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Illinois RTA Passes Budget After Impasse Over CTA Bonds Ends

JAN 16, 2013 5:27pm ET
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CHICAGO — The Regional Transportation Authority of Illinois board approved its $3.7 billion 2013 budget Wednesday after resolving a standoff with one of its service boards over its plans to borrow $1 billion of sales-tax-backed bonds over the next five years.

The board put off a vote on the budget at its December meeting after RTA staff raised concerns over the lack of a line item for debt service and more detailed information on the Chicago Transit Authority borrowing in its budget, two-year financial plan,and five-year capital budget.

The RTA staff and some board members questioned whether the agency could afford the new borrowing. The RTA provides fiscal oversight of the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service.

CTA and RTA officials — including CTA president Forrest Claypool, RTA board chairman John Gates Jr. and executive
director Joseph Costello — had an ongoing dialogue over how to address the concerns, but the two sides could not reach an agreement by the board’s meeting last month.

Negotiations cleared the path for a vote Wednesday.

“When it was understood the board needed a comfort level to understand how the repayment would be done, the CTA then presented a detailed plan that ¬explained issues such as the bond repayment interest rates, repayment schedule, etc.,” said RTA spokeswoman Diane Palmer. The Transit Authority intends to issue a tranche of bonds this year but has not finalized plans.

“We are pleased the CTA’s 2013 budget was approved, and will continue to focus our energies on improving service and making important investments to benefit our customers in 2013 and beyond,” spokeswoman Tammy Chase said in a statement.

The impasse ended before any delays in cash flow or aid payments occurred.

The double-A rated RTA has long served as the main borrower for its service boards and officials there believe the agency’s credit provides the most affordable access to capital. The authority, however, has maxed out its state-approved long-term borrowing capacity.

Starved for capital to fix its aging system and fund expansion, the CTA overhauled its fiscal house and re-emerged as an issuer a decade ago in a move initially resisted by the RTA. The CTA has leveraged its share of sales tax and federal capital grants to issue bonds and is now eying public-private partnerships.

The CTA’s borrowing plans stand to affect an RTA proposal to seek state approval to issue up to $2.5 billion in sales tax bonds over five years. The agency has said it would scale back the size of its proposed borrowing to accommodate the CTA’s financing plans.

The RTA’s current five-year capital program totals $4.3 billion but it has warned of an estimated $24.6 billion in spending needed to keep the system in a state of good repair. The RTA ended the practice of dipping into capital funds for operations in 2012. The RTA’s $2 billion of general obligation debt carries low-to mid-double-A level ratings.

The CTA’s $860 million of federal capital grant bonds carry ratings in the single A category and its $2.5 billion of bonds primarily backed by sales taxes carry double-A level ratings.

Fitch Ratings late last week affirmed the RTA’s AA general obligation rating and negative outlook.

The credit benefits from ongoing improvement in sales tax collections, the essential service provided to more than 2.3 million riders daily, and ample debt service coverage, Fitch said.

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