Background

In 1964, Congress passed the Urban Mass Transportation Act to provide  financial assistance to states and local governments to extend and improve  urban mass transportation systems beleaguered by rising costs and  declining ridership.  The provisions commonly called Section 13(c) were  included to protect employees who might be adversely affected by industry  changes resulting from financial assistance under the act.   One specific  concern was that if municipalities and other public entities used federal  assistance to purchase failing private transportation providers, the  employees could lose their jobs, collective bargaining rights, or other rights  they had gained through collective bargaining.  For example, prior to the  passage of the act, transit employees in Dade County, Florida lost their  collective bargaining rights; and subsequent decisions regarding wages,  hours, and working conditions were made unilaterally after their employer  was acquired by a public transit authority.  Another concern leading to  Section 13(c) was that technological advances made with federal  assistance would reduce the need for transit labor.
Section 13(c) is unusual in that two federal agencies administer it: DOT and  DOL.  Section 13(c) requires that DOL certify that fair and equitable labor  protection arrangements are in place before DOT makes grants to transit  applicants.   Such labor protection arrangements are to provide for (1) the  preservation of rights, privileges, and benefits under existing collective  bargaining agreements; (2) continuation of collective bargaining rights; (3)  protection of employees against a worsening of their positions with respect  to their employment; (4) assurances of employment to employees of  acquired mass transportation systems and priority of reemployment for  employees terminated or laid off; and (5) paid training or retraining  programs.
In carrying out its responsibilities, DOL ensures that the protective terms  are in place through Section 13(c) arrangements, which are incorporated  within a transit agency’s grant agreement with DOT.  The DOL certification  process begins when FTA forwards a grant application to DOL.  DOL refers  the grant application and recommended terms and conditions to the unions  representing transit employees in the service area of the project and the  transit agency applying for the grant.  No referral is made when (1)  employees in the service area are not represented by a union or (2) the  grant is for routine replacement items.  After DOL referral, the parties  review the proposed terms and conditions and submit objections, if any.  If  no objection is submitted, DOL issues a final certification based on the  terms and conditions recommended to the parties.  If an objection is  submitted, DOL considers its validity.  If DOL determines that the objection  is not valid, it issues a certification that is based on the recommended  terms and conditions.  If it determines that the objection is valid, and it  cannot be resolved through a technical correction, the parties are provided  an opportunity to resolve disputed matters through negotiations.  If they  are unable to do so, DOL makes a determination after considering the  objections of the parties.  If the terms and conditions applied by DOL are  not acceptable to the grant applicant, it may choose not to accept federal  transit assistance.
After the certification process, employees who believe they have been  adversely affected as a result of federal transit assistance may file claims  under the procedures set forth in the Section 13(c) arrangements certified  by DOL.  The procedures for filing and resolving Section 13(c) claims vary  according to each agreement, but they typically set forth (1) a time period  for filing claims; (2) an informal process under which the parties can  resolve disputes over claims; and (3) a formal dispute resolution process,  such as binding arbitration, in the event that an informal settlement is not  reached.

