Chapter 2.4: The Operating Plan
The project sponsor supplies an operating plan to document how the agency intends to fund and operate the proposed project and the existing transit system. The operating plan documents five years of historical data and presents 20 years of projected system operating revenues and O&M costs to demonstrate the capability of the agency to operate and maintain the proposed project while providing existing levels of transit service.
Projections of operating costs, ridership, and fares for the proposed project and existing system are often estimated as part of the alternatives analysis and refined in the DEIS/FEIS. The values reported for ridership and service levels are consistent with the forecasts documented in the MPO's constrained long-range plan. The number of rail vehicles and buses in service, vehicle retirements, acquisitions and overhauls and the associated annual costs are documented in the bus and rail fleet management plans. Information unavailable from any of these sources are generated specifically for the financial plan.
2.4.1 Operating Revenues
The operating plan demonstrates the ability to rely on non-federal funding sources to operate and maintain the entire transit system after the proposed project is in revenue service. The operation and maintenance of the proposed project is likely to place additional burden on the agency's local funding sources. Transit agencies usually need to develop new funding sources or have existing sources that provide sufficient extra operating revenues to fund the proposed project.
The operating plan incorporates fare revenue forecasts for the proposed project and the existing transit system. Fare revenue forecasts are based on ridership forecasts and assumptions regarding fare levels. For simplicity of presentation, the project sponsor may develop the fare revenue forecasts as a separate schedule as shown in Table 9.
The plan also provides historical revenue figures and forecasts for all other operating revenue sources and the assumptions used to develop the revenue forecasts. Inflation assumptions are critical to revenue forecasts and are explicitly documented in the financial plan. Often, a source such as a local sales tax that is used for local capital funding may also be used for O&M expenses. In the example provided in this guidance, sales tax revenue is divided equally between capital and operations so that the forecast given in Table 6 is adequate to document the revenue forecast. The plan includes documentation proving that the proposed operating funds are committed to their intended purpose.
3 The MPO's constrained long range plan contains transit ridership and revenue forecasts. The ridership forecasts used to develop the financial plan need to be consistent with the MPO's forecasts.
2.4.2 Operating Costs
System-wide O&M expenses typically increase after a transit project goes into revenue service requiring additional subsidies to continue operating and maintaining the transit system. FTA needs to determine whether the project sponsor has the financial capacity to fund these additional subsidies without reducing existing service levels. Consequently, the operating plan clearly identifies how existing operations will be affected by the proposed project. Fixed guideway projects often result in significant service realignments. The operating plan details:
- How the project will impact existing operations, revenues and O&M costs; §
- How bus routes will be realigned; §
- What bus routes will be dropped; and §
- What new feeder routes are planned?
The operating plan contains at least five years of historical and 20-year forecasts of O&M expenses for the existing transit system and the proposed project. The O&M expenses are supported by information regarding service characteristics of the transit agency such as projected vehicle revenue miles, vehicles in service, and directional route miles. Table 10 presents an example of a schedule of O&M costs for the proposed project and the existing transit system with supporting service statistics.
The accompanying text documents the O&M cost estimation methodology, preferably resource cost build-up, and describes the service plans for the proposed project and existing transit system. The cost estimation documentation provides detail regarding operating labor, maintenance labor, fuel, supplies, administration and other relevant cost categories used to calculate annual O&M costs.
Changes in O&M costs have three components: (1) inflation for labor and materials, (2) service/operating changes, and (3) changes in productivity. The plan documents the inflation assumptions, the planned system-wide operating and service characteristics, and productivity assumptions to demonstrate that the agency is not paying for the proposed project's O&M costs through reductions in service or deferred maintenance on the existing system.
2.4.3 Agency-Wide Operating Plan
The operating revenues and O&M cost estimates are combined in the agency-wide operating plan. The operating plan demonstrates that adequate additional funds are available to operate and maintain the proposed project and the rest of the transit system. The operating plan calculates the additional subsidy required to operate and maintain the proposed project. The operating plan shows the availability of additional operating revenues to cover the additional expenses. Table 11 presents an example of an operating plan. In this example, the transit agency forecasts operating surpluses large enough to easily absorb the subsidy using existing funding sources.