The Regional Transportation Authority of Illinois is warning of a looming funding crisis in 2021 as its service boards exhaust federal relief that provided a lifeline to weather the COVID-19 pandemic’s tax and ridership blows.
The agency’s service boards — the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service — plan to carry about $540 million of their $1.4 billion share of federal CARES Act funding into 2021 but it won’t fully offset combined drops in operating aid from taxes and system-generated revenue.
The CARES Act, passed in March, provided $25 billion for transit nationally but transit agencies nationwide say their pandemic-caused problems endure as chances of new relief legislation before the November election diminish.
The Chicago agencies project a $400 million deficit in the absence of more federal dollars. The RTA is hopeful that the $32 billion for transit in the House-passed HEROES Act ultimately comes to pass.
“We keep working and keep watching … but without more federal relief everyone recognizes that a transit funding crisis is on the horizon,” RTA executive director Leanne Redden told board members last week. The agencies run on a combined $3 billion operating budget.
The CARES funds are covering a more than $900 million blow to tax and farebox revenues caused by pandemic this year. The estimated hit includes a 50% reduction in farebox revenue and an additional cut in RTA’s share of sales tax revenues, two big pieces of transit funding. Final numbers won’t be known be until the year ends, but the sales tax hit through August has so far been slightly less what was expected in the spring when an amended 2020 budget was adopted.
The board last week formally set 2021 operating and capital funding marks for the service boards that fall under its fiscal oversight. Budget proposals from the three will be folded into an RTA budget plan that will receive a final vote in December.
Public funding for the year is expected to total $1.4 billion, down from $1.84 billion anticipated before the pandemic’s economic shutdown began in early 2020. That doesn’t include farebox and other system revenues.
Transit funding struggles prompted S&P Global Ratings to move the outlook on its AA rating of RTA to negative from stable last week.
“The negative outlook reflects that we expect sales tax revenue collections to be pressured in the coming months, and potentially beyond, due to recessionary pressure,” said S&P analyst Helen Samuelson. “The GO bond rating could be downgraded if actual revenue materially underperforms current projections. We believe the risks facing the RTA during the next year will be key to its future rating direction.”
Moody’s Investors Service in May moved the CTA and RTA’s outlook to negative from stable. Moody’s affirmed the RTA’s sales tax bonds at A2 and downgraded the RTA’s general obligation variable rate bonds to P-2 from P-1 because that rating is capped based on the RTA’s long term rating and outlook.
“The authority faces diminished sales tax receipts and potential reductions and likely delays in payment of subsidy funds by the state of Illinois as a result of the coronavirus pandemic,” Moody’s said in May. “These factors will increase financial pressure on the authority.”
RTA bonds are secured primarily by its regional sales taxes collected in the 3,700-square-mile area that includes Chicago, suburban Cook County, and adjacent counties. If revenues fall short, the RTA can use other available funds, so its debt is considered a general obligation pledge.
Moody’s affirmed the CTA’s ratings and moved the outlook to negative from stable on the A3 rating assigned to the CTA’s sales tax revenue bonds, and the CTA’s Public Building Commission of Chicago bonds backed by CTA lease payments, rated Baa1. Moody’s also affirmed the CTA’s federal grant receipt revenue bonds, rated A3 with a negative outlook.
The public funding portion of the RTA and its service boards’ budget for 2021 which comes from various tax sources led by the sales tax totaled $1 billion through August, down 6% through the same period last year but about 2.8% than expected in the amended budget.
The RTA said last week the state is about $238 million in arrears on aid payments. Short term borrowing costs to manage through the delays totals about $3.9 million so far this year, Redden said. The agency has $400 million of short-term borrowing authority.
Ridership projections for next year remain clouded; through August they were at 52.5% of 2019 levels. That was slightly better than the amended budget anticipated by 2.3%. The CTA has maintained a full service schedule while Metra has trimmed service. Operating revenue so far this year totaled $728 million, $30 million below the amended budget projections.
The RTA expects to spend $6.2 billion on capital projects over five years but those numbers hinge in part on the state staying on course with the $45 billion capital program it approved in 2019. It relies on new gambling tax revenue and a motor fuel tax hike to support pay-as-you-go funding and repay borrowing and both have been stung by the pandemic.
The RTA’s capital plan counts on federal funds to cover about half the price tag with state funding making up about one-third of the pie. The state’s capital budget provides $2.6 billion for public transit projects and projects $227 million of new annual revenue for five years.
The RTA and its service boards had entered 2020 on more solid footing, despite ongoing ridership declines, due to expected capital funding and stabilized state funding support. Fitch Ratings in December raised the RTA’s rating to AA-plus from AA on its $1.7 billion of outstanding general obligation bonds and cash flow notes and assigned a stable outlook.
The CTA sold $880 million of new money and refunding sales-tax backed bonds in August.
Ahead of that deal, S&P affirmed its A-plus rating on the second lien sales tax bonds and AA on the senior lien. Kroll Bond Rating Agency affirmed its AA-minus and AA ratings on the two liens. Both agencies assign a negative outlook.
“The negative rating outlook reflects the uncertainty regarding the magnitude and tenor of the impact on sales tax revenues due to the COVID-19 crisis and the duration of recessionary conditions,” Kroll said in moving the CTA outlook to negative in April.
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October 20, 2020 at 12:20PM