May 05, 2023
How should Illinois pay for public transit?
This was one of the key questions posed at a recent policy forum on the topic of public transportation in the Chicago region hosted by the Federal Reserve Bank of Chicago, the Civic Federation and the Civic Committee of the Commercial Club of Chicago.
The policy forum, held on April 13, 2023, targeted a pressing issue: transit agencies in Chicago and across the nation are facing a crisis. Ridership has plummeted since the COVID-19 pandemic began and remote work has changed commuting patterns for the foreseeable future. Ridership fares and tax sources, meanwhile, are not generating enough revenue to sustain the same level of operations, especially as staffing shortages and inflation have placed added pressure on operating costs. While the pandemic may not have started the fiscal crisis transit agencies must navigate, it has severely exacerbated any pre-existing problems and accelerated the urgency with which governments must act before federal relief funds run out. The Metropolitan Transportation Authority in New York recently addressed its looming $3 billion fiscal shortfall through a state-approved increase in the New York City payroll tax, plus future casino revenue, but it may still need to increase fares. Transit agencies elsewhere around the country will also be looking to local and state governments to pass funding solutions.
Brief History of Mass Transit Funding and Governance in the Chicago Region
Civic Federation Acting President Sarah Wetmore laid the foundation for the panel discussions by presenting a brief history of the governance and funding structure of the Regional Transportation Authority (RTA) and the three service boards that provide rail and bus transit to the Chicago region: Chicago Transit Authority (CTA), Metra and Pace.
The RTA was founded in 1974, born out of a lack of agreement between the City of Chicago and its suburbs about how to address financial trouble facing the CTA and the suburban private commuter rail and bus services. The law creating the RTA allowed funding through a gas tax, which later was changed to a sales tax. The sales tax was unfortunately insufficient to support rising costs, however, and significant fare hikes and service cuts were eventually enacted. A round of reforms in 1983 led to the creation of Metra to oversee suburban rail and the creation of Pace to oversee suburban bus operations.
By the early 2000s, each of the service boards faced budget shortfalls and the CTA faced a massive pension crisis. Another round of reforms in 2008 made further changes to the governing and funding structure of the transit agencies. These reforms expanded the RTA governing board, enhanced RTA’s oversight powers to include long-term strategic planning and budget oversight, increased revenue through increases to the sales tax, Chicago Real Estate Transfer Tax and a state subsidy, and reformed the CTA’s pension by adding a new tier of pension benefits and increasing both employee and employer contributions.
The RTA is currently funded through the following revenue sources:
- A 1.25% sales tax on general merchandise in Cook County;
- A 1.25% sales tax on food and drugs in Cook County;
- A 0.75% sales tax on general merchandise and food and drugs in DuPage, Kane, Lake, McHenry and Will Counties (of which 0.5% is allocated to the RTA);
- The State of Illinois matches 30% of RTA sales tax revenue receipts;
- State funding provided for ADA paratransit;
- Federal relief funds allocated in response to the COVID-19 pandemic, which have supplemented lost farebox revenue due to ridership shortfalls; and
- The Chicago Transit Authority receives a 0.3% Real Estate Transfer Tax on property sales in Chicago.
In response to the pandemic, U.S. Congress enacted a total of $69 billion in mass transit relief packages distributed to transit agencies nationwide. Federal relief makes up 20% of the RTA’s operating budget in 2023. This funding will begin to run out in 2025, resulting in a shortfall of $732 million in 2026 if no action is taken. This budget shortfall would worsen to $1.2 billion by 2031 if nothing is done to address the funding crisis.
CTA, Metra and Pace are required by State law to generate enough revenue to cover 50% of the regional transit system’s day-to-day operating budget each year. This is known as the system-generated revenue recovery ratio requirement. In response to ridership plummeting as a result of the pandemic, the State of Illinois suspended farebox recovery ratios for the RTA’s service boards through 2023. However, ridership is projected to continue to lag. Ridership across CTA, Metra and Pace currently sits at about 56% of 2019 levels, and is not expected to completely rebound at any point in the future. Further, the RTA’s farebox recovery ratio is much higher than any other cities in the U.S. The farebox recovery ratio is one of the funding issues that must be addressed directly by state lawmakers.
