James F. Brennan
New York State Assembly
416 Seventh Ave,
1414 Cortelyou Road
LOB, Room 741
Phone (718) 788-7221
Phone (718) 940-0641
Phone (518) 455-5377
Demystifying the MTA
A Citizen Guide to Current Issues, Law and Finances
Table of Contents
NY City Comptroller's Recommendations
NY State Assembly Bills
|Report researched and written by Dr. Sabine Dyer|
Table of Contents (Supplement)
Late in 2002, the Metropolitan Transportation Authority ("MTA") proposed system-wide fare and toll increases, which it billed as an immediate necessity to cope with large projected operating deficits for the coming years. This announcement spurred a public uproar, not only because of its size but also because it came as a surprise to almost everyone, including financial experts and the Legislature. Most observers had expected sizeable surpluses in the MTA's operating budget and did not anticipate any need for higher farebox revenue. During the ensuing debate over whether the fare and toll increase was necessary and legitimate, the MTA appeared to be far from helpful or transparent in showing the state of its finances accurately and honestly.
This report retraces the main steps of the debate and asks what we have learned in the meantime about the legitimacy of the fare hike and the financial situation of the MTA in general. The report goes on to identify the main issues at stake for the public and its elected officials and asks what steps need to be taken to assure the transparency of the process and to restore credibility to the MTA as an institution.
The MTA presented misleading information to justify the fare hike in early 2003, when, in fact, it had sufficient resources to cover its expenses for that year. The State Comptroller ultimately discovered that the agency shifted half a billion dollars from one fiscal year to another and into off-budget accounts, in order to temporarily and artificially reduce its surplus in 2002 and inflate its projected deficit for 2003.1 The MTA should have presented accurate information about both its current actual cash picture, as well as its precarious long-term financial situation, particularly in light of its large capital construction budget, but chose instead to do neither.
This pattern of deception began after 1999 when the agency began failing to submit its annual financial plan to the public and the Legislature. It failed to do so until October 2003. When the Legislature approved the 2000-2004 capital program, it was not clear that the MTA was intending to use cash extracted from its multibillion dollar debt refinancings to cover operating budget shortfalls for several years up until Governor Pataki stood for re-election in November 2002. It is only now becoming clear that MTA financial practices have generated a situation where enormous financial burdens have been shifted to future years, a very serious issue in its own right.
Only nine months after fare and toll increases took effect, the MTA is again projecting large deficits for the coming years. The MTA's recently released Financial Plan for 2004-2007 shows a growing structural imbalance with expenditures consistently exceeding recurring resources. The MTA now identifies rising debt service costs and the depletion of non-recurring resources as the main culprits. This dynamic is attributed in large part to financing the 2000-2004 capital program without state capital money, which forced the MTA to fund the program by incurring extraordinary amounts of debt.2 The agency patched operating budget shortfalls in 2002 with one-shot revenue sources, including the debt refinancings3 that provided cash and the acceleration of a 2003 state payment into 2002.4 These past decisions are now, and will be for the next several years, taking their toll.
The MTA maintains that it will keep current fares, tolls and service levels at least through 2004. However, the agency is looking for increased state aid to cope with ballooning deficits after this year. The Legislature, however, can only make funding decisions to the extent that it has a clear and complete understanding of the MTA's financial situation. The public must be able to trust that the Legislature receives all the information necessary to know what subsidies the MTA really needs in order to avoid future fare hikes and balance its budget including understanding the necessity of fare and toll increases.
Reforming the MTA's financial reporting practices is essential so that the Legislature can do its job and the public can see that fare policy decisions are not merely the outcome of number manipulation and political choreography. While the MTA itself has announced internal changes to its organizational structure and budgetary process, more profound reforms require changes to the MTA's legal framework. Current statutes, for example, do not contain financial disclosure provisions for the MTA's public hearings before fare increases, thus leaving the extent and form of provided financial information to the good will of MTA executives.
Reform initiatives, such as those championed by the State Comptroller and Assemblymembers Brodsky and Brennan, prescribe specific formats for financial reporting and introduce independent oversight mechanisms to the financial planning process. While certain aspects of the reform proposals are rather technical in their details, they are not simply about accountants understanding other accountants. For example, requiring the MTA to present financial information for all operating agencies in the same way and to identify resource transfers to future years, are basic transparency requirements indispensable for making decisions about the need and allocation of government aid.
In order to hold decision-makers accountable, it is also important that long-term financial information is available, and that estimates for future years are updated and reasonably justified. Taxpayers and MTA riders have a right to know how current decisions affect future financial burdens and to be assured that future year estimates are not deliberately manipulated.
In addition, the recent debate on MTA finances has also shown that inequities exist in the financial burdens shouldered by the City's mass transit riders compared to suburban commuters. The City comptroller and transit advocates have repeatedly noted that mass transit riders pay a higher percentage of operating expenses through the fare box than riders on the commuter railroads.5 This issue has to be addressed on several levels. The same is true for the social impact of fare policy decisions. The MTA has offered very little information on the socio-economic profile of its customer base and related purchasing decisions. Outside research has noted, for example, that low income families are least likely to take advantage of fare discounts, which require upfront pre-payment. However, to even begin deliberations on these issues, the Legislature first needs to be certain that the financial reporting process is sufficiently clear and informative on issues such as this.
Restoring credibility to the process will effectively benefit all three bodies, which the MTA serves: the public, the Legislature and the MTA itself. The reforms would allow the public to clearly see and understand the potential lack or need of additional funds. They would allow the Legislature to understand exactly how much money is needed and to then make the hard choices as to whether it sets aside more government aid or whether it allows the MTA to pass on the costs to MTA riders. And it will also benefit the MTA, by removing the suspicion that the agency practices public deception for political purposes.
1Alan Hevesi, State Comptroller, "An Examination of the Finances of the Metropolitan Transportation Authority," Office of the State Deputy Comptroller for the City of New York, Report 4-2004, April 2003 [subsequently quoted as: "Hevesi Report, April 2003"];
2New York State contributed an average 18% to the first two MTA 5-year capital programs, 7% to the 1995-1999 program and 0% to the current 2000-2004 capital program. The current $18.9 billion program is funded with $12.3 billion in borrowed money, twice the level in the prior program. See: Alan Hevesi, State Comptroller, "Review of the Financial Plan For The Metropolitan Transportation Authority," Office of the State Deputy Comptroller for the City of New York, Report 10-2004, December 2003, pp. 29 and 31. [Subsequently quoted as: "Hevesi Report, December 2003"]
3In a response to the State Comptroller's review of the Financial Plan, the MTA said that approximately $630 million in savings from debt restructuring were allocated to 2003 and 2004. See: "MTA's Detailed Response to Comments in the State Comptroller's Report on "An Examination of the Finances of the Metropolitan Transportation Authority," p.1 [Subsequently quoted as "MTA's Detailed Reponses"]
4This aid came in form of a so-called "spin-up," which refers to the extraordinary measure of advancing the schedule of state aid payments. In 2002, the spin-up provided roughly $350 million of additional revenue: $250 million for NYC Transit and $100 million for the commuter railroads. See: New York City Independent Budget Office, "NYC Transit's Budget Gap: Reviewing the Numbers," Number 112, January 16, 2003, p.1 (Note: In the MTA "December Plan" referred to as "One Shot - State Aid $367.6 million, see: MTA Financial Plan/Options, p.3)
5William C. Thompson, Jr., Comptroller, City of New York, "Audit Report on the Financial Practices of the New York City Transit Authority," Office of the Comptroller, Bureau of Financial Audit, FN03-141A, April 23, 2003, p.15 [subsequently quoted as: "Thompson Report, April 2003"]
The Metropolitan Transportation Authority ("MTA") was created in 19686 as a public benefit corporation,7 with the mission to continue and improve commuter transportation and to develop a unified mass transportation policy for the New York Metropolitan area.8 As a means to insure the continuation of public transportation, the State Legislature instituted the MTA as an umbrella organization for the previously existing commuter railroads and mass transportation agencies.
Today, the MTA operates North America's largest transportation network, serving a population of over 14 million people in a 5,000 square-mile area, reaching out from New York City to Long Island, southeastern New York State and Connecticut. The Authority carries out its managerial and operational tasks through its operating agencies which long precede the creation of the MTA itself. The New York City Transit Authority ("NYCTA") operates the City subway and bus systems. In 2002, nearly two thirds of the MTA's total operating budget went to the NYCTA.
In addition, bus services are provided by Long Island Bus ("LI Bus"). The commuter railroads are operated by the Long Island Rail Road ("LIRR") and the Metro-North Commuter Railroad Company ("MNCR"). The Triborough Bridge and Tunnel Authority ("TBTA") manages the MTA's toll bridges and tunnels.9
|(Table 1)||MTA Network|
|2003||MTA Total||NYCTA||LIRR||LI Bus||MNCR||TBTA|
|Operating Budget||$7.5 bill||$4.9 bill||$1.2 bill||$101 mill||$988 mill||$358 mill10|
|Average weekday Passengers||7,771,972||7,056,251||299,254||104,604||251,863||842,150 (vehicles)|
|Note: TBTA operating budget: plus $582 million transfer to mass transit and CRR. For a detailed breakdown of TBTA surplus transfer 2002-2007 see Attachments (8.5.)|
|source: mta.info (statistical data as of Dec. 2002; updated July 2003)|
The MTA is a public benefit corporation or public authority under the State of New York Public Authorities Law. A public authority is a corporate instrument of the State, created by the Legislature to further public interests. By creating a single public authority for transportation services, the Legislature recognized the intrinsic public interest in commuter and mass transportation. The MTA is specifically mandated by the Legislature to act "in all respects for the benefit of the people of the state of New York."11 Public authorities are legally and administratively autonomous from the State. The MTA is governed by a Board of Directors, consisting of a Chairman and 16 other voting members appointed by the Governor with consent of the Senate. Peter S. Kalikow, a board member since 1994, became the current Chairman of the Board in 2001 on the recommendation of Governor Pataki.
Due to the historical background of the agency, i.e. the establishment of individual authorities and a subsequent, progressive transfer of transport responsibilities to the MTA, the relevant statutes governing the MTA are located in different sections of the public authorities law, and corporate governance provisions vary from one agency to another.12 In technical terms, the commuter railroads have become direct "subsidiaries" of the MTA, while both TBTA and NYCTA are considered MTA "affiliates." The NYCTA and TBTA are operationally and legally independent of the MTA. They enjoy certain rights, typically associated with separate legal status, incl. in some instances, the issuance of debt. The TBTA actually issues bonds on behalf of the NYCTA and the commuter railroads. However, both NYCTA and TBTA remain under the direction of the MTA board and fall under the MTA's financial accountability.
Public authorities vary in their degree of fiscal autonomy from the State. By legal statute, the MTA has the power to levy fares, tolls, rentals, rates, charges and other fees "as may in the judgment of the authority be necessary to maintain the combined operations of the authority and its subsidiary corporations on a self-sustaining basis."13 However, the MTA is not entirely self supporting, but relies on State (and City) grants to fund their operations. Operating Losses (the difference between operating revenue and expenses) result from the nature of the essential services provided by the MTA's operating agencies. To fund these operating losses, the Authority receives government subsidies, which are governed by law and appropriation. In 2002, the MTA received $2.144 billion14 in grants, appropriations and tax-supported subsidies from state and local sources.
Within the MTA network of operating agencies, the TBTA is the only one with significant surplus revenues. New York State law requires TBTA to transfer its annual operating surplus, to the NYCTA and the commuter railroads. Pursuant to the legislative scheme, the TBTA's annual operating surplus and surplus investment income are used to fund the operating expenses of the transit system and the commuter railroads and to finance the cost of certain capital projects, including payment of debt service costs on obligations issued by the MTA to finance such projects.
