United States Government Accountability Office

GAO Report to the Chairman, Committee on 

Government Reform, House of 

Representatives 

MASS TRANSIT 

Issues Related to 

Providing Dedicated 

Funding for the 

Washington 

Metropolitan Area 

Transit Authority 

May 2006 

 

GAO-06-516 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2006

MASS TRANSIT

Issues Related to Providing Dedicated 

Funding for the Washington Metropolitan 

Area Transit Authority 

Highlights of GAO-06-516, a report to the 

Chairman, Committee on Government 

Reform, House of Representatives

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. 

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. 

www.gao.gov/cgi-bin/getrpt?GAO-06-516.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine A. 

Siggerud at (202) 512-2834 or 

siggerudk@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 7

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 17 

Revenue Sources That Could Be Dedicated to WMATA Vary in 

Their Stability, Revenue Adequacy, and Required Tax or Fee 

Rate 32

Although All Jurisdictions Proposed Legislation in 2006 Directing a 

Revenue Source to WMATA, Actions to Provide WMATA with

Dedicated Funding Are Not Complete 37 

WMATA Funding Partners Have Yet to Resolve Several Issues 

Related to Dedicated Funding 44 

Agency Comments 49 

Appendix I: Objectives, Scope, and Methodology 50

Appendix II: Revenue Sources Compared on the Basis of 

Revenue Stability and Adequacy, and Required 

Tax or Fee Rate 53

Appendix III: Revenue Sources Compared on the Basis of 

Administrative Cost, Equity, and Efficiency 61

Appendix IV: GAO Contact and Staff Acknowledgments 73

Tables 

Table 1: Comparison of Key Aspects of District of Columbia, 

Maryland, and Virginia Dedicated Funding Proposals and 

Metro Funding Panel Recommendation 39 

Table 2: Percentage Distribution of Payments to WMATA under 

Current Allocations and under Regional Sales Tax 47 

Page i GAO-06-516 Mass Transit
Figures 

Figure 1: Washington Metropolitan Area Transit Zone 8 

Figure 2: Sources of WMATA’s 2006 Operating and Capital Budgets 10 

Figure 3: Amount of WMATA Compact Jurisdictions’ Operating 

Subsidy and Capital Program Payments, 2006 12 

Figure 4: Types of State and Local Funds for the 23 Largest Transit 

Agencies That Received Dedicated Funding in 2003 22 

Figure 5: Summary of Revenue Sources and Key Considerations 35 

Abbreviations 

BART Bay Area Rapid Transit 

Compact Washington Metropolitan Area Transit Authority Compact 

DART Dallas Area Rapid Transit 

FTA Federal Transit Administration 

H.R. 3496 House of Representatives bill no. 3496 

MBTA Massachusetts Bay Transportation Authority 

MDOT Maryland Department of Transportation 

MTA Metropolitan Transportation Authority 

NTD National Transit Database 

NVTC Northern Virginia Transportation Commission 

SEPTA Southeastern Pennsylvania Transportation Authority 

WMATA Washington Metropolitan Area Transit Authority 

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Page ii GAO-06-516 Mass Transit
United States Government Accountability Office

Washington, DC 20548 

May 15, 2006

The Honorable Tom Davis 

Chairman 

Committee on Government Reform 

House of Representatives 

Dear Mr. Chairman: 

In recent years, the Washington Metropolitan Area Transit Authority 

(WMATA) has faced serious financial and budgetary problems as well as 

continuing challenges related to the safety and reliability of its transit 

services. At the same time, ridership is at an all-time high, and WMATA 

continues to provide critical services and considerable benefits to the 

Washington, D.C., region’s economic well-being and to the federal 

government. Over the years, the federal government has provided WMATA 

with about 60 percent of the funds used to construct the Metrorail subway 

system, and Congress has a continued interest in the viability of WMATA 

due to the system’s importance to the functioning of the federal 

government and the orderly movement of people during major events and

times of regional or national emergencies. 

The Metro Funding Panel—a regional panel cosponsored by the 

Metropolitan Washington Council of Governments, the Greater 

Washington Board of Trade, and the Federal City Council—reported in 

2005 that WMATA, under its current revenue structure, will have 

budgetary shortfalls of $2.4 billion over 10 years,1

 in spite of an agreement

in 2003 from the WMATA Compact (Compact) jurisdictions2

 to provide an 

 1

PB Consult Inc., Report of the Metro Funding Panel (Washington, D.C., Jan. 6, 2005). The 

panel estimated this amount by comparing WMATA’s projected capital and operating

expenditures with its projected revenues for 2005 through 2015. 

2

For the purposes of this report, “Compact jurisdictions” refers to the political entities that 

fall within the Metrorail service area and to which WMATA currently allocates its costs.

These jurisdictions are the states of Maryland and Virginia; the District of Columbia; the

counties of Montgomery and Prince George’s in Maryland; the counties of Fairfax and

Arlington in Virginia; and the cities of Alexandria, Fairfax, and Falls Church in Virginia. 

Although Loudoun County is within the WMATA transit district, there is currently no bus or

rail service provided to this county; as a result, WMATA does not allocate any of its costs to 

Loudoun County. Some WMATA riders reside in jurisdictions to which WMATA does not 

allocate costs; according to a WMATA official, these individuals account for more than 10

percent of WMATA’s daily riders. 

Page 1 GAO-06-516 Mass Transit
additional $1.5 billion for the agency’s critical capital needs.3

 This panel 

and others have noted that WMATA’s lack of any significant dedicated

source of revenue may affect WMATA’s ability to carry out essential 

equipment and infrastructure projects needed to keep the system in good 

working order.4

 Past efforts to provide stable and reliable sources of 

funding for WMATA were difficult due to the agency’s complex 

governance structure and the political nature of decisions related to how 

much each of the local governments should pay.

Legislation introduced in Congress and approved by your committee 

would make $1.5 billion in federal funding available to WMATA if, among 

other things, the local governments established dedicated sources of 

revenue.5

 This legislative proposal has motivated the region to renew its 

efforts on this front. You asked us to provide you with information on 

issues related to establishing dedicated funding for WMATA, including (1) 

the characteristics of dedicated funding and how it affects transit agencies

and state and local governments, (2) how potential revenue sources that 

could be used for dedicated funding or for addressing WMATA’s projected 

budgetary shortfall compare in terms of key considerations, (3) major 

actions that would be needed to establish dedicated funding for WMATA 

and the progress that has been made to date in carrying out those actions, 

and (4) issues that dedicated funding poses for the region and WMATA. 

To determine the characteristics of dedicated funding and how it affects 

transit agencies and state and local governments, we analyzed the 

financial data that the 25 largest transit agencies reported to the Federal

Transit Administration’s (FTA) National Transit Database. We reviewed 

the reliability of these data and concluded that they were sufficiently 

reliable for our purposes. We also conducted semistructured interviews 

 3

We testified in July 2005 that the panel’s estimate may not be comprehensive because it

does not include the costs of WMATA’s paratransit system, which provides services that 

are required under the Americans with Disabilities Act. See GAO, Mass Transit: 

Preliminary Views on Options for Additional Fiscal Oversight of the Washington 

Metropolitan Area Transit Authority, GAO-05-922T (Washington, D.C.: July 28, 2005). 

4

See Robert Puentes, Washington’s Metro: Deficits by Design (Washington, D.C., The

Brookings Institution Series on Transportation Reform, June 2004); and GAO, Issues Being 

Faced by the Washington Metropolitan Area Transit Authority, CED-79-52 (Washington,

D.C.: Apr. 10, 1979). 

5

H.R. 3496, the National Capital Transportation Amendments Act of 2005, was introduced

by Rep. Tom Davis on July 28, 2005, and was amended by the House Committee on 

Government Reform and ordered to be reported to the full House on October 20, 2005.

Page 2 GAO-06-516 Mass Transit
with officials at six transit agencies, which we selected based on their 

similarity to WMATA and their use of a range of dedicated revenue 

sources.6

 We reviewed the legislation establishing dedicated funding at 

some of these agencies, and interviewed state and local government 

officials in the Washington, D.C., region and experts on transportation 

finance. To assess how potential revenue sources that could be used for 

dedicated funding or for addressing WMATA’s projected budgetary 

shortfall compare in terms of key considerations, we reviewed and 

synthesized economics literature on mass transit funding, and interviewed

experts in transportation planning and finance. To determine the actions 

required to establish dedicated funding for WMATA and the progress made 

in carrying out those actions, and to identify issues that dedicated funding 

poses for the region and WMATA, we reviewed and analyzed the proposed 

federal legislation that would make additional funding available to 

WMATA (H.R. 3496) and the related legislation proposed in the District of 

Columbia, Maryland, and Virginia. We also interviewed officials from all of 

the state and local jurisdictions supporting WMATA, members of the 

general assemblies of Virginia and Maryland and the District of Columbia 

City Council, and representatives from the Northern Virginia 

Transportation Commission and the WMATA Board of Directors. We 

conducted our work from August 2005 through May 2006 in accordance 

with generally accepted government auditing standards. Details of our 

scope and methodology are provided in appendix I. 

Dedicated funding, an important part of many transit agencies’ overall 

funding, has several characteristics as described by FTA: (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. In 2006, the District of Columbia, Maryland, and Virginia 

proposed dedicated funding bills—all of which would provide a portion of

sales tax revenues to WMATA—that demonstrate some of these 

characteristics. The six transit agencies we spoke with vary in the extent 

to which the funds they reported to FTA as dedicated have these 

characteristics—three agencies have revenue sources with all three, while

three others receive revenue that they consider to be dedicated, but which 

is subject to appropriations or allocated among other transportation 

Results in Brief 

 6

We interviewed officials at the following transit agencies: Bay Area Rapid Transit (San 

Francisco), Dallas Area Rapid Transit, Massachusetts Bay Transportation Authority 

(Boston), Metropolitan Transportation Authority (New York), Southeastern Pennsylvania

Transit Authority (Philadelphia), and St. Louis Metro. 

Page 3 GAO-06-516 Mass Transit
programs, including transit. According to the 2003 national data collected 

by FTA, of the 25 largest transit agencies, 23 reported receiving funds that 

they consider dedicated. Of the 23 agencies, 18 reported receiving 

dedicated funding from multiple sources, with sales taxes being the most 

common source. Twenty of the 25 largest agencies reported using 

dedicated funds for a combination of operations and capital expenses. 

Expenditures from dedicated sources are generally subject to the same 

oversight as expenditures from other sources,7

 such as reviews of capital 

plans by the board of directors and periodic audits by federal and state 

auditors, although at two of the transit agencies we spoke with, the 

legislation establishing dedicated funding also provided for increased 

oversight of the agencies. According to almost all of the transit agencies 

we spoke with, dedicated funding can have a positive effect by enabling 

more effective multiyear planning for transit agencies and improving their 

credit ratings, which in turn lowers their cost of borrowing. However, the 

degree to which the credit ratings of transit agencies—including 

WMATA’s—are improved by dedicated funding depends on how the 

dedicated funding is structured and to what degree such funding is more 

reliable than the agencies’ existing revenue sources. Dedicated funding 

also has potential disadvantages for transit agencies, such as fluctuations 

in revenue streams, and for state and local governments, such as 

decreased flexibility in the budgeting process and a reduction in the funds 

available for other transportation programs. 

Selecting a dedicated local funding source for WMATA involves various 

key considerations—including the funding source’s year-to-year stability 

and its longer-run adequacy to keep pace with demands for transit 

expenditures—that are important for determining how well a revenue 

source will support WMATA’s planning efforts and future expenditures. 

For state and local governments, another key consideration is the political 

feasibility of the tax or fee rate required to collect a specified amount of 

dedicated revenue from a particular funding source. Potential revenue 

sources that we analyzed—the sales tax, payroll or income tax, motor 

vehicle fuel tax, property tax, access fees, and vehicle registration fees—

have different characteristics when assessed using these considerations. 

Furthermore, if state and local governments increase their overall tax and 

fee revenues to provide additional funding for WMATA, there may be 

additional equity, efficiency, and administrative cost effects for their tax 

 7

Other sources of revenue transit agencies receive include state and local appropriations 

and other funding, fares and other operating revenue, and federal grants. 

Page 4 GAO-06-516 Mass Transit
systems that vary depending on the choice of revenue source for this 

additional funding. These effects are likely to be small given that the 

additional amount of revenue collected for WMATA would be small in 

relation to the overall state and local government operations.

To establish dedicated funding for WMATA and for WMATA to be eligible 

for additional federal funding under H.R. 3496, the Compact jurisdictions 

would need to enact separate legislation to (1) direct a specific revenue

source to WMATA and (2) make certain amendments to the WMATA 

Compact, as required by H.R. 3496. Legislators in all three major 

jurisdictions served by WMATA—the District of Columbia, Maryland, and 

Virginia—introduced legislative proposals in 2006 to dedicate various 

amounts of sales taxes to WMATA. As of April 2006, the District of 

Columbia’s legislation had been enacted but had not yet received 

congressional approval, which is required for the law to take effect, and 

Virginia’s and Maryland’s legislation had not been enacted. In addition, an 

issue emerged in Maryland about whether the state’s current system for 

funding WMATA, which uses funds from the state transportation trust 

fund, should be considered dedicated. The position of the state’s 

transportation department is that the trust fund should be considered 

dedicated, but an official with the state’s Office of Attorney General said in

a legal opinion dated February 17, 2006, that the fund does not constitute 

dedicated funding for WMATA. Regarding legislation to amend the 

WMATA Compact, such a bill was introduced in Maryland but was later 

withdrawn. Legislation to amend the Compact has not been introduced in

either the District of Columbia or Virginia. Some regional stakeholders 

have stated that amending the Compact may not be necessary to achieve 

some of the changes called for in H.R. 3496. 

WMATA’s funding partners—which include the federal government as well 

as the local and state jurisdictions that provide subsidy payments to the 

agency—face a number of issues that will need to be resolved should they 

choose to provide WMATA with dedicated funding, including the 

following: 

• The proportion of the Compact jurisdictions’ contributions to WMATA that

should come from dedicated funding and how to mitigate risk associated 

with dependence on dedicated revenue sources. Although H.R. 3496 

specifies that all state and local contributions are to come from dedicated

sources, the dedicated funding bills introduced in the District of Columbia, 

Maryland, and Virginia do not meet this requirement, and none of the state 

and local officials we spoke with indicated that measures to fulfill this 

requirement are likely. For the 23 largest transit agencies with dedicated 

Page 5 GAO-06-516 Mass Transit
funding in 2003, on average, 70 percent of state and local funds received

were from dedicated sources. Additionally, if a large proportion of 

WMATA’s state and local contributions is to come from dedicated funding, 

stakeholders must also determine to what extent the risk of revenue 

volatility should be balanced between the jurisdictions and WMATA. 

• Whether dedicated funding will result in a net increase in the payments to 

WMATA and how the amount of payments to WMATA will be allocated 

among the jurisdictions. Local officials we interviewed agreed that 

dedicated funding should be used to support a net increase in payments to 

WMATA, but not all of the legislative proposals introduced in the region 

reflect this perspective. Regarding how payments to WMATA are 

allocated, the three major jurisdictions have differing opinions on whether 

the formulas that are currently used to determine the amount of operating 

and capital payments should also be used to determine the amount of 

dedicated funds the jurisdictions should pay. Whether additional funds 

provided to WMATA from dedicated sources are distributed to WMATA 

based on the existing allocation formulas or using another method can 

have an effect on the distribution of payments among the jurisdictions. 

• Whether dedicated funding should be used for operations, capital 

expenditures, or both. The Metro Funding Panel report suggested that 

dedicated revenues should be used to cover WMATA’s projected 

budgetary shortfall, which is due largely to capital expenditures, but 

Compact jurisdictions have mixed views on whether dedicated funds 

should be used solely for WMATA’s capital program or for both operating 

and capital expenses. 

• Whether increased oversight of WMATA is needed to ensure that 

dedicated funds are adequately accounted for. Many local stakeholders 

told us either that they were concerned that a loss of governance could 

occur with dedicated funding or that it is important to have accountability 

mechanisms in place with dedicated funding. Additionally, H.R. 3496 calls

for creating an inspector general’s office at WMATA, and in April 2006, the 

WMATA Board of Directors voted to establish such an office.

We provided a draft of this report to WMATA and the U.S. Department of 

Transportation for their review and comment. Officials from these 

agencies provided technical clarifications that were included in the report,

as appropriate. We also provided portions of the draft report related to the 

legislative process in the District of Columbia, Maryland, and Virginia, and 

the legislative proposals on dedicated funding to officials from these 

jurisdictions to verify that the information was accurate. 

Page 6 GAO-06-516 Mass Transit
WMATA was created in 1967 by an interstate compact that resulted from 

the enactment of identical legislation by Virginia, Maryland, and the 

District of Columbia, with the consent of Congress.8

 The Compact also 

created the Washington Metropolitan Area Transit Zone, shown in figure 1, 

where WMATA provides its transit services, including the District of 

Columbia; the cities of Alexandria, Falls Church and Fairfax; the Virginia 

counties of Arlington, Fairfax and Loudoun; and the Maryland counties of

Montgomery and Prince George’s. 

Background 

WMATA Is a Large, 

Multijurisdictional Transit 

Agency with an Unusual 

Organizational Structure 

 8

Washington Metropolitan Area Transit Authority Compact, Pub. L. No. 89-774 (1966). 

Page 7 GAO-06-516 Mass Transit
Figure 1: Washington Metropolitan Area Transit Zone 

Arlington

District of

Columbia

Falls Church

Fairfax County

Loudoun County

Alexandria

Fairfax City

Montgomery County

Prince George's

County

Washington Metropolitan Area Transit Zone

VIRGINIA

MARYLAND

Source: GAO.

Note: Although Loudoun County is in the transit zone, it does not provide financial support to WMATA 

because there is currently no Metrorail or Metrobus service in Loudoun County. 

