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For Mass Transit Agencies, a Fiscal Cliff Looms (Part II)

Continuing our coverage of how large city transit systems are faring fiscally since the pandemic, we take a look at Philadelphia, New York City and Chicago.

An RTA transit train moves through downtown Chicago.
Editor's note: This is a second in a series on big city transit and the financial problems they face. Part one looks at Washington, D.C.; Boston; and Los Angeles.

America’s largest transit agencies are in crisis. The trend towards remote work has gutted ridership and, in turn, the fares that have long provided a large portion of their operations budget. Now with white collar commuters not return to the office full time, if at all, the biggest U.S. cities are facing a fiscal cliff.

For some systems — like Washington D.C., Boston, and Los Angeles — that reckoning comes next year. For other transit heavy regions, the crisis will unfold more slowly. In this installment, TransitCenter analyzed the numbers for New York, Philadelphia, and Chicago and talked with Governing about why the fiscal cliffs in these cases have been delayed. Overall ridership statistics come from the website, which draws on data from the National Transit Database.

It is worth noting that the vast majority of American transit systems do not rely on fares for much of their budget. Their ridership is overwhelmingly comprised of lower-income passengers, who have not had the luxury of remote work during the pandemic. As a result, ridership in cities like Richmond and Raleigh have snapped back and experiments with fare free transit have proven sticky. For larger systems, however, the challenge of remote work is proving existential — especially in light of America’ increasingly polarized transportation policy.

Philadelphia: The Southeastern Pennsylvania Transportation Authority (SEPTA)

The Philadelphia area’s mass transit system has had a tough pandemic. As with most mass transit agencies, the only riders who remained were essential workers and those with nowhere else to go. But as street homelessness increased and the opioid crisis raged further out of control, social conditions on SEPTA’s heavy rail lines deteriorated.

The agency had to make large expenditures on social services and cleaning, as ridership was only at 49 percent of pre-pandemic ridership in April and 52 percent in May. Bus service bounced back strongest, at almost 60 percent, but tellingly the city’s heavy rail ridership is only at 46 percent — a mere two points higher than the regional rail service. The relatively poor ridership recovery from COVID-19 is in contrast to the L.A. Metro, whose ridership is demographically more similar to SEPTA’s than Washington D.C.’s or Boston’s transit systems.

But SEPTA has time to figure things out because of an obscure Pennsylvania state law that requires transit agencies to maintain a rainy day fund. As a result, federal supports will take SEPTA through fiscal year 2024 and then the agency can turn to the “service stabilization” fund through the summer of 2026. After that, SEPTA predicts a shortfall of $269 million.

“We have a small window these next couple years to focus on building ridership and finding efficiencies in our operations so that SEPTA is sustainable once the funding runs out,” says Andrew Busch, press representative for SEPTA. “It’s too early to say if we will need to take steps such as cutting service to balance the operating budget [after the rainy day fund runs out], but we will be considering all options.”

New York City: Metropolitan Transportation Authority (MTA)

New York City is better served by public transit than any other city in the country. Yet even here, where pre-pandemic fewer than 50 percent of households owned cars, ridership still isn’t back to normal. As of April, only 66 percent of trips were taken compared to the same month in 2019.

But the agency is not facing a fiscal cliff next summer, and even when finances start to get shakier in 2025 the MTA will be cushioned by its expansive borrowing capacity.

“The MTA is a little different from some other agencies in that it has a lot of capacity to borrow,” says Steven Higashide, director of research for TransitCenter. “But if you're borrowing to maintain the operating budget, that’s really not sustainable in the long run.”

One possible source of future revenue for operations is the anticipated revenues from the nation’s first congestion pricing program. (Currently the funds are proposed for capital projects, but that could change as the situation gets desperate.) The policy would charge drivers to enter the busiest and most crowded parts of Manhattan, from Battery Park in the south to the bottom of Central Park at 60th Street. Similar programs are in place in cities like Singapore, London and Milan and have been shown to reduce the ills of car traffic and raise funds for mass transit.

The implementation of the congestion pricing program has been delayed by a drawn out environmental review process, which promises to drag on until the end of 2023. (The case is causing leading national pundits to argue that Democrats are quite good at obstructing their own goals, even without Republican opposition.) Currently the MTA’s budget projections begin assuming revenues of $1 billion annually from the Central Business District Tolling Program in 2023, but in a recent interview CEO Janno Lieber said that implementation would not begin until “the end of 2023, early 2024.”

“If you look at the budget, it looks like they have the flexibility to get by for now without congestion pricing,” says Higashide. “But without congestion pricing, they have one less option. What if ridership doesn't recover as much as the agency thinks? What if the state aid isn't as strong as they are forecasting?”

Chicago: Regional Transportation Authority (RTA)

The Regional Transportation Authority oversees the Chicago Transit Authority for heavy rail (at 55 percent of pre-pandemic ridership), the Metra regional commuter rail system (38 percent), and the Pace suburban bus network (56 percent).

But despite these dramatic shortfalls, the RTA does not anticipate a fiscal cliff next summer. Instead, Chicago area transit systems do not face a fiscal cliff until the third quarter of 2025.

Higashide says that’s in part because the Chicago area received generous federal aid under all three tranches of federal aid while other major transit systems were not renumerated as generously under the CARES Act.

But RTA officials say that a more important factor is a tweak to state law in 2021 that extended local sales taxes to online sales, boosting one of transit’s core sources of revenue.

“It's difficult to precisely quantify it, but I'm comfortable saying it added $100 million per year to our sales tax base,” says Doug Anderson, manager of operating budgets and analysis for RTA. The state offers a match to a third of sales tax revenue, so new funding amounted to $130 million. “That is what pushed our relief funding longevity out into 2025.”

But after that, the pain arrives in full force. The expected budget hole in 2026 is $730 million. The RTA is already planning how to address this yawning void. Policymakers are considering options that include a sales tax increase, driver's license fees, fuel taxes, car registration fees, even congestion fees.

“We're pretty sure it's going to take a variety of measures to solve this $730 million hole,” says Bill Lachman, RTA’s budget manager and treasurer. “There's not a way to cut ourselves out of this. It's a funding problem, not an expense problem.”
Jake Blumgart is a senior writer for Governing and covers transportation and infrastructure. He lives in Philadelphia. Follow him on Twitter at @jblumgart.
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