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

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meeting for the fiscal year 2027 budget

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workshop. This is an extra budget

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workshop we are meeting based on

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questions we had at our last workshop.

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So we've updated the board presentation

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to address concerns and questions raised

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And briefed board members with

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Requested information for discussion

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and deliberation at today's budget

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workshop. The financial advisor and

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board Council will advise on METROs

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authority to restructure debt and

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potential impacts to METRO's credit

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rating. We are going to start with

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George Fotinos

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>> Excuse me we are going to do public

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comment first. We have four public

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speakers registered. The first speaker

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is Robin Heltzer

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>>Hi there good afternoon. My name is

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Robin Heltzer. I'm the Executive

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Director of Link Houston. Since 2017

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link staff and volunteers have worked

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with communities to advocate for a more

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robust equitable transportation system

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So all Houstonians can access

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opportunities. We know that the places

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we build great transit Houstonians ride

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it and that's why we are here during

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budget season. For any of us, our

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budget is a statement of our values, It

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reflects our priorities and also

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reflects the trade-offs we are willing

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to accept. Let's start with priorities.

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Since 2017, link has surveyed riders to

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learn what they value. Every year

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frequency of service and

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reliability are the top two concerns we

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hear about. 38 percent of riders want

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to spend less time waiting for the next

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bus or train. 37 percent of riders want

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to trust their trip will their travel times

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Will be predictable and consistent. What

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does that look like in your budget? It

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means investing in more vehicles, not

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only to replace the aging fleet but to

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grow the fleet so you have the rolling

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stock to offer more service. It also

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looks like capital dollars which

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METRONext voters approved for projects

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like boost which make very tactical street

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improvements that make it easier for

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you to get buses where they are going

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on time. Let's talk about trade-offs.

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This budget draft Hints at service

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cuts from 26 to 27 of order of

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magnitude $22 million. This budget also

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includes a proposal to divert $40

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million or so from our transit budget

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off to local street projects, in

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addition to and on top of our general

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mobility commitments. I urge you as

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board members to be very reluctant to

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accept service cuts, At the same time

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we are diverting transit dollars to

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other things not about the core service

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to riders you serve. Budget work for

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organization this size is incredibly

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Hard work and super detailed. We

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urge you to keep asking detailed

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questions and to really weigh any of the

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trade-offs you are weighing against how

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they will impact your daily bus and

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rail riders, not just this year but

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over the years ahead. If you have not

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heard it lately, thank you for your

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service.

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>> Thank you the next speaker is

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virtual Jeffrey Lecour

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>>Good afternoon. Good afternoon. My

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name is Jeffrey Lecour. I recently retired

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after 25 years as a budget analyst and

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managed a budget. As METRO enters 2027,

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I believe we are at another moment

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Where long term pressures are

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Beginning to converge. Trends suggest

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That METRO may benefit from a

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Deeper structural view to ensure

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Long term sustainability.

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First operating costs, METROs

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operating budget exceeds $1 billion per

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year, operating costs rise faster than

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revenue, the current five year plan

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Holds operating spending flat $1 billion

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each year my experience that is

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extremely difficult to achieve without

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meaningful changes in service levels

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workforce structure nonlabor spending

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this means the assumptions deserve

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Careful review. Second, the capital

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Budget. The proposed

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five-year capital budget is reduced by

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more than $1.2 billion roughly 50

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percent compared to last year this is a

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very large reduction in past cycles

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when capital was constrained METRO

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could still fund the bare minimum

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state of good repair.

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Today needs are larger especially with

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the aging rail fleet and other

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facilities approaching critical

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lifecycle milestones. Third, Cash

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Reserves. Now that the FIFA

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World Cup commitments are behind us,

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METRO cash reserves are lower than in

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prior years, that makes it even more

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important to ensure the long-term plan

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is structurally sound and resilient to

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economic changes. Given these pressures

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I recommend METRO consider a zero based

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budgeting review That would allow the

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board and staff to look holistically at

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all options including service levels

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workforce structure hiring and salary

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practices fare policy

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non-labor efficiency and debt

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restructuring. These are all tools

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METRO has used successfully in the past.

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On the capital side I encourage a

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review of all projects using Tier 1

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state of good repair [Indiscernible]

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which align directly with essential

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needs which include rail and bus fleet

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replacement rail infrastructure state

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of good repair bus garages and rail

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operation facilities nonrevenue fleet

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ADA safety and security. These are all

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categories, these are the categories

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METRO must fund to remain compliant

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with federal requirements and safe

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operation. I recognize that major

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changes to the 2027 budget before the

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September board meeting is a major

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undertaking even if the board approves

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the current budget I believe it would

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be valuable to begin a deeper

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structure review immediately afterward

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This is a defining moment for METRO's

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Long term sustainability. There is time to

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address these issues but the window

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narrows each year. Thank you for your

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time and for your leadership.

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>> Thank you. The next speaker is

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Daniel Aragon

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>>Good afternoon

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>> Good afternoon Board members my name

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is Daniel, I am here as a METRO rider,

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not with any group or anybody just me

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as a rider. As I've been watching

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these board meetings and budget

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meetings I've had many concerns. I

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don't understand everything being said

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I'm not a finance person but I'm

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hearing very concerning a lot of the

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financial issues I understand you are

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having or not your fault, they are way

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out of your control. There are some

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things you can do for example, the $40

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million meant for road improvements

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over the last couple years This is

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something I see METRO invest in. It is

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very frustrating. Public transit is so

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underfunded in our state. To see even a

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single dollar being spent on road

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Improvements with no real benefit to

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transit, it's upsetting and

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frustrating. Buses are still stuck in

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traffic. But the roads are repaved.

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There is no difference, as Board Member

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Trevino said in the past committee

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meeting, There is no real benefit to

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the buses and transit riders. The

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second thing is the service cuts being

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proposed. From my understanding, as

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Board Member Moralis said, core

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services were not going to be affected.

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But buses and trains, from what I read

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in the Houston Chronicle, are maybe

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going to be reduced. Which is

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frustrating. Two years ago maybe you're

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tired of hearing this but it's so

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frustrating to years ago we were told,

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METRONext was too expensive we don't

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have a next money we can build anymore

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okay fine let's focus on the bus. Now

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we are told we don't have money for

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that. As a transit rider, I think we

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can all agree transit in Houston is not

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the best. It's very frustrating to see

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this happening. The third thing is

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public engagement. There's been no

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public engagement, I follow along

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what's happening here at the county and

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city, most people would not know that

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METRO is working on its budget. People

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deserve to know service cuts are being

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proposed. This budget is different from

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the past years. I've been following

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METRO for many years now. People need

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to know what's happening. $2 billion of

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taxpayer money is too much money for a

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few people to decide what should be

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done. Too much money for unelected

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people to decide what should be done

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with. Thank you

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>> Thank you. Dominic Maisoc

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>> Madam Chair do you mind if I address

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that. I think there is something we

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need to share. That is based on

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feedback the latest version of this

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budget proposal you see today

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eliminates even the small amount that

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was being looked at as a potential

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change in service in the future.

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Today's budget is 1,015,000,000. A lot

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of the concerns that have been raised I

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want to make sure we address that going

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Here at the start thank you

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>> I'm in the boardroom. First I have

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to ask a question how many people in

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this room have read completely board

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resolution 2017 71, 19, 2019 71. How

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many have read that? That is METRONext.

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If you are going to be up here

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supporting or going against METRONext,

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you need to be knowledgeable of the

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document. It's on the website so I

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mean.... And I want to read a line

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here. This is from Exhibit A first

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paragraph METRONext comprehensive plan

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includes the acquisition construction

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repair equipping improving or extension

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of METRO transit system. METRONext is

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suspected to include Some or all of the

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Following and they give a list. Later on

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it says we have to watch the budget.

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George, last year about this time we

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were discussing this year's budget. You

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were already saying at that point, we

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have to watch what's happening. You

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really did not want to push things too

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much because of FIFA. I have to give

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you credit for that you said that a

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year ago. I do think Roberto Holly,

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Mayor Fry if this $40 million transfer

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is done to the city of Houston outside

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of the general mobility payments I

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think all three of you and I'm thinking

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of myself going to the county attorney

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And talking to her If this is right this

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is beyond. METRO needs to redo its bus

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system. I ride the 35 from here and it

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goes past, it goes down West Gray. It

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goes by the Metropolitan center, which

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a lot of people use it for their

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exercise get fund get out. My question

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is nobody is riding it. I think there

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are places in the system where we need

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a readjustment maybe that could be a

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curb2curb service or a community

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connector, might be a more available

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system for that. I think, too, this

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meeting should have been done two

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months ago. Because you are talking

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about cutting service, this is

277
00:14:13,100 --> 00:14:16,100
something, like the other person said,

278
00:14:16,100 --> 00:14:17,100
needs to be put before the community

279
00:14:17,100 --> 00:14:21,801
now. With that, also Bob, I do agree

280
00:14:30,100 --> 00:14:31,100
with you we do need [Indiscernible]

281
00:14:31,100 --> 00:14:32,100
with that thank you I'm out of time

282
00:14:32,100 --> 00:14:34,100
>> Director Morales this concludes the

283
00:14:34,100 --> 00:14:35,100
public speakers

284
00:14:35,100 --> 00:14:36,100
>> Thank you to all the public speakers

285
00:14:36,100 --> 00:14:39,100
for being here today. At this point we

286
00:14:39,100 --> 00:14:40,100
will start the briefing on the fiscal

287
00:14:40,100 --> 00:14:41,100
year 27 budget workshop, George?

288
00:14:41,100 --> 00:14:42,100
>> Thank you Chair Morales

289
00:14:42,100 --> 00:14:46,801
>> Before you go George I want to add

290
00:14:48,100 --> 00:14:51,601
something Chair Morales. The issue of

291
00:14:54,100 --> 00:14:55,100
service changes has been brought up a

292
00:14:55,100 --> 00:14:58,100
few different times. I want to make it

293
00:14:58,100 --> 00:15:01,100
clear this is a budget, this is not the

294
00:15:01,100 --> 00:15:04,601
process for service changes. This is

295
00:15:06,100 --> 00:15:07,100
making assumptions as to what will be

296
00:15:07,100 --> 00:15:11,100
available in the budget. We have a

297
00:15:11,100 --> 00:15:14,100
regular process for addressing service

298
00:15:15,100 --> 00:15:18,601
changes that we have done multiple

299
00:15:19,100 --> 00:15:20,100
times, we increase service a few

300
00:15:20,100 --> 00:15:21,100
different occasions this year, we

301
00:15:21,100 --> 00:15:24,601
changed some service. I say that

302
00:15:27,100 --> 00:15:28,100
because as we get into the discussion

303
00:15:28,100 --> 00:15:32,100
of service changes, while there is not

304
00:15:32,100 --> 00:15:35,100
any currently contemplated in the

305
00:15:36,100 --> 00:15:37,100
budget, that is handled completely

306
00:15:37,100 --> 00:15:38,100
separate from the budget process. We

307
00:15:38,100 --> 00:15:42,801
could do three times a year and that's

308
00:15:43,100 --> 00:15:47,201
intended to be the process we follow.

309
00:15:48,100 --> 00:15:52,201
>>.Thank you board Chair Brock and this

310
00:16:09,100 --> 00:16:10,100
is the fifth presentation to the

311
00:16:10,100 --> 00:16:11,100
budgeting cycle my name is George

312
00:16:11,100 --> 00:16:12,100
Fotinos METRO Chief Financial Officer

313
00:16:12,100 --> 00:16:13,100
kicking off the workshop presentation.

314
00:16:13,100 --> 00:16:14,100
Next slide please during the last

315
00:16:14,100 --> 00:16:15,100
budget workshop there were questions

316
00:16:15,100 --> 00:16:18,100
and requests for more information on

317
00:16:18,100 --> 00:16:20,100
METRO authority authorization issued

318
00:16:20,100 --> 00:16:22,100
debt, , the effects of the proposed

319
00:16:22,100 --> 00:16:25,100
restructuring how the reserve funds

320
00:16:25,100 --> 00:16:26,100
work, and more details on the proposed

321
00:16:26,100 --> 00:16:29,100
operating budget. There was a request

322
00:16:29,100 --> 00:16:32,100
for alternatives to consider. With the

323
00:16:32,100 --> 00:16:33,100
objective of covering all these items

324
00:16:33,100 --> 00:16:36,100
let's get started. First we will cover

325
00:16:36,100 --> 00:16:37,100
the topic of natural authorization to

326
00:16:37,100 --> 00:16:40,100
issue debt. [Indiscernible] METRO Board

327
00:16:46,100 --> 00:16:47,100
Council and bond Counsel will address

328
00:16:47,100 --> 00:16:48,100
the topic

329
00:16:48,100 --> 00:16:51,100
>> Thank you George. There are certain

330
00:16:51,100 --> 00:16:54,100
questions you want me to address? There

331
00:16:54,100 --> 00:16:56,100
was a question at the last workshop

332
00:16:56,100 --> 00:16:59,100
about some of the legalities, the

333
00:16:59,100 --> 00:17:02,601
governing code the statute that METRO

334
00:17:04,100 --> 00:17:08,100
had as it was planning budget since

335
00:17:08,100 --> 00:17:09,100
2027 about the ability to issue

336
00:17:09,100 --> 00:17:11,100
non-referendum debt and the tenor of

337
00:17:11,100 --> 00:17:15,201
those debts and the assumption that we

338
00:17:16,100 --> 00:17:20,201
had and how that changed with the

339
00:17:21,100 --> 00:17:22,100
recent opinion

340
00:17:22,100 --> 00:17:25,100
>> Recent AG interactions. So, the

341
00:17:27,100 --> 00:17:30,601
existing policy as we understood it

342
00:17:31,100 --> 00:17:34,100
going back to about 2010, kind of the

343
00:17:34,100 --> 00:17:38,201
earliest memos I have seen, was that

344
00:17:39,100 --> 00:17:40,100
METRO had the ability to issue

345
00:17:40,100 --> 00:17:43,601
five-year bonds, I think that's under

346
00:17:48,100 --> 00:17:49,100
[Indiscernible]. I wanted to

347
00:17:49,100 --> 00:17:50,100
distinguish between new money bonds and

348
00:17:50,100 --> 00:17:53,100
bonds that refund existing debt. That

349
00:17:53,100 --> 00:17:56,601
particular statute relates to new money

350
00:17:57,100 --> 00:17:58,100
debt, METRO could issue new money debt

351
00:17:58,100 --> 00:18:01,100
for five years, that statute siloed

352
00:18:01,100 --> 00:18:05,201
the ability to refund the debt. The

353
00:18:09,100 --> 00:18:10,100
negotiation with the AG and I have more

354
00:18:10,100 --> 00:18:14,801
information than I've had in the last week

355
00:18:16,100 --> 00:18:17,100
the discussion with the AG was around

356
00:18:17,100 --> 00:18:18,100
once you issue the debt for five

357
00:18:18,100 --> 00:18:21,100
years, can you refund the debt? There's

358
00:18:21,100 --> 00:18:24,601
actually a provision in METRO's code

359
00:18:32,100 --> 00:18:33,100
that says refunding are done under 1207

360
00:18:33,100 --> 00:18:34,100
public Texas Government Code. We have

361
00:18:34,100 --> 00:18:37,100
done some digging, the original

362
00:18:40,100 --> 00:18:42,401
agreement was 5+5 so you

363
00:18:43,100 --> 00:18:44,100
could issue the new debt for five years

364
00:18:44,100 --> 00:18:47,100
and refund it for another five years.

