Operations Budget Stability Committee Update to FMCB FY2015 & July 2015 (FY16) Financial Overview 8/31/2015 Draft for Discussion & Policy Purposes Only1

Draft for Discussion & Policy Purposes Only

Operations Budget Stability Committee Update to FMCB

FY2015 & July 2015 (FY16) Financial Overview

8/31/2015

1

Draft for Discussion & Policy Purposes Only 2

The legislation creating the FMCB lays out 13 distinct areas on which the FMCB is to report on monthly and annually:

1. capital planning2. separation of capital and operating budgets3. own-source revenue4. review of expansion proposals5. procurement and contracting improvements6. emergency preparedness7. internal reorganization8. customer-oriented performance management9. best practices for workplace productivity10. reducing employee absenteeism11. public private partnerships12. the sale and lease of real estate assets13. development of performance metrics across organization

FMCB deliverables

Operations Budget Stability Team Deliverables


In addition, there are 6 additional powers and responsibilities of the FMCB:

1. to develop 1 and 5 year operating budget beginning with FY 2017, balanced thru own-source revenue and cost control, which will facilitate the transfer of capital employees to the operating budget

2. to establish 5 and 20 year capital plans3. to establish a performance management system4. to review any service contract5. to change fares consistent with chapter 46 6. to reorganize internal structure of the MBTA (pending MassDOT board approval)

FMCB deliverables


9/20 FMCB report deliverables• Strategic Sourcing Working Group

– Discussion on prioritization, methodology for evaluating opportunities– Discussion on early focus areas

• Fare collection– Highly visible to riders on green line / commuter rail– Critical first step re: revenue is collecting revenue from existing riders

• Keolis– Performance Improvement Plan implementation and monitoring; enhanced

fare collection strategy

• Operating budget / deficit– FY15 actuals – FY16 forecast – 5 year pro-forma baseline


Operations Budget Stability Committee Process and Timeline

Phase 19/20 report

Phase 212/15 report

Phase 32016

• Initial diagnosis focused on FY15 performance, FY16 run-rate

• Identification of key cost and revenue drivers

• Review of initial baseline FY16-20 pro-forma, utilizing status-quo set of assumptions

• Identification of opportunity set on the revenue and cost side that can close the FY17 gap

• Development of a detailed and granular financial model that enables robust scenario analysis

• Re-cast of 5 year pro-forma

• Selection and implementation of revenue and cost initiatives that can close the FY17 gap

• Execution of strategy to reduce forecast operating deficits in FY18-20 and stabilize fiscal outlook for MBTA


• FY 2015 overview – Drivers of change from FY14A – FY15A– Drivers of change into the FY16B

• July 2015 (FY16) monthly update– Compared with July 2014 (FY15) and with budget

ContentsDRAFT


• The MBTA has 5 Sources of Revenue– Fares ($603M in FY15)– Other Operating Revenue – Parking/Advertising/Real Estate ($43M in FY15)– Dedicated Local Assessments ($160M in FY15)– Dedicated Sales Tax ($971M in FY15) - MBTA gets higher of Dedicated Sales Tax or “Base-

Revenue Amount”– Other Income ($19M in FY15) – Interest income, legal settlements, Federal operating

assistance, MassPORT Silver line Revenue

• In addition, discretionary “Additional State Assistance” ($125M in FY15) is provided to the MBTA to cover costs over and above sources of revenue – essentially it is the annual “plug” between revenue sources and total costs

• We define the Structural Deficit as the difference between the 5 sources of revenue listed above, and the forecast operating and debt expenses of the MBTA– For forecasting and analysis purposes: Structural Deficit = Additional State Assistance

which the MBTA would need to request in future forecast years• The MBTA reform legislation directs the FMCB to propose a plan for balancing the Structural

Deficit in FY17 and onward, through a combination of cost control and maximization of own-source revenues

A Note on Definitions DRAFT


• Fiscal Year 2015: MBTA generated a structural deficit of $119M– Total revenues of $1.8B offset by total costs (operating and debt)

of $1.92B– Including the $125M in Additional State Assistance, the MBTA

finished the year with a $6M surplus, which was transferred to the Capital Maintenance Fund on 8/28/2015