WMATA is unusual among transit agencies in that it was created by an

interstate compact; moreover, it has unique demands placed on it because 

it serves the national capital area and the federal government, as we 

Page 8 GAO-06-516 Mass Transit
discussed in a July 2005 testimony.9

 WMATA provides transportation to 

and from work for a substantial portion of the federal workforce, and

federal employees’ use of WMATA’s services is encouraged by General 

Services Administration guidelines that instruct federal agencies to locate 

their facilities near mass transit stops whenever possible. WMATA also 

accommodates increased passenger loads and extends its operating hours 

during events related to the federal government’s presence in Washington,

D.C., such as presidential inaugurations and funerals, and celebrations and 

demonstrations on the National Mall. WMATA’s Metro Transit Police 

assists federal law enforcement agencies such as the Secret Service by

making available its officers who have expertise in areas such as 

explosives detection and civil disturbance management. WMATA also 

provides Metrobuses to be used as a security perimeter on the grounds of 

the U.S. Capitol and other public places for events such as inaugurations 

and State of the Union addresses. 

WMATA began building the Metrorail system in 1969, acquired four 

regional bus systems in 1973, and began the first phase of Metrorail 

operations in 1976. In January 2001, WMATA completed the originally 

planned 103-mile Metrorail system, which included 83 rail stations on five 

rail lines. As of March 2006, the transit system encompasses (1) the 

Metrorail subway system, which now has 86 Metrorail stations on five rail 

lines and a fleet of about 948 railcars; (2) the Metrobus system, which has 

a fleet of about 1,451 buses serving 340 routes; and (3) the MetroAccess 

ADA complementary paratransit system, which provides specialized 

transportation services, as required by law, to persons with disabilities 

who are certified as being unable to access WMATA’s fixed-route transit 

system. 

 9

GAO-05-922T. 

Page 9 GAO-06-516 Mass Transit
WMATA Funds Its 

Operations and Capital 

Activities through a Variety 

of Directly Generated 

Revenues and through 

Other Local, State, and 

Federal Sources 

WMATA funds its operations through a combination of revenues from 

passenger fares, nonfare revenues such as parking and advertising fees, 

and payments from state and local governments. It funds its capital 

program primarily through grants from the federal government and 

contributions from state and local governments, and by borrowing from 

the private sector through the issuance of bonds. WMATA’s funding 

sources for operations and capital are shown in figure 2. 

Figure 2: Sources of WMATA’s 2006 Operating and Capital Budgets 

0

200

400

600

800

1,000

1,200

1,400

1,600

Dollars (in millions)

Operating budget

$1.014 billion

65% of total budget

State and local subsidies

Metrorail fares

Nonfare revenued

Metrobus fares

Paratransit fares

Capital budget

$543.3 million

35% of total budget

Federal funds

Debt and related capital sourcesc

Future federal security fundsb

State and local funds

Misc. internal CIP fundsa $26.5 

$38.5 

$139.9 

$154.6 

$183.8 

$3.9 

$98.8 

$100 

$376.5 

$434.6 

Funding source

Funding source Amount

(in millions)

Amount

(in millions)

Portion of

capital budget

(percent)

Portion of

operating budget

(percent)

Portion of

total budget

(percent)

Portion of

total budget

(percent)

5

7

26

34

28

10

10

37

43

2

2

9

10

12

6

6

24

28

1,557 

<1 <1

Source: GAO analysis of WMATA data.

Notes: Percentages may not total to 100 due to rounding. 

a

Miscellaneous internal Capital Improvement Program (CIP) funds refers to revenue from interest 

earned on funds held by WMATA.

Page 10 GAO-06-516 Mass Transit
b

Future federal security funds refers to funds WMATA expects to receive in 2006 from the federal 

government for security purposes.

c

Funding received through the issuance of debt must later be repaid, with interest, from another 

source. WMATA’s debt servicing payments for its current 6-year capital funding program, Metro

Matters, are part of the capital budget. 

d

Nonfare revenue includes advertising, parking, and joint development fees, among other things. 

The operating costs for bus, rail, and paratransit that are allocated to the 

Compact jurisdictions are determined by a set of formulas that take into 

consideration factors such as population, ridership, number of Metrorail 

stations, and miles of bus routes.10 The formulas for determining capital 

cost allocation—other than for extension projects, which are paid for by 

the sponsoring jurisdiction—are based on the amount that the 

jurisdictions pay for operating costs. Under these formulas, jurisdictions 

with higher populations and service levels (indicated by factors such as 

the number of Metrorail stations and miles of bus routes) generally pay 

more than jurisdictions with smaller populations and lower service levels.

The operating subsidy and capital program payments for 2006 as 

determined by the formulas are shown in figure 3. 

 10The formulas that are used to allocate WMATA’s operating and capital costs among the 

jurisdictions are a matter of policy determined by WMATA’s Board of Directors and are not

contained in the WMATA Compact. 

Page 11 GAO-06-516 Mass Transit
Figure 3: Amount of WMATA Compact Jurisdictions’ Operating Subsidy and Capital 

Program Payments, 2006 

0

50

100

150

200

250

Capital

Operating

Fairfax City

Falls Church

Alexandria

Arlington County

Fairfax County

Montgomery County

Prince George’s County

District of Columbia

Dollars (in millions)

Source: GAO analysis of WMATA data.

Jurisdictions

The Compact jurisdictions of the District of Columbia, Maryland, and 

Virginia vary in the sources they use for payments to WMATA: 

• District of Columbia. Payments to WMATA are provided by the District’s 

Department of Transportation every quarter. Operating costs are paid for 

from the District of Columbia’s general fund and capital costs are funded 

by general obligation bonds. 

• Maryland. Payments to WMATA for Montgomery and Prince George’s 

counties are made from the Maryland Transportation Trust Fund. The 

trust fund’s revenue sources include a gas tax, vehicle title tax, and other 

Page 12 GAO-06-516 Mass Transit
motor vehicle taxes and fees, along with other sources such as federal aid.

Trust fund revenues are also used for operating and capital expenses for 

various modes of transportation in the state including transit, ports, and 

aviation, as well as for local road construction. Maryland is required by 

state law to make payments for the share of WMATA’s operating expenses, 

capital equipment replacement, and debt service for which Montgomery 

and Prince George’s Counties are responsible.11

• Virginia. The individual cities and counties are responsible for making 

payments to WMATA. A portion of these localities’ payments are made 

through the Northern Virginia Transportation Commission (NVTC).12

NVTC holds, in trust, funds from a variety of sources that are used to pay 

for its members’ public transit systems—including WMATA and local bus 

systems such as the Fairfax Connector and Alexandria’s DASH bus. 

Sources include a 2 percent Northern Virginia retail motor vehicle fuel tax 

and state sources such as transit assistance grants and state bonds issued 

for WMATA.13 NVTC sources accounted for about two-thirds of payments 

to WMATA from Northern Virginia counties and cities in fiscal year 2006.

The portion of the localities’ obligation to WMATA that is not covered by

NVTC sources is usually paid directly by the localities from their general

funds. 

In 1980, federal legislation required that for WMATA to receive additional 

funding for construction of the Metrorail system, the WMATA Compact 

jurisdictions had to demonstrate that they had “stable and reliable” 

sources of revenue sufficient to pay for the principal and interest on bonds 

and the local share of the operating and maintenance costs of the transit 

system.14 The District of Columbia, Maryland, and Virginia took the 

following actions to comply with the requirement: 

History of Efforts to 

Provide Stable and 

Reliable Funding for 

WMATA 

• District of Columbia. The city adopted a law in 1982 to earmark funds for 

WMATA by establishing a Metrorail/Metrobus account within its general 

fund. The account was supported by earmarking existing revenues that 

 11Md. Code Ann., Transp. §§ 3-216 and 10-205. 

12The Northern Virginia Transportation Commission was created in 1964 to plan and 

coordinate public transportation in Northern Virginia. 

13Va. Code Ann. §§ 58.1-815.1 and 58.1-1720. 

14National Capital Transportation Amendments of 1979 (also known as the Stark-Harris 

Act), Pub. L. 96-184, 93 Stat. 1320 (1980). 

Page 13 GAO-06-516 Mass Transit
came from sources receiving direct or indirect benefits from mass transit, 

including sales taxes on hotels, meals, and gasoline, as well as vehicle 

registration fees and parking meter fees. The earmarked revenues were 

sufficient to cover the District of Columbia’s share of WMATA’s operating,

debt service, and capital expenses. This account is no longer the source of

WMATA payments. As described above, the District of Columbia now 

provides payments to WMATA from its general revenue fund and general

obligation bonds. 

• Maryland. The state enacted legislation in 1980 to require the Maryland 

Transportation Trust Fund to assume a portion of the costs WMATA 

allocated to Montgomery and Prince George’s Counties. The legislation 

also provided the trust fund with new sources of revenue, including motor 

vehicle fuel taxes, a portion of the corporate income tax, and all revenues 

of the state motor vehicle administration. The trust fund was used to pay 

all of Montgomery and Prince George’s Counties’ share of WMATA’s 

capital costs, and 75 percent of the counties’ share of operating costs and 

debt service. Montgomery County provided for the balance of its 

obligation to WMATA through a property tax earmarked for mass transit,

and Prince George’s County met the remainder of its obligation by 

establishing the Mass Transit Special Revenue Fund and earmarking 

revenues from the state real property tax grant program in the event that 

county appropriations to the fund fell short. State legislation in 1992 and 

1998 made the state’s transportation trust fund the source of all payments

to WMATA.

• Virginia. In 1980, the state enacted a 2 percent sales tax on the retail price

of gasoline within the Northern Virginia counties and cities in the WMATA 

service area and dedicated the proceeds of the new tax to WMATA, 

effective in July 1982. The state also increased its biennial appropriation to 

NVTC, increasing the amount of state money available for payment to 

WMATA. At the same time, the Northern Virginia counties and cities 

enacted local ordinances stating their intention to fund WMATA’s debt 

service and operating assistance on an annual basis and designating their 

general fund revenues as the source of funding for what the gasoline tax

and state aid did not cover. 

In 2005, the Metro Funding Panel estimated that under its current revenue

structure, WMATA would have a total budgetary shortfall of $2.4 billion 

during fiscal years 2006 through 2015 if it went forward with the projects 

remaining in its 10-year capital improvement plan, not including those that

Page 14 GAO-06-516 Mass Transit
involved expanding the current system.15 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. In the course of its work, the panel

analyzed a number of revenue options for dedicated funding for WMATA, 

including estimating the tax or fee rate that would be required to raise 

sufficient revenue to address the projected shortfall. 

In our July 2005 testimony before the House Committee on Government 

Reform, we stated that the actual projected shortfall could, in fact, be

much greater because the Metro Funding Panel did not include in its 

estimate costs associated with providing paratransit service, which is 

required by the Americans with Disabilities Act.16 These costs are 

significant; in fact, the panel estimated that these services could result in 

an additional shortfall for WMATA of about $1.1 billion over the 10-year 

period. 

The Brookings Institution in June 2004 issued a report that similarly 

concluded that WMATA’s lack of dedicated revenues makes its core 

funding uniquely vulnerable and at risk as WMATA’s member jurisdictions 

struggle with their own fiscal difficulties.17 The Brookings report also 

concluded that the Washington, D.C., region needs to develop a dedicated

source of revenue. 

Finally, regional stakeholders have undertaken efforts to secure stable and 

reliable funding for WMATA. For example, the Metropolitan Washington 

Council of Governments established a coordinating committee in January 

2006 to review, evaluate, and advocate for the passage of dedicated 

funding legislation for WMATA. Additionally, legislation passed by the 

Maryland General Assembly in April 2006 would require the Maryland 

Department of Transportation to conduct a study of a number of transit 

 15Report of the Metro Funding Panel. The estimates also took into account additional 

operating expenditures that would result from the completion of capital projects. 

16GAO-05-922T. 

17Washington Metro: Deficits by Design (June 2004). 

Page 15 GAO-06-516 Mass Transit
issues, including the state’s transit costs and its funding strategies to take 

advantage of potential new federal funding for WMATA18

In July 2005, Representative Tom Davis, Chairman of the House 

Committee on Government Reform,19 introduced the National Capital 

Transportation Amendments Act of 2005 (H.R. 3496), which would 

authorize $1.5 billion to WMATA over 10 years for financing the capital 

and preventive maintenance projects included in WMATA’s Capital 

Improvement Program. The bill states that WMATA is essential for the 

effective functioning of the federal government and for the orderly 

movement of people during major events and times of regional or national 

emergency, and that additional funding is necessary to ensure the transit 

system’s continued functionality. H.R. 3496 does not appropriate funds. 

For WMATA to receive the funding authorized in H.R. 3496, Congress must 

pass additional legislation appropriating funds. H.R. 3496, as amended by 

the House Committee on Government Reform, states that to be eligible for 

the additional funding, WMATA must amend the WMATA Compact to 

require that

Proposed Legislation in 

Congress Would Authorize 

Additional Federal 

Funding for WMATA If the 

Compact Jurisdictions 

Provide Dedicated 

Funding 

• all payments to WMATA from the Compact jurisdictions be derived from 

dedicated funding sources, 

• an Office of Inspector General be established at WMATA, and 

• the WMATA Board of Directors be expanded to include four additional 

members appointed by the federal government, two of whom are voting

and two of whom are nonvoting.20

 18See Maryland H.B. 1345 and S.B. 850. As of April 2006, this legislation was awaiting the 

governor’s signature. 

19Mr. Davis represents the 11th Congressional District, which includes parts of Fairfax 

County and Prince William County in Northern Virginia. The House Committee on 

Government Reform, which also has jurisdiction over the municipal affairs of the District 

of Columbia in general, has oversight of WMATA because of the transit agency’s unique

position serving the nation’s capital and the large level of federal investment in the 

construction of the original 103-mile Metrorail system. 

20When H.R. 3496 was introduced in July 2005, the bill provided for expanding the WMATA

Board of Directors to include two additional board members appointed by the federal 

government, one of whom was voting and one of whom was nonvoting. In October 2005,

the House Committee on Government Reform amended H.R. 3496 and revised the

requirement to expand the WMATA Board of Directors to include four additional board

members appointed by the federal government. 

Page 16 GAO-06-516 Mass Transit
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 

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.21 Similarly, H.R. 3496 states that dedicated funding is any 

source of funding that is earmarked and required under state or local law 

to be used for payments to WMATA. 

In the Washington, D.C., region, legislators in the District of Columbia, 

Maryland, and Virginia proposed bills to provide dedicated funding to 

WMATA—described in detail later in this report—that demonstrate some 

of these characteristics, as follows: 

Definition of Dedicated 

Funding Has Some 

Common Characteristics, 

but There Is Variation in 

How It Is Structured 

• Legislation in the District of Columbia, which was enacted in April 2006, 

would set aside a portion of the sales tax revenue to be dedicated solely 

for WMATA. Under this legislation, which must be approved by Congress 

before taking effect, the provision of dedicated funds to WMATA would be 

 21In general, dedicated taxes and fees are levied at the state or local level. 

Page 17 GAO-06-516 Mass Transit
subject to annual appropriations by Congress, but not by the District of 

Columbia.22 

• Legislation introduced in the Maryland General Assembly, which was not 

enacted during the 2006 legislative session, would have set aside a 

percentage of the sales tax revenue, but the tax proceeds would have been

dedicated to WMATA and other transit programs and expenses in the 

state, and also would have been subject to appropriations. 

• Legislation proposed in the Virginia General Assembly would set aside a 

portion of a regional sales tax to be dedicated to WMATA, and these funds 

would not be subject to appropriations. As of April 2006, this legislation 

had not been enacted. 

Although the Maryland General Assembly considered bills in its 2006 

session to provide dedicated funding to WMATA, the position of 

Maryland’s Department of Transportation is that the state’s current system 

for funding WMATA already constitutes dedicated funding. Under this 

system, payments are made from the state’s transportation trust fund, 

which has several dedicated sources, although expenditures from the fund 

are subject to an annual appropriations process. Maryland officials also 

note that state law requires them to provide funding to WMATA. On the 

other hand, an official with Maryland’s Office of Attorney General stated in 

a legal opinion dated February 17, 2006, that the transportation trust fund 

does not constitute dedicated funding.

23

The six transit agencies we spoke with varied in the extent to which the 

dedicated revenue sources they reported to the NTD have the three 

characteristics we identified.24 Three of the transit agencies reported 

 22Under the District of Columbia Home Rule Act, the District of Columbia’s annual budget

must be approved by Congress through annual appropriations. See D.C. Code Ann. § 1-

204.46. 

23Letter from Bonnie A. Kirkland, Assistant Attorney General, Office of Counsel to the 

General Assembly, Office of the Attorney General of Maryland, to the Honorable Ann

Kaiser, Maryland General Assembly, House of Delegates (Feb. 17, 2006). 

24All transit agencies that receive urbanized area formula program funds from FTA must 

submit reports to NTD through its Web-based reporting system. The financial section of the 

NTD reporting system allows agencies to enter data in predetermined categories of 

funding, including but not limited to general revenues, other funds, and dedicated sources, 

including sales tax, income tax, property tax, gas tax, other dedicated taxes, tolls, bonds

and loans, and other dedicated sources. The reporting system also requires transit agencies

to report whether each source is generated by the transit agency or comes from the 

locality, state, or federal government. 

Page 18 GAO-06-516 Mass Transit
dedicated funding sources with all three characteristics, while the other 

three agencies reported dedicated funding sources that were subject to 

appropriations or were allocated among other transit or transportation 

programs. 

