Audit and Finance Subcommittee

MEETING OF THE Audit and Finance Subcommittee MEETING DATE February 9, 2017 TIME LOCATION 11:00 a.m. Valley Metro 101 N. 1st Ave., 10th Floor Lake Mead Conference Room (10B) Phoenix, AZ 85003 VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 602-262-7433

February 2, 2017 Audit and Finance Subcommittee Thursday, February 9, 2017 10th Floor, Lake Mead Conference Room (10B) 101 N. 1st Avenue, 10th Floor 11:00 a.m. Action Recommended 1. Public Comment 1. For information A 15-minute opportunity will be provided to members of the public at the beginning of the meeting to address the AFS on all agenda items. The Chair may recognize members of the public during the meeting at his/her discretion. Up to three minutes will be provided per speaker or a total of 15 minutes total for all speakers. 2. Minutes 2. For action Minutes from the January 12, 2017 AFS meeting are presented for approval. 3. Executive Session 3. For possible action The AFS may vote to enter into Executive Session pursuant to A.R.S. 38-431.03(A)(1) to discuss applications for employment or appointment of the Manager Internal Audit. 4. Executive Session Action Items 4. For possible action The AFS may take action related to items discussed as part of agenda item 3. ITEMS FOR JOINT AGENDA 5. Fiscal Year 2017 Quarterly Reports 5. For information The Finance Quarterly Report is provided as an informational update. 6. Contracts, Awards, Amendments, and Change Orders 6. For information Paul Hodgins, Chief Financial Officer, will update the AFS on upcoming contracts, awards, amendments, and change orders. VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

ITEMS FOR RPTA AGENDA 7. Fiscal Year 2016 (FY16) Comprehensive Annual Financial Report (CAFR) and Single Audit Reporting Package (SARP) 7. For action Staff recommends that the AFS forward to the Board of Directors acceptance of the FY16 Comprehensive Annual Financial Report and Single Audit Reporting Package. 8. Fare Policy Adjustments 8. For action Staff recommends that the AFS forward to the Board of Directors for approval the proposed special event pass and the elimination of the on-board premium for 1-Day Passes. ITEMS FOR METRO AGENDA 9. Fiscal Year 2016 (FY16) Valley Metro Rail, Inc. Comprehensive Annual Financial Report (CAFR) and Singe Audit Reporting Package (SARP) 9. For action Staff recommends that the AFS forward to the Board of Directors acceptance of the Comprehensive Annual Financial Report and Single Audit Reporting Package for the period ended June 30, 2016. 10. Future AFS Agenda Items Request 10. For information Chair Klapp will request future AFS agenda items from members. 11. Next Meeting 11. For information The next meeting of the AFS is March 9, 2017 at 12:00 p.m. Qualified sign language interpreters are available with 72 hours notice. Materials in alternative formats (large print, audiocassette, or computer diskette) are available upon request. For further information, please call Valley Metro at 602-262-7433 or TTY at 602-251-2039. To attend this meeting via teleconference, contact the receptionist at 602-262- 7433 for the dial-in-information. The supporting information for this agenda can be found on our web site at www.valleymetro.org

DATE AGENDA ITEM 1 February 2, 2017 SUBJECT Public Comment on Agenda Action Items PURPOSE The public will be provided with an opportunity at this time to address the AFS on all agenda items. Up to three minutes will be provided per speaker to address all agenda items unless the Chair allows more at his/her discretion. A total of 15 minutes for all speakers will be provided. BACKGROUND/DISCUSSION/CONSIDERATION None COST AND BUDGET None COMMITTEE PROCESS None RECOMMENDATION This item is presented for information only. CONTACT Paul Hodgins Chief Financial Officer 602-262-7433 phodgins@valleymetro.org ATTACHMENT None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

DATE February 2, 2017 Summary Minutes Valley Metro RPTA Audit and Finance Subcommittee Thursday, January 12, 2017 Lake Mead Conference Room 101 N. 1 st Avenue, 10 th Floor Phoenix, AZ 12:00 p.m. Members Present Councilmember Suzanne Klapp, Chair Councilmember Thelda Williams, City of Phoenix Councilmember Eric Orsborn, City of Buckeye Councilmember Skip Hall, City of Surprise via phone Chair Klapp called the meeting to order at 12:03 p.m. 1. Public Comment None. 2. Minutes Minutes from the November 28, 2016 AFS meeting were presented for approval. IT WAS MOVED BY COUNCILMEMBER ORSBORN, SECONDED BY COUNCILMEMBER WILLIAMS AND UNANIMOUSLY CARRIED TO APPROVE THE NOVEMBER 28, 2016 AFS MINUTES. 3. RPTA Fiscal Year 2017 (FY17) Mid-Year Budget Adjustment Paul Hodgins, Chief Financial Officer, provided a presentation and brief summary of changes to the RPTA Fiscal Year 2017 (FY17) Mid-Year Budget Adjustment. The presentation included the following: Operations Activities Operating Funding Capital Activities Uses of Funds Sources of Funds Recommendation VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

