Finance and Audit Committee Meeting   1/10/2022

So are we really, are we all set?

Okay.

So Sharon's not here yet.

So we, um, I think are not going to be able to take action until she gets here, but, um, so we'll hold off on approval of the minutes and I don't see anybody here that looks like they're a bit public comment.

So, um, so good morning everybody.

We have a lot on the agenda today, the biggest of which is really two budget items, our amended FY22 budget and also approving the recommended FY23 budget as well.

Steve's going to give us much more of an update, but we did have some very good news in the Governor's budget that was released back in December in the form of

Increased revenues and much higher revenue projections that are going to, I think, over a six year period result in about an additional, I think, three or four hundred million dollars towards rail.

towards VPRA.

As a result of that, we also have some budget surplus, unexpected budget surplus, I would say for FY22 as well.

And that's across the board in the Transportation Trust Fund, but also benefiting VPRA as well.

But I will let Steve do the talk through all of the budget assumptions.

But do we have, is Rob Churchman here?

So as Jennifer said, we've got a lot of work to do to enable the budget.

Next slide, please.

This is just the background of, you know, what the government has to do for the project.

I just want to point out, you know, a lot of work that we're presenting today, and I just want to thank Shannon,

Also, all of the VPRA, every employee did a lot of work to get to this.

As you know, we're doing an amendment, and it's a one-time event that we're going to do this amendment.

The big reason is to get the Western Rail, pull in a program into the budget, because that is moving forward.

But also, last year at this time,

VPRA didn't have any employees, and so we had a very short window to put a budget together.

So we have a lot better information than any, and we feel that preventing the entire budget from going to for the last six months of this year gives a lot better idea to all of what's going on.

That being said, moving on to the next slide.

This just really says why we do a budget.

I'm not going to read that.

The classification of the budget, I do want to point out here, the operations budget, which is our administrative fault, but also our passenger services, which is the core of why the rail authority exists to run that service.

So that's what's in our operating budget.

Our capital projects budget is expenditures related to

projects that we will spill on the asset and have to maintain the asset.

It sort of mirrors the financial accounting perspective here.

And then finally, we'll call Apple and Operator Grants, where an outside party, one of our partners, they are undertaking the project and we're participating in the financial way and also maybe find some technical advice.

but they're going to own that asset at the end of the day.

So it might be a theory, platform, improvement, or it may be like a grown-up yard at Western Rail that has to do some improvements.

So if it's a grown-up yard, you know, the other Christians, they're going to still own those assets.

So that's what the grants are.

So those are the classifications provided.

So if we go through, you'll see more

try to break the budget down into those three components to be able to get through this information.

Next slide.

So here I talked about it being a one time update.

Also, I mentioned Western Rail to be included and the better information.

And I think the last thing I want to say here is we're going through the capital projects and the capital grants, capital operating grants.

I think as Board, we should focus on new projects that we've added, projects that existed that we're putting additional funding on, and then projects that have been removed from the budget or have been budget reduced.

And then as Shannon comes up and takes you through these next few sections, I think one thing to remember, we're going to talk a lot about the FY22 budget amendment.

When you get to FY23 proposed budget, the only thing that will be different from the amendment will be we're adding the fiscal year 28 expenditure plan.

So the total, the actual total of all the projects, capital projects and capital grants will be the same FY22 amendment, FY23, which says we're showing the furthest out for the six years we're adding FY28.

And with that, I'm not going to continue talking about this question from an overall perspective.

I did hear from Sharon.

Awesome.

So, capital projects, we're going to go next.

So, as Steve mentioned, this section of the budget has been rolled to projects where, at the end of the day, we're going to put them on a balance sheet as fixed assets.

We're going to own them.

We're going to be tasked with maintaining them over a useful way.

The capital project section now consists of two core programs.

We've got the I-95 corridor program and then the Western Rail corridor program.

We're going to start out with the I-95 corridor program total budget, which you'll see here.

What this slide is really trying to drive home is what Steve was saying.

So the FY22 amended total budget is going to be the same for the 22 amendments and then the 23 budget as well.

This is going to break out all of the changes that we're going to be discussing in the next two slides.

The other thing to note is that the total budget includes all expenditures for all years.

So we're going to be looking at the whole project in totality.

Awesome.

So we're going to take a look at some of these changes here.

and Green.

I know it's a little hard to see that first section outline in green.

These four projects were updated to align with the costs included in the executed CRA that was signed with CSX.

So Long Bridge, the driver of this increase was the fact that it was originally going to peak up and the actual construction was going to start in 25 and 26, but that's been shifted out to 28 and 29.

So the increase here relates to the time value of money with that shifting out of the project.

The Alexandria fourth track increase relates to additional right of way that needs to be purchased for that project.

Franconia to Lorton and Franconia to Springfield bypass.

The change here relates to delineation of these projects.

So there was actually a shifting of some of the costs realizing that they had some overlap.

So Franconia to Lorton has increased, but the bypass has decreased for a net decrease of about $54 million.

So that was a net benefit for us.

The next item here highlighted in red is that we have transaction costs that need to be added to the budget.

We were not really aware of the amount of transaction costs that go into such a purchase, so we need to be including them on our budget to track them.

Yeah, exactly, exactly.

The last increase that we're calling out here is a gross-up related to the Newington Bridge and the Browland Bridge.

and the original budget and the improved budget, there was only a portion related to the PPRA funding included, so it was just a sliver of the total project cost.

But because we're going to be owning the whole thing at the end, we want to put the total project cost in here.

We've also added the funding and sources put on these projects as well.

So with those two projects, we also have funding from Fairfax County and VITA, which included those that wasn't.

Route One Bridge, and then Newington Bridge.

The other thing source for that is a grant with the FRA as well.

