Financial Management Initiatives

RTA’s revenues come from three primary sources:

• Sales Tax
• Government Investments and grants
• Passenger fares

1. Sales Tax

• RTA receives a 1 percent Sales Tax on goods and services sold in Cuyahoga County. This is RTA’s largest source of revenue, representing approximately 75 percent of RTA’s operating budget.
• Sales tax receipts for 2014 grew at 3.95 percent, or at a smaller increase than in the previous 3 years.
• Sales tax receipts for 2015 and 2016 showed an increase of 4.4 percnet and 6.2 percent, respectively, due to economic strengthening.
• Sales tax receipts are projected to decline in 2017 and going forward, due to the potential elimination of the Medicaid Managed Health Care Organizations from the sales tax base.

2. Government Subsidies and Grants

Federal Government – In the early years of this program, the Federal Government provided Capital Grants to assist in the purchasing of capital goods. This included buses, trains, train stations, transit centers, etc., and Operating Assistance for expenses associated with operator and mechanic labor, health and retirement benefits, as well as fuel and utilities.

A1993  change in the Federal Program eliminated Operating Assistance to transit agencies. Because this change was so significant, it was phased in between 1993 and 1998.

The Capital Grant portion of the Federal Program continues and provides funds by a formula to each qualifying transit system in the nation, based upon factors such as population and population density. For qualifying purchases, these grants can typically be used to pay for up to 80 percent of the cost of the Capital good.

Over the years, the definition of "Capital" has been expanded, and now includes labor costs expended to maintain capital goods purchased under the program. The greater the amount of Capital funds used to subsidize labor, the less funds will be available for Capital needs, such as bus replacement.

Although declines in population experienced in the Greater Cleveland area have impacted the relative amount of federal funds allocated to RTA, by and large, this program has kept pace with inflation.

Fixing America’s Surface Transportation (FAST) Act – The current surface transportation bill was approved by the Federal Government at the end of 2015. After years of uncertainty due to annual extensions of the prior transportation bill, MAP-21, this Act ensures a steady and predictable funding stream for transit agencies for five years and provided approximately $2.0 million more formula funds to RTA on an annual basis.

Why the increase in revenue? The new FAST Act increases overall funding levels for the various FTA formula grant award programs. This increase of funding levels offset the impact of a declining population base within the Greater Cleveland area. In addition, this also helps offset decreases in operating revenue statistics of RTA, relative to the rest of the metropolitan areas of the County.

Despite increased spending levels for public transit projects authorized by the FAST Act, the Transportation bill again failed to achieve a long-term funding strategy. The Federal gasoline tax of 18.4 cents per gallon and diesel tax of 24.4 cents per gallon, last increased in 1993, remained unchanged and, in tandem with improvements in vehicle mileage, there is a growing imbalance between dedicated revenues and authorized disbursements for capital projects. In recent years, these shortfalls have been covered with short-term measures, such as transfers from the general funds, but the recently approved bill only commits to cover these shortfalls until 2020. After that, failure to develop a long-term funding solution will put the trust fund on a short road to insolvency.

State of Ohio Funding for Mass Transit – A study released by the State in 2015 highlighted the importance of public transportation and suggested that Ohio should significantly increase funding levels. In comparison to nearby states, including Pennsylvania, Michigan and Illinois, which provide an average of $57.71 per person, Ohio allocates $0.63 person. In addition, the legislature removed from the pending State budget the Governor’s attempt to soften the financial impact of a pending change in mid-2017 to the Sales & Use Tax base, which will remove Medicaid Managed Health Care providers from the Sales & Use Tax base – an annual loss to RTA of approximately $18.0 million per year in revenue.

On average, the Ohio Department of Transportation invests less than one percent of its resources on public transportation.

RTA urges all interested parties to contact their State of Ohio elected representatives to request sufficient funding for public transit. E-mails can be easily sent at www.ohioneedstransit.org.

3. Passenger Fares

Passenger fares cover approximately 18-20 percent of the operating cost of RTA’s service. Recently, RTA has increased fares several times in attempts to achieve a balanced budget, and preserve needed services for its customers.

It is important to note, that although the one-way cash fare is $2.50, the average per ride fare collected by RTA is approximately $1.10, due to discounts provided to senior citizens, persons with disabilities and customers purchasing and using multi-ride passes, such as the All-Day Pass, Seven-Day Pass and Monthly Pass.

RTA has experienced declines in passenger fare revenue. Revenue collected in 2014 was approximately $49 million, as compared to 2016 revenue of $46.2 million. This is a decrease of 5.7 percent. The main cause of this decrease is due to ridership, which has decreased 11 percent during this same time frame.

