Reality Check Time for Metra: The Downside of Frugality

A reluctance to spend has led the suburban rail system to cars decades out of date and a bottom line that has never appeared bleaker.

This story was co-published with Crain's Chicago Business.

With a sticker price of $3 million for a new commuter rail car, the cash-strapped Metra system is trying to upgrade its vintage rolling stock on the cheap with $700,000-a-car gut and rehab jobs at its 49th Street Car Shop on the South Side.

There’s a lot to overhaul because 40 percent of Metra’s existing fleet predates the system’s launch in the 1980s. Some cars still in use, inherited from private railroads that once ran suburban service, date back to the Eisenhower Administration.

What Metra officials hail as resourcefulness and frugality some transportation experts see as customer unfriendly and shortsighted.

Despite a spate of fare increases in recent years, Metra still costs less to ride than commuter systems serving other big metropolitan areas. Its leadership is averse to borrowing, so its balance sheet is debt free.

That said, Metra leaders acknowledge the financial future looks extremely bumpy for a train system that logs about 300,000 passenger trips a day.

“Metra has an unsustainable economic model and faces the worst financial crisis in its 33-year history,” the agency said in its strategic plan for 2018.

Against that bleak backdrop is a central question: Is Metra a victim of circumstances out of its control or an accomplice in its own shortcomings?

Metra attributes its woes to legislative gridlock that has relegated mass transit to the back burner. The state hasn’t floated a public works bond issue since 2009, and Metra’s piece of that old pie turned out to be $265 million less than it expected.

But Metra’s difficulties predate the state budget crisis of recent vintage and trace to the 20-year regime of former executive director Phil Pagano, who transit experts say under-invested in the system. Pagano killed himself in 2010 amid inquiries into financial irregularities.

The result is a public agency that looks financially prudent on paper but may actually be digging a hole by failing to position itself for the future.

“Metra is not keeping up, it’s just scotch-taping things together, said Audrey Wennink, director of transportation at the Metropolitan Planning Council. “They get you from point A to point B, but the cars are old and the stations are old. It’s not pleasant.”

Rick Harnish, executive director of the Midwest High Speed Rail Association, added, “Rather than come up with a plan for the future that could get people excited, the message is ‘Woe is me, we have 40-year-old locomotives.’”

Metra says it needs $590 million a year just to maintain the system and another $610 million a year to eliminate a backlog of unfunded work. Yet its capital budget is less than $200 million.

Could Metra do more to control its destiny and ease dependence on conventional but increasingly unreliable sources of funding? There are other options, transit experts say.

Metra could follow the lead of the Chicago Transit Authority, its sister agency, which has issued bonds over the past 15 years to fund the purchase of rail cars and repair infrastructure. Chicago also recently increased its fee for rides on Uber and Lyft with receipts earmarked for CTA capital projects.

Harnish says Metra’s rehab initiative has its limits, if for no other reason than the cars now being spruced up were built to very different specifications than what consumers demand today. Out of a fleet of more than 800 cars, just 62 are equipped with Wi-Fi.

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An old Metra car gets gutted. 40 percent of Metra’s existing fleet predates the rail system’s launch in the 1980s. (Judy Crown, for BGA)

Current cars are also high off the ground—42-inches above the rail as compared to newer cars typically 23-inches to 30-inches high, making it easier for passengers with strollers, bicycles or for the elderly to board. “Current cars serve a narrow market—able-bodied people not carrying much gear,” Harnish said.

Upgrading the system could help attract new riders, especially budget-conscious and environmentally minded millennials who are favorably disposed to mass transit. “The younger generation is enamored with riding trains,” said Jeff Schielke, the longtime mayor of Batavia and chairman of the Council of Mayors executive committee for the Chicago Metropolitan Agency for Planning (CMAP).

Metra is exploring all options to address its capital and operating funding issues, including working with sister transit agencies “to lobby state and federal officials about the need for dedicated, sustained sources of capital and increased operating funding sources that grow over time,” said the agency’s spokesman, Michael Gillis.

Options he outlined include some limited borrowing, leasing cars and engines, pursuing grants and seeking operating efficiencies. “However, there is no one solution and, for our capital needs, nothing likely to equal the traditional funding we have received from the state of Illinois,” Gillis added.