Councilmember Orsborn asked, with the continued success of the Dial-A-Ride and increase in its ridership, will there be a point where we would start directing people towards buses? Mr. Hodgins said that we are looking at different ways to provide transportation. Valley Metro has made public transportation more convenient by eliminating transfers and offering four dollar taxi rides from Surprise to Mesa and these are not shared rides. In the paratransit contact that Valley Metro is in negotiations with, and is going to the Board next month, the model is being changed by restricting ADA trips to within some cities service areas and providing larger share rides to make it not so convenient. Valley Metro is looking at the delivery model within the contract and will be considering other parameters. Scott Smith said that more detail will be provided at the January Board meeting from Valley Metro s paratransit group. The presentation will address some of these issues. Changes in ridership behavior will be encouraged and is desired. However, the needs of riders need to be met at the same time putting a cap on the cost. The new contract will be geared to creating shared ride. Chair Suzanne Klapp noted that this system has been publicized as a non-transfer, if someone takes a vehicle to a train that theoretically would be a transfer. Mr. Smith said that this would be one thing that would be considered going forward. He noted that regional service demand has plateaued at approximately 10,000-11,000 riders a month and that it has only been about six months but ridership has leveled out. Councilmember Williams asked if all the cities require ADA certification. Mr. Smith answered no. The city of Mesa allows senior citizens to use dial-a-ride and they do not have to be certified. Councilmember Williams asked if any cities offer the cab option. Mr. Smith answered yes and that alternative services are in development to meet these requests. Cab vouchers will differ from city to city. He said that the goal is to get uniformity across the region. Chair Klapp asked when improvements are made to bus stops if the improvements include plans for shade. Mr. Hodgins said that it depends on the level of improvement. If funding is available, every effort is made to include shade. First priority is to ensure that the bus stop meets ADA requirements and is ADA accessible. Second priority may be shade, bench, and those types of things. It also depends on the location, if right-of-way is available and is really on a case by case basis. Mr. Smith said that shade is driven by nature of bus stop. The vast majority of the bus stops are at a sidewalk where there is not room to have both a sidewalk and a bus stop. 2

Chair Klapp asked for clarification of whether there is a bench is there a plan to provide shade. Mr. Hodgins said that typically if there is a bench, there is also shade. If there is no right-ofway, then a bench cannot be placed at a shelter and still have ADA accessibility. Mr. Smith said that Valley Metro does not own the bus stops. Each of the cities owns the bus stops in their jurisdiction. Valley Metro is a conduit to perform the improvements that the cities decide to do. Councilmember Hall asked if the capital reduction will increase maintenance costs. Mr. Hodgins said that with the items being deferred, costs will not increase. These are replacement buses, and in some cases, expansion buses that Valley Metro is not ready to purchase yet. It likely will not increase maintenance costs. Deferrals are generally six to 12 months and will not have a huge impact. The fare box upgrade project will help by decreasing maintenance costs for the fare box maintenance. Chair Klapp requested a motion. IT WAS MOVED BY COUNCILMEMBER ORSBORN, SECONDED BY COUNCILMEMBER WILLIAMS AND UNANIMOUSLY CARRIED TO FORWARD TO THE BOARD OF DIRECTORS APPROVAL OF THE FY17 RPTA MID-YEAR BUDGET ADJUSTMENT. 4. VMR Fiscal Year 2017 (FY17) Mid-Year Budget Adjustment Paul Hodgins, Chief Financial Officer, provided a presentation and brief summary of changes to the RPTA Fiscal Year 2017 (FY17) Mid-Year Budget Adjustment. The presentation included the following: Operations Projects Capital Projects Uses of Funds Sources of Funds Recommendation Councilwoman Williams asked if there is already a budget for each project even though it might not be in this fiscal year s budget. Mr. Hodgins said yes there is already a budget for each project. We estimate what is going to be spent this year or whether to defer some of the budget, yet it does not change the overall project budget. It does change the authorization amount for the current year. It becomes confusing when several changes to the budget take place. 3

Mr. Smith said that Mr. Hodgins and Mr. Grote are working on project reporting for each project by using project accounting. Chair Klapp asked if that could be a spreadsheet with columns that show this year, next year, year after that and then the total. Mr. Smith answered yes and went on to explain how the costs are tracked which are done on a pure project costing. It is mirroring the project costing with the financial reporting which is what is preferred to track each project budget. Chair Klapp asked if the project tracking and financial reporting are being done on two different financial systems. Mr. Hodgins and Mr. Smith replied yes. Chair Klapp said that is the issue. Councilmember Hall asked if the reporting is already being conveyed in the bar graph. Mr. Smith answered yes. This is why project accounting should be used so that each project budget can be accurately tracked and reported. Mr. Hodgins said that the majority of the projects are changes in timing that do not affect the overall capital project. The projects that are new expenditures, the pedestrian crossing and the sewer work, are both funded by city of Mesa. The last item under system-wide improvements, the Mobility on Demand grant that Valley Metro received, is new. The grant added about $600,000 of which $500,000 is federal and $100,000 is regional PTF. These are the true new items, the other items are shifting timing within existing project budgets. Mr. Hodgins said that staff will work with this subcommittee so that it can be presented to the board. Mr. Hodgins restated the capital projects changes. Overall, a $40 million decrease in the FY17 Valley Metro Rail Mid-Year Budget. Staff recommends the AFS forward to the Board of Directors to authorize the Valley Metro Rail FY17 Mid-Year Budget Adjustment. Chair Klapp asked for a motion. IT WAS MOVED BY COUNCILMEMBER WILLIAMS, SECONDED BY COUNCILMEMBER ORSBORN AND UNANIMOUSLY CARRIED TO FORWARD TO THE BOARD OF DIRECTORS APPROVAL OF THE FY17 VALLEY METRO RAIL MID- YEAR BUDGET ADJUSTMENT. 4

