Comprehensive Annual Financial Report

Transcription

1 Comprehensive Annual Financial Report For the Year Ended September 30, 2011 Capital Metropolitan Transportation Authority Austin, Texas

2

3 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended September 30, 2011 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY AUSTIN, TEXAS Prepared by the Finance Department Billy Hamilton Interim Executive Vice President, Finance & Administration

4 Introductory Section CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY TABLE OF CONTENTS Letter of Transmittal...7 Certificate of Achievement for Excellence in Financial Reporting...11 Board of Trustees and Administration...12 Organizational Chart...13 Service Area...14 Financial Section Independent Auditors Report...17 Management s Discussion and Analysis (Unaudited)...19 Financial Statements Statements of Net Assets...27 Statements of Revenue, Expenses, and Changes in Net Assets...28 Statements of Cash Flows...30 Notes to Financial Statements...32 Required Supplementary Information (Unaudited) Governmental Accounting Standards Board Statement No. 27, Defined Benefit Retirement Plans, Schedule of Funding Progress and Employer Contributions...54 Statistical Section Condensed Statement of Net Assets...60 Revenue by Source...61 Sales Tax Revenue...62 Estimated Sales Tax Receipts by City...63 Long-Term Debt...64 Debt Net Revenue Coverage Ratio...65 Demographic and Economic Statistics...66 Principal Employers...67 Expenses by Object Class...68 Operating Statistics...69 Capital Assets...71 Total Employees...72 Farebox Recovery Percentages...73 Fare Structure...73

5 2011 Introductory Section Comprehensive Annual Financial Report

6

7 2910 East Fifth Street, Austin, Texas TEL FAX March 26, 2012 Dear Central Texas Community, On behalf of the board of directors of Capital Metropolitan Transportation Authority, we are pleased to submit to you the Comprehensive Annual Financial Report (CAFR) for the year ended September 30, Capital Metro s management is responsible for the accuracy, reliability and presentation of the financial information contained within the report. The report includes all necessary disclosures and other information that enable the reader to gain an understanding of Capital Metro s financial activities. Capital Metro Profile Capital Metro is delivering on its promise to connect people, jobs and communities with quality transportation options. In fact, in 2011, ridership on the agency s buses, trains, vans and sedans increased by more than one million rides compared to Everyday, Capital Metro delivers about 109,000 rides daily within a 522-mile service area. With a fleet of more than 400 buses, Capital Metro provides metro, flyer and express routes and shuttle service to The University of Texas at Austin, as well as parallel door-to-door service for passengers with disabilities. The Capital MetroRail Red Line travels 32 miles between Leander and downtown Austin, serving nine stations along the way. MetroRail service began in March 2010, and ridership more than doubled within the first year. Many rush-hour trips are now standingroom only, and Capital Metro is exploring opportunities to expand service, reduce travel time, and provide easier connections for pedestrians and cyclists. The agency also operates a vanpool program called RideShare and works in partnership with the Capital Area Rural Transportation System (CARTS) to offer transportation to select outlying areas around Austin. 7

8 Beyond its passenger service, Capital Metro moves freight, too, along its own 163-mile railroad line between Llano and Giddings, Texas. In FY2011, the freight rail operation shipped 45,171 rail cars, the equivalent of 180,684 semi-trailer trucks that otherwise would have been on our area s highways. Capital Metro was created in 1985, after voters in Austin and the surrounding area approved its creation in accordance with Chapter 451 of the Texas Transportation Code. Capital Metro provides service to nearly one million residents within a 522-mile service area that includes the cities of Austin, Manor, San Leanna, Jonestown, Lago Vista, Leander, Point Venture, Volente Beach, and unincorporated portions of Travis and Williamson counties. These communities contribute one percent sales tax to be within Capital Metro s service area. Governance Capital Metro is governed by an eight-member board of directors. The board consists of three members appointed by the Capital Area Metropolitan Planning Organization (CAMPO), including an elected official; one member representing the small cities in Capital Metro s service area; a member each appointed by the Travis County commissioners and Williamson County commissioners; and two members appointed by the Austin City Council, in which one must be a member of the Austin City Council. The board is responsible for making policies relative to the operation, control and management of the agency. They hire the president/ceo, who has the responsibility of running the day-to-day operation of the agency. Due to differing provisions in state and federal laws, Capital Metro contracts with an independent service provider, StarTran, Inc., which is a non-profit corporation created by Capital Metro to collectively bargain with Amalgamated Transit Union Local 1091 (ATU 1091), for the provision of operations personnel, including bus operators and mechanics. Certain employees of StarTran are represented by ATU StarTran is accounted for as a blended component unit in the financial statements of Capital Metro, which has a September 30 fiscal year end. During FY2012, Capital Metro will transition to a new labor structure, dissolving StarTran and instead contracting with private companies to provide fixed-route and paratransit operations. Capital Metro already contracts with Veolia, First Transit, CARTS, LeFleur and Herzog to operate some bus, paratransit and rail services. Our Workforce Capital Metro helps the local economy by employing and contracting a diverse workforce of approximately 1,200. Capital Metro strives to be an employer of choice in the Austin area and the transit industry by providing competitive benefits and pay, as well as nationally-recognized programs that contribute to employees well being. 8

9 Capital Metro has an award-winning wellness program to assist employees in leading healthy lifestyles. The program includes three 24-hour fitness centers, personal training, nutrition counseling and healthy cafeteria, among other benefits. Since the wellness program was created, employee health care costs and absenteeism rates have steadily declined. Capital Metro also provides a childcare facility that serves employees and contractors families in addition to the community at large. Partnering with Bright Horizons Family Solutions, Capital Metro offers child care for children ages six weeks to five years. These are a few examples of Capital Metro s commitment to its employees and their families. Budget Control By state law, Capital Metro s board of directors must adopt an annual budget driven by an approved strategic plan that outlines the agency s priorities. The budget must be adopted before the beginning of each fiscal year and before Capital Metro conducts any business in the new fiscal year. The budget is amended if operating expenditures will exceed the budgeted amount. Additionally, the board must approve a five-year capital improvement plan. Control of the budget is maintained at the department level with overview responsibility exercised by the budget manager. It is the responsibility of each department manager to administer operations in such a manner as to ensure that the use of funds is consistent with the goals and objectives in the strategic plan. Accountability and Transparency As a steward of public funds and public trust, Capital Metro strives for both financial accountability and transparency. Capital Metro posts detailed financial information on its website, and the agency has earned the Texas Comptrollers highest level of recognition for financial transparency twice. A new long-range financial plan, five-year capital improvement plan and improved financial reporting and budget development processes ensure a greater level of accountability and oversight. Local Economic Outlook Austin, the state s capital, is the fourth largest city in Texas with a population of 812,000. Austin and the central Texas region are frequently recognized as a great place to live and work. Many economic analysts agree that Texas, and Austin in particular, have fared well compared to other areas across the nation. Austin s unemployment rate was 6.3 percent in December 2011, while the state unemployment rate was 7.8 percent. The national unemployment rate was 8.5 percent. The largest portion of Capital Metro s revenue comes from a dedicated one percent sales tax from its member cities. Capital Metro has projected sales tax in FY2012 to increase by three percent over the previous fiscal year. Moving forward, Austin s many strengths will help mitigate long-term effects of a slow economy. These strengths include a highly capable workforce, innovation and entrepreneurship, the presence of 9

10 a world-class research university and several other institutions of higher learning, strong community assets and a superior quality of life. Management s Discussion and Analysis Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to the accompanying basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with the MD&A. Capital Metro s MD&A can be found directly following the independent auditor s report. Certificate of Achievement for Financial Reporting The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Capital Metro for its comprehensive annual financial report for fiscal year ended September 30, This was the seventh consecutive year that Capital Metro has achieved this prestigious award that recognizes an easilyreadable and efficiently-organized comprehensive annual financial report. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgements The preparation of this report on a timely basis could not be accomplished without the dedicated service of the Finance Department and the staff of the Communications Department. We would also like to thank our board of directors for their continuing support and to our customers and taxpayers for whom we work. Respectfully submitted, Linda S. Watson Capital Metro President/CEO Billy Hamilton Interim Executive Vice President, Finance & Administration 10

11 11

12 Board of Trustees and Administration Board of Trustees Board Member Appointing Body Mike Martinez, Chairman Capital Area Metropolitan Planning Organization John Langmore, Vice Chair Capital Area Metropolitan Planning Organization Beverly Silas, Secretary Travis County Commissioners Court Chris Riley Austin City Council Frank Fernandez Capital Area Metropolitan Planning Organization Norm Chafetz Williamson County Commissioner s Court Ann Stafford Austin City Council Justine Blackmore-Hlista Small Cities Elected Official Representative Administration Linda S. Watson President/Chief Executive Officer Doug Allen Executive Vice President, Chief Development Officer Billy Hamilton Interim Executive Vice President, Finance & Administration Elaine Timbes Executive Vice President, Interim Chief Operating Officer Kerri Butcher Interim Chief Counsel 12

13 Organizational Chart Board of Directors VP, Internal Audit Caroline Beyer President /CEO Linda Watson Executive Assist. to President/CEO Nora Muse Interim Chief Counsel Kerri Butcher Chief of Staff Gerardo Castillo EVP & Chief Development Officer Doug Allen Interim EVP, Finance & Administration Billy Hamilton Financial Consultant EVP & Chief Operating Officer Elaine Timbes Manager, Board Relations Kerri Butcher* Executive Asst / Board Support Gina Estrada Manager, Marketing Cynthia Lucas Manager, Communications Adam Shaivitz VP, Marketing & Communications Dan Dawson Interim VP, Business & Community Development John-Michael Cortez DBE Officer Aida Douglas (At FTA currently) VP, Strategic Planning & Development Todd Hemingson Program Manager II, Government Relations Open Director, Financial Planning Francisco Ordaz Director, Contracts & Procurement Earl Atkinson Controller Pamela Laine Director, Human Resources & Risk Donna Simmons VP, Rail Operations Melvin Clark Manager, Security John Jones VP, Bus & Paratransit Services Dottie Watkins Chief Information Officer Joseph Iannello VP, Capital Projects & Real Estate John Hodges Program Manager I, Performance Information Pat Vidaurri Program Manager II, Safety James Hoskins Strategic Project Management Officer Ken Cartwright *Position will be effective when Chief Counsel is filled. EEO Officer James Swift Contract Operations First Transit Veolia Herzog As of February,

