fy2014 operating budget discussion - wmata

Finance & Administration Committee

Information Item IV-A

October 11, 2012

FY2014 Operating Budget Discussion

Washington Metropolitan Area Transit Authority Board Action/Information Summary

Action InformationMEAD Number:

Resolution:

Yes No

TITLE: OPERATING BUDGET DISCUSSION (FY2014-16 REVENUE FORECAST)

PRESENTATION SUMMARY

The operating revenue forecast is the first step in the development of a FY2014-16 multi-year budget. A three-year revenue forecast has been developed that projects ridership and revenue for Metrorail, Metrobus, and MetroAccess and provides forecasts for revenue from other sources such as parking, advertising, and joint development. The revenues forecasted in this update will fund approximately 55 percent of Metro’s operating costs and does not assume fare box increases.

PURPOSE

The Finance and Administration Committee will be informed of the underlying assumptions and drivers influencing the Revenue Forecast. They will also be advised on the impact to operating subsidies as a result of these changes, as well as population and ridership changes. The Committee will also review the funding support received by each mode (Metrorail, Metrobus, and MetroAccess). DESCRIPTION

Key Highlights:

Moody’s August quarterly forecast indicates that key variables that influence Metro’s ridership and revenue models (particularly the number of jobs in the District of Columbia) indicate relatively flat growth for the remainder of FY2013 and into FY2014, followed by steady growth in fiscal years 2015 and 2016. However, these forecasts assume that the January 2013 cuts to the federal budget required by sequestration are avoided and an alternate federal budget resolution is achieved. If sequestration does occur as prescribed in the current law, employment in the District and the Washington region may instead decline substantially.

Silver Line revenue service will operate for six months in fiscal year 2014 and the revenue and ridership assumptions associated with this service are included in the projections.

Overall, revenues are up slightly. This will have a positive effect on the FY2014 budget and Metro’s ability to keep the subsidy at current levels.

Background and History:

In April, Metro updated the revenue forecast which was used to inform the operating budget for FY 2013. The Board adopted this operating budget in May 2012. This updated forecast incorporates changes in economic assumptions from the September 2012 Moody’s forecast. Key economic factors including DC jobs, construction jobs, hotel vacancy rates, energy costs, and area population forecasts have been updated. The updated revenue forecast also includes the impact of the fare increase that was implemented on July 1. This revenue forecast does not model any future fare increases during the analysis period. Discussion: Changes to Subsidy Allocation Factors The Authority’s operating expenses that are not funded by passenger fares and other operating revenues are funded through the annual operating subsidy from the jurisdictions. This subsidy is allocated to the various jurisdictions by mode based on prescribed formulas, and the formulas depend on certain factors relating to population, the level of transit service provided, and ridership. Three different allocation factors either have changed recently or will be changing in the near future:

Number of Metrorail stations: The five new Silver Line stations are assigned to Fairfax County, which increases Fairfax’s allocation of the Metrorail subsidy. This change was incorporated in the FY2013 budget.

Weighted population density: As of the 2010 Census, there has been a shift in the balance of regional population towards Virginia and away from Maryland, which will impact both Metrobus and Metrorail subsidy allocation.

Ridership: Ridership by jurisdiction is determined using rider surveys. The new Metrorail rider survey is nearing completion, and the results will be incorporated in the FY2014 subsidy allocation process.

Economic Assumptions The number of jobs in the District of Columbia is one of the primary drivers of Metrorail ridership. Moody’s has projected DC non-manufacturing jobs to be flat through the remainder of FY2013 at approximately 740,000 jobs. This translates into

a slightly increasing rate of unemployment for DC (peaking at 9.5 percent in the spring of 2013) as the overall level of DC population continues to grow. However, beginning in the middle of 2013, Moody’s projects steady and substantial improvement in the employment picture for DC, with jobs growing to 778,000 by June 2016 and unemployment falling over the same period to seven percent. This improvement in DC employment causes substantial growth in projected Metrorail ridership and revenue. The other economic variables forecasted by Moody’s also play a role in the Metrorail and Metrobus ridership forecasting. DC population is projected to increase by approximately 20,000, or three percent, by June 2016. This population growth is a factor in the modest ridership growth that is anticipated for Metrobus over the period, as is the projected growth in construction jobs from 13,400 to 15,000 over the same period. (Construction jobs serve as a proxy for the overall economic conditions that are likely to increase bus ridership.) Silver Line The Silver Line will operate in revenue service for half of FY2014, or six months. All subsequent years assume a full twelve months of operation. The projected net new average monthly ridership is approximately 740,000. In addition, it is expected that some current Metrorail riders will shift their travel patterns and begin using Silver Line stations. The total additional passenger fare revenue from the Silver Line is projected to be approximately $2.8 million per month, which includes both new passengers and existing passengers now taking longer rail trips. Metro Access and Other Revenues Passenger fare revenues from Metro Access and revenues from other operating sources (such as parking, advertising, and joint development) are projected to remain largely flat during the forecast period. There is currently no indication that would lead to growth assumptions for these revenues. In fact, Metro Access will continue to employ demand management tools currently in place to achieve efficiencies while meeting demand. Risks to the Forecast A number of distinct risks exist that could have a material impact on future ridership and revenue. These include:

