HOUSE OF REPRESENTATIVES APPROPRIATIONS COMMITTEE TRANSPORTATION COMMITTEE

In re: 1992-1993 Appropriations Hearing Mass Transit Privatization Mass Transit Systems

Stenographic report of hearing held in Majority Caucus Room, Main Capitol, Harrisburg, Pennsylvania

Thursday April 2, 1992 9:30 a.m.

HON. DWIGHT EVANS, CHAIRMAN Hon. Victor J. Lescovitz, Vice Chairman Hon. Joseph W. Battisto, Secretary Hon. Gordon Linton, Subcommittee Chairman on Education Hon. Thomas C. Petrone, Subcommittee Chairman Health & Welfare Hon. Gaynor Cawley, Subcommittee Chairman on Capital Budget

MEMBERS OF APPROPRIATIONS COMMITTEE

Hon. William F. Adolph Hon. Alice S. Langtry Hon. Paul J. Angstadt Hon. Edward J. Lucyk Hon. Robert E. Belfanti, Jr. Hon. Nicholas J. Maile Hon. Kevin Blaum Hon. Dennis M. O'Brien Hon. Karl W. Boyes Hon. Richard D. Olasz Hon. Alvin C. Bush Hon. Merle H. Phillips Hon. Nicholas A. Colafella Hon. Joseph R. Pitts Hon. Jeffrey W. Coy Hon. Jere W. Schuler Hon. Robert C. Donatucci Hon. Paul W. Semmel Hon. Robert J. Flick Hon. Thomas M. Tigue Hon. Jon D. Fox Hon. Terry E. Van Home Hon. Michael C. Gruitza Hon. Peter C. Wambach Hon. Richard A. Kasunic Hon. John N. Wozniak

Also Present: Dick Willey, Executive Director Beth Balaban, Policy Analyst Reported by: Erik Randolph, Budget Analyst Dorothy M. Malone, RPR Mike Rosenstein, Executive Director, Minority Staff Don Easton

Dorotky M- M*lone JO ^^ Registered Professional Reporter *, ^s^ j"7| 135 S LanJis Street \^^ j-|ummelstown, Pennsi^lvania 17036 ^^ _y^ \ f inn -i —#»\Zi_J X Also Present: (cont'd)

Paul Landis, Executive Director Paul Parsells, Executive Director

Dorotk4 M Malone l^egisterea f-'rofesrional l-^eporter 135 S L^nJii Street \—I ummelrtown, (--'ennsijlvanici 17036 2

I N D EX

Robert Peskin, KDMG - Peat Marwick Jilliam Millar, Executive Director, PAT

James Lutz, Executive Director, Red Rose Tansit Authority Lancaster, Pennsylvania; President, Pennsylvania Association of Municipal Transportation Authorities

Louis J. Gambaccini, General Manager, SEPTA 3

CHAIRMAN EVANS: The hour now being 9:30,

I would like to say good morning to members of the

Committee as well as the staff as well as the people in the audience. I would like to read a brief statement.

This is a joint hearing of the House

Appropriations Committee and the Transportation Committee.

Representative Joe Petraca is the Chairman of the House

Transportation Committee. His executive director is here representing him as well as maybe some other members who will come in from the Transportation Committee.

Today's hearings concludes the formal

House Appropriation hearings for the 1992-1993 budget.

I want to thank the members of the various standing committees as well as the experts on all of the issues we have addressed for the assistance in making these the most comprehensive hearings ever held in this

Committee on the budget. This morning we will be speaking with representatives,from Peat Marwick. Robert Peskin will address the issue of privatization as it relates to the transportation issue. In order to make the best decisions possible, we need to look at all possibilities, to explore all options available, the pros and the cons, the consequences of such decisions.

Before we get to it I would like to make a statement. I would like to, again, express to the 4

members I would like to thank you for your endurance of

the last three months of these public hearings. I know

they have been extensive and we have done a lot and I

would like to thank the members .

I want to see if Chairman Pitts has any

comments.

REPRESENTATIVE PITTS; No. I think we

have covered the gamut from agencies and departments to

think tanks and appreciate the chair's cooperation in

arranging the hearings so all parties could be heard.

I am looking forward to hearing the presentation on

privatization and competitive contracting. Thank you.

PR. PESKIN: Mr. Chairman, it is a pleasure

to return to Pennsylvania this morning to talk about

Denver's very interesting experience in competitive

contracting and privatization of public transit services.

It was last year that we had an opportunity to speak to

PAMTA at their annual meeting in Hershey about the first

year of Denver's privatization experience. This morning

I will be talking about their second year of experience.

If I can, I would like to use the overhead projector which follows along with the presentation.

CHAIRMAN EVANS: For the record, would you state your title and your position?

DR. PESKIN: My name is Robert L. Peskin. 5

I am a manager with KPMG Peat Marwick in Virginia.

This morning we will be talking about the second year of Denver's privatization experience covering the period from July 1990 through the period of June 1991.

A little bit of background about Denver's experience. The

Denver Regional Transportation District, DRTD, contracted out 20 percent of its transit services. And this was in response to Colorado's Senate Bill 164 of 1988 which required that competitive contracting take place, that the services be put out for bid in relatively small pieces and encourage competition by small local minority businesses.

That cost comparisons be done on a fully allocated basis and that a performance audit be done by an independent certified public accounting firm, not the CPA firm that

RTD currently had engaged for its,financial audit.

I think it is fair to say that RTD viewed this legislation as somewhat of a threat to the institution and had a choice of either fighting it or embracing the concept. They decided to embrace the concept to make privatization work. To never be in a position, had privatization failed, to have had fingers pointed toward them saying you made it fail.

Instead, as you will see in this presenta­ tion, they made it work.

REPRESENTATIVE LUCYK: What is RTD ? 6

DR. PESKIN: RTD is the Regional

Transportation District, that is an agency created by state law, funded through a dedicated tax that operates public transit bus services in the Denver region and is currently responsible for a capital development program which includes bus and light rail transit.

As part of embracing this concept of privatization, RTD management and the board of directors had some fundamental objectives in how privatization would be implemented. They wanted to make it transparent to the passengers. So that the first day that competitive contracting and privatization began, th.e passenger, the customer could not tell the difference. They would board a transit bus on the same route, the same schedule, the same bus stop,- paying the same fare. And ideally the only way they would tell the difference is the driver would have a different face and there would be a different company patch on the driver's shoulder. So'again, the same fares, the same schedules, the same routes, similar " looking bus, similar looking driver and similar looking uniform.

Now while every effort was made to attract small local minority businesses, the selection process in the end resulted in three national firms being,awarded all the privatized or competitively contracted routes in 7

Denver. The selection process came through first qualifying firms in terms of the strength of their financial statements and their experience in privatization and the strength of their management team that was going to implement the privatization hid on the basis of price.

The price was the subsidy that these firms would be requesting from RTD to operate th£ service. The lowest subsidy was the one that won the service.

The service was phased in over time. It took roughly a year to get all the pieces of privatization into place and this is partially because it was a bit of a learning exercise for RTD to enter.

Subsequent to implementation of privatization the Legislature continued to address privatization and there was some legislation that made it through one House and died in the other that originally was talking about increasing privatization from 20 to 50 percent, ultimately from 2Q to 4Q percent. Made it through the Colorado

Senate but was defeated in committee in the Colorado House.

That is essentially where the legislation stands right now. RTD management strongly indicated to the Legislature that they viewed the initial several years of privatization as an experiment and they requested that the legislators let the experiment run its course and that is essentially what has been happening so,far. 8

As I get into talking about the findings,

E wanted to make our position very clear. This is a lot topic in the public transportation area and there are some very vocal proponents and opponents to privatization.

E am sure that you have heard from many of them. Our view

Ls not as an advocate. We were hired per the legislation

:o conduct a "neutral and unbiased study" and that is what

?e did. And I will be presenting both the good news and

:he bad news. There are some very favorable things to say ibout the competitive contracting, but there are a lot

)f warning flags up there as well. It is not a venture

:hat we would recommend a public agency get into it without mtting a lot of time and effort in it to make it work.

[t is very difficult to make privatization work.

The focus of our review was to look at, me, to savings. That is the bottom line. How much of

:he taxpayers' money was saved resulting in privatization?

But we are also interested in the contractors.!

>ide. Are they making a profit? Well why is that

.mportant you might ask? Well, if they are not making a irofit they probably don't want to be in the business. md RTD was very concerned about their profitability

:arly on, again, because of the fear had privatization railed, had one of the contractors gone belly up in the liddle of the process, fingers would be towarded RTD saying, 9 well, you made it fail. So they are very concerned with

the profitability.

We are also concerned about, well, where

is the savings coming from? What is it? If there is a

savings, what is it about the contractors that allows them to be less expensive than the public amenities.

We are also interested in the safety and quality of service. Safety is a vital important issue and quality of service is increasingly becoming a very important point that transit managers across the country are facing.

And finally we were interested in the contractors' compliance with the terms of their contracts.

A very thick contract document; the contractors had to deliver a lot in putting the service on the street. We were very interested in how good a job they were doing in that way. This was information that we addressed in the first year of study. In the second year of study we dug a little deeper into the issue of the contractors' maintenance program and the wages and turnover of the contractors' employees.

Let's get first to the cost comparison analysis which I am sure everybody is most interested in.

The board of directors of RTD emphasized in our second year study that they wanted us to focus on actual costs.

Our original study was focused primarily on estimated cost 10 on the basis of RTD's budget. Well now they had had a year of experience. They wanted us to look at actual costs, actual expenditures, actual fare revenues, actual invoices paid to the contractors and the actual lease income from assets, RTD assets released to the contractors.

The bottom line is summarized in this slide where we looked at computing the savings in two different ways. One is on an incremental basis, a cash basis. If you will, a basis that is as conservative as we can make it, that is, it tends to minimize the savings as legitimately as we could do that. The other side is the fully allocated savings which tends to look at what the ultimate long range savings of privatization is like. And we see a range here of savings running,from between 12 and a half percent on the more conservative, incremental or cash basis to as high as 25 or 31 percent on a fully allocated basis depending on whether or not we include the cost of capital.

The fully allocated basis suggests that management has total flexibility to directly adjust its costs directly to the quantity of services being provided.

Theoretically that sounds very nice. It is likely that most costs or many costs can be adjusted directly proportionate to the quantity of service. But in.fact many costs are really beyond management's direct ability 11 to adjust proportion to the quantity of service. So we would view this aa being toward the upper end. The incremental costs, however, tend not to address some of the front end investment which was incurred prior to privatization beginning. All of the expense that RTD went through to write the contracts, write the RFP, meet with perspective proposers before the RFPs went on the street. To evaluate the bids, select the routes, to select the contractors, to monitor the contractors' start-up activity and then to monitor the contractors! ongoing revenue service. A lot of money was spent by

RTD to make privatization workc -. .Those costs are in the fully allocated analysis. They are not in the incremental.

So here is the range. In addition I would say given the accuracy of the model approaches that we use, there is inevitably some uncertainty in these numbers.

I would be kidding myself if I said these were absolutely accurate. They are probably accurate to within five to ten percent. So the actual savings could be a bit lower or a bit higher than what we are actually presenting.

Looking down the page on the presentation,

I want to talk about the contractors J profitability. We tfere in a somewhat unusual situation in doing this analysis in that we had three contractors available and we were able to combine all the contractor's actual,financial results 12 together and to reveal that information publicly. So that we were not revealing proprietary information about any one contractor. So what I am presenting here is the combined experience of all three contractors who were operating 2Q percent of RTD service comparing their revenues with their expenses. Now this is only one way

:o compute profitability. What we are seeing is that

Dut of the $14 million that the contractors spent to put

:his service on the streets, they earn a profit of revenues jver expenses of only $300,000, just a couple percent profit on that basis. Now because these are private enterprises there are other ways to compute profitability.

Ldeally, we would like to look at return on investment,

>ut that would require that we look at their corporate financial statements and that information was not available

:o us'. This information just reflects the local operations

Ln Denver of these contractors. And this level of jrofitability appears to be relatively low. We would expect that they would, on this basis, be interested in naking more of a profit. It is however a little bit more aoney than they were making in the,first year where on

:his basis the calculation, in the first year they were ictually taking a minor loss . Now why are contractors billing to put up with this relatively low level of

>rofitability? Well, for one of the contractors at least 13 we know that they are pursuing other businesses in Denver.

One of them is a major school bus operator throughout the country. This service for RTD may in fact been their foot in the door in Denver and they are pursuing the school bus business in Denver for providing the services, selling or leasing of vehicles, selling parts. And to a certain extent this service may in fact be a loss leader.

They are really pursuing other businesses and this allowed them the mechanism to do it.

