Major Investment Study / Draft Environmental Impact Statement   7. Financial Analysis

7.3 PROJECTED SOURCES OF FUNDS

7.3.1 PROJECTED CAPITAL REVENUES

• Federal Funding Program

• Section 5307 Formula Used for Capital: This program allocates funds to the Philadelphia urbanized area on the basis of various demographic, level of service, operating cost, and ridership statistics. Near-term growth is the result of significant growth in the overall program, as called for in the Transportation Equity Act for the 21^st Century (TEA-21). Nationwide allocations and allocations to the Philadelphia UZA will grow 49 percent from FY 1998 through FY 2003. Post-FY 2005 growth is assumed to be 4.0 percent per year, a post TEA-21 rate of growth that has been recently referenced by FTA staff. 
• Less Portion Applied to PM: A portion of the Urbanized Area formula funds is applied by SEPTA to fund preventive maintenance activities in the operating budget. While Section 5307 funds can only be applied to "capital," the law provides for considering such necessary maintenance activities as capital. The projected dollar amount of funds applied to this use is projected to grow by 4.0 percent year after FY 2005. 
• Section 5309 Fixed Guideway Modernization: The program allocates funds to SEPTA on the basis of level of service and the extent of the fixed guideway system. Post-FY 2005 growth is assumed to be 1.89 percent per year, which is one-half the average annual rate from FY 2000 through FY 2004. 
• Section 5309 Bus/TEA-21: This is a discretionary program in which SEPTA applies for funds for the purchases of replacement buses and investment in bus maintenance facilities and passenger amenities. The post-FY 2005 growth rate of 1.5 percent, which is one-half the average annual rate from FY 2000 through FY 2004. 

• State Funding Program: This is composed of revenues derived from Pennsylvania Department of Transportation bond issues and dedicated tax revenues.

• State Bond Funds (Match on Federal Grants): From state bond proceeds, the Commonwealth matches the FTA's allocation of Section 5307 and Section 5309 formula funds. Specifically, to match FTA funds that represent 80 percent of the total grant amount, the Commonwealth provides an amount equal to 16 2/3 percent of the total, while the remaining 3 1/3 percent is provided by the five-county SEPTA region (Bucks, Chester, Delaware, Montgomery and Philadelphia Counties). No growth is assumed in the post-FY 2005 period. 
• State Bond Funds-VOH/ISRP (16.66% Local Match): These are funds from the State's Infrastructure Safety Renewal Program (ISRP). Post-FY 2005 growth is assumed to be 1.50 percent per year. 
• State Bond Funds-VOH/ISRP (100%): These are funds from the State's Infrastructure Safety Renewal Program (ISRP). Post-FY 2005 growth is assumed to be 1.50 percent per year. 
• Less Portion Applied to SVM: This is the portion of ISRP funds applied as the 3.33 percent "local" match for SVM, described below. 
• Act 3 Dedicated Sales Tax: These are funds from the Supplemental Public Transportation Assistance Account (Act 3 of 1997), which allocates revenues at a rate of 1.22% of the state sales tax (and is capped at $75 million statewide). Beginning in 1998, the state also committed additional funding to the account in the form of additional state bond funds ($50 million per year) and Federal Flexible Highway funding of $25 million. No growth after FY 2005 is assumed. 
• Act 3 Dedicated Sales Tax Interest: This source represents interest earnings in FY 2003 only. 
• Act 26 Capital: These are funds from the Public Transportation Assistance Fund (Act 26 of 1991). Act 26 generates revenue from several sources including: a flat fee of $1.00 per new highway motor vehicle tire sold, a 3.0 percent tax imposed on the total lease price of a motor vehicle in addition to the current tax imposed, a $2.00 fee per day imposed on the rental of a motor vehicle, an additional 7.6 mills per dollar to the Utility Realty Tax levied against public utility companies, 0.18 percent of the current utilities gross receipts tax, and 0.53 percent of the current sales tax. Post-FY 2005 growth is assumed to be 1.5 percent per year. 
• Federal Highway Flexible Funding & Match: These are Surface Transportation Program funds applied to the SEPTA capital program. It is assumed that, beginning in FY 2003, the Long Range Transportation Plan and the Transportation Improvement Program will continue to include transit projects funded from this source. The long-term projection is that funding will remain at $9 million per year. 
• Additional Federal Highway Funding (Buses): These funds are used for regional congestion mitigation projects such as bus purchases. Post-FY 2005 projections assume a moderate 1.5 percent annual increase in these funding sources. 

• City/Counties Local Match Funds

• Local Match for FTA, Act 3 & 26 Grants: The five-county SEPTA region provides local match to the dedicated funding from the Commonwealth. Post FY 2005 growth is assumed to be 1.5 percent per year (to match federal and state growth). 
• Local Match for State Bonds (1/6 Match): The five-county SEPTA region provides local match to the dedicated funding from the Commonwealth. It should be mentioned that SEPTA also uses its own resources to fund a portion of the local match on some capital projects. Post-FY 2005 growth is assumed to be 1.5 percent per year (to match federal and state growth). 

