TSCC Budget Review 2016-17

TriMet

1. Introduction to the District:

The Tri-County Metropolitan Transportation District (TriMet) boundary covers about 575 square miles of the urban portions of Multnomah, Clackamas and Washington Counties.

A seven member board governs TriMet without compensation. The commission members are appointed by the governor and are subject to confirmation by the State Senate.

Employer payroll taxes, passenger revenues, and federal and other grants are the main sources of revenue for TriMet. Other permitted financing sources, not presently used, include business license fees, property taxes for operations, and a 1% maximum income tax. While TriMet does not have a permanent tax rate, voters approved general obligation bonds for Westside Light Rail which were retired in 2012. TriMet does not levy a property tax.

TriMet was established to provide mass transit: bus, light rail, and LIFT door-to-door services. Passenger facilities include:  603 buses on 79 fixed route lines with 6,742 bus stops;  253 LIFT buses and 15 vans that provide service to the elderly and disabled.  127 MAX vehicles that run on 52 miles of track with 87 stations  15 mile Westside Express Service (WES) commuter rail to Wilsonville  7.5 miles was added to MAX lines in September 2015 extending service to Milwaukie

TriMet also operates the City of Portland’s Streetcar.

2. History:

Previous to creation of the Tri County Transit System, some 34 companies had served the Portland area in the previous 100 year period. TriMet began servicing the area December 1, 1969. By 1973 they had completed an action plan to reverse the transit system’s decline, consolidating all local bus service under TriMet and expanding the number of buses. In 1975 they began operating Fareless Square in downtown with buses only on 5th and 6th Avenues. The downtown Transit Mall opened in 1977. In the early 90’s construction began on MAX (Metropolitan Area Express) Blue and Red lines (to Gresham and the Portland Airport) opening in early 2000’s. The Blue line was extended to Hillsboro. The Yellow line to Expo Center followed opening in 2004. In 2009 the Green line downtown to Clackamas Town Center added another 8.2 miles to the existing 44 miles of transportation. Cars were allowed on the newly designed transit mall which would include the MAX line and “bus only lanes”. Also added in 2009 was the WES (Westside Express Service) Commuter Rail line adding alternative travel from Beaverton to Wilsonville. In summer of 2012 Fareless square was discontinued. In 2015 a new bridge crossed the . It is the first bridge of its kind in the United States, carrying light rail trains, buses, streetcars, bicyclists and pedestrians. The “Orange Line” to Milwaukie opened in September with the completion of TriMet April 20, 2016 TSCC 2016-17 Budget Review Page 2

Tilikum Crossing, nicknamed “The Peoples’ Bridge”. Over the years various ways of collecting fares has changed from cash only to a wide variety of payments including the use of smartphone apps, ticket vending machines using credit/debit cards, payments online, as well as the ticket office at Pioneer Square. TriMet is currently working on another innovative way to pay called which will make paying the fare faster and more convenient to be introduced in 2017.

2015-16 Year in Review In 2015-16 TriMet:  Completed the MAX Orange Line to Milwaukie, on time and $48 million under budget, (currently averaging 11,000 rides per week)  Added 77 new busses to the fleet; 60 replacement buses and 17 expansion buses  Advanced E-Fare Program to the critical testing stage to make sure all devices communicate with each other  Brought the Positive Train Control on WES to 80% completion. This was a federal mandate, The Rail Safety Act of 2008, on all railroads which operate passenger rail service such as WES. TriMet is on track to meet scheduled deadline .  Ridership is expected to finish the year 0.04% above 2014-15.  Received a AA/AAA bond rating, the highest rating possible  Increased transfer time for passengers to 2.5 hours  Passenger Fares will remained at the current rate, $2.50 (Honored Citizen fare $1.25)

TriMet recovers only a portion of the cost of operations for each service provided. The following chart provides a look at “fare cost and recovery” or the percentage of operating costs that are paid by users of the system in 2015.

