Southwest Pennsylvania Transit

Port Authority Consolidation Study

March 2015

To Interested Stakeholders:

Pursuant to the requirements of Senate Bill 700 (SB 700) of 2013, enclosed are reports assessing the impacts of consolidating transit agencies in southwestern Pennsylvania and of the privatization of Port Authority of Allegheny County (PAAC) service.

PennDOT identified and analyzed four consolidation scenarios ranging from one to three transit authorities taking the place of the 14 existing transit systems in the ten-county region. Based on those scenarios, estimated annual operating cost savings range from $3.4 million for three separate authorities to $7.2 million for one regional authority.

With regard to privatization of PAAC service delivery, the report concludes that privatization is a tool which could potentially result in cost savings for PAAC. However, privatization is not a magic bullet. Rather it is one of many tools management could use to control growth in operating costs. Regardless of which tools are selected to help control costs, success will require strong leadership, local support, and significant time to overcome the historically high cost structure.

Because public transportation in Pennsylvania is locally controlled and managed, PennDOT recommends that actions beyond these reports be determined locally. Local transit management and governing boards must review the study findings and move forward to find ways to reduce cost increases and keep long term legacy costs in check. The Commonwealth, as a major contributor to public transportation operating and capital costs, must work in partnership with local transit systems to maximize service to residents while recognizing that there must be local support and local leadership for any initiative to be successful.

Therefore, we recommend that:  Stakeholders review the study results and options  Stakeholders consider a second phase of study for consolidation, that would: o Facilitate discussions between agencies o Draft a framework for consolidation

PennDOT will continue to support the region as the stakeholders consider the results of these studies.

Sincerely,

Toby Fauver, A.I.C.P. Deputy Secretary Multimodal Transportation

TABLE OF CONTENTS Table of Exhibits ...... ii Introduction ...... 1 Approach ...... 3 Current Environment ...... 4 Southwest Transit Agency Consolidation ...... 7 Benefits of Consolidation ...... 7 Challenges of Consolidation ...... 9 Consolidation as a Means to Reduce Costs or Increase Revenues ...... 12 Service Region Alternatives ...... 14 Consolidation Planning and Transition Requirements ...... 16 Appendix A: Approach Detail ...... 17 Appendix B: Transit Agency Profiles ...... 19 Appendix C: Current Environment Detail ...... 33 Demographic and Economic Statistics ...... 33 Governance and Service Structure ...... 35 Staffing ...... 39 Financial Profiles...... 42 Wages ...... 42 Administrative Costs ...... 43 Employee Benefits ...... 43 Assets and Liabilities ...... 45 State and Local Subsidies ...... 48 State Subsidies ...... 49 Local Subsidies and Related Support...... 50 Appendix D: Financial Impact of a Consolidated Authority ...... 51 Governance Structure ...... 51 Legal Structure ...... 52 Assets and Liabilities ...... 52 Organizational Structure ...... 53 Administrative Functions ...... 53 Operations, Maintenance and Engineering ...... 53 Staffing ...... 54 Financial Impact of Consolidation ...... 56 Salary Expenses ...... 56 Employee Benefit Expenses ...... 57 Purchased Transportation Expenses ...... 58 Professional Services ...... 58 Information Technology Expenses ...... 58 Other Operating Expenses ...... 58 Operating Revenue ...... 58 Summary Financial Impact ...... 59 Appendix E: Functional Organization Charts for a Single 10-County Regional Authority .. 60

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TABLE OF EXHIBITS

Exhibit 1: Current Environment Summary Part I ...... 5 Exhibit 2: Current Environment Summary Part II ...... 6 Exhibit 3: Summary Financial Impact of Consolidation ...... 13 Exhibit 4: Summary and Financial Results of Alternative Consolidation Scenarios...... 14 Exhibit 5: Financial Impact Comparison of Consolidation Alternatives ...... 15 Exhibit 6: Demographic and Economic Conditions ...... 34 Exhibit 7: Population Characteristics ...... 35 Exhibit 8: Organization and Governance Structures ...... 35 Exhibit 9: Transit Service ...... 36 Exhibit 10: Number of Positions ...... 39 Exhibit 11: Ratio of Administrative FTEs to Total FTEs ...... 39 Exhibit 12: Number of Providers Using Purchased Transportation Services ...... 40 Exhibit 13: Labor representation for Directly Operated Service...... 40 Exhibit 14: Hourly Operator & Mechanic Wage Rates for Directly Operated Service ...... 43 Exhibit 15: Retirement Plan Types and Unfunded Plan Liabilities ...... 44 Exhibit 16: PAAC Retiree Costs as a Percentage of Total Operating Expenses ...... 45 Exhibit 17: State Operating Subsidies in FY2011-12 ...... 48 Exhibit 18: Local Operating Subsidies in FY2011-12 ...... 49 Exhibit 19: Regional Authority Operations Function ...... 55 Exhibit 20: Projected Change in Administrative FTEs Due to Consolidation ...... 56 Exhibit 21: Summary Financial Impact of Consolidation ...... 59

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INTRODUCTION

In 2013, the Pennsylvania Legislature passed Senate Bill 700. The legislation re-organized the Port Authority of Allegheny County’s (PAAC) board of directors (Board) and required PennDOT to conduct two studies. The purpose of this study is to assess the potential of consolidating PAAC with other local transportation organizations within the geographic proximity as a means of reducing annual expenses or increasing annual revenues. This study describes how and where service regions could be developed as a means to realize the benefits of consolidation without fundamentally changing how service is delivered so as to maintain local economies where they already exist. Act 89 of 2013 provided incentives for local governments to consolidate transit operations where it is cost-effective to do so. If local agencies could consolidate and identify clear cost savings, the amount of local matching funds contributed to the operation of the new agency would be reduced in an amount equal to the savings for a period of up to five years. The resulting agency would enjoy the benefits of greater economies of scale. Customers would enjoy the benefits of better coordinated regional travel. While these benefits are compelling from many perspectives, local agencies struggle with overcoming the practical challenges that consolidation poses. In a general sense, many local transit providers and their sponsors are reluctant to relinquish control over service delivery for fear that service quality will diminish and that local jobs will be lost. While assurances can be put in place to maintain quality of service, the loss of local control and jobs are legitimate political concerns that must be addressed if consolidation is to be successful. In the case of a southwestern Pennsylvania consolidation effort, the well-publicized high cost structure of the Port Authority of Allegheny County (PAAC), the largest single agency in the region, necessarily complicates what could otherwise be a full consolidation of the region’s transit services. PAAC’s size and history of high costs also promote a sense of distrust of consolidation in surrounding counties / agencies who feel that they can provide the same or better service to their residents, at a lower cost. The consolidation alternatives described in this report recognize the unique conditions and history of transit service delivery in the greater Pittsburgh region. This document contains a description of the approach, findings and results of the consolidation study. It does not express an opinion on whether or not consolidation should occur. It is solely intended to enable elected officials and other stakeholders to make informed decisions by having them consider the obstacles that would be faced and the requirements that would need to be met in order for consolidation of transit agencies in the greater Pittsburgh area to realize cost savings or increased revenues.

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APPROACH

The consolidation study identifies the benefits and challenges of regionalization and offers high-level financial analyses of the impact of such an operating structure. The work involved interaction with the southwest regional stakeholders, including state and local elected officials, transit Board members, transit agency staff and regional planning representatives. The study encompasses a three- step process:  Gain an understanding of the current environment;  Assess the benefits and challenges of regionalization; and  Estimate the financial impact of regionalization in southwest Pennsylvania;

Appendix A: Approach Detail provides a more detailed description of this three-step approach.

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CURRENT ENVIRONMENT

The consolidation assessment included the 14 transit agencies operating in the counties of Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Indiana, Lawrence Washington and Westmoreland:  ACTS – Allied Coordinated Transportation Services, Inc. in Lawrence County  BCCA – Butler County Community Action  BCTA – Beaver County Transit Authority  BTA – Butler Transit Authority  CWT – City of Washington Transit  FACT – Fayette Area Coordinated Transportation  GCT – Greene County Transportation  ICTA – Indiana County Transit Authority  MMVTA – Mid Mon Valley Transit Authority in Fayette, Washington & Westmoreland Counties  NCATA – New Castle Area Transit Authority in Lawrence County  PAAC – Port Authority of Allegheny County  TACT – Town and Country Transit in Armstrong County  WRIDES – Washington County Transportation Authority  WCTA – Westmoreland County Transit Authority The current environment component of the study provides a picture of the individual and combined southwest transit agencies as they are structured and operate today. This helps identify the key transition issues that would need to be addressed to regionalize service and provides a baseline for forecast financial changes. The current environment work documents demographic and economic data, governance structure, service offerings and operating statistics, organizational structure and staffing, wages and fringe benefits, purchased transportation and other purchased services, functions provided by related parties, fuel consumption and costs, and financial data. Appendix B: Transit Agency Profiles provides a one page current profile of each transit agency in the southwest Pennsylvania region. A review of the current environment data highlights the diversity that exists in the region. There are large and small transit providers; rich and poor communities that they serve; urban, suburban and rural geographies within which they operate; organization structures that include City departments, County departments, non-profits and municipal authorities; fixed route and/or non-fixed route service provided; in-house management and contracted management; and non-represented and represented labor. Exhibit 1 and Exhibit 2 summarize some of the current environment data for each of the transit providers in the region. Sources for the data shown in the Exhibits include the U.S. Census Bureau: State and County Quickfacts and audited financial statements, responses to data requests and legacy reports submitted by the individual transit agencies. A more detailed discussion of the Current Environment appears in Appendix C: Current Environment Detail.

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Exhibit 1: Current Environment Summary Part I

ACTS BCCA BCTA BTA CWT FACT GCT Demographic & Economic Data Median Household Income $43,821 $57,474 $47,928 $57,474 $33,184 $36,605 $42,565 Persons per Square Mile 254 233 392 233 4,635 173 67 Senior Population % 19.3% 16.0% 19.1% 16.0% 18.1% 18.6% 16.2% Civilian Veteran Population % 11.3% 11.3% 12.4% 11.3% 11.7% 11.5% 11.6% % Individuals Below the Poverty 13.5% 8.7% 11.6% 8.7% 24.7% 19.2% 15.9% Line Governance County County Municipal Joint Legal Structure 501(c)(3) City County Human CA[1] Authority Authority Srvs

Governance Type Board Comm Board Board Council Comm Comm Governance Body Size 6 3 9 6 4 3 3 Service Passenger Trips Fixed Route (1,000s) 966 209 41 185 Demand Response 99 75 81 132 57

793K/ 544K/ Revenue Vehicle Miles 348K 259K 209K 174K 657K 524K 624K Max Daily Vehicles 20 16 20/18 4 5 10/36 24 Number of Fixed Routes N/A N/A 7 5 4 10 N/A Commuter Service No No Yes No Yes Yes No Avg Trip Length in Miles: Non- 11.11 7.74 9.17 N/A N/A 11.33 11.54 Fixed Staffing Number of Full-Time Equiv 20.5 2 104 7 0 46 26.25 Positions Management In-House Contract In-House In-House Contract In-House In-House Purchased Transportation Services None Full Partial Full Full Partial None Labor Representation Teamsters None ATU None None SEIU SEIU Financial Annual Expenses ($millions) 2 1 9 2 1 4 1 Avg Hrly Operator Wages: Fixed N/A N/A $14.25 $14.00 $12.25 N/A N/A Avg Hrly Operator Wages: Non- $10.82 N/A $12.80 N/A N/A $11.70 $14.92 Fixed Avg Hourly Mechanic Wages N/A N/A N/A N/A $12.25 $12.00 $20.03 Employee Benefits to Wages Ratio 4% N/A 43% 41% N/A 52% 38% Type of Retirement Plan DC N/A DC DC N/A DB DB Defined Benefit Plan Unfunded N/A N/A N/A N/A N/A 7.7 0.3 Liab Total Assets ($millions) 2.3 0.456 26.6 13.7 1.8 N/A 0.511 Debt and Other Long-term Credit LT N/A Credit Lines None LT Lease None Liabilities Line Leases