Silver Line: Most operating costs for the Silver Line will be incurred regardless of whether revenue service begins as planned. A one-month delay in the beginning of revenue service would result in a $2 to $3 million revenue loss.

Weather and Events: The ridership forecasting models account for the strong seasonality in Metro’s ridership. The models also include major positive ridership events such as the Cherry Blossoms and 4th of July, as well as negative events such as planned track closures. A “normal” amount of extreme weather (i.e., hot summer days, cold winter days) is also assumed, which depresses ridership. However, the forecast does not include any future weather events of the same magnitude as “Snowmageddon,” which reduced monthly ridership in February 2010 by millions of trips. Recent experience indicates that a one-day closure of the Federal government could result in a revenue loss of approximately $2 million.

Sequestration: Current law mandates approximately $1.2 trillion in cuts to both defense and non-defense spending in the federal budget (commonly known as sequestration) over the next decade beginning in January 2013. These cuts would average approximately 10 percent of the budgets of the affected departments. It is uncertain what actions, if any, Congress may take to avoid or defer these budget cuts. If the budget cuts take place as scheduled, WMATA will be impacted both directly (through reductions in certain federal grants for capital) and indirectly (through reductions in ridership as federal employees and contractors are laid off or furloughed). The indirect impacts from the loss of ridership are potentially more severe for Metro. A sustained 2% reduction in rail ridership, for example, would lead to an annualized revenue loss on the order of $10-$20 million.

Economic Growth: The Moody’s projection for DC job growth is the primary driver of the overall trend in Metrorail ridership, while factors such as hotel occupancy are important in reflecting the month-to-month seasonality of ridership. As noted above, Moody’s is projecting substantial improvement in the DC employment picture from FY2014 through FY2016, which has a strongly positive impact on projected rail ridership. There are specific risks associated with sequestration and potential long-term cuts to federal spending that could negatively impact this forecast; more generally, there appear to be downside risks associated with a forecast that envisions such steady improvement in DC jobs.

In light of the risks described above, Metro believes that the initial results produced by the ridership and revenue forecasting models – in particular, the projected weekday Metrorail ridership and resulting fare revenue – are optimistic. In order to achieve a more conservative revenue base from which to begin the FY2014 budget process, Metro has reduced the rate of projected growth in DC jobs in the forecast model. Rather than growing by approximately 40,000 jobs from FY2014 to FY2016, as forecast by Moody’s, the model assumes DC job growth of 20,000 during that period. This would

result in a DC unemployment rate of approximately eight percent at the end of the period, rather than 7 percent. Metro believes this to be an appropriate way to quantify the risks facing the DC economy and include those risks in the forecast.

FUNDING IMPACT

The total projected operating revenue for FY2014 is $906 million, an increase of $32 million, or 3.6 percent, from the FY2013 budgeted revenue of $874 million. Approximately half of this increase is due to the additional revenue generated by ridership on the Silver Line. Without including the Silver Line, total operating revenue from the existing system is projected to increase by $17 million, or 1.7 percent. The projected total operating revenues for FY2014-2016 are presented in the table below. For comparison, the table also shows the previous three-year estimates of operating revenues that were presented to the Board in July.

The difference for FY2014 is minimal; the increase in FY2015 is approximately one percent, and approximately two percent for FY2016. These increases are primarily due to the more positive economic outlook embedded in the Moody’s forecasts.

Revenue Forecast (millions)

FY2014 FY2015 FY2016

July Forecast $905 $937 $954

October Update $906 $945 $977

Difference $1 $8 $23

These revenue forecasts will now serve as the basis for developing an estimate of the initial jurisdictional contributions required to support the projected FY2014 operating expenses.

