Metro Denver’s transit agency is a long way from the dark days of 2020, when the initial fallout of the pandemic gave rise to fears of recurring $250 million budget deficits and plans to slash more than 600 jobs.
But the Regional Transportation District is by no means in the clear: It won’t have enough money in the next five years to restore all the service it’s cut, the agency’s latest forecasts show. That’s true even as the sales tax collections it depends upon to pay for most operating costs have fully recovered, helping to stabilize this year’s $771 million operating budget.
The best RTD can afford, according to its financial plans, is to get back to 85% of pre-pandemic service levels by 2027, up from the current level of roughly 70%.
A review of RTD’s budget picture by The Denver Post found that spending and borrowing decisions made over more than a decade have limited the agency’s ability to devote its resources — including significant amounts of recent federal aid — fully to pandemic recovery.
To restore more service, the agency also needs to hire enough staff to overcome double-digit shortages on its operations teams. Then there’s the question of whether ridership, still stuck at about 53% of pre-pandemic levels as of November, will rebound enough to justify it. Those other factors ultimately may prove more decisive when it comes to restoring service in the state’s largest transit system.
But the financial challenges have piled up.
The agency is contending with a $290 million backlog in maintenance and asset replacement costs, much of that deferred in the years before the pandemic hit as officials made decisions such as opting to squeeze more time out of aging buses. Its leaders have given that backlog priority for the next several years, on top of new capital items coming due. Freed up by the federal pandemic aid it’s receiving, the agency’s top budget official says RTD can shift more sales tax money for that purpose.
As part of that backlog, the agency’s board last week approved a $70 million order for 142 new buses.
In coming years, RTD also will face rising debt payments for some of the $5.6 billion in FasTracks rail expansions during the 2010s. They were built amid a severe budget crunch in the program, as costs soared and tax collections came in under projections, requiring creative financing and partnerships to pull them off. That included loans with mainly interest-only payments initially.
RTD could be forced to siphon money from its base system, which covers operations for the older light-rail lines and most of its bus system, to help cover the resulting $226 million projected shortfall through 2027 on the FasTracks side of the ledger. The base system will have extra money available to do that — owing to older project bonds that will be paid off in 2024 — but the assist would come at the cost of potential investments in more bus service or other programs.
“From a financial standpoint, I’m genuinely concerned about the level of service that we’re going to be able to operate in the future, as soon as 2025, 2026 (or even) 2028,” said Director Shontel Lewis, who represents areas including northeast Denver on RTD’s 15-member elected board. “We can talk about the budget in terms of dollars and cents, but really we’re talking about the lives of the individuals who depend upon our service — and have throughout the pandemic.”
As they face potentially constrained budgets, RTD leaders are in the middle of rethinking how they provide service across more than 2,300 square miles, one of the nation’s largest urban transit agency footprints.
The “Reimagine RTD” initiative, which kicked off before the pandemic, recently produced a system optimization plan, now under public review. The plan would establish a guide map for the restoration of routes and major adjustments of service in the next five years if it wins the board’s approval in March. The goal is that by the time RTD achieves its target of restoring 85% of service, what it provides will be more efficient — serving more riders than would be achieved by simply reversing pandemic cuts.
But the resulting shifts likely would mean eliminating some outlying suburban routes as RTD improves service for its core daily riders in more populated places. That could set up contentious board votes for some service changes.
Agency CFO says he’s “cautiously optimistic”
RTD would have faced the bulk of the coming financial crunches without the pandemic, but they have made budgeting extra tricky for the foreseeable future. They’ve strained the agency’s ability to pivot if ridership, contrary to expectation, resurges quickly once the pandemic fades.
Doug MacLeod, RTD’s chief financial officer, said the FasTracks debt plans and asset management deferrals were decided in tough budget circumstances. He views the overall financial picture as brighter now in some ways, owing in large part to $774 million in total aid allocations from three pandemic relief packages passed by Congress since March 2020.
“I think we need to be cautiously optimistic,” MacLeod said. “I think we’re in a lot better shape than we were a year and a half ago, but … there’s so much uncertainty to just throw caution to the wind, financially, and commit to things that we may not be able to fund in the future.”
The agency has used or committed just over half of the pandemic relief money, relying on it to avoid massive layoffs in the last two years, cover unforeseen costs and keep its operations solvent. RTD’s five-year financial plan calls for using the final $304 million to pad out its budgets through 2024, in increments of just over $101 million.
Stretching the relief funding out may be a shrewd budget move, but industry observers say some transit agencies have put more of their shares to use sooner. A study prepared for the American Public Transportation Association last fall found that among 74 agencies surveyed, a majority planned to return to offering full service within a year, even as many were weathering operator shortages and other pressures.
“That was sort of a policy choice on the part of (RTD) to respond with more caution, because I think that they are more concerned about long-term revenues,” said Yonah Freemark, a senior research associate at the Urban Institute who co-authored the study.
