Transit in crisis: Desperate times call for bold measures
How COVID-19 is an existential threat to transit agencies across the country
The situation
One of FDR’s most quoted lines is from a speech he delivered 87 years ago in the midst of an unprecedented economic crisis:
This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.
FDR would use the next 100 days of his presidency to enact a series of large-scale government programs intended to spur the economy back into life, including the Federal Emergency Relief Administration (FERA), Civilian Conservation Corps (CCC) and the Tennessee Valley Authority (TVA). While the efficacy of those programs is a matter of spirited debate, the scope of FDR’s “New Deal” is undeniable.
Today, Americans find themselves in an equally unprecedented situation. Whereas in 1933 Americans were trembling with fear from a massive collapse of the economy, today we are cowering under the shadow of an invisible enemy. A potentially deadly pathogen - the novel coronavirus SARS-COV-2 (“COVID-19”) — has brought the country (and the world) to a screeching halt. This time around, the economy is less a cause of the psychological terror than it is a victim.
Many of the nation’s largest metropolitan areas are already under lockdown or are contemplating “shelter-in-place” orders. Soon enough, much of daily life will resemble a pale shadow of its former self. Besides the periodic trip to a grocery store or pharmacy, Americans will be doing a lot less moving about. And when they do travel, we can reasonably expect that most people will avoid relying on buses or trains. Even Uber and Lyft announced they were “pausing” shared rides on their platforms.
All of this has massive implications for public transit systems across the country. Systems designed to move lots of people in shared spaces from Point A to Point B become meaningless in the midst of a national quarantine. There is no greater existential threat to public transit than the possibility of a prolonged restriction on people’s movements.
Public transit has no lobbyist
Right now, in hotel conference rooms and offices across D.C., lobbyists from every industry are meeting with or telephoning US Senators and Representatives to plead their case for financial support. The most publicized of these has been the airline industry which is seeking upwards of $50 billion in cash grants. On top of this:
the hotel industry is seeking upwards of $150 billion in direct assistance;
the rental-car industry is asking for grants, loans and loan guarantees;
the US Travel Association (i.e., hotels) is seeking upwards of $250 billion in relief;
the American Gaming Association (i.e., casinos) is asking for financial support; and
the Cruise Lines International Association (i.e., cruise ships) is seeking federal aid.
That’s just to name a few. Obviously, these numbers are just requests and do not represent actual money awarded. The details of a ~$1 trillion emergency spending bill are still being fleshed out by Congress. However, it speaks volumes to how political influence is exercised in this country. When a serious crisis hits, just as it did in 2008, K-Street lobbyists go to bat for their clients. Billls are drafted with these requests in mind. So who lobbies for public transit agencies?
This is the classic collective action problem. It is extremely difficult to organize support for public transit which benefits a large, diffuse group of people. Each individual user of public transport has a hard time imagining that his/her writing a letter to their Senator matters. By contrast, it is relatively easy to marshal support for a policy that benefits a small group of people with lots of money.
This is not to suggest that public transit has no advocate. For example, Transportation for America has done a commendable job of rallying support. However, concentrated interests are always overrepresented, relative to diffuse interests (public transit users), in the policymaking process. As a result, we don’t hear about a $500 billion line-item for public transit agencies in the bill being drafted by Congress, even though these systems are equally exposed to pandemic-related economic risk.
“Financial calamity”
Due to a combination of factors including government-imposed lockdowns and riders’ fears of congregating in shared spaces, ridership has predictably plummeted across the country’s largest public transport systems. For example:
New York City’s MTA reported subway ridership was down by 60% and bus ridership declined by ~50% year-over-year as of 3/16.
Additionally, Metro-North Railroad which serves the suburban communities of NYC saw a 90% drop and ridership on Long Island Rail Road declined by 67%.
NJ Transit, which operates the largest commuter rail network in the country, reported an 88% drop in ridership.
San Francisco’s BART reported an 87% drop in ridership in comparison to a normal day in February.
Chicago’s CTA reported a 68% drop in ridership across the system (buses and “El” train). Additionally, Chicago’s Metra regional rail service is cutting service in half due to a 50% drop in ridership.
On Tuesday, less than 10% of Detroit’s buses were operational due to drivers striking over insufficient resources to properly sanitize vehicles.
Even before the virus arrived in the US, many of the states with the largest public transit systems were already on shaky financial ground. For example, Illinois has no “rainy-day” fund and is limited by a constitutional amendment that restricts use of motor fuel fees and taxes for road construction only. In New Jersey, the state relies heavily on high-income earners (e.g., capital gains taxes) which could take a big hit due to wild swings in the financial market.
