More Money For The CTA: Hold On Says IPI Study

From reading his column I have always imagined that Dennis Byrne, the Chicago Tribune columnist, channels the spirits of Lenora Helmsley and George Wallace. Yet, Byrne's column in today's Tribune lambasting the Chicago Transit Authority does us a real service by pointing us to a new analysis of CTA spending and operations by the Illinois Policy Institute.

We have recently compared the CTA's bus system's performance to the performance of Pace's bus system and found that Pace's system appeared to be more cost effective on every measure examined except public subsidy per passenger. The IPI analysis compares the CTA's performance today to its past performance. Here are some of the key findings:

• Rail ridership is up 25%, from 152 million to 190 million since 1979.

• Bus ridership has plummeted by 45%, from 552 million to 304 million since 1979 and overall ridership is down 23% since 1969/70. Bus operations are a key area ripe for improvement.

• The average CTA employee today is less productive than the average CTA employee in 1969 or even 1979. This is illustrated in a number of ways. Spending (cost) per rider is up 41% from $1.55 to $2.19 since 1969/70 and up 31% (from $1.67) since 1979. Correspondingly, riders per employee are down, from 56,299 per employee to 45,292 since 1979. The bottom line is that today’s CTA spends more to deliver a rider and each employee delivers fewer per year on average. This is a root cause of the CTA financial crisis and most of it rests within the bus operations.

• By achieving the 1979 spending benchmark alone ($1.67 per rider), the CTA would save $257 million and more than close the funding gap without having to ask the taxpayers for more.

• By achieving the 1969/70 spending benchmark ($1.55 per rider), the CTA would save $316 million per year.

• The CTA is earning more system (non-subsidized) revenue per rider today than it was in 1979, $1.13 versus $.88, an increase of 28% and certainly a step in the right direction.

• Advertising and concession revenue are up 478%, from $4.3 million to $25 million.

• The public subsidy per rider is up 35% since 1979, from $.79 to $1.07. The taxpayers are more than doing their part in subsidizing the CTA’s operation.

• This 35% increase in the public subsidy on a per rider basis illustrates the fallacy of the CTA public relations and budget document claims that the CTA’s pubic subsidy has not kept pace with inflation. While that fact is true in total dollars, it is a misleading fact since the key data point is the subsidy per rider. In fact, one could make the case that the subsidy is excessive by $138 million ([$1.07 - $.79] x 494 million riders for 2007).

• Bus operations are a key area for improvement. While ridership is down 45% since 1979, total miles driven per year is only down 14%, from 83.5 million to 71.9 million. Further, the total route miles covered (the aggregate miles of the route map) has more than doubled, from 1,042 route miles to 2,529 route miles in 2007. This is unsustainable and the underlying reasons for this must be addressed.

• Today the CTA runs 154 bus routes versus 134 in 1979, an increase in routes and corresponding expense of 15% while ridership fell 45%.

• The bus operations data indicate that in 1979 the CTA operated a tightly focused, more market sensitive route map with more traffic per bus per route operated and bus run made. Today, with the route miles up 143%, it appears the CTA is running too many route miles for too few riders, making the bus system inefficient.

The IPI then makes a series of recommendations that it claims can save the CTA more than the $158 million deficit it faces in 2008.

IPI's short and cogent analysis is well worth a read. It challenges the conventional wisdom that a series of unfortunate events has overwhelmed the CTA, Metra and Pace, necessitating greater public subsidies. Instead, the analysis suggests that the bailouts past and present have allowed the CTA to avoid taking the steps necessary to prudently manage its business.

More On The Budget Holes: Metra

Metra has adopted its 2008 budget and sent it to the RTA for its approval. (Reports here, here and here.) A $40 million projected 2008 deficit is prompting Metra to increase fares by 10 percent, commencing February 1, 2008.

The final version of Metra's 2008 is not yet available on Metra's website. An earlier draft, however, is available (here) and allows us to complete the analysis of the deficits of the three service boards, the Chicago Transit Authority, Pace and Metra.

Not surprisingly, the data (see below) show that Metra's deficit is less severe than the CTA and Pace deficits when measured as a percentage of revenue and operating expense. Metra's per trip unfunded deficit ($0.49) is between the CTA's per trip unfunded deficit ($0.32) and Pace's per trip unfunded deficit ($0.85). Note that the service board ridership data appear to define "trip" as an unlinked trip (e.g., getting on and off a bus/train) rather than the full journey, including transfers, between the customer's origin and destination. Metra's customers probably are more likely to take one ride to their destinations than Pace and, especially, CTA customers. Thus, if "trip" is defined as the travel necessary for a customer to get from their origin to their destination the Pace and CTA per trip unfunded deficit figures would likely rise more than the Metra unfunded per trip deficit figure.

