Top California Democrats say they’ve averted a worst-case scenario for struggling Bay Area transit agencies — but only for now.
Tucked into the $320 billion state budget agreement that Gov. Gavin Newsom signed last week is a $750 million loan for four local transit agencies to keep operating while they face massive deficits. The loan will be divided between BART, AC Transit in the East Bay, Caltrain on the Peninsula, and Muni in San Francisco. Lawmakers are expected to nail down the terms this summer.
Combined with the state’s earlier $1 billion bailout of Bay Area transit agencies, the loan “will prevent devastating service cuts through the end of 2026,” state Sen. Scott Wiener’s office said in a statement last week.
“We’re happy with the outcome,” said Stefan Elgstrand, a spokesperson for East Bay Democratic state Sen. Jesse Arreguín.
Republicans whose votes weren’t needed for the majority Democrats to pass the budget weren’t part of the talks.
Next year, funding will run out from an emergency $5.1 billion bailout Newsom approved in 2023. While stumping for short-term funding in May, Wiener, a San Francisco Democrat, said BART “would be forced to cut 10 stations and two entire lines, lay off 1,000 workers, and hike fares by 30%” without the additional cash.
By fall 2026, lawmakers and agencies hope voters will approve a sales tax increase to keep agencies above water for the long haul. However, that plan is already facing a major political challenge and questions about its viability among an electorate anxious about affordability.
The four transit agencies combined are facing a forecasted $800 million deficit primarily because they’re short on riders. BART, the region’s flagship train network, faces a $376 million deficit in fiscal year in the 2026-2027 budget year. In the East Bay, AC Transit faces a projected $72 million revenue shortfall in fiscal year 2026-27 and recently tapped reserves that will quickly run out. Both agencies have made some cuts. A recent bill analysis warned of a possible “death spiral” for regional transit.
Though Democrats lauded the agreement to keep transit agencies afloat, questions persist about the loan arrangement, which is less than lawmakers originally sought. In May, Arreguín lobbied for a $2 billion statewide funding allocation for transit agencies, not a loan, Elgstrand said. It’s unclear how much of that assistance Bay Area agencies would have received. In any case, a major bailout for transit was likely a longshot this year because of the state’s own budget woes — a $12 billion funding gap that forced Newsom and top allies in the Legislature to pare back a key health care initiative for immigrants without legal status.
Sen. Dave Cortese, a South Bay Democrat who chairs the senate’s transportation committee, said Wiener carried the loan idea across the finish line by flexing his powerful position as chair of the senate budget committee. A spokesperson for Wiener did not respond to requests for comment this week.
Cortese said he “reluctantly” supported the idea. The number — $750 million — seems “random,” he said. And he expressed doubt that the beleaguered transit agencies will return the funding.
“I’m not overly optimistic that that ever gets paid back,” Cortese said. “If you’re having a fiscal cliff, and there’s no end in sight … at what point do you pay back $750 million, right?”
Spokespersons for BART, Caltrain and AC Transit all said the plan involves repayment of the loans.
“We are grateful for this loan because it will prevent deep service cuts from happening before local voters get to weigh in on the potential ballot measure and as transit agencies seek local revenues to fund operations,” said Alicia Trost, a spokesperson for BART.
“Despite a sharp decline in farebox recovery and year-over-year sales tax revenue, our transit district has consistently met its financial obligations to creditors,” said Robert Lyles, a spokesperson for AC Transit. “Looking ahead, our ability to maintain this stability depends on securing sustainable funding sources.”
However, a spokesperson for Caltrain said agency officials haven’t decided whether to accept a loan.
“While Caltrain has not yet determined whether it will take this loan, it is hugely beneficial to have it available as an option,” said spokesperson Dan Lieberman.
The long-term plan to avert a Bay Area transit “death spiral” hinges on two key developments: that lawmakers will pass more legislation this year, and that voters in 2026 would agree to a regional sales tax hike to fund public transit.
Wiener and Arreguín are sponsoring SB 63, which, if passed, would have voters in certain Bay Area counties decide whether to raise sales taxes by half a cent. That would generate roughly $550 million annually, to be distributed between the four agencies. The amount is in flux and would also depend on the number of counties that approve the tax.
“We remain cautiously optimistic that East Bay voters will recognize the value of a sales tax measure that supports infrastructure and the essential transit services our communities rely on,” said Lyles, of AC Transit.
But that proposal is already facing political headwinds. Cortese said last month that there’s “tremendous risk” to the plan “ending badly” because tax-weary Bay Area voters may not approve it. A coalition of labor and environmental groups is already fighting the “regressive” sales tax idea and has commissioned polls suggesting voters would be more inclined to support a tax on business activity, which the group prefers. But their proposal is anathema to business interests which would be critical to a voter persuasion campaign leading up to November 2026.
The financial details of the newly-approved loans, including how much individual agencies would receive, are yet to be determined. The required legislation later this session “shall, at a minimum, require full repayment of the loan principal with any agreed-upon interest rate, pursuant to a clearly defined repayment schedule,” the state’s budget bill reads.
Cortese said the apparent plan is to give agencies the loans with 0% interest. Elgstrand said lawmakers will hash out those details.
“Obviously, they’re going to pay it back eventually,” Elgstrand said.
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