ASSUMPTIONS Draft Recommended SRTP Projection
Revenues	Description of the operating internal assumptions
Operating: total farebox	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. Total Farebox during FY 2009-10 and FY 2010-11 will increase as a consequence of the recently enacted fare increases, in spite of an apparent major loss of ridership due to price elasticity and unemployment, benefiting from a reduced loss of the farebox loss caused by reduced levels of service cuts as per the approved revised service adjustments plan. By end of FY 2010-11, the farebox recovery ratio should remain around the current levels, at approximately 18%. The 10 Year projection assumes fare increases in year 5 and year 8 of the projection. The projection includes the effect of service cuts totaling approximately 312,000 platform hours or around 15% of service hours with no planned future net increases or decreases in service in the SRTP timeframe
Operating: BART Transfer	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. For FY 2009-10 the District expects an additional allocation of $ 1.6 Million, but from FY 2010-11 and beyond this funding source would remain at a historical low level for the foreseeable future. Staff is preparing for discussions with BART about a new agreement.
Operating: Interest Income	Staff has projected an extremely low level of returns, in historical terms, on the Repos and Agencies that have been the traditional short-term investment vehicles allowed by existing policy. Agencies have also been particularly hit hard by the absence of interested buyers in global capital markets and by sell-off realized by foreign investors, particularly the Chinese government. Expected yields are projected to remain at very low rates, commensurate with a deflationary environment.
Operating: Advertising	Based on 2nd Qtr actual results, Staff made a change as follows. Projection per new fixed contract terms for the next five fiscal years, with an expected additional revenue coming from the variable component of the contract due to slightly better than expected sales of ad space, and forecast to be recovered back to historical levels at year 6.
Operating: Other Revenue	Based on 2nd Qtr actual results, Staff made a change as follows. On top of the projected collections from parking ticket citations, the District closed the commercial real estate sale transaction of a parcel of the 66th Avenue facility which will not be reported as part of the state of operations but rather as a statement of cash flows transaction and thus is not reflected in the operating budget anymore in year one.
Operating: Rental Income	Based on 2nd Qtr actual results, Staff made a change as follows. Reflects the expected lease income to be received out of tenants at the new 66th Avenue facility, considering the impact of the loss of some major tenants during Q2 2009-10
SalesTax-based Subsidies:TDA	Staff has adjusted downward the current year allocation, based on the Fund Estimate dated February 10th 2010 submitted by MTC. From years 3 and beyond the figures are projected to growth using internally developed factors as detailed in the attached Analysis of TDA and AB1107 projections, assuming a strong recovery from FY2012-13.
Sales Tax Based Subsidies: AB1107	Staff has adjusted downward the current year allocation, based on the Fund Estimate dated February 10th 2010 submitted by MTC. From years 3 and beyond the figures are projected to growth using internally developed factors as detailed in the attached Analysis of TDA and AB1107 projections, assuming a strong recovery from FY2012-13.
Sales Tax Based Subsidies: Measure B	Staff has received ACTIA’s revised allocation and has cut the current year allocation accordingly. Staff has adjusted also the outer periods considering possible continuing deterioration of taxable sales activity in the region in the immediate two year period, but assuming a strong recovery from FY2012-13.
Sales Tax Based Subsidies: STA	Staff has included in the SRTP recently known funding agreements as a result of the new proposal in the Governor’s Budget to replace the existing fuel use tax with a new fuel excise tax.
Sales Tax Based Subsidies: Measure J	Staff made a change as follows:The projection is based on the revised allocation submitted by the Contra Costa County Authority. It includes the new proceeds from the Measure J, net of additional operating costs of new service that will be implemented in year 6.
Property Tax-Based Subsidies (inc. Measure VV)	Staff has kept the expected reduced allocation of these subsidies for this and next fiscal years, under the confirmed assumption that assessed valuation rolls are clearly indicating a very likely drop in total collections. Although the Property Tax based subsidy in Fiscal Year 2008-09 came actually higher than expected, Staff is certain that this was a last time effect. FY 2009-10 Property Taxes are now estimated to show the effect of the deflation of real estate values, based on the Alameda and Contra Costa Counties Assessors reported broad countywide decreases in assessed rolls. The long-term projection assumes certain internally developed growth factors for this subsidy, which assume, based on recent incipient price recovery factors, a return to historically observed growth rates for residential and commercial real estate in the Bay Area starting in FY 2012-13. For reference, the previous historical residential real estate bubble in Southern California in the early 90’s ended up in a major correction that caused property tax collection receipts to drop 25% from their peak amounts in the County of Los Angeles. Staff is not assuming for now that this type of outcome will occur in the East Bay area.
