RIVERSIDE COUNTY TRANSPORTATION COMMISSION

DATE: March 12, 2008 TO: Riverside County Transportation Commission Transit Policy Committee FROM: Brian Champion, Program Manager THROUGH: Anne Mayer, Executive Director SUBJECT: Proposed Augmentation to the Box Recovery Policy

TRANSIT POLICY COMMITTEE AND STAFF RECOMMENDATION:

This item is for the Commission to:

1) Review and approve the addition of the definition of Operating Costs to Calculate Farebox Ratios to the Fare Box Recovery Policy; 2) Review and approve the addition of the definition of Capital-Related Expenses Below Capitalization Thresholds to the Fare Box Recovery Policy; and 3) Review and approve the addition of the definition of Operating Cost Exclusions and Exemptions to the Fare Box Recovery Policy.

BACKGROUND INFORMATION:

The Transportation Development Act (TDA) of 1971 provides two sources of funding for public transit operators (public and ):

• Local Transportation Fund (LTF), which is derived from a ¼ cent of the general sales tax collected statewide; and • State Transit Assistance (STA) Fund, which is derived from the statewide sales tax on gasoline and diesel fuel. • To be eligible for funding, public operators must maintain a ratio of fare revenues to operating costs of at least 10 percent for non-urbanized areas and 20 percent for urbanized areas – referred to as the fare box recovery requirements.

The intent of this report is to augment the current Fare Box Recovery Policy with the addition of a definition of operating costs and capital-related expenses as well as to clarify the Commission’s policy on excluding and exempting the cost of new service from the fare box recovery ratio. Staff presented these proposed changes to the policy at the February 21, 2008 Transit Policy Committee meeting.

Agenda Item 7K Attachments: 1) RCTC Farebox Recovery Policy 2) RCTC Farebox Policy Example of Farebox Calculation 3) Farebox Recovery Presentation

Agenda Item 7K RIVERSIDE COUNTY TRANSPORTATION COMMISSION

Fare Box Recovery

Effective Date: Page 1 of 8 Pages Approved by Commission Action: TBD

INTRODUCTION

To be eligible for Transportation Development Act (TDA) funds, transit operators (public bus and commuter rail) must maintain a ratio of fare revenues to operating costs of at least 10% for non-urbanized areas and 20% for urbanized areas (PUC Section 99268.2).

Intermediate (blended) Fare Ratio

Minimum fare revenues to operating costs for operators serving both urbanized and non-urbanized areas can fall between the 10% and 20% requirement. The Commission, under PUC Section 99268.3 and 99268.4, is responsible for calculating the intermediate ratio. The methodology used to calculate the minimum ratio required consists of the following:

R = .1 Cn + .2 Cu Cn + Cu

R = Required ratio Cn = Non-Exempt Costs of services in non-urbanized areas Cu = Non-Exempt Costs of services in urbanized areas

The intermediate (blended) farebox calculation methodology is developed by the Commission and submitted to Caltrans for review by April 1 preceding the fiscal year for which the calculation takes effect. Caltrans must approve or reject the proposed methodology within 60 days after receiving it (PUC 6645). The Commission reviews and adopts the blended farebox ratios prepared by the operators by June 30. Once approved by the Commission, the fare ratio cannot be changed for the year. Attachment 1 details the Rules and Regulations for determining the intermediate farebox calculation.

Revenues to Calculate Farebox Ratios

Fare revenues consist of all revenues which can be classified as fare revenues for transit services, special transit , and school bus service revenues. Such fare revenues may include revenues earned under contractual arrangements with public or private entities as well as cash donations made in lieu of a prescribed fare (PUC 6611.2).

Operators may supplement fare revenues with local funds and support (PUC 6633.2(g) and 6634(a)(2)). Local funds are revenues derived from taxes imposed by the operator or by the County Transportation Commission (PUC 99268.19). Local support includes all revenues which can be classified as auxiliary transportation revenues, taxes levied directly by the transit system, local cash grants and reimbursements for general operating assistance, local special fare assistance, and subsidies from other sectors of operations (PUC 6611.3). Essentially, local support funds include all other revenues received to support the operations of a transit system and may include, but are not limited to, interest earnings, gains on the sale of capital assets, lease revenues generated by transit-owned property, alternative fueling services, advertising revenues, donations other than cash donations made in lieu of a prescribed fare, and Measure “A” specialized transit operating grants.

