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Region faces transit funding challenge in 2009

November state economic forecasts revealed a scenario becoming depressingly familiar to transit providers in the seven-county metro area: a decline in projected revenues from the motor vehicle sales tax (MVST).

With the gradually increasing dedication of MVST revenues to roads and transit through 2012, providers were hopeful that not only would they be able to maintain current service, but that new service and facilities could be added to meet growing demand.

But in the current state biennium, which ends in June 2009, that won’t be possible. In fact, Metro Transit, Metro Mobility and suburban transit providers will need supplemental funding from the Minnesota Legislature just to maintain current service.

“A decline in revenue is never welcome, but it’s particularly frustrating when we’re experiencing such strong growth in transit ridership,” said Arlene McCarthy, director of Metropolitan Council Transportation Services. “Now is not a time we want to cut service or raise fares.”

The transit budget challenge

The Council built the regional transit operating budget for the current biennium in preparation for the 2007 legislative session, McCarthy said.

The budget was based on three assumptions:

• The proposed Constitutional amendment dedicating the MVST to transportation purposes would pass.
• Metropolitan area transit would receive 38% of the revenues, phased in over a five-year period.
• MVST revenues would match the most recent forecasts, made in February 2006.

While voters approved the amendment, subsequent state economic forecasts significantly reduced forecasted MVST revenue for fiscal years (FY) 2008 and 09. In addition, the 2007 Legislature did not approve Gov. Tim Pawlenty’s request that 38% of MVST proceeds be phased in for metro area transit services, but instead approved 36%. Neither did the Legislature approve the governor’s recommendation that a similar portion of leased vehicle sales tax be dedicated to metropolitan transit.

Those weren’t the only issues. While the Legislature passed and the governor signed a “lights-on” transportation funding bill, which included a one-time $20 million general fund appropriation to cover the projected FY08 shortfall, no additional funds were provided for FY09. The Legislature also capped Hennepin County’s share of Hiawatha light-rail net operating costs at $5.3 million annually, rather than the previous 50% of net operating costs.

Fuel prices, rising demand add to funding crunch

Subsequently, additional factors are making the funding scenario more problematic, according to McCarthy:

• New service contracts with regional providers cost more than predicted.
• Fuel prices continue to increase.
• A number of providers are experiencing recurring passenger overloads.
• Demand for Metro Mobility services has increased and under federal requirements, all demand must be met.

The upshot? If the November state economic forecasts hold, the region’s transit providers, urban and suburban alike, and Metro Mobility, will need additional funding to maintain current service through June 2009. The Council and the Governor’s office are working on a funding package to address the needs, but will wait until the February budget forecasts to finalize it.

Transit ridership is growing

All this is happening at a time when demand for the transit service is rising. Use of park-and-ride lots grew 11% in the 12 months ending October 2007. Ridership on suburban transit authority routes and the Council’s contracted regular routes grew more than 6% in 2007.

When the final numbers come in later in January, Metro Transit ridership for 2007 is likely to reach 77 million, the highest level since 1982, a nearly 5% increase from 2006. While some ridership growth can be accommodated on existing service, at some point and in some places the increasing demand requires more frequent service or new service, McCarthy said.

If additional state funding isn’t allocated, the providers have basically two options: raise fares and/or cut service. The industry standard for calculating ridership loss is that when transit agencies raise fares 10%, they lose about 3% of their ridership, McCarthy said. That means more cars on already congested roads.

Replacing aging buses, building new transitways

Operating the system is just part of the equation. On the capital side, buses need to be replaced, maintenance garages expanded or new ones built, and customer facilities like transit hubs and park-and-ride lots constructed. The Council’s 2008-2013 Capital Improvement Program calls for an average of $138 million annually for transit capital spending. The primary funding sources are federal funds, state bonds and regional bonds.

But that’s just to maintain or make small expansions to existing bus and rail service. The Council’s current Transportation Policy Plan calls for the implementation of several new transitways by 2020. Northstar commuter rail is under construction and capital funds have been secured. Bus rapid transit is being implemented on Cedar Avenue and I-35W. And the region’s most ambitious transit project, Central Corridor light rail, is midway through preliminary engineering; the Council hopes to begin construction in 2010.

“Central Corridor light-rail transit is one of this Council’s top priorities,” said Council Chair Peter Bell, “but it faces some serious challenges, including getting state funding needed for the local match to federal funds. We’re working hard to reduce the line’s projected costs in order to meet the federal cost-effectiveness index. If we’re not successful, the project will not be able to compete with proposals from other regions.”