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Exhibit 2: Current Environment Summary Part II

ICTA MMVTA NCATA TACT WRIDES WCTA PAAC Demographic & Economic Data Median Household $41,424 N/A $30,032 $44,663 $51,965 $48,979 $49,805 Income Persons per Square Mile 108 N/A 2,802 106 243 355 1,676 Senior Population % 16.2% N/A 19.3% 19.3% 18.1% 19.6% 16.9% Civilian Veteran 10.3% N/A 11.3% 12.3% 11.7% 12.2% 10.2% Population % % Individuals Below the 18.6% N/A 22.8% 11.8% 10.2% 10.0% 12.4% Poverty Line Governance Municipal Municipal Municipal Municipal Municipal Municipal Port Legal Structure Authority Authority Authority Authority Authority Authority Authority Governance Type Board Board Board Board Board Board Board Governance Body Size 7 21 10 9 9 7 11 Service Passenger Trips Fixed Route (1,000s) 455 335 682 51 564 64,100 Demand Response 38 45 296 437 1,800

484K/ 144K/ 927K/ 20.8M/ Revenue Vehicle Miles 804K 1.1M 1.7M 165K 255K 4.4M 11.5M Max Daily Vehicles 16/35 22 27 5 / 23 75 31/111 628/325 Number of Fixed Routes 20 6 16 3 1 Demo 25 102 Commuter Service No Yes Yes No No Yes No Avg Trip Length in 8.07 N/A N/A 12 9.12 9.97 7.55 Miles: Non-Fixed Staffing Number of Full-Time 44.5 6 58 24.5 13 14.5 2,414 Equiv Positions Management In-House In-House In-House In-House In-House In-House In-House Purchased Partial Full ADA Only None Full Full Partial Transportation Services ATU, IBEW, Labor Representation None None ATU ATU None None Police Financial Annual Expenses 4 4 7 2 7 12 359 ($millions) Avg Hrly Operator $16.76 N/A $19.31 $10.48 N/A N/A $25.69 Wages: Fixed Avg Hrly Operator $16.76 N/A N/A $10.48 N/A N/A N/A Wages: Non-Fixed Avg Hourly Mechanic $17.00 N/A $19.31 $16.48 N/A N/A $25.93 Wages Employee Benefits to 35% 47% 118% 36% 42% 41% 122% Wages Ratio Type of Retirement Plan DC DC DC DC DC DC DB Defined Benefit Plan N/A N/A N/A N/A N/A N/A 153 Unfunded Liab Total Assets ($millions) 5.8 12.8 22.4 1.5 2 22.2 1,650 Credit Credit Credit Line, Debt and Other Long- Notes & Line & LT None None Line & Mortgage Bonds & term Liabilities Payables Lease Lease Loan

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SOUTHWEST TRANSIT AGENCY CONSOLIDATION

Regionalized transit operations exist across the country and are formed when a single provider can serve the region more efficiently and/or more effectively than multiple agencies covering the same area. In Pennsylvania, the largest urban transit regionalization is in the southeast where the Southeastern Pennsylvania Transportation Authority (SEPTA) provides service in Bucks, Chester, Delaware, Montgomery and Philadelphia counties. The largest rural regionalization is in the north where the Area Transportation Authority (ATA) provides service in Cameron, Clearfield, Elk, Jefferson, McKean and Potter counties. Given the financial pressures faced by local municipalities that are required to provide local funding match for transit service, a number of other regionalization efforts are underway in Pennsylvania. These efforts are in a variety of stages and include, but are not limited to, those in the northwest, north central and south central regions of the state. The counties and municipalities in southwest Pennsylvania can benefit from a successful transit consolidation by capitalizing on the existing providers’ strengths. Some of the characteristics of a regionalized approach to service are already in place in the region including inter-county service, integrated technology and integrated infrastructure:  Existing commuter bus service to Allegheny County is currently offered by six agencies.  Integrated fare collection technology is in use at six agencies.  Transit exclusive right-of-way and limited access High Occupancy Vehicle (HOV) lanes from all directions to and from downtown Pittsburgh is used by PAAC and other transit providers.  Strategically located park-n-ride lots are in use at the fringe of Allegheny County.

In addition to identifying these characteristics, an understanding of the benefits and challenges of transit regionalization is critical in optimizing a successful regional authority’s organization and governance structures.

BENEFITS OF CONSOLIDATION Consolidation has the potential to provide financial benefits to local municipalities through their participating transit providers: 1. Transit Expenditure Savings are typically generated from the elimination of duplicative administrative positions and services, reduction in overhead costs, use of volume purchasing, standardization of vehicles and inventory, restructuring of service delivery (in-house vs. purchased transportation service) and service redesign (routes, stops, connections and timetables). These savings can be seen in both operating and capital costs.

2. Transit Revenue Gains are usually seen from the ability to offer volume advertising and may possibly be seen in increases in fare revenue due to ridership growth from route and fare structure integration. Additionally, real estate and facilities that are no longer required

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by the regionalized entity could possibly be used to generate new operating or capital income streams.

3. Reductions in Required Local Match Funding are now possible given the passage of Act 89 that permits municipalities to reduce their operating matching contributions dollar for dollar over a five year period up to the amount of actual savings achieved from regionalization.

4. Elimination of Transit Related City and County Costs for those municipalities or related parties that currently provide services to transit agencies that are city or county departments. Functions such as payroll, human resources, procurement and maintenance would no longer need to be provided as the new regional organization would assume responsibility for such services. This would enable these municipalities to reduce their costs and/or improve productivity.

5. Improvement of Financial Audit Results for smaller transit agencies with audit deficiencies due to lack of resources or professional financial staff.

Financial benefits could be used to reduce local match contributions, improve service, establish demonstration projects, delay fare increases, offset inflationary cost increases and/or make capital investments. Operating improvements can also be derived that benefit the region’s passengers through the operation of a regional authority with a consistent focus: 1. Use of Local Expertise for Regional Benefits is a key advantage of regionalization. In the southwest, there are pockets of expertise in areas such as customer service, commuter service, contract management and government relations. In a regionalized organization, management strengths and operating practices can now be broadly and consistently applied in the larger regional organization.

2. Use of Best-in-Class Technology across the region would occur as transition plans to develop a single authority would assess the current use of technology at all area providers and migrate the full region to the best-in-class. For example, the region as a whole would be able to take advantage of software to automate scheduling for driver runs and to automate the scheduling of fleet maintenance to manage preventive maintenance, parts inventory and maintenance productivity. Technology would also make it possible for improved data collection, reporting and analysis of service and performance.

3. Functions Receive Proper Attention that Today are Neglected Due to Limited Resources. Many small and mid-size transit agencies have insufficient resources to fully or even partially address the day-to-day demands of running service along with abundant federal compliance requirements in areas such as safety, human resources, procurement, planning and reporting. A larger regional organization provides the ability to properly focus on operational and compliance functions that would be otherwise neglected. Port Authority Consolidation Study 8

4. Fleet Optimization from regionalization occurs by increasing opportunities to right-size service using smaller or larger vehicles where appropriate and, over time, standardizing vehicle types and inventory where possible.

5. Elimination of Redundant Service is often a by-product of regionalization. In this particular region, there is the opportunity to eliminate service redundancies in the major corridors into downtown Pittsburgh, to coordinate transfers in Allegheny County at fixed guideways for commuter service to Pittsburgh and enable short-turns at existing regional park-n-rides like Ambridge, South Hills Village and Jefferson Hills.

When transit agencies achieve operating improvements, customer service often improves. Regionalization can therefore generate customer service improvements as well, including the following: 1. Seamless Regional Travel with an integrated regional fare structure, integrated schedules, single web-based trip planner and single fare collection system.

2. Expands Opportunity for Reverse Commuting from Pittsburgh to outlying areas that are growing in population and business locations.

3. Improves Commuter Travel Times by maximizing the use of PAAC’s fixed guideway system for all regional commuters.

4. Increase Service Options for Customers by using existing park-n-ride lots for connections/transfers.

Both financial and operating benefits can be produced in a region where a single organization is responsible for transit service planning and capital investment planning: 1. More Efficient Service Plans are the result of transit planning by a single regional organization rather than attempting to coordinate the service plans of 14 distinct transit providers.

2. Positions the Region to Better Package Capital Funding Requests by demonstrating a unified approach to capital investment requirements and priorities to federal and state stakeholders.

CHALLENGES OF CONSOLIDATION Consolidation poses challenges, both general and specific to the southwest region. In general, transit agency consolidation presents the following challenges: 1. Concern that Customer Needs Would Not be Properly Addressed in a Regional Structure is a common matter raised when regionalization is being evaluated. However, agencies not only across the region, but across the state, address similar key customer transportation needs. Concerns can also be addressed by developing organizational and

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governance structures that focus on customer service and implementing a transition plan that includes steps to minimize the customer service learning curve.

2. Significant Technological Investment and conversions to single systems and applications would be required to maximize regionalization benefits. To support this investment, PennDOT would fund both the planning efforts necessary to determine the technology needs for regionalization and the actual required capital investment during the transition period, which would occur prior to the regionalization’s effective date.

3. Requirement for Decisions and Legislative Changes related to organization and governance structures and local contributions would need to be made by local and state elected officials. Although there are steps to be taken to establish the regional authority, they are all achievable provided there is a political will to do so and stakeholders are reasonable in reaching the necessary agreements.

4. Governance Change from County Control to County Representation would occur if regionalization is implemented. County Commissioners and other elected officials, who today control the governance of their local transit agencies, would relinquish that role and instead would have partial representation on the regional authority’s Board. These county and city officials would need to weigh the loss of governance control against the financial benefit of seeing a reduction in their required transit funding obligation and the continuation, and potential improvement, of service to their constituents.

Specifically, a southwest Pennsylvania regional transit system would present the following absolute and potential challenges: 1. Ensure that No Portion of PAAC’s Financial Losses and Legacy Costs Are Subsidized by Surrounding Counties. For a number of years PAAC has faced financial challenges as its costs, particularly its high wage and benefit costs for active employees and its ongoing legacy costs for retiree health care and pensions, grow each year and exceed available and reasonable funding levels. In FY2012-13, PAAC faced an operating budget gap which resulted in a $30 million increase in annual Commonwealth funding and an associated local match increase from Allegheny County. In addition to these funding increases, non-represented headcount reductions and reductions in benefits for both non- represented and represented employees helped to close the budget gap.

a. In order for a southwest regionalization to be viable, the counties surrounding Allegheny County would need to be assured that any future financial losses from transit activity in Allegheny County would only be subsidized by federal, state and Allegheny County funding sources and not by any other county in the region. These funding concerns can be addressed by developing an organizational and financial structure that separately accounts for Allegheny County activity and a local funding

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distribution that is based on county-by-county transit activity for the remainder of the region.

2. Varying Labor Costs and Work Rules within the Single Regional Entity would need to be maintained in order to achieve the full financial and operating benefits of regionalization. As the Current Environment section of this report showed, some of the regional transit agencies operate with unionized employees and others do not. Of those unionized employees, some are represented by the Amalgamated Transit Union (ATU), some by the International Brotherhood of Electrical Workers (IBEW), some by Teamsters, some by the Service Employees International Union (SEIU) and some by Police. All of the labor agreements are different from one another, with varying wage, benefit and work rule provisions. The key to optimizing regionalization benefits is to develop an organization structure that separately accounts for local variations in labor costs. A similar approach has been successfully used in Pennsylvania at small and large transit agencies that have consolidated operations with varying labor agreements. One example is SEPTA which operates with multiple labor agreements based on employee category, service modes and geographic areas.

