The Farebox Recovery Ratio, Senator Watson And RTA Candor

Section 4.09(g) of RTA Act contains a requirement that the service boards--Chicago Transit Authority, Metra and Pace--recover half of their operating costs from fares and other system generated revenue. The three service boards must generate sufficient revenue to meet 50 percent of their operating expenses. This is the so-called farebox recovery ratio. Because of existing exceptions already written into the RTA Act, the actual farebox recovery ratio is significantly lower than 50 percent. That is, public subsidies--i.e., tax revenue--cover significantly more than 50 percent of the cost of operating the RTA system and customer fares (and other system-generated revenue) cover significantly less than 50 percent of those costs.

The purpose of the farebox recovery ratio is to require the RTA and the service boards to step up and raise fares when necessary to keep the public subsidy of the public transit system at roughly 50 percent of the cost of providing the service. It is meant to provide an objective standard upon which the service boards can rely when going through the difficult and unpopular task of raising fares. The recovery ratio reflects the General Assembly's public policy judgment about how much public support the transit system in northeastern Illinois deserves and how much should be paid by the public transit customers.

Senate Minority leader Frank Watson has indicated that he views fare increases by the service boards as a necessary part of the solution to the transit funding problems that have occupied so much time and attention over the past year. He sent a letter to that effect to Jim Reilly, the head of the RTA, about a week ago.

Reilly's reply, available through the Capital Fax Blog (here) or upon request, urges Senator Watson to support SB 572. Reilly responds to Watson's request for a fare increase as follows:

You suggest that a moderate fare increase might be part of the solution. Certainly if the Governor and four leaders agree on that approach we would most definitely implement it but again the Auditor General's report makes it clear that a fare increase alone does not come close to solving the problem. SB 572 does continue the requirement that 50% of the costs of operating transit be received from the farebox so there will be a requirement for fare increases over time.

This statement is incomplete under even the most charitable interpretation of the letter. The RTA, speaking through its Chairman, seems to be telling Senator Watson that SB 572 retains the 50% farebox recovery ratio requirement of the current RTA Act and thus preserves the General Assembly's current policy balance between fares and public subsidies for the support of transit operations.

What the RTA failed to tell Senator Watson is that the current version of SB 572 contains major new exemptions that will mean in practice the actual farebox recovery ratio will fall even farther below the 50 percent farebox recovery ratio that will remain on the statute books. (See pages 206-08 of the bill.)

• First, in calculating the farebox recovery ratio, the CTA and Metra (which SB 572 authorizes to issue up to $1 billion in debt) can exempt debt service from their operating expenses for purposes of calculating the farebox recovery ratio.
  
• Second, SB 572 provides that all passenger security expenses can be exempted from operating expenses, removing the current $5 million cap.
  
• Third, Pace can exclude from revenue grants it receives from the Suburban Community Mobility Fund, which should average $20 million each year under section 4.03.3(c)(i) of SB 572.
• Fourth, SB 572 lops off $200 million in costs from the calculation of the farebox recovery ratio in 2008. This amount of excluded costs reduces by $20 million a year over the next decade (e.g., $180 million in FY 2009).

The combined effect of these exclusions is to make even more illusory the notion that public subsidies and fares will provide equal measures of support for the region's public transit system. These new exclusions also will reduce the pressure on the service boards to raise fares in step with rising costs.

While the RTA may have been technically correct in telling Senator Watson that SB 572 retains the 50 percent farebox recovery ratio, it did its reputation for candor no service by failing to inform him of these major new exclusions and their effect on the proportion of public transit operations paid for by fare-paying customers and the proportion covered by public subsidies via regional and State tax revenue.