Transit Agencies Have At Least $49 Billion in Retirement Debt And Shouldn’t Be Bailed Out


Transit Agencies Have At Least $49 Billion in Retirement Debt And Shouldn’t Be Bailed Out

A review of 30 large transit operators shows they have aggregate unfunded pension liabilities of $31 billion and other post-employment benefits liabilities of $18 billion.

Police and firefighter pension plans are not the only municipal pension systems with massive public pension debt, many mass transit agencies across the country are also struggling with growing funding shortfalls, which means they will need to find a way to come up with significant amounts of money if they are to keep the retirement benefit promises they’ve made to their employees.

Transit systems provide vital transportation services for some working-class commuters, but even in the best of times, transit systems require significant operating subsidies. For most US mass transit systems, the farebox recovery rate—the percentage of overall costs that are covered by fares paid by riders—ranges from 20 percent to 40 percent. And with reduced transit ridership due to the COVID-19 pandemic, these transit systems may be in real financial trouble unless reforms are made.

A review of recent audited financial statements for 30 large public transit operators shows that they have aggregate unfunded pension liabilities of $31 billion, plus unfunded other post-employment benefits (OPEB) liabilities of $18 billion.

Due to declining farebox and local tax revenues during the pandemic and recession, many of these transit agencies may seek federal assistance to try to fund their retirement benefit obligations. But the existence of these large debts raises the question of whether a federal bailout is being sought so the systems can provide mass transit service for commuters or to fund the retirement benefits that system leaders promised to their employees but haven’t set aside the money for.

On Aug. 4, the American Public Transit Association sent a letter to Congressional leaders urging them to provide $32 billion in emergency funding to transit agencies, on top of the significant support these agencies received in stimulus bills passed earlier this year. Without the additional aid, the association warned that mass transit systems “are in danger of heading into a ‘transit death spiral’ where evaporating revenues lead to cuts in services, which in turn cause riders to find alternative means of transportation if they can, further incapacitating transit systems to the point where they become insolvent and inoperable.”

The letter does not reference system retirees, who might also lose out in the event of an insolvency. The following table lists the net pension and OPEB liabilities reported by mass transit systems.

Table 1: Net Pension and Other Post-Employment Benefit Liabilities
EntityStatePension UnderfundingOPEB UnderfundingTotal Pension Debt
Metropolitan Transportation AuthorityNew York7,584,000,00019,582,000,00027,166,000,000
Massachusetts Bay Transportation AuthorityMassachusetts1,584,967,0002,458,432,0004,043,399,000
Washington Metropolitan Area Transit AuthorityDistrict of Columbia836,893,0002,120,897,0002,957,790,000
Southeastern Pennsylvania Transportation AuthorityPennsylvania909,804,0001,178,556,0002,088,360,000
New Jersey Transit CorporationNew Jersey684,638,0001,296,578,0001,981,216,000
Chicago Transit AuthorityIllinois1,879,038,0009,820,0001,888,858,000
Los Angeles County Metropolitan Transportation AuthorityCalifornia534,955,0001,241,945,0001,776,900,000
San Francisco Bay Area Rapid Transit DistrictCalifornia698,876,000356,573,0001,055,449,000
Tri-County Metropolitan Transportation DistrictOregon148,848,000725,025,000873,873,000
Metropolitan Transit Authority of Harris CountyTexas292,636,177560,204,975852,841,152
Niagara Frontier Transportation AuthorityNew York22,836,000531,756,000554,592,000
Alameda-Contra Costa Transit DistrictCalifornia339,538,000150,336,000489,874,000
Golden Gate Bridge Highway and Transportation DistrictCalifornia237,784,00099,751,000337,535,000
Regional Transportation DistrictColorado319,177,0000319,177,000
Orange County Transportation AuthorityCalifornia272,439,0002,927,000275,366,000
Metropolitan Atlanta Rapid Transit AuthorityGeorgia151,924,000122,788,000274,712,000
Miami-Dade Transit Enterprise FundFlorida212,650,00056,705,000269,355,000
Maryland Transportation AuthorityMaryland250,549,0000250,549,000
Santa Clara Valley Transportation AuthorityCalifornia313,292,000-72,441,000240,851,000
San Diego Metropolitan Transit SystemCalifornia178,363,41147,111,203225,474,614
Detroit City Transportation FundMichigan223,607,960-1,855223,606,105
Suburban Mobility Authority for Regional TransportationMichigan74,399,179119,479,780193,878,959
Santa Cruz Metropolitan Transit DistrictCalifornia57,868,302114,516,198172,384,500
Sacramento Regional Transit DistrictCalifornia114,660,60821,253,453135,914,061
Rochester-Genesee Regional Transportation AuthorityNew York7,213,271114,878,155122,091,426
South Jersey Transportation AuthorityNew Jersey44,750,64171,093,269115,843,910
Memphis Area Transit AuthorityTennessee8,209,603101,995,497110,205,100
Transit Authority of River CityKentucky81,695,20123,202,276104,897,477
Utah Transit AuthorityUtah103,864,8390103,864,839
San Mateo County Transit DistrictCalifornia68,337,00033,033,000101,370,000
Totals$18,237,814,192 $31,068,413,951 $49,306,228,143

