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Rail News Home Passenger Rail

December 2011

Rail News: Passenger Rail

Rail Outlook 2012: Passenger rail


— by Julie Sneider, assistant editor

"The economy is no longer on life support." "Things are definitely not getting worse." "I'm optimistic things will get better." "We will continue to have challenges."

Such phrases are what a representative sampling of U.S. passenger railroad executives used to describe the state of the economy from their vantage point as they prepare to lead their organizations into 2012.

Their comments indicate they won't be humming "Happy Days Are Here Again" come Jan. 1. However, in interviews with Progressive Railroading, the execs did say their agencies at least have turned a corner for the better. The worst consequences of the Great Recession — slashed budgets, massive layoffs, steep fare hikes and deep service cuts — are behind them.

During 2012, the agency leaders plan to closely monitor retail sales for the impact on sales tax revenue (for those whose organizations are funded by sales tax); the unemployment rate for its potential impact on ridership; and housing trends for the potential impact on construction costs.

They'll continue to tighten spending, but they'll also turn their attention to advancing expansions, serving a growing number of riders, and preparing for the eventual replacement of a generation of workers now reaching retirement age.

"Things are definitely not getting worse," says Beverly Scott, General Manager and Chief Executive Officer of Metropolitan Atlanta Rapid Transit Authority (MARTA). "For the past 18 months, we have seen a rise in our sales tax receipts after what had been a complete bottoming out in 2009. The sales tax [funds] over 50 percent of our budget."

Atlanta's improving economy — still nowhere near the "buoyant times" prior to the recession — is helping to increase MARTA revenue and ridership, Scott says.

"There are some real hopeful signs," she says. "But, it's still very slow. It's not a dramatic turnaround by any stretch of the imagination."

Some of MARTA's most painful cost-cutting and budget-adjusting actions were made over the past three fiscal years. Those measures included hundreds of layoffs, employee furloughs, increased health-care and pension contributions by employees, passenger fare hikes, a 15 percent reduction in rail services and 10 percent cut in bus services.

And the agency's not entirely out of the woods: In summer, MARTA's board adopted an operating and capital budget for FY2012 (which runs from July 1, 2011, through June 30, 2012) that included a 50-cent base fare increase as of Oct. 2. But the budget also included funds for security and safety enhancements, as well as state-of-good-repair initiatives.

In addition, MARTA is undergoing an extensive management audit and operational review by an outside firm to find out what else needs to be done to operate more efficiently, Scott says.

On the up side, MARTA's board has given Scott permission to prepare a proposal for increasing employee wages — something that hasn't happened for the past five years, she says.

Moreover, in July 2012, Georgia residents will vote on the state's "Transportation Investment Act," which calls for the creation of a 1 percent sales tax to fund more than $6 billion in transportation projects — including some for MARTA — during the next decade. Voter approval of the referendum would represent a "tremendous opportunity" to transform the metro region from surviving to "thriving," says Scott.

While in a better financial position as a result of cost-containment actions taken over the past two years, Dallas Area Rapid Transit (DART) officials still had to cut 35 full-time employees as part of the $1.15 billion budget for FY2012 (Oct. 1, 2011-Sept. 30,2012). The new budget includes actions taken as part of a multi-year effort to manage operations after several years of flat sales tax receipts, while also continuing to provide funds for an aggressive capital program that will double DART's light-rail system to 90 miles by 2014. To take advantage of the slow housing market, which has resulted in lower construction costs, DART accelerated the completion timeframe for the light-rail expansion, says DART President and Executive Director Gary Thomas.

"In the near term, our [Dallas-area] economy is still struggling. And while you may hear a lot that the Texas economy is doing better than most, it's all relative," says Thomas, noting the area's unemployment rate (about 8.3 percent as of September) is "still high," which affects the agencys ridership growth strategy.

