BRADENTON, Fla. — The Metropolitan Atlanta Rapid Transit Authority’s current economic model is unsustainable, according to a draft management audit by KPMG LLP.
MARTA should consider outsourcing some functions, wrapping buses and trains with new advertising, putting ads on its website, abolishing restrictions on ads for alcohol, and weigh other tactics such as new parking fees, the audit recommended.
Cost-cutting measures the authority has taken in response to the recession do not go far enough, according to KPMG.
“MARTA must make significant and fundamental changes to operations to avoid across-the-board cuts that will adversely affect operational and customer service,” KPMG concluded in its report ,which was released this week.
MARTA operates a bus and rapid transit rail system centered on Atlanta. The report is a critical step in preserving the $6.4 billion that has been invested in infrastructure and developing ways to maximize the system’s future value, said Frederick Daniels Jr., chairman of MARTA’s board of directors.
“I cannot overstate the importance of this report,” Daniels said. “This study is very important to all of us who are committed to ensuring that MARTA’s financial house is in order and transforming this agency for the benefit of customers who want and need the essential transit services we provide.”
The draft audit report will be presented to the full board at an upcoming meeting. The audit is the second phase of a comprehensive review of the authority’s internal management and operations that began last fall to address, for the most part, declining revenues.
MARTA — the country’s ninth-largest public transit agency — receives no dedicated direct state aid from Georgia for its buses and trains. More than half of its funding comes from a 1% regional sales tax that has slumped through the downturn. The sales tax is collected in DeKalb and Fulton counties. Other funding comes from fares and sources such as federal revenues.
State legislators restrict MARTA’s use of sales tax revenue so that no more than 50% can be used for operations. In 2010, lawmakers relaxed the restriction for three years, through the end of fiscal 2013.
MARTA has cut services and raised fares for several years in response to recessionary pressures.
In July, referendums in 12 districts across Georgia were held on a 10-year, 1-cent sales tax increase to provide funding for transportation. MARTA was slated to receive some of the transit tax funding for new services, but voters in the Atlanta region rejected the tax increase, as did voters in eight other districts.
With sales tax revenues projected to decline by $130 million over the next four years, MARTA’s board adopted a $435 million operating budget for fiscal 2013 with an additional $230 million for its capital improvement program and $141.6 million for debt service.
The budget, which went into effect July 1, does not include a base fare increase though it continues staggered increases for certain services. No wage increases were included for union and non-represented employees for the fifth year in a row.
MARTA has $2.62 billion of principal and interest payments due on outstanding debt through 2040.
The sales tax revenue bonds are structured under three indentures — the first and second indentures are closed to new bond issuance.
In August, Moody’s Investors Service downgraded $1.43 billion of outstanding third-indenture sales tax revenue bonds to A1 from Aa3. Standard & Poor’s assigns an AA-plus rating to the third-indenture debt.
The downgrade to A1 “incorporates multiple years of contraction of the pledged revenues and their lagging recovery,” said Moody’s analyst Xavier Smith.
Other factors leading to the downgrade included a relatively low additional-bonds test on the third-indenture debt, an outsized variable-rate debt and swaps portfolio, limited available cash, prolonged strain on the system’s operations, plans to spend down reserves in the near term, and the lower priority of payments of the third-lien bonds relative to the first and second liens, Smith said.
Moody’s downgrade came despite the fact that the Rapid Transit Authority in recent years has frozen wages and used furloughs, reduced its workforce by more than 700 and laid off 400 employees, begun to address medical and pension costs, reduced services and increased some fares.
On the current fiscal path, MARTA is projected to fall below its state-mandated reserve level of 10% in fiscal 2016, and exhaust all reserves by 2018, the KPMG report said.
In addition, there are up to $7.1 billion in unfunded capital needs through fiscal 2021.
The consultant also found that pension’s represent 9.9% of MARTA’s annual personnel costs, compared to the state and local government average of 8.5%.
Projected operating expenditures will exceed revenues through 2021 based on current operations, which will lead to a projected shortfall of $248 million.
Revenues supporting transit do not consider future federal funding uncertainties, KPMG warned.
In fiscal 2012, federal funds supported about 10% of MARTA’s operating costs and 22% of the capital improvement program.
“Fiscal sustainability requires MARTA to reduce its excess cost over revenue [by] $25 million annually,” the audit said.
KPMG suggested 12 operational areas that could be outsourced, including payroll, computer support, customer service, recruiting, cleaning services, and services for paratransit customers.
As an example of potential savings, the report said the authority should explore consolidating its two customer service departments, which consists of the Customer Information Center and the Customer Service Center.
If the services were outsourced, KPMG projected that between $2.54 million and $5.85 million would be saved over five years.
To generate new revenues, the consultant said MARTA should consider more advertising, developing a billboard program for its properties and facilities, expanding food and beverage concessions, and implementing a program for station naming rights.
Other suggestions include leasing property, charging higher fees for customers who pay with cash, charging fees for reserved parking, charging higher fees for non-residents to park, renting bicycle storage space, and charging for logos to be imprinted on fare cards.