3. Potential Requirement to Amend State Legislation Regarding PAAC. If regionalization results in a need to dissolve PAAC and establish a new regional authority based on the chosen legal, organization and governance structures, then state legislation would be required since there is existing legislation that established PAAC.

Many of the aforementioned benefits and challenges can respectively be ensured and diminished by the choices made regarding the regional authority’s organizational and governance structures. The next section of this report provides one potential set of such structures.

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CONSOLIDATION AS A MEANS TO REDUCE COSTS OR INCREASE REVENUES

For this analysis, it was assumed that a single 10-county regional authority would replace the existing 14 transit providers in the region, as this structure would yield the most financial and operating benefits compared to other options. The organizational and governance structure for the new regional authority could take many forms. Therefore the assumptions made in this analysis regarding such structures attempt to maximize the benefits and minimize the challenges. In summary, the consolidation model assumes the following components:  A new regional authority (Authority) is created pursuant to Pennsylvania law.  The Authority is governed by an appointed board of directors with appointments made by local elected officials in the ten counties and state elected officials.  Administrative functions are centralized.  Three separate operating divisions are established with local operating centers. o Fixed Route Central Division for bus, light rail and inclined plane service in Allegheny County. The existing labor agreements with PAAC would be transferred to the new Authority’s Central Division o Fixed Route Local and Commuter Division for transit service in the remaining nine counties. This division would be further divided into north and south districts . The North District would serve Armstrong, Beaver, Butler, Indiana and Lawrence counties. It would be managed and operated with in-house staff since 90% of today’s trips in this district are provided with in-house staff. . The South District would serve Fayette, Greene, Washington and Westmoreland counties. It would be managed with in-house staff but operated with contract provider(s) since 89% of today’s trips in this district are provided with outsourced operators. o Shared-Ride Division serving the entire region with a single regional broker managing multiple subcontractors since 88% of today’s non-fixed route trips are provided by outsourced services. The subcontractors would deliver the transportation service and provide and maintain their own vehicles. Existing in- house providers, such as ACTS and GCT, could provide service as a subcontractor under a service agreement.

Equally as important as the organization structure is the accounting and reporting structure which must separately account for division and district operations. This will support the Authority’s ability to operate with distinct labor agreements in different divisions and districts as is done at other regional transit providers. It would also provide the ability to determine county-by-county financial results to support the fair calculation of local match obligations and ensure that only Allegheny County is providing the local match funding for service provided by the Central Division (the equivalent of today’s PAAC operations).

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This governance and organizational structure is one potential scenario for how a regionalized entity would be structured. It is the scenario used in this analysis for determining the financial impact of regionalization. Other viable options exist and ultimately the decisions regarding the structure of the southwest regional authority would be made during a planning and transition period prior to the start of regionalized operations. The financial impact analysis developed for this report focuses on administrative savings and assumes no change to existing service, fare structure and rates. Since service and fare changes would certainly occur in a regionalization and could further contribute to the financial and operating benefits included in this report, each would require a comprehensive analysis to maximize benefits. The estimate of the financial impact of regionalization was developed by examining six key areas of operating expenses including salaries, employee benefits, purchased transportation, professional fees, information technology and other operating costs. Today, there are 661 combined administrative full-time equivalent positions (FTEs) in the region. Regionalization achieves efficiencies by reducing the headcount to 589 FTEs through a centralized management team. A majority of the position reductions stem from eliminating redundant positions and are net of adding new positions to support operations across the entire region. The new positions added to support operations include, but are not limited to, those for training, safety, dispatching, marketing, procurement, labor relations, and claims. These position eliminations result in salary and employee benefit savings. Only FTE reductions related to administrative positions were considered and only savings from standardized health care and retirement plans for non-represented employees were estimated. These estimated labor savings combined with savings in non-labor expenses is projected to reduce annual operating costs by $7.2 million. This cost reduction represents 9% of the region’s current administrative costs and 1.7% of the region’s total operating costs. Exhibit 3 displays the key components of these annual savings: Exhibit 3: Summary Financial Impact of Consolidation Operating Line Item Savings (Costs) in $000 Salaries $2,190 Employee Benefits 3,415 Purchased Transportation 795 Professional Fees 382 Office, Rent and Supplies 250 Other Expenses 319 Information Technology (122) Total Expense Savings $7,229 Advertising Revenue Gains $200 Total Revenue and Expense Benefits $7,429

If stakeholders determine that these cost savings warrant further consideration of regionalization, detailed facility, fleet, fare and technology analyses would need to be performed to refine these estimates and set the stage for a detailed transition plan. Appendix D: Financial Impact of a Consolidated Authority provides a more detailed discussion of the assumptions, methodologies and financial results related to a single 10-county regional authority.

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SERVICE REGION ALTERNATIVES

While the single 10-county regional authority alternative provides the most financial benefit compared to other options, there may be alternative scenarios that satisfy political, operating and labor concerns. Therefore, three additional scenarios were identified and assessed. The same approach that was used for the single 10-county regional authority was used for these three alternatives. An organizational and governance plan was developed for each alternative which formed the basis for the estimated financial benefits. Only FTE reductions related to administrative positions were considered and only savings from standardized health care and retirement plans for non-represented employees were estimated. A summary of the key structures and financial results for each alternative is shown in Exhibit 4 below: Exhibit 4: Summary and Financial Results of Alternative Consolidation Scenarios Scenario Smaller Single Authority Two Regional Authorities Three Regional Authorities

Legal  A new single authority  Continuation of PAAC  Continuation of PAAC Structure serving Allegheny, Beaver, serving Allegheny County serving Allegheny County Butler, Washington and  Plus a new authority serving  Plus a new authority in the Westmoreland counties the surrounding nine counties North serving Beaver,  Other counties’ providers in the region Lawrence, Butler, Armstrong remain as they are today and Indiana counties  Plus a new authority in the South serving Washington, Greene, Fayette and Westmoreland counties Operating  Non-Fixed Route Division:  Non-Fixed Route: third party  Non-Fixed Route: third party Structure third party broker manages broker manages contractors broker manages subcontractors that provide that provide service for the subcontractors that deliver service for the full 5-county full 10-county region service for the full 10-county region  Fixed Route Allegheny region  Fixed Route Central County: operates as PAAC  Fixed Route Allegheny Division: services in does today County: operates as PAAC Allegheny County  Fixed Route 9-County does today  Fixed Route Local and Perimeter: divided into  Fixed Route North: operated Commuter Division: services North and South Divisions with in-house staff in Beaver, Butler, with North operated with in-  Fixed Route South: operated Washington and house staff and South with outsourced services Westmoreland counties outsourced services Financial  $6.8M in expense savings  $4.2M in expense savings  $3.4M in expense savings Results

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More detailed financial results of each of these alternative scenarios are shown alongside those for the single 10-county regional authority in Exhibit 5: Exhibit 5: Financial Impact Comparison of Consolidation Alternatives Alternative Single Authority 2 Authorities 3 Authorities PAAC + Northern 10-County Five-County PAAC + Authority + Single Single Suburban Southern Expense Authority Authority Authority Authority Salaries $2,190 $1,782 $1,905 $1,641 Employee Benefits $3,415 $3,017 $682 $193 Purchased Transportation $795 $1,771 $795 $795 Professional Fees $382 $168 $422 $313 Office, Rent and Supplies $250 $150 $242 $191 Other Expenses $319 $209 $241 $231 Information Technology -$122 -$114 -$122 $0 Net Expense Savings $7,229 $6,983 $4,165 $3,364

Of the three alternative scenarios examined, the single five-county authority comes closest to achieving the projected financial benefits of the larger ten-county authority.

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CONSOLIDATION PLANNING AND TRANSITION REQUIREMENTS

The successful consolidation of transit services in southwest Pennsylvania will be a complex task requiring significant planning and transition efforts. If the decision is made to pursue consolidation, stakeholders should reasonably expect at least a two to three year planning period. Each county’s local elected officials would need to direct their respective transit providers to effectively engage in the planning process. Planning activities would include the preparation of organization, facility, fleet, fare and technology plans. Once completed, any required state and/or local legislation would need to be passed to effectuate the regionalization. Afterwards, an implementation plan would be drafted and an implementation team would be funded by PennDOT. The transition period would follow and is expected to take approximately two to three years. The transition period would involve legal, financial, operational, technological, human resource and communications activities. The implementation plan would identify required activities that would need to be completed by the start of regionalized operations versus those activities that could be implemented during the initial years of operation. For example, fixed assets would need to be transferred to the Authority, a single accounting system would need to be selected and structured to support the Authority’s needs, a telecommunication system would need to be equipped for internal operational purposes, and health care and retirement plans would need to be in place in time for the start of regionalized operations. Other changes, such as the installation of upgraded fare collection devices and the use of consistent vehicle livery could be accomplished subsequent to the start of regionalized operations. PennDOT would fund the planning and implementation activity including the preparation costs for functional plans, personnel responsible for the transition work, their related supplies, travel and meetings, professional fees (e.g., accounting, actuarial, legal, technology), required upfront technological investments and website and other communications.

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APPENDIX A: APPROACH DETAIL

The consolidation study identifies the benefits and challenges of regionalization and offers high-level financial analyses of the impact of such an operating structure. The work involved interaction with the southwest regional stakeholders, including state and local elected officials, transit Board members, transit agency staff and regional planning representatives. The study encompasses a three-step process. The first step provides a foundation of information for consolidation. The purpose of the first step was to gain an understanding of the existing agencies, their service and financial profiles. Fiscal Year 2011-12 was used as the base year for operational and financial data. Profiles of each agency’s current environment were developed and include a look at demographic, economic, governance, operating, financial, organizational, management, labor, and contractor data. This work is described briefly in the Current Environment section of this report and more extensively in Appendix C of this report. The second step was to assess the benefits and challenges of consolidation based on regionalization efforts across many industries and specifically on the current operating and financial environment of the 14 southwest transportation providers. See the Southwest Transit Agency Consolidation section of this report. The third step was to estimate the impact of regionalization on governance, organizational structure and staffing levels, purchased transportation costs and back office administrative expenses. This work is described briefly in the Consolidation as a Means to Reduce Costs or Increase Revenues section of this report and more extensively in Appendix D of this report. One potential organizational structure reflecting a single regionalized authority and governance structure was developed. It reflects one of several possible regionalization scenarios. For the regionalization analysis, wage and fringe benefit costs for administrative staff and other key operating costs that might be impacted by regionalization, such as professional fees, fuel and office costs, were identified. The focus of the regionalization analysis was to evaluate the cost reductions related to eliminating overhead redundancies and improving administrative efficiencies. The key assumption in this regionalization model was that service and fares would not change as the new regional transit authority would determine any such changes after the consolidation occurred. Therefore, non-administrative positions and their related costs would not be impacted in this regionalization analysis. Administrative positions include non-represented employees and supervisors, secretaries, dispatchers, first level supervisors and building janitorial staff whether represented by a labor union or not. Other costs related to overhead were also included. Drivers/operators, mechanics and vehicle cleaners do not fall within this classification and were excluded from this study. The regionalization study examines the impact of forming a single regional transit agency for the ten counties in southwest Pennsylvania. This approach was adopted since a single regional authority would provide the maximum cost savings compared to the way transportation is delivered today. However, there may be alternative scenarios that better satisfy political, operating and labor concerns. Therefore, three additional scenarios were identified and assessed:

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Alternative 1 Alternative 2 Alternative 3

One regional entity that Two regional entities – PAAC Three regional entities – PAAC provides transit service for as it exists today and one as it exists today; a new North Allegheny, Beaver, Butler, serving the nine counties Authority serving Beaver, Washington and Westmoreland surrounding Allegheny County Lawrence, Butler, Armstrong counties and Indiana counties; and a new South Authority serving Washington, Greene, Fayette and Westmoreland counties

See the Service Region Alternatives section of this report for the assumptions and financial results of the three alternatives.

