Testimony of Katherine N. Lapp,
Executive Director and Chief Operating Officer of the
Metropolitan Transportation Authority
Before the New York City Council Transportation Committee

January 17, 2003

Thank you Chairman Liu for inviting me here this morning to discuss issues related to the management and financial status of the MTA.  I welcome the opportunity to dispel several myths, misstatements and falsehoods that have been part of the public debate regarding the MTA in recent weeks.

At the outset, I am going to take a few minutes to outline a full breadth of the MTA and its operating agencies.  As most of you know, the MTA comprises several entities.

The MTA’s annual operating budget is $7.2 billion and the five (5) year capital program, including Bridges & Tunnels, is roughly $18.9 billion.  The MTA employs an estimated 65,000 individuals each of whom support our daily operation of transporting over 8 million people in the metropolitan region.  The sheer size of the system can only be appreciated by the following facts:

It is interesting to note that our operating budget alone is substantially larger than most cities in the United States, including Boston, Chicago, Miami, Philadelphia, and Atlanta.  By way of background, the MTA’s operating annual budget of over $7 billion in 2001 is shown on the first pie chart as follows:

The pie chart to the right explains where the money went in the MTA budget in 2001:

These charts, by the way, are published in the MTA annual report distributed in the beginning of each calendar year and I have given copies to each committee member for review.

Every month, the MTA Finance Committee also receives updates on the overall MTA budget and each of the operating agencies provides monthly budget reports to their respective oversight Board Committees.   Every year, the MTA publishes an Annual Report as well as Disclosure Filing Reports and a Review of Annual Results.  All these reports and updates are distributed to State and local officials, mailed to persons and entities on our mailing lists, and copies are made available to the media and anyone who attends Board and Committee meetings.

In recent weeks, the MTA has been attacked for failing to disclose documents, engaging in "accounting magic" and using "foggy finances".  In preparation for today's hearing I reviewed media clips which include claims that the MTA ran a surplus in 2002 ranging from $76 million, $500 million, to $300 million.  Despite my best efforts to determine the basis of these claims, I must confess that I have no idea where they came from.

In an effort to address this misperception and correct misinformation regarding the status of the budget, I have developed what I hope to be a "plain English" presentation of our financial situation.  I will start with 1996, the first full year after our last fare hike, and bring you through current day.  I have focused solely on New York City Transit's budget for the purpose of this hearing.

As you can see from chart #2, NYC Transit has experienced a boon in ridership of 37% in the last several years — almost 3 million more customers each day — bringing the daily ridership today to an estimated 7.5 million.  An interesting side note on this development is the fact that the use of our transit system for non-work related trips increased 62% since the early 90's and now these trips represent the majority of all subway and bus rides — or 56%.

The chart also graphically depicts NYC Transit's fare revenue since 1996 — while it has increased, you can see it has not risen nearly as fast as ridership, up only 5.2%.  The reason for that is the fact that the introduction of the MetroCard system has obviously attracted new and more frequent riders to the system; however, the various discounted passes and free transfer policies have actually reduced the average fare from $1.38 in 1996 to $1.04 today.  We would have to raise the fare by one third to get back to where we were in 1996.

Chart #3 overlays NYC Transit's expenses with ridership.  It stands to reason that more riders mean more subways and more buses.  In fact, since 1996, we have increased subway and bus service by 2.8 billion seat miles, costing $293 million annually.  More and better service, along with the effects of inflation, means our operating costs grow faster than ridership.  As indicated, operating expenses at NYC Transit increased 46% while ridership grew 37%. 

And as we expand our capital investment in the Transit system by maintaining the system in good repair, investing in new technology subway cars, buying clean fuel buses and expanding our service lines, our debt service costs increase commensurately.  As chart #4 shows, our expense and debt service costs at NYC Transit increased at a far higher rate (53%) since 1996, than operating revenue (7.4%).  For purposes of this chart we defined operating revenue as fare revenues and other miscellaneous revenues such as advertising, rents, and concessions.

The subsequent chart #5 uses actual numbers showing operating revenue at NYC Transit going from $2.2 billion in 1996 to $2.4 billion in 2003 while expenses and debt service climbs from $3 billion to $4.3–$4.5 billion in 2003 and 2004.  Our operating deficit — the difference between expenses and revenues — has climbed from $767 million to almost $2.26 billion. 

And the following chart, #6, essentially sums up the entire situation.  Subsidies help make up the difference between revenues and expenses.  But while subsidies have grown almost four times faster than revenues, this has not been enough to sustain us in recent years.  Seven years ago, with the last fare increase in 1995, we developed a surplus of roughly $300 million.  1999, however, begins the pattern in which the operating deficit eclipses our subsidies.  From 1999 through 2002, the operating deficit has been filled each year through a combination of the prior years’ surpluses, one-shots (such as the spin up in State subsidy in 2002) and in 2003 and 2004, savings generated by our debt restructuring initiative.  As we look at 2003 and 2004, subsidies and one-shots are not enough to balance Transit’s budget, leaving the uncovered deficit which is marked in the red cross-hatched area on the chart.  We have this uncovered deficit even though we have instituted cost-savings programs in Transit totaling more than $615 million in those years.

Let me pause here for a moment and lay out the limited tools we at the MTA have in our toolbox to address the uncovered deficit.  They are:

Clearly, the prospect of additional aid from either the City or State is minimal given the magnitude of the deficits being addressed at both levels.  In preparing our financial plan, we assumed no additional subsidies in 2003 — but we also assumed no reduction either.

That leaves service cuts and/or a fare increase.  The magnitude of service reductions necessary to fill the uncovered deficit would be at a level unacceptable from any perspective.

