Allegheny Institute Policy Brief: PAT Finances Suffer Despite New Contract

State and local revenue assistance is flat, the capital budget might be raided to pay day-to-day costs, money has to be plowed into the pension fund, and the cost to patrons has to rise. These circumstances could describe most governing bodies these days, but actually come directly from the Fiscal Year 2010 budget proposal for the Port Authority of Allegheny County (PAT).

What is so distressing about PAT’s situation is that the County and the agency
management just went through contentious negotiations with the transit union last year. That contract was supposedly a good deal all around and would set the authority on the road to solvency, mostly by targeting long-term legacy costs.

Clearly the settlement should have been advertised with the slogan "good things come to those who wait" because it will take a long time to see the effects of the changes to retirement obligations.

Until then, riders and taxpayers are going to have to expect business as usual. The budget document notes that the board wants to "keep service and overall staffing at present levels"-no surprise there given the fact that the contract was silent on outsourcing or utilizing small buses for certain routes. So that means no changes to the traditional service PAT offers, all the while maintaining the nation’s highest driver pay and the very generous benefits that accumulate along with that pay.

And those benefits are growing at an incredible pace. Consider that in 2006 (see Policy Brief, Volume 6, Number 59) the expenditure category of "employee benefits" amounted to 74 percent of wages and salaries. Two years later, based on audited numbers in the 2010 budget document, the percentage had grown to 81 percent. Next year, with wages at $141 million and benefits at $128 million, the benefit share will be 91 percent.

The 2009-2010 jump in benefits (15.6%) make it clear that the contract settlement did not curb benefit cost increases. The share of the operating budget accounted for by benefits is just over a third. Sure, PAT has to put more toward pension benefits because of the market downturn, but the increases to medical coverage (11%) and dental and vision (6%) exacerbate the already bad situation. Thanks to the negotiated settlement employees will still pay 2 percent of health care costs in 2010, the same as this year. Meanwhile, the special supplemental payment of $500 per month for qualified retirees not yet eligible for Social Security benefits remains in place-despite the recommendation of the fact finder (appointed during the negotiation process after the first contract proposal was scuttled) that it be eliminated for those retiring after September 30, 2008. This serves to exacerbate
the tenuous financial situation at the authority.

Just how bad it will get is unclear. If the Federal government reverses course
(unlikely anytime soon) and allows for the tolling of Interstate 80 to finance
transportation needs under Act 44, then finances could become rosier. As of now, PAT forecasts operating deficits of $29 million in FY2011 and $44 million in FY2012.

Add to that the need for PAT to put aside money for "other post employment
benefits" (retiree health care) in the neighborhood of $13-14 million annually and the projected result for FY2012 would be closer to $58 million.

So what can be done? Officials already claimed they went to the mat to win legacy cost concessions, the County has already spent political capital getting the Legislature to approve special levies on alcohol and car rentals, and PAT is following through on the recommendations to keep fares consistent with inflation and possibly use new technology to increase transit revenues. The current contract runs until 2012 and it is fairly certain that the management strategy will be to get more incremental changes to retirement age and length of service to stem the growth of long-term obligations. That’s a fine approach, but does little for current operations in terms of efficiency and cost. It is also certain that the transit union will fight any further changes and indeed will try to undue some of the modest concessions in the 2008 contract.

Eric Montarti, Senior Policy Analyst
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