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1:30 pm I January 5, 2011
December 27, 2010
To: Chairman Cavazos and Members of the Rail Management Committee
From: Stephen R. Banta, Chief Executive Officer
Date: January 5, 2011
Time: 1:30 p.m.
Location: METRO
101 N. First Ave., 13th Floor Board Room
Phoenix, AZ 85003
Please park in the garage in the US Bank Building (enter from Adams Street) and bring
your parking ticket to the meeting as parking will be validated. Transit passes will be
provided to those using transit. For those using bicycles, please lock your bicycle in the
bike rack in the garage. Rail Management Committee members may attend the
meeting by teleconference. If you have any questions or need additional information
regarding attendance by teleconference, please contact Gina Frackiewicz at
(602) 322-4455.
Action
Item
Requested
1. Call to Order
2. Call to the Audience Information
A 15-minute opportunity will be provided to members of the
public at the beginning of the meeting to address the Rail
Management Committee (RMC) on all agenda items. The
Chairman may recognize members of the public during the
meeting at his/her discretion. Up to three minutes will be
provided per speaker.
3. Minutes Action
Summary minutes from the November 3, 2010 RMC are
presented for review and approval.
4. Chief Executive Officer’s (CEO) Report Information
Stephen R. Banta will brief the RMC on current light rail issues.
Rail Management Committee Agenda
December 27, 2010
Page 2 of 3
Action
Item
Requested
Consent Agenda
5. Approval of Consent Agenda Action
The RMC is being requested to take action on the Consent
Agenda. Committee members may request that items be
removed from the Consent Agenda.
Items Proposed for Consent
5a. Landscape Services Contract Consent
Staff is requesting that the RMC recommend to the METRO Board
of Directors (Board) that the CEO be authorized to issue a new
Landscape Services Contract to Basin Tree Service & Pest
Control, Inc., dba United Right-of-Way (URW). Please see
information attached for Agenda Item 5a for additional
information.
Fiscal Year 2010 Comprehensive Annual Financial Report and Consent
5b.
Single Audit Act Report
Staff is requesting that the RMC recommend that the Board
accept the Comprehensive Annual Financial Report and Single
Audit Act Report for the period ended June 30, 2010. Please see
information attached for Agenda Item 5b for additional
information.
Regular Agenda
6. Fiscal Year 2011 Mid-Year Budget Adjustment Action
Staff is requesting that the RMC recommend that the Board
authorize updates to the Valley Metro Rail Operating and
Capital Budget for Fiscal Year 2011. Please see information
attached for Agenda Item 6 for additional information.
7. METRO Advertising Policy Update and Possible Amendment Information,
Discussion,
Staff will provide an update to the RMC related to the METRO and Possible
advertising policy and discuss possible amendments to the policy Action
in relation to vehicle wraps, internal vehicle advertising, and
station platform advertising. Please see information attached for
Agenda Item 7 for additional information.
Rail Management Committee Agenda
December 27, 2010
Page 3 of 3
Action
Item
Requested
8. Federal Legislative Update Information
Staff will provide information on the METRO priorities for federal
legislation related to the Fiscal Year 2012 Federal Appropriations
process, as well as projects and policies related to the
reauthorization of the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA-LU).
Please see information attached for Agenda Item 8 for
additional information.
9. Future Rail Management Committee Agenda Items Information
The RMC may request consideration of future agenda items.
No additional information is attached.
10. Adjournment Action
With 24-hours notice, special assistance, including provision of materials in alternate
formats, can be provided for persons with sight and/or hearing impairments.
Call 602-254-9896 (voice) or 602-322-4499 (TTY) to request accommodations.
AGENDA ITEM 3
Minutes
November 3, 2010
101 North First Avenue
13th Floor – Board Room
Phoenix, Arizona
Management Committee Members Present
Jane Morris, City of Phoenix
Carlos de Leon, City of Tempe
Jeff Martin, City of Mesa
Terry Johnson, City of Glendale
Dan Cook, City of Chandler
David Moody, City of Peoria
Dave Boggs, Regional Public Transportation Authority
1. Call to Order
Chairwoman Jane Morris called the meeting to order at 1:38 p.m.
2. Call to the Audience
There were no public comments.
3. Minutes
IT WAS MOVED BY JEFF MARTIN AND SECONDED BY CARLOS DE LEON AND
UNANIMOUSLY CARRIED TO APPROVE THE OCTOBER 6, 2010 MEETING MINUTES.
4. Chief Executive Officer’s (CEO) Report
Mr. Stephen R. Banta, METRO’s Chief Executive Officer, addressed the following
items as part of his report:
Fare Enforcement: METRO along with the City of Phoenix police have increased
presence and fare enforcement on the system. METRO operations in the East
Valley are monitored by Wackenhut and the local police. Customers are now
seeing increased enforcement on the trains and the station platforms. The fare
enforcement officers have been equipped with Hand Held Verifiers to assist with
verification of the validity of fare media, including Platinum Passes.
Proposition 400 Revenue Forecast Estimate: ADOT has released a preliminary to
Prop 400 revenue projections. The projections indicate a $735 million reduction
to transit as a result ($318 million to light rail/high capacity program). METRO will
be working with its member cities and the Regional Public Transportation
Authority (RPTA) to address impacts to the Transit Lifecycle Program. METRO
Rail Management Committee Meeting Minutes
November 3, 2010
Page 2 of 4
looks for ways to update the forecast to ensure that we can build and operate
the regional transit system that we are all working to provide. In the coming
year, METRO will provide updates to ways in which we can advance the existing
programs identified in the plan.
Upcoming METRO Activities: A Holiday & Special Event Guide is available to our
customers on the website (www.metrolightrail.org). This is a way to promote
METRO and get our customers to special events. This year METRO will decorate
one of the trains for the holidays. Decorations will be outside and inside the train
for customers to enjoy.
Ridership: Ridership continues to exceed projections. METRO provides options
for people to leave their cars at home, possibly downsize to one car, or simply
get them to/from events.
Future RMC Meetings: The December meeting has been cancelled. The 2011
RMC Meeting Schedule was provided to the Committee Members.
Consent Agenda
5. Approval of Consent Agenda
5a. URS Contract Amendment for Phoenix West Extension
IT WAS MOVED BY CARLOS DE LEON AND SECONDED BY JEFF MARTIN AND
UNANIMOUSLY CARRIED TO RECOMMEND THAT THE BOARD AUTHORIZE THE CEO
TO AMEND THE PHOENIX WEST PLANNING, CONCEPT ENGINEERING AND
ENVIRONMENTAL STUDIES CONTRACT NO. LRT-07-077A-PCES WITH URS
CORPORATION FOR AN ADDITIONAL COST NOT TO EXCEED $1,698,529 AND
EXTEND THE CONTRACT TIME UNTIL JUNE 30, 2012.
5b. Federal Legislative Representative Contract
IT WAS MOVED BY CARLOS DE LEON AND SECONDED BY JEFF MARTIN AND
UNANIMOUSLY CARRIED TO RECOMMEND THAT THE BOARD AUTHORIZE THE CEO
TO ENTER INTO A CONTRACT WITH DENNY MILLER & ASSOCIATES FOR FEDERAL
LEGISLATIVE COUNSEL SERVICES FOR A PERIOD OF ONE (1) YEAR, WITH FOUR (4)
ONE (1) YEAR OPTIONS AT AN AMOUNT NOT TO EXCEED $300,000 OVER THE FIVE
(5) YEAR PERIOD, PLUS EXPENSES APPROVED BY THE AGENCY.
Regular Agenda
6. Tempe South Alternative Analysis Study Recommendation
Mr. Banta commended METRO, the City of Tempe, and HDR for their work in
developing options in this corridor. Information was vetted in multiple venues
and public meetings. Mr. Banta thanked the Tempe City Council for their
support in advancing the locally preferred alternative (LPA) as the alternative of
choice for the City of Tempe. After METRO’s acceptance of the
Rail Management Committee Meeting Minutes
November 3, 2010
Page 3 of 4
recommendation, METRO with City of Tempe will advance it to the MAG
Regional Council for the approval to modify the Regional Transportation Plan to
incorporate the Tempe South LPA.
Mr. Johnson asked why the light rail extension south of Rural Road was dropped
from this recommendation. Mr. Wulf Grote, Director of Planning and
Development, stated that light rail technology was analyzed for Rural Road
along with other technologies and alignment options in the corridor. The
following challenges were identified with Rural Road and light rail: right-of-way
requirements, grade separation associated with the Union Pacific Railroad, and
community impacts.
Mr. Johnson asked about the consideration of applying the regional funds to
other parts of the light rail transit system where there are funding shortfalls rather
than transferring them to the local streetcar project. Mr. Grote stated that our
charge was to look at a greater corridor to the Loop 202 to understand all the
needs for South Tempe and West Chandler area. This included two corridors and
two sets of recommendations for the two-mile Tempe South High Capacity
Transit that include a Bus Rapid Transit (BRT) proposed for Rural Road toward
Chandler Boulevard.
Mr. Johnson asked if the BRT versus streetcar option considered similar circulation
patterns. Mr. Grote stated that the BRT option was evaluated along Mill Avenue
as a longer corridor. BRT was also evaluated along Kyrene and along the Union
Pacific Railroad right-of-way. Mr. Grote added that we did not look at a bus
circulation element that was two-miles rather than rail. He noted that
transportation was one of the objectives we were evaluating. Economic
development and ridership were the other objectives which were not met by the
bus alternative.
Mr. Banta commented on Mr. Johnson’s comment regarding local streetcar in
the City of Tempe. He stated that from his perspective the Tempe streetcar is a
regional asset, providing connectivity from one side of the valley to the next by
connecting to light rail. If an extension is inside one’s city limits and connects to
the regional system, it can be a realistic regional transit option that he refers to as
a total transit network. A total transit network advances public transit in the
Valley. Additionally, the streetcar project could end up beyond the city limits.
As we look at the transportation dollars that are available to us to construct what
we were charged to do, some of our system elements will be built in smaller
segments because there is less money. Let’s not lose sight of the total regional
plan that we were charged to develop. When we look at all modes and
alignments, we ensure that we are not competing one mode against the other,
but in support of connectivity through all modes.
Rail Management Committee Meeting Minutes
November 3, 2010
Page 4 of 4
Mr. Cook stated that Chandler is at the tail end of this corridor; however, they
see this as a regional connection with BRT and hopefully future extension of the
streetcar. He stated that the City of Chandler supports this staff
recommendation and the Chandler Transportation Commission will be voting on
this issue on December 18 to feed into the regional process.
IT WAS MOVED BY JEFF MARTIN AND SECONDED BY DAN COOK AND CARRIED
(CITY OF GLENDALE VOTED NO) TO RECOMMEND THAT THE BOARD ACCEPT THE
FOLLOWING METRO STAFF RECOMMENDATIONS FOR THE TEMPE SOUTH
ALTERNATIVES ANALYSIS:
1. A LOCALLY PREFERRED ALTERNATIVE FOR THE TEMPE SOUTH PROJECT,
INCLUDING A MODERN STREETCAR ON A MILL AVENUE ALIGNMENT WITH A
ONE-WAY LOOP IN DOWNTOWN TEMPE;
2. INCLUSION OF A POTENTIAL FUTURE PHASE OF MODERN STREETCAR EAST
ALONG SOUTHERN AVENUE TO RURAL ROAD AS AN ILLUSTRATIVE TRANSIT
CORRIDOR IN THE MAG RTP;
3. FUTURE CONSIDERATION FOR INCREASED SERVICE LEVELS AND CAPITAL
IMPROVEMENTS FOR RURAL ROAD BRT, PER THE DESCRIPTION PROVIDED HEREIN,
THROUGH THE REGIONAL TRANSPORTATION SYSTEM PLANNING PROCESS;
4. FUTURE CONSIDERATION FOR HIGH CAPACITY TRANSIT NEEDS NORTH OF
DOWNTOWN TEMPE ALONG RIO SALADO PARKWAY AND SOUTH OF SOUTHERN
AVENUE ALONG RURAL ROAD TO THE VICINITY OF CHANDLER BOULEVARD
THROUGH THE REGIONAL TRANSPORTATION SYSTEM PLANNING PROCESS; AND
5. FURTHER CONSIDERATION OF COMMUTER RAIL ALONG THE TEMPE BRANCH OF
THE UNION PACIFIC RAILROAD, THROUGH THE REGIONAL TRANSPORTATION
SYSTEM PLANNING PROCESS, AND PENDING RESULTS FROM THE ARIZONA
DEPARTMENT OF TRANSPORTATION’S PHOENIX-TUCSON INTERCITY RAIL
ALTERNATIVES ANALYSIS.
7. Future Rail Management Committee Agenda Items
There were no requests for future agenda items.
8. Adjournment
The meeting adjourned at 1:50 p.m.
AGENDA ITEM 5A
Landscape Services Contract
AGENDA ITEM 5A
To: Chairman Cavazos and Members of the Rail Management Committee
Through: Stephen R. Banta, Chief Executive Officer
From: Ray Abraham, Chief Operations Officer
Date: December 27, 2010
Re: Landscape Services Contract
PURPOSE
The purpose of this item is to request that the Rail Management Committee (RMC)
recommend to the METRO Board of Directors (Board) that the Chief Executive Officer
(CEO) be authorized to issue a new Landscape Services Contract to Basin Tree Service
& Pest Control, Inc., dba United Right-of-Way (URW).
BACKGROUND AND DISCUSSION
The Landscape Services Contract provides a full range of lands keeping services for
METRO’s facilities that include the Operations and Maintenance Center, park-and-ride
lots, passenger stations, and along the track guideway. METRO previously contracted
with DMS Facility Services to provide these services. That contract ends on December
31, 2010; therefore, METRO went out with a new solicitation for these services.
On September 5, 2010, METRO issued a Request for Proposals (RFP) #LRT-11-156-FMLS for
Landscape Services. The procurement was advertised in accordance with Agency’s
Public Notice procedure. The proposal due date was on October 14, 2010 at 3 PM. Of
the thirty Record Holders, five (5) firms submitted proposals. They were: Agave
Environmental Contracting; Desierto Verde; DMS Facility Services; OneSource
Landscape and Golf Services, Inc.; and Basin Tree Service & Pest Control, Inc. dba
United Right-of-Way.
A panel of four evaluators representing METRO member cities and the agency
evaluated the proposals. Each of the selection committee members was chosen to
participate and help with the selection based on each person’s experience with
operations and maintenance facilities, including the other locations mentioned above,
and the lands keeping of these facilities.
Proposals were scored and ranked based on the following criteria: 1) Firm’s
qualifications and experience, 2) Qualifications and experience of assigned personnel,
and 3) Understanding of the Scope of Services, and 4) Proposed Prices.
The Selection Committee Members selected URW as the most advantageous offer for
the agency.
Rail Management Committee Memo
December 27, 2010
Page 2
FISCAL IMPACT
The funding for the Landscape Services is included in the Fiscal Year (FY) 2011 METRO
Revenue Operations Budget at an annual amount of 386,611.00. The initial term of this
contract is from January 1, 2011 through December 31, 2011. The initial six (6) months of
this contract through June 30, 2011 will cost $161,010.00. The annual cost of $322,020 as
proposed by the contractor is within the planned FY2011 budget for landscape
services.
The contract includes four (4) options for renewal for a total contract period of up to
five (5) years. Should the options be exercised, funding for those renewals will be
included in future year budgets.
RECOMMENDATION
Staff requests that the RMC recommend that the Board authorize the CEO to execute a
Landscape Services Contract with Basin Tree Service & Pest Control, Inc., dba United
Right-of-Way for price not to exceed $322,020.00 for each of the 12-month periods.
AGENDA ITEM 5B
Fiscal Year 2010 Comprehensive Annual Financial Report and
Single Audit Act Report
AGENDA ITEM 5B
To: Chairman Cavazos and Members of the Rail Management Committee
Through: Stephen R. Banta, Chief Executive Officer
From: John P. McCormack, Director of Finance and Administration
Date: December 27, 2010
Re: Fiscal Year 2010 Comprehensive Annual Financial Report and
Single Audit Act Report
PURPOSE
The Rail Management Committee (RMC) is being requested to recommend that the
METRO Board of Directors (Board) accept the Comprehensive Annual Financial Report
and Single Audit Act Report for the period ended June 30, 2010.
BACKGROUND/DISCUSSION
In October 2002, the cities of Glendale, Mesa, Phoenix, and Tempe formed Valley
Metro Rail, Inc. (METRO), an Arizona public nonprofit corporation. Since 2007, the cities
of Chandler and Peoria have also been members. METRO is responsible for the
planning, design, construction, and operation of the light rail transit system in the region.
METRO By-Laws require an annual audit to be performed of the financial records by a
certified public accountant. In addition, all recipients of federal grant funds are
required to have an audit performed in compliance with the Single Audit Act provisions.
The reports contained in the attached Comprehensive Annual Financial Report meet
these requirements for the period ended June 30, 2010. All reports are prepared in
conformity with generally accepted accounting principles.
METRO is required to have an independent audit of expenditures of federal awards
received (Single Audit) directly from federal agencies or passed through by other
governmental entities during the period. The standards governing Single Audit
engagements require the independent auditor to report not only on the fair
presentation of the financial statements, but also on the internal control over
compliance and other matters having a direct and material impact on major
programs, with special emphasis on internal controls and compliance requirements
involving the administration of major federal awards.
Larson Allen, LLP has completed the METRO audits for the period ended June 30, 2010.
Completion of the June 30, 2010 financial statement and Single Audit Act audits
produced one finding and recommendation for internal control improvements with
respect to the signature approvals required for processing accounts payable
payments.
