Is PAT a Burden on Taxpayers?

In a remarkably inept attempt to invalidate the State Senate Pro Tempore’s assertion that the Port Authority of Allegheny County (PAT) has been a long-time burden on taxpayers, an editorial writer says the Senator’s claim is a flawed premise and misses the significant role mass transit plays in a region like Pittsburgh.

 

 

Clearly, anyone who takes the time to think about the editorial writer’s comment can see the faulty logic of the attempted refutation.  The Senator’s comment neither explicitly nor implicitly claims that mass transit has played no role, important or otherwise, in the region. If he believed that he would more likely be pushing to eliminate state subsidies altogether as opposed to wanting to reform PAT to make it more cost effective and efficient.  Note that state operating assistance and grants provided a combined $205 million (55%) of PAT’s total revenue in FY13, while farebox revenues accounted for $84 million, or 23 percent, of total revenue. 

 

But the larger issue is whether the Senator was right about PAT being a burden on taxpayers. There are a number of ways to look at the burden issue.  For example, are PAT’s costs in line with benefits it produces for the county, region and state? Or, are PAT’s costs in line with other comparable transit agencies around the country? 

 

Well, let’s go back a ways to assess the Senator’s claim that PAT has been long-time burden on taxpayers. In November 2006, Governor Rendell’s Commission on Transportation Funding and Reform issued a report containing the following findings (among others) regarding PAT.

 

  • Needs to focus on financial performance indicators to better align service needs and effectiveness. The Commission wanted PAT to meet industry best practices.
  • Has the highest wage rates in the country adjusted for cost of living.  At the time of the report PAT wage rates averaged $20.50, 40 percent higher than the average of 60 transit agencies studied by the Commission. 
  • Is challenged by high labor, health care and pension costs for current and retired employees. From 1999 through 2005 these line items grew at an annual rate of close to 14 percent.
  • Focused effort on fixed guideway development and service expansion rather than basic asset replacement maintenance. The Commission said that PAT was going after new starts and expansions instead of focusing on existing needs.

 

So where is the agency now?  The National Transit Database’s profile of the largest 50 public transit agencies in the U.S. showed that in 2011 PAT provided 54 million annual unlinked bus trips over a service area of 775 square miles with a per passenger expense of $5.31.  If one looks at agencies in the top 50 that ran the same range of bus trips (44 million to 64 million) which covered areas such as Atlanta, Milwaukee, San Antonio, and Houston only Houston came within $1 of the expense by PAT ($4.95 per bus trip).  If one looks at agencies covering a similar service area (570 square miles to 868 square miles) which included Portland, Philadelphia, Minneapolis, San Diego, and Dallas, all with the exception of Dallas ($6.40 per bus passenger trip) had costs below PAT. 

 

For 2009 (the latest data available) the American Public Transportation Association examined transit wages and average bus operator wages.  In FTA region 3 (PA, WV, DE, DC, MD, and VA) the average agency wage was $17.12: the average PAT wage was $24.25, which was the highest of all transit agencies in region 3.  Adjusted for cost of living, the 2009 average PAT bus operator wage was higher than those of Atlanta, Chicago, Cleveland, and Milwaukee. Bear in mind that drivers at other regional transit agencies in southwestern Pennsylvania earn $8 less per hour and have nowhere near the benefit package PAT drivers have.

 

PAT’s net expenditures for pension, active healthcare, and retiree healthcare stands at $103.3 million in FY2013, 6 percent above the audited 2010 amount of $97 million.  Contract after contract has made changes to fringe benefits as new hires (depending on bargaining unit) come under defined contribution pensions or have age and service requirements to make them eligible for retiree health care.  With a long-term liability of $890 million on retiree health care those are changes that have to be made. As a percentage of PAT’s covered payroll, the unfunded liability stood at 559 percent as of 2012.  By way of comparison, the larger SEPTA system’s unfunded liability to payroll percentage was 299 percent in 2009. 

 

Bear in mind too that the concerns about excessive spending on guideways expressed in the Governor’s report predated the $520 million North Shore Connector project. This project required tens of millions of state and local tax dollars as well as the diversion of millions of Federal dollars that could have been used for other traffic improvement projects in the region.

