1. FAREBOX Recovery RATIO State perspective
CALACT 2018 Spring Conference
April 5th, 2018
Good morning, again I’m Josh Pulverman with Caltrans Division of Rail and Mass Transportation. As the statewide TDA Program Manager, I have been asked to bring the state perspective to our discussion this morning. As such, with the time I have this morning, I would like to set the stage with some brief history regarding farebox recovery, then move into recent legislation that has passed or has been proposed regarding farebox recovery. I will then spend a few min. reviewing the mandates and consequences behind not meeting the farebox recovery ratio, and finally, I will finish my time with some suggestions on ways that change can be implemented.
So with that let’s take a brief look at the history behind farebox recovery.

2. Farebox History
50% limitation was the first “criteria” for LTF eligibility
Prop. 13 was passed in 1978
limited property taxation and made it hard for transit to survive only on 50%
TDA authors added farebox recovery as the next “criteria” for eligibility determination in 1979
When we look at Article 4, it was written in pieces. To be eligible for Local Transportation Fund (LTF) dollars you had to meet the 50% limitation, which meant that a claimant could not exceed 50% of the amount required to meet operating, maintenance, capital and debt service costs of the transit system after deduction of approved federal grants and STA funds estimated to be received for the system.  Then we had prop. 13 which was passed in 1978, which limited property taxation and made it hard for transit operators to survive on only 50% of their collected revenue.  So the TDA authors added farebox recovery ratios in 1979 as a mechanism to determine eligibility of funding.

3. Recent Farebox Legislation
SB 508 (2015)
deleted the requirement for transit operators to maintain higher farebox requirements based on the 1978–79 fiscal year.
simple urban / rural requirement of 20% / 10%,
SB 903 (2018)
authorizes the Stanislaus Council of Governments to consider population density when determining if specified operators have met the requirements for claims for transit funds, and to reduce the applicable ratio of fare revenues to operating cost for specified operators by up to 5 percentage points from the ratio that was effective during the 2016–17 fiscal year if the population density of the County of Stanislaus is less than, or equal to, 1000 persons per square mile
AB 1969 (2018)
authorizes an operator that fails to maintain the accepted farebox ratio to request an exemption from the California Transportation Commission, and would require the operator to be granted a temporary exemption while the commission reviews the request.
In the last three years we’ve seen one bill that has been chaptered and become law (SB 508) and two recent bills that were introduced this year that are still under consideration (SB 903 and AB 1969).
SB 508 was chaptered and signed by Gov. Brown in SB 508 deleted the requirement for transit operators to maintain higher farebox recovery ratios based on the fiscal year; it created parity in the list of exclusions from the definition of operating costs for both the farebox recovery ratio requirement and the state transit assistance program qualifying criteria; and it created a new exemption for standard facilities financing costs; and, eliminated the “pass/fail” nature of the state transit assistance program qualifying criteria in favor of a sliding scale or proportional approach to penalizing operators. This bill would also clarify that local funds, counted toward the farebox recovery ratio requirement, to include any nonfederal or nonstate grants or other revenues generated by, or distributed to the operator. I will explain these various portions of the bill in further detail in a few min.
SB 903 and AB 1969 are newer pieces of legislation that are currently being considered.
SB 903 is specific to the Stanislaus Council of Governments. If approved the bill would authorize the Stanislaus Council of Governments to consider population density when determining if specified operators have met the requirements for claims for transit funds and would reduce the applicable ratio of fare revenues to operating cost for specified operators. From what I have looked into regarding this bill, StanCOG is suggesting a farebox recovery ratio relative to population density, rather than countywide population. The objective is to establish a farebox recovery ratio that maintains fiscal accountability, but is also achievable given the low population density in the region, and will permit local governments to meet the critical transportation needs of their diverse communities.
AB 1969 was just recently brought to my attention. This bill brings the California Transportation Commission into the fold (which besides approving regulatory changes) has never played a roll in the TDA process. Under this bill an operator that fails to maintain the accepted farebox ratio can request an exemption from the CTC. It is my understanding from looking over the legislation that the objective is to establish a farebox recovery ratio that maintains fiscal accountability, but at the same time is achievable given the low population density in the region, and it will permit local governments to meet the critical transportation needs of their diverse communities.

