Thursday, November 30, 2006

Operating Costs & Investment Decisions

The National Transit Database provides a wealth of information about our three favor service boards. Let's take a look at the 2005 reports for CTA, Metra and Pace. Transit agencies are supposed to report their financial and other data to the NTD on a consistent basis so that good financial and operational efficiency comparisons can be made between agencies.

The Situation Analysis Interim Report Summary of the Moving Beyond Congestion project concludes that "[o]verall, the Service Boards compare well with their peers." (Pg. 18). How do they compare with each other using the 2005 NTD reports?

Operating Expense Per Passenger Mile

CTA Bus $0.93
Pace Bus $0.55

CTA Rail $0.38
Metra Rail $0.31

Operating Expense Per Unlinked Passenger Trip

CTA Bus $2.39
Pace Bus $3.68

CTA Rail $2.33
Metra Rail $6.97

Operating Expense per Vehicle Revenue Mile

CTA Bus $10.84
Pace Bus $ 6.09

CTA Rail $ 6.32
Metra Rail $12.49

The MBC folks ignore the question of where operating funds should be allocated to maximize the benefits of transit to the region.

The big question is what is the best measure of transit efficiency. Do we focus the cost of moving a passenger over a mile? In this case, Metra is the clear winner. Or is a more relevant measure the cost per trip? In this case, both CTA bus and rail are the clear winners. (Note that because the measure is "unlinked" trips, then a two-transfer ride on the CTA--which may be a single real life trip to the customer--will cost about the same as a Metra trip.)

My opinion is that cost per passenger trip is the best measure of transit efficiency and the best tool for deciding where to allocate both operating and capital dollars. In other words, we should spend transit money where it generates the most passenger trips.

Why is this? Rewarding transit agencies for passenger miles traveled in effect aligns transit agencies with all the social forces that are generating sprawl and the ever longer trips necessary for people to get to work, shop, etc. Indeed, Metra's investment in suburban extensions just helps the spread of sprawl.

A better approach IMO is to reward trip generation regardless of distance. That way the one mile hop from the Loop to North Michigan Avenue is viewed as just as valuable as the 25 mile rail or bus trip elsewhere. Why so? Transit thrives on density and in densely populated areas people walk more, use cars less, and thus generate much less air pollution than those of us whizzing around in cars in the less densely populated suburbs. Rewarding trip generation rather than miles traveled is more likely to reward densely populated areas where transit is likely to pull more people out of cars for more trips.

If the MBC project wants to truly build a world-class transit system it needs to make sure that transit investment is supporting the kind of dense residential and employment areas where people are able to function without near total reliance on the automobile.

Rather than offering a few bromides about the importance of good land-use, the MBC folks need to develop criteria to direct transit dollars to areas and types of services most likely to yield the most transit trips per dollar of investment. This raises difficult political issues no doubt, but if operating and capital funds are truly as limited as the MBC says, then shouldn't investment be where it will do the most good, namely, in those areas that will generate the most trips.

If, for example, it will take $6.97 to get an additional trip on Metra where the same amount of money will generate more than two new trips on the CTA, shouldn't we reward the service that gets more people out of their cars for more trips?

I know that there are powerful counterarguments (e.g., the more miles traveled on transit the more miles not traveled in cars, maximizing anti-pollution benefits of transit). Nonetheless, the RTA (especially) and the service boards need to look carefully to see if transit investments are supporting or undermining the type of land-use patterns that will sustain transit in the long term.

Tuesday, November 28, 2006

CTA: Labor Costs Meltdown?

Transit systems are labor intensive and labor costs are by far their biggest operating cost item.

When private companies are in financial distress reducing labor costs is a top priority if the enterprise is to be rescued. It is obvious that public entities are different. While the Situation Analysis of the Moving Beyond Congestion project ("MBC") makes some slight references to labor costs, thus far the MBC has not made a single proposal for how to better manage labor expense. The MBC, in other words, is focused on increasing revenue and not on realizing cost-saving operational efficiencies. The problem in the MBC's view is lack of money and not the weaknesses of the service boards in managing their labor costs.

The MBC failure to focus on the cost side of public transit operations is not terribly surprising. The region's transit agencies are heavily unionized. Extracting concessions from unions is never easy, especially in the political environment in which public agencies operate. Why undertake this arduous task if you don't have to?

