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Agenda Item # 20

BOARD MEMORANDUM

• What is the appropriate share of transit operating costs that should be paid by the customers 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.

This memorandum in conjunction with the recommended Fare Policy addresses the above subjects and in addition, addresses proposed fare pricing structure policies. A prior version of the Fare Policy was presented to the Advisory Committees and to each of the Board Standing Committees in October. In response to comments received in October, staff added three additional attachments to this memorandum.

The proposed Fare Policy was presented again to the Advisory Committees and to each of the Board Standing Committees in November. The CMPP Committee initiated and the TPO and AF Committees endorsed adjustments to the proposed pricing policy for Youth and Senior/Disabled riders. The proposed Fare Policy and this memorandum have been revised to reflect the actions of the Standing Committees.

DISCUSSION:

Relationship of fare policy to service productivity, cost efficiency, and farebox recovery ratio – VTA's "farebox recovery ratio" is not simply a result of fare policy but also depends on the amount of ridership (since it is riders who pay fares) and operating costs (since this provides the denominator of the ratio). For discussion purposes it is most useful to consider farebox recovery as the product of three specific operating statistics: The average fare per boarding, multiplied by average boardings per hour of service, divided by the operating cost per hour of service.

Attachment C compares VTA’s average fares, boardings per hour, and cost per hour of service against other transit operators in the Bay Area (plus Sacramento). More commute-oriented services featuring distance-based fares (such as Caltrain, ACE, or BART) are not shown because their fare structures and modes of operation are quite different from VTA's. All data is for fiscal 2002 which is the latest year for which data is available.

For each of the three indicators, the other operators are all charted in relation to VTA. That is, VTA is shown as 100% for each indicator, then the other operators are shown in comparison to VTA. For example, with regard to revenue per boarding, it can be seen that five of the other six operators did better than VTA, with only Muni garnering less revenue from each boarding passenger. With regard to boardings per hour, VTA was in the middle of the pack with three operators higher (Muni much higher) and three lower. With regard to operating costs per hour VTA was higher than the others. As the combined product of all three of these factors, VTA ended up with significantly lower farebox recovery than all other operators.

Although the local peers shown on the chart were selected as the being "comparable" to VTA, there are some differences which should be pointed out:

§ VTA along with Muni and Sacramento are the only operators providing rail service. Rail service typically costs more to operate than bus service, but also generates more boardings per hour. The higher cost of light rail service is part of the explanation for VTA's overall operating costs per hour being higher than costs shown for AC Transit, CCCTA, SamTrans, and Santa Cruz Metro.

§ San Francisco Muni operates in a much more contained (i.e., 49 square mile service area versus VTA's 328 square mile) and more “transit oriented” service area and is able to achieve much higher boardings per hour of service.

§ Sacramento and Santa Cruz are lower labor cost areas, which contributes to their showing lower costs per service hour than VTA (even though Sacramento also operates LRT service).

As the above discussion describes, average fares, ridership productivity, and operating cost efficiency are all important factors in farebox recovery. To achieve a significant increase in farebox recovery all three factors must be targeted aggressively.

Farebox recovery target – The Board has already approved a target of recovering 20-25% of operating costs from fares over the coming two to three years. The Ad Hoc Committee on Financial Stability reviewed farebox recovery data for comparable transit operators both nationally and within the Bay Area/Northern California region. Although the approved target of 20-25% is lower than recovery ratios achieved by some other operators, this target is nonetheless considered aggressive for VTA because of our relatively high cost of living and dispersed land use pattern which effectively limits service productivity. Achievement of the 20-25% target will represent approximately doubling VTA’s recent record of farebox recovery.

Schedule and timing of fare reviews – Along withrecommending a 20-25% farebox recovery target, the Ad Hoc Committee on Financial Stability also recommended that VTA should streamline the procedure for considering fare changes. The proposed VTA Fare Policy responds to this recommendation by establishing that fares shall be reviewed as part of the biennial budget process. Specifically, it is proposed that fares shall be reviewed biennially as part of review of operating budget assumptions, and fare changes shall be adopted with the biennial budget in May or June of every other year. To provide time for public information and other fare change implementation activities, fare changes shall take effect in January of the year following adoption.

