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Financial Analysis Technical Memorandum

Connect Southeast
Michigan Transit
Plan
May 2018 -DRAFT

PREPARED BY: HNTB Corporation


Connect Southeast Michigan Plan Financial Analysis Tech Memo

Table of Contents
Introduction.................................................................................................................................................... 4
1. Financial Model ..................................................................................................................................... 5
Local Funding Mechanism......................................................................................................................... 5
Financial Task Force ................................................................................................................................. 5
Multiple Transit Providers .......................................................................................................................... 6
2. Model Inputs .......................................................................................................................................... 8
Economic and Financial Assumptions ....................................................................................................... 9
Demographic Assumptions...................................................................................................................... 10
Revenue Sources .................................................................................................................................... 11
Operations and Maintenance Costs ........................................................................................................ 20
Capital Costs ........................................................................................................................................... 23
Service-Specific Assumptions ................................................................................................................. 26
3. Connect Southeast Michigan Plan ...................................................................................................... 27
Existing Transit Service ........................................................................................................................... 27
15 Routes at 15 Minute Frequencies ...................................................................................................... 27
Commuter Rail ......................................................................................................................................... 31
Commuter Express .................................................................................................................................. 31
Airport Express ........................................................................................................................................ 32
New/Extended Local Service................................................................................................................... 32
Streetcar .................................................................................................................................................. 33
LRT .......................................................................................................................................................... 33
Core Area Flexible Mobility...................................................................................................................... 33
Hometown Service .................................................................................................................................. 33
Advance Mobility Program....................................................................................................................... 33
Transit Supporting Infrastructure to Reduce Chokepoints ...................................................................... 33
Regional Fare Integration ........................................................................................................................ 33
Regional Facilities ................................................................................................................................... 34
4. Connect Southeast Michigan Plan Costs ............................................................................................ 35
Regional Transit Millage .......................................................................................................................... 35
Operating Costs ....................................................................................................................................... 35
Capital Costs ........................................................................................................................................... 36
Impact to Existing Transit Providers ........................................................................................................ 37
5. Existing and Future Funding ............................................................................................................... 38
Regional Transit Millage .......................................................................................................................... 38
State Funding .......................................................................................................................................... 38
Federal Funding ...................................................................................................................................... 38

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6. Regional Growth in Service................................................................................................................. 40


7. Performance Measures ....................................................................................................................... 42
Debt Coverage ........................................................................................................................................ 42
85% Rule Compliance ............................................................................................................................. 42
Transit Spending per Capita .................................................................................................................... 43

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Introduction
An effective regional transit system is essential to the economic vitality of Southeast Michigan and the
quality of life for our residents. The vision for transit in the region is to go beyond the services and
infrastructure we have today to create the foundation for an innovative system for tomorrow.

Since the 2016 transit referendum’s narrow loss, elected, business and philanthropic leaders have
worked diligently with transit advocates, outside experts and the Regional Transit Authority of Southeast
Michigan (RTA) to review and update the 2016 Regional Master Transit Plan (RMTP), adopted by the
RTA. We began by listening and taking into account the most consistent feedback to the 2016 Master
Plan.

The proposed Connect Southeast Michigan plan builds on and modifies the 2016 plan with those insights.
The plan provides $170 million per year in operations funding (in 2019 dollars) – a total investment of
$696 million over 20 years in transit supporting infrastructure – and addresses the feedback to provide a
more robust, regional solution to transit and mobility for Southeast Michigan. A voter-approved tax of 1.5
mill in 2018 will raise $5.4 billion over 20 years and leverage an additional $1.3 billion in farebox, state
and federal revenues.

This document provides the financial structure that the Connect Southeast Michigan Plan has been
constructed around including full compliance with Public Act No. 387 of 2012 which:

• Affords the RTA two financing mechanisms, property millage and vehicle registration taxes. This
plan assumes the use of a property millage of 1.5 mills;
• Does not allow for millage capture in only parts of the 4-county region or for individual
communities to opt out of the RTA; and
• Requires full compliance of an 85% return on investment for all millage dollars collected in
Macomb, Oakland, Washtenaw, and Wayne Counties and the City of Detroit.

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1. Financial Model
A spreadsheet-based cash flow model was developed to evaluate future transit options and ultimately
determine the funding required to implement the proposed Connect Southeast Michigan (CSM) Transit
Plan. The CSM model is based on the cash flow model developed in 2015 for the 2016 Regional Master
Transit Plan (RMTP) and includes updates to reflect current conditions.

A financial model is a complex analysis tool using historical trends and assumptions about the future to
predict future costs and revenues. A variety of inputs—such as when new service begins, how much new
service costs, and how much state and federal funding will be available—were used to define the
proposed CSM Plan in the model. The model forecasts future cash flows for existing transit agencies
(DDOT, DTC, SMART, AAATA, M-1 RAIL, and the RTA) based on the proposed plan’s transit service
proposal for Southeast Michigan, and assesses the long-term revenue outlook for a corresponding
property tax.

The financial model helps build support for a fiscally constrained transit plan vision that the residents of
Southeast Michigan can support to fund transit at higher levels than are currently being provided across
the region. A transparent and documented financial analysis process justifies the investment needed to
implement the CSM Plan. This is an essential step for making regional transit in Southeast Michigan a
reality.

Local Funding Mechanism


RTA legislation allows two local funding sources: a property tax millage and a vehicle registration fee
(VRF). A property tax millage was selected early in the 2016 Regional Master Transit Plan process as the
most appropriate local funding mechanism to implement the plan and the same funding mechanism has
been chosen for the CSM Plan. It is a more consistent and reliable funding source than a VRF and can be
collected through well-established systems at the state and local level. The financial model estimated the
long-term costs of the CSM Plan and the corresponding millage rate required. While the millage will be
RTA’s primary source of funding, it will be supplemented by state and federal funding as well as fare
revenues. The model assumes the millage will begin generating revenue in 2019 and be applied at a
uniform rate going forward. Due to lack of local support for a VRF, this funding source was not included in
the current version of the financial model and is not addressed in this document. The current CSM Plan
requires a millage rate of 1.50 mills.

Financial Task Force


Recognizing the importance and also the complexity of developing a transparent financial analysis
approach, the RTA enlisted a Financial Task Force (FTF) (Table 1.1) to assist in financial model
development and give feedback on financial assumptions. The FTF was initially convened in 2015 and
was comprised of representatives from local and state government, the business community, academia,
and community foundations throughout all four counties under the RTA jurisdiction. Meetings of the FTF
were convened throughout the development of the financial model and various 2016 Master Plan options
were reviewed with the FTF to solicit feedback on assumptions and preliminary option outcomes. This
collaborative process provided a local perspective to help calibrate the financial model by validating the
reasonableness of the assumptions, forecasts, and methodology. The FTF also assessed the feasibility of
various program options and associated tax rates. The Financial Task Force model recommendations
remain relevant and have been retained in the CSM plan development process.

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TABLE 1.1: 2016 FINANCIAL TASK FORCE


Name Title Organization
John Blanchard Director of Local Government Relations General Motors
Mike Brownfield Director of Strategy Governor’s Office
Mary Jo Callan Director of Ginsberg Center University of Michigan
Dennis Cowan Managing Partner Plunkett Cooney
Charles Griffith Director of Climate and Energy Programs Ecology Center
Boardmember, AAATA
Joe Heffernan Partner Plante Moran
George Senior Program Officer Kresge Foundation
Jacobsen
Ronia Kruse President and Chief Executive Officer OpTech
Michael Maher Executive Managing Director Talmer Bank
John Naglick Chief Deputy CFO and Finance Director City of Detroit
Faye Nelson VP of Public Affairs DTE Energy
Susan Pollay Executive Director Ann Arbor Downtown Development
Authority
Roy Rose President Anderson, Eckstein, and Westrick
Melissa Roy Executive Director Advancing Macomb
Conan Smith Executive Director Metro Matters
Ned Staebler Chief Executive Officer TechTown

The FTF provided input to the RTA over a series of five meetings during the 2016 Master Plan process.
The first FTF meeting provided an overview of the financial model, outlined financial assumptions, and
introduced key future transit option questions. The second and third FTF meetings further refined
assumptions and evaluated three future transit options that were developed based on the market
analysis, public feedback, and prior FTF meeting input. At the fourth meeting, the FTF provided the
following observations about the process for developing a realistic and appropriately conservative funding
strategy for regional transit:

• The technical approach appears to be rigorous.


• The analysis appears to reflect the types of revenues and expenditures that the Regional Transit
Authority is likely to experience during implementation of the Plan.
• The assumptions on growth rates as communicated to us by the planning team during the
meetings appear to be reasonable based on historic trends and the information available at this
time.
• Through the use of sensitivity tests, the planning team appears to have considered the relative
impacts of a reasonable range of potential deviations from baseline assumptions on the millage
needed to implement the plan.

Multiple Transit Providers


The financial model accounts for all existing transit providers in Southeast Michigan, as well as the RTA.
Many of the proposed service improvements in the CSM Plan are assumed to be operated by these other
providers under an arrangement with the RTA. The financial model estimates the financial impact of
building and operating transit services at the individual project level and forecasts the cash flows of each
agency based on a variety of service options and funding assumptions. It reflects assumptions about
which agency will operate a proposed new service, simulates the transitioning of service from one
provider to another over time, and estimates the costs of subsidizing expansions of service provided by
the existing operators if the RTA chooses to pursue such a strategy in a given corridor.

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Transit agencies simulated in the financial model include:

• Ann Arbor Area Transportation Authority (AAATA)


• Detroit Department of Transportation (DDOT)
• Detroit Transportation Company/The People Mover (DTC)
• M-1 RAIL (QLINE)
• Regional Transit Authority of Southeast Michigan (RTA)
• Suburban Mobility and Regional Transportation (SMART)

The model incorporates the unique cost and revenue context of each agency. Historical data and annual
financial reports, meetings with each provider, and an inventory of agency assets allowed the project
team to make assumptions about the future revenue, expenditures, and operating cost structures of each
agency. The model also considers the funding sources of each agency, including any existing local
millages as well as federal and state funding. The model allows for changes to existing millage rates over
time, changes to each provider’s member municipalities, and the application of a region-wide RTA millage
in the future. The RTA’s region encompasses the entire four-county region within which the other existing
providers operate, including Macomb, Oakland, Washtenaw, and Wayne counties. The model can apply
an RTA millage to the entire four-county region, or to a subset of individual member cities.

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2. Model Inputs
The financial model incorporates several economic and financial assumptions in order to develop a
realistic and appropriately conservative cash flow forecast. The model assumes a 20-year analysis period
following the introduction of an RTA property tax millage in 2019. More information regarding sources and
how the data is integrated into the model is provided in the following subsections.

The financial model (Figure 2.1) integrates key financial levers such as:

1. Macroeconomic and financial assumptions such as inflation, capital cost escalation, and bond
interest rates.
2. Demographic forecasts provided by SEMCOG.
3. Information from each of the existing transit providers, including:
a. Past and current revenue sources,
b. Existing service levels and corresponding Operations & Maintenance (O&M) costs by
route and mode, and
c. Ridership.
4. Property tax base, reported to the State of Michigan by each of the four counties.
5. State and Federal funding growth, estimated based on existing state and federal legislation
and proposed growth in Southeast Michigan transit expenditures.
6. Recommended transit services and corresponding O&M costs by provider, route, and mode
based on the transit market analysis that was conducted as part of the 2016 Master Plan.
7. Capital cost estimates associated with the recommended infrastructure improvements.
8. Implementation schedule of when recommended transit services begin.
9. Stakeholder input gained through the Financial Task Force and meetings with the region’s
transit providers.

