Agenda Item 9-A
Action Item
To:
Chairman Milde and the VRE Operations Board
From:
Doug Allen
Date:
September 19, 2014
Re:
Referral of Preliminary FY 2016 VRE Operating and
Capital Budget to the Commissions
Recommendation:
The VRE Operations Board is being asked to authorize the Chief Executive Officer to
refer the Preliminary FY 2016 VRE Operating and Capital Budget to the
Commissions for their consideration, so that the Commissions, in turn, can refer
these recommendations to the jurisdictions for their review and comment.
Background:
In accordance with the VRE Master Agreement, which outlines the process for
annual budget approval, the preliminary FY 2016 VRE Operating and Capital Budget
are attached for review. The Budget Key Issues considered by the Operations Board
in July are also provided as an attachment.
During the FY 2016 budget year, VRE will operate 32 daily revenue trains (including
a full year of the additional Fredericksburg line train), complete the order for the
fourteen additional railcars, implement Positive Train Control (PTC), begin the first
year of the new Amtrak contract, begin the first years of the new train operations
and maintenance of equipment contracts, and continue safety and customer service
outreach programs. Staff will also continue development of the 2040 System Plan
projects.
Since July, VRE staff has met monthly with the CAO Taskforce to discuss
jurisdictional budget issues and concerns and to review current VRE budget
projections. The most significant issue this year is the reduction in State Operating
funds. In FY 2015, staff projected state revenues of $10.3 million, based on
estimations from the TSDAC implementation. The actual award was $9.0 million,
with further reductions possible after the CTB meets in September. Based on this,
the projected amount of State operating funds is budgeted at $8.7 million, a
decrease of $1.6 million from the budget approved in FY 2015.
Discussion:
The FY 2016 preliminary budget totals $123.0 million. Assuming no change to fares
or subsidy, the budget reflects $3.9 million of costs which are currently unfunded.
As in the past, VRE will submit a balanced budget to the jurisdictions in the
beginning of December for evaluation prior to submission to the Operations Board
later that month.
Both revenue and expenses are still under review and these projections are
expected to change considerably over the next several months. The assumptions
used in preparing the preliminary draft are as follows:
1. Federal formula funding is based on an estimation of what VRE will receive
under the new Section 5337, State of Good Repair formula funding. Current
projections are based on the latest information available and is in line with
the amount projected in the Six Year Financial Forecast from the FY 2015
Budget, which represents a decrease of $6.6 million from the amount received
in FY 2015. Congress approved a short term extension to the current
transportation authorization through May 2015. All indications are the full
reauthorization will provide less funding for VRE’s FY 2016 than was
provided in FY 2015.
2. Fare revenue is budgeted at $37.3 million with no fare increase. Ridership is
estimated at 19,600 ADR with service at the current level of 34 daily trains
(32 revenue trains); with a full year of the Fredericksburg line train. Average
daily ridership in FY 2014 was 18,119. Staff continues to monitor the impact
of the reduced federal transit benefit on VRE ridership and revenue. The last
increase to fare revenue was 4% in FY 2014.
3. In FY 2015, a Fredericksburg line train was budgeted for nine months. In FY
2016, the train is budgeted for the remaining three months. The assumption is
that current legacy cars will be available to start the service, with new railcars
to be put in service in FY 2017. The current cost for this train for the
additional three months is cost-neutral, as the FY 2015 budget had funding for
leased railcars which was not spent and covers the cost of the additional three
months of service.
4. Commonwealth formula funding for operations of $9.0 million was received in
FY 2015. As noted above, the State may further revise the FY 2015 SYIP and
the award may be less. In light of this, operating funds are reduced to $8.7
million in FY 2016.
5. Commonwealth capital funding is currently projected at a match rate of either
16% of the total costs, if federal funding is available at the 80% match rate or
one of the three funding tiers of 68%, 34% or 17% of gross project costs,
regardless of the amounts of federal funding assigned to the project. The
most significant state capital funding request is for the purchase of nine
expansion rail cars, which is based on first tier state funding of 68% or $16.1
million. Since the remaining projects have an 80% federal match, state
funding is estimated at 16%, with the minimum local contribution of 4%.
