Memorandum

City of Lawrence

City Manager’s Office

DATE:	12/11/08
TO:	David L. Corliss, City Manager
FROM:	Casey Toomay, Budget Manager / Interim Transit Administrator
CC:	Cynthia Boecker, Assistant City Manager Diane Stoddard, Assistant City Manager Jonathan Douglass, Assistant to the City Manager
RE:	RFP R08001 - Contracted Public Transportation Services for the City of Lawrence and University of Kansas

Please place the following item on the City Commission agenda for consideration at their December 16, 2008 meeting:

Authorize City Manager to enter into a contract with MV Transportation, Inc. for public transportation services beginning January 1, 2009. 

Background

The current contract with MV Transportation, Inc. to provide public transportation services expires December 31, 2008.  In January of 2008, the City and the University of Kansas issued a joint Request for Proposals for public transportation services from January 1, 2009 through December 31, 2013.  The City received bids from First Transit, Inc. and MV Transportation, Inc..  After reviewing the proposals, interviewing the candidates, and receiving several rounds of follow up questions, City staff recommended selecting MV as the contract provider.  The City Commission accepted that recommendation and authorized staff to enter into negotiations with MV on June 24, 2008.  The University also recommended selecting and MV and is currently negotiating a contract.  Although the RFP was jointly issued, each entity is negotiating a separate contract.  If the two systems were to merge to create a new joint entity, a new contract would be negotiated at that time. 

Contract Summary

The contract was drafted using the existing contract as a starting point.  It incorporates by reference the RFP and addendum.  The highlights, as well as any changes are summarized below.

• Scope of Work.  The scope of work is contained in Part IIA of the RFP, as revised by addendum and shall constitute all of work to be provided.  The hours of operation and days of service remain the same as the existing contract.  The estimated service hours for the fixed route and paratransit system combined total 67,018 hours compared to the previous contract which estimated 61,384 service hours.  The majority of the increase is in paratransit hours and was increased to reflect actual hours of service provided.  The number of routes and number of vehicles remain the same, but the RFP clearly states they are subject to change.  The scope of work continues to include certification under the Americans with Disability Act (ADA.) 
• Vehicles.  The RFP states that the City will provide all revenue hour vehicles. 
• Fixed route.  The contract states that the City plans to replace the entire fleet of fixed route vehicles throughout the duration of the service contract with “similarly sized and powered vehicles that are considered heavy duty with a manufacturer’s useful service life of 12 years of 500,000 miles.”  However, the contract also states that the City may decide to replace the vehicles on lower utilized routes with smaller sized and profile vehicles.  The contract states there is sufficient funding to replace half the fleet (6 vehicles) with the first year of the contract and that the rest of the fleet will be replaced as funds become available.  Due to the significant lead time for getting a bus on the road (18 months) it is not possible for the City to replace half the fleet in the first year of the contract.  Therefore, the new contract requires the City to assume the risk of operating a system with our existing fleet for the first two years of the contract.  This will allow the City to explore the appropriateness of the size of vehicles in light of the sales tax election and our talks with KU.  It should be noted that in the event the City replaces vehicles with smaller sized and profile vehicles, MV may assess and renegotiate portions of the agreement that pertain to maintenance costs. 
• Paratransit.  The contract states that paratransit vehicles will continue to be replaced using a schedule of three vehicles annually. 
• Major Component Replacement.  Under the existing contract, all vehicle maintenance and repair is done at the expense of the contractor.  Due to the age and condition of our fixed route fleet, the contractor is no longer willing to absorb these costs.  The new contract requires the City to bear the cost of major component replacement for the first two years of the contract.  This should allow adequate time to replace half of the fleet as outlined in the RFP.  Beginning in the third year of the contract, the contractor will be solely responsible for the cost of vehicle maintenance and repair.
• Fueling.  The contract states that the contractor shall be responsible for fueling service vehicles daily.  The City shall determine the type of fuel, grade and blend to be used and the City will be billed directly for the cost of fuel.  This is a significant change from the existing contract.  Under the new contract, MV will fuel vehicles at City owned fuel pumps when it is possible to do so without increasing time vehicles are out of service.  When it is not possible to fuel at City pumps without increase the time vehicles are out of service, vehicles will be fueled at a location designated by the Contractor and approved by the City.  The Contractor will provide bi-monthly invoices itemizing the amount of fuel dispensed for each vehicle. 
• Staffing.  Staffing levels would remain the same under the proposed contract.  The RFP states driving employees will earn at least $9.75 per hour and calls for a minimum of 2% annually.  The contractor must pay a minimum of 80% of the cost of employee health care premiums. 
• Compensation.  The new contract reflects that fares have been increased and that the City and KU have a reciprocal pass arrangement.  Payments will continue to be made utilizing bi-monthly progress payments and will be based on fixed costs and revenue vehicle service hours.  The cost will be as follows (rates do not include fuel):