	Section 13(c) Has Had Minimal Impact on Labor Costs at Most Transit Agencies

The agencies we surveyed generally reported Section 13(c) had a minimal  impact on their labor costs.  Critics have expressed concern that Section  13(c) hinders transit agencies’ ability to lower labor costs, which,  according to the American Public Transportation Association, account for  over 80 percent of the operating expenses in the public transportation  industry.  In addition, some critics have stated that Section 13(c) has  caused inflated wages and benefits in the transit industry.  However, 68  percent of the transit agencies that responded to our survey reported that,  in general, Section 13(c) had no effect on their labor costs.  Twenty-seven  percent reported that Section 13(c) had somewhat increased their labor  costs, and 4 percent reported that Section 13(c) had greatly increased labor  costs.
Moreover, a study by Rutgers University found that hourly transit wages for  operators and mechanics rose very little in real terms and substantially less  than average earnings per employee in other sectors of the economy from  1982 to 1997.  When compared within metropolitan areas, transit wages (1)  rose less than average earnings per employee in the manufacturing and  government sectors, (2) were about the same as average earnings per  employee in the transportation and public utilities sectors, (3) and rose  much less than average earnings per employee in all other sectors of the  economy.  In addition, using data from 130 transit agencies, the Rutgers  study found that mean top-wages for transit bus operators hovered at  roughly the same level over the 1982 to 1997 period.  (See table 1.)
Section 13(c) could also affect a transit agency’s costs through Section  13(c) claims.  Section 13(c) arrangements typically establish a process  whereby employees adversely affected by federal assistance can file claims  against transit agencies, for example, for a dismissal allowance when  employees lose their jobs.  Claims may be filed for an individual or for a  group of employees and claims filed in the last 5 years covered an average  of 37 employees per claim. Eighty-seven percent of the transit agencies we  surveyed reported that they have not had any Section 13(c) claims in the  last 5 years.  The remaining 12 agencies had an average of 3 claims filed  during this period.  Only eight of these agencies had Section 13(c) claims  reach settlement, arbitration, or DOL decision.  For those agencies, the  average total amount paid per agency was $188,067.

	Section 13(c) Has Had No Influence on Most Transit Agencies’ Decisions Whether to Adopt New Technologies

Critics of Section 13(c) have asserted that it creates disincentives for  transit agencies to examine and adopt innovative technologies.  However,  85 percent of the transit agencies surveyed reported that, in general,  Section 13(c) did not affect their decisions on whether to adopt new  technologies.  In addition, we asked the transit agencies whether Section  13(c) had influenced their decisions whether to adopt specific  technologies, including automatic passenger counters and electronic fare  payment systems.  For each technology we identified, few or none of the  transit agencies surveyed indicated that Section 13(c) had influenced their  decisions on whether to adopt the technology.  For example, of the 65  agencies that had considered adopting onboard electronic security  monitors, 4 indicated that Section 13(c) influenced their decisions whether  to adopt that technology.  Only 1 of the 30 agencies that had considered  using articulated buses indicated that Section 13(c) influenced their  decisions whether to adopt that technology.  Of the 71 agencies that  considered using a global positioning system, 2 indicated that Section 13(c)  influenced their decision whether to adopt that technology; however,  officials who identified Section 13(c) as influencing their decisions did not  offer any explanation for why Section 13(c) proved problematic in these  cases.  (See fig. 1.)
In addition, some officials suggested that the impact of Section 13(c) on  transit agencies’ decisions concerning technology may be limited because  many transit systems are experiencing growth. According to the American  Public Transportation Association (APTA), over the past 5 years, transit  ridership has grown 21 percent.  Consequently, transit agencies may be able  to adopt labor-saving technologies without dismissing or displacing  employees.  Of the transit agencies we surveyed, 10 percent reported that  they have fewer employees now than 5 years ago; and 84 percent reported  that they have more employees now than 5 years ago.   The remaining  transit agencies reported no change in the number of employees.

	Section 13(c) Minimally Influenced Transit Agencies’ Operations, Except for Contracting

