On line training tool:  Funding

Introduction – Ideally, public transport operations would be funded entirely from farebox revenues.  This is achieved in some relatively affluent high density compact Asian cities (e.g. Singapore, Hong Kong), while bus based PT covers its costs from fares in many large cities in Asia and South/Central America.

However, in Europe the reality is that virtually all public transport systems operate at a deficit. The farebox revenues typically make up only 30 – 50% of total funding requirements.  The proportion of operating costs from farebox revenue in German cities is slightly higher at 60%.  The shortfall is typically made up from public funding sources. Traditionally this public funding is financed by general taxation revenues (individual and corporate).

There is a growing need for authorities to consider other sources of funding for public transport due to the following three reasons:

1. The financial pressure post-2008 and the euro crisis is putting massive pressure on both national and local governments to reduce subsidies.
2. Relying on individual or corporation taxes, which are not designated to specific purposes, leads to uncertainty in funding streams for PT. This is because there is a great deal of competition for public funds, and public transport often loses out to spending on, for example, education and health.
3. PT subsidy requirements are growing – forecasts show that growth in subsidy requirements will be significant up to 2040.

–        Average 50% increase in real terms for EU-15 cities between 2010 and 2040

–        Average 100% increase for EU-12 cities

Partly due to pressures from new legislation: Regulation (EC)No 1370/2007 requires  public service contracts to be established between awarding authorities and operators – specifying minimum levels of service and EU mobility/environmental criteria be met.

Forecast Growth in Real Individual Public Transport Subsidies for Modelled Cities – 2010-2040 (2010 prices)

Source:Study on the financing needs in the area of sustainable urban mobility Final Report; Prepared for: Directorate-General for Mobility and Transport, Contract No.: MOVE/B4/457-1 2010 SI2.585084, March 2012/

As a result, there is a need to cut costs, raise more revenue through fares or to raise greater proportion of revenues from other means.  This training module focusses on innovative ways of raising funds through local public taxes or levies from which some or all of the revenues are directly earmarked to support public transport and through innovative ways of raising funds through commercial operations.  These are illustrated using case study examples from across Europe where such funding approaches have been utilised.

Click on the links below, related to yellow edged boxes in the pictures, to find examples of where these types of innovative funding have been applied.

 Source: Adapted from Guidelines in market organisation, SPUTNIC project: http://www.sputnicproject.eu/docs/Sputnic-fund&funding.pdf 

General Budgetary Resources

Car users

Employers

Property owners

Shopkeepers, trades people and other industries

Fares

Other business 

Funding not financing  

The innovative approaches described above are used to help fund public transport service operations.  It is however important to distinguish between funding and financing PT.

– Funding PT services relates to paying for the costs of operation of services in the short or medium term.

– Financing PT relates to securing investment for major infrastructure, new rolling stock and other equipment with a long economic life, e.g. though:

a. Large Government Grants

b. EU structural + cohension funds

c. Public Private Partnerships (PPP)

d. Private finance initiatives (PFI)

– The main objective of a financing scheme is to bridge the gaps in funding streams at the lowest possible financing costs.

Should public funding and subsidies be directed to the operators or directly to the users?

Having raised funding for public transport services through the approaches described above, there are two main ways in which to spend the funding to support PT.

– Subsidies directed to operators (or services) – these can be focussed on achieving modal shift from car (environmental objectives) and generating higher fare revenues.
– Subsidies directed to users (in form of free or discounted travel) – these can help achieve social objectives.

In the UK there is a mixture of the two but ratios differ by area:

►   In London PT Support to operators amounts to 40% of total revenue, while support to users is 9%

►   In Scotland PT Support to operators amounts to 20% of total revenue, while support to users is 32%

In summary, over the last 10 years

– In Scotland there has been a 334% increase in funding to users (largely through free concessionary travel for elderly passengers) and 25% increase in funding to operators. This has resulted in 0% passenger growth BUT an estimated 25% fall in non-concessionary passengers.

. In London there has been a 13% increase in funding to users and 350% increase in funding to operators. This has resulted in 76% passenger growth including a 70% growth in non-concessionary passengers.

[Data Sourced from: Overview of Bus Industry Performance, Great Britain, since Deregulation ]

Although this is only one example, and despite the very different environments in which bus services operate between the two areas, it does perhaps suggests that funding directed to operators (or services) is a better approach – especially if this is targeted towards achieving specific aims.

 Links to relevant EPTA project resources and other useful resources