The labor cost situation at the CTA is especially grim. The CTA's 2007 Budget (pg. 61) projects 4 years out from the CTA's 2005 actuals. Labor expenses are as follows:

2005: $714,336
2006: $769,163
2007 $850,332
2008: $915,648
2009: $1,037,780

This represents a 45% increase in labor expense in just 5 years. The labor expense share of the CTA's operating budget during this period rises from 69.9% in 2005 to a whopping 77.3% in 2009.

The CTA advances two explanations for these ballooning labor costs. First, the CTA was on the losing end of a labor arbitration ruling for the contract period ending on 12/31/06. (Pg. 31.) Second, the sharp increases in labor expenses in 2008 and 2009 are due to sharp increases in pension plan contributions mandated by state law. (Id.)

It may take State intervention to put a check on this ruinous rise in CTA labor expense. The General Assembly might consider, for example, outlawing any clauses in service board collective bargaining agreements that bar the service boards from subcontracting out bargaining unit work. More dramatically, the General Assembly might radically reconstitute one or more of the service boards so that collective bargaining agreements can be negotiated from scratch. Surely there are some tools available to financially distressed public entities that allow them to do the kind of labor cost restructuring that is common in the private sector.

The MBC's failure to address the labor cost issue may in the end be harder on its effort than had it wrestled with the labor cost problem from the beginning. Will taxpayers and voters be willing to pony up hundreds of millions of additional money each year when they see that those additional dollars will be used to pay for pensions and higher wages rather than for service improvements?

Monday, November 27, 2006

McCarron Drops The Ball

John McCarron takes a breezy look at the regional transit funding situation in today's Tribune. His article, "Transportation Fixes in the Slow Lane" was inspired by a CTA train delay that resulted in him missing the first inning of a baseball game.

McCarron notes the large and growing service board operating deficits and the shortage of capital funding. He offers no solutions, speculating only that a new tax such as a regional tax on gasoline or the sale of State assets such as the Tollway might be used to generate funds.

He does offer a reminder that personalities matter. In his view Jim Reilly, the head of the RTA, is a coalition builder, while Jeff Ladd, the recently deposed Metra Chairman and Frank Kruesi, the CTA's President, are too combative to build the kind of regional consensus that will be necessary to bail out the local transit system. Indeed, if published reports are to be believed, you could put Ladd (or Kruesi) in a room by himself and he still couldn't build a consensus.

McCarron also notes that suburban interests are beginning to get skittish about even the very modest suggestions in the Moving Beyond Congestion materials that land use issues need to be considered as part of building an improved transit system.

Wouldn't it be something if transit service and/or subsidies were doled out based at least in part on the implementation of transit oriented development principles by local governments? Why shouldn't Metra provide premium express service only to towns that allow high-density housing and commercial uses near train stations? Why shouldn't Pace just say no when towns sprawling across our region ask for bus service? Why shouldn't the CTA pay a price when the City of Chicago ushers in a lower density, auto-centric city through big box developments, strip malls with parking lots in front, and zoning laws that make it difficult to build housing without lots of garage space?

Land use changes may be the political third rail, but it is disappointing that the Moving Beyond Congestion folks failed to articulate some meaningful reforms to land-use practices so that some--but only some--of these reforms could be bargained away in the political hurly burly this spring. Now, there is nothing on the land use front for the MBC to bargain away.

If McCarron's lightweight article is any indication how seriously the local media will be taking the Moving Beyond Congestion process, then we will never know the opportunities for a more efficient and livable region that are being overlooked. McCarron dropped the ball on this one.

Saturday, November 25, 2006

The RTA's Responsibility for Capital Funding Disparities

The recent Situation Analysis Interim Report ("Report") of the RTA's Moving Beyond Congestion initiative outlines the capital shortfall facing the public transit service boards. What the Report fails to address is how the RTA's distribution of capital funds among the service boards over the years has compounded the crisis for the CTA.

