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What fare is fair?


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What fare is fair? costrevenue allocation and fare structure development : a handbook for community transportation coordinators in Florida
Portion of title:
Cost revenue allocation and fare structure development
Physical Description:
1 online resource (ii, 51, 46 p.) : ill. ;
University of South Florida -- Center for Urban Transportation Research
Florida -- Commission for the Transportation Disadvantaged
Center for Urban Transportation Research
Place of Publication:
Tampa, Fla
Publication Date:


Subjects / Keywords:
Paratransit services -- Costs -- Florida   ( lcsh )
Transportation -- Costs -- Florida   ( lcsh )
Older people -- Transportation -- Florida   ( lcsh )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )


Includes bibliographical references (p. 49-51).
Statement of Responsibility:
prepared for Florida Transportation Disadvantaged Commission by Center for Urban Transportation Research.
General Note:
"November 1993."

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University of South Florida Library
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University of South Florida
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All applicable rights reserved by the source institution and holding location.
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aleph - 029197841
oclc - 754955837
usfldc doi - C01-00259
usfldc handle - c1.259
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WHAT FARE IS FAIR? Cost/Revenue Allocation and Fare Structure Development A Handbook for Community Transportation Coordinator s in Florida N ovember 1993 Prepared for Florida Transportation Disadvantaged Commission By CUTR Center for Urban T ransportation Research University of South Florida, Tampa I n association with Peter Schauer Assoc iates


Transportation Disadvantaged Commission 605 Suwannee Street MS-49 T allahassee, Florida 32399-0450 (904) 488 6036 Execut ive Director: Project Manager: Jo Ann Hutchinso n Fl o y d G. Webb, III Center for Urban Transportation Research University of Sou th Florida 4202 E. Fowler Avenue, ENB I I 8 Tampa Florida 33620 (813) 974-3120 Director: Project Director: Project Manager: Project Staff: Gary L. Brosch F. Ron Jones Rosemary G. Mathias Perry J. Mau ll Laura C Lachance Rebecca Rahi m i


Table of Contents List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . 11 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section One: The Basics . . . . . . . . . . . . . . . . . . . . . . 3 Supply and Demand . . . . . . . . . . . . . . . . . . . . . 3 The Provider and the Purchaser . . . . . . . . . . . . . . . . 5 Break Even Analysis . . . . . . . . . . . . . . . . . . . . 7 Summary . . . . . . . . . . . . . . . . . . . . . . 9 Sample Exercise: Break Even Analysis . . . . . . . . . . . . . II Section Two: Cost Identification Techniques . . . . . . . . . . . . . . 13 Capital and Operating Costs . . . . . . . . . . . . . . . . . . . 14 Fixed, Variable, and Mixed Costs . . . . . . . . . . . . . . . . . 14 Direct and Indirect (Shared) Costs . . . . . . . . . . . . . . . 15 Average and Marginal (Incremental) Costs . . . . . . . . . . . . . 16 Summary ................. .............. . . . . . . . . . 16 Section Three: Cost/Revenue Allocation . . . . . . . . . . . . . . 17 Cost Allocation . . . . . . . . . . . . . . . . . . . . . . 17 Revenue Allocation . . . . . . . . . . . . . . . . . . . . . 19 Summary . . . . . . . . . . . . . . . . . . . . . . . . . 21 Sample Exercise No. I: Allocating Salary and Benefit Costs for a Person with Mu ltip le Responsibilities . . . . . . . . . . . 23 Sample Exercise No. 2: Allocating Rent and Utilities Between Major Cost Categories . . . . . . . . . . . . . . . 25 Sample Exercise No. 3: Cost of Prov iding Additional Service . . . . . . . 27 Section Four: Fare Structure Development . . . . . . . . . . . . . 29 Trip Rate Structure . . . . . . . . . . . . . . . . . . . . 30 Hourly Rate Structure . . . . . . . . . . . . . . . . . . . . 31 Mileage Rate Structure . . . . . . . . . . . . . . . . . . . . 32 Combin ation Rate Structures . . . . . . . . . . . . . . . . . . 33 Other Considerations . . . . . . . . . . . . . . . . . . . 36 Carrier Reimbursement . . . . . . . . . . . . . . . . . . . . 36 S1.1IlUilary . . . . . . . . . . . . . . . . . . . . . . . . 3 7 Sample Exercise: T ropical Palms Senior Center . . . . . . . . . . . 39 Section Five: Key Issues . . . . . . . . . . . . . . . . . . . . . 43 Section Six: Summary and . . . . . . . . . . . . . . . 47 i


T a bl e of C o ntent s (Conti n ued) Resource List . . . . . . . . . . . . . . . . . . . . . . . . . 49 Appen dix A : I nst ructions for Elements 4 and 5 . . . . . . . . . . . . . A I A pp e ndix B : Samp l e E l ement 5 Fare Structure Form . . . . . . . . . . . Bl Appen dix C: Appropriate Cost Sharing for Paratransit Serv i ce . . . . . . . C-1 L is t o f F ig u r es Figure 1 Strategies for Reducing Unmet Demand . . . . . . . . . . . 4 Figure 2 Break Even Analysis . . . . . . . . . . . . . . . . . 7 Figure 3 Fixed and V ariablc Costs . . . . . . . . . . . . . . . 1 5 Fig u re 4 Zone Rate System . . . . . . . . . . . . . . . . . 3 7 II


Introduction The Transportation Disadvantaged (TO) Commission has contracted with the Center for Urban Transportation Research (CUTR) to provide assistance to community transportation coordinators (CTCs) in the areas of cost/reven u e allocation and fare structure development. The purpose of this handbook is to provide information for the CTCs and local coord inating board (LCB) mem bers to assist them with the deve l opment of acceptable methods to set fares and price services This area of activity is part of the mandated annual serv i ce p l an, which evezy CTC must co m p l ete. The annual service plan is a short-range (one-year), tactical plan that describes how the CTC will implement operations to achieve the long-range objectives set forth in the coordina t ed trans p ortation development plan (CTDP) Element 4 (Finance) of the annua l s ervice plan documents each CTC's expected revenues and costs for the current memorandum of agreement (MOA) year and projects revenues and costs for the following MOA year. Element 5 (Cost/Revenue Allocation and Fare Structure) of the aruma service plan uses the information contained in Elemen t 4 to develop a uniform listing of services th at are available to any purchaser A one-page summary describing the CTC s fare structure is req u ired as part of Ele m ent 5. The intent is that evezy purchase of service contract would only have to reference Element 5 of the annua l service plan to identify approved fares.' The i nstructions are purposely very general, and no sample forms are provided to a llow for flexibility. The instructions state: Due to the diversity between coordinated systems, and a multitude of acceptable manners in which co s t and revenues can be allocated, we have not provided any minimum format for this e l ement. This also affords each ere the flexibility to develop allocat i on 1 Florida Transportation Disadvantaged Commission. CoordinaiedTronsporlation Contracting Instruct lens. May 1992, page 7. 1


methodology or plans within existing capabilities. This e l ement can be as simple or as detailed as the CTC, local coordinating board, and TDC feel is necessary to appropriately justify the fare structure. It is recommended that at least an allocation of costs between individuaVsporadic and group subscrjption type services is made since the cost of these type services is significantly different. For services that are arranged through the bid process, this effort can be significantly simplified; however, there will continue to be an allocation of the CTC's costs for services rendered.' This handbook shows how to use the data reported in Element 4 to complete Element 5 of the service plan in a manner that is satisfactory to the LCB members and the TO Commission. The draft version of this handbook was used as a companion guide for the !:;est/Revenue Allocation and Fare Structure Development Workshon, conducted on December 6 and 7, 1992 at the Florida Transit Association Annual Conference in Jacksonville Florida. Based on feedback from the workshop, the handbook was revised and reprinted in November 1993. 2/bid, p. 19. 2


Section One The Basics No single task is more daunting for the manager of a transportation system than the job of service pricing. This task requires a keen knowledge of the demand for services, the available funding for services the organization's capability to provide services, and the interrelationship of all of these complex factors. The effort is further complicated by the fact that operating a coordinated transportation service at a break even level is not simply a function of how efficient a provider is at provid ing trips but also how accurate pricing policies are and how successful the provider is at predicting the demand for services (which is set primarily by agencies outside the control of the service provider). The prediction of demand is dependent on many variables, some of which are highly unpredictable For example, if the purchasers of tran sportation do not authorize trips or do not have sufficient budgets to provi de trips then the efficient provider is no better off than the ineffic i ent provi der who is somehow better at predicting the expenditures of various funding agencies and capturing those expenditures. Supply and Demand T he Florida Five-Year Transportation Disadvantaged Plan, published in June 1992 estimated that the demand for TO services far exceeds the available supply for general (non agency program) trips. Further, funding for TO transportation services is limited, which inhibits outright growth of transportation services. As a result CTCs are faced with fmding ways to stretch their resources to respond to ever-increasing demand. Because of these factors, it i s important to understand how supply and demand can directly affect paratransit service and pricing (see Figure I). 3Center for Urban Transponation Research, Florida Five-Year TransponaJion Disadwmtaged Plan: Final Repon June 1992 pp. 13-17. 3


FIGURE 1 Strategies for Reducing Unmet Demand PROBLEM SOLUTIONS STRATEGIES Demand s 1 / Market Size Reduction upp Y Eligibility Regulate r /D d _. Price Increases eman -.. Product Changes / Service Design Prioritization '"-, ""-1 _.__. Funding Increases ncrease ---+ Efficiency Increases Supply \ \ .. Coordination Administration \ \ Demand Management Organization Monitoring Planning Technical Support Cost Reductions Because of the gap between supply and demand, it is important to identify creati ve ways to decrease this disparity. Looking at Figure I, it can be seen that the supply ofTD services can be altered in several ways, including: 1. Tbe level of funding can be changed-e.g., increased government funding would result in additional revenue and allow for service expansion. 2. The efficiency of service can be changed-e.g., providing more trips per hour of service (being more productive) wou ld result in increasing the supply of transportation. 3. The overall cost of providing service can be changed-e.g., diverting appropriate TD trips from paratrans it to (more cost-effective) fixed-route service would result in the CTC being able to provide more trips for less overall system cost, by reducing the per trip cost. The demand for TD transportation services also can be altered in several ways, including: 4


1. The size of the market can be changed-e.g., implementing stricte r eligibility requirements would result in fewer eligible u se rs and therefore, reduced d e mand for service. 2. The price of the service can be increasing fares would decrease the demand for service; likewise, decreasing fares would i ncrease the demand for service. 3. The service itself can be changed-e.g., adding weekend and evening service h ours would result in an increase in the demand for service (if the o riginal demand forecas t was based on weekday service hours only). The Provider and the Purchaser From t h e standpoint of a service provider, the i dea l p r icing strategy in a not-for-profit setting allows for the recovery of expenditures and the maximal use of available capacity, while operating at a break even point. From the standpoint of a purchaser of services, an ideal pricing strategy wou l d: I. Be easy to Wlderstand, and the method for developing the fare would be easy to follow. 2. Allow for simple e stim ation of costs for various types of trips to allow the purchaser to plan and budget for service s 3. Permi t the purchaser to know in advance what the price would be for a partic ular trip. Pricing strategies can be complex, such as attempting to estimate the future p r ice elasticit y o f demand (the relat i onship between price levels and demand for a product), or can be very simpl e such as odd ($2 95) or even ($3.00) pricing. Kotler and Andreasen in their book, Str.ategic Marketing for Non-Profit Organizations, state that an organization shonld go through three stages when adopt in g a pric i ng strategy:' 1 Determine whethe r the pricing objective is to maximize profit, ridership, fairness, or some other objective 2. Determine whether the pricing strategy shoul d be co s t-based, demand-based, or COII)petition-based. 3. Determine when and whether a price change is warranted and how to implement the change 4Kotler, Philip and Andreasen, Alan, Strategic Marketing for Non-Profit Organizations, Prentice Hal l Englewood Cliffs, N.J 1991, pp. 466-467 5


Further, Kotler and Andreasen identify five possible pricing objectives: I. Surplus maximization pricing to make a profit. 2. Cost recovery pricing to break even. 3. Market size (or demand maximization)-pricing to serve the most number of riders. 4. Social equity-pricing to benefit the most deserving persons, as defined by the purchaser. 5. Market disincentives--pricing to discourage use of the system. These five distinct pricing objectives will be viewed differently by the provider of transportation and the purchaser of transportation. The provider of transportation, at the very least, will be interested in cost recovery and perhaps surplus maximization (max im izing profit). The purchaser of transportation services may be most interested in market demand maxim i zation or social equity. Although the notion of what to charge for services may be conceptually easy to understand, its implementation through the selection of a pricing objective is difficult because the provider and purchaser of transportation often have different objectives. Economic theory tells us that as price decreases quantity demanded (ridership) increases; as price increases quantity demanded (ridership) decreases. Price elasticity of demand indicates how s ensitive the demand for the product (or service) is to a change in price If the goal is to break even (or make a profit), then the service provider m ust fmd a price structure that will accomplish that goal. (Use of the word "price" refers both to passenger fares and to contract rates for agency-sponsored/program trips.) One way to set prices is to use accounting cost data and ridership data to develop a cost per unit of service. There are two prob lem s with this simp le method of analysis. First, the effect of price on ridership and costs is ignored. Second, the price is based on data from the past instead of on expectations for the fut ur e For purposes of this document, it is assumed that the pricing objective is cost recovery or operating at the break even point. (In the case of a for-profit operator, the objective may be break even, plus a negotiated fixed fee or profit.) If the objective is to break even, then the issue is how to set prices at the break even point. 'Transportation Accounting Consortium, Rural Transportation Accounting, USDOTTechnology SharingOOT I 87-08, October 1986, pp. Vl6 Vl7 6


Break Even Analysis As stated above, the break even point is that level of output or activity where total revenue equals total cost (which could include a "reasonable" profit). At the break even point the organization has neither made nor lost money, but all costs for the period are covered. Revenue above the break even point will generate an operating surplus; revenue below the break even point will generate an operating loss For fixed-route service providers, break even analysis also can be used to compare the performance of individual routes or services within a system, some of which may actually generate an operating surplus that can be used to offset those routes that operate at a loss. A graphical display of the break even concept is shown in Figure 2. The area above the cost line, below the revenue line and to the right of the break even poin t represents a profit. T he area below the total cost line above the total revenue line, and to the left of the break even point represents a loss. For the CTC the issue is bow to generate enough ridership (and associated revenue) to cover costs (break even). If ridersh ip (and, therefore revenue) drops below the break even point, the CTC either has to raise fares to generate more revenue, seek additional revenue from non fare sources or find a way to cut costs. Break Even Point FIGURE 2 Break Even Analysis Rovenue (In thousands) 7


