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Financial Issues and Strategies

Financial Issues and Strategies. Overview. Scope Funding and Performance Risks, Sensitivities and Strategies Financial Information Roundtable Discussion. Scope. The Scope of BC Transit’s 2011/12 Program as of February 15, 2011 58 local government partners

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Financial Issues and Strategies

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  1. Financial Issues and Strategies

  2. Overview Scope Funding and Performance Risks, Sensitivities and Strategies Financial Information Roundtable Discussion

  3. Scope The Scope of BC Transit’s 2011/12 Program as of February 15, 2011 • 58 local government partners • 81 transit systems – conventional, custom and paratransit • Contracts with 18 private management companies, 5 public operating organizations and 15 non-profit agencies • Carries over 50 million passengers annually • Owns a fleet of 1,028 conventional and double-deck buses, minibuses and vans • $310 million annual operating budget • $162 million annual capital budget

  4. Scope – Systems by Population and Expenditures

  5. Scope • Small Conventional Transit Systems • CUTA population groups serving 10,000 to 50,000 people • Canada • Has over 300 communities within this population • 36 CUTA conventional systems serve approximately 20% of this market • British Columbia • In 2010 BC has 35 communities within this population • 100% of these communities have public transit service

  6. Provincial Contributions - Operating • Provincial operating contribution: • BC (excl. Translink) – 47% • CUTA Group 2 (150,000 – 400,000) – 14% • CUTA Group 3 (50,000 – 150,000) – 25% • Note: CUTA groups include the BC population Source: 2009 CUTA Fact Book

  7. Provincial Contributions - Capital • Provincial capital contribution: • BC (excl. Translink) – 47% • CUTA Group 2 (150,000 – 400,000) – 47% • CUTA Group 3 (50,000 – 150,000) – 28% • Note: CUTA groups reflect the BC population source: 2009 CUTA Fact Book

  8. Municipal Operating Contributions Per Capita source: 2009 CUTA Fact Book

  9. Performance – Comparison to CUTA Benchmarks source: 2009 CUTA Fact Book

  10. Performance – Cost Efficiency • Operating costs per hour: • Cost / hour increases for Canadian benchmarks (CUTA): • Group 2 (150,000 – 400,000) • average 4.4% per annum • Group 3 (50,000 – 150,000) • average 6.3% per annum source: 2009 CUTA Fact Book Excerpt of benchmark systems in Groups 2 and 3

  11. Performance – Cost Efficiency • Operating costs per hour: • Annual rate of increase is lower than peer groups • BC Transit: • Victoria average 2.9% per annum • CUTA: • Group 2 population average 4.4% per annum source: 2009 CUTA Fact Book Excerpt of benchmark systems in Groups 2 and 3

  12. Performance – Cost Efficiency • Operating costs per hour: • Annual rate of increase is lower than peer groups • BC Transit: • Regional Systems average 3.7% per annum • CUTA: • Group 3 population average 6.3% per annum source: 2009 CUTA Fact Book Excerpt of benchmark systems in Groups 2 and 3

  13. Number 1 Issue Facing Transit in North America is Financial Sustainability • Financial constraints by all funding partners • Service reductions • Deferred maintenance and capital • Fuel price pressures • Cost Containment • Manage Cost Volatility • Maximize Non-Taxation Revenue Sources

  14. BC Transit Funding Model Total Expenditures (Capital and Operating) Less: Provincial Share (Legislated Cost Share) Less: Passenger Revenues Net Municipal Contribution • Expenditure increases / volatility is partially mitigated through cost share with the Province • Passenger revenues and other revenue sources credited 100% to municipal partners • Municipalities therefore take 100% of the risk and reward of revenues

  15. Financial Projections

  16. Operations Major Components: • Operators wages and benefits • Contracted operating costs • Fuel • Expansion

  17. Risks, Sensitivities and Strategies Fuel Prices - Risk Significant volatility Forward pricing has increased reflecting recent pricing and events

  18. Fuel Price History – Fiscal 2010/11 Source: www.gasbuddy.com

  19. Risks, Sensitivities and Strategies Fuel - Strategies What We Currently Do • Pooled purchasing – discounted pricing (~ 2.4 cent discount) • Biofuel • Fixed price physical supply contracts • Strategic partnerships Other Strategies? • Fixed price financial contracts – commodity derivatives • Fuel stabilization reserves • Budget for contingency

  20. Risks, Sensitivities and Strategies Operating Cost Risks Discussion Points For Roundtable: How do we manage the operating cost volatility and cost pressure? Examples: • Fuel: Fixed price contracts • Accidents / Insurance • Operating reserves • Budget for contingency • Contractor Costs

  21. Maintenance Expenditures - Risks Maintenance Cost Drivers: • Service expansion • Deferred maintenance • Supply chain • Inflationary cost pressures on parts • New technology and increasing complexity • Diversity and age of fleet • Environmental compliance • Volatility associated with major repairs (engines, transmissions, differentials, midlife refits)

  22. Maintenance Expenditures - Strategies What We’re Doing: • Volatility associated with major repairs removed from the operating program and smoothed in the capital program • Fleet alignment and standardization • Standard repair times

  23. Maintenance Expenditures Discussion Points For Roundtable: How do we manage maintenance expenditures and balance cost pressures against maximizing the life of the asset?

