Board of Directors Meeting
November 08, 2002
Hyatt San Jose
1740 North First Street
San Jose, California
I. CALLED TO ORDER at 8:37 a.m.
ROLL CALL: Members Present: Alvarado, Beall (Ex-Officio), Chavez, Cortese, Dando, Gage, Gonzales, LaPoll, Lawson, Kennedy, McLemore (Ex-Officio), Mossar, McHugh, Springer, Valerio, Williams, Yeager
Members Absent: Nadler, Pirzynski
A quorum was present.
II. Considered recommendations from the Business Review Team.
Scott Buhrer, Chief Financial Officer, introduced Carl Guardino, President and CEO of the Silicon Valley Manufacturing Group and Chairperson of the 2002 Business Review Team (BRT). Mr. Buhrer expressed gratitude to Members of the BRT who invested much time and energy on this Report.
Mr. Guardino stated the importance of working together to address the challenge to formulate recommendations which will increase revenues and decrease costs. Mr. Guardino expressed gratitude for the time invested by the executives of the BRT who brought a wealth of experience in finding funds and cutting costs.
Mr. Guardino stated that in a time as difficult as this, where VTA has already taken tough steps, there are no easy decisions.
Mr. Guardino reviewed the Business Review Team’s proposed recommendations:
VTA needs to continue to strive to come in line with transit operator peers throughout the country, increasing fare box recovery ratios. Assuming a $300 million budget for directly-operated service, each 5 percent improvement in farebox recovery ratio would generate $15 million in additional revenue.
Cost containment opportunities should be considered to address increasing costs in health benefits including an employee co-pay system which is standard practice in both private and non-profit sectors. The changes could result in an estimated savings of $2.5 million to $3.5 million annually.
Modify the Americans with Disabilities Act (ADA) Paratransit Program to provide only the level of service that is actually required by the ADA in order to gain whatever savings possible while also meeting a tremendous community need.
Continue to gain more market share so there are more riders on the system, not only for a fiscal perspective, but also for the perspective of taking cars off the road, easing air pollution and brake run-off from brake pads.
Continue to participate with Joint Powers Authorities as a regional partner and transit provider reflecting regional commute and transit patterns.
Mr. Guardino stated that the overwhelming opinion of the ten executives participating on the Business Review Team was that VTA staff is incredibly professional and diligent. Mr. Guardino expressed gratitude to staff for their passion and commitment to providing transit service to the residents of Santa Clara County.
Chairperson Gonzales expressed appreciation to Mr. Guardino and Members of the Business Review Team.
Board Member Alvarado commented that the proposed recommendations are a burden entirely on the users and the employees of the organization. Mr. Guardino responded that the business community has led every effort in the history of Santa Clara County to bring revenues for transit service.
Peter M. Cipolla, General Manager, stated that because of the compression of time to try to get into a cross check of how VTA operates, the Business Review Team had to focus on just these elements. Mr. Cipolla expressed appreciation to members of the business community for the time spent with staff and for providing comments and ideas on the VTA operation. Mr. Cipolla encouraged the Board of Directors to review the data presented, noting that this is an open discussion item. The information can be further discussed in deliberations over the next several months. The purpose of the report is to bring information forward for discussion and for a private sector prospectus of VTA’s operation.
Board Member Gage noted that at the Board of Directors’ Meeting of November 7, 2002, a decision was made regarding Paratransit and queried the net gain of the decision made. Mr. Buhrer responded that the recommendations made by the Board of Directors at the Meeting of November 7, 2002, are very much in line with the recommendation of the Business Review Team.
Mr. Cipolla noted that staff is confident that $2 million to $2.5 million will be saved annually based upon the Board of Directors’ action taken at the November 7, 2002, Board of Directors’ Meeting.
