Transit agencies are maintaining a healthy bottom line amid slumping ridership numbers, because municipalities see public transportation as an investment and are providing increased funding for it.
That was the conclusion of a recent Moody’s Investors Service report that analyzed 10 transit agencies. All 10 experienced a ridership decline from 2014 to 2019, but nine of them have maintained stable ratings.Municipalities are finding new ways to fund transit, from the congestion pricing recently initiated in New York, to new sales taxes and grants.
“Governments’ commitment to mass transit remains very strong because they are willing to either dedicate a portion of the tax base or dedicate specific taxes to mass transit,” said Nick Samuels, a Moody’s analyst.
Of the agencies examined by Moody's, only the A1-rated New York Metropolitan Transportation Authority had a negative outlook.
Nationwide transit ridership in the fiscal year ending June 2018 was 2.7% less than in 2017, following three years of steady losses and a 7.5% total decline from fiscal years 2014 to 2018, according to the
In some instances states have banded together to boost funding for transit, such as in the case of the Washington Metropolitan Area Transit Authority that serves the nation's capital as well as suburbs in Virginia and Maryland. Ten years ago, WMATA brought in 40% of its operating and capital revenue from its fare boxes. As of fiscal 2018, fares accounted for less than 30% of the authority’s combined operating and capital revenue, Moody’s analysts said. Ridership fell 15% over 2016 and 2017.
D.C., Maryland and Virginia steadily increased their funding as ridership fell, reducing reliance on fares. All three adopted legislation to provide an aggregate $500 million in new capital funding in fiscal 2020 to support WMATA's capital improvement program.
However, just because the transit agencies gained support from governments, that support still could be disrupted, analysts said.
“Enterprises reliant on government subsidies are vulnerable to shifting political winds or rising economic and financial challenges faced by the higher government,” analysts said.
Moody’s
The American Public Transportation Association said they see support for public transit bonds in large and small communities, pointing to a number of successful initiatives in the last couple of years.
“Local governments that want to keep communities connected continue to see public transit as an investment for the future,” APTA said.
George Friedlander, managing partner at Court Street Group LLC believes that governments are providing more funding to push for a lower carbon society.
“They’re designing their whole cities and in particular they’re designing the entire transportation system for a low carbon environment and public transportation is going to be part of that,” Friedlander said.
State and local governments have the assumption that transit will become low carbon somehow, Friedlander added, but the incentives still need to be seen. Federal funding is difficult to predict, as is what prohibitions against carbon may arise, especially as an upcoming election approaches.
The health of transit agencies will really hinge on rating agencies determination and if investors will be interested in a low carbon component, Friedlander said.
“Rating agencies are very careful on this and a decently rated public transportation system is as valid of an investment as another decently rated municipal and also has the advantage of likely being part of a low carbon role going forward,” Friedlander said.
Emily Raimes, Moody’s analyst said they look at the overall transit agencies when providing the ratings, but also look heavily at the bonds and what is paying those such as sales taxes.
Some transit agencies get financing through Grant Anticipation Revenue Vehicle bonds, called Garvees, which are federally funded through the Highway Trust Fund. The HTF has been bleeding money since the federal gas tax has not been raised in over 20 years.
Ratings for Garvees have weakened over the years because of the state of the HTF has not kept up with the needs of transit systems, Raimes said.
“It (HTF) is a factor and it is something that we look at,” Raimes said. “If federal support for the Highway Trust Fund and actual general fund monetary support were to significantly decline, that would absolutely be a factor that would make a lot of these entities have to look for other support.”