So that's been added.

So we're kind of looking at that more and holistically for those projects.

Maybe we can flip over to the next one for me.

So this is the next amount of changes.

Thank you.

So, as Steve mentioned, we're trying to do a better job of putting these projects in the correct bucket in our budget.

So, this first one, highlighted in yellow, is the Amtrak new equipment.

So, this has actually been reclassified to a capital and operating grant.

We're going to be giving this money to Amtrak to purchase two new train sets.

We're bringing on new service.

So, this actually is going to be something that we're not owning, which was a bit more of a classification of the brand.

So, it's been moved out there, and you'll see that in the next section.

The Richmond lay of our facility.

So this is the required project that we will need to do in order to meet the schedule defined and the CRA.

So we've added it into our budget to make sure that we're able to track it.

Next, we have Lauren to Route 1.

Sorry, still a lot of changes on this one.

Lauren to Route 1.

So, Franconia and Lauren goes from

It's bringing that corridor up to three tracks.

And then you have this lower into Route 1 where it's dropping down to two tracks.

And then you have the Route 1 bridge, which is four tracks.

So there's this 1.1 miles that's going to kind of essentially just kind of be a bottleneck still.

So this is going to be developed in Phase 3 and 4, but we'd like to shift it forward to Phase 1 and 2.

because it will gain not only development efficiencies, but also cost savings in the long run.

So we do have the funds to do this, so we figured this would be a really great project to be shifting into this time frame.

So that's why we've added it into the budget for this year.

The last item here is our other I-95 corridor projects.

Everything in this budget relates to furthering our FTA capacity grant eligibility, so additional requirements that we need to do to maintain our eligibility.

for the application we have in.

We will not know if we receive this funding until we've passed through our design phase, so in about two years, but we need to continue to advance these specific items in order to retain that eligibility.

This is going to round us out on the I-95 quarter budget changes.

Let me just add to that.

We will know if we get the core capacity money for at least a couple of years because we have to go through the process.

We are building out in our modeling, we're building out scenarios where that would come in and kind of the different things that would shift as a result of receiving that funding.

So that's something that we're in the progress of doing right now.

So fingers crossed we do get it.

That would really open up some funding to put elsewhere in our budget.

Okay, we are going to move on to the Western Rail Corridor.

So these are going to be the capital projects that are going to be added related to the Western Corridor Program.

So we've got the acquisition

The new platform and track that we're going to be developing, we've got some capital improvements that will need to happen, and then we've learned a lesson, we are putting transaction costs in.

And the executive director's report, you're probably seeing the recurring expenses related to this already, as the transaction's kind of well underway.

This is going to be the total amended budget for 22 and also the budget track for 23, including all expenditures for all years.

I will note that there's also some grants related to this.

If you looked at page 7 of the FY23 budget, you'll see an inclusive list of both of the capital projects and the grants together for this program.

Okay, so we have taken a look at the total project budget and we're going to kind of zoom in a little bit and we are going to look at the annual expenditures now.

So, at the top of the screen, we're looking at it from two lenses.

So, let's start at the top of the screen here.

So, we've got the amended 22 annual expenditures in comparison to the FY 23 expenditures.

Every year, you're going to see a decrease of about $27 million, which is probably not what you want to see as your projects are really gaining steam and design and making sure that you're still spending that money and getting these projects moving.

But what really is driving that decrease is that the right-of-way acquisitions that are occurring in 2022 are not repeating in 2023, so about $127 million decrease related to those.

We are seeing that increase in expenditures on both programs, $73 million related to the I-95 corridor.

and 29 million dollars related to the Western Rail Order.

On the bottom of your screen you're going to see a comparison of the amended 22 budget versus the approved 22 budget annual spend.

What we're really trying to drive home here is you can see in 25 and 26 there's that big ramp up.

That's the construction of Long Bridge that we had initially

We're going to do for Long Bridge before we kind of went through the CRA process and push that project out.

But now you'll see that that ramp up is in 27, but 22 to 24, that really has stayed the same.

So that's just what that's depicting there is the annual spend difference between did and approved.

OK, we are going to move on to part of how we're going to pay for all of these.

So on the next slide, we have got our total funding for the four point one million dollar capital projects budget that we just talked through.

Four big ticket items in here.

We've got the I-66 Inside the Beltway toll funding, VPRA revenue, CTB allocated VPRA, and then Amtrak capital contribution.

The CTB allocated VPRA, so this is going to consist of items such as SmartScale, CMAQ, I-81 revenues, and the PTF funds.

This has increased since the prior year because we've added in about $155 million of revenue related specifically to the western ground floor.

The other one we wanted to talk through on this one is the I-66 Inside the Bell Wage Full Funding.

So this revenue source has taken a bit of a haircut, about $270 million.

The last study that was done on this revenue source was done in 2019.

Obviously, a lot has changed since then.

Right now we're using current estimates and the fact that we're operating in such an unknown environment.

We don't know what's going to happen next to the pandemic.

Are federal workers going to be required to go back to work?

and increase that traffic pattern during that time, we do not know.

So we're trying to make sure that we're taking a conservative approach so that we can still fund this in total.

Luckily, with that decrease, VPRA fund revenues have increased to kind of put us back at a good level for our funding for these.

But that's where we're at with the I66-12 funding.

And this is a mix of pay-as-you-go and bond proceeds.

The last thing on this before we move off of it is there are three different financing that we're going to do in order to fund these capital projects.

We've got the Inside the Beltway Toll Funding, which we've kind of just talked about.

Yeah.

Oh, Kathy's in the other room.

All right, so the I-66 toll fund funding is going to have a financing component that's going to be led by VDOT and the CTV.

