Chicago transit agencies near decision point on fiscal cliff

With Chicago transit’s fiscal cliff looming nearer, the area’s transit agencies are preparing for two key milestones this fall. 

One is the October deadline for the transit service boards’ fiscal 2026 budgets. The other is the legislature’s veto session in Springfield, when there is some hope that House Bill 3438 — or another piece of legislation yet to emerge — may advance to Gov. JB Pritzker.

The Regional Transportation Authority’s full board will then adopt a budget in December that takes effect Jan. 1. The RTA is an umbrella agency for the Chicago Transit Authority, the Metra commuter rail service and the Pace suburban bus service.

Jon Maxson, spokesman for Illinois House Speaker Emanuel “Chris” Welch, did not respond to questions about the revenue sources being considered by a transit working group to address the fiscal cliff, or HB 3438’s prospects.

Among other things, the bill would form a new umbrella agency, the Northern Illinois Transit Authority; create an Office of Transit Safety and Experience and safety response councils; and change the governance and operating budget of the CTA.

While legislators have said they will likely require governance reforms in exchange for more revenues, it’s an open question what sort of recurring revenue solutions can make it through the legislature.

With the state facing its own budget pressures, it’s unclear how much help Springfield will be in saving Chicago transit from the fiscal cliff, said Howard Cure, partner and director of municipal bond research at Evercore Wealth Management.

“I don’t know if they feel the same urgency as bondholders, but hopefully they will start addressing this soon,” Cure said of the legislature. “The math is clear on this. There is a big operating deficit coming. It’s a game of chicken on this, and that’s unfortunate. Why wait? You know it’s going to happen as far as operating deficits… Why not be proactive?”

Cure pointed out that the city government, the CTA and Chicago Public Schools are all looking to balance their budgets on the same tax base. 

Attempts to raise new revenues for the city haven’t exactly gone well. When the administration of Mayor Brandon Johnson tried to raise property taxes last year, it faced a City Council united in opposition. And an attempt to move to a progressive real estate transfer tax, Bring Chicago Home, struck out with voters.

The Chicago Metropolitan Agency for Planning’s report on transit’s fiscal cliff, the result of a six-month study by a group of experts, concluded that there will need to be multiple revenue solutions, some short-term and others more sweeping. It was followed by a plan from the RTA itself earlier this year which called for $1.5 billion in operating funding and more RTA control.  

Among the solutions CMAP called for were a tax on services, an expansion of the commercial parking tax in downtown Chicago, and a vehicle registration surcharge. It also raised the prospect of an RTA sales tax increase, a road usage charge like congestion pricing, and an expansion of tolling to currently untolled expressways.

A payroll tax, garbage collection fee increases and liquor taxes have also been considered, Cure noted.

Justin Marlowe, research professor at the University of Chicago’s Harris School of Public Policy and director of the Center for Municipal Finance, was one of the experts contributing to the CMAP report as part of the finance group. He said they looked at spending and revenue fixes, but wound up devoting most of their time to revenue.

“A lot of these revenue changes require state approval, and it can be really difficult in Springfield to get the votes for a big tax increase,” he said. 

The RTA has projected a $770 million collective transit funding gap that it says legislators will need to make up to avert the fiscal cliff. But the Taxpayers’ Federation of Illinois has pointed to a change in sales tax distributions that means the fiscal cliff is not as steep as the RTA had projected. 

“If economic conditions are comparable (to 2025’s) and related policy changes are minimal, RTA should expect collections from the expanded sales tax base to generate roughly $225 million in additional revenue in 2026,” TFI said in a statement Monday. “These higher-than-expected revenues are welcome news as RTA continues seeking a larger investment from the state of Illinois to backfill federal COVID-19 recovery funds.”

An RTA committee to address transit funding met on Monday, and revised its 2026 figures closer to TFI President Maurice Scholten’s projection of $225 million in additional sales tax revenues and state matching funds in 2026. 

That still leaves a gap of more than $500 million.

