Transit agencies across the United States find themselves at a crucial juncture. With ridership and fare revenue still significantly below pre-pandemic levels, while costs continue to rise and infrastructure ages, these agencies face numerous challenges. As they strive to adapt to evolving community needs, finding ways to balance the budget and improve services becomes imperative.

Transforming Transit Agencies for a Sustainable Future

Transit Agencies and the COVID-19 Impact

Before the COVID-19 pandemic, monthly ridership for US transit agencies had been declining by around 5 to 10 percent due to factors like increased car ownership and cheaper gas. In 2020, the pandemic accelerated this downward trend. Although passenger levels have recovered somewhat, they have plateaued at about 80 percent of pre-pandemic norms. One reason for this is the shift to remote and hybrid work, reducing the demand for commuting.During this time, operational costs have been rising disproportionately to the service provided. From 2002 to 2022, they grew by 50 percent, while transit service only increased by 8 percent in terms of vehicle revenue hours. After the pandemic, costs dropped due to reduced service, but this was mainly a temporary relief.When pandemic-related ridership drops caused fare revenue to halve, the federal government stepped in with funding to maintain essential operations. However, most agencies expect to exhaust these funds soon. This combination of falling revenue, rising costs, and the expiration of federal funding has created a challenging industry outlook.

Boosting Non-Farebox Revenue

In 2019, farebox revenue provided 7 to 40 percent of total funding for the 20 largest US transit agencies. During the pandemic, it declined significantly, from $18 billion to $9 billion. But agencies can boost ridership and farebox revenue by improving services like increasing frequency and enhancing security. For example, the Washington Metropolitan Area Transit Authority shifted its schedule to better meet customer needs and saw a rise in ridership and farebox revenue.Improved fare structures can also help, such as simplifying fares and increasing discount programs. Agencies can offer targeted discounts to low-income individuals and make systems easier to use through measures like free transfers. Non-farebox revenue, which historically made up only 5 to 10 percent of total agency funding, can be increased by focusing on possibilities like real estate development and international concessions. US agencies could boost non-farebox revenue by 10 to 20 percent through actions like encouraging transit-oriented development, capturing value from adjacent real estate, and leasing out excess space.

Spending More Efficiently

An analysis of US transit agency bus operations shows a wide range in operational spending per vehicle revenue hour. There is significant potential for efficiency gains even when adjusting for unique operating characteristics. On average, about 65 to 70 percent of agency spending goes to operating expenses and 30 to 35 percent to capital expenditures.To reduce costs and improve fiscal stability, agencies should focus on more efficient spending in both categories. In vehicle operations, savings can be achieved through AI-powered workforce management and routing software. For vehicle and facility maintenance, savings can be made by using predictive maintenance and optimizing procurement. In general administration, savings can be realized through process simplification and reallocating office space.

Making Informed Decisions about Capital Expenditures

Data shows wide variations in transit agency capital expenditures with little correlation to performance. Annual debt service from capital programs is a rising cost for many agencies. To ensure the positive impacts of capital programs are realized, agencies can use mechanisms like prioritizing projects, choosing effective requirements, and managing costs during construction. Establishing shared standards among US agencies could simplify the capital program process.Successful agencies use three levers to achieve capital program efficiency gains. They focus on selecting the most effective projects based on demand and ridership patterns. Projects can be carefully designed to eliminate non-value-adding elements and adopt contract strategies. And a relentless emphasis on project delivery ensures projects are on time and within budget.Public transit is a vital part of urban infrastructure, and transit agencies are taking actions to manage expenses and improve services. By acting early, they can avoid a negative cycle and provide the mobility services their communities need.