The answer is no. A recent study conducted by the American Public Transportation Association concluded that 9 of 10 transit systems in the United States either have recently, or are in the process of, reducing service and/or raising fares.

Also, many systems are experiencing declines in ridership.

2014 Budget

The 2014 budget was approved by the Board of Trustees on Dec. 17, 2013.

The proposed budget called for a 4 percent increase in transit service and a slight increase in staffing by 46 positions (including 29 operators). The increase in service relates to addressing bus and rail capacity issues, the possible addition of a new Park-N-Ride facility in Independence, and the late fall commencement of the West Shore Express, an improvement to the family of #55 bus routes serving primarily the West Side.

The 2014 Budget contained no increase in fares.

2015 Budget

The 2015 budget was approved by the Board of Trustees on Dec. 16, 2014.

Because of the projected tightening in revenues, the budget called for no increase in general transit service and a slight decrease in management positions. The 2015 budget contained no general increase in fares.

2016 Budget

The 2016 budget was approved by the Board of Trustees on Dec. 15, 2015.

Due to projected financial constraints, the 2016 budget included an increase in fare and a minor decrease in service, with the discontinuation of the Trolley L-Line.

2017 Budget

The 2017 budget was approved by the Board of Trustees on Dec. 20, 2016.

The proposed budget includes a decrease of 30 operator positions, with a service reduction of 3 percent. A fare increase for Paratransit services is included in this budget.

What steps has RTA taken to attempt to achieve a balanced budget?

1. RTA has reduced expenses

• In 2002, RTA began to aggressively reduce overhead expenses. Consolidating 7 operating facilities to just 3 successfully accomplished this and reduced expenses by several million dollars.
• At the end of 2008, RTA eliminated 5 percent of all salaried positions, and informed the salaried staff that there will be a wage freeze for 2009.
• Restrictions were put on overtime and travel, and a hiring freeze was imposed on all non-critical positions.
• After getting the Ohio Law changed to allow for Energy Price Risk Management, RTA began to purchase futures contracts in 2009 for 2010 fuel at very favorable prices. As a result, RTA reduced its 2010 expenditures for diesel to less than $8 million, nearly $9.5 million below 2009 costs. This program continues to work as anticipated and is allowing RTA to not only save money on fuel, but to also to very accurately predict what fuel costs will be in subsequent years.
• With the impact of the recession being worse than anticipated, RTA went one step further in May 2009 than the wage freeze for the salaried staff, by reducing salaries of the non-union salaried staff by a minimum of 3 percent, effective June 1, 2009 through Dec. 31, 2010.
• In July 2009, RTA announced an additional elimination of staff positions by 3 percent, to be implemented by the end of 2009.
• RTA even deferred the issuance of the last paycheck of 2009 until Jan. 1, 2010, for non-union salaried staff, to assist in balancing the 2009 budget.
• RTA furloughed more than 100 support employees, on a voluntary basis, to reduce payroll costs during the period from Dec. 21-31, 2009.
• In the end, with no new revenues forthcoming and no cost-cutting strategies agreed to by our unions, the only way for RTA to realistically balance its budget for 2010 was to implement the April 4, 2010, service cuts.
• RTA worked closely with its two unions on strategies to reduce costs, retain positions and minimize service cuts.
• RTA's contract with the Amalgamated Transit Union (ATU) expired on July 31, 2009 and its contract with the Fraternal Order of Police (FOP) expired on Feb. 28, 2010. New agreements were signed that froze wages and then ties increases to RTA’s revenues and ability to pay.
• In 2010, RTA closed the Harvard District, for an annual savings of $4 million.
• Since 2000, RTA has seen a reduction of approximately 700 employees, or 23 percent of its workforce.

2. Identified new funding sources

RTA works aggressively to identify additional and new funding sources. Below is a list of recent successes:

• RTA was able to get funding to pay for the operating costs of the downtown trolleys for 2009 in the amount $783,000.
• In the 2009 operating budget, RTA was able to use a portion of its ARRA Stimulus funds in the amount of $3.456 million.
• RTA was able to secure $7 million of CMAQ funds to help offset the operating costs associated with the HealthLine.
• RTA was able to secure $3.6 million in funds to pay the operating costs associated with the Downtown trolley expansion.
• RTA has secured naming rights sponsorships with private-sector companies that generate more than $400,000 of annual revenue.
• RTA was able to secure a combined $28.7 million of competitive grant awards from the TIGER II and TIGER III award programs for the reconstruction of the Little Italy-University Circle and Cedar-University Heavy Rail Stations.
• Working co-operatively with NOACA and ODOT, RTA secured $5.0 million of 100 percent Federal funds for the replacement of trolley buses.
• RTA applied for and received two State of Ohio awards totaling a combined $7.9 million for track reconstruction work on the Red Line West Side.
• RTA secured a $985,000 training grant award for staff development and succession planning.