FIGURE 2.1: STRUCTURE OF THE FINANCIAL MODEL

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The financial model helps decision makers understand the relative impacts of these inputs, such as fixed-
route transit service levels, paratransit service levels, capital investments, the future distribution of state
and federal funding, and fare policy, on the local revenues needed to implement the plan.

Economic and Financial Assumptions


INFLATION

Historical inflation from the Urban Consumer Price Index (CPI-U) was used to convert past year dollars to
constant 2019 dollars (2019$). Forecasted inflation from the Congressional Budget Office (CBO) was
used to convert future expenditures and revenues to 2019 dollars. The forecasted annual average rate of
inflation is approximately 2.4%.

CONSTRUCTION COST ESCALATION

To develop an accurate and conservative estimate of construction costs, the historical U.S. Army Corps of
Engineers Construction Cost Index for Michigan was used and adjusted to constant 2019 dollars.
Escalated construction figures reflect a 0.9% historical annual growth rate (2000-2016) in excess of
inflation. Accounting for inflation, construction costs are projected to escalate at an average rate of
approximately 3.4% annually.

VEHICLE COST ESCALATION

For an accurate understanding of how transit vehicle costs have escalated in the past, historical vehicle
costs were analyzed. Data from the American Public Transportation Association’s (APTA) annual Public
Transportation Vehicle Database 1 found the cost of standard 40’ diesel transit buses grew at a rate of
1.34% annually (2008-2015) above inflation. This rate is assumed to continue in the future.

LONG-TERM DEBT

Historical rates from the Federal Reserve’s 20-year state and local bond index are used to forecast a
long-term debt interest rate. The average of monthly rates from 1990 through 2015, adjusted for historical
inflation, results in an estimated rate of 2.78% above inflation. An assumed payment period of 10 years is
used for long term debt in the financial model. The model only allows RTA to issue long-term bonds that
mature by 2038. Given the assumed 10-year repayment period, this means 2028 is the final year in which
the RTA is permitted to issue long-term debt in the financial model.

SHORT-TERM DEBT

Historical rates from Moody’s for corporate bonds for all industries are used to forecast a short-term debt
interest rate. The average monthly rates of BAA rated bonds from 1990 through 2015, adjusted for
historical inflation, results in an estimated rate of 4.88% above inflation. An assumed payment period of
two years is used for short-term debt in the financial model. The model only allows the RTA to issue
short-term bonds that mature by 2038. Given the assumed two-year payment period, this means 2036 is
the final year in which the RTA is permitted to issue short-term debt in the financial model.

COST OF BORROWING

The financial model calculates the amount of borrowing needed in each year for the RTA to maintain a
positive cash balance and the resulting principal and interest payment burden on the agency. A debt

1
2008-2015 Public Transportation Vehicle Database. American Public Transportation Association. Retrieved from
http://www.apta.com/resources/statistics/Pages/OtherAPTAStatistics.aspx

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service coverage ratio (DSCR) of 1.5 is maintained for each year of outstanding debt. This is generally
consistent with the high quality (“A”) bond ratings maintained by peer agencies.

The financial model also assumes an issuance cost of 1% relative to the value of bond proceeds.

Demographic Assumptions
SEMCOG’s ten-year demographic forecasts by city (from 2015 to 2045) were used to forecast population
and housing unit growth in Southeast Michigan. These forecasts were interpolated to produce individual
year forecasts through 2045.

POPULATION

Southeast Michigan’s population is forecasted to grow at 0.26% per year from 2019 to 2038 (Table 2.1).
The population over 65 years of age is forecasted to grow at 1.93% annually during the same period
(Table 2.2).

TABLE 2.1: AVERAGE ANNUAL POPULATION GROWTH, 2019-2038


Growth
Jurisdiction Rate
Macomb 0.26%
Oakland 0.21%
Washtenaw 0.85%
Wayne 0.15%
Detroit 0.17%
Region 0.26%
Forecasted 2019-2038
Source: SEMCOG Ten-Year Forecasts (2015-2045)

TABLE 2.2: ANNUAL OVER-65 POPULATION GROWTH


Growth
Jurisdiction Rate
Macomb 2.14%
Oakland 2.02%
Washtenaw 2.85%
Wayne 1.52%
Detroit 1.75%
Region 1.93%
Forecasted 2019-2038
Source: SEMCOG Ten-Year Forecasts (2015-2045)

HOUSING UNITS

SEMCOG's ten-year housing unit forecasts by city (from 2015 to 2045) are used to forecast housing unit
growth in Southeast Michigan. SEMCOG’s forecasts were interpolated to produce individual year
forecasts through 2045. It is assumed that the growth rate from 2035 to 2045 will continue in perpetuity
beyond 2045. Overall, housing units in Southeast Michigan are forecasted to grow annually at 0.38%
from 2019 to 2038 (Table 2.3).

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TABLE 2.3: ANNUAL HOUSING UNIT GROWTH (PER YEAR)


Growth
Jurisdiction Rate
Macomb 0.42%
Oakland 0.36%
Washtenaw 0.98%
Wayne 0.25%
Detroit 0.31%
Region 0.38%
Forecasted 2019-2038
Source: SEMCOG Ten-Year Forecasts (2015-2045)

PROPERTY VALUATION (TAXABLE VALUE)

Past taxable property valuations were obtained from the Michigan Department of Treasury at the
municipal level and adjusted to 2019 dollars.

Overall growth in aggregate taxable property valuation by jurisdiction is a function of two variables:

1. Projected growth in per-unit property values (i.e. the average growth in the value of an individual
property). This was assumed to grow at the rate of inflation; and
2. Projected growth in total housing units, based on the SEMCOG demographic forecast.

These growth rates were compiled by city and township, and aggregated to the county level. The
resulting forecast shows aggregate taxable property values in the four-county region projected to increase
by an average rate of 0.48% per year (in constant 2019$) from 2019 to 2038 (Table 2.4).

TABLE 2.4: ANNUAL PROPERTY TAX VALUATION GROWTH (PER YEAR)


Growth
Jurisdiction Rate
Macomb 0.53%
Oakland 0.37%
Washtenaw 1.10%
Wayne 0.31%
Detroit 0.26%
Region Total 0.48%
Forecasted 2019-2038

Revenue Sources
The financial model accounts for a variety of existing and potential future revenue sources. These include
system-generated, local, state, and federal funding. The model allows existing revenue streams to be
adjusted in the future and new revenue sources, such as a region-wide property tax millage, to be
introduced. Assumptions were made about future funding levels for each revenue source based on
stakeholder input, demographic and economic data, and historical funding growth trends.

SYSTEM-GENERATED REVENUE

Local transit agencies receive revenue from fare collection, advertising, purchase of service agreements
(POSA), and other agency activities. An estimated $47.5 million in system-generated revenue was
reported by the existing transit agencies in Southeast Michigan in 2017. Table 2.5 summarizes the most
recent year’s totals for system-generated revenue for each of the existing transit providers. About 80% of

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this revenue came from fares, with the remainder coming from advertising, purchase-of-service
agreements, and other sources.

TABLE 2.5: SYSTEM-GENERATED REVENUE, 2017


Provider Revenue
AAATA $8.5
DDOT $21.2
DTC $2.6
SMART $15.2
YOE$, millions,
Sources: Agency financial reports

FARE REVENUE

The existing transit agencies in Southeast Michigan generated an estimated $38.5 million in fare revenue
in 2017. The financial model forecasts fare revenue for the system through the farebox recovery ratio,
defined as the percentage of total operating expenses met through fare revenues. Farebox recovery for
existing agencies is derived from the National Transit Database (NTD). The farebox recovery for any new
RTA-operated (or RTA-contracted) service is based on existing experience within the region for current
modes (local bus, airport express, people mover, streetcar), and is based on national experience for
Commuter Rail. The farebox recovery for each CSM Plan route corresponds with the recovery ratio of the
assigned provider of that route. Table 2.6 describes the assumed farebox recovery of each service and
provider. Table 2.7 shows 2017 fare revenues by agency.

TABLE 2.6: FAREBOX RECOVERY RATIOS BY SERVICE TYPE AND AGENCY

Recovery
Mode / Agency Ratio Source
Airport Express
AAATA 72% 2014-2016 average (per NTD)
RTA 72% Assume same as AAATA
Commuter Rail
RTA 20% Per RTA Guidance
Local Bus (including limited-stop and express services)
AAATA 16% 2014-2016 average (per NTD)
DDOT 18% 2012-2016 average (per NTD)
SMART 16% 2012-2016 average (per NTD)
RTA 20% Per RTA Guidance
People Mover
DTC 11% 2012-2016 average (per NTD)
Streetcar
M-1 50.00% M-1 RAIL Business Plan
RTA 35.00% Per RTA Guidance
Source: National Transit Database reports for AAATA, DDOT, and SMART, for existing operations; RTA guidance for new modes
or operators.

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TABLE 2.7: FARE REVENUE, 2017


Provider Revenue
AAATA $6.9
DDOT $18.6
DTC $1.4
SMART $11.6
YOE$, millions
Sources: Agency financial reports

PURCHASE OF SERVICE AGREEMENTS

AAATA, DDOT, and SMART enter into Purchase of Service Agreements (POSA) with local governments
and other organizations to provide a range of transportation services based on a community’s unique
needs, and in some cases to supplement the service funded under a dedicated millage. AAATA provided
service to the city of Ann Arbor, Ypsilanti, and Chelsea, and the charter townships of Pittsfield, Scio,
Superior, and Ypsilanti through POSA’s in 2017. According to the city of Detroit’s Executive Budgets,
DDOT has historically entered into POSAs with SMART and human service organizations. SMART enters
into partnerships that provide a range of transportation services based on a community’s unique needs.
SMART’s annual financial reports present an aggregate operating revenue category that includes POSA
information and other sources of system-generated revenue. Funding from these agreements was
correspondingly incorporated into the model.

LOCAL CONTRIBUTIONS AND MILLAGES

Southeast Michigan transit agencies receive local contributions for transit service through different types
of taxes. Local support is provided to DDOT and DTC through a General Fund subsidy from the city of
Detroit. Local funding for AAATA and SMART is provided through local transit millages. The millages that
fund SMART are collected by three constituent entities: Macomb County, the Wayne County Act 196
Authority, and the Oakland County Act 196 Authority. The Act 196 Authorities represent the member
communities within Oakland and Wayne counties that have elected to opt into the SMART system.

LOCAL MILLAGES

Local transit millages are property taxes levied for transit services. One mill is equivalent to one dollar of
tax per thousand dollars of taxable value. The current AAATA and SMART millage rates are shown in
Table 2.8. In 2017, AAATA and SMART combined received approximately $85.7 million in revenue from
property tax millages.

As a baseline assumption, the financial model assumes that these millage rates are held constant in
perpetuity, subject to the “Headlee Amendment”, which limits year-of-year growth in millage revenue to no
greater than the rate of inflation. The financial model is capable of raising, lowering, or eliminating these
millages over time for any jurisdictions, as well as introducing any new millages, including, but not limited
to, the region-wide RTA millage.

In August 2014, voters in the Macomb, Oakland, and Wayne County service areas approved an increase
in the property tax millage from 0.59 to 1.0 mills. The increased millage rate increased local SMART
funding from $39.3 million in FY 2014 to $68.7 million in FY 2015.

