.4 Report No:

Meeting Date

17-071a

April 12, 2017

Alameda-Contra Costa Transit District

STAFF RE PO RTTO:

FROM:

SUBJECT

AC Transit Board of Directors

Michael A. Hursh, General Manager

Draft FY 2017-18 CapitaIBudget

BRIEFING ITEM

RECOMMENDED ACTION(S)

Consider receipt of the draft FY 2017-18 Capital Budget and FY 2017 through FY 2019 CapitalImprovement Program.

BACKGROUND/RATIONALE

for the draft FY 2017-18 CapitaIBudget, staff is moving to a more accurate way of planning theCapital Program and forecasting capital expenses for use in assembling the District operatingbudget. For severalyears, the CapitaIBudget submitted with the Operating Budget for approvalhas consisted of the new programming for the fiscal year, and a status of the existing projectsprogrammed in prior periods. The new programming for a given fiscalyear was based on howmuch District operating funding was available for capitalexpenditures in that fiscalyear. Staffwould assess the District's revenues and expenditures for the coming fiscal year and thendetermine the amount of operating revenue that could be transferred to the CapitaIBudget.

The bulk of the District's CapitaIBudget is grant funded, and the prior method of annual CapitalBudgets works wellfor those funds. Since grant funds are reimbursed after spending, revenueswould match expenses with perhaps only a minor delay due to the reimbursement process.

However, District Capital spending in a given year might not match the programmed amount.Since capital projects usually take more than one fiscal year to complete, the annualprogramming of District Capital funds was designed to represent actual spending of DistrictCapital funds. As shown in the following chart, this often leads to a mismatch between thebudgeting and the spending of District Capital in any given fiscal year. The average DistrictCapital budget for FY 2011-12 through FY 2015-16 is $10 million, which is larger than theaverage spending of $7.8 million over the same period, so it has not had a negative effect onthe District's net position.

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Report No. 17-071aPage 2 of 5

District Capital ($M)Approved CapitaIBudget vs. CapitalSpending

$20

$15

E

$10

Budget

$5

Spending

$

2012 2013201420152016

INote: FY 2016-1 7 spending total is a projection)

2017

When staff looked at the status of FY 2016-17 District Capital funds spending and the buspurchases planned for FY 20].7-].8 and FY 2018-19, it became clear that spending was going tooutstrip the budget and continue to do so for several years. This led staff to rethink projectedspending in order to more accurately match the annual budgeted amount. There are two mainreasons for the large District capitalfunding needs starting this fiscal year: the large amount ofDistrict funds spent on the Division 3 Re-opening Project; and the decreased availability of grantfunds available for match to federal funds for bus purchases which increases the need forDistrict capitalas matching funds.

Starting with this CapitaIBudget, staff is evaluating a multi-year cash flow of capitalprojects todetermine the cash flow needs of the whole Capital Budget for the coming fiscal year. TheDistrict funded portion, as opposed to the grant funded, willthen be included in the operatingbudget for the year. Developing cash flow projections requires looking at the Capital Budgetover a multi-year period. Developing and programming a multi-year Capital ImprovementProgram(CIP) instead of programming one fiscal year at a time is the best practice to achievethis. With this draft Capital Budget, staff has put together a three-year CIP based on all thecurrent projects in the current Capital Budget. This can be considered a first step towards thedevelopment of an industry-standard five-year CIP

Attachment lis the three-year CIP listing, and the chart below shows that CIP with severalprioryears of CapitaIBudget spending for context.

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Report No. 17-071aPage 3 of 5

CapitaIBudget Spending and Proposed Three-year CIP

Three-year CIP

$20.9District

Grant$no

: $100

$8a

$60

Prior Fiscal Year Capital Budget Spending$20.1

$17.2$12.1

$16.9

$3.4

H$14.3

$20

$o

$3.0

Prior FYs 2012 2013 2014 2015 2016 2017 2018 2019+

The larger totalamount of spending in the CIP years is mainly due to the grant funds budgetedfor the East Bay Bus Rapid Transit project. What is more important for the District's budget isthat the three CIP years also on average show a larger amount of District funding needed thanin prior years ($17 million average for FY 2016-1-7 through FY 2018-19 versus $7.8 million forprior years). For FY 2016-IL7 the District is projected to spend $20.1 million of District Capitalfunds. This is primarily due to two capital projects: the Division 3 Rehab project has spent$7.6million(of a$17.8 million totalbudget); and the OCC Relocation has spent$1.6 million(of a$3million total budget).

In FY 2017-18, the two projects projected to spend the most District Capital funds are the EastBay Bus Rapid Transit bus purchase at$5 million(of a$32.5 million total budget) and the tendouble-decker bus purchase at$3.2 million(of a$10.1 million total budget). Similarly, in FY2018-19 there are three bus purchases that are projected to spend nearly$12 million in DistrictCapital. Attachment 2 shows only the District Capitalfunds that are part of the three-year CIPlistingS

Due to this large projected need for District funds - mainly as matching funds to various buspurchases -- staff shortened the normalcapital project programming process when it was clearthat existing commitments would not allow for adding new projects. The proposed CIPprogramming changes are shown in Attachment 3 along with the rationale for each change.This CIP and proposed programming changes are brought under the preliminary assumptionthat the overall District budget will be able to fund the projected needs. Staff has startedworking on the operating budget and when both budgets are brought back to the Board in Maythere may be more changes to match the projected spending to the budget available

Five-Year CIP

The move to a five-year CIP is based on a need to be more strategic with capitalinvestments. Itis also made possible in part by initiatives that staff has been working on to meet the State ofGood Repair(SGR) and Transit Asset Management(TAM) requirements that the FederaITransit