Additionally, the fiscal cliff after FY 2018 remains an issue. Staff will continue
to monitor the situation.
6. For the FY 2015 budget, DRPT allowed VRE to apply for multiyear agreements
for track access fee reimbursement. For FY 2016, reimbursements are
currently being estimated at a level similar to FY 2015, with an 84%
combined rate for both federal STP funds allocated through the state and a
state capital match.
7. For FY 2016 capital needs have been identified and prioritized and funding
sources and methods have been considered within the available federal
formula funds and existing CMAQ applications. The multi-year CIP will also
include needed unfunded projects as well. The largest capital expense is
completing the order of 14 expansion railcars with federal and state
assistance in the amount of $23.6 million. An annual capital reserve
contribution of $3 million is recommended. The last call for projects for NVTA
funding covered awards to be made for both FY 2015 and FY 2016, so no
additional projects will be listed for FY 2016 beyond those already submitted
for funding.
8. Contract increases in access fee expenses of 4% will occur for CSX. Norfolk
Southern and Amtrak contract increases are based on changes to the AAR, a
nationally published index of railroad costs. Currently, Norfolk Southern and
Amtrak increases are budgeted at 5%. The bulk of the Keolis contract costs
increase by the annual change to the CPI.
9. Fuel expenses of $5.7 million are budgeted based on a per gallon cost of $3.50.
Because the cost of fuel also impacts the fuel tax revenue which many of the
jurisdictions use as the source of funding for the VRE subsidy, a revised fuel
tax projection for the PRTC jurisdictions will be prepared in the fall.
10. VRE staff recommends adding five FTE employees to various departments. As
VRE has grown in size and complexity and as external regulatory and
performance requirements have increased, staff resources have not kept pace.
The additional recommended positions are as follows:
•
•
•
•
•
Budget and Finance – Financial Analyst
Procurement and Contract Administration – Senior Contract Specialist
Communication and Information Technology – Senior Manager of IT
Safety and Security – Security Specialist
Program Development – Project Planner
More detail on these positions will be provided as part of the presentation at the
Board meeting. The preliminary cost of the five positions is $585k. The budget also
includes funds for the rental of supplementary office space.
An additional three FTE employees are recommended in Equipment
Operations to replace current contract positions. This change will be cost
neutral.
•
•
•
Manager of Warehouse and Inventory
Inventory Control Administrator
Inventory Control Specialist
The major significant changes in the FY 2016 proposed budget compared to the
adopted FY 2015 budget are as follows, including those issues discussed in more
detail above:
Revenue:
• $400k increase in Fare Revenue due to a combination of projected level
ridership on current trains and the addition of a full year of the
Fredericksburg line train
• $4.6M decrease in Other Sources. Budget includes $945k of one-time funds
from the FY 2014 surplus for the local match for the nine railcars.
• $3.6 million decrease in federal and state subsidies. Total budget of $33.8
million is broken out as follows:
o $8.5 million decrease in federal and $5.5 million increase in state
subsidies for capital projects, including Rolling Stock (nine railcars),
Facilities Infrastructure, Equipment Storage, second platform for
Lorton, HEP Overhauls, and Equipment Life Cycle Maintenance
•
Program. The large increase in State funding is directly related to the
acquisition of the nine railcars, as noted above
o $1.6 million decrease in the state operating subsidy to reflect a slight
decrease to the FY 2015 award of $9.0 million
o $519k increase in the state and $707k increase in the federal subsidy
for access fees due primarily to the additional three months of the
Fredericksburg line train and AAR/CPI increases
o $240k decrease in State Step-Up ticket assistance (no further grant
funds available)
$1.2 million decrease in use of reserves. $2.0 million was budgeted in FY
2015 for potential mobilization costs associated with the operations and
maintenance contract. In FY 2016 funding, reserves from prior years are
used for $840k of one-time operating expenses.
