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Draft for Discussion & Policy Purposes Only
Operations Budget Stability CommitteeFY17P - FY20P Baseline Pro Forma
9/9/2015
1
Draft for Discussion & Policy Purposes Only 2
• This pro-forma baseline projects the MBTA structural deficit based on run-rate assumptions that pre-date the formation of the FMCB. It is a status-quo pro-forma which forecasts the future financial health if MBTA continues on “current course and speed”
• The pro-forma financials do not include any potential impacts of any contemplated reforms or suggested actions (for cost control or revenue enhancement) by the FMCB
• Projected figures are likely to change in the future as reforms to both MBTA revenues and costs are considered and adopted
• The FMCB is working on a set of proposals for cost-control and revenue enhancement and looks forward to working with multiple stakeholders (including MBTA staff, unions, private sector, and advocates), and will make those proposals in the December report
• Analysis contained in the report is not meant to be prescriptive but rather to show the sensitivity of the structural deficit to various inputs
Pro-Forma Baseline:What It Is (and What It is Not)
DRAFT
Draft for Discussion & Policy Purposes Only 3
• The MBTA has 5 Sources of Revenue– Fares ($618M in FY16)– Other Operating Revenue – Parking/Advertising/Real Estate ($50M in FY16B)– Dedicated Local Assessments ($163M in FY16B)– Base Revenue Amount ($986M in FY16B) - MBTA gets higher of Dedicated Sales Tax or
“Base-Revenue Amount”– Other Income ($35M in FY16B) – Interest income, legal settlements, Federal operating
assistance, MassPORT Silver line Revenue
• In addition, discretionary “Additional State Assistance” ($125M in FY15A and $187M in FY16B) is provided to the MBTA to cover costs over and above sources of revenue – essentially it is the annual “plug” between revenue sources and total costs
• We define the Structural Deficit as the difference between the 5 sources of revenue listed above, and the forecast operating and debt expenses of the MBTA
• The legislation creating the FMCB calls on the FMCB to propose a plan for balancing the Structural Deficit in FY17 and onward, through a combination of cost control and maximization of own-source revenues
A Note on Definitions DRAFT
Draft for Discussion & Policy Purposes Only 4
FY17P – FY20P Current Pro-Forma Projection Assumptions (Part 1)
DRAFT
Revenue FY 16B Assumption Source
$50M Other operating revenue (advertising, parking, real estate) grows by 13.8% (FY17), 3.5% (FY18), 2.3% (FY19) and 2.4% (FY20)
Internal
$618M Fare revenue increases by 4.0% (FY17), 1.0% (FY18), 3.0% (FY19), and 1.0% (FY20) due to FY17 and FY19 fare increases of 5.0% and 1.0% ridership growth in off years
Internal
$986M Base revenue amount increases at 1.6% in FY17 forward (based on inflation formula) Statutory
$163M Local assessment increases by 2.0% post FY2015 (based on inflation formula) Statutory
Non-Debt operating costFY 16B Assumption Source
$0M Capital employee and project transition expense is $52M (FY17), $62M (FY18), and $88M (FY19) Internal
$511M Wage Expense increases by 2.5% in FY17 and FY18; no increase assumed in FY19 and FY20 Internal
$109M Total Net GIC Healthcare decreases by 4.7% (FY17), and increases by 6.5% in FY18 and 5.5% FY19 forward Internal
$79M Energy costs increases by 3.5% from FY17 – FY20 Internal
Headcount remains at current budget level of 6,677 through the projection period Internal
Draft for Discussion & Policy Purposes Only 5
FY17P – FY20P Current Pro-Forma Projection Assumptions (Part 2)
DRAFT
Debt ServiceFY 16B Assumption Source
$34M Legacy debt service grows/-declines by -23.0% (FY17), 18.2% (FY18), -0.4% (FY19), and -2.3% (FY20) Contractual
$109M Central artery debt service stays flat at 0.0% growth for the projected period Contractual
$305M Capital plan debt service grows at 5.9% (FY17), 11.8% (FY18), 5.3% (FY19), and 4.3% (FY20) Internal
New bond issuances include $200M offerings in FY16, FY18, and FY19 Internal
Summary of assumption impact:• Total Revenue: is projected to grow at 1.6% over the pro-forma projected period
(compared with 0.2% per annum growth from FY13 – FY15)
