MTA 2012 Preliminary Budget

July Financial Plan 2012-2015

Volume 1 July 2011

OVERVIEW MTA 2012 PRELIMINARY BUDGET JULY FINANCIAL PLAN 2012-2015 VOLUME 1
The MTAs July Plan is divided into two volumes. Volume 1 consists of financial schedules supporting the complete MTA-Consolidated Financial Plan, including an Executive Summary, baseline and below-the-line Fare/Toll Increases, MTA Initiatives, and MTA Re-estimates. Volume 1 also includes descriptions of the below-the-line actions as well as the required Certification by the Chairman and Chief Executive Officer, a description of the MTA Budget Process, and the Proposed 2012-2014 Capital Program Funding Strategy. Volume 2 includes MTA-Consolidated financial and position schedules as well as narratives that support the baseline projections included in the 2012 Preliminary Budget and the Financial Plan for 2012 through 2015. Also included are the Agency sections which incorporate descriptions of Agency Programs with supporting baseline tables and required information related to the MTA Capital Program. Important Note on LI Bus: Earlier this year, Nassau County announced that it would be proceeding with an award of a contract to privatize bus and paratransit services in the County of Nassau and that the bus and paratransit services currently furnished by LI Bus are to be furnished by a private operator by January 1, 2012. In June, 2011, the County Executive announced its selection of a private operator. The MTA Board in April 2011 approved a resolution authorizing actions to facilitate Nassau Countys transition to provision of bus and paratransit services by a private operator on or before January 1, 2012. Consistent with the Boards authorization, LI Bus has given notice of the termination of the existing Lease & Operating Agreement between Nassau County and LI Bus effective as of December 31, 2011. The MTA has agreed to continue existing levels of service through 2011 due to additional one-time financial assistance that has been provided by the State Senate. Consistent with these developments, this financial plan assumes the cessation of LI Bus operations on December 31, 2011. For 2012 and beyond, it assumes the exclusion of LI Bus as a separate operating entity from all budget forecasts for revenue, expenses, cash, subsidies, and headcount. Under the Lease & Operating Agreement, expenses that may be incurred post-December 31, 2011, in connection with the wind down of LI Bus will primarily be the financial responsibility of Nassau County.

TABLE OF CONTENTS
VOLUME 1

l.

Introduction
Executive Summary 2011-2015 I-1

ll.

MTA Consolidated 2011-2015 Financial Plan

2011-2015 Financial Plan: Statement of Operations by Category. 2011-2014 Reconciliation to February Plan.......................................................... II-1 II-4

lII.

Adjustments
Fare/Toll Increases MTA Initiatives. MTA Re-estimates.. III-1 III-3 III-4

IV.

Appendix
Chairman and Chief Executive Officer Certification.. IV-1

V.

Other
The MTA Budget Process....... V-1

l. Introduction

Introduction
This 2011 Mid-Year Forecast, 2012 Preliminary Budget and July Financial Plan 20122015 (the July Plan or Plan) reaffirms the MTAs commitment to making every dollar count and to establishing fiscal stability for the MTAs finances. The Plan continues the cost cutting initiatives begun in 2010, which are projected to achieve $3.8 billion in cumulative savings by 2014. When implemented, the Plan achieves stability moving forward without reducing service. The MTAs Capital Program, which invests in renewing MTAs infrastructure and expanding our transportation network for the future, is integral to MTAs ability to deliver services. The lack of funding for the 2012-14 years of the program presents a significant risk to the ongoing reliability of the system. The extraordinary expense reduction efforts undertaken to date and carried forward in the July Plan have enabled us to protect the pay-as-you-go capital dollars that were included in last years approved financial plan, but it is still not enough to fund the shortfall. With no appetite for new taxes, an innovative, pragmatic financing strategy is proposed to fully fund the Authoritys critical capital program.

The July Financial Plan 2012-2015

Financial Plan Objectives This Plan continues a strategy first charted last year when the MTA embarked on a complete overhaul of the way it conducts business to make every dollar count. The Financial Plan builds upon the $525 million recurring MTA efficiency measures put in place in 2010. Each year of the Plan increases these savings by spending our scarce dollars more efficiently without further service reductions. By 2015, these additional MTA efficiencies grow to $266 million annually. The Plan also controls wage and salary growth. Finally, the Plan continues to rely upon regular biennial fare and toll increases a pattern that was established in the 2009 funding package for the MTA.

Encountering Headwinds and Rebalancing 2011 As 2011 unfolded, the MTA was immediately impacted by a series of events which put stress on its tightly balanced budget. Severe winter weather reduced toll and passenger revenue and increased costs for overtime and materials to remove snow and repair damaged equipment. The combined revenue and expense impact was approximately $40 million.

State reduction in subsidies to the MTA based on the faltering economy that, on a net basis, would result in a $100 million loss to the MTA in 2011. Rising oil prices also had a dual impact: increased fuel costs to run our service and a reduction in traffic at B&T facilities that are on top of the losses from the weather. Also impacting toll revenue is a lower yield from greater than anticipated usage of E-Z Pass. Health & Welfare costs in 2012 and beyond are likely to increase more than previously projected.

In response to these developments, the MTA established its 2011 Budget Reduction Program (BRP) which, when combined with 2010 savings, resulted in an improvement to the 2011 bottom line of $90 million, with recurring savings of approximately $20 million per year thereafter.

