Follow-up Review of King County Metro Transit The April 5, 2013
Summary In 2008 the Municipal League issued its Review of Metro Transit which had major findings in four areas: performance measurement, service allocation policy, strategic planning, and transparency. King County Metro responded to this report in November 2008. The purpose of this current review is to determine progress achieved by Metro and address any new issues. Four years after issuing our report, a new Municipal League Committee examined events and changes that have taken place over the last several years and concluded that Metro has made significant progress in addressing all four areas identified in the earlier report. The period since the Municipal League s 2008 report has been one of significant challenges to Metro, primarily due to lower than expected revenues resulting from the great recession and the slow recovery. In addition to the economic downturn, other factors contributed to changes at Metro: a County Council-initiated performance audit in 2009 identified areas for cost savings and operational efficiencies; new County Executive Dow Constantine convened a Regional Transit Task Force in 2010 that recommended major policy changes in service allocation and performance measurement; and the Regional Transit Committee and the County Council reached agreement in 2011 on a new Transit Strategic Plan to implement many of the RTTF s recommendations. In September 2012 the first round of service restructuring was implemented according to the new policies and new Strategic Plan. The Municipal League is very encouraged by these changes and we applaud the progress made in the four areas we had identified as needing improvement: 1. Performance Measurement and Reporting. Metro has made significant strides in sharing its statistics with the public by posting them on its website http://metro.kingcounty.gov/ under the tab About Metro/Accountability. 2. Service Allocation Policy. The newly adopted Strategic Plan and service guidelines seem to provide a promising framework for allocating service based on route productivity and ridership demand, serving those most dependent on transit, and providing geographic value. 1
Summary 3. Strategic Plan for Public Transportation. The new Strategic Plan for Public Transportation 2011-2021 is a more forthright and easier to understand plan than the previous plan discussed in our 2008 Municipal League report. 4. Clarity and Transparency. Metro has made significant changes and improvements to its reporting which is included in many forms on the King County Metro website, http://metro.kingcounty. gov/. We do offer additional suggestions for improvement in the discussion below. Metro s Financial Structure In addition to the significant events and actions outlined above, Metro has a structural financial problem which it is addressing with its Financial Stewardship goal and other strategies. The Municipal League has been impressed with the service restructuring accomplished in 2012 to shift resources from lower demand routes to high ridership routes and corridors. Together with the performance audit-related actions, service deferrals, labor savings and fleet replacement deferrals, this was an excellent start to developing a more efficient system. Going forward it is very important that Metro pursue a three pronged approach to its financial health. 1. It is critical that Metro rigorously control operating expenses and abide by the operating expense objective 6.2 from its Strategic Plan 2011-2021, Metro costs grow at or below the rate of inflation. 2. Bus fares should be at 25% to 32% of the appropriate operating expense. As operating expense increases there must be appropriate adjustments to fares to maintain the 25% - 32% rate of recovery. With this level of fare recovery we recommend a support mechanism for those for whom the fare level is unaffordable. Metro is currently at 30% operating revenue to operating expense and as long as operating expense is properly controlled, a 30% target should be very achievable. 3. If sales tax revenue does not keep pace with ridership and expense growth it will be important for Metro and King County to develop new sources of revenue. King County Metro should explore various creative alternatives to meet its revenue needs for a sustainable, quality transportation system. Generally the Municipal League favors reliance on user charges for funding a meaningful portion of transportation services and programs. A direction this could take, in addition to reliance on farebox revenue for transit purposes, might be the use of vehicle miles traveled (VMT) charges. In light of the important role transit plays in facilitating efficient road use for all users, a portion of such a revenue stream might be dedicated to help support transit operating costs. This is a topic that requires close attention and discussion in coming months and years. 2