4. SB 508 – Key Changes
New definition of local revenue to supplement fare revenues
Exemptions to calculation of operating expense
Relief from STA Performance Measure requirements
So given that SB 508 has been enacted, I wanted to dive into this bill a little further.
I’ve already outlined some of the high level aspects of the bill, however, I wanted to briefly speak to some of the specifics of the bill that pertain to farebox recovery.
Specifically:
The change in the definition of local revenue that can supplement fare revenues.
Exemptions from the calculation of operating expense that may be deducted for increases beyond the CPI in certain operating expense categories and,
It provided some relief from STA Performance Measure requirements.

5. SB 508 – Key Changes
SB 508 changed the definition of local revenue that can supplement fare revenues.
Prior to SB 508
Fare revenue was limited to local option sales tax.
SB 508 as Chaptered:
Local funds, counted toward the farebox recovery ratio requirement, include any nonfederal or nonstate grants or other revenues generated by, or distributed to the operator.
advertising, package express revenue, transient occupancy tax, or other local revenue sources.
SB 508 changed the definition of local revenue for purposes of supplementing fare revenues.
Prior to SB 508 revenue was limited to local option sales tax.
With SB 508 enacted, this supplement of local funds has been clarified to include any nonfederal or nonstate grants or other revenues generated by, or distributed to the operator. This can include, advertising, transient occupancy taxes, or other local revenue sources.

6. SB 508 – Key Changes
SB 508 provides exemptions from the calculation of operating expense that may be deducted for increases beyond the Consumer Price Index (CPI) in certain operating expense categories.
Prior to SB 508
Public Utilities Code section provides that operators must recover a certain percentage of their operating costs from the farebox.
SB 508 as Chaptered:
Deletes the farebox recovery requirement that agencies maintain the ratio they achieved in This leads to a simple urban / rural requirement of 20% / 10%.
Eliminates the circumstance whereby one rural agency could have a different ratio requirement than a rural agency operating right next door.
Public Utilities Code section et seq. provide that operators must recover a certain percentage of their operating costs from the farebox – in other words, from the transit rider. Farebox recovery ratios must be maintained in order for operators to receive their Transportation Development Act (TDA) funds (called Local Transportation Fund dollars, or, LTF), and their State Transit Assistance (STA) Program funds if they are to be used for operating purposes.
Prior to SB 508 an operators was required to maintain a farebox recovery ratio of either 20% (for urban systems) or 10% (for suburban and rural systems), OR the actual farebox recovery ratio each system maintained in , whichever was GREATER.
With the passage of SB 508 the farebox recovery requirement that agencies maintain the ratio they achieved in has been deleted. This leads to a simple urban / rural requirement of 20% / 10%, and eliminates the circumstance whereby one rural agency can have a much different ratio requirement than a rural agency operating right next door.

7. SB 508 – Key Changes
SB 508 provides relief from STA Performance Measure Requirements.
Prior to SB 508
To receive STA funds for operating purposes, according to Public Utilities Code section , the transit operator's total operating cost per revenue vehicle hour must be maintained at or less than the previous year’s cost, as adjusted by the CPI.
SB 508 as Chaptered:
Eliminates the “pass / fail” nature of the STA qualifying criteria, under which an operator – currently – could fail its CPI target by 0.01% but still lose 100% of its STA allocation for operations.
Updates PUC section to create a “sliding scale” or proportional approach to penalizing an operator (with regard to using the funds for operations versus capital). For example, if an operator goes over its required cost per hour target by 10%, then 10% of its STA funds could be withheld from operations.
Finally, SB 508 provided some relief from STA performance measure requirements.
Prior to SB 508 per PUC , a transit operator’s total operating cost per revenue vehicle hour had to be maintained at or less than the previous year’s cost, as adjusted by the Consumer Price Index.
SB 508 updated this section to create a “sliding scale” or proportional approach to penalizing an operator. So now if an operator goes over their required cost per hour target by 10%, then 10% of their STA funds could be withheld from operations. Also, the “pass/fail” nature of the STA qualifying criteria was eliminated.

