Providing contracted transportation services for school districts has never been easy, but it seems to be getting tougher every day. At least, that’s the perspective of many contractors around the country.
Pete Settle, president, Petermann Ltd., Cincinnati
They recently spoke with SBF Editor Steve Hirano about their views of the industry and the challenges and opportunities in the offing.
Most school districts around the country still have tight budgets. How has that impacted you?
PETE SETTLE: From an Ohio perspective, we’ve seen a reduction in service. Some districts have eliminated high school busing, grades 9 through 12. In some cases, they’ve increased the walking distance for grades K through 6 from 1 to 2 miles. Or some variation on that. That’s the primary impact on us.
BRENDAN CLIFFORD: In New York, I really haven’t seen too much reduction in services yet. I’m sure that we may start to experience that over time too, but they really haven’t gotten too far into that. If anything, they’re including more children on transportation. It’s mostly safety-driven here. Money doesn’t seem to be as big an issue. School districts, on Long Island anyway, have really made quantum leaps in marketing strategy. They really have come up with some great ways of getting money or getting their message across to the public so that they vote for their projects.
Ron, anything from your perspective on school funding and how it’s impacting Laidlaw?
RON KINNEY: I don’t think it impacts Laidlaw anymore than it does any other contractor. And the whole issue in California has been pretty much the same since the mid-1980s. Transportation funding is capped. We’re always having to sharpen our pencils, and it really doesn’t matter whether it’s public or private. Because transportation for regular ed is not mandatory, districts have been forced to do a couple things. One, if they are involved with special ed, they do have to provide that transportation, so they ship the money from regular ed to special ed. Two, they institute parent fee programs where they can. Other than that, it’s not that much different than what Pete was talking about. Just trying to make it happen.
BLAKE KRAPF: We have a couple things going on in Pennsylvania. The governor has passed gambling legislation and has increased funding. He has promised us that the proceeds of the gambling revenue will help reduce property taxes. Half of that has happened. The gambling is in place, but there’s been no reduction in property taxes. Actually, all they have done is put a lot more restrictions on the school districts. They have to get a referendum anytime their budget increases or property taxes increase more than whatever the state mandates for that year. There are all kinds of restrictions tied to that. They need their budgets done six or eight months sooner than they previously did.
So how that has affected us has been two-fold. There are no more extensions to contracts. Pretty much everything goes out to bid now. Pennsylvania wasn’t really a state known for bidding out school transportation every time — they would do it every other or every third time the contract came up. Now it goes out to bid regardless.
How does that affect you when you’re actually bidding? Is it a pencil-sharpening exercise, or are there some other factors that you have to look at?
KRAPF: Interestingly, even though the budgets are tighter and theoretically the funds available for transportation are less, it has brought in more competition. So, I guess it has caused us in certain places to evaluate whether the contract is still a worthwhile one or not.
Speaking of competition, I’d like to get your sense, assuming the First Student acquisition of Laidlaw goes through, of how it’s going to impact the rest of you.
SETTLE: I don’t think it’s going to have a dramatic impact, except maybe in a few local markets. At the end of the day, it’s going to create a larger, even more competitive company. So, from a school district standpoint, I don’t really see a lot of downside. Again, there may be some exceptions to that. It’s hard to say across the country, and I’m not that familiar with [First Student and Laidlaw’s] overlap, but by and large, I don’t think it’s necessarily going to be bad for the industry.
CLIFFORD: On Long Island, the big concern has always been there’s just no place to park. So opening up a new facility or coming in when you’re not in an area is very difficult here. We’re already maxed out on all of our properties, and we’ve been trying to find more property for a couple years now. That makes it tougher for other people to come in and challenge.
Also, at my company, we don’t allow any home vehicles. A lot of companies in our area still allow home vehicles. We don’t do that, partially for security and partially just because we want to be able to see our drivers every time they sign in and sign out. That being the case, we have to have a place to park all those buses.
KRAPF: Here in Pennsylvania, I think there are some areas where we’ll have some of the exceptions that Pete noted. We have some larger metropolitan-area type districts. Over the past 10 to 15 years, the only providers have been Laidlaw, First Student or Durham. I think some of those districts are getting nervous because they’ll have fewer options. I think they’re going to try to help smaller companies enter the market where they are. But I agree with Pete, that’s going to be on a case-by-case scenario.
Texas recently mandated the installation of three-point belt systems on new buses beginning in 2010. What impact do you think that’s going to have?
SETTLE: School districts are not going to be able to buy as many buses as before. As a result, there are going to be fewer kids riding in yellow school buses. The seat belts themselves are just one of the added costs. The reduction in capacity — I’m sure Ron can speak to that California experience — on a regular-ed bus is pretty substantial. And so I guess the concern is that those who have the privilege to ride a school bus with three-point seat belts may have marginally improved safety, depending on what the studies ultimately conclude. But I think there’s going to be a large group of kids whose safety is going to be degraded substantially, because they’re going to find themselves without a yellow bus ride.
