[0:03] >> It is 1:03. We are going to start our
[0:08] meeting for the fiscal year 2027 budget
[0:13] workshop. This is an extra budget
[0:14] workshop we are meeting based on
[0:16] questions we had at our last workshop.
[0:22] So we've updated the board presentation
[0:23] to address concerns and questions raised
[0:29] And briefed board members with
[0:30] Requested information for discussion
[0:31] and deliberation at today's budget
[0:32] workshop. The financial advisor and
[0:34] board Council will advise on METROs
[0:35] authority to restructure debt and
[0:38] potential impacts to METRO's credit
[0:42] rating. We are going to start with
[0:47] George Fotinos
[0:48] >> Excuse me we are going to do public
[0:49] comment first. We have four public
[0:50] speakers registered. The first speaker
[0:58] is Robin Heltzer
[0:59] >>Hi there good afternoon. My name is
[1:08] Robin Heltzer. I'm the Executive
[1:11] Director of Link Houston. Since 2017
[1:17] link staff and volunteers have worked
[1:18] with communities to advocate for a more
[1:20] robust equitable transportation system
[1:25] So all Houstonians can access
[1:31] opportunities. We know that the places
[1:32] we build great transit Houstonians ride
[1:34] it and that's why we are here during
[1:35] budget season. For any of us, our
[1:39] budget is a statement of our values, It
[1:45] reflects our priorities and also
[1:46] reflects the trade-offs we are willing
[1:47] to accept. Let's start with priorities.
[1:48] Since 2017, link has surveyed riders to
[1:53] learn what they value. Every year
[1:56] frequency of service and
[2:00] reliability are the top two concerns we
[2:01] hear about. 38 percent of riders want
[2:05] to spend less time waiting for the next
[2:06] bus or train. 37 percent of riders want
[2:12] to trust their trip will their travel times
[2:13] Will be predictable and consistent. What
[2:15] does that look like in your budget? It
[2:18] means investing in more vehicles, not
[2:26] only to replace the aging fleet but to
[2:27] grow the fleet so you have the rolling
[2:28] stock to offer more service. It also
[2:29] looks like capital dollars which
[2:32] METRONext voters approved for projects
[2:33] like boost which make very tactical street
[2:40] improvements that make it easier for
[2:41] you to get buses where they are going
[2:42] on time. Let's talk about trade-offs.
[2:47] This budget draft Hints at service
[2:51] cuts from 26 to 27 of order of
[2:53] magnitude $22 million. This budget also
[3:01] includes a proposal to divert $40
[3:02] million or so from our transit budget
[3:03] off to local street projects, in
[3:08] addition to and on top of our general
[3:09] mobility commitments. I urge you as
[3:12] board members to be very reluctant to
[3:14] accept service cuts, At the same time
[3:22] we are diverting transit dollars to
[3:23] other things not about the core service
[3:24] to riders you serve. Budget work for
[3:30] organization this size is incredibly
[3:31] Hard work and super detailed. We
[3:34] urge you to keep asking detailed
[3:38] questions and to really weigh any of the
[3:42] trade-offs you are weighing against how
[3:43] they will impact your daily bus and
[3:44] rail riders, not just this year but
[3:45] over the years ahead. If you have not
[3:51] heard it lately, thank you for your
[3:53] service.
[3:58] >> Thank you the next speaker is
[4:00] virtual Jeffrey Lecour
[4:22] >>Good afternoon. Good afternoon. My
[4:29] name is Jeffrey Lecour. I recently retired
[4:30] after 25 years as a budget analyst and
[4:33] managed a budget. As METRO enters 2027,
[4:45] I believe we are at another moment
[4:47] Where long term pressures are
[4:49] Beginning to converge. Trends suggest
[4:51] That METRO may benefit from a
[4:53] Deeper structural view to ensure
[4:54] Long term sustainability.
[4:55] First operating costs, METROs
[4:56] operating budget exceeds $1 billion per
[4:58] year, operating costs rise faster than
[5:00] revenue, the current five year plan
[5:01] Holds operating spending flat $1 billion
[5:02] each year my experience that is
[5:04] extremely difficult to achieve without
[5:05] meaningful changes in service levels
[5:21] workforce structure nonlabor spending
[5:22] this means the assumptions deserve
[5:23] Careful review. Second, the capital
[5:24] Budget. The proposed
[5:27] five-year capital budget is reduced by
[5:30] more than $1.2 billion roughly 50
[5:32] percent compared to last year this is a
[5:36] very large reduction in past cycles
[5:38] when capital was constrained METRO
[5:39] could still fund the bare minimum
[5:40] state of good repair.
[5:42] Today needs are larger especially with
[5:43] the aging rail fleet and other
[5:44] facilities approaching critical
[5:45] lifecycle milestones. Third, Cash
[5:47] Reserves. Now that the FIFA
[5:48] World Cup commitments are behind us,
[5:50] METRO cash reserves are lower than in
[5:55] prior years, that makes it even more
[5:57] important to ensure the long-term plan
[6:00] is structurally sound and resilient to
[6:03] economic changes. Given these pressures
[6:04] I recommend METRO consider a zero based
[6:10] budgeting review That would allow the
[6:13] board and staff to look holistically at
[6:14] all options including service levels
[6:15] workforce structure hiring and salary
[6:16] practices fare policy
[6:18] non-labor efficiency and debt
[6:21] restructuring. These are all tools
[6:22] METRO has used successfully in the past.
[6:28] On the capital side I encourage a
[6:29] review of all projects using Tier 1
[6:33] state of good repair [Indiscernible]
[6:34] which align directly with essential
[6:35] needs which include rail and bus fleet
[6:37] replacement rail infrastructure state
[6:41] of good repair bus garages and rail
[6:42] operation facilities nonrevenue fleet
[6:45] ADA safety and security. These are all
[6:51] categories, these are the categories
[6:53] METRO must fund to remain compliant
[6:55] with federal requirements and safe
[6:59] operation. I recognize that major
[7:03] changes to the 2027 budget before the
[7:04] September board meeting is a major
[7:06] undertaking even if the board approves
[7:07] the current budget I believe it would
[7:10] be valuable to begin a deeper
[7:11] structure review immediately afterward
[7:15] This is a defining moment for METRO's
[7:20] Long term sustainability. There is time to
[7:21] address these issues but the window
[7:23] narrows each year. Thank you for your
[7:24] time and for your leadership.
[7:39] >> Thank you. The next speaker is
[7:40] Daniel Aragon
[7:41] >>Good afternoon
[7:42] >> Good afternoon Board members my name
[7:49] is Daniel, I am here as a METRO rider,
[7:54] not with any group or anybody just me
[7:57] as a rider. As I've been watching
[7:58] these board meetings and budget
[8:00] meetings I've had many concerns. I
[8:12] don't understand everything being said
[8:13] I'm not a finance person but I'm
[8:14] hearing very concerning a lot of the
[8:15] financial issues I understand you are
[8:16] having or not your fault, they are way
[8:17] out of your control. There are some
[8:18] things you can do for example, the $40
[8:20] million meant for road improvements
[8:23] over the last couple years This is
[8:26] something I see METRO invest in. It is
[8:31] very frustrating. Public transit is so
[8:32] underfunded in our state. To see even a
[8:35] single dollar being spent on road
[8:39] Improvements with no real benefit to
[8:42] transit, it's upsetting and
[8:45] frustrating. Buses are still stuck in
[8:49] traffic. But the roads are repaved.
[8:52] There is no difference, as Board Member
[8:55] Trevino said in the past committee
[8:56] meeting, There is no real benefit to
[9:01] the buses and transit riders. The
[9:04] second thing is the service cuts being
[9:09] proposed. From my understanding, as
[9:11] Board Member Moralis said, core
[9:14] services were not going to be affected.
[9:17] But buses and trains, from what I read
[9:20] in the Houston Chronicle, are maybe
[9:22] going to be reduced. Which is
[9:28] frustrating. Two years ago maybe you're
[9:31] tired of hearing this but it's so
[9:32] frustrating to years ago we were told,
[9:38] METRONext was too expensive we don't
[9:39] have a next money we can build anymore
[9:40] okay fine let's focus on the bus. Now
[9:41] we are told we don't have money for
[9:43] that. As a transit rider, I think we
[9:47] can all agree transit in Houston is not
[9:54] the best. It's very frustrating to see
[9:55] this happening. The third thing is
[9:56] public engagement. There's been no
[10:00] public engagement, I follow along
[10:01] what's happening here at the county and
[10:04] city, most people would not know that
[10:05] METRO is working on its budget. People
[10:09] deserve to know service cuts are being
[10:13] proposed. This budget is different from
[10:14] the past years. I've been following
[10:17] METRO for many years now. People need
[10:19] to know what's happening. $2 billion of
[10:25] taxpayer money is too much money for a
[10:26] few people to decide what should be
[10:30] done. Too much money for unelected
[10:31] people to decide what should be done
[10:34] with. Thank you
[10:38] >> Thank you. Dominic Maisoc
[10:39] >> Madam Chair do you mind if I address
[10:42] that. I think there is something we
[10:49] need to share. That is based on
[10:50] feedback the latest version of this
[10:52] budget proposal you see today
[10:56] eliminates even the small amount that
[10:59] was being looked at as a potential
[11:02] change in service in the future.
