Pennsylvania House of Representatives Transportation Committee T R Submitted in accordance with the provisions of O

P House Resolution No. 538

EPORT E A Study of s Southeastern Pennsylvania Transportation Authority R e

v Accepted October 4, 2006 i L t a A t n N e INAL INAL I

s in association with St. Clair/CPA Solutions e F Supported by Capstone Concepts, Durbin Associates, r P.H. Adams and Associates and Will Scott and Associates p e e e R t t f i o m e s m u o o C

H n a o i i t n a a t r v l o y p s s n n n a e r P T

A STUDY OF SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY

SUBMITTED IN ACCORDANCE WITH THE PROVISIONS OF HOUSE RESOLUTION NO. 538

FINAL REPORT

TO THE PENNSYLVANIA HOUSE OF REPRESENTATIVES TRANSPORTATION COMMITTEE

Prepared by:

in association with St. Clair/CPA Solutions supported by Capstone Concepts, Durbin Associates, P.H. Adams and Associates and Will Scott and Associates

Accepted October 4, 2006

An employee-owned company

October 4, 2006

The Honorable Richard A. Geist Chairman, Transportation Committee Pennsylvania House of Representatives P. O. Box 202020 Harrisburg, PA 17120-2020

Dear Representative Geist:

On behalf of PBS&J, I am pleased to submit a final report of our review of the Southeastern Pennsylvania Transportation Authority (SEPTA). This report is submitted in accordance with the provisions of House Resolution No. 538. That resolution directed the Transportation Committee to conduct an investigation of SEPTA.

PBS&J, in association with St. Clair/CPA Solutions, focused its review on the scope as contained in HR 538:

• Overall and inclusive investigation of the operations, administration, management, and financial operations of SEPTA.

• Performance and financial audit of SEPTA.

• Evaluation of the current structure and system of performance evaluation of SEPTA and recommendation of a comprehensive and coordinated system of program evaluation that includes monitoring, impact assessment, examination of cost effectiveness and cost-benefit analysis.

Our engagement team’s recommendations are based upon our review and analysis of extensive data and previous studies of SEPTA, as well as numerous interviews with SEPTA management throughout the organization.

We acknowledge the positive spirit of cooperation of SEPTA’s management throughout our review process. We also acknowledge the leadership of the House of Representatives for its sponsorship of this review and for its strategic focus on evaluating and helping to address the challenges facing SEPTA and its stakeholders.

Sincerely,

Frank T. Martin Vice President/Division Manager National Transit Practice Leader

482 South Keller Road • Orlando, Florida 32810 • Telephone: 407.647.7275 • www.pbsj.com TABLE OF CONTENTS

Contents

EXECUTIVE SUMMARY ...... vii SUMMARY OF RECOMMENDATIONS ...... ix ACRONYMS AND ABBREVIATIONS...... xiii 1.0 INTRODUCTION...... 1-1 1.1 ABOUT SEPTA ...... 1-1 2.0 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST ...... 2-1 2.1 DEVELOPMENT OF PRODUCTIVITY STANDARDS BASED ON FAREBOX REVENUE ...... 2-1 2.2 IMPLEMENTATION OF A MORE EFFICIENT MANAGEMENT AND PERSONNEL STRUCTURE...... 2-4 2.3 PROVISION FOR AN ANNUAL AND BIENNIAL PERFORMANCE AUDIT.... 2-6 2.4 THE USE OF PRIVATE SECTOR CONTRACTS FOR GOODS AND SERVICES THROUGH COMPETITIVE BIDDING...... 2-7 2.5 THE MODERNIZATION OF SCHEDULING SO THAT IT BETTER TAKES INTO ACCOUNT LEVELS OF RIDERSHIP AND EFFICIENCIES IN OPERATION.. 2-9 3.0 FINANCIAL REVIEW...... 3-1 3.1 SEPTA’S ENVIRONMENT, ORGANIZATIONAL STRUCTURE, AND OPERATING AND FINANCIAL SYSTEMS ...... 3-1 3.1.1 Prior Financial Statements, Budgets, Audits, Management Reports, and Letters ...... 3-1 3.1.2 Organizational and Management Structure ...... 3-1 3.1.3 Overview of SEPTA Operating Divisions and Systems of SEPTA ...... 3-2 3.2 FINANCIAL REVIEW OF SEPTA...... 3-3 3.2.1 General Financial Systems and Processes ...... 3-3 3.2.2 Internal Financial Reporting System...... 3-4 3.2.3 Operating Standards and Performance Evaluation Measures ...... 3-5 3.2.4 Procurement System, Policies, and Procedures...... 3-6 3.2.5 Prior Audit Reports and Interview of Outside Auditor...... 3-7 3.3 ANALYTICAL REVIEW AND TREND ANALYSIS ...... 3-8 3.3.1 Financial Trends...... 3-8 3.3.2 Peer Group Trends and Benchmarking ...... 3-9 3.4 REVIEW OF SPECIFIC FINANCIAL ITEMS AND SYSTEMS ...... 3-16 3.4.1 Funding Sources ...... 3-16 3.4.2 Passenger Revenue System ...... 3-20

Final Report to the Pennsylvania House of Representatives Transportation Committee i Accepted October 4, 2006 TABLE OF CONTENTS

3.4.3 Major Cost Areas...... 3-21 3.4.4 Operating Divisions ...... 3-22 3.4.5 Long-Term Capital Plan and Major Construction Projects ...... 3-25 3.4.6 Proposed Reorganization of SEPTA’s Executive Staff ...... 3-26 4.0 LEGISLATIVE REVIEW (STATE)...... 4-1 4.1 INTRODUCTION TO THE REVIEW OF ENABLING STATE AND FEDERAL LEGISLATION...... 4-1 4.2 FEDERAL...... 4-2 4.2.1 The Language of Regulation ...... 4-2 4.2.2 Responsibilities as a Federal Transportation Grantee ...... 4-3 4.2.3 Using Taxpayer Dollars Wisely...... 4-5 4.2.4 Being a Good Employer ...... 4-6 4.2.5 Being a Good Corporate Citizen...... 4-7 4.2.6 Conclusion ...... 4-8 4.2.7 References...... 4-8 5.0 OPERATIONS...... 5-1 5.1 GOAL ...... 5-1 5.2 AN ASSESSMENT OF RAIL OPERATIONS...... 5-1 5.2.1 Major Observations ...... 5-1 5.2.2 Review Team Response ...... 5-3 5.3 STATUS - ASSESSMENT OF BUS OPERATIONS ...... 5-4 5.3.1 Major Observations ...... 5-5 5.3.2 Review Team Response ...... 5-5 5.4 STATUS - AUTOMOTIVE EQUIPMENT ENGINEERING AND MAINTENANCE...... 5-6 5.4.1 Major Observations ...... 5-6 5.4.2 Review Team Response ...... 5-9 5.5 RAIL EQUIPMENT ENGINEERING AND MAINTENANCE...... 5-10 5.5.1 Major Observations ...... 5-10 5.5.2 Review Team Response ...... 5-11 5.6 CENTRAL CONTROL ...... 5-12 5.6.1 Major Observations ...... 5-13 5.6.2 Review Team Response ...... 5-13 6.0 LABOR ISSUES ...... 6-1 6.1 SPECIAL ISSUES ...... 6-3 6.2 SUMMARY ...... 6-5

Final Report to the Pennsylvania House of Representatives Transportation Committee ii Accepted October 4, 2006 TABLE OF CONTENTS

7.0 MAJOR CAPITAL IMPROVEMENT PROJECTS ...... 7-1 7.1 GOAL ...... 7-1 7.2 STATUS ...... 7-1 7.3 MAJOR OBSERVATIONS ...... 7-2 7.4 REVIEW TEAM RESPONSE...... 7-2 7.5 RECOMMENDATIONS...... 7-3 8.0 FARE COLLECTION SYSTEMS AND TECHNOLOGY ...... 8-1 8.1 INTRODUCTION ...... 8-1 8.2 CURRENT STATUS OF THE FARE COLLECTION SYSTEM ...... 8-1 8.3 STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS ANALYSIS OF SEPTA FARE COLLECTION SYSTEM...... 8-3 8.4 CHALLENGES AND OPPORTUNITIES OF FUTURE PROGRAM MANAGEMENT...... 8-12 9.0 PROCUREMENT ...... 9-1 9.1 GOAL ...... 9-1 9.2 STATUS ...... 9-1 9.3 MAJOR OBSERVATIONS ...... 9-1 9.4 REVIEW TEAM RESPONSE...... 9-1 9.5 RECOMMENDATIONS...... 9-2 10.0 HUMAN RESOURCES...... 10-1 10.1 SUCCESSION PLANNING...... 10-1 10.2 RECRUITMENT...... 10-1 10.3 TRAINING ...... 10-1 10.4 FAMILY AND MEDICAL LEAVE ACT...... 10-2 10.5 PERFORMANCE APPRAISAL SYSTEMS...... 10-2 10.6 RECOMMENDATIONS...... 10-3 11.0 MARKETING AND COMMUNITY RELATIONS...... 11-1 12.0 PERFORMANCE STANDARDS...... 12-1

Final Report to the Pennsylvania House of Representatives Transportation Committee iii Accepted October 4, 2006 TABLE OF CONTENTS

Tables Table 2-1 Third-Party Contracting by Category...... 2-8 Table 3-1 Finance Division Functions and Activities ...... 3-3 Table 3-2 Audit and Investigation Services Division Functions and Activities...... 3-4 Table 3-3 Operating Revenues and Subsidies Less Total Expenses Fiscal Years 2003 - 2012 ...... 3-9 Table 3-4 A Summary of Peer Modal Operations...... 3-10 Table 3-5 Comparison of Bus Farebox Recovery...... 3-12 Table 3-6 Comparison of Heavy Rail Farebox Recovery...... 3-12 Table 3-7 Comparison of Commuter Rail Farebox Recovery ...... 3-12 Table 3-8 Comparison of Light Rail Farebox Recovery...... 3-13 Table 3-9 Comparison of Demand Response Farebox Recovery ...... 3-13 Table 3-10 Comparison of Farebox Recovery for All Modes ...... 3-13 Table 3-11 Comparison of Operating Funds (000)...... 3-14 Table 3-12 Comparison of Directly Generated Funds (000) ...... 3-15 Table 3-13 Comparison of the Source of Federal Funds (000)...... 3-15 Table 3-14 Comparison of the Source of State Funds (000) ...... 3-15 Table 3-15 Comparison of the Source of Local Funds (000) ...... 3-16 Table 3-16 Comparison of Operating Expenses by Service (000)...... 3-16 Table 3-17 2003–2007 Sources of Operating Subsidies ...... 3-18 Table 3-18 Fiscal Years 2003–2007 Operating Revenues (000)...... 3-19 Table 3-19 Fiscal Years 2003–2007 Operating Subsidies (000) ...... 3-19 Table 3-20 SEPTA Basic Fare Structure...... 3-20 Table 3-21 Fare Information for Regional Rail Service...... 3-20 Table 3-22 Fiscal Years 2003–2007 Operating Expenses (000) ...... 3-21 Table 3-23 Fiscal Year Comparison of Operating Expenses by Category...... 3-22 Table 3-24 Labor and Fringe Benefit Expenses by Category and Fiscal Year (000) ...... 3-23 Table 8-1 Application Classification ...... 8-2 Table 8-2 Overview of the Fare Collection Equipment ...... 8-4 Table 8-3 Transit Agencies Implementing Automated Fare Collection Programs...... 8-9

Figures 2-1 Revenue Miles per Employee from FY 1996–2006 ...... 2-5 2-2 Number of Employees between FY 1996–2006...... 2-5 5-1 AEEM Comparison of Average Annual MDBF versus Operating Mechanics ...... 5-7 5-2 AEEM Comparison of Bus Fleet Size versus Line Requirements ...... 5-7

Final Report to the Pennsylvania House of Representatives Transportation Committee iv Accepted October 4, 2006 TABLE OF CONTENTS

Appendices

A ECONOMICS, POPULATION, AND EMPLOYMENT

B REVIEW OF PRIOR FINANCIAL STATEMENTS

C LABOR SECTION OVERVIEW OF FEDERAL EMPLOYEES LIABILITY ACT

D SEPTA SYSTEM ROUTE MAP

E COMPENDIUM OF TRANSIT BEST CAPITAL PROGRAM MANAGEMENT PRACTICES

F FARE COLLECTIONS EQUIPMENT MATRIX

G TRANSIT INDUSTRY EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

H SEPTA OPERATING SUBSIDY BUDGET DETAIL FY 2003–2007

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Final Report to the Pennsylvania House of Representatives Transportation Committee vi Accepted October 4, 2006 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Cities, regions, and states are in a competitive game. When the Pennsylvania General Assembly created the Southeastern Pennsylvania Transportation Authority (SEPTA) in 1964, it took on the competitive challenge. It recognized that competing without a functional transportation system, including transit, is like going into a baseball game with no relief pitching. Attracting talent, investment, and employment requires a solid working transit system - one with a future. Southeastern Pennsylvania is trying to compete without being able to tell investors, employers, and individuals that they can depend on the availability of good transportation choices now and in the future.

There are several reasons for this weakness. PBS&J was commissioned to conduct an orderly and thorough review of SEPTA’s current operation and fiscal situation. The PBS&J review team started with a conscious effort to eliminate bias and preconceived notions. The review team wanted the facts and the evidence, anecdotal and empirical, to do the talking. And they did.

When an organization has access to the public purse, the first question has to be whether they are spending responsibly. Are they managing what they have well? Taxpayers expect their elected officials to see to that responsibility first, and the House of Representatives deserves credit for demanding answers to that question. That is the right place to start.

As is often the case, the weaknesses and strengths are two sides of the same coin. SEPTA is a complex organization with an uncommonly large public exposure. It is comprised of more than 8,800 employees and its budget is just shy of a billion dollars, coupled with a significant, and growing, gap between operating expenses and revenues. SEPTA has evolved over time to focus almost obsessively on operation and cost control. While these are good things by themselves, they are not sufficient for long-term success.

These weaknesses, however, stem from the same source as SEPTA’s strengths. The management team at SEPTA is dedicated, highly experienced, and focused on important issues. They know the technical side of their business very well. The review team met person after person whose knowledge and commitment are as strong as any we have seen in the industry. SEPTA is a place where people come for a career, not just a job, and sometimes they are the third or fourth generation in their family to do so.

One aspect of SEPTA’s staff strength is the cost consciousness that seems to be inbred into so many of the managers. Perhaps it is the result of many years of living close to the edge. The review team met many people who spend the public’s money as if it were their own. The report provides data that demonstrates that SEPTA’s unit costs are quite reasonable and moderate when compared to others in the industry. For example, given SEPTA’s contentious collective bargaining history, wage rates might be expected to be on the high side. They are not.

The review team does not argue against possible savings, but what is there is small and incremental. A very few categories account for most of the cost, and these categories tend to be areas over which management has little discretion, at least in the short run. A few inflexible expense categories such as energy costs, health care premiums, pension costs, Americans with Disabilities Act (ADA) compliance, union wages, equipment maintenance, and depreciation together account for 80 percent of the operating budget. This is not surprising. Industry transit

Final Report to the Pennsylvania House of Representatives Transportation Committee vii Accepted October 4, 2006 EXECUTIVE SUMMARY wages and benefits typically account for approximately 70 percent of the operations budgets of large urban transit systems.

SEPTA has undertaken ongoing initiatives over the years to reduce costs. Notable among the initiatives is the outsourcing of various services. SEPTA estimates that for Fiscal Year 2006 approximately $198 million of services was contracted to private vendors. Major savings have been realized the areas of health care, prescription drugs, workers compensation, staffing, and service efficiencies.

There is an axiom that says “to manage is to measure.” Therefore, the review team paid attention to SEPTA’s development and effective use of efficiency and productivity performance measures. The review team believes that measures such as unit costs expressed in per mile, per hour, and per passenger terms are the best way to look at efficiency, and the review team based our overall assessments of the state of SEPTA’s performance on the presence of verifiable objective criteria, all detailed in this report.

The cost picture is further exacerbated by the long-term cost of maintaining and replacing the capital plant and fleet. All transit systems, but especially rail systems, have a heavy burden of capital replacement and are challenged to maintain in good order existing infrastructure and fixed assets. With standard 40-foot diesel buses selling for $300,000, increasingly more complex facilities, vehicles, and environmental and safety regulations, transit systems are forced to push the capital cost envelope well beyond existing funding sources. The effective development and initiation of capital project plans have been seriously corrupted throughout the industry due to a lack of sufficient capital and operations funding. The concept of deferred maintenance and deferred capital programs is used more and more, despite the fact that from a service quality perspective, neither term is valid.

While SEPTA has some challenges to meet, its ability to carry out its mission cannot be assured through internal changes alone. A strategic approach to stabilizing and improving SEPTA must include changes to its funding base. No enterprise could do a good job of acting and thinking strategically and in its customers’ best interests if it is required to lurch from this year’s financial crisis to next year’s with barely a pause in between. Yet that is what SEPTA is asked to do. The “bunker” mentality and the inability to project a strong, confident image to the community are no surprise at all in this environment. In fact, SEPTA can do little more than it does now until its financial environment changes.

There are industry-proven solutions to SEPTA’s current challenges. Perhaps the most appropriate place to start is to characterize SEPTA’s problems. SEPTA is a state-chartered organization that provides comprehensive services to Southeastern Pennsylvania. It is critical to the economic and social viability of Philadelphia and surrounding communities, and Philadelphia and its surrounding communities are critical to the Commonwealth. Therefore, SEPTA’s problems are really the Commonwealth’s challenge.

This report is the review team’s response to House Resolution No. 538. The review team conducted a thorough investigation of SEPTA - its organization, management structure, and critical cost centers. The review team has presented what we believe are clear indicators of the state of the organization, opportunities for economies, and the accumulated affects of SEPTA’s own efforts to address and manage the funding/cost imbalances.

Final Report to the Pennsylvania House of Representatives Transportation Committee viii Accepted October 4, 2006 EXECUTIVE SUMMARY

The best way for the Pennsylvania General Assembly to complete its commitment to make transit a true competitive advantage is to develop a true strategic plan. The plan should include operational improvements and appropriate metrics to measure them. But it cannot stop there. The plan must also include a realistic funding outlook for the next 5 to 10 years. And that outlook must be compared to real operating and capital needs. The outlook can include fare increases and paring back of service if that is the Legislature’s decision, but it absolutely must include a predictable source of funding, one to which the Legislature is committed. SEPTA can be held accountable for performance only if it has a way out of the crisis mode in which it currently operates.

The Legislature should hold SEPTA accountable; however, accountability should not include additional requirements that demand scarce administrative resources nor should it demand a level of accountability inconsistent with any future additional dedicated funds. Finally, a partnership is suggested among the Commonwealth, SEPTA, the City of Philadelphia and regional communities. All are potentially affected by what happens to SEPTA; therefore, all must contribute to a solution, including providing a proportional level of dedicated funding.

Time is of the essence. The Governor and the Legislature have wisely moved aggressively and collegially in addressing the Commonwealth’s overall transportation challenges. Hopefully, this report will contribute to that end.

SUMMARY OF RECOMMENDATIONS

Key recommendations by functional area are provided below. Each is further developed in the report.

Management and Organization

• Working closely with key stakeholders, develop a SEPTA strategic plan to include a shared vision and goals of the organization. • Enhance the organization’s focus on external relations, including key stakeholders such as the General Assembly, local elected officials, and other key stakeholders. • Improve the organization’s overall communication and marketing of SEPTA and its benefits to the City of Philadelphia, the Region, and the Commonwealth. • Continue to promote continuous improvements, seeking cost savings (including outsourcing) and revenue enhancements. • Make the pursuit of a dedicated funding source priority number one; without it, few, if any, of the recommendations can be brought to fruition. • Develop a uniform set of Agency performance measures that are cascaded down from a unified theme (Vision-Mission Statement that incorporates the real needs of the Region and the organization). • Anticipate the need to continuously justify the management of a billion-dollar public budget by developing a unified set of performance measures and associated support documents that significantly reduce the burden of recreating these documents, or variations thereof, for every new audit.

Final Report to the Pennsylvania House of Representatives Transportation Committee ix Accepted October 4, 2006 EXECUTIVE SUMMARY

• Develop a fare collection strategic plan that identifies the current process and costs associated with all fare collections and direct and indirect support systems; this information should be used to plan appropriate strategies to mitigate these current costs through capital, financial, operating and effect interoperability fare policy agreements with contiguous transit agencies and communities. • Continue to manage fuel hedging with an eye on leveraging bulk purchasing power of • Fifteen million gallons per year against the open market. Consider the economies of partnering with other Commonwealth agencies. • Seek Commonwealth and federal representative assistance in managing Amtrak trackage and power fees.

Operations

• Pursue the use of hybrid technology transit vehicles. • Pursue techniques to reduce the use of traction and facilities electrical power, including the benefits and potential downside of selectively deactivating traction and facility major power. • Continue to evaluate the advantages of cost-effectively outsourcing or in-sourcing additional work to highly productive work units. • Develop an operations-based task force to consider ways to reduce fuel consumption, including limiting dead-heading travel, and unnecessary bus idling, and eliminate service that does not meet SEPTA standards. Consider providing financial incentives to those divisions that demonstrate significant sustained progress.

Capital Programs

• Consider the pursuit of eliminating of the Separation Act, which may be the greatest obstacle to efficient major capital project delivery. • Integrate modern transit major capital program best management practices (see Appendix E for description). • Build bridges of cooperation and communications with communities contiguous to projects planned or under way. • Develop long-term capital plans that reflect the future needs of its diverse transportation future demands and commit to restoring and sustaining all of its critical physical assets.

Procurement

• Continue to pursue improvements in the cost-efficient supply chain procurement using industry best practices that have resulted in major savings in allied industries. • Participate in industry procurement professional committees to remain abreast of improvements in major vehicle procurements and project delivery strategies and to share and benefit from collective industry experiences. • Continue to pursue opportunities to participate in Commonwealth (Pennsylvania Department of Transportation [PennDOT]) and associated bulk purchasing contracts.

Final Report to the Pennsylvania House of Representatives Transportation Committee x Accepted October 4, 2006 EXECUTIVE SUMMARY

• Foster collaboration among SEPTA procurement, maintenance, and engineering staff to identify methods to mitigate the life-cycle procurement (parts) challenges associated with new vehicles. • Consider the practicality of using group performance incentives to maximize the efficient use of materials and parts. • Continue to pursue professional logistical planning and analysis assistance to accelerate improvements in the procurement hierarchy.

Service Planning

• Undertake a comprehensive service analysis of the entire route and schedule network to enhance overall service quality and productivity and to assess latent demand in growth areas. • Develop a closer working relationship with local jurisdictions to gain greater understanding and buy-in on route changes.

Fare Structure/Fare Collection

• Undertake a fare simplification study to simplify fares, improve the seamless nature of fares between modes, and better tie fares to costs (e.g., distance). • Verify the limited fare collection equipment condition/risk assessment performed by the review team and respond to the analysis with a short-term plan to mitigate critical systems outages and the loss of recovery collection or processing capabilities. • Investigate the option of outsourcing the fare collection system to reduce staffing and operational costs. • Use a strategic planning capital development process that is based on the total existing cost and level of effort necessary to collect fares versus what could be achieved in industry best management practices. Excellent program delivery efforts could be integrated into a plan that accomplishes significant reduction in operating cost and maximum returns of fare revenues.

Marketing and Community Outreach

• Conduct a market research study to determine public perceptions of SEPTA and to better understand how to attract new riders and retain current riders. • Use the results of the market research study to develop and implement a comprehensive market plan to focus on image building and increased ridership. • Enhance customer service training for operational employees (e.g., drivers and conductors) to improve the overall quality of customer service.

Labor

• Sponsor a special Joint Labor-Management Committee chartered to identify best or creative practices that could potentially be used at SEPTA to better position the organization to respond to well-known challenges (such as managing health costs, remaining cost effective,

Final Report to the Pennsylvania House of Representatives Transportation Committee xi Accepted October 4, 2006 EXECUTIVE SUMMARY

considering opportunities for in-sourcing or outsourcing) and to present quarterly working papers on the progress achieved. • Conduct an offsite retreat for SEPTA and all labor organizations to discuss global issues affecting transit, the communities, and labor. Invite a speaker from labor and the industry to discuss significant advances in defining the true nature of issues and those who have advanced these processes to real-world solutions.

Human Resources

• Work with the General Assembly to repeal the “bumping” provision enacted in 1991. • Continue the investment and focus on employee training and development. • Continue succession planning focus, given the current and future level of retirees. • Enhance customer service training throughout the organization to help foster a more customer-centric culture and practice. • Identify creative techniques to identify qualified candidates for employment. • Review the current screening requirements for operators and other operating personnel to determine whether they can be less stringent in some areas without compromising safety and overall quality. • Continue creative strategies to reduce absenteeism due to sickness, long-term illnesses, accidents and other conditions.

Financial

• Create three new positions, Chief Operating Officer, Chief Financial Officer, and Chief Administrative Officer. All positions would report to the General Manager.

Funding

• Provide a dedicated funding source for public transportation.

Legislation/Institutional Barriers

• Work with the General Assembly to repeal the following legislative provisions: - “Bumping” - Separations Act (bidding requirement) - Pennsylvania steel procurement requirement - Jurisdiction of SEPTA police - Advertising on rail vehicles - Exemption from local zoning requirements

Final Report to the Pennsylvania House of Representatives Transportation Committee xii Accepted October 4, 2006 EXECUTIVE SUMMARY

ACRONYMS AND ABBREVIATIONS

ADA Americans with Disabilities Act AEEM Automotive and Equipment Engineering and Maintenance AFL-CIO American Federation of Labor-Congress of Industrial Organizations CAA Clean Air Act CFR Code of Federal Regulations CMAQ Congestion Mitigation and Air Quality CTA Chicago Transit Authority DBE Disadvantaged business enterprise DOT Department of Transportation EEO Equal employment opportunities FELA Federal Employees Liability Act FMLA Family and Medical Leave Act FTA Federal Transit Administration FY Fiscal year GPS Global positioning system GSA General Services Administration MBTA Massachusetts Bay Transportation Authority MDBF Mean Distance Between Failures MTA Metropolitan Transit Authority NTD National Transit Database NYCT New York City Transit OEM Original equipment manufacturer OMB Office of Management and Budget PennDOT Pennsylvania Department of Transportation SAFETEA-LU Safe, Accountable, Flexible, and Efficient Transportation Equity Act SEPTA Southeastern Pennsylvania Transportation Authority TWU Transport Workers Union WC Workers’ Compensation WMATA Washington Metropolitan Area Transit Authority ZA Zelenkofske Axelrod, LLC

Final Report to the Pennsylvania House of Representatives Transportation Committee xiii Accepted October 4, 2006 EXECUTIVE SUMMARY

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Final Report to the Pennsylvania House of Representatives Transportation Committee xiv Accepted October 4, 2006 INTRODUCTION

1.0 INTRODUCTION

On December 14, 2005, the Pennsylvania House of Representatives passed Resolution No. 538. The Resolution directs the House Transportation Committee to “...conduct an investigation of the Southeastern Pennsylvania Transportation Authority” (SEPTA). The Resolution more specifically “…directs the Transportation Committee to conduct an overall and inclusive investigation of the operations, administration, management, and financial operations of SEPTA.” The Resolution identifies three milestone reporting dates for the completion of: (1) a preliminary report due March 31, 2006; (2) an interim report due June 1, 2006; and a final report on or before September 30, 2006. This report is the final report.

Through deliberations with the House Transportation Committee and its SEPTA study subcommittee, the review team identified several areas of concern that were to be researched and reported on during the project period. For the initial report, the team concentrated on producing a document that would provide legislators with an overall understanding of SEPTA’s history, its legislative formation, and its subsequent modification and oversight by legislative action. The initial report included a review of SEPTA’s scope of operations and a primer on federal requirements imposed on SEPTA by federal statute.

For the intermediate report, the review team concentrated on reviewing past financial studies and audits and made recommendations on issues needing further study and analysis. Some portions of the interim and intermediate reports are included here for reader convenience.

1.1 About SEPTA Created by the Metropolitan Transportation Authorities Act of 1963, the Southeastern Pennsylvania Transportation Authority is the fifth largest public transportation system in the United States. SEPTA’s service area includes the counties of Bucks, Chester, Delaware, Montgomery, and Philadelphia, with extensions to Trenton, New Jersey, and Newark, Delaware. In all, the system encompasses 2,200 square miles, provides 300 million passenger trips annually, and employs more than 8,800 people. SEPTA operates lines including bus, subway/elevated, trackless trolley, light rail, customized community service, and regional (commuter) rail (see Appendix D for SEPTA System Route Map).

Consolidation of oversight authority began in the early 1950s when the City of Philadelphia formed the Urban Traffic and Transportation Board. The Board was charged with analyzing current and future transportation problems in the metropolitan area and with providing solutions in consultation with private providers. At the time, Philadelphia was served by a variety of private transportation companies. As was the case in many parts of the country, these private concerns were going bankrupt at an alarming rate. The private carriers that eventually became part of SEPTA were Philadelphia Transportation, the Red Arrow Line (including the Philadelphia & Western interurban line), the bus routes of the Schuylkill Valley Lines, and commuter

Final Report to the Pennsylvania House of Representatives Transportation Committee 1-1 Accepted October 4, 2006 INTRODUCTION

rail operated by the Pennsylvania and the Reading railroads. The Board went through several iterations through the 1960s and was ultimately replaced with SEPTA in 1964. SEPTA’s privately owned predecessors were absorbed over the next 20 years.

SEPTA is the nation's fifth largest transit system, providing approximately 301 million annual (unlinked) passenger trips, while operating 82.2 million total vehicle miles. Total passenger miles equal approximately 1.3 billion. SEPTA operates and maintains 2,264 revenue vehicles on 189 routes, which have approximately 1,910 route miles. SEPTA also operates and maintains an inventory of 905 assorted non-revenue vehicles and equipment, 280 active stations, and more than 450 miles of track and related facilities.

SEPTA operates bus, trolley, trackless trolley, and rapid transit routes, including the Broad Street and Market-Frankford lines. SEPTA also operates an extensive commuter rail system.

The City Transit Division operates mostly within the City of Philadelphia with route extensions into Bucks, Montgomery, and Delaware counties. City Transit Division routes serving Bucks and Montgomery counties provide convenient connections to Center City via the Broad Street Line. The majority of SEPTA City Transit Division routes operate 7 days a week, and several offer 24-hour "Owl" service.

The Suburban Transit Division serves Bucks, Chester, Delaware, and Montgomery counties. Many of the Suburban Transit Division routes provide convenient connections at 69th Street Terminal to Center City via the Market-Frankford Line, to Norristown via Route 100, to Media via Route 101, and to Sharon Hill via Route 102. The majority of SEPTA Suburban Transit Division routes operate 6 days a week, with some routes operating on Sundays.

Linking Center City to many suburban communities and employment centers are the Regional Rail routes serving Bucks, Chester, Delaware, Montgomery, and Philadelphia counties in Southeastern Pennsylvania; Newark, Wilmington, and Claymont in Delaware; and Trenton and West Trenton in New Jersey. The Route R1 Airport Line provides quick, economical service to Philadelphia International Airport every half-hour, 7 days a week.

The majority of SEPTA Regional Rail Lines operates 7 days a week, with parking available at many stations. All trains converge in Center City at three major stations: Market East (near 10th and Market Streets), Suburban Station (17th Street and JFK Boulevard), and 30th Street Station (30th and Market Streets).

In addition, SEPTA operates Shared-Ride services in the City of Philadelphia and ADA services throughout the five-county region.

Final Report to the Pennsylvania House of Representatives Transportation Committee 1-2 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

2.0 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

House Resolution No. 538 directed SEPTA to “…develop a set of objectives, the goal of which will be the implementation of major organizational and personnel changes in management.” Below are SEPTA’s objectives to achieve the goals contained in the Resolution and the review team’s assessment of SEPTA’s response. SEPTA’s responses are shown in italicized text, and the review team’s assessment is shown in normal text.

2.1 Development of Productivity Standards Based on Farebox Revenue Objective: Meet the statutory requirement to cover 50 percent of costs through revenue, including farebox revenue.

