RD257 - HB 1359 – Transit Capital Projects Revenue Advisory Board - Final Report, August 2017

Executive Summary:
A long-term, sustainable investment in transit capital is critical for Virginia’s economic vitality. Public transportation plays a key role in congestion mitigation, economic development, and environmental stewardship in the Commonwealth. In addition, it provides mobility to many of Virginia’s citizens who have no other means of transportation. In 2015, DRPT commissioned the Southeastern Institute of Research to conduct a Statewide Mobility Survey to gather perspectives on personal mobility:(*1)

• 82 percent of those surveyed said the availability of alternative transportation options is important to Virginia’s economy.

• 83 percent said investment in alternative transportation is important to provide workers with affordable travel to commute to work.

• Over 80 percent of those surveyed that drive alone or telework believe the availability of alternative modes of travel is important to Virginia’s economy.

Over the past four years, the Commonwealth has provided matching funds to local transit agencies, averaging 45 percent of total statewide public transportation capital investments. The remainder of capital funding has come from federal, as well as, substantial local and regional investments.

The ability for the Commonwealth and its local governments to continue providing critically needed funding to sustain these investments and keep our transit systems in a state of good repair is at risk due to the expiration of the Capital Project Revenue bond proceeds. In 2019, $110 million in dedicated revenues – 44 percent of all program funding – will begin to phase out as the ten-year life of these bonds comes to a close. These funds are critical in enabling local transit systems to invest in replacement buses, rail cars, infrastructure, facilities, technology, and other capital needs. Figure 1 (see page 3) illustrates the impact of the bond proceeds on Transit Capital Revenues.

A failure by the Commonwealth to provide replacement capital funding will have a cascading effect on the ability of these systems to operate safe and reliable service and will result in the loss of federal funds if transit systems are unable to provide matching funds for capital assistance from the Federal Transit Administration. The Commonwealth will only be able to support rolling stock replacement, at a match rate of approximately 28 percent, as compared to the historical level of 68 percent participation. The projected impact on matching rates is shown in Figure 2 (see page 4).

Transit agencies are funded primarily by a local governments or regional bodies. Any reduction in state funding, along with increasing uncertainty in federal funding, will result in an increased burden on local governments to meet increased funding needs. Increased financial burdens on localities will stress local budgets, leading local boards and councils to make difficult decisions about maintaining a state of good repair or implement significant reductions in or elimination of critical transit services. If the Commonwealth maintains current matching rates, the projected reduction in funding will result in an estimated 320 fewer transit vehicles being replaced or rehabbed annually, a reduction of nearly 50 percent. The projected impact of the loss in state transit capital funding to Virginia’s economy includes the estimated loss of $200 million in economic activity annually. It is critical that solutions are identified and implemented to close this gap.

An evaluation of the Commonwealth’s documented funding needs and projected revenues has conservatively identified an average revenue gap of $130 million annually over the next ten years, representing a drop of over 40 percent from existing funding levels. In 2020, the estimated gap will be $35 million, and it will grow to an estimate gap of $178 million by 2027.

It is important to recognize that the vast majority (approximately 80 percent) of transit capital funds are currently dedicated to the replacement of existing assets such as buses, maintenance facilities, or technology in order to maintain them in a state of good repair. The needs assessment outlined in this report provides a snapshot of program needs and is summarized in Figure 4 (see page 5). The transit capital environment is constantly changing as asset conditions are assessed and documented by transit providers statewide in response to recently imposed federal requirements.

One notable example is the recent capital plan update from the Washington Metropolitan Area Transit Authority (WMATA) which reflects a substantial increase in capital funding needs over the next five years. WMATA’s capital needs inventory was released after this study’s analysis was conducted, which reflects an increase in the overall statewide transit funding gap that will need to be addressed through further analysis. There are other significant efforts underway within that region that are expected to make recommendations on governance, operations, and long term funding for WMATA. These efforts, including the work being conducted by former USDOT Secretary Ray LaHood, are expected to be complete by the end of 2017. Due to the statewide significance and impact of WMATA’s service on Virginia’s economy, these additional needs should be considered when contemplating transit funding solutions.

