Finance and Audit Committee Meeting   7/11/2023

All right, so good afternoon, everybody.

Welcome to the VPRA finance meeting.

We are streaming live.

Here we are in the VPRA Richmond offices at 919 East Main Street.

In the event of an emergency, we will evacuate down this stairwell here.

We'll follow Mr. Fitter.

I'll be the last one out.

Go down the 24 floors.

We'll meet right over there at the 9th and corner of 9th and Grace.

That's where the muster point is.

And we'll wait to be told it's safe to come back into the building.

The event of a medical emergency, there's an AED in the kitchen, in the coffee room, excuse me, Steve, if you will go get that.

I'm CPR certified.

Anyone else CPR certified?

Awesome.

Thank you.

I'll take the lead and you all can pack up.

There's first aid kit right there in the kitchen.

In the event of an active shooter, we will flee first, hide, and then fight is our last resort.

Mary Stella is a trained martial arts

Looking around the room, there are not tripping hazards in pretty good shape.

Just watch for pinch points on your chair when you push them in.

There are fire extinguishers located by the restrooms and a fire alarm pole right as the stairwells go out.

Any questions or concerns about safety?

Shannon, will you dial 911?

I left that out.

Thank you.

I know you're looking at me.

Excellent.

Okay, great.

Thank you.

Thanks all.

Welcome to the meeting.

One item on the agenda, right, is consideration of management reserve policy.

No formal recommendations to be taken today.

And I guess I'll jump in here.

We have prepared some slides, done a little bit of homework, and come up with a proposal

to put before you all for consideration.

And I'll go through these slides, but I really want it to be informal.

And please jump in if you need me to explain it differently.

Shannon, it's welcome to join me.

And DJ, you've been through this, Jen.

So I'd want it to be a back and forth.

So we walk out of here, we have clear understanding because as we discussed at the May board meeting, this is very important and it's sort of setting

groundwork for as we move forward and really for this entity for quite a while, how the funding that isn't allocated, how that funding will then be decided, how it is allocated.

And I think based on the May board meeting, we all quickly realized, well, there's a balance.

How do we use it?

And we needed to put some rules around that real quick.

So that's why we're here today.

So that being said, let's jump through the slides and

By all means, please interrupt me if you have questions.

So before I go through, I want to also sort of lay out a little groundwork that I think might be beneficial for people following this proposed policy.

So back in May of 22, we did a very detailed financial plan.

We presented it to the board.

It's out on our website today.

I think it's 75, 80 pages long.

Lots of detail about all our different revenue sources, lots of detail about all our uses, how those match up and work together.

And obviously we came along, we had a great plan back then, came along this May and had a budget shortfall of $700 million.

So all great plans don't always follow their path.

And so obviously what point being is

All financial plans are evolving and changing and so we've seen that and I really want y'all to think about instead of this reserve thinking about it as a piece of money or funding that's set aside and so to speak in a separate bank account, think about it as the net result of all that financial planning that's constantly evolving.

So we have sources of funding,

and we have uses of funding.

And when we did the May budget, sort of snapshot of this year, we had $124 million that we said was management reserve, which is essentially the unallocated sources of funding that were greater than the uses that y'all authorized.

So that, I wanted to say all that up front, because I think people, I think it going through all of our upfront

back and forth discussions.

I think people think about a reserve and they think, oh, it's cordoned off.

And it's really, this is an evolving set of funding that's sort of set aside by y'all to not be allocated.

I think that's the best way to look at it.

We still call it the management reserve.

It's still the board authorization.

But anyway, wanted to say that upfront.

So these are the components of the reserve policy that we have and we'll walk through today.

Let's move along to the first slide.

So I wanted to up front kind of put some framework around the prioritization, the use, and to give as a board for y'all to adopt sort of some framework uses to guide board members as new board members come on board.

So, you know, there's some idea and, you know, when I think about this, I think, you know, DRPT, you know, chair of the rules here,

does the planning for rail.

And if a proposal is brought forward to do a planning study, I think we have to think that that's not really in the mission of VPRA and maybe that's what this is trying to guide.

Stick to our mission and then on top of that to provide some prioritization.

Prioritization, I kind of highlighted that on my

paper here because it's not absolute, but we did come up with these four items of prioritization, which unlocks additional passenger service.

That's what we're doing here.

In the grand scheme of things, it's ultimately what we're here to do.

It's in our budget, and then it also

would go towards a project that is working towards that 30% design that we talked about back when we did our budget in May.

And we talked about only funding 30% coming back with the cost from that 30% to decide when we move forward.

So that would be one element of prioritization.

Third one would be that a project could enhance a project that's currently in the approved budget.

We had a couple of projects last time that we ended up removing from the budget because they weren't required, but you could argue King and Commonwealth or Route 1, some of those have sort of a complementary impact to projects that we are required to do.

And finally, the last prioritization item here is that it potentially could leverage our existing resources to potentially get some other funding

So that's always, I think, a consideration.

So that is not, that was our prioritization when we were talking about the budget process.

It was not something that was adopted as a policy.

It was really, you know, we had a

did shortfall this year, and we needed to come up with a method at that time to decide how we're going to make these decisions.

