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First Look at 2018 Budget and Fare Increases

Metra is proposing a combination of fare increases and cuts in expenses – including service cuts – next year to cover a projected deficit of about $45 million in its 2018 operating budget. This deficit is the result of a cut in subsidies from Springfield (about $13 million), disappointing regional sales tax collections (about $2 million) and normal growth in operating costs (about $30 million).

We pay about half of our operating costs with your fares, and the other half with our share of proceeds from a transportation sales tax in the six-county Chicago region and a contribution from the state. The RTA had originally expected that public subsidy to total $430 million next year – about $11 million more than 2017. But the RTA has recently amended that forecast to $404 million – about $15 million less than 2017. That’s a $26 million difference. State budget cuts account for about $12 million of that drop, with reduced sales tax proceeds accounting for the rest.

We don’t like the idea of raising fares again any more than you do. But the fact is, our 1980s funding model is not working in today’s economy. We rely on public subsidies to cover half of our operating costs and most of our capital investment, and those subsidies are not coming in or not keeping up while our costs and capital needs continue to grow.

We can’t cut our way out of this problem. And we can’t solve it with higher fares alone – the need is simply too big. However, given our options, we believe they must play a part.

The current situation is unsustainable, and threatens the future viability of the important service Metra provides. We either need to fund our public transportation properly under today’s economic realities or be willing to watch it continue to degrade, including reductions in service.

Metra will incorporate this proposed fare increase into a preliminary budget to be presented at its Oct. 6 Board of Directors meeting. That proposed budget will be the subject of public hearings before the Board votes on the final budget at its Nov. 10 meeting.

Click here to see a PowerPoint presentation regarding our budget situation and here to see a PowerPoint presentation about our preliminary fare increase proposal (the Board opted for Option 2 on those slides).

Below are some questions and answers about this issue.

What fare increase are you proposing?

The preliminary plan is to raise the price of all One-Way Tickets by 25 cents. All 10-Ride Tickets would be priced at 9.5 times (up from 9) the One-Way Ticket price, and all Monthly Passes would be priced at 29 times (up from 28.5) the One-Way Ticket price. Weekend Passes would increase to $10 from $8, but we are exploring making them valid on Friday evenings, too. We are also proposing restrictions on reduced fare tickets based on the RTA’s guidance: we would no longer sell reduced fare Monthly Passes. These changes would raise about $22 million.

What about the rest of the $45 million operating deficit?

We propose to squeeze $8 million in efficiencies, such as personnel reductions/hiring freeze; save $2 million in lower utility costs; cut $1 million from our advertising/marketing efforts; and identify $4 million in savings by cutting and consolidating trains. The rest would come by reducing the amount of fare revenue we divert to our capital budget.

Why is the state trimming its contribution?

The budget deal reached by the General Assembly and Gov. Bruce Rauner this summer included cuts in many areas, including public transportation. The state cut 10 percent from a pot of money intended to partially match regional sales taxes, and imposed a 2 percent charge for collecting those taxes for the region. (The state fiscal year runs from July-June, while Metra’s corresponds to the calendar year. Therefore, if the state does something similar in its fiscal 2019 budget, that would impact the second half of Metra’s fiscal 2018 budget.)

Why are sales tax proceeds down?

Tax receipts are down primarily due to lower gas prices, a drop-off in vehicle sales and the tremendous growth of online shopping, which does not always result in the collection of regional transportation sales taxes. The National Retail Federation expects that online retail will grow 8 to 12 percent in 2017, up to three times higher than the growth rate of the retail industry. For context, bricks-and-mortar retail is expected to grow at just 2.8 percent this year, slower than the average rate of growth for the retail industry. We have also become more of a service economy – and services, such as haircuts, are not subject to a sales tax.

What accounts for the $30 million in rising costs?

Labor and fringe benefit increases account for about $22 million. Inflationary growth in materials costs and other costs make up for the rest.

Why can’t you cut your expenses?

As noted above, we have and will continue to cut expenses as much as we can – but we can’t cut them enough to trim the full $45 million. We proposed to trim $15 million this year after cutting a combined $24.8 million in the six years prior to 2018.

Are service cuts being considered?
Yes, there will be some cuts. That is something we strive to avoid, since our business is to provide service.

This is the fourth year in a row that you’ve raised fares, and the sixth in the last seven years. What did you do with all that money?

