Transit agencies in the United States are at an inflection point. Ridership—along with revenue generated from fares—remains, on average, significantly below prepandemic levels. Costs continue to rise as agencies (which manage state and local public-transit systems, including buses, subways, light rail, commuter rail, trolleys, and ferries) pay more to expand services and adopt innovations that are demanded by riders. Aging infrastructure is creating growing maintenance backlogs. Meanwhile, federal subsidies, which helped many agencies stabilize their operations and workforce during the disruptions caused by the pandemic, are expected to largely expire in the coming year.
As transit agencies continue to adapt to their communities’ evolving needs, the growing gap between revenue and expenses is, in some cases, creating budget shortfalls. Some industry experts see a risk of a fiscal crisis in situations where state and local governments are unable to fill the funding gap.
Transit systems provide an essential service for their communities, enabling residents and visitors to access critical economic and social opportunities. As good stewards of public resources, transit agencies seek to capture the revenues they are due while aiming to run their operations and capital programs with high degrees of efficiency. Improved operations can lead to better service, which can in turn lift ridership (increasing opportunities for both fare-related and non-fare-related revenues). Thoughtful capital expenditures can heal deteriorating infrastructure (potentially leading to reduced maintenance needs and less frequent operational outages that could redirect riders to other modes of transportation).
Our analysis indicates several approaches that US transit agencies could consider as they search for solutions. Boosting non-farebox revenue, achieving more efficient results from operating budgets, and making better-informed choices about capital expenditures can all be ways to help strengthen transit agency balance sheets—while also accelerating the service availability, frequency, reliability, and quality improvements that riders value the most.
Fewer riders, rising costs, fading funding
In the decade prior to the COVID-19 pandemic, monthly ridership levels for US transit agencies fell by roughly 5 to 10 percent—resulting from factors such as increased car ownership, less expensive gas to fuel private cars, the rise of transportation alternatives such as ridesharing apps, and Great Recession–era budget cuts that in some cases led to reduced transit service. In 2020, the pandemic dramatically accelerated ridership’s downward trend.
Passenger levels have gradually recovered from pandemic lows, though they have plateaued in many transit systems at about 80 percent of prepandemic norms (Exhibit 1). One cause appears to be the broad shift to remote and hybrid work, which has led to reduced demand for transit commutes into central business districts.
Meanwhile, operational costs continue to rise at a pace disproportionate to the amount of service provided (Exhibit 2). From 2002 to 2022, operational expenditures grew by 50 percent. During this same period, transit service—in terms of vehicle revenue hours (VRH), which measure the number of hours that vehicles are in service—grew by only 8 percent. In the wake of the pandemic, operational costs dropped, but this was largely a result of reduced service. Fewer shifts were being worked and, because of reduced vehicle usage, many agencies were able to focus operations on their newest trains and buses, which tend to require less maintenance spending.
When the pandemic’s effects on ridership caused revenue from fares to drop by more than half, the federal government stepped in to provide funding to US transit agencies to ensure that essential operations and workforce needs were maintained for the benefit of local communities. From 2019 to 2021, annual federal funding more than doubled, rising from $13 billion to $30 billion (Exhibit 3). Whereas federal subsidies had historically been directed toward capital expenditures, during this period they were also applied to operating budgets. Most agencies, however, expect that they will soon exhaust the federal funds that arrived in the form of pandemic relief packages.
This combination of falling revenue, rising costs, and the expiration of temporary federal funding has led to a possibly untenable industry outlook that some agencies and press reports have described as a “fiscal cliff.” The coming years could see, in some cases, unprecedented operating deficits at individual agencies.
Overcoming these challenges could require agencies to redouble their efforts to manage financial and operational responsibilities while also defining and implementing strategies that can transform how they meet the current and future mobility needs of their communities. A successful transformation could provide economic benefits to a region that will in turn help it better fund its transit agencies. Ultimately, this virtuous cycle could launch (or relaunch) a high rate of economic growth and result in increased prosperity for transit systems’ riders and communities.
Finding revenue beyond the farebox
In 2019—when transit agencies were operating on prepandemic budgets—farebox revenue provided between 7 and 40 percent of total funding at the 20 US transit agencies with the largest operating budgets. Farebox revenues declined significantly during the pandemic, falling from a total of $18 billion (or 20 percent of funding) across all agencies in 2019 to a total of $9 billion (or 11 percent of funding) in 2022. Farebox revenue has since recovered to some extent but not to prepandemic levels.
Much of the farebox revenue decrease in the industry is a result of reduced ridership, since fewer passengers means fewer fares paid. Transit agencies could potentially boost ridership, and by extension farebox revenue, by enticing passengers with various improvements to service—such as increased frequency, faster travel times, more responsive scheduling, enhanced security, and expanded network coverage that could include partnerships with last-mile providers such as bike sharing and ridesharing services. The Washington Metropolitan Area Transit Authority (serving Washington, DC, and the surrounding region), for example, improved its scheduling by shifting from a schedule focused on peak-traffic weekday work commutes to an all-day model with increased weekend service, which better met current customer needs and received higher customer satisfaction scores in surveys. From 2023 to 2024, the agency lifted ridership to roughly 80 percent of prepandemic levels (compared with about 70 percent of prepandemic levels in 2023 and about 52 percent in 2022), with farebox revenue improving in tandem.
