RTA Innocent Victim in William Coulson's "Transit Follies" Piece

William Coulson, a Chicago lawyer who joined the board of the Regional Transportation Authority earlier this year, has posted an article entitled "Transit Follies in Chicago" on the blog of Mass Transit magazine. It is generally rare for senior public officials like Coulson to get off the reservation established by their institution's PR team. This piece, however, reads like it may have been authored by Coulson.

The article is Coulson's historical perspective on the current transit funding situation in the RTA's service area in northeastern Illinois. In the piece he portrays the RTA and the service boards--Chicago Transit Authority, Metra and Pace--as innocent victims of bitter political infighting by politicians unable to put together a deal.

This kind of revisionist history is disappointing from an RTA board member who has signaled at least a bit of an independent streak. It also suggests that the RTA continues to be unwilling to acknowledge its role in causing the current transit funding crisis. The RTA's unwillingness to acknowledge partial responsibility for this crisis no doubt makes it a less sympathetic candidate for additional public funding.

Coulson begins by stating that "the RTA and the service boards have been warning Illinois political leaders for years that the system was seriously underfunded and heading for a serious breakdown." Actually, until the Moving Beyond Congestion effort by the current RTA administration the RTA resisted efforts to bring transit funding challenges to the attention of the Governor and the General Assembly. There was significant inter-agency discord when the CTA attempted to do so on its own.

Coulson thus ignores two major RTA failures. First, the RTA's equivocation about whether there was a transit funding problem and its resistance to going to Springfield for a fix meant that the General Assembly and the Governor now are stuck with a major "crisis" to fix. Second, despite statutory requirements that the RTA only approve service board budgets that are balanced and reasonable, the Auditor General found that the RTA had allowed the service boards to expand their service levels beyond what they could afford for at least the past five years.

A year ago, the service boards thus faced major operating deficits going into 2007. Rather than press them to make the service cuts, increase fares and/or extract labor concession at that time, as it was required to do, the RTA made a third major mistake. It approved service board budgets that were balanced only by using a plug number for substantial hoped-for additional state funding. Here is Coulson's take on that decision:

Thus, there is no dispute that the financial crisis is real and that there is a long-term plan to significantly improve the system. Enter Illinois’ unique brand of politics.

The RTA is financed largely through fares, a sales tax imposed in the six counties and a state match of 25 percent of the sales taxes raised. So optimistic was the RTA board in December of 2006 that the 2007 budgets included as projected revenue more than $200 million in what was called “New Transit Funding.”

Coulson was not on the RTA board in December 2006 and neither was I. Nonetheless, if the RTA had had some reasonable basis back then for its optimism it has yet to reveal what it was. No bill increasing transit funding had been introduced at that point. The Auditor General had not yet released its audit report. No prominent political figure had publicly expressed support for a tax increase necessary to provide the RTA with more money. The RTA was like the kid hoping for an allowance increase based on a parental statement that "we will take care of that later."

While I'm not an expert in GAAP accounting, I very much doubt that optimism over increased revenue from the timely passage of a bill increasing taxes that has yet to be introduced in the legislature or be publicly supported by any significant political figure has the necessary certainty to count as revenue. Yet, that is what the RTA did when it approved the 2007 service board budgets.

After glossing over these compounding errors, which will mean that doomsday if it ever comes will be even tougher on transit users, Coulson goes on to summarize the back and forth over the various transit bailout bills and the rancor that exists among the political leaders. He ends his piece with a bit of bravado:

What to make of it all? I have tremendous respect for the elected public officials who face the daunting task of balancing the state budget in the face of competing demands from constituents. They will have to decide ultimately how important mass transit is to the well-being and economic vitality of Illinois. And the people — who elect them — will have the final word on all this.

As an appointed board member of the RTA, I share the responsibility to provide the best transit to the people of the six-county region that the allotted financial resources will responsibly permit. If our elected leaders want a second-rate system, that is what they will get.

What is missing from Coulson's piece is any acknowledgement that in recent years the RTA failed its "responsibility to provide the best transit to the people of the six-county region that the alloted financial resources will responsibly permit." The RTA let the service boards expand service beyond their financial means and then plopped the resulting crisis into the lap of the General Assembly and Governor.

How refreshing it would have been if Coulson had said something like "the RTA made serious errors, but we have learned from those errors and with the money and increased authority you give us we will provide the best system within the financial means you provide." RTA acceptance of its share of the responsibility for the current crisis certainly would go down better than yet another threat about a "second-rate system" from an key member of a financial oversight agency that failed to do its job.