5. Valley Metro Fiscal Year 2018 (FY18) Preliminary Operating and Capital Budgets Paul Hodgins, Chief Financial Officer, provided information and update on the development of the Valley Metro FY18 Preliminary Operating and Capital Budgets and key assumptions. Mr. Hodgins said there will be a change in philosophy as to how to approach projects starting next year. He explained the color coded bar charts, how they highlight all the projects in progress and how the projects overlap with the timing and what staff is facing as they deliver projects to the Board members. The Gilbert Road Extension, 50 th Street Station, and Tempe Streetcar are on the first page. These three projects are all within the same time frame to be completed in 2019-2020 and are all in various stages of design or construction and right-of-way activity. Second page is the South Central Extension, Northwest Phase II, and Capital I-10 Phase I all three are scheduled to be completed 2023. These three projects overlap with the projects listed on the first page. Third page is the expansion of Valley Metro maintenance facility to accommodate all the vehicles that will be needed for all the projects listed. The last project within the current Transit Life Cycle Program funded by existing Prop. 400 tax is the West Phoenix/Central/Glendale project. This project starts in 2017 and is scheduled to be completed by 2026. All this shows how much overlap there is and how much work is in progress. This is just the Valley Metro Rail side. It is not expanded bus service, Dial-A-Ride service, or expanding the ADA program or fare technology. All these projects are not related to RPTA, it is strictly Valley Metro Rail. Mr. Hodgins said that the majority of staffing requests are related to Valley Metro Rail to get in line with all the ongoing projects. There is a design team for each project so there is lots of concurrent work that needs to be addressed. Mr. Smith said that this information would have looked very different nine to 12 months ago. Some of these projects did not exist nine to 12 months ago. The passage of T2050 created the 50 th Street Station project and accelerated the other three projects from within three to 11 years. Mr. Hodgins said the Capital and Service Development Division has started resource loading, which is considering what staffing is needed to get each project completed and loading what kind of time is needed for each project. This is a timeline based format and CSD has a resource format where the peaks are needed for procurement or design. This is what has driven a lot of the staffing requests for this division. Councilmember Orsborn asked for clarification whether the T2050 is a funding source to the RPTA budget and then RPTA is responsible for construction, management, maintenance and operations and everything else and whatever gets built with Phoenix money. 5

Mr. Smith explained that depending on the project. For example, the Gilbert Road Extension is funded with rededicated federal funds that have run through the regional transportation plan. The 50 th Street Station is funded completely by the city of Phoenix through T2050. South Central Extension project is a mix of funds. The South Central Extension advanced planning is being funded by city of Phoenix, but will be reimbursed over time with regional funds and if it qualifies for federal funds with federal funds. The Tempe Streetcar project is funded by regional funds and federal funds assuming that Congress approves it and a small part of private funds. Each of these projects has a different footprint as to the funding sources. Councilmember Hall suggested presenting the information in a bar graph. Councilmember Orsborn said that the second part of Councilmember Hall s question is to show how much project money is flowing through short-term over the life of the T2050. Mr. Smith explained that staff hopes to accomplish with the project accounting that was discussed earlier, to get a better idea of matching revenue which is a funding cash flow with a timing issue. Federal money is normally reimbursement money. With the project accounting, staff needs to show and discuss what is being spent as well as the timing and source of funds. Mr. Hodgins said it is dependent on the project. With the initial 20-miles, Valley Metro continued to receive federal reimbursement up to two to three years after the project opened. There is not a federal FY17 or federal FY18 budget so there is no saying what will happen moving forward. Valley Metro could be in a position where reimbursements could be delayed in the future. Councilmember Williams asked if we will always have enough funds to cover expenses not covered by reimbursements. Mr. Smith explained that since Valley Metro collects the sales tax from the regional fund on an ongoing basis and it is programmed through 2025, the scheduling is such that Valley Metro has that reserve and has a balance so from a cash flow standpoint, funds are available. However, that will change the closer we get to 2025. Mr. Hodgins said that as of right now there are enough funds to cover expenses and there is some ability to do financing which means borrow the money, if need be, to meet the cash flow. However, as we get closer to the end of the regional tax those funds will go away. The fund balance will start declining and we will not have the ability to do any financing. At that point, we will have to work closely with the cities, particularly if there is a Phoenix project and city of Phoenix is funding it, we will need to work cash flow issues. We do not want regional tax fronting cash for a local project. If there are issues project by project, staff will need to work through it. 6

