BOARD OF DIRECTORS MEETING MARCH 3, :45 A.M. 101 NORTH FIRST AVENUE 13TH FLOOR BOARD ROOM PHOENIX, AZ 85003

Transcription

1 BOARD OF DIRECTORS MEETING MARCH 3, :45 A.M. 101 NORTH FIRST AVENUE 13TH FLOOR BOARD ROOM PHOENIX, AZ 85003

2 March 2, 2010 REVISED To: From: Chairman Simplot and Members of the METRO Board of Directors Stephen R. Banta, Chief Executive Officer Date: March 3, 2010 Time: 9:45 a.m. Location: METRO 101 N. First Ave., 13 th Floor Board Room Phoenix, AZ Please park in the garage in the US Bank Building (enter from Adams Street) and bring your parking ticket to the meeting as parking will be validated. Transit passes will be provided to those using transit. For those using bicycles, please lock your bicycle in the bike rack located on the 2 nd level of the parking garage across from the ticket handler booth. METRO Board (Board) members may attend the meeting by teleconference. If you have any questions or need additional information regarding attendance by teleconference, please contact Gina Frackiewicz at (602) Item Action Requested 1. Call to Order 2. Call to the Audience Information A 15-minute opportunity will be provided to members of the public at the beginning of the meeting to address the METRO Board on all agenda items. The Chairman may recognize members of the public during the meeting at his/her discretion. Up to three minutes will be provided per speaker. 3. Minutes Action Summary minutes from the January 20, 2010 Board meeting are presented for review and approval. 4. Chief Executive Officer s (CEO) Report Information Steve Banta will brief the Board on current light rail issues.

3 METRO Board of Directors Agenda March 2, 2010 Page 2 of 3 Item Action Requested Consent Agenda 5. Approval of Consent Agenda Action The Board is being requested to take action on the Consent Agenda. Board members may request that items be removed from the Consent Agenda. Items Proposed for Consent 5a. Valley Metro Rail, Inc. FY2009 Comprehensive Annual Financial Report and Single Audit Act Report Consent Staff is requesting that the METRO Board accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, Please see information attached for Agenda Item 5a for additional information. 5b. Passenger Station Power Washing Services Contract Consent Staff is requesting that the Board authorize the CEO to negotiate and execute a multiyear contract for Passenger Station Power Washing Services. Please see information attached for Agenda Item 5b for additional information. Regular Agenda 6. Section 5309 Project Budget Adjustments Action Staff is requesting that the Board approve project budget contingency adjustments for cost increases and savings to line item budgets within the Full Funding Grant Agreement (FFGA) project. Please see information attached for Agenda Item 6 for additional information. 7. Regional Transit Planning Roles and Responsibilities Action Staff is requesting that the METRO Board authorize the CEO to execute the Memorandum of Understanding (MOU) regarding transit planning and programming and is providing information on SB 1416 that has been introduced and rewritten to clarify transit planning responsibilities. Please see information attached for Agenda Item 7 for additional information.

4 METRO Board of Directors Agenda March 2, 2010 Page 3 of 3 Item Action Requested 8. METRO Advertising Policy Restrictions Information Staff will provide information on a possible amendment to the METRO Advertising Policy to allow advertising of beer, wine, and/or alcohol on METRO assets approved for advertising displays. Please see information attached for Agenda Item 8 for additional information. 9. Future METRO Board Agenda Items Information The Board may request consideration of future agenda items. No additional information is attached. 10. Adjournment Action With 24-hours notice, special assistance, including provision of materials in alternate formats, can be provided for persons with sight and/or hearing impairments. Call (voice) or (TTY) to request accommodations.

5 AGENDA ITEM 3 Minutes

6 January 20, North First Avenue 13 th Floor Board Room Phoenix, Arizona Board Members Present Vice Mayor Tom Simplot, City of Phoenix - Chair Mayor Hugh Hallman / Vice Mayor Shana Ellis, City of Tempe Vice Mayor Kyle Jones, City of Mesa Craig Tindall, City of Glendale Mayor Boyd Dunn, City of Chandler Vice Mayor Ron Aames, City of Peoria Others Present Jorie Bresnahan, City of Phoenix Sara Christopherson, Strand Associates Carlos, deleon, City of Tempe Matthew Dudley, City of Glendale Ron MacKAY, ACI David Moody, City of Peoria Mike Normand, ADOT Fred Tallarico, Jacobs 1. Call to Order Chairman Simplot called the meeting to order at 9:45 a.m. The Chairman also wished everyone a happy new year and welcomed METRO s new Chief Executive Officer, Steve Banta. 2. Call to the Audience There were no requests to address the Board. 3. Minutes IT WAS MOVED BY VICE MAYOR JONES AND SECONDED BY VICE MAYOR AAMES AND UNANIMOUSLY CARRIED TO APPROVE THE DECEMBER 9 AND 16, 2009 MEETING MINUTES. 4. Chief Executive Officer s (CEO) Report Mr. Stephen R. Banta, METRO s Chief Executive Officer, thanked the Board for selecting him to lead the METRO agency. Mr. Banta thanked his predecessor, Mr. Rick Simonetta, for his successful leadership in constructing the 20-mile alignment. He also acknowledged the METRO Board and staff for completing

7 METRO Board of Directors Meeting Minutes January 20, 2010 Page 2 of 7 the project on time and on budget and noted that the $1.4 billion investment has also generated millions of dollars in economic developments. Mr. John Farry, Director of Community and Government Relations, provided the following updates: Regional Transit Planning Roles and Responsibilities: Maricopa Association of Governments (MAG), Regional Public Transportation Authority (RPTA), METRO, and City of Phoenix have been working together to consolidate the regional transit planning roles and responsibilities. A memo provided to the Board outlined the action taken at the January 19 MAG Regional Council Executive Committee meeting which resulted in the following: Develop MOU between the agencies to outline and develop the roles and responsibilities process Provide RPTA Board an opportunity to consider the item Present the MOU to the February MAG Regional Council for approval Mayor Hallman added that the METRO Board and Mr. Banta have an opportunity to weigh in on how the merger takes place and be part of the MOU development. Ridership/Revenue: November and December 2009 ridership and revenue were presented to the Board First Year Success: Mr. John Farry, Director of Community and Government Relations, presented an overview of METRO s accomplishments over the past year including: higher than expected ridership, special events, system improvements, US Airways Center ticketing program, Adopt-A-Station program, system advertising, Sky Harbor connection, ASU connection, awards and accolades, future transit corridor milestones. Consent Agenda 5. Approval of the Consent Agenda 5a. Corporate Sponsorship/Naming Rights Consulting Services Contract This item was provided to the Board as an information item. Regular Agenda 6. Fiscal Year 2010 Mid-Year Budget Adjustment Mr. John McCormack, Director of Finance and Administration, provided an overview of the mid-year budget changes. He noted that many of the issues and changes have been reported to the Board in previous meetings. In September staff prepared

8 METRO Board of Directors Meeting Minutes January 20, 2010 Page 3 of 7 recommended changes to address the postponement of the Northwest Extension, modifications to the cost allocation system, new American Recovery and Reinvestment Act (ARRA) funded capital projects, and changes to the Glendale Corridor study. Mr. McCormack stated that this information was shared with the Rail Staff Working Group, Financial Working Group, and the Rail Management Committee of the member cities. IT WAS MOVED BY MAYOR HALLMAN AND SECONDED BY MAYOR DUNN AND UNANIMOUSLY CARRIED TO APPROVE THE UPDATES TO THE METRO FISCAL YEAR 2010 OPERATING AND CAPITAL BUDGET. Mayor Hallman stated that Tempe s concern which has been expressed in the past relates to any excess funding being applied to Concurrent Non-Project Activities (CNPAs). He noted that cost overruns in certain elements of the project should not impact cost savings in other elements. Mayor Hallman announced that Vice Mayor Shana Ellis will represent the City of Tempe at future METRO Board meetings. Mayor Hallman will maintain his seat and attend as the representative when necessary. Chairman Simplot thanked Mayor Hallman for his input, attention to detail, experience and legal background which have been helpful to the Board during the past six year and he will be missed. Chairman Simplot welcomed Vice Mayor Ellis. At 10:15 a.m. Mayor Hallman left the meeting and Vice Mayor Ellis took the City of Tempe seat. 7. Fiscal Year 2011 Rail Operations Budget Preview Mr. McCormack provided a preview of the Fiscal Year 2011 budget including current service frequencies and ridership background information. Due to funding challenges, METRO prepared alternatives for the Board s consideration. He noted that during the process of developing budget cutting options, staff reviewed both internal cost reductions before cutting service. Additionally, service cuts were analyzed by considering lost fare revenue due to decreased ridership. Input will be sought on potential service cuts through a public meeting process.

9 METRO Board of Directors Meeting Minutes January 20, 2010 Page 4 of 7 Mr. McCormack provided an overview of the cost alternative savings to FY2011 budget as shown in the following tables:

10 METRO Board of Directors Meeting Minutes January 20, 2010 Page 5 of 7 Chairman Simplot stated the importance of the late night service for the community and noted that the late night service, which has the least savings, is identified as Alternative #1A and 1B. He stated that he did not see any analysis relating to how the late night service impacts sales tax revenues. He inquired about the possibility of listing late night services with the other alternatives in a nonprioritized list. He also requested information on any cost savings that might be achieved through the reduction of cars per train. Vice Mayor Aames inquired how the ridership reduction numbers were determined. Mr. Wulf Grote, Director of Project Development, stated that the MAG travel forecasting model was used. Mr. Craig Tindal recommended that the late night service reductions not be included in the cost alternatives, unless they were brought up by the community. He noted the importance of providing alternatives to driving under the influence. Vice Mayor Aames agreed that the alternatives not be prioritized but rather presented randomly. Mayor Dunn stated that ultimately the Board has to consider service cuts that include public input. Mayor Dunn inquired about taxi services for the park-and-rides for the late night customers who may be intoxicated. Vice Mayor Jones agreed service change options be listed randomly, in a bullet point fashion, to obtain the public s feedback. Vice Mayor Ellis stated that although City of Tempe s night life is lively, there are workers that work at those establishments that also utilize the light rail as a safer option to get home. Vice Mayor Aames stated that a change from 10 to 12 minute headway may not be as noticeable as much as changing to 15 or 20 minutes. He asked for Mr. Banta s input on these reductions having experience in the industry. Mr. Banta stated that transit systems across the nation are going through tough budgetary times. All of these systems are trying to figure out the best transit option to provide for the customers and the citizens knowing that cuts are likely to occur. It is important to identify any opportunities to save money and not characterize the alternatives in a prioritized list, but list the options and vet them with the community to determine what is important to them since it is a system that transports them and provides them options. If alternatives are listed as 1, 2, 3, one automatically thinks that there are METRO s recommendations. Mr. Banta recommended that hearing opinions from both the community and from the businesses on late night service will be important. Mr. Banta suggested to the Board that he work with staff to develop and frame all the options available for the public input.

11 METRO Board of Directors Meeting Minutes January 20, 2010 Page 6 of 7 Mr. Banta agreed that a customer may not change their travel habits if the service changed from 10 minutes to 12 minutes; however, they may reconsider it if the change is more than five minutes depending on the weather conditions. Mr. Tindal recommended that the Board be able to consider Mr. Banta s revised list of options before taking any action. He also noted that there is a public input deadline that will not allow for consideration of the options at the next regularly scheduled Board meeting. Mr. Banta stated that the input is time sensitive and METRO will work diligently in-house in developing a memo from the CEO to the Board framing METRO s suggestions. He added that at the present time METRO would like to present the options to the public, engage them in a dialogue, and bring the feedback to the Board with a recommendation. Vice Mayor Aames recommended an open-ended discussion versus exposing the public to a concept and then perhaps presenting the options at random. Mr. Tindal recommended this be an information item not an action item and also added that the public should receive some guidance due to the fact that these are highly complex financial processes High Capacity Transit Life Cycle Program Update Mr. Grote provided information regarding the rail element of the High Capacity Transit (HCT) Life Cycle Program. The report is updated annually taking into consideration changes in forecasted revenues and the current status of analysis and information available for each project. The 2010 LRT/HCT Life Cycle Program update, now in progress, will likely consider several key factors, including: Continued reduction in forecasted PTF revenues for the remaining life of the sales tax Adjustment in forecasted inflation rates Adjustment to the typical construction cost per mile of an HCT project Assessment and certification of city funding availability for all HCT project operations, given that the operating costs for all projects will be 100% city funded Assessment and certification of city funds available for capital project costs for corridors utilizing city funds (e.g., Northwest and Glendale Extensions) Reallocation of federal New Starts and CMAQ funding, based upon availability of local/regional matching funds Consideration of METRO s Capital Improvement Forecast, which was prepared in fall 2009 to assess the on-going capital upgrade, expansion, and modernization needs to support the existing 20-mile LRT operation

12 METRO Board of Directors Meeting Minutes January 20, 2010 Page 7 of 7 Assessment of LRT/HCT borrowing requirements and limitations of the RPTA bond finance program. Cooperative planning with RPTA finance staff will optimize bond funding capacity for bus and rail capital projects. The proposed schedule for completion of the FY2010 LRT/HCT Life Cycle Program Update is as follows: January Staff prepares an updated document February METRO RMC and Board approval of LRT/HCT Life Cycle Program March RPTA Board approval of Transit Life Cycle Program April MAG Regional Transportation Plan (RTP) Update. 9. Future METRO Board Agenda Items There were no additional requests for future agenda items 10. Adjournment The meeting adjourned at 10:55 a.m.

13 AGENDA ITEM 5A Valley Metro Rail, Inc. FY2009 Comprehensive Annual Financial Report and Single Audit Act Report

14 AGENDA ITEM 5A To: Through: From: Chairman Simplot and Members of the METRO Board of Directors Stephen R. Banta, Chief Executive Officer John P. McCormack, Director of Finance and Administration Date: February 24, 2010 Re: Valley Metro Rail, Inc., Fiscal Year 2009 Comprehensive Annual Financial Report and Single Audit Act Report PURPOSE The METRO Board (Board) is being requested to accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, BACKGROUND/DISCUSSION In October 2002, the cities of Glendale, Mesa, Phoenix, and Tempe formed Valley Metro Rail, Inc. (METRO), an Arizona public nonprofit corporation. METRO is responsible for the planning, designing, construction, and operation of the Light Rail Transit (LRT) System in the region. The fiscal year ended June 30, 2009 is the sixth full year of operation as a separate entity. The By-Laws of the Corporation require an annual audit to be performed of the financial records by a certified public accountant. In addition, all recipients of federal grant funds are required to have an audit performed in compliance with the Single Audit Act provisions. The reports contained in the attached Comprehensive Annual Financial Report meet these requirements for the period ended June 30, All reports are prepared in conformity with generally accepted accounting principles. METRO is required to have an independent audit of expenditures of federal awards received (Single Audit) directly from federal agencies or passed through by other governmental entities during the period. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the internal control over compliance and other matters having a direct and material impact on major programs, with special emphasis on internal controls and compliance requirements involving the administration of major federal awards. Larson Allen, LLP has completed the METRO audits for the period ended June 30, Completion of the June 30, 2009 financial statement and Single Audit Act audits produced one finding and recommendation with respect to the accounting for capital lease payments.

15 METRO Board of Directors Memo February 24, 2010 Page 2 The finding has resulted in an internal control improvement as follows: For any financing instruments executed in excess of $100,000, staff will prepare an accounting procedure for treatment of the transaction and corresponding book entries. The accounting procedure will be reviewed by an independent CPA and accounting entries will be made in accordance with the procedure. The Finance Staff accepts the auditor s finding and is committed to achieve continuous improvements to METRO's accounting systems in fiscal years 2010 and METRO s Comprehensive Annual Financial Report received an unqualified opinion and demonstrates the commitment to the highest standard of financial reporting for a government entity. Attached you will find a copy of the reports. RAIL MANAGEMENT COMMITTEE CONSIDERATION At its February 17, 2010 Rail Management Committee (RMC) meeting, the RMC recommended that the METRO Board authorize the CEO to accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, RECOMMENDATION Staff is requesting that the Board accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, 2009.