• Additional Capital Funding (Excluding SVM): This is a derived projection of additional funds required to support the baseline capital program and was included as a check (or proof) on the calculation that the baseline program is fully funded. 

• SVM Funding:

• Section 5309 New Starts (80%): Federal Section 5309 (New Starts) grants would fund 80 percent, or $1.4 billion of the Schuylkill Valley Metro's capital costs. For the purposes of this analysis, the annual amount of grant funding projected would cover 80 percent of the annual expenditure needs of the project on a cash basis. Due to the magnitude of the project's resource needs, the required amount of federal resources will exceed the current $75 million earmarked for the project in the near term and will likely be greater than the annual allocation of funds that SEPTA will ultimately negotiate as part of a Full Funding Grant Agreement (FFGA) with FTA. For example, the project would require FTA grant funding between about $200 million and $400. Million during the peak of construction. The analysis assumes that the receipt of Federal payments is concurrent with expenditures. Thus, no short-term financing expenses are assumed. As part of the FFGA negotiations process, SEPTA and FTA will mutually define the annual flow of federal funds based on the construction needs of the project and the federal resources available to fund the project. It is also proposed that SEPTA and FTA mutually identify the need for short term financing that would be used to close any potential gaps between resource needs and availability. 
• State funding: Altogether the state will fund 20 percent of the project's capital costs ($366.4 million) of the Schuylkill Valley Metro's capital costs: 16-2/3 percent from Commonwealth of Pennsylvania State Bond funds and a 3-1/3 percent match from the Infrastructure Safety Renewal Program. 

• State Bond - Supplemental (16 2/3%): The Commonwealth of Pennsylvania State Bond funds will provide this share from the $300 million line item authorization for Schuylkill Valley Metro and Cross County Metro in Pennsylvania's June 2000 Capital Budget. 
• Local/State Infrastructure Safety Renewal Program (ISRP) (3 1/3%): The 3 1/3% match for these funds would be from the State's Infrastructure Safety Renewal Program (ISRP), from which SEPTA receives $26 million annually. The application of ISRP funds is within SEPTA's discretion. The ISRP funds would be programmed for the several years of anticipated construction activities, with an appropriate level of cash flows each year. This approach has been taken in order to fully coordinate SVM and other investments SEPTA is making, thereby achieving maximum possible beneficial impact. Specifically, the ISRP program will upgrade the R6 Cynwyd and Norristown Regional Rail lines, which together form the two legs of the SVM service, so that the lines' physical facilities will match the MetroRail/ Silverliner V car's functional performance characteristics. 
• Lease-Leaseback proceeds: This is SEPTA's share of the net present value of the tax benefits to potential investors in a lease-leaseback service contract allowable under IRS Regulation 467. On a total cost of construction, rolling stock, and systems of $1,255.3 million (year-of-expenditure dollars), a net benefit of 5.0 percent (or $62.76 million) is assumed in the opening year (FY 2010). 

• Additional Funds for Rehabilitation & Replacement: This is a derived projection of additional funds required to support the baseline capital program. 

7.3.2 OPERATING SOURCES

• Fare and Other Operating Revenues:

• Fares: Fare revenues for the baseline SEPTA system are estimated in the operating budget on the basis of projected ridership and the fare structure. Fare revenues in FY 2002 reflect the impact of the recent fare increase, which resulted in 10.8 percent additional revenue compared to FY 2001. Post-FY 2006 growth of 1.5 percent per year composed of underlying demographic changes, changes in quality of service and marketing to passengers will be added to a 1.0 percent annual growth related to the annualized impact of periodic fare changes, to yield a total annual growth rate of 2.5 percent per year for post-FY 2006. 
• Senior Reimbursements: These are subsidies for travel by senior citizens funded through Commonwealth of Pennsylvania lottery proceeds. These funds are projected to grow in proportion to fare revenues. Post-FY 2006 growth is assumed to be 2.5 percent per year. 
• SVM Fares: Design-year projections are based on Delaware Valley Regional Planning Commission (DVRPC) ridership model results and the fare policy assumed for the Schuylkill Valley Metro and the baseline system. Based on the fare assumptions developed for this financial analysis (e.g., including cash fares from $2.00 to $6.00 one-way and the travel demand model's internal, preprogrammed adjustments for pass usage and other fare discounts), it is assumed that Schuylkill Valley Metro and out-year baseline system fare revenues would grow by 1.5 percent annually, as in the case of baseline fares. Schuylkill Valley Metro fare revenues for FY 2010, which is the first partial year of operation (assumed to be 7 months), would equal $13.1 million, while fare revenues for FY 2011, the first full year of operation, would be $22.8 million. By the 2020 design year, Schuylkill Valley Metro fare revenues are projected to be $26.3 million. Based on the results of the travel demand forecasting effort, the Schuylkill Valley Metro is projected to have 47,750 daily boardings by 2020, or 14.6 million on an annual basis. It should be noted that the percentage of Schuylkill Valley Metro and baseline system operating costs covered by fare revenues is projected to decline during the financial analysis period. This is because of the assumption that operating costs will grow by an annual rate of 3.7 percent, while fare revenues will increase by an annual rate of 1.5 percent. For the Schuylkill Valley Metro, fare revenues are projected to cover 48 percent of operating costs in FY 2010 and FY 2011. By FY 2020, fares are projected to cover only 40 percent of operating costs. Funds to cover the remaining balance of operating costs will be required from some combination of state, local and private industry funds. 
• Other Income: This includes real estate lease income, parking lot fees, and advertising income. Post-FY 2005 growth is assumed to be 1.5 percent per year. 