We have the VRE C-ROP funding, which is going to be led by VRE and should happen in the next quarter or so.

And then the one that the VPRA will be leading is the passenger ticket financing, hoping to do that around 2025.

And this is going to include capital projects.

Well, I do want to say, fuck the Rob Church.

Didn't get in good direction, I guess.

Our home base should be here shortly.

Okay, moving on to capital and operating grants.

So, capital and operating grants are going to differ from capital projects in the fact that we aren't going to own that at the end of this development.

We are contributing funds to a third party to develop their capital asset or run their operations, so we're only going to be giving a portion of a bigger project.

So, rather than looking at a total budget year, we're going to be looking at the VPRA grant funding, the portion that we are going to be passing through our financial statement controls.

So,

There are 29 grants that we will be administering.

24 of them are VPRA managed, and there's five of them that are gonna be DRPT managed.

There's some drivers over here on the right-hand side that I'll walk through about the changes, and then we'll dive deeper into the specifics in a minute.

But some of these changes are gonna relate to changes in grantee project scope, CTB grant awards, budget reclassifications, new or removed VPRA grants, or just updated project grants related to VPRA projects.

I'm going to do it real quick.

So 30% of these grants are CTV allocated, meaning that grantee is applying through the CTV process and they're being awarded there.

And we're just administering the grant with a flow-through of funds coming kind of from CTV sources.

And we flip to the next page.

So the other thing that we have changed this year is we've broken this down into two categories.

So it's more clear.

We've got the VPRA-managed grants and the DRPT-managed grants, as you can see on this page here.

We have added in the DRPT managed grants because we are going to be paying for these.

However, they are going to be managed by DRPT in accordance with the MOA that was board approved.

We would like to add them into the budget this year because the funds for these are VPRA funding.

We have the cash for these, but in order for us to effectively cash manage, we need to know when these projects are expecting to pick up steam, when the cash is going to go out the door.

Also, if these projects, say the grantee decides not to move forward with them, the funds revert back to the VPRA and they will be used at our discretion.

So we want to make sure that we're accurately tracking these grants.

So they've been added into the budget this year too.

Before we leave off this page, I just want to drive everyone's eye to the $129 million change.

Good morning.

Good morning.

Yeah, I'm going to keep you.

No, that's okay.

So we are right now going through the amendment.

Right, yeah, we are talking about them kind of in conjunction.

So everything for the total project budgets and VPRA grant funding is going to be the same for 22 and 23.

So we're going to try to talk about it holistically here because the budget that leaves us at 22 is going to be the same budget that we're going to be using for 23.

So here, Sharon, I feel like we're at the bottom of

Capital and Operating Grants.

We're talking about the changes impacting that from the VPRA grant funding perspective.

So, the first item here noted is the VRE scope changes in new CTE grants.

So, VRE gets many grants from the CTE.

So, all in all, they actually had a decrease of $3,100 related to changes in scope because now that the I-95 corridor is being developed, a lot of the projects actually didn't need to occur anymore.

So, that's what we're seeing there with VRE.

The next four grants are really the VPRA grants.

So we've got Ettrick Station State of Good Repair, Station Programming and Planning, Positive Train Control, and then S-Line Planning and Development.

This is a total increase of $24.6 million.

This is really VPRA fund money.

So Ettrick Station and Positive Train Control, these increase related to more notes about them.

We have actual costs that we will be paying for these specific projects.

So the budget has been increased to reflect that.

and then station programming and planning.

That has increased just to continue our commitment to developing the state of good repair for the stations that we own, and then a small portion related to the development of the S line as well.

Before we move on to that, I just want to note that at TripStation, we do have an application out for a Percy Grant on this.

We do not know if we're going to be awarded it at this point, so the revenue funding similar to the FTA grant has not been included in our sources, but we are seeking funding to kind of mitigate that increased cost for them.

The next section we have our Western Rail Branch, so we have the Western Rail Initiative Branch and the Roanoke-Nordic Branch that has been added to our grants budget this year.

And then, like we already talked about, DRPT Manage has been added as well.

So those are the new grants and additional grant funding that we're adding.

You saw this up above.

We have the Amtrak train equipment that has been moved from a capital project to a capital grant.

It has also decreased.

It was 55 million up there.

It's now 34.

We have a better understanding of how much it will cost to purchase those train sets, so it's decreased as well, added in this capital grant.

The next two grants have been removed as the Western Rail Corridor Initiative Grant has been added, so these are no longer relevant grants, and they will not be administered anymore, so those funds are being redeployed.

Track lease payment to CSX.

So in accordance with the JOMA sign with CSX, this payment is actually going to be covering our right-of-way maintenance costs on the I-95 corridor, which is truly an operations cost.

So that's been moved down to operations.

So that's been reclassified out of grants as well.

So it's a long-winded way to say we've got our $129 million increase, and these are the reasons why.

Any questions on any of these changes that we have talked through here?

Great.

We'll keep on chugging away.

Perfect.

So we're going to move on to the VPRA grant funding for capital projects.

So as I mentioned before, 30% of this is CTV allocated CMAQ funds.

I-66 outside the Beltway concessions are smart scale.

There's also going to be a portion that's CTV allocated to the VPRA.

So this specifically relates to Western Rail.

So this has been added because those funds are earmarked specifically for those project costs.

Okay, last one.

Similar capital projects.

We wanted to show the change in spend per year for the amended versus the approved.

So you're going to see a huge jump in 23.

$26 million of this relates to the Western Rail Initiative grant payments going to be going out the door that year.

The other amount of this is really going to be that grantees expect that their spend is going to really increase in 23.

So we go out to them in order to prepare this budget.

We'll ask them when they expect their projects to pick up.

So that's the other amount driving this increase in 23, so that's what we're collecting here.

