Sorry if we seem to be “getting into the weeds” on this story. There may be more detail than you need to decide whether to vote ‘yes’ or ‘no’ on the increase in sales tax on the November ballot.
We have previously written about LakeTran requesting an increase in the Lake County Sales tax on the November 5th ballot.
We wanted to provide LakeTran officials with a forum to present their case why the sales increase is warranted. The LakeTran CEO, Mr. Ben Capelle, gets high marks from us for his honesty and transparency in providing us with the records we requested.
We also compliment them for the very fine annual reports providing understandable information on the finances of the non-profit.
Here are LakeTran’s reasons for the need for additional funding:
There are several reasons for the increase.
- The largest reason and where most of the funds will be spent is on our Dial-a-Ride service.
- We are currently 21% over capacity.
- Medical trips are up 53.5% since 2014, virtually all of these trips are for seniors
- Work trips are up 21.2% since 2014
- This has resulted in an addition of over 50,000 trips annually.
- We chose to spend approximately $2,000,000 of our reserves in 2019 to continue to provide the trips that are over capacity.
- A portion of the funds are also earmarked to provide additional capacity on Dial-a-Ride to deal with the “silver tsunami” effecting Lake County.
- State grant revenue to Laketran was cut in 2016 and has gone from just over $1,000,000 per year to right around $500,000
- The changes in the state MCO sales tax resulted in a loss of approximately $417,000
- Grant revenue we typically relied on for bus purchases has diminished greatly.
- We have 16 fixed route buses (the ones that travel up and down Mentor Ave. and other roads) that are due to be replaced in 2021. In the past we could secure grant funds to replace all of them, but as of right now we only have funding for 6 of them.
- A small amount of the funds are tentatively ear marked to provide better service to a few parts of the county that do not have must fixed route service from us now, mainly Mentor on the Lake, Mentor High and Concord, mainly along the 44 corridor. We get frequent requests for service to destinations in these general areas.
If I had to sum up the reason for the levy in a few words, it would be to keep Dial-a-Ride running as it has been and to ensure it is available to the current population of seniors and people with disabilities that have been using it and expect it to be available for years to come.
As always, if you have any questions or want any more info please feel free to contact me. I would be happy to talk more about any part of the levy or any of our services in general. Thanks!
Ben Capelle | CEO
We asked Mr. Capelle for a schedule of the annual compensation for the LakeTran executives. Here is what was provided: LakeTran Executive Compensation
From our archives here are schedules of their income statements and balance sheets from 2015 – 2017.
Income Statements: Lake Tran Income Statement 2015 – 2017
[These are the annual operating statements for LakeTran, and show us the sources of revenue (income) and expenses (where money was spent).
Balance Sheets: Lake Tran Balance Sheet 2017 – 2016
This shows the financial strength of the entity at a given point in time. It reports the assets (what is owned) and liabilities (what is owed) of the entity.
Upon reviewing these statements, we were concerned about the seemingly high cash and investments (~$16.5.million) and their high net position (assets over liabilities) (~$39.7 million), and stated to Mr. Capelle that we do not see an entity in financial difficulty. We asked for the recently completed 2018 financial statements, and Mr. Capelle complied immediately.
Complete financial report for 2018: Agency_Laketran_2018_Lake_ CAFR
We were also given a schedule of the wages and benefits of all LakeTran Directors and Assistant Directors: LakeTran Executive Compensation
Mr. Capelle also provided us with an additional explanation on the financial statements for 2018:
“The CAFR was recently completed and certified by the State, it has not been approved by the Board yet, but it is attached. Typically our Board accepts it since it is approved by the State.
As far as our cash goes, the total number is not representative of the actual amount of cash we could spend today. We break our cash into a few categories, which have restrictions. Below are some important notes about our cash balance, as we have to maintain a higher cash balance than a typical governmental agency.
- Whenever we apply for a grant to replace a bus we are required to certify that we have the local match (cash), we then segregate those commitments from our true liquid cash. Some of these grants can be many years in the future, which locks up our cash for a while. As of today we have grant commitments out to 2025.
- We replace our large buses every 12-14 years and the they are very expensive ($500,000 to $650,000 each depending on type). Instead of using some form of debt we take a portion of sales tax each year and set it aside for capital projects. We then invest that money, so that over the 12-14 year term we make money and reduce the burden on the tax payer, vs. using debt service and costing the tax payer more. The down side of this is our cash balance can appear large depending on when buses are replaced, but our long term strategy has been to avoid debt service as much as possible. Our local fixed route buses need to be replaced in 2021, so our balance is on the higher side right now.
- Approximately $3 million of our annual revenue comes from a Federal grant, which is a reimbursement. So we outlay all the expenses and then get reimbursed later. In the last few years the length of time it has taken to be reimbursed has increased, some of that from process changes other times from government shut downs. This requires us to have enough cash on hand to manage when we will be reimbursed.
- Public Transit is extremely regulated and we have to go through a length public hearing process if we change/cut/increase service, which takes approximately 4 months. Accordingly our Board adopted a minimum cash reserve policy that requires us to keep 5 months of operating cash in reserve, which is typically higher than many governmental agencies. This allows us to complete the public hearing process and make changes before we run out of cash, this is particularly important in the event of a financial downturn.
- In regard to our net position, the majority of that number is assets which have not been fully depreciated, which do not have much impact on our actual cash spending ability. An important thing to note in net position is that it has gone down from $42.5 million in 2016 to $34.7 million in 2018, which essentially shows how our fleet is aging as older vehicles have been depreciated and newer ones have not been brought in to the fleet.
I hope this makes sense, let me know if you would like to discuss any of this or if you have any further questions. I can setup a meeting with our Director of Finance to go over any detailed financial information you would like.”
Ben Capelle | CEO
(LFC Comment: It is quite apparent that this operation can never sustain itself on just passenger fares – only ~15% of their revenue comes from passenger fares. Therefore, local, state and federal funding will always be required if the current method of operation, and services offered are maintained. One wonders if there are more economical means of providing the Dial-A-Ride services?
Could costs be reduced with much smaller vehicles? We are very aware of the services provided by privately owned businesses, and wondered if that type of services could replace a non-profit established by government edict.
One final statistic: The financial statements report that LakeTran can exist for 369 days of normal operations even if they never collect another $ of revenue. That, ladies and gentlemen, is a very impressive statistic.
We are going to let the taxpayers decide if they wish to burden themselves with an additional sales tax, and does LakeTran need another $9 million per year in income?)