Transit outlook: High unemployment, low retail sales could make 2010 even more difficult than 2009

In recent months, many economists have said they believe the recession technically has ended.

But that's been of little comfort to many U.S. citizens. Unemployment levels continue to creep up and jobs aren't likely to return to pre-recession levels in the foreseeable future. Consumer confidence remains low, which translates to lower retail sales. And it's those two indicators that have transit industry executives concerned about the year ahead, as well.

"I think it's going to be a very difficult year for most transit systems," says American Public Transportation Association (APTA) President William Miller. "I'm an optimistic guy, but I just don't see state and local revenues turning around, and there's no indication that sales tax revenues are turning around."

Same with ridership. After growing to record levels in 2008 when gas prices skyrocketed, public transportation ridership dipped in 2009's second half � and likely won't return back to 2008 levels for some time, transit officials say.

"As long as you have unemployment, you'll have ridership at less than what it otherwise would be," says Michael Scanlon, executive director for California commuter-rail agency Caltrain.

That's not to say there won't be a silver lining or two in the year ahead. Industry officials are hopeful the pending surface transportation authorization will include big bucks for public transit, and while the odds of a bill being passed in 2010 are looking slim, it shouldn't be counted out completely, says Millar.

Other transit execs are optimistic that, despite its challenges, 2010 will be a transformational year.

"I believe we're in the early stages of a rail renaissance, and it can't come too soon," says Scanlon. "Hopefully, we can start focusing on rail transportation for passengers and goods."

In the meantime, transit managers will have to focus on navigating through a tough 2010, which likely will be marred with more service cuts and fare increases, and lower revenue streams � especially if the economic rebound is as slow as some believe it will be.

"If the economy comes back only slowly or if unemployment continues to rise, then 2010 is potentially a more difficult year than 2009," says Millar.

'Trying to Hang On'

And that's saying a lot. In the past year, agencies have laid off workers or eliminated vacant positions, implemented furloughs, increased employees' healthcare contributions and cut administrative costs. And in June, APTA released the results of a member survey that showed nine of the 10 transit systems that responded to the poll had already raised fares, cut service or both.

Transit systems also dipped into reserves in 2009, and many of them used up reserves completely "just trying to hang on," says Millar.

Take the Metropolitan Atlanta Rapid Transit Authority (MARTA). The agency is one of the few that doesn't have a dedicated funding source, and MARTA's been "eating out of reserves the past 10 years," says Chief Executive Officer Beverly Scott.

The agency was able to avoid layoffs in 2009, but might not be able to do the same in 2010, says Scott. However, she is holding out hope that state legislators will approve a dedicated funding source for the agency in the coming year.

"I'm hopeful there will be movement on transportation funding legislation, though it will not be the end-all, be-all," she says. "When you have the issues we've had as far as significant underinvestment, you're not going to turn it around all at once."

To keep its operating budget in check, Caltrain officials raised fares in early 2009 and cut service from 98 daily trains to 90. The agency won't rule out doing the same in 2010.

Although Caltrain doesn't rely on sales tax revenue as a funding source, Scanlon believes agencies that do might not see those revenues bounce back entirely � even if the economy does.

"We're living in a world where e-commerce keeps expanding, and that will cause the traditional sales tax to shrink," he says. "As that shrinks, the value of commercial real estate shrinks, as does other non-retail shopping entities. This can all have a spiraling effect."

Sound Transit officials are learning that the hard way. The agency is suffering from reduced sales tax revenues, although in a different way than most other transit agencies.

In November 2008, Seattle-area voters approved a $17.8 billion ballot measure that calls for adding 36 miles of new light-rail lines, and expanding commuter-rail and bus service during the next 15 years. The plan is being funded by a half-cent sales tax.

"We're actually in hiring mode because we have such a heavy capital program," says Sound Transit CEO Joni Earl. "The proposed 2010 budget includes about $945 million for capital and only $188 million for actual operations."

But the drop-off in sales tax revenue could hurt Sound Transit's capital program over the long run. The agency has been working with an independent forecaster and in October, officials announced to the board that expansion plan revenues are expected to be down about 20 percent, or $3.1 billion, over the life of the program.

"We have a lot of contingencies built into the plan, but it will be more challenging to deliver," says Earl.

Doing More With Less

"Challenging" best describes other agencies' 2010 financial outlook, as well. As agency execs develop budgets for the coming year, they're trying to minimize impacts to riders and employees while still creating a viable spending plan.

Last month, New York's Metropolitan Transportation Authority released a proposed $11 billion 2010 budget that avoided fare increases and service cuts. However, the authority does plan to set aside $85 million in reserve and "overhaul operations" to improve efficiency and "address the current fiscal reality," the agency said.

MTA plans to re-launch a board working group that would analyze ways the agency can change its business model to operate more cost effectively and improve performance.

"MTA remains in a very fragile position with a number of risks on the horizon," said Chairman and CEO Jay Walder in a statement. "We will learn to do more with the funding we have."

This month, Chicago's Metra is set to adopt a $613 million operating budget that calls for raising one-way ticket prices 6 percent and increasing weekend fares from $5 to $7 on Feb. 1, 2010.

