Chicago-area transit agencies and Illinois legislators face a looming deadline to address a projected transit budget shortfall of about $770 million.
The Regional Transportation Authority — which provides financial and other oversight for the Chicago Transit Authority, Metra commuter rail and Pace suburban bus services — says it will need new revenue by the end of the spring legislative session in May to avert sweeping service cuts.
The RTA
Key state legislators have said no new revenue will be forthcoming without governance reforms.
One proposal would consolidate the three transit agency service boards under the auspices of a new Metropolitan Mobility Authority. Another labor-backed bill would tweak the current boards and empower the RTA to improve coordination.
Local labor groups feel there are too many moving pieces with different sets of rules in Chicago's transit landscape to tear down the current system, said a spokesperson for the Labor Alliance for Public Transportation, an umbrella group coordinating over 30 local unions involved in transit.
The unions are calling for stopgap funding and dedicated revenue streams to fund system improvements. Their bill includes accountability measures and requirements that board members have relevant experience, among other things, according to the LAPT.
"Our bill reimagines the current governance structure by maintaining the individual service boards to preserve their systemic knowledge and expertise, while increasing the overall oversight," Chicago Federation of Labor President Bob Reiter said in a statement. "The needs of public transit are different everywhere you go. Each agency knows their riders the best and has been working to best meet their specific needs for more than 40 years."
Moody's Ratings in March
The agencies have stayed afloat thus far by spending down relief funds provided by the federal government in response to the COVID-19 pandemic, Moody's said, but that support will soon be gone.
Public transit's
CTA, Metra and Pace are required by state law to bring in enough revenue to cover 50% of the regional transit system's day-to-day operating expenses each year, the RTA says. It received waivers from that during the pandemic but ridership — and therefore fare collection — remains
Amid ongoing negotiations at the state capitol in Springfield, a coalition of civic and policy groups released a report calling for a statewide tax on services.
The groups are the Civic Federation of Chicago, the Chicago Metropolitan Agency for Planning, the Center for Tax and Budget Accountability and the Illinois Economic Policy Institute.
"Strengthening this revenue source could make significant inroads in dealing with a lot of issues at the state level, including transit, but not only transit," said Annie McGowan, research and policy director at the Civic Federation.
"Numerous fiscal crises have threatened transit since the RTA was first established, including the current fiscal cliff. For this reason — and given the ongoing erosion of the tax base discussed in the report — modernizing the sales tax by broadening the base to include services has long been a CMAP recommendation," said Natalie Kuriata, CMAP communications and engagement principal.
"Although political will to address sales tax modernization has been an issue in the past, there seems to be consensus today that this is a reasonable, commonsense change," she added. "The question comes down to how it can be done."
The report argues that Illinois' sales tax structure has a narrow base misaligned with the modern service-oriented economy, and is regressive in the sense that it gives a break to high-income residents who have more income to save rather than low- to middle-income consumers who spend most on goods to survive.
As a result, it says, annual inflation-adjusted state sales tax revenues have stayed flat, and per-capita sales tax collections have underperformed other states despite a comparatively high composite sales tax rate.
"Recent estimates find that expanding the sales tax base to include a broad range of consumer services could generate up to $2 billion annually for the state of Illinois," the coalition's report notes, and cites estimates of "hundreds of millions" of dollars for local governments.
"We are reviewing the report and support more funding for transit, but the exact method to solve the fiscal cliff is up to the Illinois General Assembly," said Melissa Meyer, communications manager at the RTA. "There are several pieces of proposed legislation being discussed in Springfield and we have not endorsed one. There are parts of the labor bill that we are encouraged by, but the RTA is ready and willing to work with legislators."
Meyer said the RTA needs funding certainty by May.
"Without it, the transit agencies will need to start building their 2026 budgets with a funding gap that will require major cuts to balance," she said, adding that the federally mandated process for cuts under Title IV includes equity analysis and public meetings.
Metra spokesman Michael Gillis said Metra has not taken a position on any specific legislation or on extending the sales tax to services. But he said Metra favors strengthening the RTA rather than full consolidation.
Pace supports the labor bill, said Stephen DiBenedetto, communications associate at the suburban bus service.
"Pace is invested in the well-being of our entire region, and we hope any solution allows the suburbs and the city opportunities for fair say over governance," he said.
Still, the transit agencies are making a major ask of taxpayers. And the only way to justify it is by committing to making meaningful improvements to services, said the Civic Federation's McGowan.
"Since time is short, ideally both the funding and governance [components] would be resolved" soon, she said. "We would really like to see funding attached to meaningful governance reform that consolidates different aspects of planning and administrative decision-making."
If the funding solution includes a tax on services, there would have to be negotiations between the General Assembly and the city of Chicago to ensure that the tax burden is fair, said Maurice Scholten, president of the Taxpayers' Federation of Illinois.
"There'd have to be some cooperation on that to ensure that Chicago is at least held harmless, that the tax rate isn't a punishingly high rate," he said.
Scholten said overall, expanding the tax base to include services should allow for some taxes to be lowered.
"One of the tenets of good tax policy is a broad base and a low rate," he said. "And to the extent that a tax on consumer services broadens the base to allow jurisdictions to lower the rate… [that] produces a better tax climate for consumers."
McGowan noted that in 1960, goods comprised about 70% of consumer spending while services accounted for 30%. Today, the division is more like 50/50. And right now Illinois' sales tax rate at the local level is among the highest in the nation, she said.
Illinois has a 6.25% state sales tax rate and an average combined state and local sales tax rate of 8.86%, according to the Tax Foundation.
Taxing services "has been talked about for a long time, and there's a lot of agreement, especially from policy folks, that it makes sense," she said. "But when past attempts on this have been made… there hasn't been the political will, and especially, [there are] a lot of interest groups protecting different consumer activities."
Scholten said there are two additional problems. Tax reformers have to ensure any changes are constitutional under the state's uniformity clause. In 1967, the General Assembly tried to tax a few services, only to see the law struck down by the Illinois Supreme Court as unconstitutional.
"Another problem is when the General Assembly has considered expanding the sales tax to cover services, it's generally when the state needs additional revenue — and they need that revenue really soon… and it takes time before those revenues start flowing to the state," Scholten said.
"This is a seismic change to Illinois tax policy, and everybody would need to have enough time to adjust properly," he added. "To the extent that it's not soon enough for the RTA, there is going to have to be some type of revenue to bridge the RTA until those revenues start coming in from the service tax."
There are also technical questions. For example: If there is a service that's taxed, which jurisdiction's rate applies? In Illinois hundreds of jurisdictions impose sales taxes.
Then there's the matter of whether the revenue from a services tax would cover all the fiscal challenges listed in the report: public transit; unfunded pension obligations; fully funding the K-12 evidence-based formula; bolstering the state's rainy day fund; and providing tax relief for low-income households.
Scholten said the revenue projections in the report "are more of an order-of-magnitude [estimate] than a specific dollar amount."
"I don't think it's likely that the sales tax on services would be able to address all of those," the Civic Federation's McGowan said of the five fiscal challenges. "But the bigger issue is the need for the state to take a look at all of these things holistically."
She said the nonprofit urges legislators and the governor's office to reexamine the entirety of the taxing structure.
While the Illinois House and Senate have been holding transportation hearings in recent months, those have focused more on governance than funding, McGowan noted. And negotiations have yet to coalesce around either of the two leading bills.
"I think there's the possibility of landing somewhere in the middle, where you consolidate the key pieces of the governance structure and decision-making, like the administrative and planning portions of all of the agencies, while maintaining the operational capacities" of each transit agency, she said.