Rail Management Committee Memo
December 27, 2010
Page 2
The finding has resulted in an internal control improvement as follows:
METRO will evaluate the current purchase approval policy and will
stringently enforce this control during the fiscal year 2010-11 and in future
years.
The Finance Staff accepts the auditor’s finding and has initiated steps to achieve
continuous improvements to METRO's internal control systems in fiscal years 2011 and
2012.
METRO’s Comprehensive Annual Financial Report received an unqualified opinion and
demonstrates the commitment to the highest standard of financial reporting for a
government entity. Attached you will find a copy of the reports.
RECOMMENDATION
Staff is requesting that the RMC recommend that the Board accept the Comprehensive
Annual Financial Report and Single Audit Act Report for the period ended June 30, 2010.
VALLEY METRO RAIL, INC.
Phoenix, AZ
COMPREHENSIVE ANNUAL FINANCIAL REPORT
Period Ended June 30, 2010
VALLEY METRO RAIL, INC.
Phoenix, Arizona
Comprehensive Annual Financial Report
For the fiscal year ended
June 30, 2010
Prepared by:
Finance & Administration Division
A METRO three-car train on the Tempe Town Lake Bridge
METRO LIGHT RAIL SYSTEM
2009 Facts and Figures Ridership Highest ridership days
• 11.3 million total riders • Dec. 31–New Year’s Eve Block Party
• Exceeded projections by 45% • Oct. 2–First Friday; motivational seminar
• Seeing increased ridership in 2010 • May 13–ASU’s commencement
featuring President Obama
• 34,809
35 35 60 60 • 53,216
• 50,562
• 50,011
• 27,662
30 30
50 50
Riders (in Thousands)
Riders (in Thousands)
Riders (in Thousands)
Riders (in Thousands)
25 25
40 40
Top five busiest stations
20 20 • 18,110
• Sycamore/Main St 30 30
15 15
• Montebello/19th Ave
20 20
• University Dr/Rural 10 10
• Van Buren/Central and 1st Ave 5 5
10 10
• Roosevelt/Central Ave
0 0 0 0
weekday saturday sunday sunday
weekday saturday Oct. May
Dec. 31 Dec. 312 Oct. 2 13 May 13
Average
Average
Valley Metro Rail, Inc. (dba METRO light rail) is responsible for the development
and operation of the region’s high-capacity transit system. The 20-mile light
rail starter line opened December 2008 and served 11.3 million riders in 2009,
exceeding all first-year projections by 45 percent. METRO continues to see
ridership growth in 2010.
Design and Construction
METRO’s 20-mile light rail line is the longest starter line in federal New Starts
grant history. It was built entirely in-street using a train-only trackway and traffic
signals to allow trains to safely move through the cities of Phoenix, Tempe and
System Overview Mesa, Arizona. The cost was $1.4 billion paid for using a $587 million federal
• Number of miles: 20 New Starts grant, $59 million from a Congestion Mitigation and Air Quality grant
• Number of stations: 28 and local tax dollars. The local funds are a mix of sales tax revenue from the
cities of Phoenix and Tempe, General Fund from Mesa and a small amount from
• Number of vehicles: 50
the county’s Proposition 400 half-cent sales tax.
• Number of parking spaces: 3,500
• Total travel time: 65 minutes There are 28 stations, primarily located in the center of the roadway, and
• Opening date: Dec. 27, 2008 designed using a kit-of-parts infrastructure and in consideration of the desert
heat. Artwork is an integral part of the system and incorporated into each
• Cost to build: $1.4 billion
station area. The art pieces were designed using community input and several
• Cost to operate: $33.2 million local as well as national artists.
in FY11
• Cost to ride: $1.75 per ride; $3.50 Eight park-and-rides feed the system where free parking can be enjoyed by
for all day riders. The more than 3,500 spaces are available on a first-come, first-serve
basis and, like the rest of the system, monitored using security cameras.
continued
METRO LIGHT RAIL SYSTEM
METRO has 50 vehicles in its fleet, each with a comfort
capacity of 175. The vehicles are at the top of current
innovation and, similar to the stations, customized for the
desert climate and operating environment.
Future Expansion
METRO is responsible for building a 57-mile high-
capacity transit system as defined in the Regional
Transportation Plan by 2031. Planning, and design in
some cases, has begun on the six extensions that make
Operations up the remainder of the 37 miles yet to be built. Two have
METRO operates 365 days a year, 20 hours a day Sunday been defined as light rail corridors: the Northwest and
– Thursday, and almost 24 hours on weekends. Trains Central Mesa extensions. The other four – Tempe South,
arrive every 12 minutes during the weekday peak period; Phoenix West, Glendale and Northeast Phoenix – have
every 15 minutes during the Saturday peak; and every 20 yet to determine a specific transit mode and route.
minutes during all other hours, Sundays and holidays.
Light rail service is coordinated with bus
service to provide a seamless network for ������
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10-14-10
MetroLightRail.org 602-253-5000
Valley Metro Rail, Inc.
Table of Contents
Comprehensive Annual Financial Report
Fiscal Year Ended June 30, 2010
Page
Introductory Section
Letter of Transmittal iii
Certificate of Achievement for Excellence in Financial Reporting ix
Policy Organizational Chart x
List of Appointed Officials xi
Financial Section
Independent Auditors' Report 1
Management's Discussion and Analysis 3
Basic Financial Statements
Statement of Net Assets 9
Statement of Revenues, Expenses and Changes in Fund Net Assets 10
Statement of Cash Flows 11
Notes to the Basic Financial Statements 12
Other Supplementary Information
Schedule of Operations - Budget and Actual 24
Statistical Section
Financial Trends
Net Assets by Component 26
Changes in Net Assets 27
Demographic and Economic Information
Growth in Regional Transit Usage – Bus and Rail Boardings by Fiscal Year 28
Member Cities' Area Growth 29
Top Employers in Maricopa County 30
System Map - Initial 20-Mile Segment 31
System Map - Northwest Extension 32
System Map – Central Mesa 33
Operating Information
Full-Time Equivalent Positions 34
Pay Grades and Ranges 36
Schedule of Insurance Coverage 38
Design & Construction Milestones 40
INTRODUCTORY SECTION
The Introductory Section includes METRO’s transmittal letter, policy organizational chart,
and list of appointed officials
Train at Central/Washington Station
101 North 1st Avenue
Suite 1300
Phoenix, AZ 85003
November 24, 2010
To Chairman and Members of the Valley Metro Rail, Inc. Board of Directors:
The comprehensive annual financial report of Valley Metro Rail, Inc. (METRO) for the fiscal year
ended June 30, 2010, is hereby submitted in accordance with the requirements of the Bylaws and
Board directives. Responsibility for both the accuracy of the data and the completeness and
fairness of the presentation, including all disclosures, rests with management. To the best of our
knowledge and belief, the enclosed data is accurate in all material respects and is reported in a
manner that presents fairly the financial position, results of operations and cash flows of METRO.
All disclosures necessary to enable the reader to gain an understanding of METRO’s activities
have been included.
These financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for local governments as prescribed by the
Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public
Accountants (AICPA).
The independent auditors, Larson Allen LLP, whose report is included herein, have examined the
basic financial statements and related notes. As stated in the independent auditors’ report, the
goal of the independent audit was to provide reasonable assurance that the basic financial
statements of METRO as of and for the fiscal year ended June 30, 2010, are free from material
misstatement. The independent audit involved examining, on a test basis; evidence supporting the
amounts and disclosures in the financial statements; assessing accounting principles used and
significant estimates made by management; and evaluating the overall financial statement
presentation. The independent auditors concluded, based upon their audit, that there was a
reasonable basis for rendering an unqualified opinion that the basic financial statements of
METRO for the fiscal year ended June 30, 2010, are fairly presented, in all material respects, in
conformity with GAAP. The independent auditors’ report is presented as the first component of the
financial section of this report.
Additionally, METRO is required to have an independent audit of expenditures of federal awards
received (Single Audit) by METRO directly from federal agencies, or passed through to METRO by
other governmental entities during the fiscal year. The standards governing Single Audit
engagements require the independent auditor to report not only on the fair presentation of the
financial statements, but also on METRO’s internal controls and compliance with legal
requirements having a direct and material impact on major programs, with special emphasis on
internal controls and compliance requirements involving the administration of major federal
awards. The results of METRO’s Single Audit for the fiscal year ended June 30, 2010, found no
instances of material weakness in the internal control structure or significant violations of
applicable laws and regulations with respect to major programs. The auditors’ reports on internal
controls and compliance with applicable laws and regulations are included in a separately issued
Single Audit Report.
The financial statements are prepared and presented in conformity with accounting principles
generally accepted in the United States of America. More information about the presentation can
be found in Management’s Discussion and Analysis (MD&A) beginning on page 3 and also
iii
Valley Metro Rail, Inc.
Letter of Transmittal (Continued)
discussed in the notes to the financial statements beginning on page 12. This transmittal letter is
designed to complement MD&A and should be read in conjunction with it.
THE FINANCIAL REPORTING ENTITY
METRO was established in October 2002 as a public nonprofit corporation formed by the cities of
Glendale, Mesa, Phoenix, and Tempe to manage design, construction, and operation of the Light
Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and Peoria became
contributing member cities in 2007. The City of Scottsdale joined in April of 2008 and withdrew
membership effective July 1, 2009. During the fiscal year 2009-2010, a six member Board of
Directors governed METRO, consisting of the mayors or their designated representatives from
each member city. The Board of Directors establishes overall policies for management and
administration of the LRT System, provides oversight over the design, construction and operation
of light rail, and receives and disburses funds and grants from federal, state, local, and other
funding sources. A Chief Executive Officer, appointed by the Board of Directors, is responsible for
the day-to-day management of the organization.
LOCAL ECONOMIC CONDITION AND OUTLOOK
METRO serves the cities of Chandler, Glendale, Mesa, Peoria, Phoenix, Scottsdale, and Tempe
that are centrally located in Maricopa County, Arizona. These cities have constituted a well-
established growth area since 1945, and collectively encompass approximately 1,200 square
miles. Together they form a significant portion of the greater metropolitan Phoenix area, which is
the economic, political, and population center of Arizona.
The combined six cities have grown from 2.5 million residents in 1990 to 3.1 million residents in
2009, an increase of approximately 20% in the last ten years. The six cities’ population represents
almost 77% of the total Maricopa County population. According to the Greater Phoenix Economic
Council, population in the region is projected to grow at more than twice the national rate for the
next few decades, growing from 3.6 million in 2007 to 6.3 million in 2030.
In 2007 and 2008, the region’s historically strong economic growth slowed and sales tax revenues
fell to 2006 year levels. The economic decline continued in 2009 and 2010 with tax revenues
falling to levels dating back to the year 2000. METRO responded to the times with staff reductions
in 2009 and with service reductions in 2010. Due to the strong financial plan established for the 20
mile initial light rail system, the funding for construction and operation of the system is secure.
Despite the recent downturn, increases in population and new home construction have led to
increased demands for quality public transportation and improved air quality. Over the last five
years, public transportation ridership grew by 14.2 percent in the region. With the commencement
of rail passenger operations in December 2008, the LRT System added new capacity to the
regional transportation system. Since opening, the METRO light rail line has experienced strong
passenger growth with average weekday ridership exceeding 40,000 passengers versus the
26,000 riders planned.
With the passage of Proposition 400, and the creation of the Public Transportation Fund, light rail
extensions in Mesa, Phoenix, and Tempe are in the planning stages which will continue to add
capacity to the region’s transportation system in the years ahead.
iv
Valley Metro Rail, Inc.
Letter of Transmittal (Continued)
FINANCIAL CONTROLS
Accounting and Administrative Controls
As previously noted, METRO’s management is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of METRO are protected from loss,
theft or misuse and to ensure that adequate accounting data are compiled to allow for the
preparation of financial statements in conformity with generally accepted accounting principles.
METRO’s internal control structure is designed to provide reasonable, but not absolute, assurance
that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost
of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and
benefits requires estimates and judgments by management.
As a sub-recipient of federal financial assistance, METRO is also responsible for ensuring that an
adequate internal control structure is in place to ensure and document compliance with applicable
laws and regulations related to these programs. This internal control structure is subject to
periodic evaluation by management and by METRO’s independent auditor. As part of METRO’s
Single Audit, tests were made of the internal control structure and of its compliance with applicable
laws and regulations, including those related to federal awards. Although this testing is limited in
scope and is not sufficient to support an opinion on METRO’s internal control system or its
compliance with laws and regulations, the audit for the year ended June 30, 2010, disclosed no
material internal control weaknesses or material violations of laws and regulations. The audit of
METRO’s compliance with requirements applicable to each major program and internal control
over compliance resulted in an unqualified opinion of compliance and noted no material
weaknesses in internal controls.
Budgetary Systems and Controls
The objective of the budgetary controls maintained by METRO is to ensure compliance with legal
provisions embodied in the annual appropriated budget approved by the Board of Directors. The
by-laws require a balanced budget to be adopted by the METRO Board each fiscal year. The level
of budgetary control, i.e., the level at which expenditures cannot legally exceed appropriations, is
the total operating budget. METRO maintains budgetary control by conducting quarterly
evaluations of expenditures against appropriations and through close monitoring of revenues.
Encumbrance accounting is not utilized and all appropriations lapse at year-end. As demonstrated
by the statements included in the financial section of this report, METRO continues to meet its
responsibility for sound financial management.
In addition to the annual budget, METRO also prepares a Five-Year Capital Program and
Operating Forecast and the Transit Life Cycle Plan (TLCP) update. The five-year forecast starts
with the annual budget information and extends it an additional four years to provide information
about the anticipated schedule, costs, and revenues. The TLCP gives a longer term perspective
by outlining the sources and uses of funds for specific capital projects and the corresponding costs
and funding to operate each project out through fiscal year 2025.
For each major capital project, METRO regularly reports the project budget status to the Board
showing by project element the engineering baseline cost estimate (BCE) or Full Funding Grant
Agreement (FFGA) budget amount versus commitments, actual expenditures, and forecasted cost
at completion. METRO evaluates project contractual costs and estimates the cost at completion
as part of the regular project reporting process. Should anticipated contractual costs appear to
exceed the Board approved contingency, METRO staff will seek Board action to allocate additional
contingency to the contract either by transfer from the project reserve or by transfer from other
project elements where the work to be contracted is currently budgeted within the baseline cost
v
Valley Metro Rail, Inc.
Letter of Transmittal (Continued)
estimate. Significant issues impacting cost versus budget are addressed in the narrative reports
included in the monthly project progress report submitted to the Board in advance of each regular
board meeting.
With the commencement of passenger operations in December 2008, METRO has continued to
refine detailed cost estimates for manpower, contracted costs, utilities and insurance to construct
the annual operations budget. Analysis and comparisons of METRO’s planned costs to peer city
light rail systems have been conducted. Actual costs are tracked against budget and reported to
Member Cites on a monthly basis with significant variances analyzed and communicated. Member
Cities fund the cost of the operations based upon the ratio of route miles in operation within each
jurisdiction. In the first eighteen months of operations, METRO has successfully operated within
budget while achieving on-time and reliability performance targets.
With respect to fare revenues, METRO has engaged an armored car service contractor to pick up
fare payments deposited by customers in the fare vending machines. The armored car service
deposits daily collections into the City of Phoenix regional fare revenue depository. METRO works
in collaboration with the City of Phoenix to compute and distribute fare revenues to the Member
Cities. In the first eighteen months, METRO’s fare revenues have exceeded budget.
MAJOR INITIATIVES
Design and Construction of Light Rail
METRO successfully completed construction of the Central Phoenix/East Valley Light Rail Transit
(CP/EV LRT) Project, funded by Section 5309 New Starts program. The Northwest Extension, the
first planned LRT extension has completed the design phase and is wrapping up real estate
procurement. Due to the economic downturn, the Northwest Extension project construction
activities have been suspended pending availability of funds from the City of Phoenix. The Central
Mesa Extension has completed the planning phase and is commencing design work for an
anticipated line opening in 2016.
Central Phoenix/East Valley Light Rail Transit (CP/EV LRT) Project
The CP/EV LRT project is a 19.6 mile LRT System that connects north central Phoenix, Tempe,
and Mesa. The Project was identified as the Minimum Operable Segment of the Locally Preferred
Alternative selected in the Central Phoenix/East Valley Major Investment Study completed in 1998.
As the initial starter segment, the CP/EV LRT project extends from 19th Avenue and Bethany
Home Road in Phoenix to Main and Sycamore Road in Mesa. Phoenix, Tempe, and Mesa share
responsibility for funding the non-federal share of capital costs and the on-going operations and
maintenance (O&M) costs of the project. The CP/EV LRT project complements existing and
proposed bus services to be implemented by Phoenix, Tempe, and Mesa. Construction of the
project began in FY 2005 and was completed on-time with passenger operations commencing on
December 27th 2008.
The capital project is currently in close-out phase. Major activities include management of
warranty, settlement of contractor milestone payments and change order issues, satisfaction of
Federal Transit Administration requirements and collection of final federal grant payments. In
August 2010, METRO received the final FTA grant installment completing the $587.2 million
federal contract.
Revenue operations commenced January 1 st 2009 providing service from 5AM to 11PM seven
days a week. Weekday riders have access to trains every 12 minutes from 7AM to 7PM.
Weekend and off-peak weekday service frequencies range from 15 to 20 minutes.
vi
Valley Metro Rail, Inc.
Letter of Transmittal (Continued)
Northwest Extension LRT Project
The Northwest Extension is a 4.6 mile light rail project starting at the northwest termination point of
the Central Phoenix/East Valley Light Rail project. The project follows 19th Avenue to Dunlap
Avenue, then west on Dunlap Avenue to 25th Avenue and then runs on 25th Avenue to Mountain
View Road. In March 2007 the Phoenix City Council approved an initial 3.2 mile phase to be
locally funded, without federal funding support. With the economic downturn, construction of the
first phase, which includes the 19th Avenue to Dunlap portion of the project, has been suspended
pending availability of funding. Real estate acquisition for the project is continuing in preparation
for future construction.