Building Blocks of Fiscal Stability Cost-effective use of MTAs scarce dollars is the cornerstone of the Financial Plan. In 2011, the MTA is implementing an additional $80 million of efficiencies on top of the $525 million identified last year. The Financial Plan continues these efficiency targets each year establishing a process of systematic and continuous improvement to drive down costs. In 2011, the MTA made progress in the following areas Better IT management. The MTA will consolidate 34 data centers into 3 while improving disaster recovery; shrink the number of servers from 2,600 to less than 500, consolidate 2 wide-area networks into 1 and merge 7 email systems into 1. All told, through improved IT management the MTA will save $19 million in 2011 and $65 million in total through 2015. Strategic sourcing. By selecting capable and qualified vendors that satisfy requirements at the lowest cost, the MTA will save $60 million by 2015. In 2011 these efforts have focused on IT, telecommunications and the non-revenue fleet and will generate $14 million annually. As a result of this analysis of our operational needs, the MTA is eliminating 2,100 workstations, 3000 cellular phones and reducing the total cost of its non-revenue fleet operations by 20%. Other MTA efficiencies. These include further consolidations ($5 million in 2011), right-sizing office space ($2.5 million in 2011) additional paratransit efficiencies ($14 million in 2011 to 2015), and greater savings from health care re-bids ($27 million from 2012 to 2015). The July Plan increases the 2011 savings target from $80 million to $139 million in 2012, $216 million in 2013, $241 million in 2014 and $266 million in 2015.

While striving to further control expenses, the MTA continues to address the important issues of reliability and service quality. New York City Transit is adding staff to improve signals maintenance and repairs and to improve the reliability and safety of its escalators and elevators. NYC Transit is also adding resources to extend the useful life of its R-32 subway car fleet until replacements are delivered in 2017, and is reinstating its Work Experience Program, which will result in substantial improvements to station and car cleanliness. Metro-North will rehabilitate its Harlem River Lift Bridge, which was severely damaged in a 2010 fire, and will be purchasing equipment to improve its response to heavy snowfall and icing conditions. MNR will also overhaul several West of Hudson locomotives to extend their reliability through 2020, and complete its door modification program for its M-3 fleet. Finally, the Long Island Rail Road is rolling out systems to improve the service and schedule status information it provides to its customers during major service disruptions. With approximately 60% of the MTAs expenses driven by labor costs, it is essential that growth in this area reflect the economic realities of this region and the State. Last year, the MTA outlined a two year wage freeze initiative for both represented and nonrepresented employees, which was incorporated in the February Plan. However, the labor environment is continuing to change as reflected in the tentative contract agreements reached by the State and its two largest unions, the CSEA and PEF. In recognition of this change, the July Plan adds a third year of zero wage growth for both represented and non-represented employees that will increase savings by $33 million in 2011, growing to $127 million by 2015. Finally, consistent with the 2009 State agreement on MTA financing, the Plan includes 7.5 % fare and toll increases in 2013 and 2015.

The Bottom Line The February Plan was balanced in 2011 with a thin margin and significant deficits in 2012 and the out-years, largely due to the impact of growth in uncontrollable costs, including pensions, health & welfare and paratransit.
2011 2012 2013 2014 2015

$170 $3

$125 $4
N/A

($37)

($54) ($178)

($247)
February Plan Cash Balances/(Deficits) July Plan Cash Balances/(Deficits)

($482)

By taking action, the July Plan shows improvement. A more favorable 2010 closing cash balance, due mainly to spending restrictions, helped to improve 2011. BRPs, additional MTA efficiencies, additional labor savings initiatives, improving revenues, debt service savings, and release of one-half of the 2011 general reserve result in a projected cash balance for 2011 (which will be used to balance 2012) and reduce the out-year deficits significantly. A reconciliation of the Plan-to-Plan changes can be found in Section II of this book, with further detail provided in Volume 2.

Risks to the Plan Despite an improved outlook, significant risks remain and the underpinnings of this Plan are also its primary risks. The Plan assumes that State budget actions will reflect full remittance to MTA of all resources collected on MTAs behalf. Additionally, the regional economy remains weak, and should a recovery not emerge, the MTA has limited financial reserves to offset lower-than-expected operating revenues and taxes and subsidies. This Plan also assumes that labor settlements will include three years of zero wage growth. There are also longer-term vulnerabilities, including inadequate working capital, and rapidly rising employee and retiree healthcare costs and pensions. The MTA, like other public entities, will continue to seek increased contributions from employees for the cost of health insurance and will support legislation addressing pension reform. A significant risk to the MTA is the underfunding of the 2010 - 2014 Capital Program. Failure to fund this program puts the MTA at risk of defaulting under the Full Funding Grant Agreements for the mega projects and/or deferring necessary investment to enhance state of good repair and maintain normal replacement cycles for its capital assets. This outcome would undermine MTAs financial rating and its ability to deliver essential transportation services for the region.

2012-2014 Capital Program Funding Strategy

The MTA has developed a pragmatic approach to deliver the 2012-2014 capital program while recognizing the current difficult economic environment. The program is critical to delivering critical safety and reliability investments for core infrastructure projects and to putting East Side Access and Second Avenue Subway into service. This proposed approach accomplishes these benefits without raising taxes or fares and tolls beyond what has been planned using a funding approach that utilizes appropriate and affordable debt. There are three key elements to this approach: Delivering projects more efficiently and reforming processes to assure better bids,

Embracing innovative and pragmatic financing, Re-establishing our historic funding partnerships with NYS, NYC and the Port Authority.

Through this innovative, pragmatic and collaborative approach, the MTA proposes a funding strategy that protects and enhances the vital infrastructure that is essential to the regions economy. The plan relies on a shared responsibility to fund transit among the riders, the Federal government, the State and the City.

