RD438 - Options to Develop a Program for the Financing of Statewide Transit Capital Needs Using the Master Equipment Leasing Program (MELP) – November 1, 2018

Executive Summary:

The 2018 Virginia General Assembly directed the Virginia Department of Rail and Public Transportation (DRPT) to investigate options to finance statewide transit capital needs through the Commonwealth’s Master Equipment Leasing Program (MELP).

In order to comprehensively address the request made by the General Assembly, DRPT conducted research on MELP’s structure, undertook conversations with the Departments of General Services (DGS) and Treasury, which manages MELP, and discussed the transit community’s potential interest in a financing program through the Transit Service Delivery Advisory Committee (TSDAC) serving as the official work group.

DRPT found that while MELP is an effective program to provide consolidated and cost-effective financing for Commonwealth owned capital equipment, the specific financing needs for local transit agencies provide several challenges that either prohibit the use of the existing program, or would require a significant restructuring of the program. Nonetheless, the Commonwealth Transportation Board (CTB) could consider adoption of a short-term financing program administered by DRPT and structured to the business model and needs of public transportation agencies across Virginia.

This report follows the completion of the work of the Transit Capital Project Revenue Advisory Board (Chapter 609 of the 2016 Virginia Acts of Assembly), which was charged with identifying the impact of the loss of $110 million in annual revenues currently dedicated to the statewide transit capital program. Nearly 44% of the program relies on these revenues, financed by 30-year Commonwealth Project Revenue (CPR) bonds with terms that fully sunset in 2020.

The 2018 General Assembly enacted numerous reforms to statewide transit funding programs that changed many of the RAB’s previous assumptions. Chapter 856 of the 2018 Acts of Assembly restructured the Commonwealth Mass Transit Trust Fund to dedicate 53.5% of all revenues to the Washington Metropolitan Area Transit Authority (WMATA) for capital and operating expenses for that agency. This significantly reduced the RAB’s previous needs assumptions which at the time included WMATA. The first two rounds of the SMART SCALE program also provided nearly $200 million for major expansion transit capital projects, thereby reducing previously anticipated demands on the statewide transit capital program.

Chapter 856 of the 2018 Acts of Assembly also enacted a series of significant reforms to all statewide transit programs, including a project-based prioritization framework for the statewide transit capital program effective in FY 2020. The TSDAC noted that once those reforms have been fully implemented and their impacts evaluated, a short-term financing program in Virginia could be used to serve as a form of bridge financing while a funding solution that does not rely on the use of long-term debt is identified.