Washington Considers Covering Transit Operating Costs

» Below the surface, it’s a less promising idea than it may seem.

If several members of Congress get their way, struggling transit agencies may get a momentary reprieve and be able to avoid job losses and service cuts, the results of the recession in cities around the country. Senators have added a provision to a war spending bill that would allow agencies to spend 10% of their stimulus money on operating, rather than capital costs. If the measure passes the conference committee with the section intact, this would represent a sea-change from current federal policy, which obligates municipal and state governments to cover operations even as Washington’s formula-based contributions pay for maintenance, repair, and vehicles. For many train and bus operators around the nation, this may sound like a good idea, but in fact it would set a dangerous and unreasonable precedent.

The recession has reduced tax revenue in states and municipalities all over the country; as a consequence, cities from Denver to Charlotte found themselves needing more funds to continue paying their drivers and fueling their buses even as they pursued ambitious expansion plans. The stimulus bill provided some significant help — a total of $8.4 billion in capital funds, with $750 million devoted to New Starts projects — but that aid didn’t do much to ensure that when a new line opened or a section of track was repaired, someone would be there to drive the train on the corridor. If the stimulus was supposed to be about creating jobs, why shouldn’t operating costs, which are mostly labor, be covered?

During the stimulus debate, Representative Peter DeFazio (D-OR) worked earnestly to provide operations funds for local transit agencies, and he even went so far as to vote against the stimulus bill because it lacked what he considered adequate funding for transit. Mr. DeFazio is now fighting to make sure that this Senate provision, which would address some of the flaws of the stimulus, will make it to the President.

Yet, the merits of this proposal are murky. Is this the first step towards long-term federal government aid for operations? And if so, is this the right way to start?

It’s not that transit agencies don’t need more funds — they certainly do. But what I find objectionable about this provision is the fact that it provides an out for municipalities and states that are reluctant to raise their taxes to ensure transit provision, but which have an obligation to do so. It is inappropriate for the federal government to open a commitment to something without a long-term plan. In other words, if the Congress were to determine that it was willing to begin using federal government funds to cover operations — for instance, in this year’s transportation bill — it should first establish a standardized system by which to do so in every budget period, not just in the stimulus.

A formula system designed to reward municipalities that are more efficient in transit provision or more transit-dependent could be used to allocate funds in a way separate from the existing capital formula. Today’s capital formula — which is being used to determine allocations from the stimulus bill — doesn’t address the inequalities in operations which mean that cities like New York cover 60% of total transit spending through fares while others like Atlanta only cover 30%. A new system should be established to equal out those differences; once that system is established, Congress should feel free to allocate as many funds as it wants — as long as they’re codified in federal legislation and assured for many years ahead.

In the meantime, however, this provision would indicate that the federal government is willing to sponsor operating costs without providing any sort of permanent assurance, giving states and municipalities a short delay before they have to do the inevitable and cut service. Most transit systems will use this period to temporarily shore up their finances, but not to negotiate guaranteed, recession-proof funding systems, which is what they actually need.

25 Comments | Leave a Reply »
  • Adam

    Sounds like another example of why the upcoming transportation reauthorization bill will be so important. It may end up being almost as important (emphasis on almost) as the climate change bill in terms of the long-term consequences for the environment and how Americans live.

  • I agree with you about taxes. I work for the St Louis Metro, and we’ve run into trouble convincing the local county to provide funds for our operations. We’ve had to move to the state to get funding for operations (restoring 30% of service we were forced to cut earlier in the year). Money from the stimulus will help, but municipalities around the country need to be doing their part as well.

  • Woody

    We’ve been down this road before, Yonah, read the history.

    Please, no federal funds for operations — except during a crisis period, like this deep recession.

    Federal subsidies for operations in the 70s funded good times all around for the unionized transit system employees — bigger raises, bigger pensions, better medical benefits. Of course, the most powerful union of all — the Amalgamated Brotherhood of United Transit Management & Executives (ABOUTME) was at the trough with the others. But no better service for riders.

    Now we face the worst economic times since Herbert Hoover. Is everybody sharing the pain? Any unions passing up an annual raise, taking cuts in benefits, or even trimming their overtime? Not if they can help it. They prefer layoffs for low seniority employees. Any transit executives taking pay cuts? Not that I’ve heard about. But cutting service to riders, sure, on that they can all agree.