(Table 2) TBTA Surplus Distribution 2002
Analysis by the Office of the State Deputy Comptroller15
($ in millions)
|TBTA Net Operating Income||$654.3|
|Less: TBTA Deductions||($148.4)|
|Net Income Available for Transfer||$505.9|
|Transfer to NYCTA|
|First $24 million reserved for NYCTA||$24.0|
|Half of Remainder||$241.0|
|Less: TBTA Debt Service for NYCTA||($161.0)|
|Available for NYCTA Operating Budget||$104.0|
|Transfer to CRR|
|Half of Remainder||$241.0|
|Less: TBTA Debt Service for CRR||($96.7)|
|Available for CRR Operating Budget||$144.2|
Key Factors of MTA Finances
The operating budget, or operating program, refers to the amount of money necessary for the MTA to run its annual operations. In 2002, the MTA annual operating budget was slightly over $7.6 billion,16 which is significantly larger than the operating budget of major cities in the US, including, for example, Boston ($1.81 billion)17 or Philadelphia ($3.2 billion).18 The MTA's budget is balanced on a cash basis. Any cash left at the end of the year is applied to the next year's budget.19
On the income side, operations are funded mainly from two sources: passenger fare and toll revenue (operating revenues) and subsidies (non-operating revenues). Operating revenues also include a comparatively smaller income from sources such as rents, sales from concession stands, advertisement etc.20 The MTA agencies, with the exception of the TBTA, regularly incur substantial operating losses, for which specific forms of government aid are set aside. State and City government subsidies, the largest segment of which are tax-supported subsidies from New York State, flow through the MTA to the NYCTA and Commuter Railroads. Any needed increase in revenue to cover expenses must be achieved through a limited number of options: it requires either service cuts, higher fares and/or tolls, or increased subsidies.
On the expense side, the largest expenditure categories are salaries and wages, and pension, health and other employee benefits. Further operating expenses are made up by materials (including supplies, fuel and power), computer, engineering and consulting services, and coverage of public liability and claims. Another large expense type is debt service. The MTA borrows money mainly to finance repairs, system improvements and large construction projects included in its capital program. Nonetheless, debt service costs are paid out of the operating budget as they are due.
As a public authority, the MTA is required to prepare annual financial reports21 and the MTA's statutes grant certain audit functions to the State Comptroller.22 Upon completion of each fiscal year, the MTA publishes an "Annual Report," including a Comprehensive Annual Financial Report ("CAF"). The CAF is audited by an independent private firm23 and presents summary year and prior-year financial information. It is important to distinguish the CAF, which represents final results for the completed fiscal year, from financial statements, which refer to the current and/or future years. Financial statements for the current year, respectively referred to as the proposed, revised or final budgets, as well as financial statements for future years, so-called "financial plans," present estimates. Most of the recent debate over the legitimacy of the 2003 fare increase and the MTA's financial reporting practices has involved the MTA's financials plans, rather than its audited CAF.
Since 1982, investments in infrastructure, new equipment and system expansion are laid out in five year capital programs. The 2000-2004 Capital Program is worth $18.9 billion, of which approximately 40% are reserved for "Normal Replacement," 28% for achieving and maintaining a "State-of-Good-Repair," 11% for "System Improvement," and 20% for Network Expansion,24 including the construction of the Second Avenue Subway, East Side Access for the LIRR, and LaGuardia Airport Access. An additional expense is security needs identified after the attack on the World Trade Center in 2001.
|(Table 3) 2000-2004 Capital Program (in millions)|
|New York City Transit||$10,161|
|Long Island Railroad||$2,209|
|Bridges and Tunnels||$1,035|
|Source: Hevesi Report, April 2003, p.30|
The capital programs are subject to the approval of the NY State MTA Capital Program Review Board, with the exception of the TBTA. The Capital Program is funded by a combination of government allocations (federal, state and local), debt, interest income and proceeds from selling or leasing assets. As noted by the State Comptroller's Office, the MTA has increasingly relied on debt to finance its capital programs as the contribution from the State has declined:
"The amount contributed by New York State toward MTA capital programs-both its direct contribution and proceeds from bonds supported by State-authorized dedicated taxes-declined, from an average of 18 percent of the total resources for the MTA's first two capital programs to 7 percent in the 1995-1999 program. The State is not making any direct contribution to the 2000-2004 capital program and the amount supported by dedicated taxes is not yet known."25
Originally, $1.6 billion in State funding for the 2000-2004 MTA Capital Program was included in the 2000 Transportation Bond Act. However, voters defeated the act in November 2000, leaving the MTA with the need to secure funding from other sources. According to the MTA's own analysis, the loss of the Bond Act money was partially offset by greater than expected savings from a major MTA debt restructuring initiative. However, those savings would have otherwise been used to reduce the MTA's debt burden.26
In effect, debt service costs are placing an increasing strain on the operating budget. According to the MTA's October Financial Plan, debt service costs as a percent of revenue would grow from 11.5% in 2003 to 23.7% in 2007. But even so, the MTA faces a further problem. The State Legislature has limited the total amount of money that the MTA, excluding the TBTA, can borrow to fund the approved capital program. For the 1992 through 2002 Capital Programs, the imposed debt ceiling is $16.5 billion.28 The MTA claims that it will reach the debt ceiling in 2006. However, the State Comptroller has warned that this will already be the case in 2005, leaving the MTA unable to finance $1.7 billion (9 percent) of the 2000-2004 capital programs, unless the State Legislature decides to raise the ceiling.29
While debt service for the current 2000-2004 program continues until 2007, the draft for the next five-year capital plan is scheduled to be released in July 2004. The MTA plans to fund the new capital plan with a resource profile similar to the current program, including 38% of funding from bond proceeds. However, the State Comptroller has pointed out, the funding projections rely on very optimistic assumptions about the contributions of New York City and the availability of federal transportation aid. Even though, the October Plan has not identified sufficient resources yet to fully fund the 2005-2009 program.30
This leaves the MTA with few options. If the MTA relies even more on the use of debt financing, it will seriously peril future operating budgets, which are already projected to run large deficits. Other than that, the MTA must either look for additional state aid, such as a special tax to fund debt service costs on bonds or a direct contribution to the capital program, or cut the size of the proposed capital program.
6Recognizing the vital importance of efficient transportation, the Legislature found the "deterioration of the financial situation and physical condition" of the commuter railroads to be a "serious threat to the economic well-being of the state." [Public Authorities Law, §1260, Historical Note (2.)] In response, it created the "Metropolitan Commuter Transportation Authority" in 1965. In 1968, the authority was renamed the "Metropolitan Transportation Authority," when it came to oversee also NYCTA and the TBTA.
7Public Authorities Law, §1236, subdivision 1 (a)
8Public Authorities Law, §1264, subdivision 1
9The operating agencies are the Long Island Rail Road Company ("LIRR"), the "Metro-North Commuter Railroad Company ("MNCR"), the Staten Island Rapid Transit Operating Authority ("SIRTOA"), The Metropolitan Suburban Bus Authority ("MSBA"), the New York City Transit Authority ("NYCTA"), the Manhattan and Bronx Surface Transit Operating Authority ("MaBSTOA"), and the Triborough Bridge and Tunnel Authority ("TBTA"). In addition, the authority includes the Metropolitan Transportation Authority Headquarters ("MTAHQ"), the MTA Excess Lost Trust Fund ("ELF") and the First Mutual Transportation Assurance Company ("FMTAC"). Many documents, however, including the MTA's own financial statements, generally refer to four different entities: the "MTA" (collectively referring to MTAHQ, LIRR, MNCR, SIRTOA, MSBA, ELF and FMTAC or, in short, its "subsidiaries"), the "Commuter Railroads" ("CR") (referring to LIRR and MNCR), the "Transit Authority" ("TA") (referring to NYCTA and MaBSTOA) and "Bridges and Tunnels" (B&T) (referring to the TBTA). TA and B&T are "affiliates" of the MTA.
10plus $582 million transfer to mass transit and CRR. For a detailed breakdown of TBTA surplus transfer 2002-2007 see Supplement 8.5., Analysis by the State Deputy Comptroller's Office (OSDC)
11Public Authorities Law, §1264 (2)
12Sections 550 through 571 of the Public Authorities Law create and define the TBTA. Sections 1200 through 1221 of the Public Authorities Law create and define the NYCTA, including subway and bus operations within the city of New York only. Sections 1260 through 1270-b of the Public Authorities Law create and define the MTA itself and its operating agencies that are constituted as subsidiaries - LIRR, MNCR and Long Island Bus. Sections 1263 through 1266 of the Public Authorities Law address the organization and general and specific powers of the MTA.
13Public Authorities Law, §1266 (3)
14$2,144 million include $2,097 million in "total grants, appropriations and taxes" plus $47 million in operating subsidies recoverable form CDOT. See: MTA, 2002 Annual Report, CAF, p.23
15For the full OSDC Analysis please see Supplement 8.5.
16MTA, 2002 Annual Report, p. 6.
17City of Boston, FY04 Adopted Budget by Cabinet, Executive Summary, p.1.
18"Balancing the Budget," Issues Philadelphia, www.issuesphiladelphia.net, p.1.
19By contrast, the City of New York is not allowed to apply surplus cash to the next year's budget, and therefore prepays debt service to move resources from one year to another. See: Hevesi Report, April 2003, p.2
20These revenues are generally summarized in a category "rent, freight, sundry". In 2002, operating revenues ($4,053 million) included $3,912 million in fares and tolls, and $141 million in "rent, freight and sundry." MTA, 2002 Annual Report, p.22.
21Section 2500 of Title 1, Art. 9.
22Public Authorities Law § 1276-a. See also: Art. 10, §5 "Comptroller to supervise accounts of public corporations;" and Section 2503 of Title 1, Art.9 New York State Constitution "Examination of books and accounts of public authorities by the state comptroller."
23The 2002 CAF was audited by Deloitte & Touche.
24mta.info, MTA 2000-2004 Capital Program, Investments by Needs Classification
25Hevesi Report, April 2003, p.29
26MTA-wide Financial Plan 2004-2007, p. iii
27Hevesi Report, April 2003, p.31
28At the end of 2002, the MTA recorded $6,978 in issued debt. See: MTA 2002, Annual Report, Notes to Financial Statements, p.44.
29Hevesi Report, December 2003, p.9
30Hevesi Report, December 2003, pp.35-37.
The 2003 Fare & Toll
Late in 2002, the MTA announced that it was facing large operating deficits in 2003 and 2004 and therefore proposed system-wide fare and toll increases. This revelation came as a shock to most observers. With increased rider ship, the advance pay-out of $350 million in state subsidies in the 2002 budget, the approval of a large debt restructuring project and high mortgage recording tax revenues, it was generally assumed that the MTA would close the Fiscal Year 2002 with a significant surplus and generally be in a sound financial position. Moreover, in January 2002, Katherine Lapp, the Executive Director and Chief Operating Officer of the MTA, testified before the New York State Legislature's Joint Budget Hearings that fares would be maintained at current levels.31
Therefore, the December 2002 release of the MTA-Wide Financial Plan for 2003-2004, which projected a two-year budget gap of $2.8 billion32 before internal gap-closing measures, raised serious questions about the sudden shortfall. After applying largely unspecified internal cost-cutting and other gap-closing measures, the so-called "December Plan" still projected a $1 billion gap for 2003-2004. To confront this shortfall, the MTA proposed three fare and toll increase options, all of which included raising the base fare on City subways to $1.75 or $2.00. In addition, 177 token booth closures were proposed. To comply with its statutory obligations, the MTA held several public hearings on the proposed fare increase. The February hearings were all conducted on the basis of the information presented in the December Plan.
In light of the importance of the MTA's financial position and the impact of potential fare increases to the life of New Yorkers, both the State and the City Comptrollers subsequently reviewed the MTA's financial position. The audits indeed revealed serious problems. In particular, the documentation, which presented the $1 billion gap, proved to be incomplete and misleading. While the reviews vary in details, discussed below, they agree that the MTA engaged in dubious financial reporting practices, ultimately aimed at justifying the largest of the proposed fare increases.