Delivering Projects More Efficiently Consistent with its commitment to making every dollar count, last year the MTA cut $2 billion from the Capital Program. This year, the MTA is committed to doubling those savings to $4 billion, reducing the program by finding ways to deliver benefits more efficiently. These total savings are being achieved through the following actions: Eliminate 15% of administrative staff Reduce costs of train and bus purchases Overhaul the way that employees and contractors perform work along the tracks Partner with contractors and labor to reduce bid costs Utilize project-approval gates at each stage of project development to ensure that the agency is moving forward at the lowest cost

As result of these efforts, the MTAs customers will receive the benefits promised by the 2010-2014 Capital Program at a significantly lower cost.

Re-Thinking Financing Strategy: Innovation and Pragmatism. An innovative loan program available to the Commuter Railroads under the Federal Railroad Administrations Railroad Rehabilitation and Improvement Financing act (RRIF) opens the door to realign our financing strategy to reflect the long life of the Mega Projects and current economic reality. Historically, MTA has financed its projects using 30-year level debt service bonds. RRIF loans can be structured with 35 year maturities with deferred interest and principal until the project goes into service. This better aligns the repayment of project costs with the period of beneficial use. In addition, the interest rate on the loan is the US Treasury rate, which currently is almost 100 basis points lower than MTAs tax-exempt borrowing cost. The MTA is requesting a $3 billion loan for East Side Access ($2.2 billion for new construction and $800 million for refinancing of MTA debt previously issued for the project.) The RRIF loan would be complemented by $4.7 billion of MTA revenue bonds for the costs of the Second Avenue Subway and the core projects in the 2012-2014 Program. Funds already included in the Financial Plan for funding the Capital Program from revenues (Pay-as-you-go or PAYGO) would be reallocated to pay for debt service and project costs. While the original plan to use these funds as PAYGO instead of for debt

service is a laudable goal, in the current environment it is clearly not the best and highest use of these resources. Although this increases the debt outstanding, the debt load remains manageable; $6.2 billion of debt will be repaid during the period that the new debt is issued. Furthermore, because we are simply reallocating the capital funds included in the Financial Plan, the burden on the operating budget does not increase; Debt Service and PAYGO as a percentage of Non-Reimbursable Expenses in the Financial Plan is exactly the same with or without this proposal: 16.4% in 2012 rising to 17.9% in 2018. Finally, we are not over leveraging the revenue stream; with this proposal the Financial Plan still includes approximately $650 million in PAYGO. Additionally, underutilized real estate assets are being sold to fund capital needs. We have undertaken a top-to-bottom review of assets to identify opportunities to redeploy value. The MTA has announced the sale of our Madison Avenue headquarters and continues to look at other opportunities.

Re-establishing Historic Partnerships. In addition to this innovative financing approach, the MTA must enhance its historic partnerships to fund all of the critical projects included in the last three years of the program. In the 1980s, NYS provided significant support through Service Contracts which represented a 30 year commitment to provide annual fixed payments against which the MTA issued bonds. In 2002 the State extended the contracts for another 10 years at the same annual amount ($165 million) to generate additional bond proceeds. Maintenance of effort at this same level of State commitment could generate an addition $770 million in funding. MTA will work with the State to evaluate this or other alternatives to see if they can be accomplished within the States policies or fiscal constraints. NYC will continue to support the program by maintenance of its $100 million annual contribution. There are also opportunities for the City to partner with MTA. For example, the City could contribute proceeds from sale of real estate assets jointly owned or covered by the Master lease, similar to the mid-1990s Coliseum Deal, and by enhancing the value of select assets by rezoning. Finally, the MTA and City could work together to apply the model for financing the #7 Line Extension, sharing in the value capture relating to real estate appreciation in the Second Avenue Subway corridor and around Grand Central Terminal attributable to East Side Access. In the earlier years of the capital program, the Port Authority supported the MTA through bus and commuter railcar procurement programs. Re-igniting such a partnership could fund $377 million for the 496 new standard buses included in the Program.

These local partner funds are complemented by essential funding from the federal government, including ongoing formula, CMAQ and discretionary funds and the recently awarded High Speed Rail Grant for work being done as part of East Side Access. Proposed MTA Funding Strategy These proposed sources provide $9.49 billion of local funding, which when combined with projected $4.1 billion in Federal funding, fully funds the 2012-2014 Capital Program.

Source Federal Formula, CMAQ and Discretionary Funds High Speed Rail Grant (Awarded) RRIF Loan (Excluding $800 Refunding Loan) Revenue Bonds (Supported by Dedicated Taxes) PAYGO State Maintenance of Effort City of New York Port Authority of New York and New Jersey MTA Real Estate Sales Proceeds 2012-2014 Funding

$ Billion 3.80 0.30 2.20 4.70 0.64 0.77 0.55 0.38 0.25 13.59

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Il. MTA Consolidated 2011-2015 Financial Plan

METROPOLITAN TRANSPORTATION AUTHORITY

July Financial Plan 2012-2015 MTA Consolidated Statement Of Operations By Category
($ in millions)
Line No. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Non-Reimbursable 2010 Actual Operating Revenue Farebox Revenue Toll Revenue Other Revenue Capital and Other Reimbursements Total Operating Revenue Operating Expense Labor Expenses: Payroll Overtime Health & Welfare OPEB Current Payment Pensions Other-Fringe Benefits Reimbursable Overhead Sub-total Labor Expenses Non-Labor Expenses: Traction and Propulsion Power Fuel for Buses and Trains Insurance Claims Paratransit Service Contracts Maintenance and Other Operating Contracts Professional Service Contracts Materials & Supplies Other Business Expenses Sub-total Non-Labor Expenses Other Expense Adjustments: Other General Reserve Sub-total Other Expense Adjustments Total Operating Expense before Non-Cash Liability Adjs. Depreciation OPEB Obligation Environmental Remediation Total Operating Expense Dedicated Taxes and State/Local Subsidies Debt Service (excludes Service Contract Bonds) Net Deficit After Subsidies and Debt Service Conversion to Cash Basis: Non-Cash Liability Adjs. Conversion to Cash Basis: GASB Account Conversion to Cash Basis: All Other CASH BALANCE BEFORE PRIOR-YEAR CARRY-OVER ADJUSTMENTS PRIOR-YEAR CARRY-OVER NET CASH BALANCE $4,586 1,417 491 0 $6,495

