AGENDA #2m(1)

BUDGET WORKING PAPER

TO: W. Calvin Horton, Town Manager

FROM: R. Scott McClellan, Interim Transportation Director

SUBJECT: Transportation Budget – Operational Cost Reduction Options

DATE: May 17, 2000

At their May 3, 2000 Budget Work Session, Town Council asked for options to reduce Fiscal Year 2000-01 budgeted operational cost for each town department by two percent. The following describes options developed to accomplish this within the transportation department.

The Manager’s Recommended FY 2000-01 Budget includes operational expenses in the Transportation Fund of $1,714,289. This is approximately $222,000 higher than the FY 1999-01 budget. Nearly sixty-five percent ($144,000) of this increase is due to higher fuel cost. Another twenty-seven percent ($60,000) is generated by Charges by the General fund. The balance of the operational cost increases are associated with opening the new Carrboro Plaza Park and Ride lot, increases in telephone cost and increases in janitorial service fees.

Using the operational cost of $1,492,104 included in Fiscal Year 1999-00 original budget as the base, I have calculated a two percent target cost reduction of about $29,000. Using this target, I have listed several options for reducing costs and included a description of the possible impact of each. The options are listed in order of Least to Most favorable. It should be noted that the cost sharing agreement we have with Carrboro and the University of North Carolina assigns 44.5% of cost to Chapel Hill. Therefore any reduction in transit system budget would be shared among the three partners, with Chapel Hill’s share being $0.445 per dollar of reduced cost.

• Diesel Fuel: the proposed budget for FY 2000-01 includes $325,600 for diesel fuel. This is based on an estimated cost of $0.90 per gallon and is $128,000 higher that the current year original budget. During the winter months, we experienced dramatic increases in fuel cost, rising from $0.55-.60 per gallon to nearly $1.40 per gallon. Fuel prices during the spring have stabilized and are averaging $0.70-.80 per gallon. Reducing this line item by $29,000 would change the budgeted cost per gallon from $0.90 to $0.82. This option involves some risk with the potential instability of fuel prices and could impact on daily operations.

• Capital Reserve Fund: the Manager’s Recommended Budget for fiscal year 2000-01 includes a contribution to the Transportation Capital Reserve Fund of $165,482. The annual contribution is based on an investment schedule designed to provide sufficient local funds to match federal and state grants for replacement vehicles and other capital projects. Reducing the payment to the capital reserve fund by $29,000 is slightly more than the 10% local match needed to purchase one bus (10% of $250,000). This option would not jeopardize our daily delivery of service. However, if we reduce the contribution to the capital reserve fund, we would either have to accelerate future contributions to get back on schedule, or when it comes time to purchase equipment we would need to provide additional local funds, beyond what would be available in the capital reserve fund.

• Combination of line items reductions: This option for achieving the target cost reduction would be to spread the impact across several line items. We could, for example, package the following line item adjustments to meet the target reduction:

Capital Reserve = -$15,000

Diesel fuel = -$10,000

M & R Grounds = -$ 4,000 *

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Total = -$29,000

*Maintenance & Repair of Grounds is budgeted at $25,000 and covers the cost of repairs and landscape maintenance; primarily in our park & ride lots

This option would spread the risk/impact to several different divisions and expense categories and should not drastically affect any one component of our operation.

I hope you find this information useful. Please let me know if you have any questions.