By Wendy Patton and Victoria Jackson

People throughout Ohio need dependable public transit to get to work, the grocery store and the doctor. But the state of Ohio does less than other states to integrate support for public transit into the overall transportation plan. The new state budget may be especially harmful. Proposed changes to the sales tax base threaten local transit agencies: several of Ohio’s largest metropolitan transit agencies depend on a local sales tax “piggybacked” to the state sales tax base.

Ohio’s long neglect of public transit contributes to economic problems. The Governor’s Task Force to Reduce Reliance on Public Assistance identified lack of transportation as a leading barrier to employment and self-sufficiency. The Ohio Department of Transportation itself has found the state’s public transit network fails to meet market demand by 37.5 million rides, and recommends tripling annual investment.

The state’s transportation budget has already been passed, but legislators should establish a plan to better fund public transit. They should start by ensuring changes in the sales tax do not erode the already-inadequate resources of public transit in metropolitan areas, and allow more opportunity for small and rural transit agencies to obtain a source of state funds to help them provide the match for federal capital investment dollars.

Ohio’s Transportation System

There are 61 public transit entities in Ohio. Some are major metropolitan operations serving some of the nation’s biggest cities (Cleveland, Cincinnati and Columbus). Most are small city and rural operations that may only offer demand-responsive services and rely on county funding to make ends meet.

Most of the state’s share of public transit funding comes from federal funds that are passed through the state. There are two sources of federal funding: one includes grants and set-asides, including planning dollars and federal funds for specialized equipment to serve elderly and disabled people. The other comes from flexible highway funds from the National Highway Trust Fund. In addition, the state provides a very small amount of funding in General Revenue Funds from the operating budget. Each of these three sources is described briefly below, and in more detail in the body of this report.

Federal grants and set-asides: The state appropriates $33.2 million in federal funds in the Ohio Department of Transportation (ODOT) agency line item 775452 in fiscal year (FY) 2018 and the same amount in FY 2019.These funds were from a combination of formula grants for rural areas, planning and research dollars and capital dollars for specialized transit equipment.

Highway Trust Fund “Flex” dollars: Ohio lawmakers will appropriate $33 million a year from ODOT’s agency line item 772422, which comes from Ohio’s allocation of National Highway Trust Fund dollars. These funds are typically used for highway construction but are known as flexible (“flex”) funds because they can be moved from category to category and used for a variety of transportation uses. Ohio has “flexed” about $20 million a year for public transit capital needs throughout the Kasich Administration.[1] The 2018-19 budget increases flex funding for public transit by $10 million a year over the FY 2016-17 budget.[2]

General Revenue Fund dollars: The state provides just over $7 million a year for public transportation through the General Revenue Fund (GRF) agency line item 775451. The source of funding is state taxpayer dollars. This appropriation level was much higher in the past. The state funded public transit at $41 million a year in 1989 and at $46 million a year in 2002.

The Ohio House of Representatives reduced the appropriation for public transit from the Governor’s suggested level of $7.3 million to $6.5 million in each year of the FY 2018-19 budget. Legislators have expressed intent to provide $15 million for public transit from the state’s share of the Volkswagen lawsuit settlement.[3] It’s a hopeful sign, but there are no guarantees this will be enacted into law.

Considering the two primary sources of state-authorized funding for public transit – GRF and federal flex funds – Ohio may invest around $40 million a year - maybe less - in public transit over the next two years.[4] This is $10 million a year more than in 2017. The additional funding is helpful but Ohio’s support of public transit remains inadequate. Figure 1 shows that the state of Ohio funds just 1 percent of total public transit needs, and contributes another 2 percent if the count includes all of the federal dollars for public transit that pass through the Ohio Department of Transportation.[5] The state funding level recommended by the Ohio Department of Transportation’s (ODOT) Ohio Statewide Transit Needs Study was 10 percent of total state, local and federal expenditure.