On March 6, 2003, while the reviews of the December Plan were still ongoing, the MTA approved its system-wide fare and toll increase to take effect two months later. The March 6 Board actions raised the base fare on City buses and subways to $2.00, a historic 33% increase. To mitigate the impact on riders, the board simultaneously approved deeper discounts on MetroCards. Commuter railroad fares were raised by an average 25%. Additionally, the board approved an increase in bridge and tunnel tolls and higher fares on Express buses. After a major public outcry, the Board voted to close 62 token booths instead of the originally proposed 177 closures. Furthermore, the board also decided to study Mayor Bloomberg's CityTicket proposal, which envisions a fixed $2.50 fare on commuter railroads for travel between any two points within New York City.
In response to the questions raised by the MTA's December Plan, New York State Comptroller Alan Hevesi requested to review the MTA's books. After reviewing 18 cartons of financial documents and testimony of MTA officials, both obtained only after issuing subpoenas, the State Comptroller's Office, under the direction of the State Deputy Comptroller for New York City, Kenneth Bleiwas, concluded that the MTA had misled the public about its financial status.
Most blatantly, the review of the subpoenaed documents revealed a comprehensive financial document, the so-called super spreadsheet, which the MTA had used for internal accounting purposes and which had not been disclosed to the public or the Legislature.33 MTA officials claimed that the super spreadsheet contained essentially the same information than the public version of the December Plan, albeit in more detail.34 The State Comptroller, however, maintained that the agency kept outright separate plans for internal and public purposes, respectively. The existence of secret financial dealings became obvious when the Comptroller's analysis of the super spreadsheet discovered over half a billion dollars in resources that were hidden from the public.
The main techniques used in the MTA's "accounting magic"35 consisted in transactions, which shifted resources from the current year to future years and moved cash altogether into off-budget accounts. One particular practice, identified by the State Comptroller as a vehicle used by the agency to conceal available funds from the public, is debt service prepayment. The MTA issues debt mainly to cover capital program costs. Debt service costs are paid out of the operating budget as they are due. However, the MTA's strategy to set money aside to prepay debt service costs for future years effectively removes that amount from the operating budget of the current year and makes the financial situation of the MTA look worse on paper than it is in reality.
In summary, the Hevesi Review of the MTA's December Financial Plan discovered the following transactions, which dramatically reduced the 2002 surplus:
(Table 4) 2002 Cash Surplus $500 million higher than MTA's Publicized Figure Analysis by State Comptroller, Hevesi Report, April 2003, p.21 ($ in millions)
|2002 Projected Surplus as Shown in MTA Publications||$24.6|
|Debt Service Prepayments||205.0|
|Transfers to Stabilization Accounts||182.5|
|Transfer to MTA Corporate Account||125.0|
|2002 Surplus Before Transfers and Pre-Payments||$537.1|
In response, MTA officials strongly objected to the charge of "hidden resources", but did not actually refute the review findings. In effect, the MTA response only repeats a deliberate attempt at misdirection. In its comments, the MTA states that a "complete picture of MTA finances cannot be provided by anything less than the voluminous amounts of information that constitutes the ultimate detail behind a financial plan. What is on the face of a summary financial plan is a matter of judgment."37 This 'judgment', however, seems to have precluded the identification of the resources at issue, even by the MTA's own account.
Without explaining the precise relation to the $512 million undisclosed funds, the MTA comments vaguely that "non-recurring resources, particularly $630 million in savings from debt restructuring, were allocated over the financial planning period in question (2003-2004) and reflected in the December 2002 plan."38 Claiming that this "equal allocation was disclosed on numerous occasions," the comments go on to list a series of documents other than the December Plan.39 The most direct response, which, however, still does not alleviate the problem, can be found only in a footnote. According to this reference, the MTA explains that of "the $512 million referred to in […] the Report, $440 million constitutes the 'stretch-out' of the debt restructuring savings over the 2003-2004 period. The remaining $72 million was used to fund contingency reserves that were placed in the 2004 year of the multi-year plan."40
The Comptroller furthermore discovered that the MTA's December Plan artificially created the 2003 deficit:
The Hevesi review concludes from these findings, that if all available resources would have been applied to 2003, the MTA could have avoided a fare hike in that year. (See table below).
(Table 5) Sufficient Resources Were Available To Avoid a
Fare Hike in 2003
Analysis by State Comptroller, Hevesi Report, April 2003, p.23
|New York City Transit Budget Gap||$(234.7)|
|MTA Corporate Account||125.0|
|2004 Debt Service Prepayment||95.2|
|Pension Fund Prepayment||44.0|
|Interest Income on Stabilization Account||10.8|
|Commuter Railroad Budget Gap||$(1.2)|
|2004 Debt Service Prepayment||44.0|
While acknowledging that such a decision would have, in turn, widened the budget gap in 2004 and, therefore, the fare increase in 2003 might be considered prudent after all, the Hevesi Review rightly emphasizes that the problem lies in the failure to disclose these resources to the public and its elected representatives.42 Besides shifting resources between agencies and between years without clearly indicating so and presenting a bleaker than necessary picture, the MTA generally made it difficult to understand their overall financial position. Key strategies included presenting partial information in different reports and at different times, giving information in aggregated terms, combining years and/or agencies, and keeping outright separate books for internal and public purposes. Under the circumstances, public hearings were conducted without an informed understanding by the participants that considerable flexibility existed regarding the size, timing and structure of a fare increase.
The MTA still faces financial difficulties despite the fare and toll increase in 2003. The Comptroller stressed that the driving force behind the 2004 budget gap is the rapid rise in debt service costs, then projected to reach $1.3 billion in 2004, more than twice the amount of 2003. The difference is due to a large reduction in savings from debt restructuring. The report, in effect, warned that the problem of increasing debt service costs would remain the key problem of MTA Finances in the coming years:
"By 2010, debt service costs are projected to reach $1.7 billion, due to an increased reliance on debt to finance the 2000-2004 capital program primarily because the State is not contributing to the current capital program. The MTA has identified $63 billion in capital improvements to maintain and expand the current system between 2005 and 2019. These debt service estimates do not take these costs into account and MTA officials testified that an analysis to determine how much additional debt the agency could afford has not been performed."43
Prompted by the same issues than the State Comptroller's office, the Office of New York City Comptroller William Thompson, Jr., initiated a comprehensive audit of the "NYCTA's procedures for recording and reporting financial and statistical data presented to the public"44 on January 15, 2003. In accordance with the responsibilities of the City Comptroller's Office, the audit was limited to the NYCTA, rather than the MTA as a whole. However, to the extent to which the MTA's financial difficulties at issue in connection to the fare hike were attributed to the NYCTA, the findings apply to the financial status of the MTA as a whole. In the MTA's December Plan, the NYCTA's budget gap accounts for nearly the entire MTA gap in 2003 and two-thirds of the 2004 gap.45
The audit report makes a deliberate point of noting that the NYCTA's procedures for recording revenues and expenses were adequate and accurate.46 However, the City Comptroller concludes, much like the State Comptroller, that the NYCTA "did not provide the public with complete, clear, and accurate information about its current and future financial position." 47 Significantly, according to the Thompson Report, omissions include adequate details regarding debt service, debt restructuring, and projected revenue and expenses. It speaks for itself that, even after a full audit, the City Comptroller's Office felt compelled to qualify its misgivings about the necessity of a fare hike, stating that "[w]e cannot determine whether those revisions [i.e. the March update of the December Financial Plan], and others yet to be revealed, will prove the necessity of a fare hike that affects more than seven million passengers a day."48
The Thompson report concludes that the NYCTA, like the MTA, ultimately presented itself in a much bleaker financial situation than necessary, even though the techniques of doing so are different. Specifically, the City Comptroller's audit points out that the NYCTA overstated its operating expenses for 2001 and 2002 because it "improperly included capital costs and interest expense on long-term debt as operating expenses on its financial statements."49 Instead of consistently expensing capital costs over the life of the respective assets, the MTA charged certain capital project costs and related interests to the period in which they were purchased. It is important to note here, that the City Comptroller's office found this problem only after a full audit of the financial statements and the accompanying books and records.50 In addition, the City Comptroller also found unidentified resources, namely $300 million at the end of calendar year 2002 in the "MTA Investment Pool."51
Living up to his role as New York City's "financial watch-dog", the Comptroller also emphasizes in his report the inequities between City transit riders and commuters in shouldering the MTA's fare burden. The City's subway and bus riders pay "a significantly higher percentage" of operating expenses for NYCTA, compared to the percentage of operating expenses paid by customers of the commuter railroads and LI Bus. The Thompson report notes that these discrepancies have only been exacerbated with the 2003 fare increase.52
Based on the finding that the financial statements and budget documents of the NYCTA were "incomplete, misleading and obfuscating," and that the new fare policy only advanced the inequities of the system, the City Comptroller urged the NYCTA and the MTA to reevaluate "the need for a fare increase."53
In April 2003, the New York Public Interest Research Group's Straphangers Campaign, Inc., representing the interests of City Transit Riders, and Roger Toussaint, president of Local 100 of the TWU, as collective bargaining representative for token booth clerks, filed a lawsuit in the NY State Supreme Court to win a roll-back of the fare increases and token booths closures. Based on the findings by State Comptroller Hevesi and City Comptroller Thompson, the suit charges that the MTA misled the public with inaccurate financial information, making a sham of the February public hearings. Both Comptrollers filed affidavits in support of the suit.
On May 14, 2003, Manhattan State Supreme Court Justice York ordered the MTA to roll-back the fare increases and to conduct new public hearings. The court rejected the petitioners' claim that the MTA's fare increases violated the "self-sustaining" requirement of Public Authorities Law § 1266 (3) and that the MTA had failed to file a five-year financial plan in violation of Public Authorities Law § 1269-d. However, the court found that the purported $2.8 billion deficit, proclaimed in the public hearing notices, "did not exist." Consequently, the court held that the hearings themselves were deficient because they were based on the "false and misleading premise that the MTA was in worse financial condition than it knew itself to be." Based on these findings, the court declared the MTA's notice to be invalid and vacated the MTA's March 6 board actions.54 In a related suit, filed by the Automobile Club of New York, Justice Robert Lippman ordered a roll-back of toll increases on the MTA's bridges and tunnels. Both decisions were stayed to allow for an appeal by the MTA.
In July of this year, the State's Appellate Court panel decided unanimously that the MTA did not violate the law in its public notices, overturning the decisions of Justices York and Lippman. The Appellate Court noted that the MTA is indeed required to hold public hearings before it may establish or change fares,55 while legal statutes require the NYCTA to hold hearings before it may approve complete or partial closures of subway stations.56 However, the requirements for NYCTA and MTA notices of hearing, which are outlined in parallel sections of the Public Authorities law, are purely formalities. The statutes mandate such notices to be "written in a clear and coherent manner," "be captioned by large point type bold lettering," and "convey the basic nature" and "range of amounts" of proposed fare changes.57 By the standards of these requirements, the court held that the MTA not only complied, but actually exceeded what was necessary.58
The key argument of the decision draws on the fact that the legal statutes detailing public notices for public authorities do not include any financial disclosure provisions.59 Despite siding with the MTA in the decision, the Appellate Court implicitly acknowledged the public interests represented in the case by the transit advocacy group and the Union representative in advising the matter to be considered by the Legislature: "The level of disclosure that a governmental agency must meet is a legislative, not a judicial decision. The courts […] may not edit such mandates or engraft additional requirements, even if it is believed that such additions would be beneficial to the public."60
31Katherine Lapp, "Remarks […] Before the NYS Joint Legislative Fiscal Committee," January 29, 2002, p.4
32Gary G. Caplan, Director of Budgets and Financial Management, "MTA Financial Plan/Options," Metropolitan Transit Authority, December 10, 2002, p. 1
33Hevesi Report, April 2003, p.7
34MTA's Detailed Response, p.2
35Hevesi Report, April 2003, p.7
36"Testimony by Comptroller Hevesi to New York City Council Transportation Committee on May 1 regarding MTA Finances," News from the Office of the NYS Comptroller, Press Release May 1, 2003
37MTA's Detailed Response to Comments in the State Comptroller's Report on "An Examination of the Finances of the Metropolitan Transportation Authority", p.3
38MTA's Detailed Response, p.4
39The documents referred to here are: " the financial plan presentation to the board in November 2002, at a City Council hearing in January 2003, at a State budget hearing in February, and specifically referred to in the written letter responding to the Comptroller's questions on February 2003." (MTA's Detailed Response, p.4)
40MTA's Detailed Response, p. 4, footnote 1
41"Testimony by Comptroller Hevesi to New York City Council Transportation Committee on May 1 regarding MTA Finances," News from the Office of the NYS Comptroller, Press Release May 1, 2003
42Hevesi Report, April 2003, p.22
43Hevesi Report, April 2003, p.3
44Thompson Report, April 2003, p. i
45Alan Treffeisen, "NYC Transit's Budget Gap: Reviewing the Numbers," Inside the Budget, New York City Independent Budget Office, Number 112, January 16, 2003, p.1
46Thompson Report, April 2003, p.9
47Thompson Report, April 2003, p.2
48Thompson Report, April 2003, p.3
49Thompson Report, April 2003, p. 2
50Thompson Report, April 2003, p.17
51Thompson Report, April 2003, p.2 The report points out that according to the notes to the financial statements, "the MTA, on behalf of the Transit Authority, invests funds which are not immediately required for the Authority's operations in securities permitted by the State Public Authorities Law. … Funds held therein, including interest earned, shall be expended per MTA Board approval to stabilize the Authority's cash flow requirements as needed." p.2, footnote 2
52Thompson Report, April 2003, p.3
53Thompson Report, April 2003, p.16
54Quoted from summary of Supreme Court decision, included in findings of the Supreme Courts Appellate Division Ruling, June 2003, Straphangers Campaign and Roger Toussaint vs. MTA.