[11:07] Today's budget is 1,015,000,000. A lot
[11:13] of the concerns that have been raised I
[11:14] want to make sure we address that going
[11:16] Here at the start thank you
[11:17] >> I'm in the boardroom. First I have
[11:21] to ask a question how many people in
[11:23] this room have read completely board
[11:32] resolution 2017 71, 19, 2019 71. How
[11:37] many have read that? That is METRONext.
[11:45] If you are going to be up here
[11:46] supporting or going against METRONext,
[11:48] you need to be knowledgeable of the
[11:52] document. It's on the website so I
[11:54] mean.... And I want to read a line
[11:58] here. This is from Exhibit A first
[12:02] paragraph METRONext comprehensive plan
[12:03] includes the acquisition construction
[12:05] repair equipping improving or extension
[12:07] of METRO transit system. METRONext is
[12:11] suspected to include Some or all of the
[12:15] Following and they give a list. Later on
[12:21] it says we have to watch the budget.
[12:27] George, last year about this time we
[12:28] were discussing this year's budget. You
[12:29] were already saying at that point, we
[12:32] have to watch what's happening. You
[12:36] really did not want to push things too
[12:37] much because of FIFA. I have to give
[12:40] you credit for that you said that a
[12:43] year ago. I do think Roberto Holly,
[12:51] Mayor Fry if this $40 million transfer
[12:55] is done to the city of Houston outside
[12:58] of the general mobility payments I
[13:03] think all three of you and I'm thinking
[13:04] of myself going to the county attorney
[13:07] And talking to her If this is right this
[13:12] is beyond. METRO needs to redo its bus
[13:22] system. I ride the 35 from here and it
[13:25] goes past, it goes down West Gray. It
[13:32] goes by the Metropolitan center, which
[13:38] a lot of people use it for their
[13:39] exercise get fund get out. My question
[13:42] is nobody is riding it. I think there
[13:46] are places in the system where we need
[13:50] a readjustment maybe that could be a
[13:51] curb2curb service or a community
[13:57] connector, might be a more available
[13:58] system for that. I think, too, this
[14:04] meeting should have been done two
[14:05] months ago. Because you are talking
[14:08] about cutting service, this is
[14:13] something, like the other person said,
[14:16] needs to be put before the community
[14:17] now. With that, also Bob, I do agree
[14:30] with you we do need [Indiscernible]
[14:31] with that thank you I'm out of time
[14:32] >> Director Morales this concludes the
[14:34] public speakers
[14:35] >> Thank you to all the public speakers
[14:36] for being here today. At this point we
[14:39] will start the briefing on the fiscal
[14:40] year 27 budget workshop, George?
[14:41] >> Thank you Chair Morales
[14:42] >> Before you go George I want to add
[14:48] something Chair Morales. The issue of
[14:54] service changes has been brought up a
[14:55] few different times. I want to make it
[14:58] clear this is a budget, this is not the
[15:01] process for service changes. This is
[15:06] making assumptions as to what will be
[15:07] available in the budget. We have a
[15:11] regular process for addressing service
[15:15] changes that we have done multiple
[15:19] times, we increase service a few
[15:20] different occasions this year, we
[15:21] changed some service. I say that
[15:27] because as we get into the discussion
[15:28] of service changes, while there is not
[15:32] any currently contemplated in the
[15:36] budget, that is handled completely
[15:37] separate from the budget process. We
[15:38] could do three times a year and that's
[15:43] intended to be the process we follow.
[15:48] >>.Thank you board Chair Brock and this
[16:09] is the fifth presentation to the
[16:10] budgeting cycle my name is George
[16:11] Fotinos METRO Chief Financial Officer
[16:12] kicking off the workshop presentation.
[16:13] Next slide please during the last
[16:14] budget workshop there were questions
[16:15] and requests for more information on
[16:18] METRO authority authorization issued
[16:20] debt, , the effects of the proposed
[16:22] restructuring how the reserve funds
[16:25] work, and more details on the proposed
[16:26] operating budget. There was a request
[16:29] for alternatives to consider. With the
[16:32] objective of covering all these items
[16:33] let's get started. First we will cover
[16:36] the topic of natural authorization to
[16:37] issue debt. [Indiscernible] METRO Board
[16:46] Council and bond Counsel will address
[16:47] the topic
[16:48] >> Thank you George. There are certain
[16:51] questions you want me to address? There
[16:54] was a question at the last workshop
[16:56] about some of the legalities, the
[16:59] governing code the statute that METRO
[17:04] had as it was planning budget since
[17:08] 2027 about the ability to issue
[17:09] non-referendum debt and the tenor of
[17:11] those debts and the assumption that we
[17:16] had and how that changed with the
[17:21] recent opinion
[17:22] >> Recent AG interactions. So, the
[17:27] existing policy as we understood it
[17:31] going back to about 2010, kind of the
[17:34] earliest memos I have seen, was that
[17:39] METRO had the ability to issue
[17:40] five-year bonds, I think that's under
[17:48] [Indiscernible]. I wanted to
[17:49] distinguish between new money bonds and
[17:50] bonds that refund existing debt. That
[17:53] particular statute relates to new money
[17:57] debt, METRO could issue new money debt
[17:58] for five years, that statute siloed
[18:01] the ability to refund the debt. The
[18:09] negotiation with the AG and I have more
[18:10] information than I've had in the last week
[18:16] the discussion with the AG was around
[18:17] once you issue the debt for five
[18:18] years, can you refund the debt? There's
[18:21] actually a provision in METRO's code
[18:32] that says refunding are done under 1207
[18:33] public Texas Government Code. We have
[18:34] done some digging, the original
[18:40] agreement was 5+5 so you
[18:43] could issue the new debt for five years
[18:44] and refund it for another five years.
[18:47] My understanding is that was actually a
[18:48] compromise made with the AG because under
[18:58] 1207, METRO has the ability to issue
[18:59] refunding debt for maturity of up to 40
[19:01] years. The AG saw that as a workaround
[19:09] of the five year limitation so what
[19:10] they said was you can issue debt for
[19:11] five years and refund it for another
[19:12] five years. We operated with that
[19:20] understanding. The earliest
[19:21] information I found where we
[19:22] Memorialized it was 2010, so the last 16 years.
[19:27] Went to the AG this year to authorize
[19:28] commercial paper. What they told us was
[19:34] that METRO was not going to be able to
[19:35] refund the debt for five years, that
[19:40] METRO could issue the commercial paper
[19:41] issue short-term notes for five years
[19:44] only. And the debt had to be retired
[19:45] within five years. That was a change
[19:49] from what we previously understood the
[19:50] rule to be and we've had ongoing
[19:53] discussions with the AG about that. We
[19:57] have worked on a memo to establish why
[20:03] we believe the existing policy should
[20:04] still be in place. But the discussions
[20:12] are ongoing
[20:13] >> Those discussions you have ongoing,
[20:16] how do you feel about that? do you
[20:17] think it could possibly change? We were
[20:18] joined by Chair Brock and Mr. Jasien,
[20:23] Eddie Miranda, we went up to Austin
[20:25] and visited with the
[20:29] head of public finance division and her
[20:30] direct supervisor. I would describe
[20:33] those conversations as productive. They
[20:37] were open to us submitting more
[20:38] information for them to consider.
[20:43] Obviously the term of this Attorney
[20:44] General ends at the end of this year.
[20:49] There will be an election in November.
[20:50] The impression I got they would
[20:53] consider it but probably would be
[20:57] reluctant to change their position in
[20:58] the short-term. But they encouraged us
[21:02] to continue to talk to them. They also
[21:07] said we could pursue changes during the
[21:08] Legislative Session. And after November
[21:13] obviously you have a new AG elect. They
[21:17] will probably be new executive staff
[21:19] and they encouraged us, once the
[21:23] election takes place to have some
[21:26] dialogue with the new administration.
[21:29] All right thank you any other
[21:31] questions? For clarity. 451 362 says
[21:39] non-referendum debt can go up to 10 years, I
[21:40] mean five, referendum debt can do 10.
[21:46] >> Referendum debt can do 40, whatever
[21:52] is in the referendum
[21:53] >> The challenge we have with this
[21:56] budget is we went non-referendum debt
[21:57] which we've never done before, we
[21:59] projected it for 10 years. The AG said you
[22:02] can only do it for five. So how does
[22:07] 102 tie into that direction in
[22:14] 451?
[22:15] >> I will let George speak to the
[22:16] implications of the change. But
[22:21] refunding bonds are done under 1207 of
[22:22] the Texas Government Code, that applies
[22:25] not to just METRO but other issuers.
[22:29] The definition of issuer is in 1207.
[22:32] How you reconcile them both has been an
[22:35] ongoing discussion. Arguably if you go
[22:41] to 1207 to refund in this case METRO's
[22:46] debt, what it says in the statute is
[22:47] debt can have a maturity of 40 years.
