TO: AC Transit Board of Directors
FROM: Salvador Llamas, General Manager/Chief Executive Officer
SUBJECT: Financial Projection Update
BRIEFING ITEM
AGENDA PLANNING REQUEST: ☐
RECOMMENDED ACTION(S):
Title
Consider receiving a report on an updated financial projection for the District.
Staff Contact:
Chris Andrichak, Chief Financial Officer
Body
STRATEGIC IMPORTANCE:
Goal - Financial Stability and Resiliency
Initiative - Financial Efficiency and Revenue Maximization
This report presents updated financial projections to inform the Board, staff, and the public of the District’s financial future.
BUDGETARY/FISCAL IMPACT:
There is no budgetary impact from this report.
BACKGROUND/RATIONALE:
District Financial Overview
This report includes updated financial projections and assumptions. Two seven-year financial projections cover scenarios that staff is calling “funded” and “un-funded” based on the availability of revenue from a potential regional measure. These projections are part of the development process for the coming FY 26-27 Operating and Capital Budgets. Staff plans to bring draft FY 26-27 budgets to the April 8th Board meeting for review.
The District has been projecting a “fiscal cliff” for several years now, and it arrived this fiscal year. The past several budget years have tried to balance two conflicting paths: maintaining and improving service along with the many other goals and initiatives pursued, while continually trying to restrict budgets and “do more with less”. Costs have been reduced during budget processes and labor vacancies closely reviewed. Measures used to reduce or defer costs such as Pension and Medical are being implemented. Reserves were built up to offset the impact of deficits. And new revenues both short-term and longer-term have been pursued.
The General Manager created a Budget Taskforce to consider frameworks and strategies for solving the budget puzzle with feedback from Board members and is guiding the budget process. Based on all this work, staff are now reasonably confident that the District can continue to support current service levels through the coming fiscal year. The next key milestone is in November, when voters decide on a potential regional measure that would provide on-going revenue that will be necessary to maintain service in FY 27-28 and beyond.
Beginning with the upcoming fiscal year budget (FY 26-27), this revenue uncertainty will translate into the development of a baseline and an alternate budget. The alternate budget will come into play if the regional measure fails and the District needs to start the process of reducing expenses - by about 10% of total budget - to be able to make the following fiscal year budgets (FY 27-28 and beyond) balance. The details of both budgets are currently being worked on with extensive input from all departments. The alternate budget requires the completion of much of the baseline budget as well as extensive analysis of service level reductions and other mitigating measures.
Fund Estimate Revenues
The Metropolitan Transportation Commission (MTC) issues a fund estimate every year in early February. MTC allocates a set of sales taxes, bridge toll and other funds to the District for operating and capital purposes. The funds make up about 35% of the District’s operating revenues. The funding sources are:
• Sales taxes: Transportation Development Act (TDA), Assembly Bill 1107 (AB1107)
• Diesel sales tax: State Transit Assistance (STA)
• Bridge Tolls: Regional Measure 2 (RM2) and 3 (RM3)
• Senate Bill 1 State of Good Repair (SB1 SGR) Capital
• Cap & Invest Low Carbon Transit Operations Program (LCTOP) Capital/Operating
The highlights of the fund estimate are:
• TDA is increasing 24% ($19 million) over last fiscal year (FY 24-25 vs FY 25-26). This large increase is mostly due to an adjustment in sales taxes by the State between fiscal years but also reflects greater sales tax revenue generation in the first months of the current fiscal year. Actual growth in sales taxes represent about 4% of the total. This large jump in TDA contributes to the reduced deficit for FY 26-27 - from $74 million to $60 million.
• Other revenue types such as STA, AB1107, and RM2 will increase only slightly (1% or less) between FY 25-26 and FY 26-27. Staff have not received an estimate for RM3 yet but expect a large reduction from FY 25-26. This is due to MTC giving the District its programmed SB125 funding of $21.1 million as RM3 funding in FY 25-26, which is more than would normally be available in a given year, due to SB 125. Staff estimate RM3 funding to be as low as $3 million in FY 26-27.
District Projections and Assumptions
Projections are included in the presentation, with the numbers backing up the tables in Attachment 1. As stated above, staff believe service levels can be maintained through FY 26-27 with the inclusion of State loan funds and other actions that will be detailed in the coming draft budgets.
Staff is including District Capital spending within the projection tables to provide a more complete picture - it is crucial to identify the source of District Capital funds. The projections show the District achieving break-even in FY 25-26 and FY 26-27. In the following years, if there is revenue from a new sales tax measure, annual results are expected to be close to break even.
FY 25-26 Forecast
The projections provided in Attachment 1 include an updated forecast for FY 25-26.
Staff forecasts an operating deficit of $11 million at the end of FY 25-26, primarily due to claims, pension, and bus parts. The District has experienced a few large claims payouts; pension was underbudgeted for the year; and price increases and more accident repairs are increasing bus parts expense.
The funds to cover this operating deficit would come from the prior fiscal year (FY 24-25). In FY 24-25 the District is showing a surplus, after District Capital expenses, of $12.9 million. Of this $12.9 million, $11 million would carry over into the current fiscal year to cover the operating deficit. This allows the District to maintain the $41.5 million in reserves without an increase.
Staff is also forecasting about $10 million in District Capital expense for FY25-26. The $1.9 million remaining of the carryover could be combined with $8.1 million from the District’s capital reserve to make the $10 million needed to cover District Capital expense.
FY 26-27 Projection
As mentioned above with the fund estimate, the increased TDA funding for FY 26-27 contributes to the reduction of the projected operating deficit to $60 million. The approved State loan will allow the District to receive up to $55 million to support FY 26-27, which would leave a remaining operating deficit of around $5 million. FY 26-27 expense also includes estimated interest-only loan payments of about $2.2 million.
The Pension Board has approved the District’s request for an alternate payment scenario over the next three years. This “smoothing” of payments will decrease what is owed in FY 26-27 by $15.1 million, which would then be repaid with interest in the next two fiscal years. This expense reduction of $15.1 million changes the $5 million operating deficit into a $10 million operating surplus. This surplus will then cover the projected District Capital expenses of $10 million, for a balanced budget including District Capital.
FY 27-28 and Beyond
The Funded and Un-Funded scenarios shown in Attachment 1 differ in FY 27-28 and beyond due to the uncertainty of a new revenue measure.
In the Funded scenario, the projection shows small operating surpluses and deficits in FY 27-28 and after that staff believes the projected deficits can be covered without affecting service levels. These years have a much-reduced projection for District Capital spending - $6 million in FY 27-28, reducing to $3 million in the following years. This will significantly reduce the capital projects the District can undertake without full grant funding. Including even this reduced level of capital spending shows total deficits in all years.
In the Un-Funded scenario, much deeper deficits are projected and will require a review of options to lower operating costs.
ADVANTAGES/DISADVANTAGES:
There are no disadvantages to receiving this report.
ALTERNATIVES ANALYSIS:
This report is a briefing and does not have any meaningful alternatives.
PRIOR RELEVANT BOARD ACTION/POLICIES:
SR 26-079 - Overview of staff’s proposed FY 2026-27 Budget Guidelines, along with a report out from the General Manager’s Budget Task Force
ATTACHMENTS:
1. Operating Projection Tables
2. Presentation
Prepared by:
Richard Oslund, Director of Management and Budget
In Collaboration with:
Mary Archer, Budget Manager
Emily Heard, Capital Planning & Grants Manager
Approved/Reviewed by:
Chris Andrichak, Chief Financial Officer
Aimee L. Steele, General Counsel/Chief Legal Officer