Improved fare structures could aid this effort by simplifying fares and increasing the uptake of discount programs to enable a broader range of the community to utilize the service in a manner that is affordable to all. Agencies might increase the number of trips an individual rider takes by making it easier to qualify for daily, weekly, or monthly discount passes. Agencies could also create targeted discounts to better meet the affordability needs of lower-income individuals who choose not to ride the system today. Balancing peak and off-peak pricing to channel demand, or implementing distance-based fares for longer trips, could help transit agencies adopt the pricing structures that have become standard for other modes of transportation while expanding support programs to ensure access to the service is not compromised. In some cases, straightforward simplification of fare offerings—for instance, allowing free transfers between services operated by different agencies in the same geography—can have a sizable impact on encouraging ridership by making systems much easier to use.
While non-farebox revenue has historically comprised only 5 to 10 percent of total agency funding, agencies might benefit from a sharpened focus on non-farebox revenue possibilities, which in turn could reduce potential pressure to increase fares. Leading global transit agencies—such as Transport for London, Azienda Trasporti Milanesi in Milan, Régie Autonome des Transports Parisiens in Paris, and Mass Transit Railway in Hong Kong—have seen a significant share of total revenue coming from non-farebox revenue, in part through focusing on real estate development or by drawing on international concessions (in which a transit agency in one country is contracted to operate a transit line in a different country).
Our analysis indicates that US agencies could boost non-farebox revenue by an estimated 10 to 20 percent by pursuing actions such as the following:
encouraging transit-oriented development of agency-owned land, such as mixed-use projects, to help create a combination of real estate rental or lease income, an increased ridership base, and greater economic activity for the immediate community
capturing value from adjacent real estate developments on privately owned parcels, through tools such as special assessments, impact fees, or tax increment financing districts
capitalizing on existing property portfolios by leasing out excess office and storage space, repurposing outdated facilities for commercial use, and conducting regular audits to identify underutilized spaces
exploring potential returns from air rights leased to developers for community-forward projects
increasing revenues from parking areas by offering premium services or by increasing usage at times when parking facilities experience less demand from transit riders through partnering with nearby athletic, entertainment, dining, or event venues
enhancing retail, food, and beverage offerings at stations—including introducing pop-up shops or kiosks and forming partnerships with local restaurants and stores—to improve foot traffic, reduce storefront vacancies, and potentially negotiate revenue- sharing agreements with restaurateurs and retailers
creating desirable advertising opportunities for high-quality brands through offerings such as transit vehicle wraps or transit station takeovers
extending specialized services by offering airport shuttles, charters for events or large groups, and premium express routes
Spending more efficiently
An outside-in, benchmarking analysis of the bus operations of transit agencies in the United States (a group chosen because it offers a robust data set that allows apples-to-apples comparisons within one transit mode) reveals a wide range in operational spending per VRH (Exhibit 4). This could suggest significant variance in efficiency, even when adjusted for the unique operating characteristics of a transit system. Compared with the quartile that spent the least per VRH, the quartile with the highest spending per VRH spent 2.16 times as much on vehicle operations, 1.83 times as much on vehicle maintenance, 1.55 times as much on facility maintenance, and 1.74 times as much on general administrative costs. Systems represented in both the top and bottom quartiles are affected by inclement seasonal weather, very large geographic service areas, legacy infrastructure, and high relative costs of living—four external factors that are known to increase operating costs on average for a system.
On average, about 65 to 70 percent of US transit agency spending across modes goes toward operating expenses and 30 to 35 percent goes toward capital expenditures. To reduce cost pressures and improve fiscal stability, agencies should consider strategies that encourage more efficient spending in both categories.
Achieving better returns from operating budgets
Operating costs can vary by transit mode—for instance, bus services incur lower maintenance costs than rail operations. A typical bus facility could see 40 to 50 percent of its operating expenses applied toward vehicle operations, 30 to 40 percent toward vehicle and facility maintenance, and 15 to 20 percent toward general administrative costs. Our analysis suggests opportunities for savings across transit types in each of these categories.
