Public Public Transportation Transportation TransformationTransformation

April 25, 2008

Driving Forces – The Driving Forces – The ChallengeChallenge

Fuel Prices Reach Record HighsFuel Prices Reach Record Highs Double Digit Insurance GrowthDouble Digit Insurance Growth Record High Demand for Transit Record High Demand for Transit

ServiceService Construction Cost Inflation – Construction Cost Inflation –

Steel/ConcreteSteel/Concrete Pension and other Legacy CostsPension and other Legacy Costs

Spending More Than Spending More Than We Have – American We Have – American CultureCulture10. 10. Keeping up with JonesKeeping up with Jones

9.9. Avoiding the truthAvoiding the truth

8.8. Counting Chickens before HatchedCounting Chickens before Hatched

7.7. Plastic doesn’t feel like real moneyPlastic doesn’t feel like real money

6.6. Immediate gratificationImmediate gratification

Why do we do it?Why do we do it?

5.5. Lifestyle ManagementLifestyle Management

4.4. Poor as a childPoor as a child

3.3. Sense of PowerSense of Power

2.2. Prove Self WorthProve Self Worth

1.1. Can’t Say NoCan’t Say No

PA Transit Ridership TrendsPA Transit Ridership Trends(1992-2005)(1992-2005)

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

5,000

FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05

Transit Ridership

Fuel Prices Fuel Prices Skyrocket $3 +Skyrocket $3 +

Need Picture of Need Picture of Fuel Price Fuel Price IncreaseIncrease

Act 44 Funding FY Act 44 Funding FY 2007-20082007-2008

Public Transportation Fund Public Transportation Fund

– OperatingOperating $250 million$250 million

– Asset ImprovementsAsset Improvements $ 50 $ 50 millionmillion

$300 $300 millionmillion

Act 44 of 2007 FundingAct 44 of 2007 Funding

0

100

200

300

400

500

600

700

mill

ions

Highway and Bridge Public Transit

Public Transit Funding Public Transit Funding Before Act 44Before Act 44

OperatingAssistance

Dedicated Public

Transportation

Assistance Fund

(PTAF)

DedicatedSupplemental

Funding(Act 3 Revenue Enhancement

Initiative)

Senior CitizenTransportationProgram: Fixed-

Routeand Shared Ride

Service

Discretionary

Capital AssistanceProgram

IntercityTransportatio

nProgram

Miscellaneous

OtherPrograms

Funding sources were unpredictable, not dedicated, and had minimal growth

Dedicated

Funds

General Fund

General State

Obligation Bond

Proceeds

Dedicated Supplemental Funding

Lottery Fund

Public Transit Public Transit FundingFunding

Funding sources are predictable, dedicated, inflation sensitive

Public Transportation Trust Fund

Transit Operating Assistance

Asset Improvement

Program

Capital Improvements

Program

Programs of Statewide

Significance

New Initiatives

Capital Assistance

25% Passengers

10% Senior Passenger

Premium

35% Revenue

Vehicle Hours

30% Revenue

Vehicle Miles

Transit Operating Formula $250 Million

Growth Caps – No system gets more than 50% first year and 20% more in subsequent years

Hold Harmless - No system gets less funding than prior year

Local Match - 15% local match required. Systems may increase by 5% current year match until they achieve full 15%. Cash only.

Capital ProgramCapital Program

Asset Improvement ProgramAsset Improvement Program– Discretionary distributionDiscretionary distribution

– 3 3 11//33% local match required% local match required

Capital Improvement ProgramCapital Improvement Program– Formula DistributionFormula Distribution– No local match requiredNo local match required

New Initiatives (Fixed guideways)New Initiatives (Fixed guideways)– Discretionary DistributionDiscretionary Distribution

– No less than 3 No less than 3 11//33% local match% local match

Programs of Statewide Programs of Statewide SignificanceSignificance

Persons with DisabilitiesPersons with Disabilities Intercity transportationIntercity transportation Community TransportationCommunity Transportation Welfare to Work and Federal Programs Welfare to Work and Federal Programs

MatchMatch Technical Assistance and Technical Assistance and

DemonstrationsDemonstrations Program Oversight and AdministrationProgram Oversight and Administration

Continuing Continuing Transportation Program Transportation Program ChallengesChallenges Huge unmet infrastructure needsHuge unmet infrastructure needs Increasing Demand for Public Increasing Demand for Public

TransportationTransportation High Rate of InflationHigh Rate of Inflation Constrained financial resourcesConstrained financial resources