14 Service Area PARTICIPATING JURISDICTIONS Austin Jonestown Lago Vista Leander Manor Point Venture San Leanna Volente Travis Co. Portion Williamson Co. Portion 14

15 2011 Financial Section Comprehensive Annual Financial Report

16

17 KPMG LLP Suite Congress Avenue Austin, TX Independent Auditors Report The Finance and Audit Committee of the Board of Directors Capital Metropolitan Transportation Authority: We have audited the accompanying statements of net assets of Capital Metropolitan Transportation Authority (Capital Metro) as of September 30, 2011 and 2010, and the related statements of revenue, expenses, and changes in net assets, and cash flows for the years then ended, which comprise the basic financial statements of Capital Metro. These financial statements are the responsibility of Capital Metro s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc. (Pension Plan) in 2010 and The financial information related to the Pension Plan is included in the accompanying notes to the financial statements, #11. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it related to the amounts and disclosures included for the Pension Plan is based solely on the report of other auditors. 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. The financial statements of the Pension Plan were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Capital Metro s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Metropolitan Transportation Authority, as of September 30, 2011 and 2010, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. 17 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

18 In accordance with Government Auditing Standards, we have also issued a report dated March 26, 2012 on our consideration of Capital Metro s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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. The Management s Discussion and Analysis on pages 19 through 26 and the Schedules of Funding Progress and Employer Contributions for the Retirement Fund of StarTran, Inc. and Capital Metropolitan Transportation Authority on pages 54 and 55 are not a required part of the basic financial statements but are supplementary information required by the U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Capital Metro s basic financial statements. The introductory section and statistical information on pages 7 to 14 and 59 to 73, respectively, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory section and the statistical information 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. March 26,

19 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 This section of the financial statements of the Capital Metropolitan Transportation Authority (CMTA) offers a narrative overview and analysis of the financial activities for fiscal years ended September 30, 2011 and The information contained within the Management Discussion and Analysis (MD&A) should be considered only a part of a greater whole. The reader of this statement should take time to read and evaluate all sections of this report, including the footnotes and other supplementary information that is provided in addition to this MD&A. Financial Highlights 2011 Net assets were $318.3 million as of September 30, 2011, a decrease of $4.2 million from net assets of $322.5 for the year ended September 30, 2010 (Table A-1). Capital assets (net of depreciation) decreased by $23.9 million to $308.8 million in fiscal year 2011 from $332.7 million as of September 30, 2010 (Table A-5). The FY 2011 sales tax revenue was $151.2 million compared to $141.9 million in FY 2010, a 6.6% increase over the prior year. Transportation fares increased 10.0% from $9.0 million in FY 2010 to $9.9 million in FY Commuter rail which went into revenue service in March 2010, and totaled $300,000 in revenue for FY 2010 increased to $1.0 million for FY Contract revenue increased from $5.8 million as of September 30, 2010 to $6.8 million as of September 30, 2011, an increase of 17.2%. Rail freight revenue for FY 2011 was $7.5 million or a decrease of 42.0% over rail freight revenue of $13.1 million for FY 2010 (Table A-2). Operating expenses (including depreciation) was $196.7 million for FY 2010 compared to $195.6 million for FY 2011, or a decrease of 0.06% (Table A-3). Payments of $9.5 million in FY 2010 and $8.4 million for FY 2011 were made for regional mobility projects (Table A-4). Financial Highlights 2010 Net assets were $322.5 million as of September 30, 2010, a decrease of $9.9 million from assets of $332.4 million for the year ended September 30, 2009 (Table A-1). Capital assets (net of depreciation) decreased by $15.7 million to $332.7 million in fiscal year 2010 from $348.4 million as of September 30, 2009 (Table A-5). The FY 2010 sales tax revenue was $141.9 million compared to $139.9 million in FY 2009, a 1.4% increase over the prior year. Transportation fares increased 13.9% from $7.9 million in FY 2009 to $9.0 million in FY Commuter rail went into revenue service in March 2010 and totaled $300,000 in revenue through September 30, Contract revenue decreased from $6.5 million as of September 30, 2009 to $5.8 million as of September 30, 2010, a decrease of 10.8%. Rail freight revenue for FY 2010 was $13.1 million or a decrease of 9.0% over rail freight revenue of $14.4 million for FY 2009 (Table A-2). Operating expenses (including depreciation) was $191.0 million for FY 2009 compared to $196.7 million for FY 2010, or an increase of 3.0% (Table A-3). Payments of $9.9 million in FY 2009 and $9.5 million for FY 2010 were made for regional mobility projects (Table A-4). 19

20 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to CMTA s financial statements. The financial statements are comprised of: 1) financial statements, 2) notes to the financial statements, and 3) required supplementary information. The Statement of Net Assets reports CMTA s assets and liabilities, with the difference between the two reported as net assets. This is a measure of financial position, which can indicate financial condition improvement or deterioration from year to year. The Statement of Revenue, Expenses and Changes to Net Assets presents information showing how CMTA s net assets changed during the fiscal year. Operating revenue consists of transportation fare, contract revenue, and commuter rail and rail freight fees. Other non-operating revenue includes the one percent sales tax which comprises 80% and 74%, respectively, of all revenues in FY 2011 and 2010, investment income, other income and operating contributions. Operating expenses include providing bus service, commuter rail service, maintenance, security and administration for CMTA. Non-operating expenses include funding future transportation projects. The Statement of Cash Flows reports cash and cash equivalents activities for the fiscal year resulting from operating activities, non-capital financing activities, capital and related financing activities and investing activities. The Notes to the Financial Statements provide additional information necessary to fully understand the data provided in the financial statements. Required Supplementary Information (unaudited) includes the progress in funding CMTA s obligation to provide pension benefits to its bargaining employees and to its administrative employees and is required supplementary information by accounting principles generally accepted in the United States of America. FINANCIAL ANALYSIS Net Assets The total net assets of CMTA decreased $4.2 million, from $322.5 million for FY 2010 to $318.3 million in FY 2011 due an operating loss. Total assets decreased to $377.7 million in FY 2011 from $399.7 million in FY 2010, due to depreciation on capital assets offset slightly by an increase in receivables. Current liabilities decreased $15.9 million from $46.0 million in FY 2010 to $30.1 million in FY 2011 due to a note payment in 2011 of $2.5 million and decreased spending on capital projects. Long term liabilities decreased from $31.2 million in FY 2010 to $29.2 million for FY 2011 due a principal payment on the rail lease purchase offset by an increase in the amount due the City of Austin. The total net assets of CMTA decreased $9.9 million, from $332.4 million for FY 2009 to $322.5 million in FY 2010 due an operating loss. Total assets decreased to $399.7 million in FY 2010 from $408.7 million in FY 2009, due to transferring commuter rail costs to fixed assets and the corresponding depreciation on those assets offset by an increase in cash. Current liabilities increased $4.5 million from $41.5 million in FY 2009 to $46.0 million in FY 2010 due to a note payment in 2011 becoming a short term liability and the current portion of the long term debt due to the City of Austin. Long term liabilities decreased from $34.8 million in FY 2009 to $31.2 million for FY 2010 due to the note payable becoming due in 2011, a principal payment on the rail lease purchase offset by an increase in the amount due the City of Austin. 20

21 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Comparative amounts for prior years have been presented in order to provide an understanding of changes in Capital Metro s financial position and operations. Table A-1 Summary of CMTA s Net Assets (in millions of dollars) FY 2011 FY 2010 FY 2009 Current assets $ 65.0 $ 63.8 $ 57.5 Capital assets (net) Other non-current assets Total assets Current liabilities Long term liabilities Total liabilities Net assets Invested in capital assets, net of related debt Unrestricted Total net assets $ $ $ Certain net assets are designated through Board directive for specific uses. As of September 30, 2011 and 2010 CMTA Board has designations of $7.8 million for self-insurance. Commitments CMTA has a capital spending plan for projects for upcoming and future years. CMTA s contractual commitments related to its capital improvement plan are approximately $23.7 million as of September 30, CMTA has also executed contracts with various goods and services providers totaling approximately $175.5 million extending to September CMTA is contractually committed to the Build Central Texas Program and Mobility Programs with the City of Austin and the Suburban Communities Program. These programs are detailed in Notes 6 and 9 in the Notes to the Financial Statements. Change in Net Assets The change in net assets for FY 2011 was a decrease of $4.2 million or 1.3 % of total net assets. Total operating revenue decreased by $3.0 million (10.6%) due to a decrease in rail freight revenue reflecting the results of a new contract offset by an increase in transportation fares and commuter rail revenue. Total operating expenses decreased by $1.1 million, less than 1%, due to a decrease in organization support expenses offset by an increase in scheduled services fixed route. Operating loss, including depreciation, was $170.4 million for FY 2011 an increase of 11.2% over FY Nonoperating revenue, net, increased by $2.5 million, or 1.6% over the previous year due to increased sales tax revenue offset by less operating contributions. 21