Status: SEPTA revenue has consistently covered more than 50 percent of operating expenses (an exhibit entitled “History of Operating Ratios, Fiscal Years 1994 through 2005” was included as part of SEPTA’s response). The percentage of operating expenses met by revenue has ranged from a low of 50.83 percent to a high of 58.05 percent. The sources of revenue for each year are identified (Exhibit 2, Tab 1 was included in SEPTA’s response).

In addition, SEPTA undertakes numerous activities to generate revenue through non-farebox sources. Each year, SEPTA submits a report of these activities, entitled the “Report on Alternative Means of Raising Revenue and Reducing Expenses.” (A copy of the most recent report was included as part of SEPTA’s response.)

While SEPTA has a relatively higher fare than other public transit systems in North America, it is commendable that it has managed to achieve a recovery ratio of more 50 percent for the past 12 years. This is particularly relevant given the increases in labor, health care, fuel, and other commodities costs.

The revenue farebox recovery figures included in SEPTA’s response, though, include more than just farebox revenue. The figures also include interest, route guarantees, asset maintenance, and other revenue such at transit advertising. Actual farebox revenue recovery in 2004, according the National Transit Database, was 40.9 percent. New York City Transit’s (NYCT) farebox recovery in 2004 was 58.3 percent, and the Massachusetts Bay Transportation Authority (MBTA) (Boston) and the Chicago Transit Authority (CTA) (Chicago) were both at 36.1 percent.

SEPTA’s current base cash fare of $2.00 (tokens are $1.30) was implemented in July 2001. According to SEPTA, approximately 90 percent of its passengers use some form of discounted fares such as tickets, passes, or tokens. Given the deep discounts available to passengers, the lack of a fare increase for more than 5 years,

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-1 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

and the increasing cost of driving, it is not likely that incremental future fare increases would be met with significant ridership elasticity.

SEPTA should adopt a fare and farebox recovery policy to provide a mechanism for periodic increases in passengers fares to keep pace with the increased cost of operations. The policy must include an incremental fare strategy whereby the increases are implemented on an annual or bi-annual basis. Also there should be a provision to increase the cost of tokens and passes (discounted passenger fares) to pass on the increased cost of providing the service to all passengers.

SEPTA should continue to seek cost efficiencies and other revenue enhancements; however, it will be increasingly difficult for SEPTA to continue to meet the statutory requirement that it meet 50 percent of its cost through revenue. That requirement will have to be adjusted in the future to reflect the increased cost structure of SEPTA.

Objective: Continue to develop and apply, on an annual basis, service standards that evaluate each route on a variety of factors, including but not limited to, ridership and revenue.

Status: The SEPTA Board has adopted service standards for all modes, which include minimum service productivity standards (operating cost recovery) by mode. These published standards are revised as needed (after public hearing) and include processes to evaluate service changes and review poor performing routes (those not meeting the minimum standard).

Each year, the Authority develops an Annual Service Plan (a comparison of each route and railroad station to the adopted productivity standards was included as part of the SEPTA response). Routes that fall below the minimum standard are subject to various strategies to reduce cost or increase ridership, including service adjustments (service reduction), route restructuring, consolidations, or possible discontinuance. A targeted marketing effort is undertaken before to proposing discontinuance of any route.

SEPTA’s Service Planning Department actively monitors service against the productivity standards for each of its modes. The Fiscal Year 2007 Annual Service Plan evaluates eight route projects as listed below by operating division; seven are recommended for approval.

• City Transit Division - Changes to Route 25 • Suburban Transit Division - Combining Routes 92 and 133 into new Route 92 - Rerouting Route 104 into the West Chester Transportation Center - Consolidating Routes 107 and 122 into new Route 107 - Changes to Route 99 - Changes to Route 124

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-2 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

- Changes to Route 314 • Regional Rail Division - None

While SEPTA routinely monitors route productivity to ensure that standards are met, it is sometimes difficult for route changes or terminations to be implemented due to an onerous political process. Moving forward, there needs to be greater understanding, buy-in, and support of the various jurisdictions regarding SEPTA’s service plan and process so that decisions regarding route changes can be effected in a timely fashion.

Many transit systems conduct comprehensive bus service analyses of its entire route and network system every five or more years to identify potential productivity improvements. This comprehensive approach provides for an objective look at the overall system in such areas as headways, running times, layover times, passenger on/off activity, and operational characteristics of each route. This analysis also reviews shifts of population and activity centers where there might be demand for transit services. This analysis would also address potential combining of routes. Typically, this comprehensive analysis is conducted by outside consultants with experience and expertise in service planning. This approach should be considered by SEPTA.

Objective: Undertake more detailed scrutiny of productivity factors submitted to the National Transit Database.

Status: SEPTA annually submits various productivity data to the National Transit Database in accordance with federal requirements (a sample of the data submitted to the Database was included as a part of SEPTA’s response). The factors included are frequently used to measure one transit system against other similar systems. The information included in the Database was the main source used for the Peer Group Analysis portion of the Pennsylvania-based Management Performance Review that was completed by Abrams-Cherwony & Associates in July 2004. (A copy of the Executive Summary of that review was included as part of SEPTA’s response.)

SEPTA’s overall productivity was reviewed in the Abrams-Cherwony & Associates Management Performance Review, dated July 2004. The review compared SEPTA’s performance for each of the six transit modes (based upon seven performance measures mandated by Pennsylvania Act 3 of 1997, Section 1315) to itself and against its peers:

• Operating cost per vehicle hour or per mile • Operating cost per passenger • Passengers per vehicle hour or per mile • Employees per vehicle hour or per mile • Vehicle hours or miles per peak vehicle

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-3 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

• Farebox recovery ratio • Average fleet age

According to the analysis, SEPTA fared better than its peer group average and was improving over time in the areas of cost efficiency and cost effectiveness. In the areas of overall passenger productivity, passenger productivity, and vehicle use, SEPTA needed to focus more on its overall performance.

2.2 Implementation of a More Efficient Management and Personnel Structure Objective: “Right-size” the management and administrative staff to reflect the services needed to support the current level of service operated by the system.

Status: Since Fiscal Year 1996, SEPTA has reduced its workforce from 10,472 to 8,888. The most significant cuts in staffing occurred during Fiscal Years 1996–2000. During this time, an early retirement package was offered for both administrative staff and unionized employees. During these 5 years, headcount was reduced by 1,400. Since that time, headcount has remained relatively constant. SEPTA management has made a strong effort to maintain headcount at the reduced levels. Further, the reductions in staffing were not the result of significant reductions in staffing reductions in service levels. In fact, an indicator of staff use and efficiency (vehicle revenue miles per employee) increased during this period.

SEPTA has also completed two major realignments of senior-level management responsibilities. The first, in 1997, reduced the number of senior managers reporting to the General Manager from 20 to 11. The second, in 2002, further reduced that number to nine and included significant redesign in risk management and business service functions.

In the past 5 years, the Operations Division has undergone several reorganizations to eliminate layering of management and effectively consolidate functions across operational modes. Also in the past 5 years, SEPTA has invested capital funds in the introduction of new technologies (e.g., the Operations Control Center and Bus Vehicle Maintenance information systems), that have allowed the permanent elimination of operating budget heads. Reductions in personnel were done despite no-layoff clauses in labor agreements and the onerous bumping provisions in our Enabling Statute.

In its 2006 “Report on Alternative Means of Raising Revenue and Reducing Expenses,” SEPTA reports that its current actual headcount is 15.8 percent less than the 1996 actual headcount. This reduction has been achieved through the elimination of some positions and the consolidation of some job functions.

Figure 2-1 shows vehicle revenue miles per employee from 1996 to 2006, and reflects a positive trend each year.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-4 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

Figure 2-1. Vehicle Revenue Miles per Employee from FY 1996 to 2006

Vehicle Revenue Miles Per Employee 1996 - 2006

10,000 9,000 9,201 9,314 8,000

e 8,415 8,067 8,304 7,000 7,988 7,897 7,420 6,000 6,881 6,889 6,436 5,000 4,000 3,000 Vehicle Mil Revenue 2,000 1,000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

In terms of actual headcount from 1996 to 2006, the number of employees was reduced significantly from 1996 to 1999, and has remained relatively flat since 2000.

Figure 2-2. Number of Employees between FY 1996 and 2006

Actual Headcount 1996 - 2006

11,000 10,472 10,500

10,000 9,797 9,439 9,500 9,259 9,137 9,162 9,113 9,031 8,987 8,959 9,000 8,888

8,500

8,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-5 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

SEPTA should continue to review possible headcount reductions. One area in which there may be reductions is in the fare collection function. Any reductions would evolve over time and would be tied to SEPTA modernization of its fare collection system.

SEPTA should also investigate the level of administrative and clerical personnel within the organization to determine whether there are further efficiencies. The bumping provision has impacted the organization’s ability to lay off non-union employees. Under the bumping provision, SEPTA cannot lay off employees until the completion of a lengthy, complex, and costly process that is based on seniority rather than on merit, position, or continued need. Elimination of the bumping provisions would allow SEPTA to facilitate its “right-sizing” efforts.

2.3 Provision for an Annual and Biennial Performance Audit Objective: To regularize SEPTA’s audit schedule so that it provides for an annual performance audit.

Status: SEPTA currently engages an independent auditor to perform an annual financial audit. In addition, SEPTA is required by Act 3 of 1997 to commission a thorough performance evaluation and functional area review every 5 years. The Federal Transit Program requires a Triennial Review, conducted by a consultant selected and hired by the Federal Transit Administration (FTA).

SEPTA is also subject to multiple specialized audits/reviews. (A list of the audits/reviews of SEPTA conducted by outside parties during the past 2 years, exclusive of the annual financial audits, was in a document included as part of SEPTA’s response.)

SEPTA is required to produce reports on a variety of activities and performance measures that reflect compliance with Pennsylvania statutory requirements. Such reports include, among others, the Annual State Report on Alternative Means of Raising Revenue and Reducing Expenses.

Finally, SEPTA regularly submits a substantial amount of data to PennDOT. (Exhibits identifying the data reported to PennDOT were included as part of SEPTA’s response.) Reports submitted to PennDOT include:

• Annual submission of Service Standards. • General Accounting reports submitted to comply with Free Transit Program requirements. • General Accounting reports submitted under provisions of the Urban Transit Operating Assistance Program. • Data as required for SEPTA’s Customized Community Transportation Division.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-6 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

In addition to any audits conducted, there is a substantial amount of data regularly available to the State.

The number of audits and reviews of SEPTA is excessive and requires SEPTA’s management to devote an inordinate amount of time to accommodate them. It is recommended that future audits and performance reviews be limited and that the performance criteria by which SEPTA is reviewed be standardized and that SEPTA organize this essential information so that it is readily available. It would be likely be helpful for SEPTA to engage its outside stakeholders and form a more comprehensive strategic vision. This vision would lead to the development of performance measures that meet internal and external expectations. The measurement of these consensus-based performance measures would, to a great extent, mitigate the need for excessive audits. SEPTA cannot define its own interest in a vacuum until it understands the reality that audits will continue until further notice.

2.4 The Use of Private Sector Contracts for Goods and Services Through Competitive Bidding Objective: To assure that SEPTA procurement procedures and practices comply with all federal and state requirements for competitive procurement.

Status: SEPTA regularly reviews and updates its procurement procedures and practices to assure that they comply with federal and state statutes and regulations. (A copy of SEPTA’s procurement manual was submitted as part of SEPTA’s response.)

We have reviewed procurement practices and procedures and find they are in compliance with generally accepted government/transit procurement guidelines.

Objective: To use competitive contracting practices to obtain the best products and services at the best prices possible.

Status: SEPTA currently uses the competitive procurement methods authorized by the FTA, PennDOT, the portions of the State Procurement Code that apply to SEPTA, its enabling statute, and the Board of Directors-adopted procurement procedures. SEPTA annually contracts for more than $175 million in outside goods and services, through its operating budget. In addition, SEPTA contracts for more than $200 million of services through its capital budget.

In terms of competitive contracting for transit operating services, SEPTA currently contracts for paratransit operations for its ADA and senior paratransit services. When new services are established on other modes, SEPTA seeks competitive proposals from outside sources. Where an outside contractor can provide the service more cost effectively, the operation is awarded to that contractor. Currently, two fixed routes are operated by private companies. Existing services have been deemed, by at least one arbitrator, to “belong” to unionized employees. This obviously hampers the ability to outsource existing service lines.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-7 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

During Fiscal Year 2006, SEPTA reported $197,948,000 in third-party contracted services (See Table 2-1)

Table 2-1. Third-Party Contracting by Category

Contract Service Amount ADA/Paratransit Program $ 20,840,000 Advertising 2,014,000 Audit and Banking Fees 840,000 Consulting Fees 671,000 Contract Repairs and Services 6,146,000 Contracted Routes 175,000 Facility Management 4,438,000 Healthcare 85,451,000 Janitorial/Custodial 3,676,000 Legal Fees/Expert Witnesses 9,534,000 Outside Printing 798,000 Outside Vehicle Maintenance 2,966,000 Pass Purchase Contract 829,000 Prescriptions 32,437,000 Shared Ride Program 18,119,000 Snow Removal 1,000,000 Software Maintenance 1,797,000 Ticket Vending 6,217,000

In terms of other services that SEPTA might outsource, it is questionable whether outsourcing of transit services would result in cost savings. For bus services, as an example, private contractors would have to compete with SEPTA’s wage rates. SEPTA has had challenges in hiring drivers at its beginning wage rates. Because labor represents such a large percentage of the cost of operation, successful contractors would have to hire drivers below SEPTA’s wage rates in order to be competitive.

SEPTA Rail and Bus Engineering and Maintenance units make extensive use of outsider contractors to perform equipment overhauls and related services. Approximately $6 million worth of services will be purchased in 2006. A highly structured evaluation process is used to determine the cost effectiveness of performing equipment overhaul tasks either in-house or through outsourcing. This issue is more thoroughly discussed in Chapter 5.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-8 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

An area that SEPTA should investigate for possible savings through outsourcing is its fare collection function.

2.5 The Modernization of Scheduling So That It Better Takes Into Account Levels of Ridership and Efficiencies in Operation Objective: Review adopted Service Standards and schedule development processes to determine whether there are additional factors that would contribute to SEPTA’s ability to address ridership and operational efficiencies in the development of transit schedules.

Status: SEPTA constantly monitors service needs on all bus routes by using on- street supervisors and traffic checkers. Route schedules and service frequencies are dictated either by demand (peak loading) or by policy (service frequency minimums). The adopted Service Standards dictate a maximum loading standard, minimum service level for peak and off-peak times, and hours of service for various route types (City or Suburban).

To further improve service and schedule adherence, SEPTA is in the process of installing a global positioning system (GPS) automatic vehicle location system. Already, the data collected has been used to precisely adjust running times by time of day and day of the week, with the result being improved on-time performance and public timetable adherence. A special Route Schedule Adherence Committee meets weekly on this effort.

With the newfound ability to automatically measure on-time performance for all trips on all routes, and to adjust bus schedules to average conditions, SEPTA will be proposing on-time performance standards for bus routes in its Fiscal Year 2007 Annual Service Plan, now being formulated.

SEPTA’s Service Planning Department routinely monitors routes to determine whether they meet its productivity standards, and Department staff takes appropriate action to improve those routes that operate below those standards. As recommended previously, SEPTA should undertake a comprehensive service analysis to review the entire route and schedule network.

In terms of technology used to assist in scheduling, SEPTA has used the Trapeze™ system for 14 years, replacing the various spreadsheet applications and the more traditional paper and pencil approaches to the development of runs and schedules. Trapeze™ is comprised of software for automated scheduling, run cutting, and rostering of transit service. It assists the schedulemaker in building and designing efficient transit service schedules for principally bus but also rail modes and in producing specific routes and statistics. Trapeze™ also has a “blockbuster” add-on program that assists the schedulemaker in creating optimal blocking of service into operator runs, for the most efficient driver and vehicle use.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-9 Accepted October 4, 2006 REVIEW OF SEPTA’S RESPONSE TO HOUSE RESOLUTION NO. 538 REQUEST

SEPTA’s comparison of the difference of the fall schedule pay hours between 1991 (when Trapeze™ was procured and first used) translates to $1.8 million in savings for this schedule (with wage rate growth excluded from the calculation). Expanding and adjusting this figure to include for the summer and spring schedules generates annualized savings of $5.2 million. In addition, the Trapeze™ software has enabled the Service Planning Department to produce transit schedules with four fewer schedulemakers and one less clerk than generated schedule reports and statistics. With the elimination of the five positions in Fiscal Year 1996, it is estimated that the savings over 10 years equals $3.2 million.

Final Report to the Pennsylvania House of Representatives Transportation Committee 2-10 Accepted October 4, 2006 FINANCIAL REVIEW

3.0 FINANCIAL REVIEW

The financial review consisted of identifying and gathering recent SEPTA financial reports and other key documents and applying certain procedures and best practices to provide an understanding of SEPTA’s financial reports, trends, environment, organizational structure, and operating and financial systems.

Financial reports and other supporting documents reviewed for the financial review were provided by SEPTA. An independent certified public accounting firm has audited all of SEPTA’s financial statements for all years, with the exception of Fiscal Years 2006 and 2007. Information for Fiscal Years 2006 and 2007 was obtained from SEPTA’s operating budgets. The financial information provided to the review team was not audited for accuracy.

All information used to prepare the Peer Group Analysis was derived from the National Transit Database, which is the FTA’s primary national database center. The most recent information available from the Database is for Fiscal Year 2004. It should be noted that some discrepancies exist between the financial information provided by SEPTA and the information obtained from the Database. SEPTA’s financial staff has provided a reconciliation between their financial data and that obtained from the Database. Where applicable, theses discrepancies are disclosed.

3.1 SEPTA’s Environment, Organizational Structure, and Operating and Financial Systems

3.1.1 Prior Financial Statements, Budgets, Audits, Management Reports, and Letters SEPTA prepares annual financial statements, detailed budgets, projections, and monthly financial reports for both its operating and capital funds. Annually, it is subjected to a governmental audit performed by an independent certified public accounting firm. Recently, SEPTA was subjected to a number of other audits, reviews, and studies performed by independent certified public accountants and consultants. The FTA performed one such review in January 2005. This review concluded that SEPTA maintained an effective management system to meet criteria established by the Administration for grantee financial management systems. Abrams-Cherwony & Associates, in association with Mundle & Associates, Inc., performed another significant management study in 2004 entitled “Management Performance Review of SEPTA.”

3.1.2 Organizational and Management Structure SEPTA has a very structured organizational and financial system, reporting up to the General Manager. Its systems and divisions are well organized and documented in its annual budgets. An outline of SEPTA’s organization and management structure is as follows:

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-1 Accepted October 4, 2006 FINANCIAL REVIEW

• A Board of Directors, consisting of 15 directors, provides overall governance of SEPTA. The Board of Directors is comprised of two members from each of the five counties served by SEPTA (Philadelphia, Bucks, Chester, Delaware, and Montgomery), one Governor appointee, and two each from the Pennsylvania Senate and the House of Representatives. The primary responsibilities of the Board of Directors are determining, articulating, and advancing SEPTA’s mission, goals, and objectives and ensuring that the legal and financial integrity of SEPTA is maintained. • The General Manager is appointed by and reports to the SEPTA Board of Directors. The General Manager is the chief executive officer responsible for the general management of all SEPTA services and operations. The General Manager, along with the Board, provides the leadership and direction to approximately 9,000 SEPTA employees. • Division leaders, who report to the General Manager, manage and direct the daily functions of SEPTA. The operating and staff departments exist in a matrix structure consisting of: - Corporate Staff - Operations Division - Audit and Investigative Services Division - Business Services Division - Capital Design and Construction Division - Finance Division - Human Resources Division - Legal Division - Public and Government Affairs Division - Public and Operational Safety Division

3.1.3 Overview of SEPTA Operating Divisions and Systems of SEPTA SEPTA’s operating divisions consist of the following:

• City Transit Division. Primarily serves the City of Philadelphia, operating 126 bus routes, 6 light rail lines, and 2 elevated subway lines. • Victory Division. Serves Chester, Delaware, and Montgomery counties, operating 22 bus routes and 3 light rail lines. • Frontier Division. Serves Bucks and Montgomery counties, operating 19 bus routes. • Regional Rail Division. Serves the City of Philadelphia, as well as Bucks, Chester, Delaware, and Montgomery counties, with service to Newark, Delaware, and Trenton and West Trenton, New Jersey.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-2 Accepted October 4, 2006 FINANCIAL REVIEW

3.2 Financial Review of SEPTA

3.2.1 General Financial Systems and Processes SEPTA’s Finance Division is headed by its Treasurer/Chief Financial Officer. The departments within the division are Accounting; Budgets; Operational Analysis; Revenue Operations; Revenue, Ridership, Marketing, and Sales; and Service Planning. Table 3-1 summarizes the functions and key activities of SEPTA’s Finance Division.

Table 3-1. Finance Division Functions and Activities

Department Functions/Activities

Accounting Prepares financial reporting and maintains the general ledger accounting system. Budgets Manages the operating and capital budget process, monitors financial performance, and serves as the primary unit for capital funding agreements. Operational Analysis Performs analysis to improve productivity and efficiencies. Revenue Operations Manages the control, compliance, and audit of the collection process, including oversight of fare collection system maintenance revenue collections, transporting, processing, and deposit. Revenue, Ridership, Monitors and reports passenger and non-passenger revenues Marketing, and Sales and assesses opportunities for ridership growth, long-term strategic marketing initiatives, and business development tactics. Service Planning Monitors existing service use and develops updated schedules based on the use of service planning standards.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-3 Accepted October 4, 2006 FINANCIAL REVIEW

The Audit and Investigation Services Division consists of Internal Audit, Contract Audit, and Inspector General Investigations. Table 3-2 summarizes the functions and activities of SEPTA’s Audit and Investigation Services Division.

Table 3-2. Audit and Investigation Services Division Functions and Activities

Department Functions/Activities Internal Audit Conducts independent reviews of SEPTA functions for general compliance with appropriate standards or as prompted by the independent reviews of a specific activity or issue. Contract Audit Audits and/or reviews third-party cost data in accordance with SEPTA, Commonwealth, and federal requirements. Inspector General Conducts independent investigations to detect and deter Investigations waste, fraud, abuse, and mismanagement.

The finance personnel interviewed were extremely knowledgeable about the operations, revenue, funding, and cost issues, as well as limitations imposed upon SEPTA from laws and regulations, funding sources, and other influences. SEPTA’s independent auditors expressed to the review team that they have a high degree of confidence in SEPTA’s financial systems and personnel.

3.2.2 Internal Financial Reporting System SEPTA’s annual financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America as applied to government units. Revenues are recognized in the period in which they are earned, and expenses recognized when incurred.

SEPTA’s budget is prepared on a fiscal year basis, beginning July 1 and ending June 30 of each year.

The Fiscal Year 2007 Operating Budget Proposal recommends a SEPTA operating budget of $991 million. This budget represents an increase of $39.2 million over the previous fiscal year. The budget reflects cost escalations in wages, diesel fuel, materials and services, and health care projected expenses; all other expense areas are projected to remain essentially at Fiscal Year 2006 levels. The budget reports are comprehensive, and for Fiscal Year 2006, SEPTA received the “Distinguished Budget Presentation Award” from the Government Finance Officer Association.

Before the addition of the Flexible Highway Funds, SEPTA’s initial Fiscal Year 2007 budget shortfall was projected to be $72.4 million. This shortfall has been reduced by $22.1 million due to financial relief from the Governor and by SEPTA’s internal cost reduction efforts. The proposed shortfall is projected at $50.3 million.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-4 Accepted October 4, 2006 FINANCIAL REVIEW

By continuing to realize internal efficiencies, SEPTA has achieved considerable success in mitigating past, present, and future total budget shortfalls. Unfortunately, despite SEPTA’s admirable efforts at achieving internal efficiencies, the remaining budget shortfall presents a significant fiscal challenge that SEPTA and all other Commonwealth transit agencies struggle to resolve.

SEPTA’s executive staff and financial officers have been consistent in their position that the only reasonable solution to SEPTA’s projected budget deficit is a dedicated funding source that meets future funding needs.

3.2.3 Operating Standards and Performance Evaluation Measures SEPTA’s multimodal transit services are developed and maintained based upon the use of operating standards. These standards are common to all major transit authorities and represent the policy criteria used to determine the type, frequency, duration, model distinctiveness, and other critical performance criteria. Transit programs are then developed to provide the primary transportation, maintenance, administrative, engineering, and miscellaneous oversight functions required to develop and sustain these policy-derived levels of service. To define and manage each of these support-critical elements, objective measures of performance are defined.

Performance measures are developed in association with these critical elements of support. SEPTA has developed a comprehensive system of performance measures that respond to their need to manage (measure and respond) critical program elements and to be able to respond accordingly to external interests that may be interested in some or all of SEPTA’s critical support systems.

The Authority maintains a wide variety of data to monitor both service and the overall performance of various aspects of the operation. Route utilization, staffing ratios, and productivity measures (all as presented below) are a few of the operating standards and performance evaluation measures used by SEPTA.

Route Utilization

Route utilization is a measure of service performance on a route-by-route basis. The standards adopted by SEPTA are used for City, Suburban, and Railroad Divisions, and are summarized below.

Each route is measured for three key criteria:

• Fully Allocated Cost: (vehicle hours x unit cost) + (vehicle miles x unit cost) + (peak vehicles x fully allocated unit cost) • Total Passenger Revenue: (calculated at City Transit Division average fare) – [(passenger revenue) + (senior citizen reimbursement and special subsidies)] • Operating Ratio: (passenger revenue divided by fully allocated cost)

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-5 Accepted October 4, 2006 FINANCIAL REVIEW

If a route performs below 60 percent of the Division’s average route operating ratio, corrective action is initiated.

Staffing Ratios

Staffing ratios are one measure of employee effectiveness. These measures are influenced by types and modes of service operated, the amount of work handled by outside contractors, local environment, and operating conditions, area served, condition of the physical plant, and vehicles used.

The following two staffing ratios are used to measure employee effectiveness:

• Vehicles Per Mechanic: Performance measures are established by vehicle type reflecting the varying fleet size, complexity, and condition of Authority vehicles. This measure does not include mechanics scheduled to work in SEPTA’s Vehicle Overhaul Program. • Operating Employees Ratio to Administrative Employees: Operating employees include all employees in the Operations Division and employees involved in Sales Distribution, Operations Trainers, the Public and Operational Safety Division, and Customer Service Agents in the Business Services Division.

Productivity Measures

Productivity measures are used to monitor impacts and efficiency of operating performance. Factors such as area roadways, traffic congestion, terrain, local traffic engineering, and enforcement heavily influence system operating speed and productivity.

The following four productivity indicators are examples of measures used by SEPTA:

• Vehicle miles per employee • Passenger miles per employee • Passenger accidents • Employee accidents

3.2.4 Procurement System, Policies, and Procedures SEPTA’s Procurement Manual (revised April 2004), which details its procurement policies and procedures, was compared to federal guidelines provided by the FTA. Based on the review team’s study and inquiries, SEPTA’s procurement policies are in line with federal guidelines. SEPTA also follows the Administration’s “best practices” principles to ensure compliance with federal, state, and local guidelines.

Purchase of Electrical Power

Amtrak currently supplies traction power (approximately $8 million/8 cents per kilowatt-hour) to SEPTA under a long-term contract, scheduled to expire in 2011.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-6 Accepted October 4, 2006 FINANCIAL REVIEW

SEPTA has conducted recent studies to review and implement practical ways to reduce the use of electrical power. Additional power ($21 million) is purchased directly from the local utility. The review team recommends that SEPTA continue these efforts and establish a committee comprised of finance, capital engineering, facilities, and rail engineering and maintenance personnel. The committee should consolidate efforts to conduct energy inventories and research methods to reduce the use of power, including programmed line shutdowns. Past SEPTA efforts did result in savings, and future efforts should continue this trend. Excellent industry best practice references are available and SEPTA should make a concerted effort to participate in industry panels that are pursuing similar goals.

Diesel Fuel Purchases

SEPTA uses approximately 15 million gallons of diesel fuel per year. The SEPTA finance department noted that fuel has historically been purchased with long-term hedging contracts. The last contract expired 2 years ago. The cost at that time was 47 cents per gallon. The current cost is approximately $2.47 per gallon. The impact of this additional $2.00 equates to $30 million annually. The review team recommends that SEPTA continue to research new and creative methods to purchase discounted diesel fuel. Each penny in price reduction in the average annual price of fuel is worth $150,000 to SEPTA. The federal government has mandated that by December 2006 only ultra-low sulfur diesel fuel be used. This new requirement may initially impact availability and thus the price of diesel fuel. Supplies should even-off during the spring of 2007.

Amtrak Trackage Charges

SEPTA pays Amtrak for the temporary use of its right of way. Amtrak has recently announced significant increases in these trackage charges. SEPTA finance managers indicated concern regarding the origins of these increases in trackage fees. The review team recommends that SEPTA seek assistance from state and federal representatives to make the case that Amtrak should not raise trackage fees without appropriate justification.

(SEPTA’s Procurement System is described in Chapter 8 of this report.)

3.2.5 Prior Audit Reports and Interview of Outside Auditor SEPTA engaged the accounting firm of Zelenkofske Axelrod, LLC (ZA) as its independent audit firm for the fiscal year ended June 30, 2005. Before that, SEPTA used the services of KPMG, LLP. The team reviewed the following reports prepared by ZA:

• Financial Statements for June 30, 2004, and June 30, 2005 • Single Audit Report for June 30, 2005 • Special-Purpose Statements of Operations of the City Transit Division for June 30, 2004, and June 30, 2005

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-7 Accepted October 4, 2006 FINANCIAL REVIEW

• Urban Grant Final Report for June 30, 2005 • National Transit Database Report for June 30, 2005

ZA’s management letter to SEPTA included comments describing certain matters that it believed were opportunities for strengthening SEPTA’s internal controls and operating efficiencies.

Nine comments were issued, including ZA’s recommendations for improvement. These comments were discussed with ZA’s senior engagement personnel on July 20, 2006. Results of that discussion are summarized below.

• SEPTA’s Audit Committee holds regularly scheduled meetings approximately quarterly. ZA attends these meetings and feels that the audit committee takes its role seriously. According to ZA, the Audit Committee has assigned appropriate staff to follow up on and track the progress of all significant issues identified in the management letter. Significant evidence of follow up and accountability for results was observed. ZA will evaluate the adequacy of SEPTA’s response to each item of comment during the planning phase of their June 30, 2006, audit. • ZA indicated that no significant audit adjustments were proposed during its June 30, 2005 audit and that its overall confidence in information provided by SEPTA was high. ZA account executives felt that the management of the Finance and Accounting staff demonstrated a high level of technical acumen and subject matter knowledge. • According to ZA, its management letter comments were intended to lean more toward improving efficiency rather than identifying internal control weaknesses. • One key issue became apparent in the review team’s discussions with the ZA auditors: none of the five trusted, single-employer-defined benefit pension plans covering the majority of SEPTA’s full-time employees (with the exception of the regional rail union employees) had an annual independent financial audit. Though not required, ZA recommended that these plans be audited annually to ensure compliance with the plan’s provisions and the SEPTA Pension Committee’s duty to fulfill its fiduciary responsibilities. (ZA noted that at the Audit Committee meeting held on July 20, 2006, the Pension Committee of the Board asked that a Request for Proposal be prepared to solicit proposals from qualified firms to conduct annual audits.)

3.3 Analytical Review and Trend Analysis

3.3.1 Financial Trends This section summarizes SEPTA’s historical, current, and projected financial trends. The information presented was derived from financial documents provided by SEPTA, including budget reports, financial statements, and general ledger detail. The review team prepared schedules summarizing operating revenues and operating subsidies, and compared them to total expenses for Fiscal Years 2003 through 2007. The information provided for Fiscal Years 2003 through 2005 are actual numbers,

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-8 Accepted October 4, 2006 FINANCIAL REVIEW

while Fiscal Years 2006 and 2007 are budgeted amounts. The Fiscal Year 2007 document is a proposed budget that currently reflects a $50.3 million deficit.

