Chapter 9 – Financial Outlook

• No related sections.

Transit Funding Sources

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Current transportation funding in Greater Minnesota includes federal and state funding sources. Eligibility and distribution of these resources are detailed in the following sections. Transit providers are also expected to contribute local revenue sources.

Federal Funding Sources

The four federal grant sources available to Greater Minnesota transit providers and are described below:

• The Urbanized Area Formula Program (5307)
• Enhanced Mobility for Seniors and Individuals with Disabilities Formula Program (5310)
• Formula Grants for Rural Areas (5311)
• Bus and Bus Facilities Program (5339)

Urbanized Area Formula Program (5307) is available for urbanized areas, defined as places with populations greater than 50,000 but less than 200,000, excluding the Metropolitan Council in the Twin Cities. Funding is available for transit capital, planning and operations activities. Minnesota has eight urbanized areas eligible to receive this grant. The seven cities in Greater Minnesota are Fargo-Moorhead, Grand Forks-East Grand Forks, La Crosse-La Crescent, Mankato[1], Rochester, Duluth/Superior and St. Cloud. These areas receive 5307 grant funds directly from the FTA. Urbanized transit systems in Greater Minnesota received $8,683,755 in 5307 funds for FFY 2015. For FFY 2016 Minnesota received $8,667,839 in 5307 grant funding for all seven urbanized areas throughout the state. [2]

Enhanced Mobility of Seniors and Individuals with Disabilities (5310) provide funding for capital and operating assistance to organizations that serve elderly and/or persons with disabilities. MnDOT distributes 5310 funds to selected awardees. Awardees may include tribal governments, state and local governments, private nonprofit organizations, public transportation operators, and private operators of public transportation services. For FFY 2016 MnDOT administered 5310 statewide for the following:

• Urbanized systems: $1,936,203
• Small urban systems: $615,573
• Rural systems: $1,215,679

Formula Grants for Rural Areas (5311) are available for rural and small urban areas (places with populations less than 50,000). In 2016, $15,673,443 is available for transit capital and operating assistance, of which 15 percent or $2,351,016 goes to intercity bus under section 5311(f). In addition, $244,630 5311(b) (3) funds were appropriated to research, training and technical assistance for transit operators in non-urbanized areas. Registered tribes received $2,313,787 in 5311(c) funds for transit capital and operating costs.

States and registered tribes are the direct recipients of these grants from the FTA. States distribute funds to sub-recipients that may include local governmental authority, a nonprofit organization or an operator of public transportation or intercity bus service. Boise Forte and Fond du Lac Tribes are direct recipients of FTA dollars. MnDOT supports two tribal systems, White Earth and Red Lake, from MnDOT’s 5311 funds in addition to 5311(c). Since MnDOT is a direct recipient of 5311 grant funding, it selects sub-recipients through an application process before entering into a contract with the selected grant awardees.

Bus and Bus Facilities Program (5339) provides funding to assist in the procurement of vehicles or construction of facilities. MnDOT is responsible for distributing these funds to Greater Minnesota transit providers. The funds can only be used for capital investments (replacing, rehabilitating, and purchasing buses and bus-related equipment, and constructing bus-related facilities). For FFY 2016, Minnesota received a total of $635,929 for Greater Minnesota urban areas and $1.75 million for rural areas.

State Funding Sources

The Minnesota Legislature appropriates transit funding from the general fund on a biennial basis. The legislature also statutorily sets the percentage of Motor Vehicle Sales Tax revenue dedicated to public transit at 40 percent:

• Greater Minnesota Transit Account receives 4 percent
• Metropolitan Area Transit Account receives 36 percent
• The highway user tax distribution fund requires 60 percent

In addition, Greater Minnesota transit receives 50 percent of Motor Vehicle Lease Sales Tax revenue collected beyond the specified threshold of $32 million.

Figure 9‑1 summarizes CY 2015 operating budget for Greater Minnesota Transit providers using the different funding sources.