365
00:18:47,100 --> 00:18:48,100
My understanding is that was actually a

366
00:18:48,100 --> 00:18:52,201
compromise made with the AG because under

367
00:18:58,100 --> 00:18:59,100
1207, METRO has the ability to issue

368
00:18:59,100 --> 00:19:01,100
refunding debt for maturity of up to 40

369
00:19:01,100 --> 00:19:05,801
years. The AG saw that as a workaround

370
00:19:09,100 --> 00:19:10,100
of the five year limitation so what

371
00:19:10,100 --> 00:19:11,100
they said was you can issue debt for

372
00:19:11,100 --> 00:19:12,100
five years and refund it for another

373
00:19:12,100 --> 00:19:15,601
five years. We operated with that

374
00:19:20,100 --> 00:19:21,100
understanding. The earliest

375
00:19:21,100 --> 00:19:22,100
information I found where we

376
00:19:22,100 --> 00:19:26,201
Memorialized it was 2010, so the last 16 years.

377
00:19:27,100 --> 00:19:28,100
Went to the AG this year to authorize

378
00:19:28,100 --> 00:19:32,201
commercial paper. What they told us was

379
00:19:34,100 --> 00:19:35,100
that METRO was not going to be able to

380
00:19:35,100 --> 00:19:39,201
refund the debt for five years, that

381
00:19:40,100 --> 00:19:41,100
METRO could issue the commercial paper

382
00:19:41,100 --> 00:19:44,100
issue short-term notes for five years

383
00:19:44,100 --> 00:19:45,100
only. And the debt had to be retired

384
00:19:45,100 --> 00:19:49,100
within five years. That was a change

385
00:19:49,100 --> 00:19:50,100
from what we previously understood the

386
00:19:50,100 --> 00:19:53,100
rule to be and we've had ongoing

387
00:19:53,100 --> 00:19:57,100
discussions with the AG about that. We

388
00:19:57,100 --> 00:20:01,801
have worked on a memo to establish why

389
00:20:03,100 --> 00:20:04,100
we believe the existing policy should

390
00:20:04,100 --> 00:20:08,201
still be in place. But the discussions

391
00:20:12,100 --> 00:20:13,100
are ongoing

392
00:20:13,100 --> 00:20:16,100
>> Those discussions you have ongoing,

393
00:20:16,100 --> 00:20:17,100
how do you feel about that? do you

394
00:20:17,100 --> 00:20:18,100
think it could possibly change? We were

395
00:20:18,100 --> 00:20:22,201
joined by Chair Brock and Mr. Jasien,

396
00:20:23,100 --> 00:20:25,100
Eddie Miranda, we went up to Austin

397
00:20:25,100 --> 00:20:27,401
and visited with the

398
00:20:29,100 --> 00:20:30,100
head of public finance division and her

399
00:20:30,100 --> 00:20:33,100
direct supervisor. I would describe

400
00:20:33,100 --> 00:20:36,100
those conversations as productive. They

401
00:20:37,100 --> 00:20:38,100
were open to us submitting more

402
00:20:38,100 --> 00:20:41,100
information for them to consider.

403
00:20:43,100 --> 00:20:44,100
Obviously the term of this Attorney

404
00:20:44,100 --> 00:20:48,801
General ends at the end of this year.

405
00:20:49,100 --> 00:20:50,100
There will be an election in November.

406
00:20:50,100 --> 00:20:53,100
The impression I got they would

407
00:20:53,100 --> 00:20:56,601
consider it but probably would be

408
00:20:57,100 --> 00:20:58,100
reluctant to change their position in

409
00:20:58,100 --> 00:21:01,601
the short-term. But they encouraged us

410
00:21:02,100 --> 00:21:06,801
to continue to talk to them. They also

411
00:21:07,100 --> 00:21:08,100
said we could pursue changes during the

412
00:21:08,100 --> 00:21:11,100
Legislative Session. And after November

413
00:21:13,100 --> 00:21:17,100
obviously you have a new AG elect. They

414
00:21:17,100 --> 00:21:19,100
will probably be new executive staff

415
00:21:19,100 --> 00:21:22,601
and they encouraged us, once the

416
00:21:23,100 --> 00:21:26,100
election takes place to have some

417
00:21:26,100 --> 00:21:29,100
dialogue with the new administration.

418
00:21:29,100 --> 00:21:31,100
All right thank you any other

419
00:21:31,100 --> 00:21:33,401
questions? For clarity. 451 362 says

420
00:21:39,100 --> 00:21:40,100
non-referendum debt can go up to 10 years, I

421
00:21:40,100 --> 00:21:43,601
mean five, referendum debt can do 10.

422
00:21:46,100 --> 00:21:49,100
>> Referendum debt can do 40, whatever

423
00:21:52,100 --> 00:21:53,100
is in the referendum

424
00:21:53,100 --> 00:21:56,100
>> The challenge we have with this

425
00:21:56,100 --> 00:21:57,100
budget is we went non-referendum debt

426
00:21:57,100 --> 00:21:59,100
which we've never done before, we

427
00:21:59,100 --> 00:22:02,100
projected it for 10 years. The AG said you

428
00:22:02,100 --> 00:22:07,100
can only do it for five. So how does

429
00:22:07,100 --> 00:22:10,100
102 tie into that direction in

430
00:22:14,100 --> 00:22:15,100
451?

431
00:22:15,100 --> 00:22:16,100
>> I will let George speak to the

432
00:22:16,100 --> 00:22:19,100
implications of the change. But

433
00:22:21,100 --> 00:22:22,100
refunding bonds are done under 1207 of

434
00:22:22,100 --> 00:22:25,100
the Texas Government Code, that applies

435
00:22:25,100 --> 00:22:29,100
not to just METRO but other issuers.

436
00:22:29,100 --> 00:22:32,100
The definition of issuer is in 1207.

437
00:22:32,100 --> 00:22:35,100
How you reconcile them both has been an

438
00:22:35,100 --> 00:22:38,601
ongoing discussion. Arguably if you go

439
00:22:41,100 --> 00:22:45,201
to 1207 to refund in this case METRO's

440
00:22:46,100 --> 00:22:47,100
debt, what it says in the statute is

441
00:22:47,100 --> 00:22:50,100
debt can have a maturity of 40 years.

442
00:22:50,100 --> 00:22:54,100
The position AG took previously was we

443
00:22:54,100 --> 00:22:55,100
don't think it's right for you to issue

444
00:22:55,100 --> 00:22:58,100
five-year debt and have the ability to

445
00:22:58,100 --> 00:23:02,201
take it out for 40 years. It's an

446
00:23:03,100 --> 00:23:05,401
interpretation. It's a policy

447
00:23:07,100 --> 00:23:08,100
interpretation. What they said was you

448
00:23:08,100 --> 00:23:12,100
can issue it for five years and go to

449
00:23:12,100 --> 00:23:13,100
1207, and issue refunding that because

450
00:23:13,100 --> 00:23:15,100
that's what the statute says but we are

451
00:23:15,100 --> 00:23:17,100
not going to approve that, it's longer

452
00:23:17,100 --> 00:23:20,601
than five years. That's how we

453
00:23:27,100 --> 00:23:28,100
operated. My recollection is we have

454
00:23:28,100 --> 00:23:29,100
not issued five-year debt and refunded

455
00:23:29,100 --> 00:23:30,100
it in the past. But that was the

456
00:23:30,100 --> 00:23:34,201
understanding we had. And then when we

457
00:23:38,100 --> 00:23:40,100
went to go do not Non-referendum debt

458
00:23:40,100 --> 00:23:41,100
as commercial paper we had the

459
00:23:41,100 --> 00:23:44,601
discussion around taking out the debt.

460
00:23:46,100 --> 00:23:47,100
That's when they told us with respect

461
00:23:47,100 --> 00:23:48,100
to non-referendum debt it had to be

462
00:23:48,100 --> 00:23:50,401
retired in five years.

463
00:23:56,100 --> 00:23:59,100
>> Our second topic of discussion is

464
00:23:59,100 --> 00:24:01,401
regarding the proposed restructuring.

465
00:24:05,100 --> 00:24:06,100
There are questions regarding the cost

466
00:24:06,100 --> 00:24:10,801
as well as risk to METRO's credit rating.

467
00:24:12,100 --> 00:24:15,601
Carlos Allen from PFM municipal and

468
00:24:21,100 --> 00:24:22,100
financial advisor will provide

469
00:24:22,100 --> 00:24:23,100
additional comments specifically on the

470
00:24:23,100 --> 00:24:24,100
credit risk.

471
00:24:24,100 --> 00:24:28,201
>> Carlos Allen PFM. so, the purpose of

472
00:24:31,100 --> 00:24:32,100
my presentation is to speak through

473
00:24:32,100 --> 00:24:33,100
three different things METRO is

474
00:24:33,100 --> 00:24:35,401
contemplating, debt restructuring, A

475
00:24:37,100 --> 00:24:38,100
plan drawdown of fund balance and

476
00:24:38,100 --> 00:24:42,201
possibly waving a policy. Sort of not

477
00:24:48,100 --> 00:24:49,100
to advocate for one or the other but

478
00:24:49,100 --> 00:24:50,100
make sure METRO Board and staff

479
00:24:50,100 --> 00:24:51,100
understand the credit rating

480
00:24:51,100 --> 00:24:54,601
implications of each one of the

481
00:24:55,100 --> 00:24:56,100
actions. so, right now METRO has a AAA

482
00:24:56,100 --> 00:24:59,601
bond rating. By S&P and

483
00:25:04,100 --> 00:25:05,100
[Indiscernible], one represents the

484
00:25:05,100 --> 00:25:06,100
highest bond rating available also has

485
00:25:06,100 --> 00:25:08,100
a reputational kind of feather in the

486
00:25:08,100 --> 00:25:12,801
cap of being the top notch from a

487
00:25:13,100 --> 00:25:14,100
financial standpoint and the ability to

488
00:25:14,100 --> 00:25:16,100
pay back debt holders. If you decide to

489
00:25:16,100 --> 00:25:19,601
go with the debt restructuring, The

490
00:25:20,100 --> 00:25:21,100
rating agency will ask themselves or

491
00:25:21,100 --> 00:25:25,201
ask METRO, is this for savings. Right

492
00:25:28,100 --> 00:25:29,100
now the restructuring we are looking at

493
00:25:29,100 --> 00:25:30,100
does not produce present value savings

494
00:25:30,100 --> 00:25:31,100
but does present cash flow savings in

495
00:25:31,100 --> 00:25:34,100
the next three years. We need to

496
00:25:34,100 --> 00:25:36,100
articulate how this restructuring puts

497
00:25:36,100 --> 00:25:40,201
us on a better footing. Also being

498
00:25:41,100 --> 00:25:45,100
considerate is a plan drawdown. If you

499
00:25:45,100 --> 00:25:46,100
ever have multiple years, of fund

500
00:25:46,100 --> 00:25:49,100
balance drawdown that is not associated

501
00:25:49,100 --> 00:25:52,601
with major capital projects, the rating

502
00:25:53,100 --> 00:25:56,601
agencies wonder if you are using

503
00:25:57,100 --> 00:26:00,100
operational fund balance to support

504
00:26:05,100 --> 00:26:06,100
operations. If so you need to come up

505
00:26:06,100 --> 00:26:07,100
with a plan that says you are going to

506
00:26:07,100 --> 00:26:08,100
wean yourself off of that or this is a

507
00:26:08,100 --> 00:26:11,100
one time deal. In addition to drawing

508
00:26:11,100 --> 00:26:12,100
down reserve funds of METRO root draws

509
00:26:12,100 --> 00:26:15,100
down reserve funds, you would have to

510
00:26:15,100 --> 00:26:18,601
waive or change your current reserve

511
00:26:19,100 --> 00:26:20,100
policies. The rating agencies would

512
00:26:20,100 --> 00:26:23,100
also look at this, where are you going

513
00:26:23,100 --> 00:26:27,201
to be at getting back to sustainability

514
00:26:28,100 --> 00:26:29,100
or where are you going to get to be

515
00:26:29,100 --> 00:26:32,100
where previous boards have recommended.

516
00:26:32,100 --> 00:26:33,100
None of those things in isolation

517
00:26:33,100 --> 00:26:37,201
trigger a downgrade but when you look

518
00:26:39,100 --> 00:26:40,100
at all those things you need be very

519
00:26:40,100 --> 00:26:41,100
careful with the message you are

520
00:26:41,100 --> 00:26:42,100
articulating to rating agencies. It

521
00:26:42,100 --> 00:26:45,601
needs to sound like one comprehensive

522
00:26:46,100 --> 00:26:47,100
plan, a plan that is also achievable

523
00:26:47,100 --> 00:26:50,100
and sustainable. Let's say worst-case

524
00:26:52,100 --> 00:26:53,100
scenario, you do all three of these

525
00:26:53,100 --> 00:26:55,100
things at the same time, the rating

526
00:26:55,100 --> 00:26:58,601
agencies feel this is negative. Not

527
00:26:59,100 --> 00:27:00,100
doing all three things is the worst

528
00:27:00,100 --> 00:27:02,401
case scenario, rating agency

529
00:27:04,100 --> 00:27:05,100
interpretation this is negative is the

530
00:27:05,100 --> 00:27:08,100
worst case scenario. That could trigger

531
00:27:08,100 --> 00:27:11,601
a ratings review or negative outlook.

532
00:27:12,100 --> 00:27:13,100
Over that time period for the next 6 to

533
00:27:13,100 --> 00:27:16,100
18 months, The rating agencies monitor

534
00:27:16,100 --> 00:27:20,201
how your financials come in toward the

535
00:27:23,100 --> 00:27:24,100
budget, what systems or controls you

536
00:27:24,100 --> 00:27:25,100
put in place to control cost or

537
00:27:25,100 --> 00:27:28,100
replenish fund balances. If everything

538
00:27:28,100 --> 00:27:29,100
goes fine they change you back from

539
00:27:29,100 --> 00:27:32,100
negative to stable. If things further

540
00:27:32,100 --> 00:27:33,100
deteriorate you could see a downgrade

541
00:27:33,100 --> 00:27:36,100
down the road. One of the questions

542
00:27:36,100 --> 00:27:39,100
George asked me was to quantify what a

543
00:27:39,100 --> 00:27:42,100
downgrade could mean. They downgrade

544
00:27:42,100 --> 00:27:45,100
going from AAA to AA plus is about 3 to

545
00:27:45,100 --> 00:27:48,601
5 basis points. On a $100 million bond

546
00:27:54,100 --> 00:27:55,100
transaction that could result in

547
00:27:55,100 --> 00:27:56,100
500,000 to 800,000 interest cost over

548
00:27:56,100 --> 00:27:59,601
30 years. That is ultimately the most,

549
00:28:02,100 --> 00:28:03,100
you would get downgraded and phased-in

550
00:28:03,100 --> 00:28:06,601
at a slightly higher interest rate

551
00:28:07,100 --> 00:28:08,100
cost.

552
00:28:08,100 --> 00:28:09,100
>> George did I miss anything you

553
00:28:09,100 --> 00:28:13,801
wanted me to cover? No I think you

554
00:28:14,100 --> 00:28:17,100
covered the concern about the credit

555
00:28:17,100 --> 00:28:20,100
rating as far as the different rating

556
00:28:20,100 --> 00:28:21,100
agencies. Are there any other questions

557
00:28:21,100 --> 00:28:23,100
from board members to cover

558
00:28:23,100 --> 00:28:26,100
specifically on the credit rating

559
00:28:26,100 --> 00:28:29,100
issue? This is Director Ponce, if we

560
00:28:29,100 --> 00:28:33,801
were to go to a downgrade, how long

561
00:28:34,100 --> 00:28:39,100
would it take us to get back to AAA

562
00:28:39,100 --> 00:28:40,100
status?