BUS LIGHT RAIL WES LIFT System Cost Per Boarding $3.83 $2.92 $14.45 $35.58 Average Fare Per Boarding $1.10 $1.22 $ 1.10 $ 1.17 System Fare Recovery (Percentage) 28.7% 41.9% 7.6% 3.3%

3. Strategic Plan/Performance Objectives (Resolution 14-07-37)

1. Fiscal Policy A) One-time only money to support one-time only expenditures B) Continuing revenues support continuing expenditures and one-time expenditures C) When continuing revenues fall short of continuing expenditures, continuing expenditures must be reduced or continuing revenues raised. 2. Unrestricted Fund Balance and Contingency Policy A) Begin each fiscal year with an unrestricted fund balance equal to no less than 2.5 times average monthly operating expenditures. B) If unable to meet this expectation in a given year the agency must institute a plan to restore the unrestricted fund balance level within 1-3 years. 3. Debt Management Policy A) Debt service on senior lien payroll tax revenue bonds must be less than 6% of continuing revenues throughout the long-term forecast. B) Seek a Credit rating that achieves a balance between minimizing borrowing costs and maximizing financial flexibility.

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4. Fare Policy A) Financial: Strive for financial growth in ridership and passenger revenue o Pricing strategy keeps pace with cost of service o Encourage pre-payment of fares o Leverage electronic fare collection o Pursue industry standards in pricing for reduced fare categories B) Customer experience: improve customer experience while achieving operational efficiencies o Design fares to be simple to understand, easy to use and convenient to purchase o Consider impact on customers and equity when changing fares o Support simple and effective fare enforcement o Strike a balance between service quality and cost. C) Transit equity: Mitigate fare cost for low-income, transit-dependent riders o Reduce barriers that keep these riders from using transit D) Public Engagement: Inform and engage communities in decision making

5. Capital Asset Management (Capital Improvement Plan) A) Annual inventory and condition assessment of capital assets o Repair and replacement schedules o Investment priorities o Lifetime evaluation and maintenance plan for each asset class

6. Pension Funding Plans A) Board approved pension funding plans for TriMet’s two closed defined benefit pension plans which provides a process for determining appropriate contributions to the plan on a regular basis to achieve fully funded status within the approximate weighted average working life of the active participants in the plans.

4. Analysis of the General Fund:

The General Fund is the district’s only fund, used to account for all revenue and expenditures. Payroll tax revenue accounts for 60% of TriMet’s operating revenue. In September 2015 TriMet board voted to increase this tax on January 1, 2016 by 0.01% of the wages paid by the employer and the net earnings from self-employment for services performed with the TriMet district boundary.

Beginning fund balance:  Total $316 million Beginning Balance  Restricted amount $173 million 600  Unrestricted amount $144 million  TriMet's Unrestricted beginning 500 fund balance meets board 400 requirement of 2.5 months’ operating expenses 300

$ $ Millions 200 100

0 2013-14 2014-15 2015-16 2016-17 TriMet April 20, 2016 TSCC 2016-17 Budget Review Page 4

Effective January 1 the payroll tax rate increased Resources from 0.7237% to 0.7337%. 2016-17 This increase is expected to generate $4.3 million in Federal & State revenue this year. These 11% dollars are dedicated to new Payroll Taxes 46% and expanded service. This Passenger is a priority of the board and Revenue this budget. Payroll taxes 17% make up 46% of TriMet’s total revenue, while Capital passenger revenue Program contributes 17%. The 5% Light Rail Local Grants, Federal and State Grants Program Pass-thru & include $57 million ear- 17% Other marked for Preventative 4% Maintenance while the Light Rail Program dollars total $125 million and is from federal grants from the PMLR project. The category labeled “Local Grants, Pass-thru & Other” includes advertising, service contracts and pass-through monies.

TriMet FY 2016-17 Approved Budget Resources Dollars in Millions Change 2015-16 2016-17 Increase/(Decrease) Estimate Budget $ % Beginning Fund Balance 239 316 77 32% Operating Revenue: Payroll Taxes 312 339 27 9% Passenger 118 121 3 3% Advertising 3 4 1 7% Accessible Transportation 6 6 0 0% Contracted & Special Service 8 8 0 0% Federal 85 86 1 1% State 1 1 0 0% Local 7 7 0 -0% Other 4 4 0 0% Interest 0 0 0 0% Subtotal Operating Rev 546 576 31 6% Other Transactions: Pass Through Resources 67 131 64 97% Debt Proceeds 126 23 -103 -82% Total Revenue 738 730 -8 -1%

Total Resources 977 1,046 69 7%

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Total Requirements increase to $1,046 Million from the current year estimate of $977 million, an increase of $69 million (7%). The significant increase in debt service is due to a one-time debt service payment of $225 million. But for that payment, the 2016-17 budget is lower than the estimated expenditures for this year.

