Fourth Quarter December 2015 Table of Contents Letter to the Board of Trustees .......................................................... 1 Financial Analysis ................................................................................ 2 Critical Success Factors ...................................................................... 14 DBE Participation/Affirmative Action ................................................ 18 Engineering/Construction Program .................................................. 22 2 From the CEO RTA “Connects the Dots” and also connects the region with opportunities. It was an honor to represent RTA at the ribbon-cutting for the Flats East Bank project that relies on RTA to transport their visitors and their workers to this new world-class waterfront attraction. RTA also cut the ribbon on its new Lee/Van Aken Blue Line Rail Station in Shaker Heights. This modern, safe and ADA accessible station will better connect residents to all the region has to offer. Our hard work throughout the year did not go unnoticed. RTA received accolades by way of Metro Magazine’s Innovative Solutions Award in the area of Safety for taking an aggressive approach to increase operator safety and improving driving behavior and creating a safer experience for transit riders with the use of DriveCam. Speaking of hard work, it truly paid off when RTA Board Member Valerie J. McCall was elected Chair of the American Public Transportation Association. RTA is proud of this accomplishment. Not only does this bring positive attention to Greater Cleveland RTA, but this allows Chair McCall to help shape what the future of the industry will be. RTA is certainly the only transit system in the nation to have two APTA Chairs (past and present) serving on its Board of Trustees. Congratulations Valarie J. McCall and George Dixon!!! During the quarter, RTA received the Silver Commitment to Excellence from The Partnership for Excellence, recognizing the Authority's continued efforts toward obtaining the Malcolm Baldrige National Quality Award. RTA is the first transit agency in Ohio to receive this recognition. This award is to acknowledge those organizations for their pursuit of excellence by implementing successful management systems in the area of leadership, strategic planning, customer focus, performance management, human resource management, and success management. Another highlight of the quarter was a special visit from Secretary of Labor Thomas Perez. He visited RTA to commemorate the first National Apprenticeship Week, and to announce two Department of Labor Grants for RTA. Perez engaged in a panel discussion at Cuyahoga Community College along with members of RTA and praised RTA’s success in its development and training efforts. Lastly, I’m proud to say that I was named one of Governing Magazine’s “Public Officials of the Year”. I owe this recognition to the great team we have assembled at RTA, the working relationship between the Board and staff and with our business and non-profit community. Beginning with an in-depth Financial Analysis, the enclosed report details the activity and operating results of RTA through the fourth quarter of 2015. The eight TEAM performance measures, which are detailed in this report, continue to be at the core of our operating philosophy. Additional quarterly updates are included for DBE participation, Affirmative Action, and a status update on our Engineering and Construction activities. The intent of the Quarterly Management Report is to provide information to assist you in carrying out your oversight role and statutory responsibilities as the Governing Board of the Authority. Sincerely, Joseph A. Calabrese, CEO Financial Analysis GCRTA has improved processes, reduced costs, established a new strategic plan and managed very well over the past five years. TransitStat has helped reduce costs by nearly $64 million. RTA had very strong year-end balances, in excess of $35 million, at the end of 2011, 2012, and 2013. The balanced dropped for 2014 to $26.9 million but was above the 30-day reserve goal, marking the fifth straight year that the 30-day reserve was exceeded. The balance was $11.3 million less than 2013. Expenses increased sharply in 2014 as fringe benefits costs were $2.7 million above projection. RTA took conservative actions for the 2015 Budget to try to keep this fall in fund balance from continuing. Revenues generally did well in 2015. Fringe benefits were very high once again with $4.0 million of health care costs received in the last three weeks of the year. When coupled with retro payments to ATU on their contract settlement, expenses got a real jolt in December. Sales & Use Tax provides over 70% of the revenue for the Authority. Thus, Sales Tax collections are vital to establishing the operating levels of the Authority. We have had an excellent recovery since 2009. Collections increased in 2011, 2012 and 2013 by roughly 5% each year. For 2014, total collections