TIMELINE

October 2012: FY2014 Revenue Forecast GM finalizes Business Plan including actions, performance measures and targets Strategic Plan outreach to key stakeholder groups

November 2012: FY2014 Operating & Capital Budget discussion GM presents multi-year Business Plan Strategic Plan outreach continues

December 2012: FY2014 Operating & Capital Budget discussion Regional forums scheduled for Strategic Plan input

January 2013: Board adopts Strategic Plan GM delivers FY2014 budget request

April 2013: FY2014 Revenue Forecast update

June 2013: Board budget approval

FY2014 and Beyond: Strategic Plan action tracking On-going performance measurement with periodic review and updates to the Board

ELECTRONIC ATTACHMENTS

The attachment includes four charts showing the outputs of the ridership and revenue forecasting models. The four charts are:

Monthly Metrorail ridership (including Silver Line), actual and forecast; Monthly Metrorail revenue (including Silver Line), actual and forecast; Monthly Metrobus ridership, actual and forecast; and Monthly Metrobus revenue, actual and forecast.

of 2

Attachment to FY2014 Revenue Forecast Metrorail and Metrobus Ridership and Revenue Forecast Charts

10,000

12,500

15,000

17,500

20,000

22,500

25,000

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

Tho

usa

nd

s

Monthly Rail Ridership (including Silver Line)

Actual Estimated Forecast

5,000

7,500

10,000

12,500

15,000


Tho

usa

nd

s

Monthly Bus Ridership


of 2

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000


Tho

usa

nd

sMonthly Rail Revenue (including Silver Line)


$0

$4,000

$8,000

$12,000

$16,000

$20,000


Tho

usa

nd

s

Monthly Bus Revenue


Washington Metropolitan Area Transit Authority

FY2014 Ridership and Operating R F tRevenue Forecast

Finance and Administration CommitteeFinance and Administration CommitteeOctober 11, 2012

Agenda

• Overview• Overview• Funding by Mode

S b id All ti• Subsidy Allocation• FY14 Ridership and Revenue

• Assumptions• Risk assessment• Forecasts

Overview

• Revenue forecasting is the first step inRevenue forecasting is the first step in the Board’s FY14 budget process

Revenue Forecast

Expense Projection

Initial Jurisdictional

ManagementActions

Balanced BudgetForecast Projection Contribution Board Policy

Decisions

Budget

• Three-year revenue forecast• FY14 will be adopted in the budgetp g• FY15-16 provide a preview of long-range impacts

Funding Support by Mode(FY13 Budget)(FY13 Budget)

Passenger Fares $141 Oth R $13Other Revenue $13 Total Revenue $154

Total Expenses $565

C t R 27%Cost Recovery 27%

Passenger Fares $626 Other Revenue $86Total Revenue $712Total Revenue $712

Total Expenses $896

Cost Recovery 79%Passenger Fares $775 Other Revenue $99

Passenger Fares $8 Other Revenue $0 Total Revenue $8

Total Revenue $874 Total Expenses $1,576 Cost Recovery 55%

Total Expenses $115

Cost Recovery 7% Net Local Subsidy $669

All figures are FY13 budget, in millions. Local subsidy is net of FTA preventive maintenance funding.

Subsidy Allocation Factors

• Metrorail stations• Five Silver Line stations assigned to Fairfax County

• Weighted population densityg p p y• Shift towards Virginia and away from Maryland

following 2010 Census• Affects both bus and rail allocation

• Ridership• Determined using past rider surveys – new rail

survey close to completion• Evidence of more ridership from “inside the• Evidence of more ridership from inside the

diamond” (DC, Arlington, Alexandria)

Assumptions: Silver Line

• Six months of revenue service in FY14Six months of revenue service in FY14• More than 1/3 of projected riders already

ride Metrorail (most at WFC)ride Metrorail (most at WFC)

FY2014 FY2015Trips Revenue Trips Revenue

Planning Projection Based on FY13 Fare Proposal

New passenger trips 4 4M $14 8M 8 9M $29 6MNew passenger trips 4.4M $14.8M 8.9M $29.6M

Current passengers who switch to Silver Line 2.7M $1.8M 5.4M $3.6M

Annual total 7.1M $16.6M 14.3M $33.2M

Passenger trips based on Final Environmental Impact Statement (FEIS).

Assumptions: New Economic ForecastsForecasts

900

DC Jobs (thousands)

800

600

700

l‐08

t‐08

n‐09

r‐09 l‐09

t‐09

n‐10

r‐10 l‐10

t‐10

n‐11

r‐11 l‐11

t‐11

n‐12

r‐12 l‐12

t‐12

n‐13

r‐13 l‐13

t‐13

n‐14

r‐14 l‐14

t‐14

n‐15

r‐15 l‐15

t‐15

n‐16

r‐16

Historical

ForecastFlat throughFY13

1‐2% annualgrowth

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

Ju Oc t Jan

Apr

3500

Metropolitan Washington Jobs (thousands)