As shown in Table 3-3, during the period 2008 through 2012, operating revenues and operating subsidies are projected to increase less than 1 percent annually, while overall expenses are expected to increase at an annual average rate of 4 percent.

This resulting disparity between overall revenues and expenses will produce an estimated cumulative deficit of $1.2 billion over the period.

Table 3-3. Operating Revenues and Subsidies Less Total Expenses Fiscal Years 2003 - 2012

Total Total Less Total Surplus/ Amounts (S000) Operating Operating Expenses ($) (Deficit) ($) Revenue ($) Subsidy ($) 2003 (Actual) 416,690 426,656 (843,064) 282 2004 (Actual) 420,476 447,476 (867,752) 200 2005 (Actual) 420,183 503,662 (923,369) 476 2006 (Unaudited) 426,481 507,676 (933,905) 252 2007 (Budgeted) 427,460 513,255 (991,024) (50,309) 2008 (Projected) 431,668 454,225 (1,036,079) (150,186) 2009 (Projected) 435,918 456,447 (1,083,640) (191,275) 2010 (Projected) 440,211 458,285 (1,134,824) (236,328) 2011 (Projected) 444,547 460,151 (1,190,019) (285,321) 2012 (Projected) 448,926 461,493 (1,249,716) (339,297) Source: Fiscal Years 2005 and 2007 Operating Budgets

The information in this section was derived from SEPTA’s Fiscal Year 2007 Operating Budget Proposal, Fiscal Years 2008 to 2012 Financial Projections, and the additional analysis (“Management Performance Review of SEPTA”) performed by Abrams-Cherwony & Associates. The information on Internal Control over Financial Reporting, Compliance, and Other Matters is based on an audit of financial statements performed by Zelenkofske Axelrod, LLC, dated October 27, 2005.

3.3.2 Peer Group Trends and Benchmarking Included in the following analysis is information obtained from SEPTA’s National Transit Database Report for the Fiscal Year ended June 30, 2005. This information is presented to show trends based on the benchmarking analysis. The following transit authorities were selected for peer group analysis:

• MBTA, Boston, Massachusetts • CTA, Chicago, Illinois • Northeast Illinois Regional Commuter Railroad Corporation (Metra), Chicago, Illinois

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-9 Accepted October 4, 2006 FINANCIAL REVIEW

• New Jersey Transit Corporation (NJ Transit), Newark, New Jersey • MTA NYCT, Brooklyn, New York • Port Authority, Port Authority of Allegheny County (Port Authority), Pittsburgh, Pennsylvania • Washington Metropolitan Area Transit Authority (WMATA), Washington, D.C.

The peer agencies were selected based upon their relative operating and fiscal characteristics, including populations’ served and fleet size and make-up, as detailed below.

• (B) Bus • (HR) Heavy rail, (includes subway and elevated lines) • (CR) Commuter rail • (LR) Light rail (includes trolley lines) • (DR) Demand response

Table 3-4. A Summary of Peer Modal Operations Name Population VOMS * B HR CR LR DR SEPTA 5,149,079 2,224 X X X X X MBTA 4,032,484 2,161 X X X X X CTA 8,307,904 3,812 X X X Metra 8,307,904 1,003 X NJ 17,799,861 3,221 X X X X NYCT 17,799,861 9,551 X X X Port Authority 1,753,136 1,056 X X X WMATA 3,933,920 2,221 X X X * Vehicles Operated in Maximum Service Source: 2004 National Transit Database

Throughout the process of preparing the data and analysis presented in this section, the following issues were noted:

• National Transportation Database data provides general data comparisons; however, due to a number of factors including local definitions, differing statistical and accounting processes, and some incomplete and/or inconsistent data, the overall results should be used with caution. • The fare revenues shown in Table 3-12 for Metra (Chicago), NYCT (New York City), and Port Authority (Pittsburgh) are higher than the sum of the fare revenues shown in Tables 3-5 through 3-9 for the same agencies. The data indicates that the fare revenues shown in Tables 3-5 through 3-9 do not include data for purchased transportation services, while the fare revenue shown in Table 3-9 does include data for purchased transportation services.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-10 Accepted October 4, 2006 FINANCIAL REVIEW

• The total state funds presented in Table 3-14 do not agree with the state funds presented in Table 3-11 for CTA (Chicago), NJ Transit (New Jersey), and Port Authority (Pittsburgh). The data does not provide a breakdown of the “dedicated and other” state funds for these agencies. • The total local funds shown in Tables 3-1 through 3-15 do not agree with the local funds shown in Table 3-15 for the Port Authority of Allegheny County (Pittsburgh). The data does not provide a breakdown of the “dedicated and other” local funds for this agency. • The operating expenses shown in Tables 3-1 through 3-15 for NJ Transit (New Jersey), NYCT (New York City), and Port Authority of Allegheny County (Pittsburgh) are higher than the sum of the operating expenses shown in Tables 3-1 through 3-6 for the same agencies. The data indicates that the operating expenses shown in Tables 3-1 through 3-6 do not include data for purchased transportation services, while the operating expenses shown in Tables 3-1 through 3-15 do include data for purchased transportation services.

Overall Peer Comparisons

A review of the National Transit Database indicates the following:

• SEPTA’s farebox recovery ratio for bus (36.9 percent), commuter rail (47.2 percent), and demand response (11.9 percent) services are equivalent to or exceed the peer group average calculated for comparable modes. • SEPTA’s overall farebox recovery ratio exceeds its only peer comparison (Boston) by almost 5 percent. • SEPTA’s farebox recovery ratio for heavy rail (57.5 percent) and light rail (32.1 percent) are below the peer group average calculated for these modes. • With the exception of its demand response service, SEPTA’s farebox recovery ratio has understandably declined from 2004 to 2005. • SEPTA directly generates 42 percent of its operating funds, as compared to a peer group average of 53.9 percent, is significantly lower than New York City (66.8 percent) and Washington, D.C. (57.7 percent), as indicated in Table 3-8.

RATIO ANALYSIS

The farebox recovery ratio represents the percentage of operating expenses covered by fare revenues. The following tables summarize farebox recovery ratios by mode.

Table 3-10 shows the farebox recovery ratio for all modes for the MBTA (Boston) and SEPTA. MTBA and SEPTA are the only transit agencies in the peer group that operate all modes, including bus, heavy rail, commuter rail, light rail, and demand response.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-11 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-5. Comparison of Bus Farebox Recovery Farebox Fare Operating Agency/Location Recovery Revenues ($) Expenses ($) (%) NYCT New York City 705,568,868 1,678,850,900 42.0 NJ TRANSIT New Jersey 241,946,175 585,595,150 41.3 SEPTA Philadelphia 147,710,223 400,670,078 36.9 CTA Chicago 238,085,884 669,763,133 35.5 Port Authority Pittsburgh 56,352,308 219,056,516 25.7 WMATA Washington, DC 96,633,174 395,725,481 24.4 MBTA Boston 56,132,129 248,207,794 22.6 Peer Group Average 220,346,966 599,695,579 36.7 SEPTA 2005 NTD Report 147,355,348 432,281,891 34.1 Source: 2004 National Transit Database

Table 3-6. Comparison of Heavy Rail Farebox Recovery Farebox Fare Operating Agency/Location Recovery Revenues ($) Expenses ($) (%) NYCT New York City 1,837,633,011 2,537,639,748 72.4 WMATA Washington, DC 322,272,047 525,516,163 61.3 SEPTA Philadelphia 72,039,379 125,380,076 57.5 MBTA Boston 96,684,267 214,246,802 45.1 CTA Chicago 163,147,354 399,863,818 40.8 Peer Group Average 498,355,212 760,529,321 65.5 SEPTA 2005 NTD Report 72,423,846 138,855,398 52.2 Source: 2004 National Transit Database

Table 3-7. Comparison of Commuter Rail Farebox Recovery Farebox Fare Operating Agency/Location Recovery Revenues ($) Expenses ($) (%) SEPTA Philadelphia 87,894,381 186,242,753 47.2 NJ Transit New Jersey 287,844,512 621,584,871 46.3 Metra Chicago 191,762,241 439,438,126 43.6 MBTA Boston 89,083,486 217,279,023 41.0 Peer Group Average 164,146,155 366,136,193 44.8 SEPTA 2005 NTD Report 90,814,743 193,977,721 46.8 Source: 2004 National Transit Database

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-12 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-8. Comparison of Light Rail Farebox Recovery Farebox Fare Operating Agency/Location Recovery Revenues ($) Expenses ($) (%) MBTA Boston 52,704,769 107,081,950 49.2 SEPTA Philadelphia 14,787,752 46,088,287 32.1 Port Authority Pittsburgh 5,818,124 35,589,571 16.3 NJ Transit New Jersey 8,924,712 54,713,647 16.3 Peer Group Average 20,558,839 60,868,364 33.8 SEPTA 2005 NTD Report 14,943,610 47,721,204 31.3 Source: 2004 National Transit Database

Table 3-9. Comparison of Demand Response Farebox Recovery Farebox Fare Operating Recovery Agency/Location Revenues ($) Expenses ($) (%) SEPTA Philadelphia 5,031,613 42,442,503 11.9 WMATA Washington, DC 2,364,808 37,846,133 6.2 CTA Chicago 2,682,102 50,403,841 5.3 MBTA Boston 1,800,172 34,606,516 5.2 NYCT New York City 3,318,290 82,597,798 4.0 NJ Transit New Jersey 939,781 36,218,852 2.6 Peer Group Average 2,689,461 47,352,607 5.7 SEPTA 2005 NTD Report 5,229,002 43,322,681 12.1 Source: 2004 National Transit Database

Table 3-10. Comparison of Farebox Recovery for All Modes Farebox Fare Operating Agency/Location Recovery Revenues ($) Expenses ($) (%) SEPTA Philadelphia 327,463,348 800,823,697 40.9 MBTA Boston 303,544,254 841,426,954 36.1 Peer Group Average 315,503,801 821,125,326 38.4 SEPTA 2005 NTD Report 330,766,549 856,158,895 38.6 Source: 2004 National Transit Database

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-13 Accepted October 4, 2006 FINANCIAL REVIEW

Operating funds include directly generated funds and federal, state, and local operating subsidies, as shown in Table 3-11.

Table 3-11. Comparison of Operating Funds (000) Directly Generated Agency Federal Funds State Funds Local Funds Total Funds NYCT $ 2,978,860 66.8% $ - 0.0% $ 902,507 20.2% $ 575,958 12.9% $ 4,457,325 WMATA $ 614,335 57.7% $ 18,500 1.7% $ 198,492 18.7% $ 232,677 21.9% $ 1,064,004 Metra $ 241,822 51.9% $ - 0.0% $ 2,959 0.6% $ 221,431 47.5% $ 466,212 CTA $ 437,111 46.6% $ 21,972 2.3% $ 206,931 22.1% $ 272,319 29.0% $ 938,333 NJ Transit $ 640,215 44.1% $ 325,697 22.4% $ 476,303 32.8% $ 9,262 0.6% $ 1,451,477 SEPTA $ 356,197 42.0% $ 56,200 6.6% $ 369,618 43.6% $ 65,649 7.7% $ 847,664 MBTA $ 365,365 34.3% $ 433 0.0% $ 582,387 54.6% $ 118,209 11.1% $ 1,066,394 Port Authority $ 71,821 24.9% $ 38,259 13.2% $ 151,489 52.4% $ 27,440 9.5% $ 289,009 Peer Group Average $ 713,216 53.9% $ 57,633 4.4% $ 361,336 27.3% $ 190,368 14.4% $ 1,322,552 SEPTA 2005 NTD Report $ 356,487 39.5% $ 83,700 9.3% $ 392,446 43.5% $ 70,134 7.8% $ 902,767 Source: 2004 National Transit Database

Directly generated funds are comprised of fare revenues, other revenues that include park-and-ride revenues, other transportation revenues, auxiliary transportation revenues (concessions, advertising, and other), non-transportation revenues, and other directly generated funds, as shown in Tables 3-12 through 3-15.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-14 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-12. Comparison of Directly Generated Funds (000) Purchased Agency Fare Revenues Other Revenues Transportation Total Agreement Port Authority $ 70,192 97.7% $ 1,629 2.3% $ - 0.0% $ 71,821 CTA $ 403,915 92.4% $ 33,196 7.6% $ - 0.0% $ 437,111 SEPTA $ 327,463 91.9% $ 27,438 7.7% $ 1,296 0.4% $ 356,197 NYCT $ 2,548,966 85.6% $ 429,894 14.4% $ - 0.0% $ 2,978,860 NJ $ 541,263 84.5% $ 98,952 15.5% $ - 0.0% $ 640,215 MBTA $ 303,545 83.1% $ 61,820 16.9% $ - 0.0% $ 365,365 Metra $ 182,688 75.5% $ 59,134 24.5% $ - 0.0% $ 241,822 WMATA $ 421,270 68.6% $ 193,065 31.4% $ - 0.0% $ 614,335 Peer Group Average $ 599,913 84.1% $ 113,141 15.9% $ 162 0.0% $ 713,216 SEPTA 2005 NTD Rpt $ 330,767 92.8% $ 24,364 6.8% $ 1,356 0.4% $ 356,487 Source: 2004 National Transit Database

Table 3-13. Comparison of the Source of Federal Funds (000) Capital Funds Used Operating Capital Program Other Agency to Support Total Assistance Funds Federal Funds Operations NJ $ 48,414 14.9% $ - 0.0% $ - 0.0% $ 277,283 85.1% $ 325,697 SEPTA $ - 0.0% $ 56,200 100.0% $ - 0.0% $ - 0.0% $ 56,200 Port Authority $ 29,766 77.8% $ - 0.0% $ 4,987 13.0% $ 3,506 9.2% $ 38,259 CTA $ 21,271 96.8% $ - 0.0% $ - 0.0% $ 701 3.2% $ 21,972 WMATA $ - 0.0% $ 18,500 100.0% $ - 0.0% $ - 0.0% $ 18,500 MBTA $ 263 60.7% $ - 0.0% $ - 0.0% $ 170 39.3% $ 433 Peer Group Average $ 16,619 21.6% $ 12,450 16.2% $ 831 1.1% $ 46,943 61.1% $ 76,844 SEPTA 2005 NTD Rpt $ - 0.0% $ 83,700 100.0% $ - 0.0% $ - 0.0% $ 83,700 Source: 2004 National Transit Database

Table 3-14. Comparison of the Source of State Funds (000) Agency General Revenue Income Taxes Sales Taxes Gasoline Taxes Other Taxes Total NYCT $117,400 13.0% $168,088 18.6% $167,986 18.6% $189,440 21.0% $259,593 28.8% $902,507 MBTA $ - 0.0% $ - 0.0% $582,387 100.0% $ - 0.0% $ - 0.0% $582,387 SEPTA $187,242 50.7% $ - 0.0% $ - 0.0% $ - 0.0% $182,376 49.3% $369,618 NJ TRANSIT $193,448 87.6% $ - 0.0% $ - 0.0% $ - 0.0% $ 27,393 12.4% $220,841 WMATA/ $198,492 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $198,492 Port Authority $ 67,675 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $ 67,675 CTA $ 31,302 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $ 31,302 Metra $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $ 2,959 100.0% $ 2,959 Peer Group Average $99,445 33.5% $ 21,011 7.1% $ 93,797 31.6% $ 23,680 8.0% $ 59,040 19.9% $296,973 SEPTA 2005 NTD Rpt $199,583 50.9% $ - 0.0% $ - 0.0% $ - 0.0% $192.863 49.1% $392,446 Source: 2004 National Transit Database

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-15 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-15. Comparison of the Source of Local Funds (000)

Agency General Revenue Income Taxes Sales Taxes Gasoline Taxes Other Taxes Total NYCT $215,806 37.5% $ - 0.0% $ - 0.0% $ - 0.0% $360,152 62.5% $575,958 100.0% CTA $ 5,000 1.8% $ - 0.0% $267,319 98.2% $ - 0.0% $ - 0.0% $272,319 100.0% WMATA $209,505 90.0% $ - 0.0% $ - 0.0% $ 23,172 10.0% $ - 0.0% $232,677 100.0% Metra $ - 0.0% $ - 0.0% $221,431 100.0% $ - 0.0% $ - 0.0% $221,431 100.0% MBTA $118,209 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $118,209 100.0% SEPTA $ 62,414 95.1% $ - 0.0% $ - 0.0% $ - 0.0% $ 3,235 4.9% $ 65,649 100.0% Port Authority $ 22,558 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $ 22,558 100.0% NJ TRANSIT $ 9,262 100.0% $ - 0.0% $ - 0.0% $ - 0.0% $ - 0.0% $ 9,262 100.0% Peer Group Average $ 80,344 42.3% $ - 0.0% $ 61,094 32.2% $ 2,897 1.5% $ 45,423 23.9% $189,758 100.0% SEPTA 2005 NTD Rpt. $ 66,528 94.9% $ - 0.0% $ - 0.0% $ - 0.0% $ 3,606 5.1% $ 70,134 100.0% Source: 2004 National Transit Database

Table 3-16 presents operating expenses by service and function, including vehicle operations, vehicle maintenance, non-vehicle maintenance, and general administration.

Table 3-16. Comparison of Operating Expenses by Service (000) Non-vehicle Agency Vehicle Operations Vehicle Maintenance General Administration Total Maintenance NYCT $ 2,231,351 51.0% $ 858,522 19.6% $ 753,937 17.2% $ 530,489 12.1% $ 4,374,299 NJ TRANSIT $ 631,149 48.3% $ 298,759 22.9% $ 126,009 9.6% $ 251,403 19.2% $ 1,307,320 CTA) $ 635,792 56.8% $ 189,491 16.9% $ 149,471 13.3% $ 145,277 13.0% $ 1,120,031 WMATA $ 367,969 38.4% $ 222,292 23.2% $ 185,591 19.4% $ 183,236 19.1% $ 959,088 MBTA $ 413,554 49.1% $ 178,486 21.2% $ 143,359 17.0% $ 106,028 12.6% $ 841,427 SEPTA $ 426,499 53.3% $ 145,016 18.1% $ 97,352 12.2% $ 131,957 16.5% $ 800,824 Metra $ 183,755 41.8% $ 100,913 23.0% $ 91,678 20.9% $ 63,092 14.4% $ 439,438 Port Authority $ 153,938 53.9% $ 67,257 23.6% $ 23,958 8.4% $ 40,222 14.1% $ 285,375 Peer Group Average $ 630,501 49.8% $ 257,592 20.3% $ 196,419 15.5% $ 181,463 14.3% $ 1,265,975 SEPTA 2005 NTD Rpt. $ 456,543 53.3% $ 152,458 17.8% $ 104,233 12.2% $ 142,925 16.7% $ 856,159 Source: 2004 National Transit Database

3.4 Review of Specific Financial Items and Systems

3.4.1 Funding Sources Based on a review of operating budgets, financial statements, and interviews of SEPTA personnel, SEPTA’s revenue and funding sources are broken into two types: operating revenue and operating subsidy. Operating revenue is generated from passenger revenue, senior citizen transit, shared-ride program, investments, and other income. Operating subsidy comes from federal, state, and local sources, including basic operating funds, state and local asset maintenance funds, state and local lease cost/debt service funds, route guarantees, and flexible highway funds.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-16 Accepted October 4, 2006 FINANCIAL REVIEW

Below is a summary of sources of operating subsidies.

Federal

• Operating subsidy from Federal Preventive Maintenance • Federal Highway Administration Flex funds for Preventive Maintenance

State

• General Fund operating subsidies, which require a local matching ratio of 1 to 3 (or 33.3 percent) • Act 3 operating funds, which require a local matching ratio of 1 to 29 (or 3.3 percent) • Act 3 asset maintenance funds, which require a local matching ratio of 1 to 29 (or 3.3 percent) • Act 26 asset maintenance funds, which require local matching ratio of 1 to 29 (or 3.3 percent) • Act 26 lease cost and debt service funds, which require a local matching ratio of 1 to 29 (or 3.3 percent)

Local

• Formula-driven matches provided by each of the suburban counties (Bucks, Chester, Delaware, and Montgomery) and the City of Philadelphia.

The local match provided by each of the suburban counties and the City of Philadelphia is determined by the operating deficit before subsidy in each division (City Transit, Victory, Frontier and Regional Rail) after adjusting for Route Guarantee and Debt Service subsidies for each fiscal year.

There have been no subsidy formula changes or significant service cuts from Fiscal Years 2003 to 2007 that would have affected the subsidy requirements for the City of Philadelphia or the counties. According to SEPTA budgeting personnel, however, the City Transit Division deficit has increased at a higher rate than Victory, Frontier and Regional Rail Divisions since Fiscal Year 2003. As a result, the subsidy payments from the City have increased at a greater rate than the counties’ subsidy payments.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-17 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-17 summarizes all sources of operating subsidies. The flexible highway funds are separated to present a truer picture of the operating subsidies from each source.

Table 3-17. 2003–2007 Sources of Operating Subsidies Amounts in Flex Highway Federal Funds State Funds Local Funds Total Thousands (000) Funds 2003 (Actual) $ 30,205 7.1% $ 325,972 76.4% $ 70,479 16.5% $ - 0.0% $ 426,656 2004 (Actual) $ 30,200 6.7% $ 321,911 71.9% $ 69,365 15.5% $ 26,000 5.8% $ 447,476 2005 (Actual) $ 31,200 6.2% $ 346,296 68.8% $ 73,666 14.6% $ 52,500 10.4% $ 503,662 2006 (Unaudited) $ 34,313 6.8% $ 307,433 60.6% $ 73,830 14.5% $ 92,100 18.1% $ 507,676 2007 (Budgeted) $ 31,200 6.1% $ 339,792 66.2% $ 76,813 15.0% $ 65,450 12.8% $ 513,255 Source: Fiscal Years 2005 and 2007 Operating Budgets

Appendix H provides a detailed summary of funding by sources. Items of note include:

• Federal Subsidies (excluding Flexible Highway Funds) have been level in the $31 million range, with a slight increase to $34 million for 2006. • State Subsidies have modestly increased during this period to a budgeted level of $340 million for 2007, or 34 percent of total expenses, with is a slight decrease to $307 million for 2006. • Local Subsidies have modestly increased during this period to a budgeted level of $77 million for 2007, or 8 percent of the total expenses. - Funding from the counties, other than Philadelphia, have declined in the past 5 years. The budgeted level of funding from these counties is $14 million for 2007, or 1.4 percent of total expenses. - Funding from Philadelphia has increased approximately 17.5 percent during this period to a budgeted level of $59 million for 2007, or 6 percent of total expenses. • Flexible Highway Funds have been used since 2004 to plug the operating deficits; beginning in 2004 with $26 million and growing to $92 million in 2006.

Conclusions

From information provided by SEPTA, including budget reports and general ledger detail, the review team prepared a schedule of revenues summarizing operating revenue and operating subsidies as compared to total expenses for Fiscal Years 2003 through 2007. The information provided for Fiscal Years 2003 through 2005 is actual numbers, while 2006 and 2007 are budgeted amounts. Also included in this schedule is a breakdown of federal, state, and local subsidy funding. The following items where noted during this analysis.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-18 Accepted October 4, 2006 FINANCIAL REVIEW

SEPTA’s revenues are not keeping pace with expenses:

• SEPTA’s 2007 budget currently projects a $50.3 million deficit. - Actual operating expenses for Fiscal Years 2004 and 2005 have increased approximately 4.8 percent per year on average as compared to actual operating revenues and subsidies (excluding flexible highway funds), which increased approximately 0.4 percent and 2.9 percent per year, on average, respectively. - Increases in the cost of fuel and health insurance premiums make up the bulk of the $50 million deficit. - Budgeted operating expenses for Fiscal Years 2006 and 2007 reflect an increase of approximately 3.8 percent per year on average compared to budgeted operating revenues and subsidies (excluding flexible highway funds), which reflect an approximate increase of 0.9 percent and 0 percent per year, on average, respectively. • Operating revenues have remained relatively flat with no significant increases for Fiscal Years 2003 through 2007, as shown in Table 3-18.

Table 3-18. Fiscal Years 2003–2007 Operating Revenues (000) Increase (Decrease) % of Total Fiscal Year Total Operating Subsidy from Prior Year Expenses 2003 (Actual) $ 416,690 N/A N/A 49.4% 2004 (Actual) $ 420,476 $ 3,786 0.9% 48.5% 2005 (Actual) $ 420,183 $ (293) -0.1% 45.5% 2006 (Unaudited) $ 426,481 $ 6,298 1.5% 45.7% 2007 (Budgeted) $ 427,460 $ 979 0.2% 43.1%

N/A = not available

Total operating subsidies, excluding flexible highway funds, from all federal, state, and local sources have increased significantly in amount and as a percentage of expenses.

Table 3-19. Fiscal Years 2003–2007 Operating Subsidies (000) Increase (Decrease) % of Total Fiscal Year Total Operating Subsidy * from Prior Year Expenses 2003 (Actual) $ 426,656 N/A N/A 50.6% 2004 (Actual) $ 421,476 $ (5,180) -1.2% 48.6% 2005 (Actual) $ 451,162 $ 29,686 7.0% 48.9% 2006 (Unaudited) $ 415,576 $ (35,586) -7.9% 44.5% 2007 (Budgeted) $ 447,805 $ 32,229 7.8% 45.2% N/A = not available * Excludes Flex Highway Funds

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-19 Accepted October 4, 2006 FINANCIAL REVIEW

3.4.2 Passenger Revenue System Passenger revenue is derived from fares collected from riders of SEPTA’s network of buses, trolleys, trackless trolleys, subway/elevated lines, and regional rail trains. SEPTA’s service area covering the entire Philadelphia region is divided into six zones. Fare rates for these services are determined by type of transportation, time traveled (peak versus off-peak time), and zone(s) traveled. SEPTA’s current fare policy has been effective since July 1, 2001.

An overview of SEPTA’s fare information for bus, trolley, and rapid transit service is shown in Table 3-20.

Table 3-20. SEPTA Basic Fare Structure

Zone Type Base Fare Methods of Payment Charges Bus Lines $2.00, plus 60¢ 50¢ each • Cash transfer if additional • Token discounted to $1.30 transferring to zone traveled • Weekly Trans Pass $18.75 another vehicle • Monthly Trans Pass $70.00 Trolley Lines $2.00, plus 60¢ N/A, only • Cash transfer if travel within • Token discounted to $1.30 transferring to one zone • Weekly Trans Pass $18.75 another vehicle • Monthly Trans Pass $70.00 Rapid Transit Lines $2.00, plus 60¢ N/A, only • Cash (subway-elevated transfer if travel within • Token discounted to $1.30 service) transferring to one zone • Weekly Trans Pass $18.75 another vehicle • Monthly Trans Pass $70.00

Table 3-21. Fare Information for Regional Rail Service

Peak Fare Off-Peak Fare Weekly Trail Monthly Trail Zone (one-way) ($) (one-way) ($) Pass ($) Pass ($) 1 3.00 3.00 18.75 70.00 2 3.75 3.00 28.25 106.00 3 4.50 3.75 34.50 126.50 4 5.00 4.25 39.50 145.00 5 5.50 4.25 45.50 163.00 6 7.00 7.00 45.50 163.00

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-20 Accepted October 4, 2006 FINANCIAL REVIEW

SEPTA has multiple customer programs that provide discounted or free services to certain customer groups. These programs include the senior citizen transit and the shared-ride program. The senior citizen transit program provides free transit services to seniors with fare reimbursements received from the state through the State Lottery Fund, supplemented by the State General Fund. The shared-ride program provides reduced fare transportation services to eligible older persons using transit services. The cost to the rider under this program is discounted with the State Lottery Fund, with the Philadelphia Corporation for the Aging paying the remaining portion of the fare.

3.4.3 Major Cost Areas Total operating expenses have increased, as shown in Table 3-22.

Table 3-22. Fiscal Years 2003–2007 Operating Expenses (000)

Increase (Decrease) Fiscal Year Operating Expenses ($) from Prior Year 2003 (Actual) 821,825 N/A N/A 2004 (Actual) 847,339 $ 25,514 3.1% 2005 (Actual) 903,019 $ 55,680 6.6% 2006 (Unaudited) 914,595 $ 11,576 1.3% 2007 (Budgeted) 972,405 $ 57,810 6.3%

N/A = not available

Based on a review of operating budgets, operating expenses are generally broken into six broad categories (see Table 3-23). Our review team has provided a 5-year summary of operating expenses prepared from the information provided in the operating budgets. Note that Fiscal Years 2003 through 2005 amounts are actuals; and that Fiscals Years 2006 and 2007 are approved and proposed budgets, respectively.

Detailed Cost Analysis

The review team studied reports and documents, including operating budgets, financial statements, and general ledger detail. The team also reviewed information in the National Transit Database. Based upon these reviews, the team analyzed the six categories shown in Table 3-23, as well as various trends and comparative analysis.

Labor and Fringe Benefits

Labor and fringe benefits represent approximately 71 percent of SEPTA’s total operating expenses. Based on the operating budget presentation, they are broken into departmental and non-departmental categories and are summarized in Table 3- 24.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-21 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-23. Fiscal Year Comparison of Operating Expenses by Category

Labor Vehicle Materials Injuries/ Total and Propulsion and and Damage Fuel Operating Fringe Power Facility Services Claims Expenses Benefits Rentals 2003 $580,264 $166,867 $ 28,000 $ 29,719 $ 12,835 $ 4,140 $ 821,825 (Actual) 70.6% 20.3% 3.4% 3.6% 1.6% 0.5% 100.0% 2004 $600,700 $169,301 $ 33,500 $ 28,856 $ 12,865 $ 2,117 $ 847,339 (Actual) 70.9% 20.0% 4.0% 3.4% 1.5% 0.2% 100.0% 2005 $637,356 $174,544 $ 38,000 $ 29,713 $ 21,361 $ 2,045 $ 903,019 (Actual) 70.6% 19.3% 4.2% 3.3% 2.4% 0.2% 100.0% 2006 $638,399 $187,113 $ 34,000 $ 21,403 $ 31,510 $ 2,170 $ 914,595 (Unaudited) 69.8% 20.5% 3.7% 2.3% 3.4% 0.2% 100.0% 2007 $686,368 $185,479 $ 35,000 $ 30,023 $ 33,300 $ 2,235 $ 972,405 (Budgeted) 70.6% 19.1% 3.6% 3.1% 3.4% 0.2% 100.0% Source: Fiscal Years 2005 and 2007 Operating Budgets

3.4.4 Operating Divisions The team reviewed the service standards and processes for SEPTA’s operating divisions and obtained an understanding of the functions of each division.

Regional Rail Division

The regional rail division operates based under following seven service standards:

• Service span • Service frequency • Vehicle loading • On-time performance • Route economic performance • Station economic performance • Station spacing

Service span and service frequency standards are being met on 10 of the 13 rail lines. The R-2 Marcus Hook and the R-3 Elwyn Lines violate both standards, but only on weekend trains when passenger travel is fairly light. The R-6 Cynwyd Line violates both standards on weekdays.

Based on observation of the R-6 Norristown line, vehicle loading and on-time performance standards are generally being met. Only 13 percent of all trips observed were operating at full capacity (with passenger standees aboard).