This is the last part of the Capital and Operating Grants session.

Can I answer any questions on this?

So I'm going to try to rearrange him, come into the full board meeting later today, and hopefully be able to do it with WebEx.

So anyway, I just wanted to let you all know that we'll put that off for this meeting.

On the operations budget, a couple of points here.

We are going to, the biggest change, and I think it's a really good change, and it kind of stemmed out of some of our financial statements.

We're going to report the revenues and expenses at a gross level.

So in the budget last year when we did it last December, we caught a miracle.

We had been doing a DRPT, which was just paying a net bill.

where they take our revenues and manage against expenses and send us a bill.

And we would just show them the expense, the net expense.

And now we're actually going to show a budget where we have the revenue and the expenditure.

And that's all leading to one, better management purposes on those different frames we're running.

And so we really

Second point, there are several reclasses, as we've mentioned, to get different items that prior year we didn't necessarily have the classification to find that well.

So we had some things that were in Apple projects that maybe should have been more of a maintenance related item in the operating budget.

So there are some reclassifications.

So for instance,

and the slide we're looking at is the I-95 Quartermakers Ray Beering Access, that's a reclassification from the Capital Projects budget last year.

And the third thing I want to do before I jump into the detail, really, from an overall point of view, we added down here at the bottom what we're going to call a cost recovery rate.

And this is at a backroom level, so it's all our operations including our admin and

Over time, I think we want to set a metric that as an entity we're trying to achieve here.

For now, with COVID and revenues and ridership of our trains, it took a deep dive and it's slowly been coming back and then we've had these barriers.

It's made it a little difficult to establish that metric, but I think the next year or so we start to

employed on some history and come up with a metric for tribal achievement.

You'll see later.

And Stephen, if I may, let me just add, our goal is not to be over 100 percent.

I think if we end there, that's fantastic.

But from a business point of view, we understand that the role of passenger rail to get people off the highways, get people on trains, that may not be a profitable

and Denver in every single one of these grounds.

I think good point, DJ.

Every transportation mode is subsidized, roads, airlines, transit, et cetera.

So I don't think we'll ever get towards even getting close to 100% of the cost per company.

But at some point here in the near future, we'll have

a metric for me to say this is our fault.

Well, continually, we'll be able to see that.

So next slide, please.

So this is, I'm going to take us through the event, the FY22 operations first.

Because of that change in the way we're reporting the budget from net to gross, it's not easy to just line both of them up.

down the page because we didn't have all the detail for a gross budget that can be approved from last May.

So these two tables will crosswalk you from that net from last year to the gross.

So the table on the left here is essentially showing you the net and a macro level of 51.2 million last year.

that was approved and now we're amending that to 18.1 million dollar net that has to be funded.

The differences are 8.2 million dollars of additional costs related to new service that was in FY22 in the approved budget as we thought we were going to start new service during 2022.

That new service is now beginning this summer.

so it's really pushed.

It didn't happen in 2012, it was pushed in 2013.

When we did the budget last year, we had heard that there was going to be relief funding for the pandemic, but we didn't know the specifics, so we did not include any federal credits, which all said false, and that was $10.3 million.

Another item, we had included expenditures and the approved budget,

for a whole year of the Richmond service, that service had been stopped and it didn't return until the end of September.

So there's three months of that service that we now know we didn't have to pay for.

And then the other, the final difference is our revenues, we were probably just a little too conservative with the unknowns of COVID and our revenue estimation.

So, and then over on the right, it takes you through

proposed amended budget and showed you the detail from a gross perspective with the revenues, expenses, and the other operating expenses, getting down to that 18.1 that we're comparing at the net level from the black.

If I'm talking, do I have any questions, please feel free to jump in.

So, the administrative budget,

For FY22 and the amended, it's a $1.47 million increase.

The majority of that is the number of employees that we moved from 30 to 28 in the original approved budget to hoping to be at 34 by June 30th.

So that's the majority of the increase for the payroll.

We also are utilizing

and the stand-up of our organization.

Literally, we started, did not have any general ledger system, and it took a little while to even get paypal to work.

So we were having to use a lot of outside support until we get staff hired.

So we needed a little additional professional services to provide assistance.

And some other things that we're doing with that assistance is we're working on federal grant applications,

for the infrastructure bill and trustee funds that are out there.

And then finally, the last thing I'll mention here is the ERP and moving that forward now, and there's a slight increase there, which partly is the ERP, but it's partly just our underlying IT costs that are having more noise on the end of the year.

Next slide.

So for the FY23 operations budget, you'll see that there is a significant increase.

If you look at the table on the right, $50 million.

So it's comparing what we're proposing as an amended budget to the FY23 proposed budget.

And you see a $50.4 million increase.

I want to take you through what that is being derived from.

So the first is, as mentioned a little while ago, the two trains, we thought that were going to start in FY22, they are going to start in FY23, and if you average the six existing trains today, they come out to roughly, and I'm averaging, they come out to roughly $12.4 million per train.

So multiply that by two new trains,

It gets you close to that $25.4 million.

There are some barriers depending on the number of valves and layovers, et cetera.

So that's the biggest portion of the $50 million.

I talked earlier about that reclassification of the VRE Access Rail.

So that's just moving that out of capital projects, but putting it into operating budget because it's a maintenance item and not a capital project.

Then also we included Western Rail, there's some maintenance costs because we're moving forward out there.

There's some costs associated with running that.

There's an access fee and then maintenance of weight related to that purchase that we'll be talking about later today.

And then another item I want to point out is the loss of federal credit.

In 2022, there was $10.3 million of federal credits that help offset our costs.

Basically, Amtrak applies it to the cost before they send this to them.

That total is going down by $5.9 million in FY23.