During FY 2007 advanced conceptual engineering was completed and a draft Environmental
Impact Statement (EIS) was prepared. In July of 2007, an engineering services consultant was
secured by METRO and a notice to proceed was issued to commence final design. In September
2007 a construction manager commenced work on pre-construction activities to maximize design-
build coordination. During FY 2007-2008, the City of Phoenix commenced acquisition of real
property for the 3.2 mile alignment. During FY 2008-2009, real estate acquisition continued and
design work was completed. In fiscal years 2010 and 2011, real estate acquisition is continuing.
Central Mesa Light Rail Extension Project
In March, 2010, the Mesa City Council approved a 3 mile extension of the LRT system and in
August 2010, the Federal Transit Administration approved the alignment for project development
as the next step toward federal funding. The extension begins at the eastern limits of METRO’s
existing light rail system (Sycamore) and extends east on Main Street to Mesa Drive. The entire
extension is within the City of Mesa. There are four stations on Main Street including a station at
Alma School Road, Country Club Drive, Center Street, and Mesa Drive. (See page 33 for System
Map)
The extension is planned to open in 2016 with ridership estimated at approximately 4,750 riders
per day. The total capital cost of the project is $198.5 million to be funded with a combination of
federal and regional funds.
Funding Milestones
On November 2, 2004, the voters of Maricopa County approved Proposition 400, the continuation
of the transportation tax, for a twenty year period, beginning in calendar year 2006. The
approximate total vote in favor was 57.5%. This is a major milestone in transportation funding and
service in the region. The Proposition had unanimous support from the Mayors of all of the cities
in the region and the Maricopa County Board of Supervisors, the Maricopa Association of
Governments Regional Council, and the Arizona Department of Transportation. This initiative is
forecasted to generate $1.7 billion (Year of expenditure) in revenue over the 20 year period to fund
construction of an additional 15 miles of light rail extensions.
On January 24, 2005, the Federal Transit Administration awarded the $587 million Full Funding
Grant Agreement (FFGA) to the City of Phoenix for the 20 mile CP/EV LRT Project. In November
2005, the Phoenix City Council approved a Grant Pass-thru Agreement whereby METRO is the
Subrecipient for the $587 million FFGA. In 2009, under the American Recovery and Reinvestment
Act (ARRA), METRO received and dispersed $36.0 million of the FFGA 5309 funding, bringing the
total funding received to $526.0 million. In August 2010, the FTA funded the final $61.2 million to
fully complete the Full Funding Grant payment schedule.
vii
ix
ASU students boarding train
VALLEY METRO RAIL, INC.
Policy Organizational Chart
Fiscal Year Ended June 30, 2010
x
VALLEY METRO RAIL, INC.
List of Appointed Officials
Fiscal Year Ended June 30, 2010
Board of Directors
Board Chairman Councilman Tom Simplot, Phoenix
Vice Chairman Vice Mayor Kyle Jones, Mesa
Board Member Mayor Bob Barrett, Peoria
Board Member Councilman Rick Heumann, Chandler
Board Member Mayor Elaine Scruggs, Glendale
Executive Management Team
Chief Executive Officer Stephen R. Banta
Chief Operations Officer Raymond Abraham
Director, Community and Government Relations John Farry
Director, Planning and Development Wulf Grote
Chief of Safety and Security Jay Harper
General Counsel Mike Ladino
Director, Finance & Administration John McCormack
xi
FINANCIAL SECTION
The Financial Section includes the independent auditor’s report, Management’s Discussion
and Analysis (MD&A), the basic financial statements, notes to the basic financial statements and
other financial schedules.
Super Motor Cross Event at Chase Field
INDEPENDENT AUDITORS’ REPORT
To the Members of the Board of Directors
Valley Metro Rail, Inc.
We have audited the accompanying financial statements of the business-type activities of Valley Metro
Rail, Inc. (METRO) as of and for the year ended June 30, 2010, as listed in the table of contents. These
financial statements are the responsibility of Valley Metro Rail, Inc.’s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the business-type activities of the Valley Metro Rail, Inc., as of June 30,
2010, and the respective changes in financial position and cash flows, where applicable, thereof for the
year then ended in conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards, we have also issued our report dated
November 24, 2010 on our consideration of Valley Metro Rail, Inc.’s internal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and
grant agreements and other matters. The purpose of that report is to describe the scope of our testing
of internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on the internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards and should be
considered in assessing the results of our audit.
1
An independent member of Nexia International
To the Members of the Board of Directors
Valley Metro Rail, Inc.
The management's discussion and analysis on pages 3-8 is not a required part of the basic financial
statements but is supplementary information required by the Governmental Accounting Standards
Board. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the required supplementary
information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise METRO’s basic financial statements. The introductory section, other
supplementary information and statistical section are presented for purposes of additional analysis and
are not a required part of the basic financial statements. The other supplementary information has been
subject to the auditing procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a
whole. The introductory and statistical sections have not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.
LarsonAllen LLP
Mesa, Arizona
November 24, 2010
2
Valley Metro Rail, Inc.
Management’s Discussion and Analysis
As management of Valley Metro Rail, Inc. (METRO), we offer this narrative overview and analysis of
the financial activities of METRO for the fiscal year ended June 30, 2010. We encourage readers to
consider the information presented here in conjunction with additional information that we have
furnished in our letter of transmittal, which can be found on pages iii – viii of this report. This
discussion and analysis is designed to (1) assist the reader in focusing on significant financial
issues, (2) provide an overview of METRO’s financial activity, (3) identify changes in METRO’s
financial position, (4) identify any material deviations from the financial plan (adopted annual
budget), and (5) identify other issues or concerns.
Financial Highlights
METRO’s total net assets decreased $9.1 million in FY 2010. Total net assets for METRO were
$1.179 million at June 30, 2010.
With the commencement of rail passenger operations, METRO's primary organizational focus
has transformed from construction activities to transportation operation activities. With a break
in the flow of new construction costs and the commencement of depreciation charges to support
the 20 mile LRT line, total net assets are expected to decrease over the coming years until
capital construction resumes on the planned LRT extensions.
The financial statement presentation in fiscal year 2010 reflects this change, with capital
construction revenues and expenses now reporting to non-operating activities. In consideration
of the fact that the newly completed light rail construction project ($1.4 billion) was one of the
largest in Arizona state history, it is to be expected that operational revenues and expenses will
drop sharply with the cessation of construction and the commencement of passenger service
delivery.
METRO’s operating revenues for FY 2010 were $35.5 million, an increase of approximately
$18.6 million from the prior period. With the mid-year grand opening in December 2008, the
fiscal year 2009 reported six months of passenger service operations (January through June
2009). In contrast, Fiscal Year 2010 reported a full 12 months. Operating revenues consisted of
contributions from METRO member cities ($26.0 million) and passenger fares ($9.3 million).
Non-Operating expenses: This year's non-operating activities report a net $101.3 million
decrease in net assets, primarily distributions to Member Cities to reimburse construction
expenditures.
Capital contributions totaled $138.8 million, a decrease of approximately $12.1 million from the
prior period. Capital contributions consisted of Member City Contributions of $31.2 million,
Public Transportation Funds of $45.0 and Federal Transit Administration Capital Grants totaling
$62.6 million.
OVERVIEW OF THE FINANCIAL STATEMENTS
METRO’s financial statements are presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). GAAP requires that the financial statements be
accompanied by a narrative introduction and analytical overview of the government’s financial
activities in the form of “Management’s Discussion and Analysis” (MD&A). The financial section of
the Comprehensive Annual Financial Report (CAFR) for METRO consists of this discussion and
analysis and the basic financial statements. This report also contains other supplementary
schedules presented after the basic financial statements. METRO’s basic financial statements
3
Valley Metro Rail, Inc.
Management’s Discussion and Analysis (Continued)
include a statement of net assets; a statement of revenues, expenses and changes in net assets; a
statement of cash flows; and the notes to the financial statements. METRO’s financial statements
are prepared on an accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America promulgated by the Governmental Accounting Standards
Board (GASB).
Fund Financial Statements – METRO is presented as an enterprise fund. Enterprise funds are
used for activities that primarily serve customers outside the governmental unit. A fund is a
grouping of related accounts that is used to maintain control over resources that have been
segregated for specific activities or conditions. Funds are used to ensure and demonstrate
compliance with finance-related legal requirements as well as for managerial control to demonstrate
fiduciary responsibility over the assets of METRO.
The statement of net assets presents information on all of METRO’s assets and liabilities, with the
difference between the two reported as net assets. Over time, increases or decreases in net assets
may serve as a useful indicator of whether the financial position of METRO is improving or
deteriorating.
The statement of revenues, expenses and changes in fund net assets presents information showing
how the agency’s net assets changed during the most recent fiscal year. All changes in net assets
are reported as soon as the underlying event giving rise to the change occurs, regardless of the
timing of related cash flows. Thus, revenues and expenses are reported in this statement for some
items that will only result in cash flows in future fiscal periods (e.g., uncollected grant revenues).
Notes to the Financial Statements – The notes to the financial statements provide additional
information that is essential to a full understanding of the data provided in the financial statements
and should be read with the financial statements. The notes can be found beginning on page 12.
Enterprise Operations – METRO was formed in October 2002 by the cities of Glendale, Mesa,
Phoenix and Tempe as a public nonprofit corporation to manage design, construction and operation
of the Light Rail Transit (LRT) System within the Metropolitan Area. The cities of Chandler and
Peoria became the fifth and sixth contributing member cities in April and July of 2007 respectively.
The member cities pay for their share of METRO’s operating expenses based on expense allocation
methods approved in the by-laws of METRO. See Note 1 for a summary of METRO’s significant
accounting policies.
4
Valley Metro Rail, Inc.
Management’s Discussion and Analysis (Continued)
FINANCIAL ANALYSIS OF METRO
The following tables and analysis discuss the financial position and changes to the financial position
for METRO as a whole as of and for the year ended June 30, 2010, with comparative information for
the previous period.
Net Assets – Net assets may serve over time as a useful indicator of METRO’s financial position.
The following table reflects the condensed Statement of Net Assets as of June 30, 2010, compared
to the prior period.
VMR's Condensed Statement of Net Assets
As of June 30, 2010 and 2009
Percent
2010 2009 Change Change
Current assets $ 102,712,169 $ 159,051,762 $ (56,339,593) -35.4%
Noncurrent assets 1,213,821,644 1,221,349,623 (7,527,979) -0.6%
Total assets 1,316,533,813 1,380,401,385 (63,867,572) -4.6%
Current Liabilities 98,965,822 148,135,746 (49,169,924) -33.2%
Noncurrent Liabilities 38,835,463 44,408,973 (5,573,510) -12.6%
Total liabilities 137,801,285 192,544,719 (54,743,434) -28.4%
Invested in Capital Assets,
net of related debt 1,172,536,114 1,181,254,415 (8,718,301) -0.7%
Unrestricted 6,196,414 6,602,251 (405,837) -6.1%
Total Net Assets $ 1,178,732,528 $ 1,187,856,666 $ (9,124,138) -0.8%
Total net assets represent the sum of METRO’s unrestricted net assets plus investment in capital
assets net of accumulated depreciation. The largest portions of the investment are capital assets
for the Central Phoenix /East Valley Light Rail Transit Project (CP/EV LRT). In December 2008,
METRO placed these capital assets into service for operation of the light rail transit system and in
day-to-day operations of METRO. It is not METRO’s intention to sell these assets and they are
therefore not available for future spending. Net assets decreased $9.1 million largely due to the
annual charge for depreciation on the completed 20 mile system.
5
Valley Metro Rail, Inc.
Management’s Discussion and Analysis (Continued)
Changes in Net Assets
Total operating revenues, which consist of Contributions from Member Cities, Fare Revenues, and
Other Revenues (advertising), increased $18.6 million: Member City contributions were increased
12.5 million and Passenger Fares increased by $5.9 million. This revenue increase is directly related
to funding a full year passenger service in FY2010 versus the half year in FY 2009. The initial 20-
mile LRT line commenced passenger operating service in January 2009.
Operating expenses increased by $38.8 million to $82.2 million: The twelve months of Passenger
Operations generated $33.0 million in new expenditures. Administrative expenditures totaled $9.5
million compared with $5.3 million in the prior year. With the deployment of the LRT system for a full
year depreciation, expense increased by $17.2 million over the prior period.
Capital contributions, which consist of Member City Contributions, FTA capital grants and Public
Transportation Funds, decreased $12.1 million. The following table compares the revenues and
expenses of METRO for the current fiscal year and the previous period.
VMR's Changes in Net Assets
Fiscal year ended June 30, 2010 and 2009
Percent
2010 2009 Change Change
Operating revenues:
Contributions from Member Cities $ 25,964,781 $ 13,490,504 $ 12,474,277 92.5%
Passenger Fares 9,256,913 3,371,104 5,885,809 174.6%
FTA Operating Grants 222,519 - 222,519 100.0%
Other Revenues 103,410 40,000 63,410 158.5%
Operating revenues 35,547,623 16,901,608 18,646,015 110.3%
Operating expenses:
Administrative 9,540,355 5,278,901 4,261,454 80.7%
Passenger Operations Service 32,964,701 15,678,389 17,286,312 110.3%
Depreciation 39,685,152 22,437,891 17,247,261 76.9%
Operating expenses 82,190,208 43,395,181 38,795,027 89.4%
Operating income (loss) (46,642,585) (26,493,573) (20,149,012) 76.1%
Non-operating revenues (expense) (101,267,750) (20,085,202) (81,182,548) 404.2%
Deficiency before Capital Contributions (147,910,335) (46,578,775) (101,331,560) 217.5%
Capital Contributions 138,786,197 150,873,598 (12,087,401) -8.0%
Increase (Decrease) in Net Assets (9,124,138) 104,294,823 (113,418,961) -108.7%
Net assets, July 1 1,187,856,666 1,083,561,843 104,294,823 9.6%
Net assets, June 30 $ 1,178,732,528 $ 1,187,856,666 $ (9,124,138) -0.8%
6
Valley Metro Rail, Inc.
Management’s Discussion and Analysis (Continued)
CAPITAL ASSETS AND LONG TERM DEBT
Capital Assets:
The following table provides a breakdown of capital assets of METRO at June 30, 2010, with
comparative information for the previous period. Additional information on METRO’s capital assets
may be found in Note 6.
VMR's Capital Assets, Net of Depreciation
As of June 30, 2010 and 2009
2010 2009 Change
Buildings $ 95,047,845 $ 97,611,148 $ (2,563,303)
Guideway 548,218,379 545,989,800 2,228,579
Bridges 58,440,569 60,491,115 (2,050,546)
Operation Control Center 11,145,181 11,536,240 (391,059)
Passenger Stations & Facilities 96,296,602 96,272,225 24,377
Park and Ride Facilities 32,504,345 34,769,334 (2,264,989)
Electric Power Substations 83,413,644 86,707,115 (3,293,471)
Signal and Communication System 44,924,177 45,202,398 (278,221)
Computers & software 179,859 574,791 (394,932)
Furniture & fixtures 370,110 531,100 (160,990)
Revenue Vehicles / Support Service Vehicles 204,806,824 204,714,997 91,827
Non-Revenue Vehicles 733,227 958,053 (224,826)
Equipment 9,993,522 8,214,895 1,778,627
Construction in Progress 27,747,360 27,776,412 (29,052)
Net Capital Assets $ 1,213,821,644 $ 1,221,349,623 $ (7,527,979)
As of June 30, 2010, METRO had $1,214 million invested in capital assets, net of accumulated
depreciation. There was a net decrease in capital assets, net of accumulated depreciation, of $7.5
million from June 30, 2009; primarily resulting from a depreciation charge of $39.7 million for the
Light Rail System infrastructure offset by continuing capital expenditures for the wrap up of the 20
mile LRT construction project and design expenses for the Northwest Extension LRT Project.
Long Term Debt:
During fiscal year 2009, METRO (as Lessee) completed the process of formally accepting 14 Light
Rail Vehicles (LRV’s) under the terms of a Master Lease/Purchase Financing Agreement dated
March 3, 2006, with the City of Phoenix (as Lessor). Under the agreement, the City financed the
purchase of the vehicles with payments due from METRO commencing in 2011. The capital lease
obligation at June 30, 2010 includes $42,186,000 principal and $6,250,510 accrued interest totaling
$48,436,510. Refer to Note 9 on page 19 for more information regarding the lease.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
METRO’s adopted fiscal year 2011 total operating and capital budget is $88.8 million, down $48.4
million from fiscal year 2010’s amended Budget. The primary cause for the decrease is within the
capital budget, due to the planned reduction of construction activities and expenditures for the 20
mile CPEV LRT Project (METRO Initial Segment). On the operating side, METRO’s FY11 budget is
$43.8 million, down $3.9 million versus fiscal year 2010. In response to sales tax shortfalls facing
the Member Cities, METRO’s FY 11 budget reduces passenger operating costs by $511,000. In
addition, the budget for future project development is reducing by $3.1 million with the completion of
the Central Mesa Extension planning work.
7
Valley Metro Rail, Inc.