The University of Chicago’s Marlowe said the revenue solutions in the CMAP report all have a political feasibility component, which the group considered when drafting its report.

That includes the tax on services, which failed to coalesce in the legislature and which Pritzker threatened to veto in the event that it did.

“Of course, any time you talk about doing that, every industry that does something in the service space comes out and has something to say about it, and it becomes politically very difficult because you have to make a lot of enemies in the process of getting a bill like that passed,” Marlowe said.

Evercore’s Cure said the governor’s political calculus is just one piece of a difficult puzzle for transit funding.

“You have a governor who is eyeing the presidency, which is never good for a state or local cities,” he said. “Because you have a different agenda. I’ve seen it happen in a lot of different states. A governor wanting to be president, and then he may be looking at issues from a broader perspective, as opposed to helping his state and the cities within his state.”

Transit advocates also need to bring along the business community, which has lobbied fiercely and effectively against tax increases in the past and is wary of what it sees as rampant inefficiencies in the transit system. Cure said the cost overruns on the CTA’s Red Line expansion are but one example.

“The business community’s take on this is that they’re not opposed philosophically to paying more for transit,” Marlowe said. “Their issue is that the spending side does not receive enough attention. There are a lot of concerns about, number one, the fact that we effectively have three overlapping transit systems that don’t necessarily coordinate their efforts all that well, that probably have some duplicative spending.”

The challenge in cutting spending is that so much of that spending involves personnel, and so much of that is tied to collective bargaining agreements, he said. 

Business leaders also argue that there has not been a careful enough look at capital planning and procurement. And they say they’re willing to invest in the system through higher taxes, but they want to see results: improvements in safety, service times, fewer delays and fewer outages, Marlowe said.

“Meanwhile, the thing that remains a real possibility, if they can’t come to any kind of a compromise, is that you can always increase fares,” he said. “And the fear is that that creates this sort of transit death spiral. 

“That’s the point that labor and others make,” he added. “It’s ultimately going to fall on the riders of the system. And that would be a very difficult and regressive and anti-working-people way to deal with this issue.”

Cure said he thought business interests might be willing to pay if there were signs of real governance reforms. 

“My sense is, corporations benefit a great deal from having a functioning transportation system, which is why in New York they have this payroll tax,” he said.

But Chicago’s mayor is also going to need cooperation, both from the City Council and from Springfield, to save Chicago transit.

With the CTA likely to be the first Chicago-area transit service to go over the fiscal cliff in March, transit service cuts in the city are a real possibility. A CTA spokesman did not respond to questions by press time.

“The state of New York has always been supportive of the (Metropolitan Transportation Authority), in recognition of how important the transportation system is to the regional economy,” Cure said.

“Chicago isn’t that much different in terms of the importance to the state,” he added. “But they have not figured out a way to offset the farebox declines, and the federal monies are running out. And you don’t have as supportive a federal administration to help mass transit as you did under the Biden administration.”

Cure suggested the mayor rally local businesses, because CTA cuts will affect their employees.

If large businesses start making direct pleas to the legislature, that could be more effective than the alternative, he said — which is letting transit agencies go over the fiscal cliff, and letting service cuts kick in, in hopes that the public outcry will at last generate the political will to act.

“It seems inevitable that there’s going to be a big operating deficit, and the only way to solve that right now… is going to be by making service cuts,” he said.

The RTA’s general obligation bonds are rated AA-plus by Fitch Ratings. The outlook is stable. S&P Global Ratings assigns a AA rating with a stable outlook.

Moody’s Ratings affirmed its Aa3 rating on the RTA’s outstanding bonds in March. The outlook is stable. 

The CTA’s senior lien sales tax receipts revenue bonds are rated A1 by Moody’s, with a negative outlook. The bonds are rated AA by S&P and KBRA. The outlook is stable.

Its second lien sales tax receipts revenue bonds are rated A-plus by S&P and AA-minus by KBRA. The outlook is stable.