22 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 The change in net assets for FY 2010 was a decrease of $9.9 million or 3.0 % of total net assets. Total operating revenue decreased by $0.6 million (2.1%) due to a decrease for contract revenue and a decrease in rail freight revenue. Total operating expenses increased by $5.7 million or 3.0% due mainly to the startup costs for the new commuter rail service. Operating loss, including depreciation, was $168.5 million for FY 2010 an increase of 3.9% over FY Non- operating revenue, net, increased by $5.9 million, or 4.0% over the previous year due to increased sales tax revenue and operating grant contributions. Table A-2 Summary of Changes in CMTA s Net Assets (in millions of dollars) FY 2011 FY 2010 FY 2009 Operating revenue: Transportation fares $ 9.9 $ 9.0 $ 7.9 Contract revenue Commuter rail Rail freight Total operating revenue Operating expenses: Scheduled services fixed route Non-scheduled services - special Scheduled services commuter rail Rail freight Service support Organizational support Unallocated depreciation/amortization Total operating expenses Operating Loss (170.4) (168.5) (162.2) Non-operating revenue (expenses) Sales and use tax Investment income Other income, net Operating contributions Build Central Texas Program (1.1) (2.2) (2.0) Mobility programs (8.4) (9.5) (9.9) Total non-operating revenue (expenses) Income (loss) before contributions (15.8) (16.4) (16.0) Capital contributions Change in net assets (4.2) (9.9) 1.2 Total net assets, beginning of the year Total net assets, end of the year $ $ $

23 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Operating Expenses FY 2011 operating expenses decreased less than 1% to $195.6 million. However, organizational support decreased significantly due to start-up rail cost incurring only in FY 2010 offset by an increase in previously outsourced scheduled services fixed route being brought back in house. FY 2010 operating expenses increased 3.0% to $196.7 million for all service areas due to startup costs for the new commuter rail service. Table A-3 CMTA s Total Operating Expenses (including depreciation) (in millions of dollars) FY 2011 FY 2010 FY 2009 Scheduled services fixed route $ $ 93.3 $ 93.2 Non-scheduled services special Scheduled services commuter rail Rail freight Service support Organizational support Unallocated depreciation/amortization Total operating expenses $ $ $ Non-Operating Revenue Non-operating revenue consists of the one percent sales tax levied in CMTA s service area, investment income, operating contributions and other income generated from advertising commissions. Nonoperating revenue is reduced by the costs of providing funding for infrastructure needs in the service area. Sales tax represents the largest component of CMTA s revenue. For FY 2011, sales tax revenue increased by $9.3 million, or 6.6%, to $151.2 million due to economic recovery in the area. For FY 2010, sales tax revenue increased by $2.0 million, or 1.4%, to $141.9 million, which demonstrated a slight upturn in the economy. Investment income of $0.1 million for FY 2011 was earned on CMTA s cash reserve of $21.2 million. During the fiscal year 2011, the cash reserve was invested solely in the Texas Local Government Investment Pools. Investment income for FY 2010 totaled $0.1 million earned on CMTA s cash reserves of $18.4 million. The cash reserve was invested solely in the Texas Local Government Investment Pools. CMTA funds programs to fund street maintenance, street repair, and transit capital improvements, etc. through the Build Central Texas program (formerly Build Greater Austin). It also funds mobility projects to assist in future transportation and improve regional mobility. 23

24 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Table A-4 CMTA s Non-Operating Revenue and Expenses (in millions of dollars) FY 2011 FY 2010 FY 2009 Sales and use tax $ $ $ Investment income Other income, net Operating contributions Build Central Texas Program (1.1) (2.2) (2.0) Mobility programs (8.4) (9.5) (9.9) Total net non-operating revenue $ $ $ Capital Contributions Grant revenue is received from the Federal Transit Administration on a reimbursement basis. These funds are used primarily to fund CMTA s capital improvements but in FY 2011, FY 2010, FY 2009, CMTA also received operating grant funding of $11.6 million, $20.1 million and $15.9 million, respectively. Capital contributions from grant revenue increased to $11.6 million in FY 2011 from $6.5 million in FY Capital contributions from grant revenue decreased in FY 2010 from FY 2009 by $10.7 million. There is substantial volatility in capital grant revenue due to the timing of capital projects. Capital Assets CMTA s net capital assets at September 30, 2011 totaled $308.8 million and consist of buildings, improvements, railroad, buses, equipment, passenger stations, land and construction in progress. This amount represents a decrease of 7.2% over FY CMTA s net capital assets at September 30, 2010 totaled $332.7 million. This amount represents a decrease of 4.5% or $15.7 million over FY For more detailed information on capital assets, see Note 12 to the financial statements. 24

25 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Table A-5 CMTA s Capital Assets (in millions of dollars) FY 2011 FY 2010 FY 2009 Building and improvements $ 84.4 $ 83.8 $ 75.4 Railroad Buses and equipment Passenger parking and stations Leasehold improvements Less: accumulated depreciation (257.4) (230.0) (206.1) Net depreciable property/improvements Land and improvements Construction in progress rail 35.9 Construction in progress Capital assets (net) $ $ $ Long-Term Debt In February 2006, Capital Metro entered into a lease/purchase financing agreement for funding of rail vehicles in the amount of $36.0 million with quarterly payments beginning in October 2006 for 10 years. In September 2006, Capital Metro entered into a promissory note for the purchase of property in the amount of $2.5 million, simple interest only at 6% quarterly until the Note was due and paid in its entirety in September As of September 30, 2011, the lease/purchase financing agreement balance was $20.0 million and the promissory note balance was zero. As of September 30, 2010, the lease/purchase financing agreement balance was $23.5 million and the promissory note balance was $2.5 million. For more detailed information on long-term debt, see Note 8 to the financial statements. Table A-6 CMTA s Long-Term Debt (in millions of dollars) FY 2011 FY 2010 FY 2009 Note payable $ $ 2.5 $ 2.5 Rail lease purchase Total $ 20.0 $ 26.0 $

26 Management s Discussion and Analysis (Unaudited) For the Years Ended September 30, 2011 and 2010 Economic Factors and Outlook for FY 2012 Capital Metro adopted FY 2012 budget totaled $206.1 million in revenue, $176.7 million in operating expenses, and also included $20.6 million for new capital expenditures and $9.3 million for Regional Mobility and pass through grants. In the FY 2012 budget, sales tax revenue was projected to increase 6.3% over the FY 2011 budgeted sales tax revenue. FY 2012 budgeted operating expenses were projected to increase 1.5% over FY 2011 budget. Management anticipates that its existing resources will be adequate to satisfy its liquidity requirements for FY For more detail information, see Note 15 in the financial statements. Request for Information This financial report is designed to provide our patrons and other interested parties with a general overview of the finances to demonstrate CMTA s accountability for the funds it receives. If you have questions about this report or need additional financial information, contact Capital Metropolitan Transportation Authority, Finance Department, at 2910 East 5th Street, Austin, Texas 78702, call (512) , or pamela.laine@capmetro.org. 26

27 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Statement of Net Assets September 30, 2011 and Assets Current assets: Cash and cash equivalents $ 19,881,463 $ 19,869,089 Receivables Sales and use tax 27,227,556 24,266,126 Federal 7,578,876 2,099,382 Other, net 2,577,280 9,458,549 Total receivables 37,383,712 35,824,057 Inventory 5,947,718 6,376,022 Other current assets 1,795,712 1,749,313 Total current assets 65,008,605 63,818,481 Non-current assets: Capital assets, net 308,824, ,658,680 Other assets 3,839,374 3,244,656 Total non-current assets 312,664, ,903,336 Total assets 377,672, ,721,817 Liabilities Current liabilities: Accounts and retainage payable 18,541,436 32,638,995 Accrued expenses 4,334,904 4,902,785 Interest payable 158, ,455 Master lease purchase financing agreement 3,699,337 3,562,932 Note payable 2,484,164 City of Austin Interlocal Agreement 3,398,795 2,214,258 Total current liabilities 30,133,124 45,988,589 Long term liabilities: Accrued expenses 3,797,916 3,723,622 City of Austin Interlocal Agreement 8,838,891 7,267,207 Master lease purchase financing agreement 16,268,897 19,968,235 Deferred rent 306, ,406 Total long term liabilities 29,212,174 31,209,470 Total liabilities 59,345,298 77,198,059 Net assets: Invested in capital assets, net of related debt 288,856, ,643,349 Unrestricted 29,470,915 15,880,409 Total net assets $ 318,327,525 $ 322,523,758 The accompanying notes are an integral part of the financial statements. 27

28 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Statements of Revenue, Expenses and Changes in Net Assets For the Years Ended September 30, 2011 and Operating revenue Transportation fares $ 9,928,579 $ 9,001,139 Contract revenue 6,820,131 5,865,965 Commuter rail 954, ,038 Rail freight 7,550,692 13,074,292 Total operating revenue 25,254,068 28,234,434 Operating expenses: Scheduled services fixed route Bus direct 36,632,567 34,588,612 Contract services / purchase transportation 20,688,455 19,876,643 Materials & Maintenance 31,008,101 26,774,228 Depreciation & amortization 13,511,581 12,081,144 Subtotal scheduled services fixed route 101,840,704 93,320,627 Non-scheduled services special Demand response 16,067,986 15,849,517 Vanpool 292, ,217 Materials & Maintenance 6,728,451 7,403,501 Depreciation & amortization 807,540 1,045,601 Subtotal non-scheduled services 23,896,648 24,515,836 Scheduled services for commuter rail Commuter rail direct 774,106 1,755,869 Contract services / purchase transportation 4,531,326 2,993,790 Materials & Maintenance 3,930, ,748 Depreciation & amortization 5,014,928 4,369,183 Subtotal scheduled services commuter rail 14,251,067 9,269,590 Rail freight Rail freight 6,001,118 10,508,414 Depreciation & amortization 6,818,541 5,568,383 Subtotal rail freight 12,819,659 16,076,797 Service support Administrative 106, ,332 Marketing 2,787,982 3,008,071 Transit security 2,775,490 2,677,020 Customer service 1,149,247 1,195,701 Planning & evaluation 1,798,209 2,278,702 Facility maintenance 7,064,391 7,046,914 Depreciation & amortization 5,239,968 4,317,438 Subtotal service support 20,921,377 20,849, Continued on next page