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TABLE 2.8: TRANSIT MILLAGE RATES AND 2017 REVENUE


Millage Rate Revenue
AAATA
Ann Arbor 3.2 $14.2
Ypsilanti 1.679 $0.5
Ypsilanti Township 0.700 $0.8
SMART
Opt-In Communities 1.000 $71.5
YOE$, millions
Sources: Agency financial reports
Note: millage rates are as authorized by voters, and do not reflect reductions resulting from the Headlee Amendment

RTA PROPERTY TAX MILLAGE

The Regional Transit Authority Act (Act 387 of 2012) grants the RTA authority to seek a millage to fund
transit service within Southeast Michigan. If the proposal to seek a millage is approved by seven-ninths of
the RTA board (including an affirmative vote from at least one member from each county and the member
appointed by the Mayor of Detroit) and a majority of the electors within Macomb, Oakland, Washtenaw,
and Wayne counties (including the City of Detroit), the millage would be applied equally over the member
counties. The financial model is capable of introducing and modifying this millage at any time in the
future. The model can also consider the inclusion or exclusion of individual cities and townships from the
millage. However, unlike existing SMART and AAATA millages, state law only permits the RTA millage to
be applied to the entire four-county region with no ability for communities to opt out or for differential rates
to be applied in different jurisdictions. The scenarios described in this memorandum all assume that a
single four-county millage would remain unchanged from 2019 through 2038.

To compute millage revenue, the financial model multiplies the millage rate by the projected taxable
values in the affected jurisdictions for each year the millage is in effect. The total computed value is
reduced by a Millage Reduction Factor of 1%, which reflects any unpaid or delinquent property taxes, and
any costs of collection that would be deducted before the funds are transferred to the agencies. The 1%
value of this reduction factor was estimated based upon a review of recent financial reports from AAATA
and SMART, and is considered conservative.

Projected revenue was further reduced from the theoretical total (based on taxable valuation) to account
for value capture by other entities, such as Tax Increment Finance (TIF) districts, and Downtown
Development Authorities. These tax capture districts collect millage revenue associated with all increases
in taxable valuation within their boundaries following the initial creation of the district, including the
revenue for millages imposed by other agencies, including the RTA.

Table 2.9 lists the assumed reduction in potential millage revenue for each RTA member jurisdiction.
These estimates were obtained in discussions with county budget staff at the four counties, and through
review of county assessment and equalization reports. Because of the large number of tax capture
districts, particularly in Wayne County, the aggregate long-term effect of tax capture is difficult to forecast.
Therefore, the rates shown in Table 2.9 were assumed to remain constant for the duration of the RTA
millage.

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TABLE 2.9: ESTIMATED REVENUE REDUCTIONS DUE TO TAX CAPTURE DISTRICTS, 2018
Jurisdiction Tax Capture Rate
Macomb 1.1%
Oakland 2.2%
Washtenaw 3.1%
Wayne (except Detroit) 5.4%
Detroit 28.8%
Sources: County 2017 equalization reports; additional analysis conducted by Wayne County

RTA VEHICLE REGISTRATION TAX

The RTA also has the power to generate funds for transit service through a four-county Vehicle
Registration Tax (VRT) at a rate of $1.20 per thousand dollars of assessed value. The financial model
can forecast the revenue generated from a VRT in the future. Similar to an RTA millage, a VRT must also
be approved by the RTA board and by a majority of voters in the four-county region. However, no VRT
scenarios were developed as part of the Connect Southeast Michigan Plan.

STATE AND FEDERAL FUNDING

On October 1, 2013, the RTA became the designated recipient for state and federal grants for the region.
In this role, the RTA establishes the distributions of state and federal formula funding for transit among
the Providers currently operating service in the region. By extension, if the RTA becomes a direct
operator of service or contracts with private operators to expand service, the agency will have the
opportunity to allocate some portion of these formula funds to itself to help offset the cost of the CSM
Plan. The following sections describe the funding sources currently supporting transit in the region, how
these sources are projected to grow in the future, and how the RTA will allocate funds in conjunction with
the implementation of the CSM Plan.

STATE FUNDING

Table 2.10 provides the total state operating and capital assistance received by each transit agency in
2017. The total quantity of state funding reported by the Providers in 2017, $107.1 million, is primarily
comprised of formula-based operating funding and grants intended to match federal grants.

TABLE 2.10: STATE PUBLIC TRANSPORTATION FUNDING, 2017


Provider Funding
AAATA $14.6
DDOT $42.7
DTC $6.2
SMART $43.6
YOE$, millions
Sources: Agency financial reports

The State of Michigan’s Public Act 51 of 1951 (“Act 51”) established the Comprehensive Transportation
Fund (CTF) as a state-restricted fund for public transportation purposes. CTF funding is appropriated in
the annual state transportation budget. The two primary revenue sources for the CTF are a ten percent
Michigan Transportation Fund earmark and an automobile-related sales tax. The Michigan Transportation
Fund is funded by motor fuel taxes and vehicle registration taxes. Public transportation agencies in
Southeast Michigan receive funding from the CTF through the Operating Assistance Program and the
Capital Assistance Program. According to the providers’ financial reports, state operating support totaled

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$96.3 million in 2017. The majority of this funding, $87.7 million, came through the Local Bus Operating
Assistance Program.

Local Bus Operating Assistance Program (LBO) is the largest annual CTF appropriation, accounting
for the majority of operating assistance funding allocated to providers in Southeast Michigan. Urbanized
areas with populations over 100,000 receive state operating assistance for up to 50 percent of eligible
expenses. Non-urbanized areas, and urbanized areas with populations below 100,000, receive
assistance for up to 60 percent of eligible expenses. 2 However, actual reimbursement rates are subject to
available funding and are typically lower than these eligible amounts, with the actual amount each agency
receives awarded in proportion to the available funding. MDOT reports that in FY 2018, urban areas
eligible for a 50% reimbursement rate will receive actual reimbursements at 35%, while rural areas and
small cities eligible for the 60% reimbursement rate will receive actual reimbursements of 39%. 3
According to the RTA, the existing transit providers within the region received an estimated $87.7 million
in LBO funding in 2017. Total state operating support, as reported by the provider financial statements,
was approximately $96.3 million in 2017.

Historically, available LBO funding has grown at a rate slower than the growth in eligible expenses
statewide, such that agencies’ reimbursement rates have gradually declined to well below the statutory
limits. Recent legislative changes have increased LBO funding. Due to state transportation legislation
passed in 2015, statewide LBO funding increased by 11% between 2016 and 2017. However, growth
beyond 2018 is expected to slow once again, with the average annual growth rate forecasted to be 0.8%
per year, well below the projected rate of inflation. Therefore, the reimbursement rate for agencies
throughout the state will continue to decline, potentially falling below 20% by the 2030s.

In the absence of a CSM Plan that has been approved by the voters, it is assumed that the eligible
expenses of all transit agencies in Michigan will continue to grow at approximately the same rate as one
another, such that every agency’s LBO dollars would grow at approximately the same rate, and every
agency’s reimbursement rate (LBO funding as a percentage of eligible expenses) would decline at the
same rate.

Increased transit expenditures in Southeast Michigan, as envisioned in the CSM Plan, would bring more
of the statewide LBO dollars to the region, but would also exacerbate the oversubscription of the
program, causing reimbursement rates to decline further. The financial model’s allocation formula for LBO
funds among the various providers in Southeast Michigan is designed to ensure that they are held
harmless by the CSM Plan. The providers’ LBO allocations were projected based on a “no-build” (no CSM
Plan) condition, and held to the same dollar amounts under the “build” (CSM Plan) condition. Any
increase in LBO funding to the region that results from the implementation of the CSM Plan would
be allocated to the RTA to help offset the costs of implementing the plan.

Capital Assistance Program provides matching funds for projects receiving funding through federal
programs. 4 According to annual financial reports, the existing transit agencies spent an estimated $10.9
million in capital assistance from the State of Michigan in 2017. State capital assistance revenue data
was obtained from available annual financial reports and estimated based on aggregate reporting of state
operating and capital funding. Forecasts of Capital Assistance Program funding from the State of
Michigan reflect a historical average for each agency based on the annual financial report data available.

2
The Comprehensive Transportation Fund and State Support for Local Public Transit Agencies. House Fiscal Agency. April 2013.
http://house.michigan.gov/hfa/transportation.asp

3
MDOT presentation to the 2017 Annual Meeting of the Michigan Public Transportation Association, August 2017.

4
Local Bus Capital and Operating Assistance Programs. Michigan Department of Transportation. Accessed September 2015.
http://www.michigan.gov/mdot/0,4616,7-151-11056_11266-26940--,00.html

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The region is estimated to receive $8.0 million in state capital assistance in 2018, thereafter growing with
inflation.

FEDERAL FORMULA PROGRAM GRANTS

Federal transit support is provided through a variety of grant programs that apportion resources based on
designated criteria and a distribution formula.

Section 5307 and Section 5340 Urbanized Area Formula Grants provide funding for public
transportation capital, planning, and job access and reverse commute projects. The formula
incorporates population, number of low-income residents, vehicle revenue miles, and passenger
and route miles 5. There are separate funding allocation tiers for bus and fixed guideway transit. In
2017, the Detroit and Ann Arbor urbanized areas received over $47 million in Urbanized Area
formula grants, primarily to support bus service. 6 The Detroit People Mover receives a small
portion of this funding as well.

Urban areas with commuter rail receive a guaranteed minimum in the fixed guideway tier, and
this is likely to result in a substantial 5307 funding increase for Southeast Michigan after the
Commuter Rail service begins operation. The minimum fixed guideway funding in 2017 for
regions with commuter rail is $9.8 million. This increase is reflected in the financial model for
scenarios in which Commuter Rail is included, and is assumed to begin accruing to the region
four years after the start of commuter rail service.

Historical Urbanized Area Formula Funding totals were estimated from aggregate federal formula
and discretionary grant totals in the agency annual financial reports and from FTA apportionment
reports. Future funding growth is uncertain and subject to annual appropriations and periodic
reauthorizations of the federal transportation programs. Reflecting this uncertainty, while also
recognizing that Southeast Michigan’s share of the national total will increase if the system grows,
the financial model assumed federal formula funding will increase with the rate of inflation, with
the exception of the Commuter Rail increase mentioned in the previous paragraph.

Section 5337 State of Good Repair Formula Grants provide funding to ensure fixed-guideway
rail and high-intensity motorbus systems continue safe, efficient, and reliable operations. Eligible
expenses include the maintenance, replacement, and rehabilitation of capital assets. The only
eligible fixed-guideway transit in Southeast Michigan is the Detroit People Mover. 2017 Section
5337 funding for Southeast Michigan was approximately $1.2 million. 7 Commuter Rail and Bus
Rapid Transit are also eligible and, if implemented, would result in an increase in Section 5337
funding to the region. However, because the 5337 funding formula is highly complex and difficult
to forecast, no increase in funding beyond inflationary growth has been assumed in the financial
model.

