First Appointment to Revamped PAT Board

Under Act 72 of 2013, the size of the Port Authority (PAT) board of directors is to increase and the appointment power to the board is to shift from nine appointed by one official to eleven appointed by six officials. Readers can get details here.

It was announced recently that the first appointment to the new board has been made by the Senate Minority Leader. Per the statute, the term of this appointee is to be a four year term with opportunity to be reappointed twice. Other appointments will have shorter first terms so as to stagger times of reappointment going forward.

While much has been written and discussed about the diminished power of the office of County Executive vis-à-vis the makeup of the board-dropping from nine appointments to six, with four of those being "free" selections and two being drawn from lists submitted by community groups-it is worth mentioning the position of the County’s legislative body, the fifteen member County Council, as it relates to the PAT board.

Prior to Act 72, the Council confirmed appointments and was guaranteed one seat on the board. Earlier versions of the Act would have given appointments to the Council, but that was omitted during the legislative process. Now Council will only confirm the two Executive appointments drawn from lists. There is nothing that prevents any of the appointing officials from choosing a Council member to serve on the board. They are all County residents (required of all appointees with the exception of the Governor’s choice) and would seem to meet the background requirements of having experience in finance, transportation, or economic development as a prerequisite for serving on the board. It could even be possible that now or in the future more than one member of Council could end up on the board.

Major Changes in the Makeup of the Port Authority Board

The Governor has signed legislation that will dramatically alter the board of directors of the Port Authority (PAT).  What was a nine member body with members serving staggered five year terms and appointed solely by the Allegheny County Chief Executive will become an eleven member body with members eventually serving staggered four year terms with appointment power shared by six individuals.

 

 

The idea behind what is now Act 73 of 2013 began germinating a few years ago with recurring financial problems at PAT.  The argument was made that since the state put in a significant portion of PAT’s budget there ought to be state level appointees on the board.  The Auditor General’s 2007 performance audit of PAT called attention to our work (see Policy Brief Volume 7, Number 9) and that of the 2006 Governor’s Transportation Commission’s thoughts on the matter, and pointed out that “taxpayers from across the state have been providing most of the funds to operate [PAT] for many years…the governing structure of [PAT] must be changed to include permanent representation by the state on the behalf of state taxpayers”.  The Authority did not challenge the Auditor General’s argument in its response to the audit, noting that state law determines who serves on the board. 

 

Fast forward six years to this year’s legislative session.  A bill changing the PAT board was introduced in the Senate in early June.  Though the Act went through many changes, these items remained the same from the first proposal:

 

  • A new board would have eleven members.
  • The Governor and the legislative leaders of both chambers would make appointments.
  • Board members would be term limited and would have to possess a background in finance, transportation, or economic development.
  • PENNDOT would be charged with undertaking a study on what benefits consolidation and privatization can have on revenues and expenses.

 

Most of the changes dealt with how to apportion local appointments.  In earlier versions of the bill the County Executive would have had either one or four appointments to the new board.  The Mayor of Pittsburgh, County Council at Large members, and County Council members of the opposite political affiliation of the Executive would have had appointments but those were eliminated as amendments were adopted.  The final version of the Act gives the Executive six appointments in total. Here’s how those appointments will be made: four will be chosen freely by the Executive, and two will be drawn from a list compiled by four community-based organizations and confirmed by County Council.  There is no requirement that a member of County Council serve on the board as the law currently requires, but a member could certainly be appointed. 

 

The terms of current board members end in 60 days, and the law permits any of those members to be reappointed.  Once the new board is seated, the terms will be staggered so that expirations occur at various times.  Board members cannot serve more than three consecutive terms, including the initial appointment.  The table below shows when appointments would be made over the next decade.

 

Appointing Official

Years Making Appointments

Governor

2013, 2017, 2021

Senate Pro Tem and Senate Minority Leader

2013, 2017, 2021

House Speaker and House Minority Leader

2013, 2016, 2020

County Executive-2 free nominations

2013, 2015, 2019

County Executive-2 free nominations

2013, 2016, 2020

County Executive-2 nominations drawn from list and confirmed

by County Council

2013, 2015, 2019

 

Assuming all of the initial 2013 appointments serve for the maximum three terms, the appointees of the Governor and the Senate leaders will have served twelve years, House leadership appointees and two Executive appointees would have served eleven years, and four Executive appointees would have served ten years.

