How Will Muni Get Its Finances Back on Track?

Muni has had a growing structural deficit for years. But the agency has some big ideas for finding stable sources of funding.

It’s often said that the pandemic has exposed long-festering problems in our society, from economic and racial inequality, to America’s broken healthcare, to the government’s lack of emergency preparedness. 

The same could be said for San Francisco’s beloved, beleaguered Muni. Both a transit agency and the department in charge of streets and parking, SFMTA has faced a deep “structural deficit” for years. But the pandemic has turned a chronic situation into an acute one — which, in turn, could lead to more aggressive solutions to get the agency’s finances back on track. 

That was the subject of a meeting of the San Francisco Transit Riders Union last week, where SFMTA officials discussed the challenging financial future of the agency. (Full disclosure: this writer is a member of the San Francisco Transit Riders Union, which advocates for better Muni service.)

Between service cuts and federal stimulus funds, Muni was able to keep its budget balanced  for the current fiscal year. But starting in July, the picture darkens. In FY ’22 Muni projects a $134 million deficit, and it’s only expected to grow from there. Between now and 2050, the agency estimates it will accrue a capital and operating deficit of nearly $36 billion — that is, if no new revenue streams are found.

“We are balancing our budget with one-time revenue, basically patching over our operating budget by just plugging in one-time sources,” Tim Manglicmot, SFMTA’s manager of capital financial planning and analysis, said at the remote meeting. 

That’s no way to run an organization, and Muni officials know it. So they are pressing forward with proposals for more reliable funding, in the hopes that that will translate to more reliable service, and a better standing in the eyes of the public. In all likelihood, balancing competing priorities and appeasing different political factions will make Muni’s journey to financial stability something like pulling a cable car up Powell Street… by hand. 

Structural Deficit

Unlike BART, whose finances have been decimated by the pandemic-related drop in ridership, Muni’s deficit is more “structural.” Declining ridership is one factor, but it’s by no means the only one. 

For starters, Muni is just old. In fact “the people’s railway,” established in 1912, is the oldest big-city public transit system in the U.S. Some of its vehicles, including cable cars and historic streetcars salvaged from around the world, are as old, or older, than Muni itself. The tunnel between West Portal and the Castro, which is currently receiving upgrades while the subway remains out of service, was completed in 1917. 

The whole of SFMTA is also a big, complex operation, responsible for streets, traffic signals, and signage, as well as public transportation. All told, the agency owns $14 billion in assets, Manglicmot said — all of which requires constant upkeep and maintenance. With each passing year, the agency doesn’t have enough money to fix all that it needs to, producing an ever-longer and ever-more-expensive to-do list. 

Over time, Muni’s priorities have also shifted, reducing certain revenue streams. Back in 1999, when SFMTA was formed, merging public transit and streets management into a single agency, the idea was that parking would subsidize transit. But in practice, that theory “doesn’t necessarily match the progressive transportation policies that we’re implementing today,” SFMTA Chief Financial Officer Jonathan Rewers said at the meeting. 

In an effort to reduce traffic fatalities, SFMTA has removed metered parking spots to improve visibility at intersections, or make way for bike lanes. Over the past year, all those outdoor dining areas and car-free shared streets have further reduced parking revenue. Muni’s fare revenue has also been on the decline for years. While falling ridership is a factor, so is a growing array of free and reduced fare programs.  

And then there’s mismanagement. A recent audit by the City Controller found that a lack of communication between SFMTA departments and other city agencies resulted in up to two years of delays, and cost-overruns in the millions of dollars on four projects. The Central Subway’s budget has ballooned to nearly $1.9 billion, up from an estimated cost of about $1.6 billion. SFMTA will have to dip into its operating budget to fill the funding gap, which is, at least in part, the result of bad construction management decisions dating back years.  

But with that project — and the long, grueling slog that is the Van Ness Bus Rapid Transit project  — close to completion, Muni officials want to turn over a new leaf as they seek new funding sources. “Often what I talk about is creating a relationship with the voters,” Rewers said at the meeting. “You make a commitment, you follow through and are successful. It’s much easier the next time you hold out your hand.”