29 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Statements of Revenue, Expenses and Changes in Net Assets For the Years Ended September 30, 2011 and Organizational support Administrative, financial, personnel $ 14,945,550 $ 25,663,025 Information technology 3,668,880 3,065,374 Subtotal organizational support 18,614,430 28,728,399 Unallocated depreciation & amortization 3,287,651 3,892,476 Total operating expenses 195,631, ,652,903 Operating loss (170,377,468) (168,418,469) Non-operating revenue (expenses): Sales and use tax 151,156, ,867,771 Investment income 24,616 29,971 Other income, net 1,201,994 1,722,216 Operating contributions 11,664,109 20,119,207 Build Central Texas Program (1,090,985) (2,195,584) Mobility interlocal agreements (8,398,120) (9,488,911) Total non-operating revenue (expenses) 154,557, ,054,670 (Loss) before capital contributions (15,819,812) (16,363,799) Capital contributions 11,623,579 6,503,967 Change in net assets (4,196,233) (9,859,832) Net assets at the beginning of year 322,523, ,383,590 Net assets at the end of year $ 318,327,525 $ 322,523,758 The accompanying notes are an integral part of the financial statements. 29

30 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Statements of Cash Flows For Years Ended September 30, 2011 and Cash flows from operating activities Cash received from customers $ 27,808,818 $ 23,739,968 Cash payments to employees (42,149,177) (39,827,466) Cash payments for taxes (15,017,381) (14,496,891) Cash payments to suppliers for goods and services (114,906,430) (109,194,088) Other receipts 1,976,046 1,670,858 Net cash used in operating activities (142,288,124) (138,107,619) Cash flows from non-capital financing activities Sales and use tax 148,194, ,785,384 Cash/Proceeds received from operating grants 9,045,186 19,624,242 Payments for Build Central Texas Program (1,106,421) (2,625,184) Payments for mobility projects (5,641,899) (5,049,002) Net cash provided by non-capital financing activities 150,491, ,735,440 Cash flows from capital and related financing activities Proceeds from capital grants 8,384,907 16,047,918 Purchase of capital assets (10,612,587) (15,790,259) Proceeds from sale of capital assets 144, ,946 Payment of note payable (2,484,164) Payments/proceeds from master lease financing agreement (3,562,933) (3,431,556) Net cash used in capital and related financing activities (8,130,462) (2,785,951) Cash provided from investing activities Settlement of hedging instrument (168,000) 382,000 Net investment income 107,482 (185,942) Net cash provided by investing activities (60,518) 196,058 Net change in cash and cash equivalents 12,374 12,037,928 Cash and cash equivalents at beginning of year 19,869,089 7,831,161 Cash and cash equivalents at the end of the year $ 19,881,463 $ 19,869,089 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (170,377,468) $ (168,418,469) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 34,680,209 31,274,225 Other receipts 1,201,994 1,544,082 Changes in assets and liabilities Receivable other 6,881,269 (2,786,803) Inventory 428, ,340 Other assets (555,983) (822,064) Continued on next page

31 CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY Statements of Cash Flows For Years Ended September 30, 2011 and Accounts payable $ (14,097,559) $ 28,517 Accrued expenses (478,151) 278,084 Deferred rent 56,064 56,064 Interest payable (26,803) (26,595) Net cash used in operating activities $ (142,288,124) $ (138,107,619) The accompanying notes are an integral part of the financial statements. 31

32 Notes to the Financial Statements For the Years Ended September 30, 2011 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity Capital Metropolitan Transportation Authority (Capital Metro) is a corporate body and political subdivision of the State of Texas. Capital Metro was established by a referendum on January 19, 1985 to provide mass transportation service to the greater Austin metropolitan area. Capital Metro commenced operations on July 1, Capital Metro is governed by an eight-member Board of Directors (Board) which has governance responsibilities over all activities related to Capital Metro. During the year ended September 30, 2009, the Legislature of the State of Texas enacted Senate Bill 1263, effective September 1, 2009, relating to the composition of the Board of Directors of certain metropolitan transit authorities. As a result of the enacted legislation, all of the members serving on the Board are appointed in accordance with Section , Transportation Code. Capital Metro is not included in any other governmental reporting entity as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards. The appointed members of the Board have the authority to make decisions, possess the power to designate management, have the responsibility to significantly influence operations, and maintain primary accountability for fiscal matters. As required by accounting principles generally accepted in the United States of America, these financial statements present Capital Metro (the primary government) and its component unit, StarTran, Inc. (StarTran), a corporation organized under the Nonprofit Corporation Act of the State of Texas. Although it is legally separate from Capital Metro, StarTran is reported as if it were part of Capital Metro because it was incorporated for the purpose of providing employee services to operate mass transit service on behalf of Capital Metro. Pursuant to the contract effective January 1, 1992, between Capital Metro and StarTran, Capital Metro provides all resources needed for business operations and the necessary administrative support needed for StarTran s operations. StarTran is accounted for as a blended component unit in the financial statements of Capital Metro and has a September 30 fiscal year end. Nature of Operating and Non-operating Activities Capital Metro accounts for its operations as a proprietary fund. Proprietary funds are accounted for on the flow of economic resources measurement focus and revenue and expenses are recognized on the accrual basis. In accordance with Statement No. 20 of the Governmental Accounting Standards Board (GASB) Capital Metro has adopted a policy to not follow accounting standards issued by the Financial Accounting Standards Board (FASB) after November 30, 1989, effective October 1, The Authority s primary activity is transit operations designed to provide high quality, customer focused, effective and efficient transportation services and systems for its communities. Transit operations include planning bus routes, customer service, special transit services, purchased transportation services, maintaining equipment, facilities and buses, hiring and training personnel who deliver transit services, and providing security, administration and management of the transit system. Capital Metro also owns and maintains a rail freight line. Operations include managing the rail freight contract and maintenance of the track and track infrastructure. In November 2004, citizens of the Capital Metro service area voted in favor of allowing the agency to operate urban commuter rail service from Leander, Texas to downtown Austin, Texas. Commuter rail service became operational in the March of

33 Notes to the Financial Statements For the Years Ended September 30, 2011 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Non-operating expenses include: 1. Mobility projects and programs to help fund future transportation projects. These projects must improve regional mobility, improve mass transit, leverage federal or private funds, add to an existing program and expedite a critical mobility project. These projects are governed by an interlocal agreement between Capital Metro and the City of Austin. Title to the capital assets belongs to the City of Austin. 2. Programs to fund street maintenance, emergency street repair, transit corridor improvements, pedestrian and bicycle safety/access, sidewalks, transit centers, and transit capital improvements. Operating revenue includes passenger fares generated from directly operated services, third party fares generated from contracted services and railroad freight revenue. Non-operating revenue consists of the one percent sales tax levied in the Authority s service area, federal operating grants that are received on a reimbursement basis, investment income and other income generated from advertising commissions. Inventory Inventory consists of parts, fuel, and facilities and building maintenance supplies and is stated at cost (weighted average method). Capital Assets Capital assets for capitalization and financial reporting purposes are all items purchased that have a useful life of more than one year, are of a tangible nature and have a value of $5,000 or more. Capital assets are recorded at cost and are depreciated over their useful lives using the straight-line method as follows: Estimated Useful Lives Buildings and improvements Passenger parking stations Railroad/leasehold improvements Revenue equipment Other equipment Office furniture and fixtures 40 years 5 20 years 10 years 2 12 years 3 5 years 5 years Depreciation related to assets used in specific functions is included with each program. Indirect depreciation is presented as a separate line in the Statement of Revenue, Expenses and Changes in Net Assets. Expenditures for renewals and betterments that increase property lives are capitalized, and maintenance and repair costs are charged to operations as incurred. Revenue Recognition: Operating Revenue Passenger fares and charter services are recorded as revenue when the ticket is sold, regardless of when it is used. 33

34 Notes to the Financial Statements For the Years Ended September 30, 2011 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Sales and Use Tax Revenue Sales tax revenue is accrued on a monthly basis based on information provided by the Comptroller of Public Accounts. Capital Metro receives allocations on a monthly basis. The Board of Directors approved an increase in the sales tax effective October 1, 1995, from ¾ cent to a full cent. Sales tax revenues account for approximately 80% and 74% of revenues in fiscal years 2011 and 2010, respectively. Capital Replacement and Improvement Grants Capital Metro funds its capital improvements with sales taxes and grants from the Federal Transit Administration (FTA). Grant revenue is recognized when all eligibility requirements have been met. The grantor retains a reversionary interest in the capital asset over the estimated useful life of that asset. Compensated Leave Substantially all employees of Capital Metro and StarTran are eligible to receive compensation for vacations, holidays, illness and certain other qualifying leave. For certain kinds of leave, the number of days compensated is generally based on length of service. Vacation leave, which has been earned and vested but not paid, has been accrued in the accompanying financial statements. Sick leave for Capital Metro and StarTran administrative employees, which has been earned and vested but not paid, has been accrued in the accompanying financial statements for those employees with five (5) years or more of service. Statements of Cash Flows For purposes of the statement of cash flows Capital Metro considers all demand deposits to be cash. Unrestricted cash and investments purchased by Capital Metro within three months of maturity are also considered to be cash equivalents. Income Taxes StarTran was incorporated to operate as a nonprofit corporation and does not intend to earn a profit during its association with Capital Metro. However, for federal income tax purposes, StarTran is required to file the necessary federal income tax returns under a for-profit status, and is therefore subject to income tax on any profit earned during the year. Accordingly, StarTran accounts for income taxes under the guidance of Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes. During 2011 and 2010, there were no material differences between the recognition of revenues and expenses for tax and financial statement purposes. There was no tax expense for 2011 and Cash and Investments Cash and Cash Equivalents include cash on hand, cash in banks, cash held in escrow and treasury bills and treasury notes with original maturities of less than 90 days. Investments are stated at fair value (See Note 2). In December 2011, the Board of Directors of Capital Metro revised and adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act (Chapter 2256, Texas Government Code). Capital Metro is authorized to invest in obligations and instruments as defined in the Act. All investments held by Capital Metro are made in accordance with Capital Metro s Investment Policy. Capital Metro uses investment strategies and procedures that most effectively accomplish the primary goals of preservation of capital and liquidity to meet all obligations in a timely manner. Earnings will be maximized as a subsidiary goal and from the full investment of all available funds. 34

