Lean Times

Lean can mean having little to no fat or being spare or economical, but in the manufacturing industry the concept called “lean manufacturing.” In layman’s terms this means producing the best product by trimming waste and improving flow. Whichever way you look at it, as ridership increases and funding remains the same or decreases, more and more agencies are being forced to look inward during these lean times to “trim the fat” just to keep their system moving.

The San Diego Municipal Transit System (MTS) is right in the thick of this debate with double-digit ridership increases on its buses and trolley—a whopping 23 percent on its commuter bus service—while watching its funding cut from a variety of directions. Its CEO, Paul Jablonski, is fully aware of the situation, saying that he wants to, “take full advantage of the ridership increases that we’re seeing despite our ongoing financial issues and having to raise fares and still cut service and still gain ridership.”

Tackling the Train
Jablonski has been the San Diego MTS CEO for about four-and-a-half years now. Having come from spending a decade in Cincinnati, which he hails as a great system with great people, Jablonski was looking to make that next step—a bigger system that was multimodal. When an opportunity to move to San Diego arose—and who wouldn’t jump at that—Jablonski’s interest was piqued. But not just for the normal reasons, he saw it as, “the opportunity to work with one of the best rail systems in the county.

“And a rail system you can get your hands around—you know, really learn about,” Jablonski says. “I’m not sure when you work for Chicago or New York how much you can actually get into it.”

This was one of the challenges facing Jablonski when he arrived in San Diego. The others included a looming budget deficit and aging system.

“When I came here four years ago we had a lot of work to do,” Jablonski says.

“The budget was $10 to $15 million out of balance and they were using reserves. So we went through a fair amount of trauma, especially with the COA (comprehensive operations analysis) that we did.
“And you know we ended up doing two things. One, restructuring about 95 percent of all the bus service, which means every municipality change[s]. And going from the fact that change is not always easily acceptable, but it went to a market-based approach, which says with limited resources we need to put our stuff where the market is, not necessarily on a geographic spread.

“I mean, you know, very often in these cases people say well, I want my share. You know we’re a community and we’re in this. And so, based on our population, you should be spending X number of dollars in our community.

“And they did not think that way. They went with a market-based approach, which was getting back to that thing about not thinking parochially; it was a real testament to that. So that was positive. And we got all that done and it was passed unanimously and implemented over two years. And has really been successful,” Jablonski says.

Cutting Success
For most transit authorities the farebox is not king—far from it. So, despite ridership increases, they find themselves at funding crossroads. Jablonski sees his system facing this quandary. Having cut service each year for the past five or six years despite ridership increases, MTS is now looking at a dip in local sales tax revenue and budget cuts on a state level totaling more than $50 million.

And Jablonski says they could even possibly lose another $9 million in State Transportation Assistance funds, something he doesn’t want to think about. “You know, I haven’t even begun to … I mean, I have begun to think about it, but I’m not sure how we would cover that.”

Jablonski says the COA objective was to lay out the system in somewhat of a grid-based pattern to increase the flow and jump on the effects of building ridership, but they weren’t looking to make service cuts.
“You know I can almost go to every cut and tell you what our philosophy was, but I often tell the board you know the last thing that we should be doing is cutting service,” Jablonski says.

“Sometimes it makes sense as we look at our system and we look at what’s producing and what’s not producing,” Jablonski says, noting that the agency has several options when it comes to cutting service.

“Maybe sometimes we take [service] from one contractor to another contractor with a smaller bus and save money that way. Sometimes we can realign routes, but sometimes we will eliminate evening service.

Or sometimes weekend service before we cut the whole thing out.”

Jablonski says cutting the budget has been difficult, though, especially the last $6.5 million with a fare increase in January, which made that out of the question.

“We had expenses and we had a service,” Jablonski says.

“So we first went to the expense route and you know we laid off, well, we eliminated 22 management positions and had a lay off just last month. That saved about annualized I don’t know, $3.5 million or so.”
Jablonski says reworking shelter advertising contracts and service cuts made up the last $3 million they needed.