So if you wanted to try to incorporate that, we could.

I think we have.

I just remember early draft of this, you say, when making the management reserve allocation, here's our priorities for the budget as a whole.

But it seems like we pulled away from that now.

No, I actually think both are true.

So when we set the budget and when we will set the budget in January for next year, we will follow that same prioritization.

We've got to fund the operating costs first because we've got to pay for the trains.

And then the grants that we really don't have any choice on because they're set grants, that'll be second.

And then our capital projects will be third.

This management reserve will be part of that capital project allocation.

And when we're determining what the 24 budget looks like,

We are going to consciously keep this reserve aside, even if we're underfunded on other things just like we are now, because we want to have the flexibility, as Steve pointed out, to react to projects that come up that perhaps we weren't prepared for.

projects that we're getting to 30% design and we find out that yes, given the schedule and cost, that 30% design has told us these make sense to do now.

We're places where we have crews out there doing work where, hey, they're out there, we've already impacted that part of the community for six extra months and an extra $5 million, we can add another half mile of track or we can put an extra switch in or we can do something that we didn't intend to do.

We want this reserve to keep that flexibility.

That doesn't usurp the prioritization that you're talking about.

Patty, it is still there when we're talking about the information required to use the reserve.

So Patty, obviously seen some of this.

So for those of you walking through it, the back of these slides, there is kind of an information gathering where that operations is still one.

And when presenting the information for you guys to make your informed decision, that is still contemplated.

Can you fund operations?

Yes or no?

It's the excess of the financial planning process through fiscal year 31 in this case because that's when

Last capital project that y'all approved of the budget is to be completed.

So if you take all the sources of funding through CEFWA 31 and the uses that y'all have authorized in the budget and you put them against each other and there's a $124 million difference.

Now that was back in May and it's constantly evolving because you'll see as we talk about a couple examples, a few items have changed since then.

onto the positive, and then we're still working through the Amtrak ticket revenue.

Talking about sources now.

The source has changed throughout the year.

And I guess I was going to add to what DJ had said.

So operations, I personally will always say that we've got to fund operations as the top priority.

And I would say then after that, when we did the budget, when you look at the slides, it just required projects.

So we've signed some contracts where we've said with CSX, we're going to do this group of 10 projects.

to be able to unlock service.

And if you recall, those required projects, we kind of excluded them from the new budgeting process of only funding 30% design because we had already stepped into that contract.

But there is an unfunded amount for those required projects.

So if you make those priorities, if you make them an absolute,

Then we'll always fund operations first, which I would say yes.

And I think everybody at this table would probably say yes to it.

I've heard that from the board every time we've talked about it.

There's no universe where we're going to cut a train and not run service in order to do capital work.

It's just not working.

But then when you get to the required projects, it would be, so there's $700 million shortfall in the required projects.

Any excess that you choose to allocate would then have to go to a required project.

And just as I talked about King and Commonwealth or Route 1, those are not required projects.

So it would box in, that's where I said a little while ago, flexibility.

If you adopt those as your absolute prioritization that's in the policy, I think it kind of narrows your window of uses.

and part of it, I think this is the other point I wanted to make to what you said.

Part of it is there's timing involved here.

It's why there's a certification that we're going to recommend that CFO has to give you a certification that the timing of the use of the funds is not a problem.

So y'all remember from the budget, part of the issue while we left Long Bridge unfunded was because it's 27, 28, 29, 30 when we're really spending all that money.

and we think in the next year we're going to get a lot of federal dollars to fill that shortfall.

So there's a tiny element that when you're trying to decide what's the priority you have to factor that in.

So moving on to the slides.

So the next component was a goal.

So, or a dollar amount.

So what are we, I think one of the first notes I wrote on here was it's a goal because I told, just spent a lot of time saying the financial plan is evolving, constantly changing.

So therefore the management reserve number is going to be changing and

We needed to establish a goal that we're going to work towards.

So when we do this annual budgeting financial planning exercise, do we want to work towards a 2% or a 5%?

And we came up with the base for that to be all of the operating costs and the capital projects that are in the budget through that financial planning window of FY31.

So that's $5.6 billion today.

and what we said.

So that's the base that, okay, of that $5.6 billion number, how much would y'all like to hold in reserve for if there are changes in the revenues, if there are cost increases, if there are new opportunities for projects that make sense and make alignment with our current set of projects.

How much, what is the goal?

And I think internally, when we talked, we put 2%, 3.5%, 5% on this piece of paper and then calculated what those numbers would be.

And the 2%, 124 million, we didn't calculate 2% back in May, it just turned out that.

So when we talked internally, we actually thought 5% was,

and amount that seemed reasonable for a $5.6 billion.

I think it's an eight-year window we're looking at.

It seems like a big number, but when you think about $5.6 billion, it's not that big a number.

And when you go through what we just went through this past eight to nine months with our budget and dealing with the $700 million shortfall.

That was what we thought internally, but I think at this point, we really need to open it up and see what you all think.

Maybe you think 10%.

So the process, we are not making a recommendation.

at this committee, but we're just being briefed.

And then this will come back up again at our full meeting.