35 Notes to the Financial Statements For the Years Ended September 30, 2011 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Net Assets Net assets on the Statement of Net Assets include the following: Invested in capital assets, net of related debt the component of net assets that reports capital assets less both the accumulated depreciation and the outstanding balance of debt that is directly attributable to the acquisition, construction or improvement of these capital assets. Unrestricted the difference between the assets and liabilities that are not reported in net assets invested in capital assets, net of related debt, or restricted net assets. Risk Management Capital Metro is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; business interruption; errors and omissions; injuries to employees and natural disasters. Commercial insurance coverage is purchased for claims arising from such matters. During fiscal year 2011 and 2010, Capital Metro was covered under a variety of insurance policies at a cost it considers to be economically justifiable. Capital Metro has commercial insurance for all other risks of loss, except workers compensation and employee health and dental benefits, including employee life and accidental insurance. Claims have not exceeded insurance coverage in each of the past three years. Capital Metro is self-insured up to $350,000 per occurrence for losses related to workers compensation. (See Note 14) Capital Metro has purchased excess coverage through a commercial insurer licensed in the State of Texas. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Comparative Financial Statements Comparative amounts for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in Capital Metro s financial position and operations. 2. DEPOSITS AND INVESTMENTS Cash At September 30, 2011 and 2010, deposits with financial institutions were fully insured, or collateralized by securities held by a third party agent in Capital Metro s name Carrying Amount 2010 Carrying Amount Cash & Cash Equivalents Demand deposits $ (1,271,841) 1,457,682 Cash equivalents 21,153,304 18,411,407 Total Cash and Cash Equivalents $ 19,881,463 19,869,089 35

36 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEPOSITS AND INVESTMENTS, continued Investments Chapter 2256 of the Texas Government Code, (the Public Funds Investment Act) authorizes Capital Metro to invest its funds under a written investment policy that ensures the safety of principal, provide liquidity and optimize return on investments with the constraints of safety and liquidity. Capital Metro deposits and investments are invested pursuant to the Investment Policy, which is approved annually by the Board of Directors. The Investment Policy includes a list of authorized investments, a maximum allowable stated maturity of individual investments and the maximum average dollar weighted maturity allowed for pooled funds. It includes an Investment Strategy Statement that addresses matching anticipated cash flows with adequate investment liquidity, and a portfolio structure which will experience minimal volatility during economic cycles. The Investment Committee meets quarterly and submits an investment report to the Board of Directors that details the investment position of Capital Metro and the compliance of the investment portfolio as it relates to both the adopted investment strategy statements and the Texas State law. Capital Metro is authorized to invest in the following securities: 1. Obligations of the United States or its agencies and instrumentalities. 2. Direct Obligations of the State of Texas. 3. Other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or is agencies and instrumentalities. 4. Obligations of states, agencies, counties, cities and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and giving received a rating of not less than A or its equivalent. 5. Bankers Acceptances with a stated maturity of 270 days or less from the date of issuance that will be, in accordance with its terms, liquidated in full at maturity; is eligible for collateral for borrowing from a Federal Reserve Bank; and is accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A-1 or P-1 or an equivalent rating by at least one nationally recognized credit rating agency. 6. Commercial paper with a stated maturity of 270 days or less form the date of issuance that either is rated not less that A-1, P-1 or the equivalent by at least two nationally recognized credit rating agencies or is rate at least A-1, P-1, or the equivalent by at least one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any state thereof. 7. Fully collateralized repurchase agreements having a defined termination date and described in more detail in the Investment Policy. 8. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed y the full faith and credit of this State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States. 9. SEC-regulated, no load money market mutual funds. 10. Local government investment pools. Capital Metro participates in three Local Government Investment Pools. TexPool The State Comptroller of Public Accounts exercises oversight responsibility over TexPool, the Texas Local Government Investment Pool. Oversight includes the ability to significantly influence 36

37 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEPOSITS AND INVESTMENTS, continued operations, designation of management and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed both of participants in TexPool and of other persons who do not have a business relationship with TexPool. The Advisory Board members review the investment policy and management fee structure. Finally, TexPool is rated AAAm by Standard & Poor s. As a requirement, to maintain the rating, weekly portfolio information must be submitted to Standard & Poor s, as well as the office of the Comptroller of Public Accounts for review. TexPool operates in a manner consistent with the SEC s Rule 2a-7 of the Investment Company Act of As such, TexPool uses amortized cost to report net assets and share prices since that amount approximates fair value. As of September 30, 2011 and 2010, Capital Metro s investment in TexPool was $10,167, and $10,154, respectively, or 0.1% of the total portfolio. TexasTERM/TexasDAILY TexasDAILY is also a Texas Local Government Investment Pool. The Advisory Board of TexasTERM has oversight responsibility and reviews the investment policy and management fee structure. It is rated AAAm by Standard & Poor s. As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poor s. TexasDAILY operates in a manner consistent with SEC s Rule 2a-7 of the Investment Company Act of As such, Texas/DAILY uses amortized cost to report net assets and share prices since that amount approximates fair value. Texas/DAILY s bylaws permit the Advisory Board to suspend the right of withdrawal or to postpone the date of payment in the event that the Federal Reserve Bank in Dallas is closed other than for customary weekend and holiday closings or if, in the opinion of the Advisory Board, an emergency exists so the disposal of Texas/DAILY s securities or determination of its net asset value is not reasonably practical. As of September 30, 2011 and 2010, Capital Metro s investment in TexasDAILY was $21,132,141 and $18,390,272, respectively, or 99.9 % and 99.9%, respectively, of the total portfolio. TexSTAR TexSTAR is another local government investment pool created under the Interlocal Cooperation Act. It is administered by J.P. Morgan Chase and First Southwest Asset Management, Inc. and is rated AAAm by Standard & Poor s. As a requirement to maintain the rating, weekly portfolio information must by submitted to Standard and Poor s. TexSTAR operates in a manner consistent with SEC s Rule 2a-7 of the Investment Company Act of As such, TexSTAR uses amortized cost to report net assets and share prices since that amount approximates fair value. TexSTAR reserves the right to suspend the right of withdrawal or to postpone the date of payment in the event that the Federal Reserve is closed other than for customary weekend and holiday closings, in the event of a general suspension of trading in any securities market which affects TexSTAR operations or if, in the opinion of the Board, an emergency exists so the disposal of TexSTAR s securities or determination of its net asset value is not reasonably practical. As of September 30, 2011 and 2010, Capital Metro s investment in TexSTAR was $10,996 and $10,981, respectively, or 0.1% of the total portfolio. Capital Metro did not participate in any reverse repurchase agreements or security lending agreements during fiscal year 2011 or Custodial Credit Risk All of Capital Metro s investments are required to be insured, registered or held in Capital Metro s name by Capital Metro s agent; therefore, Capital Metro is not exposed to custodial credit risk. 37

38 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEPOSITS AND INVESTMENTS, continued Interest Rate Risk As a means of minimizing risk of loss due to interest rate fluctuations, investment maturities will not exceed the anticipated cash flow requirements of Capital Metro funds. This is accomplished by purchasing quality, short-to-medium-term securities that will complement each other in a laddered or barbell maturity structure. Maturity guidelines state that the dollar weighted average days to final stated maturity shall be 548 days or less. Securities may not be purchased that have a final stated maturity date which exceeds five years. The Capital Metro investment advisor monitors the maturity level and makes changes as appropriate. At September 30, 2011, Capital Metro s exposure to interest rate risk as measured by the segmented time distribution by investment type is summarized as follows: 9/30/2011 Fair Value Investment Maturities in Years Less than 1 Less than TexPool $ 10,167 10,167 TexasDAILY 21,132,141 21,132,141 TexSTAR 10,996 10,996 Total Investments $ 21,153,304 21,153,304 At September 30, 2010, Capital Metro s exposure to interest rate risk as measured by the segmented time distribution by investment type is summarized as follows: 9/30/2010 Fair Value Investment Maturities in Years Less than 1 Less than TexPool $ 10,154 10,154 TexasDAILY 18,390,272 18,390,272 TexSTAR 10,981 10,981 Total Investments $ 18,411,407 18,411,407 Credit Risk Capital Metro s investment policy seeks to control credit risk by investing in compliance with the policy, qualifying the broker and financial institution with whom Capital Metro will transact, sufficient collateralization, portfolio diversification, and limiting maturity. As of September 30, 2011, Capital Metro s exposure to credit risk by investment category as rated by Standard & Poor s is as follows: 9/30/2011 Fair Value Rating TexPool $ 10,167 AAAm TexasDAILY 21,132,141 AAAm TexStar 10,996 AAAm Total Investments $ 21,153,304 38

39 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEPOSITS AND INVESTMENTS, continued As of September 30, 2010, Capital Metro s exposure to credit risk by investment category as rated by Standard & Poor s is as follows: 9/30/2010 Fair Value Rating TexPool $ 10,154 AAAm TexasDAILY 18,390,272 AAAm TexStar 10,981 AAAm Total Investments $ 18,411,407 Concentration of Credit Risk Capital Metro diversifies its investment portfolio so that reliance on any one issuer or broker will not place an undue financial burden on Capital Metro. Capital Metro limits its repurchase agreement exposure with a single firm to no more than 15% of the value of Capital Metro s overall portfolio and its commercial paper and banker s acceptance exposure with a single issuer to no more than 5% of the value of Capital Metro s overall portfolio. Local government investment pools are authorized at 100%. 3. RECEIVABLES Receivables at September 30, 2011 and 2010, respectively, consist of the following: Accounts receivable $ 2,591,429 9,476,373 Federal grants receivable 7,578,876 2,099,382 Sales tax 27,227,556 24,266,126 Allowance for doubtful accounts (14,149) (17,824) Total receivables $ 37,383,712 35,824,057 Receivables are reviewed to determine if they are collectible and a provision for uncollectible accounts is charged when collection is doubtful. 39