 

Over and above the state’s generous annual allocations to PAT for operations and capital expenditures, enormous sums of highway money have been “flexed” by Governors and the SPC to fill budget holes at PAT. In 2005 alone, PAT received over $140 million to plug budget holes. Another $47 million was flexed in 2011-12 to avoid shortfalls.

 

Much of this comes down to the issue of contract bargaining that was tilted heavily in the unions favor by their right to strike. “Transit strike” are the two most frightening words transit managers and riders can hear. Because of the threat of strikes, PAT boards have not been able or willing to stand up to union demands, no matter how outrageous or threatening to the Authority’s long term financial viability.

 

The right to strike is granted by the state, which therefore bears some responsibility for the excessive cost structure at PAT and the resulting need for the state to heavily subsidize its operations. But that does not obviate the Senator’s point.  Because PAT’s cost are so high compared to similar sized agencies and because the state’s subsidy keeps expanding in the face of relatively stagnant paying riders, there can be little doubt that PAT is a burden on taxpayers.  That situation must be corrected. And substantial corrective reforms ought to and must receive broad support from taxpayers and businesses if the burden is ever going to be reduced.

The Senator and the County Executive

In a dramatic announcement on March 8th, the President Pro Tem of the Senate revealed his intention to introduce legislation that will restructure the Port Authority of Allegheny County (PAT).  It is important to bear in mind that PAT was created decades ago by state legislation, and as such is a creature of the state and therefore can be restructured by legislation. 

 

 

 

The Senator’s announcement contained a harsh condemnation of PAT as having been a significant strain on state and local taxpayers for “far too long and it is time the legislature address the issue.”  He further singled out the “fiasco surrounding the dismissal of the CEO” as making it clear the County Executive is not moving PAT in the right direction.

 

 

The Senator proposes to change completely the way PAT’s governing board is appointed. Instead of all nine members being appointed by the County Executive, the Governor, Legislative Leaders, Allegheny County Council and the Mayor of Pittsburgh would have appointments. The County Executive would have only one appointee to the restructured board.  The Senator stressed that with the increasing funding coming from the state, it is important for state officials to have a voice on the board.  The Allegheny Institute wrote of the relationship of state funding and state appointees to transit agencies in light of efforts to reform the PAT board in 2007 (see Policy Brief Volume 7, Number 9). 

 

 

Further, the Senator stated that, “Moving forward all options need to be on the table when discussing options to streamline operations and cut costs…”  To that end, the Senator proposes creating a commission to examine remedies including regionalization, consolidation and privatization of services.

 

The Senator’s proposed legislation, if enacted, would certainly bring a new approach and possibly major improvements in PAT management and operations. However, major and probably uncorrectable problems will remain if the Senator’s reform legislation stops with the proposals contained in the March 8 announcement.  PAT’s tremendous legacy costs remain and will continue.  And the principal underlying cause of the Authority’s financial woes is not addressed by the reform proposal-namely, the right of the transit workers to strike. Unless and until that right is eliminated, there can be no permanent fix of PAT’s problems.  Every step forward can be reversed in contract negotiations under the threat of a strike.

 

 

To be sure, a substantial outsourcing program that reduces the share of transit service under the control of the large transit union will go a long way toward curbing the impact of strike threats but will not eliminate it.

 

 

This is not to gainsay the importance of a change in board appointment powers.  With the obvious arbitrary power that can be wielded by on official as demonstrated recently, a state created organization receiving massive amounts of state taxpayer funding to maintain operations simply must be more answerable to state taxpayers.    

 

 

There will be push back by the County Executive and his friends in the Legislature.  This will be the time for the business community that has so often sided with PAT in pushing the Legislature and Governor for more state money to support the reforms being recommended by the Senator. If these reforms and the others that are needed are not enacted, the day will surely come when legislators from other parts of Pennsylvania will simply refuse to approve the money requested by PAT and its friends.  Indeed, we might be there already. 

 

 

Important changes aimed at restructuring PAT in a manner that will improve efficiencies and lower costs will not come quickly or easily but they should be pursued vigorously.  For one thing movement toward regionalization cannot proceed in a meaningful way until legacy costs, compensation costs and work rules are lowered dramatically at PAT. Nor can outsourcing occur as long as the union retains the ability to block such efforts. 

