Port Authority Bus Service Is Very Costly Compared to Peer Agencies

Summary: Like Pittsburgh’s city government and the Pittsburgh Public school district, the Port Authority of Allegheny County (PAAC) is very costly compared to its peers. Unfortunately, PAAC and the school district depend heavily on state funding to finance their expensive operations.

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Notwithstanding PennDOT’s performance review of 2016 that let PAAC off easy through its choice of a so called “peer” group of agencies for cost comparisons, PAAC has dreadful cost numbers compared to areas of comparable size and cost of living.  PennDOT deemed several cost measures “in compliance” because they were within one standard deviation of the average cost measure of 14 agencies in the peer group (13 plus PAAC). However, when the group is made more comparable by eliminating two high cost of living areas and PAAC itself to get a better measure of true peer average, the picture is very different from the one PennDOT creates.

Included in the peer group of 14 agencies is Alameda County transit, where the service area’s cost of living is 34 percent higher than Pittsburgh, and Santa Clara transit where the area’s cost of living is 36 percent higher than Pittsburgh.  Removing Alameda and Santa Clara as well as PAAC from the peer group average calculations yields quite different results (PennDOT used 2014 data because it was the latest available).

For example, the cost per revenue hour of bus service for PAAC was very high at $186 compared to the average of $136 for the 14 agencies but even higher than the $123 average of the 11 better peer group agencies. While PennDOT did note that PAAC was “at risk” on the measure, the better conclusion would have been “out of compliance.” Then too, PennDOT determined that PAAC was “in compliance” on cost per passenger trip at $5.18 compared to the 14 transit group average of $4.45 because adding the standard deviation to that figure put the allowable compliance number at $5.58.  But for the 11 agencies the average per rider cost was only $4.06 with a standard deviation of only $0.72 making PAAC’s cost per bus trip well above “in compliance.”

Moreover, 2016 data comparing PAAC to five comparable peer transit agencies (Milwaukee, San Antonio, St. Louis, Columbus and Charlotte) show PAAC to be far more costly on several metrics. All data unless otherwise noted are from the National Transit Database. Key measures are shown in the following table.

Five-agency average PAAC % Difference
Operating Expense per Passenger Trip $4.56 $5.62 23
Operating Expense per Revenue Mile $8.24 $14.46 75
Operating Expense per Revenue Hour $106.46 $189.69 78
Total Expense per Revenue Hour $124.95 $224.44 80

Obviously, these statistics point to large differences in PAAC’s cost of bus service compared to the peer group. The gaps between PAAC’s costs per revenue mile and per revenue hour and the costs at the five peer agencies are 75 percent and 78 percent, respectively. In 2016, PAAC posted just under 1.6 million revenue hours of operation. If PAAC had the same expense per revenue hour as the peer group, its operating expenses for buses for that year would have been $169.1 million, or $132.4 million below the $301.4 million PAAC actually incurred in bus operating expenses.  The operating expense per revenue hour should be considered the best cost measure since that is the fundamental cost of providing the service.

PAAC has the good fortune of having a higher number of passengers per revenue hour than the group average, 33.8 compared to 23.3, a difference of 45 percent. This accounts for the fact that the operating expense per passenger trip at PAAC is only $1.06, or 23.2 percent, above the group average.  This ratio is viewed by some analysts as a good measure of efficiency.  But clearly the operating cost per hour is a far better way to compare agencies. Even with the much smaller gap of cost per trip relative to the peer group, if PAAC had operated at the group average it could have saved $56.6 million in annual bus operating expenses.

A principal cause of the dramatically higher operating expense at PAAC is the compensation levels of employees providing the bus service, especially fringe benefits.  In 2016, the wage and salary expense per passenger trip for the peer group was $2.00 while PAAC’s stood at $2.29. The benefits expense per trip was $1.44 for the peer group and $2.15 at PAAC, a gap of 49 percent.

More troubling are the enormous differences in employee expense per revenue hour. For the peer group, the wages and salary costs per revenue hour averaged $46.87 and $77.32 for PAAC, a gap of $30.45. And for fringe benefits per revenue hour the peer group was $33.72 with PAAC at $72.76, a gap of $39.04 or 116 percent.

The fringe benefits problem at PAAC began to explode in the early 2000s. In 1998, benefits stood at $44.6 million (data from PAAC budget documents) while wages and salaries were $97.7 million, resulting in a benefit to wage and salary ratio of 45.6 percent. By 2006, the ratio had risen to 69 percent and by 2012 to 100 percent. During the period from 1998 to 2012, annual benefits for bus operation employees rose by $69 million while wages and salaries climbed a much smaller $16.2 million. As of 2016 the ratio had slipped a bit to 94 percent as wages increased faster than benefits, partly as a result of adding employees following substantial job cuts in preceding years.

