Pupil Transportation Cost and Outsourcing Feasibility Study Performed for the West Plains R-VII Schools May 2013

Transcription

1 Pupil Transportation Cost and Outsourcing Feasibility Study Performed for the West Plains R-VII Schools May 2013 The TransPar Group, Inc. of Lee s Summit, Missouri was engaged by the West Plains Schools (WPS) to perform a cost and outsourcing feasibility study. The District desires to be informed about issues, cost savings, or additional costs that may pertain to outsourcing the pupil transportation operation. System Overview WPS Transportation Service Currently, the District operates their pupil transportation services with District employees, with District owned buses, and on District-owned property. Daily service includes 24 school buses and 24 daily contract drivers assigned to morning and afternoon routes. Four of the 24 buses serve two schools on a shared run; the remaining twenty buses serve only one school. The shared run buses operate about minutes of live time (students on board) each morning and afternoon; the single school bus routes operate minutes of live time. Two of the daily routes are special needs routes; none require a bus attendant (or monitor). Fleet The fleet consists of 37 buses, 24 dedicated to daily service, 2 trip buses, and 11 substitute/spare buses. The 24 daily route buses operate about 880 miles each day. The overall fleet s average model year is ; the 24 daily bus average model year is The fleet is therefore, on average, over 12 years old. Seven buses were reported to have more than 200,000 miles on the odometers. Staff The staff consists of a director, 1 ½ administrative positions, and a mechanic that also drives a route. Drivers Each daily bus has a driver assigned, and there are several substitute drivers. Drivers are paid a contracted rate of between $38.87 and $84.12 per day, depending upon the length of the driver s route. Drivers are paid additional amounts of $6 to $24 for performing shuttles and vo-tech runs. The activity trip rate is $11.13 per hour. Cost Analysis The Process We analyzed the following data for the WPS pupil transportation operation: 1

2 The pupil transportation operational data for and provided by the District to the Missouri Department of Education The pupil transportation expenditure data for and provided by the District to the Missouri Department of Education The account by account pupil transportation expenditures for the actual and the budget provided to us by the District Fleet list Bus route narratives Shuttle schedules Driver and staff pay rates March 2013 payroll recap To establish the overall operational costs, we first reconciled the account by account pupil transportation expenditures provided to us by the District to the data found in the MO DESE reports, and found that information to be the same. This allowed us to categorize those costs for a better understanding. We then used the number of buses, routes, students transported, and miles to calculate various operating and financial statistics. This allowed us to draw conclusions about how the District compares to other districts in the state, as well as other districts we have worked with, both district-operated and contracted. We invested considerable time in understanding the driver pay program which was unlike anything we had seen before. Our understanding is that each driver s hourly rate of pay has been inflated to get that driver a particular all-in compensation amount for the time he/she is driving the bus. This facilitates the district paying a driver for more hours than they are scheduled to drive, which is a common pay practice for short bus routes (routes less than 90 minutes). Drivers are therefore being guaranteed to be paid a minimum amount or number of hours per shift as it is otherwise impractical for the driver to report to work, drive for an hour in the morning, return home, report back to drive another hour in the afternoon, and return home again. In the end, we looked at what the drivers are paid annually then worked backwards to solve for what they are paid for what they do each day. Cost Conclusions The District s overall transportation costs are unremarkable, and no particular cost category merits immediate concern. Expenditures were $1,050,000 in and budgeted at $1,077,000 for , exclusive of any bus purchases and depreciation. Including depreciation per the DESE report of $77,000 per year would bring the cost to about $1,154,000 per year. We calculated the average operating cost per route bus to be $43,761, a very low cost per bus. On the surface, a low cost per bus appears to be good news, but often a low cost per bus is simply the result of too small of a denominator, that is the number of route buses is a big number. The District s transportation system has been determined by MO DESE to be inefficient. DESE s complex funding formula utilizes costs, miles, and pupils transported. It also segregates all the data and costs into regular education and special needs transportation categories. DESE sets the regular education efficiency bar at a maximum of 104%; anything over 104% is inefficient and is penalized in the 2

