CHICAGO — Starved for capital funding, the Regional Transportation Authority of Illinois unveiled a $2.5 billion borrowing proposal Friday that relies on projected growth in existing revenue streams and maintenance savings to repay.
The agency — which provides fiscal oversight of the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service — floated the plan at its board meeting Friday. Officials expect to submit formal legislation to the General Assembly during its next regular session that begins in early 2013.
“System-wide, riders are suffering from an aging infrastructure that’s only deteriorating further because there just aren’t enough funds to properly repair what needs to be fixed,” board chairman John S. Gates Jr. said. “We recognize the need to show a strong commitment to providing safe, reliable and affordable public transportation throughout the Chicago area and believe this plan provides the necessary funding to do that.”
With federal funding lacking and the state struggling with its own pension costs, budget problems and liquidity woes, Gates said: “We are going to have to solve this problem at home.”
The plan calls for $500 million bond issues to be sold annually over a five-year period. Growth in the RTA’s share of sales taxes, debt service from retired bonds, and $3 million in annual interest rate savings on short-term borrowing would go to repay the debt.
Additional savings from a reduction in the costs to maintain aging equipment would also help provide the revenues needed to repay the debt and maintain at least three times debt service coverage, said RTA executive director Joseph Costello.
The RTA’s plan relies on growth in sales tax and matching state aid to reach $96 million in 2014 and then $234 million in 2018 and $261 million in 2022. By 2019 the agency also anticipates $40 million in annual savings on maintenance.
The agency would not require increases in any of its tax rates and the plan does not rely on the state subsidizing debt service costs as much of the RTA’s past state approved borrowing did, Costello added. The CTA would receive $1.4 billion of bond proceeds, Metra would receive $800 million, and Pace $300 million.
While Gates and Costello stressed that the proposal was meant to spark discussion and develop a consensus around a plan that could win legislative approval, a proposed timeline projects an effective date of the legislation in early 2014 with borrowing beginning later that year.
The plan will compete for attention from lawmakers faced with a new fiscal 2014 budget and pension reforms needed to stave off further state credit deterioration.
RTA officials said they would stress with lawmakers and others the favorable market timing given record low interest rates, the authority’s improving sales tax collections, and its strong credit ratings that are significantly higher than the state’s single A ratings. “We have a nice double-A rating” and a credit and general obligation pledge the market is quite familiar with, Costello said.
The plan also streamlines how operating and capital funds flow to the service boards with discretionary funding eliminated. The changes could face a challenge among some of the agencies. The funding system overhaul is aimed at simplifying the current flow of funds and providing more certainty for the service boards, Gates said.
The CTA did not have an immediate comment on the plan. Although the RTA has long borrowed on behalf of the service boards, the CTA has in recent years issued debt on its own that leverages its share of sales taxes and federal capital funds. Costello said the new plan would not preclude the CTA from future borrowing, but augment it.
The RTA has exhausted its state-authorized borrowing, but the state’s ongoing $31 billion capital program approved in 2010 earmarks $2.7 billion for public transportation. The figure falls far short of what the RTA and its service boards estimate is needed simply to keep the system in a state of good repair.
The RTA’s service boards have total capital needs of $24.6 billion including the CTA with $15 billion, Pace with $7.3 billion, and Metra with $2.3 billion. Projects include new buses, locomotives, paratransit vehicles, the rebuilding or modernization of several CTA light-rail lines, rail grade upgrades, and improvements to meet the needs of the disabled.
The 2012 budget totaled $3.9 billion, including $2.5 billion in operating expenses and $1.4 billion for capital. The RTA’s current five-year capital program totals $3.9 billion with federal sources accounting for 41% and state sources 26%.
The agency in June issued $300 million in two-year working cash-flow notes, rolling over some existing short-term paper while also raising funds to weather the state’s chronically late aid payments. Costello said the state currently is about $340 million behind in its aid that comes in the form of a 30% match on sales taxes and certain real-estate transaction taxes in Chicago.
Fitch Ratings earlier this year upgraded the credit to AA as part of revised criteria on tax-supported credits but assigned a negative outlook due to operating and capital pressures posed by the state delays. Moody’s Investors Service rates the RTA Aa3 with a stable outlook. Standard & Poor’s assigns a AA and a stable outlook. The authority has about $2 billion of long-term general obligation bonds.
The credit benefits from improving sales tax collections — up by more than 5% in 2011 — with sales taxes providing strong debt-service coverage. Another strength is the essential transit services provided by the RTA’s train and bus systems that serve 2.6 million riders daily. Fare box revenue has also recovered due to increased ridership after declines through 2010.