[22:50] The position AG took previously was we
[22:54] don't think it's right for you to issue
[22:55] five-year debt and have the ability to
[22:58] take it out for 40 years. It's an
[23:03] interpretation. It's a policy
[23:07] interpretation. What they said was you
[23:08] can issue it for five years and go to
[23:12] 1207, and issue refunding that because
[23:13] that's what the statute says but we are
[23:15] not going to approve that, it's longer
[23:17] than five years. That's how we
[23:27] operated. My recollection is we have
[23:28] not issued five-year debt and refunded
[23:29] it in the past. But that was the
[23:30] understanding we had. And then when we
[23:38] went to go do not Non-referendum debt
[23:40] as commercial paper we had the
[23:41] discussion around taking out the debt.
[23:46] That's when they told us with respect
[23:47] to non-referendum debt it had to be
[23:48] retired in five years.
[23:56] >> Our second topic of discussion is
[23:59] regarding the proposed restructuring.
[24:05] There are questions regarding the cost
[24:06] as well as risk to METRO's credit rating.
[24:12] Carlos Allen from PFM municipal and
[24:21] financial advisor will provide
[24:22] additional comments specifically on the
[24:23] credit risk.
[24:24] >> Carlos Allen PFM. so, the purpose of
[24:31] my presentation is to speak through
[24:32] three different things METRO is
[24:33] contemplating, debt restructuring, A
[24:37] plan drawdown of fund balance and
[24:38] possibly waving a policy. Sort of not
[24:48] to advocate for one or the other but
[24:49] make sure METRO Board and staff
[24:50] understand the credit rating
[24:51] implications of each one of the
[24:55] actions. so, right now METRO has a AAA
[24:56] bond rating. By S&P and
[25:04] [Indiscernible], one represents the
[25:05] highest bond rating available also has
[25:06] a reputational kind of feather in the
[25:08] cap of being the top notch from a
[25:13] financial standpoint and the ability to
[25:14] pay back debt holders. If you decide to
[25:16] go with the debt restructuring, The
[25:20] rating agency will ask themselves or
[25:21] ask METRO, is this for savings. Right
[25:28] now the restructuring we are looking at
[25:29] does not produce present value savings
[25:30] but does present cash flow savings in
[25:31] the next three years. We need to
[25:34] articulate how this restructuring puts
[25:36] us on a better footing. Also being
[25:41] considerate is a plan drawdown. If you
[25:45] ever have multiple years, of fund
[25:46] balance drawdown that is not associated
[25:49] with major capital projects, the rating
[25:53] agencies wonder if you are using
[25:57] operational fund balance to support
[26:05] operations. If so you need to come up
[26:06] with a plan that says you are going to
[26:07] wean yourself off of that or this is a
[26:08] one time deal. In addition to drawing
[26:11] down reserve funds of METRO root draws
[26:12] down reserve funds, you would have to
[26:15] waive or change your current reserve
[26:19] policies. The rating agencies would
[26:20] also look at this, where are you going
[26:23] to be at getting back to sustainability
[26:28] or where are you going to get to be
[26:29] where previous boards have recommended.
[26:32] None of those things in isolation
[26:33] trigger a downgrade but when you look
[26:39] at all those things you need be very
[26:40] careful with the message you are
[26:41] articulating to rating agencies. It
[26:42] needs to sound like one comprehensive
[26:46] plan, a plan that is also achievable
[26:47] and sustainable. Let's say worst-case
[26:52] scenario, you do all three of these
[26:53] things at the same time, the rating
[26:55] agencies feel this is negative. Not
[26:59] doing all three things is the worst
[27:00] case scenario, rating agency
[27:04] interpretation this is negative is the
[27:05] worst case scenario. That could trigger
[27:08] a ratings review or negative outlook.
[27:12] Over that time period for the next 6 to
[27:13] 18 months, The rating agencies monitor
[27:16] how your financials come in toward the
[27:23] budget, what systems or controls you
[27:24] put in place to control cost or
[27:25] replenish fund balances. If everything
[27:28] goes fine they change you back from
[27:29] negative to stable. If things further
[27:32] deteriorate you could see a downgrade
[27:33] down the road. One of the questions
[27:36] George asked me was to quantify what a
[27:39] downgrade could mean. They downgrade
[27:42] going from AAA to AA plus is about 3 to
[27:45] 5 basis points. On a $100 million bond
[27:54] transaction that could result in
[27:55] 500,000 to 800,000 interest cost over
[27:56] 30 years. That is ultimately the most,
[28:02] you would get downgraded and phased-in
[28:03] at a slightly higher interest rate
[28:07] cost.
[28:08] >> George did I miss anything you
[28:09] wanted me to cover? No I think you
[28:14] covered the concern about the credit
[28:17] rating as far as the different rating
[28:20] agencies. Are there any other questions
[28:21] from board members to cover
[28:23] specifically on the credit rating
[28:26] issue? This is Director Ponce, if we
[28:29] were to go to a downgrade, how long
[28:34] would it take us to get back to AAA
[28:39] status?
[28:40] >> I can't really speak for the rating
[28:42] agencies. I would not see you get
[28:43] downgraded in six months to a year, you
[28:46] would have to be on notice for a
[28:49] downgrade. And further deteriorate
[28:50] which would trigger the downgrade. Then
[28:53] the rating agencies are quicker to
[28:54] downgrade you then to upgrade you. If
[29:01] that process takes 18 months to get
[29:02] upgraded takes close to three years.
[29:06] They want to see two years of trends
[29:07] and then give you a positive outlook,
[29:10] And then we continued the trend for the
[29:11] Third year and we can get an upgrade. It
[29:23] could take you a year to 18 months to
[29:24] dig a hole and a minimum of three years
[29:25] to dig out of the hole.
[29:26] >>Are there any other questions? Just
[29:31] speaking to the board, your conclusion
[29:41] was it says [Indiscernible] it would
[29:42] not lead to an immediate downgrade,
[29:44] immediate downgrade is unlikely. But
[29:49] you said about the risk of a downgrade
[29:52] potentially. You said if we approve
[29:53] what was proposed today, the most
[29:58] adverse outcome is the assignment of a
[29:59] negative outlook. Do you stand by that
[30:09] conclusion? The highest likelihood if I
[30:10] have to put a weight of meaning no
[30:11] action downgrade negative outlook. I
[30:14] put the highest probability with a
[30:15] negative outlook at 40 percent. An
[30:18] equal weight to the other sides. But a
[30:22] negative outlook is an indication you
[30:23] are heading in the wrong direction. You
[30:25] don't get downgraded immediately. But
[30:30] that is the first step to a downgrade
[30:31] is the negative outlook is that
[30:34] correct? The downgrade is putting METRO
[30:36] on notice the downgrade could be
[30:39] forthcoming if either things don't
[30:42] stabilize or further deteriorate
[30:43] >> Okay thank you.
[30:47] >> Any other questions? Thank you
[30:57] Carlos. If there are no other questions
[30:58] we'll move on with the presentation. On
[31:01] this slide you see key points of the
[31:02] debt restructuring. First the interest
[31:04] rate on the debt will increase, , The
[31:09] interest payable through 2044 is 103
[31:13] million 52 million more than interest
[31:14] payable for the current debt. However
[31:17] the net present values of restructured
[31:18] interests will equate to 1.015,
[31:27] 1.25 million. in a few slides I will
[31:30] explain that more. following the slide
[31:35] the cost of transaction is 2.7 million,
[31:36] the estimated cost. Carlos covered the
[31:38] credit risk, expected to be updated,
[31:45] does the highest probability to a
[31:46] negative outlook but not a downgrade.
[31:49] If there were a downgrade that would be
[31:50] up to five basis points, a downgrade
[31:53] would not be financially catastrophic.
[32:00] On this slide we would need to plan the
[32:01] execution of the transaction to be
[32:02] completed by January February
[32:04] timeframe.
[32:05] >> One thing I went to mention on this
[32:11] chart, there was a Fed Chair made a
[32:15] statement earlier this week about
[32:16] possibility of increasing rates, at
[32:17] least one time this year, maybe two
[32:19] times next year. So that would impact
[32:22] this rate. It could possibly go up.
[32:26] Also increase our cost. but, something
[32:29] to think about is that if we did it by
[32:36] January, because I've been thinking if
[32:37] we should wait, it could possibly even
[32:40] increase later. This is something to
[32:42] think about. One thing I wanted to
[32:45] mention at this point. Thank you
[32:46] >> Next slide please. This shows some
[32:53] more details about the transaction. The
[32:58] first bar chart in quadrant one on the
[32:59] upper left slide highlights which parts
[33:03] of METRO current debt the restructuring
[33:04] will affect. The restructuring will
[33:07] change the terms of 40 percent of
[33:08] existing debt. That is the red piece of
[33:11] the bars you see. When we move to the
[33:19] next quadrant you see the high
[33:20] principal payments we are focusing on
[33:21] in the next four years. Then there is a
[33:22] sudden drop. Notice on the slide the
[33:24] final maturity date is 2044. Even
[33:27] though it goes to 2044, 17 years from
[33:30] now the average age of the debt is 3.8
[33:36] years. the third quadrant on the lower
[33:39] left shows proposed restructuring peak
[33:40] years of payments spread out evenly
[33:47] also notice on the slide final maturity
[33:48] is, 2044 we are adjusting the
[33:50] amortization of the debt. With the
[33:56] restructuring the average age moves
[33:57] from 3.8 years to 7.6 years. this is
[33:59] more information and understanding what
[34:06] the objective of how it will change our
[34:07] debt service schedule for next year.
