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George F. Dixon, III, President,
and Members, Board of Trustees
Greater Cleveland Regional Transit Authority
and Residents of Cuyhoga County, Ohio:

It is a pleasure to submit to you the Comprehensive Annual Financial Report (CAFR) of the Greater Cleveland Regional Transit Authority ("GCRTA" or "Authority") for the year ended December 31, 2007. This is the twentieth such report issued by GCRTA. It has become the standard format used in presenting the results of GCRTA's operations, financial position, cash flows and related statistical information.

This report enables the Authority to comply with State law that requires entities reporting on a GAAP (Generally Accepted Accounting Principles) basis to file unaudited basic financial statements with the Auditor of State within 150 days of fiscal year end. This report is submitted to satisfy that requirement for the fiscal year ended December 31, 2007.

Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Becuase the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.

Ciuni and Panichi, Inc., independent auditors, have issued an unqualified ("clean") opinion on the GCRTA's financial statements for the year ended December 31, 2007. The independent auditor's report is located at the front of the financial section of this report.

GCRTA also participates in the federal single audit program, which consists of a single audit of all federally funded programs administered by the GCRTA. As a requirement for continued funding eligibility, participation in the single audit program is mandatory for most local governments, including GCRTA.

Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it.

GCRTA takes great pride in the fact that each of the previously issued Comprehensive Annual Financial Reports earned the recognition of the Government Finance Officers Association ("GFOA") in the form of its Certificate of Achievement for Excellence in Financial Reporting. This award evidences the fact that the previous CAFRs complied with stringent GFOA standards for professional financial reporting. GCRTA was the first public transit agency in Ohio to earn this important recognition and has consistently done so since 1988.

The GCRTA also submits its annual operating and capital budgets to the GFOA and has been doing so since 1990. Each of these budget documents has won the Distinguished Budget Presentation Award, having satisifed the most stringent program criteria and proven its value as (1) a policy document, (2) an operations guide, (3) a financial plan, and (4) a communication device.

PROFILE OF GOVERNMENT AND REPORTING ENTITY

The Greater Cleveland Regional Transit Authority is an independent political subdivision of the State of Ohio. It was created in December 1974 by ordinance of the City of Cleveland, Ohio, and by resolution of the Board of County Commissioners of Cuyahoga County, Ohio. Operations at GCRTA began in September 1975. The GCRTA provides virtually all-mass transportation within the County. The North Olmsted and Maple Heights transit systems merged with GCRTA in March 2005 to form a single transit system that will meet the needs of the public in Cuyahoga County. It is a multimodal system delivering bus, paratransit, heavy rail and light rail services.

A ten-member Board of Trustees (Board) establishes policy and sets direction for the management of the GCRTA. Four of the members are appointed by the Mayor of Cleveland with the consent of City Council; three members, one of whom must reside in the City of Cleveland, are appointed by the County Commissioners; the remaining three members are elected by suburban mayors, city managers, and township trustees. Board members serve overlapping three-year terms. Under the provisions of General Accounting Standards Board ("GASB") Statement No. 14, the GCRTA is considered to be a jointly governed organization.

Responsibility for the line administration rests with the CEO, General Manager/Secretary-Treasurer. He supervises five Deputy General Managers who head the Operations, Legal Affairs, Finance & Administration, Engineering & Project Management and the Human Resources divisions. Additionally, the Office of Management and Budget and the Office of External Affairs function outside of the divisional configuration and report directly to the General Manager. The Internal Audit Department reports to the Board of Trustees and maintains a close working relationship with the General Manager. An organizational chart, which depicts these relationships, follows later in this introductory section.

The GCRTA had 2,653 employees as of December 31, 2007. The system delivered 22.6 million revenue miles of bus service and 2.9 million revenue miles on its heavy and light rail systems. The service fleet was composed of 620 motor bus coaches, 60 heavy rail cars, 48 light rail cars, and 77 demand responsive vehicles.

The annual cash basis-operating budget is proposed by management, at the department level, and adopted by the Board of Trustees after public discussion. The budget for each division and department is represented by appropriations. The Board must approve any increase in the total Authority appropriations. The General Manager must approve any inter-divisional budget transfers. The appropriate Deputy General Manager may modify appropriations to applicable departments within a division and to accounts within a department.

Budgetary control is maintained at the department level. It is the responsibility of each department to administer its operations in such a manner as to ensure that the use of funds is consistent with the goals and programs authorized by the Board of Trustees. The GCRTA also maintains an encumbrance accounting system for budgetary control. Unencumbered appropriations lapse at year-end. Encumbered appropriation balances are carried forward to the succeeding year and need not be reauthorized.

ECONOMIC CONDITION AND OUTLOOK

The GCRTA's service area is contiguous with the boundaries of Cuyahoga County, Ohio. The County includes the City of Cleveland, two townships, and fifty-six other jurisdictions. This is the largest metropolitan area in Ohio and one of the largest counties in the United States. The population of this area is approximately 1.3 million people.

