Amendment of FY 2003-04 and FY 2004-05 Operating and Capital Budgets
Peter M. Cipolla, General Manager, reported that VTA is in the second phase of the two-year budget adoption. He introduced Gerald Rosenquist, Acting Chief Financial Officer.
Mr. Rosenquist provided a brief overview of the Operating Budget Revenues, highlighting: 2003 Bond Program, Measure A Repayment Obligation, Financing Transactions, Preventive Maintenance, Fares, Other & STA. Mr. Rosenquist stated that the proceeds of the Measure A Repayment Obligation will be received in FY 2003-04 instead of FY 2002-03. For the Financing Transactions, he explained that the changes were brought about by timing and possible law change in the sublease of 50 Light Rail UTC vehicles to Sacramento and Utah. He added that proceeds for the Financing Transaction will be received this year and not on FY 2004-05.
Board Member McHugh inquired about the background and basis of the pending legislation associated with the financing transaction. Mr. Cipolla explained that Senator Charles Grassley of the Banking Committee penned the legislation. The objective is to close the loopholes in tax benefits for private corporations through the public works projects. Mr. Cipolla added that this type of transaction might be the last of its kind since Congress might eliminate it upon approval of their budget. He noted that it has a negative impact on transit and water districts, as well as other agencies that undergo these types of financing transactions.
Upon query of Board Member McHugh, Mr. Cipolla responded that there is a core group working to maintain these types of transactions. He noted that there is a letter writing campaign to the congressional delegation as well as coordination with bond counsels.
Board Member Dando referred to Pages 4 and 5 of staff report and noted that several of the projections were not realized on financing transactions, preventive maintenance, and the service reductions. She inquired how the new adjustments affect VTAs budget strategy and how much is the deficit.
Board Member McLemore took his seat at 9:09 a.m.
Mr. Cipolla noted that most of the items in the budget are housekeeping. He noted that some of the transactions, particularly the leasing transaction, came out ahead of the projected amount. He noted that when the two-year budget was adopted, the 21 percent service reduction was not included. He further noted that a subsequent Board action is needed to reprogram the monies back into the budget to maintain the service.
Board Member Dando queried if VTAs budget is still better than projected even without the 21 percent service cuts or the fare increases. Mr. Cipolla replied that the bond monies and the cost efficiencies that were implemented helped the budget. However, there is still a structural deficit of about $75 to $100 million that needs to be dealt with.
Board Member Chavez left her seat at 9:12 a.m.
Board Member Dando expressed concern that VTA might be depleting the reserves. She noted that VTA needs to be realistic and not look at the reserves.
Board Member McLemore left his seat at 9:13 a.m.
Mr. Cipolla noted that VTA will not borrow as much as what was originally proposed. He stated that VTA will only borrow to offset the operations and the amount would be substantially less than $80 million.
Board Member Chavez took her seat at 9:14 a.m.
Board Member Dando inquired about the financing transaction and unanticipated changes. Mr. Cipolla stated that it is a carry-over from last year. Mr. Rosenquist explained that there is a combination of timing and real increases in the budget. As an example, he cited the Preventive Maintenance dollars that showed an unanticipated increase of $10 million. He noted that this additional amount came from the three percent cuts, cost efficiencies and reorganization.
Board Member McLemore took his seat at 9:15 a.m.
Board Member Dando inquired regarding the borrowed and expensed money and the balance. Mr. Rosenquist noted that the monies from financing are considered as revenues. He also noted that there was change in the amounts because VTA received the monies earlier than expected.
Board Member Williams referred to Sheet 1 (Summary of Major Amendments Proposed for the Operating Budgets) and requested an explanation on the negative revenue on Financing Transaction and Fares for FY 2004-05. Mr. Rosenquist replied that because of timing, the anticipated monies for Financing Transactions will be received in the current year instead of FY 2004-05. Consequently, this timing will result into a negative amount in the following year. Mr. Rosenquist further explained that the possible change of law will prevent the completion of the transactions for FY 2004-05.
Board Member Williams referred to the items in expenses. He inquired about the change in reimbursement methodology and stated that the name raises suspicion. Mr. Cipolla noted that the Ad-Hoc Financial Stability Committee reaffirmed that the costs are not charged appropriately to capital projects. He noted that a new methodology was developed to capture the true cost of staff time spent on projects such as: Measure B Program, Highway and Roadway Transit projects, and Federal projects that VTA is under contract with. In the new methodology, staff time and other overhead costs relating to the project will be charged appropriately to the project.