Management’s Discussion and Analysis (Continued)
Comparison of Annual Expenditure Budgets
Fiscal Year 2011 vs. 2010
FY 2011 FY 2010
Adopted Amended Change
Uses of Funds ($,000) ($,000) ($,000)
Operating Activities:
Revenue Operations 33,222 33,733 (511)
Future Project Development 9,565 12,685 (3,120)
Agency Operating Budget 1,016 1,254 (238)
43,803 47,672 (3,869)
Capital Projects:
20-Mile METRO Initial Segment 18,272 41,274 (23,002)
Northwest Extension 5,125 31,924 (26,799)
Non-Prior Rights Utilities Relocations 2,806 5,250 (2,444)
Other Capital Projects: -
Central Mesa Extension 14,001 826 13,175
South Tempe Extension - 59 (59)
Phoenix West Extension 45 91 (46)
CNPAs - 20-Mile Initial Segment 2,167 3,775 (1,608)
ARRA - Phoenix P& R Improvements 2,261 3,900 (1,639)
ARRA - RPTA Ariz Avenue BRT - 250 (250)
Systemwide Improvements 350 2,229 (1,879)
45,027 89,578 (44,551)
Total Uses of Funds 88,830 137,250 (48,420)
Due to current economic conditions, sales tax revenue collections are down causing funding
limitations for the Northwest Extension capital project. In July 2009, the Phoenix City Council acted
to suspend construction funding for the Northwest Extension project pending availability of funds.
METRO worked with the Member Cities to reduce the FY 2010 capital expenditure and funding
budgets in accord with the reduction of construction activities.
In FY11 METRO will commence design work on the Central Mesa LRT Extension. Expenditures
during the year are anticipated to reach 14.0 million pending contractor progress and necessary
approvals from federal funding sources to enter final engineering activities.
FINANCIAL CONTACT
The financial report is designed to provide a general overview of METRO’s finances and to
demonstrate accountability for the use of public funds. Questions about any of the information
provided in this report, or requests for additional financial information should be addressed to
METRO’s Director of Finance and Administration, Valley Metro Rail, 101 North 1st Avenue, Suite
1300, Phoenix, Arizona 85003.
8
BASIC FINANCIAL STATEMENTS
Valley Metro Rail, Inc.
Statement of Net Assets
June 30, 2010
Assets
Current Assets
Cash and Investments $ 8,979,664
Receivables, Net 447,397
Due from Other Governments 79,913,525
Inventory 11,779,728
Restricted Assets 900,470
Other Assets 691,385
Total Current Assets 102,712,169
Noncurrent Assets
Capital Assets, Not Being Depreciated 27,747,360
Capital Assets, Net of Accumulated Depreciation 1,186,074,284
Total Noncurrent Assets 1,213,821,644
Total Assets and Other Debits 1,316,533,813
Liabilities
Current Liabilities:
Accounts Payable 19,681,796
Labor Compliance Withholding 18,557
Other Accrued Expenses 380,635
Compensated Absences 356,822
Capital Lease Obligation - Current portion 10,000,000
Reserve for General Liability Claims 501,000
Due to Other Governments 32,417
Unearned Revenue 1,226,435
Member Cities Deposits 66,768,160
98,965,822
Noncurrent Liabilities:
Compensated Absences 398,953
Capital Lease Obligation 32,186,000
Interest Payable 6,250,510
Total Liabilities and Other Credits 137,801,285
Net Assets
Invested in Capital Assets, Net of Related Debt 1,172,536,114
Unrestricted 6,196,414
Total Net Assets $ 1,178,732,528
The accompanying notes to the financial statements are an integral part of this statement.
9
Valley Metro Rail, Inc.
Statement of Revenues, Expenses, and Changes in Fund Net Assets
Fiscal Year Ended June 30, 2010
Operating Revenues:
Contributions from Member Cities $ 25,964,781
Passenger Fares 9,256,913
Receipts from Federal Operating Grants 222,519
Other Revenues 103,410
Total Operating Revenues 35,547,623
Operating Expenses:
Administrative 9,540,355
Passenger Operations Service 32,964,701
Depreciation 39,685,152
Total Operating Expenses 82,190,208
Operating Loss (46,642,585)
Non-Operating Revenue / ( Expense ):
Federal Transit Administration Operating Grants 2,557,861
Public Transportation Funds 5,484,246
Distributions to Member Cities (106,249,903)
Private Utilities Relocations 965,013
Interest on Capital Lease Obligation (4,167,007)
Other Non-Operating Income 142,025
Interest Income 15
Total Non-Operating Revenue / ( Expense ): (101,267,750)
Deficiency Revenues under Expenses (147,910,335)
Capital Contributions:
Capital Contributions from Member Cities 31,156,572
Public Transportation Funds Capital 45,043,704
Federal Transit Administration Capital Grants 62,585,921
Total Capital Contributions: 138,786,197
Changes in Net Assets (9,124,138)
Net Assets, Beginning of Period 1,187,856,666
Net Assets, End of Period $ 1,178,732,528
The accompanying notes to the financial statements are an integral part of this statement.
10
Valley Metro Rail, Inc.
Statement of Cash Flows
Fiscal Year Ended June 30, 2010
Cash Flows from Operating Activities
Receipts from Member Cities $ 24,593,915
Receipts from Federal Operating Grants 222,519
Receipts from Fare Revenues 9,256,913
Other Revenues 103,410
Payments to Suppliers (41,311,959)
Net Cash Used in Operating Activities (7,135,202)
Cash Flows from Non-Capital Financing Activities
Receipts from FTA Non-Capital Grants 2,557,861
Receipts from Regional Public Transit Authority 6,709,354
Other Non-Operating Income 142,040
Payments for Private Utility Relocations 965,013
Net Cash Provided by Non-Capital Financing Activities 10,374,268
Cash Flows from Capital and Related Financing Activities
Capital Contributions from Member Cities 30,533,019
Distributions to Member Cities (191,137,218)
Receipts from FTA Capital Grants 133,204,951
Receipts from Regional PTF for Capital 57,932,267
Payments for Inventory (821,088)
Payments for Capital Assets (30,966,851)
Net Cash Provided by Capital and Related Financing Activities (1,254,920)
Net Increase in Cash and Cash Equivalents 1,984,146
Cash and Cash Equivalents, Beginning of Year 6,995,518
Cash and Cash Equivalents, End of Year $ 8,979,664
Reconciliation of Operating Income to Net Cash Provided by Operating
Activities
Operating Income $ (46,642,585)
Adjustments to Reconcile Operating Income to Net Cash Used in Operating
Activities:
Depreciation 39,685,152
(Increase) Decrease in Assets:
Accounts Receivable (1,720,821)
Due from Other Governments 349,954
Other Assets 51,860
Increase (Decrease) in Liabilities:
Accounts Payable 87,977
Compensated Absences 22,535
Other Accrued Expenses 380,998
Due to Other Governments (341,743)
Reserve for General Liability Claims 501,000
Unearned Revenue (355,039)
Member Cities' Deposits 845,510
Net Cash Used in Operating Activities $ (7,135,202)
The accompanying notes to the financial statements are an integral part of this statement.
11
Valley Metro Rail, Inc.
Notes to the Financial Statements
Fiscal Year Ended June 30, 2010
1. Summary of Significant Accounting Policies
The accounting policies of Valley Metro Rail, Inc. (METRO) conform to accounting principles
generally accepted in the United States of America (GAAP) as applicable to governmental
units. The Governmental Accounting Standards Board (GASB) is the accepted standard-
setting body for establishing governmental accounting and financial reporting principles.
a. Financial Reporting Entity
In October 2002, the city councils of Glendale, Mesa, Phoenix and Tempe approved the
formation of a government entity with a nonprofit status by the name of Valley Metro
Rail, Inc. The nonprofit corporation was organized under A.R.S. 11-952 and 40-1152.
The initial members entered into a Joint Powers Agreement which provides that this
Corporation be organized as the instrumentality to plan, design, construct, and operate
the Light Rail Transit Project (“LRT”). Prior to October 2002, the Regional Public
Transportation Authority (RPTA) performed these roles.
METRO contracts with the RPTA for certain administrative functions, including
personnel, HR administration, and computer support services. All METRO staff is hired
and employed by RPTA but works solely under the direction of Valley Metro Rail, Inc.,
and it’s Board of Directors, through a contractual arrangement with RPTA.
The Board of Directors of METRO is solely responsible for the governance of LRT and
METRO is not a component unit of RPTA; economic resources received by METRO are
entirely for the direct benefit of METRO, and RPTA is not entitled to and has no ability to
otherwise access any of the economic resources received or held by METRO.
b. Basic Financial Statements
These financial statements are presented in accordance with GASB Statement No. 34 –
Basic Financial Statements and Management’s Discussion and Analysis for State and
Local Governments (GASB No. 34). METRO is engaged only in business-type activities
and is required to present the financial statements required for enterprise funds which
are part of proprietary funds. METRO does not report any component units.
c. Basis of Presentation
Proprietary funds account for activities of METRO similar to those found in the private
sector, where cost recovery and the determination of net income is useful or necessary
for sound fiscal management. The focus of proprietary fund measurement is upon the
determination of operating income, changes in net assets, financial position and cash
flows. Currently, enterprise funds are the only type of proprietary fund that METRO
uses.
d. Measurement Focus and Basis of Accounting
The Statement of net assets and statement of revenues, expenses and changes in fund
net assets are reported using the flow of economic resources measurement focus and
accrual basis of accounting. Revenues are recorded when earned and expenses are
recorded when a liability is incurred, regardless of the timing of related cash flows.
Grants and similar items are recognized as revenue as soon as all eligibility
requirements imposed by the provider have been met. Such revenue is subject to
review by the funding agency, which may result in disallowance in subsequent periods.
12
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
All of METRO's activities are accounted for in a single proprietary or business-type fund.
Proprietary funds distinguish operating revenues and expenses from non-operating
items and capital contributions. Operating revenues and expenses generally result from
providing services and producing and delivering goods in connecting with a proprietary
fund's principal ongoing operations. Revenues and expenses not meeting this definition
are reported as either non-operating revenues and expenses or capital contributions.
Private-sector standards of accounting and financial reporting issued prior to December
1, 1989 generally are followed in the proprietary fund financial statements to the extent
that those standards do not conflict with or contradict guidance of the Governmental
Accounting Standards Board. Governments have the option of following subsequent
private-sector guidance for the business-type activities, subject to this same limitation.
METRO has elected not to follow subsequent private-sector guidance.
e. Cash and Investments
State statutes authorize METRO to invest in obligations of the U.S. Treasury and any of
its agencies, corporations or instrumentalities, collateralized repurchase agreements,
and certificates of deposit. METRO’s investments are stated at fair value. Fair value is
based on quoted market prices as of the valuation date.
METRO considers short-term investments in mutual fund-money markets, U.S. Treasury
bills and notes with maturities of three months or less at acquisition date to be cash
equivalents.
f. Receivables
Management analyzes receivables periodically to determine the adequacy of the
allowance for doubtful accounts. There is no current provision required for possible bad
debts.
g. Inventory
Inventories consist of expendable supplies held for consumption. Inventories are valued
at cost using the average cost method. Inventories are expensed when the resources
are used.
h. Capital Assets
Capital assets are defined as assets with an initial, individual cost of more than $5,000
and an estimated useful life greater than one year. METRO changed its individual asset
capitalization threshold from $1,000 to $5,000 as of July 1, 2005.
Capital assets are recorded at cost or estimated historical cost if purchased or
constructed. Donated capital assets are recorded at the estimated fair value at the date
of donation.
METRO capitalizes all costs incurred in connection with the construction of the Central
Phoenix/East Valley (CP/EV) 20-mile alignment. The costs for the non-federal agency
operating and the initial planning costs of additional extensions are recorded as annual
operating expenses.
13
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
METRO is not the legal owner of any land. The land required for the LRT system is
acquired and owned by the Member Cities and is the subject of a long-term use
agreement between each City and METRO. Land, subject to the above agreement, is
recorded on the books of member cities.
The costs included as construction in progress consist primarily of project administration,
engineering, construction management, utilities relocation, facility construction,
equipment procurement, and other costs related to construction. No depreciation is
provided on construction in progress until construction is completed and the assets are
placed in service.
The cost of normal maintenance and repairs that do not add to the value of the asset or
materially extend assets lives are not capitalized. Major improvements are capitalized
and depreciated over the remaining useful lives of the related capital assets. Capital
assets are depreciated using the straight-line method over the following estimated useful
lives:
Useful Life
Assets (Years)
Buildings 40
Guideway 50
Bridges 30
Operation Control Center 30
Passenger Stations 30
Park and Ride Facilities 15
Electric Power Substations 25
Signal Substations 20
Revenue Vehicles 25
Equipment 7-15
Furniture and fixtures 7-15
Pooled vehicles 4
Computers and software 3
i. Allocation of Costs to Member Cities
Design and construction costs to be paid during the fiscal year are allocated to the
member cities as follows:
i) Regional design and construction costs are allocated based upon the Design and
Construction Miles percentage method as stated in the bylaws of the corporation.
The components of the LRT that are currently classified as “regional” are light rail
vehicles, the maintenance and storage facility, operations control center, bridge
structures, and regional park and ride lots.
ii) Local design and construction costs are allocated to the member cities within whose
boundaries the LRT Component designed or constructed will be located. Design and
construction costs that are not classified as regional are deemed to be local.
iii) Under the Design and Construction project agreements, the Member Cities provide
project funding to METRO as expenditures are incurred. As federal and regional
funding for the capital project is received by METRO, the members receive cash
distributions to reimburse the prior expenditures.
14
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
If a member city’s share of the LRT costs for a fiscal year is determined to be less than
$50,000, such member city’s share of the LRT costs shall be $50,000. The purpose of
the Minimum Cost is so that all member cities will contribute to payment of the overhead
expense of the Corporation for matters such as the cost of meetings of the Board of
Directors, administrative support to the Board of Directors, and support to member cities
by the Rail Program Staff.
j. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenditures during the reporting financial period.
Actual results could differ from these estimates.
k. Net Assets
METRO’s net assets consist of unrestricted net assets and net assets invested in capital
assets, net of related debt.
2. Budgetary Basis of Accounting
An annual budget of revenues and expenses is prepared and adopted by the Board of
Directors each fiscal year. The legal level of budgetary control is the total annual
appropriated budget. The annual budget is adopted on the modified accrual basis.
Encumbrance accounting is not used and all appropriations lapse at year end. Depreciation
expense is not included in the annual budget. Prior to final adoption, a proposed budget is
presented to the Board of Directors for review and public comment is received. Final
adoption of the budget must be on or before June 30 of each year.
During the fiscal year, the Board of Directors modified the original budget. A schedule of
actual operating revenues and expenses versus original budget and final budget is
presented as supplementary information. See Page 24.
15
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
3. Cash and Investments
Cash deposits and investments at June 30, 2010, consisted of the following:
Cash on hand $ 8,729,648
Self-Insurance Trust Fund 250,016
Total cash and investments $ 8,979,664
METRO has deployed Ticket Vending Machines (TVM’s) which contain coin and bill vaults
to accommodate the purchase of fares. At June 30, 2010, the total cash contained in the
coin and bill vaults totaled $153,232.
METRO's bank deposits at June 30, 2010, had a carrying value of $8,576,416 and the bank
ledger balance was $8,780,166. The difference of $203,750 represents deposits in transit
and outstanding checks. Of the bank balance, $250,000 is covered by federal depository
insurance and $8,530,166 was covered by securities held by the pledging financial
institution in METRO’s name.
The Self Insurance Reserve Trust Account totaling $250,016 was covered by collateral held
by the pledging financial institution in METRO’s name.
Interest Rate Risk. METRO’s formal investment policy limits type of investment as a means
of managing its exposure to fair value losses arising from increasing interest rates. During
FY 2010 all investment durations were shorter than 90 days.
Credit Risk. State Statutes and METRO’s Investment Policy authorize METRO to invest in
bank demand deposit accounts and obligations of the U.S. Treasury.
Concentration of Credit Risk. METRO’s Investment Policy limits the total investments by
type of account including, General Operating, Imprest Fund, Self-Insurance Reserve and
TVM Credit Card. At June 30, 2010, METRO maintains all available cash in these accounts.
16
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
4. Accounts Receivable and Due From Other Governments
All receivable balances at June 30, 2010 are displayed on the financial statements and are
expected to be collected in full; therefore, an allowance for uncollectibles has not been
recorded.
Due from other governments consists of Federal receivables ($61.2 million) due from the
City of Phoenix as Grantee of Federal Funds, PTF receivable ($1.8 million) due from
Regional Public Transportation Authority (RPTA), unbilled member cities’ contributions
($16.6 million), and miscellaneous receivables ($ .24 million).
City of Phoenix (Grantee of Federal Funds) $ 61,249,903
Public Transportation Funding 1,830,830
City of Mesa 583,095
City of Phoenix 14,681,517
City of Tempe 1,326,333
City of Glendale 3,779
Maricopa Association of Governments 141,147
Regional Public Transportation Authority 96,921
$ 79,913,525
Public Transportation Funding is discussed more fully in Note 16.
The amount due from Regional Public Transportation Authority is composed of a project
expenditure receivable of $55,392 and a receivable related to the Local Government
Investment Pool as discussed more fully in Note 13.
5. Restricted Assets
Certain assets of Valley Metro Rail, Inc. are set aside for repayment due to outside
restrictions imposed on those funds. Unspent capital lease proceeds in the amount of
$900,470 are set-aside for use in the upcoming fiscal year for the acquisition of spare part
accessories for fourteen light rail vehicles which are financed under the lease. The Capital
Lease Obligation is discussed in Note 9.
