Finance & Administration Committee

Information Item IV-A

November 1, 2012

FY2014 Business Planning and

Budget Discussion

Washington Metropolitan Area Transit Authority Board Action/Information Summary

Action InformationMEAD Number:

103051

Resolution:

Yes No

TITLE Multi-Year Business Planning and Operating Budget Discussion

PRESENTATION SUMMARY

This presentation will demonstrate how the General Manager’s recommended FY14 budget is constructed within the framework of a Multi-Year Business Plan. The business plan contains defined actions that support specific performance outcomes that are designed to achieve Board-adopted strategic plan goals.

In order to make the process more transparent so that customers and stakeholders can better understand how the operating budget funds certain levels of rail, bus and paratransit services, this presentation details current levels of service and where service growth is projected next fiscal year. It also identifies emerging regulatory mandates and safety corrective actions, as well as reliability, customer service and communications enhancements that are responsive to management and Board objectives. This outlook will include discussion of how these changes, and expected efficiencies that are also included in the business plan, are reflected in the budget outlook for FY14 and beyond.

PURPOSE

Metro is developing a Multi-Year Business Plan that achieves the Board’s strategic goals related to safety, customer satisfaction, connecting communities, and financial stability.

The business plan identifies actions and strategies linked to specific outcomes that are measured and publicly reported as key performance indicators.

In developing its budget for the next fiscal year, Metro must consider how to curb and offset increasing costs of pension and health benefits; increases in materials and utilities; and fund safety improvements including fatigue management and corrective actions identified by NTSB, TOC, and FTA; as well as additional expenses for operating new trains for Silver Line service.

Further, Metro’s Executive Management team is currently analyzing and prioritizing new initiatives for further consideration.

DESCRIPTION

The cost of providing service has been increasing in recent years. Years of underinvestment in the system have required significant maintenance and capital

investment in equipment and infrastructure in particular as we strive to bring the system to a steady state of good repair. Additionally, benefit costs have increased dramatically over the last four years and pension costs, still recovering from the impact of the great recession on the stock market, have increased 91 percent between FY10 and projected FY14.

Metro is making progress on all fronts. Leadership is focused on lowering the cost of providing rail and bus services without impacting safety, performance or customer satisfaction. Major cost drivers including overtime and the acquisition, management and distribution of materials and parts have been targeted for improvement. We will be reporting to you in the coming months on our success and actions to reduce costs and increase efficiency in these areas. The investments approved by the Board in May are also enhancing safety, improving performance, providing more and better service, and moving Metro to a steady state of repair.

The human capital management program is resulting in the hiring of new employees at a rate that will allow us to deliver new services like the Silver Line and Better Bus as promised. Expedited recruiting and hiring is also paying dividends as Metro is accelerating the investment rate and efforts necessary to fulfill our capital rebuilding program and greatly improve equipment and infrastructure maintenance.

BACKGROUND

Metro’s FY13 operating budget is $1.576 billion. Before any changes are made to the system on July 1, 2013 (the start of the next fiscal year), Metro must cover an additional $108 million in operating expense associated with the base operating costs approved by the Board in May. These expenses are the projected costs of additional fuel and propulsion, utilities, pension, health and other benefits, bus service enhancements, and a full year of service on the Silver Line. Against current revenue projections (fare box, jurisdiction and commercial) of $906 million, that created a preliminary unfunded need of $75 million.

The General Manager has committed Metro to a continuous improvement process in the search for additional efficiencies and cost reductions. As reported to the Board in September, efficiencies, cost reductions, the use of FY12 budget surpluses and other offsets, Metro now estimates the adjusted unfunded need at approximately $25 million. As part of the budget development process Metro is seeking to lower the unfunded need further.

In addition, Metro’s Multi-Year Business Plan for FY14-16 strives to achieve the Board’s strategic goals:

Build and maintain a premier safety culture and system Meet or exceed customer expectations by consistently delivering quality

service Improve regional mobility and connect communities Ensure financial stability and invest in our people and assets

In order to reach those goals, the Business Plan outlines actions for incremental improvements in Metro service including:

The preparation and opening of the Silver Line for revenue service Implementation and enhancement of the Better Bus program Addressing fatigue management Taking actions to further close out NTSB recommendations Upgrading financial, human capital, and other critical business systems Automation of parking revenue collection Efficient overtime management

The Business Plan and actions represent a plan to deliver the approved baseline services within the current budget levels. The actions outline efficiencies and performance enhancements that will be accomplished within current funding levels. The next step in the business planning/budget development process will be to identify opportunities for further improvements, efficiencies and the identification of unfunded needs including safety requirements, and other needs. The Executive Management Team has identified a list of initiatives for in-depth analysis.

