BOARD MEMORANDUM

RECOMMENDATION:

1.  Adopt a finding that a fare increase is necessary to meet operating expenses and to fund capital projects necessary to maintain service within the existing service area, while maintaining minimum required financial reserves.

2.   Invoke a Statutory Exemption under CEQA, P.R.C. §21080(b)(8) and CEQA Guidelines Section 15273(a) (Rates, Tolls, Fares and Charges) for the purpose of modifying and increasing fares.

3.   Adopt a resolution establishing new rates and fares for VTA bus, light rail, and paratransit services effective August 1, 2003.

BACKGROUND: 

In November 2002, the Administration & Finance Committee was presented proposed assumptions for the FY 2003-2004 Budget.   The proposed assumptions did not include any fare changes.  Considering falling sales taxes and looming deficits, members of the Committee unanimously recommended that staff return with a proposal for a fare increase, to be implemented as soon as feasible. 

Review and adjustment of fares was also a primary recommendation of the Business Review Team (BRT), convened by then Board Chairperson Ron Gonzales in early 2002.   The BRT particularly recommended that VTA should reduce fare discounts and increase prices on monthly passes as elements of a strategy to increase VTAs average fare revenue per boarding.  The BRT report pointed out that VTAs low average revenue per boarding is a major factor to VTAs very low farebox recovery, and suggested that raising the share of operating costs paid for by VTA riders would be an essential part of any campaign to raise new external revenues for VTA. 

The Ad-Hoc Financial Stability Committee has approved 19 recommendations.   Among the recommendations was: VTA should adopt and annually recommend a formal policy guiding fares for the future, which includes setting a farebox recovery target of 20% to 25%, to be pursued over the coming two to three years.  Consideration of the 19 recommendations by VTAs Board of Directors is pending.

DISCUSSION: 

An initial staff recommendation was presented to the Board Standing Committees on March 20 and discussed at length at the Board Workshop meeting on March 21.   At the workshop, the Board requested staff to analyze the ridership and revenue impacts with higher Express fares and reduced increases to day pass and monthly sticker rates for Senior/Disabled riders.  The Board also asked for additional alternative(s) that would achieve the $4 million increase in fares generated by the initial staff recommendation.  

The proposed fare changes including the Board Workshop alternative and a staff alternative were presented at eight public meetings and to the Board advisory committees in April.   The Board of Directors also received public comments at the May 1, 2003 meeting.  As discussed on page 8 of this report, we have also met with representatives of Eco Pass employers and San Jose State University. 

Attachment A summarizes input received during the public comment period, including the following materials:

• Overall summary matrix of public comments by subject including comments at public meetings, comments received by email, telephone calls, and letters received by U.S. mail.
• Day After Reports for each public meeting
• Copies of all written comments
• Summary of comments from Board Advisory Committees

Following all these meetings, and considering input received, we have prepared a new revised staff recommendation based on the Board Workshop alternative with additional changes to Youth cash fares to achieve the $4 million revenue target.   The proposed tariff resolution reflects the revised staff recommendation. 

Later this year, we will also bring to the Board a proposed multi-year fare policy.  Key elements to be addressed in this policy will include the following:

• What is the appropriate share of transit operating costs that should be paid by the users of the system (rider fares), versus by taxpayers (sales tax and other subsidies)
• Relationship of fare policy to service productivity, cost efficiency, and farebox recovery ratio
• Schedule for regular fare reviews (annual or biennial)
• Timing of fare reviews (linkage with budget process)
• Actions to be taken once VTA achieves its farebox recovery goals 

ALTERNATIVES:

The current fare structure was implemented July 1, 2002.  Prior changes and adjustments were made in 1999, 1997, and 1994.  At the time of the 1999 fare change, it was anticipated that fare adjustments would recur on a biennial basis.  Although we are now proposing an increase only one year after the last fare change, had we followed the biennial schedule the 2002 increase actually should have occurred in 2001, and 2003 would again be a fare change year.  Attachment B illustrates the history of VTA fares over the past decade.

Attachment C compares the current FY 03 fare structure against the initial staff recommendation, the March 21 workshop alternative, and the revised staff recommendation.  Differences between the alternatives are shown in bold print.  Discount levels for Youth and Senior/Disabled riders and multiples for day passes and monthly passes are shown for reference.  Also included are current and proposed ADA paratransit fares.  

