Two Financial Plans: One Public, One Secret

CONTACT: Press Office (212) 681-4825
FOR RELEASE: Immediately April 23, 2003

MTA HID HALF A BILLION DOLLARS IN 2002 BUDGET,
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 to serve."

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.

Click here for a copy of the full report.

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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 accounts.
• 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.

For more information:

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