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-22 Accepted October 4, 2006 FINANCIAL REVIEW

Table 3-24. Labor and Fringe Benefit Expenses by Category and Fiscal Year (000) Actual Budgeted

2003 2004 2005 2006 2007 Operations Division (Audited) (Audited) (Audited) (Unaudited) (Budgeted) Administration $ 1,284 $ 1,300 $ 1,076 $ 1,010 $ 1,449 Automotive Equipment Engineering & Maintenance 37,670 37,877 38,183 37,705 41,564 Bus Transportation 106,214 110,776 114,580 114,443 119,055 Control Center 5,089 5,206 5,460 5,497 5,978 Customized Community Transportation (CCT) 4,882 5,379 5,555 5,669 5,713 Infrastructure 45,547 44,721 47,532 47,059 51,075 Labor Relations 858 887 921 904 947 Rail Equipment Engineering & Maintenance 40,740 41,634 42,894 43,011 44,046 Rail Transportation 103,079 105,226 108,970 107,949 113,429 Total Operations $ 345,363 $ 353,006 $ 365,171 $ 363,247 $ 383,256

Staff Departments Corporate Staff $ 1,820 $ 1,998 $ 2,038 $ 2,037 $ 2,104 Audit and Investigative Services 911 899 867 843 1,311 Business Services 14,124 14,508 15,244 14,609 16,392 Capital Design and Construction 75 138 178 237 143 Finance 16,430 17,309 17,682 17,795 20,052 Human Resource 8,593 8,552 8,882 8,664 9,695 Legal 3,147 3,186 3,185 3,236 3,870 Public and Government Affairs 1,570 1,631 1,755 1,643 2,001 Public and Operational Safety 15,800 16,364 16,578 17,185 17,921 Capital Allocation, rentals, and Fuel included below (9,953) (10,035) (8,492) (8,571) (12,509) Total Staff Departments $ 52,517 $ 54,550 $ 57,917 $ 57,678 $ 60,980 Total Departmental Expenses $ 397,880 $ 407,556 $ 423,088 $ 420,925 $ 444,236

Non-Departmental Expenses Fringe Benefits $ 181,800 $ 193,144 $ 214,268 $ 217,474 $ 242,132 Total Non-Departmental Expenses $ 181,800 $ 193,144 $ 214,268 $ 217,474 $ 242,132

Total Expenses $ 579,680 $ 600,700 $ 637,356 $ 638,399 $ 686,368

Source: Fiscal Years 2004, 2006, and 2007 Operating Budgets

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-23 Accepted October 4, 2006 FINANCIAL REVIEW

Trains were not arriving/departing within the acceptable “on-time” standard in only 7 percent of the trips observed.

The route economic performance standard is being met on all lines; however, there has been a downward trend in operating ratio on 10 of the 13 rail lines over the past 3 years (Fiscal Years 2003 through 2005). The R-6 Norristown/R-2 Warminster/R-8 C H West are exceptions to the downward trend.

The station economic performance standard is regularly monitored. The number of stations operating below the minimum standard has increased over the past 3 years (Fiscal Years 2003 through 2005). Two stations were closed in 2003.

The station spacing standard is regularly monitored in connection with route economic performance and station economic performance and is affected as a direct result of these standards.

City Transit Division

The City Transit Division operates under the following nine service standards:

• Service coverage • Transit stop spacing • Route performance guidelines • Transfers • Service frequency • 24-hour service • Vehicle loading • On-time performance • Duplicative service

The service coverage, transit stop spacing, service frequency, and vehicle loading standards are monitored daily in connection with route economic performance through the use of traffic check data. These standards are revised based on the information gathered.

The route performance guidelines are being met on a majority of the transit routes; however, 66 of the 81 routes (81 percent) have been in a downward trend over the past 3 years (Fiscal Years 2003 through 2005). Only 7 percent of the routes were operating below the minimum standard in Fiscal Year 2005.

Transfer, 24-hour service, and on-time performance standards are regularly monitored through the use of traffic check data. These standards are affected directly by the information gathered.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-24 Accepted October 4, 2006 FINANCIAL REVIEW

The duplicative service standard is a result of a route’s function and the passenger market. Duplication of service only occurs when necessary and cost effective.

Suburban Transit Division

The Suburban Transit Division operates under the following 11 service standards:

• Service coverage • Transit stop spacing • Route performance guidelines • Transfers • Service frequency • Service span • 24-hour service • Vehicle loading • On-time performance • Duplicative service • Station spacing

Service coverage, transit stop spacing, service frequency, service span, vehicle loading, and station spacing standards are monitored daily in connection with route economic performance and through the use of traffic check data. These standards are revised based on the information gathered.

The route performance guidelines are being met on a majority of the transit routes; however, 25 of the 45 routes (56 percent) have been in a downward trend over the past 3 years (Fiscal Years 2003 through 2005). Only 11 percent of the routes were operating below the minimum standard in Fiscal Year 2005.

Transfer, 24-hour service, and on-time performance standards are regularly monitored through the use of traffic check data. These standards are affected directly by the information gathered.

The duplicative service standard is a result of a route’s function and the passenger market. Duplication of service occurs only when necessary and cost effective.

3.4.5 Long-Term Capital Plan and Major Construction Projects The Schuylkill Valley Metro project is a SEPTA initiative to expand services beyond its current area of operations; however, federal funding limitations and cost effectiveness issues may preclude this project from moving forward.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-25 Accepted October 4, 2006 FINANCIAL REVIEW

3.4.6 Proposed Reorganization of SEPTA’s Executive Staff To a significant extent, the future of SEPTA will be resolved through the concerted efforts of key stakeholders. The SEPTA General Manager must play a central role in this effort. The current priorities of the SEPTA General Manager must be shifted to an external focus without the organization losing continuity of purpose or focus. The review team suggests that the solution to this challenge is to reorganize (once again) the executive structure of SEPTA.

The proposed reorganization would release the General Manager from numerous day-to-day responsibilities. The reorganization would provide the time for the General Manager to focus on external matters critical to the future of SEPTA, the Region, and the Commonwealth.

The current organizational structural of one general manager and eight assistant general managers (nine direct reports) would be reconfigured to reduce the span of control to five direct reports. The five direct reports would be the existing Assistant General Manager of Audit and Investigations, General Counsel, and three new Chief Officers. The existing structure of seven direct-report Assistant General Managers would be collapsed under the new Chief Officer structure.

The new structure would consolidate the current Operations and Capital Divisions under the new Chief Operations Officer. The current Treasurer and Human Resource Divisions would be consolidated under a new Chief Financial Officer position. The current Business Services, Public Affairs, and Public Safety would be consolidated under the new Chief Administrative Officer position.

The additional cost of funding the three new positions should be realized from existing economies within the existing SEPTA Budget. The investment in this re- organizational structure, in our opinion, will be a critical element in SEPTA’s future.

Final Report to the Pennsylvania House of Representatives Transportation Committee 3-26 Accepted October 4, 2006 LEGISLATIVE REVIEW

4.0 LEGISLATIVE REVIEW (STATE)

4.1 Introduction to the Review of Enabling State and Federal Legislation This section is a presentation of state legislative mandates from the date of SEPTA’s enabling legislation to the present.

HISTORY OF TRANSIT SYSTEM CREATION

SEPTA

1963, Metropolitan Transportation Authorities Act of 1963, Act of 1983, P.L. 984, No. 450 (Act 450 of 1963). Authorized creation of SEPTA as a five-county compact centered on a city of the first class to acquire and operate assets of bankrupt transit companies in Southeastern Pennsylvania.

1968, Jan. 22, P.L. Act 42, No. 8, §§ 301-343; P.S. §§ 600.302 to 600.304; 500. 322 to 600.343. (Act 8 of 1968) Amendments to further define structure and powers of SEPTA.

1980, July 10, P.L. 427, No. 101, § 3. (Act 101 of 1980). Created a formula for distribution of operating subsidies from the General Fund and reenacted SEPTA enabling statute with some modifications.

1981, Dec. 22, P.L. 547, No. 160, § 1. Changes to procurement limits.

1982, Dec. 20, P.L. 1409, No. 326, art. III. § 313. Judicial provisions modified.

1987, Oct. 16, P.L. 359, Act 73, §§ 5, 6. Adds requirements to explore alternative means of raising revenue and appoint a controller.

1991, Aug. 5, P.L. 238, No. 26, § 1 (74 P.S.A. § 1501 – Act 26 of 1991). Adds a board appointee from each legislative caucus.

Metropolitan Transportation Authorities - §§ 1501 to 1543 repealed 1994, Feb. 10, P.L. 20, No. 3: (Act 3 of 1994) Current enabling statute. Reenactment of SEPTA enabling statute with modifications to define permissible issuance of bonding, codify sovereign immunity, and modifications to many other sections of statute.

PORT AUTHORITY OF ALLEGHENY COUNTY

Second Class Port Authority Act – (1955, April 6 P.L. 1414, No. 465) Port Authority enabling statute.

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-1 Accepted October 4, 2006 LEGISLATIVE REVIEW

CLASS 3 SYSTEMS

Municipal Authorities Act of 1945 – (1945, May 22, P.L. 382, No. 164); amended and codified in Act 22 of 2001. The majority of class 3 systems are created under this act. Williamsport is a Bureau of the City of Williamsport.

4.2 Federal Transit plays a vital role in the nation's public transportation infrastructure system. With approximately 9 billion boardings annually, transit moves people to jobs and other destinations and helps to relieve road congestion and air pollution in urbanized areas; transit also helps alleviate the nation's reliance on foreign oil. Transit provides a lifeline for persons with disabilities, the elderly, and low-income individuals without automobile transportation. Most public transit services are not economically sustainable without governmental subsidies to meet capital and operating costs. Nearly half of the combined amounts spent by local, state, and federal entities on public transportation infrastructure are comprised of funding from the FTA. Where transportation services are profitable, they continue to be provided by the private sector.

With federal funding comes federal requirements. This primer outlines the federal requirements most likely to affect transportation systems. Obviously, there is not space in these pages to explain these requirements in detail; rather, the purpose of this primer is to provide some basic concepts of each requirement.

The federal government has many reasons behind its rules. Some are intended to assure that transportation grantees are providing safe and appropriate transportation. Other requirements are in place to assure that taxpayer dollars are being used wisely. Requirements are in place to assure that employees are being treated fairly, and other requirements address responsibilities for good "corporate citizens."

4.2.1 The Language of Regulation The federal regulatory climate, its language, and procedures can be intimidating. Some pieces of regulatory jargon occur with incredible frequency. They include:

CFR. The CFR is a compilation of nearly all federal rules. In order to become a regulation in the CFR, a rule must go through a formal rulemaking process that includes an opportunity for public comment. There is unique "shorthand" for referring to rules that appear in the CFR. For example, a regulation concerning when public bodies must purchase accessible vehicles for fixed-route transit service is found at 49 CFR 37.71; translated, that means the rule is Section 37.71 in Part 37 of Title 49 of the Code of Federal Regulations (Title 49 contains most regulations concerning public transportation; Part 37 of this title concerns accessibility requirements).

Circular. Many times federal agencies issue documents known as circulars. Circulars contain formal program guidance that is instructive in nature. For example,

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-2 Accepted October 4, 2006 LEGISLATIVE REVIEW

the Department of Transportation has regulations that govern contracts and purchases found at 49 CFR Part 18. The FTA also has a circular governing third- party contracting. In essence, the circular gives instructions on how Administration grantees are to comply with these rules when executing contracts.

Guidance. Because laws, regulations, and circulars are often complex and difficult to understand, federal agencies will issue letters, memoranda, or other statements to help clarify what is meant by a regulation or how to apply it to particular situations. For example, the FTA and the Federal Highway Administration have issued a number of guidance circulars to help states and metropolitan planning organizations understand current transit and highway planning requirements.

Certifications and Assurances. When applying for, or receiving, federal funds, transportation grantees generally must promise to comply with many federal requirements. In some cases, these promises are made through individual signed certifications; in other cases, such as with the FTA’s formula grant programs, the federal agency provides a unified list of certifications in which a one-page signature sheet and check-off covers dozens of regulatory requirements.

4.2.2 Responsibilities as a Federal Transportation Grantee A federal transportation grantee is expected to address a broad range of community needs, including those of persons with disabilities. As part of its commitment to safety, a transportation grantee must ensure that drug or alcohol use is not affecting key personnel or their workplace. The vehicles they acquire must be safe and appropriate for their intended use. The services they provide should be responsive to local needs and should blend in equitably with their community's other public and private transportation services.

Acquisition of Accessible Vehicles. Applies to all entities, although specific requirements vary according to type of entity, type of service, and size and type of vehicle. When acquiring vehicles, a transportation grantee must do so in a way that allows equivalent service to persons with and without disabilities. Requirements are found at 49 CFR Part 38.

Provision of Accessible Transportation Services. Applies to all entities, but specific requirements vary according to type of entity, type of service, and size and type of vehicle. In addition to accessible vehicles, a transportation grantee must take reasonable steps to ensure that persons with disabilities are able to access, understand, and use entities services. Requirements are found at 49 CFR Part 37.

Complementary Paratransit. Applies to public entities providing fixed-route transit services. These fixed-route transportation grantees must also have paratransit service to be used by persons whose disabilities prevent them from using the available fixed-route transit. Requirements are found at 49 CFR Part 37.

Drug and Alcohol Abuse Prevention in the Transit Industry. Applies only to grantees of FTA's Section 5307, 5309, or 5311 programs and their "safety sensitive" personnel. These FTA grantees must maintain a program of drug and alcohol testing

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-3 Accepted October 4, 2006 LEGISLATIVE REVIEW

and related measures to ensure drug and alcohol abuse is not compromising passengers' safety. Requirements are found at 49 CFR Parts 653 and 654.

Drug-Free Workplace. Applies to direct recipients of federal funding, and does not apply directly to federal subrecipients, such as rural public transit grantees whose only federal funds are received via a state department of transportation. This provision requires federal grantees and contractors to assure they will not tolerate the use or possession of illegal drugs in their workplace. Guidelines for FTA grantees are found in 49 CFR Part 29.

Transit Bus Testing. Applies to all FTA-assisted vehicle purchases. Only those bus models that have been tested at the Administration’s bus testing facility in Altoona, Pennsylvania, may be purchased with Administration funds. Requirements are found at 49 CFR Part 665.

Pre-Award and Post-Delivery Audits of Vehicle Purchases. Applies to all FTA- assisted vehicle purchases. Purchasers must be able to document that the delivered vehicles comply with bid specifications, applicable Federal Motor Vehicle Safety Standards, and applicable "Buy America" requirements. For most procurement of more than 10 vehicles, this rule also requires an in-plant inspection to determine compliance. Requirements are found at 49 CFR Part 663.

Statewide and Metropolitan Transportation Planning. Applies to state departments of transportation and to the metropolitan planning organizations serving urbanized areas. Federal highway and transit funds may be spent only on projects and activities that appear in approved plans. These plans must be developed with participation from the general public. Requirements are found in joint Federal Highway Administration/FTA guidance issued April 23 and May 28, 1992.

Public Hearings Concerning Transit Capital Projects. Applies to all public entities receiving FTA capital grants. Before a recipient can commit to spending Section 5309 grant funds, it must hold a public hearing concerning the project and how its funds will be spent. Public entities receiving capital assistance under Sections 5310 or 5311 must provide the opportunity for a public hearing. Public involvement also is required for the development of state and metropolitan transportation plans, and for the development of complementary paratransit services (see above). Requirements appear in the FTA Circular 9300.

Coordination with Other Federal Programs. Applies to FTA Sections 5307, 5310, and 5311 grantees. In general, federal agencies want their resources used to support cost-effective, non-duplicative services. The Administration requires its grantees to coordinate their services with other federally funded activities where possible. Guidance appears in FTA Circular 9040, among other places.

Charter Service. Applies to all FTA grantees, with special flexibility for Section 5311 grantees. FTA-funded equipment and facilities may not be used to provide charter bus service if there are willing private entities able to provide this service. The rule includes provisions allowing rural transit grantees to provide charter-style services

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-4 Accepted October 4, 2006 LEGISLATIVE REVIEW

under contract to social service agencies funded by 20 specifically identified Federal programs. Requirements appear at 49 CFR 604.

School Transportation. Applies to all FTA grantees. Federal law prohibits FTA- funded services to be provided exclusively for school-related transportation, although FTA grantees may provide services that transport students together with other members of the general public. Requirements appear at 49 CFR Part 605.

Real Estate Acquisition. Applies to all recipients of federal funding; FTA has unique requirements for its grantees. Property must be acquired at fair market value, with a determination that families and businesses are not being displaced without compensation. "Incidental" non-transit use of an FTA-funded facility is allowed. Further guidelines dictate the disposition of property when no longer needed for its original purpose. Primary guidance for FTA grantees appears in FTA's Circular 5010.

4.2.3 Using Taxpayer Dollars Wisely When an entity receives federal funds, they assume a stewardship of taxpayer dollars. Many responsibilities come along with this stewardship, including the negotiation of cost-effective purchases and contracts, the expectation to purchase American products, a preference to do business with disadvantaged enterprises, and the prohibition against doing business with firms and individuals who have broken laws or defrauded the government. There are many other requirements that will dictate a grantees’ accounting, record keeping, financial management, and reporting practices.

Uniform Administrative Requirements for Grants and Cooperative Agreements. Applies to all recipients of federal funding. Although some details may vary among federal agencies, states have some flexibility in establishing administrative procedures for subrecipients, but they must remain consistent with federal guidelines. These requirements address a wide range of subjects in areas of equipment management, financial management, and procurement. In general, procurements must be decided through an open, competitive process, and they should be awarded to low-cost, qualified bidders. Procurement processes are simplified for purchases of under $100,000. Guidelines for Department of Transportation grantees are found at 49 CFR Parts 18 (for public bodies) and 19 (for private nonprofit organizations). FTA has additional guidelines detailing its procedural, reporting, and recordkeeping requirements; these are found in FTA Circular 4220.

Buy America. Applies to all FTA-assisted procurements of more than $100,000. Unless a waiver is granted, the steel and iron used in vehicles or other products procured with FTA funds must be of American origin, and the manufacturing of these vehicles and products must take place in the U.S. Requirements are found at 49 CFR Parts 660 and 661.

Disadvantaged Business Enterprise (DBE) Participation. Applies to all FTA grantees, although specific requirements vary according to types and amounts of FTA funding. In general, FTA grantees are to make use of minority- and women-

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-5 Accepted October 4, 2006 LEGISLATIVE REVIEW

owned suppliers in their procurements; specific reporting requirements apply to transit grantees receiving more than $250,000 in FTA funds (not counting funds used for vehicle purchases), with additional requirements for FTA grants in excess of $500,000. There also are DBE requirements specifically for transit vehicle manufacturers. Requirements are found at 49 CFR Part 23, and in FTA Circular 4716.

Debarment and Suspension. Applies to all recipients of federal funding, although some details may vary among federal agencies. Individuals and firms who have defrauded the federal government are restricted in their ability to do further business with federal grantees and contractors. In some cases, debarred or suspended entities are prohibited from doing all federal business; in other cases, they are simply kept from doing business with a particular agency's funds, or they may be kept from engaging in a particular line of business. Listings of debarred and suspended entities are kept by the General Services Administration (GSA). Guidelines for Department of Transportation grantees are found at 49 CFR Part 29.

Cost Principles. Applies to all recipients of federal funding, with slightly different requirements for public and private entities. Federal guidelines are explicit in identifying what items are (and are not) allowable costs under federal grants and contracts, and how these items are to be treated in their accounting processes. For public bodies, these guidelines are found in Office of Management and Budget (OMB) Circular A-87; for private nonprofit organizations, cost principle guidelines are found in OMB Circular A-122.

4.2.4 Being a Good Employer Like all other employers, transportation grantees have a responsibility to provide a safe place to work, to treat their employees equitably and fairly, and to provide wages and benefits that are in accordance with federal law. As a transportation grantee, they may have the added responsibility to address the transit industry labor market in the community.

Nondiscrimination on the Basis of Race, Color, Creed, National Origin, Sex, or Age. Applies to all recipients of federal funding, although some details may vary among federal agencies. A state department of transportation is required to report annually on progress toward equal employment opportunities (EEO) in its highway and transit programs, and therefore will require certifications and supporting evidence that the employment practices of an entity are nondiscriminatory. If an entity’s FTA funding is sufficiently large, it may have to report directly on its EEO program. Requirements are found in FTA Circular 4704.

Equal Employment Opportunities for Persons with Disabilities. Applies to all employers, regardless of federal funding. Employers are not to discriminate against the employment status of a current or potential employee with a disability if they can make reasonable accommodations to help the employee carry out the essential functions of the job. These efforts do not require a transportation grantee to give hiring preference to persons with disabilities, nor are they required to make every

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-6 Accepted October 4, 2006 LEGISLATIVE REVIEW

possible accommodation an employee may require. Regulations for handling disability-related EEO disputes are found at 29 CFR Part 1630.

Transit Employees Labor Protection. Applies to all transportation grantees receiving FTA assistance. Federal law requires that FTA grants not be made in any way that worsens the employment status of transit employees. This provision is carried out through a process involving assurances made by the FTA grantee, with review and concurrence by FTA, the Labor Department, and transit industry labor unions. The labor protection review process is streamlined for FTA Section 5311 grantees, and is waived for Section 5310 grantees. Requirements are found at 29 CFR Part 215.

Workplace Health and Safety Protection. Applies to all employers. Employees are entitled to a workplace that is free of health and safety hazards. Federal regulations found at 29 CFR Part 1910 address many of the most critical health and safety issues; others are mitigated on a case- by-case basis.

Protection from Bloodborne Pathogens. Applies to most employers. Because of increased concerns over exposure to hepatitis, HIV, and other illnesses transmitted via bodily fluids, guidelines have been issued that are designed to protect the health and safety of workers who are at risk of coming into contact with bodily fluids while on the job. These guidelines are found at 29 CFR Part 1910.

Fair Labor Standards. Applies to all employers. Federal law provides many protections for employees, particularly for those who are paid on an hourly basis. These protections include a minimum wage for hourly employees, along with guaranteed overtime pay for more than 40 hours of work per week. Other labor standards protect employees' rights to collective bargaining, and they protect the job security of employees who must take extended family or medical leave. Many of these requirements are found at 29 CFR Parts 1 through 5.

4.2.5 Being a Good Corporate Citizen Typically, a transportation system is a central part of the community. As a corporate citizen, the transportation grantee has the responsibility to include all elements of the community in their services. They must not take unfair advantage of their position or public resources to influence political processes. They must ensure that their activities are not worsening the community's environment.

Non-discriminatory Provision of Transit Services. Applies to all FTA grantees. Federally supported transit services must be provided in a way that does not discriminate according to community demographic patterns of race, color, or national origin. Nondiscrimination requirements also pertain to transit construction projects and vehicle acquisition. Guidelines are found in FTA Circular 4702.

Lobbying Restrictions. Applies to all recipients of federal funding. Federal funds are not to be used in ways that promote particular candidates for public office, support partisan political activities, or influence decisions to award grants or contracts to particular recipients of federal funds. Federal law restricts the amount of

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-7 Accepted October 4, 2006 LEGISLATIVE REVIEW

non-federal funds that tax-exempt private nonprofit organizations can spend on lobbying. Lobbying restrictions do not apply to activities including nonpartisan education or informational efforts; gathering, analyzing, and reporting information on legislative or regulatory actions; providing advice or requested assistance from legislators; testifying before legislative bodies; commenting on regulatory actions; or advocating general support for particular programs. Regulations concerning lobbying restrictions for DOT grantees and contractors are found at 49 CFR Part 20.

Environmental Impact of Transportation Projects. Applies to all recipients of federal funds. Federal law generally requires an assessment of the environmental impact of proposed activities, including transportation projects. However, many transit-related activities are excluded from this requirement. Among the so-called "categorical exclusions" are administrative and operating expenses, planning activities, vehicle purchases, technical assistance and, in many cases, construction or improvement of transit facilities. Environmental impact regulations for DOT grantees are found at 23 CFR Part 771.

Clean Air Act Compliance. Most urbanized areas (and some rural areas) do not meet the air quality standards mandated by the Clean Air Act (CAA). In these "non- attainment areas," all transportation activities, including transit services and highway construction, can be carried out only if they conform to the state's plan for achieving CAA standards. To help nonattainment areas meet their CAA goals, the Federal Highway Administration makes funds available through its Congestion Mitigation and Air Quality (CMAQ) program; CMAQ funds may be used for either highway or transit projects. CAA conformity regulations are found at 40 CFR Parts 51 and 93.

Underground Storage Tank Regulations. Applies to all public and private owners and operators of underground fuel storage tanks. If they own or operate such a tank, they are responsible for complying with guidelines intended to prevent leaks from their tank that might contaminate the soil and groundwater in their community. Regulations concerning underground storage tanks are found at 40 CFR Part 280.

4.2.6 Conclusion In conclusion, while federal regulations and policies have created new challenges for transportation grantees, there has not been a concurrent increase in resources at the federal level, especially when compared with inflation. This confirms the often heard outcry of “unfunded mandates.” While many transportation grantees have been able to offset real declines in federal operating support from state, local, and other sources, other agencies face an annual cost-revenue squeeze to provide needed services.

4.2.7 References The following list includes all of the regulatory citations and circulars mentioned in this primer. Also included are other valuable resources to help in understanding and complying with these regulations. Most FTA circulars and guidance publications are on the FTA Web site (http://www.fta.dot.gov).

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-8 Accepted October 4, 2006 LEGISLATIVE REVIEW

• 23 CFR Part 771, "Environmental Impact and Related Procedures" • 29 CFR Part 215, "Guidelines, Section 5333(b), Federal Transit Law" • 29 CFR Part 1630, "Equal Employment Opportunity for Persons with Disabilities" • 29 CFR Part 1910, "Occupational Safety and Health Standards" • 29 CFR Parts 1 through 5 • 40 CFR Part 51, "Requirements for Preparation, Adoption, and Submittal of Implementation Plans" • 40 CFR Part 93, "Conformity to State or Federal Implementation Plans of Transportation Plans, Programs, and Projects Developed, Funded or Approved Under Title 23 U.S.C. or the Federal Transit Laws" • 40 CFR Part 280, "Technical Standards and Corrective Action Requirements for Owners and Operators of Underground Storage Tanks" • 49 CFR Part 18, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments" • 49 CFR Part 19, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non- Profit Organizations" • 49 CFR Part 20, "New Restrictions on Lobbying" • 49 CFR Part 23, "Participation by Minority Business Enterprise in Department of Transportation Programs" • 49 CFR Part 29, "Government wide Debarment and Suspension (Nonprocurement) and Government wide Requirements for Drug-Free Workplace (Grants)" • 49 CFR Part 37, "Transportation for Individuals with Disabilities" • 49 CFR Part 38, "Americans with Disabilities Act (ADA) Accessibility Specifications for Transportation Vehicles" • 49 CFR Part 382, "Controlled Substances and Alcohol Use and Testing" • 49 CFR Part 383, "Commercial Driver's License Standards; Requirements and Penalties" • 49 CFR Part 571, "Federal Motor Vehicle Safety Standards" • 49 CFR Part 604, "Charter Service" • 49 CFR Part 605, "School Bus Operations" • 49 CFR Part 653, "Prevention of Prohibited Drug Use in Transit Operations" • 49 CFR Part 654, "Prevention of Alcohol Misuse in Transit Operations" • 49 CFR Part 660, "Buy America Requirements"

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-9 Accepted October 4, 2006 LEGISLATIVE REVIEW

• 49 CFR Part 661, "Buy America Requirements—Surface Transportation Assistance Act of 1982, as Amended" • 49 CFR Part 663, "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases" • 49 CFR Part 665, "Bus Testing" • 49 CFR Subchapter B, "Federal Motor Carrier Safety Regulations" • Federal Highway Administration and FTA, "Interim Guidance on the ISTEA Metropolitan Planning Requirements" • Federal Highway Administration and FTA, "Interim Guidance on Statewide Transportation Planning and Programming" • FTA Circular 4220.1D, "Third Party Contracting Requirements" • FTA Circular 4702.1, "Title VI Program Guidelines for FTA Recipients" • FTA Circular 4704.1, "Equal Employment Opportunity Program Guidelines for Grant Recipients" • FTA Circular 4716.1A, "Disadvantaged Business Enterprise Requirements for Recipients and Transit Vehicle Manufacturers" • FTA Circular 5010.1B, "Grant Management Guidelines" • FTA Circular 9040.1C, "Section 18 Program Guidance and Grant Application Instructions" • FTA Circular 9300.1, "Capital Program: Grant Application Instructions" • OMB Circular A-87, "Principles of Cost Accounting for State and Local Governments" • OMB Circular A-122, "Cost Principles for Nonprofit Organizations"

Final Report to the Pennsylvania House of Representatives Transportation Committee 4-10 Accepted October 4, 2006 OPERATIONS

5.0 OPERATIONS

SEPTA’s Operations Division is comprised of nine functional units: Administration, Automotive Equipment Engineering and Maintenance, Bus Transportation, Control Center, Customized Community Transportation, Infrastructure, Labor Relations, Rail Equipment Engineering and Maintenance, and Rail Transportation.

5.1 Goal The focus of this review is SEPTA’s rail and bus operations, which are the units within the division that have the most significant impact on SEPTA’s operating expenses and performance. The principal areas of review are organizational structure, management practices, productivity measures, and, where appropriate, peer comparisons. SEPTA’s Human Resources, Labor, and Administration functional units are covered separately.

5.2 An Assessment of Rail Operations SEPTA operates one of North America’s most diverse networks of public rail transit systems. It operates the following rail lines:

• City Division: six light rail and two subway-elevated lines • Victory Division: three light rail lines • Regional Rail Division: regional commuter rail lines

These three divisions provide approximately 472,000 (107,000 commuter rail, 296,000 heavy rail and 69,000 light rail) unlinked rail trips per weekday.

5.2.1 Major Observations SEPTA’s Transportation Directors provided a comprehensive set of performance measures. In addition to performance measures, reports that track operating expenses (by functional item) against the annual budget appropriations were provided.

SEPTA’s transportation executives demonstrated a comprehensive understanding of SEPTA’s rail operations, including critical performance measures, latent demand issues, customer service, and an acute sensitivity to managing and focusing on efficiency and productivity.

A review of service quality for the month of July 2006 (on-time performance) is summarized on the following page.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-1 Accepted October 4, 2006 OPERATIONS

Line On-Time Performance July 2006 Goal (%) Results (%) Blue 99 99 Orange 99 99 Elmwood Light Rail 75 76 Media/Sharon STD Light 93 88 Norristown High-Speed Line 97 92 Victory Bus 80 74

Railroad Lines

R-1 Glenside 92 90 R-1 Airport 92 87 R-2 Warminster 92 87 R-3 Marcus Hook/Wilmington/New 92 88 R-3 West Trenton Line 92 87 R-3 Media/Elwyn 92 89 R-5 Lansdale/Doylestown 92 74 R-5 Paoli/Thorndale 92 73 R-6 Norristown 92 88 R-6 Cyncyd 92 84 R-7 Chestnut Hill East 92 93 R-7 Trenton 92 88 R-8 Fox Chase 92 93 R-8 Chestnut Hill West 92 80

Rail Transportation’s reports indicated that the division was operating at or slightly below (2 percent) its operating budget. Overtime expenditures were running significantly over budget (26.5 to 41 percent); the overages, however, were offset by savings in other areas.

SEPTA transportation managers noted that they recognize that unscheduled absenteeism could and should be improved. A combination of programs is currently under way, including a Human Resources-managed Employee Wellness Program and a progressive discipline program.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-2 Accepted October 4, 2006 OPERATIONS

5.2.2 Review Team Response The fundamental structure of SEPTA’s major rail lines is a vestige of the former private rail operators, who in some cases built and operated competing lines in what amounts to the same corridors. The operation is also reflected in the nature of the technology used to operate the lines. Factors such as what may appear as an excessive number of stops on the Regional Rail Lines certainly has a significant impact on both schedule adherence and maximum train speed.

The comments below summarize the review team’s most significant findings.