"When people aren't working, they're not riding DART," he says. "So from DART's perspective, we have to continue to be very fiscally conservative and monitor sales tax projections … and plan within those projections so we can move forward."

Also carrying out a major expansion during tight fiscal times is the Regional Transportation District of Denver (RTD), which is in the midst of its "FasTracks" project to build 122 miles of commuter- and light-rail lines, create 18 miles of bus rapid transit service and redevelop Denver Union Station.

While next year will present funding challenges for RTD, where 60 percent of revenue comes from local sales tax, RTD General Manager Phillip Washington predicts brighter days ahead.

"Our sales tax revenue seems to be improving slightly," he says. "I'm optimistic things will get better toward the latter part of 2012."

A Multi-Step Approach

RTD took a number of steps to manage its financial resources in tight times, including the creation of a sales tax working group to help draft a methodology for more accurately predicting sales tax growth, "and that has really worked for us," says Washington.

In addition, the agency locked in diesel rates for all of 2012 to better predict fuel costs, and recently exercised an option with Siemens, the agency's light-rail vehicle provider, to purchase at a discount all the light-rail trains that RTD will need for its FasTracks project, a decision Washington says will save the agency "millions" over the next decade.

On the capital side, a competitive construction industry helped RTD save $300 million on the Eagle P3 project, which calls for building two commuter-rail lines totaling 34 miles as part of FasTracks. The savings, which resulted from construction costs coming in under budget, "was like manna from heaven," says Washington.

Rail line construction is a priority at the Utah Transit Authority (UTA), as well. Next year, the agency plans to continue construction of three new lines — one commuter and two light rail — as part of the agency's five-year, $2.8 billion TRAX light-rail and FrontRunner commuter-rail expansions. The project is about 75 percent completed, "but we still will have a lot of construction" slated for 2012, says UTA GM Mike Allegra.

A diverse economy helped Utah weather the recession with lower unemployment than other states; nevertheless, the downturn resulted in lower sales tax revenue than the agency anticipated it would get over the longer term, Allegra says. As a result, UTA's belt-tightening measures included employee layoffs and fare hikes to keep the capital programs alive, maintain service and open new lines.

In addition, UTA in October approved borrowing $100 million through a subordinated sales tax revenue bond sale to keep the construction project on schedule, according to the Salt Lake Tribune.

Like other agency execs, Allegra is following closely the debate in Washington, D.C., over future federal funding for public transportation. Agencies should plan as if funding levels will remain the same or be less than in the past, which means pursuing partnerships with other local transportation and/or government entities to be "smarter about the money we have" to provide the "best product and best service" possible, he says.

Allegra and the other agency leaders agreed that congressional action on a long-term surface transportation reauthorization bill is top of mind.

"The big kahuna is when will the transportation bill move through Congress, and how much it will be," says RTD's Washington. "When you talk about a state of good repair of infrastructure, and when you talk about maintaining systems around the country, that bill is the biggest thing looming legislatively."

Politics' Impact On Business

Uncertainty stemming from partisan differences over what should be included in the bill and when legislation might be passed have made it tougher for transit agencies to plan for near- or long-term needs, says DART's Thomas, who is chairman of the American Public Transportation Association (APTA).

"We're two years out since the last bill expired," Thomas says. "We have strong supporters in Congress to make [a new bill] happen, but every moment without one puts agencies like ours in a constant state of limbo."

Also in limbo are private-sector businesses that rely on contracts with public transportation organizations, Thomas adds, citing a 2011 APTA survey that found 74 percent of the association's private-sector members said uncertainty over the federal legislation had a "negative influence" on their revenue. Almost half, or 45 percent, indicated the federal funding program is the "most important factor" that influences their business.

Regardless of when a bill passes, transportation execs say they've grown used to the idea that federal funding probably won't increase much, if at all, during the next few years. Plus, some transit and commuter-rail entities that rely heavily on local sales taxes as a major revenue stream still are making do with receipts that have yet to return to pre-recession levels.

