Governor Quinn’s Deal with the CTA and RTA is Fiscally Irresponsible

November 13, 2009

The Civic Federation has enormous concerns about the fiscal risks associated with Governor Quinn’s “deal” to avoid CTA fare increases.

Under the proposal, the Regional Transportation Authority will issue General Obligation bonds worth $83 million in both 2010 and 2011 and transfer the funds to the CTA for capital projects. The CTA will then shift a similar amount of its existing capital funds to its operating budget. The State of Illinois is supposed to then pay the first two years of debt service on the RTA bonds with newly identified discretionary funding in the state budget. The State received additional federal revenues for Medicaid and will reallocate excess funds towards CTA’s debt service.

This year the State has already borrowed $2.25 billion to cope with its own revenue failures as well as $3.5 billion to make its necessary pension payments while not paying its bills to the tune of $3.9 billion. The State cannot afford to pick up the $15 million cost of debt service for this new operational borrowing for the CTA.

A much more fiscally reasonable and responsible action would have been for the State of Illinois to endorse the CTA’s proposed budget.

During difficult financial times, the CTA is taking great pains to live within its means while providing affordable, reliable and equitable transit service for the City of Chicago. The Civic Federation supported the necessary action of reducing personnel levels and making necessary administrative cuts. While difficult, reductions also make it necessary to adjust bus and rail personnel levels to fit the system.

The CTA’s original revenue plan was far superior to the Governor’s deal because it increased the System’s self-sufficiency and reduced its dependence on transferring capital funds to the operating budget. The CTA currently depends on 50% of its operating revenue to come from public subsidies funded through a portion of regional sales taxes and real estate transfer tax. If the fare increase had been implemented, the proportion of the CTA’s operating expenses paid for by its own operating revenues would have increased from 49.2% in FY2008 to 71.5% in FY2012. The proposed budget only required a 1.3% increase in necessary tax supported revenues to fund operations in FY2011 and would have reduced the CTA’s dependence on its public subsidy for its operations in FY2012. The budget also would have cut back on the CTA’s annual habit of using funds needed for capital improvements to fill the operating budget gap by 27.8% in FY2012. This was a sound plan.

The RTA and the CTA should not have allowed themselves to be led down the same fiscally dangerous path the Governor has chosen for the State of Illinois by borrowing money to put off dealing with current structural budget problems.

Borrowing money will only put off the inevitable fare increases needed to balance the CTA budget and compound the problem when the $166 million in funding runs out. This will mean even steeper fare hikes in 2012.

The CTA will then also be saddled with an additional $10 million in annual debt service cost that it cannot afford, so when the transfers end after FY2011, the CTA will have an immediate $93 million hole in its FY2012 budget.

Unlike the ill-conceived borrowing plan, the originally proposed CTA budget that included fare hikes was a sustainable, self-supporting plan that would have been less expensive over time. The CTA’s original budget did account for an estimated 9.8% drop in total rides due to a combination of the fare increase and service cuts, but did not specify what portion was attributed to which measure. Although it may seem like a lot, it would only have meant one or two rides fewer per month for an average daily commuter. The low-income riders who legitimately could not have afforded the fare increase could have received reduced or free fares via a means test without endangering the future fiscal stability of the System.

If the Governor and the General Assembly want to help CTA avoid raising fares this year they should eliminate the free ride program for seniors who can afford to pay. The free ride program cost the CTA $35.8 million last year. If it is repealed, the CTA would save an estimated $25 million to $76 million.

Furthermore, although the Governor and General Assembly approved a $31 billion capital spending program this year, the CTA – the largest transit provider in the state – will receive only $900 million in new capital funding from the program over the next 5 years. The CTA has identified $6.8 billion in critical capital funding needs.

Moving more money from CTA’s already underfunded capital needs will only make it more costly to operate the aged CTA system and further complicate its ability to balance its budget in the future. The CTA already plans to use $90 million of capital preventative maintenance funds to fill its FY2010 operating budget.

The Federation calls on the Governor and General Assembly to repeal the free rides for seniors program that has contributed to the CTA’s multi-million dollar deficit that will eventually contribute to higher fares for everyone else.