5Federal Transit Administration. Accessed April 2018. Table 5: Fiscal Year 2017 Formula Programs Apportionment Data Unit
Values. https://www.transit.dot.gov/funding/apportionments/table-5-fy-2017-formula-apportionments-data-unit-values-full-year

6
Federal Transit Administration. Accessed April 2018. Table 3: FY 2017 Section 5307 and Section 5340 Urbanized Area
Apportionments. https://www.transit.dot.gov/funding/apportionments/table-3-fy-2017-section-5307-and-5340-urbanized-area-
formula-appropriations-0
7
Federal Transit Administration. Accessed April 2018. Table 11: FY 2017 Section 5337 State of Good Repair Formula
Apportionments. https://www.transit.dot.gov/funding/apportionments/table-11-fy-2017-section-5337-state-good-repair-
apportionments-full-year

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Section 5339 Bus and Bus Facilities grants provide funding to replace and rehabilitate buses,
bus-related facilities, and related equipment. Each state and territory receives an equal allocation
and then the remaining funds are apportioned based on a formula considering population,
population density, vehicle revenue miles, and passenger miles. A 20 percent local match is
required. 2017 Section 5339 funding for the Ann Arbor and Detroit urbanized areas totaled $4.7
million in 2017. 8 This funding source is projected to increase with the rate of inflation regardless
of any expansion of transit service in Southeast Michigan.

The Detroit and Ann Arbor urbanized areas (UZAs) combined received an estimated $45.1 million in
federal formula grant funding in 2017, according to financial reports provided by AAATA, DDOT, DTC,
and SMART. Refer to Table 2.11 for the federal formula grant revenue received by each agency.

TABLE 2.11: FEDERAL FORMULA GRANT REVENUE, 2017


Provider Funding
AAATA $6.8
DDOT $14.5
DTC $0.7
SMART $23.1
YOE$, millions
Sources: Agency financial reports

In October 2015, the RTA adopted Resolution 15, which established a sub-allocation formula for Detroit
UZA Section 5307 and 5339 funding. The sub-allocation formula evaluates ridership, population, local
operating contribution, and revenue miles, weighted equally. This formula will effectively result in a 50/50
split of the Detroit UZA funding between DDOT/DTC and SMART. AAATA currently receives all of the
Ann Arbor UZA Section 5307 and 5339 funding.

As anticipated federal funding to the region grows, the financial model assumes that the existing
providers will be held harmless, with their federal formula funding allocations increasing at the rate of
inflation. The RTA would retain all federal funding growth above the rate of inflation to help fund the CSM
Plan.

FEDERAL DISCRETIONARY PROGRAM GRANTS

The federal government supports transit investment projects though competitive, discretionary programs
that evaluate individual projects against one another for funding awards. Discretionary funding can be
unpredictable. Forecasts for the region are estimated based on a multi-year historical average for each
transit provider that was calculated from the available annual financial report data.

In addition to formula funding, the Federal Section 5339 Bus and Bus Facilities program also includes
discretionary grant funding. In 2018, the FTA made $264 million available for this competitive grant. This
program in particular could fund the replacement of transit vehicles and upgrades to maintenance
facilities. This is one example of the federal discretionary program grants available to the RTA to fund
regional transit.

An estimated $13.3 million in federal discretionary grant funding was received by the existing transit
agencies in 2017 (Table 2.12). Discretionary funding can be unpredictable; therefore forecasts for the
region are estimated based on a multi-year historical average for each agency that was calculated from

8
Federal Transit Administration. Accessed April 2018. Table 12: FY 2017 Section 5339 Bus and Bus Facilities Formula
Apportionments.
https://www.transit.dot.gov/sites/fta.dot.gov/files/fy17fullyearapportionmenttable12section5339busandbusfacilitiesapportionments.xls
x

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the available annual financial report data, that that average amount assumed to grow at the rate of
inflation in the future. Going forward, these revenues are assumed to remain with the transit providers to
continue supporting their respective capital programs.

TABLE 2.12: ESTIMATED 2017 FEDERAL DISCRETIONARY FUNDING


Provider Funding
AAATA $0.9
DDOT $1.7
DTC $1.7
SMART $9.0
YOE$, millions
Sources: Agency financial reports

The RTA is also assumed to receive an increased level of federal discretionary funding for capital projects
it will facilitate. The share is not a fixed percentage but rather is tied to specific projects for which federal
support is likely. The assumed levels of federal capital assistance were determined based on stakeholder
feedback that established a funding probability and likely federal share for each capital project included in
the CSM Plan. These project-specific grants are in addition to the base level of expected federal
discretionary funding, and would go to the RTA to offset the costs of the added services provided by the
Connect Southeast Michigan program.

FEDERAL SECTION 5309 CAPITAL INVESTMENT GRANT PROGRAM

The Capital Investment Grant program funds new fixed-guideway, extensions to fixed-guideway,
mixed traffic bus rapid transit (BRT), projects of substantial investment, and projects improving
capacity on an existing fixed-guideway system. The Fixing America’s Surface Transportation Act
(FAST Act) of 2015 allocates over $2.3 billion annually to the program from FY 2016 to FY 2020.
Funding is distributed through four categories:

New Starts projects are new fixed guideway projects or extensions to existing fixed guideway
systems with total estimated capital costs of $300 million or more, or are seeking $100 million or
more in Section 5309 funding. The maximum federal funding share for New Starts projects is 60
percent.

Small Starts projects are new fixed guideway projects, extensions to existing fixed guideway
systems, or corridor-based bus rapid transit projects with total estimated capital costs of less than
$300 million and are seeking less than $100 million in Section 5309 funding. The maximum
federal funding share for Small Starts projects is 80 percent. 9

Core Capacity projects are substantial corridor-based capital investments in existing fixed
guideway systems that increase capacity by at least 10 percent in corridors at capacity either
today or in the next five years. Core capacity projects may not include elements designed to
maintain a state of good repair.

Programs of Interrelated Projects are comprised of any combination of two or more New
Starts, Small Starts, or Core Capacity projects. The projects must have a logical connection to
one another and all must begin construction within a reasonable timeframe.

9
Federal Transit Administration. Accessed June 2016. Fact Sheet: Fixed Guideway Capital Investment Grants. Retrieved from
https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/5309_Capital_Investment_Grant_Fact_Sheet.pdf

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SURFACE TRANSPORTATION BLOCK GRANT PROGRAM

The Federal Highway Administration (FHWA) administers the Surface Transportation Block Grant
Program (STBG). This formula grant program is intended to provide a source of flexible funds that
are controlled by states, regional Metropolitan Planning Organizations (MPO’s), or local
governments. The funds can be used for the improvement of highways, bridge projects, facilities
for nonmotorized transportation, transit capital projects, and public bus terminals and facilities. A
state must set aside a required proportion of STP funds for the transportation alternatives
program, planning and research, and off-system bridges. After deducting these set-asides, 52%
percent of a state’s remaining STBG apportionment is to be dispersed based on population, and
48% percent may be used in any area of the state. Because formula funding originates with a
federal source, it cannot be used as part of the local match funds. 10 Of the $11.425 billion total
apportionment for STBG in 2017, Michigan received approximately $301 million. 11

CONGESTION MITIGATION AND AIR QUALITY PROGRAM

The Congestion Mitigation and Air Quality (CMAQ) formula grant program is jointly administered
by the FHWA and FTA. The funds are controlled by states and local governments and a portion
must be set aside for planning and research. CMAQ funds are distributed to state and local
governments to help nonattainment and maintenance areas meet the requirements of the Clean
Air Act. Funding may be used for technology systems, alternative fuel facilities, emergency
communications equipment, and workforce development, training, and education activities. Table
2.13 includes the estimated annual local funding allocations for fiscal years 2016 through 2020,
after set-asides, for each county based on population. SEMCOG administers the CMAQ program
in Southeast Michigan. It is anticipated that the funding will be split evenly between transit and
roadway projects.

TABLE 2.13: ESTIMATED ANNUAL CMAQ ALLOCATIONS, 2016-2020


County Funding
Macomb $3.2
Oakland $4.7
Washtenaw $1.3
Wayne $6.9
YOE$, millions
Source: Michigan Department of Transportation. FY 2016-2020 Estimated Funding Allocation Table.
https://www.michigan.gov/mdot/0,4616,7-151-9621_11041_60661---,00.html

Operations and Maintenance Costs


Unit operating costs were developed for the RTA and existing transit providers so a variety of future
transit options could be modeled. The unit costs were developed for vehicle operations, fuel, vehicle
maintenance, non-vehicle maintenance, and administration. Paratransit costs were treated differently to

10
Federal Highway Administration. Accessed April 2018. Surface Transportation Block Grant (STBG) Program:
https://www.fhwa.dot.gov/fastact/factsheets/stbgfs.pdf

11
Federal Highway Administration. Accessed April 2018. Computations for Fiscal Year (FY) 2017 Surface Transportation Block
Grant Program (STBG) Funds: https://www.fhwa.dot.gov/fastact/comptables2017/table4p1-1.cfm

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account for an aging population. More information about O&M costs is provided in the following
subsections.

FUEL PRICES

The U.S. Energy Information Administration (EIA) Energy Outlook was used to project future fuel prices in
constant 2016 dollars. The EIA forecast covers the period from 2015 through 2050. Over that period,
diesel fuel prices are forecasted to grow at an average rate 1.2% per year above inflation, and the cost of
electricity is forecasted to grow 0.5% annually above inflation. 12

To reflect the uncertainty of future energy markets and develop a conservative financial plan for
implementation of the CSM Plan, all forecasted fuel costs were increased by a 50% contingency factor in
the financial model.

UNIT OPERATING COSTS

Unit operating costs were estimated for each provider and type of transit service (Table 2.14). Operating
costs are determined from up to ten years of historical operating cost data, as reported by the existing
providers to the NTD. Provider operating costs are broken into five categories (vehicle operations except
fuel, fuel, vehicle maintenance, non-vehicle maintenance, and administration). Each cost category is
associated with one of three “cost drivers”: vehicle revenue-hours (VRH), vehicle revenue-miles (VRM),
and vehicles operated in maximum service (VOMS). Historical total cost data was divided by historical
cost drivers to develop estimated unit costs, adjusted to constant 2019 dollars. Growth in these unit costs,
expressed in constant 2019 dollars, was forecasted by mode for each transit agency, based on historical
growth trends relative to inflation.

Where the RTA was considered as a potential direct operator of service, the RTA’s unit operating costs
were based on those of its peer agencies in Southeast Michigan.

Operating costs for Commuter Rail were estimated based on national experience and previous corridor
studies.

Operating costs for each transit service in the CSM Plan depends on the assigned provider of that
service. Because operating costs vary by provider, the assumed operator of a particular service directly
influences its operating cost.

Unit operating costs, by cost category and agency, are shown in Table 2.14. It should be noted that
although light rail was also considered in the plan development, unit costs were not developed in the
model because final operating cost estimates were available for the proposed projects. Therefore, it was
not necessary to use the model to estimate costs from unit costs and cost drivers.