I think there will be $4.4 million in credits left, and we will exhaust those in FY23, but that shows up as

and increase in our costs because our artists made several dollars offsetting them.

So those are the main items that should point to the reason for the large increase.

I'll also say, I'll add here, just as I said, the revenue estimates before when I was comparing the amendment, 22 to the improved budget, we were conservative,

We took the same approach here with these new trains and with the normal operations.

We want to be conservative with our revenue estimates because I think we all thought you're coming out of it this summer and then Delta, now Omicron.

And so the uncertainty is still there.

And Amtrak really, they don't provide us those estimates for 23.

They give us an estimate for 22.

We're moving on.

The administrative budget does have a three, about a three million dollar, three and a half million dollar increase.

And that's primarily the biggest item here is we are moving from forty five employees, I mean, from three to employee level to twenty five.

And probably the biggest thing is we hope to be at thirty four by July 1st.

When we started this July 1st of 22, we were at four, maybe five.

I can't remember the date of one of our employees started.

So 34 people starting the beginning of the year compared to four or five.

So that's what's driving that large payroll increase.

And other than that, I think we're looking year over year pretty much the same, somewhat false, but we will.

By December,

Next year, we plan to go live.

We plan to go live with the ERP system, so a little bit of an increase there.

These other employee costs are travel expenses, training, recruitment expenses, and it's just our other administrative costs.

As we bring on more employees, obviously, those costs are there.

Next slide.

And I'm not going to go into much detail here.

This is really, as I mentioned earlier, the by train.

Right now we have by route data for Amtrak.

So we're working with them to require an annual operating room that they provide by train data.

And we will report it by route.

This is starting in 22 with this budget amendment and in 23.

So we're going to report against these budget amounts, but hopefully I just want to say we are going to push it down to where instead of grouping some of the trains together by route, we're going to get you by train data.

Yes, can I interrupt a minute?

And we talked about this a little bit when we were walking through it, but I just want to say for the record to thank you and your team and Shannon and everyone involved in the granularity of this budget compared to the last budget that we were able to see, because this is, while I know you're not quite where you want to be in terms of the train by train analysis, being able to break down revenues and expenses

as opposed to having one number that says net and having really no good idea of what elements comprise that.

I think I mentioned earlier while we're doing an amendment, that's another good reason.

I think the reality of it is we just have better data and better data helps you all

they adjust, helps us manage the business.

So next slide please.

So this slide, as Shannon said earlier, we have to change how we're paying for everything.

So for the 22 amendment and the 23 operating budget, you see passenger ticket revenue being about 51% for FY 23.

and then the remainder comes from our VPRA fund, our dedicated Commonwealth Rail fund.

As Jennifer picked up the meeting and said that we did get some good news there earlier in December.

So that's how these are funded.

And then also we thought it prudent to put those federal credits because the federal credits are, in a way, they don't flow through us.

And in a way they sort of

they sort of net cost a little bit and then make a repair in a year-to-year a little.

You have to make sure you're adding those back in to really do a good repair or something.

Just wanted to mention those items on the funding.

And moving on, so before I jump into this, that really, we kind of go up through the three sections of the budget.

Essentially, farebox recovery is 64.2 for fiscal 22 and 62.7.

Is that farebox recovery for operation?

Yes.

Yes.

Well, the 51% is what

for 23.

And then the 54.2, as I was saying, Shane, you really probably have to compare the 54.2 and add back that general credit.

But still, 54.2 out of 82.6 for what we've gone through.

I think as an agency, Mike and his team and DJ can jump in, but I think you're very happy with the recovery of a ridership.

Coming back very strong this summer, we got back to 70% in the variant set, but I think we're back.

Kind of plateaued a little, but we're back and we didn't see a difference.

And so we're at that 70% range and we hope to get through this, wearing these masks and get through all the variants that things won't even take back.

I mean, so compared to some other

other modes, I am very optimistic.

All right.

Well, the next item I wanted to talk to you about was, and really this is, I want to make sure it's clear, this is a board reserve.

I know it's in management, but so it's not our reserve, it's y'all's reserve.

And what this is, so all of the capital projects

the $4.1 billion capital projects that chain into the health room.

They all have contingency in those project budgets.

So there's been a risk analysis done at a certain level of added budget for those risks.

And what we're looking at here is to provide you with a reserve room.

So if there is something that is completely outside of what could have been planned for within a project budget,

So if you hit some sort of waste product that just could not have been anticipated and we have to come back and there's going to be added expense.

And I think as much as that, I like to think about this as really it's reserved for y'all for opportunity.

So if the next West Point Rail Corridor Program comes along, there is some funding that you would have set aside for such opportunity.

So I think that's the main point of this.

The funding, as we did the financial modeling, and we probably run that model at least five or six times.

Shannon now is very familiar with it.

And in fact, we have been able to take the model in-house from the consultants so that we can now, we just have a small chain, we can push that through.

Anyway, after the new revenues,

and all the other jobs.

But anyway, all the modeling, there's about $50 million in the next four years that we can put towards a board reserve, board management reserve.

And so we would like to, and have Y-23 as part of this proposed budget,

to recommend $15 million being put in what we'll call a board reserve.

And then the last thing on the slide is, we call it a metric, but it's really, at some point, we're thinking, how do we define what the proper amount is that should be in the reserve?

Should it be 10 pounds or like something else?

Should it be 10% of our total capital projects, $4.1 million?

Should it be more than $10 million?

Should it be 5%?

And so when we talk about a metric, it's not really a performance metric, it's really more of how do we, or how do you as a board, and we as a company, how do we want to think about this reserve from a long-term perspective, and what would we like to get that reserve balance to be?

And there's a second, you know, there's the other, another way of looking at it is maybe it's what it means.

