Transit Agencies Turn to States to Avert Fiscal Cliff

Bus, subway and commuter rail agencies are increasingly looking to state and local governments to get them past a looming “fiscal cliff” caused by stubbornly low ridership numbers and the end of federal aid that stabilized their budgets during the pandemic.

Big legacy systems that are heavily dependent on fare revenue—like those in Boston, Chicago, New York, Philadelphia, San Francisco and Washington, D.C.—could face particularly dire budget situations in the next year or two. Commuters are using mass transit less than they did before Covid-19 hit in part because they are spending less time in the office.

“The revenue model where agencies were basically raising their own funds from their ridership is going to have to be rethought,” said Stephanie Lotshaw, the acting executive director of Transit Center, an advocacy group based in New York. “Transit agencies across the country are stepping up and saying, ‘Look, this is not a viable model anymore—not that it actually was to begin with.’ We need a different way of funding this essential public service.”

The shift means the debate about transit funding will move to more familiar terrain for transit advocates. The federal government helps large transit agencies build and maintain their physical assets, but usually does not offer these agencies operational support. That changed in 2020 when plummeting ridership threatened to force agencies to slash services, something that would have disproportionately hurt service workers and other “essential” employees during the pandemic.

Congress approved more than $55 billion for transit agencies, during both the Trump and Biden administrations, to stave off service cuts. It was supposed to keep them afloat until ridership returned to pre-pandemic levels. But riders haven’t returned as hoped, and Congress and the Biden administration have turned their attention to different priorities. Many advocates say there is little appetite for supporting transit agencies among the new Republican majority in the U.S. House.

“We’re all past the time where we can just hope that riders come back en masse,” said Andrew Ward, an analyst with Fitch Ratings, at an event hosted by the Federal Reserve in Chicago. “The action is shifted to the state and local level. After all that federal largesse, I just don’t see the federal budget constraints and political environment suggesting that locals are going to get a lot of help.”

So agencies and transit advocates are turning their attention to state capitals and city halls, trying to make their case at a time when many states, in particular, are still flush with cash. For example:

• California transit agencies are asking for $6 billion in new state funding over the next five years to subsidize their operations, although Gov. Gavin Newsom called for budget cuts to transit earlier this year. “Instead of relying mostly on fares, we must invert our funding formula to rely more heavily on subsidies and a sustainable source of revenue that recognizes ridership recovery will take years,” Bob Powers, the general manager of Bay Area Rapid Transit (BART), told the San Francisco Chronicle.
• The Regional Transit Authority, which oversees transit in the Chicago area, is warning of a $730 million yearly shortfall (about 20% of the area’s transit budget), without some intervention from state lawmakers in Springfield. “It is impossible for RTA and [local agencies] to solve the funding crisis by raising fares alone, as fare increases of the magnitude needed to fill the budget gap—nearly doubling from what they are today—would drive down ridership and negate additional revenue brought in by higher fares,” it warned.
• In New York, Gov. Kathy Hochul suggested several new sources of revenue for the Metropolitan Transportation Authority that serves the New York City region. The money would come from an increase in a payroll tax, gambling revenues and added contributions from the city.

Fare hikes and service cuts, of course, are also in the cards. The transit agency serving most of the Washington, D.C., area, for example, just approved its first fare hike in five years. BART, where fares and other local revenues account for more than 70% of its funding, has warned that it would have to eliminate weekend service, reduce the time between trains to every 30 or 60 minutes, and initiate major layoffs if it doesn’t find new sources of funding.

Garett Shrode, a policy analyst at the Eno Center for Transportation, a Washington think tank, said cuts alone are unlikely to stave off the crisis many of the agencies are facing.

“Cutting service won’t really help solve this fiscal cliff,” he said. “You might shrink that deficit a little bit. But most of the operating costs—for rail service especially, which is the most expensive—are fixed, because no matter how many trains are running, you’re still going to have to pay to maintain the stations, clean the stations, pay the station agents and things like that. Cutting service is not proportional to cutting costs.”

The looming budget troubles come at a fraught moment for transit agencies, because they are also vying for billions of dollars in federal money from the 2021 infrastructure law. But the federal infrastructure money is mostly dedicated to building and upgrading physical assets, not keeping the buses and trains running.

“It’s really awkward to walk into our state and be like, ‘We’re desperate! Also, sign the support letter for us to get $5 billion from the feds for X, Y and Z,’” said Georgia Gann Dohrmann, an assistant director for legislation and public affairs with the Metropolitan Transportation Commission, which coordinates transportation planning in the San Francisco Bay Area.

“But investing in [maintenance and upgrades], which is what most of our capital dollars go to, is fundamental. We cannot rob Peter to pay Paul, because we are going to lose the reliability and functional functionality of our system if we don't keep those capital dollars going to state-of-good repair,” she said.

Shrode said it can be a tougher sell for transit officials to convince state and local officials to underwrite their operations.

“Politicians love to be able to go around and cut ribbons on new projects, but it’s not as politically advantageous for them to say, ‘Oh, we gave 100 million more dollars to agencies so that they can operate the service that they should have already been operating,’” he said.

One way to make financial help more palatable is if it comes with improvements for riders, like getting easy transfers between different agencies, providing better real-time information about the location of buses and trains, or routes that required fewer transfers, several advocates said.

Joshua Schank, a managing principal at InfraStrategies, a transportation consulting firm, said transit agencies could use the crisis to help clarify their mission. They could operate like a business, maximizing fare revenues but leaving questions of equity to other government agencies. They could operate like a public service, like a library, offering benefits for everyone regardless of their ability to pay. Or they could tie their mission to their funding source, like, for example, using cap-and-trade money in California to try to reduce people’s reliance on automobiles.

“If we really boil it down, how transit is funded is by whatever you can find that people will accept,” he said. “The problem with that approach is you get a system that is meant to accomplish way too many things and is unlikely to accomplish any of them.”

Ward, the Fitch Ratings analyst, warned that transit agencies could make several mistakes in trying to avert a funding crisis: They could assume the ridership dip will be short-lived. They could wait until a recession hits to make their case, at which point states will face their own revenue problems. They could become overly reliant on a revenue source, such as the gas tax, that is unreliable in the long term. And they could think they might fix the transit system without addressing bigger problems with urban areas.

But he also warned agencies and advocates not to wait too long to make their case, even if they have a year or two before the federal money starts to run out. “The clock is definitely ticking,” Ward said. “2025 sounds like tomorrow to me.”