Meeting_Body
FINANCE, BUDGET, AND AUDIT COMMITTEE
MARCH 20, 2025
Subject
SUBJECT: FISCAL YEAR 2026 BUDGET DEVELOPMENT STATUS UPDATE
Action
ACTION: RECEIVE AND FILE
Heading
RECOMMENDATION
Title
RECEIVE AND FILE the Fiscal Year 2026 (FY26) Budget Development Status Update.
Issue
ISSUE
This report continues the monthly updates to the Board on the FY26 Budget development process, culminating in a planned May 2025 Board Adoption. It focuses on Metro’s diverse portfolio of major infrastructure projects included in Transit Infrastructure Development, Highway Multimodal Development, and Regional Rail Programs.
Additionally, it provides an overview of Metro’s Regional Allocation and Pass Throughs (Subsidy) funding programs. This report also provides an update on Metro’s comprehensive budget outreach efforts.
Background
BACKGROUND
The annual budget request reflects the 12-month financial increments required for advancing through each project’s development phase. It serves to monitor the cash flow requirements for activities in each project phase and considers factors such as the existing level of Board authorization, the respective project delivery schedules, and the identification of eligible and available funding sources. These sources may include federal, state, and local grants, sales taxes, and various financing mechanisms.
Most of the projects within the major capital programs adopt a multiyear Life of Project (LOP) Budget. For projects utilizing the alternative delivery methods, a multi-year Pre-Construction Budget is adopted prior to establishing a full LOP Budget. The purpose of the multi-year budget is to establish the financial resources necessary for the duration of a particular project phase in the case of Pre-Construction Budget, and for the completion of the project in the case of a full LOP Budget. The LOP budget encompasses the Pre-Construction Budget and planning phase expenditures. These multi-year budgets seek Board approval independently from the annual budget process.
Discussion
DISCUSSION
Major Infrastructure Capital Investment
LA County’s infrastructure expansion plan is one of the nation’s most ambitious and transformative transportation construction and enhancement programs, enabled by the sales tax revenues from the voter approved Measure R and Measure M Ordinances along with funds from state and federal grants. Major infrastructure projects are subject to market conditions, environmental conditions, and natural disasters which pose financial and schedule risks. While FY26 Preliminary Budget assumes no change in the federal funds obligated to these projects, the uncertainties surrounding these funds exacerbate the situation. Should any of these factors be realized, they must be evaluated and mitigated for a successful project delivery.
The following programs are covered in this report:
Transit Infrastructure Development: The FY26 Preliminary Budget provides funding for planning and constructing new transit projects for LA County per the voter approved Measure R and Measure M sales tax ordinances.
Highway Multimodal Development: The FY26 Preliminary Budget provides funding from voter approved Measure R and Measure M sales tax ordinances to advance design and construction activities for highway, streets and multimodal infrastructure projects in LA County, along with HOV and ExpressLanes and Bus Only Lane projects.
Regional Rail: The FY26 Preliminary Budget supports commuter rail projects such as Metro-led commuter rail projects and ongoing subsidy support for Metrolink’s operating and State of Good Repair/capital components.
The major infrastructure capital projects typically make up one third of the annual budget. The FY26 Preliminary Budget represents the annual incremental cashflow required to advance these capital projects based on the phase of each project.
Transit Infrastructure Development
The Transit Infrastructure Development (TID) Program consists of expansion and enhancements of transit lines outlined in the Measure R and Measure M Ordinances, as well as those capital projects critical to operating these expansion lines once in service. These initiatives involve various project development stages, which are divided into planning, construction, and program support and administration.
Typically, the planning phase commences with a feasibility study followed by alternative analyses, ultimately leading to environmental clearance and selection of Locally Preferred Alternative by the Board. Subsequently, the project moves into the construction phase before being handed over to Operations upon completion.
Fig 1:
For FY26, the Preliminary Budget for the entire Transit Infrastructure Development Program stands at $2.1 billion, reflecting an increase of $196.5 million or 10.2% compared to the FY25 Budget as shown in Figure 1. Much of the FY26 Budget request is geared towards supporting the ongoing construction of key projects such as the Purple Line Subway Extension and East San Fernando Valley Light Rail Transit. As the A Line Foothill Extension to Pomona readies to open for revenue service in summer of 2025, the next leg of extension from Pomona to Montclair will start in 2025 and continue through FY26 and beyond. The increase of $168.1 million or 9.4% from FY25 in the Transit Construction budget is attributed to the advancement of Southeast Gateway Line early works and right-of-way acquisitions, construction on G Line Improvements, and engineering and design work on Eastside Extension Phase 2. The increase of $26.5 million or 25.3% from FY25 in the Transit Planning budget is largely due to the Sepulveda Transit Corridor Pre-Development Agreement.