A simple break even analysis also can be performed mathematically As stated previously, the break even point occurs when total revenue equals total cost. This relationship can be expressed in several different ways, as shown b e low. where: and: then: and: if: or: or: TR=PxN TC=F+V 0 =TR -TC 0=0 TR=TC PxN=F+V P=F+V N Total Revenue = Price per Trip x Number of Trips Total Cost = Fixed Cost + Total Variable Cost Profit (Loss) =Total Revenue-Total Cost Profit = 0 (i.e., Break Even) Total Revenue = Total Cost (i.e. Break Eve n ) Price per Trip x Number of Trips = Fixed Cost + Total Variable Cost Price per Trip= (Fixed Cost+ Total Variable Cost) I Number of Trips (Fi xed costs and variable costs are described in Section Two.) For example, suppose a transportation agency has total fixed costs (F) of $300,000 and total variable costs (V) of $200 000 (50 ,000 trips @ $4/trip ). If the number of passengers (N) is projected to be 50,000, then the price per trip will be $10, as shown in the following equation. P =F+V N p = $300 000 + $200.000 50,000 p = $10 Therefore, with a projected ridership of 50,000, it will cost $10 per trip to break even If there is no subsidy the passenger's fare would be $10 If the system receives a subsidy, the fare may be reduced by the amount of that subsidy. Break even analysis bas a number of uses as a planning tool. It illustrates the relationship of varying le vels of output (service) and operating surplus or loss. It allows a CTC to calculate what price is required to break even Break even analysis will also allow a manager to determine 8


the level of assistance that a service will require if fewer than the b r eak even number of passengers use the service. All of the information necessary to perform a break even analysis is contained in the CTC's annual operations report (AOR) and the annual service plan. A simp le exercise illustrating the use of break even analysis is included at the end of this section Summary This section provided an introduction to several bas ic economic principles that are helpful to keep in mind when dealing with the concepts of cost/reven ue allocation and fare structure development. These concepts are also important to remember as each CTC struggles for ways to deal with the issue of t he supply of and the demand for TD transportation in its service area The next section describes several cost identifica t ion t e chni q ues that are used as the basis for cost allocation. 9


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Sample Exercise Break Even Analysis Dial-a-Ride Transit (DART) provides I ,000 trip s per week Fixed costs are $5,500 and total variable costs ar e $6,000 ($6.00 per trip). What price (fare) will DART need to charge per trip to break e v en (asswning there is no subs idy to offset the price)? The answe r is calculated by u sing the equations d escribed in this section; that is: th us : where: and: if: or: then: I1 0 TR=TC P xN=F+ V P =F+V N Profit (Loss) Total Revenue Total Cost Profit = 0 (i.e. Break E ven) Total Revenue Tota l Cost (i.e. Break Ev en) Price per Tr ip x Number of Trips Fixed Cost + Variable Cost Price per Trip = (F ixed Cost + Total Variable Cost) I Numb er of T rips p = $5.500 + $6,000 1 000 p = $ 1 1.500 1 ,000 p = $11.50 Thus, to break even, DART would h av e to charge $ 1 1.50 per tr i p continued -II


What if the variable costs were increased to $7. 00 per trip (V = $7 000), with no change in ridership? How much would DART have to charge per trip to break even? P=F+V N p = $5,500 + $7.000 1,000 p = $12.500 1,000 P = S12.50 To break even, the fare would have to be increased from $11.50 to $12.50. 12


Section Two Cost Identification Techniques6 The first step in developing a price for a service is to identify the cost to provide that service. Accurate cost identification helps in the estimation of present and future costs for services and can be the basis for projections of f u ture needed subs idies or price incr eases Cos t ident ifi cation efforts should be deve l oped based on the actual transpor tation operating and administrative practices of an agency; that is, the agency's standard operating procedures that indicate t he hours of available service and other service characteristics must be reviewed as th e costs are developed. A substantial team effort i s required t o ensure that all costs are known, with input from all areas of the organization including administration, operations, and maintenance In Eleme nt 4 (Finance) of the annual service plan, CTCs are asked to provide detailed two year financial plans that identify full y allocated costs (see Appendix A). The accounting system, through the budget and other data, pro vides the necess ary information to be used for pricing planning. Such planning or analysis also requires an understanding of different costing techniq u es such as: 1. Distinguishing between capital and operating costs. 2. Determining fixed, variable, and mixed costs 3. Identifying direct and indirect costs. 4. Calculating average and mar ginal (incremental) costs 6Th is section is based on Financial Management for Transit: A Handbook, Institute for Urban Transportation, Indian a Universily, 1985, pp 22-28. Also, Fully Allocated Cos/ Analysis: Guide/inqs for Public Transit Pr oviders, Price Watemouse, November 1 986 13


Capital and Operating Costs Capital costs are incurred for the purchase of physical objects with useful lives that ext end beyond one year. Examp l es of capital costs include: Veh icles Computers, tw o-way radios, base station. Maintenance facilities & equipment. Office furniture. Operating costs are incurred for the purchase of i tem s that are typically expended within one year Examples of operating costs include: L abo r and fringe benefits. Materials and supplies. Fue l, tires, and insurance. Rent. Fixed, Variable, and Mixed Costs Fixed are those costs that remain constant in the short-term (during the budget cycle) regard less of the level of output or activity (see Figure 3). Fixed costs are sometimes called "unavoidable co sts." Examples of fixed costs are rent, prope rty taxes, and salaries of managerial and administrative personnel. Variable cost s are those costs that change in direct proportion to changes in the level of activity or output (se e Figure 3). Variable costs are associated with "units" of service. (e.g. per hour or per mile). Examples of these costs are wages for vehicle operators and the fuel involved in the operation of the transit system. Mixed costs are those costs that have both a fixed cost and a variable cost associated with a particular level of activity. An example of a mixed cost would be a vehic le in the reserve fleet. A certain amount of maintenance is required to keep the vehicle in good operating condition, even if it is not used for a period of t ime. In this example, maintenance represents the fixed cost component of the mixed cost. When the reserve vehicle is placed into active service, then the usual variable costs (fuel, tires, etc.) will be incurred for the operation of that vehicle. 14


FIGUREl Fixed and Variable Costs Cost $ Output (e.g., trips, miles, or hours) Direct and Indirect (Shared) Costs Total Cost Variable Cost Direct Qsts are those costs that are associated on a one -toone basis with a particular segment of the transportation service. Examples of direct costs would inc lud e operator labor and fue l Indirect (or shared) costs are those costs that cannot be associated on a one-to-one basi& with a specific segment of the transportation service. Examples of shared costs would inc lude administrative salaries and rent. It is important that shared costs be allocated to a specific segment of service in a logical manner that reflects an actual rate of use. The concepts of direct and indirect (or shared) costs are closely related to t he issue of cost allocation 15


Average and Marginal (Incremental) Costs It is important to understand the distinction between average and marginal (incremental) costs Av

Section Three Cost/Revenue Allocation The initial identification o f costs and revenues comes through the development of a line item budget for transportatio n Element 4 (Finance ) of the annual service plan forms the basis for cost and revenue i nformation used by the CTC in the preparation of the fare structure shown in Element 5 of tha t plan (se e Appendix A). Resources committed t o transportation should be placed into the budget, and recorded in the chart of accounts Cost Allocation Fully allocated costs are those costs (both di r ect and indirect) that are allocated to particular programs. Costs identified in this way allow an agency to distribute costs correctly to individual programs. ) For e x ample a human service agency with both a transportation program and a nutrition program should properly distribute costs associated with each of the two programs to the respective program; that is, costs/revenues associated with the nutt:ition program should be properly charged/credited to the nutrition program and costs/revenues associated with the transportation program should be charged/credited to the transportation program In this way, neither program is subsidizing the other. Cost identification I t i s important that all costs be identified and that inaccurate or missing data be reconstructed or gathered in the future so that accurate cost estimates can be made. For example, some agenc ies may not track oil and fuel consumption by vehic le, which leads to inaccurate vehicle performance estimates Failure to keep detai l ed records on usage levels and costs tied directly to vehicles, makes it im p ossible to identify when a vehicle should be replaced or to id e ntify the special cost for using certain types of vehicles to meet certain needs Accw:ate cost identification and allocation serves two purposes. First they allow the CTC to ensure that all costs associated with the operation o f service have been recognized Thus, if 17


a request is made to add service the ere will be able to estimate the marginal cost and marginal revenue requirements needed to provide the additional service. Second cost identification and proper cost/revenue allocation can be used to show passengers (or their agency sponsors) that they are paying their fair share of the cost of the services they consume. Some funding sources (such as a city or county) may allow their funds to subsidize trips for all passengers; however, many programs (such as councils on aging) may restrict their funding subsidy so that it can be used to pay only for service provided to their own clients A ere may decide to allocate the additional cost to those programs that require more extensive eligibility certification checks beyond the "usual" tranSPortation eligibility criteria i n place, if the added checks require a significant amount of additional work or cause additional operating costs to be incurred on th e part of the ere. For example a ere may offer a variety of transponation service components including: Basic door-to-door service. Enhanced door-through-door service. Extra eligibility certification and screening. A particular SPOnsor may wish to have its clients give n door-through-door service, instead of the basic door-to-door service. Providing door-through-door service requires added time and expertise on the part of the driver. Th us when offering tbis enhanced service, the ere may want to allocate these costs to those persons or agencies requesting this enhanced level of service. Hidden costs also must be ferreted out and, if the agency uses volunteers, the monetary value of their "free" time should be recognized as a potential cost (in case the volunteers ever have to be replaced by paid personnel). Fair share. The accurate id entification of costs allows the CTC to predict the funding needs for expansion of services into new areas or for new purchasers of service and allows the agency to spread costs among the users equitably. The equitable sharing of costs among all users is another of the more difficult issues of pricing, in that if the fixed costs are spread over an estimated number of passengers and a given agency is no longer able to purchase certain trips because of a funding cutback, then the fixed cost would have to be spread across a smaller 1 8


number of individuals and thereby raise the price. The alternative is to find additional riders, but without adequate subsidies that may be a difficult task. Additional service could result in reduced costs for each passenger. For example if a transportation provider is asked to expand its days of service to include weekends, then labor, fuel, and maintenance (variable) costs would increase because of the added hours of service; however there may not be additio nal capital (f1Xed) costs. Therefore, the increase in costs would represent only variable cost increases and average fixed costs would decr e ase by being spread over a larger base of service, which could result in a reduction in the average cost per trip. Sjngle-p!.U]?ose agency. In a single-purpose agency that provides only TD transportation, it is relatively easy to identify and allocate all costs because a ll costs are related to transportation. The difficulty is in determining the additional cost for service enhancements, if any. Multi-pw:pose agency. The more difficult situation is where the agency is a multi-purpose agency and various overhead or administrative tasks are divided among various transportation and non-transportation activities within the organization. T hen it is important to divide the cost of an employee with multiple duties and to allocate the proper portion of rent and other utilities to transportation. The sample exercises at the end of this section illustrate this 'situation in more detail. Revenue Allocation As in the case of cost allocation, it is important to ensure that revenues are also allocated correctly and in accordance with funding source requirements and restrictions. There are a variety of revenue sources available to the CTC, including the following. 1. Federal Sources Section 9 Sect io n 16 Section 18 2. TD Trust Fund Non-program trips Capital acquisitions Planning funds 19


3. Other State Sources Agency for Health Care Administration Department of Community Affairs Department of Education Department of Elder Affairs Department of Health and Rehabilitation Services Department of Labor Department of Transportation 4. Local Revenue (e.g., county / municipal general funds) 5. Human Servke A&ency Contracts 6 Passenger Fares 7. Other Revenue Sources (e.g., donations) Some of these funding sources allow for broad use of thei r funds to subsidi7..e transportation programs. Others impose restrictions on the use of their funds and earmark the revenue for certain clients and/or trip purposes. In the latter case it is important that the CTC develop a mechanism to show that it has properly allocated the revenues to the appropriate clients and/or trip purposes. This procedure may be as simple as recording the trip purpose or as complicated as actually verifying client eligibility. lfthe CTC believes it will incur additional costs to track client eligibility, for example, it would be wise to address those issues during the fare structure development process. Similarly, if particular programs require services beyond the no rma l" baseline transportation services provided by the ere, then those requirements should be built into the development of the fare structure. In other words, Element 5 of the annual service plan should inclu de a comprehensive listing of fares (including all types of paratransit services offered, use of school buses etc.). Thus, the purchase of service contracts should reflect the fare structure included in Element 5 at the time of the contract negotiations. A sample fare structure form is shown in Appendix B The annual service plan should be updated if there is a need to add another type of service not already included in the fare structure. 20


Summary This section described the importance of cost allocation and the issue of a purchaser of service paying its fair share of the cost of providing that service. This section also discussed the issue of cost allocation for the single-purpose agency versus the multi-purpose agency Sample exercises illustrating these points are incl uded at the end of this section. With respec t to revenue allocation this section reminded the reader to be sure to take into account the funding requirements of particular purchasers of service, whether they be governmental units, human services agencies, passengers, or others. CTCs are encouraged to use the publicatio ns included in the Resource List at the end of this document to find more detailed information about cost/revenue allocation techn iques There are many "how to" manuals, in part icu lar COMSIS' Cost Analysis Methodology for Demand Responsive Service, which was published in October 1988, and is still available through the Technology Sharing Office at the U.S. Department of Transportation. Another excellent document, which is included in Appendix C, is by David Koffman of Crain & Associates. This paper, Appropriate Cost for Paratransit Service, shows two examples of cost al l ocation and fare structure development. The next section describes basic fare s tru cture dev.elopinent, based on accurate cost/revenue allocation te chnique s. 21


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Sample Exercise No. 1 Allocating Salary and Benefit Costs for a Person with Multiple Responsibilities The directo r of your agency will spend about 20 percent of his/he r time on various administrat i ve activ i ties re lated to your proposed transportation system. The rest of the time will be spent on other agency activities and responsibilities The director's annual salary is $30,000; yearly benefits are approximately 30 percent of that amount (or $9 ,000 per year). Therefore, 20 percent of both the director's salary and fringe benefits should be included in your budget as direct administrative expe nses . 20 x ($30,000 + S9,000) = S7,800 Thus $7,800 should appear as salary and benefits costs under the overall cost category administration. 23