Figure 9-1. CY 2015 Operating Budget for Greater Minnesota Transit

Peer Group	Federal (5307 and 5311)	State General Fund	State MVST*	Local Share	Total
Rural	$14,380,430	$6,627,880	$13,364,740	$6,352,950	$40,726,000
Urbanized	$4,132,000	$10,434,400	$8,512,400	$5,750,200	$28,829,000
ADA-Complementary Paratransit	$0	$2,458,625	$2,458,625	$867,750	$5,785,000
Small Urban	$857,500	$478,850	$478,850	$453,800	$2,269,000
Total	$19,369,930	$19,999,755	$24,814,615	$13,424,700	$77,609,000

* Motor Vehicle Sales Tax (also includes MVLST) Source: 2015 MnDOT Transit Report

MnDOT annually distributes state funds to Greater Minnesota transit through the Public Transit Participation Program. These funds are used for operating, capital and planning activities. Any of the following organizations—or combination of the following— are eligible to receive state funding:

• Any legislatively established public transit commission or authority
• Any county or any statutory or home rule charter city providing financial assistance to or operating public transit
• Any private operator of public transit

Local Funding Sources

Minnesota state law requires local funding participation from public transit services that receive federal and state funding. As shown in Figure 9‑2, a fixed-share funding formula sets a required local share of the transit operating costs. Local share is dependent on the peer group classification of the service.

Figure 9-2. Federal, State, and Local Share Funding Requirements

Peer Group	Federal and State Share	Local Share Requirement
Rural (population less than 2,500)	85%	15%
Urbanized (population more than 50,000)	80%	20%
Elderly and disabled (ADA paratransit)	85%	15%
Small urban (population 2,500 - 50,000)	80%	20%

Source: Minnesota Statute 174.28, subd 3b.

Fare and contract revenues sometimes achieve the local share required to leverage the federal and state share.

• Fare Revenue. Funding provided directly from cash fares, pre-paid tickets or sales of passes to individuals.
• Contract Revenue. Funding provided by organizations for the transport of their clients. An example is the transport of Day Training and Habilitation clients. Revenue is also generated from advertising and other contracts.

In some communities local funds are provided to “close the gap” where insufficient fare and contract revenues are collected. Figure 9‑3 summarizes the local share of operating costs over a five-year period.

Figure 9-3. Greater Minnesota Public Transit Annual Local Share, 2010-2014

Peer Group	2010	2011	2012	2013	2014
Rural	$4,024,704	$4,231,170	$4,289,444	$4,685,002	$5,364,278
Urbanized*	$4,579,917	$4,984,674	$5,366,077	$5,747,415	$6,043,963
ADA-Complementary Paratransit	$671,348	$710,856	$705,357	$709,501	$792,186
Small Urban*	$863,694	$909,856	780,963	$513,164	$447,636
Greater Minnesota	$10,139,663	$10,836,556	$11,141,841	$11,655,082	$12,648,063

*Greater Mankato Transit System, previously a small urban system, was reclassified as an urbanized system in 2013
Source: MnDOT Transit Report, 2011-2015

Annual Operating Costs

Figure 9‑4 shows the annual operating costs for Greater Minnesota transit systems by peer group. Overall transit operating costs in Greater Minnesota increased by 25 percent (almost $15 million) during the five-year period. During this time, hours of service and ridership increased by 9 percent, while inflation accounted for much of the remainder. Urbanized and ADA-complementary paratransit systems experienced the most significant increase in operating costs at 32 percent ($8 million) and 18 percent ($0.8 million) respectively. The significant decrease in small urban costs and increase in rural and urbanized costs is due to the reclassification of Mankato in 2013 as well as some small urban systems merging with rural systems.