Okay.

And what I imagine folks will ask will be what other reserves do we have?

Like we have another management reserve

I think it's called that or something similar to that.

There's 30%, right?

Management reserve for each project.

Right.

Right, but that contingency is for those individual projects.

It wouldn't be a source to cover.

There's major project contingencies tied to each one independent of this.

Correct.

$290 million.

Actually, we might want to change the name, Management Reserve, because we have other management reserves.

Jen, maybe you can help with this, but I want to say, to me, the contingency that's in the projects

I don't think anyone should be expecting that we get to the end of the project.

If it all goes well, there'll be 30% left over.

We also need to understand that if the contingency is inadequate on a particular project, then we come back to this.

Exactly.

And that's,

And as we move further through, so we get closer and closer to 100% design, the contingency, and theoretically, it shrinks, it gets smaller, because in theory, we've got a contract out.

Some of these contracts we're going to work towards a fixed price contract.

Fixed price still, there's going to be change orders, so it's not fixed price.

There's no such thing.

but the contingency, your risk is reduced.

This is, to me, what we're talking about here today is not contingency at all.

Those are embedded in the projects that are approved in the budget already.

And they're at varying levels within each project.

We're using 30%.

So Steve, it's fair to say we have one management reserve.

We've had a management reserve in our previous budget.

What is different,

now that stimulated the conversation at the last board meeting is we made a recommendation and a decision in the budget to pull money off of projects that were not yet at 30% and set that money aside in a management reserve.

I don't want to say deallocated, but we did.

We deallocated.

We took money off of projects that didn't have enough engineering for us to have a good estimate

to be able to program that project out to completion.

And so that made our management reserve bigger than where we have been.

And we've had a lot of questions, particularly about the Route 1 CSX bridge.

And so when we had that discussion at the May board meeting, there was, well, who gets to decide what happens with the management reserve and does that come back to the board?

And so that's what this policy is intended to address.

This management reserve has gotten bigger because we've made what I think are really good

management decisions to not put numbers out for projects that we don't have enough information on.

But now we need a policy that says as those projects get to 30% and come online and we're ready to look at how do we fully program them and allow them to go forward so that we can increase the amount of service in the corridor and make those decisions through the course of the year.

What is that going to look like?

and because we've had so many questions, having a prioritization that's specific to that management reserve element is important so that we're being very clear about this money is not for us, for people to bring us.

Steve mentioned, you know, if somebody wants to do a planning study, that's not a VPRA function.

They would tell them to come to DRPT.

That's that list of priorities that prioritization list is related to help protect from

folks that show up with the next great idea to say, hey, they've got $130 million, so let's come up with another project.

We don't.

This money will go on to projects as those projects are ready or as those opportunities present themselves.

I agree, Sharon.

It probably should be separately designated as we put together the next budget so we know where sources are

what sources they are that are being utilized.

I mean, if it's money that is put into a reserve that came off of a project that we decided to not fund, somebody's probably going to be interested in that project down the road and going to want to know how much you took out, when you took it out, and when you're going to put it back.

So we ought to be able to adopt that.

And if we make a decision

And that's what we're trying to do is give those guideposts on how those decisions are made.

In complete disclosure, the truth is what we're talking about here, when I talk about that financial planning process, that residual or the unallocated, we have been doing that from day one of this entity.

We just never sat and said okay let's put it into a board approved policy so everybody understands and when we do get to those hard arguments that are going to come when there's a limited amount of money and there are three different projects that everybody thinks are great but you can only do one at least there's some rules for people to at least go back to still might not settle it but and that's what we're here

Hopefully at the end of the day to get to, at least in my mind, the board to adopt some guidelines to say, how does this work?

And then for us to, for y'all to demand from us, from Steve, that every quarter you're updating us where this goal of a management reserve stands.

Part of this too is to help us because as we have ongoing projects, we may run into things.

So we're putting new track in.

All of a sudden there's a culvert that's failing that we didn't know was failing and we'd like to replace that culvert as well.

Well, the next opportunity we have to go back for more money in the budget is 12 months away, 15 months away.

So this gives the board an opportunity to say, you know what, crews are out there now, we're doing the work, let's take a million dollars from the reserve or a million five or whatever it turns out to be, fix that culvert now so we don't have to go tear things out 18 months from now or two years from now.

and I'm just trying to move us because I know the Chair has another appointment.

So on this, I know, you know, when we discussed it internally, DJ and I both thought 5%, but I wouldn't.

We have a draft policy that we sent out and it has X percent.

I do think when we go back to the Board in August, it would be advisable

to propose a percentage.

So I don't know, back to that point, I don't know if y'all as board members have a preference.

Maybe 5% is too much, maybe that's what you're thinking.

Could it be an up to 5%?

And that's the goal part to me is it's never going to just sit at 5%.

Day one are, and I guess I'll just, the Commonwealth rail funds come in $3 million short.

Well, there's $3 million less debt residual than what we had planned.

And that's 25 different sources of funding that's happening all the time.

You all choose to fund King and Commonwealth.

There's 80 million, $90 million out of the 124 million involved.

And I don't have 90 million to just add it back.

to the reserve.

