Remarks of Katherine N. Lapp
Executive Director and Chief Executive Officer
Metropolitan Transportation Authority
Before the
NYS Joint Legislative Fiscal Committee
Albany, NY
January 27, 2004
Good Morning Chairman Farrell, Chairman Johnson and members of the committee. I appreciate this opportunity to discuss the status of the MTA’s capital and operating plans and how they relate to the 2004-05 state budget.
By any standard, 2003 was a challenging year for the MTA. From having just averted a potentially crippling transit strike at the tail end of 2002, and confronting the need for fare and toll increases early in the year, to dealing with the largest blackout in the nation’s history by mid-year, there was no shortage of critical issues facing us each day.
Despite these difficulties, our customers continued to give us the ultimate vote of confidence by riding our system in near record numbers to jobs, homes and recreation, defying dire predictions of a significant drop-off in ridership from the fare increases and a soft economy. Like most New Yorkers -- famous for not liking to pay retail -- they clearly understood they get not only good value for their money, but a good deal with the deeper discounts we offered on MetroCard weekly and monthly passes.
The fact is, the cost of an average subway or bus ride today is only $1.26 – that’s a 40% discount off the $2.00 base fare – an unbelievable bargain, even by New York standards. Perhaps more relevant is that it’s even less than the $1.38 average fare way back in 1996 – and that’s before being adjusted for inflation. And for our customers who are part of a federal tax benefit program that we have actively promoted, the average fare can be further reduced to eighty-four cents!
But we did even more this past year to take the edge off the increase. At the suggestion of some of our transit advocate groups, we lowered the “buy-in” level for those purchasing our multi-ride discount MetroCard from $15 to $10, effectively doubling the discount rate to 20% in the process. Now you can receive six subway or bus rides for the price of five trips. When you add the free transfers to that, the bargain is obvious!
In addition, we made discounted passes even more attractive by creating the MetroCard “Balance Protection” program. MetroCard users who purchase a 30-day discount card for $70 using a debit or credit card at our Vending Machines are now automatically protected from loss or theft. Balance Protection provides riders with a refund for the unused value on their monthly pass from the day they first report a lost card. Unused balances are automatically credited to the cardholder’s account. The average value of a credit issued to date has been $40.57, and since the program began in October, over 9,300 customers have taken advantage of this unique benefit.
Since the Balance Protection went into effect, record numbers of New Yorkers are using the steeply discounted 30-day pass. Market share for the 30-day pass has increased from 14% in November 2002 to a record high 21.7% in November 2003. The total market share for all of our unlimited ride passes, including the one-day, seven-day and 30-day MetroCards has also reached a new high of 51%. The total usage of discounted MetroCards has also shot up to 81.4%, which means that four out of five of our customers are benefiting from fare discounts, or, in other words, not paying retail.
Also at the suggestion of our customers and the City, we rolled out the “CityTicket” program earlier this month, which allows travel on our two commuter railroads within City limits for $2.50 each way on weekends. By the second weekend of this pilot program, some 60% of our target audience availed themselves of a CityTicket ride. And just this past weekend, the Long Island Rail Road started witnessing many CityTicket riders transferring to the Port Authority’s new AirTrain service at the Jamaica rail station. Those savvy riders paid a total of $7.50 to get to JFK Airport from midtown as opposed to a $35 cab ride.
These fare discounts and special programs have no doubt contributed to the consistently high ratings our customers give us, but so has the condition of our system. In 2003, our surveys showed that customer satisfaction with subway service and the station environment was a full 10% better than it was eight years ago. That, by any corporate standard, would suggest we’re on the right track.
None of our successes would have been possible, of course, without the hard work of our 65,000 employees who continued to provide safe and efficient rides to the region that never sleeps. Their efforts often go unheralded, but their dedication to making the system work was nowhere more evident this past year than in their response to the blackout of August 14th.
In less than three hours New York City Transit, Long Island Rail Road, Metro-North and Long Island Bus employees had not only evacuated more than 400,000 customers from close to 500 subway and commuter rail trains. And millions of people were brought home – free of charge -- on MTA buses that were quickly marshaled to assist as the emergency unfolded. Also, at the request of the City, outbound tolls were lifted on all MTA bridges and tunnels, including the Queens Midtown Tunnel, Brooklyn Battery Tunnel and Robert F. Kennedy Bridge during the early hours of the crisis, in order to avoid traffic backups on the City’s major arteries. Remarkably, our workforce accomplished all this without any serious injuries to customers or employees. I am proud of their individual efforts, but no small part of the credit goes to their leadership -- our MTA Agency Presidents -- whose nationally renowned managerial abilities in the transit industry made this crisis melt away in the August heat.