55Public Authorities Law, §1266 (3).
56Public Authorities Law, §1205(5). The court also noted that the TBTA, as the authorizing agency for toll changes, is not required to hold public hearings at all. See, Supreme Courts Appellate Division Ruling, June 2003, Straphangers Campaign and Roger Toussaint vs. MTA, p. 15. ref. to Public Authorities Law, §552 and §553.
57Public Authorities Law, §1205(7) and §1263(5).
58Supreme Courts Appellate Division Ruling, June 2003, Straphangers Campaign and Roger Toussaint vs. MTA, p.15.
59See: Public Authorities Law, §1205(7) and §1263(9).
60Supreme Courts Appellate Division Ruling, June 2003, Straphangers Campaign and Roger Toussaint vs. MTA, p.18.
MTA Financial Plan for
After years of failing to produce a long-term financial operating plan, the MTA, under pressure from the State Comptroller's Office, finally released an updated four-year financial plan for 2004-2007 on October 28, 2003 ("October Plan")61. While there are only marginal changes to the projections for 2003 and 2004, the plan anticipates budget deficits of $840 million in 2005 and $1.3 billion and $1.5 billion for 2006 and 2007 respectively.
After the 2003 fare increase, which was designed to close the purported operating budget gaps for 2003 and 2004, the MTA now says it will keep the $2 subway and bus fare through 2004, while maintaining service levels and investments in infrastructure.62 Current fare discounts might be eliminated as soon as 2005, thereby effectively raising the costs of traveling for MTA customers. Additionally, to maintain the base fare, as well as current service levels, the MTA is counting on financial support from both the State and the City, which at the moment is far from guaranteed.
The October Plan attributes the progressively larger deficits for the coming years to a growing "structural imbalance" between recurring resources and expenditures. While spending is expected to grow by a yearly average of 6.9%, recurring revenues are projected to grow only by 0.2%. The MTA cites rising debt service costs and the depletion of non-recurring resources as the main reasons for the large deficits. The current negative dynamic underscores the long-term implications of past decisions to fill in operating budget gaps with non-recurring resources and to finance the current 2000-2004 capital program without state aid. While the October Plan allows a clearer understanding of the MTA's financial situation, it implicitly highlights the long-standing failure of the MTA to provide adequate information for a productive public debate on how to best finance the City transportation system.
Roughly 30% of the anticipated deficits are the result of new spending needs, which increase costs in 2007 alone by over half a billion dollars. Pension fund contributions are projected to increase drastically, from $317.8 million (2003) to $763.6 million (2007). As far as wages go, the October Plan assumes that the wage increase pattern negotiated with the Transport Workers Union ["TWU"] will equally apply to those employees, who have not yet reached an agreement with the MTA. While the October Plan notes that anticipated operating expense and health benefit increases will be off-set by "an assumption of 5.0 percent growth in 2005 in passenger and toll revenue yield,"63 the plan notably remains silent on savings from the TWU agreement that were announced at the time.
While the ballooning deficits in the coming years are not unexpected, the full picture emerges only now with the improved and more comprehensive financial report format. While observers, and particularly the State Comptroller, have noted on several prior occasions that the MTA's heavy reliance on debt financing for its capital program would lead to undue burdens for future operating budgets, the October Plan, for the first time, lays out the MTA's debt service projections, including the costs of funding the next five year Capital Program (2005-2009).
|(Table 6) Growth in Debt Service 2003-2004|
|2003 (October Forecast)||2004 (Proposed Budget)||2005 (Financial Plan)||2006 (Financial Plan)||2007 (Financial Plan)|
|Source: MTA Financial Plan 2004-2007, October 2003, p. iii|
State Comptroller Hevesi reviewed the details of the four-year plan and published the results of its evaluation on December 2, 2003. On a positive note, the Comptroller notes that the MTA was cooperative in the review process and made important improvements to its budget presentation. Notably, the October financial plan includes detailed reconciliations to the last financial presentation, a breakdown of personnel costs in occupational categories, and a narrative explaining the main underlying budget assumptions. These additions, however, remain cosmetic, as long as the MTA continues to manipulate the financial information it conveys.
In a somewhat ironic, though not entirely unexpected, reversal of positions in the debate, the Comptroller suggests that the four-year plan is now portraying the MTA to be in a better financial situation than is warranted by the facts. Specifically, the Comptroller's Office voices concern that the already large projected budget gaps for the years 2004-2007 will actually be even bigger than the MTA forecast suggests. The reason for this possible discrepancy is a reliance on, what the Comptroller calls, "speculative resources."64 On the income side, these include, most importantly, MTA-wide fare and toll revenues projected to be 5% to 10% higher than the individual MTA agencies have already assumed in their budgets and presumed additional government subsidies in 2004.65
On the expenditure side, the report pointed particularly to the inclusion of savings from cost-reduction measures, which remain unspecified, as well as unsubstantiated savings from corporate restructuring. Altogether, the Comptroller's report suggests that the actual budget deficits are more likely to be $30.1 million (rather than a surplus of $36.2) in 2004, $1.2 billion (instead of $840 million) in 2005, $1.7 billion (instead of $1.3 billion) in 2006, and, most dramatically, $2.1 billion (instead of $1.5 billion) in 2007.
In effect, the deficits could even be higher, if the State does not renew the franchise tax surcharge, which earns about $450 million for the MTA each year and is scheduled to expire at the end of 2004. The MTA's estimates also ignore Mayor Bloomberg's proposal that the MTA take over the operational and financial responsibilities for the seven private bus companies currently subsidized by the City. According to the Hevesi estimates, the latter could cost the MTA another $525 million over the course of the four year plan period. Under a worst case scenario, the MTA could end up with budget deficits as high as $1.7 billion in 2005, $2.3 billion in 2006, and $2.8 billion in 2007.66
61MTA-Wide Financial Plan for 2004-2007and Final Proposed Budget for 2004, MTA Finance Committee and MTA Board, October 28 2003 [referred to also as "MTA Financial Plan 2004-2007, October 2003" and "MTA October Plan"]
62MTA Financial Plan 2004-2007, p. i
63MTA Financial Plan 2004-2007, p. i
64Hevesi Report, December 2003, p.1.
65Hevesi Report, December 2003, pp. 4 and 9.
66Hevesi Report, December 2003, pp.5, 9 and 14.
Despite some attempts on the side of the MTA to improve financial reporting practices, serious problems still persist. One area of concern, which has received comparatively little attention, is the MTA's presentation of its financial statements in the Annual Reports. The CAF, which is audited by an independent private firm,67 presents summary year and prior-year financial information. While some form of consolidating financial information is obviously necessary for a presentation, the MTA's way of presenting its figures has contributed to the confusion over its true financial situation. By consolidating separate entities into one financial presentation and then failing to disaggregate categories, large amounts of money are effectively omitted from reasonable scrutiny by the public and the Legislature.
The table below, taken from the introductory pages of the latest Annual Report for the year ended December 31, 2002, is an example of the confusing picture that the MTA presents. As you will note, besides comparing revenues listed by category with expenses listed by agency, the income statement presents an unspecified class of "other" revenue, which makes up 17.3% of the budget (or $1.3 billion). However, the financial section of the CAF does not contain a breakdown or even identification of this category. In fact, the grand total of this summary, $7.6 billion, which represents the much cited figure of the MTA's 2002 operating budget, does not appear anywhere in the financial section of the CAF.
|(Table 7) MTA 2002 Consolidated Financial Highlights|
|Income||($ in millions)||Percentage|
|Fares and operating revenue, except tolls||$3,120||40.86%|
|NYC Buses and Subways||4,644||60.83%|
|Commuter rail, suburban buses, Staten Island Railway, and MTA HQ||2,053||26.89|
|Bridges and Tunnels||336||4.40|
|Debt Service and other||602||7.88|
|Source: MTA, 2002 Annual Report, p.6|
A further difficulty arises from the fact that the main section of the MTA's annual report mixes cash and capital expenses. For example, the statement of operating expenses by category in the 2002 CAF includes $1.135 billion in depreciation and amortization, resulting in a quoted operating loss (before subsidies) of $2.943 billion.68 While including depreciation as an expense is proper under GAAP, it can be misleading in a governmental entity that relies on funds set aside specifically to purchase and repair rolling stock and other equipment. Depreciation is not a true out-of-pocket cash expense. For-profit corporations write depreciation as a cost-recovery item for accounting purposes. In a governmental unit, however, including depreciation can make it appear as if the agency is operating on a cash deficit basis, when it is actually not true and the cash resources are available at the time. In effect, in a statement of cash adjustments, several pages later, depreciation is duly subtracted again from the operating loss.69
The most problematic area of MTA financial reporting, however, continues to be the financial planning process. Unlike the CAFs, financial statements for the current year, respectively referred to as the proposed, revised or final budgets, as well as financial statements for future years, the "financial plans," present estimates. As far as past practices go, two major problems have to be noted.
At the time, when the MTA proposed the latest fare increase, namely in December 2002, no accurate and complete year-to-date financial information was publicly available going back to the last quarter of 2001. The CAF for 2002 was only published in April 2003, and the December Financial Plan, including year-ending estimates for 2002, and projections for 2003 and 2004, was remiss with unexplained figures and serious omissions. While this issue has been greatly vexing for all stakeholders in the fare hike debate, legal statutes do not currently require the MTA to present detailed and updated year-to-date financial information, when giving notice for public hearings on fare increases.
In the decision, which upheld the MTA's 2003 fare increases despite the acknowledged lack of financial transparency, the New York Appellate Court noted that "although it is certainly within the Legislature's province to mandate that more specific and more detailed information be provided in a notice of hearing issued by the MTA or its affiliated agencies, it is not within the judiciary's power to do so, at least absent some constitutional imperative, which does not exist."70 The New York State Assembly is now considering financial reporting guidelines (A.8720 Brennan) which would require the MTA to include up-to-date financial information up to the most recent quarter when requesting a fare and/or toll increase.