[34:08] Next slide please. I mentioned earlier
[34:17] 52 million of interests between now and
[34:18] 2044 being equivalent of 1.25 million
[34:19] in today's dollars. this shows how I
[34:22] know there are a lot of numbers here.
[34:24] it's very clear when you break it out.
[34:26] to the left you have the years, to the
[34:30] second column you have METRO current
[34:31] debt service. This debt service is a
[34:33] schedule of existing debt. The next
[34:38] column shows new debt service schedule
[34:39] and what that would look like. The
[34:45] column after that with shade green and
[34:46] red is the difference between the old
[34:47] debt schedule and the new debt service
[34:48] schedule. The Delta, this Delta of the
[34:49] debt service changes between 130
[34:55] million between now and 2031, increases
[35:00] debt service by 182 million in the
[35:01] years after. If you add the payments up
[35:04] that's 52 million we are talking about.
[35:12] The last column to the right shows what
[35:13] happens to inflows and outflows when
[35:14] They are looked at in today's dollars. If you
[35:16] discount the changes in the debt
[35:17] service scheduled to account for
[35:20] inflation, add them up you get a total
[35:21] of 1.25 million. You can see the
[35:27] benefits of the green savings are more
[35:28] beneficial to us than the increase in
[35:29] out years of the increased debt service
[35:32] payments. Wanted to make sure that was
[35:34] clear, how we calculate that. The net
[35:37] present value number.
[35:42] >> Let's stop there and see if there
[35:43] are any questions? One question I had
[35:46] and maybe this might be a question for
[35:52] Carlos, if we restructure the debt does
[35:53] it impact our ability to go back to the
[35:56] market if we want to borrow in the
[36:00] future?
[36:01] >>It does not affect your ability to go
[36:07] into the market and sell any new debt. Now
[36:10] for the debt we restructure, even
[36:14] though we have not done the
[36:15] restructuring yet, We will put some
[36:18] type of call features and optionality
[36:19] in there. Typically we would not be
[36:24] able to refinance the debt for eight
[36:33] years if we do a market standard call
[36:34] in there but since it's not structured
[36:35] yet we can also structure this in a
[36:36] way that allows for flexibility and
[36:37] further tie METRO's hands in the
[36:41] future. If we put that option in there
[36:42] it may reduce overall savings, it may
[36:45] be a deals we want to do that closer to
[36:46] the time of the transaction so we
[36:49] maximize the savings or benefit of
[36:51] financing. Now that you are up here,
[36:58] Can you go over what I stated earlier
[36:59] about the feds Chair remarks for rising
[37:00] interest rates? If you asked me about a
[37:01] month ago, I would've said the
[37:08] likelihood of a Fed rate increase
[37:09] before the end of the year was highly
[37:10] unlikely. After the comments last week,
[37:13] the likelihood went over 50 percent.
[37:15] Right now the Fed is focused on
[37:20] inflation, it's above the two percent
[37:22] target almost twice the target. So to
[37:26] sort of curb inflation or curb
[37:29] inflation, they may increase rates at
[37:30] the next Fed meeting. We could see
[37:34] another Fed increase at the end of
[37:37] January.
[37:44] >> so, I know this rate will probably go
[37:45] up and overall cost will go up based on
[37:46] what we have here. If we restructure in
[37:48] January or February of this year? If
[37:50] interest rates go up, it would reduce
[37:54] the generated savings. The $1.2 million
[38:11] in savings right now could easily go up
[38:12] to over 2 million in this savings cost
[38:13] of funds we are estimating at 4.7 could
[38:14] go up 25 to 50 basis points and be
[38:15] close to 5.5 percent. with interest
[38:17] rates going up it hurts the debt
[38:20] restructuring. right now we also have
[38:21] a current refunding opportunity meaning
[38:24] if you exercise the interest rate, when
[38:26] you enter that debt that generates
[38:29] healthy savings on its own. Any
[38:35] increase in rates reduces the savings
[38:36] generated for that transaction as well.
[38:40] Okay thank you
[38:41] >>Thank you, Carlos. Next slide please.
[38:46] We are going to switch gears, the next
[38:49] Two slides will cover the
[38:51] topic of reserves. METRO currently
[38:55] has three tiers of reserves combined
[38:57] they represent two and have months
[38:58] operating expenses. We've confirm that all
[39:02] these reserves are at the discretion of
[39:03] the METRO Board. The history of METRO
[39:07] reserve shown on the right hand column.
[39:13] In 2005 METRO initiated the debt
[39:14] program and created a policy. On that
[39:18] policy it established the 15 percent
[39:19] operating expenditure, that layer. That
[39:22] is the equivalent of 1.8 months. The
[39:25] other layers came later under different
[39:27] Boards. Around 2014 a
[39:29] 10 percent layer was established, that
[39:36] layer was later modified in 2022 to 5
[39:38] Percent when METRO began funding its own
[39:41] liability. The emergency reserve was
[39:43] established in 2016 at 10 million, it
[39:46] was depleted in 2018 for hurricane
[39:50] Harvey. It was restored back to its
[39:52] original $10 million balance in 2020.
[39:57] Last year in 2025 the board increase
[39:59] the $10 million balance to 15 million.
[40:03] What really guides our reserve policy
[40:04] is best practice. Next slide please.
[40:10] Here you see our peer agencies and
[40:11] their respective reserve balances. They
[40:12] have a range. I'd like to point you to
[40:14] the bottom of the chart. The GFOA
[40:22] Officers Association does have a best
[40:23] practice recommendation of two months.
[40:28] The transportation code only speaks to
[40:29] reserve requirements for transit
[40:30] agencies smaller than METRO. We are
[40:33] looking at a benchmark here where we
[40:34] are in the reserves. If we reduce the
[40:38] two layers discussing, the $15 million
[40:43] layer and the five percent layer, that
[40:47] puts us a little shy of two months. But
[40:50] it keeps us keep some level of reserve.
[40:54] George, we would look at replenishing
[40:58] that once we pay back the five-year
[40:59] commercial paper within five years?
[41:05] There are different options when we
[41:06] find ourselves with surplus cash. We
[41:09] can use the cash to replenish reserves.
[41:12] We can use that cash to not issue debt.
[41:15] If we have a future debt plan. All of
[41:17] those are optionalities, what we will
[41:22] be presenting later in the presentation
[41:23] is a pro forma, cash flow pro forma
[41:29] where we present the next five years
[41:30] and more and provide a year we see in
[41:32] this scenario what that date will be
[41:38] around which year we can replace the
[41:41] reserves. I will speak to that in a
[41:42] later slide. now, next slide please.
[41:49] Now we will focus on the operating
[41:52] budget, there were a lot of questions
[41:53] only operating budget, We know board
[41:59] members have different questions
[42:00] regarding reductions and how service
[42:01] would be affected, echoing what Mr.
[42:04] Jasien said at the onset of the meeting
[42:10] we are taking any reduction in the
[42:11] budget affecting service off the table.
[42:16] The proposed budget will go from 1
[42:17] billion presented at the last workshop
[42:18] to 1.015. There are long-term
[42:20] financial risk to this. There would
[42:32] have to be $40 million reduction in a
[42:33] four-year funding envelope for the
[42:34] capital budget I will go into details
[42:39] on those risk and reduction in a later
[42:40] slide but in the meantime I will invite
[42:41] Nick the manager of the operating
[42:42] budget to walk you through details of
[42:43] the operating budget number,
[42:47] Specifically increases and decreases
[42:48] which get us from the current budget of
[42:50] 1.04 to the new budget
[42:51] proposal of 1015. Thank you George. We
[42:58] will go over the 2027 operating budget.
[43:03] As shown on the screen FY26 budget is
[43:07] $1,040,000,000, we expect to reduce
[43:08] budget for FY 27. This has been through
[43:14] monthly reviews quarterly management
[43:15] reviews and conversations with
[43:19] departments. We will go into how the
[43:20] $1,015,000,000 budget was built. Want
[43:27] to make sure to say thank you to Mr.
[43:28] Jasien George ON BN departments for
[43:29] working throughout the year through the
[43:30] budget season. This would not have come
[43:31] together without a full team effort. We
[43:36] want to make sure to look at be aware
[43:37] of what we know will increase in 2027.