So it's a goal of, you know, when we're doing, I think it's really more of a goal when we do our annual budgeting cycle and financial planning that we, in that work, we work towards, is it 5% of this balance?

Is it three, three and a half, two?

I think that's the way it has to be looked at.

Given the fluctuation of the sources, it's going to change.

It'd be great if a month later it was 8% and we choose 5%.

Given that it's a goal and it could fluctuate depending on what's going on.

And think about it, too, when you think about it.

It's $290 million at 5%.

As we move forward with these capital projects, if we're not adding more capital projects, that base for the calculation is declining, and the 5% becomes less.

So ultimately, we stop doing capital projects, and we're at $150 million of operating expense a year.

It's $7.5 million is the reserve.

That's a question that seems like a big general macro question, right?

Sources coming in, sources coming out, how in any way do we control it?

So maybe I misunderstood your question, but if it's the sources of funding, I would say there are 25 different sources of funding.

Half of them, I could say we have a definitive amount, a definitive schedule when they're coming in.

The other half, there's variability to them.

They're tied to tax collections or the economy.

They're tied to working through

financing arrangement or really a operating arrangement with Amtrak and whether they'll send us our ticket revenue or not or whether they want to force us to keep netting it against the expense.

And that's why if we go to the next slide, you see we've got this quarterly reconciliation because they don't change once a year.

They change all the time.

And to your point, some of the sources we just can't control, they are what they are.

Okay, so that's the annual budget you'll commit with the level of trying to get to 90.

The money is what it is, right?

So you said everything that's not committed is in management reserve, you cannot control it.

Yes, and in the annual budget process, we say we've allocated $200 million for Fourth Track, whatever the number is, and $400 million for the bypass, and $2.3 million for Long Bridge.

So this is what we've allocated, and here's the money that is not allocated, and that's amended and reserved.

We make that decision in January, present it to you all, it goes to the CTB, the capital portion comes back to you all in May, and it's enacted for our July 1st budget by August 1st,

And the goal, DJ, the goal is it helps us when we're doing that November, December budget annual financial planning process.

It's what when we're trying to decide what we bring to you as a recommended budget, we know, OK, the board approved three and a half percent, so we got to try to work towards a three and a half percent reserve balance.

So it gives us a goal.

Y'all can come along and say, well, we don't want to leave three and a half percent.

We want to go ahead and allocate that hundred of that 197 million.

We want to allocate 150 million of it to this project and this project.

When you would get to January, that's what y'all can do.

And we only have 47 million.

And that's why I think I want everybody to realize it's a goal.

One, it's changing.

It's changing partly because of sources, it's changing because of uses, and it's a goal.

If there's a use that's an immediate use that makes a lot of sense, then it may not make a lot of sense to have $290 million sitting on the sidelines.

So that's why I don't want people to think it's an absolute.

Steve, on that quarterly report,

So, Mr. Washington, maybe you're saying if we're working through a project that was approved in the budget, because they're the only ones we're advancing, and we determine there's one that now what we found out makes no sense to move forward with,

Yes, I think we would be coming back to you to say, explain what happened with the project and give our recommendation that we move away from that project.

So what happens to funds that are not captured in this reserve?

So say, you know, you have projects that have excess.

and so we're setting a goal of having 5% go into this fund.

So every quarter, and maybe just advance the slides, every quarter we will come back to you and we will update where this reserve stands.

So if a project ends,

and we were $30 million under budget.

Well, now that 30 million can be added to this reserve.

If we go to the FRA and we get the $729 million we asked for, and Amtrak gives us the passenger ticket revenues, the gross amount, and we analyze that and make sure that we feel like we can issue debt against it to a $400 million level.

that excess that's not in the plan above the $210 million that is in the plan, we would add to that reserve.

So it could be that all of a sudden the reserve, if great news happens come November, those two things I just said happen, it could be that we could be at 9% reserve, but we would obviously be coming saying, let's go ahead and put the money, the excess we have and fund that unfunded required Long Bridge, let's get that now funded.

Or would we do something like, just the time, when you talk about timeline, would we do something like, of course, our King and Commonwealth example, right?

And if we can get a megagram for that, the time element is always a factor, right?

Every quarter we would make the recommendation.

So if we had a project that ended and there was money left over, at the end of that quarter, we would say, here are the things that happened over the last three months.

It ends up with a net of $4 million.

Our recommendation is to add $4 million to fourth track because it's going over budget, or add $4 million to the reserve because that's the priority right now, or start continued design work on a different project.

How are you doing that now, DJ?

That's something we bring to the board.

If you look at the monthly executive director's report, we talk about where those changes are taking place.

There's more formalization around that process.

Everything that's happening here is actually happening already.

It's not really just putting the guard rails on.

Exactly.

So all the unknowns we're dealing with it on a regular basis, but we just want to make sure that the information is with the people that make the decisions now.

Just transferring that.

And it's transparent.

Exactly.

Moving through the slides, let's go back for one second.

So quarterly basis, come to the board and we will do this work each quarter.

And by the end of that following month, provide you the report.

And then when we have our next board, ask y'all for your approval of that.