40 Notes to the Financial Statements For the Years Ended September 30, 2011 and ACCOUNTS AND RETAINAGE PAYABLE AND ACCRUED EXPENSES Current payables and retainage at September 30, 2011 and 2010, respectively, consist of the following: Vendors payable $ 14,906,467 28,878,980 Health and dental self-insurance 1,520,000 1,324,000 Worker s compensation self-insurance 1,360,000 1,590,000 Retainage 754, ,015 Total payables and retainage $ 18,541,436 32,638,995 Accrued expenses at September 30, 2011 and 2010, respectively, consist of the following: Accrued salaries $ 1,485,354 2,149,469 Accrued vacation 2,299,235 2,153,199 Accrued sick leave 3,545,931 3,537,948 Accrued post employment benefits 371, ,096 Accrued Build Central Texas 15,436 Accrued other 431, ,259 Total accrued expenses $ 8,132,820 8,626, DESIGNATED NET ASSET and RESERVE POLICY Certain net assets are designated through board directives for specific uses. Effective January 1, 2003, Capital Metro became self-insured for health and dental benefits for Capital Metro and StarTran employees. As of September 30, 2011 and September 30, 2010, $7.8 million is designated. During fiscal year 2010, Capital Metro adopted a reserve policy which includes five components cash flow reserve, capital project reserve, operating reserve, self-insurance reserve, and a budget stabilization reserve. The reserves are to be used at the discretion of the Capital Metro Board of Directors to fund temporary cash flow shortages, capital, operating, and self-insurance costs not in the budget, and/or emergencies or economic downturns. As of September 30, 2011 no funds had been allocated to these reserve accounts. 6. BUILD CENTRAL TEXAS (FORMERLY BUILD GREATER AUSTIN) The Build Greater Austin Program was renamed by the Board of Trustees at the September 2004 meeting to Build Central Texas Program to better reflect the program objectives. Build Central Texas (BCT) is still comprised of two primary segments: the Build Central Texas Program with the City of Austin and the Suburban Communities Program with the surrounding communities. The Public Transportation Mobility Fund (PTMF) commitment was a precursor to these agreements. 40

41 Notes to the Financial Statements For the Years Ended September 30, 2011 and BUILD CENTRAL TEXAS (FORMERLY BUILD GREATER AUSTIN), continued The total commitment for the programs is outlined below Build Central Texas $ 79,039,427 PTMF 5,492,467 Suburban Communities 18,456,639 Total commitment $ 102,988,533 As of September 30, expenditures by Capital Metro under the programs, since inception, are as follows: Build Central Texas/PTMF $ 76,282,923 75,264,799 Suburban Communities 16,324,634 16,251,773 Total expenditures $ 92,607,557 91,516,572 Either Capital Metro or the City of Austin may terminate the agreement at any time, per the provisions of Section 15 of the Build Greater Austin interlocal agreement. In no way will such termination affect Capital Metro s obligation to make payments for work completed on projects previously approved for funding. Expenses are accrued when the respective city incurs an expenditure for an approved project. 7. LEASES Capital Metro has entered into a lease agreement for certain real property that extends to 50 years. The non-cancelable lease commitment expires in October The aggregate minimum annual lease commitment under the term of the foregoing lease is as follows: Fiscal Year Ended September 30 Operating Leases 2012 $ 182, , , , , ,136,118 Total lease commitment $ 8,049,053 41

42 Notes to the Financial Statements For the Years Ended September 30, 2011 and LEASES, continued For the five year increment from , the five year rental expense is $920,550. Rent expense was $181,064 for the years ended September 30, 2011 and Currently Capital Metro is on a month to month lease for office space for general office purposes. 8. LONG TERM LIABILITIES On September 27, 2006, Capital Metro entered into a promissory note for the purchase of property located on Johnny Morris Road in Austin, Texas in the amount of $2,484,164. This note was secured by a deed of trust from the Borrower which covers the real and personal property described in the deed of trust. Capital Metro had the obligation to pay interest only at 6% simple interest on the first day of each quarter (being October, January, April and July) of approximately $37,000 of each year until the Note was due and paid in its entirety on September 27, In November 2004, the citizens of the Capital Metro service area voted in favor of allowing Capital Metro to operate urban commuter rail service from Leander, Texas to downtown Austin, Texas. In February 2006, the Capital Metro Board of Directors approved a tax exempt lease/purchase financing agreement for the funding of rail vehicles. The Master Lease/Purchase Financing Agreement dated March 1, 2006 between Banc of America Leasing and Capital, LLC and Capital Metro was executed on March 9, 2006 to purchase six rail cars from Stadler Bussnang AG, a corporation organized under the laws of Switzerland. The financed amount was $36,044,935 with an interest rate of %, payments due quarterly on the 15th of October, January, April and July of each year beginning on October 15, 2006 for 10 years in the payment amount of $1,100,281. In December 2011, Capital Metro refinanced this note in the amount of $19,190,263 with an interest rate of 2.48%, payments due quarterly on the 15th of January, April, July and October of each year beginning on January 15, 2012 for 7 years in the payment amount of $745,260. The balance was $19,968,234 as of September 30, Debt Service Requirements Master Lease Financing Agreement Yearly Service Requirements Principal Interest 2012 $ 1,980, , ,578, , ,642, , ,708, , ,776, , ,846, , ,917,312 63, ,666 4,593 Total $ 19,190,263 1,677,004 42

43 Notes to the Financial Statements For the Years Ended September 30, 2011 and LONG TERM LIABILITIES, continued Changes in Long-Term Liabilities The changes in long-term liabilities for the year ended September 30, 2011 are as follows: Balance as of 09/30/10 Additions Payments Balance as of 09/30/11 Amounts Due Within One Year Accrued vacation $ 2,153,199 3,369,912 (3,223,876) 2,299,235 1,340,781 Accrued sick leave 3,537,948 2,483,846 (2,475,863) 3,545,931 1,077,746 Note payable 2,484,164 (2,484,164) Rail lease purchase 23,531,167 (3,562,933) 19,968,234 3,699,337 Deferred rent 250,406 56, ,470 City of Austin ILA 9,481,465 4,970,479 (2,214,258) 12,237,686 3,398,795 Other benefits 403,096 (31,819) 371,277 Total $ 41,841,445 10,880,301 (13,992,913) 38,728,833 9,516,659 The changes in long-term liabilities for the year ended September 30, 2010 are as follows: Balance as of 09/30/09 Additions Payments Balance as of 09/30/10 Amounts Due Within One Year Accrued vacation $ 2,031,079 3,186,524 (3,064,404) 2,153,199 1,510,900 Accrued sick leave 3,241,454 2,497,967 (2,201,473) 3,537, ,721 Note payable 2,484,164 2,484,164 2,484,164 Rail lease purchase 26,962,723 (3,431,556) 23,531,167 3,562,932 Deferred rent 194,342 56, ,406 City of Austin ILA 5,041,556 4,439,909 9,481,465 2,214,258 Other benefits 425,000 (21,904) 403,096 Total $ 40,380,318 10,180,464 (8,719,337) 41,841,445 10,631, COMMITMENTS Capital Metro has a capital spending plan for projects for upcoming and future years. Capital Metro s 2011 capital budget has appropriations of approximately $44.6 million. Capital Metro s contractual commitments related to its capital improvement plan are approximately $23.7 million as of September 30, Capital Metro has executed contracts with various goods and services providers totaling approximately $175.5 million with termination dates through September All contracts contain a termination for convenience clause in which such contracts may be terminated, in whole or in part, for the convenience of Capital Metro. Capital Metro and the City of Austin are parties to an Interlocal Agreement of Regional and Transportation Projects dated June 2001 (Regional Mobility). This interlocal agreement allocated $42 43

44 Notes to the Financial Statements For the Years Ended September 30, 2011 and 2010 COMMITMENTS, continued million to expedite regional mobility projects in the region. As of September 2011 and 2010, Capital Metro had a remaining balance of $7.0 million and $10.5 million, respectively under this portion of the agreement. Annual payments are expensed each year and are reflected in the Statement of Revenues, Expenses and Changes in Net Assets as mobility program expense when the Capital Metro Board of Directors annually approves the commitment. $3.5 million was approved for FY2011 and Capital Metro has entered into an Interlocal Agreement with the City of Austin, as amended in April 2010, to pay the City of Austin its pro rata share of 25% of Capital Metro s one-cent sales tax from 2001 to 2004 in consideration for the City to carry out transportation mobility projects as approved by Capital Metro (ILA). The remaining balance outstanding as of September 30, 2011 was $48.8 million. The amount is payable when the City of Austin incurs an expenditure toward an approved mobility project. As of September 30, 2011, approximately $8.8 million is accrued in the accompanying Statement of Net Assets as a long term liability and $3.4 million is accrued as a short term liability. As specified in the agreement, payment is due to the City if the current year sales tax revenue exceeds the base amount as defined. Capital Metro developed and implemented a plan for a Fuel Risk Management Program to mitigate fuel price risk for diesel and gasoline, protect and manage budget objectives, and reduce price volatility and introduce price predictability. This may be accomplished by purchasing financial instruments known as futures, swap and/or options. This program began in December On September 30, 2011, Capital Metro s hedge consisted of 20% coverage or 84,000 gallons per month of usage from October 2011 through September These outstanding swaps had a total cost of $137,947 with a negative fair value of $28,583 resulting in an unrealized loss of $166,530 as of September 30, (k) PLANS Capital Metro and StarTran have a pension benefits plan for its full time employees and substantially all administrative employees, respectively, under a 401(k) defined contribution plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investments earnings. Employees are eligible to participate after six months of service. In January 2005, Capital Metro and StarTran ended the employer contribution to the plan for Capital Metro and StarTran administrative employees. The plan allows loans to participants. Participants start to vest in the employer s contribution at the completion of one year of service with 100% vesting occurring after five years. Capital Metro and StarTran s designated Plan Administrator administers the plan. Capital Metro and StarTran maintain the authority to amend the plan. Contributions from participating employees for Capital Metro and StarTran totaled $781,649 and $1,336,920 respectively, for FY 2011 and $735,451 and $1,305,507, respectively, for FY DEFINED BENEFIT RETIREMENT PLANS Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc. The Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran, Inc., (the Plan), which covers substantially all full-time transportation and maintenance employees is a contributory single-employer, defined benefit pension plan sponsored by Capital 44

