.41 Report No:

Meeting Date

17-234a

September 27, 2017

Alameda-Contra Costa Transit District

STAFF RE PO RTTO:

FROM:

SUBJECT:

AC Transit Board of Directors

Michael A. Hursh, General Manager

Transbay Fare Alternatives

BRIEFING ITEM

RECOMMENDED ACTION(S)

Consider and discuss the a]ternatives regarding adjusting Transbay fares for FY 2018-].9 throughFY 2022-23.

BACKaROUNO/KATlQNAlf

AC Transit's Transbay services have a distinct fare structure from that of local service. Transbayfares recently changed as part of a larger adjustment to the fare structure but remain tied byformula to the local fare. The District has remaining capital funding obligations for the newSalesforce Transit Center(STC) that willrequire additionalfunding. In addition, the District mayhave ongoing operations and maintenance funding requirements for the STC.

The District has a remaining capital commitment to fund the construction of the new STC of$22.8 mi]]ion out of a tota] of $57 mi]]ion (both amounts in 20]-1 dollars with a 4.5 percent

discount rate on contributions). The District has until 2050 to pay off the commitment. TheLease and Use Agreement(LUAU signed with the Transbay Joint Powers Authority(TJPA) in 2008envisioned the remainder of that commitment after initial grant pass-through funding to bepaid off by an additional charge on top of the regular Transbay fare (a "Passenger FareCharge"). The Passenger Fare Charge and the payment schedule in Appendix F of the LUA wereprojections or examples for how the District could proceed, but are not mandatory. Staff haskept TJPA informed of the payment plans since the agreement was signed.

The largest consideration in paying off the capitalcommitment is the 4.5 percent discount rateIt is similar to interest on a loan, and so the longer the District takes to pay off the balance, thelarger the amount of "interest" that must be paid. Exhibit lbelow shows what those amountscould be given the three scenarios presented in this report.

Exhibit 1- CapitalContribution Interest Comparison

Sce nan o

Original (payoff by 2032)

Recommended jpayoff by 20401

Modest jpayoff by 20501

$84.9M$57.0M$27.9M

$92.9M$35.9M $57.0M

$57.0M$46.4M

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Report No. 17-234aPage 2 of 6

Staff developed a set of assumptions and forecasted costs and revenues associated withTransbay service, including capitalcontributions for the new STC. Staff determined the goalofany fare adjustment should be to recover enough additional revenue so as to minimize theimpact on the farebox recovery ratio across the five-year fare adjustment schedule.

The assumptions staff developed are conservative and aimed at ensuring any revenueprojections account for the "worst-case" scenario. They are as follows:

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Annualoperating cost increases of four percent.Two-percent annualridership growth.The Senior/Disabled/Youth fare discount and Monthly pass multipliers would not bechanged.

Fare elasticity factor of 0.18, meaning for every one-percent increase in fare, ridershipwill drop 0.18 percent. For example, an increase of seven percent would mean a 1.26-percent decrease in ridership.No additionaloutside funding.

Based on Board feedback staff developed three scenarios, each with a separate timeline basedon when the STC Capital Contribution would be retired. One scenario with a 2050 payofftimeline includes a more modest fare adjustment schedule to reduce the impact of increasedfares on customers, however, this equates to $46.4M in interest costs to the District.

The three scenarios with schedule of fare adjustments is included in Exhibit 2 below

Exhibit 2 - Transbay Fare Adjustment ScheduleFY IS20 FY 20-21FY 18- 19FY 17-18FY IG17Category

$6.00 $7.00$5.50g.zo $4.50 $5.00Base Fare

$3.50$3.00$2.75$2. 10 $2.25Discounted Fare

$252.00$162.00 $216.00$198.00$151.20Monthly Pass

Scenario

Original

(pay capital by2032)

$O. 50 increase every year startin g FY 18- 19

Recommended I Base Fare

fray cap/ta/by I Discounted Fare2040) Monthly Pass

$6.50

$3.25

$234.00

$6.50

$3.25

$234.00

$1. 00 increase FY 18- 19, th en $O. 50 in FY 19-20 and every other year after

Modest Base Fare

fray capita/ by I Discounted Fare2050) Monthly Pass

$5.50

$2.75

$189.00

$5.75

$2.88

$207.00

$O. 75 increase FY 18- 19, none in FY 19-20, then $0.25 every year after

Staff analyzed how the various scenarios would impact cumulative revenue, farebox recovery,ridership, and the STC Capital Contribution interest for each scenario. Those results can befound in Exhibit 3 below.