And you'll see later as we go through an example why, even if there's a change in our revenue, there's a reason

If it's a reduction in our revenue, we may be forced to take money off of a project.

So we would want y'all's approval.

So this is an example, just saying.

So the Amtrak ticket revenue, the left, that financing source, it is our plan today.

It's the plan.

It's being utilized to fund a project.

If Amtrak chooses not to allow us to get those revenues directly, that $210 million goes away, so we're at a net against the $124 million.

So if we had the day, we'd get a net negative $86 million.

So at that point, obviously, we have projects that are

And really it's the options that could be presented.

There's really, it's one and two, but it really can be a whole host in between.

One would be, okay, management reserve goes to zero, take $86 million off of one of the projects that was approved in the budget.

Another way would be to keep the management reserve at the $224 million and take $210 million off of approved project budgets.

And I'm only showing this because even if it's not coming to y'all to ask to use the reserve balance

A change in our revenue may cause an action for y'all to need to approve it.

On the right hand side, it's an increase.

So I-66 inside of the Beltway, we got some PAYGO funding and I anticipate in the coming year we might get some.

We took that out back in May because at that point in time we were told there wasn't going to be.

there's a positive $25 million.

So now the management reserve balance is $149 million.

We would report that to y'all.

And then if we had a recommended use, we would also come with that recommended use and we'll go through how that process works in a few slides.

I'll spend a lot of time here.

This is the management, this is really just showing some of the various revenue sources and

how some of them it's once a year you'll take a snapshot look at and make an adjustment for actuals and others it's throughout the year you'll be getting information that may require an adjustment.

So moving to that process for the use of the reserve.

So VPRA would bring a recommendation to the board either through its annual budget cycle

and you would have given us a goal to work to if we would work towards that goal in our recommended budget.

And then y'all approve the budget and by default then you're approving the management reserve, the residual.

Or it would be ad hoc at any of our board meetings or if we could call maybe as DJ explained, there's opportunity that requires not waiting three months for a board meeting, we may require a special board meeting.

Key here that always requires y'all's approval.

The rest of this slide is, this is the information that will be provided to you to help make that choice of whether you fund this project or you don't.

And so this is where, Patty, you were talking earlier about, you know, in the budgeting process, we had certain priorities.

Number one here was those priorities, operations.

I think it's consistent that we've all said operations.

There are these required projects that we've made a contractual commitment to, so you have to balance that.

Remember I gave the example earlier of timing and why that may not be an absolute.

And then there's new projects.

Second item will be, I will need to certify that at timing issue, the cash flow issue is not a problem.

So if we want to take all $124 million on a project and spend it in the next 24 months, I think y'all would want to have an idea.

Is that going to cause a liquidity problem?

So CFO certification that there is not a liquidity issue with the recommended use.

There's the authority pipeline of potential projects.

So that's the King and Commonwealth, the Route 1, the projects that we've pulled back.

It's also the projects that we've

decided to advance to 30% designs.

That's also our pipeline.

And then the fourth piece of information is, what is the math with respect to the goal of the management reserve?

I would point out here that the ad hoc requests, it would be incredibly

A typical for us to bring an ad hoc request outside of that quarterly update.

I mean, I would hope that we know about things far enough in advance that as we give you the quarterly update for the reserve, that we'd say, here's the net change in revenue and oh, by the way, here's a recommended use for the reserve.

I can't imagine it not being on a quarterly basis.

Quick question.

This is for future operations and capital project expenditures, but it sounds like it's mainly for capital projects, capital project expenditure.

How would it be for operations?

So just like on capital projects, every year we have to do a budget of what we think the expenditures are going to be.

And if you work with Amtrak, so

It's generally pretty close.

And I think if you all recall the last year, we've had some deviation there.

And it's not just the expenditure side.

So the capital maintenance side came in a little different.

On top of that, the revenue side, they changed the way they were doing the pricing of ticketing.

They went to an airplane model, and they didn't tell us.

And the first month or two after that, there was significant

that could go into this reserve.

So using the funding for something, is it mainly for capital projects?

Well, it could be because if the expenditures, in the example I said, if the revenues for passenger operations or the expenditures were higher, if the revenues were lower, expenditures were higher, you've given us a budget.

and you've said DJ, and we'll get to this and we're gonna skip a slide here.

Y'all have given DJ delegated authority, maybe we just go ahead to that slide.

I've given him authority, the second category here, operations of passenger service.

Y'all have given him authority, you've delegated in your bylaws these authorities.

Passenger operations, you've told DJ you can do $1.9 million deviation.

Beyond that, you gotta come back to us

And even if DJ does the $1.9 million, he still has to explain it and disclose it to you each month.

And I think we've done that every single month we've ever done one of these.

But if that shortfall is $5 million on operations, we have to come back to you, ask for your approval, and then we're going to be, where's the money going to come from?

It's got to come from the management.

If the management reserve is zero,

Does that help?

Give me an example of that.

So if Amtrak comes back and says, hey, we found a brake problem, that's an example of

We found a great opportunity to upgrade the trains to make them more pleasing for the passengers, but it's going to cost an extra $1.5 million that wasn't in the original forecast.

