Connect Bay Area Act Authorizes a Regional Tax Measure to Save Transit

On October13, Governor Newsom signed into law Senate Bill 63, the Connect Bay Area Act, bringing the Bay Area a big step closer to resolving the fiscal challenges imperiling its transit system. Authored by senators Scott Wiener and Jesse Arreguín, SB 63 authorizes a five-county sales tax measure to be placed on the November 2026 ballot. SPUR has been extensively engaged in regional and state efforts to fund transit, and we have been long-standing supporters of SB 63, testifying in the legislature, supporting regional stakeholder negotiations, and advocating for a new regional funding source for transit.

Riders, voters, and policymakers all share significant concerns about what could happen to the region if BART, Muni, AC Transit, Caltrain, and other operators are unable to secure new funding. While state and regional aid will sustain operators through the summer of 2026, and transit operators and the California Department of Finance are continuing discussions regarding additional short-term “bridge” loans, there is a broad consensus that further near-term federal or state support for transit operations is likely to be very limited, meaning a regional solution is required. The Connect Bay Area Act addresses this need and was the result of iterative work and negotiation among many state and local policymakers.
 

The Tax Levy

The Connect Bay Area Act authorizes the placement of a sales tax increase on the ballot in Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara counties for the November 2026 election. The sales tax levy would be set at a 0.5 cent increase in Alameda, Contra Costa, San Mateo, and Santa Clara counties and at a 1 cent increase in San Francisco, where the greatest fiscal needs for transit are concentrated. Based on fiscal year 2031 sales tax projections by HdL Companies, the Metropolitan Transportation Commission estimates the proposed levy would generate approximately $1 billion a year in new revenues.

Many Bay Area government entities have historically relied on sales taxes for funding. During the development of SB 63, some stakeholders expressed concerns that doing so to support regional transit could consume limited sales tax capacity, potentially crowding out future local needs or making existing taxes harder to renew. As a result, the taxing mechanism included in the Connect Bay Area Act is highly targeted. First, the law sets the tax duration at 14 years, meaning that the levy would sunset in 2041. This timeframe is generally shorter than typical county tax measures for transportation (which often have a 30-year duration) but long enough to give transit operators a significant runway of fiscal support and a realistic timeline to adapt their business models. Second, the law specifically restricts consideration of the tax levy to the November 2026 ballot, providing greater certainty to other local entities that may be considering their own tax measures or the renewal of existing taxes.
 

Governance and Administration

The Connect Bay Area Act establishes a new five-county Regional Transit Revenue District (RTRD) whose representatives are coterminous with Metropolitan Transportation Commission (MTC) members. This structure is similar to the existing Bay Area Toll Authority, which also exists as a legally distinct entity but is housed within the larger MTC structure.

SB 63 allows the district to directly place a measure on the ballot by a vote of the RTRD commissioners. It also allows for the tax to be placed on the ballot through a citizen-initiated signature-gathering effort within the five counties that make up the district. In California, government-placed measures require a two-thirds vote, whereas citizen initiatives require only a 50% vote. Previous polling on a regional transit measure suggests that achieving two-thirds support may be challenging but that 50% support is feasible.
 

The Expenditure Plan

Regardless of whether the measure is placed on the ballot via government action or a citizen initiative, an expenditure plan included in the legislation details how funds raised from a new tax collected within the RTRD would be spent.
 

How Revenues from a Future Tax Would Be Distributed

Sales tax receipts vary from year to year, but projections indicate that the proposed tax in the five counties could generate approximately $1 billion in annual revenues. The percentages in the table below show how funds collected each year would be allocated to different programs and transit operators. These percentages are aggregate simplifications of more detailed percentage breakdowns included in SB 63, which prescribes the exact proportion of revenues collected in each county that will be allocated to specified uses.

Source: Metropolitan Transportation Commission

Each year, funds would be deducted from the revenues collected to cover administrative costs and to fund MTC-administered regional transit transformation programs that improve the customer experience, including programs to provide discounted and coordinated fares, enhance transit accessibility for people with disabilities, improve transit speed and reliability, and regionally integrate wayfinding.

