valleymetro.org Valley Metro Rail, Inc., Phoenix, AZ COMPREHENSIVE ANNUAL FINANCIAL REPORT FI S C A L Y E A R ENDED JUNE 30 2015 VALLEY METRO RAIL, INC. Phoenix, Arizona Comprehensive Annual Financial Report For the fiscal year ended June 30, 2015 Prepared by: Finance Division VALLEY METRO RAIL SYSTEM FY15 Facts and Figures Ridership Highest ridership days • 14.3 million rail riders • January 31, 2015 – NFL Experience/Super Bowl Central • 71 million bus and rail riders • January 30, 2015 – NFL Experience/Super Bowl Central • January 29, 2015 – NFL Experience/Super Bowl Central 50 150 43,418 19th Ave/Montebello • Sycamore/Main St • University Dr/Rural • Veterans Way/College Ave • 19th Ave/Camelback Riders (In Thousands) • 40 120 35,534 30 24,995 20 10 0 Riders (In Thousands) Top five busiest stations 126,606 90 81,856 75,822 60 30 Weekdays Saturdays Sundays AVERAGE 0 Jan. 31 Jan. 30 Jan. 29 HIGHEST RIDERSHIP Valley Metro Rail is responsible for the development and operation of the region’s light rail/high-capacity transit system, which served 14.3 million total passengers in fiscal year 2015. Design and Construction The initial 20-mile light rail line opened on December 27, 2008. On August 22, 2015, the Valley’s first light rail extension opened adding three more miles and connecting downtown Mesa. There are 32 stations, primarily in the center of the roadway and designed with significant consideration given to the desert heat. Artwork is an integral part of the system and incorporated into each station. System Overview • Number of miles: 23 • Number of stations: 32 • Number of vehicles: 50 • Number of parking spaces: 4,073 • Total travel time: 76 minutes • • Ten park-and-rides serve the system where 4,073 free parking spaces can be enjoyed by riders on a first-come, first-served basis. Like the rest of the system, they are monitored using security cameras. All of the 50 light rail vehicles in the fleet have a comfort capacity of 175 passengers. The vehicles feature state-of-the-art technology and are customized for the desert climate. Cost to operate: $31.3 million in FY15 Cost to ride: $2.00 per ride; $4.00 for all day continued VALLEY METRO RAIL SYSTEM Operations 3% Valley Metro Rail operates 365 days a year, 20+ hours a day, with a 12-minute peak frequency. The cost of operations is largely supported by rail member cities and passenger fares. Light rail service is coordinated with bus service to provide a seamless network for customers. An All-Day pass or greater is good for both rail and bus. Passes can be purchased at fare vending machines located at each station, online or from retail outlets Valleywide. Security officers regularly patrol the system and ask passengers at random for proof of payment. Violators are subject to fines ranging from $50 to $500 and can lose their transit privileges. 6% 41% 50% The Valley Metro Rail system connects the cities of Phoenix, Tempe and Mesa. It provides connection to work, school and entertainment. There are many sports, shopping, restaurants and arts and culture destinations along the system. Light rail also connects to Phoenix Sky Harbor International Airport with Phoenix Sky Train® at the 44th St/Washington station. Fares Member Cities Federal Advertising Future Expansion Seven light rail extensions are planned or under construction to create a 66-mile system by 2034. Two boards of directors set the policy direction for the agency with the intent of advancing the regional public transit system. Stay updated on construction progress by following Valley Metro on Facebook, Twitter or by visiting valleymetro.org. LEGEND Bell Rd Valley Metro Rail Phoenix 17 Thunderbird Rd Light Rail Extension Peoria Peoria Ave 2034 2026 101 51 Paradise Valley 2016 Northern Ave Glendale Bethany Home Rd Streetcar 101 Future High-Capacity Transit Corridor For Further Study Note: Dates indicate anticipated calendar year openings 2026 Indian School Rd McDowell Rd Buckeye Rd Scottsdale Avondale 202 10 Tolleson 2023 17 McKellips Rd Mesa 202 143 University Dr Broadway Rd 2018 2018 Tempe 2034 101 Warner Rd Val Vista Dr Gilbert Rd 202 Mesa Dr Alma School Rd Price Rd Rural Rd 56th St 40th St 24th St Central Ave 19th Ave 35th Ave 51st Ave 67th Ave Chandler 83rd Ave Guadalupe Rd Gilbert 10 99th Ave Southern Ave valleymetro.org 602.253.5000 TTY 602.251.2039 LRT2417/10.15 Phoenix Baseline Rd Valley Metro Rail, Inc. Table of Contents Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 Page Introductory Section Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Policy Organizational Chart List of Appointed Officials iii x xi xii Financial Section Independent Auditor’s Report Management's Discussion and Analysis (Required Supplementary Information) Basic Financial Statements Statement of Net Position Statement of Revenues, Expenses, and Changes in Fund Net Position Statement of Cash Flows Notes to the Financial Statements 10 11 12 13 Other Supplementary Information Schedule of Operations - Budget and Actual 27 Statistical Section Financial Trends Net Position by Component Changes in Net Position Demographic and Economic Information Growth in Regional Transit Usage Population Growth Top Employers in Maricopa County Project Report – Central Mesa Project Report – Northwest Extension Phase I Project Report – Gilbert Road Project Report – Tempe Streetcar Project Report – Capitol / I-10 West Project Report – West Phoenix / Central Glendale Project Report – Northwest Extension Phase II Project Report – South Central Operating Information Full-Time Equivalent Positions Schedule of Insurance Coverage Design & Construction Milestones 1 3 31 32 33 34 35 36 37 38 39 40 41 42 43 44 47 49 INTRODUCTORY SECTION The Introductory Section includes Valley Metro Rail’s transmittal letter, policy organizational chart, and list of appointed officials 101 North 1st Avenue Suite 1300 Phoenix, AZ 85003 November 10, 2015 To Chairman and Members of the Valley Metro Rail, Inc. Board of Directors: The comprehensive annual financial report of Valley Metro Rail, Inc. (VMR) for the fiscal year ended June 30, 2015, is hereby submitted in accordance with the requirements of the Bylaws and Board directives. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with management. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner that presents fairly the financial position, results of operations and cash flows of VMR. All disclosures necessary to enable the reader to gain an understanding of VMR’s activities have been included. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for local governments as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). The independent auditors, Heinfeld, Meech & Co., P.C., whose report is included herein, have examined the basic financial statements and related notes. As stated in the independent auditor’s report, the goal of the independent audit was to provide reasonable assurance that the basic financial statements of VMR as of and for the fiscal year ended June 30, 2015, are free from material misstatement. The independent audit involved examining, on a test basis; evidence supporting the amounts and disclosures in the financial statements; assessing accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditors concluded, based upon their audit, that there was a reasonable basis for rendering an unmodified opinion that the basic financial statements of VMR for the fiscal year ended June 30, 2015, are fairly presented, in all material respects, in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. Additionally, VMR is required to have an independent audit of expenditures of federal awards received (Single Audit) by VMR directly from federal agencies, or passed through to VMR by other governmental entities during the fiscal year. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on VMR’s internal controls and compliance with legal requirements having a direct and material impact on major programs, with special emphasis on internal controls and compliance requirements involving the administration of major federal awards. The results of VMR’s Single Audit for the fiscal year ended June 30, 2015, found no instances of material weakness in the internal control structure or significant violations of applicable laws and regulations with respect to major programs. The auditor’s reports on internal controls and compliance with applicable laws and regulations are included in a separately issued Single Audit Report. The financial statements are prepared and presented in conformity with accounting principles generally accepted in the United States of America. More information about the presentation can be found in Management’s Discussion and Analysis (MD&A) beginning on page 3 and also discussed in the notes to the financial statements beginning on page 13. This transmittal letter is designed to complement MD&A and should be read in conjunction with it. iii Valley Metro Rail, Inc. Letter of Transmittal (Continued) THE FINANCIAL REPORTING ENTITY VMR was established in October 2002 as a public nonprofit corporation formed by the cities of Glendale, Mesa, Phoenix, and Tempe to manage design, construction, and operation of the Light Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and Peoria became contributing member cities in 2007. The City of Scottsdale joined in April of 2008 and withdrew membership effective July 1, 2009. Subsequent to the close of fiscal year 2010-2011, the City of Peoria withdrew membership effective July 1, 2011. During the fiscal year 2014-2015, a five member Board of Directors governed VMR, consisting of the mayors or their designated representatives from each member city. The Board of Directors establishes overall policies for management and administration of the LRT System, provides oversight over the design, construction and operation of light rail, and receives and disburses funds and grants from federal, state, local, and other funding sources. A Chief Executive Officer, appointed by the Board of Directors, is responsible for the day-to-day management of the organization. In February 2012, the Boards of Directors of VMR and the Regional Public Transportation Authority (RPTA) took action to appoint Mr. Stephen R. Banta as the Chief Executive Officer to manage the two financial entities under a single integrated agency. RPTA and VMR entered into an intergovernmental agreement providing for the single CEO to serve both organizations effective March 1, 2012 with the preservation of both RPTA and VMR Boards of Directors. LOCAL ECONOMIC CONDITION AND OUTLOOK VMR serves the cities of Chandler, Glendale, Mesa, Phoenix, and Tempe that are centrally located in Maricopa County, Arizona. These cities have constituted a well-established growth area since 1945, and collectively encompass approximately 1,000 square miles. Together they form a significant portion of the greater metropolitan Phoenix area, which is the economic, political, and population center of Arizona. The combined five cities have grown from 2.612 million residents in the year 2005 to 2.666 million residents in 2014, an increase of approximately 2.07% in the last ten years. The five cities’ population represents over 65% of the total Maricopa County population. According to the Greater Phoenix Economic Council, population in the region is projected to grow at more than twice the national rate for the next few decades, growing from 4.0 million in 2008 to 6.3 million in 2030. In 2007 and 2008, the region’s historically strong economic growth slowed and sales tax revenues fell with the nation-wide recession. In fiscal years 2009 and 2010 regional tax revenues fell 13.7% and 8.9% respectively. VMR responded to the times with staff reductions in 2009 and with service reductions in 2010. In fiscal years 2012, 2013, 2014 and 2015 regional tax revenues have rebounded, growing by 4.3%, 5.5%, 7.0% and 4.6% respectively. While the economic recovery in the region is not complete, the outlook is bright for maintaining and expanding the 20-mile light rail system. Despite the 2009 downturn, growth of public transportation continues to be strong. Over the last ten years, while population has grown by less than 3% in the region, public transportation ridership has grown by 19.4%. With the commencement of rail passenger operations in December 2008, the LRT System added new capacity to the regional transportation system. Since opening, VMR has experienced strong passenger growth with average weekday ridership reaching 43,418 passengers in fiscal year 2015 up from 33,440 riders per day in fiscal year 2009. iv Valley Metro Rail, Inc. Letter of Transmittal (Continued) With Proposition 400, and the creation of the Public Transportation Fund, light rail extensions in Mesa, Phoenix, and Tempe are in the planning or design stages which will continue to add capacity to the region’s transportation system in the years ahead. FINANCIAL CONTROLS Accounting and Administrative Controls As previously noted, VMR’s management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of VMR are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. VMR’s internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. As