Kansas City Missouri (KCMO) is KCATA’s biggest “client,” and therefore their relationship has a huge impact on transit service in the region. Two important events are shaping this relationship. In the short-term, budget decisions this year by the Kansas City Council have forced KCATA to take a 10% loss on the transit service it provides to the City and continue to use its emergency reserve fund to cover this loss. According to KCATA the $46 million budget is $5 million short of the approximate $51 million cost of the current level of service. In the mid/long-term, a new ordinance created a “KCATA Funding Review Committee” which will determine the ongoing relationship between the two entities.

The short-term: The KCATA Board of Commissioners has approved the new $46 million contract, even though they know it is affecting the agency’s ability to respond to emergencies in the future.  KCATA expects to use $5 million of its reserve fund to prop up the city’s transit service, despite the fact that the ½ cent Transportation Sales Tax had an additional $9 million available to budget for the bus service. Instead, the city decided to spend the money on Public Works and the streetcar. Some of this money should have been used to eliminate the difference between the cost of the service level and the budget. KCATA used $3.5 million of its reserve fund last year to prop up this service level. KCMO has not fully paid for its transit service out of the budget since 2008.

To understand why KCATA would continue to use its emergency reserve fund after the economic emergency is over and the KCMO sales tax receipts are budgeted to be the highest ever, you need to know that the reserve fund came from the KCMO 3/8 cent Transit Sales Tax  (more about this later) and understand KCMO’s impact on KCATA’s business. 62% of KCATA’s total budget comes from KCMO but if you omit federal funding and fares and such, and just look at the local funding part — then KCMO provides 92% of those funds. Although KCATA is an independent public transportation agency created by an act of Congress, it doesn’t have any taxing authority, and therefore relies on contracts with government entities to provide transit service. So if you have one client that contracts for 92% of your business, you try to make them happy.  Keeping that in mind, KCMO still purchases transit services as a client of KCATA, not an employer and not an owner.

So the mid-term and long-term relationship between these two separate entities has to be resolved since the current situation is unsustainable. No organization can continue to provide the city with more service than the city can (or will) fund.

That leads us to the mid-term outlook. Although during the budget process the city’s Finance committee deleted Section 2 of Ordinance 100951, which required KCMO to incrementally increase KCATA’s share of the ½ cent Transportation Sales Tax, it retained Section 1, which says KCATA will receive 95% of this sales tax (after TIF and an Administration fee) starting May 1, 2014. During the budget hearings City Manager, Troy Schulte, said he had made preparations to comply with Section 1 of the ordinance. That means that the use of this money for Public Works, which is $6 million for FY 2013-2014, would shrink to about $1-1.5 million for Transportation Planning and the Administrative fee in the next budget. If Section 1 of Ordinance 100951 is implemented and KCATA starts to receive the money that has been diverted to Public Works since 2003, then the current discrepancy between the budget and the cost of the service level will hopefully be eliminated and KCATA can stop depleting the reserve account in the mid-term.  Use of the reserve account in the long-term is a different matter.

The long-term situation. The city’s new “KCATA Funding Review Committee” has had two meetings with the KCATA. The committee has to present a recommendation to Mayor James by Aug 1, 2013 — in time for the next budget deliberations.

A new Ordinance, 130173, set up this committee to look at using the money from the ½ cent Transportation Sales Tax to create  “a multi-year financial plan for distribution of the transportation sales tax after reviewing the needs of the bus service and establishing a maximum allocation for development and expansion of a streetcar system”. Councilman Ed Ford chairs the committee. The other four council members are Dick Davis, Jan Marcason, John Sharp and Scott Wagner.

The first committee meeting mainly consisted of KCATA’s general manager, Mark Huffer, making a presentation he called “KCATA 101” to explain KCATA’s operations and funding situation. There are links to both the presentation and the meeting, with Huffer’s explanation of all the slides, at the end of this article.

The second committee meeting happened at the last KCATA Board of Commissioners meeting. KCATA addressed several concerns that were brought up at the first meeting, including the sustainability of this level of transit service and the use of the KCATA Reserve account.  There are several issues that have emerged.

Issue 1: How to maintain the current level of transit service. The city council is basing these talks on the unique prerequisite that the current level of transit should be maintained. To transit riders and transit advocates that sounds pretty good, except improving and expanding the service level would sound even better. However that has never been the way KCATA has provided service to the city. They have always provided the most service possible for the funding provided. Councilman Dick Davis (previous general manager of KCATA) told us how he used to adjust service levels all the time based on the money the city actually gave KCATA.  Service levels have never been fixed because the cost of service and the funding for the service always fluctuates.