TriMet Approved Budget Requirements ($Millions) 2013-14 2014-15 2015-16 2016-17 Actual Actual Estimate Budget Personnel Services $ 281 $ 283 $ 313 $ 329 Materials & Services 159 133 125 139 Capital Outlay 391 255 186 138 Debt Service 38 21 35 265 Pass-Through Funds 8 5 1 6 Fund Transfer 2 - - - Contingencies - - - 22 Total Appropriations $ 879 $ 697 $ 661 $ 900 Ending Fund Balance 211 239 316 146 TOTAL REQUIREMENTS $ 1,089 $ 936 $ 977 $ 1,046

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Requirements By Function 2016-17 Contingency/ Operations 37% Other 3% OPEB & Pension UAAL 6% General & Debt Service Administrati 30% ve 8% Capital Capital Projects Programs 1% 15% Personnel Services

Personnel Services costs are budgeted to increase 5% over current year estimate. Part of that increase is due to increased staffing and part is due to salary increases for non-represented employees. No increases are budgeted for represented employees.

TriMet has budgeted 2,439 represented employees and 442 non-represented employees for FY17.

Total FTE is increasing by 3%, from 2,798 to 2,881. Increased service (more buses running), capital repairs and maintenance, and system upgrades (e.g. Fare System Replacement) account for these staffing increases.

The budget includes funding for up to 3% merit and cost of living increases for non-union employees. Non-union employees have received wage increases on an average of every other year, recently. The represented employees do not have a budgeted wage increase as the contract expires in the first half of the new fiscal year. Recent history for represented employees is 3% annually.

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Approved TriMet Personnel Services Budget for 2016-17 All Dollars in Thousands

2015-16 2016-17 Increase/(Decrease) Estimated Budget Dollars Percent General Manager $1,139 $1,290 $151 13% Public Affairs $6,990 $7,774 $784 11% Safety & Security $1,651 $1,668 $17 1% Information Technology $6,021 $6,570 $549 9% Finance & Administration $9,574 $10,307 $733 8% Labor Relations & HR $2,263 $2,550 $287 13% Legal Services $1,771 $1,810 $39 2% Operations $232,631 $246,226 $13,595 6% Capital Projects $2,675 $1,334 ($1,341) -50% OPEB and Pension UAAL $48,643 $49,681 $1,038 2%

Total Personnel Services $313,358 $329,210 $15,852 5%

Materials and Services

Materials and Services expenditures are budgeted to increase $14 million (11.2%) in 2016-17.

The most significant increase in M&S was in the Finance and Administration division and the Technology division.

Information Technology’s budget increased by over 98% with the Communication Systems Maintenance within this division increasing $88 thousand or 23% and a new line item, Contracted Maintenance-Fare-Equipment adding another $174 thousand.

The Finance and Administration Division’s M&S budget increased 87% or over $4 million. This comes mainly from the Insurance Programs Department, with railroad liability insurance increasing from $104 thousand to $1.8 million. This increase is due to transferring this insurance line item from the Operations Division in order to house all insurance costs in one division. It also includes extra premium for adding a higher limit requirement with the addition of the Orange Line.

Always of interest is the cost of diesel fuel which is budgeted at $2.05 per gallon; a $0.55 drop over the previous budget. Even with the 4.33% bus service increases, the total cost of diesel is expected to decrease 23% to $11.4 million for revenue vehicles.

Approved TriMet Materials and Services Budget for 2016-17

All Dollars in Thousands

2015-16 2016-17 Increase/Decrease

Budget Budget Dollars Percent General Manager $536 $594 $58 11% Public Affairs $6,278 $7,611 $1,333 21% Safety & Security $14,874 $15,788 $914 6% Information Technology $2,191 $4,332 $2,141 98% Administration $4,837 $9,043 $4,206 87% Labor Relations & HR $1,109 $1,206 $97 9% Legal Services $255 $269 $14 6% Operations $92,330 $97,397 $5,067 6% Capital Projects $2,122 $2,295 $173 8%

Total Materials & Services $124,532 $138,535 $14,003 11%

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Retiree Benefits

TriMet has put in motion a long term plan to eliminate the unfunded accrued actuarial liability (UAAL) of the pension system in 15 years. A policy was adopted in 2014-15 of contributing $30 million annually to eliminate this obligation. The union portion of the UAAL will receive $25 million annually for 15 years. The non-union program will receive $5.5 million annually for ten years. This budget adheres to this policy.