Fellow Windy City agency the Chicago Transit Authority adopted a $1.27 billion 2010 spending plan last month that does not include a fare hike. However, the budget but does call for eliminating more than 1,100 jobs, requiring non-union employees to take 18 unpaid days and forego wage increases, and reducing rail service by 9 percent beginning on Feb. 7.

The tough 2010 budget decisions likely are a sign of what's to come.

"Many of our members who rely on sales tax revenues are still seeing double-digit increases and until that changes, the revenue picture will be very bleak indeed," says APTA's Millar.

The ridership picture isn't looking much better. Passenger counts are dipping "almost in lockstep with unemployment numbers," says Caltrain's Scanlon, adding that fare hikes and service cuts have further contributed to the ridership loss.

The good news? Those losses are being compared with 2008 ridership figures, which soared to all-time highs. For example, Caltrain's ridership is down about 9 percent, but the agency's 2008 passenger counts were "off the charts," says Scanlon.

"We're still doing 40,000 a day year to date," he says. "It's down from last year's high of 46,000 a day, but 40,000 is historically very, very high."

Ridership on Sound Transit's Sounder commuter-rail service also dipped this year compared with 2008. It wasn't a large drop-off, says Earl, but it was a significant one � it marked the first time in Sounder's nine-year history that ridership didn't increase.

In 2010, Sound Transit expects to see ridership growth. The agency opened its first light-rail line in 2009 and "we haven't seen that steal ridership from somewhere else," says Earl.

MTA Metro-North Railroad lost about 4 percent of its riders in fiscal-year 2009. The agency's commuter ridership plummeted about 7 percent, says President Howard Permut. But, Metro-North's non-commuter market � which accounts for about half of its overall ridership � only fell about 2 percent.

"That really buffered the ridership drop," says Permut. "And even though we had these slides, it basically brought us back to 2007 levels."

The agency's ridership drops flattened in late fall, so Permut expects passenger counts to begin to rebound in 2010.

Customer Satisfaction Is Key

In the meantime, Metro-North is doing what it can to make sure the customers it's kept remain happy. The agency is working to maintain its 98 percent on-time performance, and identifying areas that need more investment, such as station maintenance, and customer information and communications, says Permut.

"From a customer standpoint, there are increased expectations right now because people expect to get full value for whatever money they're spending to ride the train," he says.

In 2010, Metro-North will introduce new M8 electric cars on the New Haven Line. Built by Kawasaki Rail Car Inc., the vehicles will replace 40-year-old M2 cars currently in operation, providing passengers a more modern, reliable fleet.

Continuing to invest in their systems despite the tough economic conditions will be key to all transit agencies' future success, says APTA's Millar.

"The price of gasoline will be going back up and then Americans will want more public transit, so this is a time where we should be investing," he says.

And that's why all transit execs are awaiting the passage of the next surface transportation authorization bill. On Oct. 31, President Obama signed into law a continuing resolution that extends SAFETEA-LU, which expired Sept. 30, through Dec. 18. Congressional negotiators have not been able to enact a new six-year authorization bill, or determine whether to pass an extension.

Regardless of what Congress decides, industry officials believe transit will come out a winner.

This summer, House Transportation & Infrastructure Committee Chairman James Oberstar (D-Minn.) and Ranking Member John Mica (R-Fla.) proposed the Surface Transportation Authorization Act of 2009. The six-year, $450 billion bill would allocate $99.8 billion for public transportation � a more than 90 percent increase compared with the current surface transportation act.

However, excitement over the proposal was squashed almost immediately, when the Obama Administration announced it supported an 18-month transportation reauthorization plan to succeed SAFETEA-LU.

But some good could come out of a long-term extension.

"We wish there didn't have to be a continuation, but the reason I believe it happened is we have an Administration that is very clearly focused on this," says MARTA's Scott. "They understand and appreciate the importance of transportation and they want to get it right. That requires a lot of work between the different silos at the federal level."

And one of the top issues those silos will need to address is how to fund the massive bill � and then ensure the public supports it.

"One of the problems we have is the method we've chosen to fund public transportation. Not only is it unsustainable, but we've done a terrible job with the public and the public understanding of how transportation economics works, how it's funded," says Scott.

A massive public information/education campaign will be critical to helping people understand why a "25-cent, 50-cent or even $1 increase in the fuel tax" wouldn't be sufficient to cover the cost of maintaining and building transportation infrastructure, says Scott.

"If there's one silver lining, it's that things are so bad that it will force a new level of raw reality," she says.

But just because there's a lot of work to be done, it doesn't mean a new transportation bill won't be passed in 2010.

"I've been at this long enough to know that sometimes when you're dealing with very big issues and those issues stall, it gives opportunities for other issues to come to the floor," says Millar. "Particularly if the unemployment rate continues to climb, Congress and the Administration will have to respond. There are some scenarios where the bill could move ahead sooner than people think."

Most transit execs can agree that the surface transportation authorization's passage isn't as important as what it includes. And they're more than happy to give Congress the time it needs if it means the bill could truly transform public transit and its role in the national transportation network.

"Go back to the signing of the highway bill in 1956 � it drove the economy for 50 years. It drove the building of roads, highways, automobiles. It drove land development patterns. It created suburbia, shopping malls, jobs," says Caltrain's Scanlon. "But everything is about to change now. It was a great ride, but it's not sustainable. Where we are now has the potential to change the way we live."