Once these funds are deducted, the law specifies funding percentages that will be allocated to BART, Muni, AC Transit, Caltrain, and other Bay Area transit operators projecting acute financial shortfalls that will trigger near-term service cuts. These operators include small operators anticipating deficits that are significant relative to their financial scale. SB 63 requires recipient operators to use their allocated funds to support transit operations.

Revenues not used to directly support specific transit operators would be returned to a designated authority within each of the five counties in which they were collected for use on public transit-related services, programs, and projects. Transit’s funding crisis is not evenly distributed across the Bay Area, and consequently, the amount of these remaining funds that participating counties would expect to receive varies significantly. No money would be returned to the City and County of San Francisco because all of the funds raised will be needed to support its share of the immense deficits that BART, Muni, and Caltrain are projecting. By contrast, the tax would be expected to generate revenues significantly above what Santa Clara and San Mateo counties have agreed to contribute to Caltrain, BART, and other regional services. Therefore, a significant amount of funding would return to VTA and SamTrans each year for their discretionary use.
 

Oversight and Accountability

A regional sales tax for transit is a new construct in the Bay Area, and given the significant amount of funding being considered, oversight and accountability were unsurprisingly recurrent concerns in local and state discussions about the development of SB 63. As a result, the final law includes significant provisions and guardrails related to these issues.

Adherence to Statute: As noted, SB 63 includes a highly prescriptive expenditure plan and mandates that MTC staff administer the funds. It ensures adherence to the plan by mandating the creation of an independent oversight committee charged with monitoring MTC to ensure that all funding distribution conforms with the law. The committee will include at least one representative of each of the five counties comprising the Regional Transit Revenue District. Each county’s board of supervisors will appoint representatives.

Maintenance of Effort: Transit operators receive funds from various sources, raising concerns among some stakeholders that operators could use new funds from a regional measure to “backfill” or substitute for local funding that they would otherwise dedicate to transit operations. To help allay this concern, MTC commissioned an independent financial review to validate the financial deficits that operators have projected. Beyond independently validating these projections, SB 63 includes “maintenance of effort” language prohibiting the “replacement” of existing operating funding with new regional measure monies, and it requires that the RTRD annually verify operator compliance as a condition of allocating new monies.

Regional Fairness: The SB 63 expenditure plan establishes new funding flows between counties and transit operators, underscoring the importance of ensuring that regional transit operators are acting in a manner that is consistent, fair, and accountable as they deploy services and resources across their geography. To ensure this accountability, SB 63 allows any of the five participating counties that feels unfairly treated by a transit operator to petition for the establishment of an Ad Hoc Adjudication Committee made up of representatives from counties funding the operator. Once formed, this committee would determine whether the operator had applied its standards (such as service levels, fare policies, cleanliness, and maintenance) unevenly. If it found inconsistencies, the committee would seek to cure them and would have the authority to withhold a portion the operator's future funding.

Financial Efficiency: To ensure that transit operators are accountable for achieving greater financial efficiency, SB63 mandates that BART, Muni, AC Transit, and Caltrain — the four operators facing the most severe deficits — undergo an extensive financial efficiency review conducted by third-party experts and overseen by an independent committee including outside experts as well as operator and MTC board members. The review will commence in 2025 and will continue beyond November 2026, assuming voters pass the tax measure. To continue receiving measure funding, operators subject to the review are required to adopt plans committing to implementation of the efficiency review’s findings.

Combined with the certainty spelled out in the expenditure plan, these accountability and oversight provisions provide an unprecedented set of guardrails ensuring that measure funds are spent as intended and that operators continue to work toward greater financial efficiency and sustainability.
 

What Comes Next

With the governor’s signature, SB 63 will become law on January 1, 2026. In the meantime, MTC is conducting further public polling to assess the level of public support for the tax measure. Meanwhile, SPUR and other civic organizations are beginning discussions about a potential 2026 regional measure campaign, including planning for the signature gathering required to place a measure on the ballot through a citizen initiative. Much work remains to secure the funding that Bay Area transit agencies desperately need, but passage of SB 63 marks the critical first step on the path toward a healthy and financially sustainable regional transit system.