The transit agencies we surveyed generally reported that Section 13(c) had  a minimal impact in some selected areas of their operations, including their  decisions to modify transit operations and their relations with their unions.   However, the agencies reported a greater impact due to Section 13(c) on  their ability to contract for transit services.
Critics of Section 13(c) have stated that it creates disincentives for transit  agencies to modify their operations.  However, transit agencies generally  reported that Section 13(c) did not influence their decisions in this area.   We asked transit agencies to identify which of nine operational areas they  had considered modifying, and whether Section 13(c) had influenced their  decisions on whether to implement changes.  When agencies indicated that  they had considered changes in their transit operations, on average 81  percent of those decisions were not influenced by Section 13(c). (See fig.  2.)
The majority of transit agencies we surveyed also reported that Section  13(c) generally did not affect their relations with the unions that  represented their employees.  For example, when asked whether Section  13(c) had caused their relations with the unions to become more amicable  or more contentious, 63 percent of the agencies reported that Section 13(c)  had not had any effect.  Thirty-four percent of the agencies reported that  Section 13(c) had made relations with the unions more contentious, and  the remaining 3 percent reported that Section 13(c) had made their labor  relations more amicable. In addition, 85 percent of the transit agencies we  surveyed reported that they would be required to engage in collective  bargaining independent of Section 13(c) and its requirements to continue  collective bargaining rights.  Some collective bargaining agreements  contain provisions similar to those found in Section 13(c) arrangements  and thus make isolating the impact of Section 13(c) difficult.
Although Section 13(c) had a minimal impact on most areas of transit  operations we identified, many transit agencies we surveyed indicated that  it had affected their ability to contract for fixed-route transit services.    For example, 46 percent indicated that Section 13(c) made it somewhat or  much more difficult to contract out for fixed-route services. In contrast, 17  percent of the transit agencies indicated that Section 13(c) made it  somewhat or much more difficult to contract out for paratransit services.  A transit official we interviewed explained this difference by noting that  employees represented by labor unions have historically operated fixed- route service, but paratransit services have historically been contracted  out; thus, the continuation of contracting out paratransit services does not  pose a problem.
In addition, some transit industry officials reported that although  provisions of Section 13(c) arrangements may directly limit contracting out  for services, more often agencies are discouraged from contracting out  because of their perception that such action will cause problems, such as  Section 13(c) claims or delays in the receipt of grants.

	Section 13(c) Can Delay Grant Awards, But Transit Agencies Were Generally Satisfied With the Timeliness of Grant Application Processing

Transit agencies have argued that Section 13(c) causes delays in  application processing and the award of federal grants.  As noted in our  August 2000 report, when transit applications are not processed in a timely  manner, transit benefits are delayed.  In addition, a lack of predictability  and consistency in processing times can make planning and project  execution difficult for transit agencies.  As we detailed previously, 93  percent of DOL’s applications processed from January 1996 through April  2000 met DOL’s internal 60-day processing goal.  As we noted in the August  2000 report, because of inconsistencies in DOL and FTA databases we were  unable to determine whether Section 13(c) labor certification requirements  delayed the award of transit grants.  However, 57 percent of the transit  agencies we surveyed indicated that Section 13(c) had caused such delays.
Although a majority of the transit agencies indicated that Section 13(c) had  caused delays, the transit agencies were generally satisfied with the  processing of federal transit grant applications.  Forty-eight percent of the  transit agencies were either somewhat or very satisfied with the timeliness  of FTA’s grant processing, where 24 percent were either somewhat or very  dissatisfied. The remaining were neither satisfied nor dissatisfied.  Forty- two percent were either somewhat or very satisfied with the timeliness of  DOL’s grant processing, and 29 percent were either somewhat or very  dissatisfied with the timeliness of DOL’s grant processing.  The remaining  were neither satisfied nor dissatisfied.

	Section 13(c) Identified As a Burden Less Often Than Other Federal Grant Requirements

