2:00 pm i february 16, 2012 - valley metro · seamless transition and thank you to rpta human...

2:00 pm I February 16, 2012

February 9, 2012 To: Chairman Stanton and Members of the METRO Board of Directors From: Stephen R. Banta, Chief Executive Officer Date: February 16, 2012 Time: 2:00 p.m. Location: METRO 101 N. First Ave., 13th Floor Board Room Phoenix, AZ 85003 Please park in the garage in the US Bank Building (enter from Adams Street) and bring your parking ticket to the meeting as parking will be validated. Transit passes will be provided to those using transit. For those using bicycles, please lock your bicycle in the bike rack located on the 2nd level of the parking garage across from the ticket handler booth. METRO Board (Board) members may attend the meeting by teleconference. If you have any questions or need additional information regarding attendance by teleconference, please contact Gina Frackiewicz at (602) 322-4455.

Item Action Requested

1. Call to Order

2. Call to the Audience Information

A 15-minute opportunity will be provided to members of the public at the beginning of the meeting to address the METRO Board on all agenda items. The Chairman may recognize members of the public during the meeting at his/her discretion. Up to three minutes will be provided per speaker.

3. Minutes Action

Summary minutes from the January 18, 2012 Board meeting are presented for review and approval. Please see information attached for Agenda Item 3 for additional information.

METRO Board of Directors Agenda February 9, 2012 Page 2 of 3


4. Chief Executive Officer’s (CEO) Report Information

Stephen R. Banta will brief the Board on current light rail issues. Please see attached ridership information.

Consent Agenda

5. Approval of Consent Agenda Action

The Board is being requested to take action on the Consent Agenda. Board members may request that items be removed from the Consent Agenda.

Items Proposed for Consent

5a. Fiscal Year 2011 Comprehensive Annual Financial Report and Single Audit Act Report

Consent

Staff is requesting the METRO Board (Board) accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, 2011. Please see information attached for Agenda Item 5a for additional information.

Regular Agenda

6. 2012 Federal Policy and Project Priorities Information

Staff is providing information on the METRO funding priorities at the federal level, as well as policies related to the reauthorization of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). Please see information attached for Agenda Item 6 for additional information.

7. Light Rail Vehicle Door Replacement Program Action

Staff is requesting that the Board authorize the CEO to execute a contract with Gaffoglio Family Metalcrafters, Inc. for light rail vehicle car door modifications. Please see information attached for Agenda Item 7 for additional information.

METRO Board of Directors Agenda February 9, 2012 Page 3 of 3


8. RPTA and METRO Board Member Working Group Update Discussion and

Possible Action

The RPTA and METRO Boards have taken actions to combine Chief Executive Officer responsibilities of RPTA and METRO. An update on recent activities will be provided to the Board. The Board may vote to enter into Executive Session according to A.R.S. 38-431.03(A)(3) to take legal advice related to agreements associated with the hiring of a single Chief Executive Officer for METRO and the RPTA.

9. Executive Session Action Items Possible Action

The Board may take action related to items discussed as part of Agenda Item 8.

10. Future METRO Board Agenda Items Information

The Board may request consideration of future agenda items. No additional information is attached.

11. Adjournment Action With 24-hour’s notice, special assistance, including provision of materials in alternate formats, can be provided for persons with sight and/or hearing impairments. Call 602-253-5000 (voice) or 602-261-8208 (TTY) to request accommodations.

AGENDA ITEM 3 Minutes

January 18, 2012 101 North First Avenue

13th Floor – Board Room Phoenix, Arizona

Board Members Present Councilman Tom Simplot, City of Phoenix – Chair Councilmember Dennis Kavanaugh, City of Mesa Councilmember Shana Ellis, City of Tempe (via telephone) Jamsheed Mehta, City of Glendale Councilmember Matt Orlando, City of Chandler

Others Present Chad Heinrich, City of Tempe Bryan Jungwirth, RPTA Bob Reiss, Gannett Fleming Jeff Rosen

1. Call to Order

Chairman Simplot called the meeting to order at 9:50 a.m.

2. Call to the Audience

Mr. Jeff Rosen wished everyone a Happy New Year and reported that he has not had any problems with the signs on the light rail. He also requested to retract the comment he made at the December 2012 meeting about not showing up. He spoke to Ms. Hillary Foose and more signs are in the works and that’s all he needs to know and he will be showing up.

3. Minutes

IT WAS MOVED BY COUNCILMEMBER KAVANAUGH AND SECONDED BY JAMSHEED MEHTA AND UNANIMOUSLY CARRIED TO APPROVE THE NOVEMBER 16 AND DECEMBER 12, 2011 MEETING MINUTES.

4. Chief Executive Officer’s (CEO) Report

Mr. Stephen R. Banta, METRO’s Chief Executive Officer, addressed the following items as part of his report:

METRO Board of Directors Meeting Minutes January 18, 2012 Page 2 of 11

Tempe Streetcar: METRO, as well as Arizona overall, has not been selected to receive TIGER III grant funds. Much of the funding was distributed to rural areas and other types of infrastructure projects. METRO is hopeful and has been informed by the Federal Transit Administration (FTA) about a TIGER IV opportunity in February. METRO is poised to continue the application process for the funding for Tempe Streetcar Project in conjunction with the Small Starts process. It is a regional asset and a viable project and METRO is moving forward with continuing to find funding mechanisms to bring the Tempe Streetcar to fruition. AZ Centennial Transit Pass: Mr. Mario Diaz, Chief Marketing Officer with Regional Public Transportation Authority (RPTA), and his team designed the Arizona Centennial Transit Pass. A complementary keepsake pass was provided to the Board Members. The Pass has been available on the light rail system since January 1, 2012. A media event on January 6 at Central Station kicked off the celebration. It is sold at all transit centers and retail outlets and is available systemwide including fare vending machines at seven light rail stations (Montebello/19th Ave., Central Ave./Camelback Rd., Central Station at both platforms, 44th St./Washington St., Veterans Way/College Ave., Price-101 Freeway/Apache Blvd., Sycamore/Main St.) while supplies last. Ridership: METRO’s December 2011 ridership continues to increase with weekday ridership at 35,379 and the Saturday/Sunday ridership numbers comparing favorably to, or exceeding, other systems in cities of our size. The increase during the month of December is significant due to one less weekday, ASU was in session one less day, and there were fewer attendances at special events (Suns were not playing most of December). Year in Review - 2011: RIDERSHIP HIGHLIGHTS

• Served 13.2 million riders in 2011

o 4.3% more than in 2010

o Averaged 40,712 weekday riders

o Over one million riders per month

• Highest ridership month

o 1,258,711 – October

• Highest ridership days


o 60,437 – Fri., 9/9 (Dbacks, ASU)

o 55,828 – Fri., 4/8 (Dbacks, USAC)

• Annual and Average Daily Ridership

o Consistently surpassing ridership numbers each year

SYSTEM HIGHLIGHTS

• Generated $385,000 in system advertising, including commitment for five, full train wraps for Coors.

o Coors trains are committed through 2013 and $312,000 annually to METRO.

• Completed a 123-space park-and-ride at 7th Ave./Camelback in March using ARRA funding.

• The project also included shade canopies at this lot and two existing park-and-rides.

• Conducted an emergency evacuation drill with City of Tempe atop the Tempe Town Lake Bridge in May. Mr. Jay Harper, Chief of Safety and Security coordinated the drill.

• Launched a solar-cooled light rail station at 3rd Street/Washington in partnership with NRG and the City of Phoenix in July.

• Served nearly 200,000 riders during MLB’s All-Star week with five All-Star train wraps and took part in Red Carpet Parade.

• Developed a mobile website in conjunction with Local First Arizona that shares the locally-owned restaurants and retail within a half-mile of the line.

CENTRAL MESA

• Completed Preliminary Engineering in August.

• Transitioned to a Design-Build approach.

o A team will be on board in spring 2012.

• Received environmental clearance from the Federal Transit Administration in July.

• Received $35.5 million in the FY2012 federal appropriations bill signed in November.


TEMPE STREETCAR

• Completed project definition following an eight-month Community Working Group process Chaired by Councilmember Ellis.

o Determined 13 stop locations and several street configurations.

• Developed Engineering and Urban Design Guidelines for modern streetcar implementation Valleywide.

FUTURE PROJECTS

• Initiated a planning study for a possible 1.9-mile light rail extension from Mesa Drive to Gilbert Road in Mesa.

• Received a $1 million federal grant to conduct an Alternatives Analysis on the South Central Phoenix corridor.

• Received a $2.7 million TIGGER grant award for a solar shade canopy at the Operations and Maintenance Center.

ADMINISTRATION

• “Far surpassed expectations” in Proposition 400 Regional Transportation Plan Performance Audit.

• Completed transition of vehicle maintenance to a METRO function. A seamless transition and thank you to RPTA Human Resources Team, Mr. Ray Abraham, Chief Operations Officer, and the contractor.

o 53 employees to come in-house January 1, 2012.

o Generates annual cost-savings of $1.6 million.

• Contracted with PB-Wong (PM/CM) and HDR (planning support) for up to five years.

2012 ACTIVITIES

• Continue to refine current line; take more active approach in Transit Oriented Development.

• Central Mesa

o Utility relocation – spring

o Funding commitment – summer


• Tempe Streetcar

o Environmental clearance – spring

o Initiate design – fall

• Phoenix West

o Local Preferred Alternative decision – spring

o Environmental analysis – summer

• Northwest construction and South Central Alternative Analysis

2012 PRIORITIES

• System growth in this economy

• Manage federal funding uncertainties.

• Realize and report on benefits of unified fare collection and enforcement program.

• Continue to generate efficiencies with RPTA and member cities.

• Maintain customer focus.

Mr. Banta presented Chairman Simplot with a METRO collage book and thanked him for being the Chair of METRO since 2006. He said it has been a pleasure working with him professionally and personally. Mr. Banta added that a couple of months ago METRO recognized Mayor Gordon for his support and there were a lot of nice things that Chairman Simplot said about Mayor Gordon. However, Chairman Simplot has been the person at the table and needs to be recognized for that.

Regular Agenda

5. Regional Fare Policy Update

Mr. Mario Diaz, Chief Marketing Officer with RPTA, presented information regarding the public input program for a proposed regional fare changes policy. In October 2011, the RPTA Board approved a public outreach process related to the proposed fare policy. The RPTA is the lead on the regional fare changes policy. The Fare Policy Committee comprised of member city staff was involved in the process.

In January, METRO’s Rail Management Committee requested information regarding why the fare change has been proposed. The RPTA Board of


Directors adopted a policy in 2010 to maintain a 25 percent revenue farebox recovery target. This is the percentage of what riders pay to help pay for the system. Currently the recovery is below target.

RPTA has streamlined transit service and significantly reduced administrative costs over the last three years. Route performance and route reduction has been evaluated. Most agencies are faced with large transit deficit in their budgets. In order to deal with this, RPTA is proposing a fare increase as one of the last measures along with or a combination of reducing transit service by eight percent and continuing to reduce administrative costs.

Chairman Simplot stated that METRO is maintaining a recovery above the 25 percent farebox recovery target. How does this fare increase relate to METRO since it is doing better than the bus service. Mr. Diaz stated that METRO is at 30 percent farebox recovery rate. This policy relates to the overall regional system, which for some routes, the farebox recovery rate is in the teens.

Mr. Banta stated the METRO usually does not take a Board action for a fare increase. METRO has followed suit with the regional recommendations. METRO staff usually informs the Board of the recommendations. Staff does not ask for concurrence.

Chairman Simplot stated that in the past, METRO has not made comments regarding this issue. He added that he cannot see the METRO Board recommending a fare increase since METRO is maintaining and improving the farebox recovery. He would appreciate comments at the end of the presentation for the record and perhaps ask METRO staff to formalize and forward comments to the RPTA Board if the METRO Board is inclined.

Mr. Diaz stated that the RPTA fare is ranked the lowest in comparison to six other peer cities. Trends indicate that 80 percent of transit agencies across the United States have cut service or raised fares, or are considering either of those actions. Half of the agencies have already cut service or raised fares due to the trending economic conditions.

The proposed fare changes will impact the local bus and light rail service, Express/RAPID bus service, rural route service, ADA (Americans with Disabilities Act) paratransit (Dial-A-Ride) for City of Phoenix, East Valley and Sun City.

Public outreach included getting information to the public for input. The following outreach was implemented: public relations, news media, advertisements (AZFamily.com/AZ Republic/ValleyMetro.org), vehicle (bus & light rail) announcements, email notices, public hearings, social media.

RPTA provided the public with a handout outlining the current and proposed fare effective July 1, 2012 for their input and asked input on a 25 cent increase to the 1-Ride fare.


A fare change comment card was designed with member city input. The focus of the survey was on the importance of cost and level of transit service available to the transit user; impacts to the consumers’ budget; gauging their level of support for a fare increase; and an area for comments and suggestions.

The last fare increase was adopted in July 2009 and prior to that was 14 years previously. Rather than waiting a long period of time and having to implement a larger increase, implement a smaller increase over more frequent periods of time.

Public input participation generated 1,907 visitors to “Fare Change Input” section on ValleyMetro.org; 98 participated in the electronic survey; 138 mail and email comments; 71 participants at public hearings and printed surveys; 3 registered phone line comments.

The survey results indicated the following:

• The cost of use transit versus the level of service available is slightly more important (54 percent vs. 46 percent)

• Frequent, smaller fare increases have less of a budgetary impact than less request, larger increases

• Sixty-nine percent oppose the fare increase; however, 30 percent are neutral or strongly support it

• With fare increases, it is imperative to not reduce or cut service

• The public expects improved and expanded service for their money

Each city that operates service will need to determine the reductions in their jurisdiction. This fare increase represents approximately $6 million in revenue which is about 8 percent of the existing system.

The RPTA staff will present this information to the Valley Metro Board on January 19, and return in February with a recommendation. The City of Phoenix Council will also be requested to approve or discuss alternatives. If approved, the implementation and testing of the new fare tariff will be from March to June and launch the new fare on July 1. The Fare Policy Committee determined that the new fare should be implemented at the beginning of the fiscal year.

Mr. Banta stated that every major city and every transit agency has reduced service and/or raised fares. The cost of operating and maintaining the quality service has increased. With reduced local, state, and federal support, this is one of the alternative measures to ensure that we continue to provide good valuable service to the customer. If a customer was asked would you rather lose a route or pay more, the answer would likely be pay more. This is a regional discussion and we can address it as a group.


Chairman Simplot asked if staff has analyzed the additional revenue strictly for METRO. Mr. Banta replied that the analysis has not been performed.

Chairman Simplot asked about the impact of the additional revenue on the farebox recovery rate with the fare increase and how would that impact our ability to expand to Mesa and Northwest Phoenix. This could be an argument for endorsing this fare increase even if it is beyond METRO. It can be reason to endorse the fare increase if it provides the opportunity expand Northwest Valley and Mesa from an operational cost perspective. Mr. Banta stated that we have budgeted for the fare increase; however, the budget has not been presented and adopted by the RPTA Board yet. METRO is waiting for the review and approval from the Fare Policy Committee.

Chairman Simplot stated that it would be interesting for him to see the farebox recovery numbers and compare that information to other major cities. He also asked if the other major metropolitan cities have different prices between transit modes. Is there a way to maintain light rail fare rates and increase bus fare rates. Mr. Banta stated that this varies from city to city. Some cities with commuter rail will charge premium fare for a commuter service due to longer routes. Some metropolitan areas and transit authorities offer distance-based fares; whereas, METRO has one flat fare for a complete ride. It is all over the map. You look for optimum in a fare structure for the community and metropolitan region that you serve.

Mr. Diaz stated that RPTA has worked hard to achieve a seamless system in educating and informing the customer that with one pass they can ride both bus and light rail. He added that should the City of Phoenix not approve the fare increase, but the RPTA Board did, we would not want a separate fare in the City of Phoenix vs. the rest of the region. It would be confusing for the customers. The same would be true with different fares for light rail vs. bus.

Chairman Simplot would like to be provided an analysis with different prices for different modes for the presentation to the Phoenix City Council. Paratransit and RAPID services, for example, are distinctive services that could possibly be carved out, especially if their ridership is so low that METRO is subsidizing them.

Mr. Diaz pointed out that the local bus/Link/light rail, Express/RAPID Bus, and ADA Dial-A-Ride customers pay different fares for each mode.

