Brennan Releases Comprehensive Report on MTA

Agency headed for catastrophe leading to second fare hike in 2005 unless Legislature overhauls MTA structure and finances

State Assemblymember Jim Brennan (D, W-F - Brooklyn) today released a report, "Demystifying the MTA: A Citizen Guide to Current Issues, Law and Finances," that provides a road map for concerned citizens about needed reforms of the MTA and its past, current and future financial condition.

The report provides a description of how the MTA evaded public scrutiny of its finances from 1999 until the end of 2003, and the consequences of that deception. It provides summaries of the audits of the MTA by the State and City Comptrollers, the various reform initiatives advanced by members of the Legislature and Comptroller Hevesi, and the issues surrounding the fare increase controversy. Finally, the report shows that the Legislature and the Governor must confront the escalating financial problems of the MTA, which the State Comptroller noted may be facing up to a $1 billion deficit in 2005.

"The MTA hid its deficits for years after 1999 through the use of one-shots and prepayments of its future obligations," Mr. Brennan said. "Only after the November 2002 gubernatorial election did it begin to reveal its financial problems, and only after its finally released financial plan, nearly four years later in October 2003, did it show its true picture - multibillion dollar deficits for years to come due to heavy use of borrowed funds to finance its capital plan."

By obscuring its true financial situation, up until Governor Pataki won re-election in November 2002, the MTA did not make it clear to the public and the Legislature that one-shot resources from debt refinancing were covering operating budget shortfalls. At the same time, the 2000-2004 capital plan was financed by incurring new debt nearly twice as high as in prior plans, straining future operating budgets with extraordinary amounts of debt service costs. In hindsight, this strategy seems to have been designed in order to insure that all the MTA's financial problems would not be revealed until after the 2002 election year.

It is only now becoming clear that MTA financial practices have generated a situation where enormous financial burdens have been shifted to future years. Only nine months after fare and toll increases took effect, the MTA is again projecting large deficits for the coming years. The MTA now maintains that it will keep current fares, tolls and services only through 2004.

The MTA's latest financial plan released in October 2003 once again does not clearly identify the sources of non-recurring revenues and the transfer of funds from one fiscal year to another. Transparency is further hindered by lingering problems including discrepancies among the different operating agencies in the accounting systems, only partial disclosure of budget assumptions, and the revision of base estimates as a means to reconcile gaps between projected and actual revenue and expense figures.

In addition, since the introduction of fare discounts, ridership has risen significantly, while revenues have risen at a much slower pace. For years now, but specifically in connection with the 2003 fare and toll increase, the impact of these discounts have been estimated, yet little to no research is presented on the accuracy of these estimates. The MTA is now saying it may raise fares in 2005 by eliminating discounts. While the impact of such a step is likely to be in the hundreds of millions of dollars, there is very little understanding or documentation of this issue.

The persistent lack of transparency and accountability is compounded by existing inequities in the fare structure, which place a greater burden on the City's mass transit riders compared to the percentage of operating expenses covered through the fare box by suburban commuters. The City Comptroller, as well as transit advocates, have pointed out that the last fare increase has exacerbated rather than ameliorated these inequities. This fact, as well as the MTA's discretion over the internal allocation of certain tax-based revenue sources, belies the MTA's claim that inequities in the fare structure are solely the outcome of policy choices made by its governmental funding partners.

After reviewing the MTA's latest financial documents, the State Comptroller has made it clear that the MTA is still not acknowledging the true extent of its precarious long-term financial outlook. While MTA finance issues have largely disappeared from the public radar screen for the time being, the agency is sitting on a financial time-bomb, ready to explode in 2005.

Reform initiatives, designed to improve the information flow from the MTA to the Legislature and the public, are essential to restore credibility to the MTA and its budgetary process. Assemblymember Brodsky has proposed a radical overhaul of the MTA to place its fares, contracts, and finances under outside independent control. Assemblymember Brennan's legislation requires specific reporting guidelines as part of the MTA's legal statutes and ties certain financial disclosure provisions to the MTA's legal mandate to hold public hearings before fare increases. The lack of such provisions enabled the MTA in 2003 to push the fare increase through the challenge of a legal suit, which had charged the agency, based on the State Comptroller's discoveries, with making a sham out of the public hearings.

These proposals, in combination with new reporting regulations issued by the State Comptroller are of foremost public interest, particularly in light of the next looming fare box debacle, likely to occur in 2005.