2011 Mid-Year Forecast $4,982 1,503 507 0 $6,991

2012 Preliminary Budget $5,033 1,510 536 0 $7,079

2013 $5,095 1,509 566 0 $7,170

2014 $5,177 1,516 601 0 $7,294

2015 $5,250 1,523 642 0 $7,415

$4,171 443 738 356 1,030 540 (345) $6,933

$4,211 496 792 377 1,088 479 (349) $7,093

$4,220 459 876 432 1,299 482 (336) $7,432

$4,243 459 968 482 1,314 495 (324) $7,636

$4,350 465 1,069 531 1,378 511 (328) $7,977

$4,452 474 1,177 584 1,435 528 (322) $8,328

$325 190 10 285 380 542 203 511 190 $2,636

$346 248 16 204 384 627 212 574 177 $2,787

$374 258 25 211 462 626 221 590 165 $2,932

$412 270 35 221 553 642 225 626 173 $3,158

$457 276 48 230 660 674 233 652 175 $3,405

$522 291 58 238 773 723 237 679 179 $3,701

($18) 0 ($18) $9,550 $1,981 1,167 19 $12,717 $4,841 (1,781) ($3,163) $3,166 (67) 93 $30 0 130 $160

$16 50 $66 $9,946 $2,114 1,241 9 $13,310 $5,154 (1,987) ($3,151) $3,363 (38) (252) ($78) 88 160 $170

$37 100 $137 $10,501 $2,195 1,256 9 $13,961 $5,545 (2,168) ($3,504) $3,460 (59) (245) ($347) 181 170 $4

$35 100 $135 $10,929 $2,265 1,284 9 $14,487 $5,806 (2,305) ($3,816) $3,558 (63) (283) ($604) 725 4 $125

$35 100 $135 $11,518 $2,351 1,312 9 $15,190 $6,066 (2,448) ($4,278) $3,672 (66) (357) ($1,029) 849 125 ($54)

$36 100 $136 $12,165 $2,455 1,347 9 $15,976 $6,248 (2,570) ($4,882) $3,811 (68) (415) ($1,555) 1,377 0 ($178)

METROPOLITAN TRANSPORTATION AUTHORITY

July Financial Plan 2012-2015 Plan Adjustments
($ in millions)
Line No. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

2011 Mid-Year Forecast February Cash Balance Before Prior-Year Carry-Over Fare/Toll Increases: Fare/Toll Yields on 1/1/13: 7.5% Fare/Toll Yields on 1/1/15: 7.5% Sub-Total MTA Initiatives: New MTA Efficiencies 3 Zeroes Salary/Wage Initiative Accelerate 3 Zeroes MetroCard Green Fee and Cost Savings Sub-Total MTA Re-Estimates: Additional Real Estate Tax Receipts Farebox Revenue Receipts Capital Reimbursement Timing Energy Hedges Sub-Total TOTAL ADJUSTMENTS Prior-Year Carry-Over Net Cash Surplus/(Deficit) ($78)

2012 Preliminary Budget ($347)

2013 ($604)

2014 ($1,029)

2015 ($1,555)

0 0 0

0 0 0

448 0 448

465 0 465

470 493 963

27 15 18 0 60

105 26 41 0 172

181 35 43 20 278

206 84 39 20 349

231 96 31 20 378

35 33 (40) 0 28 88 160 $170

0 34 40 (65) 9 181 170 $4

0 34 0 (35) (1) 725 4 $125

0 35 0 0 35 849 125 ($54)

0 36 0 0 36 1,377 0 ($178)

METROPOLITAN TRANSPORTATION AUTHORITY

July Financial Plan 2012-2015 MTA Consolidated Cash Receipts and Expenditures
($ in millions)
Line No 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 55 56 57

Cash Receipts and Expenditures 2010 Actual Receipts Farebox Revenue Other Operating Revenue Capital and Other Reimbursements Total Receipts Expenditures Labor: Payroll Overtime Health and Welfare OPEB Current Payment Pensions Other Fringe Benefits Contribution to GASB Fund Reimbursable Overhead Total Labor Expenditures Non-Labor: Traction and Propulsion Power Fuel for Buses and Trains Insurance Claims Paratransit Service Contracts Maintenance and Other Operating Contracts Professional Service Contracts Materials & Supplies Other Business Expenditures Total Non-Labor Expenditures Other Expenditure Adjustments: Other General Reserve Total Other Expenditure Adjustments Total Expenditures Net Cash Deficit Before Subsidies and Debt Service Dedicated Taxes and State/Local Subsidies Debt Service (excludes Service Contract Bonds) CASH BALANCE BEFORE PRIOR-YEAR CARRY-OVER ADJUSTMENTS PRIOR-YEAR CARRY-OVER NET CASH BALANCE $56 0 $56 $10,738 ($4,194) $5,396 (1,172) $30 0 130 $160 $4,613 505 1,427 $6,544