The FY26 Preliminary Budget numbers are still under development and may be updated between now and Proposed Budget Book publication.
A more detailed project discussion can be found in Attachment A.
Highway Multimodal Development
The FY26 Preliminary Budget of $628.7 million represents a $52.2 million or 7.7% decrease over the FY25 Budget as shown in Figure 2. The FY26 Preliminary Budget reflects Metro’s ongoing investments in HOV and ExpressLanes construction, the expansion of bus-only lanes, subregional street improvements, as well as safety enhancements to freeways, interchanges and arterial streets. As the Highway Multimodal Development program evolves, Metro will continue to integrate pedestrian oriented and multi-modal components into freeway and surface street projects, and advance an equity-focused approach that minimizes displacement and emphasizes community participation.
In FY26, the Highway Multimodal Development budget supports the construction phase of the I-105 ExpressLanes project, the expansion of bus-only lanes and bus infrastructure throughout LA County, including customer-oriented amenities to bus stop shelters. This Preliminary Budget also supports the re-imagining of the I-710 South and I-605 Hot Spots projects, and ongoing construction for the I-5 North (North County) and the SR-57/SR-60 confluence projects.
Fig 2:
See Attachment B for additional Highway Multimodal Development project details.
Highway capital projects are subject to the same market conditions generating cost escalations in our TID program, namely rising labor and material costs. Unforeseen conditions, extreme weather impacts and more stringent environmental regulations also pose financial risk to highway construction projects by triggering work stoppages, change orders, emergency remediation provisions, and mitigation provisions to offset emissions impacts from expanded roadways. All these risk factors could impact construction costs and available funding resources.
Metro Regional Rail
Metro oversees the planning, programming, and implementation of commuter rail projects in LA County that are or will be operated by external agencies such as the Southern California Regional Rail Authority (Metrolink), Amtrak, California High Speed Rail Authority, and commercial freight carriers. Metro also manages and coordinates capital improvement projects along approximately 150 miles of Metro owned, and Metrolink operated railroad right-of-way.
The FY26 Preliminary Budget of $118.1 million is a $61.4 million or 108.1% increase from the FY25 Budget. The increase is primarily driven by an increase in annual funding for the Link Union Station project to support the advancement of the Construction Manager / General Contractor (CM/GC) contract in FY26. Other increases are attributable to the start of the construction phase for the Doran Street Grade Separation project and preliminary engineering efforts for a high-speed rail service from Palmdale via the High Desert Corridor to the future Apple Valley station of Brightline’s privately funded high-speed rail line to Las Vegas
Other major activities include closeout activities for the Rosecrans/Marquardt Grade Separation Project, ongoing construction activities for the first segment of the Brighton to Roxford Double Tracking Project in the east San Fernando Valley, and design efforts for an in-fill Metrolink station at the LA General Medical Center. Additionally, the Lone Hill to White Double Tracking Project in the San Gabriel Valley will develop a full funding plan in preparation for the construction phase.
Fig 3:
Metrolink Commuter Rail
At the time of this report, Metrolink is developing its FY26 operating and capital budget. Metro will work with Metrolink and the other partner agencies to align subsidy levels with eligible financial resources. Final budget amounts for Metrolink will be based on a separate board report brought forward in June 2025.
All modes of transportation in LA County are experiencing funding challenges due to the slower than anticipated growth of sales tax revenues, a severe deficit at the State level, and persistent inflationary pressures on labor, fuel, construction materials and other operating and capital costs. Additionally, ongoing uncertainty around federal funding for transit infrastructure poses a novel risk to existing and future funding for Metro’s Regional Rail program.
