RD615 - The Virginia Railway Express 2040 System Plan Review Report – December 2016

Executive Summary:
*This report was replaced in its entirety by the Commonwealth Transportation Board on February 10, 2017.

Virginia House Bill 30 (HB30) instructed the Commonwealth Transportation Board’s Rail Committee (CTB Rail Committee) to review the Virginia Railway Express (VRE) System Plan 2040 and other long-range planning efforts to determine:
• Long?term financial viability of the service;
• Ability to maintain appropriately costed?services to sustain and expand market share;
• VRE’s impact on traffic volumes on the Interstate 66 and Interstate 95/395 corridors of statewide significance.

As part of their planning, VRE has supplemented System Plan 2040, with a Strategic Financial Forecasting (SFF) effort. Through this exercise the agency identified a significant funding need to meet operational plans by 2040. In consultation with the CTB Rail Committee, the Department of Rail and Public Transportation (DRPT) conducted a review of VRE’s System Plan 2040 and the SFF planning and forecasting efforts. This report finds that concerns regarding a future funding gap are justifiable, and a threat to maintaining VRE’s ability to keep up with future growth in the I?95 and I?66 corridors. The executive summary provides a more concise version of the findings and recommendations discussed in more detail throughout this report.

• VRE has experienced steady ridership growth over the past two decades.
• Ridership tripled from just fewer than 6,000 in fiscal year 1993 to 19,000 in fiscal year 2013, showing VRE service fills a demonstrated need.(*1)
• Ridership has remained above 19,000 in 2014?2015.
• Ridership is expected to grow at an annual rate of 2 percent through 2020, 1.9 percent from 2020 to 2030, and about 1 percent from 2030 to 2040.

The review of the 2040 plan finds VRE’s ridership projections are consistent with regional growth expectations and utilize accepted forecasting methodology. The system is poised to see significant gains in ridership by 2040 – proportional to the level of investment in their system.

Operation & Maintenance Costs
• VRE’s cost escalation assumptions are in line with historical data and assume lower cost associations that align with low inflation rates over the past decade.
• VRE’s Operating Expense per Vehicle Revenue Hour ($985.91) is close to the national average ($913.89).
• VRE’s Operating Expense per Unlinked(*2) Passenger Trip ($14.84) is below the national average ($21.59).

VRE’s current O&M costs fall within industry norms and the service maintains a strong farebox recovery ratio which, given cost comparisons with the national average, indicates an efficiently provided service. While the current costs structure and projected growth is reasonable, the growth of these costs is expected to exceed revenues in the future.

Farebox Revenues
• VRE’s farebox recovery ratio is greater than 50 percent and compares favorably with other systems. This ratio along with increasing levels of ridership indicates that VRE is providing appropriately costed?services.
• VRE assumes a three percent biennial growth in farebox revenues in the SFF, compared to the original System Plan 2040 five percent biennial growth assumption. The three percent assumption is more in line with historical growth.
• The three percent fare revenue growth assumption is a significant contributor to the SFF projection that O&M expenses will outpace revenues
• When adjusted for regional income, VRE’s average fare price places in the middle third compared against 23 commuter rail agencies reported in the American Public Transportation System’s 2015 database.
• This ranking may indicate some flexibility to increase fares in the future; however, fare elasticities are related to congestion, gas prices, and other factors such as High?Occupancy Toll lanes.

Additional analysis is required to justify a fare increase and understand the impact to overall ridership.

Local Jurisdiction Operating Subsidies
• Growth in local jurisdiction’s subsidies has not kept pace with the growth in operating expenses. VRE has reflected this fact in their revenue assumptions.

While the System 2040 Plan assumed five percent growth biennially from local jurisdiction subsidies, the agency’s three percent revised assumption reflects recent trends. VRE should continue to pursue increased local jurisdiction support through its Operations Board to achieve revenue growth that keeps pace with expense growth.

State Operating Subsidies
• VRE’s assumptions hold state funding levels constant going forward.
• Approximately 9 percent of VRE ridership is from localities not contributing to VRE operations; it is clear that VRE provides a service of both regional and statewide significance.
• Ridership tripled from just fewer than 6,000 in fiscal year 1993 to 19,000 in fiscal year 2013, showing VRE service fills a demonstrated need.(*3)

State revenues have fluctuated from year to year, but on average have remained constant. Maintaining growth in state operating subsidies consistent with the Consumer Price Index (CPI) would help mitigate VRE’s operating funding challenges.