They would come to us and we would say, we don't have that money, but we think it's a great idea to upgrade the trains quickly.

We could then come to you and say, we would like to tap in the reserves, spend an extra $1.5 million.

Exactly.

It's a capital maintenance type thing or capital of freedom.

It even could be, Sharon, that

Gas goes to $5 a gallon, because gas is not a fixed, we don't agree to a fixed amount with Amtrak, it's variable.

So if gas went up quite a bit, that line item, it is significant.

It could be that, in other words, it could be bad, budgeting, bad estimating.

So talking about this slide, I just told y'all the only use of the reserve approved by you

except for y'all have already delegated some authority to Mr. Stadler as the executive director.

And we added the dollar amount impact based on the 24 budget here.

So you can have a dollar amount relevance to this.

So before what was happening, we were doing all this financial planning in the background and when DJ exercises authority, we disclosed it each month and

We would have to find a source of funding.

So in the current year, interest rates have increased dramatically from where they were last summer or really a year and a half ago into the planning for the current year.

So we've got a lot more interest income.

And so when DJ was saying, oh, I need $600,000 for this or

The different, I think maybe two or three times we've exercised this authority, we were basically saying we've earned a lot more interest.

So we were doing all this in the background.

So we've got the briefing every the first day of every month.

First business day.

So the other thing I want to say here is we are, you know,

We are going to recommend a slight tweak to the bylaws.

So the administration budget, the very top section here.

When we first did this, I think DJ and I sat down and it was just a handful of people.

We sat down one day and said, yeah, the admin budget should just be an absolute.

And in reality, I think we've realized over the three years we've been here that when you come down to June 30th, you don't want to have to be making a decision.

If an initiative that's vitally critical to the success of this organization is moving ahead ahead of space, you don't want to pull the reins on that and say, well, let's wait till July because we can't spend any more money with that consultant to advance that initiative.

And so, you know, I think experience has taught us that maybe we need a little leeway here.

And you see, it's not a lot of money.

It's not a big percentage.

So we are asking that we give DJ the authority to add to the administrative budget up to that one and a half percent and $240,000.

So that is a slight tweak to the volumes, again, with the same board notification.

So going back one slide, and I apologize for going out of order.

This would just be sort of an example of everything we talked about.

New project, it's not required, $54 million estimate.

So VPRA thinks this is a good idea.

We come to y'all with this recommendation.

Have the timeline when we need it.

Obviously, $54 million is over Mr. Stadler's delegated authority.

And it's not during the normal budget cycle, so it's off cycle.

As we discussed earlier, we would

Funding for operations, yep, still fully funded, not a problem with operations.

Required projects, as we are today, there is an unfunded amount.

We would disclose that to you, because part of your consideration of this is that.

Certification about the cash flow, whether there's a constraint or not from a liquidity.

Pipeline of projects, so we talked about these a little bit, the layover facility, key and comma, these are all the ones that we kind of removed funding

and then it could be there's a project, another project, you know, you don't want to, I don't want to say this is the limit of the bounds, but we're generally going to know, as Mr. Salley said, we're generally going to know, you know, they don't, projects don't just pop up.

They go through a planning process they're known about.

So we would list those because you're, you know, when you're making a decision on King and Commonwealth, you're deciding, well, maybe Richmond layover is more important.

Somebody's shaking their head.

And finally, the last information is just really a math calculation of, okay, if you do fund the $54 million, what is the impact on the current reserve?

And $124 million would get us down to $70 million.

And it says ad hoc, but this would be

for all intents and purposes at the quarterly update.

Basically, so hypothetically, we're presented by CSX with a $54 million opportunity to make a capital improvement that will allow us in 2027 to get trains going southbound from Fredericksburg to Richmond first thing in the morning.

I'm going to come to the board and say, hey, look, I know we've got stuff in the pipeline, but we have compelling reasons to do this one first.

So that's all the slides.

As Shannon pointed out, and I think Steve said this too, really a lot of what this is outlining already takes place today.

We just want to codify it so it's more clear, more transparent.

And we wanted to socialize with the Finance Committee first before we bring it to the full board.

Obviously, we would love your support in August.

That makes perfect sense.

Any feedback you have, we can incorporate in between now and then.

We were concerned that we might get feedback at this meeting and we'd be asking for a recommendation on the fly, so we did want a resolution that says

Finance Committee recommends A, B, and C because you may change A, B, and C. So this was more of a feedback gathering.

If you're comfortable with the way it is now and with the 5% that was discussed, we would love to lead the meeting in August saying the Finance Committee met.

And every single head around the table nodded and said, yes, this makes sense.

And we do have a quorum, I think.

Earlier today, we weren't sure Mr. Delondro got caught in a

So you're going to do essentially another quarterly update between now and the end of August.

I have a few more moments to talk on other items.

So we're in the middle of implementing our new financial system.

So we're really swamped right now.

And then you're in with our auditor.

So I think we should be able to, I think it's August 30th.

I feel like we should be able to have it done in time for that meeting to say, okay, June 30th, here's at 124 is now this number.

So

At least as an example I don't know if we want to ask them to approve it because they will have just approved policy but

We were talking about this earlier, the timing of things.

