2011 Proposed Operating Budget 

INTRODUCTION 

The CTA is committed to serving its customers. We are pleased to report that service will not be reduced and fares will not be increased in 2011. This is possible because of effective and disciplined management, which is essential now more than ever before. The economy is recovering at a much slower pace than had been predicted, which directly impacts CTA revenues. At the same time, it has never been more important for the CTA to connect its customers to their jobs and communities. The CTA remains committed to serving its customers and to providing transit services that are key to the regions economic recovery. 

The nations recession dictated the need to strategically adjust service levels to balance the 2010 budget. Fortunately, a borrowing agreement the RTA reached with the State of Illinois in 2009 enabled the CTA to avert a fare increase for 2010. 

Building on its progress in 2010, the CTA will continue disciplined and efficient management by again controlling and reducing administrative and other operating costs that do not directly impact its customers. We will continue to closely control hiring, diligently manage overtime and prudently administer contracts as we work to realize sustainable savings on labor, materials and fuel. 

As with the past several years, the 2011 budget relies on transferring capital funds to balance the operating budget. While the CTA has $6.8 billion in unfunded capital needs, the use of capital funds for operations remains a necessary and responsible measure that allows the CTA to minimize the negative impact of the recession on its customers. 

Looking ahead, however, the CTAs ability to thrive during this difficult economy depends on increased funding and union cooperation. Both the federal and state governments need to provide the funding that is essential to protect mass transit in our region, and to help to move us beyond the current economic crisis. 

Additionally, with two-thirds of the CTAs costs being related to labor, and approximately 90 percent of our workforce unionized, it is critical that the CTAs union partners assist in controlling expenses as well. 

The proposed 2011 budget continues to aggressively control expenses and ask more from employees. Again in 2011, non-union employees will forego wage increases and will be required to take up to 12 unpaid furlough days and six unpaid holidays. 

By building on our performance-based budget and management process, the proposed 2011 budget eliminates more than 70 positions. Proposed spending on materials and contracts has been reduced by $11.8 million as well. Consistent with 2010, hiring throughout 2011 will be closely controlled and limited to those positions essential to providing safe and reliable service to our customers. None of these belt-tightening measures will negatively impact the service we provide to our customers or diminish our continued focus on safety and reliability. 

The proposed budget benefits yet again from the CTAs use of strategic hedges to control and reduce the cost of fuel and electric power. Actual costs in 2010 are projected to be $7.7 million under budget across these two categories. The proposed 2011 budget reflects the continuation of these savings. 

Certain costs will increase in 2011 due to specific contractual requirements, particularly those related to labor. Employees in the Amalgamated Trust Union (ATTU) will receive another 3.5 percent pay increase in 2011, adding $11.55 million to the budget versus 2010. Employees in the Craft Coalition will receive increases consistent with the regional prevailing wage, adding a projected $12.2 million to the budget. The cost to provide benefits to employees is increasing in 2011 as well. In the 2011 budget, healthcare costs are projected to increase by $17.8 million over the 2010 budget. Pension contributions will increase over the 2010 budget by $22 million. The CTA is partially mitigating these increases by eliminating vacancies, controlling hiring and strictly managing overtime. Looking beyond 2011, the CTA will pursue cost reductions, productivity gains and restructured benefits through labor negotiations. 

The proposed 2011 budget affirms the CTAs commitment to manage responsibly and provide the critical services that so many people rely on now more than ever. 

RIDERSHIP 

The CTA estimates 2011 total systemwide ridership at 521.7 million, a 1.9 percent increase versus the 2010 forecast. There are three primary reasons behind the projected increase: fares will not be raised, emmployment is expected to recover slightly in the region, and rail ridership growth trends will continue. 

Bus ridership is expected to be 306.7 million in 2011, slightly less than one percent higher than the 20100 forecast. Rail ridership is expected to be 215 million in 2011, reflecting an increase of 3.4 percent versus the 2010 forecast. 

2011 BUDGET OVERVIEW 

The 2011 proposed operating budget is $1.338 billion, which is a $66.7 million or (5.2 percent) increase over the 2010 budget. 

***A pie chart is inserted here to illustrate in thousands the breakdown of 2011 operating expenses. Labor,  $931,179, 69.61%; Material, $72,162, 5.44%; Fuel, $54,487, 4.07%; Power, $30,070, 2.25%; Provision for injuries and damages, $15,000, 1.12%; Purchase of security services, $34,109, 2.55%; POB interest expense, $103,336, 7.72%; Other expenses, $96,813, 7.24%. ***

Labor expenses make up approximately two-thirds of the CTA budget. In 2011, labor costs are estimated to be $931.2 million, a $79.1 million (9.3 percent) increase over the 2010 budget. The cost to provide benefits to employees is increasing in 2011 as well. These costs include healthcare, pension and vacation benefits provided to employees. 