 

A quorum for meetings is six members, but it will require seven members to “take action on behalf of the Authority”.  That means it could require one state level appointee to join with the six County appointees on a decision, or, conversely, two County appointees to join with the state appointees to get business moving forward.   Obviously the point of this requirement is to ensure that the County-level appointees can’t do anything unilaterally without at least one state appointee consenting.

 

The state will exercise significant power on the board in two other ways. First, for adopting by-laws, appointing a CEO, authorizing bonds, borrowing, leases, and contracts in excess of $5 million the two board members appointed by the General Assembly who are not of the same political affiliation of the County Executive can move to table this business to stop it and/or second it to move it forward.  Under current partisan arrangements, that would mean the appointees of the Senate Pro Tem and the House Speaker would get important veto power over these areas. 

 

Second, the Governor’s appointment is the only one that does not have to be a resident of Allegheny County, only a resident of the Commonwealth.  This appointee might come from another part of the region or another part of the state and would provide a broader perspective should indeed the Governor not select someone residing in Allegheny County.

 

A statewide say on PAT business, board members with qualifications, and a study to determine what exactly privatization and consolidation can bring: is a new day dawning for PAT? While not as draconian as it might have been, the just enacted law will certainly offer opportunities to bring professionalism and business acumen to oversight of the Authority.

Another Version of PAT Board Bill

As the legislative session concluded, the House took action on a Senate bill that would alter the makeup of the Port Authority (PAT) board of directors. As we wrote in mid-June the original legislation would have expanded the board from nine members to eleven and spread around the appointment powers from all by the County Executive to five by state officials and six by locals, including the Mayor of Pittsburgh, the at-large members of County Council, and one by the Executive.

That proposal was amended and passed by the Senate soon after. The altered version gave the Executive four appointments, with two having to come from a list submitted by community organizations. The County Council caucus of the opposite political party would get two appointments. The at-large Council members and the Mayor lost the appointments they had under the original bill.

Then the House passed its version this week. The state would still have five appointments: one by the Governor, four from the legislative leaders of each chamber. The County Executive would have six appointees: two would be drawn from the lists of community group suggestions and those two would have to be confirmed by County Council. With the exception of the Governor’s appointee, all must be residents of Allegheny County and all must have background qualifications in budgeting, finance, mass transit, etc.

Some new wrinkles in the House version: it would take seven members to "take action on behalf of the authority" and the legislative appointees who are not of the same party as the Executive would have significant power over by-laws, the hiring of a CEO, bonds, and contracts greater than $5 million dollars. The PennDOT study on consolidation and privatization would get an additional ninety days to be completed.

With the differing versions it will take more work after the legislative recess to align the reform proposals.

PAT Union Board Seat?

The former head of the transit union at the Port Authority argues in a letter to a local paper that the union should have a seat on the Board of the Authority. Claiming no group has a bigger stake in the success of the Authority, the union therefore deserves board membership. The former leader is apparently in deep denial about the damage the union has done to the Port Authority’s finances and lack of efficiency.

Here is a reasonable proposal. If the union wants a seat on the board, the Legislature should offer to amend the bill now working its way through the Senate that changes the board appointment powers to include a union member-on one condition. In exchange the union will agree to support a bill to eliminate the power of transit workers to strike.

It is unlikely the union will ever agree voluntarily to give up the right to strike since they view the right to strike as a virtual sacrament of the labor movement. Unions struck armament plants during World War II on the grounds that the right to strike was not to be denied for any reason. Almost all states have figured out that strikes by public employees who deliver key, monopoly provided services cannot be allowed. Pennsylvania just cannot seem to grasp that truth.

Port Authority Board Appointment Bill Moves Forward

By a 16 to 10 vote in the Senate Appropriations Committee on June 10th, Senate Bill 700 took another step toward becoming law. Of course, the full Senate has to consider it and, likewise, the House must approve and it is not clear what the reception will be in that body.

 

 

The bill, sponsored and heavily supported by the president pro tem of the Senate, has two key provisions. First, the naming of board members of the Port Authority of Allegheny County (PAT) is changed dramatically. Eleven members will be appointed. One by the Governor, one each by officers of the four legislative caucuses, one by the County Executive, one by the Mayor of Pittsburgh, and four by the at-large members of County Council. The at-large member appointees will be named from a list of nominations by four designated organizations (Allegheny Council of Governments, ACHIEVA, the Southwest Regional Commission and the Allegheny Conference on Community Development). Existing members’ terms would end in 60 days. Existing members would also be eligible to serve in the new regime.