12
Energy Information Administration. Accessed February 2018. Annual Energy Outlook:
https://www.eia.gov/outlooks/aeo/data/browser/#/?id=3-AEO2017&region=1-
0&cases=ref_no_cpp&start=2015&end=2050&f=A&sourcekey=0

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TABLE 2.14: MODE UNIT OPERATING COSTS BY AGENCY (2019 DOLLARS)


Operations Vehicle Non-Vehicle Fuel
Agency/ (less fuel) Maintenance Maintenance Admin. (VRM/gal or
Mode (per VRH) (per VRM) (per VOMS) (per VOMS) VRM/kWh) Source
Local Bus, Premium Bus, and Commuter Express
AAATA $64.95 $1.66 $13,220 $89,430 4.39 NTD Reports
DDOT $51.00 $2.66 $77,273 $73,066 3.39 NTD Reports
SMART $87.56 $1.83 $12,531 $84,925 3.32 NTD Reports
RTA $87.56 $1.83 $12,531 $84,925 3.32 SMART Costs
Airport Express
AAATA $80.50 $0.45 $16,580 $126,140 3.39 NTD Reports
RTA $80.50 $0.45 $16,580 $126,140 3.39 AAATA Costs
Commuter Rail
RTA $451.75 $4.88 $61,377 $425,139 1.36 Minneapolis
People Mover
DTC $138.27 $9.85 $103,632 $597,544 0.13 NTD Reports
Streetcar
M-1 $140.35 $6.78 $73,678 $70,597 0.14 M-1 Forecast
RTA $140.35 $6.78 $73,678 $70,597 0.14 M-1 Forecast

The costs associated with some components of transit operation are anticipated to grow at a rate greater
than inflation. Mode-specific operating cost growth rates by agency (Table 2.15) are applied in addition to
inflation and like the base unit costs, are based on historical trends. The historical trends were based on
the same NTD data used to estimate the current unit costs as shown in Table 2.14. To limit the volatility of
future growth and to ensure a financially conservative forecast, the historically computed growth rates
were restricted to between 0% and 2% per year. Any observed growth rates outside that range were
limited to that range.

TABLE 2.15: MODE OPERATING COST GROWTH RATES BY AGENCY


Operations Vehicle Non-Vehicle Fuel
Agency/ (less fuel) Maintenance Maintenance Admin. (VRM/gal or
Mode (per VRH) (per VRM) (per VOMS) (per VOMS) VRM/kWh) Source
Local Bus, Premium Bus, and Commuter Express
AAATA 0.35% 0.00% 0.00% 1.98% 1.99% NTD Reports
DDOT 0.00% 0.00% 2.00% 0.00% 0.38% NTD Reports
SMART 1.39% 0.31% 0.80% 0.60% 0.25% NTD Reports
RTA 1.39% 0.31% 0.80% 0.60% 0.25% SMART Costs
Airport Express
AAATA 2.00% 0.00% 2.00% 2.00% 1.16% NTD Reports
RTA 2.00% 0.00% 2.00% 2.00% 1.16% AAATA Costs
Commuter Rail
RTA 1.28% 1.28% 1.28% 1.28% 0.00% Minneapolis
People Mover
DTC 2.00% 2.00% 2.00% 2.00% 2.00% NTD Reports
Streetcar
M-1 0.00% 0.00% 0.00% 0.00% 0.00% M-1 Forecast
RTA 0.00% 0.00% 0.00% 0.00% 0.00% M-1 Forecast
Growth in constant 2019 dollars or real values above inflation

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PARATRANSIT SERVICE

It was assumed each provider’s future paratransit operating costs (Table 2.16) within their existing service
areas will grow in proportion to growth in the over-65 population. Fleet requirements were assumed to
grow at the same rate. This is separate from any further increase in service included in the CSM Plan.

TABLE 2.16: ESTIMATED PARATRANSIT OPERATING COSTS AND GROWTH RATES BY AGENCY,
2016 (ADJUSTED TO 2019 DOLLARS)
Compound Annual
Total Costs Costs/ Growth Rate
Agency ($ millions) rev-hr (2019-2038)
AAATA $7.4 $51.46 2.7%
DDOT $6.5 $8.53 1.8%
SMART $22.4 $105.77 1.8%
2019$
Source: National Transit Database reports, 2016, SEMCOG 2040 population forecast

Capital Costs
CAPITAL PROJECTS

The financial model includes estimated costs for transit capital projects. Capital costs were estimated on a
per-mile basis for corridor projects, per-unit for garages and vehicles, and lump sums from project studies
or peer research for specific projects (e.g., call center, fare integration, etc.) for which such data was
available. Independent corridor studies developed detailed capital cost estimates for Commuter Rail
projects.

CAPITAL COST ASSUMPTIONS

Depending on the capital project, some costs were broken down into a cost per unit or cost per mile,
while others were entered in the model as sum totals for the project. The assumptions below describe
how costs were derived for projects that were considered for inclusion in the CSM Plan. These costs are
expressed in 2019 dollars and reflect the estimated cost of construction based on current unit costs.
Projects should be expected to have somewhat higher costs at the time of construction due to both
inflation and construction cost escalation. Not all of the projects listed below were included in the final
plan, but are still listed in the event they are added in subsequent plan revisions.

• Airport Express –$550,000 per route was assumed to fund terminal station facilities.
• Bus Rapid Transit – The following potential investment levels were provided by the corridor
study teams and do not include vehicle costs:
o Gratiot Avenue – $250.2 million
o Michigan Avenue – $160.1 million
o Washtenaw Avenue – $53.8 million
o Woodward Avenue – $342.3 million
• Commuter Express – For each Commuter Express corridor, $750,000 was budgeted for capital
costs of park and ride facilities.
• Commuter Rail – Capital costs are assumed to be $132 million and split evenly over a three year
construction period. It is assumed passenger coaches would be leased and therefore do not have
any upfront capital cost. Locomotives would be purchased for the start of service. A $3.3 million
cost for mid-life refurbishment of passenger coaches is assumed as a capital cost in 2034.
• Premium Transit Corridors – Regional transit corridors with planned infrastructure upgrades are
assumed to carry a capital cost of approximately $1.5 million per mile. These investments will not
necessarily be spread evenly among each route. Instead, this funding will allow improvements at

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strategic locations along each corridor. These improvements could include upgraded passenger
facilities at high ridership locations, ancillary pedestrian improvements, and potential running-way
improvements such as transit signal priority and bus queue jump lanes.
• Fare Integration – Based on the ongoing RTA fare integration study, a capital cost of $25.1
million was set aside for regional fare integration.
• Local Bus – A capital cost of $20,000 per mile is included for new and extended local bus
service. These funds will primarily go toward the installation of signs and shelters at new bus
stops.
• Streetcar – It is anticipated the RTA will assume ownership of the QLINE streetcar system and
will incur costs associated with ongoing operation and maintenance of the project at that time. No
RTA-funded capital costs or existing capital debts from M-1 RAIL are assumed within the 20-year
planning horizon (2019-2038).
• Transit Centers and Facilities – Up to $137.5 million was included to support a upgrades to
existing transit support facilities, including needed garage expansions to accommodate the
service increases included in the CSM Plan. In addition, the potential capital project list included
$11.0 million to construct a regional One Click/One Call center to coordinate on-demand transit
services and provide passenger information.
• Planning and Development – Planning and development costs have been identified to support
potential future expansions to the region’s rapid transit network. These include a light rail transit
planning study to DTW airport, commuter rail expansion to connect to Downtown Detroit and
possibly to Pontiac, funds to evaluate future transition into Bus Rapid Transit services, and funds
to evaluate and plan for the expansion of the streetcar network.
• Chokepoint Reduction Program – This is envisioned as a discretionary grant program that
would be administered by the RTA to improve traffic flow and infrastructure conditions in key
transit corridors throughout the region.

The financial model allows for the adjustment of the share of federal and state funding available to
individual capital projects. The estimated capital costs by project type, and assumed federal, state, and
local share of costs are shown in Table 2.17.

TABLE 2.17: CAPITAL COSTS AND STATE/FEDERAL FUNDING ASSUMPTIONS

Project Federal Share State Share RTA Share


Airport Express 13% 0% 87%
Commuter Rail 0% 33% 67%
Premium Transit Corridors 40% 0% 60%
Commuter Express 15% 0% 85%
Local Bus 13% 0% 87%
Transit Facilities 15% 0% 85%
Fare Integration 0% 0% 100%
Regional Call Center 51% 0% 49%
Chokepoint Reduction Program 0% 0% 100%

VEHICLE COSTS

Because the financial model assumes capital costs to be one-time occurrences while vehicles must be
replaced on a regular cycle, vehicle costs were treated separately from other capital costs. Estimated
vehicle purchase costs were determined through peer system research, APTA vehicle cost data, and
RTA guidance (Table 2.18). Standard bus bus costs were determined for conventional diesel, hybrid,
CNG, and electric propulsion. The share of vehicle propulsion systems by agency were assumed to

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remain approximately the same as current usage: AAATA operates a 100% hybrid fleet, while SMART’s
fleet is 50% hybrid and 50% conventional. DDOT’s fleet is 100% conventional.

Vehicle costs for Commuter Rail coaches are not included because it was assumed these vehicles would
be leased, and ongoing lease costs are included as an operating cost for these modes. Commuter
Express service was assumed to be provided using standard buses, while Airport Express service will be
provided through a fully contracted arrangement, with the contractor providing the vehicles. Vehicle
service lives were identified based on FTA guidance (Table 2.19).

TABLE 2.18: ASSUMED VEHICLE COSTS

Vehicle Cost
Automated Guideway1 $2.0 million
Bus – Diesel1 $464,000
Bus – CNG1 $551,000
Bus – Hybrid1 $636,000
Bus – Electric1 $1.2 million
Commuter Rail – Locomotive2 $2,4 million
Demand Responsive1 $97,000
Demand Taxi1 $31,000
Streetcar3 $5.5 million
2019$
Source: 1. Peer system research, 2. RTA guidance, and 3. M-1 RAIL press release

TABLE 2.19: ASSUMED VEHICLE SERVICE LIFE


Vehicle Type Service Life
Bus 12 years
Commuter Rail Locomotive 25 years
Paratransit Vehicle 4 years
People Mover Vehicle1 25 years
Streetcar 25 years
1
For informational purposes only. People Mover vehicle replacements are not part of the CSM Plan.

The financial model contains assumptions regarding the planned replacement of existing and new
vehicles (Table 2.20). Existing and expanded bus and paratransit fleets are assumed to be replaced on a
rolling basis, wherein the entire fleet is replaced over the course of one life cycle. For example, with an
assumed 12 year service life for buses, an agency is assumed to replace 1/12 of its bus fleet each year.
For modes with smaller fleets of more expensive vehicles, such as the streetcar, Commuter Rail, and
People Mover, it was assumed the entire fleet would be replaced at once, with the timing of replacement
based on the age of the current fleet (or the assumed startup year for modes not currently in operation).

TABLE 2.20: ASSUMED VEHICLE REPLACEMENT SCHEDULE


Vehicle Type Year
Bus Rolling cycle
Commuter Rail Coach 2046
Paratransit Vehicle Rolling cycle
People Mover Vehicle 2020
Streetcar 2042

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Service-Specific Assumptions
In addition to global financial assumptions, the financial model allowed for a wide array of service-specific
assumptions. These inputs collectively defined the scope and timing of services included in the CSM
Plan.

FIXED-ROUTE SERVICE

Fixed route service included in the CSM Plan can be classified into three broad operational categories:

• Expansion of the existing providers’ services, with the RTA providing funding for the cost of the
expansion;
• Transfer of existing services and vehicles from one provider to another, typically with the goal of
consolidating duplicative service and providing a one-seat ride to passengers crossing between
SMART and DDOT jurisdiction; or
• Entirely new service operated by an existing provider or the RTA, with 100% of the funding for
that service provided by the RTA.

The first two categories may be combined. For example, a corridor currently served by both DDOT and
SMART could be consolidated under a single operator, with the RTA also funding an overall increase in
service on that corridor.

In defining new service in the financial model, three variables must be addressed:

1. Who will operate each service?


2. What (if any) RTA subsidies will be provided to the existing agencies to support a service
increase?
3. When will changes be implemented?

CAPITAL PROJECTS

Capital projects, including the opening year of a project, estimated costs, and assumed levels of state and
federal funding, are defined in the model. Many capital projects are tied to specific service changes, so
the opening years would be linked between the operating and capital investments.