Operating and capital expenses:
• $1.9 million decrease in combined costs for insurance/contribution to
reserve/mobilization based on the overall increase to the size of the budget
between the two budget years offset by the deleted mobilization costs
• $445k decrease in Passenger Support Services (PSS) as the department has
been merged with Operations and Communications, which has a $436k
increase
• $633k increase in Program Development due to implementation of the
System Plan
• $622k increase in Facilities Maintenance due to the addition of the
Spotsylvania station, contractual cost increases, and additional office space
costs in Alexandria
• $139k net decrease to the Equipment Operations budget. Repairs and
Maintenance increased by $775k due to the ongoing license fees and other
operating costs associated with the required implementation of Positive
Train Control (PTC). These costs were offset by $821k in savings compared
to the FY 2015 budget because the decision was made not to lease rail cars
for the additional Fredericksburg line train. An increase of $589k to the
Amtrak budget is for mid-day services, pending the outcome of discussions
on the new contract.
• $1.2 million increase to the Train Operations/Maintenance of Equipment
budget, including both the contractual increase based on the change to the
CPI, the new maintenance service contract and the addition of the final three
months budget for the six car Fredericksburg train
• $1.1 million increase in track access (Amtrak, CSX, and NS) due to contractual
obligations and the full year cost of the six car Fredericksburg train
•
$8.2 million decrease in capital projects. Total capital budget is projected at
$38.2 million. Projects include:
o $6.9 million for facilities infrastructure
o $23.6 million for rolling stock – nine railcars
o $1.9 million for equipment storage
o $2.6 million for equipment life cycle maintenance
o $100k for security enhancements
o $100k for transit enhancements
o $3.0 million for the second year of a recommended annual
contribution to the capital reserve
FISCAL IMPACT – FY 2016 BUDGET:
Additional draft budgets will be formulated during the fall and reviewed with the
CAO Budget Task Force resulting in a balanced budget by December 2015.
Attached are the following:
•
•
•
FY 2016 Key Budget Issues
FY 2016 Sources and Use
FY 2016 Summary Budget
Virginia Railway Express
Operations Board
Resolution
9A-09-2014
Referral of Preliminary FY 2016 VRE Operating and Capital
Budget to the Commissions
WHEREAS, the VRE Master Agreement requires the Commissions be presented with
a preliminary fiscal year budget for consideration at their respective September
meetings prior to the commencement of the subject fiscal year; and,
WHEREAS, the VRE Chief Executive Officer has provided the VRE Operations Board
with the preliminary FY 2016 Operating and Capital Budget.
NOW, THEREFORE, BE IT RESOLVED THAT, the VRE Operations Board refers the
preliminary FY 2016 VRE Operating and Capital Budget to the Commissions for their
consideration; and,
BE IT FURTHER RESOLVED THAT, the VRE Operations Board recommends that
the budget be forwarded to the jurisdictions for further formal review and
comment; and,
BE IT FURTHER RESOLVED THAT, VRE staff is directed to consider and address
comments by the jurisdictions and to forward a final recommended budget to the
VRE Operations Board at the December 2014 meeting for consideration and referral
to the Commissions for adoption in January 2015.
Approved this 19th day of September 2014
____________________________
Gary Skinner
Secretary
_______________________________
Paul Milde
Chairman
FY 2016 Key Budget Issues
The key issues described below apply to the development of the FY 2016 Budget
and CIP and to the six-year financial plan, which provides a consolidated financial
projection over a multi-year time frame.
Key Issue #1: Level of service: Some trains are at or over 100% capacity and the
addition of the Spotsylvania station and parking facility will result in increased
ridership.
An additional Fredericksburg train scheduled to begin service in FY 2015 was added
in order to mitigate the overcrowding and the capacity issues at stations further up
the line to some extent; the full year cost of this additional service will be included in
the FY 2016 operating budget. A plan to purchase 14 expansion railcars was
approved by the Operations Board in January 2014. The first five cars were funded
in the FY 2015 Budget with the intention of including the remaining nine cars in FY
2016. The additional cars along with related infrastructure improvements to
stations and storage yards will allow for the lengthening of existing peak trains and
the conversion of a “deadhead” train on the Manassas line to revenue service after
FY 2016.
