Management & Operations

Transit Crisis: Bridging the Budget Gap

Posted on June 1, 2003 by Janna Starcic, associate editor

The unanswered telephone at Connecticut Transit’s customer service center is more than a simple annoyance. Customers who used to be able to talk to a live person after 6:30 p.m. now hear a pre-recorded message. It’s a small but illuminating example of how budget cuts are affecting the transit industry. On the West Coast, Bus Line 561 has been removed from service, which means workers making their way to and from jobs on the west side of Los Angeles will have to walk farther and transfer more often — again, because of budget cuts. Scenes like these are played out daily across America as transit agencies cope with some of the worst budget shortfalls in history. Service cuts, fare increases and layoffs are some of the measures being taken by transit agencies to fill gaping budget holes. The struggling economy has left its imprint on state and local governments. With unemployment rates surging and income and sales tax revenues dropping, fewer people are spending money or using public transit to go to jobs they don’t have. Plenty of red ink “State budgets are awash in red ink,” reads the State Budget Update: April 2003 report issued by the National Conference of State Legislatures (NCSL). Entering the third straight year of budget shortfalls, state lawmakers have had to close a cumulative $200 billion budget gap. According to NCSL President and Oklahoma Senator Angela Monson, state policymakers are dealing with complicating factors on both sides of the budget. During fiscal year 2003, which began July 1 for most states, 37 states saw revenues failing to meet projections, while only three reported revenues exceeding budget levels. The report also noted that the situation is not much brighter for fiscal year 2004, with estimates showing 41 states facing cumulative budget gaps of $78 billion. A survey conducted by Princeton Survey Research Associates for the Pew Center found that 61% of state legislators are eyeing transportation cuts as a way to balance their budgets. State cuts in social services (85%) and health care (71%) were the only categories that ranked higher. The survey, which evaluated responses from 771 state lawmakers throughout the country, also showed that most are only willing to consider the least painful tax increases, with “sin” taxes on alcohol and tobacco being the most popular options. Cities, too, are feeling the heat, with their own fiscal conditions in a state of decline. Key findings in a new report sponsored by The National League of Cities cite a decline in city revenues and an increase in city spending pressures, driven by homeland security and public safety spending. Nearly 40% of city finance officers surveyed for this report listed state aid as the source of revenue producing the largest decrease. Sales tax (23%) and federal aid (19%) were named as the second- and third-largest sources of revenue decreases. All of these facts and figures mean one thing — bad news for transit agencies dependent on state and local funding for a majority of their operating costs. With states feeling the pain of billion-dollar deficits, and cities grappling with their own budget battles, the amount of funding left for transit agencies is reminiscent of the loose change one found as a child buried beneath the couch cushions. To people in the transportation industry, this is not news, only a reminder of the painful decisions they have made to scale back services, adjust fares or, in some worst-case scenarios, lay off employees. Here are the stories of transit agencies across the nation and how they’ve dealt with funding shortfalls by traveling down some obvious and not-so-obvious routes to bridge the budget gap. Compensating for deficit The Los Angeles County Metropolitan Transportation Authority (MTA) instituted a wage and hiring freeze, and eliminated 104 positions. “We all decided that we would take one year of pain and then get back to normal. So we are doing the hard things now,” says MTA CEO Roger Snoble. To compensate for its deficit, a $60 million shortfall, MTA implemented a fare adjustment. The adjustment reduces the base fare of $1.35 to $1.25, while costs for the monthly pass were boosted $10 from $42 to $52. “In this fiscal year, the revenue from the fare increase covers less than half of the deficit,” Snoble says. Besides the fare adjustment, many projects have been placed on the back burner — both highway and transit projects — as a result of the state situation. But the MTA is fortunate that it receives a majority of its operating money from a one-cent sales tax. In addition to rising fuel costs and fulfilling requirements of its consent decree, which involves providing more buses for service, the MTA has been plagued with increasing expenses. Workers’ compensation costs make up a majority of the agency’s expenses. According to Snoble, Los Angeles’ history with this issue has not been very good, and he believes that a reform effort by the state actually compounded the problem and resulted in higher costs. “We’ve really worked hard on creating a safety attitude here at the agency. It’s sort of gotten lost over the years,” Snoble says. MTA has since implemented a program called Safety First, comprising safety training led by Dupont Co. for all employees. The program, in place for about 18 months, resulted in a decline of incidences and accidents for the first time in 10 years, says Snoble. “Last year we spent $60 million on workers’ comp costs. This current fiscal year we are going to trim that by at least $3 million,” he says, adding that by next year, the agency hopes to trim that figure by an additional $7 million. Another controllable cost that MTA is scrutinizing is the area of claims. The agency is working diligently to make adjustments regarding recurring types of accidents as well as working with workers’ comp advocates and injured parties to help employees get back to work. “We’ve