17
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
6. Capital Assets
Capital asset and construction in progress activity for the year ended June 30, 2010 were as
follows:
Balances, Balances,
July 1, 2009 Increases Decreases June 30, 2010
Nondepreciable assets:
Construction in progress $ 27,776,412 $ 32,393,435 $ (32,422,487) $ 27,747,360
Depreciable assets:
Buildings 102,532,106 - - 102,532,106
Guideway 551,504,848 13,668,738 - 565,173,586
Bridges 61,516,388 - - 61,516,388
Operation Control Center 11,731,770 - - 11,731,770
Passenger Stations & Facilities 97,903,958 3,460,882 - 101,364,840
Park & Ride Facilities 35,968,277 147,662 - 36,115,939
Electric Power Substations 88,476,648 261,271 - 88,737,919
Signal & Communication System 46,361,434 2,205,244 - 48,566,678
Computers & software 1,262,341 34,682 - 1,297,023
Furniture & fixtures 1,126,927 - - 1,126,927
Revenue Vehicles 210,678,174 9,125,031 - 219,803,205
Support/Service Vehicles 719,709 - - 719,709
Non-Revenue Vehicles 1,151,194 76,803 - 1,227,997
Equipment 9,032,211 3,205,912 - 12,238,123
Total depreciable assets at
historical cost 1,219,965,985 32,186,225 - 1,252,152,210
Less accumulated depreciation for:
Buildings (4,920,958) (2,563,303) - (7,484,261)
Guideway (5,515,048) (11,440,159) - (16,955,207)
Bridges (1,025,273) (2,050,546) - (3,075,819)
Operation Control Center (195,530) (391,059) - (586,589)
Passenger Stations & Facilities (1,631,733) (3,436,505) - (5,068,238)
Park & Ride Facilities (1,198,943) (2,412,651) - (3,611,594)
Electric Power Substations (1,769,533) (3,554,742) - (5,324,275)
Signal & Communication System (1,159,036) (2,483,465) - (3,642,501)
Computers & software (687,550) (429,614) - (1,117,164)
Furniture & fixtures (595,827) (160,990) - (756,817)
Revenue Vehicles (6,551,073) (8,974,629) - (15,525,702)
Support/Service Vehicles (131,813) (58,575) - (190,388)
Non-Revenue Vehicles (193,141) (301,629) - (494,770)
Equipment (817,316) (1,427,285) - (2,244,601)
Total accumulated depreciation (26,392,774) (39,685,152) - (66,077,926)
Total capital assets being deptreciated 1,193,573,211 (7,498,927) - 1,186,074,284
Business-type activities capital
assets, net $ 1,221,349,623 $ 24,894,508 $ (32,422,487) $ 1,213,821,644
7. Member Cities’ Deposits
The member cities advance monies to cover the federal share and local share of project
costs. In addition, unpaid project expenses fundable by member cash deposit contributions
are accrued for each city. A summary of member cities’ deposits at June 30, 2010 follows:
City of Chandler $ 74,195
City of Mesa 3,321,025
City of Peoria 64,005
City of Phoenix 45,317,420
City of Tempe 17,991,515
$ 66,768,160
18
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
8. Operating Leases
METRO leases office space under various operating lease agreements. Total rent
expenditures for these leases were $1,198,321 for the fiscal year ended June 30, 2010.
Future minimum lease payments under non-cancelable operating leases are:
Operating Leases as of 6-30-10
Year Ending June 30
2011 $ 1,213,297
2012 1,184,841
2013 1,205,548
2014 1,229,845
2015 1,255,552
2016 1,282,657
$ 7,371,740
9. Capital Lease Obligation:
During fiscal year 2009, METRO (as Lessee) completed the process of formally accepting
14 Light Rail Vehicles (LRVs) under the terms of a Master Lease/Purchase Financing
Agreement dated March 3, 2006, with the City of Phoenix (as Lessor). The assets acquired
through the capital lease are as follows:
Asset:
Unspent Lease Proceeds $ 900,470
Revenue Vehicles 40,095,208
Less Accumulated Depreciation (2,405,712)
Total $ 38,589,966
Amortization expense on the capital lease is included in depreciation expense.
The following table presents the changes in the capital lease obligation for fiscal year 2010:
Amount Due in
June 30, 2009 Increases Decreases June 30, 2010 One Year
Capital Lease
Obligation $ 42,186,000 $ - $ - $ 42,186,000 $ 10,000,000
Acceptance of the LRVs commenced the term of this agreement and obligated rent
payments totaling approximately $56,300,000, beginning with the first $10,000,000 payment
due on June 1, 2011.
19
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
Schedule of Capital Lease Payable as of 6-30-10
Year ending June 30 Principal Interest
2011 $10,000,000 $ 2,083,503
2012 10,000,000 2,827,876
2013 10,000,000 1,954,759
2015 12,186,000 1,013,886
$42,186,000 $ 7,880,024
For Fiscal Year 2010, Capital Lease Interest expense totaling $4,167,007 was accrued
under the Master Lease Agreement. The Capital Lease obligation at June 30, 2010
includes $42,186,000 principal and $6,250,510 accrued interest totaling $48,436,510.
10. Compensated Absences
The following presents the changes in compensated absences for the fiscal year ended
June 30, 2010:
July 1, 2009 Increases Decreases June 30, 2010
Compensated absences $ 733,240 $ 178,090 $ (155,555) $ 755,775
The portion of compensated absences payable within one year is $356,822.
11. Contractual and Other Commitments
METRO has entered into various contractual agreements for engineering services, project
management, construction administration, light rail vehicles, construction, operations
services, legal services and artists. At June 30, 2010, METRO had outstanding contractual
commitments for these services aggregating approximately $58.0 million. These
commitments have not been recorded in the accompanying financial statements. Only the
currently payable portions of these contracts have been included in accounts payable in the
accompanying financial statements. Subsequent to June 30, 2010, METRO entered into
approximately $14.0 million additional contractual commitments.
Contractor Commitment Spent-to-date Remaining
Parson Brinckerhoffer - Prelim Engineering $ 25,169,700 $ 25,169,700 $ -
PB Americas, Inc. - Final Design / DSDC 112,660,009 112,396,440 263,569
HDR/S.R. Beard - Program Management 54,933,430 54,578,670 354,760
PBS&J/PGH Wong - Construction Mgmt 62,923,298 62,862,007 61,291
Various - Facilities Construction 357,692,068 353,861,890 3,830,178
Various - System Elements 235,605,747 231,432,070 4,173,677
Various - Public Art Program 6,238,207 5,995,000 243,207
Various - Owner Furnished Materials 34,032,595 34,032,595 -
Various - Operations & Maintenance 61,177,507 35,929,121 25,248,386
Various - Misc. Construction & Services 22,500,062 15,377,748 7,122,314
Various - Future Extensions 30,710,715 18,118,671 12,592,044
Sundt - NW Ext 3,762,854 3,752,068 10,786
AE Com - NW Ext 15,881,499 14,283,036 1,598,463
Hunter - ARRA 3,499,000 1,030,106 2,468,894
$ 1,026,786,691 $ 968,819,122 $ 57,967,569
20
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
12. Risk Management
METRO is exposed to various risks of loss related to torts; theft of, damage to, and
destruction of assets; errors and omissions; injuries to contracted labor; and natural
disasters. These risks are covered by commercial insurance purchased from independent
third parties. METRO purchases insurance coverage for property, general liability, excess
liability, automobile liability, umbrella liability, public entity employment practices liability,
public entity management liability, boiler and machinery, crime, inland marine, owner’s
protective professional indemnity, environmental site protection, contractor’s environmental
protection and excess liability. In addition, the RPTA purchases workers’ compensation,
employee life insurance, health and dental insurance coverage for all LRT full-time
employees. Settled claims for these risks have never exceeded commercial insurance
limits. See schedule of insurance on page 38.
METRO has received notice of general liability claims related to its operations. METRO’s
commercial insurance policies provide coverage against losses rising from the claims
subject to policy deductible amounts. Such claims are evaluated and specific reserves are
established to cover METRO’s contingent risk of loss pending settlement with the parties
involved. At June 30, 2010 the Reserve for General Liability Claims totaled $501,000.
13. Contingencies
o In December 2008, METRO received a claim from one of its Line Section contractors
(Herzog Contracting Corporation “HCC”.) in the amount of $18,682,126 for delays
and disruptions to the project allegedly caused by METRO in the period between
July 1, 2006 and April 30, 2008. On August 24, 2010 METRO and HCC reached a
settlement agreement to resolve the claim. Under the agreement, METRO will pay
$9,700,000 to settle the claim. METRO has accrued the settlement liability in the
June 30, 2010 financial statements.
o As a subrecipient of federal grant monies, amounts passed through or receivable
from other agencies are subject to audit and adjustment by grantor agencies. Any
disallowed claims, including amounts already collected, may constitute a liability.
The amount, if any, of expenditures which may be disallowed by the grantor cannot
be determined at this time although METRO expects such amounts, if any, to be
immaterial.
o Prior to the incorporation of METRO in October 2002, the RPTA made investment
decisions on behalf of METRO. On November 22, 2002, the Arizona State
Treasurer’s Office informed participants in the Local Government Investment Pool
(LGIP) that it currently holds asset-backed securities administered by National
Century Financial Enterprises (NCFE). These securities, which total approximately
$131 million of the total $4 billion in the LGIP, are backed by payments from
Medicare/Medicaid and other creditworthy issuers. RPTA’s proportional share of the
$131 million was $223,150, of which $88,791 is invested on behalf of METRO.
NCFE has filed bankruptcy and is under investigation by the Federal Bureau of
Investigation and the Securities and Exchange Commission. RPTA has joined in a
lawsuit with 93 other Arizona governmental entities and 90 other plaintiffs against
several parties in an effort to recover the investment.
No collections were received from the NCFE receivable during fiscal year ended
June 30, 2010. The $41,529 receivable is recorded as due from other governments
with an offsetting reserve of ($41,529) recorded to due to other governments.
21
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
14. Related Party Transactions
The six members of METRO’s Board of Directors are also members of the fourteen-member
RPTA Board of Directors. METRO has entered into contracts with the RPTA for certain
administrative functions, including personnel, administration, financial and accounting
services, purchasing, and computer support services. All METRO staff is hired and
employed by RPTA but works solely under the direction of the METRO and it’s Board of
Directors, through a contractual arrangement with RPTA. For the period July 1, 2009
through June 30, 2010, METRO incurred costs of $8,432,862 for services provided by
RPTA.
In September 2010, the METRO Board authorized the Chief Executive Officer (CEO) to
enter into a sublease with the Regional Public Transportation Authority (RPTA) for a portion
of the office space currently leased and occupied by METRO. Commencing in December
2010 and ending in June 2016, office space lease costs that METRO pays monthly to the
landlord will be prorated and charged to RPTA based on square footage used by RPTA.
The total sublease over the 66-month period is estimated to equal $3,167,304.
15. Arizona State Retirement System
Plan Description – METRO contributes to a cost-sharing multiple-employer defined benefit
pension plan administered by the Arizona State Retirement System. Benefits are
established by state statute and generally provide retirement, death, long-term disability,
survivor, and health insurance premium benefits. The system is governed by the Arizona
State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5,
Article 2.
The System issues a comprehensive annual financial report that includes financial
statements and required supplementary information. The most recent report may be
obtained by writing the System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ
85067-3910 or by calling (602) 240-2000 or (800) 621-3778.
Funding Policy - The Arizona State Legislature establishes and may amend active plan
members' and the METRO’s contribution rate. For the year ended June 30, 2010, active
plan members and METRO were each required by statute to contribute at the actuarially
determined rate of 9.40 percent (8.34 percent retirement, .66 percent health plan, and 0.40
percent long-term disability) of the members' annual covered payroll. METRO’s contribution
to the System for the year ended June 30, 2010 and 2009 was $541,110 and $542,466
respectively, which was equal to the required contributions for the year.
Schedule of Retirement and Long Term Disability Benefits Accrued
Health Benefit Long-Term
Retirement Supplement Disability Total
Years ended June 30, Fund Fund Fund Benefits
2010 $ 480,091 $ 37,993 $ 23,026 $ 541,110
2009 454,638 59,126 28,702 542,466
2008 346,320 45,172 21,511 413,003
22
Valley Metro Rail, Inc.
Notes to the Financial Statements (Continued)
Fiscal Year Ended June 30, 2010
16. Public Transportation Funding
In November 2004, the voters of Maricopa County approved Proposition 400, the
continuation of the transportation tax, for a twenty year period beginning in calendar year
2006. On August 14, 2006, METRO and RPTA executed an intergovernmental agreement
(IGA) that formally designated METRO as Lead Agency to plan, design, and construct the
light rail transit (LRT) program. Among other things, the IGA specifies that RPTA will
reimburse METRO, from the Public Transportation Fund, for eligible incurred expenses.
Valley Metro Rail began receiving Public Transportation Funding (PTF) in March 2006.
These monies are used to reimburse private utility companies for costs incurred in the
relocation of non-prior rights utilities, to reimburse Member Cities for their share of local
costs incurred in connection with the acquisition of certain regional transportation assets,
and to fund the local share of future light rail extensions as designated in the Regional
Transportation Plan.
The components of the LRT system that are currently classified as “regional transportation
assets” are light rail vehicles, the maintenance and storage facility, the operations and
control center, bridge structures, and regional park and rides.
Public Transportation Fund Cash Expenditures (LRT Portion)
Fiscal Year ended June 30, 2010
LRT PTF Expenditures: $ In Millions
Non Prior Rights Utility
Relocations:
20 Mile Initial Segment 2.75
Northwest Extension Phase I 0.75
Regional Asset Reimbursements:
CPEV - 20 Mile Initial Segment
Phoenix 38.83
Tempe 16.23
Mesa 2.83
Project Development and Planning 4.84
Debt Service (Interest) 2.70
Total LRT PTF Cash Expenditures 68.93
In June 2009, the Regional Public Transportation Authority (RPTA) issued Transportation
Excise Tax Revenue Bonds in the amount of $100,075,000. A portion of the bonds will pay
or reimburse LRT capital expenditures as designated in the Regional Transportation Plan.
23
OTHER SUPPLEMENTARY INFORMATION
This Section includes the Schedule of Operations – Budget and Actual.
Price and 101 Riders Purchasing Tickets
Valley Metro Rail, Inc.
Schedule of Operations - Budget and Actual
Fiscal Year Ended June 30, 2010
Variance with
Budgeted Amounts Actual Amounts Final Budget
Original Final (Budgetary Basis) Over (Under)
Operating Revenues:
Net Distributions to member cities $ (31,773,539) $ (90,290,476) $ (82,220,687) $ 8,069,789
Passenger fares 8,985,159 8,985,159 9,256,913 271,754
Federal Transit Administration grants 134,368,000 138,959,999 130,998,398 (7,961,601)
Public Transportation Funds 79,631,294 78,245,288 66,038,243 (12,207,045)
MAG/RPTA Grants 1,000,000 1,000,000 827,049 (172,951)
Contributions from Others 350,000 350,000 103,526 (246,474)
Total operating revenues 192,560,914 137,249,970 125,003,442 (12,246,528)
Operating Expenses:
Engineering and design consultants 2,973,350 1,879,084 2,533,188 654,104
Project management consultants - - 60,236 60,236
Construction administration consultants 1,705,000 1,705,000 1,357,524 (347,476)
Art design consultants 826,051 15,000 63,860 48,860
Planning and environmental consultants 12,072,000 9,211,000 4,099,909 (5,111,091)
Facilities Construction 65,895,000 12,704,000 22,244,871 9,540,871
Administrative 8,786,454 9,276,523 9,024,964 (251,559)
Capital Outlay 1,130,628 618,028 64,539 (553,489)
Real estate/ROW Acquisition 17,500,000 31,100,000 21,881,919 (9,218,081)
Light Rail Vehicles 7,385,840 5,135,840 8,278,585 3,142,745
LRT Startup - 1,000,000 (10,797) (1,010,797)
Private Utilities Relocation 10,615,750 2,512,000 (965,013) (3,477,013)
Finance Costs 29,937,672 28,360,326 23,404,956 (4,955,370)
Rail Operations Expense 33,733,169 33,733,169 32,964,701 (768,468)
Total operating expenses 192,560,914 137,249,970 125,003,442 (12,246,528)
Explanation of Differences between Budgetary Basis and GAAP Basis
Total Operating Expenses - Budgetary Basis $ 125,003,442
Total Operating Expenses - GAAP Basis $ 82,190,208
Budgetary Operating Expenses in Excess of GAAP Operating Expenses $ 42,813,234
Change in Net Assets (capitalized on a GAAP basis and expensed on a budgetary basis) $ 32,428,886
Member funded finance costs (budgeted expenses not included in GAAP basis) 23,404,956
Member-owned real estate/ROW acquisitions (budgeted expenses not included in GAAP basis) 21,881,919
Concurrent Non-Project Activities (budgeted expenses not included in GAAP basis) 4,256,245
City of Phoenix - Expenditures for 14 Light Rail Vehicles (budgeted expenses not included in GAAP basis) 1,429,576
Private Utilities Relocations (budgeted expenses recorded as non-operating expenses for GAAP basis) (965,013)
All Other Adjustments 61,817
Depreciation (GAAP expenses not included in budgetary basis) (39,685,152)
Total Reconciling Items $ 42,813,234
This schedule is prepared on a budgetary basis for the operating accounts of the proprietary fund and as such does not present the
results of operations on the basis of generally accepted accounting principles, but is presented for supplemental information. In the
current year, GAAP basis operating costs are $82.2 million, or $42.8 million less than the budgetary basis costs of $125.0 million. The
primary differences between these two bases of reporting are: 1.) Capital project costs that are included in budgeted costs but added to
construction-in-progress for GAAP purposes ($32.4 million); 2.) Finance and real estate/ROW acquisition costs that are budgeted but
not booked for GAAP purposes ($23.4 and $21.9 million); 3.) Concurrent non-project activities and Expenditures by Phoenix for 14 Light
Rail Vehicles that are included in the budget but not on a GAAP basis ($4.3 and $1.4 million); 4.) Private Utility Relocations that are
recorded as non operating expenses and 5.) Depreciation included for GAAP but not budget ($-39.7 million).
