Report No: 17-234 ,41 Meeting Date: August 9, 2017 Alameda-ContraCosta Transit District STAFF RE PO RT TO: AC Transit Board of Directors FROM: Michael A. Hursh, General Manager SUBJECT: Transbay Fare Schedule Adjustment BRIEFING ITEM RECOMMENDED ACTION(S) Consider and discuss the staff recommendation regarding adjusting Transbay fares for FY 2018/19 through FY2022/23. BACKGROUND/RATIONALE ACTransit's Transbay services have a distinct fare structure from that of localservice. Transbay fares recently changedas part of a larger adjustment to the fare structure but remain tied by formula to the local fare. The District has remaining capital funding obligations for the new TransbayTransit Center('nC) that will require additional funding. In addition the District may have ongoing operations and maintenance funding requirements for the TTC. The District has a remaining capitalcommitment to fund the construction of the new Transbay Transit Center(TTC) of$22.8 million out of a totalof $57 million(both amounts in 2011 dollars with a 4.5-percent discount rate on contributions). The District has until 2050 to pay off the commitment. The Lease and Use agreement signed with the Transbay Joint Powers Authority in 2008 envisioned the remainder of that commitment after initial grant pass-through funding to be paid off by an additionalcharge on top of the regular Transbayfare (a "PassengerFare charge ) Staff developed a set of assumptions and forecasted costs and revenues associated with Transbay service, including capitalcontributions for the new n'C. Staff determined the goalof any fare adjustment should be to maintain the existing farebox recovery ratio of 24.4 percent so any new revenueswould need to cover any increase in cost due to operating in the TTC,at a minimum. The assumptions staff developed are conservative and aimed at ensuring any revenue projections account for the "worst-case" scenario.They are as follows: © Annualoperating cost increases of four percent. © No annual ridership growth. e The Senior/Disabled/Youthfare discount and Monthly passmultipliers would not be changed. e Fare elasticity factor of 0.18, meaning for every one-percent increase in fare, ridership will drop O.18 percent. For example, an increase of seven percent would mean a 1.26- percent decreasein ridership. 8 No additionaloutside funding. 1 of 5 Report No. 17-234 Page2 of 5 The proposal-- summarized in Exhibit lbelow -- brings the single-ride base fare to $7.00 by July 1, 2022, an increase of $2.50 over the current fare over five years. The discount senior/youth/disabled fare willremain approximately one-half the base fare while the monthly passwillcontinue to be 36 times the base fare price Estimated Category FY 2015/16 FY2016/17 Base Fare $ 4.20 $ 4.20 Discounted Fare $ 2.10 $ 2.10 Monthlv Pass $ 151.20 $ 151.20 Total Ridership 4,307,490 4,307,490 While this adjustment seems severe -- it is an increase of 49 percent over five years -- it amounts to ll percent or less each year, and takes Into consideration the District did not increase fares for six yearsbetween 2011and 2017.AC Transit's fares still remain wellbelow someof its peers offering high-quality commuter service, including Golden Gate Transit. Exhibit 2 below includes examples of other transit operators offering commuter service in the San Francisco Bay Area. Some operators have different fares based on distance traveled or "zones." These differences are also illustrated below. Exhibit 2 - Peer Fare Structures Adult CashFare AC Transit Transbay $ 4.50 Golden Gate Transit $ 5.00 SantaCruz Metro Highway17 $ 7.00 In addition to looking at the change in fares across the next severalyears, staff willbring forward a recommendation to change the language in Board Policy 333 which states the Transbay base fare willbe two times the localbase fare. Staff is also reviewingthe monthly passmultiplier which currentlystates monthly passesshould be 36 timesthe price of the base fare. Analysis of patterns 2 of 5 Report No. 17-234 Page3 of 5 among current customers has revealed many use Transbay service fewer than 36 times/month Reducingthe multiplier may be one way to migrate customers towards the monthly pass. The schedulefor public comment, equity analysis, and Board consideration of any changes to the Transbayfare structure is illustrated in Exhibit 3. Exhibit 3 -- Transbay Fare Policy Timeline Complete 7 ' August 9, 2017 e August/Sept ember 2017 ober 25 2017 ober 25 2017 ©January 24 2018 February28, 2018 'July 1, 2018 BUDGETARY/FISCAL IMPACT With the assumptions in the mode] presented in this staff report and detai]ed in Exhibit]. above, operating cost for Transbayservice would increase four percent each year and go from $41,214,514 in FY 2015/16 to $54,235,489 in FY 2022/23. The proposed fare adjustment would amount to an additional $5,158,722 by FY 2022/23, raising the farebox recovery ratio to 26.8 percent, thus meeting the goalof at least matching the current ratio of 24.4 percent. ADVANTAGES/DISADVANTAGES Advantages This proposal -- as modeled - ensures Transbay Service will continue to recover the same percentageof operatingcost through fares as it doescurrently. Openingthe newTTC brings with it significant costs and this proposalstrikes a balance between increasing fares for customers and ensuring high-quality Transbay service is available for years to come. Disadvantages Raisingfares drives up the cost of using the service for customers, and this proposalincludes an increaseof$2.50 over the current base fare of$4.50. The model assumesthat for every one- percent increase in fares, ridership will decline by 0.18 percent. This amounts to a ridership decline of 9.6 percent, or about 413,000 fewer riders per year in FY2022/23. 3 of 5 Report No. 17-234 Page4 of 5 ALTERNATIVES ANALYSIS This proposalis one of many options the Board could consider with respect to adjusting Transbay fares. Several options are discussed below: 1) Continue with current adopted fare adjustment of$4.70 in July 2018 Thisis the current path for the District, if no action is taken, the Transbaybase fare will have increased to $4.70 on July 1, 2018 and no further increases are planned. Staff included this as an alternative when conducting forecasts with the same model used for the staff recommendation above. With an assumption of no loss in ridership due to fare elasticity, this willresult in just under $1.2 million/year in revenue starting in FY2018/19, reducingthe farebox recovery rate from 24.4 percent today to 19.8 percent in FY2022/23. If the modelassumesthe sameO.18 fare elasticity multiplier asused in staff's conservative recommendation, the adopted fare increase willresult in$964,000 in additionalrevenue starting in FY2018/19, resulting in a farebox recovery ratio of 19.4 percent in FY2022/23. 2) Adjust assumptions in the model Staff is using a conservative set of assumptions for the purposes of developing the recommendation in this staff report. However, the model is flexible and the Board could direct staff to assumethere will be no loss of ridership due to fare elasticity or that ridership will increase,thus driving up fare revenue. The Board could also direct staff to reduce the forecast four-percent increase in operating cost or include potentialoutside revenuesources that would supplementfare revenue. The latter could be likely with the potential for revenue from the TTCfor naming rights, a potential allocation from RM-2 for operating the TTC,and a future revenue source from RM-3 should it come to fruition. 3) Set new goal for revenue The primary target used to refine this proposal was ensuring the Transbay farebox recovery ratio was at least the same in FY2022/23 as it is today -- 24.4 percent. The staff recommendation results in a farebox recovery ratio of 26.8 percent, achieving that goal. The Board could direct staff to evaluate other targets, such as a specific revenue figure or a goalof recoupingthe entire cost and any future operating cost. These may require more significant increasesin the Transbay fare. PRIOR BELEVANIBOARD ACTION/POUCHES Board Policy 333 -- Fare Policy: Fares,Fare Structure, and Fare Increases Board Resolution No. 13-046 Board Resolution No. ].6-009 Staff Report 16-047 - BoardPolicy 328- FarePolicy Staff Report 17-017 -- Scheduled Fare Increase -- July 1, 2017 Staff Report 17-030 - Board Policy 333, AC Transit EasyPassFares for 2017 and 2018 ATTACHMENTS None Approved by: Michele Joseph, Director of Marketing & Communications Reviewed by: Robert del Rosario, Director of Service Development & Planning DeniseC. Standridge,General Counsel 4 of 5 Report No. 17-234 Page5 of 5 Claudia Allen, Chief FinancialOfficer Beverly Green, Director of Legislative Affairs & Community Relations Michele Joseph, Director of Marketing & Communications Chris Andrichak, Director of Management & Budget Prepared by: Michael Eshleman, Service Planning Manager 5 of 5.