Jablonski notes that trimming the budget is different from year to year. Faced with a 7 percent swing in sales tax revenues last year (from a 5 percent increase to a 2 percent negative) caused them to have to trim more than $9 million from MTS’ 2007 budget.

“Now we did that differently,” Jablonski says.

“We first approached it, you know, kind of with a blank sheet. And we first approached it on the expense side of the house.

“What can we do internally to improve operations and save dollars?

“We came up with about 20 different things,” Jablonski says. That list included expanding advertising on buses to the contracted services as well as the in-house fleets, charging local casinos for parking their charter vehicles at MTS transit centers and making internal cuts.

One of the biggest changes was putting in a preventative maintenance program for the buses.

“It took a couple of tough years financially to invest in that, but now we’re seeing the rewards,” Jablonski admits.

“The fleet is much more reliable. Our parts cost is down. And it’s still yielding us.”

Jablonski says that the biggest change was instituting a financial discipline in the organization, which had become lax in approving budgets.

“We’ve changed that around. We’ve gone to zero-based budgeting,” Jablonski says.

“We have continued to streamline operations and eliminate staff where possible. So we’ve been kind of trimming expenses and making ourselves more efficient for the last three or four years. And the managers have really risen to the challenge in terms of looking at their operations to see how they can do it for less cost.

“I think we’re pretty close now because this has been really lean times. But it’s been very effective.”

Labor Issues
As part of its funding struggles, MTS had to deal with the renegotiation of a labor contract with its drivers. Settled in May of this year, the negotiations had dragged on for almost two years, but that’s far from the worst it had been. Jablonski notes during a prior dispute the negotiations lasted five years, in which the San Diego drivers went from among the highest paid in the country to among the lowest.

The problem as far as Jablonski sees it is the high cost of living in San Diego. With wages where they were at, many drivers needed to commute to work, but rising gas prices began to put the pinch on that as well.

Noting that it isn’t as bad as in some agencies where drivers have been known to park RVs on the lot during the week, Jablonski says, “We do have people that live across the border [in Mexico].

“South of the border really provides a housing stock that is much more reasonably priced. So if you know people, especially if they have a Hispanic background, a Mexican background, they may have relatives there. They will live there. So we’ve got some drivers like that, but I don’t know what our farthest commute is.”

South is about the only direction you can go Jablonski says, as you can’t travel very far to the east before you’re in the desert and the cost of living doesn’t go down much to the north. So with the cost of living so high, Jablonski knew that not only did they have a problem keeping drivers, they had a problem hiring new ones.

“We were trying to hire people at just under $11 an hour with a long progression. And we knew that market was $14.50. So we had to somehow take this labor contract and give drivers a good raise and get the starting wage up by about $3 more an hour and do that in all this financial crisis.”

The labor agreement went through more than 100 changes, where according to Jablonski a good one gets changed maybe five or six times. While it may have been difficult, Jablonski wanted to make sure they got an agreement all parties would be happy with.

Jablonski says they wanted an agreement where, “people that want to work and want to come to work are gonna get paid well. And we finally got there.”

Advancing the Trolley
The trolley has become almost synonymous with San Diego, having been there for more than a quarter of a century and the first of its kind in California. Still a huge success, the trolley isn’t without a need for some updating.

The first of several planned changes takes place this September with fares going from zone-based to a flat $2.50 throughout the system, which Jablonski thinks will increase revenue and make it simpler for riders.

“I mean we see with the zone-based system a lot of scratching of heads at our ticket vending machines,” Jablonski admits.

Another change is the implementation of smart cards to replace monthly flash passes. The new flat fare system is designed to make putting the smart cards into service a lot simpler than requiring a swipe boarding and disembarking from the vehicles with a zone-based system (to get the correct fare).

“We just felt that going from a flash card type of monthly pass to that level of sophistication was going to be very difficult for our ridership,” Jablonski states. “So we worked with SANDAG (San Diego Association of Governments—the local MPO) to come up with a flat fare that would maintain our revenue, yet make it a lot simpler. So we’ll see.

