Public transit is not only a vital network connecting people to jobs, services and one another; it’s also an important climate solution. The world needs to double public transit capacity by 2030 as part of its larger roadmap to slash planet-warming emissions and avert the worst of the climate crisis.
But this rapid growth will be costly, and public transit systems have a funding problem. During COVID-19, ridership plummeted by up to 60% in major cities around the world. This drained the fare revenue that transit agencies often rely on to pay for staff, fuel, maintenance and more.
Many cities have yet to see ridership (and fare revenue) fully recover. While emergency government funding provided a temporary lifeline for many agencies, the expiration of these funds has left some facing a looming fiscal cliff.
Not all cities’ transit systems are struggling, though.
WRI examined public transit agencies in cities around the world, comparing their funding and revenue sources before and during the pandemic. We found that some agencies maintained or even increased their revenue during this time — despite declines in ridership. While sustained government support played a key role, these agencies also had diverse funding models that proved more resilient to shock.
As all cities work to expand and improve their public transit systems in the coming years, these leaders offer a model for how to make transportation more accessible and more resilient in a changing world.
How Some Cities’ Public Transit Systems Weathered the COVID-19 Slump
WRI’s new working paper analyzed the predominant public transit agencies in 11 major cities: Addis Ababa, Bengaluru, Chicago, Copenhagen, Houston, Jakarta, Mexico City, Paris, Rio de Janeiro, Sao Paulo and Washington, D.C. Among this sample, we found key differences in how public transit is funded between advanced economies and low- and middle-income countries.
Agencies in low- and middle-income countries tended to rely more heavily on fare revenue and faced bigger financial challenges during COVID-19. Rio de Janeiro’s agency, which was fully funded by fares before the pandemic, experienced the most significant decline, losing 25% of its revenue between 2019 and 2022.
In some places, riders and transit workers felt the impact of these losses immediately. In Brazil, 55 bus operating companies were forced to close and 90,000 urban bus workers lost their jobs. Bengaluru’s only public bus provider had to shutter for nearly two months; when it reopened, riders saw their fares increase to compensate for lost revenue.
While most agencies we examined saw a decline in revenue during the pandemic, a few came out relatively unscathed.
One big reason for this was increased government support. Some transit agencies received a significant portion of their funding from government subsidies prior to the pandemic, including Addis Ababa, Jakarta and Mexico City. Meanwhile, agencies in the U.S. and Europe received substantial government support in response to the pandemic, in the form of emergency relief to stabilize their revenues. Agencies in Chicago, Paris, Washington, D.C. and Houston received enough subsidies to fill the gap left by fare loss and to sustain their operating expenses.
Other funding sources played a role, too. Of the transit agencies we examined, those in advanced economies typically had more diverse revenue streams — including transportation related fees, dedicated taxes and commercial income — that helped them stay financially stable even as ridership plummeted. This was critical to ensuring that riders who rely on public transit to reach jobs and other necessities could still access it during the pandemic.
How Can Cities Grow their Public Transit Funding?
COVID-19 exposed how vulnerable public transit systems can be to external shock. As they emerge from the pandemic, cities and transit agencies now face a daunting task: They must continue working to revive ridership in the face of new commuting habits, grow their funding, and maintain the frequency and quality of service — all while building resilience to better withstand future crises.
Seeking new funding sources will be an important step. Diversified funding not only softens the impact of unforeseen events like pandemics, but also provides a more stable financial foundation for long-term planning and investment. Our research identified three main types of funding transit agencies can tap into:
- Direct funding: Direct funding comes straight from transport users, including fare revenues, parking fees and congestion charges. Raising fares is a straightforward way to increase transit funding; however, cities should consider adjusting fares based on factors like time, distance or passenger category to keep prices affordable for all. Fare revenues are also vulnerable to disruptions, as seen during COVID-19. In densely populated cities with extensive public transit coverage, governments can also leverage local parking fees and congestion charges. These fees can help manage road use while generating revenue to support and expand public transit systems.
- Indirect funding: Public transit can bring myriad economic benefits to a city: higher property values, better workforce access, increased revenue for businesses. Yet these benefits rarely return to transit’s bottom line. Indirect funding mechanisms can help channel some of these economic gains back into the public transit system. For instance, land value capture involves taxing the increased property values that can result from improved access to public transit, then using that tax revenue to fund metro systems and other community development projects. Dedicated local area sales taxes can also capture a portion of the economic activity that benefits from the transportation system and serve as a stable source of revenue for an agency.
