Rumor Control: Balancing the Budget

As a public agency, Capital Metro takes its fiscal responsibilities very seriously. No matter how you feel about the many difficult decisions we have to make, we want to make sure you have the facts about our finances.

Perhaps you’ve read or heard people say that Capital Metro makes a huge profit every year. It was even suggested in a recent news story that we are “projecting a profit of more than $30 million for the 2008 fiscal year.” Let’s set the record straight.

Capital Metro’s fiscal year 2008 budget lists revenue at $203 million (rounded). Revenue sources include sales tax, passenger fares, grant funding, investment income and more.

The expense side is where people sometimes make a mistake about “profit.” Expenses or expenditures are divided into two parts: operating and capital. Operating expenses include wages & benefits, service providers for operations, materials & supplies (including fuel), utilities, taxes, insurance and more. The budgeted operating expenses for 2008 add up to $169 million (rounded). When you subtract that from the revenue total, it leaves about $34 million. This is what’s often misinterpreted as a profit. Actually, it is the net income before subtracting capital expenses.

How much do we subtract for capital expenses in the 2008 budget? $34 million. Capital expenses include vehicles, equipment, bus stop amenities/accessibility upgrades, facilities, technology, Build Central Texas (BCT) payments to suburban communities and more.

As we prepare the fiscal year 2009 budget we face many challenges including the rising cost of fuel and the public’s demand for expanded service. The proposed budget will be posted at the end of the month for public review and feedback. The final proposed budget will be adopted in September 2008.

9 thoughts on “Rumor Control: Balancing the Budget

  1. Don Dickson

    I didn’t see that report; I’ve never heard anyone make that claim. Was that a product of ignorance or negligence? Or true animus against transit? On the whopper scale that’s right up there with “John McCain has an illegitimate child” and “Barack Obama is a Muslim.” It’s patently ridiculous. Who said it?

  2. chrysrobyn

    @don_dickson
    Not sure why you’re bringing politics into it, but… As someone who grew up in Arizona in the 80s, I’ve got to say that it’s not patently ridiculous for McCain to have an illegitimate child. It may be untrue, but if you read about his background, you can’t say it’s ridiculous. Personally, I’d just say “It’s none of our business”.

  3. Don Dickson

    Well I certainly wasn’t trying to inject “politics,” per se, merely citing (politically bilateral) putrid lies that measure right up there with the ridiculous claim that Capital Metro operates at a “profit.”

    Though I did not see the original report, I did happen to see the retraction of that ridiculous statement about Capital Metro turning a “profit.”

  4. atrain

    Silly comments aside, here’s the response sent over the Bus Riders listserv. Posted here by Austin Van Zant, without permission from the author (it’s too good not to share!):

    I beg to differ.

    Adam Shavitz didn’t take the same accounting courses I labored through.

    The $34 million profit is correct. $203 million Revenue less $169 operating expense equals $34 million profit.

    If they haven’t deducted depreciation on existing capital, then that should be included in operating expenses.

    Capital expenditures are what enterprises spend from their profits, after compensating shareholders.

    If they are short on profits, they can choose to incur wither short or long term debt, as long as they can pay the p principle and interest out of those future profits.

    Since Cap Metro does not pay cash dividends, is could pay dividends to its constituents in the form of lesser fares or improving service. Or it could pay dividends to the citizens who fund it through a 1% sales tax by reducing that tax by 14%.

    Oh wait, they now have to pay for that way over promised huge capital and operating cost of the Commuter Rail, the taxpayer subsidy of about $17000 per year per rider in year 1 to about $7000 in year 25 (only if enough people choose not to drive the new 183 toll road into town).

    And now they would like to have another foolish rail through the middle of central Austin, but don’t even have the projected tax growth revenue or the profits left over from the way too expensive Commuter Rail (appropriately named The Red Line) to fund it so are begging city county and state politicians to come to the rescue.

    All this adds up to eventually reducing bus services for those who depend on public transportation, cutting services and/or raising fees for disabled persons who depend on public transportation, and charging all other riders more.

    Wringing hands and making public transportation worse all the while there is a better idea invented by a fellow citizen like you and me, right here in Austin, free for the taking, Cellular Mass Transit (CMT) http://www.CMT4Austin.org is getting no attention from CapMetro Board and Staff or any other influential appointed or elected person. Why? Because it’s too good to be true or to even try, yet Curitiba Brazil and Capetown Africa’s working and superior transit systems is what it is based upon. Go figure.