Bear in mind that during the period from 2006 to 2013, PAAC reduced revenue hours and revenue miles of service by 30 percent accompanied by significant employee layoffs.  And even with the service cuts and layoffs that began in earnest in 2008, it took several years of cuts to stop the rise in operating costs which finally fell in 2012 and again in 2013 at the nadir of revenue hours operated.

Note that with the passage of Act 89, PAAC is now guaranteed a dedicated generous flow of revenue from the state. Act 89 mandates that $420 million of the $450 million provided annually by the Turnpike Commission to PennDOT (as ordered by Act 44) be transmitted to the state’s transit systems.  As soon as the guaranteed revenue was in hand, PAAC began to increase bus service and add employees even though passenger counts had not improved as of 2016. Sadly, the operating expense reductions achieved through slashing service are now a thing of the past with annual expenses rising $30 million from 2013 to 2016.

One can only speculate when the state’s dedicated support of transit systems—at the expense of Turnpike users—will no longer be adequate to satisfy the voracious appetite for money PAAC has exhibited over the years. And if the truckers’ association wins its suit against the Turnpike that stops or rolls back tolls, the state will once again be looking for sources of revenue to subsidize mass transit.  As Policy Brief (Vol. 17, No. 38) noted earlier, the transportation funding scheme in Pennsylvania is a misguided mess.

Bottom line: PAAC’s board of directors needs to nip in the bud the return of PAAC’s spendthrift ways, especially in light of its already extraordinarily high operating costs.

Port Authority is Facing Several Pesky Issues

Summary: A CEO search, a second delay of cashless fares, a performance review, and updated light rail statistics are in the news for the Port Authority. Some of the recent news does not put PAT management and operations in a very good light, especially operating cost numbers. Efforts by a transit support group to influence the CEO selection have the potential to slow the process.

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CEO Search

The former Chief Executive Officer (CEO) moved from interim to full-time in 2014 and served until June 1st of this year. The Authority is now being led by an interim CEO until a new full-time leader is hired.

That process began in April with a contract with a search firm for $91,925 and expenses of $20,000. The same firm conducted the search that resulted in the February 2014 hiring of the former full-time CEO. There is no deadline for hiring a CEO according to an agency spokesman.

On June 30th the board accepted $100,000 from a foundation grant to pay for the expenses related to the search. The same spokesman noted that the reason it applied for the foundation grant was so that it did not have to use its own funds for the search. That raises the question: what does the foundation want for aiding in the search for head of an authority? Is this a good practice? If the foundation is attempting to help low income users, it might want to set up a fund to subsidize monthly passes for them. PAT already benefits from RAD contributions and Turnpike borrowing of $450 million a year that gets passed through to mass transit in the Commonwealth. Then too, it gets other state and federal funding and the County’s matching funds.

In an attempt to add to the extensive list of qualifications that PAT included in its job opening announcement, a local transit group presented the board with a request that “labor, riders, policy advocates, neighborhood groups and foundations” be involved in the initial screening process for a new CEO. A particularly absurd demand by the group is that the CEO include community voices in all decisions. They also want the CEO to recognize that mass transit is to provide service and not make a profit. With taxpayer subsidies covering over half of ridership costs, one wonders where the notion that PAT has ever considered or will ever consider profit as a motive comes from. If the transit group has its way, it will create a long-term problem of inaction on needed objectives and actions on that make operations more expensive and even less efficient.

Clearly, the CEO working with the duly appointed board will set goals and strategic plans. Where public input is relevant on large, significant service changes, it will no doubt be sought. PAT’s job description does mention building internal and external relationships with various groups. But for all decisions to go before community groups would be a time consuming, controversy inducing disaster.

Missed Deadlines

Speaking of deadlines, the target date for implementation of the cashless fare system on the light rail system that was set for July 1st was pushed back earlier this year and has now been moved to later in the year. It now appears that the system will not go cashless until October at the earliest. PAT said the delay is related to issues with the contractor supplying the equipment related to paying off board the vehicle according to a June 28th press release. PAT announced its fare enforcement policy with on-board validation by uniformed PAT police in May with an implementation date of August 1st. That too will be on hold until the cashless system is up and running. Concerns were also raised about whether citations would be handed out to riders who do not pay for fear that it might reveal people who are undocumented aliens.

Performance Review

Another piece of information that finally came to light was the performance review of PAT that was mandated by Act 44 of 2007. The review has a cover date of November 2016 but according to staff in the Bureau of Public Transportation it was not posted until April 2017. The review presents data on transit operations and a bit of recent history of the Authority. But the heart of the review consists of comparisons of PAT’s bus and light rail operations to a peer group of thirteen transit agencies. Comparisons are made for FY 2014 and over a five year period ending in 2014. The comparisons utilize data reported to the National Transit Database (NTD), a source we have utilized frequently.

