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Worcester Transit
in the News
Business Journal
Everybody on the bus!
Worcester Regional Transit Authority: Toxic-use reduction
By Sarah E. Reynolds
What if you drove your car 40,000 miles a year, and you had to keep it for up to 17 years? If you can imagine that, you have an idea of the condition of many of the Worcester Regional Transit Authority’s buses before 1996, when half the fleet – 26 buses – was
replaced in one year. At the time the buses were replaced, the average age of the fleet was 12 years old, according to Thomas Narrigan, general manager of RTA Transit Services Inc., the private, for-profit company that provides transit services for the WRTA. Many vehicles were as much as 15 to 17 years old.
As our Environmental Award recipient in
the toxic-use reduction category, the
WRTA has impressive environmental
achievements in several areas, reducing
air pollution and use of toxic materials, testing alternative-fuel vehicles and installing a fuel-efficient HVAC system at its offices on Grove Street. In addition, the authority now recycles much of what comes onto its property: tires, chemicals, waste oil, batteries, even old uniforms, says Michael Quirk, director of maintenance for RTA. The bus company is not and was not facing any environmental penalties at the time these efforts were undertaken, says Narrigan.
Replacing the fleet
In 1994, the WRTA began an ambitious plan to replace its aging bus fleet. For some time, RTA had been rebuilding bus engines and doing maintenance piecemeal and on an as-needed basis. Then Cincinnati-based First Transit Inc., the parent of RTA Transit Services, showed the bus company that it would actually be less costly in the long run to replace the old vehicles, Narrigan says. In 1996, half the buses were replaced. The new vehicles saved money because they were far more fuel-efficient than the old ones. They are also much cleaner-burning, Narrigan explains, and needed fewer repairs than the old vehicles, providing additional savings. In addition, notes Donovan Stevens, president of Municipal Services Group Inc. in Littleton, CO, new buses attract new riders, so they actually help make money for transit companies that invest in them. Narrigan agrees.
And since RTA’s mechanics could now implement a schedule of regular maintenance, instead of dealing with crises all the time, the new fleet helped boost morale as well, he says. One other environmental plus about the new buses is that, although not required to, RTA chose vehicles equipped with air conditioning systems that do not use freon, but the more environmentally friendly R-134A refrigerant, Narrigan points out. He adds that besides wanting to do the right thing, the company expects less-toxic refrigerants to be required in the future, and wants to be ahead of the curve.
Leveraging public dollars
Now, how to pay for all these shiny new buses? With modern transit buses costing in the vicinity of $300,000 apiece, RTA was looking for ways to stretch its budget, Narrigan says. It found several. First, it joined in with the MBTA to get a better price on the buses by being part of a large order. Narrigan says the resulting savings were $20,000 to $30,000 per bus. The T did most of the engineering to come up with specs for the new vehicles, he says, adding that working with the big agency “was just great.” Narrigan also says working with the T allowed RTA to get its new buses on the street a year sooner than if it had gone it alone.
Second, RTA worked with Municipal Services Group, a private, for-profit company that helps municipalities finance capital equipment. MSG devised a plan [that integrated] grant funding from the Federal Transportation Administration (part of the U.S. Department of Transportation) and the state Executive Office of Transportation and Construction, [for repaying the] $6 million [loan to WRTA] to finance the buses, at a total cost of [$8.8 million including interest], over [the] 12 year [loan term]. The arrangement is known as a lease-purchase agreement, and, according to MSG’s Stevens, allows transit companies “to achieve ownership” of the vehicles financed over their useful life. In this way, RTA was able to acquire 26 buses, instead of the three it could have purchased outright with only the federal and state grant money it had. Stevens notes that municipalities often come back to MSG when it is again time to replace equipment such as buses or fire trucks, and now
First Transit Inc., the parent of RTA Transit Services, showed the bus company that it would actually be less costly in the long run to replace the old vehicles...In 1996, half the buses were replaced. The new vehicles saved money because they were far more fuel-efficient than the old ones.


