By Maxwell Adler and Sri Taylor, Bloomberg
One of California’s largest public transit systems is tapping the municipal bond market as it contends with a looming fiscal cliff created by dwindling federal aid and ridership that’s stuck at about half its pre-pandemic level.
San Francisco Bay Area Transit District is selling $930 million of bonds to improve infrastructure and refinance outstanding debt, according to bond documents on MuniOS. The deal is set to price for retail investors on Tuesday.
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Proceeds from the sale are intended to help fund a $3.5 billion system renewal project that was approved by voters in 2016. The planned refurbishment includes 90 miles of track upgrades and control system replacements. The bonds are backed by a voter-approved property tax levied within Alameda, Contra Costa, and San Francisco counties.
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BART, which opened in 1972, has been plagued by fiscal and mechanical challenges since the expiration of pandemic-era federal aid, leaving it vulnerable to dips in rider usage. The agency lost its AAA rating from Moody’s Ratings in June due to a lack of new sustainable revenue sources to make up for the losses at the farebox. Its projected annual budget deficit has ballooned to $400 million in the upcoming years.
“BART had historically received an outsized portion of its revenue from ridership but has relied on emergency assistance to manage its budget in recent years,” said Christopher Brigati, chief investment officer at SWBC Investment Services. “On a longer-term basis, I am concerned about the steps that can be taken to mitigate this challenge to its historical revenue generating model.”
The Bay Area’s largest train system is currently looking for fresh funding sources. Voters in the counties served by BART will consider a ballot measure in 2026 that would impose a new local sales tax for a period of 10 to 15 years to help balance its budget. If the ballot measure fails, and BART cannot find alternative funding to close its operating deficit for fiscal year 2026-2027, the system might file for chapter 9 bankruptcy, bond documents say.
BART’s chief financial officer, Joseph Beach, said there were $975 million of orders for the bonds on Monday, with 7% of the retail orders coming from the counties where BART operates.
“The institutional orders are also demonstrating a robust appetite for BART bonds,” Beach said. “We believe this reflects substantial confidence in BART’s high investment grade credit.”
The debt’s offering documents include nine pages of risk factors, including potential labor disruptions, earthquakes and changes in federal trade policy.
On top of that, President Donald Trump’s aggressive cost-cutting, opposition to California’s sanctuary laws and ongoing confrontation with Governor Gavin Newsom are casting uncertainty over Federal Transit Administration grants, which are a significant source of funding for the transit system.
Dora Lee, the director of research for Belle Haven Investments, said the agency’s high rating is based more on its solid tax base than its troubled finances. This, she said, “highlights the limitations of relying solely on ratings and the need for investors to come up with their own opinion of the credit.”
More stories like this are available on bloomberg.com
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