Report uncovers previously undisclosed $300 million “investment pool”

Data not adequate to provide for “sound policy-making” on fare hike

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New York City Comptroller William C. Thompson, Jr. released an audit this morning that found that the Metropolitan Transportation Authority (MTA) may not have included $300 million in budget documents presented to the public and the MTA Board before the March 6 vote to raise fares. Additionally, the New York City Transit Authority (TA) overstated more than $850 million in operating expenses in Fiscal Year 2001, failed to disclose “critical” information in its budget presentation, and made “questionable” assumptions that deflated revenue projections. The audit also disclosed that TA riders pay a much higher percentage of the agency’s operating expenses than those who ride the MTA’s bus lines and commuter railroads in outlying suburban counties.

As a result, Thompson demanded that the MTA immediately reevaluate the need for the May 4th fare increase.

“The MTA Board members must fulfill their fiduciary responsibility by immediately returning to the drawing board and reevaluating whether a fare increase of this magnitude is truly needed at this time,” Thompson said. “Our audit demonstrates that MTA staff were not open and honest about the MTA’s financial position. New Yorkers have a right to know, particularly given that they will soon have to absorb the highest fare increase ever approved by the MTA.”
Thompson’s audit – which was announced in December and began on Jan. 15 – was released at a news conference at the Municipal Building with New York State Comptroller Alan G. Hevesi.

“The Transit Authority overstated its operating expenses on its financial statements for 2001 and on its draft financial statements for 2002, and its Fiscal Year 2003 Operating Budget Proposal lacked essential information,” Thompson said. “The errors in the Transit Authority’s financial statements combined with the shortcomings of the Operating Budget make it impossible for all concerned parties to assess the financial position of the Transit Authority and make an informed judgment about the necessity for a fare increase.”

Thompson’s audit called the financial statements and budget documents released by the agency “incomplete and misleading.” The audit determined:

• The draft financial statements indicated that the TA ended calendar year 2002 with about $300 million in what is characterized as the “MTA Investment Pool,” but Thompson’s team of auditors – given the limited information provided by the MTA - could not determine whether these resources were included in the budget plans and were considered when the MTA Board voted on the fare increase on March 6. Although the MTA has indicated that these funds were programmed in March, it is not clear how these funds were used.
  
  
• The Transit Authority, contrary to Generally Accepted Accounting Principles, improperly included capital costs and interest expense on long-term debt as operating expenses on its financial statements. The TA’s financial statements overstated operating expenses by approximately $859,149,000 - or 16.1 percent of all reported expenses – in FY 2001. In the draft FY 2002 statement, the agency overstated expenses by approximately $852,905,000 – or 15.5 percent of reported operating expenses. This error in the financial statements had no impact on cash flow. However, it presented a much bleaker financial picture to the MTA Board, elected officials and the public.
  
  
• Its 2003 Operating Budget Proposal did not provide adequate details of its debt service, debt restructuring and projected revenue and expenses. Specifically, the proposal did not indicate whether it included: savings from debt restructuring; costs associated with the recent collective bargaining agreement or reserves set aside to cover these costs, and surpluses associated with toll increases for bridges and tunnels. The proposal also reported different operating deficits - $1.632 billion and $2.009 billion – in two sections of the document.
  
  
• The TA’s “Fare Revenue Model,” which the agency used to project TA revenue from the fare increase in the revised budget, understated revenue projections by making assumptions regarding ridership that are questionable based on a review of historical data. The MTA Board raised the fare based on these revenue projections. More accurate revenue projections may have led to a lower fare increase.
  
  
• TA riders pay a “significantly higher percentage” of TA operating expenses when compared to the percentage of operating expenses paid for by the riders of the commuter railroads and Long Island Bus. After considering the new fare increases, TA riders will pay even more towards reducing the TA’s operating deficit than riders of the commuter railroads and Long Island Bus pay towards reducing the operating deficits of those systems. TA riders are expected to pay roughly 53.9 percent of operating expenses for 2003 through funds derived from the fare box, while commuter railroad and Long Island Bus riders are expected to cover an average of only 41.33 percent of the operating expenses for those systems.
  

Thompson recommended that the TA, in conjunction with the MTA:

• Reevaluate the need for a fare increase based on the audit’s findings.
  
  
• Ensure that capital costs are properly reported on its financial statements in accordance with Generally Accepted Accounting Principles.
  
  
• Ensure that future budget proposals contain complete, clear and accurate information pertaining to the TA’s financial position. The TA and MTA should therefore appoint an independent task force – which should include members of the public and elected officials - to review TA budget proposals before they are presented to the MTA Board for approval.

Additionally, Thompson recommended that the MTA should take into account the amount of operating expense already paid for by riders when considering future fare increases for the TA, the commuter railroads and Long Island Bus.

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