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Creative ways to fund on-demand public transportation and microtransit in California

  •   6 min read

Finding the funding for new TransitTech is often half the battle, even in a place where improving equity and reducing carbon emissions are key priorities for the state. Here are numerous ways cities in California are creatively funding new on-demand public transportation networks.

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Microtransit is transforming public mobility. California now leads the nation with the highest number of microtransit services — which is not surprising, given the state’s progressive focus on improving equity and reducing emissions in transit.  

Despite Frost & Sullivan predicting that microtransit shuttles will account for 50% of the shared mobility market by 2030, financing them is one of the biggest hurdles. Over the last few years, cities and transit agencies in California have developed a number of ways to fund projects.  

First, a little background: Funding for public transportation is highly localized — a combination of local and state taxes, regulatory fees, bonds, federal funding, and fare revenue. Historically, federal funding has focused on capital expenditures like purchasing buses or constructing subway stations.  

That’s one main reason most California cities and transit agencies use state and local sources of revenue to fund on-demand microtransit, which is characterized by very light capital costs and therefore often requires funding that can be spent more flexibly. As policies at all levels of government continue to evolve to account for innovative transit and its benefits, the pool of available resources will almost certainly grow over time. 

How state and regional funding comes into play.

Approximately 14% of transit is funded through state funding in California. State funding is primarily from Cap and Trade auction proceeds, general sales tax, and the diesel fuel sales tax. Cites and transit agencies across California are using a variety of ways to fund microtransit using state funds, including:

State formula funding.

Through the Transportation Development Act (TDA), two types of state funding are distributed through California’s Department of Transportation’s Division of Rail and Mass Transit: the Local Transportation Fund (LTF), and the State Transit Assistance (STA) fund. 

There are also designated TDA funds to efficiently and cost-effectively improve the quality of transportation services to groups with limited mobility (those who are transit dependent and/or require paratransit/ADA services) through the Social Services Transportation Improvement Act, which created Consolidated Transportation Services Agencies (CTSAs).  Funding for CTSAs flows through the local planning agency (MPO/RTA), which designates the receiving agencies. 

While it can be challenging to use TDA funds because they have typically been used for traditional transit, some agencies and cities have done so successfully. In 2018, West Sacramento used TDA funds for its on-demand microtransit service, and they’ve proven to be a sustainable source of funding three years later and after considerable service expansions.

State transportation grants.

California offers transportation grants focused on policy objectives that range from reducing greenhouse gas emissions to increasing equity. In all cases, a proposal to deploy microtransit can make for a compelling application, as it is directly in line with the state’s priorities.

California’s Cap-and-Trade auction proceeds fund a number of programs that provide grants for innovative, sustainable, and equitable transit. These include:

ShastaConnect, a new rural microtransit service in Redding, CA — led by the Shasta Regional Transportation Agency (SRTA) and operated by their CTSA Dignity Health — utilizes a mixture of formula and grant funding.  They draw upon LCTOP funding and TDA funds for operations, and they’ve used SGR grants to fund vehicles. Key to securing LCTOP funding is demonstrating the ability for a microtransit service to reduce greenhouse gas emissions, increase ridership, and serve disadvantaged communities.

Congestion pricing, TNC fees, and tolling.

Some state, regional, and local governments are searching for new ways to raise funds for public transit. In California, LA Metro has commissioned a two-year Congestion Pricing Feasibility Study and Caltrans is running a California Road Charge demonstration to explore a road-use charge program that could, over time, replace traditional fuel taxes. Caltrans is doing this in 4 phases: 

  1. Pay at the pump: demonstrate gas station point-of-sale charging capabilities.
  2. Usage-based insurance: demonstrate how auto insurance companies could provide road charge account management.
  3. TNCs: demonstrate the variability of collecting road charge using ridesharing vehicles
  4. Autonomous Vehicles: demonstrate the ability to collect vehicle and occupancy data from AV’s for road use charge purposes.

Elsewhere in the US, notable efforts to raise significant funds for fixing and improving transit include New York State’s congestion fees for taxis and ride hailing vehicles entering Manhattan; New York City’s comprehensive congestion pricing; and North Virginia’s I-66 Commuter Choice Program, a dynamic tolling program that provides funding for expanded transit services and access to transit improvements, including microtransit projects.

Non-Emergency Medical Transportation (NEMT) funding.

Microtransit can also serve NEMT trips, as Golden Empire Transit (GET) does in Bakersfield, CA.  GET’s On-Demand microtransit service delivers rides to patients on behalf of Kern Family Health Care and its NEMT broker, American Logistics, and is paid for by Medicaid. (Kern Family Health Care delivers health