 

 

While optimism must be tempered with realism, it is nonetheless a hopeful sign that the President Pro Tem of the Senate has taken such a keen interest in correcting some of the ills that plague the Port Authority.

Just This Once

An op-ed piece today compares the Port Authority to a down-on-their-luck person who comes begging for money and, against the better judgment of the person of whom assistance is requested, gives in. The "askee" this time is the Regional Asset District, which last week included in its budget a $3 million allocation for PAT as part of a big funding package. "it should be a one time thing" the op-ed notes.

That’s going to be difficult: the County Executive, who appoints all of the PAT board members and four of the seven RAD board members, noted back in August that he will "ask the asset district board…to make a $3 million annual commitment, not just a one-time grant." We also documented previous shifts or "flexes" of money to the down-on-their-luck authority as recently as two years ago when the Southwest Planning Commission played the role of the benevolent one, being asked by the Governor to approve money for PAT. That board, in 2005, said that the last time it flexed money would be the last time it flexed money. They did flex the money, basically saying that they weren’t serious when they said they would not shift money again. The RAD board will be in the same position next fall: previous experience suggests it won’t be the one to make the PAT allocation a one time thing.

Inevitable Chain of Events Leading to RAD Funds for PAT

Back in the early 1990s the state Legislature granted Allegheny County authority to establish a Regional Asset District (RAD) and to impose a one percent County add-on sales tax to fund the district. The County Commissioners quickly voted to do so. There was no referendum asking the voters to approve the tax. This outrage was not repeated when it came to the plans to impose a sales tax for stadiums in 1997. That tax was roundly defeated by the voters and in all likelihood so would the RAD tax have been if it had been put to the voters.

But it is the law and the RAD tax has been collected for 18 years funding all sorts of things including new stadiums and propping up the Civic Arena. It was used to fund the Pittsburgh Development Fund that helped underwrite such memorable debacles as the Lazarus Department store. The Pittsburgh Schools also received a dollop of the tax revenue but that is now being sent to the City.

Now we have the spectacle of the RAD board approving $3 million for the Port Authority (PAT) to help fund the County’s matching contribution in order to receive additional state funds to fill a $64 million dollar deficit at PAT. Note that reserves had to be tapped to get the $3 million. Of course that means some other applicants or potential applicants could have gotten more money if the dollars were not going to PAT.

And why does PAT need the RAD money in the first place? In brief, because the state Legislature and the Governors over the years have done a remarkably inept job at controlling PAT by giving it a monopoly in the County and then giving the union employees the right to strike-something only three states permit. The right to strike a mass transit system is the most powerful bargaining chip any union can hold. Just the threat of a strike sends management into flights of terror and riders into paroxysms of anxiety about they will get to work. Businesses then join the chorus of pleading to give the union what it wants. Anything but a strike. So using the kryptonite equivalent of a bargaining advantage the unions have been able to extract one of the best, if not the best, compensation package and union favoring work rules in the nation.

Thus it was that PAT became an extraordinarily expensive transit operation, inefficient and destined to go bankrupt. If only state law would permit bankruptcy of PAT-which unfortunately it does not. So for a decade or more PAT kept sliding deeper into the ravine of financial chaos only to be temporarily bailed out again and again by the Governor riding to the rescue with highway money to fill the budget holes. Only this time, the hole was too big for the state to fill by itself. After all, the state is not flush with cash lying around to be redirected to PAT. Moreover, there are many in the Legislature from other parts of the state who are repulsed by the idea of tossing more of their constituents’ tax dollars at the outrageously expensive and inefficient PAT.

In this latest iteration of asking for state money, the Governor was far less generous than previous Governors and forced the County, the unions and the management to come up with a big chunk of the $64 million projected deficit. Of course the union share was a pittance relative to their share of the cost structure. The County, to raise its share, went immediately to the pot of money at RAD, asking for $3 million a year for ten years. The argument being that transit is too important to allow the major cuts that could be required if the state money is not forthcoming.

Dutifully, the RAD board agreed to hand over $3 million, no doubt under enormous pressure from the County Exec, PAT board members and the business community.