Worcester Transit
MSG in the News
RTA can replace fewer vehicles each year, incurring less expense at one time. Narrigan confirms that RTA wants to replace buses gradually, a little earlier than the end of their 12-year useful life. Stevens describes Narrigan and his staff as “progressive thinkers, responsive to exploring uniquely different ways to solve problems.”
Inside job
The WRTA’s other significant environmental achievement is in the nature of home improvement, the home in question being the RTA offices and bus barn on Grove Street. The company has removed a total of 12 above-ground and three underground storage tanks over three years. Half of the underground storage tanks have now been eliminated, and contamination from those that had leaked has been cleaned up, says RTA’s Quirk, who adds that the rest of the underground tanks will eventually be removed as well. All above-ground tanks now have double walls and are located in a protected area. Chemicals are stored on the property only in the quantities needed, and vendors are charged with transporting chemicals on and off the property.
In addition, Quirk explains, a new natural-gas fueled HVAC system for the offices was installed, and the old boiler and underground oil tank removed. A dozen sensors on the property detect toxic fumes and pump fresh air into the bus barn, expelling polluted air from the barn to keep the air breathed by maintenance workers and drivers cleaner. Quirk says as a result of the air-quality improvements within its own shop, RTA has had fewer employee absences because of illness, and has improved workers’ morale.
In order to accomplish the changes at its plant, RTA worked with SEA Consultants Inc. in Cambridge. SEA Senior Scientist William Mallio is the licensed site professional who has worked closely with RTA over about three years to remediate hazardous spills on its property and design a plan to avoid such problems in the future. He notes that Quirk wanted to minimize the bus company’s exposure to potential environmental problems by removing as many tanks as possible, “move things to a state of full compliance,” and get into a position where compliance was just a matter of daily maintenance, instead of responding to emergencies.
Quirk looked at the whole system – bus maintenance and repairs, chemicals the company uses, heating and cooling the offices and shop – Mallio says, and developed a comprehensive plan for the upgrade. In his work as an LSP, Mallio says, Quirk’s approach is “unusual,” as most companies wait for the state Department of Environmental Protection to come to them, rather than anticipating environmental requirements, and budgeting to stay in compliance as regulations change.
Quirk himself points out that no one can be an expert at everything, and feels it’s important to take a team approach to environmental compliance. He regularly calls on his vendors, he says, for help in reducing the amount of toxic substances on RTA property, and advice about changes that may be on the way. As he has led the RTA’s efforts to bring its operations into environmental compliance, he indicates, he has tried to get a little ahead of the curve in each area.
Wave of the future
The current generation of buses on the street, says Narrigan, is probably the last one with pure diesel engines. They will be succeeded, he says, by buses with hybrid diesel/electric engines, perhaps ones that run on ethanol or fuel cells. RTA currently has several vans that use compressed natural gas rather than diesel, and has a CNG fueling station on its premises. But CNG, he says, is really a transitional fuel. Today’s diesel buses burn almost as clean as CNG engines, he explains, and cost about $100,000 less. He looks toward the day in the not-too-distant future when buses that generate their own electricity on board become available. Currently, he says, there are electric buses that use CNG to generate electricity, as well as some that rely on fuel cells, which are significantly more expensive.
However, he expects that fuel cells will come down in price in the next few years.
Another way the WRTA is looking toward the future is through its efforts to expand ridership. Replacing buses was the first step in that effort, Narrigan says, and now RTA is working with Worcester employers to develop employee-pass programs and other services tailored to their needs. He adds that the development of projects downtown such as the Worcester Medical Center and the new campus of the Massachusetts School of Pharmacy present significant opportunities to increase bus ridership. As if to prove the saying that “it’s an ill wind that blows no good,” Narrigan notes that the current spike in gasoline prices, if it continues, could also send more riders his way. That would certainly help to clear the air.
Copyright 2000 Worcester Publishing Ltd. Reprinted with permission.
RTA worked with Municipal Services Group, a private, for-profit company that helps municipalities finance capital equipment. MSG devised a plan [that integrated] grant funding from the Federal Transportation Administration (part of the U.S. Department of Transportation) and the state Executive Office of Transportation and Construction, [for repaying the] $6 million [loan to WRTA] to finance the buses, at a total cost of [$8.8 million including interest], over [the] 12 year [loan term].