Other states do better than Ohio. For instance, Pennsylvania invests about $840 million a year in public transit; Minnesota, about $340 million a year and Michigan, $200 million a year. While Pennsylvania is a large state, Minnesota and Michigan are smaller than Ohio.[6] In fact, Ohio’s contribution of just $.63 per-capita is below that of rural South Dakota and Maine, and ranks eighth lowest in the nation.[7]

Ohio funds a unified network of highways, roads and streets, but the state, which provides the structure and foundation for a system, fails to integrate public transit into that system at the highest level: the state level. The result is a fragmented public transit structure instead of a unified system, like the state’s highway and road systems.

Ohio’s Transit Needs

The Ohio Department of Transportation released the Ohio Statewide Transit Needs study in 2015. The report highlighted the needs of riders and the investment needed to maintain the 61 urban and rural transit systems across Ohio. The information in this section is taken from this study.

In 2013, Ohio had the 14thhighest transit ridership in the country with 115 million trips per year. By 2025, demand is expected to increase to more than 250 million trips. Demographic shifts contribute to increased need: An older population, increased poverty, and many millennials’ preference for public transit over owning a car.

In 2015, public transit across Ohio failed to meet market demand by 37.5 million rides. For example, an estimated one million people in rural Ohio could be helped by expanding services to areas without public transportation.

Ohio’s 34 rural and 27 urban transit systems serve communities that have both similar, yet in many instances, very different, transportation needs. Both urban and rural systems are underfunded to meet those needs. The total funding gap identified across urban and rural systems in 2015 was $650.6 million, which will rise to over a billion dollars in 2025. This figure includes total costs of capital, operating, deferred maintenance and expansion. The needs are explained below, and are broken out by urban and rural designation.

Rural public transit: There are 34 rural transit entities. In 2015, 39 percent of funding for the 34 rural agencies came from the federal government and 10 percent from the state. The balance was funded by fares (5 percent), local funds from municipalities and counties (20 percent) and “Other” (advertising, contracting with human service agencies and other partners.)

Rural public transit in Ohio is inadequately funded: counties that have public transit failed to meet market demand by a million rides a year in 2015; by 2025, that will rise to 4 million rides a year due to demographic changes. On top of that, 27 counties have no public transit service at all.

The Ohio Transit Needs study estimated that in 2015, a third of the vehicles in the 550-vehicle rural fleet needed to be replaced. The study estimated that overall, rural public transit needed $95.3 million for system preservation, expansion and to develop new service in areas completely lacking public transit. This will rise to $127 million in 2025. This includes both capital and operational needs.

Rural transit agencies face a particular challenge in maintenance, planning and expanding. Resources are heavily dependent on local funds and on external sources, like contracting and advertising. These entities frequently lack the necessary capital to provide the 20 percent non-federal match that would allow them to even use federal dollars. Ohio’s meager allocation of state resources makes it hard to maintain public transit fleets or to expand transit to rural areas.

Metropolitan public transit: Ohio has 27 urban transit systems. In addition to the 3 C’s (Cleveland, Columbus and Cincinnati) there are public transit system in Dayton, Toledo, Youngstown, Akron and Canton, as well as systems that serve Steubenville, Middletown, Medina, Portage County, and others. In 2015, 26 percent of funding for urban transit came from the federal government and 2 percent from the state. The balance was funded by local funds (56 percent), fares (14 percent) and “Other” (3 percent). Figures are rounded.

While most of the state’s small investment in public transit goes to urban areas, the unmet needs for public transit in this very urban state are staggering. According to the Ohio Transit Needs study:

“The current system needs to provide an additional 35 million transit trips annually in 2015 to meet demand. By 2025, demand is expected to grow to 250 million annual trips. Older Ohioans will be more dependent on transit to get around, while younger, urban dwellers will choose transit over owning a car.”

The Ohio Statewide Transit Needs study estimated that in 2015, a third of the vehicles in the 2700-vehicle urban fleet needed to be replaced. The study estimated the overall, public transit in Ohio’s metropolitan areas needed $555.3 million additional dollars to meet needs in 2015. This will rise to $903.9 million in 2025.

The Ohio Statewide Transit Needs study recommended that the state provide $120 million a year, rising to $185 million a year by 2025, to restore, expand and build Ohio’s public transit system to meet market demand and give Ohioans transportation options.

The section below looks at public transit funding in the state, and also at the larger system of transportation funding, of which public transit is not really a full partner.

