The Train has Left the Sonoma County Mayors and Station Five Years Later- The Outlook for Smart*

The completion of Phase 1 in late 2016 will not satisfy what was promised to voters in 2008. Farhad Mansourian General Manager SMART wholly disagrees. Response: 5401 Old Redwood Highway There is no evidence to support the opinion expressed in this "finding." Few Suite 200 people, including professional economists, anticipated the economic downturn Petaluma, CA 94954 in 2007-2009. Phone: 707-794-3330 Fax: 707-794-3037 www.sonomamarintrain.org 1 Honorable Kenneth J. Gnoss September 17, 2014 The recession affected SMART just as it did other public and private entities, and the voters themselves. Responding to unexpected financial constraints, SMART acted prudently in deciding to phase the construction of the SMART rail system. SMART has taken pro-active measures, taking into account the fiscal impacts and construction delays caused by the recession, to insure that a passenger rail operation promised to the voters will commence in 2016.

The current two-year delay in service caused by construction shortfalls represents a 10-percent loss in value generated by 20 years of sales tax revenue. SMART partially disagrees. Response: SMART agrees that the economic downturn caused construction shortfalls resulting in a delay of the commencement date for passenger service. However, that downturn impacted many public entities and private businesses causing delays in both public and private projects. To avoid a further delay, and to mitigate any loss in value, the Board of Directors made the prudent decision to commence the project in phases. The economic downturn also created opportunities, as SMART was able to negotiate reduced prices on significant contracts, allowing for example, the addition of the Atherton/San Marin Station as part of Phase 1. SMART does not agree that the recession caused delay represents a "10-percent loss in value".

The Sonoma County Civil Grand Jury's financial analysis indicated that SMART faces potential funding challenges to complete the 73-mile project. Response: SMART disagrees. The Grand Jury's finding is based upon its own financial analysis that was not provided to SMART or the public. SMART can neither agree nor disagree with an analysis that it was not able to review because it was not provided to SMART.

The Sonoma County Civil Grand Jury's financial analysis raises concerns with the forecasting assumptions and contingencies used to project future revenues generated by the 1/4 cent sales tax. Response: SMART disagrees. Similar to the response to F3 above, SMART can neither agree nor disagree with an analysis that it was not able to review because it was not provided to SMART. However, it should be noted that SMART was able to issue bonds with the projected revenue generated by the sales tax pledged to pay debt service on the bonds.

Operating plans and finances are dependent on sales tax revenues, and any shortfall could have serious consequences. Response: SMART partially disagrees. Similar to any other public entity dependent on tax revenue, a shortfall in anticipated revenue may result in a modification of the budget. However, even in the face of the recession of 2007-2009, SMART has demonstrated prudent handling of its financial resources to enable commencement of passenger operations in Honorable Kenneth J. Gnoss September 17, 2014 2016. In addition, SMART has made great efforts to secure other available funding, including leveraging Measure Q funds. SMART will continue to implement sound financial practices, such as maintaining minimum reserves (including both operating and capital maintenance reserves), such that business cycles will not disrupt operations.

While its name suggests that it performs a public oversight function, the Citizen's Oversight Committee has not provided broad oversight; its actual contributions to the SMART project have been confined to the mandated role of overseeing the Strategic Plan. Response: SMART partially disagrees. In 2008, through the approval of Measure Q, the voters established a Citizen's Oversight Committee and defined its role. The Citizens Oversight Committee was not established by the voters to provide broad oversight functions. Consistent with its voter approved role, the Citizen's Oversight Committee oversaw adoption of the 2009 Strategic Plan and is presently overseeing the 2014 Strategic Plan Update.

SMART management has demonstrated resourcefulness throughout the construction phase and a prudent control of finances, but competent management is no substitute for effective Board governance. Response: SMART partially disagrees. SMART agrees that management has demonstrated resourcefulness and prudent control of finances. However, SMART's management's success is a direct result of the Board's effective governance. The Grand Jury report acknowledges such by finding that management changes have generated positive results and commending the Board for its handling of the management changes.

The members of the Board of Directors have heavy time commitments, resulting in lack of sufficient attention for SMART and an absence of the effective oversight voters expected when Measure Q was adopted. Response: SMART wholly disagrees. Measure Q requires that Board members be appointed from the membership of other public entities (e.g., County Board of Supervisors; City Councils). It is common for public officials to sit on multiple public boards. Many SMART Directors also serve on other transit agencies resulting in a vital coordination of SMART's operational issues and funding goals. Representation on other transit agencies and entities along the SMART corridor allows the SMART Board to effectively oversee regional transit services and tax dollars to insure that funds and transit plans are targeted and coordinated to enhance the quality of life in all towns and cities along the SMART corridor.

Although an economic crisis began in 2007, SMART failed to inform voters in the November 2008 election of the resulting risks to the revenue projections contained in the Measure Q Expenditure Plan. Response: SMART wholly disagrees. This finding is stale in that it relates to six year old events and does not involve actions of current management. This finding involves events that occurred long before the 2013-2014 Grand Jury was impaneled and does not ć Honorable Kenneth J. Gnoss September 17, 2014 relate to the current method or system of SMART's operations.

The Board of Directors failed to mitigate the serious impact of the economic downturn and of the land- use environmental approvals process. SMART wholly disagrees. Response: Once the impact of the economic downturn and the complexity of the environmental approval process were fully recognized SMART took affirmative measures to insure delivery of a passenger rail system. The economic downturn forced the project to be accomplished in phases. Phase I initially consisted of six stations between Santa Rosa and the Marin Civic Center. Due to the Board's effective oversight, including changing agency management and aggressively seeking other funding, Phase 1 is now scheduled to consist of 10 stations and service between the Sonoma County Airport and the City San Rafael.

The Board of Directors would operate more efficiently and effectively if it were using the standing committees defined in the SMART Administrative Code. Response: SMART wholly disagrees. The Grand Jury has previously noted that Board members have numerous time commitments. Standing committees are advisory only to the full Board. Since all matters reviewed by a standing committee would ultimately be addressed by the full Board there does not appear to be any tangible benefit to either the public or SMART to use committees. In addition, use of the committees would increase SMART's costs to conduct the meetings.

The lack of station parking, road-crossing disruptions, and failure to connect directly with the Larkspur ferry terminal will create serious logistical difficulties. Response: SMART disagrees. SMART can neither agree nor disagree or further respond to this finding because there is no support for this finding contained in the Grand Jury report.

Once construction has been completed, public safety needs to become the highest priority. Response: SMART partially disagrees. SMART agrees that public safety is one of its highest priorities. However, SMART is not waiting until construction is completed. SMART has created a team of experts in the fields of rail operations, fire and police to address SMART's public safety needs and is presently in the process of developing appropriate plans well in advance of the start of passenger service.