45 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEFINED BENEFIT RETIREMENT PLANS, continued Metro. The Plan became effective March 1, 1958 and was amended September 2002 when the plan was converted to governmental status and the plan sponsor was changed to Capital Metro effective January 1, The annual pension cost for 2010 has been computed using the provisions of GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. All Plan assets are maintained under a trust agreement. Under the terms of the trust agreement, Smith Barney Corporate Trust (the Trustee) serves as trustee on behalf of the Plan and carries out an investment policy established by the Retirement Plan Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations. The following is a description of the Capital Metropolitan Transportation Authority Retirement Plan for Bargaining Unit Employees of StarTran Inc.: Plan Description The Retirement Plan Committee for the Plan is the administrator of a single-employer defined benefit pension plan sponsored by Capital Metro. Eligible employees of StarTran, Inc. are covered by the Plan. Employees who are covered under the applicable collective bargaining agreements and who work at least 1,000 hours per year are eligible to become participants after one year. The following table summarizes membership of the plan at January 1, Retirees and beneficiaries currently receiving benefits 200 Terminated plan members entitled to, but not yet receiving benefits 159 Active plan members 710 Total 1,069 The Plan provides retirement, death and disability benefits. The retirement benefits become 100% vested after 5 years of vesting service at 20% a year. Employees may retire with unreduced accrued benefits at age 65, or when benefit accrual service equals or exceeds 25 years. The monthly benefit at retirement is payable in a ten year certain and life thereafter form of annuity. If participants terminate employment (for reasons other than death or disability) prior to becoming vested, such participants shall be entitled to a refund equal to the sum of all mandatory contributions made by the participant plus interest on such contributions compounded annually at a rate of 3% for years prior to March 1, 1976 and 5% for years after March 1, 1976 until March 1, 1988 at which time the interest credited for subsequent plan years is an amount equal to 120% of the Federal midterm rate in effect at the beginning of the plan year. Retirement benefit payments are determined by application of a benefit formula based on the participant s years of pension credited service. Effective July 1, 2000, the monthly retirement benefit for each year of benefit accrual service is $60.00 for years earned. There are no automatic or guaranteed post-retirement cost-of-living adjustments, but ad hoc retiree benefits increases may be created via plan amendments. Amendments to the plan are made only with the authority of the Retirement Plan Committee. 45

46 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEFINED BENEFIT RETIREMENT PLANS, continued The most recently available financial statements of the fund are for the year ended December 31, A copy of the Plan s annual audit may be obtained from: Capital Metropolitan Transportation Authority 2910 East Fifth Street Austin, Texas Funding Policy The employer makes contributions, which are actuarially determined as of each valuation date and compliant with the terms of applicable labor contracts, which currently call for employer contributions to be made equal to 4.3% of participant payroll. The contributions consist of a normal cost contribution and an amortization of the unfunded actuarial accrued liability contribution. Employees are required to contribute to the plan at a rate equivalent to 4.3% of Top Operators hourly wages. Unfunded actuarial accrued liability contributions are determined as a level percent of payroll contribution. The Retirement Plan Committee has the sole authority to establish or to amend the obligations to contribute to the plan either by the employer or the participants. The annual required employer contribution for the 2010 plan year was 4.3% of the total participant pension compensation during the period January 1, 2010 through December 31, The current annual required employer contribution for the 2011 plan year is 4.3% of total participant pension compensation during the period January 1, 2011 through December 31, The 2011 plan year employer contribution funded the normal cost and amortized the existing unfunded actuarial accrued liability on a closed 30-year, level percent of payroll amortization, with 28 years remaining as of the January 1, 2011 valuation amortization period. The costs of administering the plan are paid by the plan, and are considered in the determination of the required employer contribution rate. Annual Pension Cost For the 2010 and 2009 plan year, the employer s annual pension cost was $1,787,676 and $1,587,125, the annual required contribution (ARC) was $1,797,529 and $1,600,850 and the actual contribution was $1,384,464 and $1,395,797. With the January 1, 2003 actuarial valuation, the actuarial cost method changed from Frozen Age Actuarial Cost Method to the Entry Age Normal Cost Method and that method was used to determine the required contribution as part of this actuarial valuation. The actuarial assumptions included (a) an 7.5% investment rate of return (net of investment expenses) and (b) projected retirement ages varying by attained age. The plan does not provide for periodic increases in post retirement benefits unless specifically amended. The most recent such amendment provided for a post retirement benefit increase of 10% effective March 1, The investment return assumption reflects an inflation component of approximately 3%. The actuarial value of plan assets was a 4-year smoothing method such that the actuarial value of assets is within 20% of market value. Only 25% of cumulative market fluctuations are recognized in each year. The unfunded actuarial accrued liability is being amortized as a level percent of payroll on a closed 30-year amortization period. The following table illustrates the Net Pension Asset. 46

47 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEFINED BENEFIT RETIREMENT PLANS, continued Plan Year Ended 12/31 Annual Pension Cost Employer % Annual Amount Pension Cost Contributed Contributed Interest on 7.50% ARC Adjustment NPO/(NPA) Balance 2008 $ 1,309,356 $ 1,278, % $ (66,773) $ (45,617) $ (803,483) ,587,125 1,395, % (60,261) (46,536) (612,155) ,787,676 1,384, % (45,912) (36,059) (208,943) The following table illustrates the funding status of the plan as of the most recent valuation date, January 1, Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b)-(a) Funded Ratio (a)/(b) Annual Covered Payroll c UAAL as a Percentage of Covered Payroll (b-a)/c 1/1/2011 $ 30,066,112 $ 52,937,617 $ 22,871, % $ 30,523, % Six year historical trend information designed to provide information about the pension fund s progress made in accumulating sufficient assets to pay benefits due and the fund s funding progress about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AALs for benefits is presented in Required Supplementary Information. Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees The Capital Metropolitan Transportation Authority Retirement Plan for Administrative Employees (the Plan) was established on January 1, 2005 as a non-contributory single-employer, defined benefit pension plan sponsored by Capital Metro. The Plan covers all full-time administrative employees of Capital Metro and provides retirement, death, and disability benefits. The annual pension cost for 2010 has been computed using the provisions of GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. All Plan assets are maintained under a trust agreement. Investors Bank & Trust Co. serves as trustee on behalf of the Plan and carries out an investment policy established by the Retirement Plan Committee, consistent with the purposes of the Plan and the requirements of applicable laws and regulations. The following is a description of the Capital Metropolitan Transportation Authority Plan for Administrative Employees: Plan Description The Retirement Plan Committee for the Plan is the administrator of a single-employer defined benefit pension plan sponsored by Capital Metro. Eligible employees of Capital Metro are covered by the Plan. A full-time administrative employee of Capital Metro becomes a plan member on the first day of the month coincident with or next following his/her date of hire. The following table summarizes membership of the plan at January 1,

48 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEFINED BENEFIT RETIREMENT PLANS, continued Retirees and beneficiaries currently receiving benefits 42 Terminated plan members entitled to, but not yet receiving benefits 74 Active plan members 265 Total 381 The plan provides retirement, death and disability benefits. A plan member shall become vested in his/her accrued benefit based on the following table: Years of Vesting Service Vested Percentage Less than 1 year 0% 1 to less than 2 20% 2 to less than 3 40% 3 to less than 4 60% 4 to less than 5 80% 5 or greater 100% Employees may retire at age 65. The monthly benefit at retirement is equal to the sum of one and one-half percent (1½%) of the Plan member s average annual compensation times the years of credited service plus one-half percent (1/2%) of the Plan member s average annual compensation in excess of covered compensation times years of credited service. The normal form of payment is a life annuity. If a member is married on his retirement date, the automatic form of payment is an actuarially equivalent 50% joint and survivor annuity, unless the member elects otherwise. A member may elect early retirement on the first day of any month following the completion of five (5) years of service and attainment of age 55. The most recently available financial statements of the fund are for the year ended December 31, A copy of the Plan s annual audit may be obtained from: Capital Metropolitan Transportation Authority 2910 East Fifth Street Austin, Texas Funding Policy The Plan is funded by employer contributions. The actuarial cost method used to determine the normal cost and contribution amounts of the Plan was changed from Aggregate to Entry Age Normal Actuarial Cost Method in this valuation. The asset valuation method has been changed to a 5-year smoothing method. In the first year of this method, the actuarial value of assets is equal to market value. The initial Normal Cost is the annual cost of projected benefits for all employees who are eligible for funding. It is determined on a level percentage of payroll basis from entry age the age at which an employee would have first been consider for funding assuming the Plan had always been in effect to assumed exit age. After the initial year, the Normal Cost also reflects the spreading of actuarial gains or losses. 48