CTA
Unfunded 2008 Deficit: $158,000,000
2007 Expenses $1,079,052,000
2007 Revenue: $541,800,000
2007 Ridership: 493,600,000

Unfunded deficit as a percentage of expenses: 14.6%
Unfunded deficit as a percentage of revenue: 29.2%
Per trip unfunded deficit: $0.32

Metra

Unfunded 2008 Deficit: $40,000,000
2007 Expenses $553,980,000
2007 Revenue: $285,060,000
2007 Ridership: 82,000,000

Unfunded deficit as a percentage of expenses: 7.2%
Unfunded deficit as a percentage of revenue: 14.0%
Per trip unfunded deficit: $0.49

Pace
Unfunded 2008 Deficit: $32,900,000
2007 Expenses: $164,757,000
2007 Revenue: $56,435,000
2007 Ridership: 38,900,000

Unfunded deficit as a percentage of expenses: 20.0%
Unfunded deficit as a percentage of revenue: 58.3%
Per trip unfunded deficit: $0.85

Transit Funding Alchemy?

Crain's reports that the Governor and some legislative leaders "are talking about a long-term funding plan to bail out Chicago-area mass transit agencies." According to the Governor, the plan will not include a tax on working people, i.e., the sales tax increase that is built into SB 572.

WBEZ' report on the mystery plan includes:

Illinois Governor Rod Blagojevich says he's backing a new plan to fund mass transit without raising sales taxes. The plan, supported by House Republican Leader Tom Cross, has not been released. Blagojevich declined to give any details.

BLAGOJEVICH: You'll hear about it when we work it out with our... We got a coalition of other legislative leaders that we're working with and I just think it's important for all of us to agree to do it at the same time.

Blagojevich says he wants to announce the mass transit plan with State Senate President Emil Jones. But a spokeswoman for Jones says the president has only heard rumors of the plan.

The smart money at the office is that the mystery plan is to tap into money from new casinos.

An earlier WBEZ report quoted Representative Tom Cross as suggesting that fare increases may be part of the mix: "Cross says it's not unreasonable for the CTA to raise fares since gasoline prices have also gone up."

Information, ideas and speculation (but not snark) welcome.

The RTA Sales Tax And Its Limits: Lack Of Diversification

The following comment to a recent post on the risks associated with fixing the current transit funding problem with more of the same--namely, a hike in the RTA's sales tax--struck me as right on:

Justin said...

An excellent argument for the inadequacy of the sales tax. Here's another argument against SB572: it puts all the RTA's eggs in one basket.

Practically, any good investor will distribute her capital across a number of stocks or bonds to spread her risk, and transit agencies are no exception. Theoretically, public transportation provides measurable benefits to a variety of beneficiaries, implying that a "rational" or tailored subsidy structure would include a similar variety of revenue sources. Most agencies, like the RTA boards, have some control over their fare revenues, yet depend on others for the rest. To spread the risk of one funding source going sour, transit agencies should seek to derive major revenues from at least two or three different sources, preferably even more.

For instance, the MBTA gets revenues from roughly two sources: state sales taxes, and local assessments which are largely paid from property taxes. Many European transit agencies' funds originate from multiple levels of governmental jurisdictions, many of which share revenues and which are derived from a mix of Value-Added Tax, income tax, and business taxes. New York's operating subsidies come from a wide variety of taxes and jurisdictions ultimately based on the real estate market, businesses, petroleum use, and a sales tax in southern Connecticut, suburban New York State, the outer boroughs, and Manhattan itself. (There's an even an old post on this blog somewhere about the variety of MTA's subsidies, I think). [Old post here.]

By contrast, excessive reliance on a single source for operating subsidies is theoretically less than ideal, and risky and frustrating in practice. By continuing to rely solely on the sales tax, the RTA may soon regressing to doomsday.

Indeed, other robust transit agencies have been able to respond to cutbacks in subsidy from one source by substituting other sources. In Europe, these shifts often took place in the context of political decentralization, where the devolution of fiscal autonomy from central governments to regions appears to have caused an increased level of transit capital funding. U.S. transit agencies have responded to the cutback in federal operating subsidies with gradually higher state and local funds.

To echo Davey's comment, discretionary spending on consumer goods may decline quickly during an economic slowdown, yet cities rely on public transit to provide low-cost mobility even in hard times. In addition, sales taxes tend to be regressive, exacting a higher proportion of income from those least able to pay.

I agree with the Moderator that a long-term funding solution should look beyond the sales tax for theoretical and practical reasons. Taxes on real estate, parking, or (even better), road tolling are the way to go. Or the RTA comes hat in hand in a few years to a populace that won't want to hear it.

