CCDF Front Section 2008

COMBINED ANNUAL CONTINUING DISCLOSURE FILINGS PURSUANT TO SEC RULE 15c2-12

relating to

METROPOLITAN TRANSPORTATION AUTHORITY

DEDICATED TAX FUND BONDS TRANSPORTATION REVENUE BONDS STATE SERVICE CONTRACT BONDS

and TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

GENERAL REVENUE BONDS SUBORDINATE REVENUE BONDS

and 2 BROADWAY CERTIFICATES OF PARTICIPATION

Dated: April 29, 2008 This book contains the Annual Continuing Disclosure Filings prepared by Metropolitan Transportation Authority (“MTA”) and Triborough Bridge and Tunnel Authority (“TBTA”) pursuant to various written undertakings made to assist the underwriters in complying with their obligations in accordance with SEC Rule 15c2-12 in connection with the following credits:

 MTA Dedicated Tax Fund Bonds,  MTA Transportation Revenue Bonds,  TBTA General Revenue Bonds,  TBTA Subordinate Revenue Bonds,  MTA State Service Contract Bonds, and  2 Broadway Certificates of Participation.

This booklet contains a separate section on each of the above-referenced credits, and each section is divided into five different parts, as follows:

 Part 1 lists, by designation, the various issues of securities outstanding within the credit, whether or not MTA or TBTA has contractually agreed to provide an annual report.

 Part 2 sets forth certain details of each of such issues listed in Part 1.

 Part 3 sets forth the information in the original official statement that MTA or TBTA has contractually agreed to update, together with an index of where such update can be located in this Annual Report.

 Part 4 lists any material events that have occurred.

 Part 5 describes whether audited or unaudited financial statements are attached, or whether they are included by specific reference herein.

Unless otherwise defined herein, all capitalized terms used herein shall have the meanings set forth in Appendix A attached hereto.

CUSIP numbers used herein have been assigned by an organization not affiliated with MTA or TBTA and are included solely for the convenience of the holders of the securities listed. Neither MTA nor TBTA is responsible for the selection or uses of these CUSIP numbers, nor is any representation made as to their correctness on the securities or as indicated herein.

i Table of Contents

Page

MTA DEDICATED TAX FUND BONDS...... 1 Part 1. Issues Covered by this Annual Report ...... 1 Part 2. Details of Each Issue of Bonds ...... 1 Dedicated Tax Fund Bonds, Series 2001A...... 2 Dedicated Tax Fund Bonds, Series 2002A...... 3 Dedicated Tax Fund Variable Rate Bonds, Series 2002B ...... 5 Dedicated Tax Fund Bonds, Series 2004A...... 6 Dedicated Tax Fund Variable Rate Bonds, Series 2004B ...... 7 Dedicated Tax Fund Bonds, Series 2004C ...... 9 Dedicated Tax Fund Variable Rate Bonds, Series 2004D ...... 10 Dedicated Tax Fund Refunding Bonds, Series 2005A...... 11 Dedicated Tax Fund Bonds, Series 2006A...... 12 Dedicated Tax Fund Bonds, Series 2006B ...... 13 Part 3. Nature of Continuing Disclosure ...... 14 Part 4. Notice of Material Events...... 15 Part 5. Audited Financial Statements ...... 16