[43:45] We are identifying 53.7 increases
[43:46] mainly due to contract rate increases
[43:47] labor rate increases and
[43:52] [Indiscernible]. Purchase
[43:53] transportation expenses increased 19.6
[43:54] million due to rate increases. this is
[44:00] for the service [Indiscernible] for
[44:01] METROLift community connector curb2curb
[44:02] vanpool and Northwest operating
[44:03] facility. Running the same level of
[44:05] service this goes up because of agreed
[44:06] rate increases. Another large piece is
[44:11] due to labor increases for union and
[44:12] nonunion employees. Union contract has
[44:18] an increased built-in for FY 27 of four
[44:19] to six percent depending on the
[44:22] position. This benefit adjustment
[44:23] accounts for an increase of 12 million,
[44:24] 12.8 million, for almost 3100 union
[44:32] positions. The nonunion employees have
[44:35] a cola and benefit increase which
[44:36] account for 6.7 million, . This is a
[44:38] little over 1700 positions METRO
[44:42] fueling utilities increased by 11.2
[44:46] million, mainly due to diesel fuel
[44:47] rates and gasoline rates. METRO does a
[44:48] fuel hedge and because of this we are
[44:56] hedged at 85 percent $2.81 for 2027.
[44:59] [Indiscernible] currently at $3.57. If
[45:02] we did not hedge, we would budget over
[45:07] 6 million more for fuel and utilities
[45:08] for next year. The last two increases
[45:16] due to annual is Asian of revenue
[45:17] service from services in 26 and an
[45:18] increase in IT software. These
[45:21] increases are due to the new fare
[45:22] system and safety system. These items
[45:26] should bring in more revenue and make
[45:27] METRO safer. [Indiscernible] we began
[45:39] to shift our focus to other adjustments
[45:40] we started with eliminating the budget
[45:41] for FIFA World Cup this reduced it by
[45:42] $22.5 million. Throughout the year we
[45:44] have used great restraint in filling
[45:45] METRO vacancies. This includes reviews
[45:47] with the HR department and Mr. Jasien.
[45:55] Because these measures we reduce
[45:56] headcount by 177 out of [Indiscernible]
[45:57] in 2026. 29 Union and 148 nonunion, The
[46:03] majority are administrative departments
[46:04] and not operations. METRO has been
[46:12] working on implementing a
[46:13] [Indiscernible] we are estimating this
[46:14] will produce $7 million in savings. The
[46:19] next set of budget reductions are
[46:20] organizational efficiencies. The
[46:25] majority of these reductions are based
[46:26] on budget [Indiscernible] spent over
[46:27] the years these under runs or an
[46:32] outside services consulting repairs
[46:36] professional services things of that
[46:37] nature not actual revenue services on
[46:38] the street. These include reductions in
[46:42] professional third-party contract
[46:43] services for 14.8 million, some of the
[46:45] departments are infrastructure
[46:46] improvement facilities maintenance and
[46:52] one of the bigger ones was rail
[46:53] initiative the outside agencies helping
[46:54] with rail. Those budgeted for 2026 but
[46:56] not for 2027, that will reduce it by
[47:03] [Indiscernible]. There are reductions
[47:04] for support services, half of it made
[47:06] up by LRV , completely repaired and
[47:09] paid for in 2026 $1.8 million, I
[47:14] believe it was train 404, paid for and
[47:19] received. There's no need to budget for
[47:20] it next year. Some of the other
[47:26] reductions of her vehicle materials and
[47:27] parts of their services and
[47:28] miscellaneous equipment. That took care
[47:30] of the $30.1 million bucket . The 9.1
[47:34] is mainly related to things METRO has
[47:35] been doing for 2027. Some of the large
[47:44] drivers of the changes are reduction in
[47:45] PSA with the car contract employees,
[47:48] [Indiscernible] six months generally at
[47:49] a time, that's accounting for $3
[47:52] million reduction for 27. . We also
[47:57] have increasing capitalized internal
[47:58] labor of $6 million this will increase
[48:01] the capital budget but lower the
[48:02] operating budget. We saw a budget
[48:06] reduction for overtime of 1.5 million,
[48:13] A reduction in platform shelter
[48:14] supplies of 1.5 million and lastly
[48:16] budgeting for a reduction in the
[48:17] operating contingency of 1.5 million. I
[48:22] want to reiterate the 27 budget process
[48:23] started 11 months ago, we knew what we
[48:25] we're getting into over a year ago.
[48:33] Leadership O and B and the department
[48:34] analysts have been working to create
[48:35] the best most efficient operating
[48:36] budget for 2027. Thank you are there
[48:37] any questions?
[48:44] >> Are you going to discuss the
[48:50] efficiencies under the service
[48:51] [Indiscernible]
[48:52] >> That was the 30.1 million and 9.1.
[48:54] The majority of that is generally
[48:58] having under run in the services, not
[49:06] the contractors running the service but
[49:07] outside vendors helping us out. We
[49:09] under run those year after year. So
[49:15] trying to bring the budget down that's
[49:16] what we try to focus on. So what I'm
[49:20] hear you saying is the impact to riders
[49:23] regarding service efficiency is
[49:29] minimal. If there is some savings it's
[49:30] directly tied to optimization or ways
[49:31] we can improve the service? Right now,
[49:35] from the operating budget there are no
[49:36] service reductions. We plan to run
[49:39] service as it currently is right now.
[49:41] Okay thank you. Any questions?
[49:48] >> Nick putting the bus on the street
[49:49] is one thing making sure it's a safe
[49:54] ride, can you elaborate on the 6.2
[49:56] million reduction in the METRO police
[50:06] budget, and 10.5 reduction in the
[50:07] safety and security budget?
[50:08] >> Yes. MPDs specifically, about half
[50:11] of the reduction is due to the rail
[50:18] initiative. Some of it was already
[50:19] spent input into the MPD budget,
[50:23] Without going into 2027 it was not
[50:24] budgeted in 2027. The remaining pieces
[50:26] of MPD, I believe the actual full
[50:35] headcount for MPD did go down for
[50:36] full-time officers. We budgeted 227
[50:38] current year, that drop down to 215 in
[50:45] 2026. During the year, they were not
[50:54] able to get the headcount above
[50:55] [Indiscernible] full-time officers so
[50:56] we thought reducing the total headcount
[50:57] by 12, still keeping an extra cushion
[50:58] of 15 to be filled would be one of the
[51:01] ways to optimize the budget best we
[51:03] could. One more question. In the
[51:07] breakdown there is a non-departmental
[51:13] budget, Reduction of [Indiscernible]
[51:14] can you elaborate on that
[51:15] >> Yes. Whenever we were looking
[51:19] through the budget trying to build in
[51:20] the retirement incentives, we had a
[51:25] budget of about 2.4 million remaining
[51:26] in 2026. compared to a credit, a
[51:30] negative of 6.8 million, the retirement
[51:37] incentives. We don't quite know how
[51:38] it's going to hit every department. So
[51:40] we have it budgeted as a large credit
[51:41] right now so when this is implemented
[51:48] we can spread the credit and savings
[51:49] throughout the authority
[51:50] >> Thank you.
[51:53] >>As stated before, the $15 million
[52:00] budget reduction for service
[52:01] adjustments is taken out. However we do
[52:09] want to have a brief discussion on the
[52:10] tools METRO uses when it does it's
[52:11] routine evaluation of service. Julie
[52:18] Fernandez director of GMP will discuss
[52:19] this topic now
[52:20] >>Good afternoon. Next slide please.
[52:26] Our region traffic patterns are
[52:27] constantly changing, that is why we
[52:32] constantly evaluate service with that
[52:33] in mind and seek to optimize it. The
[52:38] goal of service optimization is to
[52:39] match the service we provide to
[52:40] customer demand, This approach reduces
[52:43] empty seats while maximizing customer
[52:47] benefit. METRO regularly evaluates its
[52:49] service in factors such as ridership
[52:50] cost, subsidy per boarding, boardings
[52:52] per revenue Outlook, and boardings per
[52:55] revenue mile. , Based on these
[52:58] evaluations as Mr. Jasien referred to
[53:04] METRO proposes adjustments through
[53:05] times of year subject to board
[53:08] approval, these adjustments typically
[53:09] take place in January June and August.
[53:14] Making these adjustments requires a
[53:15] full suite of available tools. This
[53:18] slide is an illustration of the tools
[53:19] in the toolkit. The first tool is using
[53:27] smaller vehicles for less costly to run
[53:28] them 40 foot buses such as curb2curb
[53:31] vans. This usage is limited by the
[53:32] number of small vehicles available. We
[53:35] can also use larger vehicles when
[53:41] needed. For example on the
[53:42] [Indiscernible] student riders were
[53:43] creating overload so we put a larger
[53:44] bus on the route.
[53:46] >> Let me ask a quick question, , as we
[53:48] talk about smaller vehicles one of the
[53:54] complaints I often get is people see a
[53:55] lot of empty buses. We also get the
[53:57] complaint about frequency. so, the
[54:05] issue is if we had more frequency we
[54:06] would have more people riding the
[54:12] buses. but, when we run larger buses we
[54:14] are not able to have the frequency
[54:15] because it costs so much to run the
[54:16] larger bus. So in theory if we are
[54:23] running smaller buses we may be able to
[54:24] have more frequency while we build up
[54:25] the ridership. Is that kind of what the
[54:27] theory behind us?
[54:30] >> That is true, however we are limited
[54:35] by the number of small vehicles we have
[54:38] available to the extent we can to roll
[54:39] out that part of the strategy. I will
[54:46] let [Indiscernible] speak to that
[54:47] >> One of the things we will continue
[54:50] to look at this year is optimizing the
[54:53] fleet. It's a delicate dance not only
[54:57] do you have to have the correct amount
[54:58] of vehicles available that are the
[55:04] correct size but you also have to have
[55:05] operators and mechanics available.