Board Member Gage suggested that due to the recent increase in fare box recovery, a plan is needed for future increases so that there is not one huge impact at the same time. Mr. Buhrer stated that when the Business Review Team looked at VTA’s fare box recovery ratios, they found that our ratios are around 15 percent and peer average was around 30 percent. The Business Review Team recommended that the amount that users pay of the proportion of operation costs should be increased. Mr. Cipolla stated that the recent fare increase held fare revenue stable to what it was last year despite significant ridership loss. Mr. Guardino noted that fare box recovery in Santa Clara County is second lowest in the country and suggested bringing the recovery close to average. VTA fares are also among the lowest in the country.
Board Member Mossar queried whether there are areas to focus upon in order to increase ridership. Mr. Guardino stated a willingness of the Silicon Valley Manufacturing Group to reach out to its members to establish a follow-up team of marketing experts to work with VTA’s staff to assist in this matter.
Board Member Dando requested that Mr. Guardino return in three to six months with a report on how the business community can more effectively get employees to participate in ridership and suggested that Chambers of Commerce be included in the partnership.
Board Member Springer noted that recommendation #4 spoke not only of increasing the marketing efforts to increase ridership, but to constantly evaluate services making necessary modifications to assure efficiency and effectiveness and queried whether the Business Review Team had an opportunity to get into the details of how the bus and light rail systems are operated and whether there are opportunities for improvement. Mr. Buhrer stated that how service standards are developed and applied and how routes are either improved or scaled back were discussed.
Board Member Springer noted that most of the Valley is involved in networking and suggested utilizing the wealth of outside expertise available in the Valley to review efficiencies and make recommendations regarding better integrating the system to serve more customers. Mr. Cipolla responded that these types of issues would be addressed during the next several months when we initiate a comprehensive operational analysis.
Board Chairperson Gonzales stated that 95 percent of businesses in the City of San Jose have fewer than 50 employees and noted that this is an untapped resource.
Board Member Gage suggested a survey of small businesses to determine whether or not they would consider using transit to get to work, and if not, what would it take to get small businesses to use transit.
III. Reviewed Recommended Sustainable Financial Strategies.
Mr. Buhrer provided the Obtaining Sustainable Financial Stability Report and stated that it should be viewed as a report in progress. Mr. Buhrer noted that under most any scenario additional revenues are needed. The Board of Directors would need to set priorities and make selections and choices.
Mr. Buhrer directed Board Members to the spreadsheets provided in the Report and noted that there is a relatively low inflation environment, the inflation estimate being 3.5 percent.
Mr. Buhrer noted that real growth rate in sales tax over the upcoming 20 years will probably be half of what it has been over the last 20 years, or 1.25 percent. When added to the inflation assumption of 3.5 percent, sales tax over the next 20 years will probably grow at a rate of 4.75 percent. This rate was tempered with estimated results coming out of this recession. Mr. Buhrer stated that we have not “got our arms around” the significant amount of taxable transactions that occur business to business in this County.
Mr. Buhrer stated that in the base case, another half-cent sales tax is needed beginning in 2005. There are some one-time opportunities that can probably be used to get to 2005. If there are no new resources by 2005, there will be very serious issues. When BART comes on-line in 2012, additional resources of about $30 million will be needed.
Mr. Buhrer stressed that: 1) we continue to maximize preventative maintenance strategies between now and 2005 which will result in some deferred maintenance issues that will arise and, 2) we anticipate the need to issue $50 million in debt to advance reimburse ourselves some monies that were advanced on behalf of the 2000 Measure A, that were originally contemplated to be repaid in 2006 or 2007.
Mr. Cipolla stated that the spreadsheets are variations of various assumptions and reiterated that the Report incorporates potential revenue sources, including what has been done by other transit systems within California, specifically the Bay Area.
Mr. Cipolla stated that if the Board of Directors is interested in raising the Sales Tax Cap and pursuing Benefit Assessment Districts, our Legislators need to be addressed right away. Mr. Cipolla noted that some of the State Legislators are already geared to begin some modification to the two-thirds requirement.
Board Chairperson Gonzales queried whether staff has a sense of how many other agencies in the State may be in the situation of going to the State Legislature to allow them to raise the Cap within their county. Mr. Cipolla expressed confidence that if VTA takes the lead, San Francisco will be right there, as will agencies in Southern California. Mr. Cipolla noted that this is a systemic problem throughout the transit industry, throughout government, in the State of California.