Sound Transit, which spends nearly three quarters of its budget on capital projects, is continuing work on its 15-year expansion even though the recession took a huge bite out of the agency's sales tax revenue, says CEO Joni Earl. The agency now projects sales tax revenue will be 25 percent — or $4 billion — less than initially estimated over the project's duration.

Sound Transit's capital construction program calls for building 36 new miles of light-rail lines and expanding commuter rail and bus service.

About 90 percent of the agency's revenue comes from sales tax revenue and a smaller percentage from a Motor Vehicle Excise tax. Under the 2011 budget, the agency cut project reserves, expanded some construction schedules and eliminated discretionary programs to adapt to the drop in sales tax revenue.

In 2012, the agency anticipates continuing at existing service levels while still advancing the capital projects, says Earl.

"Our big hit for the 15-year outlook was last year, when we came to the conclusion that we would be down in sales tax revenue by 25 percent," she says. "My board made program realignment decisions [then] to build as much as we could and still prioritize, making sure that we keep our assets in a state of good repair. … So we are continuing on that theme going into 2012."

In Sound Transit's district, the agency's construction projects are helping to lift a sluggish economy.

"Frankly, we are one of the only builders in town right now — besides the state department of transportation," says Earl. "So we're one of the bigger job sources."

Rail transit and highway construction projects — funded by voter-approved sales tax revenues — are being viewed as a catalyst for job growth in the Los Angeles area, where "the recession is durable," says Los Angeles County Metropolitan Transportation Authority (LACMTA) CEO Art Leahy.

"We monitor sales taxes, and they are down some, but we are seeing some signs that sales tax [revenue] will improve" in 2012, Leahy says. "Farebox handling has been constant and ridership is improving, although it's a little flat on the bus side. But all in all, we are well funded, and we have a very good outlook for the coming year, especially in the context of jumpstarting the economy with jobs."

Still, the agency isn't immune from the state's budget woes or concern over future funding of federal programs, such as New Starts, which is slated to help fund LACMTA light-rail and subway extension projects.

"We need the New Starts program to be maintained," Leahy says.

Infrastructure work, and the funding to pay for it, will be MTA Metro-North Railroad President Howard Permut's biggest concern next year.

In particular, the New Haven Line is in need of major upgrades, including bridge repairs and century-old catenary lines, Permut says. At press time, the agency was waiting for final approval of a capital program in the state of New York that will affect infrastructure improvements on the road's other lines.

"That [program] is really important for us to maintain our infrastructure," he says, noting the "vast majority" of the railroad's plan is for state-of-good-repair projects.

"The last couple of years we have continued to work in a very tough financial environment," says Permut. "We have been affected two ways: We've had to do drastic cost cutting, which we've been able to do with minimal cost to both our employees and the service for our customers. Second, the recession affected us on the revenue side. Ridership took a slight downturn, recovered and is going up again."

On the positive side: The fleet of new M-8 rail cars that Metro-North began to roll out on the New Haven Line earlier this year is a "huge improvement" over the 40-year-old cars that are being replaced, Permut says. He's also feeling upbeat about the railroad's 15-yearHudson Line Station Rehabilitation program that's wrapping up.

Metro-North's other priorities in 2012 will include contract labor negotiations and an initiative to improve real-time customer communication. At the federal level, Permut is keeping an eye on regulations related to positive train control and, of course, the transportation reauthorization legislation. With the exception of those two issues, "I think things are better than they have been," he says.

Permut is hopeful that trend will extend through 2012 and beyond — a sentiment echoed by the other executives.

RTD's Washington says he's optimistic about the long-term outlook for public transportation and the nation's infrastructure in general.

"These are tough times, but most — if not all — of the great infrastructure projects were built during tough times," he says. "We will figure out how to get things done because that's how we do business in this country. I'm optimistic that we'll get through these challenges and create an investment in infrastructure that will be here for the next 100 years."

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