[0:03] >> It is 1:03. We are going to start our

[0:08] meeting for the fiscal year 2027 budget

[0:13] workshop. This is an extra budget

[0:14] workshop we are meeting based on

[0:16] questions we had at our last workshop.

[0:22] So we've updated the board presentation

[0:23] to address concerns and questions raised

[0:29] And briefed board members with

[0:30] Requested information for discussion

[0:31] and deliberation at today's budget

[0:32] workshop. The financial advisor and

[0:34] board Council will advise on METROs

[0:35] authority to restructure debt and

[0:38] potential impacts to METRO's credit

[0:42] rating. We are going to start with

[0:47] George Fotinos

[0:48] >> Excuse me we are going to do public

[0:49] comment first. We have four public

[0:50] speakers registered. The first speaker

[0:58] is Robin Heltzer

[0:59] >>Hi there good afternoon. My name is

[1:08] Robin Heltzer. I'm the Executive

[1:11] Director of Link Houston. Since 2017

[1:17] link staff and volunteers have worked

[1:18] with communities to advocate for a more

[1:20] robust equitable transportation system

[1:25] So all Houstonians can access

[1:31] opportunities. We know that the places

[1:32] we build great transit Houstonians ride

[1:34] it and that's why we are here during

[1:35] budget season. For any of us, our

[1:39] budget is a statement of our values, It

[1:45] reflects our priorities and also

[1:46] reflects the trade-offs we are willing

[1:47] to accept. Let's start with priorities.

[1:48] Since 2017, link has surveyed riders to

[1:53] learn what they value. Every year

[1:56] frequency of service and

[2:00] reliability are the top two concerns we

[2:01] hear about. 38 percent of riders want

[2:05] to spend less time waiting for the next

[2:06] bus or train. 37 percent of riders want

[2:12] to trust their trip will their travel times

[2:13] Will be predictable and consistent. What

[2:15] does that look like in your budget? It

[2:18] means investing in more vehicles, not

[2:26] only to replace the aging fleet but to

[2:27] grow the fleet so you have the rolling

[2:28] stock to offer more service. It also

[2:29] looks like capital dollars which

[2:32] METRONext voters approved for projects

[2:33] like boost which make very tactical street

[2:40] improvements that make it easier for

[2:41] you to get buses where they are going

[2:42] on time. Let's talk about trade-offs.

[2:47] This budget draft Hints at service

[2:51] cuts from 26 to 27 of order of

[2:53] magnitude $22 million. This budget also

[3:01] includes a proposal to divert $40

[3:02] million or so from our transit budget

[3:03] off to local street projects, in

[3:08] addition to and on top of our general

[3:09] mobility commitments. I urge you as

[3:12] board members to be very reluctant to

[3:14] accept service cuts, At the same time

[3:22] we are diverting transit dollars to

[3:23] other things not about the core service

[3:24] to riders you serve. Budget work for

[3:30] organization this size is incredibly

[3:31] Hard work and super detailed. We

[3:34] urge you to keep asking detailed

[3:38] questions and to really weigh any of the

[3:42] trade-offs you are weighing against how

[3:43] they will impact your daily bus and

[3:44] rail riders, not just this year but

[3:45] over the years ahead. If you have not

[3:51] heard it lately, thank you for your

[3:53] service.

[3:58] >> Thank you the next speaker is

[4:00] virtual Jeffrey Lecour

[4:22] >>Good afternoon. Good afternoon. My

[4:29] name is Jeffrey Lecour. I recently retired

[4:30] after 25 years as a budget analyst and

[4:33] managed a budget. As METRO enters 2027,

[4:45] I believe we are at another moment

[4:47] Where long term pressures are

[4:49] Beginning to converge. Trends suggest

[4:51] That METRO may benefit from a

[4:53] Deeper structural view to ensure

[4:54] Long term sustainability.

[4:55] First operating costs, METROs

[4:56] operating budget exceeds $1 billion per

[4:58] year, operating costs rise faster than

[5:00] revenue, the current five year plan

[5:01] Holds operating spending flat $1 billion

[5:02] each year my experience that is

[5:04] extremely difficult to achieve without

[5:05] meaningful changes in service levels

[5:21] workforce structure nonlabor spending

[5:22] this means the assumptions deserve

[5:23] Careful review. Second, the capital

[5:24] Budget. The proposed

[5:27] five-year capital budget is reduced by

[5:30] more than $1.2 billion roughly 50

[5:32] percent compared to last year this is a

[5:36] very large reduction in past cycles

[5:38] when capital was constrained METRO

[5:39] could still fund the bare minimum

[5:40] state of good repair.

[5:42] Today needs are larger especially with

[5:43] the aging rail fleet and other

[5:44] facilities approaching critical

[5:45] lifecycle milestones. Third, Cash

[5:47] Reserves. Now that the FIFA

[5:48] World Cup commitments are behind us,

[5:50] METRO cash reserves are lower than in

[5:55] prior years, that makes it even more

[5:57] important to ensure the long-term plan

[6:00] is structurally sound and resilient to

[6:03] economic changes. Given these pressures

[6:04] I recommend METRO consider a zero based

[6:10] budgeting review That would allow the

[6:13] board and staff to look holistically at

[6:14] all options including service levels

[6:15] workforce structure hiring and salary

[6:16] practices fare policy

[6:18] non-labor efficiency and debt

[6:21] restructuring. These are all tools

[6:22] METRO has used successfully in the past.

[6:28] On the capital side I encourage a

[6:29] review of all projects using Tier 1

[6:33] state of good repair [Indiscernible]

[6:34] which align directly with essential

[6:35] needs which include rail and bus fleet

[6:37] replacement rail infrastructure state

[6:41] of good repair bus garages and rail

[6:42] operation facilities nonrevenue fleet

[6:45] ADA safety and security. These are all

[6:51] categories, these are the categories

[6:53] METRO must fund to remain compliant

[6:55] with federal requirements and safe

[6:59] operation. I recognize that major

[7:03] changes to the 2027 budget before the

[7:04] September board meeting is a major

[7:06] undertaking even if the board approves

[7:07] the current budget I believe it would

[7:10] be valuable to begin a deeper

[7:11] structure review immediately afterward

[7:15] This is a defining moment for METRO's

[7:20] Long term sustainability. There is time to

[7:21] address these issues but the window

[7:23] narrows each year. Thank you for your

[7:24] time and for your leadership.

[7:39] >> Thank you. The next speaker is

[7:40] Daniel Aragon

[7:41] >>Good afternoon

[7:42] >> Good afternoon Board members my name

[7:49] is Daniel, I am here as a METRO rider,

[7:54] not with any group or anybody just me

[7:57] as a rider. As I've been watching

[7:58] these board meetings and budget

[8:00] meetings I've had many concerns. I

[8:12] don't understand everything being said

[8:13] I'm not a finance person but I'm

[8:14] hearing very concerning a lot of the

[8:15] financial issues I understand you are

[8:16] having or not your fault, they are way

[8:17] out of your control. There are some

[8:18] things you can do for example, the $40

[8:20] million meant for road improvements

[8:23] over the last couple years This is

[8:26] something I see METRO invest in. It is

[8:31] very frustrating. Public transit is so

[8:32] underfunded in our state. To see even a

[8:35] single dollar being spent on road

[8:39] Improvements with no real benefit to

[8:42] transit, it's upsetting and

[8:45] frustrating. Buses are still stuck in

[8:49] traffic. But the roads are repaved.

[8:52] There is no difference, as Board Member

[8:55] Trevino said in the past committee

[8:56] meeting, There is no real benefit to

[9:01] the buses and transit riders. The

[9:04] second thing is the service cuts being

[9:09] proposed. From my understanding, as

[9:11] Board Member Moralis said, core

[9:14] services were not going to be affected.

[9:17] But buses and trains, from what I read

[9:20] in the Houston Chronicle, are maybe

[9:22] going to be reduced. Which is

[9:28] frustrating. Two years ago maybe you're

[9:31] tired of hearing this but it's so

[9:32] frustrating to years ago we were told,

[9:38] METRONext was too expensive we don't

[9:39] have a next money we can build anymore

[9:40] okay fine let's focus on the bus. Now

[9:41] we are told we don't have money for

[9:43] that. As a transit rider, I think we

[9:47] can all agree transit in Houston is not

[9:54] the best. It's very frustrating to see

[9:55] this happening. The third thing is

[9:56] public engagement. There's been no

[10:00] public engagement, I follow along

[10:01] what's happening here at the county and

[10:04] city, most people would not know that

[10:05] METRO is working on its budget. People

[10:09] deserve to know service cuts are being

[10:13] proposed. This budget is different from

[10:14] the past years. I've been following

[10:17] METRO for many years now. People need

[10:19] to know what's happening. $2 billion of

[10:25] taxpayer money is too much money for a

[10:26] few people to decide what should be

[10:30] done. Too much money for unelected

[10:31] people to decide what should be done

[10:34] with. Thank you

[10:38] >> Thank you. Dominic Maisoc

[10:39] >> Madam Chair do you mind if I address

[10:42] that. I think there is something we

[10:49] need to share. That is based on

[10:50] feedback the latest version of this

[10:52] budget proposal you see today

[10:56] eliminates even the small amount that

[10:59] was being looked at as a potential

[11:02] change in service in the future.

