CHICAGO – With Illinois still far behind on its bills, the Regional Transportation Authority is highlighting the direct and on-time flow of its state collected sales taxes as it preps a $188.4 million refunding.
And while the RTA of Northeastern Illinois is facing some state aid cuts, the sale could reap a pricing benefit from the recent passage of a fiscal 2018 state budget package that broke a two-year-old impasse as it provides more certainty in the future flow of revenue, several local traders said.
The RTA will take bids on the deal Tuesday. Sycamore Advisors LLC is advising the agency and Dinsmore & Shohl LLP is bond counsel. The bonds will refund 2006 debt for at least 3% net present value “debt service savings,” according to RTA chief financial officer Bea Reyna-Hickey.
The bonds are a general obligation of the authority primarily secured by the RTA’s share of pledged sales taxes collected in Chicago and its surrounding counties and public transportation funds that come from the state.
The nation’s third largest transit agency provides oversight of the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service.
Sales taxes account for two-thirds of RTA revenues and grew by 32.5% to $1.18 billion between 2009 to 2016.
Sales taxes collected by the state for the RTA are “not subject to appropriation by the state” and receipts “are arriving on time,” Reyna-Hickey said in an investor presentation. The receipts are expected to grow by at least 3% annually.
Matching state public transit funds are subject to an annual appropriation and the state is far behind on payments -- $349 million as of June 30 -- but those funds are not needed for debt service, the RTA said.
The budget hits the RTA on two fronts. One is a 2% administrative fee the state will now impose on the collection of sales taxes. The RTA expects a $12 million loss in sales tax revenues this year and $24 million in all future years.
The fiscal 2018 budget also cuts the RTA’s appropriation for aid by 10% with an impact of $10 million expected this year and $30 million next year.
“The recently passed state budget includes manageable reductions to authority revenues,” Fitch said of the cuts. “However, there is a risk that continued fiscal stress at the state level could result in additional revenue reductions in the future, which could diminish resilience.”
The state budget also shifts the first $100 million in aid from the road fund to the transit fund which is expected to speed up the flow of state matching aid funds.
Ahead of the deal, Fitch and S&P Global Ratings affirmed the RTA’s AA ratings and stable outlook. The agency has $2.2 billion of mostly fixed-rate outstanding debt, including $400 million of working cash notes that have helped the RTA manage through state payment delays.
“The stable outlook reflects our anticipation that the authority will maintain sufficient liquidity to cover its obligations despite the challenging revenue climate,” S&P said.
“Solid pledged revenue growth prospects and exceptional financial resilience underpinned by low levels of expected revenue volatility,” Fitch said in its report.
The RTA has limited new money borrowing opportunities as it’s tapped out most of its state-approved capacity. It plans a $150 million new money issue later this year and $158 million in 2020 as capacity becomes available, according to RTA treasurer William Lachman.
The RTA has estimated its service boards face a $37.7 billion 10-year tab for maintenance and capital investments. About $19.4 billion is needed to keep the system in a state of good repair and $18.3 billion for normal capital reinvestment over the next decade.
To adequately address its needs, the system says it needs about $2.6 billion in annual funding over the next two decades. The RTA currently projects average annual capital funding of just $785 million over that period amid a drought of new state capital funding since the state’s last public works program is winding down.