	The current projections for FY 2009-10 recognize the loss of 8% of the previous year total Property Tax subsidy due to the State of California ERAF measure recently adopted by the Legislature. That loss, amounting up to $ 5.4 Million, was received by the District as a part of a securitized tax-exempt bond financing by the State. The net effect is zero to the District. The District believes this problem will only affect FY 2009-10. Measure VV subsidies are fixed at a combined $96.00 per parcel. The increase in receipts that has been reported represents additional properties in the area. Also, Staff has retired from the SRTP projection any new impact of any additional measure that would have been presented to voters for consideration.
ADA Related Subsidies	Staff has adjusted downward the current year allocation, based on the Fund Estimate dated February 10th 2010 submitted by MTC. From years 3 and beyond the figures are projected to grow using internally developed factors as detailed in the attached Analysis of ADA Paratransit funding, assuming a strong recovery from FY2012-13. The ADA Paratransit Lease is assumed to remain fixed during the period.
Other Grants and Subsidies	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now, as follows. These are mostly fixed allocations or commitments to be received as scheduled, including the Fed Assist Sect 5307 Operating subsidies, Oakland Unified School District Supplemental Service grant, and several other subsidies.  The most significant pieces are:
	·        RM2 subsidy, which sums up to $ 9.8 Million.• I-Bond and Preventive Maintenance net funding as displayed in the 10 Year projection. • The Federal Assistance Section 5307 Capital Funding for $ 2.0 Million during the 10 Year period, to be used to fund Maintenance, Information Technology and other minor district required capital projects • The $ 1.9 Million Measure B Regional express fund in FY 2009-10 only • STA I-Bond Lifeline JARC stream as scheduled in the 10 Year projection, with a higher amount in year 1 and with additional funds now scheduled from year 3 and beyond. • Oakland Unified School District allocation of $ 2.25 Million for the entire 10 Year projection to be used to fund school service in the OUSD area • Dumbarton Bridge credits to be received from the DB Consortia at a rate of $ 0.6 Million approximately during the 10 Year period • Finally,  the effect of grant-reimbursable labor costs related to staff’s time used in developing grant-funded projects, approximately $ 2.7 Million annually from FY 2009-10
	Also recently, Staff has included in the SRTP the expected proceeds from the CMAQ Swap facility currently in process of being implemented. This represents receipts of $ 17.5 Million in both FY 2009-10 and FY 2010-11.
	Separately, Staff is also including the very recent award of $ 6.7 Million in year 1 due to the reallocation by FTA of funds part of the ARRA Stimulus Package which were set to go fund the Oakland Airport connector project, which has been deemed unsuitable for funding by FTA in this FY and thus the funds are being diverted to cover operations costs at AC Transit.
OPERATING EXPENSES	Description of Operating Internal Assumptions
Labor Costs	The SRTP projection show the effect of the existing Board-approved compensation packages for all District’s unions, with the exception of D8 Paratransit as well as for the non-unionized Executive Staff, Management and other salaried groups. It does not include any estimate of the potential cost of a new ATU contract, still subject to negotiations to start during FY 2009-10. It also does not include any estimate for future AFSCME union negotiations, to start in FY 2010-11.
	The total baseline authorized headcount as per the SRTP presented is now 2,049 authorized positions by year-end FY 2009-10 and 1,921 authorized positions by year-end FY 2010-11, including the Retirement Department but excluding Paratransit operations staff (which are included in their own Budget report). In the case of Operators’ wages, the SRTP is based on 2.03 Million platform hours by year-end FY 2009-10, and 1.85 Million platform hours by year-end FY 2010-11, becoming 1.76 Million by FY 2012-13 when the full impact of service cuts is recognized. The SRTP assumes a fully staffed drivers base of approximately 1,150 drivers, assuming the District implements the full effect of 15% cut in service hours as explained above. Also, 25 net management positions are in the process of being eliminated, as per the adopted budget. Overtime expenses have been adjusted to recognize the ongoing cost pressures in the Operations area. These figures do not include any impact related to the approximately $ 22 Million in additional savings/efficiencies that are reported as a separate line item in the SRTP and that may require further resizing of the workforce (as opposed to or in conjunction with related cost savings initiatives seeking to optimize the cost per unit of labor and benefits).