Finding the BalanceFinding the Balance

 "It's clearly a budget. It's got a lot of numbers in it."— George W. Bush

Budget Management Budget Management BasicsBasics

RevenuesIncome

Expenses=

What Happens When…What Happens When…

RevenuesIncome

Expenses<

PA Service Types and PA Service Types and Revenue StreamsRevenue Streams

Service TypeService Type Revenue SourceRevenue Source

Fixed RouteFixed Route Fare RevenueFare Revenue

Other RevenueOther Revenue SubsidiesSubsidies

Shared RideShared Ride Fare RevenueFare Revenue

Other RevenuesOther Revenues

Budgeting PitfallsBudgeting Pitfalls

1.1. Budgeting Non-existent RevenueBudgeting Non-existent Revenue– Use Real Revenue Sources not Use Real Revenue Sources not

things that might happenthings that might happen

2.2. Overinflating your Revenue Overinflating your Revenue EstimatesEstimates

– Don’t over estimate existing Don’t over estimate existing revenue Sourcesrevenue Sources

3.3. Operating Costs of CapitalOperating Costs of Capital– Build the Building but how do you Build the Building but how do you

pay for operations?pay for operations?– USTA Study ToolUSTA Study Tool

4.4. Failing to follow through on Failing to follow through on Budget CutsBudget Cuts

– Must be realistic and doableMust be realistic and doable

5.5. Once-a-year BudgetingOnce-a-year Budgeting– Must have regular budget Must have regular budget

tracking/comparison to actualtracking/comparison to actual– Must update projectionsMust update projections– Need to make adjustments Need to make adjustments

throughout the year to meet the throughout the year to meet the budgetbudget

6.6. Fuzzy Financial ReportsFuzzy Financial Reports– Cash versus Accrual AccountingCash versus Accrual Accounting– Monthly Financial reports should Monthly Financial reports should

reflect unpaid billsreflect unpaid bills

7.7. Failure to face a Fare IncreaseFailure to face a Fare Increase– Don’t avoid a fare increase because Don’t avoid a fare increase because

of the “onerous” application of the “onerous” application requirementsrequirements

– Generally better for small Generally better for small incremental increases every year or incremental increases every year or every other year than large every other year than large increases after a long period of time.increases after a long period of time.

9.9. Finding the Right Service MixFinding the Right Service Mix– Change is inevitable to respond to an Change is inevitable to respond to an

ever changing marketever changing market

10.10. Failure to Budget for Loan Failure to Budget for Loan RepaymentRepayment

– Need to plan for loan payments Need to plan for loan payments including Balloon Due on Line of including Balloon Due on Line of Credit.Credit.

11.11. Neglecting to Review High Cost Neglecting to Review High Cost AccountsAccounts

– Insurance CoverageInsurance Coverage– Pension/Retirement InvestmentsPension/Retirement Investments– Fuel PurchaseFuel Purchase

12.12. Omitting Costs in the BudgetOmitting Costs in the Budget– Think Think Think Think Think Think – Do an AAR on Previous yearsDo an AAR on Previous years– Compare to actual spendingCompare to actual spending

13.13. Delayed Funding of Pension PlanDelayed Funding of Pension Plan– Avoid penaltiesAvoid penalties

14.14. Inefficient Fare PolicyInefficient Fare Policy– Keep it simpleKeep it simple– People need to understand it.People need to understand it.

15.15. Long Term Borrowing for Short Long Term Borrowing for Short Lived ImprovementsLived Improvements

– Keep Debt Service Time linked to Keep Debt Service Time linked to Life of AssetLife of Asset

16.16. Grant MoniesGrant Monies– Failure to file applications/reports Failure to file applications/reports

accurately or on-time can result in accurately or on-time can result in delayed paymentsdelayed payments

17.17. Reserve InvestmentsReserve Investments– Maximize revenue potential by Maximize revenue potential by

investing reservesinvesting reserves

Budget Balancing Budget Balancing RemediesRemedies

Raise Fares or other revenue streamsRaise Fares or other revenue streams

Reduce frequency of services or scale Reduce frequency of services or scale

backback

Pursue cost savings opportunities by Pursue cost savings opportunities by

joint purchasingjoint purchasing

Remedies (cont.)Remedies (cont.)

Use fund reserves or carry-over Use fund reserves or carry-over surplussurplus

Examine and Assess Staffing NeedsExamine and Assess Staffing Needs Limit or Reduce Overtime and Extra Limit or Reduce Overtime and Extra

BoardBoard Examine Organizational Examine Organizational

Structure/Job Descriptions Structure/Job Descriptions (consolidate positions)(consolidate positions)

Remedies (cont.)Remedies (cont.)

Freeze Spending in controllable Freeze Spending in controllable areas of the budgetareas of the budget

Lease or rent property not Lease or rent property not currently needed.currently needed.

Participate in DGS State Purchase Participate in DGS State Purchase Contracts.Contracts.

