For decades, federal transit funding has focused all its efforts on capital projects. Like the Interestate Highway System, the feds will build it, or fund its construction, but will not pay for the operations and maintenance. The result is inevitable: transit agencies (like highway agencies) buy too much to provide services they can't afford to maintain.
The Washington Post has a very good article detailing the dilemmas federal funding creates for transit agencies. Many transit agencies buy buses and other equipment they can't afford to use, as they did with the Stimulus dollars. Other transit agencies want to avoid federal funding for operations because this will become another avenue for unions to get more money with no improvement in service and limit their abiltiy to bring their systems up to a state of good repair.
From the Post story:
"This is the disjointed landscape confronting public transit today. The $787 billion stimulus package included $8 billion for mass transit, but in keeping with longstanding rules, most of the money has to be used for capital investment. As a result, transit agencies are laying off workers, raising fares and slashing service to close yawning budget gaps.
To address this imbalance, a bipartisan group is pushing legislation that would give transit systems more freedom to use federal funding -- $10 billion a year on top of the stimulus money -- as they see fit. But the legislation is facing unlikely resistance: Some of the biggest transit agencies, such as New York's MTA and Washington's Metro, are opposed, as is the main transit lobbying group, setting up an unusual clash in the mass transit world.
The big transit systems argue that letting them use federal funds for their basic operations would reduce their leverage -- unions would invoke the funds to seek bigger raises, transit advocates would argue against service cuts, and local and state lawmakers might limit their share of transit funding. Better, these systems say, to be forced to keep using federal money to care for aging equipment and infrastructure."
Of course, transit advocates are arguing for more federal money across the board for operations. But should this really be an argument for moving transit funding back to the cities and regions that it benefits the most? Urban passenger transit should be the province of local communities and their regions; they generall do not serve a national market, nor are they inherently federal in nature. All the benefits are local, not national (except perhaps along a select number of freight corridors).