AGENDA ITEM NO. 10.1

CITY OF ELK GROVE CITY COUNCIL STAFF REPORT

AGENDA TITLE: Receive information and provide direction to staff regarding potential alternatives for Transit Services and Maintenance Operations for the City of Elk Grove

MEETING DATE: December 12, 2018

PREPARED BY: Michael Costa, Transit System Manager

DEPARTMENT HEAD: Robert Murdoch, Public Works Director / City Engineer

RECOMMENDED ACTION:

Staff recommends that the City Council receive information and provide direction to staff regarding potential alternatives for transit services and maintenance operations for the City of Elk Grove.

BACKGROUND INFORMATION:

In January 2005, the City of Elk Grove (City) assumed responsibility for the administration and implementation of all fixed-route transit services to/from and within the City of Elk Grove from the Sacramento Regional Transit District (SacRT). This service was branded by the City as “e-tran.” The City also initiated a Service Agreement with SacRT, which is maintained to this day, in order to ensure that the City could operate both local and commuter transit services within SacRT’s district boundaries (i.e., services to and from , nearby stations, and Rancho Cordova), and to provide the City one direct representative on SacRT’s Board of Directors.

Per the Service Agreement’s provisions, the City also is required to pay SacRT a “proportionate share payment” each year for regional services provided by SacRT that benefit the City. Under the current Service Agreement, the City’s annual proportionate share payment to SacRT is $350,000.

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In July 2006, the City took over all Americans with Disabilities Act (ADA) demand response services from Paratransit, Inc., for residents of Elk Grove, forming its own on-demand paratransit service, which the City branded as “e-van.” E-van service is available only for ADA-eligible riders that have qualifying physical and/or cognitive conditions that prevent them from riding e-tran’s fixed-route services, and to members of the public over the age of 75.

Originally, the e-van service allowed riders to receive trips both within the City’s jurisdictional limits and to other parts of the region for medical or personal appointments. However, in February 2015, the City Council adopted new e-van policies to limit the service area to be predominantly within the City’s jurisdictional limits for all new riders, with some allowance for trips to medical facilities located in South Sacramento, adjacent to the City’s border. This was done primarily in consideration of the large costs associated with transporting riders regionally versus limiting trips to within the City’s jurisdictional limits. Currently, riders who want a regional trip can utilize the City’s e-van service to travel to/from a transfer location with Paratransit, Inc.’s regional service that enables riders to continue their trip beyond the City’s limits.

In April 2017, the City was approached by SacRT who expressed interest in operating all of the City’s transit services. In response, City staff requested SacRT to provide more information that would allow staff to understand how the operation would function, and how much it would cost. In October 2017, the City received a formal cost proposal from SacRT to operate and administer the City’s e-tran and e-van services.

City staff, with the help of Solutions for Transit, an independent consultant hired by the City, analyzed the cost proposal and worked with SacRT staff to refine the cost proposal, until a final proposal was provided to the City in February 2018. This final cost proposal identified the pricing for SacRT to operate and administer the City’s e-tran and e-van services, as well as provide maintenance functions, in the same manner as the City’s current contractor MV Transportation (MV).

SacRT’s cost proposal identified comparable wages, improved medical benefits, and a greater retirement contribution for bus operators, dispatchers, customer service representatives, and maintenance staff compared to the City’s current contract with MV. However, SacRT’s cost proposal also considered economies of scale savings through the consolidation of certain administrative functions and staff positions with

2 Elk Grove City Council December 12, 2018 Page 3 of 10 existing SacRT staff, as well as the elimination of contract profit mark-up costs (since SacRT is a public entity).

Lastly, SacRT’s cost proposal identified some potential overall cost savings to the City that could be achieved through the elimination of the City’s proportionate share payment, which would otherwise be paid to SacRT if the City contracted for services with another contractor.

Utilizing information provided in SacRT’s cost proposal, and MV’s current contract, the table below summarizes a comparison between SacRT’s anticipated annual contract costs and MV’s annual costs.

