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, 2011. This is the twenty-fourth 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 (Generally 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, 2011.
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.
Ciuni & Panichi, Inc, Independent Auditors, have issued an unqualified ("clean") opinion on the GCRTA's financial statements for the year ended December 31, 2011. 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 he 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 fmancial 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 2,098 employees as of December 31,2011. The system delivered 17.2 million revenue miles of bus service and 2.5 million revenue miles on its heavy and light rail systems. The service fleet was composed of 382 motor bus coaches, 60 heavy rail cars, 48 light rail cars, and 127 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 interdivisional 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. In 2002, manufacturing employment was 12.4% of the total workforce as compared to 12.8%, while wholesale and retail trade has significantly decreased from 15.3% since 2002 to l3.7% in 2011. The professional and related services sector work force has steadily grown from 41.2% of the total workforce since 2002 to the present rate of 45.1% of the workforce. Our local economy continues to take a big hit, resulting in more of our workforce being unemployed. The County's 2011 unemployment was between 9.0-12.0%, compared to the national rate of 12%.
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 property taxation, and it sets the debt limitation for GCRTA. This appraisal valuation is approximately $31.5 billion.
CURRENT YEAR REVIEW
After several formidable years as a result of the worst recession in history, the positive results of the decisive management decisions made to deal with financial challenges were fully realized in 2011. This allowed major initiatives to move forward and for GCRTA to move more people to their destinations, generating momentum for Northeast Ohio.
The local economy achieved positive growth last year. From manufacturers to medical and health care providers, Cleveland-area employers were financially stronger and hiring once again. This was reflected in GCRTA's ridership numbers. Overall ridership was up 3.6 percent. Even more impressive was the dramatic jump in rail ridership, which increased by 8.7 percent. The HealthLine also reached a major milestone, when the 10-millionth rider boarded the route in April 2011.
To continue this growth, GCRTA worked in partnership with employers to convert worktrip commuters from drivers to riders through its Ready to Ride Program. Employees were educated on the many bus and rail routes available, were provided with incentives, and then were connected to a personal transit assistant. Several local companies worked with GCRTA to participate in this innovative program, which realized a 30 percent conversion rate. GCRTA utilized TV and radio announcements to publicize this program, which was well received.
GCRTA reached out to the younger commuters as well. Instead of going for the hard sell on changing the driving habits of college students and young professionals, the Authority used Facebook to build a relationship. GCRTA offered weekly giveaways to local concerts, restaurants, and sporting events, and talked about the ways to get there on trains and buses. With this approach, GCRTA was able to build its Facebook fan base past 12,000, the most fans for a transit authority next to Bay Area Rapid Transit in San Francisco.
GCRTA was also busy creating new spaces for riders. The Authority opened the $9.6 million Puritas/W. 150th Station, one of the Authority's busiest rail stations. On the other side of town, it completed the East 55th Street Station, which serves all three rapid transit lines. Ground was broken in the summer for a new Buckeye-Woodhill Station, and plans were unveiled for a new Red Line Rapid Station at University Circle, with construction to begin in 2012. In addition, GCRTA received a $12.5 million FTA grant for a new station at Mayfield Road. Located several blocks west of the current E. 120th Street Station, the new stop will serve as a gateway to the Little Italy neighborhood when completed.
While ridership numbers grew, so too did the savings posted by GCRTA through its TransitStat management initiative. The initiative is built upon data gathering, review and analysis to refine processes and accelerate change. This process helps the Authority reduce costs, increase efficiency and improve performance throughout the organization.
In 2011, TransitStat achieved nearly a million dollar savings in electrical energy consumption and more than $3.6 million in diesel fuel savings from commodity hedging. This is in addition to the $24 million savings achieved by the initiative over the past three years.
TransitStat and tight fiscal management allowed GCRTA to finish 2011 financially stable. This financial stable position allowed Fitch Ratings to rate GCRTA bonds with an A+ rating. This tight fiscal management position will allowed the Authority to add 4.3 percent in transit services and hire 50 new positions in 2012, without raising fares.
Another high point for GCRTA in 2011 was national recognition for several levels, from workforce diversity to efforts on environmental sustainability. For the second consecutive year, American Public Transportation Association awarded GCRTA Gold, the highest safety and security programs implemented to ensure the safety of employees, passengers and the public.
In 2011, cranes appeared in Downtown for the first time in many years. The $522 million Flats East Bank project rose from the ground, while the $465 million Medical Mart & Convention Center project went deeper below the streets. At the same time, the historic Higbee Building was being transformed from a department store to Ohio's first full-service casino. And during all this construction, RTA met with the project planners of these initiatives to offer service that would meet their future transportation needs.
GCRTA's rail lines and HealthLine will be vital to these projects in order to accommodate the millions of visitors and employees expected in the downtown area in future years. As a supplement to these routes, GCRTA worked with the business and community leaders to develop and fund new Trolley services. The E-Line and B-Line will be joined by the C-line and the L-Line in 2012. These new routes will provide evening and weekend service to the casino, convention center, hotels and lakefront attractions. Thanks to this creative public-private partnership, all of the Downtown Trolleys will be free to ride.
By all measurements, 2011 was a good year both for the region and GCRTA. The future also looks bright, with the final pieces in place to create a new economy in Northeast Ohio.
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 2012.
Paratransit Facility - The Paratransit Facility was completed in 1983 and houses all Paratransit functions including scheduling, dispatching and both revenue and non-revenue repairs. It is undergoing an 18-month rehabilitation scheduled for completion in mid-2012. Additional work scheduled for 2012, 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 2012 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 $405.6 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 - $140.4 million
This commitment of funds includes the replacement of several substations, station and track rehabilitation, bridges, train control systems, rail vehicles overhaul, and signage. Rail projects include the rehabilitation of the rail infrastructure totaling $31.8 million, overhaul of the heavy rail vehicles of $5.9 million, upgrade of signal system of $0.3 million, replacement of electrical substations of $11.0 million, track rehabilitation of $27.7 million and the extension of the Blue Line of $63.7 million.
Local Capital Projects - $10.5 million
Classified as Routine Capital Projects ($4.3 million) and Asset Maintenance Projects ($6.2 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 - $14.0 million
Funding has been provided for the rehabilitation of four track bridges of $11.7 million and replacement of roof of $2.3 million.
Bus Purchases, Paratransit Vehicles and Circulator Bus- $39.9 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 - $14.2 million
The Authority will be making a significant investment in the construction of Transit Centers over the next five years of $10.0 million and bus shelters of $0.6 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 and Rail State of Good Repair program will allow the Authority to upgrade its bus garages of $3.6 million.
Equipment and Non-Revenue Vehicle - $9.0 million
This project calls for the upgrade to the Management Information System of $5.4 million, purchase of event recorders for the rail system of $1.9 million, and the replacement of non-revenue vehicles of $1.7 million.
Operating Expenses and Other Expenses - $181.2 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 $168.1 million. These costs are recorded as operating costs in the enclosed financial statements. Included in this category are $12.1 million for fare collection equipment lease and $1.0 million for planning studies.
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. Marsha Pettus, Pamela Blackwell, Glenville Manning, Louis Catalusci, David Reynolds, 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