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XV Financial Planning

XV. Financial Planning

Public Transport

Planning and Reform:

g

An Introduction

WORLD BANK

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Public Transport Financial Planning

• Systematic

approach that helps produce a

financially sustainable

program for

financially sustainable

program for

implementing a service plan:

–

Operating, maintaining existing services

p

g,

g

–

Keeping assets in good repair

–

Adding/improving service, equipment, facilities

g

p

g

, q p

,

• Financial planning considers:

–

Financial needs for all functions

–

Sources of funding and finance

–

How to match needs and sources of funding and

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How to match needs and sources of funding and

finance

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Basic Public Transport Financial

S stainabilit Principle

Sustainability Principle

A public transport system must receive

FARE AND OTHER REVENUES

that are

sufficient to cover

ALL

of its costs

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Financial Planning (FP) Process

Estimate O&M

Multi-Year

Service Plan

Set Fare Levels

Estimate Pass.

and Other

Estimate O&M

Costs

Estimate

and Other

Revenues

Estimate

Replacement

Capital Costs

Estimate

Government

Funding

Estimate

Expansion Capital

Costs

Are

Revenues

≥ C

t ?

No

≥ Costs?

Yes

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Consideration of

ALL

Costs

Consideration of

ALL

Costs

• All costs should be included in financial

analyses (e.g., a fare increase)

–

Operating/Maintenance and Capital Costs

–

Fixed and Variable Costs

• All costs should be included when

tender

bids and investment plans

are assessed for

reasonableness

• Failure may lead to poor service provision,

inability to complete contract, collapse of

the public transport system

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Estimating O&M Costs

Estimate O&M

Costs

Estimating O&M Costs

• Operation

Costs

• Administration

• Maintenance

a te a ce

• Contract Services

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Estimating Capital

Replacement Costs

Estimate

Replacement

Capital Costs

• Based on replacing/renewing when needed

REPLACED

at the end of their useful lives

Replacement Costs

– REPLACED

at the end of their useful lives

e.g., Buses

15 years

Rail Cars

35 years

Rail Cars

35 years

Shelters

10 years

Garages/Stations 50 years

–

Some items

RENEWED

at mid-life points

e.g., Buses

8 years

Busways

8 years

Railcars

15 years

Roofs

20 years

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Roofs

20 years

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Estimating

Capital Costs

Estimate

Expansion

Estimate

Replacement

Capital Costs

• Costs should include additional costs (as

Capital Costs

• Costs should include additional costs (as

needed)

–

Engineering

–

Procurement

–

Testing/inspection

–

Financing

• Expansion capital costs

–

Beware of technology choices that may entail

extra costs

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extra costs

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Estimating Passenger and

Other Revenues

Estimate Pass.

and Other

Revenues

• Fare revenues

Other Revenues

Revenues

–

Take into account background affecting ridership

• E.g.: car ownership, road projects…

–

Do not forget to include fare evasion

• E.g., Paris bus network: 10.7% do not pay (2006)

P bli

b idi

• Public subsidies

–

Make sure fund are secured

–

Make sure when the funds are transferred

• Other revenues

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Financial Planning Example

Actual Actual Actual Actual Actual Budget

Fiscal Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Fiscal Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Operating Revenue

2.3% 2.2% 2.5% 2.6% 2.7% Farebox Revenue $ 35.5 $ 36.64 $ 37.9 $ 40.2 $ 42.0 $ 44.14 $ 49.00 $ 51.45 $ 53.51 $ 55.1 $ 57.32 $ 59.6 Other Operating Revenue $ 4.3 $ 5.7 $ 6.6 $ 8.9 $ 11.3 $ 14.2 $ 15.4 $ 15.7 $ 16.0 $ 16.3 $ 16.7 $ 17.0 Total System Revenue $ 39.8 $ 42.3 $ 44.5 $ 49.1 $ 53.3 $ 58.3 $ 64.4 $ 67.2 $ 69.5 $ 71.5 $ 74.0 $ 76.6 Sales Tax (50% Operations) $ 67.5 $ 73.6 $ 78.9 $ 83.3 $ 88.5 $ 94.2 $ 98.9 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6 St t O ti A i t $ $ $ $ $ $ $ $ $ $ State Operating Assistance $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Total Other Operating Assistance $ 67.5 $ 73.6 $ 78.9 $ 83.3 $ 88.5 $ 94.2 $ 98.9 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6