The second problem is that estimates are dependent on economic assumptions. According to both the City and the State Comptrollers' reviews of the MTA's financial plans, this has been a gray area, which the MTA has used to manipulate the figures presented to the public. Naturally, economic predictions are notoriously difficult. Yet, on recent occasions, the MTA has actually failed to produce any evidence or working papers71 about its underlying economic assumptions, or has simply deviated from reasonable assumptions based on historic evidence.72 The City Comptroller has noted explicitly that the fare revenue model, used by the MTA to predict the impact of its fare increases, includes assumptions about ridership loss which are not backed by historical evidence. Recent updates of MTA estimates, which are downgrading the loss of ridership due to the fare increase, are proving the City Comptroller's concern to be correct. In response to public pressure, the latest MTA financial plan now includes a narrative about underlying economic assumptions. This is an important step in the right direction, even though the MTA still has not disclosed all budget assumptions.73
The latest financial statement released by the MTA presents several improvements over earlier reports. The October Plan includes financial plans for the entire MTA and its separate agencies, reconciliations to earlier reports and cash adjustments, as well as a break-down of labor costs into different categories and an explanation of underlying budget assumptions, including collective bargaining.
However, as the State Comptroller has noted, major problems remain. This time, the MTA appears to play down the size of its projected deficits by fudging estimates and presuming strong support from all its governmental funding partners. The State Comptroller found instances of overstated revenue projections, underestimated expenses, as well as implicitly assumed reliance on continued Federal and City aid and increased State subsidies.74
In addition, a clear understanding of the MTA's position is still hindered by the fact that the different operating agencies present their financial plans and budgets in different formats, making comparison difficult. Most notably, NYCTA, TBTA and Staten Island Railway exclude depreciation from their financial plan projections, while the other agencies include it. Similarly, while NYCTA, Metro-North and Staten Island Railroad exclude expenses reimbursed by the capital budget within each expense category, the other agencies include it.
The accounting discrepancies can be partially explained by the fact that the individual agencies historically precede the MTA and have developed with different accounting systems. According to conversation with the State Deputy Comptroller, the MTA, under the leadership of Katherine Lapp, is working on implementing a unified accounting system. However, the wider practice of the MTA to combine cash and non-cash expenses in the same financial documents generally make it overly complicated to understand what resources are actually available. Moreover, the MTA does not identify the sources of non-recurring funds, even though a bill, introduced last June in the New York State Assembly at the request of the MTA, would require it.
Most disconcertingly, however, the financial plan still remains silent about the transfer of resources from one year to another. This is a serious problem, particularly because such transactions proved to be the main vehicle used by the MTA to manipulate its balance sheets prior to the fare increase.
Section 1264 of the Public Authorities Law states that the purposes of the MTA "are in all respect for the benefit of the people of the state of New York and the authority shall be regarded as performing an essential governmental function in carrying out its purposes." However, the City Comptroller and other elected officials, as well as transit advocates have pointed that regional inequities exist regarding the fare burden shouldered by New York City transit riders compared to suburban commuters.
In his April audit, the City Comptroller noted that riders of NYCTA pay a "significantly higher percentage of Transit authority operating expenses when compared to the percentage of operating expenses paid for by the ridership of the commuter railroads and Long Island Bus."75 According to the MTA's March revised budget, which takes into account the new fare structure, city riders are expected to pay 53.87% of 2003 NYCTA operating expenses through the fare box, while suburban commuters pay a far lesser percentage of their respective systems through fares (38.83% on LIRR, 45.26% on Metro-North, and 35.03% on LI Bus).
Moreover, after taking the fare increase into account, City riders shoulder a larger burden of reducing the originally alleged NYCTA deficit than suburban riders take on for the commuter railroads and the LI Bus. According to the City Comptroller's April analysis, the fare increase was to provide NYCTA with $285.5, which corresponds to 17.5% of the projected deficit. Conversely, fare increases on the LIRR contribute 10.7%, on Metro-North 8.45% and on the LI Bus 6.56% to their respectively projected deficits.
According to an analysis by the Straphangers Campaign, complementary regional inequities exist with regard to the allocation of State aid. Commenting on the MTA's 2004-2007 Financial Plan, the Campaign notes that the city subway and bus system currently receives 63% of state transit funding, even though NYCTA moves more than 84% of all of the state's riders. By contrast, the LIRR and Metro-North move 6% of state riders but receive 22% of transit aid from Albany.76
Regional inequities could be addressed from several directions. Before any legislative action, it is important to note that the MTA has discretion over the internal allocation of certain funds, for example, over subsidies based on mortgage recording tax (MRT-1 and MRT-2). In the recent past, the MTA has seen fit to set aside large amounts of cash in contingency reserves and other off-budget accounts, while claiming operating deficits resulting primarily from the operating loss of the NYCTA. It seems reasonable to expect the MTA to allocate unused funds to address the inequitable situation of the NYCTA.
On the other side of the equation, government subsidies are governed by law and appropriation. It is up to the State Legislature to determine whether it wishes to change the allocation of funds in a remedial manner. Possible strategies include specific appropriations on the basis of a dedicated tax or changes to the legal formula which determines the distribution of TBTA surplus funds between NYCTA and the commuter railroads. The current approach of the MTA regarding existing inequities, though, make it doubtful whether any solution that gives the MTA more discretion of fund allocation has a chance to alleviate, rather than exacerbate, the problem. In any case, before the Legislature can even begin to consider such actions, it must be certain that the financial information presented by the MTA is accurate and complete.
Similar problems exist with regard to the social impact of fare policy. The MTA has offered very little information on the way in which specific fare policies cut across income groups. Outside research has noted that low-income riders tend to purchase MetroCards which require the least up-front payment. In November 2002, the Straphangers Campaign released a report on New York City subway and bus fare discounts, and called on MTA officials to adopt several new discounts. While the MTA heeded some ideas, such as offering replacements for lost or stolen 30 day passes, the main concern of the transit riders advocacy group were disregarded. Finding that the 10% bonus MetroCard at $15 or more was purchased by 13% of low-income riders (household incomes under $25,000), by 30% of riders with household incomes between $50,000 and $75,000 and by 39% of riders with household incomes above $75,000, the Straphangers Campaign recommended to eliminate the 10% bonus, and to lower the then current base fare from $1.50 to $1.40.
The new fare structure implemented by the MTA board on March 6, 2003, effectively did exactly the opposite by placing the heaviest burden of the fare increase on riders who buy base fare single tickets at now $2.00, which is effectively a 33% increase. While the MTA has noted on several occasions that the average fare is now only $1.30, representing a 25% increase over the prior average fare of ($1.04), the advantages of the discounts are unevenly distributed across income brackets. The fare increase costs low-income families the most. This income group is also the least flexible in choosing alternative means of transportation.
Interestingly enough, as the City Comptroller had predicted in his April report, the MTA assumed a much higher loss in ridership due to the fare increase than has actually taken place. In its March Plan, the MTA presented a fare revenue model which estimated a decrease in subway and bus ridership ranging from 3.3 to 10%, depending on the type of MetroCard purchased.77 In its October Plan, the MTA has adjusted numbers for 2003 downwards to a 2.6% decline in ridership for NYCTA riders ($13.8 million additional revenue). At the same time, the MTA notes that average fare paid per trip did not increase as much as expected, reducing earlier projected revenue by $12.9 million.
According to the MTA's analysis, both "the lower rider ship loss and smaller revenue gain can be attributed to customers shifting to deeper discounted fare media (7-day and 30-day Unlimited Ride)."78 Yet, the analysis fails to mention that the fare changes also included a lowering of the threshold for the bonus MetroCard from $15 to $10 dollar, the closest the MTA has come to address the noted social inequities within the fare structure. This is particularly important because, even the MTA has declared that fare discounts might be eliminated as early as 2005.
The debate surrounding the MTA's 2003 fare hike demonstrates the need for mechanisms to hold decision-makers accountable, both in the interest of the concerned public but also in the long-term interest of the institution. The December Plan proved to be a case where the administrative leadership of the MTA attempted to control any debate over fare policy by presenting misleading and opaque financial information.
While both the City and the State Comptroller discovered acute problems in the MTA's financial presentation used to justify the fare and toll increases, they also concluded that in the long run a fare hike was unavoidable, even if under different terms. This conclusion, however, does not excuse the MTA's deliberate attempts to conceal the fact that sufficient resources were available to cover expenses in 2003. The MTA should have disclosed its precarious long-term financial situation, instead of willfully preventing public examination of its finances, including a period of time in which its 2000-2004 capital program was approved.
The particular timing of the December fare increase proposal, shortly after Governor Pataki had won re-election, placed the MTA under the suspicion of stage managing fare policy decisions for political purposes. Presenting the price hike in light of enormous deficits might have made the increase temporarily more palatable for the public. However the long-term damage of wide-spread public discontent and distrust of the MTA after the revelations by the Comptroller Offices on how these deficits were calculated, and what was left unsaid, goes much deeper.
The MTA has not only misled the public about its financial situation at the time of the recent fare and toll increase, but also prevented public scrutiny of the financial burdens in the years to come. The MTA's financial practices have generated a situation where enormous financial burdens have been shifted to future years. Taxpayers and MTA riders have a right to know how current decisions may affect the future finances of the system, especially given that the MTA's latest financial presentation heavily relies on optimistic assumptions about government aid.
The MTA has announced a major reorganization project and changes to its management structure. Yet, lawmakers and transit advocates have cautioned that these proposals do not go far enough. State and City Comptroller, as well as State legislators have put forward more drastic reform initiatives, which are discussed below. Heightening the accountability of decision-makers must be a prime concern in order to re-establish public confidence in the MTA and to hold the agency responsible for decisions that affect financial burdens in future years.
67The 2002 CAF was audited by Deloitte & Touche.
68MTA, 2002 Annual Report, CAF, p.22
69MTA, 2002 Annual Report, CAF, p.25
70New York Supreme Court, Appellate Division, First Department, In re: NYPIRG's Straphangers Campaign, Inc. et al. vs. Metropolitan Transportation Authority et al., June 4, 2003, p. 18
71The State Comptroller's office has admonished the absence of working papers to substantiate projected figures on numerous occasions.
72The City Comptroller has noted explicitly that the fare revenue model, used by the MTA to predict the impact of its fare increases, includes assumptions about ridership loss, which are not backed by historical evidence. Recent updates of MTA estimates, which are downgrading the loss of ridership due to the fare increase, are proving the City Comptroller's concern to be correct.
73See: Hevesi Report, December 2003, p.9
74Hevesi Report, December 2003, pp.9-11
75Thompson Report, April 2003, p.15
76NYPIRG's Straphangers Campaign, Statement on MTA's 2004-2007 Financial Plan, October 28, 2003 (see: www. straphangers.org)
77Thompson Report, April 2003, p.13
78MTA, Financial Plan 2004-2007, October 2003, pp.7-8
Based on the findings in his April Report, State Comptroller Alan G. Hevesi proposed a set of new regulations to improve the MTA's financial reporting practices. After allowing for comments from the public, the regulations, under the State Comptroller's Office constitutional authority to oversee the accounts of public corporations,79 took effect on January 1, concurrent with the MTA's 2004 fiscal year.