Chicago Mayor Says Think Different

The Mayor of Chicago has challenged the State to be "creative" when it comes to solving the public transit funding problem. Fresh from raising property taxes in Chicago, the Mayor also criticized the Governor for his opposition to increasing sales taxes in the six-county Regional Transportation Authority region So, let's get modestly creative and suggest that the following provisions be included in the final transit bill:

1. Indexed Fare Increases. Index fares to some reasonable measure such as the Consumer Price Index, perhaps capping increases at 4% annually to avoid sudden spikes. This provision will address the concerns of certain parties that a fare increase be part of a funding solution and allow the service boards--Chicago Transit Authority, Metra, Pace--to avoid the counter-productive cycles of putting off fare increases too long and then raising them too sharply. Indexing public transit fares provides a nice precedent for using a similar index to periodically increase the state gas tax to help protect its yield in real dollars.

2. Direct State Role In RTA . Take a board member from each of the three RTA subregions--City of Chicago, suburban Cook County and the collar counties--and make them gubernatorial appointments subject to Senate approval. Make the RTA Chairman a gubernatorial appointment. This State role is commensurate to the State's financial contribution to the public transit system in northeastern Illinois and the important role of that system in the State's transportation system.

3. Hold RTA Accountable. Currently, the RTA can reject service board budgets that do not meet the statutory requirements. The service board then suffers a financial penalty, namely, loss of their share of Public Transportation Fund monies from the State. The RTA, however, suffers no financial penalty if it is derlict in its duties by, for example, allowing service levels to grow faster than revenues over an extended period (as the Auditor General found) or approving unbalanced budgets with plug numbers for hoped-for contributions from the State to cover major deficits (as the RTA did in FY 2007). Some portion of the RTA's funding for its own administration should be subject to being withdrawn if the RTA fails to perform. This provision would apply only if the RTA remained as just a financial oversight agency. (See #5 below.)

4. Tie Transit To Land Use. Explicitly tie transit investments to land use. Write in the RTA Act a requirement that the RTA prioritize transit investment and service to regions and communities that support transit oriented development. (This is not necessarily a gimme for Chicago. Its embrace of big box retailing and minimum parking space requirements for new residential construction, for example, might put it below some suburban communities that are trying to build TOD developments around Metra stations.)

5. Restructure The RTA And The Service Boards. Combine CTA bus operations and Pace mainline bus operations into one operating unit. Pace's paratransit, vanpool and demand response service becomes another unit. CTA rail and Metra become their own units. These become purely operating units tucked into the RTA. This means that the separate boards of directors of the service boards would be abolished. Rather, the RTA and its board would have ultimate operating responsibility for public transit in the region.

Find a funding source, pass these provisions and be done with it. There certainly are more creative ideas--e.g., emergency oversight agency; combining RTA, IDOT District 1 and the Tollway; and heavy investment in alternative automobile technology (e.g., plug in hybrids)--but these provisions with the exception of #5 could be tucked into SB 572 or its successor pretty easily.

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.

Biting The Hand That Feeds You--Republican Sues RTA

The RTA long has been viewed by many as a Republican/suburban preserve. It was foisted on the City of Chicago early in the Harold Washington administration, when the City was divided (and weakened) politically and the CTA was desperate for cash.

The provisions of the RTA Act were stacked in favor of the collar counties and remain so to this day. Three examples. First, RTA Board seats are allocated based on population rather than transit ridership or financial contribution to the system. This approach guarantees collar county representation in excess of their contribution to and consumption of transit. It created no incentive for the collar counties to either adopt land-use policies that would generate transit use more than their default model of transit-hostile sprawl or increase their financial support for the region's transit system.

Second, the RTA sales tax rate in the collar counties was and is only one-quarter the rate in Cook County. Third, the seats on the Metra Board are allocated based on morning boardings, which of course means that the suburban counties control the commuter rail system that is of vital importance to the City of Chicago.

For years, the primary goal of the RTA administrations appeared to be to protect and expand the Metra system. The sales tax funding formula delivered more operating subsidies to Metra than Metra was able to spend, so Metra was able to convert millions of dollars of operating subsidies each year into capital expenditures. The RTA also allocated a disproportionate share of capital dollars to Metra, which has resulted in the CTA system infrastructure being in much worst shape than the Metra system. The CTA also faced a structural funding deficit on the operating side because its sales tax base was not keeping up with inflation. For years, the RTA resisted all efforts to revisit the funding formula, protecting Metra's privileged status.

If critics are to be believed, the RTA itself even was a source of patronage jobs, consulting contracts and RTA Board seats for State and DuPage County Republican allies. It certainly is indicative of the RTA's commitment to public transit that one of its long-standing Board members was a prominent opponent of the formation of the RTA and presumably of the ideals of regional transit.

That was then. Now we have the odd specter of Andy Martin, a Republican candidate for U.S. Senator in 2008, suing the RTA because it accepted the short-term bailout offered by the Governor to stave off transit doomsday until November 4th.

The pro se lawsuit is Martin v. Blagojevich, et al., 2007 MR 001310 (DuPage Cty.). It was filed on September 14, 2007. (Copy sent upon request.)