The RTA Act includes a complicated distributional formula for sending RTA sales tax revenue to the service boards in the form of operating subsidies. 70 ILCS 3615/4.01(d). There is no such statutorily mandated formula for the RTA's distribution of capital funds. Yet, for years the RTA has distributed federal formula capital funds--the bulk of the capital funds for the service boards--according to a fixed formula. The CTA gets 58%, Metra 34% and Pace 8%. (The CTA got an even smaller share of Illinois FIRST capital funds.)

The RTA's 2007 Budget Book (page 18 of 43) states that the 58%/34%/8% split is based on a "historical distribution." The RTA makes no pretense that it is distributing capital funds to the service boards based on a professional assessment of the capital needs of the service boards or according to a performance-based metric such as obtaining the most transit ridership per dollar of capital investment.

While the basis for the "historical distribution" is unclear, we do know the CTA is shortchanged under the RTA's capital funding formula. For years, the CTA's share of capital investment has run well behind its share of transit customers in the region. The 2006 ridership shares are as follows:

CTA: 80%
Metra: 14%
Pace: 6%

Yet, the RTA's 2007 Budget Book sets the preliminary capital marks for the service boards for the 2007-2011 period as follows:

CTA: 57%
Metra: 36%
Pace: 7%

Not surprisingly, as a result of years of capital investment at levels far less than its ridership share, the CTA's capital stock is in the worse shape. The Report (pgs. 19-22) makes this evident. CTA rail cars have a useful life of 25 years: 78% of its fleet is now 20 years or older. CTA buses have a useful life of 12 years: 55% of its bus fleet is 11 years or older. The average CTA bus garage is 46 years old. The average for Pace is 18 years. In contrast, the Report makes no mention of Metra facing any chronically obsolete railcars or facilities. We can only infer that after many years in which the RTA gave Metra a share of capital funds more than double Metra's ridership share, Metra's capital stock is in much better condition than the CTA's capital stock.

The effects of the RTA's maldistribution of capital funds to the service boards is graphically illustrated by two recent publications. The November 2006 edition of Metra's "On the Bi-Level" has an article on Metra's 2007 budget. The article illustrates the importance of capital investment by citing to Metra's early days in the 1980s, when Metra's "track and equipment was in such poor shape trains had to run slower than 25 mph on about 15 percent of the Metra system."

The second article appeared in the Chicago Tribune on November 15, 2006. In that article John Hilkevitch reported that slow zones have more than doubled on the CTA rail system since July 2005. Almost half of the Howard branch of the Red Line is a slow zone. With limited capital funds, the CTA cannot afford more work crews to reduce the number of slow zones. In other words, Metra's bad old days, in which 15 percent of its system was a slow zone, describes the CTA of today, a system riddled with slow zones.

The responsibility for the disparity in capital funding between Metra and the CTA clearly lies with the RTA. It is unfortunate that despite new leadership, the RTA appears committed to perpetrating the current formula, which will continued to shortchange the CTA of capital funds. Even those who might otherwise be inclined to support the RTA's Moving Beyond Congestion package need to consider whether the RTA's allocation of capital funds according to the "historical distribution" formula makes good sense and leads to the best use of public dollars.

Might it not make better sense to distribute capital funds using professional engineering needs assessments tied to a performance metric such as ridership to be served/geneated per dollar of investment? Why shouldn't capital funds be spent on projects that will do the most good for the most riders rather than distributed unequally using an unwritten formula hammered out years ago in a very different political environment.

Moving Beyond "Moving Beyond Congestion"

The Moving Beyond Congestion ("MBC") initiative of the RTA, CTA, Metra and Pace is finally producing some substantive work, namely the recent Situation Analysis Interim Report.

Sadly, it appears from the Report that the MBC initiative boils down to asking the General Assembly for more money to shore up the status quo. Lacking is a vision for how to improve both the public transit system and the regional transportation system as a whole.


The Report lays out some of the economic and environmental benefits of public transit in Northeastern Illinois. The Report then outlines the current situation of the three service boards. That situation is grim. Despite existing annual operating subsidies that total approximately $900 million, the service boards are facing large and growing operating deficits. The service boards have started using capital funds for operations, hardly a positive business strategy. In 2006 the service boards will be transferring over $100 million in capital funds to help cover their operating costs. At the same time the service boards are diverting capital funds for operating needs, the pool of available capital funds has shrunk markedly because of the expiration of the Illinois FIRST program.

