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. 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. 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. 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. 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. 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. 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. 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. 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. 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. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-text files of current reports and testimony and an expanding archive of older products. 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Summary: 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).