Operating Costs to Calculate Farebox Ratios

Operating costs are defined in statute (PUC 99247(a)). The definition is stated as follows:

"Operating cost" means all costs in the operating expense object classes exclusive of the costs in the depreciation and amortization expense object class of the uniform system of accounts and records adopted by the Controller pursuant to Section 99243, and exclusive of all subsidies for commuter rail services operated under the jurisdiction of the Interstate Commerce Commission and of all direct costs for providing charter services, and exclusive of all vehicle lease costs.

Capital-Related Expenses Below Capitalization Thresholds

Capital-related expenses below capitalization thresholds which are funded by capital grant funds are an operating cost. The TDA statute does not include provisions to exclude such capital-related expenses from operating costs to calculate the . For operating expenses to be excluded from the farebox recovery ratio, the exclusions

2 should comply with the definition of operating cost contained in PUC 99247(a), or contained in exemptions under PUC 99268.

The Federal Transit Administration defines operating expenses to be consumable items with a useful life of less than one year and an acquisition cost which equals the lesser of $5,000 or the capitalization level established by the transit operator. Capital-related expenses below capitalization thresholds meet this definition of operating costs.

Operating Cost Exclusions and Exemptions AB813-Salinas – PUC 99268.17

Section I - Americans with Disabilities (ADA) Act complementary service

Operating cost exclusions for paratransit operations are as follows:

Operating costs greater than the previous year’s cost, as adjusted by the Consumer Price Index (CPI), to provide complementary ADA service may be excluded for the fare box recovery ratio. This revised ADA cost exclusion does not expire as the law provides for an extension of this specific provision without any further sunset date.

Section II – Consumer Price Index

For purposes of determining the CPI and to ensure consistency among the Riverside County transit operators, the CPI shall be the “U.S. Department of Labor, Bureau of Labor Statistics for Los Angeles-Riverside-Orange County CA CPI for urban wage earners and clerical workers. RCTC will determine the CPI based on the most recently completed 12 months ended 6/30 over the prior 12 months ended 6/30. Example: For FY 2007/08, CPI was determined based on FY 2006 (June) over FY 2005 (June).

Section III – Extension of Service - definition

As used in the section, “extension of public transportation services (extension of services) “includes additions of geographical areas or route miles, or improvements in service frequency or hours of service greater than 25 percent of the route total, or the addition of new days of service, and for transit service claimants also includes the addition of a new type of service, such as van, taxi, or bus (PUC 99268.8).

3 Examples of an extension of service include:

A. The addition of geographical areas or revenue miles. Example: Route “A” currently 10 revenue miles. Route “A” is extended by 1 revenue mile. The 1 mile extension can be exempt from the fare box recovery ratio. B. Improvements in service frequency or hours of service greater than 25 percent of the route total. The entire route can be exempted from the fare box recovery ratio. Example: Route “B” currently operates 20 revenue hours per day. Route “B” extends service to 26 revenue hours per day. Entire Route “B” can be exempt from the farebox. C. Addition of new service day(s) to an existing route. The new day(s) of service can be exempted from the fare box recovery ratio. Example: Route “C” currently operates on weekdays. Route “C” adds Saturday service. Saturday service on Route “C” can be exempt from the fare box recovery ratio. D. Implementation of entirely new route. Entire route can be exempt from the fare box recovery ratio. Example: New Route “D”, which did not exist prior, commences service. Entire Route “D” can be exempt from the fare box recovery ratio. E. New type of service such as a van, taxi, or bus. Entire new service can be exempt from the fare box recovery ratio. Example: New Route “E”, commuter express service, commences service. Entire Route “E” can be exempt from the fare box recovery ratio.

Section IV – Exclusions and Exemptions

Definition of terms: • exemption of service – means the operators choice to exclude both the fare box revenues and operating costs of an extension of service as defined in Section III.

• non-exemption of services – means the operators choice to include both the fare box revenues and operating costs of an extension of service as defined in Section III.

4 • extension of service exemption/non-exemption period – includes the initial fiscal year, or portion of a fiscal year, when an extension of service was implemented, plus the proceeding two full fiscal years. The extension of service period shall not be less than two full fiscal years or longer than three full fiscal years.