SacRT Year 1 Year 2 Year 3 Year 4 Year 5 Fixed-Route Costs $5,459,703 $5,618,743 $5,782,554 $5,951,280 $6,124,852 Paratransit Costs $1,297,504 $1,335,300 $1,374,230 $1,414,327 $1,455,577 Subtotal $6,757,207 $6,954,043 $7,156,784 $7,365,607 $7,580,429 Minus Proportionate ($350,000) ($350,000) ($350,000) ($350,000) ($350,000) Share Payment Costs Total Costs $6,407,207 $6,604,043 $6,806,784 $7,015,607 $7,230,429

MV Optional Year Optional Year Optional Year 1 2 3 There are no additional optional years in MV's current Fixed-Route Costs $5,369,534 $5,461,105 $5,550,304 contract to compare to Paratransit Costs $1,212,866 $1,238,764 $1,264,161 SacRT’s cost proposal Total Costs $6,582,400 $6,699,869 $6,814,465

In order to fully understand this cost proposal, City staff requested that SacRT provide an Operations Plan and Maintenance Program that would effectively demonstrate how SacRT intends to implement the City’s transit services in a manner that would maintain existing service and performance levels, ensure customer service satisfaction, follow established maintenance and cleaning routines (for buses and shelters), and implement other contracted administrative reporting requirements for the City. SacRT submitted a draft Operations Plan and Maintenance Program in September 2018, which requires further refinement as part of negotiating a final contract.

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ANALYSIS/DISCUSSION:

The City’s current contract with MV expires on June 30, 2019. While the City has the option to execute up to three, one-year contract extensions with MV, staff believes that there are benefits to pursuing a contract with SacRT upon the termination of MV’s contract in June 2019. In addition, because this contract would be established between two public agencies, the City is not required to conduct a formal procurement process (Request for Proposal), pursuant to Federal regulations, and could decide to contract with SacRT for the City’s transit services at any time.

Benefits of contracting with SacRT include:

• MV, and several other private transit contractors and public transit agencies across the State, have been experiencing a bus driver shortage over the past year. This shortage has stemmed primarily from a robust economy with low unemployment that has offered potential bus drivers more competitive wages and benefits in sectors outside of public transit. The City has been impacted by this driver shortage over the last year, with several routes running late, or being missed completely, due to a lack of available drivers to run the service. With more competitive wages/benefits, and a larger local pool of available drivers, contracting with SacRT may encourage greater driver retention and availability for the City’s transit services.

• Over the last year, several local efforts have been made to encourage greater regional collaboration between SacRT and the region’s suburban cities on transit operations, long-range planning for larger transit capital projects, and Federal and State competitive funding opportunities. Some smaller jurisdictions, such as the cities of Folsom and Citrus Heights, have even taken steps to annex their services back into SacRT’s district. Contracting transit services with SacRT could provide the City with a greater ability to collaborate with SacRT on regional transit operations and long-range capital planning efforts.

• Should the City consider any future possibility of annexing all transit services back into SacRT, contracting with SacRT would provide SacRT with the opportunity to operate and fully understand the City’s unique e- tran and e-van transit services and operations, while still allowing the City to maintain full oversight and administration of all transit services during the contract term. Annexation could then be considered once SacRT demonstrates the ability to provide satisfactory service.

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In recognizing these contract benefits, City staff and Solutions for Transit have developed a proposed contract document that incorporates the Operations Plan and Maintenance Program developed with SacRT. The proposed contract establishes a five-year term, and contains many of the same contract provisions that are currently established in the City’s contract with MV. Defined liquidated damages, similar to those established in the City’s current contract with MV, are contained in the proposed contract to ensure that SacRT’s performance can be monitored and assessed for deficiencies at the City’s discretion.

SacRT was provided the proposed contract document for review on November 5, 2018. On November 20, 2018, staff received 82 comments, and a large number of additional contract revisions/edits from SacRT regarding the provisions and language contained in the proposed contract. Below, staff has summarized some of the main contract components and provisions that need to be further vetted and negotiated:

• SacRT has identified several objections with the proposed liquidated damages provisions that are included in the proposed contract. Consistent with the City’s current contract with MV, the liquidated damage provisions are not intended to be punitive, rather, they are meant to compensate the City for damages in the event SacRT fails to fully perform essential requirements of the contract. Such damages include, but are not limited to, compensating the City for the additional administrative burden related to contract enforcement and monitoring, loss of ridership (revenue) and public goodwill, cost of replacement services, and the lost contract benefit resulting from SacRT’s failure to fully perform.