PARATRANSIT SERVICE

Paratransit service inputs included determining who will operate the existing system in the future, what if
any expansion will occur (and operated by whom), and when these changes may occur.

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3. Connect Southeast Michigan


Plan
The CSM Plan was developed based on market analysis, financial model analysis, and stakeholder
involvement. It reflects a fiscally constrained approach that prioritizes Southeast Michigan’s transit needs
within the context of historical funding sources and the resources that a successful property tax
referendum is expected to make available.

Existing Transit Service


AAATA, DDOT, DTC, and SMART will continue operating their existing services after the CSM Plan
is implemented, with the exception of regional transit corridors that are currently served by more
than one provider, some of which will be consolidated under a single provider as part of the plan.
Aside from those specifically modified as part of the CSM Plan, the providers’ other existing
services are assumed to remain unchanged in the future.

15 Routes at 15 Minute Frequencies


The “15 at 15” service will consolidate and replace existing separate DDOT/SMART service operating in
some corridors and will also introduce entirely new or extended service in other corridors. Most 15 at 15
corridors will be operated by a single agency (either SMART or DDOT) for the entire length of the
corridor, crossing between the City of Detroit and its surrounding suburbs without the need to transfer
between providers. The selection of one provider or the other in the Plan was based on the desire to
balance operating costs between the two agencies, while also minimizing deadhead distances for each
provider. Routes will operate at increased frequencies and will allow cross-county travel with no midday,
evening, or weekend transfers required.

RTA will subsidize the full incremental operating cost of increased service beyond what exists in each
corridor today, plus the cost of purchasing any additional buses required (including spare vehicles equal
to 20% of the increased fleet required to operate the service and replacement vehicles after 12 years).
The RTA’s investment in service increases in these 15 corridors is estimated at $70 million per year
(2019$), not including the cost of purchasing additional vehicles.

PREMIUM CORRIDORS (WOODWARD, GRATIOT, MICHIGAN, GRAND RIVER, AND VAN


DYKE/MOUND)

Five premium corridors were identified, each of which will provide service at 15-minute frequencies or
better throughout the day, as well as infrastructure improvements. In general, the service levels currently
offered on the DDOT-operated portions of existing routes will be extended far into the suburbs, offering
24-hour service for the first time on the suburban portions of the Grand River and Van Dyke/Mound
corridors, and a doubling of FAST service on Michigan Avenue.

Capital investments in the five Premium Corridors will enhance user access, service quality, and transit
facilities throughout the region. The CSM Plan budgets capital costs of $1.5 million per mile, resulting in a
total capital cost of $210 million (2019$) (not including vehicles). RTA will partner with local municipalities
to coordinate these enhancements and leverage transit investments with other local improvements within
these corridors. Improvements might include sidewalks, curb extensions, and crosswalks to improve
station accessibility; enhanced shelters, lighting, and travel information to improve the passenger
experience; and potential running-way improvements such as transit signal priority and queue jump lanes
to improve service speed and reliability. These investments will not necessarily be spread evenly along

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each corridor and may be concentrated on certain corridors and segments more than others. Additional
planning will be needed to identify the most effective capital investments.

TABLE 3.1: PREMIUM CORRIDOR SERVICE CHARACTERISTICS

Corridor Termini Service Changes Operator First Year


No Changes (Infrastructure
Woodward Detroit to Pontiac / Troy N/A N/A
Only)
Detroit to 23 Mile / No Changes (Infrastructure
Gratiot N/A N/A
North River Park and Ride Only)
• Increase FAST service to
Detroit to DTW via
Michigan match Woodward/Gratiot SMART 2019
Merriman
• No change to local service
• Consolidate DDOT 21 and
SMART 330
• 10-minute peak service to
Farmington Hills
Grand River Detroit to 12 Mile / Beck DDOT 2019
• 24-hour service to
Farmington Hills
• Half of trips extend to 12
Mile (except night)
• Consolidate DDOT 48 and
SMART 510/515
• 10-minute peak service to
Van Dyke / 16 Mile
Detroit to Utica SMART 2019
Mound Road • 24-hour service to 16 Mile
• Half of trips extend to
Lakeside Mall (except
night)
Note: Infrastructure improvements are expected to follow over a period of five years.

HIGH-FREQUENCY CORRIDORS

The remaining ten corridors in the 15 at 15 family will offer service at 15-minute frequencies or better
during peak periods, as well as overall improvements in span and frequency of service throughout the
day. In general, the service levels currently offered on the DDOT-operated portions of existing routes will
be extended far into the suburbs, offering 24-hour service for the first time on many suburban corridors.

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TABLE 3.2: HIGH-FREQUENCY CORRIDOR SERVICE CHARACTERISTICS

Corridor Termini Service Changes Operator First Year


• Upgrade DDOT 17
8 Mile Mack to Grand River • 24 hour service, 15 minute DDOT 2021
peak headways
• Upgrade/extend SMART 710
Mack to 12 Mile /
9 Mile • 15 minute peak, 30 minute SMART 2021
Telegraph
all day
• Upgrade/extend SMART
740
Harper to Twelve Oaks 15 minute peak, 30 minute
12 Mile SMART 2022
Mall all day (Doubled b/w
Lawrence Tech & Royal
Oak)
• Upgrade/extend SMART 780
15 Mile
Harper to Twelve Oaks • 15 minute peak, 30 minute SMART 2023
Mall all day, add Sunday
service
• Consolidate DDOT 19 and
SMART 125
Fort/Eureka Detroit to DTW • Upgrade to 15 minute DDOT 2023
peak, 30 minute all day, 21
hours per day
• Consolidate DDOT 22 and
SMART 415; extend to
Michigan/Schaefer to Somerset
Greenfield DDOT 2022
Somerset Collection • Upgrade to 24 hour service
• 12 minute peak, 15 minute
all day, 30 minute overnight
• Consolidate DDOT 25 and
SMART 610
• Upgrade to 24 hour service
as far as Moross
Jefferson Detroit to Gratiot/15 Mile 10 minute peak, 15 minute DDOT 2020
all day, 30 minute overnight
to Moross
• Half of trips continue to 15
Mile
• Upgrade SMART 495
State Fairgrounds to 16
John R • 15 minute peak, 30 minute SMART 2023
Mile
all day
• Upgrade/extend SMART 756
23 Mile Pontiac to 23 Mile/Gratiot • 15 minute peak, 30 minute SMART 2024
all day; add Sunday service
• Upgrade/extend SMART 275
Pontiac to Southland
Telegraph • 15 minute peak, 30 minute SMART 2024
Center
all day; add Sunday service

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FIGURE 3.1: ASSUMED 15 AT 15 CORRIDOR SERVICE LEVELS

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Commuter Rail
Detroit to Ann Arbor Commuter Rail service will offer the first rapid, reliable connection to regional job
centers in Washtenaw and Wayne counties. Eight daily trips in each direction will connect stations in Ann
Arbor, Ypsilanti, Wayne, Dearborn, and the Detroit New Center Amtrak station. Commuter Rail, along with
two feeder bus lines in Ann Arbor and Ypsilanti, is assumed to open in 2024. Express bus style transit
service with be implemented on an interim basis beginning in 2019 following the same service pattern as
the future Commuter Rail service on Interstate 94 until rail service is instituted in 2024. When Commuter
Rail service begins, the interim express bus service will be eliminated.

Feeder bus service will connect stations in Ann Arbor and Ypsilanti with nearby employment centers and
is assumed to be operated by AAATA (fully funded by the RTA). Daily service will be coordinated with
Commuter Rail arrivals/departures.

Commuter Express
Commuter Express service will be limited-stop peak-hour service connecting key employment centers
beyond the downtowns of Detroit and Ann Arbor, and providing park-and-ride service to downtown
commuters throughout the region. 11 corridors are planned, including upgrades to an existing AAATA
route. Service to Ann Arbor will be operated by AAATA and all other service will be operated by the
SMART. Both operators may opt to use private contractors to provide these services.

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Routes will connect key employment centers with non-stop, premium, weekday service every half hour.
Routes will only run at peak periods. The CSM Plan includes $11.2 million in capital funding for 15 new
park-and-ride lots throughout the region.

TABLE 3.3: COMMUTER EXPRESS SERVICE CHARACTERISTICS

Corridor Termini Service Level Operator First Year


Rush hour
US 23 8 Mile Rd to Ann Arbor AAATA 2021
commuter service
Rush hour
I-75 Fisher Fwy Woodhaven to Detroit SMART 2021
commuter service
Rush hour
I-96 Plymouth to Detroit SMART 2021
commuter service
Twelve Oaks Mall and OCC Rush hour
M-10 Lodge Fwy SMART 2020
Orchard Ridge to Detroit commuter service
Great Lakes Crossing and Rush hour
I-75 Chrysler Fwy SMART 2020
Pontiac to Detroit commuter service
Rush hour
M-59 Pontiac to Mt Clemens SMART 2020
commuter service
Twelve Oaks Mall to St Clair Rush hour
I-696 SMART 2021
Shores commuter service
Twelve Oaks Mall to Lincoln Rush hour
M-39 Southfield Fwy SMART 2021
Park commuter service
Rush hour
I-94 New Baltimore to Detroit SMART 2020
commuter service
Plymouth and Livonia to Ann Rush hour
M-14 AAATA 2021
Arbor commuter service
Double existing
Canton Express Canton to Ann Arbor service to four AAATA 2020
round trips

Airport Express
• Ann Arbor via Ypsilanti (RTA takes over existing service in 2019)
• Macomb County via WSU (2020)
• Oakland County - M-39 via Dearborn, Troy, and Northland Mall (2020)
• Oakland County - I-275 via Wayne (2020)

Routes will connect Detroit Metropolitan Airport with daily premium express service. Routes will operate
hourly for 13 hours, seven days per week. The RTA will directly contract with a private operator to provide
these services.

The CSM Plan includes a $550,000 allowance for the capital costs of stations facilities for each Airport
Express route.

New/Extended Local Service


The following new or extended local services are also included in the CSM Plan. Both would be operated
by AAATA, with the RTA subsidizing the full cost of new service.

Routes operated by AAATA:

• Ypsilanti-Michigan Avenue Connector (2022)

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• Ypsilanti-Livonia (2021)

Routes will operate for 15 hours on weekdays, 13 hours on Saturdays, and 11 hours on Sundays. Service
will be hourly, plus half-hourly peak period service on the Ypsilanti-Michigan Avenue connector. The plan
includes funding for the cost of bus stop signs and shelters.

Streetcar
The Connect Southeast Michigan Plan assumes the RTA will take over the QLINE streetcar in 2027 in
compliance with its enabling statute.

LRT
The CSM Plan does not include construction or operation of any LRT projects. However, the Plan does
include funds to support Planning and Development funding to plan for a future LRT system to DTW
Airport.

Core Area Flexible Mobility


A block grant program will fund new ADA Paratransit, non-ADA Demand Response services and first/last
mile connections to fixed-route transit within the fixed route service area. The program will be funded at
$20 million in 2019 and will grow in proportion to the region’s over-65 population growth each year. Funds
will be distributed based on the senior populations in each county. The RTA anticipates this program will
invest $621 million regionally over the 20-year plan.

Hometown Service
The CSM Plan sets aside $30 million annually (growing with inflation) to support local services in the 60
communities outside the fixed route service area. This block grant program makes funding available for
local eligible transit projects in each Hometown Service community. Funding is distributed to each
Hometown community in proportion to the millage revenue raised in each community.

