From Service Cuts to Budget Shortfalls: What Is in Store for American Transportation Agencies?
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From Service Cuts to Budget Shortfalls: What Is in Store for American Transportation Agencies?

With a continued historic decline in ridership numbers and no additional federal help in sight, American transportation agencies are facing some serious fiscal challenges.

These transit agencies, once considered the backbone of metropolitan economies and moving a large number of passengers to and from work, are now running virtually empty with no real solution in sight for the foreseeable future. Although the recent news about a COVID-19 vaccine provided a glimmer of hope for many local and state economies, transportation agencies still have a long way to go before reaching their pre-pandemic ridership numbers and getting back to some state of normalcy. Furthermore, given the vital role transportation agencies play in metropolitan mobility, shutting down isn’t an option for any of them.

In this article, we will take a closer look at the current challenges for American transportation agencies and what the future holds.

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How Are Transit Agencies Funded?

The easy and straightforward answer to this question is daily ridership. This single variable dictates that the fiscal future of transportation agencies has been impacted by the shelter in place orders, work-from-home directives by large employers, and the fear of riding in public transportation.

All large transit agencies rely heavily on passenger fares to pay for their operating costs. In the beginning of the second quarter of 2020, all transportation agencies across the United States started seeing some historic declines in daily ridership numbers, resulting in severe impairment of their revenues. In a recent publication by the Rockefeller Institute of Government, ridership declines are unanimous throughout the United States.

Here are some startling figures on these historic declines:

  • The ridership on New York City’s Metropolitan Transportation Authority (MTA) subway, which serves 5.5 million riders every weekday, fell 94 percent in April 2020 and these declines have persisted. The MTA estimates it would lose up to $4.9 billion in fare revenue alone if the losses were sustained for an entire year.
  • In California, Bay Area Rapid Transit (BART) ridership, which averages 414,000 people per day, fell by more than 90 percent in May and worsened through the year. Officials noted they are budgeting for a more than $350 million drop in fare revenue over the next year, assuming ridership remains somewhere near 70 percent below normal.
  • In Chicago, rail ridership on the Chicago Transit Authority (CTA) was down 88 at the beginning of the pandemic and bus ridership was down by 71 percent, both of which persisted throughout the year. These declines have led to an uncertain financial future for these agencies.

For some transportation agencies, local sales tax revenues also contribute to overall operations of transit agencies, another revenue stream that has been impaired due to COVID-19.

Be sure to check out this article where we explore how U.S. transportation agencies are bracing for the worst.

The Future of Public Transportation Agencies

The future of American transportation agencies depends on two factors: return of ridership to pre-pandemic levels and seeking additional revenue sources to make ends meet. The probable solution is a mix of both. It’s also important to view public transit as an essential service that provides mobility for all, including essential workers. Furthermore, as states start lifting their stay-at-home restrictions and employers start requiring workers to return to their offices, it will be imperative for transit agencies to partner with mid-sized to large employers to offer employees subsidized ridership as reliable transportation, but also as a way to reduce their carbon footprint by reducing traffic.

The inevitable reality of the future can be seen in a survey conducted by IBM of 25,000 US residents and published by Rockefeller Institute of Government. It states “more than 20 percent of regular transit riders said they wouldn’t ride anymore. Another 28 percent said they planned to use public transit less often.”

So, it’s imperative for public transportation leaders to think both short and long term in the current environment. The short-term strategic thinking is relevant to bridging the revenue versus expenditure gap from now until the return of ridership. This means the need to either raise liquidity from capital markets or cut expenditures. Long-term strategic thinking includes seeking additional revenue sources like introducing a dedicated local sales tax measure to fund the operations.

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The Bottom Line

Although the reality of a consistent decline in mass ridership in public transit systems existed prior to COVID-19, the risk of relying on a single source of revenue (operating revenue from ridership) was uncovered by the pandemic and a risk that many hadn’t considered. As many are optimistic about a new COVID-19 vaccine, transit agencies must engage with their respective markets via promotions, employer engagements, and making riders feel safe about riding on public transportation.

As mobility expert David Zipper, a visiting fellow at the Harvard Kennedy School’s Taubman Center for State and Local Government, stated, “It’s not a question of will riders come back or when will they feel comfortable. It’s more a question of, how do we ensure that transit can provide the lifeblood that the biggest cities in America rely upon?”

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Disclaimer: The opinions and statements expressed in this article are for informational purposes only and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgement of the author(s) at the time of publication and are subject to change without notice. Information has been derived from sources deemed to be reliable, the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professionals and advisers prior to making any investment decisions.

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Nov 25, 2020