Increased ridership on electric trains, lower costs for electricity than forecast, and financial discipline have improved Caltrain’s financial outlook, but not nearly enough to prevent the need for new funding.
Caltrain’s finance committee got a first look at a draft operating budget for FY2025 and a draft 10-Year Strategic Financial Plan on December 16.
Electric service – lower than expected electric costs, higher ridership
The cost of electricity was a big uncertainty before electric service started. Based on the first full month of electrified service, Caltrain staff was able to confirm that the electric trains used more than 20% less energy than projected, saving $7.2M in electricity cost ($19.5M original vs $12.3M revised). As expected, Caltrain also saved $2 million in fuel costs by transitioning away from diesel trains.
Caltrain is pursuing more strategies to improve its budget for electric service, by signing up to receive Low Carbon Fuel Standard Program credits, and pursuing more strategies to generate financial benefit from regenerative braking and battery storage.
Higher ridership and better fare revenue
And in the first full month of electric service, Caltrain’s overall ridership jumped by 17%, and weekend ridership jumped by 38%. Weekend ridership has surpassed pre-pandemic levels, with electric service that is faster and twice as frequent.
The higher ridership is contributing to fare revenue that is projected to be $130 million better than estimated at the beginning of the year.
Other cost reductions and increases
Caltrain has taken other steps to limit costs, including reducing the costs of its contract with TASI by over $30 million, and reductions and delays in hiring and other expenses. However, costs of insurance, maintenance, utilities, professional services, communications, and overhead were up by $9.3 million.
With these changes, Caltrain’s financial picture is significantly better than forecast at the beginning of the year.
Revenue strategies – funding gap remains
Despite the positive news on the finances of electric service, Caltrain continues to expect operating shortfalls of $65 million after FY25 when one-time federal and state funding sources run out, given the gradual ridership recovery from pandemic drops. (Note that the jump in costs in FY2029 is due to service increases planned and committed to the federal government as a condition of electrification funding.)
Caltrain is working on non-fare revenue opportunities including leasing real estate for development, as well as solar, cell towers and EV charging; advertising, marketing and station naming, and other strategies.
Caltrain has planned fare increases of ~4% to 5% annually over the next 3 years – having refrained from increasing fares since the start of the pandemic – and 3% annually thereafter. Caltrain will also be reviewing its fare strategies, bearing in mind that increasing fares can be counterproductive by decreasing ridership.
Measure RR, passed in 2020, remains critical. Revenues are expected to account for 50% to 60% of total revenues.
Service cuts won’t solve the problem
Cutting service – by reducing service to hourly all day or cutting weekend service, won’t solve Caltrain’s financial gap. That would likely cut ridership and reduce revenue by more than the savings in operating costs.
Funding measure options
Caltrain is participating in regional measure discussions, which are moving to the legislature in the New Year. MTC is polling on a few regional measure options that would cover Caltrain.
The agency is also pursuing a backup plan for a Caltrain-specific measure, but this carries a big risk that is greater than the 2020 Measure RR. The challenge is San Francisco, which deeply depends on Muni and BART, which have post-pandemic deficits much larger than Caltrain’s. If Caltrain attempts to run a single-agency measure, it would be competing on the ballot with Muni and BART, an absurd choice for voters, and a risk overall to the transit system, and likely a high risk to Caltrain which serves a small slice of the city.
Some Peninsula corridor leaders have implied in recent months in the funding discussions, that Caltrain is in better financial shape than other major agencies.
Compared to other large Bay Area services, Caltrain needs fewer dollars ($65 million in the fiscal years after $25), but its deficit is higher on a percentage basis.
The Bay Area’s transit system is essential to keep congestion off the roads, and to achieve our climate and housing goals. The Peninsula Corridor is better off if the region works together.
Caltrain’s ridership, similar to BART, remains less than 50% of pre-pandemic levels.
Fares, payment, and ridership recovery
Fare policy and payment will be a critical factor in Caltrain’s efforts to regain ridership, for individuals and for organizations. The board finance committee discussed plans for the future of the Go Pass, the employer pass that was the agency’s largest source of revenue before the pandemic. At the committee, staff shared that the number of customers has declined from over 40 to under 10, and the program needs to be re-invented.
The discussion of organizational passes did not mention the region’s successful Bay Pass all agency transit pass pilot, which has a long waiting list with over 100 potential customers. The Bay Pass is serving customers including the City of Menlo Park, which had been a Go Pass customer but prefers Bay Pass because it meets more of its employees travel needs; San Francisco-based Open AI, which was relatively small before Covid and chose BayPass as its first transit pass, and customers such as San Francisco Airport which for which a multi-agency pass is a better fit.
Public commenter Adrian Brandt, who serves on the Caltrain Citizens’ Advisory Committee and outcoming committee member Dev Davis discussed the possibility of transitioning to a distance-based fare model, which discourages short trips because of large zone fare jumps. This has long been a CAC recommendation, and the region’s Fare Integration Task Force recommended standardizing regional fares starting with BART and Caltrain, which was modeled to significantly increase ridership. Apparently, a concern is that without faregates, some customers might take advantage of lower short-trip prices to skip payment, and not get caught by fare enforcement. This would benefit from analysis, since Caltrain already serves many short trips within a zone with this issue; moving to fairer fares for a few more short trips seems likely to have more benefits from increased ridership than drawbacks from people cadging free rides from Millbrae to San Bruno.
Davis also talked about ways to encourage and market the trips for recreation and entertainment that are growing rapidly with Caltrain’s better weekend schedule. The discussion did not yet mention the upcoming release of Open Payment, which will allow people to pay for transit with credit/debit cards and Apple/Google/Samsung Pay, a more convenient solution for visitors and impulse trips.
Over the coming year, there will be important opportunities to weigh in on fare policy, and on funding opportunities at the regional and state level.