memo

Council Office of Financial Analysis

To:

Members of the City Council

CC:
Date:

11/28/2016

Re:

Transit TIF and the Red-Purple Modernization

Red Purple Modernization

Phase One of the Red Purple Modernization plan (RPM) is an 8 year, $2.1 billion proposal
aimed at increasing capacity along the Red and Purple lines operated by the Chicago Transit
Authority, improving aging infrastructure along that corridor, and enhancing accessibility to
public transit for persons with disabilities.
Much of the basic infrastructure along the Red Line, particularly from Lawrence to Bryn Mawr
is nearly 100 years old and in significant need of repairs. Because this infrastructure is not
infinitely maintainable, further aging of these lines will result in an increase in the utilization of
slow zones along the corridor which would create a significant deterioration of service along the
entirety of the Red and Purple Lines. Replacing aging track structures and making needed
improvements to bridges and viaducts along the line, phase one of the RPM proposes to extend
the life of this portion of the Red and Purple lines by an additional 60-80 years.
As part of the rebuild of this portion of the Red and Purple lines, the CTA is planning on
widening the platforms and installing elevators for the Lawrence, Argyle, Berwyn and Bryn
Mawr stations, allowing them to become more accessible, and permitting greater foot traffic on
station platforms to accommodate greater capacity safely. The improvements being made to the
Lawrence to Bryn Mawr corridor are anticipated to be roughly 49% of the infrastructure
spending related to the project.
In addition to the physical improvements along the Red and Purple line, the CTA is also
proposing to make significant signal improvements along the 5.3 mile stretch of the Red and
Purple lines from Belmont going north to Howard. The existing signaling system is over 40
years old, and improved technology will allow for greater capacity along the corridor. The signal
improvements being made from Belmont to Howard are anticipated to equal roughly 25% of the
infrastructure spending related to the project.

Perhaps the most controversial aspect of Phase One includes the construction of the Red-Purple
Bypass just north of the Belmont station. The plan for the bypass is to construct a flyover for the
outbound Brown Line track where the current intersection of the Red, Purple and Brown lines
exists. Currently, outbound Brown line trains are required to physically cross over both inbound
and outbound red line tracks, as well as inbound purple line tracks. The proposed flyover will
construct a bridge for the outbound Brown Line so that it is able to head west along its route
without requiring Red Line trains or inbound Purple Line trains to wait for clearance coming in
to or out of the Belmont station. The creation of the Red-Purple Bypass is anticipated to be
another 25% of the anticipated infrastructure spending of the project.
According to the CTA, the impacted portions of the Red and Purple lines have experienced 40%
growth over the last five years during peak hour ridership. Trains operating inbound from
Belmont are often operating at or near peak loads during these times all the way to Grand
Avenue, requiring riders to often wait for multiple trains prior to being able to board. These
components are the primary major infrastructure improvements of the RPM and are projected
to provide increased capacity along the Red and Purple Lines of 30%. Current plans for service
upon completion of the project show that the system is anticipating increased operations of 15%
during peak hours, which allows for the system to meet the projected needs of the ridership
while allowing for flexibility for continued growth.
While 30% increased capacity is likely in excess of the shorter term demands of the system, it is
important to note that all of the infrastructure improvements are working in concert with one
another. The construction of the bypass will allow for the largest projected increase in capacity.
However, that increase will not allow for more trains to pass through this intersection if all
trains along the Lawrence to Bryn Mawr corridors are required to operate in slow zones or with
an aging signaling system that is unable to handle increased traffic. And while improvements to
the physical infrastructure from Lawrence to Bryn Mawr could allow for some additional
potential capacity, that potential cannot be unlocked without removing the bottleneck that is
created at the Red, Purple and Brown Line intersection. Also, absent the construction of the
bypass, any improved capacity would likely not be sufficient enough to qualify for the Federal
Transit Administrations core capacity grant, which requires that a transit agency be able to
increase capacity along an existing corridor by at least 10%.
Financing
This $2.1 billion project contains three primary sources of funding. $1.1 billion is to be funded by
a federal grant administered by the Federal Transit Administration (FTA). The grant is part of
the FTAs Core Capacity Grant Program. In order to be eligible for such a grant, a transit agency
must be able to demonstrate that the infrastructure improvements will provide increased
capacity of at least 10% in an existing corridor. In addition, the transit agency must be able to
provide a roughly 50% match towards the costs of the project.
To provide the match needed to receive the Core Capacity grant, $428 million in funding is
being provided by the CTA through the issuance of bonds backed by sales tax revenues. The final
amount needed to secure the grant, $625 million, is to be provided through Tax Increment
Financing and the creation of a new Transit TIF.

