As private business entities, school bus contractors can offer an interesting perspective on the ups and downs of the U.S. economy as well as legislative and regulatory matters.
SBF Senior Editor Claire Atkinson spoke with executives at several contractor companies to get their take on issues currently affecting the pupil transportation industry.
SBF: What are the advantages for a school district in contracting out transportation services?
Gallagher: The advantages are that they get to really concentrate on education issues. More and more, Americans today are asking districts to tighten their belts and focus on their core education issues. Having predictable costs for long-term contracts is a huge advantage for districts. Contractors can also be flexible in routing and scheduling changes and in fact should be in there offering solutions.
Benish: When is the last time the district had someone come in from the outside and evaluate all of their bus routes to check their efficiencies? Bidding your transportation allows someone besides the inside person to conduct a real evaluation of what the district is currently doing. Advantages include savings in driver times and pay practices.
Gatto: In contracting out transportation services, a school district will be able to initially cash in on the equity of its equipment, if any, and/or its facilities. In the succeeding years, there will be no need for capital expenditure and there will be reduction in payroll expenses and fringes, including health insurance and pension costs for drivers, mechanics and staff. Exposure to liabilities due to vehicular accidents will be reduced as well.
Private contractors are able to spread the costs of equipment, overhead and labor through non-district trips, such as charters. In an area where a contractor provides transportation to several adjoining districts, the savings are even greater, as fixed costs are spread out to more entities.
A school district need not spend for stringent environmental compliance requirements for fuel storage and vehicle emissions. It will also be able to easily add or reduce routes and trips without incurring the costs of additional vehicles or sunk costs associated with unused excess vehicles. All in all, I would say that the cost will be 15 to 20 percent less for a school district.
Duke: Many districts choose to outsource for one or more of the following reasons: operating efficiencies, problem resolution, cost savings, expertise, and improved safety and technology. According to the National School Transportation Association (NSTA), 90 percent of its members who completed conversions from 2001-2006 reported savings ranging from 10 to 30 percent.
Because a contractor’s reputation heavily rests on its safety record, a significant investment in both fleet maintenance and safety programming must be made to ensure its safe, efficient operation. In fact, a contractor’s safety training and technological investments often exceed state or school district requirements.
How has the economy changed the contracting option for school districts over the past five years or so?
Gallagher: This is my 34th year full time in this business. I have seen all kinds of things changing in the economy and back again. The economy has forced people to look at the entire budget and say, we need to spend money on education.
Fowler: Budgets are getting tight, superintendents and school boards are looking for every angle to reduce their costs, trying not to reduce the service, but that makes it very tough. There’s another reason why outsourcing transportation is good.
Thomas: When the state isn’t reimbursing for bus purchases, they start looking at the state minimum requirements by law for school bus services and unfortunately, buses are coming off the road.
Gatto: The past five years have been challenging — the fuel crisis and volatility, terrorist alerts, credit crisis, real estate downturn and the recession. With the resulting tight budgetary situations of municipalities and school districts, administrators have to cut costs and services or be more creative in operating with the same or less funds.
In the past, school districts have been hesitant in contracting out their transportation services because they have employees with long tenure who would end up with less pay and benefits. With private contracting as an option, more districts are looking for increased services with less money, sometimes to the point of having unrealistically high expectations without due consideration of the true hard costs of the contractor’s services.
How competitive is the contractor market these days?
Gallagher: It has become more competitive. I assume manufacturers are interested in selling new buses and that has fueled some of the recent uptick. The issue of the national health plan that will be coming eventually as well as other issues may tighten up things later, but all in all, it has increased.
Thomas: It’s brutal. The competition, the pricing on contracts, is cutthroat. As a matter of fact, it’s so low that I don’t think it’s sustainable. The market’s trying to respond, but I think the pendulum has swung too far and it’s going to be a tough road coming forward.
Fowler: It’s getting very competitive, and I feel sorry for the districts and the states that have to take the low bid. Those are the ones that are really suffering because our equipment all costs about the same, so they’re going to be cutting corners other than equipment.
Benish: The contractor market is very competitive — another reason to look at contracting. Over the past five years, more than three national contracting companies have entered the business and can bid anywhere in the country.