There it is. In short, the Legislature allows the County to create a revenue stream with one hand and then gives a "take all you want card" to the transit workers union with the other hand. Guess what was inevitable as the robins in spring? Eventually, the RAD money bags would be tapped for PAT. And so it goes.

At the very least the Legislature should have prohibited RAD money from being used to fund entities other than educational, recreational or cultural. There are some who will say this grab of RAD dollars for PAT could not have been foreseen. But they would be wrong.

RAD Creates New Category for PAT

In the 2013 preliminary budget for the Regional Asset District (RAD), total proposed spending would top $88 million: $85.5 million from the half of the sales tax proceeds that go to the District to fund cultural, recreational, and sports facilities; close to $3 million from reserves; and the rest from interest.

The District allocates money to contractual assets (the zoo, libraries, the aviary etc.), multi year assets (money to the Sports and Exhibition Authority for debt service), annual assets (a group that includes a variety of organizations that make annual petitions) and a small share for administration. Next year marks the beginning of a new category-provisional-for $3 million requested by the Port Authority (PAT) as part of an agreement brokered by state, local, PAT officials and PAT employees to avoid service cuts in September. Recall that we pointed out in a Brief earlier this year that RAD had come to the aid of another authority from 2007 through 2010 (the SEA) but the SEA was lumped in with the annual grants along side groups like the Pittsburgh Symphony and the Civic Light Opera.

It is not clear if, by creating this new category, PAT will be required to be put in line for budgetary consideration each year or if the $3 million is guaranteed for a certain number of years. The preliminary budget, which was put together by the District’s allocations committee, notes that "the decision on this unique request needs to be made by the full board after review of the information that has been provided by [PAT] since the [initial] hearing and after public input is received". The committee pointed out that inclusion in the budget did not constitute endorsement, but to show what the budget would look like with it in.

Contractual assets are slated to get $1.8 million more in operating money next year than this year; the multi year debt service payments to the SEA are expected to go down slightly (by $44k due to a drop in arena debt service); annual operating grants are up by $209k, but there was some churn from 2012. This year, 77 organizations received annual RAD operating support; in next year’s preliminary budget six of those organizations are gone (they received a total of $74k in 2012), leaving 71 organizations that received 2012 operating support in consideration for 2013. Of those, 45 are to receive more money than they are in 2012 (increases vary considerably) and the other 26 are slated to receive the same as they did in 2012. There are three organizations that appear in the 2013 preliminary budget that did not get annual operating support in 2012 (the three combined will get less than $10k).

Governor Taking Heat over Transportation Funding

And the cries for the Governor to find new revenue to fix roads and bridges -and fund mass transit -grow louder. This while the Governor wants to protect taxpayers from higher costs. He knows other problems are looming large such as the whopping increases in pension funding that will be required over the next few years. Where will that money come from? There are projected Federal Medicaid funding cuts. How will that be made up?

It is marvelous to watch the crowd that supports an outrageously expensive and inefficient mass transit system and wants the state to pour more money into it grouse about transportation needs. Indeed, the Governor, against his own better judgment and the strong case that was made not to bail out the Port Authority, has committed $35 million a year in additional state tax dollars for the Authority. No one knows where that money is coming from.

What is really galling about the latest round of caterwauling regarding the Governor’s inaction on raising taxes and fees for transportation is the assent given explicitly or tacitly by the same complainers when the previous Governor was moving hundreds of millions in highway funds to underwrite the Port Authority’s egregious spending. That money was wasted rather than fixing road problems.

Moreover, why was it that the people who are now so exercised about the Governor’s inaction could not contain themselves at the prospect of tolling I-80 to raise funds for transit? Anyone who bothered to look at the law could have known that tolling I-80 for any purpose other than funding maintenance and improvements on I-80 was not going to happen. Yet the then Governor, the Legislature and all the spendthrift supporters of mass transit all thought it was great idea and that somehow the presidential administration would get it approved notwithstanding the law. Mirabile dictu, it did not cave to political pressures from the former Governor. Years were wasted in dealing with cost issues and seeking funding sources. And then the sharp economic downturn put on hold any meaningful discussions.