Key Issue #2: Maintenance of VRE Assets: Federal formula funds devoted to
maintaining transit assets in a “State of Good Repair” are expected to provide the
ongoing capital cost of maintaining VRE assets over their life-cycle.
The federal priority under MAP-21 of maintaining transit systems in a “State of
Good Repair” has been included in the current versions of the next transportation
authorization. So long as the formula funding available to VRE continues at the
projected level (see information on federal funding below) the funds to adequately
maintain equipment and facilities will be available from this source. An asset
management strategy for facilities will be completed during FY 2015, which will be
used to refine the costs included in the FY 2016 Budget and CIP. In accordance with
the already completed asset management strategy for VRE’s rolling stock,
construction of the new maintenance facility will be finished during FY 2016 and the
costs of the life-cycle maintenance program for equipment will continue to be
reflected in the CIP.
Key Issue #3: Contract renewal with Amtrak: VRE’s current five-year contract with
Amtrak expires at the end of FY 2015.
Discussions have begun on the new contract with Amtrak which will be reflected in
the FY 2016 operating budget and CIP. The new contract will incorporate the
requirements of the Passenger Rail Investment and Improvement Act (PRIIA) for
the calculation of access fees. (This change will actually be implemented in October
2014 for the last year of the current contract). The cost of mid-day storage at Ivy
City will be part of the negotiation of the new contract. In addition, funding for the
development of alternative storage sites for VRE equipment will be incorporated
into the FY 2016 Budget and CIP and the six-year financial plan.
Key Issue #4: Capital improvements to support the VRE System Plan: Capital
improvements needed to meet the expected demand for VRE service and to increase
railroad infrastructure capacity in the VRE service territory require the identification
and commitment of funds beyond those currently available to VRE.
During FY 2014 the Operations Board and Commissions endorsed the VRE System
Plan, which provides for the logical, incremental expansion of VRE infrastructure
and service. The improvements needed for Phase 1 of the Plan were linked to the
CIP for the period FY 2015 through FY 2020. Although funding was identified for a
number of these improvements, many other projects were left unfunded. In
addition, the creation of a schedule for the construction of a third mainline track in
the CSX territory may increase the need for additional funding sources within the
six-year CIP currently under development. This issue will be addressed in more
detail at a Capital Committee meeting in September. A financial planning effort
related to the VRE System Plan will be included in this discussion.
NVTA regional funding is available on a discretionary basis for certain VRE capital
projects, but only for those located within the NVTA jurisdictions, which has created
an imbalance of funding sources within VRE.
Key Issue #5: Capital reserve: VRE needs to develop a target level for the capital
reserve.
For the last several years, VRE has maintained a capital reserve in order to take
advantage of discretionary state and federal grants that require a local match; to
fund smaller capital projects and/or those for which grant funds are unavailable;
and to benefit from the cost efficiencies of early advancement of certain projects.
Prior to FY 2015, the capital reserve was funded solely through surplus funds at
year-end and proceeds from the sale of older rolling stock. The FY 2015 budget and
six-year forecast included an annual contribution from current revenue of $3 million
in order to provide a larger and more stable source of funds for the current
purposes and to provide funding to advance complex system investments beyond
Phase 1 of the System Plan. The $3 million annual contribution level was pegged, in
part, to the additional funds available from the retirement of the outstanding taxexempt bonds, with the understanding that a target level for the capital reserve
would be developed based on the further refinement of the System Plan.
Key Issue #6: VRE staffing and office space: VRE needs the staff resources necessary
to operate and administer the commuter rail system safely, efficiently and in
compliance with all federal and state requirements.
