Major Investment Study / Draft Environmental Impact Statement
7. Financial Analysis
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7.1 FINANCIAL PLANNING PROCESS AND STRUCTURE
The objective of the analysis is to project annual
expenses and revenues, both capital and operating, from the base year to
the design year and to provide information to permit the adjustment of
the implementation schedule for improvements in facilities and services
so that sufficient financial resources are available for each year of the
analysis. The analysis is conducted over a 20-year period from FY 2001
to FY 2020. The following four major data inputs are the basis for the
description of the base year and design year transportation system and
resulting transportation system costs and revenues:
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Construction program: Annual costs for the transit
facilities construction program which include:
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Total construction cost of transportation improvements.
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Distribution of annual construction costs, which is
applied when advancing or delaying project implementation.
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Transit fleet: Rail cars are a large component
of the project's capital costs. To improve cost efficiencies, SEPTA has
coordinated the replacement program for its existing Silverliner II and
Silverliner III Electric Multiple Unit regional rail cars with the Schuylkill
Valley MetroRail project. The replacement car, called the Silverliner V,
is now undergoing conceptual design, and this process is being advanced
such that the Silverliner V will meet MetroRail's functional requirements.
For the purposes of this analysis, it is assumed that the Silverliner V
rail cars for the project are purchased based on the construction schedule
of the Schuylkill Valley Metro Locally Preferred Alternative. Assuming
a 25- to 30-year life for a rail car, replacement vehicles will not be
procured during the FY 2001 - FY 2020 financial planning period.
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Operating costs: Incremental operating and maintenance
costs associated with the Schuylkill Valley Metro have been specified as
well as annual operating costs associated with the baseline network.
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Operating revenues: Growth in fare revenue is
projected based on the results of the travel demand forecasting effort
and the fare assumptions established for the Schuylkill Valley Metro.
The analysis was performed in year-of-expenditure (inflated)
dollars so that debt-financing computations could be made, if required.
In addition to projecting a baseline rate of inflation, inflation assumptions
are required for construction and vehicle capital costs and for operating
costs and revenues.
The sources and uses of funds analysis was then
undertaken and the year-end balances were reviewed to assure that neither
capital nor operating shortfalls occurred. For the purposes of the financial
analysis, this was accomplished by considering the following types of responses:
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Potential Responses To Capital Funding Shortfalls
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Increase the annual amount of capital funding to
the project: If the initial amount of capital funding projected to
be available for the project is inadequate, greater levels of funding could
be assumed.
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Apply debt financing: The financial analysis
allowed for the evaluation of financing options. The first and most desirable
choice was pay-as-you-go financing, whereby available revenue sources fund
the construction and implementation of the project. The second option was
to debt finance the project by issuing long term bonds. The use of debt
financing provides the ability to advance project implementation by borrowing
against projected future surpluses.
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Delay service growth and/or delay construction:
Particularly in the case of financial plans relying on debt financing and
dedicated funding sources, short-term delays in the implementation of new
services and the implementation of new facilities would delay demand on
available funds. This results from the reduction in interest expenses and
the increased ability to finance on a pay-as-you-go basis. Such delays
in the capital and operating plan would involve a re-computation of the
interim year cost and revenue projections.
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Potential responses to operating and maintenance
shortfalls
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Delay service growth: As with capital shortfalls,
delays in the growth of transit service would result in a lesser demand
on available funds. This could also result in lower annual operating and
maintenance subsidies.
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Increase the amount of non-farebox funding sources:
Increased levels of non-farebox revenues would address the operating subsidy
needs of the transit service. This could include higher revenues from dedicated
sources, or the implementation of new or expanded non-farebox revenue sources
(e.g., expanded advertising, concessions, or joint development).
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Apply new fare-box funding sources: For the
purposes of this analysis this would require a higher target farebox recovery
ratio. However, the adoption of a higher farebox recovery ratio may adversely
impact ridership due to the imposition of higher fares.
The financial analysis continued with an exploration
of these potential remedies until no further capital and operating shortfalls
remained. At this point in the process, the financial analysis has defined
a scenario, described in the remaining sections of this chapter, based
on a most likely set of cost and revenue projections, underlying
policies on vehicle fleet management, implementation of construction projects,
operating efficiencies, fares and farebox recovery, implementation schedules
of facilities and services, and inflation. It must be recognized that many
uncertainties can affect this most likely scenario. This includes
factors beyond the control of transportation agencies, their management
and governing boards, and local governments, e.g., inflation and interest
rates, construction and operating costs, ridership, and dedicated revenue
growth.
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