• Fiscal Year 2016 Full-Year Forecast: MBTA is forecast to generate a structural deficit of $170M, an increase of approximately 40% from the FY15 structural deficit of $119M– Additional State Assistance is Budgeted at $187M for FY16

Executive Summary DRAFT


In FY14, the MBTA structural deficit was $101M on $1.76B in total revenues

-500

0

500

1,000

1,500

$2,000M

Millions ($)

Sales Tax

$959M

Operating Revenue

Fares

$624M

Local Assessment

$157M

Other Income

$23M

Total Revenue

Wages & Benefits

-$684M

Materials & Services

and Energy

-$230M

Commuter Rail

-$375M

Ride/Boat

-$121M

Other Expenses

-$19M

Debt Service

-$435M

Structural Deficit

-$101M

Source: MBTA Internal Data

DRAFT

$1,764M

FY14A FINANCIALS EXCLUDING ADDITIONAL STATE ASSISTANCE OF $115M

Note: FY 2014 sales tax includes $160M state contract assistance


In FY15, the MBTA structural deficit was $119M on $1.80B of total revenues


DRAFT

-500

0

500

1,000

1,500

$2,000M

Millions ($)

Sales Tax

$971M

Operating Revenue

Fares

$646M

Local Assessment

$160M

Other Income

$26M

Total Revenue

Wages & Benefits

-$728M

Materials. Services

and Energy

-$253M

Commuter Rail

-$397M

Ride/Boat

-$112M

Other Expenses

-$19M

Debt Service

-$413M

Structural Deficit

-$119M

$1,803M

FY15A FINANCIALSNOT INCLUDING ADDITIONAL

STATE ASSISTANCEOF $125M


In FY16, the MBTA forecasts structural deficit of $170M on $1.85B of total revenues

-500

0

500

1,000

1,500

$2,000M

Sales Tax

$986M

Operating Revenue

Fares

$668M

Local Assessment

$163M

Other Income

$35M

Total Revenue

Wages & Benefits

-$766M

Materials, Services

and Energy

-$271M

Commuter Rail

-$384M

Ride/Boat

-$127M

Other Expenses

-$22M

Debt Service

-$452M

Structural Deficit

-$170M

DRAFT

$1,851M

FY16B FINANCIALS NOT INCLUDING BUDGETED ADDITIONAL STATE ASSISTANCE

OF $187M


In FY15, operating expense growth exceeded revenue growth

-150

-100

-50

$0M

FY14A Structural Deficit

-$101M

Increased Revenues

$39M

Increased Operating Expenses

-$79M

Decreased Debt Service

$22M

FY15A Structural Deficit

-$119M


DRAFT

BRIDGE FROM FY14 TO FY15 STRUCTURAL DEFICIT NOT INCLUDING ADDITIONAL STATE ASSISTANCE

Of $125M


-50

-40

-30

-20

-10

0

$10M

Ride / Boat

$9M

Energy

$9M

Healthcare

$2M

Other Expenses

$0M

Pension

-$1M

Other Fringe Beneftis & Taxes

-$4M

Commuter Rail

-$22M

Materials & Services

-$32M

Wages

-$40M

Wages and Materials & Services were leading drivers of operating expense growth in FY15

DRAFT

BREAKOUT OF COMPONENTS OF $79M FY15 OPERATING COST INCREASE

Categories with increased year-on-year costsCategories with decreased year-on-year costs


Total overtime expense grew 29% in FY15 to $53M

DRAFT

0

20

40

$60M

Millions ($)

FY2014

$27M

$41M

FY2015

$32M

$53M

FY2016

$37M

29.6%FY14A:FY15A CAGR (%)

Overtime Spend

BudgetActual

FY15 OVERTIME EXPENSE ANALYSISNotes on Overtime:

• Mgmt estimates that $10M of FY15 overtime was related to winter emergency• $21M FY15 overtime spend overage against budget was offset by lower than budgeted full-time positions (vacancies) so total wage expense was favorable to budget by $3M


• FY 2015 overview – Drivers of change from FY14A – FY15A– Drivers of change into FY16B

• July 2015 (FY16) monthly update– Compared with July 2014 (FY15) and with budget