The next point was looking into the source of the savings. Again here we are in a position to look at, in great detail, the contractors' actual expenses and compare them to RTD's actual expenses. So to provide the privatized service, there is 20 percent of service.

We went through a modeling exercise to allocate RTD's costs and found that just looking at operating costs alone, it would have cost RTD roughly $20 million to put this privatized service on the street. Had privatization not happened, this is what it would have cost the public to put this service on the street.

The contractors, based on their actual costs, just for operating costs, costs them roughly

$11 million to put this service on the street. If we look at what percentage, this column here represents the difference between RTD's costs and the contractors' costs. 14

If we look at these differences as percentage of the total, we see that just comparing operator wages and,fringes

and mechanic wages and,fringes, the total savings, 53 percent of the total savings is coming from the difference

in operator wages and fringe benefits and mechanic wages and.fringe benefits and that is an important,finding. More

than half of the savings for privatization is coming,from

lower wages and,fringe benefits.

Now at this point when I was giving this presentation to the Denver RTD board of directors, I sat down and the chairman of the board stood up and he is an economist and teaches at the University of Denver and he raised the point, well, this raises an important public policy question. As he phrased it, is it good public policy to be effectively turning 25 to $30,000 a year public employees into 15 to $20,000 a year public employees?

Is it good public policy, is it fair, is it just, is it equitable and can we afford the social costs? And there may be a social cost involved with this. Effectively, having a lot of bus drivers make a lot less money one could argue would result in greater demand on county social services for example. Indeed, when the union responded to our original study, one of their experts came up and said, my God, you now have bus drivers on food stamps. And that may very well be the case. It is 15 an interesting question. It is a great question for economists to deal with. It is beyond our scope. I think you should be aware of it. I think it is a public policy issue that needs some addressing.

At the same time I would temper the issue a little bit. No one lost their job as a result of privatization. The law. was specifically stated that no layoffs would occur directly as a result of privatization.

So people who left RTD's employment left on their own.

So this argument, well, you are replacing more expensive people with less expensive people, that might be true but it is not because anybody was fired. So much for the source of the savings.

Flip down a couple of pages and talk about stages a bit more down on page 11 of the presentation. We recognized early on that because of this tremendous savings that was resulting from differences in wages we treally needed to look at the wages a bit more. To give you some idea of how different the wages are between RTD and the contractors, we provided a couple of graphs.

This is wage structure that RTD had and the contractors.

This is cost per hour and this is tenure of employment.

Typical union contracts call for employees to get wages

Ln accordance with their tenure on the job. We see RTD's employees beginning in the nine to $10 range and "increasing 16 over time. Two different wage rates, one for part time and one for full time. RTD like many transit companies around the country hire operators on a part-time basis and as vacancies occur transfer these people to,full-time positions.

Here is RTD's wages up at the top. Here is the contractors, the range in the contractors' wages, the high and low end. You can see with the contractors, the lowest paying,contractor starts very low, around

$6 an hour compared to RTD starting between nine and

$10.

Now because of the mix in seniority, just looking at the numbers this way is a little misleading so we also look at it in terms of the average wage actually paid. This is based on auditing payroll data. We still see this tremendous difference in wage rate actually paid.

We can see here fairly clearly the source of savings, its very difference in wage rates.

But there is another side to the story. knd the other side to the story is generally when we are paying people less money, generally they are not going to stay on the job quite as long. And that is very much the case with bus drivers in Denver. Here we look at a graph which shows after how many months what percentage of the work force has left the job. What we are seeing 17 here is the contractor that had the lowest wage had the highest turnover and after 24 months 70 percent of his employees have left the job. Whereas, RTD, depending on whether we are looking just during the contractors hiring after April of '89 or over a five-year period, had a much lower percentage of employees who had left the job .

Another way to look at this number is to look at in each month what percentage of the bus operators left the employment of RTD or the contractors.

Here we see RTD, say, during the period that the contractors were hiring, roughly, one percent of their bus operators were leaving each month. The contractors, the worst one, the one with the lowest wage, eight percent of his employees were leaving every month. If you take that to an extreme, after a,full year, all of his employees are going to leave because he has this very rapid turnover of employment. And this suggests there may be a problem. This suggests that there may be much higher training costs. And that in general there is less experienced drivers on the road and that might have some implications on safety and quality of service. And that was the next thing we got into.

However, just to deal with one more point on the turnover, we were also concerned, while there is 13 all this additional turnover happening are people being fired for cause or are they resigning on their own? Is it possible that paying a lower wage we are getting a less reliable employee? One who might be more likely to do something wrong and have to be,fired. So we looked at the mix of resignations versus termination for cause.

And during the period that the contractors were hiring tiere is RTD. Roughly 80 percent of their people who left the job resigned on their own, were not fired. And it is almost exactly equal to what was happening to the contractors. This ignores retirements or death or promotions. It is just people who either resigned or tfere terminated for cause. So, we can't conclude that th-ere is inferior employees in some way resulting from paying a lower wage.

Let's talk about the safety and quality of service measures real briefly. We looked'at accidents, both personal injury and property damage accidents, we looked at on time performance, we looked at maintenance reliability and we looked at complaints and commendations. tfe also looked at this information, rather than looking at all of the RTD services compared to all contractor services we looked at it by type of service. We looked at routes, radial routes that entered downtown as opposed to cross town routes. Why distinguish them? Well, because 19 th£ level of traffic of these routes are competing with, is different for those two types of service. We also looked at the so-called express park and ride routes which operated primarily on freeways and not on service streets, very different traffic conditions. We tried to he as fair as we could be to the contractors in making these comparisons. Three very different types of services were compared.

Very briefly, looking at bodily injury accidents, what we see here is a bit of a mix of experience, three different types of service. The surface street radials, the non-radial routes and the express park and ride routes operating primarily on freeways. And what we see is that the contractors performed had a lower rate of bodily injury accidents for radial routes, a little bit higher on the non-radial routes and about the same on the express routes. No clear trend here. Overall it is about even based on bodily injury accidents.

Looking at property damage accidents, that is, accident that did not involve an injury. Again, a mixed bag. A little bit better, contractors performed a little bit better in terms of the radial routes, about the same for the non-radial routes and a little bit worse, a little bit higher rate of accidents on the express routes. Overall I don't think we can say there is a clear 20 trend here that the contractors are any more or any less safe than the publicly operated RTD routes.

Anoth er measure that we looked at was on- time performance. And here the white shaded area represents observed bus trips that arrive between five minutes late or one minute early for the scheduled time which is RTD standard for on-time performance. For the three types of service comparing RTD and the contractors. Here we are comparing the second year of experience with the,first year of experience. Overall contractors are very comparable to RTD in terms of on-time performance. In fact, in some ways a little bit better. More of the service is running on time per RTD's definition. And over

;ime, generally, no real change. Maybe a slight improvement in on-time performance over time.

Maintenance reliability, maintenance reliability is measured by a measure which is miles between mechanical road costs. How far does your average bus go before it needs maintenance. These numbers may appear relatively low to you but they are representative in many ways of the industry averages. What we are seeing here, particularly the second year is that there is a problem. The contractors were not performing as well as

RTD. On an average their buses were only operating about half as far,for the local routes and even a little bit 21 less than half as,far on the non-radial routes, but about the same on the express routes.

I would also point out to you to notice this improvement in miles between road calls for the express routes in the first year and in the second year.

So what happened there? Well, what happened was RTD was real concerned about this measure. They are very proud of their performance of their express park and ride routes.

They really got after the contractor that was not performing well in that area. One contractor is operating most of the express service and he improved tremendously.

To the point where he actually got up to about equal to

RTD's performance.

So a mixed bag in the maintenance reliability area. Express routes are okay but certainly a problem on the routes running on surface streets.

We also looked at complaint data. Now complaint data is a little problematic in that there is no scientific sampling going on. You are really never sure

«rhy a person is called and what their standards for axcellence really are. No real way to control it. But

RTD and many public operators do collect this data and it is certainly something that we can study. This is looking at complaints per hundred thousand passengers, a mixed bag. Contractors performing a little bit worse for the 22 radial routes and a little bit better for the express routes. Now I have got a lot of data here about complaints.

You and your staffs can flip through this. Overall there is no clear trend that the public is complaining more or less about the privatized routes compared to RTD's routes.

Generally I think that is a favorable statement.

So I will flip down a,few pages in the interest of time. To get down to another management area, in an effort to control the quality of service that the contractors were providing, RTD , applied a bit of a carrot and stick approach. They did provide an opportunity for a bonus or incentive to the contractors to perform well, and that is, the contractors and the law provided for this. The contractors retained 100 percent of the fare revenues that they collected. The better the quality of service they provided, theoretically the more people would use the service and the more fare revenues they would retain. Now in fact that is a relatively modest incentive because the cost recovery on these routes is relatively low, only about 20 percent of the cost recovery through the,fare box. Now that was the carrot.

The stick was that the contracts provided.for RTD to assess so-called liquidated damages for specific areas where the contractors failed to perform and we kept track of those liquidated damages, characterized them by specific 23 articles in the contract and we see some problem areas there. We see where the contractors had problems with on-time performance and the contractors had problems with nonfunctioning wheelchair lifts. Now the all time performance or overall the contractors were performing comparably to RTD. But RTD gets after its own employees for being early or for being late. And theyj'were equally hard on their contractors. Two years of experience, the first year in the solid black, the second year in the shaded, we see higher number of incidences occurring in the shaded, more aggressive management by RTD to force the contractors to do a better job.

This nonfunctioning wheelchair lift issue is increasingly an important issue. Particularly this era of Americans with Disability Act, contractors absolutely have to put functional wheelchair lifts on the buses. They have to work. There is a potential for severe penalties if they don't.

We summarized this amount of liquidated damages. If you look at it in terms of number of incidents per hundred thousand miles, and clearly RTD was getting a bit more aggressive in its oversight of the contractors, more assessed damages for 100,000 miles.

But how much of a stick was this really? How much was this encouraging contractors to perform well? Well, in 24 the end they were only assessed about 34, $35,000 out of total expenses of $14 million. So this may not be the strongest penalty to the contractors to get them to perform. One of our recommendations originally was raise' the stakes. Make these penalties a little more severe to get the contractors to perform better.

Now we saw a problem with maintenance reliability looking at miles between road calls and we wanted to understand more of what was happening here.

We did two things. One, we looked at the contractors' staffing of maintenance activities and the other is we brought in some independent inspectors to inspect the contractors' buses at the RTD board's specific request.

Looking at this chart on page 31 summarizes the staffing that the contractors were applying to maintain the buses and we see a problem here. What we see is the contractors were spreading their maintenance crews a bit more thinly than similarly sized 'private operators were doing and spreading them more thinly than RTD is doing itself.

To pick one measure, a mechanic of the contractors was responsible for maintaining 5.36 buses per mechanic compared to similarly sized systems where a mechanic was only responsible for maintaining two or three buses.

If you read the contracts that the contractors aad signed, they don't have a lot of flexibility in terms 25

Df putting the service on the street. They have to put the service on the street. Every bus trip has to be

Dperated or there are severe penalties. But the contracts tfere a bit softer in terms of the maintenance requirements. inhere the contractors were obliged to maintain the buses per the manufacturer's specifications, and in the case of auses that they leased from RTD, RTD's specifications, there were still some opportunities in there for the contractors to be flexible in the level of effort that they put into the buses and that shows up in these fairly

Lean staffing numbers. And this shows up a bit in the results of our inspections where we went through more than 20 points, 20 specific items to inspect on each bus.

Chese are very thorough inspections. Our inspectors took about two hours per bus and they found some problems and there were some safety related problems here which is disturbing. The safety related problems were specifically tforn tires and fast doors. We say, well why are fast ioors an issue? Well, if the doors are operating too

East, passengers tend to get banged around by the doors md claims are made against the public operators. I reviewed all the operators' accident reports and I saw i lot of passengers said they were stuck in the doors or lit by doors. That is a problem. Worn tires is also a problem. Clearly, the tires were worn beyond the state 26 requirements and beyond RTD's requirements.

Briefly summarizing the results of this maintenance review, the first point is we found some safety problems and that is something the contractors wi.ll have to address in the,future. Contractor staffing was relatively lean. RTD may need to be a bit more specific in future contracts in terms of what it expects for maintenance. Fairly detailed issues about maintenance practices, not severe problems but problems we certainly noted and brought to management's attention.

To summarize, what did the second year privatization in Denver demonstrate? Well, there is some good news. The good news is that some of the public's money is being saved. As you recall, we looked at a fairly broad range of ways to measure this savings.

By even the most conservative measure, we found per our calculation, a 12 percent savings. Now there is some ancertainty in that measure, maybe up to five percent

Less than that really. On the fully allocated side we saw a much higher percentage savings.