Solving the Transit Funding Riddle in Northeast Illinois and Beyond
The first panel discussion covered the issues of financing and governance, and the role the Illinois Legislature must play in restructuring the way RTA and the three service boards are funded given the decline in ridership in recent years. The discussion, moderated by former Illinois State Representative Julie Hamos, included the following panelists:
Illinois State Senator Ram Villivalam
- Joseph Schwieterman, Professor in the School of Public Service & Director of the Chaddick Institute for Metropolitan Development, DePaul University
- Andrew Ward, Group Credit Officer for US Public Finance, Fitch Ratings
The following are a few key takeaways from this panel discussion:
Transit agencies are facing an urgent crisis and the clock is ticking. Drew Ward of Fitch Ratings said transit agencies across the U.S. are facing budget gaps ranging from 15-35%. Ridership is not projected to rebound, and the federal government is unlikely to provide any further aid in addition to the federal COVID-19 relief dollars already distributed to transit agencies. He stressed the urgency of the impending budget gap and the need for states and local governments to step in with solutions. If there is no solution for the major revenue declines, the fiscal cliff will result in drastic service cuts and major personnel cuts.
Transit agencies need to make an effective case for increased public support. Senator Villivalam noted that with 177 legislators, many of whom represent districts outside of the RTA service area in Northeastern Illinois, there are many issues competing for legislators’ attention. And given hyper-local interests, it can be difficult to get legislators to think broadly. Using the Rebuild Illinois capital plan as an example, he said the Illinois legislature reached bipartisan consensus on the $45 billion statewide capital plan in 2018. Similar legislative backing needs to be generated for support of public transit agencies’ operations.
Transit agencies need to improve collaboration and integration with one another. Professor Joseph Schwieterman pointed out that there is a clear delineation between what CTA, Metra and Pace do, despite the fact that they all provide public transit services. He stressed the importance of rethinking the way the transit agencies interact with one another, as well as other modes of transportation, like expressways. The three agencies need to be willing to experiment with service changes that might shift riders between the systems. As Senator Villivalam pointed out, commuters don’t care about the politics at play regarding who runs the transit service boards; they just want to get from point A to B in a reliable, efficient way.
Envisioning a Mass Transit System that Promotes Equity, Opportunity and Economic Growth
The second panel discussion went beyond financing and governance to also cover issues of economic development, equity and access. The discussion was moderated by Tom Kotarac, Senior Vice President for Transportation and Infrastructure at the Civic Committee of the Commercial Club of Chicago. Panelists included:
Erin Aleman, Executive Director, Chicago Metropolitan Agency for Planning (CMAP)
- Sharon Carney, Chief of Staff, Office of the Deputy Mayor for Planning and Economic Development, Washington, D.C.
- Georgia Gann Dohrmann, Assistant Director, Metropolitan Transportation Commission, San Francisco
- Bob Dean, Chief Strategy and Program Officer, Center for Neighborhood Technology
Key insights from this panel discussion included the following:
Designing transit systems around the needs of riders: The discussion centered in part on the need for transit agencies to rethink service patterns based on the current needs of people who depend on transit, and improving the general rider experience. Based on CMAP’s research, Erin Aleman said, on any given day 25-35% of people are working from home in the Chicago region. Travel pattern changes from the pandemic are lasting. However, 60% of jobs across the Chicago region cannot be done from home—for example, jobs in the transportation, logistics, manufacturing, life sciences and healthcare sectors. Bob Dean pointed out that the COVID-19 pandemic demonstrated who really depends on transit; many riders with no other option are minorities, women and low-income individuals. And the system seems to have built-in disparities given that the longest commutes are often experienced by black and brown communities. Overall, the panelists emphasized that people want transit to be predictable, reliable, understandable and easy to use.
