SSS ampton ROADS TRANSIT December 15, 2014 Mr. Nick Britton Statewide Manager of Transit Planning Virginia Department of Rail and Public Transportation 600 East Main Street, Suite 2102 Richmond, VA 23219 RE: Transit Development Plan (TDP) Update Letter for Hampton Roads Transit (HRT),FY2015 - FY2021 Dear Mr. Britton: We are pleased to submit this annual TDP update letter to the Virginia Department of Rail and Public Transportation, The letter outlines all progress made on implementing the FY 2012 - FY 2018 TDP aver the last fiscal year, along with updating the capital and operating plans to reflect, the seven year planning period, FY 2015 to FY 2021. Please note that this update letter includes plans forthe current fiscal year, FY 2015; Hampton Roads Transits fiscal years run from July 1" to June 30". After years of consecutive ridership growth, total ridership on fixed route service declined eight percent in the last fiscal year. Changes to GoPass365, an unusually harsh winter where service was curtailed in three separate snow events, and the regional effects of federal sequestration all contributed to a ridership decline. A fare increase implemented in October 2014 may lead to some decline in ridership in FY 15. Overall however, the last fiseal year has been one of major progress for HRT as the agency works to address its capital shortfall, implement new business practices, and plan for the future. * Hampton Roads Transit has made continual progress at meeting its goals and objectives. Section 2 illustrates how Hampton Roads Transit has worked to better serve our customers, improve business practices, and build stronger partnerships in the region. * Under significant financial constraints Hampton Roads Transit has continued to invest in its services. In July 2014, Hampton Roads Transit expanded bus and ferry service as part of its expanded Elizabeth River Crossing service. The agency has improved service efficiency by reducing service and/or eliminating low ridership bus routes while adding additional trips to better performing routes, Overall revenue hours for all modes, (excluding ferry) have not changed substantially in the last fiscal year. Hampton Roads Transit's ability to provide additional service and realize the vision of the TDP is currently constrained by the lack of operating funds and capital funding for vehicles. * Hampton Roads Transit has made major investments in its capital assets such as replacing the entire paratransit fleet and expanding its bus fleet renewal program. Many of our other investments have focused on improving the efficiency of our operations such as a new human resource management system, and the implementation of a transit asset ‘management systemLetter to Mr. Britton, Continued Page 2 * The ageney has made substantial updates to its Capital Improvement Plan to reflect changes to state capital funding and a new internal policy to preserve more federal formula funds for capital. The total capital budget is projected to grow in the coming years, largely due to generous state matches for rolling stock, and provides HRT a path to improving its capital assets, especially the bus fleet. For the first time in years, HRT’s capital budget projects that the agency will be able to meet its fleet replacement needs within the six-year planning horizon, Last year's TDP update process identified, and this year’s process reconfirmed, a potential operating budget shortfall starting in FY 2016. Over the last five years, costs have consistently grown faster than inflation, while many revenue sources are constrained to grow at or under inflation. The agency has taken significant steps since the last TDP in addressing Hampton Roads Transit’s future budget deficit and limited capital funding. The agency is on track to meet its targets for preserving federal formula funds for capital in FY 2015, We are also working to address the projected operating shortfalls. We propose achieving a more sustainable operating and capital budget through operating cost containment coupled with the pursuit of a dedicated local capital funding source for the agency. Hampton Roads Transit is also looking toward the future and developing a vision for how it should grow and evolve to meet the changing needs of the region. Our agency is leading the development of Connect Hampron Roads, a long term visionary plan for better multi-modal transportation in the Hampton Roads region. We are also preparing to begin development on a new Transit Development Plan in FY 2016. The following six sections provide a detailed update to the TDP and include all the sections outlined by DRPT’s TDP update guidelines. Please let us know if there are any additional materials you need as part of this TDP update, Sincerely, A William E. Harrell