16 VALLEY METRO RAIL, INC. Phoenix, AZ COMPREHENSIVE ANNUAL FINANCIAL REPORT Period Ended June 30, 2009

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18 VALLEY METRO RAIL, INC. Phoenix, Arizona Comprehensive Annual Financial Report For the fiscal year ended June 30, 2009 Prepared by: Finance & Administration Division

19 A METRO three-car train on the Tempe Town Lake Bridge

20 Valley Metro Rail, Inc. Table of Contents Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2009 Introductory Section Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Policy Organizational Chart List of Appointed Officials Page iii ix x xi Financial Section Independent Auditors' Report 1 Management's Discussion and Analysis 3 Basic Financial Statements Statement of Net Assets 9 Statement of Revenues, Expenses and Changes in Fund Net Assets 10 Statement of Cash Flows 11 Notes to the Basic Financial Statements 12 Other Supplementary Information Schedule of Operations - Budget and Actual 24 Statistical Section Financial Trends Net Assets by Component 26 Changes in Net Assets 27 Demographic and Economic Information Growth in Regional Transit Usage Bus and Rail Boardings by Fiscal Year 28 Member Cities' Population Growth 29 Top Employers in Maricopa County 30 System Map - Initial 20-Mile Segment 31 System Map - Northwest Extension 32 Operating Information Full-Time Equivalent Positions 33 Pay Grades and Ranges 35 Schedule of Insurance Coverage 37 Design & Construction Milestones 39

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22 INTRODUCTORY SECTION The Introductory Section includes METRO s transmittal letter, policy organizational chart, and list of appointed officials

23 Train at Central/Washington Station

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31 ASU students boarding train

32 VALLEY METRO RAIL, INC. Policy Organizational Chart Fiscal Year Ended June 30, 2009 x

33 VALLEY METRO RAIL, INC. List of Appointed Officials Fiscal Year Ended June 30, 2009 Board of Directors Board Chairman Board Member Board Member Board Member Board Member Board Member Board Member Councilman Tom Simplot, Phoenix Mayor Hugh Hallman, Tempe Mayor Scott Smith, Mesa Mayor Elaine Scruggs, Glendale Mayor Boyd Dunn, Chandler Mayor Bob Barrett, Peoria Mayor Mary Manross, Scottsdale Executive Management Team Chief Executive Officer Director, Design & Construction Director, Safety, Security, and Quality Assurance Director, Community Relations Director, Project Development Director, Operations & Maintenance General Counsel Director, Finance & Administration Richard J. Simonetta Brian Buchanan Larry Engleman John Farry Wulf Grote Jay Harper Mike Ladino John McCormack xi

34 FINANCIAL SECTION The Financial Section includes the independent auditor s report, Management s Discussion and Analysis (MD&A), the basic financial statements, notes to the basic financial statements and other financial schedules.

35 Super Motor Cross Event at Chase Field

36 INDEPENDENT AUDITORS REPORT To the Members of the Board of Directors Valley Metro Rail, Inc. We have audited the accompanying financial statements of the business-type activities of Valley Metro Rail, Inc. (METRO) as of and for the year ended June 30, 2009, as listed in the table of contents. These financial statements are the responsibility of Valley Metro Rail, Inc. s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Valley Metro Rail, Inc., as of June 30, 2009, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 28, 2010 on our consideration of Valley Metro Rail, Inc. s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 1 LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.

37 To the Members of the Board of Directors Valley Metro Rail, Inc. The management's discussion and analysis on pages 3-8 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise METRO s basic financial statements. The introductory section, other supplementary information and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary has been subject subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Mesa, Arizona January 28, 2010 LarsonAllen LLP 2

38 Valley Metro Rail, Inc. Management s Discussion and Analysis As management of Valley Metro Rail, Inc. (METRO), we offer this narrative overview and analysis of the financial activities of METRO for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iii viii of this report. This discussion and analysis is designed to (1) assist the reader in focusing on significant financial issues, (2) provide an overview of METRO s financial activity, (3) identify changes in METRO s financial position, (4) identify any material deviations from the financial plan (adopted annual budget), and (5) identify other issues or concerns. Financial Highlights METRO s total net assets increased $104.3 million in FY Total net assets for METRO were $1,187.9 million at June 30, With the commencement of rail passenger operations, METRO's primary organizational focus has transformed from construction activities to transportation operation activities. The financial statement presentation in fiscal year 2009 reflects this change, with capital construction revenues and expenses now reporting to non-operating activities. In consideration of the fact that the newly completed light rail construction project ($1.4 billion) was one of the largest in Arizona state history, it is to be expected that operational revenues and expenses will drop sharply with the cessation of construction and the commencement of passenger service delivery. METRO s operating revenues for FY 2009 were $16.9 million, a decrease of approximately $185.6 million from the prior period. Operating revenues consisted of contributions from METRO member cities ($13.5 million) and passenger fares ($3.4 million). Non-Operating expenses: With the reporting change this year of capital revenues and expenses to non-operating activities, this year's non-operating revenues/expenses report a net $20.1 million decrease in net assets, primarily distributions to Member Cities to reimburse construction expenditures. Capital contributions totaled $150.9 million, an increase of approximately $20.4 million from the prior period. Capital contributions consisted of Member City Contributions of $25.4 million, Public Transportation Funds of $52.6 and Federal Transit Administration Capital Grants totaling $72.9 million. OVERVIEW OF THE FINANCIAL STATEMENTS METRO s financial statements are presented in accordance with accounting principles generally accepted in the United States of America ( GAAP ). GAAP requires that the financial statements be accompanied by a narrative introduction and analytical overview of the government s financial activities in the form of Management s Discussion and Analysis (MD&A). The financial section of the Comprehensive Annual Financial Report (CAFR) for METRO consists of this discussion and analysis and the basic financial statements. This report also contains other supplementary schedules presented after the basic financial statements. METRO s basic financial statements include a statement of net assets; a statement of revenues, expenses and changes in net assets; a statement of cash flows; and the notes to the financial statements. METRO s financial statements are prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America promulgated by the Governmental Accounting Standards Board (GASB). 3

39 Valley Metro Rail, Inc. Management s Discussion and Analysis (Continued) Fund Financial Statements METRO is presented as an enterprise fund. Enterprise funds are used for activities that primarily serve customers outside the governmental unit. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or conditions. Funds are used to ensure and demonstrate compliance with finance-related legal requirements as well as for managerial control to demonstrate fiduciary responsibility over the assets of METRO. The statement of net assets presents information on all of METRO s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of METRO is improving or deteriorating. The statement of revenues, expenses and changes in fund net assets presents information showing how the agency s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected grant revenues). Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements and should be read with the financial statements. The notes can be found beginning on page 12. Enterprise Operations METRO was formed in October 2002 by the cities of Glendale, Mesa, Phoenix and Tempe as a public nonprofit corporation to manage design, construction and operation of the Light Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and Peoria became the fifth and sixth contributing member cities in April and July of 2007 respectively, and the city of Scottsdale became the seventh member in April of The member cities pay for their share of METRO s operating expenses based on expense allocation methods approved in the by-laws of METRO. See Note 1 for a summary of METRO s significant accounting policies. FINANCIAL ANALYSIS OF METRO The following tables and analysis discuss the financial position and changes to the financial position for METRO as a whole as of and for the year ended June 30, 2009, with comparative information for the previous period. Net Assets Net assets may serve over time as a useful indicator of METRO s financial position. The following table reflects the condensed Statement of Net Assets as of June 30, 2009, compared to the prior period. VMR's Condensed Statement of Net Assets As of June 30, 2009 and Change Percent Change Current assets $ 159,051,762 $ 247,783,659 $ (88,731,897) -35.8% Noncurrent assets 1,221,349,623 1,083,561, ,787, % Total assets 1,380,401,385 1,331,345,502 49,055, % Current Liabilities 148,135, ,609,942 (99,474,196) -40.2% Noncurrent Liabilities 44,408, ,717 44,235, % Total liabilities 192,544, ,783,659 (55,238,940) -22.3% Invested in Capital Assets, net of related debt 1,181,254,415 1,083,561,843 97,692, % Unrestricted 6,602,253-6,602, % Total Net Assets $ 1,187,856,666 $ 1,083,561,843 $ 104,294, % 4

40 Valley Metro Rail, Inc. Management s Discussion and Analysis (Continued) Total net assets represent the sum of METRO s unrestricted net assets plus investment in capital assets net of accumulated depreciation. The largest portions of the investment are capital assets for the Central Phoenix /East Valley Light Rail Transit Project (CP/EV LRT). At the mid-point of the fiscal year, METRO placed these capital assets into service for operation of the light rail transit system and in day-to-day operations of METRO. It is not METRO s intention to sell these assets and they are therefore not available for future spending. Net assets increased $104.3 million largely due to construction progress on the system during the year funded through capital grants, PTF funds and member city deposits. Changes in Net Assets Total operating revenues, which consist of Contributions from Member Cities, Fare Revenues, and Other Revenues (advertising), decreased $185.6 million: Member City contributions were reduced by $129.8 million and Public Transportation Funds decreased by $58.3 million. This revenue decrease is directly related to the decrease in construction activities planned for the initial 20-mile LRT line, which commenced passenger operating service in January Operating expenses increased by $20.0 million to $43.4 million: The first six months of Passenger Operations generated $15.7 million in new expenditures. Administrative expenditures totaled $5.3 million compared with $5.4 million in the prior year. With the deployment of the LRT system, depreciation expense increased by $20.2 million over the prior period. Capital contributions, which consist of Member City Contributions, FTA capital grants and Public Transportation Funds, increased $20.4 million. The following table compares the revenues and expenses of METRO for the current fiscal year and the previous period. VMR's Changes in Net Assets Fiscal year ended June 30, 2009 and Change Operating revenues: Contributions from Member Cities $ 13,490,504 $ 143,276,140 $ (129,785,636) Passenger Fares 3,371,104-3,371,104 FTA Operating Grants - 953,877 (953,877) Public Transportation Funds - 58,315,376 (58,315,376) Other Revenues 40,000-40,000 Operating revenues 16,901, ,545,393 (185,643,785) Operating expenses: Administrative 5,278,901 5,396,474 (117,573) Passenger Operations Service 15,678,389-15,678,389 Private Utilities Relocations - 15,750,886 (15,750,886) Depreciation 22,437,891 2,231,538 20,206,353 Operating expenses 43,395,181 23,378,898 20,016,283 Operating income (loss) (26,493,573) 179,166,495 (205,660,068) Non-operating revenues (expense) (20,085,202) 91,519 (20,176,721) Deficiency before Capital Contributions (46,578,775) 179,258,014 (225,836,789) Capital Contributions 150,873, ,496,339 20,377,259 Increase in Net Assets 104,294, ,754,353 (205,459,530) Net assets, July 1 1,083,561, ,807, ,754,353 Net assets, June 30 $ 1,187,856,666 $ 1,083,561,843 $ 104,294,823 5

41 Valley Metro Rail, Inc. Management s Discussion and Analysis (Continued) With the transformation of operating expense reporting, with certain construction related expenditures and revenues now reporting to Non-operating activities, an analysis of specific account changes may be useful. The table below illustrates key account activities for the comparable periods: Comparison of Revenue and Expense Accounts Fiscal year ended June 30, 2009 and Change Revenues: Contributions from Member Cities (Operations) $ 13,490,504 Contributions from Member Cities (Capital) 25,381,955 Contributions from Member Cities 38,872, ,276,140 (104,403,681) Federal Transit Administration Operating Grants 650, ,877 (303,385) Public Transportation Funds (Operations) 10,945,204 Public Transportation Funds (Capital) 52,627,944 Public Transportation Funds 63,573,148 58,315,376 5,257,772 Operating Revenues (FY 08 reporting basis) $ 202,545,393 $ (99,449,294) Other Revenues - $ 91,519 $ (91,519) Expenses: Distributions to Member Cities $ 20,078,532-20,078,532 Private Utilities Relocations 9,518,863 15,750,886 (6,232,023) Interest on Capital Lease Obligation 2,083,503-2,083,503 Non-Operating Expenses (FY 09 Reporting basis) $ 31,680,898 $ 15,750,886 $ 15,930,012 Contributions from Member Cities were down $104.4 million primarily due to reduced construction funding requirements for the 20 mile CPEV LRT project. FTA operating grants were down due to completion of the eligible work under the grant. In 2008, the Public Transportation Funds (PTF) received were reported on a combined basis with capital funding included into operations revenue. This year, PTF funds dedicated to capital project expenditures are shown as capital contributions. Overall PTF funds were up by $5.3 million over the prior year. Distributions to Member Cities report the net capital project cost reimbursements in excess of capital contributions for the initial 20-mile LRT line. Under the Design and Construction project agreements, the Member Cities provide project funding to METRO as expenditures are incurred. As federal and regional funding for the capital project is received by METRO, the members receive cash distributions to reimburse the prior expenditures. Net reimbursements for the year totaled $20.1 million. Private utility relocation expenditures are for construction activities which are reported in fiscal year 2009 as non operating expenses. Relocation expenditures are down from $15.8 to $9.5 million due to the wrap up of construction for the 20 mile LRT system. Acceptance and deployment of 14 light rail vehicles during the fiscal year triggered interest expense of $2.1 million. Under the lease obligation, no expense was incurred in FY

42 Valley Metro Rail, Inc. Management s Discussion and Analysis (Continued) CAPITAL ASSETS AND LONG TERM DEBT Capital Assets: The following table provides a breakdown of capital assets of METRO at June 30, 2009, with comparative information for the previous period. Additional information on METRO s capital assets may be found in Note 6. VMR's Capital Assets, Net of Depreciation As of June 30, 2009 and Change Buildings $ 97,611,148 $ 67,108,795 $ 30,502,353 Guideway 545,989, ,989,800 Bridges 60,491,115-60,491,115 Operation Control Center 11,536,240-11,536,240 Passenger Stations & Facilities 96,272,225-96,272,225 Park and Ride Facilities 34,769,334-34,769,334 Electric Power Substations 86,707,115-86,707,115 Signal and Communication System 45,202,398-45,202,398 Computers & software 574, ,789 (277,998) Furniture & fixtures 531, ,090 (160,990) Revenue Vehicles 204,127, ,875,456 87,251,645 Support/Service Vehicles 587, ,471 (58,575) Non-Revenue Vehicles 958, , ,448 Equipment 8,214,895 1,222,755 6,992,140 Construction in Progress 27,776, ,953,882 (868,177,470) Net Capital Assets $ 1,221,349,623 $ 1,083,561,843 $ 137,787,780 As of June 30, 2009, METRO had $1,221.3 million invested in capital assets, net of accumulated depreciation. There was a net increase in capital assets, net of accumulated depreciation, of $137.8 million from June 30, 2008; primarily resulting from the continuing acquisition of equipment and vehicles, the placement into service of the Light Rail System infrastructure with a corresponding reduction to Construction in Progress, and a depreciation charge of $22.4 million. Long Term Debt: During fiscal year 2009, METRO (as Lessee) completed the process of formally accepting 14 Light Rail Vehicles (LRV s) under the terms of a Master Lease/Purchase Financing Agreement dated March 3, 2006, with the City of Phoenix (as Lessor). Under the agreement, the City financed the purchase of the vehicles with payments due from METRO commencing in The capital lease obligation at June 30, 2009 includes $42,186,000 principal and $2,083,503 accrued interest totaling $44,269,503. Refer to Note 9 on page 19 for more information regarding the lease. ECONOMIC FACTORS AND NEXT YEAR S BUDGET METRO s adopted fiscal year 2010 total operating and capital budget is $192.6 million, down $66.6 million from fiscal year 2009 s Budget. The primary cause for the decrease is within the capital budget, due to the planned reduction of construction activities and expenditures for the 20 mile CPEV LRT Project (METRO Initial Segment). On the operating side, METRO s FY10 budget is up with the first full year of passenger revenue operations in FY 2010 versus the inaugural six months of revenue operations in FY

43 Valley Metro Rail, Inc. Management s Discussion and Analysis (Continued) Comparison of Annual Expenditure Budgets Fiscal Year 2010 vs FY 2010 Adopted FY 2009 Amended Change Uses of Funds ($,000) ($,000) ($,000) Capital Projects: 20-Mile METRO Initial Segment 39, ,614 (111,728) Northwest Extension 83,268 42,226 41,042 Non-Prior Rights Utilities Relocations 15,816 16,290 (474) Other Capital Projects: Central Mesa Extension South Tempe Extension I-10 West Extension CNPAs - 20-Mile Initial Segment 1,012 16,085 (15,073) 14 LRV's 2,229 7,142 (4,913) 145, ,358 (88,311) Operating Projects: Revenue Operations 33,733 15,762 17,971 Future Project Development 12,798 8,863 3,935 Agency Operating Budget 982 1,217 (236) 47,513 25,843 21,670 Total Uses of Funds 192, ,201 (66,641) Due to current economic conditions, sales tax revenue collections are down causing funding limitations for the Northwest Extension capital project. In July 2009, the Phoenix City Council acted to suspend construction funding for the Northwest Extension project pending availability of funds. METRO worked with the Member Cities to reduce the FY 2010 capital expenditure and funding budgets in accord with the reduction of construction activities. FINANCIAL CONTACT The financial report is designed to provide a general overview of METRO s finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to METRO s Director of Finance and Administration, Valley Metro Rail, 101 North 1st Avenue, Suite 1300, Phoenix, Arizona