The bare bones complaint alleges that the Governor engineered the advance of funds "to satisfy the CTA's need for cash," neglecting to mention that Pace especially also has relied on these advanced funds to stave off its doomsday for its suburban riders. The gist of the complaint is as follows:

The governing statute mandates that the RTA operate in a "reasonable and prudent manner." The borrowing of money form [sic] 2007, [sic] to fund deficits in 2007, without nay [sic] assurance of repayment is irrational, illogical and contrary to any concept of reason and prudence, and therefore violative of the governing statute and the Illinois Constitution.

This lawsuit is unlikely to gain any traction, even in the favorable confines of the DuPage County court system. (Readers, please email me any subsequent filings so I can avoid a repeat trek to Wheaton.) Nor does the lawsuit appear to have had much of an impact so far on the court of public opinion.

There is, however, something strangely fascinating, even satisfying, about seeing a Republican sue the RTA. It is like a real life demonstration of biting the hand that feeds you!

RTA Gamble--RTA Consequences?

In his "Getting Around" column in today's Chicago Tribune Jon Hilkevitch looks ahead to the 2008 doomsday scenario that the CTA will unveil on Wednesday. To set the stage for how the region got to this point, Hilkevitch looks back at the budget the RTA Board almost a year ago:

Early this year, RTA officials ordered the CTA, Metra and Pace to pass 2007 budgets based on the risky assumption that the state would approve $226 million in new operating subsidies for transit. It was a questionable move at the time by the RTA, which is responsible for providing financial oversight.

Today, the RTA's gamble looks much, much worse. Relatively mild service cuts and fare hikes that would have taken place earlier this year to balance transit agency budgets -- if indeed such measures were really necessary to convince state lawmakers of the pending transit meltdown -- will pale in comparison to what may lie ahead.

This "gamble" by the RTA Board was not only risky, it likely was in violation of the RTA Act, which requires the RTA to approve only balanced budgets based on reasonable and prudent assumptions. As noted previously (here and here), section 4.11(b)(2) provides in relevant part that the RTA Board:

shall approve the budget and plan if:
. . .

(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;
. . .

(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.

The RTA Board failed to follow these statutory requirements when it approved a budget with a $226 million plug number for operating subsidies to come from some undetermined State source(s). The RTA gambled that the State would come through with that money and, as Hilkevitch notes, that gamble makes each doomsday scenario worse than its preceding scenario.

(Perhaps someone should submit a FOIA request to the RTA seeking something like "all documents that refer to or relate to the $226 million in additional state funding that is contained in the RTA's 2007 budget, including but not limited to any communications with the Governor or any legislators, or representatives thereof, concerning increased State funding for public transit in the six-county RTA region in 2007." Faced with ever more dire doomsday scenarios, the public deserves to know on what basis--if any--the RTA Board voted to approve its 2007 budget with a sizable uncovered operating deficit.)

Rather than base its budget on a large plug number, the RTA should have fulfilled its fiscal oversight responsibility by prompting the service boards to begin in January 2007 making service cuts, implementing fare increases, and taking other steps necessary for they and the RTA to live within their means. These actions may have prompted a quick resolution of the transit funding situation or by now we would have learned to live with a scaled down transit system. Either way, the RTA would have complied with its statutory responsibilities.

Supporters of increases in public transit funding (e.g., Richard F. Harnish's well done commentary) make much of the fact that the CTA and the other service boards are attracting a growing middle class clientele and no longer should be viewed primarily as a social service provider for the poor. At the same time, the RTA presumably justifies allowing the service boards to provide roughly 10 percent more transit service than they can afford on that ground that such transit service is a vital social service. Which is it?

Even if the RTA has the noblest of intentions in allowing the service boards to continue supplying more transit service than they can afford, the RTA Act does not give the RTA Board the power to exercise financial oversight based on its good intentions. The Act is quite specific that the RTA Board is not allowed to approve budgets that contain an uncovered deficit, which is just what the RTA did here. Clearly, the legislature wanted to get Illinois out of the cycle of rolling out more transit in northeastern Illinois than the service boards could afford, with doomsday scenarios as an inevitable result.

The cuts and fare increases necessary to balance the 2007 budget would have been less severe and less painful if they had been implemented early this year. Certainly, the Auditor General's report in March 2007 finding that the service boards had expanded service levels well beyond their financial means should have galvanized the RTA into action. Instead, the RTA's delay in matching transit service to available financial resources has created the very kind of crisis that the RTA Act was designed to avoid.

When a board fails to follow the spirit if not the letter of its governing law and when its "gamble" results in the creation of the very fiscal crisis that board was charged with preventing what can be done? One option is for the board to resign, allowing for a quick change in leadership. Another option is for other powers to step in and take over via an oversight agency.

It does not appear that the RTA Board is taking any responsibility for gambling away its financial oversight duties. Nor does replacement of the Board through a a temporary oversight agency seem on the horizon.

Why not? Is there such a high degree of confidence in the RTA Board despite this gamble and other missteps and failures to exercise its current oversight powers that holding the Board accountable is unthinkable?