Mr. Mehta asked whether the cuts in bus and Express service factor in with the need to revise the fares. He understands that this is not something that METRO would normally do; however, he is going through Mr. Banta to obtain the information. He stated that three years ago when the last fare increase was discussed in a long time, the economy and the impacts of the economy were not the same as today. We were not going through the same level of cuts. Things started to change about three years ago as it relates to transit and the Life Cycle Program. A decision was discussed to have a three-year timeline to increase the


fare by $0.25 every three years. It was good for that time and perhaps it might still be; however, we do not have that level of information to suggest that with the recent cuts in place that it is still the right thing. Perhaps it is a combination of both to keep the transit service running and intact. We need to differentiate that fact that the cuts are something that we are realizing over the last three years and the rate increase was discussed three years ago prior to the cuts being considered.

Mr. Mehta stated that it is ironic that the fare increases have to be considered regionally, but the services cuts are determined by individual jurisdictions. When it comes to different modes of transportation we are hoping that it would be universally done throughout the valley for all modes of transportation, but the actual cuts, those decisions are made locally based on jurisdictional equity. Three years ago when we had a rate increase, that was not the case. It was a regional system and we were still building the plan. So there are significant changes that have occurred since the last time the RPTA Board considered the decision to have this cycle of three-year increases. Maybe that should also be considered when the RPTA looks into it one more time.

Mr. Diaz clarified that the increase every three years was a goal and to continue monitoring the farebox recovery rate to determine whether an increase would be warranted in that third year. If so, a public involvement process and Board process would be required. It is proposed policy and would not automatically occur.

Councilmember Orlando asked if there was any data to support if we raised fares in one segment (i.e., buses) would that affect the actual ridership for RAPID. Mr. Banta stated that we have multi-modal transfer data and could make an estimated guess of what that would be.

Chairman Simplot asked how this impacts the contract we have with the Phoenix Suns and US Airways Center. Mr. Banta stated that an analysis will be conducted. He added that we looked at the base fare, a particular recovery rate and the average fare that we want to maintain to determine our pricing structure with US Airways Center. If we increased our fares one would think that it would increase that agreement with US Airways Center.

Mr. Diaz stated that a consultant conducted an analysis based on operating costs and a number of statistics to determine the impact of a fare increase on ridership. In the forecast, based on the elasticity in the region, we are looking at a two to three percent drop in ridership in the first year. The year after starts to flatten and pick up again.

Mr. Rosen requested to address the Board. Chairman Simplot acknowledged and Mr. Rosen stated that with the fare increase, has anyone thought of the people who live on social security alone and cannot make it aside from the bills they have to pay.


Chairman Simplot stated that he is looking forward to getting the answers to some of the questions raised earlier in the presentation.

6. Performance Audit of the Maricopa County Regional Transportation Plan

Mr. John Farry, Director of Community and Government Relations, provided background information regarding the Performance Audit of the Maricopa County Regional Transportation Plan. He stated that when the legislature approved the Proposition 400 to go to the voters, they included language stating that a performance audit conducted by the Arizona Auditor General would be performed every five years. There was belief that this was an attempt to ensure that light rail was going to be successful.

The audit determined that light rail is a success. The audit states: “Rail transit not only surpassed its targets, but also performs better, on average, than some national peers in several performance-related categories.”

The recommendations from the audit include continuing to investigate the possible integration of RPTA and METRO, developing a “report card” for projects, more consistency related to Proposition 400 data, and additional collaboration between the RTP partners. METRO agrees with all the recommendations and will either implement the findings as recommended or work with our regional partners to find other ways to accomplish these findings.

By statue, within 45 days of the release of the audit report, the Maricopa Association of Governments (MAG) must schedule a public hearing, which is today. Also within the 45 days, the MAG Transportation Policy Committee must receive comments from Valley Metro/RPTA, Citizens Transportation Oversight Committee, State Transportation Board, and the County Board of Supervisors as to whether they agree or disagree and whether to implement or not implement the audit findings.

METRO is looking forward to the implementation of these measures. Staff will inform the Board in the future how the changes will be implemented.

A copy of the audit is available to the Board Members in hard copy format or electronically from the Auditor General’s website www.azauditor.gov.

Chairman Simplot stated that the Board Members have already received a hard copy of the audit and thanked Mr. Farry for the offer.

7. RPTA and METRO Board Member Working Group Update

Chairman Simplot asked Councilmember Kavanaugh to provide an update from the Board Member Working Group (BMWG) meeting discussions. Councilmember Kavanaugh stated that the BMWG has met several times since the last meeting and made significant and positive progress.

http://www.azauditor.gov/


AT 10:35 A.M. IT WAS MOVED BY COUNCILMEMBER KAVANAUGH AND SECONDED BY COUNCILMEMBER ORLANDO AND UNANIMOUSLY CARRIED TO ENTER INTO EXECUTIVE SESSION ACCORDING TO A.R.S. 38-431.03(A)(3) ) TO TAKE LEGAL ADVICE RELATED TO THE HIRING OF A SINGLE CHIEF EXECUTIVE OFFICER TO MANAGE THE COMBINED OPERATIONS OF METRO AND THE RPTA.

The Board reconvened at 11:18 a.m.

8. Executive Session Action Items

IT WAS MOVED BY COUNCILMEMBER KAVANAUGH AND SECONDED BY JAMSHEED MEHTA AND UNANIMOUSLY CARRIED TO CONCUR WITH THE RECOMMENDATIONS OF THE JOINT BOARD MEMBER WORKING GROUP WITH REGARD TO NEGOTIATIONS FOR A SINGLE CEO.

9. Future METRO Board Agenda Items

There were no requests for future agenda items.

10. Adjournment

The meeting adjourned at 11:19 a.m.

AGENDA ITEM 4 Chief Executive Officer’s Report

Total Avg Weekday Avg Saturday Avg Sunday/Holiday

January 1,172,347 44,087 32,320 23,048

February

March

April

May

June

July

August

September

October

November

December

2011 2012 Change

January 1,074,803 1,172,347 +8.3%

February

March

April

May

June

July

August

September

October

November

December

Ridership 2012

2011 vs. 2012 Total Ridership

Total Avg Weekday Avg Saturday Avg Sunday/Holiday

January 1,074,803 39,552 30,647 20,270

February 1,080,821 45,074 29,006 21,680

March 1,214,276 42,234 35,692 25,029

April 1,208,710 45,146 35,047 21,350

May 1,018,684 37,298 28,613 20,162

June 924,547 33,824 26,296 18,808

July 940,364 33,488 25,558 23,803

August 1,124,074 40,417 28,847 19,773

September 1,241,701 47,818 34,520 19,887

October 1,258,711 45,867 36,725 22,376

November 1,075,956 42,451 30,672 20,956

December 998,991 35,379 30,473 17,070

TOTAL/AVERAGE 13,161,638 40,712 31,008 20,930

2010 2011 Change

January 1,003,041 1,074,803 +7.2%

February 1,037,398 1,080,821 +4.2%

March 1,161,733 1,214,276 +4.5%

April 1,208,924 1,208,710 -.02%

May 991,999 1,018,684 +2.7%

June 942,154 924,547 -1.9%

July 858,404 940,364 +9.5%

August 1,027,760 1,124,074 +9.4%

September 1,179,952 1,241,701 +5.2%

October 1,165,737 1,258,711 +7.9%

November 1,080,495 1,075,956 -.4%

December 959,340 998,991 +4.1%

AVERAGE +4.3%

Ridership 2011

2010 vs. 2011 Total Ridership

Total % Total

114,741 9.79% 183,631

Ridership By City & Day for January 2012 Total Ridership By City

DayMesa Tempe Phoenix Total Mesa Tempe Phoenix

Total Total Total Total Total % Total % Total %

Sunday, January 01, 2012 1,716 10,360 11,739 23,815 111,965 9.55% 357,276 30.48% 703,106 59.97%(H) Monday, January 02, 2012 2,415 6,029 15,271 23,715

Weekday Ridership By CityTuesday, January 03, 2012 3,641 9,435 23,617 36,693Wednesday, January 04, 2012 3,196 8,843 21,510 33,549 Mesa Tempe Phoenix

Thursday, January 05, 2012 4,419 14,461 24,627 43,507Total % Total % Total % Total Avg/DayFriday, January 06, 2012 3,607 11,660 24,016 39,283

81,764 9.27% 266,820 30.26% 533,146 60.47% 881,730 44,087Saturday, January 07, 2012 2,747 7,489 16,128 26,364Sunday, January 08, 2012 2,272 6,052 11,625 19,949

Saturday Ridership By CityMonday, January 09, 2012 4,191 14,347 28,512 47,050Tuesday, January 10, 2012 4,419 14,547 27,019 45,985 Mesa Tempe Phoenix

Wednesday, January 11, 2012 3,837 15,143 28,876 47,856Total % Total % Total % Total Avg/DayThursday, January 12, 2012 4,431 15,244 29,267 48,942

14,372 11.12% 35,913 27.78% 78,995 61.10% 129,280 32,320Friday, January 13, 2012 4,338 11,673 26,315 42,326Saturday, January 14, 2012 3,701 9,563 21,142 34,406

Sunday/Holiday Ridership By CitySunday, January 15, 2012 3,111 14,614 14,304 32,029(H) Monday, January 16, 2012 2,413 6,099 14,369 22,881 Mesa

Tuesday, January 17, 2012 4,274 15,240 29,024 48,538Total Total % Total% Avg/Day

Tempe Phoenix Total

56.38% 161,337

Total %

23,048Wednesday, January 18, 2012 4,200 14,182 28,247 46,629

15,829Thursday, January 19, 2012 3,408 12,867 22,775 39,050 9.81% 54,543 33.81% 90,965

Friday, January 20, 2012 3,714 12,492 27,546 43,752Saturday, January 21, 2012 3,722 8,666 19,463 31,851

Sunday, January 22, 2012 1,959 5,695 12,162 19,816Monday, January 23, 2012 4,307 13,813 28,045 46,165Tuesday, January 24, 2012 4,507 15,362 29,154 49,023

Wednesday, January 25, 2012 3,891 14,624 28,598 47,113Thursday, January 26, 2012 3,902 13,557 25,231 42,690

Friday, January 27, 2012 4,417 11,810 25,322 41,549Saturday, January 28, 2012 4,202 10,195 22,262 36,659

Sunday, January 29, 2012 1,943 5,694 11,495 19,132Monday, January 30, 2012 4,174 12,909 26,737 43,820Tuesday, January 31, 2012 4,891 14,611 28,708 48,210

Total 111,965 357,276 703,106 1,172,347Total Ridership By Day Of Week

% Total %

Sunday Monday Tuesday Wednesday Thursday Friday

174,189 14.86% 166,910

Saturday

% Total % Total % Total

14.24% 129,280 11.03%Total %

15.66% 228,449 19.49% 175,147 14.94%

AGENDA ITEM 5A FY2011 Comprehensive Annual Financial

Report and Single Audit Act Report

AGENDA ITEM 5A

To: Chairman Stanton and Members of the METRO Board of Directors

Through: Stephen R. Banta, Chief Executive Officer

From: John P. McCormack, Director of Finance and Administration

Date: February 9, 2012

Re: Valley Metro Rail, Inc., Fiscal Year 2011 Comprehensive Annual Financial Report and Single Audit Act Report

PURPOSE The METRO Board of Directors (Board) is being requested to accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, 2011. BACKGROUND/DISCUSSION In October 2002, the cities of Glendale, Mesa, Phoenix, and Tempe formed Valley Metro Rail, Inc. (METRO), an Arizona public nonprofit corporation. METRO is responsible for the planning, designing, construction, and operation of the Light Rail Transit (LRT) System in the region. The fiscal year ended June 30, 2011 is the eighth 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, 2011. All reports are prepared in conformity with generally accepted accounting principles. METRO is required to have an independent audit of expenditures of federal awards received (Single Audit) directly from federal agencies or passed through by other governmental entities during the period. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the internal control over compliance and other matters having a direct and material impact on major programs, with special emphasis on internal controls and compliance requirements involving the administration of major federal awards.

METRO Board of Directors Memo February 9, 2012 Page 2 Heinfeld, Meech & Co., P.C. has completed the METRO audits for the period ended June 30, 2011. Completion of the June 30, 2011 financial statement and Single Audit Act audits produced no findings and reported that METRO complied with the prior year recommendation for internal control improvements with respect to the signature approvals required for processing accounts payable payments. METRO’s Comprehensive Annual Financial Report received an unqualified opinion and demonstrates the commitment to the highest standard of financial reporting for a government entity. Attached you will find a copy of the reports. RAIL MANAGEMENT COMMITTEE CONSIDERATION On February 1, 2012, the Rail Management Committee (RMC) recommended that the Board accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, 2011. RECOMMENDATION Staff is requesting that the Board accept the Comprehensive Annual Financial Report and Single Audit Act Report for the period ended June 30, 2011.

Valley Metro Rail, Inc.Comprehensive Annual Financial Report

Fiscal Year Ended June 30, 2011

VALLEY METRO RAIL, INC.Phoenix, Arizona

Comprehensive Annual Financial ReportFor the fiscal year ended

June 30, 2011

Prepared by:Finance & Administration Division

2010 Facts and Figures

LIGHT RAIL SYSTEM

System Overview• Number of miles: 20

• Number of stations: 28

• Number of vehicles: 50

• Number of parking spaces: 3,500

• Total travel time: 65 minutes

• Opening date: Dec. 27, 2008

• Cost to build: $1.4 billion

• Cost to operate: $33.2 million in FY11

• Cost to ride: $1.75 per ride; $3.50 for all day

0

5

10

15

20

25

30

35

40

Weekday

Rid

ers

(in

Th

ou

san

ds)

AverageSaturday Sunday

• 12.6 million total riders

• Increase of 11% over 2009

• Exceeded projections by 51%

Valley Metro Rail, Inc. (METRO) is responsible for the development and operation

of the region’s high-capacity transit system. The 20-mile light rail starter line

opened December 2008 and served 12.6 million riders in 2010, exceeding the

prior year by 11 percent and system projections by 51 percent.

Design and ConstructionMETRO’s 20-mile light rail line is the longest starter line in federal New Starts

grant history. It was built entirely in-street using a train-only trackway and traf c

signals to allow trains to safely move through the cities of Phoenix, Tempe and

Mesa, Arizona. The cost was $1.4 billion paid for using a $587 million federal

New Starts grant, $59 million from federal Congestion Mitigation and Air Quality

funding and local tax dollars. The local funds are a mix of sales tax revenue from

the cities of Phoenix and Tempe, General Fund from Mesa and the county’s

Proposition 400 half-cent sales tax.

There are 28 stations, primarily located in the center of the roadway, and designed

using a kit-of-parts infrastructure with signi cant consideration given to the desert

heat. Artwork is an integral part of the system and incorporated into each station

area. The art pieces were designed using community input and several local, as

well as national artists.

Eight park-and-rides feed the system where free parking can be enjoyed by riders.

The more than 3,500 spaces are available on a rst-come, rst-serve basis and,

like the rest of the system, monitored using security cameras.

Ridership

• 39,335

• 29,329

• 19,170

0

10

20

30

40

50

60

Rid

ers

(in

Th

ou

san

ds)

Feb. 4 Dec. 3 April 5

• Feb. 4–Get Motivated Seminar

• Dec. 3–First Friday; Tempe Arts Festival; Phoenix Suns

• April 5–Arizona D’backs season home opener

• 55,247 • 54,040 • 54,009

Highest ridership days

Top five busiest stations

• Sycamore/Main St

• Montebello/19th Ave

• University Dr/Rural

• Veterans Way/College Ave

• McDowell/Central Ave

continued

12-14-11

METRO has 50 vehicles in its eet, each with a comfort

capacity of 175 passengers. The vehicles are state-of-the-

art technology and, similar to the stations, customized for

the desert climate and operating environment.

OperationsMETRO operates 365 days a year, 20 hours a day, Sunday

– Thursday, and almost 24 hours on Friday and Saturday.

Trains arrive every 12 minutes during the weekday peak

period; every 15 minutes during the Saturday peak; and

every 20 minutes during all other hours, Sundays and

holidays.

Light rail service is coordinated with

bus service to provide a seamless

network for customers. An all-day pass

or greater is good for both rail and bus.

