CARES doesn't shield Illinois transit agencies from outlook hit

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The threats posed by the COVID-19 pandemic to Chicago Transit Authority and Regional Transportation Authority of Illinois revenues led Moody’s Investors Service to revise both agencies' outlook to negative from stable.

In its action last week, Moody’s affirmed the RTA’s sales tax bonds at A2 and downgraded the RTA’s general obligation variable rate bonds to P-2 from P-1 because that rating is capped based on the RTA’s long term rating and outlook.

A sign on a lightly-used Chicago Transit Authority train advises passengers of face-mask requirements.

“Looking ahead, the authority faces diminished sales tax receipts and potential reductions and likely delays in payment of subsidy funds by the state of Illinois as a result of the coronavirus pandemic,” Moody’s said. “These factors will increase financial pressure on the authority," which supports service boards that operate Chicago-area subways, buses and commuter trains, all of which face sharp reductions in farebox revenue.

The RTA is the fiscal parent of the CTA, Metra commuter rail, and Pace suburban bus service.

“Emergency federal aid for transit agencies should largely offset revenue shortfalls in the near term, but it remains to be seen whether the enhanced federal support will be sufficient to address more severe revenue disruptions that could result from a protracted economic downturn,” Moody’s warned.

“It is worth noting that the major change Moody’s announced today was made to the RTA’s ratings outlook versus the agency’s long-term rating,” RTA executive director Leanne Redden said in a statement. “This aligns with industry concerns about the timeline of the current COVID-19 pandemic lasting well into 2021, when the CARES Act funding reimbursement will likely be exhausted.”

Moody’s also affirmed the CTA's ratings and moved the outlook to negative from stable on the A3 rating assigned to the CTA’s sales tax revenue bonds, and the CTA’s Public Building Commission of Chicago bonds backed by CTA lease payments, rated Baa1. Moody’s also affirmed the CTA’s federal grant receipt revenue bonds, rated A3 with a negative outlook.

“Reduced economic activity in CTA's service area because of the coronavirus pandemic will weigh on sales tax collections. A sharp decline in ridership is also reducing fare and pass revenue, which is not pledged to bondholders. State aid payments may also be subject to cuts or lengthening disbursement delays,” Moody’s said.

The Baa1 rating on CTA's building bonds sold through the commission are supported by the essential nature of the project financed — the CTA’s headquarters — and offsets the weaker claim on CTA revenues compared with holders of the authority's sales tax revenue bonds. The negative outlook on the federal grant bonds is tied to federal actions and could be revised to stable depending on future authorizations.

Near-term funding worries about the pandemic’s financial effects have been mitigated by federal aid for transit included in the Coronavirus Aid, Relief, and Economic Security package signed March 27, Moody’s said. The RTA is receiving $1.4 billion from the package to share with the service boards and it should cover the anticipated hit through 2020.

The RTA administration last month laid out estimates that warned of an expected $958 million blow to tax and farebox revenues caused by pandemic. The estimated hit includes a 50% reduction in farebox revenue — a loss of $500 million — and an additional cut in its share of sale tax revenues, but the numbers could range higher, depending on the “depth and duration and degree of recovery,” Redden warned the board.

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