2687894.9 039746 LIST MTA ANNUAL DISCLOSURE STATEMENT UPDATE (2016 First Quarterly Update) August 17, 2016 This Metropolitan Transportation Authority (“MTA”) Annual Disclosure Statement Update (including Attachment A hereto, “ADS Update”) is dated August 17, 2016, is the first quarterly update to the Annual Disclosure Statement (“ADS”) of the MTA, dated April 29, 2016, as supplemented May 10, 2016, and contains information only through that date. MTA expects to file this ADS Update with the Municipal Securities Rulemaking Board on its Electronic Municipal Market Access system (“EMMA”) and may incorporate such information herein by specific cross-reference. Such information, together with the complete July Plan hereinafter referred to, is also posted on the MTA website under “MTA Info – Financial Information” at www.mta.info for convenience. All of the information is accurate as of its respective date. MTA retains the right to update and supplement specific information contained herein as events warrant. The factors affecting MTA’s financial condition are complex. This ADS Update contains forecasts, projections, and estimates that are based on expectations and assumptions, which existed at the time they were prepared, and contains statements relating to future results and economic performance that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements generally are identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget,” “project,” “forecast”, “anticipate” or other similar words. The forward looking statements contained herein are based on MTA’s expectations and are necessarily dependent upon assumptions, estimates and data that it believes are reasonable as of the date made but that may be incorrect, incomplete, imprecise or not reflective of actual results. Forecasts, projections and estimates are not intended as representations of fact or guarantees of results. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as set forth in the preceding paragraph, MTA does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. These forward-looking statements speak only as of the date of this ADS Update.
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2687894.9 039746 LIST
MTA ANNUAL DISCLOSURE STATEMENT UPDATE
(2016 First Quarterly Update)
August 17, 2016
This Metropolitan Transportation Authority (“MTA”) Annual Disclosure
Statement Update (including Attachment A hereto, “ADS Update”) is dated
August 17, 2016, is the first quarterly update to the Annual Disclosure Statement (“ADS”)
of the MTA, dated April 29, 2016, as supplemented May 10, 2016, and contains information
only through that date. MTA expects to file this ADS Update with the Municipal Securities
Rulemaking Board on its Electronic Municipal Market Access system (“EMMA”) and may
incorporate such information herein by specific cross-reference. Such information,
together with the complete July Plan hereinafter referred to, is also posted on the MTA
website under “MTA Info – Financial Information” at www.mta.info for convenience. All
of the information is accurate as of its respective date. MTA retains the right to update
and supplement specific information contained herein as events warrant.
The factors affecting MTA’s financial condition are complex. This ADS Update
contains forecasts, projections, and estimates that are based on expectations and
assumptions, which existed at the time they were prepared, and contains statements
relating to future results and economic performance that are “forward-looking statements”
as defined in the Private Securities Litigation Reform Act of 1995. Such statements
generally are identifiable by the terminology used, such as “plan,” “expect,” “estimate,”
“budget,” “project,” “forecast”, “anticipate” or other similar words. The forward looking
statements contained herein are based on MTA’s expectations and are necessarily
dependent upon assumptions, estimates and data that it believes are reasonable as of the
date made but that may be incorrect, incomplete, imprecise or not reflective of actual
results. Forecasts, projections and estimates are not intended as representations of fact or
guarantees of results. The achievement of certain results or other expectations contained in
such forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements described to be
materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Except as set forth in the preceding
paragraph, MTA does not plan to issue any updates or revisions to those forward-looking
statements if or when its expectations or events, conditions or circumstances on which such
statements are based occur. These forward-looking statements speak only as of the date of
this ADS Update.
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ANNUAL DISCLOSURE STATEMENT UPDATE
(2016 First Quarterly Update)
August 17, 2016
Introduction
This update, dated August 17, 2016 (“ADS Update”), is the first quarterly update to the Annual Disclosure Statement (“ADS”) of the Metropolitan Transportation Authority (“MTA”), dated April 29, 2016, as supplemented May 10, 2016. This ADS Update contains information only through August 17, 2016 and should be read in its entirety, together with the ADS.
In this ADS Update, readers will find:
1. A summary of recent events and changes to the MTA’s financial plan (“Financial Plan”) made since the date of the ADS, as supplemented, to reflect provisions of the 2016 MTA July Financial Plan presented to the Board of the MTA on July 27, 2016 (the “July Plan” or “Plan”). The complete July Plan is posted on the MTA’s website under “MTA Info-Financial Information” at www.mta.info for convenience. The updated information includes revised Financial Plan projections for fiscal years 2016 through 2019, with additional projections for 2020.
