Finance and Audit Committee Meeting   5/16/2024

Excellent.

Thank you, Jason.

Thanks, all.

Thanks for coming this morning.

Welcome to this meeting of the VPRA Finance Committee.

Our first order of business is roll call attendance.

Thank you.

Ms. Bolivar?

Mr. Delondro, can you hear me?

And Mr. Watkins.

Present.

Thank you.

Very good.

And now I'm going to request a motion and a second to approve the meeting minutes from our January 12th meeting.

Thank you.

I'm sorry Ms. Dorsh.

One of the other board members called me at that particular moment.

Can can you?

Mr. Watkins made that motion.

John, if you could nod yes to seconding this, that would be great.

Thank you.

As a board assistant to take a roll call vote on this.

Aye.

Mr. Delandro?

And Mrs. Bulova, good morning.

We are voting on accepting the minutes from the previous finance committee meeting.

He can get me.

Yes, ma'am.

Thank you.

Aye.

Good morning everyone.

This is Bonnie for those of you who can't see me in this weird looking room.

So as you may recall, we engaged in an RFP with our Auditor of Public Accounts a few months ago and we selected PB Mayors as our new auditor for the next couple of years.

So just in the short time that we've been working with them, we are incredibly pleased with the level of service that's been provided thus far.

They are super responsive to our questions.

They held a municipal government training just this week that Steve and I attended and gained a significant amount of value from.

And more importantly, they came on site to do some preliminary work for our audit for the FY24 audits.

So we are, needless to say, we are very happy with the work that's been provided.

We are feeling really on task for what

in the summer for audit and for financial statements.

You know, and it's really important for the committee to have an open line of communication with the auditors, which is why we have Mr. Dwight Buracker on the line right now, who is our lead partner in the engagement.

So he's just going to introduce himself and tell you a little bit about TV Mayors and also give you a brief update on the work that they've completed to date.

I appreciate it, Bonnie.

As she said, I'm Dwight Buracker, the lead partner on the engagement for the audit this year.

I've been with PB mayors for 22 years now, primarily focused in government accounting audits, primarily in the transit industry, along with authorities and commissions throughout the state of Virginia.

I see a few familiar faces on this call from other clients that we work with.

As Bonnie said, we were on site in April.

Kudos to their staff for being fully prepared for the audit engagement.

Made our work a little bit easier on us.

Coming out of preliminary field work, we did not have any findings related to internal controls and things of that nature.

That's our primary focus when we're there for preliminary field work.

We looked at controls around payroll, procurement, revenue recognition, things of that nature, and had no

have nothing to report at this time.

And then we also, with the implementation of the new accounting system, we bought in our IT experts to come in and do a deep dive into that system.

There are some items that we are still working through with staff of VPRA on some findings and things of that nature that came up.

Some of the items

that we did discover have already been addressed and remedied.

So kudos to staff there and taking the necessary actions to go ahead and to take care of those items.

That report we're hoping to issue probably within the next couple weeks as we're still working through the draft of the findings and making sure we all agree to the facts so we can have the correct conclusion in our final report that we issue.

We are scheduled to come back on site in August to perform final fieldwork.

At that time is when we look at the year-end numbers and actually audit the financial information included in the financial statements.

We were made aware recently we will have a single audit this year for federal compliance.

The authority is going to exceed the

amount required for a single audit of $750,000 in federal expenditures this year.

So we will also be reporting on the compliance aspect and controls around the federal funding that will be spent in FY23.

So that's all I have for the group.

I'm happy to take any questions at this time.

Just good job and welcome aboard.

We're already enjoying working with you.

I echo those sentiments.

It's been a breath of fresh air.

I'll third that.

Excellent.

All right.

Thank you, Dwight.

Appreciate it.

Okay.

All right, I am glad to make that motion.

I move that the board convene in a closed session.