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APPENDIX B: TRANSIT AGENCY PROFILES

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APPENDIX C: CURRENT ENVIRONMENT DETAIL

The regionalization assessment included the 14 transit agencies operating in the counties of Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Indiana, Lawrence Washington and Westmoreland:  ACTS – Allied Coordinated Transportation Services, Inc. in Lawrence County  BCCA – Butler County Community Action  BCTA – Beaver County Transit Authority  BTA – Butler Transit Authority  CWT – City of Washington Transit  FACT – Fayette Area Coordinated Transportation  GCT – Greene County Transportation  ICTA – Indiana County Transit Authority  MMVTA – Mid Mon Valley Transit Authority in Fayette, Washington & Westmoreland Counties  NCATA – New Castle Area Transit Authority in Lawrence County  PAAC – Port Authority of Allegheny County  TACT – Town and Country Transit in Armstrong County  WRIDES – Washington County Transportation Authority  WCTA – Westmoreland County Transit Authority The current environment component of the study provides a picture of the individual southwest transit agencies as they are structured and operate today. This helps identify the key transition issues that would need to be addressed to regionalize service and provides a baseline for forecast financial changes. The current environment work documents the demographic and economic data, governance structure, service offerings and operating statistics, organizational structure and staffing, wages and fringe benefits, purchased transportation and other purchased services, functions provided by related parties, fuel consumption and costs, and financial data.

DEMOGRAPHIC AND ECONOMIC STATISTICS Pennsylvania’s southwest region reflects diverse demographic and economic conditions that impact transit service delivery and needs. Household income is often an indicator of the need for transit service, the number of area businesses an indicator of the need for commuter service and population density an indicator of service demand and average trip lengths. The graphs shown in Exhibit 6 display the wide range of conditions across southwestern Pennsylvania. Low median household incomes in Lawrence County and the City of Washington reflect a high density usage of transit for local fixed route service. In contrast, high median household incomes in Butler and Washington counties reflect the need for commuter service to and/from the major job markets in the region, such as Allegheny County where businesses in the region are more concentrated. Low population density in Greene County reflects higher trip lengths seen by Greene County Transit and helps explain the higher costs for service that result from increased driver hours for demand response service.

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Exhibit 6: Demographic and Economic Conditions

Median Household Income Persons per Square Mile

WCTA WCTA WRIDES WRIDES TACT TACT PAAC PAAC NCATA NCATA ICTA ICTA GCT GCT FACT FACT CWT CWT BTA/BCCA BTA/BCCA BCTA BCTA ACTS ACTS

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 0 1000 2000 3000 4000

Number of Businesses

WCTA WRIDES TACT PAAC NCATA ICTA GCT FACT CWT BTA/BCCA BCTA ACTS 0 20,000 40,000 60,000 80,000 100,000 The demographic and economic data for the region also depicts the diversity of conditions seen within the individual 10 counties. Such diversity would need to be considered in the service delivery of any regionalized approach to transit services. Demographic and economic data provide a look into the changing needs for public transit based on the size of public transit key user groups, such as seniors, veterans and individuals living below the poverty line (see Exhibit 7). In southwest Pennsylvania, all three of these groups are growing in population and, on average, represent a higher proportion of the region’s population compared to their proportion within the entire Commonwealth. For example, the percentage of the population that was 65 years of age or older, which primarily impacts both free transit fixed route and demand response service, increased in every southwest county between 2010 and 2012. Similarly in 2010, the percentage of the population representing civilian veterans for every Southwest county was equal to or greater than the percentage for the Commonwealth as a whole. This is indicative of the region’s greater need for demand response service.

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Exhibit 7: Population Characteristics

% of Individuals Below Poverty Line 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

In summary, actual and projected demographic and economic data provides information that helps better define service needs and delivery requirements for a regionalized transit operation.

GOVERNANCE AND SERVICE STRUCTURE As with demographic and economic data, the 14 transit agencies in the region exhibit a wide range of organizational and governance structures. As Exhibit 8 indicates, there are eight types of organization structures and three forms of governing bodies. Exhibit 8: Organization and Governance Structures

County 501c3 Corp (1) Mayor/City Community Council (1) Action (1)

County Dept of Human County Services (1) Muncipal Commissioners County Dept of Authority (7) (3) Board of Transportation Directors (10) (1) City Dept of Transportation (1) Port Authority Joint Municipal (1) Authority (1)

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The majority of agencies are structured as municipal or special authorities with a board of directors governing each organization. The remaining transit agencies are governed by either county commissioners or a mayor and city council. The number of governing officials ranges from as little as three, in the case of agencies governed by county commissioners, to a high of 21 at MMVTA, where each of the member municipalities appoints a board member. In structuring a governing body for a regional authority, factors such as effectiveness and adequate representation are important considerations when determining the size, appointing bodies and by-laws of the new authority. The agency operating profiles also reflect the demographic and economic variety of the region. Within the southwest region, there is urban and rural service; bus, light rail and inclined plane service; and fixed route and demand response service. The graphs included in Exhibit 9 reflect this service diversity. Exhibit 9: Transit Service # Agencies by Service Level # Agencies by Service Type 6 8

6 4 4 2 2

0 0 Demonstration One to Nine Ten to Twenty- One Hundred Two Fixed Route Only Demand Response Only Fixed Route and Route Routes Five Routes Routes Demand Response

Of the 14 transportation providers within the region, four provide urban service, four provide rural service, four provide rural community service and two provide both urban and rural service. Half of the 14 agencies provide both fixed route and demand response service, four agencies provide only fixed route service, and three agencies provide only demand response service. The amount of service provided by each agency varies dramatically. Of those providing fixed route services, five consist of one to nine routes, four agencies consist of 10 to 20 routes and one agency consists of over 100 routes. Current service in the region includes a significant number of inter-county trips, indicating a need for regional planning and coordination. For example, MMVTA offers local fixed route services connecting three adjacent counties and six of the 11 agencies offering fixed route service provide inter-county commuter service. The portion of fixed route trips that are out-of-county commuter trips ranges from 25% to 68% for each provider and the percentage of demand response trips that are out-of-county trips range from 1% to 37% for each of the individual agencies. In determining the organizational structure of a regional authority, the variety and size of today’s service types should be considered. Additionally, the organizational structure should achieve service optimization across the region. A summary of each agency’s governance structure and type of service follow: ACTS is a 501c3 private non-profit corporation working in partnership with two other non-profits. Together, they form the Lawrence County Community Action Partnership. ACTS is governed by a six member board of directors and provides transportation and non-transportation services for Lawrence County. ACTS provides demand response service only, supporting Shared Ride (SR), Medical Assistance Transportation (MATP), Persons with Disabilities (PwD), Welfare to Work Port Authority Consolidation Study 36

(WTW), Mental Health/Mental Retardation (MH/MR), and Job Access and Reverse Commute (JARC) programs. Approximately 5% of its demand response trips are out-of-county trips to or from Allegheny, Beaver, Butler, and, Mercer counties. In FY2011-12, ACTS provided approximately 99,000 trips including demand response trips on behalf of NCATA. BCCA is the county community action organization for Butler County. It is governed by the county’s commissioners and provides demand response services to county residents including complementary paratransit service offered on behalf of BTA. Service is provided to locations within Butler County and contiguous counties. Programs supported by BCCA include SR and MATP. In FY2011-12, BCCA provided approximately 75,000 trips. BCTA is a municipal authority governed by a nine member board of directors, each of whom are appointed by the county’s commissioners. Both fixed route and demand response service is provided and as part of the fixed route service, BCTA offers local and express commuter service. Commuter trips represent approximately 45% of all fixed route trips. Demand response programs supported by BCTA include SR, MATP, PWD, MH/MR and Human Services Development Fund (HSDF). In FY2011-12, BCTA provided approximately 966,000 fixed route trips using 20 vehicles and 81,000 demand response trips using 18 vehicles. BTA is a joint municipal authority governed by a six member board of directors, half of whom are appointed by Butler City and half of whom are appointed by Butler Township. It provides only fixed route service and in FY2011-12, delivered approximately 209,000 trips. The City of Washington’s Department of Transportation provides fixed route transit service for the city and other area municipalities. Governance is provided by the City’s mayor and city council; none of the nearby communities served by CWT participate in the governance of the transit operation. Approximately 25% of the service is provided to passengers commuting to Pittsburgh. In FY2011-12, CWT provided approximately 41,000 trips. FACT is Fayette County’s Department of Transportation, governed by three county commissioners. It provides fixed route and demand response service seven days a week including commuter service to Pittsburgh and to West Virginia. FACT supports SR, MATP, PwD, WTW, and HSDF programs with its demand response services and provides out of county trips for eligible customers to Pittsburgh medical appointments. FACT provides approximately 10% of total fixed route and demand response trips to destinations outside of the county. In FY2011-12, FACT delivered approximately 185,000 fixed route trips and 132,000 demand response trips. GCT operates under the county’s Department of Human Services and is governed by three county commissioners. It provides demand response service only, supporting SR, MATP and PwD programs. Approximately 6% of the agency’s trips have out of county destinations, with such service provided to Allegheny, Fayette and Washington counties as well as West Virginia. In FY2011-12, GCT delivered approximately 57,000 trips. ICTA is a municipal authority whose board members are appointed by the county’s commissioners. ICTA provides both fixed route and demand response service to locations in Indiana County and within three miles of the county border. Exceptions are made for medical trips to Pittsburgh. Significant university related fixed route service is provided and its demand response service supports SR, MATP, PwD, WTW and MH/MR programs. In FY2011-12, ICTA provided approximately 455,000 fixed route trips and 38,000 demand response trips.

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MMVTA, established pursuant to the Pennsylvania Municipalities Authority Act, has a 21 member board representing each of its original incorporating Mid Mon Valley municipalities. Board membership is not dependent upon whether service is currently provided to those founding municipalities. Local fixed route service is offered in Fayette, Washington and Westmoreland counties as is regular, express and University of California commuter service. The combined commuter service represents approximately 68% of all fixed route trips. In FY2011-12, MMVTA provided approximately 335,000 trips. NCATA is a municipal authority, also established pursuant to the Pennsylvania Municipalities Authority Act. It is governed by a board of directors, whose 10 members are appointed by the Mayor and City Council of the City of New Castle. NCATA provides six-day a week local and commuter fixed route service. In FY2011-12, NCATA provided approximately 682,000 trips. PAAC is a port authority established pursuant to the Second Class County Port Authority Act. In 2013, its governing board was changed by the Pennsylvania legislature to now comprise 11 members who are appointed by the Governor, Legislature and Allegheny County Executive1. The agency provides both fixed route and demand response service. Seven day a week fixed route service is offered via bus, light rail and inclined plan modes. While no reverse commuter service is provided, two routes travel into Beaver and Westmoreland counties. Demand response service supports SR, MATP, PwD, WTW, JARC and Area Agency on Aging (AAA) programs. In FY2011-12, PAAC delivered approximately 64.1 million fixed route trips and 1.8 million demand response trips. TACT is a municipal authority governed by a seven member board of directors, each of whom are appointed by the seven founding member municipalities. TACT offers both fixed route and demand response service with approximately 13% of its demand response trips provided to locations in Allegheny, Butler, Clarion and Westmoreland counties. Demand response service supports SR, PWD and MH programs. In FY2011-12, the agency provided approximately 51,000 fixed route trips and 45,000 demand response trips. WRIDES, also known as Washington County Transportation Authority, is a municipal authority. It is governed by a nine member board of directors, each of whom are appointed by Washington County’s Commissioners. WRIDES offers demand response service, supporting SR, MATP, WTW, MH, HSDF and JARC programs and currently operates a demonstration fixed route. It also provides ADA service on behalf of CWT and MMVTA. Approximately 12% of its demand response trips are delivered to locations outside of Washington County. In FY2011-12, WRIDES provided approximately 296,000 trips. WCTA is a municipal authority governed by a seven member board of directors, each of whom are appointed by Westmoreland county commissioners. WCTA provides both fixed route and demand response service including local commuter and express commuter service to Allegheny and Cambria counties. Commuter service represents approximately 54% of all fixed route service. Demand response trips are provided within Westmoreland County and to locations up to 60 miles beyond the county line in contiguous counties. SR, MATP, and PWD programs are supported. In FY2011-12, WCTA provided approximately 564,000 fixed route trips and 437,000 demand response trips.

