Line of Business Financial Return Summary D R A F T Presented September 15, 2015 By Karen Goschen Deputy Executive Director/Finance Director

Agenda Rate of Return Concepts Public Benefit vs Financial Return Matrix Financial Data Economic Impact Data (Jobs) Draft Line of Business (LOB) Return Matrix Next Steps 2

Rate of Return Concepts Profit vs Break Even vs Subsidized – Commission decision Market rate versus fair return – Triple bottom line per Capital Improvement Policy Financial, Jobs, Environment Return: highest and best use of an asset, time value of money, inflation, opportunity cost of money, cost of capital, level of risk, desired profit – Adjustments for living wage jobs, environmental stewardship and overall economic activity supported by the project – Return Impacts capital investment decisions … risky return … solid return expected in dollars and jobs 3

Public Benefit vs Financial Return Public Benefit – Jobs data from 2012 economic impact study Revised for MTA Need to separate Rental Property & Airport Rental Property – Other community benefit Financial Return – Used 2014 actuals, first year new LOB data available Need to use trend data to level out volatility Marine Terminal had banner year in 2014 – Business data re-aligned in 2014 Marine Trades Area, Airport Rental Property Earlier data not as accurate Prior to 2013 personnel costs were understated – Investment in assets excludes land (requires research) 4

Public Benefit vs. Financial Return Matrix NONE MIDDLEBROAD PUBLIC BENEFIT OR JOBS FINANCIAL BENEFIT SUBSIDIZED BREAK EVEN FULL RETURN Lowest Rated Projects Limited Financial Return Limited Jobs Highest Rated Projects Highest Financial Return Highest Jobs 5

Financial Data: Operating Margins Revenues – Direct Expenses = Operating Margin 6

Financial Data: Assets Reconstruction costs are typically higher than depreciation (MT replacement estimated at $48 million) Cost of capital has historically been 3.5% to 4% 7 DRAFT

Financial Data: Allocations $ 101k Mechanical Maintenance $ 228k Facilities Maintenance $1,887k Administration – Personnel (Commission, Exec Director, Finance, HR, Environmental, Engineering, roaming Security) – Outside Services (Technology, Legal, Audit, special studies) – Unallocated insurance $ 279k Business Development $2,495k Total Allocated Costs Allocation percentage is based on expenses in each Line of Business (LOB) in relation to total expenses in all LOBs (based on Federal allocation regulations) 8

Economic Impact Data: Jobs (Revised 2012 Economic Impact Study for MTA) 9 DRAFT

Public Benefit vs. Financial Return Matrix NONE MIDDLEBROAD PUBLIC BENEFIT OR JOBS FINANCIAL BENEFIT SUBSIDIZED BREAK EVEN FULL RETURN JWM 30% OM 73 Jobs PABH 53% OM 253 Jobs Supports MTA MT 78% OM 688 Jobs volatility MTA 25% OM 340 Jobs Growth RP + Air RP 70% OM 515 Jobs LY / Airport 25% / 25% OM 88 / 86 Jobs MT / Community 10 DRAFT

Next Steps Review and revise Public Benefits vs Financial Return matrix – Use to prioritize investments in capital projects Commission Policy to set rates – Market rate, fair rate of return (cost of capital plus x%), subsidized rate 11

Questions 12