Figure 9-4. Greater Minnesota Public Transit Annual Operating Costs, 2010-2014

Peer Group	2010	2011	2012	2013	2014	Percent Change (2010–2014)
Rural	$26,831,360	$28,207,803	$28,596,297	$31,233,351	$35,761,854	33.3%
Urbanized*	$22,899,589	$24,923,373	$26,830,385	$28,737,075	$30,219,815	32.0%
ADA-Complementary Paratransit	$4,475,655	$4,739,045	$4,702,382	$4,730,007	$5,281,240	18.0%
Small Urban*	$4,318,471	$4,549,283	3,904,818	$2,565,824	$2,238,184	-48.2%
Greater Minnesota	$58,525,075	$62,419,504	$64,033,882	$67,266,257	$73,501,093	25.6%

*Greater Mankato Transit System, previously a small urban system, was reclassified as an urbanized system in 2013
Source: MnDOT Transit Report, 2011-2015

Operating Costs for Service Improvements

Additional service must be added by transit systems that are not providing a span of service that meets or exceeds the baseline. Those additional hours are estimated at $90 per revenue hour (per vehicle in service) for urban providers, and $55 for small urban and rural providers. These costs are fully allocated, meaning that administrative costs for extended dispatching, customer service, maintenance, etc. are included. These costs are calculated as baseline service improvements and are shown in Figure 9‑5.

MnDOT’s current annual operating grant contract budget is $77.6 million (FY 2015) (Figure 9‑1). Ensuring that transit systems increase their service to meet the baseline service span means an additional 277,000 annual service hours at an annual operating cost (based on FY 2016 $) of $17.8 million. This represents a 23% increase in operating costs over existing expenditures.

If all service improvements and expansions listed in Figure 9‑5, Figure 9‑6 and Figure 9‑7 were implemented, the additional 508,967 service hours would result in a 51 percent increase in Greater Minnesota annual transit operating costs (additional $39.4 million). While the current overall local share requirement is approximately $13.4 million, the expanded services would increase the local share requirement by approximately $6.8 million (Figure 9‑8).

Figure 9-5. Baseline Service Improvements: Supplemental Operating Costs

Baseline Service Improvements	Description	Additional Annual Hours	Operating Cost[3]	Local Share 20/15%
Urban Areas Weekday[4]	20 hrs./day	54,750	$4,927,500	$985,500
Urban Areas Saturday Service	12 hrs./day	4,950	$445,500	$89,100
Urban Areas Sunday Service	9 hrs./day	13,500	$1,215,000	$243,000
Cities 2,500 - 49,999 Weekday[5]	12 hrs./day (7,000-49,999 population); 9 hrs./day (2,500-6,999 population)	126,540	$6,959,722	$1,043,958
Cities 2,500 – 49,999 Saturday Service	9 hrs./day	40,222	$2,212,228	$331,834
Cities 7,000-49,999 Sunday Service	9 hrs./day	18,245	$1,003,465	$150,520
County Seat Towns < 2,500	8 hrs./day; 3 days per week	19,163	$1,053,938	$158,091
Total Baseline		277,370	$17,817,352	$3,002,003

Figure 9-6. Urban Service Improvements: Supplemental Operating Costs

Urban Service Improvements	Description	Additional Annual Hours	Operating Cost [3]	Local Share 20/15%
ADA Complementary Service	Service to support fixed route improvements	104,832	$9,434,880	$1,415,232
Unserved Urban Areas	Improve urban transit service coverage	31,632	$2,846,880	$569,376
Peak Hour Frequency	Provide 30-minute peak hour frequency	33,133	$2,981,970	$596,394
Regional Express Buses	Six routes [6]	30,000	$4,500,000	$900,000
Total Urban Service Improvements		199,597	$19,763,730	$3,481,002

9-7. Rural Service Improvements: Supplemental Operating Costs

Rural Service Improvements	Description	Additional Annual Hours	Operating Cost	Local Share 20/15%
Regional Mobility	Route operates minimum 2 days/week connecting communities for shopping and medical [7]	32,000	$1,760,000	$264,000.0
Intercity Feeder	Regional service tied to intercity bus service	NA [8]	NA [9]	NA
Unserved Rural Areas	Improving rural transit coverage	NA	NA	NA
Additional Contract Services (Outside of Public Transit)	Assumes contracts requiring expanded service pay full cost	NA	NA	NA
Total Rural Service Improvements		32,000	$1,760,000	$264,000

Figure 9-8. Total Operating Costs for All Improvements

Total	Additional Annual Hours	Operating Cost	Local Share 20/15%
Total Baseline	277,370	$17,817,352	$3,002,003
Total Urban Service Improvements	199,597	$19,763,730	$3,481,002
Total Rural Service Improvements	32,000	$1,760,000	$264,000
Grand Total	508,967	$39,341,082	$6,747,005