563
00:28:40,100 --> 00:28:42,100
>> I can't really speak for the rating

564
00:28:42,100 --> 00:28:43,100
agencies. I would not see you get

565
00:28:43,100 --> 00:28:46,100
downgraded in six months to a year, you

566
00:28:46,100 --> 00:28:49,100
would have to be on notice for a

567
00:28:49,100 --> 00:28:50,100
downgrade. And further deteriorate

568
00:28:50,100 --> 00:28:53,100
which would trigger the downgrade. Then

569
00:28:53,100 --> 00:28:54,100
the rating agencies are quicker to

570
00:28:54,100 --> 00:28:58,201
downgrade you then to upgrade you. If

571
00:29:01,100 --> 00:29:02,100
that process takes 18 months to get

572
00:29:02,100 --> 00:29:05,601
upgraded takes close to three years.

573
00:29:06,100 --> 00:29:07,100
They want to see two years of trends

574
00:29:07,100 --> 00:29:10,100
and then give you a positive outlook,

575
00:29:10,100 --> 00:29:11,100
And then we continued the trend for the

576
00:29:11,100 --> 00:29:16,401
Third year and we can get an upgrade. It

577
00:29:23,100 --> 00:29:24,100
could take you a year to 18 months to

578
00:29:24,100 --> 00:29:25,100
dig a hole and a minimum of three years

579
00:29:25,100 --> 00:29:26,100
to dig out of the hole.

580
00:29:26,100 --> 00:29:29,601
>>Are there any other questions? Just

581
00:29:31,100 --> 00:29:34,601
speaking to the board, your conclusion

582
00:29:41,100 --> 00:29:42,100
was it says [Indiscernible] it would

583
00:29:42,100 --> 00:29:44,100
not lead to an immediate downgrade,

584
00:29:44,100 --> 00:29:47,100
immediate downgrade is unlikely. But

585
00:29:49,100 --> 00:29:52,100
you said about the risk of a downgrade

586
00:29:52,100 --> 00:29:53,100
potentially. You said if we approve

587
00:29:53,100 --> 00:29:56,601
what was proposed today, the most

588
00:29:58,100 --> 00:29:59,100
adverse outcome is the assignment of a

589
00:29:59,100 --> 00:30:03,201
negative outlook. Do you stand by that

590
00:30:09,100 --> 00:30:10,100
conclusion? The highest likelihood if I

591
00:30:10,100 --> 00:30:11,100
have to put a weight of meaning no

592
00:30:11,100 --> 00:30:14,100
action downgrade negative outlook. I

593
00:30:14,100 --> 00:30:15,100
put the highest probability with a

594
00:30:15,100 --> 00:30:18,100
negative outlook at 40 percent. An

595
00:30:18,100 --> 00:30:22,100
equal weight to the other sides. But a

596
00:30:22,100 --> 00:30:23,100
negative outlook is an indication you

597
00:30:23,100 --> 00:30:25,100
are heading in the wrong direction. You

598
00:30:25,100 --> 00:30:28,100
don't get downgraded immediately. But

599
00:30:30,100 --> 00:30:31,100
that is the first step to a downgrade

600
00:30:31,100 --> 00:30:34,100
is the negative outlook is that

601
00:30:34,100 --> 00:30:36,100
correct? The downgrade is putting METRO

602
00:30:36,100 --> 00:30:39,100
on notice the downgrade could be

603
00:30:39,100 --> 00:30:42,100
forthcoming if either things don't

604
00:30:42,100 --> 00:30:43,100
stabilize or further deteriorate

605
00:30:43,100 --> 00:30:45,100
>> Okay thank you.

606
00:30:47,100 --> 00:30:50,100
>> Any other questions? Thank you

607
00:30:57,100 --> 00:30:58,100
Carlos. If there are no other questions

608
00:30:58,100 --> 00:31:01,100
we'll move on with the presentation. On

609
00:31:01,100 --> 00:31:02,100
this slide you see key points of the

610
00:31:02,100 --> 00:31:04,100
debt restructuring. First the interest

611
00:31:04,100 --> 00:31:08,201
rate on the debt will increase, , The

612
00:31:09,100 --> 00:31:11,401
interest payable through 2044 is 103

613
00:31:13,100 --> 00:31:14,100
million 52 million more than interest

614
00:31:14,100 --> 00:31:17,100
payable for the current debt. However

615
00:31:17,100 --> 00:31:18,100
the net present values of restructured

616
00:31:18,100 --> 00:31:20,401
interests will equate to 1.015,

617
00:31:27,100 --> 00:31:30,100
1.25 million. in a few slides I will

618
00:31:30,100 --> 00:31:33,601
explain that more. following the slide

619
00:31:35,100 --> 00:31:36,100
the cost of transaction is 2.7 million,

620
00:31:36,100 --> 00:31:38,100
the estimated cost. Carlos covered the

621
00:31:38,100 --> 00:31:41,601
credit risk, expected to be updated,

622
00:31:45,100 --> 00:31:46,100
does the highest probability to a

623
00:31:46,100 --> 00:31:49,100
negative outlook but not a downgrade.

624
00:31:49,100 --> 00:31:50,100
If there were a downgrade that would be

625
00:31:50,100 --> 00:31:53,100
up to five basis points, a downgrade

626
00:31:53,100 --> 00:31:56,100
would not be financially catastrophic.

627
00:32:00,100 --> 00:32:01,100
On this slide we would need to plan the

628
00:32:01,100 --> 00:32:02,100
execution of the transaction to be

629
00:32:02,100 --> 00:32:04,100
completed by January February

630
00:32:04,100 --> 00:32:05,100
timeframe.

631
00:32:05,100 --> 00:32:09,801
>> One thing I went to mention on this

632
00:32:11,100 --> 00:32:15,100
chart, there was a Fed Chair made a

633
00:32:15,100 --> 00:32:16,100
statement earlier this week about

634
00:32:16,100 --> 00:32:17,100
possibility of increasing rates, at

635
00:32:17,100 --> 00:32:19,100
least one time this year, maybe two

636
00:32:19,100 --> 00:32:22,100
times next year. So that would impact

637
00:32:22,100 --> 00:32:26,100
this rate. It could possibly go up.

638
00:32:26,100 --> 00:32:29,100
Also increase our cost. but, something

639
00:32:29,100 --> 00:32:35,100
to think about is that if we did it by

640
00:32:36,100 --> 00:32:37,100
January, because I've been thinking if

641
00:32:37,100 --> 00:32:40,100
we should wait, it could possibly even

642
00:32:40,100 --> 00:32:42,100
increase later. This is something to

643
00:32:42,100 --> 00:32:45,100
think about. One thing I wanted to

644
00:32:45,100 --> 00:32:46,100
mention at this point. Thank you

645
00:32:46,100 --> 00:32:49,601
>> Next slide please. This shows some

646
00:32:53,100 --> 00:32:56,601
more details about the transaction. The

647
00:32:58,100 --> 00:32:59,100
first bar chart in quadrant one on the

648
00:32:59,100 --> 00:33:02,601
upper left slide highlights which parts

649
00:33:03,100 --> 00:33:04,100
of METRO current debt the restructuring

650
00:33:04,100 --> 00:33:07,100
will affect. The restructuring will

651
00:33:07,100 --> 00:33:08,100
change the terms of 40 percent of

652
00:33:08,100 --> 00:33:11,100
existing debt. That is the red piece of

653
00:33:11,100 --> 00:33:16,401
the bars you see. When we move to the

654
00:33:19,100 --> 00:33:20,100
next quadrant you see the high

655
00:33:20,100 --> 00:33:21,100
principal payments we are focusing on

656
00:33:21,100 --> 00:33:22,100
in the next four years. Then there is a

657
00:33:22,100 --> 00:33:24,100
sudden drop. Notice on the slide the

658
00:33:24,100 --> 00:33:27,100
final maturity date is 2044. Even

659
00:33:27,100 --> 00:33:30,100
though it goes to 2044, 17 years from

660
00:33:30,100 --> 00:33:34,801
now the average age of the debt is 3.8

661
00:33:36,100 --> 00:33:39,100
years. the third quadrant on the lower

662
00:33:39,100 --> 00:33:40,100
left shows proposed restructuring peak

663
00:33:40,100 --> 00:33:43,601
years of payments spread out evenly

664
00:33:47,100 --> 00:33:48,100
also notice on the slide final maturity

665
00:33:48,100 --> 00:33:50,100
is, 2044 we are adjusting the

666
00:33:50,100 --> 00:33:53,601
amortization of the debt. With the

667
00:33:56,100 --> 00:33:57,100
restructuring the average age moves

668
00:33:57,100 --> 00:33:59,100
from 3.8 years to 7.6 years. this is

669
00:33:59,100 --> 00:34:02,100
more information and understanding what

670
00:34:06,100 --> 00:34:07,100
the objective of how it will change our

671
00:34:07,100 --> 00:34:08,100
debt service schedule for next year.

672
00:34:08,100 --> 00:34:11,601
Next slide please. I mentioned earlier

673
00:34:17,100 --> 00:34:18,100
52 million of interests between now and

674
00:34:18,100 --> 00:34:19,100
2044 being equivalent of 1.25 million

675
00:34:19,100 --> 00:34:22,100
in today's dollars. this shows how I

676
00:34:22,100 --> 00:34:24,100
know there are a lot of numbers here.

677
00:34:24,100 --> 00:34:26,100
it's very clear when you break it out.

678
00:34:26,100 --> 00:34:30,100
to the left you have the years, to the

679
00:34:30,100 --> 00:34:31,100
second column you have METRO current

680
00:34:31,100 --> 00:34:33,100
debt service. This debt service is a

681
00:34:33,100 --> 00:34:36,601
schedule of existing debt. The next

682
00:34:38,100 --> 00:34:39,100
column shows new debt service schedule

683
00:34:39,100 --> 00:34:43,201
and what that would look like. The

684
00:34:45,100 --> 00:34:46,100
column after that with shade green and

685
00:34:46,100 --> 00:34:47,100
red is the difference between the old

686
00:34:47,100 --> 00:34:48,100
debt schedule and the new debt service

687
00:34:48,100 --> 00:34:49,100
schedule. The Delta, this Delta of the

688
00:34:49,100 --> 00:34:51,401
debt service changes between 130

689
00:34:55,100 --> 00:34:58,100
million between now and 2031, increases

690
00:35:00,100 --> 00:35:01,100
debt service by 182 million in the

691
00:35:01,100 --> 00:35:04,100
years after. If you add the payments up

692
00:35:04,100 --> 00:35:07,601
that's 52 million we are talking about.

693
00:35:12,100 --> 00:35:13,100
The last column to the right shows what

694
00:35:13,100 --> 00:35:14,100
happens to inflows and outflows when

695
00:35:14,100 --> 00:35:16,100
They are looked at in today's dollars. If you

696
00:35:16,100 --> 00:35:17,100
discount the changes in the debt

697
00:35:17,100 --> 00:35:20,100
service scheduled to account for

698
00:35:20,100 --> 00:35:21,100
inflation, add them up you get a total

699
00:35:21,100 --> 00:35:24,601
of 1.25 million. You can see the

700
00:35:27,100 --> 00:35:28,100
benefits of the green savings are more

701
00:35:28,100 --> 00:35:29,100
beneficial to us than the increase in

702
00:35:29,100 --> 00:35:32,100
out years of the increased debt service

703
00:35:32,100 --> 00:35:34,100
payments. Wanted to make sure that was

704
00:35:34,100 --> 00:35:37,100
clear, how we calculate that. The net

705
00:35:37,100 --> 00:35:39,100
present value number.

706
00:35:42,100 --> 00:35:43,100
>> Let's stop there and see if there

707
00:35:43,100 --> 00:35:46,100
are any questions? One question I had

708
00:35:46,100 --> 00:35:50,801
and maybe this might be a question for

709
00:35:52,100 --> 00:35:53,100
Carlos, if we restructure the debt does

710
00:35:53,100 --> 00:35:56,100
it impact our ability to go back to the

711
00:35:56,100 --> 00:36:00,100
market if we want to borrow in the

712
00:36:00,100 --> 00:36:01,100
future?

713
00:36:01,100 --> 00:36:05,801
>>It does not affect your ability to go

714
00:36:07,100 --> 00:36:10,100
into the market and sell any new debt. Now

715
00:36:10,100 --> 00:36:13,601
for the debt we restructure, even

716
00:36:14,100 --> 00:36:15,100
though we have not done the

717
00:36:15,100 --> 00:36:18,100
restructuring yet, We will put some

718
00:36:18,100 --> 00:36:19,100
type of call features and optionality

719
00:36:19,100 --> 00:36:23,201
in there. Typically we would not be

720
00:36:24,100 --> 00:36:28,201
able to refinance the debt for eight

721
00:36:33,100 --> 00:36:34,100
years if we do a market standard call

722
00:36:34,100 --> 00:36:35,100
in there but since it's not structured

723
00:36:35,100 --> 00:36:36,100
yet we can also structure this in a

724
00:36:36,100 --> 00:36:37,100
way that allows for flexibility and

725
00:36:37,100 --> 00:36:40,601
further tie METRO's hands in the

726
00:36:41,100 --> 00:36:42,100
future. If we put that option in there

727
00:36:42,100 --> 00:36:45,100
it may reduce overall savings, it may

728
00:36:45,100 --> 00:36:46,100
be a deals we want to do that closer to

729
00:36:46,100 --> 00:36:49,100
the time of the transaction so we

730
00:36:49,100 --> 00:36:51,100
maximize the savings or benefit of

731
00:36:51,100 --> 00:36:55,201
financing. Now that you are up here,

732
00:36:58,100 --> 00:36:59,100
Can you go over what I stated earlier

733
00:36:59,100 --> 00:37:00,100
about the feds Chair remarks for rising

734
00:37:00,100 --> 00:37:01,100
interest rates? If you asked me about a

735
00:37:01,100 --> 00:37:04,601
month ago, I would've said the

736
00:37:08,100 --> 00:37:09,100
likelihood of a Fed rate increase

737
00:37:09,100 --> 00:37:10,100
before the end of the year was highly

738
00:37:10,100 --> 00:37:13,100
unlikely. After the comments last week,

739
00:37:13,100 --> 00:37:15,100
the likelihood went over 50 percent.

740
00:37:15,100 --> 00:37:19,201
Right now the Fed is focused on

741
00:37:20,100 --> 00:37:22,100
inflation, it's above the two percent

742
00:37:22,100 --> 00:37:26,100
target almost twice the target. So to

743
00:37:26,100 --> 00:37:29,100
sort of curb inflation or curb

744
00:37:29,100 --> 00:37:30,100
inflation, they may increase rates at

745
00:37:30,100 --> 00:37:34,100
the next Fed meeting. We could see

746
00:37:34,100 --> 00:37:37,100
another Fed increase at the end of

747
00:37:37,100 --> 00:37:39,100
January.

