Metro - File #: 2026-0011

Date	Action By	Action	Result	Action Details	Meeting Details	Audio
2/19/2026	Finance, Budget and Audit Committee			Not available	Meeting details	Not available

Meeting_Body

FINANCE, BUDGET, AND AUDIT COMMITTEE

FEBRUARY 19, 2026

Subject

SUBJECT: FISCAL YEAR 2027 BUDGET DEVELOPMENT PROCESS: RESOURCES AND PARAMETERS

Action

ACTION: RECEIVE AND FILE

Heading

RECOMMENDATION

Title

RECEIVE AND FILE the Fiscal Year 2027 (FY27) Budget Development Process: Resources and Parameters.

Issue
ISSUE

This report sets up the economic context for the upcoming fiscal year with the forecast of sales tax revenues and other resources, cost inflation and other financial risks. A comprehensive and transparent public outreach program runs concurrently during the budget development process to maximize public input and ensure that Metro’s stakeholders have an active role.

Staff will collaborate closely with the Board to ensure alignment on funding priorities and financial strategies during the budget development process. This partnership will be reinforced through monthly program reviews, enabling Metro staff to continuously reassess needs, optimize spending, and uphold budgetary balance.

Background

BACKGROUND

The first phase of the FY27 Equitable Zero-Based Budget (EZBB) process began with the Near-Term Outlook Update and analysis of cost growth drivers in January 2026.

Resource projections lay the foundation for the financial framework that guides our fiscal planning. This report outlines the budget development parameters, incorporating key assumptions related to the sales tax forecast, operating revenues, grants, bond proceeds, and prior-year carryover. These assumptions will guide the determination of available resources for eligible projects and programs in FY27.

Discussion
DISCUSSION

Staff is committed to maximizing the use of revenues for all programs, based on each of the ordinances that govern the eligibility and use of funds. However, the most critical step is to develop accurate projections of sales tax revenues.

Sales Tax Revenues

Sales taxes are the primary revenue sources for Metro, representing over half of the total annual resources. Metro’s local sales tax ordinances (Proposition A, Proposition C, Measure R, and Measure M) have voter approved directives on how each sub-fund should be spent, which determines the funding available for programs. Metro utilizes multiple modeling approaches and sources to estimate sales tax revenues.

FY26 Sales Tax Update

Metro monitors actual monthly sales tax receipts from the California Department of Tax and Fee Administration (CDTFA). Staff reevaluates the validity of the current adopted budget with year-to-date actual receipts and reforecast as necessary. The estimated actuals are used as the base for the FY27 preliminary sales tax revenue projections.

The FY26 year-to-date actual receipts, from July to November 2025, are $432.2 million per ordinance. The recent 43-day (October 1 to November 12, 2025) Federal government shutdown likely disrupted the second quarter’s receipts, but the impact is expected to be temporary with the losses recouped once public benefits resumed and federal workers returned to work. Historically, the sum of the first five-month actuals accounts for roughly 40% of the year-end total. We anticipate this trend will continue and the year-end receipts are projected to be close to budget ($1,070.0 million per ordinance).

Economic Sector Model

During the pandemic, Metro staff developed an economic sector model to isolate and evaluate local sales tax impacts of changes in specific sectors of the economy. A list of the sector breakdowns is given in Attachment A. This model continues to be a valuable tool in refining the agency’s annual budget projections. The FY27 sales tax revenue assumptions considered the following external factors:

• Muddled local economy: While a few high productivity sectors like aerospace and healthcare continue to expand, the region faces significant headwinds from very low job growth, persistent affordability issues, and federal policy shifts regarding tariffs and immigration.

• Consumer spending: Overall spending has remained flat for the last two years but is expected to begin rising in FY27.

• Spending mix transition: Non-taxable spending categories such as housing, insurance, health care, and services continue taking up a greater share of spending, eroding disposable income spent on taxable sales.

• Increasing consumer debt: Growth in debt and delinquencies continues to impede the growth of disposable income in the near term.

• Electric vehicle (EV) trends: EV sales are increasing at a slower rate now, but they continue to grow as a percentage of total cars in the region. This will continue to put downward pressure on gasoline sales tax revenue growth.

• Wildfire impacts: While reconstruction, repair, and replacement activities due to the 2025 wildfires appear to have shifted some spending into categories such as building materials and furnishings, the net impact on regional sales tax revenues is marginal.

• World Cup impacts: The eight FIFA World Cup matches are expected to contribute $8.3M in additional revenues through Metro’s four local sales tax ordinances. These funds will be part of Metro’s overall sales tax revenues, spread throughout all funding categories (local return, transit and highway capital, bus and rail ops, etc.) and subject to the usual eligibility restrictions. The majority of this is included as part of the current fiscal year budget assumption.

