George F. Dixon, III, President, and Members, Board of Trustees, Greater Cleveland Regional Transit Authority and Residents of Cuyahoga County, Ohio:
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, 2010. This is the twenty-third such report issued by GCRTA. It has become the standard format used in presenting the results of the GCRTA's operations, financial position, cash flows and related statistical information.
This report enables the Authority to comply with State law that requires entities reporting on a GAAP (Genrally Accepted Accounting Principles) basis to file unaudited basic financial statements with the Auditor of State within 150 days of fiscal year end. This report is submitted to satisfy that requirement for the fiscal year ended December 31, 2010.
Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.
Ciuci and Panichi, Inc., Independent Auditors, have issued an unqualified ("clean") opinion on the GCRTA's financial statements for the year ended December 31, 2010. The Independent Auditor's Report is located at the front of the financial section of this report.
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.
Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it.
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 satisfied 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.
PROFILE OF GOVERNMENT AND 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. 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 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 2,115 employees as of December 31, 2010. The system delivered 15.5 million revenue miles of bus service and 2.2 million revenue miles on its heavy and light rail systems. The service fleet was composed of 492 motor bus coaches, 60 heavy rail cars, 48 light rail cars, and 80 demand responsive vehicles.
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.
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 2001, manufacturing employment has dropped significantly from 16.0% of the total workforce to 9.6%, while wholesale and retail trade has significantly decreased from 23.6% since 2001 to 14.1% in 2010. The professional and related services sector work force has steadily grown from 32.9% of the total workforce since 2001 to the present rate of 46.4%, of the workforce. Our local economy continues to take a big hit, resulting in more of our workforce being unemployed. The County's 2010 unemployment was between 9.0-10.0%, compared to the national rate of 11%.
During 2009, 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 proerty taxation, and it sets the debt limitation for GCRTA. This appraisal valuation is approximately $31.5 billion.
CURRENT YEAR REVIEW
In 2010, GCRTA began the process of recovering from one of the worst recessions in decades. The financial challenges created in 2008 and 2009 forced GCRTA to make tough decisions. The Authority had to modify service and expenses in order to eliminate a looming deficit. To begin addressing this deficit, the Authority held public hearings on how best to modify public transportation service. More than 1,000 people attended the 10 public hearings. The Authority's goal was to maintain transit stops within a half-mile of as many residents as possible. It also wanted to make sure the service cuts were shared across communities and transit routes. Proximity to alternate transit service was also a consideration. In the end, GCRTA incorporated 13 adjustments to its proposed service cuts based on feedback from the hearings. This 12 percent reduction in service cuts was not enough to eliminate the entire deficit. GCRTA also had to cut three percent of its administrative staff, and close one of the three bus garages.
In addition to these cuts, GCRTA began executing two programs designed to reduce the cost of fuel and energy. The first, the Energy Price Risk Management Program, reduced fuel costs from $17.4 million in 2009 to $8.0 million in 2010. The second, the Energy Managment Program, allowed the Authority to lower its costs of electricity by another $1.4 million. Collectively, these and other cost-saving measured reduced GCRTA's yearly operating expenses by $30 million.
On the other side of the ledger, revenues were almost exactly as budgeted. Revenues from the Cuyahoga County sales tax actually finished the year above budget estimates, as signs of the economic recovery were realized with more purchases made during the 3rd and 4th quarters. Unfortunately, a 10 percent drop in fare revenue offset the unexpected 4.3 percent budget gain from sales tax. The decrease was due in large part to lower ridership in the first half of the year, as unemployment in Cuyahoga County peaked at 11 percent.
Tight fiscal management allowed GCRTA to finish the year with an acceptable reserve. The Authority ended the year with a $15 million balance. Achieving a solid positive year-end balance allows GCRTA to ensure that no service cuts will be necessary in 2011.
Additional federal dollars awarded to the Authority through the American Recovery and Reinvestment Act of 2009 (ARRA) allowed several important capital projects to move forward. Chief among the projects was the construction of the Stephanie Tubbs Jones Transit Center (Transit Center). In October 2010, the Transit Center officially opened. Several of Congresswoman Jones' family members were on hand to unveil the $9.3 million center. Located on the outskirts of downtwon Cleveland, it now serves more than 500 buses daily. The Transit Center provides a warm, safe, and first class waiting environment for its riders.
Another important capital project, the reconstruction of the Puritas/ W 150th Station, was completed in MAy 2011. This station is one of GCRTA's most heavily used stations, serving both local residents and interstate commuters. The new station has two entry buildings, a pedestrian bridge, elevators, and an expanded parking lot. Recently the Federal Transit Administration recognized this project for stimulating both short and long-term job growth.