Passes can be purchased at fare vending

machines located at each station, online

or from retail outlets Valleywide. Security

of cers regularly patrol the system and

ask passengers at random for proof of

payment. Fare evasion is cited with a

ne that starts at $50, but can increase

to $500.

For many, the METRO system provides

connection to work, school and play.

There are several sports and entertainment

venues, arts and culture organizations and

restaurants and bars that attract riders to

the line. METRO also connects to Phoenix

Sky Harbor International Airport with

a shuttle bus accessible from the 44th

Street/Washington transit center.

Future ExpansionMETRO is responsible for building a 57-mile high-capacity

transit system as de ned in the Regional Transportation

Plan by 2031. Planning, and design in some cases, has

begun on the six extensions that make up the remainder of

the 37 miles yet to be built. Two have been de ned as light

rail corridors: the Northwest and Central Mesa extensions.

A 2.6-mile modern streetcar line will be built in central

Tempe. The other three – Phoenix West, Glendale and

Northeast Phoenix – have yet to determine a speci c transit

mode and route.

MetroLightRail.org 602-253-5000

LIGHT RAIL SYSTEM

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Valley Metro Rail, Inc.Table of ContentsComprehensive Annual Financial ReportFiscal Year Ended June 30, 2011

PageIntroductory Section

Letter of Transmittal iiiCertificate of Achievement for Excellence in Financial Reporting ixPolicy Organizational Chart xList of Appointed Officials xi

Financial SectionIndependent Auditors' Report 1Management's Discussion and Analysis (Required Supplementary Information) 3Basic Financial Statements

Statement of Net Assets 9Statement of Revenues, Expenses and Changes in Fund Net Assets 10Statement of Cash Flows 11Notes to the Financial Statements 12

Other Supplementary InformationSchedule of Operations - Budget and Actual 24

Statistical SectionFinancial Trends

Net Assets by Component 26Changes in Net Assets 27

Demographic and Economic InformationGrowth in Regional Transit Usage 28Member Cities' Area Growth 29Top Employers in Maricopa County 30System Map - Initial 20-Mile Segment 31System Map - Northwest Extension 32System Map - Central Mesa 33System Map - Tempe Streetcar 34

Operating InformationFull-Time Equivalent Positions 35Pay Grades and Ranges 37Schedule of Insurance Coverage 39Design & Construction Milestones 41

INTRODUCTORY SECTIONThe Introductory Section includes METRO’s transmittal letter, policy organizational chart,

and list of appointed officials

Train at Central/Washington Station

iii

101 North 1st AvenueSuite 1300

Phoenix, AZ 85003

December 21, 2011

To Chairman and Members of the Valley Metro Rail, Inc. Board of Directors:

The comprehensive annual financial report of Valley Metro Rail, Inc. (METRO) for the fiscal year ended June 30, 2011, is hereby submitted in accordance with the requirements of the Bylaws and Board directives. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with management. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner that presents fairly the financial position, results of operations and cash flows of METRO. All disclosures necessary to enable the reader to gain an understanding of METRO’s activities have been included.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for local governments as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

The independent auditors, Heinfeld, Meech & Co., P.C., whose report is included herein, have examined the basic financial statements and related notes. As stated in the independent auditors’ report, the goal of the independent audit was to provide reasonable assurance that the basic financial statements of METRO as of and for the fiscal year ended June 30, 2011,are free from material misstatement. The independent audit involved examining, on a test basis; evidence supporting the amounts and disclosures in the financial statements; assessing accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditors concluded, based upon their audit, that there was a reasonable basis for rendering an unqualified opinion that the basic financial statements of METRO for the fiscal year ended June 30, 2011, are fairly presented, in all material respects, in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report.

Additionally, METRO is required to have an independent audit of expenditures of federalawards received (Single Audit) by METRO directly from federal agencies, or passed through to METRO by other governmental entities during the fiscal year. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on METRO’s internal controls and compliance with legal requirements 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. The results of METRO’s Single Audit for the fiscal year ended June 30, 2011, found no instances of material weakness in the internal control structure or significant violations of applicable laws and regulations with respect to major programs. The auditors’ reports on internal controls and compliance with applicable laws and regulations are included in a separately issued Single Audit Report.

Valley Metro Rail, Inc.Letter of Transmittal (Continued)

iv

The financial statements are prepared and presented in conformity with accounting principles generally accepted in the United States of America. More information about the presentationcan be found in Management’s Discussion and Analysis (MD&A) beginning on page 3 and also discussed in the notes to the financial statements beginning on page 12. This transmittalletter is designed to complement MD&A and should be read in conjunction with it.

THE FINANCIAL REPORTING ENTITY

METRO was established in October 2002 as a public nonprofit corporation formed by the cities of Glendale, Mesa, Phoenix, and Tempe to manage design, construction, and operation of the Light Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and Peoria became contributing member cities in 2007. The City of Scottsdale joined in April of 2008 and withdrew membership effective July 1, 2009. Subsequent to the close of fiscal year 2010-2011, the City of Peoria withdrew membership effective July 1, 2011.

During the fiscal year 2010-2011, a six member Board of Directors governed METRO, consisting of the mayors or their designated representatives from each member city. The Board of Directors establishes overall policies for management and administration of the LRT System, provides oversight over the design, construction and operation of light rail, and receives and disburses funds and grants from federal, state, local, and other funding sources. A Chief Executive Officer, appointed by the Board of Directors, is responsible for the day-to-day management of the organization.

LOCAL ECONOMIC CONDITION AND OUTLOOK

METRO serves the cities of Chandler, Glendale, Mesa, Peoria, Phoenix, and Tempe that are centrally located in Maricopa County, Arizona. These cities have constituted a well-established growth area since 1945, and collectively encompass approximately 1,000 square miles. Together they form a significant portion of the greater metropolitan Phoenix area, whichis the economic, political, and population center of Arizona.

The combined six cities have grown from 2.4 million residents in the year 2000 to 2.7 million residents in 2010, an increase of approximately 12.9% in the last ten years. The six cities’ population represents almost 70% of the total Maricopa County population. According to the Greater Phoenix Economic Council, population in the region is projected to grow at more than twice the national rate for the next few decades, growing from 4.0 million in 2008 to 6.3 million in 2030.

In 2007 and 2008, the region’s historically strong economic growth slowed and sales tax revenues fell with the nation-wide recession. In fiscal years 2009 and 2010 regional revenues fell 13.7% and 8.9% respectively. METRO responded to the times with staff reductions in 2009 and with service reductions in 2010. In fiscal year 2011 regional revenues have rebounded, growing by 3.4%. Due to the strong financial plan established for the 20 mile initial light rail system, the funding for operation of the system is secure.

Despite the recent downturn, increases in population and new home construction have led to increased demands for quality public transportation and improved air quality. Over the last five years, public transportation ridership grew by 14.1 percent in the region. With the commencement of rail passenger operations in December 2008, the LRT System added new capacity to the regional transportation system. Since opening, the METRO light rail line has experienced strong passenger growth with average weekday ridership exceeding 39,000 passengers versus the 26,000 riders planned.


v

With the passage of Proposition 400, and the creation of the Public Transportation Fund, light rail extensions in Mesa, Phoenix, and Tempe are in the planning or design stages which will continue to add capacity to the region’s transportation system in the years ahead.

FINANCIAL CONTROLS

Accounting and Administrative Controls

As previously noted, METRO’s management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of METRO are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. METRO’s internal control structure is designed to provide reasonable, but not absolute,assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management.

As a sub-recipient of federal financial assistance, METRO is also responsible for ensuring that an adequate internal control structure is in place to ensure and document compliance with applicable laws and regulations related to these programs. This internal control structure is subject to periodic evaluation by management and by METRO’s independent auditor. As part of METRO’s Single Audit, tests were made of the internal control structure and of its compliance with applicable laws and regulations, including those related to federal awards. Although this testing is limited in scope and is not sufficient to support an opinion on METRO’s internal control system or its compliance with laws and regulations, the audit for the year ended June 30, 2011, disclosed no material internal control weaknesses or material violations of laws and regulations. The audit of METRO’s compliance with requirements applicable to each major program and internal control over compliance resulted in an unqualified opinion of compliance and noted no material weaknesses in internal controls.

Budgetary Systems and Controls

The objective of the budgetary controls maintained by METRO is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the Board of Directors. The by-laws require a balanced budget to be adopted by the METRO Board each fiscal year. The level of budgetary control, i.e., the level at which expenditures cannot legally exceed appropriations, is the total operating budget. METRO maintains budgetary control by conducting quarterly evaluations of expenditures against appropriations and through close monitoring of revenues. Encumbrance accounting is not utilized and all appropriations lapse at year-end. As demonstrated by the statements included in the financial section of this report, METRO continues to meet its responsibility for sound financial management.

In addition to the annual budget, METRO also prepares a Five-Year Capital Program and Operating Forecast and the Transit Life Cycle Plan (TLCP) update. The five-year forecast starts with the annual budget information and extends it an additional four years to provide information about the anticipated schedule, costs, and revenues. The TLCP gives a longer term perspective by outlining the sources and uses of funds for specific capital projects and the corresponding costs and funding to operate each project out through fiscal year 2025.

For each major capital construction project, METRO regularly reports the project budget status to the Board showing by project element the Full Funding Grant Agreement (FFGA) budget amount versus commitments, actual expenditures, and forecasted cost at completion. METRO evaluates project contractual costs and estimates the cost at completion as part of the


vi

regular project reporting process. Should anticipated contractual costs appear to exceed the Board approved project budget, METRO staff will seek Board action to adjust project scope or approve additional funding. During construction, significant issues are addressed in narrative reports included in the project progress report submitted to the Board on a quarterly basis.

With the commencement of passenger operations in December 2008, METRO has continued to refine detailed cost estimates for manpower, contracted costs, utilities and insurance to construct the annual operations budget. Analysis and comparisons of METRO’s planned costs to peer city light rail systems have been conducted. Actual costs are tracked against budget and reported to Member Cites on a monthly basis with significant variances analyzed and communicated. Member Cities fund the cost of the operations based upon the ratio of route miles in operation within each jurisdiction. In the first thirty months of operations, METRO has successfully operated within budget while achieving on-time and reliability performance targets.

With respect to fare revenues, METRO has engaged an armored car service contractor to pick up fare payments deposited by customers in the fare vending machines. The armored car service deposits daily collections into the City of Phoenix regional fare revenue depository. METRO works in collaboration with the City of Phoenix to compute and distribute fare revenues to the Member Cities. In the first thirty months, METRO’s fare revenues have exceeded budget.

MAJOR INITIATIVES

Design and Construction of Light Rail and Modern Streetcar

METRO successfully completed construction of the Central Phoenix/East Valley Light Rail Transit (CP/EV LRT) Project, funded by Section 5309 New Starts program. The Northwest Extension, the first planned LRT extension has completed the design phase and is wrapping up real estate procurement. Due to the economic downturn, the Northwest Extension project construction activities will be phased pending availability of funds from the City of Phoenix. The Central Mesa Light Rail Extension has completed the preliminary engineering phase and is commencing final design, real estate acquisition and utility relocation work for an anticipated line opening in 2015. In Tempe, a 2.6 mile modern streetcar alignment has completed the planning phase and anticipated to commence design and construction for a line opening in 2016. In Phoenix, planning for the 11 mile Phoenix West Light Rail Extension along the Interstate 10 corridor is nearing completion, with an expected locally preferred alternative route to be selected in the coming year. (See pages 31-34 for system maps)

Central Phoenix/East Valley Light Rail Transit (CP/EV LRT) Project

The CP/EV LRT project is a 19.6 mile LRT System that connects north central Phoenix, Tempe, and Mesa. As the initial starter segment, the CP/EV LRT project extends from 19th Avenue and Bethany Home Road in Phoenix to Main and Sycamore Road in Mesa. Phoenix, Tempe, and Mesa share responsibility for funding the non-federal share of capital costs and the on-going operations and maintenance (O&M) costs of the project. The CP/EV LRT project complements existing and proposed bus services to be implemented by Phoenix, Tempe, and Mesa. Construction of the project began in FY 2005 and was completed on-time with passenger operations commencing on December 27, 2008.

Revenue operations commenced January 1, 2009 providing service from 5AM to 11PM seven days a week. Weekday riders have access to trains every 12 minutes from 7AM to 7PM. Weekend and off-peak weekday service frequencies range from 15 to 20 minutes.


vii

Northwest Extension LRT Project

The Northwest Extension is a 4.6 mile light rail project starting at the northwest termination point of the Central Phoenix/East Valley Light Rail project. The project follows 19th Avenue to Dunlap Avenue, then west on Dunlap Avenue to 25th Avenue and then runs on 25th Avenue to Mountain View Road. In March 2007 the Phoenix City Council approved an initial 3.2 mile phase to be locally funded, without federal funding support. With the economic downturn, construction of the first phase, which includes the 19th Avenue to Dunlap portion of the project, will be phased based upon availability of funding. Real estate acquisition and private utility relocation for the project is continuing in preparation for future construction.

During FY 2007 advanced conceptual engineering was completed and a draft Environmental Impact Statement (EIS) was prepared. In July of 2007, an engineering services consultant was secured by METRO and a notice to proceed was issued to commence final design. During FY 2007-2008, the City of Phoenix commenced acquisition of real property for the 3.2 mile alignment. In fiscal years 2010 and 2011, real estate acquisition continued, private utility lines were relocated and neighborhood mitigation improvements were made to prepare for light rail construction.

Central Mesa Light Rail Extension Project

In March, 2010, the Mesa City Council approved a 3.1 mile extension of the LRT system and in August 2010, the Federal Transit Administration approved the alignment for project development as the next step toward federal funding. The extension begins at the eastern limits of METRO’s existing light rail system (Sycamore) and extends east on Main Street to Mesa Drive. The entire extension is within the City of Mesa. There are four stations on Main Street including a station at Alma School Road, Country Club Drive, Center Street, and Mesa Drive.

The extension is planned to open in 2015 with ridership estimated at approximately 4,750 riders per day. The total capital cost of the project is $199.0 million to be funded with a combination of federal and regional funds.

Funding Milestones

On November 2, 2004, the voters of Maricopa County approved Proposition 400, the continuation of the transportation tax, for a twenty year period, beginning in calendar year 2006. A major milestone in transportation funding and service in the region, the proposition had unanimous support from the Mayors of all of the cities in the region and the Maricopa County Board of Supervisors, the Maricopa Association of Governments Regional Council, and the Arizona Department of Transportation. This initiative is forecasted to generate $1.3billion (in year of expenditure dollars) in revenue over the 20 year period to fund construction of an additional 14 miles of light rail extension and 2.6 miles of modern streetcar.

On January 24, 2005, the Federal Transit Administration awarded the $587 million Full Funding Grant Agreement (FFGA) to the City of Phoenix for the 20 mile CP/EV LRT Project. In November 2005, the Phoenix City Council approved a Grant Pass-thru Agreement whereby METRO is the Subrecipient for the $587 million FFGA. In August 2010, the FTA funded the final $61.2 million to fully complete the Full Funding Grant payment schedule.

In March 2006, METRO began to receive funds from the Public Transportation Fund. Initial funds were used for the relocation of non-prior rights utilities impacted by LRT construction. In

Arizona State University students boarding train

x

VALLEY METRO RAIL, INC.Policy Organizational Chart


xi

Board Chairman Councilman Tom Simplot, PhoenixVice Chairman Councilmember Dennis Kavanaugh, MesaBoard Member Mayor Bob Barrett, PeoriaBoard Member Councilmember Shana Ellis, TempeBoard Member Councilmember Rick Heumann, ChandlerBoard Member Mayor Elaine M. Scruggs, Glendale

Chief Executive Officer Stephen R. BantaChief Operations Officer Raymond AbrahamDirector, Community and Government Relations John FarryDirector, Planning and Development Wulf GroteChief, Safety and Security Jay HarperGeneral Counsel Mike LadinoDirector, Finance & Administration John McCormack

Executive Management Team

VALLEY METRO RAIL, INC.List of Appointed Officials


Board of Directors

FINANCIAL SECTIONThe Financial Section includes the Independent Auditors’ Report, Management’s Discussionand Analysis (MD&A), the basic financial statements, and notes to the financial statements.