44 BASIC FINANCIAL STATEMENTS

45

46 Valley Metro Rail, Inc. Statement of Net Assets June 30, 2009 Assets Current Assets Cash and Investments $ 6,995,518 Receivables, Net 473,252 Due from Other Governments 137,790,315 Inventory 10,958,640 Restricted Assets 2,090,792 Other Assets 743,245 Total Current Assets 159,051,762 Noncurrent Assets Capital Assets, not being depreciated 27,776,412 Capital Assets, net of accumulated depreciation 1,193,573,211 Total Noncurrent Assets 1,221,349,623 Total Assets and Other Debits 1,380,401,385 Liabilities Current Liabilities: Accounts Payable 19,100,909 Labor Compliance Withholding 18,194 Compensated Absences 593,770 Due to Other Governments 374,160 Unearned Revenue 1,581,474 Member Cities Deposits 126,467, ,135,746 Noncurrent Liabilities: Compensated Absences 139,470 Capital Lease Obligation 42,186,000 Interest payable 2,083,503 Total Liabilities and Other Credits 192,544,719 Net Assets Invested in Capital Assets, Net of Related Debt 1,181,254,415 Unrestricted 6,602,251 Total Net Assets $ 1,187,856,666 9

47 Valley Metro Rail, Inc. Statement of Revenues, Expenses, and Changes in Fund Net Assets Fiscal Year Ended June 30, 2009 Operating Revenues: Contributions from Member Cities $ 13,490,504 Passenger Fares 3,371,104 Other Revenues 40,000 Total Operating Revenues 16,901,608 Operating Expenses: Administrative 5,278,901 Passenger Operations Service 15,678,389 Depreciation 22,437,891 Total Operating Expenses 43,395,181 Operating income (26,493,573) Non-Operating Revenue / ( Expense ): Federal Transit Administration Operating Grants 650,492 Public Transportation Funds 10,945,204 Distributions to Member Cities (20,078,532) Private Utilities Relocations (9,518,863) Interest on Capital Lease Obligation (2,083,503) Total Non-Operating Revenue / ( Expense ): (20,085,202) Deficiency Revenues under Expenses (46,578,775) Capital Contributions: Capital Contributions from Member Cities 25,381,955 Public Transportation Funds Capital 52,627,944 Federal Transit Administration Capital Grants 72,863,699 Total Capital Contributions: 150,873,598 Changes in Net Assets 104,294,823 Net Assets, Beginning of Period 1,083,561,843 Net Assets, End of Period $ 1,187,856,666 10

48 Valley Metro Rail, Inc. Statement of Cash Flows Fiscal Year Ended June 30, 2009 Cash Flows from Operating Activities Receipts from Member Cities $ 13,513,578 Receipts from Maricopa Association of Governments - RARF 480,263 Receipts from Fare Revenues 3,371,104 Other Revenues 40,000 Payments to Suppliers (19,425,115) Net Cash Used in Operating Activities (2,020,170) Cash Flows from Non-Capital Financing Activities Receipts from Maricopa Association of Governments - Federal 650,492 Receipts from Regional Public Transit Authority 9,958,629 Payments for Private Utility Relocations (7,937,055) Other Non-Operating Expenses (1,581,809) Net Cash Provided by Non-Capital Financing Activities 1,090,257 Cash Flows from Capital and Related Financing Activities Capital Contributions from Member Cities 35,281,219 Distributions to Member Cities (20,078,532) Receipts from FTA Capital Grants 95,159,216 Receipts from Regional PTF for Capital 39,739,382 Capital Lease Funding 42,186,000 Payments for Inventory (10,958,640) Payments for Capital Assets (174,044,429) Net Cash Provided by Capital and Related Financing Activities 7,284,216 Net Increase in Cash and Cash Equivalents 6,354,303 Cash and Cash Equivalents, Beginning of Year 641,215 Cash and Cash Equivalents, End of Year $ 6,995,518 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ (26,493,573) Adjustments to Reconcile Operating Income to Net Cash Used in Operating Activities: Depreciation 22,437,892 (Increase) Decrease in Assets: Accounts Receivable (101,587) Due from Other Governments (1,100,678) Other Assets (626,621) Increase (Decrease) in Liabilities: Accounts Payable 3,648,625 Compensated Absences 129,024 Labor Compliance Withholding 10,826 Due to Other Governments 38,583 Unearned Revenue 14,265 Member Cities' Deposits 23,073 Net Cash Used in Operating Activities $ (2,020,170) 11

49 Valley Metro Rail, Inc. Notes to the Financial Statements Fiscal Year Ended June 30, Summary of Significant Accounting Policies The accounting policies of Valley Metro Rail, Inc. (METRO) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. a. Financial Reporting Entity In October 2002, the city councils of Glendale, Mesa, Phoenix and Tempe approved the formation of a public nonprofit corporation by the name of Valley Metro Rail, Inc. The nonprofit corporation was organized under A.R.S and The initial members entered into a Joint Powers Agreement which provides that this Corporation be organized as the instrumentality to plan, design, construct, and operate the Light Rail Transit Project ( LRT ). Prior to October 2002, the Regional Public Transportation Authority (RPTA) performed these roles. METRO contracts with the RPTA for certain administrative functions, including personnel, HR administration, and computer support services. All METRO staff is hired and employed by RPTA but works solely under the direction of Valley Metro Rail, Inc., and its Board of Directors, through a contractual arrangement with RPTA. The Board of Directors of METRO is solely responsible for the governance of LRT and METRO is not a component unit of RPTA; economic resources received by METRO are entirely for the direct benefit of METRO, and RPTA is not entitled to and has no ability to otherwise access any of the economic resources received or held by METRO. b. Basic Financial Statements These financial statements are presented in accordance with GASB Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (GASB No. 34). METRO is engaged only in business-type activities and is required to present the financial statements required for enterprise funds which are part of proprietary funds. METRO does not report any component units. c. Basis of Presentation Proprietary funds account for activities of METRO similar to those found in the private sector, where cost recovery and the determination of net income is useful or necessary for sound fiscal management. The focus of proprietary fund measurement is upon the determination of operating income, changes in net assets, financial position and cash flows. Currently, enterprise funds are the only type of proprietary fund that METRO uses. d. Measurement Focus and Basis of Accounting The Statement of net assets and statement of revenues, expenses and changes in fund net assets are reported using the flow of economic resources measurement focus and accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility 12

50 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2009 requirements imposed by the provider have been met. Such revenue is subject to review by the funding agency, which may result in disallowance in subsequent periods. All of METRO's activities are accounted for in a single proprietary or business-type fund. Proprietary funds distinguish operating revenues and expenses from non-operating items and capital contributions. Operating revenues and expenses generally result from providing services and producing and delivering goods in connecting with a proprietary fund's principal ongoing operations. Revenues and expenses not meeting this definition are reported as either non-operating revenues and expenses or capital contributions. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 generally are followed in the proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments have the option of following subsequent private-sector guidance for the business-type activities, subject to this same limitation. METRO has elected not to follow subsequent private-sector guidance. e. Cash and Investments State statutes authorize METRO to invest in obligations of the U.S. Treasury and any of its agencies, corporations or instrumentalities, collateralized repurchase agreements, and certificates of deposit. METRO s investments are stated at fair value. Fair value is based on quoted market prices as of the valuation date. METRO considers short-term investments in mutual fund-money markets, U.S. Treasury bills and notes with maturities of three months or less at acquisition date to be cash equivalents. f. Receivables Management analyzes receivables periodically to determine the adequacy of the allowance for doubtful accounts. There is no current provision required for possible bad debts. g. Inventory and Prepaid items Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method. Inventories are expensed when the resources are used. h. Capital Assets Capital assets are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year. METRO changed its individual asset capitalization threshold from $1,000 to $5,000 as of July 1, Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair value at the date of donation. 13

51 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2009 METRO capitalizes all costs incurred in connection with the construction of the Central Phoenix/East Valley (CP/EV) 20-mile alignment. The costs for the non-federal agency operating and the initial planning costs of additional extensions are recorded as annual operating expenses. METRO is not the legal owner of any land. The land required for the LRT system is acquired and owned by the Member Cities and is the subject of a long-term use agreement between each City and METRO. Land, subject to the above agreement, is recorded on the books of member cities. At year-end, the value of land acquisitions recorded by the member cities and subject to the use agreements was $133.4 million. Land costs are eligible for FTA Section 5309 reimbursement and are included in METRO s grant requests for reimbursements from the FTA. The costs included as construction in progress consist primarily of project administration, engineering, construction management, utilities relocation, facility construction, equipment procurement, and other costs related to construction. No depreciation is provided on construction in progress until construction is completed and the assets are placed in service. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Useful Life Assets (Years) Buildings 40 Guideway 50 Bridges 30 Operation Control Center 30 Passenger Stations 30 Park and Ride Facilities 15 Electric Power Substations 25 Signal Substations 20 Revenue Vehicles 25 Equipment 7-15 Furniture and fixtures 7-15 Pooled vehicles 4 Computers and software 3 i. Allocation of Costs to Member Cities Design and construction costs to be paid during the fiscal year are allocated to the member cities as follows: i) Regional design and construction costs are allocated based upon the Design and Construction Miles percentage method as stated in the bylaws of the corporation. The components of the LRT that are currently classified as regional are light rail vehicles, the maintenance and storage facility, operations control center, bridge structures, and regional park and ride lots. 14

52 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2009 ii) Local design and construction costs are allocated to the member cities within whose boundaries the LRT Component designed or constructed will be located. Design and construction costs that are not classified as regional are deemed to be local. iii) Under the Design and Construction project agreements, the Member Cities provide project funding to METRO as expenditures are incurred. As federal and regional funding for the capital project is received by METRO, the members receive cash distributions to reimburse the prior expenditures. If a member city s share of the LRT costs for a fiscal year is determined to be less than $50,000, such member city s share of the LRT costs shall be $50,000. The purpose of the Minimum Cost is so that all member cities will contribute to payment of the overhead expense of the Corporation for matters such as the cost of meetings of the Board of Directors, administrative support to the Board of Directors, and support to member cities by the Rail Program Staff. j. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenditures during the reporting financial period. Actual results could differ from these estimates. k. Net Assets METRO s net assets consist of unrestricted net assets and net assets invested in capital assets. 2. Budgetary Basis of Accounting An annual budget of revenues and expenses is prepared and adopted by the Board of Directors each fiscal year. The legal level of budgetary control is the total annual appropriated budget. The annual budget is adopted on the modified accrual basis. Encumbrance accounting is not used and all appropriations lapse at year end. Depreciation expense is not included in the annual budget. Prior to final adoption, a proposed budget is presented to the Board of Directors for review and public comment is received. Final adoption of the budget must be on or before June 30 of each year. During the fiscal year, the Board of Directors modified the original budget. A schedule of operations versus original budget, final budget, and actual is presented as supplementary information. See Page

53 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Cash and Investments Cash deposits and investments at June 30, 2009, consisted of the following: Cash on hand $ 158,802 Insurance Trust Fund 50,001 Investments in repurchase agreements 6,786,715 Total cash and investments $ 6,995,518 METRO has deployed Ticket Vending Machines (TVM s) which contain coin and bill vaults to accommodate the purchase of fares. At June 30, 2009, the total cash contained in the coin and bill vaults totaled $162,249. METRO's bank deposits at June 30, 2009, had a carrying value of (3,447) and the bank ledger balance was $545,120. The difference of $548,567 represents deposits in transit and outstanding checks. Of the bank balance, $545,120 was covered by federal depository insurance. The Self Insurance Reserve Trust Account totaling $50,001 was covered by collateral held by the pledging financial institution in METRO s name. Investment balances at June 30, 2009 were as follows: Fair Value Repurchase agreements $ 6,786,715 Interest Rate Risk. METRO does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. During FY 2009 all investment durations were shorter than 90 days. Credit Risk. State Statutes authorize METRO to invest in obligations of the U.S. Treasury and any of its agencies, corporations or instrumentalities, collateralized repurchase agreements and certificates of deposit. METRO has no investment policy that would further limit its investment choices. METRO s repurchase agreement did not receive a credit quality rating from a national rating agency. Concentration of Credit Risk. METRO places no limit on the amount it may invest in any one issuer. Historically, METRO has limited its investments to collateralized repurchase agreements. METRO s repurchase agreement is collateralized by $6,786,715 in securities held by the pledging financial institution in METRO s name 16

54 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Accounts Receivable and Due From Other Governments All receivable balances at June 30, 2009 are displayed on the financial statements and are expected to be collected in full; therefore, an allowance for uncollectibles has not been recorded. Due from other governments consists of Federal receivables ($108.2 million) due from the City of Phoenix as Grantee of Federal Funds, PTF receivable ($18.1 million) due from Regional Public Transportation Authority (RPTA), unbilled member cities contributions ($11.4 million), and miscellaneous receivables ($.049 million). City of Phoenix (Grantee of Federal funds) $ 108,200,822 Public Transportation Funding 18,057,786 City of Mesa 259,193 City of Phoenix 9,799,882 City of Tempe 1,369,811 City of Glendale 12,710 Maricopa Association of Governments 42,912 Arizona State University 5,670 Regional Public Transportation Authority 41,529 $ 137,790,315 Public Transportation Funding is discussed more fully in Note 16. The amount due from Regional Public Transportation Authority is discussed more fully in Note Restricted Assets Certain assets of Valley Metro Rail, Inc. are set aside for repayment due to outside restrictions imposed on those funds. Unspent capital lease proceeds in the amount of $2,090,792 are set-aside for use in the upcoming fiscal year for the acquisition of spare part accessories for fourteen light rail vehicles which are financed under the lease. The Capital Lease Obligation is discussed in Note 9. 17

55 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Capital Assets Capital asset and construction in progress activity for the year ended June 30, 2009 were as follows: Balances, Balances, July 1, 2008 Increases Decreases June 30, 2009 Nondepreciable assets: Construction in progress $ 895,953,882 $ 171,077,226 $ (1,039,254,696) $ 27,776,412 Depreciable assets: Buildings 69,874,668 32,657, ,532,106 Guideway - 551,504, ,504,848 Bridges - 61,516,388-61,516,388 Operation Control Center - 11,731,770-11,731,770 Passenger Stations & Facilities - 97,903,958-97,903,958 Park and Ride Facilities - 35,968,277-35,968,277 Electric Power Substations - 88,476,648-88,476,648 Signal and Communication System - 46,361,434-46,361,434 Computers & software 1,155, ,087-1,262,341 Furniture & fixtures 1,126, ,126,927 Revenue Vehicles 116,875,456 93,802, ,678,174 Support/Service Vehicles 719, ,709 Non-Revenue Vehicles 282, ,364-1,151,194 Equipment 1,528,000 7,504,211-9,032,211 Total depreciable assets at historical cost 191,562,844 1,028,403,141-1,219,965,985 Less accumulated depreciation for: Buildings (2,765,873) (2,155,085) - (4,920,958) Guideway - (5,515,048) - (5,515,048) Bridges - (1,025,273) - (1,025,273) Operation Control Center - (195,530) - (195,530) Passenger Stations - (1,631,733) - (1,631,733) Park and Ride Facilities - (1,198,943) - (1,198,943) Electric Power Substations - (1,769,533) - (1,769,533) Signal Substations - (1,159,036) - (1,159,036) Computers & software (302,465) (385,085) - (687,550) Furniture & fixtures (434,837) (160,990) - (595,827) Revenue Vehicles - (6,551,073) - (6,551,073) Support/Service Vehicles (73,238) (58,575) - (131,813) Non-Revenue Vehicles (73,225) (119,916) - (193,141) Equipment (305,245) (512,071) - (817,316) Total accumulated depreciation (3,954,883) (22,437,891) - (26,392,774) Total capital assets being depreciated 187,607,961 1,005,965,250-1,193,573,211 Business-type activities capital assets, net $ 1,083,561,843 $ 1,177,042,476 $ (1,039,254,696) $ 1,221,349, Member Cities Deposits The member cities advance monies to cover the federal share and local share of project costs. In addition, unpaid project expenses fundable by member cash deposit contributions are accrued for each city. A summary of member cities deposits at June 30, 2009 follows: City of Chandler $ 65,264 City of Mesa 9,479,140 City of Peoria 55,074 City of Phoenix 91,635,022 City of Tempe 25,200,163 City of Scottsdale 32,576 $ 126,467,239 18

56 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Operating Leases METRO leases office space under various operating lease agreements. Total rent expenditures for these leases were $1,193,902 for the fiscal year ended June 30, Future minimum lease payments under non-cancelable operating leases are: 9. Capital Lease Obligation: Operating Leases as of Year Ending June $ 1,205, ,204, ,178, ,197, ,225,651 Thereafter 2,536,812 $ 8,548,769 During fiscal year 2009, METRO (as Lessee) completed the process of formally accepting 14 Light Rail Vehicles (LRVs) under the terms of a Master Lease/Purchase Financing Agreement dated March 3, 2006, with the City of Phoenix (as Lessor). The assets acquired through the capital lease are as follows: Asset: Unspent Lease Proceeds $ 2,090,792 Revenue Vehicles 40,095,208 Less Accumulated Depreciation (801,904) Total $ 41,384,096 Amortization expense on the capital lease is included in depreciation expense. The following table presents the changes in the capital lease obligation for fiscal year 2009: July 1, 2008 Increases Decreases June 30, 2009 Amount Due in One Year Capital Lease Obligation $ - $ 42,186,000 $ - $ 42,186,000 $ - Acceptance of the LRVs commenced the term of this agreement and obligated rent payments totaling approximately $56,300,000, beginning with the first $10,000,000 payment due on June 1,

