Sunday, January 28, 2007

The RTA Act (Budgeting): What Were They Thinking?

The core RTA functions are set out in Article IV of the RTA Act. Review and approval of the service board operating budgets is one of those key RTA function. That process is set forth in sections 4.01(a) and 4.11:
  • RTA gives the service board so-called "marks," which are estimates of how much operating subsidies will be available to the service boards during the upcoming fiscal year.
  • The service boards prepare their operating budgets and submit them to the RTA.
  • The RTA board approves the budget by a super-majority (i.e., 9 out of 13) vote.

The budgets of the service boards are combined with the RTA's own budget. The combined RTA budget must meet two requirements. First, the budget must be balanced and sufficient to cover obligations when they come due:

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.

The other key requirement is the farebox recovery ratio. Section 4.01(b) provides in relevant part that the RTA budget must show that:

[T]he level of fares and charges for mass transportation provided by . . . the Service Boards is sufficient to cause the aggregate of all projected fare revenues from such fares and charges received in each fiscal year to equal at least 50% of the aggregate costs of providing such public transportation in such fiscal year.

The balanced budget and farebox recovery ratio requirements were intended to be important pieces of fiscal discipline. They were meant to prevent the service boards from rolling out expensive and underutilized service and then come running to the General Assembly seeking a bailout when operating deficits resulted. (The RTA, of course, sidestepped these requirements in its 2007 budget by writing into its budget a large new operating subsidy from the State of Illinois even though that subsidy is but a gleam in the eyes of the Moving Beyond Congestion proponents.)

The farebox recovery ratio is a contentious subject for the RTA and the service boards. RTA assigns different farebox recovery ratios to the service boards in recognition of their different operating environments. For 2007 those ratios were: Metra--55%; CTA--52%; Pace--36%; ADA paratransit: 10%. The service boards complain about these "inequities." Indeed, in recent years Pace sued the RTA, alleging that the RTA had unfairly raised Pace's recovery ratio requirement.

The farebox recovery ratio requirement also forces the service boards to confront the need to raise fares in order to raise sufficient revenue to meet the requirement. Raising fares is never a popular option in the highly politicized environment in which the service boards operate.

The CTA's 2007 Budget Recommendations (accessible here) has a cogent discussion of the farebox recovery ratio and its effects. (Pgs. 64-66 of 158). The CTA points out that the 50 percent farebox ratio requirement for the RTA system is higher than all but one of 25 other major metropolitan area (New York City). Only two other systems--New Jersey and Philadelphia--have farebox recovery ratios above 40 percent. (See here for some international farebox recovery ratio data.)

The CTA argues that the high farebox recovery ratio is especially hard on bus service because bus service has a higher ratio of operating to capital cost than rail service. Indeed, CTA bus ridership has dropped sharply during the RTA's watch and Pace ridership has failed to grow despite strong population and job growth in its service area.

The CTA also points out that the subsidy per ride in the RTA region is among the lowest in the nation. It argues that the relative lack of public support, coupled with the pressure to raise fares and/or reduce service to comply with the farebox recovery ratio, has put a strong downward pressure on ridership, especially on the bus side.

Both the high farebox recovery ratio and the low per ride subsidy may be a function of the sheer size of the RTA system. Generally speaking, the larger the system the higher the farebox recovery ration and the lower the per ride subsidy. This is just a reflection of the economic benefits of scale.

Nonetheless, the CTA's critique of the farebox recovery ratio will have to be taken into account by the General Assembly. As the CTA admits in its 2007 Budget Recommendations, its farebox recovery ratio will drop to 45 percent by 2009, dragging the RTA as a whole below the 50 percent level mandated by the RTA Act.

While the Moving Beyond Congestion proponents no doubt would welcome repeal of the farebox recovery ratio plus a big new operating subsidy, would it be prudent for the General Assembly to repeal all of the financial performance requirements written into the RTA Act. Indeed, the RTA's provocative disregard for the existing requirements, however justified in an effort to preserve the existing public transit system, may prompt the General Assembly to strengthen those requirements.

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