Advance Mobility Program


The CSM Plan sets aside $20 million annually (growing with inflation) for county-led innovative mobility
programs including connected and autonomous vehicle pilots; ridesharing partnerships; and modern
transit supportive infrastructure. Funds are allocated to the counties in proportion to the total millage
revenue raised in each county.

Transit Supporting Infrastructure to Reduce Chokepoints


This $368 million 20-year grant program will support infrastructure improvements throughout the region
that promote safe and efficient transit operations. The allocation formula for this program will be
reevaluated and adjusted as needed on an annual basis to ensure that the full CSM Plan is in compliance
with the 85% Rule.

Regional Fare Integration


Regional fare integration will unify the regional transit system through a consistent fare policy and a
regional fare card. A regional fare card will allow for seamless regional travel and easier transfers
between different providers and include the installation of upgraded fare boxes within AAATA, DDOT, and
SMART buses. A capital cost of $25.1 million is assumed for regional fare integration.

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Regional Facilities
The CSM Plan includes funding for construction, upgrades, and maintenance of new and existing regional
facilities. $82.5 million is included in the plan for regional operations facilities such as maintenance and
administration facilities. The costs would be spread between 2023 and 2025. In addition, the plan
includes $11.0 million for construction of a regional One Click/One Call center to coordinate on-demand
transit services and provide passenger information.

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4. Connect Southeast Michigan


Plan Costs
Regional Transit Millage
The CSM Plan will require a regional transit millage of 1.5. It is assumed the millage will begin in 2019 for
a period of 20 years. The regional transit millage will be collected in addition to the existing transit
millages in the SMART and AAATA service areas. If the millage is approved by voters, all property
owners within the four county RTA jurisdiction will pay the millage. Communities will not have the option
to “opt out” of the millage.

Operating Costs
Operating and Maintenance (O&M) costs for new service were estimated at full build-out of the CSM
Plan. This includes both new service as well as subsidized increases to existing services already
operated by the current transit providers. Transit operating and maintenance costs for the Plan will total
$123 million in 2019 dollars (actual costs will be higher in the years of implementation) Costs are
summarized in Table 4.1 and Table 4.2. The expenditures in Table 4.2 are listed by provider, meaning
that services such as the M-1 RAIL streetcar (to be taken over by RTA), Commuter Rail, Airport Express,
and some other services are listed as RTA expenses, while all existing local service, plus RTA-funded
Cross-County Connector, expanded local service, and some Commuter Express service are allocated to
the region’s existing providers, who will operate those services, but will be reimbursed by the RTA for the
provision of the services.

TABLE 4.1: CSM ANNUAL O&M COSTS BY MODE OR EXPENSE


Mode Expense
RTA Administration $5.9
15 Corridors at 15 Minutes $70.1
Local Bus $4.5
Airport Express $5.9
Commuter Express $11.8
Commuter Rail $9.0
Core Area Flexible Mobility $20.0
Hometown Service $30.0
Streetcar $5.8
Total $163.0
2019$, millions

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TABLE 4.2: CSM ANNUAL O&M COSTS BY PROVIDER


Provider Expense
AAATA $7.8
DDOT $19.5
RTA $86.5
SMART $69.1
Total $163.0
2019$, millions
Note: RTA costs include RTA administration, Commuter Rail, QLINE, Hometown Service, Airport Express, and most Commuter
Express routes. Core Area Flexible Mobility funds are allocated to DDOT, SMART, and AAATA based on the over-65 populations
in their respective service areas. A final determination of who will provide Airport Express and Commuter Express services has
not been made at the time of the release of this report.

Capital Costs
Capital and vehicle costs were estimated for projects included in the CSM Plan through the 20-year
analysis period of the Plan. Total capital and vehicle costs for all of the projects included in the CSM Plan
is just under $1.4 billion (2016$) (Table 4.3). These total costs include portions of the costs that may be
covered by state and federal grants. The RTA millage-funded cost will be lower, as discussed further in
Chapter 5.

TABLE 4.3: CSM PROJECT CAPITAL COST, 2019-2038


Facility Vehicle Other Total
Project Costs Costs Costs Costs
Advanced Mobility $400.0 $400.0
Airport Express $2.2 $0.0 $2.2
Local Bus $0.8 * $0.8
Chokepoint Reduction $368.0 $368.0
Commuter Express $11.2 * $11.2
Commuter Rail $135.3 $7.8 $143.1
Planning and Development $143.0 $143.0
15 Routes at 15 Minutes $209.8 * $209.8
Regional Services $118.6 $118.6
RTA-Funded Buses* $220.7 $220.7
Total $845.9 $228.5 $543.0 $1,617.4
2019$, millions
Note: Sum of totals may differ due to rounding. Airport Express is assumed to be fully contracted to an outside provider who would
provide vehicles for the service. The RTA would not be required to purchase vehicles for this service.

*RTA-Funded Buses would be shared between Local Bus, Commuter Express, and 15 at 15 services.

VEHICLE PURCHASES

Overall fleet requirements are calculated based on the sum of all route-level VOMS totals, multiplied by
an assumed spare ratio. The spare ratio for all modes and agencies was assumed to be 20%, which is an
industry standard. Vehicles are assumed to be purchased in the year prior to commencement of service,
with one exception. Vehicle purchases for services beginning in 2019 are assumed in 2019. This ensures
no vehicles are purchased before the program begins in 2019.

Table 4.4 shows the assumed pass-through bus purchases by the RTA for use by the existing transit
providers to operate new CSM Plan. It is assumed RTA-purchased buses will be shared between local
bus, Commuter Express, and 15 at 15 services. Table 4.5 shows the assumed vehicles purchased by the

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RTA for directly operated or contracted services. Based on the timing of previous purchases and input
from stakeholders, the model does not include any streetcar vehicle or People Mover vehicle purchases
between 2016 and 2035. Commuter Rail locomotives would be purchased in 2023 for the 2024 launch of
service. Commuter Rail coaches are assumed to be leased and are not included as a capital cost.

TABLE 4.4: ANNUAL PASS-THROUGH BUS PURCHASES


2019 ‘20 ‘21 ‘22 ‘23 ‘24 ‘25 ‘26 ‘27 ‘28 ‘29 ‘30 ‘31 ‘32 ‘33 ‘34 ‘35 ‘36 ‘37 ‘38
AAATA 2 9 5 2 2 9 5 2
DDOT 11 2 4 5 9 2 2 4 5
SMART 22 7 21 18 30 22 7 21 18 30
TOTAL 35 18 30 23 32 31 4 18 30 23 32
Note: For service between 2019 and 2038. The model assumes vehicles are purchased during the year prior to service except for
2019 services, which are purchased the same year.

TABLE 4.5: ANNUAL RTA VEHICLE PURCHASES


2019 ‘20 ‘21 ‘22 ‘23 ‘24 ‘25 ‘26 ‘27 ‘28 ‘29 ‘30 ‘31 ‘32 ‘33 ‘34 ‘35 ‘36 ‘37 ‘38
Bus 21 17 21 17
Locomotives 3
TOTAL 21 17 3 21 17
Note: For service between 2019 and 2038. The model assumes vehicles are purchased during the year prior to service except for
2019 services, which are purchased the same year.

Impact to Existing Transit Providers


New or expanded services from the CSM Plan will impose new costs on the region’s transit providers.
While some new service will be operated directly by the RTA (via contracted service), other CSM Plan-
funded services will be operated by AAATA, DDOT, and SMART (Table 4.6). The RTA will provide
subsidies for CSM Plan services operated by the existing transit providers. These subsides will offset the
impact of the increased O&M costs to these agencies. In some cases, a new service, whether operated
by the RTA or an existing agency, will replace an existing service, leading to potential reductions in cost
to a provider.

TABLE 4.6: PROVIDER ASSIGNMENT OF CSM PLAN SERVICES


Building Block Assigned Provider
15 at 15 AAATA, DDOT and SMART
Airport Express TBD – RTA placeholder
Commuter Express AAATA and RTA placeholder
Hometown Service RTA
Local Bus AAATA
Core Area Flexible Mobility AAATA, DDOT and SMART
Commuter Rail RTA
Streetcar RTA

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5. Existing and Future Funding


Federal and state funding levels for Southeast Michigan as a whole were estimated based on recent
legislation and then distributed to the RTA and providers based on the CSM Plan. While future federal
and state formula funding distributions have been estimated based on the best information available, the
actual amount of funding available in the future will be different. Formula funding distributions will be
refined as needed in the future. If revenues fall short or costs exceed what is estimated, the RTA will work
together with Southeast Michigan’s transit providers to adjust formula funding distributions.

Regional Transit Millage


A regional transit millage of 1.5 will generate $5.4 billion in local transit funding over 20 years from 2019
to 2038. This revenue goes to the RTA, which then allocates it to its directly-funded services and
programs, and to the providers that will be operating CSM Plan routes in partnership with the RTA.

State Funding
The financial model forecasts future growth in statewide LBO funding and estimates the amount of that
funding that comes to Southeast Michigan based on growth in eligible expenses in the region compared
with expected growth in eligible expenses in the rest of the state. The portion of the LBO funding that
comes from motor fuel taxes is projected to grow at the rate of inflation, while the remaining portion of
LBO funding is projected to remain constant. Blending these two growth rates results in an overall
expected LBO growth rate of approximately 0.8% per year. Relative to the rate of inflation, this means
that statewide LBO funding is expected to decline.

Eligible expenses, meanwhile, are expected to grow at the rate of inflation statewide, before considering
any increases resulting from implementation of the CSM Plan. With eligible expenses growing faster than
available funding, all systems throughout the state are projected to see a declining rate of reimbursement
for eligible expenses. Statewide LBO funding was $186,250,000 in 2018, and is expected to grow to
$220,383,000 by 2038. Statewide eligible expenditures, estimated at $543 million, is expected to growth
to $872 million by 2038, before considering increases due to the CSM Plan.

Implementation of the CSM Plan will increase eligible expenditures in Southeast Michigan, shifting more
LBO funding to the region instead of other regions. This increase will be retained by the RTA to offset the
cost of the CSM Plan. AAATA, DDOT, SMART, and DTC will be held harmless in that their funding will
remain the same whether or not the CSM Plan is implemented, with the RTA capturing the additional
growth that comes to the region as a result of the CSM Plan. See Figure 5.1 for an overview of the
assumed distribution of LBO funding in the Plan.

Because the RTA will be facilitating capital projects, it is also assumed to receive an increasing level of
state capital assistance funding. The share is not a fixed percentage but rather is tied to specific projects
for which state support is likely. The assumed levels of state capital assistance were determined based
on stakeholder feedback that established a funding probability and likely state share for CSM Plan capital
projects.

Federal Funding
Federal formula funding is allocated by the FTA to UZAs (Census-defined Urbanized Areas) for transit
service. Allocations are based on a complex formula accounting for regional population, types of services
offered, and levels of service provided. Projected federal formula funding changes from the CSM Plan
were based on the introduction of a new mode (Commuter Rail), which will make the region eligible for an
increase in “Fixed Guideway Tier” funding under the FTA Section 5307 formula grant program. The

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“Commuter Rail Floor”, a minimum funding level for all urbanized areas with commuter rail systems, was
$9.8 million in 2017. This amount is anticipated to grow at the rate of inflation, and to begin accruing to
the region in 2026.

Although the increases in existing bus service would likely generate a further increase in formula funding,
this was not included in the financial plan to ensure a conservative forecast. Therefore, all existing
formula funding, assumed to grow at the rate of inflation, continues to be allocated to the providers, with
only the commuter rail-related increase being retained by the RTA.