a sub-recipient of federal financial assistance, VMR is also responsible for ensuring that an adequate internal control structure is in place to ensure and document compliance with applicable laws and regulations related to these programs. This internal control structure is subject to periodic evaluation by management and by VMR’s independent auditor. As part of VMR’s Single Audit, tests were made of the internal control structure and of its compliance with applicable laws and regulations, including those related to federal awards. Although this testing is limited in scope and is not sufficient to support an opinion on VMR’s internal control system or its compliance with laws and regulations, the audit for the year ended June 30, 2015, disclosed no material internal control weaknesses or material violations of laws and regulations. The audit of VMR’s compliance with requirements applicable to each major program and internal control over compliance resulted in an unmodified opinion of compliance and noted no material weaknesses in internal controls. Budgetary Systems and Controls The objective of the budgetary controls maintained by VMR is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the Board of Directors. The by-laws require a balanced budget to be adopted by the VMR Board each fiscal year. The level of budgetary control, i.e., the level at which expenditures cannot legally exceed appropriations, is the total operating budget. VMR maintains budgetary control by conducting quarterly evaluations of expenditures against appropriations and through close monitoring of revenues. Encumbrance accounting is not utilized and all appropriations lapse at year-end. As demonstrated by the statements included in the financial section of this report, VMR continues to meet its responsibility for sound financial management. In addition to the annual budget, VMR also prepares a Five-Year Capital Program and Operating Forecast and the Transit Life Cycle Plan (TLCP) update. The five-year forecast starts with the annual budget information and extends it an additional four years to provide information about the anticipated schedule, costs, and revenues. The TLCP gives a longer term perspective by outlining the sources and uses of funds for specific capital projects and the corresponding costs and funding to operate each project out through fiscal year 2025. For each major capital construction project, VMR regularly reports the project budget status to the Board showing by project element the budget amount versus actual expenditures, and forecasted cost at completion. VMR evaluates project contractual costs and estimates the cost at completion v Valley Metro Rail, Inc. Letter of Transmittal (Continued) as part of the regular project reporting process. Should anticipated contractual costs appear to exceed the Board approved project budget, VMR staff will seek Board action to adjust project scope or approve additional funding. During construction, significant issues are addressed in narrative reports included in the project progress report submitted to the Board on a quarterly basis. With the commencement of passenger operations in December 2008, VMR has continued to refine detailed cost estimates for manpower, contracted costs, utilities and insurance to construct the annual operations budget. Analysis and comparisons of VMR’s planned costs to peer city light rail systems have been conducted. Actual costs are tracked against budget and reported to Member Cites on a monthly basis with significant variances analyzed and communicated. Member Cities fund the cost of the operations based upon the ratio of route miles in operation within each jurisdiction. In the first five years of operations, VMR has successfully operated within budget while achieving on-time and reliability performance targets. With respect to fare revenues, VMR engages an armored car service contractor to pick up fare payments deposited by customers in the fare vending machines. The armored car service deposits daily collections into the City of Phoenix regional fare revenue depository. VMR works in collaboration with the City of Phoenix to compute and distribute fare revenues to the Member Cities. In FY15, VMR’s fare collections and cost of operations were level with the prior year. As a result, fare recovery ratio continued to exceed 40.0% comparing favorably with peer agencies located in the western United States. (See below table) Light Rail Systems Dallas Denver Houston Sacramento 2013 NTD Salt Lake San Diego City Peer Average Valley Metro Rail FY 15 Fare Recovery 14% 57% 24% 29% 42% 54% 34% 41% *Fare recovery ratio is a primary measure of system financial productivity as monitored by the Federal Transit Administration. The National Transit Database (NTD) definition of fare recovery is total fare revenues collected divided by total operating cost. Fare recoveries are strongest where passenger boardings and fares collected are highest and operating costs are lowest. As of this publication date, year 2013 is the most recent year NTD has published results. MAJOR INITIATIVES Design and Construction of Light Rail and Modern Streetcar In addition to the successful construction of the 20-mile Central Phoenix/East Valley Light Rail Transit (CP/EV LRT) Project, VMR is advancing design and construction of new rail extensions. The Central Mesa Light Rail Extension, adding an additional 3.1 miles eastward along Main Street to Mesa Drive commenced passenger operations ahead of schedule on August 22, 2015. The new light rail alignment has transformed the Mesa downtown landscape and provided greater access to Mesa business, education and entertainment destinations. The Northwest Phase 1 Light Rail Extension, adding 3.2 miles along 19th Avenue to Dunlap Avenue in Phoenix, is now on track for completion in early 2016. With the economic recovery and a revitalized funding plan, construction commenced in January 2013 and has progressed to over 90% complete as of September 30, 2015. The 1.9 mile Gilbert Road Light Rail Extension will extend the alignment eastward along Main Street to Gilbert Road with anticipated completion in 2018. A combination of Federal and City of Mesa funding sources have enabled Transportation Project Advancement Notes to be issued by the City of Mesa to construct the project. Design and construction are expected to commence in late 2015. In Tempe, a 3.0 mile modern streetcar alignment has received local funding support and is currently in final review for federal funding approval. vi Valley Metro Rail, Inc. Letter of Transmittal (Continued) The Tempe Streetcar project is tentatively scheduled to commence design and construction for a line opening in 2018 / 2019, pending the outcome of the federal review process. In Phoenix, the 11 mile Capitol/I-10 West Light Rail Extension along the Interstate 10 corridor and the 5 mile South Central Corridor Light Rail Extension proceeding directly south of downtown along Central Avenue have received the support of the City of Phoenix Council. With the recent passage of Prop 104, the City of Phoenix has voter approval to fund light rail capital and operating costs which will move forward construction of these and other future projects in the city. (See pages 36-43 for project information) Current Rail Passenger Operations Commencing in January 2009, VMR has operated a 19.6 mile LRT System that connects north central Phoenix, Tempe, and Mesa complementing regional bus services. As the initial starter segment, the alignment extends from 19th Avenue and Bethany Home Road in Phoenix to Main and Sycamore Road in Mesa. The cities of Phoenix, Tempe, and Mesa share responsibility for funding the operating and maintenance (O&M) costs. Service commences daily at 5AM and operates to 11PM, with extended hours on Friday and Saturday to 2AM. Weekday riders have access to trains every 12 minutes from 7AM to 7PM. Weekend and off-peak weekday service frequencies range from 15 to 20 minutes. Central Mesa Light Rail Extension Project In March, 2010, the Mesa City Council approved a 3.1 mile extension of the LRT system and in August 2010, the Federal Transit Administration (FTA) approved the alignment for project development. In September 2012, the FTA completed review of the $75.0 million Section 5309 Small Start application and submitted the grant to Congress for final approval. The extension begins at the eastern limits of VMR’s existing light rail system (Sycamore) and extends east on Main Street to Mesa Drive. The entire extension is within the City of Mesa. There are four stations on Main Street including a station at Alma School Road, Country Club Drive, Center Street, and Mesa Drive. The Central Mesa Extension commenced passenger operations in August 2015, three months ahead of schedule. Fully mature ridership projection is estimated at approximately 4,750 riders per day. The total capital cost of the project is $199.0 million, funded with a combination of federal and regional funds. Northwest Extension LRT Project The Northwest Extension is a 4.6 mile light rail project starting at the northwest termination point of the Central Phoenix/East Valley Light Rail project. The project follows 19th Avenue to Dunlap Avenue, then west on Dunlap Avenue to 25th Avenue and then runs on 25th Avenue to Mountain View Road. In March 2007 the Phoenix City Council approved an initial 3.2 mile phase to be locally funded, without federal funding support. In 2009, with the economic downturn, construction of the first phase, which includes the 19th Avenue to Dunlap portion of the project, was suspended based upon availability of funding. From 2009 through mid-2012, real estate was acquired, private utility lines were relocated and neighborhood mitigation improvements were made to prepare for light rail construction. On June 20, 2012, the Phoenix City Council approved $60,000,000 from transit sales tax funds to accelerate the project construction, with repayment from the PTF to come in 2017. In July of 2012, the Regional Council of the Maricopa Association of Governments (MAG) approved the vii Valley Metro Rail, Inc. Letter of Transmittal (Continued) 2012 Transit Life Cycle Plan Update which allocates monies from the Public Transportation Fund (PTF) for the Northwest Extension Project. These funding actions have enabled the project to complete design work and reach 90% construction completion for the 3.2 mile Phase I. The Phase I Northwest Extension is on-track to open in the spring of 2016 with fully mature ridership estimated at approximately 4,000 riders per day. The total capital cost of the project is $326.6 million to be funded with a combination of City of Phoenix and Public Transportation Funds. Funding Milestones On November 2, 2004, the voters of Maricopa County approved Proposition 400, the continuation of the transportation tax, for a twenty year period, beginning in calendar year 2006. A major milestone in transportation funding and service in the region, the proposition had unanimous support from the mayors of all of the cities in the region and the Maricopa County Board of Supervisors, the Maricopa Association of Governments Regional Council, and the Arizona Department of Transportation. This initiative is forecasted to generate $1.3 billion (in year of expenditure dollars) in revenue over the 20 year period to fund construction of an additional 24 miles of light rail extension and 3.0 miles of modern streetcar. In March 2006, VMR began to receive funds from the Public Transportation Fund. Initial funds were used for the relocation of non-prior rights utilities impacted by LRT construction. In August 2006, the Regional Public Transportation Authority (RPTA) and VMR executed the LRT Program Agreement. Under the agreement, RPTA designates VMR as the Lead Agency to plan, design, and construct the LRT program as defined by the Maricopa Association of Governments Regional Transportation Plan. As of June 30, 2015, $471.0 million of Public Transportation Funds have been received to fund VMR rail programs. In December 2007, the Phoenix City Council approved $34.7 million to fund pre-construction activities for the Northwest Extension. In July 2009, in response to reductions in sales tax revenues, the Council took action to phase construction activities pending availability of funds. In June 2012, the Council took action to advance $60.0 million to restart and accelerate construction of the 3.2 mile Northwest Extension Phase I Project. In June 2009, the Regional Public Transportation Authority (RPTA) issued Transportation Excise Tax Revenue Bonds in the amount of $100,075,000. Approximately $55.0 million of the 2009 series bond proceeds reimbursed and paid LRT capital expenditures as designated in the Regional Transportation Plan. In January 2014, the RPTA issued a second series of bonds to fund LRT capital expenditures. The 2014 series bonds totaled $115,000,000 par value were sold at a premium to generate approximately $134.0 million in proceeds for the Central Mesa and Northwest Phase I LRT extensions. In December 2009, VMR submitted application with the FTA to enter Project Development for the Central Mesa LRT Extension. In August of 2010 FTA approved the project to move forward into design under the Sec 5309 Small Starts program. In August of 2011, the FTA approved the project environmental submittal enabling right of way acquisition and utility relocation eligible for federal funding. In October of 2012, the FTA awarded a $75.0 million Project Construction Grant Agreement for the Central Mesa Extension. viii x x VALLEY METRO RAIL, INC. Policy Organizational Chart Fiscal Year Ended June 30, 2015 xi VALLEY METRO RAIL, INC. List of Appointed Officials Fiscal Year Ended June 30, 2015 Board of Directors Board Chairman Vice Chairman Board Member Board Member Board Member Vice Mayor Dennis Kavanaugh, Mesa Councilmember Thelda Williams, Phoenix Councilmember Rick Heumann, Chandler Councilmember Gary Sherwood, Glendale Mayor Mark Mitchell, Tempe Executive Management Team Chief Executive Officer Chief of Staff Chief Operations Officer Chief Engineer Director, Communication & Marketing Director, Planning & Development Director of Administration & Organizational Development General Counsel Chief Financial Officer Director, Safety & Security xii Stephen R. Banta Jyme Sue McLaren Raymond Abraham Rick Brown Hillary Foose Wulf Grote Carol Ketcherside Mike Ladino John McCormack Adrian Ruiz FINANCIAL SECTION The Financial Section includes the Independent Auditor’s Report, Management’s Discussion and Analysis (MD&A), the basic financial statements, and notes to the financial statements. 