[55:07] There is not a magic one-size-fits-all
[55:10] in optimizing that service. A large
[55:17] portion of the cost of running
[55:18] >> Without getting into too much of the
[55:21] details, what I'm asking for is guiding
[55:22] principles here. Our guiding principle
[55:26] is that we would work to increase
[55:30] ridership and increase frequency and
[55:35] this would be a strategy to do that is
[55:43] my question
[55:44] >> I would help answer by saying yes
[55:45] that's absolutely a guiding principle
[55:46] we can work with
[55:47] >> yes indeed. You mentioned of course
[55:56] frequency. Certainly, One of the tools
[55:57] we can use is changing the routes of
[56:00] frequency How often it arrives or
[56:02] expand service how early it starts and
[56:03] how late it runs. One thing we can do
[56:09] is by reducing the frequency or span of
[56:10] service where the demand is not there,
[56:15] we can reallocate the revenue hours to
[56:16] another route that has greater customer
[56:23] demand. For example [Indiscernible]
[56:24] earlier trip so we added a 415
[56:25] eastbound trip. , Back to the concept
[56:27] of vehicles when we replace them
[56:37] frequent low ridership services with
[56:38] on-demand alternatives like rideshare
[56:39] came free of vehicles including small
[56:40] curb2curb vehicles. For specific
[56:46] designated zones on demand services can
[56:47] cost less than running a fixed route
[56:50] service. Lastly combining rounds of
[56:56] duplicate of service or shortening
[56:57] routes saves service hours and makes
[56:58] resulting routes more efficient. Those
[57:02] resources can be redeployed to serve
[57:03] another route to maximize customer
[57:05] benefit. Are there any questions?
[57:08] >> I have a question. so, these are the
[57:18] optimizations that relate to the 15
[57:19] million we saw on the previous page?
[57:24] Those are tools that could have been
[57:25] used to y get to the 15 million. , If
[57:29] we look at our budget for fiscal year
[57:31] 2027 say we are midyear, And we see
[57:36] there is demand where we have to
[57:37] increase our cost, will there be a
[57:44] contingency in the budget to meet a
[57:45] demand if it requires us to do so?
[57:48] There's a small contingency available
[57:49] to do that. If the demand exists beyond
[57:58] that contingency we would need to look
[57:59] at balancing it with optimization
[58:00] elsewhere in the system. . Okay and
[58:03] this is probably a question for Tom.
[58:07] Does the on demand evolve? no. Not
[58:15] evolve. On demand is what we run with
[58:19] curb2curb as well as the community
[58:24] connector in downtown as well as
[58:25] basically METROLift is on demand. Go
[58:27] ahead and say it Julie and rideshare,
[58:33] potential rideshare opportunities
[58:34] >> Thank you. Any other questions? .
[58:39] Where are we with micro transit in
[58:44] December the board was told we would
[58:45] transition away from that into a
[58:50] procurement where was ADA compliant and
[58:51] people pay their fare like customers
[58:52] do. But here we are in a budget cycle,
[58:55] , it looks like it's plan to continue
[58:56] next year no procurement
[59:01] >> We have a briefing planned for
[59:02] September committee meeting.
[59:06] >>Thank you. I have a question that
[59:14] applies here or for a broader
[59:19] conversation. The budget as it is
[59:20] presented today, does it still maintain
[59:33] what we are addressing as well as state
[59:34] of good repair or could this
[59:36] potentially inadvertently create
[59:37] deferred maintenance or backlog later
[59:41] on? A pathway for state of good repair
[59:42] things of that nature?
[59:47] >> I will defer to my colleagues
[59:48] >>You hit the nail on the head. We have
[59:54] really emphasized the last two years
[59:57] the state of good repair, we idolize
[1:00:00] that in the assets we own. We've done a
[1:00:03] tremendous job in that regard. The
[1:00:05] average age of the fleet is way back
[1:00:10] down into the normal metric it needs to
[1:00:16] be. We continue to budget that program
[1:00:17] for the next five years. That's
[1:00:22] untouched
[1:00:23] >>Chair are we doing the capital budget
[1:00:29] discussion now?
[1:00:35] >> We can talk about the
[1:00:41] [Indiscernible] the capital budget was
[1:00:44] not discussed at the last workshop so
[1:00:45] we prepared on the operating budget.
[1:00:48] But this is the discretion of how you
[1:00:49] want to talk about it. Just because the
[1:00:53] capital budget we are talking about
[1:00:54] restructuring financing, in the budget
[1:00:56] book released to the public, the
[1:01:06] delivery and reliable service budget
[1:01:07] for 2026 was 457 million, This is
[1:01:10] replacing brakes transmission what we
[1:01:11] need to get the bus onto the roadway.
[1:01:17] In 2031 it is projected to reduce 100
[1:01:18] million a steady decline over five
[1:01:23] years. Another one is maintaining a
[1:01:24] cleaner system, 9.7 this year to zero
[1:01:29] dollars investment in that category
[1:01:30] 2030 2031, putting customer service
[1:01:35] first, in the CIP 13 million in 2026
[1:01:39] zeroed out in 2030 2031. When we are
[1:01:45] told we are maintaining a good state of
[1:01:46] repair in the next five years, how is
[1:01:47] that possible when these categories are
[1:01:53] needed to put buses on the roadway. And
[1:02:00] the one thing that's missing here is
[1:02:01] there was a 6.9 facilities maintenance
[1:02:02] reduction. Maintaining facilities is
[1:02:06] critical. State of good repair is
[1:02:07] critical to maintaining service. I'm
[1:02:15] happy we maintain the operating budget
[1:02:16] but there are a lot of people that are
[1:02:21] changing brakes changing transmissions
[1:02:22] replacing roofs replacing bus washes. I
[1:02:26] don't see that stability long-term in
[1:02:27] the capital budget projected before us
[1:02:29] and what's been shared with the public.
[1:02:36] Can you tell how we are addressing
[1:02:37] state of good repair to maintain the
[1:02:38] service we as board members ask for?
[1:02:39] >> What we did is we saw some trends in
[1:02:45] the state of good repair returning the
[1:02:50] existing fleet back into a state of
[1:02:51] good repair through spare parts engines
[1:02:56] transmissions we saw an abundance of
[1:02:57] growth over the years. , It was a trend
[1:02:59] it wasn't just one year. During the
[1:03:06] COVID reprieve when we were not
[1:03:07] ordering buses, we saw that those costs
[1:03:14] increased. At the same time the
[1:03:16] facilities, we went into a period of
[1:03:18] time where we were doing a lot with a
[1:03:24] little, the repairs of our facilities
[1:03:26] bus washes and repairing what was
[1:03:31] broken. We approached in the METRO now
[1:03:32] program in the last 2 1/2 years have
[1:03:33] been amazing. We've replaced instead of
[1:03:36] repairing a lot of assets, bus wash
[1:03:41] equipment, the electric systems
[1:03:45] roofing, all of the bare necessities of
[1:03:47] facilities that was causing cost to
[1:03:51] increase across-the-board. In all
[1:03:55] spectrums. When we brought in 667 new
[1:04:00] fleet vehicles in the last couple
[1:04:07] years, what it did was take the
[1:04:08] pressure off of what we were spending
[1:04:11] inefficiently, repairing what we had.
[1:04:16] When you are have brand-new car in your
[1:04:17] driveway you are not repairing air
[1:04:19] conditioning and brakes, you get a
[1:04:21] couple years reprieve. So this board
[1:04:30] and this group have allowed us to
[1:04:31] replenish and revitalize like I've
[1:04:33] never seen in the last 18 years. It's
[1:04:35] been great. Tremendous gains. It took
[1:04:39] the heat off, takes the pressure off of
[1:04:43] unscheduled maintenance, fire drill
[1:04:47] repairs etc.. So we saw a shift. You
[1:04:57] see maybe in some isolated areas where
[1:04:58] the budget is getting tighter, it's
[1:05:03] because we see trends improving
[1:05:04] holistically across the whole spectrum.
[1:05:06] The fleet is in the best shape ever,
[1:05:11] years ago you would go there and you
[1:05:12] would say this is a tired old facility,
[1:05:15] you go there today and you see fuel
[1:05:16] systems and tanks and tremendous well
[1:05:20] put together programs to make Kurt's
[1:05:26] operation very efficient. Through
[1:05:31] capital investment we did that. We are
[1:05:34] starting to see some of the gain from
[1:05:43] that, seeing the sum of the less
[1:05:44] recurring efforts of the capital
[1:05:45] spending because of the way we approach
[1:05:46] METRO now. We can get into line item
[1:05:50] specifics, I'm not prepared for that
[1:05:52] but I can send you a list. Across most
[1:05:55] of the programs, IT systems we put in a
[1:06:00] brand-new ERP system, a fare collection
[1:06:09] that takes the pressure off all the
[1:06:10] other IT system efforts we are doing to
[1:06:11] patch together to have the successful
[1:06:14] state of good repair outcome we do.
