Financial Position The financial position shows whether the bus system is operating at a surplus or deficit. It’s calculated by taking the annual
cash flow analysis of revenues less expenditures.
It applies to bus operations, vehicle procurement and infrastructure investment. For viable bus operation, the model must demonstrate a positive cash flow over the duration of the forecast period.
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 system has a sufficient operating surplus to buy new vehicles and make infrastructure investments. It also means that the system overall has sufficient operating revenues for debt service payments on loans required to purchase buses or build infrastructure.
Not all bus operations are self-supporting. Most authorities will require fares that have social service provisions that 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 should 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 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 any year is the closing 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 the amount of service and thereby 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.
- Reduce capital costs.
- Refinance or restructure 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:
- Infrastructure requirements.
- Funding necessary to comply with existing 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.
Ongoing financial position
The ongoing 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.
Every year the authority should compare the actual bus system performance with the 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.
Financial position and private contracting
As the authority introduces greater private participation into bus operations through area and route contracts, it can further develop the financial model to prepare requests for proposals (RFP) for these contracts. This will require making estimates of operating cost, ridership, schedules, and farebox revenues for each of the routes that the authority intends to tender to the private sector.
The authority can also use the financial model to monitor private operator compliance with the contracts.