Our employees also transported a total of 2.3 billion people last year, while improving critical performance indicators such as our overall “Mean Distance Between Failure” or “MDBF” ratings. MDBF -- the hallmark of an efficiently maintained transit system -- continued to increase across the board as a result of better and smarter management and maintenance practices and the impact of ongoing investments in state of good repair and new rolling stock.
Subway MDBF shot up from 116,063 miles in October 2002 to 145,644 in October 2003. In the same timeframe, bus MDBF went from 3,443 miles to 3,752 miles. And on our railroads, MDBF was up from 39,308 miles to 47,033 miles on LIRR and from 76,185 miles to 85,237 miles on Metro-North.
Those efforts were solidly backstopped by the investments from our $18.9 billion five year capital investment plan, which allowed us to continue to replace subway cars, buses, rail coaches and track beds on schedule.
In 2003, New York City Transit took delivery of 380 new subway cars. Some 740 more are currently on order, with delivery anticipated between now and 2008.
Over 103 clean fuel buses were added to the New York City Transit bus fleet this past year, with another 277 on the way in 2004. In addition, 209 new articulated buses hit the streets in 2003, with 43 more coming this year.
The Long Island Rail Road took delivery of 194 new M-7 electric rail cars last year and 160 more will join its fleet this year. Metro-North also anticipates delivery of more than 180 M-7s over the next three years. We will be seeking approval from the Capital Program Review Board to exercise an option for another 120 this year for Metro-North, which has been experiencing difficulties these past two weeks because of older cars breaking down in the snow and ice. Together with M-3 overhauls, these joint purchases will essentially give railroad customers a brand new fleet by the end of the next capital program.
In 2003, we renovated 5 subway stations, bringing the number of total station rehabilitations to well over 160 since we began in the first capital program. Another 19 should be finished in 2004. Seven Long Island Rail Road and 2 Metro-North commuter rail stations were also completed in 2003 with additional stations anticipated in 2004 and beyond.
This past year Long Island Rail Road and Metro-North Railroad resurfaced over 180 miles of track as well as installed 15 miles of new continuous welded rail, allowing for a smoother ride for our customers.
That’s a pretty solid record of accomplishment, but there was even more good news on the capital investment front as we aggressively moved forward with our agenda of system expansion projects.
The East Side Access Project progressed on schedule in 2003 with the completion of Highbridge Yard in the Bronx and significant progress on the Arch Street Yard in Sunnyside, Queens which we expect will be completed this spring. And, through aggressive work with the Administration and Congress in Washington, we were able to secure the single largest federal earmark for the project to date -- $75 million, which will help keep it on schedule.
Second Avenue Subway’s Environmental Impact Statement (EIS) was completed and submitted to the Federal Transit Administration this past fall, where it awaits acceptance and approval. Once we receive that approval, we expect to progress to initial construction by the end of this year.
As you may also know, we have been working closely with the New York State Lower Manhattan Development Corporation and the City of New York to quickly advance two critical mobility projects for post-9-11 Lower Manhattan -- the $750 million Fulton Transit Center and the $400 million South Ferry Terminal. Those projects will improve transit services into and out of downtown and will dramatically improve the economic viability of the nation’s third largest business district when completed in 2007.
Against this impressive backdrop in 2003, we also made many positive changes to the way the MTA does business in areas that may never be noticed by our customers, but which will nevertheless improve our organizational efficiency. By engaging nationally renowned corporate governance expert, Ira Millstein, we are incorporating several recommendations that will enhance the way the MTA Board and Executive staff manage the nation’s largest public benefit corporation. We will be one of the first public agencies in the nation to embrace such a governance model.
On a parallel track, we’ve begun to implement a series of improvements to our short and long term budgeting and reporting process, to allow more efficient ways to manage our $8 billion a year enterprise. Our new budgetary framework creates a system that is more similar to New York City’s widely respected four-year financial planning process.
First, we have adopted a new procedure to release our next year’s preliminary budget in July – five months sooner than ever before, to allow public access to and discourse on the budget before formal adoption by the Board in December.
