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 | |  Publications : Comprehensive Annual Financial Reports : 2006 Comprehensive Annual Financial Report Click here for a downloadable PDF (4.4MB) of this report. George F. Dixon, III, President, It is a pleasure to submit to you the Comprehensive Annual Financial Report (CAFR) of the Greater Cleveland Regional Transit Authority ("GCRTA" or "Authority") for the year ended December 31, 2006. This is the nineteenth such report issued by GCRTA. It has become the standard format used in presenting the results of GCRTA's operations, financial position, cash flows and related statistical information. GCRTA takes great pride in the fact that each of the previously issued Comprehensive Annual Financial Reports earned the recognition of the Government Finance Officers Association ("GFOA") in the form of its Certificate of Achievement for Excellence in Financial Reporting. This award evidences the fact that the previous CAFRs complied with stringent GFOA standards for professional financial reporting. GCRTA was the first public transit agency in Ohio to earn this important recognition and has consistently done so since 1988. The GCRTA also submits its annual operating and capital budgets to the GFOA and has been doing so since 1990. Each of these budget documents has won the Distinguished Budget Presentation Award, having satisifed the most stringent program criteria and proven its value as (1) a policy document, (2) an operations guide, (3) a financial plan, and (4) a communication device. This report contains financial statements and statistical data that provide full disclosure of all the material financial operations of the GCRTA. The financial statements, supplemental schedules, and statistical information are the representations of the GCRTA's management, which bears the responsbility for their accuracy, completeness, and fairness. In conformance with generally accepted accounting principles, this report was developed on the accrual basis of accounting, treating the GCRAT as a single enterprise fund. This CAFR is indicative of the GCRTA's commitment to provide accurate, concise and high quality financial information to the residents of this area and to all other interested parties.
The CAFR is divided into an Introductory Section, a Financial Section, and a Statistical Section
REPORTING ENTITY The Greater Cleveland Regional Transit Authority is an independent political subdivision of the State of Ohio. It was created in December 1974 by ordinance of the City of Cleveland, Ohio, and by resolution of the Board of County Commissioners of Cuyahoga County, Ohio. Operations at GCRTA began in September 1975. The GCRTA provides virtually all-mass transportation within the County. The North Olmsted and Maple Heights transit systems merged with GCRTA in March 2005 to form a single transit system that will meet the needs of the public in Cuyahoga County. It is a multimodal system delivering bus, paratransit, heavy rail and light rail services.
A ten-member Board of Trustees (Board) establishes policy and sets direction for the management of the GCRTA. Four of the members are appointed by the Mayor of Cleveland with the consent of City Council; three members, one of whom must reside in the City of Cleveland, are appointed by the County Commissioners; the remaining three members are elected by suburban mayors, city managers, and township trustees. Board members serve overlapping three-year terms. Under the provisions of General Accounting Standards Board (“GASB”) Statement No. 14, the GCRTA is considered to be a jointly governed organization. Responsibility for the line administration rests with the CEO, General Manager/Secretary-Treasurer. He supervises five Deputy General Managers who head the Operations, Legal Affairs, Finance & Administration, Engineering & Project Management and the Human Resources divisions. Additionally, the Office of Management and Budget, Marketing and Communications, and the Office of External Affairs function outside of the divisional configuration and report directly to the General Manager. The Internal Audit Department reports to the Board of Trustees and maintains a close working relationship with the General Manager. An organizational chart, which depicts these relationships, follows later in this introductory section. The GCRTA had 2,644 employees as of December 31, 2006. The system delivered 22.5 million revenue miles of bus service and 2.8 million revenue miles on its heavy and light rail systems. The service fleet was composed of 663 motor bus coaches, 60 heavy rail cars, 48 light rail cars, and 77 demand responsive vehicles. ECONOMIC CONDITION AND OUTLOOK The GCRTA's service area is contiguous with the boundaries of Cuyahoga County, Ohio. The County includes the City of Cleveland, two townships, and fifty-six other jurisdictions. This is the largest metropolitan area in Ohio and one of the largest counties in the United States. The population of this area is approximately 1.3 million people. Historically, the foundation for Greater Cleveland's economic vitality has been heavy industry with the largest employment sector being manufacturing. Since 1997, manufacturing employment has dropped significantly from 17.3% of the total workforce to 11.3%, while wholesale and retail trade has significantly decreased from 24.5% since 1997 to 14.4% in 2006. The professional and related services sector work force has steadily grown from 30.9% of the total workforce since 1997 to the present rate of 43.8%, of the workforce. Our local economy started to rebound during 2004, resulting in more of our workforce being employed. The County's 2006 unemployment was 5.5%, compared to the national rate of 5.2%. During 2005, the County Auditor completed the required reappraisal valuation of all commercial, industrial, and residential real property. This