Board Member Gage queried how much emphasis was placed on phasing or project delays in calculating these numbers and noted that money can be saved by delaying projects, adjusting phasing projects in and shifting priorities in order to take advantage of the downturn as well as if you have an upswing in the economy. Mr. Buhrer responded that staff has not dealt with phasing capitol projects and noted that he does not believe this would change the result of the analysis, but would change the timing of when the result occurs. Mr. Cipolla stated that it does not delay the need for an additional revenue stream by 2005.
Board Member Williams queried the impact if we continue with current funding and can we afford to live within the budget. Mr. Cipolla responded that it amounts to in 2005, $80 million less than what we have on the street now.
Board Member Cortese suggested that a working group of policy makers and staff be formed to chart a direction from a policy standpoint by the December 12, 2002, Board of Directors Meeting in order to provide direction to our Legislative Delegation by early January 2003.
Mr. Cipolla stated that he believes that from the specific financial side, for the Board of Directors to make hardcore decisions regarding what is the most viable alternative, it will need to take until January 2003 to absorb the alternatives identified.
Mr. Cipolla stated that he would personally like to see the Cap raised at least 1/2 percent in order to provide flexibility to others who may come along later. He would like to see VTA in a position to establish Benefit Assessment Districts in and around our stations.
Board Member Mossar noted that it is hard for her to imagine that the voters will approve another � cent sales tax, much less a � cent sales tax.
Board Member Valerio stated that he welcomes the idea of a working group with staff to pursue options to be addressed with the legislative delegation. Board Member Valerio noted however, that he is reluctant to support additional sales taxes but suggested looking for vehicles that have a nexus to transportation including transit development fees, vehicle license fees or regional gas tax.
Board Member Springer stated that a sales tax at this time would be extremely hard to sell to the community especially if the rules on the vote need to be changed in Sacramento and cautioned choosing one opportunity or path too quickly before we know the chances of success.
Board Chairperson Gonzales cautioned that we not eliminate options and noted that passing any tax any time of year is difficult.
Alternate Board Member McHugh queried whether if we continue the current level of service only, and were to implement a ten percent fare hike every other year, if there would still be a need for additional revenue in the 2005 timeframe. Mr. Cipolla stated that the burn rate of reserves is over $5 million per month.
Ex-Officio Member Beall requested information regarding the costs to operate the system without capital costs included and noted that the existing level of service needs to be maintained as a credibility issue.
Board Member Yeager queried at what point, if we don’t get to the $167 million needed to be generated annually by the year 2005, does the whole system collapse. Mr. Buhrer stated that we are going through our reserves at a rate of over $5 million per month and that our unrestricted reserves are scheduled to be at zero around June 30, 2003. We need to generate one-time solutions to even get to 2004.
Mr. Cipolla stated that on the ballot for 2000 Measure A, it was very clear that by the year 2014 a major revenue source would be needed.
Board Member Yeager stressed the agony that will be suffered if transit service and jobs are cut.
Alternate Board Member La Poll stated that there is a good plan in place for transportation in this County over the next 18 years, and commented that we have no choice but to look at a sales tax and other measures to go forward with the plan.
Board Member Gage suggested explaining to the voters that we have a basic problem and are unable to provide our basic service and further suggested asking voters if they would be willing to let VTA borrow against the 2000 Measure A dollars to keep VTA going with the basic service as we are trying to make the economy work and add to the end of that additional years to compensate for what we are taking away in the beginning.
Board Member Alvarado stated that time needs to be spent developing the kind of strategies that will take us where we need to be for the longer term and noted that we need to maintain the current system and then explore the wide variety of options that might be available for us to consider and pursue with caution.
Board Member Dando stated that time must be taken for thoughtful strategy that is realistic and noted that the reason voters supported efforts on transportation in 1996 and 2000 is because we lived up to the original Measure A.