[11:07] Today's budget is 1,015,000,000. A lot

[11:13] of the concerns that have been raised I

[11:14] want to make sure we address that going

[11:16] Here at the start thank you

[11:17] >> I'm in the boardroom. First I have

[11:21] to ask a question how many people in

[11:23] this room have read completely board

[11:32] resolution 2017 71, 19, 2019 71. How

[11:37] many have read that? That is METRONext.

[11:45] If you are going to be up here

[11:46] supporting or going against METRONext,

[11:48] you need to be knowledgeable of the

[11:52] document. It's on the website so I

[11:54] mean.... And I want to read a line

[11:58] here. This is from Exhibit A first

[12:02] paragraph METRONext comprehensive plan

[12:03] includes the acquisition construction

[12:05] repair equipping improving or extension

[12:07] of METRO transit system. METRONext is

[12:11] suspected to include Some or all of the

[12:15] Following and they give a list. Later on

[12:21] it says we have to watch the budget.

[12:27] George, last year about this time we

[12:28] were discussing this year's budget. You

[12:29] were already saying at that point, we

[12:32] have to watch what's happening. You

[12:36] really did not want to push things too

[12:37] much because of FIFA. I have to give

[12:40] you credit for that you said that a

[12:43] year ago. I do think Roberto Holly,

[12:51] Mayor Fry if this $40 million transfer

[12:55] is done to the city of Houston outside

[12:58] of the general mobility payments I

[13:03] think all three of you and I'm thinking

[13:04] of myself going to the county attorney

[13:07] And talking to her If this is right this

[13:12] is beyond. METRO needs to redo its bus

[13:22] system. I ride the 35 from here and it

[13:25] goes past, it goes down West Gray. It

[13:32] goes by the Metropolitan center, which

[13:38] a lot of people use it for their

[13:39] exercise get fund get out. My question

[13:42] is nobody is riding it. I think there

[13:46] are places in the system where we need

[13:50] a readjustment maybe that could be a

[13:51] curb2curb service or a community

[13:57] connector, might be a more available

[13:58] system for that. I think, too, this

[14:04] meeting should have been done two

[14:05] months ago. Because you are talking

[14:08] about cutting service, this is

[14:13] something, like the other person said,

[14:16] needs to be put before the community

[14:17] now. With that, also Bob, I do agree

[14:30] with you we do need [Indiscernible]

[14:31] with that thank you I'm out of time

[14:32] >> Director Morales this concludes the

[14:34] public speakers

[14:35] >> Thank you to all the public speakers

[14:36] for being here today. At this point we

[14:39] will start the briefing on the fiscal

[14:40] year 27 budget workshop, George?

[14:41] >> Thank you Chair Morales

[14:42] >> Before you go George I want to add

[14:48] something Chair Morales. The issue of

[14:54] service changes has been brought up a

[14:55] few different times. I want to make it

[14:58] clear this is a budget, this is not the

[15:01] process for service changes. This is

[15:06] making assumptions as to what will be

[15:07] available in the budget. We have a

[15:11] regular process for addressing service

[15:15] changes that we have done multiple

[15:19] times, we increase service a few

[15:20] different occasions this year, we

[15:21] changed some service. I say that

[15:27] because as we get into the discussion

[15:28] of service changes, while there is not

[15:32] any currently contemplated in the

[15:36] budget, that is handled completely

[15:37] separate from the budget process. We

[15:38] could do three times a year and that's

[15:43] intended to be the process we follow.

[15:48] >>.Thank you board Chair Brock and this

[16:09] is the fifth presentation to the

[16:10] budgeting cycle my name is George

[16:11] Fotinos METRO Chief Financial Officer

[16:12] kicking off the workshop presentation.

[16:13] Next slide please during the last

[16:14] budget workshop there were questions

[16:15] and requests for more information on

[16:18] METRO authority authorization issued

[16:20] debt, , the effects of the proposed

[16:22] restructuring how the reserve funds

[16:25] work, and more details on the proposed

[16:26] operating budget. There was a request

[16:29] for alternatives to consider. With the

[16:32] objective of covering all these items

[16:33] let's get started. First we will cover

[16:36] the topic of natural authorization to

[16:37] issue debt. [Indiscernible] METRO Board

[16:46] Council and bond Counsel will address

[16:47] the topic

[16:48] >> Thank you George. There are certain

[16:51] questions you want me to address? There

[16:54] was a question at the last workshop

[16:56] about some of the legalities, the

[16:59] governing code the statute that METRO

[17:04] had as it was planning budget since

[17:08] 2027 about the ability to issue

[17:09] non-referendum debt and the tenor of

[17:11] those debts and the assumption that we

[17:16] had and how that changed with the

[17:21] recent opinion

[17:22] >> Recent AG interactions. So, the

[17:27] existing policy as we understood it

[17:31] going back to about 2010, kind of the

[17:34] earliest memos I have seen, was that

[17:39] METRO had the ability to issue

[17:40] five-year bonds, I think that's under

[17:48] [Indiscernible]. I wanted to

[17:49] distinguish between new money bonds and

[17:50] bonds that refund existing debt. That

[17:53] particular statute relates to new money

[17:57] debt, METRO could issue new money debt

[17:58] for five years, that statute siloed

[18:01] the ability to refund the debt. The

[18:09] negotiation with the AG and I have more

[18:10] information than I've had in the last week

[18:16] the discussion with the AG was around

[18:17] once you issue the debt for five

[18:18] years, can you refund the debt? There's

[18:21] actually a provision in METRO's code

[18:32] that says refunding are done under 1207

[18:33] public Texas Government Code. We have

[18:34] done some digging, the original

[18:40] agreement was 5+5 so you

[18:43] could issue the new debt for five years

[18:44] and refund it for another five years.

[18:47] My understanding is that was actually a

[18:48] compromise made with the AG because under

[18:58] 1207, METRO has the ability to issue

[18:59] refunding debt for maturity of up to 40

[19:01] years. The AG saw that as a workaround

[19:09] of the five year limitation so what

[19:10] they said was you can issue debt for

[19:11] five years and refund it for another

[19:12] five years. We operated with that

[19:20] understanding. The earliest

[19:21] information I found where we

[19:22] Memorialized it was 2010, so the last 16 years.

[19:27] Went to the AG this year to authorize

[19:28] commercial paper. What they told us was

[19:34] that METRO was not going to be able to

[19:35] refund the debt for five years, that

[19:40] METRO could issue the commercial paper

[19:41] issue short-term notes for five years

[19:44] only. And the debt had to be retired

[19:45] within five years. That was a change

[19:49] from what we previously understood the

[19:50] rule to be and we've had ongoing

[19:53] discussions with the AG about that. We

[19:57] have worked on a memo to establish why

[20:03] we believe the existing policy should

[20:04] still be in place. But the discussions

[20:12] are ongoing

[20:13] >> Those discussions you have ongoing,

[20:16] how do you feel about that? do you

[20:17] think it could possibly change? We were

[20:18] joined by Chair Brock and Mr. Jasien,

[20:23] Eddie Miranda, we went up to Austin

[20:25] and visited with the

[20:29] head of public finance division and her

[20:30] direct supervisor. I would describe

[20:33] those conversations as productive. They

[20:37] were open to us submitting more

[20:38] information for them to consider.

[20:43] Obviously the term of this Attorney

[20:44] General ends at the end of this year.

[20:49] There will be an election in November.

[20:50] The impression I got they would

[20:53] consider it but probably would be

[20:57] reluctant to change their position in

[20:58] the short-term. But they encouraged us

[21:02] to continue to talk to them. They also

[21:07] said we could pursue changes during the

[21:08] Legislative Session. And after November

[21:13] obviously you have a new AG elect. They

[21:17] will probably be new executive staff

[21:19] and they encouraged us, once the

[21:23] election takes place to have some

[21:26] dialogue with the new administration.

[21:29] All right thank you any other

[21:31] questions? For clarity. 451 362 says

[21:39] non-referendum debt can go up to 10 years, I

[21:40] mean five, referendum debt can do 10.

[21:46] >> Referendum debt can do 40, whatever

[21:52] is in the referendum

[21:53] >> The challenge we have with this

[21:56] budget is we went non-referendum debt

[21:57] which we've never done before, we

[21:59] projected it for 10 years. The AG said you

[22:02] can only do it for five. So how does

[22:07] 102 tie into that direction in

[22:14] 451?

[22:15] >> I will let George speak to the

[22:16] implications of the change. But

[22:21] refunding bonds are done under 1207 of

[22:22] the Texas Government Code, that applies

[22:25] not to just METRO but other issuers.

[22:29] The definition of issuer is in 1207.

[22:32] How you reconcile them both has been an

[22:35] ongoing discussion. Arguably if you go

[22:41] to 1207 to refund in this case METRO's

[22:46] debt, what it says in the statute is

[22:47] debt can have a maturity of 40 years.