for Sales & Use Tax equaled $197.1 million, 1.5% above budget and 3.9% above 2013 collections. Based on this, the Sales Tax projection for 2015 was revised at the beginning of the year to $201.4 million. Receipts for the first three quarters caused us to raise the year-end projection to $206.4 million. The month of December dropped off slightly and RTA ended the year at $205.8 million in collections. Passenger Fare collections, the second largest source of operating revenue, has also recovered from the drop caused by the Recession. Ridership increased steadily in 2011, 2012 and 2013. Passenger Fare revenue for 2012 totaled $49.2 million. Cleveland Metropolitan School District (CMSD) paid $1.1 million for 2013 student tickets in January 2014. This occurred again in 2014. RTA was paid $1.9 million for 2014 in June 2015. Ridership for the first quarter of 2014 and 2015 was affected by cold weather. These difficult winters caused many schools and businesses to close, which reduced travel in general, including transit. Fare Revenue for 2014 was $49.1 million and projected at $50.1 million for 2015. Ridership never recovered from the slow winter start and ended the year below expectation. Low fuel prices may have caused choice riders to drive and revenue dropped to $48.4 million, about $1.6 million below budget. The Great Recession reduced revenues. Revenues recovered in 2011, 2012, and 2013. By the end of 2012, total resources had increased from $269.9 million to $293.7 million. Consequently, RTA was able to shift some resources from operating funds to capital by reducing reimbursed expenditures. Revenues increased more modestly but they still increased. Total Resources ended 2013 at $305.0 million. This was GCRTA’s first $300 million total resource year. Total resources for 2014 were $312.3 million. The Authority was above the $300 million level for the second year. For 2015, total resources was $308.3 million. This was a $4 million drop. Revenue was $7.6 million higher than 2014 but the carry forward balance for 2014 was $11.6 million less than 2014. Operating expenses were low from 2011 through 2013 with expenses at $210.3 million, $220.9 million and $231.0 million, respectively. For 2014, personnel costs were $2.0 million above budgeted levels due to a 27th pay for ATU Operator and Hourly personnel, retired employees’ payments, a health-care contract ending above expected levels, and overtime and fringe benefit claims increasing. Operating expenses jumped to $248.1 million in 2014. The 3rd Quarter 2 estimate for 2015 was $247.1 million, but the large increase in fringe benefits at year end bumped that to $251.7 million, a 1.5% increase for the year. The End of Year Balance increased from $2.9 million in 2009 to $20.2 million in 2010. For the next 3 years, RTA maintained an ending balance over $30 million. Reimbursed expenditures were reduced and funding was used for capital projects and bus replacement, while maintaining a healthy balance in the operating budget. Sustaining the $30 million balance in 2014 was difficult with the increase in operating costs and the ending balance totaled $26.9 million. The budgeted ending balance for 2015 was $13.1 million. The RTA financial goal is to achieve at least a 30-day reserve. The 3rd Quarter estimate for year-end balance for 2015 was $25.9 million. The delay in revenues decreased the balance to $21.2 million and the increase in fringe benefit costs dropped the ending balance further to $16.9 million. This is $3.7 million above budget but does not meet the 30 day operating reserve goal for the year. It is $9 million below the third quarter estimate and will make a difficult 2016 even more difficult. Capital expenditures: Expenditures within the two capital budgets of the Authority, the RTA Capital Fund and RTA Development Fund completed the year a combined $102.8 million. This continued the growth in Authority-wide capital expenditures over the last five years - from $59.7 million in 2011, to $56.2 million in 2012, $81.2 million in 2013, and $93.8 million in 2014 as the Authority works to achieve a state of good repair in its capital assets. Nearly $87.6 million, or 85.2 percent, of all 2015 capital expenditures were generated within three of the eight capital categories. The Bus Improvement Program category, with $42.9 million, or 41.7 percent of all capital expenditures, due to the delivery of 89 replacement 40-Ft CNG buses. This was followed by the Rail Projects category with $22.3 million, or 21.7 percent, and the Preventive Maintenance/ Operating Expense Reimbursement category with $22.3 million, or 21.7 percent, of all capital expenditures for the year. At the end of the year $49.9 million of funding is encumbered for upcoming work within the capital program. Expenditures will likely decrease from those in 2015, but will remain at high levels in the future as the Authority’s focus continues to be on achieving a state of good Repair (SOGR) in its capital assets.