is the most recent valuation available. This process is the foundation for property taxation, and it sets the debt limitation for GCRTA. This appraisal valuation is currently at $33.2 billion. CURRENT YEAR REVIEW During 2006, the effects of rising petroleum prices on the lives of Northeast Ohio residents continued to be a challenge. This challenge was partially met through GCRTA providing a cost-effective alternative to driving. This resulted in more seats being filled on trains and buses. Ridership grew to 54.8 million passenger trips; this is a fourth consecutive year of increased ridership. In addition, the Trolley service was re-introduced to downtown Cleveland. The nostalgic green and gold vehicles, complete with wooden rails, and brass bells, took people back in time. The Trolleys arrived every ten minutes to move people to their destinations. The free Trolley service was made possible by financial support from the Convention & Visitors Bureau of Greater Cleveland in 2006, and will continue in 2007 through sponsorship from other local organizations. By the end of 2006, nearly 3,000 riders were boarding the Trolley daily, a dramatic increase over the 700 daily riders of the old Downtown Loops. To assist commuters in breaking their habit of driving, GCRTA sponsored No Drive Day with the Northeast Ohio Areawide Coordinating Agency. Mayor Frank Jackson, the Cuyahoga County Commissioners, the Governor, and both U.S. Senators supported the cause with proclamations. Most broadcast and print media outlets provided support by spreading the word on the benefits of walking, biking, and using GCRTA to break dependence on foreign oil. New service offerings and enhancements also made a big difference. Along the Northeast Corridor, the 55-F Gold Line was created, providing area residents a faster commute to and from downtown. In addition, the Paratransit service continued to benefit from the integration of new scheduling software, with more than 343,000 trips made by those with disabilities. GCRTA received high marks for the simplifying the commute through technology enhancements. These enhancements included a redesigned and easy to navigate Web site, an online Trip Planner, and NextConnect signs at passenger facilities. The NextConnect digital signage allows riders to view incoming bus and train information. Programmable digital signage at major stations offered riders updated schedule information along with important news updates. Those who made the switch from driving to riding GCRTA discovered the transit authority had been reengineered. In addition to the 11 Trolley vehicles, 45 new buses were added, and 13 refurbished light-rail cars were brought into the system. The infusion of new equipment has streamlined the Authority’s operations while creating a completely different riding experience. Part of GCRTA’s ridership success can also be attributed to being responsive to customers’ feedback. This meant providing more convenient access to the GCRTA system through Park-N-Rides and Transit Centers that are strategically placed throughout the region. The new $2.1 million Transit Center in Parma was completed in 2006. Park-N-Ride lots also were expanded through funding from the Ohio Department of Transportation. In December, the Strongsville facility was expanded, and soon, spaces will be added to North Olmsted and Westlake. Improvements were also made on the rail side. An investment of $1.0 million in improvements was made to the Shaker Square Rail Station including ADA-related enhancements and landscape beautification. GCRTA’s goal of improving public transportation service along one of Cleveland’s busiest corridors is also nearing reality. In 2006, much progress was made on the Euclid Corridor Transportation Project (ECTP). ECTP will be known as the Silver Line and will move more than 30,000 riders each day along Euclid Avenue. The prototype buses that will transport passengers along the line are in production. This 60-foot articulated bus is powered by a GM/Allison internal combustion engine and hybrid transmission, consisting of two 100kw motors and a 600-volt nickel metal hydride battery pack. This unique powertrain reduces particulate emissions by 90 percent and offers a 30 percent improvement in fuel efficiency. The dual diesel/electric power and combination bus/rail feature make the Silver Line vehicle the ultimate hybrid. Once completed, this line will offer commuters the fastest connection between downtown and University Circle, and will have 36 transit stations to enable simplified boarding. Safety and security often get little recognition, in part because they are measured by things that do not occur, but they remained a high priority in 2006. Safety, measured in terms of the number of preventable accidents, dropped by 11 percent across the board. To create a secure environment, GCRTA’s Transit Police added a new class of recruits. They included eight officers and three bomb-sniffing dogs. The dogs are part of a new canine unit formed by the Transit Police to detect explosives on vehicles and passenger facilities. After receiving input from public officials and holding a series of public hearings, GCRTA’s Board of Trustees decided to do exactly what the community was asking. The Board approved a modest fare increase spread over several years without cuts to service. This approach kept GCRTA with the most affordable transportation option in Northeast Ohio. Unfortunately, pressures of rising oil prices had a negative impact on GCRTA’s finances in 2006. The same energy costs draining the family budget caused increasing pressures on the Authority’s operating budget. For every penny increase in fuel prices, GCRTA’s annual expenses rose by $54,000. This forced the need for a fare increase after 13 years as described above. We were humbled in 2006 by the recognition received from the American Public Transportation Association, by naming George F. Dixon, III, GCRTA Board President, as the Outstanding Public Transportation Board Member. In addition, Joseph A. Calabrese, CEO, General Manager/Secretary-Treasurer of GCRTA was elected President of the Ohio Public Transit Association. FUTURE PLANS The Authority has continued to implement its Long-Range Plan. This Long-Range Plan serves as a blueprint for building tomorrow’s public transportation by addressing shifts in our area’s population and employment centers, as well as changing travel patterns. This plan includes:
Capital Improvement Plan The development of the 2007 budget included preparation of a five year Capital Improvement Plan (“CIP”). This document is an outline for rebuilding and expanding service by the Authority. Totaling $490.5 million, the CIP constitutes a significant public works effort aimed at remaking the transit network and positioning the Authority, not just for the short-term, but also for the long-term future. Significant capital improvements planned for the five-year period include: Local Capital Projects - $21.8 million Classified as Routine Capital Projects ($11.7 million) and Asset Maintenance Projects ($10.1 million), these initiatives are funded entirely from local resources. Routine Capital Projects are typically equipment requested by various departments and not funded through grants. Asset Maintenance funds are used to maintain, rehabilitate, replace, or construct assets of a smaller scope or cost than those typically supported with grants. These projects are authorized within the Authority’s Capital Fund and are supported with annual allocations of sales tax receipts. Rail Projects - $147.4 million This commitment of funds includes the upgrade of the Catenary system, rail extension, station rehabilitation, tracks, bridges, train control systems, and signage. Rail projects include the rehabilitation of the rail stations totaling $49.6 million, overhaul of our light and heavy rail vehicles of $29.5 million, rehabilitation of the rail tracks of $28.5 million, upgrade of Catenary electrical system of $27.5 million, upgrade of our train control and signal systems of $12.3 million. Bridge Rehabilitation and Other Improvements - $20.4 million Funding has been provided for the rehabilitation of six track bridges and three street bridges. Bus Garage Rehabilitation - $1.7 million GCRTA will rehab the Brooklyn garage at a cost of $1.7 million. Bus Purchases, Paratransit Vehicles and Circulator Buses - $64.8 million The useful life of a bus, as defined by the Federal Transit Administration (“FTA”) is twelve years, or five hundred thousand miles. The Authority is aggressively reducing its fleet's average age by replacing its oldest vehicles. Transit Centers and Shelters - $68.7 million The Authority will be making a significant investment in the construction of Transit Centers over the next five years. These centers will be designed to provide our riders with convenient connections between local, regional and downtown transit lines. Comfortable waiting areas and time-coordinated service will make it easier for riders to transfer between routes. Euclid Corridor Transportation Project - $14.8 million This project continues to be the Authority’s top priority. Once completed, this project will create a unique environment along the corridor that will benefit the entire region by improving transit services, promoting long-term economic and community development, and improving the quality of life in Northeast Ohio. Equipment and Non Revenue Vehicles - $6.1 million This project calls for the upgrade of our security equipment of $3.1 million and the replacement of a line car of $1.5 million. Non-revenue machine equipment will be replaced at a cost of $775,000 and other miscellaneous equipment will be upgraded at $768,000. Operating Expenses and Other Expenses - $144.8 million Certain operating costs are budgeted as capital items as designated by the Federal Transportation Administration (FTA) to be incurred over the next several years and are reimbursable by the Federal and State governments. These costs are recorded as operating costs in the enclosed financial statements. FINANCIAL INFORMATION Internal Control The GCRTA is responsible for establishing and maintaining an internal control system designed to ensure that its assets are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP). The internal control system is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived from its implementation. The valuation of costs and benefits requires estimates and judgments by management. The Authority’s management believes its internal controls are adequate. Basis of Accounting The GCRTA's accounting records are maintained on the accrual basis. The activities are reported through use of a single enterprise fund. Budgetary Control The annual cash basis operating budget is proposed by management, at the department level, and adopted by the Board of Trustees after public discussion. The Budget for each division and department is represented by appropriations. The Board must approve any increase in the total Authority appropriations. The General Manager must approve any inter-divisional budget transfers. The appropriate Deputy General Manager may modify appropriations to applicable departments within a division and to accounts within a department. Budgetary control is maintained at the department level. It is the responsibility of each department to administer its operations in such a manner as to ensure that the use of funds is consistent with the goals and programs authorized by the Board of Trustees. The GCRTA also maintains an encumbrance accounting system for budgetary control. Unencumbered appropriations lapse at year-end. Encumbered appropriation balances are carried forward to the succeeding year and need not be reauthorized. Management’s