• SEPTA should reevaluate its overall rail schedule adherence performance objectives. The lack of adherence may be because the objectives were set artificially high. • SEPTA should continue its efforts to reduce the current (25 percent) operator extra board. • SEPTA should investigate and mitigate the factors driving the 25 percent increase in complaints (service quality) between years 2005 and 2006. • Evidence shows that overall operating cost compares favorably with peers in all modes. • The recently conducted Abrams-Cherwony & Associates Management Performance Review indicated that the overall cost efficiency and cost-effectiveness of the SEPTA Rail Division are excellent. • SEPTA should develop appropriate performance measures that highlight the impact of Amtrak’s operations and services of SEPTA’s operations and budget. • SEPTA’s use of manual sampling measurements to track schedule adherence may at times introduce significant error in the measured results. It is recommended that electronic means be used to capture this information. • SEPTA should develop, progressively implement, and carefully manage an adjunct to its current Systems Safety Plan. The plan should reflect sensitivity to best practices (Homeland Security principles and program management programs). • SEPTA should implement further refinements to capture schedule adherence and also include schedule adherence both during a.m. and p.m. peak periods and during base periods. Averaging schedule adherence data over a 1-day period may at times introduce significant errors. • A substantial amount of resources (cashiers, conductors, cash handling personnel, supervisors, and managers) is devoted to fare collection and there may be future opportunities for significant cost avoidances. • The existing service, while well serving regular riders, is not necessarily visitor/casual patron friendly. A number of suggestions are offered: - Improve customer service training for all personnel who may on occasion or regularly come into contact with patrons or potential patrons.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-3 Accepted October 4, 2006 OPERATIONS

- Improve on-board public address messages. - Simplify the fare structure. - Repair or eliminate self-service fare machines. - Increase the readability of on-board route maps; the maps are too small, difficult to read, and easily misunderstood. • Focus on reducing the current level of unscheduled absenteeism. • Transportation should take the lead in developing a coordinated SEPTA strategic focus to meet future rail demand. Transportation and the patrons served (or potentially served) will be significantly impacted by the timely delivery of the new Comet Cars, the building of additional regional park-and-ride lots, and the introduction of other civil and systems projects designed to meet future service requirements. • Evidence points to collegial working relationships between union and management employees. • Overall service quality is impacted by the efficacy of the Capital Projects, Human Resources, Labor, Marketing, and Community Outreach Divisions. • A long-term integrated strategic perspective does not exist. • SEPTA has effectively managed a series of multi-year staff reductions with minimal loss of service quality. • The High-Speed Rail Lines are operating new capacity, and demand continues unabated. SEPTA must execute appropriate plans and programs to meet this demand. • The R1 Airport Service appears to be under-marketed, considering the value of the service; more effective cooperation and coordination between the Airport and SEPTA are suggested. • The replacement of the Silver II and III cars is critical to meeting future demand and sustaining service quality.

5.3 Status - Assessment of Bus Operations SEPTA operates 174 bus routes within the City of Philadelphia and its contiguous suburban communities. SEPTA is distinguished as one of the largest and most heavily used combination diesel and trolley bus transit systems in the country, as reflected in the following statistics:

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-4 Accepted October 4, 2006 OPERATIONS

Performance Measure 2004 Statistic National Ranking Number of vehicles 1,356 8th Passenger miles 543 million 5th Vehicle miles 40 million 7th Passenger trips 187 million 7th

5.3.1 Major Observations The following general observations are noted from SEPTA’s bus operations personnel:

• Overall cost efficiency and cost effectiveness are excellent. • Use of GPS has greatly improved the accuracy of monitoring schedule adherence. Extensive data, which is used to improve overall performance, is captured at SEPTA’s Central Control. A program is currently under way to optimally integrate the new GPS system and the traditional on-the-street supervisory process. • Good collegial working relationships exist between union and management employees. • The system of performance measurements is working; however, improvements could lead to proactive refinement of on-the-street service quality. • SEPTA’s bus operations compares favorably with peers in most categories. • SEPTA has effectively managed a series of multi-year staff reductions without any significant loss of service quality. • The incorporation of automated, scheduled adherence measurement, using the new GPS radio system, has resulted in improved accuracy and consistency. • SEPTA does not use part-time operators. • Labor work rules have improved significantly since 1996. • Route changes (particularly reductions) are difficult, contentious, and laborious.

5.3.2 Review Team Response The review team makes the following recommendations:

• SEPTA should find effective ways to further improve schedule adherence by using the new GPS. • SEPTA should review the Portland Tri-Met GPS operation and the manner in which it has developed new performance measures that are automatically tracked and used to support and improve service.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-5 Accepted October 4, 2006 OPERATIONS

• SEPTA should continue to find creative methods to reduce unscheduled absenteeism.

5.4 Status - Automotive Equipment Engineering and Maintenance The Automotive and Equipment Engineering and Maintenance (AEEM) Division is responsible for the optimal life-cycle preservation of all of SEPTA’s diesel bus and non-revenue vehicle assets and support systems.

The Equipment Engineering Unit is responsible for the development and approval of specifications for new vehicles, maintenance standards for preventive and corrective maintenance, mid-life and major overhaul procedures, equipment and material specifications, and other technical as-needed services. The AEEM Division conducts make-versus-buy analysis of all major rebuilt components. SEPTA contracts out maintenance overhauls to private companies, if such contracting is cost effective. Approximately $6 million of services will be contracted out during 2006.

SEPTA’s maintenance forces are distributed over a network of operating divisions. Each operating division is functionally self-contained, heavy overhaul maintenance being the exception. Original equipment manufacturers, combined with SEPTA’s equipment engineers, develop preventive maintenance schedules and the tasks associated with each schedule. Maintenance procedures are designed to maximize equipment reliability.

5.4.1 Major Observations AEEM is an example of a reliability-centered, cost-efficient operation. Over the last 6 years, SEPTA management has progressively instituted a strategically planned and well-executed organizational structure that consistently produces a product that is comparable to the best maintenance organizations in the country, including such reputable firms as United Parcel Services and Federal Express.

Steady productivity improvements are exhibited by the remarkable strides in the number of mechanics per vehicle, the mean distance between bus failures, and the total operating miles per mechanic.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-6 Accepted October 4, 2006 OPERATIONS

Figure 5-1. AEEM Comparison of Average Annual MDBF versus Operating Mechanics (FY 1997–2006)

AEEM Comparison of Avg Annual MDBF vs Operating Mechanics (FY 1997-2006)

9,000 490 +44% 8,000 480 7,000 470

6,000 460 s

F 5,000 450

MDB 4,000 440 MDBF

3,000 430 # mechanic -10% # mechanics 2,000 420 1,000 410 0 400 FY'97 1998 1999 2000 2001 2002 2003 2004 2005 2006 MDBF 4,527 6,413 7,074 6,466 7,359 7,501 7,292 6,824 7,781 8,020 Mechanics 481 482 471 446 448 444 448 438 432

Figure 5-2. AEEM-Comparison of Bus Fleet Size versus Line Requirements (FY 1997–2006)

AEEM - Caomparison of Bus Fleet Size vs. Line Requirement (FY 1997-2006)

1500 25%

1400

1300 20%

1200 o

e 1100 15%

1000 fleet siz

900 10% spare rati fleet size fleet size ratio spare 800

700 5%

600

500 0% FY'97 1998 1999 2000 2001 2002 2003 2004 2005 2006 proj 2007 Fleet 1350 1338 1337 1417 1384 1386 1390 1364 1358 1347 1342 Required 1091 1108 1115 1093 1102 1123 1127 1147 1179 1164 1161 Spare Ratio 19% 17% 17% 23% 20% 19% 19% 16% 13% 14% 13%

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-7 Accepted October 4, 2006 OPERATIONS

AEEM has developed comprehensive engineering and maintenance standards that provide a precise planning and productivity system of maintenance benchmarks. All preventive maintenance is scheduled using approved time standards. No vehicle is allowed to be used for service that has exceeded its preventive maintenance window. All maintenance staffing and material and parts information is captured in a comprehensive maintenance management information system.

Comprehensive life-cycle maintenance, including mid-life maintenance (major assembly replacement, such as for engines, transmissions, or complete bus repainting) is performed based upon condition assessments and original equipment manufacturer (OEM) recommendations. Analyses are performed to determine the most cost-effective way to perform the labor. For example, SEPTA’s analyses indicated that major engine overhauls can be outsourced at a lower cost than they can be performed by conducting the work in-house. Conversely, SEPTA’s maintenance staff can overhaul transmissions at a lower cost than private contractors.

SEPTA has developed a fully allocated cost model to compare in-house maintenance tasks to those of outside contractors.

The sections below summarize other factors observed within AEEM Division.

Fleet Procurement Strategy

SEPTA uses a strategic bus purchasing standard that spreads bus replacements over a balanced span of years; this is done so as to not overwhelm maintenance or engineering resources due to a large fleet reaching the end of its economic life concurrently. Typically, 100 to 150 coaches are purchased each year. This strategy provides SEPTA’s engineering and maintenance personnel an opportunity to evaluate and prove technology and bus customer service functions.

Introduction of Hybrid-Diesel Bus Technology

SEPTA is currently operating a fleet of 100 hybrid-diesel vehicles. This technology has demonstrated significant fuel economies. On average, a standard 40-foot hybrid coach will provide approximately twice the normal fuel mileage (2.5 to 4.5 miles per gallon). The capital cost of the hybrid vehicle is substantially more than “clean” diesel variety coaches. However, the additional cost in the long run is thought to be offset by the significant environmental improvements in reduced engine exhaust emissions and fuel economies.

The following general observations were also made:

• Random quality assurance inspections are conducted at all divisions to verify the accuracy of maintenance documentation and the condition of vehicles after maintenance has been completed. • The Equipment Engineering and Maintenance organizational structure compares well with the best of its peers in terms of numbers of employees, key functions, and spans of control.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-8 Accepted October 4, 2006 OPERATIONS

• Employees are evaluated (using Management Information System Reports) for productivity. Employees not meeting minimum productivity are progressively supervised to improve their performance. If necessary, those employees are progressively disciplined. • High morale and excellent communications exist between shop floor personnel and management. • SEPTA managers anticipate a $5 million annual savings (in 2006 dollars) based upon the replacement of exiting diesel coaches with hybrid coaches. (Note: the hybrid vehicle capital cost is considerably higher than the comparable 40- or 60- foot-long diesel coach).

Use of Productivity, Efficiency, and Reliability Performance Measures

A comprehensive set of performance measures were noted, including:

• Mean distance between failures for City/Suburban Bus • Vehicles per mechanic • Staffing ratios (vehicles per mechanic) • Balanced operating budget • State Police inspections

Other observations include:

• Unscheduled absenteeism is relatively high, at 14 percent. • Significant programmatic improvements are under way to achieve greater purchasing and storeroom efficiencies, while mitigating the number of vehicles out of service due to unavailability of parts.

5.4.2 Review Team Response According to documents reviewed, and interviews with tenured senior managers, SEPTA’s Engineering and Maintenance Units have effected significant overall improvements in productivity, reliability, and the condition of critical physical assets used to support SEPTA’s multimodal transit services. Dramatic improvements in the efficiency of maintenance were readily observed. The consolidation of rail and bus engineering and maintenance resources has contributed to the effective integration of proven effective management methodologies, including:

• Significant reduction of restrictive labor agreement work practices. • Development of highly comprehensive engineering-based maintenance standards and long-term maintenance planning. • Incorporation of reliability-based preventive maintenance and inventory practices, which has produced dramatic increases in fleet reliability and a proportional reduction in the level of materials and supplies consumed.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-9 Accepted October 4, 2006 OPERATIONS

• The emphasis on developing, in cooperation with local universities and trade schools, comprehensive apprenticeship and training programs has resulted in SEPTA’s workforce becoming one of the best trained in the United States. • The development and incorporation of a comprehensive management information system allows SEPTA to capture and manage all maintenance activities from those on the shop floor to major vehicle overhauls. • The effective integration of cost-effective outsourcing was evidenced in the use of engineering standards, maintenance planning processes, and make-versus- buy criteria that objectively determine the cost efficiency of performing work in- house versus being outsourced. • SEPTA has incorporated an internal warranty program for in-house overhauled assemblies, which provides the same assurances that a private sector supplier would be expected to provide. SEPTA uses serialized component tracking to monitor the disposition of rebuilt components. • SEPTA has developed a number of programs to reduce unscheduled absenteeism; however, the existing rate is high and should be significantly reduced over the next 2 years.

5.5 Rail Equipment Engineering and Maintenance This department provides maintenance engineering and comprehensive maintenance for all of SEPTA’s light, heavy, and commuter rail fleets. The department is organized around four distinct functional areas, all supported by a centralized vehicle engineering function, back (component overhaul) shops, and dedicated service and inspection facilities where preventive and corrective maintenance activities are performed.

The Rail Equipment Engineering and Maintenance Department is responsible for a variety of functions associated with rail fleet asset management, including the following:

• Development of new vehicle specifications. • Development and approval of maintenance standard operating procedures. • Conduct of reverse engineering analyses to determine second-source potential for materials and spare parts purchases. • Quality assurance. • As-needed engineering services.

5.5.1 Major Observations SEPTA’s complex rail maintenance yards and shops and their management has been consolidated with the Automotive Maintenance Division. An extensive site

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-10 Accepted October 4, 2006 OPERATIONS

review and interviews with key managers were used to derive the following observations regarding the program.

Major observations are as follows:

• Maintenance records demonstrated 100 percent compliance with timely completions of preventive maintenance rail car inspections. • Reliability performance measures are outstanding and compared favorably with the best industry practices within each mode (light, heavy, and commuter rail). • A comprehensive work order system is used to plan and manage the data associated with planned and unscheduled maintenance events. • The shops were all clean and well organized

5.5.2 Review Team Response An extensive tour of SEPTA’s major rail maintenance facilities and support shops demonstrated that SEPTA’s Rail Equipment Engineering and Maintenance operations units are well organized and that they provide significant evidence of overall efficiency and maintenance productivity.

Economies Realized through Reverse Engineering

SEPTA’s well-organized vehicle engineering program demonstrated a number of excellent best practices and significant cost avoidance through reverse-engineering supported procurements. Some of the highlights of the savings from this process are as follows:

Alt Source Savings Item OEM Price ($) Price ($) Per Unit ($) M4 brake pads (100 sets) 145.00/set 65.80/set 79.20/set N5 battery (24 sets) 6,224.00/set 3,645/set 2,579.00/set BIV valve assembly 287.00/set 49.25/set 237.75/set

These are examples of the economies that SEPTA’s engineering and maintenance forces have achieved. More than 315 such parts were successfully reverse- engineered and outsourced to new vendors, resulting in significant cost avoidance for SEPTA.

Motor Rebuild Shop and the Potential for In-Sourcing

• A site review of SEPTA’s 69th Street Motor Rebuild Facility indicated that the operation is a model of efficiency. The unit repair facility is capable of repairing and overhauling 90 percent of all traction motors and similar motors, generators, and electrical switchgear. The shop is well equipped to manage the receipt, storage, testing, repair, and complete overhaul of numerous varieties of electrical

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-11 Accepted October 4, 2006 OPERATIONS

devices. The 69th Street Shop uses engineering standards for its repair and overhaul procedures. The operation establishes production requirements based on optimal support of SEPTA bus, rail, and facility major electrical rotating or switchgear maintenance.

All work is pre-planned, and the associated costs of in-house tasks are compared against comparable services from private suppliers. The 69th Street Shop managers demonstrated an acute knowledge of potential savings from procuring goods and services from private suppliers that could produce the end product at a price below SEPTA’s cost.

The nature of the shop and its efficiency is a potential candidate to perform overhaul of electric traction motor for trackless trolleys or rail vehicles used by other transit authorities. Because of the demand size, only a small number of outside suppliers currently perform this type of maintenance. The review team’s experience indicates that SEPTA could effectively compete with any existing motor rebuild shop in North America.

SEPTA uses serialized component tracking on major assemblies to monitor the reliability of the overhauled units. SEPTA provides guarantees to its operating units that are as good as or better than those provided by the OEM.

The following comments summarize the review team’s overall response:

• Focus on reducing the overall size of the rail maintenance inventory and the level of parts and materials purchased. • Focus on developing long-term fleet plans and procurement strategies that avoid major delays or diminution of functionality and quality. • Consider the incorporation of rail car design features that have worked for other agencies and that create more attractive features for patrons. • Continue the cost-effective practice of sharing major capital equipment among multiple work sites. • Continue developing productive relationships with transportation personnel. • Work toward reducing unscheduled absenteeism.

5.6 Central Control SEPTA recently completed a major consolidation of its Central Command and Control Center at its 1234 Market Street headquarters. The functionally impressive site includes all in-service monitoring and management of SEPTA’s bus and rail lines and major rail transportation facilities. The new facility includes control and management of the Suburban Rail Service, and SEPTA’s Transit Police maintain an incident control desk.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-12 Accepted October 4, 2006 OPERATIONS

5.6.1 Major Observations The complex operation is staffed 24 hours a day by a large force of communications dispatchers, support personnel and supervisors, and a shift manager. The site is organized around distinct transit modes.

The facility layout was designed to cluster dispatchers associated with each unique transit service. A number of electronic tracking devices are used including computer terminals with touch-screen interfaces and large flat-panel displays used to track entire rail systems. The electronic tracking systems provide the capacity to track every SEPTA vehicle in service, as well as the personnel operating each vehicle.

The new site has begun to incorporate the monitoring and management of data from the GPS. The information has been put to excellent use in significantly upgrading the accuracy of bus schedule adherence monitoring.

The GPS produces hundreds of thousands of automated vehicle time stamps versus numerous observations made and reported manually by on-street transit inspectors. The communications specialists demonstrate an acute understanding of the new equipment and how it can be best used to manage SEPTA’s complex multimodal service offerings.

5.6.2 Review Team Response The review team was favorably impressed with the center; however, improvements can be made in expanding strategic focus, maximizing utilization of assets, and using of creative management approaches to control cost.

The review team recommends that SEPTA consider the following:

• Maximize the potential utility of the Control Center by conducting a strategic plan that identifies opportunities to improve service, reduce cost, track and manage accidents, manage unscheduled maintenance events (failures), and focus on such areas as public safety events (police/fire/health), traction power management (and the potential to programmatically de-energize line sections to save power), and related economies. • Develop standard operational procedures, including fallback strategies, that allow for cross training of dispatchers. • Anticipate and incorporate Homeland Security system monitoring features into future operating plans. • Develop appropriate working relationships and communications protocols with local, regional, and federal law and enforcement centers. • Assiduously manage cost, particularly overtime, to mitigate key personnel burn- out and overtime usage.

Final Report to the Pennsylvania House of Representatives Transportation Committee 5-13 Accepted October 4, 2006 OPERATIONS

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Final Report to the Pennsylvania House of Representatives Transportation Committee 5-14 Accepted October 4, 2006 LABOR ISSUES

6.0 LABOR ISSUES

SEPTA workers are represented by 15 separate locals, with 17 different contracts. Transport Workers Union (TWU) Local 234 represents the preponderance of the workforce, with nearly 5,000 members. The remaining employees are represented by one of the following union groups:

• TWU Locals 290 and 2013 • Brotherhood of Maintenance of Way Employees • United Transportation Union Locals 1594 and 61 • International Brotherhood of Teamsters • Transit Police • Brotherhood of Railway Carmen • International Association of Machinists and Aerospace Workers • Sheet Metal Workers International Union • Brotherhood of Railroad Signalmen • International Brotherhood of Electrical Workers • Brotherhood of Locomotive Engineers • Transportation Communications Union

SEPTA’s union contracts mirror those of other large transit agencies. Wage rates and benefits are comparable to the other transit contracts reviewed. Contracts were not available for every craft on every property; however, those reviewed are representative of the whole. Using data obtained from the U.S. Department of Labor, Bureau of Labor Statistics, Collective Bargaining Agreements Department, and Wage Department, a comparative review of SEPTA’s union labor rates and benefit packages was conducted.

Union contracts from the MBTA, NYCT, CTA, St. Louis (Bi-State Development Agency), WMATA, San Francisco Municipal Transportation Agency, and Los Angeles County Metropolitan Transportation Authority were reviewed. Three key findings are worth noting:

• Wages and benefits were comparable when adjusted for area cost of living differences. • The contracts are similar in providing the standard health insurance coverage, retirement benefits, clothing and equipment allowances, vacation, sick leave, and life insurance coverage. • Holidays, vacation schedules, insurances, and allowances all appear similar.

Final Report to the Pennsylvania House of Representatives Transportation Committee 6-1 Accepted October 4, 2006 LABOR ISSUES

Typically, agencies required employees to pay for some part of their health coverage, as does SEPTA. SEPTA’s labor contracts tend to have better work rules than other transit properties (more favorable to SEPTA). In fact, the contract that came out of the 1998 strike resulted in a virtual purging of many troublesome work rules, and in every contract since then, the unions have made further concessions. In the most recent contract, TWU Local 234 agreed to have employees pay a portion of their health care. On the railroad side, no work rule problems exist; they were eliminated when SEPTA took over the passenger rail operations of now-defunct railroads.

Nearly every property reviewed has a graduated wage scale, with scheduled increases based on time-in-service. Many, like SEPTA, start new-hires at 60 percent of the top rate in a given job classification. The scales vary by job type, but a standard example from the agreement between SEPTA and TWU Local 234 would read:

Operators

Top Rate $22.18

Starting Rate $13.31

Months to Top Rate 48

Progression Detail

Start - 60%

13 mos. – 70%

25 mos. –80%

37 mos. – 90%

48 mos. – 100%

Note that at the above top rate, overtime (time and a half) would be $33.27 per hour. At just 10 overtime hours per week, times 48 weeks (assuming four weeks of vacation), the operator would earn an additional $15,969.60 for the year. This easily accounts for the stories of extraordinarily high annual payouts to operators.

SEPTA reports that it has become increasingly difficult to recruit and retain bus drivers, but the service routes must be covered. Hence, drivers must work overtime, with some drivers working from 5:00 a.m. to 8:00 p.m. This results in both overtime and penalty pay for the break between morning and afternoon runs. It still remains more cost effective to pay overtime rather than hire another person and pay benefits.

Final Report to the Pennsylvania House of Representatives Transportation Committee 6-2 Accepted October 4, 2006 LABOR ISSUES

However, the progressive wage scale, which begins at 60 percent of the regular wage as illustrated, has helped to reduce the total cost of a full-time employee.

Absenteeism is a concern that not only causes SEPTA a considerable amount of money, but also relates to overtime. Currently, SEPTA bus drivers are paid overtime based on daily hours, not weekly hours. Therefore, a driver can be off sick some part of the week and still earn overtime if the driver works more than 8 hours in a single day. In most industries, overtime is paid based on time worked beyond the base 40-hour workweek. SEPTA believes that a weekly overtime rule, rather than a daily rule, would discourage absenteeism.

6.1 Special Issues SEPTA, like any employer working under the Railway Labor Act, is subject to the Federal Employers’ Liability Act (FELA). FELA is a substitute for Workers’ Compensation (WC) in on-the-job injury cases. About 1,000 of SEPTA’s approximately 8,900 employees are covered under FELA.

Passed by Congress in 1908, FELA is a negligence-based system with no cap on awards. Unlike FELA, WC provides an injury-based schedule of awards that are capped. FELA is nearly always litigated, which can result in large awards for injuries. SEPTA claims that awards under FELA cost on average 8 to 10 times the equivalent injury award under WC. The Association of American Railroads reports that “... Class I railroad costs under FELA in 2001, including indemnity (wage replacement) and medical payments, but excluding administrative costs (for reasons explained below), were an estimated 1.6 to three times greater than they would have been under state workers’ compensation systems.”1 A recent study of claims data compiled by the SEPTA Legal Department found that in four case studies, FELA awards totaled $9,099,633.00, while the equivalent under WC would have amounted to $374,425.16, a difference of more than $8.5 million (including administrative expenses). SEPTA’s General Counsel asserts that Philadelphia is a particularly litigious region where juries tend to award large settlements.

SEPTA is formulating a strategy for having its railroad employees removed from FELA coverage. Doing so will require coordination with the State of Pennsylvania. A discussion of the legal and legislative actions necessary to effectuate a change in the application of FELA is beyond the scope of this study.

SEPTA will undergo a significant level of retirements in the next few years. The review team believes the following questions must be addressed:

1 Source; Association of American Railroads

Final Report to the Pennsylvania House of Representatives Transportation Committee 6-3 Accepted October 4, 2006 LABOR ISSUES

• What process is in place to recruit and train employees to replace those who are (or will soon be) retiring? • Can the organization be downsized any further through attrition? • What should SEPTA do to become more proactive in identifying potential employees and developing training programs to prevent adverse impacts to its operations? • What is being done with the various labor unions to institute efficiencies through job consolidation as attrition takes place? • What is being done to work with unions to find and train the next generation of SEPTA workers? • Are there joint grant opportunities through workforce development programs?

After interviews with TWU Local 234 President Jeffery Brooks, SEPTA’s largest local union, the review team discovered that SEPTA and its unions have several programs in place and under development to address staffing issues. SEPTA and TWU are currently engaged in three key programs: Keystone Transit Career Ladder Program, Student Internship, and apprenticeship training. Funding for these programs comes from a number of local, state, and federal sources. An issue facing SEPTA, as well as all city employers, is the relatively low educational attainment of Philadelphia residents. “Only 56 percent of working-age adults in Philadelphia are employed or looking for work in 2000—the fourth-lowest percentage among the 100 largest cities in the U.S.”2

SEPTA and its unions have formed a Joint Apprenticeship Council to establish apprenticeships in about 10 crafts. The program representatives currently meet twice each month and are engaged in establishing policies and training strategies. Along with addressing seniority and aptitude testing issues, the steering committee is exploring tech prep and mechanical readiness programs. TWU Local 234 is in the process of forming work groups in each craft using local union members as subject matter experts. The subject matter experts will develop the curriculum and training modules for the program.3

The Keystone Transit Career Ladder Program is a joint project of transit unions and transit systems in Pennsylvania. It includes SEPTA, TWU Local 234, the Pennsylvania Public Transit Association, the Pennsylvania AFL-CIO, the Amalgamated Transit Union, PAT Transit, PENNTrain, and the Community Transportation Development Center. The Career Latter Program recently celebrated

2 “Philadelphia in Focus: A Profile from Census 2000”, “Living Cities”, November 2003, , Accessed August 11, 2006.

3 All program information was provided by TWU Local 234 and is reported in their words.

Final Report to the Pennsylvania House of Representatives Transportation Committee 6-4 Accepted October 4, 2006 LABOR ISSUES

its fifth year of existence. Fore more details, see http://www.transportcenter.org/ and http://www.keystonetransit.org/.

The Keystone Transit Career Ladder Program is described by TWU Local 234 as “…a collaborative effort with intent to upgrade workforce skills to meet new maintenance challenges created by the rapid advances in mass transit technologies. Curriculum development has been centered on creating pathways to advance maintenance personnel skills to either a higher level of maintenance (e.g., third class mechanic to first class mechanic), or to create higher levels of job descriptions through improved skill transference.” One stumbling block yet to be resolved is the issue of seniority within classes. Seniority is carried within each class so that if a worker advances from one class to the next, the worker must begin over again at the bottom of the seniority list in terms of shift schedule. Therefore, being subject to losing one’s right to preferred hours of work can be a major disincentive to seeking advancement.

Finally, SEPTA, TWU, and the school district of Philadelphia have instituted a shadowing program for high school juniors and seniors. Students are introduced to bus engine repair and bus and light rail collision repair through both hands-on and classroom instruction. Basic vocational and technical school curricula generally do not address either bus or rail mechanical training. The partnership gives SEPTA and TWU an opportunity for input into the school district’s training program where they can encourage the schools to include a transit skill set in the curriculum. The program allows students an opportunity to learn about high-skill, high-wage jobs.

The final issue to be reported on is “Labor Protective Agreements.” SEPTA, like many other rail entities is subject to protective agreements that mandate a certain number of months’ pay be given to any employee affected by layoffs. Amtrak has always claimed that because of “protection” it would cost such an enormous amount to pay everyone in case of a bankruptcy, it is more cost effective to keep Amtrak running. Protective agreements mandate that employees affected by a reduction in force be compensated. These agreements have been generally negotiated at SEPTA at the time of the layoff. Protective agreements do not prevent SEPTA from terminating employees, however. Workers are terminated due to poor performance or other disciplinary infractions.

6.2 Summary SEPTA’s relationship with its unions is typical. There is no evidence that the unions at SEPTA exert undue influence. SEPTA’s rates of pay, benefits, and work rules are comparable to other transit agencies, and better than some. SEPTA and its unions are addressing the hiring problem through training and internship programs. SEPTA’s labor relations department is working toward solutions to absenteeism and other issues that impact efficiency.

Final Report to the Pennsylvania House of Representatives Transportation Committee 6-5 Accepted October 4, 2006 LABOR ISSUES

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Final Report to the Pennsylvania House of Representatives Transportation Committee 6-6 Accepted October 4, 2006 MAJOR CAPITAL IMPROVEMENT PROJECTS

7.0 MAJOR CAPITAL IMPROVEMENT PROJECTS

7.1 Goal The goal of SEPTA’s Major Capital Improvement Projects is to plan, develop, design, construct, and manage start-up capital projects associated with the development and preservation of SEPTA’s existing or future infrastructure assets. The limited purpose of this review is to summarize the current program, its management, and its direct or peripheral impact on current or long-term funding.

7.2 Status The SEPTA Major Capital Improvement Program (Program) is strategically planned in 12-year cycles and transportation plan. The Program planning cycle is further divided into annual plan, four-year plan, and years 5 through 12. The Program is funded from a variety of federal, state, and local sources; however, the principal source of funding is derived from the federal government. The highly formalized federal and state funding obligations dictate the use and program management oversight due-diligence requirements. Local match is a necessary element of most funding regimes.

The federal funds are authorized under recently (August 2006) passed legislation that was signed into law. The Safe, Accountable, Flexible, and Efficient Transportation Equity Act (SAFETEA-LU) provides guaranteed programmatic capital funding support for U.S. transit authorities for the next 6 years.

Whereas the Federal Transportation Program funds provide 80 percent of SEPTA’s Project cost, the remaining 20 percent is matched by state (approximately 17 percent) and local, City of Philadelphia, and local governments, picks up approximately three percent.

Capital Funding Shortfall

Despite the availability of existing federal, state, and local funding, SEPTA’s Program remains severely resourced constrained. The results of this lack of funding is reflected in the condition of SEPTA major capital assets, delays in providing new services to key markets. According to SEPTA’s long-term plan, $100 million of capital eligible funds are now used to balance its operating budget. The SEPTA long- term Capital Plan further notes, “…projects such as the renovation of Broad Street Subway stations at Girard and Spring Garden, modernization of the Authority’s fare collection system, restoration of rail service between Elwy Wawa, replacement of regional rail substations, and improvements to bus and rail shops have not been advanced in as timely a manner as conditions and needs warranted.”

Final Report to the Pennsylvania House of Representatives Transportation Committee 7-1 Accepted October 4, 2006 MAJOR CAPITAL IMPROVEMENT PROJECTS

7.3 Major Observations SEPTA’s Program is currently challenged by examples of two major projects that are significantly behind schedule and over budget. The causes of the delays and cost overruns to the Market Street Elevated Project and other projects are beyond the scope of this review; however, a cursory review of the status of SEPTA’s Program indicates that there may be significant issues with the effective management of overall project delivery major capital project management systems. Further, direct evidence of significant community concerns (as voiced by a group of Pennsylvania State legislators) about the negative impact of SEPTA’s outreach to neighborhoods affected by SEPTA construction activities is cause for concern, if the assertions are factual.

There is evidence that SEPTA has recognized the need to adjust to current major capital project management challenges. A major reorganization was recently completed. This consolidation of SEPTA engineering and project management resources was developed to best use existing staff capabilities.

The executive currently in charge of major capital programs formerly headed SEPTA’s facilities and capital improvement programs. That department has, over the past 5 years, accomplished the following through the use of in-house construction teams:

• Made significant improvements to the reliability of the SEPTA’ rail traction power catenaries system. • Rehabilitated rail station platforms and associated structures. • Completed these projects having a total value in excess of $ 70 million.

The new executive in charge, while recognizing the challenges of existing programs, presented a clear, credible strategy of how SEPTA plans to proceed to improve major capital project delivery.

7.4 Review Team Response Outside of SEPTA’s current operating budget challenges, no other issue has received as much attention as their current major capital project delivery challenges. Although, the review team was not charged with, or able to determine, the absolute root causes of SEPTA’s major capital project challenges, the team believes that there was sufficient evidence to draw a number of accurate conclusions and to make recommendations that experience and prudence have demonstrated to work at other transit facilities similarity chartered or challenged.

The following general observations were made:

• The project delivery methodologies are inherently weakened by the requirements of the State’s Separations Act, which requires three independent contracts (and three specifications and project management plans) for each capital project.

