Over the coming months, Bay Area transit operators will exhaust a $590 million loan from the state, reaching the precipice of a long-projected fiscal cliff. As BART, Muni, AC Transit, and Caltrain prepare their budgets for fiscal year 2026–27, the potential impacts are being spelled out in new detail. BART has confirmed that without new funding, it will cut frequencies, raise fares, and ultimately close stations and entire lines. Caltrain has outlined a similar scenario in which weekday train frequency would plummet, weekend service would be suspended, and the system would close early in the evenings. Perhaps most worryingly, both rail systems have discussed escalating cuts that could lead to their eventual shuttering. AC Transit and Muni are also developing more detailed plans for cuts absent new funding, with AC Transit stating it could reduce service by 16% and Muni discussing cutting up to 20 routes, reducing frequencies, eliminating service after 9 p.m., and shutting historic cable car and streetcar lines.
Against this sobering backdrop, however, significant work is ongoing to generate new funding for transit. The Connect Bay Area campaign is gathering the 186,000 signatures needed in Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara counties to authorize a regional sales tax to support transit operations. It has until June to qualify for the November 2026 ballot. In San Francisco, the Stronger Muni for All Campaign launched on March 3. It’s gathering signatures to qualify a parcel tax that would provide additional operational support for Muni.
In addition to these efforts, Bay Area transit operators are working on efficiency measures. On March 31, the Metropolitan Transportation Commission (MTC) released its draft Financial Efficiency Review of the region’s largest operators. This review is the first phase of a two-phase financial efficiency study mandated by Senate Bill 63, the legislation that authorized the Connect Bay Area regional transit revenue measure. It is a central component of the law’s accountability approach to ensure that transit agencies spend new funds prudently. The legislation requires MTC to hire outside experts to conduct a two-part review of BART, Muni, Caltrain, and AC Transit and to establish an oversight committee to steer the work. The committee includes members from the MTC Commission and transit operator boards, as well as four independent experts and representatives from the California Department of Finance and the California State Transportation Agency.
Under the terms of SB 63, the first phase of the study must be completed by July 1 and must include an analysis of operators’ efficiency and cost-saving actions since 2020, an assessment of operators’ real property assets, and identification of a menu of additional “early action strategies” that operators can undertake in the near term to continue reducing costs, boosting revenues, and improving the customer experience. The draft report will be reviewed and discussed by the Independent Oversight Committee on April 17, then refined and finalized before being transmitted to the MTC Commission for final approval. Under the terms of SB 63, operator boards are required to identify and adopt, by July 1, early action strategies from the report that can be implemented in the near term within existing resources.
Documenting Savings
MTC’s draft report documents the extensive actions that BART, Muni, AC Transit, and Caltrain have taken since the start of the pandemic to conserve funds and operate more efficiently. Collectively, the analysis found that these four agencies have saved, deferred, or otherwise eliminated more than $1 billion in operating expenses over the past five years. BART accounts for the largest set of reductions ($516 million), followed by Muni ($302 million), AC Transit ($200 million), and Caltrain ($76 million).
Savings documented in the report are categorized in various ways, including cost avoidance (planned expenditures eliminated), deferrals (costs moved to a later date), and one-time or ongoing cost reductions. While the report highlights a variety of approaches taken by each operator, the bulk of the operational savings derives from broadly shared strategies, including new controls on hiring and wages, service adjustments to better match demand and eliminate overtime, and deferrals of one-time initiatives or other payments. In addition to these operating savings, the report notes that BART and Muni achieved significant capital program savings of more than $800 million over the five-year period.
The more than $1 billion in savings by agencies on transit operations is significant and reflects difficult choices that have allowed them to control cost increases relative to inflation. Nevertheless, the scale of savings is dwarfed by looming deficits totaling upward of $800 million annually. This imbalance underscores the need for new funding to replace fare and parking revenues eroded by the pandemic, which cuts and efficiencies cannot realistically offset.
Reviewing Real Estate
In addition to documenting cost-saving actions, MTC’s report examines each operator’s property portfolio and makes a preliminary assessment of its development potential. The findings highlight that the operators, with the exception of AC Transit, have significant real estate holdings that could be suitable for future joint development and could become ridership and revenue sources. The report acknowledges that BART, the San Francisco Municipal Transportation Agency, and Caltrain have joint development programs underway and notes that the slow pace of development on some agency properties is related to market conditions, development costs, and the need to preserve some properties’ operational uses. Ultimately, the report highlights the potential for joint development to be a long-term contributor to agency financials but emphasizes that any returns will likely take time to materialize and are not a solution to the near-term financial crisis.
Identifying Early Action Strategies
The draft efficiency report recommends early action strategies for each agency. These are actions that agencies could complete or at least initiate in the near term to achieve further savings or improve the rider experience. Some notable strategies:
- Seeking to delay or otherwise defray the costs associated with a state mandate that requires operators to fully transition to zero-emissions fleets by 2040
- Incentivizing employee attendance as a means to improve transit reliability
- Adjusting scheduling practices to improve efficiency and reduce overtime costs
- Growing revenues and expanding customer access by continuing to promote employer and institutional pass products, such as Clipper BayPass
- Monetizing assets by optimizing parking pricing, leasing fiber optics facilities, and capturing the value of energy returned to the grid through regenerative braking
While operators can unilaterally implement many of these strategies, others — such as navigating the transition to zero-emissions fleets — will require coordination with external entities.
Next Steps
The draft report will be discussed by the independent oversight committee in April and subsequently revised based on committee and public input. Once the committee adopts the report, transit operator boards must act on the recommended early action strategies by July 1 to remain eligible for funding from a regional sales or parcel tax measure.
If a regional measure qualifies for the November 2026 ballot and is passed by voters, the second, more extensive phase of the financial efficiency study would begin in early 2027. As described in SB 63, Phase 2 would identify a “menu of cost-saving measures that, if implemented, would reduce one-time and ongoing fixed and variable costs for the subject operators.” Phase 2 is tied to significant accountability mechanisms. Operators are required to implement the findings of the Phase 2 report and will be monitored annually by MTC to confirm compliance. Operators that fail to adhere to the study’s recommendations risk becoming ineligible for future funding from a regional measure.
Voters are being asked to invest heavily in transit this year, and financial accountability is on their minds. While recent polling by MTC shows that 84% of Bay Area residents consistently support transit, 87% of the same respondents think that transit agencies should run more efficiently and cut costs. Reforming the cost structure of Bay Area transit will be a long and complex process, but the findings of MTC’s draft Transit Efficiency Review, along with the strong accountability guardrails in SB 63, should give the public confidence that transit agencies are taking the issue seriously.