Prior to 2009 KCMO fully paid for the transit service it received. Historically, if the city cut the budget, then KCATA either cut service or raised fares, so the city budget and the amount of transit service were always in agreement. When the recent recession hit, KCMO cut KCATA’s funding $9.5 million or 19.3 % between FY 2008-2009 and FY 2009-2010. The reason transit riders didn’t suffer more during the recession is because KCATA raised fares (by 20 percent or 25 cents) and cut service by only 9.5%. That didn’t fully cover the budget reduction, so KCATA used its reserve account to make up the cost difference and maintain the higher level of service. The decision to use the reserve account left KCMO and KCATA out of sync, with KCATA propping up the city’s transit service at a level higher than budgeted. This situation had never happened before and we doubt if a lot of people even know about it. Most people assume the service cuts and fare increase happened just like before and they matched the amount of the funding reduction. That is not the case.

KCATA acted like a real partner to the city when sales taxes took a nose-dive. The reserve money kept transit riders from having deeper service cuts and bigger fare increases, as happened in many other cities. KCATA used its reserve fund like it is supposed to be used:  for an emergency.

Now, KCATA is being told to maintain this level of service, even though the city isn’t budgeting for it. They are seriously looking at scenarios where the reserve account will be totally exhausted. So the KCATA reserve account is an important part of this discussion.

 Background: How did KCATA get this reserve account? Prior to 2003 KCATA did not have a reserve fund. The reserve money originally came from the 3/8-cent Transit Sales Tax. Although KCMO has control over how to spend the city’s ½ cent Transportation Sales Tax, it acts as a fiscal agent collecting and passing through to KCATA proceeds from the 3/8-cent Transit Sales Tax since language of that ballot measure specifically directed the money to KCATA. After the successful 2003 transit election, it took time to implement new services and get more buses. During that build up time KCATA used some of this money to create its first and only reserve fund for emergencies (it was 6 months of operating costs – which is not uncommon for a transit agency). The original concept for the reserve fund was to protect service levels in the event of unexpected fuel price spikes. This unique opportunity to build the reserve only existed once and KCATA has no way to replenish this money for future emergencies, since the contract with the city does not currently have a provision for funding a reserve account.  The reserve fund is already partially depleted. That is why forcing KCATA to use up this money when the city is flush with transportation funds was unnecessary and irresponsible on the part of the city, because it diminishes KCATA’s ability to respond to future contingencies.

KCATA having a reserve account is no different from anyone having a rainy-day fund. Coming out of the recent recession, people should understand how important it is to have some extra money tucked away. We hope that during the review process KCMO sees the wisdom of KCATA having a reserve account and incorporates this modern risk-management practice into the contract. Properly using a reserve account is good management. It should be used to maintain service levels when less revenue is collected than budgeted or when there are unexpected costs, and then re-filled when revenues go back up.

Without the KCATA reserve account, service cuts and fare increases worth the whole $9.5 million, or 19.3%, would have been necessary during the recession.

Issue 2: There is a serious long-term funding problem for KCMO, which will affect KCATA. The city may have to make drastic changes in many programs, not just transit, unless revenues start growing faster or costs are cut. Considering that sales tax revenue is projected to increase only 1%-1.5% annually, the city is on a collision course when costs will exceed revenue in multiple city endeavors, unless there are big changes. The city’s overall costs are projected to increase at 5%-6% annually.

KCATA is currently managing costs pretty well at a 2-3% yearly increase. If the cost of maintaining this level of transit service continues to grow faster that the sales tax revenue, then at some point, this level of transit service becomes unsustainable.

One of the main goals of these meetings is to find a way to maintain this level of service and pay for it. The committee has to decide if that goal can be reached with the funding sources already available. As transit riders, constant fluctuations in service levels based on the city’s current year budget is a transit nightmare. KCATA surveys of riders show that 74% of the transit riders have household incomes less than $30,000 and 62% of the riders are transit dependent, yet 76% of the trips are for work, job seeking or school. The need for transit is well documented and no one wants to cut service or raise taxes, but reality can’t be ignored.

KCATA has been trying hard to cut costs. The goal of implementing the recommendations of the Comprehensive Service Analysis was to make the routes more efficient and eliminate duplications. KCATA negotiated an improved union contract and they plan to change the vehicle fleet to Compressed Natural Gas (CNG). They expect cost reductions from all of these efforts.

So the ball is in the City’s court. In Huffer’s presentation he suggested several ways for the city to deal with the potential collision course between costs and revenues as they affect the transit service.

INCREASE REVENUE

• •City 1/8-cent sales tax capacity
• •More use of ½-cent sales tax
• •State investment
• •Regional investment
• •County
• •Bi-State
• •Fare increases

Of course, KCMO only controls the revenue streams highlighted in red. Another possibility, not on the list, is the U.S. Congress giving state, county and local governments the ability to charge sales tax on Internet sales. If that happens, it will be a boon to government coffers all over the country and a boon to transit services funded by sales taxes. Any increase in the 3/8-cent Transit Sales Tax revenue would automatically go to KCATA, and depending on the decisions made regarding the ½ cent Transportation Sales Tax, KCATA could receive more money for transit.

DECREASE COSTS

• •Greater labor efficiencies
• •Focus only on core services
• •Services reductions/redesign
• •Limit Share-A-Fare to ADA requirements only
• •Alternate fuels/utility savings

Approximately 80% of the transit trips happen on 20% of the routes (core service), so KCTA could reduce the non-core routes. Twenty percent of the routes are about a dozen routes. For perspective, KCATA operates nearly two dozen routes on Sundays.