2011 Mid-Year Forecast $5,032 561 1,527 $7,120

2012 Preliminary Budget $5,069 559 1,440 $7,068

2013 $5,143 590 1,413 $7,147

2014 $5,219 626 1,429 $7,273

2015 $5,293 667 1,443 $7,403

$4,567 543 752 347 1,170 579 67 0 $8,026

$4,663 578 841 364 1,090 587 38 0 $8,162

$4,578 532 904 415 1,305 580 59 0 $8,372

$4,595 531 999 464 1,319 589 63 0 $8,559

$4,708 540 1,102 511 1,363 608 66 1 $8,900

$4,805 548 1,212 563 1,425 626 68 1 $9,247

$327 195 10 210 386 551 202 566 208 $2,656

$379 246 35 191 381 624 232 651 181 $2,920

$377 258 31 184 457 603 225 680 167 $2,983

$414 270 39 199 548 613 237 714 174 $3,209

$460 276 54 210 655 631 249 761 177 $3,472

$526 291 65 216 768 658 252 790 180 $3,746

$88 50 $138 $11,220 ($4,100) $5,377 (1,354) ($78) 88 160 $170

$109 100 $209 $11,564 ($4,497) $5,669 (1,520) ($347) 181 170 $4

$115 100 $215 $11,982 ($4,835) $5,872 (1,641) ($604) 725 4 $125

$122 100 $222 $12,594 ($5,321) $6,053 (1,761) ($1,029) 849 125 ($54)

$133 100 $233 $13,226 (5,823) $6,121 (1,853) ($1,555) 1,377 0 ($178)

METROPOLITAN TRANSPORTATION AUTHORITY

July Financial Plan 2012-2015
MTA Consolidated July Financial Plan Compared with February Financial Plan Cash Reconciliation
($ in millions)

Favorable/(Unfavorable)

2011 FEBRUARY FINANCIAL PLAN 2011-2014 NET CASH SURPLUS/(DEFICIT) MTA Savings Initiatives:
2011 BRP Program 1 Additional MTA Efficiencies

2012 ($247) $50

36 14

2013 ($37) $77

36 41

2014 ($482) $79

38 41

$3 $102
97 5

New Needs/ Investments:

Maintenance All Other

($23)
(16) (7)

($41)
(36) (6)

($35)
(30) (5)

($35)
(30) (5)

Agency Baseline Adjustments:

Farebox/Toll & Other Revenue 2 Traction and Propulsion Power Fuel for Buses and Trains Health & Welfare (includes OPEB) Pensions 2011 Winter Weather (Overtime) Baseline Re-estimates and Timing from Prior Year 3 LI Bus (Baseline and Subsidies) 4

($114)
(8) 14 (48) 14 16 (18) (79) (5)

($48)
(18) 21 (54) (29) (39) 70 0

($82)
(41) 19 (55) (38) (1) 31 3

($93)
(24) 5 (50) (55) 31 (5) 3

General Reserve Subsidies:

NY State Net Reduction in MMTOA Revenues Real Estate Tax Receipts B&T Operating Surplus Transfer Other Subsidies 5 Other Subsidy Adjustments 6

$50 ($30)
(104) 53 0 74 (53)

$0 $33
0 34 (28) 47 (20)

$0 $45
0 41 (26) 52 (22)

$0 $110
0 46 (17) 67 14

Debt Service Adjustments MTA Initiatives:

3 Zeroes Salary/Wage Initiative Accelerate 3 Zeroes MetroCard Green Fee and Cost Savings

$50 $33
15 18 -

$44 $46
26 41 (20)

$77 $78
35 43 -

$117 $123
84 39 -

Prior-Year Carry-Over (Adjusted)7 JULY FINANCIAL PLAN 2012-2015 NET CASH SURPLUS/(DEFICIT)
Note:

$99 $170

$167 $4

$4 $125

$125 ($54)

Whereas the volume II reconciliation captures only baseline adjustments between the February and July Plans, this reconciliation also includes "below-the-line" changes consistent with the Volume I bottom line. The blending of "below-the-line" changes with Volume II baseline changes produces adjustments that differ, in some cases, from the Volume II reconciliation. These adjustments are footnoted below.
1 2

The 2011 BRP Program includes $45 million in carryover savings from 2010. Includes a below-the-line adjustment for revenue that was understated in the Volume II baseline and a slight re-estimate of the 2013 fare/toll increase. Includes B&T Adjustments and a $40 million below-the-line adjustment for a delay of planned capital reimbursements from 2011 to 2012 . Reflects the net impact of lower expenses, lower subsidies, 2010 carryover and a reduced commitment to capital requirement. Those items cancel out, with the exception of a $4.5 million reduction in Nassau subsidy. Includes increased NYC Subsidies. Includes energy hedge adjustments to reflect the use of available revenues up to the $100 million Board authorization. Adjusted for BRP (see Note 1) and LI Bus (see Note 4).

3 4

5 6 7

METROPOLITAN TRANSPORTATION AUTHORITY

July Financial Plan 2012-2015 Consolidated Subsidies
Cash Basis ($ in millions)

2010 Actual Subsidies Dedicated Taxes Metropolitan Mass Transportation Operating Assist (MMTOA) Petroleum Business Tax (PBT) Receipts Mortgage Recording Tax (MRT) MRT Transfer to Suburban Counties Reimburse Agency Security Costs Enhanced Security Training MTA Bus Debt Service Interest Urban Tax Investment Income $1,359 604 239 (3) (10) (3) (25) 2 174 0 $2,338 New State Taxes and Fees Payroll Mobility Tax MTA Aid