	For the first time in the District’s history, total fringe benefits expenses are going to become higher than total net salaries and wages during this FY 2009-10, in spite of lower headcount due to service cuts and other departmental reorganizations and restructurings. The basic reason for this are the onerous increases in the District’s Pension Contribution expenses, and continuing very high pricing pressures of medical, dental and vision care premiums. The projection for health care premiums assumes an average 8% growth rate for FY 2009-10, and then 15% for FY 2010-11, and between 8-10% annual growth rate for the outer years. Pension fund expenses were updated and decreased in the outer years of the projection to account for recent gains in the investment portfolio and are expected to remain steady at a much higher level than historical average thereafter as a percentage of total salaries and wages; the reported pension number does not include the costs of the retirees pension and Trust Fund Health benefits which in FY 2009-10 amount to approximately $ 3.8 Million. The cost of workers’ compensation insurance is projected to show some stabilization at a high level in FY 2009-10, mostly because of an expected jump in claims caused by the economic environment. Paid Time Off expenses as a percent of Gross Salaries and Wages is projected to remain stable at approximately 17%-18%. Other fringe benefits will vary according to changes in salaries and wages or by inflation or some other specific factors.
Services	Staff has revised slightly service costs during the 2nd Qtr review, mostly associated with the 66th Avenue project. Services expenses reflect the detailed allocation of funding for programs and activities as submitted by operating managers during the Biennial Budget process, and reviewed and authorized by the General Manager, the CFO and the Executive Staff and presented for approval to the Board of Directors.  Major services expenses are the following:
	·        Security Services, $ 9.7 Million, which was renegotiated down by 3% over FY2008-09 budget as a consequence of restructuring the service levels and deputy staffing
	·        Certain professional, technical and maintenance contractual services, particularly in the Information Services and Technology,  Maintenance, Marketing, Finance and Service Development departments, for a total of $ 5.5 Million, similar to FY 2008-09 levels
	·        Temporary Help Districtwide at $ 1.8 Million in FY 2009-10 and reduced to $ 1.1 Million in FY 2010-11, lower by 40% than the average of the previous 4 fiscal years.
	·        Outside Attorney Fees, $ 1.5 million in FY 2009-10 due to the allocation of $ 1.0 Million extra to absorb potential costs of litigation associated with Travel Time issues
	·        Claims Administration, $ 1.4 Million for the management of claims Districtwide
	·        Outside Repair Services contracted mostly by the Maintenance department, $ 0.9 Million, similar to FY 2008-09 levels
	·        Management Service fees, mostly Tax administration services performed by the counties on our behalf, lobbyists expenses, and other consulting fees, $ 1.2 Million, similar to FY 2008-09 levels
Fuel and Lubricants	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. For FY 2009-10 and FY 2010-11, the District expects to be able to continue its hedging program and thus stabilize expected fuel costs at around $ 1.864 diesel fuel cost per gallon on average for the period (before taxes), and the yield of consumption has been changed to 3.7 mpg instead of the previously estimated 3.8 mpg based on most recent analysis. The number of miles operated has also been revised as a consequence of the projected lower service cuts to start in March 2010, but the increased cost is part of the separate line item labeled Cost of restored/changed service and will be reclassified and allocated accordingly when more concrete data is available at Third Quarter. Staff recognizes that there is significant downside risk due to the current exposure to higher spot prices in the interim period while a proposal is generated to implement a new hedge program. Staff believes the immediate short term risk is moderate and can be absorbed by positive levels of savings currently seen in volume of purchases of fuel. After FY 2010-11, the price per gallon of diesel fuel is expected to grow moderately up from $ 1.864 estimated before, remaining at a much higher level than the historical long-term average.
