Funding Sources
In most bus operations, fare revenueaccounts for almost all bus operating income. A majority of authorities receive additional public funding for operating shortfalls and infrastructure requirements.

Accounting for revenues
The authority should distinguish between different types of revenue:

• Revenue attributable to services (e.g., fares or charter revenue)
• Indirect revenue (e.g., advertising income)
• Revenue that is totally unrelated to the operation (e.g., dividends from subsidiary companies, and proceeds from the disposal of assets)

Analysis of these revenue sources enables the authority to identify possible additional income generating activities from existing system assets (buses, stations, etc.) or improvements to current revenue collection methods.

Projecting future levels of the funding sources
Many authorities and bus operators project future operating and capital sources as part of their annual budget approval process. The financial model should also project future revenues for each revenue source on an annual basis.

In subsequent years, the authority can compare the actual to forecasted revenue levels to ascertain whether the bus system is making progress toward its financial goals. It can also use this comparison to improve revenue collection procedures through a better understanding of the reasons underlying the differences between forecast and actual revenues.

The authority’s revenue projection and auditing function becomes increasingly important as the bus system shifts to greater private participation and the authority’s role changes from supervisor of the government-owned bus system to regulator of a privately operated system.

Funding sources in private contracts
The funding sources in gross cost route or area contracts are the same as the funding sources for a public monopoly. In these contracts, the authority pays compensation to the private operator from farebox and other revenues. Competitive bidding for the gross-cost route and area contracts determines the compensation amount.

In net-cost route and area contracts, the private contractors collect and retain farebox and other revenues. The private contractors bid on the basis of the subsidy required to supplement the fare revenue and take the risk that they will not have sufficient total revenue to cover their costs and provide a return on any capital investments, such as the purchase of buses and infrastructure expenditures.

The authority can use the financial model to assist in the preparation of tender documents, including the appropriate financial award criteria, to select the private contractors.

See also
Farebox revenue
Other revenue