Executive summary
Federal transportation investment in the United States suffers from both a quantity problem and a quality problem.
The quantity problem is much-discussed, and rightfully so: the United States spends less than peer countries, even as U.S. infrastructure costs are far higher. Passenger interest in new mass transit and rail infrastructure in particular highlights the extent of underinvestment and unmet demand: Caltrain electrification and service improvements increased ridership by 57 percent in Calendar Year 2025, and Amtrak routes such as the Borealis routinely exceed ridership projections.
The quality problem is less discussed, even as its consequences are increasingly salient. Federal transportation investment in the United States suffers from a portfolio problem: the mix of investments funded does not systematically favor projects that generate the greatest durable value. The discretionary-grant-heavy model that constitutes the marginal dollar (i.e. the last and decisive increment of dollars that ensure the project proceeds through development) for mass transit and rail capital expenditure imposes real costs on projects while misallocating investment. A growing body of evidence shows grant-based funding driving up costs and timelines for transit agencies and others applying for funding.
Consider two classes of investment: rail electrification and heavy rail automation. Globally, these are increasingly table stakes for high-performing rail and transit systems. Both improve rail service while cutting costs. Electrification is becoming the norm on mainline rail; for example, India is approaching a completely electrified network. Globally, automation on frequent subway lines is increasingly the gold standard. This spans retrofits to aging systems (as in Paris), and brand new construction in such varied cities as Copenhagen, Montreal, and soon even Honolulu in the United States.
Yet there is no automated metro system in the continental United States, and rail electrification is confined to the Northeast Corridor and Caltrain, plus a few scattered commuter rail lines. This is particularly striking not just because these investments add capacity and improve service while using existing infrastructure and because they save money in the long run. As fiscal constraints become a significant and increasing reality for transit agencies, their capital funding structure should allocate funds to those investments which international experience shows add capacity and riders in the most cost-effective manner.
This can be done by increasing the role of loans in transit funding, which come with specific structural advantages. Loan programs–because loans must be repaid–embed accountability. They incentivize the incorporation of cost-benefit analysis in underwriting, rather than the more subjective analyses inculcated by grant applications. Loans also enable far greater investment per dollar of subsidy than a grant; appropriations must cover only the subsidy cost of the loan, whereas grants must be paid for in full by appropriations. The volume allowed by loans also supports economies of scale and cost savings.
Globally, cost savings occur when transportation funding is steady and programmatic. This allows for not just the accretion of in-house capacity, but the development of upstream knowledge and supply chains. Establishing programmatic finance programs, and getting money out the door, can help address the U.S.’s persistent transit cost issues. This paper argues that two federal credit programs–Railorad Rehabilitation and Improvement Financing (RRIF) and the Transportation Infrastructure Finance and Innovation Act (TIFIA)–should be repurposed for rail electrification (for RRIF) and fixed-guideway transit automation (for TIFIA). Each of these programs is a good fit because there is a clear bankability logic: they improve service (and thus ridership and fare revenue) while reducing operational costs.
To address these issues, this paper recommends the following: (1) Build technical capacity at the Build America Bureau; (2) make applying for RRIF and TIFIA easy; (3) exempt RRIF and TIFIA from triggering NEPA requirements; (4) eliminate the credit risk premium for electrification loans; (5) provide half-Treasury rates for electrification and automation projects.
The rest of this paper discusses in detail the issues of the funding status quo, and in particular the costs imposed by a system in which discretionary and competitive grant programs are the marginal dollar for many transit and rail projects, the nature and promise of investment in rail electrification and automation in the United States, the promise of enhanced RRIF and TIFIA programs for realizing these high-value, often bankable investments along with current constraints to more efficacious loan programs, and concrete steps for reform.