For FY 2005, a different schedule will apply since the current biennial budget did not establish specific fare levels for FY 2005. To address this situation, VTA staff will develop recommended fares for 2005 for presentation to the Board on January 30, 2004 as part of a workshop session. Following the workshop, staff will solicit public comment on the proposed changes. At another Board workshop in April, we will present recommended fares for adoption, including any changes made as a result of public comment. Once adopted, these changes would be effective January 1, 2005. The regular fare review cycle would then commence in fall 2004 as part of the biennial budget process for FY 2005-06 and FY 2006-07.

Actions to be taken once VTA achieves its farebox recovery goals – The Ad Hoc Financial Stability Committee recommended that "Fare policy should be examined annually in time of financial need, and at least every two years". Once farebox recovery reaches at least 20% and is maintained within the 20% to 25% range for three years, the Board shall revisit the Fare Policy and determine whether to maintain the goal at 20-25% or to establish a new goal.

Fare Structure Policy

The "fare structure" is the framework of all the different types of fares that VTA offers, including cash fares, discount fares, prepaid fares, various special program fares, and ADA paratransit fares. VTA offers all these types of fares because our customer base includes many different groups whose transit needs, transit utilization and ability to pay for transit varies. Special fares are provided in support of partner relationships with various institutions, and to attract special market segments that might not otherwise come to VTA.

Balancing the need for a variety of fare types to serve different market segments, VTA also needs to keep its fare structure simple and comprehensible for customers and employees, and to allow for efficient collection of fares. In providing special fares and incentives, VTA also needs to be attentive to not unduly undercutting its base fare revenue, thereby limiting the average fare per boarding and eroding overall farebox recovery.

With the above as context, the recommended VTA Fare Policy includes fare structure policies both for fixed route service and for ADA paratransit service. The ADA paratransit policies are all already included in the current VTA Fare Tariff and were fully reviewed and discussed prior to adoption in FY 03. These paratransit policies will not be further discussed here. The proposed fare structure policies for fixed route service, in contrast, are mostly new although many reflect past practice. The following list addresses each of the fixed route policies including discussion of any unresolved questions or inconsistencies with the current tariff.

1. The base fare shall be the Adult cash single ride fare. Most other fares shall be defined in relation to the base fare.

2. All cash fares (except the Senior & Disabled single ride fare) shall be in $0.25 increments until stored value fare card technology is fully implemented. Pricing for monthly passes shall also be in $0.25 increments. Pricing for annual pass subscriptions, if offered, shall be in $1.00 increments. During prior fare reviews, staff and customers have both suggested that fares in $0.25 increments would be most convenient and efficient; this was finally achieved with the most recent fare change. There is a "downside" to this approach which is that it makes it harder to make small fare adjustments, especially for Senior and Disabled riders. Therefore, the proposed policy provides an exception for the Senior and Disabled single ride fare. This policy should be revisited once stored value fare technology is fully implemented (such as TransLink).

3. Fares for Youth and for Senior/Disabled riders shall be determined based on discounts from Adult fares, as follows:

· Fares for Youth riders shall be 80-90% of fares for Adult riders. When rounding is called for, Youth fares shall be rounded to the nearest $0.25 increment. The current Youth fare of $1.25 is 83% of the Adult base fare which is consistent with the proposed policy.

· Fares for Senior and Disabled riders shall be 40-45% of fares for Adult riders. When rounding is called for, fares for Senior and Disabled riders shall be rounded to the nearest $0.10 (single ride fare) or $0.25 (other fares). The current Senior/Disabled cash fare of $0.75 is 50% of the Adult cash fare.

· Although Youth and Senior/Disabled cash fares may be rounded as described above, pricing for Youth and Senior/Disabled day passes and monthly passes shall be established on the basis of calculated cash prices for these rider groups before rounding.

4. A premium cash fare equal to two times the base fare shall be charged for Express bus services. Express day passes and Express monthly passes shall also be priced at twice the equivalent Adult fare. Premium fares for Express services shall apply to Adult riders only. Although this policy reflects the current fare structure, this level of "premium" fare for Express is significantly higher has historically been charged by VTA.

