AGENDA ITEM 10-A
ACTION ITEM
TO:
CHAIRMAN MILDE AND THE VRE OPERATIONS BOARD
FROM:
DALE ZEHNER
DATE:
JUNE 18, 2010
RE:
FY 2012 BUDGET GUIDELINES AND CONSIDERATIONS
_____________________________________________________________________
RECOMMENDATION:
The VRE Operations Board is being asked to provide direction in the development of
the FY 2012 budget options for train operations and capital projects.
BACKGROUND:
VRE has adopted a financial planning process that provides for early consideration of
budget issues and assumptions. Each year, VRE staff meets numerous times with the
member jurisdiction’s Chief Administrative Officers (CAO) Budget Taskforce to develop
the annual proposed budget. An independent CAO recommendation is provided to the
Operations Board and Commissions in conjunction with the final budget submission at
the December Operations Board meeting.
As part of the budget process, the jurisdictional CAO Budget Task Force met on June
15, 2010 to review various budget issues, including the cost of fuel, insurance, the new
operating contract, fleet management plan, ridership projections, fuel tax projections,
and subsidy. The goal is to permit the Budget Task Force to focus on material issues
early in the budget process.
REVISIONS TO FY 2011 BUDGET
Each year, revisions to the current year budget are presented to the Operations Board
in December, along with the recommendations for the next budget year. The following
items are expected to be reflected in the revised FY 2011 Budget:

Fare revenue: Fare revenue is budgeted at $28.1M, based on average daily
ridership of 16,200. Current ridership is in excess of this amount and fare
revenue will be reviewed and revised upward as appropriate.

Changes to state revenue: In December 2009, VRE staff estimated the State
would fund their portion of the match to the federal capital program at 35%, with
the exception of the 100% match provided for CMAQ grants. In May, the State
published their draft Six-Year Improvement Program, with FY 2011 average
funding of 56%. VRE received state match for federal grants as follows:
o 100% of match for $5.8M of CMAQ projects, as budgeted
o 80% of match for $14.7M of costs for the purchase of locomotives,
including federal earmarks
o 53% for $15.3M of other projects, primarily debt service
o no funding for $2.1M of costs, including $1M programmed for capital cost
of contracts/preventive maintenance
At the state’s request, VRE reviewed our FY 2011 funding needs and
considerably decreased the amount requested for overlap (the amount funded
from prior year funds to reduce the impact of current year funding delays) for
track lease payments and state-only debt service payments. This is a one year
decrease of state funds for VRE programs that will not impact the available funds
for FY 2011.
The state provided $7.5M for operating assistance, a decrease of $224,000 from
the budgeted amount and 14% less than the original award for FY 2010. The net
impact at present is a total increase of available funds for FY 2011 of $1.5M;
however, this will decrease to $1.3M if the state does not provide match funds for
the revisions described below.
Revisions to Capital Program: VRE staff proposes several adjustments to the
FY 2011 capital program to allow VRE to order as many of the remaining five
locomotives as possible before a mandated locomotive model change occurs for
units ordered after December 31, 2010. This will also permit VRE to take
advantage of a significant price break for all units added during the current
production run.
One of the reasons VRE has historically “banked” grant money over multiple
years for long-term projects is to ensure flexibility in the use of federal grant
funds. However, we believe that in this case, transferring funds from other
projects to the purchase of locomotives is the best course of action as it will
result in long-lasting financial savings for operations, particularly as the useful life
of a locomotive is forty years. Owning two separate models of locomotive has
significant inventory and maintenance costs over the lifecycle of the units which
VRE is trying to avoid. Projects that will be reduced or for which funding will be
shifted to future years are:
o Mid-day storage – first year of funding of $1.7M for $40M project; will be
restored in FY 2012
o Fare collection upgrade - $400K of multi-year funding; will be restored in
FY 2012
o Rail car purchase – first year of funding of $250K; will be restored in future
years
o Construction oversight and facilities and rolling stock improvements –
$450K of funding has been identified from prior year surpluses or future
grants. Contingency of $158K reduced because not needed for locomotive
project.
The net result of these changes is a $2.9M increase to the amount available for
the locomotive purchase.
Approval for the purchase of four additional
locomotives is presented in a separate Board item. The state has indicated that
they may not provide matching funds for this shift of $2.9M as it is too late in their
process.
In addition, VRE’s share of federal formula funding has been reduced by $769K,
which will be accommodated in the revised program.