MTA TRANSPORTATION REVENUE BONDS...... 17 Part 1. Issues Covered by this Annual Report ...... 17 Part 2. Details of Each Issue of Bonds ...... 17 Transportation Revenue Refunding Bonds, Series 2002A...... 19 Transportation Revenue Variable Rate Refunding Bonds, Series 2002B...... 21 Transportation Revenue Variable Rate Refunding Bonds, Series 2002D...... 22 Transportation Revenue Refunding Bonds, Series 2002E...... 23 Transportation Revenue Refunding Bonds, Series 2002F ...... 24 Transportation Revenue Variable Rate Refunding Bonds, Series 2002G...... 25 Transportation Revenue Bonds, Series 2003A ...... 26 Transportation Revenue Bonds, Series 2003B...... 27 Transportation Revenue Variable Rate Bonds, Series 2004A...... 29 Transportation Revenue Bonds, Series 2005A ...... 30 Transportation Revenue Bonds, Series 2005B...... 32 Transportation Revenue Bonds, Series 2005C...... 34 Transportation Revenue Variable Rate Bonds, Series 2005D...... 35 Transportation Revenue Variable Rate Bonds, Series 2005E...... 38 Transportation Revenue Bonds, Series 2005F...... 40 Transportation Revenue Variable Rate Bonds, Series 2005G...... 41 Transportation Revenue Refunding Bonds, Series 2005H...... 42 Transportation Revenue Bonds, Series 2006A ...... 43 Transportation Revenue Bonds, Series 2006B...... 44 Transportation Revenue Bonds, Series 2007A ...... 46 Transportation Revenue Bonds, Series 2007B...... 48 Transportation Revenue Bonds, Series 2008A ...... 49 Transportation Revenue Bonds, Series 2008B...... 50 Part 3. Nature of Continuing Disclosure ...... 51 Part 4. Notice of Material Events...... 52 Part 5. Audited Financial Statements ...... 53

TBTA GENERAL REVENUE BONDS ...... 54 Part 1. Issues Covered by this Annual Report ...... 54 Part 2. Details of Each Issue of Bonds ...... 54 General Revenue Bonds, Series EFC 1996A...... 55 General Revenue Bonds, Series 2001A...... 56 General Revenue Variable Rate Bonds, Series 2001B and C ...... 57 General Revenue Bonds, Series 2002A...... 58 General Revenue Refunding Bonds, Series 2002B...... 59 General Revenue Variable Rate Refunding Bonds, Series 2002C ...... 60

ii TBTA GENERAL REVENUE BONDS, continued

General Revenue Variable Rate Refunding Bonds, Series 2002F...... 61 General Revenue Variable Rate Bonds, Series 2003B...... 62 General Revenue Variable Rate Bonds, Series 2005A...... 63 General Revenue Variable Rate Refunding Bonds, Series 2005B ...... 64 General Revenue Bonds, Series 2006A...... 65 General Revenue Bonds, Series 2007A...... 66 General Revenue Bonds, Series 2008A...... 67 General Revenue Bonds, Series 2008B...... 68 Part 3. Nature of Continuing Disclosure ...... 69 Part 4. Notice of Material Events...... 70 Part 5. Audited Financial Statements ...... 70

TBTA SUBORDINATE REVENUE BONDS ...... 71 Part 1. Issues Covered by this Annual Report ...... 71 Part 2. Details of Each Issue of Bonds ...... 71 Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB...... 72 Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD...... 73 Subordinate Revenue Variable Rate Refunding Bonds, Series 2002D...... 74 Subordinate Revenue Refunding Bonds, Series 2002E...... 77 Subordinate Revenue Variable Rate Refunding Bonds, Series 2002G...... 78 Subordinate Revenue Bonds, Series 2003A ...... 79 Subordinate Revenue Bonds, Series 2004A ...... 80 Part 3. Nature of Continuing Disclosure ...... 82 Part 4. Notice of Material Events...... 83 Part 5. Audited Financial Statements ...... 83

MTA STATE SERVICE CONTRACT BONDS...... 84 Part 1. Issues Covered by this Annual Report ...... 84 Part 2. Details of Each Issue of Bonds ...... 84 State Service Contract Refunding Bonds, Series 2002A ...... 85 State Service Contract Bonds, Series 2002B ...... 87 Part 3. Nature of Continuing Disclosure ...... 90 Part 4. Notice of Material Events...... 91 Part 5. Audited Financial Statements ...... 91