Total Operating Revenue $ 107.3 $ 115.9 $ 123.4 $ 132.4 $ 141.8 $ 152.6 $ 163.3 $ 169.8 $ 175.8 $ 181.9 $ 188.9 $ 196.2

O&M Expenses

Operations $ 49.1 $ 51.56 $ 53.9 $ 55.49 $ 57.3 $ 59.67 $ 68.03 $ 70.7 $ 73.58 $ 75.8 $ 78.82 $ 82.0 Maintenance $ 48.2 $ 50.6 $ 53.1 $ 55.27 $ 58.0 $ 60.9 $ 65.07 $ 68.3 $ 71.06 $ 74.6 $ 78.3 $ 82.3 General and Administrative $ 14.6 $ 15.18 $ 15.79 $ 16.42 $ 17.08 $ 17.76 $ 18.47 $ 19.21 $ 19.98 $ 20.78 $ 21.61 $ 22.48 Total O&M Expenses $ 111.9 $ 117.3 $ 122.8 $ 127.2 $ 132.4 $ 138.4 $ 151.6 $ 158.3 $ 164.6 $ 171.2 $ 178.8 $ 186.7

Balance from Operations $ (4.6) $ (1.4) $ 0.6 $ 5.2 $ 9.4 $ 14.2 $ 11.8 $ 11.5 $ 11.2 $ 10.8 $ 10.1 $ 9.5

Capital Revenue

Balance from Operations $ (4.6) $ (1.4) $ 0.6 $ 5.2 $ 9.4 $ 14.2 $ 11.8 $ 11.5 $ 11.2 $ 10.8 $ 10.1 $ 9.5 Sales Tax (50% Capital) $ 67 5 $ 73 6 $ 78 9 $ 83 3 $ 88 5 $ 94 2 $ 98 9 $ 102 6 $ 106 3 $ 110 5 $ 114 9 $ 119 6 Sales Tax (50% Capital) $ 67.5 $ 73.6 $ 78.9 $ 83.3 $ 88.5 $ 94.2 $ 98.9 $ 102.6 $ 106.3 $ 110.5 $ 114.9 $ 119.6 Federal Capital Grants $ 97.5 $ 76.0 $ 89.2 $ 94.2 $ 112.4 $ 97.3 $ 68.4 $ 71.3 $ 80.3 $ 115.0 $ 130.5 $ 128.7 Net Bond Proceeds $ - $ 60.0 $ 105.0 $ 90.0 $ - $ - $ - $ - $ - $ 40.0 $ 20.0 $ 20.0 Investment Income $ 24.2 $ 13.04 $ 13.41 $ 13.95 $ 13.79 $ 10.98 $ 11.48 $ 11.97 $ 11.93 $ 12.82 $ 14.67 $ 15.71

Total Capital Revenue $ 184.6 $ 221.2 $ 287.1 $ 286.7 $ 224.1 $ 216.8 $ 190.6 $ 197.4 $ 209.7 $ 289.1 $ 290.3 $ 293.5

Debt Level $ 568.60 $ 628.6 $ 733.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 823.6 $ 863.6 $ 883.6 $ 903.6

Capital Expenditures

Rail Phase B $ 140 0 $ 150 3 $ 186 5 $ 156 0 $ 125 6 $ 72 7 $ $ $ $ $ $ Rail Phase B $ 140.0 $ 150.3 $ 186.5 $ 156.0 $ 125.6 $ 72.7 $ - $ - $ - $ - $ - $ -Proposed New Start Project $ - $ - $ - $ - $ - $ 1.0 $ 5.1 $ 11.1 $ 10.7 $ 108.0 $ 130.2 $ 146.9 Rail Rehabilitation $ - $ - $ - $ - $ 20.2 $ 21.1 $ 26.3 $ 27.8 $ 24.7 $ 26.0 $ 26.4 $ 27.0

Subtotal for Rail Systems $ 140.0 $ 150.3 $ 186.5 $ 156.0 $ 145.8 $ 94.8 $ 31.4 $ 38.9 $ 35.4 $ 134.0 $ 156.6 $ 173.9

