Illinois RTA preps budget, plans for an infrastructure windfall

BY SourceMedia | MUNICIPAL | 11/30/21 08:45 AM EST By Yvette Shields

The Illinois Regional Transportation Authority and its service boards head into 2022 on a stable path smoothed by federal relief and rising sales tax revenue that allows them to prepare for an expected federal infrastructure windfall.

The RTA board, which provides fiscal oversight of the Chicago Transit Authority, Metra commuter rail and Pace suburban bus service, will vote on a roughly $3.4 billion budget at its December 16th meeting. All three service boards are using federal relief to fill budget gaps and avoid service cuts as transit ridership remains well behind pre-COVID-19 pandemic levels.

The service board budgets aren?t yet factoring in federal dollars expected to flow from the Infrastructure Investment and Jobs Act President Biden signed in November but officials have begun sizing up how the boards can put their share of the funding to use and compete for additional grants.

?We are estimating this infrastructure bill will provide an additional $1.3 billion, yes that?s with a B, in additional formula funding over five years for the larger Chicago urbanized area,? RTA Executive Director Leanne Redden told board members at their November meeting before going over service board budgets. ?This investment is historic. It is heartening and will have a real meaningful impact to our region.?

The nearly $107 billion to be distributed nationally over five years for public transit represents a 63% increase from existing formula funding spending levels, Redden told the board.

Redden said officials were still awaiting federal guidance on funding allocations, but in addition to the $1.3 billion, the package reauthorized more than $2.7 billion of federal formula funding for the region. The package doubles capital investment grant allocation to $23 billion, a form of funding that the Chicago Transit Authority has shared in to fund its larger-scale projects. It sets state of good repair annual funding at $300 million annually for up to three recipients and establishes a new $1.75 billion program to promote station accessibility.

Overall, Illinois expects to receive $17 billion for transit, roads and bridges, water infrastructure and that?s not counting competitive grant funding.

The CTA considers the more than $2 billion extension of its Red Line heavy rail a priority project that would likely be at the front of its line for new federal funding. The $2.1 billion first phase of rebuilding the Red Line along with its adjacent Purple Line on the north side of the city is in place with more than half coming from federal grants but full funding is also needed for future phases.

The federal infusion could also speed up the purchase of electric buses and ADA upgrades and fund projects like Blue Line upgrades.

The RTA?s $3.4 billion operating budget is up 4.6% from what the agency expected to spend in 2022 under its pre-COVID 19 pandemic financial plan. ?Federal relief sustains transit through the pandemic,? reads RTA budget documents.

The budget assumes ridership levels will remain around half of pre-pandemic levels. No fare increases are being sought and some reductions are even planned.

Over the past two years, the RTA has allocated $3.37 billion in federal relief to the service boards to make up for COVID-19 hits to public funding and operating revenues. That includes $1.4 billion from the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act; $486 million from the Coronavirus Response and Relief Supplemental Appropriations Act known as CRRSAA; and $1.5 billion from the American Rescue Plan Act known as ARPA.

Some tussles over allocations have occurred but were resolved before the presentation of the service board budgets.

?With these relief allocations, the RTA estimates that operating budgets for CTA, Metra, and Pace will be stabilized through the third quarter of 2025, removing the region from the emergency funding mode it has experienced since the beginning of the pandemic,? the RTA said, adding that higher sales tax collections should also help as ARPA funds are depleted.

?However, those dollars will not be able to sustain the regional transit network indefinitely. It is imperative that, using the regional transit strategic plan as a guide, the RTA and Service Boards chart a course toward reliable and sustainable transit funding,? the documents warn.

The aid has proved a lifeline for the CTA, the authority?s president, Dorval Carter, told the RTA board. Aid will cover much of what was a $456 million operating gap heading into 2022.

?Fortunately we have been able to offset the unprecedented loss of fare revenue thanks to the federal relief funds? allowing the agency maintain service levels the region relies on, Carter told the board.

CTA ridership is approaching 60% of pre-COVID levels. The authority is making permanent some fare reductions tried out in a pilot program to provide ridership incentives.

While depressed farebox revenue has strained budgets, RTA sales tax that make up the other large piece of the service board budgets is faring better than previously expected and has hit record levels.

RTA sales tax collections of $1.38 billion are expected this year, rebounding 19.8% from COVID-impacted 2020 results. The improvement is due in large part to the online sales tax that took effect last January.

?This unique situation has created an asymmetry in the regional funding model that aims to balance revenue from fares with revenue from public funding to cover operating expenses, measured by the recovery ratio,? RTA budget documents say.

Illinois lawmakers signed off during their fall veto session on a measure that protects state funding levels by waiving through fiscal 2023 farebox recovery ratio requirements that mandate fares generate a certain portion of operating revenues.

The $5.26 billion five-year capital program is down 17% from pre-pandemic plans although new federal infrastructure dollars are not yet counted.

?The decrease is because Rebuild Illinois bond funds ? more than $2 billion ? were programmed and granted to the Service Boards in 2020 and 2021, though projects will continue to be delivered over the next five years,? RTA documents say. ?As the Rebuild Illinois bond funding is drawn down, the RTA will need to explore other reliable capital funds to maintain the region?s transit system.?

Rebuild Illinois is the state?s $45 billion capital program adopted in 2019. It did not grant any new borrowing capacity for the RTA but it did earmark state bond proceeds and pay-as-you-go funding to the RTA.

The capital budget relies on 14% of funding from $737 million of CTA borrowing including $332 million planned for 2022, 2.5% from $130 million of RTA bonding proceeds, with 61.5 % covered by federal funds, 21.6% from state funds and other sources making up the remainder.

Financial concerns that drove negative rating outlooks have lifted.

The RTA rode favorable rating news into the market earlier in the fall when it sold $94 million of taxable general obligation refunding bonds. The CTA, too, has seen its ratings stabilize.

S&P Global Ratings moved the RTA?s outlook to stable from negative in September and affirmed its AA rating. Worries over the RTA?s ability to manage the pandemic?s storm had triggered an outlook change to negative from stable over the summer of 2020.

"The outlook revision to stable reflects our view of RTA's stabilizing underlying creditworthiness, supported by its resilient pledged revenue performance," said analyst Helen Samuelson.

In May, S&P revised its outlook to stable from negative and affirmed its AA on the CTA?s senior lien and A-plus on second lien sales tax bonds.

Fitch Ratings in September affirmed the RTA?s AA-plus rating and stable outlook.

Moody?s Investors Service in July raised the RTA?s GO rating, which is primarily backed by its regional sales tax, to A1 from A2 with a stable outlook. Moody?s action followed its upgrade of Illinois? rating by one notch to Baa2.

Moody?s in July also raised the CTA?s sales tax revenue bonds to A2 from A3 and revised the outlook to stable from negative citing the RTA and state?s improved ratings.

Kroll Bond Rating Agency in August affirmed the CTA?s AA and AA-minus ratings on the first and second lien sales tax bonds, respectively, and revised the outlook to stable from negative reflecting the ?diminished uncertainty regarding the magnitude and tenor of the impact of the COVID-19 crisis on sales tax revenues.?

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