Valley Metro Rail, Inc.Management’s Discussion and Analysis

3

As management of Valley Metro Rail, Inc. (METRO), we offer this narrative overview and analysis of the financial activities of METRO for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iii –viii of this report. This discussion and analysis is designed to (1) assist the reader in focusing on significant financial issues, (2) provide an overview of METRO’s financial activity, (3) identify changes in METRO’s financial position, (4) identify any material deviations from the financial plan (adopted annual budget), and (5) identify other issues or concerns.

Financial Highlights

METRO’s total net assets decreased $20.4 million in FY 2011. The decrease was caused by scheduled depreciation charges, which exceeded new capital asset growth. Total net assets for METRO were $1.158 billion at June 30, 2011.

METRO’s operating revenues for FY 2011 were $30.8 million, a decrease of approximately $4.7 million from the prior period. Operating revenues consisted of contributions from METRO member cities ($19.4 million), passenger fares ($10.2 million) and other revenues ($1.1 million). In response to economic conditions, METRO cut operating costs reducing contributions from Member Cities by $6.5 million.

Non-Operating expenses: This year's non-operating revenue and expense activities report a net $33.3 million decrease in net assets, composed primarily of distributions to Member Cities to reimburse construction expenditures.

Capital contributions totaled $59.5 million, a decrease of approximately $79.3 million fromthe prior period. Capital contributions consisted of Member City Contributions of $2.7million, Public Transportation Funds of $49.6 and Federal Transit Administration Capital Grants totaling $7.3 million. The large decrease in Federal and Member City capital funding reflects the completion of the 20 mile CPEV project, offset by the commencement of capital funding for the 3.1 mile Central Mesa Light Rail Extension.

OVERVIEW OF THE FINANCIAL STATEMENTS

METRO’s financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires that the financial statements be accompanied by a narrative introduction and analytical overview of the government’s financial activities in the form of “Management’s Discussion and Analysis” (MD&A). The financial section of the Comprehensive Annual Financial Report (CAFR) for METRO consists of this discussion and analysis and the basic financial statements. This report also contains other supplementary schedules presented after the basic financial statements. METRO’s basic financial statements include a statement of net assets; a statement of revenues, expenses and changes in net assets; a statement of cash flows; and the notes to the financial statements. METRO’s financial statements are prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America promulgated by the Governmental Accounting Standards Board (GASB).

Fund Financial Statements – METRO is presented as an enterprise fund. Enterprise funds are used for activities that primarily serve customers outside the governmental unit. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or conditions. Funds are used to ensure and demonstrate

Valley Metro Rail, Inc.Management’s Discussion and Analysis (Continued)

4

compliance with finance-related legal requirements as well as for managerial control to demonstrate fiduciary responsibility over the assets of METRO.

The statement of net assets presents information on all of METRO’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of METRO is improving or deteriorating.

The statement of revenues, expenses and changes in fund net assets presents information showing how the agency’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected grant revenues).

Notes to the Financial Statements – The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements and should be read with the financial statements. The notes can be found beginning on page 12.

Enterprise Operations – METRO was formed in October 2002 by the cities of Glendale, Mesa, Phoenix and Tempe as a public nonprofit corporation to manage design, construction and operation of the Light Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and Peoria became the fifth and sixth contributing member cities in April and July of 2007 respectively. The member cities pay for their share of METRO’s operating expenses based on expense allocation methods approved in the by-laws of METRO. See Note 1 for a summary of METRO’s significant accounting policies.

August Light Rail Ridership Comparison 2009 / 2010 / 2011


5

FINANCIAL ANALYSIS OF METRO

The following tables and analysis discuss the financial position and changes to the financial position for METRO as a whole as of and for the year ended June 30, 2011, with comparative information for the previous period.

Net Assets – Net assets may serve over time as a useful indicator of METRO’s financial position. The following table reflects the condensed Statement of Net Assets as of June 30, 2011, compared to the prior period.

Total net assets represent the sum of METRO’s unrestricted net assets plus investment in capital assets net of accumulated depreciation. The largest portions of the investment are capital assets for the Central Phoenix /East Valley Light Rail Transit Project (CP/EV LRT). In December 2008, METRO placed these capital assets into service for operation of the light rail transit system and in day-to-day operations of METRO. It is not METRO’s intention to sell these assets and they are therefore not available for future spending. Net assets decreased $20.4 million largely due to the annual charge for depreciation on the completed 20 mile system.

2011 2010 ChangePercent Change

Current assets 40,821,064$ 102,712,169$ (61,891,105)$ -60.3%Noncurrent assets 1,185,084,002 1,213,821,644 (28,737,642) -2.4% Total assets 1,225,905,066 1,316,533,813 (90,628,747) -6.9%

Current Liabilities 36,612,801 98,965,822 (62,353,021) -63.0%Noncurrent Liabilities 30,919,628 38,835,463 (7,915,835) -20.4% Total liabilities 67,532,429 137,801,285 (70,268,856) -51.0%

Invested in Capital Assets, net of related debt 1,153,352,954 1,172,536,114 (19,183,160) -1.6%Unrestricted 5,019,683 6,196,414 (1,176,731) -19.0%

Total Net Assets 1,158,372,637$ 1,178,732,528$ (20,359,891)$ -1.7%

VMR's Condensed Statement of Net AssetsAs of June 30, 2011 and 2010


6

CHANGES IN NET ASSETS

Total operating revenues, which consist of Contributions from Member Cities, Passenger Fares,and Other Revenues (advertising and MAG planning funds), decreased by $4.7 million. Member City contributions decreased $6.5 million and were favorably impacted by increases in Passenger Fares, advertising revenues and federal operating grants. In addition, METRO’s initiatives to reduce operating costs reduced funding requirements from member cities.

Operating expenses decreased by $4.8 million to $77.4 million: Administrative expenditures were reduced by $2.3 million due to the scaling back of planning activities as the Central Mesa LRT project moved from the planning phase into the capital design phase. Passenger Operations Service expenses were reduced by $1.9 million due to cost savings initiatives adopted in response to current economic conditions. Depreciation expense reduced from $39.7 million to $39.2 million for the year.

In fiscal year 2011, Non Operating expenses were down by $68.0 million, primarily caused by reductions in distributions to Member Cities due to the phasing out of federal funds reimbursements for the CPEV 20 mile project.

Capital contributions totaling $59.5 million consist of Member City Contributions ($2.7 million),FTA capital grants ($7.3 million) and Public Transportation Funds ($49.6 million). With the completion of the CPEV 20 mile project being the largest factor, Member City Contributions decreased by $28.5 million and Federal Capital Grants were decreased by $55.3 million.

The following table compares the revenues and expenses of METRO for the current fiscal year and the previous period.

2011 2010 ChangePercent Change

Operating revenues: Contributions from Member Cities 19,430,008$ 25,964,781$ (6,534,773)$ -25.2% Passenger Fares 10,238,281 9,256,913 981,368 10.6% FTA Operating Grants 240,000 222,519 17,481 7.9%

Other Revenues 908,728 103,410 805,318 778.8% Operating revenues 30,817,017 35,547,623 (4,730,606) -13.3%Operating expenses: Administrative 7,213,806 9,540,355 (2,326,549) -24.4% Passenger Operations Service 31,020,111 32,964,701 (1,944,590) -5.9% Depreciation 39,176,737 39,685,152 (508,415) -1.3% Operating expenses 77,410,654 82,190,208 (4,779,554) -5.8%

Operating income (loss) (46,593,637) (46,642,585) 48,948 -0.1%

Non-operating revenues (expense) (33,259,151) (101,267,750) 68,008,599 -67.2%Deficiency before Capital Contributions (79,852,788) (147,910,335) 68,057,547 -46.0%

Capital Contributions 59,492,897 138,786,197 (79,293,300) -57.1% Increase (Decrease) in Net Assets (20,359,891) (9,124,138) (11,235,753) 123.1%

Net assets, July 1 1,178,732,528 1,187,856,666 (9,124,138) -0.8%

Net assets, June 30 1,158,372,637$ 1,178,732,528$ (20,359,891)$ -1.7%

VMR's Changes in Net AssetsFiscal year ended June 30, 2011 and 2010


7

CAPITAL ASSETS AND LONG TERM DEBT

Capital Assets: The following table provides a breakdown of capital assets of METRO at June 30, 2011, with comparative information for the previous period. Additional information on METRO’s capital assets may be found in Note 6.

As of June 30, 2011, METRO had $1,185 million invested in capital assets, net of accumulated depreciation. There was a net decrease in capital assets, net of accumulated depreciation, of $28.7 million from June 30, 2010; primarily resulting from a depreciation charge of $39.2 million for the Light Rail System infrastructure offset by continuing capital expenditures for the wrap up of the 20 mile LRT construction project and by Construction in Progress design expenses for the Central Mesa Extension LRT Project.

Long Term Debt:During fiscal year 2009, METRO (as Lessee) completed the process of formally accepting 14 Light Rail Vehicles (LRV’s) under the terms of a Master Lease/Purchase Financing Agreement dated March 3, 2006, with the City of Phoenix (as Lessor). Under the agreement, the City financed the purchase of the vehicles with the payments due from METRO commencing in 2011. In June of 2011, METRO made the first $10.0 million scheduled payment under the lease. The capital lease obligation at June 30, 2011 includes $32,186,000 of remaining principal and $8,334,013 accrued interest totaling $40,520,013. Refer to Note 9 on page 19 for more information regarding the lease.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET

METRO’s adopted fiscal year 2012 total operating and capital budget is $87.7 million, down $2.3 million from fiscal year 2011’s amended Budget. The primary cause for the decrease is within the capital budget, due to the planned reduction of construction activities and expenditures for the 20 mile CPEV Project (down $14.2 million). Offsetting this reduction areincreases to the capital budgets for the LRT extensions: (NW Extension up $2.8 million, Central

2011 2010 ChangeBuildings 92,484,544$ 95,047,845$ (2,563,301)$Guideway 537,014,911 548,218,379 (11,203,468)Bridges 56,390,023 58,440,569 (2,050,546)Operation Control Center 10,754,123 11,145,181 (391,058)Passenger Stations & Facilities 93,454,131 96,296,602 (2,842,471)Park and Ride Facilities 33,909,949 32,504,345 1,405,604Electric Power Substations 79,858,902 83,413,644 (3,554,742)Signal and Communication System 42,495,843 44,924,177 (2,428,334)Computers & software - 179,859 (179,859)Furniture & fixtures 209,121 370,110 (160,989)Revenue Vehicles / Support Service Vehicles 195,412,137 204,806,824 (9,394,687)Non-Revenue Vehicles 1,056,448 733,227 323,221Equipment 9,131,945 9,993,522 (861,577)

Construction in Progress 32,911,926 27,747,360 5,164,566

Net Capital Assets 1,185,084,002$ 1,213,821,644$ (28,737,642)$

VMR's Capital Assets, Net of DepreciationAs of June 30, 2011 and 2010

Valley Metro Rail, Inc.Management’s Discussion and Analysis (Concluded)

8

Mesa extension up $6.2 million and Tempe Streetcar up $4.3 million).

On the operating side, METRO’s FY12 budget is $44.3 million, down $0.1 million versus fiscal year 2011. Revenue Operations costs are programmed to increase with the increasing maintenance activities required to maintain a state of good repair. Future project development costs are reducing by $1.5 million with the completion of the Tempe Streetcar planning work.

Comparison of Annual Expenditure BudgetsFiscal Year 2012 vs. 2011

In fiscal year 2012 METRO will commence design work on the Tempe Streetcar Extension.Expenses during the year are anticipated to reach $4.3 million pending necessary approvals from federal funding sources to enter preliminary engineering activities.

FINANCIAL CONTACT

The financial report is designed to provide a general overview of METRO’s finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to METRO’s Director of Finance and Administration, Valley Metro Rail, 101 North 1st Avenue, Suite 1300, Phoenix, Arizona 85003.

Uses of Funds

FY 2012Adopted

($,000)

FY 2011 Amended

($,000)Change

($,000)Operating Activities: Revenue Operations 35,086 33,721 1,365 Future Project Development 8,146 9,619 (1,473) Agency Operating Budget 1,083 1,012 71

44,315 44,352 (37)Capital Projects: 20-Mile METRO Initial Segment 5,301 19,503 (14,202) Northwest Extension 8,573 5,798 2,775 Non-Prior Rights Utilities Relocations 2,639 246 2,393 Other Capital Projects: - Central Mesa Extension 16,525 10,277 6,248 South Tempe Streetcar 4,262 - 4,262 CNPAs - 20-Mile Initial Segment - 2,461 (2,461) ARRA - Phoenix P& R Improvements - 3,113 (3,113) ARRA - RPTA Ariz Avenue BRT - 347 (347) Systemwide Improvements 675 1,171 (496)Subtotal Capital before Debt Service 37,975 42,916 (4,941)

Capital Project Debt Service:Debt Service - Interest 2,750 2,750 -Debt Service - Principal 2,664 - 2,664

Total Uses of Funds 87,704 90,018 (2,314)

BASIC FINANCIAL STATEMENTS

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Valley Metro Rail, Inc.Statement of Net AssetsJune 30, 2011

AssetsCurrent Assets: Cash and Investments 15,271,127$ Receivables, Net 188,049 Due from Other Governments 11,037,334 Inventory 13,330,817 Restricted Assets 454,952 Other Assets 538,785 Total Current Assets 40,821,064Noncurrent Assets: Capital Assets, not being depreciated 32,911,926 Capital Assets, net of accumulated depreciation 1,152,172,076 Total Noncurrent Assets 1,185,084,002 Total Assets 1,225,905,066

LiabilitiesCurrent Liabilities: Accounts Payable 10,673,109 Labor Compliance Withholding 21,903 Other Accrued Expenses 237,889 Compensated Absences 385,397

Capital Lease Obligation - Current portion 10,000,000Reserve for General Liability Claims 306,764

Due to Other Governments 6,566,964 Unearned Revenue 1,210,711 Member Cities Deposits 7,210,064 Total Current Liabilities 36,612,801Noncurrent Liabilities: Compensated Absences 399,615 Capital Lease Obligation 22,186,000 Accrued Interest Payable 8,334,013

Total Liabilities 67,532,429

Net AssetsInvested in Capital Assets, Net of Related Debt 1,153,352,954Unrestricted 5,019,683

Total Net Assets 1,158,372,637$

The accompanying notes to the financial statements are an integral part of this statement.