So thanks, Sharon.

This is sort of not exactly a contingency reserve because those would be built into the projects.

So if a member comes to us and says, hey, we're banning this line and we may want to purchase it for the future, maybe for a trail, maybe for passenger service, we don't have to run around for money.

We have the opportunity to come to the Lord and say, look, this is presented to us.

We think this is a valuable idea.

Here's what it can do for us in the future.

We have a reserve that you all can allocate to this.

It really just could have four opportunities that we don't know about now.

Let's just back up a little.

and they all have significant issues.

But we don't know.

And anybody that's watched these projects, you could run into butterflies that cost $10 million to mitigate because you've got to have a park right along, right away.

I mean, these things happen, and we don't have such a park.

So it's really just in case, but the board can say, yes, we think it's important for the community to add this walkway or the

That's that's pretty, pretty nice.

That was

and you said it twice there, it's y'all's reserve.

Well, I was just going to say, while I applaud the development of a metric or some sort of a baseline, I would also argue that at this point anyway, it's probably premature to decide how to do that and experience will begin to inform

on an annual basis, how we how we start to develop that number.

Right.

Right.

So we went along, did want to just touch base real quick on the revenues.

Jennifer stole the thunder here.

So we did get some good news and

The bullet point here is looking at the life latest revenue estimate that we had compared to the one that came out December.

So that's what the $75.1 billion is.

But if you actually look back at last year's approved budget and compare to the revenue we showed in there, it is $179 million increase.

So from December of last year to December of this year,

Roughly a $180 million entry.

So some very good news there.

I'm not the state's chief economist, but I think as we, with our passenger ticket revenue, we're very conservative.

I think maybe when COVID first started, no one really knew where we were going and how it would turn out.

And so I think there was a lot of conservative approach.

But for us, very good news.

Next slide.

And these next two slides are really summary information.

So of the capital projects and operating grants, I'm just trying to leave you with the key, the key changes that have occurred.

So the addition of the Western Rail corridor, about 210 million, this is capital projects, 210 million.

And then the grant side, about $168 million there.

So y'all had,

I believe we had talked to y'all last year in the spring about the Western Rail Initiative and briefed you on it.

But until we knew we were actually going to get inside that deal with Robert Sullivan, we didn't want to actually put it in the budget.

And we're there with the big drivers for the amendment.

The other thing is the alignment of the I-95 quarter capital program with the comprehensive rail agreement that we did sign with CSX.

So that's about $148 million of costs, which in that $148, and Shannon said this earlier, there was $38 million of transaction costs.

A lot of that seemed like a big number.

A lot of that, $20 million of that is survey work.

There are a lot of different, gotta go to every county, every city, and

We literally have land records that were

lost in courthouses that burned down in the Civil War.

It's the Aslan and the Buckingham Branch, as well as the 95 from Petersburg to the politics.

So that's that, but then we also wanted to

Make a point third bullet here, the $24.6 million that Shannon mentioned of capital grants.

Those are new capital grants that are being proposed to you as a board.

They are for the positive train control, which Amtrak did the work.

And we have a lot better idea than all of the potential costs that we did a year ago.

And then addition to that, we also remember

We did some work on an amendment for a station state of good repair.

And part of that, we said last May, we're still looking at it, and once again, we have federal information there.

And I will say, with respect to that station state of good repair, we do plan to try to seek some federal funding to help offset some of those costs.

And the last thing, as Shannon mentioned, we added the

Managed Grants.

And honestly, we should have had them in there last year.

It's just an oversight.

But those expenses, those dollars are flowing through our financial system, so they need to be in our budget.

Next slide.

This is just a summary of the operations budgets we talked about.

I'll just go through this quickly.

So 22 approved to the amendment is a $33 million decrease in the federal credits.

$10.3 million of that and two new trains that didn't start and will start in 23, $8.2 million.

And then we did have a slight increase in our administrative budget.

And then the difference being the revenues.

the FY22 proposed amendments and the FY23 proposed budget.

We are having a $41.9 million increase, and we're losing those federal credits for $5.9 million.

The new train's $25 million.

And then we had $15.1 million of maintenance away and additional access fees that are all set by about $8 or $9 million of new revenue.

And then

as we just talked about the increase in our admin budget of $3.6 million.

And the last slide is really just our next step.

And this is a set up for FY 23.

So we'll talk through that real quick.

So presenting the budget today, come back February 1st, hope to get all the approval to move the budget forward because on February 1, the property is composed to provide the budget to the CTV,

come back in the middle of February to present the budget to the Commonwealth Transportation Board.

I'm hoping to get their approval moved up this year to April instead of May in case there is any sort of amendment or any sort of questions, so we'll have a little more time.

And then that would put us back to May to get the final approval for the budget.

And then that's not on this slide, but also the hope is to go to the board later today

and present a resolution to get the amendment to the FY22 budget done today so that when we present you our December data, you can actually present that on using this new budget.

So that's the hope, and I'm hopeful that we've taken them through this and that I will be asked that y'all will be able to support.

That concludes the budget discussion.

Would it be more effective if we took an action?

Okay.

Is there a second?

Okay, all in favor?

Aye.

Any opposed?

Great.

So we will then bring that to the full board in the full meeting.

Again, as you may recall, we originally were planning to have this meeting in early December, but then with the governor's budget, we knew there was going to be new information.

We ended up having to postpone that.

And then with the weather last week, we

We're not planning to have to do this on the same day as it will be for both boards, but I think this will at least, this recommendation will allow the board to not consider it a full FY22 amendment.

And since we now have a quorum also, I would like to ask for a motion for approval of the minutes.

So moved.

Okay, great.

So thank you, Steve and Shannon for the presentation on the budget items.

