On June 16, 2004, the Phoenix City Council authorized the formation of the non-profit Downtown Phoenix Hotel Corporation (the Corporation) to design and build a new, publicly financed, 1,000-room hotel at 3^rd Street and Van Buren. The new hotel, which opened in September 2008, meets a vital need for additional hotel rooms in the downtown area.

OTHER INFORMATION

The Sheraton Phoenix Downtown Hotel opened ahead of schedule in September 2008 surpassing the pre-opening sales goal of 314,000 room nights by more than 60,000 room nights. The pre-opening success of the hotel has allowed it to remain competitive despite the downturn of the worldwide economy and its affect on the hospitality industry.

Pursuant to the Consultant Services Agreement and Assignment, the operator is required to report to the Corporation on its marketing and booking efforts. In its role as the Corporation’s asset manager, Warnick and Company is responsible for auditing the operator’s progress and making regular reports to the board members.

The General Manager of the hotel and principals with Warnick & Company will present an update on the hotel’s sales and marketing operations to date. Staff will also address concerns raised at the February 4, 2009 Downtown and Aviation Subcommittee meeting regarding the hotel’s parking situation.

RECOMMENDATION

This report is for information only. No Council action is requested.

CITY COUNCIL REPORT
POLICY AGENDA
TO:	David Krietor Deputy City Manager	AGENDA DATE:		September 29, 2009
FROM:	John Chan, Interim Director Phoenix Convention Center	ITEM:	3
SUBJECT:	PHOENIX CONVENTION CENTER UPDATE

This report provides an update on activities at the Phoenix Convention Center (PCC) since the opening of the North building, capping the final phase of the $600 million expansion.

THIS ISSUE

In January 2009, the Phoenix Convention Center Department completed a five-year expansion project which tripled the size of the facility and making it one of the premier convention centers in the United States with nearly 900,000 square feet of meeting and exhibition space. The expanded facility allows the City of Phoenix and Arizona to compete for 85 percent of the convention and trade show market.

OTHER INFORMATION

During FY 2008-09, the Convention Center hosted 59 conventions representing more than 276,000 delegates. This represents an increase of more than 160 percent over the 105,000 convention delegates in FY 2007-08. Several high-profile meetings including the National Convention of the American Legion, International Reading Association Annual Conference, NBA All-Star Jam Session, National Rifle Association Annual Meeting and Exhibits, Mary Kay Cosmetics Leadership Conference, and the National Cattle Industry Annual Convention and Trade Show have brought thousands of visitors and hotel guests to Downtown Phoenix.

Initial feedback from meeting planners and guests has been extremely positive for the new Convention Center, from the stunning design and functionally of the building to the high-level of customer service and exceptional quality of food service.

Looking beyond 2009, the Greater Phoenix and Convention and Visitors Bureau and PCC staffs are working collectively to book a diverse range of meetings and conventions which include government, education, healthcare, and religious groups plus special events such as the World Wrestling Entertainment Fan Axxess in 2010 and the MLB All-Star Fan Fest in 2011. In addition, the PCC sales and marketing team will continue to focus its efforts on the local corporate and meeting market as well as public shows.

RECOMMENDATION

This report is for information only. No Council action is requested.

CITY COUNCIL REPORT
POLICY AGENDA
TO:	Ed Zuercher Deputy City Manager	AGENDA DATE:		September 29, 2009
FROM:	Debbie Cotton Public Transit Director	ITEM:	4
SUBJECT:	transit 2000 sales tax and bus program update

This report provides an update on Transit 2000 (T2000) sales tax revenues with possible options to address a projected bus program deficit. In addition, guidance on next steps to address the shortfall as well as approval to pursue resource reallocations is requested.

THE ISSUE

With continued steep declines in sales tax revenue, the Transit 2000 fund is experiencing a growing projected deficit for the bus program. Without action beginning this fiscal year, the fund balance for the program could be negative by 2012 depending on the timing and strength or weakness of economic recovery. A firewall exists between bus and rail funding so that they are separate. None of the bus funds may be used for rail and vice versa. Because of earlier action by the City Council to phase the Northwest Extension, the City’s rail program, also funded by T2000 sales taxes, is projected to maintain a positive fund balance through 2017. METRO is currently taking prudent steps to monitor its costs which will help balance this portion of the T2000 fund.