For the third consecutive year, non-union employees will forego wage increases in 2011. They will also be required to take up to 12 unpaid furlough days and six unpaid holidays. The proposed 2011 budget reflects the CTAs ongoing control of hiring, which is limited to only those positions essential to providing safe and reliable service to our customers. 

The proposed 2011 budget forecasts material expenses at $72.8 million, which is $5 million (6.4 percent) less than the 2010 budget. The reduction reflects the CTAs on-going supply chain improvements and close scrutiny of all material purchases. All contract bids are reviewed thoroughly before being awarded to ensure that the CTA is getting the best price possible, and that only the required quantities are being purchased. The CTA is also benefitting from the recent investments made in its bus fleet, as well as from the additional capital funds being utilized for preventive maintenance, helping to offset the costs of regular maintenance and repairs. 

Fuel expenses in 2011 are budgeted at $54.5 million, which is $9.4 million (14.7 percent) less than the 2010 budget and $3.6 million less than the 2010 forecast. As with 2010, this reduction is based on savings generated from the CTAs strategic fuel hedging policy. Fuel prices in 2011 are budgeted at $3.07 per gallon. The forecast net average price for fuel in 2010 is $3.16 per gallon versus a budgeted estimate of $3.46 per gallon. As of August 31, 2010, 89 percent of the CTAs 2010 projected fuel consumption has been already locked-in. With the help of its advisors, the CTA uses a long-term, layered fuel hedging strategy. As such, 18 percent of the CTAs 2011 projected fuel consumption is already hedged at an average per gallon price of $2.82. The CTA is also benefitting from a more fuel-efficient bus fleet which, when combined with the service adjustments implemented earlier this year, results in a decline in consumption in 2011. 

The 2011 proposed budget estimates the cost of electric power for revenue equipment at $30.1 million, which is $8.1 million (21.2 percent) lower than the 2010 budget. At the start of 2010, the CTA entered into a new contract for electric power. 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 through strategically placed hedges. Electricity consumed above or below the block quantity is settled at the real-time ComEd price. Approximately 60 percent of the CTAs expected power consumption is met using this strategy. This approach yields a blended rate of approximately $0.087 per kilowatt-hour. The electric power contract will continue through the end of 2011. Approximately 55 percent of the expected 
consumption for 2011 has already been purchased. 

The 2011 proposed provision for injuries and damages expense is $15 million, reflecting a decrease of $13 million (46.4 percent) from the 2010 budget. The required provision is determined by the CTAs actuaries and is based on actual claims history, future projections and the additional deposits made in 2010. 

Purchase of security services includes 24-hour patrol services provided by the Chicago, Evanston and Oak Park Police Departments, as well as contracts with private firms for guard and canine security. The 2011 proposed security services expense is estimated to be $34.1 million, which is an increase of $928 thousand (2.8 percent) over the 2010 budget. The CTA will maintain the current level of security coverage in 2011. In addition to the services contracted by the CTA, the City of Chicago provides approximately $22 million in services from the Chicago Police Departments Public Transportation Section at no charge to the CTA. 

Other expenses in 2011 are proposed to be $200.1 million, an increase of $22.1 million (12.4 percent) over the 2010 budget, primarily due to increased pension obligation bond payments required by the 2008 legislation, which caused the annual pension cost to the CTA to rise significantly. In 2011, pension obligation interest expense will account for $103.3 million of the CTAs other expenses category. Separately, a change in the accounting treatment of an operating grant provided by the RTA contributed slightly to the increase in this category. Additional expenses in this category include utilities for CTA facilities, advertising and marketing expenses, equipment and software maintenance, accounting, engineering, legal and other consulting services, banking fees and commissions for the sale of fare media. 

OPERATING REVENUES 

The CTA has two main revenue categories: system-generated revenues and public funding. 

***A table is inserted here to outline in thousands the total revenues projected for 2011, including system-generated revenue and public funding. 

Fares and Passes: $523,660 
Reduced Fare Subsidy: $28,000 
Advertising, Charter & Concessions: $18,924 
Investment Income: $850 
Statutory Required Contributions: $5,000 
All Other Revenue: 35,817 

The sum of the numbers above is the total system-generated revenue, $ 612,251.

The public funding is broken down as follows, 
 
Preventive Maintenance: $113,200
Fare Agreement with State: $83,000
Public Funding Available through the RTA: $529,305

The sum of the numbers above is the total public funding, equal to $725,505

Therefore, total 2011 revenue is $ 1,337,756. ***

SYSTEM-GENERATED REVENUES 

System-generated revenues include fares and passes, reduced-fare subsidy, advertising and concessions, investment income, statutory-required cash contributions from Chicago and Cook County and other miscellaneous revenues. In 2011, system-generated revenue is projected to be $612.3 million, representing a 1.9 percent increase (or $11.5 million) when compared to the 2010 budget. The increase in system-generated revenue is found primarily in the other revenue category, reflecting the subsidy that the CTA is entitled to under the Build America Bonds (BABs) issued in 2010 and a change in the accounting treatment of an operating grant from the RTA. 

