Fare Increase and Budgeting
As I am sure you are aware, VRE recently held a series of public hearings to receive comments on a proposed 3% fare increase for the 2018 fiscal year. Thanks to everyone that provided feedback on the recent fare increase proposal. The comments were compiled and provided to our Operations Board for their review. Last week, the Operations Board approved the fare increase, which will be effective on July 1 this year.
As part of the comments, there were some questions that I wanted to answer to give a little more context to our funding and how we use fare revenue. Our operating structure is complex and our overall funding sources are varied – so there are naturally some good questions that I would like to address.
First, the fare increase is not intended to generate additional “profit.” In fact, VRE never makes a profit. As a government service, we rely on Federal, State, and Local subsidies to pay for our capital costs and assist with covering operating costs. We also have a long-standing policy, instituted when VRE was created, that calls for riders to pay at least half of the cost to operate the service. So as operating costs rise, it is necessary to increase fares to maintain this ratio.
The most common question asked was: Why are operating costs going up for the same amount of service? The cost of operating our trains is tied to several contracts and agreements that include annual adjustments. These contain costs for operating and maintaining the trains; maintaining the stations and parking lots; and access fees to the host railroads for use of the tracks and train dispatching services. Each of the contracts for these services has annual increases built into them (based on CPI or other similar inflation indexes). So basically, it costs us a little more to provide the same level of service each year. To continue to meet this need, and our obligation to cover at least half of the costs with fare revenue, the Operations Board has set a policy of considering fare increases of 3% every other year, which averages about 1.5% per year. In the alternate year, they also have a policy of considering a local jurisdiction subsidy increase of 3%, although for FY17 the jurisdictional subsidy was increased by 5%.
Several of you also asked how the cost of fuel and the levels of recent increased ridership impact operating costs and budgeting. The cost of fuel is a relatively small part of our operating costs. In fact, it only accounts for about 6% of the Operating Budget. So, although fuel prices are lower than they were a few years ago, the overall savings in fuel costs are not significant to the total operating budget. We have had an increase in ridership, however the increase may be attributed to Metro’s SafeTrack surges. The SafeTrack program is nearing completion, and while we expect some folks who tried VRE during this period to continue riding, it is possible that overall ridership may dip back closer to pre-SafeTrack levels during FY18, and therefore did not want to assume these levels would continue.
Amtrak Step-up riders were questioning the increase for the Step-up tickets. This increase is directly tied to an increase in our agreement with Amtrak. VRE currently pays Amtrak for each Step-up ticket per the terms of our Operating Access Agreement with them. The terms of that agreement will increase our payment to Amtrak by $2 per ticket in the upcoming fiscal year.
Thank you to everyone who took the time to attend one of the public meetings or send in a comment. If you were not able to attend one of the public meetings, you can find the presentation materials at: vre.org/service/fares. Management, including myself, will be available for in-person comments and questions at the upcoming Meet the Management events. The schedule for these events can be found here: http://vre.org/special-events/meet-the-management/.
Chief Executive Officer