2 BROADWAY CERTIFICATES OF PARTICIPATION...... 92 Part 1. Issues Covered by this Annual Report ...... 92 Part 2. Details of Each Issue of Certificates ...... 92 Certificates of Participation, Series 1999A...... 93 Certificates of Participation, Series 2000A...... 94 Certificates of Participation, Series 2004A...... 95 Revised Aggregate Base Rent Requirements...... 96 Ground Lease Net Rental Proportionate Shares...... 97 Part 3. Nature of Continuing Disclosure ...... 98 Part 4. Notice of Material Events...... 101 Part 5. Audited Financial Statements ...... 101

Appendices

APPENDIX A The Related Entities APPENDIX B Audited Combined Financial Statements of Metropolitan Transportation Authority for the Years Ended December 2007 and 2006 APPENDIX C Audited Consolidated Financial Statements of the New York City Transit Authority for the Years Ended December 2007 and 2006 APPENDIX D Audited Financial Statements of Triborough Bridge and Tunnel Authority for the Years Ended December 2007 and 2006

iii APPENDIX E History and Projection of Traffic, Toll Revenues and Expenses and Review of Physical Conditions of the Facilities of Triborough Birdge and Tunnel Authority, dated April 29, 2008, prepared by URS Corporation – New York

iv MTA DEDICATED TAX FUND BONDS

Part 1. Issues Covered by this Annual Report

Par Outstanding Interest Rate Series Dated Date Par Issued (as of April 29, 2008) Mode 2001A December 4, 2001 $ 554,105,000 $ 170,145,000 Fixed 2002A August 15, 2002 1,246,870,000 1,063,525,000 Fixed 2002B September 5, 2002 440,000,000 440,000,000 Synthetic Fixed 2004A March 10, 2004 250,000,000 207,175,000 Fixed 2004B March 10, 2004 500,000,000 500,000,000 Auction 2004C December 21, 2004 120,000,000 98,395,000 Fixed 2004D(2) December 21, 2004 280,000,000 280,000,000 Variable 2005A March 24, 2005 350,000,000 345,060,000 Synthetic Fixed 2006A June 21, 2006 350,000,000 341,580,000 Fixed 2006B November 9, 2006 410,000,000 396,360,000 Fixed 2007A(1) November 7, 2007 430,000,000 0 Auction Total $4,930,975,000 $3,842,240,000

Part 2. Details of Each Issue of Bonds

Uninsured Ratings Fitch Ratings ...... A+ Moody’s Investors Services ...... NAF Standard and Poor’s Ratings ...... AA

Summary of State and City Redemption Provisions. Pursuant to the MTA Act, the State, upon providing sufficient funds, may require MTA to redeem any series of Dedicated Tax Fund Bonds, prior to maturity, as a whole, on any interest payment date not less than twenty years after the date of issue of the series of Dedicated Tax Fund Bonds, at 105% of their face value and accrued interest or at such lower redemption price provided for the series of Dedicated Tax Fund Bonds in the case of redemption as a whole on the redemption date. The MTA Act further provides that the City, upon furnishing sufficient funds, may require MTA to redeem any series of Dedicated Tax Fund Bonds, as a whole, but only in accordance with the terms upon which each series of Dedicated Tax Fund Bonds are otherwise redeemable.

(1) The principal amounts of MTA Dedicated Tax Fund Bonds Series 2007A were redeemed on their respective redemption dates at the principal amount thereof, plus accrued interest up to but not including such date of redemption.

(2) On May 1, 2008, the principal amounts of the following MTA Dedicated Tax Fund Bonds, Series 2004D bonds will be redeemed: Subseries Principal Amount Refunded CUSIP Number (59259N) 2004D-1* $ 23,000,000 QM8 2004D-2 112,000,000 QN6 * Partial refunding

1 $554,105,000 Dedicated Tax Fund Bonds, Series 2001A

Date of Issue: December 4, 2001 Credit Enhancement: All remaining Series 2001A Bonds are insured by Financial Guaranty Insurance Company.