Multiple Regression Model

Metro staff also developed a statistical multiple regression model to validate the economic sector model results. This model determines the correlations between sales tax revenues and other independent variables such as unemployment rate, CPI, and personal income in Los Angeles County, and derives a formula using historical data to make future projections.

FY27 Preliminary Sales Tax Assumption

The forecasting models indicate a gradual economic recovery and moderate sales tax revenue growth in the upcoming fiscal year, projected at $1,089.0 million per ordinance, an increase of 1.8% over the FY26 Budget of $1,070.0 million. Figure 1 displays Metro’s historical sales tax revenue actuals, the FY26 Budget and the FY27 preliminary sales tax revenue assumption.

Figure 1:

Figure 2 compares Metro’s historical and current budget estimates to actual receipts and leading regional forecasts. FY27 sales tax revenue projections from UCLA Anderson, Beacon Economics and Muni Services are between $995.9 million to $1,127.2 million per ordinance, and Metro’s preliminary assumption of $1,089.0 million falls within range.

Figure 2:

Other Resources

State Transit Assistance (STA)/Senate Bill 1 (SB1) Revenues

STA and SB1 are sales tax revenues dependent on actual consumption and the price of diesel and gasoline. The FY27 preliminary assumption of $271.3 million will be revised in late February 2026 to reflect the State Controller’s Office (SCO) FY27 allocations.

Passenger Fares

FY27 fare revenue projections are still under development and are based on recent ridership and fare revenue trends. While ridership is expected to increase with the opening of new rail extensions, including the D Line, and continued system enhancements, fare revenue is expected to remain constrained due to increased utilization of free and reduced-fare programs such as Low-Income Fare is Easy (LIFE), Fare Capping, and GoPass.

• LIFE Program: Offers free monthly 20-trip passes and free 90-day passes for new enrollees.

• Fare Capping: Limits daily and weekly fares, allowing additional trips at no cost once the cap is reached.

• GoPass: Provides unlimited free rides for K-14 students.

Fare per boarding and projected ridership are used to estimate fare revenues. Staff are finalizing the FY27 analysis using updated ridership forecasts from Operations, refined average fare assumptions, and observed impacts of fare policies and programs. Along with growth in GoPass usage, the expansion of the LIFE program increased ridership by 21% over last year and contributed to a lower average fare per boarding. Based on five months of collected data and an assumed 6% ridership increase over estimated year-end actuals, preliminary FY27 passenger fare revenues are projected to range from $141.0 million to $158.0 million.

Advertising

The total FY27 advertising revenue is projected at $32.0 million. Advertising revenue from bus and rail is estimated at $27.0 million, based on the adjusted minimum annual guarantee (MAG) payments resulting from the advertising contract modifications approved by the Board in March 2023. While the Bus Advertising contract assumes 2,100 buses are available for advertising, historical bus assets as well as the FY26 Budget have only accounted for approximately 1,686 buses. Consequently, FY27 bus MAG revenue projections have been reduced to reflect the number of assets in service. Staff are actively working on advertising opportunities for the 2027 Super Bowl and 2028 Olympic and Paralympic Games.

The new Transportation Communication Network (TCN) project will establish a network of digital transportation communication displays that will create a connected communication system by utilizing outdoor advertising infrastructure on Metro’s property throughout the City of Los Angeles. TCN’s net revenue will be split 50/50 between the City of Los Angeles and Metro. The project is estimated to generate $4.9 million for Metro in FY27.

Toll and Other

Toll revenues are projected to be $107.0 million in FY27, primarily from ExpressLanes usage and fees of the existing I-10 and I-110. Other revenues include bike program, Union Station, park-and-ride facilities, leases, film permits, Service Authority for Freeway Emergencies (SAFE), auto registration fees, transit court fees, Measure W, Low Carbon Fuel Standard (LCFS), and Renewable Index Numbers (RINs) credit sales, investment income, and other miscellaneous sources. Collectively, these revenues are projected to total $69.1 million in FY27.

Grant Resources

Local, state, and federal grant resources are used to support Metro’s transit planning, operating, State of Good Repair, and construction activities. Grant revenue projections are still being developed and will be finalized at a later point in the budget development process.

The grant outlook for FY27 is uncertain, particularly at the federal level. The state has its own budgetary issues as well. The Governor’s recently released proposed budget maintains all one-time transportation investments included in last year’s Budget Act. However, it is silent on the state’s commitment to the SB125 program.

Federal grants include Federal Transit Administration (FTA) formula grants, Capital Investment Grants for new transit project construction, and a variety of other discretionary grant programs - including but not limited to - Bus and Bus Facilities and Low or No Emission grants programs. The nature of federal formula programs and discretionary grants is likely to change as Congress prepares to craft a new surface transportation authorization bill to replace the Bipartisan Infrastructure Law (P.L. 117-58) that expires in Fall 2026.