[22:50] The position AG took previously was we

[22:54] don't think it's right for you to issue

[22:55] five-year debt and have the ability to

[22:58] take it out for 40 years. It's an

[23:03] interpretation. It's a policy

[23:07] interpretation. What they said was you

[23:08] can issue it for five years and go to

[23:12] 1207, and issue refunding that because

[23:13] that's what the statute says but we are

[23:15] not going to approve that, it's longer

[23:17] than five years. That's how we

[23:27] operated. My recollection is we have

[23:28] not issued five-year debt and refunded

[23:29] it in the past. But that was the

[23:30] understanding we had. And then when we

[23:38] went to go do not Non-referendum debt

[23:40] as commercial paper we had the

[23:41] discussion around taking out the debt.

[23:46] That's when they told us with respect

[23:47] to non-referendum debt it had to be

[23:48] retired in five years.

[23:56] >> Our second topic of discussion is

[23:59] regarding the proposed restructuring.

[24:05] There are questions regarding the cost

[24:06] as well as risk to METRO's credit rating.

[24:12] Carlos Allen from PFM municipal and

[24:21] financial advisor will provide

[24:22] additional comments specifically on the

[24:23] credit risk.

[24:24] >> Carlos Allen PFM. so, the purpose of

[24:31] my presentation is to speak through

[24:32] three different things METRO is

[24:33] contemplating, debt restructuring, A

[24:37] plan drawdown of fund balance and

[24:38] possibly waving a policy. Sort of not

[24:48] to advocate for one or the other but

[24:49] make sure METRO Board and staff

[24:50] understand the credit rating

[24:51] implications of each one of the

[24:55] actions. so, right now METRO has a AAA

[24:56] bond rating. By S&P and

[25:04] [Indiscernible], one represents the

[25:05] highest bond rating available also has

[25:06] a reputational kind of feather in the

[25:08] cap of being the top notch from a

[25:13] financial standpoint and the ability to

[25:14] pay back debt holders. If you decide to

[25:16] go with the debt restructuring, The

[25:20] rating agency will ask themselves or

[25:21] ask METRO, is this for savings. Right

[25:28] now the restructuring we are looking at

[25:29] does not produce present value savings

[25:30] but does present cash flow savings in

[25:31] the next three years. We need to

[25:34] articulate how this restructuring puts

[25:36] us on a better footing. Also being

[25:41] considerate is a plan drawdown. If you

[25:45] ever have multiple years, of fund

[25:46] balance drawdown that is not associated

[25:49] with major capital projects, the rating

[25:53] agencies wonder if you are using

[25:57] operational fund balance to support

[26:05] operations. If so you need to come up

[26:06] with a plan that says you are going to

[26:07] wean yourself off of that or this is a

[26:08] one time deal. In addition to drawing

[26:11] down reserve funds of METRO root draws

[26:12] down reserve funds, you would have to

[26:15] waive or change your current reserve

[26:19] policies. The rating agencies would

[26:20] also look at this, where are you going

[26:23] to be at getting back to sustainability

[26:28] or where are you going to get to be

[26:29] where previous boards have recommended.

[26:32] None of those things in isolation

[26:33] trigger a downgrade but when you look

[26:39] at all those things you need be very

[26:40] careful with the message you are

[26:41] articulating to rating agencies. It

[26:42] needs to sound like one comprehensive

[26:46] plan, a plan that is also achievable

[26:47] and sustainable. Let's say worst-case

[26:52] scenario, you do all three of these

[26:53] things at the same time, the rating

[26:55] agencies feel this is negative. Not

[26:59] doing all three things is the worst

[27:00] case scenario, rating agency

[27:04] interpretation this is negative is the

[27:05] worst case scenario. That could trigger

[27:08] a ratings review or negative outlook.

[27:12] Over that time period for the next 6 to

[27:13] 18 months, The rating agencies monitor

[27:16] how your financials come in toward the

[27:23] budget, what systems or controls you

[27:24] put in place to control cost or

[27:25] replenish fund balances. If everything

[27:28] goes fine they change you back from

[27:29] negative to stable. If things further

[27:32] deteriorate you could see a downgrade

[27:33] down the road. One of the questions

[27:36] George asked me was to quantify what a

[27:39] downgrade could mean. They downgrade

[27:42] going from AAA to AA plus is about 3 to

[27:45] 5 basis points. On a $100 million bond

[27:54] transaction that could result in

[27:55] 500,000 to 800,000 interest cost over

[27:56] 30 years. That is ultimately the most,

[28:02] you would get downgraded and phased-in

[28:03] at a slightly higher interest rate

[28:07] cost.

[28:08] >> George did I miss anything you

[28:09] wanted me to cover? No I think you

[28:14] covered the concern about the credit

[28:17] rating as far as the different rating

[28:20] agencies. Are there any other questions

[28:21] from board members to cover

[28:23] specifically on the credit rating

[28:26] issue? This is Director Ponce, if we

[28:29] were to go to a downgrade, how long

[28:34] would it take us to get back to AAA

[28:39] status?

[28:40] >> I can't really speak for the rating

[28:42] agencies. I would not see you get

[28:43] downgraded in six months to a year, you

[28:46] would have to be on notice for a

[28:49] downgrade. And further deteriorate

[28:50] which would trigger the downgrade. Then

[28:53] the rating agencies are quicker to

[28:54] downgrade you then to upgrade you. If

[29:01] that process takes 18 months to get

[29:02] upgraded takes close to three years.

[29:06] They want to see two years of trends

[29:07] and then give you a positive outlook,

[29:10] And then we continued the trend for the

[29:11] Third year and we can get an upgrade. It

[29:23] could take you a year to 18 months to

[29:24] dig a hole and a minimum of three years

[29:25] to dig out of the hole.

[29:26] >>Are there any other questions? Just

[29:31] speaking to the board, your conclusion

[29:41] was it says [Indiscernible] it would

[29:42] not lead to an immediate downgrade,

[29:44] immediate downgrade is unlikely. But

[29:49] you said about the risk of a downgrade

[29:52] potentially. You said if we approve

[29:53] what was proposed today, the most

[29:58] adverse outcome is the assignment of a

[29:59] negative outlook. Do you stand by that

[30:09] conclusion? The highest likelihood if I

[30:10] have to put a weight of meaning no

[30:11] action downgrade negative outlook. I

[30:14] put the highest probability with a

[30:15] negative outlook at 40 percent. An

[30:18] equal weight to the other sides. But a

[30:22] negative outlook is an indication you

[30:23] are heading in the wrong direction. You

[30:25] don't get downgraded immediately. But

[30:30] that is the first step to a downgrade

[30:31] is the negative outlook is that

[30:34] correct? The downgrade is putting METRO

[30:36] on notice the downgrade could be

[30:39] forthcoming if either things don't

[30:42] stabilize or further deteriorate

[30:43] >> Okay thank you.

[30:47] >> Any other questions? Thank you

[30:57] Carlos. If there are no other questions

[30:58] we'll move on with the presentation. On

[31:01] this slide you see key points of the

[31:02] debt restructuring. First the interest

[31:04] rate on the debt will increase, , The

[31:09] interest payable through 2044 is 103

[31:13] million 52 million more than interest

[31:14] payable for the current debt. However

[31:17] the net present values of restructured

[31:18] interests will equate to 1.015,

[31:27] 1.25 million. in a few slides I will

[31:30] explain that more. following the slide

[31:35] the cost of transaction is 2.7 million,

[31:36] the estimated cost. Carlos covered the

[31:38] credit risk, expected to be updated,

[31:45] does the highest probability to a

[31:46] negative outlook but not a downgrade.

[31:49] If there were a downgrade that would be

[31:50] up to five basis points, a downgrade

[31:53] would not be financially catastrophic.

[32:00] On this slide we would need to plan the

[32:01] execution of the transaction to be

[32:02] completed by January February

[32:04] timeframe.

[32:05] >> One thing I went to mention on this

[32:11] chart, there was a Fed Chair made a

[32:15] statement earlier this week about

[32:16] possibility of increasing rates, at

[32:17] least one time this year, maybe two

[32:19] times next year. So that would impact

[32:22] this rate. It could possibly go up.

[32:26] Also increase our cost. but, something

[32:29] to think about is that if we did it by

[32:36] January, because I've been thinking if

[32:37] we should wait, it could possibly even

[32:40] increase later. This is something to

[32:42] think about. One thing I wanted to

[32:45] mention at this point. Thank you

[32:46] >> Next slide please. This shows some

[32:53] more details about the transaction. The

[32:58] first bar chart in quadrant one on the

[32:59] upper left slide highlights which parts

[33:03] of METRO current debt the restructuring

[33:04] will affect. The restructuring will

[33:07] change the terms of 40 percent of

[33:08] existing debt. That is the red piece of

[33:11] the bars you see. When we move to the

[33:19] next quadrant you see the high

[33:20] principal payments we are focusing on

[33:21] in the next four years. Then there is a

[33:22] sudden drop. Notice on the slide the

[33:24] final maturity date is 2044. Even

[33:27] though it goes to 2044, 17 years from

[33:30] now the average age of the debt is 3.8

[33:36] years. the third quadrant on the lower

[33:39] left shows proposed restructuring peak

[33:40] years of payments spread out evenly

[33:47] also notice on the slide final maturity

[33:48] is, 2044 we are adjusting the

[33:50] amortization of the debt. With the

[33:56] restructuring the average age moves

[33:57] from 3.8 years to 7.6 years. this is

[33:59] more information and understanding what

[34:06] the objective of how it will change our

[34:07] debt service schedule for next year.