Summary revenue and ridership projections for the several FY 04 scenarios are shown below, as estimated using a fare elasticity model initially provided by Booz Allen & Hamilton for the 2002 fare review.   The model has been adjusted to reflect impacts of the April service reductions but does not reflect the Recommended Budget assumption of a 21% service reduction in October 2003.
 

Revenue and Ridership Impacts of Fare Change

Key features of all three of the fare increase alternatives are as follows:

• All cash fares are proposed to be adjusted to $0.25 increments.   Compared to fares requiring nickels or dimes, fares in quarter increments are more convenient for riders, can speed boardings, and will address complaints about limited change currently available at VTAs light rail ticket vending machines.  Front line VTA operating staff has many times recommended fares based on multiples of $0.25. 
• The Adult base fare will increase to $1.50.   The Senior/Disabled cash fare will increase to $0.75.  VTA will offer the 50% discount for these riders, the minimum  required by federal regulations.  We will continue to exempt Youth and Senior/Disabled riders from any surcharges for Express bus service. 
• The monthly pass for Adult riders will increase to $52.50 which represents a multiple of 35 times the base fare.   (The multiple is determined by dividing the monthly pass price by the single ride cash fare).  This is an increase from the current multiple of 32.1 and brings us close to the Bay Area average of 36.1 as shown in Attachment D.  The Youth monthly pass would increase to $30.00. 
• The Adult day pass would go to $4.50 which is a multiple of 3 times the cash fare.   Day pass tokens for Adult and Youth riders would maintain their pricing at 90% of the cost of the respective day passes, when purchased in bags of five tokens.
• As shown in Attachment E, proposed changes to Adult fares are expected to result in an average $1.08 per boarding for Adult riders in FY 04, up from an estimated $0.96 per boarding for Adult riders under the current fare structure. 
• For ADA paratransit, the base one-way trip fare is recommended to continue to be twice the Adult fixed-route cash fare, the maximum permitted by federal law.   The charges for premium paratransit services are proposed to retain their established relationships to the paratransit base fare as shown in Attachment C.  New charges for premium services are proposed for door-to-door escort service and for travel outside the federally mandated paratransit service area.  Charges for premium paratransit services including the new charges are discussed in a separate Board memorandum.   The same memorandum also recommends changes to the ADA paratransit benefit offered through Eco Pass.
• Proposed changes to Eco Pass fares, including the San Jose State University program, are consistent among the three fare change alternatives and are discussed on pages 7-8. 

The following discussion highlights the differences between the three alternatives. 

Initial Staff Recommendation  In addition to changes common to all alternatives, this proposal would establish a Youth fare of $1.00 which is a 33% discount from the Adult fare.  This discount matches the local average for Youth.  The surcharge for Express bus services would increase to $1.00 and Youth as well as Senior/Disabled riders would continue to be exempt from these surcharges.  (The adult Express cash fare would go to $2.50).  Monthly pass multiples would be set at 30 for both Youth and for Senior/Disabled riders, yielding prices of $30.00 and $22.50 respectively.  Day pass multiples would be adjusted only slightly from FY 03 levels. 

As compared to FY 04 without a fare change, the initial staff recommendation is projected to generate $4.2 million in additional fare revenues, about a 14.5% increase.   Revenue per boarding would be about $0.77 as compared to $0.63 without a fare increase.  Ridership loss associated with this alternative is projected at 2.9 million boardings, or 6.3%; this ridership loss is considered to be temporary and is expected to diminish over time.  An average FY 04 fare per boarding of $0.77 for VTA is expected to be close to the FY 04 Bay Area average, considering that this average was $0.72 in FY 01 and other transit operators also have fare changes underway. 

The average fare per boarding for Youth riders is expected to rise to $0.72 under this alternative (from $0.62 today) and for Senior and Disabled riders, the average fare is projected to increase from $0.26 today to $0.51 with the proposed changes.   As compared to the other two alternatives, the initial staff recommendation has greater increases for Senior/Disabled riders as it reduces the S/D discount from the current 68% for cash to 50% for both cash fares (single ride and day pass) and for the monthly sticker, thereby reducing these discounts to the minimum required by federal regulation.  The difficulty of these changes for fixed income Senior and Disabled riders has been the primary focus of comments on the proposed fare change, both from the general public and from the VTA Board and advisory committees.  The two other alternatives were developed in response to these concerns.   