Gatto: It depends on the geographical area. I see some unrealistic price strategies that may benefit school districts in the short term, but may eventually end up causing inconsistencies in service quality and safety. While I believe that private contractors provide savings, the market penetration strategies of some companies who use voodoo economics in calculating returns on investment and price below true hard operating costs in order to eliminate competitors will lead to financial and service problems for these companies and districts in the long run.
Duke: The market is highly competitive. In addition to the major providers, there is a continuous supply of new entrants into the marketplace. Although an increased emphasis has been placed on the cost-savings realized by outsourcing, it is essential that all contractors — large or small — remain focused on a point-by-point comparison that looks at costs, long and short-term goals, safety and reliability for the best transportation solution.
Has the current economy impacted driver recruitment and retention?
Gallagher: I believe that it has positively affected retention. However, we spend a lot of time making our drivers feel like part of the STA-STC family. We look after each other, help each other out in tough times, and that also has helped us keep good drivers.
Fowler: In my case, I have not driven since the start of school one time. And when I’m in a bus, there’s no one else around. Unfortunately, most of the rural areas like where I am, it’s a totally part-time job. You only drive a couple hours in the morning and in the afternoon. And this year we’re totally full. So yes, it definitely helps us to recruit and retain, and we tend to get a little bit better drivers.
Thomas: I had a customer three days before school started this year that needed 25 routes. Now for me, 25 routes to add three days before school started — I didn’t have buses, I didn’t have drivers, I didn’t have anything. And pretty much on time, I was able to fulfill that service request.
Benish: The current economy has allowed all of us to have better, more qualified drivers. It has been a total change since two years ago.
Gatto: With the high rate of unemployment nationwide, the driver shortage that existed in the past does not hold any longer. Driver recruitment and retention has eased up, resulting in lower advertising and recruiting costs. However, we continue to spend on driver training and ongoing refresher courses to maintain and improve the quality of drivers.
Are you currently concerned about security threats to school bus transportation?
Gallagher: Let me say we are always “aware” of that. It is the nature of the business to have safety and security a key part of our success. We believe the new technology today helps improve communications and we constantly are training our folks on what to look out for.
Fowler: I’m out in a rural area. I’m more concerned about a hostile parent than I am about the Taliban. With Homeland Security last July at [NSTA’s] conference in North Carolina, we had an extra day and a half of training with all types of security issues, so we still want to train our people and we have an excellent program that Homeland Security has put out, First Observer.
Thomas: The secretary of Defense and secretary of Homeland Security are saying the likelihood of a terrorist event in the near future is certain. With that, I’m just so thankful that First Observer is incorporated into school bus driver training because school bus drivers today, coast to coast, cannot ignore this or think that it’s unlikely. To have drivers with their antennas up and to have it incorporated into their annual in-service training is critical.
Benish: This is something we try to talk about with our managers on a regular basis. The drivers are always the eyes and ears of any bus company, if anything out of the ordinary is going to happen, they will notice first, and they need to know how to report it.
Duke: The safety and security of the 4 million students we transport to and from school each day is our core value. First Student buses offer a number of safety features such as GPS systems which allow us to pinpoint each bus’ exact location at all times, Child Check-Mate, an electronic reminder system designed to ensure that a child is not left unattended on a bus, and Theft-Mate, an onboard security system that protects our buses from unauthorized boarding while parked.
How are the EPA 2010 standards affecting your business and purchasing decisions?
Gallagher: We are very much in the forefront of new vehicles. We have one of the youngest fleets in the industry with an average age of about 5.8 years. We have new CNG, propane and other ULEV vehicles. This is an investment in our kids and our communities.
Fowler: I have not ordered any 2010s. I don’t know, when I have to make that decision, which way I’m going to go, whether I’ll go with EGR (exhaust gas recirculation) or urea [a component of selective catalytic reduction (SCR) systems]. I came from the shop, so I’m more to the bolts and the nuts than a lot of people are, and I just don’t have a clue.
Thomas: It’s exacerbating the funding situation, both for districts and for contractors. The reality is that there’s going to be less school buses on the road — that’s, I think, the net effect of the environmental standards — and the sad part about that is every bus that’s on the road takes 36 cars off the road. That’s why NSTA and the American School Bus Council (ASBC) are trying to work with Congress to let decision-makers know the importance of keeping yellow buses on the road.
