) “Highway Statistics 2002,” Table FE-21B, available at http://www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.htm, as of August 2004.

[4] Since the current study looks only at passenger revenues and expenditures, it is possible that it could show a positive or negative subsidy for passenger users of highways, even while the overall highway trust fund cash flows were in balance. This would depend on the allocations among the freight and passenger users of the highway system.

[5] AMTRAK, “1999 Annual Report,” Washington, DC, Pages 32 and 42.

[6] U.S.DOT, Federal Aviation Administration (FAA) “Budget in Brief – Fiscal Year 1997,”Washington, DC, Page 5; and “Budget in Brief – Fiscal Year 1998,” Washington, DC, Page 5.

[7] U.S.DOT, Federal Aviation Administration (FAA) “Budget in Brief – Fiscal Year 1999,” Washington, DC , Page 4