In the days ahead, transit agencies across the country will struggle to pay their workers, fund basic operations, and pay down their debt obligations related to ongoing long-term capital projects. There is no sugar-coating this: without substantial federal assistance, these agencies will suffer complete institutional collapse. In a letter addressed to the New York Congressional Delegation, MTA Chairman Patrick Foye did not mince his words when requesting “robust federal aid”. Foye wrote that his agency was facing “financial calamity”.
Stories like New York’s can be extrapolated across many transit agencies, especially those which rely heavily on fares for their operations. Yonah Freemark, transportation researcher at MIT, ran “farebox recovery ratio” numbers on transit agencies across the country. The following represents a partial list of those agencies most vulnerable to financial collapse due to their high reliance on fares (expressed in percentage terms):
MTA (NY):
Subway - 53%
Long Island Rail Road - 50%
Metro-North Railroad - 59%
NJ Transit - 45%
MBTA (Boston) - 44%
Metra (Chicago) - 49%
CTA (Chicago) - 41%
BART (San Francisco) - 74%
PATH (NJ) - 44%
Additionally, the cost structure of most transit agencies is highly sensitive to macroeconomic shock. Many agencies rely on state subsidies in addition to locally-generated tax revenues, for example sales taxes, to fund a significant share of their costs. As Freemark notes, public transit agencies are particularly exposed since a large share of their operating costs are labor-related. Even when riders stop showing up, the agencies still have to pay their train and bus operators, administrators, and support staff including custodial and IT. And this says nothing about pension-related costs.
There will be tremendous political pressure on agencies to refrain from laying off workers when unemployment is already skyrocketing. However, it will seem futile to maintain normal service levels when no one is riding. Transit agencies are thus nearing the precipice of a very steep financial cliff.
A broken model
Let me propose a simple model in which transit ridership is a function of several factors, but primarily consists of:
Ridership = Zero_Vehicleβ1 + Vehicle_Costsβ2 + Transit_Accessβ3 + Accessible_Jobsβ4 + u
where:
Zero_Vehicle = number of households in a given metropolitan region who do not own a car;
Vehicle_Costs = costs associated with owning a car including primarily the price of motor fuel, average MSRP on entry-level cars, and price of parking;
Transit_Access = percentage of households in a given metropolitan region that live within walking distance to a transit stop (either bus or rail); and
Accessible_Jobs = percentage of jobs located in city’s core which are accessible by public transit (either by bus or rail);
u = error term which accounts for unobservable factors.
All of our variables are positively correlated with the dependent variable Ridership. An important caveat is that this model only makes sense under “normal” conditions. That is, the model only works when the economy is allowed to operate at its full potential capacity and in an environment that is free from government lockdowns, restrictions on movement, and forcible closures of businesses.
How does this model collapse in a world living with COVID-19? For starters, the “perceived value” of a personal automobile increases substantially. When local public health authorities are screaming practice “social distancing” as much as possible, getting anywhere by private transport suddenly seems like a very wise decision. This is something that would be contained within our error term; so, immediately we have a confounding factor which breaks the model.
Additionally, as millions of workers are being advised to work remotely (at least, those who are fortunate enough to have a job which enables that type of arrangement), living near a transit stop or working at an office that is serviced by transit connections doesn’t carry much weight anymore. Anyone that can set up a home-office is happy to comply, especially if it means they won’t run the risk of coming into contact with the infected.
Finally, the costs of vehicle ownership are actually decreasing which places a negative pull on Ridership. The price of gasoline is steadily declining with the national average approaching $2/gallon. This comes as US crude oil prices reached a 17-year low this week. Together, these factors feed into the “perceived value” of car ownership which only amplifies driving as a viable mode while simultaneously diminishing the value of transit.
Nearing a death spiral
For the reasons described above, public transit is facing catastrophe. Sure, there will be transit agencies that find they are less exposed simply due to the nature of their cost structures (e.g., if an agency relies on a dedicated revenue stream). However, the vast majority of public transit systems — the most recognizable being New York City’s MTA, San Francisco’s BART, Boston’s MBTA, Philadelphia’s SEPTA, Washington D.C.’s WMATA, Chicago’s CTA, and New Jersey’s NJTransit / PATH — are staring into the financial abyss.
As lobbyists from every industry line up for federal cash, it’s important to differentiate any transit rescue plan from a “bailout”. Bailouts gained prominence during the last economic crisis, when banks were cratering due to speculative trading of mortgage-backed securities (in addition to other bad bets).