The new regulations invest the need for more transparency in MTA financial reporting with particular impetus by linking the issue with clear accountability directives. Under the new regulations, each preliminary, proposed and final operating budget, as well as each and every financial plan, must be accompanied by a certification signed by the MTA Chair and the MTA CEO, asserting the compliance with "all applicable laws, rules and regulations, and discloses all material matters related to, and constitutes an accurate representation of, the MTA's financial situation."80
Furthermore, addressing directly the main problems identified in the April Report, the new regulations pointedly require the identification of resources transferred between years and stipulate that debt service payments are fully identified and accompanied by a debt affordability statement. The regulations state that the MTA must: "identify any planned transactions that would shift resources, from any source, from one year to another, and the amount and planned use of any reserves, including but not limited to collective bargaining."81
Moreover, the MTA must "include estimates of projected debt service to finance the capital program"82 and provide among the required support documentation "a debt affordability statement showing the budgetary impact of planned borrowings for each year of the Plan, including debt service as a percentage of each of the following: operating revenue and subsidies, fare and toll revenue, and non-reimbursable expenses."83
Generally, the regulations require the MTA to report their financial data in a clear, complete and accurate way, laying out all information in a uniform way, according to General Accepted Accounting Standards complete with supporting working papers. An important aspect of the working papers to be prepared prior to the release of operating budgets and financial plans, are both the requirements that all changes to previous budgets and plans have to be reconciled, including gap-closing initiative and collective bargaining costs,84 but also each revenue-enhancement and cost-reduction initiative that represents a component of any gap-closing program must not only be identified but also detailed as to its impact on each revenue and expense category, including the estimated impact on staffing.85
These high standards are indeed a far cry from last year's December "magic," where the MTA first announced a $2.8 billion dollar two year deficit, only to then pull unspecified internal cost-cutting measures of over $1 billion dollar out of the hat. But what is more, a stringent application of these requirements would actually force the MTA for the first time to produce comprehensive alternative case scenarios. Under the new provisions, the MTA, if proposing a fare increase in its financial plan as a gap-closing measure, would actually have to contrast each revenue and expense category in a with and without-fare hike scenario. While this circumstance obviously benefits the concerned public, because it allows an informed discussion about the merit of a fare hike, it might in the end also benefit the MTA itself, because it will also clarify the hard choices that have to be made. If, for example, a true deficit exists, and the fares are not increased, service cuts may be the only alternative, or, conversely the State will have to help the MTA to avoid the imposition of "fare taxes" on working families.
Following its audit findings, the City Comptroller's Office not only urged the NYCTA and the MTA to reevaluate its need for a fare increase, but issued three further recommendations designed to regain the trust of the riding public and other stakeholders. These recommendations naturally reiterated that the NYCTA and MTA must ensure "that capital costs are properly reported on its financial statements, in accordance with GAAP [Generally Accepted Accounting Principles]."86
The City Comptroller advised the NYCTA and the MTA to "appoint an independent taskforce to review Transit Authority budget proposals before they are presented to the MTA Board for approval. Also the Transit Authority and the MTA should consider including members of the public as well as elected officials on the taskforce."87 Appointing an Independent Taskforce would lend political will and impartiality to the task of providing "complete, clear and accurate" information in future budget proposals
Addressing the existing inequities between suburban and urban transit riders, the City Comptroller's Office advocates that the MTA, when considering future fare increases for NYCTA and the Commuter Railroads/LI Bus, takes into account the amount of operating expenses already paid for by their respective riders. In response, the MTA emphasized the role of governmental funding decisions in perpetuating existing regional discrepancies in the fare burden:
"This is primarily an issue for our City and State funding partners who provide subsidy support to the MTA and its agencies in accordance with formulae mandated by law. The imposition of fare changes occurs when those sources, combined with operating revenues, are not sufficient to provide safe and reliable service to our customers. Fares are then adjusted by the Board consistent with the statutory requirement to operate with balanced cash positions at each agency."88
While it is certainly true the allocation of certain State and City funds is governed by law, as the City Comptroller has pointed out, the distribution of specific tax-supported subsidies, such as the mortgage recording tax, is at the discretion of the MTA. Therefore, the MTA would be in a position to begin rectifying the noted inequities.89New York State Assembly Bills
A.8904 (Brodsky) "Metropolitan Transportation Authority Act"
A.8904 is a bill to restructure the entire organization of the MTA in accordance with a plan proposed by the MTA Chairman in the fall of 2002. The Chairman of the Assembly Committee on Corporations, Authorities and Commissions, Richard Brodsky, who is carrying the bill at the request of the MTA, has stated that while some elements of the bill have merit, it is not acceptable in its current form and more fundamental changes are needed.
The reorganization proposed in the 120-page bill text is mainly intended to reflect new regional transportation demographics, streamlined management and more cost-efficient operation. Notably, the bill includes the abolition of future hiring based on civil service law for employees of the newly created bus operating agency.90 The Transit Workers Union has voiced serious concerns about this provision. Under civil service status, employees, who have passed the civil service test, enjoy legal guarantees and due process protections for matters relating to hiring, promotions and potential firings.
The heart of the MTA bill consists in replacing the existing, diverse sections of the Public Authorities law governing the MTA and its constituent agencies with a single act, which creates new agencies that combine like functions. Replacing the historically developed network of divers transportation agencies with a unified, function-driven organization model, the bill is meant to avoid duplication of effort and promote operational and administrative efficiency. The new comprehensive statute would create and define the MTA and its subsidiary agencies as follows:
The bill also sets forth more detailed procedures for the MTA's auditing, budgeting and financial reporting process. However, these changes do not go as far as many observers wish, and seem to be largely codifying the MTA's most recent financial reporting practices. As the sponsor note points out, the budgetary provisions of the bill are modeled after the budget process currently in place in the City of New York.91 However, while these new procedures clarify the MTA's budgetary process, the timing and distribution of financial reports alone does not guarantee transparency.
The amended statutes require the MTA and its newly constituted subsidiaries (the "MTA agencies") to follow a three phased process. On or before July 15 of each year, the MTA and the MTA agencies are to submit to the MTA a preliminary budget for the next fiscal year, which will also be sent to designated public officials92 and posted on the MTA website. The bill authorizes the designated public officials to conduct public hearings and requires officials to submit a written assessment and any comments or recommendations on the preliminary budget to the MTA. In October of each year, a proposed final budget, accompanied by a detailed four-year financial plan must be submitted to the MTA Board, provided to designated officials and posted on the website. During this second phase, the MTA is required to solicit and consider comments from designated public officials and the general public. On or before December 31 of each year, the final budget must be adopted.
In a related key provision, the statute also obliges the MTA to present an updated four-year financial plan three times a year, the first version no later than 60 days after the adoption of the finalized budget for the year, and updates of the plan in July and October. Currently, the Public Authorities Law requires the MTA to produce a financial plan each July 1, for the five-year period commencing the following January 1. However, as the State Comptroller's Office has admonished several times, the MTA has not published such a plan since September 1999, and the much debated "December Plan," of course, presented a financial plan only for 2003 and 2004. It is noteworthy in this regard also that the recent October issuance of the MTA Financial Plan already seems to follow these 'new rules', not only in the timing but also in covering the four-year period from 2004 to 2007.
The Bill also establishes standards for what constitutes a substantial change in service on the MTA's subway, bus and commuter rail systems, as well as the reporting and public hearing requirements for implementing such changes. And it would institute reporting requirements for safety related statistics and initiatives, as well as demand of the MTA to set up guidelines regarding procurement related lobbying activities.
The Assembly has not acted on the legislation and Chairman Brodsky and other Members of the Assembly and the Corporations Committee are supporting more meaningful reforms of the MTA.
Sponsored by Corporations Committee Chairman Richard Brodsky and cosponsored by a wider group of Assembly members,93 this bill includes several key reforms of the MTA. These reforms include the creation of an MTA Operating Program Review Board, an Independent Budget Office and a Central Procurement Office within the MTA organization. Beyond this omnibus bill to reform the MTA, sections of this proposed legislation have been also introduced as separate bills to reform the set-up of public authorities in New York.94 The Assembly passed both Brodsky's omnibus MTA bill and the separate reform bills in 2003.
The bill creates the MTA Operating Program Review Board, consisting of six voting and two non-voting members appointed by the Governor. Five of the six voting members are to be appointed respectively on the basis of recommendations by the Temporary President of the Senate, the Speaker of the Assembly, the Mayor of New York City, jointly by the county executives of Nassau and Suffolk counties, and jointly by the county executives of Westchester, Putnam, Dutchess, Rockland and Orange counties. The non-voting members are recommended for appointment by the minority leaders of the State Assembly and Senate.95
The bill requires the MTA to submit, on or before October 1 of each year, operating plans (or, in other words, a proposed budget) for the NYCTA, the commuter railroads and the TBTA respectively to be reviewed and recommended to the MTA Board for approval, rejection or modification. The Operating Program Review Board would become an oversight institution within the MTA's organizational network, similar to the existing MTA Capital Program Review Board. Like the five year capital programs, the proposed budgets for the different operating agencies would become subject to a formal approval process.
To ensure that the Capital Program Review Board actually receives all necessary information, the bill gives the Board the power to issue subpoenas requiring the appearance of witnesses and production of documents.
Significantly, the bill sets forth reporting guidelines for the Operating Program to be submitted, which include the requirement to compare year-to-date and expected results for the year with the actual results for the prior year. Demanding, once again, far reaching improvements in MTA financial reporting standards, the bill obligates the reporting agencies to provide statements as to:
The bill furthermore establishes an Independent Budget Office for the MTA and its subsidiaries to be headed by a Director, to be appointed by the Comptroller for four years. The purpose of this agency would be to analyze and report all authority related financial data, including budget expenditures, estimated revenues and receipts and changing revenue conditions, in order to assist all organizations and officials in discharging those functions related to the MTA's budgetary process. In creating an independent budget office within the organizational network of the MTA to "enhance official and public understanding of the budgetary process and the budget documents published by the authority,"97 the bill specifically addresses the need for financial transparency and effective communication to the Legislature and the concerned public. This section of the bill corresponds to the simultaneously introduced legislative effort to endow all public authorities with an independent budget office.98
In addition, the bill creates a Central Procurement Office and stipulates guidelines regarding procurement related lobbying. The bill would require the MTA to establish a central procurement office, which would among other things maintain a public record of authority procurement contracts, and to ensure that this information be readily available to the public. The MTA literally expends billions of dollars each year. Thus, the transparency and accountability, which comes with a central office where the contracts or the authority are readily available to concerned officials and citizens, would naturally create incentives to make sound procurement decisions and to generally engage in "best practices". This section of the bill corresponds to a separate bill, which endows all public authorities with a Central Procurement Office.99
The bill also amends the institution of the MTA Inspector General. The Inspector General, to be appointed by the Attorney General, has the power to initiate, conduct and supervise investigations of possible wrong-doing, including civil, criminal, administrative or ethical misconduct. Specifically, the Inspector General oversees the prevention and detection of corruption and fraud, issues of particular urgency in the framework of a public authority with very large operating revenues and expenses, long-term capital projects, countless contractors and a complicated budgetary process. This section of the bill also corresponds to a separate bill, which endows all public authorities in the state with an Inspector General.100
The omnibus bill to reform the MTA, as well as the corresponding separate bills to enhance the institutional structure and financial transparency of public benefit corporations, have passed the Assembly in 2003.
Sponsored by New York State Assemblymember James F. Brennan, and cosponsored by a group of Assemblymembers,101 the bill imposes legal requirements on the form in which the MTA presents its annual financial statements and prescribes up-to-date financial reporting preceding any request for fare and/or toll increases. The bill has passed committee consideration and reached the Assembly floor in 2003.The bill contains four key provisions.
The bill directly addresses the key problems of MTA financial reporting that became apparent in the 2003 MTA fare and toll hike fiasco. As Assemblymember Brennan put it in the bill sponsor's note:
"If the annual report were to require the detail as this bill describes, the funds that were 'hidden' from the public's view would have been apparent. By requiring that transfers between subsidiaries and affiliates and the MTA itself be detailed, it would be obvious which segments of the operation were making money and how various parts of the system were or were not being subsidized. The requirement that an updated and detailed report be filed with any rate increase would have shed light on the real need for a fare increase at that time, rather than using figures that were nearly a year old."102
Sponsored by Assemblymember Catherine Nolan, the bill amends Public Authorities Law regarding the allocation of the TBTA surplus. The bill repeals the current legal formula prescribing the distribution of funds between the NYCTA and the commuter railroads and gives the MTA board the ability to determine how the TBTA operating surplus is distributed.
Assemblymember Nolan comments in the bill's sponsor note that prior to 1972, the entire TBTA surplus was distributed to NYCTA. In 1972, the Public Authorities Law was amended to provide that the first $24 million go to the NYCTA and that the remainder be evenly divided between NYCTA and the commuter railroads. In 1981, the formula was revised again to take debt service into account, incurred by the TBTA for capital projects that benefit the NYCTA and the commuter railroads.