Councilmember Orsborn said that it would be interesting to see what the graph will look like for construction projects moving forward as the T2050 comes to life. Chair Klapp noted that this is where the next subject of additional staffing request comes in. Mr. Hodgins said there is a lot of work to be done. When looking at the initial 20-miles, 90 to 95 percent of the staff working were consultants. There was very few agency staff. When that project was done, the consultants went away and the agency lost history and some institutional knowledge. When looking at the existing projects over the next 10 years, there is a certain level of work that makes sense to fill in-house rather than with consultants. It is a cost-savings to fill these positions in-house and will give the agency a base of knowledge that will stay within the agency. There are 47 positions and not all will be in lieu of consultants. He breaks down the number of positions requested by each division. Chair Klapp asked if these 47 staff requests are an increased cost to the budget or is it trading consulting dollars for payroll dollars. Mr. Hodgins said that it is not a complete trade because there is growth that the agency needs in some support areas. Any position in lieu of a consultant is a cost-saving. The savings will be difficult to see in the budget because the consultant line item will grow with the level of work. He said that staff is needing to know from AFS/Board of Directors what is needed from the agency to make an informed decision. Councilmember Hall said that in lieu of consultants it would be nice to see net savings and total cost. He asked that staff identify growth. Is it growth in capital project? Councilmember Hall noted that it appears there is not much operational growth. Mr. Hodgins answered that it is really both, capital project and operational growth. Mr. Smith said that the growth is more on the Rail side not so much on the RPTA. He noted that there is 35 percent more miles than there was two years ago with the Central Mesa and Northwest Extension. Councilmember Hall said that would be helpful to know in terms of breaking these positions out. He said it seems as if half of the positions are growth. He also asked that as far as strategic initiatives, what does that mean? Mr. Hodgins said that it is related to the strategic initiatives of the strategic plan that the Board of Directors adopted. He said that in the strategic plan with the initiatives that the Board of Directors adopted last year and that are being looked at this year, there is an initiative to evaluate and enhance safety and security by increasing presence of security to address passenger and employee safety. 7

These positions are being added to address this strategic initiative not necessarily the increase in projects. He added that staff can detail in the chart what strategic initiative is being addressed. Mr. Smith added that he has notes to provide detail as to what is being increase which is actual cost savings of FTE in lieu of consultants, more detail of growth and also provide more detail on the Safety and Security strategic initiative. Councilmember Hall asked for clarification of whether these positions are more office overhead expenditure. Mr. Smith confirmed that these positions are office overhead expenditure. Councilmember Hall asked for clarification of what the relationship is in terms of percentage of total payroll versus total payroll and how this compares on a percentage basis to other transit operations throughout the United States. Mr. Smith said that many of these positions are direct cost related to certain projects. Support services is not overhead as it is truly support services. All of RPTA s services are contracted including bus operators and bus maintenance staff. Valley Metro Rail hires rail operators and maintenance staff as Valley Metro FTE s. Most of security services are also contracted. Throughout the Unites States, some transit authorities have their own transit police department and others contract out their security services. There is no set model for this service. Councilmember Hall added that it would be helpful if staff could break out direct field operations versus administrative. Chair Klapp said that this is a small piece of the budget and what would be helpful is to when the budget is presented to present an overall budget that shows the impact of added positions to payroll costs and the reduction or changes in consultant/professional costs. Councilmember Williams said that she would like to see the cost of salaries and benefits, equipment, additional space and any other impacts. She asked if the added positions will have a significant impact on increases to costs of any of the other cities projects. Mr. Smith said that some positions will not significantly impact the other individual cities projects. They are already budgeted in the current project budget. This is how the agency staffs the projects. If position relates to a project then it is included in the project budget. Councilmember Williams asked if even the position listed as growth are included in the project budget. Mr. Smith said that positions that are project related will not have an impact to the individual cities project costs. When the position is not project related directly there is an overhead allocation for that position. 8

Councilmember Williams said when city of Phoenix comes to agency staff with a project, do they already have analyzed what the project is going to cost based on current operations. Mr. Smith said that each project is budgeted as a sole and separate issue and usually support services is based on percentage of the project budget and included in the preliminary budget. Councilwoman Williams asked if that is the budget that is submitted for the grant. And that she is concerned that it will change the amounts that have already been submitted for the grant. Mr. Smith said that it will not. Anything included that is project related will be covered by the anticipated estimated costs that are already in place for that specific project. Councilmember Williams said that she would like to see a rational explanation of how personnel costs impact budget at the next Board meeting. Councilmember Orsborn concurred and also said that detail needs to accompany this information. Councilmember Hall said that the FY17 budget shows that RPTA and Valley Metro Rail total personnel costs is a difference of eight percent. Symmetry should be reflected in Board presentation. Councilmember Orsborn said that he would like to see some specific examples and comparisons of positions and how the position will impact the project budget and overall budget. 6. Future AFS Agenda Items Mr. Hodgins discussed items on the 2017 Agenda Item Look Ahead and mentioned that the recommendation to hire the Internal Audit Manager will be coming in February or March. 7. Next meeting The next meeting of the AFS is February 9, 2017 at 12:00 p.m. With no further discussion, the meeting was adjourned at 1:36 p.m. 9

DATE AGENDA ITEM 3 February 2, 2017 SUBJECT Executive Session PURPOSE The AFS may vote to enter into Executive Session pursuant to A.R.S. 38-431.03(A)(1) to discuss applications for employment or appointment of the Manager Internal Audit. BACKGROUND/DISCUSSION/CONSIDERATION None COST AND BUDGET None COMMITTEE PROCESS None RECOMMENDATION The AFS may vote to enter into Executive Session. CONTACT Scott Smith Chief Executive Officer 602-262-7433 ssmith@valleymetro.org ATTACHMENT None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

DATE AGENDA ITEM 4 February 2, 2017 SUBJECT Executive Session Action Items PURPOSE The AFS may take action related to items discussed as part of the Agenda Item 3. BACKGROUND/DISCUSSION/CONSIDERATION None COST AND BUDGET None COMMITTEE PROCESS None RECOMMENDATION The AFS may take action related to the items discussed as part of Agenda Item 3. CONTACT Scott Smith Chief Executive Officer 602-262-7433 ssmith@valleymetro.org ATTACHMENT None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

