August 9, 2016
Dear Metra Customers,
Today, we announced that we are temporarily suspending our search for a vendor to build 367 new railcars and are exploring other alternatives to ensure that Metra will still be able fulfill its plan to upgrade and modernize its fleet of cars and locomotives. This marks a change from the 10-year, $2.4 billion modernization plan that our Board put forward in 2014; and as our customers and taxpayers in this region, we want to make sure that you understand how we plan to move forward.
When we introduced our modernization plan, we identified the renewal of rolling stock as one of our highest priorities. We have one of the oldest fleets in the industry and the condition of cars and locomotives is so essential to providing you with high-quality, reliable and comfortable service. We remain committed to finding cost-efficient ways to get new or newer cars to add to our fleet while we continue to rehab our existing fleet of railcars and locomotives.
Why do we think suspending a major purchase of railcars is the best course at this time? First, the projected availability of capital funding for the entire purchase has changed dramatically since Metra’s modernization plan was first proposed. When the plan was announced, Metra had identified $1.1 billion in funding from a variety of sources, including $700 million in state bond funds and federal funds and $400 million in Metra borrowing or other new financing mechanisms, to be paid back with revenue from fare increases. Metra was hopeful that the remaining $1.3 billion could come from additional sources, primarily a new state bond program.
While the stakeholders in Springfield are sympathetic to our needs, the state budget impasse is impacting our ability to move forward with infrastructure projects. It does not appear likely that a new capital plan will be taken up by the General Assembly in time to help bridge the $1.3 billion funding gap for our modernization plan. In addition, the state of Illinois has put on hold more than $300 million in bond funding that we already had budgeted for our capital needs, including $121 million for the modernization plan.
No one could have predicted this uncertainty in funding sources and the fact that the state would be without a budget for so long.
Rather than move forward with a huge contract for new railcars, we’ve decided to stop and evaluate where we are with our modernization program so that we can move forward in a prudent and responsible way. This will likely result in the need to spread any purchases out over a longer period of time than originally anticipated.
The good news is that even without immediately pursuing its own contract to purchase new cars, Metra may be able to purchase some new cars sooner than expected and at a substantial savings. Metra’s peer railroad Virginia Railway Express (VRE) has a remaining option on a contract to purchase 21 railcars from Japanese rolling stock manufacturer Nippon Sharyo at an estimated cost of $2.5 million per car. Because VRE uses the same type of railcars as Metra, the agency recently reached out to VRE about acquiring this option. If we are successful, this could save us approximately $17 million and enable us to take delivery of the first of these new cars in early 2018.
We are also aggressively investigating whether we can acquire and rehabilitate a number of later model cars from other commuter railroads. This approach will reduce the age of our fleet, may result in lowering the need for as many new cars, and will provide upgraded and completely renovated cars for Metra’s customers at a lower overall cost.
We believe that these efforts are necessary so we can achieve what we set out to do: invest in infrastructure and enhance service and reliability for the benefit of our customers. Metra fully intends to proceed with a new railcar purchase at a later date once it has pursued all other alternatives to achieve completion of the modernization plan.
Here are some questions and answers about our modernization efforts:
Q. Why are you trying to buy new cars?
A. Metra has identified modernization of rolling stock as one of its highest capital priorities due to the age of its fleet and the fact that the condition of cars and locomotives is so essential to providing high-quality, reliable and comfortable service. As you may recall, in the fall of 2014, we announced a 10-year, $2.4 billion plan to rehab or replace most of our cars and locomotives and pay for the costs of installing Positive Train Control, a federally mandated but unfunded safety system.
Q. Have you accomplished anything under that plan?
A. By the end of 2016 we will have renovated about 70 cars in-house, and we will soon begin planning the expansion of our major rehab facility so we can do more cars per year. We also will have rehabbed seven locomotives. And, we have spent about $95 million and have about $208 million under contract in our PTC installation efforts, which we think will ultimately cost us about $400 million.
Q. Why are you suspending the search for a new car vendor?
A. We issued a request for proposals (RFP) for new cars in February. Since then, however, a couple of developments caused us to pause. One is that our funding for the modernization plan is even more uncertain. When we announced the plan, we said we would use $700 million in state and federal funding and $400 million in financing, to be paid back with higher fares. The remaining $1.3 billion was unfunded, but we were hopeful the state would pass a new public works capital program that could help cover that gap. That has not happened. In addition, the state put on hold $300 million in funding that we had already budgeted for capital work, including $121 million for the modernization plan.
Q. What’s the other?
A. The other development is that we found a promising alternative to acquire 21 new cars at less cost than we initially estimated. We are looking to exercise Virginia Railway Express’ remaining option to purchase 21 railcars from Nippon Sharyo at an estimated cost of $2.5 million per car. That’s $800,000 less than we estimated it would cost us to buy new cars – potentially a savings of $17 million – and we are hoping to get the cars as soon as 2018.
Q. How was VRE able to get such a better deal on their cars?
A. We don’t have a deal to compare theirs to. We only have our estimate of what it would cost if we were to negotiate one now, versus what VRE negotiated in 2012.
Q. So what does this mean for the rest of the new cars you need?
A. Metra’s funding issues are likely to result in the need to spread out over a longer period of time the acquisition of new cars and new locomotives. Those issues also have us aggressively investigating whether we can acquire and rehabilitate a number of later model cars from other commuter railroads that may no longer have a need for them. This approach may well result in lowering the need for as many new cars, while providing upgraded and completely renovated cars for Metra’s customers at a lower overall cost.
Q. So you might not buy all 367 new cars?
A. At this point, we don’t know. We are in the process of updating our plan now and will share it with our customers in the months to come.
Q. What are you doing with the revenue from the fare increases last year and this year?
A. We’re spending it on exactly what we said we’d spend it on when we passed the budget each year. For instance, of the $6.5 million we raised in higher fares in 2016, half went to the higher costs to operate Positive Train Control, and half went to a bare-bones capital budget.