Note: Some sections of this post initially appeared on Transportation for America’s blog, and are reprinted here with permission.
According to the American Public Transportation Association, in the five years leading up to the pandemic, ridership was slowly declining across a range of transit agencies. Even with relatively stable ridership, transit agencies were already struggling to make ends meet.
When the Covid-19 pandemic caused national lockdowns, ridership plummeted, causing revenues from fare collection to drop to almost zero. Without fare revenues, transit agencies no longer had the funding to cover their operating costs. And the federal government stepped in, rolling out three separate emergency relief packages, and incorporating increased support for transit agencies in the Infrastructure Investment and Jobs Act (IIJA).
However, this funding alone was not enough. Ridership still hasn’t returned to pre-pandemic levels, and workforce shortages have only applied additional stress.
These forces combined have resulted in the transit fiscal cliff: the operating budget deficit expected at transit agencies across the country once their federal relief runs out. And for many transit agencies, the cliff is coming very soon—in some cases, as early as next year.
How bad is it?
Transit agencies are facing a financial triple whammy – one-time payments from COVID-relief funding are drying up, fare collection has stabilized at well below pre-pandemic levels, and expenses are growing because of inflation, tight labor markets, and supply chain disruptions. As a result, most transit agencies are anticipating a steep, sudden operating budget deficit that will deepen annually, absent other forms of funding.
The National Campaign for Transit Justice (NCTJ) and T4America conducted a sample survey to paint a picture of the fiscal health of transit agencies around the United States as they approach the two-year anniversary of the last emergency relief package. They heard from 27 transit agencies. You can read what they found here.
The pandemic and subsequent work-from-home trends have profoundly impacted farebox recovery ratio, which is the share of a transit agency’s operating expenses covered by its fare collection. Eno Center for Transportation inferred the transit agencies and modes most at risk for budget deficit by evaluating the pre-pandemic farebox recovery ratio at the 50 largest U.S. transit agencies. See its analysis here.
Below, TransitCenter dug into the latest fiscal cliff projections of eight large transit operators. We report when they’ll reach the cliff, how big it could be, and which interventions are being considered to avoid going over.
Disclaimer: TransitCenter is not endorsing any of the funding mechanisms described below or in the section following. Rather, we are describing the various mechanisms that have been proposed in order to create more public awareness about the options available.
In the likeliest scenario, the MBTA will face a budget deficit of $404 million starting in FY2026, which will grow to $473 million in FY2028 — about 20% of its operating budget — due to rising costs and planned expansions including a bus network redesign.
The short-term outlook has improved since this time last year, when the MBTA projected that its money would run out in a matter of months. Now, it says it can fill budget holes for FY2024 and FY2025. The reserves come from higher-than-projected sales tax revenue, debt service management, and lower-than-anticipated expenses for wages and benefits. The MBTA’s persistent workforce vacancies have damaged its ability to operate high levels of service reliably, but as a silver lining allow the agency to put off drastic service cuts in face of budget gaps.
Advocates in Massachusetts successfully pushed for a statewide “millionaire tax” in 2022 that will generate $1.3 billion annually and must be spent on public education, roads, bridges, or public transportation. But exactly where the funds go is up to state lawmakers. In her first budget proposal, Governor Healey proposed sending just under $200 million of the tax revenues to MBTA, mostly to cover capital costs.
The Regional Transportation Authority (RTA) oversees the budget for Pace Bus, Metra Rail, and the Chicago Transit Authority, Chicagoland’s three main transit service providers. RTA estimates that it will spend down federal aid by 2025, and starting in 2026 it will face a $730 million annual budget gap – about 20% of operating revenue – across the three service providers.
State law officially requires that half of RTA’s revenue come from the farebox but since 2020, RTA has been exempt from the requirement. Ticket sales now recoup only about 20% of revenue, and RTA is petitioning legislators in Springfield to permanently repeal the law.
In its recent strategic plan, RTA calls attention to the threat of the fiscal cliff and the necessity to untie transit’s funding from its ridership. The plan rejects raising fares and cutting service, and instead identifies 11 potential revenue streams at the regional and state level, noting that several sources – which include sales and fuel taxes, congestion pricing, and tolls — will be necessary to sustain the system into the future.
New York City
The MTA will use federal dollars to cover deficits in 2023 and 2024, but starting in 2025 the agency forecasts an annual gap of $2.5 to $3 billion, about 15% of its operating costs.