748
00:37:44,100 --> 00:37:45,100
>> so, I know this rate will probably go

749
00:37:45,100 --> 00:37:46,100
up and overall cost will go up based on

750
00:37:46,100 --> 00:37:48,100
what we have here. If we restructure in

751
00:37:48,100 --> 00:37:50,100
January or February of this year? If

752
00:37:50,100 --> 00:37:54,100
interest rates go up, it would reduce

753
00:37:54,100 --> 00:37:57,100
the generated savings. The $1.2 million

754
00:38:11,100 --> 00:38:12,100
in savings right now could easily go up

755
00:38:12,100 --> 00:38:13,100
to over 2 million in this savings cost

756
00:38:13,100 --> 00:38:14,100
of funds we are estimating at 4.7 could

757
00:38:14,100 --> 00:38:15,100
go up 25 to 50 basis points and be

758
00:38:15,100 --> 00:38:17,100
close to 5.5 percent. with interest

759
00:38:17,100 --> 00:38:20,100
rates going up it hurts the debt

760
00:38:20,100 --> 00:38:21,100
restructuring. right now we also have

761
00:38:21,100 --> 00:38:24,100
a current refunding opportunity meaning

762
00:38:24,100 --> 00:38:26,100
if you exercise the interest rate, when

763
00:38:26,100 --> 00:38:29,100
you enter that debt that generates

764
00:38:29,100 --> 00:38:32,601
healthy savings on its own. Any

765
00:38:35,100 --> 00:38:36,100
increase in rates reduces the savings

766
00:38:36,100 --> 00:38:39,601
generated for that transaction as well.

767
00:38:40,100 --> 00:38:41,100
Okay thank you

768
00:38:41,100 --> 00:38:44,601
>>Thank you, Carlos. Next slide please.

769
00:38:46,100 --> 00:38:49,100
We are going to switch gears, the next

770
00:38:49,100 --> 00:38:51,100
Two slides will cover the

771
00:38:51,100 --> 00:38:54,100
topic of reserves. METRO currently

772
00:38:55,100 --> 00:38:57,100
has three tiers of reserves combined

773
00:38:57,100 --> 00:38:58,100
they represent two and have months

774
00:38:58,100 --> 00:39:01,601
operating expenses. We've confirm that all

775
00:39:02,100 --> 00:39:03,100
these reserves are at the discretion of

776
00:39:03,100 --> 00:39:07,100
the METRO Board. The history of METRO

777
00:39:07,100 --> 00:39:11,201
reserve shown on the right hand column.

778
00:39:13,100 --> 00:39:14,100
In 2005 METRO initiated the debt

779
00:39:14,100 --> 00:39:18,100
program and created a policy. On that

780
00:39:18,100 --> 00:39:19,100
policy it established the 15 percent

781
00:39:19,100 --> 00:39:22,100
operating expenditure, that layer. That

782
00:39:22,100 --> 00:39:25,100
is the equivalent of 1.8 months. The

783
00:39:25,100 --> 00:39:27,100
other layers came later under different

784
00:39:27,100 --> 00:39:29,100
Boards. Around 2014 a

785
00:39:29,100 --> 00:39:32,100
10 percent layer was established, that

786
00:39:36,100 --> 00:39:38,100
layer was later modified in 2022 to 5

787
00:39:38,100 --> 00:39:41,100
Percent when METRO began funding its own

788
00:39:41,100 --> 00:39:43,100
liability. The emergency reserve was

789
00:39:43,100 --> 00:39:46,100
established in 2016 at 10 million, it

790
00:39:46,100 --> 00:39:49,100
was depleted in 2018 for hurricane

791
00:39:50,100 --> 00:39:52,100
Harvey. It was restored back to its

792
00:39:52,100 --> 00:39:54,401
original $10 million balance in 2020.

793
00:39:57,100 --> 00:39:59,100
Last year in 2025 the board increase

794
00:39:59,100 --> 00:40:02,100
the $10 million balance to 15 million.

795
00:40:03,100 --> 00:40:04,100
What really guides our reserve policy

796
00:40:04,100 --> 00:40:07,601
is best practice. Next slide please.

797
00:40:10,100 --> 00:40:11,100
Here you see our peer agencies and

798
00:40:11,100 --> 00:40:12,100
their respective reserve balances. They

799
00:40:12,100 --> 00:40:14,100
have a range. I'd like to point you to

800
00:40:14,100 --> 00:40:18,201
the bottom of the chart. The GFOA

801
00:40:22,100 --> 00:40:23,100
Officers Association does have a best

802
00:40:23,100 --> 00:40:26,100
practice recommendation of two months.

803
00:40:28,100 --> 00:40:29,100
The transportation code only speaks to

804
00:40:29,100 --> 00:40:30,100
reserve requirements for transit

805
00:40:30,100 --> 00:40:33,100
agencies smaller than METRO. We are

806
00:40:33,100 --> 00:40:34,100
looking at a benchmark here where we

807
00:40:34,100 --> 00:40:38,100
are in the reserves. If we reduce the

808
00:40:38,100 --> 00:40:41,100
two layers discussing, the $15 million

809
00:40:43,100 --> 00:40:47,100
layer and the five percent layer, that

810
00:40:47,100 --> 00:40:50,100
puts us a little shy of two months. But

811
00:40:50,100 --> 00:40:54,100
it keeps us keep some level of reserve.

812
00:40:54,100 --> 00:40:57,601
George, we would look at replenishing

813
00:40:58,100 --> 00:40:59,100
that once we pay back the five-year

814
00:40:59,100 --> 00:41:02,100
commercial paper within five years?

815
00:41:05,100 --> 00:41:06,100
There are different options when we

816
00:41:06,100 --> 00:41:09,100
find ourselves with surplus cash. We

817
00:41:09,100 --> 00:41:12,100
can use the cash to replenish reserves.

818
00:41:12,100 --> 00:41:15,100
We can use that cash to not issue debt.

819
00:41:15,100 --> 00:41:17,100
If we have a future debt plan. All of

820
00:41:17,100 --> 00:41:20,601
those are optionalities, what we will

821
00:41:22,100 --> 00:41:23,100
be presenting later in the presentation

822
00:41:23,100 --> 00:41:27,801
is a pro forma, cash flow pro forma

823
00:41:29,100 --> 00:41:30,100
where we present the next five years

824
00:41:30,100 --> 00:41:32,100
and more and provide a year we see in

825
00:41:32,100 --> 00:41:36,201
this scenario what that date will be

826
00:41:38,100 --> 00:41:41,100
around which year we can replace the

827
00:41:41,100 --> 00:41:42,100
reserves. I will speak to that in a

828
00:41:42,100 --> 00:41:45,601
later slide. now, next slide please.

829
00:41:49,100 --> 00:41:52,100
Now we will focus on the operating

830
00:41:52,100 --> 00:41:53,100
budget, there were a lot of questions

831
00:41:53,100 --> 00:41:56,601
only operating budget, We know board

832
00:41:59,100 --> 00:42:00,100
members have different questions

833
00:42:00,100 --> 00:42:01,100
regarding reductions and how service

834
00:42:01,100 --> 00:42:04,100
would be affected, echoing what Mr.

835
00:42:04,100 --> 00:42:08,801
Jasien said at the onset of the meeting

836
00:42:10,100 --> 00:42:11,100
we are taking any reduction in the

837
00:42:11,100 --> 00:42:14,601
budget affecting service off the table.

838
00:42:16,100 --> 00:42:17,100
The proposed budget will go from 1

839
00:42:17,100 --> 00:42:18,100
billion presented at the last workshop

840
00:42:18,100 --> 00:42:20,100
to 1.015. There are long-term

841
00:42:20,100 --> 00:42:23,601
financial risk to this. There would

842
00:42:32,100 --> 00:42:33,100
have to be $40 million reduction in a

843
00:42:33,100 --> 00:42:34,100
four-year funding envelope for the

844
00:42:34,100 --> 00:42:38,201
capital budget I will go into details

845
00:42:39,100 --> 00:42:40,100
on those risk and reduction in a later

846
00:42:40,100 --> 00:42:41,100
slide but in the meantime I will invite

847
00:42:41,100 --> 00:42:42,100
Nick the manager of the operating

848
00:42:42,100 --> 00:42:43,100
budget to walk you through details of

849
00:42:43,100 --> 00:42:45,401
the operating budget number,

850
00:42:47,100 --> 00:42:48,100
Specifically increases and decreases

851
00:42:48,100 --> 00:42:50,100
which get us from the current budget of

852
00:42:50,100 --> 00:42:51,100
1.04 to the new budget

853
00:42:51,100 --> 00:42:54,601
proposal of 1015. Thank you George. We

854
00:42:58,100 --> 00:43:01,601
will go over the 2027 operating budget.

855
00:43:03,100 --> 00:43:07,100
As shown on the screen FY26 budget is

856
00:43:07,100 --> 00:43:08,100
$1,040,000,000, we expect to reduce

857
00:43:08,100 --> 00:43:12,201
budget for FY 27. This has been through

858
00:43:14,100 --> 00:43:15,100
monthly reviews quarterly management

859
00:43:15,100 --> 00:43:17,401
reviews and conversations with

860
00:43:19,100 --> 00:43:20,100
departments. We will go into how the

861
00:43:20,100 --> 00:43:22,401
$1,015,000,000 budget was built. Want

862
00:43:27,100 --> 00:43:28,100
to make sure to say thank you to Mr.

863
00:43:28,100 --> 00:43:29,100
Jasien George ON BN departments for

864
00:43:29,100 --> 00:43:30,100
working throughout the year through the

865
00:43:30,100 --> 00:43:31,100
budget season. This would not have come

866
00:43:31,100 --> 00:43:35,201
together without a full team effort. We

867
00:43:36,100 --> 00:43:37,100
want to make sure to look at be aware

868
00:43:37,100 --> 00:43:41,201
of what we know will increase in 2027.

869
00:43:45,100 --> 00:43:46,100
We are identifying 53.7 increases

870
00:43:46,100 --> 00:43:47,100
mainly due to contract rate increases

871
00:43:47,100 --> 00:43:49,401
labor rate increases and

872
00:43:52,100 --> 00:43:53,100
[Indiscernible]. Purchase

873
00:43:53,100 --> 00:43:54,100
transportation expenses increased 19.6

874
00:43:54,100 --> 00:43:58,201
million due to rate increases. this is

875
00:44:00,100 --> 00:44:01,100
for the service [Indiscernible] for

876
00:44:01,100 --> 00:44:02,100
METROLift community connector curb2curb

877
00:44:02,100 --> 00:44:03,100
vanpool and Northwest operating

878
00:44:03,100 --> 00:44:05,100
facility. Running the same level of

879
00:44:05,100 --> 00:44:06,100
service this goes up because of agreed

880
00:44:06,100 --> 00:44:09,601
rate increases. Another large piece is

881
00:44:11,100 --> 00:44:12,100
due to labor increases for union and

882
00:44:12,100 --> 00:44:15,100
nonunion employees. Union contract has

883
00:44:18,100 --> 00:44:19,100
an increased built-in for FY 27 of four

884
00:44:19,100 --> 00:44:22,100
to six percent depending on the

885
00:44:22,100 --> 00:44:23,100
position. This benefit adjustment

886
00:44:23,100 --> 00:44:24,100
accounts for an increase of 12 million,

887
00:44:24,100 --> 00:44:26,401
12.8 million, for almost 3100 union

888
00:44:32,100 --> 00:44:35,100
positions. The nonunion employees have

889
00:44:35,100 --> 00:44:36,100
a cola and benefit increase which

890
00:44:36,100 --> 00:44:38,100
account for 6.7 million, . This is a

891
00:44:38,100 --> 00:44:40,401
little over 1700 positions METRO

892
00:44:42,100 --> 00:44:44,401
fueling utilities increased by 11.2

893
00:44:46,100 --> 00:44:47,100
million, mainly due to diesel fuel

894
00:44:47,100 --> 00:44:48,100
rates and gasoline rates. METRO does a

895
00:44:48,100 --> 00:44:52,801
fuel hedge and because of this we are

896
00:44:56,100 --> 00:44:58,401
hedged at 85 percent $2.81 for 2027.

897
00:44:59,100 --> 00:45:01,401
[Indiscernible] currently at $3.57. If

898
00:45:02,100 --> 00:45:06,801
we did not hedge, we would budget over

899
00:45:07,100 --> 00:45:08,100
6 million more for fuel and utilities

900
00:45:08,100 --> 00:45:12,201
for next year. The last two increases

901
00:45:16,100 --> 00:45:17,100
due to annual is Asian of revenue

902
00:45:17,100 --> 00:45:18,100
service from services in 26 and an

903
00:45:18,100 --> 00:45:21,100
increase in IT software. These

904
00:45:21,100 --> 00:45:22,100
increases are due to the new fare

905
00:45:22,100 --> 00:45:25,601
system and safety system. These items

906
00:45:26,100 --> 00:45:27,100
should bring in more revenue and make

907
00:45:27,100 --> 00:45:30,100
METRO safer. [Indiscernible] we began

908
00:45:39,100 --> 00:45:40,100
to shift our focus to other adjustments

909
00:45:40,100 --> 00:45:41,100
we started with eliminating the budget

910
00:45:41,100 --> 00:45:42,100
for FIFA World Cup this reduced it by

911
00:45:42,100 --> 00:45:44,100
$22.5 million. Throughout the year we

912
00:45:44,100 --> 00:45:45,100
have used great restraint in filling

913
00:45:45,100 --> 00:45:47,100
METRO vacancies. This includes reviews

914
00:45:47,100 --> 00:45:51,201
with the HR department and Mr. Jasien.

915
00:45:55,100 --> 00:45:56,100
Because these measures we reduce

916
00:45:56,100 --> 00:45:57,100
headcount by 177 out of [Indiscernible]

917
00:45:57,100 --> 00:46:00,100
in 2026. 29 Union and 148 nonunion, The

918
00:46:03,100 --> 00:46:04,100
majority are administrative departments

919
00:46:04,100 --> 00:46:07,601
and not operations. METRO has been

920
00:46:12,100 --> 00:46:13,100
working on implementing a

921
00:46:13,100 --> 00:46:14,100
[Indiscernible] we are estimating this

922
00:46:14,100 --> 00:46:17,601
will produce $7 million in savings. The

923
00:46:19,100 --> 00:46:20,100
next set of budget reductions are

924
00:46:20,100 --> 00:46:22,100
organizational efficiencies. The

925
00:46:25,100 --> 00:46:26,100
majority of these reductions are based

926
00:46:26,100 --> 00:46:27,100
on budget [Indiscernible] spent over

927
00:46:27,100 --> 00:46:31,201
the years these under runs or an

928
00:46:32,100 --> 00:46:34,401
outside services consulting repairs

929
00:46:36,100 --> 00:46:37,100
professional services things of that

930
00:46:37,100 --> 00:46:38,100
nature not actual revenue services on

931
00:46:38,100 --> 00:46:41,601
the street. These include reductions in

932
00:46:42,100 --> 00:46:43,100
professional third-party contract

933
00:46:43,100 --> 00:46:45,100
services for 14.8 million, some of the

934
00:46:45,100 --> 00:46:46,100
departments are infrastructure

935
00:46:46,100 --> 00:46:48,401
improvement facilities maintenance and

936
00:46:52,100 --> 00:46:53,100
one of the bigger ones was rail

937
00:46:53,100 --> 00:46:54,100
initiative the outside agencies helping

938
00:46:54,100 --> 00:46:56,100
with rail. Those budgeted for 2026 but

939
00:46:56,100 --> 00:47:00,201
not for 2027, that will reduce it by

940
00:47:03,100 --> 00:47:04,100
[Indiscernible]. There are reductions

941
00:47:04,100 --> 00:47:06,100
for support services, half of it made

942
00:47:06,100 --> 00:47:09,100
up by LRV , completely repaired and

943
00:47:09,100 --> 00:47:12,100
paid for in 2026 $1.8 million, I

944
00:47:14,100 --> 00:47:18,201
believe it was train 404, paid for and

945
00:47:19,100 --> 00:47:20,100
received. There's no need to budget for

946
00:47:20,100 --> 00:47:24,201
it next year. Some of the other

947
00:47:26,100 --> 00:47:27,100
reductions of her vehicle materials and

948
00:47:27,100 --> 00:47:28,100
parts of their services and

949
00:47:28,100 --> 00:47:30,100
miscellaneous equipment. That took care

950
00:47:30,100 --> 00:47:33,100
of the $30.1 million bucket . The 9.1

951
00:47:34,100 --> 00:47:35,100
is mainly related to things METRO has

952
00:47:35,100 --> 00:47:39,201
been doing for 2027. Some of the large

953
00:47:44,100 --> 00:47:45,100
drivers of the changes are reduction in

954
00:47:45,100 --> 00:47:48,100
PSA with the car contract employees,

955
00:47:48,100 --> 00:47:49,100
[Indiscernible] six months generally at

956
00:47:49,100 --> 00:47:52,100
a time, that's accounting for $3

957
00:47:52,100 --> 00:47:55,100
million reduction for 27. . We also

958
00:47:57,100 --> 00:47:58,100
have increasing capitalized internal

959
00:47:58,100 --> 00:48:01,100
labor of $6 million this will increase

960
00:48:01,100 --> 00:48:02,100
the capital budget but lower the

961
00:48:02,100 --> 00:48:05,601
operating budget. We saw a budget

962
00:48:06,100 --> 00:48:09,100
reduction for overtime of 1.5 million,

963
00:48:13,100 --> 00:48:14,100
A reduction in platform shelter

964
00:48:14,100 --> 00:48:16,100
supplies of 1.5 million and lastly

965
00:48:16,100 --> 00:48:17,100
budgeting for a reduction in the

966
00:48:17,100 --> 00:48:20,100
operating contingency of 1.5 million. I

967
00:48:22,100 --> 00:48:23,100
want to reiterate the 27 budget process

968
00:48:23,100 --> 00:48:25,100
started 11 months ago, we knew what we

969
00:48:25,100 --> 00:48:29,201
we're getting into over a year ago.