DATE AGENDA ITEM 5 February 2, 2017 SUBJECT Fiscal Year 2017 Quarterly Report PURPOSE To provide an informational update of activities at Valley Metro. BACKGROUND/DISCUSSION/CONSIDERATION The Finance Quarterly Report is provided as an informational update. COST AND BUDGET None COMMITTEE PROCESS TMC/RMC: February 1, 2017 for information AFS: February 9, 2017 for information Boards of Directors: February 16, 2017 for information RECOMMENDATION This item is presented for information only. CONTACT Paul Hodgins Chief Financial Officer 602-262-7433 phodgins@valleymetro.org ATTACHMENTS None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

1/25/2017 Finance Division FY17 Q2 Report February 2017 Valley Metro RPTA Operating Results Q2 RPTA Budget vs. Actual Report $ Millions For the quarter ending December 31, 2016 2nd Quarter Year to Date Operations Expenditures Budget Actual Variance (Unfav.) Budget Actual Variance (Unfav.) Fixed Route Bus 22.1 21.1 1.0 44.2 42.7 1.5 Paratransit 8.0 8.2 (0.2) 16.0 16.3 (0.3) Vanpool 0.2 0.2 0.0 0.5 0.4 0.1 Regional Services 2.9 2.6 0.3 5.8 4.6 1.2 Planning 0.6 0.4 0.2 1.1 0.7 0.4 Administration 0.6 0.4 0.2 1.2 0.9 0.3 METRO Rail (Salary, Fringe, OH) 4.4 3.7 0.7 8.8 7.8 1.0 Total Operations Expenditures 38.8 36.6 2.2 77.6 73.5 4.2 2 1

1/25/2017 Valley Metro RPTA Capital Results Q2 RPTA Budget vs. Actual Report For the quarter ending December 31, 2016 2nd Quarter Capital Expenditures Budget Actual Year to Date Variance (Unfav.) Budget Actual $ Millions Variance (Unfav.) Bus Purchases Valley Metro 6.3 0.0 6.3 12.5 4.3 8.2 Lead Agency 2.0 0.0 2.0 4.0 0.0 4.0 Paratransit Vehicles Lead Agency 0.1 0.0 0.1 0.1 0.0 0.1 Vanpool Vehicles 0.8 0.0 0.8 1.5 0.8 0.7 Other Capital 3.6 0.2 3.4 7.1 0.4 6.7 METRO Rail 20.9 6.5 14.4 41.8 11.3 30.5 Total Capital Expenditures 33.7 6.7 27.0 67.0 16.8 50.2 3 Valley Metro Rail Operating Results Q2 VMR Budget vs. Actual Report For the quarter ending December 31, 2016 2nd Quarter $ Millions Year to Date Operations Expenditures Budget Actual Variance (Unfav.) Budget Actual Rail Operations 11.2 9.5 1.7 22.4 19.0 3.4 Future Project Development 2.7 2.1 0.6 5.5 4.3 1.2 Agency Operating 0.3 0.2 0.1 0.5 0.5 0.0 Total Operating Activities 14.2 11.8 2.4 28.4 23.8 4.6 Variance (Unfav.) 4 2

1/25/2017 Average Fare Per Ride Average Rail Fare FY 2016 History / FY 2017 2nd Quarter Average Fare - 12 Months Rolling by Quarter $1.00 $0.95 $0.90 $0.85 $0.80 $0.75 $0.70 $0.65 $0.60 $0.55 $0.50 $0.88 $0.85 $0.86 $0.85 $0.83 FY16 Q2 FY16 Q3 FY16 Q4 FY17 Q1 FY17 Q2 Budget $0.92 Q2 Q2 Fare Revenue Budget $4,116,000 Fare Recovery Budget 36.7% Fare Revenue Collected $3,246,000 Fare Recovery Actual 33.0% Variance ($870,000) 5 Valley Metro Rail Capital Results Q2 VMR Budget vs. Actual Report For the quarter ending December 31, 2016 2nd Quarter Capital Expenditures Budget Actual Year to Date Variance (Unfav.) Budget Actual $ Millions Variance (Unfav.) Rail Projects Central Mesa 0.5 0.1 0.4 0.9 0.2 0.7 Northwest Extension PH1 1.1 0.4 0.7 2.1 0.6 1.5 Tempe Streetcar 2.0 0.5 1.5 3.0 0.7 2.3 Gilbert Rd 15.0 4.1 10.9 24.0 5.8 18.2 50th St LRT Station 1.6 0.8 0.8 3.2 0.9 2.3 South Central 0.0 0.0 0.0 0.0 0.0 0.0 System wide Improvements 2.6 0.2 2.4 5.2 0.4 4.8 Total Capital 22.7 6.1 16.6 38.4 8.6 29.8 6 3

1/25/2017 Valley Metro Cash Balances 12/31/2016 RPTA Cash balances Cash on hand $24.7 LGIP Investments $33.5 PFM Investments $35.2 Sub total RPTA $93.4 VMR Cash Balances Cash on hand $29.2 LGIP Investments $35.0 PFM Investments $15.1 Sub total VMR $79.3 Debt service funds $36.8 Total Cash balances $209.5 NOTE Public Transportation Funds held by RPTA for rail program are included in VMR balances 7 4

