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MTA Audit Report 2013

MTA Audit Report 2013

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MTA Audit Report 2013
MTA Audit Report 2013

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Published by: rbrooksvv on Sep 30, 2013
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Office of the State Comptroller 1
On July 24, 2013, the Metropolitan TransportationAuthority (MTA) released a preliminary budgetfor 2014 and an associated five-year financial plan(“the July Plan”). The July Plan, which covers the period from 2013 through 2017, reflects theMTA’s commitment to reduce planned spendingand to raise fares and tolls every other year.While the MTA still faces budget risks, the JulyPlan reveals that the MTA’s financial outlook ismuch improved compared to just seven monthsago. The MTA has identified $1.9 billion in newresources over the course of the financial plan period, resulting mostly from improvements in theeconomy and smaller increases in the costs for employee fringe benefits, debt service and energy.The MTA plans to use these new resources to:offset unplanned spending; reduce the projected  budget gaps; help fund the next capital program;improve maintenance and service; and pay downsome of its long-term liabilities. Although theseare appropriate uses, none of the resources wereused to moderate planned fare and toll increases.In recent years, the MTA has placed less emphasison new cost-reduction initiatives even as itcontinues to press for large fare and toll increases.Since 2007, the MTA has raised fares and tolls by29 percent (twice the inflation rate). Theseincreases occurred when riders were least able toafford them, as the recession took a heavy toll onfamily finances. Household income remainsstagnant, yet the MTA plans to raise fares and tolls by 15 percent over a three-year period beginningin 2015.The MTA has largely recovered from therecession and, although much work remains to bedone, it quickly restored service after SuperstormSandy. The MTA still faces challenges, perhapsnone greater than funding its next capital program, but reducing the size of planned fare and tollincreases should also be considered.
Financial Outlook for theMetropolitan Transportation Authority
Thomas P. DiNapoli
Kenneth B. Bleiwas
New York State Comptroller Deputy ComptrollerReport 6-2014 September 2013Highlights
Fares and tolls have been rising much fasterthan inflation over the past six years, and theMTA plans to raise them by 7.5 percent in2015 and by another 7.5 percent in 2017(more than twice the projected inflation rate).
The MTA has successfully reduced the cost of the paratransit program (which serves thedisabled), but cost-reduction efforts in otherareas have been modest since 2010.
Since February 2013, the MTA has identified$1.9 billion in new resources during thefinancial plan period. About half of theresources were used to fund discretionaryactions; none of the resources were allocatedto moderate future fare and toll hikes.
The 2014 budget gap has been eliminated andthe out-year gaps have been reduced to acumulative total of $240 million (assumingthe MTA achieves all of its cost-savingtargets).
The MTA estimates that it will need to invest$26.6 billion during the 2015-2019 period justto maintain and modernize the existingtransportation system. Financing theseinvestments will be difficult in the currenteconomic and budgetary environment.
The MTA plans to allocate a total of $2.7 billion in operating budget resources tofund capital projects on a pay-as-you-go basisthrough 2020, $675 million more than sevenmonths ago.
The MTA still faces budget risks, includingthe pace of the economic recovery and theimpact of the next round of collectivebargaining.
2 Office of the State Comptroller
In May 2009, New York State enacted new taxes(e.g., the payroll mobility tax) and fees, and dedicated the revenues to the MTA to help addressits long-term structural imbalance. For its part, theMTA raised fare and toll revenues by 10 percent,and committed to raise fare and toll revenues by7.5 percent in both 2011 and 2013 as well as toreduce future costs.Shortly thereafter, the plan to put the MTA onsound financial footing began to unravel as therecession deepened. Collections from the new payroll tax fell far short of targets; real estate taxcollections weakened; and the State cut funding tothe MTA to help balance its own budget. Inaddition, labor costs rose because of an arbitrationaward. Given its precarious financial situation, theMTA issued Revenue Anticipation Notes in 2009and 2010 to meet its financial obligations.To stabilize its finances, the MTA embarked on acomprehensive gap-closing program in 2010. This program included service reductions, a three-year net-zero wage freeze and other cost-reductionactions. These actions have allowed the MTA to balance its budget without additional taxpayer assistance.The MTA’s financial outlook is much improved compared with just seven months ago. The MTAhas reduced the size of its out-year budget gapsfrom $638 million to $240 million, includingeliminating the 2014 budget gap. It also has setaside additional funding for the next capital program, as well as to improve maintenance and services. The MTA now projects a cash balance of $6 million in 2014 and budget gaps of $49 millionin 2015, $91 million in 2016 and $100 million in2017, assuming successful implementation of theMTA’s cost-reduction efforts, additional fare and toll increases, and anticipated labor cost savings.
Status of Cost-Reduction Efforts
In 2009 and 2010, at the height of the MTA’sfiscal crisis, the MTA proposed the largest cost-reduction program in its history. These initiativesare now expected to save $1.1 billion by 2017,76 percent more than initially estimated becausethe MTA expanded successful cost-reductioninitiatives in the paratransit program. Since 2010,the MTA has proposed additional savingsinitiatives, raising the total value of its cost-cuttingefforts to $1.3 billion annually by 2017 (seeFigure 1). Of this amount, $629 million isexpected to come from the paratransit programand $517 million from other initiatives proposed in 2009 and 2010. Since then, cost-reductioninitiatives outside of the paratransit program have been modest, generating only $67 million annually by 2017. The July Plan also anticipates savings of $95 million from future, still unspecified actions.