State budget for public transit in 2018-19

Funding for public transit in Ohio is provided through two budget bills: the transportation budget bill (This year, the 2018-19 transportation budget was passed through House Bill 26) and the main operating budget bill (House Bill 49, still under debate). For the two-year budget period of 2018 and 2019, as it stands now, state and ODOT funding for public transportation legislators will decide on may total about $40 million in each year.

• House Bill 49 (the operating budget) contains $7.3 million a year in General Revenue Funds (GRF). The House trimmed that appropriation to $6.5 million, the lowest level of GRF appropriations for public transit since 1976.
• House Bill 26 (The ODOT budget) contains $33 million in flex funds, as recommended by the Governor and accepted by the legislature.

The newly enacted ODOT budget adds more funding to public transit, but it remains a tiny share of total transportation expenditures: no more than about 1 percent a year of the ODOT budget.[8] By contrast, the Ohio Statewide Transit Needs Study suggests the state should be spending about 10 percent of its state transportation budget on public transit.[9]

State funding provides financial assistance for the purchase of capital equipment as well as technical and planning assistance to the 61 transit systems. Table 1 outlines how funds are used. Funding in Table 1 is grouped based on source of funds: General Revenue Funds, federal flexible highway and public transit grant funding.

Federal funds in the ODOT budget

Ohio anticipates receiving around $1.4 billion in each of the next three years from the National Highway Trust Fund. The overwhelming majority of federal transportation funds are for highway purposes,but starting in 1992, highway funds were sub-allocated into block grants that allowed “flexibility” between funding categories, which means that a highway dollar can be “used for things other than for construction” – for example, for public transit or other uses that reduce vehicle miles traveled. The most recent authorization (“Fixing America’s Surface Transportation Act” or FAST Act) authorizes several flexible funding options that can be used to fund public transit and related activities. (Table 2).

Up to 50 percent of the major funds in Table 2 may be transferred between categories. Alternatively, a state plan can specify a larger allocation of funds to public transit or alternative transportation uses, and work through a transfer to the Federal Transit Administration (FTA). Through these mechanisms, it would be possible for Ohio to flex a great deal more funds than the $33 million that was approved in the FY 2018-19 ODOT budget for public transit.

In the long run, significant funds from the largest categories (Surface Transportation Block Grant Program and the National Highway Performance Program) could be transferred to the “Congestion Mitigation and Air Quality” (CMAQ) category to use for public transit. This could help tremendously with the onerous problem of obsolete vehicles throughout the system.[10]

Although not much federal money goes to public transit, the state does provide significant funds to local governments for other transportation related uses. In 2016, ODOT provided $367 million from its more than $1 billion National Highway Trust Fund dollars to local areas, shown in Table 3. Funding was primarily for roads, highways, streets and bridges.

State funds in the ODOT budget

Ohio’s transportation budget is primarily made up of federal dollars, state dollars and bonds. The state and federal shares of the ODOT budget are about equal, and the split between local government share and state government share is also about equal: Of the $2.9 billion state-source dollars in 2016, ODOT and other state agencies received $1.2 billion and local governments received about $1.1 billion.[11]

Note: see footnote [12]

Table 4 shows the sources of state funds, and the uses of those funds. These funds are restricted by a constitutional provision. Use of this funding is defined in statute or in the state constitution. For example, Article XII, Section 5a of the Ohio Constitution restricts the uses of vehicle license and registration fees and motor fuel taxes: “No moneys derived from fees, excises, or license taxes relating to registration, operation, or use of vehicles on public highways, or to fuels used for propelling such vehicles, shall be expended for other than costs of administering such laws, statutory refunds and adjustments provided therein, payment of highway obligations, costs for construction, reconstruction, maintenance and repair of public highways and bridges and other statutory highway purposes, expense of state enforcement of traffic laws, and expenditures authorized for hospitalization of indigent persons injured in motor vehicle accidents on the public highways.”

There have been “other statutory purposes” added: for example, these state-source funds can now be used to pay for waterway purposes, under section 5735.051 of the Ohio Revised Code (effective June 29, 2001).

Public transit funding in the state operating budget

The state provides just over $7 million a year for public transit through the General Revenue Fund, which is made up of state tax revenues. This appropriation level was much higher in the past. The state funded public transit at $41 million a year in 1989 and at $46 million a year in 2002.