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Valley Metro Rail, Inc.Statement of Revenues, Expenses, and Changes in Fund Net AssetsFiscal Year Ended June 30, 2011

Operating Revenues: Contributions from Member Cities 19,430,008$ Passenger Fares 10,238,281 Receipts from Federal Operating Grants 240,000 Other Revenues 908,728 Total Operating Revenues 30,817,017

Operating Expenses: Administrative 7,213,806 Passenger Operations Service 31,020,111 Depreciation 39,176,737 Total Operating Expenses 77,410,654

Operating Income / (Loss) (46,593,637)

Non-Operating Revenue / ( Expense ): Federal Transit Administration Operating Grants 2,118,259 Public Transportation Funds 8,678,822 Distributions to Member Cities (38,400,636) Private Utilities Relocations (3,732,886) Interest on Capital Lease Obligation (2,083,503) Other Non-Operating Income 160,757 Interest Income 36 Total Non-Operating Revenue / ( Expense ) (33,259,151)

Deficiency Revenues under Expenses (79,852,788)

Capital Contributions: Capital Contributions from Member Cities 2,651,494 Public Transportation Funds Capital 49,586,095 Federal Transit Administration Capital Grants 7,255,308 Total Capital Contributions 59,492,897

Changes in Net Assets (20,359,891)Net Assets, Beginning of Period 1,178,732,528Net Assets, End of Period 1,158,372,637$


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Valley Metro Rail, Inc.Statement of Cash FlowsFiscal Year Ended June 30, 2011

Cash Flows from Operating Activities Receipts from Member Cities 21,331,719$ Receipts from Federal Operating Grants 240,000 Receipts from Fare Revenues 10,238,281 Other Revenues 1,054,388 Payments for Payroll Related Expenses (7,124,424) Payments to Suppliers (26,866,936) Net Cash Used in Operating Activities (1,126,972)

Cash Flows from Non-Capital Financing Activities Receipts from FTA Non-Capital Grants 1,043,568 Receipts from Regional Public Transit Authority 6,766,263 Payments for Private Utility Relocations (511,060)

Net Cash Provided by Non-Capital Financing Activities 7,298,771

Cash Flows from Capital and Related Financing Activities Capital Contributions from Member Cities 14,403,457 Distributions to Member Cities (99,650,539) Receipts from FTA Capital Grants 63,814,522 Receipts from Regional PTF for Capital 53,248,257 Payments for Inventory (546,188) Payments for Capital Assets (21,149,845) Net Cash Provided by Capital and Related Financing Activities 119,664

Net Increase in Cash and Cash Equivalents 6,291,463

Cash and Cash Equivalents, Beginning of Year 8,979,664

Cash and Cash Equivalents, End of Year 15,271,127$

Reconciliation of Operating Income / (Loss) to Net Cash Used in OperatingActivities

Operating Income / (Loss) (46,593,637)$Adjustments to Reconcile Operating Income / (Loss) to Net Cash Used inOperating Activities: Depreciation 39,176,737 (Increase) Decrease in Assets: Accounts Receivable 259,348 Due from Other Governments 2,646,312 Inventory (1,004,901) Other Assets 152,600 Increase (Decrease) in Liabilities: Accounts Payable 1,810,105 Compensated Absences 29,237 Other Accrued Expenses (139,400) Due to Other Governments (30,681)

Reserve for General Liability Claims (194,236) Unearned Revenue (15,724) Member Cities' Deposits 2,777,268

Net Cash Used in Operating Activities (1,126,972)$


Valley Metro Rail, Inc.Notes to the Financial StatementsFiscal Year Ended June 30, 2011

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1. Summary of Significant Accounting Policies

The accounting policies of Valley Metro Rail, Inc. (METRO) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles.

a. Financial Reporting Entity

In October 2002, the city councils of Glendale, Mesa, Phoenix and Tempe approved the formation of a government entity with a nonprofit status by the name of Valley Metro Rail, Inc. The nonprofit corporation was organized under A.R.S. 11-952 and 40-1152.The initial members entered into a Joint Powers Agreement which provides that this Corporation be organized as the instrumentality to plan, design, construct, and operatethe Light Rail Transit Project (“LRT”). Prior to October 2002, the Regional Public Transportation Authority (RPTA) performed these roles.

METRO contracts with the RPTA for certain administrative functions, including personnel, HR administration, and computer support services. All METRO staff is hired and employed by RPTA but works solely under the direction of Valley Metro Rail, Inc., and its Board of Directors, through a contractual arrangement with RPTA.

The Board of Directors of METRO is solely responsible for the governance of LRT and METRO is not a component unit of RPTA; economic resources received by METRO are entirely for the direct benefit of METRO, and RPTA is not entitled to and has no ability to otherwise access any of the economic resources received or held by METRO.

b. Basic Financial Statements

These financial statements are presented in accordance with GASB Statement No. 34 –Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments (GASB No. 34). METRO is engaged only in business-type activities and is required to present the financial statements required for enterprise funds which are part of proprietary funds. METRO does not report any component units.

c. Basis of Presentation

Proprietary funds account for activities of METRO similar to those found in the private sector, where cost recovery and the determination of net income is useful or necessary for sound fiscal management. The focus of proprietary fund measurement is upon the determination of operating income, changes in net assets, financial position and cash flows. Currently, enterprise funds are the only type of proprietary fund that METROuses.

d. Measurement Focus and Basis of Accounting

The Statement of net assets and statement of revenues, expenses and changes in fund net assets are reported using the flow of economic resources measurement focus and accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Such revenue is subject to review by the funding agency, which may result in disallowance in subsequent periods.

Valley Metro Rail, Inc.Notes to the Financial Statements (Continued)Fiscal Year Ended June 30, 2011

13

All of METRO's activities are accounted for in a single proprietary or business-type fund. Proprietary funds distinguish operating revenues and expenses from non-operating items and capital contributions. Operating revenues and expenses generally result from providing services and producing and delivering goods in connecting with a proprietary fund's principal ongoing operations. Revenues and expenses not meeting this definition are reported as either non-operating revenues and expenses or capital contributions.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 generally are followed in the proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments have the option of following subsequent private-sector guidance for the business-type activities, subject to this same limitation. METRO has elected not to follow subsequent private-sector guidance.

e. Cash and Investments

State statutes authorize METRO to invest in obligations of the U.S. Treasury and any of its agencies, corporations or instrumentalities, collateralized repurchase agreements,certificates of deposit, and the Local Government Investment Pool. METRO’sinvestments are stated at fair value. Fair value is based on quoted market prices as of the valuation date.

METRO considers short-term investments in mutual fund-money markets, U.S. Treasury bills and notes with maturities of three months or less at acquisition date to be cash equivalents.

f. Receivables

Management analyzes receivables periodically to determine the adequacy of the allowance for doubtful accounts. There is no current provision required for possible bad debts.

g. Inventory

Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method. Inventories are expensed when the resources are used.

h. Prepaid Expenses

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. The prepaid items are included in Other Assets under Current Assets on the Statement of Net Assets.

i. Capital Assets

Capital assets are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year.

Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair value at the date of donation.


14

METRO capitalizes all costs incurred in connection with the construction of the Central Phoenix/East Valley (CP/EV) 20-mile alignment. The costs for the non-federal agency operating, Rail Operations, and the initial planning costs of additional extensions are recorded as annual operating expenses.

METRO is not the legal owner of any land. The land required for the LRT system is acquired and owned by the Member Cities and is the subject of a long-term use agreement between each City and METRO. Land, subject to the above agreement, is recorded on the books of member cities.

The costs included as construction in progress consist primarily of project administration, engineering, construction management, utilities relocation, facility construction, equipment procurement, and other costs related to construction. No depreciation is provided on construction in progress until construction is completed and the assets are placed in service.

The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Capital assets are depreciated using the straight-line method over the following estimated useful lives:

AssetsUseful Life

(Years)Buildings 40Guideway 50Bridges 30Operation Control Center 30Passenger Stations 30Park and Ride Facilities 15Electric Power Substations 25Signal Substations 20Revenue Vehicles 25Equipment 7-15Furniture and fixtures 7-15Pooled vehicles 4Computers and software 3

j. Allocation of Costs to Member Cities

Design and construction costs for the 20 mile Central Phoenix East Valley Light Rail System are allocated to the member cities as follows:

i) Regional design and construction costs are allocated based upon the Design and Construction Miles percentage method as stated in the bylaws of the corporation.The components of the LRT that are currently classified as “regional” are light rail vehicles, the maintenance and storage facility, operations control center, bridge structures, and regional park and ride lots.

ii) Local design and construction costs are allocated to the member cities within whose boundaries the LRT Component designed or constructed will be located. Design and construction costs that are not classified as regional are deemed to be local.


15

iii) Under the Design and Construction project agreements, the Member Cities provide project funding to METRO as expenditures are incurred. As federal and regional funding for the capital project is received by METRO, the members receive cash distributions to reimburse the prior expenditures.

Design and construction costs for future LRT extensions are funded based upon Design and Construction Agreements which are executed in accordance with the adopted Transit Life Cycle Plan.

If a member city’s share of the LRT costs for a fiscal year is determined to be less than $50,000, such member city’s share of the LRT costs shall be $50,000. The purpose of the Minimum Cost is so that all member cities will contribute to payment of the overhead expense of the Corporation for matters such as the cost of meetings of the Board of Directors, administrative support to the Board of Directors, and support to member citiesby the Rail Program Staff.

Passenger Operations Service Expenses are funded by the Member Cities according to the ratio of LRT route mileage currently in service. Member Cities also contribute amounts to fund local security costs related to fare inspection, on-board security and park and ride security within their respective jurisdictions.

k. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting financial period. Actual results could differ from these estimates.

l. Net Assets

METRO’s net assets consist of unrestricted net assets and net assets invested in capital assets, net of related debt.

2. Budgetary Basis of Accounting

An annual budget of revenues and expenses is prepared and adopted by the Board of Directors each fiscal year. The legal level of budgetary control is the total annual appropriated budget. The annual budget is adopted on the modified accrual basis. Encumbrance accounting is not used and all appropriations lapse at year end. Depreciation expense is not included in the annual budget. Prior to final adoption, a proposed budget is presented to the Board of Directors for review and public comment is received. Final adoption of the budget must be on or before June 30 of each year.

During the fiscal year, the Board of Directors modified the original budget. A schedule of actual operating revenues and expenses versus original budget and final budget is presented as supplementary information. See Page 24.


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3. Cash and Investments

Cash deposits and investments at June 30, 2011, consisted of the following:

METRO has deployed Ticket Vending Machines (TVM’s) which contain coin and bill vaults to accommodate the purchase of fares. At June 30, 2011, the total cash contained in the coin and bill vaults totaled $137,314.

METRO's bank deposits at June 30, 2011, had a carrying value of $14,831,260 and the bank ledger balance was $15,057,050. The difference of $225,790 represents deposits in transit and outstanding checks.

The Self Insurance Reserve Trust Account totaling $302,553 was covered by collateral held by the pledging financial institution in METRO’s name.

Custodial Credit Risk – Custodial credit risk is the risk that in the event of bank failure METRO’s deposits may not be returned. METRO does not have a deposit policy for custodial credit risk. All of METRO’s bank deposits are in non-interest bearing accounts. At year end, all of METRO’s bank deposits were covered under the FDIC.

Interest Rate Risk. METRO’s formal investment policy limits type of investment as a means of managing its exposure to fair value losses arising from increasing interest rates. During FY 2011 all investment durations were shorter than 90 days.

Credit Risk. State Statutes and METRO’s Investment Policy authorize METRO to invest in bank demand deposit accounts and obligations of the U.S. Treasury.

Concentration of Credit Risk. METRO’s Investment Policy limits the total investments by type of account including, General Operating, Imprest Fund, Self-Insurance Reserve and TVM Credit Card. At June 30, 2011, METRO maintains all available cash in these accounts.

Cash on hand 14,968,574$Insurance Trust Fund 302,553 Total cash and investments 15,271,127$


17

4. Accounts Receivable and Due From Other Governments

All receivable balances at June 30, 2011 are displayed on the financial statements and are expected to be collected in full; therefore, an allowance for uncollectibles has not been recorded.

Due from other governments consists of Federal receivables ($5.7 million) due from the City of Phoenix as Grantee of Federal Funds, PTF receivable ($4.9 million) due from Regional Public Transportation Authority (RPTA), and miscellaneous receivables ($ 0.4 million).

Public Transportation Funding is discussed more fully in Note 17.

The amount due from Regional Public Transportation Authority is related to the Local Government Investment Pool as discussed more fully in Note 14.

5. Restricted Assets

Certain assets of Valley Metro Rail, Inc. are set aside for repayment due to outside restrictions imposed on those funds. Unspent capital lease proceeds in the amount of $454,952 are set-aside for use in the upcoming fiscal year for the acquisition of parts and accessories for fourteen light rail vehicles which are financed under the lease. The Capital Lease Obligation is discussed in Note 9.

City of Phoenix (Grantee of Federal Funds) 5,720,519$Public Transportation Funding 4,855,355City of Mesa 12,742City of Phoenix 245,068City of Tempe 61,937Maricopa Association of Governments 100,184Regional Public Transportation Authority 41,530

Total Due from Other Governments 11,037,334$


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6. Capital Assets

Capital asset and construction in progress activity for the year ended June 30, 2011 were as follows:

7. Member Cities’ Deposits

The member cities advance monies to cover the cost of operations plus the federal and local share of project costs. In addition, unpaid expenses to be funded by member contributions are accrued for each city. A summary of member cities’ deposits at June 30, 2011 follows:

Balances, Balances,June 30, 2010 Increases Decreases June 30, 2011

Nondepreciable assets:Construction in progress 27,747,360$ 10,231,874$ (5,067,308)$ 32,911,926$Depreciable assets:

Buildings 102,532,106 102,532,106Guideway 565,173,586 105,268 565,278,854Bridges 61,516,388 61,516,388Operation Control Center 11,731,770 11,731,770Passenger Stations & Facilities 101,364,840 585,110 101,949,950Park and Ride Facilities 36,115,939 3,900,000 40,015,939Electric Power Substations 88,737,919 88,737,919Signal and Communication System 48,566,678 48,566,678Computers & software 1,297,023 46,064 1,343,087Furniture & fixtures 1,126,926 1,126,926Revenue Vehicles 219,803,204 219,803,204Non-Revenue Vehicles 1,947,704 103,515 (27,940) 2,023,279Equipment 12,238,126 547,378 12,785,505

Total depreciable assets at historical cost 1,252,152,210 5,287,335 (27,940) 1,257,411,605Less accumulated depreciation for:

Buildings (7,484,260) (2,563,303) (10,047,563)Guideway (16,955,208) (11,308,736) (28,263,943)Bridges (3,075,819) (2,050,546) (5,126,365)Operation Control Center (586,589) (391,058) (977,647)Passenger Stations (5,068,237) (3,427,582) (8,495,820)Park and Ride Facilities (3,611,594) (2,494,396) (6,105,990)Electric Power Substations (5,324,275) (3,554,742) (8,879,017)Signal Substations (3,642,501) (2,428,334) (6,070,835)Computers & software (1,117,164) (225,923) (1,343,087)Furniture & fixtures (756,815) (160,990) (917,805)Revenue Vehicles (15,598,939) (8,792,128) (24,391,067)Non-Revenue Vehicles (611,921) (370,044) 15,134 (966,831)Equipment (2,244,604) (1,408,956) (3,653,560)

Total accumulated depreciation (66,077,926) (39,176,737) 15,134 (105,239,529)Total capital assets being depreciated 1,186,074,284 (33,889,402) (12,806) 1,152,172,076Business-type activities capital assets, net 1,213,821,644$ (23,657,528)$ (5,080,114)$ 1,185,084,002$

City of Chandler 102,192$City of Glendale 24,508City of Mesa 259,221City of Peoria 92,292City of Phoenix 5,182,864City of Tempe 1,548,987

7,210,064$


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8. Operating Leases

METRO leases office space and small office equipment under various operating lease agreements. Total rent expenditures for these leases were $1,227,901 for the fiscal year ended June 30, 2011. Future minimum lease payments under non-cancelable operating leases are as follows:

9. Capital Lease Obligation

METRO leases 14 Light Rail Vehicles (LRVs) under the terms of a Master Lease/Purchase Financing Agreement, with the City of Phoenix (as Lessor). The assets acquired through the capital lease are as follows:

Amortization expense on the capital lease is included in depreciation expense.

The following table presents the changes in the capital lease obligation for fiscal year 2011:

Acceptance of the LRVs commenced the term of this agreement and obligated rent payments totaling approximately $56,300,000. The first $10,000,000 payment was madeJune 1, 2011, with succeeding payments due per the following schedule:

2012 1,289,818$2013 1,255,1192014 1,242,6112015 1,255,5522016 1,282,658

6,325,758$

Year Ending June 30, 2011

Asset: Unspent Lease Proceeds 454,952$

Spare Parts 1,635,840 Revenue Vehicles 40,095,208 Less Accumulated Depreciation (4,009,521)

Total 38,176,479$

June 30, 2010 Increases Decreases June 30, 2011Amount Due in One Year

Capital Lease Obligation 42,186,000$ -$ (10,000,000)$ 32,186,000$ 10,000,000$


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For Fiscal Year 2011, Capital Lease interest expense totaling $2,083,503 was accrued under the Master Lease Agreement generating a total accrued interest to date of $8,334,013. The Capital Lease obligation at June 30, 2011 includes $32,186,000 principal and $8,334,013 accrued interest for a total of $40,520,013.

10. Compensated Absences

The following presents the changes in compensated absences for the fiscal year ended June 30, 2011:

The portion of compensated absences payable within one year is $385,397.

11. Due to Other Governments

METRO receives employee services as well as Public Transportation Funds for capital project planning, design and construction from RPTA. As of June 30, 2011 METRO owed $760,053 for payroll and fringe benefits; $41,530 for an investment reserve (see Note 14);and $5,765,381 for Federal grants reimbursable to RPTA for expenditures funded by the Public Transportation Fund.