Bailouts are short-termist and are treated as a form of “shock therapy” to resuscitate the economy back to life. Pandemics, however, are completely different animals than financial crises. What makes this moment so challenging from a policy-making perspective is accurately assessing the duration of the outbreak. No one knows how long the pain will last.
Much of the policy proposals under consideration assume a relatively brief economic recession (i.e., 3-6 months). However, most scientists have suggested that the earliest possible release date of a targeted vaccine is at best 12 months and more likely 18 months. And that is the best-case scenario!
In the absence of a workable vaccine, non-pharmaceutical interventions (“NPIs”) will become of paramount importance in mitigating the outbreak. Failing to do so could mean a completely overwhelmed health care system (flashes of which we’ve already seen in Northern Italy). Importantly, many health care workers rely on public transit to access hospitals which are often located in the city core.
Cities and states will find themselves left with no other option than to tell their residents to remain indoors and avoid social gatherings as much as possible. This could go on for months. As a result, transit agencies will continue to experience massively depressed ridership. This will inevitably lead to layoffs as agencies scramble to cut costs the best they can. Ultimately, transit agencies will find themselves in a death spiral they cannot escape through their own volition.
Keeping transit in motion
Writing about economic stimulus measures, Andrew Ross Sorkin — veteran reporter of the 2008 financial crisis — proposed an idea that is quickly gaining steam around the internet. Instead of resorting to one-time cash infusions (either corporate bailouts or direct cash assistance to individuals), what if the government extended “bridge” loans to every company for the full duration of the crisis?
Loans would be conditioned on every business retaining at least 90% of their workforce levels prior to the crisis and would need to be paid back within a 5-year period. Ostensibly, this would keep payrolls intact and prevent massive unemployment. At the same time, it’s a bet on the future despite massive uncertainty.
I would take this one step further and propose creating state-level infrastructure banks (“SIBs”) in every state (emphasis on ‘every’ to avoid appearance of cherry-picking transit-rich states) through a bridge loan program administered by a “National Infrastructure Bank” (NIB). Congress first would have to pass legislation which authorizes the creation of the NIB. Initially, states could rely on their Departments of Transportation and Treasury to handle the financial back-office work required. Within a specified time period, every governor would be required to appoint a 3-person commission responsible for administering the SIB.
More than 30 states already have some form of a SIB in place. SIBs are subsets of state revolving funds (“SRFs”), which are publicly regulated loan funds that manage projects across a range of infrastructure modes. The funds act like a “bank” in that they don’t own infrastructure assets, but act as lenders. Effectively, this allows SIBs to leverage their loan capacity (working with private-sector banks) and not be constrained by one-time federal grants. For example, Transportation for America has called for $12.8 billion in direct cash assistance. However, it’s impossible to say if that will be sufficient to cover a sustained shutdown.
To expedite disbursement, Congress should allocate a “seed” round of money (using the ~$12 billion figure as a starting point) into the NIB so that funds can start flowing into SIBs immediately. Any legislation should ensure that transit agencies are capable of sustaining operations for the foreseeable future by mandating the NIB disburse subsequent rounds of loans on the basis of anticipated reductions in demand and tax receipts according to state-level forecasting. States would need to quickly draw up their best estimates of 6-month (best case) and 12-month (worst-case) loan requests.
The creation of a National Infrastructure Bank would help finance (or at the very least) coordinate multi-jurisdictional funding for agencies that cross borders (e.g., Amtrak, Port Authority of New York and New Jersey, etc.). Additionally, to ensure that transit agencies continue normal operations — even if at reduced levels of service — the NIB should earmark funding for basic operations according to last-30-days fare-box recovery ratios for a minimum of 6 months and no longer than 12 months. This is especially applicable to those agencies highlighted above.
Taking a step back, any National Infrastructure Bank proposal should be viewed within the context of the Troubled Asset Relief Program (“TARP”) passed during the last economic crisis. TARP was a ~$700 billion program that authorized the US Treasury to buy up “troubled assets” from financial institutions so as to recapitalize banks’ balance sheets. Effectively, TARP served as a sort of buyer-of-last resort; assets that nobody wanted were bought up to create liquidity in the sytem enabling banks to live to see another day. In a similar sense, a NIB (via SIBs) will help fund services that no one wants to use right now (public trains and buses) to ensure future operations (services that will ostensibly produce future benefits).
Despite significant public pushback, the TARP program was viewed in retrospect as instrumental to the economic recovery which later followed. Perhaps more than anything else, it removed much of the uncertainty — FDR’s “fear” component — which up until then had paralyzed the system. That program was unprecedented in both scope and scale. This crisis — the one we are all currently living in — will not excuse half-baked measures. The President and Congress must think big: people’s ability to move freely depends on it.