2750

3000

3250

HistoricalSlow through 2+% annual

2250

2500

2750

Jul‐0

8

Oct‐08

Jan‐09

Apr‐09

Jul‐0

9

Oct‐09

Jan‐10

Apr‐10

Jul‐1

0

Oct‐10

Jan‐11

Apr‐11

Jul‐1

1

Oct‐11

Jan‐12

Apr‐12

Jul‐1

2

Oct‐12

Jan‐13

Apr‐13

Jul‐1

3

Oct‐13

Jan‐14

Apr‐14

Jul‐1

4

Oct‐14

Jan‐15

Apr‐15

Jul‐1

5

Oct‐15

Jan‐16

Apr‐16

ForecastFY13 (<1%) growth

Risks: Silver Line

• Start date• Ridership ramp-upRidership ramp up• One-month delay

results in $2-3results in $2 3 million revenue loss

Risks: Weather and Events

• Model accounts for seasonalityModel accounts for seasonality• Includes major events (Cherry Blossoms,

4th of July) and planned track work4 of July) and planned track work• “Normal” extreme weather is assumed

S h t d i t ld• Summer heat and winter cold depresses ridership

• Forecast does not budget forForecast does not budget for another Snowmageddon

• Loss if Federal govt. gcloses: ~$2 million/day

Risks: Sequestration

• Direct funding loss: capital grantsDirect funding loss: capital grants• Indirect funding loss: ridership reduction

• Indirect loss potentially more severe• Indirect loss potentially more severe• Sequestration budget cuts are ~10%; if rail

ridership fell 2%, annualized revenue loss could be $10-20 million

• Metro working to assess risks and plan

Comparison to Previous Multi-Year ForecastForecast

Revenue Forecast (millions) FY2014 FY2015 FY2016

July Baseline $905 $937 $954July Baseline $905 $937 $954

October Update $906 $945 $977

Difference $1 $8 $23

Potential Offsets to Subsidy GrowthGrowth

$FY14 FY15 FY16

‐$20

$0

$60

‐$40

Millions

‐$80

‐$60

Dollars in

$120

‐$100

‐$120

Next Steps

Month Milestones

October 2012 • FY2014 Revenue Forecast• GM finalizes Business Plan including actions, performance measures, and targets

• Strategic Plan outreach to key stakeholder groups

November 2012 • FY2014 Operating & Capital Budget discussion• GM presents multi-year Business Plan• Strategic Plan outreach continues• Strategic Plan outreach continues

December 2012 • FY2014 Operating & Capital Budget discussion• Regional forums scheduled for Strategic Plan input

January 2013 • Board adopts Strategic PlanJanuary 2013 • Board adopts Strategic Plan• GM delivers FY2014 budget request

April 2013 • FY2014 Revenue Forecast update

June 2013 • Board budget approvalJune 2013 • Board budget approval

FY2014 and Beyond • Strategic Plan action tracking and on-going performance measurement with periodic review and updates to the Board

Appendix:Revenue Forecast DetailsRevenue Forecast Details

Rail ide ship (monthl incl ding Sil e Line)• Rail ridership (monthly, including Silver Line)• Rail revenue (monthly, including Silver Line)

B id hi ( thl )• Bus ridership (monthly)• Bus revenue (monthly)• Access revenue (annual)• Other revenue sources (annual)

Rail Ridership Forecast

22 500

25,000

Monthly Rail Ridership (including Silver Line)

20,000

22,500

15,000

17,500

Thou

sand

s

10,000

12,500

Jul‐07 Jul‐08 Jul‐09 Jul‐10 Jul‐11 Jul‐12 Jul‐13 Jul‐14 Jul‐15 Jul‐16


Rail Revenue Forecast

$60,000

$70,000

Monthly Rail Revenue (including Silver Line)

$40,000

$50,000

$20,000

$30,000

Thou

sand

s

$0

$10,000



Bus Ridership Forecast

15,000

Monthly Bus Ridership

12,500

7 500

10,000

Thou

sand

s

5,000

7,500



Bus Revenue Forecast

$20,000

Monthly Bus Revenue

$12,000

$16,000

s

$8,000Thou

sand

s

$0

$4,000



Access Revenue Forecast

$8,000

$9,000

Annual Access Revenue

$5 000

$6,000

$7,000

$3,000

$4,000

$5,000

Thou

sand

s

$0

$1,000

$2,000

$0 2008 2009 2010 2011 2012 2013 2014 2015 2016

Actual Forecast

Note: Access fares were increased in February 2011, separately from the bus and rail fare increases implemented at the beginning of FY2011.

FY14-16 Forecast: Other Sources

Approximate FY14 RevenuesApproximate FY14 Revenues• Other Passenger: $ 7 million• Parking: $49 million• Advertising: $17 million• Joint Development: $ 8 million• Fiber Optic: $14.5 million• Other: $ 7.5 million

• Total: $103 million$

fy2014 operating budget discussion - wmata

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