Illinois RTA launches play for new funding with fiscal cliff ahead
6 min read
The Regional Transportation Authority of Northeastern Illinois is casting an eye toward new funding streams, climate change and safety in a draft five-year strategic road map unveiled Monday that aims to bolster ridership and manage the fiscal cliff that looms as federal COVID-19 relief runs out.
The authority, which provides fiscal oversight of the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service, has spent the last year crafting the plan dubbed “Transit is the Answer.” It’s billed as promoting safe, reliable, accessible public transportation that advances equity and combats climate change with priorities laid out in areas of funding, safety, speed, and reliability.
Near-term, the RTA’s service boards are grappling with lagging ridership numbers, an employee shortage, and — especially for the CTA —public safety fears that dampen the ability to lure back riders.
Longer term, the service boards face a financial reckoning in 2026 after federal pandemic relief is exhausted leaving a $730 million, or 20%, budget gap to fill.
“Almost overnight, the COVID-19 pandemic changed public transportation systems across the nation, and we are all working on solutions that rise to the occasion,” said RTA Executive Director Leanne Redden. “With ridership still not reaching pre-pandemic levels and federal relief dollars projected to run out at the end of 2025, we knew we needed to build a coalition to create a plan that addresses the needs of riders and maps out new ways to fund our unique system.”
The agency is inviting public input during a meeting Wednesday on both the plan and the $3.58 billion 2023 budget and five-year $5.7 billion capital program, with a vote on the budget expected at the RTA board’s Dec. 16th meeting.
Redden will also lay out the RTA’s challenges and vision during a panel discussion hosted by the Chicago City Club Wednesday. Public input on the strategic plan is open until Jan. 9 with a board vote slated for Feb. 16.
The plan seeks to tackle issues on multiple fronts. It promotes the convening of a region-wide, cross-sector safety and security summit to come up with fixes for the crime issues, seeks funding to pilot an expanded regional free or reduced fare program for poor people, and looks for input on crafting a transit climate action plan that moves toward zero-emissions for transit operations.
The RTA and its service boards warn funding woes can’t be solved by raising fares and cutting service due to the negative impacts on ridership.
The RTA’s service boards received a $3.5 billion federal pandemic lifeline that has plugged budget gaps since 2020. Relief will help balance budgets through 2025 with $1.4 billion from the Coronavirus Aid, Relief, and Economic Security, or CARES Act; $500 million from the Coronavirus Response and Relief Supplemental Appropriations Act known as CRRSAA; and more than $1.5 billion from the American Rescue Plan Act.
The projected $730 million budget gap that results in 2026 if service levels are held steady is projected under 10-year financial planning estimates reviewed by agency officials who worked with Chicago Metropolitan Agency for Planning.
The group evaluated 27 revenue options and identified 11 potential fixes. “Their findings show that there is no simple or singular funding solution,” the plan says. “Instead, the RTA will engage its partners and stakeholders to pursue a combination of available solutions to close the funding gap and ensure that a sound public transportation system is available in the future.”
Potential revenue streams considered as fixes include an increase in the existing RTA sales tax levied on Cook County and neighboring counties, an increase in the state motor fuel tax, implementation of congestion pricing on highways into Chicago, and expanding the RTA sales tax to services that are now exempt.
Other ideas include implantation of a vehicle miles traveled tax on the number of miles driven in a vehicle to replace 5% of state motor fuel taxes lost by fuel efficiency, expanding the real estate transfer tax now imposed on city transactions to include the suburbs serviced by the RTA, raising vehicle registration fees, and increasing Illinois State Toll Highway Authority tolls to benefit transit.
Most of the options face roadblocks because they need other governmental bodies like the state and city to act.
Other options related to state funding include increasing the state public transportation funding match by 5% and eliminating a 1.5% surcharge the state keeps from RTA sales tax receipts.
“To close the financial gap and support future improvements, the region may also need to pursue dedicated federal assistance for transit operations,” the report notes.
Improving public safety issues, most acutely felt by the CTA, is a linchpin for attracting riders, though the strategic plan says nothing about enforcing laws against crimes on transit.
