MTA HID HALF A BILLION DOLLARS IN
FARE INCREASE BASED ON MISLEADING INFORMATION
Two Financial Plans: One Public, One Secret
The Metropolitan Transportation Authority (MTA) hid
more than half a billion dollars from the public when it was asking
for a fare increase by keeping two sets of financial plans, one public
and one secret, according
to a report issued today by State Comptroller Alan Hevesi.
Only after he subpoenaed the MTA and required testimony
of officials did Hevesi's office learn of the internal plan, which showed
that the MTA secretly moved funds to reduce its 2002 surplus and create
a deficit in 2003. Hevesi announced a reform proposal to change the
secretive culture of the MTA to make it more accountable.
"The MTA claims to be the most open agency in government,
but that claim is a fraud. The MTA secretly moved resources to slash
the reported 2002 surplus and create a deficit in 2003, apparently to
justify a fare increase. New York City also moves funds between years,
but it discloses the information," Hevesi said. "It is an
outrage that this public agency blatantly misled the people it is supposed
The Comptroller's budget review found that:
- 2002 Surplus Shrunk: The MTA's December 2002 Plan,
which was the basis for the public hearings and the fare increase,
showed a 2002 surplus of $24.6 million. Previously undisclosed MTA
documents show that if the MTA had not planned to move $512.5 million
in available resources from 2002 into 2003 and 2004, the 2002 surplus
would have been $537 million.
- 2003 Deficit Created: The public December Plan showed
a 2003 deficit of $236 million. However, internal MTA documents show
the agency hid $319 million by not counting it as a 2003 resource
when it was available, but allocating the funds to 2004. If all the
funds available to be used in 2003 were included, the MTA would have
shown a 2003 surplus of $83 million.
- Resources Shift Again: As the Comptroller's Office
was concluding its review of the December Plan, the MTA Board approved
a new Plan on March 27, 2003. Once it had passed the fare increase,
the MTA shifted resources again, this time from 2004 back into 2003.
- Still Hiding Money After Getting The Fare Increase:
The MTA March Plan, which included higher revenues from the fare and
toll increases, shows a 2004 surplus of $60 million. Only a limited
review of this plan was possible before the Comptroller's report was
completed, but it uncovered the surplus could be well over $140 million.
Internal documents reveal another $27.5 million in undisclosed reserves.
Also, the Plan includes none of the savings from the new labor agreement
with the Transport Workers Union.
- Can't Use 5-Year Plan for Planning: Despite its stated
commitment to multi-year planning, the MTA produced a legally mandated
five-year plan only after the Comptroller demanded it. Moreover, the
five-year plan produced by the MTA is useless in determining whether
future fare increases will be needed again as soon as 2005.
"No doubt the MTA will claim that a fare increase
is necessary because of the deficit expected in 2004. The fact is if
it had not hidden money, the MTA would have had a large surplus in 2002
and a small surplus in 2003. Thus a fare increase might not have been
necessary in 2003," Hevesi noted. "The public and elected
officials have a right to know the truth and debate the timing and amount
of fare and toll increases based on facts, not a distorted picture created
by the MTA to make it easier to push through an increase. While it may
have made sense to raise fares in 2003 to smooth out the budget gaps,
there were a number of choices. Metrocard and E-ZPass permit an endless
combination of fare and toll increases and discounts, so there was more
flexibility than the MTA admitted. Indeed, the MTA itself has already
delayed implementation of the fare increase from March to May."
After twice asking for and not receiving all requested
data, on February 19, 2003, Hevesi took the extraordinary step of issuing
subpoenas for records and testimony from the MTA for information regarding
the financial plan that was approved by the MTA Board on December 18,
2002. Pursuant to the subpoenas, the Comptroller's Office received 18
cartons of material and took 32 hours of testimony from senior MTA officials
in eight sessions over the next month.
The December plan showed a two-year gap of $951 million,
including $235.8 million in 2003 and $715.7 million in 2004. The MTA
used those alleged gaps to justify raising subway, bus, and commuter
railroad fares by as much as 33 percent and tolls on the MTA's largest
bridges and tunnels by $.50.
A rapid rise in debt service costs is the driving factor
behind the projected 2004 budget gap. Debt service costs are projected
to total $1.3 billion in 2004, more than double the 2003 amount. 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
because the State is not contributing to the current capital program.
The Comptroller's report also found the following:
- The MTA has a secretive budget process, making it
very difficult to check the accuracy of its numbers or the reasonableness
of its estimates for the future.
- In a number of cases, the budget office did
not maintain appropriate working papers to document how it arrived
at numbers in the Plan. In several cases, the working papers did
not match the numbers in the December Plan.
- MTA staff found it difficult to recreate their
own budget numbers in several critical areas. In some cases, MTA
officials could not even recall how they calculated a particular
number or cited professional judgment as the sole basis.
- MTA budget staff said that much of the information
for their budget preparation came from the individual agencies
that make up the MTA. However, when the Comptroller's Office checked
a sample of agency data, the numbers did not always match.
