2010 Operating Budget Forecast 

INTRODUCTION 

With the effects of the economic recession continuing to be felt across all transit agencies, the CTA ushered in 2010 with a focus on effective management, improving efficiencies and keeping costs down. 

The economy in 2010 has shown signs of slight recoverybut not enough, and consumer confidence has not improved. The near-term economy remains uncertain, leaving investors nervous, consumers unwilling to spend, and the job and real estate markets unsteady. 

The Federal Reserve has taken a variety of steps to stimulate the economy, including the continued lowering of interest rates on mortgages and corporate loans, yet the recovery remains slow. Unemployment across the nation and in the Chicago region in particular, remains near record-high levels. Low consumer confidence translates in to low consumer spending, and the housing market remains weak, failing to show signs of sustainable improvement. 

***A graph is inserted here to show the unemployment rates in Cook County and the City of Chicago. In June 2009, Cook County had an unemployment rate of 11.2% while the rate in the City of Chicago was 11.7%. In June 2010, the unemployment rate in Cook County was 10.9%, and the rate in the City of Chicago was 11.4%. ***

The CTA minimized the impact of this weak economy on its customers by tightening its belt even further, managing with discipline and strategically using capital resources. The CTA first cut administrative and internal costs. For the second consecutive year, non-union employees did not receive a wage increase. Non-union staff was required to take up to 12 unpaid furlough days as well as six unpaid holidays in 2010. The CTA has restricted overtime, left vacancies unfilled, scaled back contracts and implemented supply chain improvements. 

The CTA also used strategic hedging to lower its fuel costs in 2010. The CTA continued to build on its successful performance management program as well, ensuring that resources were used in the most effective manner possible and were producing the desired results. 

***A graph is inserted here to show the CTA pension obligation increase from 2005 to 2011 versus the new 2008 public funding. Beginning in 2009, there is additional net POB debt service, which increases in 2010 and 2011. There are two lines showing the difference between the original projections for the new public funding and actual public funding received by the CTA under the 2008 legislation. The actual funding received has fallen below the projected level since 2008, and the difference has widened since 2009. ***

In 2008, the State of Illinois approved a state funding package that increased the percentage of state sales tax dedicated to mass transit, and gave authority to the City of Chicago to increase the Real Estate Transfer Tax (RETT) to support the CTA. The legislation also provided for long-term pension reforms that will increase the funded ratio of the CTAs pension to 90 percent by 2059. These reforms significantly increased the annual cost to the CTA as reflected in the chart above. 

As one can see in the chart, the new funding package was intended to not only cover the additional pension costs but also to provide additional revenue for operations. Almost immediately the nations economy moved into its worst recession in decades, causing public funding to plummet well below forecasts. In fact, the additional public funding does not even cover the cost of the CTAs increased pension obligation. 

Looking at 2010 for example, the CTAs pension cost was $156.2 million. At the time of the legislation, it was projected that the new funding package would provide an additional $242.5 million. Because of the recession, actual revenue from the new funding package was $141.6 million or $14.6 million LESS than CTAs pension costs. 

With public funding down once again, the CTA made the difficult decision to use scarce capital funds to help balance its 2010 budget. This decision was based on managements guiding principle to minimize the impact of the recession on customers. By the end of 2010, $90 million of capital funds will be used to support the operating budget. 

Despite the budget challenges facing the CTA, fares were not raised in 2010. In the fall of last year, the Regional Transportation Authority (RTA) and the State of Illinois reached an agreement whereby the RTA would issue debt to provide an additional $83 million to the CTA in both 2010 and 2011. With this funding, the CTA agreed to hold fares constant for the same two-year period. 

Given the reduction in public funding versus what had been projected with the 2008 legislation, belt tightening and capital funding alone were not enough to balance the 2010 budget. To further reduce expenses, management proposed service changes to make the system more efficient without drastically reducing or eliminating routes. Service changes were limited to increased headways, reduced spans of service and elimination of express routes where a local alternative was available. 

After considerable planning and outreach, the service changes were implemented on February 7, 2010. Months later, the CTA is pleased to report that, because of the careful manner in which service was adjusted, ridership has been healthy this year. Some riders have shifted from bus to rail, but overall ridership remains relatively strong. This has helped farebox revenue in 2010, which is expected to end the year within one percent of the budget. 

Unlike farebox revenue, revenue from advertising, concessions, land sales and investment income will not likely hit the budgeted mark in 2010 due to the ongoing recession. Nonetheless, because of its diligent management throughout 2010, the CTA projects it will end the year with a balanced budget. The savings generated from disciplined hiring, fuel hedging and other belt tightening initiatives are projected to offset this loss in revenue. 