[34:08] Next slide please. I mentioned earlier

[34:17] 52 million of interests between now and

[34:18] 2044 being equivalent of 1.25 million

[34:19] in today's dollars. this shows how I

[34:22] know there are a lot of numbers here.

[34:24] it's very clear when you break it out.

[34:26] to the left you have the years, to the

[34:30] second column you have METRO current

[34:31] debt service. This debt service is a

[34:33] schedule of existing debt. The next

[34:38] column shows new debt service schedule

[34:39] and what that would look like. The

[34:45] column after that with shade green and

[34:46] red is the difference between the old

[34:47] debt schedule and the new debt service

[34:48] schedule. The Delta, this Delta of the

[34:49] debt service changes between 130

[34:55] million between now and 2031, increases

[35:00] debt service by 182 million in the

[35:01] years after. If you add the payments up

[35:04] that's 52 million we are talking about.

[35:12] The last column to the right shows what

[35:13] happens to inflows and outflows when

[35:14] They are looked at in today's dollars. If you

[35:16] discount the changes in the debt

[35:17] service scheduled to account for

[35:20] inflation, add them up you get a total

[35:21] of 1.25 million. You can see the

[35:27] benefits of the green savings are more

[35:28] beneficial to us than the increase in

[35:29] out years of the increased debt service

[35:32] payments. Wanted to make sure that was

[35:34] clear, how we calculate that. The net

[35:37] present value number.

[35:42] >> Let's stop there and see if there

[35:43] are any questions? One question I had

[35:46] and maybe this might be a question for

[35:52] Carlos, if we restructure the debt does

[35:53] it impact our ability to go back to the

[35:56] market if we want to borrow in the

[36:00] future?

[36:01] >>It does not affect your ability to go

[36:07] into the market and sell any new debt. Now

[36:10] for the debt we restructure, even

[36:14] though we have not done the

[36:15] restructuring yet, We will put some

[36:18] type of call features and optionality

[36:19] in there. Typically we would not be

[36:24] able to refinance the debt for eight

[36:33] years if we do a market standard call

[36:34] in there but since it's not structured

[36:35] yet we can also structure this in a

[36:36] way that allows for flexibility and

[36:37] further tie METRO's hands in the

[36:41] future. If we put that option in there

[36:42] it may reduce overall savings, it may

[36:45] be a deals we want to do that closer to

[36:46] the time of the transaction so we

[36:49] maximize the savings or benefit of

[36:51] financing. Now that you are up here,

[36:58] Can you go over what I stated earlier

[36:59] about the feds Chair remarks for rising

[37:00] interest rates? If you asked me about a

[37:01] month ago, I would've said the

[37:08] likelihood of a Fed rate increase

[37:09] before the end of the year was highly

[37:10] unlikely. After the comments last week,

[37:13] the likelihood went over 50 percent.

[37:15] Right now the Fed is focused on

[37:20] inflation, it's above the two percent

[37:22] target almost twice the target. So to

[37:26] sort of curb inflation or curb

[37:29] inflation, they may increase rates at

[37:30] the next Fed meeting. We could see

[37:34] another Fed increase at the end of

[37:37] January.

[37:44] >> so, I know this rate will probably go

[37:45] up and overall cost will go up based on

[37:46] what we have here. If we restructure in

[37:48] January or February of this year? If

[37:50] interest rates go up, it would reduce

[37:54] the generated savings. The $1.2 million

[38:11] in savings right now could easily go up

[38:12] to over 2 million in this savings cost

[38:13] of funds we are estimating at 4.7 could

[38:14] go up 25 to 50 basis points and be

[38:15] close to 5.5 percent. with interest

[38:17] rates going up it hurts the debt

[38:20] restructuring. right now we also have

[38:21] a current refunding opportunity meaning

[38:24] if you exercise the interest rate, when

[38:26] you enter that debt that generates

[38:29] healthy savings on its own. Any

[38:35] increase in rates reduces the savings

[38:36] generated for that transaction as well.

[38:40] Okay thank you

[38:41] >>Thank you, Carlos. Next slide please.

[38:46] We are going to switch gears, the next

[38:49] Two slides will cover the

[38:51] topic of reserves. METRO currently

[38:55] has three tiers of reserves combined

[38:57] they represent two and have months

[38:58] operating expenses. We've confirm that all

[39:02] these reserves are at the discretion of

[39:03] the METRO Board. The history of METRO

[39:07] reserve shown on the right hand column.

[39:13] In 2005 METRO initiated the debt

[39:14] program and created a policy. On that

[39:18] policy it established the 15 percent

[39:19] operating expenditure, that layer. That

[39:22] is the equivalent of 1.8 months. The

[39:25] other layers came later under different

[39:27] Boards. Around 2014 a

[39:29] 10 percent layer was established, that

[39:36] layer was later modified in 2022 to 5

[39:38] Percent when METRO began funding its own

[39:41] liability. The emergency reserve was

[39:43] established in 2016 at 10 million, it

[39:46] was depleted in 2018 for hurricane

[39:50] Harvey. It was restored back to its

[39:52] original $10 million balance in 2020.

[39:57] Last year in 2025 the board increase

[39:59] the $10 million balance to 15 million.

[40:03] What really guides our reserve policy

[40:04] is best practice. Next slide please.

[40:10] Here you see our peer agencies and

[40:11] their respective reserve balances. They

[40:12] have a range. I'd like to point you to

[40:14] the bottom of the chart. The GFOA

[40:22] Officers Association does have a best

[40:23] practice recommendation of two months.

[40:28] The transportation code only speaks to

[40:29] reserve requirements for transit

[40:30] agencies smaller than METRO. We are

[40:33] looking at a benchmark here where we

[40:34] are in the reserves. If we reduce the

[40:38] two layers discussing, the $15 million

[40:43] layer and the five percent layer, that

[40:47] puts us a little shy of two months. But

[40:50] it keeps us keep some level of reserve.

[40:54] George, we would look at replenishing

[40:58] that once we pay back the five-year

[40:59] commercial paper within five years?

[41:05] There are different options when we

[41:06] find ourselves with surplus cash. We

[41:09] can use the cash to replenish reserves.

[41:12] We can use that cash to not issue debt.

[41:15] If we have a future debt plan. All of

[41:17] those are optionalities, what we will

[41:22] be presenting later in the presentation

[41:23] is a pro forma, cash flow pro forma

[41:29] where we present the next five years

[41:30] and more and provide a year we see in

[41:32] this scenario what that date will be

[41:38] around which year we can replace the

[41:41] reserves. I will speak to that in a

[41:42] later slide. now, next slide please.

[41:49] Now we will focus on the operating

[41:52] budget, there were a lot of questions

[41:53] only operating budget, We know board

[41:59] members have different questions

[42:00] regarding reductions and how service

[42:01] would be affected, echoing what Mr.

[42:04] Jasien said at the onset of the meeting

[42:10] we are taking any reduction in the

[42:11] budget affecting service off the table.

[42:16] The proposed budget will go from 1

[42:17] billion presented at the last workshop

[42:18] to 1.015. There are long-term

[42:20] financial risk to this. There would

[42:32] have to be $40 million reduction in a

[42:33] four-year funding envelope for the

[42:34] capital budget I will go into details

[42:39] on those risk and reduction in a later

[42:40] slide but in the meantime I will invite

[42:41] Nick the manager of the operating

[42:42] budget to walk you through details of

[42:43] the operating budget number,

[42:47] Specifically increases and decreases

[42:48] which get us from the current budget of

[42:50] 1.04 to the new budget

[42:51] proposal of 1015. Thank you George. We

[42:58] will go over the 2027 operating budget.

[43:03] As shown on the screen FY26 budget is

[43:07] $1,040,000,000, we expect to reduce

[43:08] budget for FY 27. This has been through

[43:14] monthly reviews quarterly management

[43:15] reviews and conversations with

[43:19] departments. We will go into how the

[43:20] $1,015,000,000 budget was built. Want

[43:27] to make sure to say thank you to Mr.

[43:28] Jasien George ON BN departments for

[43:29] working throughout the year through the

[43:30] budget season. This would not have come

[43:31] together without a full team effort. We

[43:36] want to make sure to look at be aware

[43:37] of what we know will increase in 2027.