2. Attachment A to this ADS Update, which presents the MTA Consolidated Financial Plan in table form and includes Financial Plan tables that summarize the MTA’s Consolidated Financial Plan for fiscal year 2015 and projected receipts and disbursements for fiscal years 2016 through 2020, in each case prepared by MTA management.
The July Plan includes the 2016 Mid-Year Forecast, the 2017 Preliminary Budget and a Financial Plan for the years 2017-2020. Since 2010, MTA Financial Plans have included MTA management initiatives to achieve recurring cost reductions to moderate the amount of revenues needed from biennial fare and toll increases and governmental subsidies and to provide funding for the capital program. The plans also have added or restored service when sustainable while also applying available funding to address long-term costs such as pensions, health care, paratransit, and debt service previously considered “uncontrollable.”
The February Plan
The 2016 February Financial Plan (the “February Plan”) was projected to be balanced through 2018 with a deficit of $257 million in 2019. That plan was based upon three key inter-related elements: (i) biennial fare and toll increases of 4% in 2017 and 2019 (equivalent to 2% annual increases); (ii) annually recurring cost reduction targets of $1.6 billion in 2016 increasing to $1.8 billion by 2019; and (iii) increased Pay-As-You-Go (“Pay-Go”) contributions in the form of a $75 million one-shot contribution in 2015 and $125 million annually (starting in 2015) for the 2015–2019 Capital Program. The February Plan also funded, over the plan period: service, service quality and service support investments totaling $278 million; new maintenance and
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operational investments of $434 million; information technology investments of $184 million; and Enterprise Asset Management (“EAM”) investments of $157 million.
Changes Since The February Plan
The 2015-2019 Capital Program was approved on May 26, 2016 by the Capital Program Review Board. The approval of this $27 billion program marks the single largest infrastructure investment in MTA history and provides the foundation for five years’ worth of investments to renew, enhance, and expand MTA’s network. The 2015-2019 Capital Program includes billions of dollars for the essential work of keeping the transit system safe and reliable, including purchasing 1,000 new subway cars, 1,700 new buses, and replacing 73 miles of subway track with safer, smoother track. It also includes investments that expand the MTA network by continuing two ongoing “mega” projects and launching a third project: completing the fiscal commitment to East Side Access, commencing Phase 2 of the Second Avenue Subway to extend the new line from 96th to 125th Streets and beginning the expansion of MTA Metro-North Railroad’s New Haven Line service into Pennsylvania Station.
The July Plan reflects the Pay-Go and debt service assumed in the 2015-2019 Capital Program. It also captures the following re-estimates:
Changes and re-estimates improving financial results over the plan period:
• Better than forecasted 2015 results ($185 million);
• Lower debt service costs ($801 million); — Deferred issuance due to the delay in approval of the 2015-2019 Capital Program
due to timing ($419 million) — Savings from Hudson Rail Yards lease securitization ($152 million) — Realized interest rate savings ($133 million) — Lower projected interest rates ($98 million);
• Lower energy cost forecasts ($303 million);
• Higher MTA Bridge and Tunnels toll revenues ($166 million); and
• Higher other operating revenue ($123 million).
Changes and re-estimates worsening financial results over the plan period:
• Higher health and welfare/fringe benefit expenses ($430 million);
• Higher pension cost estimates ($345 million); and
• Lower farebox revenue ($182 million).
Overall, these and other net re-estimates and changes through the July Plan period are projected to be $690 million favorable from the February Plan. A reconciliation of Plan-to-Plan changes is included in Attachment A to this ADS Update.
Highlights of the July Plan
The July Plan continues to follow the approach reflected in earlier plans.
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Hold Projected Fare/Toll Increases to 4% in 2017 and 2019. The July Plan continues to project 4% biennial fare/toll increases (the equivalent of 2% per year), subject to MTA Board approval. Consistent with recent Financial Plans, a March 1 implementation is anticipated for both the 2017 and 2019 increases. The annualized yield of these increases is projected to be $308 million and $325 million, respectively.
Increase Annually Recurring Savings Targets. In raising the targets, the MTA must identify and implement new initiatives to achieve the savings. As shown on the bar chart below, the MTA has identified initiatives to meet $495 million, or 73%, of the $535 million of cost reductions targeted in the February Plan. Initiatives in procurement efficiencies, paratransit, IT consolidation and retiree prescription costs have been or are being implemented. MTA’s success in meeting prior targets gives MTA management the confidence to increase the savings targets set forth in the July Plan by an incremental $50 million per year starting in 2017 with savings from these new targets growing to $200 million in 2020.