• Three agencies—San Francisco’s Bay Area Rapid Transit (BART), 

Boston’s Massachusetts Bay Transportation Authority (MBTA), and Dallas

Area Rapid Transit (DART)—have dedicated funding sources with all 

three characteristics. BART receives the proceeds from a regional 

dedicated sales tax, as established by state law.25 The tax is collected by 

the state and the proceeds are provided directly to BART by the state 

treasury. At MBTA, state law directs that the proceeds of a statewide 

dedicated sales tax are deposited into a state MBTA fund from which the 

state treasurer will provide funds to MBTA upon request, without an 

appropriation.26 At DART, the state comptroller collects the proceeds of a

regionally dedicated sales tax and provides those proceeds directly to 

DART.27 

• New York’s Metropolitan Transportation Authority (MTA) receives a 

number of revenue streams that it considers to be dedicated, even though

they are subject to appropriations by the state legislature or by local 

governments and they do not always consist of a specific tax or fee that is

dedicated to the agency. They include: (1) local matching payments for 

state aid, which in addition to being appropriated may come from general 

revenues as opposed to a specific revenue source;28 (2) payments from two 

state funds for MTA, which are composed of the receipts of several taxes 

statutorily required to be deposited in these trust funds and which are 

subject to appropriations by the state legislature; and (3) local payments—

which are appropriated—for the operation and maintenance of commuter 

rail stations, the amount of which is designated in statute.29 

• St. Louis Metro receives a portion of local sales taxes that are dedicated to 

both highway and transit purposes and that must be annually 

 25Cal. Pub. Util. §§ 28952 and 29142.2. 

26Mass. Ann. Laws ch. 10 § 35T. 

27Tex. Tax Code Ann. §§ 322.001, 322.201, and 322.301. 

28N.Y. Transp. Law § 18-b.

29N.Y. Pub. Auth. Law § 1277. See also Metropolitan Transportation Authority, 2005 

Combined Continuing Disclosure Filings (New York, Apr. 29, 2005). 

Page 19 GAO-06-516 Mass Transit
appropriated. The allocation between highways and transit is determined 

through the annual budgeting process and is not statutorily designated.30

• Philadelphia’s Southeastern Pennsylvania Transportation Authority 

(SEPTA) receives dedicated funding from the state of Pennsylvania, which

dedicates a portion of its statewide sale tax, as well as several motor 

vehicle-related fees,31 to two state trust funds to be used for aid to transit 

agencies statewide, not only SEPTA. Statutory formulas are used to 

determine how much each agency receives, and the funds are provided to 

transit agencies directly from the state treasury.32 

Of the 25 largest transit agencies, all except 2—the Maryland Transit 

Administration, which operates Baltimore’s transit and commuter rail 

systems, and the Port Authority Trans-Hudson Corporation, which 

operates rail lines and ferryboats between New York and New Jersey—

reported to the NTD that they received dedicated sources of revenue in 

2003.

33 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. In addition to dedicated funding, 

other revenue sources transit agencies reported receiving were a 

combination of state and local appropriations and other funding, fares and 

other operating revenue, and federal grants.34 Of the total revenues those 

23 largest transit agencies received in 2003 from state and local sources—

including dedicated funding, general revenue appropriations, and other 

funding sources—the proportion that came from dedicated sources 

averaged 70 percent. For 12 of these agencies, between 90 percent and 100 

percent of state and local funds they received in 2003 came from dedicated 

sources. Figure 4 shows the percentages of transit agencies’ state and local 

Almost All Large Transit 

Agencies Have Dedicated 

Funding 

 30Mo. Ann. Stat. §§ 94.600 to 94.660. 

31These other fees include a $1 per tire fee on the sale of new tires for highway use, a 3 

percent tax on the total lease price on leased vehicles, and a $2 daily fee on the rental of

motor vehicles. See Pa. Stat. Ann. Taxation and Fiscal Affairs, 72 § 9301. 

32Pa. Stat. Ann. Transportation, 74 §§ 1310 and 1310.1. 

33WMATA receives dedicated funding from the receipts of a Northern Virginia gasoline tax 

that equaled about 4.3 percent of all state and local contributions in 2003. 

34Other state and local funding is any state or local government funding that is not 

dedicated to transit at its source or is not included in the budgeting process of general 

revenue funds, such as funds for a specific project or from special state or local programs.

Page 20 GAO-06-516 Mass Transit
funding that came from dedicated funds, general revenue, and other 

funding in 2003. 

Page 21 GAO-06-516 Mass Transit
Figure 4: Types of State and Local Funds for the 23 Largest Transit Agencies That 

Received Dedicated Funding in 2003 

Northeast Illinois Regional Commuter 

Railroad Corporation (Chicago)

Port Authority of Allegheny 

County (Pittsburgh)

Southeastern Pennsylvania 

Transportation Authority (Philadelphia)

San Francisco 

Municipal Railway

Long Island Railroad

New Jersey Transit 

Corporation (Newark)

Metro-North Commuter 

Railroad Company (New York)

Miami-Dade Transit

Washington Metropolitan 

Area Transit Authority

0

10

20

30

40

50

60

70

80

90

100

Percent

Transit agency

Page 22 GAO-06-516 Mass Transit
Denver Regional 

Transportation District

Dallas Area Rapid Transit

Metropolitan Transit Authority of 

Harris County, Texas (Houston)

Massachusetts Bay 

Transportation Authority (Boston)b

Metropolitan Atlanta 

Rapid Transit Authority

King County Department of Transportation - 

Metro Transit Division (Seattle)

New York City 

Department of Transportation

Central Puget Sound Regional 

Transit Authority (Seattle)

Tri-County Metropolitan Transportation 

District of Oregon (Portland)

San Francisco Bay Area 

Rapid Transit District

Los Angeles County Metropolitan 

Transportation Authority

Santa Clara Valley Transportation 

Authority (San Jose)

New York City Transit

Chicago Transit Authority

Dedicated funds

General revenue

Other funding sourcesa

Source: GAO analysis of NTD data.

a

Other funds are any state or local government funding sources that are not dedicated to transit at 

their source or are not included in the budgeting process of general revenue funds. 

b

The Massachusetts Bay Transportation Authority reported approximately $141 million in local 

assessments as general revenues. Based on information we received from this transit agency, 

revenue from local assessments is considered a dedicated source of funding. As a result, for the 

purposes of this analysis, we recategorized this amount as dedicated funding. 

Page 23 GAO-06-516 Mass Transit
Most transit agencies reported receiving multiple dedicated revenue 

sources from state and local governments, as well as, in some cases, 

dedicated revenue that was directly generated.

35 For example, GAO’s 

analysis of NTD data for the 23 largest agencies that have dedicated 

funding shows that 18 of these agencies received dedicated funds from at 

least two sources in 2003, with the sales tax being the source most 

commonly dedicated to transit (15 of the 23 transit agencies received

dedicated funds from sales taxes). Sales tax also ranked at the top in 

revenue generation among dedicated sources; in 2003, approximately $4.5 

billion or 43 percent of the approximately $10.3 billion in total dedicated 

revenues received by the 23 transit agencies came from sales taxes. 

According to the NTD data and to the transit agencies we spoke with, sales 

taxes dedicated to transit are levied at the state or local level and are 

sometimes enacted by ballot measures. All of the transit agencies we 

spoke with have dedicated funding that includes sales taxes, as follows: 

Most Large Transit 

Agencies Rely on Multiple 

Dedicated Funding 

Sources, Often Including 

Sales Taxes, to Mitigate 

Volatility 

• St. Louis Metro receives two separate sales taxes—one at one-half of 1 

percent and one at one-quarter of 1 percent—that are levied in the 

localities that Metro serves. The revenues are collected by the state and

remitted to the local governments to be appropriated to Metro. 

• San Francisco’s BART receives 75 percent of a one-half of 1 percent sales 

tax that is levied in the counties in the BART transit district. The sales tax 

was first enacted in 1969 to fund the completion of the rail system, but the 

revenues are now used for operations. 

• Dallas’s DART receives the proceeds of a 1 percent sales tax from the 13 

cities that are served by the transit agency. This tax is part of the statewide

8.25 percent sales tax; part of it can be set aside for localities for economic 

development purposes, such as schools, parks, and transit. 

• Boston’s MBTA receives 20 percent of the statewide sales tax revenues. 

State law designates a “base revenue amount,” which increases each year 

with inflation, for the amount of revenue MBTA is to receive from this tax 

each year. If the portion of the tax receipts designated for MBTA does not 

meet the base amount, the state makes up the difference. 

 35Directly generated funds are funds obtained from nongovernmental sources. These funds 

are derived from revenues generated by or donated directly to the transit agency and, if the 

transit agency has taxing authority, can include revenues from dedicated taxes and fees. 

Page 24 GAO-06-516 Mass Transit
• Philadelphia’s SEPTA receives a portion of the statewide sales tax. 

Approximately 2 percent of the revenue from this tax is deposited in state 

public transportation accounts and is allocated to the state’s transit 

agencies, including SEPTA, based on statutory formulas. 

• New York’s MTA receives the proceeds of a three-eighths of 1 percent 

regional sales tax, which is used for operating costs of the commuter rail 

and transit systems. 

Local option sales taxes—in which the sales tax rate of a city or town can 

be raised above the rate of the state sales tax and which are enacted by

ballot measures—have become more prevalent in financing a variety of 

transportation projects, including transit. Many ballot measures for local 

option sales taxes target a mix of transportation programs, including 

highways and transit. A transportation economist we spoke with noted a 

recent trend in ballot measures for sales taxes for capital projects and said 

that an advantage of these taxes is that they bring about fiscal discipline 

because the agencies have to deliver results (such as a completed capital 

project) within a specified time. According to this economist, in 2002, 

there were 43 such ballot measures, and in 2004, there were 44; in both 

years, roughly half of them passed. Denver, Salt Lake City, and 23 counties 

in California are some of the localities that have local option sales taxes 

that are either dedicated to transit or can be used for any mix of 

transportation purposes. 

The second most common source of dedicated funding for transit, 

according to our analysis of NTD data, was the gasoline tax. In 2003, 7 of 

the 23 agencies with dedicated funding reported receiving revenues from 

this source. In that year, the gasoline tax generated about $304 million or 

2.9 percent of about $10.3 billion in total dedicated revenues received by 

those 23 agencies. Of the 6 transit agencies we spoke with, 2—New York’s 

MTA and San Francisco’s BART—had revenue from a dedicated gasoline 

tax. 

Some of the transit agencies we spoke with also use other sources of 

dedicated revenue, such as mortgage recording taxes, city and town 

assessments, and motor vehicle-related fees. Following are some 

examples: 

• New York’s MTA receives funds from a mortgage-based tax. New York 

City and the seven other counties within MTA’s service area collect a tax 

based on a percentage of the debt secured by real estate mortgages and 

provide the receipts to MTA. 

Page 25 GAO-06-516 Mass Transit
• Boston’s MBTA receives funds from assessments it makes on the 175 cities

and towns in the MBTA district. The assessments are based on a weighted

population formula. 

• New York’s MTA and Philadelphia’s SEPTA receive funds from various 

motor vehicle fees (e.g., MTA receives funds from registration and other 

fees and SEPTA receives funds from car leasing and car rental fees.) 

Transportation experts we spoke with said that using a basket of revenue

options lowers transit agencies’ economic risk because different revenue

sources are affected to different degrees by fluctuations in economic 

activity and other factors, and that a diversity of revenue sources helps to 

ensure a steady revenue stream. Additionally, these experts said that 

specific revenue sources are selected based on the conditions of the local 

economy, with the goal of having less volatility. 

In 2003, 24 of the 25 largest transit agencies in our analysis reported 

spending dedicated funds for operating expenditures, capital

expenditures, or a combination of both, according to our analysis of NTD 

data.36 Of those 24 agencies, 20 spent dedicated funds for a combination of 

operating and capital expenditures. 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. 

One transportation expert we spoke with noted that agencies that have 

flexibility to spend dedicated funding on operations or capital are better 

off because the agency can adjust to cost changes. Transit agencies noted

the following reasons why this flexibility is advantageous: 

Most Transit Agencies Use 

Dedicated Funds for Both 

Operating and Capital 

Expenditures 

• Spending on capital projects fluctuates. For example, capital projects 

might need up-front funding in one year but not in the next.

• The construction of capital projects, such as extending a rail line, typically 

creates a need for operating expenditures, so dedicated funds used to 

 36Our analyses of the 25 largest transit agencies discussed earlier in this report showed that 

23 of those agencies received dedicated revenues in 2003. However, in this section of the 

report, we are analyzing the portion of those agencies’ expenditures that were funded from

dedicated revenues, including revenues received in earlier years. In 2003, one transit 

agency that did not report receiving dedicated revenue in 2003—the Port Authority TransHudson Corporation in New York and New Jersey—spent dedicated funds that it received 

in an earlier year. 

Page 26 GAO-06-516 Mass Transit
build a capital project might later be used for operating expenses once the 

project is implemented.

• Regional and agency priorities may change, which may require a shift in 

how funds are used. 

Transit agencies we spoke with did not cite any disadvantages of having 

the ability to spend dedicated revenues on both types of expenditures. 

Some agencies are subject to restrictions on how they spend dedicated

revenues, as illustrated in the following examples: 

• Philadelphia’s SEPTA must use the dedicated revenue it receives from the 

state for capital projects, debt service, and asset maintenance. 

• San Francisco’s BART uses revenues from the dedicated local sales tax 

and property assessments for operating expenditures. These are the only 

local sources of operating support the agency receives. 

• Dallas’s DART is subject to an operating expenditures cap, which was 

enacted by its Board of Directors. Growth in operating expenses must not 

exceed 90 percent of the inflation rate. 

Expenditures from dedicated sources are subject to the same type of 

oversight as expenditures from other sources, which at transit agencies 

includes a board of directors involved in capital planning and periodic 

audits by federal and state auditors. FTA does periodic reviews of all 

transit agencies that receive funding from FTA, including procurement 

system reviews, financial management oversight reviews, and drug and 

alcohol oversight reviews. Some of the transit agencies whose officials we 

interviewed are subject to oversight and review as follows: 

Expenditures from 

Dedicated Sources Are 

Generally Subject to the 

Same Oversight as 

Expenditures from Other 

Sources 

• DART’s expenditures are subject to review by its internal auditor (which 

reports directly to the Board of Directors), a state auditor, and the Texas 

Department of Transportation. DART’s Board of Directors and the cities in

the Dallas region that are served by DART review DART’s budget annually.

• MBTA has an internal audit department that reports to the general 

manager. A state auditor also reviews certain programs and areas of MBTA 

on an annual basis, and a state inspector general’s office reviews MBTA. 

The state auditor has a suboffice in MBTA’s office building with dedicated 

officials reviewing transportation programs. Internal and state audits focus 

more on program reviews than on financial audits. The state legislature 

sometimes has hearings on MBTA, generally for capital projects. Finally, 

Page 27 GAO-06-516 Mass Transit
the MBTA Advisory Board, which is made up of representatives from each 

city and town within the MBTA district, approves MBTA’s mass 

transportation program and its annual budget. 

• MTA is required to file reports each year with state legislators and other 

officials certifying the proper use of the dedicated funds, and the state 

comptroller is authorized to audit MTA’s financial records. MTA also has 

an office of inspector general, which does programmatic reviews and 

investigations. 

While spending safeguards do not generally vary based on the source of 

revenue, safeguards can vary depending on whether funds are used for 

operations or capital. Major capital projects funded by FTA are monitored 

to ensure they are progressing on time, within budget, and according to 

approved plans, and agencies that issue debt to finance capital projects 

must make debt repayments within specified time frames. Also, agencies’

capital projects require the review and approval of the board of directors, 

whose review sometimes includes a public approval process. MTA’s 5-year 

capital program, for example, is subject to an extensive public approval

process that is coordinated through the board of directors. MBTA also has 

an open capital planning process that is subject to a lengthy public review

process. On the operations side, one agency we spoke with—DART—as 

noted earlier, has a cap on expenditures for operations that was enacted

by its Board of Directors, which dictates that growth in operating 

expenses must not exceed 90 percent of the inflation rate. 

Although dedicated funds are generally subject to the same type of 

oversight as funds from other sources, the implementation of dedicated 

funding at transit agencies sometimes has been accompanied by enhanced 

oversight: 

• When state legislation established dedicated funding for SEPTA, it also 

required the Board of Directors to be expanded to include four additional 

members appointed by the state. According to a SEPTA official, the state

said that since it was going to be shouldering a greater percentage of 

SEPTA’s costs, it should have more of a voice in how SEPTA was run. 

• State legislation establishing dedicated funding sources for MTA in the 

1980s also established oversight mechanisms, including a capital planning

board, an inspector general, and a committee on the Board of Directors for 

capital program oversight. 

Page 28 GAO-06-516 Mass Transit
Dedicated funding is an important revenue source for transit agencies 

because it enhances their planning of future expenditures and increases 

their access to bond markets due to better predictability of revenue. With

regard to planning, according to five of the six agencies we interviewed, 

dedicated funding makes revenue more predictable, thereby enabling 

more effective multiyear planning. With regard to raising revenue through 

the issuance of bonds, all of the agencies we spoke with have used 

dedicated funds to issue bonds for capital programs and projects. In 

addition, four of the six agencies we interviewed said that dedicated 

funding either allowed them to issue bonds or improved their credit rating. 

An improved credit rating generally allows agencies to issue bonds at a 

lower rate, thereby decreasing the cost of borrowing for capital projects.

For example, SEPTA used the funds from a 1992 dedicated funding 

package to support the issuance of bonds for capital needs. SEPTA 

inherited most of the commuter rail service formerly provided by Conrail,

which required major repairs to stations, bridges, tracks, and overhead 

power. 

The officials we spoke with representing local governments and 

transportation departments in the District of Columbia, Maryland, and 

Virginia, and NVTC, also cited a number of advantages of dedicated 

funding for WMATA. Officials from five of these entities stated that a 

consistent and known source of revenue would enable WMATA to plan 

more efficiently for future expenditures. Another local official said that 

dedicated funding would also allow WMATA to provide a consistent level 

of quality. That WMATA stands to receive $1.5 billion in additional federal

contributions if dedicated funding is established is an advantage cited by 

officials from one local jurisdiction, as well as NVTC. 