Board Member Dando noted the necessity to focus on priorities that are our base including bus, light rail and Paratransit and further noted that the level of service provided these priorities needs to be strongly considered. Board Member Dando stated that the State has its own financial problems to deal with and will come to the cities and counties for assistance to deal with its problems.
Board Member Dando stated that how we maintain the level of service for BART when it comes on line needs to be incorporated into a well thought strategy that is not linked to sales tax.
Board Member Dando stated that regarding the fact that we are going through the reserves at $5 million per month, a matrix of the projects that those monies are being used toward is needed to ensure that those projects are the priorities of this Board and how they fit into the next five and ten years. Board Member Dando further stated that she does not understand exactly how opening new lines will not increase additional funds for operation, and now more services are added, the greater the deficit grows and the greater revenue will need to be generated on the far end.
Board Chairperson Gonzales stressed the need to be cautious not to go too deeply into choosing or eliminating alternatives and noted that information needs to be provided in a way that is understandable.
Board Member Mossar noted that the economic horizon has shifted precipitously and queried how VTA’s vision can be changed to reduce costs and provide service.
Alternate Board Member Lawson stated that a deal was made with the public years ago that stated that the sales tax was going to be used to support the transportation system. Unless voters see that VTA has done everything to keep the organization afloat and is unable to provide the level of service, the response to an increase in sales tax will not be positive.
Alternate Board Member McHugh noted the necessity to optimize the current system, preserving the current bus service, the essential service, and eliminating the weekend, evening and midday services, non-essential services. There needs to be a working system, average fare box recovery and then the phasing of projects can be reviewed. The three-tier project memo needs to be looked at and validated as a group. Then a case can be made to the voters.
Alternate Board Member McHugh requested staff’s response to the question posed by Board Member Gage regarding what happens if we borrow against the Measure A funds and lengthen the term of that tax in order to spread out the opportunity and further requested that staff provide this information at the December 12, 2002, Board of Directors Meeting.
Board Chairperson Gonzales stated that this is an appropriate request and it needs to be placed on the Agenda for the December 12, 2002, Board of Directors’ Meeting.
Board Member Williams emphasized the need to live within our means in order to give a view of Measure A and B which was brought to the voters to support transportation programs and to use this as a guideline.
Board Member Williams requested a quick summary of projects that are in or outside of Measure A and B, what is crucial and whether funds are available for these projects. He stated the community needs to know what funds are being expended and the level of service provided. That way, they can make a decision as to whether or not they are willing to approve an increase in the sales tax.
Board Member Cortese stated that the issue of credibility with the voters has to do with whether we agree with one another or not and suggested that the rush needed is to a process to bring us consensus. Board Member Cortese reiterated his request for the formation of an emergency budget task force be added to the Agenda of the December 12, 2002, Board of Directors’ Meeting. For the sake of clarity, the task force would be called the General Manager/Board Budget Task Force and can begin to meet on a more rapid schedule to start wading through solutions as quickly and as efficiently as possible.
Eugene Bradley, Santa Clara VTA Riders Union, expressed concern regarding delaying the BART Project and decreasing bus service.
Bob Brownstein, Interested Citizen, stated that smart growth depends upon mass transit and further stated his belief that a half-cent sales tax is needed.
Irvin Dawid, Sierra Club, queried whether it is viable to go to the voters to take the current Measure A and B, 1996, for reauthorization to have operating funds for the duration.
Stuart Cohen, Transportation and Land Use Coalition, stated that the Transportation and Land Use Coalition plans to continue to work together to ensure that all Measure A projects could come to fruition.
Kim Strickland, Transportation and Land Use Coalition, stated that she is encouraged by the courageous and frank discussions regarding the realities being faced with the economy and the transit budget.
Tom Fink, Amalgamated Transit Union, ATU, Local 265, urged the Board of Directors to move quickly to set up a task force to study taking something to the voters in 2004 and noted that a sales tax measure seems the most viable.
Andre Gueziec, Interested Citizen, suggested that gasoline tax provide more of the funding to support VTA.