Discussion of Municipal League Conclusions Following are our Committee s observations and conclusions on the specific recommendations from the November 2008 Review of Metro Transit. In general, the Municipal League is very encouraged by the changes we have observed since we issued our report, and we applaud the progress made in the four areas we had identified as needing improvement: Finding #1: Performance Measurement and Reporting Our 2008 report described how there are a substantial number of statistics collected in the transit industry, but it isn t always easy to understand them and Metro was not doing a very good job of communicating its data to the public. Since then, Metro has made significant strides in sharing its statistics by posting them on its website under the tab About Metro/Accountability. The performance measures and data are provided in both graphic and data form and are grouped by category, making them easy to use for both the lay person and the transit aficionado. Metro currently reports annual performance data, trends, and metrics in four categories: customer service, financial, ridership and service provided. It provides monthly trends in five categories: ridership, service quality (on-time performance, complaints), safety and security (accidents, arrests), financial (tax and fare receipts), and service effectiveness (boardings per hour and per mile). There is also a section of peer comparisons with 30 transit agencies throughout the country which are useful; however, the peer group might be of more value if the it were narrowed to a few transit agencies of similar geographic size, like service characteristics, and comparable operating expense levels. The annual financial metrics include a ten-year trend of transit cost per boarding and cost per hour. These metrics are good performance measures; however, one of our major observations is that the information is stale. As of the date of this writing (November 2012), the figures for 2011 have not been posted, so the posted figures are almost two years old. The reasons given for not updating sooner are that the King County financial audit is not complete and that service changes have absorbed all available staff time. It would be of value to keep the information more current and simply note that figures are pre-audit and may change. Ridership information is more timely as are some of the other data including monthly metrics, but the graphs are inconsistent with respect to how current they are. For example, it is interesting that the graphs for the Service Provided section are through 2010 but when you look at the detail, the data are through 2011. It appears Metro is having a difficult time maintaining the information on the site in a consistent fashion. The monthly performance measures for ridership, boardings, service 3
Discussion of Municipal League Conclusions quality, and financial (tracking revenue by month) are current with data from Sept. 2012 compared to monthly trend lines for 2010 and 2011. Route productivity reports are now posted online and are more userfriendly than they were a few years ago. They identify the top 25% of productive routes and the bottom 25% of routes. The lowest 25% are analyzed to determine if there are alternative modes that would improve productivity or other adjustments that will allow the route to become more productive. We do note that 2010 is the most recent report posted at the time of this writing. Another improved report is the annual management report and the 2011 version was just released and posted to Metro s site. We particularly appreciate the identification of key Strategic Plan objectives and how they are linked to the statistics presented in the report. Recommendations Metro has established a much improved website and is posting most of the routinely available transit statistics. We are concerned that keeping the website current be a continuing high priority for management and that the function be adequately staffed to maintain the site. We strongly urge Metro to maintain all of the data and indicators on its website as current as possible. The annual financial measures should be posted as soon as the books are closed for the previous year, and noted as unaudited until the audits are completed. This is a common practice among almost every public agency and private company. We also suggest that Metro management evaluate the possibility and cost of a more meaningful peer comparison feature. The route performance report and annual management report, while much improved, are being published almost a year after the close of the operational year they report on. We encourage Metro to try to issue these in a more timely way. One area of omission in the available performance measurements are annual targets to benchmark the metrics against. Whether financial targets, ridership targets or service targets, Metro needs to be able to report whether its numbers are meeting set objectives. Only by being clear and open about whether the numbers achieved are good, bad or in between, can a true culture of sustainability for public transportation in King County be established. Finding #2: Service Allocation Policy Our 2008 Municipal League report pointed out that King County Metro allocated new transit service based on a fixed subarea policy built not on ridership demand, service needs, or cost effectiveness, but on a conception of subarea equity and area coverage. At least partly as a result of our report and based on the work of the Regional Transit Task Force in 2010, this policy was changed. Now Metro develops service allocation proposals based on a new set of guidelines that provide a good framework for adding service, reducing service or restructuring service according to corridor destinations, route productivity, transit dependence and geographic value. 