also stepped up our efforts to prevent and prosecute fraudulent acts,” Snoble says. “Since January, I think we’ve sent seven cases to the district attorney’s office.” An exclusive security contract with the Los Angeles Sheriff’s Department, which resulted in a $7 million savings from last year’s budget, is another avenue the MTA found to counterbalance its deficit. Looking to the future, MTA is also working with the state to authorize a lower voting threshold for transportation legislation than the current two-thirds necessary. “We are being more aggressive about working at that level and about going after the limited federal money,” Snoble says. Empty piggy bank What L.A. is now experiencing came years earlier for transit operations in the state of Washington. In 1999, an initiative passed that eliminated the collection of a motor vehicle excise tax. This initiative, I-695, reduced the existing motor vehicle license fee, usually assessed from the value of the vehicle, to a flat rate of $30. About 50% of this tax — close to $220 million in the late ’90s, was dedicated to transit programs. Transit agencies were able to receive matching funds from sales tax to increase their funding. “When this initiative passed, transit got zero,” says Cathy Silins, a manager with the Washington Department of Transportation (DOT). “In some communities this was quite a shock because their budgets were cut in half.” To help transit systems adjust to their overnight pauperism, the state legislature doled out $80 million in bridge money. “So [transit systems] got to take a big step down before they went to the bottom,” Silins says. The devastating effect of this step down was evident in the state’s total boarding figures, which went from 158 million fixed-route boardings in 1999 to 146 million in 2000. Since then, 12 of Washington’s 26 transit systems have gone to their voters to ask for increases in sales tax to raise revenues. Of the 12, 11 have been successful. This time systems also scaled back service, focusing on more populated areas versus long-distance rural trips and discontinuing Saturday or late-evening service in some cases. Mason Transit, a 28-bus operation in Mason County, Wash., reduced nearly 50% of its service, says General Manager Dave O’Connell. “The entire service program was cut in half. Instead of waiting an hour [for bus service], they would be waiting several hours for a bus to come and pick them up. We lost about $600,000 from our $1.2 million budget,” he says. Mason Transit has since been able to reinstate its services after successfully passing an increase in its local sales tax. Washington agencies got a boost in spring when state legislators passed a transportation-funding package made up of a 10-year program and project list, some of which includes funding for transit. Although transit systems requested direct distribution of funding, Silins says the state decided to give transit an estimated $20 million per year based upon a formula of distribution governing its use. “The bulk of the money going out right now is for additional service for people with special needs,” Silins says. The new program requires transit systems to send a written project description to the state DOT to receive approval for funding. Silins says this type of funding allows agencies to revisit projects the public wanted when the money wasn’t available. “This is an opportunity for [transit systems] to address some of those unmet needs,” she says. Beneficial partnerships “One of the efforts we are looking into is the opportunity to partner with social services or school districts to provide communities with service,” Silins says. One such partnership evolved at Mason Transit. The community wanted students to have the option to stay after school for tutoring programs, but the school district wasn’t able to provide bus transportation to the students after school. Mason Transit didn’t have enough vehicles to service the students, but saw an opportunity to pool resources and partner with the school district. Mason Transit now provides after-school service to students using the schools’ buses with a Mason Transit sign on the side of the bus. “It runs routes so the children can get home, while picking up members of the general public along the way,” Silins says. Another unique partnering effort was born out of the economic hardships felt by the city, which has had to make its own program cuts. When Mason Transit discovered that the city was going to discontinue having an on-campus police officer at the school, it rallied to find a solution. “We are trying to work out a partnership with the city and the police department to share in the cost of a police officer to help mitigate problems in the school and help transit at the same time,” Mason Transit’s O’Connell says. Exploding expenses Connecticut Transit (CT) is another operation reeling from its unfortunate dependence on state funding. “We are owned by and almost totally subsidized by the state,” says David Lee, general manager for CT, which operates transit systems in Hartford, New Haven and Stamford. “We’ve had layoffs and we’ve reduced the hours of our customer service center. The place where you call for route and schedule information is not staffed after 6:00 at night,” he says. “We’ve had a triple whammy in our case — you’ve got some big expense items going up at a double-digit clip, revenue that’s down $1 million because of a 5% dip in ridership and a state budget that’s in crisis,” Lee says. He attributes the decreased ridership to the loss of jobs and the economy. Overall system ridership has gone down 10% over the past two years. Lee noted a decline in Commuter Express riders using the service to commute to jobs in downtown Hartford. Heavily dependent on income tax, Connecticut is feeling the effects of mounting unemployment. Health insurance, the second-highest expense after salaries and wages for CT, went up 16%. The third-highest expense is pension contribution, which increased by 100% due