970
00:48:33,100 --> 00:48:34,100
Leadership O and B and the department

971
00:48:34,100 --> 00:48:35,100
analysts have been working to create

972
00:48:35,100 --> 00:48:36,100
the best most efficient operating

973
00:48:36,100 --> 00:48:37,100
budget for 2027. Thank you are there

974
00:48:37,100 --> 00:48:39,100
any questions?

975
00:48:44,100 --> 00:48:47,601
>> Are you going to discuss the

976
00:48:50,100 --> 00:48:51,100
efficiencies under the service

977
00:48:51,100 --> 00:48:52,100
[Indiscernible]

978
00:48:52,100 --> 00:48:54,100
>> That was the 30.1 million and 9.1.

979
00:48:54,100 --> 00:48:57,601
The majority of that is generally

980
00:48:58,100 --> 00:49:02,201
having under run in the services, not

981
00:49:06,100 --> 00:49:07,100
the contractors running the service but

982
00:49:07,100 --> 00:49:09,100
outside vendors helping us out. We

983
00:49:09,100 --> 00:49:13,201
under run those year after year. So

984
00:49:15,100 --> 00:49:16,100
trying to bring the budget down that's

985
00:49:16,100 --> 00:49:20,100
what we try to focus on. So what I'm

986
00:49:20,100 --> 00:49:23,100
hear you saying is the impact to riders

987
00:49:23,100 --> 00:49:25,401
regarding service efficiency is

988
00:49:29,100 --> 00:49:30,100
minimal. If there is some savings it's

989
00:49:30,100 --> 00:49:31,100
directly tied to optimization or ways

990
00:49:31,100 --> 00:49:35,100
we can improve the service? Right now,

991
00:49:35,100 --> 00:49:36,100
from the operating budget there are no

992
00:49:36,100 --> 00:49:39,100
service reductions. We plan to run

993
00:49:39,100 --> 00:49:41,100
service as it currently is right now.

994
00:49:41,100 --> 00:49:44,100
Okay thank you. Any questions?

995
00:49:48,100 --> 00:49:49,100
>> Nick putting the bus on the street

996
00:49:49,100 --> 00:49:53,801
is one thing making sure it's a safe

997
00:49:54,100 --> 00:49:56,100
ride, can you elaborate on the 6.2

998
00:49:56,100 --> 00:49:59,601
million reduction in the METRO police

999
00:50:06,100 --> 00:50:07,100
budget, and 10.5 reduction in the

1000
00:50:07,100 --> 00:50:08,100
safety and security budget?

1001
00:50:08,100 --> 00:50:11,100
>> Yes. MPDs specifically, about half

1002
00:50:11,100 --> 00:50:15,801
of the reduction is due to the rail

1003
00:50:18,100 --> 00:50:19,100
initiative. Some of it was already

1004
00:50:19,100 --> 00:50:22,601
spent input into the MPD budget,

1005
00:50:23,100 --> 00:50:24,100
Without going into 2027 it was not

1006
00:50:24,100 --> 00:50:26,100
budgeted in 2027. The remaining pieces

1007
00:50:26,100 --> 00:50:30,201
of MPD, I believe the actual full

1008
00:50:35,100 --> 00:50:36,100
headcount for MPD did go down for

1009
00:50:36,100 --> 00:50:38,100
full-time officers. We budgeted 227

1010
00:50:38,100 --> 00:50:42,201
current year, that drop down to 215 in

1011
00:50:45,100 --> 00:50:48,601
2026. During the year, they were not

1012
00:50:54,100 --> 00:50:55,100
able to get the headcount above

1013
00:50:55,100 --> 00:50:56,100
[Indiscernible] full-time officers so

1014
00:50:56,100 --> 00:50:57,100
we thought reducing the total headcount

1015
00:50:57,100 --> 00:50:58,100
by 12, still keeping an extra cushion

1016
00:50:58,100 --> 00:51:01,100
of 15 to be filled would be one of the

1017
00:51:01,100 --> 00:51:03,100
ways to optimize the budget best we

1018
00:51:03,100 --> 00:51:06,601
could. One more question. In the

1019
00:51:07,100 --> 00:51:10,100
breakdown there is a non-departmental

1020
00:51:13,100 --> 00:51:14,100
budget, Reduction of [Indiscernible]

1021
00:51:14,100 --> 00:51:15,100
can you elaborate on that

1022
00:51:15,100 --> 00:51:18,100
>> Yes. Whenever we were looking

1023
00:51:19,100 --> 00:51:20,100
through the budget trying to build in

1024
00:51:20,100 --> 00:51:23,601
the retirement incentives, we had a

1025
00:51:25,100 --> 00:51:26,100
budget of about 2.4 million remaining

1026
00:51:26,100 --> 00:51:29,601
in 2026. compared to a credit, a

1027
00:51:30,100 --> 00:51:33,100
negative of 6.8 million, the retirement

1028
00:51:37,100 --> 00:51:38,100
incentives. We don't quite know how

1029
00:51:38,100 --> 00:51:40,100
it's going to hit every department. So

1030
00:51:40,100 --> 00:51:41,100
we have it budgeted as a large credit

1031
00:51:41,100 --> 00:51:45,201
right now so when this is implemented

1032
00:51:48,100 --> 00:51:49,100
we can spread the credit and savings

1033
00:51:49,100 --> 00:51:50,100
throughout the authority

1034
00:51:50,100 --> 00:51:52,100
>> Thank you.

1035
00:51:53,100 --> 00:51:56,100
>>As stated before, the $15 million

1036
00:52:00,100 --> 00:52:01,100
budget reduction for service

1037
00:52:01,100 --> 00:52:05,201
adjustments is taken out. However we do

1038
00:52:09,100 --> 00:52:10,100
want to have a brief discussion on the

1039
00:52:10,100 --> 00:52:11,100
tools METRO uses when it does it's

1040
00:52:11,100 --> 00:52:14,100
routine evaluation of service. Julie

1041
00:52:18,100 --> 00:52:19,100
Fernandez director of GMP will discuss

1042
00:52:19,100 --> 00:52:20,100
this topic now

1043
00:52:20,100 --> 00:52:23,100
>>Good afternoon. Next slide please.

1044
00:52:26,100 --> 00:52:27,100
Our region traffic patterns are

1045
00:52:27,100 --> 00:52:30,601
constantly changing, that is why we

1046
00:52:32,100 --> 00:52:33,100
constantly evaluate service with that

1047
00:52:33,100 --> 00:52:37,801
in mind and seek to optimize it. The

1048
00:52:38,100 --> 00:52:39,100
goal of service optimization is to

1049
00:52:39,100 --> 00:52:40,100
match the service we provide to

1050
00:52:40,100 --> 00:52:43,100
customer demand, This approach reduces

1051
00:52:43,100 --> 00:52:46,100
empty seats while maximizing customer

1052
00:52:47,100 --> 00:52:49,100
benefit. METRO regularly evaluates its

1053
00:52:49,100 --> 00:52:50,100
service in factors such as ridership

1054
00:52:50,100 --> 00:52:52,100
cost, subsidy per boarding, boardings

1055
00:52:52,100 --> 00:52:55,100
per revenue Outlook, and boardings per

1056
00:52:55,100 --> 00:52:58,100
revenue mile. , Based on these

1057
00:52:58,100 --> 00:53:01,601
evaluations as Mr. Jasien referred to

1058
00:53:04,100 --> 00:53:05,100
METRO proposes adjustments through

1059
00:53:05,100 --> 00:53:08,100
times of year subject to board

1060
00:53:08,100 --> 00:53:09,100
approval, these adjustments typically

1061
00:53:09,100 --> 00:53:13,201
take place in January June and August.

1062
00:53:14,100 --> 00:53:15,100
Making these adjustments requires a

1063
00:53:15,100 --> 00:53:18,100
full suite of available tools. This

1064
00:53:18,100 --> 00:53:19,100
slide is an illustration of the tools

1065
00:53:19,100 --> 00:53:23,801
in the toolkit. The first tool is using

1066
00:53:27,100 --> 00:53:28,100
smaller vehicles for less costly to run

1067
00:53:28,100 --> 00:53:31,100
them 40 foot buses such as curb2curb

1068
00:53:31,100 --> 00:53:32,100
vans. This usage is limited by the

1069
00:53:32,100 --> 00:53:35,100
number of small vehicles available. We

1070
00:53:35,100 --> 00:53:38,601
can also use larger vehicles when

1071
00:53:41,100 --> 00:53:42,100
needed. For example on the

1072
00:53:42,100 --> 00:53:43,100
[Indiscernible] student riders were

1073
00:53:43,100 --> 00:53:44,100
creating overload so we put a larger

1074
00:53:44,100 --> 00:53:46,100
bus on the route.

1075
00:53:46,100 --> 00:53:48,100
>> Let me ask a quick question, , as we

1076
00:53:48,100 --> 00:53:52,201
talk about smaller vehicles one of the

1077
00:53:54,100 --> 00:53:55,100
complaints I often get is people see a

1078
00:53:55,100 --> 00:53:57,100
lot of empty buses. We also get the

1079
00:53:57,100 --> 00:54:00,100
complaint about frequency. so, the

1080
00:54:05,100 --> 00:54:06,100
issue is if we had more frequency we

1081
00:54:06,100 --> 00:54:09,601
would have more people riding the

1082
00:54:12,100 --> 00:54:14,100
buses. but, when we run larger buses we

1083
00:54:14,100 --> 00:54:15,100
are not able to have the frequency

1084
00:54:15,100 --> 00:54:16,100
because it costs so much to run the

1085
00:54:16,100 --> 00:54:20,801
larger bus. So in theory if we are

1086
00:54:23,100 --> 00:54:24,100
running smaller buses we may be able to

1087
00:54:24,100 --> 00:54:25,100
have more frequency while we build up

1088
00:54:25,100 --> 00:54:27,100
the ridership. Is that kind of what the

1089
00:54:27,100 --> 00:54:29,100
theory behind us?

1090
00:54:30,100 --> 00:54:34,201
>> That is true, however we are limited

1091
00:54:35,100 --> 00:54:38,100
by the number of small vehicles we have

1092
00:54:38,100 --> 00:54:39,100
available to the extent we can to roll

1093
00:54:39,100 --> 00:54:43,801
out that part of the strategy. I will

1094
00:54:46,100 --> 00:54:47,100
let [Indiscernible] speak to that

1095
00:54:47,100 --> 00:54:50,100
>> One of the things we will continue

1096
00:54:50,100 --> 00:54:53,100
to look at this year is optimizing the

1097
00:54:53,100 --> 00:54:57,100
fleet. It's a delicate dance not only

1098
00:54:57,100 --> 00:54:58,100
do you have to have the correct amount

1099
00:54:58,100 --> 00:55:01,601
of vehicles available that are the

1100
00:55:04,100 --> 00:55:05,100
correct size but you also have to have

1101
00:55:05,100 --> 00:55:07,100
operators and mechanics available.

1102
00:55:07,100 --> 00:55:10,100
There is not a magic one-size-fits-all

1103
00:55:10,100 --> 00:55:13,601
in optimizing that service. A large

1104
00:55:17,100 --> 00:55:18,100
portion of the cost of running

1105
00:55:18,100 --> 00:55:21,100
>> Without getting into too much of the

1106
00:55:21,100 --> 00:55:22,100
details, what I'm asking for is guiding

1107
00:55:22,100 --> 00:55:25,100
principles here. Our guiding principle

1108
00:55:26,100 --> 00:55:30,100
is that we would work to increase

1109
00:55:30,100 --> 00:55:33,100
ridership and increase frequency and

1110
00:55:35,100 --> 00:55:40,401
this would be a strategy to do that is

1111
00:55:43,100 --> 00:55:44,100
my question

1112
00:55:44,100 --> 00:55:45,100
>> I would help answer by saying yes

1113
00:55:45,100 --> 00:55:46,100
that's absolutely a guiding principle

1114
00:55:46,100 --> 00:55:47,100
we can work with

1115
00:55:47,100 --> 00:55:50,601
>> yes indeed. You mentioned of course

1116
00:55:56,100 --> 00:55:57,100
frequency. Certainly, One of the tools

1117
00:55:57,100 --> 00:56:00,100
we can use is changing the routes of

1118
00:56:00,100 --> 00:56:02,100
frequency How often it arrives or

1119
00:56:02,100 --> 00:56:03,100
expand service how early it starts and

1120
00:56:03,100 --> 00:56:08,401
how late it runs. One thing we can do

1121
00:56:09,100 --> 00:56:10,100
is by reducing the frequency or span of

1122
00:56:10,100 --> 00:56:14,201
service where the demand is not there,

1123
00:56:15,100 --> 00:56:16,100
we can reallocate the revenue hours to

1124
00:56:16,100 --> 00:56:19,601
another route that has greater customer

1125
00:56:23,100 --> 00:56:24,100
demand. For example [Indiscernible]

1126
00:56:24,100 --> 00:56:25,100
earlier trip so we added a 415

1127
00:56:25,100 --> 00:56:27,100
eastbound trip. , Back to the concept

1128
00:56:27,100 --> 00:56:30,601
of vehicles when we replace them

1129
00:56:37,100 --> 00:56:38,100
frequent low ridership services with

1130
00:56:38,100 --> 00:56:39,100
on-demand alternatives like rideshare

1131
00:56:39,100 --> 00:56:40,100
came free of vehicles including small

1132
00:56:40,100 --> 00:56:43,100
curb2curb vehicles. For specific

1133
00:56:46,100 --> 00:56:47,100
designated zones on demand services can

1134
00:56:47,100 --> 00:56:50,100
cost less than running a fixed route

1135
00:56:50,100 --> 00:56:53,100
service. Lastly combining rounds of

1136
00:56:56,100 --> 00:56:57,100
duplicate of service or shortening

1137
00:56:57,100 --> 00:56:58,100
routes saves service hours and makes

1138
00:56:58,100 --> 00:57:01,100
resulting routes more efficient. Those

1139
00:57:02,100 --> 00:57:03,100
resources can be redeployed to serve

1140
00:57:03,100 --> 00:57:05,100
another route to maximize customer

1141
00:57:05,100 --> 00:57:08,100
benefit. Are there any questions?