And since we do not have our author who's going in attendance today, that takes one thing off the agenda, another thing off the agenda.

But we did want to get back to you all related to the discussion we had on the in the full board, our last meeting related to the investment policy.

Yeah, and actually we have done a majority of the WebEx, but before jumping there, I didn't know that there for the FY23 budgets, should we, should we have the finance committee, should y'all vote since this meeting's being held, we'll recommend it, or

Yeah, we can go ahead and do that, take an action to recommend that for a 23 budget.

Okay.

So, there's no intention to bring the 23 budget to the full board today for approval.

Yes.

It should provide an awareness.

So why don't we take an action then for the Finance Committee to recommend the FY 23 budget for consideration to the board as well?

Happy to do it.

All in favor?

Aye.

Great.

Thank you.

So I'm not sure how the WebEx works, but I'll just sort of tee this up.

We had a discussion, we had an investment policy approved and there was discussion around

the ESG principles that really we said we would consider it whenever making investments.

So the joint that was made in the board meeting and understood clearly was needed a little more well defined than that, what we will do with respect to incorporating the environmental, social, and governance principles within our investment practices.

So we have been working since that investment policy.

We've been working with Wells Fargo.

Wells Fargo, between September and December, they spun off their investment management business into a company called Allspring.

And so we haven't begun yet making investments with that firm.

But we have been working with them in the interim on how do they

look at ESG within their investment practices.

And it turns out they actually do have an ESG scoring process.

They actually have analysts on staff and that's actually all they do.

So I'm going to let Frank come on here in a moment and talk to you all through that.

And then the other thing Frank's going to talk to you all about, and then Joe will face Frank Marchiones from Allspring, is

We also have been looking at the investment policy.

There may be some slight changes that are needed to allow us to achieve a better return.

And what we were looking at is some of the ratings fall on corporate bonds and commercial papers.

Maybe look at some of the rating requirements there.

And then the other item to look at and consider is

the inclusion of other policies, of other investment types, which are sovereigns, which are government securities of foreign countries, and then also potentially asset backs.

So, what I'll say on that last point is I'm going to compare to several other schools

Northern Virginia Transportation Authority has a large cash balance, and they have large investment balance.

So I'm going to make sure where we end up that we're going to be comparing, I guess, with the latest data to them.

And then HR, and road transportation, and the Lake Commission also has a very large balance of funds that are invested.

So when we make these proponents, I guess I'm committing the offer and I'm prepared to offer

entities within the commonwealth to make sure we aren't going beyond what is reasonable.

Yes.

Okay, excellent.

Thank you.

Thank you very much.

And thank you for having me here today.

I really appreciate that and slightly belated Happy New Year to all of you.

I know the meeting last week got postponed because of the heavy snows.

But we're back here today, which is great.

And as Steve mentioned, I've been working with him for quite a while on the investment policy considerations for the VPRA.

I'd like to address a couple of things that Steve mentioned.

First of all is the notion of ESG investing.

We as a firm have been taking ESG investing very seriously for a very long time.

In fact, we were one of the original signatories to the United Nations socially responsible investment thesis.

and we continue to pursue that methodology on behalf of our clients.

And to affect that, we have a very large proprietary set of resource teams, both for equity investments and fixed income investments.

Obviously, this is all oriented toward our fixed income teams.

And we've developed a proprietary model that we call ESGIQ, which is obviously ESG and then investment quotient.

And so we apply actually a score to every one of the issuers in the marketplace.

It's a rating scale from one to five and five being the best.

And what that does is there's two components to it.

There are other providers of ESG scoring out in the marketplace, four or five very large notable ones.

And we have a patent pending algorithm that actually takes all of that information that consolidates it into something meaningful for us.

And then also our analysts apply both a quantitative and a qualitative score

to all the issuers on the marketplace.

And all of that is combined to affect this score from one to five.

And then within each one of those one through five, there's also sort of a stable improving or deteriorating, you know, plus minus or stable rating to it, just like S&P and Moody

And we have the ability to, within a client's investment policy, mandate a minimum average for the portfolio or a minimum average ESG score for certain sectors of the portfolio.

Certainly relative to this investment policy, as you know, you already have significant restrictions on corporate bonds and other corporate exposure like commercial paper, where you had an A1P1 for commercial paper, AA and above for

corporate bonds, and just as informational, the corporate bond market has evolved dramatically over the last, you know, in my career, to the extent that, you know, the issue words in the AA and above space are dominated, and I can't even stress that word enough, dominated by financial companies like, you know, banks, insurance companies, brokerage firms, so on and so forth.

And so by having a AA above and an A1P1 on commercial rate and above rating,

You almost by definition are going to have a significant concentration in finance and banking names if indeed you're in that market.

And then of course the portfolio of this policy also has a restriction on the concentration of those sectors.

Only 25% can be invested in corporate bonds.

So the bottom line is, first of all, how that relates to ESG is that you are almost guaranteeing with the current investment policy that you will have a significantly high ESG score

because finance companies and banks tend to rate very highly.

They're not drilling for oil, they're not mining for coal, they're not making guns or other things like that that can sometimes come up on other ESG scoring tables.

So right now the policy is set up to have an extremely high ESG score.

without really kind of doing anything to the investment policy.

So there's that consideration right out of the gate.

But if indeed this committee would entertain the opportunity to invest in lower rated corporate bonds, maybe in A and above, then perhaps it would be time for us to consider some sort of formalization of an ESG score for the portfolio as a whole or for that sector.

And of course, I'd be delighted to share as much information as anybody wants to read on this.

We look at that world.

We apply to portfolios.

And so it's an open discussion at all times and I'd be delighted to share information.

I've just said a lot of words.