The contractors' profitability is relatively

Low and that is bothersome but we also realize that we don't have enough information to measure return on investment. For a private enterprise that is clearly the nost important issue. We found that more than half of the 27 savings resulted,from lower wages and fringe benefits and there may be some significant public policy issues related to that finding. We found that in terms of most safety quality of service measures we found that there was no clear trend that the contractors were performing either better or worse than RTD.

We found that contractors'--reliability was similar -- maintenance reliability was similar to RTD's for the express routes but there was a significant problem with buses operating on certain streets. And the improvement in the express routes was a direct result of a significant attention by RTD management to encourage the contractor to perform better.. . We saw that the incentive and penalty program is relatively weak. The liquidated damages are relatively small costs to a contractor but RTD eems to be pursuing that as vigorously as they can. We found in the area of turnover of operators that there is a clear relationship between wage rate and turnover rate but that it doesn't appear that the contractors are suffering in the form of less reliable employees in terms of the percentage of employees they have to fire for caus e.

And finally, to summarize again, the maintenance finding, we did,find some safety problems in the buses. The contractors need to put more attention 28 into the maintenance of the buses. Part of that may be staffing levels are relatively low. This may be the way that they are able to maintain their relatively meager profitability, at least profitability measured in terms of revenues less expenses. And overall we found that the contractors by and large are meeting their contractual obligations .

That concludes my formal observations on

Denver's experience and I welcome this opportunity to answer your ques tions .

CHAIRMAN EVANS: Thank you,for that presentation.

3Y CHAIRMAN EVANS:

Q I guess the first question I would like to

Lead off with as far as cost effectiveness and delivery of service, how do you feel about Pennsylvania's Transit

\uthority ranking among the nation?

A I think sitting in this room you've got two of the best public transit managers in the country.

\nd I think that in their tenure of their two agencies

:hey have done a lot. We had an opportunity just before or just as Lou Gamhaccini arrived in Philadelphia to review SEPTA's cost effectiveness looking at a variety of neasures. And SEPTA was performing relatively well. This

Ls data now that is about three years old. This was 29 performing fairly well. The areas where SEPTA was not performing quite as well could be traced to a woefully inadequate history of capital reinvestment, slow vehicles, slow trains, areas which I am sure are benefiting from the renewed investment that is occurring.

Q Do you have any reading on the small transit authorities in the state that you can give?

A We have not done any direct work for the smaller properties. So I am less familiar with them.

Q As policy makers, as we sit here and address this issue of the competitive bidding or privatiza­ tion, there has been a question that has been consistent.

How do we determine whether or not it makes sense for a transit system to participate in terms of privatization from what you have seen?

A We have clearly demonstrated here some opportunities for privatization to save taxpayers' money.

But Denver is still very much an experiment. It is still in the early stages of experimentation. The contracts that were written were three-year contracts with two one-year options. The first three-year base term is going to be expiring this coming June. It is not clear exactly what is going to happen.

I think there is a lot of unanswered questions about privatization. What happens when these 30 contracts expire and you have to turn over to the jperators. What is going to happen to the quality of

:he service as employees of these private contracts realize that their jobs are going to evaporate and another

:ontractor is going to be stepping in. What about the significant learning curve which may recur and recur md recur as new contractors come in.

The other observation we had, we were isked a similar question by the RTD board when we

^resented our first year's finding. The question at that

Joint was phrased, well, what do we think about the legislature coming in and imposing additional privatization. it that time I said I was not totally comfortable with it.

5rivatization is a tool that transit managers use to contain costs. There are many other tools that they use.

Aggressive management of available resources, tke use of

>art-time labor, through selective capital investment

:o improve productivity in terms of giving employees

Improved places to work, new bus garages and new maintenance facilities. All those are actions that are available to

:ransit managers to contain costs. I am not totally

:omfortable with the notion of outside forces coming in md,forcing management's hand in a particular direction.

)verall I would like to believe transit managers are ixperienced and skilled enough to recognize that privatization 31

is one of the many management opportunities that are out there available for them to control costs and I would like to see them have the flexibility to do what they think is best.

Q Other than privatization what can we do as policy makers to help the transit authorities run a more cost efficient operation?

A Well, I think there is a couple of areas.

Capital funding is an area that -- transit enterprises are a big business and they are a capital intensive business. The fixed plan needs continuing reinvestment.

And as that fixed plan ages over time, it needs reinvestment.

If it doesn't get that investment, the quality of service suffers and operating costs tend to increase. So I would think very hard, if I were a legislator, I would think very hard about the requests that are coming forward for capital,funding.

With regard to the operating side, it is a tougher issue. I think all transit managers in the state across the country are facing very severe problems resulting from the recession, declines in ridership, costs continue to increase, increasing pressure to keep a lid on fares. I am not sure what as state legislators you can do. I think in many ways that is more of a local issue. 32

Q The last question, have there been any efforts in privatization where in fact the contractor does not need a subsidy?

A I am not aware of any major transit applications in this country wh.ere that is occurring.

There are other privatization efforts around the world where the level of subsidy is lower.

Q Such as?

A Well, in London for example. Bus operations are recovering about 85 percent or thereabouts. One in regional transport has put out for tender, I think it is roughly a third of their service directed by the government to do it. They are allowed to compete for those services, compete with the private sector and they have been winning about 60 percent of those competitively contracted services. Just recently the British government has directed London transport to move toward tendering out all the service. It remains to be seen how well that is going to work. But still even there there is some subsidy on that.

CHAIRMAN EVANS: Representative Linton.

REPRESENTATIVE LINTON: Thank you very much,

Mr. Chairman.

BY REPRESENTATIVE LINTON:

Q I was interested in some of your earlier 33 comments, particularly with regards to the chairman of the RTD board made reference to cost savings. We have an interesting perspective here as legislators. Even though you can project individually that there may have been some cost savings due to the contracting out of the private contractors, our balance sheet looks a little differently in that even if you said there is a savings to the taxpayers as a result pf the savings subsidies to those particular private contractors, we also have to pick up on the other side of the balance sheet. If there is layoffs, if there is employees who are not working, tfho are collecting welfare or other kind of assistance, if there are other kind of costs that we have to pick up.

Case in point, just to bring my colleagues up to date,

«re did some welfare reform a number of years ago where we made transients in need. There were some issues that we tiad savings but yet we looked several years later and there were high homeless costs, various other costs that rie accrued which we also had to pay. So it is a question of whether or not there is a savings where there are transfers. I would like to get your comment on that.

A Well, I think it is a very valid issue.

It was beyond our scope to address. I think it is a wonderful issue,for economists to dig into. What I think the final equation is is whether the savings resulting 34 from, in the end, these lower wages and fringes, that are paid, that the savings in the transit budget, whether that

Ls equal to or greater than or less than the additional

^osts for social services that might result. It is not an easy analysis to do and there is no clear cost and effect in that nobody in Colorado at least lost their job directly as a result of privatization. The law specifically prohibited that from occurring, So, it is

/ery easy to make very extreme positions while we are replacing a 25 to $30,000 employee with a 15, $20,000 amployee. You are not firing that employee and replacing them with somebody lower. That employee is leaving on lis own and somebody else is hiring somebody else.

Now what happens to that first employee, ve don't know. That will be an interesting area to study.

Q The other question I had, there seem to ae a lower staff ratio in the maintenance area. That seems to be attributed to, you made some specific instance tfhere there were worn tires that were being used, I saw iirty buses, a number of specific issues that seem to arise, "the cost of low maintenance staff ratio. Who picked ip the capital costs? I mean, were most of the operating side was what the private contractors in terms of naintaining the buses, some of those buses were leased.

I understand probably some,were buses that were owned by 35 th-e private operators. What would you think this would do to increase capital costs over several years?

A To answer the question about what level of capital expenditure the contractors are responsible for,

Dverall the contractors had the option to either lease

RTD vehicles or provide their own vehicles . If the contractors provided their own vehicles, they were either accompanied on their lease through some third party. In the case of leased vehicles, RTD provided 40-foot transit coaches at a market price. They also provided one bus garage at a market price. The fully allocated cost comparison that I showed included the cost of capital.

Either the leased cost or the depreciation cost that the contractors carried on their books. So, I think that we lave embodied all operating and capital costs in this cost comparison. We tried to be as fair as.possible in comparing what it would have cost RTD to provide this service, both capital and operating, with what it cost

3.TD once privatization occurred both in terms of RTD's oversight and what the contractors were charging RTD for che service.

Q Those fully allocated icosts was a snapshot.

[hat is over a specific period of time. How would you aroject that over several years if the kind of lack of naintenance was to continue to occur and the replacement 36 costs of either vehicles or whatever else, the cost of that lack of maintenance?

A The contractors':actual cost appears to

RTD in the form of the price that the contractors propose up front. The nature of the procurement was the contractors proposed a price in each of the,five years.

A price per hour of service delivered. That was based on our own estimates, our own corporate objectives and the risks that they were willing to take. Now, as the privatization continues, as these buses age, as they incur more wear and tear, the contractors inevitably will be incurring additional costs. Whether or not they con­ sider that additional cost in their proposed price, we don't know. But they are bound contractually to the prices that they proposed. Now all the contractors did propose increases over time in their proposed price in each year, roughly keeping up with inflation. And different contractors assumed different increases each year. It is entirely possible that some of the contractors providing their own buses may be severely hurt by this additional wear and tear, this additional maintenance that might be required on the buses. They may have underestimated the amount of maintenance that is required. tfe were not privy to their internal decisions in developing their proposed price. We are really not sure what they 37 are going to do.

Q You also mentioned the low profitability that the contractors had to date. Having studied transit, and I understand the history of privatization in the past, that it just got to be a business that people didn't make any money so they got out of the business. I think that is a valid concern. If people are not making profits, that leads to a constant turnover in contractors over a period of time and eventually, unless they have a loss leader where they can pick up revenues someplace else, they are going to get out of the business. And I am concerned with that aspect of your study. Whether that tends to lead us to the same track we were on before where we all of a sudden now we are going back to contracting out. And five or ten years later we have gone

Dack and said the contractors are not making enough money, they get out and they start abandoning it or we have these low maintenance staff ratio situations, particularly on leased vehicles, that come from public operators. rhat comes back to the public once again with vehicles we have to restore with capital investments. So those are the concerns I have. Would you comment on that?

A I share your concern and we don't know what the1ultimate result is going to be. We also realize that it is not possible for us to get the best possible 38 view of the contractors' profitability and then we didn't have the opportunity to review their corporate balance sheets. We are only looking at the balance sheets for local operations. So, we were not able to look at return on investment or return on equity. And to that extent it is a limited analysis. However, the results are disturbing, It is certainly something that we encourage

RTD to look at in the future. They were very concerned about it, about this very issue in the first year of privatization because of the tremendous public scrutiny they were under and this overwhelming desire they had to nake privatization work. And they bent over backwards to make it work. They provided a lot of assistance to contractors. Their trainers provided all kinds of over­ sight in terms of on-the-street supervision. They wanted to make it work. As I mentioned before, they desperately did not want to be in the position of had it failed for legislators to point to them and say, you made it fail.

Instead they made it work. This is an area that is disturbing and requires continuing attention but in the

2nd will never really understand the profitability angle jecause we just won't get the proprietary information

;hat we would need to do the best job of analyzing profitability.

Q One final question, Mr. Chairman, and I will 39

De finished. We have a proposal, at least one proposal in Pennsylvania, that called for a ten percent privatization cumulative each year. So within ten, 20, 30, and it seems like the Colorado Legislature has decided to side on the side of caution. That this in fact should be an experiment at this point. Let's look, measure, see whether or not it is a subject we should pursue further. And we do have some public operators in Pennsylvania that are doing contracting out on a case-by-case basis and competing tfith the private contracts to see whether or not there

LS cost effectiveness involved in that. Would you suggest that if the Legislature were to look at contracting out that you side on the side of caution or would you go full

Dlown with ten percent, mandatory, across-the-board,

;umulatory number of years?

A My prior statement about my discomfort tfith the direction that the Colorado Legislature was

*oing, increasing it from 20 to 40 percent I think indicates tfhat our view is. I think that seems to be a little extreme. I would encourage you to let local managers: apply their skill and expertise in a variety of cost

:ontainment efforts. I am not totally comfortable with

;he state legislature coming in and mandating a certain

Level of privatization. Particularly in something which

Ls ultimately moving in the direction of 100 percent 40 privatization. At the same time you have responsibilities to manage the public investment in terms of operating subsidy. So I can't say that you should be ignoring it bait I am just not prepared to say a particular level of privatization is what you should be promoting.

REPRESENTATIVE LINTON: Thank you. Thank you for your testimony. Thank ycm, Mr. Chairman.