An analyst with one of the major credit rating agencies told us that 

dedicated funding is one factor that can strengthen transit agencies’ bond 

ratings. According to this analyst, who has expertise in transit, dedicated

funding can provide better access to the capital markets, but any effect on

the cost of borrowing will depend on how the dedicated funding is 

structured. For example, a dedicated revenue stream is more stable if the 

legislation creating it is difficult to reverse. Additionally, requiring that 

revenues be spent first on debt servicing is looked upon favorably by bond 

rating agencies. This analyst also noted that the credit-rating history of 

transit agencies—including WMATA—is based partly on that of the local 

or state jurisdictions that provide the agency with subsidy payments. 

WMATA has a good, steady credit-rating history in part because of the high 

credit ratings of its member jurisdictions. The key downside to WMATA’s 

current funding arrangement is the appropriations risk—that local 

Dedicated Funding Can 

Improve Transit Agencies’ 

Planning for Future 

Expenditures and Access 

to Bond Markets, but It 

Also Has Disadvantages 

Page 29 GAO-06-516 Mass Transit
jurisdictions might not make their payments or might be late. However, 

the analyst noted that the jurisdictions supporting WMATA had a long 

history of making payments on time, which, to a certain degree, offsets the 

risk of appropriations. Furthermore, although dedicated funding could 

also offset the appropriations risk—if the dedicated revenue source were 

structured so that it was not subject to appropriations—it could increase 

the risk associated with the revenue source, such as economic 

fluctuations.

Despite the advantages of dedicated funding, there are risks of revenue 

volatility and a loss of budgetary flexibility for governments supporting 

transit agencies. Although the transit agencies we spoke with cited the 

predictability of revenue as an advantage of dedicated funding, they also 

acknowledged that a risk of dedicated funding is that it may be too volatile 

or not meet funding expectations. For example, BART is largely dependent 

on local sales tax revenues for operating expenses; when the local 

economy began declining in 2000, revenues were no longer sufficient, 

leading BART to cut operating costs and raise fares. 

According to three transit agency officials we spoke with, it can be 

difficult or impossible to obtain additional money from state and local

governments that have already provided the agencies with dedicated 

funds. For example, although SEPTA officials told us that their dedicated

revenues were too small a proportion of their overall funding to enhance 

the agency’s long-term planning ability, they said that they had been 

unsuccessful in obtaining additional dedicated funding. Moreover, not all

transit agencies have the authority to raise tax rates or fees themselves. In 

addition, local option taxes for capital projects are a potentially 

problematic means of providing dedicated funding in that, although they 

do provide agencies with additional funds, they often expire after a certain

number of years, requiring agencies to have another ballot measure or to 

find other ways to increase revenue. 

However, some transit agencies benefit from laws that mitigate the risk of 

revenue fluctuations associated with dedicated funding sources. MBTA, 

for example, is protected by legislation designating that 20 percent of the

statewide sales tax revenues go to the agency; this legislation specifies a 

base revenue level that changes each year with the inflation rate. If 

revenues do not meet the base level, the state makes up the difference. 

MTA also has access to additional funding if the local matching shares for 

state operating assistance are insufficient. If localities are unable to 

provide the matching funds to MTA, the state takes out the shortfall from 

the amount the locality would have received in state aid, and provides it 

Page 30 GAO-06-516 Mass Transit
directly to MTA. Additionally, some agencies have reserve funds they can

draw on if revenues are not sufficient. 

Officials in the Washington, D.C., region identified similar concerns when 

discussing what they believe the effects of dedicated funding for WMATA 

might be. An official from one local jurisdiction stated that a dedicated 

funding system is only as reliable as its funding source; another local 

official said that revenues dedicated to WMATA from a specific source 

may fluctuate from year to year with changing economic conditions. 

Regarding the loss of budgetary flexibility, we have previously reported 

that setting government funds aside for a specific use—such as with 

federal trust funds—may affect the funding available for other spending 

priorities.37 We also reported that constituencies may create pressure to 

spend revenues that are set aside for a specific purpose, regardless of the 

need for the spending at the moment or the priority that would otherwise 

be given such spending.38 Some of the officials in the Washington, D.C., 

region we interviewed also cited disadvantages related to state and local 

budgeting. Maryland officials from the state Department of Transportation 

and a local jurisdiction noted that funding dedicated strictly for WMATA 

may reduce funds available for other transportation programs. Officials 

from another local jurisdiction also noted that revenue dedicated from an 

existing tax—rather than from a new source of revenue—reduces that 

locality’s general fund and decreases spending flexibility. 

 37GAO, Long-Term Fiscal Issues: Increasing Transparency and Reexamining the Base of 

the Federal Budget, GAO-05-317T (Washington, D.C.: Feb. 8, 2005). 

38GAO, Federal Trust and Other Earmarked Funds: Answers to Frequently Asked

Questions, GAO-01-199SP (Washington, D.C.: January 2001). 

Page 31 GAO-06-516 Mass Transit
In light of the proposed federal legislation to provide additional funding to

WMATA (H.R. 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. The two issues are not 

necessarily linked since implementing a dedicated revenue source does 

not automatically require a change in revenue sources or in the amount of

revenue collected. Important considerations in selecting a revenue source 

or sources to be dedicated to WMATA are the stability and long-run 

adequacy of the revenue source, as well as the political feasibility of the 

size of the tax or fee rate necessary to provide sufficient revenue to 

WMATA. In evaluating revenue sources to provide additional funding to 

WMATA, equity, efficiency, and administrative cost are potentially 

important considerations. 

One key budgeting consideration identified in the economics literature 

that is relevant for establishing a dedicated revenue source, from the 

perspective of the transit agency, is year-to-year revenue stability. Year-toyear revenue stability refers to the degree to which both short-term 

fluctuations in economic activity (the business cycle) and other factors not 

directly linked to the business cycle influence dedicated tax revenues. The 

revenue stability of different taxes and fees with respect to economic 

fluctuations is often compared by estimating the percentage change in 

year-to-year revenues that results from a 1 percent change in year-to-year

income levels. The variability in these estimates is then used to evaluate 

the relative magnitude of fluctuations not related to the business cycle. A 

greater degree of variability in the estimate of economic response 

indicates a higher degree of instability from noncycle variations. 

Year-to-year revenue stability is an important consideration because it 

influences the ability of a government or agency to carry out effective 

planning and budgeting. A stable revenue source is not subject to 

substantial year-to-year fluctuations, making it easily predictable. Greater 

predictability leads to more accurate revenue forecasts and allows for 

better budgeting and planning as it reduces the probability of a significant 

funding shortfall (or surplus) in any given year. 

In the longer run, an important consideration for WMATA’s financial 

health is that the revenues yielded by a dedicated source adequately keep

pace with increases over time in transit expenditure demands. Although 

many economists used to believe that there was a trade-off between yearto-year stability and long-run revenue growth, current research suggests 

Revenue Sources That 

Could Be Dedicated 

to WMATA Vary in 

Their Stability,

Revenue Adequacy, 

and Required Tax or 

Fee Rate 

Year-to-Year Revenue 

Stability, Longer-Run 

Revenue Adequacy, and 

Required Tax or Fee Rate 

Are Key Considerations for

a Revenue Source to Be 

Dedicated to WMATA 

Page 32 GAO-06-516 Mass Transit
that a revenue source can exhibit relatively high long-run growth and be 

relatively stable. Long-run revenue adequacy is measured by how revenues 

are expected to grow over time as income grows.39 The relationship 

between income levels and the revenue generated by a tax or fee is a 

convenient benchmark for comparing different revenue sources. However, 

to assess the adequacy of a revenue source for transit spending, one would 

need to know how transit demand (and, consequently, spending) is related 

to income. There is considerable uncertainty, however, about the 

relationship between income growth and growth in demand for transit 

services. As a result, it is uncertain what relationship between revenue

growth and income growth over the longer run is necessary to ensure that 

revenues will adequately keep pace with transit expenditure demands. 

Estimates of long-run revenue growth rates for a given revenue source 

often differ at the state or county level, creating further potentially 

important budgetary and political implications for dedicated funding for 

WMATA, which has a service area that encompasses multiple jurisdictions. 

From a budgeting perspective, these jurisdictional differences should be 

taken into account to arrive at accurate forecasts of transit revenues. 

Political concerns might arise because of different revenue growth rates in 

the Compact area, which could mean that the allocation of payments 

among jurisdictions could change over time unless tax or fee rates are 

adjusted or floors and ceilings are placed on contribution levels. 

Another key consideration in choosing a revenue source to be dedicated to 

WMATA is the tax or fee rate required to dedicate a specified amount of 

revenue from that source—that is, the rate required may influence the 

choices of state and local officials among various revenue sources. In 

general, the rate required will be smaller when the tax or fee is applied to a 

larger base.

As part of its analysis of WMATA’s funding issues, the Metro Funding 

Panel estimated the tax or fee rate required to generate specified amounts 

of dedicated revenue from six potential revenue sources.40 The specified 

amounts were based on different categories of WMATA’s spending that 

 39Adequacy is assessed using a long-run elasticity or the percentage growth in revenue

given a 1 percent increase in income levels. A long-run elasticity of more than one indicates

that revenues grow faster than income (a 1 percent increase in income levels leads to a 

more than 1 percent increase in revenues). 

40We did not analyze parking taxes, one of the panel’s six potential revenue sources. 

Page 33 GAO-06-516 Mass Transit
could be covered by dedicated local revenues. For example, the panel

estimated the tax or fee rate required to dedicate $148 million in 2010. That 

amount represents 50 percent of what the panel estimated would be 

needed for capital spending to renew aging components of the WMATA 

system and add system capacity to meet growing demands, plus operating 

spending related to this capital investment.41 In addition to its estimates of 

the level of dedicated revenue needed to fund different specified levels of 

spending, the panel made several critical assumptions in developing its 

estimates of the tax or fee rate required.42 The accuracy of these 

assumptions will affect the accuracy of the panel’s estimates.43

Figure 5 provides a summary—based on our analysis of the economic 

literature and the Metro Funding Panel report—of how these six revenue 

sources (sales tax, payroll/income tax, motor vehicle fuel tax, property 

tax, access fees, and vehicle registration fees) compare according to 

stability, long-run adequacy, and tax or fee rate required. Additional 

analysis of each of the taxes and fees, and how they compare with respect 

to the key considerations, is presented in appendix II. 

Potential Revenue Sources 

Have Different 

Characteristics When 

Assessed Using the Key 

Considerations of Year-toYear Stability, Long-Term 

Adequacy, and Required 

Tax or Fee Rate 

 41More specifically, this estimate includes funding for increasing the number of rail cars

and expanding the capacity of existing stations to increase system capacity, but does not 

include funding for new system extensions, such as the proposed rail line to Dulles

International Airport. However, the operating spending related to capital investment 

includes operating costs for the extension to Dulles and the Anacostia light rail line. In

addition, this estimate was based on several assumptions, including that fares would 

increase over time to keep the level of costs covered by fares unchanged, that state and

local government contributions would increase by 5.3 percent per year, and that the costs 

of MetroAccess would be covered by some other means than WMATA’s budget.

42Some of the assumptions that the panel made follow: The tax or fee would be assessed

throughout the WMATA Compact region, except for Virginia’s Loudoun County, and not

elsewhere in Maryland or Virginia; each tax or fee base would grow in the future at the

same rate as it grew in the recent past; compliance with each tax or fee would be 100 

percent; and, with one exception (parking tax), dedicating revenue from any source would

not lead to any behavioral effects, such as reduced motor vehicle fuel purchases in the

Compact region if some motor vehicle fuel tax revenues were dedicated to WMATA. 

43The actual tax or fee rate required in 2010 would be higher than the panel’s estimate if the 

tax or fee base grew less rapidly in the future than in the recent past, if compliance with the 

dedicated tax or fee were less than 100 percent, or if dedicating a tax or fee led to 

substantial behavioral effects. On the other hand, the rate required would be lower than the

panel’s estimate if the tax or fee was assessed in all of Maryland and Virginia rather than 

just in the WMATA Compact region or if the tax or fee base grew more rapidly in the future 

than in the recent past. 

Page 34 GAO-06-516 Mass Transit
Figure 5: Summary of Revenue Sources and Key Considerations

Revenues highly

stable in relation to

economic fluctuations

Revenue

sources

Revenue growth likely

to outpace overall

economic growth

Relative size of tax/fee

rate needed to collect

a specified amount of

dedicated revenue

Metro Funding

Panel’s estimate

of tax or fee rate 

needed to collect

$148 million

in 2010

Yes

No

Yes

No

Small

Large

Details

Details

Likely more susceptible to economic 

fluctuations than property or fuel tax. 

Similar variation to payroll or income 

tax revenues, but less random 

variation year to year. 

Retail sales usually take up 

a declining share of income 

as income rises.

Tax base is broad, 

especially when 

most retail purchases, including 

food, are taxed.

A sales tax rate of 25¢ 

per $100 of retail sales

throughout the WMATA 

compact region.

A payroll tax rate of 16¢ 

per $100 of payroll 

throughout the WMATA 

compact region.

A fuel tax rate of 11.1¢ 

per gallon of fuel purchased in the WMATA 

compact region.

A property tax rate of 

3.44¢ per $100 of 

assessed value 

throughout the WMATA 

compact region.

A fee of 30¢ per square 

foot of federal and 

commercial property 

within 0.5 miles of 

designated Metrorail 

stations per year.

No Metro Funding 

Panel estimate for 

vehicle registration 

fees.

Applicable tax 

base is broad, 

especially for an 

income tax.

Tax base is

relatively narrow.

Tax base is

relatively narrow.

Tax base is

relatively broad.

Tax base is much 

narrower than 

that of a general 

property tax.

Usually outpaces economic 

growth because of 

progressive nature.

Historically, grows slowly, but 

faster than sales tax. Future 

adequacy concerns due to 

potential fuel efficiency improvement and increased transit use.

Unlikely to keep pace with 

economic growth because 

car ownership levels are 

already high. 

Limited growth if fees do not 

change. However, increased 

development near stations

may grow revenues.

Widely variant growth patterns

at county level depending on 

local economic conditions and 

implementation.

Likely more susceptible to economic 

fluctuations than property or fuel tax. 

Similar variation to sales tax 

revenues, but more random 

variation year to year. 

Moderate susceptibility to economic 

fluctuations, but likely less

susceptible than sales or 

income/payroll tax. 

Likely very stable if fee rate is set on a

per-square-foot basis, but changes in 

the level of developed property may 

not be concurrent with or proportional 

to economic fluctuations.

Likely very stable, but may exhibit 

a lagged response to economic 

downturn. 

Highly stable, but could be 

susceptible to random fluctuations

such as those resulting from natural 

disasters or other events that disrupt 

oil supply.

varies

varies

Details

Sales tax

Payroll or

income tax

Property tax

Vehicle

registration

fees

Motor vehicle

fuels tax

Access fees

Source: GAO analysis of economic literature and Metro Funding Panel report.

Page 35 GAO-06-516 Mass Transit
Experts and state and local officials commonly identified the economic 

considerations of equity, efficiency, and administrative cost as potential 

key considerations in evaluating revenue sources. However, these 

considerations are only relevant if the amount of revenue or the methods 

for its collection are altered.44 In the context of dedicated funding for 

WMATA, these considerations come into play primarily when addressing a 

shortfall. State and local governments could establish a dedicated funding 

source for WMATA without increasing their revenue collections. However, 

if they want to provide WMATA with enhanced funding to address the 

revenue shortfall identified by the Metro Funding Panel, they would have 

to take some offsetting fiscal action, such as increasing their revenues, 

reducing their spending on other functions, or taking money from 

available surplus revenues, if any. 

Tax and Fee Changes Used 

to Provide Additional 

Funding for WMATA Can 

Affect the Equity, 

Efficiency, and 

Administrative Cost of the 

State and Local Tax 

Systems, but the Effects 

May Be Small 

In the case of raising additional funding for WMATA, administrative costs 

are likely to be a more important decision factor than equity or efficiency,

particularly if the state and local jurisdictions choose to implement at the 

state or local level a tax or fee that is not currently being administered at 

that level of government (even though the tax or fee might be collected by 

another level of government). Conversely, administrative costs are likely 

to be small if the tax or fee is already being collected at the desired level of

government. Equity and efficiency effects are likely to be small given that

the additional amount of revenue collected for WMATA would be small in 

relation to the overall state and local government operations. Possible 

exceptions are the vehicle fuel tax and vehicle registration fees, which 

might require larger rate increases because of their relatively small bases. 

 44The preceding section on stability and long-run revenue growth implicitly assumes that a 

source is dedicated without altering the amount of revenues collected or the way in which

they are collected. This section addresses the economic implications of increasing the 

amount of revenue raised. However, state and local jurisdictions could choose to 

implement a policy somewhere in between these two cases. For instance, they could 

change the composition of revenues without increasing revenue collections, such as

implementing a new dedicated tax or fee and lowering an existing tax or fee. This change in 

revenue composition would have efficiency and equity effects, although they are once

again likely to be small. In the interest of brevity, the discussion presented in this text does 

not take into account these more complicated cases, although their effects can be assessed 

by applying the same reasoning. In the preceding example, the efficiency and equity effects

of both the new source and lowered tax or fee rate should be considered jointly to arrive at 

a net effect. 

