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Rail News Home Passenger Rail

June 2011

Rail News: Passenger Rail

To boost revenue, transit agency execs try to think outside the farebox


By Julie Sneider, Assistant Editor

During his three-decade career in public transportation, Art Guzzetti has witnessed plenty of transit agencies endure plenty of economic challenges. It’s part of the nature of balancing budgets with public funds.

“Transit folks have a survivor mentality,” he says. “They’re sort of always facing tough times and fighting to live another day. That’s the general attitude.”

Challenged to provide a necessary public service with limited local, state and federal resources, “usually there are a lot of tough years,” says Guzzetti, who worked for agencies in New Jersey and Pennsylvania before joining the American Public Transportation Association (APTA), where he’s now vice president for policy. “But this has probably been the toughest bit of time in my 32 years in this business.”

In March 2010, APTA surveyed its member agencies to determine just how tight their budget scenarios were at the time. Collectively, the survey responses told a grim story.

Sixty-nine percent of the respondents were facing shortfalls as they prepared fiscal-year 2011 budgets. To contend with what many deemed a “financial crisis” for 2011, 84 percent of agencies planned to raise fares, cut service or both; 68 percent planned to eliminate positions; 47 percent expected to, or already had, laid off employees; and 54 percent said they would transfer funds from capital projects to cover operating costs.

A new year

Now, more than a year later, many agencies aren’t much better off as they draft budgets for FY2012, which for many transit systems begins July 1, says Guzzetti.

“The economy is getting better, but state and local governments are still feeling the pinch, and transit agencies are right there with them,” he says.

With revenue from government sources expected to be flat or lower than in previous years, the standby options of fare increases and service cuts remain on the table to fill budget gaps. On the bright side, difficult economic times can be catalysts for creativity. Many agency executives have been spending more time brainstorming ways to generate more income. Some of those ideas are big in terms of revenue generation: New York’s Metropolitan Transportation Authority (MTA), for example, plans to sell its midtown Manhattan headquarters and two adjoining Madison Avenue buildings in a deal the agency estimates could yield as much as $150 million. Having slashed thousands of positions, MTA is consolidating its real estate portfolio to save money.

But, transit agencies also have been coming up with smaller, non-traditional methods to raise cash, such as selling electronic billboard advertising along railroad rights of way or naming rights for transit stations. And, in a push to drive up ridership to generate more revenue from passenger fares, some systems are considering adding or expanding in-station amenities, such as dry-cleaning services, retail kiosks and concession stands. For public transit systems, every extra penny matters. The more revenue they can generate — even in small increments here and there — the more they can add to their bottom line and, hopefully, relieve pressure on passengers to make up the difference through higher fares.

SEPTA sells naming rights

For the Southeastern Pennsylvania Transportation Authority (SEPTA), the sale of naming rights to its Pattison Avenue subway station in Philadelphia last year turned out to be a productive way to raise funds. In a five-year contract with AT&T, the agency will net $3.4 million for changing the station’s name to AT&T Station.

SEPTA officials are pleased with the initial results, says Richard DiLullo, director of marketing. The agency chose the Pattison Avenue station for its first naming-rights deal because of location: The station serves several Philadelphia sports and entertainment venues, all of which are named after corporate sponsors.

“It was kind of a no-brainer that the station should be named after a corporation,” DiLullo says, adding that SEPTA officials agreed to the change only after making sure the new name would not confuse the public. SEPTA is evaluating other stations for potential naming rights agreements, “but we need to be sensitive to neighborhood concerns,” he says.

“We’re not going to force a new name on a neighborhood,” DiLullo says. “On our regional rail, a lot of stations are named after communities, and they are considered the center of their communities. They’re the place where Santa arrives at Christmas or they’re the backdrop to a Fourth of July awards ceremony. So, some stations we’ll consider to be off limits for those reasons.”

Taxes alone not enough

Another transit system that’s reviewing naming rights as a potential revenue generator is the Metropolitan Atlanta Rapid Transit Authority (MARTA). Currently, MARTA relies on income from local sales taxes to cover more than 50 percent of its budget. That income ebbs and flows with the economy. As a result, the agency is seeking additional ways to augment its budget, says Ted Basta, chief of business support services.

“Everything is up for review and evaluation,” he says. “We need to generate dollars.”