As shown on the chart below, MTA has raised the targeted level of savings in every year
since 2010. MTA management expects to meet or exceed the 2016 target of $1.6 billion, and total annual recurring savings of the programs initiated since 2010 are now expected to approach $2 billion by 2020.
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Increased Support for the Capital Program. Consistent with MTA’s long-standing practice of applying debt service savings towards capital funding, the July Plan includes approximately $566 million of debt service savings from the planned Hudson Rail Yards lease securitization transaction, and lower interest rates (both realized and projected) are available to fund project costs not in the currently approved 2015-2019 Capital Program but advantageous to accelerate.
Improved Customer Experience. The July Plan provides $195 million over the plan period to fund directly or support Capital Program funded projects that will improve the customer experience. This year MTA expects to take delivery of 200 of the more than 2,300 new buses to be delivered over the next five years that will be equipped with Wi-Fi, USB charging ports, and digital screens providing “next stop” information, service alerts, advertising, and the latest travel information. This year, 200 subway cars are scheduled to be delivered equipped with Wi-Fi, USB charging stations, digital screens, and security cameras. In 2017, an additional 400 subway cars are expected to have these amenities. MTA will also:
• Re-envision 31 subway stations throughout New York City;
• Introduce Wi-Fi and cellphone service to all 278 underground stations by the beginning of 2017;
• Introduce a new “contactless” fare payment technology by 2018; and
• Introduce Countdown Clocks on the MTA New York City Transit “B” Division, by 2018.
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MTA has recently issued a request for information to provide wireless connectivity in subway tunnels. Wi-Fi connected tunnels will give customers constant access to information throughout their entire trip. These programs will also help MTA build a 21st Century transit system—improving the daily experience for the 8.7 million customers who depend on our system each and every day.
Service and Service Support Investments. The MTA will provide $78 million of additional service and service support over the July Plan period. MTA will invest $36 million in new service including four new Select Bus Service routes at MTA Bus. The MTA Long Island Rail Road is expanding its weekend North Fork service to a year-round operation and will be adding trains in the summer to connect with Fire Island ferries.
The MTA continually reviews its service and makes “platform service” adjustments (which can be implemented without a public hearing) for deviations from pre-established loading and headway guidelines, as well as recurring seasonal requirements. The July Plan includes $21 million of platform service adjustments over the plan period. MTA New York City Transit and MTA Bus will continue to adjust platform service to meet demand and the MTA Long Island Rail Road will increase train lengths to reduce overcrowding.
Investments in service support of $21 million will allow MTA New York City Transit to enhance its Lexington Avenue Line platform controller program in 2016, and expand the program in 2017. Current coverage in the morning peak period will be expanded into the afternoon and early evening, including the busy afternoon peak period. MTA Bridges and Tunnels will increase funding to meet increased demand on Customer Service Center operations. Such increases are necessary to implement the transition to cashless all-electronic Open Road Tolling at all of MTA Bridge & Tunnels facilities as further described below under “Cashless All-Electronic Open Road Tolling”.
Safety and Security Initiatives. The MTA is investing an additional $46 million in safety and security initiatives over the plan period to augment existing measures designed to keep pedestrians and customers, and MTA employees and assets, safe. These investments include the “Don’t Block the Box” grade crossing initiative, onboard vehicle cameras, “Help Point” intercoms, and security operations at MTA Metro-North Railroad, MTAHQ and MTA Bus. The July Plan funds a new MTA Police facility in Bethpage, Long Island and enhancements to the MTA Bridges and Tunnels Security Operations Center in Long Island City.
Investments in Maintenance and Operations. The MTA continues to take essential steps to improve the reliability, efficiency and performance of its infrastructure, facilities and fleet, investing $145 million over the plan period. Investments are being made that will improve the performance of certain buses, subway cars and commuter cars. Additional investments are being made to structures and track, including expediting the West Side Yard expansion.
July Plan Projections. Taken together, these changes, re-estimates, and recommendations, including the newly-proposed increases in targeted savings, result in a net improvement to MTA’s financial forecast over the July Plan period as projected through 2020. As detailed in the following chart, the $257 million deficit for 2019 that was projected in February has been eliminated. The July Plan is balanced through 2019 with a projected 2020
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deficit of $371 million. The overall strength of MTA’s financial position demonstrates the value of MTA’s management approach – to implement biennial fare and toll increases and continually increase expense savings targets. See the table entitled “METROPOLITAN TRANSPORTATION AUTHORITY – July Financial Plan 2017-2020 – MTA Consolidated Statement of Operations by Category” in Attachment A hereto for a presentation of 2015 actual and 2016-2020 projected financial results.