1142
00:57:08,100 --> 00:57:12,801
>> I have a question. so, these are the

1143
00:57:18,100 --> 00:57:19,100
optimizations that relate to the 15

1144
00:57:19,100 --> 00:57:23,201
million we saw on the previous page?

1145
00:57:24,100 --> 00:57:25,100
Those are tools that could have been

1146
00:57:25,100 --> 00:57:29,100
used to y get to the 15 million. , If

1147
00:57:29,100 --> 00:57:31,100
we look at our budget for fiscal year

1148
00:57:31,100 --> 00:57:35,201
2027 say we are midyear, And we see

1149
00:57:36,100 --> 00:57:37,100
there is demand where we have to

1150
00:57:37,100 --> 00:57:41,201
increase our cost, will there be a

1151
00:57:44,100 --> 00:57:45,100
contingency in the budget to meet a

1152
00:57:45,100 --> 00:57:48,100
demand if it requires us to do so?

1153
00:57:48,100 --> 00:57:49,100
There's a small contingency available

1154
00:57:49,100 --> 00:57:53,801
to do that. If the demand exists beyond

1155
00:57:58,100 --> 00:57:59,100
that contingency we would need to look

1156
00:57:59,100 --> 00:58:00,100
at balancing it with optimization

1157
00:58:00,100 --> 00:58:03,100
elsewhere in the system. . Okay and

1158
00:58:03,100 --> 00:58:07,100
this is probably a question for Tom.

1159
00:58:07,100 --> 00:58:11,201
Does the on demand evolve? no. Not

1160
00:58:15,100 --> 00:58:19,100
evolve. On demand is what we run with

1161
00:58:19,100 --> 00:58:23,201
curb2curb as well as the community

1162
00:58:24,100 --> 00:58:25,100
connector in downtown as well as

1163
00:58:25,100 --> 00:58:27,100
basically METROLift is on demand. Go

1164
00:58:27,100 --> 00:58:31,201
ahead and say it Julie and rideshare,

1165
00:58:33,100 --> 00:58:34,100
potential rideshare opportunities

1166
00:58:34,100 --> 00:58:37,100
>> Thank you. Any other questions? .

1167
00:58:39,100 --> 00:58:43,201
Where are we with micro transit in

1168
00:58:44,100 --> 00:58:45,100
December the board was told we would

1169
00:58:45,100 --> 00:58:48,601
transition away from that into a

1170
00:58:50,100 --> 00:58:51,100
procurement where was ADA compliant and

1171
00:58:51,100 --> 00:58:52,100
people pay their fare like customers

1172
00:58:52,100 --> 00:58:55,100
do. But here we are in a budget cycle,

1173
00:58:55,100 --> 00:58:56,100
, it looks like it's plan to continue

1174
00:58:56,100 --> 00:58:58,401
next year no procurement

1175
00:59:01,100 --> 00:59:02,100
>> We have a briefing planned for

1176
00:59:02,100 --> 00:59:04,100
September committee meeting.

1177
00:59:06,100 --> 00:59:10,201
>>Thank you. I have a question that

1178
00:59:14,100 --> 00:59:17,601
applies here or for a broader

1179
00:59:19,100 --> 00:59:20,100
conversation. The budget as it is

1180
00:59:20,100 --> 00:59:23,601
presented today, does it still maintain

1181
00:59:33,100 --> 00:59:34,100
what we are addressing as well as state

1182
00:59:34,100 --> 00:59:36,100
of good repair or could this

1183
00:59:36,100 --> 00:59:37,100
potentially inadvertently create

1184
00:59:37,100 --> 00:59:40,100
deferred maintenance or backlog later

1185
00:59:41,100 --> 00:59:42,100
on? A pathway for state of good repair

1186
00:59:42,100 --> 00:59:44,401
things of that nature?

1187
00:59:47,100 --> 00:59:48,100
>> I will defer to my colleagues

1188
00:59:48,100 --> 00:59:53,401
>>You hit the nail on the head. We have

1189
00:59:54,100 --> 00:59:57,100
really emphasized the last two years

1190
00:59:57,100 --> 01:00:00,100
the state of good repair, we idolize

1191
01:00:00,100 --> 01:00:03,100
that in the assets we own. We've done a

1192
01:00:03,100 --> 01:00:05,100
tremendous job in that regard. The

1193
01:00:05,100 --> 01:00:09,801
average age of the fleet is way back

1194
01:00:10,100 --> 01:00:14,801
down into the normal metric it needs to

1195
01:00:16,100 --> 01:00:17,100
be. We continue to budget that program

1196
01:00:17,100 --> 01:00:20,601
for the next five years. That's

1197
01:00:22,100 --> 01:00:23,100
untouched

1198
01:00:23,100 --> 01:00:27,201
>>Chair are we doing the capital budget

1199
01:00:29,100 --> 01:00:31,100
discussion now?

1200
01:00:35,100 --> 01:00:38,100
>> We can talk about the

1201
01:00:41,100 --> 01:00:44,100
[Indiscernible] the capital budget was

1202
01:00:44,100 --> 01:00:45,100
not discussed at the last workshop so

1203
01:00:45,100 --> 01:00:48,100
we prepared on the operating budget.

1204
01:00:48,100 --> 01:00:49,100
But this is the discretion of how you

1205
01:00:49,100 --> 01:00:53,100
want to talk about it. Just because the

1206
01:00:53,100 --> 01:00:54,100
capital budget we are talking about

1207
01:00:54,100 --> 01:00:56,100
restructuring financing, in the budget

1208
01:00:56,100 --> 01:00:59,601
book released to the public, the

1209
01:01:06,100 --> 01:01:07,100
delivery and reliable service budget

1210
01:01:07,100 --> 01:01:10,100
for 2026 was 457 million, This is

1211
01:01:10,100 --> 01:01:11,100
replacing brakes transmission what we

1212
01:01:11,100 --> 01:01:15,801
need to get the bus onto the roadway.

1213
01:01:17,100 --> 01:01:18,100
In 2031 it is projected to reduce 100

1214
01:01:18,100 --> 01:01:21,601
million a steady decline over five

1215
01:01:23,100 --> 01:01:24,100
years. Another one is maintaining a

1216
01:01:24,100 --> 01:01:27,601
cleaner system, 9.7 this year to zero

1217
01:01:29,100 --> 01:01:30,100
dollars investment in that category

1218
01:01:30,100 --> 01:01:32,100
2030 2031, putting customer service

1219
01:01:35,100 --> 01:01:38,601
first, in the CIP 13 million in 2026

1220
01:01:39,100 --> 01:01:42,601
zeroed out in 2030 2031. When we are

1221
01:01:45,100 --> 01:01:46,100
told we are maintaining a good state of

1222
01:01:46,100 --> 01:01:47,100
repair in the next five years, how is

1223
01:01:47,100 --> 01:01:50,601
that possible when these categories are

1224
01:01:53,100 --> 01:01:57,801
needed to put buses on the roadway. And

1225
01:02:00,100 --> 01:02:01,100
the one thing that's missing here is

1226
01:02:01,100 --> 01:02:02,100
there was a 6.9 facilities maintenance

1227
01:02:02,100 --> 01:02:04,401
reduction. Maintaining facilities is

1228
01:02:06,100 --> 01:02:07,100
critical. State of good repair is

1229
01:02:07,100 --> 01:02:10,100
critical to maintaining service. I'm

1230
01:02:15,100 --> 01:02:16,100
happy we maintain the operating budget

1231
01:02:16,100 --> 01:02:21,100
but there are a lot of people that are

1232
01:02:21,100 --> 01:02:22,100
changing brakes changing transmissions

1233
01:02:22,100 --> 01:02:25,601
replacing roofs replacing bus washes. I

1234
01:02:26,100 --> 01:02:27,100
don't see that stability long-term in

1235
01:02:27,100 --> 01:02:29,100
the capital budget projected before us

1236
01:02:29,100 --> 01:02:33,201
and what's been shared with the public.

1237
01:02:36,100 --> 01:02:37,100
Can you tell how we are addressing

1238
01:02:37,100 --> 01:02:38,100
state of good repair to maintain the

1239
01:02:38,100 --> 01:02:39,100
service we as board members ask for?

1240
01:02:39,100 --> 01:02:44,401
>> What we did is we saw some trends in

1241
01:02:45,100 --> 01:02:49,201
the state of good repair returning the

1242
01:02:50,100 --> 01:02:51,100
existing fleet back into a state of

1243
01:02:51,100 --> 01:02:54,601
good repair through spare parts engines

1244
01:02:56,100 --> 01:02:57,100
transmissions we saw an abundance of

1245
01:02:57,100 --> 01:02:59,100
growth over the years. , It was a trend

1246
01:02:59,100 --> 01:03:03,201
it wasn't just one year. During the

1247
01:03:06,100 --> 01:03:07,100
COVID reprieve when we were not

1248
01:03:07,100 --> 01:03:11,201
ordering buses, we saw that those costs

1249
01:03:14,100 --> 01:03:16,100
increased. At the same time the

1250
01:03:16,100 --> 01:03:18,100
facilities, we went into a period of

1251
01:03:18,100 --> 01:03:23,401
time where we were doing a lot with a

1252
01:03:24,100 --> 01:03:26,100
little, the repairs of our facilities

1253
01:03:26,100 --> 01:03:29,601
bus washes and repairing what was

1254
01:03:31,100 --> 01:03:32,100
broken. We approached in the METRO now

1255
01:03:32,100 --> 01:03:33,100
program in the last 2 1/2 years have

1256
01:03:33,100 --> 01:03:36,100
been amazing. We've replaced instead of

1257
01:03:36,100 --> 01:03:40,201
repairing a lot of assets, bus wash

1258
01:03:41,100 --> 01:03:43,401
equipment, the electric systems

1259
01:03:45,100 --> 01:03:47,100
roofing, all of the bare necessities of

1260
01:03:47,100 --> 01:03:50,601
facilities that was causing cost to

1261
01:03:51,100 --> 01:03:53,401
increase across-the-board. In all

1262
01:03:55,100 --> 01:03:58,601
spectrums. When we brought in 667 new

1263
01:04:00,100 --> 01:04:03,601
fleet vehicles in the last couple

1264
01:04:07,100 --> 01:04:08,100
years, what it did was take the

1265
01:04:08,100 --> 01:04:11,100
pressure off of what we were spending

1266
01:04:11,100 --> 01:04:14,100
inefficiently, repairing what we had.

1267
01:04:16,100 --> 01:04:17,100
When you are have brand-new car in your

1268
01:04:17,100 --> 01:04:19,100
driveway you are not repairing air

1269
01:04:19,100 --> 01:04:21,100
conditioning and brakes, you get a

1270
01:04:21,100 --> 01:04:24,601
couple years reprieve. So this board

1271
01:04:30,100 --> 01:04:31,100
and this group have allowed us to

1272
01:04:31,100 --> 01:04:33,100
replenish and revitalize like I've

1273
01:04:33,100 --> 01:04:35,100
never seen in the last 18 years. It's

1274
01:04:35,100 --> 01:04:38,601
been great. Tremendous gains. It took

1275
01:04:39,100 --> 01:04:43,100
the heat off, takes the pressure off of

1276
01:04:43,100 --> 01:04:45,401
unscheduled maintenance, fire drill

1277
01:04:47,100 --> 01:04:51,801
repairs etc.. So we saw a shift. You

1278
01:04:57,100 --> 01:04:58,100
see maybe in some isolated areas where

1279
01:04:58,100 --> 01:05:01,601
the budget is getting tighter, it's

1280
01:05:03,100 --> 01:05:04,100
because we see trends improving

1281
01:05:04,100 --> 01:05:06,100
holistically across the whole spectrum.

1282
01:05:06,100 --> 01:05:10,801
The fleet is in the best shape ever,

1283
01:05:11,100 --> 01:05:12,100
years ago you would go there and you

1284
01:05:12,100 --> 01:05:15,100
would say this is a tired old facility,

1285
01:05:15,100 --> 01:05:16,100
you go there today and you see fuel

1286
01:05:16,100 --> 01:05:19,601
systems and tanks and tremendous well

1287
01:05:20,100 --> 01:05:23,601
put together programs to make Kurt's

1288
01:05:26,100 --> 01:05:28,401
operation very efficient. Through

1289
01:05:31,100 --> 01:05:34,100
capital investment we did that. We are

1290
01:05:34,100 --> 01:05:38,801
starting to see some of the gain from

1291
01:05:43,100 --> 01:05:44,100
that, seeing the sum of the less

1292
01:05:44,100 --> 01:05:45,100
recurring efforts of the capital

1293
01:05:45,100 --> 01:05:46,100
spending because of the way we approach

1294
01:05:46,100 --> 01:05:50,100
METRO now. We can get into line item

1295
01:05:50,100 --> 01:05:52,100
specifics, I'm not prepared for that

1296
01:05:52,100 --> 01:05:55,100
but I can send you a list. Across most

1297
01:05:55,100 --> 01:06:00,100
of the programs, IT systems we put in a

1298
01:06:00,100 --> 01:06:03,601
brand-new ERP system, a fare collection

1299
01:06:09,100 --> 01:06:10,100
that takes the pressure off all the

1300
01:06:10,100 --> 01:06:11,100
other IT system efforts we are doing to

1301
01:06:11,100 --> 01:06:14,100
patch together to have the successful

1302
01:06:14,100 --> 01:06:17,100
state of good repair outcome we do.

1303
01:06:17,100 --> 01:06:20,601
We've invested across all spectrums. I

1304
01:06:24,100 --> 01:06:25,100
have to say that some of how we

1305
01:06:25,100 --> 01:06:29,201
categorized last year, the way they are

1306
01:06:30,100 --> 01:06:31,100
categorized may be looks like one whole

1307
01:06:31,100 --> 01:06:34,100
category fell off, but we are really

1308
01:06:34,100 --> 01:06:37,100
doing those efforts in some other

1309
01:06:37,100 --> 01:06:39,100
category. Maybe in the reliability

1310
01:06:39,100 --> 01:06:41,100
sector, or the safety sector. But the

1311
01:06:41,100 --> 01:06:44,100
effort is still there. We did not take

1312
01:06:44,100 --> 01:06:47,601
any pressure. , We put the most

1313
01:06:48,100 --> 01:06:52,201
pressure on the expansion side we left

1314
01:06:57,100 --> 01:06:58,100
the state of good repair holistic and

1315
01:06:58,100 --> 01:06:59,100
the plans

1316
01:06:59,100 --> 01:07:00,100
>> You may not be prepared to answer

1317
01:07:00,100 --> 01:07:01,100
this but can you take a look at the

1318
01:07:01,100 --> 01:07:04,601
reliability column of the budget book.