When there has been a targeted focus on operational cost efficiency, agencies have been able to realize 10 to 15 percent cost savings in vehicle operations through approaches such as the following:
improving workforce management and reducing overtime costs by using AI-powered solutions to produce tailored, long-term forecasting of labor needs and more effective near-term and intraday scheduling
providing work environments and support systems that promote employee well-being, reduce unnecessary absenteeism, and empower employees with choices—for example, altering shifts to better fit employee preferences or increasing flexibility in shift allocations and swapping
reducing fuel expenses by using advanced routing software to plan more fuel-efficient routes and by investing in more fuel-efficient switches or systems on vehicles to replace antiquated technologies
Similarly, when there has been a focus on operational cost efficiency relating to vehicle and facility maintenance, agencies have been able to realize 15 to 30 percent reductions—generally associated with greater fleet availability, increased uptime, reduced service delays, and other service enhancements—through adopting approaches such as the following:
using AI-powered predictive maintenance informed by a comprehensive list of all assets and their maintenance requirements—with cyclical maintenance activities bundled to simplify procedures
updating shop floor layouts and training protocols to maximize productivity
rationalizing procurement spending with an eye toward improved inventories, warranties, and ordering and warehousing processes
sharpening vendor contract negotiations and the enforcement of negotiated terms
Finally, when there has been a targeted focus on operational cost efficiency relating to general administration, agencies have been able to realize 5 to 10 percent savings resulting from approaches such as the following:
simplifying functional processes to reduce the administrative burden across the entire organization, including procurement, finance, human resources, information technology, and other common support areas
reallocating office space to better balance the use of consolidated locations for centralized support, distributed locations for operational staff, and more flexible or shared work environments
providing comprehensive training programs for highly technical roles and adopting managerial best practices to reduce process errors, improve accountability, and elevate leadership effectiveness at all levels
Making informed decisions about capital expenditures
Data analysis shows wide variations in transit agency capital expenditures and little correlation between the size of an agency’s capital program and the agency’s performance (in terms of providing on-time and reliable service). This is important to note, given that annual debt service resulting from capital programs is a rising cost for many transit agencies. Debt service can be challenging to reduce once incurred (especially because interest rates are generally higher today than when many projects were initially approved or bonded) and can limit funds available for operating expenses—making it all the more vital to spend carefully on capital projects so that future operations are not hamstrung.
To help ensure capital programs’ positive impacts are fully realized, agencies could consider deploying mechanisms that can help them prioritize and sequence projects, choose project requirements and specifications that maximize the return on every invested dollar, manage costs and monitor potential risks during construction to minimize cost overruns, and manage construction partners’ performance so that projects meet timelines and goals. It’s worth noting that establishing more advanced vehicle, construction, passenger, and other shared standards among US agencies—as groups of agencies in Europe have done—could help agencies simplify the capital program process for the US industry across design, planning, procurement, and construction.
Successful agencies typically use three levers to achieve capital program efficiency gains of about 15 to 30 percent (or substantially more in certain projects and portfolios):
Agencies can focus on selecting the most effective projects that best serve the most pressing transit needs, based on expected demand and ridership patterns. They can avoid launching projects that deliver low value for the agency or the public at large. Data and analysis—including assessment of which existing assets are in good repair—can inform project selection. Managers’ decision making can be aided and improved through training that uses scenario-planning workshops, case studies, and financial-modeling tools. A comprehensive analysis of the total cost of ownership can help determine inflection points at which maintaining older or obsolete equipment becomes less cost-effective than investing in new assets.
Projects can be carefully designed to deliver agency objectives while eliminating elements that do not deliver value for customers. Physical design choices can focus on maximizing value—for instance, by using cut-and-cover techniques (instead of more expensive deep mining) to dig stations or by minimizing employee-only back-of-house spaces in underground stations to reduce digging. Agencies can adopt contract strategies such as breaking up packages, negotiating favorable terms, and consolidating contract volumes to provide incentives for performance and to reduce costs. Strategic project financing can help ensure financial stability and reduce costs through approaches such as forming project delivery consortia, carefully considering financing structures, and researching the potential use of specific government lending programs to optimize the use of state and federal dollars.
Agencies can maintain a relentless emphasis on project delivery to ensure that projects are executed on time and on budget. AI-powered scheduling tools can help identify (and then test and generate) optimal work sequences and coordinate planned service outages in ways that minimize disruption. A centralized management bureau can help ensure visibility into concurrent projects and identify overlaps and opportunities for efficiency. Project transparency can be improved by creating a public, regularly updated dashboard displaying the current state of progress—and by clearly communicating how project investments will affect service reliability and passenger experience.
Public transit is a cornerstone of urban infrastructure, providing essential mobility that can propel regional economic growth while also improving accessibility and reducing traffic congestion and carbon emissions. Transit agencies are examining actions they can take to manage expenses, secure funding to improve and innovate service, and create operationally efficient and fiscally responsible systems that will meet the evolving needs of their communities over time. Acting early helps put agencies on a path that could avoid a negative cycle resulting from a potential fiscal cliff—in which fiscal realities lead to service cuts that, in turn, lead to declining ridership, further erosion of revenue, and an eventual need for even further service cuts.
Transit agencies that can identify and implement operationally and financially sustainable models could be better equipped to provide the urban mobility services that their communities need today, as well as the innovations that could improve services and deliver benefits long into the future.