Some of the transit agencies we surveyed indicated that Section 13(c)  requirements for receiving financial assistance were a burden regarding  time, effort, and resources.  However, more agencies identified other  requirements as burdensome.  All of the transit agencies indicated that FTA  and DOL could undertake some actions to ease the burden of fulfilling  Section 13(c) requirements, such as providing information on best  practices in transit agencies  and providing information about Section 13(c)  on FTA and DOL Web sites. DOL has advised us that compliance  information on the Section 13(c) program is included on its Web site, as  well as on the FTA Web site.
The transit agencies were presented with a list of 10 different federal  requirements for receiving federal transit assistance and asked to indicate  how easy or difficult it was to fulfill those requirements regarding time,  effort, and resources.  Thirty percent of the transit agencies we surveyed  indicated that fulfilling Section 13(c) requirements was either somewhat or  very difficult. Fifty-six percent indicated that fulfilling Section 13(c)  requirements was neither easy nor difficult, and 14 percent indicated that  fulfilling the requirements was somewhat or very easy.
More transit agencies we surveyed indicated that other federal  requirements were burdensome.  For example, 79 percent of the transit  agencies indicated that complying with Americans with Disabilities Act  requirements was somewhat or very difficult.  Seventy-four percent of the  transit agencies indicated that fulfilling Disadvantaged Business Enterprise  program requirements was somewhat or very difficult. Figure 3 shows the  percentage of agencies that indicated that the requirements were difficult  to fulfill.
In the returned questionnaires, we observed that transit agencies’  responses concerning difficulties with contracting, delays in the receipt of  federal grants, or fulfilling Section 13(c) requirements did not show any  pattern regarding agency size, structure, or location.
Our survey respondents were provided a list of actions that FTA and DOL  could undertake to help transit agencies with Section 13(c), and agencies  were asked to indicate whether the actions would be useful or not useful.   More than 50 percent of the transit agencies indicated that each of the nine  actions listed would be definitely or probably useful.  For example, 86  percent of the transit agencies we surveyed indicated that it would  definitely or probably be useful if FTA were to provide information on  delays in application processing.  Similarly, 85 percent of the transit  agencies we surveyed indicated that it would be definitely or probably  useful if DOL were to provide reasons for delays in processing an  application.  Eighty percent indicated that it would be definitely or  probably useful if DOL and FTA were to provide information about Section  13(c) on their Web sites. Figure 4 shows the percentage of agencies that  indicated that the actions would be useful.

	Observations

The transit agencies we surveyed generally reported that Section 13(c) has  had a minimal impact on labor costs, adoption of technologies, and  operations. However, a notable number of transit agencies reported that  Section 13(c) has discouraged them from contracting for fixed-route transit  services and has delayed their receipt of federal grants.  In addition,  although 30 percent of the transit agencies indicated that Section 13(c) is a  burden on their time, efforts, and resources, more transit agencies  indicated that certain other federal transit requirements were burdensome.
In the returned questionnaires, we observed that transit agencies’  responses concerning difficulties with contracting, delays in the receipt of  federal grants, or fulfilling Section 13(c) requirements did not show any  pattern regarding agency size, structure, or location.
Two factors are relevant to understanding the impact of Section 13(c) on  transit agencies.  First, 85 percent of the transit agencies we surveyed  reported that they would be required to engage in collective bargaining  independent of Section 13(c) and its requirements to continue collective  bargaining rights.  Some collective bargaining agreements contain  provisions similar to those found in Section 13(c) arrangements and thus  make isolating the impact of Section 13(c) difficult.  Second, 84 percent of  the transit agencies reported that they have more employees now than 5  years ago.  Officials we interviewed suggested that the growth of many  transit agencies has reduced or eliminated the need to dismiss or displace  employees when making technological or operational changes, thus  potentially reducing the concern over the implications of such changes  under Section 13(c).
Finally, the transit agencies indicated that some actions FTA and DOL could  take, such as providing information about Section 13(c) on their Web sites  and providing additional information about processing delays, would be  helpful in fulfilling Section 13(c) requirements.

	Agency Comments

We provided a draft of this report to the Secretary of Transportation and  the Secretary of Labor.  Neither agency had substantive comments;  however, both provided technical comments that we incorporated into this  report as appropriate.

