Financial Issues and Strategies

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