OTHER INFORMATION

As approved by the voters, the T2000 program called for a 0.4 percent sales tax that, together with other funding sources, would fund bus and light rail programs. As a result, all General, Federal, and state lottery (LTAF) funds plus revenues such as fares and advertising are pooled with the sales tax for allocation. Consistent with the original program, light rail receives 34 percent of the pool, with 66 percent to bus services and street improvements (pullouts, left-turn arrows, and bike lanes). A firewall between funds exists to keep them separate.

Transit 2000 Sales Tax Collections

As shown in the following table, sales tax revenue has declined rapidly in the last two years and has not achieved the funding level anticipated in 2000. From inception of the tax through 2008-09, the average annual growth rate is 1.6 percent, below the 5.25 percent used to develop the original program. As recently as 2006-07, however, the average growth rate was 6.4 percent. In 2008-09, sales tax collections declined by 16 percent significantly depressing the average rate.

History of Transit 2000 Sales Tax Revenue

Fiscal Year	T2000 Sales Taxes (in 000s)	Change from Prior Year	% Change from Prior Year	Cumulative Loss from Original Forecast
2000-01	85,663	N/A	N/A	(737)
2001-02	87,918	2,255	2.6%	(3,719)
2002-03	87,092	(826)	-0.9%	(12,327)
2003-04	92,349	5,257	6.0%	(20,678)
2004-05	98,941	6,592	7.1%	(27,737)
2005-06	117,442	18,501	18.7%	(21,895)
2006-07	124,432	6,990	6.0%	(14,963)
2007-08	115,914	(8,518)	-6.8%	(22,749)
2008-09	97,325	(18,589)	-16.0%	(55,624)

For the first two months of 2009-10, T2000 sales tax revenues are 19.5 percent below the first two months of last year and only slightly above those of 2001-02. Nearly all the T2000 bus service improvements were implemented after 2001-02.

Bus Program Forecast

Without reducing expenditures and/or increasing resources, a cumulative deficit of $275 million is projected at the end of the 20-year bus program in 2020. Key assumptions in the forecast include: inflation of about 4 to 5 percent per year, an average annual sales tax growth rate of 3.6 percent for the 20 years, and fare increases of $0.25 every third year. The City Council at the time would have to assess the need for, and pass, any fare increase. No further reduction in the General Fund support to transit programs without corresponding cost reductions or changes to the state lottery funds formula is assumed.

Resource Options

Beyond an ongoing focus to maximize existing revenues, other opportunities for resource enhancement including finding new or reallocated funding sources from lower priority need to support current bus service. In the past, the department assigned a grant liaison to further focus on grant opportunities beyond routine Federal Transit Administration (FTA) sources. State lottery, federal funds, and the Phoenix share of the countywide ½ cent Proposition 400 sales tax funds are all candidates for funding reallocation.

Last year the formula for distributing lottery funds changed. The historically inconsistent LTAF II funds now have a higher funding priority than the ongoing, stable LTAF funds. Historically, LTAF funds have paid for operating costs, and until last year, LTAF II funds were used solely for capital. Given the formula and priority change, it may be desirable to also direct LTAF II to the operating budget.

Reprogramming federal funds and the Phoenix share of Proposition 400 funds could be pursued through the regional processes for each. For Phoenix, these funding sources provide for projects such as new transit centers, park-and-rides and operating facilities, and new and replacement buses. Proposition 400 funds also pay for express and RAPID bus service.

Proposition 400 is also sales-tax based and, as shown in the below table, is experiencing revenue declines. Because of this, the entire region is now involved in a major reprogramming.

Countywide Transportation Sales Tax Collections

Fiscal Year	PTF Sales Tax Revenues	% Change from Prior Year
2005-06*	51,146,000	N/A
2006-07	130,188,000	N/A
2007-08	126,324,000	-3.0%
2008-09	109,020,000	-13.7%

*2005-06 five months revenue only

Federal funds currently pay some operating costs classified as capital preventive maintenance for federal purposes. Federal funds may also be used to pay for some of the day-to-day operating costs for ADA paratransit. With the new bus service contracts, more costs will be eligible as preventive maintenance in 2010-11 and beyond. Since significant bus service expansion is not likely for the next few years of the T2000 program, spending for capital projects can likely be reduced. This could free capacity for use on operating expenses.

Expenditure Options

A multi-year approach is suggested for making expenditure reductions. This will allow time for economic recovery and assessment of the impact of cost reductions and revenue enhancement initiatives. Due to the significant lead time to meet federal requirements, reanalyze route efficiency given the service and fare changes of the last year, and plan and publish bus service changes, the next opportunity to make meaningful changes for service changes will be for July 2010 service.