Historically, the foundation for Greater Cleveland's economic vitality has been heavy industry with the largest employment sector being manufacturing. Since 1998, manufacturing employment has dropped significantly from 17.0% of the total workforce to 10.9%, while wholesale and retail trade has significantly decreased from 24.4% since 1998 to 14.4% in 2007. The professional and related services sector work force has steadily grown from 31.6% of the total workforce since 1998 to the present rate of 44.7%, of the workforce. Our local economy started to rebound during 2004, resulting in more of our workforce being employed. The County's 2007 unemployment was 6.1%, compared to the national rate of 5.0%.

During 2005, the County Auditor completed the required reappraisal valuation of all commercial, industrial, and residential real property. This is the most recent valuation available. This process is the foundation for property taxation, and it sets the debt limitation for GCRTA. This appraisal valuation is currently at $32.5 billion.

CURRENT YEAR REVIEW

In 2007, the American Public Transportation Association (APTA) recognized GCRTA as the best transit system in North America. In addition, GCRTA was a recipient of the 2007 Metro Lexus World-Class Customer Service Award. This recognition, which we sought for a number of years, was a result of hard work, dedication, and a single focus to provide outstanding, cost-effective public transportation to the residents of Northeast Ohio.

This outstanding service resulted in a steady ridership growth over the past several years. This winning streak continued in 2007, with more than 57.3 million rides provided for a fifth year of gains. The ridership increases were not simply the result of higher gas prices. GCRTA campaigned hard for the public to switch to public transportation. GCRTA campaigned with advertising messages on billboard signs directed at the public about the hassles of driving. A "No Drive Day Rally" with a free trial ride offer to try public transportation was advertised along with these advertising messages.

Another reason GCRTA was recognized as the best transit in the country is a strong understanding of transit needs at home. The downtown Trolleys have proven to be the right ingredient in revitalizing downtown, connecting workers, residents and visitors to restaurants, hotels and entertainment venues. In addition to changing the way people travel the city streets, the Trolleys have altered mindsets about Cleveland that stepping out for lunch with friends is okay and bowling at a downtown location after work can be a lot of fun. This kind of thinking has grown, and today, the Trolleys carry more than 3,500 passengers per day.

It's not just our downtown that's getting a second look. Residents are discovering their neighborhoods onboard GCRTA's Community Circulators. The 12 routes make frequent stops at libraries, drug stores and local shops. Unlike some of the large family vehicles, these buses are an economical choice for completing daily errands. In 2007, a local supermarket chain made the Circulator even more attractive with free 2-Trip Farecards on grocery purchases of $15 or more.

Area residents are also boarding the Community Circulators as a result of GCRTA's introduction of "One Pass Trips". This travel guide captures the flavor of some of Cleveland's culturally distinctive neighborhoods. They provide would be tourists a recommended itinerary, complete with route maps and best kept secrets on where to dine.

Our paratransit vehicles, a vital link for thousands with disabilities, are probably the finest example of GCRTA's understanding of the community it serves. In 2007, functional testing was initiated in an effort to maintain the highest quality of service to those most in need. This policy change follows a $1.4 million investment in advanced scheduling software and other upgrades that have given Paratransit users greater comfort and confidence.

Commuters who made the switch discovered it really is greener on buses and trains. The combination of fewer cars on the road and the transformation of GCRTA buses to clean diesel has contributed to a lowering of CO2 emissions in Northeast Ohio. In addition, more and more Clevelanders decided to combine cycling with riding on public transportation, as the number of bikes on trains and buses grew.

For the second year in a row, customer satisfaction was up by double digits, increasing by more than 10 percent. Through the TEAM incentive program, getting riders to their destinations safely and on time was a high priority.

GCRTA's goal of improving public transportation service along one of Cleveland's busiest corridors is also nearing reality. In 2007, much progress was made on the Euclid Corridor Transportation Project (ECTP). ECTP will be known as the HealthLine and will move more than 30,000 riders each day along Euclid Avenue. The year kicked off with the 63 foot long hybrid Rapid Transit Vehicle (RTV) successfully completing the FTA testing for safety and performance. The public viewed this vehicle as it made several test trips along the corridor.

Investments to improve travel occurred in other areas of the transit system as well. The new $4.7 million W. 117th St./Madison Avenue Highland Square Station opened to riders of the Red Line. The lot expansion was completed on the North Olmsted Park-N-Ride, and 45 clean air buses were added to the GCRTA fleet.

Safety remained a top priority, and smart technology was used to enhance GCRTA's protection of riders. This includes cameras installed at stations and aboard buses, and computers retrofitted into Transit Police vehicles. Transit facilities were patrolled by K-9 for potential threats. Students became knowledgeable about safety through a new GCRTA safety video displayed during visits to area schools.

GCRTA continues its efforts to advance the goal of redefining transit service as we move into the 21st century. While costs are kept in check, customer satisfaction continues to improve through dedicated service by GCRTA operators and staff.