57 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2009 Schedule of Capital Lease Payable as of Year ending June 30 Principal Interest 2010 $ - $ 4,167, ,000,000 2,083, ,000,000 2,827, ,000,000 1,954, ,186,000 1,013,886 $ 42,186,000 $ 12,047,032 For Fiscal Year 2009, Capital Lease Interest expense totaling $2,083,503 was accrued under the Master Lease Agreement. The Capital Lease obligation at June 30, 2009 includes $42,186,000 principal and $2,083,503 accrued interest totaling $44,269, Compensated Absences The following presents the changes in compensated absences for the fiscal year ended June 30, 2009: July 1, 2008 Increases Decreases June 30, 2009 Compensated absences $ 604, ,179 (474,154) $ 733,240 The portion of compensated absences payable within one year is $593, Contractual and Other Commitments METRO has entered into various contractual agreements for engineering services, project management, construction administration, light rail vehicles, construction, operations services, legal services and artists. At June 30, 2009, METRO had outstanding contractual commitments for these services aggregating approximately $88.5 million. These commitments have not been recorded in the accompanying financial statements. Only the currently payable portions of these contracts have been included in accounts payable in the accompanying financial statements. Subsequent to June 30, 2009, METRO entered into approximately $1.7 million additional contractual commitments. Contractor Commitment Spent-to-date Remaining Parson Brinckerhoffer - Prelim Engineering $ 25,054,938 $ 25,054,938 $ - PB Americas, Inc. - Final Design / DSDC 108,240, ,108, ,626 HDR/S.R. Beard - Program Management 52,000,000 51,323, ,879 PBS&J/PGH Wong - Construction Mgmt 57,281,460 57,072, ,064 Various - Facilities Construction 544,540, ,209,569 5,331,360 Various - System Elements 235,601, ,991,864 15,609,744 Various - Public Art Program 6,283,133 5,864, ,322 Various - Owner Furnished Materials 33,362,518 33,180, ,894 Various - Operations & Maintenance 61,017,099 19,674,892 41,342,207 Various - Misc. Construction & Services 16,324,992 7,168,523 9,156,469 Sundt - NW Ext 2,999, ,959 2,231,441 AE Com - NW Ext 14,970,624 12,570,398 2,400,226 Various - Future Extensions 39,708,178 28,901,387 10,806,791 $1,197,385,193 $1,108,889,170 $88,496,023 20

58 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Risk Management METRO is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to contracted labor; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. METRO purchases insurance coverage for property, general liability, excess liability, automobile liability, umbrella liability, public entity employment practices liability, public entity management liability, boiler and machinery, crime, inland marine, owner s protective professional indemnity, environmental site protection, contractor s environmental protection and excess liability. In addition, the RPTA purchases workers compensation, employee life insurance, health and dental insurance coverage for all LRT full-time employees. Settled claims for these risks have never exceeded commercial insurance limits. METRO s environmental site protection, contractors environmental protection and excess liability policies were purchased in June 2004 for coverage through See schedule of insurance on page Contingencies o In December 2008, METRO received a claim from one of its Line Section contractors (Herzog Contracting Corporation HCC.) in the amount of $18,682,126 for delays and disruptions to the project allegedly caused by METRO in the period between July 1, 2006 and April 30, On May 19, 2009 METRO issued a final decision in the matter finding that HCC was entitled to no more that $2,500,000 for METROcaused delays and disruptions through April 8, 2009 (the date the project was completed). The HCC claim involves complex questions of fact and law. After receiving a preliminary, independent analysis METRO believes that the HCC claim is without substantial merit. Settlement of the claim is to be funded by previously committed federal and member city funding sources. METRO believes that the further processing of the claim will not have a material effect on METRO s financial affairs. o As a subrecipient of federal grant monies, amounts passed through or receivable from other agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although METRO expects such amounts, if any, to be immaterial. o Prior to the incorporation of METRO in October 2002, the RPTA made investment decisions on behalf of METRO. On November 22, 2002, the Arizona State Treasurer s Office informed participants in the Local Government Investment Pool (LGIP) that it currently holds asset-backed securities administered by National Century Financial Enterprises (NCFE). These securities, which total approximately $131 million of the total $4 billion in the LGIP, are backed by payments from Medicare/Medicaid and other creditworthy issuers. RPTA s proportional share of the $131 million was $223,150, of which $88,791 is invested on behalf of METRO. NCFE has filed bankruptcy and is under investigation by the Federal Bureau of Investigation and the Securities and Exchange Commission. RPTA has joined in a 21

59 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, 2009 lawsuit with 93 other Arizona governmental entities and 90 other plaintiffs against several parties in an effort to recover the investment. No collections were received from the NCFE receivable during fiscal year ended June 30, The $41,529 receivable is recorded as due from other governments with an offsetting reserve of ($41,529) recorded to due to other governments. 14. Related Party Transactions The seven members of METRO s Board of Directors are also members of the fourteenmember RPTA Board of Directors. METRO has entered into contracts with the RPTA for certain administrative functions, including personnel, administration, financial and accounting services, purchasing, and computer support services. All METRO staff is hired and employed by RPTA but works solely under the direction of the METRO and its Board of Directors, through a contractual arrangement with RPTA. For the period July 1, 2008 through June 30, 2009, METRO paid $8,616,062 for services provided by RPTA. 15. Arizona State Retirement System Plan Description METRO contributes to a cost-sharing multiple-employer defined benefit pension plan administered by the Arizona State Retirement System. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The system is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The System issues a comprehensive annual financial report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ or by calling (602) or (800) Funding Policy - The Arizona State Legislature establishes and may amend active plan members' and the METRO s contribution rate. For the year ended June 30, 2009, active plan members and METRO were each required by statute to contribute at the actuarially determined rate of 9.45 percent (7.92 percent retirement, 1.03 percent health plan, and 0.50 percent long-term disability) of the members' annual covered payroll. METRO s contribution to the System for the year ended June 30, 2009 and 2008 was $542,466 and $413,003 respectively, which was equal to the required contributions for the year. Schedule of Retirement and Long Term Disability Benefits Accrued Health Benefit Long-Term Years ended June 30, Retirement Supplement Disability Total Fund Fund Fund Benefits 2009 $ 454,638 $ 59,126 $ 28,702 $ 542, ,320 45,172 21, , ,548 39,669 19, ,474 22

60 Valley Metro Rail, Inc. Notes to the Financial Statements (Continued) Fiscal Year Ended June 30, Public Transportation Funding In November 2004, the voters of Maricopa County approved Proposition 400, the continuation of the transportation tax, for a twenty year period beginning in calendar year On August 14, 2006, METRO and RPTA executed an intergovernmental agreement (IGA) that formally designated METRO as Lead Agency to plan, design, and construct the light rail transit (LRT) program. Among other things, the IGA specifies that RPTA will reimburse METRO, from the Public Transportation Fund, for eligible incurred expenses. Valley Metro Rail began receiving Public Transportation Funding (PTF) in March These monies are used to reimburse private utility companies for costs incurred in the relocation of non-prior rights utilities, to reimburse Member Cities for their share of local costs incurred in connection with the acquisition of certain regional transportation assets, and to fund the local share of future light rail extensions as designated in the Regional Transportation Plan. The components of the LRT system that are currently classified as regional transportation assets are light rail vehicles, the maintenance and storage facility, the operations and control center, bridge structures, and regional park and rides. Public Transportation Fund Expenses (LRT Portion) Fiscal Year ended June 30, 2009 LRT PTF Expenditures: $ in Millions Non Prior Rights Utility Relocations: 20 Mile Initial Segment 7.64 Northwest Extension Phase I 1.47 Regional Asset Reimbursements: CPEV - 20 Mile Initial Segment Phoenix Tempe Mesa 1.94 Northwest Extension (Phoenix) 0.42 Project Development and Planning 0.95 Total LRT PTF Expenditures In June 2009, the Regional Public Transportation Authority (RPTA) issued Transportation Excise Tax Revenue Bonds in the amount of $100,075,000. A portion of the bonds will pay or reimburse LRT capital expenditures as designated in the Regional Transportation Plan. 23

61

62 OTHER SUPPLEMENTARY INFORMATION This Section includes the Schedule of Operations Budget and Actual.

63 Price and 101 Riders Purchasing Tickets

64 Valley Metro Rail, Inc. Schedule of Operations - Budget and Actual Fiscal Year Ended June 30, 2009 Variance with Budgeted Amounts Actual Amounts Final Budget Original Final (Budgetary Basis) Over (Under) Operating Revenues: Contributions from member cities $ 57,552,081 $ 32,598,369 $ 72,357,325 $ 39,758,955 Passenger fares 4,494,963 4,494,963 3,371,104 (1,123,859) Federal Transit Administration grants 96,806,000 96,806,000 95,809,708 (996,292) Public Transportation Funds 83,784, ,501,481 63,573,148 (59,928,333) MAG/RPTA Grants 1,500,000 1,350, ,492 (699,508) Contributions from Others 450, ,000 40,000 (410,000) Total operating revenues 244,587, ,200, ,801,777 (23,399,037) Operating Expenses: Engineering and design consultants 17,561,363 18,061,363 12,116,692 (5,944,671) Project management consultants 4,375,000 4,375,000 3,300,087 (1,074,913) Construction administration consultants 21,185,000 23,485,000 23,377,790 (107,210) Art design consultants 1,225,000 2,333,000 1,541,662 (791,338) Planning and environmental consultants 9,834,000 7,734,000 4,120,241 (3,613,759) Facilities Construction 47,894,002 63,187,000 59,659,307 (3,527,693) Administrative 13,289,509 14,531,509 13,091,530 (1,439,979) Capital Outlay 331, ,700 1,272, ,705 Real estate/row Acquisition 30,536,000 25,900,000 41,652,886 15,752,886 Light Rail Vehicles 33,142,112 27,164,112 17,742,332 (9,421,780) LRT Startup 8,025,000 10,471,029 6,958,846 (3,512,183) Private Utilities Relocation 14,000,000 18,400,000 10,724,423 (7,675,577) Finance Costs 27,464,693 27,464,693 24,543,004 (2,921,689) Rail Operations Expense 15,723,948 15,762,407 15,700,572 (61,835) Total operating expenses 244,587, ,200, ,801,777 (23,399,036) Explanation of Differences between Budgetary Basis and GAAP Basis Total Operating Expenses - Budgetary Basis 235,801,777 Total Operating Expenses - GAAP Basis 43,395,181 Budgetary Operating Expenses in Excess of GAAP Operating Expenses 192,406,596 Change in Net Assets (capitalized on a GAAP basis and expensed on a budgetary basis) 171,077,226 Less Net Asset additions Financed by Capital Lease (not expensed on a budgetary basis) (40,095,208) Member funded finance costs (budgeted expenses not included in GAAP basis) 12,271,502 Member-owned real estate/row acquisitions (budgeted expenses not included in GAAP basis) 41,652,886 Concurrent Non-Project Activities (budgeted expenses not included in GAAP basis) 20,378,837 Private Utilities Relocations (budgeted expenses not included in GAAP basis) 9,518,863 All Other Adjustments 40,381 Depreciation (GAAP expenses not included in budgetary basis) (22,437,891) Total Reconciling Items 192,406,596 This schedule is prepared on a budgetary basis for the operating accounts of the proprietary fund and as such does not present the results of operations on the basis of generally accepted accounting principles, but is presented for supplemental information. In the current year, GAAP basis operating costs are $43.4 million, or $192.4 million less than the budgetary basis costs of $235.8 million. The primary differences between these two bases of reporting are: 1.) Capital project costs that are included in budgeted costs but added to construction-in-progress for GAAP purposes ($170.4 million) net of (-$40.1 million) net assets funded by lease; 2.) Finance and real estate/row acquisition costs that are budgeted but not booked for GAAP purposes ($12.3 and $41.7 million); 3.) Concurrent non-project activities and Private utility relocations that are included in the budget but not on a GAAP basis ($20.4 and $9.5 million); and 4.) Depreciation included for GAAP but not budget ($-22.4 million). 24

65 Interior of Vehicle with Riders

66 STATISTICAL SECTION The Statistical Section includes selected financial and demographic information regarding METRO, including financial trends, revenue capacity, demographic and economic information, and operating information.

67 Train at Sycamore and Main Station in Mesa, AZ

68 Statistical Section Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2009 This part of METRO's comprehensive financial report presents information as a context for understanding what the information in the financial statements, footnotes, and supplementary information says about METRO's overall financial condition. METRO's prinicipal activities consist of planning, designing, constructing and operating the light rail transit system in Maricopa County, Arizona. Contents Page Financial Trends 26 These schedules contain trend information to help the reader understand how METRO's financial performance and well-being have changed over time. Revenue Capacity METRO's principal revenue source is contributions from Member Cities. Debt Capacity METRO has no current bond indebtedness. N/A N/A Demographic and Economic Information 28 These schedules offer demographic and economic indicators to help the reader understand the environment within which METRO's financial activities take place. Operating Information 33 These schedules contain service and infrastructure data to help the reader understand how the information in METRO's financial report relates to the services METRO provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. METRO's first financial reporting as a separate entity was for the intial period ended June 30, 2003.

69 Valley Metro Rail, Inc. Net Assets by Component FY 00/01 through FY 08/09 (1) FY 00/01 FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 Business-type activities Invested in capital assets (2) $ 55,850 $ 97,143 $ 255,143 $ 57,341,840 $ 235,905,852 $ 460,380,300 $ 773,807,490 $ 1,083,561,843 $ 1,181,254,415 Restricted Unrestricted ,602,251 Total business-type activities net assets $ 55,850 $ 97,143 $ 255,143 $ 57,341,840 $ 235,905,852 $ 460,380,300 $ 773,807,490 $ 1,083,561,843 $ 1,187,856,666 Source: Valley Metro Rail, Inc. Finance Division (1) Valley Metro Rail, Inc. was established in October All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transportation Authority (RPTA). The amounts shown here for FY 02/03 were reported in both the RPTA and METRO financial records and were combined to show the complete rail transit amount. (2) CP/EV LRT project costs incurred prior to July 1, 2004, for project preliminary engineering and project management totaling $77.1 million paid for by member cities or federal grants were contributed to METRO during the fiscal year ended June 30, Prior to FY 04/05, these amounts were included in Administration and Planning Services. 26

70 Valley Metro Rail, Inc. Changes in Net Assets FY 99/00 through FY 08/09 (1) FY 00/01 FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 Operating Revenues Contributions from Member Cities $ 3,739,531 $ 5,323,908 $ 28,353,274 $ 14,141,126 $ 27,692,841 $ 75,672,696 $ 156,033,959 $ 143,276,140 $ 13,490,504 Passenger Fares 3,371,104 Federal Transit Administration Operating Grants 8,177,395 11,437,481 6,237,102 48,497,109 74,819, ,717, ,442, ,877 - Sales Tax (RARF) Public Transportation Funds ,700,029 57,160,186 58,315,376 - Other Revenues ,000 Total operating revenues 11,916,926 16,761,389 34,590,376 62,638, ,512, ,090, ,636, ,545,393 16,901,608 Operating Expenses Administration and Planning Services (2) 11,916,926 16,725,821 34,398,920 5,434,775 1,001,016 1,829,944 5,709,157 5,396,474 5,278,901 Passenger Operations Service ,678,389 Private Utilities Relocations ,700,029 39,212,754 15,750,886 - Depreciation - 39,765 63, , , ,644 1,389,987 2,231,538 22,437,891 Total operating expenses 11,916,926 16,765,586 34,462,356 5,552,481 1,137,960 13,716,617 46,311,898 23,378,898 43,395,181 Operating income (loss) - (4,197) 128,020 57,085, ,374, ,373, ,324, ,166,495 (26,493,573) Non-Operating Revenues (Expense) Federal Transit Administration Operating Grants ,492 Public Transportation Funds ,945,204 Interest on Investments - 45,490 29, , , ,888 91,519 - Distributions to Member Cities (20,078,532) Private Utilities Relocations (9,518,863) Interest on Capital Lease obligation (2,083,503) Total non-operating revenues (expense) - 45,490 29, , , ,888 91,519 (20,085,202) Capital Contributions Federal Transit Administration Capital Grants ,496,339 72,863,699 Contributions from Member Cities 55, ,381,955 Public Transportation Funds Capital ,627,944 Donated Engineering (3) ,109, Increase in net assets $ 55,850 $ 41,293 $ 158,000 $ 57,086,697 $ 178,564,012 $ 224,474,448 $ 313,427,190 $ 309,754,353 $ 104,294,823 Source: Valley Metro Rail, Inc Finance Division (1) Valley Metro Rail, Inc. was established in October All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transportation Authority (RPTA). The amounts shown here for FY 02/03 were reported in both RPTA and METRO financial records and were combined to show the complete transit amount. (2) Prior to FY 04/05, all CP/EV project costs, except for the cost of computers, equipment, and certain other capital assets, were recorded as operating expenses. (3) CP/EV LRT project costs incurred prior to FY 04/05 for project preliminary engineering and project management were contributed to METRO during FY 04/05. These costs, totaling $77.1 million, were originally paid for by member cities or federal grants and were included in Administration and Planning Services expenses for the year incurred. 27