    So let’s not ask the many unemployed, hard-pressed, and underwater taxpayers to provide still more good pay and bennies for those running the transit systems.

    DeFazio and the Senators are taking the right approach. We have a temporary crisis. So it’s O.K. to give a little help to keep even the junior employees working and transit service going for this year and next. If that’s not enough, we’ll need to take another look at the problems, like still rising payroll costs.

  • This isn’t as dumb as you make it look. When the economy is not in a depression, local agencies get enough funds from riders, state and local support, and advertising.

  • Alon, that’s not necessarily true. At the St Louis Metro, we were having trouble finding funding in the 1990s, when the economy was far better than it is now. Community members were then and are still now hesitant to pass tax increases funding our transit system. When it comes down to the point where we’re cutting service and leaving people stranded, we have no choice but to look to places like the federal government for funding.

  • Adam

    Woody-
    “So let’s not ask the many unemployed, hard-pressed, and underwater taxpayers to provide still more good pay and bennies for those running the transit systems.”

    That might be a bit of a skewed take. I’m not so sure the cushy over-paid jobs you describe are the norm across the country. For instance I know that in Raleigh, the bus drivers start out making less than $40k a year. Not exactly raking in the dough, especially if you need to raise a family. They’re also not unionized. I’d also like to know what exactly the wage rates are for transit employees across the country. And I do get a bit sick of people bashing unions just because they fight for their members to get a decent wage. They are doing the work after all.

    Matthew – Do the surrounding counties and municipalities pay their fair share in taxes to support the system? I know that whole metro area is very fragmented as has contributed to some of the structural problems with St. Louis’s budget as people leave the city center into the suburbs and out of state.

  • Woody

    Adam, Your bus driver in Charlotte making $40,000 is outnumbered by transit employees in bigger systems. Below is a story about one transit employee with a reasonable base pay of $63,000.

    As a union member for over 30 years, and top shop officer, I am not opposed to unions fighting for their employees. But I recall when I was urging our bargainers to fight to extend medical coverage to more part-time workers. The Local president asked derisively, “How far down the food chain do you think we should go?” Funny, I would have thought a union’s concern should start from the bottom, and the question would be, How far up the food chain should it go? That’s one theory, but then there’s the real world.

    ————————-

    Get Rich Off the MTA
    LIRR workers rack up hundreds of thousands in OT
    By JENNIFER MILLMAN
    Sun, Jun 7, 2009

    No wonder the MTA is strapped for cash. Some of its mechanics are making nearly as much as the guy who runs the place.

    Six mechanics at a Queens Long Island Rail Road facility earned more than triple their base incomes last year through lots of overtime and other perks, according to payroll records obtained by The New York Post. They each raked in more than $200,000 …

    Ronald Dunne, a train car repairman, topped the charts. The grease monkey brought home more than $280,000 in pay in 2008…. Only MTA chief Eliot Sander – who earned $364,989 in salary and perks – and a handful of presidents of agency subdivisions made more, the paper reported.

    Overtime’s the name of the game. Dunne’s base salary was $62,976, but he drew in a whopping $220,397 on top of that …. The 23-year-old mechanic was rolling in so much dough…

    LIRR fares will go up to close a yawning budget gap at the MTA, which also oversees New York City buses, subways and Metro-North commuter trains.

    Taxpayers were forced to help foot the bill, shelling out $2.3 billion to the agency. A 10-percent across-the-board fare increase takes effect at the end of June. …

    This isn’t the first time LIRR finances have come under scrutiny. Last year, The New York Times reported that more than 90 percent of LIRR retirees applied for disability benefits, and nearly 98 percent were approved by an obscure federal board, generating an average of $26,000 annually from the MTA for each retiree.

  • Adam – as a Metro employee, I’m not supposed to delve into the local politics of transit funding. However, in my personal view, I believe that the county (separate from the city) should provide more funding. The Illinois side of the region is much better funded due to a different community view on transportation and different politics.

  • simple

    i agree that letting the unions and management soak up new federal funding without increasing/improving service is a bad idea. however, as yonah has suggested, if federal funding is allocated based on performance metrics (such as ridership and vehicle revenue hours?), wouldn’t that incentivize better and more service? those transit operators who don’t increase ridership or service will over time loose funding share to those who do. or do there need to be more explicit strings attached to the federal funding to ensure that it only goes to ensurig or improving service to customers and not to benefiting only the transit employees?

