CTA Tattler

I don't think any of these free rides are inherently a bad idea. I just don't think the CTA can afford them.

I also don't think this tax is a good way to fund the pension--I mean, with the housing market the way it is, there's not going to be a lot of revenue from real estate transfers. So in a year we're going to end up either with the CTA raiding the pension funds again or another series of doomsdays until someone comes up with a better plan.

I don't see how CTA -can- do this. It's not part of this list under state law. (70 ILCS 3605/30)

"The Board may provide free transportation within any municipality in and by which they are employed for firemen and public health nurses, when in uniform, and policemen when in uniform or, when not in uniform, upon presentation of identification as policemen, and shall provide free transportation to sworn law enforcement personnel of the Cook County Sheriff's Department when in uniform or, when not in uniform, upon presentation of identification as sworn law enforcement personnel of the Cook County Sheriff's Department, and may provide free transportation for employees of the Authority when in uniform or upon presentation of identification as such employees, and may enter into agreements with the United States Post Office Department for the transportation of mail, and the payment of compensation to the Authority in lieu of fares for the transportation of letter carriers, when in uniform at all times.
The Board may also provide free transportation, or transportation at reduced fares, to all or designated classes of pupils in attendance at public schools of school districts within or partly within the territorial limits of the Authority, or in attendance at private schools offering grades of instruction comparable to those offered in public schools, under such conditions as shall be prescribed by the Board, and, if otherwise authorized by law, the Board may contract with public school boards and representatives of private schools, for reimbursement of pupil transportation costs from public funds."

Cheryl,
This tax would be used to service debt on pension obligation bonds, which probably would have a repayment period of something on the order of 15 years (just guessing....could be anywhere 10-30 years I suppose). Thus the expected revenue from the transfer tax over the long haul (the period of bond repayment) would be analyzed by the banks to determine how much bonding power the revenue stream provides. A couple bad years aren't too big a deal and would already be factored in to the estimate of this tax's ability to serve bond debt. Now on the other hand, if there were a prolonged slump of like 5-10 years (like what happened with real estate in Japan), then it would indeed be a serious problem.

Thanks, Viva. I was envisioning the CTA having to divert money from other revenue streams to make up for a shortfall in the pension funding with the real estate market in free fall. That won't happen?

(I'm not exactly the person you want balancing your checkbook, IYKWIM)

This is a shame. An additional cost to buying a home is not what the real estate market needs right now. Not to mention the fact that the tax revenue doesn't put buses or trains in operation - its purpose is pension and health care funding. The CTA obviously needs to get its act together; bailing them out by making it more difficult to buy a home in Chicago just isn't the right thing to do.

If the real estate market were booming, people would oppose a tax increase because it would cut the boom short. Now that prices are falling, a tax increase is the last thing we need -- as if slightly lower taxes are going to make a difference in such a profoundly f---ed up market. Looks like no time is a good time to raise taxes! Maybe we could say that the last thing the Chicago real estate market needs is for CTA service to be scaled back, since that has some connection to reality.

Adam makes a good point: there's never a good time for a tax increase. Govt and quasi-govt institutions have no incentive to work efficiently if they know they can simply tax people to cover their shortcomings. To maximize pressure on the government to get their act together, tax the people who consume the service in question -- in this case, the CTA's riders. Painful? Yep. But so is an utter lack of consequences for the CTA, as we've seen.

And the issue with the transfer tax isn't just the real estate market. Homeownership is relevant to the success of a city, just like decent public transportation is. Civic interest and involvement rise when people are invested in making their city a better place to live. Homeowners are by definition invested, and we should think carefully before throwing more obstacles in front of them.

I love how the burden was placed on future homeowners and unaccompanied by even a token fare increase. Riders qua riders have paid absolutely nothing. The $700 in and of itself won't dissuade me from buying and committing to Chicago, but seeing how property owners/taxpayers are treated may.

Kball is taking my "point" in exactly the wrong direction.

The money has to come from someplace. Should where it comes from be related to how it's going to be used? Like a user fee? Well, maybe, maybe not.

Certainly we have a lot of taxes that are meant to discourage certain behaviors, and exclusions/deductions/credits to encourage certain behaviors. But the additional real estate transfer tax we're talking about here is hardly big enough to discourage anyone with a calculator, and a brain large enough for logical thinking. (It is, however, large enough to encourage illogical, emotional thinkers to make a lot of noise.)

So is there some kind of transit-related behavior we want to discourage with a tax? Nothing particular comes to mind.