Funding Options

Muni has some options to generate revenue through future ballot initiatives that could go to the voters as soon as June of 2022. One is a potential bond measure that could raise $400 million for the agency. Another possibility is the creation of a parcel tax, which could raise up to $180 million on an ongoing basis. Muni is also beginning to plan for the reauthorization of the Prop K half cent sales tax, which is set to expire in 2034, but needs to be reauthorized far sooner so officials can plan for how to allocate those funds, and borrow against future dollars. 

Other possible ballot initiatives on the table that are seen as slightly lower-priority include increasing the taxes on off-street parking (as in downtown garages), adding an additional half cent sales tax, or increasing the vehicle license fee. “The vehicle license fee is always on the table, except it never polls well, like ever,” Rewers said. 

Muni also has some revenue-generating opportunities that will not require voter approval. The agency is in the early stages of studying development opportunities at the Presidio Yard, 5th and Mission Garage, and the Moscone Center Garage. Eventually, those three properties could yield $25-$30 million per year for Muni. (The planned development project at the Potrero Yard, which will include 50 percent affordable housing, will not generate net revenue for transportation, Rewers said.) 

“We’re really working to turn over every rock and make sure that for the properties we already have, we’re squeezing everything we can out of them,” said Bonnie Jean von Krogh, a public relations officer for SFMTA who works on real estate development. 

Another revenue source on the horizon is downtown congestion pricing, which could generate more than $60 million annually. But that won’t happen until 2024 at the earliest. Muni is also looking into finding new revenues from neighborhood parking permits, but that is going to be a political and legal minefield. 

Meanwhile, private philanthropy could be an option for getting the cable cars back up and running, Rewers said. And Muni is always lobbying for increased federal and state funding, as well as policy changes, like SB 288, that reduce the amount of time and money the agency must spend on environmental review and other bureaucratic planning processes. 

Then there are the agency’s short-term efforts. Muni is working on implementing extended hours and Sunday enforcement for parking meters in certain areas. And, despite a slow reopening of the Muni metro subway, the agency is doing what it can to get riders back on board buses and trains as life in the city gradually returns to some semblance of normalcy, including emergency transit-only lanes on many major streets. Muni is currently soliciting feedback for possible transit-only lanes on sections of Park-Presidio, Lombard, and California. 

As for the mismanagement issue, Rewers said he has read the city audit three times. “A lot of the things that were in that audit are areas we’re still actively working on,” said Rewers, who was “grilled alive” by the Board of Supervisors on the subject in February. But other project delivery improvements have already been made since the period described in the audit. “You’ll see our implementation of Geary is completely different than what we did on Van Ness,” Rewers said of the Geary Bus Rapid Transit project, which is getting temporary bus lanes before major infrastructure work starts. “The lesson learned there [on Van Ness] was the riders on the 49 and 47 could have realized a ton of the benefit in advance, we could have done a temporary dedicated lane.”

SFMTA still has a lot of work to do when it comes to managing its sprawling fiefdom, and building new infrastructure more quickly, for less money. But as it pursues new revenue to make that happen, many of the obstacles will likely be political, as Joe Eskenazi explains in a recent Mission Local column. (Joe was beating this drum for years at SF Weekly, and in this latest piece prepares readers and riders for disappointment when the Central Subway finally opens next year.)

For instance, Supervisor Dean Preston has resumed his push to make Muni free, a move that could cost the agency about $200 million per year. (Preston is currently calling for Muni to be free for the duration of the pandemic, but has previously voiced support for making it permanently free.) Congestion pricing is often described by critics as regressive, although transit riders are disproportionately low-income, and any version of the policy that gets passed in San Francisco would likely have carve-outs for low income drivers. If development at Muni-owned sites is to generate revenue, it can’t be 100 percent affordable housing, as activists demanded for the Potrero Yard. Whichever funding paths it chooses, Muni is going to have to communicate these tradeoffs to the public. 

“We have not been good at describing the structural deficit of the agency and the makeup of the things financially that support those operations,” Rewers said at the meeting. “How do we make sure that the infrastructure that we have can at least keep pace with the state of good repair, and we don’t see our backlog continue to grow? That, to me, is the first step.”

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