24
Interior of Vehicle with Riders
STATISTICAL SECTION
The Statistical Section includes selected financial and demographic information regarding METRO,
including financial trends, revenue capacity, demographic and economic information, and operating
information.
Train at Sycamore and Main Station in Mesa, AZ
Statistical Section
Comprehensive Annual Financial Report
Fiscal Year Ended June 30, 2010
This part of METRO's comprehensive financial report presents information as a context for
understanding what the information in the financial statements, footnotes, and
supplementary information says about METRO's overall financial condition. METRO's
prinicipal activities consist of planning, designing, constructing and operating the light rail
transit system in Maricopa County, Arizona.
Contents Page
Financial Trends 26
These schedules contain trend information to help the reader understand how METRO's
financial performance and well-being have changed over time.
Revenue Capacity N/A
METRO's principal revenue source is contributions from Member Cities.
Debt Capacity N/A
METRO has no current bond indebtedness.
Demographic and Economic Information 28
These schedules offer demographic and economic indicators to help the reader understand
the environment within which METRO's financial activities take place.
Operating Information 34
These schedules contain service and infrastructure data to help the reader understand how
the information in METRO's financial report relates to the services METRO provides and
the activities it performs.
Sources: Unless otherwise noted, the information in these schedules is derived from the
comprehensive annual financial reports for the relevant year. METRO's first financial
reporting as a separate entity was for the intial period ended June 30, 2003.
25
Valley Metro Rail, Inc.
Net Assets by Component
FY 00/01 through FY 09/10 (1)
FY 00/01 FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10
Business-type activities
Invested in capital assets, net of related debt (2) $ 55,850 $ 97,143 $ 255,143 $ 57,341,840 $ 235,905,852 $ 460,380,300 $ 773,807,490 $ 1,083,561,843 $ 1,181,254,415 $ 1,172,536,114
Restricted - - - - - - - - - -
Unrestricted - - - - - - - - 6,602,251 6,196,414
Total business-type activities net assets $ 55,850 $ 97,143 $ 255,143 $ 57,341,840 $ 235,905,852 $ 460,380,300 $ 773,807,490 $ 1,083,561,843 $ 1,187,856,666 $ 1,178,732,528
Source: Valley Metro Rail, Inc. Finance Division
(1) Valley Metro Rail, Inc. was established in October 2002. All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transporation Authority (RPTA). The amounts shown here
for FY 02/03 were reported in both the RPTA and METRO financial records and were combined to show the complete rail transit amount.
(2) CP/EV LRT project costs incurred prior to July 1, 2004, for project preliminary engineering and project management totaling $77.1 million paid for by member cities or federal grants were contributed to METRO during the
fiscal year ended June 30, 2005. Pripr to FY 04/05, these amounts were included in Administration and Planning Services.
26
Valley Metro Rail, Inc.
Changes in Net Assets
FY 00/01through FY 09/10 (1)
FY 00/01 FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10
Operating Revenues
Contributions from Member Cities $ 3,739,531 $ 5,323,908 $ 28,353,274 $ 14,141,126 $ 27,692,841 $ 75,672,696 $ 156,033,959 $ 143,276,140 $ 13,490,504 $ 25,964,781
Passenger Fares - - - - - - - - 3,371,104 9,256,913
Federal Transit Administration Operating Grants 8,177,395 11,437,481 6,237,102 48,497,109 74,819,942 150,717,452 146,442,055 953,877 - 222,519
Public Transportation Funds - - - - - 11,700,029 57,160,186 58,315,376 - -
Other Revenues - - - - - - - - 40,000 103,410
Total operating revenues 11,916,926 16,761,389 34,590,376 62,638,235 102,512,783 238,090,177 359,636,200 202,545,393 16,901,608 35,547,623
Operating Expenses
Administration and Planning Services (2) 11,916,926 16,725,821 34,398,920 5,434,775 1,001,016 1,829,944 5,709,157 5,396,474 5,278,901 9,540,355
Passenger Operations Service - - - - - - - - 15,678,389 32,964,701
Private Utilities Relocations - - - - - 11,700,029 39,212,754 15,750,886 - -
Depreciation - 39,765 63,436 117,706 136,944 186,644 1,389,987 2,231,538 22,437,891 39,685,152
Total operating expenses 11,916,926 16,765,586 34,462,356 5,552,481 1,137,960 13,716,617 46,311,898 23,378,898 43,395,181 82,190,208
Operating income (loss) - (4,197) 128,020 57,085,754 101,374,823 224,373,560 313,324,302 179,166,495 (26,493,573) (46,642,585)
Non-Operating Revenues (Expense)
Federal Transit Administration Operating Grants - - - - - - - - 650,492 2,557,861
Public Transportation Funds - - - - - - - - 10,945,204 5,484,246
Other Non-Operating Income - - - - - - - - - 142,025
Interest on Investments - 45,490 29,980 943 80,162 100,888 102,888 91,519 - 15
Distributions to Member Cities - - - - - - - - (20,078,532) (106,249,903)
Private Utilities Relocations - - - - - - - - (9,518,863) 965,013
Interest on Capital Lease obligation - - - - - - - - (2,083,503) (4,167,007)
Total non-operating revenues (expense) - 45,490 29,980 943 80,162 100,888 102,888 91,519 (20,085,202) (101,267,750)
Capital Contributions
Federal Transit Administration Capital Grants - - - - - - - 130,496,339 72,863,699 62,585,921
Contributions from Member Cities 55,850 - - - - - - - 25,381,955 31,156,572
Public Transportation Funds Capital - - - - - - - - 52,627,944 45,043,704
Donated Engineering (3) - - - - 77,109,027 - - - - -
Increase (Decrease) in net assets $ 55,850 $ 41,293 $ 158,000 $ 57,086,697 $ 178,564,012 $ 224,474,448 $ 313,427,190 $ 309,754,353 $ 104,294,823 $ (9,124,138)
Source: Valley Metro Rail, Inc Finance Division
(1) Valley Metro Rail, Inc. was established in October 2002. All light rail activities prior to October 2002 were recorded in the financial records of the Regional Public Transportation Authority (RPTA). The amounts shown here
for FY 02/03 were reported in both RPTA and METRO financial records and were combined to show the complete transit amount.
(2) Prior to FY 04/05, all CP/EV project costs, except for the cost of computers, equipment, and certain other capital assets, were recorded as operating expenses.
(3) CP/EV LRT project costs incurred prior to FY 04/05 for project preliminary engineering and project management were contributed to METRO during FY 04/05. These costs, totaling $77.1 million, were originally paid for by
member cities or federal grants and were included in Administration and Planning Services expenses for the year incurred.
27
Valley Metro Rail, Inc.
Growth in Regional Transit Usage
Last Ten Fiscal Years
Fiscal Year Boardings Change
2001 40,011,099 6.71%
2002 45,103,085 12.73%
2003 50,319,003 11.56%
2004 54,013,410 7.34%
2005 56,358,335 4.34%
2006 59,253,904 5.14%
2007 58,020,189 -2.08%
2008 61,866,819 6.63%
2009 71,251,664 15.17%
2010 67,693,003 -4.99%
Source: Regional Public Transportation Authority
28
Valley Metro Rail, Inc.
Member Cities’ Area Growth (Square Miles)
Last Ten Fiscal Years
Year Chandler Glendale Mesa Peoria Phoenix Scottsdale Tempe
2000 176,581 213,235 410,797 108,364 1,289,125 202,495 161,995
2001 189,498 218,812 420,525 115,432 1,352,394 211,280 158,625
2002 201,263 227,614 431,874 122,655 1,375,906 215,320 159,425
2003 211,984 231,288 434,585 126,815 1,455,440 218,940 159,426
2004 224,644 233,000 445,354 132,805 1,492,420 222,880 159,615
2005 238,930 235,987 451,223 137,045 1,525,400 225,680 160,820
2006 241,910 235,987 455,151 145,125 1,560,380 237,510 165,796
2007 247,100 246,382 460,155 158,227 1,595,260 240,410 166,625
2008 247,100 248,731 463,397 158,227 1,630,340 242,790 167,458
2009 244,376 248,435 459,682 155,560 1,561,485 242,337 172,641
Valley Metro Rail, Inc.
Member Cities' Population Growth
1,800,000
1,600,000
1,400,000
1,200,000
Population
1,000,000
800,000
600,000
400,000
200,000
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
For the Years 2000 through 2009
Chandler Glendale Mesa Peoria Phoenix Scottsdale Tempe
Source: Maricopa Association of Governments
Note: Information for 2010 was not available.
29
Valley Metro Rail, Inc.
Top Employers in Maricopa County
For the Fiscal Year Ended June 30, 2010
2009 2000
Employer Employees Rank % of Total Employees Rank % of Total
State of Arizona 50,936 1 2.44% 63,961 1 4.19%
Wal-Mart 32,814 2 1.47% 11,900 5 0.78%
Banner Health Systems 23,100 3 0.83% 9,000 7 0.59%
City of Phoenix 17,068 4 0.70% 13,300 3 0.87%
Maricopa County 14,014 5 0.69% 12,963 4 0.85%
Wells Fargo 14,000 6 0.68%
Arizona State University 13,005 7 0.62%
Honeywell Aerospace 12,600 8 0.52%
US Postal Service 10,545 9 0.54% 10,772 6 0.71%
Bashas' Inc. 10,460 8 0.57%
Motorola, Inc. 18,500 2 1.21%
Banc One Corp 9,000 7 0.59%
American Express 9,000 7 0.59%
Allied Signal 9,000 7 0.62%
2009 - Employees (000s)
10.5 10.5
12.6
13.0 50.9
14.0 32.8
14.0
14.4 23.1
State of Arizona Wal-Mart Banner Health Systems City of Phoenix
Maricopa County Wells Fargo Arizona State University Honeywell Aerospace
US Postal Service Fry's Food & Drug
Source: Phoenix Business Journal Book of Lists; Greater Phoenix Economic Council;
Arizona Department of Economic Security.
Note: Information for 2010 was not available.
30
Valley Metro Rail, Inc.
Initial 20-Mile Segment
Initial 20-Mile Segment
Source: Valley Metro Rail, Inc Project Development Division
31
Valley Metro Rail, Inc.
Northwest Extension
Northwest Extension
Source: Valley Metro Rail, Inc Project Development Division
32
M nc.
Valley Metro Rail, In
Central Mesa LRT Extension
M
ral L il ion
Centr Mesa Light Rai Extensi
ource: Valley Metro Rail, Inc Project Developmen Division
So , nt
3
33
Valley Metro Rail, Inc
Full-Time Equivalent Positions
Source: Valley Metro Rail, Inc Finance and Administration Division
Authorized FTEs
Grade RPTA Position Titles FY 2007 FY 2008 FY 2009 FY 2010
III Administrative Support Assistant 1 1 1 1
IV Accounting Technician 1 1 1 1
Administrative Assistant 6 6 6 6
Materials Handler 0 0 1 1
VI Paralegal 1 1 1 1
Track Maintainer 0 0 6 6
VII Accountant I 1 1 1 2
Executive Assistant 3 3 2 2
Network Support Analyst 0 0 1 0
Planner I 1 1 0 0
Procurement Specialist 1 1 0 0
Systems Electronic/Communications Maintainer 0 0 6 6
Utility Relocation Specialist 0 1 1 1
VIII Document Control Supervisor 1 1 1 1
Engineering Technician 0 0 0 1
Executive Administrative Coordinator 0 0 1 1
Information Technology Systems Specialist 0 1 1 1
Maintenance Scheduling 0 0 1 1
Materials/Warranty Coordinator 1 1 2 2
Sr Communications Specialist 1 1 1 0
Systems Electronic/Communications Technician 0 0 4 4
Traction Power Systems Technician 0 0 9 10
IX Accountant II 1 1 1 1
Area Coordinator 1 2 2 2
Contract Administrator 1 1 1 1
Network Systems Engineer 0 0 1 1
Planner II 1 1 2 1
Supervisor, Facility Maintenance 0 0 1 1
Supervisor, Track Maintenance 0 0 1 1
X Engineer (Civil) 0 0 0 1
Lead Technician 0 1 1 0
Planner III 0 0 0 2
Program Control Specialist 1 1 1 1
Senior Contract Administrator 2 2 2 2
Signals/Communications Maintenance Supervisor 0 0 1 1
TES Supervisor 0 0 1 2
34
Valley Metro Rail, Inc
Full-Time Equivalent Positions
Source: Valley Metro Rail, Inc Finance and Administration Division
Authorized FTEs
Grade RPTA Position Titles FY 2007 FY 2008 FY 2009 FY 2010
XI Public Arts Administrator 1 1 1 1
Public Information Officer 0 0 1 1
Rail DBE Program Manager 1 1 1 0
XII Communications Manager 1 1 0 0
Rail Marketing Manager 0 1 1 0
Rail Public Involvement Manager 1 1 1 1
Rail Real Estate Manager 1 1 1 0
Rail Senior Engineer (PE) 1 1 1 0
Rail Senior LRV Engineer (PE) 1 0 0 0
Rail Senior Program Control Specialist 1 0 0 0
Rail Utility Manager 1 1 1 1
XIII Contracts and Procurement Manager 1 1 1 1
Finance and Budget Manager 1 1 1 0
Rail Design & Construction Manager 0 1 1 1
Manager, Systems and Facility Maintenance 0 1 1 0
Rail Capital Project Schedule Manager 0 1 1 1
Rail Maintenance Manager 1 1 1 0
Rail Operations Manager 1 1 1 0
Rail Project Manager, Facilities Engineer 2 2 2 1
Rail Project Manager, Planning 1 2 2 1
Rail Quality Assurance Manager 1 0 0 1
XIV Rail O & M Startup/Activation Manager 1 1 1 0
Rail Safety and Security Chief 1 0 0 0
Chief System Engineering Officer 1 1 1 1
Chief Transportation Officer 1
XV Rail Community Relations Director 1 1 1 1
Rail Finance & Administration Director 1 1 1 1
Rail Safety, Security, and Quality Director 0 1 1 1
XVI Rail Design & Construction Director 1 1 1 1
Rail General Counsel 1 1 1 1
Rail Operations & Maintenance Director 1 1 1 1
Rail Project Development Director 0 0 1 1
ED Rail Chief Executive Officer 1 1 1 1
51 57 91 85
35
Valley Metro Rail, Inc.
Schedule of FY 2010 Adopted Pay Grades and Ranges
For the Fiscal Year Ended June 30, 2010
Grade RPTA Position Titles Pay Range
III Administrative Support Assistant $27,626 - $41,439
IV Accounting Technician $30,696 - $46,043
Administrative Assistant $30,696 - $46,043
Materials Handler $30,696 - $46,043
VI Paralegal $37,142 - $55,712
Track Maintainer $37,142 - $55,712
VII Accountant I $40,856 - $61,284
Executive Assistant $40,856 - $61,284
Network Support Anaylst $40,856 - $61,284
Planner I $40,856 - $61,284
Procurement Specialist $40,856 - $61,284
Systems Electronic/Communications Maintainer $40,856 - $61,284
Utility Relocation Specialist $40,856 - $61,284
VIII Document Control Supervisor $44,942 - $67,413
Engineering Technician $44,942 - $67,413
Executive Administrative Coordinator $44,942 - $67,413
Information Technology Systems Specialist $44,942 - $67,413
Maintenance Scheduling $44,942 - $67,413
Materials/Warranty Coordinator $44,942 - $67,413
Systems Electronic/Communications Technician $44,942 - $67,413
Traction Power Systems Technician $44,942 - $67,413
IX Accountant II $49,435 - $74,154
Area Coordinator $49,435 - $74,154
Contract Administrator $49,435 - $74,154
Network Systems Engineer $49,435 - $74,154
Planner II $49,435 - $74,154
Supervisor, Facility Maintenance $49,435 - $74,154
Supervisor, Track Maintenance $49,435 - $74,154
X Engineer (Civil) $54,380 - $81,569
Lead Technician $54,380 - $81,569
Planner III $54,380 - $81,569
Program Control Specialist $54,380 - $81,569
Senior Contract Administrator $54,380 - $81,569
Signals/Communications Maintenance Supervisor $54,380 - $81,569
TES Supervisor $54,380 - $81,569
XI Public Arts Administrator $59,818 - $89,726
Public Information Officer $59,818 - $89,726
Rail DBE Program Manager $59,818 - $89,726
Source: Valley Metro Rail, Inc Finance and Administration Division
36
Valley Metro Rail, Inc.
Schedule of FY 2010 Adopted Pay Grades and Ranges
For the Fiscal Year Ended June 30, 2010
Grade RPTA Position Titles Pay Range
XII Rail Marketing Manager $65,799 - $98,698
Rail Public Involvement Manager $65,799 - $98,698
Rail Real Estate Manager $65,799 - $98,698
Rail Senior Engineer (PE) $65,799 - $98,698
Rail Senior Program Control Specialist $65,799 - $98,698
Rail Utility Manager $65,799 - $98,698
XIII Contracts and Procurement Manager $72,379 - $108,568
Finance and Budget Manager $72,379 - $108,568
Rail Design & Construction Manager $72,379 - $108,568
Manager, Systems and Facility Maintenance $72,379 - $108,568
Rail Capital Projects Schedule Manager $72,379 - $108,568
Rail Maintenance Manager $72,379 - $108,568
Rail Operations Manager $72,379 - $108,568
Rail Project Manager, Facilities Engineer $72,379 - $108,568
Rail Project Manager, Planning $72,379 - $108,568
Rail Quality Assurance Manager $72,379 - $108,568
XIV Rail O & M Startup/Activation Manager $81,992 - $122,987
Rail Safety and Security Chief $81,992 - $122,987
Chief Systems Engineering Officer $81,992 - $122,987
Chief Transportation Officer $81,992 - $122,987
XV Rail Community Relations Director $106,589 - $143,874
Rail Finance & Administration Director $106,589 - $143,874
Rail Safety, Security, and Quality Director $106,589 - $143,874
XVI Rail Design & Construction Director $117,246 - $165,355
Rail General Counsel $117,246 - $175,869
Rail Operations & Maintenance Director $117,246 - $165,355
Rail Project Development Director $117,246 - $165,355
ED Chief Executive Officer Salary Negotiated
Source: Valley Metro Rail, Inc Finance and Administration Division
37
Valley Metro Rail, Inc.