DATE AGENDA ITEM 6 February 2, 2017 SUBJECT Contracts, Awards, Amendments, and Change Orders PURPOSE To provide an update to the Audit and Finance Subcommittee on upcoming Contracts, Awards, Amendments, and Change Order that will be presented to the Boards of Directors for action. The following items will be presented to the Boards of Directors for approval: Extension of Contract with CARE Evaluators, LLC, for Paratransit Eligibility Assessment and Travel Training Services Execute a Change Order to Contract 1040008-S between Valley Metro and CARE Evaluators, LLC for paratransit eligibility assessment and fixed-route travel training services, increasing the contract value by an amount not to exceed $620,045, which includes a ten-percent contract contingency of $56,368, and extending the period of performance to June 30, 2018. Contract Change Orders with Total Transit Enterprises for East Valley, Northwest Valley and Regional Dial-a-Ride Services Execute a contract Change Order with Total Transit Enterprises for contract 1240003-S, in the amount of $309,268 to cover increased demand for Dial-a-Ride service in the East Valley, and to execute a contract Change Order with Total Transit Enterprises for Contract 1040014-S in the amount of $4,681,585 to cover increased demand for Dial-a- Ride services in the Northwest Valley as well as higher than expected demand for newly implemented Regional Paratransit service. Contract Award for the Manufacture and Delivery of Medium Duty Transit Buses Execute a contract through a cooperative agreement with Creative Bus Sales under Arizona State Contract #ADSP016-102778 for the manufacture and delivery of six medium duty 30 transit buses for a not-to-exceed amount of $1,950,000 and to establish a contract change contingency of $97,500 that is included in the overall budget established for the project. East Valley, Northwest Valley and Regional Paratransit Service Contract Award Execute a contract with Transdev for the operation of East Valley, Northwest Valley and Regional Paratransit Services for a total of five years for an amount not to exceed $124.47 million, which includes a base contract cost of $108.34 million, a contract contingency of $10.83 million (10% of the five-year contract value) and a projected pass through reimbursement cost for fuel of $5.30 million. VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

Coupler Equipment Overhaul Execute a 5-year contract with Dellner, Inc. to complete a coupler overall program for the light rail vehicles in an amount not to exceed $2,508,294. Gilbert Road LRT Extension Budget Modification and Construction Manager at Risk Contract Modification Authorization for the Chief Executive Officer to: 1. amend the previously adopted GRE project budget of $162,636,314 to $186,029,221, and 2. execute a contract modification with the Construction Manager at Risk (CM@Risk), Stacy and Witbeck/Sundt, a Joint Venture, to incorporate Phase 2 construction of the GRE project for an amount of $99,999,308 and to authorize staff to hold $4,999,965 (5%) for use as a contingency for unforeseen circumstances. South Central Light Rail Extension Project Funding Agreement Amendment Approval to amend the existing funding agreement with the City of Phoenix for the South Central Light Rail Extension for Phoenix to add $50,000,000 for Valley Metro to complete remaining work during the Federal Transit Administration (FTA) New Starts Project Development phase, Engineering Phase and for pre-construction activities. This action is contingent upon Phoenix City Council approval to amend the funding agreement with Valley Metro. COMMITTEE PROCESS RTAG: January 17, 2017 for information TMC/RMC: February 1, 2017 all items approved AFS: February 9, 2017 for information Boards of Directors: February 16, 2017 for action RECOMMENDATION This item is presented for information only. CONTACT Paul Hodgins Chief Financial Officer phodgins@valleymetro.org 602-262-7433 ATTACHMENT None 2

DATE AGENDA ITEM 7 February 2, 2017 SUBJECT Fiscal Year 2016 (FY16) Comprehensive Annual Financial Report (CAFR) and Single Audit Reporting Package PURPOSE To request that the AFS forward to the Valley Metro Board of Directors to accept the Comprehensive Annual Financial Report and Single Audit Reporting Package for the period ended June 30, 2016. BACKGROUND/DISCUSSION/CONSIDERATION CliftonLarsonAllen LLP, Certified Public Accountants, has completed the FY16 RPTA audits. Completion of the June 30, 2016 financial statement and Single Audit Act audits indicates Valley Metro s compliance with both state and federal statutory audit requirements as well as adherence to Generally Accepted Accounting Principles in financial reporting. Preparation of a Comprehensive Annual Financial Report demonstrates Valley Metro s commitment to the highest standard of financial reporting for a governmental entity. The accompanying report is submitted for review and acceptance. In planning and performing the audit of the financial statements, CliftonLarsonAllen LLP considered RPTA s internal controls in order to determine auditing procedures for the purpose of expressing opinions on the financial statements and not to provide an opinion on internal controls. During the course of the audit there were no findings. Valley Metro s Comprehensive Annual Financial Report for FY16 received an unmodified opinion and the receipt of the GFOA Certificate of Excellence for the FY15 CAFR demonstrates the commitment to the highest standard of financial reporting for a government entity. Attached you will find a copy of the Auditor s reports and Management Discussion and Analysis section of the CAFR. The complete reports are available on the Valley Metro website at the following URL: http://www.valleymetro.org/publications_reports/annual_reports COST AND BUDGET None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