Proud to be debt free

Metra in the past has declined to borrow to pay for improvements even though it has legal authority to issue $1 billion in bonds.

That stands in stark contrast to the CTA and is likely a key reason why mass transit in the Chicago region defies the more typical U.S. experience where aging urban subway and elevated lines are falling into disrepair while suburban commuter systems are better funded and more modern.

Under former Mayor Richard M. Daley, the CTA issued bonds for projects ranging from the renovation of what is now known as the Pink Line to the purchase of hundreds of rail cars.

The CTA, of course, is much larger than Metra and runs buses in addition to trains throughout the city and into some surrounding suburbs. At $900 million this year, two-thirds of which is allocated to rail, the CTA’s capital budget dwarfs that of Metra.

“The CTA has done innovative work in finding ways to fund its capital needs,” said Susan Massel, spokeswoman for the Regional Transportation Authority, the state authorized parent of the CTA, Metra and the Pace suburban bus system.

Bonds, of course, are not without risk. CTA has nearly $5 billion in long-term debt, including $4.2 billion in bonds backed by sales tax revenue and federal funding, according to the 2018 CTA budget. Further slowing of state sales tax revenue, due in part to e-commerce or shortfalls in federal reimbursements, present a risk. But CTA spokesman Brian Steele said the agency “receives a steady stream of sales tax revenues and federal funds that far exceed our bond repayment obligation.”

Gillis, the Metra spokesman, said the board of directors of that system has been reluctant to issue bonds because revenue streams that back them are uncertain. It is, however, now considering borrowing about $27 million to buy up to 21 used locomotives at $1.3 million each—a cautious first step.

The Regional Transportation Authority, the state authorized overseer of CTA, Metra and the suburban bus service Pace, traditionally has issued bonds on behalf of all three transit services. But RTA is up against its legal borrowing limit.

Enter the Transit TIF

Another financing option for Metra, already underway at the CTA, is something referred to in industry parlance as transit-oriented development. In short, a transit agency works with municipalities and developers on projects aimed at benefiting all three.

A Chicago example: In 2016 the city won state authorization for a new sort of tax increment financing district focused on transportation oriented development. The transit TIF allowed for the diversion of some property tax revenues to fund infrastructure work on bridges, tracks and viaducts.

That tool helped capture more than $1 billion in federal matching funds and paved the way for modernization along the CTA’s Red and Purple Lines as well as the modernization of Union Station.

On a practical level, it is easier for a transit agency centered in one large city to leverage such a tool than Metra, which cuts across dozens of jurisdictions.

Redevelopment historically has been initiated by local governments and Metra will work with any community interested in a TOD near its stations, Gillis said. But it’s never been proactive in reaching out to communities with TOD proposals. “TOD can help in a limited way at individual stations but it can’t help with our major needs,” Gillis said.

Transit oriented development is a longer-term remedy and transit agencies often are forced to make short-term decisions to raise fares or cut service. Metra has done both in recent years, most recently in February to close a $45 million funding gap.

Despite protests, Metra fares are still the lowest among the nation’s six largest commuter lines. Fare revenue per passenger mile at Metra is 21 cents, compared to 28 cents at the system serving Boston commuters and 33 cents on the Long Island Railroad in the New York area, according to Metra data.

Fare increases can generate public support if they’re properly sold and if riders see tangible benefits such as new cars with more comfortable seats, folding work tables, full Wi-Fi as well as more frequent service, transit experts say. While fare increases always risk alienating customers, additional service cuts would be even more fraught. Trains with sharply reduced frequency during evenings and weekends would drive suburbanites back into their cars and onto already congested expressways.

To date, Metra has focused its efforts on awareness of the need for state and federal funding, its traditional revenue sources. “It’s clear things are changing dramatically and the feds aren’t going to save us,” Wennink said.

Former RTA executive director Stephen Schlickman put it even starker terms. “We have to save ourselves,” said Schlickman, now an adjunct professor at the University of Illinois-Chicago Urban Transportation Center. “We’ve grown accustomed to mediocre.”

About the Author
  • Judith Crown

    Judith Crown is a veteran business journalist and a regular BGA freelance contributor. She has worked for major news outlets including BusinessWeek Chicago and Crain’s Chicago Business.