1319
01:07:05,100 --> 01:07:06,100
You said we purchase new vehicles so it

1320
01:07:06,100 --> 01:07:09,100
lowered maintenance cost. You would

1321
01:07:12,100 --> 01:07:13,100
assume the next couple years it's slow

1322
01:07:13,100 --> 01:07:14,100
and then increases over time as the new

1323
01:07:14,100 --> 01:07:16,100
vehicles get older. But you have the

1324
01:07:16,100 --> 01:07:20,100
reverse curve on page 31 of the budget

1325
01:07:20,100 --> 01:07:23,100
book, Reliability goes from 477 to 322

1326
01:07:23,100 --> 01:07:26,601
And declines to 105 and 2031, counter to

1327
01:07:27,100 --> 01:07:31,201
the performance of the new vehicle. I

1328
01:07:34,100 --> 01:07:35,100
want to make sure we can maintain our

1329
01:07:35,100 --> 01:07:36,100
facilities and vehicles in a state of

1330
01:07:36,100 --> 01:07:40,201
good repair. It's one thing to have

1331
01:07:41,100 --> 01:07:42,100
operating dollars and another to

1332
01:07:42,100 --> 01:07:43,100
support the bus on the roadway

1333
01:07:43,100 --> 01:07:46,100
>> Yes, sir. For context, Director

1334
01:07:50,100 --> 01:07:51,100
Trevino if we look at expenditures in

1335
01:07:51,100 --> 01:07:54,100
our core category state of good repair,

1336
01:07:54,100 --> 01:07:57,100
in 2024 we spent 102 million. In 2025

1337
01:08:00,100 --> 01:08:03,100
we increased it to 280 million. 2026

1338
01:08:05,100 --> 01:08:08,100
260. So we bumped up the last couple of

1339
01:08:08,100 --> 01:08:11,100
years. 2027 we stay at 250. 2028 we are

1340
01:08:11,100 --> 01:08:15,201
at 180. It starts to decline a little

1341
01:08:17,100 --> 01:08:21,100
bit you are right but it does not get

1342
01:08:21,100 --> 01:08:25,201
lower than the rate we were in 2024.

1343
01:08:26,100 --> 01:08:27,100
Understand this is us responding to a

1344
01:08:27,100 --> 01:08:30,100
financial shock as the realities

1345
01:08:33,100 --> 01:08:34,100
change. We will make those changes in

1346
01:08:34,100 --> 01:08:38,801
all of our budgets. As far as looking

1347
01:08:40,100 --> 01:08:41,100
now with what we know this is the

1348
01:08:41,100 --> 01:08:42,100
projection that will keep us

1349
01:08:42,100 --> 01:08:44,100
financially sustainable.

1350
01:08:46,100 --> 01:08:47,100
>> I agree it is a financial shock it

1351
01:08:47,100 --> 01:08:49,100
is a shock to me the position we are

1352
01:08:49,100 --> 01:08:50,100
in. However I see the pressure you hear

1353
01:08:50,100 --> 01:08:54,100
from the board. The pressure from the

1354
01:08:54,100 --> 01:08:55,100
board is keep the operating dollars hi

1355
01:08:55,100 --> 01:08:59,801
to not reduce service. But there is a

1356
01:09:03,100 --> 01:09:04,100
component of that you have to maintain

1357
01:09:04,100 --> 01:09:05,100
the service at facilities transmission

1358
01:09:05,100 --> 01:09:08,100
replacement and brake repairs. . We

1359
01:09:09,100 --> 01:09:10,100
cannot as a board direct you to

1360
01:09:10,100 --> 01:09:11,100
maintain operations but not fondue

1361
01:09:11,100 --> 01:09:15,801
properly for a state of good repair the

1362
01:09:17,100 --> 01:09:18,100
numbers here do not reflect the state

1363
01:09:18,100 --> 01:09:19,100
of good repair dollars are matching the

1364
01:09:19,100 --> 01:09:21,100
request from the board to maintain

1365
01:09:21,100 --> 01:09:22,100
service.

1366
01:09:22,100 --> 01:09:24,100
>> What you will see is the expansion.

1367
01:09:24,100 --> 01:09:28,801
That is really the category that we are

1368
01:09:29,100 --> 01:09:31,100
tempering down until we get a new

1369
01:09:31,100 --> 01:09:35,100
forecast. State of good repair at the

1370
01:09:35,100 --> 01:09:37,100
core I think the goal is to put that

1371
01:09:37,100 --> 01:09:40,100
primary, especially with regard to CMD.

1372
01:09:40,100 --> 01:09:44,201
That is the goal. I believe members

1373
01:09:47,100 --> 01:09:48,100
here have been communicated or

1374
01:09:48,100 --> 01:09:51,601
transmitted the project and as we

1375
01:10:01,100 --> 01:10:02,100
continue the discussion we can address

1376
01:10:02,100 --> 01:10:03,100
those and I'd be happy to do that

1377
01:10:03,100 --> 01:10:04,100
>> Thank you

1378
01:10:04,100 --> 01:10:07,601
>> Thank you. Next slide please. This

1379
01:10:13,100 --> 01:10:14,100
slide I mentioned earlier focusing on

1380
01:10:14,100 --> 01:10:15,100
long-range financial risk projected

1381
01:10:15,100 --> 01:10:17,401
from operating budget of 1.015.

1382
01:10:20,100 --> 01:10:22,100
Again we would need to reduce the

1383
01:10:22,100 --> 01:10:23,100
five-year capital program by $40

1384
01:10:23,100 --> 01:10:27,100
million to achieve that. Last time we

1385
01:10:27,100 --> 01:10:31,801
talked we were at $1 billion now we are

1386
01:10:36,100 --> 01:10:37,100
1.015. This reduction in the

1387
01:10:37,100 --> 01:10:38,100
capital program would focus on the nice

1388
01:10:38,100 --> 01:10:39,100
to have versus spending particularly on

1389
01:10:39,100 --> 01:10:40,100
the administration building at 1900,

1390
01:10:40,100 --> 01:10:44,201
hold off on rehabs and amenities like

1391
01:10:46,100 --> 01:10:47,100
cubicles. Also kind of at the point

1392
01:10:47,100 --> 01:10:48,100
what Nick was saying it evaluates

1393
01:10:48,100 --> 01:10:51,601
our budgets assigned to these certain

1394
01:10:53,100 --> 01:10:54,100
programs and recognizing historically

1395
01:10:54,100 --> 01:10:55,100
there is always an under run, let's say

1396
01:10:55,100 --> 01:10:58,601
we just address that. There's also

1397
01:11:00,100 --> 01:11:03,100
adjustment in the schedules, this is

1398
01:11:03,100 --> 01:11:07,201
sharpening our pencils where we see the

1399
01:11:08,100 --> 01:11:11,100
CNG buses arriving off schedule to win

1400
01:11:11,100 --> 01:11:12,100
the actual facility will be up and

1401
01:11:12,100 --> 01:11:15,100
running, the Northwest facility. We

1402
01:11:16,100 --> 01:11:19,100
moved those arrivals to match when the

1403
01:11:19,100 --> 01:11:22,100
infrastructure goes live. Otherwise we

1404
01:11:23,100 --> 01:11:25,100
are ordering them too soon. , I want to

1405
01:11:25,100 --> 01:11:29,100
focus on the slide this is the big

1406
01:11:29,100 --> 01:11:30,100
picture where we are at in the

1407
01:11:30,100 --> 01:11:33,100
financial projection. You are familiar

1408
01:11:34,100 --> 01:11:38,801
with the slide. This is the image where

1409
01:11:39,100 --> 01:11:42,100
you see the dotted line as cash

1410
01:11:42,100 --> 01:11:43,100
reserve. It usually has three layers

1411
01:11:43,100 --> 01:11:46,601
representing reserve. Here you see to

1412
01:11:49,100 --> 01:11:50,100
utilize those first two layers of the

1413
01:11:50,100 --> 01:11:53,100
reserve from 27 to 32. We begin

1414
01:11:53,100 --> 01:11:56,100
replenishing them in 2034 where the

1415
01:11:59,100 --> 01:12:01,100
reserve is at its full three layer spot

1416
01:12:01,100 --> 01:12:03,100
and fully restored. There is risk with

1417
01:12:03,100 --> 01:12:07,201
this plan, I want to be fully

1418
01:12:09,100 --> 01:12:11,401
transparent, there's long-term risk

1419
01:12:13,100 --> 01:12:14,100
that represents METRO's ability to pay

1420
01:12:14,100 --> 01:12:15,100
back non-referendum borrowing within a

1421
01:12:15,100 --> 01:12:18,100
five-year window. In this projection,

1422
01:12:18,100 --> 01:12:22,201
we do utilize the borrowing, And then

1423
01:12:25,100 --> 01:12:26,100
we pay some of it back in 2030 and 2031

1424
01:12:26,100 --> 01:12:27,100
but we don't pay all of it back. That

1425
01:12:27,100 --> 01:12:30,601
is the liability. The unpaid balance

1426
01:12:32,100 --> 01:12:35,601
projected is 105 million. I want to

1427
01:12:41,100 --> 01:12:42,100
focus on that long-term or long-range

1428
01:12:42,100 --> 01:12:47,401
risk and put it in some light here. The

1429
01:12:48,100 --> 01:12:49,100
$105 million risk will effectively go

1430
01:12:49,100 --> 01:12:53,801
away if there's a change of opinion. On

1431
01:12:54,100 --> 01:12:55,100
[Indiscernible]. Also, if we look at

1432
01:12:55,100 --> 01:12:58,601
our operating budget, we can perform

1433
01:13:00,100 --> 01:13:01,100
our operating budget with a two percent

1434
01:13:01,100 --> 01:13:02,100
under run during those years, we can

1435
01:13:02,100 --> 01:13:05,601
tackle that. On average we usually

1436
01:13:08,100 --> 01:13:12,201
under run the operating budget by six

1437
01:13:13,100 --> 01:13:14,100
percent. These are mitigating options

1438
01:13:14,100 --> 01:13:16,100
of course their sales tax, that allows

1439
01:13:16,100 --> 01:13:20,100
for more resources to apply and a

1440
01:13:20,100 --> 01:13:23,100
discussion topic earlier, when we find

1441
01:13:23,100 --> 01:13:26,100
ourselves with more resources, it's a

1442
01:13:26,100 --> 01:13:30,201
question to consider what we do. One

1443
01:13:33,100 --> 01:13:34,100
idea is to pay off debt that if you

1444
01:13:34,100 --> 01:13:35,100
issue debt later remise will not issue

1445
01:13:35,100 --> 01:13:37,100
later debt, Keep the money and use it

1446
01:13:37,100 --> 01:13:38,100
for what you're going to use the

1447
01:13:38,100 --> 01:13:41,601
issuance for. Another is replenish the

1448
01:13:43,100 --> 01:13:46,100
reserve, this is just a scenario, there

1449
01:13:46,100 --> 01:13:47,100
will be some decisions as we work our

1450
01:13:47,100 --> 01:13:49,100
way through these years on how we want

1451
01:13:49,100 --> 01:13:53,100
to navigate. . We talked in the past

1452
01:13:53,100 --> 01:13:55,401
about the operating budget

1453
01:13:58,100 --> 01:13:59,100
sustainability a good measure to keep

1454
01:13:59,100 --> 01:14:03,100
it capped at the net sales tax. Right

1455
01:14:03,100 --> 01:14:04,100
now with our conditions from last year

1456
01:14:04,100 --> 01:14:05,100
to this year we had $1 billion for

1457
01:14:05,100 --> 01:14:08,601
funding envelope. That would not, the

1458
01:14:10,100 --> 01:14:11,100
practice would not be feasible until

1459
01:14:11,100 --> 01:14:14,100
2032. so, what I'm leaving you with, we

1460
01:14:14,100 --> 01:14:17,601
can navigate this, identify the risk,

1461
01:14:18,100 --> 01:14:21,100
the long-term risk, and lock-in changes

1462
01:14:21,100 --> 01:14:25,201
now and then. Next slide please. Here's

1463
01:14:27,100 --> 01:14:30,601
our timeline again, The draft budget

1464
01:14:31,100 --> 01:14:32,100
book reflecting the numbers from the

1465
01:14:32,100 --> 01:14:34,100
last workshop is posted. It will

1466
01:14:34,100 --> 01:14:38,201
continue to be posted for another week.

1467
01:14:40,100 --> 01:14:41,100
We can make updates to reflect

1468
01:14:41,100 --> 01:14:42,100
discussions in the workshop and other

1469
01:14:42,100 --> 01:14:44,100
feedback we received, One week from

1470
01:14:44,100 --> 01:14:45,100
today on Wednesday, September 9 we will

1471
01:14:45,100 --> 01:14:49,201
have the public hearing. At the board

1472
01:14:52,100 --> 01:14:53,100
meeting on September 24 we would need

1473
01:14:53,100 --> 01:14:55,100
final approval and passage of the 27

1474
01:14:55,100 --> 01:14:56,100
budget. This concludes the project

1475
01:14:56,100 --> 01:14:59,100
workshop presentation. We can answer

1476
01:15:02,100 --> 01:15:03,100
any additional questions

1477
01:15:03,100 --> 01:15:04,100
>> Are there any final questions? This

1478
01:15:04,100 --> 01:15:08,201
is Director Ponce. George, can we make

1479
01:15:10,100 --> 01:15:11,100
sure I think you just mentioned forgive

1480
01:15:11,100 --> 01:15:16,100
me if I missed it, can we make sure

1481
01:15:16,100 --> 01:15:17,100
this new budget proposal is uploaded

1482
01:15:17,100 --> 01:15:19,100
ahead of time before the next public

1483
01:15:19,100 --> 01:15:22,601
hearing next week. Absolutely. With the

1484
01:15:27,100 --> 01:15:28,100
boards concurrence we will update

1485
01:15:28,100 --> 01:15:31,100
what's posted to reflect what we

1486
01:15:31,100 --> 01:15:35,201
presented, did not want to update until

1487
01:15:36,100 --> 01:15:37,100
we ran it by the workshop

1488
01:15:37,100 --> 01:15:38,100
>> Thank you I want to make sure the

1489
01:15:38,100 --> 01:15:42,801
public has time to review it, that can

1490
01:15:44,100 --> 01:15:45,100
be done before the end of the week for

1491
01:15:45,100 --> 01:15:46,100
sure

1492
01:15:46,100 --> 01:15:49,100
>> Are there any other questions?

1493
01:15:51,100 --> 01:15:54,601
>>, I'm looking at this two different

1494
01:15:55,100 --> 01:15:59,201
topics We have to adopt the FY 27

1495
01:16:04,100 --> 01:16:05,100
budget but be cognizant of the 45 year

1496
01:16:05,100 --> 01:16:06,100
risk concerns I have concerns regarding

1497
01:16:06,100 --> 01:16:07,100
the debt restriction. Taking a look at

1498
01:16:07,100 --> 01:16:09,100
the budget book that was posted, one of

1499
01:16:09,100 --> 01:16:12,601
the earlier speakers mentioned, we are

1500
01:16:14,100 --> 01:16:15,100
optimistic in the O and M budget

1501
01:16:15,100 --> 01:16:18,601
staying at $1 billion. In reviewing the

1502
01:16:25,100 --> 01:16:26,100
capital replacement state of good

1503
01:16:26,100 --> 01:16:27,100
repair were way optimistic to zero out

1504
01:16:27,100 --> 01:16:28,100
some categories cleaning services stuff

1505
01:16:28,100 --> 01:16:30,100
like that. At the same time looking at

1506
01:16:30,100 --> 01:16:34,801
the last slide we saw from staff, over

1507
01:16:35,100 --> 01:16:36,100
the next five years we have zero room

1508
01:16:36,100 --> 01:16:39,100
for error, zero. The reserves are gone.