STRATEGIC PLAN ALIGNMENT This item relates to the following goals and strategies in the Five-Year Strategic Plan, FY 2017 2021: Goal 2: Advance performance based operation o Tactic E: Maintain strong fiscal controls to support Valley Metro s long-term sustainability. COMMITTEE ACTION RTAG: January 17, 2017 for information Financial Working Group: January 17, 2017 for information TMC: February 1, 2017 for action AFS: February 9, 2017 for action Board of Directors: February 16, 2017 for action RECOMMENDATION Staff recommends that the AFS forward to the Board of Directors acceptance of the FY16 Comprehensive Annual Financial Report and Single Audit Reporting Package. CONTACT Paul Hodgins Chief Financial Officer PHodgins@valleymetro.org 602-262-7433 ATTACHMENTS Audit Standards Disclosure The following items are available upon request: Auditor s Opinion CAFR FY16 2016 Management Discussion and Analysis CAFR FY16 Auditor s Opinion Single Audit Reporting Package FY16 2

DATE AGENDA ITEM 8 February 2, 2017 SUBJECT Fare Policy Adjustments PURPOSE To provide information regarding proposed changes to the Regional Fare Policy and seek approval to enter the public information process to obtain feedback on the proposed changes. BACKGROUND/DISCUSSION/CONSIDERATION In 2007, the RPTA Board of Directors established a regional fare policy that identified a target farebox recovery ratio of 25 percent. The regional fare recovery target applies to systemwide fixed route bus and light rail fares and does not include bus circulators or paratransit services. In FY15 the actual regional fare recovery was 24% and decreased in FY16 to 21.8%. Overall regional bus and rail ridership declined by 4.5 percent from 2015 levels. An increase to the base fare and overall fare structure is not recommended by the working group. However, an increase in base fare or in the price of certain passes may be required in the future. With this understanding, the Fare Policy Working Group has evaluated options to increase fare revenue and/or promote ridership. Two proposals have been recommended for implementation. On-Board Premium The premium charge for purchasing the 1-Day Pass is recommended to be eliminated. The premium charge for purchasing the pass on board was implemented in response to operational issues with the implementation of the fare collection system. The premium was implemented in order to expedite bus boarding, reduce fare box problems and shorten dwell times at bus stops. There are some concerns that there would be a significant increase in demand for pass sales on-board the buses. This could result in operational issues, such as were seen when the 1-Day Passes were first introduced. Staff believes that demand for on-board sales will not be as significant moving forward for several reasons. Customers have many more retail locations to purchase fare media, and valley Metro and its regional partners are working on fare technology upgrades, such as mobile ticketing, which should reduce the demand for paper passes.

Special Event Fare Recent large special events have shown a demand for special fare instruments to accommodate large numbers of participants over multiple days. Currently event attendees would have to purchase 1-Day Passes or a 7-Day Pass to use the system. Event sponsors have some interest in purchasing passes for their attendees, but would prefer a single pass that is valid for only the days the event. To accommodate these requests, staff is recommending that a special event pass be implemented. The pass would use a smart card, similar to the platinum pass. The cards would be coded to be valid for up to one day prior and one day after the event to allow for travel to and from the airport. The passes would be charged on a per use basis, up to a maximum price in accordance with the average daily pricing for existing pass types (see table below). In addition, there would be an up-front fee of $1.50 per card. Special event passes would not be available to the general public, but would only be sold to event sponsors. Eligible events would be ones that are at least 2 days in length with a minimum of 100 cards purchased. Price per Day Number of Days Basis pf Price $4.00 2-3 1-Day Pass $2.85 4-7 7-Day Pass $2.20 8-15 15-Day Pass $2.00 16 or more 31-Day Pass For instance, if an event sponsor wants 100 cards valid for 5 days (3 day event plus one day before and after for travel), there would be an up-front fee of $150 for the cards and each card would be charged per use up to a maximum of $14.25. The usage fees per card would be billed after the event, similar to the current Platinum Pass Program. Title VI Analysis Valley Metro and City of Phoenix Staff have reviewed the proposed changes for conformance to the Valley Metro Title IV Policy Guidelines. There are no known issues with changes to the fare structure as proposed. A Title VI analysis is underway to analyze the fare structure with respect to eliminating the premium for on-board purchases of the 1-Day Pass and is expected to be completed prior to Board action. No Title VI analysis is required to implement the special event pass, as it is a different medium using existing pass prices. Public Involvement Process Upon the Board s consent to move the proposed fare policy changes forward, staff will initiate a public involvement program consisting of online and offline resources to inform the public on the fare policy changes. Public comment will be collected using online survey, Intercept surveys at busy transit locations region wide, open houses at region wide meeting rooms, webinar, tweet chat and formal public hearings. 2

The special event pass is proposed to be effective March 1, 2017. The elimination of the on-board premium is proposed to be effective July 1, 2017. COST AND BUDGET Costs to implement changes to the fare changes have been included in the FY17 Adopted Operating Budget and FY17-21 Five Year Operating Forecast. COMMITTEE PROCESS RTAG January 17, 2017 for information TMC February 1, 2017 approved AFS February 9, 2017 for action Board of Directors February 16, 2017 for action RECOMMENDATION Staff recommends that the AFS forward to the Board of Directors for approval the proposed special event pass and the elimination of the on-board premium for 1-Day Passes. CONTACT Paul Hodgins Chief Financial Officer 602-523-6043 PHodgins@valleymetro.org ATTACHMENTS None 3

2/2/2017 Fare Policy Changes February 2017 Recommended Changes Special event pass pricing Eliminate 1-Day Pass on-board premium 2 1

