CHICAGO – The Regional Transportation Authority of Northeastern Illinois and its three service boards head into the New Year still starved for new state capital dollars, as 2018 marks a fourth year without an infusion of state help.

The RTA and its service boards -- the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service -- were also stung by state cuts as they plotted out their 2018 budget. Fare hikes approved over the last month have eased those strains.

“It’s no secret that the lack of funding for public transportation has been at the forefront of our issues this past year,” RTA board chairman Kirk Dillard wrote in the agency’s year in review letter to transit writers last week.

The more than $1 billion that RTA's service board will spend on capital next year falls far short of what's needed.


Lawmakers imposed a 2% state administrative fee on sales tax collections as part of the state’s fiscal 2018 budget package and the RTA’s appropriation for aid was cut by 10%.

That fee cost the authority’s service boards $12 in 2017 and $24 in 2017 as the cuts took effect when the state’s fiscal year began July 1, while the RTA operates on a calendar year. The aid cut trimmed $10 million in funds for 2017 and $30 million in 2018.

At the same time, the service boards have struggled with late state aid payments as Illinois grappled with a bill backlog that hovered around $15 billion until the budget impasse broke and the state sold $6 billion of debt to pay it down.

The RTA managed by tapping its state-authorized cash flow note program, but the roughly $400 million in borrowing cost the RTA $5 million annually in interest, Dillard wrote.

On the capital side, federal funds continue to flow but the RTA has little room left in its state-approved bonding capacity and funding in the state’s expiring 2009 capital program has run its course. The 2009 program provided $2.7 billion for Chicago area transit and $300 million for downstate.

Bipartisan support is strong for a new capital plan. Whether Gov. Bruce Rauner and the General Assembly’s Democratic majority can put aside their divisions to agree on a plan and devise a funding mechanism is in doubt, especially with statewide elections looming in the New Year.

“The RTA is doing what we can by leveraging our long term debt and issuing bonds up to our statutory limit of $800 million to provide additional capital funding for CTA, Metra, and Pace projects,” Dillard wrote.

The CTA also will continue to issue on its own and intends in the New Year to leverage the new City Council approved ground transportation tax in a $179 million borrowing, according to budget documents.

The tax is a surcharge on fees imposed on ride-share companies like Uber and Lyft. The fee will rise by 15 cents per ride in 2018 and another five cents in 2019. The council approved the tax as part of the city’s 2018 budget last month.

THE BUDGET

The $3 billion 2018 operating budget approved by the RTA board earlier this month marked the first time in nine years all three of its service boards sought a fare hike. The RTA provides fiscal oversight of the three.

“In order to produce balanced operating budgets as required by law, the budget approved by the RTA board today includes fare increases for CTA, Metra and Pace that are unavoidable in light of current challenging economic factors and cuts in state funding,” RTA executive director Leanne Redden said in a statement.

The CTA’s $1.5 billion budget relies on increases that will take effect Jan. 7 on base fares for bus and rail rides of 25 cents and $5 for a 30-day pass. Student reduced fares and single day, 3-day, and 7-day passes will remain the same.

Metra’s $797 million budget relies on an increase of one-way fares by 25 cents and increases in 10-ride and monthly passes effective Feb. 1.

Pace’s $232 million budget relies on a full one‐way fare price hike of $0.25 on regular fixed‐route and some other rides such as paratransit services effective Jan. 1.

The RTA operations and paratransit budget make up the remainder of the $3 billion budget.

The Chicago Civic Federation, an independent research organization that reviews local government and Illinois’ fiscal plans, opposed the CTA’s budget for its reliance on a restoration of $14 million in state funding that’s been withheld since fiscal 2015 and $17.5 million in borrowing to close its 2017 gap. The $14 million is owed to the CTA for reimbursements for free and reduced rides.

“The CTA faces serious challenges, some of which are the result of inaction at the state and regional levels and others that are from outside forces, including historically low gas prices and increased rideshare popularity,” said federation president Laurence Msall. “However, by failing to face its economic reality in the present, the CTA is at risk for ever-greater financial problems in the future.”

The federation recommends a further fare increase during peak travel times, a move it believes the public can digest as consumer have grown accustomed to such pricing by ride-share companies.

The CTA has defended the borrowing as a one-time measure to address the impact of state funding cuts imposed midway through its budget year “at a point when we had very few options to close the gap beyond short-term borrowing,” said CTA spokesman Brian Steele.

The loan will be repaid in whole or in part by further efficiencies/cost savings or excess revenue growth from farebox and other sources, he said.

CAPITAL

The RTA board signed off on $1.2 billion in capital spending for 2018 that’s part of a five year program of more than $4 billion. CTA accounts for $2.7 billion, Metra accounts for $1.16 billion, and Pace accounts for $299 million of the five year program.

“The RTA estimates that in order to address the region’s growing backlog of capital needs and move forward, we should be investing $2 billion to $3 billion annually. The current capital program falls far short of that goal,” budget documents say.

The 2018 plan is funded by the CTA’s plans to borrow $179 million under the new tax and another $287 million under its existing credits that leverage sales taxes or federal grants, and $15.5 million of PACE borrowing.

Federal funds accounts for $645 million. No new state dollars or RTA borrowing are expected, though the five year program relies on $158 million of future RTA bonding. The CTA has benefited from federal funding through loans under the Transportation Infrastructure Finance Innovation Act or TIFIA.

The Civic Federation is lending its voice to the call for state action.

“The state must develop a capital improvement plan that adequately funds transit needs across Illinois,” the federation said in its review of the CTA budget.

Going forward, the RTA is accepting public comment on a 2018-2023 regional transit strategic plan that it will consider next month. It’s aimed at providing a roadmap for funding needs and is envisioned as a way to increase public awareness, pressure lawmakers to address transit infrastructure needs, and advocate for a new, ongoing source of funding.

The RTA has estimated its service boards face a $37.7 billion 10-year tab for maintenance and capital investments.

RATINGS

The RTA last came to market over the summer after passage of the state budget with a $191 million refunding. The RTA’s general obligation bonds are 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.

Sales taxes account for two-thirds of RTA revenues and grew by 32.5% to $1.18 billion between 2009 to 2016. They are projected to grow by 3%, and distribution is not subject to a state appropriation.

Matching state public transit funds are subject to an annual appropriation and while the state has been far behind on payments those funds are not needed for debt service.

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.

“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 RTA didn’t seek a Moody’s Investors Service rating on the deal.

Moody’s hit both the CTA and RTA with downgrades in June over the state budget impasse and growing operating pressures. It lowered the RTA’s $2.2 billion of debt two notches to A2 from Aa3 and dropped the Chicago’s Transit Authority’s $3.67 billion of sales tax bonds to A3 from A1 and its $67 million of building commission debt to Baa1 from A2.

The outlook on both agencies remained at negative.

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