With the possibility that Los Angeles County voters will be considering a Measure R extension on the November ballot, Metro has been getting a lot of questions from customers and media.
The big one: will Metro have to raise fares to have the money to operate new Measure R transit projects if they are accelerated?
The answer from Metro CEO Art Leahy, and this is nothing new: There are no fare increases proposed by Metro staff at this time. However, even without a Measure R extension, it is likely that Metro will consider fare increases and/or a change in fare structure in the coming years to help balance its budget, as is required by law.
First, some background. In 2010, the Metro Board of Directors approved the agency’s Long Range Transportation Plan covering the next 30 years. The plan explicitly stated the following (and we’ve reported this before):
“Metro transit fare revenues currently pay for only 29 percent of our cost to operate transit services. Cost savings are essential to improving this percentage to the planned level of 33 percent. Specific cost strategies are being implemented, but fare adjustments will be necessary to avoid serious deterioration in transit service.”
In this fiscal year, fares are estimated to cover 27 percent of Metro’s costs. Obviously there is work to do to get that number moving in the direction to reach the 33 percent threshold.
Metro staff have been working on a draft financial plan that considers the impacts of a Measure R extension on the agency’s finances. Here’s what Metro CEO Art Leahy wrote about the plan in a recent email to staff:
“Preparing this draft document enables us to inform the Board of Directors and the public about the financial impacts of the proposed Measure R extension.
Let me underscore the word draft. The Board has not adopted the plan. The Board has not even discussed it yet, and staff has made absolutely no recommendations on fare changes or paring expenses. But the fact is we do have a draft plan and that plan does not include excessive or frequent fare increases, deficits or major service cuts.
This year, our farebox recovery ratio is forecasted to be about 27 percent, among the lowest of any major transit property in the world. Metro has had only three fare increases in the past 17 years. In fact, the Long Range Transportation Plan (LRTP), which was unanimously approved by the Board, assumes a 33 percent farebox recovery ratio to be achieved by FY 2015 and then maintained by periodic fare structure adjustments or cost savings throughout the entire LRTP period through 2040. We assume that the transit rider will be paying for one-third of the operating cost to provide Metro transit services. Transit sales tax or other revenues such as lease revenue from joint development at Union Station and around other Metro Rail stations and advertising dollars will be used to subsidize the other two-thirds of our operating costs.
As it is, we will not face an operating deficit for another four years, and it is projected then to be $65 million, about 4.4% if nothing changes. But I assure you we will take action to avoid a deficit. Going forward, vigilant cost and revenue management will be necessary to ensure future success.”
Leahy also made two other points worth repeating:
•If Metro can reach a fare recovery ratio between 30 and 33 percent, there are no projected operating deficits, even if all Measure R transit projects are completed by 2025.
•Metro continues to plan to increase bus service hours by 10 percent by 2039 while the agency will continue to integrate its bus and rail system with other municipal operators as well as Metrolink and Amtrak. The idea is to create a regional transit system.
I’d like to add a final note: there are few government agencies these days projecting surpluses in the future. That’s just the nature of the beast of government. Costs rise, costs must be reigned in. It’s a constant exercise in financial planning and one that Metro is heavily engaged in.