Bus Purchases $ 8.4 $ 9.2 $ 17.4 $ 38.7 $ 28.4 $ 32.3 $ 68.00 $ 69.36 $ 70.75 $ 46.00 $ 34.00 $ 34.68 Other Capital $ 12.4 $ 24.2 $ 36.5 $ 32.5 $ 25.0 $ 26.50 $ 32.20 $ 33.17 $ 22.20 $ 22.87 $ 23.55

Total Capital Expenditures $ 148.4 $ 171.9 $ 228.1 $ 231.2 $ 206.7 $ 152.1 $ 125.9 $ 140.4 $ 139.3 $ 202.2 $ 213.5 $ 232.1

D bt S i C t $ 39 8 $ 44 0 $ 51 4 $ 57 7 $ 57 7 $ 57 7 $ 57 7 $ 57 7 $ 57 7 $ 60 5 $ 61 9 $ 63 3

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Debt Service Costs $ 39.8 $ 44.0 $ 51.4 $ 57.7 $ 57.7 $ 57.7 $ 57.7 $ 57.7 $ 57.7 $ 60.5 $ 61.9 $ 63.3

Working Capital Account

Beginning Cash Balance $ 189.9 $ 186.3 $ 191.6 $ 199.3 $ 197.1 $ 156.9 $ 164.0 $ 171.0 $ 170.4 $ 183.1 $ 209.6 $ 224.5 Change in Working Capital $ (3.6) $ 5.3 $ 7.6 $ (2.2) $ (40.2) $ 7.1 $ 7.1 $ (0.7) $ 12.8 $ 26.4 $ 14.9 $ (1.8)

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Meeting Financial

(Cost Revenue) Gaps

Are

Revenues

≥ Costs?

(Cost – Revenue) Gaps

• Change Service Plan

≥ Costs?

Multi-Year

Change Service Plan

–

Revise current services

–

Delay expansion plan

Service Plan

–

Eliminate expansion plan

• Change Fares

I

f

Set Fare Levels

–

Increase fares

–

Advance plans for fare increase

Change fare policies

–

Change fare policies

• Pass pricing, discounts

• Introduce TOD fares

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Meeting Financial

(Cost Revenue) Gaps

Are

Revenues

≥ Costs?

(Cost – Revenue) Gaps

• Increase Non-Operating Revenues

≥ Costs?

Estimate Pass.

p

g

–

Examine potential of advertising, capital

facilities, and other ventures to be

profit-making

and Other

Revenues

making

• Seek Government Funding

Estimate

G

t

g

–

Indirect funding possible through tax

alleviation

U

fi

i l

j

i

f

Government

Funding

–

Use financial projections, performance,

condition information to support requests

for additional funding

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Dedicated Taxes

• Variety of dedicated tax instruments

il bl

available

–

E.g.: oil, real estate, parking, companies…

• Care must be exercised to make sure that

dedicated taxes:

–

Are not regressive (hit poor more than rich)

–

Do not create perverse incentives (labor costs,

wasteful capital spending)

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Private Sector

• Potential source of public transport

fi

finance

–

Capital

• Loans

• Investment equity

Ongoing operating payments

–

Ongoing operating payments

• Payments for dedicated services

e.g., to a mall or housing estate

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Capital Financing

• Usually linked to specific purpose

y

p

p p

e.g.

–

Build a depot or repair facility

P

h

hi l

i

t

–

Purchase vehicles or equipment

–

Construct a passenger interchange terminal

• Popular ways to leverage assets to gain

private financing

Sell land/building rights at existing or planned

–

Sell land/building rights at existing or planned

terminals and depots

–

“Sell” vehicles to gain share of depreciation tax

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g

p

write-offs

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Cautions

Private sector is in business to

make $!!

• Private sector is in business to

make $!!

–

May be cheaper to borrow money than to have

private sector invest “equity” that requires a

private sector invest equity that requires a

higher rate of return

(e.g., MRT Line III, Manila)

( g ,

,

)

• All financial planning should include an

analysis of financing options and risk.

y

g p

• Remember,

if it sounds too good to be true,

it’s not true

!!!!!!!!!!!

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Summary

Service

Budgeting

Service

Evaluations

Financial

S

Contract

Fare Setting

_{Sustainability}

Specifications

Fare Setting

Capital

Investments

Operating

Subsidies

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