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Report No. 17-071aPage 4 of 5

Administration(FTA) has imposed on alltransit agencies. The FTA TAM rules require agencies toreport on their assets yearly starting in 2018 through the National Transit Database (NTD)system. The FTA TAM rules also require using a defined capital project prioritization process toprogram projects funded with FTA funds. While the existing process would likely have satisfiedthe requirements for prioritization, it is considered a best practice to have a five-year or longercapitalprogram. Staff is in the process of assembling the asset information required by the FTAand to use the information in creating a CIP. Once the five-year CIP process is defined and anacceptable amount of asset information is available, staff will return to the Board to describethe process and present a five-year CIP

Going forward with a capital program based on a multi-year CIP that is then translated intoannualcash flow budgeted willgive the District better control over how and how much fundsare spent on capital projects. This will allow for better budgeting overall for the District. Staffwill be better able to assess how the Capital Budget is "performing" in a budgetary sense, andhow the Capital Budget willaffect the year-end budget picture of the District.

The District is preparing to handle significant new operating challenges over the next few yearssuch as the opening of both East Bay Bus Rapid Transit and the new Transbay Terminal. As theFY 2017-18 budget process moves forward, staff will need to achieve a balance betweenOperating and CapitaIBudgets together to ensure funds are allocated for the right initiatives.

BUDGETARY/FISCAL IMPACT

This report is for information only and does not have a direct fiscal impact

ADVANTAGES/DISADVANTAGES

There are no disadvantages to receiving this report

ALTERNATIVES ANALYSIS

Staff considered continuing with the prior method of building the annual Capital Budget, butthe large draw on District funds in the current fiscal year and large proposed need in thefollowing two fiscal years called for a better way to plan and track that spending. Having amulti-year CIP to define the organization's strategy for capital investment is common in largertransit agencies and other capitalintensive industries. Internalfunding of capitalexpenses thenintegrates better into the overall operating budget by forecasting spending for the fiscal yearlike any other part of the budget.

Additionally, Attachment 4 has been included to show projects that were unable to beprogrammed in the CIP due to the limited District CapitaIBudget. These projects are entered byDepartment Directors when a need is identified. The list is then compiled by Capital Planningstaff and used as a starting point when negotiating annual District funded CapitalProjects. Theproject request list is always greater than available District Capitalfunds so this list representsthose requests dating back sometimes severalyears.

PRIOR RELEVANT BOARD ACTION/POLICIES

17-071- Proposed FY 2017-18 Budget Goals and Objectives

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Report No. 17-071aPage 5 of 5

ATTACHMENTS

1. Three-year CIP(with allfunds)2. Three-year CIP(District Capitalfunds only)3. Proposed Changes to the CIP4. Summarized List of Project Not Programmed in the CIP

Approved by: Claudia L. Allen, Chief Financial OfficerReviewed by: Ramakrishna Pochiraju, Acting Executive Director of Planning & Engineering

Prepared by: Chris Andrichak, Director of Management and BudgetLaramie Bowron, Senior Capital Planning Specialist

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SR 17-071aAtt 4

Summarized List of Project Requests Not Programmed

Note: Project requests listed below have been reviewed by various staff and do not representimmediate sa.fety or regulatory needs, and so are part of the normal prioritization process.

Projects with safety or regulatory elements are given high priority by default in that process.

gQBellp b/Maintenance/Safety Projects - $5.622.0009th Server Room Reconfigure, Split HVAC for 8th & 9th Floors, Customer Service ticket office

rehab, Replacement Standby Generator, Boiler Replacement (construction), Gym, 3rd FloorArchive Room Conversion, Parking Lot storm drains, Striping garage and lots, Backup EOC tothFloor, 4th Floor Cubicle Reorg, 3rd Floor Cubicle Reorg, Fire Pump Replacement, Card Access forElevators

CMF Rehab/Maintenance/Safety Projects - $4,028,000

3 Ton Crane, Purchase Parts Washer, Bus Wash Rehab, Hydrogen Maintenance Bay, Security CardReaders/Cameras, Entrance Gate/Fencing

D2, D4, D6 Rehab/Mqblgt] fe/Safetv B!:Qjects $12.t.96.500D2 & D4: Bus Wash Rehab, D2-Paint Booth Replacement, D2-Replace UST, D2-Re-roofing, D4-

Paint Booth Replacement, D4-Chiller/Boiler Replacement-Trans Building, D6-Maintenance Re-Roof, D4-Ent/Exit Gate & Guard Shack, D4-Security Card Readers/Cameras, D6/TEC-Security CardReaders/Cameras, D6-Employee Security Gate

Other Facility Rehab/Maintenance Projects - $3.450,000

66th Ave Storm Drain/Trench, 66th Ave Roof Replacement, Eastmont Transit Center Rehab

District-Wide Facility Rehab/Maintenance Projects - $7.299,000

Underground Oil/Water Separators, Portable Back-up Generator, Replace MiniBlinds, Study: BusDetailing Areas, Fire Monitoring System, Storm Drain Assess/Rehab, PS Battery Replacement,Study: Emergency Power Systems, FueITank Farm Improvements, Fuel Dispenser Modernization

IS Replacement/Upgrade Projects - $4,409,000

LAN Access Equip Upgrade, Vendor and Bidding Management System, WAN Equipment Upgrade,NextBus Router Replacement, Wireless Bus Video Network, Cisco Blade Server Replacement,DataDomain Replacement, Implement PS Grants Billing, Disaster Recovery Voice SIPWiFiLTE, GOWiring Infrastructure, Network Security Tools, Cisco UCM Bogen Paging, Video Conferencing, SFTransit Center and BSF Wireless

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