Final Report to the Pennsylvania House of Representatives Transportation Committee 7-2 Accepted October 4, 2006 MAJOR CAPITAL IMPROVEMENT PROJECTS

• The age and complexity of SEPTA’s infrastructure and multimodal fleet assets present a major engineering and total asset management challenge. • The condition of its assets indicates that SEPTA has been heavily influenced by a combination of capital projects funding constraints and incidents of flawed major program delivery. • There was an absence of industry best practices program management plans, including performance measures that reflect effective project coordination, project controls, quality assurance, risk management, cost controls, and project turnover procedures. • Evidence shows serious community relations conflicts as represented by representatives from Philadelphia communities adversely affected by SEPTA’s construction projects. • SEPTA’s resource-constrained, long-term capital program strategy is not keeping pace with (and may be falling behind) essential existing infrastructure and new service requirements. • The long-term reliance on capital-eligible operating funds is a false economy that threatens the very viability of the stability of SEPTA infrastructure and future new service requirements. • The existing capital performance measures and long-term plans do not adequately serve SEPTA’s short- or long-term interests. The level of comprehensiveness, accuracy, and recommendations toward integrated recovery strategies was not evidenced. • The average age of SEPTA’s heavy rail and suburban commuter rail vehicles (25 years) greatly exceeds the average of its peers. • There was little or no evidence of a comprehensive major capital quality assurance program. • Given the criticality of SEPTA’s major capital program, additional resources should be made available to the new executive in charge of major capital projects.

7.5 Recommendations SEPTA should move to reassess its major Capital Improvement Management Projects. Although its reorganized, through consolidation all of its infrastructure engineering management team, we recommend that SEPTA engage a combination of transit peers and professional experts to comprehensively assess and recommend a set of non-resource-based programmatic improvements to its capital improvement project delivery program.

Conspicuously lacking is an effective use of project management industry best practices, especially in the areas of design, construction, and project initiation.

Final Report to the Pennsylvania House of Representatives Transportation Committee 7-3 Accepted October 4, 2006 MAJOR CAPITAL IMPROVEMENT PROJECTS

SEPTA is seriously hampered by a number of unnecessary institutional barriers. These barriers and other issues as described below, and coupled with the incorporation of industry best practices and continuous improvement methodologies, would greatly benefit the operation and project delivery capability of SEPTA’s capital projects delivery units.

For its Major Capital Improvements Projects, SEPTA should:

• Develop long-term major capital improvement plans that reflect future service requirements, effective asset life-cycle maintenance, and the preservation of existing assets in a way that contributes to stakeholders’ satisfaction. • Pursue the availability and use of dedicated funding sources commensurate with the requirements of a non-resource-constrained long-term capital plan. • Given the criticality of SEPTA’s Program, additional resources should be made available to the new executive in charge of major capital projects. • Avoid long-term reliance on capital-eligible funds to offset operating expenses; that approach is a false economy, and the long-term reliance upon it will ultimately adversely affect the condition of critical assets. • Promote the abolishment of the Pennsylvania Separations Act, which may be the greatest obstacle to effective major capital project delivery. • Seek peer and professional assistance in reorganizing and rechartering SEPTA’s Major Capital Improvement Projects program.

Final Report to the Pennsylvania House of Representatives Transportation Committee 7-4 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

8.0 FARE COLLECTION SYSTEMS AND TECHNOLOGY

8.1 Introduction SEPTA’s fare collection system, the fifth largest transit system in the United States, supports an annual ridership of approximately 299 million trips (Fiscal Year 2005) on trackless trolleys, diesel buses, regional and light rail, subway/elevated, and demand (paratransit) operations. SEPTA also provides fare services for parking. The fare collection system and the operations and maintenance staff that support it, do so for a transportation system that compares favorably with most major transit systems nationwide.

SEPTA’s fare collection system is series of disparate fare sub-systems and methodologies unique to the transportation mode (e.g., surface, subway/elevated, regional rail, paratransit). The disparate nature of these subsystems results in a number of labor-intensive processes for distributing, tracking, reporting, collecting, and reconciling revenue. These systems are remnants of a time when all of SEPTA’s major lines were independently operated. The institutional influence of these former systems remains with SEPTA today.

8.2 Current Status of the Fare Collection System When first installed in the mid to late 1980s, the subway/elevated fare collection and distribution equipment was the state of the art. The approximate economic life of this type of equipment was 10 to 15 years; the age of this equipment now ranges from 15 to 19 years. The economic life can be extended to a certain extent by refurbishment programs. Farebox and related equipment is generally 12 years old.

The advanced age of the equipment is cause for attention. The table in Appendix F details the status of this equipment. The table includes a detailed accounting of equipment age, condition, and reliability. The refurbishment program in the 1999 - 2000 time frame improved equipment performance, but continued investment in a system that does not have the platform to support current-day fare technology will yield increasingly diminished returns for the investment dollar.

While the current system is well maintained by SEPTA staff, the technology, functional utility, and capabilities of the fare collection systems have either exceeded, or are about to exceed, their useful life. SEPTA was fortunate to have acquired the surplus spare parts from the CTA, which upgraded to a modern automated fare collection system and declared the former spare parts surplus. Without this source, SEPTA would not have sufficient parts to maintain its systems because the OEM no longer manufactures or supports them.

The cumulative impact of the lack of parts no longer supplied by the original vendor (GFI/Genfare), along with a variety of labor-intensive processes primarily associated

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-1 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

with aging equipment and outdated or obsolete software, all contribute to the day-to- day challenges faced by SEPTA staff to maintain the system. Many of the original parts are being reverse engineered. Existing logic boards (the components enabling fare processing capability) can be maintained only for so long, and the newer logic boards offered by vendors are not compatible with SEPTA’s existing fare collection equipment.

The communications, data management, hardware, and applications used by SEPTA’s fare collection systems are currently unsupported by any vendor. Gartner, Inc., a world-class information technology research firm, classifies applications in one of four phases of software aging: adult, mature, aging, or elderly. The age and architecture of SEPTA’s fare collection system generally places it into the “elderly” phase, which has the characteristics shown in Table 8-1.

Table 8-1. Application Classification

Characteristic Elderly Phase

Definition Skills base and community support are shrinking and small. Little or no third- party support

Frequency of Releases Never Availability of Third-Party Training None Availability of Trained Staff Declining, low Use in New Projects Never Growth Rate of Application Population Negative Programming Constructs Stable Third-Party Tool Support Minimal Hardware Support Shrinking Typical Frequency of Review of Viability Yearly Short Action Terms Forbids expansion Long-Term Strategy High priority to replace

Source: Assessing the Age of Software Languages and Tools, Gartner, Inc., February 2006.

Conclusions

The existing system must be replaced as quickly as possible. While it cannot be determined with absolute certainty how long the existing fare collection system can be responsibly maintained and operated, it is clear that the supply of spare parts and in-house software expertise limits how long this system can be reliably maintained. The ability to audit and report revenue accurately will be seriously compromised if a new system is not delivered soon.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-2 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

8.3 Strengths, Weaknesses, Opportunities, and Threats Analysis of SEPTA Fare Collection System Current System Strengths

Staff Assessment. While an in-depth analysis of business processes and organizational staffing efficiencies was not a part of this assessment, the review team can report that the fare collection, maintenance, and information technology staff have been performing competently. The current operation requires that SEPTA fare collection staff collect, maintain, and operate antiquated fare collection equipment that requires a high level of manual intervention to classify and collect revenue, maintain equipment, and develop management reports. The staff have been efficient in their maintenance process. Parts that are currently available have been well managed and inventoried. The process of conducting equipment overhauls has extended the life of the equipment, and the use of knowledgeable maintenance engineers to train new staff is expanding their ability to service equipment, which in many cases, has exceeded its expected life.

Fare Media Distribution and Availability. In customer service surveys reviewed for this analysis (1999–2003) passengers across the various transportation modes have ranked SEPTA high in terms of the “Ease and Convenience of Purchasing Fare Instruments.”

Movement Toward Regional Integration and Standards. Regional agreements with partners such as PATCO and New Jersey Transit, and SEPTA’s decision to move toward regional integration using the Regional Interface Specification, is a positive step toward future mobility in the region. The American Public Transportation Association’s Universal Transit Farecard Standard is also a standards effort, though largely based on the Regional Interface Specification, which should be carefully evaluated.

Weaknesses of the Current System

• The current fare media do not promote their long-term use by providing a stored value that automatically captures significant times, uses, and value of the card. Proper classification of fares received is laborious and overly reliant on operator input. • Existing methods of accounting for rider classification at station booths, and on- board buses and trackless trolleys are highly manually intensive and are prone to error.

Communications, Data Management, and Hardware. The age and architecture of information technology for the fare collection system is “elderly.” Table 8-2 summarizes how fare collection equipment is generally obsolete or nearing the end of its useful life.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-3 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

Table 8-2. Overview of the Fare Collection Equipment

Mode Equipment Assessment Surface Fareboxes are in fair condition with limited (estimated) remaining useful life of 3 years. Regional Rail Ticket vending machines are past their useful life, are not networked, and have a low mean cycle between failure rates, which is indicative of the equipment’s poor condition.

The number of ATVM machines is inadequate for the service area.

The current bill validator cannot be configured to accept the new five-, ten-, and twenty-dollar bills. Subway/ Token vending equipment is in poor condition. Elevated Station booth equipment (including Trison vaults and Casino boxes) are old from years of handling in a rough environment, and they often do not fit well within the doors and access panels.

Electrofare, pass gates, and rotogates are in fair to good condition; however, the booth computer is obsolete (model 386 PC) and provides unreliable communication.

Data can be stored only for about 4 months, at which point it is “written over” within the system. Money Room Equipment is in fair to poor condition and does not have industry-standard features such as high-speed currency counters. Parking The parking collection equipment itself is in fair (collection boxes) to excellent Equipment (parkeon machines) condition. These collection devices are not networked for revenue reporting purposes.

Subway and Elevated ridership data is known to be inaccurate. Transmissions from these locations have an unverified 90 percent accuracy estimate due to communications failures. Gaps in the available data are estimated based on historical data garnered from trending reports. However, since the historical data is only 90 percent accurate, over time the accuracy of these estimates will become statistically unreliable.

There is limited use of information technology in the Money (Cash) Room. Each department maintains their own records in a standalone Microsoft Access application. Data from these applications is supplied to the director, who builds a unified report (Revenue Operations Monthly Operational Analysis). Integration of these systems would provide an easier method of creating management reports. In addition, the integration of the Incident Management System with the Maintenance Management System could eliminate the need for manual dispatch of technicians and the creation of work orders separate from the incident reporting.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-4 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

The introduction of bar codes on the vaults and other equipment would improve tracking of these components. For revenue tracking, it would eliminate the need for personnel to manually track each vault. For maintenance, it would also eliminate the need to manually key in identifying equipment information. This may also help in identifying troublesome equipment that frequently returns for maintenance; although, maintenance management does a good job of tracking this information manually.

Revenue Reconciliation, Integrity, and Reporting. The use of on-registering and non- networked fare collection equipment results in situations when proper reconciliation of revenue is not possible, and the potential for fraud is a concern.

• Non-registering fare collection devices, such as Casino boxes and Trisons in the cashier booth, are used to collect revenue. Because this practice does not allow proper accounting of revenue in the field, reconciliation in the money room is not possible. • Locks securing these non-registering devices are in poor condition, and revenue integrity can be compromised. • There appears to be inadequate controls and inventory of paper transfers. This is recognized as a problem throughout the organization. • The sticker used for day passes can be removed from one transfer and placed on a transfer for a later day/date. Transfers can also be shared among riders, which results in a loss of revenue for SEPTA. • Parking revenues are at risk to revenue collection personnel as the bags used for collection can be compromised. • The lack of automated passenger counters prevents SEPTA from getting a more accurate assessment of ridership volume on its surface transportation. • Ticket vending machines are not networked, so there is a 100 percent manual accounting of revenue. • There exists only manual transference of data between Paratransit and revenue reporting. Cash fares are paid to the driver and deducted from the carrier’s remittance.

Absence of a Strategic Plan. Absence of a current strategic plan makes it difficult to plan capital investments and calculate potential return on investment for key decisions on fare collection. Any evaluation determining the value of new processes, fare collection equipment, and support (such as power upgrades) is difficult without a specific strategic plan.

Simplification, Consolidation, and Re-use of Fare Media. Fare collection personnel (particularly conductors) work daily with dozens of fare media types. Simplification of fare media would benefit both conductors (in their day-to-day operations) and customers (in terms of simplicity).

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-5 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

Opportunities with a New System

Staff Redeployment and Availability. The classification, distribution, accounting, and reconciliation of SEPTA’s fare collection system are labor intensive. Migration to a modern, automated system with a robust automated collection and distribution capability will enable a redeployment of personnel from labor-intensive sales and ticketing functions to other duties designated by the agency.

At MTA NYCT, for example, token clerks were retrained and redeployed as station agents to provide expanded customer service to passengers when automated vending machines were introduced.

Migration from the subsystems that make up the fare collection system today to a more unified revenue collection system will reduce labor (e.g., manual transfer of data and manual journal entries) associated with revenue reporting and reconciliation.

Threats to the Current System

Business Continuity. Using an application whose foundation architecture is years beyond the vendors’ OEM contract and which is dependent on hardware that has been out of production for 7 years is dangerous from a business continuity standpoint. While the loss of the Revenue Collection application would not mean that SEPTA could no longer operate their vehicles or collect revenue, it would mean that they would no longer have the means by which to track, or report on, that revenue. Also, should the application or the antiquated infrastructure become unusable, SEPTA would have little negotiation leverage for the implementation of a replacement system.

Without means to conduct their revenue reporting with the existing system, SEPTA would be reliant on manual reporting until a new application is purchased, customized, installed, tested, and implemented. This would be a prolonged process, considering the equipment that would need to be retrofitted to accommodate the new application. During this time, it is probable that the cost of staffing alone would increase overtime needs to track revenue.

Thus, it is important to understand the time frame typically associated with the purchase and implementation of a new fare collection system. Replacing a fare collection system the size and scope of SEPTA’s will require a minimum of 3 to 5 years. The procurement and implementation of a fare collection system at other transit properties has often taken substantially longer.

The American Public Transportation Association Universal Transit Farecard Standard Planning and Implementation guidelines specify a new fare collection system. Each broad category below has multiple time- and labor-intensive sub- components. While this list is not comprehensive, it provides an idea of the many issues involved with procuring and implementing a new fare collection system. All of these steps are contingent upon funding being available for such a procurement and implementation.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-6 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

Identify system functional requirements Installation, testing, and acceptance

Develop technical specification Post-revenue testing and acceptance

Review industry specification Conduct pilot installation test

Prepare solicitation and contract Board action and public review document

Engineer’s cost estimate Education and awareness

Proof of payment implementation System procurement (if applicable)

Design and testing Enterprise (agency) wide preparation

The Table in Appendix G (“Central Puget Sound: Regional Fare Coordination Project and Evaluation Milestones”) summarizes the key milestones and time it took (12 years) from start to finish to procure and implement that system. While the Puget Sound case involved multiple agencies and was more complex than what would be anticipated for SEPTA, it still serves as a good reference for the types of events and issues that can affect the time frame for the purchase and implementation of a fare collection system.

Alternatives Analysis—Fare Collection System

Moving forward, SEPTA has a number of alternatives it can consider with respect to their fare collection system:

(1) Do nothing/maintain the status quo.

SEPTA has already recognized that this is not a viable option by virtue of the refurbishment program in 1999–2000. The lack of software support and supply of spare parts by the original vendor and an information technology support system that is characterized as “elderly” also belies the point that maintaining the status quo is not acceptable. It is likely that the fare collection assessment being conducted by Parsons Transportation Group for SEPTA will also support the conclusion that the “do nothing” option is not tenable.

(2) Continue “state of good repair” refurbishment programs to extend the useful life of the fare collection system equipment.

Refurbishment of the existing fare collection system is a strategy that SEPTA has been relying upon. The program implemented in 1999–2000 for state of good repair was budgeted at $2.6 million. It included improving:

• Mean time between failure from 7,700 to 12,000 for fare boxes

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-7 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

• Mean time between failure from 35,000 to 36,000 for turnstiles • Y2K software, primarily for booth processing computers • Revenue mobile bins

Future refurbishment programs, however, can best be characterized as at a “point of diminishing returns” and is a strategy that will work only in the short term. Refurbishment programs can be useful for keeping equipment in a state of good repair (where the technology is still supported by vendors) but it does not address the many inefficiencies that result from a system where data communications are unreliable and gaps in revenue reporting, reconciliation, and security are endemic to the system.

The need for a more integrated system that allows unified reporting on surface, subway/elevated, regional rail, parking, and paratransit goes beyond what refurbishment can provide. Refurbishment can address many mechanical equipment components (such as turnstile coin mechanisms) and, to a much lesser extent, software components (SEPTA staff do not have the capability to perform software maintenance and upgrades). Below are some examples of the limitations of a refurbishment program.

• SEPTA management has indicated that all possibilities have been exhausted for the upgrade of bill validators in the ticket vending machines. The current bill validator cannot be configured to accept the latest version of five-, ten-, and twenty-dollar bills and a new validator will not work in the existing vending machines. • Logic boards being made today do not integrate well into existing fare collection equipment. • 386 computers are used to support a variety of revenue operations. The availability of 386-class motherboards is limited. They have not been in production since 1990, and they are not supported by any manufacturers in the OEM agreement. Details are in the information technology section of Appendix G.

(3) Upgrade to the most current generation of automated fare collection equipment.

Most public transit operators of SEPTA’s size are at a point where they have migrated from cash to magnetic strip fare media, and many have already implemented or are in the process of implementing smart card technology. Table 8-3 summarizes the agencies that have migrated to advanced automated fare collection systems.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-8 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

Table 8-3. Transit Agencies Implementing Automated Fare Collection Programs

Location / Integrator / Lead Agency Program Type Vendor / Status (Program Name) Costs

Atlanta/MARTA SMART Card Only: Cubic System commission is (http://www.itsmarta.com) scheduled for 2006. Inter-modal and inter- $190 million Equipment installation is in agency smart card fare progress. collection system Regional Cost TBD

Boston/MBTA Smart card and Scheidt & Equipment installation 2005 (http://www.mbta.com) magnetic fare system. Bachmann -2006. Smart card issuance started in Spring 2005 to $202 million reduced-fare patrons, with system-wide issuance projected for 2006-2007.

Chicago/CTA (Chicago Card and Inter-modal and inter- Cubic Recent CTA/Cubic contract Chicago Plus) agency smart card fare to provide 300,000 smart (http://www.chicago-card.com) collection system $106 million cards over the next 2 years. As of April 2005, 115,000 cards were in use. Central computing system upgrade contract also awarded.

Houston/METRO AFC upgrade ACS/ASCOM Contract awarded 2005.

Las Vegas/Monorail New fare system (new ERG Transit service opened in (http://www.lvmonorail.com) service) July 2004.

Los Ángeles/LACMTA (UFS) Inter-modal and inter- Cubic Contract awarded; rollout (http://www.mta.net) agency smart card fare planned in 2005-2006. collection system $178 million Contract has also been awarded for a central computer system that is designed for multi-operator regional ticketing systems and that will integrate all bus and station equipment to a central source of revenue and data management.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-9 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

Location / Integrator / Lead Agency Program Type Vendor / Status (Program Name) Costs

Miami-Dade Transit/South Florida Regional smart card TBD-10/2006 Notice to Proceed Regional Transportation Authority and magnetic ticket October 2006. AFC System: SFRTA $68 million- (http://www.miamidade.gov) and Miami. Palm and Miami Installation begins (http://www://sfrta.fl.gov) Broward as options. September 2007. Regional $84 million

Port Authority Trans Hudson Smart card technology Cubic Contract awarded June (http://panyjl.gov/path) integration to be 2003. integrated with New $72 million York Transit (NYCT) MetroCard System

Washington-Maryland- Regional multimodal Cubic/GFI/ERG Multi-application pilot Virginia/WMATA (SmarTrip) integrated AFC system. implemented with (http://www.wmata) Initial cost centralized clearinghouse. $94 million

Source: SEPTA Automated Fare Collection System-Baseline Study 2006. Information updated for SEPTA Assessment Study, September 2006.

While the face of any automated fare collection system the public sees usually translates to new fare media, faster boarding times, greater flexibility of payment options, and more discount and loyalty choices, an upgrade to an automated fare collection system is an enterprise-wide process for any transit agency. Migration to a modern fare collection system touches the processes, business practices, and operations of departments throughout the agency, including but not limited to, accounting, audit, finance, legal, marketing, operations (related to surface, subway, regional rail, paratransit, parking), maintenance, system safety, and human resources (particularly training requirements).

Benefits of migrating to a modern automated fare collection system include:

• Improved passenger flow and throughput. Greater facilitation of seamless regional transportation, through use of advanced card technology that allows individual operators the ability to retain their own fare structures and promotional programs. • Reduced labor costs associated with less-labor intensive activities (e.g., revenue collection) that comes with greater electronic-based versus cash-based processing. • Reduced costs due to reduced fare evasion and maintenance.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-10 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

• Increased revenue due to float (interest earned in the period of time between when the prepaid fare is purchased and when it is used) and expired card value, which is not spent (which may have to be refunded based on state law). • Improved customer convenience and friendliness due to flexibility for frequent and diverse incentive and loyalty programs as well as the ability to “special event” fares from a centralized location. • Better data mining capabilities for applying increased ridership data to service planning for all transportation modes. • Improved data collection and reporting capabilities as well as reconciliation of revenue.

In terms of the cost, an automated fare collection system’s overall cost depends on a variety of factors specific to the individual transit agency, as evidenced by the varying costs detailed in the Smart Card Fare Collection System Comparison table in Appendix G. This table compares a number of transit agencies on a variety of categories, which is indicative of the breadth of factors that will determine the scope and cost of a fare collection system.

In terms of cost savings, the most readily identifiable savings for SEPTA would be realized in a reduction in cashier/ticket sales staff. Staff in these positions are generally light-duty, and labor/contractual issues limit flexibility for downsizing. SEPTA management indicates that a 25 percent reduction in staff could be reasonably achieved through attrition over time. The remaining cashiers could be retrained as station agents, who would provide customer service and the sense of security to passengers that comes with a uniformed agent being present in the station.

Recommendation Based on the Alternatives Analysis

As expeditiously as possible, SEPTA should begin the process of upgrading to a modern automated fare collection system that addresses the many revenue, audit, reconciliation, data communication, and overly labor-intensive processes that state of good repair/refurbishment programs cannot address. Many component failures can be corrected, but full-scale data losses or data management failures will prevent the agency from meeting its responsibilities for accurate and accountable auditing, collection, reconciliation, and reporting.

It is primarily from a risk management perspective, particularly the potential for mission critical failures with respect to revenue operational and reporting requirements, that warrants the recommendation to begin this process soon.

If SEPTA limits its course of action to stopgap measures:

• Mission critical failures could occur and the system would have to be replaced in an accelerated fashion, which will put SEPTA in a poor negotiating position. • An overly-compressed time schedule will lead to higher bid prices from vendors due to schedule risk. Deficiencies in the procurement, specification development,

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-11 Accepted October 4, 2006 FARE COLLECTION SYSTEMS AND TECHNOLOGY

and implementation resulting from an accelerated schedule would also likely result in costly additional work orders.

From a budgetary standpoint, cost avoidances from labor savings from the efficiencies introduced by a modern automated fare collection system would occur gradually, due primarily to labor/contractual issues. The financial impacts of progressing forward expeditiously with a modern fare collection system are shown below.

• Saving anywhere from 15 to 20 percent on the total fare collection system cost by not placing undue schedule risk on vendors. (Penalties associated with not meeting deliverables within an accelerated schedule generally cause vendors to bid higher to compensate for this financial risk, which can translate to millions of dollars in a procurement of this size.) • Procurement and implementation performed in a more deliberate manner would likely result in savings of hundreds of thousands of dollars (if not more) in costly additional work orders.

SEPTA should continue to implement targeted refurbishment/state of good repair upgrades, but only as a bridge to maintain revenue operations, until such time that a modern automated fare collection system can be procured.

8.4 Challenges and Opportunities of Future Program Management Recent experience in the transit industry has acutely demonstrated that the key to successful fare collection implementation lies in the development and execution of an effective program management plan. Appendix G provides an example of the complexities involved in implementing such a process.

Final Report to the Pennsylvania House of Representatives Transportation Committee 8-12 Accepted October 4, 2006 PROCUREMENT

9.0 PROCUREMENT

9.1 Goal This chapter provides insight into the overall management of the Purchasing Department’s maintenance function, its operating standards, plans, and programs, and identifies potential opportunities for improved cost efficiencies and productivity.

9.2 Status SEPTA’s Purchasing Department annually administers the overall procurement of approximately $50 million in goods and services and manages the professional services procurement activities associated with more than $400 million worth of capital projects. The Procurement and Contracts Department uses a comprehensive set of procurement policies and procedures that are codified in a standard procurement manual. The Procurement Manual reflects federal, state, local, and SEPTA procurement requirements. The Procurement Department is also responsible for SEPTA’s overall materials and goods supply-chain management program, including material distribution, handling, receiving, inventory, stores, and warehousing. The major focus of this review is SEPTA’s procurement activities associated with the overall maintenance function.

9.3 Major Observations • SEPTA purchasing managers indicated that the department has recently strategically realigned its operations to focus on supply-chain management. Their overall goal is to improve the timely delivery of goods and services while reducing the overall size of their decentralized inventories. SEPTA procurement and maintenance managers have collaborated on identifying opportunities to reduce and eliminate obsolete materials and parts. • SEPTA retained a consultant (GCL-Canada) to conduct an overall assessment of SEPTA stores function. According to staff, many of the recommendations have been implemented. The results of these actions include: − Identification and disposal (sale) of obsolete material. − Reduction in delays due to vehicles out of service (due to no parts). − Initiation of weekly supply-chain integration meetings. − Overall reduction in production activity due to better coordination between maintenance and materials management.

9.4 Review Team Response The SEPTA materials management function is responsible for more than 60,000 unique parts associated with fleet maintenance and the material support for one of

Final Report to the Pennsylvania House of Representatives Transportation Committee 9-1 Accepted October 4, 2006 PROCUREMENT

the nation’s most complicated transit infrastructure physical plants. The following comments summarize our observations:

• Evidence shows effective material and logistical planning and execution between purchasing, maintenance, and maintenance engineering staff. • Management makes effective use of business planning (make/repair versus outsource) strategies. • There is an effective use of materials and maintenance management information systems to track activities associated with materials and spare parts, purchasing, and consummation. • Effective programs identify, purchase, and maintain material and parts inventories from local sources.

9.5 Recommendations The following recommendations are offered:

• SEPTA should continue to develop supply-chain techniques at pilot test sites. • Performance measures should be developed to evaluate the use of the new supply chain techniques. • SEPTA should strategically plan and tactically execute the use of pre-planned (Kitting) support for all bus and rail vehicle maintenance. • SEPTA should establish Pareto Analysis of local inventories—the top 20 percent of materials and parts purchased that account for 80 percent of the cost. These items should be analyzed for secondary outsourcing opportunities, bulk purchase discounts, or other procurement techniques that may contribute to significant economies of materials or parts cost reduction. • SEPTA should work closely with internal fleet procurement engineering and planning staff to anticipate the future materials and parts support requirements for the new vehicle fleets. • SEPTA should consider developing and implementing division performance incentives to demonstrate the effectiveness of controlling material cost. • SEPTA should consider purchasing software applications that will facilitate the total conversion of their purchasing and stores function into one that is reliability- centered. The aviation industry has demonstrated significant savings through the use of these applications.

Final Report to the Pennsylvania House of Representatives Transportation Committee 9-2 Accepted October 4, 2006 HUMAN RESOURCES

10.0 HUMAN RESOURCES

SEPTA, like public transit systems across the country, faces major human resources challenges. Among these challenges are recruitment, employee training and development, attendance and reduction of long-term illnesses, succession planning, increasing costs of benefits (particularly healthcare), and accommodating federal and/or state-mandated employee programs such as the Family and Medical Leave Act (FMLA).

Since 1996 SEPTA has reduced its workforce from 10,472 to 8,888 employees. The most significant reductions in the labor force occurred during Fiscal Years 1996 to 2000 when SEPTA offered an early retirement package to both administrative staff and unionized employees. Since that time, SEPTA management has focused on maintaining headcount at the reduced levels.

SEPTA has undergone ongoing realignments of senior management during the past 10 years. The most recent reorganization was the combining of the Capital Design and Construction Division with the Infrastructure Department to form a new division: Engineering, Maintenance, and Construction. The genesis for this consolidation was to expedite the completion of key infrastructure projects.

10.1 Succession Planning Succession planning has been under way, and efforts must be enhanced as the large numbers of retirements occur. Many SEPTA employees (Baby Boomers) are reaching retirement age and will be leaving SEPTA over the next several years. As these employees leave, SEPTA must train and develop their replacements.

10.2 Recruitment The recruitment and hiring of operating employees is becoming increasingly difficult at SEPTA and for transit systems nationwide. Multiple candidates typically have to be recruited and screened in order to hire one candidate, thus increasing the time and cost of recruitment. Creative recruiting techniques are necessary in order to improve the efficiency and effectiveness of the process. Human Resources uses strategies to recruit employees including job fairs, advertising in national trade journals and local newspapers, Internet ads, and an employee referral program.

10.3 Training Customer service is the foundation of SEPTA. If SEPTA is to improve its customer satisfaction and overall image in the community, there needs to be a greater customer service “value” culture emphasized throughout the organization. To truly change the culture and inculcate customer service throughout the entity, SEPTA must enhance its customer service training effort. This training should include both internal and external customer service training. While passengers generally rated the courtesy and helpfulness of cashiers and drivers higher than other categories

Final Report to the Pennsylvania House of Representatives Transportation Committee 10-1 Accepted October 4, 2006 HUMAN RESOURCES

included in the latest customer satisfaction survey, there is still room for improvement. The drivers and cashiers are the visible ambassadors for SEPTA. How SEPTA front-line employees treat their customers and potential customers has a major impact on how the public perceives SEPTA.

10.4 Family and Medical Leave Act Attendance is a challenge at SEPTA, not unlike other agencies affected by FELA and FMLA requirements. A high percentage of employee absenteeism is related to FELA, FMLA, long-term disability, sickness, and worker compensation. The Human Resources Division has developed strategies to develop training programs for location management that will enable them to better control attendance. Similar programs have been successful in reducing absenteeism. The Division is also working with the Medical Department to design wellness and occupational safety programs to reduce illnesses and accidents.

10.5 Performance Appraisal Systems SEPTA’s Human Resources Division plays an important role in executing strategy. An example of this is the proactive way in which the Division measures key performance metrics. The Division has initiated a performance metrics processes that focuses on measurement, analysis, and assessment of the Human Resources team function. The overall purpose is to enhance performance in the areas of reduced costs and streamlined management. The performance metrics report is developed monthly.

The process measures the following:

• Recruitment • Training • Compensation • Benefits • Lost time • Absence management • Voluntary turnover • Medical • Retirement • Budget/financial

Final Report to the Pennsylvania House of Representatives Transportation Committee 10-2 Accepted October 4, 2006 HUMAN RESOURCES

This process is an excellent way to track key performance metrics and should serve as a model to develop a uniform standard for performance monitoring and reporting.

Human Resources has several barriers in implementing its programs. One barrier is the provision in the enabling legislation called “bumping.” Under current state law, if there is a need to lay off non-union employees, SEPTA cannot do so until the completion of a lengthy, complex, costly process that is based on seniority rather than merit, position, or continued need for an employee. An employee can “bump back” to any position he or she held previously if it still exists and displace the incumbent holding that position if the person bumping back has more seniority. The incumbent bumped out, then has the right to initiate his or her own bumping process. This endless cycle is costly, time consuming, and unworkable among professional staff.

Another challenge is that of employee training and development, particularly operating employees. SEPTA has an excellent structured training and apprentice program, in partnership with local colleges and universities, for maintenance employees. The need exists for continued investment in training throughout the organization, including technology, first-line supervision, and customer service.

10.6 Recommendations • Eliminate the “bumping” provision enacted in 1991. • Continue investment and focus on employee training and development. • Continue succession planning focus, given the current and future level of retirees. • Enhance customer service training throughout the organization to help foster a more customer-centric culture and practice. • Identify more creative techniques to identify candidates for employment. • Review screening requirements for operators and other operating employees to determine whether they can be less stringent in some areas without compromising safety. • Continue creative strategies to reduce absenteeism due to sickness, long-term illnesses, and accidents.