State grants include State of Good Repair and other discretionary grants funded through Senate Bill 1 (SB1). Senate Bill 125 (SB125) amended the 2023 Budget Act to provide new funding through the Transit and Intercity Rail (TIRCP) program and a new Zero-emission Bus (ZEB) program. SB125 funds will be included in the proposed FY27 Budget.

Metro staff continue to aggressively pursue discretionary grant opportunities at both the state and federal levels. Metro’s local funding will continue to be used as matching funds to leverage our local commitment to continue providing safe and efficient transit service and maintain momentum on the Measure R and M programs.

Bond Proceeds and Prior Year Carryover

Debt issuance is authorized under applicable federal and state legislation, as well as local sales tax ordinances. The Board-adopted Debt Policy establishes parameters for the issuance and management of debt, consistent with best practices and defined affordability limits. New debt issuance will be used as a last resort to mitigate the shortfalls in State of Good Repair, transit construction, and highway activities.

In FY26, $2,412.9 million in debt proceeds and prior year carryover are available to support transit expansion, highway, State of Good Repair, and Transit Improvement/Modernization projects. The debt and carryover amount for FY27 will be determined upon finalization of the FY27 expense budget and are subject to CEO approval.

Resource Assumption Summary

Referring to Figure 3, sales tax and Transportation Development Act (TDA) revenues are projected to increase conservatively at 1.8%. Line 6 represents a total increase of 1.4% in overall resources, excluding grant resources, bond proceeds, and prior year carryover.

Figure 3:

Consumer Inflation and Other Financial Risks

Cost Inflation Indicator - Consumer Price Index (CPI)

On the expense side, Metro program cost and cash flow requirements are impacted by cost inflation, labor contract agreements, and program guidelines. The most common indicator of cost inflation is the CPI as published by the Bureau of Labor Statistics.

Historical trends, policy uncertainties, leading regional forecasts as well as other prevailing economic conditions are considered when estimating cost inflation. The FY27 CPI growth is projected to remain above the Fed’s 2% target and between UCLA and Beacon Economics’ projections at 3.0% (Figure 4) due to tariffs and strong consumer demand for essentials. Metro staff will continue to monitor CPI trends and updates from the economic forecasts as we go through the budget process.

Figure 4:

Other Financial Risks

Los Angeles County continues to trail other Southern California counties, such as Riverside and Orange Counties, in terms of sales tax growth. Metro faces uncertainty in sales tax revenue growth which is directly impacted by population, employment and consumer spending patterns. Out-migration primarily due to high costs of living has reduced the county’s net population 1.5% since 2020 and 0.3% in the past year. Persistent high housing costs, surging prices in insurance, healthcare, groceries, education and other non-taxable services, as well as increasing consumer debt and loan delinquencies continue to erode consumers’ purchasing power for taxable goods.

The uncertainty over grant funding discussed earlier is another concern that Metro faces. The grant process is getting tighter and more competitive as the federal and state governments explore ways to mitigate shortfalls and more transit agencies pursue external funding sources.

These challenges, combined with increasing operating expenses, elevated building material costs for Metro’s capital projects, limited operating eligible dollars, funding restrictions, potential future federal government shutdowns, geopolitical instability, and other monetary and fiscal policy uncertainties, have specific financial implications to the available funding for FY27.

Early and Expanded Public Outreach and Engagement

Metro is committed to transparency with its riders, the public, and key stakeholders. Continuing the My Metro Budget Activity to engage the broader community, OMB launched the new My Metro Priorities to engage riders under the age of 18. Progress and updates on these outreach efforts are provided below and will be provided each month. Attachment B provides details on outreach forums and other information.

FY27 My Metro Budget Activity

The My Metro Budget Activity, a multi-award-winning initiative, advances education and transparency around Metro’s budget. Most recently honored by the International City/County Management Association (ICMA) in October 2025 with the Best in Governance Award in the “Trust Through Transparency” category, the program has also been recognized by the ICMA with the Voice of the People (VOP) Award for Excellence in Budget and Finance. Together, these distinctions underscore Metro’s commitment to meaningful community engagement and data-driven decision-making. The FY27 Activity launched in November 2025 can be accessed at <https://mybudget.metro.net/online>. Below is a summary of new tactics and features pertaining to the Activity.

FY27 My Metro Budget Activity - New Tactics and Features

Metro continues to refine and enhance the budget activity by integrating public feedback and leveraging new technological advancements. The updated approach includes the following new features and strategies:

• A welcome video featuring CEO Wiggins to better engage the public.

• Three new scenario questions pertaining to retail amenities, code of conduct enforcement, taller faregates, and Joint Development policy.

• View staffing impacts of budget changes in real time with the “Impacts” feature.