 

The effect of this new appointment scheme will be enormous. By removing all but one of the member appointments from the County Executive and placing five with state government officials, the state assumes more of an oversight role for the Authority. By having four board members appointed by at-large council members from various entities presumably there will be some vetting and possibly a variety of viewpoints represented by the members.

 

Appointments-Current Law and Proposed Law

Component

Current Law

Proposed Law

# of Board Members

9

11

Appointment Power

County Executive

Governor (1), County Executive (1), Mayor of Pittsburgh (1), State Legislative Leaders (4), At-Large County Council Members (4)

Residency Requirements

U.S. Citizen, resident of County

Resident of Commonwealth

Qualifications

None Specified

Experience in Budgeting, Finance, Economic Development, Transportation, Mass Transit

Term Limits

None Specified

Three Consecutive Terms

 

It is worth noting the changes in qualifications.  Under the proposed law, members will have to have expertise or experience in areas important to the management of a large organization and specifically some will have to have experience related to transportation issues.

 

The second key provision is a mandate to PENNDOT to (1) study the possibility of consolidation with other local transportation organizations to determine if revenues could be enhanced or expense reduced and (2) to study the opportunities for privatization that will enhance revenues or lower expenses. A report with findings and recommendations for each study is to be ready within 180 days of the enactment of the bill and provided to the Governor, the General Assembly and PAT. 

 

These study requirements are useful but could be worded better to include such things as improved operational efficiency, lower cost per rider, and better service.  Moreover, it is not enough to recommend consolidation or privatization, there needs to language to require the adoption of recommendations when the analysis strongly supports them. A mandate to privatize some percentage of bus service within three years is a reasonable requirement.

 

Obviously, the County Executive and many loyal supporters of the status quo at PAT will be extremely opposed to these steps. But given the state’s financial support and the chronic financial crisis PAT finds itself in and is unable to resolve on its own, there simply must be some major reform.

 

The steps contained in the legislation are a start but they alone do not adequately address the primary source of the Authority’s long term problems-the right of the transit workers to strike. As long as that situation exists, it is only a matter of time until the threat of a strike will force the board, no matter how the appointments are allocated, to choose to approve a contract it cannot afford or a shutdown of the system and all the attendant difficulties and hardship that entails.

 

Still, there is no gainsaying the fact that this proposal is a game changer. It represents a very strong signal regarding the state government’s exasperation with PAT and its constant demands for more funding while operating one of the most expensive per rider systems in the nation.

 

The only question is whether the House members have the same level of exasperation. Will it concur that substantial change needs to occur at the Port Authority?

Come on and Take Free Ride

It seems the County Executive is a great fan of the Edgar Winter Group’s long ago hit song that invited folks to take a free ride. The difference is that the Executive is the "boss" at the Port Authority and has a taxpayer built light rail system that he can invite people to ride for free.

The Executive and some downtown groups want to see a fare free ride between the North Shore and Station Square. The draw is the free access to the North Shore with the stadiums, parking and entertainment as the attractions for T riders.

There is so much wrong with this idea. First of all, when the Federal and state governments put up hundreds of millions to support construction of rail systems and then pour in more hundreds of millions to subsidize ridership, they do not intend that rides be free. Free rides can and almost certainly will lead to artificially induced overuse of the system that will entail requiring adding trains to handle the free riders. More trains, more driver time, more costs for vehicle and track maintenance, security, more management time for scheduling etc. In this regard, the amount of money the Executive has requested from businesses to cover the cost of the free rides is a pittance compared to the cost of providing the North Shore service.

As was observed soon after the opening of the North Shore Connector, free rides after large events result in long lines and very long wait times. The problem for the Port Authority is that it can carry only a few thousand (perhaps as few as five thousand) people per hour safely. If 20,000 people show up at the North Shore stations after an event expecting a ride, they are going to create a massive logjam. The system is not designed to handle that kind of crush.

Far better to stop the free ride regime now. If someone rides the North Shore Connector they should pay at least a nominal fare. The subsidy per rider from construction costs is already at least $20. Given there is little chance the Connector will ever pay for its construction costs, the Port Authority ought at a minimum try to recover the operating costs of the system.

If the Connector cannot cover its operating costs through fares, then the massive expenditures to build it were even more of a boondoggle than opponents argued it would be before it was built.

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.

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.

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.