In light of the capital intensive needs of the City's subway and bus system, Nolan's bill seeks to address what now amounts to an inequitable distribution of TBTA funds. The sponsor note points out that while over two thirds of the TBTA surplus are paid by City residents, the current statutory formula, which allocates less than half the surplus to the NYCTA's operating budget, continuously results in shortfalls for the mass transit agency. The Corporations, Authorities and Commissions Committee of the State Assembly has not acted on the legislation yet.
As a public authority, the MTA has an obligation to the people of the State of New York to accurately report its financial situation. Public transportation is a vital part of the Metropolitan economy, and fare policy, and tolls on the MTA's bridges and tunnels, directly affect the lives of millions of New Yorkers. The regulations issued by the State Comptroller, as well as the bill proposal sponsored by Assemblymember Brennan, lay out specific guidelines to assure financial transparency in a meaningful way. Compliance with these guidelines, as well as the creation of independent oversight offices, championed by Assemblymember Brodsky, will guarantee that adequate information about the MTA's financial needs is communicated to the public and the Legislature.
Now that a clearer picture of the MTA's financial situation has emerged, it is also important to address not only the presentation, but also the core of the problem. The MTA, once again, faces a financial crisis in the coming years. Given the fiscal difficulties of the State and City governments, as well as the continued strain on New Yorkers during the current economic climate, it might be necessary to consider creative financing strategies, such as, for example, new bond initiatives. To engage its governmental funding partners in a productive debate about how to best finance the City's public transportation system, the MTA must be willing to cooperate in a way that can rebuild the public's trust in the agency's motives and financial decisions.
Restoring credibility to the process will ultimately benefit all three of the MTA's constituencies: the public, the Legislature and the agency itself. The needed reforms would allow the public to plainly see and understand existing needs for increased revenue. They would permit the Legislature to be aware of how much money is truly necessary and to then decide whether it provides additional state funding or whether it leaves it to the MTA to pass on the costs to its riders. And finally, reforms aimed at increasing transparency and accountability will also benefit the MTA itself, by removing the cloud of suspicion that the MTA's fare policy is governed by political strategy and short-term bureaucratic self-interest.
79Article X, Section 5, New York State Constitution.
80State Comptroller's Office, Proposed MTA Regulations, p. 3 ( Sect. 202.3-j)
81State Comptroller's Office, Proposed MTA Regulations, p.3 (Sect. 202.3-h)
82State Comptroller's Office, Proposed MTA Regulations, p.3 (Sect. 202.3-f and g)
83State Comptroller's Office, Proposed MTA Regulations, p.5 (Sect. 202.4-c)
84State Comptroller's Office, Proposed MTA Regulations, p.4 (Sect. 202.4-a)
85State Comptroller's Office, Proposed MTA Regulations, p.4 (Sect. 202.4-c
86Thompson Report, April 2003, p.16
87Thompson Report, April 2003, p.16
88MTA and Transit Authority Response, Thompson Report, p.18
89Thompson Report, April 2003, p.18
90New York State Assembly, Bill Text A 8904, p. 98 (ref. Public Authorities Law Section 1271-c. (I)
91New York State Assembly, Bill Summary A 8904, "Statement in Support", p.10
92namely, the Governor, the Temporary President of the Senate, the Speaker of the Assembly, the Mayor of the City of New York and the County Executives of Nassau, Suffolk, Westchester, Putnam, Dutchess, Rockland and Orange Counties (see: NYS Assembly Bill Text A08904, Title 11, Section 1264-d)
93Assembly members Nolan, Eddington, Jacobs, Glick, Galef, Clark, M. Cohen, Colton, Bradley, Gordon, Klein, Benjamin, Bing, Boyland, Brennan, Cahill, A. Cohen, Cook, Cusick, Cymbrowitz, L. Diaz, R. Diaz, Dinowitz, Gianaris, Gottfried, Grodenchik, Gromack, Karben, Lafayette, Lavelle, O'Donnell, Pheffer, Sanders, Seddio, Sweeney, Titus, Town, Weinstein, Weisenberg, and Wright.
94New York State Assembly, Bill A 9010 ("An act to amend the public authorities law, in relation to the central procurement office." The bill requires each public authority to establish a central procurement office which would among other things maintain a public record of authority procurement contracts. )
New York State Assembly, Bill A 9012 ("An Act to amend the public authorities law, the state finance law, and the executive law, in relation to establishing the position of public authorities independent budget officer.")
95NYS Assembly Bill Text A 7998, pp.1-2
96NYS Assembly Bill Text A 7998, p.5 (refers to Pub Auth L Section 1269-f Subdivision 2)
97NYS Assembly Bill Text A 7998, p.8 (refers to Pub Auth L Section 1269-i Subdivision. 2)
98NYS Assembly Bill A 9012: "An Act to amend the public authorities law, the state law and the executive law, in relation to establishing the position of public authorities independent budget officer.", Bill sponsored by Committee on Rules, Assemblymember Brodsky, and co-sponsored by Assembly members Nolan and M. Cohen.
99NYS Assembly Bill A 9010: "An act to amend the public authorities law, in relation to the central procurement office." Bill sponsored by Committee on Rules, Assemblymember Brodsky, and co-sponsored by Assemblymember M. Cohen.
100NYS Assembly Bill A 9013: "An act to amend the public authorities law, in relation to the position of the public authorities inspector general; to amend the state finance law, in relation to creating the public authorities inspector general's office revenue account; and to amend the executive law, in relation to the salaries of certain state officers." Bill sponsored by Committee on Rules, Assemblymember Brodsky, and co-sponsored by Assemblymember M. Cohen.
101Assemblymembers Dinowitz, Clark, Cymbrowitz, Robinson, Wright, Lavelle, Jacobs, Bradley, Cusick, Klein, Galef, Lopez, John, Cohen M., Diaz L., Diaz R., Glick, Gottfried, Green, Grodenchik, Hooper, Mayersohn, Nolan, O'Donnell, Ortiz, Weisenberg.
102New York State Assembly, Bill Summary, A08720 Memo, p.2
Additional Background Information
The New York City Transit Authority ("NYCTA")103 was established in 1953 to run the City subway and bus systems, operated until that time by the New York City Board of Transportation. The subway opened in 1904 and, nearing its 100th anniversary, runs today on 28 lines, including 468 subway stations, in the boroughs of Manhattan, Brooklyn, Queens and the Bronx. With 1.3 billion annual ridership, the New York City subway ranks with Mexico City behind only Moscow (3.2 billion), Tokyo (2.7 billion) and Seoul (1.6 billion).
In Staten Island, the NYCTA's Staten Island Railway links 22 communities. Bus service in Manhattan dates back to 1907, and today 244 bus routes run through all five boroughs. In 2002, roughly 60% of the MTA's total operating budget went to the NYCTA.104 Current president Lawrence Reuter took office in March 1996. The NYCTA president reports to the MTA Executive Director, Katherine Lapp. NYCTA has over 48,000 employees and contracts with 25 local unions.
Long Island Rail Road ("LIRR"), which provides passenger transportation between New York City and Long Island, is both the largest commuter railroad and the oldest railroad in America operating under its original name. Chartered in 1834, the LIRR runs from three major New York City terminals - Penn Station, Flatbush Avenue and Hunters Point - through Nassau and Suffolk counties to the eastern tip of Long Island.
The Long Island Bus ("LI Bus") was formed in 1973 by combining ten private bus carriers into a unified system and today runs 54 bus routes, linking 96 communities, 47 LIRR stations, 5 subway stations and 7 major shopping malls.
Metro-North Commuter Railroad Company ("MNCR") provides passenger transportation between New York City and the suburban communities in Westchester, Dutchess, Putnam, Orange and Rockland counties in New York State, and New Haven and Fairfield counties in Connecticut. Metro-North is the second largest commuter railroad in the nation and its main lines, the Hudson, Harlem and New Haven lines run North from Grand Central Terminal, which has been restored and redeveloped as a retail hub and a Manhattan landmark. West of the Hudson, Metro-North's Port Jervis and Pascack Valley lines operate from New Jersey Transit's Hoboken Terminal.
The Triborough Bridge and Tunnel Authority ("TBTA"), also a public benefit corporation, was originally created in 1939105. The TBTA was made an affiliate of the MTA in 1968 by the State Legislature with the express purpose of having the TBTA partially subsidize the operations of the MTA and NYCTA. Today, the TBTA operates seven toll bridges,106 the Brooklyn-Battery and Queens Midtown Tunnels, and the Battery Parking Garage. The TBTA serves more than a million people daily, making it the largest Bridge & Tunnel Authority in the US.
Operating Assistance, Appropriations, and Grants: Subject to annual appropriation under the State's section 18-b program, the MTA receives New York State operating assistance funds, which are fully matched by contributions from New York City and the seven other counties within the MTA's service area. Operating assistance includes also non 18-b State and local (Nassau County) aid to Long Island Bus. In 2002, $230 million came from New York State operating subsidies, and $199 million from New York City and the counties.107 For 2003, MTA documents cite $207.1 million in State Operating Assistance and $196.3 million in Local Operating Assistance.108
New York State and Regional Mass Transit Tax: Subject to annual appropriation, MTA, NYCTA and SIRTOA receive revenues from taxes enacted by the NY State Legislature. Tax proceeds are distributed to the MTA as they are needed.
Mortgage Recording Tax ["MRT"]: Under NY State law, the MTA receives capital and operating assistance through a Mortgage Recording Tax [MRT-1], which is collected by NY City and the seven other counties of the MTA service area, at the rate of one-quarter of one percent of the debt secured by certain real estate mortgages. MRT-1 proceeds are initially used to pay MTA Headquarters' operating expenses. Remaining funds are then allocated 55% to NYCTA and SIRTOA and 45% to the Commuter Railroads. A portion of each allocation is used to pay debt service on Mortgage Recording Tax Bonds ["MRT Bonds"], which were defeased in November 2002 Any funds remaining after meeting debt service requirements can be used for operating and capital needs at the discretion of the MTA Board. The MTA's 2002 Annual Report does not quote MRT-1 as a separate category or state how much unexpended funds remained.
The MTA also receives an additional Mortgage Recording Tax [MRT-2] of one-quarter of one percent of certain mortgages secured by real estate improved or to be improved by structures containing one to six dwelling units in the MTA's service area. A portion of this fund, also determined by legal formula, must be allocated to the MTA Dutchess, Orange and Rockland Fund. Until their defeasement in November 2002, remaining funds were to be used for debt service on the MRT Bonds. Unexpended funds from MRT-2, which are quoted to have totaled $133 million in 2002, are available to meet operating and capital needs, including debt service, of the NYCTA and the Commuter Railroads at the discretion of the MTA Board.109
Urban Tax Subsidies: In addition to MRT-1 and MRT-2, NYCTA receives operating assistance directly from New York City through a mortgage recording tax at the rate of five-eighths of one percent of the debt secured by certain real estate mortgages and through a property transfer tax at the rate of one percent of certain properties assessed value.
Petroleum Business Tax ["PBT"]: Subject to annual appropriation, the MTA receives under New York State law operating assistance through a portion of the Dedicated Mass Transportation Trust Fund ["MTTF"] and the Metropolitan Mass Transportation Operating Assistance Fund ["MMTOA"].
MTTF: The MTTF receipts are comprised of a portion of the revenues derived from certain business privilege taxes imposed by the State on petroleum businesses, a portion of the motor fuel tax on gasoline and diesel fuel, and a portion of certain motor vehicle fees, incl. registration fees. Funds are used first to meet debt service requirements of obligations and subsequently applied to pay operating and capital costs.
MMTOA: The MMTOA receipts are comprised of a quarter of one percent of regional sales taxes, a temporary regional franchise tax surcharge, a portion of taxes on certain transportation and transmission companies, and an additional portion of business privilege tax imposed on petroleum business. MMTOA funds will be applied to debt service obligations to the extent that MTTF receipts are not sufficient, and remaining funds can be used for operating and capital costs. For 2003, the MTA lists $730.8 million as the MMTOA allocation. The 2004-2007 Financial Plan presumes slightly increasing amounts for each of the following years, reaching $805.8 million in 2007. However, as the State Comptroller has pointed out, receipts from the regional franchise business tax surcharge are not guaranteed but subject to renewal by the State Legislature.
