Memorandum

City of Lawrence

Public Transit

 

TO:

Dave Corliss, City Manager

 

FROM:

Cliff Galante, Public Transit Administrator

 

CC:

Debbie Van Saun, Assistant City Manager

 

Date:

April 23, 2007

 

RE:

Proposed Transit Service Fare Increases

 

Since the transit system was launched in December 2000, fares on the T and T Lift have remained the same.  The current one-way regular fare on the T is $0.50 and the reduced fare for K-12 students, HINU students, persons Age 60+, and persons with disabilities is $0.25.  The current one-way fare for T Lift service is $1.00.

 

In 2006, the average cost per passenger trip for T service was $5.23.  In addition, the average cost per passenger trip for T Lift was $17.15.  The cost for T Lift is higher because of the nature of service provided (demand-response, door-to-door service).  In terms of productivity, in 2006 the T averaged 9.86 passengers per revenue hour on its routes.  By comparison, T Lift has averaged 2.43 passengers per revenue hour.  T Lift productivity compared to the industry average is excellent, since most urban systems average less than 2.00 passengers per revenue hour.  The cost per trip itself may appear high.  However, when compared to other communities, the cost per trip is typical, and in many cases is lower than what other communities are paying. 

 

So far in 2007, the average cost per passenger for T service is $5.00.  The average cost per passenger for T Lift service is $14.36.  The reason for significant cost difference in T Lift service in 2007 is that T Lift is carrying more passengers than it did for the first few months of 2006.  Cost per passenger is calculated by taking the total operating cost for service provided and dividing by the total amount of trips provided.

 

Since 2001, the cost to provide transit service in the community has increased.  Some reasons for the increase in cost include: adding paratransit service hours to keep pace with demand for service, increased fixed-route and variable rates paid to MV Transportation, Inc., based on the service contract, increased salary and benefit costs for the transit department, increased shelter maintenance costs due to increasing the frequency of cleaning from bi-monthly to weekly, completing consultant studies, and completing bus and pedestrian infrastructure projects to improve safety and accessibility.  Specifically, in 2006 the total operating expense of the transit system was $3,154,610. A partial reason why in 2006 the total operating expenses increased had to do with paying for one-time expenditures such as the Coordinated Transit Development Plan, Yale Sidewalk improvements, and Carpool Connection.

 

According to the City’s Finance Director, since 2000 the local property tax mill levy dedicated to support transit services in the community has steadily decreased as illustrated in the table below. 

 

 

2000

2001

2002

2003

2004

2005

2006

2007

3.047

2.671

2.504

1.227

1.760

1.363

0.632

0.746

 

I believe the main reason for the annual decrease in the mill levy, except in 2007, was due to the transit department having annual surplus of local funds, since the transit system has historically spent within and under budget.  Furthermore, I believe this local funding surplus was the direct result of: (1) the transit system having a carryover of federal and state funds from prior years to cover a larger share of the total operating expense, and (2) when service was launched, the City Commission was uncertain of the appropriate level of funding to support transit operations, so it set the mill levy high to make sure the service was properly funded.   Over time, the mill levy has been adjusted downward in an effort to find the correct funding level.  Now that there is no longer a carryover of federal and state funds, since those available funds have been spent, the City will need to pay a larger share to maintain existing transit operations.  Specifically, the mill levy will need to be readjusted to an appropriate level to cover the operating costs. 

 

In FY07, the City will receive $1,383,389 in Federal transit formula funds.  This is a 3.7% increase from FY06 when the City received $1,334,512.  With the new Federal Transportation Bill, SAFETEA-LU, the City has benefited from increased federal transit funding annually.  The City also receives $250,986 annually through the State of Kansas Comprehensive Transportation Program (CTP).  In 2006, these two sources of funds represented 49.7% of the total revenue used to operate transit service.  This does not include a portion of these funds, which is used to cover capital expenses.  The transit department is one of the only City services where a significant amount of total revenue to fund operations is derived from outside sources.  Available federal funds can pay for 50% of eligible operating expenses, 80% of eligible preventive maintenance, planning, program administration, and capital expenses, and 83% to acquire ADA accessible transit vehicles.   It is important to note that CTP funds can be used as local match toward federal grants and that this funding program is scheduled to expire in FY09.  Efforts are currently underway to renew this program, as well as increase funding levels.  City Commission support of the renewal and increased funding for CTP are imperative.    

 

In 2006, $1,412,134 or 44.8% of revenue to operate the transit system came from local sources including Kaw Regional Transit (KRT) funds (one time reimbursement) and excluding farebox and bus pass sales revenue.  Of this amount, $600,972 came from property taxes.  A large portion also came from available resources in the City’s transportation fund.  In FY07, the remaining transportation fund balance should be entirely spent since it was used to fund FY07 operations to keep the mill levy low.  This means for FY08 and beyond, in order to maintain its current level of service, the City will need to dedicate additional local revenues to cover this funding gap.  Keeping the mill levy at its present 0.731 rate, generating approximately $675,000 annually, represents 21.4% of the total revenue needed to operate service based on 2006 operating expenses.  The City will need to be willing to contribute at least 50% to maintain current service levels in FY08.

 

The table below indicates the sources, amounts and percentages of funding sources used to support transit operations annually. 

