BART, East Bay, Oakland, Oakland Airport Connector

How the OAC fares: An updated financial outlook

BART’s Oakland Airport Connector now under construction may be soaring through the air above Hegenberger Road, but its projected operating budget lies much closer to the ground — so close that it’s digging a hole underground.

Oakland Airport Connector under construction. Courtesy of Flickr user Dianne Yee.

Oakland Airport Connector under construction. Courtesy of Flickr user Dianne Yee.

Back in 2009, when BART was lining up all the local approvals it needed to obtain federal stimulus funding, the question of whether the Connector would generate enough revenue to cover its own costs (which include not just operation and maintenance, but also capital replacement and debt service) was a moving target. Early in the process, BART defended its very high and outdated ridership assumptions and suggested that the OAC would not require an operational subsidy. However, BART needed a more realistic financial plan to qualify for a federal TIFIA loan that would help finance construction. As ridership projections were adjusted downward (with the express goal of being “conservative” and capturing worst-case assumptions in the financial analysis), the truth began to emerge that there would be an operational shortfall — minor shortfalls in earlier years of revenue service and up to $22 million of cumulative shortfall through the year 2035. After 2035, the OAC would begin to net a surplus each year even as the debt would continue to be paid down.

OAC shortfalls and surpluses presented in Summer 2009. Courtesy of BART.

OAC operating forecast presented in Summer 2009. Courtesy of BART.

BART analyzed a $6 fare for the OAC at that time, and the high fare created significant controversy. Setting the fare is the province of the BART Board, so BART staff would not admit the high fare to be a fait accompli, portraying it instead as something of an outlier or worst case option.

But as it turns out, these purposely conservative assumptions may not have been conservative enough. With the Oakland Airport Connector estimated to begin revenue service in Fall 2014, the BART Board will soon have to set the fare. Toward that end, the Board will hear an informational update (PDF) on the project’s latest ridership and revenue forecast. It’s not pretty:

OAC ridership and budget impact (April 2014)

OAC ridership and budget impact through FY40 as of April 2014. Courtesy of BART.

The above table presents three fare options. (*) The first option is an increasing fare that starts at $4 on opening day and steps up to $6 by 2017, while the other two options start immediately at the higher $5 or $6 fare level (and reflect lower ridership corresponding to this higher fare). Under these three options, the OAC will require a cumulative subsidy of between $42.7 and $55.7 million in the first ten years of revenue service. Even after 25 years of revenue service, the OAC will continue to burden the BART system. If the fare is set to $5 on opening day, the $50.5 million cumulative shortfall that would result in 2040 considerably exceeds the maximum shortfall identified in the 2009 analysis.

In light of this forecast, it would appear that the Board has little practical choice but to set the fare to the exorbitant $6 level; to do otherwise would only prolong the Connector’s burden on the system.

None of this will come as a surprise to those who followed the OAC back in 2009, when BART was scrambling in every direction to qualify for federal stimulus funds and revive the then-dormant project, in the process earning a scolding from the Federal Transit Administration. BART went to great lengths to mislead and confuse the public and the other governmental entities whose approval it sought, portraying the project as a seamless connection to the Oakland Airport that would attract new riders in droves and generate untold thousands of jobs. The ultimate operations budget for the Connector was one piece, albeit an important one, of a multifaceted story.

But it looks like we will have to wait awhile longer to witness that magical day when the Oakland Airport Connector pays its own way. Until then, running the OAC and paying down the associated debt will be an annual drain on BART’s budget, competing for funds used to operate the core system. For as much effort as BART has spent trying to rationalize building the OAC, it doesn’t change the fact that from a transit effectiveness perspective, the project is essentially meritless — and when meritless public projects are advanced, we all pay the price one way or another.

(*) Airport employees would be exempt from these fare options and would continue to pay a $2 discounted fare.

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Discussion

3 thoughts on “How the OAC fares: An updated financial outlook

  1. Good post, Eric. We put a similar perspective on TransForm’s blog, at http://www.transformca.org/trblogpost/should-bart-spend-10000-airport-passenger-oac. I’d be interested in your thoughts. Sadly, preliminary budget plans for a $4 fare, not the $6 fare. We’ll be at the BART Board this Thu and for future meetings to suggest that they must set the fare at $6 at the *lowest*.

    Posted by Jeff Hobson | 23 April 2014, 6:04 pm
  2. Best thing BART could do; donate this white elephant to Port of Oakland which operates the airport.. As to the fares, BART’s projections were as reliable as the ## used in the SFO con which has savaged SamTrans budgets. For actual airport users AC Transit should beef up service and have their buses stop at both airport terminals.

    Posted by david vartanoff | 1 May 2014, 9:55 am

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