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This article supports the notion of providing efficiency incentives within the process of allocating transit-operating deficits and identifies the particulars of such a system currently existing in Washington, D.C. Four traditional approaches to providing transit subsidies are noted. The most common procedure authorizes a uniform rate of dedicated taxation in the area servied by the transit agency, the latter receiving the proceeds of the dedicated tax. The second and less common procedure uses operating and/or socioeconomic factors. A third type is employed when a multijurisdictional operator provides services outside the area of its charter. Fourth, several cases exit where the deficit is paid out of general funds from a city or county budget. The Washington Area Metropolitan Transit Authority (WMATA) case study is discussed. A clear understanding of the necessity for combining various measures in developing an aggregate allocation formula emerged from the study. To induce higher levels of economic efficiency, deficit allocation should be based on separate cost and revenue allocations. A general series of steps to follow in undertaking separate allocations for a bus operation is presented. It is concluded that cities with large and increasing deficits, multijurisdictional transit service, substantial bus operations, and interjurisdictional disputes about service levels are prime candidates for a deficit allocation formula with built-in economic incentives.
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