President and CEO Ce: Amy Inman, DRPT ~ Planning & Mobility Programs Administrator Ray Amoruso, HRT ~ Chief Planning & Development Officer Brandon Singleton, HRT — Chief Financial Officer Keisha Branch, HRT — Capital Programs and Grants Administration Officer Julie Timm, HRT ~ Transit Development Officer Document Control: PS 014 —GS-19 10076 3400 Victoria Boulevard, Hampton, VA 23661 © 509 East 18" Street, Norfolk, VA 23504 757-222-6000 * gohrt.comHAT 2014 TOP Update December 15, 2014 1. Ridership Trends As shown in Table 2, in FY2014 HAT carried 17.2 million passengers, 98 percent of wham rode on HRT's fixed route services (bus, light ral, and ferry). Fixed route ridership declined from 18.3 milion in FY13 to 16.8 million in FY14, a dectine of eight percent. Ridership declined for every mode except for paratransit, which saw a 2.3 percent increase in ridership. After three years of growth, Light Rail ridership declined 14 percent in the last fiscal year, while bus ridership declined eight percent and ferry ridership declined one percent. The dectine in HRT ridership can reflect a number of factors including the impacts ofa fare increase, reform to the GoPass 365 program which reduced the availabilty of heavily discounted transit passes for our customers, crippling snow events that forced the system to shut down on three separate occasions, and a regional economy impacted by federal sequestration. Table 1: Monthly Ridership by Mode FY2014 Teer eins “1405890 25 icin rirna CU AC esp | 42,880 136,394 4,610,899 1,434,016 40350 148,966 1,649,838 4,338,597 30,557 139,688 1,530,525 43,332,735 23121 138,490 1,522,564 4,164,574 “22707 a7 345 1,83 1,155,649 15,210 112,153 995,644 10967 101ae 1,172,255 13710 115,592 4,164,458 "17,663 «116,999 1,241,994 24602 126,154 1,421,298 | 1,294,847 37,409 131,947 4,482,659 82,231 Total | 14,982,890 53,160 136,835 1,098,566 332,376 1,531,719 (17,158,774 Si ameton ROADS TRANSIT 7HRT 2014 TOP Update December 15, 2014 2. Progress on Achieving TDP Goals and Objectives Table 2 summarizes HRT’s progress during FY20214 in achieving its Goals and Objectives. These goals and objectives were developed by senior management and Commission members and reflect the agency's strategic vision. eset eee Penmeets services that effectively support the regional economy and quality of life. {a} Relocated cut of Cedar Grove bus transfer area (July 2013) to new interim Downtown Norfolk Transit Center along Wood street, a location with significantly improved lighting, security, pedestrian pathways, restroom facilities and other customer amenities, safer ingress and egress for bus2s, and ditect pedestrian ‘access to downtown offerings. 'b) Completed full rebuild of ADA-compliant Miltary Circle Transfer Center Including new shelters, bike racks, improved lighting, landscaping, benches, pavers, security cameras, and reinforced concrete pads for buses. ‘)_ Replaced 1,000 bus stop signs across the entire service area on the Peninsula end the agency ls preparing {or similar upgrade on the Southside. 118 new bus shelters systemwide have been replaced, Transit center improvements and service changes have been implemented to enhance service. )_Achieved a 13.3 percent year-over-year reduction in preventable accidents. fe) Achieved 100 percent adherence to scheduled bus Preventive Maintenance, z Accepted the delivery of seven 40° NOVA buses put in service to support Routes 44, 45 and 47 per the Elizabeth River Crossing (ERC) Agreement, and also expanded ferry service on weekday mornings to support weekday commuters, . '8) Continued to execute the Virginia Beach Transit Extension Study (VBTES) to evaluate potential extension Of fixed guideway transit into the City of Virginia Beach. The agency has also continued the Naval Station, Norfolk Transit Extension Study (NSNTES) which is evaluating need and potential corridors for fixed uideway transit services to destinations in the City of Norfolk including to NSN, which directly employs ‘over 76,000 military and chiian personnel. The agency will work with stakeholders to continue to advance the VBTES and NSNTES projects further as well 3s to initiate potential corridar studies on the Peninsula and in Chesapeake Simeon ROADS TRANSIT 2HRT 2014 TOP Update December 15, 2014 CoE Mnacuuneuca ue ene nar Sicievecse nts 2) Initiated strategic focus to achieve and maintain State of Good Repair on core fleet needs and, ‘beginning in Fiscal Year 2014, to reduce the flex of Section 5307 funding from capital to operating subsidy. Updates to fleet plan and Capital Improvement Program (CIP) include priority investments in bus refurbishing, repowering, and replacement, | Oversaw efforts to address Paratransit service model and costs which has included a symposium to inform program reengineering, a