[1:06:17] We've invested across all spectrums. I
[1:06:24] have to say that some of how we
[1:06:25] categorized last year, the way they are
[1:06:30] categorized may be looks like one whole
[1:06:31] category fell off, but we are really
[1:06:34] doing those efforts in some other
[1:06:37] category. Maybe in the reliability
[1:06:39] sector, or the safety sector. But the
[1:06:41] effort is still there. We did not take
[1:06:44] any pressure. , We put the most
[1:06:48] pressure on the expansion side we left
[1:06:57] the state of good repair holistic and
[1:06:58] the plans
[1:06:59] >> You may not be prepared to answer
[1:07:00] this but can you take a look at the
[1:07:01] reliability column of the budget book.
[1:07:05] You said we purchase new vehicles so it
[1:07:06] lowered maintenance cost. You would
[1:07:12] assume the next couple years it's slow
[1:07:13] and then increases over time as the new
[1:07:14] vehicles get older. But you have the
[1:07:16] reverse curve on page 31 of the budget
[1:07:20] book, Reliability goes from 477 to 322
[1:07:23] And declines to 105 and 2031, counter to
[1:07:27] the performance of the new vehicle. I
[1:07:34] want to make sure we can maintain our
[1:07:35] facilities and vehicles in a state of
[1:07:36] good repair. It's one thing to have
[1:07:41] operating dollars and another to
[1:07:42] support the bus on the roadway
[1:07:43] >> Yes, sir. For context, Director
[1:07:50] Trevino if we look at expenditures in
[1:07:51] our core category state of good repair,
[1:07:54] in 2024 we spent 102 million. In 2025
[1:08:00] we increased it to 280 million. 2026
[1:08:05] 260. So we bumped up the last couple of
[1:08:08] years. 2027 we stay at 250. 2028 we are
[1:08:11] at 180. It starts to decline a little
[1:08:17] bit you are right but it does not get
[1:08:21] lower than the rate we were in 2024.
[1:08:26] Understand this is us responding to a
[1:08:27] financial shock as the realities
[1:08:33] change. We will make those changes in
[1:08:34] all of our budgets. As far as looking
[1:08:40] now with what we know this is the
[1:08:41] projection that will keep us
[1:08:42] financially sustainable.
[1:08:46] >> I agree it is a financial shock it
[1:08:47] is a shock to me the position we are
[1:08:49] in. However I see the pressure you hear
[1:08:50] from the board. The pressure from the
[1:08:54] board is keep the operating dollars hi
[1:08:55] to not reduce service. But there is a
[1:09:03] component of that you have to maintain
[1:09:04] the service at facilities transmission
[1:09:05] replacement and brake repairs. . We
[1:09:09] cannot as a board direct you to
[1:09:10] maintain operations but not fondue
[1:09:11] properly for a state of good repair the
[1:09:17] numbers here do not reflect the state
[1:09:18] of good repair dollars are matching the
[1:09:19] request from the board to maintain
[1:09:21] service.
[1:09:22] >> What you will see is the expansion.
[1:09:24] That is really the category that we are
[1:09:29] tempering down until we get a new
[1:09:31] forecast. State of good repair at the
[1:09:35] core I think the goal is to put that
[1:09:37] primary, especially with regard to CMD.
[1:09:40] That is the goal. I believe members
[1:09:47] here have been communicated or
[1:09:48] transmitted the project and as we
[1:10:01] continue the discussion we can address
[1:10:02] those and I'd be happy to do that
[1:10:03] >> Thank you
[1:10:04] >> Thank you. Next slide please. This
[1:10:13] slide I mentioned earlier focusing on
[1:10:14] long-range financial risk projected
[1:10:15] from operating budget of 1.015.
[1:10:20] Again we would need to reduce the
[1:10:22] five-year capital program by $40
[1:10:23] million to achieve that. Last time we
[1:10:27] talked we were at $1 billion now we are
[1:10:36] 1.015. This reduction in the
[1:10:37] capital program would focus on the nice
[1:10:38] to have versus spending particularly on
[1:10:39] the administration building at 1900,
[1:10:40] hold off on rehabs and amenities like
[1:10:46] cubicles. Also kind of at the point
[1:10:47] what Nick was saying it evaluates
[1:10:48] our budgets assigned to these certain
[1:10:53] programs and recognizing historically
[1:10:54] there is always an under run, let's say
[1:10:55] we just address that. There's also
[1:11:00] adjustment in the schedules, this is
[1:11:03] sharpening our pencils where we see the
[1:11:08] CNG buses arriving off schedule to win
[1:11:11] the actual facility will be up and
[1:11:12] running, the Northwest facility. We
[1:11:16] moved those arrivals to match when the
[1:11:19] infrastructure goes live. Otherwise we
[1:11:23] are ordering them too soon. , I want to
[1:11:25] focus on the slide this is the big
[1:11:29] picture where we are at in the
[1:11:30] financial projection. You are familiar
[1:11:34] with the slide. This is the image where
[1:11:39] you see the dotted line as cash
[1:11:42] reserve. It usually has three layers
[1:11:43] representing reserve. Here you see to
[1:11:49] utilize those first two layers of the
[1:11:50] reserve from 27 to 32. We begin
[1:11:53] replenishing them in 2034 where the
[1:11:59] reserve is at its full three layer spot
[1:12:01] and fully restored. There is risk with
[1:12:03] this plan, I want to be fully
[1:12:09] transparent, there's long-term risk
[1:12:13] that represents METRO's ability to pay
[1:12:14] back non-referendum borrowing within a
[1:12:15] five-year window. In this projection,
[1:12:18] we do utilize the borrowing, And then
[1:12:25] we pay some of it back in 2030 and 2031
[1:12:26] but we don't pay all of it back. That
[1:12:27] is the liability. The unpaid balance
[1:12:32] projected is 105 million. I want to
[1:12:41] focus on that long-term or long-range
[1:12:42] risk and put it in some light here. The
[1:12:48] $105 million risk will effectively go
[1:12:49] away if there's a change of opinion. On
[1:12:54] [Indiscernible]. Also, if we look at
[1:12:55] our operating budget, we can perform
[1:13:00] our operating budget with a two percent
[1:13:01] under run during those years, we can
[1:13:02] tackle that. On average we usually
[1:13:08] under run the operating budget by six
[1:13:13] percent. These are mitigating options
[1:13:14] of course their sales tax, that allows
[1:13:16] for more resources to apply and a
[1:13:20] discussion topic earlier, when we find
[1:13:23] ourselves with more resources, it's a
[1:13:26] question to consider what we do. One
[1:13:33] idea is to pay off debt that if you
[1:13:34] issue debt later remise will not issue
[1:13:35] later debt, Keep the money and use it
[1:13:37] for what you're going to use the
[1:13:38] issuance for. Another is replenish the
[1:13:43] reserve, this is just a scenario, there
[1:13:46] will be some decisions as we work our
[1:13:47] way through these years on how we want
[1:13:49] to navigate. . We talked in the past
[1:13:53] about the operating budget
[1:13:58] sustainability a good measure to keep
[1:13:59] it capped at the net sales tax. Right
[1:14:03] now with our conditions from last year
[1:14:04] to this year we had $1 billion for
[1:14:05] funding envelope. That would not, the
[1:14:10] practice would not be feasible until
[1:14:11] 2032. so, what I'm leaving you with, we
[1:14:14] can navigate this, identify the risk,
[1:14:18] the long-term risk, and lock-in changes
[1:14:21] now and then. Next slide please. Here's
[1:14:27] our timeline again, The draft budget
[1:14:31] book reflecting the numbers from the
[1:14:32] last workshop is posted. It will
[1:14:34] continue to be posted for another week.
[1:14:40] We can make updates to reflect
[1:14:41] discussions in the workshop and other
[1:14:42] feedback we received, One week from
[1:14:44] today on Wednesday, September 9 we will
[1:14:45] have the public hearing. At the board
[1:14:52] meeting on September 24 we would need
[1:14:53] final approval and passage of the 27
[1:14:55] budget. This concludes the project
[1:14:56] workshop presentation. We can answer
[1:15:02] any additional questions
[1:15:03] >> Are there any final questions? This
[1:15:04] is Director Ponce. George, can we make
[1:15:10] sure I think you just mentioned forgive
[1:15:11] me if I missed it, can we make sure
[1:15:16] this new budget proposal is uploaded
[1:15:17] ahead of time before the next public
[1:15:19] hearing next week. Absolutely. With the
[1:15:27] boards concurrence we will update
[1:15:28] what's posted to reflect what we
[1:15:31] presented, did not want to update until
[1:15:36] we ran it by the workshop
[1:15:37] >> Thank you I want to make sure the
[1:15:38] public has time to review it, that can
[1:15:44] be done before the end of the week for
[1:15:45] sure
[1:15:46] >> Are there any other questions?
