RTD’s financial future includes bright spots and question marks

Two large federal bailout grants are in process and a third is on the way, but uncertainty about the strength of the post-pandemic economy makes it difficult to know if those bailouts will be enough to avoid major stress on RTD’s budget over the next five to six years.

That was the overall message Tuesday when the Financial Administration and Audit Committee of the RTD Board of Directors studied an analysis of various budget scenarios presented by acting Chief Financial Officer Doug MacLeod. The committee also heard the latest projections for sales and use tax income from researchers at the University of Colorado Boulder’s Leeds School of Business.

The flow of sales and use tax dollars is critical. Two-thirds of the RTD budget relies on those tax sources. Prior to the pandemic, RTD was projecting to receive $711.5 million in sales and use tax in 2021. It is now projecting to receive $683 million – a decline of $28.5 million.

Unknown is income from fares. When will customers return to pre-pandemic levels – or will they? Will the trend toward working from home reduce the volume of commuters? Will the pandemic prompt other changes and habits in city life and the need for public transportation?

MacLeod’s work suggests that farebox income could decline from the forecast completed in November 2020, a combined $356 million through the next six budget cycles. “It’s very uncertain when fares recover,” he said, “and when customers return.”

MacLeod started with the positives. RTD received $232.2 million from the Coronavirus Aid, Relief and Economic Security (CARES) Act in March 2020. Another $203.4 million is on the way through the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), with RTD receiving its notice this week of the CRRSAA dollars being executed. And another $338.4 million is coming through the American Rescue Plan Act (ARPA).

The CARES Act dollars were fully spent. The CRRSAA Act dollars will be allocated to cover six “runboards” – also known as service change processes – beginning in June of 2021. CRRSAA funds will also restore overtime and extra shift pay and, for non-represented employees, will eliminate six furlough days, tiered pay reductions, and vacation and sick cash-outs. About $13.8 million will be reserved for recommendations that might come from the state performance audit, the RTD Accountability Committee or other needs.

More good news comes in the fact that RTD weathered 2020 better than forecasted, adding $118.7 million to its beginning reserves. And low interest rates are allowing RTD to refinance its FasTracks debt. The interest savings in 2021 alone is projected to be $23.6 million. 

Major concerns include outstanding litigation with Denver Transit Partners; TABOR restrictions that limit RTD’s budget growth (the so-called “ratchet-down” effect of the state constitutional limitations on public agencies); and eliminating the reliance on FasTracks reserves to pay for ongoing operations.

MacLeod underscored that all the supplemental federal funds are single infusions. The federal grants are “great news – amazingly helpful,” he said, “but are only one-time funding.” Ultimately, he added, the agency will need to “set up a path forward to match projected expenditures to projected revenues.”

RTD, he said, is waiting on specific guidance on how it may use the ARPA cash – but will possibly need to address patching the budget hole created by reduced ridership.

For the Board, policy decisions ahead include restoring reserves to a three-month cushion (the goal is to maintain a cushion of $150 million); greenlighting deferred capital projects (many related to compliance and safety); and ensuring that FasTracks balances are protected to complete FasTracks obligations.

With the reduced revenue due to COVID-19 impact on the economy and ridership, MacLeod explained, the agency could end up using all FasTracks reserves on FasTracks debt and still end up with a deficit, further straining non-FasTracks resources.

This week, at least, Board members raised a few questions but didn’t directly address the best way to manage the long-term conundrums.

RTD Board Chair Angie Rivera-Malpiede asked about delays in replacing buses that are nearing the end of their lifecycle – a long-delayed item. Director Bobby Dishell asked if a “worst-case scenario” might leave RTD with a $103 million deficit in 2023. (MacLeod said that was correct.) Director Shontel Lewis asked about the process for deciding on what deferred capital projects need to move forward.

Stepping back to look at the bigger picture, the committee also heard from Richard Wobbekind, associate dean for business and government relations, and Robert McNown, professor of economics, both from the Leeds School of Business. 

Their presentation confirmed the tremendous power of the federal stimulus efforts, but Wobbekind cautioned that the return to pre-pandemic employment levels could take years. The nation today has 8 million fewer jobs than in February of 2020, a month before the nation locked down as part of the public health effort to reduce spread of the virus. Full job recovery, Wobbekind projected, could take 30 months. 

There is a “K-Shaped” recovery underway – a good recovery for the “haves” and a not-so-good recovery for the “have-nots,” Wobbekind said. The question, he added, “is how do we make sure that the have-nots ultimately get assimilated back into the economy.”

McNown presented a baseline RTD forecast suggesting that the economy will return to robust levels soon. The forecast said the agency will see an 8% increase in total tax revenue in 2021, another 6.3% increase in 2022 and a 4.9% increase in 2023. In all, the forecast called for a 41% increase in revenues between 2020 and 2027. However, McNown cautioned, the forecasts may be too high or too low, “reflecting uncertainty in the economy.”