The Urban Mass Transportation Act of 1964 (PL 88-365, codified in Chapter 53 of Title 49 of the U.S. Code) provided $375 million for large-scale urban public or private rail projects in the form of matching funds to cities and states. The Urban Mass Transit Administration (now the Federal Transit Administration) was created.

The Urban Mass Transportation Act of 1970 (PL 91-453) authorized an additional $12 billion of the same type of matching funds.

The laws, while the first major federal investments in urban transit have been criticized both for going too far (is transit a federal or local responsibility?) and not going far enough (the 50:50 match was much less than the 80:20 match provided for new highway construction). It is also thought that these capital funds distorted the priorities of transit agencies to building new capital projects (rails) rather than more cost effective projects that required less capital (but perhaps more operating) outlay (buses). Thus since the 1970s the United States has seen a large number of new rail starts while bus service continues to deteriorate.

Earlier legislative attempts at establishing a federal transit funding program were opposed by labor unions because they did not protect unionized workers, and thus failed to gain sufficient support in Congress. The unions feared that public entities would take over failing privately held transportation companies and cease to recognize the union (the National Labor Relations Act does not apply to public employers). The version that finally did pass included provisions that require public entities receiving federal transit money to enter into protective agreements (often referred to as "Section 13(c) agreements") that would be approved by the Department of Labor. The Secretary of Labor must certify that the transit authority has made a "fair and equitable" labor protective arrangement before the authority can receive assistance.

Although the Federal Government is prohibited from dictating labor standards of public employees directly (see, e.g., National League of Cities v. Usury), it can use the "power of the purse" and refuse to grant funds to states who don't enter into these protective arrangements.

See also: National Mass Transportation Assistance Act of 1974