Insurance trust fund: VRE’s plan was to restore the balance in the Insurance
Trust Fund to the $10 million level by early 2012. However, in September, VRE
staff plans to make a recommendation to complete that process in FY 2011.

Subsidy Credit Analysis: As indicated during the FY 2011 budget presentation
in September, VRE staff will propose a recommended use for any surplus for FY
2010, including the possibility of a reduction to the subsidy payment due in
January 2011.

Operating expenses: Operating expenses, including fuel costs, equipment
maintenance and the costs of the new Keolis and Amtrak contracts will be
reviewed during the early months of FY 2011 for inclusion in the revised budget,
as needed.
FY 2012 BUDGET GUIDELINES
GUIDELINE #1: VRE staff will take all reasonable measures to continue to grow the
ridership and improve the overall service to the riders. Measures to be reviewed include
service levels, fares, train schedules, service amenities, and contracted services which
bear on the ridership experience.
GUIDELINE #2: VRE staff will strive to ensure that the total jurisdictional subsidy for FY
2012 will be the same or less than the FY 2011 total subsidy, with consideration given
to changes to individual member contributions. The total jurisdictional subsidy has
decreased for the last two years, from $17,275,499 in FY 2009 to $16,070,309 in FY
2011.
GUIDELINE #3: VRE staff will work to maintain fares at the FY 2011 level or, if
unavoidable, limit the fare increase to one per fiscal year. VRE had three fare increases
between July 2008 and July 2009 and kept fares level in FY 2011.
GUIDELINE #4: The replacement of aging locomotives will be a priority for the use of
capital grant funds and additional funding sources will be actively pursued. Fifteen new
locomotives have been ordered and will begin arriving in July 2010. The new
locomotives will be cost and energy efficient and more reliable than the current fleet. As
noted above, VRE staff is pursuing the funding and purchase of as many of the
remaining five locomotives as possible during FY 2011. VRE’s options under the
purchase contract expire in 2013. Any remaining needed locomotives will be purchased
in FY 2012 or FY 2013, as funding permits.
GUIDELINE #5: The mechanisms for funding the Capital Improvement Program to
insure the efficient use of all funding sources and the most expeditious progress on high
priority projects will be reviewed with the assistance of the CAO Task Force and any
recommended changes will be incorporated in the FY 2012 through FY 2017 CIP.
GUIDELINE #6: Fuel hedging strategies will continue in order to provide greater
predictably in budgeting for diesel fuel costs.
GUIDELINE #7: Funding will be provided to maintain the insurance trust fund balance
at $10 million, the level required by the Virginia Division of Risk Management.
GUIDELINE #8: Funding will be provided over a multi-year period to eventually
establish VRE’s level of working capital at an amount equal to three months of operating
costs. This level, which has been discussed with the Operations Board and is
consistent with the reserve goals of other transit agencies, will allow VRE to efficiently
meet its obligations during the course of the year as well as make orderly
accommodation for significant shortfalls. In addition, a capital reserve will be
maintained to provide local match for earmarks, and to fund smaller capital projects and
projects for which grant funds are unavailable. Funding for the reserves will be provided
by surplus funds at year-end and, for the capital reserve, proceeds of the sale of capital
assets.
OTHER FY 2012 BUDGET ISSUES AND ASSUMPTIONS
 State Funding: State funding varies considerably from year to year. As in the
past, VRE staff will continue to work closely with DRPT to develop estimates. Our
experience with the FY 2011 budget process indicates that, in the future, DRPT
will award match funds at differential rates depending on the nature of the
project; will not provide match to all of the projects in VRE’s capital program; and
may not approve grant amendments required to sync state and federal grants. As
a result, our percentage estimate for funding should take these new procedures
into consideration.
DRPT is also considering changes to the operating
assistance formula that could substantially decrease the annual amount available
for VRE. VRE staff will follow this process closely over the next six months.

Number of Trains. The FY 2011 Six Year Financial Forecast called for no change
to service levels in FY 2011 and a gradual increase from 30 daily trains to 34
daily trains over the period ending in FY 2015. A combination of funding and
storage issues will prohibit any additional trains in the early years of the current
six-year planning cycle.

