State legislature leaves Bay Area transit bailout in limbo

As the California Legislature ended its session last week one of its odder scenarios had to do with an on-again, off-again $750 million loan to financially strapped public transit systems and companion legislation that would authorize San Francisco Bay Area bus and rail systems to seek voter approval for a regional sales tax hike.

In a sense, Gov. Gavin Newsom is responsible for the systems’ financial pickle because five years ago, as the COVID-19 pandemic struck, he issued far-reaching orders to close businesses, or at least have their employees work from home, to reduce exposure to the deadly disease. Transit systems immediately saw sharp declines in patronage and farebox revenues.

They received some federal relief funds, but those bailouts eventually ended and ridership continued to lag behind pre-pandemic levels. As the squeeze tightened, Bay Area civic and political leaders began pressing for state permission to place a transit tax increase on the 2026 ballot. They also sought an immediate state bailout to maintain service.

The state budget approved by legislators and Newsom in June contained authorization for a $750 million loan, even though the budget had a multibillion-dollar deficit. The $750 million figure emerged after an initial proposal for a $2 billion state bailout to split between systems in Northern California and Southern California failed to gain political traction.

The loan was to be finalized by additional legislation setting forth terms, including repayment and interest, if any. But over the next two-plus months, culminating in the Legislature’s adjournment last week, the people involved never agreed on the details.

Who did or didn’t do what remains something of a mystery. Newsom’s administration and Bay Area legislators have been blaming one another for the failure to complete the deal.

Eventually, just before adjournment, Newsom said he would “offer short-term financial assistance to support Bay Area transit agencies with hundreds of millions of dollars,” but he didn’t give an exact number.

“Transit is a lifeline to millions of Californians — and after billions in state investment, we’re continuing to back Bay Area agencies with ongoing support tailored to their needs,” Newsom said in a statement. “We’ll keep partnering with them now and into the next year — aligning flexible financing tools to their timelines — so we can deliver a sustainable, rider-first transit system together.”

Meanwhile, the legislation authorizing a 2026 transit tax election in five counties, Senate Bill 63, was passed. But the story doesn’t end there.

As now structured, the transit sales tax — a half-cent in four counties and a full cent in San Francisco — would require voter approval by a two-thirds majority. But advocates may seek to place the tax hike on the ballot via initiative petition, which would then require only simple-majority passage.

Underlying the maneuvering about Bay Area transit support is state officials’ assumption that transit will play a major role in the state’s crusade to reduce greenhouse gas emissions to zero by 2045. To perform that role, transit operators would need very large, ongoing injections of taxpayer funds, a new study indicates.

The California Policy Center, a conservative think tank, examined the finances of California’s 85 transit systems, using data from the Federal Transit Administration. It found that overall, the systems collected $897 million in fares in 2023, scarcely 10% of their $8.76 billion in operating expenses. Costs were rising faster than income — and that doesn’t include capital expenditures.

Dan Walters has been a journalist for more than 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. He can be reached at dan@calmatters.org.