CHAIRMAN EVANS: What I would like to do is have Chairman Pitts ask questions. Prior to Chairman

Pitts asking some questions, I would like to ask that our other panelists move to the table. That will allow the court reporter to take a few minutes break. If our

3ther panelists will move to the table and then we will lave them all together. Chairman Pitts and then

Representative Petrone.

Let me, for the purposes of the record,

*re now will be taking a look at the specific issues facing nass transit. I would like our guests to introduce themselves. Then I want to go to Chairman Pitts so he

^an have the opportunity to ask Dr. Peskin his questions.

3o introduce yourselves for the record and then we'll

50 to Chairman Pitts.

MR. MILLAR: I am William W. Millar. I im the Executive Director of the Port Authority of illegh-eny County. 41

MR. LUTZ: My name is Jim Lutz. I am the

Executive Director of the Red Rose Transit Authority in

Lancaster, Pennsylvania and also President of the

Pennsylvania Association of Municipal Transportation

Authorities.

MR. GAMBACCINI: My name is Louis J.

Gambaccini. - I am General Manager of the Southeastern

Pennsylvania Transportation Authority, otherwise known as SEPTA.

CHAIRMAN EVANS: Now we will go to Chairman

Pitts.

REPRESENTATIVE PITTS: Thank you, Mr.

Chairman.

BY REPRESENTATIVE PITTS:

Q Mr. Peskin, you have given us a fair analysis of the Denver experience. My question is are you, first, are you:familiar with any privatization systems in mass transit in other areas of the United States ortheworLd where you and do you have any information that leads you to conclude that privatization has been successful in those instances if you are familiar with them?

A I would direct the Committee to look at the experience in Snohomish County, Washington, North

San Diego County, California, and the transportation zone effort by the Los Angeles County Transportation Commission. 42

Three somewhat different approaches for implementing privatization, different motivations behind them. But by and large I think successful efforts.

There have also been some problems in privatization. Problems in selecting the appropriate contractor, particularly, and the effort most recently in Miami identified a problem where selecting the right contractor is very important in making privatization work.

Q Have you done any analysis or studies of any of these other systems?

A We have not.

Q Do you have any evidence to support the notion that RTD employees may have made in the Denver experience, since you are familiar with that, may have made extra efforts to do a better job during this period?

If so, how do you measure that?

A It is a very good question. Ideally, we did measure it. Ideally, that showed up in terms of the measures of safety and quality of service. And we did see some improvement over time on RTD's side in several measures. Now, whether we can tie that directly toward management or labor saying to themselves, well, we need to work harder because our jobs are at stake, that is not clear to me. Most recently, one of the things that RTD did was to control the size of its administrative 43 staff. This was partially in response to continuing pressures by the legislature in the area of privatization but other issues addressing institutional change and the level of RTD's responsibility in the capital development area.

And they went through a very aggressive voluntary separation program to thin out their administra­ tive ranks. In,fact, they were more successful than they had anticipated and actually lost more people than was the ideal. That helped them control costs. And some of that cost we in fact captured that cost savings, we ended up capturing in the second year.

Q Now in the Denver experience when a contract was being bid, the RTD was bidding against the private; is that correct?

A No, that is not true. The legislation in Colorado did not call for effectively allowing the contract, the RTD to submit its own bid. However, the legislation did provide for RTD to reject the bid if its internal costs were lower. So they didn't submit a formal bid that they would be held against but they did go through a cost allocation analysis to determine whether or not there was money to be saved. In fact, one type of service that RTD operates, th.ey call their regional services, operated by over-the-road coaches similar to the 44 types of buses that Greyhound operates. Those buses, those services, the contractors bLd a higher cost to

RTD than RTD's in-house cost would have been and RTD sleeted not to privatize or competitively contract those services.

Q So competitive contracting is done differently in different areas.

A In terms of the rigor or the thoroughness

}f how the public entity's cost is portrayed, yeah, it varies a bit. Now, my understanding of legislation being considered here calls for a fully allocated cost comparison.

3ut the big differences in Colorado did not call for the public agency to submit its "proposal" on its own.

Something it would be held to in the future.

Q What about the service that was provided?

Is this just for new service, new lines or was this for existing service?

A This was all existing service and I believe that that was per the wording of the legislation. It tfas representative of all the service that RTD provided. It

Included their so-called grunt and groan local routes operating at less than eight miles an hour, carrying a lot

:>f passengers and entering downtown. It included cross

;own routes. It included their express park and ride routes. It also included their elderly handicapped service 45

which I did not focus on here, but is a success story.

That service was totally contracted out and they were able

actually to increase the level of services for those

services. It is a fairly broad range of services.

It was up to RTD to select which of those

routes would be contracted out and they opted to contract

out the least productive of those routes. Routes where

they were recovering the least from the fare box. In

general, the privatized routes were carrying on average

about half as many passengers per mile compared to RTD.

Q Is there any measure of percentage of

service you made as far as how much is provided by the

private contractors compared to RTD?

A The law specifically required that 20

percent of the service measured in terms of revenue

hours of service be privatized and that is in fact what

is being, actually it is a little more than that.

REPRESENTATIVE PITTS: My staff wanted to

follow up with a question.

MR. EASTON: Don Easton from the Republican

staff.

BY MR. EASTON:

Q Mr. Peskin, could you provide, you touched on something, an assessment of how you feel about whether or not there should be a percentage kind of a situation

•—-— • 46

or if you kind of leave it more broad?

A You are trying to back me into a corner with a hard number.

Q I'm sorry.

A That is all right. I came here expecting

that. I think there is a lot to learn from privatization.

I think there is a lot of opportunities for it to save money. I continue to be uncomfortable with it being

forced down the throat of transit managers. I think they need to be provided, they need the flexibility to manage

their resources as they see best. And there are many other things that can be done to control costs. And these three gentlemen do it every day. All kinds of actions ranging from how hourly labor is utilized to how capital investment is best made.

Q As an extension of that then, how do you feel about perhaps new lines, if there is new service being considered?

A Depending on the type of service I think

I would feel more comfortable with it in the new service area. At the same time I would not like to see any efficiencies of scale, to the extent that they exist in this business lost, because managers were restricted from taking advantage of certain efficiencies that might come through some types of service growth. So I guess I am not 47 giving you exactly the answer that you wanted, but yes,

I am more comfortable with it in terms of expansion of service. Particularly if we are talking about services that might be in less densely populated areas.

Let me go on and expand on that point a little bit. It has been our view, as we have been consulting to dozens of transit agencies across the country, that publicly operated transit does one job very well and that is moving a lot of people in a line called service.

But where the cost structure begins to break down, where it begins to get more expensive is in the more .lightly utilized services. And we see lots of.opportunities or lots of examples around the country where local governments and local transit managers have gotten inundated and

'nave begun to look at alternative forms of providing public transportation services or more properly say mobility choice opportunities to the public through something other than your standard 40-foot bus operating on a fixed schedule and a fixed route. Opportunities that come to mind, for example, in Arlington County,

Virginia, the county government was subsidizing the netro bus service which provided a feeder to the metro rail subway. And they were finding that that service was lightly utilized in the evening and tried to experiment tfhere they decided rather than subsidizing the expensive 48

metro bus, they would subsdize a shared ride taxi type

service where taxis would actually operate along the bus

route and could deviate from the route a small amount,

several blocks. Actually being able to provide a better

service than the bus could provide. The passenger would

pay the regular fare which would be retained by the taxi

driver and there would be a subsidy provided as well.

Our understanding is that that was somewhat of a success. Less cost to the local government, better

service to the few passengers that were using it. So, new services, particularly low density services, there is • probably some opportunities there to privatize service.

I would like to think that transit managers would be aware of those opportunities and would be pursuing those types of opportunities on their own without some external

:onstraint being forced upon them.

MR. EASTON: Thank you very much, sir.

Thank you, Mr. Chairman.

CHAIRMAN EVANS: Representative Petrone.

REPRESENTATIVE PETRONE: Thank you, Mr.

Chairman. Good morning, Dr. Peskin.

BY REPRESENTATIVE PETRONE:

Q I'm curious about one part of your testimony that you stated in determining costs and contracts that several contractors bid on the school bus 49 part of the program. This obviously would have an effect much, different than regular and normal costs. The utilization of the vehicle, the cost of it. What percentage did that represent of the total amount? I am curious .

A Let me correct your understanding. One of the contractors is pursuing school bus services to school districts. The transit company does not provide school bus service itself. This company was applying its entrepreneurial objectives to seek other markets. Now, as it turns out that operator is actually providing transit services with a school bus type vehicle. And that issue raised some alarm bells when it first became apparent in Denver. There were some members of the

RTD board of directors that were outraged that 40-foot transit coaches were being replaced with school bus type vehicles. I am sure we all remember what it was like to ride a school bus and it sure doesn't feel like a comfortable 40-foot transit bus.

Q I had to walk but that is all right.

(Laughter.)

CHAIRMAN EVANS-. I read about that.

(Laughter.)

DR. PESKIN: There were some pretty out­ rageous statements made by board members to the point of 50 saying, my God, we specified the color of the driver's socks hut we don't specify what type of bus he drives. ifet the press was out there working on this story and ioing man-on-the-street interviews or man-on-the-bus

Interviews and a common response that they got was I don't

:are what kind of bus it was. The fact of the matter is

;he bus was there at 5:25 this morning and I got to work

Dn time and my boss didn't yell at me for once. In the

2nd it is quality of service measured in many ways that

Ls important.

IY REPRESENTATIVE PETRONE:

Q Obviously. My question was that part of

;he sample and the cost involved would be a lot different

;han what you are talking your normal coaches , their

20st. They are on the road a lot more. I was just curious .

A But I think it is an important point to

)ursue. In fact, RTD did go back on the street with a subsequent proposal to attempt to replace this service

)perator school bus type vehicles with regular transit

:oaches. Essentially what they are finding is the

>roposed price would be substantially higher.

Q Obviously.

A And I don't think there is any surprises

:here. At this point they are living with the situation 51 they have. Q One other question, doctor. What is your opinion on the Federal Government's policy on mass transit in this country? Just briefly as you can. Obviously you know a lot about it. What can you say? How do you feel?

A Well, I think the ISTEA, ..Integral Service

Transportation Efficiency Act of 1991 is a godsend in many ways. There is a lot of money there that is available for transit and provides funding opportunities that heretofore, flexibility in funding that did not exist before. I think it is disappointing that the administration's proposed budget includes less of operating assistance for transit than had been discussed in the original legislation. So there is good news and there is bad news.

Q How do we compare with other western world countries? Are we far behind, a little behind, a long way to go?

A Well, I think that there is a lot that is being done well here. I think that there is a lot in the science of transit management wherein this country we are at the state of the art. I think the resurgence of rail transit, all the wide rail transit systems around the country is a very favorable sign in showing the public has not totally abandoned the concept of public transit. 52

In many ways I think the biggest problem we have got in this country is that transit is in the end, it is an underpriced service from the perspective of the perceived out-of-pocket cost of the transit rider as compared to the out-of-pocket cost that the automobile rider has. In many ways the costs for the automobile appears to be less in this country than it does elsewhere.

There is more levels of taxation, gasoline and other reasons. So transit has a bit of an unfair disadvantage

I suppose in this country. But where transit works very well I think it is doing a very good job.

REPRESENTATIVE PETRONE: Thank you very much.

CHAIRMAN EVANS: Representative Linton wants to do one clarifying issue and then I have

Representative Langtry, Representative Semmel and

I want to express to the members you certainly can ask questions of the other panelists. Representative Linton on clarifying an issue.

BY REPRESENTATIVE LINTON:

Q I was curious, getting back to the RTD situation. The 20 percent contracted out did that also include the paratransit, the senior citizen services that were contracted out as well?

A Yes. It did include it. I didn't focus on 53 it in this report for a couple of reasons. One, the service was totally revitalized with privatization. The lower costs provided them the opportunity to provide more services and in addition they changed the eligibility requirement, requirements,for persons using the service.

So there was to a certain extent a different public making use of the service and.a very different•level of .service being put out there. Essentially they ended up.paying -- spending the same amount of money for the elderly and handicapped services, but ended up getting a lot more for it. But standard measures of quality of service were very difficult to measure and there was no real basis for comparison. Because all pf the service was contracted out.

So there wasn't any concurrent public operation going on,

and because of the difference in level of service and underlying changes in the economy, there was no way to

really do an accurate before and after comparison of

ridership or safety or quality of service.

REPRESENTATIVE LINTON: I wanted to make

that point. Both the Port Authority and SEPTA are

ready to provide those services and they are contracted

out already. That does not get included when people are

talking about privatization in Pennsylvania. There is

already privatization that exists similar to what was

proposed in Denver and that is included in the 20 percent. 54

Thank you.

CHAIRMAN EVANS: Representative Langtry.

