While the Illinois Regional Transportation Authority local transit service boards took another hit on state operating funds for 2020, they are bumping up capital spending thanks to the infusion of new support from the state’s six-year, $45 billion infrastructure package.
Passage of the statewide program for transportation, transit, state buildings, schools, and other projects ended a long drought, answering the RTA’s pleas for capital help as its own state-authorized borrowing capacity is mostly exhausted.
The authority will vote later this month on a 2020 $3.1 billion operating budget and $2.1 billion capital program for its service boards — the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service.
The regional 2020-2024 capital program totals $8.3 billion — that’s $4 billion more than the RTA planned to spend when last year’s five-year rolling capital program was approved.
The state’s Rebuild Illinois infrastructure package approved by lawmakers during the spring session and signed into law in June is the first since passage of the decade-old $31 billion Illinois Jobs Now program.
The new package allocated $2.6 billion in bonding proceeds over five years and an estimated $227 million in new sustainable annual revenue. In addition to the state bonding support, the CTA is planning on $1 billion of borrowing and RTA on $130 million to support the $8.3 billion, five-year capital plan.
The new state funding totals $3.7 billion and covers 45% of the five-year capital program with a focus on bringing the regional transit system toward a state of good repair, expediting overdue repair and replacement projects, and reducing the backlog of deferred improvements.
While the new funding falls far short of covering the services boards’ $30 billion of needs over the next decade, it will go a long way in limiting the number of assets that are beyond their useful life, officials said.
“The bill begins to address an over-reliance on federal funds for capital and provides the type of consistent funding that is essential for effective planning and programming of projects,” RTA executive director Leanne Redden and the heads of the three service boards said in a statement. “While the total falls short of the region’s $30 billion in transit capital needs over the next decade make no mistake it is a significant step forward.”
Federal funding still remains the top source of overall capital dollars accounting for 40.5% of the five-year tab, followed by state bonding at 31.3%, state pay-as-you-go support at 13.7%, CTA bond proceeds at 12.4%, RTA bond proceeds at 1.6%, and other local funds account for the remainder.
The state began borrowing toward the new capital program last month.
The $45 billion capital plan passed with bipartisan support. It relies on nearly $21 billion in borrowing, $10 billion in federal funds, $11 billion in pay-as-you-go financing, and $2.6 billion in local matching funds.
Transportation projects that include roads, bridges, and mass transit will receive $33.2 billion of funding. They will be funded with a doubling of the motor fuel tax to 38 cents per gallon with future increases then indexed to inflation. An increase in vehicle registration fees, an increase in diesel fuel tax, an increase in registration fees for electric vehicles, an increase in truck registration fees also will fund projects and the state’s sales tax revenues on gasoline will move to the road fund in fiscal 2022.
OPERATING
The service boards won’t raise fares to cover 2020 operations and CTA and Metra will maintain existing service levels while Pace has proposed the reduction or elimination of up to eight under-performing routes.
The proposed 2020 operating budget is up 1.3 % from 2019. Sales taxes account for 41.1% of operating revenue, Fares and other system-generated revenues account for 37.7%. The CTA’s budget represents 50.7% of the $3.1 billion, Metra 26.7% and Pace 7.7% while debt service, paratransit, insurance and RTA expenses make up the remainder of the operating budget.
The CTA operates the second largest public transit system nationally while Metra runs commuter trains linking suburbs with Chicago.
The CTA, which operates the second largest transit system in the nation, said it achieved $26 million in cost savings and operational efficiencies through a hiring freeze and locking in power costs to balance the books without a fare hike or service cuts.
The CTA continues to be negatively impacted by state cuts to the level of operating aid, officials said and the agency also is losing riders.
“CTA losses since the state cut our operating funds will total $180 million through 2020. We continue to call for the restoration of full operating funding for this agency so that we may better serve our customers,” CTA president Dorval Carter Jr. said in a statement last month when the agency’s $1.57 billion budget was unveiled.
Overall, the service boards saw a $56 million cut in state transit funding with that number trimmed to $46 million in fiscal 2020.
“The service boards have responded to the reality of lower funding by proposing balanced 2020 op rating budgets with measured expense growth,” the budget documents read.
The RTA expects overall ridership levels to end the year at 564 million, a 2.5% drop from 2018 with a 1.5% cut down to 554.8 million projected in 2020. The RTA says the projections reflect a national trend attributed to low gas prices, the growth of transportation network companies such as Uber, and changing consumer habits such as telecommuting and online shopping continue to impact transit ridership.
RATINGS
The RTA’s general obligation ratings — supported by its share of sales taxes — and the CTA’s sales tax-backed credit carry single-A to double-A ratings and both won an outlook boost from Moody's Investors Service last year on $5 billion of combined debt as the city and state’s downward credit pressures stabilized.
The rating agencies last affirmed the RTA’s ratings ahead of a sale last year.
“The stable outlook reflects the recently stabilized credit positions of key related governments, Illinois and Chicago,” Moody’s Investors Service said in shifting its outlook on the RTA’s A2 rating to stable from negative in an August 2018 report. “Moreover, the importance of transit to the area served by RTA operating units should limit adverse actions by Illinois and Chicago, despite the long-term liability pressures that these governments face.”
"The 'AA' rating reflects our view of RTA's participation in the large and diverse Chicago metropolitan area economy, which generates its sales tax revenue in an area with 8.4 million people in Cook County and five collar counties," said S&P Global analyst Eric Harper. Other supporting factors include the direct flow of pledged revenue to the trustee for debt service and strong debt service coverage ratios. “Partly offsetting the above strengths, in our view, is the cyclical nature of sales tax revenues that can decrease during economic downturns.”
“Solid pledged revenue growth prospects and exceptional financial resilience, underpinned by low levels of expected revenue volatility in a downturn scenario, support” the RTA’s AA rating, Fitch Ratings said.
The state is still subject to continued fiscal stress, which could result in revenue reductions to the authority in the future and a severe reduction beyond Fitch's expectations could weaken credit quality.
S&P in May affirmed the CTA’s AA on the senior lien sales tax bonds and A-plus on the second lien and stable outlook.
“The priority lien rating on the bonds is limited by our view of the CTA's creditworthiness. Additionally tempering the credit strengths are the CTA's significant capital needs,” S&P said.
Kroll Bond Rating Agency rates the CTA first lien at AA and the second lien at AA-minus, both with a stable outlook.
Moody’s rates the CTA’s sales tax credit of A3 and it shifted the outlook to stable from negative for the same reasons it moved the RTA’s outlook last year.
The CTA also issues under a federal capital grant-backed credit that carries ratings in the BBB to single A category.