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259N) 2008 $6,675,000 4.500% HK2 2008 4,510,000 3.500 JH7 2009 2,000,000 3.625 JJ3 2010 9,755,000 5.000 HM8 2010 2,395,000 3.750 JK0 2011 10,310,000 5.250 HN6 2011 2,420,000 3.800 JL8 2012 9,195,000 5.250 HP1 2012 4,165,000 4.000 JM6 2013 11,615,000 5.250 HQ9 2013 2,395,000 4.125 JN4 2014 12,915,000 5.250 HR7 2014 1,805,000 4.250 JP9 2015 14,380,000 5.250 HS5 2015 1,095,000 4.400 JQ7 2016 14,495,000 5.250 HT3 2016 1,780,000 4.500 JR5 2017 15,815,000 5.250 HU0 2017 1,300,000 4.600 JS3 2018 16,915,000 5.250 HV8 2018 1,090,000 4.625 JT1 2019 600,000 4.750 JU8 2020 19,350,000 5.000 HX4 2020 590,000 4.900 JV6 2021 2,580,000 4.900 JW4

(1) The Series 2001A Bonds maturing on or after November 15, 2012 are subject to redemption prior to maturity on any date on or after November 15, 2011, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2001A Bonds were advance refunded and defeased by the Series 2005A Bonds on March 24, 2005 at the redemption prices and the redemption dates listed below.

Maturity Principal Amount Interest Redemption Date Redemption CUSIP Number (Nov. 15) to be Redeemed Rate (Nov. 15) Price (59259N) 2019 $18,345,000 5.25% 2011 100% HW6 2021 18,355,000 5.00 2011 100 HY2 2022 21,980,000 5.25 2011 100 JZ7 2023 23,130,000 5.25 2011 100 KA0 2025 43,705,000 5.00 2011 100 JX2 2031 188,785,000 5.00 2011 100 JY0

The following maturities and principal amounts of the Series 2001A were defeased on September 20, 2007 at the principal amounts listed below.

Maturity Principal Amount Principal Amount Interest CUSIP Number (November 15) Outstanding to be Defeased Rate (59259N) 2009 $ 9,645,000 $ 9,645,000 4.50% HL0

2 $1,246,870,000 Dedicated Tax Fund Bonds, Series 2002A

Date of Issue: August 15, 2002 Credit Enhancement: Some, but not all, of the maturities, as indicated below, are insured by Financial Security Assurance Inc.

Uninsured Series 2002A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259N) $167,370,000 Term Bond Due November 15, 2030 2029 $86,520,000 2030 80,850,000 5.000% LZ4 $10,000,000 Term Bond Due November 15, 2030 2030 $10,000,000 5.250% MC4

Insured Series 2002A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259N) 2008 $17,840,000 3.250% KR3 2008 9,555,000 5.000 KS1 2008 5,755,000 5.250 KT9 2010 7,555,000 3.700 KW2 2010 8,375,000 5.000 KX0 2010 19,980,000 5.250 KY8 2011 5,850,000 3.800 KZ5 2011 31,805,000 5.000 LA9 2012 7,955,000 3.900 LB7 2012 22,500,000 5.250 LT8 2012 9,000,000 5.500 LC5 2013 26,240,000 4.000 LD3 2013 15,270,000 5.500 LE1 2014 2,705,000 4.000 LF8 2015 2,805,000 4.200 LG6 2016 2,885,000 4.300 LH4 2017 2,985,000 4.400 LJ0 2018 3,145,000 4.500 LK7 2019 885,000 4.600 LL5 2019 2,430,000 5.125 LM3 2020 765,000 4.700 LN1 2020 2,725,000 5.125 LP6 2021 3,590,000 4.800 LQ4 2022 3,780,000 4.900 LR2 2023 64,195,000 5.000 LS0 2024 67,405,000 5.250 LU5 2025 70,940,000 5.250 LV3 2026 50,000,000 5.500 LW1