 

Year

Local

%

Federal

%

State

%

KRT

%

Total

2002

1,141,289.20

43.8

1,310,864.72

50.4

151,641.62

5.8

0

0

$2,603,795.60

2003

1,073,717.03

41.7

1,428,068.93

55.5

69,996.02

2.7

413.65

.1

$2,572,195.60

2004

$1,245,851.70

44.7

$1,164,445.74

41.7

$339,802.51

12.2

$40,557.00

1.4

$2,790,656.95

2005

$1,057,711.01

40.5

$1,439,283.94

55.1

$70,767.38

2.7

$44,903.79

1.7

$2,612,666.12

2006

$1,599,832.00

50.1

$1,355,300.85

42.4

$218,836.76

6.9

$19,687.27

.6

$3,193,656.88

Note:

·          Did not list 2001 figures since reports were not kept in same format, however, the total operating expense listed for the year was $2,349,045.

·          Local column represents funding from local taxes, available resources in transit fund, and farebox and bus pass sales revenue. 

·          Kaw Regional Transit (KRT) funds represent a one-time City reimbursement which are slowly being spent down.  Remaining KRT funds will be expended in FY07.

·          Federal and State fiscal years differ from City fiscal year so there is an overlap in how funds are spent from one year to another. 

 

In FY06, 92.4% of the $3,154,610 total operating expense was spent on contractual services.  The vast majority of money paid for contractual services went to MV Transportation, Inc. to directly operate service.  MV Transportation was paid $2,635,926.28 in 2006.  Compensating MV alone for the transit services they provide represented 83.6% of the total FY06 budget.

 

Our records indicated farebox and pass sales revenue in 2006 of $173,500, representing 5.5% of the total revenue generated to support transit operations.  The transit industry norm is to have a farebox and pass sales recovery of at least 20%.  Doubling fares will not get the City to this desired farebox and pass sales recovery ratio, but will put the transit system in the right direction.  In time, with increased ridership and incorporating policies that eliminate the honor system for people to qualify for reduced fares, this recovery ratio should improve.  The City needs to decide if local taxes should be the main source of funds to operate service, or if fares should play a larger role in supporting the service.  If the transit department doubles its fares from $0.50 to $1.00 for T service and $1.00 to $2.00 for T Lift service, the City should receive additional revenue.  In FY08, I conservatively project farebox and pass sales revenue to increase to approximately $319,112, assuming a 20% decrease in ridership occurs due to the fare increase.  It is difficult to project the amount of increased revenue, since the City has never increased fares in the past.  Some members of the public who attended the recent public hearing on proposed fare increases expressed that they are willing to support a fare increase as long as those fares are used to improve existing transit services such as:

 

·          increasing fixed-route service frequency;

·          adding service hours later into the evening;

·          adding Sunday service;

·          adding a new north/south route in West Lawrence; and

·          improving passenger amenities at bus stops. 

 

It should be noted that increasing fares to the proposed rates will not accomplish any of these service improvements, except for possibly improving passenger amenities at bus stops since the other service improvements will cost far more than the additional revenue received.  The public did not appear to be supportive of the idea that increased fares be used to off-set local taxes contributed to supporting transit services.

 

Below is a table of transit fare rates collected from other urban transit systems in Kansas.  You will find that the fare that Lawrence currently charges is well below the going market rate in Kansas and much less than what other communities and transit agencies currently charge transit patrons for service.

 

 

Full Fare

Reduced Fare

Paratransit

Johnson County

$1.25 - $1.75

$0.85 - $1.25

$4.50 -$6.50

Kansas City

$1.25

$0.60

$2.00

Wyandotte County

$1.25

$0.60

$2.00

Wichita

$1.25

$0.60 senior, disabled

$1.00 youth

$2.00

Topeka

$1.00

$0.50

$2.00

 

 

According to information provided by the American Public Transportation Association, there are currently only 11 transit systems out of 230 transit systems nationwide that provided fare rate information that charge a $0.50 fare for fixed-route service.  46 out of 230 charge a fare less than $1.00.  64 transit agencies charge $1.00 for a one-way fare on fixed-route service and the vast majority charge above $1.00.  The highest one-way fare charged for fixed-route service listed was by the Eagle County Regional Transit Authority in Gypsum, Colorado which in December 2004 began charging $3.00.  The fares charged for paratransit services are typically higher than fixed-route services due to the cost to operate service.  By law, paratransit fares cannot be more than double the rate of full fare fixed-route service.

 

With the cost to provide transit services increasing each year, as it does with most services provided, revenues cannot stay at the same levels without adversely impacting the level and quality of service provided.  The public should come to expect fare increases if they want to maintain or improve transit services, especially since fuel and liability insurance costs alone over the past couple of years have skyrocketed.  The service is heavily subsidized and still remains the most affordable transportation option available to residents besides walking and bicycling.  A current one-way cab fare in Lawrence is $9.00.  The transit department, working closely with PTAC, will be developing a fare schedule beyond FY08.  I do not recommend increasing fares once every 6 years.  The City should follow the business model that the U.S. Post Office has incorporated for changing the rate charged for stamps.  Transit fare increases should occur at least biennially to keep the overall increases lower which may reduce the financial impact on residents as opposed to keeping the fare the same for a number of years and then implementing a significant increase in fares charged.  It is my understanding that fares were intentionally set low when service was launched to promote transit usage in the community.  Now that the transit service has somewhat matured, I believe it is an appropriate time to increase fares.