Roman numeral one pursuant to Virginia code section 2.2-3711A29 for the discussion of the award of one or more public contracts involving the expenditure of public funds, including interviews of bidders or offers

and discussion of the terms or scopes of such contract where discussion in an open session would adversely affect the bargaining position or negotiating strategy of VPRA.

And two, pursuant to Virginia Code Section 2.2-3711, A3 for the discussion or consideration of the acquisition of real property for the public purpose

for a public purpose or the disposition of publicly held real property where discussion in an open meeting would adversely affect the bargaining position or negotiating strategy of the public body.

So moved.

And we need a second.

Second.

Thank you.

OK, thank you.

And then Board Assistant will take a roll call vote on this motion, please.

Ms. Dorsch?

Ms. Bulova?

Aye.

Mr. Spore, can you hear that?

Okay, thanks.

Okay, so unanimous vote.

Thank you, Jason.

Can I recognize board member for a statement?

For a statement regarding coming out into open session.

Thank you.

We are, let's see, now going to take a roll call in open session and the following statement states that we are now going to, again, we're going to take a roll call and ask that each member make their agreement with the following.

To the best of my knowledge, during the closed meeting, the only matters heard, discussed, or considered were those matters lawfully exempted from open meeting requirements under the Virginia Freedom of Information Act and only those public business matters as were identified in the motion by which the closed meeting was convened.

Ms. Dorsch.

Aye Ms. Bulova Aye Mr. Delandro Aye Mr. Spore Aye Thank you.

So take you all through the passenger rail for the final budget for fiscal year 25.

We are short on time, so we're going to move this fairly quickly.

First thing I wanted to touch on before I hand this over to Shannon in a couple of slides is we wanted to establish the methodology with respect to setting these baselines for both budget and schedule.

We had talked a lot last year.

this time about at 30% making a decision to move forward.

This year we're coming back as projects are getting closer to 100% design and final construction pricing.

There's a lot of back and forth negotiation going on and we've made the determination that we don't want to change the budget schedule as far as baseline till we get to that 100% design final construction number.

We will keep the board informed of

to process what's going on.

So that's the one change here.

The other change is we looked at it and decided that at that 30% process, we also will bring an independent cost estimator in to take a look at the estimate that comes out of that design process to hopefully get us a better number at that point in time.

Next slide.

This slide basically is comparing last year at this time at the top.

our financial plan, and then our financial plan today.

And as you remember, we take a financial plan, we look at the entire financial planning window through completion of our capital spending projects, as well as taking the operational cost as we bring on new service.

And I think the big thing here is last year, there was an unfunded amount.

Back in January, we talked about, we got a significant amount of federal funds, almost $830 million.

Other refinements to our costs as far as operations.

So we had a $1.2 billion increase in funding.

We funded the unfunded.

We've also had some increases.

A lot of that was related to the Christiansburg project at Cinnabar site.

and then finally, there has been an adjustment to get us to about $150 million in the Management Reserve, which is still within the parameters of the Management Reserve policy that you all voted on.

Excellent.

So here is a similar slide to the last one.

And we're really just showing what's changed in the last five months with that equation we had.

So our sources have gone down about $70 million.

However, uses have gone down $90 million.

And what that results in is an increase to our management reserve from our Q2 FY24 that you approved in January.

So we're going to dive into each of these.

So you have a familiarity with what's changed in the last five months, starting with sources.

So as you recall with the management reserve policy, you all approved the management reserve balance quarterly.

So this is what we will be asking the full board to approve is the 70 million decrease in sources, which is ultimately increasing the management reserve as that reduction of uses is coming into play too.

So the big drivers here relate to our Amtrak operations.

You've seen in our executive directors reports, we are kind of highlighting that year over year, our revenues are flat.

There's an interesting interplay going on between our inner city revenues, our core Virginia revenues, which have increased, which is being offset by a decrease in our NEC revenues.