• SacRT has identified concerns with the City’s indemnification, insurance liability, and performance bond requirements that the City currently applies to its contract with MV.

• SacRT has proposed revisions to key staffing and other operational contract provisions (e.g., operational service standards, bus shelter maintenance, cleaning, and reporting requirements, etc.) that do not comply with the City’s current contractual performance standards with MV.

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City staff, in coordination with SacRT, has also contacted the Federal Transit Administration (FTA), which oversees the City’s administration of all Federal funding provided for transit operations and capital projects. This was done to ensure that the City could proceed with this contract option with SacRT without jeopardizing the City’s awarded or future Federal funding. The FTA has not identified any present concerns with the City’s proposed contract with SacRT. However, should the City decide to pursue annexation to the SacRT District at some point in the future, the FTA has requested to be consulted during this process so that City-assets which were purchased with Federal funding can be properly transferred pursuant to Federal requirements.

Assuming acceptable contract language can be negotiated, staff recommends entering into a contract with SacRT that would take effect following completion of MV’s current contract on June 30, 2019. This time frame would afford the City an opportunity for greater collaboration with SacRT on regional services, operations and planning, and to fully understand how SacRT can operate the City’s unique services in a manner that would ensure the highest performance outcomes possible for the City.

Should the City Council direct staff to pursue contract negotiations with SacRT, SacRT will initiate final labor negotiations with its union to provide the City with a final contract cost proposal that will be brought to the City Council, along with a final contract document by no later than March 13, 2019. In order to successfully prepare for the administration of the City’s contract transit services and operations on July 1, 2019, SacRT staff indicated they would need at least 90 days subsequent to the contract’s adoption for preparation. This preparation would include hiring and training staff for the new contract, as well as finalizing all necessary purchases for implementing the contract’s operational provisions.

In the event SacRT and the City do not reach a final agreement on the proposed contract, the City Council must consider exercising executing the first optional year of the City’s current contract with MV. This would allow MV to properly prepare for the continuation of the City’s existing transit services in Fiscal Year 2019-20. Should the City choose not to execute the optional contract year with MV, the City would have to immediately start the competitive procurement process for a new contractor to operate transit services beginning on July 1, 2019. For this to occur, staff has determined that the City and SacRT must reach an agreement on the final terms of the contract by no later than January 16, 2019.

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ALTERNATIVE ACTIONS:

On October 24, 2018, staff was directed by City Council to return with information regarding the advantages and disadvantages associated with annexing back into SacRT’s district. Annexation would be a potential alternative to contracting transit services with SacRT following the expiration of MV’s current contract in June 2019. At this time, the City’s specific terms regarding annexation have not been established. However, the following bullets briefly summarize some of the potential opportunities and constraints that may be associated with annexing the City back into SacRT’s district for all transit services.

Opportunities

• The City’s representative on the SacRT Board of Directors would receive a higher share of the total available votes on the Board (based on current District configuration, the City would go from 4 votes out of 100, to 13 votes out of 100; this number could change as additional territory is annexed to the SacRT District). Alternatively, a second seat on the SacRT Board could be pursued.

• SacRT may be able to leverage the City’s population and funding resources to pursue competitive Federal and State grant funding opportunities for capital projects, which, if awarded, could benefit the City and greater Sacramento region (e.g., Blue Line light rail service extension into Elk Grove city limits). This could include capitalizing on available Senate Bill 1 funding opportunities.

• By annexing directly into SacRT’s district, the City may receive immediate access to regional service opportunities such as SacRT’s microtransit service and regional paratransit service trips, as well as other SacRT resources.

• SacRT would immediately assume all liabilities, costs, and capital assets through annexation, eliminating the City’s financial responsibility to maintain transit assets and address capital replacement needs (including any State requirement to convert the City’s transit fleet to zero emission technology). In addition, SacRT has indicated that they are willing to assist the City with eliminating Transit’s negative Fund Balance, through possible incremental payments to the City over a period of time, should the annexation occur.

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• The City’s current service level (local, commuter, and paratransit) would be maintained in the same manner as the service is currently provided, and it may be increased pending available SacRT funding resources.