partly to an arbitration awarded to the union, which improved the pension formula. Fuel costs, another high-cost expense for CT, rose 15%. The agency which usually receives an estimated $45 million from the state, expects to be $3 million to $4 million short for the upcoming year due to the state’s deficits and these higher expenses. To head this off, CT is holding hearings for a 25% fare increase and implemented a major adjustment in service that amounted to nearly $750,000 in savings. “We’ve been cutting from the system for the last two-and-a-half years,” Lee says. “We are cutting things that we wouldn’t otherwise cut, but we need to save money.” Lee also sees the service cuts having a significant impact on ridership. “When you say that you will have a bus once an hour in a certain location when it used to arrive every 20 minutes, this changes people’s perception of how convenient the service really is,” he says. Trimming the fat To properly gauge the seriousness of CT’s situation, the operation had the first lay-off in its history in 2002, and expects more to come. “We’ve cut back. We don’t have any luxuries left,” Lee says. “I think everybody is doing that.” “We publish an employee newsletter every other month instead of every month now,” he says. “We’ve cut back on landscaping, so we don’t mow the lawn as often. In the summertime we only wash the buses every other day.” CT furthered its cost-saving methods by eliminating its fiscal year 2002 annual report. “What with service reductions and employee layoffs, the expense (about $8,000) seemed to be one that we could forgo,” said Phillip Fry, assistant general manager of planning and marketing for CT, in a statement. “It was our belief that to print and distribute a report that was generally promotional would leave our agency open to public criticism. It is questionable whether we will ever produce such a report, even if better financial times return.” Cost-saving initiatives Despite the stability of its state and county assistance, the Niagara Frontier Transit Authority (NFTA) in Buffalo, N.Y., encountered double-digit increases in expenses like those in Connecticut and created a budget shortfall of $3 million. To offset this, NFTA is in the process of proposing a fare adjustment, the first in eight years. “We project the adjustment, based on models, to bring us about $2.1 million,” says NFTA spokesman Doug Hartmayer. “We want to be able to continue to do a good job at reducing some of our controllable costs.” Like the Los Angeles MTA, NFTA zeroed in on reducing workers’ comp costs by creating initiatives to promote safety awareness and reduce days away. One such initiative includes an incentive-driven competition among employees of the three NFTA facilities to see who can best reduce the number of days away and different costs related to safety, and who can work the most days without having a work-related accident. “We asked the folks at the different facilities what they wanted as prizes. It wasn’t money, it was neat things like free coffee for the day or pizza and sodas for lunch,” Hartmayer says. “So this has developed into a neat competition and we chart them on a what we call a dashboard.” These dashboards, listing the progress of each facility, are updated regularly and results are published in NFTA’s quarterly newsletter. Other cost-saving initiatives at NFTA include locking in a set price for fuel in April 2002. That saved the agency $466,000 based on the year-to-date savings on the cost of the market value of diesel fuel. The NFTA also cut back on overtime and absenteeism by working with supervisors to be diligent about employees getting work done in the confines of a normal shift. That has resulted in a $1 million savings over the past two years. “We work hard at running [the system] like a real business and try to control our controllable costs and make good, prudent fiscal decisions going forward,” Hartmayer says. High-tech industry bust Although on the surface, the story of the Dallas Area reads like a depression-era novel, with its concentration of high-tech industries that went belly up and a sales tax that has suffered tremendously since the terrorist attacks of Sept. 11, Dallas Area Rapid Transit (DART) managed to take steps to alleviate its million-dollar deficits. According to DART General Manager Gary Thomas, health insurance expenses are continuing to climb, so DART increased the employee contribution from 17% to 19%. “We still think that’s very competitive in this industry,” Thomas says. DART is also looking into another cost-effective program, which won’t be implemented until 2005, giving employees more control over the amount spent on health insurance. “We think it will save the company money, and we think it will save the employee money at that point,” he says. To aid in improving its monetary situation, DART is looking to eliminate 400 jobs, with 200 to 250 originating from the operations side. “Essentially, I went to every department and asked for two targets initially — a 14% and a 22% reduction target from all the managers,” Thomas says of the process to eliminate positions. Because these were percentage-based numbers, they didn’t always fit each department and required everyone to be creative in its operation reorganization and shift their focus, Thomas says. Reorganization of DART’s human resource department, from having several specialists to a more generalist approach with limited specialist expertise, depicts this new method. “When we need that specialist expertise, we can call on them, whether it be through consultants or an as-needed basis,” Thomas says. Some areas can withstand a higher cut than some of the high-risk areas such as the finance and IT departments, he says. Like other agencies, DART is scrutinizing its controllable costs, looking at some of the mundane day-to-day costs like office supplies. “Simple things like cell phones and computer printers that are critical for daily operation are being looked at,” Thomas says. “For