Page 36 GAO-06-516 Mass Transit
Possible administrative, equity, and efficiency effects are discussed in 

appendix III.45

Although All 

Jurisdictions 

Proposed Legislation 

in 2006 Directing a 

Revenue Source to 

WMATA, Actions to 

Provide WMATA with 

Dedicated Funding 

Are Not Complete 

Mass Transit

To establish dedicated funding as defined in H.R 3496 (i.e., a revenue 

source that is legislatively directed solely to WMATA), each Compact 

jurisdiction would need to enact legislation directing a specific revenue

source or sources to WMATA. The legislative process for enacting such 

legislation in the District of Columbia, Maryland, and Virginia is as follows: 

• Legislation in the District of Columbia would be taken up first by the 

District of Columbia City Council. If passed by the council and signed by 

the District of Columbia mayor, the WMATA legislation would require 

approval by Congress.46

To Conform to the Current 

Requirements of H.R. 3496, 

the Enactment of State or 

Local Legislation Directing 

Specific Revenue Sources 

to WMATA Would Be 

Needed 

• In Maryland, if it is determined that the state’s current system for funding 

WMATA does not constitute dedicated funding, the General Assembly 

could pass legislation—signed by the governor—to order a tax rate 

change, shift the use of an existing tax, impose a new fee or surcharge, or

enable localities to enact a tax rate change. Dedicated funding legislation 

could have a local or statewide scope. If the scope were local—which 

 45Also see appendix III for a brief discussion of the issues surrounding the possible 

implementation of a regionwide tax or fee. 

46All new laws in the District of Columbia require congressional approval before taking 

effect. See D.C. Code Ann. § 1-206.01. 

Page 37 GAO-06-516
would be a departure from the current funding structure—local input 

would be considered and a consensus would be reached by a local 

delegation; the legislation would then go to the state legislature for final 

approval.47 If the scope of the legislation were statewide, the legislation 

would not require initial approval by the local delegation and would go 

directly to the state legislature. Legislation in Maryland to enact dedicated 

funding for WMATA may also have to address the issue of parity in transit 

spending across the state, particularly between the Baltimore and 

Washington, D.C., regions. If additional funds are raised for or dedicated 

to WMATA, there may need to be additional funds provided for other state 

transit programs. 

• In Virginia, the General Assembly could pass a law—signed by the 

governor—ordering a tax rate change or redirecting existing taxes 

statewide to establish dedicated funding. According to local officials in the 

state, to change the existing tax structure, Northern Virginia jurisdictions 

would have to be given the authority to raise or dedicate a tax by the 

General Assembly, unless that tax is currently under local control.48 State 

legislation can require local approval through a voter referendum or a vote 

by the local governing bodies. Legislation concerning a dedicated funding 

system for WMATA may or may not need the approval of the local 

jurisdictions it would encompass. The state also determines whether a tax 

shall be statewide in scope or limited to certain localities. 

 47A local delegation usually consists of the state representatives of the districts involved in 

the local legislation. 

48The real estate tax is one of the major taxes commonly controlled at the local level, 

although localities have limited authority from the state to levy such taxes as recordation 

and sales taxes. 

Page 38 GAO-06-516 Mass Transit
Bills were introduced in 2006 in the District of Columbia, Maryland, and

Virginia that would dedicate a portion of sales tax revenues to WMATA. 

These bills differ from one other in a number of aspects, and they also 

differ from the approach recommended by the Metro Funding Panel,

which included dedicating a sales tax increase of one-quarter of 1 percent 

across the WMATA Compact area to be used for capital maintenance and 

system enhancement.49 The panel also recommended that the proceeds of 

the regional sales tax be in addition to the jurisdictions’ current payments 

for operations and capital. Table 1 provides details on the legislative 

proposals and the panel’s recommendation. 

Legislative Bodies in the 

District of Columbia, 

Maryland, and Virginia 

Have Considered 

Dedicated Funding 

Legislation 

Table 1: Comparison of Key Aspects of District of Columbia, Maryland, and Virginia Dedicated Funding Proposals and Metro 

Funding Panel Recommendation 

Sales 

Type of tax

dedicated to

WMATA District of Columbia Marylanda

Virginiab

Metro Funding Panel 

recommendation

Tax rate One-half of 1 percent Varies from one-quarter of 

1 percent to 1 percent 

One-quarter of 1 percent One-quarter of 1 percent 

Estimated annual 

revenue that would 

be available to 

WMATAc

 

$50 million to $60 

million, about onefourth of the District’s 

total fiscal year 2006 

payments to WMATA of 

$225.3 million 

No applicable estimate—

funds are split among 

WMATA and other transit 

expenses of state 

$51.5 million, about 33

percent of Virginia’s total 

fiscal year 2006 payments 

to WMATA of $154.3

million 

$148 million 

Scope of tax District-wide Statewide Five Northern Virginia

Compact jurisdictions 

Regionwide 

Revenues from

existing tax or tax 

increase 

Existing tax Existing tax Tax increase Recommended either a tax 

increase or using existing 

revenues 

Method of 

allocation to 

WMATA 

Maryland and Virginia 

will each pay amounts 

at least equal to that 

paid by the District of 

Columbia 

Does not specify Funds will be applied to 

each Virginia locality’s 

obligations to WMATA 

Funds allocated based on tax

receipts in each jurisdiction 

 49The panel’s one-quarter of 1 percent estimate was based on the assumption that the 

federal government would make additional contributions to WMATA. According to the

panel’s assumptions, in the absence of an additional federal contribution, the sales tax rate

necessary would be one-half of 1 percent. The panel’s recommendation was based on

analysis using the jurisdictions’ existing sales tax bases, which are not identical; for 

example, in Virginia, groceries are taxed under the sales tax, while in the District of 

Columbia, they are not. The report also states that jurisdictions might be able to dedicate a

portion of an existing tax rather than increasing a tax. 

Page 39 GAO-06-516 Mass Transit
Sales 

Type of tax

dedicated to

WMATA District of Columbia Marylanda

Virginiab

Metro Funding Panel 

recommendation

Recipients of 

revenue 

WMATA WMATA, Maryland Transit 

Administration, and other 

local transit programs in 

Maryland 

WMATA WMATA

Where funds are 

held prior to 

payment to 

WMATA 

A separate fund for 

WMATA outside of the 

District of Columbia’s 

general fund

Mass Transit Account 

within Maryland 

Transportation Trust Fund 

Northern Virginia 

Transportation 

Commission 

Not applicable

Specified uses of 

revenue for 

WMATA 

Maintenance and 

improvement 

Capital and operating 

expenses, including 

maintenance and 

improvement 

Operating deficit, capital, 

and debt service

Projected shortfall for capital

maintenance and system 

enhancement 

Revenues in

addition to or in

place of current

subsidy payments 

Revenues shall provide 

additional funding for 

WMATA 

Revenues from sales tax 

may not replace other state 

funds necessary to pay 

WMATA’s costs 

Revenues are intended to 

be in addition to current 

payments 

Revenues would be in

addition to existing payments 

Other action bill is 

contingent upon to 

take effect 

The bill is contingent 

upon additional federal 

grants for WMATA, and 

Maryland and Virginia 

passing legislation to 

dedicate an amount of 

funds at least equal to 

that dedicated by the 

District of Columbia; the 

fiscal impact of the bill 

on the rest of the 

District’s budget must 

also be included in an 

approved District 

budget and financial 

plan before the bill can 

take effect 

Two bills state that funds 

for WMATA shall be used 

consistent with additional 

federal grants for WMATA 

and bills passed by the 

District of Columbia and 

Virginia dedicating revenue 

to WMATA; the others do 

not specify 

One bill was amended to 

be contingent upon 

additional federal funding 

being made available 

Not applicable

Source: GAO analysis of the Metro Funding Panel report and the dedicated funding legislation in the District of Columbia, Maryland, 

and Virginia. 

Notes: The following legislation was included in this analysis: District of Columbia B16-0569; 

Maryland H.B. 981, H.B. 1345, H.B. 1392, and S.B. 850; and Virginia H.B. 1003, H.B. 1082, and S.B. 

267. 

a

The four Maryland bills are largely identical; variation is noted in table. 

b

There were other legislative proposals considered in Virginia that address transportation funding, in 

addition to those included in this analysis. We only included proposals that dealt strictly with funding 

for WMATA, rather than broader transportation proposals. 

c

The revenue estimates for the District of Columbia, Virginia, and the Metro Funding Panel were 

prepared by the District of Columbia Chief Financial Officer, NVTC, and the Metro Funding Panel, 

respectively. 

Page 40 GAO-06-516 Mass Transit
As of April 2006, dedicated funding legislation in the District of Columbia 

had been enacted by the city but had not yet received congressional 

approval. Additionally, this legislation will not take effect until H.R. 3496 

and dedicated funding laws in Maryland and Virginia are passed. In 

Maryland, two of the bills—one in the House and one in the Senate—that 

were originally introduced to provide dedicated funding, were amended to 

remove the dedicated funding provisions and to add language requiring 

that the Maryland Department of Transportation (MDOT) undertake a 

study on the state’s transit costs and funding strategies, as noted earlier. 

The amended bills do not provide any funding for transit. The other 

dedicated funding bills in Maryland did not proceed beyond the committee 

level. In Virginia, dedicated funding legislation was approved by the Senate

but not by the House. However, the Virginia proposal to dedicate a onequarter of 1 percent sales tax levied in Northern Virginia to WMATA is 

included in the Senate’s budget proposal, so, as of April 2006, it was still 

possible that dedicated funding could be enacted through this vehicle. 

As discussed earlier in this report, although legislators in the Maryland 

General Assembly have introduced dedicated funding bills, MDOT’s 

position is that the state’s current system for funding WMATA already 

constitutes dedicated funding. On the other hand, an official with the 

state’s Office of Attorney General said in a legal opinion dated February 

17, 2006, that the fund does not constitute dedicated funds for WMATA. An 

MDOT official we spoke with said that Maryland would consider making 

adjustments to the trust fund to meet the goal of dedicated funding. 

Amendments to the 

WMATA Compact Would 

Require State Legislation 

and Congressional 

Consent, but There Has 

Been Little Movement in 

the Region to Pursue 

Amendments 

As currently written, H.R. 3496 requires the WMATA Compact to be 

amended, a process that entails state legislation and congressional 

consent. H.R. 3496, as amended, requires the WMATA Compact to be

amended to require that (1) all payments from the Compact jurisdictions 

come from a dedicated source, (2) WMATA establish an inspector general,

and (3) four federal representatives be added to the WMATA Board of 

Directors, one of whom must be a regular Metrobus or Metrorail rider.50 To 

amend the WMATA Compact, identical legislation—which would be 

separate from legislation establishing dedicated revenue sources—must be 

enacted by the states of Maryland and Virginia, and the District of 

 50According to H.R. 3496, two of the members would be voting and two would be

nonvoting. 

Page 41 GAO-06-516 Mass Transit
Columbia, and must be consented to by Congress. No amendment can be

enacted until this process is complete. 

According to our legal analysis of the WMATA Compact and H.R. 3496,

amending the Compact would not be necessary for the WMATA Compact 

jurisdictions to establish dedicated funding or to create an inspector 

general for the agency, but would be necessary for changing the structure 

of WMATA’s Board of Directors: 

• It is unnecessary to amend the WMATA Compact for jurisdictions to 

provide payment to WMATA from dedicated sources of funding. However, 

if the Compact were amended to require dedicated funding, then the 

jurisdictions would be bound to this requirement as long as it remains in 

the Compact. The Compact does not specify what the source of the 

jurisdictions’ payments to WMATA shall be nor how WMATA’s costs are to 

be allocated among the jurisdictions. 

• WMATA could establish an office of inspector general without amending 

the Compact; however, some provisions in H.R. 3496 about the inspector 

general’s office conflict with the Compact. For example, H.R. 3496 would 

require a unanimous vote of all board members to remove the inspector 

general. Under the Compact, most actions by the board do not require a 

unanimous vote; rather, they require a majority vote and the majority must 

include at least one board member from each of the three jurisdictions. 

Conflicts such as this between H.R. 3496 and the Compact could be 

resolved through an amendment to either one. The WMATA Board of 

Directors voted in April 2006 to create an office of inspector general. 

WMATA’s policy outlining the structure and functions of this office is 

similar to the provisions in H.R. 3496, although WMATA officials told us 

that they wrote this policy to avoid any conflicts with the WMATA 

Compact. 

• Adding federal representatives to the Board of Directors would require a 

Compact amendment because the Compact specifically sets forth the 

composition of the board, which is composed of six members, two each 

from the District of Columbia, Maryland, and Virginia. 

Legislation that would amend the WMATA Compact as required by H.R. 

3496 has not been proposed in the District of Columbia or Virginia, 

according to a WMATA official. 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. Additionally, officials with the transportation 

departments of the District of Columbia, Maryland, and Virginia noted that

Page 42 GAO-06-516 Mass Transit
even if H.R. 3496 is enacted, there is no guarantee that federal funding for

WMATA would be appropriated. Also, officials in Northern Virginia 

questioned whether Compact amendments are necessary to implement the 

requirements of H.R. 3496 to establish an inspector general and to provide 

dedicated funding to WMATA. 

There is no clear consensus among Compact jurisdictions about which 

legislation—amending the Compact or revenue legislation—should be 

dealt with first. Although Maryland officials stated that it makes more 

sense to amend the Compact to establish oversight first, the officials we 

spoke with in the District of Columbia and Virginia stated that enacting 

revenue legislation should be the first priority before trying to amend the 

Compact. 

The schedules for considering legislation in the District of Columbia, 

Maryland, and Virginia are different in each jurisdiction. In the District of 

Columbia, council members can file legislation to be introduced at any 

time during normal business hours, unless the council is at recess.51 The 

council generally meets to vote on legislation on the first Tuesday of every 

month. The legislative sessions of the Maryland and Virginia general 

assemblies both begin annually in January. In Maryland, the session 

adjourns after 90 days; bills may be filed throughout the 90-day session, 

but bills introduced after the 21st day of the Senate’s session and the 31st 

day of the House’s session need special approval before they are returned 

to the floor. In Virginia, the adjournment date varies based on the 

legislative year and whether the General Assembly chooses to extend the 

session, and the deadline for filing legislation is in January, the same 

month the session begins. The short legislative sessions and large volume

of bills leave a limited window for considering and passing dedicated 

funding legislation for WMATA. 

Timeline for Implementing 

Dedicated Funding Is 

Uncertain 

 51An exception to this rule is emergency bills, which may be introduced during a recess of 

the council. 

Page 43 GAO-06-516 Mass Transit
WMATA’s funding partners face a number of issues that will need to be

resolved should they choose to provide WMATA with dedicated funding.

As discussed previously, the Compact jurisdictions have differing views on 

what constitutes dedicated funding, with Maryland officials having 

different opinions on whether their current system for supporting WMATA 

is dedicated, and the District of Columbia and Virginia viewing dedicated 

funding as a specific source statutorily dedicated to WMATA. 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. 

There is currently no agreement among WMATA’s stakeholders—at the 

local, state, and federal levels—as to what proportion of the Compact 

jurisdictions’ total payments to WMATA should come from dedicated

funding. Although as currently written, H.R. 3496 would require that all 

state and local contributions come from dedicated funding, no jurisdiction 

has offered a proposal that would meet this requirement and none of the 

state and local officials we spoke with indicated that measures to fulfill 

this requirement are likely. As noted earlier, among the 23 largest transit 

agencies with dedicated funding, an average of 70 percent of their state 

and local contributions came from dedicated sources in 2003. Among the 

District of Columbia and the cities and counties in Maryland and Virginia,

officials from two jurisdictions expressed support for providing all 

payments to WMATA from dedicated sources, although officials from one 

of these jurisdictions also recognized that such an approach was not likely 

to have regional support. As a result, WMATA’s stakeholders will need to 

determine a dedicated funding level that is acceptable to all parties. 

WMATA Funding 

Partners Have Yet to 

Resolve Several 

Issues Related to 

Dedicated Funding 

Stakeholders Would Have 

to Determine the 

Proportion of the Compact 

Jurisdictions’ 

Contributions to WMATA 

That Should Come from 

Dedicated Funding and 

How to Mitigate Risk 

Associated with 

Dependence on Dedicated 

Revenue 

Page 44 GAO-06-516 Mass Transit
If a large proportion of WMATA’s state and local contributions were to 

come from dedicated funding, stakeholders would also need to determine 

how the risk of revenue volatility would be balanced between the 

jurisdictions and WMATA. The revenue sources chosen for dedicated 

funding for WMATA may fluctuate from year to year, requiring the transit 

agency to work within the constraints of the available revenue or 

necessitating additional appropriations from the state and local 

jurisdictions supporting WMATA. Legislation establishing dedicated 

funding for other transit agencies sometimes provided safeguards for 

revenue streams, such as specifying an annual revenue floor. These 

safeguards can better protect the transit agencies from revenue 

fluctuations, but the state or local government bears the burden of 

ensuring adequate revenue to the transit agency each year. WMATA’s 

funding partners will need to determine the extent to which they or 

WMATA should take on this risk. 

Officials we interviewed from each of the localities in Maryland and 

Virginia said that dedicated funding should result in a net increase in 

payments to WMATA. Officials from two Virginia jurisdictions elaborated, 

saying that dedicated funds could be used both to replace part of the 

current subsidy payments jurisdictions currently make from their general

funds, and to provide additional funding to WMATA, to result in an overall 

increase. An official from another Virginia jurisdiction said that dedicated 

funding should only result in a net increase in the jurisdictions’ payments 

to WMATA if the federal government participates in supporting WMATA. 

Officials from the District of Columbia did not offer an opinion on this 

topic. 

Although the officials we interviewed generally said that dedicated funding

should be used to increase their financial support of WMATA, the 

dedicated funding proposals introduced in the region are not all clear 

about whether dedicated revenues are to be in addition to the 

jurisdictions’ current payments. The legislative proposals introduced in 

Maryland and Virginia state that the dedicated revenues are not meant to 

reduce or replace other funding sources. However, because these 

proposals do not explicitly state that dedicated revenues will be used to 

provide WMATA with additional funding—above the jurisdictions’ current 

level of payments—it remains unclear if these proposals would result in a 

net increase in the payments to WMATA. The District of Columbia’s 

legislation does, however, state that its purpose is to provide additional 

payments to WMATA. 