KINNEY: I can add from our experience in California. I’m addressing this from a state that’s mandated the law. We had to comply with the law. So it goes back to how the contract’s written. I know that when we had to convert San Francisco Unified School District, it was done over a period of weeks. We went from no seat belts in large buses to lap-shoulder belts in all buses.
I was really sensitive to the configuration of the buses, because of the capacity issue. So we were in conversation with the district before we even bought the buses on how many high school kids and how many middle school kids would be riding. If we needed buses with 2/2 seating because of high school loads, then we would have those buses. If you have 3/2 seating, and you are in fact going to be involved with, say, heavy high school loads, then that becomes a 2/1-seated bus because the children won’t fit in 3/2 seating.
And the difference here is not only did they require that the buses be equipped with lap-shoulder belts after 2005, but the requirement in California is they have to be used. So there’s a mandated use requirement as well. We had to deal with all of that.
But San Francisco Unified ultimately decided to go with 3/2 seating because their passenger loads for their secondary were light, somewhere around 50 or 60 percent. So they weren’t worried about having to go with 2/1 seating on a bus that was configured with 3/2 seating. So that worked out, and our experience in that area — and the financial side I’m not really addressing — has been fairly seamless.
Security concerns in pupil transportation seem to go up and down depending on the headlines. Where are we at right now?
CLIFFORD: You might as well start with New York. Obviously, for the first few years after 9/11 it was a huge, huge concern here. And that has abated a little bit, but it’s certainly still higher than it was pre-9/11. What we’ve done is install more sophisticated gates and locks in our yards, more cameras in the yards and cameras in the buses. A lot of districts are now going for cameras in the buses that haven’t before. I don’t know how much of that is security and how much of that is technology being more available now than it used to be, but they are doing it.
SETTLE: In Ohio, School Bus Watch has been a really good aspect of increased security, in addition to the physical things that Brendan referenced about locks on gates and having compounded buses. We see a little more interest in GPS, I think, because of security. Schools are inquiring more about the potential value GPS might have in an emergency situation. And the background requirements in Ohio, for other reasons not related to terrorism, have all been increased and heightened due to some other problems that occurred in the state earlier in the year.
KRAPF: Here in Pennsylvania, we did the initial School Bus Watch training, and all the districts put an emergency response plan in place. The activity level peaked a while ago. It’s an issue that’s there. We get a lot of inquiries about GPS and some other things, but then it goes back to the budget constraints. Let’s talk a little bit about drivers — recruitment, retention, the shortage in general. Is that still a big issue or does it depend on the locality?
SETTLE: It varies from market to market, at least within our state, but it’s certainly an issue.
Is it finding regular drivers, or is it not having enough subs?
SETTLE: That’s all the same issue. It’s really just not having enough drivers. We’ve generally been staffed up with drivers, but the closer we get to Fourth of July, the more nervous we all get because we keep having to recruit. But I think it is getting more difficult. Unfortunately, some of the general press about school busing isn’t helping either. As an industry, we’re all aware what those kinds of stories are.
KRAPF: The stories are always negative.
SETTLE: Yeah, they’re always negative, and so it makes it all that much harder to find people who want to pick this up. Of course, simultaneously, tightening the background requirements — which is a very good thing — shrinks the pool of potential applicants. I think this industry and a lot of similar industries are going to be struggling with this for the next 30 years. If you look at the demographics, it isn’t getting any better. We’re just going to have to get more creative, how to make it a better place to work, make it a more rewarding job for them and recognize and thank people for doing the job that they do. Quite frankly, that’s how we hang on to our people.
CLIFFORD: On Long Island, we try to keep near the top end of the pay spectrum in our area, so we’ve actually been doing pretty good as far as hiring. But we’ve increased our advertising budget 70 percent over the past four years. It’s tough. The cost of living is very high on Long Island, and it’s a part-time job. Really, we found that the number of hours that we can provide our employees is much more important than the pay rate itself for hiring and retention.
KRAPF: It’s quite possibly our No. 1 issue in Pennsylvania. And again, it’s the market that we’re in. We’re in a fairly wealthy area. There’s very little affordable housing in this area, and people aren’t coming out of a million-dollar home to drive a school bus.
Do most of your drivers live a distance from your service area?
KRAPF: In some cases, yes, but we have pockets of more middle-class, blue-collar residents where we concentrate our recruiting efforts. We just announced our driver wages for next year, and there’s a 4.5 to 5 percent increase to try to outpace the market. We’re not just trying to be the highest-paid school bus driver employer in the area, we’re also trying to outpace the Home Depots and Wal-Marts and Lowe’s and all those other places that can offer eight hours a day and full benefits.
CLIFFORD: For us, as far as how we lose employees, that’s it. They’re not going to other school transportation operations; they’re going to jobs in other industries that can offer more hours.
KRAPF: For us, it’s the benefits. They would much rather work five hours a day and make the wage that they’re making with us than work eight hours a day and not be able to take their children, or not be able to work the same schedule as their children. At the end of the day, they make the same amount of money and work more at the other jobs, but the other jobs have full benefits. We have a benefits program, but it’s just not as good. It’s far too costly for us to compete with some of those retail jobs. We spend enormous amounts of money on advertising. We have two people who are recruiters. That is their job, to go out and recruit drivers.