• All existing administrative, operations, and maintenance personnel (City and contracted employees) may be hired by SacRT at comparable, or enhanced, wages and benefits, since SacRT will require personnel to continue operating transit services in the City.

Constraints

• The City would relinquish all control of Federal and State funding that is currently received by the City for transit capital and operating expenses, as well as all transit fare revenues generated.

• All final transit service decisions would be made by SacRT’s Board of Directors. While the City Council’s input and direction can be considered for any major service decisions following annexation, SacRT’s Board of Directors ultimately have the authority to make a final decision regarding whether services are implemented, eliminated, or otherwise modified, based on SacRT’s performance and other operational criteria for funding and implementing regional transit services.

• If the City wanted to implement any specialized transit services in order to entice specific local development projects within the City, that transit service would have to be considered and approved by the SacRT Board of Directors.

• SacRT stated that all of the City’s existing services (local, commuter, and paratransit) would be maintained in the same manner as currently provided should annexation occur. However, SacRT could still reduce service to the City if they experience overall funding reductions due to an economic downturn or any other factor(s) determined by the SacRT Board of Directors in the future.

• Any public requests for specialized services or complaints about service performance (e.g. commuter and paratransit services) affecting the City would be considered by the SacRT Board of Directors, and not by the City Council, for implementation and/or resolution.

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Staff does not recommend annexation at this time. By executing a contract with SacRT to operate the City’s transit services, the City will continue to control all Federal, State and local funding for its transit operations. The City would also maintain control over its ability to provide specialized transit services at its sole discretion. In addition, the City could utilize the contract period with SacRT to evaluate SacRT’s performance, determine if there are additional benefits with annexation, and define what the City’s specified terms for annexation may be, before fully relinquishing local control of the service. The proposed contract with SacRT contains language that identifies the City’s intent to negotiate annexation with SacRT at, or prior to, the end of the five year contract.

If the City Council does not wish to pursue the contract option with SacRT, and instead wants to further consider annexation, a second alternative would be for the City Council to execute the first optional contract year with MV. This would allow staff to begin formal negotiations with SacRT to define the terms of annexation for the City. This process would also include greater public outreach to involve existing riders in the annexation process, especially those utilizing some of the City’s more specialized services such as the commuter and paratransit services. Also, this would allow time to discuss annexation with the Sacramento Area Council of Governments (SACOG) and FTA in order to ensure that funding and assets are properly transferred.

Staff recommends that the City Council consider this alternative only as a means to afford the City sufficient time to properly vet and negotiate annexation terms with SacRT, as well as ensure that the appropriate public and governmental stakeholders are properly involved in this process.

FISCAL IMPACT:

Under the present cost proposal from SacRT, and the proposed contract document that has been provided to SacRT for consideration, the City anticipates that contracting with SacRT for a period of five years would cost approximately $35.7 million. However, should the City initiate a contract with SacRT, a cost savings of $1.75 million would be achieved for the City’s overall Transit budget due to the elimination of the City’s proportionate share payment to SacRT, which would otherwise have to be paid to SacRT if the City contracted with another contractor.

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Similar to the current contract with MV, both Federal and State funding sources would be utilized to cover all contract expenses during the duration of the contract’s term. Staff does not anticipate that any General Funds would be utilized for this contract.

At this time, staff’s cost assumptions are based solely on SacRT’s cost proposal that was provided to the City in February 2018. It was agreed that the final costs for SacRT’s operations and maintenance functions would be determined after the City formally identified direction to enter into contract negotiations with SacRT for the City’s transit services. This direction would allow SacRT staff to negotiate final costs and benefits with their labor union. However, SacRT staff has assured City staff throughout this process that final contract costs are not anticipated to vary significantly from the costs that were contained within the February cost proposal.

Should staff receive direction from the City Council to formally negotiate a contract with SacRT, City staff will bring back a more detailed financial analysis and breakdown of final contract costs, along with the final contract document, for the Council’s consideration by March 2019.

It is important to note that by maintaining control of all Federal and State funding through this contract option with SacRT, staff anticipates a continued decrease to Transit’s negative fund balance over the next five years. Transit’s current negative Fund Balance is approximately $5.356 million as of the start of FY 2018-19. When the City’s FY 2018-19 budget and five-year budget projections were prepared in April 2018, staff utilized a projected contract rate that reflected SacRT’s cost proposal information available at that time.