I’ve included systems that have published their own audited financial statements for the 2019 fiscal year and had over $100 million in unfunded retirement obligations. Most of the systems that meet this criterion are among the nation’s largest (e.g., New York Metropolitan Transportation Authority, Chicago Transit Authority, and Washington Metropolitan Area Transit Authority), but some smaller systems made the cut as well.

Excluded from this list are transit systems that do not produce standalone financial reports (because their results are consolidated into a city’s or county’s audit). Thus, the totals shown here do not fully capture all public transit system retirement debt but is likely to be a very large subset.

The numbers reported above were obtained directly from system financial statements and have not been restated. Had the liabilities been revalued using more conservative discount rates—a practice often used by some other pension policy analysts—the totals shown here would have been higher.

Some of the transit agencies on this list may not even be able to cover their annual retirement costs with farebox revenue. One example of this phenomenon is the Memphis Area Transit Authority (MATA), which provides bus and trolley service in the city of Memphis and bus service only in nearby parts of Shelby County. The agency reported $6.9 million in operating revenue in the fiscal year ending June 30, 2019, while making $5.9 million in pension contributions and  $2.6 million in other post-employment benefit payments, mostly for retiree health care.

Like many transit agencies, MATA does not pre-fund OPEB costs, opting instead to cover benefits on a “pay-as-you-go” basis. Had MATA opted to follow the recommendations of system actuaries to begin pre-funding its OPEB plan, it would have had to find an additional $4.5 million.

Overall, in 2019, MATA spent $8.5 million just on retirement costs, while taking in only $6.1 million at the farebox plus an additional $0.8 million in auxiliary funds such as advertising revenue. To pay the rest of the retirement costs and actually operate the system, MATA required $51 million in subsidies from city, state and federal sources.

The situation will be worse in fiscal year 2020. The coronavirus pandemic has reduced ridership and MATA temporarily suspended fare collections. Off-setting the lost revenue and additional cleaning costs was a $35.7 million allocation of emergency federal funds under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed by Congress.

Another system, the Santa Cruz Metropolitan Transit District, which provides bus service in Santa Cruz County, California, faces similar challenges. The system reported operating revenue of $10.2 million in its 2019 fiscal year while making $9.2 million in pension and OPEB contributions.

Santa Cruz Metro also does not pre-fund other post-employment benefits and would have had to make a much larger payment if it did so, but the precise contribution needed for pre-funding is not provided in the system’s financial statement. In 2020, farebox revenues are unlikely to cover retirement plan contributions. For the month of March 2020, ridership was 50 percent below previous year levels and poor ridership numbers likely continued for the remainder of the system’s fiscal year, which ended June 30.

As Congress considers additional stimulus and bailout spending, lawmakers might benefit from taking a holistic view of transit operator financial conditions. If they do, they will recognize that the transit agencies’ plea for help is about more than serving their customers.

Stay in Touch with Our Pension Experts

Reason Foundation’s Pension Integrity Project has helped policymakers in states like Arizona, Colorado, Michigan, and Montana implement substantive pension reforms. Our monthly newsletter highlights the latest actuarial analysis and policy insights from our team.

This field is for validation purposes and should be left unchanged.