12. Contractual and Other Commitments

METRO has entered into various contractual agreements for engineering services, projectmanagement, construction administration, light rail vehicles, construction, operations services, legal services and artists. At June 30, 2011, METRO had remaining contractual commitments for these services aggregating approximately $55.9 million. These commitments have not been recorded in the accompanying financial statements. Only the currently payable portions of these contracts have been included in accounts payable in the accompanying financial statements. Subsequent to June 30, 2011, METRO entered into approximately $6.8 million additional contractual commitments.

Year ending June 30 Principal Payments Principal Remaining Interest Total Obligation2011 10,000,000$ 32,186,000$ 8,334,013$ * 40,520,013$2012 10,000,000 22,186,000 2,827,8762013 10,000,000 12,186,000 1,954,7592014 12,186,000 - 1,013,886

42,186,000$ - 14,130,534$ *

* Interest shown is accrued to date and future amounts payable

Schedule of Capital Lease Payable as of June 30, 2011

Payroll and Fringe Benefits 760,053$NCFE reserve 41,530Federal Grant Reimbursements 5,765,381Total Due to RPTA 6,566,964$

July 1, 2010 Increases Decreases June 30, 2011

Compensated absences $ 755,775 $ 137,067 $ (107,830) $ 785,012


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13. Risk Management

METRO is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to contracted labor; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. METRO purchases insurance coverage for property, general liability, excess liability, automobile liability, umbrella liability, public entity employment practices liability, public entity management liability, boiler and machinery, crime, inland marine, owner’s protective professional indemnity, environmental site protection, contractor’s environmental protection and excess liability. In addition, the RPTA purchases workers’ compensation, employee life insurance, health and dental insurance coverage for all LRT full-time employees. Settled claims for these risks have never exceeded commercial insurance limits. See schedule of insurance on page 39 and Note 15-Related Party Transactions.

METRO has received notice of general liability claims related to its operations. METRO’s commercial insurance policies provide coverage against losses rising from the claims subject to policy deductible amounts. Such claims are evaluated and specific reserves are established to cover METRO’s contingent risk of loss pending settlement with the parties involved. At June 30, 2011 the Reserve for General Liability Claims totaled $306,764.

14. Contingencies

As a subrecipient of federal grant monies, amounts passed through or receivable from other agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although METRO expects such amounts, if any, to be immaterial.

Prior to the incorporation of METRO in October 2002, the RPTA made investment decisions on behalf of METRO. On November 22, 2002, the Arizona State Treasurer’s Office informed participants in the Local Government Investment Pool (LGIP) that it currently holds asset-backed securities administered by National Century Financial Enterprises (NCFE). These securities, which total approximately $131 million of the total $4 billion in the LGIP, are backed by payments from Medicare/Medicaid and other creditworthy issuers. RPTA’sproportional share of the $131 million was $223,150, of which $88,791 is invested on behalf of METRO.

No collections were received from the NCFE receivable during fiscal year ended June 30, 2011. The $41,530 receivable is recorded as due from other governments with an offsetting reserve of ($41,530) recorded to due to other governments.

Contractor Commitment Spent-to-date RemainingKinkisharyo Int'l - Vehicle Procurement 117,691,301$ 117,294,330$ 396,971$Scheidt Bachmann - Fare Collection System 8,564,192 7,958,900 605,292Various - Public Art Program 7,298,208 6,089,678 1,208,530Alternative Concepts - Transportation Operations 45,900,288 26,365,784 19,534,504Kinkisharyo Int'l - Vehicle Maintenance 27,347,507 18,572,129 8,775,378Various - Operations & Maintenance 9,536,621 7,165,017 2,371,604Various - Misc. Construction and Services 22,654,742 18,916,384 3,738,358Various - Future Extensions 29,930,436 20,691,996 9,238,440AE Com - NWExt 15,881,499 15,003,869 877,630Jacobs - Central Mesa Extension Design 12,499,655 3,740,835 8,758,820Various - Central Mesa Ext. Program Management 580,852 168,955 411,897

297,885,301$ 241,967,878$ 55,917,424$


22

15. Related Party Transactions

All of the six member cities of METRO’s Board of Directors are also member cities of the sixteen-member RPTA Board of Directors. The Board members of the cities of Tempe and Glendale represent their cities on both Boards. METRO has entered into contracts with the RPTA for certain administrative functions, including personnel, administration, financial and accounting services, purchasing, and computer support services. All METRO staff is hired and employed by RPTA but works solely under the direction of the METRO and it’s Board of Directors, through a contractual arrangement with RPTA. Any payroll related liabilities including Compensated Absences are obligations of METRO due to RPTA. For the period July 1, 2010 through June 30, 2011, METRO incurred costs of $7,153,661 for services provided by RPTA.

In September 2010, the METRO Board authorized the Chief Executive Officer (CEO) to enter into a sublease with the Regional Public Transportation Authority (RPTA) for a portion of the office space currently leased and occupied by METRO. Commencing in December 2010 and ending in June 2016, office space lease costs that METRO pays monthly to the landlord will be prorated and charged to RPTA based on square footage used by RPTA.The total sublease over the 66-month period is estimated to equal $3,167,304. As of June 30, 2011, the remaining lease payments under the sublease agreement total $2,897,746.

16. Arizona State Retirement System

Plan Description – METRO contributes to a cost-sharing multiple-employer defined benefit pension plan administered by the Arizona State Retirement System. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The system is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2.

The System issues a comprehensive annual financial report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067-3910 or by calling (602) 240-2000 or (800) 621-3778.

Funding Policy - The Arizona State Legislature establishes and may amend active plan members' and the METRO’s contribution rate. For the year ended June 30, 2011, active plan members and METRO were each required by statute to contribute at the actuariallydetermined rate of 9.85 percent (9.01 percent retirement, 0.59 percent health plan, and 0.25percent long-term disability) of the members' annual covered payroll. METRO’s contributionto the System for the year ended June 30, 2011 and 2010 was $542,211 and $541,110respectively, which was equal to the required contributions for the year.

Schedule of Retirement and Long Term Disability Benefits Accrued

Health Benefit Long-TermRetirement Supplement Disability Total

Years ended June 30, Fund Fund Fund Benefits2011 495,971$ 32,478$ 13,762$ 542,211$2010 480,091 37,993 23,026 541,1102009 454,638 59,126 28,702 542,466

Valley Metro Rail, Inc.Notes to the Financial Statements (Concluded)Fiscal Year Ended June 30, 2011

23

17. Public Transportation Funding

In November 2004, the voters of Maricopa County approved Proposition 400, the continuation of the transportation tax, for a twenty year period beginning in calendar year 2006. On August 14, 2006, METRO and RPTA executed an intergovernmental agreement (IGA) that formally designated METRO as Lead Agency to plan, design, and construct the light rail transit (LRT) program. Among other things, the IGA specifies that RPTA will reimburse METRO, from the Public Transportation Fund, for eligible incurred expenses.

Valley Metro Rail began receiving Public Transportation Funding (PTF) in March 2006. These monies are used to reimburse private utility companies for costs incurred in the relocation of non-prior rights utilities, to reimburse Member Cities for their share of local costs incurred in connection with the acquisition of certain regional transportation assets,and to fund the local share of future light rail extensions as designated in the Regional Transportation Plan. Cash outlays for LRT Public Transportation Fund expenses during fiscal year 2011 totaled $63,639,292 as summarized in the table below.

In June 2009, the Regional Public Transportation Authority (RPTA) issued Transportation Excise Tax Revenue Bonds in the amount of $100,075,000. A portion of the bonds will pay or reimburse LRT capital expenditures as designated in the Regional Transportation Plan.As of June 30, 2011, bond expenditures to date for the LRT portion of the program totaled $ 43,475,920.

LRT PTF Expenditures: $ In Millions

Regional Transportation Plan Projects:Central Mesa LRT Extension 4.55Systemwide Improvements 10.29

Non Prior Rights Utility Relocations:20 Mile Initial Segment -0.19Northwest Extension Phase I 0.71

Regional Asset Reimbursements:CPEV - 20 Mile Initial Segment

Phoenix 24.16Tempe 12.66Mesa 1.58

Project Development and Planning 6.26Debt Service 3.62

Total LRT PTF Cash Expenditures 63.64

Public Transportation Fund Cash Expenditures (LRT Portion)Fiscal Year ended June 30, 2011

OTHER SUPPLEMENTARY INFORMATIONThis Section includes the Schedule of Operations – Budget and Actual.

Price and 101 riders purchasing tickets

24

Valley Metro Rail, Inc.Schedule of Operations - Budget and ActualFiscal Year Ended June 30, 2011

Variance withActual Amounts Final Budget

Original Final (Budgetary Basis) Over (Under)Operating Revenues: Net Distributions to member cities (58,966,299)$ (56,610,092)$ (70,161,408)$ (13,551,317)$ Passenger fares 9,097,839 9,497,839 10,238,281 740,442 Federal Transit Administration grants 76,661,200 75,151,436 70,864,107 (4,287,329) Public Transportation Funds 60,786,782 60,728,550 57,752,197 (2,976,353) MAG/RPTA Grants 1,000,000 1,000,000 1,012,720 12,720 Contributions from Others 250,000 250,000 389,982 139,982 Total operating revenues 88,829,521 90,017,733 70,095,879 (19,921,854)Operating Expenses: Engineering and design consultants 7,373,753 8,252,759 4,480,747 (3,772,012) Construction administration consultants 325,000 270,953 258,953 (12,000) Planning and environmental consultants 7,523,450 5,196,450 2,951,220 (2,245,230) Facilities Construction 10,785,916 16,397,961 3,110,110 (13,287,851) Administrative 6,958,190 7,641,391 6,357,295 (1,284,096) Equipment Purchases 758,025 920,400 485,611 (434,789) Real estate/ROW Acquisition 10,836,239 9,506,239 9,246,401 (259,838) Light Rail Vehicles 1,500,000 1,102,184 610,385 (491,799) Private Utilities Relocation 25,000 1,241,930 3,732,886 2,490,956 Finance Costs 9,522,000 5,766,597 7,842,160 2,075,563 Rail Operations Expense 33,221,948 33,720,869 31,020,111 (2,700,758) Total operating expenses 88,829,521 90,017,733 70,095,879 (19,921,854)

Total Operating Expenses - Budgetary Basis 70,095,879$77,410,654

Budgetary Operating Expenses in Excess of GAAP Operating Expenses (7,314,775)$

Acquisition of Capital Assets (capitalized on a GAAP basis and expensed on a budgetary basis) 10,985,155$Member funded finance costs (budgeted expenses not included in GAAP basis) 3,011,096Member-owned real estate/ROW acquisitions (budgeted expenses not included in GAAP basis) 9,246,401RPTA PTF Bond Interest (budgeted expenses not recorded for GAAP basis) 2,747,561Capital Lease Interest (budgeted expenses recorded nonoperating expense for GAAP basis) 2,083,503Private Utilities Relocations (budgeted expenses recorded nonoperating expense for GAAP basis) 3,732,886All Other Adjustments 55,360Depreciation (GAAP expenses not included in budgetary basis) (39,176,737) Total Reconciling Items (7,314,775)$

Explanation of Differences between Budgetary Basis and GAAP Basis

Total Operating Expenses - GAAP Basis

This schedule is prepared on a budgetary basis for the operating accounts of the proprietary fund and as such does notpresent the results of operations on the basis of generally accepted accounting principles, but is presented for supplementalinformation. In the current year, GAAP basis operating costs are $77.4 million, or $7.3 million less than the budgetary basiscosts of $70.1 million. The primary differences between these two bases of reporting are: 1.) Capital project costs that areincluded in budgeted costs but added to Capital and Inventory Assets for GAAP purposes ($11.0 million); 2.) Finance andreal estate/ROW acquisition costs that are budgeted but not booked for GAAP purposes ($3.0 and $9.2 million); 3.) RPTABond Interest Expense that is included in the budget but not recorded on a GAAP basis ($2.7 million); 4.) Capital LeaseInterest and Private Utility Relocations that are recorded as non operating expenses ($2.1 and $3.7 million) and 5.)Depreciation included for GAAP but not budget ($-39.2 million).

Interior of 2010 holiday train

STATISTICAL SECTIONThe Statistical Section includes selected financial and demographic information regarding METRO,including financial trends, revenue capacity, demographic and economic information, and operating

information.

25

Statistical SectionComprehensive Annual Financial ReportFiscal Year Ended June 30, 2011

This part of METRO's comprehensive financial report presents information as a context forunderstanding what the information in the financial statements, footnotes, andsupplementary information says about METRO's overall financial condition. METRO'sprinicipal activities consist of planning, designing, constructing and operating the light railtransit system in Maricopa County, Arizona.

Contents Page

Financial Trends 26These schedules contain trend information to help the reader understand how METRO'sfinancial performance and well-being have changed over time.

Revenue Capacity N/AMETRO's principal source of operating revenues are contributions from Member Cities.With repect to capital projects, METRO receives federal grants and utilizes PublicTransportation Funds administered by the Regional Public Transportation Authority(RPTA). (Refer to Note 17 in the Notes to the Financial Statements section.)

Debt Capacity N/AMETRO has no current bond indebtedness. See Notes to the Financial Statements; referto Note number 17, Public Transportation Funding for information regarding revenue bondsissued by RPTA which provide funding for LRT capital expenditures. Refer to Notenumber 9, Capital Lease Obligation for information related to METRO's current debtobligations.

Demographic and Economic Information 28These schedules offer demographic and economic indicators to help the reader understandthe environment within which METRO's financial activities take place.

Operating Information 34These schedules contain service and infrastructure data to help the reader understand howthe information in METRO's financial report relates to the services METRO provides andthe activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from thecomprehensive annual financial reports for the relevant year. METRO's first financialreporting as a separate entity was for the intial period ended June 30, 2003.

26

Business-type activities FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 Invested in capital assets (2) Buildings -$ -$ -$ -$ -$ 68,855,662$ 67,108,795$ 97,611,148$ 95,047,845$ 92,484,543$ Guideway - - - - - - - 545,989,800 548,218,379 537,014,911 Bridges - - - - - - - 60,491,115 58,440,569 56,390,023 Operation Control Center - - - - - - - 11,536,240 11,145,181 10,754,123 Passenger Stations & Facilities - - - - - - - 96,272,225 96,296,602 93,454,131 Park and Ride Facilities - - - - - - - 34,769,334 32,504,345 33,909,949 Electric Power Substations - - - - - - - 86,707,115 83,413,644 79,858,902 Signal and Communication System - - - - - - - 45,202,398 44,924,177 42,495,843 Computers & Software 67,247 76,160 203,648 171,226 108,076 949,273 852,789 574,791 179,859 - Furniture & Fixtures 915 153,797 134,029 113,186 739,880 844,591 692,090 531,100 370,110 209,121 Revenue Vehicles (3) - - - - - 3,246,541 116,875,456 164,031,893 163,521,294 163,681,089 Support/Service Vehicles (4) 28,981 22,168 10,488 188 188 706,809 646,471 587,896 - - Non-Revenue Vehicles - - - - - - 209,605 958,053 733,227 1,056,448 Equipment - 3,018 4,202 2,754 497,319 995,075 1,222,755 8,214,895 9,993,522 9,131,945 Construction in Progress - - 56,989,473 235,618,498 459,034,837 698,209,539 895,953,882 27,776,412 27,747,360 32,911,926 Subtotal Invested in Capital Assets 97,143$ 255,143$ 57,341,840$ 235,905,852$ 460,380,300$ 773,807,490$ 1,083,561,843$ 1,181,254,415$ 1,172,536,114$ 1,153,352,954$

Restricted - - - - - - - - - - Unrestricted - - - - - - - 6,602,251 6,196,414 5,019,683Total business-type activities net assets 97,143$ 255,143$ 57,341,840$ 235,905,852$ 460,380,300$ 773,807,490$ 1,083,561,843$ 1,187,856,666$ 1,178,732,528$ 1,158,372,637$

Source: Valley Metro Rail, Inc. Finance Division

(1)

(2)

(3)

(4) In FY 09-10 Support Service Vehicles and Non-Revenue Vehicles were combined for presentation purposes.

Valley Metro Rail, Inc.Net Assets by ComponentFY 01/02 through FY 10/11(1)

Valley Metro Rail, Inc. was established in October 2002. All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transporation Authority (RPTA). The amounts shown here for FY02/03 were reported in both the RPTA and METRO financial records and were combined to show the complete rail transit amount.