REPRESENTATIVE LANGTRY: Thank you. Good morning,

BY REPRESENTATIVE LANGTRY:

Q I wanted to talk for a moment, Mr. Peskin, when you did your study, well let me ask you this first.

Are you aware of any other areas of the country where there is operating side by side, let's say a public mass transit service plus some partially privatized services within that system?

A Well again, the examples that I gave,

Snohomish County, Washington, San Diego County, Los Angeles

County are three of the best examples in the country of that happening.

Q Are you,familiar with anything of that type in Chicago?

A I know Chicago was privatizing the elderly and handicapped service and there are some private

Dperators competing with PAS, the suburban bus transit operation and that has been going on for some time now.

I am not very familiar with the cost comparisons.

Q I understand that is quite successful, firsthand users of the system. But I wanted to ask another question too, and this deals with continuity of service. 55

In your studies under RTD were there any stoppages of services and under the privatized system are there any constraints on them to continuously deliver services, and if so, how are those requirements in effect?

A It is in the contract in the form of the liquidated damages. The contracts have a dollar penalty.

I think it is 250 or $500, some level like that per trip that is just not operated at all during the day. And there is a $1,0Q0 a day penalty for failure to provide services at all. It is my understanding that there was only one day when one operator was unable to provide service. It was a snowstorm and the contractor had been warned that the location of his maintenance , facility would most likely prevent him from delivering service if there was a bad snowstorm. He elected to locate it there anyway.

Sure enough the streets weren't cleared and he was unable to put the service on the street. That was just one operator operating out of one of two maintenance.facilities that he was running. The other contractors and this other facility that this third contractor had did provide service on that very snowy day.

Q Under the earlier system before privatization are you aware whether or not service was provided on a continual basis without any breakups in service?

A By RTD itself? 56

Q Yes, under the public system.

A There was certainly no systematic problem of failure to deliver service. Now I am trying to think how many. RTD probably operates on the order of,four or 5,000 trips per day. Buses running from one end of the line to the other. Ninety-nine percent service means that, roughly, 40 buses wouldn't run on a particular day. My guess is that they were doing far better than 99 percent service delivered.

Q The earlier system, did that operate under certain collective bargaining laws that did not apply to the private contractor system?

A RTD's labor is represented by the amalgamated transit union. Still is. The contractors came in without unions. Within the,first year one of the contractors was notified by the National Labor Relations Board to bold an election. The union did not win that election.

The union said it would come back a year later and hold another election. I don't think that has happened yet.

So right now the contractors are not unionized.

REPRESENTATIVE LANGTRY: So there is a difference there insofar as status of employees is concerned. If anyone else wants to comment on that;

Dtherwise I^am finished.

CHAIRMAN EVANS: Representative Paul Semmel. 57

BY REPRESENTATIVE SEMMEL:

Q Dr. Peskin, to follow up, 20 percent of the RTD was privatized. Were labor locals allowed to put in contracts or in the bidding process or not at all?

A Well the legislation didn't specifically call for that. RTD evaluated its or compared its costs to the proposed prices on the basis of the cost structure that it had at the time which is clearly driven primarily by its labor cost. I think it is fair to say that privatization had some influence on RTD's costs with regard to its hourly labor. The privatization bill was being debated at the time that RTD was negotiating the labor contract. RTD won a very significant concession from the union in terms of union work rules during the time of the debate. Whether or not the cloud of privatiza­ tion hanging over the negotiations directly caused this concession to occur or not no one really knows. But it ended up saving RTD a lot of money. It made its cost structure lower than it would have had it not happened.

It made RTD more competitive.

Q Just in the way of a follow-up question,

I am not sure. Phoenix I believe has labor contracts that were bid and the fact of the matter is for a number of years they weren't successful. The labor local now has held these contracts for a number of years. What comments

• 58 can you refer to this perhaps in regard to true privatization in private contractors or is it not a fair apple and oranges situation?

A I think it is a very fair comparison.

Phoenix in many ways has been leading the country in looking at privatization, competitive contracting of various types of governmental services. The exact comparison, the specific savings that will occur in any one location will depend, in many ways, on the local market, local labor market. In many ways the public agency and the private operators are getting their employees from the same local labor pool and that labor pool will respond to hourly wages the same regardless of their employment. And I think we saw some of that in Denver that the lower wage, the operators earning the lower wage tend to stay on the job less for a shorter period of time than the RTD employees. It is entirely possible that from city to city the difference in wages between the contractors and the public operator will be closer. That may very well be the case here in Pennsylvania.

REPRESENTATIVE SEMMEL: Thank you.

CHAIRMAN EVANS: Representative Battisto.

REPRESENTATIVE BATTISTO: Thank you, Mr.

Chairman.

BY REPRESENTATIVE BATTISTO: 59

Q Dr. Peskin, I listened carefully here to your presentation, and of course, assessed the ups and downs of privatization that you unfolded. I guess it was determined that most of the cost savings come through wages and benefits. There was a question asked about the fact that I guess the difference, the social cost possibly of an $8 an hour driver as opposed to a $10 an hour driver can't be assessed. That wasn't your mission to assess that. I don't look at it STD much as a social cost. I think a $8 an hour driver probably would be able to live not so well as a $10 an hour driver but,fairly well. My concern is over the fact that the $10 an hour driver, if he is efficient, has more discretionary income.

I look at the more intricate process of sales tax revenues, living in a different neighborhood, paying less real estate taxes and cumulatively-perhaps contributing less to the economy than the $8 an hour driver. That is the way I look at it.

Therefore, would it not be better for a company to have focused teams focusing on risk management, risk management from the standpoint of personal risk, actually rolling stock to focus on things like productivity and efficiency of service. Those are the kinds of things that people look for, talking about the guy that wants to get to work on time. So, I mean, I don't back away from 60 the possibility of ten percent or 20 percent privatization.

E don't hesitate, but the intricate process of the effect on the economy is something that you didn't analyze and jrou couldn't begin to analyze and that is the concern I lave.

A Well, you refer back in many ways to some of the comments I made about imposing privatization on transit managers. There is a lot of things that transit nanagers can do to contain costs and they do it all the time. Privatization is just one of many things. A lot

Df things that can be done to improve productivity to reduce the cost of consumables, parts, all kinds of things.

REPRESENTATIVE BATTISTO: Thank you.

CHAIRMAN EVANS: Before I go to Representative tfozniak, I would like to ask a couple questions of the nanagers tieing right into it. First, we will take a five-minute break.

(Brief recess.)

CHAIRMAN EVANS: I would like to call the iouse Appropriations Committee and Transportation

Committee meeting back to order. From my understanding, some people have testimony you want to submit for the record?

MR. MILLAR: Yes. Good morning. I am

William Millar, Executive Director, Port Authority of 61

Allegheny County. And I first want to say how much we appreciate the opportunity to be here with you today.

We, too, have found the presentation on privatization to be very interesting and during the question and answers we would be very, or at least I would be very happy, to tell you a little bit about our experience in Pittsburgh in that regard.

I did want to use this opportunity for two other purposes if I might and I will try to be brief.

One is, first, just to thank the Appropriations Committee and the Transportation Committee and indeed the Legislature for the strong financial support you have given transit in Pennsylvania, and particularly for us in Allegheny

County, and particularly for the leadership you all showed, particularly Mr. Linton and Mr. Evans and many others as well inJpassing the dedicated taxes for transit last summer.

While we are off to a little bit of a rocky start because of the recession, in time that will prove to be one of the wisest thing I think the Legislature has ever done.

The second point, and this is where I really wanted to spend a little bit more time if I might.

I think it is no secret that there is a little bit of a labor dispute going on in Pittsburgh right at the moment.

Unfortunately, there is a strike on our transit system, and one of the central issues of that is how much money is 62 available for public transit. As I have already said,

I think the state over the years has been very generous with its aid. Sure, while we might occasionally come up lere and always ask,for more, it is just so we can provide more service. But I think the record is clear the state has given very good aid to public transit.

And yet as we have reviewed the Governor's budget for the coming year, we note that at least in

Pittsburgh as best we can tell from this budget, we are actually going to have less money, less state money to tfork with in the coming budget year than we have in the current budget year. Now that seems to be from a combination of factors of reserving some funds to make sure that the state budget doesn't get out of balance, changes that the Legislature made by exempting libraries and nonprofits from paying certain of the taxes in the dedicated fund and general freezing of the levels of transit assistance. And I certainly don't fault the state for keeping its own fiscal house in order. It is very, s^ery important and we all understand that. But we are going ahead, and in these labor negotiations, frankly, tfe are going ahead on the assumption that we will see no

:noney more than what the Governor has included in his budget. And I would hope that sometime today if that is a bad assumption, in other words, if there is a feeling of 63 the Committee members or other members of the Legislature that there is either going to be more, or I hope not less money than that available, that would really be very important for both we and our union to know because that is very key as we put together our proposals to end this work stoppage in Pittsburgh.

Finally, I have in my testimony five specific-points and I will just summarize very briefly.

One is we would certainly hope that the Governor can release the money that he has held in reserve both in the general fund and in the program that funds the free rides for senior citizens.

Second, while we think it was good public policy to exempt libraries' and nonprofits from paying the periodical tax, we would hope that there could be some other source of revenue put in place to replace that.

Third, we would hope that further attempts to give exemptions from paying the dedicated taxes would be avoided, or at the very least, if there are good public policy reasons to exempt yet other groups from paying it, that that money be replaced in some way.

Fourth, that in the final budget if there is an opportunity for some inflationary increases in state aid, that would be very important to us.

And then finally, we would like to see in 64 both the current fiscal year and in the coming fiscal year through the capital budget process funds made available for vehicle overhaul and as has been the tradition in the last couple of years made available without local match.

That is a very brief summary of my testimony.

I would be very happy to answer any questions about either

3iy testimony or to comment on Dr. Peskin's testimony.

Thank you very much.

MR. LUTZ: Chairman Evans, Mr. Millar,

I also, on behalf of the State Transit Association wish to thank you, Representative Linton and all the members of the Committee for the support that we had last year for Act 26, Public Transportation Assistance funds.

This is a major first step towards developing both a predictable and dedicated source of funding for the transit systems throughout Pennsylvania. Our association

Ls a statewide association put together to further the benefits

Df public transit to the citizens of our Commonwealth. tfe represent over 40 transit systems which range in size from our two largest systems, SEPTA, which has over 2600 i/ehicles and-Pittsburgh, but also represents the smaller systems in DuBois, Pennsylvania, Franklin, Monroe bounty and endless mountains. Pennsylvania transit is

Ear and wide and serves many of our communities and counties regardless of the population size. 65

In the upcoming year, some of the

challenges that we face, not only will we have to continue

serving each and every day trip by trip 460 million

customers that we serve annually, but we are also going to have to move forward on the services for the disabled in

Pennsylvania. The demands of the Americans with Disability

Act are tremendous and will place a heavy burden on our state systems. That is a burden and challenge that we

look forward to facing and completing services for.

We also have the requirements of the Clean

Air Act, which again, air quality in Pennsylvania is a concern not only in our largest metropolitan areas but other areas in the Commonwealth. That comes out of price. As was noted, the concerns that we have from the

state budget standpoint for next fiscal year are one in which we have greater demands, being placed on us and essentially have less funds to work with. We understand the difficult budgetary times as a result of the recession and are willing to do our share but we need your support to recognize those increased demands that are being placed on the transit community not only to provide existing services but to provide additional services for the disabled and also to address the additional regulations that we face from the Federal Government.

Some other things that we would also urge 66

?ou to consider is the supplemental,funding which was provided last year for the Free Transit Program. That is extremely important to all our systems, and particularly important to our small and medium sized systems. So we arge that support to continue that supplement.

And the third thing, which I don't know whether it has been brought up to you before, but with the Americans with Disabilities Act, one of the things that is taking place at the local level is a great need

:o coordinate the services that we provide in communities.

\nd one of the things that our association would urge this Committee to seriously take a look at would be to direct the executive branch to coordinate, excuse me, to conduct a study to look at the coordination of the variety of transit funding programs at the state level,

Including not only the 203 State Lottery funding but the

Department of Public Welfare funding, to the Human Services

31ock Grant to take a look at coordinating those funding streams, at the state level to match the level of coordination

;hat is occurring at the local level. More and more with

)ur transit systems in Pennsylvania we are moving towards coordinated services, some of which will in fact include jrivate operation, some of which will be public operation.

3ut that coordination is extremely important to meet the leeds of our communities and to meet the needs of our 67 disabled in our communities. The problem that we have with the funding streams is one of fragmentation and conflicting requirements. We would look to your leadership to help us move the executive branch to develop a study to look at coordinating that funding at the state level.