Schedule of Insurance Coverage Source: Valley Metro Rail, Inc Contracts and Procurement Division
For the Fiscal Year Ended June 30, 2010
Valley Metro Rail, Inc (METRO) employs the firm of Arthur J. Gallagher Risk Management Services, Inc. as its broker for the purchase of insurance.
METRO's commercial insurance program consists of the following:
Policy # Coverage Limits Policy Term Premium Carrier
KTKCMB2700C68609 Commercial Propety 127,637,941 TIV 12/1/09 to $106,971 Travelers Indemnity Co.
10,000 Deductible 12/1/10
5,000,000 Flood & EQ
100,000 Deductible
QT6605833B340TIL09 Inland Marine - Rolling Stock 150,660,000 TIV1 12/1/09 to $147,270 Travelers P&C
100,000 Deductible 12/1/10 Insurance Co.
QT6605833B352TIL09 Inland Marine - Town Lake Bridge 22,581,224 TIV 12/1/09 to $30,711 Travelers P&C
5,000,000 Flood & EQ 12/1/10 Insurance Co.
100,000 Deductible
121112951003 DIC - Excess Flood and EQ Town 15,000,000 per 12/1/09 to $35,932 ACE Fire Underwriters
Lake Bridge Occurrence x/o 5,000,000 12/1/10 Insurance Co.
CCP0063798 Commercial Crime 1,000,000 Limit 12/1/09 to $3,233 Crime Fidelity &
10,000 Deductible 12/1/10 Deposit Co. of
Maryland
BA1153P23309CAG Auto Liability and Physical Damage 250,000 CSL 12/1/09 to $45,615 Commercial Auto
2,000 Comp & Coll 12/1/10 Charter Oak Fire
Deductible Insurance Co.
N1A3RL000006600 Primary Excess Liability 10,000,000 per 12/1/09 to $377,840 Princeton Excess &
Occurrence 10,000,000 12/1/10 Surplus Lines
Aggregate 250,000 Insurance Co.
SIR
71P3000014091 Excess Liability 10,000,000 per 12/1/09 to $85,725 Everest National
Occurrence 10,000,000 12/1/10 Insurance Co.
Aggregate part of
25,000,000 x/o
10,000,000 and SIR
03051169 Excess Liability 15,000,000 per 12/1/09 to $61,733 Allied World National
Occurrence 15,000,000 12/1/10 Assurance Co.
Aggregate part of
25,000,000 x/o
10,000,000 and SIR
38
Continued
Valley Metro Rail, Inc.
Schedule of Insurance Coverage Source: Valley Metro Rail, Inc Contracts and Procurement Division
For the Fiscal Year Ended June 30, 2010
Policy # Coverage Limits Policy Term Premium Carrier
G24100868001 Excess Liability 25,000,000 per 12/1/10 to $79,481 Westchester Surplus
Occurrence 25,000,000 12/1/10 Lines Insurance
Aggregate part of
40,000,000 x/o
60,000,000 and SIR
UXP003631400 Excess Liabiity 15,000,000 per 12/1/09 to $35,100 Arch Insurance Co.
Occurrence 15,000,000 12/1/10
Aggregate part of
40,000,000 x/o
60,000,000 and SIR
181623 Workers Comp & Employers Liabiilty WC - Statutory 3/1/09/10 SCF of Arizona
EL - 1,000,000
37312354 Pollution Legal Liability (Fixed-site 5,000,000 each Pollution 12/1/07-12 $31,278 Chubb Custom
coverage) Incident Insurance Co.
5,000,000 Aggregate
25,000 Deductible
39
Valley Metro Rail, Inc.
Design & Construction Milestones
PRE-INCORPORATION ACTIVITIES
November 2000 - Final light rail alignment approved
February 2001 - Project opens community office for the public
September 2001 - City of Phoenix purchases first property for the light rail system at Camelback Road and 3rd
Avenue.
December 2001 - Project receives first Recommended rating from the Federal Transit Administration (FTA) in its
New Starts Report.
October 2002 - Valley Metro Rail, inc. is incorporated.
VALLEY METRO RAIL, INC. ACTIVITIES
July 2003 - METRO receives formal approval from the FTA for the light rail project to enter the Final Design phase.
The approval allows designers to finalize the construction plans during the coming months, begin utility relocation,
and request early approval to begin purchasing light rail vehicles and construction materials.
August 2004 - The METRO board approves the METRO Business Outreach Plan to help minimize the impacts of
light rail construction on businesses located along the light rail transit alignment.
November 2004 - A groundbreaking ceremony is held for the reconstruction of an access bridge over the Grand
Canal at 48th Street that leads to the light rail Maintenance and Storage Facility.
January 2005 - Full Funding Grant Agreement signed for the Central Phoenix East Valley (CPEV) Light Rail
Project. (20 mile initial operating segment)
April 2005 - METRO Max program launched, business support program encouraging residents to patronize
businesses impacted by light rail construction.
May 2005 - First embedded track in downtown Phoenix is placed at Central and Van Buren.
August 2006 - Tempe Town lake Bridge completed.
March 2007 - Operations and Maintenance Center completed. Testing, training and Light Rail Vehicle final
assembly activities commence.
March 2007 - Structural steel is erected on the first METRO station at Van Buren Street and First Avenue.
March 2007 - Phoenix City Council approves funding for Northwest Extension
December 2008 - Central Phoenix East Valley Light Rail Project (Initial 20 Mile Segment)
construction completes on-time and within budget.
January 2009 - Rail Passenger Operations commence; Ridership planned for 26,000 passengers
per day reaches over 40,000 daily passengers in April 2009.
June 2009 - Award to METRO CPEV Light Rail Project:
Public Works Project of the Year – American Public Works Association, Arizona Chapter
Source: Valley Metro Rail, Inc. Finance and Administration Division
40
VALLEY METRO RAIL, INC.
Phoenix, AZ
SINGLE AUDIT ACT REPORTS
For the Fiscal Year Ended June 30, 2010
VALLEY METRO RAIL, INC.
SINGLE AUDIT ACT REPORT
FOR THE
FISCAL YEAR ENDED JUNE 30, 2010
VALLEY METRO RAIL, INC.
TABLE OF CONTENTS
FISCAL YEAR ENDED JUNE 30, 2010
Report on Internal Control Over Financial Reporting and on Compliance
And Other Matters Based on an Audit of Financial Statements Performed
in Accordance With Government Auditing Standards 1
Report on Compliance With Requirements Applicable to Each Major
Program and on Internal Control Over Compliance in Accordance with
OMB Circular A-133 3
Summary of Auditors’ Results 5
Financial Statement Findings 6
Federal Award Findings and Questioned Costs 6
Summary Schedule of Prior Audit Findings 6
Supplementary Schedule of Expenditures of Federal Awards 7
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF
FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
The Board of Directors of the
Valley Metro Rail, Inc.
We have audited the financial statements of the Valley Metro Rail, Inc. (METRO) as of and for the year
ended June 30, 2010, and have issued our report thereon dated November 24, 2010. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States.
Internal Control over Financial Reporting
In planning and performing our audit, we considered Valley Metro Rail, Inc.’s internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of expressing our
opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of Valley Metro Rail, Inc.’s internal control over financial reporting. Accordingly, we do not
express an opinion on the effectiveness of METRO’s internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent or
detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of METRO’s financial statements will not be prevented, or detected and corrected on a
timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and was not designed to identify all deficiencies in internal control over
financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did
not identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Valley Metro Rail, Inc.’s financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance that are required to
be reported under Government Auditing Standards.
(1)
An independent member of Nexia International
The Board of Directors of the
Valley Metro Rail, Inc.
November 24, 2010
This report is intended solely for the information and use of the Board of Directors, Management,
federal awarding agencies, and pass-through entities and is not intended to be and should not be used
by anyone other than these specified parties.
LarsonAllen LLP
Mesa, Arizona
November 24, 2010
(2)
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH
MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN
ACCORDANCE WITH OMB CIRCULAR A-133
The Board of Directors of the
Valley Metro Rail, Inc.
Compliance with Requirements Applicable to Each Major Program
We have audited Valley Metro Rail, Inc.’s (METRO) compliance with the types of compliance
requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct
and material effect on each of METRO’s major federal programs for the year ended June 30, 2010.
METRO's major federal programs are identified in the summary of auditors’ results section of the
accompanying schedule of findings and questioned costs. Compliance with the requirements of laws,
regulations, contracts, and grants applicable to each of its major federal programs is the responsibility
of METRO's management. Our responsibility is to express an opinion on METRO's compliance based
on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of
States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133
require that we plan and perform the audit to obtain reasonable assurance about whether
noncompliance with the types of compliance requirements referred to above that could have a direct
and material effect on a major federal program occurred. An audit includes examining, on a test basis,
evidence about Valley Metro Rail, Inc.'s compliance with those requirements and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion. Our audit does not provide a legal determination of Valley Metro Rail,
Inc.'s compliance with those requirements.
In our opinion, Valley Metro Rail, Inc. complied, in all material respects, with the requirements referred
to above that are applicable to each of its major federal programs for the year ended June 30, 2010.
Internal Control over Compliance in Accordance with OMB Circular A-133
Management of Valley Metro Rail, Inc. is responsible for establishing and maintaining effective internal
control over compliance with the requirements of laws, regulations, contracts, and grants applicable to
federal programs. In planning and performing our audit, we considered Valley Metro Rail, Inc.'s internal
control over compliance with the requirements that could have a direct and material effect on a major
federal program to determine the auditing procedures for the purpose of expressing our opinion on
compliance and to test and report on internal control over compliance in accordance with OMB Circular
A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, we do not express an opinion on the effectiveness of Valley Metro Rail, Inc.’s
internal control over compliance.
(3)
An independent member of Nexia International
The Board of Directors of the
Valley Metro Rail, Inc.
November 24, 2010
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their
assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance
requirement of a federal program on a timely basis. A material weakness in internal control over
compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that
there is a reasonable possibility that material noncompliance with a type of compliance requirement of a
federal program will not be prevented, or detected and corrected, on a timely basis.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not
identify any deficiencies in internal control over compliance that we consider to be material
weaknesses, as defined above. However, we identified a deficiency in internal control over compliance
that we consider to be a significant deficiency as described in the accompanying schedule of findings
and questioned costs as item 2010-1. A significant deficiency in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance with a type of
compliance requirement of a federal program that is less severe than a material weakness in internal
control over compliance, yet important enough to merit attention by those charged with governance.
Valley Metro Rail, Inc.’s response to the finding identified in our audit is described in the accompanying
schedule of findings and questioned costs. We did not audit Valley Metro Rail, Inc.’s response and,
accordingly, we express no opinion on the response.
Schedule of Expenditures of Federal Awards
We have audited the financial statements of the business-type activities of Valley Metro Rail, Inc. as of
and for the year ended June 30, 2010, and have issued our report thereon dated November 24, 2010.
Our audit was performed for the purpose of forming an opinion on the financial statements taken as a
whole. The accompanying schedule of expenditures of federal awards is presented for purposes of
additional analysis as required by OMB Circular A-133 and is not a required part of the financial
statements. Such information has been subjected to the auditing procedures applied in the audit of the
financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the
financial statements taken as a whole.
This report is intended solely for the information and use of the Board of Directors, Management,
federal awarding agencies, and pass-through entities and is not intended to be and should not be used
by anyone other than these specified parties.
LarsonAllen LLP
Mesa, Arizona
November 24, 2010
(4)
Valley Metro Rail, Inc.
Schedule of Findings and Questioned Costs
Fiscal Year Ended June 30, 2010
SECTION I - SUMMARY OF AUDITORS’ RESULTS
Financial Statements
Type of auditor’s report issued: Unqualified
Internal control over financial reporting:
Material weakness(es) identified? ______ yes X no
Significant deficiency(ies) identified
not considered to be material weaknesses? _ __ _ yes X none reported
Noncompliance material to financial statements
______ yes X no
noted?
Federal Awards
Internal Control over major programs:
______ yes X no
Material weakness(es) identified?
Significant deficiency(ies) identified not
considered to be material weaknesses? ___X__ yes _ none reported
Type of auditor’s report issued on compliance
for major programs: Unqualified
Any audit findings disclosed that are
required to be reported in accordance
with Circular A-133, Section .510(a)? _____ yes X no
Identification of major programs:
CFDA Number(s) Name of Federal Program or Cluster
20.507 Federal Transit Grant
Dollar threshold used to distinguish
between Type A and Type B programs: $1,960,989
Auditee qualified as low-risk auditee? X yes no
(5)
Valley Metro Rail, Inc.
Schedule of Findings and Questioned Costs
Fiscal Year Ended June 30, 2010
SECTION II—FINANCIAL STATEMENT FINDINGS
None noted.
SECTION III—FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Department of Transportation
Federal Transit Administration Grant
CFDA Number: 20.507
Passed Through the City of Phoenix
Pass-Through Numbers: AZ-96-X002-00
AZ-96-X002-00 ARRA
AZ-90-X096-00
AZ-03-X031-12
2010-1 Appropriate approval not obtained for Payment Requests
Condition: Appropriate Finance approval was not always obtained on Payment Requests for expenses
funded by federal awards.
Criteria: METRO’s Payment Request approval policy.
Effect: METRO was in compliance with OMB Circular A-133; however, not adhering to METRO’s policy
could cause federally funded expenses to be improperly recorded or unallowable costs to be charged to
the grant.
Cause: METRO has experienced changes in higher level staff in the Finance Department as the
transition from construction to operations has occurred. During this transition, the policy was overlooked
or not enforced on all occasions due to timeliness, efficiency, or other related factors.
Recommendation: In order to ensure expenses funded by federal awards are properly approved,
METRO should stringently enforce the Payment Request approval policy.
Corrective Action: METRO concurs with this recommendation and ensures that the current purchase
approval policy will be followed and evaluated if needed. METRO will immediately enforce this control
during the fiscal year 2010-11 and in future years.
Contact: John McCormack, Director of Finance and Administration
SECTION IV—SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
No prior year federal award findings and questioned costs.
(6)
Valley Metro Rail, Inc.
Schedule of Expenditures of Federal Awards
Fiscal Year Ended June 30, 2010
CFDA Pass-Through Pass-Through Awards
Federal Grantor Agency and Program Title Number Grantor Identifying Number Expended
Department of Transportation:
Federal Highway Administration:
Highway Planning and Construction 20.205 Maricopa Association of Contract 0353 $ 500,000
Governments
Federal Transit Administration:
Urbanized Area Formula 20.507 City of Phoenix AZ-96-X002-00 222,519
Urbanized Area Formula (ARRA) 20.507 City of Phoenix AZ-96-X002-00 1,336,018
Urbanized Area Formula 20.507 City of Phoenix AZ-90-X096-00 489,861
New Starts 20.507 City of Phoenix AZ-03-0031-12 61,249,903
Alternatives Analysis 20.522 City of Phoenix AZ-39-0002-00 1,568,000
Total Federal Transit Administration 64,866,301
Total Expenditures of Federal Awards $ 65,366,301
Note: This schedule was prepared on the accrual basis of accounting.
(7)
AGENDA ITEM 6
Fiscal Year 2011 Mid-Year Budget Adjustment
AGENDA ITEM 6
To: Chairman Cavazos and Members of the Rail Management Committee
Through: Stephen R. Banta, Chief Executive Officer
From: John P. McCormack, Director of Finance and Administration
Date: December 27, 2010
Re: Fiscal Year 2011 Mid-Year Budget Adjustment
PURPOSE
This memo requests that the Rail Management Committee (RMC) recommend that the
METRO Board of Directors (Board) authorize updates to the Valley Metro Rail Operating
and Capital Budget for Fiscal Year (FY) 2011.
BACKGROUND/DISCUSSION
In May 2010, the RMC recommended and the Board approved the FY2011 Operating
and Capital Budget. The cost and revenue factors used to develop the budget have
changed and adjustments are warranted to update the expenditures planned and
revenue resources available to fund the fiscal year activities. The major changes
include:
Increased preventative maintenance activities for the light rail vehicles that are
reaching the 150,000-mile threshold. Federal Fixed Guideway Preventative
Maintenance (FGPM) funding has been approved by the Maricopa County
Association of Governments (MAG) to cover 80% of these expenditures.
Line Item adjustments to passenger operations cost. Use of contingency and
increased fare revenues will hold member city contributions at adopted budget
levels.
Fare Collection System Upgrades as approved by the METRO Board in
September 2010 to be funded by Federal CMAQ grants.
Additional System-wide Improvements for the OMC and ADA pavers to be
funded with Public Transportation Fund (PTF) dollars.
Increase to facilities costs for the Central Phoenix/East Valley 20-mile Project to
be offset by cost reductions in other project elements as well as by increased
member city contributions.
Decrease to the FY2011 expenditures planned for the Central Mesa Capital
Project. Project activities and associated revenues are anticipated will roll
forward into FY2012.
Additional non-prior right utilities for the Phoenix Light Rail Transit Park-and-Ride
improvements and Northwest Extension Royal Palms Neighborhood to be funded
with Public Transportation (PTF) dollars.
