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Outlook for public mass transit remains dim

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Mass transit agencies across the country could continue to struggle this year with depressed ridership as federal funding is set to expire.

S&P Global Ratings, one of three major credit rating agencies, gave the public transit sector a negative outlook as challenges pile up for operators while they spend down more than $70 billion in federal aid given out during the COVID-19 pandemic.

Airports, toll roads, maritime ports and parking operators have bounced back after the pandemic. In some cases, U.S. airports outperformed previous peaks. But not mass transit. Ridership was at 77% of pre-pandemic levels with significant variances between U.S. regions and modes of transit.

“Looking ahead to 2024, the outlier in this back-to-normal mobility story is U.S. mass transit,” according to the latest sector report from S&P. “Heavy regional commuter rail-only systems still face lower ridership due to remote work trends while bus and subway systems serving cities and metropolitan areas have performed better.”

The report contains some bright spots, but mass transit agencies are expected to struggle to replace fare revenue as many former commuters spend more time working from home.

“Despite lower ridership, transit providers for which tax revenue makes up a large majority of their operating revenue should maintain favorable metrics, including debt service coverage and debt-to-net revenue, in 2024, albeit at lower levels as sales tax growth slows,” according to the report. “We still expect public transit ridership will recover to only about 85% of pre-pandemic levels by 2026 under our base case and 80% under our downside case.”

Taxpayer-funded agencies with good credit ratings that rely less on fares are in a better position.

“For ‘AAA’ and ‘AA’ rated mass transit operators, tax revenue generally makes up more than 60% of total revenue, providing credit stability and in some cases, more than offsetting declines in farebox revenue,” according to the report.

Those that have relied for decades on revenue from fare-paying passengers face challenges ahead.

Fare-dependent agencies are looking for other sources of revenue to fill the gap when federal money runs out.

In Chicago, the Regional Transportation Authority’s five-year strategic plan calls for consideration of 11 tax and fee hikes. Among them: congestion pricing, a vehicle miles traveled tax, expanding sales tax coverage areas, increasing vehicle registration fees and raising the gas tax.

The Regional Transportation Authority in Illinois – which oversees the Chicago Transit Authority, Metra and Pace Suburban Bus – has also proposed scrapping a state law that requires the agency to recover 50% of operating costs through fare revenue.

Transit ridership was declining before the pandemic hit and the bottom fell out. Public transit ridership peaked in 2014. That year, public agencies reported 10.7 billion unlinked passenger trips. Since that peak, unlinked passenger trips have declined nearly every year. By 2019, 9.9 billion unlinked passenger trips were reported to the National Transit Database. When the COVID-19 pandemic hit in 2020, unlinked passenger trips plummeted to 4.7 billion, meaning ridership dropped by just over half in one year.

While ridership has partially recovered in the post-pandemic era, challenges remain.

“A few transit agencies have since received a combination of temporary relief and long-term tax support to plug the operating fund gap amid an ongoing policy debate at the state, regional, and local levels regarding how to support operating and capital requirements with sustainable tax and revenue models,” according to the report. “Identifying such a model to meet operating and long-term capital needs remains an ongoing topic of debate, setting up key decisions in the coming months that will pit service levels against available resources for 2024 and beyond.”