The July Plan funds important investments; continued fiscal discipline will be required to address out year deficit
Challenges Going Forward
While MTA’s financial position has improved, there are many challenges and risks ahead:
Biennial Fare and Toll Increases. While MTA management is working to control costs, combined fares and tolls only cover approximately half of the operating costs (“Farebox Operating Ratio”) and a little more than a third of total costs, including capital costs (“Farebox Recovery Ratio”). Moreover, many costs are dependent on pricing factors beyond MTA’s direct control (e.g., energy, health and welfare and pensions). If projected fare and toll increases are not implemented, MTA’s financial condition will quickly deteriorate as revenue will not be able to keep pace with inflation and other cost growth.
Achieving Efficiencies/Consolidations. Efforts to reduce costs will continue, but it becomes increasingly challenging as much of the prudent opportunities to achieve cost savings
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have been realized. MTA will continue to pursue efficiencies and consolidations to maximize annually recurring savings.
Expiring Labor Contracts. Labor contracts for the majority of the represented work force will be expiring by mid-January of 2017. The July Plan assumes that settled contracts will result in annual net expense growth of 2% per year, which is consistent with inflation projections. Any contract settlements above this level will require reprioritization and reduction in other areas.
Address Cost Issues Effectively. The MTA will continue to address cost issues that put pressure on its finances in an effective manner.
Outstanding liabilities for workers compensation and FELA (the commuter rail equivalent) judgments and claims have risen significantly in recent years. Workers compensation liability has more than doubled to $2.4 billion over the last six years. Incident prevention measures, improved case management and fraud detection efforts are underway. For example, at MTA New York City Transit, additional resources are being applied to the administration of workers compensation and public liability claims and to augment support for the pre-trial and litigation phases of claims. MTA New York City Transit is also adding staff to its special investigations unit to meet an increased demand for anti-fraud measures.
Health Care costs (including the “Cadillac Tax”) continue to be a concern. Employee and retiree health care costs have grown at a rate well in excess of inflation for many years. In addition, the “Cadillac Tax” component of the Affordable Care Act adds additional cost pressure. This is a 40% excise tax assessed on the premium cost of coverage for health plans that exceed a certain annual limit, originally scheduled for implementation in 2018, but since delayed until 2020. Final guidance from the Internal Revenue Service is still pending, but preliminary analysis projects that the MTA could be subject to an excise tax levy of about $73 million in 2020 increasing to $132 million by 2022 and continuing to grow as projected premium costs outpace the inflationary adjustments to the thresholds.
Loss of Taxi Surcharge Revenues Due to Application-Based Livery (e.g., Uber/Lyft). The popularity of app-based livery services has resulted in a decline in usage of medallion taxi services. These traditional services, specifically yellow and green cabs, collect a fifty cent surcharge that is earmarked for the MTA; app-based service trips, on the other hand, are not subject to this surcharge. Rather, they collect and pay sales tax on fares of which MTA receives a portion (3/8 of 1%). This results in substantially less revenue per trip for the MTA. An increase in market share by app-based services versus medallion taxi service could result in further erosion of MTA receipts.
Cashless All-Electronic Open Road Tolling. As a major initiative, MTA Bridges and Tunnels is now planning to implement cashless all-electronic Open Road Tolling (“ORT”) at all MTA Bridges and Tunnels facilities, meaning all tolls will be collected either through E-ZPass or by taking a photograph of the license plate, matching it with information from the applicable Department of Motor Vehicles and billing the registered owner for the transaction. The expectation is that each facility will operate under an ORT system, whereby toll booths will eventually be removed and tolls will be collected as vehicles travel under an overhead gantry. At the Henry Hudson Bridge, where the general operating environment—no commercial traffic,
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lower tolls, 94% E-ZPass usage—is especially conducive to ORT, implementation has been very successful, resulting in no revenue loss for MTA Bridges and Tunnels. In 2017, the toll booths are expected to be removed at the Henry Hudson Bridge. The new facility-wide ORT initiative will supersede the pilot program at the Marine Parkway and Cross Bay Bridges referred to in Appendix E – TBTA Independent Engineer’s Report in the MTA’s 2016 Combined Continuing Disclosure Filings. However, implementing ORT at other facilities will present greater challenges in revenue collection and enforcement stemming from the introduction of commercial traffic into the system and the larger number of customers currently paying higher cash tolls compared to the Henry Hudson Bridge. MTA Bridges and Tunnels currently estimates that full conversion to ORT could result in modest revenue collection losses, based on experience at the Henry Hudson Bridge. At the same time, MTA Bridges and Tunnels is developing a variety of measures to enhance collection and enforcement of tolls under the ORT system. To the extent that capital costs associated with the implementation of ORT are not funded from reserves, surplus revenue distributable to MTA New York City Transit and MTA may be reduced.