We did what we said we’d do:

  • 2012: We increased fare revenue by 25.1 percent, or $53.6 million, mostly to cover the higher cost of diesel fuel and to make up for the fact that we ended the shortsighted practice of spending our capital dollars on operations.
  • 2013: We changed the price of a 10-Ride Ticket so it cost the same as 10 One-Way Tickets, raising $8.3 million for our capital needs.
  • 2015: We increased fare revenue by 10.8 percent, or $27.3 million, for a number of reasons, including Positive Train Control (a federally mandated, yet unfunded, safety system), the higher costs of maintaining our aging fleet, other higher costs and other capital needs. About $2.4 million was supposed to help fund borrowing that we ultimately postponed. (We also restored the price of the 10-Ride Ticket so it equaled nine One-Way Tickets.)
  • 2016: We increased fare revenue by 2 percent, or $6.5 million, to pay for Positive Train Control (PTC) and capital needs, primarily car and engine rehabilitation.
  • 2017: We increased fare revenue by 5.8 percent, or $16.1 million, to pay for our capital needs, primarily car and engine rehabilitation.

What are those capital needs?

Our capital budget pays for the rehabilitation and replacement of our 850 cars, 150 engines, 186 Highliner cars for the Metra Electric Line, 241 stations, 823 bridges and other infrastructure. It’s normally funded by federal, state and local grants. But we’re not getting enough from those sources. The RTA estimates we need to spend $1.2 billion a year to achieve and maintain a state of good repair on our system, but we typically have less than $300 million a year to spend (and next year we will only have slightly more than $200 million – one-sixth of our need). Because those sources have been falling short, we have been increasing the amount of fare revenue we use for our capital needs. (Fares usually go to our operating costs.)

So have your fare increases for capital needs solved the problem?

No, not even close. As you can see from the summary above, fares can help but they can’t possibly generate the kind of money we need. Even with those fare increases, we are spending far too little.

Wasn’t your 10-year, $2.4 billion modernization plan supposed to at least address your rolling stock needs?

Yes, it was – that, and Positive Train Control. When that plan was unveiled, we proposed to fund it with $700 million in expected state and federal funding and $400 million in borrowing, plus another $1.3 billion that we hoped to secure – most likely from a new state bond program. However, we never secured that needed additional funding. Not only has the state failed to pass a new state bond program, but it reduced by $265 million the bond money from prior programs that we were already expecting, much of which was earmarked for our modernization plan.

Does that mean the modernization plan is dead?

Well, we have continued to aggressively rehabilitate cars and engines. In the last three years, we have rehabbed about 115 cars and about 25 locomotives. (But we have 850 cars and 150 engines, so we have a ways to go. We’re also planning the expansion of our rehab facility so we can do more each year.) We have a request for proposals on the street right now to buy at least 25 new cars (and as many beyond that as future funding allows) and we expect to issue an RFP soon for at least 10 new engines (plus as many more beyond that as future funding allows). But since we need 367 new cars and 52 new engines, and since we still need to identify major new funding, it’s likely going to take longer than 10 years.

In addition, we have continued to implement Positive Train Control, a mostly unfunded federal mandate that we expect will cost about $400 million to install and $15 million to $20 million annually to operate. Although we recently received a $21 million federal PTC grant, we have to pay for the rest out of regular, already inadequate, capital sources. PTC is something our riders are unlikely to even notice, but so far we have spent $152 million on it – $35 million more than the $117 million we generated in extra revenue from our fare increases in the last three years.

Why haven’t you borrowed like you said you were going to?

That was the initial plan, and the 2015 fare increase included about $2.4 million for financing (that amount plus $6 million from the RTA would have paid for the first year of financing the first $100 million). But we did not move forward because we have not secured the $1.3 billion in additional funding that was always a component of the plan and a prerequisite to financing. In addition, we decided we’d rather spend our limited dollars directly on capital improvements rather than on interest payments.

There was no money for financing set aside in the 2016 and 2017 fares increases, which were used for capital needs and PTC, and we are not proposing any for 2018. The money from the 2015 increase that has been generated for financing, which now totals $13.2 million ($2.4 million a year for the last three years, plus the $6 million from the RTA), has been set aside for modernization projects such as rolling stock purchases, yard improvements and PTC.

On the positive side, Metra is currently debt-free.

Why can’t you use the money from the fare increases to buy new railcars and locomotives?

Because it’s only enough to buy a tiny fraction of what we need, and if we tried to buy a tiny fraction, we would not be able to negotiate a good price based on economies of scale. It would also take us decades to buy what we need. For instance, the 2017 fare increase generated $16.1 million in revenue. That would buy about five new railcars. We need 367. It would buy two, maybe three new locomotives. We need 52.

So that’s where we find ourselves this year. Because of declining sales taxes, cuts in state aid and rising expenses, we have a $45 million deficit between expenses and revenues that we will have to close. In the meantime, we still have massive capital needs that must be addressed. Clearly, this model is not working for the economic health of the six-county region that Metra serves. Put simply, we need a long-term, predictable source of funding to ensure our agency’s financial sustainability.

 

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