- General funding: General funding sources include broad-based revenue from government grants, state or national budgets, and other non-dedicated sources. These funds can fill gaps left by direct and indirect sources, especially during economic downturns or emergencies. National or state-level grants can provide significant support for infrastructure projects, operating subsidies or targeted access initiatives, such as reducing fares for low-income passengers.
4 Cities Getting Creative to Fund Public Transit
High quality public transit with frequent and reliable service is expensive to maintain. But several cities around the world are already leveraging diverse funding models to expand and improve their systems. We looked at four strong examples, both within and outside of our study. (All use multiple funding sources and revenue streams to support their transit agencies, though we focus on one example from each city.)
Paris, France
In Paris, 48% of the city’s transit budget is covered by the Versement Mobilité (VM), a tax on employers introduced in the 1970s. The tax — which applies to companies near the transit network with more than 11 employees, and ranges from 1.6%-2.4% of their gross wages — has been instrumental in supporting the Paris Metro and other transit throughout France.
The Versement Mobilité spreads the financial burden beyond just public transit users. By charging employers, even if their employees do not use public transport, it ensures that everybody contributes to the common good; not only expanding transit access but also improving air quality and reducing traffic congestion. Raising revenue through the Versement Mobilité also subsidizes fares, so rider costs can remain relatively low at €1.75 per trip ($1.86) or around €86 ($91) for a monthly travel pass valid in all zones.
Jakarta, Indonesia
In Jakarta, public transit provides 10% of all motorized trips, connecting 2.56 million people daily to work, school and other necessities. Many riders are low-income earners who can afford public transit thanks to its set fares of just 3,500 rupiah (US$0.35) per trip. On their own, these fares are not enough to cover the transit agency’s operational costs. But the local government has provided ample financial support to help grow the city’s public transit network while keeping prices affordable.
From 2004 to 2021, Jakarta’s government continuously increased its subsidy support for transit. This allowed the city to expand its Transjakarta bus network beyond the urban core to reach 82% of residents while maintaining the same set fare. The expansion has made it easier for residents on the outskirts of the city to access jobs and other opportunities while helping reduce congestion and improving air quality — two critical objectives in one of the world’s most polluted cities.
Bogotá, Colombia
Around 12%-15% of urban trips in Bogota are made by private cars, which have historically benefited from free on-street parking. But in 2021, Bogotá reclaimed the curb by implementing a new charge for on-street parking in key affluent areas. Revenues generated by car owners are set to be reinvested into TransMilenio’s public transit system, supporting bus electrification, infrastructure maintenance and projects to improve the quality of service, such as more frequent bus services.
Alongside generating new revenue, this approach aims to encourage the use of public transit over private cars, benefit the local economy by circulating more people, and better manage curb space for deliveries.
Bengaluru, India
Bengaluru is home to over 10.5 million residents and faces severe traffic congestion. While the city is in the process of expanding its metro rail to growing areas, this cost is high. Bengaluru Metro authorities are therefore considering a combination of land value capture; selling carbon credits (based on avoided emissions resulting from expanded public transportation); and selling permits for buildings within 500 meters of the track to build higher than typical city restrictions would allow. These instruments would help fund the expanded metro system and continued operational costs. The proposals could collectively raise up to $300 million USD if enacted.
Building Reliable, Resilient Transit for a Sustainable Future
Public transit sits squarely at the intersection of climate and development solutions. But the COVID-19 pandemic underscored the fragility of many transit systems, particularly in low- and middle-income countries. Now more than ever, cities need a transit funding approach that can withstand future disruptions and adapt to changing realities.
By exploring diverse funding that includes a mix of direct, indirect and general sources for public transit, cities can create a more robust and resilient financial foundation. Those that weathered the pandemic — and those exploring innovative funding models today — offer lessons for how to safeguard and grow this essential service, benefiting riders, communities and the climate alike.
Note: The funding tools discussed here offer insight into possible sources that cities and transit agencies can tap into; this is not an exhaustive list. Transit agencies will need to engage with local and regional governments to identify funding opportunities, as these will vary with political and geographic characteristics. To learn more, see WRI’s new working paper: A Fare Look: Funding Urban Public Transport Operations.