- MTA financial reporting is not clear and accessible,
making oversight and accountability difficult.
- The different MTA agencies use different financial
plan formats, making comparisons hard.
- The MTA's own plans are not updated frequently.
The March 2001 plan was not updated until the December 2002 Plan.
- It is difficult to track important developments
from one plan to the next. There was no explanation of many of
the changes between the March 2001 and December 2002 Plans.
- New York City presents to the public two detailed
financial plans, one before gap closing actions and the other
showing the effect of those actions. The MTA combines the two,
which makes it difficult to understand and quantify the factors
causing the gaps.
- The MTA does not publish the detailed revenue
and expenditure assumptions and methodologies behind its forecasts,
which means they are not subject to review.
- The MTA is arbitrary in its response to legal requirements
to report on its finances.
- It had ignored Section 1269-d of the Public
Authorities Law that requires it to produce a new five-year financial
plan every year. The last one was completed in 1999.
- Only when the Comptroller demanded the required
five-year plan did the MTA finally provide one.
- However, the MTA arbitrarily changed the format
of the plan so that it cannot be compared to past plans and used
plainly unrealistic assumptions - defeating the purpose for this
financial planning tool.
- Thus the new five-year plan is of little use
in determining if additional fare increases will be needed in
2005 or beyond.
"The MTA has repeatedly claimed to be the most
open agency in city or state government. Our review proves that in fact
the MTA has a culture of secrecy, arrogance, lack of accountability
and contempt for the public," Hevesi said.
Hevesi announced the following reform measures to change
the secretive culture of the MTA and make it accountable to the people
it serves. First, using his constitutional authority from Article 10
Section 5 to supervise the accounts of public corporations, such as
the MTA, the Comptroller will promulgate detailed regulations that will
compel the MTA to submit its budget and financial plan in a manner that
is transparent, timely and reasonable. The reporting will be modeled
on the budget standards derived from the Financial Control Act and the
New York City Charter, which result in detailed and transparent reporting
of New York City's budget.
Second, the Comptroller will draft and submit to the
Legislature and Governor legislation that will give to the Comptroller
the authority to formally determine the accuracy, transparency and reasonableness
of the MTA's budget and financial plan before the MTA can vote for any
future fare and toll increase.
"The public has lost confidence in the MTA. The
only way to restore that confidence is to ensure that all future financial
reports are accurate and fully disclose the true condition of the agency.
These proposed reforms will ensure that the true financial status of
the MTA will be readily available to the public," Hevesi said.
for a copy of the full report.
# # #
HOW THE MTA HID MONEY & CREATED
A DEFICIT IN 2003
In its internal version of the December Plan, the MTA
planned a number of actions that moved resources that were available
in 2002 to future years.
Transferring Funds to Other Years Slashed the
2002 Reported Surplus
- The MTA planned to transfer $182.5 million from its
2002 budget to an off-budget Stabilization Account that would be drawn
down in 2003. If the MTA had done nothing, this money would also have
been available in 2003, so the only plausible reason for putting it
into this off-budget account was to hide it from the public.
- The MTA planned to transfer $125 million in 2002
to its Corporate Account that would be drawn down in 2004 and used
to fund a reserve. The reserve, which was not disclosed by the MTA
in the December Plan, inflated the size of the two-year budget gap.
- The MTA planned to transfer $65.8 million from 2002
to 2003 by prepaying debt service costs.
- The MTA also planned to transfer $139.2 million from
2002 to 2004 by prepaying debt service costs.
- In total, these four actions reduced the projected
2002 surplus by $512.5 million. If these actions had not been taken,
the projected 2002 surplus would have been $537 million, instead of
the $24.6 million the MTA reported to the public.
A Surplus in 2003 Was Turned Into a Deficit
- The MTA planned to shift $264.2 million in surplus
resources from 2002 to 2004 through debt prepayments and off budget
- The agency had another $54.8 million in undisclosed
resources available in 2003, which it planned to use in 2004.
- Had the MTA used all the resources available for
2003, it would have had a surplus of $83 million, instead of the deficit
it showed in its December Plan of $235.9 million.
The March 2003 Plan also Has Undisclosed Funds
- On March 27, 2003, the MTA Board approved the March
Plan, which includes fare and toll increases and shows a surplus of
$59.8 million by the end of 2004, including a $40 million reserve.
- Most of the surplus resources that were shifted from
2002 to 2004 in the December Plan were shifted to 2003 in the March
Plan to help fund the Transport Workers Union (TWU) agreement and
reportedly an increase in debt service costs.
- A review of the internal version of the March Plan
found undisclosed reserves of $27.5 million, which would raise the
surplus to $87.3 million.
- The March Plan includes the cost of the new agreement
with the TWU, but not any productivity savings from newly gained management
rights. Productivity savings could amount to more than $60 million,
which could increase the 2004 surplus to about $140 million.
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