Moody's Ratings revised the outlook to negative from stable and affirmed the A1 rating on $1.9 billion Chicago Transit Authority outstanding senior lien sales tax bonds.
In a credit opinion released Monday, Moody's noted the CTA will only maintain operational stability in the current year by spending down its federal pandemic relief funds. The transit agency projects an operating deficit of $550 million, 25% of operational spending, in fiscal 2026.
"We do not expect the CTA can close this gap through spending reductions and fare increases," Moody's said in the credit opinion. "The most likely path to funding stability — new or expanded taxes, or additional aid from the state — requires state action."
Matthew Butler, vice president and senior credit officer at Moody's, told The Bond Buyer the timing of state action remains up in the air.
"Expanded support from the state would be consistent with transit systems across the U.S. benefiting from increased state funding as they have spent their federal relief funds," he said. "Broadly speaking, U.S. transit systems have not significantly adjusted fares to bridge budget gaps, and fare increases are not a likely solution for the CTA based on current ridership trends. Systems that relied more on tax revenue, rather than fares, before the pandemic, have not faced the same degree of uncertainty as other transit providers."
The Moody's outlook revision comes as legislators in Springfield have floated proposals to raise new revenue for Chicago-area transit services that would be tied to governance reforms.
Transit agency heads have balked at the governance reforms proposed by state Sen. Ram Villivalam, D-Chicago, which call for the elimination of the current transit boards and a consolidation of transit under the umbrella of a new Metropolitan Mobility Authority.
The Regional Transportation Authority has
Moody's said its view of the CTA reflects the agency's centrality to the Chicago metro area; the CTA's high leverage and fixed costs; and low operating liquidity compared to most other U.S. transit systems.
While CTA ridership continues to slowly recover from pandemic declines, "we do not expect growth in fare revenue to be the solution to the authority's current budget challenge," Moody's said.
In a mass transit sector outlook published in November, Moody's said its stable outlook for the sector reflects an expectation that state and local tax revenue will fill operating funding gaps as ridership and fare revenue gradually increase. But it noted fares will comprise a much smaller share of transit system revenue than pre-pandemic.
For the CTA, the rating agency said a lack of additional state support, causing an inability to close its budget gap; a rise in long-term liabilities; or a drop in the CTA's liquidity to under 40 days of operating expenses could all trigger a downgrade.
"We are unlikely to upgrade the CTA's ratings in the coming year," Moody's said.
