Fairness or Favoritism? Geographic Redistribution and Fiscal Equalization Resulting from Transportation Funding Formulas

Federal and state governments use funding formulas to apportion, or geographically distribute, billions of dollars of expenditures for transportation programs every year. Past studies suggest that successful targeting of such funding results in fairness towards all areas while lack of targeting results in favoritism towards some areas over others.By examining the two issues of geographic redistribution and fiscal equalization, this study assesses the fairness of three examples of transportation funding formulas. Descriptive and inferential statistical methods (including location quotients, indices of dissimilarity, and simple regressions) are used to measure the amount of funding that is geographically redistributed, and to measure how consistent the distributions of funds are with the principle of fiscal equalization.Analyses of the patterns of geographic redistribution show that federal transportation funds are redistributed from the most populous states to the least populous states, that California state highway funds are redistributed from the most densely populated counties to the least densely populated counties, and that California transit funds are not geographic redistributed.Numerous needs targeting studies have measured the need for funding in terms of fiscal capacity, or the ability of governments to raise revenues, and asked whether or not intergovernmental aid is apportioned in a manner which equalizes fiscal capacities. While the overall pattern of intergovernmental aid has been scrutinized, the distributive impact of transportation grants in particular has not been conclusively determined. This study finds that California highway funding apportionments result in fiscal equalization, while federal transportation funding and California transit apportionments do not act to equalize fiscal capacities.Based upon these empirical findings, the study concludes that the federal funding apportionments results in favoritism, because tax revenues are being redistributed from the less wealthy states to the more wealthy states. In contrast, the California state highway apportionments result in fairness, since tax revenues are being redistributed in a fiscally equalizing fashion from the more wealth counties to the less wealthy counties