71 Valley Metro Rail, Inc. Growth in Regional Transit Usage Regional Bus and Rail Boardings Last Ten Fiscal Years Fiscal Year Boardings Change ,496, % ,011, % ,103, % ,319, % ,013, % ,358, % ,253, % ,020, % ,866, % ,251, % Valley Metro Regional Bus and Rail Boardings by Fiscal Year Fixed Route System Five Year Growth rate 26.4% 75,000,000 70,000,000 65,000,000 Rail Boardings Bus Boardings 71,251,664 60,000,000 56,358,335 55,000,000 Annual Rides 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000, Fiscal Year Source: Regional Public Transportation Authority 28

72 Valley Metro Rail, Inc. Member Cities Population Growth Last Ten Fiscal Years Year Chandler Glendale Mesa Peoria Phoenix Scottsdale Tempe , , , ,364 1,289, , , , , , ,432 1,352, , , , , , ,655 1,375, , , , , , ,815 1,455, , , , , , ,805 1,492, , , , , , ,045 1,525, , , , , , ,125 1,560, , , , , , ,227 1,595, , , , , , ,227 1,630, , , , , , ,560 1,561, , ,641 1,800,000 Valley Metro Rail, Inc. Member Cities' Population Growth 1,600,000 1,400,000 1,200,000 Population 1,000, , , , , For the Years 2000 through 2009 Chandler Glendale Mesa Peoria Phoenix Scottsdale Tempe Source: Maricopa Association of Governments 29

73 Valley Metro Rail, Inc. Top Employers in Maricopa County For the Fiscal Year Ended June 30, Employer Employees Rank % of Total Employees Rank % of Total State of Arizona 50, % 63, % Wal-Mart 32, % 11, % Banner Health Systems 23, % 9, % City of Phoenix 17, % 13, % Maricopa County 14, % 12, % Wells Fargo 14, % Arizona State University 13, % Honeywell Aerospace 12, % US Postal Service 10, % 10, % Bashas' Inc. 10, % Motorola, Inc. 18, % Banc One Corp 9, % American Express 9, % Allied Signal 9, % Employees (000s) State of Arizona Wal-Mart Banner Health Systems City of Phoenix Maricopa County Wells Fargo Ai Arizona State t University it Honeywell Aerospace US Postal Service Fry's Food & Drug Source: Phoenix Business Journal Book of Lists; Greater Phoenix Economic Council; Arizona Department of Economic Security. 30

74 Valley Metro Rail, Inc. Initial 20-Mile Segment Initial 20-Mile Segment Source: Valley Metro Rail, Inc Project Development Division 31

75 Valley Metro Rail, Inc. Northwest Extension Northwest Extension Source: Valley Metro Rail, Inc Project Development Division 32

76 Valley Metro Rail, Inc Full-Time Equivalent Positions Source: Valley Metro Rail, Inc Finance and Administration Division Authorized FTEs Grade RPTA Position Titles FY 2006 FY 2007 FY 2008 FY 2009 III Administrative Support Assistant IV Accounting Technician Administrative Assistant VI Paralegal TES Worker 3 VII Accountant I Executive Assistant Materials Handler 1 Network Support Specialist 1 Planner I Procurement Specialist Systems Electronic/Communications Maintainer 6 TES Maintainer 3 Track Maintainer 6 VIII Document Control Supervisor Executive Administrative Coordinator Information Technology Systems Specialist Maintenance Scheduling 1 Materials/Warranty Coordinator Sr Communications Specialist Utility Relocation Specialist Warranty Administrator 1 IX Accountant II Area Coordinator Contract Administrator Planner II Supervisor, Facility Maintenance 1 Supervisor, Track Maintenance 1 Systems Electronic/Communications Technician 4 TES Lead 3 X Lead Technician Network Systems Engineer 1 Program Control Specialist Senior Contract Administrator Signals/Communications Maintenance Supervisor 1 TES Supervisor 1 XI Public Arts Administrator Public Information Officer 1 Rail DBE Program Manager

77 Valley Metro Rail, Inc Full-Time Equivalent Positions Source: Valley Metro Rail, Inc Finance and Administration Division Authorized FTEs Grade RPTA Position Titles FY 2006 FY 2007 FY 2008 FY 2009 XII Communications Manager Rail Marketing Manager Rail Public Involvement Manager Rail Real Estate Manager Rail Senior Engineer (PE) Rail Senior LRV Engineer (PE) Rail Senior Program Control Specialist Rail Utility Manager XIII Contracts and Procurement Manager Finance and Budget Manager Manager of Construction Manager, Systems and Facility Maintenance Rail Capital Project Schedule Manager Rail Maintenance Manager Rail Operations Manager Rail Project Manager, Facilities Engineer Rail Project Manager, Planning Rail Quality Assurance Manager XIV Rail O & M Startup/Activation Manager Rail Safety and Security Chief Rail Systems Engineering Manager XV Rail Community Relations Director Rail Finance & Administration Director Rail Safety, Security, and Quality Director XVI Rail Design & Construction Director Rail General Counsel Rail Operations & Maintenance Director Rail Project Development Director 1 ED Rail Chief Executive Officer

78 Valley Metro Rail, Inc. Schedule of FY 2009 Adopted Pay Grades and Ranges For the Fiscal Year Ended June 30, 2009 Grade RPTA Position Titles Pay Range III Administrative Support Assistant $27,626 - $41,439 IV Accounting Technician $30,696 - $46,043 Administrative Assistant $30,696 - $46,043 VI Paralegal $37,142 - $55,712 TES Worker $37,142 - $55,712 VII Accountant I $40,856 - $61,284 Executive Assistant $40,856 - $61,284 Materials Handler $40,856 - $61,284 Network Support Specialist $40,856 - $61,284 Planner I $40,856 - $61,284 Procurement Specialist $40,856 - $61,284 Systems Electronic/Communications Maintainer $40,856 - $61,284 TES Maintainer $40,856 - $61,284 Track Maintainer $40,856 - $61,284 VIII Document Control Supervisor $44,942 - $67,413 Executive Administrative Coordinator $44,942 - $67,413 Information Technology Systems Specialist $44,942 - $67,413 Maintenance Scheduling $44,942 - $67,413 Materials/Warranty Coordinator $44,942 - $67,413 Utility Relocation Specialist $44,942 - $67,413 Warranty Administrator $44,942 - $67,413 IX Accountant II $49,435 - $74,154 Area Coordinator $49,435 - $74,154 Contract Administrator $49,435 - $74,154 Planner II $49,435 - $74,154 Supervisor, Facility Maintenance $49,435 - $74,154 Supervisor, Track Maintenance $49,435 - $74,154 Systems Electronic/Communications Technician $49,435 - $74,154 TES Lead $49,435 - $74,154 X Lead Technician $54,380 - $81,569 Network Systems Engineer $54,380 - $81,569 Program Control Specialist $54,380 - $81,569 Senior Contract Administrator $54,380 - $81,569 Signals/Communications Maintenance Supervisor $54,380 - $81,569 TES Supervisor $54,380 - $81,569 XI Public Arts Administrator $59,818 - $89,726 Public Information Officer $59,818 - $89,726 Rail DBE Program Manager $59,818 - $89,726 Source: Valley Metro Rail, Inc Finance and Administration Division 35

79 Valley Metro Rail, Inc. Schedule of FY 2009 Adopted Pay Grades and Ranges For the Fiscal Year Ended June 30, 2009 Grade RPTA Position Titles Pay Range XII Marketing Manager $65,799 - $98,698 Rail Public Involvement Manager $65,799 - $98,698 Rail Real Estate Manager $65,799 - $98,698 Rail Senior Engineer (PE) $65,799 - $98,698 Rail Senior Program Control Specialist $65,799 - $98,698 Rail Utility Manager $65,799 - $98,698 XIII Contracts and Procurement Manager $72,379 - $108,568 Finance and Budget Manager $72,379 - $108,568 Manager, Signals, Communications, and Traction Power $72,379 - $108,568 Rail Manager of Construction $72,379 - $108,568 Rail Schedule Manager - CP $72,379 - $108,568 Rail Maintenance Manager $72,379 - $108,568 Rail Operations Manager $72,379 - $108,568 Rail Project Manager, Facilities Engineer $72,379 - $108,568 Rail Project Manager, Planning $72,379 - $108,568 XIV Rail O & M Startup/Activation Manager $81,992 - $122,987 Rail Systems Engineering Manager $81,992 - $122,987 XV Rail Community Relations Director $106,589 - $143,874 Rail Finance & Administration Director $106,589 - $143,874 Rail Safety, Security, and Quality Assurance Director $106,589 - $143,874 XVI Rail Design & Construction Director $117,246 - $165,355 Rail Operations & Maintenance Director $117,246 - $165,355 Rail General Counsel $117,246 - $175,869 Rail Project Development Director $117,246 - $165,355 ED Chief Executive Officer Salary Negotiated Source: Valley Metro Rail, Inc Finance and Administration Division 36

80 Valley Metro Rail, Inc. Schedule of Insurance Coverage For the Fiscal Year Ended June 30, 2009 Source: Valley Metro Rail, Inc Contracts and Procurement Division Valley Metro Rail, Inc (METRO) employs the firm of Arthur J. Gallagher Risk Management Services, Inc. as its broker for the purchase of insurance. METRO's commercial insurance program consists of the following: Policy # Coverage Limits Policy Term Premium Carrier KTKCMB2700C786 Commercial Propety 127,637,941 TIV 12/18/08 to $128,614 Travelers Indemnity Co. 10,000 Deductible 12/1/09 5,000,000 Flood & EQ 100,000 Deductible QT B527 Inland Marine - Rolling Stock 150,660,000 TIV 12/18/08 to $143,643 Travelers P&C Insurance 100,000 Deductible 12/1/09 Co. QT B008 Inland Marine - Town Lake Bridge 22,581,224 TIV 5,000,000 Flood & EQ 100,000 Deductible DIC - Excess Flood and EQ Town 15,000,000 per Occurrence Lake Bridge x/o 5,000,000 CCP Commercial Crime 1,000,000 Limit 10,000 Deductible Auto Liability and Physical Damage 250,000 CSL 2,000 Comp & Coll Deductible Primary Excess Liability 10,000,000 per Occurrence 10,000,000 Aggregate 250,000 SIR 71P Excess Liability - 2nd Layer Quota Share with AWAC 10,000,000 per Occurrence 10,000,000 Aggregate part of 25,000,000 x/o 10,000,000 and SIR 12/18/08 to 12/1/09 12/18/08 to 12/1/09 12/18/08 to 12/1/09 12/18/08 to 12/1/09 12/18/08 to 12/1/09 12/18/08 to 12/1/09 $34,432 Travelers P&C Insurance Co. $39,924 ACE/Westchester Fire $2,582 Fidelity & Deposit Co. of Maryland $64,110 United States Fire Insurance Co. $389,570 Insurance Co. of the State of PA $80,087 Everest National Insurance Co. C Excess Liability - 2ne Layer Quota Share with Everest National 15,000,000 per Occurrence 12/18/08 to 15,000,000 Aggregate 12/1/09 part of 25,000,000 x/o 10,000,000 and SIR $120,132 Allied World Assurance Co. ENU736241/01/2008 Excess Liability - 3rd Layer 25,000,000 per Occurrence 25,000,000 Aggregate x/o 35,000,000 and SIR 12/18/08 to 12/1/09 $153,497 AXIS Surplus Insurance Co. 37

81 Valley Metro Rail, Inc. Schedule of Insurance Coverage For the Fiscal Year Ended June 30, 2009 Valley Metro Rail, Inc (METRO) employs the firm of Arthur J. Gallagher Risk Management Services, Inc. as its broker for the purchase of insurance. METRO's commercial insurance program consists of the following: Policy # Coverage Limits Policy Term Premium Carrier MH Excess Liability - 4th Layer Quota 12/18/08 to Share with Great American 12/1/09 25,000,000 per Occurrence 25,000,000 Aggregate part of 40,000,000 x/o 60,000,000 and SIR $102,493 Swiss Re International SE EXC Excess Liabiity - 4th Layer Quota Share with Swiss Re 15,000,000 per Occurrence 15,000,000 Aggregate part of 40,000,000 x/o 60,000,000 and SIR 12/18/08 to 12/1/09 $61,469 Great American Workers Comp & Employers Liabiilty WC - Statutory 3/1/07/08 SCF of Arizona EL - 1,000,000 BE Owners/Contractors Protective (Project Policy) 15,000,000/Occurrence x/o 10,000, SIR 6/24/04 to 2/24/09 $1,050,000 National Union Fire Insurance Co. C Owners/Contractors Protective 25,000,000/Occurrence 6/24/04 to $450,000 Allied World Assurance (Project Policy) x/o 15,000,000 and SIR 2/24/09 Co Owners/Contractors Protective 50,000,000/Occurrence 6/24/04 to $450,000 Starr Excess (Project Policy) x/o 40,000,000 and SIR 2/24/ Pollution Legal Liability (Fixed-site 5,000,000 each Pollution 12/1/07-12 $31,278 Chubb Custom Insurance coverage) Incident Co. 5,000,000 Aggregate 25,000 Deductible EOC Owners Protective Professional Indemnity Contractors Environmental Protection Pollution Legal Liability (Fixed-site coverage) 20,000,000 each Claim 20,000,000 Aggregate 20,000,000 SIR 25,000,000 per Accident 50,000,000 Maximum 25,000,000 per Accident 50,000,000 Maximum 12/16/02 to 5/1/09 $483,000 Steadfast Insurance Co. 6/24/08-09 $380,032 Quanta Specialty Lines 6/24/08-09 $432,893 Quanta Specialty Lines 38

82 Valley Metro Rail, Inc. Design & Construction Milestones November Final light rail alignment approved PRE-INCORPORATION ACTIVITIES February Project opens community office for the public September City of Phoenix purchases first property for the light rail system at Camelback Road and 3rd Avenue. December Project receives first Recommended rating from the Federal Transit Administration (FTA) in its New Starts Report. October Valley Metro Rail, inc. is incorporated. VALLEY METRO RAIL, INC. ACTIVITIES July METRO receives formal approval from the FTA for the light rail project to enter the Final Design phase. The approval allows designers to finalize the construction plans during the coming months, begin utility relocation, and request early approval to begin purchasing light rail vehicles and construction materials. August The METRO board approves the METRO Business Outreach Plan to help minimize the impacts of light rail construction on businesses located along the light rail transit alignment. November A groundbreaking ceremony is held for the reconstruction of an access bridge over the Grand Canal at 48th Street that leads to the light rail Maintenance and Storage Facility. January Full Funding Grant Agreement signed for the Central Phoenix East Valley (CPEV) Light Rail Project. (20 mile initial operating segment) April METRO Max program launched, business support program encouraging residents to patronize businesses impacted by light rail construction. May First embedded track in downtown Phoenix is placed at Central and Van Buren. August Tempe Town lake Bridge completed. March Operations and Maintenance Center completed. assembly activities commence. Testing, training and Light Rail Vehicle final March Structural steel is erected on the first METRO station at Van Buren Street and First Avenue. March Phoenix City Council approves funding for Northwest Extension December Central Phoenix East Valley Light Rail Project (Initial 20 Mile Segment) construction completes on-time and within budget. January Rail Passenger Operations commence; Ridership planned for 26,000 passengers per day reaches over 40,000 daily passengers in April June Award to METRO CPEV Light Rail Project: Public Works Project of the Year American Public Works Association, Arizona Chapter Source: Valley Metro Rail, Inc. Finance and Administration Division 39

83 VALLEY METRO RAIL, INC. Phoenix, AZ SINGLE AUDIT ACT REPORTS For the Fiscal Year Ended June 30, 2009

84 VALLEY METRO RAIL, INC. SINGLE AUDIT ACT REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009

85 VALLEY METRO RAIL, INC. TABLE OF CONTENTS FISCAL YEAR ENDED JUNE 30, 2009 Report on Internal Control Over Financial Reporting and on Compliance And Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 1 Report on Compliance With Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Summary of Auditors Results 5 Financial Statement Findings 6 Federal Award Findings and Questioned Costs 6 Summary Schedule of Prior Audit Findings 6 Supplementary Schedule of Expenditures of Federal Awards 7

86 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Board of Directors of the Valley Metro Rail, Inc. We have audited the financial statements of the Valley Metro Rail, Inc. (METRO) as of and for the year ended June 30, 2009, and have issued our report thereon dated January 28, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered Valley Metro Rail, Inc. s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Valley Metro Rail, Inc. s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of METRO s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified a deficiency in internal control over financial reporting that we consider to be a significant deficiency. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects METRO s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of METRO s financial statements that is more than inconsequential will not be prevented or detected by METRO s internal control. We consider the deficiency described in the accompanying schedule of findings and questioned costs as item to be a significant deficiency in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by METRO s internal control. (1) LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.

