Transit funding cliff in Chicago and Illinois drives discussion

Chicago-area public transit needs an operational makeover to build its case with the public and state lawmakers for new funding to help plug the funding gap when federal COVID-19 relief funds are exhausted.  

That was a central takeaway from a panel discussion — "Solving the Transit Funding Riddle in Northeast Illinois and Beyond" — at a recent forum in Chicago.

"We know this cliff is coming," said state Sen. Ram Villivalam, D-Chicago, head of the state Senate's Transportation Committee and one of the panelists at the Civic Federation's April 13 event.

RTA

"There is an absolute appetite by the Illinois General Assembly to provide assistance with regards to this cliff," he said. "I think the message is we want to help, we know we need to help," but are also asking "what structural reforms are we looking at implementing?What innovation can we pursue?"

The Illinois Regional Transportation Authority, which oversees the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service, has warned of a collective $730 million budget hole by 2026. The size of the gap, which equates to nearly 20% of operating expenses, underscores the depth of the strains as ridership remains far below pre-pandemic levels.

Questions loom about whether ridership will ever fully return due to work-from-home trends in white-collar jobs that used to drive commuting patterns to downtown Chicago.

But near-term struggles that weigh on operations and the ability to draw riders back stem from unreliable service due to employee vacancies, complaints about dirty trains and buses, and concerns about crime and personal safety on trains and buses.

"If we explain to our commuters and non-commuters, these are the policies we are enacting to better serve the residents of Illinois they will get on board and support the Illinois General Assembly providing this assistance," Villivalam said during the discussion at the forum.

"It's going to be a big lift and the case has to be really strong," as transit must compete with other governmental bodies for a share of proposed tax sources, said panelist member Joseph Schwieterman, professor in the School of Public Service and director of the Chaddick Institute for Metropolitan Development at DePaul University in Chicago. "We clearly need to try new things" and look towards "a holistic strategy."

Strategies to build support span both operations and policymaking, from putting more focus on equity when assessing capital projects to building collaboration among the service boards into the system to smooth commutes.

Chicago's three service boards fall under RTA fiscal oversight but operate independently of each other when it comes to planning routes and setting and collecting fares.

Schwieterman suggested such an interagency collaboration and willingness to experiment with service changes that promote a smoother commute. He cited New York's system where there's bus and train options for commuters whereas in the Chicago region that's not often the case.

Using different systems also should be seamless where fares are concerned and that's most often not the case with CTA, Metra, and Pace, making commutes more expensive if riders have to pay multiple times for a single journey.

The RTA also needs a clear understanding of what commuters are looking for that "would keep them using" the system "and increase their use" to guide future decisions, Villivalam said.

The RTA and state lawmakers have begun laying the tracks for a fiscal fix. The RTA in February adopted its long-term strategic blueprint, "Transit is the Answer," that lays out fiscal, equity, and climate goals. Under Public Act 102-1028, a coalition led by the Chicago Metropolitan Agency for Planning in a project called the Plan of Action for Regional Transit, or PART, is tasked with developing recommendations for state lawmakers by Jan. 1.

The two efforts are closely linked — the RTA plan will inform the coalition's recommendations as will CMAP's own Mobility Recovery project. PART's goal also extends beyond overcoming the looming fiscal headwinds to cover governance and regional service with an eye on equity.

The transit blueprint examines 27 revenue options and identified 11 potential fixes. Potential revenue streams include an increase in the existing RTA sales tax levied in 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.

The RTA's financial troubles echo those seen across the public transit sector although the timing of when specific agencies will exhaust their funds varies, as does the depth of their funding woes which hit agencies most dependent on fares the hardest.

"Most of the fare-dependent U.S. transit agencies that we cover are talking exactly what you are talking about," said panelist Andrew Ward, group credit officer for U.S. public finance at Fitch Ratings. Many are facing budget holes of 15% to one-third of their operations.

"I think we are all past the time where we can hope that riders will come back en masse … that's really the point here, and I do think the action has shifted to the local and state level," Ward said. "The clock is definitely ticking."

The RTA's service boards rely on a mix of sales taxes, fare box revenue, and state aid. State aid is tied to farebox revenues under a recovery ratio that requires half of revenues come from fares. A state suspension enacted during the COVID -19 crisis remains in place.  

While the alarms are being sounded for a redesign of funding structures, Ward said fixes are possible through a balance of "revenue enhancements" and possible "fare tweaks" and trimming where possible and he sees political support within reach because "transit is so essential" and has policy goals in line with public and political interests on climate change, congestion management, equity, and economic development.

The RTA, like others, should avoid several pitfalls in crafting their fixes such that include assuming ridership losses are temporary, overestimating recoveries, or delaying action that could make it harder to carve out a piece of a state budget especially if a recession takes hold and socks revenues, Ward said. Motor fuel-related taxes also don't provide a long-term solution as that source is dwindling as electric vehicle use grows.

President Biden has floated a Band-Aid with a new budget recommendation that would allow large urban agencies to tap their federal capital improvement grants for operating costs in 2024.

Large agencies have said the move would be helpful, but doesn't address the longer term problem.

Local transit managers say operational improvements will accompany their formal requests, but improvements aren't possible in the absence of new funding.

"The RTA has been very public about the fiscal challenges we face and the looming operational crisis," Executive Director Leanne Redden told a state House Appropriations and Public Safety Committee subject matter hearing on the agency's budget. "Increasing fares or cutting service is not going to solve the problem" as research shows either will "make the financial hole we are trying to fill even bigger."

CTA President Dorval Carter told lawmakers the CTA accounts for $400 million of the looming $730 million hole and without funding fixes it faces "draconian service cuts" that would "decimate" service, like the elimination of an entire train line.

CTA and RTA bond ratings have held steady.

Moody's on March 29 affirmed the CTA's A1 rating on $2 billion of senior lien sales tax rating and A2 on $52 million of public building commission bonds. The outlook is stable.

Moody's also affirmed the RTA's Aa3 general obligation rating on $1.5 billion of debt.

S&P Global Ratings rates the RTA 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 have stable outlooks.

Kroll Bond Rating Agency rates the CTA's senior lien sales tax AA and the second lien AA-minus with stable outlooks.

The RTA's $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 budget relies on $657.8 million of system-generated revenue and $1.55 billion of sales tax revenue.

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%.