Regional News

Illinois RTA Readies $179M GO Offering

CHICAGO — The Regional Transportation Authority early next month will issue $179 million of general obligation bonds under its deal with Illinois aimed at freeing up capital funds to help close a fiscal 2010 budget gap at the Chicago Transit Authority without a fare hike.

Ahead of the sale, the RTA board yesterday approved its fiscal 2010 capital and operating budgets that rely on layoffs, other spending and service cuts, and capital funds to offset a drop in sales tax collections. The budgets provide funding for the RTA's service boards — the CTA, Metra commuter rail, and Pace suburban bus service.

Approval of the budget marks the passing of a difficult operational year for the authority, which had hoped a 2008 state legislative bailout package would provide an infusion of $500 million more in annual tax revenue. The recession chipped about $200 million off that figure.

On the positive side, the RTA stands to see a new boost of capital funding in the coming year. The state passed a $31 billion capital budget in the spring that provides $2.7 billion for transit spending over the next five years, while there is the potential for additional funds in the House's passage this week of a jobs bill that provides $8.4 billion in state grants for transit.

The jobs bill's infrastructure funding is similar to that of the American Recovery and Reinvestment Act, enacted in February. As in the ARRA, the bill would not require the usual 20% local matching share for federal transportation grants.

The RTA acted one day after New York's Metropolitan Transportation Authority board adopted severe service cuts and program changes to help make up for local tax revenue that did not meet projections and a cut by state lawmakers of previously appropriated funds.

Transit agencies across the country, like many units of state and local government, have scrambled all year to keep budgets balanced in the face of falling revenue.

The RTA plans to competitively issue its bonds on Jan. 6. Scott Balice Strategies and A.C. Advisory are serving as advisers on the transaction, according to RTA chief financial officer Joseph Costello.

The agency plans to divide the sale into two series, with the longer maturing bonds being issued under the federal government's taxable Build America Bonds program.

The size of each series has not yet been set. The RTA likely will forgo a traditional 10-year call in favor of a make-whole call preferred by taxable investors. "With rates so low right now we don't think the call option would be useful, especially since we might have to pay a penalty for including it," Costello said.

Under the agreement announced by Gov. Pat Quinn last month paving the way for the issue, the Chicago Transit Authority agreed to cancel proposed fare hikes in 2010 and to again hold the line on fares in 2011. The bond issuance will free up existing capital funds for operations.

Statements from the governor indicated that Illinois would cover about $15.3 million of debt service owed for the first two years and that future assistance with debt service would be evaluated on an annual basis. The memorandum of understanding however, suggests that the state agrees to cover all debt service, subject to an annual appropriation.

The CTA, which operates the second largest transit system in the country, faced a $300 million gap in fiscal 2010 due to a drop in budgeted sales tax collections — even with the legislatively approved sales tax hike in place — and growing labor and debt service costs.

The RTA has $2.3 billion of outstanding GO debt that carries ratings of AA-plus with a stable outlook from Standard & Poor's, Aa3 with a stable outlook from Moody's Investors Service, and AA-minus with a negative outlook from Fitch Ratings. Moody's and Fitch both dropped the credit one notch earlier this year and Standard & Poor's revised its outlook to stable from positive.

The agency's bonds are secured by a gross pledge of sales taxes and other state aid. The system's challenges include weaker sales tax collections, escalating capital needs and operating costs, and exposure to the cash-strapped state, which has delayed payments as it grapples with its own liquidity crisis. The RTA's strengths include debt service coverage ratios that fall to a low of 2.5 times in 2012 and rise to 4.4 times in 2014 and the essential nature of its services.

The authority projects it will collect $890 million in sales tax revenue to support an operating budget that relies on a roughly 1.5% increase in sales taxes over 2009.

The operating budget totals about $1.4 billion and the capital budget about $1 billion. The capital funding comes from federal funds, CTA bond proceeds from an expected federal grant anticipation debt sale, and $455 million in state bond proceeds.

RTA officials have not been told when they can expect the money from Illinois. Past capital bills have authorized new RTA borrowing, with the interest subsidized by the state, but under the latest $31 billion program the state is responsible for issuing all the debt.

The funds will go to reduce a capital maintenance backlog at the RTA's service boards that developed over the last four years as a result of a capital-funding drought, and will pay for the replacement of aging trains, buses, track, stations, and other infrastructure improvements. The CTA alone has more than $6 billion in capital needs and the overall system has $10 billion in needs.


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