5. Fees for Eco Pass or similar programs shall be established so that the average revenue per boarding approximates the average revenue per boarding for all other Adult riders. The challenge with this policy is how to establish required pricing levels given both the many price categories offered within Eco Pass and the lack of any ongoing counts of Eco Pass ridership. Eventual implementation of new fare collection technology such as TransLink would dramatically simplify the setting of fares for a variety of group programs, including Eco Pass.

6. Regional fare coordination arrangements shall generally provide local fare credit for valid transfers and passes of adjoining operators, at transfer points, and reciprocal benefits for VTA riders transferring in the opposite direction. Special arrangements may be established for services in which VTA participates as a member of a joint powers authority or board (e.g. Caltrain) or an interagency cooperative service agreement (e.g. Altamont Commuter Express). Most of VTA's existing inter-operator transfer agreements already reflect the intent of this policy. The only significant exception is our policy with BART wherein we provide a local fare credit to passengers transferring from BART but BART does not provide any reciprocal credit to passengers transferring from VTA.

7. The Board may establish additional pricing for additional types of fare media or special fare sales programs as it determines necessary to meet the overall goals of VTA. Such media or programs shall be included in the tariff. This language reflects our intent that the Fare Policy guide fare changes over a period of time, without needing to be amended every time a small program or minor element of the fare structure is added, deleted, or adjusted. The adopted tariff is the official statement of all VTA’s fares and this is the place for complete details on all fare media and programs.

8. The tariff shall also delegate to the General Manager, or designee, the authority to institute a limited period of reduced or free fares for promotional purposes or in response to emergency situations and conditions. The current tariff provides this authority to the General Manager, or designee, (for emergencies) and to the Director of Marketing and Customer Service (for promotional purposes).

In response to a request from the TPO Committee, Attachment D provides a comparison of existing fares against fares resulting from the proposed fare pricing policy (without changing the current $1.50 base fare). This table shows no changes to Adult or Express fares. The Youth cash fare and Day Pass also would not change from current fares but the Youth Monthly Pass would increase from $30.00 to $44.50. The Senior/Disabled cash fare would drop to $0.65 but the S/D Day Pass would increase from $1.75 to $2.00 and the S/D Monthly pass would increase from $17.50 to $23.50.

Attachment E carries the comparison one step further by analyzing the impacts of a $1.75 Adult base fare, which could be VTA's next $.25 increment from the current base fare. The pricing policy factors this base fare increment into increases in all other Adult fares and Express fares. All Youth fares also would increase. For S/D riders, the $1.75 Adult base fare would translate into an $0.75 cash fare (same as today), a $2.25 Day Pass, and a $27.50 Monthly Pass.

Also requested by the TPO Committee, Attachment F provides a summary of fare arrangements for riders transferring between VTA and other transit operators. As shown on this matrix, agreements between VTA and other bus operators are all fully reciprocal and provide for a free local ride or "base fare credit" on express services in either direction of travel as intended in the proposed fare policy. With regard to the three rail operators, none of the three provides any credit or discount to riders transferring from VTA services, while VTA has different rules and procedures for accepting riders from each of the three.

ALTERNATIVES:

The Board could elect not to adopt a formal Fare Policy. The Board could adopt a policy with a different farebox recovery goal or fare review schedule. The Board could add, delete, or modify the proposed fare structure policies.

FISCAL IMPACT:

Adoption of the recommended Fare Policy would establish a goal and a process for the consideration of fare changes to support achievement of a 20-25% farebox recovery ratio by 2007. Achievement of the goal will require not only fare changes, however, but also significant improvements in service productivity and cost efficiency.

Attachments

1. Resolution
2. Fare Policy
3. Farebox Recovery Ratio Analysis: Local Peer Operators Compared to VTA
4. Fare Pricing Implications of Proposed Fare Policy with $1.50 Base Fare
5. Fare Pricing Implications of Proposed Fare Policy with $1.75 Base Fare

6. Summary of VTA Transfer Arrangements with Adjoining and Overlapping Transit Operators

Contact Board Secretary's Office for Attachments.

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