The way we forecast, we do use most recent historicals to forecast out in the future, and that's why you're seeing this about $80 million reduction here.

Offsetting that, and the other one we'll highlight here, is the I-66 inside the Beltway PAGO.

VDOT has provided estimates

confirming that we will actually get some pay-go dollars in FY24 and FY25, so we have brought that into our plan.

Overall, there is that $70 million decrease, bringing our total sources to $7.65 billion.

However, that is an increase in the management reserve because of the reduction in uses, which we'll talk about now.

This uses summary should look familiar.

This is how we presented the big change in uses back in January.

What we're trying to show here is what's changed since that time.

So quick overview.

So we've got the budget components, the total increase and decrease, us being able to fund our previously unfunded balance, adding a year to the financial plan.

And then the two most important columns really are the changes to base budget.

So these are previously funded items and items in our budget, but the amounts of change and then the new budget items.

So these are really what's changed in the plan.

As you can see here, we've got changes in the I-95 corridor and operations, and those are the two sections we're going to dive into here.

Starting with the I-95 corridor, so you can see here highlighted in orange are the items, oh sorry guys, let me go back, are the ones that have changed since our last plan.

So, Hanover Third Track, as this arrived at 30%, we have adjusted the budget upward $41 million from what you saw in the past, so we've got a total increase plan over plan of $57 million, and then also transaction costs,

Similar to some of what we've been hearing about needing to do survey work on the I-95 corridor, we do need additional dollars to continue the survey work for the right-of-way we purchased through the CSX transaction.

I'll try and hurry through this.

We've got five minutes left.

We got this.

So the operations plan, the narrative that we brought to you before really has continued.

So we see that decrease in Amtrak operations due to us adjusting our assumptions, knowing that when you start new trains, it does not double the cost.

It is more that some of the costs are fixed and some are variable.

So we were able to reduce the cost to run our trains.

Additionally, SaferSea and Amtrak came up with a new 2.9 methodology, which was a win for Virginia.

So we were able to further reduce this expense item.

And then the other really big one is the administrative costs and us deploying our inaugural cost allocation plan, which we'll talk about more on the next two slides.

So what is new this time is we're bringing in our FY 25 operations budget.

As you recall, we changed the way we did things.

And so you have not seen this before.

So we're going to talk about

What we're expecting to see for FY25 in our operations budget, starting with the revenues.

And it's that same narrative we talked about in sources.

While we do have a 10% increase of our prior year budget, it is only a 3% increase over our actuals for 24, just due to us continuing to work with Amtrak to figure out really what's going on in that NEC corridor.

This is what we feel comfortable bringing into our plan for FY25 for the train operating revenue.

Those expenses you'll see for our operations have gone down $5 million as a result of that new methodology and also us adjusting our assumption for the new trains.

Other big decrease here is the operations administrative budget.

What we will be reflecting here now is just the piece of the administrative budget that pertains to operations.

There is a big chunk of the administrative budget that will now be properly put on the capital projects to align with the level of effort.

What that results in is the overall cost recovery.

of 68%.

This is a percent higher to our current goal that you've seen in the Executive Director's Report, and we'll continue to refine this as we think about where we'll be able to land for the FY25 goals.

With that, I'm going to zoom in on the administrative budget.

This is probably the biggest change that we're going to talk through in our operations budget.

So as we continue to say, we have

Put together our inaugural cost allocation plan.

Someone know how to let up that effort and did an excellent job.

We submit it with the FRA.

And just a few weeks ago, we got confirmation that they had minimal questions and we'll approve it anytime now.

So we'll be able to actually take some of our overhead and bill it to the federal government as in relation to our capital projects.

So that's what we're showing here.

We have our unallocated administrative budget, and then those costs will be divided between our capital project initiatives and then our operations as well.

In order to do so, we had to do some adjustments to the administrative budget to align to the new methodology.

So payroll and benefits, we used to allocate some of the benefits directly to the project.

