Transit’s Ticking Time Bomb

America’s largest transit agencies have obligated taxpayers to cover billions of dollars in pension and health care costs over the next thirty years. To see just how serious this problem is, the Antiplanner examined the consolidated financial statements for about two dozen of the nation’s largest transit agencies. The results vary widely from agency to agency: some have almost no unfunded obligations, while others appear headed for default or other serious financial problems.

The numbers in the table below are based on the latest financial statements I could obtain for each agency. Mostly this means 2013, but in a few cases they are one or two years older. Most agencies have growing unfunded obligations, so more recent updates are probably worse than shown. Agencies in some large cities, including Baltimore, Detroit, Minneapolis-St. Paul, San Francisco, and Seattle, are operated by other units of government whose financial statements don’t distinguish between unfunded transit obligations and other unfunded obligations. So if your large urban area isn’t on the above list, that’s probably why.

Unfunded Pension and Health Care Obligations<_center>

The financial statement for New York’s Metropolitan Transportation Authority separately lists the unfunded obligations of four different agencies: Long Island Railroad, Metro-North, MTA, and the Manhattan and Bronx Surface Transportation Operating Authority. It is striking that Metro-North has no unfunded obligations, while MTA, which runs the subways and most city buses, has a staggering obligation of nearly $20 billion, which is more than all the other agencies in the table combined.

In the same way, the Chicago Transit Authority has $1.2 billion in unfunded obligations, but as near as I can tell, Metra, Chicago’s suburban commuter train operator, has no unfunded obligations. It is possible that some suburban commuter agencies are immune from the problem because they are controlled by federal railroad retirement rules; if so, that only shows that other agencies could choose to fully fund their future obligations as well.
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One measure of the severity of problem is the ratio of unfunded obligations to the annual operating expenses for each agency. By this measure, Portland’s TriMet is number one, with obligations that are more than three times its 2012 expenses. New York’s MTA is a close second, while the average of the agencies shown here is 160 percent of the annual operating budget.

Another measure is the unfunded obligation per trip carried. At nearly $11, TriMet was beaten in this category by the Long Island Railroad and Port Authority of Allegheny County (Pittsburgh). I’m no expert, but I’d say that any agency with unfunded obligations of more than 20 percent of its operating budget or more than $1 per trip is in serious trouble.

Most of the agencies I looked at operated rail lines as well as buses. Two bus agencies, Orange County Transit and Pinellas Suncoast Transit, have minimal unfunded obligations, but a third, AC Transit, has huge obligations. I’ll have to look at more bus agencies to see if AC Transit is an anomaly, which would suggest that bus agencies are mostly immune from the unfunded liability problem, possibly because rail costs are so high that they tempt agencies to defer funding of their pension and health care obligations.

The agencies shown in the table carried 72 percent of transit trips in 2012 and have unfunded obligations totaling $37 billion. If the remaining transit agencies have obligations average $5 per trip, the total of unfunded obligations is more than $51 billion. I suspect smaller transit agencies have much smaller liabilities, but since many large agencies are not in the table, the total is probably pretty close to $50 billion.

It would be easy to dismiss this problem by saying that future growth in tax revenues will take care of it. That could be true with agencies like Pinellas Suncoast (PSTA) and Orange County Transit that have kept unfunded obligations low, but it is certainly not true of agencies like TriMet and MTA that have left their pension and health care plans unfunded while they build expensive new rail transit lines. In the next couple of decades, these agencies will have to choose between massive tax increases, severe service cuts, or defaulting on their pension and health care plans.