Well, Frank, we lost you for a moment for I think about the last 15 to 20 seconds or so.

Actually, the last 15 or 20 seconds was just regarding how we have the ability to...

If indeed the committee is going to consider investing in lower than AA rated corporate bonds, then EMG becomes particularly relevant and we'd be delighted to help you apply that methodology to the investment policy as well as the actual investment thesis, investing as well.

So, Frank, when you have with your clients, is the ESG measure incorporated into the investment policy itself?

Yeah, well, I can't say typically that does happen.

I mean, we certainly have clients who want that to be formalized and memorialized and embedded formally into their investment policy.

and we'd be happy to help you with the language around that and what makes sense in your organization in terms of how stringent and strict you want the ESG considerations to be.

But other clients, they're a little bit more, I'm not going to say lax around it because that's not the right word, but a little less formal around it.

They want us to keep our eye on that ball and they want us to kind of just verbally report to them our methodology around it and where the exposure lies.

So it kind of goes either way.

The trend is more and more clients are embedding it directly into their investment policy.

It becomes more relevant, especially in the US.

I hate to say this, but our European counterparts have been embedding it in investment policies for longer than we have.

Okay.

So I believe we would like to consider

I guess modifications perhaps to the investment policy that would incorporate a ESG metric.

Jennifer, I was going to say that what I had planned to do was the ESG obviously did that incorporate, but also look at those other modifications.

as I said prior to our peers in doing that.

And my thought was, I don't know about February 1, I don't know if we'll be done at that point, but I don't know the next board meeting if it's in May, but it's that board to come back and get it formally, this ESG scoring process formally included.

And also we're going to tweak the investment policy at all as far as investment types and ratings, also do that then.

And that would give

us this committee another chance to have a meeting to go into the detail a little bit more because I know in reviewing their they score across they score within sectors and obviously here in the oil and natural gas sector

It's possible, with my Exxon, I'm just making something up here, but an Exxon might score a polar if you're just in that sector.

And if you are across all sectors, and I think, so there's some detail that we put this in a policy, I think we want to be careful how we word it, that I would like to get back in front of y'all later.

Maybe it's late March or early April, but before that, that's forward meeting, so that then y'all can once again

Steve, on this, I think it's important to make clear, as Frank said on here, if we stay at double or above, we'll never get to Xbox, right?

That's got to be made.

So big changes if, I don't know if we're going to get to Xbox, but just that notion that we're basically guaranteed if we stay up for an investment strategy to

to be ESG extremely high ESG schools.

So you've got to talk about that, right?

We can't be talking about this in a vacuum.

There's no potential to invest in potentially risk.

There's no chance of us buying guns.

I mean, it's just not happening.

So I think we need to talk about that.

But if you do want to take it to single A, then this becomes relevant.

Is that entirely true, though?

Is it possible that you could have a high-grade utility, for example, that would have a corporate-level AA?

ratings from some of the rating agencies.

So I guess I'm just a little bit uncomfortable with the idea that while absolutely it will be mostly banks and investment companies that have those ratings, there are certain types of corporations with sustained dependable earnings that also have those types of ratings that we need.

So rather than assuming that we will never get there unless we change the

The point that she was talking about, the average ESEC award is going to be really high and I think it's also, does the board,

What to I could allow an excellent pair.

The average is still really high.

That's why I don't want to rush this and just throw something in there.

I got to the allow to hear it.

We didn't want to just say, hey, we'll consider it.

And by default, it will score high.

But we also maybe we absolutely do not want to allow it.

We want to look within

sectors where we want to look across the board.

And across the board, a certain score is not met.

We cannot buy that commercial paper.

Okay, so that's something to talk about with Brian too.

I think that's, to me, the discussion that I want to work with help and then get back with y'all.

Okay.

Just like I don't want to bend the budget every year, I don't want to come back and keep amending the investment.

I think it makes sense that we did it, wanted to get it done, had time to think about it,

incorporating this ESG scoring makes sense to me.

At the same time, we've had time to also sit back and have a little more time to think about some things that we've left out, some investment types we left out.

Maybe we're just being a little too conservative.

Jay, I wanted to give you an opportunity.

Okay, thanks.

I think your question, or kind of a question, if you want to go ahead.

I will say what the main motivator I had to bring something forward was around fossil fuels specifically.

You know, I think the rest of the board,

began to think more broadly about ESG, and that was what was to be explored.

So, Frank, you know, your dad should be looking at, as my colleagues have said, at specifically what does it mean if all fossil fuel investments are limited?

Does that, how does that work?

and second one would be this broader ESG rating.

Okay.

So Steve, I think it sounds like we'd like to get some more information.

I think it would be helpful to get more information about the EST metric, but also perhaps some potential revisions to the investment policy as well.

I think it's wise to plan at another meeting, give us time to get in detail, to make a proposal to y'all, and then take you through that proposal, answer any questions before we go event.

Thank you.

Thank you, Fred.

Yeah, absolutely, my pleasure.

And as I just wanted to close by saying that we, like I said, we have been on board with socially responsible investing since almost practically the beginning of that, the advent of that.

And we understand how important it is from many different respects, including as a fiduciary on behalf of our clients assets.

and investing prudently on their behalf.

You know, there is indeed, we believe, a strong financial consideration for ESG investing, not just the quote unquote sort of feel good factor of it.

and the right thing factor to do, but literally the financial impact of being able to invest our clients' funds, particularly in portfolios where capital preservation and liquidity are the primary objectives.

I mean, the last thing you want is an ESG surprise to compare the financials of the security that you hold.

Great.

Thank you.

Thanks, Fred.

Okay, so with that, we've come through the agenda.

I know we've got the board meeting starting in a few minutes, and so we can go ahead and adjourn.