VTA Faces $25 Million Deficit

The Santa Clara Valley Transportation Authority (VTA), which the Antiplanner has sometimes called the nation’s worst-managed transit agency, is facing a $25 million deficit next year, which will probably lead to service cuts. As the Friends of Caltrain (the commuter rail line that connects San Jose to San Francisco) note, the elephant in the room is whether VTA should go forward with its plans for billions of dollars of capital projects when it can’t afford to run the system it already has.

Friends of Caltrain doesn’t specifically say so, but the real elephant is VTA’s plans to extend the BART line to downtown San Jose. VTA is “97 percent complete” building a 10-mile line from Fremont to Berryessa (a neighborhood in north San Jose). This line, which is costing $2.3 billion, was supposed to be open at the beginning of 2018, but thanks in part to a scandal over a contractor’s use of used parts in construction, the opening has been delayed until late 2019. (An update from Friends of Caltrain says the VTA board was willing to look at capital projects, but still did not specifically mention BART.)

Extending the line another 6.5 miles to downtown San Jose is expected to cost another $4.7 billion, or more than $720 a mile, mainly because much of it will be underground. VTA expects to ask the Federal Transit Administration to cover $1.5 billion of this amount, leaving local taxpayers to cover the rest. If this project is ever completed, BART riders arriving in downtown San Jose are likely to find a stripped-down transit system that probably won’t take them where they want to go if it is more than a couple of blocks from the BART station.

VTA has had to reduce service in response to financial crises at least twice in recent years. When the dot-com crash took place in 2002, VTA ridership fell by a third partly because service was cut by 25 percent. After the 2008 financial crisis, VTA had to cut service by 10 percent but lucked out in that ridership fell by only 5 percent.

VTA won’t be so lucky now. Since 2015, ridership has fallen by nearly 18 percent. This is partly a result of 12 percent service cuts since 2014, but mainly due to competition from ride-hailing and other alternatives. Fares account for less than 10 percent of VTA’s operating revenue (which is a sign of how much VTA is overspending), but the real problems come during recessions, when sales taxes — the source of most VTA funds — decline.
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Building rail transit makes agencies such as VTA more vulnerable to recessions because they borrow heavily against future tax revenues to fund construction. If half of an agency’s revenues are dedicated to bond repayments, a recession that reduces sales tax revenues by 10 percent would require a 20 percent cut in service. The situation after the dot-com crash was so severe that VTA was forced to sell park-and-ride stations just to make payroll.

Convention wisdom says that San Jose is suited to rail transit because it has such a high population density. The 2010 census found an average density of 5,820 people per square mile in the San Jose urbanized area, which made it number three after Los Angeles (7,000) and San Francisco-Oakland (6,300), and ahead of New York (5,300). This just shows how wrong conventional wisdom can be, as the share of Silicon Valley commuters who take transit to work is much smaller than in many lower-density urban areas including Chicago, Washington, Seattle, Pittsburgh, Honolulu, and others.

The real key to transit, as the Antiplanner noted last week, is downtown jobs. Less than 4 percent of Silicon Valley jobs are located in downtown San Jose, according to Wendell Cox’s analysis of census data. San Jose has a hub-and-spoke transit system with light rail, Caltrains, and soon BART all bringing people into a downtown that is devoid of many jobs. In fact, Caltrains and the proposed BART line will probably take more people out of downtown to work elsewhere than bring them to downtown jobs.

San Jose and VTA would have been better off if they had never built light rail nor embarked on the BART extension. Caltrains, which descends from commuter trains once run by the Southern Pacific, is another question: though the recent decision to electrify it will never pay off, it actually covers close to 75 percent of its operating costs out of fare revenues. However, as far as San Jose is concerned, it does more to make that city a tributary to San Francisco than the other way around. In any case, VTA needs to seriously consider dropping plans to build BART to downtown San Jose so that it can have the funds it needs to operate a decent transit system.