Revenues from fares and passes are budgeted at $523.7 million in 2011. This is an increase of $2.2 million over the 2010 budget and $5 million over the 2010 forecast. The growth in revenue from fares and passes is consistent with the modest increase projected for ridership in 2011. 

The CTA provides approximately 28 million reduced fare trips annually to qualified riders. The CTA estimates that it will also provide approximately 49.8 million free rides in 2010 to seniors, people with disabilities under the states Circuit Breaker Program, active military personnel and veterans with a disability; seniors alone make up 57.3 percent of that total. In 2011, that number is expected to rise to 51 million rides, and will account for 10.5 percent of the CTAs total ridership, not including rail-to-rail transfers. The 2011 budget projects the reduced fare subsidy will remain constant with the 2010 budget of $28 million. 

Advertising, charters and concessions revenues include advertisements on buses, trains and stations, income from concessions and other non-farebox revenue. The CTA has been focused on producing revenue from areas other than the farebox. Unfortunately, the recession has impacted efforts to increase revenue in this category as corporations have reduced spending on advertisement. In 2011, revenue for this category is budgeted at $18.9 million, remaining constant with the 2010 year-end projection. 

Budgeted at $850 thousand, investment income for 2011 is projected to also remain in line with the 2010 forecast. This reflects record-low interest rates and relatively low investable cash balances. 

Statutory-required contributions remain unchanged in 2011, budgeted at $5 million. The Regional Transportation Authority Act requires the City of Chicago to contribute $3 million and Cook County to contribute $2 million each year toward CTA operations. These required cash contributions are in addition to in-kind contributions from the City of Chicago and Cook County. The Chicago Police Departments Public Transportation Section provides approximately $22 million of security services to the CTA, while Cook County provides approximately $3.5 million of in-kind services through the Sheriffs Work Alternative Program (SWAP). Under the SWAP program, non-violent offenders in Cook County supplement existing CTA employees to clean bus turnarounds and garages. 

All other revenue includes parking charges, rental revenue, third-party contractor reimbursements and filming fees. This category is budgeted in 2011 at $35.8 million, showing a $18.4 million increase over the 2010 budget, which reflects the subsidy that the CTA is entitled to under the Build America Bonds (BABs) issued in 2010, as well as a change in the accounting treatment of an operating grant from the RTA. 

PUBLIC FUNDING 

The amount of public funding available for CTA operations is determined by the RTA, and is based on the RTAs revenue projection for the year. Public funding has three sources: sales tax revenue, public transportation funds (PTF) and the real estate transfer tax (RETT). The RTA retains 15 percent of the original one percent RTA sales tax authorized in 1983. Of that which remains, the CTA receives 100 percent of the taxes collected in the City of Chicago and 30 percent of those taxes collected in suburban Cook County. Of the funding available from the 0.25 percent sales tax and PTF authorized by the 2008 legislation, the CTA receives 48 percent of the remaining balance after allocations are made to fund various programs. Additionally, the 2008 legislation authorized a $1.50 per $500 increase in RETT, all of which is collected in the City of Chicago. The CTA receives 100 percent of the increased RETT authorized in 2008. In 2010, the total public funding was $497.3 million, not including capital funds transferred for preventive maintenance or the $83 million funded in accordance with the CTAs agreement with the State. A diagram of public funding received by RTA and allocated among the three service boards is included in the Appendix, Operating Funding Summary. 

In 2011, public funding available through RTA will total $529.3 million, a $32 million (6.4 percent) increase when compared to 2010. 

The recovery ratio measures the percentage of expenses that a service board pays against revenue that it generates. System-generated revenues, operating expenses and certain statutory exclusions are used in the calculation. The RTA Act requires the region to fund 50 percent of its expenses through revenues generated by the RTA and its three service boards. This is considerably higher than the recovery ratio required in other transit agencies across the country. This proposed 2011 operating budget estimates the CTAs recovery ratio at 54.6 percent. 

The proposed 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 CTA by the end of 2010. 

The proposed 2011 budget also reflects the transfer of $113.2 million in capital funds to eligible preventive maintenance, as well as $83 million from the State in ccordance with the CTAs agreement to not raise fares in 2010 and 2011. 

