Across the country, reduced mass transit use and lower sales tax revenues due to the coronavirus pandemic are wreaking havoc with the finances of transit operators. Given the extreme nature of this pandemic, including shelter-in-place orders that are limiting ridership, a short-term bailout of some transit system may be necessary. But any stimulus funding for mass transit systems—the Senate bill has $25 billion in emergency transit funding— should be targeted at keeping these services going right now, solving current operations problems and helping riders get to their destinations. The stimulus bill should not be used as an opportunity to reinforce and prop-up inefficient transit agency practices.
The American Public Transportation Association (APTA) predicts there will be a nationwide loss of $14 billion in transit fares and operator sales tax revenue receipts, as well as $2 billion in extra costs due to increased cleaning needs. These figures could end up being much larger, or smaller, depending upon the length and intensity of the current public health crisis.
In New York City, which has been hardest hit by the pandemic, the New York Daily News reports:
Coronavirus is costing the MTA $125 million in fare revenue each week as mass transit ridership in New York hits historic lows — and Washington’s $3.8 billion relief plan for the agency might not make up the shortfall, officials said Wednesday.
“If the current levels are sustained for six months and then followed by a gradual six month return to pre-pandemic ridership levels, the estimated revenue loss could reach $4.9 billion,” said Metropolitan Transportation Authority Chief Financial Officer Bob Foran.
Some large mass transit systems were already experiencing financial challenges before the virus outbreak and these chronic challenges are likely to continue once normal conditions return. And despite adding new service, almost every transit agency has been losing ridership over the past five years. Transit infrastructure is in poor shape and debt burdens are high.
The Washington Metropolitan Transportation Authority (WMATA), operating in Congress’ backyard, is a good case study. After peaking at 293 million rides in 2009, WMATA rail usage declined to 226 million rides in 2018, the last year for which APTA has published full-year data. Reduced ridership during the 2010s was most often attributed to reliability issues, but the growing popularity of ridesharing apps was a major factor as well.
Due to deferred maintenance, the system suffered a series of smoke outbreaks in its tunnels, as well as water infiltration and equipment breakdowns. Meanwhile, the construction of the new Silver Line extension to Dulles Airport is well over budget and behind schedule (although this project is being financed and managed by the Metropolitan Washington Airports Authority).
Then, there is the system’s debt. According to its 2019 Comprehensive Annual Financial Report, WMATA had $1.1 billion of bonds payable, equal to about 17 months of operating revenue (during normal operations) as of June 30, 2019.
WMATA also had a net pension liability of $800 million and a net other post-employment benefits (OPEB) liability of $2.1 billion. WMATA’s five pension funds reported funded ratios of between 72 percent and 89 percent. These ratios are likely to decline substantially this year as a new bear market shrinks the value of the system’s equity holdings. The system’s OPEB plan has no prefunding whatsoever — the $53 million of annual retiree health care benefit payments must come out of current revenue.
Similar issues plague New York’s Metropolitan Transportation Authority and the San Francisco’s Bay Area Rapid Transit system, which lack the financial strength to weather an extended coronavirus lockdown.
To prevent employee furloughs and defaults on vendor payments, it may be necessary for Congress to provide these systems with a temporary cash infusion. WMATA, to its credit, once COVID-19 became widespread, discouraged the use of its system. But the reduced ridership is exacerbating the system’s financial problems.
A condition of any stimulus funding should be that transit systems must use all of the funds on paying the current employees needed to maintain service for transit-dependent riders and on solving existing operational problems. Rather than allocate a fixed amount to each transit system, federal lawmakers could specify a ceiling for total aid and then provide monthly payments based on a calculation of the passenger revenue lost and the extra cleaning costs incurred by each system. Transit agencies already report operating numbers to the federal government as a condition of current funding, so this data is readily available.
Similarly, federal funds that transit systems may have been set for use on new capital projects should be redirected to operations during the pandemic.
This crisis also demonstrates that transit agencies should also review their pension and OPEB plan designs to ensure that benefits are funded as they are earned and not added to the already heavy load of unfunded obligations. Longer-term, transit systems should be looking at potential cost-saving measures, such as automation. While automation can be controversial, labor makes up more than 70 percent of the costs for many transit agencies.
Transit systems also need to focus on their transit-dependent riders. The Atlanta Journal-Constitution found that ridership on the Metropolitan Atlanta Rapid Transportation Authority (MARTA) system has decreased proportionally to wealth. For every $10,000 increase in median income, ridership decreased by 2.2 percent. Agencies should focus service cuts on less-used rail projects since lower-income transit-dependent riders are more likely to take buses than are higher-income, choice riders. And given that this crisis might create new work and travel patterns that become the new normal and result in reduced transit ridership, transit agencies should study how Houston redesigned its bus networks to focus on transit-dependent riders.
Offering operating service in a grid pattern, eliminating excess stops, and providing regular weekend service have all been shown to increase transit ridership. Cash-strapped transit agencies may need to reduce service in low-density areas and supplement it with ride-sharing services, keeping a safe distance between the driver and the passenger.
COVID-19 is an unexpected crisis for the transit industry. Any taxpayer-funded stimulus lifeline should focus on providing short-term help that serves the riders still relying on the systems. Long-term, this pandemic may force transit agencies to take stock of what their customers want and need from transit service, and how transit systems should be spending their money.