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Analysis of VTA's 3rd Quarter Performance Report
Fiscal Year 2005 vs. Fiscal Year 2004

(prepared by the San Jose/Silicon Valley Chamber of Commerce)

Summary of findings:

VTA’s overall input and output performance indicators in its third quarter report are not very encouraging. VTA has not been able to achieve significant or long-term improvements in operating efficiency and effectiveness necessary to minimize the effects of sizeable annual operating budget deficits starting in FY (Fiscal Year) 2001. For example, cost per total hour is up ($157 per hour versus $156.47 in FY04) while overall average weekday ridership is down 8.2%.

The data show that VTA has not sufficiently restructured how it conducts its business to warrant increased subsidies from taxpayers. For example, although light rail ridership has increased markedly1, system ridership (output) continues to decrease. More importantly, VTA’s unit operating costs, 70% of which are supervisory and non-supervisory personnel, are not competitive with most of VTA’s public operator peers in the Bay Area.

Absent significant and quantifiable management reform measures that are fully implemented, VTA has little room to expand transit service throughout the County now that a new rail line is about to open. In fact, without any prospect of new transit operating subsidy sources VTA will be forced in the near- and mid-term to redirect scarce resources to provide minimum new rail service. There are no funds to expand bus and rail transit as VTA promised to Santa Clara County voters.

“Unit cost” (cost per hour of service) is a key barometer of system efficiency. To ascertain the accuracy of VTA’s system-wide third quarter unit operating costs, their “unit cost” would have to be measured against prior reports to VTA’s funding partners, MTC and FTA. This would allow a determination of accuracy and whether adjustments are necessary. For example, was VTA’s FY04 unit cost of $156.47 (Page 13) also reported to MTC and FTA?

Based on a cursory review, system-wide third quarter unit operating costs seem to be understated from previous reports. For example, as shown below, if employee benefit costs are rising rapidly as reported and there is no relief in wage rate increases, why are unit costs not rising faster? This may be partly due to a reported decrease in unscheduled absenteeism, but this state of affairs can vary dramatically from quarter to quarter.

Note that no long-term absentee figures appear in this report and percent of scheduled service loss has increased by 8.3%. The loss of scheduled service means that VTA’s management can’t maintain service levels unless more employees return from long-term leave or are hired. Doing so would, in turn, drive up unit costs.

FY 2005 versus FY 2004 figures, to date, show:

• As VTA cut service and personnel (fewer buses/trains and routes), its gross wages declined by 29%, yet gross benefits for fewer workers soared by 17.4% to over $10.5-million. Benefit costs consume 40% of all operating costs (labor & supplies).
• Due in part to these increased benefit costs, total operating costs in FY05 decreased only 2.3%, paced by a far more significant reduction in the workforce; this amounts to over $32-million in cost.

(Note: The 8.2-mile, eleven station Tasman East and Capitol LRT extensions opened on June 24, 2004. These extensions upped VTA’s light rail system from 30.5 to 38.7 miles, a 26.9% increase. VTA’s 25.9% year-over-year increase in LRT ridership was largely due to this expansion. It should also be noted that subsequent re-routing of bus lines contributed to a decline in bus ridership.)

• Although modest, adopted FY05 performance goals have not been met to date. Examples are cost per hour ($157.59 versus $150.00), boardings per hour (25.6 versus 26), and average fare per boarding (0.851 versus 0.890).
• While significant improvements in unscheduled absenteeism or time-offs were achieved for bus and rail operators, 8.51% of workforce on average not showing up for work each day. This would bankrupt any enterprise if allowed to continue. Bus maintenance time-offs register an astonishing 9.83%. Significant improvement has occurred, as VTA’s previous high was 24.4% absenteeism; however, more effort is needed to futher improve employee productivity.

Third quarter FY05 versus third quarter FY04 figures show:

• Percent scheduled service loss increased 8.3% from FY04. This loss gradually increased per month in the third quarter to match FY04’s annual level. A record high of more than 2% of all service missed was achieved in FY01. This trend could cause unit costs to escalate again to FY01 levels.
• VTA’s farebox recovery ratio increased by 6.2% from FY04. It is now 13.8%. However, this rate is by far the worst of its industry peers and no significant improvement is on the horizon. Drastic measures must be taken to remedy structural cost inefficiencies and bus route restructuring or it is quite likely that in FY06 farebox recovery will begin to decline. This would put pressure on VTA to cut additional bus service or initiate other reform measures not yet considered.

In summary, VTA’s third quarter FY05 report shows that some improvement has occurred, but unit costs are up for users and taxpayers. Revenues declined 31% but expenditures declined only 22.5%. Although quarter-to-quarter FY05 stats show improvement, system boardings (38.4-million in FY05) continue to decline from a record of 56.5-million in FY01.

Time and improving economic conditions may reverse (or mask) these trends. We await VTA’s annual report to be more conclusive in our analysis.

David Fadness, Jim Seal, and Jim Tucker of the San Jose/Silicon Valley Chamber of Commerce prepared this report.

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