Example: should an operator begin an extension of service July 1 of Year 1, the exemption would be until June 30 of Year 3. Similarly, should an operator begin an extension of service December 1 of Year 1, the exemption would also be until June 30 of Year 3, allowing an exemption of two years and seven months.

Exclusions and exemptions policy:

It is the operators choice to exempt (exclude) or non-exempt (include) an extension of service (as defined in Section III) in the non-urbanized (10%), urbanized (20%) or intermediate (blended) fare box calculation and system-wide Performance Improvement Program (PIP) on an annual basis for the initial year of implementation of an extension of service and proceeding two full fiscal years during the Short Range Transit Plan (SRTP) development process. The operator has the choice to confirm or change the designation (exempt, non-exempt) by September 30 following the close of the fiscal year based on the productivity of the extension of service. The choice to exempt (exclude) or non-exempt (include) an extension of service can be done annually during the exemption period as defined above.

By September 30 following the close of the fiscal year (during the exemption period), the operator is required to submit to RCTC a report that includes the following information for every extension of service (CCR 6633.8):

1. The final designation of exempt (exclude) or non-exempt (include) status. 2. A description of the extension of service. 3. The amount of fare revenues generated by the extension of service and the method used to derive that amount. 4. The amount of the operating cost for the extension of service and the method used to allocate costs between the extension of service and the claimant’s other services.

5 The exemption of services should be reflected in the farebox calculation in the annual State Controller’s Report, as well as in the annual Fiscal and Compliance Audit, during the exemption period.

Illustration: Fare Box Recovery Calculation

Attachment 2 provides an illustrative example of the fare box recovery calculation for XYZ Transit, a transit operator serving Riverside County, based on the aforementioned policies. For illustration purposes, the following assumptions are included in the fare box recovery calculation:

1. Purchased transportation costs were exclusively related to the provision of ADA services; and

2. In fiscal 2002, XYZ Transit implemented an extension of public transportation services. The cost of such services was $200,000 in fiscal 2004. The passenger fare revenues related to this extension of services was $15,000 in fiscal 2004.

6 Attachment 1

RULES AND REGULATIONS FOR DETERMINING REQUIRED FARE REVENUE TO OPERATING COST RATIOS FOR TRANSIT OPERATORS SERVING BOTH URBANIZED AND NON-URBANIZED AREAS OF RIVERSIDE COUNTY

I. Based on the latest annually adopted Short Range Transit Plans for Riverside County, the Riverside County Transportation Commission with the cooperation of the transit operator will determine separately the operating cost of those transit services provided in non-urbanized areas and the operating cost of those services in urbanized areas.

A) For the purpose of this calculation, the operating cost in the urbanized areas shall include the cost of fixed route lines, groups of fixed route lines, and demand responsive service operating entirely within an urbanized area. The operating cost in the non-urbanized area shall include the cost of fixed route lines, groups of fixed route lines, and demand responsive service operating entirely within a non-urbanized area.

B) For fixed route lines operating partly within an urbanized area and partly within a non-urbanized area, the cost shall be apportioned to the urbanized area costs and non-urbanized area costs in proportion to the route miles in the non- urbanized area and the route miles in the urbanized area.

C) For general public demand response systems serving both an urbanized area and a non-urbanized area, the cost shall be apportioned to urbanized area costs and non-urbanized area costs in proportion to the population of the urbanized area served and the population of the non-urbanized area served.

D) The operator has the option to exempt an extension of service which shall occur during the initial year of service and proceeding two full fiscal years upon satisfying the reporting requirements as defined in Section IV.

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II. The required ratio of fare revenues to operating cost in compliance with PUC Sections 99268.3 and 99268.4 shall be calculated as follows:

R = .1 Cn + .2 Cu Cn + Cu

R = Required ratio Cn = Non-Exempt Costs of services in non-urbanized areas Cu = Non-Exempt Costs of services in urbanized areas

III. Annually, prior to the beginning of the fiscal year, the Riverside County Transportation Commission shall calculate the required revenue to operating cost ratio for each transit operator serving both urbanized and non-urbanized areas and submit this calculation to Caltrans. Caltrans shall approve the required ratio prior to the beginning of the fiscal year and the ratio shall not be subject to change.

