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?

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