RIDERSHIP 

The 2010 budget estimated systemwide ridership to be 513.5 million. The CTA currently projects that ridership, including rail-to-rail platform transfers, will end the year at 512.2 million, or 0.3 percent below the budgeted estimate. 

When compared to 2009, 2010 ridership is forecast to be 9.1 million trips, or 1.7 percent lower. This reflects a decline of approximately 4.5 percent in bus ridership in 2010, and an increase in rail ridership of 2.6 percent over 2009. 

***A graph is inserted here to show the CTA's annual ridership from 2006 to 2010, broken down into bus and rail. The bus ridership increased since 2006 until 2008, after which the ridership declined but remains above 2006 levels. The bus ridership was 298.4 million, 309.2 million, 328.2 million, 318.7 million and 304.3 million for the years 2006, 2007, 2008, 2009 and 2010, respectively. The rail ridership is lower than the bus for all years, but has seen a steady increase over this period of time. The rail ridership was 162 million, 157.9 million, 165.3 million, 202.6 million and 207.9 million for the years 2006, 2007, 2008, 2009 and 2010, respectively. ***

Average weekday ridership for 2010 is projected at 1.63 million per day, which is 25.3 thousand (1.5 percent) lower than 2009 weekday ridership. This is mainly attributable to a 3.9 percent drop in weekday bus ridership. Rail weekday ridership increased 2.2 percent. 

Average Saturday ridership for 2010 is projected at 1.05 million per day, which is a decrease of 9.4 thousand (0.9 percent) from 2009 Saturday ridership. The 5.8 percent decrease in bus ridership offsets the increase in Saturday rail ridership of 7.5 percent. 

Average Sunday/holiday ridership for 2010 is projected at 733 thousand per day, which is a 16 thousand (2.1 percent) decrease from 2009 Sunday/holiday ridership. This is mainly due to a 5.5 percent decreast in Sunday/holiday bus ridership, and is paired with a 3.3 percent increase in Sunday/holiday rail ridership. 

Total projected CTA ridership in 2010 includes approximately 49.8 million free rides for seniors, active military personnel, disabled veterans and individuals under the state's Circuit Breaker Program. This is an increase of 3.7 million (8 percent) over 2009 free rides for these groups. 

***A graph is inserted here to show the annual new free rides growth from 2008 to 2010. New free rides for seniors have grown from 20 million in 2008 to close to 30 million in 2010. Similarly, new free rides for people with a disability or in the Circuit Breaker Program have increased since 2008, and reached to 20 million annually. New free rides for military personnel represent a small percentage of the total new free rides, which is about 2.5 million per year. ***


OPERATING EXPENSES

Operating expenses for 2010 are estimated to be $1.26 billion, which is $11 million less than the 2010 budget and $1.5 million less than 2009 actual expenditures. 

***A pie chart is inserted here to show the breakdown in thousands of 2010 forecasted operating expenses. Labor totals $834,974, 66.26% of the total expenses; Material, $82,276, 6.53% of the total; Fuel, $58,121, 4.61% of the total; Power, $36,226, 2.87% of the total; Provision for injuries and damages, $43,000, 3.41% of the total; Purchase of security services, $33,185, 2.63% of the total; and other expenses, $172,367, 13.68% of the total. ***

The 2010 labor expense is projected to be $835 million, which $17 million below the 2010 budget and $21.5 million lower than 2009 actual labor costs. Labor expense accounted for an estimated two-thirds of the 2010 operating budget. The CTA achieved savings in this category by controlling and limiting hiring in 2010. The CTA also diligently managed overtime authorizing it only where necessary to provide safe and reliable service to our customers. 

In 2010, material expenses are forecast to be $82.3 million, which is $4.6 million above the 2010 budget but $5.6 million lower than 2009 actual expenses. The 2010 
budget was $14.6 million less than the 2009 budget because of the planned service reductions and the transfer of additional capital funds for preventive maintenance which helped fund the costs of materials for regular maintenance and repair. The budget for materials has decreased as the CTA has invested in its bus fleet and 
lowered its average age. Expenses for materials exceeded the budget in 2010 as a result of charges for inventory obsolescence as we continue to make improvements to our supply chain management. 