3/21/03 Workshop Board Alternative  By motion at the March 21 workshop, the Board asked staff to analyze an alternative with the following changes from the initial staff recommendation:  Reduce Senior/Disabled day pass to $1.75 and  Senior/Disabled monthly pass to $17.50, and increase adult Express fares to $3.00 (cash), $9.00 (day pass) and $90.00 (monthly pass).   As compared to the initial staff recommendation, these changes have the effect of reducing the day pass multiple and the monthly pass multiple for Senior/Disabled riders.  The day pass multiple for adult Express riders would be 3.0 which is an increase from the initial staff recommendation, while the Express monthly pass multiple is slightly reduced from the initial proposal.  

Although the workshop alternative includes increases to proposed Express fares as well as reductions to proposed fares for Senior/Disabled riders, the overall impact of this alternative is to generate less revenue than the initial staff recommendation because there are many more Senior/Disabled riders than there are Express riders.   Total additional fare revenue for this scenario is $3.7 million, or about $460,000 less than the initial staff recommendation.   Overall revenue per boarding is estimated at $0.75 as compared to $0.63 without a fare change and $0.77 with the initial staff recommendation.  The initial ridership loss is projected at 2.4 million boardings or 5.3%. 

For Senior/Disabled riders, this alternative is projected to produce average revenue per boarding of $0.40, which is about 20% less than under the initial staff recommendation.   For Express riders, this alternative would result in an average fare of about $2.21, which is 22% higher than the $1.81 estimated for the initial recommendation. 

Revised Staff Recommendation  The current revised staff recommendation incorporates all changes to Senior/Disabled and Express fares as suggested by the Board at the March 21 workshop.   As requested by the Board, this alternative also includes additional changes to achieve the same revenue increase as projected for the initial staff alternative.  Specifically, this alternative further increases Youth cash and day pass fares, as follows:  Cash fare to $1.25, day pass to $3.75, day pass token to $3.38 (when purchased in a bag of five for $16.90). 

The projected revenue change from this revised staff recommendation is $4.2 million, equal to the initial staff recommendation.   Revenue per boarding is also the same at $0.77.  Projected initial ridership loss is lower than the initial recommendation, at 2.7 million or 5.9%.  The lesser ridership impact is an effect of lower increases on Senior/Disabled riders (who pay lower fares on average) and higher increases on Express and Youth riders (who pay higher fares). 

This revised recommendation is projected to yield $0.81 per boarding from Youth riders, or about 12% higher than projected for the initial staff recommendation and the Board workshop alternative.   Average fares per boarding for Senior/Disabled and Express riders are projected to match those for the Board workshop alternative, at $0.40 and $2.21 respectively.   The average fare per boarding for Adult riders is $1.08 under all alternatives.

This revised staff recommendation replaces a different staff alternative presented to April public meetings and advisory committees, which did not have the additional changes to Youth cash fares but had higher increases to Senior/Disabled day passes and stickers than requested at the March 21 Board   Workshop. 

Following is discussion of proposed changes to the Eco Pass program and to various Special Fares.   The proposed changes are the same for all three fare change scenarios. 

Eco Pass and San Jose State University  Under all alternatives, several changes are proposed in support of increasing revenue while recognizing the distinct markets served by these programs:   

• Eco Pass rates for employers and residential communities are proposed to increase by 30%.   The minimum contract value would also increase 30% (from $1,150 currently to $1,495 after the rate change).   Current and proposed Eco Pass price matrices are shown in Attachment F. 
• The rate for San Jose State University (SJSU) is proposed to return to the 1997-98 rate of $20 per semester.    Attachment G provides a history of VTA rates, participation, and charges for the SJSU transit program since Fall 1996.  VTAs on-board surveys have shown a much higher rate of utilization of the SJSU transit access card as compared to other Eco Pass fare media, consistent with a higher propensity to use transit for students as compared to employees or the general public.  
• To preserve the integrity of the program and ensure discount levels are applied as intended, Eco Pass contracts will be entered into directly with principal employers, residential communities, and property management companies rather than through broker(s).
• ADA paratransit benefits offered through Eco Pass are proposed to be modified as referenced above in the discussion of paratransit fare changes and more fully described in a separate Board memorandum.   