And then we come back, I guess it's November or December.

We didn't want to have a policy approved in August at 1252, and at 1253 saying, here are our first five.

Right, right.

Didn't like that look.

And then for the bylaws, I mean, just the lawyer in me, I can't, it's tough to recommend approval on this, right?

The language in the bylaws?

Given the feedback that you've all given us today, we will come to the August meeting with a resolution, with a decision brief, which here are the new bylaws and here are the changes that are being proposed.

That's when you say approve the policy, we're approving like the PowerPoint slides, right?

That would be this policy.

Okay.

And we've had it, we kind of in prepping for this meeting, we came to our attention that we really need to, is this a bylaw change?

Or is this a board approved policy, like you all have approved an investment policy.

And then we need to sort of

formalize what's a board policy, what's in the bylaws.

So all of that delegated authority for DJ is in the bylaws.

So we wouldn't want to tweak the bylaws for that, that one and a half percent on the admin budget.

And then also to say that the funding for this comes from the board management reserve and that language there.

And did we talk about DJ's authority where he can do things and he doesn't give us like at the end of a quarter, he'll give us an update.

Here's what I, here's what I have done, or here's what I would want to do.

I'm not sure which way that would go, but I mean, if there's 290 million and the max he could do was 7.4 million, there's a lot he has to come back to us on, right?

So could we understand that process a little bit more?

Anything above those dollar amounts, I have to come to you for approval in advance.

And so I would come to you at the end of the quarter and say, here are some projects that we're recommending to use reserve money for.

Anything below that dollar amount, I just do a report to you.

We don't envision actually tapping this reserve as frequently as I think this conversation has led us to.

There will be big decisions.

This isn't going to be a $300,000 here and $1.2 million here.

This is a, okay,

We have gotten 30% designed for Project A and we've gotten 30% designed for Project B.

We feel, given everything we know, that we should recommend funding Project A and putting Project B on hold.

And that's going to come from reserve.

We're not going to nickel and dime.

You've said several times, DJ, you've brought up the ad hoc word and said, we're not going to do that.

It's going to be a rare, not, oh, every

Every other month it's going to be a rare thing because really what it's really is our annual budget process is what we're going to do most of this work.

But back to Shannon's point earlier, we're really just writing down what we've already been doing.

I can't remember what board meeting it was, but King and Commonwealth came up.

And what we walked through with King and Commonwealth and made a change to the budget is exactly what we're talking about doing here.

We're just calling it a management resource.

This sounds a little like in Fairfax County sort of their carryover review at the end of the of the budget year, where you've got a whole lot of stuff that went on budget wise and you wind up with, you know, a carryover or if you've had an awful year, you may not.

and I think you're having a different discussion.

But that's what this sounds like to me, except that it also sounds more disciplined than the process we use in Fairfax County, wind up with money that's excess and surplus.

But in this case, it sounds like for the board's decision.

And in this case, you're providing some guidance as to what's appropriate for how it would be spent.

That's exactly right.

I think that's the key is that it's not like waiting an entire year to find out how this thing plays out.

And I'm glad, I'm glad y'all talked about an annual at Fairfax because, you know, ultimately could we do this every month?

Right now it

It might be difficult.

I'll just leave it that way.

I know DJ's talked about it with me, but ultimately, maybe a couple years down the road, we could have a monthly.

But right now, I think quarterly is a good amount of time.

It matches with the quarterly.

We're not sure monthly adds to the value that

Hopefully y'all are doing monthly yourself.

Oh yeah, we're doing it daily, every day.

I walk in, what's the admin budget look like?

I'm comfortable, you know, with the policy.

I think it sounds, and if we want a recommendation and if the chairman would feel that that's appropriate, I'd be glad to

It's your call, Steve, if you want to.

I think if you all are comfortable, I think that would be great.

I think we're comfortable with it.

I'm particularly comfortable with the change in the policy.

I think we need to leave a little latitude for the board on the two to five percent.

I agree.

Right.

Vancery is saving about $200 million, right?

You set that aside.

You're still continuing to program the annual budget according to the same priorities you always have, right?

This is to me like what percentage of the budget is this going to be on a practical basis for you?

Has it been so far, right, that we're playing with?

I don't want to spend the gobs of effort on something where this is just

It's more of something you already do and it's just revealing it to us, right?

It's actually, it was revealed to you before in the annual budget.

We're just putting a policy around it.

The last budget, it was around two and a half percent.

And when we present the next budget to you, it'll say, and we're allocating all of these for projects and we're allocating whatever the number is to the management reserve.

And that represents four percent or three and a half percent or five percent.

It wouldn't be over five percent.

And you would see that percentage.

And as we

Talk about the budget.

You could say, you know what, I'd rather more money go to Transforming Rail in Virginia and reduce the management reserve right now and make the management reserve 3%.

That's fine.

The number that we're putting in the policy just gives us a guideline on what we're going to look for.

Where we were this year was two and a half percent.

When we had

All of our required projects fully funded plus the projects we pulled back that said, let's have a more disciplined approach to only fund 30% engineering.

We had everything in there.