3 reimbursement math. The District was at 125% in and is at 138% and As the District s ratio exceeds 104%, WPS state transportation funding is discounted. At a state level, in % (261 of 378) of Missouri s district operated system were determined to be efficient, thus WPS is in the minority of districts. The WPS eligible cost per average daily transported student was $559 compared to a district-operated average of $589 and state average of $714, however the cost per mile of $5.05 was well beyond the district-operated average of $3.46 and state average of $3.57. Based upon our industry knowledge and experience with the MO DESE funding formula, we offer several explanations as to why WPS is inefficient and not receiving the maximum available funding benefit: 1) WPS is not double tiered. Therefore it takes 24 buses to perform 24 daily bus runs each morning and afternoon. Efficient districts set school bell schedules such that some or all buses can perform 2 or more daily bus runs. In a perfectly balanced system, 24 daily bus runs could be served by only 12 buses. This balancing delivers considerable cost leveraging, as adding a second bus run to an existing bus and bus driver is considerably less expensive than adding a second bus and bus driver. WPS buses average just over 6000 route miles per year; the industry standard would be over 10,000. 2) A significant portion of WPS miles (35%) are being reported to MO DESE as ineligible miles, categorized as non-route miles or activity trip miles. This causes about 35% of the transportation costs to be disqualified for consideration for funding recovery. Determining why this is the case is beyond our scope, but our high level look at the district s data would indicate that there are a lot of daily vo-tech and shuttle services being performed, and it appears these miles are reported by the District as ineligible miles. This should be carefully scrutinized as there may be cost recovery opportunity therein. If not, then the District should question whether all these ineligible miles are being incurred. 3) WPS operates a very old fleet, much older than the seven to nine year average age we typically see. This includes eight daily route buses older than 1996 models. The aged fleet appears to be creating an elevated level of vehicle repair costs. We calculated the minimum parts cost per mile operated to be between $0.27 and $0.37 per mile; an industry standard would be $0.15 to $0.20 per mile. 4) Special needs transportation costs are understated. Non-driving staff, insurance and bus repair costs are not allocated from regular education to special needs. No bus depreciation is aligned with special needs although two buses are dedicated to that service. 5) Half of the Assistant Superintendent s salary is charged to Regular Education transportation; this may be harming the Transportation funding calculation. District Operated versus Contracted Services None of the above findings surfaces major pros or cons for exploring outsourcing. Contracting cannot simply be categorized as more or less efficient, or more or less expensive. The rule of thumb is that a District s pupil transportation costs are most commonly directly related to its education program structure, its school building bell schedule, and the peculiarities of its routing practices. Outsourcing rarely causes these factors to change; such changes needed must be sourced by the District. 3

4 On the other hand, if a district s bus service is poor, or if costs are wildly out of control, or if pay and benefits are exceedingly generous, then outsourcing can immediately curtail those issues. However, it does not appear that WPS is in this situation. Therefore, the plausibility of outsourcing should be approached moreso from the standpoint of what cost advantages and disadvantages there might be with WPS transitioning to contracting. Driver s Pay It appears the WPS driver pay program is not overly generous. Drivers are paid an average of $61 per day for driving routes, which is roughly $15 per hour assuming four hours of guaranteed pay, or $17 per hour assuming 3.5 hours of guaranteed pay. The additional pay such as $11.13 per hour for activity trips is within reason. Our sense is that a contractor would need to guarantee drivers 3.5 to 5 hours per day to recruit and retain drivers. We do not foresee material cost reduction resulting in the area of driver pay. Driver s Benefits The retirement and medical insurance programs (excluding payroll taxes) represent about 26% of all wages. Assuming that same proportion holds true for drivers, WPS is expending about $100,000 annually on driver benefit programs. A contractor will not offer to a similar level of retirement and medical insurance programs, and their costs will be a fraction of the District s in that regard. The lack of a rich benefit program will cause the contractor to inflate the driver wage to attract and retain drivers. However, we would not expect this increase to be substantial enough to change our previous conclusion that driver pay will not be a major cost factor with contracting. Staff There will be no cost differential with the WPS staff versus a contracted staff, as there is no identifiable excess in this area. Be aware that 50% of an Assistant Superintendent s salary is being charged to transportation in the MO DESE reports, but we assume that 50% of the Assistant Superintendent will not go away if the District outsources. Routing & Bus Service There is no information available that would indicate a contractor will route better or operate fewer or more daily buses. The number of buses operated daily is more in the District s control than the contractor. Fleet The District is in a quandary with an aging fleet, averaging 13 years of age and most buses with 150,000 or more miles. We consider this to be a very old fleet, and in need of updating. The cost of maintaining such an old fleet is significant. Additionally, the District has 11 spares, well in excess of the 4 spares that a 15% industry spare ratio standard would dictate; these excess buses cost money to upkeep and insure. A smart way to update a District s fleet without making huge capital investments is to outsource and cause the contractor to maintain a fleet of a certain average age such as eight years of age. The contractor s cost of vehicles flows through in their daily charge per bus, not as a $75,000 check to a school bus dealer. This makes the fleet cost element of contracting much more even, tolerable and manageable. The District could experience material savings in recurring vehicle maintenance costs, as the contractor will over time be maintaining a much newer fleet. Fuel There would be no material change in fuel consumption or costs associated with contracting. We recommend the District buy the fuel if they elect to contract, thus directly controlling this important cost. 4

