Pennsylvania will burn capital funds to operate Philadelphia transit

Bloomberg News

The Southeast Pennsylvania Transportation Authority begged the state for a solution to its fiscal cliff. 

Lawmakers didn't comply, but Gov. Josh Shapiro's administration did offer a patch. 

Shapiro approved SEPTA's request to use capital funds to plug its operating budget gap. Pittsburgh Regional Transit has adopted the same solution, and smaller transit agencies in the commonwealth may follow. 

However, as part of the decision, Shapiro reportedly admitted that a permanent funding solution for public transit is no longer a part of negotiations for the state's three-months-overdue budget. 

The funding agreement will allow SEPTA to use up to $394 million of funds from the Public Transportation Trust Fund for its operations. That means SEPTA can avoid dramatic service cuts and fare hikes it had planned. 

SEPTA had implemented drastic service cuts as it waited for state lawmakers to fill its $213 million operating budget gap. However, a judge ruled that the agency had to reverse those cuts, throwing SEPTA's budget into uncertainty.

The PTTF holds the capital funds for every transit system in the state. 

SEPTA receives an annual allocation from the PTTF for its capital plan. The $394 million is from its 2025-2026 capital allocation but has not yet been committed to any specific capital projects, according to the authorization letter from Pennsylvania Department of Transportation Secretary Mike Carroll. As part of the agreement, SEPTA will have to continue searching for structural efficiencies that can reduce its budget gap. 

Pennsylvania Republicans, in their proposed budget, wanted to use the PTTF as a source of revenue for public transit — and for the state's road paving projects, Carroll said in the authorization letter. 

"I want to again emphasize that the one-time use of SEPTA's capital assistance allocation is not a long-term or sustainable solution to SEPTA's budget crisis," Carroll wrote. "A funding solution with predictable and recurring revenue is critical for transit agencies to continue the essential service they provide to their riders. Over half of PA's transit users for both fixed-route and the shared-ride, curb-to-curb service in every county say they have no other transportation option."

The short-term solution will avert a crisis for SEPTA's ridership and Philadelphia's economy. One analysis found that the cuts could have cost the state and Southeast Pennsylvania $11.6 billion of tax revenue and eliminated 76,000 jobs. 

SEPTA's outstanding bonds are not tied to its revenue. The agency's $501 million of asset improvement program revenue bonds and $42 million of public transportation assistance fund revenue bonds are rated Aa3 by Moody's Ratings and its $138 million of capital grants receipts bonds are rated A3. When the courts blocked the agency's cuts, removing its ability to balance its budget, Moody's lowered the rating outlook to negative. 

The fight for transit fighting that just played out happened almost beat-for-beat last budget season. Last year, Shapiro chose to fill the gap with $153 million of federal highway funds.

Nearly all of Pennsylvania's transit agencies are facing their own funding crises. 

Pittsburgh Regional Transit planned to address its budget gap with service cuts of 35% and layoffs of 38% of its management and employees. PennDOT will allow PRT to use $106.7 million of its capital funding for operations. 

"PRT will use this funding to plug a $100 million hole in its 2025-26 operating budget and use the remainder - plus a mix of state and local funding, and reserve funds - to stave off the proposed cuts for two years," the agency said. 

PRT's 2025-2026 capital plan will shrink from $187.9 million to $58 million, according to the Pittsburgh Union Progress. That includes using $30 million of federal capital funds for operating expenses. 

The rest of Pennsylvania's transit agencies don't receive annual allocations from the PTTF like SEPTA and PRT do. They have to apply for funds tied to specific capital projects. Shapiro and PennDOT have not clarified whether PTTF funds will be available to help other agencies' budget gaps. 

Lehigh Valley's LANTA system has reportedly applied to use PTTF funds for its $11 million budget gap; its administrators said Wednesday that they have not yet heard back. Without the funds, the agency will cut service by 20% and raise its fare by 25%. 

Several smaller transit systems told Spotlight PA that they have no plans to apply for PTTF funds. In the absence of a budget increase from the state, these agencies are either cutting service or foregoing planned expansions.

Although Shapiro said that transit funding was the biggest obstacle to a budget deal, the budget impasse has now dragged on for three months. Lawmakers have made no indication that they are nearing an agreement.