1 The Governor has one appointment, the Pennsylvania Senate and House majority and minority leaders each have one appointment, the Allegheny County Executive has four appointments and the Allegheny County Executive has two additional appointments chosen from a list of recommended candidates Port Authority Consolidation Study 38

STAFFING Staffing at each southwest transit agency is as individual as their governance, organization and operations. The size of the southwest transit agencies, based on the number of employees, ranges from zero to 2,4142. As Exhibit 10 shows, the number of employees at PAAC is almost six times the size of the other southwest agencies combined. Exhibit 10: Number of Positions 2414

2000

1500

1000

500

104 52 53 61 0 2 6 10 13 17 28 31 36 0

While most transit providers in the region use their own full-time management staff to oversee operations, CWT uses contract management staff and ACTS, BCCA and GCT rely on part-time staff for all or a majority of management functions. The ratio of administrative full-time equivalent (FTE) positions to total FTEs is dependent upon whether the agency operates service with its own staff or purchases transportation services from a third party contractor. Exhibit 11 shows that when an agency purchased transportation, on average 84% of the total FTEs are those in administrative positions; and those agencies that operate with in- house staff have, on average, 25% of their FTEs occupied by administrative positions. Exhibit 11: Ratio of Administrative FTEs to Total FTEs

Providers With Purchased Transportation Providers With In-House Transportation

Average All Other FTEs Average Admin 14% FTEs 25%

Average Admin Average All FTEs Other FTEs 86% 75%

Outsourcing transportation services is a common occurrence in the region and throughout the rest of the state. Ten out of the 14 region’s transit providers outsource transportation for some or all of their operations. As shown in Exhibit 12 below, six outsource some or all of their demand

2 Represents all employees including represented and non-represented employees. Port Authority Consolidation Study 39

response service, five outsource some or all of their fixed route service and one outsources ADA service only. Exhibit 12: Number of Providers Using Purchased Transportation Services

ADA Only

Some Demand Response

All Demand Response

Some Fixed Route

All Fixed Route

0 1 2 3 4 5 6 7 Of those agencies who directly operate transit service, half have union employees (see Exhibit 13). Of those agencies with unionized employees, all but one is represented by a single labor union -- either the Amalgamated Transit Union (ATU), Service Employees International Union (SEIU) or Teamsters. The one exception, PAAC, has employees represented by ATU, International Brotherhood of Electrical Workers (IBEW) and Port Authority Transit Police Association (Police). Exhibit 13: Labor representation for Directly Operated Service 6

5

4

3

2

1

0 None ATU SEIU Teamsters ATU, IBEW & Police In determining the staffing structure of a regional authority, the management size, purchased transportation usage and labor representation status of today’s transit providers should be considered. These factors will influence the potential financial benefits of and the implementation requirements for the regional agency. A summary of each agency’s current staffing structure follows: As part of an organization providing services beyond transportation, ACTS manages the transit function with a part-time management staff. Labor is represented by the Teamsters and is comprised of both full-time and part-time employees. In total, there are 20.5 FTEs in the agency providing demand response transit services. BCCA oversees demand response service with a small, part-time management staff of two people. Reservations, client eligibility, reporting, program oversight/management, and customer service is all provided by a single management contractor. The management contractor then subcontracts with a transportation provider to schedule and deliver the transportation services to BCCA’s customers.

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The vehicles are county owned with the management contractor responsible for coordinating vehicle maintenance. BCTA operates with its own management staff, all of whom are full-time employees. The agency directly operates service for all programs other than MATP, which is outsourced to three contractors. These contractors provide the vehicles and facilities required for MATP program operations and maintenance functions. BCTA’s full-time employees deliver the bulk of the fixed and non-fixed route service and are represented by the ATU. . BTA operates with its own management staff, a majority of whom are in full-time positions and two part-time employees, who are not represented by a union. All fixed route services are outsourced with the vehicles and maintenance facility provided by BTA and the operators and mechanics provided by the contractor. CWT operates with a contract management staff and purchases fixed route transportation from a single private contractor. CWT owns the vehicles and the contractor own the maintenance facility. ADA service is provided through a contract with WRIDES. WRIDES and its contractors provide the vehicles and maintenance for ADA service. There is no union representation since there are no direct employees. FACT operates with its own management staff, almost all of whom are in full-time positions. As a county department, labor is represented by SEIU. FACT purchases transportation services for a portion of its fixed route and demand response service. Outside contractors use county-owned vehicles and maintenance facilities. As part of a county department providing more than just transportation services, GCT operates with its own management staff of primarily part-time positions. Approximately half of its labor staff is represented by SEIU with the remainder not represented due to part-time position status. All of GCT’s services are directly operated. ICTA operates with its own management staff, all of whom are in full-time positions. There is no union representation for labor. Service is directly operated except for ADA, MATP and approximately 34% of shared ride trips. ICTA provides the vehicles and facilities for ADA and shared ride contracted services while MATP contractors provide the assets required to deliver MATP service. MMVTA operates with its own management staff, all of whom are in non-represented full-time positions. Fixed route service is outsourced to private operators and ADA service is outsourced to WRIDES. MMVTA provides the vehicles and maintenance facility for the private operators while WRIDES, or its subcontractors, provide the vehicles and maintenance for ADA service. NCATA operates with its own management staff, a majority of whom are in full-time positions. Labor employees are represented by ATU. ACTS provides ADA trips and NCATA directly operates all other transit services. PAAC operates with its own management staff, all of whom are in full-time positions. Labor is represented by ATU, IBEW and Police, with separate ATU agreements for first level supervisor and rank-and-file employees. Fixed route service is directly operated except for a portion of inclined plane operations. Demand response service is contracted out to a broker that manages the eligibility, intake, customer service, reservations and scheduling functions. The broker, in turn, contracts out service delivery to numerous private operators who own and maintain the vehicles.

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TACT operates with its own management staff, virtually all of whom are in full-time positions. Beginning in January 2013, TACT’s ATU employees provided all service. WRIDES operates with its own management staff, all of whom are in full-time positions. All service is outsourced. Three primary private operators and one public agency provide transportation services. In addition, a dozen or so smaller contractors deliver Welfare to Work trips. Approximately half of the demand response vehicles are owned by WRIDES with the remainder owned by subcontractors. Additionally, the private contractor owns and maintains the assets used for the demonstration fixed route service. WCTA operates with its own management staff, a great majority of whom are in full-time positions. All fixed route and demand response services are purchased from private contractors as WCTA’s by-laws prohibit the agency from directly operating transportation services. WCTA owns the vehicles and maintenance facility that the private contractor uses for fixed route service. The subcontractors own and maintain the demand response vehicles.

FINANCIAL PROFILES Differences in staff size and service type and breadth are reflected in a wide range of revenue and expenses. Fiscal Year 2011-12 operating revenue ranged from a low of $98 thousand at CWT to a high of $112 million at PAAC. Similarly, operating expenses ranged from a low of $1.1 million at CWT and BCCA to a high of $359 million at PAAC:

WAGES Labor3 is the largest cost component for transit agencies and there is a wide disparity of wage rates and employee benefit packages across the region. Exhibit 14 shows the hourly wage rates for operators/drivers and mechanics for those agencies that use in-house employees to deliver service. The graphs show that PAAC hourly rates are significantly higher than those of the other transit agencies in the region – 77% higher than the average for other agencies’ fixed route operators/drivers and 60% higher than the average for other agencies’ mechanics:

3 Includes salaries, wages and employee benefits Port Authority Consolidation Study 42

Exhibit 14: Hourly Operator & Mechanic Wage Rates for Directly Operated Service

Fixed Route Average Hourly Operator Non-Fixed Route Average Hourly Wage Operator Wage $30.00 $30.00

$25.00 $25.00

$20.00 $20.00

$15.00 $15.00

$10.00 $10.00

$5.00 $5.00

$0.00 $0.00 TACT CWT BTA BCTA ICTA NCATA PAAC TACT ACTS FACT BCTA GCT ICTA

Average Hourly Mechanical Wage $30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00 FACT CWT TACT ICTA NCATA GCT PAAC

ADMINISTRATIVE COSTS Administrative costs are the focus of the regionalization analysis. As a percent of total costs, they range from 10% to 56% for the individual agencies in the region. The lower administrative ratios (10% to 20%) were seen at agencies that outsource all of their transportation service4. The higher administrative ratios (30% to 56%) were seen at agencies that directly operate their own service5. BTA is the exception to this trend with an administrative cost ratio of 43% even though it is an agency that outsources its transportation services. PAAC’s administrative cost ratio was in the middle of the regional agencies at 24%.

EMPLOYEE BENEFITS When the reference to labor costs is made, it is meant to include not only salaries and wages but also employee benefits costs that organizations incur to provide employees health care coverage, pensions, etc. As with salaries and wages, these costs are a significant percentage of an agency’s overall costs and are driven primarily by employee demographics and the type and quality of benefits that the plans provide. As a result, these costs are critical in the regionalization analysis. An examination of the various plans’ characteristics and the associated employee benefits costs reveals a wide disparity across the region’s transportation providers. Characteristics inherent in the plans that today’s transportation providers offer are shown below and illustrate the factors that increase health care and pension costs of the organization:

4WCTA, WRIDES, MMVTA and CWT 5TACT, BCTA, GCT and ICTA Port Authority Consolidation Study 43

 Two agencies do not require any employee contributions to health care plan premiums.  Ten other agencies where employees do contribute to health insurance premiums, contributions range from 5% to 18% of premium costs.  Annual payments to employees for health plan opt-outs, when available, range from $500 to 65% of plan premiums.  Employer matches for defined contribution plans, when applicable, range from 3% to 7% of wages.