Those benefits need to be put back into the administrative budget to go through the fringe benefit formula.

And then also insurance is considered that for an indirect cost as well.

So we brought that into this budget to be allocated.

So that's kind of a high level adjustment related to the cost allocation plan.

I'm just going to hit off a couple of the big changes in the administrative budget so you guys can see really what's changed.

budget over budget.

So professional services, we're continuing to see an increase as we continue to get a lot of processes and procedures developed.

There's also an increase related to financial endeavors we'll take on next year related to debt financing.

Information and technology relates to additional amortization for systems that we need to bring online next year, including the project management system and asset management.

and then other employee costs decreasing just based on true actuals.

Now that we have a couple of years of historicals, we're better able to forecast our other employee costs.

Overall increase of $9 million in our administrative budget.

So, just a couple of thoughts.

We showed you this back in January.

updated it slightly, but two main points I want to focus on.

The I-66, the top source that is high.

I guess where we are there is we're working with VDOT currently to get a tier one study formed.

Hopefully we'll get some good information come August.

We are still somewhat nervous with that source of funding because VDOT did provide an estimate of PAYGO funding.

So we got PAYGO funding.

for FY24, been receiving it.

The estimate for FY25 was actually projected to be less than what we were looking for in 24, or what we're gonna get 24, which, you know, the hope has been that traffic will return to 66, but we're not in panic mode yet.

We just still see it as a high risk until we get that tier one study, which should be, I think, in the August timeframe.

Second item, the Amtrak ticket revenue financing,

We did, maybe a week ago, finally get an Amtrak operating agreement signed.

I think y'all got notification of that.

And in that agreement, Amtrak has finally agreed to actually send the ticket revenues, the gross amount of ticket revenues to us, and then we will in turn pay the total expense to them.

But that's the first step in us being able to take that revenue stream and go out and

issue debt against it, which is an integral piece of our financial plan.

Currently we have $210 million of financial plan is planned on coming from that debt.

So, and then as we add service and our ridership has grown, our revenues have increased.

We don't want to get too excited, but we hope that maybe that $210 million can be a larger number.

That is exciting.

It's still a long way to go is the main thing I do want to say as far as why it's moderate risk.

There's still a lot of detailed work.

Shannon mentioned this summer we're going to start doing a study on those revenues to eventually get to an investment rate study that we can then push to market.

So with that, I will open the floor for any questions you may have for us.

One last thing.

We're not asking y'all to approve anything today.

What I'm hoping to get from this is that when we get to the board meeting on June 4th, that y'all will be willing to speak up and show support for the budget at that meeting.

Hey Steve, this is John Landau.

Just regarding the revenue sources, I hate to see high.

The high risk is one of those things that I try to minimize in my own practice.

But is there any way to minimize that risk?

Yeah, right now, I think the main thing is getting through this total and revenue study, working with VDOT.

and when we get that information, I think we'll have a lot better idea.

Honestly, I'm hoping that we can get more money than $578 million out of that financing.

But as I said, them giving us a lower number for PEGO for 25 has got us a little nervous because VDOT has all the information.

working with us.

They've included us in the work with the study.

So we're getting information from the consultant doing the study.

But right now we're a little bit nervous.

Any other questions?

Hey, this is John Watkins.

I would request if you could afford those

Yes, we will make sure that they are, we will make sure we send an email to everybody with these slides.

Well, the numbers could change as soon as an hour from now.

So as we're, as DJ said, we're still not, things are still moving.

We will be getting a budget document out.

I don't want to say for certain next week, but soon.

The actual 90, 80 page document that has all the projects.

It's what we had earlier with the capital projects, but now we've added the operating and administrative section to it.

So we will get you that at least a week in advance for your review.

And again, when we talked about

Okay, then adjourn the meeting of the Finance Committee.

Yep, thank you all very much.

Thanks all.

Thank you.

Thank you.

Bye.

Bye.