This year, proposed changes to the state sales tax base, upon which eight public transit agencies levy a local sales tax, pose a big threat to public transit in Ohio. Federal rules require a broadening of Ohio’s Medicaid Managed Care Organization (MCO) Tax, which is in the sales tax base. The Kasich administration has proposed to take the MCO tax out of the base of the sales tax and broaden it within a different tax. This would leave state revenues intact, but cut local sales tax collections to the 88 counties and 8 transit agencies with a “piggybacked” sales tax. The executive budget provides an offset in 2018,[13] but nothing in 2019 and thereafter (Table 5).

Eight public transit agencies are hurt by the narrowing of the sales tax base. Six of the eight serve Ohio’s major metropolitan areas, shown in Table 5. The other 53 public transit agencies across the state are also endangered, because the loss of MCO tax revenues also hurt counties. Ohio’s 88 counties, all of which levy a sales tax, will lose around $160 million a year from the change to the MCO tax. In many places county government contributes to local public transit operations.

Figure 2 shows trends in state funding of public transit over time, including the broadening of the sales tax base to Medicaid managed care companies. The elimination of the MCO tax revenues from the sales tax is huge.

By the end of the 2018-19 biennium, public transit loses about $40 million a year – as much as the state is putting into it through the ODOT and operating budgets each year of the biennium.

Summary and Recommendations

The public transit system in Ohio is inadequately funded and loss of the MCO tax will place additional financial constraints on transit systems. Ohio is far behind in meeting residents’ public transportation needs and maintaining current transit infrastructure. Public transportation is good for the economy; it connects people to jobs, healthcare, shopping, and other services.[14] Long-term investmentis essential to provide the services needed by rural and urban areas and to expand service to the 27 counties currently without transit. There are smart options to increase funding. Lawmakers need to act.

The Ohio Statewide Transit Needs Study, commissioned by ODOT and on their web page, recommends that the state and ODOT provide $120 million a year starting in 2015 to meet market demand and start to upgrade the aging fleet – a sum that rises to $185 million a year by 2025. Ohio is already behind the curve. The $40 million a year provided is only a third of what we needed three years ago.

The Transit Needs Study outlines a plan for reaching 2025 funding needs, which grow substantially over the decade. Recommendations include:

• Establish a statewide dedicated funding source for transit to ensure consistent and appropriate funding for the 61 transit systems. Currently, the state only provides $7.3 million annually in flexible General Revenue Funds (the House budget would cut that annual appropriation to $6.5 million). A dedicated source is essential to allow transit agencies to restore the fleet and make long-range plans for services and investment.
• Use more highway flex funds to support public transit. The state should flex at least $50 million annually in flexible Federal Highway Administration.
• Have the state contribute10 percent of costs for total public transit needs. This sum was $120 million in 2015, and rises annually to $185 million in transit a year by 2025. [15]

To make progress toward this goal, lawmakers should still allocate an additional $17 million in federal flex funds annually, on top of the $33 million funded, for a total of $50 million.[16]

At this point, lawmakers should contribute substantially more public transit funding in the General Revenue Fund Budget. General revenue funding – state dollars – can be used as local match, and would be particularly useful for allowing rural transit agencies and those in smaller cities and towns to apply for federal capital dollars to restore and expand their fleets and services. At least $25 millioninstate revenues should be appropriated for public transit. General revenue funds could be provided in part by closing unnecessary, inefficient tax breaks in Ohio’s $9 billion tax expenditure budget.

In addition, legislators in the Senate proposed the ODOT budget include $15 million for public transit in 2018 and again in 2019 from Ohio’s share of the national Volkswagen lawsuit settlement. This funding was removed, but the House reinserted it into the 2018-19 operating budget. It needs to remain in the budget.

To address the impending $40 million annual loss of sales tax revenues from the Governor’s proposed restructuring of the MCO tax, the General Assembly should address required changes to the MCO tax within the sales tax base, leaving local sales taxes untouched. Alternatively, the General Assembly could accept the Governor’s proposed solution, which places the MCO tax in the base of the insurance tax, but raise the rates to provide a local distribution to counties and affected transit agencies.