49 Notes to the Financial Statements For the Years Ended September 30, 2011 and DEFINED BENEFIT RETIREMENT PLANS, continued Annual Pension Cost The Plan does not require member contributions. For the 2010 and 2009 plan year, the annual pension cost was $1,943,633 and $1,790,783, the annual required contribution (ARC) was $1,938,413 and $1,777,727 and the actual contribution was $2,545,542 and $1,380,002. The actuarial method is Entry Age Normal Actuarial Cost Method, the asset valuation method is market value, the investment rate of return is 7.5%, the projected salary increase is 4.0%, and the inflation factor of 0%. The following table illustrates the Net Pension Obligation/Asset. Plan Year Ended Annual Pension Cost Employer Amount Contributed % Annual Pension Cost Contributed Interest on 7.50% ARC Adjustment NPO/(NPA) Balance 1/1/2008 $ 1,619,550 $ 2,161, % $1,398 $ 1,515 $ (544,540) 1/1/2009 1,790,783 1,380, % (40,841) 53,897 (133,759) 1/1/2010 1,943,633 2,545, % (10,032) 15,252 (735,688) The following table illustrates the funding status of the plan as of the most recent valuation date, January 1, Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b)-(a) Funded Ratio (a)/(b) Annual Covered Payroll c UAAL as a Percentage of Covered Payroll (b-a)/c 1/1/2011 $ 11,505,697 $ 16,213,307 $ 4,707, % $ 16,565, % Six year historical trend information designed to provide information about the pension fund s progress made in accumulating sufficient assets to pay benefits due and the fund s progress about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AAL s for benefits is presented in Required Supplementary Information. 49

50 Notes to the Financial Statements For the Years Ended September 30, 2011 and CAPITAL ASSETS Changes in capital assets for fiscal 2011 were: Capital Assets Balance as of 09/30/2010 Additions Retirements Transfers & Completed Projects Balance as of 09/30/11 Capital assets not being depreciated: Land and improvements $ 52,591, , ,246 53,464,669 Construction in process 7,167,942 10,612,587 (11,447,835) 6,332,694 Total capital assets not being depreciated 59,759,264 10,990,688 (10,952,589) 59,797,363 Other capital assets: Building and improvement 83,730, ,540 84,420,220 Railroad 114,030, , ,028,241 Buses and equipment 236,530,267 (7,423,351) 7,100, ,207,013 Passenger parking & stations 68,511,701 2,165,330 70,677,031 Leasehold improvements 82,198 82,198 Total other capital assets 502,885,465 (7,423,351) 10,952, ,414,703 Less: accumulated depreciation Building and improvement 29,429,151 3,220,407 32,649,558 Railroad 39,476,507 11,364,235 50,840,742 Buses and equipment 144,240,957 16,227,513 (7,279,036) 153,189,434 Passenger parking & stations 16,757,238 3,868,054 20,625,292 Leasehold improvements 82,196 82,196 Less: accumulated depreciation 229,986,049 34,680,209 (7,279,036) 257,387,222 Total capital assets, net $ 332,658,680 23,689,521) (144,315) 308,824,844 Changes in capital assets for fiscal 2010 were: Capital Assets Balance as of 09/30/2009 Additions Retirements Transfers & Completed Projects Balance as of 09/30/10 Capital assets not being depreciated: Land and improvements $ 52,591,322 52,591,322 Construction in process rail 35,873,022 (35,873,022) Construction in process 99,423,556 15,276,421 (107,532,035) 7,167,942 Total capital assets not being depreciated 187,887,900 15,276,421 (143,405,057) 59,759, Continued on next page

51 Notes to the Financial Statements For the Years Ended September 30, 2011 and CAPITAL ASSETS, continued Capital Assets Balance as of 09/30/2009 Additions Retirements Transfers & Completed Projects Balance as of 09/30/10 Other capital assets: Building and improvement $ 75,392, ,160 7,856,131 83,730,680 Railroad 63,768,426 50,262, ,030,619 Buses and equipment 183,183,246 (7,578,928) 60,925, ,530,267 Passenger parking & stations 44,150,917 24,360,784 68,511,701 Leasehold improvements 82,198 82,198 Total other capital assets 366,577, ,160 (7,578,928) 143,405, ,885,465 Less: accumulated depreciation Building and improvement 26,340,124 3,089,027 29,429,151 Railroad 30,195,869 9,280,638 39,476,507 Buses and equipment 135,874,570 15,767,181 (7,400,794) 144,240,957 Passenger parking & stations 13,619,859 3,137,379 16,757,238 Leasehold improvements 82,196 82,196 Less: accumulated depreciation 206,112,618 31,274,225 (7,400,794) 229,986,049 Total capital assets, net $ 348,352,458 (15,515,644) (178,134) 332,658,680 Capital Metro owns certain real properties and a mass transit easement, which are used for current rail operations and held for future mass transit purposes. Such property is listed at cost. 13. CONTINGENCIES AND NEW INITIATIVES Various claims have been asserted against Capital Metro from personal injuries involving Capital Metro property. Capital Metro plans to vigorously defend all allegations. Capital Metro has estimated the probable loss from such asserted claims, and a liability has been incurred and is reflected in the financial statements. Certain other claims have been asserted for which estimation of potential loss, if any, cannot be determined. Potential losses on these claims, if any, are not included in the financial statements. Capital Metro receives federal grants that are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under terms of the grant. Capital Metro s management believes such disallowances, if any, will not have a material effect on the financial statements. 14. SELF-INSURANCE Worker s compensation claims are reserved and paid in accordance with the provisions of the Texas Worker s Compensation Act. Claims that are probable and can be reasonably estimated are accrued as a part of accounts payable. The self-insurance retention levels as of September 30, 2011 for worker s compensation are $350,000 per occurrence. At September 30, 2011, there are no claims exceeding Capital Metro s retention limits. 51

52 Notes to the Financial Statements For the Years Ended September 30, 2011 and SELF INSURANCE, continued Workers Compensation Claims Beginning of year liability $ 1,590,000 1,730,000 Current year claims and/or changes in estimates 558, ,513 Claim payments (788,297) (815,513) End of year current liability $ 1,360,000 1,590,000 The end of year liability includes claims incurred and reported and estimated claims incurred but not reported. Capital Metro has been self-insured for health and dental since January 1, United Health Care, Inc. administers the plan for Capital Metro and StarTran employees. Health and Dental Self-Insurance Beginning of year liability $ 1,324,000 2,054,000 Current year claims and/or changes in estimates 13,980,871 12,497,098 Claim payments (13,784,871) (13,227,098) End of year current liability $ 1,520,000 1,324,000 Due to the types of risk self-insured, the ultimate amount to be paid out may be more or less than the amounts accrued within accounts payable at September 30, Capital Metro has a contingent liability in the event the insurer is unable to fulfill its responsibility under the contract. 15. LIQUIDITY Capital Metro unrestricted net assets increased from $15.8 million as of September 30, 2010 to $29.5 million as of September 30, The FY2011 sales tax rebounded significantly from $141.9 million in FY2010 to $151.2 million in FY The FY2012 budget was presented to the Board of Directors which reflected total revenues of $206.1 million, total operating expenses of $176.7 million, and expected capital outlays and mobility expenses of $29.9 million. Management anticipates that its existing resources will be adequate to satisfy its liquidity requirements for FY If available liquidity is not sufficient to meet its obligations as they come due, management plans include further reductions in spending for operations and capital projects and/or possible additional financing for selected capital projects. 52

53 Notes to the Financial Statements For the Years Ended September 30, 2011 and SUBSEQUENT EVENTS During FY2012, Capital Metro will transition to a new labor structure, dissolving StarTran and instead contracting with private companies to provide fixed route and paratransit operations. February 2012 the Board approved a long term financing agreement with BBVA Compass Bank in the amount of $20,000,000 for bus purchases. This is a 10 year note, an interest rate of 2.15%, callable after April 2017 with interest due each October 1 and April 1 beginning in October 2012 and principal payments annually on April 1 of each year beginning in April

54 Required Supplementary Information, (Unaudited) For the Year Ended September 30, 2011 Governmental Accounting Standards Board Statement No. 27 Defined Benefit Retirement Plan CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY RETIREMENT PLAN for BARGAINING UNIT EMPLOYEES OF STARTRAN INC. Schedule of Funding Progress and Employer Contributions Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b)-(a) Funded Ratio (a)/(b) Annual Covered Payroll c UAAL as a Percentage of Covered Payroll (b-a)/c 1/1/2006 $ 22,654,874 $ 35,600,887 $ 12,946, % $ 26,653, % 1/1/ ,005,809 39,022,696 13,016, % 27,816, % 1/1/ ,115,679 41,740,149 12,624, % 26,434, % 1/1/ ,592,035 45,202,519 18,610, % 28,401, % 1/1/ ,725,459 49,261,768 19,536, % 30,548, % 1/1/ ,066,112 52,937,617 22,871, % 30,523, % Plan Year Ended Dec. 31 Annual Required Contributions Actual Contributions Percentage Contributed 2005 $ 1,203,095 $ 1,248, % ,284,336 1,305, % ,373,061 1,292, % ,330,512 1,278, % ,600,850 1,395, % ,797,529 1,384, % See accompanying independent auditors report. 54

55 Required Supplementary Information, (Unaudited) For the Year Ended September 30, 2011 Governmental Accounting Standards Board Statement No. 27 Defined Benefit Retirement Plan CAPITAL METROPOLITAN TRANSPORTATION AUTHORITY RETIREMENT PLAN for ADMINISTRATIVE EMPLOYEES Schedule of Funding Progress and Employer Contributions Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b)-(a) Funded Ratio (a)/(b) Annual Covered Payroll c UAAL as a Percentage of Covered Payroll (b-a)/c 1/1/2006 $ 1,596,016 $ 6,299,049 $ 4,703, % $ 15,267, % 1/1/2007 3,315,373 7,397,605 4,082, % 15,515, % 1/1/2008 4,966,693 7,679,799 2,713, % 17,437, % 1/1/2009 5,849,277 9,974,856 4,125, % 18,995, % 1/1/2010 8,451,210 13,669,027 5,217, % 17,330, % 1/1/ ,505,697 16,213,307 4,707, % 16,565, % Plan Year Ended Dec. 31 Annual Required Contributions Actual Contributions Percentage Contributed 2005 $ 1,562,352 $ 1,562, % ,575,061 1,575, % ,555,024 1,555, % ,616,637 2,161, % ,777,727 1,380, % ,938,413 2,545, % See accompanying independent auditors report. 55

56 This page intentionally left blank.

57 2011 Statistical Section Comprehensive Annual Financial Report