The Puzzling Persistence Of The Sales Tax Increase As The Preferred Funding Solution

Tuesday's apparently desultory hearing by the House Mass Transit Committee into alternatives to an increase in the RTA sales tax and the continued efforts to push for passage of SB 572 with that tax increase in place prompts the question--what is so great about relying on the sales tax as the primary source of transit funding in Northeastern Illinois?

As the CTA points out, its sales tax funding base has failed to keep pace with inflation over the past twenty years:

CTA has grappled with a steep decline in inflation-adjusted funding levels. CTA’s public funding for mainline bus and rail operations trailed inflation by approximately one percent every year. If funding since 1987 had kept even with inflation, the CTA would have received cumulatively $1.6 billion more to operate its buses and trains.

The situation has been deteriorating in recent years:

The CTA’s public funding is growing at a much slower rate than related expenses. Public funding levels only increased by four percent over the past five years and trailed inflation, which increased by 11.3 percent in the same time period. By comparison, CTA has also experienced substantial cost increases in fuel, materials (due to a lack of capital funds) and security.

If that is not enough, the RTA is reducing the CTA's public funding mark for 2008 by $14 million compared to this year's mark, surely a reflection of larger problems with the adequacy of the RTA sales tax as a funding source.

The CTA accounts for about 80 percent of the transit ridership in the region. Pace's financial condition is no better and it is on the path to a doomsday of its own. Even Metra, which for years was living high on the hog with more sales tax money than it could spend on operations, is making dark threats of a 20 percent fare increase and major service reductions. Clearly, the existing sales tax funding base is insufficient to serve the current needs of the transit system.

The inadequacy of the sales tax as the near-exclusive funding base for public transit in this region is illustrated by a simple fact. The RTA system relies on the same sales tax funding base that it did in 1985. Yet, even though that system now carries 20 percent fewer passengers than it did then, it is in a financial crisis. In other words, the same sales tax base cannot support a transit system that is 20 percent smaller than it was 20 years ago.

The inadequacy of the sales tax base is even more dramatic when considering the transit system's market share. Given the growing and sprawling population in the region, transit's market share declined even more sharply than its 20 percent decline in ridership. Clearly, the current sales tax funding base could not support transit's more robust 1987 market share if that market share magically reappeared since it cannot support even today's shrunken market share.

There is nothing wrong in the short term to increasing an already inadequate sales tax. Yet, the same factors that have made the growth in the existing sales tax inadequate will continue to work on the increased sales tax as well. The same cost factors--labor, fuel, pension, security--and possibly a few others that have outpaced the growth in sales tax revenue will almost certainly eat up the sales tax increase before too long. SB 572, if enacted, only postpones the day of reckoning resulting from the region's over reliance on the sales tax to fund public transit.

The real estate transfer tax built in SB 572 is a good starting point to diversifying the public transit funding base. Maybe that tax should be expanded throughout the six-county region under the rationale that travelers and property owners in all counties benefit from the congestion relief and other benefits associated with transit. A parking lot tax, increased auto registration fee, congestion pricing, a gas tax increase, and the like make up a menu of alternatives to a sales tax increase (or supplements to a smaller sales tax increase).

Let's for the moment assume, however, that SB 572 passes as is. How long will it be before the service boards and the RTA eat up the incremental sales tax revenue generated by the tax increase and start rolling out the next set of doomsday scenarios?

Predictions please.

New Funding Sources--Quick Ideas

Representative Hamos has issued a challenge to identify public transit funding sources other than an increase in the regional sales tax that the Governor has pledged to veto. Many of the comments thus far have been of the crackpot "tax the Machine" variety. Here's a few quick ideas before I attend to the chores.

Real Estate Transfer Tax: The Governor's opposition to SB 572 seems focused more on the proposed sale tax increase than on the imposition of a real estate transfer tax in the City of Chicago. The proposed real estate transfer tax covering all of the City of Chicago thus remains. The tax is extended to the collar counties in a limited fashion, applying only to real estate located within one mile of a CTA or Metra train line that is in operation or identified as a project in the FTA's New Starts program (e.g., STAR Line). Such a tax recognizes that public transit rail investments increase property values in the surrounding area and captures a small portion of that increase. Yield: $150 million.

Parking Lot Tax: For reasons that will be covered in a later post, a tax on parking spaces might make good sense. The RTA estimates that a $100/year tax on unpaid commercial parking spaces alone would raise $100 million. There may be better approaches as well. Such a tax promotes more efficient use of parking spaces, which has positive environmental benefits (parking lots have terrible environmental consequences and are empty most of the time). Such a tax encourages employers to provide "Commuter Choice" tax benefits to employees--allowing employees to buy transit using pre-tax dollars at a substantial saving and allowing employers to reduce their investment in parking spaces. Yield: $100 million.