    If you folks out there really want to do something about improving people mobility in Austin, providing better service more frequently at lower cost from your doorstep or within a short walk to everyone in Austin, then start insisting that CapMetro accept, embrace, plan and implement CMT NOW!

    This is a public service announcement.

    I have no stake in CMT and nothing to gain from it, nor does its inventor, other than a better public transportation system for all of us to enjoy.

    Skip Cameron
    Austin Great Hills HOA.

  5. Nawdry

    ..

    The following response to criticisms of Adam Shavitz's explanation of Capital Metro's budget details is excerpted from a slightly longer response posted to the ANCTalk and BusRidersAustin lists…

    L. Henry

    Comments below…

    LH

    At 2008/08/09 07:43, Skip Cameron wrote:
    […]
    >I beg to differ.
    >Adam Shavitz didn't take the same accounting courses I labored through.
    >The $34 million profit is correct. $203 million Revenue less $169 >operating expense equals $34 million profit.

    I think Adam's comments were basically correct.

    Public transit agencies, like a host of other public services (like roadway systems, dams, libraries, public health services, EMS, fire and police departments, etc., etc.) are NOT private-profit
    operations, and they don't make a "profit". Hopefully, their ongoing income will cover their ongoing operations – otherwise, they go into deficit financing of their operations, and that can lead to big problems.

    To put this another way: By the kind of reckoning suggested by this logic, the City of Austin, other municipalities, counties, public school districts, highway departments, EMS operations, police and fire protection operations, and almost all public transit agencies, among other public entities and services, are virtually all "profit-making" operations. I'm sure that would be exciting news to taxpayers – but of course, it's absurd.

    It should clue us to reality when articles in the mass media
    (especially by journalists with an axe to grind against public
    transportation) repeatedly remind us that such-and-such transit
    system suffered $XXX of "loss" in any given year. What counts is the
    OPERATING expenses vs. OPERATING revenues, and all major urban
    transit operations have long since failed to have operating revenues
    (mainly from passenger fares) cover expenses, much less depreciation, sufficient to generate a true "profit", for the past several decades.

    Instead of the "profit & loss" model commonplace in private business, public tax-supported agencies seek to ensure that their income (revenue) stream, from all sources, including tax-based subsidies, is sufficient to meet the service's expense obligations. Instead of the operating profit that justifies a private business operation, a tax-supported public investment and resultant public service operation is justified by BENEFITS that presumably exceed the costs of ongoing operations and amortized investment (e.g., original capital cost and ongoing depreciation of subsequent capital investments).

    >If they haven't deducted depreciation on existing capital, then that
    >should be included in operating expenses.

    Public transit agencies don't include depreciation as an operating cost, mainly because federal grant programs require capital investment "costs" to be handled separately. In general, these are handled by setting aside capital reserves from the revenue stream and using these to match federal grants funds.

    >Capital expenditures are what enterprises spend from their profits,
    >after compensating shareholders.
    >If they are short on profits, they can choose to incur wither short
    >or long term debt, as long as they can pay the p principle and
    >interest out of those future profits.
    >Since Cap Metro does not pay cash dividends, is could pay dividends
    >to its constituents in the form of lesser fares or improving
    >service. Or it could pay dividends to the citizens who fund it
    >through a 1% sales tax by reducing that tax by 14%.

    For any transit agency, this course of action would ultimately prove disastrous. Capital Metro, like any transit agency, must set aside funds for essential capital replacements – rolling stock, for
    example. Bus maintenance acilities need continuous upgrading. Bus
    shelters and stations need continuous expansion and upgrading. Capital Metro could pay some kind of rebate of sales tax (it actually more or less did this, on a smaller scale, when it voluntarily reduced its tax collection to 0.75% for about 10 years), but this would mean a slow deterioration in the entire operation, as buses would wear out, break down, the fleet would diminish, no new facilities would get built, etc., etc. This is not a course of action any responsible industry professional or decisionmaker would recommend or implement.

    I have rarely encountered a notion so utterly mindless as this
    proposal – promulgated by various community forces opposing transit
    and/or assailing CapMetro – that the agency's prospective $34 million operating surplus should be dissipated either as additional operating expenses or as cash "dividends" to transit riders or taxpayers. For any public transit agency, this would be a recipe for crash-and-burn.