“The smart card will initially be loaded with a monthly pass. And we’re going to get over that hump of making sure that everybody who has a smart card when they come into a station they tap it.”

Jablonski says that one of his concerns when coming to San Diego was knowing that he would be responsible for the trolley.

“Just knowing the reputation of the trolley around the country,” he says. “I mean the kind of the birth of the resurgence of light rail in this country and high ridership.

“I remember hearing stories about the Blue Line and how it recovered its cost. Highest fare box recovery. And since coming here all of that is true. [It’s a] very efficient operation. Very well run. It’s amazing how manual the operation is.”

But the biggest challenge now says Jablonski isn’t maintaining the trolley’s success, it’s rebuilding the Blue Line.

“It’s almost 30 years old, and when it was built 30 years ago it was built on existing track. So we’ve got 90-pound rail out there that is 70 or 80 years old. We’ve got wooden railroad ties out there. We still have wooden ties.

“All our stations out there are at grade. So you know it’s time; we’ve got issues with rail getting old. The catenary is 30 years old. So we’re looking at a $320-million project to rebuild the 15 miles of the Blue Line.”

But with the funding ebbing on the operating side, I asked Jablonski how he planned to get enough money together for such a large capital project. His response was to go on a diet and focus on infrastructure.
“Well for the longest time, of course the easiest thing to do in this business when you’re having trouble on the operating side is to defer capital, as long as you’ve got the flexibility with funds to bring them over,” Jablonski says.

“But even with federal funds now, when they did away with operating assistance, but then they made the maintenance of the capital asset an eligible cost, so preventive maintenance is now—we could probably take, and we do, we probably take close to $30 million in our $50 million in formula funds in operating costs.

“So we’ve had to go on a diet of that. In fact, we’ve froze everything five years ago at those levels so we could try to produce more capital dollars.

“We’re very much underfunded. We probably need … if I had to just do it down to a sound bite, we’d probably need about $60 million a year in capital to maintain all of this infrastructure and we’re hovering around $30.”

Jablonski says the largest transit agencies in Boston, New York, Philadelphia and Chicago have all been saying for quite some time that money needed to go toward infrastructure costs and he saw that right away when he came to San Diego.

“Our oldest U2 cars are almost 30 years old; they’ve never been through a rehab,” Jablonski says.

“Now they’ve been painted. We’ve done kind of an exterior rehab on them. And they look beautiful, but they’re 30 years old. And you know I don’t know how much longer they’re going to last.

“I mean we run into the situation a lot now where we just can’t get parts for them. We have to fabricate some body parts and things like that.”

Border Agency
Traveling to San Diego, I just considered it a trip to California like any other. Of course, I didn’t realize at first just how far south San Diego is and how close to Mexico MTS operates. It’s a point that Paul Jablonski says the agency must always be on top of.

“One of the things we have to be cognizant of is that we’re 15 miles away from the biggest international border crossing in the world—Tijuana,” Jablonski states.

Jablonski says the agency has a good relationship with the border patrol. The San Diego/Tijuana border isn’t just U.S. and Mexico citizens coming across, though. More people from a variety of different countries cross here than you would expect.

“Last time I looked at it, it’s like 30 or 40 countries’ passports,” Jablonski explains.

“And they’re not all like Canada and Mexico and Peru and everything from here. There are a lot of European countries and a lot of Middle Eastern countries coming through.”

In a sobering thought, Jablonski notes that one of the individuals involved with the 9/11 terrorist attacks had come through that border crossing, which causes the agency to be particularly concerned due to its proximity to the border and the sheer number of people who use its vehicles when they come through.

“The trolley is you know 75 yards from the border,” Jablonski notes.

“Just about all of the pedestrians that cross the border ride transit when they come across. I think the last number I heard was 22,000 to 24,000 pedestrians and we carry the vast, vast majority of those.”

