Janet Adkins, Transit Study Committee Member

Funding Sources for Salem-Keizer Transit

The Cherriots’ annual $23.5 million general fund budget (1) is financed by a combination of federal, state, and local revenue. Local revenues include the fares paid by passengers. The basic fare is $1.50 per trip with discounts for seniors, youth, and various pass programs. Other locally-generated revenues derive from property taxes and small sources such as advertising and are used for operations and for the local match necessary to receive federal funds. The current property tax rate for the transit district is $0.76 per thousand, which amounts to $152 on a home assessed at $200,000.

State revenues that derive from a dedicated two cents of the state cigarette tax (2) and from DMV identification card fees are directed by State law to rural transit and to transportation services for the elderly and persons with disabilities. State funds also support a portion of general operations through payments to Salem and other transit districts known as “in-lieu of payroll tax” payments.

These “in-lieu” payments are based on the number of state employees in a district. The state also funds several grant programs using lottery revenues for capital projects, such as transfer centers.

Federal funds are mainly derived from a portion of the federal gasoline tax and are used mainly for buses, infrastructure, and rural-small city transportation. In 2009 Cherriots received $5 million in federal stimulus funds, 90 percent of which had to be used for capital improvements. The money was used to buy new clean-fuel buses and accessible vans and upcoming construction of the Keizer Transit Center. Little federal transit aid can be used for operations. The local challenge is balancing affordable fares and property taxes with increasing demand for services and a federal mandate under the Americans with Disabilities Act (ADA) to provide costly paratransit services. (Note: Information on the ADA and its benefits and costs will be included in the next Focus.)

The following chart shows the percentages of the District’s budget that derive from each of the identified revenue sources:

Revenue Source for S-K Transit —– Percent of District’s Overall 2011-12 Budget (3)

Local property taxes—————————-34 %

Federal funds————————————19%

State in-lieu of payroll tax payments———-15%

Other state grants——————————-15%

Fares and passes——————————–10%

State – Business Energy Tax Program———-4%

State – Connect Oregon Grant (4)—————2%

Other local sources——————————-1%

Often “farebox recovery” rates are given as the percent of operating costs covered by fares. The ten percent figure for fares in the table above is a percentage of the entire budget, not just the operating portion. As a percent of operating costs, fares cover 12 – 15 percent.

Funds through the Oregon Business Energy Tax Credit (BETC) Program were available for the past several years but were eliminated by the 2011 Legislature. The $900,000 annual income to Cherriots from BETC paid for most of the transit district’s free bus pass program for high school and middle school students. This free program for students was eliminated for the 2011-12 school year.

Two other sources of revenue were eliminated in recent years. The State of Oregon used to purchase Cherriots bus passes for State employees and to pay for shuttle service between the Airport Road park and ride and the Capitol Mall area, but that $500,000 annual payment ended in 2009. Willamette University and the city of Salem also eliminated their bus pass programs at a combined loss of $100,000 per year.

The combined loss of BETC funds and the three bus pass programs totals $1.5 million per year and are reflected in this fiscal year’s $23.5 million budget.

Property Tax History

Salem-Keizer Transit District was formed in 1979 to secure a funding base. It operated with individual bond levies until 1986, when its first property tax base ($1.5 million) was approved by voters. More recent measures and results are indicated below:

1993 – Payroll tax measure defeated (by 2 to 1 vote)

1994 – Property tax base increase defeated

1995 – Property tax levy passed

1996 – Property tax base increase to $5.9 million approved (district extended services)

2006 – May and November Elections: Property tax levies defeated (5) (district reduced services)

2008 – November Election: Property tax levy defeated (district reduced services)

2009 Service Reductions

Following defeat of the 2008 tax levy, Salem-Keizer Transit worked with public and interest groups on a major system redesign in order to improve efficiency and maintain operations within their predicted revenues. The result was elimination of all Saturday service (regular route and Cherry Lift (paratransit)) and changes to nearly all routes in the system. Some routes were cut back substantially; others became High Frequency Corridors with increased service during peak travel times. The redesigned routes and schedules took effect in September of 2009.

Community Transit Task Force

The Salem-Keizer Community Transit Task Force (CTTF) began meeting in 2009 after voters failed to approve the Cherriot’s 2008 transit tax levy. The Task Force was co-chaired by Dan Clem, Salem City Councilor, and Kate Tarter, S-K Transit Board member. Membership included representatives of the community, businesses, and transit users. The Task Force met for two years so its members could obtain a thorough understanding of system services and funding challenges. They considered a range of service improvements with their associated costs. For example, the return of Saturday service was estimated at an annual cost of $1.74 million for hourly and $3.17 million for half-hourly service. The Task Force report to the Transit Board concluded that: the district’s finances are solid and stable; changes in service made in 2009 are working; ridership is increasing; area workers and employers depend on the transit system; and that return of Saturday service is a priority. (6)