8. Farebox Recovery Ratios
No claimant can receive TDA funds if the ratio of the sum of fares and eligible local support falls below the TDA minimum, called the farebox recovery ratio. 20% - for transit claimants (or local operators) serving an Urbanized Area (PUC ) 10% - for transit claimants (or local operators) serving a Non-Urbanized Area (PUC ) Operators providing service in both urban and rural areas could set their required farebox recovery ratio at no less than 15% per PUC & CCR
As I previously mentioned, farebox recovery ratios must be maintained in order for operators to receive their Transportation Development Act (TDA) funds (LTF or STA), if they are to be used for operating purposes.
TDA requires transit operators to meet a higher farebox recovery ratio if the population in the county in which they provide primary transit service increases beyond 500,000 (i.e. an urbanized county), as determined by the decennial census;
For operators that provide transit service to an urbanized area within an urbanized county the minimum farebox recovery ratio is 20 percent;
For operators that provide transit in counties with a population of 500,000 or less the minimum farebox recovery ratio is 10 percent;
For operators that provide transit in both urban and rural areas can establish an intermediate farebox recovery. Public Utilities Code Section and Title 21 California Code of Regulations Section provide that a Regional Transportation Planning Agency may make findings to set the required farebox recovery ratio at no less than 15% for an operator serving an urbanized area in a county with a population less than 500,000.

9. What happens when you don’t meet the Farebox Recovery Ratio?
In the event that a transit claimant does not meet the required farebox recovery ratio they must comply with the provision of Non-Compliance with the Required Revenue Ratio (PUC Section & CCR Section )
Transit agencies that are unable to comply with the farebox recovery ratio, must comply with the regulations set in PUC , which outlines the procedures for agencies that fail to maintain their required farebox recovery ratio for two fiscal years.  If this happens, the operators STA funds will be reduced during a subsequent penalty year by the amount of the difference between the required fare revenues and the actual fare revenues received in the second non-compliance year.  The first year after the fare ratio is not met, the operator is not penalized (grace year).  However, if the operator fails to comply in another year, the shortfall of fare revenues will be deducted from allocations made one year after the second failure year.
So, if an operator fails to achieve the farebox ratio requirement for two consecutive fiscal years, the operator’s eligibility for TDA funding is reduced by the difference between the required fare revenues and the actual fare revenues for the second fiscal year that the required ratio was not maintained. Should an operator fail to comply with the required farebox recovery ratio, the regional planning agency should take the following actions as outlined in the next few slides.

10. Penalty Year for Non-compliance Year
Provision of Non-Compliance with the Required Revenue Ratio (PUC Section )
3-Year Penalty Cycle
Grace Year
Non-compliance Year
Determination Year
Penalty Year for Non-compliance Year
Operating Cost:
$100,000
Required Fares at 20%:
$15,000
Actual Fares:
$10,000
$12,000
$16,000
$18,000
Reduced Eligibility: $0
($3,000)
TDA/STA Claimant’s Eligibility:
$90,000
$88,000
$84,000
$79,000
The first fiscal year for which an operator or transit service claimant does not maintain the required farebox recovery ratio is the grace year. There is neither any penalty nor any loss of eligibility for TDA funds in this year.
Operating cost = $100,000
Actual Fares = $10,000
The operator failed to meet the required $15,000 in fares
So their eligibility for TDA/STA = $90,000