Measurements for PAT are found to be either “in compliance” or “at risk” on both cost and performance (cost related measures are operating cost per passenger and revenue vehicle hour, and performance related measures are passengers per revenue vehicle hour and operating revenue per revenue vehicle hour, presented on both an annual and five-year basis). The determination of “in compliance” is made by using the standard deviation from the group average. One standard deviation above on cost measures or one standard deviation below on performance measures places PAT’s grade in the “at risk” category

For bus service, PAT was found to be in compliance with all measurements except operating costs per revenue vehicle hour, where PAT’s value was $186.60 for FY 2014 compared to $136.56 for the peer group average—37 percent higher—and for light rail where the operating cost per passenger of $6.69 for FY 2014 was well above the peer group average of $5.11 (31 percent higher). The five year trend for light rail showed almost a $2 difference ($7.06 for PAT to $5.07 group average.

PAT’s highest ranking for bus service among the thirteen peer agencies was on operating revenue per revenue vehicle hour while coming in twelfth on operating cost per passenger, but was found to be in compliance on the cost per passenger metric because its value of $5.18 per rider was lower than the sum of peer group average cost and standard deviation total of $5.58.

It is interesting to note that over a longer time period (2005-14) based on NTD statistics that bus vehicle revenue miles and vehicle revenue hours have both been reduced by almost the same magnitude (30%) while the unlinked passenger trip count fell only ten percent (from 59.1 million to 53.4 million) during those same years. That indicates a lot of underutilized routes were eliminated along with cut backs in frequency of service on some routes. It should be noted while the performance review showed PAT was “in compliance” on most reviewed metrics; it was one of five agencies with a bus operating cost per passenger of $5 or more in FY 2014. With other transit systems having lower costs than PAT, there is a lot of room for improvement. This is even more true with respect to costs per revenue hour of operations. That ratio was obviously not improved by the elimination of underused routes and cuts in frequency of service.

Light Rail

Lastly, on the subject of light rail, as we have done since the opening of the North Shore Connector in 2012, we continue to monitor the ridership of the light rail system. NTD data for 2015 is now available.

2017 light rail data

As seen in the table, ridership was up 1.4 percent in 2015 and recorded its highest total in the five year period. However, rider count was very little changed from 2013, the first full year of North Shore Connector operations. Fare revenue was up 1.8 percent from 2014 to 2015 but was outpaced by the increase in total operating expense. The impact of expanding the free fare zone from the Golden Triangle to include the North Shore stations obviously had an impact on ridership when it first opened but the effect of the North Shore free rides on total ridership has not carried over in further increases since 2013. However, operating expense rose eight percent from 2013 to 2015 and stands $44 million above operating revenue.

With the change to a single fare (the elimination of zone pricing at the beginning of the year) and the elimination of free bus rides Downtown it would have made sense to also do away with free light rail trips. Later in the year as the cashless system presumably goes into effect and fare validation is implemented then the free rides and required proof of payment outside the free fare zone will likely become a political and operational nightmare.

With Act 89 of 2013 the dedicated funding PAT had clamored for over many years has been achieved. But PAT’s underlying cost problems have yet to be addressed in a substantial way.

Governor Holds Firm on PAT Funding

Governor Corbett has shown real grit in refusing to acquiesce to the entreaties by some and scurrilous name calling by others demanding that he come up with more funding for the Port Authority. In fact, his adamant unwillingness to capitulate to those demands is the only reason the transit unions have any motivation to even consider making any concessions on wages or benefits.

Enter the Post-Gazette editorial writers with specious arguments and adding their voice to the clamoring cries that the Governor act soon. First, they point out -again-that the Governor’s task force on transportation made recommendations several months ago and he has declined to say what, if anything he will support from the those recommendations. The ed writers might want to remember that Governor Rendell’s 2006 task force on transportation made many recommendations for PAT including a call to begin explore competitive contracting. Not a single route has been privatized.

Secondly, the P-G mentions that the unions made concessions totaling $93 million. What they don’t say is that those savings are spread over many years. That’s a start but not nearly enough in the face of the billion dollars in unfunded benefit liabilities facing the Port Authority. What PAT needs are savings in current outlays and those have been reduced only through laying off employees. And that requires serious cuts in wages as well as concessions by retirees. Until those are forthcoming PAT will continue to strangle on excessive pay and retiree benefits.

So, until PAT’s unions and retirees are willing to make some serious concessions the Governor is right to hold firm. Any indication from him that he might yield to the mounting pressure to come up with additional funding will only encourage the unions to back away from concessions. This is the game of chicken they have played for years and have won. They must not be allowed to win again.