1 The practice today is very much focused on evaluation of corridors and routes based on real criteria that drive transit use--a substantial improvement over the methods previously utilized. Working with the guidelines, Metro management proposes service changes to the King County Council. The change process is one that brings together local needs and a regional perspective, takes into consideration the constrained resources of Metro and strives to allocate those resources as efficiently as possible. While time consuming, the process is working well, is data driven and provides the public the basis for understanding allocation decisions. Metro management is authorized to adjust resources (service hours) invested if the adjustment is less than 25% of total hours for a particular route. They can also adjust bus stop spacing if the adjustment is less than ½ mile. The new process is still subject to overrides by elected leaders if a group of citizens mobilize to protest, but Metro is now able to manage a complex system in difficult times in a more efficient and productive manner. Recommendations We have no recommendations at this time. We are very encouraged by the 2012 service restructure that is the first large scale implementation of the new policy. The process is still very new and must continue to be refined and improved. Finding #3: Strategic Plan for Public Transportation The 2008 Municipal League report suggested that the Strategic Plan needed a much sharper focus with clear priorities. We are pleased that the new Strategic Plan for Public Transportation 2011-2021 is a more forthright and easier to understand plan. There are eight major goals and within each of the goals are specific objectives, outcomes, strategies, and performance measures. The eight goals are: safety, human potential, economic growth, environmental sustainability, service excellence, financial stewardship, public engagement and quality work force. 2 The performance measures, from what is available on the site, do 1 The 2011 Service Guidelines Report is located at: http://issuu.com/ metro-transit/docs/service-guidelines-report-2011/5. See Appendix 1 for the complete guidelines 2 See Exhibit Summary Table of Metro Strategic Plan Elements, King County Metro Strategic Plan for Public Transportation 2011-2021. 4
Discussion of Municipal League Conclusions not have much specificity and therefore are not as strong as they should be as a basis for accountability. For example goal 1 is about safety and security with an outcome stated as, Metro s services and facilities are safe and secure. Objective 1.1 states Keep people safe and secure. Strategy 1.1.1 states Promote safety and security in public transportation operations and facilities. The measures are described as Preventable accidents, Operator and passenger incidents and assaults, Customer satisfaction regarding safety and security, and Effectiveness of emergency responses. 3 These all seem to be fine objectives and strategies but they lack specificity. At the end of a year has the goal been met? How do managers within Metro know if they are performing at expected levels? What is expected of bus operators? There is a need for specific performance measures, e.g. preventable accidents at x% of miles driven for the year. In this way Metro personnel know what is expected and riders and the general public would also have access to this information. We believe the goals are appropriate and address a wide range of factors that are important from both a community and a management perspective. As we indicate above in the section on Performance Measurement, Metro should publish the specific targets associated with each area whenever possible and should report on how it is meeting published targets. It isn t enough to report at year-end that Metro is at a certain level compared to peers. Are they where they want to be? 3 Strategic Plan for Public Transportation 2011-2021, Chapter 3 Tables 1,2, and 3. Recommendations Since they are not published, the public cannot determine if Metro is achieving the outcomes important to their overall Strategic Plan Metro s reporting should go to the next level and publish specific targets and then provide reports on quarterly and annual results. Finding #4 Clarity and Transparency Metro has made significant changes and improvements to the clarity and availability of its information which is included in many forms on the King County Metro website, http://metro.kingcounty.gov/. The site provides a great deal of information and, once one is familiar with the site, it is easy to find the information. The site is particularly helpful to those interested in finding Metro s transportation services such as trip planning, route maps, schedules, and fares--these are all readily accessible. In addition, up to the minute route schedule information is now available on mobile devices at One Bus Away. Riders can receive alerts and notices about particular routes via e-mail and/or text to their phones. The tab About Metro has a great deal of useful information that was previously unavailable. It includes an overview as well as detail information and links to budgets, transit planning, performance measures, financial data, environmental sustainability, and construction and contracts. The General Manager has a periodic newsletter that recaps key news about the agency. 5