87 The Board of Directors of the Valley Metro Rail, Inc. January 28, 2010 Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that the significant deficiency described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Valley Metro Rail, Inc. s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. However, we noted other matters that we reported to management in a separate letter dated January 28, Valley Metro Rail, Inc. s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit Valley Metro Rail, Inc. s response, and accordingly, we express no opinion on it. This report is intended solely for the information and use of the Board of Directors, Management, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Mesa, Arizona January 28, 2010 LarsonAllen LLP (2)

88 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Board of Directors of the Valley Metro Rail, Inc. Compliance with Requirements Applicable to Each Major Program We have audited the compliance of Valley Metro Rail, Inc. (METRO) with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, Valley Metro Rail, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grant agreements applicable to each of its major federal programs is the responsibility of Valley Metro Rail, Inc. s management. Our responsibility is to express an opinion on Valley Metro Rail, Inc. s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Valley Metro Rail, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Valley Metro Rail, Inc. s compliance with those requirements. In our opinion, Valley Metro Rail, Inc. complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, Internal Control over Compliance in Accordance with OMB Circular A-133 The management of Valley Metro Rail, Inc. is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Valley Metro Rail, Inc. s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of METRO s internal control over compliance. (3) LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.

89 The Board of Directors of the Valley Metro Rail, Inc. January 28, 2010 A control deficiency in METRO s internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects METRO s ability to administer a major federal program such that there is more than a remote likelihood that the noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by METRO s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by METRO s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards We have audited the financial statements of the business-type activities of Valley Metro Rail, Inc. as of and for the year ended June 30, 2009, and have issued our report thereon dated Report Date. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. This report is intended solely for the information and use of the Board of Directors, Management, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Mesa, Arizona January 28, 2010 LarsonAllen LLP (4)

90 Valley Metro Rail, Inc. Schedule of Findings and Questioned Costs Fiscal Year Ended 30, 2009 SECTION I - SUMMARY OF AUDITORS RESULTS Financial Statements Type of auditor s report issued: Internal control over financial reporting: Material weakness(es) identified? Unqualified yes X no Significant deficiency(ies) identified not considered to be material weaknesses? _ X _ yes none reported Noncompliance material to financial statements noted? yes X no Federal Awards Internal Control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be material weaknesses? Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a)? yes X no yes X none reported Unqualified yes X no Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster Federal Transit Grant Dollar threshold used to distinguish between Type A and Type B programs: $2,205,426 Auditee qualified as low-risk auditee? X yes no (5)

91 Valley Metro Rail, Inc. Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2009 SECTION II FINANCIAL STATEMENT FINDINGS Classification of Capital Lease Payments Condition: During review of the METRO s capital lease liability, we noted that METRO had unspent lease proceeds that will be used in the upcoming fiscal year to fund the acquisition of parts and supplies inventory. The lease arrangement was a new financing instrument for METRO that required the application of complex accounting principles. In reviewing the disclosure, it was determined that an adjustment was necessary to impute an interest rate on the financing agreement, resulting in an adjustment to increase the principal liability for the unspent lease proceeds and accrue interest through fiscal year ended June 30, Criteria: Generally accepted accounting principles. Effect: An adjustment was necessary to increase the liability of the outstanding lease and accrue interest through the fiscal year ended June 30, Cause: This was METRO s first year utilizing a financing instrument and the manner in which the lease agreement was written, it required the use of complex accounting principles to disclose the liability and future payment schedule for financial reporting purposes. Recommendation: In order to ensure new financing arrangements include all required disclosures beyond those included in the master lease agreement, METRO should consider consulting its auditors or organizations considered its peers to determine the structure of the lease agreement does not require the use of other accounting principles. Response: METRO concurs with this recommendation and has since consulted with its auditors for guidance on the current lease agreement to obtain the basis for presentation in accordance with generally accepted accounting principles. METRO will confer with its peers or its auditors in the future when entering into any new financing arrangements. SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None Noted SECTION IV SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS There were no prior audit findings. (6)

92 Valley Metro Rail, Inc. Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2009 Pass-Through CFDA Pass-Through Identifying Awards Federal Grantor Agency and Program Title Number Grantor Number Expended Department of Transportation: Federal Highway Administration: Highway Planning and Construction Maricopa Association of Governments Contract 0297 $ 198,609 Highway Planning and Construction Maricopa Association of Governments Contract ,883 Total Federal Highway Administration 650,492 Federal Transit Administration: Urbanized Area Formula City of Phoenix AZ-95-X ,000,000 Urbanized Area Formula City of Phoenix AZ-90-X ,460 Urbanized Area Formula City of Phoenix AZ-90-X ,127 Urbanized Area Formula City of Phoenix AZ-90-X ,253,629 New Starts City of Phoenix AZ ,000 ARRA - New Starts City of Phoenix AZ ARRA 14,736,664 New Starts City of Phoenix AZ ,285,819 Total Federal Transit Administration 72,863,699 Total Expenditures of Federal Awards $ 73,514,191 (7)

93 AGENDA ITEM 5B Passenger Station Power Washing Services Contract

94 AGENDA ITEM 5B To: Through: From: Chairman Simplot and Members of the METRO Board of Directors Stephen R. Banta, Chief Executive Officer Jay Harper, Director of Operations and Maintenance Date: February 24, 2010 Re: Passenger Station Power Washing Services Contract PURPOSE The purpose of this memorandum is to request that the METRO Board (Board) authorize the Chief Executive Officer (CEO) to negotiate and execute a multiyear contract for Passenger Station Power Washing Services. BACKGROUND AND DISCUSSION Currently, the METRO cleaning contract includes a provision for power washing services at station platforms on a quarterly basis. Staff has determined that power washing should occur more frequently and to meet that need it was appropriate to develop an independent scope of services. A Request for Proposal (RFP) was selected as the solicitation method because the choice of a contractor is dependent upon its qualifications and its ability to meet the contractual requirements. Price paid to the awarded contractor was considered but not the single determining factor as is required by the RFP procurement method. The RFP was released on October 19, The procurement was advertised in accordance with METRO s public notice procedure, and the deadline for the proposals was December 3, Four (4) proposals were received. The offering firms were: A Mind for Detail, Inc. Clark s Maintenance, LLC DMS Facility Services, and ShelterCLEAN of Arizona, Inc. Members of the selection committee were chosen to participate based upon their expertise. After careful review and consideration, the selection panel recommended that the contract be awarded to ShelterCLEAN of Arizona, Inc. The scope of the contract will include special instructions concerning the passenger station art pieces, benches, shade structures, and trash receptacles. Water will be

95 METRO Board of Directors Memo February 24, 2010 Page 2 of 2 reclaimed and any chemical use shall require pre-approval by METRO. Power washing is scheduled for times when train service is not running. FISCAL IMPACT The existing cleaning contract includes power washing at a cost of $5,840 per month for station power washing to occur quarterly. The proposal from ShelterCLEAN includes a cost of $3,940 per month, resulting in a savings of $1,900 per month for station platform washing to occur twice monthly. A deductive change order for the current cleaning contract to remove power washing from its scope of services will be necessary to achieve these savings. The contract amount is within the existing Fiscal Year 2010 budget and Five-Year Capital and Operating Plan. RAIL MANAGEMENT COMMITTEE CONSIDERATION At its February 17, 2010 Rail Management Committee (RMC) meeting, the RMC recommended that the METRO Board authorize a contract with ShelterCLEAN of Arizona for passenger station power washing services. RECOMMENDATION Staff is requesting that the Board authorize the CEO to execute a twenty-four (24) month Passenger Station Power Washing Services Contract with three optional one (1) year extensions to ShelterCLEAN of Arizona, Inc. for total budgeted amount not to exceed $272, that includes a five (5) percent contingency.

96 AGENDA ITEM 6 Section 5309 Project Budget Adjustments

97 AGENDA ITEM 6 To: Through: Chairman Simplot and Members of the METRO Board of Directors Stephen R Banta, Chief Executive Officer From: Brian D. Buchanan, Director of Design and Construction John P. McCormack, Director of Finance and Administration Date: February 24, 2010 Re: Section 5309 Project Budget Adjustments PURPOSE The purpose of this item is to request that the METRO Board (Board) authorize project budget contingency adjustments for cost increases and savings to line item budgets within the Full Funding Grant Agreement (FFGA) project. BACKGROUND AND DISCUSSION The contingency budget enables funding of contract change orders, which arise as construction proceeds and contracts are being closed out. Section 5309 contingency budgets affected are within the FFGA budget. Contract changes requiring use of contingency are reviewed by member city staff and the Change Control Committee prior to approval by the Chief Executive Officer (CEO). Total funding for the line section contracts include a combination of Federal Section 5309 funds included in the FFGA and locally funded Concurrent Non-Project Activities (CNPA s). Today s action pertains only to the section 5309 fund budget. Line Section 3 The current Board-approved budget for Line Section 3 is $105,096,850. Work is complete and the cost to date is $103,864,448. Close out and final invoicing is nearing completion. The finalization of actual quantities installed, the REA payment and costs at completion versus budget, indicates that an increase in contingency is warranted. Action request is to increase the budget by $1,500,000 to establish a revised total budget of $106,596,850. Other Facility Contracts Contract closeouts for Line Section 4, Line Section 5, Park and Ride Facilities, Miscellaneous Construction, Wheel Profiling Machine and the 48 th Street Bridge are nearly complete. The current Board Approved Budget for these contracts is $159,391,974. Cost to date is $159,072,793. The finalization of actual quantities

98 METRO Board of Directors Memo February 24, 2010 Page 2 installed and final costs at completion versus budget indicates that an increase in budget is warranted. Action request is to increase the budget by $28,396 to establish a revised total budget of $159,420,370. Prior Rights Utility Relocations The current Board-approved budget for Prior Rights Utility Relocations is $29,500,000. Work is nearing completion and the cost to date is $29,651,284. A review of expected costs at completion indicates that an increase in contingency is warranted. Action request is to increase the contingency by $400,000 to establish a revised total budget of $29,900,000. Owner Furnished Materials The current Board-approved budget for the six contracts for Owner Furnished Materials is $33,460,104. Work is complete and the cost to date is $33,195,541. A review of the actual costs at completion indicates that a decrease in budget is warranted. Action request is to decrease the budget by ($264,563) to establish a revised total budget of $33,195,541. Traction Electrification The current Board-approved budget for Traffic Electrification is $61,652,003. Work is nearing completion and the cost to date is $61,236,392. A review of expected costs at completion indicates that a decrease in contingency is warranted. Action request is to decrease the contingency by ($400,000) to establish a revised total budget of $61,252,003. Communications/Signals The current Board-approved budget for Communications/Signals is $44,259,762. Work is nearing completion and the cost to date is $42,737,685. A review of expected costs at completion indicates that a decrease in contingency is warranted. Action request is to decrease the contingency by ($555,000) to establish a revised total budget of $43,704,762. Right-of-Way The current Board-approved Right-of-Way 5309 Budget is $133,750,000. Work is nearing completion and the cost to date is $135,122,816. Settlements of the remaining parcels are in condemnation proceedings with final compensation determined by the judicial system. Today s action will add $8,143,055 to the Right-of-Way contingency bringing the total budget to $141,893,055.

99 METRO Board of Directors Memo February 24, 2010 Page 3 PE/FEIS (Preliminary Engineering/Final Environmental Impact Statement) The current Board-approved budget for PE/FEIS is $25,054,938. Work is complete and the final cost to date is $25,169,700. Action request is to increase the contingency by $114,762 to establish a revised final total budget of $25,169,700. Engineering The current Board-approved budget for Engineering is $107,647,240. Work is complete with the exception of as-builts. The cost to date is $108,241,397. Today s action will bring the actual costs current and add $200,000 for the as-built drawings completion. The updated cost at completion forecast indicates that an increase in contingency is warranted. Action request is to increase the contingency by $850,000 to establish a revised total budget of $108,497,240. CAC (Construction Administration Contractor) The current Board-approved budget for the CAC is $57,281,460. Work is nearly complete and the cost to date is $57,136,747. The updated cost at completion forecast indicates that a decrease in contingency is warranted. Action request is to decrease the contingency by ($119,713) to establish a revised total budget of $57,161,747. Management/Administration The current Board-approved budget for Management/Administration is $61,109,298. Work is nearing completion and the cost to date is $61,323,456. A projection of costs to complete include an addition of $2,500,000 for litigation costs, $900,000 for the extension of contracted staff to close out remaining open contracts and miscellaneous adjustments to open items forecasts. The updated cost at completion forecast indicates that an increase in contingency is warranted. Action request is to increase the contingency by $3,488,028 to establish a revised total budget of $64,597,326. Start-up and Testing The current Board-approved budget for Start-up and Testing is $23,000,000. Work is nearly complete and the cost to date is $21,474,587. The updated cost at completion forecast indicates that a decrease in contingency is warranted. Action request is to decrease the contingency by ($1,000,000) to establish a revised total budget of $22,000,000. Financing Costs The current Board-approved budget for Financing Costs is $110,897,702. The final FFGA draw is projected to be received in August This draw will complete the

100 METRO Board of Directors Memo February 24, 2010 Page 4 federal funding earlier than anticipated and will result in a projected financing cost saving of $11,647,702. Action request is to decrease the financing costs by ($12,047,702) to establish a revised total budget of $98,850,000. Project Reserve The current Board-approved budget for Project Reserve is $1,341,369. Today s action will decrease the Project Reserve by $137,263 to establish a revised total budget of $1,204,106. FISCAL IMPACT The contingency budgets affected are within the FFGA budget. Changes to the budgets are reflected in the tables on the attached pages. RAIL MANAGEMENT COMMITTEE CONSIDERATION At its February 17, 2010 Rail Management Committee (RMC) meeting, the RMC recommended that the METRO Board authorize the changes to the Section 5309 project budgets. RECOMMENDATION: Staff is requesting that the Board authorize the following changes to the Section 5309 project budgets: Increase the Line Section 3 Budget by $1,500,000 to $106,596,850; Increase other Facility Contracts Budgets by $28,396 to $159,420,370; Increase Prior Rights Utility Relocations Budget by $400,000 to $29,900,000; Decrease Owner Furnished Materials Budgets by $264,563 to $33,195,541; Decrease Traction Electrification Budget by $400,000 to $61,252,003; Decrease Communications/Signals Budget by $555,000 to $43,704,762; Increase the Right-of-Way Budget by $8,143,055 to $141,893,055; Increase the PE/FEIS Budget by $114,762 to $25,169,700; Increase the Engineering Budget by $850,000 to $108,497,240; Decrease the CAC Budget by $119,713 to $57,161,747; Increase the Management/Administration Budget by $3,488,028 to $64,597,326;

101 METRO Board of Directors Memo February 24, 2010 Page 5 Decrease Start-up/Testing Budget by $1,000,000 to $22,000,000; Decrease the Financing Costs by $12,047,702 to $98,850,000; Decrease the Project Reserve by $137,263 to $1,204,106.