peer review of contract specifications and a new Request for Proposals. HRT is now successfully leveraging state and local matching funds to acquire new fleet vehicles. Over the last five years paratransit costs have grown slower than inflation; however, ridership hhas continued to grow. The agency is proactively controling costs and implementing best option service models ©) Developed a true comprehensive sb-year Capital Improvement Program (CIP) for the second time in the agency's history. The agency is now bullding on this foundation with detailed sub-plans for core areas: © Fleet © Technology © Facilities ‘= _Safety and Security aa ) Refined monthly financial reporting as part of Board updates to include Key Performance Indicators indexed to financial/operating targets. i ‘e)__Obtained successful reviews in FTA Triennial and FTA Financlal Management Oversight follow up visits f) Balanced fiscal demands and needs to be responsive to the public in obtaining the first fare policy Update and base fare increase in the fifteen-year history of Hampton Roads Transit. Development of the new fare policy was guided by these principles ‘Support HRT’s Mission and Vision Statements + Improve customer experience * Promote ridership across all modes + Consider and evaluate equitable treatment under Title VI of the Civil Rights Act ‘* Enhance mobility and access with a simplified fare system ‘+ Standardize fare structure review process + _Enhance data collection to foster data-driven management decision making, @) Implemented TransitStat program to support data-driven performance management throughout the, ‘agency, initially focused on topics of fuel efficiency, accidents, fuel hedging, going paperless, fare enforcement, solid waste disposal, and attendance. As a result of the changes made through TransitStat, HRT has experienced a 15.3 percent decline in operator absenteeism which equates to nearly a $250,000 reduction in 2014 wages (February ~ August) compared to February - August 2013. ‘TransitStat was the winner of the Virginia Transit Association's 2014 Best Program Award. h)_ Successfully closed out Fiscal Year 2013 with clean financial audits with no repeat findings. i) Crafted and initiated a strategic plan to begin reducing the flex of Section 5307 federal formula funds back to their intended purpose (reprogram away from operating subsidy and into core capital investment) J) Awarded the Certificate of Achievement for Excellence in Financial Reporting for RT's Comprehensive Annual Financial Report (CAFR) fram the Government Finance Officers Association (GFOA] for the first time ever. K)_Fully evaluated and revised Employee Classification and Compensation policy and procedures to ensure accountability, equity, internal controls, and transparency consistent with industry and labor market standards and best practices. All compensation decisions are centralized within the Human Resources office and vetted through an analytical compensation evaluation. Presented revised policy to full Executive Committee in February 2014, SS iameton ROADS TRANSIT. 3HRT 2014 TOP Update December 15, 2014 Transitioned the workforce to a merit-based compensation and results-oriented culture, integrating succession planning as a means to reward top performers. The HRT hiring, training, professional development and work environment focuses on the success of every team member. ‘mi]_In close coordination with the Board, addressed needs to improve internal auditing core functions and protocols, Allocated additional staff resources to support this key function nn) Reduced legal fees from $1.07 milion (FY12) to $438,799 In Fiscal Year 2014 through restructure of legal services made! and strong oversight by internal Senior Staff Attorney. '0) Upgraded backbone technology systems including PeopleSoft HCM and HASTUS. PI} Worked to right size the organization through attrition and by vetting positions to ensure that resources are assigned to best meet operational staffing needs. ‘* Since September 2013, HAT has realized a cost savings af $495,000 in administrative staff salaries due to the elimination of positions through attrition, ‘+ Since September 2013, HRT has realized 2 3 percent reduction in administrative staff compensation due to rightsizing, reorganization and succession planning efforts ‘+ From September 2012 to September 2014, the average administrative employee compensation has only increased 1.83 percent, which includes two Virginia Retirement System (VRS) increases. SSS iiampron koans TRANSIT 4HRT 2014 TOP Update December 15, 2014 ca fees anaes ab WER eeu coments Initiated meetings with City Managers and staff in all member cities and with other regional partners including Williamsburg Area Transit Authority, the City of Suffolk, the Hampton