I’d like to discuss fuel prices. I know that some of the contracts have escalator clauses, but others don’t. What’s the general impact on you and your customers?
SETTLE: We’ve had to renew our efforts in the areas of idling policies and efficient routing. Whether it’s the district’s dime or our dime, it’s money going out of the school system, and so we try to work that issue.
CLIFFORD: It was really having a big impact on us at Huntington Coach. When you use over a million gallons a year, it adds up quick. Over the past three years or so, by our own choice, we’ve had to risk putting most of our contracts out to bid, because the CPI increases just haven’t kept pace with the increased costs, including fuel. Luckily, we managed to get most of them back at what we’ve been able to do over the past, maybe, 10 years. Most of our districts now are actually wet contracts, so they just send the truck with the fuel to us, so we don’t even get involved in it at all.
KRAPF: We have a full gamut of contracts. Some provide the fuel, some there’s a surcharge associated with the contract, some it’s all our risk. In some of the ones where we have surcharges, there’s actually caps that they’ve agreed to. The fuel market in the last eight weeks has gone straight up, and, in some cases, we’re exceeding the cap, so we’re now exposed again. So we have a full range of things going on.
But there’s a lot of costs associated with running a school bus that are impacted by the price of fuel — more than just putting the fuel in the tank. Tires, for example. The price of tires has gone up substantially. Our parts all have a fuel surcharge attached for delivery to our facilities. All those other costs of doing business have gone up as a result of the price of fuel. A lot of things have outpaced the CPI or whatever our contract escalators are. When you talk about the price of fuel or gasoline, it’s not just how much per gallon is going in your tank.
What would you say has been your greatest challenge these days?
KRAPF: For us here in Pennsylvania, it’s been our driver shortage. Let me rephrase that — the shortage of quality drivers. We have a lot of excellent veteran drivers that have been with us a long time, but recruiting quality new drivers can be a challenge. And the cost of doing business is right on its heels. It’s a tight race, but I would have to put the driver shortage on top.
SETTLE: In certain areas, quality drivers and bus attendance has become a real struggle, and likewise the cost of doing business.
CLIFFORD: With us, it’s pretty straightforward that it’s the cost of doing business far outpacing anything close to CPI, which has escalated here in New York. We wind up bidding contracts every two or three years. We haven’t had a district put us out to bid in years, but every year we put at least one or two districts out to bid because we can’t continue to operate with 2 or 3 percent increases.
KINNEY: I would simply agree with the other comments. The driver shortage is going to continue to be an issue, as is the cost of doing business. But I would add this: The anti-privatization language that has been introduced in three states this year — it did pass in Illinois, it hasn’t been signed by the governor yet — is going to be a huge issue for contractors if it expands into other states, and it likely will.
Beyond Illinois, what other states are looking at anti-privatization measures?
KINNEY: The other states that introduced it were Oregon and Minnesota this year, but there have been other states — Louisiana and Nevada — in years past that have introduced similar legislation, and I understand, Pete, that you guys caught something.
SETTLE: Yeah, it was introduced. It wasn’t really anti-privatization, but it had the net effect of preventing privatization. It’s still being debated. We haven’t escaped it for sure. I think things are breaking our way, but you never know.
KINNEY: That’s going to be a real significant issue for all contractors in the future.
KRAPF: But hand-in-hand with that, if you’re looking at future issues, the success rate of the unions this year is alarming. There has been a significant number of places that have brought in unions. When you see legislation like that, it just encourages more union activity.
KINNEY: Any of that legislation is basically sponsored by the union, so that’s where it’s all coming from.
If there was one thing that a school district could do to improve its relationship with its bus contractor, what would it be?
SETTLE: Communicating expectations. I don’t think it’s something limited to school buses and school bus contractors. All people who provide services and all people who buy services need to communicate what they want and have agreed-upon performance goals.
KRAPF: Let me answer that in a different way. The districts where we are most successful — and I don’t mean in terms of profit, I mean in a smooth-running operation — they are districts that view it as a partnership. They look at us as a partner, and not a commodity.
But then that puts some pressure on you to be viewed as a partner, for you to give them the sense that you are the partner rather than the adversary.
KRAPF: Yes, the districts where we have a relationship, they view us as an integral part of the community, and we are very supportive of the district. That’s where we have our smoothest-running operations. It takes work by both sides. I don’t want to make it sound like it’s just the district’s burden to make a partnership. But when there’s a true partnership, that’s where things run the smoothest.
CLIFFORD: I would agree with that. We had two districts in the past three years that have spent God knows how much money on engineers to design bus loops without asking for our input. They completed construction and wound up having to tear up parts of it and redo it because it wouldn’t work. Had we been involved from the beginning, we could have helped. That’s just one small thing, but it’s one of the things we look for.
KINNEY: I obviously believe that partnership has to exist, but the delivery of the service has to exceed or meet their expectations. And when that falls apart, communication begins to lag a little bit.