Postpone or delay service Postpone or delay service expansion/improvementsexpansion/improvements

Work with Funding Work with Funding Partners – No Surprises Partners – No Surprises RuleRule Federal/State/Local Private Funding Federal/State/Local Private Funding

PartnersPartners

Provide Status Reports to PartnersProvide Status Reports to Partners

No Surprises -- “I am out of money No Surprises -- “I am out of money

– Now what”– Now what”

Managing Managing SubcontractorsSubcontractors Extension of Your Extension of Your

Organization/BoardOrganization/Board Bidding ServicesBidding Services Contracts to Protect Taxpayer Contracts to Protect Taxpayer

InterestsInterests Maximize Public Benefits/provide Maximize Public Benefits/provide

for modest profitsfor modest profits Establish Service StandardsEstablish Service Standards

Capital InvestmentsCapital Investments

Choose Projects with Choose Projects with High Value/Cost RatioHigh Value/Cost Ratio

Value/cost becoming critical factorValue/cost becoming critical factor

Valu

e

Large gain for the cost. Don’t categorically exclude these projects.

Large increment of cost

Don’t constrain choices to just these options

Small gain in value

Wide range of value/cost options

Cost

Act 44 Capital Act 44 Capital PrioritiesPriorities Support Existing Bond IssuesSupport Existing Bond Issues Match Federally Approved Capital Match Federally Approved Capital

ProjectsProjects Non Federal ProjectsNon Federal Projects

1.1. Emergency ReplacementEmergency Replacement2.2. Standard Replacement – Past Useful LifeStandard Replacement – Past Useful Life3.3. Useful Life ExtensionUseful Life Extension4.4. New Asset AcquisitionNew Asset Acquisition

Must Provide compelling ROI Analysis Must Provide compelling ROI Analysis to vary from prioritiesto vary from priorities

Smart TransportationSmart Transportation

1.1. Money countsMoney counts

2.2. Choose projects with Choose projects with high value to price high value to price ratioratio

3.3. Enhance the local Enhance the local networknetwork

4.4. Look beyond level-of-Look beyond level-of-serviceservice

5.5. Safety first, maybe Safety first, maybe safety onlysafety only

Smart Transportation Smart Transportation (cont.)(cont.)

6.6. Accommodate all modesAccommodate all modes

7.7. Leverage & preserve Leverage & preserve existing investmentsexisting investments

8.8. Build towns, not sprawlBuild towns, not sprawl

9.9. Understand the context; Understand the context; plan and design within itplan and design within it

10.10. Develop local Develop local government as strong government as strong land use partnersland use partners

Taking RisksTaking Risks

Calculate the Value and Risk of Calculate the Value and Risk of OptionsOptions

Examine all OptionsExamine all Options You can be optimistic but make You can be optimistic but make

sure you plan and outline worst sure you plan and outline worst case scenarios.case scenarios.

Take Financial Responsibility.Take Financial Responsibility.

Transit is a BusinessTransit is a Business

Plan for the Plan for the UnexpectedUnexpected Review revenue and expense trendsReview revenue and expense trends Critical need for monthly revenue and expense Critical need for monthly revenue and expense

forecastsforecasts Include all known events in forecast even if Include all known events in forecast even if

unbudgetedunbudgeted Develop realistic action plan that might Develop realistic action plan that might

involve combination of increasing revenue and involve combination of increasing revenue and reducing expenses to maintain balanced reducing expenses to maintain balanced operating budgetoperating budget

Anticipate and execute for future events Anticipate and execute for future events rather than solely reporting and reacting to rather than solely reporting and reacting to past eventspast events

Board ResponsibilitiesBoard Responsibilities

Set Mission/Vision of OrganizationSet Mission/Vision of Organization FiduciaryFiduciary State/federal/local State/federal/local

laws/rules/regulationslaws/rules/regulations PerformancePerformance Balance community needs with Balance community needs with

resourcesresources Hire and have oversight on DirectorHire and have oversight on Director

Case ExamplesCase Examples

Challenges that We SeeChallenges that We See

Capital for OperatingCapital for Operating

Several examples from last year Several examples from last year of systems using restricted PTAF of systems using restricted PTAF to balance operating budgetto balance operating budget

Illegal Action -- Must now be paid Illegal Action -- Must now be paid backback

Avoided the Problem but created Avoided the Problem but created a financial hole for the following a financial hole for the following fiscal yearfiscal year

Grant Anticipation Grant Anticipation LoansLoans Use for short term cash flowUse for short term cash flow Must be careful to ensure that Must be careful to ensure that

you can repay loan within the you can repay loan within the same fiscal year. same fiscal year.

Blind Service Blind Service ExpansionExpansion Don’t expand service without Don’t expand service without

understanding your longer term understanding your longer term financial projections of whole financial projections of whole system.system.

Take into consideration high Take into consideration high growth expense categoriesgrowth expense categories

Shared Ride Fare Shared Ride Fare IncreasesIncreases Double Edged SwordDouble Edged Sword Need to find Balance between Need to find Balance between

Service Levels and Fare RevenuesService Levels and Fare Revenues Avoid Vicious Downward SpiralAvoid Vicious Downward Spiral

– Raise Fares – Ridership Loss – Raise Fares – Ridership Loss – Revenue Loss – Deficit– Raise FaresRevenue Loss – Deficit– Raise Fares

Present Options to Local Funding Present Options to Local Funding PartnersPartners