FIGURE 5.1: DISTRIBUTION OF STATE AND FEDERAL FUNDING

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6. Regional Growth in Service


Full implementation of the CSM Plan will significantly increase transit service, vehicles in operation, and
O&M expenditures in Southeast Michigan. Vehicle revenue hours (VRH) will increase by 35% (Table
6.1), vehicle revenue miles (VRM) will increase by 26% (Table 6.2), and vehicles operated in
maximum service (VOMS) will increase by 29% (Table 6.3) for fixed-route service. This increase in
service corresponds with an increase in funding for transit service from the RTA (Figure 6.1).

The tables below show the total existing service levels in the region, and how those would increase with
implementation of the CSM Plan. It should be noted that the Detroit People Mover, while included in the
tables, would remain the responsibility of the City of Detroit and is not funded or included in the CSM
Plan. Likewise, the service levels shown for AAATA, DDOT, and SMART include both CSM-funded
service as well as their own locally funded service,

TABLE 6.1: VEHICLE REVENUE HOURS (VRH)


Provider Existing 2018 Existing plus CSM % Increase
AAATA 299,141 340,801 14%
DDOT 783,617 993,848 27%
SMART 798,167 1,136,687 42%
RTA (Airport/Commuter) 0 96,426 n/a
TOTAL BUS 1,880,925 2,567,762 37%
RTA Commuter Rail 0 5,840 n/a
People Mover 50,373 50,373 0%
Streetcar 24,062 24,062 0%
TOTAL ALL MODES 1,955,360 2,648,037 35%
Note: Fixed-route service only; does not include paratransit. Existing annual hours are estimated based on current service levels.

TABLE 6.2: VEHICLE REVENUE MILES (VRM)


Provider Existing 2018 Existing plus CSM % Increase
AAATA 4,137,454 4,495,245 9%
DDOT 11,866,287 14,409,141 21%
SMART 11,897,902 15,346,219 29%
RTA (Airport/Commuter) 0 860.370 n/a
TOTAL BUS 27,901,643 35,110,975 26%
RTA Commuter Rail 0 221,336 n/a
People Mover 586,382 586,382 0%
Streetcar 199,113 199,113 0%
TOTAL ALL MODES 28,669,138 36,117,806 26%
Note: Fixed-route service only; does not include paratransit. Existing annual miles are estimated based on current service levels.

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TABLE 6.3: VEHICLES OPERATED IN MAXIMUM SERVICE (VOMS)


Provider Existing 2018 Existing plus CSM % Increase
AAATA 87 100 15%
DDOT 225 254 13%
SMART 249 319 28%
RTA (Airport/Commuter) 0 31 n/a
TOTAL BUS 561 704 25%
RTA Commuter Rail 0 11 n/a
People Mover 10 10 0%
Streetcar 5 5 0%
TOTAL ALL MODES 576 725 26%
Note: Fixed-route service only; does not include paratransit

FIGURE 6.1: REGIONAL GROWTH FROM CSM PLAN

Notes:
Fixed-route service only; does not include paratransit or RTA administration costs.
Costs are for annual operations and maintenance only; does not include capital expense or vehicles purchased and replaced.

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7. Performance Measures
The financial model generates performance measures to objectively evaluate the CSM Plan.

Debt Coverage
For the CSM Plan’s financial plan to be viable, funding sources must be sufficient to generate a positive
agency cash balance in all years through 2038. If the RTA’s cash flows require the agency to take on
debt, the agency must be able to maintain a debt service coverage ratio equal to 1.5 or greater in all
years in which debt is outstanding. All bonds must be retired by the end of 2038 (the final year of the
millage authorization). The CSM Plan meets this requirement.

85% Rule Compliance


The RTA’s legislation sets forth an “85% Rule,” which requires the RTA ensure not less than 85% of the
money raised through a millage or vehicle registration tax in each member county, and in the City of
Detroit, is expended on the public transportation service routes located in that jurisdiction. The provision
was included to ensure to taxpayers in each jurisdiction that 85% of their investment will be returned in
the form of public transit service and infrastructure enhancements.

On each proposed route identified in the CSM Plan, the RTA calculated operating, capital, and vehicle
expenditures and allocated these to the jurisdictions in which the service is located. For transit routes that
cross into more than one jurisdiction, the costs were allocated base on the percentage of the route’s
length that is within each jurisdiction. Regional investments, like facilities, fare integration, administrative
costs, and debt service, were allocated throughout the region in proportion to route-specific capital and
operating costs. Paratransit expansion was allocated based on the existing over-65 populations in each
jurisdiction. Hometown service was allocated in proportion to the revenue raised in Hometown
Communities in each county. Advanced Mobility was allocated in proportion to total revenue raised in
each member jurisdiction.

By law, the 85% Rule is met when all money the RTA spends on new transit expenditures in each
member jurisdiction equals at least 85 percent of the amount of revenue raised by the RTA in that same
jurisdiction. This calculation includes all RTA directly-generated and non-RTA sources of funding, such as
federal and state grants; passenger fares; and other system-generated revenues. The RTA further
ensures compliance with the 85% Rule by managing the expenditure of local dollars so 85 percent of
those locally generated dollars are expended within the jurisdiction as well. This secondary calculation
only includes RTA directly generated revenue (via property tax millage or VRF), without including non-
RTA sources of funding. This is a more restrictive standard than is required by law.

For the CSM Plan to be viable it must comply with this 85% Rule. The CSM Plan meets the 85% rule
using the most general and strictest interpretations of the law.

Because the RTA’s expenditures, particularly for capital facilities, will be focused in some jurisdictions
more at some times than others, it is possible the RTA will not comply with the 85% Rule in every
jurisdiction when computed on a short-term basis, particularly in the early years of the program. The RTA
will track compliance on a cumulative multi-year basis. The financial model tracks 85% Rule compliance
across an aggregate 20-year period from 2019 through 2038, as well as in individual years and
cumulatively.

The total assumed RTA millage collected and RTA expenditures in each jurisdiction are shown in Table
7.1. The table shows total millage revenue raised in each jurisdiction, total expenditures by jurisdiction,
and the estimated split of millage and non-millage-funded expenditures. As shown, when accounting for
all sources of revenue, every jurisdiction will receive a return on millage investment of greater than 100%.

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This is because of the increase in state funding, federal funding, and fare revenue that is expected. When
accounting for only the millage portion of program funding, every jurisdiction remains in compliance with
the 85% Rule.

It should be noted that while Detroit is shown as a separate jurisdiction, the revenues and expenditures
for Detroit are also included in the Wayne County total.

Revenues do not precisely match expenditures for several reasons: first, not every dollar of revenue is
spent over the course of the program. To cover debt service requirements, the RTA will need to maintain
a minimum balance at the end of every fiscal year, making it impossible to spend every last dollar. The
remainder serves as a reserve against debt service payments. Additionally, expenditures covering
interest on debt are not allocated to any of the jurisdictions, as these expenditures support the cost of
implementing the CSM Plan as a whole and cannot be associated with any one program or service.
Therefore, interest on outstanding debt is excluded from the table.

TABLE 7.1: RTA MILLAGE COLLECTED AND EXPENDITURES (2019-2038)


Macomb Oakland Washtenaw Wayne Detroit
Millage Revenue Collected $1,069.5 $2,168.0 $685.2 $1,423.8 $165.8

Expenditures by Source
Millage $214.6 $451.9 $250.8 $435.3 $257.4
Non Millage $920.6 $1,866.9 $659.7 $1,738.9 $669.7
Total $1,135.2 $2,318.7 $910.5 $2,174.2 $927.1
All Sources ROI 106.1% 107.0% 132.9% 152.7% 559.1%
Millage ROI 86.1% 86.1% 96.3% 122.1% 403.9%
YOE$, millions
Note: Detroit is included in the Wayne County total, but is also shown as a separate jurisdiction.

POLICIES AND PROCEDURES ON ONGOING 85% COMPLIANCE AND THE PROTECTION OF


STATE AND FEDERAL FUNDING FOR EXISTING PROVIDERS

The RTA recognizes that, over time under the CSM Plan, the level of CSM Plan revenue raised in each
member jurisdiction may vary from the projections used to determine that the CSM Plan complies with the
85% Rule. Further, the CSM Plan is built on the principle that the allocation of state and federal formula
funding in support of routes and services in the CSM Plan will not reduce the amount of state and federal
funding currently allocated to existing transit providers within the RTA’s transit region, as adjusted for
inflation. The RTA has adopted a policy (Resolution 22 (9/22/16) and developed procedures ensuring the
Board will adhere to rigorous and transparent monitoring and adjustment procedures to address potential
deviations from the CSM Plan’s financial assumptions and ensure long-term compliance with the 85%
Rule. The policies and procedures also provide a structure to ensure the existing providers will not be
impacted by reduced state and federal funding from the RTA. Resolution 22 can be found on the RTA
website at www.rtamichigan.org.

Transit Spending per Capita


Transit spending per capita is a useful benchmark to measure the overall level of regional transit
investment. As the CSM Plan was developed, peer region per capita spending was used as a guide for
identifying an appropriate system size.

METHODOLOGY

Eleven peer regions from throughout the United States were selected for a comparison of transit
spending per capita. This included regions with similar populations, a shared industrial heritage, and

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aspirational transit system. For a comparison of transit operations spending across these regions, data
was 2016 NTD was used. At the time of analysis this was the most current data available.

Transit spending was defined as operating expenses reported to the 2016 NTD. Regional transit
spending was defined as the sum of operating expenses for all reporting agencies to an Urbanized Area
(UZA) region. In some instances, this included public transit agencies, university transit systems,
paratransit providers, and vanpool operators. In addition to AAATA, DDOT, DTC, and SMART, Southeast
Michigan includes VRide, Inc. – Michigan and the University of Michigan Transportation Services.
Reporting agencies with a different primary UZA were excluded from this analysis. Transit spending per
capita was calculated by divided total regional transit spending by UZA population. UZA population
comes from the 2010 Census.

PEER REGION COMPARISON

In 2016, Southeast Michigan spent $67 per capita ($271 million total) on transit operations. This lags far
behind regional peers (Table 7.2).

TABLE 7.2: TRANSIT OPERATIONS SPENDING

Region UZA Population Total Spending per Capita


Southeast Michigan 4,040,112 $270,941,761 $67
Atlanta 4,515,419 $557,490,624 $123
Austin 1,362,416 $217,074,058 $159
Boston 4,181,019 $1,590,045,692 $380
Chicago 8,608,208 $2,522,535,098 $293
Cleveland 1,780,673 $281,048,488 $158
Columbus 1,368,035 $127,451,500 $93
Denver 2,374,203 $487,909,962 $206
Indianapolis 1,487,483 $68,702,040 $46
Nashville 969,587 $80,418,347 $83
Pittsburgh 1,733,853 $419,405,050 $242
Seattle 3,059,393 $1,252,721,158 $409
Source: 2016 National Transit Database

CSM PLAN SPENDING PER CAPITA

The CSM Plan will increase regional per capita transit spending from $67 to $110 (Figure 7.1) . Although
transit spending in Southeast Michigan would still fall behind many other peer regions, this represents a
significant increase in regional transit investment, and would go a long way toward meeting the needs of
a region striving for greater economic resilience and growth.

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FIGURE 7.1: EXISTING TRANSIT OPERATIONS SPENDING PER CAPITA

2019$, millions
Source: 2016 National Transit Database

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