Under MARTA’s proposed FY2012 budget, 51.4 percent of the $391.4 million in operating revenue would come from sales taxes and another 33.4 percent from passenger fares. The rest of the budget would be supported by federal grants, as well as the agency’s own efforts to raise money through transit-related development and advertising.

MARTA officials hope they’ll be able to increase the agency’s access to a new source of sales tax revenue through a statewide referendum planned for July 2012, Basta says. In the meantime, they’re developing revenue-enhancing ideas like selling station naming rights and more advertising on trains, buses and railroad rights of way. Currently, advertisers can buy space on “wraps” that cover MARTA trains and buses, on message boards inside and outside vehicles, and, most recently, on trash receptacles located throughout the transit system.

In addition, MARTA officials are working with a consultant to analyze other potential business opportunities, such as leasing station space to food vendors and retailers. Last year, MARTA started selling concessions — soda, water, juice, cookies and chips — and the program’s generating about $200,000 per year, says Basta. The retail initiative would build on that effort by offering space to coffee shops, fast-food chains, dry cleaners or other businesses that could offer amenities to riders passing through MARTA stations on a regular basis, he says.

As FY2011 draws to a close June 30 for the Santa Clara Valley Transportation Authority (VTA), General Manager Michael Burns is one of a few transit agency executives who are starting to glimpse brighter days ahead on the budget front.

Two years ago, VTA faced an operating shortfall of $98 million and ridership plunged to its lowest level in years. It was a path the California agency had been down before, when the bust decimated the Silicon Valley economy in 2001.

“Back then, VTA took a significant hit to its budget that resulted in major layoffs — over 400 jobs were eliminated — and significantly reduced service,” Burns says. “Since then, we’ve been very careful with our expenditures and very conservative. Having said that, when the recession hit the Silicon Valley very hard two-and-a-half years ago, we saw the same signs that existed during the bust and we reacted very quickly.”

VTA set up a committee of “stakeholders” — staff and business and labor representatives — to analyze VTA’s financial picture and recommend improvements. Burns and other agency officials also met with union, community and business leaders to bring them up to speed on VTA’s budget crisis. Such transparency was key to securing support inside and outside the organization when it came to taking painful steps (like fare increases) to get the budget back on course, Burns says. As a result, union reps and employees were more accepting of hiring freezes, employee furloughs and benefit cuts. Executive staff, including Burns, took wage cuts, as well.

Today, the worst of the recession’s impact on the agency appears to be over. Sales tax income, which represents about 70 percent of VTA’s revenue, is on the rise, as is ridership. In addition, the proposed biennial budget for fiscal years 2012 and 2013 contains no fare increases, major service cuts or employee furloughs. The San Jose Mercury News recently declared VTA “in better shape financially than just about any transit agency in the [San Francisco] Bay area.”

Still, Burns isn’t resting on VTA’s laurels, especially since its financial health is so closely tied to the area’s economic recovery.

“Things could change tomorrow — hopefully, they will change for the better,” Burns says. In the meantime, he, other VTA staff and stakeholder committee members have turned their attention to developing revenue enhancement programs, including pumping up advertising sales on VTA printed materials, maps and vehicle wraps. The most popular advertising move so far was selling two vehicle wraps to Major League Baseball’s San Francisco Giants.

“There is a good market for it, the public has been very receptive to it, and we’re looking to do more of that sort of thing,” Burns says, noting that the wraps and other advertising efforts will bring in an additional $100,000 for the agency this year.

Regional gas tax

Other ideas are under consideration, too. Long term, Burns would like to see a regional gas tax to support public transportation system. But that’s down the road.

“Right now, an idea like that would go over [with the public] like a lead balloon,” he adds.

Not necessarily. According to APTA’s Guzzetti, there are signs that public sentiment might be shifting toward favoring tax initiatives that are directly tied to transportation investment. Consider: Earlier this spring, there were six local ballot measures specific to transportation funding, and all six were approved, Guzzetti says.

Despite the agencies’ budget struggles, Guzzetti is optimistic about the future of public transit.

“Short term, we are having tough challenges,” he says. “Long term, the trends are in our favor. Population growth, concerns about energy and the environment, rising gas prices, an aging population in need of new transportation options and a younger generation with different attitudes about driving cars — all those trends are pointing in our direction.”

E-mail comments or questions to Julie Sneider, Assistant Editor


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