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Sample Exercise No.2 Allocating Rent and Utilities Between Major Cost Categories You run a transportation system with II vans. You rent several offices, a garage, and a minor maintenance facility from the county government for S700 per month. When you decide to divide these costs between the two major cost categories, you ask the county to tell you how much you are SPending for each particular facility. Unfortunately, they cannot tell you. You look at the amount of floor space consumed by the various functions and fmd that the offices account for roughly 40 percent of the total SPace rented; the maintenance facilities are approximately 60 percent. Therefore, you apportion 40 percent of the $700 or $280 to the administrative category and 60 percent, or $420, to the maintenance category. You also divide the utility costs in the same manner. However, you do not use the same procedure for telephone costs. According to the phone logs, maintenance uses the phones only I 0 percent of the time. Therefore, the telephone costs should be charged I 0 percent to maintenance and 90 percent to administration. 25


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Sample Exercise No. 3 Cost of Providing Additional Service Good T imes Senior Center operates transportation to several nutrition sites, providing I 00 hours o f service per month to Nutrition Site No. I. Good Time s estimates that its transportation service costs $ 20 per hour. What is the cost of transportat ion service to Nutrition Site No. 1? 100 hours x $20/hour = $2,000 Now Good Times wishes to increase service from I 00 to 150 hours. Good Times estim a tes th a t the incremental cost is $10 per hour. What is the new cost of service? 100 hours x $20/hour = $2,000 + 50 hours x $10/hour = $ 500 $2,500 27


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Section Four Fare Structure Development' Fare structure development (or pricing) is not a task that can be isolated in an accounting office or conducted by one individual in an organization. Pricing requires that the capabilities of the organization to provide service be evaluated simult a neously an evaluation of the costs to provide that same service. This means that personnel familiar with finance, operations, and overall program administration must be involved in pricing. A good pricing strategy should: I. Be easy to und erstand and the method for developing the fare should be easy to follow. 2. Allow for simple projection of costs for various ty pes of trips to allow the purchaser to plan and budget for services. 3. Permit the purchaser to know in advance what the price would be for a particular trip. The methods used to meet these three criteria may vary with each agency with which the cre is negotiating. However, the three basic trip rates that may be used individually or in combination when deve loping a specific fare structure include: l. Trip rate-in which the purchaser of serv ice pays for each one-way passenger trip provided by the ere. The trip rate can be uniform, regardless of distance traveled, or it can be based on trip length, as represented by zone fare structur e In either case, the unit of billing is the passenger trip. 2. Hourly rate-in which the purchaser of service pays for each in-service hour, or fragment thereof, provided by the CTe. 1Fonnulations and evaluations are based on materials in A Manual to Apporlion Casts of Rural Public TransportQiion Among Participating Towns and Human Service Agencies, Oepamnent of Civil Engineering, University ofMassaehusCits, August 1982 pp. 52. (DOT/RSPAIDMA-50/82/3) 29


3. Mileage rate-in which the purchaser of service pays for each revenue, vehicle, or passenger mile provided by the CTC. There is no one "best" fare structure. Each bas its advantages and disadvantages. The trip rate is the easiest to use because it is based on a unit of service that all purchasing agencies can understand. However issues of equitable distribution of costs according to trip length or other factors may mean that the trip rate is not appropriate for agencies whose trip lengths are variable or spread over a large geographic area. In these more complicated scenarios it may be best to develop rates based on hours or miles. Trip Rate Structure The trip rate structure is determined by dividing estimated total cost by estimated tota l passenger trips, which yields the average cost per passenger trip. Trip Rate = Total Cost Total Passenger Trips For example, if total cost for providing transportation during a month was $100,000 and ther e were I 0 ,000 trips made during the month, when the total system cost of $100,000 is divided equally across 10,000 trips, each trip costs $10 to deliver. Although the CTC may fairly easily estimate the tota l cost for any given type of service, projecting the total passenger trips to be taken by the transportation disadvantaged or to be purchased by agencies representing them is fraught with difficulty. Historical trends and the agencies' own budget s for transportation will yield the most accurate estimate of the number of actual passenger trips. The fares charged using a trip rate structure should be rev ised periodically to reflect changes in the level of service or costs and these adjusted rates should be reflected in the agreement signed with the purchasing agency. A procedure for charging agencies according to the number of passenger trips made by its clients is relatively simple to use As shoY.n above the average systemwide cost per passenger trip to be used in determining the amount to charge an agency is calculated by di v iding the total cost (both variable and fixed) of operating the service by the total number of passenger trips estimated to be made by clients of all agencies. Then, each agency will be charged the a v erage systemwide cost for each trip made by its clients. 30


This procedwe will be appro priate for application to demand respons ive, shared-ride servi ce since each agency will be charged the per-passenger trip cost only for those trips made by its own client s. The agency affiliations of riders must be determined at the time of trip making; these data should be collected by the dispatch er at the time of scheduling a trip and, wh e n possible, verified by the driver. It sh ould be noted that the use of passenger trips alone does not take trip length into account and may impose a penalty on those agencies whose clients are centrally located and make shoner trips. Such agencies might end up subsidizing other agencies clients wbo arc geog rapbical!y dispersed and may be making much l onger trips but paying th e same per trip rate. The development of a zone rate s tructure, one that accounts for longer trips or for c l uste red trips from a single origin to a sing le destination, could b e used. Ibis approach is d e scribed in more detail unde r "combina tion rates" later in this section. Advantage The primary advantage of the trip rate strucrwe is that it is easy for a CTC to usc and re(:()rd. It also is easy for purchasers to understand. Disadvantage. The primary disadvantag e of the trip rate structure is that it may be too simplis tic and may overcharge agencies and passenger s w h o have shoner trips by charg ing them the same rate as those p assenger s making longer trips. Hourly Rate Structure The hourly rate strucrure is calculated by dividing the estimated total cost by the estimated total vehi cle revenue hours. Ho urly Rate = T otal Cost Total Revenue Hours To detennine the hour l y rate s a CTC would have to keep track of the time a vehicle is in use for a particular agency, which is not an easy taSk unless the vehicle is fully dedicated to that agency. There may be a number of times when a CTC transpons clients of multiple agencies at the same time. This is referred to as shared use and an alloca tion procedur e based on time is n eeded. I n these cases th e CTC can adopt a split billing arrange ment where the agencies sharing the vebicle would split the hour ly r ate which would req uire additional administrative cost on the part of the CTC because of the added data collecti on requ irements. 31


Advantage. The hourly rate structure may be best used when the driver must wait for passengers until their appointments are completed. Another application would be in the case of long-distance trips when it is not cost-effective to return to the service area until the passenger(s) make the r e turn trip. Disadvantage. The hourly rate structure may be difficult to implement; it also may be difficult for a purchaser to understand if adjustment has been made to reflect shared use. Another disad v antage is that the hourly rate structure requires detailed record keeping on the number of hours of service provided to each agency. This record keeping may prove to be too costly or cumbersome for the ere (and the purchaser) Mileage Rate Structure The mileage rate is calculated by dividing the total cost by the total vehicle revenue mile s Mileage Rate = T otal Cost Total Revenue Mil es A mileage rate structure requi r es detailed record keeping on the number of miles of service provided to each agency. Use of C TC vehicles by m u ltiple agencies simultaneously raises the same issues related to the hourly rate : whether to use split billing arrangements or to bill each agency for the number of miles of service provided. A revenue miles based procedure functions in much the same way as the passenger-trips based formula, with all costs of service being assigned to the single variable. An averag e systemwide cost per revenue mile is determined by dividing total system costs by total revenue miles of service. Each agency's passenger miles are determ i ned by calculating the length of trips made by its clients The use of this variable requires the recording of "'on and off' odometer reading s by the driver and a notation of agency affiliation for each passenger. However, in a demand-responsive shared-ride system, the shortest route between common origin and destination pairs can be predetermined and recorded by the dispatcher at the time of trip scheduling, thereby eliminating the need for processing odometer readings for every trip and accounting for detours or alternate routing. 32


Advantage. An advantage of the mileage rate structure is that more persons are familiar with the concept of a mileage rate and, therefore, find it simp ler to und e rstand. A mileage rate syst e m also tend s to be a more equ ita ble a p proach to determinin g fares. Mileage tables f or co mmon origins and d estinatio n s can be deve l ope d to make far e calculations eas i er. Disa dvantage. The mileage rate stru cture requires detailed r ecor d k eep i ng on the numbe r of miles of service provided to each agency, unless mileage tables are used to approximate actual mileage. Simultaneous use of ere vehicles b y multiple agencies raises the same issues described on the hour l y rate: whether to use split billing arrangements or to bill each agency for number of miles of se r vice provided Another d is a dvantage of usi n g pass en ger miles as t h e so l e variabl e in the procedure is the converse of that n oted under passen ger trips; i .e ., a mileage -based procedure may appear t o impose a penalty on agencies whose clients are located on the perip h ery of the service area. C o mbin a ti o n R a t e S tru c tur es The thr ee basic rate structures a lso can be used in various comb i nations. A typ ical exam ple of comb ined rates wo uld be a combin ation of base rate and trip len gth, or the u se o f a zone rate system. Passenger trips and trip length. The combination of the two variables, passenger trips and vehicle miles, into a single procedure presents some complications in tenns of cost accounting and data collection, but would likely be deemed more equitable by agency administrators because the comb ine d rate would more accurat el y reflect the true cost of provic:Jjng the trip and avoid the potential f o r doub l e-counting cos t s. T he imp l ementation of t h e tw ovaria b l e procedure requires a p reliminary breakdown of total costs into two categories : (I) fix ed costs associated with provi d ing trips and (2) variable costs directly attributable to trip length (revenue miles). Under this approach, there is typ i cally a charge assessed for the trip itself, based on covering the fi x ed cost of providing the t rip. This per trip charge i s ana l ogous to a tax i "flag dro p o r board i ng f ee, which i s the ba s e amo u n t charged j ust t o get into the taxi. The seco n d comp onent ( variab l e cos ts) is ba sed o n the actual d i s t ance tr a ve l ed T hu s, an additional charge 33


per mile traveled is assessed This mileage fee may be split among the passengers (for a group trip) or charged to each individual passenger (for random or indiv i dual trips). The data collection and processing costs for the C T C may be r elatively high because of the need to record the mileage for each passenger. This approach also creates problems for the passenger as he /she may not know how much the fare will be in advance of completing the trip Because of the added bookkeeping for the C T C the cost of data collection should be accounted for when developing such a fare structure. Zone rate. A zone (or grid) rate structure is similar to the parcel post of the U .S. Post Office, where it is recognized that incremental (marginal) costs are incurred as a result of distance. Under this option, as in the previous exampl e a "boarding" or initial zone rate is charged and then a subsequent charge is applied for each additional zone entered. For example a service area could be divided into a series of one-mile by one-mile zones or grids (see Figure 4). The base (or initial zone) fare would be charged for travel within a single zone; for e ach additional zone entered, the passenger would pay an additional zone charge. Usually, the initial zone charge is considerably higher than the additional zone charge because the initial zone is covering the fixed costs of providing the trip and the charge for each additional zone crossed covers th e incremental cost of providing the trip (e.g., fuel, tires, operator wages, etc .) To calculate the initial and additional zone fares the CTC must be able to accurately estimate three elements: (I) average trip length (2) fixed cost per trip, and (3) variable cost per revenue mile These calculations should all be obtainable through the CTC' s records. A simple example will illustrate how to use the zone rate system. Suppose a CTC calculated the following statistics about its TO transportation service. t Average Trip Length = 5.0 miles t Fixed Cost per Trip -$ 9.00 t Variable Cost per Revenue Mile = $ 0.25 The base zone rate would be the fixed cost per trip plus one unit of variable cost per mile (assuming for argument's sake that a one-zone trip covers one mile on average). Therefore, the base zone rate would be $9 00 plus $0.25 or $9.25. 34


FIGURE 4 Zone Rate System -Using Figure 4 for reference, a two-zone trip from zone C2 to 02 (Trip I), would be $9.50; $9.25 for the first zone and $0.25 for entering the second zone. A three-zone trip from B3 to C4 (Trip 2) would be $9.75. (The three-zone rate is calculated by counting zones on a "right angle" method; that is, the grids are counted B3 + B4 + C4 =three zones.) The advantage of the zone rate structure is that it simplifies the mileage calculation in a distance-based fare approach. Care should be taken to consider the size and shape of the service area when designing a zone-rate structure. The zones can be larger than one-mile by one-mile and irregularly shaped if it makes sense for the service area and its particular characteristics. 35


Other Considerations When devising a fare structure, an inventory of the types of trips being provided (or requested) should be done. An assessment of the percentage of trips falling into various categories should be considered including: Number of group trips Number of subscription trips. Number of random trips made by individuals. Numbe r of program (sponsored) trips. L ength of advance-reservation per iod. Average trip length (and the range of trip lengths) Alternative transportation services (fixed-route, school buses, etc.). All of these factors and many others combine to contribute to the unique characteristics for each service area and are driving forces behind the selection of pricing strategies. The more a CTC knows about its service area and the characteristics of its ridership the easier it will be to develop a pricing structure that meets the requirements of covering costs and providing adequate service. Carrier Reimbursement CTCs are organized in a variety of ways. Some CTCs operate their own paratransit service an d do not contract with any other transportation operator. Others are organized either as a partial or full brokerage A CTC that is organized as a partial brokerage directly operates some paratransit service and subcontracts with one or more other transportation operators to provide additional paratransit service. A CTC that is organized as a full brokerage does not dire ct ly operate any service but subcontracts for the provision of service with one or more transportation operators The method in which passenger fares (or agency rates) are calculated n eed not be the same as the way io which subcontractors are reimbursed For example it is possible tha t a CTC would charge passengers (or agencies ) on a per trip basis, but would reimburse the subcontractor on a per hour basis. It is important not to confuse the two issues Although the two issues are r elated the primary focu s of this manual is how to determine passenger (or agency) fares, not h ow to determine carrier reimbursement rates. 36


