Meeting_Body
EXECUTIVE MANAGEMENT COMMITTEE
FEBRUARY 18, 2016
FINANCE, BUDGET AND AUDIT COMMITTEE
FEBRUARY 17, 2016
Subject/Action
SUBJECT: FY17 BUDGET PLANNING PARAMETERS
ACTION: RECEIVE AND FILE
Heading
RECOMMENDATION
Title
RECEIVE AND FILE the FY17 Budget Planning Parameters.
Issue
ISSUE
The budget planning parameters describe the revenue and cost growth factors for the regional transportation system, and include sales tax revenues, fare revenue, levels of service, labor and Consumer Price Index (CPI) assumptions that guide the allocation of resources for the development of the upcoming annual budget.
As the budget development process continues and additional information becomes available, these parameters may be modified accordingly. Changes and updates will be incorporated and reported back to the Board in the upcoming budget process.
Discussion
DISCUSSION
Metro projects a balanced budget for FY17. The budget will align resources according to the following CEO goals:
- Advance safety and security for our customers, the public and Metro employees
- Exercise fiscal discipline to ensure financial stability
- Plan and deliver capital projects on time and on budget while increasing opportunities for small business development and innovation
- Improve the customer experience and expanding access to transportation options
- Increase transit use and ridership
- Implement an industry-leading state of good repair program
- Invest in workforce development and promoting extraordinary innovation
Budget Planning Parameters and Rationale
A. Sales Tax & TDA Revenue Forecast: Sales tax growth has been in a cooling mode from the post-recession recovery peak as indicated in Figures 1 and 2. It has slowed down from a growth rate of 4.4% in FY14 to 4.0% in FY15 and 2.4% (estimated) in FY16. It is assumed that the FY17 sales tax growth rate will continue at the FY16 level at 2.4%. This assumption will be re-evaluated as additional sales tax receipt information becomes available from the State Board of Equalization (SBE) and updates from various major forecasting authorities such as UCLA, Beacon Economics, Muni Services and the LA Economic Development Corporation are released. Figure 3 shows how Metro’s estimates compare to the actuals and projections from leading forecasts historically.
B. State Transit Assistance (STA) Revenue: Sales tax revenue depends upon actual consumption and price of diesel. $102.8 million in STA revenue is estimated in FY17 which is lower than the FY16 projection of $105.7 million. A lower consumption and price are anticipated due to vehicle technology improvements, lower fuel prices and freight companies which previously used diesel switching to cleaner CNG fuel. This assumption will be re-assessed during the budget process to reflect the California State Controller’s Office (SCO) estimate which is due for release in mid-February 2016.
C. Fare Revenue Forecast: FY17 assumes no adjustments in fare structure. Fare revenue depends on system boardings, which has been experiencing a decline since April of FY14 as indicated in Figure 4. Current FY16 projected boardings is estimated to be 3.9% below the FY15 actual boardings of 453.0 million as indicated in Figure 5. Agencywide efforts are underway to reverse the declining trend. The two new rail lines (Gold Line Foothill Extension 2A to Azusa and EXPO II to Santa Monica) are expected to bring in 10.9 million of additional boardings in FY17. The overall FY17 boardings is estimated to increase 2.3% from the FY16 projection to 445.3 million, and fare revenue is projected at $334.0 million.
D. Service Level: FY17 will include Risk Allocation Matrix (RAM) recommendations for service optimization such as improved speeds, elimination of duplicate service, load factor adjustments and optimization of rail schedules. Service level will include full year of operation of two new rail lines, Gold Line Foothill Extension 2A to Azusa and EXPO II to Santa Monica.
E. Staffing: Staffing plan will be developed as part of the FY17 zero-based budget. No new FTEs are assumed and any additional FTE request will require Board approval.
F. Wage and Benefits: For SMART, ATU, TCU and AFSCME members, FY17 Proposed Budget salaries and fringe benefits will grow by negotiated rates per the Union Contract terms.
CEO is in the process of developing a Non-Contract merit based performance measurement system. Health, welfare and pension benefits for Non-Contract will be in accordance with previously approved Board action. Any proposed Non-Contract salary increase will be brought back to the Board for approval.
G. Consumer Price Index (CPI): Current estimates from leading forecasts, such as UCLA, Beacon Economics and Muni Services range from 1.9% to 2.9%. The FY17 assumption will be determined as updates are released in March 2016. Figure 6 shows how Metro’s estimates compare to the actuals and projections from leading forecasts historically.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
This recommendation will not have an impact on safety standards for Metro.
Financial_Impact
FINANCIAL IMPACT
The budget planning parameters guide the development of the FY17 budget and may change as more specific information becomes available.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The annual budget serves as the legal authority to obligate and spend funds. Failure to adopt the budget would severely impede Metro’s stated goal of improving transportation in Los Angeles County.
Next_Steps
Attachments
ATTACHMENTS
Attachment A - Financial Summary of the FY17 Business Planning Parameters
Prepared_by
Prepared by: Jessica Lai, Budget Management Analyst V, (213) 922-3644
Perry Blake, Executive Officer, Finance, (213) 922-6171
Melissa Wang, Executive Officer, Finance, (213) 922-6024
Reviewed_By
Reviewed by:
Nalini Ahuja, Executive Director, Finance and Budget, (213) 922-3088