Contract Period	Rate / Revenue Hour (Variable)	Rate / Service Month (Fixed)
01/01/09 to 12/31/09	30.77	72,291
01/01/2010 to 12/31/2010	31.93	75,307
01/01/2011 to 12/31/2011	33.12	78,284
01/01/2012 to 12/31/2012	34.50	81,373
01/01/2013 to 12/31/2013	35.99	84,490

Rates under the existing contract are as follows:

Contract Period	Rate / Revenue Hour (Variable)	Rate / Service Month (Fixed)
12/16/03 to 12/31/04	26.57	43,209
01/01/05 to 12/31/05	27.95	44,204
01/01/06 to 12/31/06	29.44	45,686
01/01/07 to 12/31/07	30.41	46,607
01/01/08 to 12/31/08	31.52	48,145

The new contract also notes that the rates are subject to change pending cost allocation review between the City and University.  Pricing in MV’s response to the RFP assumed that the City would pay 52% of the total costs while the University would pay 48% based on the percentage of total service hours to be provided.  The City is working with the University to develop a cost allocation process that uses factors such as square footage, manhours, or revenue service hours depending on what is appropriate to more accurately allocate costs between the City and University  Preliminary review has shown that this cost allocation process should reduce the total costs paid by the City.   

• Rate Adjustments.  There are a number of occurrences following which the City or MV may request renegotiation.  Under the new contract, renegotiation can be requested if the number of revenue service hours increases or decreases ten percent (10%) or more.  Under the existing contract, the threshold is 15%.  The City has never met the 15% threshold and does not anticipate making any changes in service hours that would meet the 10% threshold. 

In addition, the following provisions related to renegotiation were added to the new contract:

• MV may assess and renegotiate portions of the contract that pertain to maintenance costs should the City replace vehicles with smaller size and profile vehicles. 
• The City may renegotiate in the event of coordination with KU.
• The City may renegotiate in the event of change of facility.

Contract Funding

The table below compares the annual total cost of the MV contract to the projected revenue generated by the two transit sales taxes - the 0.2% sales tax to fund the existing level of transit service and the 0.05% sales tax for transit service expanded.  The table only shows the cost of the MV contract, not the total cost of operating the transit system.  It does not include personnel costs, any other contractual costs, commodities such as fuel or vehicle repairs, or any vehicles.

Year	Cost of MV  contract	Revenue generated by 0.2% sales tax	Revenue generated by 0.05% sales tax	Total Revenue Generated by Transit sales tax
2009	$2,929,797	$1,503,950	$375,988	$1,879,938
2010	3,043,811	2,629,764	657,442	3,287,206
2011	3,158,976	2,682,359	670,591	3,352,950
2012	3,288,304	2,736,006	684,003	3,420,009
2013	3,425,563	2,790,727	697,682	3,488,409
Contract Total	$15,846,451	$12,342,806	$3,085,706	$15,428,512

A projection was prepared for the FTA earlier this year that showed all projected revenue sources, including federal and state grants as well as dedicated federal funding, and a plan for expenditures, including fixed route and paratransit vehicles, for the period of 2008 to 2013.  It illustrates how the Public Transportation Fund should have adequate resources to fund operations and capital for the period covered by the new contract. 