Other Materials and Supplies	Based on 1st Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. The assumption includes the progressive increase in consumption of bus parts and supplies due to increased maintenance needs of the fleet as it starts to age and require more significant repairs, as well as the compensatory effect of the lower number of buses to be maintained due to service cuts (which is being revised due to the new approved service adjustment plan; the increased cost of bus parts is part of the separate line item labeled Cost of restored/changed service and will be reclassified and allocated accordingly when more concrete data is available at Third Quarter). The District is performing rehabilitation of engines and transmissions, and continues executing the remanufactured inventory program. Both initiatives, as well as continuous improvement of the preventive maintenance program, should be conducive to better control of bus part costs per mile and reduced levels in stock of parts and supplies.
Utilities and Taxes	Based on 2nd Qtr actual results, Staff made a change as follows. Telecommunication expenses were adjusted upwards due to the additional operating costs of data transfer and broadband usage caused by certain new capital projects, which were not budgeted.  Utilities like Electricity, Gas and Telecommunications expenses are expected to grow by the general inflation rate, while consumption could be somewhat reduced as the volume of general activity is likely going to be lower than currently operated Districtwide. Use/Sales taxes on supplies are now being shown as part of the cost of the respective supplies under the Fuel and Other materials and supplies expense categories.
Casualty and Liability	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. Projected to remain at a stable level, barring major negative events. The projection has considered the impact of higher insurance premium costs, which would be growing in spite of the reduction in market value of buildings and other District infrastructure, the reduction in the number of buses in service, and the increase in property valuations due to the acquisition of the 66th Avenue facility.
Interest Expense	Based on 2nd Qtr actual results, Staff made a change to the ACTIA loan interest expense component only. This includes the costs related to the following financing transactions:
	·        The cost of the COPS debt service related to the general office building
	·        The financing costs of an advance from ACTIA of Measure B allocations in FY 2009-10,  which was extended for a period longer than planned
	·        The financing costs associated with COPS related to the acquisition of the new FHR system, and,
	·        Interest expenses associated with the COPS issued to finance the acquisition of the 66th Avenue facility.
ADA Consortium	Based on 2nd Qtr actual results, Staff is proposing a reduction in the total level of operating costs of this program as follows. Represents the 69% of the total costs of operating the joint venture with BART to provide specialized Paratransit services. The cost of this program is expected to grow as follows:
	·        Starting FY 2009-10 a new contract has been signed. Demand has dropped materially and suddenly in the current FY 2009-10, and therefore operating expenses have been decreased.
	·        4% is still kept as a growth factor linked to demand projected in the outer years of the projection, subject to review for the evaluation of ongoing demand and productivity levels.
	·      The program included the allocation of fuel recovery costs, which were expected to pass through the District’s operating expenses and could have potentially saved $ 0.5 Million annually. However, this activity is not being conducted as planned and probably will be better executed as it is right now, which would mean that this particular allocation should be transferred from the budgeted and open fuel account to the general account used to record the costs of the purchased transportation services. Fuel costs indeed have generated savings mainly due to the fall in spot prices in the general open market that happened during the first 6 months in the fiscal year
Other Expenses	Based on 2nd Qtr actual results, Staff is keeping previous assumptions unchanged for now as follows. These expenses include items that were also projected based on specific programs and activities by each of the operating departments. The most significant allocations were related to • Leases and rental of certain equipment used in transportation activities and office management • Travel and meeting costs that are under the direct supervision of the General Manager and which have been reduced by more than 40% compared to FY 2008-09 budget levels • For FY 2010-11, the District projects an allocation for the Board of Director’s election costs at $ 1.0 Million.
Service Changes / Service Restorations / Efficiencies	In FY 2009-10 and FY 2010-11 of the SRTP, this item represents the total consolidated costs of labor, benefits, fuel and bus parts and supplies associated with the 140,000 platforms hours of service whose cut will be delayed as compared to the original adopted service cuts in the adopted budget, as a consequence of the revised service adjustments plan approved in December 2009 and to be implemented in March 2010. This temporary additional cost of services is eliminated in FY 2010-11 when, as estimated by Staff, the full 15% of originally projected service hours is indeed cut. Also, from year FY 2010-11, the SRTP now shows $ 22 Million worth of additional savings due to efficiencies and other cost savings initiatives that will have to be implemented in order to assure the sustainability of the District’s operations.