Board Member Williams queried if the new methodology has been compared to similar agencies. Mr. Cipolla replied that the methodology has been compared to several agencies and was discussed with the County. He added that since there will be changes in charging for the roadway programs, there is a second independent consultant who examined and modified the methodology. The new methodology captures the true costs and the allocation of costs is in accord to everyone.
Board Member Williams inquired how the new methodology reduces the operating costs. Mr. Cipolla explained that in the new methodology, staff and overhead costs are charged in an appropriate rate to the contract or project. He noted that the methodology separates the capital and operating costs, thus making sure that VTA does not absorb capital costs for projects.
Board Member Chavez left her seat at 9:25 a.m.
Board Member Williams inquired about the analysis of the expenses and revenue in terms of dollars per person. He further inquired if the data has been summarized and compared to find out if VTA is at par with agencies operating in the same capacity. Mr. Cipolla responded that he, along with the Ad-Hoc Financial Stability Committee, Silicon Valley Manufacturing Group, and other business community members are confident that VTA is managing well in this kind of environment.
Board Member Casas requested cost for Huron consulting contract for the review of the overhead cost allocation-indirect cost rate proposal (methodology validation). Board Member Casas stated that it is good to have reserves and inquired why VTA is borrowing money to have reserves. He further inquired about the structural deficit, the plans of action to address it, and when will the options be presented to the Board.
Mr. Cipolla responded that the Board is in the process of addressing the structural deficit by looking at future revenue stream. He added that VTA is also working with the Manufacturing Group to find new revenue streams. Chairperson Gage stated that the Ad-Hoc Financial Stability Committee has made recommendations to find new revenue sources and it will be revisited every six months. He stated that the $80 million is to keep the current operations and maintenance and is not intended to be put as reserves. He noted that there would be another discussion about the new revenue source sometime in May 2004.
Board Member Chavez took her seat at 9:29 a.m.
With regard to the reserves, Mr. Cipolla noted that VTA tries to maintain at least 15 percent of the operating reserves balance and the reserves are depleted. Mr. Cipolla noted that the money will be borrowed only to keep the cash flow and will be on an as-needed basis.
Board Member Chavez directed attention to the $11 million capital budget allotted for the preliminary engineering of the Alum Rock to Eastridge segment of the Downtown East Valley (DTEV) Light Rail Project. She suggested incorporating an additional $14 million for the preliminary engineering for the Alum Rock to Downtown segment.
Board Member Chavez stated that the when the whole DTEV project was adopted, it was a top priority. She added that in Measure A funds, half of the money for the preliminary engineering for the Eastridge to Alum Rock and Alum Rock to Downtown segments were set aside. She inquired about the strategy of funding for the third segment of the project, the Eastridge to Route 87.
Mr. Cipolla referred to the Valley Transportation Plan 2020 (VTP 2020), where the allocation of money was done. He noted that in VTP 2020, only $550 million was allocated and additional $400 million needed to be obtained for the DTEV project. These funds were specifically for the two first segments and the extension to Route 87 was not funded. There is potential to seek New Starts Monies for the project, however, that could only be done after the BART Extension project is completed.
Board Member Chavez inquired how much of the original Measure A total dollars was set aside for local projects. Mr. Cipolla noted that in VTP 2020, $1.1 billion was set aside for a series of study and construction for one or two Light Rail Projects. He stated that from that amount, the Board has considered extending the project to Route 87. He noted that the Board of Directors has the opportunity to reallocate dollars as the process of prioritizing for the Valley Transportation Plan 2030 (VTP 2030) is underway.
Board Member Chavez noted that the DTEV Policy Advisory Board (PAB) needs to discuss how to aggressively pursue funding for the Eastridge to Route 87 segment. She noted that if a funding source is secured, there is benefit in constructing the whole line from Alum Rock to Route 87, compared to breaking project in segments. She added that it is better to do the link now rather than later.
Board Member Chavez noted that she would like to amend the recommendation and incorporate the $14 million for preliminary engineering of Alum Rock to Downtown. She noted that the PAB should discuss the issue and come to a consensus on a strategy for the Board to consider.
Board Member Dando left her seat at 9:39 a.m.
Alternate Board Member Alvarado, Chairperson for the DTEV PAB, enumerated the members of the PAB and provided an historical overview of the DTEV project. She noted that seven years ago, a major investment study was started to be ready to apply for New Starts Money. She mentioned that at that time, Mr. Cipolla stated that the additional $400 million will be sought from the Federal Government. She expressed concern that until now, no application to the Federal Government has been made for the project.