Work continued on the East 55th Street Station. When completed, this station serves all three of GCRTA's rail lines. In addition, the Authority received a $10.5 million grant for the construction of a new University Circle station.
Along with receiving millions in stimulus funding for Northeast Ohio, GCRTA helped pump nearly $2 million into Cleveland's economy by bringing in the International Bus and Paratransit Conference to Cleveland. More than 1,000 conference attendees toured the city.
In addition, GCRTA attracted transit leaders from around the world interested in the success of the HealthLine. Ridership on the line continues to grow along with the development along the route. The HealthLine received top honors and was recognized from the American Council of Engineering Companies for its design.
GCRTA was the voice of other transit authorities in Ohio and across the country. It gathered the feedback from thousandsof commuters and met with political representatives at all levels of government. While Ohio is dealing with its own budget issues, it must start funding transit at a level comparable to other states.
All the sacrifices and investments made by GCRTA in 2010 are expected to pay big dividends in 2011. Northeast Ohio commuters will be the beneficiaries.
PRESENT AND 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 transit by addressing shifts in our area’s population and employment centers, as well as changing travel patterns. This plan includes:
Transit Centers - Transit centers are strategically located where bus routes intersect and service is timed to provide easy transferring. Larger centers include indoor waiting areas and concessions. GCRTA has existing Transit Centers at Fairview Park, Euclid, North Olmsted, Maple Heights, Parma Mall and the Stephanie Tubbs Jones center in downtown Cleveland.
Park-N-Ride Lots - Parking lots are strategically located at freeway or other major intersections. Commuters leave their cars and ride express service to and from their destinations. GCRTA provides more than 8,350 parking spaces at 21 of the rapid transit stations. In addition, the Authority operates five Park-N-Ride lots in Berea, Brecksville, Rocky River, Strongsville, and Westlake with more than 1,200 parking spaces combined. An expansion project, adding 250 additional parking spaces at the Westlake Park-N-Ride Lot, will be under construction in 2011.
Paratransit Facility – The Paratransit Facility was completed in 1983 and houses all Parartansit functions including scheduling, dispatching and both revenue and non-revenue repairs. It is undergoing an 18-month rehabilitation scheduled for completion in mid-2011. Additional work scheduled for 2011, funded from an anticipated Federal State of Good Repair grant, includes various facilities improvements and replacement of equipment.
CAPITAL IMPROVEMENT PLAN
The development of the 2011 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 $491.5 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:
Rail Projects - $140.8 million
This commitment of funds includes the upgrade of the catenary system, stations and track rehabilitation, bridges, train control systems, rail vehicles overhaul, and signage. Rail projects include the rehabilitation of the rail stations totaling $55.6 million, overhaul of the heavy rail vehicles of $9.5 million, rehabilitation of the rail tracks of $26.5 million, upgrade of catenary electrical system of $11.2 million, upgrade of our train control and signal systems of $4.2 million, and the extension of the blue line of $33.8 million.
Local Capital Projects - $9.5 million
Classified as Routine Capital Projects ($4.2 million) and Asset Maintenance Projects ($5.3 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.
Bridge Rehabilitation and Other Improvements - $17.3 million
Funding has been provided for the rehabilitation of five track bridges.
Bus Purchases, Paratransit Vehicles and Circulator Bus- $40.0 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 and Other - $37.4 million
The Authority will be making a significant investment in the construction of Transit Centers over the next five years of $31.9 million 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. In addition, the Bus State of Good Repair program will allow the Authority to upgrade its bsu garages of $5.5 million.
Equipment and Non-Revenue Vehicle - $9.7 million
This project calls for the upgrade to the radio system of $.4 million, purchase of event recorders for the rail system of $1.9 million, replacement of non-revenue vehicles of $1.7 million, the upgrade of the management information system of $5.1 million and other miscellaneous equipment purchases of $.6 million.
Operating Expenses and Other Expenses - $236.8 million
Certain operating costs are budgeted as capital items as designated by the Federal Transportation Administration (FTA) or the State government to be incurred over the next several years and are reimbursable by the Federal and State governments totaling $223.9 million. These costs are recorded as operating costs in the enclosed financial statements. Also, included in this category are $12.1 million for fare collection equipment lease and $0.5 million for planning and $0.3 million for transit security, canine teams.
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.
The GCRTA expresses thanks to the staff of the Accounting Department directed by Glenn Hendrix, for their work in preparing this report. Pamela Blackwell, Glenville Manning, Louis Catalusci, Lrry Ferrell and Joseph Ivan assisted with this report. In addition, appreciation goes out to Steven C. Letsky, Director of Accounting and the Cuyahoga County Auditors for providing supporting demographics and other statistics.
Joseph A. Calabrese
Chief Executive Officer
Deputy General Manager
Finance & Administration