Final Report to the Pennsylvania House of Representatives Transportation Committee 10-3 Accepted October 4, 2006 HUMAN RESOURCES

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Final Report to the Pennsylvania House of Representatives Transportation Committee 10-4 Accepted October 4, 2006 MARKETING AND COMMUNITY RELATIONS

11.0 MARKETING AND COMMUNITY RELATIONS

SEPTA’s marketing efforts are constrained due to the organization’s level of financial and staff resources. On the one hand, given SEPTA’s resource-constrained situation, it is understandable that it spends prudently. Yet, the organization needs to better market itself, given its longstanding negative image among its constituents and the need for SEPTA to “tell its story” to its stakeholders.

SEPTA does have a marketing plan; however, it is a tactical plan. It does not focus on the strategic priorities of the organization. Neither does the overall SEPTA organization have a strategic focus. Perhaps this lack of vision and strategic focus is a result of having to deal with its financial crises. On the other hand, how will the organization ever change the status quo if it does not change its image and articulate a shared vision of the organization?

SEPTA’s 2006–2008 Marketing Plan includes the following tactics:

• Create an identity for the “Ridership Incentive Program.” • Brand all SEPTA marketing activities with the program identity to build the notion of a “membership club.” • Identify establishments to form partnerships with SEPTA to offer value to SEPTA riders/pass-holders, both urban and suburban. • Identify a calendar of events that can be used to incentivize occasional riders. • Maintain and grow the program.

The plan also includes a list of lessons learned, including the following:

• Many pressures on the media budget make it difficult to effectively support a two- tiered approach (the strike also hampered an effective launch). • The “Genuine Philly” (campaign theme) spirit and attitude is perceived as alienating the counties. • There are difficulties in executing an integrated marketing plan (such as too little public relations, limited control over outdoor options, and logistical issues with grass-roots tactics). • Innovative and integrated campaigns (advertising, public relations, grassroots tactics) such as those for the R1 (airport line) Anniversary, Live 8, and the seniors outreach program produced the desired results.

The plan alludes to limited resources and to the lack of a comprehensive marketing focus that should include not only promotions and advertising, but public and community relations, media relations, market research, and branding.

It is recommended that SEPTA undertake a comprehensive marketing research effort to better determine how the public perceives SEPTA and its services, what the

Final Report to the Pennsylvania House of Representatives Transportation Committee 11-1 Accepted October 4, 2006 MARKETING AND COMMUNITY RELATIONS

organization needs to do to improve its image, and how SEPTA’s services should be improved to attract new riders and maintain current riders.

Based on market research results, a plan should be developed that will focus on specific goals to improve SEPTA’s overall image, gain greater support from key stakeholders, and enhance ridership. The plan should also use feedback from riders (customer satisfaction measurement) to enhance the service quality.

Due to the lack of capacity on some routes, marketing efforts to build ridership should be focused more on individual routes that have remaining capacity for additional passengers.

Working with Human Resources, Marketing should also focus on continuing to improve customer relations skills among employees, especially those who come into daily contact with passengers and potential passengers (drivers, conductors, customer service representatives, and cashiers).

In the SEPTA 2005 Customer Satisfaction Survey, survey participants cited convenience, availability, and breadth of coverage as SEPTA’s greatest strengths. Passengers also ranked SEPTA higher in the areas of courtesy and helpfulness of cashiers and drivers, safety of the vehicles, physical condition of the vehicles, travel time, and cleanliness of the stations in the outlying service areas. While the customer view of cashiers and drivers was ranked higher than other attributes, there is still room for improvement.

Attributes receiving the lowest grades were:

• Information about delays or disruptions in service. • Frequency of service during off-peak hours. • Cleanliness of the vehicles. • Personal security onboard the vehicles. • Cleanliness of the stations within the Center City.

The Marketing Department should work closely with Operations and other functional areas to ensure that issues identified by passengers as needing improvement are adequately addressed. The most important aspect of Marketing is its product—in this case, the overall quality, value, and reliability of the services provided by SEPTA.

Marketing should also work with Service Planning to better respond to ongoing changes in population and demographic shifts, new activity centers, and to identify areas of potential demand for transit service.

Final Report to the Pennsylvania House of Representatives Transportation Committee 11-2 Accepted October 4, 2006 PERFORMANCE STANDARDS

12.0 PERFORMANCE STANDARDS SEPTA and other transit systems throughout the Pennsylvania receiving financial assistance under public transportation grants programs administered by PennDOT are required by Pennsylvania Act 3 of 1997, Section 1315, to undergo periodic management performance audits. SEPTA’s last management performance review was conducted in July 2004 by Abrams-Cherwony & Associates, in association with Mundle and Associates, Inc.

Section 1315 of Act 3 mandates that SEPTA and other pertinent transit agencies be measured based on seven performance metrics:

• Operating cost per vehicle hour or per mile • Operating cost per passenger • Passengers per vehicle hour or per mile • Employees per vehicle or per mile • Vehicle hours or miles per peak vehicle • Farebox recovery ratio • Average fleet ratio

These measures are monitored on each of SEPTA’s regional rail, heavy rail, light rail, bus, trolley bus, and demand response service. The measures focus on the following broad areas:

• Cost efficiency and cost effectiveness • Passenger productivity • Staff productivity • Vehicle utilization

In addition, SEPTA is required to complete a customer satisfaction measurement survey every 2 years, in accordance with Section 1315 of Act 3. SEPTA actually conducts this customer survey every year, with the last one completed in November 2005. The survey must include the following six state-mandated subject areas:

• On-time arrival and departure • Vehicle cleanliness • Fares • Driver courtesy • Safety • Overall customer satisfaction

Final Report to the Pennsylvania House of Representatives Transportation Committee 12-1 Accepted October 4, 2006 PERFORMANCE STANDARDS

SEPTA also requests feedback from its customers in the areas of frequency of service, information about delays or disruptions in service, courtesy of cashiers, cleanliness of stations, physical condition of vehicles, physical condition of stations, parking, stop announcements, and availability of information about SEPTA service.

SEPTA also includes a list of productivity measures as a part of its Fiscal Year 2007 Operating Budget:

It is recommended that the seven Act 3-mandated measures, along with measures to monitor such items as quality of service (through the customer satisfaction measurement and customer complaint processes), continue to be used to measure overall agency performance. In addition, performance indicators to measure safety (accidents and employee injuries), fleet maintenance (breakdowns, preventive maintenance currency), and accessibility to elderly and disabled transportation should be added to the list of indicators.

SEPTA should be mandated to complete the customer satisfaction measurement process annually (currently, it is mandated to be completed every 2 years; however, SEPTA has typically completed it annually).

It is also recommended that SEPTA provide a quarterly report to the State Legislature to update them on each measure. The update would include reviewing trending information and explaining negative trending areas. Because of the lack of current measures from peer systems (the National Transit Database information is normally a year or more out of date), it will not be possible to provide comparisons of performance of SEPTA to its peers. This benchmarking, though, should continue to be conducted through the mandated management performance reviews conducted by outside firms.

The report should also include an update on capital programs, since this is a major challenge for SEPTA given its funding challenges, as well as major cost efficiencies effected (such as outsourcing, staff reductions, labor work rule concessions, route productivity improvements).

SEPTA should meet with the State Legislature at least twice a year to provide progress reports on its performance. Meeting with legislators (Transportation Committee) will foster a better understanding of SEPTA and will provide a greater forum for the Legislature to better monitor SEPTA’s overall performance and financial needs.

Final Report to the Pennsylvania House of Representatives Transportation Committee 12-2 Accepted October 4, 2006 ECONOMICS, POPULATION, AND EMPLOYMENT

APPENDIX A

ECONOMICS, POPULATION, AND EMPLOYMENT

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX A Accepted October 4, 2006 ECONOMICS, POPULATION, AND EMPLOYMENT

Public Transportation’s Contribution to Local, Regional and State Economies

Public transportation provides local and regional economies with many benefits. Investments in public transportation systems create jobs, enhance workforce mobility, reduce congestion, reduce energy consumption, improve air quality, and stimulate economic development around stations. Transit, perhaps most importantly, boasts a significant return on investment that positively impacts the entire state.

According to a widely respected and often quoted 1999 report4, each $1 billion invested in transit capital projects and operations, generates 30,000 and 60,000 jobs respectively. These workers pay taxes and spend within the local, regional and state economy, further adding to revenues that will benefit other parts of the state. The Pennsylvania Public Transportation Association (PPTA) asserts that, “Capital projects such as vehicle acquisition and infrastructure improvements generate an additional $6.00 investment for each $1.00 directly spent.” The National Business Coalition for Rapid Transit claims, “The return on investment could be as high as 9 to 1.”

Between July 1, 2005 and June 28, 2006, SEPTA reports having spent $534,287,553 within the state of Pennsylvania on goods and services. This is over 53% of their total spending during the period, with nearly $16 million going to businesses outside the Philadelphia area, but within the state. According to the formulas above that would translate to an additional $3 to $5 billion for the state economy. Current capital projects in Philadelphia alone total $1.4 billion.5

According to the Philadelphia Center Business District (CBD), SEPTA carries nearly 70% of the workers coming to the CBD (260,000), half of Philadelphia’s middle and senior high students, and 30,000 university students.6

4 Cambridge Systematics, Inc. and Economic Development Research Group, A Quantitative Analysis of Public Transportation’s Economic Impact, October, 1999. 5 Source; SEPTA 6 Source; SEPTA

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX A Accepted October 4, 2006 ECONOMICS, POPULATION, AND EMPLOYMENT

Population and Employment Changes in the SEPTA Service Area

SEPTA’s fortunes rise and fall with the population and jobs available within its service area. The ability to respond to populations shifts is limited by SEPTA’s current infrastructure. As is the case with older transit systems SEPTA was designed to bring riders into the city from outlying communities, not the opposite. However, SEPTA reports having some success with reverse commute ridership.

Philadelphia vs Individual Counties

2500000 2000000 Bucks Chester 1500000 Delaware 1000000 Montgomery Population 500000 Philadelphia 0 1960 1970 1980 1990 2000 2004 est. Year

Recent population trends have seen Philadelphia’s population decline as suburban populations rise. Between 1990 and 2004 Philadelphia’s population declined from 1,585,577 to 1,414,245 (est.), or -4.3%, while Bucks, Chester, Delaware, and Montgomery counties increased by 10.4, 15.2, 0.6, and 10.6 percent respectively.7 According to some sources, this trend is projected to continue for the next five years and beyond.∗

Philadelphia vs 4 County Aggregate

2500000

2000000

1500000 Philadelphia 1000000 All but Phila

Population 500000 0 1960 1970 1980 1990 2000 2004 est. Year

7 Source: SEPTA from Census Bureau data ∗ Some estimates show declines in Delaware county population. It should also be noted that the 2004 estimate is over 5% less than the Delaware Valley Regional Planning Commission’s estimate.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX A Accepted October 4, 2006 ECONOMICS, POPULATION, AND EMPLOYMENT

A Delaware Valley Regional Planning Commission report forecasts that Bucks, Chester, Delaware, and Montgomery will all add jobs between 2000 and 2010. Philadelphia’s job base is expected to retreat from current levels, and then begin to rebound between 2015 and 2020.8

Employment: Forecasts for 5 Counties

900000 800000 700000 Bucks 600000 500000 Chester 400000 300000 Delaware

Employment 200000 100000 Montgomery 0 Philadelphia 00 05 10 25 30 0 0 20 2 2 2015 2020 20 20 Year

In aggregate, employment in the 5 County area is forecast to grow by 353,718 jobs from 2000 to 2030. Transit ridership growth opportunities will exist for SEPTA if they can adjust to the movement of population and jobs, from the center city to outlying suburbs.∗

Employment Level Change by County 2000 to 2030

Philadelphia 2.9

Montgomery 21.2

Delaw are 14.8 County Ches ter 44.6

Bucks 32.1

0 1020304050

8 DVRPC, Population and Employment Forecast, 2000-2030/9 County DVRPC Region, March 2005. ∗ Forecasting methodologies vary. For a discussion of those used for this data, see the above referenced DVRPC document in footnote 5.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX A Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

APPENDIX B

REVIEW OF PRIOR FINANCIAL STATEMENTS

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Prepared by: St. Clair CPAs, PC

Dated: March 2006

Procedure: Review of prior financial statements, budgets, audits, management reports and letters.

Document: Urban Grant Final Report (UGFR) for the year ended June 30, 2005, audited by Zelenkofske Axelrod LLC, a Pennsylvania CPA firm, who issued an unqualified opinion (clean) dated October 27, 2005.

Pennsylvania Department of Transportation Urban Transit Assistance Program requires SEPTA to submit PennDOT Operating Reports Version 7.06 (Form UGFR – Consolidated) and accompanying schedules.

The Form provides for a further breakdown of operating expenses, revenues and other non financial information into detailed descriptions and among fixed route, paratransit and system wide categories, and under the following headings:

• Vehicle Operations • Vehicle Maintenance • Non-Vehicle Maintenance • General Admin

The schedules report the following information:

• Grant funding for Pennsylvania Senior Citizens Projects and an average fare calculation of $1.407. • Schedules of Completed Pennsylvania funded Capital Projects showing over and under paid amounts.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Prepared by St. Clair CPAs, PC

Dated March 2006

Review of prior financial statements, budgets, audits, management reports and letters.

Document: Financial Management Oversight Review of the Southeastern Pennsylvania Transportation Authority by Deva & Associates, P.C. dated January 13, 2005

This Review was prepared by Deva & Associates; P.C. a Certified Public Accounting firm located in Rockville, MD, for the U.S. Department of Transportation, FTA. As part of the Review, Deva examined SEPTA’s management’s assertion that SEPTA maintained an effective financial management system as of January 13, 2005 to meet criteria established by FTA for grantee financial management systems.

In Deva’s opinion, SEPTA did maintain an effective financial management system as of January 13, 2005. However, there were several deficiencies and comments noted and summarized below:

Reportable Conditions – significant deficiency in the design or operation of the financial management system that could adversely affect SEPTA’s ability to record, process, summarize, and report financial and related data consistent with the requirements of the Common Rule.

1) Reconciliation procedures need improvement. 2) Incomplete fixed asset records. 3) Incomplete fixed assets inventory. 4) Inadequate fixed assets disposal procedures. 5) Preventative maintenance not performed timely. 6) Charter service time and miles not tracked. 7) Inadequate payroll documentation. 8) Inadequate information technology safeguards

Advisory Comment - minor deficiency in the design or operation of the financial management system that could adversely affect SEPTA’s ability to record, process, summarize, and report financial and related data consistent with the requirements of the Common Rule.

1) Informal internal audit risk assessment.

Summary of SEPTA’s Responses

• SEPTA generally agreed with the reported findings, but did not agree to the characterization of some of the findings, particularly that these were considered “reportable conditions,” (significant deficiencies). • SEPTA offered corrective actions and all were adequate to the reviewer except for #7.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Prepared by: St. Clair CPAs, PC

Dated: March 2006

Procedure: Review of prior financial statements, budgets, audits, management reports and letters.

Document: National Transit Database Report for the year ended June 30, 2005 by Zelenkofske Axelrod LLC, a Pennsylvania CPA firm, whose report is dated October 27, 2005.

The FTA (FTA) has established standards with regard to the data reported to it in the Federal Funding Allocation Statistics Form (FFA-10) of SEPTA’s annual National Database (NTD) report. These standards require that a sound system is in place to gather and collect; record and report; maintain and support; data consistently and accurately in accordance with NTD definitions. This data includes among other detailed information, statistical and financial information relating to all operations of SEPTA.

This is considered an agreed-upon procedures engagement (as opposed to an audit) where Zelenkofske has applied procedures to the data contained in the FFA-10 for the year ended June 30, 2005. These procedures, as specified by the FTA and agreed to by SEPTA, were applied to assist SEPTA and the FTA in evaluating whether SEPTA complied with the NTD standards and is presented in conformity with the specific requirements.

The report describes SEPTA’s procedures, documentation and systems for all modes of transportation in its calculation of mileage and passenger statistics and operating expenses, inquiries of personnel involved in this process, and procedures performed to sample test data.

There were no exceptions or negative findings noted.

Included in this report are the actual NTD Internet Reporting forms, which presents detailed items, statistics and amounts relating to the operations of SEPTA.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Prepared by St. Clair CPAs, PC

March 2006

Procedure: Review of prior financial statements, budgets, audits, management reports and letters.

Documents Audited Financial Statements – June 30, 2004 and 2003

Reviewed: Management letter – June 30, 2004 Single Audit Report – June 30, 2004 Special Purpose Statements (City Transit and Victory Divisions)

1. Audited Financial Statements

The audit was performed by KPMG, an international CPA firm, who issued an unqualified (clean) opinion dated March 9, 2005.

Selected financial information derived from the financial statements:

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Net Assets

Net Assets (thousands of dollars) As of June 30, 2004 2003 Current assets $ 240,029 $ 260,748 Noncurrent assets: Restricted investments 239,965 249,445 Capital assets 2,949,920 2,813,625 Other assets 3,370 3,660 Total assets 3,433,284 3,327,478

Current liabilities 288,566 297,889 Noncurrent liabilities: Public liability, property damage and workers’ compensation claims 128,530 136,403 Long-term debt 394,754 403,098 Long-term capitalized lease obligation 30,391 30,391 Deferred capital grant revenue 158,033 167,241 Other liabilities 59,314 58,625 Total liabilities 1,059,588 1,093,647

Net assets: Invested in capital assets, net of related debt 2,546,286 2,398,487 Restricted 4,053 4,151 Unrestricted ( 176,643) ( 168,807) Total net assets $2,373,696 $2,233,831

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Changes in Net Assets

Changes in Net Assets (thousands of dollars) For the Years Ended June 30, 2004 2003 Operating revenues Passenger $ 323,348 $ 319,203 Other income 26,134 26,471 Total operating revenues 349,482 345,674

Operations expenses Operating expenses 825,017 798,949 Depreciation 213,627 193,693 Total operating expenses 1,038,644 992,642

Operating loss ( 689,162) ( 646,968)

Nonoperating revenues (expenses) Subsidies 516,988 494,963 Nonoperating expenses – net ( 20,852) ( 20,197) Total nonoperating revenues (expenses) 496,136 474,766

Capital contributions Capital grants 332,891 337,364 Total capital contributions 332,891 337,364

Increase in net assets 139,865 165,162

Total net assets, beginning of year 2,233,831 2,068,669 Total net assets, end of year $2,373,696 $2,233,831

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Federal, State and Local Subsidies

Federal, State, and Local Subsidies (thousands of dollars) For the Years Ended June 30, 2004 2003

Federal subsidies: Preventative maintenance reimbursements $ 55,606 $ 29,000 Capital lease reimbursements 594 1,205 State and local subsidies: Act 26 base subsidies 253,372 254,443 Act 26 leasehold/debt service reimbursements 56,189 62,136 Act 3 subsidies 28,161 28,161 Senior citizen subsidies 69,512 68,307 Asset maintenance state and local subsidies: Act 26 subsidies 41,715 41,715 Act 3 subsidies 11,839 9,996 Total subsidies $516,988 $494,963

2. Selected Financial Highlights – Changes from 2003 to 2004

Passenger revenues Increased $4.1 million (1.3%) primarily due to increase in ridership

Other income Decreased $.4 million (1.3%) primarily dues to decrease in advertising revenue.

Operating expenses Increased $46 million (4.6%) primarily due to increase in wages, fringe benefits, fuel costs and depreciation.

Subsidies Increased $22 million (4.4%) primarily due to the transfer of Federal Highway Administration funds to preventative maintenance subsidy.

Net capital assets Increased $136.3 million (net), (4.8%) due to new major expenditures of $349.9 million including Frankford Elevated Reconstruction project, new busses and vehicle overhauls.

Increase in net assets Increase in net assets (or surplus) was $139.9 million in 2004 down $25.3 million (15.3%).

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

3. Management Letter Comments

Management letter comments are items noted during the audit involving internal control and other operational matters. During the 2004 audit, the following item were noted:

2) Information technology – no formal process for approved changes for the Revenue, Ridership and Cash Flow System. 3) Accounts payable – no formal monthly reconciliation between the accounts payable general ledger and sub ledger.

SEPTA concurred with the observations and agreed with recommendations.

4. Single Audit Reports

This presentation contains audits and reports on internal control and compliance in accordance with Governmental Auditing Standards. The audit was performed by KPMG who issued an unqualified (clean) opinion dated April 6, 2005.

All prior year findings were corrected.

There was one finding relating to subrecipient monitoring, where there was no evidence that SEPTA was receiving A-133 reports for the seven subrecipients who received $2,362,000 of expenditures.

5. Special Purpose Statements

These reports reflect the operations of the City Transit Division and Victory Division and are submitted to the City of Philadelphia and County of Delaware, respectively. There were no unusual items or issues. The audits were performed by KPMG who issued unqualified (clean) opinions.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Prepared by: St. Clair CPAs, PC

Dated: March 2006

Procedure: Review of prior financial statements, budgets, audits, management reports and letters.

Documents Audited Financial Statements – June 30, 2005 and 2004

Reviewed: Management letter – June 30, 2005

Single Audit Report – June 30, 2005

Special Purpose Statement (City Transit Division)

1. Audited Financial Statements

The audit was performed by Zelenkofske Axelrod LLC, a Pennsylvania CPA firm, who issued an unqualified (clean) opinion dated October 27, 2005.

Selected financial information derived from the financial statements:

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Net Assets

Net Assets (thousands of dollars) As of June 30, 2005 2004 Current assets $ 255,649 $ 240,029 Noncurrent assets: Restricted investments 220,749 239,965 Capital assets 3,032,688 2,949,920 Other assets 3,089 3,370 Total assets 3,512,175 3,433,284

Current liabilities 298,337 288,566 Noncurrent liabilities: Public liability, property damage and workers’ compensation claims 129,920 128,530 Long-term debt 386,489 394,754 Long-term capitalized lease obligation 30,391 30,391 Deferred capital grant revenue 134,805 158,033 Other liabilities 58,824 59,314 Total liabilities 1,038,766 1,059,588

Net assets: Invested in capital assets, net of related debt 2,637,439 2,546,286 Restricted 4,150 4,053 Unrestricted ( 168,180) ( 176,643) Total net assets $2,473,409 $2,373,696

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Changes in Net Assets

Changes in Net Assets (thousands of dollars) For the Years Ended June 30, 2005 2004 Operating revenues Passenger $ 326,851 $ 323,348 Other income 21,527 26,134 Total operating revenues 348,378 349,482

Operations expenses Operating expenses 881,639 825,017 Depreciation 237,027 213,627 Total operating expenses 1,118,666 1,038,644

Operating loss ( 770,288) ( 689,162)

Nonoperating revenues (expenses) Subsidies 572,558 516,988 Nonoperating expenses – net ( 18,851) ( 20,852) Total nonoperating revenues (expenses) 553,707 496,136

Capital contributions Capital grants 316,294 332,891 Total capital contributions 316,294 332,891

Increase in net assets 99,713 139,865

Total net assets, beginning of year 2,373,696 2,233,831 Total net assets, end of year $2,473,409 $2,373,696

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

Federal, State and Local Subsidies

Federal, State and Local Subsidies (thousands of dollars) For the Years Ended June 30, 2005 2004

Federal subsidies: Preventative maintenance reimbursements $ 83,700 $ 55,606 Capital lease reimbursements - 594 State and local subsidies: Act 26 base subsidies 269,642 253,372 Act 26 leasehold/debt service reimbursements 58,235 56,189 Act 3 subsidies 37,861 28,161 Senior citizen subsidies 68,896 69,512 Asset maintenance state and local subsidies: Act 26 subsidies 41,715 41,715 Act 3 subsidies 12,509 11,839 Total subsidies $572,558 $516,988

2. Selected Financial Highlights – Changes from 2004 to 2005

Passenger revenues Increased $3.6 million (1.1%) primarily due to increase in ridership.

Other income Decreased $4.6 million (17.6%) primarily dues to decrease in advertising revenue.

Operating expenses Increased $80.1 million (7.7%) primarily due to increase in wages, fringe benefits, fuel costs and depreciation.

Subsidies Increased $55.6 million (10.7%) primarily due to the transfer of Federal Highway Administration funds to preventative maintenance subsidy ($52.5 million) and an increase in state subsidies and, including local match ($11 million), needed to balance budget.

Net capital assets Increased $82.8 million (net) (2.8%) due to new major expenditures of $320.2 million including Frankford Elevated Reconstruction project, new busses and vehicle overhauls.

Increase in net assets Increase in net assets (or surplus) was $99.7 million in 2005 down $40.2 million (28.7%).

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 REVIEW OF PRIOR FINANCIAL STATEMENTS

3. Management Letter Comments

Management letter comments are items noted during the audit involving internal control and other operational matters. During the 2005 audit, the following items were noted:

1) Capital assets – duplication of effort – manual journal entries are made to enter capital assets data into the Fixed Asset Ledger. 2) General ledger reconciliations - no reconciliation between the Fixed Asset Ledger and General Ledger. 3) Capital asset accounting system – no automated reporting system to create reports needed for financial statement disclosures. 4) Payroll – lack of documentation for the electronic management approval of employee time entry and lack of employee forms documentation in employee files. 5) Pension plan – plans are not audited for compliance. 6) Public liability and property damage claims – one individual has authorization to approve claim expense payments was submitting photocopies of signed approval for payment. 7) Vacation accrual – vacation accrual calculation does not account for major changes in the vacation liability from calendar year end to Fiscal Year end. 8) Materials and supplies – cycle inventory counting procedures vary and are not formally documented among locations. 9) Pending governmental accounting standards board pronouncements – provided update of new pronouncements.

SEPTA generally concurred with the observations and agreed with recommendations on all items except for #3, where programming costs would outweigh the current cost.

4. Single Audit Reports

This presentation contains audits and reports on internal control and compliance in accordance with Governmental Auditing Standards. The audits were performed by Zelenkofske Axelrod LLC who issued an unqualified (clean) opinion dated October 27, 2005.

All prior year findings were corrected.

There was one finding relating to contracts with disadvantaged business enterprises, where change orders were not taken into account on the Uniform Report of DBE Awards or Commitments and Payments.

There were no questioned costs.

5. Special Purpose Statement

This report reflects the operations of the City Transit Division and is submitted to the City of Philadelphia. There were no unusual items or issues. The audit was performed by Zelenkofske Axelrod LLC who issued an unqualified (clean) opinion.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX B Accepted October 4, 2006 LABOR SECTION OVERVIEW OF FEDERAL EMPLOYEES LIABILITY ACT (FELA)

APPENDIX C

LABOR SECTION OVERVIEW OF FEDERAL EMPLOYEES LIABILITY ACT (FELA)

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX C Accepted October 4, 2006 LABOR SECTION OVERVIEW OF FEDERAL EMPLOYEES LIABILITY ACT (FELA)

Federal Employers Liability Act (FELA) - Overview9

… 1908 Congress passed the Federal Employers Liability Act (known as "FELA") for the protection of the thousands of railroad workers employed nationwide. FELA established and continues to provide a federal system of legal recovery for railroad workers and their families, for injuries suffered by the railroad worker while on the job.

Almost any worker employed by a railroad company will be protected under FELA if they are injured on the job, including those whose primary duties are not performed in or around trains. Claims under FELA can be made directly to the responsible employer or railroad company, and may also be brought as a suit either in federal or state court. While providing a basis for a legal claim for injuries suffered by railroad workers, at the same time FELA provides railroad companies and employers with something of a uniform liability standard when it comes to working conditions and employee safety on the job…

Proving Liability

Unlike "no fault" workers' compensations laws under which an injured worker does not need to establish any fault by the employer, if you bring a claim under FELA you will need to show that the defendant (such as a railroad, its employees, or an equipment manufacturer) was somehow negligent and caused your injuries. The basic idea in a FELA claim is to show that the defendant in some way failed to provide a railroad worker with a reasonably safe place to work, and that some injury to the railroad worker resulted.

Under FELA, railroad companies and employers owe railroad workers a number of duties, the violation of which can result in a finding of liability under FELA. These include the duty to:

• Provide reasonably safe work environment, equipment, tools, and safety devices; • Inspect the work environment to ensure it is free of hazards; • Provide adequate training, supervision, assistance, and help to employees in their job functions; • Ensure workers are safe from harmful intentional acts of others; • Enforce safety rules and regulations; • Prevent use of unreasonable work quotas

It is important to note that the amount of fault that needs to be shown (sometimes called the "burden of proof") in a FELA claim is less than the degree of fault that one needs to establish in an ordinary negligence claim, such as in a lawsuit brought for injuries suffered in a car accident. A person bringing a FELA claim need only show that the defendant was somehow negligent,

9FindLaw2006, “Federal Employers Liability Act –Overview”, Accessed August 9, 2006

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX C Accepted October 4, 2006 LABOR SECTION OVERVIEW OF FEDERAL EMPLOYEES LIABILITY ACT (FELA) and that such negligence, no matter how small in its relation to the injuries suffered, played some role in causing those injuries. This is sometimes known as a "featherweight" burden of proof, and it gives an advantage to the FELA plaintiff seeking a legal remedy for injuries. FELA also requires that the railroad on which the employee was injured be somehow involved in interstate commerce, but this factor is almost always a given.

FELA provides a federal remedy for injured railroad workers, but it also serves as a kind of guideline for railroad employment safety standards, and the duty of railroad companies in meeting those standards. For example, if a railroad is found to have violated federal standards pertaining to workplace safety, set out in Occupational Safety and Health Administration (OSHA) regulations, the Boiler Inspection Act, and the Safety Appliance Act, an injured railroad worker and his or her attorney will have a much easier time proving their case. All that needs to be shown is that the law in question was violated, and that the railroad worker was injured…

Compensation for Your Injuries

A successful lawsuit under FELA can usually bring compensation for:

• The injured railroad worker's past and future wage loss; • The injured railroad worker's past and future medical treatment; • The injured railroad worker's past and future pain, suffering, and mental distress.

In the unfortunate event that a workplace injury results in the death of a railroad worker, under FELA the worker's surviving spouse and children will be able to receive compensation. If the worker has no spouse or child at the time of death, this compensation will usually go to any surviving parents or other close family members.

The Comparative Negligence Defense

As discussed above, the FELA statutory scheme provides many protections to an injured railroad worker, and fault in a FELA claim is often easier to establish than in most other lawsuits. Having said that, the main defense available to a defendant in a FELA claim is a railroad worker's "comparative negligence." Under this defense, the defendant will try to show that the worker's own fault or negligence somehow caused (or contributed) to his or her injuries, so that all liability does not rest on the defendant.

Comparative negligence works this way in practice: after all arguments in a FELA lawsuit are heard, the jury will make its findings as to who should be held legally responsible for the railroad employee's injuries. This is usually done by assigning some percentage of fault to the parties involved, and this percentage will correspond to the damages awarded to the plaintiff. For example, if the jury determines that the railroad company and/or employer were 75% to blame for the employee's injuries while the employee himself was 25% at fault, and that plaintiff's total damages amounted to $100,000, plaintiff will receive $75,000 from the defendant(s).

… When a lawsuit for a railroad worker's injuries is brought under FELA, the end result often does not involve a court trial. Many times FELA cases are taken to mediation before they ever reach trial, or are resolved through settlement conferences that can be ordered by the court…

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX C Accepted October 4, 2006 SEPTA SYSTEM ROUTE MAP

APPENDIX D

SEPTA SYSTEM ROUTE MAP

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX D Accepted October 4, 2006 SEPTA SYSTEM ROUTE MAP

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX D Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

APPENDIX E

COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

An Experience-based Compendium of Transit Best Capital Program Management Practices

The following tables presents an examples of transit industry proven best capital projects practices. SEPTA has consolidated and reorganized its capital project resources. The following engineering and construction management best practices are typically found in all capital programs that faithfully deliver completed projects according to master program management budgets and schedules. The purpose of the matrix is to highlight the most significant common critical success factors and to provide examples of best practices within each category from the Agencies interviewed.

PROJECT PHASE COMMON BEST PRACTICES The Design Phase The development of multi-discipline policy advisory board.