MTA Dedicated Tax Fund: The State Legislature enacts in an annual budget bill for each State Fiscal Year [SFY] an appropriation to the MTA Dedicated Tax Fund, for the then-current SFY and an appropriation for the next SFY [according to projections by the Director of the Budget for the State]. By law, the funds are to be allocated, after provision for debt service on Dedicated Tax Fund Bonds, 85% to NYCTA and SIRTOA and 15% to the Commuter Railroads. Revenues from this funding source are recognized based upon amounts of tax reported collected by NY State, to the extent of the appropriation.110
Operating Subsidies Recoverable from Connecticut Department of Transportation ["CDOT"]: The portion of deficit from operations relating to MNCR's New Haven line is recoverable from CDOT and is recorded as a credit to operation.111
Interagency Subsidy - TBTA: According to an analysis by the Office of the State Deputy Comptroller for the City of New York [OSDC], TBTA surplus funds in the amount of $506 million were transferred in 2002.112 The initial $24 million of the operating surplus is provided to NYCTA and the balance, as adjusted to reflect debt service requirements of TBTA bonds issued for their respective benefit, is divided between the NYCTA and the commuter railroads. In 2002, $104 million were available for NYCTA's operating budget, and $144 million for the commuter railroads. In addition, certain TBTA investment income is transferred to MTA and is Board-designated for use in acquiring or constructing capital assets for the Commuter Railroads and NYCTA. The MTA recognized $14.7 million in 2002 related to the TBTA investment income transfer. (see also: Supplement, 8.5. TBTA Surplus Distribution 2003-2007)
Including 2003, the fare on New York City Subways has been raised 14 times since its opening in 1904, from $0.05 to $2.00. The $0.05 fare remained the same for 44 years until it increased to $0.10 in 1948. From 1953 to 1966, subway rides cost $0.15, and were then raised to $0.20. Subsequently, fares were raised three times during the 1970s, four times in the 1980s and three times in the 1990s. The last increase came in 1995, introducing the $1.50 fare.113
In 1994, the MTA first introduced MetroCard passes in the subway system and a year later on NYC buses. The system-wide free intermodal transfer for MetroCard holders began in 1997, and discounts for pre-paid fares were introduced with the "bonus" MetroCard, 7-day and 30-day unlimited ride MetroCards in 1998. A year later, MetroCard Vending Machines (MVM) were introduced in to the subway system.114 According to the MTA, while a single ride for transit riders cost $1.50, the wide-spread use of discount MetroCards has increasingly lowered the average fare price, reaching $1.04 in 2002.115 The May 2003 fare increase, which was approved by the MTA board on March 6, 2003, raised the cost of a single subway or bus ride from $1.50 to $2.00, or 33.3%. Again, according to MTA officials, after taking into account the available discounts, subway and bus fares would average only $1.30, representing a 25% increase over the prior average fare ($1.04) and lower than the average fare in 1996 ($1.39).
According to New York City Transit working papers, presented to the State Comptroller, the new fare structure was projected originally to generate $715.3 million in additional revenue from May 2003 to December 2004. At the same time, the MTA assumed that the fare increase would simultaneously result in loss of ridership. Projecting the loss of nearly 141 million rides, the MTA expected a revenue loss of $174 during the eight months remaining in 2003 and the year 2004.116 In the October Plan, the MTA noted that the loss in ridership was smaller than predicted, which however was partially off-set by riders choosing deeper discounted fare options.
The new fare structure includes increases in the Commuter Railroad fares, on average, of 25%. Tickets bought on trains, and long-distance rides are slightly more expensive. Revenue for the balance of 2003 and through 2004 was expected to increase by $175.4 million, while being juxtaposed with a $53 million loss from a loss of 10 million riders.117 Tolls rose from by $0.50 on major bridge and tunnel crossings,118 and $0.25 on other bridges119.
On March 27, 2003, the MTA released a revised two-year financial plan for calendar years 2003-2004. The March Plan updates the December Plan to include projected revenue resulting from the March 6 Board Actions. The impact of these actions was projected to yield nearly $400 million in 2003 and slightly over $600 million in 2004. Instead of a $952 million deficit, the MTA anticipated to end 2004 with a positive closing cash balance of $59.8 million.
The March Plan also includes additional projected expenses from a new labor agreement with the Transport Workers Union. According to the State Comptroller, the March Plan continues the MTA's strategy to transfer resources from one year to another by shifting to 2003 a portion of the resources, which it had previously transferred from 2002 to 2004, to pay for the new labor agreement.121
|($ in millions)||2003||2004||2-year Total|
Closing Cash Balance
Prior to Solutions (December Plan, 2002)122
Closing Cash Balance
After Board Actions (March Plan, 2003)123
|* The March Plan also includes a contingency reserve of $40.0 million, therefore the actual closing cash balance is $59.8 million|
On July 30, 2003, the MTA released another two-year financial plan for 2003-2004, which for the first time included the so-called "super spreadsheet," a detailed line-item statement of the MTA's financial transactions. The super spreadsheet represents the MTA's internal financial plan, which the State Comptroller had termed the MTA's "secret" financial plan after he was able to obtain the document only through subpoena. The inclusion of the super spreadsheet, as well as its posting on the MTA website, was an important improvement over earlier reports, even though, by itself, it did not necessarily improve the transparency of the document.
The July plan estimated nearly twice the amount of year-end cash than the March report. The changes were attributed mainly to higher revenues from mortgage related tax revenue, which reflect the high refinancing activity, as well as the high turn-over in commercial property sales during the last economic period. However, the MTA also reported new spending needs, including higher security costs, higher pension contributions and costs for corporate restructuring. These expenses account for the largely reduced year-end cash balance for 2004, even though the $40 million contingency reserve is now drawn down in 2004. Notably, though, the July Plan includes only the costs, but none of the savings which are expected to result both from the new labor agreement and the corporate restructuring project.
|($ in millions)||2003||2004||2-year Total|
|Closing Cash Balance (July Plan, 2003)125||$186.3||$4.1*||$4.1|
|* The July Plan applies the contingency reserve of $40.0 million to the 2004 budget.|
Final Proposed Budget for 2004
The October Plan projects higher year-end cash balances than the July Plan for both 2003 and 2004. The increase represents new estimates for both expenses and revenues. New spending needs mainly represent re-estimates for administrative costs, including health and welfare benefits, computer systems, fuel and power, and for services, such the paratransit program. Maintenance on new rolling stock accounts for further upgraded expenses. New revenues are generated by still higher revenues from real-estate related taxes, which in combination with internal cost-cutting measures yield a positive net change of year-end cash.
|($ in millions)||2003||2004||2-year Total|
|Closing Cash Balance (October Plan, 2003)127||$225.1||$36.2||$36.2|
At year-end, the MTA board approved the 2004 budget unanimously, while announcing the reduction of 1,000 job position. According to news reports, the MTA ended the year 2003 with a $367 million surplus, again significantly higher than projected in the October Plan.128
TBTA Surplus Distribution 2003-2007
Analysis by the Office of the State Deputy Comptroller for the City of New York
$ in millions
|2002||Planned 2003||Planned 2004||Planned 2005||Planned 2006||Planned 2007|
|TBTA Net Operating Income||$654.3||$711.1||$798.4||$749.1||$728.9||$712.6|
& Capital Reimbursement
|TBTA Debt Service||121.8||78.4||91.0||97.3||101.8||114.7|
|Net Income Available for Transfer to CRR and NYCTA||505.9||609.2||678.6||621.8||596.1||564.6|
|Distribution of Funds to NYCTA|
First $24 million
reserved for NYCTA
|Half of Remainder||241.0||292.6||327.3||298.9||286.0||270.3|
Less: TBTA Debt Service
Available for NYCTA
|Distribution of Funds to CRR|
|Half of Remainder||241.0||292.6||327.3||298.9||286.0||270.3|
Less: TBTA Debt Service
Available for CRR
1page 30 (MTA October 2003 Financial Plan)
2page 37 (MTA October 2003 Financial Plan)
Source: Metropolitan Transportation Authority, October 2003 Financial Plan
103Referred to also as "New York City Transit" or "Transit Authority"
104MTA, 2002 Annual Report, p.6
105Originally created in 1939 as the "Triborough Bridge Authority," the authority was renamed "Triborough Bridge and Tunnel Authority" in 1946
106Triborough, Throgs Neck, Verrazano-Narrows, Bronx-Whitestone, Henry Hudson, Marine Parkway-Gil Hodges Memorial, and Cross Bay Veterans Memorial
107MTA, 2002 Annual Report, CAF, p.5
108MTA Financial Plan 2004-2007, October 2003, p.11
109MTA, 2002 Annual Report, Notes to Combined Financial Statements, p.30
110MTA, 2002 Annual Report, Notes to Combined Financial Statements, p.31
111MTA, 2002 Annual Report, Notes to Combined Financial Statements, p.31
112See: Supplement 8.5. "TBTA Surplus Distribution 2003-2007"
113Hevesi Report, April 2003, p.37
114MTA, NYCTA MetroCard 2002, Customer Awareness, Attitude and Usage Tracking Study, New York City Residents, April 11, 2003, p.4
115Testimony of Katherine Lapp, Executive Director of the MTA, before the New York City Council Transportation Committee, January 17, 2003, p.3-4.
116Hevesi Report, April 2003, pp. 38-39
117Hevesi Report, April 2003, p.39
118including Bronx-Whitestone Bridge, Throgs Neck Bridge, Triborough Bridge, Brooklyn Battery Tunnel and Queens Midtown Tunnel, all of which now charge $4 tolls for passenger vehicles ($3.50 with E-Zpass), and the Verrazano Narrows Bridge, which has a one-way round trip collection system, charging $8 tolls for passenger vehicles ($7 with E-Z pass)
119Marine Parkway-Gil Hodges Memorial Bridge, Henry Hudson Bridge and Cross-Bay Veterans Memorial Bridge ($2.00 for passenger vehicles, $1.33 with E-Z pass)
120Revised MTA-Wide Financial Plan for 2003-2004 and Revised 2003 Agency Budget, MTA Finance Committee March 24, 2003, MTA Board March 27, 2003.
121Hevesi Report, December 2003, p.7
122Also referred to in MTA documents as "Interim 2003 Budget". See: Revised MTA-Wide Financial Plan for 2003-2004 and Revised 2003 Agency Budget, MTA Finance Committee March 24, 2003, MTA Board March 27, 2003, p.74 "MTA Reconciliation of Interim 2003 Budget with Revised 2003 Budget"
123Also referred to in MTA documents as "Revised 2003 Budget". See: Revised MTA-Wide Financial Plan for 2003-2004 and Revised 2003 Agency Budget, MTA Finance Committee March 24, 2003, MTA Board March 27, 2003, p. 74 ("MTA Reconciliation of Interim 2003 Budget with Revised 2003 Budget")
124July 2003 Financial Plan for 2003 and 2004 and MTA Preliminary 2004 Budget, July 28, 2003
125Also referred to in MTA documents as "2004 Preliminary Budget." See: July 2003 Financial Plan for 2003 and 2004 and MTA Preliminary 2004 Budget, July 28, 2003 (without page numbers), Table "Reconciliation: 2004 Preliminary Budget compared with Revised 2003 Budget."
126MTA-wide Financial Plan for 2004-2007 and Final Proposed Budget for 2004, MTA Finance Committee and MTA Board, October 28, 2003.
127Also referred to in MTA documents as "Final Proposed Budget for 2004". For closing cash balance see: MTA-wide Financial Plan for 2004-2007 and Final Proposed Budget for 2004, MTA Finance Committee and MTA Board, October 28, 2003, p.109.
128See: Joshua Robin, "MTA Shaves Off 1,000 Positions," Newsday, Friday, December 19, 2003