• Non-Operating Revenues

• Federal Operating Funds: 

• Section 5307 for Capitalized Operations: This is the portion of the Section 5307 Urbanized Funds that are applied for preventive maintenance. Post-FY 2006 growth is projected to be 4.0 percent per year, which is consistent with assumptions recently referenced by FTA staff. 

• State and Local Operating Funds: 

• State Operating: These are funds authorized under Act 26. SEPTA's reliance on this source of funding has significantly grown over the past two decades. The state subsidy represented only 45 percent of total subsidy dollars in 1980; it will have grown to more than 75 percent in 2002. The state operating subsidy in FY 2002 is projected to cover 36.7% of operating costs. Post-FY 2006 growth is projected to be 3.01 percent per year. 
• Local Operating: In order to take advantage of the statutory limit in available state operating subsidy, the local operating subsidy is budgeted at a one-to-three matching ratio. The local requirement for each of SEPTA's funded companies (City Transit, Victory, Frontier, and Regional Rail) is determined by the relative deficits in each company (adjusting for debt service and route guarantee payments, described below). Within each funded company, the percentage of the local subsidy requirement is billed to each county in the five-county SEPTA region as determined by historic practice and understanding. Post-FY 2006 growth is projected to be 3.01 percent per year 
• Act 26 Asset Maintenance: This is the portion of Act 26 funds applied to asset maintenance, as provided for in the legislation. (This is similar to the application of Section 5307 Urbanized Area formula funds for preventive maintenance.) It is assumed that funding for this purpose will remain capped at $41.7 million. 
• Act 26 Lease Cost/Debt Service: The Commonwealth of Pennsylvania funds debt service on the Neoplan bus lease prepayment plan, the 1234 Market Street building, and the Market Frankford cars. Local governments fund one-thirtieth of this cost. 
• PA Grant/Act 3 Asset Maintenance: Use of Act 3 funds for operating purposes are projected to begin in FY 2003. It is projected to remain capped at the FY 2005 level of $40 million per year for the balance of the projection period. 
• Public Transportation Assistance Funds (PTAF) III: This is a new revenue stream of $100 million per year projected to begin in FY 2006. It is based on the previously demonstrated commitment on the part of the Commonwealth to expand its support for vital public transportation services. The level of funding is consistent with the additional funds received annually by SEPTA from Act 26 beginning in FY 1992 and from Act 3 beginning in FY 1997. These funds are in addition to Act 26, Act 3, and other sources of state funding addressed above. 
• Public Transportation Assistance Funds (PTAF) IV: Continuing the projection of the above noted source, PTAF IV sources are projected to begin in FY 2011. An incremental funding level of $100 million per year is assumed. Again, all other state sources of funding are also assumed to continue at an increased level. 
• Public Transportation Assistance Funds (PTAF) V: Continuing the projection of the above noted source, PTAF V sources are projected to begin in FY 2016. An incremental funding level of $100 million per year is assumed. Again, all other state sources of funding are also assumed to continue at an increased level. 
• Route Guarantee: These are payments made under separate agreements between SEPTA and various entities to fully fund the deficits generated (difference between operating cost and fare revenue collected) by service extensions implemented by specific request. This includes funding of "Philly Phlash" and "Breeze" services in the City of Philadelphia and Montgomery County, R2 Newark service in the State of Delaware, expanded hours of operation and additional peak service on Routes 94 and 96 in Montgomery County, and route restructuring and additional services in Bucks County. Post-FY 2006 growth is assumed to be 0.68 percent per year. 
• SVM State Operating Subsidy: It is assumed that the Commonwealth of Pennsylvania would fully fund the portion of the SVM incremental operating costs not covered by SVM fare revenues. 
• Supplemental Operating Subsidy: The financial analysis assumes that supplemental operating funds would be available during the course of the 2001-2020 financial planning period to close the projected gap between baseline SEPTA operating costs and fares, other operating revenues and operating subsidies. Based on current practice, the projected gap between baseline operating costs and sources could be closed by a combination of increased state and local funding. 

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