Roads Transportation Planning Organization, and DAPT to address specific areas of concern. by Kicked off 2014 by leading discussions with over 126 key individuals and leaders of major business and ‘community stakeholder groups concerning transit and regional mobility, economic competiveness, and ‘access to opportunities leading to the launch af Connect Hampton Roads. Connect Hampton Roads is a strategic multi-year initiative that is aimed at significantly improving regional multimodal transportation to be supported by stable, reliable funding, The schedule for Connect Hampton Roads has been set as follows: Kickoff Connect Hampton Roads initiative June 2016 Phase 1 Public / Stakeholder Engagement (input) June September 2014 Preliminary Connect Hampton Roads program development and release Phase 2 Public / Stakeholder Engagement (input) February tune 2015, Analysis of cost, phasing and funding alternatives ‘Apail-une 2015 October-February 2035 Finalize Connect Hampton Roads program June-July 2035 Phase 3 Public / Stakeholder Engagement (inputfendorsements) Legislative planning / advocacy ‘Summer 2015+ ‘Summer 2015+ ¢ ‘Successfully partnered with member cities for special events like Harbor Fest, Grand lilumination, HollyDazzle, the Neptune Festival, and Pirates in the Park, and last year partnered with the Peninsula Food Bank to collect over eight tons of food, a Revised the GoPass 365 program to support financial and program integrity, successfully renegotiating contract agreements with program members. Continued efforts to refine and optimize the program for balanced RO1 between ridership and revenue. ) ‘Worked closely with DRPT and the Transit Service Delivery Advisory Committee to define and implement ‘new methods for allocating state capital and performance-based operating assistance. SSH ameton nowns transit 5HAT 2014 TOP Update December 15, 2014 3. Service and Facility Improvements Completed in the Last Fiscal Year Service Changes and Improvements Table 3 outlines the change in revenue service hours by mode operated in FY2014 and anticipated to be operated in F20V15 and FY2016. Revenue hours are expected to remain largely flat over the next six years. In FY15 ERC service was implemented, increasing total ferry revenue hours; however, bus revenue hours did not see a similar increase as the new bus ERC service was counteracted with the elimination of low performing routes (routes 16 and 17 in Norfolk). Table 3: Revenue Hours by Mode” me Roo Light Rail 29,893 30,013 30,013 Bus 807,165 803,816 803,816 Ferry 6,375 6,780 6,780 Paratransit 201,978 194,099 239,000 In F¥2014 and FY2015 to-date (December, 2014), HRT implemented a total of four service change packages occurring in July 2013, November 2013, February 2014, and July 2014. The majority of service changes consisted of minor schedule and routing adjustments. Routes 1, 2, 3, 4, 6, 8, 9, 11, 13, 17, 20, 44, 45, 960, and 961 were relocated at the start of FY2014 to the new temporary Downtown Norfolk ‘Transit Center (DNTC) on Wood Street. A number of these rautes have also seen minor schedule and routing adjustments since July 2013 to improve performance. In uly 2024 HRT expanded frequency and span on three bus routes (44, 45, and 47) and ferry as part of the Elizabeth River Crossing (ERC) initiative, HRT also instituted an additional trip on two Northside routes and eliminated three routes due to poor ridership. The service changes since July 2013 are summarized in Table 4. * Figures based on budgeted revenue hours for FY15 and V6, End of year totals may vary because of special requests and other minor adjustments. SBS iameton ROADS TRANSIT .L LISNVUL SAVOU NOLAWV Hsp, a9i95 i . pas) Bs nt) ‘STAd UW} aeq-O1 pue PTAS UJ PaUaWA|du saUEYD aDIAIaS “y aIGeL ‘T0z ‘ST saquianag aropdn dOL PtOz Lu8 LISNVHL SaVOU NOLAWV Hee ona ey pTOz ‘ST Jaquiacag auopdn da eL0z L4H6 LISNWuL SavOU NOLAN He btoz ‘St saquiaseq awopdn dal prog LuHRT 2014 TOP Update December 15, 2014 ‘Major Capital improvements In FY2014 HRT completed the following capital improvements: ‘© Procurement of seven new buses for expanded ERC service; © End-of-life overhaul of nine buses; * Procurement of 76 new paratransit vans; * Completion of renovations at the Military Circle Transfer Center; ‘¢ Ferry dock structural improvements; ‘+ New security cameras for the interim Downtown Norfolk Transit Center (NTC) on Wood Street; ‘+ Procurement of mobile restrooms for the interim DNTC on Wood Street; ‘© Continual investments to install an auto-tension system and sectionalization on our LRT catenary; ‘+ Implementation of a transit asset management system; and ‘© Continued investments toward completing the implementation of a new agency-wide human resource management software (PeopleSoft HCM) and IT systems for real-time