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How to access public transit funding for your on-demand transit services

On-demand transit is paving the way for the future of public transit but needs adequate funding to do so. Read on to learn how to leverage federal, state and local grants and funds for your microtransit or paratransit services.

Terri Ling

Transit agencies require a combination of national, state and local funding sources to build and improve public transit infrastructure

The world of public transit is changing, driven primarily due to changing rider behaviour and evolving technologies. According to the 2021 McKinsey report Reimaging Urban Transit in a Post-pandemic World, "urban transit’s next phase of growth will include ridesharing, multimodal transport, and mobility-as-a-service."

The US Department of Transportation encourages transit agencies to explore emerging technology solutions and different business approaches to address evolving rider needs, however, urban planners and transit agencies looking to pilot new programs or introduce innovative solutions face a common challenge: funding.

Historically, transit agencies typically rely most significantly on state and local funding, as well as fare revenue, for the bulk of their expenses. Transportation for America estimates that public transportation needs almost $39.3 billion in emergency relief from Congress through 2023 to prevent mass transit cuts.

About two-thirds of the income of transit agencies comes from the government: States and localities supply more than three-quarters of that share, and the federal government provides the remainder.

Source: Congressional Budget Office, using data from the Federal Transit Administration and the American Public Transportation Association

The Federal Transit Administration (FTA) provides funding in the form of grants to local public transit systems, including buses, subways, light rail, commuter rail, trolleys and ferries to create and enhance public transportation systems. These are in the form of annual formula grants to transit agencies and discretionary funding in competitive processes.

Funding options for public transit projects

In this blog, we share an overview of federal, state, and local funding opportunities in the US, illustrated by several Spare partners who have utilized grants and local measures to launch on-demand microtransit, paratransit, and non-medical emergency transit services.

How to access federal funding

In the US, almost all annual federal support for public transportation is provided through the FTA, typically in the form of grants to individual transit agencies. In 2018, federal funding accounted for 16.8% of transit funding in the US.

Grants are allocated based on the size and density of an area’s population, the amount of local transit infrastructure, the amount of demand for public transportation, and other relevant characteristics. Some grants are distributed on a competitive basis.

Federal funding is provided through a mix of formula and competitive grants on an 80-20 match basis — so federal funds will cover 80% of the relevant cost, and the remaining 20% must be covered by state or local funding.

Federal Competitive Grants

Also known as discretionary funding, competitive grants are provided based on the merits of submitted proposals. According to the FTA website, competitive grant programs include funding for “buses and bus facilities, innovative transportation coordination, workforce training, and public transportation research activities.”

For instance, in 2016, the FTA launched an $8 million Public Transportation Innovation funding opportunity for the Mobility on Demand (MOD) Sandbox Program. According to the FTA, The MOD initiative was developed to “envision a multimodal, integrated, automated, accessible, and connected transportation system in which personalized mobility is a key feature [...] MOD leverages technologies that allow for a traveller-centric approach that provides better mobility options for everyone.”

That same year, Dallas Area Rapid Transit (DART) was selected as one of eleven recipients of the MOD grant, receiving $1.5 million for GoLink, DART’s first mile-last mile solution pilot project. DART was able to spend most of this funding on technology, including a partnership with Spare, freeing up their existing budget for operational costs. With Spare Platform, DART was able to deploy a massive on-demand transit system and extend coverage to areas with little or no transit, increasing overall transit ridership while reducing operational costs.

Another example of competitive FTA funding is the Access and Mobility Partnerships Grant, a program that provides funding “to support innovative projects for the transportation disadvantaged that will improve the coordination of transportation services and non-emergency medical transportation services.”

In 2019, Minnesota’s Southwest Transit (SWT) received a $290,500 Access and Mobility Partnerships Grant and paired up with Spare to launch a new non-emergency medical transportation (NEMT) service called Prime MD. Prime MD provides on-demand service for passengers going to and from medical appointments and extends to many riders who were previously outside of existing service areas.

You can view all currently open competitive grant programs here.

Federal Formula Funds

Applicants do not need to ‘compete’ to obtain formula grants; they simply need to submit a grant application that proves the need and eligibility. Formula funding is typically provided to the state and then distributed among local transit agencies and networks.

For example, in 2020, Oregon agencies received $6.6 million of federal funding from the Grants for Buses and Bus Facilities Formula Program. $2.7 million of these funds went to the Rogue Valley Transportation District (RVTD), an Oregon-based Spare partner, to buy new, more accessible buses. Another Spare partner, Medicine Hat Transit received federal funding through the Bicycle Corridor Improvement Program to replace fixed-route with microtransit.