Possibility of Interest Rates Higher Than Forecast. Since 2008, MTA has benefitted from historically low interest rates. In December 2015, the Federal Open Markets Committee (“FOMC”) increased the federal funds rate for the first time since late 2008, by a quarter point to a target range of 0.25% to 0.50%, and indicated support for future actions that would return inflation to a 2% level. Since December, labor market improvement has slowed and the FOMC has made no further changes to the federal funds rate, although it continues to target an eventual return to a 2% inflation rate. While the July Plan includes interest rate assumptions in line with the FOMC’s recent actions and policy statements on future actions, a sudden increase in economic activity may result in inflationary growth, which in turn could lead to a further increasing of the federal funds rate. Such an increase could lead to an increase in bond rates more than projected in the July Plan, which would ultimately increase our debt service costs.
Short and Longer Term Economic Factors. The finances of the MTA are highly influenced by economic factors. Passenger and toll revenues, dedicated taxes and subsidies, debt service, pensions and energy costs are all impacted by the health of the economy. If the economic assumptions reflected in the July Plan are not realized, the July Plan projected results could be adversely affected.
The use of non-recurring revenues, favorable budget variances, excess resources to fund Pay-Go and/or reduce unfunded liabilities, such as OPEBs and pension liabilities are expected to continue to be strategies MTA management will employ to manage future expense obligations. Similarly, MTA management plans to continue to reinvest debt service savings into Pay-Go capital project costs, which has become an increasingly important source of funding for MTA’s Capital Program.
Climate Bond Certified Financings
In early 2016, MTA requested, and the Climate Bonds Standard Board approved, certain of MTA’s projects as “Climate Bond Certified”, based on a Climate Bonds Standard Verification Letter provided by Sustainalytics. Sustainalytics concluded that projects totaling $11.3 billion, the amount which has been expended as of the date of the verification on projects included in MTA's 2010-2014 Capital Program for the Transit and Commuter System, conform to the
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Climate Bonds - Low Carbon Transport Standard. MTA has issued the following green bonds to reimburse portions of the Climate Bond Certified 2010-2014 transit and commuter capital program projects:
• $782,520,000 Transportation Revenue Green Bonds, Series 2016A (Climate Bond Certified)
• $588,305,000 Dedicated Tax Fund Green Bonds, Series 2016B (Climate Bond Certified)
2687894.9 039746 LIST
Attachment A to MTA Annual Disclosure Statement Updated
August 17, 2016
MTA Consolidated Financial Plan
Farebox Revenue $6,270Toll Revenue 1,917
Other Revenue 702
Dedicated Taxes 5,627State & Local Subsidies 1,125
Total1
$15,641
Payroll $5,017 NYCT/SIR $8,060
Overtime 754 LIRR 1,499
Health & Welfare 1,872 MNR 1,278Pension 1,317 MTABC 696
Other Labor 398 HQ/FMTAC 704
Non-Labor 3,575 B&T 542
Debt Service 2,666 Debt Service 2,666
MTA Below-the-Line Adjustments 3 91 MTA General Reserve 155
Total 1
$15,691 MTA Below-the-Line Adjustments 3
91
Total 1
$15,691
2 Expenses exclude Depreciation, OPEB Obligation and Environmental Remediation. MTA Capital Construction is not
included, as its budget contains reimbursable expenses only.
3 These below-the-line adjustments impact expense dollars and have not been allocated to specific Agencies as yet.
1Totals may not add due to rounding.
Note: The revenues and expenses reflected in these charts are on an accrued basis and exclude cash
adjustments and carryover balances. Any comparison of revenues versus expenses will not
directly correspond to the cash balances reflected the Statement of Operations.
includes below-the-line adjustments includes below-the-line adjustments
By Revenue Source
($ in millions)
By Expense Category 2
By MTA Agency 2
Where the Dollars Go …
Where the Dollars Come From …
MTA 2017 Preliminary Budget
Baseline Expenses After Below-the-Line Adjustments