The Executive Management Team received requests for new initiatives from all areas of the organization. The list has been prioritized and will undergo further refinement before consideration by the General Manager for inclusion in his FY14 budget request. The initiatives can be grouped by strategic goal:

Strategic Goal Objective Action Safety Culture

Increase employee safety Regulatory compliance

Fatigue

management

Employee and workplace safety

Customer Service

Improve service reliability Improve customer comfort

Better Bus

Customer

Improvements

Reliability and Customer Support

Financial stewardship/efficiency

Time collection

Inventory

management

Management will be working to further analyze and prioritize these requests before returning to the Board with a final General Manager recommended budget for FY14 in January. We will keep you informed of our progress.

FUNDING IMPACT

TIMELINE

Board action None required at this time Anticipated actions after presentation

Staff to return to Board F&A committee in December with an update on the progress of budget development.

ELECTRONIC ATTACHMENTS

See attached power point presentation.

Fiscal Year 2014 Operating Budget Development Finance and Administration Committee November 1, 2012

Washington Metropolitan Area Transit Authority

Implementing Momentum

Measure and Report Results Evaluate Performance Outcomes

Allocate Resources Budget and Staff

Business Plans Actions – Targets and Measures Identified

Metro’s Strategic Plan Vision – Mission – Goals Set Direction

Momentum Sets Direction for the GM/CEO Business Plan

Vision: Metro moves the region forward by connecting communities and improving mobility for our customers. Mission: Metro provides safe, equitable, reliable and cost-effective public transit. Strategic Goals: •Build and maintain a premier safety culture and system •Meet or exceed customer expectations by consistently delivering quality service •Improve regional mobility and connect communities •Ensure financial stability and invest in our people and assets

Building the GM/CEO Business Plan Key Actions in Baseline Budget

Closing NTSB recommendations, CAPs

Infrastructure reconstruction, steady state of maintenance

Maintenance capabilities

Fatigue management program

Bus & facility security

Safety mgmt systems

Safety Culture and System

Building the GM/CEO Business Plan Key Actions in Baseline Budget

Quality Service

Better Bus

Silver Line preparation & opening

MetroAccess demand management, new contract

Customer service improvements

Fare collection improvements

Prepping for automatic train operation (NTSB-dependent)

Building the GM/CEO Business Plan Key Actions in Baseline Budget

Financial Stability, People & Assets

Parking revenue collection automation

SmarTrip market penetration

Overtime management

Upgraded financial enterprise, human capital mgmt systems

Materials/inventory management

Asset management

Management efficiency review

Succession planning

Metro’s Revenue Source Cost per rider (FY2013)

Rail ($4.11 per rider)

$2.90

Bus ($4.35 per rider)

$3.16

Passenger Revenue Commercial Revenue Jurisdiction Investment

Access ($52.02 per rider)

$48.52 $3.50

Metro’s Lines of Business Rail

2013 2014 Fixed Assets (Infrastructure) Trains per day (average) 1,374 Trains per day with Silver Line 1,644 Total rail car fleet 1,104 1,104 Track miles 106 117.5 Stations 86 91 Rail yards 10 10

Metro’s Lines of Business Bus

2013 2014 Fixed Assets (Infrastructure) Weekday revenue bus trips 15,473 15,681 Buses in Service 1,244 1,261 Total Bus fleet 1,511 1,536 Bus routes 325 325 Bus garages 10 10 Bus stops 11,500 11,500

Metro’s Lines of Business Access Services

2013 2014 Fixed Assets (Infrastructure) Paratransit fleet 600 600 Operating facilities 7 Operating contracts 1

Multi Year Initiatives Under Consideration:

Goal Initiative

Safety Culture – Fatigue management And System – Employee and workplace safety Quality Service – Better Bus – priority corridors – Customer improvements Financial Stability – Improve time collection People and Assets – Materials/inventory management

Next Steps

GM/CEO FY2014 BUDGET REQUEST AND MULTI-YEAR PLAN – DECEMBER MEETING

Account for Risk

Refine Pro-Forma

Budget

Consider New

Initiatives