June / July 2020 All Aboard is a news bulletin for employees/retirees of the Alaska Railroad. The emailed version includes short briefs with links to longer stories or more information, most of which are posted on our employee website, Inside Track, https://insidetrack.akrr.com/. CORE VALUES: SUSTAINABILITY CARES Act money to help fill capital funding gap As announced by CEO Bill O’Leary in late July, the Alaska Railroad is getting some funding from the Coronavirus Aid, Relief and Economic Security (CARES) Act. Below are answers to some frequently asked questions about this funding. Why did we get CARES Act money? The act recognizes that public transportation agencies have been hard-hit by the pandemic. As providers of public transportation, Federal Transit Administration (FTA) grant recipients (like ARRC) were identified to receive CARES Act funds to support transportation infrastructure and services. What is the purpose of CARES Act money flowing through FTA? CARES Act funding is not meant to encourage recipients to come up with new projects. Rather, funding should support ongoing infrastructure needs. The funding is made available through an appropriation bill, the CARES Act, because the federal government recognized that transportation agencies have suffered tremendous cash losses, making it difficult, if not impossible, to fund essential capital investments and improvements. FTA expects ARRC to use the funding to keep our system in a state of good repair and help fill in for revenue shortfalls resulting from the pandemic. This is certainly the case for ARRC, which saw its 2020 budgeted $22 million net income become a forecasted loss of at least $9.3 million. ARRC’s net income is typically used to internally fund projects or to provide the required cash match for federally-funded projects. Negative revenue impacts are likely to continue into 2021, or longer. How much did we get and how did Congress calculate the amount? Nearly $94 million. CARES Act funding was calculated by tripling the amount of a recipient’s 2020 FTA grant allocations. For Anchorage, funding was calculated to be $32.14 million (triple our 2020 FTA 5307 amount), plus $65.43 million (triple our 2020 FTA 5337 amount). (continued on next page) These amounts were combined and came packaged as a $98 million lump sum through the 5307 FTA program to Anchorage. Because it came through 5307, it was subject to the split agreement with the Municipality of Anchorage (MOA). This money was held up for months due to the same “split letter” impasse that has plagued our regular FTA 5307 funding. In mid-July, a split letter was finally signed after ARRC agreed to give MOA $5 million of the rail-generated-funds. In exchange, MOA agreed to split 2021 FTA 5307 funds along modal lines (bus funds to MOA, and rail funds to ARRC), thus avoiding the annual impasse next year. So, for Anchorage, we receive $32.14 + $65.43 - $5 = $92.57 million. We are receiving another $1 million, based on our Fairbanks-based 5337 allocation. Since this also came through the 5307 FTA program, a split document was also accomplished (without any problems) with the Alaska Department of Transportation & Public Facilities. How can we spend this money? In two ways: • To cover COVID-19 related expenses like purchasing masks or expanding janitorial contracts to add more disinfection tasks; or • To make expenditures that are eligible under FTA 5307 rules — for activities that support regularly scheduled passenger services. For more information on eligible expenditures, see story below, A primer on FTA formula grant funding. How are we deciding how to spend this money? Regardless of the source FTA formula, FTA CARES Act, or internal funds we follow our normal asset management and capital planning process, in which departments define and submit their needs. Requests are reviewed by our Capital Projects Evaluation Working Group. Standard criteria are used to score project requests in order to prioritize them. Recommendations are then considered by senior managers and the board’s executive committee. Final recommendations are approved by the ARRC Board of Directors. How long do we have to spend the money? While the FTA encourages spending to meet immediate local needs, there is no expiration date. Can the money be used to keep from laying off railroad employees? No. While this money can reimburse some specific COVID-19 related costs as noted above, it cannot be used to pay general payroll costs. This funding is not like funds provided by the Paycheck Protection Program, which was designed to give small businesses (under 500 employees) incentives to keep their workers on payroll. CORE VALUES: SUSTAINABILITY A primer on FTA formula grant funding When we consider how the CARES Act funding can be used, it’s helpful to understand its packaging as Federal Transit Administration (FTA) funding. Why is this FTA funding called 5307 and 5337? The FTA 5307 and 5337 grant designations come from federal law U.S. Code (USC) 49, Transportation, Chapter 53 where the funding is authorized, and spending eligibility is explained. FTA 5307 refers to 49 USC Section 5307, Urbanized area formula grants. FTA 5337 refers to 49 USC Section 5337, State of good repair grants. Formula amounts are calculated using such data as passenger statistics and census population. (continued on next page) All Aboard Alaska Railroad employee news bulletin June / July 2020 Page 2 Section 5337 grants must be spent to replace or keep existing assets in a state of good repair to provide public transportation along a fixed guideway. While 5307 grants can support existing infrastructure, they can also support expansion or new improvements. When did the railroad start getting FTA grants? Congress began providing section 5307 money to ARRC in 1998. In 1999, ARRC began receiving section 5309, Fixed Guideway Capital Investment Grants. In 2013, FTA introduced the 5337 classification nation- wide and our 5309 funding was redirected to 5337. Today, ARRC receives 5307 and 5337 grants. Why does ARRC get FTA grants? Because we meet the federal law’s definition of public transportation, meaning we provide regularly scheduled shared-ride transportation to the general public. We receive FTA funding based solely on our scheduled service, not from charters, special trains or pull contracts, or any freight-related service. How does Congress determine how much FTA grant funding to authorize? A key source of FTA funding is the highway tax fund, which underwrites both Federal Highway Administration and FTA budgets. Grant amounts are based on what’s available in the federal budget. How do we typically spend our FTA grants each year? A sizable portion goes to repay bonds and passenger preventive maintenance. Our 5-year Capital Plan found at AlaskaRailroad.com > CORPORATE > Leadership > Reports indicates how remaining funds are spent on capital projects ranging from locomotive overhauls to bridge replacements. All expenditures must be related to public transportation services. We cannot spend FTA funds on infrastructure that is not related to regularly scheduled passenger service for example, not on freight railcars or along the Eielson Branch. How does FTA know that we are spending our FTA grants properly? The Alaska Railroad dedicates significant time and staff resources company-wide to a) properly account for grant expenditures; and b) remain in compliance with applicable laws (such as the Americans with Disabilities Act) , FTA regulations and rules, grant agreement requirements (such as quarterly reports), and our own policies and procedures. In addition, our financial auditors annually conduct a Federal Single Audit that is focused on grant-related activities and compliance with grant requirements. Every three years, FTA sends a team to review our grant-related activities to ensure we are good stewards of FTA funds. If our 2019 FTA Triennial Review is any indication (no discrepancies!) we’re doing a good job of it. BUSINESS NEWS Summer season brings lessons in adaptation (Note: story links lead to news releases posted on AlaskaRailroad.com > CORPORATE > News / Media > Press / Media.) Over the past five months, the Alaska Railroad has had to continually adapt our passenger business as COVID-19 alters the transportation landscape. By early April, in line with public health agency recommendations, we delayed the start of our summer season by six weeks. To ease the minds of travelers, we offered flexible reservations, and outlined protective measures including social distancing, face coverings, hand sanitizer stations, and frequent disinfection/cleaning protocols. As the summer season got underway July 1, we merged the summer Hurricane Turn flagstop service onto the Denali Star due to reduced ridership. To spur sales, we offered rail travel discounts and specials on rail-lodging-activity packages. By late July, in light of mounting losses, we announced service revisions, including a shorter Coastal Classic season and fewer Denali Star trains. These latest changes are effective Aug. 2. (continued on next page) All Aboard Alaska Railroad employee news bulletin June / July 2020 Page 3 While we don’t yet know how our Aurora winter train service will fare, the last half of our summer season should provide some clues. Even amid the fluid uncertainty, our employees inspire confidence. Railroaders have been quick to modify their work environments, adopt varying work schedules, and take important precautions. That’s been a big factor in how we’ve managed change so far, and how we continue to adapt moving forward. Marketing Communications Manager Meghan Clemens talks to a reporter covering the first day of daily summer passenger service on July 1. (photo by Tim Sullivan) From the executive offices on the third floor of the railroad’s headquarters building, Corporate and Executive Administrator Lorine Hall captured this view of the season’s first train preparing to leave the Anchorage Historic Depot.