The average employee benefit to wage ratio for all transportation providers in the region is 42%, ranging from 35% to 52%. In significant contrast, NCATA and PAAC have exceptionally high ratios, with 118% and 122% ratios respectively. NCATA’s high ratio is the direct result of the benefit plan features that the agency provides its employees while PAAC’s high ratio, in part, is due to its legacy obligations to retirees, which is described in detail below. Typically, the two largest employee benefit costs are health care coverage and retirement plans. Defined benefit plans, or pensions paid to retirees in the form of a guaranteed annuity payment, represent the more costly retirement plans. Once an employee retires, monthly payments are usually based on the employee’s salary and years of service. Since pension payment amounts are guaranteed and all plan assets are subject to financial market risk, many defined benefit plans have unfunded liabilities that require high incremental annual payments from the employers. A defined contribution plan (i.e. 401K plan, 457 plan) is an alternative that may or may not include an annual employer matching payment for every dollar that the employee contributes to his/her retirement plan account. Contrary to a defined benefit plan where it is the employer’s responsibility to direct how plan’s assets are invested, the employee has full control of how the assets in his/her account are invested. Unlike defined benefit plans, the amount received by the employee during retirement is not guaranteed and is also subject to financial market risk which can vary greatly depending on the employee’s investment options. The employee’s assets in the plan are portable and can move with the individual when employment is terminated. The graphs in Exhibit 15 show the distribution of the types of retirement plans used by the southwest transit agencies and display the unfunded liabilities related to the defined benefit plans: Exhibit 15: Retirement Plan Types and Unfunded Plan Liabilities

# Agencies by Retirement Plan Type Defined Benefit Plan Unfunded 10 Liabilities

8 $100,000,000

$80,000,000 6 $60,000,000 4 $40,000,000

2 $20,000,000 $0 0 FACT GCT PAAC: ATU PAAC: PAAC: Non- Defined Contribution Plan Defined Benefit Plan No Retirement Plan IBEW Rep

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Nine of the 12 agencies offering retirement plans provide the less costly defined contribution plans. Only PAAC’s three retirement plans6 and the two county retirement plans in place at FACT and GCT are defined benefit plans. All five defined benefit plans have varying levels of unfunded liability. FACT’s and GCT’s unfunded liabilities are low and relate to liabilities for not only transit employees, but all other county employees as well. PAAC’s unfunded liabilities are significant, totaling $153 million as of January 1, 2012. PAAC’s employee benefit ratio is high relative to the other southwest transit agencies. One reason for this high ratio is PAAC’s historical level of pension benefits that afforded employees the financial ability to retire or leave the agency at a significantly younger age and receive full pension benefits. These retirement payments that need to occur over a longer retirement period places even more financial pressure to ensure the plan has sufficient assets in order make guaranteed pension payments to all current and future retirees. Consequently, this combined with recent significant financial market downturns, have resulted in annual incremental payments of $20.6 million annually by PAAC to reduce its unfunded retirement plan liabilities for both current and future retirees. PAAC’s legacy costs for current retirees, for both pension and healthcare, are part of an ongoing larger challenge facing the agency. As Exhibit 16 shows, PAAC’s legacy costs place a financial burden on its operating budget, by requiring the agency to expend 12% of its operating costs on behalf of employees who have already retired from the agency. This percentage could worsen as retiree life expectancy increases and existing employees enter the retiree pool: Exhibit 16: PAAC Retiree Costs as a Percentage of Total Operating Expenses $32,178,218 , 9% $11,337,203 , 3%

Health Care Costs Related to Retirees Pension Costs Related to Retirees Other Operating Expenses $315,535,394 , 88%

ASSETS AND LIABILITIES If a regional organization is formed, the existing transit agencies’ assets will need to be transferred or leased to the new regional entity. Additionally, a funding plan will need to be structured to address outstanding liabilities using the funding streams that will be transferred to the new organization. The asset plan will include fixed assets, such as vehicles, equipment, maintenance garages, administrative buildings and passenger terminals, as well as non-fixed assets such as cash, investments, receivables and inventory. PAAC represents $1.65 billion of the entire region’s $1.76 billion total asset balance. Liabilities include items such as payables, debt, deferred revenues, reserves and other post- employment benefits. As of June 30, 2012 there were four agencies with outstanding lines of credit,

6 PAAC has three retirement plans – one for non-represented and Police employees, one for IBEW represented employees and one for ATU represented employees Port Authority Consolidation Study 45

five agencies with long-term leases for equipment and property and one agency with an outstanding loan that its county provided to cover operating losses. Additionally, PAAC had outstanding revenue bonds with annual debt service of $22 million and TACT had two outstanding notes and significant payables. A summary of each agency’s financial profile follows: ACTS is the only Southwest transit agency that posted a surplus for FY2011-12. It has a low administrative cost ratio and a low employee benefits to wage ratio. Hourly wages for demand response drivers are the second lowest in the region. Employees can participate in a defined contribution plan (a 401K plan), with an employer match of up to 3% of wages. As of June 30, 2012, ACTS had $2.3 million in total assets, a shared ride retained earnings balance of $139 thousand, an asset disposition balance of $35 thousand, and a line of credit with no outstanding balance. BCCA’s FY2011-12 operating expenses were approximately $1 million. Since only a very small portion of BCCA’s two employees’ salaries and benefits are charged as a single expense to its operations, the benefits to wage ratio can not be calculated. As of June 30, 2012, BCCA had $456 thousand in total assets, an operating grant balance of $41 thousand and a capital balance of $29 thousand from unused proceeds from insurance refunds and the sale of capital assets. BCTA’s FY2011-12 operating expenses were approximately $9 million. It has a higher than average administrative cost ratio. Hourly wages for drivers and mechanics are near the region’s average rate, excluding PAAC. Employees can participate in a defined contribution plan with an employer match of up to 4%. As of June 30, 2012, BCTA had $26.6 million in total assets, a state and local operating subsidy balance of almost $1.5 million, a capital subsidy balance of over $300 thousand and two lines of credit with no outstanding balances. BTA’s FY2011-12 operating expenses were approximately $2 million. It has a high administrative cost ratio. Hourly wages for drivers are generally at the region’s average rate, excluding PAAC. Employees can participate in a defined contribution plan with an employer match of up to 6%. As of June 30, 2012, BTA had $13.7 million in assets, a state and local operating subsidy balance of over $600 thousand and outstanding obligations related to equipment and terminal leases. CWT’s FY2011-12 operating expenses were approximately $1 million. Hourly wages for drivers and mechanics are generally below the region’s average rate, excluding PAAC. No retirement plan is provided as all management and labor is contract staff. As of June 30, 2012, CWT had $1.8 million in total assets and a state operating subsidy balance of over $600 thousand. FACT’s FY2011-12 operating expenses were approximately $4 million. It has a high employee benefits to wage ratio. Hourly wages for driver and mechanics are generally below the region’s average rate, excluding PAAC. Employees participate in a county defined benefit plan with a minimum required employee contribution of 5% of wages. FACT’s fixed assets are part of the county’s pool of assets and it has a lease with the County Airport Authority for its operating facility. GCT’s FY2011-12 operating expenses were approximately $1 million. It has a low employee benefits to wage ratio. Employees participate in a county defined benefit plan with a minimum required employee contribution of 7% of wages. As of June 30, 2012, GCT had $511 thousand in assets, a shared ride retained earnings balance of $243 thousand and a vehicle replacement reserve of $70 thousand.

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ICTA’s FY2011-12 operating expenses were approximately $4 million. It has a low employee benefits to wage ratio. Hourly rates for drivers and mechanics are higher than the region’s average rate, excluding PAAC. Employees participate in defined contribution plans with an employer match of up to 7% of wages for a money purchase plan7 and no employer contribution for the 457B Plan. As of June 30, 2012, ICTA had $5.8 million in assets, an operating subsidy balance in excess of $1 million, a line of credit with a balance of $196 thousand and a 10-year lease expiring December 2018. MMVTA’s FY2011-12 operating expenses were approximately $4 million. It has a low administrative cost ratio. Employees participate in a defined contribution plan, with an employer match of up to 7% of wages. As of June 30, 2012, MMVTA had $12.8 million in assets and a state and local operating and capital subsidy balance of less than $65 thousand. NCATA’s FY2011-12 operating expenses were approximately $7 million. It has an extraordinarily high employee benefits to wage ratio of two to three times as high as any other agency in the region except for PAAC. Hourly rates for drivers are higher than the region’s average rate, excluding PAAC. Employees participate in a defined contribution plan, with an employer contribution of $3.68 per hour. As of June 30, 2012, NCATA had $22.4 million in assets, a state and local operating subsidy balance in excess of $3.7 million, and a state and local capital subsidy balance in excess of $925 thousand. PAAC’s FY2011-12 operating expenses were approximately $359 million. It has an extraordinarily high employee benefits to wage ratio8, the highest in the region. Hourly rates for drivers and mechanics are significantly higher than those at other agencies in the region. A vast majority of PAAC employees participate in a defined benefit plan9. IBEW employees in a defined benefit plan contribute 4 to 5% of their wages and the remainder of employees contributes 10.5% of their wages. As of June 30, 2012, PAAC had $1.65 billion in assets, an operating subsidy balance of $4.8 million, a $25 million revolving line of credit with no outstanding balance, approximately $140 million of outstanding bonds secured by state grant funds and a $23 million outstanding equipment lease. TACT’s FY2011-12 operating expenses were approximately $2 million. Hourly rates for drivers and mechanics are significantly lower than those at other agencies in the region. Employees participate in a defined contribution plan with an employer contribution of up to 5 - 7% of wages. As of June 30, 2012, TACT had $1.5 million in assets, a state and local operating subsidy balance of approximately $532 thousand, a mortgage-backed note and a demand note, and over $200 thousand of payables, almost half of which are long-term payables with shared ride subcontractors. WRIDES’s FY2011-12 operating expenses were approximately $7 million. It has a low administrative cost ratio. Employees participate in a defined contribution plan, with an employer contribution capped at 3.5% of wages. As of June 30, 2012, WRIDES had $2 million in assets, a vehicle replacement reserve of $89 thousand and a line of credit with a $100 thousand balance. WCTA’s FY2011-12 operating expenses were approximately $12 million. It has the lowest administrative cost ratio in the region. Employees participate in a defined contribution plan with an employer contribution of up to 5% of wages. As of June 30, 2012, WCTA had $22.2 million in

7 Type of defined contribution that requires the employer to make annual contributions to each employee’s retirement account regardless of the financial performance of the organization. 8 Includes Other Post Employment Benefits (OPEBs) 9 IBEW hires after 1/1/12, Police hires after 8/31/11 and Non-represented hires after 8/31/11 participate in a defined contribution plan Port Authority Consolidation Study 47

assets, state operating subsidy balance of over $1.1 million, and a mortgage payable with a balloon payment to the City of Greensburg Park Authority in 2016.

STATE AND LOCAL SUBSIDIES In FY2011-12, each of the southwest transit agencies received an operating and/or capital subsidy from the state and/or a local municipality. Most were annual subsidies and some were special one- time or temporary subsidies. Exhibit 17 and Exhibit 18 provide a summary of the respective state and local operating subsidies provided to the southwest transit providers in FY2011-12: Exhibit 17: State Operating Subsidies in FY2011-12 State Other State Act 26 Match for State Special State Act 44 and Act 3 Federal Operating State Total State Transit Operating Operating Operating Stabilization Operating Operating Provider Grant Grant Grants Grants Grants Subsidies ACTS $0 $0 $0 $20,900 $0 $20,900 BCCA $0 $0 $0 $0 $0 $0 BCTA $2,602,203 $0 $76,505 $562,203 $28,448 $3,269,359 BTA $663,410 $0 $0 $0 $0 $663,410 CWT $908,379 $0 $0 $0 $0 $908,379 FACT $578,254 $0 $0 $0 $0 $578,254 GCT $0 $0 $0 $0 $0 $0 ICTA $927,915 $0 $0 $0 $0 $927,915 MMVTA $2,474,803 $0 $0 $0 $0 $2,474,803 NCATA $3,357,195 $0 $0 $0 $0 $3,357,195 PAAC $148,922,579 $15,577,422 $2,380,708 $0 $18,568,222 $185,448,931 TACT $414,044 $18,341 $38,403 $0 $0 $470,788 WRIDES $125,534 $0 $0 $0 $0 $125,534 WCTA $2,581,472 $0 $0 $0 $0 $2,581,472

