CHICAGO - The Regional Transportation Authority of Illinois heads into the new year with a $2.9 billion operating budget and $3.8 billion five-year capital program that relies on federal funds and loans, and borrowings including inaugural issues from two of its service boards.
The operating budget culls together those of its service boards, authorizing $1.44 billion of spending by the Chicago Transit Authority, $753 million for Metra commuter rail, and $223 million for Pace suburban bus service. It also provides $172 million for paratransit services and $42 million for RTA operations.
"We are pleased the board approved this fiscally responsible balanced budget that will ultimately benefit the region's nine million residents," RTA executive director Leanne Redden said in a statement. The RTA provides fiscal oversight of the service boards.
At a meeting late last week, the RTA Board also adopted a $3.8 billion five-year capital program that provides $1.3 billion in spending for 2015 as the agency hunts for new funding amid lackluster federal funding and an expiring state capital program that had provided transit with $2.7 billion.
"Capital funding will largely be used for rehabbing rolling stock, station updates, track renewal and other projects aimed at maintaining the existing system," the agency said. "The transit system still needs significantly more funding for further maintenance, enhancement and expansion."
At least $1.3 billion is needed annually to keep the system in a state of good repair, and it faces an additional $20 billion backlog of needed projects, according to the agency's latest report on its capital asset condition.
Redden said bond issuance and the CTA's award of a federal Transportation Infrastructure Finance and Innovation Act loan will help support the 2015 capital budget. The five-year plan anticipates $2.5 billion in federal funds, $300 million in Metra issuance, $145 million in CTA borrowing, $88 million in Pace bonding, at least $100 million in RTA borrowing, and $557 million in TIFIA support for CTA projects. The RTA said its borrowing could increase as bonding capacity becomes available.
The RTA has traditionally issued debt on behalf of its service boards and had long resisted the CTA's efforts to borrow independently, but all its service boards after 2015 will have joined the ranks of tax-exempt borrowers.
The RTA will issue $100 million in 2015. The agency also sold $100 million new-money in 2014. It has nearly hit its state-authorized bonding capacity and has floated an expansion of its borrowing powers.
The CTA sold $550 million of sales tax backed bonds this spring to provide ongoing funding for projects and will tap a $79 million TIFIA loan approved in the spring to purchase rail cars and fund its ongoing overhaul of the light-rail line that serves O'Hare International Airport. Metra and Pace are planning inaugural issues in 2015.
The RTA's 2014 issue marked its first new money sale since 2010. Ahead of the general obligation backed sale, Fitch Ratings revised its outlook on the RTA's AA rating to stable from negative as state aid payment delays eased.
The state's current budget crunch could hurt the timing of payments again as the state's 2011 income tax hike partially expires Jan. 1. It's unclear whether Gov.-elect Bruce Rauner will seek an extension of the current rates when he takes office.
"The outlook revision to stable from negative reflects the improvement in the timeliness of distributions from the state and Fitch's expectation that the current rate of funding delay will not worsen," Fitch wrote. The RTA has authority to sell working cash flow notes to manage through state delays.
Moody's Investors Service affirmed its Aa3 rating and stable outlook and Standard & Poor's affirmed its AA rating and stable outlook. The authority has $2 billion of long-term debt outstanding.
The RTA pledges its full faith and credit to the bonds and its allocation of regional sales tax collections and public transportation funds which come from a 30% state match of regional sales and pledged real estate transfer tax in Chicago. Sales tax collections are expected to grow 4% in 2015. While vulnerable to payment delays, the RTA stresses with investors its insulation from state pressures on its own revenue sources and its senior lien on sales taxes.
The RTA's pledged revenues provide a strong 5% debt service coverage ratio. The credit also benefits from the essential service provided by the RTA's service boards with about 2 million riders daily. The RTA is the third largest transit system in the nation.
The CTA in April secured a $79 million TIFIA loan to help fund a new $240 million 95th Street Terminal on a CTA rail transit line. The project marks the CTA's first TIFIA loan. TIFIA provides federal credit assistance through direct loans, loan guarantees and standby lines of credit to finance infrastructure projects.
The CTA sold $555 million sales tax backed sale earlier this year and its five year capital plan relies on the sale of at least $145 million more in the coming years, according to the RTA budget.
CTA capital funding will go to purchase more than 800 new rail cars, a major track and station overhaul of a key train line, the purchase of 300 new buses and rehabilitation of another 1,000, as well as other track and station improvements. The CTA is also upgrading its line to O'Hare International Airport to reduce travel times.
The CTA's sale tax bonds are secured by a pledge and lien on sales tax receipts distributed by the RTA. In addition to the CTA's share of sales taxes, the receipts include discretionary payments made by the RTA and public transportation fund revenues paid by the state.
Ahead of the sale earlier this year, the CTA sought ratings from Standard & Poor's, which has previously rated its sales tax bonds, but dropped Moody's Investors Service in favor of Kroll Bond Rating Agency. Both assigned AA ratings and stable outlooks to the credit.
The Chicago Civic Federation praised the agency's 2015 budget for improving fiscal stability.
"We've seen a significant fiscal turn-around for the CTA in its past three budget cycles," said Civic Federation President Laurence Msall. "The agency is working under a more sustainable labor agreement, no longer relies heavily on one-time revenue sources and has balanced its budget for the past three years without increasing base fare rates."
Pace will sell $12 million of local government program revenue bonds through the Illinois Finance Authority to finance the conversion of a south suburban facility that services its fleet to use compressed natural gas fuel. It has state authorized power to sell up to $100 million.
The sale would mark a first for the unrated Pace, which will not seek ratings for the debt that will be sold competitively as soon as next month.
In addition to an exemption from federal income taxes, the bonds' interest would be exempt from state taxation under the state law authorizing the sale, offering investors a rare double-exemption for Illinois-based bonds.
Acacia Financial Group Inc. is advising Pace and Thompson Coburn LLP is bond counsel.
Metra plans its market debut in 2015 with a $100 million issue. The agency has long had state authorization to issue up to $1 billion of debt but has hesitated to tap it over repayment concerns -- until now. Metra's $100 million borrowing proposal was unveiled earlier this fall as part of a proposed $2.4 billion, 10-year capital program.
Metra will phase in fare increases to help repay the borrowing, cover routine capital spending, and rising operational expenses. "We can pretend the problem doesn't exist, and try to get by with aging equipment and aging infrastructure. But that creates a downward spiral," board chairman Martin Oberman said in budget documents.
The first 11% fare hike would take effect February as part of the 2015 budget. A portion of the additional fare revenue would eliminate a $27 million deficit in 2015 and go to begin repaying debt service on Metra's inaugural bond issue.
Fares would eventually rise a total of about 68% from current prices -- generating more than $1.2 billion in new revenue -- to help upgrade a system with rail cars that date back to the Eisenhower administration. Metra would follow up its borrowing next year with the same amount in 2017, 2019, and 2022.
The RTA's future awaits Gov.-elect Bruce Rauner. A state-appointed task force recommended an overhaul of regional transportation oversight. However, the task force was named by outgoing Gov. Pat Quinn, and lawmakers probably will be more focused on shoring up the state's budget than shaking up transit agencies in the near term when Rauner takes office next month, several legislative aides said.
The RTA is also now under new leadership. The agency's former chief executive officer Joseph Costello retired earlier this year, handing the reins over to Redden. Former state Sen. Kirk Dillard is now chairman of the board.