example, we are looking at where the printers are located throughout the offices and seeing how we can share them. Those things, while they are small initially, really do start to add up.” Offer non-traditional services In order to trim services, DART analyzed performance indexes on bus, light rail and commuter rail to make route adjustments. “[For the bus service], we are either stretching some headways or actually deleting some routes where we have some duplication of our service,” Thomas says. The system is beginning the public process for another set of service changes. “We’ll have a total of about $14 million in service reductions on the bus side,” Thomas says. With all of its various reductions, DART is looking to save at least $30 million. DART has also looked at non-traditional service provisions to make up for cuts in service. One such provision, DART’s On-Call service, provides limited curb-to-curb van service for passengers. On-Call vehicles are placed in zones where fixed-route service is no longer available. Ridership for the service, which costs $2.25 per trip, has grown 34% over the past two years and 85% over the last three. “We’ve found that this saves us a tremendous amount of money,” Thomas says. “It actually provides a really good service for the people within that geographic area that do use public transit.” Savings for a rainy day For the past several years, the Metropolitan Atlanta Rapid Transit Authority (MARTA) has offset any budget deficits by dipping into its reserve funds. With a $14 million shortfall, this year was no different. MARTA’s major funding source is its sales tax revenue, $300 million annually, which has been drastically impacted by the recession. “We’ve been very fortunate that we were able to save additional funds during the good times to be used later on when we’ve had difficult ones,” says Richard J. McCrillis, MARTA’s assistant general manager of finance and CFO. MARTA’s reserves are composed of unused portions of its available 50% sales tax revenue, and interest earned on its capital program account. “Those are the funds that we are using to offset having to institute a fare increase,” McCrillis says. In addition to using its reserves to get through this difficult period, MARTA underwent a reorganization, which resulted in a compression of management levels. “We basically eliminated two deputy general manager positions and several other senior-level positions throughout the authority, a total of about 100 positions,” McCrillis says. “Our estimate is that $2.5 million was saved by that process.” The reduction in workforce, an early retirement program and a service reduction have also benefited the system. Non-unionized workers were given a mandatory furlough, which required them to take two weeks off of unpaid leave. “Those were the types of measures we’ve had to do to reduce our costs and supplement our reserve money,” McCrillis says. Non-traditional funding “Transit-oriented development (TOD) has been very beneficial to us,” McCrillis says. MARTA has a number of projects throughout the system where development has been built up, providing the system with lease income from land ownership. Funds are also raised from selling the land for residential purposes. “We’ve derived quite a bit of revenue from that,” he says. “Plus, we’ll end up having a stream of lease income for many years to come.” In addition to providing revenue, the TOD projects are expected to boost ridership. “If you build a retail development right on your system and have residential housing, more than likely those people will use the system,” McCrillis says. MARTA began its TOD project planning in the late ’90s after it received seed money from the federal government that was used to buy real estate surrounding stations, says Richard Marsh, MARTA’s manager of financial planning and analysis. “Ultimately, MARTA owns 53 acres, with approximately 46 acres currently under development,” he says. Lindbergh TOD, the current project under development, which boasts a BellSouth office tower, is expected to generate $1.9 million. Once restaurants, hotels, retail and additional office space are added, MARTA anticipates generating $5 million to $7 million a year from the Lindbergh station development. Another non-traditional funding source being employed by MARTA is negotiation of lease-financing deals on its equipment. “So far we have generated over $50 million in revenues using lease-to-service financing on several of our railcars,” McCrillis says. Grass-roots lobbying efforts The state plays a critical role in the operations of the Port Authority of Allegheny County, with as much as 50% of its operating budget covered by state funding. Pennsylvania’s budget for fiscal year 2004 reduces transit funding by 6%, which translates into a $5.3 million loss for Pittsburgh and Allegheny County, says Port Authority CEO Paul Skoutelas. As of July 1, the agency faced a $19 million deficit. In the past year, the authority has made a 7% service reduction and is pushing another service reduction proposal that would possibly include the elimination of weekday service after 9 p.m. and Sunday service. Other deficit-reducing actions, which the Port Authority previously implemented, included hiring, wage and salary freezes, layoff of 85 employees and reductions in training, travel and marketing expenditures. The authority has worked aggressively at the state capital to lobby for more transit funding, Skoutelas says. A number of local grass-roots organizations, including The Allegheny Transit Council and Save Our Transit (SOT), have been very active in leading these lobbying efforts with elected officials. To call attention to transit’s plight, these organizations have rallied in Pittsburgh and lodged letter-writing and e-mail campaigns. More drastically, members of SOT recently attracted media attention by staging a 25-hour fast in the downtown area in an effort to persuade legislators.

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