The Greater Lynchburg Transit Co. is suing the city, arguing that it breached its contract and fiduciary duty after an alleged “unauthorized drawdown” of a transit reserve fund, according to the lawsuit filed in circuit court.
The transit company is seeking at least $1.3 million in damages.
The city disagrees with the transit company’s decision to pursue the litigation but “remains ready and willing to meet” with its leadership to discuss the matters “constructively and in good faith,” according to a statement issued to Cardinal News. The city encourages “a resolution that serves the interests of the community and avoids the need for prolonged litigation,” the statement reads.
The transit company filed the lawsuit on Oct. 13, after its board of directors voted unanimously, with one absent, to file the complaint on Oct. 7, according to the suit.
The transit company is a not-for-profit corporation, legally separate from the city, that was created in 1974 and is the sole provider of public transportation services in Lynchburg, according to the lawsuit. The transit company receives funding from a mix of city, state and federal sources, with a total annual budget of about $10 million. The transit system operates 14 bus routes, paratransit services for riders with disabilities and on-demand van rides throughout Lynchburg, according to its website.
In its lawsuit, the transit company argues that the city’s recent handling of transit reserve money is a breach of the terms of an agreement that establishes the fiscal and operational relationship between the two parties.
The city’s budget for the current fiscal year was adopted by the Lynchburg City Council in May and includes the move of $1.3 million out of the transit system’s reserve fund, reducing the reserve dollars from about $1.4 million to about $100,000.
The agreement states that the reserve fund should be kept at a minimum of $500,000 and “used to cover unplanned cash shortfalls.” The transit company “shall formally request these funds as temporary financial assistance” when it’s necessary to dip into the reserves, according to the agreement, and the company’s nine-member board of directors shall be informed of the request.
The transit company argues in its lawsuit that the $500,000 minimum should be preserved; that the drawdown did not come from an “unplanned cash shortfall”; that the transit company did not request such a use of the reserve fund; and that the board of directors received no formal notice about the drawdown prior to the first public presentation of the city’s proposed budget in March.
Strong reserves are “essential to uninterrupted service delivery,” the lawsuit states. The transit company is ineligible to apply for certain grants if it cannot show that it maintains sufficient cash reserves, and a low reserve balance exposes the company “to acute financial risk in the event of any unplanned cash shortfall, ongoing price increases for fuel, delayed federal reimbursement or other operational disruption,” according to the lawsuit.
Rising fuel costs have caused the transit company “to increase expenditures for fuel and draw from the meager amount in the reserve fund; in the absence of the reserve fund, route cuts will be imminent,” the lawsuit reads.
The move of the $1.3 million out of the reserve is described in the city’s adopted budget as a way to “address current transit needs” beyond the city’s annual contribution to the system and initiate a study to evaluate the public transportation system.
In the lead-up to the adoption of the budget, the transit company asked the city to nearly double its annual contribution from about $1.9 million to about $3.6 million. The request was made against the backdrop of driver shortages, a projected decrease in state funding and ongoing increases in operational costs with the rising prices of insurance, vehicles and their parts, and fuel.
The adopted budget keeps the city’s annual contribution to the transit company flat, around $1.9 million, and adds the $1.3 million in one-time funding from the reserves in part to close the projected gap.
When City Manager Wynter Benda presented the city’s proposed budget in March, he called it a “maintenance budget” in which city departments and agencies like the transit company were asked to not exceed their annual city cash allocations from the prior year.
Natalie Wilkins, the transit company’s assistant general manager, said the company is not able to comment on the lawsuit at this time. The city statement says that city staff are aware of the lawsuit and will defend the city and its citizens but “will not address the specific allegations in the complaint through public statements.”
“The city has consistently sought to act in the best interests of the community while balancing the financial and operational needs of public transportation with its broader responsibilities to its citizens,” its statement says. “The city remains committed to supporting public transportation and ensuring that public resources are managed responsibly, transparently and in accordance with applicable law.”
The transit company argues in its lawsuit that it attempted to resolve the budget issues with the city before turning to litigation. The company also argues that there have been similar breaches of the agreement since its inception in 2012, in instances when the city has removed money “from the reserve fund without consent of or notice to” the transit company, according to the suit.