The post-employment life and health insurance benefit is funded on a pay-as-you-go basis. The FY16-17 budget includes $20.2 million to pay these benefits. When the pension UAAL is eliminated, then TriMet will begin prefunding the post-employment insurance program.

Capital Outlay

As mentioned earlier, capital maintenance and bus replacement are priorities in this budget. To Capital Outlay that end capital spending will include:  $ 5 million on light rail and track replacement 500  $ 4 million for security cameras 400  $ 6 million for the electronic fare system  $25 million on replacement/expansion buses 300  $ 5 million on Elevator Replacement /Refurb-

ishment 200 $ $ Millions  $ 3 million on SW Corridor Project  $ 3 million on Powell-Division Corridor 100  $ 7 million Bus Dispatch Replacement 0  $ 3 million for Lift Vehicle Replacement 2013-14 2014-15 2015-16 2016-17  $ 6 million on Powell Master Plan & Lift Replacement

TriMet has budgeted another $67 million for various other Capital Program expenditures.

5. Analysis of other Funds: TriMet budgets all their resources and requirements in the General Fund.

6. Debt Status: Debt proceeds will total $23 million in the 2016-17 budget, a decrease of $103 million over the amount budgeted in 2015-16. Debt proceeds may be issued for major projects such as:  Bus maintenance facility replacements  Vehicle additions or replacements  Light rail vehicles  Line extensions

The District used Revenue Bonds for adding MAX lines and various extensions to the light rail system, as well as WES upgrades. Revenue Bonds were also used to finance the bus communication replacement.

TriMet also uses Lease Purchase agreements for office equipment.

TriMet Outstanding Debt 6-30-2013 6-30-2014 6-30-2015 6-30-2016 est.

Revenue Bonds (includes 711,080,000 683,315,000 664,860,000 689,380,000 interim financing) Lease Purchase 257,563 145,876 61,537

Total Debt Outstanding 711,209,266 683,460,876 664,921,537 TriMet April 20, 2016 TSCC 2016-17 Budget Review Page 9

In June 2011 TriMet issued $142 million in Capital Grant Receipt Revenue Bonds for capital projects including new buses, construction on the Milwaukie light rail project, and other projects. Debt service payments on these bonds are offset by regional Surface Transportation Program and Congestion, Mitigation & Air Quality grants.

In 2012-13 TriMet issued $93 million in Senior Lien Payroll Tax Revenue Bonds for capital projects including new buses. They also issued $325 million Payroll Tax and Grant Receipt Revenue Bonds for Portland Milwaukie light rail interim financing. Interim financing is needed to complete the project in advance of the federal funds, which are expected to be received annually between FY12 and FY19 four years after the project will open for service. Interim financing interest and principal is paid for by project revenues.

In 2015 TriMet issued $134.6 million in revenue bonds refunding 2005A, 2007A and 2009A series and providing approximately $80 million to pay costs of transit-related capital projects including the Electronic Fare system and partial funding of replacement fixed route buses.

7. Is the Budget in Sync with Strategic Plan/Performance Objectives

Yes, this budget will:  Restrict one-time only money to one-time only expenses  Maintain adequate unrestricted fund balance  Maintain debt service within defined parameters  Increase service, improving schedule reliability and the customer experience  Continue working toward completion of a new electronic fare system  Address essential capital maintenance and replacement which had been deferred  Manage debt service  Maintain unrestricted fund balance in line with the strategic plan  Make contributions to the unfunded liability

8. Budget Process & Budget Compliance

Yes No Compliance Issue X Did district meet publication requirements? X Do resources equal requirements in every fund? N/A Does the G.O. Debt Service Fund show only principle and Interest payments X Are contingencies shown only in operating funds? X Did budget committee approve the budget? N/A Did Budget committee set the levy? X Does audit show the district complied with budget law (no over-expenditures or budget violations)?

9. Highlights of the 2016-17 Budget to be published in TSCC Annual Report:

 The total budget increased $69 million, from $977million to $1 billion (7%).

 TriMet is implementing an increase of 0.01% in the payroll tax rate bringing it to 0.7337%.

 New busses will include 33 replacement buses and 17 expansion buses. With these additions, service will increase 4.3%.

 There will be no increase in passenger fares.

 Included in this budget is $22 million dedicated to the E-fare Project.

 TriMet has budgeted $135 million for various Capital Program expenditure