Q&A: Justin Marlowe on Chicago’s Looming Transit Funding Cliff

As the Chicagoland region faces what many call a “fiscal cliff” for public transit, the stakes for riders, workers, and policymakers are rising. The Regional Transportation Authority (RTA)—which oversees the Chicago Transit Authority (CTA), Metra, and Pace—projects a budget shortfall that might be as high as $750 million starting in fiscal year 2026. Absent long-term reforms, observers expect the gap to reappear year after year.

Research Professor Justin Marlowe, director of the Center for Municipal Finance, spoke with us about how the region arrived at this point, what misconceptions cloud the debate, and what solutions, both short-term and long-term, might emerge.

What do people mean when they talk about the “transit cliff”?

Depending on whose numbers you use, the RTA is facing a budget gap of somewhere between half a billion and $750 million in fiscal year 2026—and some estimates are even higher. The real concern is that this isn’t a one-time problem. All the projections suggest that the gap will reappear year after year for the foreseeable future unless something changes in how we fund or operate transit.

It’s a cliff in two senses: there’s the immediate, known shortfall, and then there’s the structural reality that similar cliffs are coming annually if nothing changes.

How did we get here?

Ridership has been on a slow decline since well before COVID. The pandemic then decimated ridership, and while numbers have recovered somewhat, they’re still below mid-2000s levels. At the same time, the cost structure has only gotten more difficult: pensions, collective bargaining agreements, and aging infrastructure that’s expensive to maintain.

Chicago has one of the best transit systems in the country in terms of options, but it hasn’t made the forward-looking investments that could save money down the road, like retrofitting for more fuel-efficient vehicles. On the revenue side, the system has long relied heavily on fares. State law has traditionally required that more than half of operating revenues come from riders, which can trigger the so-called “death spiral”: raise fares, lose riders, and then have to raise fares again.

Add to that a heavy dependence on the sales tax, which was designed for a 19th-century goods economy, not today’s service-driven one. In Illinois, we traditionally tax goods rather than services. Over time, that tax base has eroded, even as expenses keep rising.

How much of this is a governance problem?

Quite a bit. The RTA was set up as a coordinating body, but in practice the CTA, Metra, and Pace behave like three separate agencies. They serve different constituencies, have different governance structures, and have limited authority to do the kind of centralized, well-coordinated capital planning and service delivery that we see in other regional transit systems.

That’s why many legislators are saying that there should be no new money without governance reform. One proposal would create a “super agency” with real power to borrow, plan, and coordinate system-wide. That could make a meaningful difference over time, though it won’t solve the immediate budget hole.

What new revenue options are being discussed?

A lot of the discussion from the last Illinois legislative session focused on two ideas: diverting revenue from the Illinois Tollway Authority, and creating a new delivery surcharge or “Uber tax.” Both had serious pushback—labor opposed the Tollway plan, and the delivery tax surfaced so late in the legislative session that it never really had a chance.

The broader menu is much bigger. The Chicago Metropolitan Agency for Planning’s Plan of Action for Regional Transit (PART) identified more than 40 options, from expanding the sales tax to services, to congestion pricing, to higher real estate transfer taxes. The long-term solution that keeps coming up, though, is expanding the sales tax base to services. Many states have already gone that route.

Interestingly, it’s unclear where the delivery tax idea came from—it wasn’t among the options that were presented in the PART report.

What are some of the biggest misconceptions about this crisis?

One misconception is that the rider experience alone drives ridership. Yes, people care about cleanliness and safety, but survey data show that the people most likely to abandon the system because of those concerns are a small fraction of the overall ridership. Those perceptions matter for individual legislators, but fixing them won’t by itself solve the budget gap.

Another misconception is that transit pays for itself through fares. In reality, fares now cover less than half of operating costs, and that share is shrinking. Yet many taxpayers, even in the business community, still believe otherwise. That misunderstanding makes it harder to build political support for new funding models. Fares are less than half of the equation.

And finally, I think people underestimate how little integrated, forward-looking planning happens across the system. Suburban municipalities like Naperville are often better at long-term capital planning than the RTA—perhaps in part due to the difference in scale, perhaps due to fiefdoms that have sprung up in Chicago’s systems. That lack of system-wide strategy leaves money and efficiencies on the table.

So what happens next?

I expect some combination of new revenue—maybe a delivery tax, maybe a Tollway diversion, maybe tweaks to existing taxes—that brings in enough to plug the hole for two or three years. There will almost certainly be service cuts too, though probably not the draconian ones some fear. The political problems will have to be sorted out, because many suburban and downstate legislators will be hard-pressed to swoop in to save what some have deemed Chicago’s problem.

Long term, I think Illinois will have to expand the sales tax to services. That’s where the national trend is heading. It won’t be easy— It won’t be easy—lots of groups want to stake a claim to that revenue and the governance reforms to the RTA are a non-negotiable first step—but it’s the only sustainable solution I see. In the meantime, expect a lot of short-term compromises and continued debate over governance reform.

The federal government recently announced it was withholding in excess of $2 billion in money for infrastructure projects in Chicago. What should we make of this?

The federal government’s pullback from transit funding will have a minimal impact on the RTA’s fiscal year 2026 budget. But it is the latest and the clearest signal that the decades-long federal-local partnership on public transit generally, and infrastructure finance more generally, is near its end. Chicago and other big cities need to begin to imagine how to build big projects like the Red Line extension in a sustainable way that does not depend on federal funding.