Meeting_Body
REGULAR BOARD MEETING
MARCH 24, 2016
Subject/Action
SUBJECT: COST/BENEFIT ANALYSIS OF METRO’S SUBSIDY TO METROLINK - UPDATE 2 - METRO INVESTMENT BASIS AND THE BENEFITS OF COMMUTER RAIL OPERATIONS IN LOS ANGELES COUNTY
ACTION: RECEIVE AND FILE
Heading
RECOMMENDATION
Title
RECEIVE AND FILE report on the formula basis of determining Metro’s annual contribution to Metrolink operations and the estimated benefits of those operations to Los Angeles County and its residents.
Issue
ISSUE
The purpose of this report is to provide the Committee an overview of the governance structure of the Southern California Regional Rail Authority (SCRRA), information on the calculation of Metro’s investment in commuter rail operations in Los Angeles County, and an estimated summary of the benefits of that investment.
Discussion
DISCUSSION
Summary of Governance Structure
Under the Joint Exercise of Powers Agreement (JPA) (Attachment A), the SCRRA was created by the Member Agencies to act on their behalf to design, construct, operate and maintain a regional commuter rail system in Southern California.
The JPA, with only 9 pages of narrative text, has limited specifics governing the interactions among the Member Agencies and with the SCRRA itself. However, two elements of the JPA are very specific and clear:
• The proportionate assignment of voting rights of the Member Agencies on the SCRRA Board of Directors; and
• The lack of authority of the SCRRA to commit any Member Agency to a financial obligation that the Member Agency does not support and approve.
Member Voting Rights
The number of votes assigned to each member agency is as follows:
*To avoid extended decimal rounding, actual % values add to 99%
A quorum of the Board consists of two factors:
1) Representatives of a minimum of 3 counties;
and
2) A minimum of 6 combined votes.
For example, as shown above, though Metro and Orange County together comprise 6 votes, as only two counties, the minimum number of county representatives is not met to constitute a quorum. Further, Riverside, San Bernardino and Ventura representatives could be present, and while the three county minimum is met, the minimum required number of votes would not be available.
These values were determined at the agency’s formation based on an original negotiation among the Member Agencies prior to the construction or operation of the system.
Under the current JPA, any change to this governance structure could be initiated by any Member Agency. However, the outcome of any such proposal is subject to negotiations and agreement by and among the Member Agencies.
The JPA states:
“15.0 AMENDMENTS TO THE AGREEMENT
This AGREEMENT may be amended at any time by the unanimous agreement of the voting MEMBER AGENCIES.”
Previous Amendment
To date, the JPA has undergone one administrative amendment. In 1996, approximately 50% of the SCRRA’s administrative and management staff were Metro employees, formerly of the LACTC. The amendment action formalized the transfer of these employees and positions from Metro to the SCRRA.
Financial Authority
The JPA makes very clear that prior to any commitment of funds by the SCRRA, each individual Member Agency shall approve their share of any proposed financial request.
It states in four individual sections the separation of financial authority between the Member Agencies and the SCRRA.
Referencing the SCRRA:
The SCRRA has the authority to “recommend” funding shares of the members for capital and operations. (Sections 3.12, 3.13, emphasis added)
Referencing the Member Agencies:
“Each MEMBER AGENCY's Share of Capital and Operating Fund allocations, and Annual AUTHORITY Budget shall be approved by each MEMBER AGENCY.” (Section 4.4)
“Decisions dealing with capital and operating fund allocations, as well as annual approval of each MEMBER AGENCY'S share of the AUTHORITY'S annual budget, shall be approved by the MEMBER AGENCIES themselves.” (Section 8)
“and any cost sharing formula adopted by the voting MEMBER AGENCIES.” (Section 9)
Though the JPA is silent on the actual formulas or variables used to allocate costs and revenues, as clearly articulated in the language above, it is the Member Agencies themselves that approve the various formula distributions and resulting member subsidy contributions through a negotiation and agreement among the partnership.
Adopted Budget Policy of the SCRRA
In addition to the clauses in the JPA outlined above, the published and SCRRA Board approved budget policy further codifies the financial relationship between the Member Agencies and the SCRRA:
As illustrated, the JPA and other approved policies make clear that the SCRRA, its Board of Directors, and staff of the agency have no authority to obligate a Member Agency to any financial commitment an individual member does not support or is willing to approve. As such, any vote of the SCRRA Board that attempts to create a commitment is advisory in nature and is non-binding on the Member Agencies.
A recent example is the Metro Board’s deferral of SCRRA’s requested FY16 Rehabilitation and Renovation funding in the amount of $20 million.
Though proposed by Metrolink and approved by SCRRA’s Board, Metro retained and exercised its authority to not adopt or approve the request. This deferral was initiated by Metro’s Board in order to assure itself that previously approved yet unobligated and unspent funding was being directed towards the highest priority projects of the agency. Metro staff continues to work with our colleagues at the SCRRA to address this situation and only the Metro Board itself possesses the authority to appropriate and commit Metro funds to the SCRRA.
Metro’s Investment in the Regional Commuter Rail System
As a result of its structure as a partnership, and as envisioned in the JPA, the SCRRA uses a series of formulas to ensure every financial transaction of the organization, be it expense or revenue, can ultimately be attributed to a, or multiple, member(s) through a Member Agency approved and agreed upon distribution.
Expenditures are divided into two primary modes - Capital Expenditures, including State of Good Repair (Rehabilitation), and Operating Costs including Maintenance of Way (MOW). Each of the modes have specific cost allocation methodologies in order to capture the required contribution(s) of the Member(s).
Assignment of Capital Obligations
The assignment of capital obligations uses two primary methods. The first is based primarily on an asset ownership and location basis.
For example, the Member Agency owner of a fixed asset, generally Rights-of-Way (ROW), is responsible for the State of Good Repair expenditures related to that asset.
Specific Capital Expansion projects that add physical capacity or betterments to the infrastructure within its jurisdiction have also generally been the responsibility of the requesting Member Agency. Examples of these types of projects include double-track projects and station and grade crossing enhancements.
The second allocation method applies to shared facilities or systemwide assets such as IT or Communications systems infrastructure, revenue vehicles, or maintenance facilities, etc., is the application of the “All-Share” formula. This formula is a combined weighted average (1/3, 1/3, 1/3) of Route Miles, Stations, and Boardings within each county. Metro’s share of this formula is 47.5%. However, the current values All-Share formula have not been updated for over 17 years and are outdated and stale. This specific formula is currently subject to an ongoing review, and staff expects that once the update is completed, Metro’s share should decline between 2% and 3%. On an annual basis, this change would result in reducing Metro’s Rehabilitation and Capital costs between $500 thousand and $1 million depending on the mix of selected projects.
The table below illustrates the distribution of the Proposed SCRRA FY16 Budget capital projects divided into the categories listed above.