[43:45] We are identifying 53.7 increases

[43:46] mainly due to contract rate increases

[43:47] labor rate increases and

[43:52] [Indiscernible]. Purchase

[43:53] transportation expenses increased 19.6

[43:54] million due to rate increases. this is

[44:00] for the service [Indiscernible] for

[44:01] METROLift community connector curb2curb

[44:02] vanpool and Northwest operating

[44:03] facility. Running the same level of

[44:05] service this goes up because of agreed

[44:06] rate increases. Another large piece is

[44:11] due to labor increases for union and

[44:12] nonunion employees. Union contract has

[44:18] an increased built-in for FY 27 of four

[44:19] to six percent depending on the

[44:22] position. This benefit adjustment

[44:23] accounts for an increase of 12 million,

[44:24] 12.8 million, for almost 3100 union

[44:32] positions. The nonunion employees have

[44:35] a cola and benefit increase which

[44:36] account for 6.7 million, . This is a

[44:38] little over 1700 positions METRO

[44:42] fueling utilities increased by 11.2

[44:46] million, mainly due to diesel fuel

[44:47] rates and gasoline rates. METRO does a

[44:48] fuel hedge and because of this we are

[44:56] hedged at 85 percent $2.81 for 2027.

[44:59] [Indiscernible] currently at $3.57. If

[45:02] we did not hedge, we would budget over

[45:07] 6 million more for fuel and utilities

[45:08] for next year. The last two increases

[45:16] due to annual is Asian of revenue

[45:17] service from services in 26 and an

[45:18] increase in IT software. These

[45:21] increases are due to the new fare

[45:22] system and safety system. These items

[45:26] should bring in more revenue and make

[45:27] METRO safer. [Indiscernible] we began

[45:39] to shift our focus to other adjustments

[45:40] we started with eliminating the budget

[45:41] for FIFA World Cup this reduced it by

[45:42] $22.5 million. Throughout the year we

[45:44] have used great restraint in filling

[45:45] METRO vacancies. This includes reviews

[45:47] with the HR department and Mr. Jasien.

[45:55] Because these measures we reduce

[45:56] headcount by 177 out of [Indiscernible]

[45:57] in 2026. 29 Union and 148 nonunion, The

[46:03] majority are administrative departments

[46:04] and not operations. METRO has been

[46:12] working on implementing a

[46:13] [Indiscernible] we are estimating this

[46:14] will produce $7 million in savings. The

[46:19] next set of budget reductions are

[46:20] organizational efficiencies. The

[46:25] majority of these reductions are based

[46:26] on budget [Indiscernible] spent over

[46:27] the years these under runs or an

[46:32] outside services consulting repairs

[46:36] professional services things of that

[46:37] nature not actual revenue services on

[46:38] the street. These include reductions in

[46:42] professional third-party contract

[46:43] services for 14.8 million, some of the

[46:45] departments are infrastructure

[46:46] improvement facilities maintenance and

[46:52] one of the bigger ones was rail

[46:53] initiative the outside agencies helping

[46:54] with rail. Those budgeted for 2026 but

[46:56] not for 2027, that will reduce it by

[47:03] [Indiscernible]. There are reductions

[47:04] for support services, half of it made

[47:06] up by LRV , completely repaired and

[47:09] paid for in 2026 $1.8 million, I

[47:14] believe it was train 404, paid for and

[47:19] received. There's no need to budget for

[47:20] it next year. Some of the other

[47:26] reductions of her vehicle materials and

[47:27] parts of their services and

[47:28] miscellaneous equipment. That took care

[47:30] of the $30.1 million bucket . The 9.1

[47:34] is mainly related to things METRO has

[47:35] been doing for 2027. Some of the large

[47:44] drivers of the changes are reduction in

[47:45] PSA with the car contract employees,

[47:48] [Indiscernible] six months generally at

[47:49] a time, that's accounting for $3

[47:52] million reduction for 27. . We also

[47:57] have increasing capitalized internal

[47:58] labor of $6 million this will increase

[48:01] the capital budget but lower the

[48:02] operating budget. We saw a budget

[48:06] reduction for overtime of 1.5 million,

[48:13] A reduction in platform shelter

[48:14] supplies of 1.5 million and lastly

[48:16] budgeting for a reduction in the

[48:17] operating contingency of 1.5 million. I

[48:22] want to reiterate the 27 budget process

[48:23] started 11 months ago, we knew what we

[48:25] we're getting into over a year ago.

[48:33] Leadership O and B and the department

[48:34] analysts have been working to create

[48:35] the best most efficient operating

[48:36] budget for 2027. Thank you are there

[48:37] any questions?

[48:44] >> Are you going to discuss the

[48:50] efficiencies under the service

[48:51] [Indiscernible]

[48:52] >> That was the 30.1 million and 9.1.

[48:54] The majority of that is generally

[48:58] having under run in the services, not

[49:06] the contractors running the service but

[49:07] outside vendors helping us out. We

[49:09] under run those year after year. So

[49:15] trying to bring the budget down that's

[49:16] what we try to focus on. So what I'm

[49:20] hear you saying is the impact to riders

[49:23] regarding service efficiency is

[49:29] minimal. If there is some savings it's

[49:30] directly tied to optimization or ways

[49:31] we can improve the service? Right now,

[49:35] from the operating budget there are no

[49:36] service reductions. We plan to run

[49:39] service as it currently is right now.

[49:41] Okay thank you. Any questions?

[49:48] >> Nick putting the bus on the street

[49:49] is one thing making sure it's a safe

[49:54] ride, can you elaborate on the 6.2

[49:56] million reduction in the METRO police

[50:06] budget, and 10.5 reduction in the

[50:07] safety and security budget?

[50:08] >> Yes. MPDs specifically, about half

[50:11] of the reduction is due to the rail

[50:18] initiative. Some of it was already

[50:19] spent input into the MPD budget,

[50:23] Without going into 2027 it was not

[50:24] budgeted in 2027. The remaining pieces

[50:26] of MPD, I believe the actual full

[50:35] headcount for MPD did go down for

[50:36] full-time officers. We budgeted 227

[50:38] current year, that drop down to 215 in

[50:45] 2026. During the year, they were not

[50:54] able to get the headcount above

[50:55] [Indiscernible] full-time officers so

[50:56] we thought reducing the total headcount

[50:57] by 12, still keeping an extra cushion

[50:58] of 15 to be filled would be one of the

[51:01] ways to optimize the budget best we

[51:03] could. One more question. In the

[51:07] breakdown there is a non-departmental

[51:13] budget, Reduction of [Indiscernible]

[51:14] can you elaborate on that

[51:15] >> Yes. Whenever we were looking

[51:19] through the budget trying to build in

[51:20] the retirement incentives, we had a

[51:25] budget of about 2.4 million remaining

[51:26] in 2026. compared to a credit, a

[51:30] negative of 6.8 million, the retirement

[51:37] incentives. We don't quite know how

[51:38] it's going to hit every department. So

[51:40] we have it budgeted as a large credit

[51:41] right now so when this is implemented

[51:48] we can spread the credit and savings

[51:49] throughout the authority

[51:50] >> Thank you.

[51:53] >>As stated before, the $15 million

[52:00] budget reduction for service

[52:01] adjustments is taken out. However we do

[52:09] want to have a brief discussion on the

[52:10] tools METRO uses when it does it's

[52:11] routine evaluation of service. Julie

[52:18] Fernandez director of GMP will discuss

[52:19] this topic now

[52:20] >>Good afternoon. Next slide please.

[52:26] Our region traffic patterns are

[52:27] constantly changing, that is why we

[52:32] constantly evaluate service with that

[52:33] in mind and seek to optimize it. The

[52:38] goal of service optimization is to

[52:39] match the service we provide to

[52:40] customer demand, This approach reduces

[52:43] empty seats while maximizing customer

[52:47] benefit. METRO regularly evaluates its

[52:49] service in factors such as ridership

[52:50] cost, subsidy per boarding, boardings

[52:52] per revenue Outlook, and boardings per

[52:55] revenue mile. , Based on these

[52:58] evaluations as Mr. Jasien referred to

[53:04] METRO proposes adjustments through

[53:05] times of year subject to board

[53:08] approval, these adjustments typically

[53:09] take place in January June and August.

[53:14] Making these adjustments requires a

[53:15] full suite of available tools. This

[53:18] slide is an illustration of the tools

[53:19] in the toolkit. The first tool is using

[53:27] smaller vehicles for less costly to run

[53:28] them 40 foot buses such as curb2curb

[53:31] vans. This usage is limited by the

[53:32] number of small vehicles available. We

[53:35] can also use larger vehicles when

[53:41] needed. For example on the

[53:42] [Indiscernible] student riders were

[53:43] creating overload so we put a larger

[53:44] bus on the route.

[53:46] >> Let me ask a quick question, , as we

[53:48] talk about smaller vehicles one of the

[53:54] complaints I often get is people see a

[53:55] lot of empty buses. We also get the

[53:57] complaint about frequency. so, the

[54:05] issue is if we had more frequency we

[54:06] would have more people riding the

[54:12] buses. but, when we run larger buses we

[54:14] are not able to have the frequency

[54:15] because it costs so much to run the

[54:16] larger bus. So in theory if we are

[54:23] running smaller buses we may be able to

[54:24] have more frequency while we build up

[54:25] the ridership. Is that kind of what the

[54:27] theory behind us?

[54:30] >> That is true, however we are limited

[54:35] by the number of small vehicles we have

[54:38] available to the extent we can to roll

[54:39] out that part of the strategy. I will

[54:46] let [Indiscernible] speak to that

[54:47] >> One of the things we will continue

[54:50] to look at this year is optimizing the

[54:53] fleet. It's a delicate dance not only

[54:57] do you have to have the correct amount

[54:58] of vehicles available that are the

[55:04] correct size but you also have to have

[55:05] operators and mechanics available.

