WASHINGTON -- Transit agencies that violate the federal charter service rule by operating illegal charters could be hit with penalties much larger than the amount of money they were paid for the services they provide, the Federal Transit Administration has warned.

The caution came from FTA Chief Counsel Dorval R. Carter Jr. in a decision involving a complaint filed against the Winston-Salem Transit Authority by two motorcoach industry trade associations.

"Transit agencies should note that depending on the circumstances, they may have to return the sum earned, or they may have to return more than what was earned because the violation was moderate or major," he wrote in a ruling that ordered the transit agency to pay a $5,000 civil penalty for a charter violation.

It was only the second time the FTA has fined a transit agency for a charter rule violation since the rule went into effect two years ago this month.

The first came last May when River Cities Public Transit in South Dakota was ordered to pay the amount of money $100 it earned from a charter it operated illegally.

Carter coupled his decision to fine Winston-Salem Transit with a fresh analysis of the penalty provisions of the rule, a possible signal the FTA may be prepared to begin fining transit agencies for charter violations.

"Were now two years into the charter rule so there is no excuse for transit agencies not to know the rule," noted Ken Presley, vice president of the United Motorcoach Association, one of the groups that filed the complaint against Winston-Salem Transit.

In Carters review of the remedies allowed under the rules, he noted that if a transit agency earns less than $3,000 from an illegal charter, it is considered a minor violation and only the amount earned would have to be returned.

However, it would be a moderate violation if the revenue was between $3,000 and $11,000, and a major violation if the pay was more than $11,000, and in both of those cases the penalty could be much higher than the revenue.

He said several other factors also could be used to help decide the severity of the violation and the amount of the penalty, including the annual budget of the transit agency and if a cease-and-desist order had been ignored.

"In tough economic times, the loss of business by a private provider in any amount can have serious ramifications," he noted.

The penalty scenario was detailed in a ruling involving a complaint filed by UMA and the North Carolina Motorcoach Association against Winston-Salem Transit over a shuttle service the authority ran in October for the Dixie Classic Fair.

The two associations claimed the shuttle service violated the charter rule because a third party dictated the route and time of the service, the route was not part of the regular service, and no fares were collected.

Winston-Salem Transit contended the shuttle was legal because the transit authority and the stadium where the event was held are both owned by the city and the payment for the shuttle service $4,400 only involved a transfer of money from one city department budget to another.

Carter rejected the argument, however, and ruled the stadium is considered a third party under the charter rule and operation of the shuttle was a clear violation of the charter service rule.

"In this case, the circumstances of the violation are moderate because Winston-Salem Transit made an error in interpreting the charter regulations to allow for a third-party subsidy from the city for the service, despite the fact that FTA issued question-and-answer guidance on the exact topic," he noted.

Under the charter rule, which was adopted in 2008, transit agencies must give private carriers the first opportunity to provide any charters they may be interested in doing. The rule was established to prevent federally subsidized transit agencies from competing against private businesses.

Presley said that while the associations are pleased with the FTA decision, they recognize that ultimately everyone lost.

"The private operators lost an opportunity to do the shuttle that not only would generate income and public goodwill, but much-needed employment for our drivers.

"Federal, state and local taxpayers lose every time the equipment they purchased for a finite purpose is depreciated in unauthorized use.

"Finally, Winston-Salem Transit Authority received a financial penalty that likely was unbudgeted.

"Most of all, we are a society that, for the most part, gets up every day and believes in fair play. It is always disappointing when we learn our government is not playing by the rules, especially rules they agreed to when they received our tax money," he said.

Presley added he is hopeful the North Carolina operators in the Winston-Salem area will reach out to the Dixie Classic fair promoters and "reach a timely private-sector solution to their transportation needs."