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** $10 Billion in Taxpayer Subsidies Prop Up California Transit
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Dear John,

California’s public transit systems are running deep in the red — and taxpayers are picking up the tab. A California Policy Center analysis of 85 transit operators finds fares covered just a sliver of costs in FY 2023, leaving taxpayers on the hook for more than $10.3 billion in subsidies.

The new report, The Cost of Transit in California ([link removed]) , by CPC visiting fellow Marc Joffe with research intern Athan Joshi, warns that taxpayer subsidies will keep ballooning unless California rethinks its transit model.

In FY 2023, California transit agencies collected just $897 million in fares against $8.76 billion in operating expenses. Basic system upkeep and replacement expenses alone cost another $2.88 billion. Even after adding $427 million in non-fare revenue from parking fees and advertising (on buses, trains and in stations), and other income, the total of taxpayer subsidies required to break even was $10.3 billion.

A common metric for comparing transit system cost-effectiveness is the “farebox recovery ratio,” which is the quotient of passenger fare revenues and operating expenses reported to the National Transit Database. The authors found that California’s statewide farebox recovery ratio was a mere 10.25 percent.

Translation: riders covered just over a tenth of operating costs; taxpayers covered the rest.

The largest systems required the biggest subsidies in absolute terms, led by the Los Angeles County Metropolitan Transportation Authority ($2.45 billion), San Francisco’s BART ($1.39 billion), and San Francisco’s Muni ($1.09 billion).

Factors Driving High Costs

The study attributes the financial unsustainability of California transit to several factors:

Baumol’s “Cost Disease”: Transit is a labor-intensive industry where productivity gains are slow. However, wages must keep pace with other sectors of the economy, leading to a continuous rise in operating costs that outpaces inflation.

Low Ridership Density: Many systems, particularly in suburban and rural areas, operate long routes with few passengers, driving up the cost per trip.

Inefficient Operations: Slow bus speeds due to traffic and frequent stops, high administrative overhead, and costly capital projects that add few riders contribute to poor financial performance. For example, Alameda-Contra Costa Transit (AC Transit), which serves Oakland, Berkeley, and nearby cities in the San Francisco Bay Area, spends roughly $15 for a typical four-mile ride.

Fare Policies: Fare-free programs and lax enforcement, while intended to promote “equity,” significantly reduce revenue and can lead to safety and cleanliness issues that deter riders.

Is California Public Transit Needed to Stave Off “Climate Catastrophe”?

Transit spending is often framed in terms of the state’s climate change policy. But because California produces such a small share of global greenhouse gas emissions and Californians’ propensity to use transit is so low, investments in Golden State transit cannot meaningfully impact the trajectory of global warming.

According to the report, in the calendar year 2024, Californians took 955 million transit trips covering about 5.1 billion passenger miles in aggregate.

“If California transit agencies were all abolished and all of these trips were replaced by travel in fossil fuel passenger vehicles, greenhouse gas emissions would have increased by 204,000 metric tons. Given that global greenhouse gas emissions in 2024 were approximately 54 billion tons, abolishing California transit would have resulted in a mere 0.0004% increase in emissions last year,” the report states.

It continues: “The best argument for California climate policies is that they set an example for other states and countries, but most other jurisdictions cannot afford to lose $10 billion annually on transit, so the example California sets is unlikely to be followed.”

The authors argue that since California transit’s impact on climate change is negligible, policy should focus on financial sustainability.

Recommendations

As long as the transit sector remains labor-intensive, the cost of delivering transit services will continue to outpace general inflation — especially in a state where transit unions and management will continue to push for higher wages and ever-increasing worker benefits.

But this picture could change if transit operations are automated. Transitioning to automated trains and buses can significantly reduce labor costs, the primary driver of expenses. The study points to successful automated systems in Vancouver and Honolulu as models.

The authors also highlight efforts to support “micromobility” such as E-bikes, e-scooters, and neighborhood electric vehicles (NEVs), which are more cost-effective alternatives for personal mobility that can solve the “first-mile/last-mile” problem and replace short transit trips. They further suggest prioritizing investments in proven efficient modes like vanpools, Bus Rapid Transit (BRT), and app-based rideshare services, rather than rail projects with high costs and long timelines.

“California officials are clinging to outdated transit systems because transit unions put union jobs ahead of the public interest,” said report author Marc Joffe. “The real test is whether state leaders will keep California stuck in the past or finally embrace the future of transportation.”

Read the full report, The Cost of Transit in California, here. ([link removed])

CPC Events ()
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Happening next week! Don't miss CLEO's AB 1234-compliant Ethics Training for local elected officials on Tuesday, September 9, 2025 from 6:00 - 8:00 p.m. in Irvine.

This in-person training is fully compliant with the Fair Political Practices Commission (FPPC) Regulation § 18371 and California Government Code § 53235.2. It covers both ethics laws and ethics principles, including open government requirements (Brown Act and Public Records Act), laws governing conflicts of interest and campaign contributions, and more.

This free training is offered exclusively for CLEO members. Space is limited — reserve your spot today!

Not a CLEO member? California local elected officials can enroll today at no charge with the code CLEOVIP2025 at c ([link removed]) alelecteds.org. ([link removed])
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New Podcast ()
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** Radio Free California #405: Nuthin’ but a G-Rated Thang
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On this week's podcast with CPC president Will Swaim and CPC board member David Bahnsen: Snoop Dogg talks about the challenges of growing old — like explaining queer ideology while watching Disney movies with his grandson. L.A.’s former fire chief sues Mayor Bass for defamation. Gavin Newsom backpedals fast on “green” energy. Bonus track! CPC's Lance Christensen tracks the California Teachers Association’s latest effort to kill education reform. Listen now. ([link removed])

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** The Economic Development Paradigm – City-Created Problems and Taxpayer-Funded Fixes
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Many local leaders champion economic development departments as engines of growth — but what if they’re doing more harm than good? The Economic Development Paradigm challenges the conventional wisdom by exposing how cities create the very barriers they later subsidize, distorting markets and draining public resources in the process. Author and CPC senior fellow Mark Moses reveals how billions in incentives yield minimal impact, while eroding infrastructure, transparency, and trust. Read now. ([link removed])


** ICYMI: The Predictably Harmful Consequences of Assembly Bill 218
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California’s school districts, counties and cities are fiscally strapped — and now face a fiscal catastrophe. Lorena Gonzalez-Fletcher’s AB 218, signed by Gov. Newsom, extended the statute of limitations on child sexual abuse claims and opened the door to a wave of new lawsuit settlements. LAUSD announced it will issue $500 million in bonds and L.A. County will issue $4 billion in bonds to pay for these new settlements. CPC's John Moorlach examines the long-term fiscal fallout for other municipalities and California taxpayers in his Orange County Register op-ed. ([link removed])
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ABOUT THE CALIFORNIA POLICY CENTER

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