    >Oh wait, they now have to pay for that way over promised huge
    >capital and operating cost of the Commuter Rail, the taxpayer
    >subsidy of about $17000 per year per rider in year 1 to about $7000
    >in year 25 (only if enough people choose not to drive the new 183
    >toll road into town).

    Since Skip seems to be drawing these figures from a fantasy world, perhaps in another galaxy or universe, I won't comment on them in any detail, except to say they bear no relation to reality. The Capital MetroRail light railway project in reality constitutes a minuscule portion of CapMetro's total operating budget – startup costs for FY 2008 total about $1.7 million vs. total operating expenses of about
    $169.2 million. That's about 1%, and it seems unpersuasive that this is dragging the financial integrity of the entire transit system down.

    Regarding rail, I'll just point out briefly and summarily that cities and transit systems invest in rail transit because rail systems have resoundingly demonstrated the capability of dramatically reducing unit operating costs while rendering significant societal benefits.
    In other words, despite all the repetitive moaning and wailing about capital costs, in the long run these system tend to save money, prove extremely cost-effective, attract much higher ridership than bus-only systems, and produce benefits far exceeding their costs. That's what
    is anticipated for the development of rail transit in Austin.

    Incidentally, CapMetro's allocations to the Build Central Texas and mobility projects funds (allotments made mainly for roadway projects for both Austin and smaller communities within the service area) total over $13 million in this budget – nearly 8X the amount allocated for the rail startup. Nobody seems to portray this allocation (for which, to my knowledge, benefits have never been tallied) as a great millstone dragging the transit agency into destruction.

    >And now they would like to have another foolish rail through the
    >middle of central Austin, but don't even have the projected tax
    >growth revenue or the profits left over from the way too expensive
    >Commuter Rail (appropriately named The Red Line) to fund it so are
    >begging city county and state politicians to come to the rescue.

    Actually, rather than CapMetro "begging" local civic leaders to implement central Austin rail, the reality seems the other way around – local civic leaders have taken rail planning upon themselves and are trying to find mechanisms for funding it.

    >All this adds up to eventually reducing bus services for those who
    >depend on public transportation, cutting services and/or raising
    >fees for disabled persons who depend on public transportation, and
    >charging all other riders more.

    I hear this kind of dire "gloom & doom" prediction made in virtually
    every urban area where rail transit is proposed – rail opponents recycled it over and over again last year in Charlotte before they were trounced in the November 2007 election, which reaffirmed public confidence in the transit system and rail transit program by a whopping 70% margin.

    The reality is the contrary – where major rail transit systems have been implemented, overwhelmingly the experience has been that the ENTIRE transit system, bus and rail, has expanded, and transit riders
    and the public as a whole have benefited. I would recommend my own paper on this, presented to an international conference in 2006 and now published on the website of the Victoria Transport Policy Institute:

    Evaluating New Start Transit Program Performance: Comparing Rail And Bus
    http://www.vtpi.org/bus_rail.pdf

    This study, which "compares public transport performance in U.S.
    urban areas that expanded rail transit with urban areas that expanded bus transit from the mid-1990s through 2003, using Federal Transit Administration data", concludes that

    >>
    …cities that expanded their rail systems significantly outperformed cities that only expanded bus systems in terms of transit ridership, passenger-mileage, and operating cost efficiency. This indicates that rail transit
    investments are often economically justified due to benefits from improved transit performance and increased transit ridership.
    <<

    >Wringing hands and making public transportation worse all the while
    >there is a better idea invented by a fellow citizen like you and me,
    >right here in Austin, free for the taking, Cellular Mass Transit
    >(CMT) http://www.CMT4Austin.org is getting no attention from CapMetro Board
    >and Staff or any other influential appointed or elected person. Why?
    >Because it's too good to be true or to even try, yet Curitiba Brazil
    >and Capetown Africa's working and superior transit systems is what
    >it is based upon. Go figure.
    >If you folks out there really want to do something about improving
    >people mobility in Austin, providing better service more frequently
    >at lower cost from your doorstep or within a short walk to everyone
    >in Austin, then start insisting that CapMetro accept, embrace, plan
    >and implement CMT NOW!
    >This is a public service announcement.
    >I have no stake in CMT and nothing to gain from it, nor does its
    >inventor, other than a better public transportation system for all
    >of us to enjoy.