Innovative Finance
in the News
Passenger Transport: Small Transit Agencies Can Benefit From Innovative Refinancing By Federico Cura
While smaller public transportation agencies often have been unable to take advantage of the benefits of innovative refinancing mechanisms, that may be changing.
Mortimer L. Downey, principal consultant at PB Consult Inc., explained that the fixed costs for some forms of innovative financing exceed small agency resources or bring their financial risk to unacceptable levels. Some of these transactions are only profitable when a high- value asset package is involved, he said.
Downey cited asset sale/lease-leaseback as the example: several associated costs are fixed regardless of the value of the asset involved in the transaction or the size of the transit agency, meaning that the transactions tend to be too expensive for small agencies. One factor is the increasingly important role of lawyers to ensure statutory compliance in the process as a result of tightening federal regulations, he added.
One "principal obstacle," according to George Bischoff, manager of leasing and project finance adviser at Macquarie Corporate Finance, Inc.'s Investment Banking Group, is the minimal asset value required for a leveraged leasing transaction. "While this is a moving target based on prevailing interest rates and the nature of the equipment, a transaction typically needs to involve at least $75 million of equipment to provide an acceptable benefit," he noted.
Other creative financing mechanisms, such as loans obtained through U.S. DOT's Transportation Infrastructure Finance and Innovation Act program, require a purchase of at least $100 million worth of transit equipment.
However, smaller transit properties have found success with a few financial structures. Under municipal leases, for instance, small transit properties can lease many buses through a single transaction, thus allowing them to replace aging fleets and expand fleets to meet demand more rapidly.
"We see this mechanism being used
more and more by small and medium-
sized agencies," said Neville H.
McGilchrist, vice president of
corporate affairs & corporate counsel
at Municipal Services Group, Inc.,
which arranges these transactions for
transit properties. Typically, MSG AA small small agency may take many years to replace old buses works with agencies with up to 300
buses, he said.
Many small transit properties wait until they have a federal grant and local matching funds before they purchase buses or other equipment, McGilchrist explained. Because of budget uncertainties, a small agency may take many years to replace old buses in operation, especially because of growing maintenance and fuel costs for older buses compared with newer, more fuel-efficient vehicles.
MSG buys buses for a small transit agency, and then leases the vehicles to the agency. The agency decides the size of the purchase, writes the specifications, and sends the order to a manufacturer. MSG, in turn, purchases the contract from the manufacturer and signs with the agency a lease-purchase agreement, or municipal lease. After 10 years, the agency gains full ownership of buses.
The company, one of several that offers municipal lease services, has helped small transit agencies acquired $75 million worth of buses and other equipment, McGilchrist said.
James McElroy, Jr., executive director of the Macon-Bibb County Transit Authority in Georgia, spoke about the importance of municipal leases for small transit agencies, "particularly if running old equipment and with high maintenance costs." Macon-Bibb has used municipal leases for 13 buses and two trolleybuses since 1999.


Innovative Finance
MSG in the News
At the time when Macon-Bibb leased its first buses, "maintenance calls were way up," McElroy said, and the agency lacked the capital
to replace enough buses to make a difference. Through the lease-purchase agreements, the system cut the average age of its fleet approximately by half while expecting to gain ownership of the currently lease buses and trolleys at the end of the 10-year lease contracts. The new buses reduced by $80,000 the agency's maintenance and fuel costs in the first year of operation, and are considered a contributing factor to the agency's 11 percent ridership increase in 2001.
The Birmingham-Jefferson County Transit Authority in Alabama had a similar experience, according to acting Executive Director Debra Anderson-Burse: "We didn't have enough funds for our local match [to leverage sufficient federal funding]." The agency had enough funds to purchase 12 or 13 buses, she said, but instead signed a lease-purchase agreement with MSG to get 43 compressed natural gas- powered buses and seven trolleybuses.
Through the transaction, Birmingham replaced many of its aging diesel buses and expanded its fleets, while reducing maintenance costs considerably as well as the average of fleet age and furthering the region's goal to improve air quality. The transit agency realized $581,845 in savings, said McGilchrist.