10120 N. Oracle Road Tucson, Arizona 85704 Tel (520) 742-2611 Fax (520) 742-2718 INDEPENDENT AUDITOR’S REPORT Board of Directors Valley Metro Rail, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Valley Metro Rail, Inc., as of and for the year ended June 30, 2015, and the related notes to the financial statements, as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Valley Metro Rail, Inc., as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1 TUCSON • PHOENIX • FLAGSTAFF www.heinfeldmeech.com Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, as listed in the table of contents, be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Valley Metro Rail, Inc.’s financial statements. The Introductory Section, Schedule of Operations – Budget and Actual, listed as Other Supplementary Information in the table of contents, and Statistical Section are presented for purposes of additional analysis and are not a required part of the financial statements. The Schedule of Operations – Budget and Actual is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Operations – Budget and Actual is fairly stated in all material respects in relation to the financial statements as a whole. The Introductory Section and Statistical Section have not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 10, 2015, on our consideration of Valley Metro Rail, Inc.’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Valley Metro Rail, Inc.’s internal control over financial reporting and compliance. HEINFELD, MEECH & CO., P.C. CPAs and Business Consultants November 10, 2015 2 Valley Metro Rail, Inc. Management’s Discussion and Analysis As management of Valley Metro Rail, Inc. (VMR), we offer this narrative overview and analysis of the financial activities of VMR for the fiscal year ended June 30, 2015. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iii – ix of this report. This discussion and analysis is designed to (1) assist the reader in focusing on significant financial issues, (2) provide an overview of VMR’s financial activity, (3) identify changes in VMR’s financial position, (4) identify any material deviations from the financial plan (adopted annual budget), and (5) identify other issues or concerns. Financial Highlights • VMR’s total net position increased $21.4 million in FY 2015. The increase was caused by new capital investments which exceeded scheduled depreciation charges. Total net position for VMR was $1.216 billion at June 30, 2015. • VMR’s operating revenues for FY 2015 were $35.1 million compared to $33.4 million for the prior period, an increase of $1.7 million, or 5.1%. Advertising revenues, fare revenues and regional revenues for the regional capital rebuild program were up over last year. Operating expenses were $80.3 million compared to $79.0 million, an increase of $1.3 million, or 1.6% With the system now over five years old, the capital asset rebuild program has commenced expending $0.9 million to maintain the light rail vehicle fleet in a state of good repair. • Capital contributions totaled $73.8 million primarily consisting of Public Transportation Funds of $29.9 million and Federal Transit Administration Capital Grants totaling $43.8 million. Construction in progress additions for capital projects include $60.9 million for the Central Mesa LRT extension and $65.1 million for the Northwest LRT extension. In addition, the capital funds provided for conveyance of $3.9 million in real estate to member cities. OVERVIEW OF THE FINANCIAL STATEMENTS VMR’s financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires that the financial statements be accompanied by a narrative introduction and analytical overview of the government’s financial activities in the form of “Management’s Discussion and Analysis” (MD&A). The financial section of the Comprehensive Annual Financial Report (CAFR) for VMR consists of this discussion and analysis and the basic financial statements. This report also contains other supplementary schedules presented after the basic financial statements. VMR’s basic financial statements include a statement of net position; a statement of revenues, expenses and changes in net position; a statement of cash flows; and the notes to the financial statements. VMR’s financial statements are prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America promulgated by the Governmental Accounting Standards Board (GASB). Fund Financial Statements – VMR is presented as an enterprise fund. Enterprise funds are used for activities that primarily serve customers outside the governmental unit. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or conditions. Funds are used to ensure and demonstrate compliance with finance-related legal requirements as well as for managerial control to demonstrate fiduciary responsibility over the assets of VMR. 3 Valley Metro Rail, Inc. Management’s Discussion and Analysis (Continued) The statement of net position presents information on all of VMR’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of VMR is improving or deteriorating. The statement of revenues, expenses and changes in fund net position presents information showing how the agency’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected grant revenues). Notes to the Financial Statements – The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements and should be read with the financial statements. The notes can be found beginning on page 13. Enterprise Operations – VMR was formed in October 2002 by the cities of Glendale, Mesa, Phoenix and Tempe as a public nonprofit corporation to manage design, construction and operation of the Light Rail Transit (LRT) System within the Metropolitan Area. The city of Chandler became the fifth contributing member in April of 2007. The member cities pay for their share of VMR’s operating expenses based on expense allocation methods approved in the by-laws of VMR. See Note 1 for a summary of VMR’s significant accounting policies. Light Rail Ridership Comparison 2011 / 2012 / 2013 / 2014 / 2015 4 Valley Metro Rail, Inc. Management’s Discussion and Analysis (Continued) FINANCIAL ANALYSIS OF VMR The following tables and analysis discuss the financial position and changes to the financial position for VMR as a whole as of and for the year ended June 30, 2015, with comparative information for the previous period. Net Position – Net position may serve over time as a useful indicator of VMR’s financial position. The following table reflects the condensed Statement of Net Position as of June 30, 2015, compared to the prior period. VMR's Condensed Statement of Net Position As of June 30, 2015 and 2014 Current assets Noncurrent assets Total assets $ Current Liabilities Noncurrent Liabilities Total liabilities Net Investment in Capital Assets Unrestricted Total Net Position $ Change (10,563,997) 91,580,325 81,016,328 Percent Change -14.8% 7.4% 6.2% 57,604,636 60,893,586 118,498,222 (1,953,869) 61,525,484 59,571,615 -3.4% 101.0% 50.3% 1,203,645,659 12,101,637 1,181,649,049 12,653,534 21,996,610 (551,897) 1.9% -4.4% 1,215,747,296 $ 1,194,302,583 2015 60,587,759 1,333,229,374 1,393,817,133 2014 $ 71,151,756 1,241,649,049 1,312,800,805 55,650,767 122,419,070 178,069,837 $ $ 21,444,713 1.8% Total net position represents the sum of VMR’s unrestricted net position plus net investment in capital assets. The largest portions of the investment are capital assets for the Central Phoenix/East Valley Light Rail Transit Project (CP/EV LRT). In December 2008, VMR placed these capital assets into service for operation of the light rail transit system and in day-to-day operations of VMR. It is not VMR’s intention to sell these assets and they are therefore not available for future spending. Net position increased $21.4 million largely due to the addition of the construction in progress for the Central Mesa Extension and the Northwest Extension capital projects. Funding sources for the new investments include Federal grants and Public Transportation Funds. 5 Valley Metro Rail, Inc. Management’s Discussion and Analysis (Continued) CHANGES IN NET POSITION Total operating revenues, which consist of Contributions from Member Cities, Passenger Fares, FTA grants, Regional Capital Rebuild Revenue and Other Revenues (advertising and MAG planning funds), increased by $1.7 million. Member City contributions decreased ($0.2) million; favorably impacted by increased fare revenues $0.3 million and increased advertising revenues of $1.2 million, offsetting a ($0.3) million reduction in federal operating grants. Operating expenses increased by $1.3 million to $80.3 million: Administrative expenditures increased from $8.8 to $9.1 million (3.3%). Passenger Operations Service expenses were near level, up from $31.260 to $31.289 million (0.1%) Negotiated reductions in contracted transportation costs and insurance cost reductions offset maintenance cost increases. The regional capital rebuild program commenced in FY15 expending $0.9 million for Light Rail Vehicle brake systems. Depreciation expense was $39.0 million, slightly up from $38.9 million in the prior year. Non-Operating expenses: This year's non-operating revenue and expense activities report a net ($7.1) million decrease in net position. The decrease includes private utility relocation expense ($5.1) million capital conveyance of real estate to member cities ($3.9) million, and interest on capital funding obligations ($0.5) million. In addition, Public Transportation Fund interest expense ($8.1) million was recorded for bond proceeds advanced from the Regional Public Transportation Authority; see Note 10 for details. The expenses were offset by Regional Public Transportation Funds revenue of $10.5 million. The following table compares the revenues and expenses of VMR for the current fiscal year and the previous period. VMR's Changes in Net Position Fiscal year ended June 30, 2015 and 2014 2015 Operating revenues: Contributions from Member Cities Passenger Fares FTA Operating Grants Regional Capital Rebuild Revenue Other Revenues Operating revenues Operating expenses: Administrative Passenger Operations Service Regional Capital Rebuild Program Depreciation Operating expenses $ 2014 16,590,974 12,832,286 2,135,431 305,245 3,272,014 35,135,950 $ 16,803,600 12,505,116 2,400,132 1,730,566 33,439,414 9,128,597 31,288,715 881,021 39,014,089 80,312,422 8,840,445 31,260,365 38,911,674 79,012,484 Operating income (loss) (45,176,472) Non-operating revenues (expense) Deficiency before Capital Contributions Capital Contributions Increase (Decrease) in Net Position Net Position, July 1 Net Position, June 30 $ Change $ (212,626) 327,170 (264,701) 305,245 1,541,447 1,696,535 Percent Change -1.3% 2.6% -11.0% 0.0% 89.1% 5.1% 288,152 28,350 881,021 102,415 1,299,938 3.3% 0.1% 0.0% 0.3% 1.6% (45,573,070) 396,597 -0.9% (7,148,361) (52,324,833) (19,372,892) (64,945,961) 12,224,531 12,621,128 -63.1% -19.4% 73,769,546 21,444,713 113,824,977 48,879,016 (40,055,431) (27,434,303) -35.2% -56.1% 1,194,302,583 1,145,423,567 1,215,747,296 $ 1,194,302,583 6 $ 48,879,016 4.3% 21,444,713 1.8% Valley Metro Rail, Inc. Management’s Discussion and Analysis (Continued) Capital contributions totaling $73.8 million consist of FTA capital grants $43.8 million and Public Transportation Funds $29.9 million. Capital projects funded include the Central Mesa and Northwest Extension construction projects. The ($40.1) million decrease versus prior year capital contributions were primarily related to a ($56.3) million decrease in PTF contributions for capital projects offset by a 16.3 million increase in federal capital grants. While PTF Capital revenue