The New York State Comptroller reported that fares would need to increase by about 20% – to $3.50 per swipe – to close that gap. The report identified other potential savings, including over $100 million from realigning service to match demand, but concluded that the MTA can’t feasibly plug the hole on its own.
In her 2024 executive plan, Governor Hochul proposed several funding streams to support the agency, recognizing that “the MTA is the lifeblood of New York” and its failure would be disastrous for the state. A payroll tax increase on employers in the MTA service area is the largest proposed revenue source, raising about $800 million per year. Hochul’s plan also includes a one-time investment from the state, $500 million annual contributions from the city, revenue raised from downstate casinos, and a 5.5% fare hike.
Missing from the Governor’s plan is congestion pricing in Manhattan, which could raise $1 billion annually for the MTA. Since state lawmakers approved it in 2019, congestion pricing has struggled to secure a green light from the feds, and it still has a ways to go before it’s implemented.
After its federal relief money runs out in FY2024, SEPTA can turn to a state-mandated “rainy day fund” to cover costs. However, SEPTA forecasts that its expenses will overtake its revenues in FY2026, with a deficit of $63 million. The full force of the crisis will hit in FY2027 when SEPTA’s budget gap will grow to $269 million – about 15% of total operating expenses.
Simultaneously, the agency is planning major capital and operational projects: modernizing its trolley network, boosting frequency on its regional rail, and redesigning its bus network. These proposals could have big, positive impacts on taking transit in the Philadelphia region.
The statewide Transit for All PA coalition supports changing statute to allow Motor License Funds to support transit, charging user fees on ridesharing services, and taxes on car rentals and new car purchases, alongside other progressive revenue solutions. Currently, Pennsylvania does not allow local taxing authorities to fund transportation, so the coalition has determined that state enabling legislation is also needed.
LA Metro expects to be short $400 million in FY2025, ballooning to a $1 billion gap by FY2026. Planned projects, including opening and operating new train lines and electrifying its bus fleet, will add considerable expense to LA Metro’s bottom line over this time period. The estimated shortfalls are 20-45% of FY2023’s operations expenditures of $2.2 billion.
Compared to other big-city transit agencies, passenger revenue from the farebox is a relatively small share of Metro’s operating budget – about 5% in 2023. On the other hand, LA Metro receives a lot of revenue from a local sales tax, whose yields are made more volatile by inflation and possible recession.
Advocates in LA are pushing for the federal government to fund transit operations, for California’s state budget to fund passes for students – making transit accessible to a new generation of riders, and for LA local government to explore road pricing as a new transit funding mechanism.
SFMTA projects that its operating expenses will exceed revenues by $130 million in FY2025, when federal aid runs out. The agency’s budget deficit will grow, to a $230 million gap in FY2028, equal to 15% of its operating costs.
SFMTA provides transit service and acts as the department of transportation for the City of San Francisco. This gives the agency access to funding streams that other transit providers don’t have, like parking fees and fines. However, remote work remains very high in San Francisco, and this double punches SFMTA’s bottom line: fare revenues are down because fewer people commute by transit, and parking revenues are down because fewer people drive to work downtown and park. The agency proposed extending paid parking into nights and weekends, which would bring in an additional $16 million in meter fees.
Lower ridership and fare collection has been detrimental to SFMTA’s neighbor BART, the main train service provider in the Bay Area. In 2019, BART recovered over 70% of operating costs from fare collection. Its recovery ratio was thought of as a “gold standard,” where transit service nearly paid for itself. But that sought-after business model is highly reliant on riders and stable ridership; it’s been a liability since the pandemic began.
BART will go over the fiscal cliff in 2025, with a deficit of $143 million. More alarming, BART expects to run up a $350 million deficit for each year starting in 2026 – about 25% of its operating costs. BART is considering drastic measures if it doesn’t secure additional revenue: 30-60 minute train headways, closing down stations and lines, eliminating weekend service, and implementing mass layoffs.
The regional Metropolitan Transportation Commission is planning a regional ballot measure to raise more funding for public transit in 2026 – following a similar measure to support affordable housing in 2024.
