State of Mass Public Transit: Moving Forward or Spinning Its Wheels?

In 1964, President Lyndon B. Johnson signed the Urban Transportation Act, creating the federal transit program. The bill provided $375 million in capital assistance and changed the federal government’s stance on helping the urban commuter. Over the next six decades, the program would grow exponentially and transform transit in America from scattered bus systems to the diverse set of providers in thousands of communities that exists today.

From an investment perspective, what is the current state of mass public transit? In this sector analysis, we look at the New York Metropolitan Transit Authority (MTA), Bay Area Rapid Transit Authority (BART), and Chicago Transit Authority (CTA). We focus on each system’s source of revenues, use of revenues, and passenger trends. As potential investors in debt issued by these transit entities, we look for systems with increasing usage, stable to increasing revenue from users, and a favorable portion of total operating revenue generated from farebox revenue.

Key Takeaways

• The New York MTA generates just 26% of operating revenue from farebox revenue. Ridership is at 72% of pre-COVID levels.
• In Chicago, ridership is growing but only 17% of revenue is generated from farebox income.
• BART is facing a fiscal cliff as ridership has been slow to recover and emergency funds are running out.
• In our view, none of the major transit systems reviewed here has sufficient resources to expand, and all seem to be struggling to maintain current operations.
• New York Metropolitan Transit Authority (MTA) Challenged by Declining Ridership, Unfavorable Share of Farebox Revenue

New York MTA is the largest transit provider in the nation, servicing more than 6 million commuters daily and 2.7 billion annually. The system generates more than $19 billion in total operating revenue, however, farebox revenue only accounts for $4.9 billion, or 26% of the total, while dedicated taxes from mortgage transactions and small employers in the service area account for $8.4 billion.

NY MTA FY2024 Budget

Source: https://new.mta.info/document/133491

The heavy reliance on other revenues outside of fares paid by commuters is cause for concern—and when combined with the challenging trend in ridership, the situation becomes more tenuous. Compared to 2019, the system has 72% of riders commuting between destinations, which has led to a decline in farebox revenues and forced the MTA to use COVID relief funds to cover annual deficits as a temporary solution. The MTA has proposed increasing fares but that may have a negative impact on the already declining ridership.

Ridership Recovery is Tracking the Midpoint Projection

Source: https://new.mta.info/document/101141

Chicago Transit Authority (CTA) Sees Positive Ridership Trends but Still Feels Budget Stress

The CTA covers a 310 square mile area with more than 10,000 locations serving 3.2 million people. Despite the large geographic service area, the CTA has a comparatively small budget, with fiscal year 2024 coming in at just under $2 billion. This represents an increase in spending of 9.2% ($168.2 million), which would maintain fares at current levels while allowing for the maintenance of bus and rail services and addition of service to meet growing ridership demand.

CTA Proposed Budget FY2024

https://www.transitchicago.com/assets/1/6/FY_2024_Budget_Book_(Web_Version).pdf

The modest increase in the revenue budget is supported by projected growth in ridership, which currently hovers around 48% of 2019 levels. The CTA expects ridership levels will return to 70% of 2019 levels by 2026. Despite these positive trends, the revenue sources are an area of concern considering only 17% come from farebox revenues while 54% come from public funding and nearly 24% come from federal funding. With the system projecting deficits of nearly $500 million in the next two years and dwindling COVID relief funds available to close the deficits, it remains to be seen how management will fill the void.

CTA Total Operating Revenue FY2024

Source: https://www.transitchicago.com/assets/1/6/FY_2024_Budget_Book_(Web_Version).pdf

Bay Area Rapid Transit Authority (BART) in a Precarious Position as Relief Funds Run Out

BART connects the San Francisco Peninsula with communities in the East Bay and South Bay. The authority is the largest heavy-rail public transit system in the Western United States with tracks that cover more than 130 miles. BART also provides service to two major airports.

BART finds itself in a precarious position, facing a self-described fiscal cliff at the end of 2024. During the pandemic, the system lost more than half of its ridership, and the slow recovery has put the system under financial stress. The authority has become overly reliant on federal emergency funding and state financial assistance to maintain operations and will need new state funding to assist with budget shortfalls.

BART Operating Budget Sources

Source: https://www.bart.gov/sites/default/files/2024-09/FY25%20%26%20FY26%20Adopted%20Budget%20Manual.pdf

Due to smoothing of peak commute ridership and compelling off-peak ridership, BART implemented a new service schedule in September 2023. The new schedule significantly increases train service during evenings and weekends but maintains adequate daytime service on weekdays. Service levels were cut during fiscal year 2024 to meet new demand peaks with ridership currently at 81% of 2019 levels. The authority has made changes to the number of night and weekend trains, shortened the length of trains from 10-car trains to 6- or 8-car trains, and extended train schedules to 20 minutes intervals versus the previous 8 minutes.

BART System Ridership Actuals and Budgeted

Source: https://www.bart.gov/sites/default/files/2024-09/FY25%20%26%20FY26%20Adopted%20Budget%20Manual.pdf

Major Transit Systems Face Serious Headwinds

All three transit authorities are stagnant with rapidly mounting expenses compared to scarcely improving revenues. Farebox revenue is often less than 30% of operating revenues, requiring almost doubling to fill budget deficits. Unfortunately, the systems will require additional revenue streams to maintain current service levels, not including system improvements. Inflation also plays a role, with the cost of labor, supplies, and healthcare impacting mass transit alongside every other institution. In our view, none of the major transit systems reviewed here has sufficient resources to expand, and all seem to be struggling to maintain current operations.

Sources:
https://new.mta.info/document/133491
https://www.transit.dot.gov/about/brief-history-mass-transit
https://www.transitchicago.com/assets/1/6/FY_2024_Budget_Book_(Web_Version).pdf
https://www.bart.gov/about/financials
https://www.bart.gov/sites/default/files/2024-09/FY25%20%26%20FY26%20Adopted%20Budget%20Manual.pdf