Why is the Region Facing Changes in Metro Service?

Many are asking, “How did it come to this? Why is Metro raising fares and making reductions in service?”

This situation has been in the making for more than a decade, and is a story shared by transit agencies throughout the country. It began with the elimination of federal operating funds in 1999, and continued with increasing costs that are not matched with increasing revenues. Over the past ten years, Metro responded to this by improving efficiencies, reducing costs, and streamlining the transit system, allowing the Agency to maintain a balanced budget during this period. Unfortunately, Metro’s ability to do more with less has reached its end, and the upcoming deficit can only be offset by reducing service and raising fares.

WHY THESE CHANGES?

• Metro has exhausted all other options to find additional funds.
• While Metro is increasing fares, passenger revenue only generates 20% of Metro’s operating income and fares cannot be raised enough to cover the $50 million deficit next year.
• Metro is a service organization, and any expense that can be cut will affect transit service.
• Much like anybody else, with less income, there is a need to reduce expenses to live within that income. The upcoming changes to Metro – staff layoffs, facility closures, service reductions – are all necessary for the Agency to live within its income.

Unfortunately, as a service provider, all of these expense reductions will impact those who use our service, our customers. We know what this means to you and how you live your life, and we regret the adverse effect these changes will have on you and the region. We hope that the leadership of this region will come together and find a funding solution that recognizes the importance of transit in this region, especially during these difficult economic times.

Background:

METRO FINANCES

• Federal funding for transit operations ended in 1999. Many regions filled this financial gap, however the St. Louis region was not one of them.
• The 1973 Transportation Sales Tax proceeds provided by the City of St. Louis have not kept pace with the rate of inflation.
• The same sales tax proceeds from St. Louis County have shown some growth, but have also not kept pace with inflation, and only 50% are provided to Metro, with the rest going to road repairs.
• In 1993, voters in St. Louis City and County approved Prop M which provides a ¼-cent sales tax, half used for operation of MetroLink and half set aside for future MetroLink construction.
• St. Clair County, IL fully funds its Metro operations under a service contract funded from both local sales tax and funding from the State of Illinois. In 2008, Metro received more than $27 million from the St. Clair County Transit District.
• In contrast, the State of Missouri contributes $1.4 million per year to Metro. If the State of Missouri used the State of Illinois ratio to population, they would provide $150 million annually to Metro.
• In 1997, St. Louis City voters approved another ¼-cent Prop M tax but St. Louis County voters did not; the tax cannot be levied in the City until some future time when County voters approve a tax of at least that amount.
• Customers pay approximately 20% of the cost of their ride with the remainder paid by the above subsidies.
• While the federal government has discontinued funding for transit operations, it does provide capital funds for construction and vehicle purchasing. However, this is done nationwide on a competitive basis and requires local matching funds.

MANAGEMENT SOLUTIONS

• Metro management saw the trends – increasing costs and decreasing revenues – in the late 1990s and began sharing them with all its funding partners and the Missouri General Assembly.
• Management aggressively managed costs internally to avoid reducing service:
  • Metro froze all wages for two years.
  • The cost of employee compensation and benefits has been flat for five years despite the addition of staff for the Shrewsbury MetroLink Branch in August 2006, and the fact that transit is a labor-intensive business.
  • The non-union pension plan was modified as a money-saving measure.
  • All health insurance programs were dramatically changed to require much higher co-pays and deductibles.
  • Workers compensation costs for this labor-intensive operation has been reduced from $6 million to less than $2 million over the last five years.
  • Metro shifted to competitive contracting of all cleaning, security, and many maintenance functions as well as selling various assets and leasing them back to free up local funds.
  • Metro restructured many driver relief methods to reduce deadhead miles and hours, which allowed some expansion of MetroBus service after the opening of the Shrewsbury MetroLink Branch.
  • These reduced deadhead miles and hours caused a reduction in the net subsidy per passenger boardings for four years in a row.
  • Metro was able to shift federal capital funds (intended to buy buses, fix buildings, make capital rail improvements) into the operation of the bus and rail system (originally a stopgap solution but one that continues to this day) which has meant a deferral of other business.
  • Management aggressively sought short term and temporary federal funds, and various modifications of the Cross County bonding to defer paying principal to keep some Prop M funds in the operation.
• Despite all those actions, there was still a 10% service cut in 2001 and four fare increases in the last eight years to prevent more serious impact on customers.