102 METRO Board of Directors Memo February 24, 2010 Page 6 CP/EV LRT Project Sec 5309 Construction Project Budget Changes For March 2010 Board Action Contract Existing 5309 Project Budget Mar 10 Action 5309 Project Budget as amended LS1 Kiewit Western Co. $48,914,715 $48,914,715 LS2 Herzog Contracting Corp. $54,025,526 $54,025,526 LS3 Archer Western Contractors $105,096,850 $1,500,000 $106,596,850 LS4 Sundt/Stacey & Witbeck, Joint Venture $52,407,081 ($56,725) $52,350,356 LS5 Sundt/Stacey & Witbeck, Joint Venture $79,641,103 ($23,017) $79,618,086 Station Finishes $54,581,000 $54,581,000 Park and Ride Facilities $22,688,792 ($50,000) $22,638,792 Miscellaneous Construction $850,659 $149,341 $1,000,000 Archaeological Investigations/Haz Material Removal $7,372,689 $7,372,689 MSF Sundt/Stacey & Witbeck, Joint Venture $65,400,000 $65,400,000 Wheel Profiling Machines Simmons Machine Tool Corp $980,107 ($4,107) $976,000 48th Street Bridge Restoration FNF Construction, Inc. $2,824,232 $12,904 $2,837,136 Town Lake Bridge PCL Civil Constructors, Inc. $21,759,753 $21,759,753 Prior Rights Utility Relocations $29,500,000 $400,000 $29,900,000 Total Facilities $546,042,507 $1,928,396 $547,970,903 Rail Procurement Progress Rail Corporation $1,273,506 $5,986 $1,279,492 Concrete Crosstie Procurement CXT Inc. $903,395 ($32,820) $870,575 Traffic Signal Hardware $8,463,100 ($84,336) $8,378,764 Ballasted Special Trackwork Procurement VAE Nortrak $2,291,497 ($34,041) $2,257,456 Crossing Panel Procurement $0 Girder Rail Procurement VAE Nortrak North America Inc. $14,725,878 ($9,614) $14,716,264 Girder Rail Special Trackwork Procurement VAE Nortrak $5,712,656 ($19,666) $5,692,990 Contingency $90,072 ($90,072) $0 Owner Furnished Materials $33,460,104 ($264,563) $33,195,541 Automated Fare Collection System $8,524,547 $8,524,547 Traction Electrification System Mass Electric Corp. $61,652,003 ($400,000) $61,252,003 Communications/Signals Mass Electric Corp. $44,259,762 ($555,000) $43,704,762 Total Systems $114,436,312 ($955,000) $113,481,312 Sub-Total Construction $693,938,923 $708,833 $694,647,756

103 METRO Board of Directors Memo February 24, 2010 Page 7 CP/EV LRT Project Sec 5309 Construction Project Budget Changes For March 2010 Board Action Contract Existing 5309 Project Budget Mar 10 Action 5309 Project Budget as amended Light Rail Vehicles Kinkisharyo International $116,982,565 $116,982,565 Right of Way $133,750,000 $8,143,055 $141,893,055 PE/FEIS $25,054,938 $114,762 $25,169,700 Engineering $107,647,240 $850,000 $108,497,240 CAC $57,281,460 ($119,713) $57,161,747 Management/Administration $61,109,298 $3,488,028 $64,597,326 PMC $52,653,279 $52,653,279 City Administration $22,185,439 $22,185,439 Public Art $6,283,133 $6,283,133 Startup & Testing $23,000,000 ($1,000,000) $22,000,000 Project Reserve $1,341,369 ($137,263) $1,204,106 SubTotal $1,301,227,644 $12,047,702 $1,313,275,346 Financing Costs $110,897,702 ($12,047,702) $98,850,000 Grand Total $1,412,125,346 $0 $1,412,125,346

104 AGENDA ITEM 7 Regional Transit Planning Roles and Responsibilities

105 AGENDA ITEM 7 To: Through: From: Chairman Simplot and Members of the METRO Board of Directors Stephen R. Banta, Chief Executive Officer John Farry, Director, Community and Government Relations Date: February 24, 2010 Re: Regional Transit Planning Roles and Responsibilities PURPOSE The purpose of this item is to request that the METRO Board (Board) authorize the CEO to execute the Memorandum of Understanding (MOU) regarding transit planning and programming and to provide information on SB 1416 that has been introduced and rewritten to clarify transit planning responsibilities. Attached are the final drafts of the MOU and revised language associated with SB BACKGROUND/DISCUSSION On January 20, 2010, the Board was updated on the status of an MOU and legislation introduced related to transit planning roles and responsibilities. It was reported at the meeting that staff members from the Maricopa Association of Governments (MAG), the Regional Public Transportation Authority (RPTA), the City of Phoenix Public Transit Department, and Valley Metro Rail, Inc. (METRO) had formed a working group to clarify transit planning roles. The working group has met over the last year and attained consensus on a MOU defining planning and programming responsibilities. Additionally, it was determined that the introduction of legislation would help to clarify the planning responsibilities in state statute. The RPTA Board has taken an action to enter into the MOU, as well as to approve revised language associated with SB MAG staff is requesting approval of the same revised language associated with SB 1416 at the Regional Council meeting scheduled for February 24, 2010 and will be discussing the MOU in anticipation of consideration of the MOU at the METRO Board meeting. In summary, the consensus of the staff working group included the following recommendations: 1. MAG is responsible for transit system planning activities for the region, including the transit component of the Regional Transportation Plan (RTP), transit corridor studies (prior to the identification of project funding), transit system studies and subregional

106 METRO Board of Directors Memo February 24, 2010 Page 2 studies. In some instances, MAG may determine to have a transit operator conduct a specific subregional or corridor study. 2. For projects that require a federal Alternatives Analysis (AA) process, MAG, in cooperation with the affected agencies/jurisdiction(s), shall determine the appropriate agency to conduct and manage the AA. The process for review and approval of an LPA includes the following steps: a. Review and adoption by the affected jurisdiction(s); b. Informational review and acceptance by the METRO and/or RPTA Boards, as appropriate; and c. Review through the MAG committee process, with final approval of the LPA by the MAG Regional Council. Draft Design Concept Reports (DCR) and other major project scoping documents will be reviewed and approved for concurrence through the MAG committee process, in addition to any other agency approvals. MAG will join the operating agency and affected jurisdictions as a member of the Project Management Team for project planning studies, and MAG will provide oversight and quality control over the use of the MAG Travel Demand Model. 3. Regional sustainability and Transit Oriented Development (TOD) planning issues should be coordinated at MAG, and project/facility specific sustainability and TOD planning issues in connection with the federal application process, should be coordinated by METRO and RPTA in conjunction with the local jurisdiction(s). Based on the consensus of the staff working group and actions taken by the RPTA Board of Directors and the MAG Regional Council Executive Committee, staff is recommending that METRO enter into the attached MOU. SB 1416 does not directly impact METRO or its planning functions. FISCAL IMPACT The fiscal impact of this action is not known at this time. It is assumed that planning functions related to AA studies, corridor studies assigned to METRO, as well as any planning functions agreed to with RPTA and MAG would be funded through the appropriate funding sources (i.e., Proposition 400, FTA Section 5303 and/or 5339 related to transit planning, CMAQ, etc.). RAIL MANAGEMENT COMMITTEE CONSIDERATION On February 17, 2010, the CEO s report to the Rail Management Committee (RMC) included an item on the status of the MOU and proposed legislation regarding regional transit planning responsibilities. RECOMMENDATION Staff is recommending that the Board authorize the CEO to execute the Memorandum of Understanding regarding planning and programming responsibilities in the region.

107 DRAFT February 19, 2010 AGREEMENT BETWEEN AND AMONG THE MARICOPA ASSOCIATION OF GOVERNMENTS, THE REGIONAL PUBLIC TRANSPORTATION AUTHORITY, VALLEY METRO RAIL, THE CITY OF PHOENIX AND THE TRANSIT OPERATORS IN THE MAG REGION REPRESENTED ON THE REGIONAL COUNCIL REGARDING TRANSIT PLANNING, PROGRAMMING AND FUND ALLOCATION. Regarding the coordination of ongoing transit planning for programming federal funds that support the ongoing and future deployment of transit services affecting the Phoenix-Mesa Urbanized Area and the Avondale Urbanized Area, hereinafter referred to as the Urbanized Area (UZA). This AGREEMENT is between and among the MARICOPA ASSOCIATION OF GOVERNMENTS (MAG), THE REGIONAL PUBLIC TRANSPORTATION AUTHORITY (RPTA), VALLEY METRO RAIL (METRO), the CITY OF PHOENIX, and other transit operators that are represented on the MAG Regional Council. This AGREEMENT replaces the Resolution on Metropolitan Transportation Planning and Programming approved by the MAG Regional Council on May, 23, WITNESS THAT: WHEREAS, the RPTA, METRO, the CITY OF PHOENIX, transit operators, and other local government agencies in the MAG region are eligible to apply for and receive Federal Transit Administration (FTA) and/or Federal Highway Administration (FHWA) transit funding for capital, operating, and planning assistance for the delivery of public transportation; and WHEREAS, MAG is the Metropolitan Planning Organization (MPO) for the UZA, directed by a duly comprised Regional Council of elected officials with a committee structure that represents all of the transit operators in the region to advise the MAG Regional Council on transportation planning and policy questions; and WHEREAS, this AGREEMENT describes the planning and programming relationship among those agencies; and WHEREAS, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) requires MPOs to work cooperatively with public transit operators to develop Regional Transportation Plans (RTPs) and Transportation Improvement Programs (TIPs) for urbanized areas, which are intended to further the national interest to encourage and promote the safe and efficient management, operation, and development of surface transportation systems to serve the mobility of people and freight and foster economic growth and development within and through urbanized areas, while minimizing transportation-related fuel consumption and air pollution; and WHEREAS, MAG, the RPTA, METRO, the CITY OF PHOENIX and other participating local government agencies rely upon a cooperative relationship to foster regional transit planning which feeds directly into state and national planning; 1

108 NOW, THEREFORE, in consideration of the mutual benefits to the transit operators and jurisdictions hereto, and in consideration of the covenants and conditions herein contained, the transit operators and jurisdictions agree as follows: Purpose. The purpose of this AGREEMENT is to set forth the basic structure for cooperative planning and decision making regarding transit planning and programming between MAG, RPTA, METRO, the CITY OF PHOENIX and other participating local government agencies. Representation on MAG Transit Committee. All MAG member agencies are invited to serve as voting members of the MAG Transit Committee. The Arizona Department of Transportation (ADOT), RPTA and METRO are also invited to serve as voting members of the MAG Transit Committee. The MAG Transit Committee serves as the primary MAG committee to coordinate regional transit planning and programming of federal transit related funds. Regional Transit Coordination. MAG, RPTA, METRO and the CITY OF PHOENIX agree to work cooperatively with each other and with the other transit operators and local government agencies in ensuring the provision of coordinated, regionwide transit services. Items to be considered should include fares, transfer and pass policies, transit information, marketing, schedules, service coordination, data needed to meet periodic reporting requirements, and other activities as required. Regional Transportation Plan. MAG agrees to prepare, adopt and maintain, as required, a Regional Transportation Plan (RTP). MAG, RPTA, METRO and the CITY OF PHOENIX agree to work cooperatively with each other and with the other transit operators and local government agencies in the refinement of the RTP through the conduct of and participation in multimodal transportation studies. Transportation Improvement Program (TIP) Development Process. The MAG TIP development process shall serve as the focal point for making an annual determination regarding the distribution of federal funds available for allocation by MAG within the UZA. The transit operators and local government agencies agree that it is desirable to ensure that a stable funding stream is available for all operators that allows the operators to carry out coordinated services throughout the UZA. MAG develops its annual program of projects in consultation with interested transit operators and local government agencies. Following direct consultation among the transit operators and jurisdictions to this AGREEMENT, MAG distributes notices of intent to develop or amend the TIP, publishes the proposed program of projects to be adopted, and carries out a public involvement and review process for TIP adoption or amendment, in compliance with 23 CFR Sections and The same notices of intent, publication of proposed projects, and public involvement and review also shall be used to fulfill the public hearing requirements of 49 U.S.C. Section 5307, covering review and approval of FTA grant applications for TIP projects. RPTA, METRO, other transit operators, and MAG member agencies seeking TIP programming and subsequent grant approvals, will provide MAG with sufficient project detail to convey understanding of the projects by all interested agencies and persons, meet FTA grant application requirements, and provide a clear linkage to TIP project descriptions. MAG will advertise the proposed public hearing(s), projects to be programmed, and fund amounts to be programmed through their existing public participation process. 2

109 The CITY OF PHOENIX, as the Designated Recipient, implements the Annual Grant for the FTA. As part of this process, the CITY OF PHOENIX balances the FTA portion of the transportation annual appropriations and provides, to MAG, revisions to the TIP to reconcile the grant and the first year of the TIP. Following reconciliation, MAG works cooperatively with the CITY of PHOENIX to determine if the TIP is in agreement with the Annual Grant. If agreement is reached, MAG concurs with the reconciliation and informs the FTA of its determination. The MAG Transit Committee meets to draft a program of projects for the TIP. This program of projects is forwarded to the MAG Transportation Review Committee, Management Committee, Transportation Policy Committee and the Regional Council to be considered for inclusion into the MAG TIP. Following the enactment of an annual federal budget and publication of funding apportionments and discretionary awards in the Federal Register, the CITY OF PHOENIX informs MAG of the amounts of the formula and other designated federal funds coming to the UZA. MAG then consults with the transit operators and local government agencies working through the MAG Transit Committee to finalize the recommended programming of those funds into the TIP, making adjustments as necessary to the draft program of projects completed earlier. As part of the TIP process, projects are programmed in the TIP on behalf of all transit providers receiving federal funds. MAG, working through the MAG Transit Committee, will develop a recommended prioritized list of projects for the allocation of federal funds, which would include all FTA 5307 funds apportioned to the UZA plus additional federal funds that may be available for distribution from FTA and FHWA. The MAG Transit Committee will identify priority projects and endeavor to program the use of said funds based on factors that are cooperatively developed by the MAG Transit Committee with final approval by the MAG Regional Council. Grant Application for Transit Funding. The CITY OF PHOENIX is the Designated Recipient for federal formula funds allocated under the Federal Transit Act, as amended, in the UZA. The MAG Transit Committee will develop projects to be submitted to the CITY OF PHOENIX. The CITY OF PHOENIX will prepare applications to the FTA and FHWA for federal transit funding. Draft applications will be submitted to MAG using an agreed upon method, in advance of the FTA or FHWA submittal to confirm accuracy and consistency with TIP programming requirements and with the MAG RTP, as required by federal guidelines. All transit operators and jurisdictions agree to work in good faith to develop consistent programming, documentation, and funding requests in a manner consistent with FTA or FHWA requirements. Progress Reporting. MAG is responsible for tracking the overall progress of all projects in the TIP, is required to produce an annual list of projects for which federal funds have been obligated in the preceding year, and ensures that it is made available for public review. Transit operators and local government agencies receiving federal transit funding will assist MAG s and the CITY OF PHOENIX s efforts to track the overall progress of transit projects in the TIP. At a minimum, milestone/progress reports submitted to FTA and reviewed by MAG shall contain all of the information required in FTA Circular 5010, as amended from time to time, for grant administration of procedures. If project specific questions are raised by FTA or MAG that cannot be answered through review of the Transportation Electronic Award and Management (TEAM) documentation, the affected transit operator 3

110 or jurisdiction will, upon request, provide MAG or the CITY OF PHOENIX, as applicable, additional information. Examples of information that may be periodically requested include the following: 1. A classification of the projects by the individual categories, as identified in the TIP. 2. A documentation of the stage of project implementation. 3. An explanation for any project delays if the project is behind schedule. 4. The reasons for any cost overruns if the project is over budget. 5. A status on the amount of federal funding obligated, received, and used to support projects. 6. Any identified needs for a TIP amendment. 7. Project savings to be reverted, if any, at project completion. TIP Amendments. Each transit operator and local government agency receiving transit funding is responsible for notifying MAG if there is the need to amend the TIP. Amendments may require three to four months to process for approval. MAG typically processes TIP amendments on a quarterly basis. A formal request for changes in project cost, scope, or schedule must be made to be incorporated in an amendment. Certain minor adjustments and administrative and project budget modifications can be made outside the formal amendment process, but must be requested in writing. As part of the quarterly progress report, or more frequent reporting if required, each transit operator or local government agency receiving transit funding will notify MAG regarding the reasons an amendment to the TIP is needed. TIP amendments may be needed to address issues such as funding shortfalls, delays in project implementation and/or new projects that need to be included in the TIP. Subrecipients of FTA funding shall regularly update the CITY of PHOENIX on project status, and the CITY of PHOENIX shall periodically provide a grant status review to the MAG Transit Committee. Public Comment. The federal regulations for metropolitan planning under SAFETEA-LU are incorporated within the MAG adopted public involvement process. Federal law requires that the MPO work cooperatively with the state department of transportation and the regional transit operators to provide citizens, affected public agencies, representatives of transportation agencies, freight shippers, private providers of transportation, representative users of public transit, and other interested transit operators and jurisdictions a reasonable opportunity to comment on proposed transportation plans and programs. All MAG public involvement efforts are consistent with Title VI of the Civil Rights Act and the Executive Order on Environmental Justice. Public Involvement Process. MAG s adopted public involvement process is divided into four phases: 1. Early phase 2. Mid phase 3. Final phase 4. Continuous Involvement During each of these phases, MAG will work closely with ADOT, RPTA, METRO, and the CITY OF PHOENIX. Responses to public comment in the Mid Phase and Final Phase Public Input Opportunity Reports are coordinated with the above listed agencies. The public hearing for the TIP and RTP includes representation from the above listed agencies. These groups may also co-host public involvement events, including public hearings and meetings and information booths at special events throughout the region. 4