  24. Shared Services (BC Transit Management Services) Methodology: All costs associated with the provision of BC Transit services are pooled and then allocated out to all systems

  25. Shared Services (BC Transit Management Services) Planning and Business Development • Marketing, website design, riders guides, advertising revenue • Long term planning, master plans, operational plans • Scheduling Safety, Security and Training Climate Action and Environmental Management Asset Management Capital Program Management Inventory Management and Procurement Revenue Management (tariff strategies, farebox, vault management) Financial Management • Centralized accounting includes accounts payable and receivable functions • Access to Federal, Provincial and other financing sources • Borrowing funds through access to provincial fiscal agency loans to finance municipal share of projects

  26. Shared Services (BC Transit Management Services) • Independent review of cost allocation • Report is on BC Transit website • Findings: Cost allocation is biased in favour of the Regional Transit Systems

  27. Shared Services (BC Transit Management Services) Risks: • Increased demand for shared services by municipal partners • Regulatory, compliance and inflationary cost pressures Other Factors: • BC Transit has operated under a “net zero” mandate from the Province since April 1, 2009 • Commitment to keep BC Transit Management Services cost at inflation

  28. Shared Services (BC Transit Management Services) Discussion Points For Roundtable: How do we manage the conflict between increasing demand and keeping costs down? Examples: • Alternative costing allocation methodology • Charge for services • Benefits need to outweigh costs

  29. Capital Expenditures • Total Cash Flow. • Capital expenditures are funded by way of Provincial capital grants (based on legislated cost share), Federal and other funding and municipal contributions.

  30. Replacement and Expansion • Replacement Drivers: • Facilities – 23% • IT / Equipment – 8% • Vehicle Acquisition – 52% • Vehicle Refurb – 17% • Expansion Drivers: • Facilities – 48% • Vehicle Acquisition – 12% • Rapid Transit – 40%

  31. Capital - Fleet • Cost Drivers: • Midlife Refits • Significant Replacement cycle • Low floor fleet • Technological complexity • Previous acquisitions were not phased • Current Mitigation Strategies: • Pooled purchasing and phased acquisitions • Shift of major maintenance into capital

  32. Fleet – Capital Maintenance • Historical model – prior to shift to capital program • Volatility associated with major repairs and replacement of 20 year old bus

  33. Fleet – Capital Maintenance Phased in strategy to mitigate volatility and build in a lease fee based on lifecycle costing Example: 2006 Novas – 20 year amortization, major repairs are capitalized over the remaining life of the component

  34. Capital - Facilities Cost Drivers: • Capacity • Ongoing maintenance • Environmental • Availability of labour, local market conditions

  35. Capital - Other Cost Drivers: • Aging information technology • Increasing demand for information and reporting • Demand for new technologies (google transit, farebox, security) • Infrastructure (park and rides, exchanges, bus stops) • One time funding opportunities (gas tax funding)

  36. Capital – Mitigation Strategies Discussion Points for Roundtable: How do we better plan for and mitigate capital costs? Examples: • Long term planning • Reserves • Acquiring the right assets for the community

  37. Financial Information Current Year Initiatives: • 3 Year Projections • Base service • Planned expansion projections • Year 1 establishes the implementation program • Years 2 & 3 establishes planning, bus acquisition processes • Performance reporting 2011/12 Initiatives: • Continuous improvement • Long term capital replacement • Regional workshops

  38. Financial Information Discussion Points for Roundtable: What improvements can we make to the financial information provided to you? Examples: • Long term capital information • Calendar year reporting • Performance reporting • Regional workshops

  39. Roundtable Discussions 3 Groups: • Operating • Capital • Financial Information 10 minutes each and then rotate Facilitator at each group Debrief

  40. Thank You Presenters and Contacts: BC Transit (250) 385-2551 Michael Kohl Michael_kohl@bctransit.com Jon Norgaard Jonathan_norgaard@bctransit.com Megan Hill Megan_hill@bctransit.com

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