contributions were reduced, PTF bond advances of $69.6 million from the Regional Public Transportation Authority (RPTA) provided funds to support the Northwest Extension and Central Mesa Extension capital construction projects. CAPITAL ASSETS AND LONG TERM DEBT Capital Assets: The following table provides a breakdown of capital assets of VMR at June 30, 2015, with comparative information for the previous period. Additional information on VMR’s capital assets may be found in Note 5. VMR's Capital Assets, Net of Depreciation As of June 30, 2015 and 2014 Buildings Guideway Bridges Operation Control Center Passenger Stations and Facilities Park and Ride Facilities Electric Power Substations Signal and Communication System Computers and Software Revenue Vehicles Non-Revenue Vehicles Site Improvements Equipment Construction in Progress Net Capital Assets Percent Change -3.0% -2.2% -4.1% -4.0% -4.1% -10.3% -5.1% -6.9% -99.7% -5.2% -12.8% 27905.6% -14.9% 2014 84,794,636 503,336,746 50,238,383 10,903,077 83,259,135 25,906,761 69,210,351 35,164,511 130,578 170,655,251 823,683 11,329 5,969,319 Change $ (2,563,303) (11,310,564) (2,050,546) (436,781) (3,398,332) (2,667,729) (3,549,517) (2,425,723) (130,230) (8,792,128) (105,132) 3,161,431 (889,690) 327,983,858 201,245,289 126,738,569 63.0% $ 1,333,229,374 $ 1,241,649,049 $ 91,580,325 7.4% $ 2015 82,231,333 492,026,182 48,187,837 10,466,296 79,860,803 23,239,032 65,660,834 32,738,788 348 161,863,123 718,551 3,172,760 5,079,629 $ As of June 30, 2015, VMR had $1,333.2 million in capital assets, net of accumulated depreciation. There was a net increase in capital assets, of $91.6 million from June 30, 2014; primarily resulting from an increase to construction in progress of $126.7 million primarily for the Central Mesa $60.9 million and Northwest Extension $65.1 million LRT projects. Site Improvements increased by $3.2 million primarily due to the OMC Solar Panel project which will reduce future costs of electricity. New construction increases were offset by the annual depreciation charge of $39.0 million for the Light Rail system infrastructure. Refer to Note 5 on page 19 for more information regarding the capital assets. Long Term Debt: VMR signed the Project Funding Agreement (Northwest Light Rail Extension) with the City of Phoenix on December 20, 2012. The agreement provided $60 million during fiscal years 2013 and 2014 to fund the expenses of the Northwest Light Rail Extension capital project. These funds will be repaid to City of Phoenix with Regional Public Transportation Funds (PTF) on June 30, 2017. Refer to Note 8 on page 20 for more information regarding the funding agreement. 7 Valley Metro Rail, Inc. Management’s Discussion and Analysis (Continued) In April 2015, the VMR and RPTA Boards amended the interagency LRT Program Agreement whereby RPTA holds an interagency receivable for PTF bond proceeds advanced to VMR to fund LRT capital projects. In FY15, the PTF Advance Bond Proceeds due from VMR to RPTA totaled $69.6 million. See Note 10 for details. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET VMR’s adopted fiscal year 2016 total operating and capital budget is $162.8 million, down ($69.4) million from fiscal year 2015’s amended budget. The primary cause for the decrease is within the capital budget; with decreases to the construction activities for the Northwest Extension ($31.2M) and Central Mesa ($39.1M) LRT projects and related utility relocations and Concurrent Non Project Activities (CNPAs) down by ($10.9M) and ($6.1M) respectively. Offsetting the decreases are increases to budgets for the Gilbert Road Capital Project $3.9M, South Tempe Streetcar $1.4M and Phoenix West Extension $5.6M. Background on the capital projects may be found in the Statistical Section commencing on page 30. On the operating side, VMR’s FY16 budget is $49.3 million, up $7.8 million versus fiscal year 2015 primarily due to the addition of 3.1 miles revenue operations with the start-up of the Central Mesa Extension. Revenue operations costs are up $5.5M to $37.7M in FY16. Additions in planning project work scope for Tempe Streetcar and the South Central Phoenix LRT Extension increase the Future Project Development budget by $2.3M to $10.7M in FY16. Comparison of Annual Expenditure Budgets Fiscal Year 2016 vs. 2015 Uses of Funds FY 2016 Adopted ($,000) Operating Activities: Revenue Operations Future Project Development Agency Operating Budget FY 2015 Amended ($,000) Change ($,000) 37,654 10,741 909 49,304 32,156 8,444 928 41,528 5,498 2,297 (19) 7,776 Capital Projects: Northwest Extension Non-Prior Rights Utilities Relocations Other Capital Projects: Central Mesa Extension Gilbert Road Capital Project South Tempe Streetcar Phoenix West Extension CNPAs - Mesa Extension CNPAs - Northwest Extension Systemwide Improvements Subtotal Capital before Debt Service 44,272 2,830 75,493 13,755 19,373 9,306 6,631 6,000 5,720 94,132 58,448 5,388 5,257 415 2,045 4,011 6,480 171,292 (31,221) (10,925) (39,075) 3,918 1,374 5,585 (2,045) (4,011) (760) (77,160) Capital Project Debt Service: Debt Service - Interest Debt Service - Principal 7,742 11,618 8,120 11,241 (378) 377 162,796 232,181 (69,385) Total Uses of Funds 8 Valley Metro Rail, Inc. Management’s Discussion and Analysis (Concluded) FINANCIAL CONTACT The financial report is designed to provide a general overview of VMR’s finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to VMR’s Chief Financial Officer, Valley Metro Rail, Inc., 101 North 1st Avenue, Suite 1300, Phoenix, Arizona 85003. 9 Valley Metro Rail, Inc. Statement of Net Position Fiscal Year Ended June 30, 2015 Assets Current Assets: Cash and Investments Receivables, Net Due from Other Governments Inventory Other Assets Total Current Assets $ Noncurrent Assets: Capital Assets, not being depreciated Capital Assets, net of accumulated depreciation Total Noncurrent Assets 8,377,587 765,013 36,742,875 14,326,711 375,573 60,587,759 327,983,858 1,005,245,516 1,333,229,374 Total Assets and Other Debits 1,393,817,133 Liabilities Current Liabilities: Accounts Payable Labor Compliance Withholding Other Accrued Expenses Insurance Reserves Due to Other Governments Due to RPTA PTF Advance Bond Proceeds Other Deposits Member Cities Deposits Total Current Liabilities 29,741,910 21,903 1,259,487 753,764 6,191,960 8,185,000 617,410 8,879,333 55,650,767 Noncurrent Liabilities: Northwest Extension Advance Funding Obligation Due to RPTA PTF Advance Bond Proceeds Interest payable Total Noncurrent Liabilities 60,000,000 61,398,715 1,020,355 122,419,070 Total Liabilities and Other Credits 178,069,837 Net Position Net Investment in Capital Assets Unrestricted 1,203,645,659 12,101,637 Total Net Position $ 1,215,747,296 The accompanying notes to the financial statements are an integral part of this statement. 10 Valley Metro Rail, Inc. Statement of Revenues, Expenses, and Changes in Fund Net Position Fiscal Year Ended June 30, 2015 Operating Revenues: Contributions from Member Cities Passenger Fares Receipts from Federal Operating Grants Regional Capital Rebuild Revenue Other Revenues Total Operating Revenues $ Operating Expenses: Administrative Passenger Operations Service Regional Capital Rebuild Program Depreciation Total Operating Expenses 16,590,974 12,832,286 2,135,431 305,245 3,272,014 35,135,950 9,128,597 31,288,715 881,021 39,014,089 80,312,422 Operating Income (Loss) (45,176,472) Non-Operating Revenue / ( Expense ): Public Transportation Funds Private Utilities Relocations Capital Conveyance to Member Cities Interest on Capital Funding Obligations PTF Interest expense Total Non-Operating Revenue / ( Expense ) 10,526,625 (5,120,346) (3,883,076) (551,903) (8,119,661) (7,148,361) Deficiency Revenues under Expenses (52,324,833) Capital Contributions: Capital Contributions from Member Cities Public Transportation Funds Capital Federal Transit Administration Capital Grants Total Capital Contributions 25,393 29,895,080 43,849,073 73,769,546 Changes in Net Position 21,444,713 Net Position, Beginning of Period 1,194,302,583 Net Position, End of Period $ 1,215,747,296 The accompanying notes to the financial statements are an integral part of this statement. 11 Valley Metro Rail, Inc. Statement of Cash Flows Fiscal Year Ended June 30, 2015 Cash Flows from Operating Activities Receipts from Member Cities Receipts from Federal Operating Grants Receipts from Fare Revenues Receipts from Regional Capital Rebuild Program Other Revenues Payments for Payroll Related Expenses Payments to Suppliers Net Cash Used in Operating Activities $ Cash Flows from Non-Capital Financing Activities Receipts from Regional Public Transportation Authority Payments for Concurrent Non Project Activities Payments for Private Utility Relocations Capital Conveyance to Member Cities Net Cash Used in Non-Capital Financing Activities 16,272,965 1,755,762 12,800,312 305,245 3,040,674 (14,980,151) (24,769,924) (5,575,117) 10,628,244 (856,085) (7,942,417) (3,883,076) (2,053,334) Cash Flows from Capital and Related Financing Activities Capital Contributions from Member Cities Receipts from FTA Capital Grants Receipts from Regional PTF for Capital Interest on Capital Funding Obligations Payments for Capital Assets Net Cash Provided by Capital and Related Financing Activities 582,812 47,111,142 86,667,688 (551,903) (132,338,222) 1,471,517 Net Decrease in Cash and Cash Equivalents (6,156,934) Cash and Cash Equivalents, Beginning of Year 14,534,521 Cash and Cash Equivalents, End of Year $ 8,377,587 Reconciliation of Operating Income (Loss) to Net Cash Used in Operating Activities Operating Income (Loss) $ Adjustments to Reconcile Operating Income (Loss) to Net Cash Used in Operating Activities: Depreciation (Increase) Decrease in Assets: Accounts Receivable Due from Other Governments Inventory Other Assets Increase (Decrease) in Liabilities: Accounts Payable Other Accrued Expenses Due to Other Governments Member Cities' Deposits Net Cash Used in Operating Activities $ (45,176,472) 39,014,089 (626,492) 836,729 23,767 628,401 (41,391) 109,175 142,765 (485,688) (5,575,117) The accompanying notes to the financial statements are an integral part of this statement. 12 Valley Metro Rail, Inc. Notes to the Financial Statements Fiscal Year Ended June 30, 2015 Summary of Significant Accounting Policies The accounting policies of Valley Metro Rail, Inc. (VMR) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. a. Financial Reporting Entity In October 2002, the city councils of Glendale, Mesa, Phoenix and Tempe approved the formation of a government entity with a nonprofit status by the name of Valley Metro Rail, Inc. The nonprofit corporation was organized under A.R.S. 11-952 and 40-1152. The initial members entered into a Joint Powers Agreement which provides that this corporation be organized as the instrumentality to plan, design, construct, and operate the Light Rail Transit Project (“LRT”). Prior to October 2002, the Regional Public Transportation Authority (RPTA) performed these roles. VMR contracts with the RPTA for certain administrative functions, including personnel, HR administration, and computer support services. All VMR staff is hired and employed by RPTA but works solely under the direction of Valley Metro Rail, Inc., and its Board of Directors, through a contractual arrangement with RPTA. The Board of Directors of VMR is solely responsible for the governance of LRT and VMR is not a component unit of RPTA; economic resources received by VMR are entirely for the direct benefit of VMR, and RPTA is not entitled to and has no ability to otherwise access any of the economic resources received or held by VMR. b. Basic Financial Statements These financial statements are presented in accordance with GASB Statement No. 34 – Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments (GASB No. 34). VMR is engaged only in business-type activities and is required to present the financial statements required for enterprise funds which are part of proprietary funds. VMR does not report any component units. During the year ended June 30, 2015, the provisions of GASB Statement No.68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date became effective in the financial reporting for members of retirement systems. These statements replace the requirements of prior GASB standards for pensions accounting and reporting. VMR is not a member of the Arizona State Retirement System (ASRS). Therefore, VMR will not implement the provisions of GASB 68 and 71 in its financial statements. All VMR staff are employees of RPTA. RPTA is an employer member of ASRS and will fully implement the provisions of GASB Statements No. 68 and No. 71 in its FY15 CAFR. For further information, the RPTA CAFR is available on the Valleymetro.org website. 