2011 Mid-Year Forecast

2012 Preliminary Budget

2013

2014

2015

$1,306 620 242 (3) (10) 0 (25) 4 260 1 $2,396

$1,520 631 300 (2) (10) 0 (25) 4 318 1 $2,736

$1,587 634 353 (4) (10) 0 (25) 4 349 1 $2,890

$1,673 636 415 (5) (10) 0 (25) 5 368 1 $3,058

$1,757 637 381 (7) (10) 0 (25) 5 391 1 $3,130

$1,352 275 $1,626

$1,415 290 $1,706

$1,484 295 $1,779

$1,551 299 $1,850

$1,618 304 $1,921

$1,687 308 $1,995

State and Local Subsidies State Operating Assistance Local Operating Assistance Nassau County Subsidy CDOT Subsidy Station Maintenance AMTAP

$190 153 9 78 149 5 $585

$191 250 5 95 153 6 $699

$188 218 0 109 156 0 $671

$188 217 0 125 159 0 $689

$188 219 0 135 162 0 $703

$188 220 0 139 165 0 $712

Other Subsidy Adjustments Interagency Loan NYCT Charge Back of MTA Bus Debt Service Forward Energy Contracts - 2009 (12 mth Contract) Forward Energy Contracts - 2011 (12 mth Contract) MNR Repayment for 525 North Broadway Repayment of Loan to Capital Financing Fund Committed to Capital

$135 (11) 76 0 0 0 (47) $153

($135) (12) 0 (100) (7) 0 (21) ($275) $4,526 $354 $4,880

($135) (12) 0 100 (2) (100) (150) ($298) $4,887 $333 $5,221

$0 (12) 0 0 (2) (100) (200) ($314) $5,115 $341 $5,457

$0 (12) 0 0 (2) (100) (250) ($364) $5,318 $356 $5,675

$0 (12) 0 0 (2) (100) (300) ($414) $5,423 $376 $5,799

Sub-total Dedicated Taxes & State and Local Subsidies City Subsidy for MTA Bus Total Dedicated Taxes & State and Local Subsidies Inter-agency Subsidy Transactions B&T Operating Surplus Transfer MTA Subsidy to Subsidiaries

$4,701 $242 $4,943

$406 47 $453

$484 13 $497 $5,377

$449 0 $449 $5,669

$415 0 $415 $5,872

$378 0 $378 $6,053

$322 0 $322 $6,121

GROSS SUBSIDIES

$5,396

METROPOLITAN TRANSPORTATION AUTHORITY

Summary of Changes Between the February and July Financial Plans Consolidated Subsidies
Cash Basis ($ in millions)

2010 Subsidies Dedicated Taxes Metropolitan Mass Transportation Operating Assist (MMTOA) Petroleum Business Tax (PBT) Receipts Mortgage Recording Tax (MRT) MRT Transfer to Suburban Counties Interest Urban Tax Investment Income

2011

2012

2013

2014

($1) (2) 11 1 (2) (4) (0) $2

($174) 8 3 (0) 0 16 0 ($148)

($56) 15 22 0 0 12 0 ($6)

($60) 23 26 (0) 0 15 0 $4

($52) 26 30 (1) 0 16 0 $20

New State Taxes and Fees Payroll Mobility Tax MTA Aid

$4 6 $10

$0 0 $0

$0 0 $0

$0 0 $0

$0 0 $0

State and Local Subsidies State Operating Assistance Local Operating Assistance (18-b) Nassau County Subsidy (includes 18-b local match) CDOT Subsidy Station Maintenance AMTAP

($0) (35) (0) 0 0 0 ($35)

$0 62 (5) 1 3 6 $67

($3) 30 (9) 4 3 0 $25

($3) 29 (9) 4 3 0 $24

($3) 31 (9) 4 3 0 $26

Other Subsidy Adjustments Inter-Agency Loan NYCT Charge Back of MTA Bus Debt Service Forward Energy Contracts - 2009 (12 mth Contract) Forward Energy Contracts - 2011 (12 mth Contract) MNR Repayment for 525 North Broadway Repayment of Loan to Capital Financing Fund Committed to Capital

$0 0 3 0 0 0 0 $3 ($19) ($90) ($109)

$0 0 0 (100) (7) 0 79 ($29) ($110) $45 ($65)

$0 0 0 100 (2) (100) 0 ($2) $16 $22 $38

$0 0 0 0 (2) (100) 0 ($102) ($75) $15 ($59)

$0 0 0 0 (2) (100) 0 ($102) ($56) $17 ($39)

Sub-total Dedicated Taxes & State and Local Subsidies City Subsidy for MTA Bus Total Dedicated Taxes & State and Local Subsidies Inter-agency Subsidy Transactions B&T Operating Surplus Transfer MTA Subsidy to Subsidiaries

$9 (6) $3

$0 (42) ($42) ($107)

($28) (57) ($85) ($46)

($26) (57) ($82) ($142)

($17) (59) ($76) ($115)

GROSS SUBSIDIES

($105)

lII. Adjustments

III. ADJUSTMENTS The discussion below reflects proposed Fare/Toll Revenue increases, MTA Initiatives, and MTA Re-estimates that are not included in the Baseline (as shown in Volume II of the July Plan). Fare/Toll: 2013 Increased Fare and Toll Yields A 7.5% increase in MTA consolidated farebox and toll revenue yields has been proposed for implementation on January 1, 2013. The proposed changes in fares and toll revenues excluding MTA Bus, are expected to yield an additional $448 million in 2013, $465 million in 2014, and $470 million in 2015. MTA Bus revenue is expected to generate additional revenue of $14 million a year from 2013 to 2015. These additional revenues will hold down the NYC subsidy used to cover the costs associated with MTA Bus operations. Compared with the February Plan, consolidated fare and toll revenues from the 7.5% yield increase are slightly lower by $6 million in 2013 and 2014 due to baseline and toll revenue forecasts that are lower in the July Plan. For MTA Bus, there were no changes in farebox revenue from this action compared with projections in the February Plan. 2015 Increased Fare and Toll Yields Another 7.5% consolidated farebox and toll revenue yield increase is also proposed for implementation on January 1, 2015, and is estimated to yield an additional $493 million in 2015, excluding yield increases for MTA Bus. The 7.5% farebox yield increase at MTA Bus is expected to generate additional revenue of $15 million in 2015, and will be used to hold down the NYC subsidy used to cover costs associated with MTA Bus.