Benish: The 2010 EPA standards are tough, but needed, especially because we carry children. Every bus we purchase now must be fully utilized throughout its useful life. We will be unable to purchase as many new buses this year due to the price increases.
Gatto: The new EPA standards are the most stringent so far and mandate a huge reduction in nitrous oxide emissions by diesel engines, which will increase the prices of new vehicles and definitely add maintenance costs in servicing SCR (selective catalytic reduction) equipment in the future. Last year, we made a significantly large purchase of model 2009 buses prior to 2010 enforcement. Additionally, we are looking at alternative fuels allowed in states we operate in.
Duke: First Student recognizes its part in being a good corporate citizen. We will obviously be compliant with the new EPA legislation but also look at ways to reduce emissions in our current engines with fitted particulate traps and crankcase filters.
[PAGEBREAK]Are there any regional issues in states where you provide service that are affecting your business positively or negatively these days?
Gallagher: Not really — most states are under such pressure that there in fact have been some adjustments made. However, our standards in this industry are strict and should be. I think more districts and states need to come down on violators of contract terms when they seem to be turning their backs for lower costs; that’s a dangerous way to go.
Fowler: Just last week, Gov. Nixon had to cut several million dollars out of the state of Missouri’s budget, and although we’ve been working with him very hard to keep him from cutting transportation, he cut almost $16 million out of the transportation fund for Missouri schools. We had a seat belt bill that’s been introduced this year again; I can’t see how a non-funded mandate would pass right now. We even have one of our representatives who has introduced a bill that you can’t idle a bus at the schools, not knowing that many of us already have idling policies.
Thomas: In Ohio, the public employer labor union got legislation enacted that pretty much precludes about 80 percent of the school districts in the state from contracting out. We’re actually in active testimony at the Statehouse right now trying to convince the state legislatures to reverse that, because private contractors present a much more cost-effective alternative to in-house operations. The other big one is school districts are cutting school bus service, and they’re asking for leniency on regulations to allow vans and other types of vehicles to be used. Thank God for the federal requirements, because I think the state would be more flexible in allowing the use of these other vehicles other than school buses if the federal requirements weren’t so restrictive.
Gatto: In the New York City region, it has been difficult to get fuel index adjustments to mitigate fuel risks which, in effect, will stabilize operations. Similar to other big cities, NYC has skyrocketing costs due to runaway labor wages, health and welfare insurance, pension and vehicle insurance premiums and cost-cutting initiatives larger than most municipalities due to significantly lower funding.
Are there any regulatory or other types of issues on the national level right now that you’re concerned about?
Fowler: Right now, there are three or four pending rulemakings at the Federal Motor Carrier Safety Administration that could actually put many of us out of business. One is for entry-level training — they have a ridiculous number of hours of training you have to do before you can take a CDL test. Another one is medical requirements. They want a specialized doctor to do a Department of Transportation physical, and for me out in a rural area, that’s going to be a very big expense.
Benish: The only real national regulatory issue, I think, is the seat belt legislation coming down in the future. I personally think seat belts in school buses are inevitable. We need to get out and talk to the people shaping the laws regarding seat belts and let them know our concerns.
Gatto: The Card Check bill (Employee Free Choice Act): This administration’s pledge to unions will make recruitment easier for the unions by simply signing cards rather than through secret-ballot elections wherein workers are protected. This will intimidate workers and will also strip our ability to campaign against unionization. Like the U.S. Chamber of Commerce and other business organizations, we are against this legislation.
We need a “school bus only” CDL because the trucking industry has been recruiting our drivers after we have trained and invested in them.
Lastly, the EPA has become too powerful and discretionary.
Anything else to add?
Thomas: I think that contracting represents the American Dream because it allows us to be in our own business. I think that if more people would look to this as an enterprise, school districts would have more options and, of course, there’s the business opportunity for the entrepreneur who wants to engage in it. I don’t think we do a good job in reaching out to school bus drivers out there who are thinking, “I wonder what it would be like to own a bus or two.”
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