“In response to perceived and actual increases in rates of crime on transit, working group members pushed for justice-centered approaches to violence reduction, such as affordable housing, mental health care, and living wages,” the plan says.
Transit officials want to “convene a cross-sector and cross-regional safety and security summit to explore holistic solutions to these challenges affecting public transportation.”
The plan envisions cataloging capital projects and applying metrics that enhance accessibility, equity in the distribution of projects and enhancing spending in areas that traditionally have seen underinvestment, and promoting reduced emissions.
The RTA’s alarms echo those sounded in rating agency assessments of the sector, which has been propped up by federal pandemic relief aid.
Moody’s Investors Service in November revised the outlook for the mass transit sector to negative from stable as transit systems confront a soft ridership recovery, the impending federal aid fiscal cliff, inflation-induced wage pressures, and uncertain tax revenue conditions in 2023.
“In addition, the pandemic has permanently changed ridership patterns and highlighted affordability and access considerations,” Moody’s said. A recession could slow tax collections and the need to improve customer satisfaction poses social risks while efforts to cut carbon emissions offer opportunities, Moody’s said.
The fiscal cliff is most acute for operators that are more reliant on farebox revenues compared with those who depend on tax revenues, S&P Global Ratings said in a September report.
The credit quality of transit operators with a high reliance on farebox revenues will fall on their ability to adjust operations and align financial performance to achieve structural balance.
“As pandemic-related federal aid runs out over the next few years, we expect transit providers will have to make tough decisions about sustainable tax and revenue models,” said S&P analyst Scott Shad.
The proposed budget relies on $657.8 million of system-generated revenue, an increase of $79.1 million, or 13.7%, over the 2022, accounting for 18% of total revenue. The proposed $3.58 billion budget relies on $1.55 billion of sales tax revenue.
Transit ridership lags pre-pandemic levels with the recovery at only about 60% to 70%, but revenue-backed bonds remain in a strong position due to non-farebox pledges that come from sales and other tax revenues, Kroll Bond Rating Agency said in a summer report.
Key drivers of this slow recovery include increased remote work arrangements and heightened safety concerns among riders. Higher gas prices had not meaningfully improved transit ridership despite the cost incentives of opting for subways or buses.
The RTA’s proposed $3.58 billion budget is up 6% from this year reflecting nationwide trends in inflation, rising costs of goods and labor, and a labor shortage. The service boards are raising pay and bonuses to attract and retain workers.
The $5.7 billion five-year capital program would rise 8.8% due mostly to higher levels of aid from the Infrastructure Investment and Jobs Act. RTA and CTA borrowing, cash on hand, and state funds round out the pot. After debt service, about $4.7 billion is available to spend, including about $1.3 billion in 2023.
The CTA’s massive $3.6 billion Red Line Extension train project is in line for $340 million. Chicago Mayor Lori Lightfoot has proposed a transit tax increment financing to raise $950 million for the project that would leverage federal investments but has faced some City Council push back.
The budget includes no general fare increases in 2023. The service board budgets will draw $670 million from the federal well of $3.5 billion in COVID relief.
Total ridership surpassed 50% of pre-COVID levels over the summer and is expected to rise to 316.3 million in 2023, which is about 56% of the pre-COVID 2019 level. Metra’s budget assumes ridership at 47% of 2019 levels, Pace at 51% and CTA at 58%.
The RTA and CTA won upgrades from Moody’s Investors Service in May following the rating agency’s upgrade of the state government to Baa1 from Baa2. Moody’s raised the RTA’s $1.7 billion of debt to Aa3 with a stable outlook from A1 and the CTA’s $2.1 billion of senior lien sales tax bonds to A1 with a stable outlook from A2.
S&P rates the RTA at AA and stable and Fitch Ratings assigns its AA-plus rating and stable outlook.
S&P rates the CTA sales tax second lien A-plus and the senior lien AA and both are stable. Kroll Bond rates the CTA’s senior lien sales tax AA and the second lien AA-minus and stable.
