Caltrain will face a revenue shortfall of anywhere from $18.5 to $31.3 million for the current fiscal year, if ridership continues to plateau at 5 percent of pre-pandemic levels and Congress continues to stall on providing relief funds.
The Peninsula Corridor Joint Powers Board adopted a $35 million operating budget Thursday for the second quarter of fiscal year 2020-20201 that ends in June, part of an attempt at addressing the current financial devastation with a piecemeal approach.
Rather than adopt a full-year budget in September at the conclusion of a tumultuous first quarter, the Joint Powers Board instead opted to take a quarter-by-quarter approach to avoid approving a balanced budget with a $60 million deficit.
Doing so buys the Board more time to see if the federal government provides a lifeboat, how regional Bay Area reopening efforts impact ridership and what happens with Measure RR, the ballot measure that would levy a one-eighth cent sales tax on the Peninsula rail agency’s three member counties and provide it with a long sought dedicated source of funding to the tune of roughly $108 million per year.
Approval requires two-thirds of voters in San Mateo, Santa Clara and San Francisco counties to vote in favor of the measure.
COVID-19 has exposed the vulnerability of the Caltrain funding model whereby nearly 70 percent of its earnings come from farebox revenue and a sizable portion of the remainder comes from voluntary and equal contributions from the three member agencies.
Fares from individual riders and GoPass holders, a program that allows certain companies, educational institutions and residential complexes to purchase annual unlimited-ride passes, are expected to generate just $8.4 million in FY21’s second quarter, which represents less than 25 percent of the total operating budget for the same period.
Though the Joint Powers Board isn’t technically required to pass a balanced budget, directors asked staff to allocate the entire $41.5 million balance of CARES Act funding to cover the deficit from the first quarter and the projected deficit from the second.
Doing so leaves about $3.2 million for the remainder of the year, according to staff estimates.
Caltrain is currently running 70 trains per day, down from its pre-pandemic 92 daily, to cut costs.
Staffing levels for rail operators, however, remain at the same levels as ordinary times, which means the agency is paying roughly $15 million more on an annualized basis than it would should it employ only enough workers on the payroll to fulfill reduced service needs.
Derek Hansel, chief financial officer for Caltrain, said the agency has been working with TransitAmerica Service, Inc, the rail operator contractor, to “tighten down the cost” through interventions such as a hiring freeze, overtime reduction and shifting staff capital projects in order to avoid layoffs.
Without a robust injection of federal funding or an unexpected and dramatic uptick in ridership, though, layoffs might be inevitable.
In that case, Caltrain leadership committed to a 60-day notice ahead of time.
This budget assumes the same 70 train schedule through the end of the quarter with a plateauing 5 percent ridership. Staff thought in its first quarter budget approval in June that ridership would have increased to 10 percent by this point, but recent indicators suggest otherwise.
Looking ahead, though, staff estimates do project ridership will increase to as much as 20 percent of pre-pandemic levels as the fiscal year continues, an assumption it admits carries “significant risk.”
The Joint Powers Board will consider an operating budget for the remainder of FY21 at its meeting on December 3. Staff will be tasked with presenting a plan to achieve a balanced budget, even if that means withdrawing from reserve funds.
At that time, directors will hear proposals for how to close the gap between revenues and expenditures which could be as low as $18.5 million or, staff believes, as high as $31 million.
Cutting costs through additional train service reductions is basically a non-starter, staff said Thursday when asked about a scenario where only 40 trains would run daily, cutting weekend service entirely.
Doing so would compromise its ability to fulfill its public mission to serve essential workers, Chief Operating Officer Michelle Bouchard said.
Staff previewed some of the gap closing measures to be presented in December. Other than dipping into reserves, prospective tools include furloughs, elimination of weekend service, deferring capital projects and maintenance, and working creatively to gain earnings from real estate and naming rights, among other things.