And the last thing I want to leave you with is I take great pride in the transit industry in

Pennsylvania and I think we stack up very well when we look at our systems across the country. Yesterday I pulled out some information from some studies that were done. One study was done by the Urban Mass Transit

Administration of the nation's 30 largest systems. One piece of information from that, with respect to the cost of service in Philadelphia and Pittsburgh. For the bus system, the motor bus aspect of their services, in relation to the average cost of the 3 largest systems in the United States, Philadelphia's cost per hour for their motor bus operation is 15.1 percent less than that average. PAT's was 16.2 percent less. I think that speaks well of those two systems.

And with respect to the heavy rail operation, the average cost comes to $146 an hour in this country. In Philadelphia it is $128 an hour. It is 12.2 percent less than that average.

When you take a look at some of our smaller 68 systems, just briefly a couple of outstanding situations, this is data taken from an independent group called the

North American Transit Research Group. They compared the national statistics of transit systems for the past few years and it is now an annual event. Of our systems between 50 and 99 vehicles, the Capital Area Transit System in Pennsylvania, looking at a combination of four factors of those systems, CAT came out second overall of 44 systems in the United States. If you take a look at systems between 25 and 49 vehicles, there is 85 systems in the country. The Red Rose Transit Authority in Lancaster came out third on the cost effectiveness parameter and the Reading Transportation came out second. They beat me by just a little bit and I am going to get them next year.

But I think that speaks well for transit in Pennsylvania.

And of systems less than 25 vehicles, our system in State College on all four factors, this is a

191 system comparison, the State College system came out number one. I think that says a great deal about what transit management has done in Pennsylvania. I think we are leaders of what takes place nationally and we have been able to produce some of these statistics with your support in the past and we thank you for your continued support.

MR. GAMBACCINI: I would like to echo Bill 69

Millar's comments and his kudos to the state. I think the state in fact has risen very mightily to the challenge of helping transit as the Federal Government has declined substantially over the last several years and most recently the success of the dedicated funding in

Pennsylvania I think is high credit to the leadership of both Houses of the Legislature and to the Governor.

On the other hand, it is a matter of great concern to all of us that the euphoria of two or three months ago has considerably diminished if not disappeared.

Some three months ago the potential for the dedicated funding flow, which is now sharply reduced because of revenues and the economy as well as the promise of the federal bill has been substantially undermined by deficit concerns and by a proposed budget that takes the heart out of what otherwise might have been a magnificent new direction for national transit policy. '<

These phenomena led us at SEPTA to the reluctant conclusion that we have no recourse but to undertake a very serious downsizing effort. This is something we concluded a month or two ago as the combination of all the indicators began to come through as to the harsh reality. You can't expect and can't depend or pin our hopes on a near-term substantial economic recovery and therefore we are realistically confronting the 70 aecessity to reduce our 1993,fiscal year budget,five percent against the '92 budget and 11 percent against

Dur preliminary views about what '93 would require. It is not going to be easy. It is going to be extremely difficult. It is going to compel us to do a substantial downsizing in our administrative and overhead as well as some operational changes that we believe can maintain virtually the same service but with some structural changes in terms of use of vehicles and the like.

We have done a number of things.

Incidentally, let me digress for a minute. I worked with

Bob Peskin for my first year in Philadelphia as he worked on the project that he referred to the elected officials report. Developed a great respect for him and I think his presentation today continues to merit that respect.

It was the most measured, carefully analytic approach to a very complex subject that I have heard anywhere.

In fact, I'm looking forward to having a copy of the transcript because I thought it was, done with such considerable professionalism and care.

I will be happy to amplify on the privatiza­ tion issue in the question and answer period. I recognize we are running late and I will be happy to respond to questions. A word about what we have been doing in 71 recent years. In my opinion, we have among the best labor contracts that exist in the country and a cooperative union. We have developed a positive working relationship and because of it we have been able to take savings of substantial importance. We have eliminated some 50 plus administrative jobs in the course of the last year and a half, an additional 65 cashier jobs, which for the most part, we recycled into increased police which in turn has resulted in a 40 plus percent decline in violent crime on our system. So we have been recycling resources and picking up savings where we can. Last summer we eliminated after midnight rail service on our subway elevated. We substituted bus service at a savings of some three-quarters of a million. With union cooperation.with changes or reductions in staff through attrition, we went to one- person train operations, which in my experience elsewhere, has been virtually impossible on other systems. We accomplished that on the Broad Street line, again, at another three-quarters of a million annual savings. We have been pushing on these fronts and I was pleased to hear Mr. Peskin emphasize the importance of picking up the savings across the board. Privatization is one important tool, a very real tool, but it is only one of many tools that we have to undertake.

With respect to privatization, all of our 72 paratransit system is privatized. Forty percent of our total capital and operating budget, in effect, payments to private interest to provide materials, to provide construction. We privatized all of our ticket sales functions at our commuter railroad operations. I believe we are the only one or one of the very few in the country to do so. So it is not a subject we are afraid of. Indeed, we endorse but along the cautionary lines that Mr. Peskin had indicated.

Mr. Chairman, I'll be happy to be available for any questions you or your colleagues may have.

CHAIRMAN EVANS: Thank you. I think you were doing a good job of giving some examples. I guess after hearing Dr. Peskin1s testimony, and Lou, you kind of made that. I guess, Bill, I would be interested in some of your thoughts in a very specific way regarding your system. Some of the things that you have done and some of the things that you are looking at around the whole aspect of cost control. It can be talking about privatization or competitive contracting or whatever other neans that you think. And then we'll go to Jim Lutz and he can talk about the system as a whole.

MR. MILLAR: Okay, fine. I think the competitive contracting is a very good place to start. k.s Dr. Peskin said, the RTD situation in Colorado was a 73

$14 million contracting. Well this year we will be contracting $20 million worth of service in our access paratransit program. We are involving 13 different carriers receiving 2.3 million riders per year.

And unlike the Denver situation, which is

considered the experiment, we just had our 13th anniversary on the access system. And what are the results? The results are excellent. The cost growth over those 13 years has been far less on a unit basis than just the regular growth inflation. We have found that the issue is not privatization. It is competition. And we have, in a different way than Denver, used the competition among the private carriers to keep service quality up and costs down.

We think that, as he has stated, competition is a tool and it is one of many tools.

Now because of our good experience in the access program, and some people want to write that off as, well, that is just paratransit service, again, I would remind the Committee that we this year will spend approximately $20 million through those competitively bid contracts making it I believe the second or possibly the third largest competitively bid system in America. So we have a lot of experience. So we took that experience and we said, well let's turn that experience on low density routes. You recall what Dr. Peskin said that he thought 74 that one of the places where competition could make sense is in low density areas. We, after considerable study, chose an area in the eastern part of Allegheny County, the Monroeville area.

Our idea there was to do a couple of things.

One, restructure some existing service that was not very productive.

Two, restructure that service to really serve changed travel patterns. In other words, that is a suburban area that has grown dramatically and yet our buses tended to go where they had gone for years and years and years.

Three, we wanted to integrate that service with our regular line haul service. And as Dr. Peskin has said, one of the things many people believe and I share it is for our relatively high cost structure on our regular service that may make sense on very high density service. In other words, routes where there is lots of riders. But where there aren't many riders but yet there is still a public need such as low density service, we need to find a way to deal with cost structure.

So our thought was literally we would have the low density, competitively bid service feeding into our regular service. ifJe felt we could accomplish this, and in fact we did accomplish it without the layoff of any of our current 75 employees and the service went into place about two years ago. It was well received by the public. The ridership grew dramatically. It was very favorably received in terms of quality of service issues, things of that sort.

Unfortunately, it was not well received by the leaders of our transit union. They invoked, as is their right, a grievance procedure that ultimately led to an arbitration proceeding and then in a decision that still boggles my mind, somehow, even though we didn't lay off any employees, even though we increased service with union employees on line haul routes, this arbitrator came to, I think, the absurd conclusion that somehow we had violated our labor contract.

And this raises a very important point.

Several questions were put to Dr. Peskin about whether there ought to be mandatory privatization. I think we need to look at the whole spectrum of labor law if we are going to move into the area of competitive bidding. In the Monroeville situation that I just described no one was hurt. Everyone came out a winner and yet somehow an arbitrator just can decide that this was wrong. That doesn't strike me as very good public policy. So if we were to have a mandatory law that we had to do competitive bidding, I would hope that we would also give some instructions to the labor arbitrators in Pennsylvania as 76 to how they are to deal with that law. Because otherwise the managers are absolutely caught in the middle. We have a law that says we must do something and then we have a tradition and a set of forces that keep us from doing it.

So I think that would have to be considered very carefully.

The other issue that has been raised here about how we do cost improvement is to point out that competitive bidding is just one of many things that we do and I want to bring you up to date on some other things that the Port Authority does. A lot of ways that we have been able to reduce our costs are really boring. They are not much fun and they don't get headlines. But they are things like we had an inventory that never turned over and so it just grew and grew and grew. We are now turning over our inventory a couple times a year for example. That then reduces your costs. Keeps your stock fresh. It does lots of other things. We have taken a lot of looks in the administrative procedures of what we are doing and I won't take a long time today but I am very much a proponent of the idea of total quality management. We have tried very hard to introduce that into our system in

Pittsburgh. Because in the end by totally involving our employees by having them see the benefits directly to them by improved operation, that is ultimately how we are going to make the system very efficient. We are experimenting 77 with some ideas in gain sharing. So that employees get to share along with the taxpayer and rider the benefits of the ideas that the employees put out there. So I want to emphasize those points. I want to also put in a pitch for capital improvements. I strongly agree with

Dr. Peskin that capital improvements are very important for increasing productivity. I would cite our bus ways in Pittsburgh. It is just a perfect example of how relatively simple technology has allowed us to greatly cut our costs for passengers and attract many new passengers.

And of course, we are looking forward to the new Greater

Pittsburgh International Airport opening.up and to extending our bus way system out towards the airport.

To also extending our Martin Luther King East bus way down into the Mon Valley. And with the help of two very important members of this Committee as well as many in the Transportation Committee we are hoping to, with our airport bus way, to take advantage of an old tunnel the

Port Authority owns called the Wabash Tunnel. It is an asset that has been in the community for years not being used and we were very pleased that the Transportation

Committee here I believe has now added that to the capital program. We think that, again, making best use of the assets we have is the most cost effective thing we can do and I am grateful,for all the assistance we receive. 78

CHAIRMAN EVANS: Any reaction, any comments in terms of the transit authority?

MR. LUTZ: Yes, Mr. Chairman. Let me just cite a couple of examples where privatization is being used throughout Pennsylvania. Not only what you heard in

Philadelphia and Pittsburgh but many of our small systems, and we have a variety. Some operate some of their service through the use of subcontracting. Some of them provide all of their service through the use of subcontracting.

The majority of services across the Commonwealth with respect to service to the disabled are being done through subcontracting to the private sector. We are also seeing a number of systems, uses of subcontracting for main line fixed route services. Allentown, Pennsylvania has some service out right now on a three-year contract. I think that introduction of competition certainly does have a positive effect.

But to echo Dr. Peskin's comments, it certainly is not a pancea. I tried to picture if I had to, if I operated an organization that had hundreds of employees and I was going to go in and try and hire and maintain a work force at wages far lower than the market rate within my local area, how would that actually happen and what would happen. You have seen, for example, in

Denver in just that one year comparison of the huge amount 79 of turnover. I think that in,fact would cause significant problems throughout our transit systems in Pennsylvania if you had that kind of turnover. Generally what we find within a system, if you look at who generates the complaints or who has the accidents, often that occurs with individuals or a greater frequency occurs with individuals with less than five years' experience. Whereas, your more senior operators tend to have much better performance. At least that is my own experience and experience I have seen from others.

But I think what would happen, to try to take that one year snapshot of what occurred in Denver and expand that to the entire Denver system over a multi- year period, I am not so sure if comparisons that showed up in that would hold true. I don't think that they would.

I think that you simply cannot get the quality for an entire system at wage rates that are less than market rates or the manufacturing rates within a given area.

You have to be competitive to get competitive workers.

CHAIRMAN EVANS: Lou.

MR. GAMBACCINI: I didn't fully describe

Dur interests in, I was going to say, privatization. I think it is a healthy thing that the advocates of privatization have changed the nomenclature to competitive bidding because I think that is a much more constructive 80 approach. Competition is a healthy thing. Competitive bidding is a very healthy thing. I think privatization provokes a lot of negative images of union busting and that sort of thing. So I think this is a good direction and hopefully we can moderate emotions and really work constructively to see how this can be an effective tool but within the kinds of cautionary guidelines that Dr.