	Scope and Methodology

To determine the impact of Section 13(c), we reviewed relevant studies,  interviewed federal agency and union officials, and surveyed the 105  largest transit agencies.  To obtain background information on Section  13(c), we reviewed the legislative history of the Urban Mass Transportation  Act of 1964 and interviewed officials at the APTA, FTA, DOL’s Employment  Standards Administration, the Amalgamated Transit Union, and the  Transportation Workers Union.  These officials shared their views on the  costs and benefits of Section 13(c) as well as key information on the  Section 13(c) certification process, the characteristics of transit agencies  most likely to be affected by Section 13(c), and the history of Section 13(c).
To obtain the list of transit agencies to survey, we analyzed data from FTA’s  National Transit Database (NTD).  From our interviews, we determined  that larger transit authorities were more likely to have had relevant and  reportable experiences with Section 13(c).  First, larger transit agencies  generally receive more federal financial assistance than smaller agencies.   Second, the officials we interviewed reported that larger agencies were  more likely to have employees represented by unions.  Finally, DOL has  simplified certification requirements for transit authorities not located in  urbanized areas.  Consequently, we requested that FTA officials provide us  with a list of all transit providers that serve populations greater than  200,000 and that annually operate 100 or more revenue vehicles in  maximum service. In commenting on a draft of this report, FTA noted that  smaller and nontraditional grantees that were not included in our list may  also experience some difficulties in complying with Section 13(c).
We used the NTD, Internet searches, and telephone calls to exclude the  following from our initial list: (1) transit agencies operating as subsidiaries  of other transit agencies on our list, (2) transit agencies not receiving  federal financial assistance, and (3) private organizations that provide  purchased transit services to transit agencies already on our list.  We also  added to our list transit agencies that met our criteria but were not  included in the list provided from FTA because they had not filed with the  NTD. Our final mailing list contained 105 transit agencies.
After we developed the list of 105 transit agencies to survey and developed  a preliminary questionnaire, we pretested the survey with officials from  nine transit agencies.  The pretest participants were selected from transit  agencies of different sizes operating in a variety of geographic areas.   During the pretesting, we simulated the actual survey experience by asking  the transit agency officials to complete the survey. We then interviewed the  officials after they had completed the survey to ensure that (1) the  questions were understandable and clear, (2) the terms used were precise,  (3) the survey did not place an undue burden on agency officials, and (4)  the survey was unbiased.  On the basis of the pretesting, we incorporated  appropriate changes into the final questionnaire.
After mailing the questionnaire in April 2001, we sent three additional  reminders in order to increase our response rate.  First, we sent a postcard  1 week after the survey.  Second, we sent a follow-up letter and a  replacement questionnaire to nonrespondents 1 month after the initial  mailing.  Finally, we sent E-mail messages and placed telephone calls to  nonrespondents during June and July 2001.  We received questionnaires  from 92 transit agencies, for a response rate of 88 percent.
We performed our review from December 2000 through October 2001 in  accordance with generally accepted government auditing standards.
As arranged with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this report.  At that time, we will send copies to the Secretary of  Transportation, the Secretary of Labor, and interested congressional  committees. Copies will also be made available to others on request.
If you have any questions about this report, please call me at (202) 512-2834  or contact me at heckerj@gao.gov.  Major contributors to this report are  listed in appendix II.

GAO’s Survey Instrument and Overall Results

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GAO Contacts and Staff Acknowledgments

	GAO Contacts

	Acknowledgments

In addition to those named above, the following staff members made key  contributions to this report: Casey Brown, Helen Desaulniers, Curtis  Groves, Lynn Musser, and Yvonne Pufahl.

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	Public Affairs

Summary:
What GAO Found

Concerns have arisen about the 37-year-old statutory provision commonly known as Section 13(c). Before the Federal Transit Administration (FTA) may make grants to transit applicants, the Department of Labor (DOL) must certify that fair and equitable arrangements are in place to protect mass transit employees affected. Section 13(c) requires that the arrangements provide for continued of collective bargaining rights and protect of employees against a worsening of their positions. Once certified, the arrangements are incorporated into the grant agreement between FTA and the grantee. Critics claim that Section 13(e) greatly increases the cost of transit operations, hinders transit agencies' efforts to adopt new technology, and constrains the efficient operation of transit systems. Supporters counter that Section 13(c) has enhanced labor-management stability and has improved communication and working relationships between management and labor. The transit agencies GAO surveyed reported that Section 13(c) had a minimal impact on their (1) labor costs, (2) ability to adopt new technologies, and (3) ability to modify transit operations. Transit agencies reported that Section 13(c) has delayed the award of federal grants and has presented a burden regarding time, efforts, and resources. Transit officials said that growth in the transit industry may mitigate the effects of Section 13(c).