Summary For the purposes of completing Element 5 (Cost/Revenue Allocation and Fare Structure Development), the CTC mus t develop a fare structure that is logical and applicable to various purchasers of service. The intent of the one-page fare summary required in Element 5 is for the ere to develop a fare structure that can be incorporated by reference into purchase of service agreements with purchasers of TD transportation service. In oth .er words, the same rate should be charged to Agency A and Agency B if both agencies are rec eivi ng the same type of service. Variations in the leve l of service provided may be reflected in the fare, but should be included as par t o f Element 5. If, for example, there will be an added charge for door-through-door service, that charge should be reflected in the fare structure shown in Element 5 and should be calculated in the same way for any purchaser of service. A sample exercise is included at the end of this section. The next section of the handbook raises a variety of discussion points that CTCs will want to consider as they develop a fair fare structure. 37


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Sample Exercise Tropical Palms Senior Center Your agency has been directed to coordinate transportat ion services with Tropical Palms Senior Center. Your director wants you to prepare passenger trip and hourly data to be ab l e to nego t iate effectively with this agency and to be prepared to price your transportation services. The basic information you have is as foll ows: Num ber of Ve hicles Total R even ue Hours Total Annual Cost Total Annual Passenger Trips 5 10,400 $111,680 20,000 Your assigument is to ca l cu l ate th e answers for the following four tasks. I. Find the productivity in trips per reve n ue hour. 2. Find the cost pe r trip. 3. Find the cost per revenue hour. 4. If the p r od uctivi ty were in creased to 2.5 trips per vehicle hour, witho ut a change in total costs or revenue hours what would be the annual number of trips and the cost per t rip? 39


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Sample Exercise Tropical Palms Senior Center Answer Sheet The system carries 20,000 one-way passenger trips annually w i t h 10,400 annual revenue hours. Find the p roduc tivity, co st per trip, and cost per vehicle hour. I Productivity 2 Cost per Trip 3 Cost per = T otal Trips Total Revenue Hours = 20,000 10, 400 = 1.92 passengers per hour =Total Cost Total Trips = $ 111,6 80 20,000 = $5.58 per trip Revenue Hour = __ _.T""o,.ta.,_l ,.C,os..,t __ Total Rev enue Hours = $lll.680 1 0 4 00 = $1 0.74 per revenu e hour co ntinu ed -41


4. Projected Annual Trips = Total Revenue Hours x New Productivity = 10,400 X 2 5 = 26,000 trips New Cost/Trip = Total Cost Total Trips = $!11,680 26,000 = $4.30 per trip 42


Section Five Key Issues' Transportation purchasers, local coordinating board members, CTCs, and passengers themse lves will want to ens ure that the cost aUocation procedure designed for use in their particular area will be the simplest, least costly method of allocation that will result in assessments and user charges considered equitab le by all participants. In the process of developing a cost allocation and fare structure procedure, the trade-offs among the basic criteria of simplicity, low cost, and equity should be clearly delineated and performed in a step-by-step manner. For example, for each addition to the complexity and/or cost of use of a procedure, there should be some justification in terms of equity or efficiency. The following questions should be answered by each ere as the fare structure is developed. 1. What are the service characteristics of tbe system? fixed-route/fixed-schedule demand-responsive/dedicated demand-responsive/shared-ride 2. What entities and funding agents are participating in the service provided? municipa lities or county governments human service agencies federal or state funding programs 8Discussion based on materials in A Mamll to Apportion Costs of Rural Public 'n-ansportation Among Participating Towns and Human Service Agencies, Department of Civil Engineering, University of Massachusetts, Augut 1982, pp. 57-60. (DOT/RSPAIDMA-50/8213) 43


3. Wbat are tbe costs to be allocated for tbe service provided? total costs t deficit amount to be subsidized 4. What data must be collected to satisfy federal and state laws, reporting requirements or other funding source requirements? Can these data be allied with a particular base variable for simple inclusion in a cost allocation formula? 5. Which of the three major cost-to-use, or to be most important for the system under examination? a. How simple should the cost allocation procedure be to formulate and implement? Should the procedure incorporate a single variable or multiple variables? Will the procedure require a preliminary breakdown of various types of costs incurred in providing service, or is the calculation of total systemwide cost sufficient for application of tbe procedure? t Will the procedure be easily understood by representatives of participating funding sources? t Aie the data necessary for application of the procedure readily available? b. What are the potential costs to use the procedure? t As above, are the data easily obtained or must they be collected from several different sources including on-board data collection? (The cost to use a procedure will rise significantly with the increasing costs of data collection and processing.) t What are the potential costs of processing data for use in the allocation procedure? Can some of these costs be justified by the need for the same data for other purposes such as demand modeling scheduling, billing and accounting, or funding source requirements? t What would be the cost of I 00 percent data collection and processing compared to other sampling methods of collection? Could a sample data set serve the same function in the allocation procedure with roughly equivalent results that would be deemed equitable by participants? t How much of a difference in the cost of data collection would actually be incurred and to whom will this difference be an important issue? The importance of these costs will be different depending on "who you are" and "where you sit." For example if the incremental annual cost to use a procedure that is slightly more complicated than another is set at $20,000 for "extra" data collection and processing, this sum would be added to the total costs of service, subsidized by various transportation purchasers. This additional cost might be deemed justifiable in terms of the ability of the more complex procedure to produce more equitable results, or in terms of the secondary utility of the collected data for billing accounting, and/or reporting purposes. 44


c. Will the allocations that result from the application of the fare structure procedure be deemed equitable? This may be the most difficult question to answer, partly because equity is extremely difficult to quantify-"how fair is fair"-and partly because equity, like the concepts of "justice" or "liberty", is an ideal sought by many and recognized by few. It is important to remember that, all other things being unequal among purchasers (e.g., service availability, use, population, etc.), the purpose of an allocation procedure is not to arrive at equal assessments for each purchaser, but assessments that are equitable. What is the prevailing philosophy toward equity of allocation? Do representatives of participating agencies tend to speak more in debate about what one municipality can afford to pay in comparison with other agencies, or is there more concern expressed for instituting some measurement of the relative benefits of senices derived by various participants? If there is agreement on the equity of measuring relative benefits of service, how shall these benefits be quantified? Do representatives support a measurement that examines the mere availability of service, or do they wish to incorporate a measure of the actual usage, or both aspects? The dictionary defines equity as "that which is fair and just" and an equitable procedure as "that which is reasonable". The obvious vagueness of these deflllitions is an indication that the term is open to interpretation and difficult to evaluate without first agreeing on an interpretation. Some final questions may be posed concerning the ability of a cost allocation procedure to encourage efficient use of the service provided. For example, is the complexity of using a vehicle-miles-based procedure for shared-ride, demand-responsive services justified by the fact that such a procedure encourages group rides? 45


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Section Six Summary and Conclusions Selection of a fair pricing method is a matter of recognizi ng all costs and d i stributing them equitably to all purchasers. Forrunately for the CTC, a wealth of experience in pricing and rate setting exists in the state of Florida. Some agencies have many years of experience in pricing and their experiences should be examined when a ere develops its pricing method. The attached Resource List also co n tains many of the relevant documents that have been published during recent years. The typical questions posed by the private sector for pricing is: "What is the competition's price structure and what is the importance of this product to the target market?" Although the CTC does not always have to address these questions directly, factors such as reasonable profit, income taxes, and other factors must be account e d for to equitably compare prices with potential non-profit or government providers. There is no "best" way to present the fare structure summary required for submission as part of Element 5 of the annual service plan. Appendix B provides an example of an acceptable format that a ere could use to develop its own Element 5. A future handbook and workshop will address evaluation methods for ensuring that the most cost-effective, efficient, unfragmented and unduplicated transportation service is being planned and provided for a particular service area and for the state. These methods may be used by the ercs, local coordinating boards, and the TD Commission to ensure that the cost for services within the coordinated system is justified. 47


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Resource L is t carter-Goble Associates, Inc. Cost Redu ction and Service Improvements from Cont!:acting in Rural, Small Urban, and Suburban Areas. DOT-T-90-04. Columbia, South Carolina: U.S. Department of Transportation, 1987. **Carter-Goble Associates, Inc. Expanding the !Jse of Private Sector Providers in Rural. Small Urban and Suburban Areas DOT-T-88-17. Columbia, South Carolina: U S. Department of Transportation, 1987. [NTIS PB 89-121321 A06] *Carter-Goble Associates, Inc. Private Sector Contracting Workshop Manual for Rural and Small Urban Public Transportation Providers. DOT-T-90-16. Columbia, South Carolina : U S Department of Transportation, 1988. **Center for Transportation Research at the University of Texas at Austin. Cost Analysjs for Socia l Service Agency Transportation Provide!. DOT-1-81-17. Austin Texas : U.S. Department of Transportation, 1981. [NTIS PB 80-141880, A l2] Center for Urban Transportation Rese arch at the Universi ty of South F l orida, Florida FjveX ear Transportation Disadvantaged P lan: 1992-1996. Tampa, Florida: Transportation Disadvantaged Commission, 1990. Collura, John, of the Department of Civil Engineering at the University of Massachusetts. Apportioning the Costs of Rural Public Transporta!ion Among Part i cipat ing Towns and Human Services Agencies. DOT-RSPA-DMA-50/82/2. Amherst, Massachusetts: U.S. Department of Transportation, 1982. Collura John and Dale Cope, of the Department of Civil E n gi neering at the University of Massachusetts. A Manual of Procedures to Appo rtion Costs of Rural Public Transportatio n Among Participating Towns and Human Service Agents. DOT-RSPA-DMA-50/8213. Amherst, Massachusetts: U.S. Department of Transportation, 1982. Collura, John, James W. Male and Ayodele Mobolurin, of the Civil Engineering Department at the University of Massachusetts. An Examination of th e Design and the Imple m entation of Proced ures to Allocate Regional Transit Costs Among Towns: Five Case Studies. Amherst, Massachusetts: University o f Massachusetts, n.d. COMSI S Corporation Cost Allocation and Cost Estimation for Better Management. Silver Spring Maryland: Public Private Transportat i o n Network, n.d. cOMSIS Corporation. Cost Allocation Model

COMSIS Corporation, and Lewis Polin and Associates. Cost Analysis Methodology for Demand Responsive Service. Wheaton, Maryland and Laguna Hills, California: Maryland Mass T ransit Administration, 1988. Fielding Gordon J., Subhash R. Mundie and Joe Misner. Performance Based Funding Allocation Guidelines for Transit Operators in Los Angeles County. Washington D.C.: 6Ist Annual Meeting of the Transportation Research Board, 1982. Florida Transportation Disadvantaged Commission Fare Structure Guidelines. Tallahassee, Florida: Florida Transportation Disadvantaged Commission, November 1989 Florida Transportation Disadvantaged Commission. Coordinated Trans portation Contracting Ins tructions. Tallahassee, Florida: Florida Transportation Disadvantaged Commission, May 1992. **Institute for Urban Transportation at Indiana University. Financial Management for Transit: A Handbook. DOT-1-86-10. Bloomington, Indiana: U .S. Department of Transportation, 1985 [NTIS PB 86 183910, AIO) Koffman, David, of Crain and Associates Inc. Appropriate Cost Sharing for Paratransit Service. Tampa, Florida : Thirteenth National Conference on Accessible Transportation and Mobility, 1992 Kotler, Philip and Alan Andreasen. Strategic Marketing for Non-Profit Organizations. Fourth edition. Englewood Cliffs, Ne w Jer sey : Prentice Hall 1991. Lewis Polin and Associates. Cost Allocat i on and Cost Estimation for Better Management. Nashville, Tennessee: Public Private Transportation Network, 1992 McCollom, Brian E., ofCOMSIS Corporation. Cost Allocation: Can the True Costs Be Found? Arlington, Virginia: The Public Private Transportati on Network, 1988. Piras, Patrisha, and Chris Hatfield. The Challenge of Financing Coo rdinated Soeciali?.ed Transportation in California. Oakland and Sacramento, California: M et r opol i tan Transportation Commission and California Department of Transportat i on, 1985. Price Waterhouse. Fully Allocated Cost Analysis: Guidelines for Public Transit Providers. Washington, D.C.: U.S. Department of Transportation 1987. Salvate James Profit Costing and Pricing for Services. Management Aids Number 1.020. Los Alamitos, California: U.S. Small Business Administration, 1987 *Thatcher, Russell H. and John K. Gaffney ADA P;u;atransit Handbook : Implementing the Complementary Paratransit Service Requirements of the Americans with Disabilities Act of 1990. UMTA MA-06-0206-91-1. Woburn Massachusetts: U .S Department of Transportation, 1991. 50


Transportation Accounting Consortium Accounting and Reporti ng Practices for Transportation: An Analysis in Six States. Lansing, Michigan: U.S Department of Transportation, 1983. [out of print ] Transportation Accounting Consortium Rural Transportation Accounting. DO T -1-87-08. Lansing Michigan : U.S. Department of Transportation, 1986. [out of print] *Transportation Account i ng Consortium. Simplifying Human Service Transportation and Small Tran sit System Accou n ting: A Six State Perspective. DOT-1-83-25. Lans i ng, Michigan : U. S Departmen t of Transportation, 1983. Transportation Researc h Board Cost-Effectiveness of Tran spo rtation Services for Handicapped Persons. Washington D.C.: Transportation Research Board, 1983. Urban Mass Transportation Authority Cost Alloca t ion P lan: I n d i rect Cost Proposal. Washington, D.C.: UMTA C 5010.1A, 1987 **Wallin, Theodore A. and A li ce Kidder of The Franklin Program in Transportation and Distribution Management at Syracuse University. Financing and Sustaining Mobility Programs in Rural Areas. DOT I-87-2. Syracuse, New York: U.S Departmen t of Transportation, 1986. [NTIS PB 86 248218, AOS) Availab le throug h U.S Department of Transportation's Technology Sharing Program, DRT-1, Washington, D C. 20590 ** Ava il able through National Technica l I nformation Service (NTIS) Springfield, Virginia 22161. 51


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APPENDIX A Instructions for Elements 4 & 5 A-J