Navigating governance structures: When it comes to changing the transit agency structure, San Francisco faces challenges given the number of transit agencies involved in servicing the metro area. Georgia Gann Dohrmann explained there are 27 different transit operators in the Bay Area, which is further complicated by the fact that most of the agencies’ boards are made up of elected officials. While it might seem prudent to merge some of these agencies together, cost is a major barrier as combining the agencies would require increasing all employee salaries to match those of the highest-paid agency participating in the merger. The cost of higher salaries is not feasible given current operating revenue losses, she said, which total $25 billion, or a 20% operating budget deficit. Georgia emphasized that the number one priority, regardless of governance structure or the number of agencies involved, is the need for agencies to coordinate to make the ridership and transfer experience seamless for the rider.
The Chicago region, by contrast, only has four agencies involved in providing public transit. The panelists were not convinced that simply restructuring or combining these agencies would be the most effective way to address the existing governance structure. To solve the real problem at hand, they said, the RTA, CTA, Metra and Pace need to address the inherently siloed nature in which the agencies operate, which leads to a lack of service coordination. Erin Aleman added that the 50% farebox ratio requirement inhibits transit agencies from being innovative because they are worried about meeting the threshold. Like the Bay Area, the Chicago area should be thinking about solutions that will enable its multiple transit systems to operate in a more synchronized manner, in turn increasing convenience and user-friendliness for riders.
Benefits of public transit to congestion and climate: In terms of congestion, Erin Aleman said that based on CMAP’s research, if 25% of people in the Chicagoland area choose not to take transit to get around, this would translate to 193,000 hours of additional delay on highways. But should reducing congestion be the goal of transit? Bob Dean said he is not convinced reducing congestion is the most compelling argument, and said transit should instead be designed around the best mobility plan.
Climate change is a major concern on the west coast, Georgia Gann Dohrmann said. Public transit can serve as an ally in reducing greenhouse gas emissions. But, she added, the only way to meet California’s aggressive greenhouse emission reduction goals will be to get more people off roads and onto transit. However, Sharon Carney added, there is a dichotomy: people want the option that improves service, even if that means sacrificing a more climate-friendly option.
Role of transit in economic development: Bob Dean commented that public transit plays a key role in compact urban and suburban areas given that those areas rely on public transit for their very existence. The economic activity generated in dense areas would be lost if not for public transit.
Sharon Carney described efforts in Washington, D.C. to rethink the usage of downtown space, almost 90% of which is commercial space. She said Washington D.C. is only at 41% of pre-pandemic transit ridership levels on the Metro because so many people are not going into the office for work. She said the city will need to rethink potential uses for existing downtown property based on changing work patterns, with a focus on increasing the availability of residential property in order to meet a goal of getting more people to live downtown, which will help bolster economic activity.
The Future of Public Transit: Which Problem Should We Be Trying to Solve?
Joshua Schank, Managing Principal at InfraStrategies LLC, which is based in Los Angeles, brought in some big ideas in the day’s keynote address, asking: “What is the goal of transit? What problem are we trying to solve?” He pointed out that transit agencies are often asked to solve a number of problems that are not actually related to the mission of transit (providing reliable, efficient transportation) including congestion, climate change, public safety, social and racial inequity, and homelessness. While all of these issues are intertwined with public transit, and while transit might provide some benefits in these areas, Schank argued that transit agencies cannot and should not be expected to solve all of these social and economic problems.
Schank urged everyone to think about what mission we really want transit to fulfill, and to structure revenue solutions around the goal. He suggested thinking about creative revenue solutions, such as different forms of congestion pricing. He noted that in the United States, it’s premature to eliminate the idea of cordon pricing, wherein drivers are charged a fee for driving in a congested area, because cities in the U.S. have not yet tried to implement it. He suggested also considering wealth taxes, fuel taxes, green zone taxes, or even tying vehicle registration fees to the price of the vehicle rather than a flat fee.
The COVID-19 pandemic accelerated already declining ridership trends, Schank said. Transit agencies, which historically moved people to business centers and back, must now do a better job at getting people between neighborhoods and to surrounding communities. In his conclusion, Schank urged transit agencies and planning agencies to push for a clearer mission: Transit cannot continue down the same path and expect different results.