13 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 c. Basis of Presentation Proprietary funds account for activities of VMR similar to those found in the private sector, where cost recovery and the determination of net income is useful or necessary for sound fiscal management. The focus of proprietary fund measurement is upon the determination of operating income, changes in net position, financial position and cash flows. Currently, enterprise funds are the only type of proprietary fund that VMR uses. d. Measurement Focus and Basis of Accounting The Statement of Net Position and Statement of Revenues, Expenses and Changes in Fund Net Position are reported using the flow of economic resources measurement focus and accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Such revenue is subject to review by the funding agency, which may result in disallowance in subsequent periods. All of VMR's activities are accounted for in a single proprietary or business-type fund. Proprietary funds distinguish operating revenues and expenses from non-operating items and capital contributions. Operating revenues and expenses generally result from providing services and producing and delivering goods in connecting with a proprietary fund's principal ongoing operations. Revenues and expenses not meeting this definition are reported as either non-operating revenues and expenses or capital contributions. e. Cash and Investments State statutes authorize VMR to invest in obligations of the U.S. Treasury and any of its agencies, corporations or instrumentalities, collateralized repurchase agreements, certificates of deposit, and the Local Government Investment Pool. VMR’s investments are stated at fair value. Fair value is based on quoted market prices as of the valuation date. VMR considers short-term investments in mutual fund-money markets, U.S. Treasury bills and notes with maturities of three months or less at acquisition date to be cash equivalents. f. Receivables Management analyzes receivables periodically to determine the adequacy of the allowance for doubtful accounts. There is no current provision required for possible bad debts. g. Inventory Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method. Inventories are expensed when the resources are used. h. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. The prepaid items are included in Other Assets under Current Assets on the Statement of Net Position. 14 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 i. Capital Assets Capital assets are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair value at the date of donation. VMR capitalizes all costs incurred in connection with the construction of the Central Phoenix/East Valley (CP/EV) 20-mile alignment. The costs for the non-federal agency operating, Rail Operations, and the initial planning costs of additional extensions are recorded as annual operating expenses. VMR is not the legal owner of any land. The land required for the LRT system is acquired and owned by the Member Cities and is the subject of a long-term use agreement between each City and VMR. Land, subject to the above agreement, is recorded on the books of member cities. The costs included as construction in progress consist primarily of project administration, engineering, construction management, utilities relocation, facility construction, equipment procurement, and other costs related to construction. No depreciation is provided on construction in progress until construction is completed and the assets are placed in service. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Buildings Guideway Bridges Operation Control Center Passenger Stations and Facilities Park and Ride Facilities Electric Power Substations Signal and Communication System Revenue Vehicles Equipment Furniture and Fixtures Non-Revenue Vehicles Computers and Software Site Improvements j. Useful Life (Years) 40 50 30 30 30 15 25 20 25 5-15 7 4 3 5-10 Allocation of Costs to Member Cities Design and construction costs for the 20 mile Central Phoenix East Valley Light Rail System are allocated to the member cities as follows: i) Regional design and construction costs are allocated based upon the Design and Construction Miles percentage method as stated in the bylaws of the corporation. The 15 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 components of the LRT that are currently classified as “regional” are light rail vehicles, the maintenance and storage facility, operations control center, bridge structures, and regional park-and-ride lots. ii) Local design and construction costs are allocated to the member cities within whose boundaries the LRT Component designed or constructed will be located. Design and construction costs that are not classified as regional are deemed to be local. iii) Under the Design and Construction project agreements, the Member Cities provide project funding to VMR as expenditures are incurred. As federal and regional funding for the capital project is received by VMR, the members receive cash distributions to reimburse the prior expenditures. Design and construction costs for future LRT extensions are funded based upon Design and Construction Agreements which are executed in accordance with the adopted Transit Life Cycle Plan. If a member city’s share of the LRT costs for a fiscal year is determined to be less than $50,000, such member city’s share of the LRT costs shall be $50,000. The purpose of the Minimum Cost is so that all member cities will contribute to payment of the overhead expense of the Corporation for matters such as the cost of meetings of the Board of Directors, administrative support to the Board of Directors, and support to member cities by the Rail Program Staff. Passenger Operations Service Expenses are funded by the Member Cities according to the ratio of LRT route mileage currently in service. Member Cities also contribute amounts to fund local security costs related to fare inspection, on-board security and park-and-ride security within their respective jurisdictions. k. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting financial period. Actual results could differ from these estimates. l. Net Position VMR’s net position consists of unrestricted net position and net investment in capital assets. 2. Budgetary Basis of Accounting An annual budget of revenues and expenses is prepared and adopted by the Board of Directors each fiscal year. The legal level of budgetary control is the total annual appropriated budget. The annual budget is adopted on the accrual basis. Encumbrance accounting is not used and all appropriations lapse at year end. Depreciation expense is not included in the annual budget. Prior to final adoption, a proposed budget is presented to the Board of Directors for review and public comment is received. Final adoption of the budget must be on or before June 30 of each year. 16 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 During the fiscal year, the Board of Directors modified the original budget. A schedule of actual operating revenues and expenses versus original budget and final budget is presented as supplementary information. See Page 27. 3. Cash and Investments Cash deposits and investments at June 30, 2015, consisted of the following: Cash on Hand and in Bank Insurance Trust Fund Total Cash and Investments $ $ 7,377,970 999,617 8,377,587 VMR has deployed Ticket Vending Machines (TVM’s) which contain coin and bill vaults to accommodate the purchase of fares. At June 30, 2015, the total cash contained in the coin and bill vaults totaled $155,414. VMR's bank deposits at June 30, 2015, had a carrying value of $7,222,556 and the bank ledger balance was $7,312,958. The difference of $90,402 represents deposits in transit and outstanding checks. Of the bank balance, $250,000 is covered by federal depository insurance and $7,062,958 is covered by securities held by the pledging financial institution in VMR’s name. The Self Insurance Reserve Trust Account totaling $999,617 was covered by collateral held by the pledging financial institution in VMR’s name. Custodial Credit Risk – Custodial credit risk is the risk that in the event of bank failure VMR’s deposits may not be returned. VMR does not have a deposit policy for custodial credit risk. All of VMR’s bank deposits are in non-interest bearing accounts. Interest Rate Risk. VMR’s formal investment policy limits type of investment as a means of managing its exposure to fair value losses arising from increasing interest rates. During FY 2015 all investment durations were shorter than 90 days. Credit Risk. State Statutes and VMR’s Investment Policy authorize VMR to invest in bank demand deposit accounts and obligations of the U.S. Treasury. Concentration of Credit Risk. VMR’s Investment Policy limits the total investments by type of account including, General Operating, Imprest Fund, Self-Insurance Reserve and TVM Credit Card. At June 30, 2015, VMR maintains all available cash in these accounts. 17 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 4. Accounts Receivable and Due From Other Governments All receivable balances at June 30, 2015 are displayed on the financial statements and are expected to be collected in full; therefore, an allowance for uncollectibles has not been recorded. Due from other governments consists of Federal receivables ($9.1 million) due from the City of Phoenix as Grantee of Federal Funds, PTF receivable ($24.5 million) due from Regional Public Transportation Authority (RPTA), project funding receivables due from cities of Phoenix and Mesa ($2.7 and $0.4 million respectively) and miscellaneous receivables ($0.1 million). City of Phoenix (Grantee of Federal Funds) Public Transportation Funding City of Mesa City of Phoenix Arizona State University Maricopa Association of Governments Other Total Due from Other Governments $ 9,093,674 24,465,973 386,090 2,660,624 3,530 132,765 219 $ 36,742,875 Public Transportation Funding is discussed more fully in Note 16. 18 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 5. Capital Assets Capital asset and construction in progress activity for the year ended June 30, 2015 were as follows: Balances, July 1, 2014 Nondepreciable assets: Construction in progress Depreciable assets: Buildings Guideway Bridges Operation Control Center Passenger Stations and Facilities Park and Ride Facilities Electric Power Substations Signal and Communication System Computers and Software Furniture and Fixtures Revenue Vehicles Non-Revenue Vehicles Site Improvements Equipment Total depreciable assets at historical cost Less accumulated depreciation for: Buildings Guideway Bridges Operation Control Center Passenger Stations and Facilities Park and Ride Facilities Electric Power Substations Signal and Communication System Computers and Software Furniture and Fixtures Revenue Vehicles Non-Revenue Vehicles Site Improvements Equipment Total accumulated depreciation Total capital assets being depreciated Business-type activities, capital assets, net $ 201,245,289 Increases $ 127,105,939 Decreases $ (367,370) Balances, June 30, 2015 $ 327,983,858 102,532,106 565,528,227 61,516,388 13,103,434 101,949,950 40,015,939 88,737,919 48,514,475 1,934,560 1,138,274 221,422,703 2,573,978 12,825 13,544,630 65,491 (146,508) 100,728 3,189,291 500,337 (75,540) 102,532,106 565,528,227 61,516,388 13,103,434 101,949,950 40,015,939 88,737,919 48,514,475 1,853,543 1,138,274 221,422,703 2,674,706 3,202,116 13,969,427 1,262,525,408 3,855,847 (222,048) 1,266,159,207 (17,737,470) (62,191,481) (11,278,005) (2,200,357) (18,690,815) (14,109,178) (19,527,568) (13,349,964) (1,803,982) (1,138,274) (50,767,452) (1,750,295) (1,496) (7,575,311) (222,121,648) 1,040,403,760 (2,563,303) (11,310,564) (2,050,546) (436,781) (3,398,332) (2,667,729) (3,549,517) (2,425,723) (195,721) 146,508 (8,792,128) (205,860) (27,860) (1,390,027) (39,014,091) (35,158,244) 75,540 222,048 - $ 1,241,649,049 $ 19 91,947,695 $ (367,370) (20,300,773) (73,502,045) (13,328,551) (2,637,138) (22,089,147) (16,776,907) (23,077,085) (15,775,687) (1,853,195) (1,138,274) (59,559,580) (1,956,155) (29,356) (8,889,798) (260,913,691) 1,005,245,516 $ 1,333,229,374 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 6. Member Cities’ Deposits The member cities advance monies to cover the cost of operations plus the federal and local share of project costs. In addition, unpaid expenses to be funded by member contributions are accrued for each city. A summary of member cities’ deposits at June 30, 2015 follows: City of Chandler City of Glendale City of Mesa City of Peoria City of Phoenix City of Tempe $ $ 703,515 113,443 243,156 37,600 5,912,454 1,869,165 8,879,333 7. Operating Leases VMR leases office space and small office equipment under various operating lease agreements. Total expenditures for these leases were $1,444,605 for the fiscal year ended June 30, 2015. Future minimum lease payments under non-cancelable operating leases are as follows: Year Ending June 30, 2015 2016 2017 2018 2019 2020 2021-2025 2026 $ $ 1,439,392 1,393,563 1,374,637 1,355,508 1,355,508 6,777,538 1,355,508 15,051,654 Beginning on July 1, 2014, VMR entered into a new contract to lease office space for a 12 year term which included 57,007 square feet of building space. Simultaneously, a sublease between VMR and RPTA took effect for 26,324 square feet. The 12 year term contract total is $16,266,090 for VMR. The sublease to RPTA is $7,502,340. 