• Operating Expenses (“Opex”): are projected to grow at 4.4% over the pro-forma period and at 3.1% growth if capital employee and project transfer is excluded (compared with 6.5% per annum growth from FY13 – FY15)
• Debt Service: is projected to grow at 4.5% over the pro-forma projected period in line with contractual payment obligations (compared with -2.7% per annum growth from FY13 – FY15)
Draft for Discussion & Policy Purposes Only 6
FY16B $200M Bond Issuance is Adequateto Fund FY16B Capital Plan
DRAFT
0
250
500
750
1,000
$1,250M
FY16B
MBTA
State
Federal
$1,046M
21.6%
32.7%
45.8%
% of TotalCAGR
Capital Funding Sources
FY16B CAPITAL FINANCING SOURCES
Draft for Discussion & Policy Purposes Only 7
From FY13 until FY15, Ridership and Revenue were Flat while Operating Expenses Grew at 6.5% CAGR
DRAFT
-4
-2
0
2
4
6
8%
Compound Annual Growth Rate (CAGR) FY13A - FY15A
Total Ridership
0.25%
Total Revenues (includes Operating Revenue,
Dedicated Sales Tax, Local Assessments, and Other Income. Does not inclue
additional assistance)
0.20%
Operating Expenses
(Not Including
Debt Obligations)
6.50%
Debt Service
-2.70%
HISTORIC RIDERSHIP, REVENUE AND OPEX GROWTH RATES
Draft for Discussion & Policy Purposes Only 8
Growth Rates for the Components of Operating Expense from FY15A:FY20P
DRAFT
0
200
400
600
$800M
0
200
400
600
$800M
Millions ($)
Wages + Capital Employee and
Project Transfer
$490M
$625M
Commuter Rail
$397M$423M
Materials & Services
$181M
$243M
Ride / Boat
$112M
$179M
Healthcare
$115M$135M
Energy
$72M$91M
Pension
$72M$86M
Other Fringe Beneftis
$51M$56M
Other Expenses
5.0% 1.2% 6.0% 9.9% 3.2% 4.8% 3.8% 1.9% 7.3%5 YR CAGR (%)
Non-debt Operational Costs
FY 2015AFY 2020P
ANALYSIS ON FY15A:FY20P GROWTH RATES OF KEY OPERATING COSTS
Draft for Discussion & Policy Purposes Only 9
In FY17P, the Structural Deficit is Forecast to Increase by $72M, Driven by $104M Growth in Opex
-300
-200
-100
$0M
FY16B Structural
Deficit
-$170M
Increased Revenues
$42M
Increased Baseline
OpEx
-$52M
Capital Employee
and Project Transfer
-$52M
Increased Debt Service
-$10M
FY17P Structural
Deficit
-$242M
DRAFT
BRIDGE FROM FY16B TO FY17P STRUCTURAL DEFICIT
NOT INCLUDING ANY ADDITIONAL STATE ASSISTANCE
Draft for Discussion & Policy Purposes Only 10
Structural Deficit will Continue to Increase if Operating and Debt Service Expenses Grow Faster Than Revenue
DRAFT
0
1
2
3
4
5%
Compound Annual Growth Rate (CAGR) FY16B - FY20P
Total Revenues (includes Operating Revenue, Dedicated Sales Tax, Local Assessments, and Other
Income. Does not include additional assistance)
1.60%
Operating Expenses Including Transitioned Employees
4.40%
Debt Service
4.50%
FY16B – FY20P PRO-FORMA ANNUAL GROWTH RATE
Draft for Discussion & Policy Purposes Only 11
Annual Projected Revenues, Expenses andStructural Deficits FY16B – FY20P
DRAFT
1,000
1,500
2,000
2,500
$3,000M
2,0212,135
2,2502,340 2,402
FY16B FY17P FY18P FY19P FY20P
1.6%
4.4%
CAGR (%)
1,851
1,893 1,915 1,949 1,975
-$170M -$242M -$335M -$391M -$427MStructural Deficit
Total RevenueTotal Expenses including Employee Transfer
Projected Structural Deficit
NOT INCLUDING ADDITIONAL STATE ASSISTANCE OF $187M in FY2016B
Draft for Discussion & Policy Purposes Only 12
Annual Structural Deficit is Forecast to Grow to $427M by FY20P, Driven by Increases in Opex and Debt Service
-500
-400
-300
-200
-100
0
$100M
FY15A Structural Deficit
-$119M
Increased Revenues
$172M
Increased Baseline OpEx
-$265M
Capital Employee
and Project Transfer
-$88M
Increased Debt Service
-$126M
FY20P Structural Deficit
-$427M
DRAFT
BRIDGE FROM FY15A TO FY20P STRUCTURAL DEFICIT
Draft for Discussion & Policy Purposes Only 13
0
100
200
300
400
$500M
$190M
$273M$303M
$339M
$242M
$335M
$391M
$427M
FY16 FY17 FY18 FY19 FY20
Base Case Structural DeficitState Assumes Capital Employee and Project Transfer
Structural Deficit Impact of Capital Employees: Even if the State Provided Funding to Transition 532 Capital Employees to the Op Budget, FY20 Deficit would exceed $300M
DRAFT
Draft for Discussion & Policy Purposes Only 14
Next Steps DRAFT
• The FMCB is looking forward to developing a set of proposals to address the financial challenges laid out in the baseline pro-forma assumptions presented