ContentsDRAFT


Year-on-year fares up slightly, sales tax receipts decreased while operating and debt service expenses increased


DRAFT

YEAR ON YEAR PERFORMANCE FOR THE MONTH

0

50

100

150

$200M

FYJuly15A

Sales Tax

Fare

Other Operating Revenues

Local Assesment

Other Income

$155M

FYJuly16A

Sales Tax

Fare

Other Operating RevenuesLocal AssesmentOther Income

$134M

-2.9%

1.8%

3.3%

CAGR

Total Revenue by Category

Month of July year-on-year trends: - Total Revenue fell by $21M (Cash accounting)

- Local assessments distributed quarterly- Operating Expenses increased by $7M- Debt Service costs increased by $2M

0

50

100

150

$200M

FYJuly15A

Wages & Benefits

Debt Service

Commuter Rail

Materials & Services and Energy

Ride/Boat

Other Expenses

$154M

FYJuly16A

Wages & Benefits

Debt Service

Commuter Rail

Materials & Services and Energy

Ride/Boat

Other Expenses

$163M

1.2%

4.7%

13.7%

13.9%

5.7%

CAGR

Total Expense by Category

Note: For purposes of display July FY15A sales tax has been revised to include the pro rata portion of $160M of contract assistance provided in FY15


For the month of July 2015 (FY16), wage expense grew 7.8% and healthcare expense decreased 34%, compared with the same month last year


DRAFT

BREAKOUT OF COMPONENTS OF MONTHLY $65M WAGES AND BENEFITS EXPENSE

0

20

40

60

80

100%

Wage & Benefits Expense Month of July 2015 (FY2016)

Wages

Healthcare

Pensions

Payroll Taxes - FICA

Workers CompensationHealth & Welfare FundPayroll Taxes - Unemployment

$65M

7.8%

-34.7%

36.1%

8.1%

Year-on-Year Growth (%)

Notes on year-on-year trends

Pensions: Increase driven by lower than normal headcount and straight time hours worked in July 2014 (FY 2015) compared to more regular staffing levels in July 2015 (FY 2016). July 14 pension cost were also $1M below annual monthly average pension expense for FY 2015.

Healthcare: July 2014 (FY 2015) was most expensive month in all of FY 2015 and nearly $5M above average and included run out liabilities associated with the MBTA’s old health plan. New GIC plan is more cost-effective to MBTA.

Wages: Monthly growth driven by higher straight time costs (5.4%) due to 133 more paid employees in July 2015 (FY16) associated with GLX, Late Night Service, Commuter Rail Supervisory roles. Overtime were also 31% higher than the same period last year. Additionally, 2.5% increase in collectively bargained wage rates effective on July 1, 2015.


July FY16 overtime was $1.5M over budget and $1.1M greater than last year

DRAFT

0.0

1.0

2.0

3.0

4.0

$5.0M

Millions ($)

July FY14A

$2.4M

$4.2M

July FY15A

$2.8M

$3.6M

July FY16A

$3.2M

$4.7M

Operating Overtime Spend

BudgetActual

FY14 – FY16 OVERTIME EXPENSE ANALYSISLast month

Note on Overtime:$5M July FY16 overtime spend was offset by lower than budgeted head count (vacancies) resulting in total wage expense for the month ending $1.2M under budget



DRAFT

BUDGET COMPARED TO ACTUAL FOR THE MONTH

-200

-100

0

100

$200M

July FY16B

$138M

-$173M

-$35M

$16M

-$20M

July FY16A

$134M

-$163M

-$29M

$16M

-$14MTotal revenuesTotal expenses Structural deficitAdditional state assistanceNet position after state assistance

July FY16A revenues were short of budget but offset by lower than forecast operating expenses

July FY16B vs. FY16A Notes: - Total Revenue fell short by $4M as a result of

lower than expected sales tax receipts - Operating Expenses ran $9M less than expected- Debt Service came in under budget by $1M- In total, the Actual performance was $6M better

than projected (before additional state assistance)

Documents

Operations Budget Stability Committee Update to FMCB FY2015 & July 2015 (FY16) Financial Overview 8/31/2015 Draft for Discussion & Policy Purposes Only1