5 Insurance The contractor s insurance and liability costs will be higher than a school district, but with the roughly $45,000 of District insurance costs reported, we would not expect that a contractor s cost would substantially exceed that amount. Contractor s Profit and Taxes The contractor will price its business to make a profit and pay its income taxes. Count on about a 10% to 15% cost premium in this regard. Thus, the question is whether enough savings can be secured to offset this cost differential, and/or whether the District is willing to incur slightly higher costs to relieve itself of the pupil transportation operation responsibilities. Activity, Shuttle, & Field Trip Work - The District performs trip work in addition to the daily routes. Those services will be priced by a contractor as supplemental services. Such services are often viewed by the contractor as gravy and can be priced to enhance profit margin. Pricing strategies for trips include 2 hour minimums, pricing by mile, wait time costs, etc. The District should be careful to fully address the trip activity such that the contractor can fairly assess it. The District should include the projected cost of trip service in the pricing evaluation and award decision. Shuttles The contractor will prefer to price shuttles as supplemental services, allowing the price of additional stand-alone bus run to be added. To keep this cost in check, the District should provide the shuttle schedule, and propose that shuttles immediately after the morning routes and immediately before the afternoon routes be treated as double or two tier routes and priced accordingly. This pricing will be much less than the price of a stand-alone, round trip bus run. We cannot address whether a contractor will be more efficient and productive in regard to vehicle maintenance, dispatch, substitute driver staffing, as we do not have a full understanding of how WPS performs in those regards. The District should not assume that a contractor will do a multitude of things better or less expensively than the District now does it. But the District can count on the contractor to perform at or above industry standards, as they should otherwise not be chosen or should be replaced with another contractor. Conclusions Contractors develop their pricing models based upon a wide variety of metrics and pricing strategies. Their perception of the competition they expect to face in a particular market impacts their pricing. There are too many variables for TransPar to predict with any degree of certainty what the price submissions may be. The most important element of a contractor s price is what they have to pay to hire and retain bus drivers. Generally, when a district transitions to contracting the contractor will make a concerted effort to hire all of the district s bus drivers. Thus, one can assume that the contractor will attempt to compensate them in similar fashion as the district, unless the wage rate is excessively generous. In no case will a contractor pay any more than they absolutely have to in order to employ drivers. For WPS, we believe the contractor s cost in this regard will be similar to the District s so we would not foresee a big savings opportunity therein. Additional cost elements to be considered include: Cost reduction will occur with the driver benefit package. Cost reduction will occur with the vehicle repair costs with a newer fleet, and reducing the spare bus fleet to industry standards. 5

6 Costs will increase with a contractor providing a newer fleet. Costs will increase relating to contractor making a profit and paying taxes. A wild-card of sorts is how the District will dispose of its buses. If the Contractor is to propose purchasing the fleet, that value could vary widely from contractor to contractor. There is uncertainty as to how they will purge the older units and the impact this rollout would have upon their capital plan and pricing. It is our conclusion that the District could outsource its pupil transportation and if it considers all matters including capital outlays that must occur over the next several years the District could move to contracting without material incremental cost and possibly a modest cost decrease. With the budgeted costs plus depreciation projected to be $1,154,000, the District should anticipate pricing proposals between $1.0 and $1.25 million. An important byproduct of outsourcing will be that the fleet will become newer over time, and the district is relieved of having to purchase new equipment. That is hard to quantify when comparing costs. Next Steps If the District is to pursue outsourcing, it should develop a comprehensive RFP that provides an abundance of operating information. Eliminating guesswork is critical to securing the best price. A goal should be to secure are least three competitive quotes from viable contractors. The award should be based upon a blend of service, safety, reputation, performance, and cost criteria. If the District is more focused on cost reduction than upon relieving itself of managing its transportation system, then it should explore more strategically setting school bell times, assessing the current bus time and seat utilization capacity, and reviewing the details of the MO DESE cost submissions. 6