December 19, 2008
By General Manager Fred Hansen
As all of you know by now, we are officially in a recession. Last year, I told you at the beginning of our budget process that FY09 would be a tight budget year and I share with you today, the next fiscal year will be even tighter.
As you know there has been some good news. Passenger revenue has increased by 15% and diesel fuel is $5- $6 million under budget. Unfortunately, we are still making up for past increases in diesel.
Our situation is further compromised because the payroll tax is behind budgeted growth rates. The FY09 budget had assumed a 5.5% underlying growth rate. The actual rate of growth is trending between 1% to 2%. This means $7 million to $9 million less than anticipated. But unlike previous recessions we are experiencing stock market and other market losses that haven�t been seen in the history of TriMet. TriMet�s pension plans, like other defined benefit pension plans, will now require significantly greater TriMet funding to make up these market losses.
All pension benefits are being paid in full and on time. That has been true since 1979. The assets used to pay plan benefits are held in two separate tax-exempt trust funds. TriMet contributes funds to the trusts and independent actuarial firms annually review the plan�s funding status. Although most of the funds have recently had negative returns, I am confident the funds are being invested wisely based on the current market.
To ensure appropriate pension plan funding and to make-up for reduced payroll tax revenue, I have had to make some difficult budget decisions for FY10.
During the budget meetings in January you will be receiving more specific information about budget reductions and constraints, however, I want you to be aware of three major areas for reductions.
First, I am asking for a 5% reduction in continuing expenses in both service and division budgets. This would result in a savings of approximately $11 million.
Second, we will lengthen the pension funding to soften the impact of recent market losses for a $7.7 million annual savings. As payroll tax revenue and the general economic picture improve we will return to previous pension funding timelines. And third, this year we will stop capital spending except for what is absolutely necessary. In FY10 we will cut capital spending for three years by $11 million in one-time only expenses.
As you know, I believe the most important thing we provide is the service we deliver each and every day. The necessary reductions will inevitably require some service reduction in low performing lines. I do not make this decision lightly. We are, however, in difficult and hard economic times with hard decisions to make. I also know that all reductions will impose hardships on each of the departments. I am asking all of us to do more with less.
When I have asked this in the past, you have always risen to the challenge and I am confident you will do that again.
I believe our long-term future is bright. Our economy will recover in time and there will be more jobs on the horizon.
I thank you in advance for the tough decisions and sacrifices you will have to make in upcoming budget. I know we will make the right choices and continue to make serving our customers our highest priority.