Discussion of Municipal League Conclusions Recommendations While there is now detail about the budget process and there is a link to the full King County budget, the information is not kept current enough. In November 2012, the site was still posting information about last year s budget process. As we wrote four years ago, if a citizen wanted to learn about how to make public input to Metro s current budget development process, he or she would have to know to visit the County Executive or County Council site. Even though the Executive proposed his budget in September and the Council adopted it in November, the Metro site had no reference to the current year s process or timelines. Related to this issue, the Metro website does not have a statement on the complicated manner in which decisions are made at and for Metro, involving not just Metro management but the Regional Transit Committee, the County Executive, and the County Council. If a citizen wanted to reach out to the elected officials in charge of Metro or its various functions, he or she would have to know much more about its governance than is currently available in a straightforward manner on its website. We encourage King County Metro to provide an overview of governance information and links to decision makers. Metro s Structural Financial Problem Metro has a relatively high cost structure and its cost per boarding and cost per vehicle mile continue to rise. In addition to the high cost structure, Metro has a problem of generating adequate operating revenue. The period 2001 through 2011 is one where annual operating revenues consistently fell short of adequately covering operating expense with the deficit transferred from Capital funds (there is an Operating Sub-Fund, a Capital Sub-Fund, a Revenue Fleet Replacement Sub-Fund, RFP, and a Bond Sub-Fund). 4 The Capital funds (the RFP, combined with the Capital Sub-Fund) transferred to the Operating fund in 2011 were a net of $60 million. The King County Metro Strategic Plan 2011-2021 has a Goal 6, Exercise Sound Financial Management and build Metro s long-term sustainability. Strategy 6.3.1 states Secure longterm sustainable funding. Metro management recognizes the need to not only properly fund existing services but provide the funding to meet service needs in an environment where service continues to expand as the area continues to grow. Implied in this finance strategy is the need to properly fund operations and capital requirements. The historic strategy of utilizing sales tax revenue allocated to capital was possible because of adequate capital grants plus a program of reducing capital fund balances as recommended in the 2009 King County audit along with delays in scheduled fleet replacement. The replacement delays, while still within recommended replacement ranges by the Federal Transit Administration, reflect lower vehicle reliability and higher 4 See Exhibit A attached 6 maintenance expense. The older buses are still very serviceable and the avoided capital costs are a significant one-time savings. The reduction in capital fund balances and the delay in replacements are one-time events however and it is not clear that grants can be relied on for future capital requirements. Metro has a strategy, number 6.2.1 of keeping its operating cost increases at or below the rate of change in general price increases. We think this is a reasonable goal and one Metro needs to achieve to maintain the confidence of King County citizens as well as maintain a sound operation. The three year period from 2009 through 2011 has shown total operating expense increases moderating to more reasonable levels. This is a positive development and one Metro management needs to work hard to sustain. Wage and benefit costs were equal to about 70% of total Metro operating cost in 2012. Control over this important expense category is critical to control of total operating expense and attaining the goal of maintaining cost increases at or below overall price increases. King County has done an excellent job negotiating wage restraint with its employees and holding medical costs down with its wellness program. However, the administrative expense that the County allocates to Metro increased significantly and poses a major challenge to meeting the Metro cost control goal. Metro has also undertaken a series of other ongoing and one-time actions to address both its recent revenue slowdown as well as its longer term financial sustainability. On the revenue side, Metro has raised adult fares by a whole dollar and youth fares by 50 cents in the last several years. On the operations side, it has deferred $36 million of the Transit Now proposed service and made another $54 million in other annual operational reductions. One-time actions cumulative through 2013 have included some $300 million in capital program and reserve reductions, and the Congestion Reduction Charge is providing some $52 million over two years. In Metro s response to the 2008 Municipal League report, the agency cited the number of trolley buses in the fleet as part of the reason that Metro is a high cost transit organization. However, in their May 2011 Highlights of Progress on 2009 Performance Audit Recommendations 5 the agency reports a completed study that concluded that new trolley buses would cost $3.7 million less per year than hybrid buses, the higher operating costs being offset by federal formula funds granted to the trolley buses as a fixed-guideway system. So, when analyzing operating expense, trolley buses are more expensive to operate but when Federal 5 Highlights of Progress on 2009 Performance Audit Recommendations, May 2011, www.kingcounty.gov/metro.