The financial impact on commuter rail agencies has been particularly acute, as telecommuting has eroded commuter rail’s core ridership and source of fare revenue. Whereas urban transit ridership has significantly rebounded, Metrolink’s ridership has plateaued at 50% of pre-covid levels. As a result, Metrolink’s subsidy requirement needs to be evaluated to match eligible funding sources for commuter rail in LA County. Final allocation amounts for this program will be brought forward by the Regional Rail group for specific Board approval in June, detailing the operating, state-of-good repair and new capital subsidy funding amounts.
Regional Allocations and Pass Throughs
The Regional Allocations and Pass Throughs program represents resources distributed to regional partners to carry out local transportation needs. This program is directly tied to locally imposed and collected sales taxes as well as Metro oversight and distribution of local, state and federal pass-through grant funding, which includes:
• Pass-through funding awarded to local jurisdictions and municipal and local transit operators through Local Agency Programs (i.e. Local Return) and Regional Transit Funding (i.e. Regional Transit Formula and Access Services)
• Pass-through funding for Major Projects being implemented by local agencies, including Antelope Valley Metrolink Line Projects
• Grants allocated to local agencies through Other Local Programs such as the Congestion Reduction Demonstration (CRD) Toll Revenue grant program, Open Streets grant program, Active Transportation Program (ATP), Federal Pass-Throughs, and the Transit Oriented Development (TOD) Planning grant initiative
The FY26 Preliminary Budget of $1.8 billion is a decrease of $247.8 million, 11.9% below the FY25 Budget as shown in Figure 4. About 88% of this program is comprised of Local Agency Programs and Regional Transit Funding. Current economic conditions are signaling lower anticipated sales tax revenues for FY26 than were assumed in the adopted FY25 Budget. Thus, direct subsidies, provided by local and state sales tax-based programs that are passed through to Los Angeles County transit operators and local jurisdictions, are expected to decrease.
Fig 4:
Local Agency Programs
Local Return and Transit Development Act (TDA) Article 3 and Article 8 funding make up this subprogram. This subprogram will decrease by $76.6 million, a decrease of 8.3% over the FY25 budgeted amounts. Most of this decrease, about $64.5 million, is the result of lower sale tax revenue projections for FY26.
Regional Transit Funding, Including Access Services
Similar to Local Agency Programs, Regional Transit Funding programs are projected to decrease during FY26 by $42.3 million, a 5.3% decrease, primarily from the lower expected sales taxes. This subprogram is comprised of the transit formula funding allocated to Los Angeles County municipal, local transit operators, and Access Services. Formula programs for the municipal and local transit operators included in this subprogram include Proposition A Discretionary funding, Measure M 20%, Measure R 20%, SB1 State of Good Repair, TDA Article 4, and other fund programs.
In addition, preliminary funding of $203.2 million is proposed for Access Services operations in Los Angeles County, including the direct Metro subsidy to support Access riders on Metrolink within the County, an increase of $13.3 million over the FY25 Budget. The final subsidy amount is subject to Access Services’ final budget request. The main cost drivers that could force Access Services to submit a budget request greater than the preliminary estimate include higher operating costs and a backlog in purchasing replacement vehicles due to supply chain disruptions.
Final allocation amounts for this program will be brought forward for specific Board approval in June, detailing subsidy funding amounts for transit agencies, Access Services and local jurisdictions.
Major Projects
This subprogram is comprised of the Antelope Valley Line Projects and Inglewood Transit Connector and is decreasing by $134.4 million, or 63.7% compared to the FY25 Budget as depicted in Figure 5. This is due to reduced cash flow needs in FY26 as the design phase is nearing completion for the Inglewood Transit Connector and Antelope Valley Line Projects. Further work on the Alameda Corridor East Phase II Project is now being funded via a Board approved Measure M loan vehicle and is included under the Highway Multimodal Development program. Sankofa Park has been completed. As a result, these two projects are not included in the Regional Allocations program in FY26.
Fig 5:
Other Local Programs & Regional Federal Grant Programs
Other Local Programs is increasing by $5.8 million or 7.1% for ATP-related grants, CRD Toll Revenue Grant Program, Federal Earmarks, and TOD Planning Grants.
Regional Federal Grant Programs is decreasing by $2.4 million or 10.3% due to projects moving toward completion.
Fare Assistance - Low Income Fare is Easy (LIFE) Program
The LIFE program is anticipated to continue to grow during the coming year, and the budget request has increased accordingly to $35.3 million to support the Board approved expansion and improvements to the program. This represents a 6.1% increase over the FY25 budgeted amount for the program.