Since inception, the administration and oversight of the commuter rail system has
been accomplished by a relatively small permanent staff, supplemented at times
with assistance on a contract or temporary basis. As the system itself has grown
and developed, along with internal and external requirements, the staff level has not
kept pace. As a result, the FY 2016 budget is expected to include the need for
additional staff resources, along with the need for additional office space since the
current offices in Alexandria are fully utilized. Early implementation of some of the
proposals may be requested at budget adoption in December.
Key Issue #7: Jurisdictional subsidy: The VRE service must be supported within the
confines of jurisdictional budget constraints.
Subsidy increases or decreases in FY 2016 and future years will be evaluated based
on system requirements, changes to state and federal funding levels and the
jurisdiction’s ability to contribute using fuel tax revenue or other sources of funding.
The FY 2015 six-year financial forecast projected a subsidy increase for FY
2016. However, VRE will work with jurisdictional staff on formulating future
subsidy levels and will make every effort to identify alternative sources of
funding.
Key Issue #8: Fare increases: An appropriate balance is needed between the levels of
service necessary to meet customer needs and competitive pricing for that service.
VRE has had two fare increases in the last five fiscal years (FY 2013 and FY 2014).
These have been necessary to maintain the level of service without being excessive
in cost to the rider. Fare increases will be evaluated as the budget process continues,
with consideration given to market factors, system funding needs, commuter benefit
levels, comparison to relevant indices, and a preference for biennial increases. The
FY 2015 six-year financial forecast projected a fare increase for FY 2016. In the
event a fare increase is warranted, staff will attempt to hold the increase to 5% or
less.
84,802,020
Total Expenses (Subtotal)
*Other source is from the FY14 surplus
TOTAL
CMAQ Summary
CMAQ
Capital Project Summary
Capital Reserve Contribution
Security Enhancements
Transit Enhancements
Rolling Stock (Nine Railcars)*
Equipment Storage
Life Cycle Maintenance
Facilities Infrastructure
123,003,020
0
0
0
38,201,000
6,945,000
0
0
23,625,000
1,881,000
2,550,000
0
100,000
100,000
0
3,000,000
7,402,870
Non-Operating Summary
Capital Projects:
688,000
1,931,357
110,442
4,673,071
77,399,150
USES OF
FUNDS
34 trains
Operating Reserve
Debt Svc (Gallery IV) (11 Cabcars)
Debt Svc 60 Railcars (Local)
Debt Svc 60 Railcars (Fed/State/Local)
Non-Operating Expenses:
Operating Expenses
LEVEL OF SERVICE FOR FY16
37,300,000
0
0
37,300,000
0
37,300,000
FARE
INCOME
FY15 subsidy
surplus (deficit)
20,000
0
0
20,000
0
20,000
INTEREST
165,000
0
0
165,000
0
165,000
MISC
19,600 average daily riders
16,428,800
(3,931,409)
20,360,209
0
0
0
3,463,040
277,800
0
0
0
75,240
102,000
0
4,000
4,000
0
3,000,000
16,897,169
1,062,619
688,000
77,254
110,442
186,923
15,834,550
LOCAL
SUBSIDY
1,785,000
0
945,000
0
945,000
840,000
8,700,000
0
0
8,700,000
0
8,700,000
22,144,968
0
0
0
17,917,160
1,111,200
0
0
16,065,000
300,960
408,000
0
16,000
16,000
0
4,227,808
Program
1,931,357
16,690,000
110,442
4,673,071
300,000
350,000
24,054,870
38,201,000