11. Penalty Year for Non-compliance Year
Provision of Non-Compliance with the Required Revenue Ratio (PUC Section )
3-Year Penalty Cycle
Grace Year
Non-compliance Year
Determination Year
Penalty Year for Non-compliance Year
Operating Cost:
$100,000
Required Fares at 20%:
$15,000
Actual Fares:
$10,000
$12,000
$16,000
$18,000
Reduced Eligibility: $0
($3,000)
TDA/STA Claimant’s Eligibility:
$90,000
$88,000
$84,000
$79,000
The second fiscal year for which an operator or transit service claimant does not maintain the required farebox recovery ratio is the noncompliance year. There is no loss of eligibility for TDA funds in this year either; however, the future penalty will be based on audited figures from this year.
Operating cost = $100,000
Actual Fares this year increased to = $12,000
Again, the operator failed to meet the required $15,000 in fares
Since the operator failed to achieve the farebox ratio requirement for a second consecutive year, the operator’s eligibility for TDA funding is reduced by the difference between the required fare revenues and the actual fare revenues.

12. Penalty Year for Non-compliance Year
Provision of Non-Compliance with the Required Revenue Ratio (PUC Section )
3-Year Penalty Cycle
Grace Year
Non-compliance Year
Determination Year
Penalty Year for Non-compliance Year
Operating Cost:
$100,000
Required Fares at 20%:
$15,000
Actual Fares:
$10,000
$12,000
$16,000
$18,000
Reduced Eligibility: $0
($3,000)
TDA/STA Claimant’s Eligibility:
$90,000
$88,000
$84,000
$79,000
The fiscal year after the non-compliance year is the Determination Year. Again, there is no loss of eligibility for TDA funds in this year. The audited amount of the difference between the required and actual farebox recovery ratio as reported in the claimant’s fiscal and compliance audit for the noncompliance year must be determined in this year.
Even though they made their required fares this year they still have to follow the guidelines for not meeting the required fares in two consecutive years.
So based on the $3,000 difference between the required fare amount and the actual fares from the second year of noncompliance is determined this year to be the reduced eligibility amount to take affect the next year.

13. Penalty Year for Non-compliance Year
Provision of Non-Compliance with the Required Revenue Ratio (PUC Section )
3-Year Penalty Cycle
Grace Year
Non-compliance Year
Determination Year
Penalty Year for Non-compliance Year
Operating Cost:
$100,000
Required Fares at 20%:
$15,000
Actual Fares:
$10,000
$12,000
$16,000
$18,000
Reduced Eligibility: $0
($3,000)
TDA/STA Claimant’s Eligibility:
$90,000
$88,000
$84,000
$79,000
The third fiscal year of noncompliance is the penalty year, and the operator’s eligibility to receive LTF and STA money is reduced by the difference between the required and actual fare revenue to operating cost ratio as reported in the noncompliance year.
Operating cost = $100,000
Actual Fares this year = $18,000
Then the operator is assessed another $3,000 penalty from the non-compliance year
So their eligibility for TDA/STA this fiscal year = $79,000
In the penalty year, the transit operator is required to demonstrate to regional planning agency how they will achieve the farebox recovery standard.

14. If an issue exists we can fix it…
*PUC 99241, authorizes Caltrans to adopt or amend proposed regulations in the California Code of Regulations (CCR).
Finally, I wanted to finish by saying that if your agency sees issues with current PUC sections I would encourage regional agencies to think about ways to improve the statutes and bring those up with CalACT or CTA. Changes can be made legislatively (SB 903 for example).
If there is a California Code of Regulations section that needs to be updated and it’s not feasible to go through the legislative process, PUC authorizes Caltrans to adopt or amend proposed regulations in the California Code of Regulations.
GASB 68 & 75
requires a transit agency’s operating costs to include its future pension obligations.
meeting the required farebox recovery ratio has become an unintended consequence of GASB 68 & 75.
The Department is exploring ideas for a regulatory change.

15. Contact Information:
Joshua Pulverman
Senior Transportation Planner
Caltrans, Division of Rail and Mass Transportation
(916)