1509
01:16:39,100 --> 01:16:42,100
The reserves are gone. Overly

1510
01:16:43,100 --> 01:16:46,100
optimistic on the operating budget.

1511
01:16:48,100 --> 01:16:49,100
Overly optimistic on what it will take

1512
01:16:49,100 --> 01:16:53,100
to maintain the service of that with

1513
01:16:53,100 --> 01:16:54,100
our CIP going down with the state of

1514
01:16:54,100 --> 01:16:57,601
good repair safety security. If there's

1515
01:17:01,100 --> 01:17:02,100
a way we could adopt the FY 27 budget

1516
01:17:02,100 --> 01:17:03,100
but hold off on the restructuring is my

1517
01:17:03,100 --> 01:17:04,100
recommendation because over the next

1518
01:17:04,100 --> 01:17:07,601
five years having zero contingency to

1519
01:17:08,100 --> 01:17:12,100
handle anything. We are in the Houston

1520
01:17:12,100 --> 01:17:15,601
area. We have events every year,

1521
01:17:16,100 --> 01:17:17,100
hurricane Harvey last time we dipped in

1522
01:17:17,100 --> 01:17:20,100
was because her hurricane Harvey. It's

1523
01:17:20,100 --> 01:17:23,100
a very risky proposition for the

1524
01:17:23,100 --> 01:17:27,100
agency. If we approve this we heard

1525
01:17:27,100 --> 01:17:28,100
from the financial advisor the negative

1526
01:17:28,100 --> 01:17:32,801
outlook will likely be put on METRO. To

1527
01:17:34,100 --> 01:17:35,100
have zero contingency over the next

1528
01:17:35,100 --> 01:17:36,100
five years with overly optimistic O and

1529
01:17:36,100 --> 01:17:37,100
M budget and CIP, that's a lot of risk

1530
01:17:37,100 --> 01:17:40,601
for the agency. If there's a

1531
01:17:49,100 --> 01:17:50,100
middle ground to where we adopt FY 27

1532
01:17:50,100 --> 01:17:51,100
budget making difficult decisions but

1533
01:17:51,100 --> 01:17:52,100
have more time to look at sales tax

1534
01:17:52,100 --> 01:17:55,100
projections that could be optimistic,

1535
01:17:56,100 --> 01:17:57,100
get more clarity on what we are going

1536
01:17:57,100 --> 01:17:58,100
to be able to maintain in future years

1537
01:17:58,100 --> 01:17:59,100
with lower numbers in the budget book,

1538
01:17:59,100 --> 01:18:02,601
it's probably what I would recommend.

1539
01:18:03,100 --> 01:18:05,100
>> Okay thank you.

1540
01:18:08,100 --> 01:18:12,201
>> I would like some clarity on the

1541
01:18:13,100 --> 01:18:16,601
restructuring. Is this, we approve the

1542
01:18:19,100 --> 01:18:23,801
budget, is this just an option for us

1543
01:18:26,100 --> 01:18:27,100
and still have to cut back and improve

1544
01:18:27,100 --> 01:18:30,100
the restructuring if we chose to do a

1545
01:18:30,100 --> 01:18:32,401
restructuring? Procedurally so we

1546
01:18:36,100 --> 01:18:37,100
understand, are we by adopting this

1547
01:18:37,100 --> 01:18:40,100
tying our hands or as Director Trevino

1548
01:18:40,100 --> 01:18:42,100
said, It gives us an opportunity to

1549
01:18:42,100 --> 01:18:44,100
monitor to see if we need to pull the

1550
01:18:44,100 --> 01:18:45,100
trigger?

1551
01:18:45,100 --> 01:18:48,100
>> So, we ran scenarios where we did

1552
01:18:48,100 --> 01:18:51,601
not do restructuring, We ran scenarios

1553
01:18:56,100 --> 01:18:57,100
where we use less reserves but

1554
01:18:57,100 --> 01:18:58,100
ultimately the feedback we are hearing,

1555
01:18:58,100 --> 01:18:59,100
is service was up most you want to

1556
01:18:59,100 --> 01:19:03,100
preserve service. In order for us to

1557
01:19:03,100 --> 01:19:05,100
have the 1.015 budget

1558
01:19:05,100 --> 01:19:08,601
presented, there is no other option.

1559
01:19:12,100 --> 01:19:13,100
>> Let me restate that differently

1560
01:19:13,100 --> 01:19:14,100
>> Chair I think I get your question.

1561
01:19:14,100 --> 01:19:19,401
We will have to come back. We will come

1562
01:19:22,100 --> 01:19:23,100
back for the approval to take those

1563
01:19:23,100 --> 01:19:24,100
actions

1564
01:19:24,100 --> 01:19:25,100
>> So again thank you for that clarity,

1565
01:19:25,100 --> 01:19:26,100
procedurally we understand we have to

1566
01:19:26,100 --> 01:19:30,801
come back. , But also it gives us an

1567
01:19:31,100 --> 01:19:32,100
opportunity let's say the projections

1568
01:19:32,100 --> 01:19:36,801
are far better than we expect, then we

1569
01:19:42,100 --> 01:19:43,100
could at that time determine whether

1570
01:19:43,100 --> 01:19:44,100
this is necessary or not is that

1571
01:19:44,100 --> 01:19:45,100
correct statement

1572
01:19:45,100 --> 01:19:46,100
>> That is correct

1573
01:19:46,100 --> 01:19:47,100
>> That leads me to my next question.

1574
01:19:47,100 --> 01:19:52,100
In this budget, I see a lot of what is

1575
01:19:52,100 --> 01:19:54,401
reflected in projections. Those

1576
01:19:58,100 --> 01:19:59,100
projections can either be accurate or

1577
01:19:59,100 --> 01:20:02,100
they could be slightly off, it gives us

1578
01:20:02,100 --> 01:20:03,100
an opportunity to evaluate that. So

1579
01:20:03,100 --> 01:20:07,100
having said that, it also gives us an

1580
01:20:07,100 --> 01:20:11,201
opportunity to set some goals and to

1581
01:20:12,100 --> 01:20:15,100
utilize the tools in our toolbox to

1582
01:20:15,100 --> 01:20:18,100
actually improve ridership, to improve

1583
01:20:23,100 --> 01:20:24,100
optimization, setting goals in place to

1584
01:20:24,100 --> 01:20:28,100
help us out of this and we don't just

1585
01:20:28,100 --> 01:20:32,100
allow this to happen to ourselves. If

1586
01:20:32,100 --> 01:20:35,100
we are not just tied to sales tax, if

1587
01:20:35,100 --> 01:20:38,100
we are not just tied to farebox

1588
01:20:38,100 --> 01:20:39,100
collection, are there are other

1589
01:20:39,100 --> 01:20:42,100
opportunities for us to look at as we

1590
01:20:42,100 --> 01:20:45,601
continue to monitor how our financial

1591
01:20:49,100 --> 01:20:50,100
situation looks

1592
01:20:50,100 --> 01:20:53,601
>>Good comments, thank you. Any other

1593
01:20:57,100 --> 01:20:59,100
questions?

1594
01:20:59,100 --> 01:21:03,201
>>so, to piggyback, knowing there is a

1595
01:21:04,100 --> 01:21:05,100
public hearing on the budget on

1596
01:21:05,100 --> 01:21:06,100
September 9 next week, just wanted to

1597
01:21:06,100 --> 01:21:11,401
check in with METRO as to how we have

1598
01:21:14,100 --> 01:21:15,100
been actively engaging and reaching out

1599
01:21:15,100 --> 01:21:19,801
to people to come manway in person, Or

1600
01:21:31,100 --> 01:21:32,100
via email how we are collecting

1601
01:21:32,100 --> 01:21:33,100
feedback so they can participate in the

1602
01:21:33,100 --> 01:21:34,100
process

1603
01:21:34,100 --> 01:21:35,100
>> Meredith

1604
01:21:35,100 --> 01:21:36,100
>> Our public engagement team regularly

1605
01:21:36,100 --> 01:21:37,100
encourages community members to come

1606
01:21:37,100 --> 01:21:38,100
and speak at meetings. It's a regular

1607
01:21:38,100 --> 01:21:39,100
practice that is part of talking points

1608
01:21:39,100 --> 01:21:40,100
every time they attend a meeting or go

1609
01:21:40,100 --> 01:21:43,100
to an event. We are tracking feedback

1610
01:21:43,100 --> 01:21:44,100
that comes across social media and to

1611
01:21:44,100 --> 01:21:47,100
the emails constantly. Our group has

1612
01:21:47,100 --> 01:21:49,100
just started organizing by topic so we

1613
01:21:49,100 --> 01:21:52,100
can compare, negative sentiments on

1614
01:21:56,100 --> 01:21:57,100
this positive on this and we are to

1615
01:21:57,100 --> 01:21:58,100
making lifetime adjustments based on

1616
01:21:58,100 --> 01:21:59,100
feedback. , The place it is valuable

1617
01:21:59,100 --> 01:22:05,100
with MPD we see a lot of feedback in a

1618
01:22:07,100 --> 01:22:08,100
certain area and immediately alert the

1619
01:22:08,100 --> 01:22:09,100
chief and let him know things need

1620
01:22:09,100 --> 01:22:13,201
cleaned up or changed. In terms of

1621
01:22:15,100 --> 01:22:16,100
coming to share they are talking about

1622
01:22:16,100 --> 01:22:17,100
the budget to people and encouraging

1623
01:22:17,100 --> 01:22:19,100
them to come speak at any board

1624
01:22:19,100 --> 01:22:20,100
meeting.

1625
01:22:20,100 --> 01:22:24,100
>> Any other questions? I want to thank

1626
01:22:24,100 --> 01:22:25,100
everybody. I know this is an extra

1627
01:22:25,100 --> 01:22:28,601
budget workshop, we had some good

1628
01:22:29,100 --> 01:22:32,100
discussion and some decisions to think

1629
01:22:32,100 --> 01:22:34,100
about. We've got another three weeks or

1630
01:22:34,100 --> 01:22:38,801
so. I encourage you to reach out. I

1631
01:22:39,100 --> 01:22:40,100
know we've had some briefings and we

1632
01:22:40,100 --> 01:22:43,100
will continue to do so if it is

1633
01:22:43,100 --> 01:22:44,100
required.

1634
01:22:44,100 --> 01:22:45,100
>> I want to make a quick comment.

1635
01:22:45,100 --> 01:22:48,601
Thank you for having this additional

1636
01:22:49,100 --> 01:22:50,100
workshop, thank you for taking the time

1637
01:22:50,100 --> 01:22:52,100
to brief all the board members on what

1638
01:22:52,100 --> 01:22:56,201
would be presented today. Thank you for

1639
01:22:59,100 --> 01:23:00,100
giving us the opportunity to ask

1640
01:23:00,100 --> 01:23:01,100
additional questions and for people to

1641
01:23:01,100 --> 01:23:03,100
give additional input. Thank you very

1642
01:23:03,100 --> 01:23:04,100
much Chair

1643
01:23:04,100 --> 01:23:07,100
>> Thank you everybody, especially the

1644
01:23:07,100 --> 01:23:11,201
finance team I know you've been working

1645
01:23:12,100 --> 01:23:13,100
overtime.

1646
01:23:13,100 --> 01:23:15,100
>> Board Member Preston. I was going to

1647
01:23:15,100 --> 01:23:18,100
hold back I know you are closing out .

1648
01:23:18,100 --> 01:23:23,100
I guess I just wanted to be clear you

1649
01:23:23,100 --> 01:23:27,201
are asking us to accept this budget,

1650
01:23:28,100 --> 01:23:32,201
the adoption of the 2027. Is that the

1651
01:23:34,100 --> 01:23:37,100
package restructuring and the budget?

1652
01:23:38,100 --> 01:23:40,100
That is the package you want us to

1653
01:23:40,100 --> 01:23:44,801
accept? Yes in short. In order for us

1654
01:23:46,100 --> 01:23:47,100
to pass the budget you just heard, the

1655
01:23:47,100 --> 01:23:50,601
borrowing and restructuring use of fund

1656
01:23:54,100 --> 01:23:55,100
reserves it will require a suspension

1657
01:23:55,100 --> 01:23:56,100
of the Capping operating budget to

1658
01:23:56,100 --> 01:23:59,100
sales tax. Without those items, the

1659
01:23:59,100 --> 01:24:02,100
budget presented would have to be

1660
01:24:02,100 --> 01:24:03,100
smaller.

1661
01:24:03,100 --> 01:24:07,801
>> Again, if you don't mind, I want to

1662
01:24:08,100 --> 01:24:12,100
cover, we will be back to the board

1663
01:24:12,100 --> 01:24:14,100
with more information as time goes. We

1664
01:24:14,100 --> 01:24:17,100
will have greater knowledge. And

1665
01:24:19,100 --> 01:24:20,100
hopefully if new clarity on

1666
01:24:20,100 --> 01:24:23,100
assumptions. and, that will be a

1667
01:24:23,100 --> 01:24:25,401
separate action. The debt

1668
01:24:30,100 --> 01:24:31,100
restructuring. This is a budget

1669
01:24:31,100 --> 01:24:32,100
proposal that would make those

1670
01:24:32,100 --> 01:24:35,100
assumptions. However, it is not the

1671
01:24:35,100 --> 01:24:39,801
action to trigger that. We will be back

1672
01:24:41,100 --> 01:24:42,100
for those actions

1673
01:24:42,100 --> 01:24:46,801
>> I think I heard earlier, it could be

1674
01:24:47,100 --> 01:24:50,601
delayed. We might consider the bond

1675
01:24:51,100 --> 01:24:52,100
restructuring within the next few

1676
01:24:52,100 --> 01:24:56,201
months but we could also delay if

1677
01:25:00,100 --> 01:25:01,100
needed if we thought it was something

1678
01:25:01,100 --> 01:25:02,100
we could do

1679
01:25:02,100 --> 01:25:03,100
>> [Indiscernible]

1680
01:25:03,100 --> 01:25:05,100
>>Well I think George laid it out

1681
01:25:05,100 --> 01:25:08,100
pretty well. There's a lot of risk

1682
01:25:08,100 --> 01:25:12,201
involved here. and, that's what we are

1683
01:25:13,100 --> 01:25:17,801
paid the big bucks for, to analyze the

1684
01:25:20,100 --> 01:25:21,100
risk, this group this organization to

1685
01:25:21,100 --> 01:25:25,100
accept the risk. If we do that, we will

1686
01:25:25,100 --> 01:25:29,201
live with this, that also obligates us

1687
01:25:31,100 --> 01:25:32,100
to watch this very closely for the next

1688
01:25:32,100 --> 01:25:37,100
year to be sure it works. And when we

1689
01:25:37,100 --> 01:25:39,100
see it is not working, this bunch at

1690
01:25:39,100 --> 01:25:42,100
this table, like Roberto has been doing

1691
01:25:42,100 --> 01:25:44,100
for us, is to call them on the carpet

1692
01:25:44,100 --> 01:25:48,801
for it, and say this is not working

1693
01:25:51,100 --> 01:25:52,100
folks, we are doing it but it's not

1694
01:25:52,100 --> 01:25:53,100
working what are we going to do? That's

1695
01:25:53,100 --> 01:25:54,100
us right here

1696
01:25:54,100 --> 01:25:56,100
>> Thank you. Again thanks to everyone

1697
01:25:56,100 --> 01:25:59,601
for the comments. This meeting is

1698
01:26:00,100 --> 01:26:02,100
adjourned thank you.