CP/EV LRT project costs incurred prior to July 1, 2004, for project preliminary engineering and project management totaling $77.1 million paid for by member cities or federal grants were contributed to METRO during the fiscal yearended June 30, 2005. Prior to FY 04/05, these amounts were included in Administration and Planning Services.

Revenue Vehicles are shown net of depreciation and net of Capital Lease obligation.

27

FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11Operating Revenues Contributions from Member Cities (2) 5,323,908$ 28,353,274$ 14,141,126$ 27,692,841$ 75,672,696$ 156,033,959$ 143,276,140$ 13,490,504$ 25,964,781$ 19,430,008$ Passenger Fares 3,371,104 9,256,913 10,238,281 Federal Transit Administration Operating Grants (2) 11,437,481 6,237,102 48,497,109 74,819,942 150,717,452 146,442,055 953,877 - 222,519 240,000 Sales Tax (RARF) - - - - - - - - - - Public Transportation Funds (2) - - - - 11,700,029 57,160,186 58,315,376 - - - Other Revenues 40,000 103,410 908,728

Total operating revenues 16,761,389 34,590,376 62,638,235 102,512,783 238,090,177 359,636,200 202,545,393 16,901,608 35,547,623 30,817,017

Operating Expenses Administration and Planning Services (3) 16,725,821 34,398,920 5,434,775 1,001,016 1,829,944 5,709,157 5,396,474 5,278,901 9,540,355 7,213,806 Passenger Operations Service 15,678,389 32,964,701 31,020,111 Private Utilities Relocations - - - - 11,700,029 39,212,754 15,750,886 Depreciation 39,765 63,436 117,706 136,944 186,644 1,389,987 2,231,538 22,437,891 39,685,152 39,176,737

Total operating expenses 16,765,586 34,462,356 5,552,481 1,137,960 13,716,617 46,311,898 23,378,898 43,395,181 82,190,208 77,410,654 Operating income (loss) (4,197) 128,020 57,085,754 101,374,823 224,373,560 313,324,302 179,166,495 (26,493,573) (46,642,585) (46,593,637)

Non-Operating Revenues (Expense) Federal Transit Administration Operating Grants 650,492 2,557,861 2,118,259 Public Transportation Funds 10,945,204 5,484,246 8,678,822 Other Non-Operating Income 142,025 160,757 Interest on Investments 45,490 29,980 943 80,162 100,888 102,888 91,519 - 15 36 Distributions to Member Cities (20,078,532) (106,249,903) (38,400,636) Private Utilities Relocations (9,518,863) 965,013 (3,732,886) Interest on Capital Lease obligation (2,083,503) (4,167,007) (2,083,503)

Total non-operating revenues (expense) 45,490 29,980 943 80,162 100,888 102,888 91,519 (20,085,202) (101,267,750) (33,259,151)

Capital Contributions Federal Transit Administration Capital Grants - - - - - - 130,496,339 72,863,699 62,585,921 7,255,308 Contributions from Member Cities - 25,381,955 31,156,572 2,651,494 Public Transportation Funds Capital 52,627,944 45,043,704 49,586,095 Donated Engineering (4) - - - 77,109,027 - - - - - -

Increase in net assets 41,293$ 158,000$ 57,086,697$ 178,564,012$ 224,474,448$ 313,427,190$ 309,754,353$ 104,294,823$ (9,124,138)$ (20,359,891)$

Source: Valley Metro Rail, Inc Finance Division

(1)

(2)

(3)

(4) CP/EV LRT project costs incurred prior to FY 04/05 for project preliminary engineering and project management were contributed to METRO during FY 04/05. These costs, totaling $77.1million, were originally paid for by member cities or federal grants and were included in Administration and Planning Services expenses for the year incurred.

Valley Metro Rail, Inc.Changes in Net AssetsFY 01/02 through FY 10/11 (1)

Valley Metro Rail, Inc. was established in October 2002. All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transportation Authority(RPTA). The amounts shown here for FY 02/03 were reported in both RPTA and METRO financial records and were combined to show the complete transit amount.

Prior to FY 08/09, CP/EV local, federal and regional project funding was recorded as operating revenue.

Prior to FY 04/05, all CP/EV project costs, except for the cost of computers, equipment, and certain other capital assets, were recorded as operating expenses.

Valley Metro Rail, Inc.Growth in Regional Transit Usage Last Ten Fiscal Years

28

Source: Regional Public Transportation Authority

Fiscal Year Boardings Change 2002 45,103,085 12.73%2003 50,319,003 11.56%2004 54,013,410 7.34%2005 56,358,335 4.34%2006 59,253,904 5.14%2007 58,020,189 -2.08%2008 61,866,819 6.63%2009 71,251,664 15.17%2010 67,693,003 -4.99%2011 67,607,530 -0.13%

59,253,904

67,607,530

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

55,000,000

60,000,000

65,000,000

70,000,000

75,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Annu

al R

ides

Fiscal Year

Valley Metro Regional Bus and Rail Boardings by Fiscal YearFixed Route System

Total Rail Boardings

Total Bus Boardings

Five Year Growth rate 14.1%

Valley Metro Rail, Inc.Member Cities’ Area Growth (Square Miles)Last Ten Fiscal Years

29

Year Chandler Glendale Mesa Peoria Phoenix Tempe

2001 189,498 218,812 420,525 115,432 1,352,394 158,625

2002 201,263 227,614 431,874 122,655 1,375,906 159,425

2003 211,984 231,288 434,585 126,815 1,455,440 159,426

2004 224,644 233,000 445,354 132,805 1,492,420 159,615

2005 238,930 235,987 451,223 137,045 1,525,400 160,820

2006 241,910 235,987 455,151 145,125 1,560,380 165,796

2007 247,100 246,382 460,155 158,227 1,595,260 166,625

2008 247,100 248,731 463,397 158,227 1,630,340 167,458

2009 244,376 248,435 459,682 155,560 1,561,485 172,641

2010 236,123 226,721 439,041 154,065 1,445,632 161,719

Source: Maricopa Association of Governments

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Popu

latio

n

For the Years 2001 through 2010

Valley Metro Rail, Inc. Member Cities' Population Growth

Chandler Glendale Mesa Peoria Phoenix Tempe

Valley Metro Rail, Inc.Top Employers in Maricopa CountyFor the Fiscal Year ended June 30, 2010 and June 30, 2001

Employer Employees Rank % of Total Employees Rank % of Total

State of Arizona 52,420 1 3.06% 59,348 1 3.82%Wal-Mart Stores, Inc. 31,280 2 1.97% 13,800 6 0.89%Banner Health Systems 27,431 3 1.39% 13,973 4 0.90%City of Phoenix 16,375 4 1.03% 12,917 7 0.83%Wells Fargo & Company 14,000 5 0.84%Maricopa County 12,996 6 0.84% 13,860 5 0.89%Apollo Group Inc. 12,299 7 0.78%Arizona State University 12,043 8 0.76%Honeywell Aerospace 10,145 9 0.63% 17,500 2 1.13%Bank of America 10,000 10 0.63%Motorola 15,500 3 1.00%The Kroger Co. 9,837 8 0.63%US Postal Service - Arizona District 9,756 9 0.63%Raytheon Missile Systems 9,700 10 0.62%

Total for Principal Employers 198,989 11.93% 176,191 11.34%

Total Employment in Maricopa Cty 1,628,700 1,552,400 As of June 30

Source: Maricopa County

2010 2001

Workforce Informer Arizona at www.workforce.az.gov for total employed in Maricopa Cty Phoenix Business Journal Book of Lists

52.4

31.3 27.4

14.4 14.0

13.0 12.3 12.0

10.1 10.0

2010 - Employees (000s)

State of Arizona Wal-Mart Banner Health Systems City of Phoenix

Wells Fargo Maricopa County Apollo Group Inc. Arizona State University

Honeywell Aerospace Bank of America

30

Valley Metro Rail, Inc.Initial 20-Mile Segment

31

Initial 20-Mile Segment

Source: Valley Metro Rail, Inc Project Development Division

Valley Metro Rail, Inc.Northwest Extension

32

Northwest Extension


Valley Metro Rail, Inc.Central Mesa LRT Extension

33

Central Mesa Light Rail Extension


Valley Metro Rail, Inc.Tempe Streetcar

34

Tempe Streetcar


35

Grade RPTA Position Titles FY 2008 FY 2009 FY 2010 FY 2011

III Administrative Support Assistant 1 1 1 1

IV Accounting Technician 1 1 1 1Administrative Assistant 6 6 6 6Materials Handler 0 1 1 1

VI Paralegal 1 1 1 1Track Maintainer 0 6 6 6

VII Accountant I 1 1 2 2Executive Assistant 3 2 2 2Network Support Analyst 0 1 0 0Planner I 1 0 0 0Procurement Specialist 1 0 0 0Signal & Comm Systems Maintainer 0 6 6 6Utility Relocation Specialist 1 1 1 1

VIII Lead Document Control Clerk 1 1 1 1Engineering Technician 0 0 1 1Executive Administrative Coordinator 0 1 1 1Information Technology Systems Specialist 1 1 1 1Maintenance Scheduling 0 1 1 0Materials/Warranty Coordinator 1 2 2 2Sr Communications Specialist 1 1 0 0Signal & Communications Syst Tech 0 4 4 4Traction Power Systems Technician 0 9 10 10

IX Accountant II 1 1 1 0Area Coordinator 2 2 2 2Budget Analyst 1Contract Administrator 1 1 1 1Network Systems Engineer 0 1 1 1Planner II 1 2 1 1Supervisor, Facility Maintenance 0 1 1 1Supervisor, Track Maintenance 0 1 1 1

X Engineer (Civil) 0 0 1 1Lead Technician 1 1 0 0Planner III 0 0 2 2Program Control Specialist 1 1 1 1Senior Contract Administrator 2 2 2 2Signals/Communications Maintenance Supervisor 0 1 1 1TES Supervisor 0 1 2 2

Authorized FTEs

Valley Metro Rail, IncFull-Time Equivalent Positions

Source: Valley Metro Rail, Inc Finance and Administration Division

36

Grade RPTA Position Titles FY 2008 FY 2009 FY 2010 FY 2011

Valley Metro Rail, IncFull-Time Equivalent Positions


Authorized FTEs

XI Accountant III 0 0 0 1Public Arts Administrator 1 1 1 1Public Information Officer 0 1 1 1Rail DBE Program Manager 1 1 0 0

XII Communications Manager 1 0 0 0Rail Marketing Manager 1 1 0 0Rail Public Involvement Manager 1 1 1 1Rail Real Estate Manager 1 1 0 0Rail Senior Engineer (PE) 1 1 0 0Rail Senior LRV Engineer (PE) 0 0 0 0Rail Senior Program Control Specialist 0 0 0 0Rail Utility Manager 1 1 1 1

XIII Contracts and Procurement Manager 1 1 1 1Finance and Budget Manager 1 1 0 0Rail Design & Construction Manager 1 1 1 1Manager, Systems and Facility Maintenance 1 1 0 0Rail Capital Project Schedule Manager 1 1 1 1Rail Maintenance Manager 1 1 0 0Rail Operations Manager 1 1 0 0Rail Project Manager, Facilities Engineer 2 2 1 1Rail Project Manager, Planning 2 2 1 1Rail Quality Assurance Manager 0 0 1 0

XIV Rail O & M Startup/Activation Manager 1 1 0 0Rail Safety and Security Chief 0 0 0 1Chief Maintenance Engineer 0 0 0 1Chief System Engineering Officer 1 1 1 1Chief Transportation Officer 0 0 1 0

XV Rail Chief Operations Officer 0 0 0 1Rail Community & Government Relations Director 1 1 1 1Rail Finance & Administration Director 1 1 1 1Rail Safety, Security, and Quality Director 1 1 1 0

XVI Rail Design & Construction Director 1 1 1 1Rail General Counsel 1 1 1 1Rail Operations & Maintenance Director 1 1 1 0Rail Project Development Director 0 1 1 1

ED Rail Chief Executive Officer 1 1 1 157 91 85 84

37

Valley Metro Rail, Inc.Schedule of FY 2011 Adopted Pay Grades and RangesFor the Fiscal Year Ended June 30, 2011

Grade RPTA Position Titles

III Administrative Support Assistant $27,626 - $41,439

IV Accounting Technician $30,696 - $46,043Administrative Assistant $30,696 - $46,043Lead Document Control Clerk $30,696 - $46,043Materials Handler $30,696 - $46,043

VI Paralegal $37,142 - $55,712Track Maintainer $37,142 - $55,712

VII Accountant I $40,856 - $61,284Executive Assistant $40,856 - $61,284Network Support Anaylst $40,856 - $61,284Planner I $40,856 - $61,284Procurement Specialist $40,856 - $61,284Signal/Comm Maintainer $40,856 - $61,284Utility Relocation Specialist $40,856 - $61,284

VIII Lead Document Control Clerk $44,942 - $67,413Engineering Technician $44,942 - $67,413Executive Administrative Coordinator $44,942 - $67,413Information Technology Systems Specialist $44,942 - $67,413Maintenance Scheduling $44,942 - $67,413Materials/Warranty Coordinator $44,942 - $67,413Signal/Comm Systems Technician $44,942 - $67,413Traction Power Systems Technician $44,942 - $67,413

IX Accountant II $49,435 - $74,154Area Coordinator $49,435 - $74,154Budget Analyst $49,435 - $74,154Contract Administrator $49,435 - $74,154Network Systems Engineer $49,435 - $74,154Planner II $49,435 - $74,154Supervisor, Facility Maintenance $49,435 - $74,154Supervisor, Track Maintenance $49,435 - $74,154

X Engineer (Civil) $54,380 - $81,569Lead Technician $54,380 - $81,569Planner III $54,380 - $81,569Program Control Specialist $54,380 - $81,569Senior Contract Administrator $54,380 - $81,569Signals/Communications Maintenance Supervisor $54,380 - $81,569TES Supervisor $54,380 - $81,569


Pay Range

38

Valley Metro Rail, Inc.Schedule of FY 2011 Adopted Pay Grades and RangesFor the Fiscal Year Ended June 30, 2011

Grade RPTA Position Titles

XI Accountant III $59,818 - $89,726Public Arts Administrator $59,818 - $89,726Public Information Officer $59,818 - $89,726Rail DBE Program Manager $59,818 - $89,726

XII Rail Marketing Manager $65,799 - $98,698Rail Public Involvement Manager $65,799 - $98,698Rail Real Estate Manager $65,799 - $98,698Rail Senior Engineer (PE) $65,799 - $98,698Rail Senior Program Control Specialist $65,799 - $98,698Rail Utility Manager $65,799 - $98,698

XIII Contracts and Procurement Manager $72,379 - $108,568Finance and Budget Manager $72,379 - $108,568Rail Design & Construction Manager $72,379 - $108,568Manager, Systems and Facility Maintenance $72,379 - $108,568Rail Capital Projects Schedule Manager $72,379 - $108,568Rail Maintenance Manager $72,379 - $108,568Rail Operations Manager $72,379 - $108,568Rail Project Manager, Facilities Engineer $72,379 - $108,568Rail Project Manager, Planning $72,379 - $108,568Rail Quality Assurance Manager $72,379 - $108,568

XIV Rail O & M Startup/Activation Manager $81,992 - $122,987Rail Safety and Security Chief $81,992 - $122,987Chief Systems Engineering Officer $81,992 - $122,987Chief Transportation Officer $81,992 - $122,987

XV Rail Community & Government Relations Director $100,202 - $150,304Rail Finance & Administration Director $100,202 - $150,304Rail Safety, Security, and Quality Director $106,589 - $143,874

XVI Rail Design & Construction Director $112,627 - $168,941Rail Operations & Maintenance Director $117,246 - $165,355Rail Project Development Director $112,627 - $168,941

GC Rail General Counsel $117,246 - $175,870

ED Chief Executive Officer Salary Negotiated


Pay Range

39

Valley Metro Rail, Inc.Schedule of Insurance Coverage Source: Valley Metro Rail, Inc Contracts and Procurement DivisionFor the Fiscal Year Ended June 30, 2011

Policy # Coverage Limits Policy Term Premium CarrierKTKCMB2700C768610 Commercial Property 131,687,981 TIV

10,000 Deductible 25,000,000 Flood & EQ 100,000 Flood & EQ Deductible

12/1/2010-11 $102,713 Travelers Indemnity Co.