Because the Capital Area Transportation Authority in Lansing, Mich. needed to replace its aging of the buses but lacked the resources to make a large purchase, CATA leased 46 40-foot buses for a 12-year period. Marty Mecher, CATA's finance director, said the lease mechanism worked out well, but added that the agency had to work through many details because there is no precedent for leasing buses more than 10 years using state and federal funds. The agency plans to use future federal dollars to buy out the lease, he noted.
Federal Transportation Administration economist Paul L. Marx said he sees municipal leasing as "a way of the future" and a very creative way for small to medium-sized agencies to benefit from alternative financing. Instead of paying full price for the buses up front, transit agencies ... pay for the buses in installments over time.
Small transit agencies often face difficulties in getting enough money from Washington to replace buses on a timely manner, said McGilchrist, noting that FTA has been very supportive of this mechanism.
These agencies also may lack adequate access to financial markets to be able to issue grant anticipation bonds, for instance, to supplement their federal grants and matching funds, McGilchrist added. MSG currently is helping the Detroit-based Suburban Mobility Authority for Regional Transportation replace its entire 300-bus fleet over a three-year period.
Marx also praised a unique to finance mechanism in Arkansas: TRANSLEASE, through which small and rural transit agencies in the state can lease vans from the Arkansas State Highway & Transportation Department.
The Southwest Arkansas Development Council of Texarkana, Arkansas, providing transit services in nine counties, is one of the agencies that has benefited with TRANSLEASE. The SADC has been leasing 15-passenger vans since 1998 with monthly payments for four years, with no down payment and no interest or finance charges.
The program "is the backbone of our system," said SADC transportation Director Calvin Black, allowing a rapid upgrade of the fleets that has meant lowered maintenance and fuel costs. The program "has increased confidence in our service, which has increased ridership." The newer vehicles also have allowed the agency to serve of-peak markets such as public events.
State transit associations in Florida and California reported mixed results in pulling together assets from different, and generally small, transit agencies to conduct asset leaseback transactions-allowing them to share costs and benefits-to procure transit equipment.


CRAIN'S DETROIT BUSINESS
SMART to replace bus fleet
Financing agreement allows for speedier purchasing
Oct. 9-15, 2000
The Suburban Mobility Authority for Regional Transportation closed a $104 million financing agreement last week that will allow it to replace its entire bus fleet in three years. SMART provides bus service in Oakland, Macomb and suburban Wayne counties.
An agreement between SMART, the Federal Transit Administration and Littleton, Colo.-based private equity firm Municipal Services Group Inc. gives SMART the ability to buy new buses and finance them with fare box revenue, federal grants and state matching grants.
The deal will bring 100 buses to the suburban bus authority next year, 87 in 2002 and 100 in 2003. If SMART had used the traditional method of waiting for grants and then buying the buses, it would have taken until 2009 to get that many, said General Manager Dan Dirks. SMART would have received only 59 buses in the three-year period had this agreement not been reached. SMART’s fleet is aging and many buses would not have made it until 2009, he said.
Municipal Service Group will loan SMART $27 million to buy the first 100 buses from California- based Gillig Corp., a major bus manufacturer... No fare increases are expected.
Dirks said the interest payments are less than what maintenance costs would have been to keep aging buses running. SMART's $24 million in interest (for the $104 million financing agreement) is $4.2 million less than projected maintenance costs, said Jim O'Shea, SMART's director of finance. "We would have had to make service cuts in 2007," Dirks said. "Half of our buses should be retired now. Next year, virtually all of them should be." The life of an average bus is 500,000 miles or 12 years. If SMART had waited until 2009 to complete the replacement program, some buses would have been asked to run at 1 million miles.
"They would not have lasted that long," Dirks said.
Dirks said the area's congressional delegation - U.S. Reps. Carolyn Cheeks Kilpatrick, David Bonior, Joe Knollenberg and John Dingell - helped persuade the FTA to approve the deal quickly. The new buses will have better air-conditioning and are low-floor buses, which makes it easier for wheelchair users...
By Terry Kosdrosky, Reprinted with the Permission of Crain’s Detroit Business




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