Task Force recommendations summary (June 2011):

  • Do not seek voter approval for an operating levy to expand service until economic conditions improve
  • Provide press releases, guest opinions, and letters to editors to indicate the district’s recent successes and strategic plan
  • Create a work plan to improve outreach, education, and community partnerships
  • Hold a series of Town Hall meetings with Board involvement to gather ideas from the community on how to add new service and garner support for a property tax levy
  • Create a Citizens Advisory Committee to be a community voice to the Board
  • Consider list of customer service improvements
  • Place CTTF on hiatus and reconvene as needed or requested by the Board

Funding in Other Oregon Transit Districts

Like Salem-Keizer Transit, other public transit districts in Oregon are funded through a combination of federal, state, and local revenue sources. The sources of local revenue across the state, however, are quite varied. Several systems (Portland, Wilsonville, and Lane County) rely on payroll taxes instead of property taxes. (7) Tri-Met’s payroll tax rate is .6918 percent ($6.92 per $1,000) of the annual wages paid by an employer. Lane’s is .67 percent and the City of Wilsonville’s is .5 percent. Corvallis charges a Transit Operations Fee instead of either payroll or property taxes. This fee, adopted by the City Council in 2010, is charged like a utility fee to residents and businesses within the city.

The $2.75 per residence monthly fee is expected to generate $850,000 a year. Bend and Albany have municipal transit systems that are roughly one-third funded by city general funds. Bend city voters defeated a 2008 local ballot measure to form a transit district with property tax support. Rogue Valley Transit partially supports its operations with a small property tax rate. Portland, Eugene, and Corvallis receive some of their transit funding from university purchase or partial subsidization of passes for students and staff.

In Corvallis and Wilsonville, riders on routes within the district are not charged fares. The level of fares in other districts varies.

Local funding sources vary considerably in how stable they are and how difficult they are to enact or increase. Property taxes tend to be stable but are limited, and operating levies require voter approval. Payroll taxes tend to rise with wage inflation over time and therefore may not require rate increases, but they are variable in response to the ups and downs of business cycles. A payroll tax would require a local vote or state legislation to enact in Salem. Fares can be changed by a transit district but need to be kept affordable to attract optimal ridership and maintain revenues.

Additional Funding Sources in Other States

Funding for local public transit systems in some states includes a portion of the state’s gas tax or vehicle registration fee. These particular revenue sources are not available for transit in Oregon due to an express state Constitutional limitation on the spending of vehicle-related taxes. Under this provision, (8)revenue from the state gas tax (9) and vehicle registration fees is dedicated to use on roads, streets, highways and rest areas.

Sales taxes are another significant source of funding for public transit in other states that are not available to Oregon districts due to our lack of a sales tax.

Funding Outlook

Federal funding for highway and transit programs, including all formula and grant programs, are determined every four to six years in a major transportation authorization bill. Actual spending within these federal programs depends on the annual budget process and departmental appropriations bills. In November 2011 Congress passed the annual appropriations bill for the U.S. Department of Transportation for Fiscal Year 2012 and maintained most transit funding programs with the notable exception of high-speed rail funding. A long+term reauthorization bill, (10) however, has not been agreed to. The current authorization bill was passed in 2005 and expired in 2009. It has been carried forward by temporary extensions.

The major concern of both highway and transit advocates is that current levels of federal transportation spending are not sustainable even into 2013 without additional revenues. It has been necessary in the last few years for Congress to supplement the Highway Fund with general fund dollars. The federal gas tax (18.4 cents per gallon) was last increased in 1993 and is considered a flat or declining revenue source due to: inflation; improved gas mileage of cars; and reduced driving in recent years. Of the 18.4 cents, 2.86 cents goes into the Mass Transit Account, which funds roughly 15 percent of mass transit nationally, and the remainder goes into the Highway Fund (as do all federal fuel taxes and fees on heavy trucks).

At the state level, competition for funding will likely increase due to serious ongoing budget shortfalls, as evidenced by recent revenue forecasts. Governor Kitzhaber is convening a Non-Roadway Transportation Infrastructure Work Group to discuss funding options. Transit districts will be represented and are expected to promote a reliable dedicated funding source for transit. (11)

Local Salem-Keizer transit funding, mainly from property taxes, has been maintained even though market values for property have declined significantly. The reduced market values remain higher than assessed values because assessed values have been limited to a three percent increase per year since passage of property tax limitation measures in the 1990s. Property tax collections would decline in the future if additional other government taxes are assessed and the total general (i.e. not education) tax for a piece of property exceeds the $10 per $1,000 (of Real Market Value) limit set by those measures + a situation known as compression.

