Sunday, December 17, 2006

Hopeful Anticipation

The RTA Act directs the RTA to adopt an annual budget that meets the following criteria:

The budget shall show a balance between anticipated revenues from all sources and anticipated expenses including funding of operating deficits or the discharge of encumbrances incurred in prior periods and payment of principal and interest when due, and shall show cash balances sufficient to pay with reasonable promptness all obligations and expenses as incurred.

70 ILCS 3615/4.01(b).

As the Chicago Tribune reports, however, the RTA Board has adopted a budget with a "a $226 million shortfall that officials hope state lawmakers will address early next year." (The 2007 RTA budget can be accessed here.)

I guess a hoped-for State bailout much larger than the State bailouts of the past two years can technically count as "anticipated revenue" within the meaning of the RTA Act. Nonetheless, I suspect the drafters of the RTA Act had something else in mind, namely, a budget built upon known revenues as opposed to revenue completely subject to the vagaries of Springfield politics for which there is no recent precedent.

Perhaps it would have been reasonable for the RTA to have anticipated receipt of a State bailout in the range of what the State provided in past two years, about $54 million each year. To assume that a bailout over four times as large as past two bailouts will be forthcoming substitutes wishes for reasonable anticipation.

The RTA's failure to confront the financial problems of the service boards in a comprehensive and forthright manner in past years is to blame for this budgeting stratagem. For years the RTA insisted that the financial challenges facing the CTA and Pace could be dealt with within the framework of the current legal and institutional arrangements. How wrong it was.

The RTA's strategy presumably was to put off the day of reckoning for Metra--which appears to be the favored service board in terms of both operating and capital funding--and the collar counties, whose RTA sales tax rate is only one-fourth of the rate in Cook County. Now that control of the State legislature is squarely in the hands of the Democrats, this strategy may backfire big time.

The RTA's failure to seek a solution to the transit funding issue will put a particular strain on riders and the system if the State does not come through with all of the money the RTA and its Moving Beyond Congestion allies seek. That is because the RTA and the service boards will wait until the end of the legislative session to implement whatever service cuts and/or fare increases that are necessary to respond to any shortfall in the State bailout. These adverse consequences thus will be concentrated in the second half of the year as the RTA and the service boards scramble to meet their balanced budget and farebox recovery ratio requirements.

While haste makes waste, the RTA's ostrich-like response over the past five years or so to the financial problems facing the region's public transit system will impose its own costs.

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