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Report No. 17-234aPage 3 of 6

Aliscenarios include 4% cost growth and O.18 elasticityjactors

Staff took into account severaldifferent factors in developing these scenarios, including equityconcerns, the Transbay rider profile, and the fares of peer systems. Field surveying for theTransbay rider profile was conducted between May and July 2017. Riders were asked toprovide information regarding their trip method, trip location, fare payment, satisfactionpertaining to existing conditions/service, preferences regarding future resource allocation, aswellas and demographic information for Title Vlanalysis.

The survey revealed that more than half of Transbay riders have household incomes greaterthan $100,000 a year, with about a third of that subset making more than $200,000 a year.Only about three percent of Transbay riders have incomes less than $25,000 a year. Thereverse is true for AC Transit local riders, with fewer than 15 percent of riders making morethan $75,000 a year and half making less than $25,000 a year. This finding from the surveyreveals Transbay riders are more able to absorb a larger fare adjustment to ensure the serviceremains sustainable since they are using the service to access high-wage jobs. In addition, thetop three responses from survey respondents were the service should be more reliable, morefrequent, and vehicles should have more seats. The District is delivering on these three keyareas

1) The new STC will allow for a more reliable schedule. The dedicated bus ramp from the

bridge willreduce traffic delays and the new Bus Storage Facility willreduce variability indeadheads for buses coming from the East Bay in the afternoon. Upcomingimprovements to West Grand will also allow for easier access for lines using thatcorridor.

2) The Metropolitan Transportation Commission IMTC) is funding increased frequencythrough its Bay Bridge Forward program. This is allowing the District to add 10 morebuses into service on key lines. In addition, the District is performing a comprehensiveanalysis of all Transbay service -- Transbay Tomorrow -- to identifying the mostappropriate places to target frequency improvements system-wide

3) The District has purchased 15 double-decker buses, five of which are funded throughthe Bay Bridge Forward program. These new buses carry 80 passengers versus the 57seats in the District's MCI fleet. Staff is also looking at alternatives for replacing the restof the MCI fleet while addressing American Disabilities Act concerns.

Taken together, these improvements align wellwith what Transbay customers are saying theyprioritize. Raising fares to ensure the service remains sustainable is critical, but the District isalso taking steps to demonstrably improve the experience for customers.

Staff also reviewed the fare structures of other agencies in the region offering commuterservice. AC Transit's Transbay fare is currently lower than all of its bus and ferry peers, but

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Report No. 17-234aPage 4 of 6

higher than BART'k. Even with an increase to $6.50 by 2023, AC Transit will still remain lowerthan all but Lynx and some Golden Gate Transit trips, without even taking into account anypossible fare increases at the other agencies.

Exhibit 4 - Peer Fare Structures

+ Cost of.first/last mile and parking make direct comparison to WETA and BARTfares difficult.

In addition to looking at the change in fares across the next several years, staff will bringforward a recommendation to change the language in Board Policy 333 to decouple theTransbay base fare from the current two times the localbase fare

The schedule for public comment, equity analysis, and Board consideration of any changes tothe Transbay fare structure is illustrated in Exhibit 5.