Compact Jurisdictions 

Would Have to Determine 

Whether Dedicated 

Funding Would Result in a 

Net Increase in Payments 

to WMATA and How the 

Amount of Payments to 

WMATA Would Be 

Allocated among the 

Jurisdictions 

Page 45 GAO-06-516 Mass Transit
Regardless of whether dedicated funding results in a net increase in the

amount of payments to WMATA, the region would need to determine what 

portion of the total amount dedicated to WMATA each jurisdiction would 

pay—that is, whether the amount of payment from dedicated sources 

would be based on current allocation formulas or would be determined 

using another means. None of the legislative proposals explicitly states 

how the amount of payments to WMATA from dedicated revenues would 

be determined, but local officials we interviewed did express views on this 

matter. The District of Columbia officials we spoke with said that the 

amount of payments to WMATA from dedicated revenue sources should 

not be determined using the current allocation formulas. These officials 

said they believe the burden of providing financial support for WMATA 

should be more evenly distributed across the three major jurisdictions. 

This view is reflected in the District of Columbia’s legislative proposal, 

which includes a provision that would require Maryland and Virginia to 

dedicate an amount of revenue at least equal to that dedicated by the 

District of Columbia, although it does not specify how that amount would 

be determined. Officials from two of the Northern Virginia Compact 

jurisdictions and from the Virginia Department of Transportation stated 

that they believed the current allocation formulas should also be applied 

to dedicated revenues provided to WMATA. Neither the Virginia legislation 

nor the Maryland legislation explicitly states how the relative size of 

payments to WMATA would be determined. State and local officials from 

Maryland, along with other Virginia officials we met with, did not express 

strong views about whether the current allocation formulas would be 

applied to additional funding provided to WMATA. 

Whether additional funds provided to WMATA from dedicated sources are 

distributed to WMATA based on the existing allocation formulas or using 

another means could have an effect on the distribution of payments among 

the jurisdictions. For example, using the approach recommended by the 

Metro Funding Panel—in which all local Compact jurisdictions would 

provide the entire proceeds of a one-quarter percent or one-half percent 

sales tax to WMATA—the amount of funds that each jurisdiction would 

provide to fund WMATA’s estimated capital shortfall would be based on 

the jurisdiction’s tax receipts, rather than on the allocation formulas. As a 

result, the payments would be shifted away from the District of Columbia 

and Maryland and toward Virginia. Table 2 compares the current 

distribution among the jurisdictions of payments for WMATA’s operating 

subsidy and capital improvement program to the distribution of additional

payments for the estimated capital shortfall using a dedicated regional 

sales tax. 

Page 46 GAO-06-516 Mass Transit
Table 2: Percentage Distribution of Payments to WMATA under Current Allocations and under Regional Sales Tax 

Percent 

Distribution of 

current operating

subsidy payments 

Distribution of current capital 

improvement program payments

Distribution of payments for WMATA’s 

estimated capital shortfall under a 

regional sales tax levied at the same 

rate in all jurisdictions

District of Columbia 38 35 20

Maryland 38 35 32

Virginia 24 30 48

Source: GAO analysis of information from WMATA and the Metro Funding Panel Report. 

Notes: Distributions for operating subsidy and capital improvement program payments are based on 

WMATA’s fiscal year 2006 approved budget. 

Capital improvement program payments include those for projects funded by Metro Matters and 

Beyond Metro Matters, two capital funding packages that address infrastructure rehabilitation and 

expansion of capacity within the current fixed-route system. 

Stakeholders Would Have 

to Determine Whether 

Dedicated Funding Would 

Be Used for Operations, 

Capital Needs, or Both 

Whether funds are used for operations, capital projects, or both has 

implications for key issues, such as the purpose of the dedicated funding 

and the appropriate amount of that funding. The Metro Funding Panel

proposed that dedicated funding be used to cover WMATA’s budgetary 

shortfall, which the panel projected would occur largely due to planned 

capital expenditures. Dedicated funding legislation introduced in Maryland

and Virginia states that funds are to be used for operations and capital, 

while the District of Columbia’s legislation states only that funds are to be 

used for “maintaining and improving the transportation system [of 

WMATA].” Officials we spoke with from local jurisdictions also had varied 

views on this topic: 

• Representatives from three of the eight local jurisdictions stated that 

dedicated funding should go toward funding WMATA’s capital needs, 

citing the following advantages: (1) Capital planning benefits from the 

predictability of dedicated funding because such planning tends to involve 

multiple years; (2) WMATA’s unfunded needs are mostly capital needs 

related to system rehabilitation and capacity, a conclusion reached by the 

Metro Funding Panel report; and (3) an annual subsidy is already in place 

to fund operations. 

• Representatives from two other local jurisdictions stated that dedicated

funding should be used for both operations and capital needs. They noted 

that: (1) operations and capital programs can both benefit from the 

stability provided by dedicated funding, (2) transit agencies can be more 

Page 47 GAO-06-516 Mass Transit
efficient when given the flexibility to use funds for either purpose, and (3) 

making operating payments to WMATA from dedicated funding, rather 

than from the jurisdictions’ general funds, can make budgeting easier for

both WMATA and the jurisdictions. 

• Representatives from three of the eight local jurisdictions had no opinion 

on whether dedicated funding should be used for operations or capital 

needs. 

In earlier testimony on WMATA, we highlighted the importance of having 

reasonable assurances that if WMATA were to receive additional funds, it

would spend these funds effectively.52 H.R. 3496 would make additional 

federal funding contingent upon WMATA’s establishing an office of 

inspector general, and, in April 2006, the WMATA Board of Directors 

approved a resolution that would establish such an office. The issue of 

appropriate oversight was also discussed by regional stakeholders during 

a summit on dedicated funding for WMATA in October 2005. Summit 

participants—who included state and local officials from the Compact 

jurisdictions—agreed that steps should be taken to improve oversight of 

WMATA. Additionally, U.S. Representative Albert Wynn, whose district 

includes parts of Prince George’s and Montgomery Counties, sent a letter 

to WMATA urging the Board of directors to create an “independent 

investigative authority” to study WMATA’s budgets, plans, purchases, and

employee relations with the goal of improving operations and alerting the 

public to problems. Officials in six out of eight local jurisdictions, as well 

as an official with a state department of transportation, told us either they

were concerned that a loss of governance could occur with dedicated 

funding or that it is important to have accountability mechanisms in place 

with dedicated funding. For example, one official said that additional 

oversight of WMATA is necessary and particularly important if WMATA is 

given greater control over its revenue stream through dedicated funding. 

An official from a state transportation department said it was important to 

improve oversight of WMATA through such steps as increasing access to 

WMATA’s financial and operating data if WMATA were to receive

additional funds. 

Stakeholders Would Have 

to Determine Whether 

Increased Oversight of 

WMATA Would Be Needed 

to Ensure Dedicated Funds 

Were Adequately 

Accounted For 

 52GAO-05-922T. 

Page 48 GAO-06-516 Mass Transit
We provided copies of a draft of this report to WMATA and the U.S. 

Department of Transportation for their review and comment. We received

comments, consisting of technical clarifications, from officials from the 

Department of Transportation’s Office of Budget and Policy and from 

WMATA’s Interim General Manager, Auditor General, and Director of 

Intergovernmental Relations, which we incorporated in the report, as 

appropriate. We also provided officials from the District of Columbia, 

Maryland, and Virginia with an opportunity to comment on segments of 

the report pertaining to their legislative processes and the dedicated 

funding bills introduced in their legislative bodies. These officials also 

provided technical clarifications, which we incorporated in the report, as

appropriate.

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees and to the Secretary of Transportation, the 

Interim General Manager of WMATA, and officials in the state and local 

jurisdictions with whom we spoke. We will also make copies available to 

others upon request. In addition, this report will be available at no charge 

on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-2834 or siggerudk@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in appendix IV. 

Sincerely yours, 

Katherine Siggerud 

Director, Physical Infrastructure Issues 

Agency Comments 

Page 49 GAO-06-516 Mass Transit
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

To determine the characteristics of dedicated funding, and how it affects 

transit agencies and state and local governments, we reviewed the 

literature on transit agencies’ use of dedicated funding and interviewed 

representatives of a major credit rating agency and the Government 

Finance Officers Association. We performed semistructured interviews 

with six transit agencies—Bay Area Rapid Transit, Dallas Area Rapid 

Transit, Massachusetts Bay Transportation Authority, New York’s 

Metropolitan Transportation Authority, Southeastern Pennsylvania Transit 

Authority, and St. Louis Metro—which we selected to include a cross 

section of characteristics that are similar to the Washington Metropolitan 

Area Transit Authority (WMATA), including size of total budget, modes 

operated, age of rail system, and service area. Additionally, we selected

agencies that had a diversity of dedicated revenue sources. We also 

reviewed the legislation establishing dedicated funding and budget and

financial documents from some of these agencies. 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.1

 We used 2003 

data, the most recent year for which data were available at the time of our 

analysis. We selected the top 25 agencies based on the size of their 

combined operating and capital budgets. To assess the reliability of the 

NTD, we interviewed an FTA official knowledgeable about the database 

and reviewed pertinent documentation. FTA has several processes in 

place to assure the reliability of the NTD data, including the following: 

• The data that agencies report have to be reconciled against the agencies’ 

own audit reports. The data are then certified by the chief executive 

officer of the agency. 

• FTA uses an automated program that checks transit agencies’ current year 

entries against the previous year’s data. If an inconsistency is identified, 

the general manager of the agency is contacted to verify the information. 

 1

As noted earlier in this report, all transit agencies that receive urbanized area formula 

program funds from FTA must submit reports to the NTD. The NTD uses a Web-based 

reporting system for transit agencies to submit their reports. The financial section of the

NTD reporting system allows agencies to enter data in predetermined categories of 

funding, including local general revenues, state general revenues, other funds, and 

dedicated sources, including sales tax, income tax, property tax, gas tax, other dedicated

taxes, tolls, bonds and loans, and other dedicated sources. The reporting system also 

requires transit agencies to report whether each source is directly generated by the transit

agency or comes from the locality, state, or federal government. 

Page 50 GAO-06-516 Mass Transit
Appendix I: Objectives, Scope, and 

Methodology 

• The NTD system is backed up every hour to ensure that in the event of a 

power loss or other disruption to the system, the data would not be lost.

We also compared the NTD data with the information we received from 

our interviews with the six transit agencies, as well as with some agencies’ 

budget and financial documentation. Generally, the information we 

received from transit agencies supported the information in the NTD. 

However, there was one instance in which we recategorized a revenue

source reported by an agency. MBTA reported the revenue from local 

assessments as general revenues; these assessments, according to MBTA 

officials and financial documents, are dedicated. Because our analysis of 

NTD data included determining the proportion of state and local 

contributions that come from dedicated sources, we placed the revenue

from local assessments into the dedicated category. Based on our 

assessment, we determined that the NTD data were sufficiently reliable for 

our purposes. 

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 

Page 51 GAO-06-516 Mass Transit
Appendix I: Objectives, Scope, and 

Methodology 

• the chief administrative officers or other appropriate official from each of 

the eight local Compact jurisdictions2

 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. 

We also reviewed dedicated funding legislation that was proposed in the 

District of Columbia, Maryland, and Virginia, and Maryland statutes 

pertaining to the payment of WMATA. We performed a legal analysis of 

how the requirements of H.R. 3496 compare with the provisions in the 

WMATA Compact. We also attended public meetings relating to dedicated 

funding for WMATA, including an October 2005 regional summit and 

hearings of the District of Columbia City Council and the Maryland 

General Assembly. 

 2

Alexandria, Arlington County, Falls Church, Fairfax City, Fairfax County, Montgomery

County, Prince George’s County, and the District of Columbia. 

Page 52 GAO-06-516 Mass Transit
Appendix II: Revenue Sources Compared on

the Basis of Revenue Stability and Adequacy, Appendix II: Revenue Sources Compared on and Required Tax or Fee Rate

the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate 

The following paragraphs provide a summary—based on our analysis of 

the economic literature and the Metro Funding Panel report1

—of how six

revenue sources (the sales tax, the payroll/income tax, the motor vehicle 

fuel tax, the property tax, access fees, and vehicle registration fees) 

compare according to stability, long-run adequacy, and tax or fee rate 

required. 

Previous studies suggest that revenues from the sales tax are more 

susceptible to economic fluctuations than property or fuel tax revenues. 

Sales tax revenues are susceptible to economic fluctuations because they 

are dependent on consumer purchases, and these purchases vary with 

changes in income. Studies estimate that the economic fluctuations of 

retail sales tax revenues are about the same as those for income tax 

revenues, but that the sales tax is less prone to random variations.2

Economic estimates suggest that sales tax revenues are more stable if the 

tax base includes items for which purchases remain relatively constant. 

These items are commonly referred to as necessities, including food, 

clothing, and prescription drugs. However, caution is needed when 

applying these results because there can be significant variations at the 

state level. For instance, the results of two studies suggest that Maryland 

sales tax revenues are more responsive to economic fluctuations than are 

sales tax revenues in Virginia.3

In terms of long-run revenue growth, there is a general consensus in the 

economics literature that sales tax revenues do not keep pace with overall

economic expansion. This slower growth, compared with income, occurs

because retail sales usually take up a declining share of income as income 

rises. Two studies produced very similar state-specific estimates for 

Maryland and Virginia consistent with this finding; a 10 percent increase in

total personal income is associated with a roughly 8 percent increase in 

Sales Tax 

 1

PB Consult Inc., Report of the Metro Funding Panel (Washington, D.C., Jan. 6, 2005).

2

As has been done elsewhere in the literature, we use the term “random” variations to refer 

to short-term variability in tax revenues resulting from factors other than economic 

fluctuations caused by the business cycle. 

3

Donald Bruce, William F. Fox, and M.H. Tuttle, “Tax Base Elasticities: A Multi-State 

Analysis of Long-Run and Short-Run Dynamics,” Southern Economic Journal 

(forthcoming); and Randall G. Holcombe and Russell S. Sobel, Growth and Variability in

State Tax Revenue: An Anatomy of State Fiscal Crises (Westport, Conn.: Greenwood 

Press, 1997). 

Page 53 GAO-06-516 Mass Transit
Appendix II: Revenue Sources Compared on

the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

sales tax revenues.4 Economic estimates also suggest that tax bases that 

include food have lower levels of long-run growth than those that exclude 

food, although bases including food tend to be more stable. In addition, 

other results suggest that sales tax revenues grow faster as income rises 

when the sales tax base includes more services because spending on the

service sector has been rapidly increasing. 

Collecting a specified amount of dedicated revenue from a general sales 

tax usually requires a relatively small tax rate because the base to which 

that rate would be applied is relatively large. When retail purchases of 

many services, as well as goods, are taxed, the base is particularly large 

and a smaller tax rate would be needed than if the tax applied only to 

retail purchases of goods. When retail purchases of major categories of 

goods, such as food purchases from grocery stores, are excluded, then the 

base is smaller and a higher tax rate would be needed. 

The Metro Funding Panel estimated that a sales tax rate of 25 cents per 

$100 of taxed retail sales throughout the WMATA Compact region would 

be required to collect $148 million in 2010.5

 Compared with some of its 

estimates for other revenue sources, the panel’s estimate for the sales tax 

was relatively straightforward and based on publicly available data. 

However, for several reasons, the retail sales tax base might increase at a 

rate different from the historical average growth rate that the panel 

assumed in developing its estimate. These reasons include future 

population or income growth that differs from such growth in the past; 

increased retail sales through the Internet; and decisions by state and local 

governments to apply the sales tax to some previously untaxed purchases, 

or to stop applying it to some currently taxed purchases. 

 4

“Tax-Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics.” 

(forthcoming) and Growth and Variability in State Tax Revenue: An Anatomy of State

Fiscal Crises (1997). 

5

As discussed earlier, this amount represents the panel’s estimate of what would be needed

for capital spending to renew aging components of the WMATA system and to add system 

capacity to meet growing demands, plus operating spending related to this capital 

investment. We use this amount to be able to show the panel’s estimates of the tax or fee 

rate required from each revenue source on a consistent basis. However, we neither endorse 

the panel’s estimate of how much it would cost for that level of capital and operating

spending, which we did not review, nor take a position on whether this is an appropriate 

concept for the level of WMATA spending that should be covered by dedicated local 

revenues.

Page 54 GAO-06-516 Mass Transit
Appendix II: Revenue Sources Compared on

the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

Previous studies suggest that income tax revenues are more susceptible to

economic fluctuations than property or fuel tax revenues because income

varies more over the course of the business cycle than do property values 

or fuel purchases. The variability in income tax revenue is about the same 

as for sales tax revenue, but random variations are larger. Unlike the sales

tax discussed above, which is more stable with a broader base, tax 

revenues from personal income are more stable under the payroll tax, or 

when the tax base is limited to wage income.6

 Economic studies indicate 

that there are some large differences in the fluctuation of income tax 

revenues due to changes in economic conditions at the state level. Two 

studies provide conflicting estimates of the relative volatility of income tax 

revenues in Virginia and Maryland, with one study suggesting more 

volatility in Virginia and the other suggesting more volatility in Maryland. 

These differences at the state level indicate the need for caution in 

generalizing from state or national studies because smaller jurisdictions, 

such as cities or counties, might also differ substantially in measures of 

revenue stability. 

