LA Metro hopes to manage, not fall off, a ‘fiscal cliff’ in its budget choices
Despite steady ridership growth, LA Metro faces budget challenges in the next few months as managers seek ways to tackle escalating operating costs and revenue shortages to make up for Metro’s loss of federal pandemic bailout dollars that helped them balance the last three budgets.
“We are facing a fiscal cliff, too. We are trying to keep it manageable,” said CEO Stephanie Wiggins.
Wiggins indicated that LA Metro’s budget woes are not as severe as those affecting transit agencies in Philadelphia, Chicago and the Bay Area. “My counterpart in Washington D.C. is talking about potential service cuts,” she said.
Chicago’s three transit agencies are approaching $730 million in the red in 2026, and possibly more than $1 billion in the hole in 2031 if there are no cutbacks or revenue enhancements. Bay Area Rapid Transit (BART) could face a $1 billion cumulative deficit over the next five years absent budget cuts, service reductions or more revenue — such as raising fares, the Mercury News reported.
Wiggins, in an interview on Dec. 28, said, “I will be bringing to the board some trade-offs,” but she declined to say what programs would be touched, reduced or cut. “We can reduce the rate of growth of some operating costs,” she said.
Three Metro staffers — Melissa Wang, deputy chief financial officer; Irene Fine, senior executive officer of finance; and Anelli-Michelle Navarro, also senior executive officer of finance — said in an interview on Jan. 3 that they did not know the budget amount, or what the deficit would be, if any, because the budget isn’t slated for adoption until May.
“We are trying to mitigate some of the challenges, but at this point nothing specific has been identified,” said Fine.
LA Metro’s current budget of $9 billion has an operations reserve fund of about $200 million, which is 5% of operating costs, Wang said. It’s possible that Metro could use some of its reserves to balance its budget.
In a report on the upcoming 2025 fiscal year budget, Metro laid out seven areas where spending is projected to outpace sales tax revenues by more than 2-to-1 in the next five years, from 2024 to 2029. The report concluded that overall, “The operating cost growth (6.5%) is increasing faster than sales tax and operating revenues (2.6%).”
“Clearly there is a gap,” said Wang. “We will use the next four months to address it.”
Rising costs of labor, insurance premiums and workers compensation, property, electric buses, law enforcement, cleaning programs and rail line expansions are making it more expensive to operate the massive system, Wiggins said.
“Our safety and security costs will almost double in the next five years,” Wiggins said. Law enforcement contracts with Los Angeles Sheriff’s Department, LAPD and Long Beach PD over the last five years cost about $870 million. That’s expected to reach $1.5 billion for the next five years, according to the report.
The Metro board will receive an update later this month on building an in-house Metro security department that would take the place of law enforcement contracts.
Cleaning costs grew by 8.6% per year over the last five years, as Metro added more custodial teams due to the homeless inhabiting trains and stations and the opioid epidemic, Metro reported. Metro wants to limit growth in this area to 5.5%.
Metro opened the K Line in South L.A. and Inglewood in October 2022, and added the $1.8 billion Regional Connector with three new stations in downtown Los Angeles in June 2023. In the next year, Metro will expand its rail network further, with the completion of the A Line Foothill extension from Glendora to Pomona by late December, plus the anticipated opening of the Airport Metro Connector in November or December.
More rail lines translates into more costs for Metro.
The cumulative cost for operating these rail line expansions is projected at $342 million, that amounts to 28% per year average growth from 2024 to 2029, according to the report. It costs Metro nearly 2.5 times more to run a train for one hour than a bus for one hour.
Costs for insurance are projected to rise 20% yearly in the next five years. Also, Metro is paying more for fuel and parts for buses and trains, and for electrical power, the report stated. Finally, Metro will need to spend another $4.3 billion through 2030 to fulfill its mandate for an all-electric bus fleet.
The flip side of the problem involves decreasing revenues. Revenues are falling short of projections contained in the current 2023-2024 budget, said Navarro. For example, Metro received $367 million in sales tax dollars in December, 2.6% less than December 2022.
Metro is in better shape than those other transit agencies because it gets several billion every year from four one-half cent sales tax measures: Propositions A and C, and Measures R and M. State and federal grants, toll road revenues and fares also contribute to revenue. Fares amount to $146.8 million, a small fraction of the agency’s $9.1 billion budget.
“Yes, over the long term there is a problem. There are some serious budgeting issues Metro has to deal with but these are not as immediate as what is happening in the Bay Area,” said Eli Lipmen, executive director of the nonprofit Move LA. Lipmen was recently appointed to a state-created task force examining public transportation issues.
Unlike some other agencies, Metro saw continual increases in ridership in 2023. Average weekday ridership reached 907,343 boardings in November, the third consecutive month that weekday ridership passed 900,000 boardings. That is about 83% of pre-pandemic ridership levels, Metro reported last month.
Also, Metro’s local sales tax measures provide continual funding, something BART does not have, Lipmen noted. The task force is lobbying the state for more dollars to bolster public transportation.
He advocates for continued improvements in bus and rail frequencies at Metro, in order to remove more cars from the roads, decreasing pollution, greenhouse gases and traffic congestion.
Wiggins agreed that continuing its recently implemented faster service on several rail lines, and bringing bus service back to pre-pandemic operations, should not be changed. “The increased service on subways and our light rails are critical to continuing ridership growth,” she said.
She added, however: “There are some elements of our operating structure that we need trade-offs for. Stay tuned for that.”