If we were talking about the need for operating funds that go up and down in a cyclic fashion, an employment tax would be a good choice. Many cities with the best funding for mass transit use an employment tax of some sort. When employment goes up, the need for transit goes up. When employment goes down, service levels can be cut-back.

But this isn't for operating funds. It's to service debt on long-term bonds. Essentially a capital expenditure. While you could fund that with something volitle like sales taxes or income taxes, more often something like this would be funded with property taxes.

The problem is, even though it would be a small hit if spread-out over all properties, even those not being transfered, it would be a bigger deal politically.

So despite a few moans and groans now, this is probably the easist way to raise the kind of money that needs to be raised.

And let's get real. It's effect on the real estate market is going to be negligible. Oh, maybe there's someone out there overcome by emotion today that is going to give it undo weight in their decision process, but two months from now, even the movers and shakers buying and selling the multi-million dollar commercial project won't blink an eye.

But if there's enough oposition, I'm sure they could raise the money some other way. Perhaps some way that actually will effect most of us more directly.

Every tax distorts market incentives. We have an organization that, most people agree, is grossly inefficient and mis-managed. Taxing an activity which is totally unrelated to the problem itself distorts incentives in ways that don't help the problem.

London and other cities have a congestion tax - they tax cars entering the city. Chicago did not even debate such a tax. It's politically easier to toss the expense into home purchase expenses... but it's not the best solution.

Rational decision-makers weigh costs against benefits, and this tax just made the costs significantly higher when doing the home buying calculation. Don't forget that taxes and closing costs are due immediately upon buying - this isn't a cost that gets buried in a mortgage. It's extra money that you must have available and ready to plunk down the minute you sign the contract.

What about the 26 Million CTA receives yearly from their Advertising Titan? How come outside vendors can't pitch in? They did in fact win the right to advertise on their buses and trains? Where does that money go?

The advertising business becomes bigger and better and the real estate market gets destroyed by the transfer tax.

This is going to destroy the real estate market?

Does the soft drink market get destroyed when the price of a soda goes from $1.25 to $1.29? That's about a 20-times bigger hit than what we're talking about here.

Closing cost, including taxes, may or may not be able to be explicitly rolled directly into mortages (depending on the type of mortgage in question), but to think they can't be rolled in to the mortgage indirectly is just being naive.

At the typical condo-owner/homeowner level, if they don't have the liquidity to bring the tax in cash to the closing table, they probably shouldn't be buying that home. Homeowners who are upside-down in equity on their homes aren't exactly the best thing for the economy, either.

As for commercial real estate, if the numbers were so close that this tax is the deciding factor in whether a deal happens or not, the deal even without the tax probably wasn't going to have a positive effect on the local economy either.

Also, the revenue is meant to meet an obligation, not to solve a problem. The problem would be too many people growing old, and retiring. So if you want to use the tax to discourage a behavior related to the problem, then you'd be looking for a way to tax transit workers to discourage them from aging.

Not all fiscal obligations are capable of being met by a sin-tax related to the obligation. Most fiscal obligations need to be met in ways that have the least negative effect, and have the least political oposition. And that's exactly what's being done here.

In two months, this will be a non-issue. But if you want to bring it up again, let's say, a year from now, we'll be able to look at the numbers and clearly see that this petty tax will not have killed the real estate market. You won't even see a hick-up because of it.

The "nexus" (logical connection between tax and gov't service) behind the tax is that it does force Chicago property owners (in a way) to assume some of the burden of financing the system. I know that proximity to the "L" accounts for a lot of the value of my zero-parking condo. "Value capture," as tapping into the higher property values around transit is called, financed not only the original "L" and the Transcontinental Railroad, but also plays a big role in the profits of the few for-profit urban rail transit systems (all in Asia).

Please keep in mind that, as part of this deal, CTA employees doubled their pension & health contribution. Also, since 1984, CTA fares have increased much faster than either inflation or the cost of driving. (Advertising revenue currently goes right to CTA's bottom line -- where else would it go? In any case, that income pays for a whopping 2.4% of CTA's expenses.)

Scott's right that a congestion tax is a reasonable option -- and that it was just laughed out of City Hall before an honest debate could even start. London does use its congestion tax to finance transit operations, but NYC will use theirs for capital expenses.

It's bad policy, as other commenter noted, to make up CTA's budget shortfall through a tax on a completely unrelated activity.

Richie decided on a real estate transfer tax because people absolutely expect to incur a bunch of oddball costs at real estate closings, and so the application of the tax is less likely to be noticed by the people paying it. A congestion tax would be a somewhat better idea. A better idea still would be to make Richie cough up some of his TIF money ($500 million a year, most of which is essentially given away to developers) for this pupose.