Financial Position
The financial position is the annual cash flow analysis of revenues less expenditures that determines whether the bus system is operating at a surplus or deficit. It applies to bus operations, vehicle procurement and infrastructure investment. The financial model must demonstrate a zero or positive cash flow each year over the duration of the forecast period for operating and capital expenditures.
In a self-supporting bus operation, revenues generated by the system’s assets (vehicles and infrastructure) are sufficient to operate and maintain the bus network. It implies that the authority has a sufficient operating surplus to buy new vehicles and make infrastructure investments. It also means that the authority has sufficient operating revenues for debt service payments on loans required to purchase buses or build infrastructure.
Self-supporting bus operations are uncommon. Most authorities will require fares that have social service provisions which reduce farebox revenue and limit the ability of the bus system to cover 100% of its operating costs. Capital costs usually require financing from sources of funding other than farebox revenues.
The financial model can demonstrate the necessary changes to the fare levels, other revenues and capital and operating costs to achieve a positive consolidated (operating and capital) financial position in any year. The authority can also reset its financial objectives based on the results of the cash flow analysis.
Initial financial position, bus operations
The authority determines the financial model’s first year operating financial position, whether a surplus or deficit, from the bus operator’s financial statements. If the bus operator does not have annual financial statements, then the authority obtains the data from the bus system’s management information system , the government’s executed budget or other reports.
The initial financial position for bus operations in the first year is the final operating balance from the previous fiscal year , including any surplus or reserve funds that are eligible for operating costs. The ending financial position in the first and subsequent years must be positive, including the use of any reserve funds to cover operating deficits. If the financial model indicates a first year operating loss, then the authority must:
- Raise or re-structure fares and or increase ridership.
- Reduce operating costs.
- Introduce a new operating source of funds.
- Borrow operating funds through an internal transfer from another government department.
- Provide additional government budget transfers to the operator.
- Reduce capital costs.
- Refinance or re-structure outstanding debt under more favorable financial conditions.
Initial financial position, capital investment
The initial financial position for capital investment must take into account continuing capital investments and any new projects. Continuing capital investments include ongoing requirements for vehicle purchases, infrastructure requirements, as well as funding necessary to comply with existing vehicle procurement obligations or contractor progress payments for infrastructure investments.
Any funds obligated, but not disbursed in the authority’s budget for this purpose is considered as a capital source of funds. If the available sources of funding are insufficient to finance the capital improvements, then the authority must reduce the investments or find credible additional funding sources.
On-going financial position
The on-going financial position, calculated each year over the duration of the financial model, should demonstrate the bus system’s financial performance and how it may change over time. Since the financial model is a projection of costs and revenues, the annual financial position is an ex-ante forecast of the bus system financial condition.
Every year the authority should measure the actual bus system performance with the ex-ante or planned financial position. The authority may use financial indicators to measure the bus system financial performance assuming that it can construct them with valid bus operation and cost data.