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4. FINANCE E L EME N T' The data provided in this element is intended to be used by the Commissio n local Coordina t ing Board, and purchasers of service as an analytical tool to evaluate: Specific cost elements of the CTC's opera t ions, and Anticipated change s regarding specific cost elements of the CTC's operatio n s, and Total system performance trends in regard to: I. Fully allocated cost pe r total system vehicle mile 2. Fully allocated cost per total system passenger trip, and 3 Fully allocated cost per total system driver hour. This elem e nt co n sists of three m ajor parts Past and future estimates of service (i e ., trips, miles, hours), a correspondi ng two y e ar detail e d financial p l an, and a total system performance trend. It should be noted that since this element of the service p lan contains "rolled up" system wide i nformation the fully allocated system cost figures that are determ in ed will hard l y ever be the same as the fare structure for a particu l ar segment or mode of the CTC's se r vices. Total system fully allocated costs identified in this element are on ly inten ded to provide system-wide performance TREN D S Fare are derived la ter in the Cost/Revenue Allocation and Fare Structure element, and should be driven by the estimates contained in the NEXT MOA YEAR column The data in all three parts of this element i s to be prepared for the "CURRENT MOA YEAR", which is the year of operations during which the financial element was prepared (ann u alized to reflect a 12 month per i od); the "NEXT MOA YEAR", which is the year of op e ra t ion subseq u ent to the operational year during which the financial element was prepared; and the percent of change between the 1\VO MOA periods. I nclude all data relating to the purchase of school bus and Sectio n 9 mass transit transportation services. The three parts of this elemen t are discussed separately i n the following paragraphs. The "pe r cent of change" column s h ou l d be calculated using the follo,ving formula: 9Fiorida Transportation Disadvantaged Commission) Coordinated Transportation Contracting Instructions, May 1992. A-3


((b-a}'-a) I 00 = c Where: a= Current MOA Year column b =Next MOA Year column c = Percent of change column The historic data and future projection methodology utilized to prepare the "NEXT MOA YEAR" column of the "Past and Future Estimates of Service" and the "Detailed Two Year Financial Plan" should be explained as part of the introd uction to this element. All purchasers of servic e shall make every effort necessary to advise the CTC and the Coordinating Board as to their respective administrative requirements and service needs in advance of developing the service plan. This should allow the Finance Element and Cost/Revenue Allocation And Fare Structure Element to be reflective of the services that are expected and therefore create less paperwork and controversy in the execution of the Purchase Of Service Contracts a Past and Future Estimates of Service This part of the finance element shall contain operational data relating to three different factors associated with the level of service This data is to be presented relative to the two year period as described in the previous paragraph. Use the following guidelines when completing this part of this element. T otal System Vehicle Mile s shall reflect the combined total mileage by each vehicle in your total system providing passenger transportation for the transportation disadvantaged. This is to include deadhead, maintenance and any other natural non revenue mileage Total System Driver Hours shall reflect the combined driver hours accumulated in the provision of passenger transportation for the transportation disadvantaged. Total System Passenger Trips shall reflect a listing of all transportation disadvantaged passenger trips by each purchasing program or entity. Passenger trips shall be identified in terms of one-way passenger trips. Trips should be li ste d by program. A 4


All operational data included in the previous categories should correspond to past or future expenses which are itemized in the following detailed two year finance plan. This operational data will be used later in this element to define system performance trends. b. Detailed Two Year F inanc e Plan Utilizing the Commission's recognized Chart of Accounts defined in the Transportation Accounting Consortium Model U niform Accounting System for RWJ!) and Specialized Transportation Providers or an existing and equivalent accounting system, the CTC should prepare a DETAILED two year fmancial p lan in a forma t similar to the sample format contained in the appendix of this manual. Sufficient detail is required in this part of the element to provide the CB and TDC with information to properly analyze the individual cost elements of the CTC's operation. The prepared financial plan should reflect the CTC s fully allocated operating costs. It is not necessary nor is it always possible to use the exact forms which are supplied in the sample. This is because they may not allow enough room for sufficient detail for all sub-categories. The Detailed Two Year Finance Plan must follow a format which is similar to that which is provided in the appendix of this man ual except it mus t contain detail. Based on available data, the CTC should inc l ude those applicable costs and revenue data for any transportation operator util ized by the coordinated system. The expense and revenue portions of the Detailed Two Year F in ance Plan will reflect your total system b udget for the CURRENT MOA YEAR, and the NEXT MOA YEAR to provide a two year overview of system operation costs and expectations. These figures should reflect only passenger transportation related functions. The format requires that you examine more than just basic operating costs. It requires you to consider all operating costs incl uding depreciation and all purchased or donated transportation services, so that you can determine the fully allocated cost of operating the coordinated system. The object code numbers in the sample format finance plan are taken from the Model Uniform Accounting System For Rural and Specialized Transportation Providers and is also referred to as the Uniform Accounting System. The following comments may be helpful to you : A-5


I. FULLY ALLOCATED OPERATING COSTS: Total cost of providing coordinated transportation including those services which are purchased through transportation operators or provided through coordination contracts This figure includes full depreciation of your fleet if any, and other assets. In cases where Transportation Operators are obtained via the negotiation or RFP process, their depreciation is already included in the Purchased Transportation Services Account 2. ALLOCATED INDIRECT COSTS: This portion of the detailed two year finance plan is for those entities who are involved in more than transportation disadvantaged services and have allocated indirect costs to be included in the finance plan. It includes costs that are (a) incurred for a common or joint purpose benefitting more than one functional activity and (b) not readily assignable to the functional activity specifically benefitted. I ndirect costs can originate from the CTC's department, as well as being incurred by other departments in supplying goods services and facilities to the CTC. If indirect costs are included in th i s section, the CTC shall have an indir ect cost allocation plan developed in accordance with the Federal Common Grants Rule. It will not be necessary to include a copy of the proposal in the service plan, but a copy should be available for review upon the request of the Coordinating Board or TDC. 3. PROFIT: This portion of the detailed two year financial plan is for applicable for-profit CTC's to indicate the maximum amount of profit which is anticipated Indicate this profit on the appropriate lines as a percent of direct and indirect expenses. Use the following formula when making this calculation. (Y +X)lOO = percent profit Where: X = subtotal of Direct (I) and Indirect (II) expenses Y = amount of profi t anticipated A-6


c. Total System Performance Trend The intent of this part is to determine fully allocated costs per total system vehicle mile, total system passenger trip and total system driver hour for the current MOA year, and next MOA year. The format for presenting this part of the fmance element is included in the Appendix of this manual. The fully allocated operating cost factor divided by the total system vehicle miles, driver hours and passenger trips will provide data by which a systems year-to-year trends can be evaluated by the CB and TDC. The information for this part is ex:tractcd from the Past and Future Estimates of Service, and Detailed Two Year Financial Plan parts of this element. After your document is complete, enter the correct page nwnbers in lines 1 2,3, and 4 Although the costs identified in the detailed two year financial plan represent the "rolled up" total cost of the services to the taxpayer, it should be understood that these costs and subsidies should be further allocated to the various segments or modes of service that are provided through the CTC's syst em before fare structures can be equitably developed. The follo wing element, "Cost/Revenue Allocation and Fare Structure Element" will start with the costs and revenues identified in the NEXT MOA YEAR column of the finance p lan and allocate them to the respective types of service that are provi ded (i.e., individ ual, small group, large group, after hours, weekend, fixed ro ute, etc.). A-7


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I. "* ....... --.... _..., ........ -b. Detailed T w o Y ear F i nance Plan DIREC T TRANS P O RTATI O N S Y STEM EXPE N SES AND (O B J E CT CODE) A. LABOR (501) 1. Operator Salaries and Wage s (.01 ) Range of hourly wages 2. Training Salaries and Wage s (.02 ) Range of hourly wages 3. Dispatcher Salaries and Wages (.03) Range of hourly wages 4. Administrative Salaries and Wages ( .04) Range of hourly wages 5. Other Salaries and Wages (.99) Range of hourly wages B FRINGE BENEFITS (502) 1. FICA (. 01) 2. Medical Insurance Plans (.03) 3. Life Insurance Plans ( .05) 4. Workers Compensation Insuranc e ( 0 8 ) 5 Holiday Pay (.10) 6. Vacation (.11) 7. Other ------------L,,......,-=-:-l 8. Other ___ ( 99) C. SERVICE S (503) 1 Management Service F e e s ( 01) 2 Advertisin g Services Fees (.02) 3. Professional and Technical Service s (.03) 4. Other 5 Other SU B D. MATERIALS AND SUPPLIES {50 4 ) 1. Fuel and Lubricants Consumed (.01) 2. Tires and Tubes Consumed (. 0 2 ) 3 Inventory Purchases (.03) 4. Others Materials and Supplies Consumed (.99) SUB Rev. 12 /20/tl (Column A} $ CURRENT M O A YEAR E XPEN S E S (Column 8 ) (Column C l $ NEX T M O A P ERCENT YEAR O F CHANGE (Eatil!l4tedl C ( (8-A} A} 1 0 0


b. Detailed Two Year Finance P lan E. UTILITIES (505) 1. Utilities -Telephone (.02) 2. Utilities -Other (.99) SUB TOTAL : F CASUALTY AND LIABILITY COSTS (506) for Physical Damage Insurance (.01) 1. 2. 3 4 Prem. Prem. Other Other for Public Liab. & Property Damage (.02) ( _j Insurance ___ ________ (. 99) SUB TOTAL: G. TAXES (507) 1. Property Tax (.03} 2. Vehicle licensing and Registration Fees (.04} 3. Other Taxes (.99) SUB TOTAL: H. PURCHASED TRANSPORTATION SERVICES (508) 1. 2 3. 4. 5. 6 7. Rev. )2/20/n List each source of purchase (.01.99) SUB TOTAL: ( 01} (. 02) (. 03) (. 04) (. 05) ( 06) (. 07) $ CURRENT MOA YEAR EXPENSES $ NEXT MOA PERCENT YEAR OF CHANGE (Estimated ) C ( (B-A) +A) 100


..., s; .a..a.'t.n..a.'t ..._.D ..:t .a..u:u.,, A 4 'f J. b. Detailed Two Year Finance Plan I. MISCELLANEOUS EXPENSES (509) 1. Dues and Subscriptions (.01) 2. Travel and Meetings (.02) 3. Advertising/Promotion Media (.08) 4. Other SUB TOTAL: J. INTEREST EXPENSES (511) 1. Interest on Long-Term Dept Obligations (.01) 2. Interest on Short-Term Dept Obligations (.02) SUB TOTAL: K. LEASES AND RENTALS (512) 1. Passenger Revenue Vehicles (.04) 2. Service Vehicles (.05) 3 Vehicle Storage and Dispatch Center (.06) 4. Maintenance Equip. & Facilities (.07) 5. Data Processing Equip. (.10) 6. Other SUB TOTAL: L. DEPRECIATION AND AMORTIZATION (513) 1. Passenger Revenue Vehicles (.04) 2. Service Vehicles (.05) 3. Vehicle Storage and Dispatch Center (.06) 4 Maintenance Equip. and Facilities (.07) 5. Data Processing Equipment (.10) 6. Other 7. Other SUB TOTAL: Rev 11/20/fl $ CURRENT MOA YEAR EXPENSES $ NEXT MOA PERCENT YEAR OF CHANGE (Estimated) C ( (8 .. A) A ) 100


-_ .. ______ _ _ __.._ .. _.....,,.___.,.. _ b. Detailed Two Year Finance Plan M. CONTRIBUTE D SERVICES -ALLOWABLE (530) 1. 2. 3. 4 5. ( J ( _j_ ( )_ ( ) ( ) Describe each and place the value. SUB T O TAL: N. INELIGIBLE EXPENSES (550) II. l. L __._ Describe SUB T O T AL: ALLOCATED INDIRECT COSTS: Derived from cognizant agency-approved Cost Allocation Plan, completed i n accordance with the Federal,Common Grants Rule. SUB-TOTAL OF DIRECT (I) AND INDIRECT (II) EXPENSES: (X) $ CURRENT MOA Y EAR . III. PROFIT (if applicable) (Y) $ _ _ Indicate below, the profit as a percent of direct and indirect expenses. (Y+X)lOO =%profit CURRENT MOA YEAR PROFIT NEXT MOA YEAR PROFI T IV. FULLY ALLOCATED OPERATING COSTS: Rev. 12/20/U EXPENSES $ NEXT MOA PERCENT YEAR OF CHANGE (Estimated) C= ( (B-A) +A) 100 $ ___


"S r .ISLIISftQ1"fJ : b. Detailed Two Year Finance Plan A. Farebox (401) 1. 2. L_l ( ) B. Special Fares (Contract/Purchase of Service) (402) See Contract/Purchase of Service Summar y at the end of the Revenue section for detail of this line item. C. School Board Service (403) D. Freight Tariffs (4041 E. Charter Service (405) F. Auxiliary Transportation ( 406) 1. Concessions Revenue (.01) 2. Advertising Revenue (.03) G. Non-transportation (407) 1. Sales o f Maintenance Services (.01) 2. Rental of Revenue Vehicles (.02) 3. Rental of Buildings and Other Property (.03) 4. Other Non-Transportation Revenues ( .99) H. Taxes Levied by Transit System (408) 1. Property Tax Revenue (.01) 2. Sales Tax Revenue (.02) I. Local Cash Grants and Reimbursements (409) 1. General eperating Assistance (.01) 2. Local Share of State Projects (.03) 3. Local Share of Federal Projects (.04) 4. Other J. Local Special Fare Assistance (4101 1. Handicapped Citizen (.01) 2. Senior Citizen (.02) 3. Students (.03) 4. Other------------------------------( 99) Rev. 12/20/91 $ CURRENT MOA YEAR REVENUES $ NEXT MOA YEAR PERCENT O F CHANGE (&stimated) C((B-A)A)lOO


b. Detailed Two Year Finance Plan K. State Cash Grants and Reimbursements (411} 1. General Operating ASsistance (.01} 2 State Share of Federal Projects (.04} 3. Other L. State Special Fare Assistance (412) M. Federal Cash Grants and Reimburs. (413} 1. General Operating Assistance (.01) 2. Special Demonstration Projects ( 02} 3. Other Federal Financial Assistance (.99) N Interest Income ( 4 1 4 ) 0. Contributed Services (430} 1. Allowable ( 01} -List Below 2. 3 4 s. P. Contributed Cash (431) 1. Direct Donation (.01) 2. Fund Raising (.02) Q. Subsidy From Other Sectors of Oper. (440) Total Revenue Rov 12/20/tl $ CURRENT MOA YEAR REVENUES $ NEXT MOA PERCENT YEAR OF CHANGE (Estimated) C ((B-A) +1\) 100