Acknowledgments

Center on Budget & Policy Priorities

Amanda Woodrum, Jack Shaner, Akshai Singh, Tim Krueger, Marvin Ranaldson, Grace Billiter, Chuck Dyer

Ohioans for Transportation Equity

Greater Cleveland Regional Transit Authority

Zane Ostoin

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[1] Highway funds are typically used for construction, but a significant share can be used in a more flexible fashion to meet broader mobility goals – through public transit, sidewalks, bike lanes and other approaches that go beyond the typical use for highway construction and maintenance.

[2] Ohio Legislative Service Commission, Redbook for the Ohio Department of Transportation for the 2018-19 budget, p.33 at http://www.lsc.ohio.gov/fiscal/transportation/transbudget132/dot.pdf

[3] The Volkswagen company has admitted to rigging 11 million vehicles worldwide with software to dodge emissions tests; a component of the settlement will be distributed to the states.

[4] Tom Middleton, “Redbook LSC Analysis of Executive Budget (HB 49) Department of Transportation” (Legislative Service Commission, March 2017), http://www.lsc.ohio.gov/fiscal/redbooks132/dot.pdf.

Tom Middleton, “Redbook LSC Analysis of Executive Budget Transportation Budget Bill (H.B. 26 of the 132nd General Assembly) Department of Transportation” (Legislative Service Commission, February 2017), http://www.lsc.ohio.gov/fiscal/transportation/transbudget132/dot.pdf

[5] Ohio Department of Transportation, “Ohio Statewide Transit Needs Study,” 2015

[6] Id.

[7] American Association of State Highway and Transportation Officials, 2016 Survey of public transportation funding (2014 data) at http://scopt.transportation.org/Documents/SSFP-10-UL.pdf Ohio Department of Transportation, Ohio Transit Needs Study, 2015 at http://www.dot.state.oh.us/Divisions/Planning/Transit/TransitNeedsStudy/Documents/OhioStatewideTransitNeedsStudyFinalReport.pdf

[8] This does not include the federal grant funds and set-asides in ODOT’s federal line item specifically allocated for public transit – 775452. That funding $33.2 million fund is not discretionary. Ohio lawmakers do not set the funding levels of this line item. This line item remains relatively flat-funded relative to prior years. If those funds are counted, the total amount contributed through the state and ODOT is 2 percent.

[9] Ohio Department of Transportation, “Ohio Statewide Transit Needs Study,” 2015

[10] Federal Highway Administration, “FAST Act Fact Sheets - FHWA | Federal Highway Administration,” https://www.fhwa.dot.gov/fastact/factsheets/

[11] Use of state source funding is defined in statute or in the state constitution. Article XII, Section 5a of the Ohio Constitution restricts the uses of state motor vehicle license and fuel taxes.

[12] An excise tax applies to all dealers in motor vehicle fuel on the use, distribution, or sale within Ohio of fuel used to generate power for the operation of motor vehicles. The motor fuel excise tax rate has been 28 cents per gallon since July 1, 2005. There also is a use tax of 28 cents per gallon levied on commercial cars and tractor trailers operated or driven upon a public highway in two or more jurisdictions. These taxpayers pay tax on the motor vehicle fuel consumed in Ohio that exceeds the fuel purchased and taxed in Ohio. (From the Ohio Department of Taxation 2016 annual report at http://www.tax.ohio.gov/Portals/0/communications/publications/annual_reports/2016AnnualReport/2016AnnualReport.pdf

[13] The offset was calculated by the Ohio Office of Budget and Management and was not based exactly on loss of funds, but on tax capacity of the county or transit agency, and an estimate of time it would take for the local jurisdiction to ‘replace’ the lost revenues.

[14] Chatman, Daniel G., and Robert B. Noland. “Transit Service, Physical Agglomeration and Productivity in US Metropolitan Areas.” Urban Studies 51, no. 5 (April 2014): 917–37. doi:10.1177/0042098013494426.

[15] Ohio Department of Transportation, Ohio Statewide Transit Needs Study, 2015

[16] This could be done through passage of Senate Bill 61 of the 132nd General Assembly (https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-SB-61)

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