Alternate Board Member Alvarado noted during the PABs discussions on the preferred alignment, the project roused support, excitement, and expectation. Although the project has significantly progressed from its onset, there is little movement other than the conceptual engineering and the environmental study. She noted that the augmentation being proposed on the table does not adequately respond to the level of work that has been done nor the expectation on the project.
Board Member Cortese arrived at the meeting and took his seat at 9:41 a.m.
Board Member Dando took her seat at 9:42 a.m.
Alternate Board Member Alvarado noted that it is absolutely necessary to complete the entire project due to geographic equity and connectivity. She expressed her appreciation for Board Member Chavez recommendation to add $14 million for Alum Rock to Downtown and noted that the Board should look for ways to include the Eastridge to Route 87 segment.
Ex-Officio Board Member Beall left his seat at 9:44 a.m.
Board Member Chavez noted that she wants the PAB to discuss the strategy to make sure that the third leg of the project will be fundable.
Ex-Officio Board Member Beall took his seat at 9:45 a.m.
Board Member McHugh stated that the DTEV ranks high in the priority. He inquired if it would be for the best interest of the project to bring it back to the PAB or have the Board discuss the funding issue at present.
Mr. Cipolla replied that it is about timing. He stated that the Operating and Capital Budget being discussed on the table is an outline of the expenditure for the year. He stated that the preliminary engineering for the Alum Rock corridor would not be ready until Spring 2005. He noted that the Board has not made a decision whether to use bus or light rail as preferred alignment. He added that the choice of a preferred alignment would significantly affect the cost of preliminary engineering.
Board Member McLemore left his seat at 9:46 a.m.
With regard to Route 87 connection, Mr. Cipolla noted that the Board needs to prioritize that segment in VTP 2030. He noted that in the next two months, the Board has the opportunity to do this during their discussion about where the Measure A and other potential monies should go. He noted his reluctance to agree to appropriate additional funds to DTEV until the Board has done prioritization of projects.
Upon query of Board Member McHugh, Mr. Cipolla clarified that it is not necessary to do the appropriation for DTEV at present. He noted that not doing so still provides the opportunity to set the priorities in the future.
Chairperson Gage queried about the action plan with regards to the DTEV project.
Board Member McLemore took his seat at 9:49 a.m.
Board Member Dando requested that a workshop be set up to clearly discuss the long-term strategy. Board Member Dando requested a matrix illustrating current projects, new potential priorities, timelines, and how these tie into revenue and timeline. She requested that issues with potential impacts such as the possible loss of the carpool lanes, be included in the matrix. She noted that this would let the Board see all the projects and be able to set a long-term strategy.
Vice Chairperson Pirzynski commented that it is time to revisit the earlier assumptions and the timing of projects such as BART. He noted that the difficulty VTA has experienced in the last few years has changed the publics regard to VTA from an efficient and significant organization to an irresponsible and less credible organization. He stressed the need to complete projects. He also stated that the Board should closely look at expenses that will happen in the near future rather than those that are way far ahead. He requested to examine Vasona and Rapid Bus as a step to restore VTAs credibility to the public, thus making the voters more receptive to voting for another ballot measure.
Board Member Casas requested that the matrix also include the financial statement without the new revenues and cost reductions. He explained that eliminating the two would clearly show the sustainability of VTA.
Board Member Cortese left his seat at 9:55 a.m.
Board Member McHugh expressed his support to Board Member Dando and Vice Chairperson Pirzynskis comments. He also expressed support for the BART Extension project. However, he noted that the $170 million should not be exclusively for BARTs preliminary engineering. He stated that he would like to seek affirmation that the approval of the budget amendment today does not close any windows for other projects. Mr. Cipolla responded that the amendments to the Operating and Capital Budgets are merely for spending and not for prioritization of projects.
Board Member Cortese took his seat at 9:56 a.m.
Board Member Cortese apologized for being late and explained that he came from an Association of Bay Area Governments (ABAG) conference in Napa. He noted that in the PAB discussions, staff affirmed that the engineering will go all the way to Route 87. He stated that staff reports in the past had indicated that there will be no physical constraints to the preliminary engineering of Alum Rock to Downtown. He stated that theoretically, there is no reason to put the preliminary engineering on hold on the three segments. He stated that staff needs to return to the PAB before making any changes to the budgetary assumptions.
Mr. Cipolla noted that the project had always been divided into segments. He stated that VTA is ready to do preliminary engineering for Capitol Expressway Corridor Light Rail so the $11 million is appropriated. He stated there is no need for the Board to appropriate money for the preliminary engineering for Route 87 because VTA is far from ready to do preliminary engineering. He added that the environmental work, which lasts for about two years, has not yet started.