. ..... .. --___ . ,... ... ,,., b. Detailed Two Year Finance Plan -REVENUES SPECIAL PARES (402) Detailed Contract/Purchase of Service Snppery 1. T.D.Commission sponsored trips 2 3. 4 s. 6. 7. 8. 9. 10. ll. 12. l3. l4. 15. 16. PLEASE ADD PAGES, IF NECESSARY ltcv. 12/20/91 TOTAL $ CURRENT MOAYEAR $ NEXT MOA YEAR PERCENT OF CHANGE (Esti mated) C ( (8A ) A ) 100


4 FINANCE ELEMENT C. TOTAL SYSTEM PERFORMANCE TREND TOTAL SYSTEM PERFORMANCE TREND BASED ON FULLY ALLOCATED OPERATING COSTS: 1. Fully Allocated Operating 2. Costs from page Total Miles System Vehicle from page ___ 3. Total System Driver Hours from page __ 4 Total System Passenger Trips from page s. L ine 1 divided by Line 2 = Fully allocated cost per system vehicle mile 6. Line 1 divided by Line 3 = Fully allocated cost per system driver hour 7. Line 1 divided by Line 4 = Fully allocated cost per system passenger trip .... ,.,,.,,,.. CURRENT MOA YEAR NEXT MOA PERCENT YEAR OF CHANGE (Estimated) C=((B A)A)lOO


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5. COST/REVENUE ALLOCATION AND FARE STRUCTURE ELEMENT The Cost/Revenue Allocation and Fare Structure Element is intended to provide detailed information about bow the overall costs of the CTC's operations, as identified in the aforementioned NEXT MOA YEAR column of the Financial Element, will be allocated to the different transportation disadvantaged service segments arranged or provided by the CTC. This element should also include details regarding: (I) any applicable subsidies received by the CTC; and (2) how those subsidies are applied to specific fare structures. Due to the diversity between coordinated systems, and a multitude of acceptable manners in which costs and revenues can be allocated, we have not provided any minimum format for this element This also affords each ere the flexibility to develop allocation methodology or plans within existing capabilities. This element can be as simple or as detailed as the CTC, local Coordinating Board, and TDC feels is necessary to appropriately justify the fare structure. It is recommended that at least an allocation of costs between individuaVsporadic and group subscription type services is made since the cost of these type services is significantly different. For services that are arranged through the bid process, this effort can be significantly simplified, however there will continue to be an allocation of the CTC's costs for services rendered. It is intended that the data provided in the Cost/Revenue Al locatio n and Far e Structure : Element be utilized by the ere and purCh8$ers of service as the base fare structure for specifically identified services. Ideally, each purchase of service contract would only have to refer to the services and fare structures that are identifi ed and justified in this element of the service plan. Further adjustments for a particular purchaser who requires a different level of service that is identified after the time that a service plan i s approved may be made in the purchaser's purchase of service contract. All purchasers of service shall make every effort necessary to advise the CTC and the Coo rdi nating Board as to their respective administrative requirements and service needs in advance of developing the service plan This should allow the Finance Element and Cost/Revenue Allocation And Fare Structure Element to be reflective of the services that are expected, and therefore create less paperwork and controversy in the execution of the Purchase Of Service Contracts. Although this Element of the service plan can be very lengthy and technical in nature it shall be summarized at the end of tlte element to include a one page identification of the A-19


various services provided and the fare structure for each service. This one page reference is intended to be a quick reference listing of all available services and the fare for each service. This page number sha ll be identified in the table of contents on the "Fare Structure line. It is intended to provide a uniform listing of services that are available to any purchaser, and that every purchase of service contract would only have to reference the service p lan in identifying approved fares THIS IS A CHANGE FROM THE PREVIOUS SERVICE PLAN WHICH DID NOT CONTAIN FARE STRU CTURES. This would allow for a simpler process if there is a change in fares or new services become available. Only the service plan would have to be adjusted Each purchase of service contract would not have to be amended if they simply reference services that are approved in the service plan In addition, this provides a single location of information regarding fares and allows the local Coordinati n g Board, TDC and others the opportun i t y to do a comprehensive analysis of the fare structure A 20


APPENDIXB Sample Element 5 Fare Structure Form B-I


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ll "' I Sample Element 5 Fare Structure Form Ba s ic Door-to-Door Service M-F 6 a.m.-6 p.m. Other Times Demand Respo nsiv e $. _ _ $. _ _ Reservation $ ____ $ ____ The fares in the above fare structure could be per trip, per mile. per grid, ptr haur, etc. Service Enhancements** Service Charge Door -thro ugh-Door $ Will Call $ Wait for Return $ Outside Service Area $ Elig i bility Confirmation $ Other service enhancements also could be included Spbscription Group $. ___ _ $. ___ $. ___ _ $. ____ Poss ible Cost Methods*** per trip surcharge per trip surcharge per hour surcharge per mile or per hour surcharge per trip or per client surcharge ..,,. These "possible" cost methods are not the only ways t o a$$eS$ these types of fees; they are merely ex

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' APPENDIXC Appropriate Cost Sharing for Paratransit Service C I


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Il l I :rain & 4.SS()Ciates.lnc. p I I d 120SANTAMAAGAAITA MENLO PARK. CALIFORNIA 94025 TEL: (415) 323 3444 FAX: (41 5 } 323t APPROPRIATE COST SHARING FOR PARA TRANSIT SERVICE Paper for Presentation at the 13th National Conference on Accessible Transportation and Mobility October 25-28, 1992 Tampa, Florida by David Koffman Crain & Associates, Inc. Menlo Park, California


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David Koffman Appropriate Cost Sharing for Paratransi t Service Page 1 ABSTRACT AND INTRODUCTION Public transit operators providing paratransit service to comply with the Americans with Disabilities Act are focusing on paratransit as a form of supplementary public transportation. Much of the demand for paratransit service consists of trips that bring clients of social service agencies to and from programs of those agencies. For various hiS1orical and inS1itutlonal reasons this demand Is considered different than demand by unaffiliated individuals for non-agency purposes. In order to reduce their financial burden of compliance, the operators often desire to recover all or part of the coS1 of "social service agency trips" from the agencies. This paper uses two case studies to illustrate three issues connected with recovering the coS1 of agency trips: 1. How to determine or define which trips are agency trips are which are individual trips. 2. Reaching agreement on what is the appropriate fare or share of costs to be paid by the agencies. 3 Determining the actual cost of the agency trips. The paper also presents a cost allocation model for paratransit service, which was used to determine the fixed and variab le components of cost for eight different types of service offered by a single provider and shows how such a model is useful for policy decisions. BACKGROUND As paratransit services have developed they have been viewed in two different ways: 1. As a form of public transportation, similar to conventional transit systems for people who cannot use conventional transit. 2. As an adjunct to social services for a variety of special groups, including people with disabilities, low income people, and seniors. The two views are reflected in distinct but connected histories of legislative efforts and programs. Paratransit as Public Transportation The "public transportation" view is connected to the debate that used to take place over a perceived choice between fixed-route accessibility and separate door-to door service This view is embodied in the federal Department of Transportation rules


David Koffman Appropriate Cost Sharing for Paratransit Service Page 2 implementing Section 504 of the Rehabilitation Act of 1973' which required "interim accessible transportation" as a temporary substhute for fixed-route accessibility. The paratransit provisions of the Americans with Disabilities Act represent the culmination of this view. In requiring that transit operators provide paratransit comparable to the operators fixed-route services, the ADA makes the unspoken assumption that the demand for such services will be comparable, that Is similar, to the demand lor fixed route transit, in the diversity of trip purposes and destinations served, and the independent nature of most trip makers This "public transportation orientation" can be seen in many provisions of the ADA regulations, such as the prohibition on tri p purpose rules for non-subscription trips (also in the earlier 504 regulations), the limitation of subscription trips to 50% of demand at any time of day, and the provision that fares for social service agency trips are excepted from the twice-fixed route limits that apply to other paratransittrips. Paratransit as Socia l Service Most paratransil service in the United States (including both public and non profit providers) is of the second type For example the San Francisco Bay Area Paratransit Plan d ivi ded existing paratransit trips into two types: General trips were defined as trips by individuals to destinations of their choice, not associated with any agency programs. Program trips were defined as trips provided by or sponsored by human service agencies lor the purpose of carrying clients to and from programs of those agencies. The plan found that existing paratransit services in the nine-county San Francisco Bay Area provided about 1.5 million "general trips" and 4.1 million "program trips: For at least 20 years policy makers and practhioners have been complaining about the uncoordinated nature of social service transportation and attempting to coordinate it. For example one of the goals of Section 147 of the 1973 Federal Highway Act was to "enhance coordination i.e. increasing productivity, reducing duplication of services, and arriving at economies of scale among agency transportation providers. The notion that coord i nat i on would lead to reduced cost is a ls o contained in the 1979 504 regulations which state: *49 C F R Part 27, Federal Register, Vol. 44, No. 106, Thursday, May 31, 1979. This "final rule" was later re-issued in May 1986 following a legal challenge and Congressional action, and eventually subsumed into the ADA regulations . "Crain & Associates, Inc., for the Metropolitan Transportation Commission, November 1980.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 3 The recipient, working through the MPO, shall use its best efforts to coordinate and use effectively all available special services and programs in the community in order to ensure the provision of service that meets the standards of paragraph (b)(2)(ii) of this section. Such services and programs may reduce t h e recipient's expenditure ob li gation under paragraph (b)(2)(i) of th i s section ... ." Cost-Sharing as a Barrier to Coordination One of the (many) barriers to coordinat ion has been the fear that one agency or another will not shoulder its fa i r share of costs. In particular some "general public" paratransit programs, such as those run by transit operators and cities, have been concerned that coordinated service will lead to "client dumping" on the part of many agencies--in other words, that agenc i es would simply discontinue their own service and rely on the public service without making any financial contribution beyond the regular fare In that event the notion contained in the 504 regulat i ons just clted would be misguided By coordinat ing a transit operator would I ncrease rather than decrease its financial obligation. The case studies in this paper illustrate how these concerns have played out in two situations. THE SITUATION IN TWO COUNTIES San Mateo County, California San Mateo County is located on the San Francisco peninsula, immediately south of the City and County of San Francisco. It has a population of about 650,000 with moderately dense development in the urbanized areas. The San Mateo County T r ansit District, known as SamTrans operates fixed-route service on an annual operating budget of about $50 million, carrying about 18 million passengers per year on 86 routes with 302 buses. Sam Trans also operates a paratransit system called Redi-Wheels for elderly and d i sabled riders. Redi-Whee l s service is provided under a contract w i th DAVE Transportation us ing a fleet of 28 Sam Trans-owned accessible minibuses. In Apri l 1992, as part of its ADA compliance plan, SamTrans initiated a supplementary taxi and lift-van program to handle tr i ps for which there is insufficient capacity using the Redi-Wheels f l eet. In the more than ten years that Redi-Wheels has been operating, the service has come to be dominated by service for social service agencies and their clients "40 CFR 27.97, Federal Register Vol. 44 No. 106, May 31, 1979, p. 31480.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 4 The history of this trend the language used in discussing it, and policy decisions pertaining to it have been a source of intense discussion and discord between Sam Trans and other agencies. Until recently there had been a consensus among most participants in the planning process that providing social service agency trips served important community needs and made the most effective use of resources by serving many group trips. The Paratransit Coordinating Council, a community oversight organization with a mandate from the local metropolitan planning organization, had established a trip priority system which reenforced the focus on agency trips. This consensus began to evaporate during the period leadl ng up to passage of the ADA, when the vast unmet need for general paratransit trips came to assume more importance. Through June 1989, a non-profit agency, Poplar Center, operated parallel to Redi-Wheels providing service exclusively for social service agency programs. Poplar Center charged the agencies under a variety of rates which recovered amount ranging from 1 1% to 100% of the cost of service. The remainder was covered by a variety of public funding sources. At this time Poplar Center was also the Redi-Wheels contractor Redi-Wheels service provided rides to clients of many of the same agencies as did Poplar Center's own service, charging them the regular Redi-Wheels fare which was $.60 at that time In July 1 990 Poplar Center discontinued most of its transportation operations because they were losing money. SamTrans contracted with DAVE Transportation to provide the Redi-Wheels service, and most of the former Poplar Center agency service was folded into the Redi Wheels service. At about the same time a new "Equitable Fare Structure" was adopted which was designed to recover approximately 31% of cost from all agencies receiving service. The Equitable Fare Structure proved to be extremely unpopular with certain agencies. In late 1 990 work began on the San Mateo County Para transit Plan. The situation at that time was as follows: Approximately 64% of Redi-Wheels trips were being used to carry clients of ten agencies. The agencies were being charged according to the Equitable Fare Structure which would actually recover about 24% of the cost of service. Two agencies serving clients with developmental disabilities, whose clients had received Redi-Wheels service for $.60 per ride, refused to pay according to the equitable fare structure. Redi-Wheels did not collect fares from those clients and continued to bill the agencies. Approximately 21% of Redi-Wheels trips were being used to provide subscription service to unaffiliated individuals, primarily for dialysis and cancer therapy.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 5 The ADA had already been passed, which would require unconstra ined service primarily directed at non-subscription travel, which then accounted for only 15% of Redi-Wheels service. Eugene Oregon (Lane County) Eugene Is the county seat of Lane County. The metropolitan area, which includes the adjacent city of Springfield, has a population of just under 200,000. Fixed-route transit service is provided by the Lane Transit District (LTD) which serves about 6 million passengers per year with a fleet of 77 buses and an annual operating budget of about $9 million. For paratransit service, LTD contracts with the Lane Council of Governments (L-COG) which in turn contracts with Special Mobility Services, Inc (SMS) for daily operations in the Eugene area SMS is organized as a non-profit corporation, and has obtained 15 vehicles through the 16(b)(2) program for use in Eugene area paratransit service. Paratransit service in the Eugene area has been highly coordinated. LTD has seen this as a way to spread overhead costs over a larger base Nearly all available transportation-related subsidy funds are channeled through the one contractor, SMS. SMS, as a non-profit has been able to obtain 16(b)(2) vehicles, and has generally been the only applicant for 16(b)(2) vehicles in the Eugene area In delegating the contacting function to L-COG, LTD has encouraged coordination with the variety of senior services provided by L-COG, including the senior component of the Title XIX (Medicaid) program, and the federally funded Senior Companions program. L -COG has encouraged SMS to provide service to a number of social service agencies. When Crain & Associates began work on the Lane County Long Range Paratransit Plan, the situation was as follows: One agency, which provides services to developmentally disabled clients, entered into a formal contract with SMS, under which It paid a flat amount of $24,000 per year and received approximately 4,100 vehicle hours of service. An adult day care agency received service at the regular Dial-a-Ride fare. Clients of the county developmental disabilities agency rece ived after hours taxi service at no charge. In response to encouragement from L-COG to make a substantial amount of trips availa ble to the Title XIX program, SMS had quoted rates for Title XIX service which were substantially below the state-a i lowed maximum rates.