MTA Consolidated Utilization

MTA Agency Fare and Toll Revenue Projections, in millions Including the Impact of 2013 & 2015 Fare & Toll Yield Increases
2011 Mid-Year Forecast Fare Revenue Long Island Bus 1 - Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield $45.291 0.000 0.000 $0.000 0.000 0.000 $0.000 0.000 0.000 $0.000 0.000 0.000 $0.000 0.000 0.000 2012 Preliminary Budget 2013 2014 2015

$45.291
Long Island Rail Road - Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield $569.039 0.000 0.000

$0.000
$575.494 0.000 0.000

$0.000
$579.957 43.497 0.000

$0.000
$584.699 43.852 0.000

$0.000
$589.065 44.180 47.493

$569.039
Metro-North Railroad
2

$575.494
$579.793 0.000 0.000

$623.454
$593.042 27.722 0.000

$628.552
$607.344 28.528 0.000

$680.739
$620.908 29.289 30.742

- Baseline - 1/1/13 Fare Yield 3 - 1/1/15 Fare Yield 3

$566.970 0.000 0.000

$566.970
MTA Bus Company - Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield $181.232 0.000 0.000

$579.793
$183.332 0.000 0.000

$620.765
$184.587 13.844 0.000

$635.872
$186.308 13.973 0.000

$680.939
$187.804 14.085 15.142

4 4

$181.232
New York City Transit
1

$183.332
$3,612.340 0.000 0.000

$198.431
$3,656.438 274.233 0.000

$200.281
$3,713.010 278.476 0.000

$217.031
$3,763.171 282.238 303.406

- Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield

$3,539.061 0.000 0.000

$3,539.061
Staten Island Railway - Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield $5.302 0.000 0.000

$3,612.340
$5.406 0.000 0.000

$3,930.671
$5.484 0.411 0.000

$3,991.486
$5.578 0.418 0.000

$4,348.814
$5.663 0.425 0.457

$5.302
Total Farebox Revenue - Baseline - 1/1/13 Fare Yield - 1/1/15 Fare Yield $4,906.895 0.000 0.000

$5.406
$4,956.364 0.000 0.000

$5.895
$5,019.509 359.707 0.000

$5.996
$5,096.939 365.248 0.000

$6.544
$5,166.611 370.217 397.240

$4,906.895
Toll Revenue Bridges & Tunnels

$4,956.364

$5,379.216

$5,462.187

$5,934.068

- Baseline - 1/1/13 Toll Yield 5 - 1/1/15 Toll Yield 5

$1,502.580 0.000 0.000

$1,509.731 0.000 0.000

$1,508.757 101.841 0.000

$1,516.296 113.666 0.000

$1,522.593 114.147 110.483

$1,502.580
TOTAL FARE & TOLL REVENUE 2 - Baseline - 1/1/13 Fare/Toll Yield - 1/1/15 Fare/Toll Yield $6,409.475 0.000 0.000

$1,509.731

$1,610.598

$1,629.962

$1,747.223

$6,466.095 0.000 0.000

$6,528.266 461.548 0.000

$6,613.235 478.913 0.000

$6,689.204 484.364 507.723

$6,409.475
1 2 3 4 5

$6,466.095

$6,989.814

$7,092.149

$7,681.291

Excludes Paratransit Operations. MNR baseline utilization figures are for East-of-Hudson service (Hudson, Harlem and New Haven Lines) only. MNR utilization changes from the fare yield increases reflect impacts to both East-of-Hudson and West-of-Hudson utilization. MTA Bus revenue from Fare Yield will be used to reduce NYC subsidy to MTA Bus. Reflects 10% delay in the distribution of surplus toll revenues per MTA Board resolution. This has no impact on traffic.

MTA Initiatives: New MTA Efficiencies Last year, the MTA introduced new efficiencies to improve business operations, better manage its IT systems, reduce inventory, and consolidate additional operations, with projected savings of $75 million in 2011, $125 million in 2012, $175 million in 2013 and $200 million in 2014. These savings were subsequently incorporated into the February Financial Plan, with $53 million integrated into Agency baselines in 2011 and $35 million from 2012 to 2014. Remaining below the line were efficiencies totaling $22 million in 2011, $91 million in 2012, $140 million in 2013 and $165 million in 2014 coming from the following sources: Consolidation of IT functions resulting in more efficient operations and cost savings Strategic Sourcing is the business practice of selecting capable and qualified suppliers for the provision of goods and services required to satisfy user needs at the lowest cost. This is achieved through specification standardization and optimization, procurement process improvements and inter-agency collaboration. Strategic Initiatives consists of various efficiencies that will reduce operating costs. Examples include: right-sizing office space, efficiencies in hiring and severance, benefit administration savings, and health benefit premium reductions.