Ex-Officio Board Member Beall left his seat at 10:01 a.m.
Chairperson Gage stated the concern is that other projects such as BART is appropriated money while other projects such as the extension to Route 87 is not.
Mr. Cipolla responded that the BART project is already moving through the environmental process and the preliminary engineering was authorized during the bond sale in December. He stated that the $170 million is needed to support the preliminary engineering contract awards. He referred to the $16 million proposed budget for Downtown Retrofit project and stated that the money may or may not be spent, depending on how the Metropolitan Transportation Commission (MTC) rates the project.
Ex-Officio Board Member Beall took his seat at 10:04 a.m.
Board Member Chavez commented that to her, the issue of having the DTEV alignment and BART Extension does not conflict. She noted that the DTEV is a hard alignment due to the size and the curve of the street and noted that the PAB needs to determine how to move forward. She stated that there is an urgency to find coordination for BART and the DTEV project.
In terms of being competitive, Board Member Chavez noted that since the Board accepted the BART Extension as a New Starts project, alternative sources of funding must be sought for other projects. She recommended for the DTEV project to be part of the Measure A strategy. She reiterated her recommendations to look at the DTEV alignment and have the PAB discuss the third segment in relation to the entire project. She referred to the other cities and noted that they should not be left out. Lastly, she noted that the goal is to be able to spend money wisely and move projects quickly.
Vice Chairperson Pirzynski stated that the issue is time, sequence, and how the money is appropriated. With regard to the prioritization of projects, he expressed support for BART but also noted that the timing and sequence of allocation of money should suit all the projects.
Chairperson Gage summarized the issue into three phases: 1) the $11 million appropriation for engineering work, 2) the movement of money for the second phase, and 3) the discussion of the PAB regarding the Route 87 preliminary engineering.
Board Member Dando requested that the next two workshops be dedicated to looking at the strategy as a whole and not by individual projects. She stated that it would be better to have an alignment of funding and priorities. She cautioned that looking at individual projects might be a mistake.
Chairperson Gage noted that the discussion was very healthy and expressed that there should be more time for study discussions. He reminded the Board Members to be committed and encouraged them to set aside time in their respective calendars so that all opinions could be heard.
Board Member McHugh responded to the concerns that Chairperson Gage raised. He noted that there is no need to appropriate additional funds because the projects have not been prioritized yet. He noted that the movement of funds will be done after the completion of the prioritization process.
Board Member Fowler stated that he will participate in the workshops. He noted that as a new member, it would be very helpful for him as well as for the City of Sunnyvale.
Board Member McLemore reminded the Board Members that another element of Measure A is Caltrain. He recalled that when Measure A was passed, it included Caltrain to go to communities of Palo Alto, Los Altos, Mountain View, Santa Clara, Sunnyvale, San Jose, Morgan Hill down to Gilroy. He emphasized that all the projects should be addressed and supported.
Board Member Casas expressed concern that monies should not be moved until priorities are fully discussed. He noted the importance of focusing on the obligation to the community and completion of commitments.
M/S (Dando/McHugh) to conclude the discussion, accept the report and defer any changes and amendments until the Board has the opportunity to fully discuss the projects, set priorities, timelines, construction, and revenue.
Board Member Williams noted that as the Board looks into the priorities, the economic benefits must be factored in.
Board Member Cortese directed attention to the $11 million allocation for preliminary engineering of Capitol Corridor to Eastridge and noted that it does not fully reflect the discussions in the PAB. He stated that Alternate Board Member Alvarado has requested for special memos that indicate the commitment to the engineering up to Route 87. He stated that in the meetings, staff told the PAB that engineering would be up to Route 101.
He added that the PAB even discussed land use implications, future station location issues, and park and ride issues all the way up to the 101/Silver Creek/King Intersections with Capitol. He stated that he would not vote for a motion that supports stopping short of the engineering of that last piece.
Mr. Cipolla affirmed that the conceptual engineering was done all the way to Route 87. He noted that the final Environmental Impact Study/Environmental Impact Report (EIS/EIR) for the Capitol Corridor Extension to Eastridge is ready to go in Spring 2004.
Board Member Cortese stressed that it is important to postpone the movement of money but expressed concern that it seems like the money has already been moved out of the project. He stated that he would not support a motion that does not include enough funding for the preliminary engineering up to Route 101. He noted that the City of San Joses Planning Department is relying on the engineering of the project because there is huge real estate interest in the area. He added that the community also relies on the analysis of how it would affect the Aborn/Capitol intersection and other issues that are beyond Eastridge.
