Time running out for lawmakers to address public transit fiscal cliff

Efficient, accessible, and safe public transportation is essential to a robust Illinois economy.

Our public transit systems connect workers to jobs, bring customers to commercial and entertainment activities, decrease roadway congestion, and protect the environment by saving hundreds of millions of gallons of gasoline each year. Every dollar invested in public transit infrastructure improvements generates $3.50 in local economic activity.

But mass transit agencies in the Chicago area are staring down an impending “fiscal cliff.” Beginning in 2026, the Regional Transportation Authority (RTA) system that oversees rail and bus services from Metra, Pace, and the Chicago Transit Authority will face a $730 million annual deficit. That’s because COVID-era relief funds that kept these institutions running when demand temporarily dropped during the pandemic will expire by the end of next year.

Like nearly all public infrastructure, Illinois’ public transit systems had been underfunded for decades. In 2019, the historic Rebuild Illinois infrastructure and jobs program sought to close some of the gap by including almost $5 billion for mass transit.

Then came the pandemic, which ushered in a new era of remote work and steep drops in ridership and fare revenue. More than $3 billion in federal support that now is winding down enabled our mass transit agencies to maintain operations.

Today, ridership continues to rebound, recovering to 62% of pre-pandemic levels and up 14% this year alone. But this momentum is at risk, with service cuts of up to 40% coming unless a sustainable path forward is identified.

The Chicago Metropolitan Agency for Planning (CMAP) has crafted one potential solution that would reform the state sales tax that is currently the primary source of funding for Chicago’s mass transit agencies. Specifically, CMAP proposes to lower Illinois’ state sales tax rate from 6.25% to 5.75%, but extend it to cover services.

States like Iowa, Wisconsin, and Texas each tax more than 50 more services than we do in Illinois. These include services that are mostly paid for by affluent households, such as investment counseling, security and detective work, aircraft rentals, and jewelry and watch repair.

By lowering the state sales tax on everyday household goods but broadening the base for services that are more likely to be used by higher-income households, transit agencies would generate more than $200 million annually. To make up the rest, CMAP proposes the regional RTA sales tax — paid in counties where the RTA operates — be increased by 0.25%. This would bring in more than $500 million annually, or $733 million combined.

If adopted, this proposal would not only eliminate the transit fiscal cliff entirely and bring down costs for clothes, cars, and other everyday purchases, but it would do so while saving 15,000 jobs at Metra, Pace, and CTA and maintaining existing service schedules.

This policy change also would improve Illinois in tax rankings nationally, dropping us from the 13th-highest state sales tax in the nation to the 27th-highest — and below peer states like Indiana, Iowa, Texas, and Florida.

Illinois is not alone in its public transit challenges. Many states already have been confronted with their own funding shortfalls and taken legislative action. These range from one-time funding patches in Pennsylvania and California to a surtax on large corporations in New Jersey and a new regional transportation sales tax in Minnesota.

With the clock ticking and the fiscal cliff fast approaching in Illinois, lawmakers should begin working to resolve this issue. That work should start with the proposal to lower and broaden the sales tax, which offers a sustainable, long-term solution.

In doing so, lawmakers have the opportunity to deliver tax relief, save quality jobs, and enable our transit agencies to make needed investments to improve speed, reliability, cleanliness, and safety. With the right solution, the ridership rebound can continue and Illinois can continue to build a modern public transportation system.

• Frank Manzo is an economist at the nonpartisan Illinois Economic Policy Institute.