Financial Aspects
This section of the toolkit shows you how to:
The authority will require a financial model to evaluate these financial aspects. The financial model is an analytical tool prepared on a spreadsheet. It presents a condensed picture of the bus system’s capital and operating expenditures, the revenues and funding sources that support these expenditures and appraises the bus system’s annual financial position.
The structure of the financial model will depend on the reform option selected. The financial model also shifts from a primary role as a financial management tool in the public monopoly situation to a regulatory function for private contracts. The authority can also adapt the financial model to assist it to prepare tender documents to:
- Procure private contractors
- Evaluate bids
- Monitor compliance with the signed contracts
Financial model objectives
The financial model is a tool that allows the transit authority to carry out its primary fiduciary responsibility to efficiently manage taxpayer and bus user contributions that support the bus system.
The first objective is to assist the authority to improve the financial operation of the bus system. The authority can use the financial model to assess the cost and revenue impact, on the bus system’s financial position, of changes to the system design.
The second objective is to measure the extent of government transfers from the government’s budget to the bus operator, at the current fare level and structure. It also shows the extent of capital grants from the government budget for annual infrastructure improvements.
The authority can also use the financial model as a tool to prepare the bus system’s annual operating and capital budget.
Constructing a financial model
There are many different ways to construct a financial model depending on:
- Its purpose.
- The nature of the bus operations and extent of private operations.
- The nature of the information database that provides cost, revenue and other bus system data inputs.
- Government accounting and auditing laws and standards.
- Other financial management information system factors.
The financial model is a dynamic tool that estimates the bus system’s initial financial position and simulates, on an annual basis, its future financial position. It must reflect the specific characteristics of the bus system and authority requirements. Construction of such a model is a complex task which requires particular specialist skills.
Initially, the financial model builder uses existing bus system data and forecasting methods to project future bus operating and capital costs and the amount of revenues required to fund these costs based on the existing bus operating network, schedule, fare structure, and any future bus network modifications.
It also takes into account the cost and funding sources for bus system infrastructure improvements. The time horizon of the financial model is typically the duration of the authority’s loan payments required to finance bus purchases or infrastructure improvements.
As the bus system shifts toward greater degrees of private contracting, the financial model relies on private bus operators for a significant amount of revenue and cost data.
To insure reliable data for the financial model, the authority may require private contractors to submit audited annual financial statements that corroborate its monthly or periodic regulatory and contract compliance reports.
See also
Financial objectives
Costs
Funding sources
Financial position