62,255,870
10,848,500
0
0
10,848,500
5337
5307
5337
Funding
5337
SSTP/State
21,679,342
0
0
0
15,875,800
5,556,000
0
0
6,615,000
1,504,800
2,040,000
0
80,000
80,000
5,803,542
5,283,542
3,738,457
520,000
5307/5337
747,691
0
10,848,500
STATE
STP
1,545,086
1,056,708
6,390,000
3,340,000
6,960,000
16,690,000
0
0
0
0
0
0
0
15,875,800
32,527,842
Federal Amt
1,545,086
10,848,500
3,738,457
240,000
280,000
OTHER
|----------------FEDERAL------------------|
Amtrak
NS
CSX
Total
309,017
3,171,100
STATE
CAPITAL
Soft Capital Projects
Debt Service 11 Cabcars
Access lease funding
Local only Debt Service 60 Railcars
Fed/State/Lo Debt Service 60 Railcars
Grant & Project Management
Grant & Project Management
Subtotal
Capital Projects/Earmarks
Federal Cap Program
0
0
0
0
0
0
0
OTHER
OTHER
STATE
SOURCES SOURCES OPERATING
840,000
16,690,000
16,690,000
SOURCES OF FUNDS
|-----------------STATE -----------------|
Total Access Fees
Leases
FY16 Sources and Use
0
0
State Amt
309,017
3,171,100
747,691
4,227,808
17,917,160
22,144,968
123,003,020
-
38,201,000
6,945,000
0
0
23,625,000
1,881,000
2,550,000
0
100,000
100,000
0
3,000,000
84,802,020
7,402,870
688,000
1,931,357
110,442
4,673,071
77,399,150
TOTAL
FY16 Summary Proposed Budget
GL Account
FY15 Operating
FY15 Capital
FY16 Operating
FY16 Capital
Changes
% Chg
Revenue:
Fare Revenue
Miscellaneous Revenue
Jurisdictional Subsidy
Other Sources
Federal/State Subsidy
Operating/Capital Reserves
Interest Income
36,900,000
165,000
12,305,000
30,194,301
2,000,000
15,300
Total Revenue
81,579,601
4,123,800
5,508,800
36,777,400
-
46,410,000
37,300,000
165,000
12,965,760
29,579,851
840,000
20,000
80,870,611
3,463,040
945,000
33,792,960
-
38,201,000
400,000
(4,563,800)
(3,598,890)
(1,160,000)
4,700
1%
0%
0%
-83%
-5%
-58%
31%
(8,917,990)
Operating/Non-Operating Expenses:
Insurance/Reserve/Mobilization
Executive Management
Passenger Support Services
Chief of Staff/Public Affairs
Marketing
Program Development
Operations and Communications
Budget and Finance
Communication and Information Technology
Engineering and Construction
Facilities Maintenance
Procurement
Equipment Operations
Safety, Security, and Emergency Preparedness
PRTC
NVTC
Train Operations/Maintenance of Equipment
Amtrak
Amtrak Access Fees
Norfolk Southern Access Fees
CSX Access Fees
8,136,152
887,000
445,100
441,000
450,000
950,125
1,611,250
2,808,500
1,159,500
844,500
3,695,000
353,500
11,836,250
586,300
104,000
80,000
20,241,112
4,582,942
6,000,000
3,210,000
6,392,500
Total Operating/Non-Operating Expenses
74,814,731
6,224,000
1,070,000
565,000
426,200
1,583,000
2,047,250
3,116,000
1,537,000
723,800
4,316,900
459,000
11,697,500
830,500
104,000
80,000
21,395,000
5,172,000
6,390,000
3,340,000
6,960,000
-
CIP Expenditures
Debt Service/Allowance for Doubtful Accts
6,764,870
Total CIP and Other Expenditures
6,764,870
46,410,000
81,579,601
46,410,000
Grand Total Expenses
Difference by Fund
Total Difference
78,037,150
46,410,000
-
-
38,201,000
(8,209,000)
-
6,764,870
38,201,000
(8,209,000)
84,802,020
38,201,000
(4,986,581)
6,764,870
-
(1,912,152)
183,000
(445,100)
124,000
(23,800)
632,875
436,000
307,500
377,500
(120,700)
621,900
105,500
(138,750)
244,200
1,153,888
589,058
390,000
130,000
567,500
3,222,419
(3,931,409)
(3,931,409)
(3,931,409)
(3,931,409)
-24%
21%
-100%
28%
-5%
67%
27%
11%
33%
-14%
17%
30%
-1%
42%
0%
0%
6%
13%
6%
4%
9%