Peskin outlined. To that end we are expecting to competitively bid a new route that will be operating

Detween West Chester in Chester County and Wilmington,

Delaware. It will be subsidized by the Counties of

Delaware and Chester and the State of Delaware. We are very hopeful and believe that it will be a successful competitive bid that probably will go to private operators. A lot of interest by private operators and

*re think --

CHAIRMAN EVANS: Can I ask a question relating to that? I asked that of Dr. Peskin. You raise the point. You said that this new route will be subsidized?

MR. GAMBACCINI: Yes.

CHAIRMAN EVANS: And you kind have given an answer to that earlier. Is it possible for this route to do it without being subsidized?

MR. GAMBACCINI: We doubt it but if it lappens, certainly that will be a very great benefit. We 81 have undertaken five new routes that are subsidized by private interest because we couldn't afford to launch them. One of them is highly successful. One we had to drop and two or three are shaky. And one of those two or three we also are going to consider competitively bidding to see if we don't think it is possible to operate it on a break-even basis, but to see if a private operator

:ould do it on a less subsidized basis than we would require.

Now having said that, let me tell you about the Federal Transit Administration. I guess it was UMPTA at the time insisted on our rail works project a temporary bus service to substitute,for the rail service that is closed down this summer and next summer, a total of some ten months. That we competitively bid the alternate bus service. The Federal Government insisted on it. We did it. There was one bidder. Admittedly, it is not a good service because it is one shot, six months this year, four months next year. The bid was literally two to three times the cost of our own operation to perform the same service. Obviously, we rejected the bid and are under­ taking it ourselves with federal approval. Admittedly, it is a unique kind of thing. I don't think it is a measure of the potential of competitive bidding in these other situations.

CHAIRMAN EVANS: But I guess the question I 82 wanted to ask, when it seems like competitive bidding or privatization is induced in that fashion, it looks like it puts upon you, kind of forces you not to have much compe­ tition in the process. Is that what you are saying?

MR. GAMBACCINI: No, not at all.

CHAIRMAN EVANS: Well I mean what I heard was because the Federal Government said that you must have privatization.

MR. GAMBACCINI: Right. Well that was in this particular case. We didn't believe that there would be that much interest in this particular contract because it is not a permanent or long-term kind of commitment.

It is strictly to buttress a construction close down for six months this year, four next. We didn't expect it to arouse enough interest in the private sector and it didn't. Now that isn't the case with the new routes that I mentioned 131 nor do we believe it will be the case in either so-called 200 series, the one I mentioned or four existing routes in the suburbs that we are proposing to competitively bid. So we will be testing both the market and our capacity to move aggressively on the competitive bidding on a new route as well as four existing routes and the one experimental route which I think starts to show an incremental effort to use the tool as effectively as we can and yet not overreach or cause an array of 83 negative consequences. We do share with Mr. Peskin's reaction about resisting arbitrary percentages. I think we should be put on notice that we demonstrate that we are using the tool as effectively as reasonable under the circumstances but in addition that we are leaving no stone unturned on other kinds of savings and opportunities to pick up operational efficiencies.

The final point I would make, two points, the three of us are very active on the national level.

In fact, I am vice chairman of the American Public Transit

Association and we have been involved in something called rransit 2000. We recognize as a transit industry that no longer can we assume that metropolitan area mobility is solely bus and rail. There are a whole lot of new ttinds of things that have got to be innovated with including mini-bus operations, transportation and management associations and the like. We support that. We have

Limited resources to really go into that aggressively.

But in the elected official's report that Dr. Peskin was involved in SEPTA,«actively supported the notion that suburban counties, for example, could either through transportation management associations hopefully coordinated

Dy SEPTA develop other kinds of solutions to the like density needs of suburban counties. I think that is very nuch in the nation's future. 84

Finally, I would say I had an excellent meeting with a private operator from Chester County. I am sorry that Representative Pitts is gone. Really by reputation and by performance a first class operator.

It struck me after I, this was two days before the deadline on our labor contract and I guess at that point

I was getting weary and suggested that he might want to consider taking over all of SEPTA and he blanched and said, no way. I won't touch that.

(Laughter.)

But in the course of our discussion he is

/ery seriously interested in bidding Route 131 to

Wilmington. When I started to ask him about his wage rates and the kind of people that he hires with great

:urnover, as Dr. Peskin indicated, and what he described

?as most of his work force are retirees who are drawing tension from other sources and have benefits in retirement.

3o they can afford to turnover. They can afford the much

Lower rate because it is all net new money on top of a tension. Now that is an intriguing thought because it

Ls substantially a lower base hourly rate except that

[a) there is no pool sufficient for us to find 3,000 such retirees and (b) it raises the very questions that

Representative Linton and the chairman of RTD raised about ire you better off paying four or five dollars less an hour 85

but then having a large pool of unemployed. I think that

is a very relevant concern.

Having said that, I think we have an

obligation, even though it is not the panacea, to work to

build a sense of competition to force the larger entities

like SEPTA and our unions to be in a competitive mode

and to be sensitive to the negative consequence of either

unemployment and layoffs that compound other problems for

policy people like you. I think that is the kind of

balance that should advance this whole effort at

competitive process. It will be very helpful on the

margin. It is not the solution to the public transit

challenge of this country by any manner of means.

CHAIRMAN EVANS: Representative Wozniak.

REPRESENTATIVE WOZNIAK; Thank you, Mr.

Chairman. Good morning, gentlemen. I missed Dr. Peskin

because I got caught in a snowstorm coming from Johnstown.

I got behind a municipal waste truck that broke down and

had to negotiate with the state trooper on the turnpike

that I wanted to come down here. So I missed a lot about

the private sector stuff.

Let's get down to where we are at. We

talked about a lot of things that aren't going to happen

between now and the budget. Mr. Gambaccini, you know we are going to have a little discussion about another 36 issue, but all of my fight is out of me by now after what

I went through this morning.

MR. GAMBACCINI: We didn't arrange it.

REPRESENTATIVE WOZNIAK: We have SEPTA on the right and we have Pittsburgh on the left and everybody else is in the middle is how it comes down as we look at it politically. I think Representative Gordon Linton did a tremendous job last budget time in creating that dedicated funding source that the Federal Government demanded. Out of that funding source, and I understand the complexities of southeastern Pennsylvania and

Pittsburgh, out of that pot of money and obviously there is some problems with the recession and the federal is lot coming through, but approximately 80 percent goes to the Port Authority and SEPTA. With 20 percent being disbursed to -- higher than that?

MR. LUTZ: The percentage is higher than that.

REPRESENTATIVE WOZNIAK: 90/10?

MR. LUTZ: I believe it is closer to a

3Q/1Q situation.

REPRESENTATIVE WOZNIAK: Now I am sure that was worked on a formula basis. I know that rural

Pennsylvania got something that they never had before. flow let me preface that. Mr. Millar first started out 87 thanking us for being frugal and being tight with the state budgets and then he threw a caveat in of however.

I want you to know that everybody uses that same identical line. After they thank us for being frugal and responsible they throw that however in. I think if you are looking at this budget to be looking for more mass transit,funding,

I don't want to be pessimistic but I won't be optimistic. tfe are under some very strenuous budget constraints.

Let me start with SEPTA. Of all the monies that you receive, and I suppose they come from the lottery, state, federal, county, finally the fare box. How much taxpayers' money goes into running the SEPTA system?

MR. GAMBACCINI: We have an operating budget currently that it runs about $650 million and the subsidy component is, roughly, 45 percent of that. So 55 percent or thereabouts is revenue from the fare box which puts as. among the highest two or three in the country on recovery from the fare box. The similar operating ratios

Ln other major cities, but particularly in small cities around the country is in the range of 25 to 40 percent.

3o we are getting more out of the fare box than most, jy far than most other systems large or small. And that

Ls part of the difficulty we are struggling with. There

Ls a myth that our fare payers are paying the highest fares

Ln the country. They are not. On average they are paying 88 in the average range. The single cash fare that we have is equal to one or two other cities but that is illusory because only a small percentage, some 15 percent of our people pay the cash fare. The vast bulk of them get deep discount tokens and passes. We are in the mid-range at,for that they get a lot of services because we got a more extensive integrated system than most other cities.

Given the current recession, given the unemployment, nigh unemployment, we don't think we can push that any further at the present but we think down the road we must as everyone must from time to time to raise fares. So we really are between a rock and a hard place. All three subsidizers are reporting revenues down and problems with budget deficits and the like. On the one hand the fare payers, we have had a loss in ridership. We raised fares twice 15 months ago for an average of about 30 percent. i\fe don't think that would be constructive. It would cause a further decline in ridership.

So that is why my emphasis on our reluctant conclusion. We have no place to go but severe down­ sizing and hope that a very retrenched system than has a smaller base. In effect what we are saying is a

?665 million budget is going to be brought back to 600 nillion. We are going to squeeze 65 million out of the system by a variety of measures that will then give us a 89 lower base and we expect to enter the second fiscal year requiring even leas than we had a year ago from all three subsidizers.

REPRESENTATIVE WOZNIAK: And you are just talking about recession. You also talked about a few moments ago moving into Chester County and doing some other things. They have to cost money. You don't have the money.

MR. GAMBACCINI: You missed the point of my comment. We had gone with hat in hand to pick, literally begging for donations from private companies to subsidize fully five new bus routes because the pressure was great that we had rail stations out in the suburbs but people from the city going out there to jobs didn't have the means by public transport to get to the job centers. So these bus routes are meant to be extensions of the rails, a collection and distribution system to the suburban clusters of office buildings and retail and also hotel and hospitality centers.

REPRESENTATIVE WOZNIAK: The park and ride

I see?

MR. GAMBACCINI: Yes, but the point is these have been fully subsidized by either the private sector through literal donations. Literally we went around with cup in hand getting five, ten, 15,000 donations 90 from the companies out there. And our position is we don't have the funding to subsidize anything new. If you want it, you are going to have to pay.

REPRESENTATIVE WOZNIAK: What happens if they turn their spigot off?

MR. GAMBACCINI: They did in one case.

They are doing that in the case of one route that has not panned out well in Bucks County. Yet there is enough of a market that suggests filling a need and that is one of the routes that I particularly, I didn't cite the number but it is in Bucks County that we think is ripe for a competitive bidding process. In the case of the Wilmington service, as I mentioned --

REPRESENTATIVE WOZNIAK: I get the picture.

If things turn out not to be subsidized by the private sector, if you bit off more than you can chew, you eliminate these if they turn out to be nonprofitable?

MR. GAMBACCINI: Yes. We have eliminated.

REPRESENTATIVE WOZNIAK: I don't want to get in the mode you guys are out here subsidized by the state and federal government.

MR. GAMBACCINI: No, unfortunately, now let me say this there is no doubt in my mind --

CHAIRMAN EVANS: Keep the court reporter in mind, one question and one answer. 91

MR. GAMBACCINI: I'm sorry. There is no question in my mind that the national in public interest should support those kind of services because it is in everybody's interest to get those people either to jobs

30 they can pay taxes and off unemployment or to get them off the highways. Unfortunately, we haven't had the political muscle to get that kind of support. Dr. Peskin was too delicate in his response about the disappointment in the federal bill. The federal bill opened up a lot of real potential to permit transit to meet the bona fide aeeds. That comes crashing. If the proposed administration audget plays out not only do we not get a 20 percent increase from last year, we get a 20 percent reduction from the current year. Meanwhile the highway component, so we go down 40 percent below authorization in the new bill and highways goes up 16 percent above the present level right up to their authorization. I have no quarrel with highways. Highways are needed and they have significant needs on infrastructure but that process year to year keeps encouraging the use of the auto, makes it almost entirely dependent in the suburbs to use the auto which congests the highways, adds to air pollution.

We have got to get this thing in some kind of balance --

REPRESENTATIVE WOZNIAK: As long as the auto remains alive and well -- 92

MR. GAMBACCINI: Right, exactly and --

REPRESENTATIVE WOZNIAK: Before we changed that attitude.

MR. GAMBACCINI: We want to be of service to do better in the suburbs. There are needs there that are not being met.

REPRESENTATIVE WOZNIAK: Let me get back to some money issues. What do you need, and I'll probably see Harold Jenkins, he can squeeze a rock and money comes out of it. The guy is a genius, but he also has a much smaller plan to work with. What are your needs from the Commonwealth for this fiscal year, meaning SEPTA?

MR. GAMBACCINI: SEPTA, we are reluctantly accepting the advice out of the Governor's Office on what the sequestration requires, a lower level than a

7ear ago. I hope that all ships rise in a rising tide.

I hope that the economy turns around and relief might be forthcoming. We are not depending on it. We are assuming the worst face, that is, a reduction from the authorized budget of last year. It is down, I think, at the state level roughly in aggregate. We got two hits.

Dne was an original reduction and then a sequestration.

In our case it is down about plus or minus six or seven nillion, but then a further reduction because it means a lower local match. Now that is one component among 93 several that adds up to the $65 million. Our reliance on asset maintenance in the dedicted fund is down 15 million. We have had a decline in ridership. So the compounding of all of this leaves us with a hole of 65 million.