David KoHman Appropriate Cost Sharing for Paratransit Service Page 6 lCOG had also used s: 9 Older Americans Act funds under its administration to fund a Volunteer Escort program. and a flexible-route grocery shopping service for seniors, both of which were operated by SMS. However, by 1990 the OAA funding had been reduced to very small amounts, while the services continued. Excluding volunteer service and the flex ible-route grocery shopping service, about 50% of paratransit service was being provided to agency-sponsored riders. including Title XIX clients. As part of the long Range Paratransit Plan, l-COG and l TO wished to address the issue of coordination, and determine whether the existing distribution of service and costs was fair and mutually bene ficial. WHAT IS AN AGENCY TRIP? In both San Mateo County and lane County, transportation officials were concerned about the amount of resources going fo r social service agency trips, and wanted to develop policies that would be viewed as fair while preserving funds for ADA compliance. An Inherently Fuzzy Distinction A key element in any policy has to be a definition of what is an agency trip. StaH of social service agencies correctly point out that their clients are individuals and have the same right to service as any other individuals. Much travel to socia l service programs is initiat ed at the individual's request. They point out that social service programs serve the needs of particular groups in much the same way other institutions and businesses serve other needs. San Mateo County began grappling with this issue before final ADA regulations were available. The draft regulations issued in March 1990 did not attempt to define agency trips. As part of its work in San Mateo County, Crain & Associates developed a working definition based on the concept of an agency slot which it also proposed to FT A in comments on the draft regulations. The final regulations incorporate language very similar to the San Mateo proposed policy. (No doubt similar comments came from many sources.) ADA Regulations DOT's final rule implementing the transportation provisions of the ADA states: "The entity may charge a fare higher than otherwise permitted by this paragraph to a socia l service agency or other organization for agency trips (i.e. trips guaranteed to the organization.)" ( 37.131 (c)(4)) CFR Part 37, Federal Register, Vol. 56, No. 173 September 6, 1991.


David Koffman Appropriate Cost Sharing tor Paratransit Serv i ce Page 7 Appendix D to the regulations, which provides the official interpretation of the rules, includes the following guidance: ''This exception ... appl i es to 'agency trips,' by which we mean trips which are guaranteed to the agency fo r its use That is, if an agency wants 12 slots tor a trlp to the mall on Saturday for clients with disabilities, the agency makes the reservation for the trips in its name, the agency will be paying for the transportation, and the trips are reserved to the agency, for whichever 12 people the agency designates, the provider may then negotiate any price it can with the agency tor the trips. We distinguish this situation for one in which an agency employee, as a service, calls and makes an individual reservation in the name of a cllent, where the client will be paying for the transportation." The p r eamble to the regulations explains that part ot the in t en t of this provision is "to deter 'dump i ng' of social service transportation onto the public paratransi t system." The ADA Paratransit Handbook' interprets the distinction this way: "Informal referrals by human service agency staff should not, however, be treated the same as contract services For example, a request for service might be made by an agency on behalf ot an eligible rider with a cognitive or communication disability. In this case, the complementary paratranslt service fare must be u sed. (Page 5-7) The Handbook distinction turns on the word "contract." However, typically t he issue is precisely whether certain trips by agency clients should be covered by a contract of some sort, or whether the agency (acting on behalf ot its clients) has a right to service, under ADA rules, with no f urther negotiation The language in Appendix D ot the regulations indicates several useful guidelines: 1. Is a specific quantity of service guaranteed to the agency? 2. Can the agency designate which of its clients will use the service guaranteed to it? 3. Does the agency make the reservation in its name? 4 Does the agency rather than the client pay fo r the rides? The first three guidelines are clear, but the fourth is not, since some agenc ies which do pay for service maintain that they are simply acting as a collection agent for their 'EG&G Dynatrend and Katherine McGuiness and Associates, Report UMTAMA06-0206-1 September 1991.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 8 clients, who actually bear the cost. Moreover, the question of whether the agencies should pay is not a given; ra!:-!er it is often the issue that needs to be decided. Resolution in San Mateo County Both San Mateo and Lane counties have arrived at similar policy solutions based on the ADA regulations. In the case of Lane County, the process was relatively straightforward and cooperative, while in San Mateo County the process was drawn out and discordant. The main focus in both cases was on repeated service of a subscription nature. The essence of the policy is that trips per se cannot be classified as to whether they are agency or individual trips. However service types can be distinguished. It was decided that agencies should be free to choose between two types of service. As described in the San Mateo County Para transit Plan, the two types of service are: Agency Slot: An agency slot would be a trip guaranteed to a particular agency, regardless of the individual who is using it The agency could change the persons filling their slots at any time. Individual Subscription Trip: A recurring trip for which a standing order is placed. Subscription trips would include trips taken by unaffiliated individuals. for example to dialysis, therapy, or school. A subscription trip would be guaranteed to the individual rider, not the agency, hospital, or school. Each individual subscription would be for travel to a particular destination. If the individual no longer needs to go to that destination, they would give up that subscription, and would go on the waiting list for any new subscription to a different destination. If the person is traveling to a social service program on an individual subscription (i.e. not an agency slot), the agency has no rights to the subscription. A waiting list will be established for individual subscription trips. Anyone desiring subscription service who is on the waiting list would be able to call and request each trip as a non-subscription trip. However, if demand is such that some requests are being denied. they would have no guarantee of service. The waiting list could take into account trip purpose priorities. Agencies that choose agency slot service are subject to cost sharing or premium fares. Any agency that does not wish to pay the premium fare for a guaranteed slot can ask its clients to take their chances with obtaining an individual subscription. or arranging each trip separately. It appears that two San Mateo County agencies will decide to treat their clients as individual subscribers. These are the same two agencies serving developmentally disabled clients who objected to the original Equitable Fare Structure. Their clients had historically paid only the regular RediWheels fare of $.60 (since raised to $.85). Both agencies are contractors to the Golden Gate Regional Center, which is


David Koffman Appropriate Cost Sharin g for Paratrans i t Service Page 9 responsible for the full range of services to people with developmental d i sabilities. The Regional Center like its s i ster agencies throughout California, maintains that it cannot legally pay a public transit agency more than the regular fare for service. The Regiona l Centers are also p r ohibited from charging their clients for services. It remains to be seen whether the Regional Centers will actually be content with the limitations of individua l subscript ion service. In contrast, agencies prov i ding services to seniors have indicated their satisfaction with the new agency fare policy. These are the same agencies that had contracts with Poplar Center before and which promoted the orig i nal Equitable Fare Structure. They see a guaranteed quantity of service as essentia l to be i ng ab l e to plan their programs According to the agency directors, they pass the cost of transportation on to their c li ents Medicaid trips have never been provided by Redi Whee ls, and so are not an issue with respect to cost sharing. Reso l ution in Lane County Lane CountY. adopted a similar policy, distinguishing between contract Service" and Individua l Subscriptions Contract service in Lane County may be j ustified not just by guaranteed service, but any kind of service that goes beyond normal dial-a-ride parameters for example in terms of quantity of service used, directness of routing, hours, eligibility, or the level of passenger assistance provided As in San Mateo County, i t appears that agencies accustomed to paying only the regular fare will opt for i nd i vidual subscriptions, while agencies accustomed to paying more will opt for contract service. The actual division with r espect to type of agency is opposite the one in San Mateo County. Pearl Buck Center, which serves clients with developmental disabilit i es, will probably continue to contract for serv i ce. It niay be noteworthy that the Pearl Buck contract has always been with SMS, the private provider of dial a-ride services, and not with the County or the transit district. The major adult day care provider, i n contrast, will probably request individual subscriptions for its clients. The day care center has always requested individual rides for its clients, who pay the regular fare themselves. At times day care clients have endured significant ref u sal rates although not recently. Lane County plans to begin forma l subscription service, which has never existed in the past, so day care clients will actually experience improved service. A significant element of the Lane County plan is to charge higher fares for individual subscr i ptions than for other trips. Currently all dial-a-ride trips cost $.30, and monthly passes are available. The Lane County Long Range Paratransit Plan calls for phasing in a new fare structure under which individual demand-responsive trips will cost the same as the regu lar fixed route fare (now $.75) and subscription trips will cost $.25 more. At $1.00 subscription fares will sti ll be under the twice-fixed route ADA limi t. Month l y passes will be phased out


David Koffman Appropriate Cost Sharing for Paratransit Service Page 10 Lane County does serve Medicaid trips through its paratransit program, but has chosen to treat Medicaid service as distinct from social service agency service. This decision is based on the long standing practice of the Medicaid program to pay for transportation. As described in the concluding section of this paper, Medicaid will be charged more for service by the dial-a ride provider than i1 has in the past. WHAT IS THE APPROPRIATE AGENCY COST SHARE? Paratransit fares typically recover a very small percentage of the full cost of service, often below 10%. In theory agencies should pay at least enough to compensate the providing or funding agency for any additional burden it incurs from whatever special treatment the agency Is receiving. This goes back to the principle that agency clients have the same rights as any other individuals. In other words. a higher fare or cost share i s appropriate if clients are rece i ving more than-equal rights Th i s would be the case if the cl i ents avo i d having to go on a waiting list for limited subscription service. if they are not subject to the usual eligibility rules, if they receive a higher level of assistance. etc. In practice the decision on cost shares was based not on theory but on negotiation and local circumstances. In San Mateo County a precedent had been set under the old Equitable Fare Structure, which was based on a calculation that the agencies served by Poplar Center had been pay ing 31% of the full cost of service. Therefore i1 was possible to obtain agreement on a minor increase to 33% of actual cost. Since the actual cost per trip with Redi-Wheels is higher than was the apparent cost per trip with Poplar Center (which was actually l osing money), the agencies will see a substantial increase in fares. There will be one phase-in year with 25% cost recovery. In Lane County, the transit district took the position that funds available for d i al a-ride service shou l d not be used to subsid i ze special service for the agencies. This pos i tion was consistent with the original philosophy under which the provider had been encouraged to provide agency contract service in order to achieve econom ies of scale and spread overhead costs. As will be described i n the next section, a careful cost analysis showed that the agency contributions were not paying the full cost of service received, and not even the variable cost of service. (The concept of variable cost is discussed more in the next section.) In order to avoid cross subsidies while min i mizing the burden on the agencies, it was decided to charge t 00% of the variable cost of service (less vehicle depreciation) for agency contract service. HOW TO DETERMINE THE ACTUAL COST OF AGENCY TRIPS Assum ing agreement in principle on an appropriate agency share for certain types of service, it remains to determine what the service received by the agencies actually costs The simplest method would be to determine average cost per trip for the system, and apply it to the agency trips That would not be fair, however since


David Koffman Appropriate Cost Sharing fo r Paratransit Service Page It agency trips tend to be highly grouped and do no t change much from day to day, therefore they take fewer vehicle-hours per trip, and also less scheduling and dispatching time per trip On the other hand, meeting agency requirements for maximum ride time or extra passenger assistance (delivering patients to doctors' offices In multistory buildings fo r example), could result in higher than average costs in some cases. Therefore some form of cost allocation model is needed. The cost allocation problem will be approached in two parts: 1. What portion of vehicle hours (or driver hours) is attributable to agency service? The bulk of cost is usually due to vehicles and drivers, so it is important to determine whether the productivity of the agency service is higher or lower than the product ivily of other service and by how much. 2. What port ion of other costs should be charged to agency service? Estimates must be made of the amount of administrative and management time, scheduling and dispatching time, maintenance cost, volunteer time, etc. which are attributable to agency service. Allocation of Vehicle Hours In some cases it is easy to identify which part of each vehicle's schedule is for service to a particular agency. In that case, the vehicle hours for agency service can simply be tallied up from vehicle schedules This was the case in Lane County for contract service to Pearl Buck Center, for bringing its developmentally disabled clients to and from the Center. In this case; provider records gave driver hours rather than vehicle hours. It was found that 3,026 driver hours were used to provide 12.444 rides, a productivity of 4.1 rides per hour, well over the average of 2. 7 rides per hour for all demand responsive service. The difference reflects the grouping of trips, and the fact that most of the clients are ambulatory. In other cases agency rides are mixed in the other rides so it impossible to separate the time used for each category of service. This occurs at least some of the time on Redi-Wheels. In Lane County adult day care and Medicaid clients are routinely mixed in with dial-a-ride clients. Crain & Associate s developed a statistical model for allocating hours in this situation. For a sample period of time, the contract providers were asked to record the information listed in Table 1 for each vehicle run.