[1:15:51] >>, I'm looking at this two different
[1:15:55] topics We have to adopt the FY 27
[1:16:04] budget but be cognizant of the 45 year
[1:16:05] risk concerns I have concerns regarding
[1:16:06] the debt restriction. Taking a look at
[1:16:07] the budget book that was posted, one of
[1:16:09] the earlier speakers mentioned, we are
[1:16:14] optimistic in the O and M budget
[1:16:15] staying at $1 billion. In reviewing the
[1:16:25] capital replacement state of good
[1:16:26] repair were way optimistic to zero out
[1:16:27] some categories cleaning services stuff
[1:16:28] like that. At the same time looking at
[1:16:30] the last slide we saw from staff, over
[1:16:35] the next five years we have zero room
[1:16:36] for error, zero. The reserves are gone.
[1:16:39] The reserves are gone. Overly
[1:16:43] optimistic on the operating budget.
[1:16:48] Overly optimistic on what it will take
[1:16:49] to maintain the service of that with
[1:16:53] our CIP going down with the state of
[1:16:54] good repair safety security. If there's
[1:17:01] a way we could adopt the FY 27 budget
[1:17:02] but hold off on the restructuring is my
[1:17:03] recommendation because over the next
[1:17:04] five years having zero contingency to
[1:17:08] handle anything. We are in the Houston
[1:17:12] area. We have events every year,
[1:17:16] hurricane Harvey last time we dipped in
[1:17:17] was because her hurricane Harvey. It's
[1:17:20] a very risky proposition for the
[1:17:23] agency. If we approve this we heard
[1:17:27] from the financial advisor the negative
[1:17:28] outlook will likely be put on METRO. To
[1:17:34] have zero contingency over the next
[1:17:35] five years with overly optimistic O and
[1:17:36] M budget and CIP, that's a lot of risk
[1:17:37] for the agency. If there's a
[1:17:49] middle ground to where we adopt FY 27
[1:17:50] budget making difficult decisions but
[1:17:51] have more time to look at sales tax
[1:17:52] projections that could be optimistic,
[1:17:56] get more clarity on what we are going
[1:17:57] to be able to maintain in future years
[1:17:58] with lower numbers in the budget book,
[1:17:59] it's probably what I would recommend.
[1:18:03] >> Okay thank you.
[1:18:08] >> I would like some clarity on the
[1:18:13] restructuring. Is this, we approve the
[1:18:19] budget, is this just an option for us
[1:18:26] and still have to cut back and improve
[1:18:27] the restructuring if we chose to do a
[1:18:30] restructuring? Procedurally so we
[1:18:36] understand, are we by adopting this
[1:18:37] tying our hands or as Director Trevino
[1:18:40] said, It gives us an opportunity to
[1:18:42] monitor to see if we need to pull the
[1:18:44] trigger?
[1:18:45] >> So, we ran scenarios where we did
[1:18:48] not do restructuring, We ran scenarios
[1:18:56] where we use less reserves but
[1:18:57] ultimately the feedback we are hearing,
[1:18:58] is service was up most you want to
[1:18:59] preserve service. In order for us to
[1:19:03] have the 1.015 budget
[1:19:05] presented, there is no other option.
[1:19:12] >> Let me restate that differently
[1:19:13] >> Chair I think I get your question.
[1:19:14] We will have to come back. We will come
[1:19:22] back for the approval to take those
[1:19:23] actions
[1:19:24] >> So again thank you for that clarity,
[1:19:25] procedurally we understand we have to
[1:19:26] come back. , But also it gives us an
[1:19:31] opportunity let's say the projections
[1:19:32] are far better than we expect, then we
[1:19:42] could at that time determine whether
[1:19:43] this is necessary or not is that
[1:19:44] correct statement
[1:19:45] >> That is correct
[1:19:46] >> That leads me to my next question.
[1:19:47] In this budget, I see a lot of what is
[1:19:52] reflected in projections. Those
[1:19:58] projections can either be accurate or
[1:19:59] they could be slightly off, it gives us
[1:20:02] an opportunity to evaluate that. So
[1:20:03] having said that, it also gives us an
[1:20:07] opportunity to set some goals and to
[1:20:12] utilize the tools in our toolbox to
[1:20:15] actually improve ridership, to improve
[1:20:23] optimization, setting goals in place to
[1:20:24] help us out of this and we don't just
[1:20:28] allow this to happen to ourselves. If
[1:20:32] we are not just tied to sales tax, if
[1:20:35] we are not just tied to farebox
[1:20:38] collection, are there are other
[1:20:39] opportunities for us to look at as we
[1:20:42] continue to monitor how our financial
[1:20:49] situation looks
[1:20:50] >>Good comments, thank you. Any other
[1:20:57] questions?
[1:20:59] >>so, to piggyback, knowing there is a
[1:21:04] public hearing on the budget on
[1:21:05] September 9 next week, just wanted to
[1:21:06] check in with METRO as to how we have
[1:21:14] been actively engaging and reaching out
[1:21:15] to people to come manway in person, Or
[1:21:31] via email how we are collecting
[1:21:32] feedback so they can participate in the
[1:21:33] process
[1:21:34] >> Meredith
[1:21:35] >> Our public engagement team regularly
[1:21:36] encourages community members to come
[1:21:37] and speak at meetings. It's a regular
[1:21:38] practice that is part of talking points
[1:21:39] every time they attend a meeting or go
[1:21:40] to an event. We are tracking feedback
[1:21:43] that comes across social media and to
[1:21:44] the emails constantly. Our group has
[1:21:47] just started organizing by topic so we
[1:21:49] can compare, negative sentiments on
[1:21:56] this positive on this and we are to
[1:21:57] making lifetime adjustments based on
[1:21:58] feedback. , The place it is valuable
[1:21:59] with MPD we see a lot of feedback in a
[1:22:07] certain area and immediately alert the
[1:22:08] chief and let him know things need
[1:22:09] cleaned up or changed. In terms of
[1:22:15] coming to share they are talking about
[1:22:16] the budget to people and encouraging
[1:22:17] them to come speak at any board
[1:22:19] meeting.
[1:22:20] >> Any other questions? I want to thank
[1:22:24] everybody. I know this is an extra
[1:22:25] budget workshop, we had some good
[1:22:29] discussion and some decisions to think
[1:22:32] about. We've got another three weeks or
[1:22:34] so. I encourage you to reach out. I
[1:22:39] know we've had some briefings and we
[1:22:40] will continue to do so if it is
[1:22:43] required.
[1:22:44] >> I want to make a quick comment.
[1:22:45] Thank you for having this additional
[1:22:49] workshop, thank you for taking the time
[1:22:50] to brief all the board members on what
[1:22:52] would be presented today. Thank you for
[1:22:59] giving us the opportunity to ask
[1:23:00] additional questions and for people to
[1:23:01] give additional input. Thank you very
[1:23:03] much Chair
[1:23:04] >> Thank you everybody, especially the
[1:23:07] finance team I know you've been working
[1:23:12] overtime.
[1:23:13] >> Board Member Preston. I was going to
[1:23:15] hold back I know you are closing out .
[1:23:18] I guess I just wanted to be clear you
[1:23:23] are asking us to accept this budget,
[1:23:28] the adoption of the 2027. Is that the
[1:23:34] package restructuring and the budget?
[1:23:38] That is the package you want us to
[1:23:40] accept? Yes in short. In order for us
[1:23:46] to pass the budget you just heard, the
[1:23:47] borrowing and restructuring use of fund
[1:23:54] reserves it will require a suspension
[1:23:55] of the Capping operating budget to
[1:23:56] sales tax. Without those items, the
[1:23:59] budget presented would have to be
[1:24:02] smaller.
[1:24:03] >> Again, if you don't mind, I want to
[1:24:08] cover, we will be back to the board
[1:24:12] with more information as time goes. We
[1:24:14] will have greater knowledge. And
[1:24:19] hopefully if new clarity on
[1:24:20] assumptions. and, that will be a
[1:24:23] separate action. The debt
[1:24:30] restructuring. This is a budget
[1:24:31] proposal that would make those
[1:24:32] assumptions. However, it is not the
[1:24:35] action to trigger that. We will be back
[1:24:41] for those actions
[1:24:42] >> I think I heard earlier, it could be
[1:24:47] delayed. We might consider the bond
[1:24:51] restructuring within the next few
[1:24:52] months but we could also delay if
[1:25:00] needed if we thought it was something
[1:25:01] we could do
[1:25:02] >> [Indiscernible]
[1:25:03] >>Well I think George laid it out
[1:25:05] pretty well. There's a lot of risk
[1:25:08] involved here. and, that's what we are
[1:25:13] paid the big bucks for, to analyze the
[1:25:20] risk, this group this organization to
[1:25:21] accept the risk. If we do that, we will
[1:25:25] live with this, that also obligates us
[1:25:31] to watch this very closely for the next
[1:25:32] year to be sure it works. And when we
[1:25:37] see it is not working, this bunch at
[1:25:39] this table, like Roberto has been doing
[1:25:42] for us, is to call them on the carpet
[1:25:44] for it, and say this is not working
[1:25:51] folks, we are doing it but it's not
[1:25:52] working what are we going to do? That's
[1:25:53] us right here
[1:25:54] >> Thank you. Again thanks to everyone
[1:25:56] for the comments. This meeting is
[1:26:00] adjourned thank you.