Review Finds MTA Budget ‘Flawed’ and ‘Unrealistic’

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 CEO 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 find less expensive mass-transit solutions, such as express bus lanes. Among those projects that now appear certain to be delayed is the long-promised rail line across the Valley. Agency officials already have said even studies of the project very likely will be postponed indefinitely. Riordan has expressed skepticism that the current state of MTA’s finances will permit the project to go forward.

Sources familiar with the mayor’s thinking on the subject say he has begun to believe that an express busway might be best suited to the cross-Valley route.

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 CEO job last week.

While state and federal officials have criticized 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 his City Hall budget director Christopher O’Donnell and his chief assistant, Lorenzo Tyner, with the 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 that the MTA is issuing debt to cover interest payments on debt--a practice 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 in this year, but Riordan’s staff members already have identified ways the MTA could 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 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 the MTA lower its projections of growth in sales tax receipts from 7% in the current budget to 4% to 5%--a move the agency’s acting chief Linda Bohlinger warned last week would delay completion of rail lines to the Eastside, Pasadena and Mid-City by at least three years and indefinitely postpone studies of rail lines not only through the Valley, but also the 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 MTA’s “recovery plan” three times, the mayor’s staff members 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. You can’t on the one hand say that there is financial hocus-pocus going on and on the other hand not cease and desist engaging in the hocus-pocus.”

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.