  • Wad

    Yonah, you’re right to share your concern about federal funding becoming revenue-neutral.

    In California, we call it the Lottery Effect. Our state lottery was designed to take excess profits and fund schools. The good news: It did that as intended.

    The bad news: Writers of the law assumed that the lottery would supplement what the state had already commited to schools. Nope. The lottery ended up subsidizing the schools, while the state’s outlay for education was diverted back to the general fund.

  • I don’t see a problem so long as we’re talking about the stimulus, which is a one-time thing. The stimulus has already done a lot of things that nobody would want to do as a routine practice, so it’s not clear that helping the transit agencies through this black spot would constitute a precedent.

  • Wad

    Jarrett here’s the problem that you should be seeing: The stimulus is a one-time thing, like you said.

    Operating subsidies are an ongoing commitment.

    Stimulus for capital makes sense. It’s spending something now for benefit and use in the future.

    Operations are for services rendered in the past.

    Salaries pay for work already done. Fuel costs pay to replenish spent energy.

    See the difference?

    Now, two problems I immediately see: What will agencies do when there are no more subsidies? And, what if the federal strings that come with subsidies end up providing less consumer service than seeking local subsidies that offer more freedom to spend as the agency sees fit?

  • Dave in KY

    Sorry but this is wrong. How are we supposed to have a recovery if the workers can’t get to the jobs? For cities like Louisville that fund their ops from income tax, guess what? That revenue is way behind projections for two years in a row.

    The recession did not start in Louisville. It started in the federal government with fincancial deregulation. Its savaged our tax base. And now you’re complaining that the Feds are cleaning up the mess that they casued. Sorry, but the Feds are being responsible here. Nobody’s being forced to spend on operations if they don’t want to. Let the Transit Authorities make their own choices.

    And what’s with the random flame of the ATU? Either you like transit or you don’t. Like it or not, that means dealing with the ATU. This is a side issue that is randomly tied to this issue.

  • Adam

    Woody-
    Appreciate the article and perspective. But I would wager that the conditions in NYC are the exception, not the norm considering that unions are anomalously powerful there compared to the rest of the country (and maybe with a few more exceptions like Boston).

  • Norman Brown

    As a union leader I much prefer a system that employs three people at $80,000 per year than a system that employs one person at $240,000. But, regardless of my preferences, the more important point here is lost in the “gee-whiz look how much the car repairman made” character of the story. The particular circumstances, agreements, supplies of labor, training and certification that led to this particular car inspector’s phenomenal earnings (after 25 years of hard, dangerous labor and lots of hours on the job) occurred under the present law prohibiting Federal Operating Support. How the writer arrived at a connection between Federal Operating Support, which does not exist, and this guys earnings that do, is beyond the principles of reasoning and argumentation.

  • Adirondacker

    Norman, somethin’ fishy with those numbers. 62k base means he’s getting 30 bucks an hour. 220k means he had to work 87 hours a week with 40 hours of straight time and 47 hours of TRIPLE time. So maybe his base is 62k and he gets another 20 bucks an hour because he has special training and skills. So when he works overtime on Sunday he makes 150 an hour. Junior associate lawyer kinda pay.

    ….and if he’s doing 47 hours a week every week in overtime maybe it’s time they hired some apprentices.

  • MadPark

    Someone recently wrote: “Union greed is not a victimless crime.”
    If Woody’s example is true, and I am sure it is, this is a perfect example of out of control labor AND management costs. Time to tighten up, let the part-timers keep working, and get some humility.

  • Woody

    Norman, Careful reading of the article will reveal that the guy who got $220,000 in OT is not a 25-year veteran of “hard, dangerous labor and lots of hours on the job” as you say. He is not piling on the OT to push up his final-years-based pension — though we got plenty of those around the MTA too. This guy is 23 years old, it says.

    I guess the rest of your comment was meant to reassure us if the feds open the faucet for subsidizing operating expenses forever into the future. YOu seem to suggest that situations like this one will not become ‘more so’ if that happens, but I was unpersuaded by your argumentation.

    We do agree that three workers taking down $80,000 a year would be better than one coasting along on earnings three times that.