In terms of long-run revenue growth, previous studies have consistently 

indicated that income or payroll tax revenues more than keep pace with 

overall economic growth. Income tax revenues grow faster than income 

levels because of the progressive nature of most income taxes: People 

with higher incomes typically pay a larger percentage of their income in 

taxes than those with lower incomes.7

 This progressivity occurs because of 

graduated tax rates that get higher as incomes grow and deductions and 

credits that are often phased out at higher income levels. Payroll tax 

revenues may not increase as much as income tax revenues due to 

economic growth because a payroll tax might not have graduated tax 

rates. A study of individual states found that evidence from Maryland and 

Virginia is consistent with the broader observation that income tax 

Payroll or Personal Income Tax 

 6

Payroll tax revenues are more stable than income tax revenues because nonwage income, 

such as capital gains, tends to vary more than wage income over the course of the business 

cycle. 

7

Income tax revenues grow faster than income levels because of progressivity in the tax

structure even though there is some evidence that as total income rises, taxable income

rises less rapidly. Differences in taxable and total income arise because some types of

income are exempted or taxed at lower rates, deductions and credits are available to filers 

that qualify, and not all taxable income is reported on income tax forms.

Page 55 GAO-06-516 Mass Transit
Appendix II: Revenue Sources Compared on

the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

revenues generally rise faster than income levels, with the long-run growth 

rate in tax revenues for an equal growth rate in income larger in Virginia.8

Collecting a specified amount of dedicated revenue from an income or 

payroll tax generally requires a relatively small tax rate because the base 

to which that rate would be applied is relatively large. A lower tax rate 

would be needed for an income tax because the tax base would include 

both nonwage and wage income, while the payroll tax base would include 

only wage income. Exempting some income from tax—such as by putting 

a cap on the amount of wage income subject to a payroll tax, as is done for 

Social Security, or allowing some form of deduction for income up to 

some level—would raise the tax rate required on the remaining income 

because the base would be smaller. 

The Metro Funding Panel estimated that a payroll tax rate of 16 cents per 

$100 of wages earned by residents of the WMATA Compact region, with 

wages below $15,000 per year and above $100,000 per year exempt, would 

be required to collect $148 million in 2010. According to a panel staff 

member who participated in developing these estimates, the payroll tax 

estimate was the most complex to develop. Because the panel derived this

estimated tax rate from an estimate of the tax base that itself was derived 

from Census Bureau data on income that included nonwage income, the 

tax rate may be lower than the rate that would be needed to raise the same 

amount of revenue from a tax that applied only to wage income. On the 

other hand, the estimated tax base did not include any income earned by 

nonresidents of the Compact region. If such income could be taxed, then 

the tax base could be higher, which would allow the same amount of 

revenue to be collected with a lower tax rate. 

Previous studies indicate that motor fuels tax revenues exhibit the highest 

degree of stability in the presence of economic fluctuations compared 

with property, income, and sales taxes. The revenues are more stable 

because in the short run fuel purchases do not change much in response to 

changing economic conditions. However, the literature indicates that fuel 

tax revenues have the most severe random fluctuations, such as those due 

to natural disasters or other events that disrupt the supply of oil. 

Motor Vehicle Fuel Tax 

 8

“Tax-Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics” 

(forthcoming).

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the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

In terms of long-run growth, studies have found that motor vehicle fuel

revenues have historically grown more slowly than general measures of 

economic growth, but not as slowly as sales tax revenues. Future long-run

adequacy concerns remain because of potential fuel efficiency

improvements and increased transit use resulting from rising fuel prices 

and congestion. This concern is exacerbated because motor fuel taxes are

generally applied on a per-gallon basis, not as a percentage of the total sale 

price. Under this structure, revenues are proportional to fuel consumption, 

not total fuel expenditures, which may require that the motor fuels tax rate

be increased over time if revenues are to keep pace with the demand for 

transit expenditures in periods of high inflation. 

Collecting a specified amount of dedicated revenue from a tax on retail 

purchases of motor vehicle fuel requires a relatively large tax rate because 

the base to which that rate would be applied is relatively small compared 

with, for example, the base for a general sales tax on retail purchases. If 

for various policy reasons some fuel purchases are exempt from the tax, 

then the required tax rate on the remaining fuel purchases would be even 

higher. 

The Metro Funding Panel estimated that a motor vehicle fuel tax rate of 

11.1 cents per gallon of motor vehicle fuel purchases within the WMATA 

Compact region would be required to collect $148 million in 2010. 

However, uncertainty about some of the assumptions underlying this 

estimate may make it less reliable than the panel’s more straightforward 

estimates for some of the other revenue sources. For example, this 

estimate is based on an assumption that average fuel efficiency does not 

change throughout the period analyzed—until 2015. However, if fuel 

efficiency improves in response to high fuel prices, then the number of 

gallons purchased will be less than the panel estimated and the tax rate 

required would be higher than the panel estimated. In addition, the panel’s 

estimate of the number of gallons of fuel purchased in the Compact region

in the baseline period is based on an estimate from the Metropolitan 

Washington Council of Governments on the number of vehicle miles 

traveled within the Compact region. Using vehicle miles traveled 

introduces uncertainty in an estimate of fuel purchases because some 

driving in the Compact region is done by vehicles that were filled up with 

fuel outside the region, while some fuel purchased within the Compact 

region was used in cars driven outside the Compact region, and these two 

influences might not be completely offsetting. 

Previous studies suggest that property tax revenues are moderately 

susceptible to economic fluctuations, but generally less so than sales and 

Property Tax 

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the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

income/payroll taxes, because assessed property values tend to vary less 

over the course of the business cycle than do retail sales or incomes. 

Fluctuations in property tax revenues due to changes in economic 

conditions are generally more predictable than those of other revenue 

sources because there is often a lag between changes in economic 

conditions and their effects on property tax revenues. This lag occurs 

because it often takes a while for changes in property values to be 

reflected in property assessments. However, this advantage in

predictability is only captured using more sophisticated forecasting 

techniques that take into account economic indicators from the recent 

past. In addition, random fluctuations in property tax revenues are 

relatively small. 

The evidence from previous studies on the long-run revenue growth of 

property tax revenues is inconclusive. Studies indicate that revenues 

exhibit widely variant long-run growth patterns at the county level, 

sometimes increasing faster than income and sometimes more slowly. 

Researchers have provided evidence suggesting that these large local 

disparities are generated by differing local economic conditions and 

implementation structures. 

Collecting a specified amount of dedicated revenue from a property tax 

generally requires a relatively small tax rate because the base to which 

that rate would be applied is relatively large. The Metro Funding Panel

estimated that a property tax rate of 3.44 cents per 100 dollars of assessed 

value in the WMATA Compact region would be required to collect $148 

million in 2010. Compared with some of its estimates for other revenue 

sources, the panel’s estimate for the property tax was relatively 

straightforward and based on publicly available data, as was the sales tax 

estimate. However, long-run property value growth might differ from the 

growth rate in the past, which could cause the required tax rate to differ 

from the panel’s estimate. 

Access fees9 are not as widely used as the previously discussed revenue

sources, and the economic literature on the characteristics of access fees 

is sparse. Intuition suggests that revenues would likely be stable in the 

face of economic fluctuations if the fee rate were set on a per-square-foot 

Access Fees 

 9

An access fee is a fee charged to property owners whose property benefits in value from

the location of some nearby transportation infrastructure, such as a transit station. It is 

typically charged on a per-square-foot basis for property within a specified distance of the 

station. 

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the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

basis, unless the property around a Metrorail station was relatively 

undeveloped and significant building was taking place or expected to 

occur.10 In this instance, rapid short-run growth in revenues would be 

expected until the development was completed. 

Although access fee revenues would likely be relatively stable, long-run 

revenue growth would be limited if the fee rate were applied per square 

foot and remained the same over time. Revenue growth would only occur 

to the extent that taxable space increased and would likely be minimal, or 

even negative, in real dollars if the rate is not indexed for inflation. 

However, to the extent that revenue growth is due to increased 

development near stations, there might be a link between revenue growth 

and the increased demand for transit expenditures. 

Collecting a specified amount of dedicated revenue from an access fee 

generally requires a fee rate that, especially compared with a property tax, 

is large relative to the assessed value of the property, because the base is 

much narrower than that of a general property tax. Many details could 

determine the required fee rate, such as the radius of the area around a rail

station within which properties would be subject to an access fee. 

The Metro Funding Panel estimated that an annual transit access fee rate 

of 30 cents per square foot of federal and commercial property within 0.5 

miles of designated Metrorail stations would be required to collect $148 

million in 2010. The panel derived this estimate from data on the square 

footage of federal property and all commercial and hotel space within 0.5 

miles of 63 Metrorail stations. If an access fee were in place, it might apply 

to additional categories of property not included in the estimated tax base,

which would lower the required fee rate. However, if federal properties 

were not subject to the access fee, the required fee rate would be higher.

Revenues from vehicle registration fees are also likely to be relatively 

stable from year to year. In addition, their response to economic 

fluctuations is likely to lag because car ownership rates are not likely to 

vary much over the course of the business cycle, and any variation that 

might occur is likely to occur after a downturn, rather than during it. 

Vehicle Registration Fees 

 10If the access fee is based on property values, not square footage, access fee revenue

characteristics would be similar in spirit to those of the property tax, but with a much 

narrower base.

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the Basis of Revenue Stability and Adequacy, 

and Required Tax or Fee Rate

Long-run growth in vehicle registration fee revenues is unlikely to keep 

pace with economic growth. Car ownership rates are already so high that

higher household income is unlikely to lead to a proportionate increase in

the number of cars owned per household (for example, a doubling of 

average income levels is unlikely to lead to double the number of cars per 

household).11 However, longer-term increases are possible in areas with 

high sustained levels of population growth and, therefore, vehicle 

ownership growth. This revenue source might provide less long-run 

adequacy for funding transit than those previously discussed because 

revenues over the longer term may change inversely with changes in the 

demand for transit expenditures. For instance, policy changes, increasing

fuel prices, and increasing road congestion might lead households to use 

transit more and own fewer vehicles, causing the demand for transit to 

increase while revenues from vehicle registration fees are decreasing. 

Collecting a specified amount of dedicated revenue from motor vehicle 

registration fees requires a relatively large fee rate because the base to 

which that rate would be applied is relatively small compared with sales, 

property and income taxes. If, for policy reasons, some types of motor 

vehicles were exempted from the fee, then the required fee rate would be 

even larger. The Metro Funding Panel did not evaluate motor vehicle 

registration fees as a funding source for dedicated revenues for WMATA 

and thus did not estimate the fee rate required to collect any specified 

amount or revenue. 

 11This assessment assumes that vehicle registration fees are assessed as a fixed fee per 

vehicle. A vehicle property tax that is assessed as a percentage of the value of the vehicle 

would have greater growth potential because tax revenues could keep pace with inflation 

and because households whose incomes increase are likely to upgrade, or purchase more 

expensive vehicles, even though the total number of vehicles per household does not 

increase. 

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the Basis of Administrative Cost, Equity, and Appendix III: Revenue Sources Compared on Efficiency 

the Basis of Administrative Cost, Equity, and 

Efficiency 

We identified administrative cost, equity, and efficiency as key 

considerations in raising additional revenue on the basis of discussions 

with state and local public finance experts and public officials and a 

review of the relevant economics literature. Administrative cost includes 

the cost of collecting, enforcing, and remitting the additional revenue in

addition to the compliance burden (e.g., out-of-pocket expenses for record 

keeping and time) placed on taxpayers and those paying fees. Additional 

administrative costs are likely to be large if revenue is increased by 

implementing a new tax or fee and relatively small for an increase in a tax

or fee rate for a revenue source currently in place at the appropriate level

(e.g., state or locality). 

Economists often assess equity according to two principles: 

• Ability to pay principle. Those who are more capable of bearing the 

burden (usually those with higher income levels) of taxes or fees should 

pay more in taxes and fees than those with a lesser ability to pay. A tax or 

fee rate structure is generally thought to be more equitable if it is 

consistent with this principle. Some tax or fee rate structures are also 

progressive—that is, the tax or fee liability as a percentage of income 

increases as income increases. 

• Benefit principle. Those who pay for a service are the same individuals 

benefiting from the service. 

Efficiency can be measured in different ways, but economists commonly 

use two concepts to evaluate the efficiency of a revenue structure: 

• Economic behavioral distortions. This term refers to changes in 

individual decision making due to incentives in the tax or fee system that 

move the economy away from its most efficient outcome. Distortions are 

likely to be smaller when a tax or fee is applied to a broad base (both 

jurisdiction—who is taxed; and range—what is taxed) and rates do not 

differ significantly across neighboring jurisdictions. 

• Accountability. Those benefiting from a service pay the full social cost of

the service. If the beneficiaries do not have to bear the full cost, they may 

seek to have the government provide more of the service even when 

additional amounts of the service cost more than the value of the 

additional benefits provided, which would be inefficient. Although the 

concept that those who benefit from a service should pay for it is similar 

to the benefit principle for assessing equity, in discussing the effects of 

adherence to or deviation from this principle on efficiency we are 

concerned with the accountability it provides rather than the fairness. 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

Administrative Cost May 

Be a More Important 

Factor in Selecting a 

Source for Increased 

Revenue Than Equity and 

Efficiency Changes 

Our analysis suggests that if there are substantial differences in 

administrative costs among revenue sources selected to address a WMATA 

funding shortfall, these differences may be more important than equity and 

efficiency effects, particularly if the current formula for allocating local 

contributions to fund WMATA is retained and jurisdictions are allowed to

choose their own revenue sources. There can be substantial differences in

the equity and efficiency effects among the different revenue sources 

when they are being used to finance state and local government as a 

whole, and for at least some of the potential revenue sources we analyzed, 

these effects have been well studied in the economics literature. However, 

differences in the effects associated with funding a WMATA shortfall are 

likely to be much smaller because the increase in revenue needed is small 

compared with the revenue raised to fund overall state and local 

government operations. Moreover, equity and efficiency effects are 

sometimes difficult to measure, and there is a lack of consensus in the 

economics literature regarding the equity and efficiency implications for 

several of the revenue sources discussed below. In contrast, differences in

administrative cost among revenue sources can be easier to identify and,

therefore, more likely to affect decision making. These costs include items 

such as computer systems, forms, and collection devices, as well as the 

time spent by government employees and the individuals paying the tax or 

fee. 

However, if the state and local jurisdictions served by WMATA implement 

a regionwide tax or fee—an approach proposed by the Metro Funding 

Panel but which does not have strong support among the Compact 

jurisdictions—then there could be substantial additional administrative 

costs as well as effects on equity and efficiency. Administrative costs 

might be high because no regional collection mechanism is already in 

place and implementation would require the coordination of collection 

and enforcement measures across multiple state and local jurisdictions. 

Equity and efficiency effects are also likely to be greater with the 

implementation of a regionwide tax because it would change the 

interjurisdictional allocation of WMATA payments for the shortfall. 

Changes in equity and efficiency would likely be even larger if a regional

tax or fee were used to fund the entirety of state and local WMATA 

payments, not just the shortfall, because of the additional revenue 

involved. 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

Administrative costs associated with collecting additional revenue from a 

sales tax are likely to be relatively low, especially when compared with 

those associated with access fees and fuel taxes. Sales taxes are one of the 

two main funding sources at the state level (along with income taxes) and 

are often used to generate revenue at the local level and in special service

districts; thus, tax collection procedures already exist in many places. 

Administrative costs could be more substantial if jurisdictions are faced 

with new collection requirements, such as implementing a local option tax 

where one does not already exist. 

In terms of equity based on the ability-to-pay principle, economists have 

traditionally viewed the sales tax as regressive (although less so when 

food purchases at grocery stores are excluded from taxation); those with 

lower income levels pay a higher percentage of their income in sales tax 

than those with higher income levels. However, more recent analyses have

identified some factors that suggest that sales taxes may be closer to 

proportional and less regressive than previously believed. 

One factor is the economic incidence of the sales tax, or who actually 

bears the burden of a revenue source. In taxation, the individuals who 

bear the burden of a tax may or may not be the same individuals who 

remit the revenue to the government. For example, when a sales tax is 

added to a product, retailers remit the revenue to the government but they 

may or may not actually be bearing the burden of the tax. Retailers may 

leave the price of the product unchanged and simply add the sales tax to 

the price, in which case the consumer pays the full amount of the tax. 

Retailers might also reduce the price of the product by the amount of the 

tax so as not to lose sales, in which case the retailer bears the burden of 

the tax. Another possibility is that the price of the product might fall, but

not by the full amount of the tax, in which case retailers and consumers 

share the burden of the tax. Traditional analyses of the sales tax have

generally assumed that consumers bear the full burden of the tax, but 

more recent analyses have questioned that assumption. If the burden is 

Different Potential 

Revenue Sources Have 

Different Characteristics 

When Assessed Using the 

Key Considerations of 

Administrative Cost, 

Equity, and Efficiency 

Sales Tax 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

borne in part by retailers, then the sales tax may be less regressive than 

previously believed. 

Another factor is the definition of income used in measuring progressivity 

or regressivity. Traditional analyses that have found the sales tax to be 

regressive have used annual income levels as the measure of income. More 

recent research has shown that lifetime income might be a more relevant 

measure of income as long as there are not severe constraints on an 

individual’s ability to borrow. Using lifetime income, the sales tax appears 

roughly proportional. That is, people with varying levels of income spend 

approximately the same percentage of their lifetime income on 

consumption. 

In terms of efficiency, evidence from theoretical and empirical studies 

suggests that the sales tax is distortionary in that it alters individuals’ 

decisions about where and what to purchase. The sales tax diverts 

purchases from taxed items toward untaxed or lightly taxed alternatives 

(e.g., leisure, services, Internet sales, and retail in neighboring 

jurisdictions). However, the increase in the sales tax needed to collect the

revenue associated with funding a WMATA shortfall is likely to be small 

enough to generate only minor changes in efficiency. The biggest 

distortions are likely to occur for purchases of items for which consumers 

are sensitive to small changes in the price of these items, which might 

happen if there are untaxed or lightly taxed alternatives that are close 

substitutes.