Cost Recovery Ratio. The budget forecast must ensure the cost recovery ratio
remains in the 50% to 60% range.

2% Motor Fuels Tax: VRE staff is aware of jurisdictional concerns related to fuels
tax revenue projections and the ability to continue to support current VRE and
PRTC expenses. Prince William County, in particular, has indicated that in the
future all VRE and PRTC contributions must come from their 2% motor fuels tax
receipts.

Spotsylvania County: Spotsylvania County will be providing one-half of their FY
2012 subsidy payment during FY 2012.
NEXT STEPS:

Continue discussing FY 2012 budgeting scenarios with the CAO Budget Task
Force.

Present preliminary budget forecasts to the Operations Board in August 2010.

Begin review of all FY 2012 revenue and cost assumptions in September 2010
with CAO Budget Task Force.
FISCAL IMPACT:
There is no fiscal impact related to the development of the FY 2012 budget.
TO:
FROM:
DATE:
RE:
CHAIRMAN MILDE AND THE VRE OPERATIONS BOARD
DALE ZEHNER
JUNE 18, 2010
FY 2012 BUDGET GUIDELINES AND CONSIDERATIONS
RESOLUTION
10A-06-2010
OF THE
VIRGINIA RAILWAY EXPRESS
OPERATIONS BOARD
WHEREAS, effective financial planning for the Virginia Railway Express is based on
budget development with guidelines approved by the VRE Operations Board; and,
WHEREAS, the VRE Operations Board has directed that the development of each
annual budget involve consultation and cooperation with the Chief Administrative
Officers of VRE’s participating and contributing jurisdictions; and,
NOW, THEREFORE, BE IT RESOLVED THAT, the VRE Operations Board directs staff
to develop budget options for the FY 2012 operating and capital budget in accordance
with the following guidelines:
GUIDELINE #1: VRE staff will take all reasonable measures to continue to grow the
ridership and improve the overall service to the riders. Measures to be reviewed include
service levels, fares, train schedules, service amenities, and contracted services which
bear on the ridership experience.
GUIDELINE #2: VRE staff will strive to ensure that the total jurisdictional subsidy for FY
2012 will be the same or less than the FY 2011 total subsidy, with consideration given
to changes to individual member contributions. The total jurisdictional subsidy has
decreased for the last two years, from $17,275,499 in FY 2009 to $16,070,309 in FY
2011.
GUIDELINE #3: VRE staff will work to maintain fares at the FY 2011 level or, if
unavoidable, limit the fare increase to one per fiscal year. VRE had three fare increases
between July 2008 and July 2009 and kept fares level in FY 2011.
GUIDELINE #4: The replacement of aging locomotives will be a priority for the use of
capital grant funds and additional funding sources will be actively pursued. Fifteen new
locomotives have been ordered and will begin arriving in July 2010. The new
locomotives will be cost and energy efficient and more reliable than the current fleet. As
noted above, VRE staff is pursuing the funding and purchase of as many of the
remaining five locomotives as possible during FY 2011. VRE’s options under the
purchase contract expire in 2013. Any remaining needed locomotives will be purchased
in FY 2012 or FY 2013, as funding permits.
GUIDELINE #5: The mechanisms for funding the Capital Improvement Program to
insure the efficient use of all funding sources and the most expeditious progress on high
priority projects will be reviewed with the assistance of the CAO Task Force and any
recommended changes will be incorporated in the FY 2012 through FY 2017 CIP.
GUIDELINE #6: Fuel hedging strategies will continue in order to provide greater
predictably in budgeting for diesel fuel costs.
GUIDELINE #7: Funding will be provided to maintain the insurance trust fund balance
at $10 million, the level required by the Virginia Division of Risk Management.
GUIDELINE #8: Funding will be provided over a multi-year period to eventually
establish VRE’s level of working capital at an amount equal to three months of operating
costs. This level, which has been discussed with the Operations Board and is
consistent with the reserve goals of other transit agencies, will allow VRE to efficiently
meet its obligations during the course of the year as well as make orderly
accommodation for significant shortfalls. In addition, a capital reserve will be
maintained to provide local match for earmarks, and to fund smaller capital projects and
projects for which grant funds are unavailable. Funding for the reserves will be provided
by surplus funds at year-end and, for the capital reserve, proceeds of the sale of capital
assets.