    Richard Schultz's "cellular mass transit" plan seems to be little
    more than a repackaging of conventional local & express bus transit schemes, with the express services upgraded as "BRT" running on HOT lanes. I believe my comments originally posted to ANCTalk on 12 June in regard to this are still relevant:

    >>
    Richard Shultz's proposal for express and limited-stop buses fed by minibuses has been around since he first presented it in the early 1990s when I was on the
    CapMetro board. This type of express + feeder interface, in one variation or another, is commonplace within the transit industry. The problem is that Richard tries to present express buses on HOT lanes as a substitute for rail. This raises major problems such as:

    * Where do you put the bus stations (averaging 3 miles apart)?
    * How do buses access the stations safely?
    * Besides major freeways, where else would HOT lanes go?
    * How would also streets and freeway lanes cope with hundreds more buses, particularly in peak hours, and especially in the Core Area?

    …And so on.

    Overall, evaluation of Richard's proposal and its challenges have led CapMetro and other local planners to continue to recommend investment in rail service as
    a preferable option for the future.
    <<

    LH

    ..

  6. Nawdry

    ..

    [The following was recently posted to the ANCTalk discussion list.)

    =============

    My earlier post, briefly summarizing the rail project component of Capital Metro’s budget, was based on the “Commuter Rail Start-up” item ($1.7 million) under the “FY 2008 Capital Budget” section of CapMetro’s budget document. However, there are additional rail project expenses included in other budget sections, which take some digging to find. Those should be included in a complete tally of the rail program, and I’ll discuss them here, to ensure that as complete
    and accurate an assessment of rail project costs as possible is being
    disseminated.

    * ITS: Rail station PIDs (Passenger Information Displays, or “real-time information systems”) are included in the $5.3 million ITS section, but so are investments for the Rapid (bus) and general bus system, plus lots of other things for the agency as a whole. I’ll estimate $1.0 mn for the rail program.

    * Administration: I’ll estimate $0.2 mn for this item.

    * Interest: about $1.2 million of interest payments on railcars
    should be included.

    * Operations: about $7.2 million is allocated for rail operations.

    So, here is a more comprehensive tally for the rail project:

    ITS $1.0 mn
    Admin $0.2 mn
    Interest $1.2 mn
    Operations $7.2 mn
    Start-up $1.7 mn

    TOTAL $11.3 mn

    That amounts to approximately 7% of the total budget, which still
    hardly seems a millstone around the neck of the transit agency, as
    some critics are claiming. Note that this is STILL less than the
    Build Central Texas/mobility projects allotment (mainly for roadwork at present), which, curiously, is NOT targeted as a great burden supposedly sinking the transit system.

    It should also be noted that the Capital MetroRail project is a major segment of the comprehensive All Systems Go package, which was
    embraced by 62% of voters in the 2004 election. While the current
    project is essentially a de facto demonstration project, ultimately
    rail should yield some huge payoffs for the Austin-area community, both economically and in terms of general societal benefits. In particular, even as a demo project, Capital Rail is expected to immediately remove hundreds of daily motor vehicle trips from the crowded roadways of the corridors served, as well as reduce the demand for parking in these corridors. These in themselves are major benefits, and probably fulfill the expectations in the minds of many voters when they gave the green light to this project in 2004. In this aspect alone, the continual denunciation of this project by a small handful of critics, and portrayal of this relatively tiny project as a vast financial burden encumbering the transit budget, are especially absurd.

    LH

    ..

  7. Timothy-

    Apparently CAP METRO cannot afford cameras in all buses that record all activities.
    An incident happen on June 13, 2008 where an elderly was injured but the camera on the bus can be only activate when the a condition that if the bus is involved in an accident that make a ‘bump’ to start the camera OR by operator activation.

    Anyway, now a passenger word against an operator since the driver of CAP METRO does not remember anything.

    The senior lady reported the incident that day and supervisor came. She was tranported by ambulance and treated for injuries.

    Mr. Gilliam and the board is apparently not concern about the safety of the passengers.

    Now, CAP METRO refuse to admit fault leaving her with thousands of medical bills.

    We all make mistakes but just admit to them.

    So apprently like Council member Brewster McCracken stasted in a recent meeting, CAP METRO might go broke and reduce service.

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