I think we start out with $15 million that first year is what we said, oh, let's also carve out $15 million.

And then the next year we added another $15 million.

Because we were thinking back then, even then, that things can happen.

Yeah, we didn't have $700 million carved out for this past year and post-COVID inflation, et cetera.

But anyway, yeah, it hasn't always been a set amount.

And that's what I'd say to y'all too.

I don't know if we can come back next November.

We'll see where the money we're requesting from the federal government comes in.

We'll see if Amtrak comes around.

Maybe it'll be a really rosy picture.

Maybe it'll be a picture that we still think, even though a goal of 5%, we may come back and say only 2% because we really think we need to fund these required projects, or we need to fund King and Comma.

The tough part is the amount, right?

We've already agreed that we need to have man of deserve and do it on policy.

Well, I think the percentage, if we keep it as a quote goal of up to 5%,

Then you'll really be deciding on the percentage, the actual percentage when we present the budget.

I'm helpful with five already.

That's a good point, DJ, that if you say up two, it really takes out the whole question of two, three and a half, five, whatever.

You need to change that language then because it says the reserve will be X.

And then what can we say that we're working on?

And are y'all okay with the increased delegated authority for DJ, for the admin?

That's the only change to the bylaws.

We would probably tweak them to address or to

Is this going to come up in the August 30th meeting?

Yes.

Definitely, because I think there's other changes to align the bylaws with another policy, like

virtual meeting policy as well.

So that'll have to get, I'm sure it's in the works right now, so.

It seems a little, you know, to me, we don't, I don't think we need y'all to approve this right now.

I mean, it'd be great if you did, but to me, what I really want is when we get to the board meeting that you will speak.

Yes.

Right.

And so I don't want anyone walking out nervous.

Well, they didn't change this.

I didn't get to see the bylaws exactly.

I don't care if it's the policy.

It's just, I don't know, I cannot be somebody I haven't seen, but definitely the policy.

I think, I mean, a way for us to speak without saying a word is say we support, you know, the management reserve policy with an amount of up to 5%.

I'd be comfortable.

Yeah, me too.

Okay, so are you comfortable if I call for a motion to support that?

I would, you're asking for, so I'll make that motion and then we just need a second.

Second.

Aye.

The ayes have it.

Alright, thank you.

This is painful.

So, within four minutes.

Yeah.

So, I told y'all we're putting in a new financial system.

I think it's going to really help the organization working through that right now.

You're in.

Don't anticipate issues with our audit, but that is coming up also since just past June 30th.

And finally, the main thing I wanted to mention was, and I think I talked about this just for a second at the May board meeting, we did yesterday put out a new RFP for investment management services for a balance of funding.

So did want to talk to y'all for a second, but we got that out there.

And I think I talked to one of our procurement people that said it went out to like 150 different firms.

Anyway, just a little bit of what we're working on and hopefully we're looking for a little more active engagement with us under that contract.

So, and where we've been.

May I ask that if you do approve that you'll tell me aye so that I can... Aye.

Aye.

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I've been sitting all this time listening.

A lot of finance committee members.

But save that aye for August, that would be very helpful.

Consider it done.

I got your back.

Thank you.

Can I ask about the conversation that Steve and I joke about all the time is the

Can we talk about that in a week?

We've been promised an update sometime this week from Amtrak.

I think we've made great progress.

I think, and look, I've got some experience with Amtrak throughout this whole process.

They've been much more transparent than I think they've been in the past and they understand our challenge and they have committed repeatedly that they're willing to help us.

But until we have an agreement, I don't think we can't have a whole lot of confidence until we have an agreement.

Do we know what the hurdle is?

It's something that they've never done before.

And we laugh.

But, you know, it's it's a risk that they need to understand what they're taking.

And Steve and the team have been very good about saying, hey, here's why it's important to us.

It helps us

get potential funding and leverage for projects that clearly benefit Amtrak.

And we'll get there.

So they're in a different place.

They do RIF with any state.

Federal loans.

Okay.

All right.

They just borrow against it?

No.

Somebody found out that I was on this board.

That's

I'd like to snap.

I was complaining to DJ that the fare was $37 from here to Boston.

I get from here to Boston.

I was saying we need to raise it a little bit.

Everything else has gone up.

Yeah, I don't disagree with that.

You mean on Amtrak?

That's true.

It was interesting.

I was just talking to somebody this morning who was supposed to fly to New York this weekend.

Flight was canceled.

I was like, why don't you just take the trains?

That's exactly what he did.

Took the train to New York, was going to fly back, flight got canceled, took the train back.

Oh, I don't, don't mistake my biases, but when that comes up, you kind of go, ooh.

And even compared to an airline, you've got a seat that's nicer and don't go through and

You don't have to go through and have your shoes taken off or taken off to the side.

The cafe car has a better selection than just peanuts.

You can walk up and down the train.

That's right.

That's the key.

Right.

That's the key.

And that's why we're doing all these capital projects.

So we have dedicated passenger track.

Exactly.

You can call for two or three hours.

Changes your mind.

We're at time.

Anything else for the good of this meeting?

Okay, excellent.

Thank you all.

Appreciate it.