Chairperson Gage stated that the report will only be approved and that there will be no re-allocation until priorities are set.
Board Member Cortese requested clarification of the motion. Board Member Dando clarified the motion that the report will only be accepted and that the budget will be approved after the full discussion of the prioritization of projects.
Mr. Cipolla noted that the budget had to be approved so that contracts could be awarded.
Board Member Dando inquired if the dollars that Board Member Cortese was concerned about was originally budgeted and now being eliminated. Mr. Cipolla replied that it was not originally budgeted in the biennial budget. The preliminary engineering of the Eastridge portion was not budgeted because it was part of the Capital Budget for conceptual engineering and environmental work. Mr. Cipolla noted that it is now ready for preliminary engineering and stated that the Board could reaffirm, delete or augment it in the budget. However, he cautioned not to hold off the entire Operating and Capital Budgets merely because of one particular project. Mr. Cipolla stated that staff could come back to the Board with another budget amendment to accommodate the preliminary engineering of the remaining segment.
Board Member Dando suggested that staff come back in the next workshop with the actual amount that the Board could look at.
Alternate Board Member Kennedy took his seat at 10:26 a.m.
Board Member McHugh inquired about the ramification if $33 million is added to cover the preliminary engineering now and later move the monies around when projects are prioritized. Mr. Cipolla responded that the Board needs to prioritize projects before making allocations.
Upon query of Board Member McHugh regarding the $170 million being appropriated for BART, Mr. Cipolla responded the $170 million would be used for contract awarding within the next several months for the BART preliminary engineering. He reiterated that appropriation is needed to be able to award the contracts.
Board Member Dando noted a miscommunication regarding the projects direction. She stated that it would be a mistake to appropriate dollars into a project that has not been prioritized. She recommended approving the budget, look at priorities of VTA projects in context of revenue and be mindful of the comments made by the Board Members. She noted that this is an opportunity where the total transportation system could be analyzed and priorities could be set.
Board Member Chavez noted that the discussion was very fruitful. She noted that the $11 million dollars does not meet their communitys need but it gives the opportunity for the PAB to discuss the project and represent it to the VTP 2030. She noted that the DTEV project is a priority and should not be slowed down.
Board Member Chavez requested that Board Member Dando withdraw her motion. Board Member Dando accepted the withdrawal of the motion and Board Member McHugh withdrew the second.
Bob Brownstein, interested citizen, expressed his support to the DTEV full project. Mr. Brownstein noted that the Board should not wait for the economy to turn around but instead help it turn around by delivering the projects. Mr. Brownstein stated that the Board should consider using more Measure A monies.
Terry Applegate, Silicon Valley Independent center, expressed her disappointment that the meetings are not recorded and posted properly. She expressed concern on the costs that VTA incurs such as room reservations and salary of staff, particularly that of the General Manager and General Counsel.
Chairperson Gage clarified that the General Manager and General Counsel have deferred their salary increase. With regard to posting and recording of meetings, Sandra Weymouth, Board Secretary, responded that the agenda and minutes are posted at the Riveroaks campus and Downtown Customer Service Center. Ms. Weymouth added that these documents are posted on the VTA Website and minutes are included in the full packets of the succeeding meeting. Chairperson Gage requested that Ms. Applegate to refer her comments to the Board Secretarys Office.
M/S/C (Dando/Chavez) to approve amending the FY 2003-04 and FY 2004-05 Operating and Capital Budgets. The next study session will focus on prioritization of projects, discussion of issues raised at this meeting, and modification of budget, if necessary. Chairperson Gage requested a Roll Call Vote. On a vote of 10 ayes to 1 noes to 0 abstentations (Casas-Aye, Chavez-Aye, Cortese-No, Dando-Aye, Dixon-Aye, Fowler-Aye, McHugh-Aye, McLemore-Aye, Pirzynski-Aye, Willians-Aye, Gage-Aye) to approve amending the FY 2003-04 and FY 2004-05 Operating and Capital Budgets. The next study session will focus on prioritization of projects, discussion of issues raised at this meeting, and modification of budget, if necessary.
Board Member Dando requested the date of the next workshop. Chairperson Gage requested Ms. Weymouth to inform the Board Members of the Board Workshops for the year. Ms. Weymouth responded that the next Board Workshop is scheduled on February 27, 2004.
Board Members Chavez, Dando, Fowler, and McLemore left their seats at 10:40 a.m.
Vice Chairperson Pirzynski left the meeting at 10:40 a.m.