Secondly, we now issue a four-year Financial Plan each October forecasting the state of MTA finances for all interested parties to see.
The changes we’ve made to date have been received favorably by organizations such as the Citizen’s Budget Commission and straphangers organizations such as the MTA’s Permanent Citizen’s Advisory Committee. In addition, we are working to ensure compliance with an additional set of reporting regulations recently released by the State Comptroller’s office.
Under our new procedures, we went through a very public process that culminated in the adoption of a 2004 budget by the MTA Board in December that includes total operating expenses of $8 billion and produces a $36 million year-end cash balance. In addition to the revenue increases from fares and tolls, this budget also incorporates productivity and other savings with a value of over $250 million. While the budget is built on conservative assumptions that will hold throughout 2004, there are risks, including the expectation of increased state and/or local governmental assistance.
As we look beyond 2004, our challenges are much greater. Our four-year financial forecast, initially released in October, projects gaps of $688 million in 2005, $1.3 billion in 2006 and $1.4 billion in 2007. These numbers represent structural imbalances stemming primarily from rising debt service costs; increasing pension, health and welfare expenses, and depletion of non-recurring resources. In that sense, the dilemma that faces us is no different from that faced by dozens of localities across New York and is, in fact, no different from that faced by the State itself.
Debt service expenses, which were 16% of our operating revenues in 2003, are projected to represent 31% of operating revenues by 2007. Similarly, pension costs, which were 7% of operating revenues in 2003, are projected to represent 14% by 2007; and Health and Welfare costs, which represented 16% of operating revenues in 2003 are expected to be 18% by 2007. Clearly, these are the significant increases which are driving up our costs.
Furthermore, as we move forward, we do not have the benefit of a number of non-recurring financial initiatives such as 2002’s one-time acceleration of State subsidy payments of $368 million and the operating savings of $631 million we generated from a comprehensive debt restructuring.
In addition to the challenges presented to the operating budget, we are also putting together our next five year Capital Program for the period 2005-2009, which will identify state of good repair, normal replacement and system expansion needs at least as large as in the current program. These needs will present us with another set of financial challenges. One such challenge will be maintaining the level of federal funds the MTA currently receives under TEA-21, which is up for reauthorization.
We have been working closely with the Governor, the New York delegation, Congressional leaders, and the Administration to increase that funding. Part of that effort has focused on securing “New Start” monies for East Side Access and Second Avenue subway, but we have also focused an equal amount of attention – and rightly so -- on formula funding where we currently receive as much as $800 million a year for our capital program. And we will be seeking the necessary state and local support for that next capital program to ensure that the system’s needs are met.
With the operating budget gaps looming and the expected needs for our upcoming capital program being fleshed out, we will continue to take as many steps as we can on our own. Already, we’ve met with business leaders throughout the region to get their advice and input on how to further fine-tune our finances. We’ve also been maximizing the benefits of our existing physical assets, to maximize real estate and advertising related revenue. And, as we have done for the last five years, we’ve continued to reduce non-operating related expenses. An important part of that effort will be moving forward with the MTA restructuring legislation we proposed last spring, which will further streamline our operations by organizing along business functions and thereby make them even more efficient to meet the challenges that lie ahead.
The plan will better align our operating agencies with their core markets, while allowing us to reduce costs and refunnel associated savings back into the system to further improve service.
While we are painfully aware of the difficult situation that faces the State this fiscal year, we are also focused on the fact that our own fiscal situation will need to be factored into the debate. There is no question that we will need your help to address the financial challenges that lie ahead for us as we look ahead to 2005.
All avenues must be seriously explored, from a look at all our dedicated revenue streams and how they match up with our system’s phenomenal ridership growth of 30-40% since 1996, to the cost-efficiencies we could derive from legislative approval of our reorganization proposal.
In closing, as you may already be aware, 2004 marks the 100th Anniversary of the New York Subway system. It was the subway that took a New York that was choking on congestion and set in motion a dynamic that transformed it into a world-class economic powerhouse. Its health, as well as the health of all parts of our regional transportation system, is as critically important to New York and the nation a century later. We can only hope that in 2004 we will have the same vision, insight and support to carry us into the next century.
Again, I thank the Joint Committee for inviting me here this morning and I would be happy to answer any questions you may have.
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