To put it simply, the size of the proposed TIF relative to the total Equalized Assessed Value
(EAV) of property in the City of Chicago is quite significant. The base EAV of the proposal is
$5.8 billion, roughly 8% of total EAV within the City of Chicago. As a comparison, the LaSalle
Central TIF, which generated the most revenue of all TIFs in 2015, has a base EAV of
approximately $4.2 billion.
Because the growth in property value of such a large area will no longer be captured as part of
the property tax base, there will likely be an effect of pushing property tax rates higher in the
range of 2/10s to 3/10s of one percent once the project is nearing completion. It should be noted
that in the early years of the existence of this TIF, the impact on the overall tax rate is likely to be
de minimis.
The proposed TIF resources are anticipated to be used to repay some type of debt instrument,
likely in the form of a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan.
The benefit of securing a TIFIA loan is that the interest owed on the loan is significantly below
what could be anticipated through the issuance of tax-exempt general obligation bonds. This will
likely save around $200 million in interest costs over the 35 year life of the debt.
Over the statutorily allowable life of this TIF, the revenue that is anticipated to be generated is in
excess of $5 billion. Because the total revenue generated by the TIF is likely to far exceed the
principal and interest payments needed to cover the costs, it is expected that the loan would be
repaid early, which will save nearly $200 million in interest payments. Language is included in
the Inter-governrnental Agreement to ensure that if revenues are sufficient, the outstanding
debts will be repaid early so that the TIF can be terminated. It is also likely that current revenue
projections are a bit conservative because they were generated using the 2015 tax rate, which
does not take into account the recently enacted $250 million pension levy adopted by Chicago
Public Schools.
It should be noted that if the CTA were to secure the debt with the use of its fare box revenues
(since they have little control over their receipt of sales tax revenue), fares would likely need to
be increased in excess of 20%. However, a fare increase of that size would likely have an impact
on ridership, further straining the CTAs ability to cover their debt service costs and potentially
requiring even greater fare increases that could be around 50% above existing fares. Any loan or
debt instrument that is being secured for the completion of the RPM is being backed by the CTA
and not by the City of Chicago so that if revenues from the TIF are not sufficient, the CTA will be
required to continue repayment of the debt.
Benefits to CPS
As established under Public Act 99-792, a transit TIF is different from other types of TIFs in
many significant ways, but one of the most significant is that some revenues generated by the
TIF are automatically distributed to the taxing bodies within the district. Once the increment is
taxed, before any money is deposited within the TIF, the portion that would otherwise go to CPS
is directed there, then 80% of the remaining amount is deposited with the transit TIF, and the
final 20% is sent to the various taxing bodies other than CPS. In other words, of the revenue
generated from the incremental growth in property values, roughly 50% will go to CPS, 40% will

go to the TIF, and 10% will go to the other taxing bodies. This is in addition to the existing levies
from each of the taxing bodies.
Under current law, CPS is only able to increase its levy on an annual basis by the rate of
inflation. However, with the enactment of PA 99-792, CPS will also begin receiving its share of
transit TIF revenues in addition to its inflationary levy increases. This means that through the
projected life of the Transit TIF (the time at which the TIFIA loan is repaid), nearly an
additional $1 billion of revenue will be generated for the benefit of Chicago Public Schools.