tracking of buses. SSBB i ameton aoavs transit 10HRT 2014 TOP Update December 15, 2014 Improvements Due to on-going budgetary constraints, HRT’s recommended service and capital improvements over the ext six years are focused on maintaining existing assets, replacing HRT's aging fleet, and maintaining current service levels. The following improvements reflect the constrained budgetary realities at HRT; if the funding situation changes, the agency would like to implement further improvements to create a seamless, reliable, and consistent transit system throughout the HRT service area and beyond, Proposed Service Improvements £y2015 HRT is planning to procure 25 new buses and rebuild an additional 28 vehicles that have reached the end of their useful life. The agency will also expand its midlife repower program to 36 additional vehicles. These vehicles investments will allow HRT to provide more reliable service at existing fleet levels and will not allow for service expansion. £y2016 For FY2016, the following service improvements are planned: ‘© Virginia Beach is planning to provide matching funds to the available State dollars in order to procure 12 replica vintage trolleys for operating the route 30 (Atlantic Avenue Shuttle) Wave bus service, which would free up the 12 existing hybrid buses to be used as needed by HAT to replace aging buses and/or provide additional service. £2017 ~ FY2020 ‘Asa result of funding constraints, any additional service increases are contingent on additional funding not reflected in this TOP update. If the Virginia Beach fixed guideway transit extension moves forward to ‘construction, feeder bus service would be implemented that includes two new routes and two modified routes as well as adjusted headways and new schedules for existing routes around the corridor. Contingent on the results of the Virginia Beach Transit Extension Study, the selection of a Locally Preferred Alternative by the Virginia Beach City Council, and a partnership funding agreement between the Commonwealth of Virginia and the City of Virginia Beach, the fixed guideway extension to Virginia Beach and associated feeder bus system are expected to open as soon as FY2019. Members of Virginia Beach senior staff and City leadership have stated that they believe the City will select a Locally Preferred Alternative of Light Rail Transit to Town Center. This will require the advance purchase {perhaps as soon as FY2016), of as many as four Light Rall Vehicles and 11 buses once that decision has been made official by a formal vote of City Council Capital improvement Plan The agency's constrained capital plan is built around the following strategies: + Meet the agency’s highest priorities first ~ HRT’s prioritization process has helped the agency identify its most critical needs. HRT is pragmatic in developing its constrained capital plan, with a focus on making the investments necessary to daily operations such as investments in fleet, maintenance facilities, and major IT systems. SS iameron ROADS TRANSIT nnHRT 2014 TOP Update December 15, 2014 © Focus on customers — HRT is working to provide transit customers a better ridership experience. This capital plans allows HRT to fund some safety improvements at transit centers, improve bus stops system-wide, and provide customer convenience features like real-time arrival information and new ticket vending machines. While there is still a large unfunded need for customer-focused improvements, the agency has worked to fund as many of these projects as possible within its current funding constraints. © Maximizing federal and state funding ~ HRT has worked to maximize how far its funding goes. ‘The agency has worked to prioritize projects with the highest state matches. HRT has optimized its allocation of federal funds to projects to ensure no dollar of funding is wasted. HRT’s budget projections show that the agency has a total of $195.3 million to spend on capital projects between FY2015 and FY2021, an increase of 131 percent from last year’s seven-year funding estimate of $84.6 million.’ The growth in funding can be attributed to a number of factors, including: * The increase in use of state funding through the establishment of state capital funding tiers;* ‘+The preservation of more federal formula funds for capital (12.5 percent); + Additional locally provided Advance Capital Contribution (ACC) funding that HRT can leverage with state and federal funds; + The inclusion of grant funding for planning of the fixed-gt Base; and * An increase in RSTP and CMAQ funding in the out years to support bus purchases. leway extension to Norfolk Naval A better indication of the health of HRT’s capital budget is the amount of HAT funding that is not obligated through discretionary grants. The amount of projected uncommitted capital revenue is estimated at approximately $106 million over the life of the plan. HRT’s most critical capital needs, including revenue fleet replacements, facility upgrades, and IT system maintenance, are largely dependent on these uncommitted funds. This figure is a five-fold increase over the amount of uncommitted revenue projected in last year’s baseline CIP. The increase is largely due to HAT's new policy of preserving a set amount of federal formula funds for capital expenditures as well as the ‘optimization of generous state matches through an increase in projected ACC funds. ‘The significant improvement in HRT's capital budget outlook should not be misconstrued as meaning the agency does not face significant capital funding challenges. As discussed in the Capital improvement Plan, HRT's reliance on federal and state funds exposes the agency to a great deal of long-term funding uncertainty. The revenue projected in this CIP will be largely used to meet HAT’s extensive backlog of fleet, facility, and IT replacement needs. Today HRT’ fleet has degraded to the point that the agency is frequently unable to maintain its scheduled service. While HAT plans to replace and rebuild more buses ? Unprogrammed capital revenue. For budgetary purposes active grants are treated as already expended funds. * Beginning in F¥2024, Virginia Department of Rail and Public Transportation began providing state grants that cover up to 68 percent of the gross cost of rolling stock purchases, up to 34 percent of faclities related purchases, and up to 17 percent of the gross cost ofall other projects, SSB iameton noavs TRANSIT 2HRT 2014 TOP Update December 15, 2014 this fiscal year than it has in over six years, any capital funding shortfalls will endanger efforts to bring the fleet to industry standards. Even with the improved capital budget outlook at HRT over last year’s CIP, there is still a predicted $62.8 million shortfall in the agency's capital budget. As most of HRT’s capital needs are required up front in the first few years of the plans, some major projects may be funded but delayed past their year of need. ‘The majority of HRT's capital budget over the next seven years will be invested in fleet and planning projects. The planning projects have funding obligated specifically for them. The fleet needs, while one of the most critical the agency has, received additional priority in order to take advantage of the highest tier of state match funds. Table 5 summarizes the types of projects that HRT has planned to fund over the seven year period of the CIP. 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Current Year Cost and Funding Sources Table 8 shows the final actual expenditures for the most recent fiscal year (FY14) and the approved budget for the current fiscal year (FY15). The operating budget for FY15 reflects the agency's approved budget at the start of the fiscal year while the projected capital budget was developed through the CIP process in the fall of 2014. ‘Table 8: FY14 and FY15 Actual and Approved Budgets Peeters i FYia Actual Fya5 (Approved) Fras (Projected) 965,954,864 | $67,877,447 Siaiaans | are 507 Paratransit $13,417,472 | $13,910,556 ght Rail Transit_| $9,023,888 | $9,486,088 | Other $2,647,439 [$6,665,092 “Total Expenses | $93,109,310" | $99,916,590 Passenger $16,847,749 | $18,892,151 > - Revenue # | Grant, CMAQ & $714,355 | $4,350,000 RSP a = ‘Advertising $018 es > Stat eee $20,873,749 $12,249,856 Federal $16,484,429 | $15,093,015 | $4.734,423 | $13,365,682 toca $37,549 a03" | $30,586 a6a | | $300,501 | $3,000,884 | [other “| $409,238 [$2,848,000 ga3a33 ] Total Revenue ‘$93,933,982 | $99,616,590" $54 /459,146 a — $8,371,390 Capital expenditures in FY15 reflect both all obligated revenue as of July 1, 2014 that HRT expects to expend in this fiscal year, as well as all un-programmed funding that is expected to be available in £Y2015. Due to delays in receiving capital grants along with procurement lead time, not all of these un- programmed capital funds may be spent this fiscal year. For a transit agency like HRT, capital budgets will fluctuate extensively year by year. The large difference in capital funding between FY2014 and FY2015 is due to: * £2014 budget based on FY2014 projected budget figures. Approved and projected budgets are typically higher than actual expenditures due to builtin costs for incidentals and unanticipated costs. SBS i ameton noavs TRansit 7HRT 2014 TOP Update December 15, 2014 © Backlog of capital funding as HRT assembles the funding necessary to implement major projects. + Significant new RSTP and CMAQ revenue for new buses and planning projects. * Additional state funding, including state share of major projects such as the Downtown Norfolk Transit Center. ‘+ First year of HRT’s “New Direction Plan” to preserve higher rates of formula funds for capital. 