8. Northwest Extension Advance Funding Obligation VMR signed the Project Funding Agreement (Northwest Light Rail Extension) between The City of Phoenix and Valley Metro Rail, Inc. on December 20, 2012. The agreement provides $60.0 million during fiscal years 2013 and 2014 to fund the expenses of the Northwest Light Rail Extension capital project. These funds will be repaid to City of Phoenix with Public Transportation Funds on June 30, 2017. During the fiscal years 2013 and 2014, the City of Phoenix advanced $37,914,519 and $22,085,481, respectively, totaling $60,000,000 by the end of fiscal year 2014 to cover the project expenses. 20 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 Schedule of Advance Funding Obligation Payable as of June 30, 2015 Year ending June 30 2013 2014 2015 2016 2017 Principal Payments $ 60,000,000 $ 60,000,000 Principal Advanced $ 37,914,519 22,085,481 $ 60,000,000 Interest Total Obligation $ 45,887 * $ 37,960,406 422,565 60,468,452 551,903 61,020,355 922,464 1,251,397 $ 3,194,216 * * Interest shown is accrued to date and future amounts payable For Fiscal Year 2013, 2014, and 2015, Capital Lease interest expense was $45,887, $422,565, and $551,903, respectively, totaling $1,020,355, which was accrued under the Project Funding Agreement. The Advance Funding Obligation at June 30, 2015 includes $60,000,000 principal and $1,020,355 accrued interest for a total of $61,020,355. 9. Due to Other Governments VMR receives employee services as well as Public Transportation Funds (PTF) for capital project planning and design and construction funding from RPTA. As of June 30, 2015 VMR owed to RPTA $1,623,448 for payroll and fringe benefits and $4,508,512 for PTF Accrued Reimbursements for a total of $6,131,960. Payroll and Fringe Benefits PTF Accrued Reimbursements Due to RPTA $ 1,623,448 4,508,512 6,131,960 Due to City of Phoenix 60,000 Total Due to Other Governments $ 6,191,960 Further, VMR pays City of Phoenix for Bridge Inspections. As of June 30, 2015 VMR owed City of Phoenix an estimated $60,000 for these costs. 10. Due to RPTA/Note Payable for Advance Bond Proceeds During FY15, VMR and RPTA Boards amended the inter-agency LRT Program Agreement, whereby RPTA will hold an inter-agency receivable from VMR for the advance of bond proceeds. In order to accelerate planning, design and construction of the Light Rail Capital Projects as identified in the Regional Transportation Plan, RPTA advances bond proceeds prior to the collection of sales tax proceeds necessary to fund the debt service payments. The inter-agency payable to RPTA of the Advance Bond Proceeds shall be paid from the collection of PTF Sales Taxes by RPTA on VMR’s behalf. As the debt service payments are made, VMR will record PTF revenue-capital contributions and reduce the note payable. In addition, VMR will record each fiscal year, the VMR portion of the bond interest expense of the 2009 bond issue and the 2014 bond issue according to the debt service schedules. For FY15, the PTF bond interest expense was $8,119,661. 21 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 As of June 30, 2015, PTF Advance Bond Proceeds totaled $69,583,715. Principal and interest payments follow the Series 2014 Debt Service schedule as shown in table below. Interest Debt Principal Debt Balance Fiscal Original Note Service Payments Service Payments Remaining Year End Balance 2015 $ 69,583,715 $ 1,260,656 $ $ 69,583,715 2016 2,985,765 8,185,000 61,398,715 2017 2,859,579 8,430,000 52,968,715 2018 2,642,975 8,850,000 44,118,715 2019 2,415,579 9,295,000 34,823,715 2020 2,164,808 9,780,000 25,043,715 2021 1,900,952 10,295,000 14,748,715 2022 1,623,201 10,835,000 3,913,715 2023 1,330,882 3,913,715 Total $ 69,583,715 $ 19,184,397 $ 69,583,715 $ - 11. Contractual and Other Commitments VMR has entered into various contractual agreements for engineering services, project management, construction administration, light rail vehicles, construction, operations services, legal services and artists. At June 30, 2015, VMR had remaining contractual commitments for these services aggregating approximately $100.0 million. These commitments have not been recorded in the accompanying financial statements. Only the currently payable portions of these contracts have been included in accounts payable in the accompanying financial statements. Subsequent to June 30, 2015, VMR entered into approximately $14.4 million additional contractual commitments. All amounts listed below have been rounded to the nearest $1,000. Contractor Valley Transit Constructors - Central Mesa Scheidt Bachmann - Fare Collection System Allied Barton Security Services City of Mesa Admin and Real Estate Services City of Phoenix Admin and Real Estate Services Various - Public Art Program Alternative Concepts - Transportation Operations Various - Operations & Maintenance Various - Misc. Construction and Services Various - Future Extensions Sundt Stacey/Witbeck JV AECOM Various - NW Ext. Program Management Various - Central Mesa Ext. Program Management Commitment 130,422,000 8,878,000 8,685,000 19,969,000 27,330,000 2,099,000 82,778,000 29,852,000 20,181,000 20,110,000 162,720,000 3,981,000 6,346,000 18,235,000 $ 541,586,000 $ 22 Spent-to-date $ 123,453,000 8,415,000 7,727,000 15,915,000 14,276,000 1,514,000 62,014,000 23,921,000 13,432,000 18,238,000 129,180,000 3,501,000 5,075,000 16,294,000 $ 442,955,000 Remaining 6,969,000 463,000 958,000 4,054,000 13,054,000 585,000 20,764,000 5,931,000 6,749,000 1,872,000 33,540,000 480,000 1,271,000 1,941,000 $ 98,631,000 $ Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2015 12. Risk Management VMR is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to contracted labor; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. VMR purchases insurance coverage for property, general liability, excess liability, automobile liability, umbrella liability, public entity employment practices liability, public entity management liability, boiler and machinery, crime, inland marine, owner’s protective professional indemnity, environmental site protection, contractor’s environmental protection and excess liability. In addition, the RPTA purchases workers’ compensation, employee life insurance, health and dental insurance coverage for all LRT full-time employees. Settled claims for these risks have never exceeded commercial insurance limits. See schedule of insurance on page 48 and Note 15-Related Party Transactions. VMR has received notice of general liability claims related to its operations. VMR’s commercial insurance policies provide coverage against losses arising from the claims subject to policy deductible amounts. Such claims are evaluated and specific reserves are established to cover VMR’s contingent risk of loss pending settlement with the parties involved. At June 30, 2015 the Reserve for General Liability Claims totaled $753,764. 13. Contingencies As a subrecipient of federal grant monies, amounts passed through or receivable from other agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although VMR expects such amounts, if any, to be immaterial. 14. Lawsuits VMR is a party to a number of various types of lawsuits, many of which normally occur in governmental operations. The ultimate outcome of the actions is not determinable, however, VMR management believes that the outcome of these proceedings, either individually or in the aggregate, will not have a materially adverse effect on the accompanying financial statements. 15. Related Party Transactions All of the five member cities of VMR’s Board of Directors are also member cities of the sixteenmember RPTA Board of Directors. The Board members of the cities of Glendale, Phoenix, and Tempe represent their cities on both Boards. VMR has entered into contracts with the RPTA for certain administrative functions, including personnel, administration, financial and accounting services, purchasing, and computer support services. All VMR staff is hired and employed by RPTA but works solely under the direction of the VMR and its Board of Directors, through a contractual arrangement with RPTA. All payroll related liabilities are obligations of VMR due to RPTA. For the period July 1, 2014 through June 30, 2015, VMR incurred costs of $16,061,804 for services provided by RPTA. In September 2010, the VMR Board authorized the Chief Executive Officer (CEO) to enter into a sublease with the Regional Public Transportation Authority (RPTA) for a portion of the office space currently leased and occupied by VMR. The contract commenced in December 2010 and would end in June 2016. Office space lease costs were paid by VMR monthly to the landlord and then prorated and charged to RPTA based on square footage used by RPTA. In 23 Valley Metro Rail, Inc. Notes to the Financial Statements (Concluded) Fiscal Year Ended June 30, 2015 July 2014, a new contract with the landlord was made which also includes the sublease with RPTA. This new contract begins on July 1, 2014 and will end on June 30, 2026. The total sublease over the 144-month period is estimated to equal $7,502,340. 16. Public Transportation Funding In November 2004, the voters of Maricopa County approved Proposition 400, the continuation of the transportation tax, for a twenty year period beginning in calendar year 2006. On August 14, 2006, VMR and RPTA executed an intergovernmental agreement (IGA) that formally designated VMR as Lead Agency to plan, design, and construct the light rail transit (LRT) program. Among other things, the IGA specifies that RPTA will reimburse VMR, from the Public Transportation Fund, for eligible incurred expenses. Valley Metro Rail began receiving Public Transportation Funding (PTF) in March 2006. These monies are used to reimburse private utility companies for costs incurred in the relocation of non-prior rights utilities, to reimburse Member Cities for their share of local costs incurred in connection with the acquisition of certain regional transportation assets, and to fund the local share of future light rail extensions as designated in the Regional Transportation Plan. Cash outlays for LRT Public Transportation Fund expenses during fiscal year 2015 totaled $108,521,352 as summarized in the table below. Public Transportation Fund Cash Expenditures (LRT Portion) Fiscal Year ended June 30, 2015 LRT PTF Expenditures: Regional Transportation Plan Projects: Central Mesa LRT Extension Northwest Extension Phase I Systemwide Improvements Regional Capital Rebuild Program Other Non Prior Rights Utility Relocations: Northwest Extension Phase I Project Development and Planning Debt Service Total LRT PTF Cash Expenditures $ In Millions 23.90 60.30 1.20 0.30 1.00 6.40 4.80 10.70 108.60 In June 2009, the Regional Public Transportation Authority (RPTA) issued Transportation Excise Tax Revenue Bonds in the amount of $100,075,000. A portion of the 2009 Series Bonds will pay or reimburse LRT capital expenditures as designated in the Regional Transportation Plan. As of June 30, 2015, the 2009 Series Bond expenditures to date for the LRT program totaled $55,000,628 on a cash basis. In January 2014, the Regional Public Transportation Authority (RPTA) issued Transportation Excise Tax Revenue Bonds in the amount of $115,000,000. The 2014 Series Bonds will pay or reimburse LRT capital expenditures as designated in the Regional Transportation Plan. As of June 30, 2015, the 2014 Series Bond expenditures to date for the LRT program totaled $135,406,165 on a cash basis. 