Capital Costs

In many communities, it is assumed that additional service will also require capital (bus) purchases. These costs are shown in Figure 9‑9. A total of 246 additional buses are projected to be needed to meet service improvements. These will cost approximately $45.1 million (local share is $9 million). Based on MnDOT’s 10-Year Capital Plan, annual capital expenses increase from $12.1 million in 2016 to $26.8 million in 2025, with a cumulative total increase of $229.6 million. The expansion vehicle costs are not included in the 10-Year Capital Plan.

Note that the 246 vehicles is the total number to implement the full service improvements. Service will be added incrementally and capital will be purchased as needed over the next several years.

Figure 9-9. Service Improvements and Expansions: Supplemental Capital Costs

Baseline Service Improvements	Fleet Supplement Required	Supplemental Capital Cost Estimate [10]	Local Share 20%
Urban 50,000+	120	$36,288,000	$7,257,600
Small Urban 2,500 - 49,999	126	$8,802,000	$1,760,400
Total Service Improvements Expansion Vehicles	246 vehicles	$ 45,090,000	$9,018,000

Cost of Meeting 100% of Transit Demand

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Minnesota statute 174.24 directed MnDOT to “identify of the operating and capital costs necessary to meet 100 percent of the greater Minnesota transit targeted and projected bus service hours for 2020, 2025 and 2030”. The 2014 Statewide Transit Demand Model calculated the total greater Minnesota trip demand for 2020, 2025 and 2030 (Figure 9‑10).

Figure 9-10 Transit Demand Projections

Year	100% of Demand (trips)
2015	12.1 million
2020	16.9 million
2025	18.9 million
2030	20.1 million

MnDOT used a mathematical formula to calculate the number of service hours needed to meet 100 percent of demand. The number of service hours is equal to the ridership target divided by average productivity standards (7 passengers per service hour). The service hours projected from the current year to 2030 are listed in Figure 9‑11. The cost per hour is indexed at 3 percent per year for inflation. The local share is 20 percent for urban systems and 15 percent for rural.

Figure 9-11. Operating Cost to Meet 100% of Demand

Year	Service Hours	Cost per Hour	Operating Cost	Local Share (Urban)	Local Share (Rural)
Current year	1,200,000	$69.16	$82,992,000	$8,299,200	$6,224,400
2020	1,885,714	$77.84	$146,784,000	$14,678,400	$11,008,800
2025	2,171,429	$90.24	$195,949,714	$19,594,971	$14,696,229
2030	2,342,857	$104.61	$245,086,285	$24,508,629	$18,381,471

Meeting 100% of transit demand will require capital investments. Figure 9‑12 shows the replacement costs for the existing fleet during each five-year period from 2016-2030 which does not include the vehicles needed for the service expansion. Figure 9‑13 shows the additional number of vehicles needed to add service to meet 100 percent of demand per five-year period. A standard of one vehicle for every 3,000 hours in urban areas and one vehicle per 2,000 hours for rural service was used in this calculation. The local capital share for both urban and rural systems is 20 percent.

Figure 9-12. Replacement Capital Costs

Current Capital	Total Replacement Cost (millions)	Local Share (20%) (millions)
2016 - 2020	$98.3	$19.6
2021 - 2025	$131.3	$26.2
2026 - 2030	$135.2	$27.0
Total	$364.8	$72.9

Figure 9-13. Expansion Capital Cost to Meet 100% of Demand

Year	Urban Vehicles	Total Urban Capital Cost	Urban Local Share (20%)	Rural Vehicles	Total Rural Capital Cost	Rural Local Share (20%)
2016-2020	43	$20,142,857	$4,028,571	29	$2,171,429	$434,286
2021-2025	129	$66,031,931	$13,206,386	86	$7,118,336	$1,423,667
2025- 2030	114	$68,043,650	$13,608,730	76	$7,335,202	$1,467,040
2030- 2035	171	$118,321,859	$23,664,372	114	$12,755,264	$2,551,053

Funding Service Improvements

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Operating Cost Projections

To guide potential investment strategies for future services and to better understand the size of the investment gap between current transit services and projected demand, MnDOT developed a service plan to meet future transit demand in Greater Minnesota. The primary inputs for the cost model are the future service demand estimates (service hours) developed as part of the service plan and current operating expenses per service hour. To develop the cost estimates, an average expense per hour rate for transit systems was applied to the future service plan and adjusted for inflation, assuming costs will increase at 3 percent per year.