Public transit's market share continues to decline in the region. Fewer trips are being taken today by public transportation in the region than were being taken 30 years ago, when the region's population and job totals substantially smaller. Demographic trends are unfavorable, because the region's population growth and job growth are occurring largely in low density areas ill-suited to traditional public transit service models.

The Report states that the region has a choice: "Invest in, modernize and expand" the region's public transit system or "begin shrinking the transit network and lose the economic and quality of life benefits that accompany it." The Report does not give serious consideration to the options of shrinking existing public transit system or even maintaining the status quo. Rather, the report assumes the conclusion that it makes sense to expand business as usual when it comes to public transit. The Report thus exhorts us to "seize the opportunity to develop a world class transit system." We learn from the RTA's 2007 Budget Book that this means new and rapidly increasing State operating subsidies on top of the existing State subsidies. These additional public subsidies are as follows: 2007--$145 million; 2008--$223 million; 2009--$335 million. (Note the 130% increase over just three years with no signs of leveling off.) On the capital side, we are told that it will take almost $40 billion in new money over 30 years to achieve such a system.


The Report is a disappointment to anyone who truly wants a "world class transit system" in Northeastern Illinois. Despite public transit's declining market share, despite the inability of the RTA and the service boards to live within the means provided by the RTA sales tax and the matching State subsidy, despite continued low density development in much of the region that makes traditional public transit infeasible, the Report boils down to "we need more of the same" -- the same public transit agencies following the same public transit business model under the same legal/administrative structure. This is hardly a compelling case.

Some of the issues the Report fails to address include:

-- Labor Costs make up the lion's share of the operating costs of the transit agencies. When private sector companies approach or enter bankruptcy labor concessions and out-sourcing are often key to remaking the company into a viable enterprise. This is a painful process, yet it happens. What plans do the RTA and the service boards have to reduce labor costs directly and through outsourcing now that they face the public sector equivalent of bankruptcy?

-- Pace is the most heavily subsidized of the three service boards, with over 60% of its operating costs covered by public subsidies. Its operating area in the suburbs has seen steady growth in population and jobs over the past 25 years. Yet, Pace's ridership continues to drop. Why should we assume that Pace will provide "world class" transit with more money when it has been ineffectual with what it has already?

-- Transit systems are supposed to combat sprawl by offering people an alternative to automotive dependence. Then why is Metra concentrating its investment in rail line extensions and the STAR Line? Why, for example, does it make sense to spend hundreds of millions of dollars to run a train line to Elburn when we know that most of the travel done by folks in that region will be by car even if one family member does take the train to work? Why not focus Metra's capital investment on higher density areas where it is much more likely that people will do a higher proportion of their total trips by transit, walking, and other non-auto methods? Wouldn't a Cicero Avenue connector, for example, serve far more people and generate more transit trips per dollar of investment than expensive extensions to places like Elburn, Johnsburg, and Manhattan, which simply make those areas more attractive to sprawl type development?

-- The Report makes no mention of revamping the governance structure for the RTA and the service boards. Does it make sense that the State of Illinois is being asked to provide 50% of the operating subsidies by 2009 yet neither the Governor nor the General Assembly has the power to appoint even a single member of the RTA? Does it make sense to apportion RTA board members based on the population in various counties rather than transit usage in those counties? Is the RTA too weak to do anything positive but just strong enough to be a bureaucratic drag on the service boards? Why should we consider continuing the present RTA/service board structure when it has failed to stem the market share losses faced by public transit?

-- The Report has nothing meaningful to say about how all the money requested is to be raised and distributed. Do the authors really think that the Governor and the General Assembly will step up to provide over $750 million in operating subsidies (by 2009) for transit services operating in only six counties in the state? Is public transit really more important than education and health care? Why is most of the region paying only 0.25% RTA sales tax while Cook County residents must pay 1%?

-- Both Metra and the CTA have raised fares recently without suffering ridership losses. Metra even brags in its annual budget that its fares have risen at far less than the rate of inflation. Does this suggest that higher public transit fares are economically feasible and need to be part of any financing solution?

These and many other questions need to be asked and considered before the State invests many more billions of dollars into transit. This blog is intended to be a place where interested parties can discuss the issues and share information in a creative and responsible fashion.