Andy Chow, Bay Rail Alliance, stated that Caltrain electrification should remain a priority noting that it will make the system more efficient and will increase ridership.
Jim Stallman, Interested Citizen, stated that attention needs to be paid to obtaining funds to put electrification back on the top tier.
Shelley Williams, Jr., Interested Citizen, invited the Board of Directors to a meeting at the Bella Mia Restaurant at 7:00 p.m. on November 19, 2002, related to how smart growth will damage rather than help American cities.
Mr. Guardino stated that three things need to be considered regarding the need for a new half-cent sales tax including: 1) raising the sales tax cap means passage by the State Legislature and signature by the Governor during a terrible economy in an already awful business climate in California; 2) lower the threshold on voter percentage which means a two-thirds passage by the State Legislature, a State-wide ballot measure that would be needed to lower the threshold, a County-wide vote to raise taxes for a specific plan during what may still be a down economy, huge funds necessary to wage a County-wide campaign and a strategy of improvements that would not only galvanize voters, but grass top leaders who would fund the campaign and provide the institutional backing needed and 3) the Measure A and B approach was built on trust of delivering past promises. It will also need to withstand a Proposition 218 legal challenge by the Howard Jarvis Taxpayers Association. Mr. Guardino stated that even if it did withstand that legal challenge, it would then beg the question, “Can VTA survive the two to three year court delay while that was being decided.” Mr. Guardino stated that the voters A and B approach is a very expensive ballot campaign and very hard to win.
Discussed VTP 2020 Transit Capitol Priorities.
Michael P. Evanhoe, Chief Development Officer, stated that this is a continuing process of prioritizing our Capitol Program and noted that a number of the capitol dollars are specifically limited to Capitol Projects. Mr. Evanhoe noted that there could be a change if voters were to change the 2000 Measure A to allow VTA to expend it on other projects.
Mr. Evanhoe stated that a number of projects in the pipeline have other funding sources.
Mr. Evanhoe reiterated that the three tiers are based on conditions outlined in the memo and noted that staff will continue to analyze them on the criteria presented to the Board of Directors in August 2002. This will continue over the next few months and decisions made by the Board of Directors on the financial stability of VTA may impact some of the capitol projects.
Several Board Members suggested that projects be appointed different priorities.
Board Member Dando repeated a request for a matrix that explores the impact of operation maintenance of tier one and tier two as they come on-line and suggested that this be put together in a way that is easier to understand.
Irvin Dawid, Sierra Club, commented that VTA should go back to the voters with the year 2000 Measure A stating that VTA is broke.
Andy Chow, Bay Rail Alliance, expressed concern that Caltrain electrification has Tier III status.
V. Considered a Report from the General Manager.
Peter M. Cipolla, General Manager, reiterated that staff laid out a three-tier scenario based upon what had been heard from the Board of Directors to date in the prioritization of projects based upon where staff saw funding viability in the immediate future.
Mr. Cipolla stated he is certain that the County and the region will successfully deal with the operation funding issue as has been done in the past.
Mr. Cipolla commented, in deference to minimizing the burn rate that we have on operating reserves at this time, we may very well be looking at another service reduction next spring. He reported that we are looking at the numbers of this quarter and at the savings that we have been able to generate to date in the operating budget. Mr. Cipolla noted that there is a current freeze on positions and 25 to 30 positions have been eliminated from the adopted budget, as well as most non-essential consulting agreements. Staff is sculling through capitol projects to return to the operating reserve anything that can possibly be returned in order to sustain operations as long as possible.
Mr. Cipolla noted that public hearings would be held during the month of December 2002 to discuss service modifications and reductions. This item will return to the Board of Directors in the late January, February 2003 timeframe.
VI. PUBLIC PRESENTATIONS
Ross Signorino, Interested Citizen, commented that there needs to be another sales tax and noted that no municipality can live without a public transportation system.
VII. Adjourned at 11:26 a.m.
Judith A. Tinlin, Board Assistant
VTA Board of Directors