MTA Budget Found ‘Unrealistic, Flawed’

The Metropolitan Transportation Authority may have trouble with its tunnels, but there’s now no doubt about the holes in its finances.

An independent analysis of the MTA’s $2.8-billion budget by Mayor Richard Riordan’s staff has found “unrealistic financial assumptions and flawed funding plans,” including a bigger deficit in this year’s budget than the agency thought existed--one that could grow to nearly $60 million.

Riordan, who assumed the chairmanship of the MTA’s board last month, said he wants to wait for the recommendation of the agency’s next chief executive officer before deciding how to proceed on the problem. But the report makes it even more likely that rail projects will be delayed and adds urgency to the mayor’s view that the MTA should consider less expensive mass transit solutions, such as express bus lanes.

A special MTA board meeting has been called for Friday to consider an employment contract with New York City transit executive Michael C. Ascher, who was offered the top job last week.

Although state and federal officials have criticized the MTA’s financial assumptions, Tuesday’s assessment came from the agency’s most influential member, Riordan, who said, “We’ve been going along and making decisions without clear and accurate information.”

When he moved into the chairman’s job, Riordan dispatched a team led by City Hall budget director Christopher O’Donnell and his chief assistant, Lorenzo Tyner, with assistance of Riordan’s former legal colleague Julian Burke, a corporate “turnaround specialist,” to pore over the agency’s books.

They found numbers that don’t always add up, “sloppy” internal controls, poor financial reporting, unrealistic revenue forecasting and the practice of issuing debt to cover interest payments on debt--which is tantamount to a consumer using his Visa card to pay off his MasterCard debts.

They also found an unreported budget deficit of at least $29 million, “but the real problem was that they weren’t even aware of it,” O’Donnell said. He said the deficit could reach $58 million this year, but Riordan’s staff has identified ways for the MTA to close the gap without cutting transit service.

“Clearly, the agency must use more care and diligence in managing its finances,” said the 14-page report. “Not only must greater discipline be paid to internal controls and processes, but also to the quality of judgment exercised in financial analysis. Only when the board of directors receives an accurate and honest assessment of the agency’s current and future financial position can the board make informed and prudent decisions.”

The report said the agency’s failure to implement sound budgeting practices has led to “unrealistic financial assumptions and flawed funding plans.”

The mayor’s staff recommended that the MTA lower its projections of growth in sales tax receipts from 7% in the current budget to a range of 4% to 5%--a move that the agency’s acting chief, Linda Bohlinger, warned last week would almost certainly delay completion of rail lines to the Eastside, Pasadena and Mid-City by at least three years and indefinitely postpone studies of rail lines through the San Fernando Valley and Crenshaw district.

As Riordan’s budget team released its report, Bohlinger was meeting in San Francisco with federal officials, who have told the MTA to put its fiscal house in order before expecting additional money from Washington.

Noting that the federal government has rejected the MTA’s recovery plan, the mayor’s staff recommended that the next CEO develop an analysis of the agency’s options for dealing with its financial problems.

County Supervisor and MTA board member Zev Yaroslavsky, however, said the board needs to act now to delay rail lines to the Eastside, Pasadena and Mid-City.

“Enough analysis,” Yaroslavsky said. “The mayor has always admonished not to have paralysis by analysis. . . . This analysis means nothing if it’s not coupled with decisions to rein in the reckless spending.”

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A source in the mayor’s office called the MTA budget Procrustean, a reference to a giant in Greek mythology who seized travelers, tied them to a bed and stretched them or cut off their legs to make them fit. At the MTA, the staff customarily tries to fit all the projects favored by board members into the budget.

O’Donnell noted that much of MTA’s own financial staff concurred that a fresh start on budget and financial planning is necessary to restore the agency’s credibility. The mayor’s staff recommended tougher internal auditing controls, a new debt policy, tougher budget scrutiny and revenue projections that are “responsible and fiscally sound.”

Riordan said he believes the agency can recover. But, the mayor said, “You’re going to have to set priorities which aren’t going to please everybody.”