Discussion of Municipal League Conclusions subsidies are considered the trolley buses are an attractive option. The Municipal League has been impressed with the service restructuring accomplished in 2012 to shift resources from low productivity routes to higher demand routes and corridors under the newly adopted service guidelines. This was an excellent start to developing a more efficient system. We believe that many more efficiencies will be needed to keep operating expense growth under control and within the strategy guidelines. Elimination of the Congestion Reduction Charge in 2014 will result in annual revenue reductions of approximately $26 million. Much of the lost Congestion Reduction Charge revenue is expected to be recovered from sales tax growth from a recovering King County economy. However, ridership growth will continue to put upward pressure on operating expense, perhaps necessitating additional revenue to meet the increased demand and maintain quality service. As King County continues to grow and transportation needs grow with it, there will be a continual need for a source of revenue adequate to keep pace with growing public transit needs. There are several different strategies/techniques employed by various agencies throughout the country according to surveys by the American Association of State Highway and Transportation Officials. There is no perfect source of revenue but for King County Metro an alternative to the Sales Tax would appear to be desirable. Before exploring tax sources we recommend that Metro evaluate the following other opportunities to augment revenue: 1. Charging for parking at Park and Ride facilities 2. Scaling back discounts to large companies and other organizations 3. Eliminating senior discounts for those who have the means to pay regular fares 7
Discussion of Municipal League Conclusions 4. Tightening transfer policies that are more lenient than the norm 5. Charging a fee for private companies to utilize Metro bus stops 6. Public/private partnerships for additional parking needs We encourage any taxing approach to be one that is creative, provides a stable source of revenue, has a low administrative cost, is equitable, and has a large tax base. Generally the Municipal League favors reliance on user charges for funding a meaningful portion of transportation services and programs. A direction this could take, in addition to reliance on farebox revenue for transit purposes, might be the use of vehicle miles traveled (VMT) charges. In light of the important role transit plays in facilitating efficient road use for all users, a portion of such a revenue stream might be dedicated to help support transit operating costs. At the same time we encourage Metro to maintain bus fares in a range of 25% to 32% of appropriate operating expense. According to a 2008 national GAO study, the national average for operating expenses paid for through fares was 32% in 2008 compared to Metro s 29.4% 6 in 2011. With a 25% - 30% fare recovery rate, we recommend a policy of providing relief so that those who cannot afford fares continue to have access to transit services At the same time it is essential Metro maintain an efficient operation and rigorously control operating expenses. It is important to note that to the extent operating expenses are not properly controlled, fares must increase to maintain a 25% - 32% recovery rate. The combination of strong expense control, fare recovery of roughly 25% - 32%, and a reasonable taxing approach that provides operating revenue and capital needs commensurate with ridership growth should keep Metro on a sound footing. Neglect of any of these components will result in problems for Metro management as well as service provided. 6 King County Metro Transit 2011 Annual Management Report, page 21. (Amounts in millions) of King County Follow-up Review of King County Metro Transit December, 2012 Exhibit A Operating Sales Tax Total Operating Revenue % Metro Ridership Year Revenue % Chang Revenue % Change Revenue % Change Expense % Change Gap OR/OE Ridership % Change 2011 $ 142.1 7.15% $ 299.9 7.16% $ 483.8 7.47% $ 530.7 3.72% $ 46.9 29.40% 112.8 2.90% 2010 132.7 6.47% 279.8-2.42% 450.1-2.37% 511.6 2.70% 61.5 27.80% 109.6-1.91% 2009 124.6 8.24% 286.8-14.16% 461.0-0.24% 498.2-0.14% 37.2 26.50% 111.7-5.98% 2008 115.1 23.60% 334.1 3.77% 462.1 7.83% 498.9 8.01% 36.7 24.60% 118.8 7.44% 2007 93.1 5.92% 321.9 17.81% 428.6 15.66% 461.9 6.64% 33.3 21.40% 110.6 7.13% 2006 87.9 3.85% 273.3 8.59% 370.5 7.07% 433.1 7.36% 62.6 21.70% 103.2 4.33% 2005 84.7 4.13% 251.6 8.36% 346.1 7.11% 403.4 5.08% 57.3 22.40% 99.0 2.54% 2004 81.3 3.89% 232.2 3.64% 323.1 4.09% 383.9 4.94% 60.8 23.20% 96.5 2.06% 2003 78.3-9.49% 224.1-29.38% 310.4-2.17% 365.8 4.14% 55.4 23.60% 94.6 0.10% 2002 86.5 5.23% 317.3 5.20% 317.3 5.20% 351.3 5.02% 34.0 24.50% 94.5-4.28% 2001 82.2 301.6 301.6 334.5 32.9 24.50% 98.7 (**) it appears that this table excludes the amounts from Sound Transit, but does include other costs such as Access. OR/OE should represent only expense and revenue associated with bus operations. Vanpool and Access (in addition to Sound Transit) would be excluded. 8
Members of the Metro Transit Review Follow-Up Committee JD Wessling, Chair Putnam Barber Aubrey Davis Kathy Elias Jane Hadley Doug MacDonald Steve Marshall Kirk Robbins Chuck Sloane The committee wishes to thank the following for their assistance: Victor Obeso, Manager, Service Development, King County Metro Matt Hansen, Supervisor, Market Development, King County Metro Jill Krecklow, Finance Manager-Enterprise Operations, Finance & Budget, King County Metro Duncan Mitchell, Financial Services Administrator, Finance & Budget, King County Metro Chris O Claire, Supervisor, Strategic Planning and Analysis, King County Metro 9