The Virginia General Assembly passed legislation to establish the Transit Capital Projects Revenue Advisory Board (Revenue Advisory Board) in the 2016 Session, as recognition of the need to identify new funding sources for transit capital investments.(*2) This legislation further required that a prioritization process for funding transit capital investments be explored. Over the past year, the Revenue Advisory Board worked to quantify the gap between transit capital needs and available funding, evaluate potential revenue options, identify a possible process for prioritization of transit capital projects, and outline recommended changes to the structure of the transit capital program. This analysis has been performed in cooperation with the Transit Service Delivery Advisory Committee and the Commonwealth Transportation Board.

The key recommendations of the Revenue Advisory Board are:

• The Commonwealth needs a steady and reliable stream of dedicated revenues for its transit capital program to meet state of good repair needs and support much needed transit expansion to keep up with population growth.

o The Commonwealth should consider a funding approach that utilizes a combination of revenue sources to spread the impact or a single statewide source that is predictable and sustainable.

o Revenue sources that ramp up gradually to address future gaps and needs.

o A combination of statewide and regional sources, with the majority of support coming from statewide sources.

o An approach for regional funds directed to prioritized needs within that region.

o A floor on regional gas taxes.

o Excess Priority Transportation Fund revenues (after debt service) dedicated to transit capital as this source becomes available.

In addition to identifying potential revenue sources to replace the loss of transit capital funds, the General Assembly also charged the Revenue Advisory Board to develop a prioritization framework for the transit capital program. In 2016, the Commonwealth successfully implemented a new prioritization process called SMART SCALE for funding transportation expansion needs across the state. The Commonwealth Transportation Board uses objective SMART SCALE criteria to evaluate candidate projects, and consequently, the Board provides funding at a higher level to support implementation of the most critically needed projects. In an era of growing needs and constrained resources, the Revenue Advisory Board has developed a project-based prioritization process for the transit capital program for consideration. It is important to note that this prioritization process would be less effective without new funding to support full implementation.

In developing a transit capital prioritization model, the Revenue Advisory Board has determined that:

• All Transit Capital Funding should be separated into two programs – one for State of Good Repair/Minor Enhancement and one for Major Expansion.

• A minimum of 80 percent of the transit capital program should be directed to State of Good Repair and Minor Enhancement.

• The Commonwealth Transportation Board should have the discretion to move funding from the Major Expansion program into the State of Good Repair program, based on funding needs.

• A single consistent match rate should be applied across asset types in order to provide greater predictability in funding, with State of Good Repair/Minor Enhancement projects matched at a higher rate than Major Expansion projects. This would shift away from the existing tiered match rates that vary by year or by asset. The maximum match rate should be high enough to ensure that selected projects are fully funded, e.g. 80 percent for all State of Good Repair projects.

• Local matching requirements [minimum of four percent](*3) should remain part of the program structure.

After careful study and analysis of the Commonwealth’s transit capital funding needs and with the SMART SCALE model in mind, the Revenue Advisory Board, in collaboration with the Transit Service Delivery Advisory Committee, has developed a proposed approach to transit capital prioritization. The approach includes initial recommendations for criteria and measures based on an understanding of the transit capital needs that exist across the Commonwealth. However, should the General Assembly or the Commonwealth Transportation Board adopt a prioritization process, a more thorough analysis of these criteria and measures is required to finalize specific recommendations prior to implementation, with opportunities for additional input from the transit stakeholders. It is also recommended that the policy and specific provisions of the prioritization process should be developed by the Commonwealth Transportation Board, as is the case with the SMART SCALE process.

The following report summarizes the extensive research and analysis conducted by the Revenue Advisory Board and presents recommendations. During this effort, the Revenue Advisory Board focused on identifying the answers to four key questions:

• How much funding is needed?
• What are potential funding sources?
• Which projects should be funded?
• How should funds be allocated to capital projects?

Additional technical details are provided in a series of appendices to this report and all proceedings of the Revenue Advisory Board are documented on the Department of Rail and Public Transportation’s webpage at: http://drpt.virginia.gov/transit/major-initiatives/transit-capital-project-revenue-advisory-board-hb-1359/
(*1) 2015 Statewide Mobility Survey http://www.drpt.virginia.gov/media/1854/2015-state-of-travel-study-highlights-as-presented-by-sir-at-vta-conference-05-24-16.pdf
(*2) HB 1359. ( http://lis.virginia.gov/cgi-bin/legp604.exe?ses=161&typ=bil&val=hb1359)
(*3) Va. Code 58.1-638 requires a local match, and the Transit Service Delivery Advisory Committee set a local match rate of four percent.