Philadelphia's transit system cuts service after hitting fiscal cliff

Bloomberg News

The Southeast Pennsylvania Transportation Authority reached its long-dreaded fiscal cliff on Sunday. 

The agency implemented drastic cuts and warned that more cuts and fare hikes are on the way if it can't plug a hole in its operating budget. The state legislature, locked in a two-month budget stalemate, can't agree on whether to help. 

The system's deficit is more than $200 million annually. The cuts removing 20% of service that took effect this week don't even come close to balancing the budget, but may permanently damage its ridership. 

So far, SEPTA has cut 32 bus routes and shortened 16 others. The bus and train lines that remain intact will have service less often. It also eliminated routes that serve special events, such as concerts or Philadelphia Eagles games. 

On Sept. 1, the agency will implement a 21.5% fare hike and a complete hiring freeze.

If funding is not in place by January, SEPTA will cut another 25% of its service. 

That means 16 more bus routes will be eliminated. SEPTA will eliminate five of its 13 regional rail lines, closing stations. Rail and metro service will stop after 9 p.m. and two trolley lines will be converted to bus lines. 

If funding isn't secured in subsequent years, service would be cut even further, a SEPTA press release warns. 

"At that point, we will be left with no other choice but to begin dismantling the SEPTA system," SEPTA General Manager Scott A. Sauer said in the press release. "Tens of thousands of people or more will be left with no viable public transportation options."

Even if lawmakers reach a funding solution, temporary service cuts could permanently damage SEPTA's ridership, according to Ethan Conner-Ross, vice president at Econsult Solutions. 

Transit use is habitual, Conner-Ross said, and people's transportation habits often involve long-term financial investments. People who lose access to buses might buy a car, or set up a carpooling arrangement, and continue using that arrangement once service resumes. 

This dynamic is partly to blame for SEPTA's current funding gap. Like many transit systems, SEPTA's ridership never fully recovered after the COVID-19 pandemic. Last year, ridership was only at 72% of its 2019 highs. 

With federal pandemic aid depleted, there's now a $240 million hole in the system's operating budget. This year, SEPTA claims, it used austerity measures to shrink the gap to $213 million. 

Last year, Pennsylvania Gov. Josh Shapiro diverted funds from the state's federal highway aid in a one-time move to plug SEPTA's deficit. This option still exists, but would need to be approved by President Donald Trump's administration, which is hostile to public transit. 

SEPTA last issued bonds in 2022. That series of revenue and refunding bonds is rated AA by Fitch Ratings and KBRA and Aa3 by Moody's Ratings. It also has outstanding capital grant receipt bonds, which are rated A3 by Moody's and AA- by S&P Global Rating Agency.

The bonds are payable from funds that are both statutorily dedicated and continuously appropriated by Pennsylvania's General Assembly to the commonwealth's Public Transportation Trust Fund Asset Improvement Program, KBRA wrote in 2024, which it described as a "strong legal framework supporting repayment."

SEPTA funding is the biggest holdup in the commonwealth's budget stalemate, which has lasted two months. 

The state House of Representatives, which has a Democratic majority, passed a bill which earmarked nearly $300 million of sales tax revenue to be split between the state's transit systems. The Republican-controlled Senate passed a bill which would pull funding out of the state's Public Transportation Trust Fund, which supports capital projects. 

Democrats initially harshly rejected the idea of diverting capital funds to operating budgets. But on Monday, Shapiro said he was open to the idea, if it's "part of a broader package that focuses on recurring funding over a long period of time that funds mass transit in each of our 67 counties."

One other option, which has been hotly debated since last year's budget season, would create a new tax on "skill games", unregulated slot-like machines that have swept across the state since a 2023 court ruling. Lawmakers have yet to find a compromise on how to tax or ban them.