Opinion: AC Transit should cut costs before seeking more taxpayer funds

Along with BART and Caltrain, AC Transit is facing a fiscal cliff next year after exhausting federal COVID-19 assistance. While the bus system’s preferred option is a new area-wide transit tax, spending restraint would be a better solution.

AC Transit offers bus service to 13 cities and adjacent unincorporated communities in the western portions of Alameda and Contra Costa counties. Its service area includes about 1.5 million residents, and it provided almost 40 million rides in the fiscal year ended June 2024.

But this year, AC Transit’s operating budget totals $606 million, amounting to about $15 per ride. Because the average trip on AC Transit is less than four miles, it is not unreasonable to conclude that the agency could have provided all its passengers rides on Lyft or Uber for cheaper than it is to provide them with less-convenient bus service. And that is without considering AC Transit’s capital budget, which came in at $238 million this year.

While raising more tax revenue is the easiest approach for transit leaders, it will be hard on residents, most of whom use the bus rarely if ever. 

Metropolitan Transportation Commission officials are considering a 0.5% sales tax measure for some or all Bay Area counties in 2026. This would push already elevated sales tax levels in the East Bay even higher with rates reaching a California record 11.25% in Alameda, Albany, Hayward, Newark, San Leandro and Union City.

That is a heavy burden on lower-income families who spend a larger proportion of their resources on goods subject to sales taxes.

Another proposal is to impose a parcel tax varying by built area, which would work out to $298 for a typical 1,500-square-foot home. This would push more property tax bills in the area above $10,000 per year, with owners often passing the cost onto their tenants.

Instead of going back to the well for more public funds, AC Transit should look at the cost side of the ledger, focusing on savings opportunities other than service cuts. For example, the agency has sizable administrative expenses including $25 million for the general manager’s office, $38 million for legal, and $76 million for planning and engineering. All these offices could be scaled back without canceling routes. If AC Transit were to be merged with the other large multicounty transit providers, BART and Caltrain, administrative costs could be shared across multiple operations, reducing overheads on bus and train service alike.

Other cost-saving opportunities may come from trimming benefits. According to the latest budget, 37% of AC Transit’s operating expenses go to pensions and other fringe benefits.

While pension benefits cannot be reduced in California, employees can be asked to pay more into their pension system. In 2022, AC Transit employees contributed $1.5 million to the district’s pension plan while the employer contributed $61.7 million, and AC Transit appears to be out of compliance with the California Public Employees’ Pension Reform Act (PEPRA), which requires new employees to cover half of their normal pension costs. The agency may be reluctant to implement this law because the Amalgamated Transit Union has litigated to block federal grants on the grounds that PEPRA violates the 1964 Urban Mass Transportation Act. This litigation remains unresolved.

On the capital expenditure side, AC Transit is investing in both battery electric buses and hydrogen fuel cell buses. While East Bay residents undoubtedly appreciate the agency’s focus on zero emission technologies, pursuing two such options (in addition to hybrid diesel buses) is costly because each requires its own power infrastructure. Hydrogen buses are especially expensive to fuel, with costs exceeding $1 per mile, more than double the cost of hybrid diesel buses.

By reducing redundant staff and zero energy programs, and by sharpening the pencil on benefits, AC Transit should be able to balance costs and revenues without asking voters for additional taxes.

Marc Joffe is an East Bay resident and a policy analyst at the Cato Institute focusing on state issues.