Discussion and Analysis GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A beginning on page 22 and should be read in conjunction with it. Retirement Plan Employees of the GCRTA are covered under the Ohio Public Employees Retirement System (OPERS), a cost-sharing multiple-employer pension plan (including disability and health care benefits). The Ohio Revised Code provides statutory authority for employee and employer contributions. Employees covered by OPERS contribute 9.0% of earnable salary or compensation and the GCRTA contributes 13.70% (actuarially established for OPERS) of the same base. The OPERS does not make separate measurements of assets and pension benefit obligations for individual Ohio subdivisions. Effective January 1, 2007, the OPERS Retirement Board approved an increase in the OPERS rate from 9.0% to 9.5%. This rate will continue to increase by 0.5% each year thereafter until the statutory rate of 10% is reached in 2008. The contribution rate that GCRTA pays on behalf of each covered employee will also increase from 13.70% to 13.85% as of January 1, 2007; and from 13.85% to 14.0% effective January 1, 2008. OPERS also provides post-retirement healthcare coverage to those employees who retire with ten or more years of qualifying Ohio service credit as well as healthcare coverage for disability recipients and primary survivor recipients. A portion of each employer's contribution to OPERS is set aside to fund these benefits. Under House Bill 158, effective February 1, 2002, state legislation was enacted, extending coverage of OPERS law enforcement benefit to our full time Transit Police officers. Current Transit Police members may elect to be covered under this new legislation. However, newly hired Transit Police officers will automatically be covered under this new legislation. This legislation permits an officer with at least 25 years of service as an OPERS law enforcement officer to retire with full benefits at age 48 or older. The employee contribution rate is 10.1% of earnable salary or compensation and the GCRTA contribute 16.7% of the same base. Cash Management The GCRTA pursues an aggressive cash management and investment program in order to achieve reasonable financial return on all available funds. Cash balances are invested at the best interest rates available in the money markets within the constraints imposed by the Bylaws of the GCRTA and the Ohio Revised Code. In accordance with these provisions, only banks located in Ohio and domestic savings and loan associations are eligible to hold public deposits. The provisions also permit the GCRTA to invest its moneys in certificates of deposit, savings accounts, commercial paper, money market mutual funds, bankers’ acceptance notes, the State Treasurer's investment pool (STAR Ohio), and obligations of the United States government or certain agencies thereof. The GCRTA may also enter into repurchase agreements with any eligible depository for a period not exceeding thirty days. GCRTA assesses their investments under the criteria developed by the Governmental Accounting Standards Board in Statement No. 40. See Note 3 to the financial statements regarding credit risk relating to GCRTA’s deposits. The procedures used for securing the Authority's deposits and investments are governed by the Ohio Revised Code. Because the GCRTA's deposits and investments are generally held by large, financially sound national banks, we believe that the security supporting the GCRTA's deposits and investments is adequate. Risk Management The GCRTA is self-insured for public liability. The GCRTA also operates a self-insurance program for workers' compensation claims and to pay certain health care claims. Claims are normally paid with the general operating revenues of the GCRTA. The GCRTA, by resolution of the Board of Trustees, established an insurance reserve in fiscal year 1980 to accumulate funds to satisfy catastrophic or extraordinary losses. This insurance reserve totaled $5.2 million as of December 31, 2006. GCRTA purchased catastrophic loss insurance to protect the Authority’s assets against catastrophic losses. This umbrella liability coverage is in the amount of $75 million per occurrence in excess of the $5 million self-insured retention. Blanket insurance coverage is maintained for property and equipment. In addition, the GCRTA has insurance to protect against internal losses. OTHER INFORMATION Independent Audit The GCRTA's independent audit was conducted by KPMG LLP, who has issued an unqualified audit report on these financial statements. GCRTA also participates in the federal single audit program, which consists of a single audit of all federally funded programs administered by the GCRTA. As a requirement for continued funding eligibility, participation in the single audit program is mandatory for most local governments, including GCRTA. Certificate of Achievement for Financial Reporting It is management's intention to submit this and future CAFRs to the Government Finance Officers Association of the United States and Canada for review under its Certificate of Achievement for Excellence in Financial Reporting Program. We believe the current report conforms to the program requirements, and we expect that participation will result in improvements to our reports in coming years. Acknowledgements The GCRTA expresses thanks to the staff of the Accounting Department directed by Glenn Hendrix and assisted by Pamela Fairfax, for their work in preparing this report. Pamela Blackwell, Debra Benjamin, Louis Catalusci and Joseph Ivan organized the project. Frances Barnett typed and proofread the entire document, and prepared it for printing. Cuyahoga County and Steven C. Letsky, Director of Accounting for the Cuyahoga County Auditor, provided supporting demographics and other statistics.
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