Caltrain Faces Steep Funding Challenge Despite Measure RR Passage

SAN CARLOS, CA — Over half of Caltrain’s revenue next fiscal year is projected to come from funds collected via Measure RR, highlighting how crucial the ballot measure’s passage was toward the future of the struggling transit system that was hit hard by the COVID-19 pandemic.

Of Caltrain’s $157 million in projected revenue for the 2022 fiscal year, $82 million will come from Measure RR, a 1/8-cent sales tax increase passed last year by voters in Santa Clara, San Mateo and San Francisco counties and will raise around $108 million annually for 30 years.

The Measure RR funds somewhat offset a steep decline in fare revenue, which fell by as much as 95 percent during the pandemic. Caltrain projected $34 million from fares, or just 22 percent of revenue, for next year. During a typical year, fares account for 70 percent of the transit system’s revenue.

“It’s a little depressing from that perspective, but we hope ridership will continue to recover and that piece of the pie will look significantly better moving into [fiscal year 2023] and beyond,” said Derek Hansel, Caltrain’s Chief Financial Officer, during a meeting of the Caltrain Board of Directors on Thursday.

Until Measure RR passed last November with 70 percent of voters in the three counties in favor, Caltrain didn’t have a dedicated non-fare source of revenue. In the past, Caltrain has received contributions from the member agencies of the Peninsula Corridor Joint Powers Board — the San Mateo County Transit District, Santa Clara Valley Transportation Authority and the city and county of San Francisco — which owns and operates the transit system, but this year, staff proposed that those funds won’t be necessary due to Measure RR revenue and other means of support.

Still, Caltrain forecasted a $12.6 million deficit for the current fiscal year and preliminarily expects to borrow $21.2 million in 2022 to help cover a nearly $40 million increase in projected expenditures from 2021.

“We face a lot of uncertainty,” said Sebastian Petty, Caltrain’s Deputy Chief of Planning. “We’re all still learning about what the post-COVID world is going to look like. We know that we are incredibly less constrained than we were pre-Measure RR, but we are not unconstrained, and there are some real challenges on the horizon.”

One immediate challenge is the effect of fewer people commuting to work and still wary of using public transit. Caltrain said that more people working from home has had an impact on purchases and renewals of Go Pass, a program that allows organizations to purchase annual unlimited-ride passes for all of its members.

In a presentation at the board meeting, Caltrain projected four different scenarios for the transit system’s future for the next 10 years, which varied depending on how quickly ridership returns and whether Caltrain can adapt if work habits continue to change. A majority of scenarios projected deficits due to an expected prolonged recovery from the impact of COVID-19.

The best case scenario, which included a 3 percent fare increase, projected surpluses in every year but one from 2023 through 2030 — though without a fare increase, Caltrain would take a loss or barely break even every year after 2023.

The worst case scenario had Caltrain hovering around a $60 million loss annually through 2030.

“There are things in the business environment that we can’t control,” Petty said. “There are some real questions and challenges around what the demand for transit will be in general and how that will change over the next 10 years, and we’ll have to respond to that.”

Without other sources of funding, Measure RR will be substantially needed to support Caltrain’s operations across all scenarios, and restoring and building ridership will be key to the transit system’s future, the report found.

The board is expected to adopt a final budget proposal for the coming fiscal year at a meeting next month.

Board member Charles Stone, who is also the mayor of Belmont, said the board knew that Measure RR would never be able to cover all of Caltrain’s operating and capital expenses, but the pandemic has exacerbated the need for more funding.

“That’s where we are now,” Stone said. “It’s certainly accelerating things and pushing problems to the forefront. I remain extraordinarily concerned about making sure that we have enough to keep the trains and the system in good repair and running.”