Road work does need to get done. How about we ask the Feds to lift the Davis-Bacon prevailing wage requirements? That would lower costs dramatically. Not that it will ever happen. But the state could eliminate prevailing wage requirements on projects not using Federal dollars. Where is the clamoring for something sensible like that? Why is it always the taxpayers who must make the sacrifices? Why not some concessions from those who drive the costs far above where they would be in market based system?

Transit Shift Does Not Paint a Pretty Picture for Arts Groups

RAD money for PAT: designating the Port Authority as a regional asset would enable it for a $3 million piece of the proceeds from the share of the 1% sales tax set aside for regional assets like the zoo, libraries, parks, etc. and would combine with other sources from the County and the state. Of course, making room for PAT in the RAD pool could mean some crowding out of other assets entirely or through a smaller or flat allotment. A decline in sales tax proceeds could also precipitate complications.

We pointed out in a Brief this year that giving PAT a piece of RAD money would raise "is" and "should" questions (and we addressed the topic in earlier years, here and here). There is nothing in the law that says transit is not a regional asset: we pointed that out and a legal opinion delivered to the RAD board echoed that. Then would come the discussion about whether there was merit in giving PAT a monetary commitment. It could open the door to having other public authorities showing up at RAD’s door asking for money.

Several representatives of Pittsburgh arts’ groups communicated as much to the RAD board at a hearing yesterday. "If this (funding for Port Authority) occurs, then where does it stop?" asked one leader. Another said "Whether it’s one year or 10 years, it presents an unprecedented challenge". Part of the reason could be that the predictions that there would be a $5 million surplus might look a bit different. The RAD budget, and the decision on whether PAT will be a part of it, will come by the end of November.

What Triggers a Voiding of PAT Agreement?

There are a lot of "ifs" in the agreement that was crafted between the Port Authority management, the Amalgamated Transit Union, and the Commonwealth that held off service cuts and reductions that were scheduled to happen at the beginning of September. If the RAD board agrees to fund PAT, if the County comes up with money from the drink and car rental taxes, if the state finds the money etc., etc.

The PAT website has a summary of the executed agreement between PAT and the ATU and it states that there are essentially three events that could trigger one of the parties to void the agreement and reverting back to the prior contract. "In the event funding is insufficient" and either:

  • 1. A bus garage is forced to close (there are five operating divisions in the County) or
  • 2. More than 5% of the current bargaining unit workforce is laid off (as of June 30, 2012 there were 2,106 ATU employees according to the PAT budget) or
  • 3. More than 5% of the 2,300 bargaining unit is laid off over the life of the four year contract

Note that the most recent "doomsday" projection for September 2012 would have shuttered the Collier garage and resulted in layoffs that would have hit the PAT workforce (not all were represented by the ATU) to the tune of 23%. Based on the conditions above the range of headcount reductions would be 105 to 115 employees. Seeing that the PAT board and management has historically been inclined to avoid any interruption of service it is unlikely that they would be the party that would void the contract if one of the above did indeed occur.

PAT Could Be an Asset

After reviewing a host of sources-statutes, judicial decisions, internal documents of the organization-an attorney retained by the Regional Asset District (RAD) board has determined "there is no legal impediment to the District providing funding to the Port Authority (PAT). That answers the "is it" or "isn’t it" part of the question of the plan to devote $3 million in asset funding to PAT as a local subsidy.

The opinion does not address the "should it" question (the attorney notes "…we are not opining that the District is compelled or that it is advisable to fund [PAT]) but says that the law does spell out what RAD can’t give money to and if transportation was not the Legislature’s intent it would have put it on the list of prohibited beneficiaries. It also noted that the RAD request will not be a one time deal ("it is further anticipated that this will not be a one time request but will be continuing for at least the next several years").

The Institute raised these questions in a recent Brief and the attorney’s opinion will provide the input the RAD board needs on the decision.

Will RAD Funds Be Tapped for PAT?

Call it a strange case of foreshadowing. When the Regional Asset District (RAD) became law under Act 77 of 1993, only a few people other than Legislators would have noticed the curious fact that the language establishing the District and the accompanying one percent sales tax was appended to an act that amended existing language dealing with investigations conducted by the coroner’s office in Allegheny County. 

 

Continue reading