Agenda Item #18.X. (for board meeting of October 2, 2003)
VTA BOARD MEMORANDUM
October 1, 2003
Santa Clara Valley Transportation Authority Board of Directors
Peter M. Cipolla
Scott D. Buhrer
Chief Financial Officer
Sample Plan/Major 2000 Measure A Projects & Potential Revenues
On September 10, 2003, VTA staff presented to the Ad-Hoc Financial Stability Committee the Sample Plan of Major 2000 Measure A Projects and Potential Revenues. The Sample Plan was presented for illustrative purposes and indicated substantial cash deficits would be incurred beginning in the early years of the program, growing to $2.9 billion by FY2013. In the memo staff explained that the expenditures were somewhat understated because they only included interest expense for the 2003 bond program and that staff had not attempted to develop a debt-financing program to deal with the additional cash shortfalls because the magnitude of the cash required between now and FY2013 would clearly exceed our ability to use debt for purposes of leveling out the cash flows.
Further, staff concluded that, in the absence of a new revenue source or a substantial improvement in the local economy, the Board will need to prioritize which projects to pursue because we simply cannot build both BART and Downtown East Valley (DTEV) by FY2013.
At the September 10th Ad-Hoc Financial Stability Committee, several additional operating scenarios were requested by committee members and stakeholders. The additional scenarios were presented at the September 24th Ad-Hoc Financial Stability Committee meeting.
Subsequent to the September 24th meeting, Director Alvarado submitted a memorandum to VTA, requesting that staff modify the Sample Plan to include the following assumptions:
As suggested by VTA staff in a memorandum to the Ad Hoc Committee, VTA completes the preliminary engineering of the BART Project and Downtown-East Valley Project (which includes the Capitol to Eastridge and Alum Rock and Santa Clara light rail lines).
The cash flow makes as its first priority the completion of construction of the BART Project using maximum available debt service.
The cash flow makes as its second priority the completion of construction of a portion of Downtown-East Valley Project using maximum available debt service.
To allow for some minimum level of revenue/spending contingency, the ending balance for any fiscal year should not drop below $5 million.
All VTA staff assumptions in this sample plan relating to revenues and expenditures (other than for BART and Downtown-East Valley) remain unchanged from the September 10th spreadsheet.
Director Alvarado stated that she would like the following questions addressed:
When will the BART Project be completed and when will a new revenue source be needed to operate BART?
When will the two phases of the Downtown-East Valley Project be completed and when will a new revenue source be needed to operate these lines?
When will new dollars be available for all the other Measure A projects?
It should be noted that when preparing Director Alvarado's scenarios, we did have to change the timing of TCRP and Federal New Starts revenue to coincide with project expenditures because eligibility is on a reimbursement basis. In addition, to the extent permissible by our assumed debt service coverage ratio of 1.3x, we also timed the bond proceeds to coincide with project expenditures.
The Alvarado Scenarios essentially asks the question, to what extent do BART and DTEV project costs need to be re-phased to fit the maximum amount of 2000 Measure A funds available while leaving a $5 million cash reserve at the end of each fiscal year? Two scenarios were evaluated; the first involved building BART, followed by Downtown East Valley light rail alternatives. The second scenario was to build the Santa Clara/Alum Rock leg of the DTEV project concurrent with the opening of BART.
First we completed the estimates of the amount of 2000 Measure A and other federal and state revenue available and the maximum amount of bond proceeds plus the related debt service costs. Then we inserted the cash flow required by the optimum project development schedule for the BART project. We concluded that the optimum project development duration of 10 years was not possible even after adding in the maximum bond proceeds of $2.4 billion plus related debt service costs of $4.7 billion. The optimum schedule runs out of cash by FY 2009, reaching a program deficit of $1.9 billion in FY 2013.
The next attempt to build both projects within the available funding capacity was to re-sequence the BART project so that contracts were running sequentially rather than concurrently and stretch the contracts to the extent required to maintain the $5 million in cash at the end of each year. The end result of this was that the BART project would be completed in FY 2026 and we were still unable to maintain a positive cash flow. Some of the contracts were stretched out to 7-year durations. What this scenario did not take into account were the inefficiencies that would be encountered trying to manage contracts of that length. For example, the project development cost did not reflect the increased costs of project administration, which would result from a longer project development duration. Therefore it was determined that trying to build the Silicon Valley BART project in a piecemeal fashion was inefficient, more expensive and unwieldy. This scenario, which attempted to limit project expenditures to available revenue was not pursued further.
The second scenario was to complete BART preliminary engineering and then place the project on hold for 5 years until the funding was available to build the project more efficiently. The final design phase would commence in 2010 and the project would be completed in 2019. This scenario, which also maximized bonding utilization, resulted in a negative cash balance starting in FY 2014 and this did not take into account the DTEV project expenditures. We then added DTEV expenditures with Santa Clara to Alum Rock beginning in FY 2020 and completing in FY 2025 and Tasman to Eastridge beginning in FY 2025 and completing in FY 2029. We concluded that even with $2.8 billion in bond proceeds and $4.8 billion in debt service costs, we could not close the gap between revenues and expenses. In this scenario, we continue to experience cash deficits from FY 2015 to FY 2032, with the highest deficit year being FY 2018 at $1.5 billion.
The third scenario was similar to the second except that the BART final design phase would be delayed 10 years. The final design phase would commence in FY 2015 with the project completing in FY 2024. This scenario resulted in a negative cash balance beginning in FY 2020 and once again this did not take into account the DTEV project expenditures. We then added DTEV expenditures with Santa Clara to Alum Rock beginning in FY 2025 and completing in FY 2030 and Tasman to Eastridge beginning in FY 2030 and completing in FY 2034. We concluded that even after adding bond proceeds of $2.6 billion and related debt service costs of $4.1 billion, we would still experience cash deficits beginning in FY 2021, continuing through FY 2036.
The Sample of Major 2000 Measure A Projects & Potential Revenues presented on September 10th and all subsequent scenarios that VTA staff has prepared since reflect our current perceptions based on conservative sales tax forecasts and perhaps ultra conservative cost of borrowing assumptions. As we stated in the September 10th memo, we know that 30 years is a long time. Small changes in the growth rate of sales tax or savings in the interest costs could materially alter the findings based on the assumptions that are contained in the Sample Plan as well as the Alvarado scenarios. We believe that we should continue to advance the DTEV and BART projects and those elements of other projects that have the greatest return on investment, particularly in terms of congestion relief. Funding for transportation is cyclical and it is essential for this community to be properly positioned with projects that are "shelf-ready" to rapidly be ready to implement when the next economic upturn begins or additional, perhaps even unexpected, funds become available.
Prepared by: Dolores Escalle, Sr. Financial Analyst