FUTURE PLANS

The Authority has continued to implement its Long-Range Plan. This Long-Range Plan serves as a blueprint for building tomorrow's public transit by addressing shifts in our area's population and employment centers, as well as changing travel patterns. This plan includes:

• Community Circulators - A total of 69 Community Circulators were operational in 2007. These small buses provide neighborhood services throughout the City and the suburbs, including transfers to mainline bus and rail services over ten routes.
• Transit Centers - Transit centers are strategically located where bus routes intersect and service is timed to provide easy transferring. Larger centers include indoor waiting areas and concessions. GCRTA has five existing Transit Centers at Fairview Park, Euclid, North Olmsted, Maple Heights and Parma Mall. A sixth Transit Center is planned for 2007 located on the east side of town with many more planned over the next five years.
• Park-N-Ride Lots - Parking lots are strategically located at freeway or other major intersections. Commuters leave their cars and ride express service to and from their destinations. GCRTA provides more than 8,855 parking spaces at 21 of the rapid transit stations. In addition, the Authority operates bus Park-N-Rides at Strongsville (600 spaces) and Westlake (550 spaces). The objective of the GCRTA Park-N-Ride Development Plan is to provide rail and/or bus Park-N-Ride services for all major commuter corridors in Cuyahoga County.
• Euclid Corridor Transportation Project - This project, to be completed in 2008, will establish dedicated bus lanes along Euclid Avenue from Public Square to University Circle and beyond and include improved passenger shelters, signals, street lighting and landscaping.

CAPITAL IMPROVEMENT PLAN

The development of the 2008 budget included preparation of a five year Capital Improvement Plan ("CIP"). This document is an outline for rebuilding and expanding service by the Authority. Totaling $433.7 million, the CIP constitutes a significant public works effort aimed at remaking the transit network and positioning the Authority, not just for the short-term, but also for the long-term future.

Significant capital improvements planned for the five-year period include:

Rail Projects - $134.6 million

This commitment of funds includes the upgrade of the catenary system, rail extension, station rehabilitation, tracks, bridges, train control systems, and signage. Rail projects include the rehabilitation of the rail stations totaling $48.9 million, overhaul of the heavy rail vehicles of $18.6 million, rehabilitation of the rail tracks of $28.3 million, upgrade of catenary electrical system of $24.8 million, upgrade of our train control and signal systems of $14.0 million.

Local Capital Projects - $19.2 million

Classified as Routine Capital Projects ($9.4 million) and Asset Maintenance Projects ($9.8 million), these initiatives are funded entirely from local resources. Routine Capital Projects are typically equipment requested by various departments and not funded through grants. Asset Maintenance funds are used to maintain, rehabilitate, replace, or construct assets of a smaller scope or cost than those typically supported with grants. These projects are authorized within the Authority's Capital Fund and are supported with annual allocations of sales tax receipts.

Bridge Rehabilitation and Other Improvements - $10.6 million

Funding has been provided for the rehabilitation of six track bridges and three street bridges.

Bus Purchases, Paratransit Vehicles and Circulator Buses - $54.1 million

The useful life of a bus, as defined by the Federal Transit Administration ("FTA") is twelve years, or five hundred thousand miles. The Authority is aggressively reducing its fleet's average age by replacing its oldest vehicles.

Transit Centers and Shelters - $45.8 million

The Authority will be making a significant investment in the construction of Transit Centers over the next five years. These centers will be designed to provide our riders with convenient connections between local, regional and downtown transit lines. Comfortable waiting areas and time-coordinated service will make it easier for riders to transfer between routes.

Euclid Corridor Transportation Project - $7.2 million

The final phase of this project continues to be the Authority's top priority. Once completed, this project will create a unique environment along the corridor that will benefit the entire region by improving transit services, promoting long-term economic and community development, and improving the quality of life in Northeast Ohio.

Equipment and Non Revenue Vehicles - $3.1 million

This project calls for the upgrade of our security equipment of $1.8 million and the replacement of the operator dispatch system of $1.0 million. Equipment will be replaced at a cost of $300,000.

Operating Expenses and Other Expenses - $159.1 million

Certain operating costs are budgeted as capital items as designated by the Federal Transportation Administration (FTA) to be incurred over the next several years and are reimbursable by the Federal and State governments totaling $147.0 million. These costs are recorded as operating costs in the enclosed financial statements. Included in this category is $12.1 for fare collection equipment lease.

OTHER INFORMATION

Certificate of Achievement for Financial Reporting

It is management's intention to submit this and future CAFRs to the Government Finance Officers Association of the United States and Canada for review under its Certificate of Achievement for Excellence in Financial Reporting Program. We believe the current report conforms to the program requirements, and we expect that participation will result in improvements to our reports in coming years.

Acknowledgements

The GCRTA expresses thanks to the staff of the Accounting Department directed by Glenn Hendrix and assisted by Angela Coats, for their work in preparing this report. Pamela Blackwell, Debra Benjamin, Louis Catalusci, Larry Ferrell and Joseph Ivan organized the project. Frances Barnett typed and proofread the entire document, and prepared it for printing. Cuyahoga County and Steven C. Letsky, Director of Accounting for the Cuyahoga County Auditor, provided supporting demographics and other statistics.