Is population loss a factor in RTA’s future?

• The simple answer is “yes”. According to the 2010 US Census figures, between 2000 and 2010, the City of Cleveland experienced a 17 percent decline in population and Cuyahoga County experienced an 8 percent loss in population. Unfortunately, these were among some of the highest population declines in Ohio.
• Why is this important? Population is a major factor in the development of federal funding formulas. If there are fewer people, there are fewer people for RTA to serve.
• There are also few people to support the countywide sales tax, which results in the loss of funding to support RTA general operations.

How does RTA compare to other transit systems in Ohio?

RTA is, by far, the largest transit system in Ohio. RTA serves nearly as many customers as the transit systems in Columbus, Cincinnati, and Dayton combined.

The following is a comparison of ridership and transit miles operated in 2015 by the four largest transit systems in Ohio:

If RTA had not built the Waterfront Line, would RTA still have these financial challenges?

Yes. The financial issues related to the drop in sales tax, population and funding from the State of Ohio, and not the construction and operation of the Waterfront Line.

The decision to build the Waterfront Line was made 15 years ago in the early 1990s, with an opening date in 1996. The State of Ohio was a major contributor towards the construction. RTA issued approximately $50 million in capital bonds to pay for the balance of the project, the majority of which were retired in 2002. These bonds, which were for “Capital” purposes, are not available to cover operating costs, such as operator salaries and fuel for the Community Circulators.

The Waterfront Line serves major community venues, such as the Rock-and-Roll Hall of Fame, Great Lakes Science Center, the Flats, Voinovich Bicentennial Park and FirstEnergy Stadium. Although this service was very successful in the early years, when the Flats were a major destination for Clevelanders, due to low ridership as a result of the issues in the Flats, the Waterfront Line service level has been reduced. This has reduced RTA’s costs to provide the service. The direct cost to operate the Waterfront Line is less than the cost to operate the Community Circulator service, which was approximately $5 million.

If RTA had not built the HealthLine on Euclid Avenue, would RTA still have these financial challenges?

Yes. The financial issues are related to the drop in sales tax, population and funding from the State of Ohio, and not the construction and operation of the HealthLine.

As a matter of fact, an independent study by a professional financial management firm hired by the Federal Transit Administration concluded that RTA would be much stronger financially with the project than without the project.

Most of the funds used for the HealthLine were from special federal transportation grants that could only be used to build this project. If RTA turned down the grants, the funds would have been re-allocated to a competing project in another state.

RTA issued capital bonds to pay for a required local share on the project in the amount of approximately $20 million. This is approximately the same amount as was spent for the vehicles alone and represent only about 10 percent of the total project investment.

Due to the operational effectiveness of the HealthLine, RTA was able to secure additional CMAQ operating grants. Also, a 25-year agreement for naming rights was sold. The HealthLine is a real financial winner for RTA and is a valued financial resource. This project brought jobs and economic development investment to the region that will benefit RTA, its customers and the taxpayers for years to come.

Through a special grant program, the HealthLine was deemed eligible for offsetting federal operating funding for a three-year period. RTA was granted $3 million in 2009, and $6 million for 2011 and 2012 for this purpose.y.

The HealthLine, named the best BRT system in North America, is an international model of how transit done right can both increase ridership and spur economic development. Since its inception in 2008, ridership has increased by more than 60 percent, and more than $5 billion in economic activity has occurred along the Corridor.

When is RTA going to extend the rail service in Northeast Ohio?

The answer to that question is when and if funding becomes available and demand is sufficient. Today’s budget estimate for extending rail is approximately $100 million per mile. There are currently no local resources available for such an investment, as all current dollars are being dedicated to maintaining the current rail system.

There may be (or may not be) money available in the future from the federal government to pay up to 50 percent of the cost of expansions for qualifying systems, once the gas tax issue is resolved or another funding source is identified. Studies have shown, however, that Greater Cleveland may not easily qualify because of its relative lack of traffic congestion in Northeast Ohio, and our region’s lack of projected population growth that would make current traffic congestion become worse.

Even if the federal government would pay for 50 percent of the cost, the next question is: where would the remaining 50 percent come from? 

What is RTA’s biggest challenge going forward?

A significant challenge is finding resources to allow for the replacement of RTA's rail car fleet and track rehabilitation. Due to the age of the fleet and infrastructure, RTA has more than $300 million in unfunded capital needs related to this.

Finding the necessary resources for this is certainly a substantial challenge.

Another significant challenge is the potential loss of $18 m,illion annually, as a result of the possible elimination of the Medicaid Managed Helath Care Organizations from the sales tax base, and replacing this loss with other revenue sources for RTA's operating budget.