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Exhibit 18: Local Operating Subsidies in FY2011-12 Local Other Local Act 26 Match for Special Local Act 44 and Act 3 Federal Local Other Local Total Local Transit Operating Operating Operating Operating Operating Operating Provider Match Match Grants Matches Contributions Subsidies ACTS $0 $0 $0 $0 $27,693 $27,693 BCCA $0 $0 $0 $0 $54,625 $54,625 BCTA $354,435 $0 $0 $0 $0 $354,435 BTA $37,251 $0 $0 $0 $0 $37,251 CWT $254,933 $0 $0 $0 $0 $254,933 FACT $2,054 $0 $0 $0 $0 $2,054 GCT $0 $0 $0 $0 $0 $0 ICTA $47,016 $0 $0 $0 $0 $47,016 MMVTA $54,842 $0 $0 $0 $0 $54,842 NCATA $165,281 $0 $0 $0 $0 $165,281 PAAC $27,668,700 $537,153 $476,136 $1,917,645 $0 $30,599,634 TACT $33,171 $3,665 $0 $0 $0 $36,836 WRIDES $20,005 $0 $0 $0 $0 $20,005 WCTA $258,964 $0 $0 $0 $0 $258,964

STATE SUBSIDIES State operating and capital subsidies are provided to Pennsylvania transit agencies pursuant to Act 44. Special operating grants may be provided, at BPT’s option, and typically are provided on a one- time basis. Exceptions include grants for demonstration projects which are provided for three years. In FY2011-12, special state operating subsidies were provided for shared ride stabilization, shuttle service, flex funding, contracting, asset maintenance and demonstration projects to ACTS, BCTA, PAAC, TACT and WRIDES. Act 44 gives BPT the ability to provide capital grants to transit agencies for investments in fixed assets such as vehicles and facilities; and provides annual debt service payments for agencies, such as PAAC, related to bond issues or similar financing transactions that fund capital projects. Capital funding for vehicles is also available to smaller agencies through the Community Transportation Capital program. Additionally, state bond funds can be provided on a discretionary basis for permitted capital expenditures. Those agencies that operate both fixed route and demand response service have the ability to use state fixed route operating grants to offset demand response losses. In FY2011-12, this modal subsidization of demand response service10 occurred in five of the six region’s agencies that operate both types of service – BCTA, FACT, ICTA, PAAC, and TACT. A number of operating and capital funding programs were available prior to the passage of Act 44 including those pursuant to Act 26 of 1991 (Act 26) and Act 3 of 1997 (Act 3). In FY2011-12, some of the region’s transit agencies still had reserve funds containing dollars received from those older funding sources and used them for both operating and capital purposes.

10 Excluding ADA service Port Authority Consolidation Study 49

As noted earlier in this report, due to a significant budget deficit, PAAC received an incremental annual $30 million subsidy from the Commonwealth and an annual incremental local match from Allegheny County. These higher subsidy requirements will continue until the structural budget problem, caused by high labor, legacy and demand response program costs, is resolved.

LOCAL SUBSIDIES AND RELATED SUPPORT Each of the state operating and capital programs noted above has distinct local match requirements. The counties and, in some cases, other municipalities where the local service is provided, contributed funds to fulfill the match requirements. A different approach to the provision of local matches has historically been taken by the City of Washington. GG&C Bus Company (GG&C) has been the City’s subcontractor operating the City’s transit service for over 30 years. Instead of the City providing the local match directly, it has historically arranged for GG&C to pay the City the amount of local matching funds that the City is required to provide pursuant to its operating grant agreements with PennDOT. GG&C makes the payment from its own accumulated retained earnings from its other businesses to ensure separation of funds from its contract with the City. The portion of the local matching contribution paid by GG&C was held constant from FY2010-11 to FY2011-12 while the entire annual increase of the total local match between these years was borne by the City. The City’s contribution is expected to grow each year in the future in accordance with Act 44 regulations on local matching contributions. While not a direct cash grant, some of the agencies in the region benefit from services provided by their counties, municipalities or related parties, such as payroll, purchasing and legal services. In such cases, the agency either receives the services free of charge or they are charged a direct or allocated cost for the services:  Lawrence County Community Action Partnership provides and allocates the costs of staff, fringe benefits and supplies to ACTS;  The City of Washington provides and charges CTW for space and cable services;  Fayette County provides payroll and human resource services at no charge to FACT; and  Greene County provides finance, human resources, treasury, maintenance, legal, insurance and information technology services to GCT and charges direct and allocated costs related to these services to GCT.

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APPENDIX D: FINANCIAL IMPACT OF A CONSOLIDATED AUTHORITY

Estimating the financial impact of a single ten-county regional transit authority requires an understanding of how the authority will be structured, from an organizational and governance perspective. One potential scenario out of numerous available options was modeled using the data from the Current Environment section of this study and the identified benefits and challenges of regionalization. Furthermore, this scenario was selected since creating a single authority to replace the current 14 providers in the region would yield the most financial and operating benefits. Other viable options exist and ultimately the decisions regarding what the southwest regionalization would look like would be determined during a planning and transition period prior to the start of regionalized operations. This high-level financial impact analysis assumes no change to existing service, no change to fare structure and rates, and maximizing the use of existing assets to minimize new capital investment requirements. However, service and fare changes would certainly occur in a regionalization and would further contribute to the financial and operational benefits estimated in this section. Each requires a comprehensive analysis to optimize those benefits. The subsequent text in this section describes the assumed structures, resulting financial impact and transition components of the single 10-county authority option for regionalization.

GOVERNANCE STRUCTURE It is assumed that the new regional organization will be a transit authority (Authority) created pursuant to Pennsylvania law. The Authority would be governed by an appointed board of directors (Board) with an established set of by-laws governing its operation. The composition of the Board could be determined in numerous ways. Among other options, Board membership could be based on the geography and amount of service delivery, or the local funding amount provided. State legislation in 2013 revised the board composition and appointing responsibilities for PAAC, adding appointments by state elected officials and the Allegheny County Executive. This analysis assumes that the county commissioners and county executive in the region would each appoint one member of the Board. Additional Board seats could be added for state appointees as well as the Allegheny County Executive given the magnitude of transit activity in the county and the level of local match it would presumably continue to provide. Thorough consideration needs to be taken in determining the number of Board members and the appointing authorities. The Board should reflect a fair representation of stakeholders while also not resulting with a number of members that is excessive. Total Board members should not exceed 15 to ensure its effectiveness. The resulting Board composition might resemble the following:  Ten appointments, one from each county in the region  Three state appointments  Two additional appointments from Allegheny County

Having Board members with expertise in public transit, financial management and the law should be considered. Additionally, the issue of city representation on the Board will need to be addressed as

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today there are certain cities that govern transit agencies and provide local matching subsidies for operating and capital purposes. Once the new Board is established, PennDOT will provide support for Board training and developing a strategic plan.

LEGAL STRUCTURE If a new authority was created, state legislation would be required to dissolve PAAC and establish the Authority. Such state legislation would, among other requirements, provide the Authority with the ability to finance, maintain current state obligations for PAAC’s outstanding debt, and provide ongoing state operating and capital subsidies for the Authority consistent with state law and PennDOT programs. The Authority should establish an accounting and reporting structure to separately account for division and district operations as more fully described below. This accounting structure would also support the Board’s decisions regarding the distribution of local matching funding for those jurisdictions receiving fixed route service. For example, the local match could be determined by applying the portion of passenger trips and/or vehicle miles of service in each county to the divisional or district financial activity as recorded in the regional authority’s accounting system. This will ensure that the local match for “PAAC activity” in Allegheny County will only be provided by Allegheny County.

ASSETS AND LIABILITIES At the start, most of the assets and liabilities of the existing set of transit agencies would be transferred to the Authority. Fixed assets include items such as vehicles, equipment maintenance facilities, office buildings, terminal facilities, rail infrastructure and land. Non-fixed assets include items such as cash, investments, and receivables. The transfer of fixed and non-fixed assets to the Authority, excluding some city and county owned fixed assets, would occur. Any reserve accounts, including all federal, state and local subsidy balances, transferred to the Authority could be set aside for use in specific counties and/or for specific purposes. City and county owned fleet would be transferred to the Authority while other fixed assets, such as maintenance facilities and office space, would be leased to the Authority. The Authority would pay for all operating and capital costs related to the leased assets. Exceptions would be made where such fixed assets are used by other City or County departments, such as Greene County’s maintenance facility which services all of the county’s vehicle pool. In these cases, a service agreement could be executed between the parties or the Authority would use an alternative facility. A few of the current transit agencies, including BTA, FACT, ICTA, PAAC and WRIDES, have existing equipment and facility leases. These leases would be assigned to the Authority which would be responsible for the financial obligations related to those leases. A number of agencies also have outstanding bonds, notes and mortgages including PAAC, TACT and WCTA. In addition, many of the agencies have lines of credit and all have some level of payables. Any outstanding amounts would need to be paid or assigned to the Authority prior to regional operations.

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ORGANIZATIONAL STRUCTURE For purposes of this financial impact analysis, the organizational structure is assumed to contain the following elements – central administrative functions, separate operating divisions, local operating centers and a mix of directly operated and purchased transportation. This organizational structure attempts to take the combined strengths of the existing transit providers in order to yield regionalization benefits. As with the governance and legal structures, there are many ways to form the organizational structure with this being one potential scenario:

ADMINISTRATIVE FUNCTIONS This regionalization model assumes a central administrative function. The centralization concept reflects both the centralization of operating functions and the centralization of customer service systems. Overhead, management and administrative functions including finance, human resources, legal, safety, procurement, information technology, planning, risk management, communications and government relations are centralized and would provide services for the entire region. Additionally, an integrated and centrally managed service plan, timetables, trip planner, fare structure, and fare collection system would provide customers with a seamless travel experience throughout the region.

OPERATIONS, MAINTENANCE AND ENGINEERING This regional model assumes that operations (service delivery), maintenance and engineering functions will be provided by three separate operating divisions. These divisions would be comprised of the Fixed Route Central Division, the Fixed Route Local and Commuter Division and the Non-Fixed Route Division Fixed Route Central Division: Services in this division include  Bus operations for Allegheny County;  Bus, equipment and non-revenue vehicle maintenance and overhauls for Allegheny County;  Engineering operations and maintenance for the light rail systems; and  Inclined plane operations.

This division would also provide bus, equipment and non-revenue vehicle overhauls for the Local and Commuter Division when capacity allows and only when it was financial prudent. The split between in-house and contract work would continue as PAAC currently operates today. The existing labor agreements with PAAC would continue under the Authority’s Central Division. Fixed Route Local and Commuter Division: This division would be further divided into two districts. The Northern District, comprised of Beaver, Lawrence, Butler, Armstrong and Indiana counties, would operate with its own staff. Today, only Butler County outsources all of its services and represents approximately 10% of the total trips provided in the Northern District. The current county operating bases within the district would continue to be used for service, maintenance and fleet storage. The existing local ATU agreements in Beaver, Lawrence and Armstrong counties would continue under the Authority’s Local and Commuter Division for their respective counties. The Southern District, comprised of Washington, Greene, Fayette and Westmoreland counties, would operate by outsourcing 100% of transportation services in the district. Today, only a portion

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of Fayette’s fixed route service is provided with its own staff and it represents approximately 11% of the total trips provided in the Southern District. Shifting Fayette’s directly operated service to purchased transportation could occur at the start of regional operations or could be phased-in over time. As described below, the organizational structure assumed for this analysis includes new contract management positions to oversee the outsourced operator(s) performance. Non-Fixed Route Division: A single regional broker managing multiple subcontractors would provide service delivery and maintenance services. These subcontractors deliver the transportation service and provide and maintain their own vehicles. Today, approximately 88% of the demand response trips provided in the ten-county region are done so with outsourced services. Existing in- house providers of demand response service, such as ACTS and GCT, who might continue to exist since they are corporate or county entities, could provide demand response service as subcontractors to the broker under a service agreement. The remaining trips currently provided by in-house staff could be outsourced at the start of regional operations or could be phased-in over time. As described below, the organizational structure assumed for this analysis includes new contract management positions to oversee the broker’s operational and contract performance.