[55:07] There is not a magic one-size-fits-all

[55:10] in optimizing that service. A large

[55:17] portion of the cost of running

[55:18] >> Without getting into too much of the

[55:21] details, what I'm asking for is guiding

[55:22] principles here. Our guiding principle

[55:26] is that we would work to increase

[55:30] ridership and increase frequency and

[55:35] this would be a strategy to do that is

[55:43] my question

[55:44] >> I would help answer by saying yes

[55:45] that's absolutely a guiding principle

[55:46] we can work with

[55:47] >> yes indeed. You mentioned of course

[55:56] frequency. Certainly, One of the tools

[55:57] we can use is changing the routes of

[56:00] frequency How often it arrives or

[56:02] expand service how early it starts and

[56:03] how late it runs. One thing we can do

[56:09] is by reducing the frequency or span of

[56:10] service where the demand is not there,

[56:15] we can reallocate the revenue hours to

[56:16] another route that has greater customer

[56:23] demand. For example [Indiscernible]

[56:24] earlier trip so we added a 415

[56:25] eastbound trip. , Back to the concept

[56:27] of vehicles when we replace them

[56:37] frequent low ridership services with

[56:38] on-demand alternatives like rideshare

[56:39] came free of vehicles including small

[56:40] curb2curb vehicles. For specific

[56:46] designated zones on demand services can

[56:47] cost less than running a fixed route

[56:50] service. Lastly combining rounds of

[56:56] duplicate of service or shortening

[56:57] routes saves service hours and makes

[56:58] resulting routes more efficient. Those

[57:02] resources can be redeployed to serve

[57:03] another route to maximize customer

[57:05] benefit. Are there any questions?

[57:08] >> I have a question. so, these are the

[57:18] optimizations that relate to the 15

[57:19] million we saw on the previous page?

[57:24] Those are tools that could have been

[57:25] used to y get to the 15 million. , If

[57:29] we look at our budget for fiscal year

[57:31] 2027 say we are midyear, And we see

[57:36] there is demand where we have to

[57:37] increase our cost, will there be a

[57:44] contingency in the budget to meet a

[57:45] demand if it requires us to do so?

[57:48] There's a small contingency available

[57:49] to do that. If the demand exists beyond

[57:58] that contingency we would need to look

[57:59] at balancing it with optimization

[58:00] elsewhere in the system. . Okay and

[58:03] this is probably a question for Tom.

[58:07] Does the on demand evolve? no. Not

[58:15] evolve. On demand is what we run with

[58:19] curb2curb as well as the community

[58:24] connector in downtown as well as

[58:25] basically METROLift is on demand. Go

[58:27] ahead and say it Julie and rideshare,

[58:33] potential rideshare opportunities

[58:34] >> Thank you. Any other questions? .

[58:39] Where are we with micro transit in

[58:44] December the board was told we would

[58:45] transition away from that into a

[58:50] procurement where was ADA compliant and

[58:51] people pay their fare like customers

[58:52] do. But here we are in a budget cycle,

[58:55] , it looks like it's plan to continue

[58:56] next year no procurement

[59:01] >> We have a briefing planned for

[59:02] September committee meeting.

[59:06] >>Thank you. I have a question that

[59:14] applies here or for a broader

[59:19] conversation. The budget as it is

[59:20] presented today, does it still maintain

[59:33] what we are addressing as well as state

[59:34] of good repair or could this

[59:36] potentially inadvertently create

[59:37] deferred maintenance or backlog later

[59:41] on? A pathway for state of good repair

[59:42] things of that nature?

[59:47] >> I will defer to my colleagues

[59:48] >>You hit the nail on the head. We have

[59:54] really emphasized the last two years

[59:57] the state of good repair, we idolize

[1:00:00] that in the assets we own. We've done a

[1:00:03] tremendous job in that regard. The

[1:00:05] average age of the fleet is way back

[1:00:10] down into the normal metric it needs to

[1:00:16] be. We continue to budget that program

[1:00:17] for the next five years. That's

[1:00:22] untouched

[1:00:23] >>Chair are we doing the capital budget

[1:00:29] discussion now?

[1:00:35] >> We can talk about the

[1:00:41] [Indiscernible] the capital budget was

[1:00:44] not discussed at the last workshop so

[1:00:45] we prepared on the operating budget.

[1:00:48] But this is the discretion of how you

[1:00:49] want to talk about it. Just because the

[1:00:53] capital budget we are talking about

[1:00:54] restructuring financing, in the budget

[1:00:56] book released to the public, the

[1:01:06] delivery and reliable service budget

[1:01:07] for 2026 was 457 million, This is

[1:01:10] replacing brakes transmission what we

[1:01:11] need to get the bus onto the roadway.

[1:01:17] In 2031 it is projected to reduce 100

[1:01:18] million a steady decline over five

[1:01:23] years. Another one is maintaining a

[1:01:24] cleaner system, 9.7 this year to zero

[1:01:29] dollars investment in that category

[1:01:30] 2030 2031, putting customer service

[1:01:35] first, in the CIP 13 million in 2026

[1:01:39] zeroed out in 2030 2031. When we are

[1:01:45] told we are maintaining a good state of

[1:01:46] repair in the next five years, how is

[1:01:47] that possible when these categories are

[1:01:53] needed to put buses on the roadway. And

[1:02:00] the one thing that's missing here is

[1:02:01] there was a 6.9 facilities maintenance

[1:02:02] reduction. Maintaining facilities is

[1:02:06] critical. State of good repair is

[1:02:07] critical to maintaining service. I'm

[1:02:15] happy we maintain the operating budget

[1:02:16] but there are a lot of people that are

[1:02:21] changing brakes changing transmissions

[1:02:22] replacing roofs replacing bus washes. I

[1:02:26] don't see that stability long-term in

[1:02:27] the capital budget projected before us

[1:02:29] and what's been shared with the public.

[1:02:36] Can you tell how we are addressing

[1:02:37] state of good repair to maintain the

[1:02:38] service we as board members ask for?

[1:02:39] >> What we did is we saw some trends in

[1:02:45] the state of good repair returning the

[1:02:50] existing fleet back into a state of

[1:02:51] good repair through spare parts engines

[1:02:56] transmissions we saw an abundance of

[1:02:57] growth over the years. , It was a trend

[1:02:59] it wasn't just one year. During the

[1:03:06] COVID reprieve when we were not

[1:03:07] ordering buses, we saw that those costs

[1:03:14] increased. At the same time the

[1:03:16] facilities, we went into a period of

[1:03:18] time where we were doing a lot with a

[1:03:24] little, the repairs of our facilities

[1:03:26] bus washes and repairing what was

[1:03:31] broken. We approached in the METRO now

[1:03:32] program in the last 2 1/2 years have

[1:03:33] been amazing. We've replaced instead of

[1:03:36] repairing a lot of assets, bus wash

[1:03:41] equipment, the electric systems

[1:03:45] roofing, all of the bare necessities of

[1:03:47] facilities that was causing cost to

[1:03:51] increase across-the-board. In all

[1:03:55] spectrums. When we brought in 667 new

[1:04:00] fleet vehicles in the last couple

[1:04:07] years, what it did was take the

[1:04:08] pressure off of what we were spending

[1:04:11] inefficiently, repairing what we had.

[1:04:16] When you are have brand-new car in your

[1:04:17] driveway you are not repairing air

[1:04:19] conditioning and brakes, you get a

[1:04:21] couple years reprieve. So this board

[1:04:30] and this group have allowed us to

[1:04:31] replenish and revitalize like I've

[1:04:33] never seen in the last 18 years. It's

[1:04:35] been great. Tremendous gains. It took

[1:04:39] the heat off, takes the pressure off of

[1:04:43] unscheduled maintenance, fire drill

[1:04:47] repairs etc.. So we saw a shift. You

[1:04:57] see maybe in some isolated areas where

[1:04:58] the budget is getting tighter, it's

[1:05:03] because we see trends improving

[1:05:04] holistically across the whole spectrum.

[1:05:06] The fleet is in the best shape ever,

[1:05:11] years ago you would go there and you

[1:05:12] would say this is a tired old facility,

[1:05:15] you go there today and you see fuel

[1:05:16] systems and tanks and tremendous well

[1:05:20] put together programs to make Kurt's

[1:05:26] operation very efficient. Through

[1:05:31] capital investment we did that. We are

[1:05:34] starting to see some of the gain from

[1:05:43] that, seeing the sum of the less

[1:05:44] recurring efforts of the capital

[1:05:45] spending because of the way we approach

[1:05:46] METRO now. We can get into line item

[1:05:50] specifics, I'm not prepared for that

[1:05:52] but I can send you a list. Across most

[1:05:55] of the programs, IT systems we put in a

[1:06:00] brand-new ERP system, a fare collection

[1:06:09] that takes the pressure off all the

[1:06:10] other IT system efforts we are doing to

[1:06:11] patch together to have the successful

[1:06:14] state of good repair outcome we do.

