CHICAGO — Illinois lawmakers are expected to convene this week to approve a revised Chicago-area transit bailout package that provides $500 million in new annual operating aid and authorizes the sale of $2 billion of bonds for the Chicago Transit Authority to address its unfunded pension and health care liabilities.

The bailout’s approval comes after months of political wrangling amid threats of looming fare increases and dramatic service cuts in the Chicago area, including the latest that were set to take effect Jan. 20. Lawmakers last Thursday finally agreed to a plan that raises the sales tax in the Chicago region but the bill was sent back by Gov. Rod Blagojevich who included a provision that would allow seniors statewide to use public transportation for free.

“I’ve said clearly and frequently that I don’t think raising the sales tax is the right way to help the CTA and other transit agencies. But, this is what lawmakers sent me and in the spirit of compromise, I will accept their plan, but only if they accept my plan to make public transportation free for all Illinois seniors,” Blagojevich said Friday.

The provision was seen as a move that could ease some of the criticism the governor could eventually face for reneging on his long-standing campaign pledge not to raise the income or sales tax.

“We think the changes will be approved, and we are working to get a hold of the membership to set a date,” said Cindy Davidsmeyer, a spokeswoman for Democratic Senate President Emil Jones of Chicago.

“The speaker believes the Legislature will accept the amendatory veto,” said Steve Brown, spokesman for Democratic House Speaker Michael Madigan, of the change made by the governor. Members were still being polled as to when they could return.

Officials with the Regional Transportation Authority of Illinois estimated the free service could cost between $15 million and $20 million annually, but support it. “We agree it is a valuable benefit for a population that has a significant number of low-income people,” RTA board chairman Jim Reilly said.

Blagojevich and lawmakers were under intense pressure to act. Aside from the public impact, a reduction in ridership could hurt federal funding levels, including grants that secure some CTA bonds.

The governor had favored a plan that would divert nearly $400 million in gasoline taxes collected in the Chicago area from the general fund but concern among some lawmakers over the hole it would leave in state coffers killed that proposal.

Under HB 656 that was sent to the governor, the sales tax in Chicago would rise by one-quarter of a percent and by one-half percent in the counties around Chicago that are also served by the RTA’s service boards — the CTA, Metra rail, and Pace suburban bus service.

The city also would have authority to raise its tax on real estate transactions. The various measures would generate about $500 million annually for the RTA and about $50 million for transportation agencies outside the region.

The bill also includes RTA oversight reforms and includes sweeping pension reforms agreed to by the CTA and its unions. As part of the package that calls for increased employee contributions, the CTA would have authority to issue up to $1.98 billion of debt to cover its unfunded pension liability and to establish a trust to fund its unfunded health care liability.

The bonding authorization was increased to nearly $2 billion from its original $1.5 billion due to the delay in winning passage for the plan. The CTA’s pension fund is funded at only a 34% level and would require a payment of $150 million next year if no action was taken.

The CTA was facing the diversion of its sales tax dollars next year absent the borrowing plan because of legislation approved several years ago. A portion of the bond issue would also go to establish a trust to begin funding the CTA’s $1.1 billion unfunded health care liability.

Passage of the sales tax plan came last week after downstate lawmakers agreed to drop their requirement that the General Assembly also take up at the same time a roughly $25 billion capital budget. Lawmakers remain at odds over how to far to expand gaming in the state to fund the plan that relies on $10 billion of new general obligation and sales tax-backed borrowing.

The RTA is hoping to win $10 billion in new capital aid over five years as the double-A-rated agency has nearly exhausted all of its bonding authority previously approved by the General Assembly.

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