So our assumption is the most conservative assumption that we have been told we have got to follow out of the Governor's Office and out of the Legislature and we will do our level best to accommodate that.

REPRESENTATIVE WQZNIAK: Let me go to your purchasing policies. Obviously, you have had negotiations dealing with Penn Machine?

MR. GAMBACCINI: Yes.

REPRESENTATIVE WOZNIAK: You people have a $600 million budget over there.

MR. GAMBACCINI: Right.

REPRESENTATIVE WOZNIAK: Extremely large.

MR. GAMBACCINI: Right.

REPRESENTATIVE WOZNIAK: You went to Sweden for a contract for wheels. They say they could have done the same thing. There was a breakdown in communications. fou are working with them now. Let me express that

55 percent of your money comes from the taxpayers somewhere.

MR. GAMBACCINI: No, 45.

REPRESENTATIVE WOZNIAK: Forty-five percent 94 comes from the taxpayers themselves. The Governor is proposing Operation Jumpstart to use Pennsylvania tax­ payers to keep people in work and expanded. I just want to reiterate how important it is to me.that as a policy for not only SEPTA but the Port Authority and all the others,that they look to the United States first. I firmly believe there is a breakdown here and I don't want to get into an argument during a public forum. But

I have people that have said that could be done.

My question is when you negotiated with the Swedish firm did you do that by fax machine, telephone or mail or did somebody physically go over to Sweden?

MR. GAMBACCINI: I have with me both the technical staff and the purchasing staff that were involved in that. I don't believe we sent anyone to

Sweden. However, Penn Machine had been physically on our property for a couple of years. They have been very much aware of everything that was going on. I don't want to take the time of everybody and we will be glad after this if you like, I have written you a complete rundown,

I don't know if you received that letter yet.

REPRESENTATIVE WOZNIAK: First it went to --

MR. GAMBACCINI: But I assure you in fact in my role, I don't know if you were here when I mentioned it, I am vice chairman of the American Public Transit 95

Association. I have been in this business 31 years,

^0 in public service. I think we have done a number on

Dur domestic suppliers and I think it is a tragedy. That

Ls another long protracted discussion of why that happened and I think we've got to fix it. I am prepared I think to demonstrate that we operated in the very best of faith trying, it is in our interest to have competition. It's s/ery much in our interest to have jobs and contracts to go to Pennsylvania firms . Believe me we wanted that result»-— We will be happy to go through chapter and verse

Dn why it didn't happen. Happily, we are on a course low where I think it will happen. We have done, I think, everything reasonable to assure a safe operation, continued operation, that is, availability of wheels but to delay as much purchasing as we can until Penn Machine

^an get itself qualified.

REPRESENTATIVE WOZNIAK: I want to tell you

Lt is extremely difficult for us in the General Assembly to put out agonizing votes --

MR. GAMBACC1NI: I understand that.

REPRESENTATIVE WOZNIAK: --in the way of taxes.

MR. GAMBACCINI: I very well understand that

Dut my only appeal -- I'm sorry.

CHAIRMAN EVANS: Representative Wozniak, 96

you are completed?

REPRESENTATIVE WOZNIAK: No. And this

can go to Mr. Millar. The fare box issue, we're talking

about privatization, we're talking about subsidy. Now

it is real quick,for me understand fares go up, ridership

goes down. The cost of an automobile is between 15 and

$18,000, the cost of gasoline, the cost of insurance,

the cost of parking has to have an effect on that. And

I know the reluctance to raise fares because everybody is

screaming bloody murder at Cambria County Transit for

the changes. Of course, they blame the Federal Government,

the state government and we get to be the bad guys because

everybody wants to pass the blame.

But is there any movement to start moving

in the direction of actually getting to the heart of the matter and saying it costs this much money to run a

transit authority? The cost of running automobiles is

this much. In an advertising sense are you moving in

the direction of trying to sell that point that it is

a good deal even if you have to pay more at the fare box.

It is a good deal to travel either by rail or by bus.

And that will be my last question, Mr. Chairman.

MR. MILLAR: I think Dr. Peskin said it well that transit is at a disadvantage when people think about how things are priced. Let me say it this way. To 97

travel on a transit bus in Pittsburgh when we are not on strike, depending on how far you go could cost you as little as, let's say, eight cents a mile or maybe as much as, say, 20 or 25 cents a mile. There isn't any responsible economist, I think I can make that statement, who believes that driving alone in your car is anywhere near as cheap as that. But the reality of it is is it isn't the economics that are the issue. It is people's perception.

The sales of new automobiles in America generates about

$100 billion worth of revenue every year. Five billion dollars is spent just to advertise the sale of new automobiles. In the President's budget for transit in the coming year, the total that we would spend in the

Federal Government on transit would be three billion.

We wouldn't even match the advertising budget of the new car sales in America. So, yes, we do orient our advertising to try to show people what a bargain public transit really is because of public subsidies that are really involved in it. But the few, I don't want to minimize it, but really the few dollars we can throw into that kind of advertising is nothing compared to the five billion dollars spent every year to condition the public that what they really want is something other than a bus.

MR. GAMBACCINI: May I comment on that, 98

Mr. Chairman?

CHAIRMAN EVANS: Sure.

MR. GAMBACCINI: Just a couple of quick points. One, the costs of the automobile are buried in a variety of ways. The cost of transit is a daily reminder when you shell out the cash. I was so struck by that at the budget summit at the national level when the nickel gas tax was added. That produces six billion a year to be put into infrastructure potentially. It got stopped or sequestered. But that triggered the thought with me.

By the way, the cost of gasoline today is at the lowest point it has been in the history of the automobile. In 1950 illars--the price at the pump now is 92 to 99 cents I noticed for unleaded regular. In 1950 it was something on the order of 30 cents or so. In today's value that would be

£1.51. The per gallon cost is half of what it is in Canada, one-fourth of what it is in most of the rest of the western world. So we are not pricing the product truly to its market value or even reflecting inflation. Other national policies are to inhibit the use of energy. Forty percent

Df our balance of payments is related to imported oil which is now, for the first time in history, going above 50 percent of our needs which increases our political and military dependency on the Near East. So for innumerable reasons we are doing all the wrong things but 99 we bury the costs. The nickel gas tax at the pump equates to 50 bucks per year per driver. The cost of auto insurance at the pump, if it were collected at the pump instead of if it were paid monthly, some quarterly or annually, would be one dollar if you live in central

Pennsylvania, two dollars if you live in the suburbs and four dollars per gallon if you live in the city. That is not perceived or felt in any way. It is completely unrelated to the decision on what I am spending to use my auto because it is paid in a different way than paying at the turnstile on a transit property.

CHAIRMAN EVANS: With that I may give up my car.

(Laughter.)

Let me say this, due to time, I am going to stretch; Representative Petrone, Representative Langtry, then we are going to call it quits because I have the

Secretary of Transportation due and I want to give you members a break. Representative Petrone.

REPRESENTATIVE PETRONE: Thank you, Mr.

Chairman. A quick observation statement, I understand we have an important one o-clock engagement. Director Millar, thank you for your support of our bridge and tunnel project.

It is of importance to people of Pittsburgh and the Port

Authority. I was the one who was a prime co-sponsor of the 100 dedicated tax. We,fully recognize the fine job that Pat does for all Allegheny Countians. To you, sir, I think you hit it on the head about the Federal Government's lack of commitment. That is something that has always bothered me and will continue to do so. I just don't think that the Federal Government is putting enough money or commitment or ideas into mass transit in this country.

And I think we are somewhere between the Pony Express and the Titanic compared to other western countries who move people so quickly, efficiently and inexpensively.

My question was going to be your opinions about MagLev. Is it fact or fantasy? Does it have a place in mass transit? We will let you think about that until our next meeting.

CHAIRMAN EVANS: Representative Langtry.

REPRESENTATIVE LANGTRY: Thank you very much.

I want to again talk about continuity of services. As ae all know, there is a work stoppage in Pittsburgh. If we want to be more blunt, let's just call it a strike.

People are out of transportation and learning that they aan sort of live to some extent without mass transit out of fear. We hope that we will see good results soon.

I guess my question to you is, quickly, what would you expect from the state? I understand SEPTA just settled something like 26 million. I understand that 101 may be determined to settle Port Authority problems the cost is 76 million. Although I know there is questions about that. What are you going to be coming or asking the state or what can we do to help solve this problem, if anything?

MR. MILLAR: Well, I am assuming, based on the answers that I heard here particularly from

Representative Wozniak that we should count on no more money than is included in the Governor's budget. Is that generally the consensus view that we are not going to see anymore money for transit than is what is in the Governor's budget? Is that a,fair assumption? If that is the fair assumption, then just like SEPTA as Mr. Gambaccini testified, we are going to do our best to live within the money that is available. But let's be clear what that means. Before the strike, not considering any labor cost increase that might result from the contract negotiations and using the Governor's figures, we are projecting over eight million dollars in deficit in the coming year which would mean that any dollars spent on increased labor costs would aggravate that deficit.

Now the strike has happened. It is very clear that many of our customers are angry at us and I don't blame them. They relied on us and we let them down.

So now we have a new factor in there. Some day the strike 102 will end. It must. What will happen? In 1976, the last transit strike in Pittsburgh, we lost 25 percent of our riders right after the strike. And within a year we built that up so we were only missing ten percent of the riders.

But even a ten percent ridership loss is a major loss not only in customers but in revenue.

So, to answer your question what would we like from the state, facetiously a blank check. Who wouldn't? Who wouldn't, facetiously? But I have tried to give at least four or five suggestions of things that could help and those include if the money can be released by the Governor, if a replacement can be found,for the exemptions for libraries, if there could be a small inflationary increase, if the capital funding for vehicle overhaul could be there. But if you add all those things up in terms of the net increase of money I have to work with based on the current,formulas, it is only about

$10 million. It is just barely enough to fill the deficit

I was already projecting before the strike occurred. So,

I think, as we have said,for so many years of appearing before this Committee and other committees as well, what we need is stability. And that was the theory behind the dedicated funding source. If we know how much money we are going to have to work with from year to year to year, we can make investment decisions. We can sit down with our 103 unions and honestly deal with them about how much are resource is going to be and I am sure they will be responsive to that. That is what is really needed is

/ear-to-year reliability.

As I stated earlier, I believe once we get out of these first couple years of uncertainty, with the dedicated funding, that will bring a lot of reliability there. On the other hand, no one could have foreseen that the Governor was going to withhold 4.7 in general fund monies, 4.7 million and another 500,000 related to the lottery fund and I don't fault the Governor. I jnderstand he was trying to do what was fiscally best for the state. So he has his problems just as we have

:urs. But the point is when those events occur during the middle of a fiscal year, it plays havoc with your ability to provide the continuity of service that the public expects.

So, I would like to see increases. I am

:aking from the general looks in the room and the comments

:hat were made before, I should not count on increases. rherefore, we will go back and do everything we can to

)alance our budget within what we see is the available resource and that is apparently not going to be more than the Governor has already proposed.

REPRESENTATIVE LANGTRY: I think that would 104 be very wise not to count on extraordinary increases.

Thanks very much.

CHAIRMAN EVANS: I would like to thank all of you. This has been fascinating over the last three hours. I think this is our,first that we have really talked about a subject that a lot of people have said we don't need to talk about and people have been trying to make certain political gains one way or the other. One of the things that we have tried to do, at least from this

Committee's standpoint, is talk about issues and particularly public policy and what it means. What it means to the state. What it means to mass transit.

I do agree with all of you that certainly what has happened last year and what has happened this year, some things were a little unpredictable in all our cases. But I hope that what we have tried to do today is give you an opportunity as well as bringing somebody in,from the outside to talk about our systems. Both of you as general managers and Mr. Lutz in terms of the system, that everybody is trying to do their best. We are not adversaries. We shouldn't be that way. We should certainly be trying to work again in a constructive environment and try to come up with some answers.

Again, I want to thank all of you for the time that you have provided. I want to announce to the 105 nembers of the Committee and staff, that we will move the Secretary of Transportation to 1:30. At 1:30 the

Secretary of Transportation and the staff will be here

;o talk about roads, bridges and mass transit. Thank fou very much.

(Whereupon at 12:30 p.m. the hearing

was concluded.)

I hereby certify that the proceedings and evidence taken by me in the within matter are fully and accurately indicated in my notes and that this is a true md correct transcript of the same.

Dorothy MyvKalone Registered Professional Reporter 135 S. Landis Street Hummelstown, Pennsylvania 17036

The foregoing certification of this zranscript does not apply to any reproduction of the same

>y any means unless under the direct control and/or supervision of the certifying reporter.