Subject: Phoenix Transportation and Infrastructure Subcommittee is meeting this Thursday, October 16 at 9:00 am. Date: Tuesday, October 14, 2008 3:00 PM Friends, The City of Phoenix Transportation and Infrastructure Subcommittee is meeting this Thursday, October 16 at 9:00 am. On the agenda is a report from the Phoenix Public Transit Department with an update on the Transit 2000 sales tax revenues, which are rapidly declining. The Subcommittee will discuss possible ways to mitigate the shortfall. Detailed information is contained below in the City Council Report on this issue. The meeting will take place at Phoenix City Hall, in the City Council Subcommittee Room, 200 W. Washington St, 12th Floor, Phoenix. As a friend of transit, we wanted to share this report with you to keep you apprised of the current situation. CITY COUNCIL REPORT TO: Thomas E. Callow, P.E. Deputy City Manager FROM: Debbie Cotton Public Transit Director SUBJECT: BUS PROGRAM FINANCIAL UPDATE AND EARLY BUDGET ACTIONS This report provides the Transportation and Infrastructure Subcommittee with an update on Transit 2000 (T2000) sales tax revenues and the overall financial status of the bus program and requests direction and approval of early budget actions needed to begin to mitigate the impacts of rapidly declining sale tax revenues. THE ISSUE As a result of rapidly declining sales tax revenues, an in-depth review of the overall financial status of the bus program was completed. This has prompted the need to consider various ways to mitigate the impacts of this funding shortfall. OTHER INFORMATION As outlined to the voters, the Transit 2000 program called for a 0.4 percent sales tax that, together with existing funding sources already allocated to bus service, would be distributed to bus and light rail programs. As a result, all General Funds, Federal Funds, LTAF and system-wide revenues such as fares, advertising, and interest earnings along with the sales tax are pooled and then allocated to light rail and bus programs. Consistent with the original program, light rail receives 34 percent of the pool, and 66 percent goes to various bus services and street improvements (bus pullouts, left-turn arrows, and bike lanes). New funding sources introduced after passage of T2000 are directed to the program for which they were added. The most significant is the ½-cent countywide sales tax that includes funds for both bus and rail. This creates a very complex funding structure. A change in any of the pooled resources impacts both light rail and bus service. As a result, we must regularly update both the bus and rail program forecasts to adjust for changes in any pooled resource. Each program’s expenditures are then evaluated against its share of the pooled funds. This report focuses only on the 66 percent bus service portion. TRANSIT 2000 SALES TAX RESULTS As shown in the table below, 2007-08 actual T2000 sales tax collections were nearly 7 percent below 2006-07 and even fell $1.6M or about 1.5 percent below the amount collected two years earlier. Since inception of the tax, the average annual growth rate is 4.4 percent, an amount well below the 5.25 percent assumption used to develop the original program. Fiscal Year T2000 Sales Taxes (in 000s) Change from Prior Year % Change from Prior Year 2005-06 $117,554 2006-07 $124,432 $6,879 5.9% 2007-08 $115,914 $(8,518) -6.9% For the first two months of 2008-09, sales tax collections continue to decline and are $2.1 million or 10.8 percent below the same two months last year. This double-digit decline in growth rates has been fairly consistent throughout calendar year 2008. BUS PROGRAM FORECAST AND RECOMMENDED BUDGET ACTIONS Given revenue declines, the bus program fund balance will be drawn down substantially this year. With no near term prospect of a sharp increase in sales tax collections, the Public Transit Department prepared an initial sales tax forecast to begin to quantify the impact on the bus program. This sales tax forecast will require an update as the Budget and Research Department prepares the citywide estimates. Based on that work to date, it is expected that in order to avoid a negative fund balance, as early as 2009-10 budget actions in the $10 to $20 million range will be needed over and above reductions required for the General funded portion of our budget. Key assumptions included in this analysis are: · Allocate $4.8 million in one-time LTAF II funds to offset operating costs instead of new capital projects. · Eliminate or substantially defer plans to construct a new operating and maintenance facility in the northern portion of the City. This represents $3.4 million in T2000 funding. Planned federal funds would be allocated to other projects. · Continue an assumption that the federal alternative fuels tax credit will be renewed in the upcoming federal reauthorization for transportation. This represents about $3.8 million a year. · No additional reductions in General Funds provided to transit programs will be made without offsetting service reductions. Staff throughout the department continues to identify cost savings or deferrals in the operating and capital projects budgets. In addition, staff submitted $7.4 million in potential staffing and service reductions for the General Fund process and is evaluating higher levels of service reductions. Due to our uses of federal funds, making changes to bus service requires extensive compliance reviews and public outreach which narrows options for quick turnaround service reductions. We also believe that major service changes must appear in the semi-annual publication of the Bus (Transit) Book. In considering the above, three categories of service change shown in the table below were identified that could be implemented along with other bus service changes planned for December 29, 2008. As practiced in the General Fund, implementing budget changes early would minimize the overall level of service changes ultimately required. The next opportunity for bus service changes will be July 27, 2009. Description of Service Change 2008-09 Budget Impact 2009-10 Budget Impact Eliminate all bus trips beginning before 5 a.m. $743,000 $1,498,000 Eliminate all bus trips beginning after 10 p.m. $715,000 $1,444,000 Change Saturday service frequencies to equal those provided on Sunday on the same route $995,000 $2,010,000 Total $2,453,000 $4,952,000 ADDITIONAL SERVICE REDUCTION PRIORITIES The initial reductions presented above will not address the full requirements for service reductions. A number of criteria have been established to help the department frame potential service reductions. These include concepts such as eliminating specialized services including school trippers and limited service where regular bus service exists; eliminating or realigning routes that are not on the mile grid system; reducing, eliminating and/or creating fares for free service; reducing frequencies system-wide based on levels of ridership; and eliminating non-ADA Dial-A-Ride which is not mandated. Such items will be brought forward in early January as part of the upcoming citywide budget process. FARE REVENUE For 2007-08, bus fare revenue was $30.3 million which was 6.5 percent or $2.1 million below the estimated level. However, this was up 16.4 percent from the 2006-07 level and a 25 percent recovery on direct bus service costs was achieved. Given the current economic climate and growing demand for bus service, we asked that the Regional Public Transportation Authority (RPTA) begin a region-wide process to increase bus fares in July 2009. The most recent fare change occurred in December 2007; regional planning only calls for a fare increase every five years. We will also explore fare changes in areas that impact only Phoenix such as Dial-A-Ride and circulators. HALF-CENT COUNTY SALES TAX Some of our service is funded by the countywide transportation tax Proposition 400. This program is experiencing similar sales tax declines. The RPTA is just beginning its annual budget process. It is unknown at this time how projects and services funded in that program may be impacted. RAPID is one of our key services funded by this tax. RECOMMENDATION It is recommended that the Transportation and Infrastructure Subcommittee approve the key assumptions outlined in the report and recommend early bus service reductions to the full City Council. In addition, feedback is requested on the priorities for the next levels of service reduction.