Vehicle Registration Fee: Cars in the six-county region impose a cost that they generally don't elsewhere in the State, namely, they add to congestion that is adversely affecting the region's--and hence the State's--economy. Thus, vehicles in the six county region pay a higher registration fee. According to the RTA, a mere $10 increase raises $50 million. Let's add a $30 fee and raise $150 million. It is a condition of registration that each car in the six-county region have an I-PASS (see below). Yield: $150 million.

Bridge Program: The Illinois State Tollway would be directed to install I-PASS toll collection points on bridges on state highways and the interstates (to the extent allowed by federal law) over major rivers (e.g., Fox, Des Plaines, Chicago). After deducting its fully loaded costs the Tollway would turn the money over to the RTA. The net proceeds would be distributed as follows: (a) one-third goes to a fund dedicated for the repair, rehabilitation and replacement of highway bridges; (b) one-third goes for transit; and (c) one-third goes to the municipality or municipalities in which the bridge is located for local highway or transit (e.g., demand response service) purposes. Local governments could toll other bridges in their jurisdiction if (a) the RTA approved of the toll rate as consistent with regional bridge toll rates and (b) the proceeds were shared as described above.

The bridge program provides a framework for congestion pricing and a steadily increasing revenue stream as more cars over more bridges get tolled. Raising money for bridge repairs is a relatively easy sell these days, after the Minneapolis bridge collapse. The fact that the locals would get a cut of the bridge tolls would help make the program more palatable in the trenches. Yield: Substantial. Potentially several hundred million dollars each year.

These four approaches to raising money are much more closely tied to transportation than a sales tax increase. The real estate transfer tax captures a portion of the value generated by transit investment and service. The parking lot tax passes on to property owners and ultimately drivers the externalities associated with parking lots and, by extension, driving (e.g., runoff from parking lots). The same holds true with an increase in the vehicle registration fee. The bridge tolling program allows the region to develop an infrastructure for congestion pricing, possibly the most effective tool of traffic management, as well as fund key infrastructure, transit, and locally-run transportation programs.

A Resumed Search For Transit Funding Alternatives

This blog urged weeks ago that the proponents of increased transit funding take the Governor's resistance to a sales tax increase seriously and look for other funding options. The House Mass Transit Committee is set to do just that. It has scheduled a public hearing next Tuesday, October 9th, at 10:00 a.m. at the Harold Washington Community College, 11th floor, at Lake and Wabash Streets in Chicago.

In an email to interested parties Representative Julie Hamos, the chair of the Committee, stated that "the subject matter of this hearing is the 'Need for Long-Term Operations and Capital Funding for State Mass Transit Systems'”.

Representative Hamos states that the Committee is looking for alternatives to an increase in the RTA sales tax:

We will welcome specific suggestions for revenues to replace the sales tax increase contained in SB 572 to fund RTA operations for the long-term. As you know, the Governor has taken a public position against the modest 1/4 of 1% sales tax increase in SB 572, which would be added in the 6-county RTA region to the existing regional sales tax that has been in place as the chief revenue base for transit operations for the last 24 years. Any suggestions for a sales tax alternative should meet the following requirements:

• Must generate $280 million in the first year, beginning immediately, with some growth each year

• Must be relatively stable, without great fluctuations from one year to the next

• Must maintain regional balance – without one area of the region bearing disproportionate responsibility for producing the revenues

• Should be generated from within the region – unless it is logical, practical and politically feasible to have downstate or statewide sources support RTA operations

• Should not be subject to the unpredictable state budgeting or appropriations process

Note that one of Representative Hamos' prerequisites is that the funding source "must generate $280 million in the first year, beginning immediately, with some growth each year." It appears that "some growth" is a bit of an understatement. The RTA announced today that the CTA, Metra and Pace are facing a $408 million operating deficit in 2008. This deficit represents 20% of the combined operating budgets of the service boards and is double this year's deficit.

Representative Hamos' invitation to search for funding alternatives is a bit snippy. Note in this regard the statements that the Governor's "public position" is against a "modest" increase in the RTA regional sales tax "that has been in place . . . for the last 24 years." The failure of SB 572 to gain political traction no doubt is very frustrating. Nonetheless, let's take seriously her request for bona fide alternatives to a sales tax increase that is unpopular in some quarters. (Bake sales don't count.) Post your ideas here, send them to Representative Hamos at julie@juliehamos.org and show up at the hearing and testify.