During the initial public comment period, staff met with representatives of several Eco Pass employers on April 21 and with representatives of San Jose State University Associated Students on April 22.   These discussions included discussion of rates, pricing tiers, ridership estimates, and for SJSU, proposed changes relative to ADA paratransit service.  Staff has reviewed information received at these meetings and is not recommending any changes to the initial recommendations. 

As shown in Attachment E, estimated revenue per boarding for Eco Pass cardholders is projected to increase from $0.78 today to about $1.06 with the proposed pricing and program administration changes.   For San Jose State University, revenue per boarding is projected to increase from $0.44 today to about $0.76 with the proposed new semester rate. 

Pricing for existing Eco Pass contracts will be adjusted when contracts expire, typically at the end of each calendar year.    For San Jose State University, the proposed rate change would be effective for the Spring, 2004 semester. 

Special Fares  Special fares which are currently linked to Adult day pass prices will be adjusted in proportion to the change in the day pass.  Fares in this category including the Convention Day Pass and the Golden Getaway senior group program.  Round trip fares for San Francisco 49er game service are proposed to be set at 12 times the Adult base fare, which would result in an $18.00 fare this fall.  The round trip fare for this service is currently $15.00 and has not been adjusted since 1999.  A 20 percent discount off the round-trip fare is offered on season passes, which also include free service to exhibition and post-season games. 

Additional comparative fare data and detailed fare model projections are attached for reference and in response to prior Board member interest, as follows:

• Previously referenced, Attachment D compares VTA fares against those of comparable northern California transit operators.  Pricing information is current as of May 2003 while average fare per boarding data is from 2001.  Although VTAs current $1.40 base fare is higher than average for the group, both AC Transit and Sacramento RT already are at $1.50.  As noted on the table, almost all operators are also considering fare increases at this time.  For example,  a 25% base fare increase, from $1.00 to $1.25, is proposed for San Francisco Muni and Santa Cruz Metro is considering an increase from $1.00 to $1.35 or $1.50.

• Attachment H presents detailed VTA fare model outputs including ridership and revenue by all of VTAs major fare types and rider groups.  It should be noted that although the model works with precise figures, all estimates of future revenue and ridership are just that, estimates.  Furthermore, since VTA is not able to collect detailed ridership data for all individual fare types or rider groups, the detailed breakdown of ridership and revenue should be considered even less precise than overall estimates for VTA. 

FISCAL IMPACT: 

As shown on page 4, total FY 2004 fixed route fare revenue is estimated at $28.8 million with no fare change,   $33.0 million with the initial FY 04 staff recommendation, $32.6 million with the workshop Board alternative and $33.0 million with the revised staff recommendation.  For comparison, VTA budgeted $34.5 million in fares in FY 2003 but now only expects to receive about $29.4 million due to significant declines in employment and ridership.  None of these figures include shuttle revenues.   

On a per rider basis, fare revenue is projected to increase from $0.63 per boarding today to $0.75 - $0.77 per boarding under the three FY 04 fare change alternatives.   If adopted, any of the FY 04 fare change alternatives would represent a major step towards bringing VTAs average fares in line with local and national peer norms. 

Actual ridership and revenue impacts will almost certainly differ from model projections, but forecasts presented here represent the best information at this time of the likely impacts of the suggested fare alternatives, based on FY 03 year-end service levels. 

In addition to impacts on revenue from fixed-route service, the proposed fare changes will impact VTAs ADA paratransit budget as the basic ADA paratransit fare is increased to $3.00 (two times the proposed fixed-route base fare) and premium ADA services are adjusted accordingly.   Fiscal impact from these fare changes has been estimated at $220,000 in increased paratransit revenues [not yet counting any revenues from Door-to-Door Service or Out-of-Service-Area charges] that will have the net effect of reducing VTAs contract cost for ADA paratransit service. 

CONTACT THE BOARD SECRETARY'S OFFICE FOR ATTACHMENTS.

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