Without more federal aid, SFMTA may start dipping into ‘rainy day’ reserves

Financial forecast bleak, with a $32 million operating budget deficit expected this fiscal year

President Donald Trump’s brash decision to halt negotiations over federal relief between Speaker of the House Nancy Pelosi and Treasury Secretary Steven Mnuchin Thursday pushed small businesses, local governments and entire industries yet another step closer to financial ruin.

Public transportation agencies, including the San Francisco Municipal Transportation Agency, are chief among them.

The SFMTA is currently running on the $197 million in federal CARES Act funding awarded in May, but those dollars are projected to dry up by the end of 2020 and more drastic steps will be necessary to endure the extended downturn caused by the coronavirus.

Despite having implemented a fairly robust set of cost-saving measures approved in June to offset declining ridership and sales tax, SFMTA nevertheless faces an estimated $32 million operating budget deficit for the current fiscal year, just two months after it started.

SFMTA staff prepared the Board of Directors Tuesday night for the likelihood that it will be asked to consider a budget-balancing proposal in the coming months that would require dipping into the agency’s $125 million of stockpiled contingency reserves.

Leo Levinson, the chief financial officer of the transit agency, reassured board members he wanted to be “prudent and transparent” about the extent to which they’d rely on what’s known as the “rainy day reserves.”

Though Tuesday’s discussion was merely informational, staff recommended putting bounds on reserve usage that mirror those of The City. This policy would allow SFMTA to access 30 percent, or $37.5 million, of its contingency reserves this fiscal year, followed by 35 percent, or $44 million, the following year.

Staff presented a number of revenue scenarios to the board in June, each dependent on different assumptions about ridership, parking and other funding streams. Staff has since deemed the more optimistic of these scenarios implausible, which is why it wanted to familiarize the board with the idea of drawing from the rainy day funds.

Use of the contingency reserve was warranted only in the worst case scenario, which the transit agency now finds itself approaching amidst grave uncertainty around the future of ridership, federal relief and an $11 million reduction in its General Fund fund allocation as a result of The City budget passed by the Board of Supervisors last month.

“I don’t think I’m, on principle, against the idea. It’s raining outside pretty hard right now,” Board member Steve Heminger said. “On the other hand, you want to do everything you can to avoid it.”

To cut costs,SFMTA has radically cut overtime, instituted a hiring freeze for any non-mission-critical positions and scratched programs or contracts considered relatively superfluous to the core objectives of the agency in this resource-constrained environment.

These measures achieved a $66 million expenditure surplus, which basically means the agency was able to craft a spending scenario that required them to dole out less money than planned.

But it’s simply not enough to keep up, with revenues declining at warp speed. Staff estimates a $98 million revenue shortfall this fiscal year as compared to budget.

The bulk of that loss comes from absentee transit fares, as overall ridership for trips within San Francisco has plateaued at about 65 percent below pre-pandemic levels, according to data from Google Mobility. At its peak decline in early April, it was down 74 percent.

The agency has also granted a payment forbearance to the contractors responsible for advertisers on vehicles and transit shelters, for a multi-million dollar loss.

Currently, revenues from parking and traffic fees are expected to meet budget as driving has almost returned to its pre-pandemic levels, according to that same Google Mobility data, though that could be subject to revision depending on how San Francisco’s reopening plans play out.

An additional $2 million in parking revenue loss caused by the Shared Spaces program is also being factored into projections. Staff estimates over 1,000 shared spaces permits in parking lanes have been issued which, though a boon to local business, hit the transit agency’s parking meter revenues and additionally direct staff resources towards an enterprise that doesn’t create dollars directly for SFMTA.

Staff told the Board it’s optimistic the return of fare inspectors, an eventual return to all-door boarding and a marketing campaign to encourage riders to “pay their share” on Muni could improve revenue.

“What we’ve really got here is a revenue problem, not an expense problem,” Heminger said, encouraging staff to take an extra look at where they could possibly cut expenses at the fringes.

The Board will likely see a proposal from staff to draw from rainy day funds in January of February, according to Levinson, when they’d have a clearer sense of ridership and mobility trends as well as the likelihood of federal aid.

“We’ll take as much as we can get,” Levenson said of the prospect of relief, though he hesitated to speculate an exact number the agency would need to get through due to so many uncertainties.

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