David Koffman Appropriate Cost Sharing tor Paratransit Service Page 12 TABLE 1 INFORMATION RECORDED FOR ALLOCATING HOURS San Mateo County Lane County Total vehicle hours per run Total drive r hours per run Total individual trips on each run Total general dial-a-ride trips on each run for: Ambulatory riders Wheelchair users Tot al agency trips on each run Total trips on each run for: Adult day care Medicaid, ambulatory Med i caid, wheelchair Pearl Buck (developmentally disabled) Then the following regression model was estimated: Vehicle or driver hours = a + b, x (Trips of type 1) + b2 x (Trips of type 2) + b. x (Trips of type n). The coefficients b, through b. give the number of hours per trip attributab l e to each of the trip types The constant a gives the average number of hours per run not directly attributable to one trip type or another. Results in San Mateo County For a sample of 119 vehicle runs on Redi-Wheels carrying 1,900 passengers the results of the regression were: Vehicle hours = 3.55 + .697 x Individual trips (.039) + .259 x Agency trips." (.Ot9) The values in parentheses under the coefficients are the standard errors of the estimated coefficients, which show that the two coefficients are highly significant (different than zero with better than 99% probability) and also different from each other. A-squared was .53.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 13 In other words .697 vehicle hou rs can be attributed to each individual trip, and .259 vehicle hours can be attribu1ed to each agency trip. This means that the agency trips are more productive than ind ividual trips, in terms of trips per vehicle hour, by a factor of .697 + .259 2.66 Using this factor, and data on total annual trips of each type, and total vehicle hours, it is ppssible to allocate annual Redi-Wheels vehicle hours to each trip type as shown in Table 2. TABLE 2 ALLOCATION OF REDIWHEELS VEHICLE HOURS Trip Type Annual Trips Annual vehicle Trips per vehicle hours hour Individ ual 32,590 24,80 4 1.31 Agency 58,591 16,764 3 50 Total 91,181 41,568 2.19 The values for individual and agency vehicle hours were chosen by dividing the total of 41,568 vehicle hou rs so that the resulting productivities had the correct 1-to-2.66 rat io In San Mateo County, the cost allocat ion process went no further than this. A cost per trip for agency service was calculated based entirely on the vehicle hour data. This assumes that all other costs are proportional to vehicle hours Based on an overall cost per vehicle hour of $34.85, the cost per agency trip was determined to be $34 85 + 3.5 = $9.96 Redi-Wheels uses a system of three zones. It was estimated that the average agency trips covers 1.25 zones. Since it was agreed that the agencies would pay 25% of the cost for the first year of the new policy, the agency fare fo r 1992-93 has been proposed as $9.96 + 1.25 x 25% = $1.99 or approximately $2.00 per zone. Results in Lane County A number of regression models were tried using data supplied by Spec ial Mobility Services for April and May 1991. It was found that the models worked best if runs carrying Pearl Buck trips were not included. This fits with the fact that very few other trips are mixed in with the Pearl Buck trips. For the remaining trip types i t was found (surprisingly) t hat there was no significant difference in the coefficients for ambulatory dial-a-ride trips, wheelchair dial-a-ride trips, adult day care trips, and ambulatory Medicaid trips. However, wheelchair Medicaid trips were significantly less productive than other trips, probably due to the Medicaid requirement for "door service and the extremely frail condition of many of these riders. The following model, based on 203 vehic l e runs, was used for the cost allocation:


David Koffman Appropriate Cost Sharing for Paratransit Service Page 14 Driver hours s 4.66 + .332 x Medica i d Wheelchair Trips (.041) .147 x Other Trips ( 017) The model results ind i cate that .332 driver hours are accounted for by the average Medicaid wheelchair trip, compared to only .147 drivers hours for other trips, including all general dial-a-ride trips, adult day care trips, and ambulatory Medicaid trips. In other words, Medicaid wheelchair trips are less productive than others by a factor of .332 + .147 = 2.25 (an error of .01 is c r eated by rounding from the original 6-place data). Using this factor, and data on total annual trips of each type, and total driver hours. it is possible to allocate annual SMS vehicle hours to each trip type as shown in Table 3. TABLE 3 ALLOCATION OF LANE COUNTY DRIVER HOURS Trip Type Annual Trips Annual driver Trips per driver hours hour Medicaid Wheelchair 2,615 2,252 1.16 Dial-a-ride 25,551 9 790 2.61 Adult Day Care Medicaid ambulatory Total 28,166 12,042 2.34 The Lane County Cost Allocation Model In Lane County, the allocation of hours was only the beginning of the overall cost allocation p r ocess. SMS provides or supervises seven different service components These have grea tl y different requirements regarding dispatching effort supervision, and maintenance as shown i n Table 4. Lane County staff wanted to know exactly what each service component costs, so they could make decis i ons about fund i ng the various components and how to charge for them. Determining the actual cost of the various components required allocating not only driver hours but also administrative staff time, expenses, volunteer time, maintenance time and cost The values in parentheses under the coefficients are the standard errors of the estimated coefficients, which show thai the two coefficients are highly significant (different than zero with better than 99% probability) and also different from each other. A-squared was .34.


David Koffman Appropriate Cost Sharing for Paratransit Service Page 15 TABLE 4 LANE COUNTY SERVICE COMPONENTS Service Component Description Cost Characteristics Maxi Taxi Flexible route grocery Extremely productive shopping service for Minimal scheduling effort. seniors Volunteer Escort Door-through-door No SMS vehicle cost. med i cal rides for frail Requi r es considerable seniors coo r dination time. SMS pays mi l eage. Dial-a-ride Door-to-door service for Major dispatching effort. people w h o can't use Substantial use of transit subcontracted taxis. Adult Day Care Subcategory of dial a-ride Similar to dial-a-ride but all clients go to one locat i on and minor weekly variation. Medic ai d (Tit l e XIX) Door-through-door Ma jor dispatchi n g effort. medical trips booked by No taxicabs. Med i caid offices. Extra driver time fo r door through door. Pearl Buck Contract service to Pearl Minimal dispatching o r Buck Center scheduling effort. Non-SMS Volunteer Volunteer rides arranged Very minor overhead by other offices. SMS cost. only reimburses mileage

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David Koffman Appropriate Cost Sharing for Paratransit Service Page 16 dispatch time, etc. The model was developed by Fred Stoffer, General Manager of Special Mobil ity Services. and Crain & Associates In close cooperation. Expense Categories SMS divided the annual cost for FY 1991 into seven categories The consultant added an eighth category, vehicle depreciation The categories are described in Table 5. In some accounting systems, depreciat ion is hot allowed as an operating expense, but for other needs It is useful to include to calculate fully allocated cost. The costs were further designated as either fixed or variable. Fixed costs are those which would not change for small changes in the amount of service provided. Variable costs are those which would change as a direct result of changes in the amount of service provided. Cost Drivers Cost drivers are factors used to allocate the expense categories Each one of the eight cost categories is allocated according to one of six cost drivers as shown in Table 6. Tables 7 and 8 summarize the results of the cost allocation. Table 7 shows how each expense category was allocated across the program components, and the resulting total cost and cost per ride for each component. Table 8 provides detail on the cost drivers which are the bas is for the allocations. Policy Implications of the Lane County Cost Allocation Model With the division of costs produced by the model, Lane County was able to evalua te each component of service and make a number of key policy decisions. The Maxi Taxi service is not an ADA -requi red service, and many ofits users can use fixed route buses. But the cost allocation showed that its cost-efficiency comes close t o conventional fixed-route service. Maxi Taxi is being continued, wit h a fare increase The Volunteer Escort program turned out to be surprisingly expensive, because of the effort required to coordinate volunteers. However, it was decided that the program was effective in extending service to people who would otherwise not be able to receive service because they are too frail to use dial-a-ride on their own. The cost per trip for adult day care service was not significantly different from general dial-a-ride service. Adult day ca re clients had been paying the regu lar dial -a ride fare of $.35 (scheduled to i ncrease to $ .75 in 1993). A policy decision had been made that agencies receiving contract-type service should pay the full variable cost less vehicle depreciation. In the case of the adult day care agency, that would come to $7.74 per trip. Alternatively th e agency may elect to have its clients request individual subscriptions, which will cost $1.00 per ride under a proposed new fare structure.

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David Koffman Expense Category Administration Management, Dispatch and Coordina ti on Drivers and Mechanics Vehicle Operat i ng Expense Vo l unteer Coordinato r Voluntee r Reimbursement Subcontracted Transportation Vehic l e Deprec i ation Appropriate Cost Sharing for Paratrans i t Service Page 17 TA B LE S C O S T C A TE GORIES Fixed CoS1s Variable Costs The part of SMS s None. Port l and office expense b i lled to the Lane County operation. This includes part of the General Manager's time, billing, and general account i ng Eugene Program Manage r Eugene d i spatching, time. schedul ing, and support Eugene office expenses staff t ime Does not include time spent by the Vol unteer Coordinator on the volunteer program, but does includes some time by the Volunteer Coo r dinator spen t on prepar i ng Title XIX invoices None Wages and bene f its of t h e drive r s and maintenance staff. Vehicle insurance. Non-labor expenses associated with the vehic l es including fuel, tires, and pu r chased maintenance and repai r s None. Time spen t by the Vol u nteer Coord i nator arranging rides. None. Mileage pa i d t o voluntee r drivers for in-district services only None Amounts paid to taxi compan i es. None The purchase cost of vehicles charged ove r t he expected life of the vehicle

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___ Appropriate Cost Sharing for Paratrans i t SeJVice Page 18 TABLE 6 METH OF ALLOCATING EACH COS-:' Expense Category Allocated According to: Administration All of Allocated Expenses : The sum of all the other expense categories allocated to each program component. This assumes that administrative expense is proport i onal to the overall amount being spent for each component -in other words that Is a constant percentage tha t can be added to other costs. Management, Oisp. Coord. EstimatQ!! Time: Based on est i mates by each member of the Eugene office staff of the percentage of their time which they spend on each of the six major service components. Time on Hie XIX trips is spirt between wheelChair and ambulatory trips 56%144%, based on the percentage of rides provided of eaCh type. Drivers & Mechanics Driver Hours: The number of driver hOurs for Max i Taxi and Pearl Buck was availab l e from driver logs The remaining hours was spirt among Dial a-Ride Adult Day Care and Thl e XIX based on the stat i stical analysis of trips provided in April and May 1991. The analys i s showed that all DialaRide and Adult Day Care, and Thle XIX ambulatory trips take about 0 38 driver hours per trip while Thl e XIX wheelcha i r trips take about 0.86 d r iver hours per trip. Vehicle Oper. Expense Vehicle Miles : The number of vehicle miles for Maxi Taxi and Pear l Buck was available from driver logs. The remaining miles were split among DialaRide Aduh Day Care and Thle XIX based on the number of rides of each type provided on SMS vehicles Vo l untee r Coord i nator Volunteer Rides: The Volunteer Coord i nato(s time was allocated according to the nurrber of volunteer rides arranged by SMS for the Medical Escort, Dia l -a-Ride and Tille XIX programs This assumes that ij takes about the same amount of t i me to arrange a ride for any of the programs. Volunteer Reimbursement Volunteer Rides: Mileage reimbursement was allocated according to the number of volunteer rides arranged by SMS for the Volunteer Escort, Dial a-Ride and Thle XIX, as well as reimbursement for non-SMS volunteer rides (Senior Companions and Rural Volunteer Escort), wijh an adjustment for dijferences In average cost per trip for SMS and non SMS arranged rides based on a sample of February 1992 i nvoices. In the future this expense category can be allocated exactly based on actual expenditures Subcontracted Transp. Tax i Rides : Taxi costs were allocated according to the number of tax i rides purchased for the Dial-a Ride, AduH Day Care, and Trtle XIX programs. This assumes that the average trip l ength is about equal for all three programs. Vehicle Depreciation Vehicle Miles: Based on the estimated tne. in miles, of each vehicle based on ODOT guidelines, and the purChase price of the vehicles in SMS's current fleet, an average depreciation of $.273 per vehicle miles was calculated.

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David Koffman Appropriate Cost Sharing for Paratransit Service Expense T A B L E 7 F ULLY ALLOCATED C OS T M O DEL A L LOC A TI ON OF COS T S TO P ROG R A M C OMPONENTS Service Comwncnts Fixed T oral Ma..xi Volunteer Title XIX Title XIX Page 19 Pearl Noncategories V ar Taxi DAR ADC Am b. we Administration F 55,296 3,797 1 ,282 28, 1 97 3,309 3,446 5,427 7,809 2,029 (Ponland} Allocated acx::ording t o non-administrative cost Management F 27,816 1,252 f.S02 16,272 1.502 2,228 2,835 2,225 0 (Eugene} Allocated according lO estimated Eugene staff time spent on each activity Office Expense F 33 102 1.490 1,788 19,365 1.788 2,651 3,374 2,648 0 (Eugme) Allocated according to C$timated Eugene staff time spent on each activity Di spatch and v 4 5 056 2.028 2 433 26,358 2,433 3.608 4,592 3,604 0 Coordination Allocated according to estimated Eugene staff time spent on each activity Driver' and v 1 69.510 18,527 0 78,668 11.543 7,886 22.565 30,321 0 Mechanics Allocated acc:ording to driver hours Vehicle I nsur F 36,792 2,074 0 18,738 2,971 2,309 2,939 7.761 0 Allocated according to SMS vehicle miles Other Vehicle v 59,072 3,330 0 30,085 4,170 3,708 4,719 12,460 0 Opcr. Expense AlJocaled according to SMS vehicle miles Volunteer v 8,686 0 2,227 4,438 0 2,021 0 0 0 Coordinator AJlocaled according tO metro volunteer rides Volunteer v 22,085 0 1,730 3 ,448 0 1.570 0 0 15,338 Reimbursement S2.35342 per SMS Vol. ride, Sl.34424 per n on -SMS voL ride Subcontracted v 15,853 0 8 15,765 8 64 0 8 0 Transportation Allocated atcor
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Dav i d Koffman Appropriate Cost Shari ng for Par atrans i t Service Page 20 TABLE 8 F U LLY A L LOCATED C OS T MODEL COS T D RIVER S USED T O ALLO C ATE E X P ENS ES Service Components All ComMaxi Volunteer Tille XIX T itle XIX Pearl Non poneots Taxi ES
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David Koffman Appropriate Cost Sharing fo r Paratransit Service Page 21 Medicaid {Title XIX) service tumed out to cost considerably more than the rates that SMS was charging for it. For example SMS had charged $12.25 for wheelchair trips under ten miles, but the actual cost was $19.59. In fact even the state allowed maximums ($16.62 for wheelchair trips under ten miles) would not quite cover the full cost of the service p rovided A local for-pro fit Medicaid provider had been complaining that SMS was unfairly competing by offering subsidized rates. It was decided to have SMS raise its rates to the state allowed maximum in order to reduce the element of u nfa ir competition, and to reduce the drain on fu nds. Pearl Buck service turne d out to cost $5.37 per trip, while the $24,000 per year paid by the agency amo unte d to $1.93 per trip. Since Pearl Buck requires co ntract type service i t will be asked to inc rease its contribution un der the variable-cost excluding-depreciation policy. Based on 1990-9 1 costs that would come to $3.73 per ride. CONCLUSIONS 1. Decisions about cost sharing turned on loca l politics, the history of relationships among agencies in each area, and previously established practices. These factors were more important than the type of agencies involved, and may have been more important than regulatory constraints on the agencies. 2. The ADA rules concerning charging for social service agency trips are useful but do no t provide clear guidance on what is an agency trip. That distinction will have to be defined loca lly and may need to include an element of choice. 3. Sound policy decisions require meaningful and accurate data on the actual cost of each type of service provided. The cost a lloca tion model presented in this paper demonstrates how such cost data can be estimated.

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