***A graph is inserted here to show the changes in material expenditures in thousands from 2007 to 2010. Material expenditures were $84,178 in 2007, increased to $100,568 in 2008, decreased to $87,900 in 2009 and further lowered to $82,276 in 2010. *** 

Energy prices are a key driver of the CTA's operating expenses. Fuel for revenue equipment is forecast at $58.1 million for 2010, $5.8 million below budget and $42.4 million less than actual spending in 2009. Fuel consumption in 2010 is forecast at 18.4 million gallons, reflecting a decrease of 3.7 million gallons (17 percent) versus 2009. The decrease in consumption is primarily due to the service adjustments and the closing of Archer Garage, as well as to a more fuel-efficient fleet. 

***A graph is inserted here to show the CTA's average price of diesel fuel per gallon over the period from 2002 to 2011. The price had increased from $0.89 per gallon in 2002 to $4.55 to 2009, and decreased to $3.16 in 2010. The price of diesel fuel per gallon is projected to be $3.07 in 2011. ***

In addition to declining consumption, the price of fuel for the CTA has also decreased. Fuel prices in 2010 are projected to end the year at a net average price of $3.16 per gallon, which is $1.39 per gallon (30 percent) less than the actual average price in 2009. Strategic fuel hedging contributed considerably to the cost savings on fuel. The CTAs hedging program includes daily reviews of commodities markets and biweekly meetings with industry experts who offer hedging recommendations. With the help of its advisors, the CTA uses a long-term, layered fuel hedging strategy that will continue in 2011. 

For 2010, the cost of electric power for the rail system is forecast to be $36.2 million, which is $2 million below the 2010 budget and two percent lower than the actual cost in 2009. At the start of 2010, the CTAs new electric power contract began. Under this contract, rail power is purchased using an actively managed block purchase approach which allows the CTA to purchase wholesale power for its base load electricity supply in advance. Electricity consumed above or below the block quantity is settled at the real-time ComEd locational marginal price (LMP). This approach yields a blended rate of approximately $0.087 per kilowatt-hour in 2010. 

Provision for injuries and damages represents expenses for claims and litigation for incidents that occur on CTA property, as well as incidents involving CTA vehicles. This amount is determined by the CTAs actuaries, and is based on actual claims history and future projections. The 2010 forecast for this cost is $43 million, reflecting additional deposits made possible by savings generated in other areas. 

Security expenses are estimated to be $33.2 million in 2010. This is consistent with the 2010 budget and is $885 thousand (2.7 percent) over actual 2009 expenditures. Security services consist of officers from the Chicago, Evanston and Oak Park police departments, as well as through contracts with private security firms. In addition to the CTAs budgeted expense, the Public Transportation Section of the Chicago Police Department provides dedicated services to CTA customers at an estimated cost of $22 million, paid for by the City of Chicago. When taken together, the total security budget for the CTA is over $55 million. 

***A graph is inserted here to show in millions the purchase of security service history. 2007, $31.4; 2008, $32.4; 2009, $32.3; 2010 forecast, $33.2. ***

The other expenses category includes interest on pension obligation bonds, utilities, maintenance and repair, advertising, commissions, consulting, insurance, leases and rentals and other general expenses. The year-end forecast for these services is $172.4 million, which is $41 million higher than 2009 actual expenditures. This increase is primarily due to increased payments on outstanding pension obligation bonds. 


OPERATING REVENUES

***A pie chart is inserted here to show the breakdown in thousands of 2010 system-generated revenue. Fares and passes revenue totals $518,660 and accounts for 87.94% of total system-generated revenue. Reduced fare subsidy totals $28,000 and is 4.75% of the total; advertising and concession, $18,900, 3.20% of the total; investment income, $850, 0.14% of the total; statutory required contributions, $5,000, 0.85%; and other revenues, $18,400, 3.12% of the total. ***

System-generated revenues are projected to be $589.8 million, which is $10.9 million lower than the 2010 budget and $11.8 million lower than 2009 actual revenues. Fare revenue is projected to be $518.7 million, or $2.8 million below budget.  The average fare paid in 2010, including cross-platform transfers, is projected to be $1.01 or $0.04 higher than the average paid in 2009. 

The reduced-fare subsidy is the State of Illinois reimbursement to the CTA, Metra and Pace for discounted fares given to people with disabilities and students. Revenue from the reduced-fare reimbursement is projected to be $28 million or $4.2 million less than budget.  

Advertising, charters and concessions revenues in 2010 are projected to be $18.9 million, which is $11.3 million (37.5 percent) less than 2009 and $4 million below budget. Unfortunately, the economic recession has forced corporations to reduce their spending on advertising.  

Investment income is estimated to be $850 thousand, which is $409 thousand (32.5 percent) lower than the 2009 actual.  This decrease is primarily due to lower investable cash balances, as well as interest rates remaining near record lows. 