As such, the MTA Board developed three alternative fare increase options which were unveiled over two months ago at its November Board meeting and have been available for public review and comment on our website — www.mta.info — since that time.

The Board also authorized the scheduling of ten public hearings – five of which are in New York City – to discuss these fare options as well as other cost saving measures designed to balance our budget. 

The public hearing schedule has been posted in stations and on buses, has been published twice in the region's daily newspapers and has been posted on our website.  I have also sent letters to elected City, State and Federal officials making them aware of the hearings and the issues under consideration.

As I believe you are aware, the 3 fare options under consideration by the Board are:

Option A

Option B

• Increase the base fare to $2.00 and increase MetroCard passes by a smaller percentage thereby increasing the average fare by 20%, from $1.04 to $1.24. While this option eliminates the need for service reductions, it does assume an increase in governmental assistance in 2004 of $122 million.

Option C

As you reflect on these various options, I point out that if the current average fare of $1.04 was adjusted for inflation, it would be $1.38 or 33% higher – or the same average fare which existed in 1996.

Obviously a fare increase of any magnitude will present a hardship for many of our customers particularly in today's economic times.  But as I know each of you are acutely aware, every public and private entity is struggling to meet the shortfalls caused by the downturn in the national economy.  The MTA Board takes this matter very seriously and is committed to soliciting public comment on this matter before taking any final action.

The Board has also undertaken various cost reduction measures designed to reduce expenses.  In NYC Transit alone, 40% of its budget reduction is achieved through cutbacks in administrative areas, and agency wide allocations.  And, as you know, a reduction in token booths throughout the system is being contemplated by the Board as part of that initiative and will be part of the public hearing process I just spoke about.  Earlier this week, I sent a letter to each elected official in the City, including each of the Committee members here this morning, advising them of the token booth closings under consideration.  That list was also posted on our website and posters have been put up in each of the affected stations for public inspection.  Notably, blue prints of each of the affected stations and the token booths under consideration can be accessed via our website.

The token booth reduction involves 177 booths throughout the system of 708* booths — a 24% reduction.  Forty-nine of the booths are full-time and the balance are part-time. In identifying these booths for closure, Transit focused on secondary booths in stations with relatively low entry and exit volumes.  With the exception of eight locations that exit into privately owned buildings and are closed at certain hours, all of the proposed stations will continue to have a full-time booth operating 24/7.  In addition, all affected entrances — including those that were opened only part-time before — will be accessible 24 hours a day through MetroCard-activated High Entry/Exit Turnstiles. 

We appreciate the significance of some token booth presence in our various stations which is why each affected station will maintain a full-time booth in the complex.  It is also important to keep in mind, however, that the MTA's significant investment in the MetroCard and its enormously successful transition to the MetroCard as the primary fare instrument was intended to move NYC Transit into a state-of-the-art system and reduce reliance on token booths as the primary means of purchasing fare instruments. 

Nearly 85% of our current riders use the Metro-Card and 56% of those customers purchasing them in stations use our MetroCard vending machines or MVMs — which have been installed in almost all of our stations.  As ATMs have become the primary means for most people in performing routine banking activities, so too have our MVMs become a primary mechanism for accessing our fare instrument.  Notably in recent surveys, 67% of the customers who used our MVMs rated them "excellent" or "very good".

Let me underscore that, as with the fare increase, the proposals to eliminate the token, and close token booths will be the subject of the Board's month-long hearing process.  The Board will receive and consider public comment on these ideas — only after which it will make a final determination.

Before ending my remarks, I want to return to the recent criticisms which have been made about the MTA and the perception that our finances and operations are not available for public inspection.  I use the word "perception" intentionally as I firmly believe that the MTA provides more financial and operational information to the public and elected officials than most governmental agencies.  All these materials are either on the website, are mailed to parties on our mailing lists and/or are available to the public and the media at our monthly Committee and Board meetings.  Some have claimed that an accounting degree is required to analyze our annual financial statement and the fact is that you do — we have outside auditors, an Auditor General and local and State Comptrollers who review these documents.  Our documents meet prevailing governmental accounting standards and, in fact, we have been the recipient of an award for each of the last seven years of the Governmental Finance Officers Association for Excellence in Financial Reporting.  The award is given to public agencies that issue reports “demonstrating a constructive ‘spirit of full disclosure’ to clearly communicate its financial story”.

That is not to say that someone with a limited financial background can grasp the information very easily anymore than one can easily grasp the details of the City's finances from reading its statements.

Understanding that the MTA needs to make financial information available to the public in a "plain English" manner, we are developing a report which will meet this standard and will post it on our website every month for public review.  The report will be designed to provide an update on the status of our budget, expenses and revenues for the preceding period.  I caution everyone that given the complexities of the MTA's budget of $7.2 billion with a 5 year capital program of over $19 billion — not all budget information can be made available in "plain English"; however, key budget information can and will be provided.

The second initiative which we will undertake will be to post key monthly performance indicators for each of our five operating agencies on our website.  This data will include monthly ridership figures, on-time performance data, mean distance between failures numbers, route schedule adherence, wait times, farebox recovery ratios and farebox operating ratios.

We expect to implement this initiative no later than April.  I will note that this data has always been distributed at our Board and Committee meetings but the website will allow greater public access.

Thirdly, the MTA will launch its public E-mail system by March of this year.  Our customers have understandably been frustrated by the inability to send comments to us via E-mail and receive a prompt reply.  I appreciate that frustration and we are addressing it.

I hope that my testimony here this morning has addressed the key concerns of the Committee and I would be happy to answer any questions you might have in this area.

*The original number of 725 offered during the testimony has been revised to reflect seasonal or special events booths or booths closed due to rehabilitation or construction projects over the past 2-3 years.