QT6605833B340TIL10 Inland Marine - Rolling Stock 150,660,000 Limit 100,000 Deductible

12/1/2010-11 $165,726 Travelers P&C Insurance Co.

QT6605833B352TIL10 Inland Marine - Town Lake Bridge 22,581,224 TIV 5,000,000 Flood & EQ 100,000 Deductible

12/1/2010-11 $30,711 Travelers P&C Insurance Co.

I21112951004 DIC - Excess Flood and EQ for Town Lake Bridge

15,000,000 per Occurrence x/o 5,000,000 underlying

12/1/2010-11 $35,932 ACE Fire Underwriters Insurance Co.

CCP006379805 Commercial Crime 1,000,000 Limit 10,000 Deductible

12/1/2010-11 $2,281 Crime Fidelity & Deposit Co. of Maryland

BA1153P23309CAG Auto Liability and Physical Damage 300,000 CSL 2,000 Comp & Coll Deductible except 5,000 Deductible for Brandt and 2009 International

12/1/2010-11 $47,736 Commercial Auto Charter Oak Fire Insurance Co. (Travelers)

N1A3RL0000066-01 Primary Excess Liability 10,000,000 x/o 250,000 SIR 12/1/2010-11 $375,777 Princeton Excess & Surplus Lines Insurance Co.

71P30000014-101 Excess Liability 10,000,000 x/o 10,000,000 12/1/2010-11 $78,371 Everest National Insurance Co.

03051169 Excess Liability 15,000,000 x/o 20,000,000 12/1/2010-11 $57,472 Allied World National Assurance Co.

EAU736241/01/2010 Excess Liability 25,000,000 x/o 35,000,000 12/1/2010-11 $101,794 AXIS Surplus Insurance Co.

Valley Metro Rail, Inc (METRO) employs the firm of Arthur J. Gallagher Risk Management Services, Inc. as its broker for the purchase of insurance.METRO's commercial insurance program consists of the following:

40

Valley Metro Rail, Inc.Schedule of Insurance Coverage (Concluded) Source: Valley Metro Rail, Inc Contracts and Procurement DivisionFor the Fiscal Year Ended June 30, 2011

Policy # Coverage Limits Policy Term Premium CarrierG24100868002 Excess Liability 15,000,000 x/o 85,000,000 12/1/2010-11 $31,500 Westchester Surplus

Lines Insurance Co.UXP003631401 Excess Liability 25,000,000 x/o 60,000,000 12/1/2010-11 $79,980 Arch Insurance Co.

181623 Workers Comp & Employers Liability WC - Statutory EL - 1,000,000

3/1/2010-11 - SCF Premier (SCF of Arizona); Standard Fire Insurance Co. (Travelers)

37312354 Pollution Legal Liability (Fixed-site coverage)

5,000,000 each Pollution Incident 5,000,000 Aggregate 25,000 Deductible

12/1/07-12 $31,278 Chubb Custom Insurance Co.

41

Valley Metro Rail, Inc.Design & Construction Milestones

PRE-INCORPORATION ACTIVITIES

November 2000 - Final light rail alignment approved

February 2001 - Project opens community office for the public

September 2001 - City of Phoenix purchases first property for the light rail system at Camelback Road and 3rdAvenue.

December 2001 - Project receives first Recommended rating from the Federal Transit Administration (FTA) in itsNew Starts Report.

October 2002 - Valley Metro Rail, inc. is incorporated.

VALLEY METRO RAIL, INC. ACTIVITIES

July 2003 - METRO receives formal approval from the FTA for the light rail project to enter the Final Design phase.The approval allows designers to finalize the construction plans during the coming months, begin utility relocation,and request early approval to begin purchasing light rail vehicles and construction materials.

August 2004 - The METRO board approves the METRO Business Outreach Plan to help minimize the impacts oflight rail construction on businesses located along the light rail transit alignment.

November 2004 - A groundbreaking ceremony is held for the reconstruction of an access bridge over the GrandCanal at 48th Street that leads to the light rail Maintenance and Storage Facility.

January 2005 - Full Funding Grant Agreement signed for the Central Phoenix East Valley (CPEV) Light RailProject. (20 mile initial operating segment)

April 2005 - METRO Max program launched, business support program encouraging residents to patronizebusinesses impacted by light rail construction.

May 2005 - First embedded track in downtown Phoenix is placed at Central and Van Buren.

August 2006 - Tempe Town lake Bridge completed.

March 2007 - Operations and Maintenance Center completed. Testing, training and Light Rail Vehicle finalassembly activities commence.

March 2007 - Structural steel is erected on the first METRO station at Van Buren Street and First Avenue.

March 2007 - Phoenix City Council approves funding for Northwest Extension

December 2008 - Central Phoenix East Valley Light Rail Project (Initial 20 Mile Segment)construction completes on-time and within budget.

January 2009 - Rail Passenger Operations commence; Ridership planned for 26,000 passengersper day reaches over 40,000 daily passengers in April 2009.

June 2009 - Award to METRO CPEV Light Rail Project:Public Works Project of the Year – American Public Works Association, Arizona Chapter

March 2010 - Mesa City Council approves a 3.1 mile extension of the LRT system.

August 2010 - FTA approves Central Mesa LRT alignment for project development as the next step toward federalfunding. October 2010 - Tempe City Council approves Mill Avenue Alignment for modern streetcar

Source: Valley Metro Rail, Inc. Finance and Administration Division

AGENDA ITEM 6 2012 Federal Policy and

Project Priorities

AGENDA ITEM 6



From: John Farry, Director of Community and Government Relations


Re: 2012 Federal Policy and Project Priorities

PURPOSE This memo provides information on the METRO priorities for potential discretionary grant opportunities during calendar year 2012, as well as policies related to the reauthorization of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). BACKGROUND/DISCUSSION METRO staff has developed federal project and policy priorities for the coming year. While the Congressional earmarking process for projects does not currently exist, METRO has developed the requests for inclusion in the discretionary grant process that will occur. Additionally, this memo provides an update on previously established METRO policy priorities related to any potential action to reauthorize the SAFETEA-LU. Federal Project Funding Priorities Each year, staff develops a list of project priorities to communicate to the Arizona Congressional delegation related to the METRO system. During 2012, staff will be seeking federal funding opportunities for the projects as outlined below. Federally funded projects include an Alternative Analysis (AA) and environmental documentation as the initial efforts undertaken to develop a high capacity corridor. Section 5339 was established within SAFETEA-LU to provide federal funding for these study efforts. The projects listed below are potential candidates for discretionary grant funding in the coming year.

METRO Board of Directors Memo February 9, 2012 Page 2

SECTION 5339 NEW STARTS PROGRAM Alternative Analysis and Environmental Study Priorities*

Project Project Need Local Share Federal Request

Phoenix West $2,800,000 $560,000 $2,240,000

Glendale $1,400,000 $280,000 $1,120,000

South Central $750,000 $150,000 $600,000

Gilbert Road $750,000 $150,000 $600,000

Rio Salado $250,000 $50,000 $200,000 * Projects are not listed in any order of priority.

Section 5309 discretionary grants fund design and construction of high capacity/light rail projects. The projects listed below are potential candidates for this funding in 2012. Details associated with those requests are addressed after the table.

DISCRETIONARY FUNDING PROJECT PRIORITIES* (millions)

Project Project Need Local Share

Federal Request

Central Mesa $200 $125 $39.5**

Tempe Streetcar $130 $74 $56

Phoenix West Ramp $20.3 $5.1 $15.2 * Projects are not listed in any order of priority. ** Project is expected to enter into an FTA Project Construction Grant Agreement in the amount of $75 million in the summer of 2012. $35.5 million in funding has already been appropriated.

Central Mesa LRT Extension. The Central Mesa Light Rail Transit (LRT) Extension has met the federal criteria to be recommended for a Project Construction Grant Agreement (PCGA) in the amount of $75 million by the FTA. The Administration is expected to request funding for the project in the FY2013 budget to be released February 13. The project is scheduled for completion of construction in 2016. METRO is seeking to fulfill the President’s FY2013 budget request that will likely fund remaining design and construction activities. Tempe Streetcar. The Alternatives Analysis for the Tempe Streetcar was completed in 2011. The Environmental Assessment and the engineering phase are scheduled to begin in 2012. The Tempe Streetcar is scheduled for completion of construction in 2016. METRO could be seeking as much as $56 million in funding for the design and construction of the Tempe Streetcar.


Phoenix West Direct Connection Transit Ramp Project. As part of the Phoenix West extension, METRO is proposing to construct a transit ramp that would use a portion of the unimproved I-10 (Papago Freeway) median and a section of the I-17 (Black Canyon Freeway) Southbound Frontage Road. The transit ramp would initially be used by Express Bus to enhance accessibility connecting west valley residents with employment centers in downtown Phoenix. METRO will be seeking $15.2 million in funding for the design and construction of the transit ramp project.

Federal Policy Priorities The federal government is a valuable partner with public transportation systems in the Phoenix region. The federal government can help expand these transit options through the surface transportation reauthorization bill and annual transportation appropriations bills, especially as follows: Funding:

• Maintain and, if possible, increase federal transit funding to help meet growing public demand.

• Maintain transit’s share of federal surface transportation funding. • Increase the percentage of federal transit funds that can be spent on operating

expenses, especially during economic downturns. • Develop and expand mode-neutral transportation funding and financing

mechanisms. • Continue and, if possible, expand the ability of metropolitan regions to “flex”

highway funds to transit. • Continue the direct allocation of federal funding to Metropolitan Planning

Organizations (MPOs) established in the Intermodal Surface Transportation Equity Act of 1991 (ISTEA) to facilitate transportation decision making at the local/regional level.

New Starts/Small Starts:

• Reform the New Starts evaluation criteria adequately to take into account all the

benefits of New Starts projects, including economic development, sustainable land use, and environmental benefits.

• Streamline the New Starts project approval process to reduce project delivery delays and encourage alternative project delivery methods and alternative financing.

• Continue the Small Starts program with additional process streamlining, but increase the maximum federal share and the maximum total project cost.

• Revive the Program of Interrelated Projects to encourage local sponsors to advance multiple projects simultaneously and allow them to use locally funded projects as “soft match” for projects built with federal funds.

• Authorize and fund METRO’s “voter approved” extensions to the Central Phoenix East Valley light rail project.


• Facilitate cooperation between METRO and the Arizona Department of Transportation on construction in the I-10 West/Phoenix West corridor.

Additional Issues:

• Continue the excise tax credit for use of alternative fuels like compressed and

liquefied natural gas (CNG) and expand other incentives for the purchase and operation of clean-fuel vehicles.

• Continue equal federal tax benefits for parking and public transportation • Repeal Section 3038 of SAFETEA-LU, which has not served its intended

purpose of benefiting fast-growing states. • Strengthen public transportation’s role in regional transportation planning and

decision-making. • Incentivize transit-supportive land use practices.

Federal policymakers should also consider all of the policy recommendations of the American Public Transportation Association, New Starts Working Group and the Streetcar Coalition. FISCAL IMPACT Federal funding for the design and construction of light rail that is included in the METRO Light Rail/High Capacity Transit Life Cycle Program identifies federal funding levels consistent with appropriations requests identified above. RAIL MANAGEMENT COMMITTEE CONSIDERATION On February 1, 2012, information was provided to the Rail Management Committee (RMC) regarding the METRO 2012 Federal Policy and Project Priorities. RECOMMENDATION This item is for information only. No action is requested. The Federal Funding and Policy Priorities for 2012 will be forwarded to Valley Metro/RPTA for inclusion in the regional public transportation request to be considered by their Board.

AGENDA ITEM 7 Light Rail Vehicle

Door Replacement Program

AGENDA ITEM 7



From: Ray Abraham, Chief Operations Officer


Re: Light Rail Vehicle Door Replacement Program

PURPOSE The purpose of this memorandum is to request that the METRO Board of Directors (Board) authorize the Chief Executive Officer (CEO) to execute a contract with Gaffoglio Family Metalcrafters, Inc. (Metalcrafters) for Light Rail Vehicle (LRV) car door modifications. BACKGROUND/DISCUSSION The glass panels in the light rail vehicle (LRV) doors currently in service are susceptible to frequent breakage. The doors have a full glass insert running from the top to the bottom of each door. A break in the glass requires a costly replacement of the entire door panel. In 2011, METRO realized that in-house repair of these glass doors was not feasible in the long-term and is required to ship the doors to a contractor for repair. In fiscal year (FY) 2011, METRO spent $400,000 on repairs due to broken glass in the door panels. Some 140 door panels currently are in need of repair. The cost to repair them is estimated at approximately $329,000. METRO estimates that on-going repairs costs could amount to approximately $300,000 per year. In mid-2011, Kinkisharyo International together with METRO staff initiated a research and development project for an aesthetic and satisfactory re-design of the doors. The project involved re-engineering the doors, development of manufacturing tools and a first-article prototype for test and evaluation. The Original Equipment Manufacturer (Innovations for Entrance Systems, North America, LLC) estimated a total cost of $2,094,314 to retrofit the entire fleet of 50 LRV’s. An alternate contractor Metalcrafters, proposed a cost of $1,736,864 to retrofit the entire fleet. The Metalcrafters design included an upper glass window with a fiberglass skin at the bottom. In the summer of 2011, a prototype of the Metalcrafters re-design was installed in LRV 147 to test the new doors in revenue service. Later in September 2011, METRO presented to the RMC and Board photographs of the prototype re-design in actual passenger service. METRO has since determined that the re-design is structurally sound; and, the re-design has received positive aesthetic comment.


Community comments received to date have been generally favorable, as well. METRO organized a focus group of persons from the ADA community. The focus group visited the METRO Operations and Maintenance Center to evaluate the newly designed door. The new doors were found to be fully acceptable by the focus group. In the Metalcrafters’ re-design, glass breakage should be greatly reduced because the yellow door button is fixed to the frame of the new door. If glass breakage does occur, the re-engineered smaller glass panel can be repaired in approximately 45 minutes at a cost of approximately $290, including parts and labor. Metalcrafters is prepared to manufacture and install the re-designed doors beginning in early March with a total of 51 door-sets being completed by end of 2012. FISCAL IMPACT A cost / benefit analysis has been performed to assess the long-range impact to rail operating costs (see attached Schedule 1). Commencing the rebuild program will save approximately $750,000 over the next ten years. A cost savings in excess of $300,000 per year, beginning in FY2014, is being forecast as a result of this action. Funding for the rebuild program is proposed from the following sources: Capital Lease Funding $ 455,000 Fiscal Year 2011 Operating Surplus 1,186,000 Fiscal Year 2013 Operating Fund 96,000 Total Funding $ 1,737,000 The capital lease payments are funded with programmed Public Transportation Funds (PTF). During FY2011, METRO’s actual rail operating costs were favorable to plan. In lieu of refunding the $1,186,000 surplus to Member Cities, METRO plans to use the surplus to fund the LRV rebuild program, thus saving future Member City contributions. To complete the funding, METRO will budget $96,000 of FY2013 operating funds as part of the upcoming annual budget cycle. The LRV Car Door Modification will be recorded as a METRO capital asset and depreciated in accordance with current accounting standards. METRO will modify the 2012 Operating and Capital Budget to acknowledge $550,000 of new capital expenditures for the portion of the modifications that are anticipated to be completed by June 30, 2012 with the funding sources shown above. The balance of the modifications ($1,187,000) will be incorporated into METRO’s FY2013 capital budget which will be submitted for RMC and Board approval in May 2012. RAIL MANAGEMENT COMMITTEE CONSIDERATION On February 1, 2012, the Rail Management Committee (RMC) recommended that the Board authorize the CEO to execute a contract with Gaffoglio Family Metalcrafters, Inc. for a total amount not to exceed $1,737,000.00. In addition, the RMC recommend that the Board approve an increase of $550,000 to the FY2012 capital budget for the portion of the LRV Car Door Modifications that are anticipated to be completed by June 30, 2012.


RECOMMENDATION Staff requests that the Board authorize the CEO to execute a contract with Gaffoglio Family Metalcrafters, Inc. for a total amount not to exceed $1,737,000.00. In addition, staff requests that the Board approve an increase of $550,000 to the FY2012 capital budget for the portion of the LRV Car Door Modifications that are anticipated to be completed by June 30, 2012.

2:00 pm i february 16, 2012 - valley metro · seamless transition and thank you to rpta human...

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