STAFFING This regional model uses the organizational structure described above as the foundation for developing the staffing requirements. A functional organization chart for the full regional authority is presented in Appendix E of this report. In summary, the organization is divided into seven primary functional areas, each reporting to the Chief Executive Officer (CEO) – Operations, Engineering, Finance, Technology, Legal, Human Resources and Communications. As Exhibit 19 shows, the Operations function is configured in accordance with the divisional and district concept described in the Organizational Structure section above:

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Exhibit 19: Regional Authority Operations Function

Chief Operating Officer

Fixed Route Demand Response Service Planning Bus Maintenance Operations Contract Management

Local and Commuter Local and Commuter Central Division Operations Support Scheduling & Service Local and Commuter Maintenance Support Division: Northern Division: Southern Central Division Operations Systems Planning Division Systems Operations Contract Management

Bus and Rail Training Long Range Planning Main Shop

Service Evaluation & Bus Maintenance Road Operations Scheduling Training

Fleet Maintenance, Warranty, Contract and Work Order Support

The remaining parts of the regional organization have been populated with positions responsible for the following functions:  Engineering - Facilities and Rail Maintenance, Maintenance Support, and Technical Support and Capital;  Finance - Controller (accounting) operations, Financial Planning and Budgets, and Purchasing and Materials Management;  Technology - Smart Card Program, Information Technology Data Center, Applications Development and Maintenance, Systems Development and Maintenance, Systems Architecture and Administrative Services;  Legal – System Safety, Claims, Internal Audit, Legal and Consulting Services, and Police and Security Services;  Human Resources – Employment and Development, Employee Relations and OEO, and Benefits Administration and Compensation;  Communications – Advertising Sales, Marketing and Creative Services, Customer Services, and Government Affairs and Public Relations

For the purpose of the financial impact analysis, the regional model only examines the change in administrative positions as defined earlier in this report. Today, there are 661 combined administrative FTEs in the region. Regionalization achieves efficiencies by reducing headcount to 589 FTEs through a centralized management team. Exhibit 20 shows the projected change by major functional area:

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Exhibit 20: Projected Change in Administrative FTEs Due to Consolidation Combined Function[1] Agencies Regional Authority Change Executive 26 2 -24 Operations/Maintenance 282 240 -42 Engineering 76 77 1 Finance/Procurement 75 59 -16 Information Technology 36 36 0 Legal-Claims-Audit-Security-Safety 83 90 7 Human Resources 31 31 0 Communications 52 54 2 Total 661 589 72 % Change 10.90% [1] Executive includes general manager, administrative and office clerical and support staff. Communications includes marketing, advertising, customer service and government and public relations.

A majority of the position reductions stem from eliminating redundant positions and are net of adding new positions to support operations across the entire region. The new positions include, but are not limited to, those for training, safety, dispatching, marketing, procurement, labor relations, and claims. It is important to note that a detailed organizational analysis was not performed for the Central Division therefore there is the potential for incremental position reductions.

FINANCIAL IMPACT OF CONSOLIDATION A high-level estimate of the financial impact of consolidation was developed by examining six key areas of operating expenses including salaries, employee benefits, purchased transportation, professional fees, information technology and other operating costs. This analysis assumes an organization plan representing one hypothetical scenario on how the consolidated agency could be staffed. It is understood that different viewpoints may exist with regard to the number and level of positions and the related salaries incorporated in this organizational structure. If any of those alternative viewpoints were incorporated into the regional model, it would result in an increase or decrease to the salary and employee benefit savings reflected in this section of the report.

SALARY EXPENSES A complete inventory of all existing administrative positions, as defined in this study, and their salaries were obtained from each transit provider. Using the organizational chart that was developed in the organization structure and staffing sections discussed above, each box on the organizational chart was populated with a title that was best aligned with the responsibilities of the position. For the vast majority of these jobs, position titles and their salaries remained as they are today since the responsibilities remained the same in the new Authority. Salaries were adjusted for existing positions where there was a significant increase in responsibility between current operations and

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operating as a single regionalized authority. Newly created positions were identified that did not exist today and were priced at a salary that was commensurate with the responsibility11. The net reduction in the number of administrative positions due to regionalization would yield $2.19 million in reduced salary costs.

EMPLOYEE BENEFIT EXPENSES While employee benefit costs typically include a number of items, the regional model focused on health care and retirement plan costs which are the two largest costs within this expense category. There will be two components of savings for both of these expense items. The first is savings attributed to the eliminated positions and the second is savings attributed to standardizing employee benefits plans for the Authority’s administrative employees. The Current Environment section indicated a great variety of health care plans among the region’s transit providers and therefore a great disparity in costs per employee. One regionalization benefit is the ability to take advantage of less expensive insurance coverage by spreading the risk to an expanded insured employee pool. While the regional model does not assume a luxury, or “Cadillac” health plan, as some of the current providers offer their employees, cost reductions can occur without significantly curtailing the plan provisions of most of the region’s non-represented employees. The existing health care plans for represented employees would be transferred to the Authority subject to any insurance provider requirements. The regional model also assumed that the Authority would provide its non-represented employees a defined contribution retirement plan and would provide an employer match capped at 5% of the employee’s salary12. The existing retirement plans for represented employees, whether defined contribution or defined benefit, would be transferred to the Authority subject to the plans’ provisions. Distinct arrangements would need to be made for any represented employees who are participants in the FACT and GCT county defined benefit plans. As mentioned earlier in this report, PAAC’s retirement plans have significant unfunded liabilities. The transfer of the represented plans to the Authority will require the Authority to continue to pay for the obligations related to those unfunded liabilities. Since the Authority will be providing a new defined contribution plan for its non-represented employees, the Authority will assume the financial obligations to existing non-represented retirees. Any remaining unfunded liabilities associated with PAAC’s non-represented retirement plan will be reduced in value and will be the responsibility of the Authority. The reduction in the number of administrative employees and the standardization of health care and retirement benefits for non-represented employees resulting from regionalization would yield $3.42 million in savings.

11 Salary data was obtained from the American Public Transportation Association’s Public Transportation Management Compensation Report 12 Vested non-represented employees who are currently covered by a defined benefit plan would receive a pension benefit for their years of service with their current employer and would have the assets of their defined contribution plan for their years of service with the Authority Port Authority Consolidation Study 57

PURCHASED TRANSPORTATION EXPENSES The organizational plan described above assumes that the regional authority will outsource demand response service (a change for 12% of the trips in the region) and fixed route service in the Southern District (a change for 11% of the trips in this district). It also assumes that Butler County’s local fixed route service will be provided with in-house staff (a change for 10% of the trips in the Northern District). The financial impact of these combined changes is estimated to yield $795 thousand in operating savings. In projecting the cost savings from the outsourcing of non-fixed route service, the regional model did not assume PAAC’s13 per trip costs given the significant difference in service characteristics between its operations and the rest of the regions’. Instead, the regional model applied the average unit cost for outsourced non-fixed route service in the surrounding nine counties because of more similar service characteristics.

PROFESSIONAL SERVICES Next to labor savings, professional services are typically one of the larger remaining cost areas susceptible to reductions due to regionalization. The key components of professional services are audit, payroll, legal, planning, and, engineering services fees. As an example, a single regional authority would require only one annual independent financial audit, while today one for each of the fourteen agencies is required. Regionalization is expected to result in approximately $382 thousand in reduced professional service fees.

INFORMATION TECHNOLOGY EXPENSES A regionalized rollout of new and standardized technology, funded by Commonwealth capital funds, will need to occur before and during the first few years of the Authority’s operations. In addition, ongoing maintenance and support services for the technology infrastructure will be required. The regional model therefore assumes an additional annual operating cost of $122 thousand for contracted information technology services outside of Allegheny County. After a few years, the Authority should be able to determine if these outsourced services could be replaced with Authority personnel.

OTHER OPERATING EXPENSES Other spending areas that should see reductions include marketing and advertising, office expenses, rent, travel, meetings, dues and subscriptions. While a detailed facility analysis was not completed for this study, the regional model assumes that some of the office space that is currently rented for administrative operations would be eliminated and replaced by space that would be transferred to and owned by the Authority. Other operating expenses are projected to be reduced by $569 thousand.

OPERATING REVENUE Transit consolidations tend not to produce incremental revenue except for advertising revenue due to volume purchasing. It is also possible for fare revenue to increase either as a result of a decision to generate more revenue from a newly integrated fare structure or as a result of ridership growth due to the draw of a seamless regional transportation system. Since this study does not include the

13 Currently the largest outsourced operation in the region. Port Authority Consolidation Study 58

development of an integrated fare structure, the regional model only assumes a benefit of $200 thousand in increased advertising revenue.

SUMMARY FINANCIAL IMPACT Exhibit 21 provides a summary of the estimated financial impact of a southwest transit consolidation. This estimate is a conservative one as it does not include savings related to an integrated service plan or the potential increase in revenues from an integrated fare structure and customer service plan: Exhibit 21: Summary Financial Impact of Consolidation Operating Line Item Savings (Costs) in $000 Salaries $2,190 Employee Benefits 3,415 Purchased Transportation 795 Professional Fees 382 Office, Rent and Supplies 250 Other Expenses 319 Information Technology -122 Total Expense Savings $7,229 Advertising Revenue Gains $200 Net Revenue and Expense Benefits $7,429

If there is further consideration of regionalization, detailed facility, fleet, fare and technology analyses would need to be performed to refine these estimates and set the stage for transition.

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APPENDIX E: FUNCTIONAL ORGANIZATION CHARTS FOR A SINGLE 10-COUNTY REGIONAL AUTHORITY

Chief Executive Officer

Executive Assistant

Chief Chief Operating Chief Financial Chief Technology Chief Human Chief Engineer Communications General Counsel Officer Officer Officer Resources Officer Officer

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Chief Operating Officer

Demand Response Fixed Route Contract Service Planning Bus Maintenance Operations Management

Local and Commuter Local and Commuter Division: Southern Central Division Operations Support Scheduling & Service Local and Commuter Maintenance Support Division: Northern Central Division Contract Operations Systems Planning Division Systems Operations Management

Bus and Rail Training Long Range Planning Main Shop

Service Evaluation & Bus Maintenance Road Operations Scheduling Training

Fleet Maintenance, Warranty, Contract and Work Order Support

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Chief Engineer

Technical Facilities and Maintenance Support and Rail Support Capital Maintenance

Capital Facilities and Rail Programs: Rail Maintenance Facilities Administration Training

Capital Maintenance of Programs: Way Systems

Maint. of Light Project Rail Systems & Management Facilities

Maintenance of Rail Cars

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Chief Financial Officer

Purchasing and Planning and Controller Materials Budgets Management

Financial Inventory Accounts Planning and Operations and Payable Reporting Distribution

Operating Materials Payroll Budget Analysis Management

Grants and Operating Contract Admin: Capital Program Accounting Bus and Rail Analysis

Contract Admin: Capital Construction & Accounting Prof Services

Revenue Collections

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Chief Technology Officer

Information Applications Systems Smart Card Systems Administrative Technology Data Development & Development & Program Architecture Services Center Maintenance Maintenance

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General Counsel

Legal and Transit Police System Safety Claims Internal Audit Consulting and Security Services Services

Labor and Bus Transit Police Employment

Rail and Litigation and Security Facilities Transp. Matters Services

Occupational Safety and Insurance Telecom Health

Crime Legal Services Information

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Chief Human Resource Officer

Benefits Employment and Employee Administration and Development Relations and OEO Compensation

Employee and DBE Contract Benefits Organizational Compliance Administration Development

Drug & Alcohol FMLA/Attendance Employee Compliance Administration Assistance Program

Office of Equal Employment Compensation Opportunity Administration Program Program

Employee Relations

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Chief Communications Officer

Marketing and Government Advertising Sales Customer Services Creative Services Affairs

Public Relations Design Customer Sales and Communications

Community Production Customer Service Outreach

Marketing Smart Card Service

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