Assuming that the City does not significantly increase transit services (i.e. implement new routes, and/or higher frequencies, etc.), and Federal and State funding allocations continue to be received by the City as forecasted in the five-year budget projections, staff anticipates that Transit’s negative Fund Balance may be eliminated by the end of FY 2021-22.

ATTACHMENT:

1. E-tran System Map

10 Attachment 1 E-tran System Map Effective October 29, 2017

To Downtown Sacramento To Butterfield Light Rail Station Downtown Sacramento Butterfield Light Rail Station

To Downtown Sacramento er iv R Downtown I ST Plaza Golden 1 Center an J ST ic Raley er m Field r A e 19 vd iv l 9TH ST State B R 8TH ST 17

PowerRd Inn m o P ST Capitol t so n l e L ST 15 Fo m Q ST a CAPITOL AVE r 15TH ST SACRAMENTO c 10 Sa 16TH ST N ST 4TH ST 13 5TH ST 16 9TH ST P ST Co Butterfield Q ST su m 18 Light Rail Station RANCHO Sacra ne mento s R T.R. SMEDBERG CORDOVA RT L iv Rd Bradshaw ight R er Blvd M.S. ail (B lue L R ST ine) C 115 SHELDON H.S. BRADSHAW e 114 Elk Grove Florin Rd Florin Grove Elk CHRISTIAN n 29TH ST 30TH ST t Calvine Rd VALLEY Ca lvine Rd 19 e CALVINE H.S. 19 17 Rd Bradshaw H.S. 17 r 114 114 P GOLDEN WEST k MONTEREY TRAIL ACADEMY w H.S. RT / SCT Link y EDWARD HARRIS, JR. M.S. PERRY 10

13 14 114 16 JONES 12 116 18 15 11 110 Rd Bader 115 SAINT PETERS Grant Line Rd LUTHERAN Excelsior Rd Excelsior Sheldon Rd RAU 15 Sheldon Rd Elk Grove City Limits Boundary 110 10

14 115

114 BrucevilleRd

MIX E Stockton Blvd B PINKERTON 19 ELK GROVE ig H o rn Blvd 13 Pleasant Grove School Rd BETSCHART 16 FITE 14 14 LAGUNA 18 12 LAGUNA CREEK COMMUNITY H.S. CAMDEN PARK PLEASANT GREENBELT 19 CASE GROVE WACKMAN 111 H.S. Laguna Blvd 10 KATHERINE

L. ALBIANI Laguna Rd Florin UNDERWOOD M.S. 114 Crossroads 110 Bond Rd Bond Rd 113 13 11 Laguna Blvd 19 115 e-TRAN Local C Commuter 19

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Country Club Rd Bradshaw 112 M.S. 111 JOHNSON 10 STRONG Laguna Promenade Elk Grove Blvd Commuter Routes Elk Grove Blvd 16 16 111 12 116 116 116 112 10 11 SCT Link Route 10 BAKER 11 Elk Grove Civic Center Dr 11 Commons 112 MILES Route 11 Park and Ride Lot WILLARD 12 LUTTIG 112 12 Route 12 e-TRAN Transfer Points Local C Commuter Civic Center 13 110 Route 13 GATES 111 DERR-OKAMOTO 14 Route 14 RT / SCT Link

Fire Poppy Dr Fire Poppy HORSESHOE 15 12 COSUMNES OAKS ELK GROVE Route 15 e-TRAN Local C Commuter H.S. H.S. terra Dr 16 Route 16 MORSE Bella ELIZABETH COMMUNITY 112 PINKERTON 17 SCT Link JOHNSTON M.S. 13 Route 17 NOTTOLI Whitelock Pkwy 113 18 Route 18 110 e-TRAN Local C Commuter 111 111 Grant Line Rd 19 11 W Stockton BlvdELK GROVE Route 19 FRANKLIN REGIONAL KUNSTING H.S. BARTHOLOMEW PARK STONE LAKES SPORTS PARK Local Routes

NATIONAL TOBY JOHNSON Dr WILDLIFE REFUGE M.S. Elk Grove Center

d 110 Route 110 R 111 Route 111

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Source: Elk Grove Transit, Elk Grove GIS, 2017 11

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