  • Yes, I understand the problem of federal subsidies tending to become crutches for state/regional/local governments who don’t want to pay for things themselves. Anyone who’s been in transit politics for a few years has seen it happen. There’s a lot of logic to the current philosophy by which the Feds help you build something but only if you show you can afford to run it.

    Still, I think the stimulus is an unusual response to an unusual situation. Most transit agencies can do some useful pruning in response to an occasional 0.5% service cut, and you do need to hold open the risk of cuts to keep state and local feet to the fire.

    But we’re now seeing severe service cuts that really damage mobility in high-impact places. For example, CalTrain — the San Francisco Peninsula line that serves one of the most educated and tech-savvy and environmentalist markets in the universe — is cutting midday service to hourly. Hourly! Forget about taking the train to the next town to meet someone for lunch.

    Here’s an idea. What if Federal assistance for operations were focused specifically to places where ridership is growing despite the downtown?

    This shouldn’t just be about saving jobs. It should be about saving services that are clearly in demand. Part of the argument should be that the services we’re saving have a clear multiplier effect in terms of their economic benefit.

  • Norman Brown

    Well Woody, lets just leave it at us disagreeing on the facts then. I really don’t care what the Post writes. The essence of the piece, that a few guys made a whole lot is true, but the rest of it allows and encourages everyone’s imagination to run wild. And wild it does run.

    To hold the position the guy held requires 25 years of seniority. Write it in stone. This particular deal, as embarrassing as it maybe, really doesn’t get to anything except what it has elicited here, an amazement that a “grease-monkey” (and yes, that is a pejorative akin to “porch-monkey”) could earn that much money.

    I’ll give you a brief history of what it took this guy to become a car repairman. He started about 1979 and cleaned the piss off the floor when all the suburban commuters couldn’t be bothered to hit the toilet. That took him about six or eight years, usually at night, lots of chemicals, not a thing he bragged about at the cocktail parties and the fraternity rushes.

    Then he worked in the shop for the next twenty years with progressive responsibilities starting with changing out seats and flooring. Then maybe setting up the trucks or knuckles or air brakes, maybe the AC, trying to develop a speciality. Then he had to gamble his hard won day shift position to take the training committment to become a car inspector, piss in the bottle a lot and then bust his balls for the last five years of his career, his job on the line with every inspection, until he maxed out his earnings in the manner sneered at by all the “progressives”.

    Yeah, hire some part-timers, great plan, you negotiate it they’ll give you a prize. Or maybe you should hire out as a car cleaner and follow this guy’s career path, enjoy yourself, maybe you could team up with the Post reporter. It’ll be a lot of fun. Trust me.

  • Woody

    Norman, maybe you need a class in remedial reading.

    First you failed to see that the Post report said the guy was 23 years old. Maybe they got the facts wrong, but you got wrong what the article said.

    In the same way, you got wrong what I said. Maybe you are so angry you can’t see straight.

    I said, when I was the chief shop steward in my union, I urged the negotiators to extend medical benefits to the part time employees already on the payroll in our shop. But the Local President sneered, “How far down the food chain do you think we should we go?’

    It is not my position to hire part timers, and I never said that it was. It is my position that if a union contract already allows management to hire part timers, it will be a better contract if those employees get medical benefits.

    Do you prefer part time employees without medical benefits? I’m just trying to nail down our differences, if this is one.

    More generally, however, I do believe that the way the world works is that if the feds supply “free money” to local transit operations, then in short order the free money will get soaked up by higher wages and benefits for all employees of the system, from the CEO to the part timers, with little or none going to better service for riders.

    That said, I would support federal funding of operations for a year or two during this current crisis, when tax revenue has fallen so dramatically. But if it turns out that revenue does not recover in a year or two, and we face an L-shaped recovery with a long flat period of no growth, we would need to think about how to deal with that problem, and not necessarily continue federal funding open-ended.

  • When commenting on this blog, let’s try to avoid personal attacks.
    Thanks.

  • Wad

    To Dave in KY’s post No. 13:

    You see the problem yet of using stimulus funds to pay for operating costs? Operating funds pay for the service TARC already ran so workers can get to their jobs to pick up paychecks for the work they already did.

    Where’s the recovery in that? The transit money goes to pay for the bus trips already made … not for the trips people will make when a recovery does appear.