MacLeod and other RTD officials defend their approach as fiscally responsible. In mid-January, Fitch Ratings, one of the three major credit-rating agencies, gave RTD’s overall approach a favorable assessment, upgrading its debt ratings to a stable outlook based in part on “strong revenue growth prospects.”
Sales and use tax collections returned to normal last year — and even ahead of pre-pandemic levels. RTD projected nearly $736 million in collections through the end of December, about 11% higher than in 2019, from the combined 1% dedicated regional sales tax for its base system and the FasTracks program.
Farebox revenues are still a long way from recovering. They were on track to come in at $77 million last year, about half what fares raised in 2019.
Beyond ridership recovery, future fare collections also will depend on the outcome of a study underway now that’s aimed at evaluating, and possibly reducing, how much people pay to ride buses and trains. RTD has faced criticism for both the cost and complexity of its fare structure, which sets local fares at $3 and regional fares at $5.25 but allows discounts for some groups.
RTD’s “brand has declined here locally”
RTD’s five-year financial plan factors in one other headwind for the coming years — the return of revenue growth caps under the Taxpayer’s Bill of Rights on its base system after 2024, once the agency finishes paying off those older bonds. They were issued for the T-REX project, which added light rail to the southeast Interstate 25 corridor as part of a major highway expansion completed in 2006.
MacLeod says a rough estimate is that the TABOR caps, which factor in inflation and population growth, will trim $81.7 million from sales tax collections between 2025 and 2027, and more after that.
RTD leaders soon will evaluate whether to ask voters in the district to remove those caps, called a “de-Brucing,” which would allow RTD to keep taxes collected above the limit.
But RTD potentially faces a problem: a lack of trust among many voters.
“I think one of the things that has struck me in the last decade or so is that the agency is very well respected nationally — I mean among their peers and in the industry,” said Ben Bryan, a commercial real estate consultant who serves on RTD’s Community Advisory Committee and long has advocated for public transportation in Denver. “And yet, at the same time, their popular image or their brand has declined here locally.”
Bryan attributes that gap primarily to FasTracks, with all its struggles, delays and successes — as well as the failure to finish it, despite some Herculean efforts. It’s also rooted in decisions to suspend popular but labor-intensive offerings, including the BroncosRide bus service on game days, prior to the pandemic.
“People’s expectations were so high, and I don’t think they’ve been able to meet those expectations,” he said.
Still hanging over RTD is a big financial question: Should the agency fulfill its 2004 promise to voters, who approved the FasTracks plan, and find a way to finish out roughly $2.2 billion in unfunded projects? Last year, the board approved the latest study to assess the viability of building a limited-service alternative for the costliest component, an extension of the B-Line commuter rail up to Boulder and Longmont, though it’s shown limited ridership potential.
“I want RTD to be a transportation choice”
The northwest rail line aside, board Chair Vince Buzek said in an interview, “I want RTD to be a transportation choice. I want not only the people who need it to have it, but I also want the people who say, ‘Hey, let’s go to the art museum,’ to have it as an option.”
But others, including Lewis, would rather RTD respond to what they see as the most pressing service needs, especially as the pandemic has reduced commuting into downtown from the suburbs. RTD has floated plans for projects that are more cost-effective than building rail, including working with local governments to build bus rapid transit lines to speed service on heavily used bus corridors. Planning is underway with the city of Denver for a bus rapid transit line along East Colfax Avenue.
Debra Johnson, who became RTD’s general manager and CEO in late 2020, said RTD shouldn’t shy away from difficult decisions as it faces the challenges of the pandemic.
“Let’s stop talking about what was. Let’s work on solutions that are within our reach,” she said. “And let’s ensure that we’re talking to people that are utilizing our system, because they understand the complexities — they understand what the problems are. So I, and my team, are listening to their pain points … because that will help us to identify the problem for which we’re trying to solve.”
As it grapples with its pandemic-reduced schedule and a tight budget, the agency is in line to get more outside help, starting with a boost in its annual federal funding by tens of millions of dollars a year for the next five years under the $1 trillion infrastructure bill passed by Congress last fall. That money typically is restricted mostly to capital expenses — paying for projects or train cars, say, but not for their operating costs.
Less restricted money could come from newly expanded state grant-based programs intended to boost transit and other alternatives to driving, especially in metro Denver, which exceeds federal limits for ozone emissions.
So far, RTD’s leaders are taking a cautious approach to the state programs. State Sen. Faith Winter, a Westminster Democrat, said lawmakers’ intention was that the programs could cover operating costs in some cases.
RTD is in talks with Gov. Jared Polis, Winter and other lawmakers to create a pilot program this summer, initially eyeballed at a $28 million state cost, that would provide transit riders with free fares on high-ozone days, or potentially on a wider scale during the season.
“I think that’s going to be an important first step,” Winter said, adding: “It could be the ideological and logistical shift we need to be better partners and do bigger things.”