MOUNT CARMEL - The Lower Anthracite Transportation System (LATS) will lose $263,509 in state funding in 2014-15 - three-quarters of its operating budget - to reimburse for six years of "overstated" senior citizen ridership numbers and to pay a 25 percent penalty.

Mount Carmel Borough, which operates LATS, a public transit system that serves eastern Northumberland County, received a letter dated Tuesday from Toby L. Fauver, PennDOT deputy secretary of multi-modal transportation, that reveals the reduced state allocations for the new fiscal year.

It means the borough will have to tap into an emergency reserve LATS account to continue operation, council president Tony Matulewicz said Thursday.

"The state says you can't stop service or they'll take all your money," he said. "There are seniors who ride to go to the pharmacy, to go to the grocery store. You can't just stop the buses."

A PennDOT report from earlier this year said a LATS policy directed drivers to count senior passengers on the vehicle each time the bus crossed a municipal boundary.

Because of that, Fauver's letter said funding from Section 1513 grants will be decreased by $229,111 in reparation for the overbilling from fiscal years 2005-06 through 2010-11. PennDOT calculated the amount using revised ridership data to come up with the reimbursements, which totaled $183,289, and imposed the 25 percent penalty - another $45,822 - for the inaccurate statements. Section 1513 grants are for senior citizen ridership.

For Section 1517 funding - applying to total ridership but also including senior citizens - LATS overbilled the state $34,398, Fauver said. That was added to the $229,111 to create the $263,509 total.

The LATS budget for 2014-15 is $348,992, as approved by borough council in May.

Sparked by investigation

PennDOT's review of ridership numbers was sparked by the borough's investigation into LATS records that began in late 2012 and was detailed in a special report in April 2013 in The News-Item. Comparisons of what King Coal, which had the LATS contract for decades, billed the borough for operating LATS and what the borough was able to determine was actually spent produced alarming discrepancies, Matulewicz said at the time. King Coal officials and those within the borough who helped operate LATS during the years in which records were questioned (and have since left employment of the borough) have refused to comment on the billing questions.

The borough's attempt to clarify the discrepancies led to a falling out with King Coal, and the bus line ended the contract in January 2013. LATS currently has a three-year contract with Shamokin-based Catawese Coach Lines.

Borough police launched an investigation into the funding issue last year. It is ongoing.

PennDOT was made aware of the borough's investigation last year. This March, the department issued a report showing ridership numbers that suggested the borough's suspicions were correct, and now Fauver's letter indicates the state is asking the borough to pay up.

"We try to make changes for the better," said Matulewicz. "We get screwed at the end of the day no matter what we do."

Matulewicz disagrees that the state should penalize the borough considering the LATS budget was already decreased after the borough voluntarily reported the billing discrepancies and its expenses then fell with the switch to Catawese. But he is unsure if the borough will try to appeal the state's decision.

"We don't want to pay it back, but we have a duty of candor with them," said Matulewicz.

He suggested municipalities would hesitate to voluntarily report such issues if they know they'll be penalized.

Rich Kirkpatrick, acting press secretary for PennDOT, said Thursday the issues are unrelated. The reimbursement and penalty have to do with regulations; they have "nothing to do with a decrease in (the LATS) budget," he said.

Neither the PennDOT report nor Fauver's letter addresses other issues raised by the borough last year, including payments made by LATS to King Coal for dozens of tires and fuel filters that were later determined not to be compatible with the LATS buses, but do fit coach buses.

The investigation also found, for example, that LATS buses in February 2013, after Catawese took over, traveled hundreds of miles more yet used less than half the fuel (731 gallons) than King Coal charged for in February 2010 (1,545 gallons) and 2011 (1,572).

Ironically, Matulewicz said the borough will draw from a LATS reserve fund containing approximately $320,000 it amassed from surpluses during the King Coal era. The borough designated this fund for emergencies, as well as some day-to-day expenses. Matulewicz is concerned that depleting the fund will leave LATS unable to deal with an unexpected expense in the future.

Repeated rider counts

Counting senior riders every time a LATS bus crossed a municipal boundary resulted in fiscal year ridership numbers that in some cases were triple those of what PennDOT reports in its revisions. In 2005-2006, for example, reported ridership was 61,435, while the revision is 20,167. In 2010-11, it was 53,073 originally and 14,873 revised. PennDOT said it found no need for revisions in the ridership numbers for 2011-12, at 19,880, and 2012-13, at 23,055. (See chart.)

PennDOT said Megan Janolek "immediately corrected" the rider counting policy upon her appointment as LATS executive director in July 2012.

The report says senior passenger data showed average monthly ridership of 4,012 before the change and 1,007 since.

Matulewicz blames King Coal for the incorrect numbers.

"The King Coal drivers submitted the tally sheets that inflated the numbers," Matulewicz said.

A message left at King Coal about 4 p.m. Thursday was not returned.

Asked if the borough might take legal action against King Coal in an attempt to recuperate the lost funding, Matulewicz said he could not comment "on any pending legal action or lack thereof."

Luzerne trouble

The move by PennDOT to penalize LATS for nonexistent riders is not unprecedented; in January, a similar letter was issued to the Luzerne County Transportation Authority (LCTA) demanding $3.16 million in repayments after LCTA overstated senior ridership from 2005 to 2012. In the fiscal year 2010-2011 alone, LCTA reported nearly 600,000 more riders than were actually present.

LCTA acquired matching funds from Luzerne County to make up for the drastic loss.