As shown below, projected resources total $7,215,101 and projected expenditures total $5,847,098.    

	FY09
Carry Forward January 1	$     2,680,870
Estimated Revenues:
FTA Section 5307 Grant Funds	$1,496,307
Kansas CTP Grant Funds	$250,986
Fares/Bus Pass Revenue	$312,000
Local 0.2% Sales Tax Proceeds	$1,503,950
Local 0.05% Sales Tax Proceeds	$375,988
Intergovernmental Revenue	$595,000
TOTAL	$4,534,231
TOTAL RESOURCES AVAILABLE	$     7,215,101
Estimated Expenditures:
Personnel	$235,902
Operating Contract (Status Quo level of service)	$2,929,798
Route Enhancements and Vehicle Improvements	$375,988
Other Contractual	$177,435
Commodities	$667,975
Capital Outlay	$1,460,000
TOTAL	$5,847,098
Carry Forward December 31, 2009	$        1,369,003

The assumptions used to prepare this projection are detailed on the attached projection.  Revenue assumptions include assuming 3% annual growth in Federal 5307 grant funding, 5% growth in fare box receipts at existing fare levels, and 2% growth in sales tax each year.  Expenditure levels assume we will continue to replace three paratransit vehicles annually with vehicles with a useful service life of 5 years / 100,000 miles.  The plan assumes seven of the fixed route buses will be replaced in 2009 with vehicles with a useful service life of 12 years /500,000 miles.  Fuel pricing is based on 148,499 gallons annually at a cost of $4.31 per gallon for 2009.  The plan assumes a 10% growth in fuel prices for each year following.   The recent decrease in fuel prices may result in cost savings in this area, allowing resources to assist with other operational costs such as major component replacement.     

2009 Budget

In 2009, the adopted budget for the Public Transportation Fund contains $2,540,015 in total resources, not including federal and state grants.  This includes $1,503,950 from the 0.20% sales tax.  In addition, the budget includes revenues from fares and bus pass sales, as well as fund balance.  Also included is an inter-fund loan to cover operating expenses for the first five months of 2009 since the City will only receive sales tax proceeds for seven months of 2009.  The amount of loan will be dependent on the amount of the beginning fund balance in the Public Transportation Fund and the timing of the release of state and federal grant funds.  Once the amount of the loan is determined, that amount will be “borrowed” from a fund with adequate cash balances to make the loan, most likely the General Operating Fund or the Water and Wastewater Fund.  This inter-fund loan will be paid back over a period of no more than three years. 

Because the 0.05% sales tax was not included in the 2009 budget when it was adopted, a budget amendment will need to be done in early 2009 in order to provide the authority to spend the additional revenue. 

Budgeted expenditures in the Public Transportation Fund for 2009 total $2,425,484.  Of this, $1,600,739 is budgeted for the local share of the contract with MV.  It assumes the existing number of service hours using the rates provided under the new contract.  The budget includes $660,150 for fuel, based on approximately 21,000 gallons of unleaded at $3.50 per gallon and 155,000 gallons of diesel at $3.78 per gallon.  Again, recent decreases in fuel prices may result in cost savings that can assist with other operational costs such as any major component replacement. 

The 2009 budget estimates the Public Transportation Fund will end 2009 with a fund balance forward of $114,532.  It is likely however, that this will be greater due to the additional revenue from the 0.05% sales tax and lower fuel prices.

Recommendation

Staff recommends the City Commission authorize the City Manager to enter into a contract with MV Transportation for public transportation services from January 1, 2009 to December 31, 2013.