With respect to the benefit principle of equity and the accountability 

component of efficiency, the sales tax roughly matches the users of 

WMATA’s services with the costs of those services to the extent that all 

local residents benefit from transit, and visitors to the Washington, D.C, 

region, who pay sales taxes while they are in that area, are also likely to 

use the services. However, from an equity perspective, the adherence to 

the benefit principle is limited because funding a shortfall with a sales tax

does not guarantee that those who receive greater benefits pay more tax; 

that is, a sales tax is not well targeted toward transit beneficiaries. From 

an efficiency perspective, the link with accountability is weakened 

because heavy users of the transit system may advocate investment 

beyond the economically efficient level because they might not have to

bear as large a share of the costs compared with the share of the benefits 

they would receive. 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

The administrative cost associated with collecting additional revenue from 

a personal income tax could be relatively low if it is collected at the state

level as part of existing state income taxes. However, a local income tax 

might create significant compliance costs for employers and individuals if

it is accompanied by new forms and record-keeping requirements. A 

regional, state, or local payroll tax might also generate significant 

compliance costs for employers (in the case of a payroll tax collected at 

the employer level) if it requires additional record keeping and submitting 

revenues to a new source. 

Regarding the ability-to-pay principle for equity, the economics literature 

has reached a general consensus that the burden of the tax is likely borne 

by employees in the case of payroll taxes and in proportion to income in 

the case of income taxes. The economic evidence suggests that employees 

probably bear most of the burden of a payroll tax through lower wages, 

even when legislation requires employers to pay half of the tax liability. As 

lower-income households rely more heavily on wage and salary income, 

the payroll tax is generally regressive, particularly at the bottom part of 

the income distribution, but the tax will be less regressive if there is a 

minimum threshold of wages for paying the tax and more regressive if 

there is a cap on the amount of income to which the tax applies. It is 

generally accepted in the economics literature that income tax liabilities 

are borne by individuals who remit the tax to the government; that is, the 

tax is not shifted to other individuals. Most income taxes are structured to 

be progressive: People with higher incomes typically pay a larger 

percentage of their income in taxes than those with lower incomes. Thus, 

the income tax is generally thought to be consistent with ability-to-pay 

principles. However, an income tax can be made regressive, proportional, 

or progressive depending on the tax rate structure and the distribution of 

deductions and credits.

Income and payroll taxes have unclear efficiency implications with respect 

to behavioral distortions because previous studies have not yielded a

consensus on the degree to which they create distortions. Generally, 

payroll or income taxes that alter decisions about whether to work, how 

many hours to work, and how hard to work can cause distortions in the 

economy, but estimates of the behavioral responses to income taxes vary 

Payroll or Personal Income Tax 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

widely.1 However, there is some consensus that within households, income 

taxes are more likely to affect the work decisions of a secondary earner.2

With respect to the benefit principle of equity and the accountability 

perspective of efficiency, payroll taxes are likely to be better targeted 

toward beneficiaries than are personal income taxes. Like a sales tax, an 

income tax roughly matches the benefits of WMATA’s services to the cost 

of those services, to the extent that all local residents benefit from transit,

although, unlike a sales tax, an income tax does not directly collect 

revenue from visitors to the Washington, D.C., region who might also 

benefit from WMATA. However, from an equity perspective, the adherence 

to the benefit principle is limited because funding a shortfall with a 

personal income tax does not guarantee that those who receive greater 

benefits pay more tax. From an efficiency perspective, the link with 

accountability is weakened because heavy users of the transit system may 

advocate investment beyond the economically efficient level because they 

might not have to bear as large a share of the costs compared with the 

share of the benefits they would receive. A payroll tax is likely to be better 

targeted to transit beneficiaries because some groups of people who 

would be affected by a personal income tax but not a payroll tax, such as 

retirees, might be less likely to benefit substantially from further 

investment in mass transit than workers. Targeting of a payroll tax could 

be enhanced if it applied to all of those who work in the WMATA Compact 

region; income taxes are likely to apply to those who live in the Compact 

region, which would leave out those who work in the region and benefit 

from transit even though they live elsewhere (and would include those 

 1

See, for example, Martin Feldstein, “The Effect of Marginal Tax Rates on Taxable Income: 

A Panel Study of the 1986 Tax Reform Act,” National Bureau of Economic Research 

Working Paper No. 4496 (1993); James P. Ziliak and Thomas J. Kniesner, “Estimating Life 

Cycle Labor Supply Tax Effects,” Journal of Political Economy, vol. 107, no. 2 (April 1999); 

Jon Gruber and Emmanuel Saez, “The Elasticity of Taxable Income: Evidence and

Implications,” National Bureau of Economic Research Working Paper No. 7512 (2000); and 

the references contained therein. 

2

The analysis is further complicated in that an income tax with a graduated rate structure

(the statutory rate is higher at higher levels of income) might create efficiency benefits by

providing implicit insurance to individuals. The implicit insurance is triggered when a 

household experiences a loss in income significant enough to place them in a lower tax 

bracket. The tax savings from being in a lower bracket helps offset the income loss. (The

insurance effects might be quite small at the state and local level because they are greater 

in systems with more brackets and larger rate differentials.) The full efficiency effects of an

increase in the income tax must include both the distortions to work decisions and the

effects on implicit income insurance. 

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Efficiency 

who live in the region but work outside the region and might not benefit as 

much from transit). 

The administrative cost associated with collecting additional revenue from 

a motor vehicle fuel tax may be substantial if some portion of this tax 

applied only within the WMATA Compact region and was collected at the 

retail level. Typically, motor vehicle fuel taxes are collected at the 

distributor level, including in the District of Columbia, Maryland, and 

Virginia. Collection at the retailer level would most likely involve 

additional record keeping for retailers and added costs for local 

jurisdictions, including setting up a revenue collection procedure, 

developing standards for record keeping, and enforcing compliance with 

the tax. 

The equity implications with respect to ability to pay for the motor vehicle 

fuel tax are uncertain. Studies indicate that higher-income households 

own more cars and drive more total miles, suggesting that they will pay 

more in motor vehicle fuel taxes than lower-income households, but it is 

uncertain whether this larger amount of tax paid will represent a larger or 

smaller share of household income. Given that rates of automobile 

ownership are fairly high at all income levels beyond the very lowest, the 

motor vehicle fuel tax may be regressive throughout much of the income 

range.3

 In addition, higher fuel costs increase the cost of travel and of 

transporting goods. This added cost is more likely to be reflected in the 

prices of goods for which the demand is relatively unresponsive to 

changes in prices, or necessities such as food, clothing and prescription 

drugs, rather than in the prices of goods and services that are considered 

to be more luxury items. As lower-income households spend a larger 

portion of their incomes on necessities, this effect of the motor vehicle 

fuel tax would be expected to be regressive. 

The motor vehicle fuel tax has an ambiguous effect on efficiency with 

respect to behavioral distortions from a conceptual viewpoint, and there is 

too little empirical evidence to arrive at a conclusion. Motor vehicle fuel 

tax increases within a region decrease efficiency to the extent that they

lead drivers to waste resources traveling to service stations outside the 

region to find lower prices. However, this loss in efficiency might be 

partially or fully offset if the tax increase makes the total fuel price closer 

Motor Vehicle Fuel Tax 

 3

One offsetting factor is that lower-income drivers might tend to own more fuel-efficient 

vehicles, which would reduce the regressivity of a motor vehicle fuel tax. 

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the Basis of Administrative Cost, Equity, and 

Efficiency 

to the full social cost imposed by driving (including the cost of the fuel as 

well as the inconvenience imposed on others due to congestion and 

pollution). 

The motor vehicle fuel tax may be less equitable with respect to the 

benefit principle and less efficient from an accountability perspective than 

a sales or personal income tax. Because of differences in car ownership 

and driving patterns that are unrelated to income, there is likely to be 

more variance at any income level in the burden of a motor vehicle fuel

tax than with a sales or personal income tax, so that even if the benefits of 

transit accrue to the population as a whole, there is weaker targeting of 

the tax toward beneficiaries with a motor vehicle fuel tax. Furthermore, 

when considering specific transit benefits, the link between transit 

beneficiaries and those who pay the motor vehicle fuel tax is likely to be

weak. However, there is a clear link for automobile commuters and others 

driving at peak times because they benefit from reduced congestion. In 

contrast, those who drive at nonpeak times and those who do not drive 

near the transit corridors also pay the motor vehicle fuel tax while 

receiving little or no benefit. In addition, transit users who do not own 

motor vehicles will not directly pay any of the tax, although they could be 

among the largest beneficiaries. As transit users and businesses near 

transit lines, not automobile commuters, are likely to be the largest 

beneficiaries of transit services, they may advocate investment beyond the 

economically efficient level because they might not have to bear as large a 

share of the costs compared with the share of the benefits they would 

receive. 

The administrative cost associated with collecting additional revenue from 

a property tax may be the lowest of the revenue sources we have analyzed. 

Property taxes are the main funding source for local governments, so tax 

collection procedures are already in place. Administrative cost would be 

greater if local jurisdictions tried to uniformly implement all or a portion 

of a regionwide property tax because they are likely to have different 

administrative procedures, including how and when assessments are made 

and the relationship between market value and assessed value. 

The equity effects of an increase in a property tax are uncertain because

property taxes generally represent a combination of a land tax and a tax 

on the structures on the land, and the incidence of those two taxes varies. 

In addition, there are different views on the incidence of property taxes. 

The traditional view of the property tax suggests that the portion of the tax 

that applies to land value is likely borne by land owners, making the tax 

progressive because higher proportions of land are owned by higherProperty Tax 

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Efficiency 

income individuals. However, the portion that applies to structures is 

likely borne by those who consume the services of the structures—

including residents of owner-occupied housing and renters—and previous 

studies suggest that this portion is proportional or regressive, depending 

on the measure of income used. Thus, the overall effect is ambiguous. The 

new view of the property tax suggests that the burden of the property tax

is borne by all capital owners. Assuming that capital ownership rises with 

income, this view suggests that the property tax may be progressive. 

With respect to efficiency pertaining to behavioral distortions, property 

taxes taken by themselves might be considered inefficient because they

lead to less investment in structures. However, when the effects of other 

taxes are considered as well, increases in property tax might enhance 

efficiency. Because the favorable income tax treatment of investment in 

housing creates incentives for investment in housing beyond the efficient 

level, raising the property tax could partially offset these incentives and 

increase efficiency.

4

With respect to the benefit principle of equity and the accountability 

component of efficiency, the property tax roughly matches the 

beneficiaries of WMATA service with its cost to the extent that all property 

values are enhanced by the provision of WMATA’s services. However, 

from an equity perspective, the adherence to the benefit principle is 

limited because funding a shortfall with a property tax increases the tax 

paid by all property owners, while some property owners would receive

most of the benefits. That is, like a sales or personal income tax, a 

property tax is not well targeted toward beneficiaries, although it may be 

better targeted than those other taxes to the extent that higher property 

taxes are collected from owners of properties for which the value has 

risen over the years due to nearby transit service. Similarly, the link with 

accountability is weakened because heavy beneficiaries of the transit 

system, including owners of property with good transit access, may 

advocate investment beyond the economically efficient level because they 

might not have to bear as large a share of the costs compared with the 

share of the benefits they would receive. 

The administrative cost associated with collecting additional revenue from 

access fees is likely to be substantial, perhaps larger than for any of the 

Access Fees 

 4

The ability to deduct property taxes from income in computing income tax liability limits 

the extent of this offset. 

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Efficiency 

other revenue sources that we analyzed. The use of access fees would 

likely involve significant additional administrative cost because local 

governments would have to develop a new system for implementation, 

collection, and enforcement. In addition, there would be an increased 

compliance burden on owners of commercial property located near 

Metrorail stations because record-keeping requirements would increase. 

The equity effects of access fees are uncertain because of uncertainty 

about the incidence of these fees. The burden might be split among 

property owners, renters, employees, and consumers, depending on the 

ability of property owners to shift the tax burden to others through price 

and wage changes, and the economics literature does not contain 

sufficient empirical evidence to draw conclusions about how much of the 

burden would fall on each group. 

There is also little existing evidence on the efficiency of access fees with 

respect to behavioral distortions, although economic reasoning suggests 

that there might be some small efficiency losses. Access fees increase the 

cost of developing land near transit stations. To the extent that fees are 

paid out of profits or windfall gains (due to increases in property values) 

and do not alter decisions on where to build, there are no efficiency

effects. However, if an access fee renders an otherwise profitable venture

unprofitable, it creates inefficiency by discouraging development around 

transit services. 

With respect to the benefit principle of equity and the accountability 

component of efficiency, access fees are most closely targeted to the 

beneficiaries of transit service. Those who own property, live, and work 

near transit services are most likely to draw large benefits from the system 

and would likely bear a large portion of an access fee. This close 

connection between beneficiaries and costs would lead to increased 

efficiency, as there would be no incentive to advocate investment beyond

the efficient level because the costs would largely fall on the beneficiaries. 

The administrative cost associated with collecting additional revenue from 

motor vehicle registration fees is likely to be relatively low, especially if 

the increase in revenue is achieved by just increasing the amount of the 

fee already collected. Some complexity might be added if the additional 

revenue is collected at a jurisdiction level not currently imposing a 

registration fee. In either case, there will likely be little or no increase in 

individual compliance costs, as there would likely be no additional recordkeeping requirement. Compliance costs would increase if vehicle owners

Vehicle Registration Fees 

Page 70 GAO-06-516 Mass Transit
Appendix III: Revenue Sources Compared on

the Basis of Administrative Cost, Equity, and 

Efficiency 

were required to make an additional trip or travel to a different location to

pay the registration fee. 

The equity implications with respect to ability to pay for vehicle 

registration fees depend on the differences in vehicle ownership rates 

among income groups and the structure of the fee schedule, such as 

whether it is a flat fee per vehicle or a fee rate that is based on the value of 

the vehicle. Studies indicate that higher-income households own more 

cars, suggesting that they will pay more in vehicle registration fees than 

lower-income households, but it is uncertain whether this larger amount of 

tax paid will represent a larger or smaller share of household income. 

Households owning no vehicles tend to have lower incomes, and those 

households would pay nothing in vehicle registration fees. However, given 

that rates of vehicle ownership are fairly high at all income levels beyond 

the very lowest, throughout much of the income range, a flat vehicle 

registration fee may be regressive. On the other hand, a vehicle 

registration fee that is applied to the value of the vehicle is likely to be less

regressive than a flat fee because the average value of vehicles owned is 

higher for higher-income households. Nonetheless, there is empirical 

evidence on the equity effects of vehicle property taxes, which resemble 

registration fees based on vehicle value, that these taxes are regressive. 

With respect to efficiency pertaining to behavioral distortions, vehicle

registration fees make owning a vehicle more expensive, and an increase 

in a flat fee would be expected to reduce the level of vehicle ownership, 

although the reduction would likely be minimal.5

 There are negative 

effects on efficiency resulting from vehicle owners not facing the full costs 

that their vehicle use places on others (including the inconvenience and 

health effects imposed on others due to congestion and pollution). These 

negative effects could be mitigated to some extent by the reduction in 

vehicle ownership brought about by additional fees. However, this 

efficiency gain may be small because a fee imposed at the vehicle 

registration level only minimally discourages vehicle ownership and does 

nothing to increase the cost of driving the vehicle on any given trip. Thus, 

a fee increase would provide no incentives for reduction in the number of 

trips taken by individuals who do own vehicles. 

 5

A fee that is based on vehicle value would have more complex effects on vehicle 

ownership because households might substitute quantity for quality. For more discussion 

of this issue, see Erik D. Craft and Robert M. Schmidt, “An Analysis of the Effects of 

Vehicle Property Taxes on Vehicle Demand,” National Tax Journal, vol. LVIII, no. 4 

(December 2005). 

Page 71 GAO-06-516 Mass Transit
Appendix III: Revenue Sources Compared on

the Basis of Administrative Cost, Equity, and 

Efficiency 

Like a motor vehicle fuel tax, a vehicle registration fee may be less 

equitable with respect to the benefit principle and less efficient from an 

accountability perspective than a sales or personal income tax. Because of

differences in vehicle ownership that are unrelated to income, there is 

likely to be more variance at any income level in the burden of a vehicle 

registration fee than with a sales or personal income tax, so that even if 

the benefits of transit accrue to the population as a whole, there is weaker 

targeting of the cost burden toward beneficiaries with a vehicle 

registration fee. Furthermore, when considering specific transit benefits, 

the link between transit beneficiaries and those who pay the vehicle

registration fee is likely to be weak. Automobile commuters and others 

driving at peak times benefit from reduced congestion, so for them there is 

a clear link. However, those who drive at nonpeak times and those who do 

not drive near the transit corridors also pay the vehicle registration fee 

while receiving little or no benefit. In addition, transit users who do not 

own motor vehicles will not directly pay any of the fee, although they 

could be among the largest beneficiaries. As transit users and businesses 

near transit lines, not automobile commuters, are likely to be the largest 

beneficiaries of transit services, they may advocate investment beyond the 

economically efficient level because they might not have to bear as large a 

share of the costs compared with the share of the benefits they would 

receive. 

Page 72 GAO-06-516 Mass Transit
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 73 GAO-06-516

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact Katherine A. Siggerud, (202) 512-2834 or siggerudk@gao.gov

In addition to the individual named above, Rita Grieco, Assistant Director; 

Mark Bondo; Christine Bonham; Jay Cherlow; Elizabeth Eisenstadt; Edda 

Emmanuelli-Perez; Tami Gurley; Heather Halliwell; Maureen Luna-Long; 

Susan Michal-Smith; SaraAnn Moessbauer; Josh Ormond; Katie Schmidt; 

Tina Sherman; Albert Sim; James White; Earl Christopher Woodard; and 

James Wozny made key contributions to this report. 

Mass Transit

Staff 

Acknowledgments 

(542059) 
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