XV. Financial Planning Public Transport Planning and Reform: An Introduction
Public Transport Financial Planning Systematic approach that helps produce a financially sustainable program for implementing a service plan: Operating, maintaining existing services Keeping assets in good repair Adding/improving g service, equipment, facilities Financial planning considers: Financial needs for all functions Sources of funding and finance How to match needs and sources of funding and finance XV-1
Basic Public Transport Financial Sustainability Principle A public transport system must receive FARE AND OTHER REVENUES that are sufficient to cover ALL of its costs XV-2
Financial Planning (FP) Process Multi-Year Service Plan Estimate O&M Costs Set Fare Levels Estimate Replacement Capital Costs Estimate Pass. and Other Revenues Estimate Expansion Capital Costs Are Revenues Costs? No Estimate Government Funding Yes Prepare Financial Plan XV-3
Consideration of ALL Costs All costs should be included in financial analyses (e.g., a fare increase) Operating/Maintenance and Capital Costs Fixed and Variable Costs All costs should be included when tender bids and investment plans are assessed for reasonableness Failure may lead to poor service provision, inability to complete contract, collapse of the public transport system XV-4
Estimate O&M Costs Estimating O&M Costs Operation Administration Maintenance a Contract Services XV-5
Estimate Replacement Capital Costs Estimating Capital Replacement Costs Based on replacing/renewing when needed REPLACED at the end of their useful lives e.g., Buses 15 years Rail Cars 35 years Shelters 10 years Garages/Stations 50 years Some items RENEWED at mid-life points e.g., Buses 8 years Busways 8 years Railcars 15 years Roofs 20 years XV-6
Estimate Replacement Capital Costs Estimating Capital Costs Estimate Expansion Capital Costs Costs should include additional costs (as needed) Engineering Procurement Testing/inspection Financing Expansion capital costs Beware of technology choices that may entail extra costs E.g., emissions standards XV-7
Estimating Passenger and Other Revenues Estimate Pass. and Other Revenues Fare revenues Take into account background affecting ridership E.g.: car ownership, road projects Do not forget to include fare evasion E.g., Paris bus network: 10.7% do not pay (2006) Public subsidies Make sure fund are secured Make sure when the funds are transferred Other revenues E.g.: advertising, renting commercial areas XV-8
Financial Planning Example Actual Actual Actual Actual Actual Budget Fiscal Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Revenue 2.3% 2.2% 2.5% 2.6% 2.7% Farebox Revenue $ 35.5 $ 36.64 $ 37.9 $ 40.2 $ 42.0 $ 44.14 $ 49.00 $ 51.45 $ 53.51 $ 55.1 $ 57.32 $ 59.6 Other Operating Revenue $ 4.3 $ 5.7 $ 6.6 $ 8.9 $ 11.3 $ 14.2 $ 15.4 $ 15.7 $ 16.0 $ 16.3 $ 16.7 $ 17.0 Total System Revenue $ 39.8 $ 42.3 $ 44.5 $ 49.1 $ 53.3 $ 58.3 $ 64.4 $ 67.2 $ 69.5 $ 71.5 $ 74.0 $ 76.6 Sales Tax (50% Operations) $ 67.5 $ 73.6 $ 78.9 $ 83.3 $ 88.5 $ 94.2 $ 98.9 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6 State t Operating Assistance Total Other Operating Assistance $ 67.5 $ 73.6 $ 78.9 $ 83.3 $ 88.5 $ 94.2 $ 98.9 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6 Total Operating Revenue $ 107.3 $ 115.9 $ 123.4 $ 132.4 $ 141.8 $ 152.6 $ 163.3 $ 169.8 $ 175.8 $ 181.9 $ 188.9 $ 196.2 O&M Expenses Operations $ 49.1 $ 51.56 $ 53.9 $ 55.49 $ 57.3 $ 59.67 $ 68.03 $ 70.7 $ 73.58 $ 75.8 $ 78.82 $ 82.0 Maintenance $ 48.2 $ 50.6 $ 53.1 $ 55.27 $ 58.0 $ 60.9 $ 65.07 $ 68.3 $ 71.06 $ 74.6 $ 78.3 $ 82.3 General and Administrative $ 14.6 $ 15.18 $ 15.79 $ 16.42 $ 17.08 $ 17.76 $ 18.47 $ 19.21 $ 19.98 $ 20.78 $ 21.61 $ 22.48 Total O&M Expenses $ 111.9 $ 117.3 $ 122.8 $ 127.2 $ 132.4 $ 138.4 $ 151.6 $ 158.3 $ 164.6 $ 171.2 $ 178.8 $ 186.7 Balance from Operations $ (4.6) $ (1.4) $ 0.6 $ 5.2 $ 9.4 $ 14.2 $ 11.8 $ 11.5 $ 11.2 $ 10.8 $ 10.1 $ 9.5 Capital Revenue Balance from Operations $ (4.6) $ (1.4) $ 0.6 $ 5.2 $ 9.4 $ 14.2 $ 11.8 $ 11.5 $ 11.2 $ 10.8 $ 10.1 $ 9.5 Sales Tax (50% Capital) $ 67.5 $ 73.6 $ 78.9 $ 83.33 $ 88.5 $ 94.2 $ 98.99 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6 Federal Capital Grants $ 97.5 $ 76.0 $ 89.2 $ 94.2 $ 112.4 $ 97.3 $ 68.4 $ 71.3 $ 80.3 $ 115.0 $ 130.5 $ 128.7 Net Bond Proceeds $ 60.0 $ 105.0 $ 90.0 $ 40.0 $ 20.0 $ 20.0 Investment Income $ 24.2 $ 13.04 $ 13.41 $ 13.95 $ 13.79 $ 10.98 $ 11.48 $ 11.97 $ 11.93 $ 12.82 $ 14.67 $ 15.71 Total Capital Revenue $ 184.6 $ 221.2 $ 287.1 $ 286.7 $ 224.1 $ 216.8 $ 190.6 $ 197.4 $ 209.7 $ 289.1 $ 290.3 $ 293.5 Debt Level $ 568.60 $ 628.6 $ 733.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 863.6 $ 883.6 $ 903.6 Capital Expenditures Rail Phase B $ 140.00 $ 150.3 $ 186.5 $ 156.0 $ 125.6 $ 72.77 Proposed New Start Project $ 1.0 $ 5.1 $ 11.1 $ 10.7 $ 108.0 $ 130.2 $ 146.9 Rail Rehabilitation $ 20.2 $ 21.1 $ 26.3 $ 27.8 $ 24.7 $ 26.0 $ 26.4 $ 27.0 Subtotal for Rail Systems $ 140.0 $ 150.3 $ 186.5 $ 156.0 $ 145.8 $ 94.8 $ 31.4 $ 38.9 $ 35.4 $ 134.0 $ 156.6 $ 173.9 Bus Purchases $ 8.4 $ 9.2 $ 17.4 $ 38.7 $ 28.4 $ 32.3 $ 68.00 $ 69.36 $ 70.75 $ 46.00 $ 34.00 $ 34.68 Other Capital $ 12.4 $ 24.2 $ 36.5 $ 32.5 $ 25.0 $ 26.50 $ 32.20 $ 33.17 $ 22.20 $ 22.87 $ 23.55 Total Capital Expenditures $ 148.4 $ 171.9 $ 228.1 $ 231.2 $ 206.7 $ 152.1 $ 125.9 $ 140.4 $ 139.3 $ 202.2 $ 213.5 $ 232.1 Debt Service Costs $ 39.8 $ 44.0 $ 51.4 $ 57.77 $ 57.77 $ 57.77 $ 57.77 $ 57.77 $ 57.77 $ 60.5 $ 61.9 $ 63.33 Working Capital Account Beginning Cash Balance $ 189.9 $ 186.3 $ 191.6 $ 199.3 $ 197.1 $ 156.9 $ 164.0 $ 171.0 $ 170.4 $ 183.1 $ 209.6 $ 224.5 Change in Working Capital $ (3.6) $ 5.3 $ 7.6 $ (2.2) $ (40.2) $ 7.1 $ 7.1 $ (0.7) $ 12.8 $ 26.4 $ 14.9 $ (1.8) Working WORLD Capital Balance BANK $ 186.3 $ 191.6 $ 199.3 $ 197.1 $ 156.9 $ 164.0 $ 171.0 $ 170.4 $ 183.1 $ 209.6 $ 224.5 $ 222.7 XV-9
Are Revenues Costs? Meeting Financial (Cost Revenue) Gaps Change Service Plan Revise current services Delay expansion plan Eliminate expansion plan Change Fares Increase fares Advance plans for fare increase Change fare policies Pass pricing, discounts Introduce TOD fares Multi-Year Service Plan Set Fare Levels XV-10
Are Revenues Costs? Meeting Financial (Cost Revenue) Gaps Increase Non-Operating Revenues Examine potential of advertising, capital facilities, and other ventures to be profit- making Seek Government Funding Indirect funding possible through tax alleviation Use financial i projections, performance, condition information to support requests for additional a funding Estimate Pass. and Other Revenues Estimate Government Funding XV-11
Dedicated Taxes Variety of dedicated tax instruments available E.g.: oil, real estate, parking, companies Care must be exercised to make sure that dedicated taxes: Are not regressive (hit poor more than rich) Do not create perverse incentives (labor costs, wasteful capital spending) XV-12
Private Sector Potential source of public transport finance Capital Loans Investment equity Ongoing operating payments Payments for dedicated services e.g., to a mall or housing estate XV-13
Capital Financing Usually linked to specific purposep e.g. Build a depot or repair facility Purchase vehicles or equipment Construct a passenger interchange terminal Popular ways to leverage assets to gain private financing Sell land/building rights at existing or planned terminals and depots Sell vehicles to gain share of depreciation tax write-offs XV-14
Cautions Private sector is in business to make $!! May be cheaper to borrow money than to have private sector invest equity that requires a higher rate of return (e.g., MRT Line III, Manila) All financial planning should include an analysis of financing options and risk. Remember, if it sounds too good to be true, it s not true!!!!!!!!!!! XV-15
Summary Service Evaluations Budgeting Fare Setting Financial Sustainability Contract Specifications Operating Subsidies Capital Investments XV-16