Exhibit 5 Transbay Fare Policy Timeline

Customer Surveys

Board Workshop

Boa rd Review

Title VI Analysis

Formal Staff Recommendations

Set Public Hearing

Public Hearing

Board Adoption

New Fares Effective

© Complete

e August 9, 20].7

e September 27, 2017

e October 2017

e October 25, 2017

© October 25, 2017

© January 24, 2018

© February 28, 2018

' July 1, 2018

BUDGETARY/FISCAL IMPACT

The modelassumes an increase of four percent each year in operating cost for Transbay servicefrom $41.2 million in FY 201S-16 to $54.2 million in FY 2022-23. The three proposed fareadjustment scenarios would generate an additional$3.4 million to$5.2 million by FY 2022-23,depending on which scenario the Board elects to pursue. Accordingly, the farebox recovery

Adult Cash Fare

AC Transit Tra nsbay q 450Golden Gate Transit  Santa Cruz Metro Highway 17  

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Report No. ].7-234aPage 5 of 6

ratio for the District's Transbay service would range from 24.2 to 27.1 percent by FY 2022-23.Every year beyond 2032 that the District takes to pay of the balance costs roughly one million inadditional interest.

ADVANTAaE$/DiSADVANTAaES

The advantages and disadvantages of the three proposals can be captured in four maindimensions: amount of interest paid on capitalcontribution, amount of additionalfare revenuecaptured, farebox recovery ratio, and ridership. The higher the fare charged clearly brings in themost revenue, enables the payoff of the capitalcommitment in the shortest timeframe, and hasthe most advantages for the District financially. The main disadvantage of the higher fare is indecreased potential ridership growth (or even ridership loss), which would offset the financialadvantages. The three scenarios presented attempt to balance these advantages anddisadvantages while still meeting the objectives of paying off the capital commitment andmaintaining the minimum farebox recovery ratio.

ALTERNATIVES ANALYSIS

These scenarios discussed reflect input from the Board workshop on August 9, 2017. However,severalother options discussed below:

1) Continue with current adopted fare adjustment of $4.70 in July 2018If no action is taken the Transbay base fare will have increased to$4.70 on July 1, 2018,with no further increases planned. Staff included this as an alternative when conductingforecasts with the same model used for the staff recommendation above. With an

assumption of no loss in ridership due to fare elasticity, this willresult in just under $1.2million a year in revenue starting in FY 2018-19, reducing the farebox recovery rate from24.4 percent today to 19.8 percent in FY 2022-23. Assuming the same fare elasticitymultiplier as the other scenarios would result in even lower revenue and recovery ratio.

2) Adjust assumptions in the modelStaff is using a conservative set of assumptions for the purposes of developing therecommendation in this staff report. However, the model is flexible and the Board coulddirect staff to assume there will be no loss of ridership due to fare elasticity or thatridership willincrease, thus driving up fare revenue. The Board could also direct staff toreduce the forecast four-percent increase in operating cost or include potentialoutsiderevenue sources that would supplement fare revenue

3) Zone Fares

Staff's initialanalysis of zone-based fares present two significant issues. It is unlikely thatthe current Clippers system can handle zone-based bus fares, so the implementationwould either have to wait for the next-generation Clippers 2 system or the Districtwould have to implement its own fare payment system for Transbay. Second, the TitleVlimplications of moving to a zone-based fare are also not clear given the distributionof income levels of Transbay riders -- the lowest income riders are more likely to be onthe longest trips.

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Report No. 17-234aPage 6 of 6

PRIOR RELEVANT BOARD ACTION/POLICIES

Board Policy 333 -- Fare Policy: Fares, Fare Structure, and Fare IncreasesBoard Resolution No. ].3-046Board Reso[ution No. ].6-009

Staff Report 16-047 - Board Policy 328- Fare PolicyStaff Report 17-017 -- Scheduled Fare Increase -- July 1, 2017Staff Report 17-030 - Board Po]icy 333, AC Transit EasyPass Fares for 2017 and 20].8Staff Report].7-234 Transbay Fare Schedule Adjustment

ATTACHMENTS

1: Transbay Fare Scenario Details

Approved by:

Reviewed by:

Claudia L. Allen, Chief FinancialOfficer

Michele Joseph, Director of Marketing & CommunicationsRobert del Rosario, Director of Service Development & PlanningDenise C. Standridge, GeneralCounselBeverly Green, Director of Legislative Affairs & Community RelationsMichael Eshleman, Service Planning ManagerChris Andrichak, Director of Management & Budget

Prepared by:

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