California Governor Newsom’s FY2023-24 budget proposed cutting money from transit’s capital program and gave no operational funding to transit – essentially, not intervening to save the state’s transit agencies from fiscal cliffs. Advocates are pushing hard for the opposite, demanding state funding that bridges transit agencies’ operational budget gaps or risk statewide consequences. They point out that ten transit agencies – including BART, SFMTA and LA Metro – serve 80% of the state’s transit riders. Advocates argue that California must sustain and grow its transit ridership in order to meet its climate goals, which it can’t do if its largest providers fail.
WMATA has improved its budgetary outlook slightly since last year, by delaying the start of its impending fiscal cliff. WMATA proposes to close a projected operating budget gap of $185 million in FY2024, through a combination of revenue increases, expense reductions, and federal funding assistance.
Specifically, WMATA plans to recoup more fares by redesigning its bus network and adding more train service to grow ridership, cracking down on fare evasion, and simplifying its notoriously complex fare structure. Additionally, the agency will reduce expenses by leaving open some job vacancies, and it will put $139 million of IIJA funding towards preventative maintenance.
But once WMATA reaches the budget deficit, the drop is steep: it projects to have a gap of up to $738 million in FY2025, which increases to $924 million by FY2029. The gap equals about 30-40% of its current operating expenses.
To bridge WMATA’s immediate budget gap, a coalition of DC advocates are calling for Congressional funding of operations, and raising the cap on funding contributions from the District, Maryland, and Virginia. Longer-term, they support regional road pricing and raising more revenue from WMATA’s real estate holdings.
Potential funding solutions for transit agencies writ large:
Robust public transit service is essential for thriving cities and regions where everyone can reach opportunities. But the pandemic has underscored that depending on passengers to keep public transit systems afloat leads to unstable and regressive outcomes. Local, state, and federal governments must contribute substantial, dependable revenue streams for operating transit service in order to weather impending budget crises and to fully realize transit’s potential.
In recent decades, the federal government has only invested in transit capital projects, and it contributes about 25 cents to transit infrastructure for every dollar put towards highways. But it could dramatically improve transit service in cities across the country if it routinely funded transit operations.
- Here’s our elevator pitch for how federal funding for public transit operations could transform our cities and the lives of millions.
- Our Green New Deal for City and Suburban Transportation report lays out a federal transportation policy platform that ramps up federal funding to public transit, particularly operating service, to meet climate goals.
- There is recent precedent and bi-partisan support for federal funding of transit operations: Congress passed three pieces of legislation – the CARES Act, the HEROES Act, and the American Rescue Plan – in response to Covid-19 that provided transit agencies with emergency funding for operations.
- The White House has proposed temporarily allowing transit agencies to spend federally-apportioned capital dollars on operating expenses.
- In 2021, Congressman Hank Johnson proposed a bill that would direct the federal government to provide operating support to transit agencies of all sizes.
State governments shape transit within their borders — and need to step up their commitment to funding it. Federal transportation money filters through state departments of transportation, where the DOT splits dollars 80/20 on roads vs. transit. State houses control many potential funding mechanisms for public transit, such as tax policy that contributes revenues to transit – like in Massachusetts. And state leaders can set policies and proposals that shift transit’s fate on a dime.
- Transportation for America analyzed how much each state spends on transit per capita and which states restrict how gas taxes are used. Spoiler alert – there’s a lot of room for improvement.
- The bulk of Federal Highway Administration funds can be spent on transit, biking, and walking capital projects instead of roads. There are specific rules for “flexing” highway money attached to each FHWA program.
- The US Department of Transportation has an FAQ and a flowchart outlining the process to transfer highway funds to non-highway projects.
- States – via their departments of transportation – and metropolitan planning organizations control FHWA funding and decide if and when to spend eligible money on non-highway projects. There are a few places that use substantial amounts of highway money to support transit projects, though most states and MPOs rarely take advantage of this flexibility.
As we’ve written, all transportation is ultimately local. Public transit can have an enormous impact on a variety of local priorities, including economic development, racial and social equity, and the environment. That said, local governments must play a role in securing and maintaining funding flow to support transit agencies.
- Victory Transport Policy Institute assessed the pros and cons of local funding sources for public transit. It also concluded that “a variety of funding options should be used… to ensure stability” of public transit financing.
- Many funding mechanisms for public transit can be approved through voter referendum. The Center for Transit Excellence compiles resources “for communities exploring the option of ballot-box financing for public transit,” including case studies, research, template language for ballot initiatives, and regular events.