[1:06:17] We've invested across all spectrums. I

[1:06:24] have to say that some of how we

[1:06:25] categorized last year, the way they are

[1:06:30] categorized may be looks like one whole

[1:06:31] category fell off, but we are really

[1:06:34] doing those efforts in some other

[1:06:37] category. Maybe in the reliability

[1:06:39] sector, or the safety sector. But the

[1:06:41] effort is still there. We did not take

[1:06:44] any pressure. , We put the most

[1:06:48] pressure on the expansion side we left

[1:06:57] the state of good repair holistic and

[1:06:58] the plans

[1:06:59] >> You may not be prepared to answer

[1:07:00] this but can you take a look at the

[1:07:01] reliability column of the budget book.

[1:07:05] You said we purchase new vehicles so it

[1:07:06] lowered maintenance cost. You would

[1:07:12] assume the next couple years it's slow

[1:07:13] and then increases over time as the new

[1:07:14] vehicles get older. But you have the

[1:07:16] reverse curve on page 31 of the budget

[1:07:20] book, Reliability goes from 477 to 322

[1:07:23] And declines to 105 and 2031, counter to

[1:07:27] the performance of the new vehicle. I

[1:07:34] want to make sure we can maintain our

[1:07:35] facilities and vehicles in a state of

[1:07:36] good repair. It's one thing to have

[1:07:41] operating dollars and another to

[1:07:42] support the bus on the roadway

[1:07:43] >> Yes, sir. For context, Director

[1:07:50] Trevino if we look at expenditures in

[1:07:51] our core category state of good repair,

[1:07:54] in 2024 we spent 102 million. In 2025

[1:08:00] we increased it to 280 million. 2026

[1:08:05] 260. So we bumped up the last couple of

[1:08:08] years. 2027 we stay at 250. 2028 we are

[1:08:11] at 180. It starts to decline a little

[1:08:17] bit you are right but it does not get

[1:08:21] lower than the rate we were in 2024.

[1:08:26] Understand this is us responding to a

[1:08:27] financial shock as the realities

[1:08:33] change. We will make those changes in

[1:08:34] all of our budgets. As far as looking

[1:08:40] now with what we know this is the

[1:08:41] projection that will keep us

[1:08:42] financially sustainable.

[1:08:46] >> I agree it is a financial shock it

[1:08:47] is a shock to me the position we are

[1:08:49] in. However I see the pressure you hear

[1:08:50] from the board. The pressure from the

[1:08:54] board is keep the operating dollars hi

[1:08:55] to not reduce service. But there is a

[1:09:03] component of that you have to maintain

[1:09:04] the service at facilities transmission

[1:09:05] replacement and brake repairs. . We

[1:09:09] cannot as a board direct you to

[1:09:10] maintain operations but not fondue

[1:09:11] properly for a state of good repair the

[1:09:17] numbers here do not reflect the state

[1:09:18] of good repair dollars are matching the

[1:09:19] request from the board to maintain

[1:09:21] service.

[1:09:22] >> What you will see is the expansion.

[1:09:24] That is really the category that we are

[1:09:29] tempering down until we get a new

[1:09:31] forecast. State of good repair at the

[1:09:35] core I think the goal is to put that

[1:09:37] primary, especially with regard to CMD.

[1:09:40] That is the goal. I believe members

[1:09:47] here have been communicated or

[1:09:48] transmitted the project and as we

[1:10:01] continue the discussion we can address

[1:10:02] those and I'd be happy to do that

[1:10:03] >> Thank you

[1:10:04] >> Thank you. Next slide please. This

[1:10:13] slide I mentioned earlier focusing on

[1:10:14] long-range financial risk projected

[1:10:15] from operating budget of 1.015.

[1:10:20] Again we would need to reduce the

[1:10:22] five-year capital program by $40

[1:10:23] million to achieve that. Last time we

[1:10:27] talked we were at $1 billion now we are

[1:10:36] 1.015. This reduction in the

[1:10:37] capital program would focus on the nice

[1:10:38] to have versus spending particularly on

[1:10:39] the administration building at 1900,

[1:10:40] hold off on rehabs and amenities like

[1:10:46] cubicles. Also kind of at the point

[1:10:47] what Nick was saying it evaluates

[1:10:48] our budgets assigned to these certain

[1:10:53] programs and recognizing historically

[1:10:54] there is always an under run, let's say

[1:10:55] we just address that. There's also

[1:11:00] adjustment in the schedules, this is

[1:11:03] sharpening our pencils where we see the

[1:11:08] CNG buses arriving off schedule to win

[1:11:11] the actual facility will be up and

[1:11:12] running, the Northwest facility. We

[1:11:16] moved those arrivals to match when the

[1:11:19] infrastructure goes live. Otherwise we

[1:11:23] are ordering them too soon. , I want to

[1:11:25] focus on the slide this is the big

[1:11:29] picture where we are at in the

[1:11:30] financial projection. You are familiar

[1:11:34] with the slide. This is the image where

[1:11:39] you see the dotted line as cash

[1:11:42] reserve. It usually has three layers

[1:11:43] representing reserve. Here you see to

[1:11:49] utilize those first two layers of the

[1:11:50] reserve from 27 to 32. We begin

[1:11:53] replenishing them in 2034 where the

[1:11:59] reserve is at its full three layer spot

[1:12:01] and fully restored. There is risk with

[1:12:03] this plan, I want to be fully

[1:12:09] transparent, there's long-term risk

[1:12:13] that represents METRO's ability to pay

[1:12:14] back non-referendum borrowing within a

[1:12:15] five-year window. In this projection,

[1:12:18] we do utilize the borrowing, And then

[1:12:25] we pay some of it back in 2030 and 2031

[1:12:26] but we don't pay all of it back. That

[1:12:27] is the liability. The unpaid balance

[1:12:32] projected is 105 million. I want to

[1:12:41] focus on that long-term or long-range

[1:12:42] risk and put it in some light here. The

[1:12:48] $105 million risk will effectively go

[1:12:49] away if there's a change of opinion. On

[1:12:54] [Indiscernible]. Also, if we look at

[1:12:55] our operating budget, we can perform

[1:13:00] our operating budget with a two percent

[1:13:01] under run during those years, we can

[1:13:02] tackle that. On average we usually

[1:13:08] under run the operating budget by six

[1:13:13] percent. These are mitigating options

[1:13:14] of course their sales tax, that allows

[1:13:16] for more resources to apply and a

[1:13:20] discussion topic earlier, when we find

[1:13:23] ourselves with more resources, it's a

[1:13:26] question to consider what we do. One

[1:13:33] idea is to pay off debt that if you

[1:13:34] issue debt later remise will not issue

[1:13:35] later debt, Keep the money and use it

[1:13:37] for what you're going to use the

[1:13:38] issuance for. Another is replenish the

[1:13:43] reserve, this is just a scenario, there

[1:13:46] will be some decisions as we work our

[1:13:47] way through these years on how we want

[1:13:49] to navigate. . We talked in the past

[1:13:53] about the operating budget

[1:13:58] sustainability a good measure to keep

[1:13:59] it capped at the net sales tax. Right

[1:14:03] now with our conditions from last year

[1:14:04] to this year we had $1 billion for

[1:14:05] funding envelope. That would not, the

[1:14:10] practice would not be feasible until

[1:14:11] 2032. so, what I'm leaving you with, we

[1:14:14] can navigate this, identify the risk,

[1:14:18] the long-term risk, and lock-in changes

[1:14:21] now and then. Next slide please. Here's

[1:14:27] our timeline again, The draft budget

[1:14:31] book reflecting the numbers from the

[1:14:32] last workshop is posted. It will

[1:14:34] continue to be posted for another week.

[1:14:40] We can make updates to reflect

[1:14:41] discussions in the workshop and other

[1:14:42] feedback we received, One week from

[1:14:44] today on Wednesday, September 9 we will

[1:14:45] have the public hearing. At the board

[1:14:52] meeting on September 24 we would need

[1:14:53] final approval and passage of the 27

[1:14:55] budget. This concludes the project

[1:14:56] workshop presentation. We can answer

[1:15:02] any additional questions

[1:15:03] >> Are there any final questions? This

[1:15:04] is Director Ponce. George, can we make

[1:15:10] sure I think you just mentioned forgive

[1:15:11] me if I missed it, can we make sure

[1:15:16] this new budget proposal is uploaded

[1:15:17] ahead of time before the next public

[1:15:19] hearing next week. Absolutely. With the

[1:15:27] boards concurrence we will update

[1:15:28] what's posted to reflect what we

[1:15:31] presented, did not want to update until

[1:15:36] we ran it by the workshop

[1:15:37] >> Thank you I want to make sure the

[1:15:38] public has time to review it, that can

[1:15:44] be done before the end of the week for

[1:15:45] sure

[1:15:46] >> Are there any other questions?