Performance Goals and Metrics: In 2007, the CTA implemented a performance management system to improve efficiency, promote accountability and enhance our customers experience. Performance management is a systematic process at the CTA involving all departments and employees in the accomplishment of the agencys goals. While certain departments have more direct contact with the public, the CTA recognizes that each department is inextricably interconnected, and that individual performance affects the organizations ability to meet its goals. The 2011 proposed operating budget is directly linked to performance management goals for each business unit within the CTA. Throughout 2011, departments will continue to be assessed, and managers will continue to be held accountable for both budget adherence as well as meeting performance goals. 

***President's 2011 Proposed Operating Budget

All numbers in thousands

Operating Expenses 
Labor: Actual 2009 - $856, 468; 2010 Budget - $852,081; 2010 Forecast - $834,974; Proposed Budget 2011 - $931,179
Material:  Actual 2009 - $87,900; 2010 Budget - $77,724; 2010 Forecast - $82,276; Proposed Budget 2011 - $72,762
Fuel: Actual 2009 - $100,539; 2010 Budget - $63,879; 2010 Forecast - $58,121; Proposed Budget 2011 - $54,487
Power: Actual 2009 - $37,645; 2010 Budget - $38,176; 2010 Forecast - $36,226; Proposed Budget 2011 - $30,070; 
Provision for injuries and damages: Actual 2009 - $15,397; 2010 Budget - 28,000; 2010 Forecast - $43,000; Proposed Budget 2011 - $15,000
Purchase of Security Services: Actual 2009 - $32,300; 2010 Budget - $33,181; 2010 Forecast - $33,185; Proposed Budget 2011 - $34,109
Other Expenses: Actual 2009 - $131,348; 2010 Budget - $178,004; 2010 Forecast - $172,367; Proposed Budget 2011 - $200,149
Total Operating Expenses: Actual 2009 - $1,261,597; 2010 Budget - $1,271,045;  2010 Forecast - $1,260,149; Proposed Budget 2011 - $1,337,756

System Generated Revenue 
Fares and Passes: Actual 2009 - $505,713; 2010 Budget - $521,417; 2010 Forecast - $518,660; Proposed Budget 2011 - $523,660
Reduced Fare Subsidy: Actual 2009 - $28,239; 2010 Budget - $32,200; 2010 Forecast - $28,000; Proposed Budget 2011 - $28,000
Advertising, Charter & Concessions: Actual 2009 - $30,215; 2010 Budget - $22,876; 2010 Forecast - $18,900; Proposed Budget 2011 - $18,924
Investment Income: Actual 2009 - $1,259; 2010 Budget - $1,832; 2010 Forecast - $850; Proposed Budget 2011 - $850
Statutory Required Contributions: Actual 2009 - $5,000; 2010 Budget - $5,000; 2010 Forecast - $5,000; Proposed Budget 2011 - $5,000
All Other Revenue: Actual 2009 - $31,206;  2010 Budget - $17,381, 2010 Forecast - $18,400, Proposed Budget 2011 - $35,817
Total System Generated Revenue:  Actual 2009 - $601,632; 2010 Budget - $600,706,  2010 Forecast - $589,810; Proposed Budget 2011 - $612,251

Public Funding Required for Operations: Actual 2009 - $659,965; 2010 Budget - $670,339, 2010 Forecast - $670,339, Proposed Budget 2011 - $725,505
Transfer from Capital- Preventive Maintenance: Actual 2009 - $128,920; 2010 Budget - $90,000; 2010 Forecast - $90,000; Proposed Budget 2011 - $113,200
Fare Agreement with State: Actual 2009 - zero; 2010 Budget - $83,000; 2010 Forecast - $83,000; Proposed Budget 2011 - $83,000
Public Funding Available through RTA:  Actual 2009 - $531,045; 2010 Budget - $497,339; 2010 Forecast - $497,339; Proposed Budget 2011 - $529,305
Total Funding: Actual 2009 - $659,965; 2010 Budget - $670,339; 2010 Forecast - $670,339; Proposed Budget 2011 - $725,505

Recovery Ratio: Actual 2009 - 53.10%; 2010 Budget - 55.60%, 2010 Forecast - 55.20%, Proposed Budget 2011 - $54.60%
Required Recovery Ratio*: 50%
Fund Balance: Actual 2009 - zero, 2010 Budget - zero,  2010 Forecast - zero, Proposed Budget 2011 - zero

TOTAL CTA WITHOUT STO (Scheduled Transportation Operations): Budgeted Position 2010 - 4,652; Budgeted Position 2011 - 4,581 
Bus STO  Full-Time Equivalents Positions: Budgeted Position 2010 - 3,728; Budgeted Position 2011 - 3,699 
Rail STO  Full-Time Equivalents Positions: Budgeted Position 2010 - 1,140; Budgeted Position 2011 - 1,097 
TOTAL CTA: Budgeted Position 2010 - 9,520; Budgeted Position 2011 - 9,377***

*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. 