Jablonski says the border crossing’s image has gone from one of tourists and college kids heading to Tijuana to party, to a potential entry point for those who may have harmful intentions towards the United States. Because of this, the agency has made a significant investment at the station there, including camera systems and stationary object detection software.

“We also recognize that our transportation system is good enough for somebody to walk across, get on a train, end up at a place like Santa Fe depot and then have access to the West Coast with Amtrak and things like that,” Jablonski says.

“There are two ways of thinking of it. Some people think with all of these military assets here that anybody would be reluctant to try anything here. But I guess the kind of way we look at it is with all of these military assets out here they are potential targets.”

Gas Prices
While skyrocketing gas prices are causing considerable trouble for commuters and many transit agencies across the nation, Jablonski says it hasn’t hurt their system to a large degree because 75 percent of their fleet uses compressed natural gas (CNG) now.

“You know I think the last time I calculated it, a one-penny increase in diesel costs us about $15,000 to $16,000 a year, whereas a one-penny per therm [increase in CNG] now probably costs us $80,000 to $90,000 a year, so we look much more at CNG,” Jablonski states.

He notes that while the cost of CNG has doubled over the last three or four years, the cost of diesel has quintupled in the same time period. Jablonski says the system will be experimenting with gasoline hybrid vehicles in the near future, with 12 of those type buses arriving soon after the first of the year.

“They’re gonna go on a brand new service called Super Loop, which is about 10 miles north of here up in an area called Sarento Valley. It’s where [the University of California San Diego] is,” says Jablonski.
Other than the university, Jablonski says the area also is the location of a large hospital and a commercial office park. He says it is growing so much it is almost becoming a second central business district for the region.

“And so SANDAG, the MPO, as part of our local sales tax, which is TransNet, the half cent, one of the projects in it is a Super Loop,” Jablonski says.

“I’d like to characterize it as a BRT-type of Super Loop. It’s going to have fixed stations, limited stop, hopefully intersection improvements with preemptions or at least queue-jumping and things like that to keep things better on time. So that will go into place hopefully in March of next year.”

Jablonski says it’s a big step to switch a fleet over to hybrids due to the costs involved, as there is when switching from diesel to CNG. Of course, the agency’s decision doesn’t just have to do with fuel costs. The California Air Resources Board regulates just what emissions a transit authority fleet is allowed to be at.

“CARB is always pushing the envelope. They always loom at 5 percent of our fleet being zero emissions,” Jablonski says.

“So [while] we talk about gasoline hybrids costing five, six hundred thousand dollars, I don’t want to [find out] that 5 percent of my fleet has got to be hydrogen buses at $2.5 million a pop.”

The costs to switch to hybrids might be necessitated by a sea change in the way people use transit. With gas prices steadily rising, will people make that change? Jablonski hopes so, but is still skeptical.

“Certainly I, as well as my colleagues around the country, am very hopeful that we’re entering an era where transit is going to be more widely used because of fuel prices, because of global warming, green house gases and the whole ball of wax,” Jablonski says.

“Also, I say that knowing that we’ve got a free market out there with a lot of heavy hitters that are building cars and in the industries surrounding that. And we’re still building freeways, so you know I think as time goes on we’re going to see [the] market kind of react to this to make things more favorable again. Whether that is dramatically more fuel-efficient cars, or we’re going to see propulsion or fuels that are going to get us away from the reliance on oil, or something like that.

“I think that we’re all naïve if we think that Ford and GM and Chrysler and Mercedes and BMW and Toyota and Nissan are just going to go away and everybody is just going to start riding transit.”

With the market in such an odd state of flux, how does Jablonski plan to balance a booming ridership against the possibility of more future budget cuts?

“I’ve been starting to prep our board in saying you know we’re experiencing these great ridership gains and this is great, but eventually we’re going to fill things up and it’s going to start to turn negative,” Jablonski says.

“It’s not quite at that point, but I think if gas prices stay up and we continue to see the ridership gains we are, it’s right around the corner.”