Long?Term Financial Viability Assessment
• VRE’s concerns regarding the long?term financial viability of the service are founded.
• Just to accommodate the Natural Growth scenario (projected to be 31,100 daily riders by 2040), a proportional level of investment would require as much as $3.2B in capital funding of which $806M is funded, $1.5B is potentially funded $871M is unfunded. The need for additional annual operating funds would rise to $15.5M by 2040.

The pending depletion of Capital Projects Revenue (CPR) bond funds threatens even existing levels of capital funding. Currently CPR funds provide a large portion of the Commonwealth’s matching percentage. These funds are scheduled to run out following FY2019. If a new source of funding is not found to support the Commonwealth’s on?going participation under SB1140, by FY2020 state transit revenues will only meet approximately 10% of the total need.

While some of VRE’s specific forecasting assumptions would benefit from further analysis and refinement, the current analysis is sufficiently robust to conclude refinements will not change the underlying dynamic of the system requiring capital and operating funding beyond what is currently available. From the review, it is clear that additional capital and operating funding is needed to maintain and expand the VRE system.

Impact on Interstates 66, 95, and 395
• Through avoided highway construction and highway maintenance costs, VRE provides an alternative transportation option to congested highway travel, which has economic benefits to the Commonwealth.
• VRE’s existing ridership provides service levels similar to 36 lane miles of interstate which could be valued as high as $3.4?5.4B based upon costs estimates for the I?66 Corridor Improvements Program.
• VRE’s Natural Growth scenario provides service levels similar to approximately 58 lane miles of interstate which could be valued as high as $5.5?8.7B.
• The full implementation of System Plan 2040 could have a significant positive effect on traffic volumes in two Corridors of State?wide Significance (CoSS): I?95 and I?66.
• This benefit equates to as much as 96 lane miles of travel demand today which could be valued as high as $9?14B.
• In comparison, the projected capital cost for VRE’s System Plan 2040, which will provide a similar service level to 96 lane miles of interstate, is $4.1B.
• The capital investments required for the System Plan 2040 build out would also benefit freight users and allow additional Amtrak services; therefore, it is reasonable to assume VRE would not be the only agency responsible the total cost of $4.1B.
• The cost to close the funding gap ($15.5M annually by 2040) is far less than just the construction of a mile of interstate in the I?66 corridor ($95M/mile).

Improving mobility in the I?66 corridor and I?95 corridor is about moving people and has financial benefits to the Commonwealth. Congested roadways lead to significant economic costs. The costs associated with traffic congestion typically include delays and uncertainties in expected trip times, along with fuel consumption. The Texas A&M Transportation Institute reports that the annual cost of congestion due to these factors in the U.S. in 2014 was approximately $160B while the figure for the Washington urban area was approximately $4.6B. As significant as these numbers are, they do not include additional costs that can also be considered as part of the full cost of congestion such as: emissions, (environmental cost), accidents (safety cost), and vehicle operations (maintenance cost), which could be as much as $2.5B. If these costs were included, minimizing congestion along I?66 and I?95 would have an even greater value to the Commonwealth. Additionally, due to the extensive amount of adjacent development and residential neighborhoods, it is unlikely that I?66 or I?95 could feasibly be expanded to accommodate the capacity that VRE provides.

VRE provides considerable complementary capacity to two highly?congested corridors of statewide significance, both of which provide tremendous economic benefits for the Commonwealth. VRE does this at a price competitive to the cost of building additional lanes miles. In addition, VRE investments avoid significant negative consequences like extended NEPA processes, ROW acquisition, loss of tree canopy, and increased delay times for SOV users due to accidents.

(*1) http://www.vre.org/vre/assets/File/2040%20Sys%20Plan%20VRE%20finaltech%20memo%20combined.pdf
(*2) https://www.transit.dot.gov/ntd/national-transit-database-ntd-glossary Note: Unlinked passenger trip is a term that refers to boardings. If a person were to travel from Fredericksburg to L’Enfant Plaza and then switch trains to go from L’Enfant Plaza to Manassas, that would count as two UPT. In other contexts, that journey would count as one “trip.”
(*3) http://www.vre.org/vre/assets/File/2040%20Sys%20Plan%20VRE%20finaltech%20memo%20combined.pdf