Transit operating subsidy allocation procedures based on such factors as deficit or population have been under attack ever since operating subsidy became widespread in the 1970s. These procedures do not directly provide any incentive for innovation, cost cutting strategies, and efficient operation. Recognizing the problems associated with a 100 percent population-based formula, the State of Indiana, since 1986, has used transit performance as a part of its subsidy allocation procedure. This paper examines the impact of this procedure on transit system self-reliance, efficiency, and effectiveness by analyzing the relevant data between the periods before and after the procedure was instituted. The results show that the procedure has positively affected transit system performance, particularly for small- and medium-sized properties. The largest positive change has been realized in transit system effectiveness and self-reliance, while perceptible change was observed in transit system efficiency.