Youth-Focused Outreach - My Metro Priorities

In response to the Board’s directive to strengthen engagement with people under the age of 18, OMB staff have developed a new, easy-to-use tool called My Metro Priorities. The interactive tool takes approximately 3-5 minutes to complete and offers participants the chance to win a $50 gift card. My Metro Priorities was launched in early September at the Metro Youth Council Summit, marking the start of a broader youth engagement effort. Ongoing promotion will continue through targeted social media campaigns and collaboration with Metro programs and partners that serve youth audiences including the SEED School, Transportation Career Academy Program (TCAP), GoPass, Youth Council, Women & Girls Governing Council (Girls Empowerment Summit), and others. My Metro Priorities is available at <https://mybudget.metro.net/prioritize>.

As in previous years, feedback collected through this process will be shared with Metro departments beginning in January and will serve as input in developing the FY27 Budget.

Updates on outreach initiatives will be provided via the Budget Portal at: <https://budget.metro.net>.

Determination of Safety Impact
DETERMINATION OF SAFETY IMPACT

This recommendation will not have an impact on safety standards at Metro.

Equity_Platform

EQUITY PLATFORM

As Metro advances the development of the FY27 Budget, the Agency’s steadfast commitment to equity continues to guide its financial strategies, investment decisions, and policy implementation. Guided by Metro’s Equity Platform Framework, the FY27 Budget process prioritizes equitable outcomes for everyone while addressing key organizational priorities such as public safety, system cleanliness, system expansion, labor equity, and environmental sustainability. The overarching goal is to deliver a transit system that is efficient, safe, inclusive, and equitable for all Los Angeles County residents and riders.

Metro’s EZBB process has been further refined to integrate budget equity tools that strengthen data-driven decision-making. Through the Agencywide Budget Equity Assessment (ABEA) Project, Metro has improved both the procedural and distributional equity aspects of its budgeting framework, expanding analysis beyond geographic proximity or direct impacts to Equity Focus Communities (EFCs).

Metro will continue to conduct EFC Budget Assessments for FY25 and FY26 Actuals and report on the outcomes as we transition to the new EBA. Staff are currently working with departments to refine the data collection and analysis mechanisms, and enable continued quantitative tracking, year-over-year analysis, performance monitoring, and transparent reporting.

Vehicle_Miles_Traveled_Outcome

VEHICLE MILES TRAVELED (VMT) OUTCOME

VMT and VMT per capita in Los Angeles County are lower than national averages, the lowest in the SCAG region, and on the lower end of VMT per capita statewide, with these declining VMT trends due in part to Metro’s significant investment in rail and bus transit.* Metro’s Board-adopted VMT reduction targets align with California’s statewide climate goals, including achieving carbon neutrality by 2045. To ensure continued progress, all Board items are assessed for their potential impact on VMT.

As part of these ongoing efforts, this item is expected to contribute to further reductions in VMT. This item supports Metro’s systemwide strategy to reduce VMT through investment activities that will improve/benefit and further encourage transit ridership, ridesharing, and active transportation. While this item does not directly encourage taking transit, sharing a ride, or using active transportation, it is a vital part of Metro operations, as it provides economic context for the upcoming fiscal year ensuring alignment on funding needs and priorities. Because the Metro Board has adopted an agency-wide VMT Reduction Target, and this item supports the overall function of the agency, this item is consistent with the goals of reducing VMT.

*Based on population estimates from the United States Census and VMT estimates from the highway performance monitoring system data between 2001-2019.

Implementation_of_Strategic_Plan_Goals

IMPLEMENTATION OF STRATEGIC PLAN GOALS

Recommendation supports the following Metro Strategic Plan Goal:

Goal # 5: Provide responsive, accountable, and trustworthy governance within the Metro Organization.

Next_Steps
NEXT STEPS

Next month’s update on the FY27 Budget process will provide an in-depth review of Infrastructure Planning and Construction, with particular emphasis on Transit Infrastructure, Multimodal Highway Investments, Regional Rail initiatives, and Regional Allocations and Pass-Through funding.

Attachments

ATTACHMENTS

Attachment A - Economic Sector Model

Attachment B - FY27 Proposed Budget - Online Engagement Results and Community Outreach

Prepared_by

Prepared by: Giovanna Gogreve, Senior Director, Finance, (213) 922-2835

Jessica Lai, Deputy Executive Officer, Finance, (213) 922-3644

Linda Wang, Deputy Executive Officer, Finance, (213) 922-2464

Timothy Mengle, Executive Officer Finance, (213) 922-7665

Irene Fine, Deputy Chief Financial Officer (Interim), (213) 922-4420

Reviewed_By

Reviewed by: Michelle Navarro, Chief Financial Officer (Interim), (213) 922-3056