The FTA runs several formula funding programs each year, so keep an eye on the FTA website for current opportunities! At the time of publication, here are just a few of the open grants that could be most relevant for on-demand microtransit services:

  • Enhanced Mobility of Seniors & Individuals with Disabilities
  • Congestion Mitigation and Air Quality Program
  • Transit Strategic Partnerships Program
  • Rural Transportation Assistance Program

Staying on top of federal funding opportunities

While your state government website will elaborate on regional funding opportunities, here are a few links regarding federal funds to keep bookmarked.

How to access state and local transit funding

State and local funding is usually generated by state and local taxes, fare and advertising revenue and is allocated to operational expenses, such as fuel or labour.

Accounting for 37.4% of all funding in 2018, local funding comprises the majority of transit funding in the US. Thanks to the lower capital overhead they experience, microtransit and paratransit services in particular benefit from these more flexible, localized sources.

In 2018, state funding comprised 20.5% of all transit funding. Many state grants are distributed based on policy objectives, so microtransit and paratransit programs are well-positioned to make a case for how their services will help achieve these objectives and serve niche community needs, making them good candidates for grants.

Let’s take a closer look at how to access these sources.

State-Level Grants

AAs with federal funding, state funding for transportation includes both formula and competitive grants.

For example, in 2017, Oregon passed the Keep Oregon Moving legislature which includes dedicated funding for the expansion of public transportation services in Oregon. Keep Oregon Moving includes a 0.1% employee payroll tax for funding purposes, referred to as the Statewide Transportation Improvement Fund (STIF), 90% of which is distributed to agencies across the state as formula funds, while 9% is allocated to competitive grants.

Another example of a state-level grant is the Michigan Department of Transportation’s Specialized Services Program, which allocates funding to agencies that provide transportation services to seniors and individuals with disabilities. In Detroit, over a quarter of households don’t own a car, yet transit funding is quite low by US standards. To alleviate the accessibility issues facing many communities, the Suburban Mobility Authority for Regional Transportation (SMART) partnered with Spare to simulate microtransit solutions to get a sense of the feasibility of such services. SMART receives a mix of federal and state funding to help pay for capital and operational costs, including funds from the Specialized Services Program.

Local Ballot Measures

Transit ballot measures allow localities to generate funding for transportation projects via voter-approved increases in sales tax or property tax, or other methods such as bonds or vehicle fees. Ballot initiatives are a powerful tool, as they allow municipalities to be less reliant on federal and state funding and allow voters to be directly involved in the development of their transportation systems. According to Transportation for America, transportation ballot measures pass at twice the rate of all other ballot measures, across different regions, populations and party affiliations.

For example, in 2019, Lake County, Ohio voted in favour of a 0.25% sales tax increase to fund Laketran services — its first tax levy increase since 1988. In the same year, voters in Albuquerque, New Mexico, approved the extension of a 0.25% gross receipts tax, 38% of which will fund transit projects.

While FTA funding can only be applied to eligible costs, local funds generally come with fewer stipulations, and agencies have a lot more autonomy when it comes to spending those funds. That said, transit ballot initiatives must be re-voted every ten to twenty years, which creates a level of accountability for goals and promises to be measured and met.

In addition, while the pandemic has led to unreliable federal funding, and local ballot measures can offer transit agencies more security during this period of uncertainty, many localities and states have paused transportation ballot initiatives due to the economic struggle their voters are facing during the COVID-19 pandemic.

How to access emergency funding

In response to the economic fallout of the pandemic, the US Congress passed an economic stimulus bill called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act provided $25 billion to transit agencies across the US to help prevent, prepare for and respond to the COVID-19 pandemic. Unlike traditional federal funding which typically requires a 20% local match, CARES Act funding is provided at a 100% match to support capital, operational and other expenses.

In 2020, Citibus, the public transportation provider for Lubbock, Texas, partnered with Spare to launch two new commingled on-demand transit services in response to the pandemic: Citibus On-Demand and CitiAccess. At the onset of the pandemic, Citibus transferred to hourly services, which affected morning and afternoon bus schedules. Citibus On-Demand was implemented to fill the gaps in the decreased fixed-route services, while CitiAccess similarly provides flexible door-to-door service for paratransit riders. These new services received a $9.6 million grant from the CARES Act, as well as assistance from the Federal Emergency Management Agency (FEMA).

Hot Tip: Did you know that effective data collection can give you an edge when it comes to a successful grant application? Collecting either quantitative or qualitative evidence should be clearly outlined in your grant application.

Spare makes it a priority to identify funding opportunities that might be a good match for your agency or services. By keeping an eye on who has received specific grants in the past, we developed a keen sense of who may qualify in the future. If you want to learn more about transit funding or how Spare can help you secure funding, drop us a line at