FY25 Public Budget Outreach Update
For the development of the FY26 Budget, Metro remains dedicated to a robust public and stakeholder engagement process. Starting in October of 2024, OMB staff launched an improved version of the My Metro Budget Activity as part of the outreach efforts. This was followed by a budget Telephone Town Hall hosted by Metro’s CEO, senior leadership, and Board Members on February 4, 2025.
The My Metro Budget Activity, a key tool for public education and collecting feedback remains critical to budget decision making. As of February 28, 2025, the activity received over 4,200 responses and over 3,200 written comments. Public safety, service frequency and reliability, and cleanliness on the Metro system remain essential topics across all the feedback channels. OMB has collaborated closely with other agency groups and departments to ensure these key concerns are addressed by the appropriate team. This information is used to align Metro’s budgetary decisions with the public’s priorities. Attachment C contains updates about the outreach initiatives shared in last month’s budget updates.
Equity_Platform
EQUITY PLATFORM
Budget equity is an integral part of the budget development process. For FY26, Metro continues to uphold its commitment to equity through the continued application of the Equity Zero-Based Budgeting (EZBB) evaluation process. Metro’s Budget is shaped by the following pillars of equity: “Listen and Learn” and “Focus and Deliver.”
These pillars have guided the allocation of $2.9 billion of Preliminary Budget across three main infrastructure programs: Transit Development, Highway Multimodal, and Regional Rail. For projects in planning phase, Metro actively engages communities to hear their concerns and preferences. These inputs are incorporated into needs-based analyses which ultimately contribute to project definition encompassing mode, alignment, and cost. The FY26 allocation reflects the 12-month slice of funds needed to progress the projects through the respective phases. As each project is delivered, it expands and enhances existing network of transportation systems - whether it be public transit, active transportation, street improvements, or highways - within Los Angeles County. This in turn increases access to opportunities for all Angelenos.
The $1.8 billion Regional Allocations and Pass Throughs are mostly formula-based distribution to regional partners for respective local transportation needs. Metro does not have direct control over the regional partners’ allocations over respective entities budget.
Vehicle_Miles_Traveled_Outcome
VEHICLE MILES TRAVELED 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 the 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.
Most of the budget related to transit and regional rail infrastructure development will support projects that will decrease VMT in LA County. Within this suite of projects, Metro seeks to reduce single-occupancy vehicle trips, better connect Los Angeles County through public transit, and provide fare assistance for low-income riders.
Some of the projects noted in this status report, such as highway capacity enhancements and HOV improvements, will ease congestion for cars and trucks, or expand vehicle capacity, resulting in the possibility of increased VMT. However, these projects also provide for carpooling infrastructure and reinvestment of funding towards transit projects. The projects’ multi-modal benefits may contribute to offsetting the possible increase in VMT.
Overall, the budget discussed in this status report supports Metro’s systemwide strategy to reduce VMT through planning, constructing and funding activities that will improve and further encourage transit ridership, ridesharing, and active transportation. Metro’s Board-adopted VMT reduction targets were designed to build on the success of existing investments, and the FY26 Preliminary Budget identified in this report aligns with those objectives.
*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
The recommendation supports the following Metro Strategic Plan Goal:
Goal # 5: Provide responsive, accountable, and trustworthy governance within the Metro Organization.
Next_Steps
NEXT STEPS
Staff continues to review and refine the FY26 Preliminary Budget as it advances through the EZBB process, being mindful of the promise embodied in the two Ordinances and the revenue projections identified in previous months’ budget status report. Next month’s budget development update will address Metro Transit Operations & Maintenance, Metro Transit Capital Improvements, Congestion Management, and Planning & Administration Programs.
Attachments
ATTACHMENTS
Attachment A - Transit Infrastructure Development Projects
Attachment B - Highway Multimodal Development
Attachment C - My Metro Budget Activity
Prepared_by
Prepared by: Marie Kim, Executive Officer, Finance, (213) 418-3472
Cosette Stark, Executive Officer, Local Programming, (213) 922-2822
Robert Gutierrez, Deputy Executive Officer, Finance, (213) 922-4496
Reviewed_By
Reviewed by: Nalini Ahuja, Chief Financial Officer, (213) 922-3088
