(July 19, 2007)
Auditors from the office of Controller Mark Patrick Flaherty have completed the first phase of their review of the Port Authority of Allegheny County. The performance analysis reviewed financial statements and past management practices, while benchmarking Port Authority’s performance to similar transit systems.

An historical review of the Port Authority began with the 1999 launch of its “Gold Standard Service”, intended to establish the premier transit organization in the nation. The ambitious undertaking of this expansion plan proved to be an expensive failure. The Authority retired the “Ride Gold” campaign in 2006, as it failed to increase ridership or revenue, and returned to a back-to-basics approach.

Benchmarking, by comparing statistics to eleven of the most comparable transit agencies, demonstrated numerous significant opportunities for cost savings and revenue gains through better management of the Port Authority’s operations. Port Authority significantly underperforms when compared to other transit agencies in comparable cities. Trend analysis demonstrates the gap between the Authority and other benchmarked organizations becoming increasingly wider.

Compared to the other benchmark transit agencies, the Port Authority is significantly higher in the number of buses to people serviced. If the Port Authority performed at an average level in this capacity, it should require 46% fewer buses to deliver the same level of service. An analysis was also conducted on the number of buses compared to miles served. The Port Authority operates a significantly higher number of buses per mile.

“Whether one subscribes to the population served or square miles covered methodologies, there are clearly cost savings to be realized,” said Flaherty. “We recommend that the Board of Directors and Management of the Port Authority set a near-term goal of improving operational performance to at least meet if not exceed the average performance of benchmarked agencies. In addition, they should link management compensation and incentives to improving such operational performance.”

Among the number of strategies to achieve better performance and create cost efficiencies, the review proposed that the Board of Directors and Management of the Port Authority adopt a “cut waste and inefficiency first, cut service last” philosophy and approach; conduct a comprehensive review of its service delivery philosophy, route planning, equipment needs and opportunities to work with private transit firms; request an annual benchmark study by the Controller’s Office and embrace new and externally-submitted ideas in order to find ways of achieving better performance.

The Port Authority’s operating budget shows that over the last five years revenues were generally less than budget. A five year performance trend analysis shows differences in operating expenses that are more pronounced and unfavorable when Pittsburgh is benchmarked against its closest geographic cities, Cleveland and Philadelphia. Individual salaried positions were benchmarked showing significant comparative differences among many positions.

Further noted was that pension obligations present a considerable challenge to the Authority’s future financial viability if not addressed immediately. Annual required pension contributions vary between years with substantial increases from 2005 to 2006. Of the $60.6 million paid for 2006 healthcare, $25.8 million or 43% was for retirees.

“The new Port Authority Board of Directors and Management must create a plan for funding pension obligations,” said Flaherty. “They must determine if the current pension plans are competitive with other agencies’ plans and are supportable in the long run. We plan to conduct a closer examination of the Port Authority pension funds in a future phase of our audit.”

The Port Authority has recently cut top level salaries, eliminated management positions, reduced management benefits and has attempted to adjust service to more efficient levels.

“Management must continue to strive for cost control and more efficient service,” stated Flaherty.