Cost-Reduction Initiatives
Figure 1
Sources: Metropolitan Transportation Authority; OSC analysis
   B   i   l   l   i  o  n  s  o   f   D  o   l   l  a  r  s
& 2010
Reliance on Fare and Toll Increases
Since 2007, the MTA has raised fares and tollsfour times (see Figure 2), a cumulative increase of 29 percent (more than twice the inflation rate).Between 2007 and 2013, the cost of a 7-dayMetroCard for use on the City’s subways and  buses rose by 25 percent, and the cost of a 30-dayMetroCard rose by 47 percent (more than threetimes the inflation rate). The average fare per rider, including discounts and free transfers, rose by 36 percent. Fares on the commuter railroadsincreased by 32 percent, and E-ZPass tolls on theMTA’s major bridges and tunnels rose by33 percent.
2   0   0   7  2   0   0   8  2   0   0   9  2   0  1   0  2   0  1  1  2   0  1  2  2   0  1   3  2   0  1  4  2   0  1   5  2   0  1   6  2   0  1   7  
   C  u  m  u   l  a   t   i  v  e   P  e  r  c  e  n   t  a  g  e   C   h  a  n  g  e
Fare and Toll IncreasesInflation
Sources: Metropolitan Transportation Authority; OSC analysis
Cumulative Change in Fare and TollRevenue Since 2007 Compared to Inflation
Figure 2
Calendar Year 
Office of the State Comptroller 3
The MTA plans to raise fares and tolls in 2015 and again in 2017, in keeping with its policy of  biennial increases. The July Plan assumes thateach fare and toll increase would generate about$500 million annually, an increase of 7.5 per cent(more than twice the projected inflation rate).
Unanticipated Resources
If fares and tolls rise as planned, they will haveincreased by 44 percent since 2007, much faster than the growth in inflation (less than 19 percent).Since February 2013, a number of favorabledevelopments have improved the MTA’s financialoutlook. These developments resulted in the MTArecognizing $1.9 billion in new resources duringthe financial plan period. Several factors areresponsible for the additional resources, includinghigher tax revenues ($482 million), lower pensioncontributions ($404 million), lower energy costs($372 million), lower debt service ($317 million),and lower health insurance costs for activeemployees and retirees ($218 million).The MTA plans to use some of these resources tooffset unplanned costs and other budgetary needs($523 million), and to reduce its projected budgetgaps ($399 million). About half of the resources(nearly $1 billion) would be used to fund discretionary actions, including: funding capital projects on a pay-as-you-go basis ($435 million);new initiatives, such as improved maintenance and services ($441 million); and paying down long-term pension liabilities of the Long Island RailRoad ($80 million). Although these areappropriate uses, none of the resources were used to reduce the size of planned fare and toll hikes.While the MTA used a portion of the resources toreduce projected budget gaps, it could haveeliminated the gaps entirely and red uced the sizeof the next fare and toll increase.
Fares and tolls will rise by an average of more than8 percent to meet the MTA’s revenue target, becauseutilization typically declines when fares and tolls rise.
The MTAinstead chose to set aside additional operatingfunds for capital projects because of theuncertainties in funding the next five-year capital program.
OSC estimates that each percentage point reductionin the proposed fare and toll increase for 2015 would cost the MTA $56 million in 2015, and $69 millionin each subsequent year.
Utilization Trends
In 2013, the use of the MTA’s mass transitservices (i.e., subway, commuter railroads and  bus) will likely exceed prerecession levels. TheJuly Plan assumes that utilization will grow by2 percent in 2013 and by about 1 percent annuallythereafter. Recent trends are discussed below.
 New York City Transit:
Subway ridership fell by44 million riders in 2009 (see Figure 3) as a resultof job losses brought about by the recession. Sincethen ridership has recovered, reaching the highestlevel since 1950 even with service disruptionsfrom Superstorm Sandy. The July Plan assumessubway ridership will reach nearly 1.7 billionriders in 2013 and then grow by 26 million riders(1.5 percent) in 2014 as the economy improves.Ridership on buses operated by New York CityTransit fell by 11 percent between 2008 and 2012(to the lowest level since 1999), following servicecuts that were implemented in response to revenueshortfalls brought about by the recession and theimpact of Superstorm Sandy. The July Planassumes bus ridership will resume growing and will reach 700 million riders by 2016, still lower than the prerecession level.
2   0   0   0  2   0   0  2  2   0   0  4  2   0   0   6  2   0   0   8  2   0  1   0  2   0  1  2  2   0  1  4  2   0  1   6  
Sources: Metropolitan Transportation Authority; OSC analysis
2   0   0   0  2   0   0  2  2   0   0  4  2   0   0   6  2   0   0   8  2   0  1   0  2   0  1  2  2   0  1  4  2   0  1   6  
New York City Transit Ridership
Figure 3
   M   i   l   l   i  o  n  s  o   f   R   i   d  e  r  s
 Long Island Rail Road (LIRR):
The recessiontook a heavy toll on the commuter railroads. After reaching a historic peak in 2008, LIRR ridershipfell by 6.3 million riders (7.2 percent) through2011 (see Figure 4). In 2012, however, ridershipincreased by 1 percent, even with the disruptiveimpact of Superstorm Sandy. Although ridership is projected to increase by 1.7 million riders(2 percent) in 2013 and to grow in subsequentyears, it is not expected to reach the prerecessionlevel during the financial plan period.

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