    You basically want TARC to pick up stimulus funding to keep service levels exactly the same. The money would essentially backfill what has been lost with local sales tax receipts.

    Also, federal operations money given to transit agencies is not a blank check. It is not, as you say, “Nobody’s being forced to spend on operations if they don’t want to. Let the Transit Authorities make their own choices.”

    The Federal Transit Administration not only forces transit agencies to spend on what it considers operations, but it dictates how the money is supposed to be spent. Also, the transit agencies only get the money after the services have been supplied.

    TARC would not be able to buy more buses. Bus purchases are a capital expense. TARC cannot use that money to lease buses or purchase service, unless the arrangement has been existing before the funding agreement was formed. FTA also expects matching subsidies from the state or the local service area, so if your tax base has fallen, so will the feds’ contribution to your subsidy.

    This does not even get to the paperwork requirements that both the agency and the FTA have in place. The auditing, along with the rules, is a sort of tax that means agencies lose about 10 to 20 percent the of the money they get.

    Federal funding should be a last resort. If Louisville can find a new funding source without having to go to the feds, you’d get more service per dollar.

  • Dave in KY

    @Wad post #23

    “You see the problem yet of using stimulus funds to pay for operating costs? Operating funds pay for the service TARC already ran so workers can get to their jobs to pick up paychecks for the work they already did.

    “Where’s the recovery in that? The transit money goes to pay for the bus trips already made”

    No, could not disagree more. This is about the future. We’re going to budget meetings. There’s a $2m/yr shortfall. We’re looking the following options for 2010: Service cuts, fare hikes, layoffs, or siphoning some of the capital from ARRA – prolly 10% – $1.67m worth.

    I also understand that robbing the capital to pay the operating results in less capital. The question then becomes what do you need more? I read that St Louis has mothballed 300 buses for lack of operating costs. Do you think they need more ARRA capital funds? Of course not, they should sell off some of their capital and use the remainder to fund operations. Sometimes you have to make these decisions.

    In these exceptional times, those decisions should be left to the TAs. The ideologues in congress need to back up off the neck of the people who rely on transit, and let the TAs do their job.

  • Wad

    Dave, you’re welcome to disagree, but it doesn’t change facts.

    It’s not about TARC’s future. It’s about TARC’s present. Louisville — and every transit agency around the country — has to make the very same hard choices: cut service, raise fares, lay off workers, or mortgage the future.

    Looks like Louisville is doing a bit of all four.

    If TARC has a $2 million shortfall, it means it must find $2 million to cover the expenses for the service it already ran. It cannot recoup this $2 million. It must find another $2 million to get back into balance.

    In any case, you are not saving money to acquire something in the future. You are using money to pay off a loss.

    But Dave, understand that it’s the feds, not the transit agencies, who dictate how the money can be spent. The feds don’t want agencies to get too creative, because they don’t want agencies getting money for one thing and using it for another. They demand agencies use the money to fund capital projects, not to take the capital monies and spread them around to cover operational holes.

    I agree, though, that in these extraordinary times, it may be necessary for a one-time transfer to operations. But it should come with some form of agency discipline. The agency should either have to repay the funds without interest when it has the ability to do so (when revenues rebound, the money must either be given back to the FTA to replenishing the capital account and not put into operations).

    There’s a reason why transit agencies should resist tapping into capital: It offers the temptation to eat the seed corn.

    California is precisely all but insolvent because of this. The voters have mandated that the state lock in a formula to spend the budget on education and transportation. The legislature cannot override these voter-dictated limits … with one exception. These limits do not apply when there is a fical emergency, which is anytime there’s a budget shortfall.

    Both the Democrats and Republicans in the Senate and Assembly perform fiscal year street theater by deliberately putting the state in a financial shortfall. The Democrats, with solid majorities but not the 2/3rds to steamroll the Republicans, always overload the budget with spending. Even in good times, the budget would not be able to support the spending. The Republicans circle the wagons and stop the budget process. So every year the state passes a budget late, and ultimately what does pass is what would have been in the budget in the first place but with an end-run around citizen mandates.

    California did this when it was high on the real estate bubble hog, when the crisis was a fiction. Now it finds itself in a legit crisis, and there’s no seed corn to eat.

    Don’t let the same happen anywhere else.

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