Tuesday, February 27, 2007

Time for an Emergency Oversight Agency?

Yesterday's Chicago Tribune editorial argues that the RTA needs to be radically revamped in order to be effective. As the last post demonstrated, Representative Hamos' new bill will not accomplish that task. It is limited in scope and does little more than repackage the powers that the RTA already has under the RTA Act but has chosen not to fully exercise.

Overview of Emergency Oversight Agencies

When public agencies (1) have been financially mismanaged, (2) are faced with serious operational problems, and (3) have lost the public's confidence in their ability to fulfill their responsibilities, emergency oversight agencies are sometimes created and vested with extraordinary powers to set things right. These oversight agencies often take drastic and politically unpopular measures and then hand back authority to the agency once financial and operational conditions have stabilized.

Three examples come to mind--(a) the Municipal Assistance Corporation, the New York City financial oversight and funding agency chaired by Felix Rohytan in the mid-1970s when NYC was facing bankruptcy and, closer to home, (b) the Illinois School District Financial Oversight Panels, which step in when school districts get into serious financial trouble. and (c) the Chicago School Board takeovers of a poorly performing school from the local school council responsible for that school pursuant to section 34-8.3 of the School Code (105 ILCS 5/34‑8.3).

These oversight bodies typically work as follows. They are situated as a conduit through which the troubled agency can tap into new money. They are also empowered, usually statutorily but also as a practical matter through negotiation of bond covenants and operating funding agreements, to force the troubled agency to make improvements to its systems and operations as a condition of receiving this new money.

Oversight agencies are given review and veto power over budgets, major personnel decisions, new capital investments, and the like. By having both the carrot of new money plus the stick that comes with such oversight powers, the oversight agency can often break the political deadlocks and dysfunctional institutional cultures that stand in the way of necessary changes.

Regional Transit Problems Qualify For Such Oversight

As the Tribune editorial and others of its kind (here and here) indicate, the three conditions for an oversight agency are present with respect to the region's public transit system.

First, the RTA and service boards are in a financial crisis, as they face large and growing operating deficits and a shortage of capital that is severely compromising the CTA system.

The RTA has largely escaped responsibility for this financial crisis, when it should shoulder much of the blame for at least the looming operating deficits. Financial crises don't come out of nowhere. For the past several years the RTA has allowed the service boards--especially CTA and Pace--to spend beyond their means in order to maintain their service levels. The RTA has done so even though the RTA Act gives it the power to reject service board operating budgets (and capital plans) that are financially imprudent.

It may be admirable for the service boards to try to live beyond their financial means in order to provide the public with the most public transit possible. It clearly is not the RTA's role as a financial oversight agency, however, to enable such behavior.

The RTA Act provides a dedicated funding source--the RTA sales tax--for public transit in the region and sets forth certain financial performance measures such as balanced budgets and farebox recovery ratios that the RTA is supposed to use to enforce an appropriate level of financial discipline. The General Assembly, in other words, tasked the RTA with the responsibility for making sure that the level of transit service provided by the service boards matches the available financial resources

The RTA's 2007 budget, with its large uncovered operating deficits, illustrates the RTA's failure to provide effective financial oversight. The RTA has failed as surely as school boards in a variety of Illinois school districts have failed to manage their districts' finances and become subject to Illinois school district financial oversight panels.

Second, the RTA and the service boards are faced with serious operational problems. These include the plague of slow zones on the CTA rail lines, the burgeoning costs of providing ADA paratransit, labor cost and work rule challenges, failing pension systems, and the like. The upcoming Auditor General's report will detail these problems.

Third, as indicated by the editorials cited above, there is a crisis of confidence in the ability of the RTA and the service boards to work themselves out the mess they've created (and to be fair found themselves in as a result of the State's failure to provide adequate capital funding).

The regional consensus appears to be that providing more funds will not fix problems that stem from the RTA's leadership failures, the continued rivalries between the collar counties and the City of Chicago, the poor coordination of service, the unseemly competition for federal grants, the lack of rigorous standards for screening proposed new capital investments, and the like.

Introducing NIPTOA

A Northeastern Illinois Public Transit Oversight Authority ("NIPTOA") created along the lines of other oversight agencies might look like this:

-- NIPTOA would have a small board comprised of members picked by the Governor and senior legislative leaders.
-- The NIPTOA board would be empowered to exercise all of the current financial oversight powers of the RTA plus any additional oversight powers vested in it by the General Assembly. The RTA would continue its other functions only to the extent deemed necessary by the NIPTOA.
-- NIPTOA would be able to tap into additional State funds set aside for transit operations, but only upon the NIPTOA's certification that the service boards have made substantial progress toward certain statutorily mandated goals (e.g., fiscal soundness; fare medium compatibility; elimination of duplicative services and personnel).
-- NIPTOA would be able to tap into additional State funds set aside for capital improvements based on similar certifications
-- NIPTOA would have the power to increase and/or equalize the RTA sales tax rates up to certain levels, but only for a limited period.
-- NIPTOA would be charged with recommending to the General Assembly changes in the (a) organizational structure of the transit delivery and oversight systems and (b) funding mechanisms for the regional transit system. NIPTOA's power to increase and/or equalize the RTA sale would end at the earlier of such legislative action or a date certain.
-- NIPTOA would have the power to issue debt using the same cash flow heretofore available to the RTA and would have to approve any debt issues by the CTA (Metra and Pace lack the statutory power to issue debt).
-- NIPTOA would have to approve any applications for federal or state grants.
-- NIPTOA would have to approve any service board collective bargaining agreements and would be prohibited by statute from approving any agreement that prohibited the service board from subcontracting work to third parties.
-- NIPTOA would be empowered to order changes in the fares and/or service levels of a service board if doing so was necessary to preserve the good financial condition of the service board and only after the service board failed to act.
-- NIPTOA would have the power to reject any contract over a certain amount.

This list is illustrative. Final legislation would, of course, have to be very carefully drafted.


The RTA's Moving Beyond Congestion effort's plea for more funding without any fundamental changes in the way the region organizes, funds and operates its public transit service has been decisively rejected. The current financial crisis has exposed the RTA's failure as an effective financial oversight agency. The conditions have been met for empowering an emergency oversight agency to spend the next few years making hard, sometimes unpopular, but still necessary changes to the region's public transit system.

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