1. The mismanagement of Regional stakeholder interest is often a major cause of scope and schedule “creep”. The development of multidisciplinary design advisory boards comprised of policy, programmatic and regulatory stakeholders interest has been demonstrated to be an effective method to reach and sustain project consensus regarding design scope, budget and schedule issues.

All agencies reported that these committees were essential to the development of timely, accurate, stakeholder-interest reflected programs. The committees are well structured and considerable attention to disciplined participation and consensus building contributes significantly to the stability of final design (scope, schedule and budget) issues. The board is comprised of representatives of the communities affected by the capital project plans.

The Design Phase/ 2. The use of comprehensive multi-year Program Management Plans lies at the foundation of effective long-term program integration Management stability. Plans The shear magnitude and complexity of major transit agency capital plans require a considerable amount of focus toward defining multi-year integrated capital program priorities and effectively executing project and program integration plans. Annual work plans are developed corresponding with the master planning efforts. These program management plans (PMP) will vary from agency to agency, yet all are similar in defining multi-year (10-25 year) comprehensive planning horizons that are utilized to establish priorities, budgets and overall measures of program success. The master PMPs provide a performance measure baseline benchmark to measure future program execution progress. The programs content and priorities are based upon a number of factors including, support for future service planning priorities, facility condition assessments, technology integration and other priorities. Short- term capital improvement plans that reflect those that have been partially

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

or completed funded are further developed and management through to completion. The original master program schedules and budgets are updated at the time of full funding and project execution. Ultimately the success of project delivery is measured against adherence to the original scope, schedule and budget commitments.

Design Phase/ 3. Regular Involvement of executive management at all phases of Contingency design is critical element of capital program success . Budgets The early and continuous, participative involvement of executive management throughout the design and construction phase of projects was demonstrated by all transit agencies. The role of senior management is to review the adequacy of overall plans and programs, to very that appropriate performance measures are established and progress is regularly measured these standards. Large and complex projects, particularly those that affect or may potentially affect constituencies much be carefully developed and executed so that the community’s interest is well served.

Design 4. The provisions of adequate contingency budget in the initial Phase/Accurate (conceptual and preliminary engineering) phase of design Budget Forecasting The use of an appropriate contingency budget in the early (10-30 percent) phase of design is critical at arriving at realistic final design and construction budgets. The contingencies could then be reduced as the project proceeds to final design. The future accuracy of forecasted project budgets and schedule accuracy is often determined during the early phases of a project. Transit authorities that habitually deliver within the original allowances for budget and schedule contingencies all demonstrate the practice of establish a variable contingency budget that is reduced to its lowest amount at a time when the design is mature, construction cost are well understood and the overall risk associated with a project has been identified and factored into the contingencies for schedule and budgets.

Design Phase 5. Toward the development of accurate project budgets. Project Management Start with “realistic” budget estimates in the early phases of design. Utilize Approach annual work plans that reflect the nature of anticipated project activity.

Contract estimates are updated at the completion of (10-30-60-90 and 100 percent design milestone point. Typically, at the 60-65 percent design completion point each agency conducts an independent assessment of estimated construction cost. Some agencies utilize sophisticated construction cost models that are based upon historical unit cost.

Resolving anticipated coordination issues with real estate, utilities or

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

continuity of transit services plans all contribute to the development of accurate construction estimates.

Design Phase/ 6. Characteristics of effective project management. Project Management A number of related project management best practices are generally Tools evidenced at agencies demonstrating effective capital program delivery. The following list represents the most common project management approaches or practices:

a. Use of well comprehensive, experienced tested and continually updated project management (including controls) policies and procedures; b. The seamless integration of in-house and consultant staff; c. Timely decision making; d. Reliance upon well-qualified staff; e. Disciplined and well-executed quality assurance and safety program; f. Strong focus on project delivery (vs process); g. Creating a sense of team; h. Integration of design and construction staff’ i. Rotating design personnel through construction phases to “round-off” their experiences. j. Emphasizing the use of “lessons –learned” and communicating those to other project members.

7. Effect tools , to forecast measure and respond to (scope, schedule and/or budget) deviations from plan?

A variety of common performance measures are utilized throughout the transit authorities. The number, exact nature, reporting frequency, method of collection, distribution of reports and related issues vary from authority to authority; however, a number of common reporting practices are currently in use. The use of inter or intra-net -based integrated processes is rare, although most agencies are open to the idea. The following list typifies the types of reports or processes utilized.

a. Contractor progress payments; b. Project Master Scheduling; c. Project risk reports; d. Contract cost trending; e. Estimating;

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

f. Monthly cost reporting; g. Scheduling; h. Property acquisition tracking. i. Change Order activity j. Safety reports k. Quality assurance oversight

Reporting frequencies and comprehensiveness of reporting requirements are flavored by the agency, the participants, and the criticality of the function. Best practice observations indicate that information essential to managing critical program activities are tracked, analyzed and reported to those who are responsible for project management or those stakeholders who ultimately benefit from timely, on-budget project delivery.

8. The use of performance measures in capital projects design and construction phases.

The use of “fixed” base-lining (schedule and budget based) performance measures. The following performance measures were considered the most critical.

Evaluation of project delivery success is typically based upon meeting scope, schedule and budget forecast. The following hierarchy of performance measures reflect this overall emphases:

a. The overall program schedule is established in the master program management plan; b. Individual construction baselines are established at the Notice-to-Proceed date of construction; c. Construction progress is measured in terms of deviations from this original scope, schedule and budget.

The goal of most agencies is to delivery projects within ten percent of the baseline budget and with 90-120 days of the original schedule.

THE 9. Describe your construction management organization and program CONSTRUCTION approach. PHASE/THE CM ORGANIZATION [All Agencies] Report the use of matrix construction management organizations that include the use of staff project or program managers to oversee consultant or a combination of consultant and internal staff. A common thread that characterizes construction management philosophies are focus of the following critical success factors:

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

a. Use of specifications and plans that are tested for understanding and constructability; b. Pre-qualification of contractors; c. Risk mitigation practices; d. Focus on project delivery and holding contractors accountable for overall project delivery; e. Use of lesson-learned and historical-based cost estimating processes; f. Effective field construction management practices, including quality assurance, communications, reporting and periodic meetings; g. Continuity of involvement design staff throughout the construction period; h. Early involvement of operation staff in construction management and oversight;

Emphases on risk reduction, particularly safety (accident) and workers compensation claims reduction.

CONSTRUCTION 10. What effective methods are utilized to identify and mitigate the MANAGEMENT/ risks associated with construction scope, schedule and budget? RISK MANAGEMENT a. Scope-creep minimization.

1. Use of contract implementation plans sufficiently detailed to compare actual construction progress against a projected standard and:

2. Use of a comprehensive change control process, including: effective change control board, partnering agreements between Agency (or its Program Management Representative) and the contractor, and the use of contract specifications general conditions clauses that clearly define the notice and filing requirements for change request and claims…thus significantly mitigating end-of-contract major claims.

b. Schedule-creep minimization.

1. Use and effective management of contract master schedule.

2. Effective risk management through the use of three-four week “Look Ahead” forecast meetings to identify and mitigate the risk associated with “known” risk factors.

3. Use and integration of right-of-way and property acquisition schedules.

4. Effective coordination between project controls and project

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 COMPENDIUM OF TRANSIT BEST CAPITOL PROGRAM MANAGEMENT PRACTICES

managers to identify and develop joint issue work-around solutions.

c. Budget variation risk minimization.

1. The use of project budget contingencies that are commensurate with known project risk.

2. Contingencies and authority to utilize should be embedded in project management authority.

3. Trending should be utilized to analyze and track potential cost against contingency budget.

4. Cash flows (encumbrances and expenditures) should be tracked and managed using traditional accounting tools.

CM/RISK MANAGEMENT

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX E Accepted October 4, 2006 FARE COLLECTIONS EQUIPMENT MATRIX

APPENDIX F

FARE COLLECTIONS EQUIPMENT MATRIX

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX F Accepted October 4, 2006 SEPTA FARE COLLECTION & DISTRIBUTION EQUIPMENT ASSESSMENT Name and Mean Mean Equipment Meets OEM still OEM still Estimated On-line Reliability of on-line Spare parts contact info for Cycle Distance Out of Est. Condition functionality supports supplies Annual Cost communication for comms (Poor, Fair, availability person Between Between service Age remaining (Poor, Fair, required (Y software (Y spare parts (Y (mntce cost): revenue reporting (Y Inconsistent, (None, Poor, Investigating Category Failure Failure time (%) Quantity (Years) useful life Excellent) or N) or N) or N) per unit or N) Excellent) Fair Excellent) Issue? Other Comments Bus/Surface Farebox 11500 1803 12 3 years Fair Y N N 1000 Y Fair Fair N. Chacko Depot Computers 24 hrs 24 hrs 12 4 0 Poor Y N N 500 Y Fair Poor N. Chacko Revenue Island Equipment 62 12 3 years Fair Y N N 1000 Fair Poor N. Chacko Probes/Hand Held Unit 67 12 3 years Fair Y N/A Y 200 Fair Fair N. Chacko Revenue Island Spare Parts 12 3 years Fair Y N N 1000 Poor N. Chacko Cash Boxes 2000 12 3 years Fair Y N/A Y 50 Fair N. Chacko Data probe comms to depot computer Regional Rail Ticket Vending Machines 1000 24 hrs 30 * 20 0 Poor N N N 3000 N Poor Poor * Including Spares

Money Room Equipment

Currency (Bill) Counters 18 2-6 years 2-3 years Fair Y Y Y $350 Y Excellent Fair S. Boon 3-Types of Currency Counters 9-12 Beyond its Coin Sorter/Counter 12 years useful life Fair Y Y Y $1,000 Y Poor Fair S. Boon 2-Types of Coin Counters Beyond its Coin Wrapping Equipment 2 16 years useful life Poor N N N $1,500 N N/A None S. Boon Money (armored) trucks Cash Boxes N/A Subway/Elevated Mag-Stripe Reader heads 150,000 NA 0% 352 19 yrs 3 yrs good Y N N Turnstile Vault NA 0.20% 1000 19 yrs 3 yrs good Y N N Turnstile Computer 1 yr 0.10% 352 19 yrs 3 yrs good Y N N Token Booth Computer 30 day 0.50% 100 5yrs 2 yrs good Y N N Y E P W. Lawrence Token Vending Machines 20,000 NA 5% 74 15 yrs 7 yrs good Y N N Y E P W. Lawrence Fare Gates 40,000 NA 1% 352 19 yrs 3 yrs good Y N N Y E P W. Lawrence Parking Equipment Electronic Parking Equipment NA 1% 25 >1 year 15 yrs excellent Y NA NA $300 NA NA EXCELLENT Robert Nagle will provide Mean cycle betw. failure Parking Collection Boxes NA NA 1% 160 17 years 20 years fair Y NA NA $500 NA NA Fair Robert Nagle Paratransit Fare Collection Paratransit fare collection is done via a Fare collect equipment manual process EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

APPENDIX G

TRANSIT INDUSTRY EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

The table below summarizes the key milestones and length of time it took for the Central Puget Sound Regional fare collection system. While the Puget Sound case involved multiple agencies and was more complex than what would be anticipated for SEPTA it still serves as a good reference for the types of events and issues that can affect the time frame for the purchase and implementation of a fare collection system.

Central Puget Sound: Regional Fare Coordination project and evaluation milestones. 1995 Fare collection technical alternatives analysis study (magnetics vs. smart card) Commence finance planning initiatives – now 12 federal grants, Boeing, ST and other local funds 1996 Business analysis/feasibility study – key drivers: regional fare complexity; institutional account support; administrative and maintenance efficiencies. Sound Transit established (November) 1996-97 Smart card equipment prototype demonstration – Pierce Transit and King County Metro buses 1997 Value engineering study – independent expert review 1997-98 Business requirements study – e.g., development of the preferred operating concept, customer service business rules and cost-benefit analysis 1998 RFP systems specification development 1999 RFC procurement plan issued (February), RFP issued – 2 responses (February 16)

Washington Legislature amends public disclosure laws (RCW 42.17.310) to exempt personally identifying information of those who purchase transit passes and other fare media, including smart cards, from public disclosure requirements (April)

Puget Pass organized by Sound Transit; system begins operation (September) I-695 passed by Washington voters, repealing the state motor vehicle excise tax (MVET) and reducing available funding for the RFC Project (November 2) 1999-00 Procurement suspended due to passage of I-695 (December 1999 to August 2000) 2000 Washington Legislature repeals MVET (March 31)

I-695 declared unconstitutional by the Washington State Supreme Court (October 26). Issued request for revised proposals (November 8) 2001 FTA designates the Central Puget Sound Project as an ITS evaluation test site for automated fare collection with focus on agency organizational relationships Procurement resumed. Issued request for best and final offers from vendors (June 15). RFC ITS evaluation team conducts preliminary site visit (December 20) 2002 Contract and Interlocal Agreement negotiations; Issued request for revised best and final offer (June 7) 2003 ITS evaluation study kickoff meeting (February 12); Interlocal Agreement and vendor contract approved by all 7 participating agency governing bodies. Interlocal Agreement signed by all 7 project partners -- King County Metro Transit, Community Transit, Everett Transit, Kitsap Transit, Pierce Transit, Sound Transit, Washington State Ferries (April 29)

Vendor contract signed by all 7 project partners. (April 29)

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

Central Puget Sound: Regional Fare Coordination project and evaluation milestones. ITS evaluation strategy issued (June 24) 2004 Conceptual Design Review—CDR (April 7); Pre-Membership Agreement (Final, April 26); ITS evaluation team meets with partner agencies (June 7-17); ITS evaluation team meets with RFC Regional Team (July 8); ITS evaluation team meets with Joint Board members (October 18-20); Preliminary Design Review—PDR (November 15) 2005 Final Design Review—FDR (September 2005) 2006 Revenue service operational test (3rd Quarter 2006) 2007 Full system installation (1st, 2nd and 3rd Quarter 2007); Final Acceptance Testing (TBD); Full system revenue service operations (4th Quarter 2007) Source: US DOT’s Electronic Documents Library - Final Report: Evaluation of the Central Puget Sound Regional Fare Coordination Project (April 2006)

SMART CARD FARE COLLECTION SYSTEM COMPARISON

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 1 Agency Washington Chicago Metropolitan Metropolitan Miami-Dade Metropolitan Transit Transportatio Atlanta Rapid Transit (MDT) Area Transit Authority n Commission Transit Authority (CTA) (MTC) Authority (WMATA) (MARTA) 2 Program Status In operation in In operation in Full Implementing Procurement conjunction conjunction installation on all-smart card under way. with with Golden Gate fare collection magnetics. magnetics. Transit and system. AC Transit in 2006; others to follow. 3 Other Maryland PACE Bus AC Transit, Clayton SFRTA, Participating Transit BART, County Broward Agencies Administration Caltrain, Transit, Cobb County (Baltimore). Golden Gate Community Transit, and Transit, San Transit, PalmTran. Francisco GRTA and Muni and Gwinnett Valley County Transportatio Transit. n Authority on limited routes and lines during pilot phase; goal is 26 Bay area operators.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 4 Card Issuer WMATA; also CTA MTC's MARTA UAFC third party Contractor - Customer contract with ERG Transit Service Citi, which Systems USA Center. issues Inc. Initially, MDT combination will carry out SmarTrip plus function. credit card. 6 Card Name SmartTrip Chicago Card TransLink Breeze Card 7 Modes on Which Bus, heavy Bus and Bus, heavy Bus, heavy Bus, heavy the Card Can Be rail. And heavy rail. rail, light rail, rail and rail, commuter Used parking. commuter rail, parking. rail, and ferry, and parking. parking. 8 Means of Magnetic Magnetic Existing Disposable TBD. Accommodating ticket. ticket. media of smart card. Magnetic Single Trips participating ticket or agencies. disposable smart cards are options. 9 Smart Card 80% goal. Envisions Target 67% or TBD. Penetration Rate 75% of higher. prepaid media users and 10% of cash users. 10 Type of Smart Cubic GO Cubic GO Motorola/ERG MiFare Non- Card Used Card Card with interface Classic ISO proprietary adopted as 14443 Type A ISO/IEC ISO 14443 1Kb memory 14443 Type B. card compliant with proposed for dual interface reloadable standards media. (Type A and MiFare Ultra Type B). Light ISO 14443 Type A. 64 Byte memory card proposed for limited use media.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 11 Cost to the $5.00 $6.00 Approximately Approximately Agency for the $2.50 for $2.50 for Smart Card reloadable reloadable card and card and $0.35 for $0.35 for limited use limited use card. card. 12 Charge to $5.00 $5.00 Pilot: No $5.00 for $5.00 Patrons for the charge for reusable card Smart Card card; $5 for and $0.50 for balance disposable protection card, with registration; latter $5 for permitted to autoload be applied to enrollment. charge for reusable card. 13 Charge for Initial Same as for Same as for N/A Reduced TBD. Reusable Card subsequent subsequent charge for purchases. purchases. local residents during initial 90-day period. 14 Means of Registration Registration Registration Registration Registration Mitigating Card of the card for of the card for of the card for of the card for of the card for Cost to Patrons replacement replacement replacement replacement replacement of lost or of lost or of lost or of lost or of lost or stolen value. stolen value; stolen value. stolen value stolen value; guaranteed and 10% guaranteed last ride; and bonus for last ride; and 10% bonus increments of 10% bonus for increments $20 or more for increments of $20 or added to the of $20 or more added card. more added to the card. to the card.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 15 Minimum $5 if $5 deposit TBD. Minimum $5 deposit Purchase Price purchased at with no value roundtrip fare with no value Metro sales on the card or plus the cost on the card or offices, retail $25 with $22 of the card $25 with $22 outlets and value ($20 + ($5.00 for a value ($20 + commuter $2 bonus) reusable card $2 bonus) stores; $10 and $0.50 for including $5 a disposable value loaded card). if purchased at Metro stations; $30 including $25 loads if purchased online. 16 Incentives for Replacement Discounted Replacement Replacement Replacement Smart Card cost of $5.00 fare with cost of $5.00 cost of $5.00 cost of $5.00 Reuse for a new smart card for a new for a new for a new card; use. card; card. card; autoload. autoload. autoload.

17 Bonus or $2 bonus for Any Recommend $2 bonus for Discount each $20 applicable 10% bonus each $20 purchased. usage on purchases purchased. discounts of $20 or offered by more. operators, but no purchase bonus or discount. 18 Special Seniors and Seniors and Seniors, Seniors and Discounts disabled. disabled. disabled, and disabled. Seniors, youth. disabled, and youth; seniors ride free on MDT. 19 Negative Yes, for one Yes, for one Yes, for one TBD. Yes, for one Balance trip. trip. trip. trip. Allowance 20 Fare Types Stored value. Stored value. Stored value, Stored value Stored value, Available for the passes, and and passes. passes, and Card stored rides. stored rides.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 21 Transfer Two transfers Existing Recommend Recommend Privileges permitted transfer policy two transfers two transfers within two of within ninety within ninety hours for participating minutes. minutes. $0.25. agencies.

22 Means of Online, Metro Online, by From operator From ticket Online, by Purchasing sales offices, phone, by ticket offices, vending phone, by Cards retail outlets mail, at CTA third-party machines in mail, station and main office, or retail rail stations, TVMs, commuter commercial locations, MARTA operator ticket stores. locations. online, by RideStores offices, and phone, or and retail third-party mail. sales outlets. retail outlets.

23 Low Value Yes. Yes. Warning 24 Means of Ticket Ticket AVMs, At ticket Online, station Reloading Cards vending vending operator ticket vending TVMs, machines in machines in offices, machines in operator ticket rail stations. rail stations operator rail stations, offices, and and retail TVMs, and MARTA third-party sales outlets. third-party RideStores retail outlets. retail and retail locations. sales outlets.

25 Minimum/ Up to $300. $0.05 to $100, $5 to $200. TBD. Up to $300. Maximum including Amounts That bonus. Can Be Loaded on Cards 26 Autoload Employer Yes, with Employer- TBD. Employer- Provisions Smart Chicago Card based and based and Benefits only. Plus. card holder card holder initiated. initiated.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 27 Provision for Requests to Disposable TBD. Redemption of card issuer at cards are Deposit/Unused operator ticket permitted to Value offices, online, be redeemed by phone, or for the by mail with purchase of completed reusable refund form cards, but this and $1 provision is administrative planned for fee. deletion from the AFC contract. 28 Users Permitted Each rider Up to seven. Each rider Up to ten. TBD. to Ride on a must have a must have a Single Card card. card.

29 Card Optional. Optional. Optional. Recommend Optional. Registration optional registration of reusable cards.

30 Means of Online or at Online or by Online, by Online, Mail, Online, by Registering WMATA sales mail. mail, or fax. Ridestores, phone, or by Cards office. customer care mail. center.

31 Charge for Card No. No. $5.00 No initial No. Registration charge. 32 Replacement of Only if Only if Only if Only if Only if Value for Lost or registered. registered. registered. registered. registered. Stolen Card Only if registered.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 EXAMPLE OF A REGIONAL FARE COLLECTION PROGRAM IMPLEMENTATION

San Washington, Location Chicago, IL Francisco, Atlanta. GA Miami, FL D.C. CA 33 Verification of Name and Name and Name and Name and Ownership to PIN issued at PIN or PIN issued at PIN or Claim for time of card personal time of card personal Replacement registration. information registration. information Card issued at time issued at time of card of card registration. registration.

34 Cost of $5.00 $5.00 $5.00 $5.00 $5.00 Replacement Card 35 Customer Monday - Normal M-F 6 a.m. to M-F 6 a.m. to Service Hours Friday, 7:00 Customer 11 p.m. and 10 p.m. and a.m. to 8:00 Service weekends weekends p.m. Center hours. 7a.m. to 9 9a.m. to 5 p.m. p.m. 36 Expiration 4 years. 3 years. 4 years. 3 years. Period 37 Value Replaced Only if Yes, up to 1 Replacement Replacement on Expired registered. year after within a within a Cards expiration limited period limited period date. of time not to of time not to exceed 90 exceed 90 days. days.

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX G Accepted October 4, 2006 SEPTA OPERATING SUBSIDY BUDGET DETAIL FY 2003-2007

APPENDIX H

SEPTA OPERATING SUBSIDY BUDGET DETAIL

FY 2003–2007

Final Report to the Pennsylvania House of Representatives Transportation Committee APPENDIX H Accepted October 4, 2006 SEPTA OPERATING SUBSIDY BUDGET DETAIL FY 2003–2007

Proposal % of % of Budget % of % of Actual % of % of Actual % of % of Actual % of % of Amounts in Thousands (000) FY 2007 Subsidy OperEx FY 2006 Subsidy OperEx FY 2005 Subsidy OperEx FY 2004 Subsidy OperEx FY 2003 Subsidy OperEx TOTAL EXPENSES$ 991,024 100.0% $ 951,810 100.0% $ 923,369 100.0% $ 867,752 100.0% $ 843,064 100.0%

TOTAL OPERATING REVENUE$ 427,460 43.1% $ 420,000 44.1% $ 420,183 45.5% $ 420,476 48.5% $ 416,690 49.4%

OPERATING SUBSIDY- DETAIL FEDERAL Federal Preventative Maintenance $ 31,200 6.1% 3.1%$ 31,200 5.9% 3.3%$ 31,200 6.2% 3.4%$ 30,200 6.7% 3.5%$ 30,205 7.1% 3.6% TOTAL FEDERAL 31,200 6.1% 3.1% 31,200 5.9% 3.3% 31,200 6.2% 3.4% 30,200 6.7% 3.5% 30,205 7.1% 3.6%

STATE Operating Basic Operating 207,645 40.5% 21.0% 203,574 38.3% 21.4% 199,582 39.6% 21.6% 187,242 41.8% 21.6% 187,242 43.9% 22.2% Act 3 27,222 5.3% 2.7% 27,222 5.1% 2.9% 36,599 7.3% 4.0% 27,222 6.1% 3.1% 27,222 6.4% 3.2% 234,867 45.8% 23.7% 230,796 43.4% 24.2% 236,181 46.9% 25.6% 214,464 47.9% 24.7% 214,464 50.3% 25.4% Asset Maintenance Act 3 12,092 2.4% 1.2% 12,092 2.3% 1.3% 12,092 2.4% 1.3% 11,445 2.6% 1.3% 9,663 2.3% 1.1% Act 26 40,325 7.9% 4.1% 40,325 7.6% 4.2% 40,325 8.0% 4.4% 40,324 9.0% 4.6% 40,325 9.5% 4.8% 52,417 10.2% 5.3% 52,417 9.9% 5.5% 52,417 10.4% 5.7% 51,769 11.6% 6.0% 49,988 11.7% 5.9% Lease Cost/Debt Service Lease Cost 20,809 4.1% 2.1% 22,954 4.3% 2.4% 57,698 11.5% 6.2% 55,678 12.4% 6.4% 61,520 14.4% 7.3% Debt Service 31,699 6.2% 3.2% 26,977 5.1% 2.8% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% 52,508 10.2% 5.3% 49,931 9.4% 5.2% 57,698 11.5% 6.2% 55,678 12.4% 6.4% 61,520 14.4% 7.3% TOTAL STATE 339,792 66.2% 34.3% 333,144 62.6% 35.0% 346,296 68.8% 37.5% 321,911 71.9% 37.1% 325,972 76.4% 38.7%

LOCAL Operating Basic Operating 69,215 13.5% 7.0% 67,858 12.8% 7.1% 65,985 13.1% 7.1% 61,842 13.8% 7.1% 61,928 14.5% 7.3% Act 3 939 0.2% 0.1% 939 0.2% 0.1% 1,805 0.4% 0.2% 1,511 0.3% 0.2% 1,425 0.3% 0.2% 70,154 13.7% 7.1% 68,797 12.9% 7.2% 67,790 13.5% 7.3% 63,353 14.2% 7.3% 63,353 14.8% 7.5% Asset Maintenance Act 3 417 0.1% 0.0% 417 0.1% 0.0% 417 0.1% 0.0% 395 0.1% 0.0% 333 0.1% 0.0% Act 26 1,390 0.3% 0.1% 1,390 0.3% 0.1% 1,390 0.3% 0.2% 1,390 0.3% 0.2% 1,390 0.3% 0.2% 1,807 0.4% 0.2% 1,807 0.3% 0.2% 1,807 0.4% 0.2% 1,785 0.4% 0.2% 1,723 0.4% 0.2% Lease Cost/Debt Service Lease Cost 718 0.1% 0.1% 792 0.1% 0.1% 537 0.1% 0.1% 511 0.1% 0.1% 616 0.1% 0.1% Debt Service 1,093 0.2% 0.1% 929 0.2% 0.1% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% 1,811 0.4% 0.2% 1,721 0.3% 0.2% 537 0.1% 0.1% 511 0.1% 0.1% 616 0.1% 0.1%

Route Guarantee 3,041 0.6% 0.3% 3,041 0.6% 0.3% 3,532 0.7% 0.4% 3,716 0.8% 0.4% 4,787 1.1% 0.6%

TOTAL LOCAL 76,813 15.0% 7.8% 75,366 14.2% 7.9% 73,666 14.6% 8.0% 69,365 15.5% 8.0% 70,479 16.5% 8.4%

FLEXIBLE HIGHWAY FUNDS (FHF) 65,450 12.8% 6.6% 92,100 17.3% 9.7% 52,500 10.4% 5.7% 26,000 5.8% 3.0% - 0.0% 0.0%

TOTAL SUBSIDY$ 513,255 100.0% 51.8% $ 531,810 100.0% 55.9% $ 503,662 100.0% 54.5% $ 447,476 100.0% 51.6% $ 426,656 100.0% 50.6%

OPERATING SUBSIDY- SUMMARY Federal $ 31,200 6.1% 3.1%$ 31,200 5.9% 3.3%$ 31,200 6.2% 3.4%$ 30,200 6.7% 3.5%$ 30,205 7.1% 3.6% State (w/ Flexible Highway Funds) 405,242 79.0% 40.9% 425,244 80.0% 44.7% 398,796 79.2% 43.2% 347,911 77.7% 40.1% 325,972 76.4% 38.7% Bucks County 1,936 0.4% 0.2% 2,012 0.4% 0.2% 2,074 0.4% 0.2% 2,024 0.5% 0.2% 1,976 0.5% 0.2% Chester County 1,230 0.2% 0.1% 1,320 0.2% 0.1% 1,312 0.3% 0.1% 1,343 0.3% 0.2% 1,351 0.3% 0.2% Delaware County 7,206 1.4% 0.7% 6,798 1.3% 0.7% 6,730 1.3% 0.7% 7,038 1.6% 0.8% 7,446 1.7% 0.9% Montgomery County 3,876 0.8% 0.4% 4,047 0.8% 0.4% 4,183 0.8% 0.5% 4,248 0.9% 0.5% 4,266 1.0% 0.5% Philadelphia 59,524 11.6% 6.0% 58,148 10.9% 6.1% 55,835 11.1% 6.0% 50,996 11.4% 5.9% 50,653 11.9% 6.0% Route Guarantee 3,041 0.6% 0.3% 3,041 0.6% 0.3% 3,532 0.7% 0.4% 3,716 0.8% 0.4% 4,787 1.1% 0.6% TOTAL SUBSIDY$ 513,255 100.0% 51.8% $ 531,810 100.0% 55.9% $ 503,662 100.0% 54.5% $ 447,476 100.0% 51.6% $ 426,656 100.0% 50.6% SEPTA OPERATING SUBSIDY BUDGET DETAIL FY 2003–2007

Proposal % of % of Budget % of % of Actual % of % of Actual % of % of Actual % of % of Amounts in Thousands (000) FY 2007 Subsidy OperEx FY 2006 Subsidy OperEx FY 2005 Subsidy OperEx FY 2004 Subsidy OperEx FY 2003 Subsidy OperEx Increase (Decrease) Increase (Decrease) Increase (Decrease) Increase (Decrease) Increase (Decrease) from PY from PY from PY from PY from PY Amount % Amount % Amount % Amount % Amount % TOTAL OPERATING REVENUE $ 427,460 7,460 1.8%$ 420,000 (183) 0.0%$ 420,183 (293) -0.1%$ 420,476 3,786 0.9%$ 416,690

TOTAL SUBSIDY Federal 31,200 - 0.0% 31,200 - 0.0% 31,200 1,000 3.3% 30,200 (5) 0.0% 30,205 State 339,792 6,648 2.0% 333,144 (13,152) -3.8% 346,296 24,385 7.6% 321,911 (4,061) -1.2% 325,972 Bucks County 1,936 (76) -3.8% 2,012 (62) -3.0% 2,074 50 2.5% 2,024 48 2.4% 1,976 Chester County 1,230 (90) -6.8% 1,320 8 0.6% 1,312 (31) -2.3% 1,343 (8) -0.6% 1,351 Delaware County 7,206 408 6.0% 6,798 68 1.0% 6,730 (308) -4.4% 7,038 (408) -5.5% 7,446 Montgomery County 3,876 (171) -4.2% 4,047 (136) -3.3% 4,183 (65) -1.5% 4,248 (18) -0.4% 4,266 Philadelphia 59,524 1,376 2.4% 58,148 2,313 4.1% 55,835 4,839 9.5% 50,996 343 0.7% 50,653 Route Guarantee 3,041 - 0.0% 3,041 (491) -13.9% 3,532 (184) -5.0% 3,716 (1,071) -22.4% 4,787 Flexible Highway Funds 65,450 (26,650) -28.9% 92,100 39,600 75.4% 52,500 26,500 101.9% 26,000 26,000 100.0% - 513,255 (18,555) -3.5% 531,810 28,148 5.6% 503,662 56,186 12.6% 447,476 20,820 4.9% 426,656 TOTAL OPERATING REVENUE & SUBSIDY 940,715 (11,095) -1.2% 951,810 27,965 3.0% 923,845 55,893 6.4% 867,952 24,606 2.9% 843,346

LESS TOTAL EXPENSES (991,024) (39,214) 4.1% (951,810) (28,441) 3.1% (923,369) (55,617) 6.4% (867,752) (24,688) 2.9% (843,064)

SURPLUS/(DEFICIT) $ (50,309) $ -$ 476 $ 200 $ 282

Source: 2004 through 2007 Operating Budgets