2/2/2017 Special Event Pass Limited time pass valid for special events Not available to general public Passes sold to event sponsor/organizing committee Multiple day events Minimum 2 day event May include 1 day before or after for travel Minimum of 100 participants 3 Special Event Fare Pricing recommendation Platinum pass type of program Fee of $1.50 per card Pay by use up to a maximum for event Event maximum calculated by multiplying $4.00 per day for 2-3 days $2.85 per day for 4-7 days $2.20 per day for 8-15 days $2.00 per day for 16 or more days Valid for local bus and rail 4 2

2/2/2017 Special Event Fare Example For 500 Passes valid for 4 days Maximum event cost per pass 4 days x $2.85 $11.40 Maximum exposure for all passes $5,700 Plus: Pass cost 500 x $1.50 $750 Maximum cost to event sponsor $6,450 For 200 Passes valid for 8 days Maximum event cost per pass 8 days x $2.20 $17.60 Maximum exposure for all passes $3,520 Plus: Pass cost 200 x $1.50 $300 Maximum cost to event sponsor $3,820 5 On-Board Premium Eliminate $2.00 premium for 1-Day Pass 1 day pass reduced from $6 to $4 standard rate Addressing operational concerns Changed environment since implementation of premium Customers have many retail options for purchasing pass Mobile ticketing and other fare technology upgrades Title VI analysis being conducted 6 3

2/2/2017 Implementation Dates Special Event Pass March 1, 2017 Eliminate On-Board Premium July 1, 2017 7 Recommendation Staff recommends that the AFS forward to the Board of Directors for approval the proposed special event pass and the elimination of the on-board premium for 1- Day Passes. 8 4

DATE AGENDA ITEM 9 February 2, 2017 SUBJECT Fiscal Year 2016 Valley Metro Rail, Inc. Comprehensive Annual Financial Report (CAFR) and Single Audit Reporting Package (SARP) PURPOSE To request acceptance of the Comprehensive Annual Financial Report (CAFR) and Single Audit Reporting Package (SARP) for the period ended June 30, 2016. BACKGROUND/DISCUSSION/CONSIDERATION In October 2002, the cities of Glendale, Mesa, Phoenix, and Tempe formed Valley Metro Rail, Inc. (METRO), an Arizona public nonprofit corporation. METRO is responsible for the planning, designing, construction, and operation of the Light Rail Transit (LRT) System in the region. The fiscal year ended June 30, 2016 is the thirteenth full year of operation as a separate entity. The By-Laws of the Corporation require an annual audit to be performed of the financial records by a certified public accountant. In addition, all recipients of federal grant funds are required to have an audit performed in compliance with the Single Audit Act provisions. The reports contained in the attached Comprehensive Annual Financial Report meet these requirements for the period ended June 30, 2016. All reports are prepared in conformity with generally accepted accounting principles. METRO is required to have an independent audit of expenditures of federal awards received (Single Audit Act) directly from federal agencies or passed through by other governmental entities during the period. The standards governing Single Audit Act engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the internal control over compliance and other matters having a direct and material impact on major programs, with special emphasis on internal controls and compliance requirements involving the administration of major federal awards. CliftonLarsonAllen LLP has completed the METRO audits for the period ended June 30, 2016. Completion of the June 30, 2016 financial statement and Single Audit Act audits produced no findings. METRO s Comprehensive Annual Financial Report for Fiscal Year 2016 received an unmodified opinion. Attached you will find a copy of the Independent Auditor s Report, Management Discussion and Analysis section of the CAFR, Audit Standards Disclosure and Single Audit Reporting Package Reports. VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433

The complete CAFR and SARP reports are available on our website at the following URL: http://www.valleymetro.org/publications_reports/annual_reports COST AND BUDGET None STRATEGIC PLAN ALIGNMENT This item relates to the following goals and strategies in the Five-Year Strategic Plan, FY 2017 2021: Goal 2: Advance performance based operation o Tactic E: Maintain strong fiscal controls to support Valley Metro s long-term sustainability. COMMITTEE PROCESS RTAG: January 17, 2017 for information Financial Working Group: January 17, 2017 for information RMC: February 1, 2017 approved AFS: February 9, 2017 for action Board of Directors: February 16, 2017 for action RECOMMENDATION Staff recommends that the AFS forward to the Board of Directors acceptance of the Comprehensive Annual Financial Report and Single Audit Reporting Package for the period ended June 30, 2016. CONTACT Paul Hodgins Chief Financial Officer Phodgins@valleymetro.org 602-523-6043 ATTACHMENTS Audit Standards Disclosure The following items are available upon request Auditor s Opinion CAFR FY16 2016 Management Discussion and Analysis CAFR FY16 Auditor s Opinion Single Audit Reporting Package FY16 2

DATE AGENDA ITEM 10 February 2, 2017 SUBJECT Future Agenda Item Requests PURPOSE For information BACKGROUND/DISCUSSION/CONSIDERATION Chair Klapp will request future agenda items from members. COST AND BUDGET None COMMITTEE PROCESS None RECOMMENDATION This item is presented for information only. CONTACT Paul Hodgins Chief Financial Officer 602-262-7433 phodgins@valleymetro.org ATTACHMENT None VALLEY METRO 101 N 1ST AVE STE 1300 PHOENIX AZ 85003 602-262-7433