24 OTHER SUPPLEMENTARY INFORMATION This Section includes the Schedule of Operations – Budget and Actual. Grand Opening celebration Central Mesa Extension August 22, 2015. Construction continues on the Northwest Phase I Light Rail Extension. Valley Metro Rail, Inc. Schedule of Operations - Budget and Actual Fiscal Year Ended June 30, 2015 Budgeted Amounts Original Final Sources of Funds: Net Contributions From Member Cities Passenger Fares Federal Transit Administration Grants TIGGER Federal Grant Public Transportation Funds - Sales Tax Public Transportation Funds - Bonds MAG/RPTA Grants TPAN Other Revenues Total Sources of Funds $ Uses of Funds: Operating Activities: Revenue Operations Regional Capital Rebuild Program Future Project Development Agency Operations Sub Total Operating Activities Use of Funds Capital Projects: Northwest Extension Central Mesa Extension Gilbert Road Capital Project Tempe Streetcar Extension Phoenix West Non-Prior Rights Utilities Relocations Systemwide Improvements Concurrent Non Project Activities Sub Total Capital Before Debt Service Capital Project Debt Service: Debt Service - Interest Debt Service - Principal Total Uses of Funds Excess Revenues Over Expenses Budgetary Basis 24,017,381 13,363,096 59,988,293 2,555,000 75,377,379 53,189,905 1,000,000 8,000,075 850,000 238,341,129 $ 23,538,436 12,436,927 59,988,293 2,555,000 74,959,379 53,189,905 1,000,000 3,257,414 1,257,000 232,182,354 Actual Amounts (Budgetary Basis) Variance with Final Budget Over (Under) $ $ 19,137,047 12,832,286 43,431,360 2,553,136 52,152,964 69,399,154 1,412,759 1,859,255 202,777,961 (4,401,389) 395,359 (16,556,933) (1,864) (22,806,415) 16,209,249 412,759 (3,257,414) 602,255 (29,404,393) 33,154,511 8,443,752 927,804 42,526,067 32,156,396 8,443,752 927,804 41,527,952 31,486,738 881,020 7,614,483 855,271 40,837,512 (669,658) 881,020 (829,269) (72,533) (690,440) 75,492,667 58,448,238 10,131,075 5,256,947 415,253 13,755,151 6,897,930 6,056,696 176,453,957 75,492,667 58,448,238 5,388,414 5,256,949 415,252 13,755,151 6,479,930 6,056,696 171,293,297 66,855,407 63,647,076 435,034 38,166 5,120,347 3,962,634 2,520,680 142,579,344 (8,637,260) 5,198,838 (4,953,380) (5,218,783) (415,252) (8,634,804) (2,517,296) (3,536,016) (28,713,953) 8,119,661 11,241,444 8,119,661 11,241,444 8,119,661 11,241,444 238,341,129 232,182,354 202,777,961 $ - $ - $ - Explanation of Differences between Budgetary Basis and GAAP Basis Total Uses of Funds - Budgetary Basis Total Operating Expenses - GAAP Basis Budgetary Operating Expenses in Excess of GAAP Operating Expenses Capital Projects Before Debt Service (Budgeted expenses not recorded to expense for GAAP basis) RPTA Bus Interface Facility-CME Extension (Budgeted expenses in Capital Projects above but in Operating expenses in the Financial Statements) Art Installation Fabrication unallowable on CME Federal Grant (Budgeted expenses in Capital Projects above but in Operating expenses in the Financial Statements) Capital Projects Debt Service (Budgeted expenses not recorded to expense for GAAP purposes) Rail Operations Capital Assets (Budgeted expenses not recorded to expense for GAAP basis) Systemwide Improvements operating expenses (Budgeted expenses in Capital Projects above but in Operating expenses in the Financial Statements) Depreciation (GAAP expenses not included in budgetary basis) (29,404,393) $ - $ 202,777,961 (80,312,422) $ 122,465,539 $ 142,579,344 (318,318) (246,288) 19,361,105 228,581 (124,796) (39,014,089) Total Reconciling Items $ 122,465,539 This schedule is prepared on a budgetary basis for the operating accounts of the proprietary fund and as such does not present the results of operations on the basis of generally accepted accounting principles, but is presented for supplemental information. 27 Riders traveling to the NFL Experience in Downtown Phoenix, Super Bowl week. STATISTICAL SECTION The Statistical Section includes selected financial and demographic information regarding Valley Metro Rail including financial trends, demographic and economic information, and operating information. Statistical Section Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 This part of Valley Metro Rail, Inc. (VMR) comprehensive financial report presents information as a context for understanding what the information in the financial statements, footnotes, and supplementary information says about VMR's overall financial condition. VMR's prinicipal activities consist of planning, designing, constructing and operating the light rail transit system in Maricopa County, Arizona. Contents Page Financial Trends These schedules contain trend information to help the reader understand how VMR's financial performance and well-being have changed over time. 31 Revenue Capacity VMR's principal source of operating revenues are contributions from Member Cities. With repect to capital projects, VMR receives federal grants and utilizes Public Transportation Funds administered by the Regional Public Transportation Authority (RPTA). (Refer to Note 16 on Page 24 in the Notes to the Financial Statements section.) N/A Debt Capacity VMR has no current bond indebtedness. See Notes to the Financial Statements; refer to Note number 16, Public Transportation Funding (Page 24) for information regarding revenue bonds issued by RPTA which provide funding for LRT capital expenditures. Refer to Note number 8, Northwest Extension Advance Funding Obligation (Page 20) for information related to VMR's current debt obligations. N/A Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which VMR's financial activities take place. 33 Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in VMR's financial report relates to the services VMR provides and the activities it performs. 36 30 Valley Metro Rail, Inc. Net Position by Component FY 05/06 through FY 14/15 Business-type activities Investment in Capital Assets (1) Construction in Progress (4) FY 05/06 FY 06/07 FY 07/08 FY 08/09 $ 459,034,837 $ 698,209,539 $ 895,953,882 $ Buildings Guideway Bridges Operation Control Center Passenger Stations & Facilities Park and Ride Facilities Electric Power Substations Signal and Communication System Computers & Software Furniture & Fixtures Site Improvements Revenue Vehicles (2) Support/Service Vehicles (3) Non-Revenue Vehicles Equipment Subtotal Investment in Capital Assets 108,076 739,880 188 497,319 $ 460,380,300 68,855,662 949,273 844,591 3,246,541 706,809 995,075 $ 773,807,490 67,108,795 852,789 692,090 116,875,456 646,471 209,605 1,222,755 $ 1,083,561,843 97,611,148 545,989,800 60,491,115 11,536,240 96,272,225 34,769,334 86,707,115 45,202,398 574,791 531,100 164,031,893 587,896 958,053 8,214,895 $ 1,181,254,415 95,047,845 548,218,379 58,440,569 11,145,181 96,296,602 32,504,345 83,413,644 44,924,177 179,859 370,110 163,521,294 733,227 9,993,522 $ 1,172,536,114 92,484,543 537,014,911 56,390,023 10,754,123 93,454,131 33,909,949 79,858,902 42,495,843 209,121 163,681,089 1,056,448 9,131,945 $ 1,153,352,954 Restricted Unrestricted Total business-type activities net position $ 460,380,300 $ 773,807,490 $ 1,083,561,843 6,602,251 $ 1,187,856,666 6,196,414 $ 1,178,732,528 5,019,683 $ 1,158,372,637 27,776,412 FY 09/10 $ 27,747,360 FY 10/11 $ 32,911,926 FY 11/12 FY 13/14 FY 14/15 76,373,899 $ 141,245,289 $ 198,400,143 89,921,241 525,957,875 54,339,476 10,363,064 90,055,799 31,242,220 76,309,385 40,015,959 174,758 74,243 164,746,761 731,731 8,461,421 $ 1,136,804,227 87,357,938 514,647,312 52,288,930 11,339,858 86,657,467 28,574,490 72,759,869 37,590,235 168,000 12,611 167,304,100 813,139 7,137,540 $ 1,143,025,388 84,794,636 503,336,746 50,238,383 10,903,077 83,259,135 25,906,761 69,210,351 35,164,511 130,578 11,329 170,655,251 823,683 5,969,319 $ 1,181,649,049 82,231,333 492,026,182 48,187,837 10,466,296 79,860,803 23,239,032 65,660,834 32,738,788 348 3,172,760 161,863,123 718,551 5,079,629 $ 1,203,645,659 2,062,204 $ 1,138,866,431 2,398,179 $ 1,145,423,567 12,653,534 $ 1,194,302,583 12,101,637 1,215,747,296 $ 44,410,295 FY 12/13 $ Source: Valley Metro Rail, Inc. Finance Division (1) CP/EV LRT project costs incurred prior to July 1, 2004, for project preliminary engineering and project management totaling $77.1 million paid for by member cities or federal grants were contributed to VMR during the fiscal year ended June 30, 2005. Prior to FY 04/05, these amounts were included in Administration and Planning Services. (2) Revenue Vehicles are shown net of depreciation and net of Capital Lease obligation. (3) In FY 09-10 Support Service Vehicles and Non-Revenue Vehicles were combined for presentation purposes. (4) In FY 12/13, FY 13/14, and FY14/15 Construction in Progress is shown net of the Northwest Extension Advance Funding Obligation. Further, in FY14/15 Construction in Prgress is shown net of the RPTA PTF Advance Bond Proceeds Obligation. 31 Valley Metro Rail, Inc. Changes in Net Position FY 05/06 through FY 14/15 FY 05/06 Operating Revenues Contributions from Member Cities (1) Passenger Fares Federal Transit Administration Operating Grants (1) Public Transportation Funds (1) Regional Capital Rebuild Revenue Other Revenues Total Operating Revenues Operating Expenses Administration and Planning Services (2) Passenger Operations Service Private Utilities Relocations Regional Capital Rebuild Program Depreciation Total Operating Expenses Operating Income (Loss) Non-Operating Revenues (Expense) Federal Transit Administration Operating Grants Public Transportation Funds Private Utilities Relocations Capital Conveyance to Member Cities Interest on Capital Funding Obligation PTF Interest expense Interest on Investments Distributions to Member Cities Other Non-Operating Revenues (Expenses) Total Non-Operating Revenues (Expense) Capital Contributions Federal Transit Administration Capital Grants Contributions from Member Cities Public Transportation Funds Capital Donated Engineering (3) Total Capital Contributions Increase (Decrease) in Net Position FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13 FY 13/14 FY 14/15 75,672,696 150,717,452 11,700,029 238,090,177 $ 156,033,959 146,442,055 57,160,186 359,636,200 $ 143,276,140 953,877 58,315,376 202,545,393 $ 13,490,504 3,371,104 40,000 16,901,608 $ 25,964,781 9,256,913 222,519 103,410 35,547,623 $ 19,430,008 10,238,281 240,000 908,728 30,817,017 $ 14,274,817 11,889,930 3,614,541 1,225,206 31,004,494 $ 11,614,615 12,791,801 5,382,997 1,252,967 31,042,380 $ 16,803,600 12,505,116 2,400,132 1,730,566 33,439,414 $ 16,590,974 12,832,286 2,135,431 305,245 3,272,014 35,135,950 1,829,944 11,700,029 186,644 13,716,617 224,373,560 5,709,157 39,212,754 1,389,987 46,311,898 313,324,302 5,396,474 15,750,886 2,231,538 23,378,898 179,166,495 5,278,901 15,678,389 22,437,891 43,395,181 (26,493,573) 9,540,355 32,964,701 39,685,152 82,190,208 (46,642,585) 7,213,806 31,020,111 39,176,737 77,410,654 (46,593,637) 8,201,127 28,909,661 39,115,165 76,225,953 (45,221,459) 8,287,393 28,711,628 38,978,409 75,977,430 (44,935,050) 8,840,445 31,260,365 38,911,674 79,012,484 (45,573,070) 9,128,597 31,288,715 881,021 39,014,089 80,312,422 (45,176,472) 100,888 100,888 102,888 102,888 91,519 91,519 650,492 10,945,204 (9,518,863) (2,083,503) (20,078,532) 0 (20,085,202) 2,557,861 5,484,246 965,013 (4,167,007) 15 (106,249,903) 142,025 (101,267,750) 2,118,259 8,678,822 (3,732,886) (2,083,503) 36 (38,400,636) 160,757 (33,259,151) 1,059,848 6,469,470 (56,477) (2,827,876) (6,664,230) 23,491 (1,995,774) 799,020 10,111,118 (5,500,205) (11,487,566) (2,230,691) 24,522 (8,283,802) 453,728 6,626,121 (14,876,845) (9,949,717) (1,642,376) 52 16,145 (19,372,892) 10,526,625 (5,120,346) (3,883,076) (551,903) (8,119,661) (7,148,361) - - 130,496,339 130,496,339 72,863,699 25,381,955 52,627,944 150,873,598 62,585,921 31,156,572 45,043,704 138,786,197 7,255,308 2,651,494 49,586,095 59,492,897 9,125,090 330,700 18,255,237 27,711,027 27,742,023 4,268,007 27,765,958 59,775,988 27,564,363 51,235 86,209,379 113,824,977 43,849,073 25,393 29,895,080 73,769,546 $ 224,474,448 $ 313,427,190 $ 309,754,353 $ 104,294,823 6,557,136 $ 48,879,016 $ 21,444,713 $ Source: Valley Metro Rail, Inc Finance Division (1) Prior to FY 08/09, CP/EV local, federal and regional capital contributions were recorded as operating revenues. (2) Prior to FY 04/05, all CP/EV project costs, except for the cost of computers, equipment, and certain other capital assets, were recorded as operating expenses. (3) CP/EV LRT project costs incurred prior to FY 04/05 for project preliminary engineering and project management were contributed to VMR during FY 04/05. These costs, totaling $77.1 million, were originally paid for by member cities or federal grants and were included in Administration and Planning Services expenses for the year incurred. 32 $ (9,124,138) $ (20,359,891) $ (19,506,206) $ Valley Metro Rail, Inc. Growth in Regional Transit Usage Last Ten Fiscal Years Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Boardings 59,253,904 58,020,189 61,866,819 71,251,664 67,693,003 67,607,530 71,043,488 73,409,805 72,137,268 70,759,847 Source: Regional Public Transportation Authority 33 Change 5.14% -2.08% 6.63% 15.17% -4.99% -0.13% 5.08% 3.33% -1.73% -1.91% Valley Metro Rail, Inc. Population Growth Ten Years from 2005 to 2014 Year Chandler Glendale Mesa Phoenix Tempe 2005 238,930 235,987 451,223 1,525,400 160,820 2006 241,910 235,987 455,151 1,560,380 165,796 2007 247,100 246,382 460,155 1,595,260 166,625 2008 247,100 248,731 463,397 1,630,340 167,458 2009 244,376 248,435 459,682 1,561,485 172,641 2010 236,123 226,721 439,041 1,445,632 161,719 2011 238,381 227,446 441,160 1,451,966 162,503 2012 246,197 231,109 450,310 1,485,751 165,158 2013 250,394 235,144 458,347 1,512,442 168,883 2014 254,276 237,517 464,704 1,537,058 172,816 Year 2014 is the most current year available. 