Salem-Keizer Transit faces future costs related to their partial ownership of the Courthouse Square building. (Note: Information on Courthouse Square will be included in a future Focus article)

The Question of Subsidies

For policymakers, the rationale for subsidizing transit is generally twofold: (1) public benefits go beyond those who use transit services and (2) many transit users, especially those with physical limitations, lack transportation alternatives and/or the resources to pay the full costs of a local system. The public realizes benefits to the extent that congestion, pollution, or fuel consumption is reduced. Public spending is also reduced to the extent that a well-used and well-run transit system reduces demand for additional road building or parking facilities.

Harder-to-quantify benefits include the measure of independence, employability, activity, and health that safe and efficient transportation alternatives may give to certain populations. (12) Some individuals who are unable to arrange travel to work, training, court appointments, or health facilities will require additional social services and possibly criminal justice services as a consequence. If transit subsidies prevent these public costs, they could make long-term economic sense. (Note: a future article in the Focus will include information on the effects of service limitations on vulnerable populations.)

Those who oppose subsidies for transit (or the current levels or types of subsidies) make a number of arguments. The CATO Institute (a free-market, limited-government think tank) and the Cascade Policy Institute (13) urge a return to private, flexible, market-based transit and suggest that low-income individuals could be subsidized directly as needed through a voucher system. CATO argues especially against federal subsidies that it thinks encourage waste by helping to pay for expensive systems, like light rail, which ridership alone does not justify and that require raising of substantial local matching funds. (14) (15)

Advocates for such projects, and the local and federal elected officials who support them, point to economic and community development aspects of such projects, as well as transportation benefits. (16)They also consider the projects as long-range investments to benefit the community.

The debate over transit subsidies, of course, is not isolated. Advocates representing either view attempt to compare costs, subsidies, and benefits. Cost-to-benefit comparisons for transportation investments quickly become complicated, especially between modes. Separate funding streams add to the difficulty. As the U.S. Government Accountability Office (GAO) noted in 2004:  (17)

Separations between federal programs and funds give state, regional, and local agencies little incentive to systematically compare the trade-offs between investing in different transportation alternatives to meet passenger and freight travel needs because funding can be tied to certain programs or types of projects. In addition, the modal structure of federal programs gives rise to advocacy for specific modes or investments.

Highway advocates often stress that road users pay for the costs of our nation’s road system. Road users do pay substantial costs for the construction and maintenance of highways through federal and state gas taxes, state vehicle fees, tolls, and truck fuel taxes/fees. A portion of these revenues is also shared with city and county governments for use on their roads. But there are also general-public subsidies for roads and auto travel that are seldom recognized, including a number of direct and indirect costs:

Direct Public Costs

  • Local property taxes and local general funds that are used for roads. (Note: a small portion of local street miles are also used by transit systems, which could be considered a subsidy for transit.)
  • Local and state expenditures on highway patrol
  • Public cost to build and maintain parking facilities
  • Public costs of highway accidents

Indirect or Social Costs

  • Effects of air and water pollution
  • Effects of sprawl including loss of farmland
  • Value of time spent in traffic


  1. Cherriots Adopted 2011-12 Budget:

2. Currently $1.18 per pack

3. Cherriots Adopted 2011-12 Budget

4. Connect Oregon is a competitive lottery bond grant program for non-highway4 transportation projects that was funded at $100 million a biennium beginning in 2005. 2011-13 funding was reduced to $40 million statewide. Salem-Keizer received grant approval from Connect Oregon in 2008 ($2.5 million) for Keizer Station and in 2010 ($243,000) for the Rickreal Park and Ride lot at the Polk County Fairgrounds (opened in October 2011).

5. At the time of the May 2006 vote, state law required measures voted on at other than a November General Election to have a majority voter turnout as well as a majority of votes cast in order to pass. At the May election, the measure received a majority of votes cast, but the turnout was less than a majority of voters, so the measure failed. (Note: this “double majority” requirement was repealed by state voters in 2008.) At the November transit levy election in 2006, the measure did not receive a majority of votes.

6. From Dan Clem testimony to Transit Board June 23, 2011

7. For information on Tri-Met and Lane payroll taxes see this Oregon Department of Revenue website:

8. Article 9 Section 3a, Oregon Constitution

9 Oregon’s gas tax is currently 30 cents per gallon

10. Public Law 109-59, known as the Safe, Accountable, Flexible and Efficient Transportation Equity Act (SAFETEA)

11. Interview with Allan Pollock, Salem-Keizer Transit General Manager – LWC-MPC 10/27/2011

12. See this American Public Transportation Association site for reports on varied transit benefits:


14. O’Toole, Randall. CATO Institute (2006). A Desire Named Streetcar: How Federal Subsidies Encourage Wasteful Local Transit Systems.

15. O’Toole, Randal. Testimony before U.S. Senate Subcommittee on Housing, Transportation and Community Development. July 7, 2009.

16. Center for Transportation Excellence. Responding to Randal O’Toole’s “A Desire Named Streetcar.

17. GAO Expert panel report on benefits and costs of highway and transit investments (2004)

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