Chapter 1: Introduction
Sound financial planning helps to ensure the financial health of transit agencies and the quality of service that they are able to provide. A continually updated financial plan is the centerpiece of sound capital investment planning for any transit agency. The financial plan documents the recent financial history of the transit agency, describes its current financial health, documents projected costs and revenues, and demonstrates the reasonableness of key assumptions underlying these projections.
Recognizing the importance of sound financial planning to the successful implementation of transit capital investments, Section 3(a)(2)(a) of the Federal Transit Act states that "No grant or loan shall be provided under this section unless the Secretary determines that the applicant has or will have the legal, financial, and technical capacity to carry out the proposed project." Consequently, the Federal Transit Administration (FTA) has specific responsibilities to promote careful financial planning by state and local transportation agencies that receive FTA funds.
This document defines the content and scope of a financial plan that accomplishes the objectives of the legislative mandate placed upon FTA. It provides a model format and detailed examples of the elements of a complete and concise financial plan. The document also describes good practice in financial planning that is applicable to all transit agencies. FTA encourages all transportation agencies receiving FTA funds to employ financial planning practices consistent with good practice and to prepare financial plans consistent with the content, scope, and format of this guidance. FTA anticipates that financial plans consistent with this guidance will support communications with grantees on the use of FTA capital funds. For some portions of the federal transit program, FTA has adopted these practices and documentation as specific requirements for receiving FTA capital funds. These requirements are described in guidance associated with those individual FTA programs.
The practices described here are intended as integral components of the planning and development of transit projects. The approach to financial planning recognizes two key principals. First, the general content of the financial plan remains the same throughout the planning and project development process. The financial health of an organization and the financial feasibility of specific projects are established by information on costs, revenues, funding sources, and financing mechanisms. Second, the details of the financial information will change as projects advance through planning and development. Project cost estimates become more reliable as the project scope is defined in detail and funding strategies become more certain as funds are committed to the proposed project.
The purpose of this guidance is to establish a framework for financial plans. Plans produced within this framework describe the overall financial condition of a transit agency, include realistic financial projections, and incorporate the increasingly detailed financial information available to projects in later stages of development. Transit agencies are encouraged to adapt the elements and practices within this framework to their individual settings and requirements.