6. Financial Plan As in last year’s TOP update, HRT's six year projected budget shows a growing projected operating deficit starting in FY2016. The budget shown in Tables 9 and 10 below utilizes several assumptions, including ‘Factors such as growth in healthcare costs and paratransit use will drive up operating costs; ‘+ State and Federal funding will grow at historical rates that remain below inflation and operating cost trends; * Local operating subsidy will be constrained to grow at only 2.5 percent a year; © HRT will implement the second phase of fare increases in July 2016 ($0.25 increase in base fare); © Asameasure to protect the capital budget, HAT will preserve at least 12.5 percent of S307 federal funding and 10 percent of $337 funding for capital projects ~ these measures will reduce the total use of federal funds for preventive maintenance in the operating budget; ‘+ The new tiered capital project matches provided by the state will remain at current levels, through the life of the plan; + HRT will receive $2,000,000 a year in local advanced capital contribution (ACC) funding to provide a local match to state and federal funds, an increase of $500,000 over last year. ‘The operating deficit is projected to occur because costs are growing consistently faster than inflation, while revenues are largely growing at or below inflation. As costs are growing faster than revenues over time, a budget gap occurs that will decrease the amount of available funding and ultimately lead to an Operating deficit. The deficit is compounded by a number of additional factors. First, HRT received $2 million less in state funding in FY2015 than anticipated in the approved budget and has been told by DRPT to expect to receive 10 percent less in FY16 than initially anticipated. Moreover, the agency has implemented a policy to preserve a fixed percentage of federal formula funds for capital. This policy is necessary to ensure HRT has the vehicles, facilities, and IT systems necessary to continue operations as the agency can no longer afford to defer critical capital investments. Finally HRT’s proposed fare increase was split between two years, with no additional fare increase assumed over the life of the plan. On the capital side, the budget outlook has improved considerably over last year. HRT’s policy of preserving additional capital funds, combined with an increase in state funding and ACC, has allowed the agency to address its serious fleet backlog. The capital budget relies on state matching levels to continue past FY2018. Any change in state matches, reduction in federal funding, or locally provided ACC could seriously impact HRT’s capital budget as these funding sources are interrelated. A reduction in ACC, for ‘example, would limit HRT’s ability to take full advantage of other funding sources. Addressing the Funding Gap Addressing the projected operating budget shortfall will require a multi-pronged approach by the agency that includes structural changes to contain operating costs, dedicated local funding, and SSB iameton noavs TRANSIT aHRT 2014 TOP Update December 15, 2014 decreased reliance on 5307 federal funds for preventive maintenance, HRT is in the first year of implementing its New Directions financial strategy. In FY2015 the agency expects to meet its targets for preserving federal formula funds for capital. HRT is looking closely at its operations to further cut costs where possible; the agency's hourly operating costs are already below national averages according to the National Transit Database. The final piece in addressing the funding gap is to implement dedicated local funding for HRT. HRT is one of the few transit agencies in the country with rail operations that does not receive any dedicated funding, The reliance on state and federal funding sources that are largely ‘outside of HRT's control, along with reliance on local funding that comes from our partners’ general budgets, results in budgetary uncertainty for HRT. Active Funding HRT’s capital budget in Table 10 reflects only un-obligated funding, ie., funding that has not been officially obligated by the grantor even in instances where funds have been already awarded. For budgetary purposes, the year of expenditure in the capital improvement plan represents the year the funding is formally obligated to a project (i.e, it becomes an active grant), Even once funds have been obligated by the grantor, they may not be immediately spent by HRT for various reasons ranging from procurement lead time (the average bus takes 18 months to procure) to delays in assembling the necessary funding for a project. 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