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Project Title Or Company Name Southwest Ohio Regional Transit Authority Discussion Document Reliance Restricted 21 June 2018 | Version 1.0 (Draft) 21 June 2018 | Version 1.0 (Draft) Reliance Restricted Cincinnati USA Regional Chamber 3 E 4th St, Cincinnati, OH 45202 Cincinnati Business Committee 3 E 4th St, Cincinnati, OH 45202 Ernst & Young LLP Southwest Ohio Regional Transit Authority (“SORTA”) 21 June 2018 312 Walnut St Cincinnati, OH This report (the “Report”) has been prepared by Ernst & Young LLP (“EY” or “we”), from information and material 45202 supplied by Southwest Ohio Regional Transit Authority (“SORTA”) for use by Cincinnati USA Regional Chamber & Cincinnati Business Committee (separately and combined, “Client”), for the sole purpose of assisting Client in completing a business assessment of SORTA historical financial performance, benchmarking versus certain peer agencies and 10 year financial projections developed by SORTA management. The nature and scope of our services was determined solely by the Agreement between EY and Client dated February 22, 2018 (the “Agreement”). Our procedures were limited to those described in that Agreement. Our work was performed only for the use and benefit of Client and should not be used or relied on by anyone else. Other persons who read this Report who are not a party to the Agreement do so at their own risk and are not entitled to rely on it for any purpose. We assume no duty, obligation or responsibility whatsoever to any other parties that may obtain access to the Report. The services we performed were advisory in nature. While EY’s work in connection with this Report was performed under the standards of the American Institute of Certified Public Accountants (the “AICPA”), EY did not render an assurance report or opinion under the Agreement, nor did our services constitute an audit, review, examination, forecast, projection or any other form of attestation as those terms are defined by the AICPA. None of the services we provided constituted any legal opinion or advice. This Report is not being issued in connection with any issuance of debt or other financing transaction. In the preparation of this Report, EY relied on information provided by SORTA including financial reports, budgets, management presentations, financial projection models, internal analysis, discussion with SORTA management and other information as requested or publicly available resources, and such information was presumed to be current, accurate and complete. EY has not conducted an independent assessment or verification of the completeness, accuracy or validity of the information obtained. Any assumptions, forecasts or projections contained in this Report are solely those of SORTA and its management (“Management”) and any underlying data were produced solely by SORTA and its Management. Client management has formed its own conclusions based on its knowledge and experience. There will usually be differences between projected and actual results because events and circumstances frequently do not occur as expected and those differences may be material. EY takes no responsibility for the achievement of projected results. Southwest Ohio Regional Transit Authority: Discussion Document | Page 2 of 42 Prepared solely for Cincinnati USA Regional Chamber & Cincinnati Business Committee. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2. 21 June 2018 | Version 1.0 (Draft) 1 Overview Southwest Ohio Regional Transit Authority: Discussion Document | Page 3 of 42 Prepared solely for Cincinnati USA Regional Chamber & Cincinnati Business Committee. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2. 21 June 2018 | Version 1.0 (Draft) 1 Overview Southwest Ohio Regional Transit Authority’s history and recent cost saving initiatives History Recent Initiatives ► Southwest Ohio Regional Transit Authority, ► SORTA recently created a new strategic plan for the organization, including an updated vision “20 (“SORTA”), is the public transport agency million rides by 2021”. The plan focuses on operational excellence, strategic alignment and partnering, serving Cincinnati and its Ohio suburbs organizational sustainability, and innovation ► SORTA is primarily funded through ► In conjunction with the above initiative, SORTA also developed a 10 year projection model to forecast Cincinnati's city earnings tax, with additional future funding requirements and ascertain the level of capital investment required to both maintain and funding obtained through passenger fares, potentially enhance or expand current operations and system footprint federal, state and local grants and ► Given the current funding structure and operational challenges, SORTA has undertaken and completed subsidies, and other various sources a number of process improvement initiatives: ► In 2017, SORTA provided approximately 14 ► Continued deferral of capital projects to allow for additional operational funding million rides, including Metro transit bus ► SORTA completed an organizational restructuring, eliminating lower performing service routes and non-critical service and Access paratransit service positions, while enhancing their financial analysis and strategy skillsets ► SORTA also manages the Cincinnati ► SORTA has completed a risk review project, to enhance appropriate risk mitigation and insurance coverage Bell Connector streetcar system in levels downtown Cincinnati on behalf of the ► Transitioned to self-funded health insurance; including a no smoking policy for all employees yielding year 1 City estimated savings of $1.2 million, 2017 budget versus commercial quote. ► SORTA management is currently projecting ► In an effort to broaden their revenue streams, SORTA continued selling advertisement on Metro buses and a $184 million operating and capital deficit began selling on allowable bus shelters in 2017 over the next 10 years, ~$62m and ~$122m ► Completed a review of rolling stock and parts inventory, which allowed for disposal of obsolete/under-used respectively assuming annual fare equipment including two vintage trolley buses, and reduced parts inventory levels while selling or scrapping increases. The deficit is projected due to excess and obsolete parts declining ridership and continuing annual ► SORTA has considered additional restructuring of service across local and express routes (KPI driven) operating deficits. The operating deficits have been partially offset by limiting annual ► Since May 2006, SORTA has hedged its diesel consumption (approximately 3 million gallons per year) capital investments, which has led to an with Energy Forward Pricing Mechanisms (EFPM). This program’s objective is to manage a large aging bus fleet and deteriorating portion of Metro’s exposure to fuel price swings infrastructure ► SORTA recently completed a reconciliation of all restricted cash accounts and deemed some to be no longer required or completed with a fund balance. These dollars were released back to the general operating account Source: SORTA Comprehensive Annual Financial Reports (“CAFR”) and management team Southwest Ohio Regional Transit Authority: Discussion Document | Page 4 of 42 Prepared solely for Cincinnati USA Regional Chamber & Cincinnati Business Committee. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2. 21 June 2018 | Version 1.0 (Draft) 1 Overview SORTA’s financial picture over the last few years has been impacted by the following items Revenue Sources Ridership FTE and employee costs ► Metro Fare revenue has continued to ► Ridership has trended downwards since 2012 ► Salaries and wages make up approximately decrease due to lower ridership, slightly offset and is projected to decline 3.7% in 2018 vs 46.9% of SORTA’s operating budget and have by smaller increases in fare revenue related to 2017 consistently increased annually, driven in part Access and Cincinnati Public Schools (“CPS”) by the current union contract ► The decline in ridership can be attributed to ► The City of Cincinnati income tax dedicated to low public engagement of mass transit in the ► Operator wages are the largest component support transit operations is a fixed region, acceptable levels of congestion during of salaries and wages consisting of core percentage of earnings that must be requested key commute times, lack of frequency and transit operations hourly employees from and approved annually by the City. The reliability of existing routes ► Transit operations headcount has income tax subsidy has increased over the ► Proposed further restructuring of local and decreased or stayed flat due to more years as the local economy expanded, express routes could also contribute to a stringent policies and a more competitive however it is not fully sufficient to address both further deterioration of ridership job market. Management asserts this has the operating deficit and capital needs caused an increase in overtime required Pension & Benefits Bus Fleet Capital Assets ► Pension and benefit costs continue to increase ► In 2017 there were 357 buses in the fleet with ► Net capital assets figures reflect the value of annually, driven by inflation, statutory an average age of 7.6 years. The average age all buses and SORTA infrastructure less requirements, and CBA contract obligations has continued to increase since 2015 accumulated depreciation ► Medical and workers comp are managed ► More than
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