The Public Transit Department has formed an employee team focused on rethinking what we do and how we do it and is taking steps to reduce costs and increase revenues by using our assets to their fullest revenue producing potential. At the same time, the department is preparing to change our contracting method for bus service operations and will be taking over direct management of contracted support services such as route scheduling and the operations control center (OCC). It is anticipated that these steps will result in some savings or increased revenue to help the fund.

Accordingly, the following outlines potential time lines and types of expenditure actions that could be explored this, next, and future fiscal years.

2009-10

- Implement non-service changes identified by employees and in the annual technical budget review with Budget and Research.

- Review the capital improvement program for projects that can be cancelled or delayed regardless of funding source.

- Identify contract professional services for potential mid-year action.

- Pursue funding reallocations, such as federal funds for ADA service and LTAF II for operating costs.

- Review revenue enhancements such as circulator fares.

- Complete transfer to centralize duties and positions in Public Transit in advance of the bus service contract method changes planned for July 2010.

2010-11

- Incorporate impact of new bus service contracts on financial forecast.

- Implement administrative staffing reductions.

- Implement any needed service reductions. These include assessment of neighborhood circulators, low performing fixed routes, frequency of service, hours of service and weekend service.

Future Fiscal Years

- Continue seeking administrative cost reductions.

- Implement additional service reductions as needed.

Timing Options

Immediately resolving the currently forecasted end-of-program deficit requires annualized resource increases and/or expenditure reductions of $18 to $20 million over this and next fiscal year. However, staff does not recommend this abrupt action. Uncertainty is unusually high for the bus program due to the economy, changes planned for the bus service contracting method, the state budget, and the upcoming federal process to authorize the expiring authority for transit funding. Cutting costs and/or increasing revenue in smaller measured steps will allow time to fully assess the situation and react to changing conditions. It also lessens the impact on our customers.

Alternatives to implement changes in one, two, or three actions to achieve a balanced 20-year program are presented in the following table. For the purposes of this analysis, it is assumed that the 2009-10 LTAF II funds are used for operating purposes and known savings of $1.7 million from contract awards made this year are ongoing.

Estimated Resource Increase and/or Expenditure Reduction

Required to Balance 20-Year Plan

	Option 1	Option 2	Option 3
2009-10
Administrative & non-bus service reductions	$500,000+ annualized
2010-11
Resource Enhancements/Service Reductions	$16.0M	$ 9.0 – 12.0M	$ 7.5M
2011-12
Resource Enhancements/Service Reductions			$ 5.0M
2012-13
Resource Enhancements/Service Reductions		$ 6.0 – 8.0M	$ 5.0M

Total Change Amount	$16.5M	$15.5–20.5M	$ 18.0M

Due to uncertainty about the economy, staff does not believe that a one-step service reduction is desirable. Option 2, using an every other year approach, allows time for the economy to stabilize, the state to resolve its funding where transit lottery funds are a potential target, and the federal funding authorization to be developed more fully. In addition, allowing one year between service reductions provides time for our customers to adapt and for an evaluation of how the service changes impact individual route efficiencies. Option 3, a three-step approach could leave customers in a state of constant change with limited opportunity for us to reassess route efficiency and fine tune the next round of changes.

RECOMMENDATION

This report provides background information on the status of the T2000 bus fund. Staff recommends a multi-phase approach to addressing the projected revenue shortfall. Beginning this year, staff recommends conceptual approval to:

- Use LTAF II funds for transit program operating costs rather than for one-time capital projects;

- Evaluate capital project needs based on no growth or decline in transit service levels for future action by City Council;

- Assess non-T2000 funding resources to support ongoing operation of existing local bus service, such as Proposition 400 and federal funds; and

- Continue assessing administrative costs.

In addition, staff requests guidance on the timing options for resolving the projected deficit in the Transit 2000 bus program. Staff recommends Option 2, which involves assessing revenue enhancements and service reductions in 2010-11 and 2012-13 to balance the fund. With Council direction, staff will bring back recommendations on specific service reductions to City Council through the Transportation, Infrastructure and Sustainability Subcommittee.

1.	Council Information and Follow-up Requests/Call for an Executive Session/Agenda Items/Reports and Budget Updates by the City Manager
2.	Downtown Sheraton Hotel Activities and Parking Update
3.	Phoenix Convention Center Update
4.	Transit 2000 Sales Tax and Bus Program Update

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Phoenix - All America City - 2009