Friday, July 31, 2009

Cash for clunkers

The Cash for Clunker has become one of the most popular program in the Stimulus package. The program first ran out of money and the Congress scrambled to provide additional funds to extend the program.

The expansion of the program has received criticisms from the transit advocacy community since the program does not directly help transit agencies struggling for funds. There are also questions about the effectiveness on improving fuel efficiency.

The Cash for Clunker however, does provide some benefits. Since the program trades in car one for one, the old ones aren't going to be at a used-dealer lot or on the street. Also because the program stimulates car sales, the increased car sales will provide additional sales tax revenue. Since Sacramento has effectively eliminated direct state support for transit operations, sales taxes (1/4% Transit Development Act and an additional 1/2% at many counties) are the primary funding source for transit operators throughout the state. The economic crisis beginning last year has resulted in double digit percent reduction in sales tax revenue for most agencies, and car dealers are major contributors for sale taxes.

While it is unfortunate that transit funding is somewhat dependent on auto sales, and which it is not sustainable in the long run, nonetheless it is the process we have today until other fundamental changes take place in Sacramento.

Even with billions in federal subsidy, the increased tax revenue through this program may be small from a local perspective and many agencies will still have to make massive cuts. Obviously, more economic stimulus is needed by providing short term operating assistance to transit agencies, which will help keep many of the lifeline transit services needed the most by the low-income workers.


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