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May 6, 2011


Comptroller's Office Gives Testimony on the Finances of the Metropolitan Transportation Authority

On May 5, 2011, Deputy State Comptroller for the City of New York Kenneth B. Bleiwas delivered the following testimony at the Senate Standing Committee on Investigations and Government Operations Public Hearing held at SUNY Old Westbury in Old Westbury, New York:

Thank you Senator Marcellino and the Senate Investigations and Government Operations Committee for this opportunity to testify today on the finances of the Metropolitan Transportation Authority (MTA) on behalf of State Comptroller DiNapoli, who could not be here today.

I am Deputy Comptroller Kenneth Bleiwas and my responsibilities include monitoring the MTA's finances.

The financial outlook for the MTA is an issue that is important to all New Yorkers, particularly those here on Long Island and elsewhere in the downstate region. The MTA is responsible for operating the largest mass transit system in the nation. It transports 8 million people each weekday, and is inextricably linked to the economies of New York City and the entire downstate region.

Thus, it is critically important that the MTA's operating budget achieve long-term structural balance and that the MTA's capital program be adequately funded. For years the Office of the State Comptroller has called on the MTA to become more efficient, pointing out as far back as 2004 that the MTA had many duplicative functions.

Under Chairman Walder, the MTA has taken steps to become more efficient. Unfortunately, the MTA has also cut services and raised fares. Since 2002, the MTA has raised fares and tolls by more than 50 percent—twice the rate of inflation. These increases represent a significant burden for most riders, particularly during the economic downturn.

The MTA must change the way it does business, and the Office of the State Comptroller is prepared to help. Every dollar saved is one less that needs to come from riders and taxpayers. When Comptroller DiNapoli assumed office, he made a commitment to expand oversight of the MTA. Since 2007, the Office of the State Comptroller has completed more than two dozen audits and reports on the MTA. I have brought copies of recent pertinent MTA audit and policy reports for you.

A July 2010 audit, for example, found that the MTA was missing significant opportunities to generate greater revenues from its vast real estate portfolio. The audit found that there were 600 vacant rental units as of March 2009, including six large retail spaces in the 42nd Street/Sixth Avenue subway station. The audit also found that the MTA did not have a strategic plan for marketing its real estate holdings.

An audit released in August 2010 found that more than 140 MTA employees doubled their base salaries through overtime in 2009. That audit also found that more than 3,200 MTA employees received overtime pay equal to half of their annual salaries, and that significant amounts of overtime were incurred by replacing sick workers, even though no effort was made to find out whether replacements were needed.

Comptroller DiNapoli subsequently announced that his office would conduct a forensic probe of overtime practices at the MTA. Forensic audits focus on identifying evidence of fraud and wrongdoing that may constitute criminal offenses, resulting in referrals to law enforcement. The auditors are currently looking to make sure that the MTA is only paying overtime that is justified, authorized, earned, properly calculated, and correctly applied for pension and benefit determinations.

In total, eight audits of the MTA are currently in various stages of completion. In addition to audits, the Office of the State Comptroller issues periodic reports on the finances of the MTA.

In May 2009, New York State approved a package of new taxes and fees that were expected to generate $2 billion annually for the MTA and restore structural balance. Unfortunately, collections from these new revenue sources were significantly lower than had been expected, and the MTA also has had to contend with revenue losses due to the recession, much like New York State and other jurisdictions.

Last July, the MTA projected budget gaps that reached $2.1 billion by 2014. To close these gaps, the MTA outlined a series of actions, including service reductions, steep fare increases, and management improvements.

The MTA is making progress in closing the projected budget gaps, but now has to deal with another round of State budget cuts, with a net value of $100 million, and will have to close a budget gap of $250 million in 2012.

The MTA plans to raise fare and toll revenue by 7.5 percent in January 2013, which comes after a 7.5 percent increase that went into effect in December 2010. This would represent a fare and toll increase of 15 percent in just three years. These increases are occurring at a time when taxpayers can least afford it. Even if the MTA achieves all of its stated objectives, it still forecasts a budget gap of nearly $500 million in 2014.

The MTA's estimates assume that it will achieve all of the savings anticipated from management improvements (estimated at more than $600 million annually by 2014), and will negotiate a two-year net-zero-cost labor settlement with its labor unions.

Balancing the operating budget will not be easy, but the focus must be on reducing costs by improving efficiencies and eliminating waste.

The MTA also faces serious challenges in financing its capital program. The MTA's current five-year program, which is scheduled to run through 2014, is expected to cost more than $26 billion.

The MTA, however, only has full funding for the first two years of the program, leaving a $9.9 billion funding gap for the remaining three years.

The funding gap could grow if the federal government curtails its commitment to mass transit capital projects. In the past, the MTA has relied heavily on debt to finance its capital program. Outstanding debt has more than doubled over the past 11 years, growing from $13 billion in 2000 to $29 billion in 2011.

As a result, annual debt service will rise from $848 million in 2004 to $2 billion in 2011, and to $2.6 billion by 2014, which will increase pressure on the MTA's operating budget. Debt service would grow even faster if the MTA borrows to fill the $9.9 billion funding gap.

Despite these challenges, the MTA needs to preserve the impressive benefits gained from prior capital investments and it must complete expansion projects that it has already begun, such as East Side Access. To do so, the MTA will have to get the most out of every capital dollar, stay within budget, and obtain new sources of funding. While the challenges facing the MTA's operating and capital budgets are formidable, I do have some good news to report.

Last week, Comptroller DiNapoli released a report on the pace of the economic recovery in New York State. Although the report found that state job growth has been slow, job gains have been significant in the downstate region.

In 2010, New York State added 95,000 private sector jobs, nearly half of which were located in New York City, Long Island, and other parts of the MTA transportation district.

In the first quarter of 2011, another 38,350 private sector jobs were added in the MTA transportation district. Job growth translates into new riders and higher tax revenues. In addition, the commercial real estate market in New York City seems to be slowly coming back to life. At its peak in 2007, real estate transaction taxes contributed $1.6 billion to the MTA budget, but then declined to less than $400 million in 2009.

In the event that ridership or tax revenues grow faster than anticipated by the MTA, Comptroller DiNapoli recommends that any resulting resources be held in reserve to improve or increase services, mitigate future fare increases, and help fund the capital program.

Such resources should not be used to allow the MTA to backtrack on its promise to change the way it does business.

I would be pleased to answer any questions.

Thank you.



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