The number of hours listed in Figure 9‑14 depicts the number of hours to implement all service including expansion. The hours are incrementally ramped up each year by 57,000. Of the total 57,000 additional hours each year, 28,500 will be added to urban systems and 28,500 to small urban and rural transit systems combined. The annual operating cost is based on the 2016 average transit system cost of $65 per service hour, indexed with a 3 percent annual increase. The 57,000 additional hours will provide service needed to increase ridership to meet the 90 percent of demand target by 2025.

Figure 9-14. Total Operating Cost for All Service, Including Service Improvements

Year	Number of hours to implement service improvements	Annual Operating Cost	Operating Cost (Millions)
2017	1,257,000	$65.00	$81.7
2018	1,314,000	$66.95	$88.0
2019	1,371,000	$68.96	$94.6
2020	1,428,000	$71.03	$101.4
2021	1,485,000	$73.15	$108.6
2022	1,542,000	$75.35	$116.2
2023	1,599,000	$77.61	$124.1
2024	1,656,000	$79.94	$132.4
2025	1,713,000	$82.34	$141.1

Projected Revenue

Figure 9‑15 shows that transit revenue sources will generally remain stable until 2025 with the exception of the Greater Minnesota Transit Account previous year carry forward amount, which will decline starting in 2024. The GMTA previous year carry forward amount is important. It must always exceed the amount of Motor Vehicle Leased Sales Tax that will be received in a given fiscal year because the Motor Vehicle Leased Sales Tax MVLST is not deposited until the last day of fiscal year. The GMTA can never go into negative numbers. Thus, to achieve this increase in service, more funding must be available for FY 2021 and beyond to keep the GMTA above zero.

Figure 9‑15. Greater Minnesota Funding Sources

Funding Gap

MnDOT’s funding forecast shows that with already-planned expansions, expenses will exceed revenues in 2021(Figure 9‑16). By 2021, a positive carry over balance in the GMTA will be used up and additional funding will be needed from that year forward to continue to meet 90 percent of the transit demand. This is projecting a total gap for this period of $114.1 million. Additional funding would need to be identified prior to 2021.

Figure 9-16. Program Expenses and Cost Gap

Investment Scenarios

In addition, to developing strategies for how to invest in Greater Minnesota transit, this Plan also establishes investment categories that correspond to changing funding scenarios. MnDOT’s approach to increased or decreased funding scenarios is illustrated in Figure 9-17. MnDOT’s first priority for Greater Minnesota transit is to fund each system at a level sufficient to continue the current level of service and add additional hours to reach the baseline span of service.

Figure 9-17. Investment Scenarios

1. Mankato’s population surpassed 50,000 at the 2010 Census and the city began receiving these funds in FY 13.
2. MnDOT. 2015 Transit Report: A Guide to Minnesota’s Public Transit Systems. February 2016.
3. Based on average hourly operating costs of $90 for urban service and $55 for rural service.
4. Additional hours of service needed for urban improvements were identified by the urban transit providers as part of the planning process
5. The operating cost for cities 2,500 to 50,000 were combined in this chart, the description lists the two different service spans for cities 2,500-6,999 and 7,000 to 49,999.
6. Northstar Link-type services to urban areas over 50,000 population ($150/hr.)
7. 40 counties x 8 hrs./day x 50 wks. Assumes half of counties already have mobility routes.
8. A feasibility study is needed to define the additional annual hours.
9. “NA” values do not have standard costs per annual revenue hour or operating cost.
10. Vehicle costs per MnDOT: Urban service - $47000 (Class 700 Diesel); Rural and Small Urban - $76,000 (Class 400 Diesel) Annual Cost index of 3% annual.