CROSS COUNTY METROLINK EXTENSION

• The political leadership of the region, the East-West Gateway Council of Governments, determines where and when to expand transit infrastructure, like MetroLink. Metro is responsible for its construction and operation.
• In June 1999, the East-West Gateway Council of Governments narrowed the combination of expansion alternatives to a single, approved alignment for the Cross County MetroLink Extension Project, Segment 1. The decision was made to build the extension entirely with local funding, rather than waiting for the competitive federal funding process.
• Metro sold bonds in advance to pay for construction.
• Regional leadership understood that the cost of the new extension would add further strain to Metro’s operating budget. However, it was believed that a funding solution would be found before the situation reached a crisis.
• In 2000, Metro hired a joint venture to manage the construction of the Cross County MetroLink Extension, with operations of the new extension scheduled to begin by May 2005.
• In August 2004, Metro terminated that contract, took over direct management of the project, and filed a lawsuit claiming breach of contract, negligent design, and fraudulent misrepresentation among its claims.
• Metro requested that St. Louis City and County approve the sale of an additional $150 million in bonds (to be repaid by Proposition M proceeds) to fund the cost overruns in the project prior to Metro’s takeover.
• Metro completed the Cross County Extension and began its operating as the Shrewsbury I-44 MetroLink Branch in August 2006.
• The cost of the litigation and settlement are not a direct cause of the scheduled fare increases and service reductions, as those costs are paid by Prop M operating capital funds which cannot be diverted to operating costs.
• What is a part of the deficit is the principal payment on the bonds which is now due (after several deferred refinancings) amounting to $7.5 million.

NOVEMBER 2008 PROPOSITION M & AFTERMATH

• St. Louis County political leadership authorized a new Prop M ballot on November 4, 2008, to levy a ½ –cent sales tax for Metro operations and MetroLink expansion. However, the proposition was defeated.
• Without additional funding and facing a $10 million deficit for the current fiscal year and $50 million for the next year, Metro’s Board of Commissioners, following extensive public hearings, made the difficult decision to increase fares on 1/1/09 and drastically reduce service on 3/30/09. 
  • Metro’s Operations and Strategic Planning Committee met on November 14, 2008 to consider two cost reduction options that included cuts in administrative costs and service across bus, rail and Call-A-Ride operations. The Committee directed Metro staff to do additional work for its December Committee meeting. A briefing document from the November 14 meeting providing background information regarding the financial issues, service reduction options and potential impacts to the transit system, regional mobility and the future of Metro is available here. A copy of the slides used in the November 14 presentation is attached here.
  • On November 21, 2008, the Metro Board of Commissioners approved a two-part fare increase for the region’s transit system. The first fare increase would takes effect on January 1, 2009, raise base fares by twenty-five cents, and eliminate the mid-day MetroLink ride-free zone in downtown St. Louis. The second fare increase is scheduled for July 2010 and will raise base fares by an additional twenty-five cents. A chart with information about the future fare increases can be found here. Metro’s Board of Commissioners also discussed service reduction plans, and a briefing document from the November 21 Board Meeting is available here.
  • On December 11, 2008, Metro's Operations and Strategic Planning Committee discussed a further plan from Metro staff. The plan would allow the transit agency to operate within its current revenue with transit service in St. Louis City and St. Louis County operating in a smaller geographic area and with less frequency. The plan focuses on providing access to jobs and schools and providing the best possible service to as many commuters as possible. A briefing document from the December 11 meeting is available here.
  • On December 19, 2008, the Metro Board of Commissioners approved the service reduction plan recommended by the Operations and Strategic Planning Committee to take effect on March 30, 2009. A copy of the slides used in the presentation of the service reduction plan can be found here.
  • On January 1, 2009, new fares became effective for the region's transit system including an increase in the base fare of twenty-five cents. A copy of the new fare chart is provided here. In addition, the MetroLink Ride-Free zone in downtown St. Louis is discontinued on that same date.