Currently a city ordinance allows able-bodied people over 65 with an annual income of no more than 150% of the current poverty level to use the Share-A-Fare service. There would be significant cost savings if the service were limited to the people with disabilities.

KCATA’s estimates did not include any cost savings from changing to CNG as a fuel, so that is an outstanding potential cost savings.

All of the above options to decrease costs are within the control of either KCATA or KCMO.

These first two issues, maintaining this level of transit service and the eventual situation where the service level becomes unsustainable due to slow revenue growth and potentially exhausting the reserve account, have been part of the discussions during these committee meetings.

At the second meeting, Mr. Huffer presented several scenarios looking at when the reserve account would be exhausted. The basic assumption is that KCMO doesn’t increase KCATA’s budget. Other scenarios include keeping the same budget but starting to make service reductions and the last scenario doesn’t make service reductions but increases the budget $5 million next year and then revenue only grows at 1% per year.

Of course, exhausting the emergency reserve fund to maintain basic operating levels is not a long-term funding strategy. Councilman Dick Davis, told us recently that he would be concerned if the reserve fund dipped below $10 million. We don’t believe the KCATA Board of Commissioners should let the reserve fund be totally depleted under these circumstances.  See Huffer’s Reserve Presentation at the end of the article.

Issue 3. Another wrinkle that hasn’t been resolved. In December 2010 when Ordinance 100951 was passed, the streetcar didn’t exist.  In the current budget the city allocated $2 million to the streetcar to cover the streetcar’s financial obligations. This amount of money will be needed for the duration of the streetcar bonds, which could be 25 years for a total of $50 million (this amount is equivalent to the cost of a whole year of KCATA transit service to KCMO). One of the questions for the committee is “Will the streetcar money continue to come from the ½ cent Transportation Sales Tax, or some other revenue source? “

The streetcar is transit and this is a transportation tax so it fits legally. However, originally the Transportation Development District (TDD) was supposed to pay for the streetcar costs and there was no discussion about using the limited funds available for the bus system to help pay for the streetcar. The streetcar has to be paid for, but TAN would prefer the TDD exhaust its revenue sources before taking the easy way out and use the revenue stream used to pay for the bus system. If the TDD truly can’t pay for the streetcar, then of course revenue sources outside of the TDD have to be tapped.

If there is no other option and the streetcar money has to come out of the ½ cent Transportation Sales Tax, then Section 1 of Ordinance 100951, which currently gives KCATA 95% of the money, will have to be changed.  The city manager’s current plan is to take the streetcar money out first, like the TIF money, and give KCATA 95% of what is left, if that is still the percentage the review committee decides on.   Don’t be misled into thinking KCATA is getting 95% of the money if the city continues to take money out for other priorities first. Getting 95% of the leftovers is a much smaller amount of money. In fact, if money for the streetcar comes out of this fund, the city manager said the maximum percentage of the total amount available for KCATA would be reduced to 87%.

During the budget hearings the council made it very clear that they can do whatever they want with this sales tax regardless of promises to voters or ordinances. The point that the “council can change its mind any time it wants to” is an important one. For instance, even if a $2 million cap is placed on using the ½ cent Transportation Sales Tax money for this first streetcar, this council or a future one could just eliminate the cap and decide a precedent had been established for using these funds to pay for streetcars.

What lies ahead? What about new or improved services? Even though the city has not been fully budgeting for the transit service, KCATA continued with the implementation of several new projects including the Troost MAX in 2011 and the expansion of service to the airport this year. A Prospect MAX is a potential new service since it did well in the recent Jackson County US 71 Transit Study. How the city defines its on-going relationship with KCATA and how the city decides to fund basic transit service to the whole city will determine what improvements or expansions KCATA can make in the future.

The City’s “KCATA Funding Review Committee” has a lot of work to accomplish. So far the committee has been learning about the issues. We look forward to the meetings when they get down to dealing with the difficult questions. They only have June and July to come up with a plan.

Next “KCATA Funding Review Committee” meeting is Thursday June 13, 2013, at City Hall, 10^th floor.

Links to the presentations and the video of the first meeting

Huffer to KCMO City Council – ATA 101 Final_20130425

Video of first KCMO City Council “KCATA Funding Review Committee”  (includes Mark Huffer’s explanation of the slide presentation)

KCATA BOC Reserve Fund Presentation  from the second meeting

For more background: TAN posted a series of articles related to the KCMO FY 2013-2014 budget process for funding KCATA. Start with Our Request to KCMO: Move Transit Funding Closer to Goal in Next Budget   and Action Alert! KCMO City Manager’s Budget Is Failing The Transit System  and read through to the last budget article Last Chance – Speak up for KCATA Budget at KCMO Finance Committee Meeting Mar 20  They all have the Tag: KCMO2013-2014budget

Soon: KCATA’s New Vision