Monday, March 19, 2007

Simple Failure--The Audit and the RTA

The recently released audit of the RTA and its three service boards (CTA, Metra, and Pace) by Auditor General William Holland (executive summary here) has no blockbuster findings and is quite even-tempered in tone. Indeed, in a fine example of PR spin, the RTA issued a press release all but saying that the Auditor General had endorsed its Moving Beyond Congestion effort to obtain an additional $12 billion for the region's public transit system over the next five years. (Which is untrue, as an upcoming post will detail.)

In fact, the audit illustrates the profound failure of the RTA to exercise its existing statutory powers and perform its financial oversight responsibilities with respect to the service boards. For example, the audit found that "RTA revenues are insufficient to pay the continuing cost of programs or funding new services." (Executive Summary at 4). It found that "operating costs for the Service Boards have increased over the past five years at 6.5 percent annually while operating revenues have increased only 2.2 percent annually." (Id.) The report found that during the past five years the CTA (pg. 35) and Metra (pg. 36) have been adding service despite virtually no growth in their RTA sales tax revenue base. Pace's current service level is "not sustainable with current revenues." (Pg. 37).

Yet, section 4.11(b)(2)(ii) of the RTA Act provides that the RTA Board will not accept a proposed service board budget unless:

(ii) such budget and plan show a balance between (A) anticipated revenues from all sources including operating subsidies and (B) the costs of providing the services specified and of funding any operating deficits or encumbrances incurred in prior periods, including provision for payment when due of principal and interest on outstanding indebtedness.

If that power was not enough for the RTA to have put the brakes on the service boards spending beyond their means, the current RTA Act provides the RTA more powers to impose and enforce prudent financial measures on the service boards before accepting their budgets. Section 4.11(b)(2)(v) - (vii) of the RTA Act provides that the RTA can insist that the service boards meet financial requirements imposed by the RTA before approving their annual budgets:

The Board shall approve the [service board] budget and plan if:

. . .

(v) such budget and plan are based upon and employ assumptions and projections which are reasonable and prudent;

(vi) such budget and plan have been prepared in accordance with sound financial practices as determined by the Board; and

(vii) such budget and plan meet such other financial, budgetary, or fiscal requirements that the Board may by rule or regulation establish.

As the audit makes clear, for at least the past five years the RTA failed to use these existing statutory powers to stop the service boards from spending beyond their means. Indeed, this year, under a new administration, the RTA nonetheless approved service boards budgets with a $226 million unfunded operating deficit. This gimmick may support the RTA's marketing effort for the Moving Beyond Congestion effort, but it represents a profound failure by the RTA to perform its statutory responsibilities.

The RTA should have rejected service board budgets that were imprudent because they showed spending in excess of available revenue. This may have necessitated painful decisions--e.g., fare increases and service reductions--but it would have avoided the full-blown funding crisis that now confronts the region. As the Auditor General noted in his brief public statement: "To make matters worse, these problems were not adequately disclosed in the annual [RTA] financial budgeting and capital programming process."

Let there be no mistake. The RTA's failure to exercise its existing statutory authority over service board operating budgets is at the root of the current "crisis." What wisdom is there in vesting more powers in an agency that has been so derelict in performing its existing statutory responsibilities?

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