Rail Management Committee Memo
December 27, 2010
Page 2
The above changes have been incorporated into the Mid-Year Budget Adjustments
presented below.
FISCAL IMPACT
Refer to the summaries on pages 3 through 5 for changes to each operating and
capital budget. Below is a summary of the overall changes:
Rail Management Committee Memo
December 27, 2010
Page 3
Summary of Changes proposed are as follows:
Revenue Operations Budget
Revenue Changes: Increase $499,000
Increases to fares collected plus new Federal Fixed Guideway Preventative
Maintenance Funds; reductions to member city contributions
Expenditure Changes: Increase $499,000
Increases to Vehicle Maintenance Contractor labor and materials; reduction to
METRO staff salaries and reduction to contingency.
Agency Operating Budget
Revenue Changes: Decrease $4,000
Reductions to Member City Contributions
Expenditure Changes: Decrease $4,000
Reduction to METRO overhead expense.
Agency Overhead Allocation Budget
Revenue Changes: Decrease $130,000
Reductions to amounts charged to operating and capital project budgets
Expenditure Changes: Decrease $130,000
Increases to IT Services and Capital Outlay for computer system upgrades;
Reduction to building rent due to sublease of floors 10 and 11 to Regional Public
Transportation Authority (RPTA)
Rail Management Committee Memo
December 27, 2010
Page 4
Project Development Budget
Revenue Changes: Increase $55,000
Increase to PTF Bond Funds; Reductions to member city contributions to
reimburse Phoenix for advances made to fund the Phoenix West Corridor
Alternative Analysis activities
Expenditure Changes: Increase $55,000
Increases to salaries and to other direct expenditures for reinforcement of
underground electrical vault along Phoenix West downtown alignment;
reduction to consultants’ expenses and agency overhead allocation.
20-Mile Initial Segment Capital Budget – Overall project costs to date are $1.391 billion
and forecast cost at completion remains within the $1.412 billion Full Funding Grant
Agreement (FFGA) project budget. Project budget changes are brought to the
METRO Board for approval whenever project reserve adjustments are warranted.
Revenue Changes: Increase $1,200,000
Increases to member city contributions; reductions in PTF sales tax revenues
Expenditure Changes: Increase $1,200,000
Increases to facilities construction; Reduction to interest expense.
Northwest Extension Phase I Capital Budget
Real Estate acquisition costs continue; city administration costs from July and August
2010 to prepare for the Royal Palms Neighborhood mitigation activities are reflected
below. One-hundred percent of the costs are funded with City of Phoenix T2000 funds.
Revenue Changes: Increase $673,000
Increases to City of Phoenix Contributions
Expenditure Changes: Increase $673,000
Increases to City Management and Administration and Consultants in
preparation for Royal Palms Neighborhood mitigation project
Central Mesa LRT Capital Budget – The project is in the design phase with limited real
estate and utility relocation preparations planned in the second half of this fiscal year.
Cost under-runs shown below in this fiscal year are anticipated to be expended in
FY2012. Funding is 80% Federal CMAQ and 20% PTF.
Revenue Changes: Decrease $3,724,000
Decreases to PTF revenue bonds and CMAQ federal fund draws for the fiscal
year. These funds are anticipated to be drawn in FY2012.
Expenditure Changes: Decrease $3,724,000
Increases to engineering expenditures; Reductions to staff, consultant expenses
and real estate acquisition costs.
20-Mile Initial Segment – Concurrent Non-Project Activities Capital Budget
Revenue Changes: Increase $294,000
Increases to member city contributions
Expenditure Changes: Increase $294.000
Increases to facilities construction for settlement of contractor REA’s
Rail Management Committee Memo
December 27, 2010
Page 5
Non-Prior Rights (NPR) Utilities Relocation Budget
Revenue Changes: Increase $190,000
Increases to PTF Bond Fund requirements
Expenditure Changes: Increase $294.000
Increases to NW Extension NPR utilities; Reduction to Central Phoenix/East Valley
(CP/EV) NPR utility relocations
Systemwide Improvements Capital Budget – System-wide Improvements are funded
with a Federal CMAQ grant $600K to upgrade fare collection systems. In June of 2011,
the first $10,000,000 principal payment to reimburse the City for the purchase of 14 light
rail vehicles (LRV) will be made from PTF revenue bond funds.
Revenue Changes: Increase $821,000
Increases City of Phoenix contributions to complete advance funding of 14
LRV’s. Increase to Federal CMAQ revenue for grant to upgrade fare collection
systems. Decrease to PTF Revenue Bonds
Expenditure Changes: Increase $821,000
Increases 14 LRV expenses – due to later than planned billings to complete the
project. (Overall 14 LRV Project expense remains within budget) ; Increases to
Systemwide Capital expense for fare collection system upgrades, improvements
to OMC facilities and ADA pavers along 20 mile system.
RPTA Construction Support Budget – Wrap up of the Arizona Avenue Bus Rapid Transit
(BRT) construction support project and the ARRA funded Park and Ride improvements
will occur in FY2011, these costs and funding amounts were planned but not spent in
the prior fiscal year.
Revenue Changes: Increase $347,000
Increases RPTA ARRA Funds
Expenditure Changes: Increase $347,000
Increases to staff for increase scope of work and timing of expenditures
occurring in FY2011 which were planned in FY2010
ARRA Park and Ride Capital Project Budget
Revenue Changes: Increase $852,000
Increases to PTF Revenue Bonds for NPR Utility relocations and to Federal ARRA
Funds
Expenditure Changes: Increase $852,000
Increases to Utility Relocation Expense for new scope of work and increases to
staff costs to complete the project.
RECOMMENDATION
Staff is requesting that the RMC recommend that the Board approve the updates to the
METRO Fiscal Year 2011 Operating and Capital Budget.
AGENDA ITEM 7
METRO Advertising Policy Update and Possible Amendment
AGENDA ITEM 7
To: Chairman Cavazos and Members of the Rail Management Committee
Through: Stephen R. Banta, Chief Executive Officer
From: John Farry, Director of Community and Government Relations
Date: December 27, 2010
Re: METRO Advertising Policy Update and Possible Amendment
PURPOSE
The purpose of this memo is to provide an update to the Rail Management Committee
(RMC) related to the METRO advertising policy and discuss possible amendments to the
policy in relation to vehicle wraps, internal vehicle and station platform advertising.
BACKGROUND/DISCUSSION
The METRO Advertising Policy was amended by the Board in July 2009 to allow
advertising on the system and subsequently amended in July 2010 (see attached
policy). METRO entered into a contract with CBS Outdoor in October 2009 to sell
advertising on the METRO system that is consistent with the adopted policy.
With regard to light rail vehicles, the advertising policy states that no more than ten (10)
vehicles can be fully wrapped with advertising at any one time. The July 2010
amendment allowed for the sale of advertising wraps on articulated (center) section
wraps of the entire fleet. At the November 2010 meeting of the METRO Board of
Directors, it was requested that the issue of full wraps be brought to the Board for further
discussion and possible amendment to the policy.
CBS Outdoor currently has commitments for advertising on the METRO system through
June 2011. METRO’s share of revenues generated from those commitments by
category of advertising are reflected in the following table.
Advertising Type Total Revenues Percent of Total Unit Average
to Date per Four Week
Period
Full Wraps $192,000 57.3% $2,770
Center Section Wraps $69,000 20.6% $1,139
Station Pods $32,000 9.6% $1,043
Station Display Cases $42,000 12.5% $148
Vehicle Floor $0 0% $0
Total Revenues $335,000
Rail Management Committee Memo
December 27, 2010
Page 2
The advertising policy still includes a provision to allow wrapping up to four vehicles for
what is referred to as “Community Train Wraps”. The Community Train Wraps have
been used as a method to inform the public of significant events in the region
(e.g., 2010 census).
Additionally, even though the advertising policy has allowed for the sale of decals on
the vehicle floors, no sales have taken place. Also, station pod advertising has included
decals on station platform pavers that incur substantial wear.
Some transit properties have had success in the sale of advertising on the interior
ceilings of the vehicle. It is staff’s recommendation that the policy be amended to not
allow the sale of decals on the floor of the vehicle or on station platform pavers as part
of station pod advertising, but to allow the sale of advertising on the ceiling of the
vehicle.
FISCAL IMPACT
Based on sales to date, removing full vehicle wraps from the approved advertising
policy could result in significant impacts to revenues generated from advertising sales.
Adding the ceiling of the vehicle as an opportunity for advertising presents an
opportunity for additional revenues.
RECOMMENDATION
This item is for information, discussion and possible action to amend the METTRO
advertising policy as follows:
1. With the Board action in July 2010 to allow center section advertising
wraps on the total vehicle fleet, staff will continue to analyze revenue
performance of full wraps and center section wraps to determine overall
advertising revenue generation;
2. Allow advertising on the ceiling of the vehicles; and
3. Eliminate advertising on the floor of the vehicle and the station platform
pavers.
ADVERTISING POLICY
Valley Metro Rail, Inc. (METRO) believes that advertising on the light rail system is
best performed using a standard set of established criteria. Therefore, the
following criteria are established for advertising:
Vehicle Advertising
The advertising on the exterior of the articulated sections of the vehicle includes
the entire fleet. Full wraps will be limited to a maximum of ten (10) vehicles.
METRO reserves the right to wrap four (4) additional vehicles for its own purposes.
That advertising on the interior of the vehicle allow for floor decals. In vehicles
that have exterior wraps, the floor decals must match the theme of the wrap. In
unwrapped vehicles, only one decal design per vehicle will be allowed.
That advertising on the interior of the vehicle allow for the installation of LCD-TV
in vehicles.
Station Advertising
That station advertising be limited to wraps and display case posters. That
station wraps occur in participating cities only and be limited to backdrop
banners, vertical banners and paver decals. That any advertising at stations not
be attached to, or obscure, station art.
That display case station posters occur in participating cities only and be limited
to no more than 50% of map cases at any given station.
That advertising at station platforms allow for the installation of electronic or
standard kiosks.
General Advertising
That any future METRO advertising policy be consistent with the City of Phoenix
Public Transit Department’s policy that establishes the following standard:
Advertising Standard
The subject matter of METRO system advertising is limited to speech that
proposes a commercial transaction.
METRO policies prohibit the display of advertising copy or graphics that:
ADVERTISING POLICY
Page 2
1. Are false, misleading, or deceptive
2. Relate to an illegal activity
3. Are explicit sexual material, obscene material, or material harmful to
minors as these terms are defined in Title 13, Chapter 35, Arizona Revised
Statues
4. Advertise alcohol or tobacco products
5. Depict violence and/or anti-social behavior
6. Include language which is obscene, vulgar, profane or scatological
7. Relate to instruments, devices and items, products or paraphernalia which
are designed for use in connection with “specified sexual activities” as
defined in the City of Phoenix Zoning Ordinance.
All advertising is subject to approval by METRO and/or its designated
representatives.
Adopted by Valley Metro Rail Board of Directors on July 21, 2010.
AGENDA ITEM 8
Federal Legislative Update
AGENDA ITEM 8
To: Chairman Cavazos and Members of the Rail Management Committee
Through: Stephen R. Banta, Chief Executive Officer
From: John Farry, Director of Community and Government Relations
Date: December 27, 2010
Re: Federal Legislative Update
PURPOSE
This memo provides information on the METRO priorities for federal legislation related to
the Fiscal Year (FY) 2012 Federal Appropriations process, as well as projects and policies
related to the reauthorization of the Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users (SAFETEA-LU).
BACKGROUND/DISCUSSION
METRO staff has coordinated with member cities to develop appropriations requests for
the coming year. While the Congressional earmarking process may not occur in next
year’s federal funding cycle, METRO has developed the requests in the event that there
are changes to the earmarking climate. Additionally, this memo provides an update
on previously established METRO priorities related to any potential action to reauthorize
the SAFETEA-LU.
FY2012 Appropriations Request
Each fiscal year, staff develops an appropriation request for the Arizona Congressional
delegation related to the METRO system. For FY2012, staff will be submitting a request
that is summarized in the following table and explained below.
FY2012 Federal Appropriations Request
Funding Type Amount
Phoenix West Alternative Analysis/Draft
Section 5339 $1.55 million
Environmental Impact Study (AA/DEIS)
Glendale AA/DEIS Section 5339 $2.4 million
Central Mesa Preliminary Engineering Section 5309 $23.0 million
Tempe South Preliminary Engineering Section 5309 $8.0 million
Federally funded projects require that Alternative Analysis (AA) be completed prior to
beginning of Preliminary Engineering (PE). Section 5339 was established within SAFETEA-
LU to provide federal funding for these study efforts. METRO will request a total of $3.95
million in Section 5339 funding for AA studies for the Phoenix West and Glendale
Rail Management Committee Memo
December 27, 2010
Page 2
projects as part of the FY 2012 appropriations process. Details associated with those
requests are identified in the following table.
SECTION 5339 NEW STARTS PROGRAM
FY2012 Alternative Analysis Requests* (millions)
Project Project Need Local Share Federal Request
Phoenix West $1.95 $0.4 $1.55
Glendale $3.0 $0.6 $2.4
* Projects are not listed in any order of priority.
Section 5309 funding is established to fund design and construction of New Starts
projects. The Federal Transit Administration (FTA) has approved the Central Mesa
project into the New Starts pipeline for Project Development (design). The project may
be included in the President’s FY2012 budget submitted to Congress early in 2011. A
request will be submitted to FTA in the spring of 2011 to advance the Tempe South
project into the project development phase. METRO will request a total of $31.0 million
in Section 5309 funding for these projects. Details associated with those requests are
identified in the following table.
SECTION 5309 NEW STARTS PROGRAM
FY2012 Project Development Requests* (millions)
Project Project Need Local Share Federal Request
Central Mesa $46.0 $23.0 $23.0
Tempe South $16.0 $8.0 $8.0
* Projects are not listed in any order of priority.
Both the Central Mesa and Tempe South projects are planned to fall within the Small
Starts category of the Section 5309 program. According to SAFETEA-LU, the maximum
project cost threshold is $250 million and the maximum federal share is $75 million. If
appropriated, the amounts identified in the table above will be included in the total
federal share.
SAFETEA-LU Reauthorization Request Update
Based on a reauthorization term that would occur from 2010 to 2015, it is possible that
several of the high capacity/light rail extensions adopted as part of the regionally
adopted transportation plan would request federal funding over the life of the
legislation. METRO and its member cities are requesting that projects be authorized for
funding as follows.
Request One
Authorize the “Central Phoenix/East Valley Light Rail Transit Project Extensions” (CP/EV
Extensions) as identified in the Regional Transportation Plan to receive federal funding
and advance through the New/Small Starts project development process. This
authorization would include the following extensions:
Rail Management Committee Memo
December 27, 2010
Page 3
Central Mesa LRT Extension
Tempe South Extension
Phoenix West Extension
Northwest Extension
Glendale Extension
Northeast Extension
Request Two
Authorize the “Central Mesa LRT Extension” and the “Tempe South Extension” as
identified in the Regional Transportation Plan to receive federal funding and advance
through the Small Starts project development process. This authorization would include
$75 million for each project for a total federal participation of $150 million on the two
projects.
Reauthorization Policy Priorities
Several policy issues related to the New Starts program are of interest to METRO and its
member cities. Generally, we recommend to federal policymakers all of the
reauthorization recommendations of the American Public Transportation Association
(APTA) and the New Starts Working Group. As an example, METRO supports:
A simplified and streamlined review, rating and approval process for all New
Start and Small Start projects.
Legislative reforms to the new starts rating standard. The reauthorization should
establish in law all of the benefits of New Starts projects, especially land use,
economic development and environmental benefits. The CP/EV Project cost
$1.4 billion. Total development along the project that has been completed, is
under construction, or is planned represents a total investment of approximately
$7 billion.
The New Starts cost calculation should only consider the federal project cost --
local sponsors should be able to add project features at their own expense
without harming their cost-effectiveness rating.
Specifically related to the METRO system, we recommend bill language related to the
following:
Central Phoenix/East Valley (CP/EV) Extensions Local Match. Include language in the
legislation that authorizes projects that are funded entirely with local/regional funding
to be considered as local match for other federally funded CP/EV Extensions.
Phoenix West Extension Request Addendum. The location selected for a significant
portion of the Phoenix West high capacity/light rail extension is within the I-10 right-of-
way. The Arizona Department of Transportation (ADOT) is currently programmed to add
lanes to the same corridor. In an effort to minimize impacts to the driving public and
freight movement along I-10 and to attain economies of scale related to construction
costs, the Phoenix West project should be authorized to be a joint Federal Highway
Administration and Federal Transit Administration project that would allow METRO and
ADOT to coordinate construction efforts within the corridor.
Rail Management Committee Memo
December 27, 2010
Page 4
METRO Interrelated Program of Projects. Should the legislation create the authority to
establish an “Interrelated Program of Projects”, authorize the METRO system program of
projects that includes the CP/EV Extensions listed in Request One. The language would
establish that the region is to work with the Federal Transit Administration to determine
FFGA funding levels for projects up to 80 percent federal participation by allowing other
extensions that do not include any federal funding to be considered as local match.
Modern Streetcar Justification Criteria. A separate program and evaluation tools for
modern streetcar projects should be developed. The New Starts evaluation criteria are
not designed to assess the viability of streetcar projects. While ridership evaluation and
economic development potential are still important, travel time savings is not typically
an important goal for a streetcar project.
FISCAL IMPACT
Federal funding for the design and construction of light rail that is included in the METRO
Light Rail/High Capacity Transit Life Cycle Program identifies federal funding levels
consistent with appropriations requests identified above.
RECOMMENDATION
This item is for information only. No action is requested. The FY2012 Appropriations
requests will be forwarded to Valley Metro/RPTA for inclusion in the regional public
transportation request to be considered by their Board.