[1:15:51] >>, I'm looking at this two different

[1:15:55] topics We have to adopt the FY 27

[1:16:04] budget but be cognizant of the 45 year

[1:16:05] risk concerns I have concerns regarding

[1:16:06] the debt restriction. Taking a look at

[1:16:07] the budget book that was posted, one of

[1:16:09] the earlier speakers mentioned, we are

[1:16:14] optimistic in the O and M budget

[1:16:15] staying at $1 billion. In reviewing the

[1:16:25] capital replacement state of good

[1:16:26] repair were way optimistic to zero out

[1:16:27] some categories cleaning services stuff

[1:16:28] like that. At the same time looking at

[1:16:30] the last slide we saw from staff, over

[1:16:35] the next five years we have zero room

[1:16:36] for error, zero. The reserves are gone.

[1:16:39] The reserves are gone. Overly

[1:16:43] optimistic on the operating budget.

[1:16:48] Overly optimistic on what it will take

[1:16:49] to maintain the service of that with

[1:16:53] our CIP going down with the state of

[1:16:54] good repair safety security. If there's

[1:17:01] a way we could adopt the FY 27 budget

[1:17:02] but hold off on the restructuring is my

[1:17:03] recommendation because over the next

[1:17:04] five years having zero contingency to

[1:17:08] handle anything. We are in the Houston

[1:17:12] area. We have events every year,

[1:17:16] hurricane Harvey last time we dipped in

[1:17:17] was because her hurricane Harvey. It's

[1:17:20] a very risky proposition for the

[1:17:23] agency. If we approve this we heard

[1:17:27] from the financial advisor the negative

[1:17:28] outlook will likely be put on METRO. To

[1:17:34] have zero contingency over the next

[1:17:35] five years with overly optimistic O and

[1:17:36] M budget and CIP, that's a lot of risk

[1:17:37] for the agency. If there's a

[1:17:49] middle ground to where we adopt FY 27

[1:17:50] budget making difficult decisions but

[1:17:51] have more time to look at sales tax

[1:17:52] projections that could be optimistic,

[1:17:56] get more clarity on what we are going

[1:17:57] to be able to maintain in future years

[1:17:58] with lower numbers in the budget book,

[1:17:59] it's probably what I would recommend.

[1:18:03] >> Okay thank you.

[1:18:08] >> I would like some clarity on the

[1:18:13] restructuring. Is this, we approve the

[1:18:19] budget, is this just an option for us

[1:18:26] and still have to cut back and improve

[1:18:27] the restructuring if we chose to do a

[1:18:30] restructuring? Procedurally so we

[1:18:36] understand, are we by adopting this

[1:18:37] tying our hands or as Director Trevino

[1:18:40] said, It gives us an opportunity to

[1:18:42] monitor to see if we need to pull the

[1:18:44] trigger?

[1:18:45] >> So, we ran scenarios where we did

[1:18:48] not do restructuring, We ran scenarios

[1:18:56] where we use less reserves but

[1:18:57] ultimately the feedback we are hearing,

[1:18:58] is service was up most you want to

[1:18:59] preserve service. In order for us to

[1:19:03] have the 1.015 budget

[1:19:05] presented, there is no other option.

[1:19:12] >> Let me restate that differently

[1:19:13] >> Chair I think I get your question.

[1:19:14] We will have to come back. We will come

[1:19:22] back for the approval to take those

[1:19:23] actions

[1:19:24] >> So again thank you for that clarity,

[1:19:25] procedurally we understand we have to

[1:19:26] come back. , But also it gives us an

[1:19:31] opportunity let's say the projections

[1:19:32] are far better than we expect, then we

[1:19:42] could at that time determine whether

[1:19:43] this is necessary or not is that

[1:19:44] correct statement

[1:19:45] >> That is correct

[1:19:46] >> That leads me to my next question.

[1:19:47] In this budget, I see a lot of what is

[1:19:52] reflected in projections. Those

[1:19:58] projections can either be accurate or

[1:19:59] they could be slightly off, it gives us

[1:20:02] an opportunity to evaluate that. So

[1:20:03] having said that, it also gives us an

[1:20:07] opportunity to set some goals and to

[1:20:12] utilize the tools in our toolbox to

[1:20:15] actually improve ridership, to improve

[1:20:23] optimization, setting goals in place to

[1:20:24] help us out of this and we don't just

[1:20:28] allow this to happen to ourselves. If

[1:20:32] we are not just tied to sales tax, if

[1:20:35] we are not just tied to farebox

[1:20:38] collection, are there are other

[1:20:39] opportunities for us to look at as we

[1:20:42] continue to monitor how our financial

[1:20:49] situation looks

[1:20:50] >>Good comments, thank you. Any other

[1:20:57] questions?

[1:20:59] >>so, to piggyback, knowing there is a

[1:21:04] public hearing on the budget on

[1:21:05] September 9 next week, just wanted to

[1:21:06] check in with METRO as to how we have

[1:21:14] been actively engaging and reaching out

[1:21:15] to people to come manway in person, Or

[1:21:31] via email how we are collecting

[1:21:32] feedback so they can participate in the

[1:21:33] process

[1:21:34] >> Meredith

[1:21:35] >> Our public engagement team regularly

[1:21:36] encourages community members to come

[1:21:37] and speak at meetings. It's a regular

[1:21:38] practice that is part of talking points

[1:21:39] every time they attend a meeting or go

[1:21:40] to an event. We are tracking feedback

[1:21:43] that comes across social media and to

[1:21:44] the emails constantly. Our group has

[1:21:47] just started organizing by topic so we

[1:21:49] can compare, negative sentiments on

[1:21:56] this positive on this and we are to

[1:21:57] making lifetime adjustments based on

[1:21:58] feedback. , The place it is valuable

[1:21:59] with MPD we see a lot of feedback in a

[1:22:07] certain area and immediately alert the

[1:22:08] chief and let him know things need

[1:22:09] cleaned up or changed. In terms of

[1:22:15] coming to share they are talking about

[1:22:16] the budget to people and encouraging

[1:22:17] them to come speak at any board

[1:22:19] meeting.

[1:22:20] >> Any other questions? I want to thank

[1:22:24] everybody. I know this is an extra

[1:22:25] budget workshop, we had some good

[1:22:29] discussion and some decisions to think

[1:22:32] about. We've got another three weeks or

[1:22:34] so. I encourage you to reach out. I

[1:22:39] know we've had some briefings and we

[1:22:40] will continue to do so if it is

[1:22:43] required.

[1:22:44] >> I want to make a quick comment.

[1:22:45] Thank you for having this additional

[1:22:49] workshop, thank you for taking the time

[1:22:50] to brief all the board members on what

[1:22:52] would be presented today. Thank you for

[1:22:59] giving us the opportunity to ask

[1:23:00] additional questions and for people to

[1:23:01] give additional input. Thank you very

[1:23:03] much Chair

[1:23:04] >> Thank you everybody, especially the

[1:23:07] finance team I know you've been working

[1:23:12] overtime.

[1:23:13] >> Board Member Preston. I was going to

[1:23:15] hold back I know you are closing out .

[1:23:18] I guess I just wanted to be clear you

[1:23:23] are asking us to accept this budget,

[1:23:28] the adoption of the 2027. Is that the

[1:23:34] package restructuring and the budget?

[1:23:38] That is the package you want us to

[1:23:40] accept? Yes in short. In order for us

[1:23:46] to pass the budget you just heard, the

[1:23:47] borrowing and restructuring use of fund

[1:23:54] reserves it will require a suspension

[1:23:55] of the Capping operating budget to

[1:23:56] sales tax. Without those items, the

[1:23:59] budget presented would have to be

[1:24:02] smaller.

[1:24:03] >> Again, if you don't mind, I want to

[1:24:08] cover, we will be back to the board

[1:24:12] with more information as time goes. We

[1:24:14] will have greater knowledge. And

[1:24:19] hopefully if new clarity on

[1:24:20] assumptions. and, that will be a

[1:24:23] separate action. The debt

[1:24:30] restructuring. This is a budget

[1:24:31] proposal that would make those

[1:24:32] assumptions. However, it is not the

[1:24:35] action to trigger that. We will be back

[1:24:41] for those actions

[1:24:42] >> I think I heard earlier, it could be

[1:24:47] delayed. We might consider the bond

[1:24:51] restructuring within the next few

[1:24:52] months but we could also delay if

[1:25:00] needed if we thought it was something

[1:25:01] we could do

[1:25:02] >> [Indiscernible]

[1:25:03] >>Well I think George laid it out

[1:25:05] pretty well. There's a lot of risk

[1:25:08] involved here. and, that's what we are

[1:25:13] paid the big bucks for, to analyze the

[1:25:20] risk, this group this organization to

[1:25:21] accept the risk. If we do that, we will

[1:25:25] live with this, that also obligates us

[1:25:31] to watch this very closely for the next

[1:25:32] year to be sure it works. And when we

[1:25:37] see it is not working, this bunch at

[1:25:39] this table, like Roberto has been doing

[1:25:42] for us, is to call them on the carpet

[1:25:44] for it, and say this is not working

[1:25:51] folks, we are doing it but it's not

[1:25:52] working what are we going to do? That's

[1:25:53] us right here

[1:25:54] >> Thank you. Again thanks to everyone

[1:25:56] for the comments. This meeting is

[1:26:00] adjourned thank you.

FY2027 Budget Workshop

Agenda

Transcript