In the current July Plan, additional MTA efficiencies have been proposed and include: Additional Consolidations ($5 million) Further review of MTA departments will result in additional consolidations Additional Paratransit Savings ($14 million) NYCT has identified additional efficiencies in Paratransit, resulting in savings of $14 million per year from 2012 through 2015. Additional Health Care Re-Bid Savings ($27 million) - NYCT negotiated a new medical benefits contract to provide medical health services to approximately 150,000 NYC Transit and MTA Bus employees, retirees and their dependents. The additional health care re-bid is estimated to provide the MTA with estimated savings of additional $27 million per year beginning in 2013.

These new initiatives, together with the existing program, increase the total targeted savings to $80 million in 2011, $139 million in 2012, $216 million in 2013, $241 million in 2014, and $266 million in 2015. After accounting for those items that have been incorporated in the baseline, savings of $27 million in 2011, $105 million in 2012, $181 million in 2013, $206 million in 2014, and $231 million in 2015 remain below the line. 3 Zeroes Salary/Wage Initiative The February Plan incorporated a two year wage freeze approach for both its represented and non-represented employees. The labor environment, however, is continuing to change based on the economic realities of this

region. This is evident in the tentative contract agreements reached by the State, the CSEA and PEF. The MTA, therefore, intends to modify its labor strategy to be more consistent with NYS, our largest funding partner. The July Plan, therefore, adds a third year of zero wage growth for both represented and non-represented employees that will increase savings by $15 million in 2011, growing to $96 million by 2015. Accelerate 3 Zeroes In the February Plan, it was assumed that employees of certain unions, that have historically followed the TWU wage growth pattern, would receive the three-year TWU pattern followed by two years of zeroes. This initiative assumes that the zero-growth pattern (now expanded to three years as explained in the prior paragraph) begins one year early, with savings of $18 million in 2011, $41 million in 2012, $43 million in 2013, $39 million in 2014, and $31 million in 2015. MetroCard Green Fee and Cost Savings As described in the previous Plan, MTA is implementing a $1.00 green fee for each new MetroCard bought in the subway system in an effort to reduce the cost attributable to the high volume of MetroCards produced and discarded. The implementation of the green fee will be delayed from 2012 to 2013, at which time it will result in annual savings of $20 million. MTA Re-Estimates: Additional Real Estate Tax Receipts - The Plan recognizes $35 million in unanticipated Real Estate Transaction Tax revenue that was generated by unusually strong real estate activity, mostly in July and primarily in the NYC commercial real estate market. Real estate and economic conditions do not indicate that the level of activity beyond that underlying the baseline forecast will be sustained; therefore, this adjustment only recognizes revenues realized beyond the baseline forecast and does not project continued improvements. Farebox Revenue Revision - After finalization of agency baseline forecasts, NYCT discovered a small understatement in its farebox revenue results. Through May 2011, this amounted to $11.4 million or 0.8% of the total. The incorporation of this additional revenue into the 2011 forecast, when carried forward for the balance of the year, has the effect of increasing the NYCT full-year revenue forecast by $33 million. The impact on the out years is additional revenue of $34 million in 2012, $35 million in 2013, $35 million in 2014, and $36 million in 2015. Capital Reimbursement Timing - Through May 2011, NYCT capital reimbursements have fallen short of capital expenses by approximately $100 million. This shortfall is partly due to lags in funding capital project overruns and partly due to delays in getting all parts of a new accounts receivable system that came online January 1, 2011 fully operational. While it is expected that the bulk of this shortfall will be eliminated during the balance of 2011, this reforecast assumes that $40 million of planned reimbursements will be delayed from 2011 to 2012.

Continuing Energy Hedge Program - The Plan assumes that the MTA will continue its energy hedge strategy and will set-aside $65 million in 2012 and $100 million in each year thereafter to hedge a portion of its costs for diesel fuel and natural gas. This will give the MTA the opportunity to lock-in favorable pricing and will provide a measure of price protection should prices rise significantly above projections.

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IV. Appendix

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V. Other

The MTA Budget Process MTA budgeting is a rigorous and thorough process that begins in the spring and culminates with the passage of the Budget in December. In the course of a year, MTA prepares a February, July and November Financial Plan, and Adoption Materials in December. In addition to the existing year, each Plan requires Agencies to prepare four-year projections which include the upcoming and three future calendar years. Both the July and November Financial Plans are divided into two distinct volumes: Volume I supports the complete financial plan, including the baseline as well as below-the-line Plan Adjustments, which may include Fare/Toll Increases, MTA Initiatives, MTA Re-estimates and other adjustments; Volume II includes detailed Agency information supporting baseline revenue, expense, cash and headcount projections. Also included is detailed information supporting MTA actions taken to increase savings as well as individual Agency Budget Reduction Programs.

July Plan The July Financial Plan provides the opportunity for the MTA to present a revised forecast of the current years finances, a preliminary presentation of the following years proposed budget, and a three-year reforecast of out-year finances. This Plan may include a series of gap-closing proposals necessary to maintain a balanced budget and actions requiring public hearings. The Mid-Year Forecast is allocated over the period of 12 months and becomes the basis in which monthly results are compared for the remainder of the year. November Plan After stakeholders weigh in and the impact of new developments and risks are quantified, a November Plan is prepared, which is an update to the July Financial Plan. The November Plan includes a revised current year, the finalization of the proposed budget for the upcoming year, and projections for the three out-years. December Adopted Budget In December, the November Plan is updated to capture further developments, risks and actions that are necessary to ensure budget balance, which is ultimately presented to the MTA Board for review and approval. February Plan Finally, in the Adopted Budget below-the-line policy issues are moved into the baseline and technical adjustments are made. This results in what is called the February Plan. The current year (the Adopted Budget) is allocated over the period of 12 months and becomes the basis in which monthly results are compared until it is replaced by the 12-month allocation of the Mid-Year Forecast.

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