8 XYZ Transit Example Attachment 2 Statement of Operations For the Years Ended June 30, 2007 and 2006

Year Ended June 30 2007 2006 Operating revenues: Passenger fares$ 100,000 $ 95,000 Advertising revenues 5,000 5,000 Total operating revenues 105,000 100,000

Operating expenses: Salaries, wages and benefits 900,000 810,000 Purchased transportation 500,000 425,000 Services 150,000 145,000 Materials and supplies 400,000 275,000 Casualty and liability 200,000 135,000 Depreciation and amortization 350,000 340,000 Total operating expenses 2,500,000 2,130,000 Operating profit (loss) (2,395,000) (2,030,000)

Nonoperating revenues (expenses): Operating grants: Local Transportation Funds 1,774,000 1,434,000 Measure A specialized transit 25,000 25,000 Capital grants: Local Transportation Funds 250,000 225,000 State Transit Assistance 50,000 25,000 Federal 100,000 80,000 Lease revenues 75,000 72,000 Auxiliary revenues 125,000 115,000 Interest revenue 40,000 41,000 Interest expense (110,000) (110,000) Gain on sale of capital assets 6,000 3,000 Total nonoperating revenues (expenses) 2,335,000 1,910,000 Change in net assets$ (60,000) $ (120,000)

Fare box recovery calculation: Revenues: Passenger fares$ 100,000 Local funds/support: Advertising revenues 5,000 Measure A specialized transit 25,000 Lease revenues 75,000 Auxiliary revenues 125,000 Interest revenue 40,000 Gain on sale of capital assets 6,000 Less revenues related to extension of service (15,000) Total fare revenue and local funds/support $ 361,000

Expenses: Operating expenses$ 2,500,000 Less depreciation and amortization (350,000) Less costs related to extension of service (200,000) Less increase in costs for provision of ADA services (58,000) Calc: [-500,000+(425,000*1.04)] Total expenses 1,892,000

Fare box recovery ratio 19.1% Purpose of Revision

•Revise – Exclusion and Exemption section • allowing greater flexibility for operators Proposed Revision to the • Incorporate definitions of operating and Fare Box Recovery Policy capital costs Riverside County Transportation Commission Transit Policy Committee Presented on February 21, 2008

Brian Champion, Program Manager

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Transportation Development Fare Box Recovery Ratio Act (TDA)

• TDA provides two funding sources • TDA funding eligibility – Local Transportation Fund (LTF) – operators to maintain a ratio of fare • derived ¼ cent of general sales tax revenues to operating costs – State Transit Assistance Fund (STA) • non-urbanized area – 10% • derived from statewide sales tax on fuel • urbanized area – 20% • LTF and STA – intermediate (blended) ratio • services provided in both areas – major revenue source for bus and rail • calculated in proportion to revenues and costs • operating to service each area • capital

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New and Increased Existing Interpretation of Services TDA

• Extension of Services – defined • An extension of service “shall be” – new route excluded from fare box ratios – new type of service – exemption period – existing route • year of implementation • addition of geographical areas or miles • two full fiscal years • increase service frequency or hours • Why exclusion? • additional day(s) of service – TDA encourages new service – assume new service less productive – incubation period to build ridership

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1 Revised Interpretation of Revised Interpretation of TDA TDA, cont.

•TDA – base assumption as expressed by Caltrans • Operators designate status of extension • encourage new service and productivity of service based on performance • help operators be successful – notify RCTC by Sept 30 following the close – did not envision service that could be of fiscal year immediately productive – each year of the exemption period • Revised interpretation • Maximizing operator’s flexibility – operator discretion to include or exclude revenues/cost of new service • exemption period 7 8

Definition of Terms Definition of Terms, cont.

• Operating costs – defined in statute • Capital costs – defined by the FTA to – all costs in the operating expense object mean classes exclusive of: – useful life of an asset of more than one • depreciation and amortization year • subsidies for commuter rail services – an acquisition cost that exceeds $5,000 or • all costs for providing charter services the capitalization level established by the • vehicle lease costs operator

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Recommendations

• Approve the revision of the Fare Box Policy to incorporate: – the revised definition of the Exclusions and Exemptions section – definition of Operating Costs – definition of Capital Costs

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