34 Valley Metro Rail, Inc. Top Employers in Maricopa County For the Year 2014 and Nine Years Ago Employer Employees State of Arizona Wal-Mart Stores, Inc. Banner Health Systems City of Phoenix Wells Fargo & Company Maricopa County Arizona State University Intel Corp. JPMorgan Chase & Co. Bank of America Honeywell International Inc. U.S. Postal Services Basha's Family of Stores 49,278 32,169 25,270 14,983 14,713 12,698 12,222 11,900 11,042 11,000 Total for Principal Employers 195,275 Total Employment in Maricopa Cty 2014 Rank % of Total 1 2 3 4 5 6 7 8 9 10 2.72% 1.77% 1.39% 0.83% 0.81% 0.70% 0.67% 0.66% 0.61% 0.61% 2005 Rank % of Total 49,147 19,510 14,447 13,617 11,000 15,218 10,530 1 2 4 5 8 3 9 2.85% 1.13% 0.84% 0.79% 0.64% 0.88% 0.61% 12,000 11,406 9,646 6 7 10 0.70% 0.66% 0.56% Employees 10.77% 166,521 1,813,869 1,723,600 2014 - Employees (000s) 11.9 12.2 11.0 11.0 49.3 12.7 32.2 14.7 15.0 25.3 State of Arizona Wal-Mart Stores, Inc. Banner Health Systems City of Phoenix Wells Fargo & Company Maricopa County Arizona State University Intel Corp. JPMorgan Chase & Co. Bank of America Source: Greater Phoenix Economic Council at www.gpec.org for major employers Workforce Informer Arizona at www.workforce.az.gov for total employed in Maricopa County 35 9.66% 36 37 38 39 40 41 42 43 Valley Metro Rail, Inc Full-Time Equivalent Positions Source: Valley Metro Rail, Inc Finance and Administration Division Grade RPTA Position Titles FY 2010 FY 2011 Authorized FTEs (1) FY 2012 FY 2013 FY 2014 FY 2015 I Cleaner 0.0 0.0 11.0 9.0 10.0 10.0 III Administrative Support Assistant Document Control Clerk LRV Yard Operator Stockroom Clerk Transit Distribution and Signage Assistant 1.0 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0 1.0 0.0 2.0 2.0 0.0 0.5 0.0 2.0 2.0 0.0 0.5 1.9 2.0 2.0 0.0 1.5 0.9 2.0 2.0 0.5 IV Accounting Technician Administrative Assistant II Lead Document Control Clerk LRV Inspector Materials Handler 1.0 6.0 1.0 0.0 1.0 1.0 6.0 1.0 0.0 1.0 1.0 8.0 1.0 8.0 1.0 1.0 8.0 1.0 9.0 1.0 0.0 6.4 0.9 9.0 1.0 0.0 6.4 0.9 9.0 1.0 VI LRV Maintenance Technician I Paralegal Track Maintainer 0.0 1.0 6.0 0.0 1.0 6.0 6.0 1.0 6.0 11.0 1.0 6.0 11.0 0.5 6.0 13.0 0.0 5.0 VII Accountant I Contract Specialist Executive Assistant Help Desk Support Specialist LRV Maintenance Technician II Planner I Procurement Specialist Signal & Comm Systems Maintainer Utility Relocation Specialist Vehicle Parts Coordinator 2.0 0.0 2.0 0.0 0.0 0.0 0.0 6.0 1.0 0.0 2.0 0.0 2.0 0.0 0.0 0.0 0.0 6.0 1.0 0.0 2.0 0.0 2.0 1.0 11.0 0.0 0.0 6.0 1.0 1.0 2.0 1.0 2.0 1.0 10.0 0.0 0.0 6.0 1.0 1.0 0.9 0.8 1.7 1.5 10.0 0.8 0.2 6.0 1.0 1.0 0.9 0.5 1.7 0.5 11.0 0.3 0.0 6.0 0.9 1.0 VIII Engineering Technician Executive Administrative Coordinator Graphics Designer Information Technology Systems Specialist LRV Lead Maintenance Technician Materials/Warranty Coordinator Signal & Communications Syst Tech Traction Power Systems Technician 1.0 1.0 0.0 1.0 0.0 2.0 4.0 10.0 1.0 1.0 0.0 1.0 0.0 2.0 4.0 10.0 1.0 1.0 0.0 1.0 3.0 2.0 7.0 10.0 1.0 1.0 0.0 0.0 3.0 2.0 7.0 13.0 1.0 1.0 1.4 0.0 3.0 2.0 9.0 13.0 1.0 1.0 0.9 0.0 3.0 1.0 9.0 13.0 IX Accountant II Area Coordinator Budget Analyst Contract Administrator LRV Maintenance Supervisor LRV Systems/Equipment Specialist Network Support Analyst Planner II Public Information Specialist Regulatory Administrator Safety Specialist Security Coordinator Supervisor, Facility Maintenance Supervisor, Track Maintenance 1.0 2.0 0.0 1.0 0.0 0.0 2.0 1.0 1.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 2.0 1.0 1.0 3.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 4.0 1.0 1.0 4.0 0.0 1.0 0.0 1.0 0.0 1.0 0.0 0.0 1.0 0.0 5.8 1.0 0.2 3.0 0.0 1.0 2.1 0.5 0.0 0.6 0.0 0.0 0.0 0.2 5.9 1.0 2.7 3.0 1.0 0.0 1.6 0.5 0.5 0.5 0.6 1.0 0.0 0.0 1.0 0.0 0.0 0.0 1.0 2.0 0.0 1.0 2.0 0.0 0.0 1.0 0.0 0.0 0.0 1.0 2.0 0.0 1.0 2.0 0.0 0.0 0.0 0.0 0.0 2.0 1.0 2.0 0.0 1.0 2.0 0.0 0.0 0.0 3.0 0.0 1.8 1.0 2.3 0.0 0.0 0.0 0.0 0.7 0.0 3.0 0.6 1.0 1.0 0.8 0.6 0.0 0.0 0.6 X 1.0 1.0 0.0 0.0 1.0 1.0 Database Administrator Engineer (Civil) Maintenance of Way Supervisor Network Administrator Network Systems Engineer Program Control Specialist Senior Contract Administrator Server Administrator Signals/Communications Maintenance Supervisor TES Supervisor Vmware/Storage Administrator 1.0 0.0 0.0 1.0 2.0 1.0 2.0 44 Valley Metro Rail, Inc Full-Time Equivalent Positions (Continued) Grade XI XII RPTA Position Titles Accountant III GIS Administrator Light Rail Technical Trainer Planner III Project Manager Public Arts Administrator Public Information Officer Quality Assurance Administrator Senior Construction Project Coordinator Senior Management Analyst FY 2010 0.0 0.0 2.0 0.0 1.0 1.0 0.0 0.0 0.0 Assist. Superintendent LRV Maintenance Budget & Operations Financial Controls Manager Business Manager Communications Manager Community Relations Manager Customer Service Manager General Accounting Manager LRT Systems Manager Lead Procurement Officer Program Manager, Safety & Training Marketing Manager Rail Public Involvement Manager Senior Transportation Engineer Stakeholder Affairs Manager Track & Facilities Manager Utility Manager 0.0 0.0 0.0 0.0 0.0 Corridor & Facility Development Manager Field Safety & Security Manager Financial Reporting Manager Information Technology Manager Operational Support and Analysis Manager Procurement & Risk Management Manager Project Controls Manager Quality Assurance Manager Rail Design & Construction Manager Rail Project Manager, Transit Planning Resident Engineer Senior Project Engineer System & Service Development Manager Systems Engineer 0.0 XIV Chief, Safety and Security Construction and Utilities Manager Contracts & Procurement Manager Chief Maintenance Engineer Chief System Engineering Officer Chief Transportation Officer Design Manager Government Relations Officer Manager, Start up & Activation Revenue Generation & Financial Planning Manager Superintendent, LRV Maintenance XV XVI XIII FY 2011 1.0 0.0 0.0 2.0 0.0 1.0 1.0 0.0 0.0 0.0 Authorized FTEs (1) FY 2012 FY 2013 1.0 1.0 0.0 0.0 0.0 0.0 2.0 3.0 0.0 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.0 0.0 FY 2014 0.0 0.5 0.0 1.0 1.5 1.0 0.0 1.0 1.0 0.3 FY 2015 0.0 0.5 1.0 0.7 1.0 1.0 0.0 0.9 1.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 1.0 0.0 0.0 0.0 1.0 1.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 1.0 1.0 0.0 0.0 1.0 1.0 0.5 0.0 0.5 0.7 0.0 0.0 1.0 1.2 1.0 0.5 0.0 0.0 0.0 1.0 1.0 1.0 0.5 0.0 0.5 0.7 0.5 0.4 1.0 1.0 0.0 0.5 0.0 0.0 1.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 1.0 1.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 1.0 1.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 0.0 1.0 1.0 1.0 0.0 0.0 0.9 0.0 0.4 0.5 0.0 0.0 1.0 1.0 0.0 0.0 1.0 1.0 0.4 0.0 0.9 0.5 0.5 0.6 0.7 0.0 0.0 1.0 0.0 0.0 1.0 0.9 0.4 1.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.6 0.9 0.5 1.0 0.0 0.0 1.0 0.5 1.0 0.3 1.0 0.6 0.9 0.5 1.0 0.0 0.0 1.0 0.5 1.0 0.3 1.0 Administration & Organizational Development Director Rail Chief Operations Officer Communications and Marketing Director Chief Financial Officer Chief of Staff Rail Safety, Security, and Quality Director 0.0 0.0 1.0 1.0 0.0 1.0 0.0 1.0 1.0 1.0 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.0 0.5 0.0 0.5 0.5 0.5 0.0 0.5 0.0 0.5 0.5 0.5 0.0 Chief Engineer Chief Operations Officer Rail Design & Construction Director 0.0 0.0 1.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.6 0.0 1.0 0.6 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 1.0 0.0 0.0 1.0 1.0 1.0 1.0 1.0 0.0 1.0 0.0 45 Valley Metro Rail, Inc Full-Time Equivalent Positions (Concluded) Grade RPTA Position Titles Planning/Development Director GC General Counsel ED Chief Executive Officer Authorized FTEs (1) FY 2012 FY 2013 1.0 1.0 FY 2010 1.0 FY 2011 1.0 1.0 1.0 1.0 1.0 85.0 1.0 84.0 1.0 141.0 (1) Information prior to FY2010 was not available. 46 FY 2014 0.9 FY 2015 0.9 1.0 0.5 0.5 0.5 153.0 0.5 161.0 0.5 165.2 Valley Metro Rail, Inc. Schedule of Insurance Coverage For the Fiscal Year Ended June 30, 2015 Source: Valley Metro Rail, Inc. Contracts and Procurement Division Valley Metro Rail, Inc (VMR) employs the firm of Arthur J. Gallagher Risk Management Services, Inc. as its broker for the purchase of insurance. VMR's commercial insurance program consists of the following: Policy # KTKCMB2700C68614 Coverage Commercial Property QT6605833B340TIL14 Inland Marine - Rolling Stock QT6605833B352TIL14 Inland Marine - Town Lake Bridge I21112951008 DIC - Excess Flood for Town Lake Bridge 18436433 Limits 144,513,495 TIV 10,000 Deductible 25,000,000 Flood & EQ 100,000 Flood & EQ Deductible 151,190,408 Limit 100,000 Deductible Policy Term 12/1/2014-15 Premium $114,176 Carrier Travelers Indemnity Co. 12/1/2014-15 $181,452 22,581,224 Limit 100,000 Deductible 5,000,000 Flood & EQ Limit 15,000,000 per Occurrence x/o 5,000,000 underlying 12/1/2014-15 $30,710 12/1/2014-15 $34,936 Travelers P&C Insurance Co. of America Travelers P&C Insurance Co. of America ACE Fire Underwriters Insurance Co. 12/1/2014-15 $2,146 National Union Fire 12/1/2014-15 $70,921 Hartford Fire Insurance Co. 1,000,000 Limit 10,000 Deductible Commercial Auto Liability excluding 750,000 CSL Limit 5,000 Deductible buses and light rail vehicles 100,000 Hired Auto Collision Deductible SIR Buffer 500,000 Each Occurrence 1,000,000 Aggregate Primary Excess Liability 10,000,000 x/o 750,000 SIR 12/1/2014-15 $140,352 Gemini Insurance Co. 12/1/2014-15 $360,635 1000005319 Excess Liability 10,000,000 x/o 10,000,000 12/1/2014-15 $94,080 Princeton Excess and Surplus Lines Insurance Co. Starr Indemnity & Liability Co. 03051169 Excess Liability 15,000,000 x/o 20,000,000 12/1/2014-15 $62,559 EXC1911616 Excess Liability 25,000,000 x/o 35,000,000 12/1/2014-15 $100,500 72UENKC6629 PEM000003801 N1A3RL0000066-05 Commercial Crime 47 Allied World National Assurance Co. Great American Assurance Co. Valley Metro Rail, Inc. Schedule of Insurance Coverage (Concluded) For the Fiscal Year Ended June 30, 2015 Policy # G24100868006 EAU777849012014 UTS2533782.14 MTP9031590 Source: Valley Metro Rail, Inc. Contracts and Procurement Division Coverage Excess Liability Limits 25,000,000 x/o 60,000,000 Policy Term 12/1/2014-15 Premium $73,365 Excess Liability Stand Alone Terrorism 15,000,000 x/o 85,000,000 317,917,422 TIV 100,000 Deductible 1000000 CL 12/1/2014-15 12/1/2014-15 $36,120 $48,089 12/1/2014-15 $14,734 12/1/2012-15 $23,697 Chubb Custom Insurance Co. 3/1/2014-15 & 3/1/2015-16 $179,336 Copper Point Mutual Insurance Company Cyber/Privacy 3731234 Pollution Legal Liability (Fixed-site coverage) W20710 Workers Compensation & Employers Liabilities Insurance 5,000,000 each Pollution Incident; 5,000,000 Aggregate; 25,000 Deductible WC - Statutory EL - 1,000,000 48 Carrier Westchester Surplus Axis Surplus Underwriters at Lloyds Hiscox Syndicate #33 Indian Harbor Valley Metro Rail, Inc. Design & Construction Milestones PRE-INCORPORATION ACTIVITIES November 2000 - Final light rail alignment approved February 2001 - Project opens community office for the public September 2001 - City of Phoenix purchases first property for the light rail system at Camelback Road and 3rd Avenue. December 2001 - Project receives first recommended rating from the Federal Transit Administration (FTA) in its New Starts Report. October 2002 - Valley Metro Rail, Inc. is incorporated. VALLEY METRO RAIL, INC. ACTIVITIES July 2003 - METRO receives formal approval from the FTA for the light rail project to enter the Final Design phase. The approval allows designers to finalize the construction plans during the coming months, begin utility relocation, and request early approval to begin purchasing light rail vehicles and construction materials. August 2004 - The METRO board approves the METRO Business Outreach Plan to help minimize the impacts of light rail construction on businesses located along the light rail transit alignment. November 2004 - A groundbreaking ceremony is held for the reconstruction of an access bridge over the Grand Canal at 48th Street that leads to the light rail Maintenance and Storage Facility. January 2005 - Full Funding Grant Agreement signed for the Central Phoenix East Valley (CPEV) Light Rail Project. (20 mile initial operating segment) April 2005 - METRO Max program launched, business support program encouraging residents to patronize businesses impacted by light rail construction. March 2007 - Phoenix City Council approves funding for Northwest Extension. December 2008 - Central Phoenix East Valley Light Rail Project (Initial 20 Mile Segment) construction completes on-time and within budget. January 2009 - Rail Passenger Operations commence; ridership planned for 26,000 passengers per day reaches over 40,000 daily passengers in April 2009. March 2010 - Mesa City Council approves a 3.1-mile extension of the LRT system. October 2010 - Tempe City Council approves Mill Avenue Alignment for modern streetcar. October 2011 - Valley Metro receives a $1.0 million federal grant to conduct an Alternatives Analysis on the South Central Phoenix Corridor. June 2012 - Phoenix City Council approves funding plan to accelerate Northwest Extension Project. July 2012 - Phoenix City Council approves the 11-mile Phoenix West Extension Project light rail alignment. October 2012 - Project Construction Grant Agreement signed for the Central Mesa Extension Project. January 2013 – Groundbreaking of the Northwest Extension light rail construction adding 3.2 miles to existing 20 mile system. November 2013 – Valley Metro received the Finding of No Significant Impact (or FONSI) from the FTA completing the federal environmental assessment for the 1.9-mile Gilbert Road light rail extension. April 2015 – Valley Metro Rail completes solar panel installation at the Operations and Maintenance Center, reducing electrical costs and dependence on the metropolitan grid. January 2015 – On Saturday, January 31,Valley Metro Rail served the 2015 Superbowl activities reaching a historic ridership record with 126,000 boardings. August 2015 - Valley Metro opens the 3.1 mile Central Mesa LRT Extension, serving downtown Mesa and extending the light rail line to 23 miles. Source: Valley Metro Rail, Inc. Finance Division 49 101 North First Avenue | Suite 1300 | Phoenix, AZ 85003 | valleymetro.org