Met Council facing deficit in transportation budget

Council discusses fare increases and service reductions for Metro Transit

Discussions are just beginning around fare hikes and service reductions, but Metro Transit officials say any changes would take until fall 2017 to enact. Photo by Dylan Thomas

Metropolitan Council is facing a $89-million projected deficit in its 2018–2019 transportation budget, and that may mean fare increases or reduced bus and light rail service are on the horizon for Twin Cities transit users.

The deficit is due to a projected shortfall in the motor vehicle sales tax, a major source of revenue for Metro Transit operations funded by the Metropolitan Council. It takes an estimated six to nine months to institute fare increases or service cutbacks, but the public engagement required to make those changes is expected to start soon.

“I would say it was, on the one hand, not a surprise that there was a shortfall, but on the other hand, the shock was for us was how large the gap was and how much the shortfall had grown,” Met Council Chair Adam Duininck said, adding that the gap had doubled in size since this spring, when the shortfall was projected at about $50 million.

Met Council is already drawing on regional transit reserves to prop up a structural imbalance in its 2017 transit budget, council CFO Mary Bogie told members of the regional planning organization when they met Dec. 14.

Bogie said Met Council already has cut administrative costs and instituted a targeted hiring freeze in its transportation department. That hiring freeze isn’t expected to impact current transit operations. Met Council is also reviewing its slate of projects planned for 2017.

Although the state is projecting a $1.4-billion surplus for the next biennium, the forecast also calls for slower economic growth. Motor vehicle sales tax revenue already was projected to be lower in February, but updated projections in November revised those revenues downward again by $8.9 million.

Revenue from the sales tax accounted for 44 percent, or $225 million, of the council’s 2016 transit operating budget of $517 million.

“We knew this was coming,” Bogie said. “We knew MVST was a very volatile revenue source that relies on consumers to buy big-ticket items even when the economy is in a downturn.”

Duinick said Met Council is in talks with the state Department of Human Services tap Medical Assistance funds to help cover some of the cost of its Metro Mobility service. He declined to say how much new revenue the deal could produce, but said “it would be significant.”

He said a better, longer-term solution would be for the legislature to pass Gov. Mark Dayton’s proposed half-cent metro-wide sales tax for transit. That could raise $280 million annually for bus and light rail operations.

The Counties Transit Improvement Board currently funds capital costs and a portion of operating costs for light rail, commuter rail and some bus corridors using a quarter-cent metro-area sales tax. But the board is in a state of flux prompted by Dakota County’s decision to withdraw, and Duininck said changes to CTIB could allow it to direct more funding to other transit operations.

Metro Transit fare haven’t increased since 2008. While many transit operators aim for fares to recover about 28 percent of costs, that rate has slipped to about 22 or 23 percent for Metro Transit.

“I’m not the biggest fan of raising fares … but if it’s what we have to do to be fiscally responsible, it’s something we have to take a look at,” Duininck said.

He said fare increases have been shown to increase revenue, but the immediate effect is typically a drop-off in ridership. It can take Metro Transit 12–18 months to recover those riders after a fare increase, he said.

Metro Transit General Manager Brian Lamb said the earliest service reductions could be made is September 2017.

Council Member Jennifer Munt, who represents western Hennepin County, described the combination of fare hikes and service cutbacks as a “nightmare.”

“Imagine saying to our customers you get to pay more for less,” Munt said. “Their response will be I’ll just buy a car because I know my car is there for me. I don’t want to have to do this.”

Council Member Gary Cunningham of Minneapolis said service cutbacks would affect “the most needy in our population,” and that low-income transit riders should be shielded as much as possible from cutbacks. Bogie responded that fare hikes and service reductions alone won’t solve the deficit problem.

Duininck noted that the deficit in the transit budget, while significant, amounted to just 7 percent of Met Council’s overall budget.

“We don’t want to overstate the problem, either, and say the sky is falling,” he said. “There are still ways to plan for that.”