• Next steps include exploring cost-control and revenue enhancement measures and working with multiple stakeholders (including MBTA staff, unions, private sector, and advocates)
• The FMCB looks forward to developing:– Comprehensive scenario development – Operating savings opportunities – Revenue generating opportunities – Items not included in the baseline, such as positive train control – Impact on the Commonwealth trust fund– Further debt evaluation – Peer comparables to benchmark cost and revenue
Draft for Discussion & Policy Purposes Only
Appendix
15
DRAFT
Draft for Discussion & Policy Purposes Only 16
DRAFT
0
100
200
300
$400M
FY17P
"A""B"
"C"
$261M
$190M
$242M
FY18P
$357M
$273M
$335M
FY19P
$366M
$303M
$391M
MBTA 2014 Pro-FormaCurrent MBTA Pro-Forma without Capital Employee and Project TransferCurrent MBTA Pro-Forma + Capital Employee and Project Transfer
Projected Structural Deficit Comparison to 2014 Pro-Forma
COMPARISON OF MBTA 2014 PRO-FORMA PROJECTIONS:“APPLES TO APPLES” COMPARISON IS BETWEEN “A” AND “B,” BUT ACTUAL STRUCTURAL DEFICIT INCLUDING CAPITAL EMPLOYEE TRANSFER IS “C”
Draft for Discussion & Policy Purposes Only 17
0
500
1,000
1,500
$2,000M
711 737 773 801 836888
938 9801,038
1,138 1,177 1,2201,293 1,329
1,4301,509
1,569
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16B
9.7% 3.4% 3.7% 6.0% 2.8% 7.6% 5.5% 4.0%3.7% 4.9% 3.6% 4.4% 6.2% 5.6% 4.6% 5.8%Growth Rate (%)
Annual Operating Expenses
Annual operating expenses (not including debt service) will grow to $1.6B in FY16B
DRAFT
Draft for Discussion & Policy Purposes Only 18
0
2
4
6
8
10%
Fiscal Year
Annual Opex Growth
2.4%
3.7%
4.9%
3.6%
4.4%
6.2%5.6%
4.6%
5.8%
9.7%
3.4% 3.7%
6.0%
2.8%
7.6%
5.5%
4.0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16B
Annual operating expenses (not including debt service) grown annually 5.5% over past 4yrs
DRAFT
Draft for Discussion & Policy Purposes Only 19
MBTA Annual Debt Service Expense Will Grow to $540M by FY20
Note: Central Artery Debt refers to Financing Related to the Big Dig Project. Legacy Debt refers to debt inherited at the start of Forward Funding.Source: MBTA Internal Data
DRAFT
0
200
400
$600M
FY 2016P
Capital Plan
Central Artery
Legacy Debt
Leases$452M
FY 2017B
$462M
FY 2018B
$505M
FY 2019B
$524M
FY 2020B
$540M
6.8%
0.0%
-3.0%0.0%
FY16:FY20CAGR
34 26 31 31 30Legacy Debt109 109 109 109 109Central Artery305 323 361 380 396Capital Plan
Draft for Discussion & Policy Purposes Only 20
Debt service payments are split roughly evenly between principal and interest
DRAFT
0
200
400
$600M
Millions ($)
FY 2013A
$437M
FY 2014A
$435M
FY 2015A
$413M
FY 2016B
$452M
FY 2017P
$462M
FY 2018P
$505M
FY 2019P
$524M
FY 2020P
$540M
-0.3% -5.0% 9.4% 2.2% 9.3% 3.8% 3.0%Annual Growth (%)
PrincipalInterestLease payments
ANALYSIS ON 7 YEAR DEBT SERVICE GROWTH RATES
Draft for Discussion & Policy Purposes Only 21
Wage growth, largely due to the transfer of employees to the operating budget, is the largest component of FY17P Opex increase
DRAFT
-60
-40
-20
0
$20M
Healthcare
$6M
Other Fringe Benefits
-$1M
Other Expenses
-$2M
Pension
-$2M
Energy
-$3M
Materials & Services
-$12M
Commuter Rail
-$12M
Wage
-$13M
Ride / Boat
-$14M
Capital Employee and
Project Transfer
-$52M
BREAKOUT OF COMPONENTS OF $104M FY17P OPERATING COST INCREASE
Categories with increased year-on-year costs
Draft for Discussion & Policy Purposes Only 22
532 employees with a fully-loaded annual cost of $126K will be transferred from the capital budget to the operating budget in FY17P, FY18P, and FY19P
DRAFT
0
200
400
600
Total number of employees to be transferred
Capital Budget Employees
Design & Construction
E&M: Maintenance of Way
E&M: Rail Maintenance
E&M: Signals & Communications
Everett Vehicle Engineering
E&M: Power Systems Maintenance
532
0
50,000
100,000
$150,000
Fully-loaded annual cost of employee to be transferred
Average Cost per Capital Employee
Capital Regular Wages
Capital Overtime Wages
Fringe Benefits
Indirect Costs
$126,095
PRELIMINARY ANALYSIS ON TRANSFER OF CAPITAL EMPLOYEES TO OPERATING BUDGET
INCLUDES DIRECT EMPLOYEE SALARY COST. IN ADDITION, THERE IS $20M OF EMPLOYEE RELATED OPERATING COST ASSOCIATED WITH FULL CAPITAL PROJECT BUDGET TRANSFER
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