111 Air Quality. In nonattainment areas for air quality standards, the MPO is responsible for determining conformity of the TIP and RTP with the State Implementation Plan to achieve air quality standards. The goal is to ensure that transportation plans, programs, and projects do not cause or contribute to violations of the air quality standards. Conformity consultation in the MAG region is to be done in accordance with 40 CFR and Arizona Administrative Code R Under these requirements, MAG consults with local governments and appropriate State and federal agencies on the TIP, the RTP, conformity analysis, and the MAG Unified Planning Work Program and Annual Budget. For local government consultation, the MAG Management Committee is the primary contact. This includes RPTA, the CITY OF PHOENIX and other local government agencies that provide transit service. Human Services Coordination Plan. The MAG Unified Planning Work Program and Annual Budget includes the Human Services Coordination Transportation Plan as required by SAFETEA-LU regulations. This plan is drafted cooperatively by MAG with the CITY OF PHOENIX and other stakeholders. This activity results in the identification of coordination strategies to make human services transportation more efficient and seamless, particularly as it pertains to the FTA Job Access Reverse Commute (JARC, section 5316), New Freedom (section 5317), and Elderly and Persons with Disabilities (section 5310) projects. The CITY OF PHOENIX develops and facilitates the application process for JARC and New Freedom funding. This process requires that applicants demonstrate they are utilizing the coordination strategies identified in the Human Services Coordination Transportation Plan. The plan is updated by MAG in partnership with the CITY OF PHOENIX and other stakeholders as needed. MAG Unified Planning Work Program and Annual Budget. The MAG Unified Planning Work Program (UPWP) and Annual Budget is developed in a collaborative process with federal, state and local agencies and input is sought from the public on key issues facing the MAG region. Planning for the UPWP is a continuous process. In developing the UPWP, MAG meets with RPTA, METRO, the CITY OF PHOENIX and ADOT to ensure coordination of projects. Portions of the UPWP are brought incrementally to the MAG Regional Council Executive Committee, serving as the MAG Finance Committee, and to the MAG Management Committee and MAG Regional Council. Budget presentations are made from January through May each year. In the spring of each year, the draft budget is provided to local, state and federal agencies for review in anticipation of the Intermodal Planning Group (IPG) meeting where questions and comments are heard and, if necessary, adjustments are made regarding state and federal agency comments. At the IPG meeting, MAG, RPTA, METRO, the CITY OF PHOENIX and ADOT participate in the presentations and the meeting. The final budget is presented to the MAG Regional Council in the month of May and, upon approval, is sent in the month of June to ADOT and the FHWA. Review and Refinement of Transit Planning and Programming Roles and Responsibilities. During FY 2010, a staff Working Group with representatives from MAG, the CITY OF PHOENIX, RPTA, and METRO undertook an examination of the regional transit programming and planning roles performed by the four agencies. This examination was undertaken to achieve the following objectives: 1. Provide better integration of all modes of travel in the Regional Transportation Plan (RTP). 2. Continue development of a transit program that reflects regional priorities identified in the RTP. 5

112 3. Ensure that MAG is meeting its responsibilities under federal and state law to develop an integrated long range transportation plan; develop and administer the Transportation Improvement Program; develop and execute the annual Unified Planning Work Program; and provide administrative oversight of the utilization of Proposition 400 funds. 4. Clarify roles and responsibilities among the four agencies to reduce duplication and to ensure a more efficient and integrated planning process. The Working Group reached consensus on several issues. Four of the Working Group recommendations further clarify the coordination of ongoing transit planning, as outlined below: 1. MAG is responsible for transit system planning activities for the region, including the transit component of the Regional Transportation Plan, transit corridor studies (prior to the identification of project funding), transit system studies and subregional studies. In some instances, MAG may determine to have a transit operator conduct a specific subregional or corridor study. 2. For projects that require a federal Alternatives Analysis (AA) process, MAG, in cooperation with the affected agencies/jurisdiction(s), shall determine the appropriate agency to conduct and manage the AA. The Locally Preferred Alternative (LPA) resulting from the AA will be reviewed and approved through the MAG committee process. The process for review and approval of an LPA includes the following steps: 1) review and adoption by the affected jurisdiction(s); 2) informational review and acceptance by the METRO and/or RPTA Boards, as appropriate; and 3) review through the MAG committee process, with final approval of the LPA by the MAG Regional Council. To ensure continuity in the planning process, RPTA and METRO will provide periodic updates to the MAG Transit Committee on federal Alternatives Analysis projects. Draft Design Concept Reports (DCR) and other major project scoping documents will be reviewed and approved for concurrence through the MAG committee process, in addition to any other agency approvals. MAG will join the operating agency and affected jurisdictions as a member of the Project Management Team for project planning studies, and MAG will provide oversight and quality control over the use of the MAG Travel Demand Model. 3. Regional sustainability issues should be coordinated at MAG, and project/facility specific sustainability initiatives, in connection with the federal application process, should be coordinated by METRO and RPTA in conjunction with the local jurisdiction(s). 4. Regional Transit Oriented Development planning issues should be coordinated at MAG, and project/facility specific Transit Oriented Development initiatives, in connection with the federal application process, should be coordinated by METRO and RPTA in conjunction with the local jurisdiction(s). Amendments to the Agreement. This AGREEMENT may be amended at any time by the mutual agreement of the parties hereto. Agreement Termination. Participation in the AGREEMENT may be terminated by any of the parties hereto provided that the terminating party provides notice to each of the other parties at least ninety (90) 6

113 days prior to the date of termination. Termination by any one party does not relieve any other party to this AGREEMENT of its responsibilities under this AGREEMENT. Agreement Authorization. MARICOPA ASSOCIATION OF GOVERNMENTS REGIONAL PUBLIC TRANSPORTATION AUTHORITY Dennis Smith Executive Director David A. Boggs Executive Director Date Date VALLEY METRO RAIL CITY OF PHOENIX Stephen Banta Chief Executive Officer Debbie Cotton Public Transit Director Date Date 7

114 Be it enacted by the Legislature of the State of Arizona: Section 1. Section , Arizona Revised Statutes, is amended to read: Public transportation fund A. A public transportation fund is established for the authority. The fund consists of: 1. Monies appropriated by each municipality that is a member of the authority or the county, if it elected to enter into the authority. Each member municipality and member county shall appropriate monies to the public transportation fund in an amount determined by the board. 2. Monies appropriated by a county that has not elected to enter into the authority in an amount determined by the county board of supervisors. 3. Transportation excise tax revenues that are allocated to the fund pursuant to section or The board shall separately account for monies from transportation excise tax revenues allocated pursuant to section , subsection E, paragraph 3 for: (a) A light rail public transit system. (b) Capital costs for other public transportation. (c) Operation and maintenance costs for other public transportation. 4. Monies distributed under title 28, chapter 17, article Grants, gifts or donations from public or private sources. 6. Monies granted by the federal government or appropriated by the legislature. 7. Fares or other revenues collected in operating a public transportation system. 8. Local transportation assistance monies that are distributed to each member under section and as provided in section Local transportation assistance monies that are distributed to a member pursuant to section and that must be used for public transportation. 10. Local transportation assistance monies that are distributed pursuant to section , subsection A, paragraph 1. B. On behalf of the authority REGIONAL PLANNING AGENCY, the fiscal agent shall administer monies paid into the public transportation fund. Monies in the fund may be spent pursuant to or to implement the PUBLIC TRANSPORTATION ELEMENT OF THE regional public transportation system plan DEVELOPED AND APPROVED BY THE REGIONAL PLANNING AGENCY, including reimbursement for utility relocation costs as prescribed in section , adopted pursuant to section and for projects identified in the regional transportation plan adopted by the regional planning agency pursuant to section C. Monies in the fund shall not be spent to promote or advocate a position, alternative or outcome of an election, to influence public opinion or to pay or contract for consultants or advisors to influence public opinion with respect to an election regarding taxes or other sources of revenue for the fund or regarding the regional public transportation system plan. Sec. 2. Section , Arizona Revised Statutes, is amended to read: Budget process A. The board shall adopt a budget process, IN COOPERATION WITH THE REGIONAL PLANNING AGENCY, that ensures that the estimated cost of the regional public transportation system, including corridors, corridor segments and bus purchase and operating costs, does not exceed the total amount of revenues estimated to be available for the regional public transportation system. CHANGES TO THE BUDGET THAT HAVE A SIGNIFICANT MATERIALLY IMPACT ON THE PERFORMANCE OF THE REGIONAL TRANSPORTATION PLAN, OR THAT ADD 1

115 OR DELETE CURRENT OR PLANNED REGIONAL SERVICE IN A CORRIDOR, SHALL BE APPROVED BY THE REGIONAL PLANNING AGENCY. B. THIS SECTION DOES NOT APPLY TO THE OPERATING BUDGET OF THE AUTHORITY. Sec. 3. Section , Arizona Revised Statutes, is amended to read: Regional Public transportation ELEMENT OF THE REGIONAL TRANSPORTATION system plan A. In counties with a population of one million two hundred thousand persons or more, the board REGIONAL PLANNING AGENCY shall develop a, IN COOPERATION WITH STATE AND LOCAL PUBLIC TRANSPORTATION AUTHORITIES AND OPERATORS, THE regional public transportation system ELEMENT OF THE REGIONAL TRANSPORATION plan that is coordinated with the regional transportation plan adopted pursuant to section B. Among other things, the regional public transportation system ELEMENT OF THE REGIONAL TRANSPORATION plan shall: 1. Define and identify regional public transportation corridors. 2. Define the public transportation problems, goals and needs for each corridor. 3. Define land use goals Determine environmental, economic, energy and social policies to guide public transportation investment decisions Order the priority of regional public transportation corridors for development Determine the mix of alternative public transportation modes appropriate for development in light of the public transportation goals and needs for each corridor. 7. Select appropriate public transportation technology including high occupancy vehicle lanes and related facilities. 8. Determine the capacity for exclusive public transportation technology Determine operating performance criteria and costs for public transportation systems. 10. Locate routes and access points to the public transportation systems. 11. Determine the ridership of public transportation systems. C. The regional public transportation system ELEMENT OF THE REGIONAL TRANSPORTATION plan shall include, in addition to the appropriate items prescribed in subsection B of this section, the following items presented on an individual fiscal year basis: 1. The capital and operating costs of the planned regional public transportation ELEMENT. 2. The revenue needed by source, according to section , to fund the PUBLIC TRANSPORATION ELEMENT OF THE regional public transportation system plan. D. If the plan includes a rail component and if the board REGIONAL PLANNING AGENCY RAIL OPERATOR adopts estimates of capital and maintenance and operation costs of the rail system, each member municipality in which the rail system is constructed shall pay to the public transportation fund amounts by which the actual capital, maintenance and operation costs exceed the estimated costs by more than fifteen per cent, computed in constant dollars. The excess costs shall be allocated among the affected member municipalities according to the proportion of the rail system facilities that are located in each municipality. The affected member municipalities shall: 1. Pay the monies from their respective general funds to the public transportation fund in the fiscal year following the fiscal year in which the excess costs were incurred. 2. Not pay to the public transportation fund under this subsection monies that it received from any source pursuant to title 28. 2

116 Not reduce its support of transportation projects funded by any source pursuant to title 28 in order to make payments under this subsection. E. The board may RECOMMEND MODIFICATIONS TO modify the regional public transportation system ELEMENT OF THE REGIONAL TRANSPORATION plan to reflect changes in population density or technological advances in the approved public transportation modes. A majority of the members of the board voting at a public hearing called for that purpose must approve THE RECOMMENDED MODIFICATIONS a modification to the plan. Sec. 4. Section , Arizona Revised Statutes, is amended to read: Board powers and duties The board shall: 1. IMPLEMENT THE REGIONAL PUBLIC TRANSPORTATION ELEMENT OF THE TRANSPORTATION PLAN FUNDED BY THE PUBLIC TRANSPORTATION FUND Determine the exclusive public transportation systems to be acquired and constructed, the means to finance the systems and whether to operate the PUBLIC TRANSPORTATION systems or to let contracts for their operation Adopt an annual budget and fix the compensation of its employees Adopt an administrative code by ordinance that: (a) Prescribes the powers and duties of the employees of the authority that are not inconsistent with this chapter. (b) Prescribes the method of appointing board employees. (c) Prescribes methods, procedures and systems of operating and managing the board. (d) May provide for, among other things, appointing a general manager and organizing the employees of the board into units for administration, design and construction, planning and operation, property acquisition and community relations and other units as the board deems necessary Cause a postaudit of the financial transactions and records of the board to be made at least annually by a certified public accountant Adopt all ordinances and make all rules proper or necessary to: (a) Regulate the use, operation and maintenance of its property and facilities, including its public transportation systems and related transportation facilities and services operating in its area of jurisdiction. (b) Carry into effect the powers granted to the board Appoint advisory commissions as it deems necessary Do all things necessary to carry out the purposes of this chapter. Sec. 5. Section , Arizona Revised Statutes, is amended to read: Regional bus system A. The board shall establish and operate a regional bus system. The monies distributed under section , subsection B shall be spent for incremental increases in a regional bus system and for community funded transportation services including dial-a-ride programs and special needs transportation services and shall not be used to supplant any existing sources of monies currently being used in operating an existing bus system. The monies shall only be spent for community funded transportation services including dial-a-ride programs and special needs transportation services and to establish and operate a regional bus system, including 3

117 extending existing bus routes into regional routes, adding new regional routes, increasing the service on existing regional routes and capital expenditures. B. The board may contract with a public agency or with a person on the terms and conditions the board finds in its best interest to operate a regional bus system. 4

118 AGENDA ITEM 8 METRO Advertising Policy Restrictions

119 AGENDA ITEM 8 To: Through: From: Chairman Simplot and Members of the METRO Board of Directors Stephen R. Banta, Chief Executive Officer John Farry, Director of Community and Government Relations Date: February 24, 2010 Re: METRO Advertising Policy Restrictions PURPOSE The purpose of this memorandum is to provide information on a possible amendment to restrictions to the METRO Advertising Policy related to advertising of beer, wine, and/or alcohol on METRO assets approved for advertising displays. BACKGROUND In April 2009, the Board adopted a policy to permit advertising on the METRO system. An amendment to that policy was adopted by the Board in July to delete a provision related to the time limit of an advertisement on a vehicle. (See attached policy.) Following the adoption of the policy, the Board approved a contract with CBS Outdoor in July to sell advertising. Advertising sales are now underway. The advertising policy includes adverting standards that were originally developed to be consistent with the City of Phoenix to avoid confusion in advertising content between bus and rail. The policy includes a list of restrictions, including a provision that prohibits the display of copy or graphics that advertise beer, wine, and/or alcohol. In December, the City of Phoenix changed its restrictions to allow the sale of advertising related to alcohol on the bus system and at selected transit furniture. Our advertising contractor, CBS Outdoor, has inquired as to whether METRO would consider expanding its advertising policy to be consistent with the City of Phoenix and provide additional revenue opportunities. At this early stage in the advertising program, CBS Outdoor anticipates that allowing alcohol could add 10-20% to the sales that we would have without it. We are also advised that transit systems that currently allow advertising include New York City Metro and Cleveland. We are also told that Miami and Los Angeles are considering a change as well. Any change to the advertising policy restriction on alcohol, would include an adherence to the rules and regulations as set forth by the Arizona Department of Liquor Licenses and Controls guidelines. Further, the separation requirement would be 600 feet in instances where light rail station platforms are located near schools or churches.

120 METRO Board of Directors Memo February 24, 2010 Page 2 Additionally, station platform advertising is currently only authorized in the City of Phoenix. FISCAL IMPACT Due to the economic conditions, the METRO advertising sales market is still being established. However, according to CBS Outdoor, allowing beer, wine, and/or alcohol advertising would broaden the market and the revenue base for METRO advertising. RAIL MANAGEMENT COMMITTEE CONSIDERATION At its February 17, 2010 Rail Management Committee (RMC) meeting, staff presented information to the RMC regarding a possible amendment to the METRO Advertising Policy to remove the restriction of advertising beer/wine/alcohol. The RMC recommended that staff present this item to the Board for discussion and information. RECOMMENDATION This item is for information only.

121 ADVERTISING POLICY Valley Metro Rail, Inc. (METRO) believes that advertising on the light rail system is best performed using a standard set of established criteria. Therefore, the following criteria are established for advertising: Vehicle Advertising That advertising on the exterior of the vehicle will be limited to no more than ten (10) vehicles at any one time. METRO reserves the right to wrap four (4) additional vehicles for its own purposes. That advertising on the interior of the vehicle allow for floor decals. In vehicles that have exterior wraps, the floor decals must match the theme of the wrap. In unwrapped vehicles, only one decal design per vehicle will be allowed. That advertising on the interior of the vehicle allow for the installation of LCD-TV in vehicles. Station Advertising That station advertising be limited to wraps and display case posters. That station wraps occur in participating cities only and be limited to backdrop banners, vertical banners and paver decals. That any advertising at stations not be attached to, or obscure, station art. That display case station posters occur in participating cities only and be limited to no more than 50% of map cases at any given station. That advertising at station platforms allow for the installation of electronic or standard kiosks. General Advertising That any future METRO advertising policy be consistent with the City of Phoenix Public Transit Department s policy that establishes the following standard: Advertising Standard The subject matter of METRO system advertising is limited to speech that proposes a commercial transaction.