Statutory required contributions will meet the budgeted amount of $5 million per the Regional Transportation Authority Act, which requires the City of Chicago and Cook County to contribute $3 million and $2 million respectively to CTA operations each year. 

Other revenues, which include parking fees, sale of real estate, rentals and sale of CTA merchandise, are projected to be $18.4 million. This is $12.8 million under the 2009 actual revenues but $1 million above the 2010 budget. The decrease from 2009 can be primarily attributed to lower revenues from property sales reflecting the impact of the recession on the real estate market. 

Public Funding 

The public funding required to meet the CTAs 2010 operating costs is $670.3 million. This funding is comprised of sales tax, discretionary funding from the RTA, real estate transfer tax and federal capital money used for preventive maintenance funds. Included is the $83 million in proceeds received from the RTA in connection with the CTAs agreement not to raise fares in 2010 and 2011. An additional $83 million will be provided in 2011. 

The budget is based on representations by the Governors Office that the State of Illinois will pay all 2010 PTF and reduced fare subsidy owed to the RTA and the CTA by the end of 2010. 

***A table is presented in thousands to outline 2010 revenues, including the public funding. The items are: 

Fares and Passes: $518,660 
Reduced Fare Subsidy: $28,000 
Advertising, Charter & Concessions: $18,900 
Investment Income: $850 
Statutory Required Contributions: $5,000 
All Other Revenue: 18,400 

The sum of the numbers above is the total system generated revenue, equal to $ 589,810. 

The public funding items are: 
 
Preventive Maintenance: $90,000  
Fare Agreement with State: $83,000  
Public Funding Available through the RTA: $497,339  

The sum of the numbers above is the total public funding, equal to $670,339. 

Therefore, total 2010 revenue is $ 1,260,149. ***


***2010 Operating Budget Schedule 

All numbers in thousands.

Operating Expenses 
Labor: 2010 Budget - $852,081, 2010 Forecast - $834,974, variance of $17,107
Material:  2010 Budget - $77,724, 2010 Forecast - $82,276, variance of negative $4,552
Fuel: 2010 Budget - $63,879, 2010 Forecast - $58,121, variance of $ 5,758
Power: 2010 Budget - $38,176, 2010 Forecast - $36,226, variance of 1,950
Provision for injuries and damages: 2010 Budget - 28,000, 2010 Forecast - $43,000, variance of 15,000
Purchase of Security Services: 2010 Budget - $33,181, 2010 Forecast - $33,185, variance of negative 4
Other Expenses: 2010 Budget - $178,004, 2010 Forecast - $172,367, variance of 5,637
Total Operating Expenses: 2010 Budget - $1,271,045,  2010 Forecast - $1,260,149, variance of 10,896

System Generated Revenue 
Fares and Passes: 2010 Budget - $521,417, 2010 Forecast - $518,660, variance of negative $2,757
Reduced Fare Subsidy: 2010 Budget - $32,200, 2010 Forecast - $28,000, variance of negative $4,200
Advertising, Charter & Concessions: 2010 Budget - $22,876, 2010 Forecast - $18,900, variance of negative $3,976
Investment Income: 2010 Budget - $1,832, 2010 Forecast - $850, variance of negative $982
Statutory Required Contributions: 2010 Budget - $5,000, 2010 Forecast - $5,000, variance of zero
All Other Revenue: 2010 Budget - $17,381, 2010 Forecast - $18,400, variance of 1,019
Total System Generated Revenue:  2010 Budget - $600,706,  2010 Forecast - $589,810; variance of negative 10,896.  

Public Funding Required for Operations: 2010 Budget - $670,339, 2010 Forecast - $670,339, variance of zero
Transfer from Capital - Preventive Maintenance: 2010 Budget - $90,000, 2010 Forecast - $90,000, variance of zero
Fare Agreement with State: 2010 Budget - $83,000, 2010 Forecast - $83,000, variance of zero
Public Funding Available through RTA: 2010 Budget - $497,339, 2010 Forecast - $497,339, variance of zero
Total Funding: 2010 Budget - $670,339, 2010 Forecast - $670,339, variance of zero

Recovery Ratio: 2010 Budget - 55.60%, 2010 Forecast - 55.20%, variance of negative 0.4%
Required Recovery Ratio: 50%
Fund Balance: 2010 Budget - zero,  2010 Forecast - zero, variance of zero***


*Recovery ratio is calculated by dividing System Generated Revenues over Operating Expense. The calculation includes in-kind revenues and expenses for security provided by the City of Chicago, excludes security expense, POB debt service and includes some grant revenues. 