(1) The Series 2002A Bonds maturing on or after November 15, 2013 are subject to redemption prior to maturity on any date on or after November 15, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2002A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Maturity Principal Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259N) 2009 $22,810,000 $22,810,000 3.50% KU6 2009 11,725,000 11,725,000 5.00 KV4

3 Dedicated Tax Fund Bonds, Series 2002A (continued)

Insured Series 2002A Bonds – Principal Amortization(1) (continued)

$70,250,000 Term Bond Due November 15, 2027 2026 $ 24,670,000 2027 45,580,000 4.750% LX9 $115,410,000 Term Bond Due November 15, 2028 2027 $ 33,010,000 2028 82,400,000 5.000% LY7 $231,575,000 Term Bond Due November 15, 2032 2031 $ 95,415,000 2032 136,160,000 5.000% MA8

4 $440,000,000 Dedicated Tax Fund Variable Rate Bonds, Series 2002B

Date of Issue: September 5, 2002 Credit Enhancement: All Series 2002B Bonds are insured by Financial Security Assurance Inc. Liquidity Facility: Standby Bond Purchase Agreement with Dexia Crédit Local (expires May 7, 2014) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2014 $40,900,000 2015 42,700,000 2016 44,600,000 2017 46,600,000 2018 48,600,000 2019 50,700,000 2020 52,900,000 2021 55,300,000 2022 (final maturity) 57,700,000 Variable ML4

(1) The Series 2002B Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

5 $250,000,000 Dedicated Tax Fund Bonds, Series 2004A

Date of Issue: March 10, 2004 Credit Enhancement: Certain maturities as indicated below, are insured by MBIA Insurance Corporation or Financial Guaranty Insurance Company.

Principal Amortization(1) Due Interest Cusip No. November 15 Maturity Rate (Base 59259N) MBIA Insured Serial Bonds 2008 $15,375,000 2.000% NC3 2009 9,370,000 2.250 ND1 2009 6,315,000 5.000 NE9 2010 4,445,000 2.500 NF6 2010 11,765,000 5.000 NG4 2011 2,855,000 2.750 NH2 2011 14,055,000 5.000 NJ8 2012 6,505,000 3.000 NK5 2012 11,190,000 5.000 NL3 2013 4,255,000 3.200 NM1 2013 14,190,000 5.250 NN9 FGIC Insured Serial Bonds 2014 $ 5,955,000 3.375% NP4 2014 13,375,000 5.250 NQ2 2015 20,230,000 5.250 NR0 2016 21,295,000 5.250 NS8 2017 22,410,000 5.250 NT6 2018 23,590,000 5.250 NU3

(1) The Series 2004A Bonds are not subject to redemption prior to maturity.

6 $500,000,000 Dedicated Tax Fund Variable Rate Bonds, Series 2004B $100,000,000 Subseries 2004B-1 $100,000,000 Subseries 2004B-2 $100,000,000 Subseries 2004B-3 $100,000,000 Subseries 2004B-4 $100,000,000 Subseries 2004B-5

Date of Issue: March 10, 2004 Credit Enhancement: Subseries 2004B-1 Bonds and Subseries 2004B-4 Bonds are insured by Ambac Assurance Corporation; Subseries 2004B-2 Bonds are insured by MBIA Insurance Corporation; Subseries 2004B-3 Bonds are insured by Financial Guaranty Insurance Company; and Subseries 2004B-5 Bonds are insured by CDC IXIS Financial Guaranty North America, Inc. Current Mode: Auction

Subseries 2004B-1 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2019 $ 8,250,000 2020 8,600,000 2021 8,925,000 2022 9,325,000 2023 9,700,000 2024 10,075,000 2025 10,500,000 2026 10,950,000 2027 11,375,000 2028 11,875,000 2029 (final maturity) 425,000 Variable NV1

Subseries 2004B-2 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2031 $14,600,000 2032 41,800,000 2033 (final maturity) 43,600,000 Variable NW 9

Subseries 2004B-3 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2029 $35,800,000 2030 38,575,000 2031 (final maturity) 25,625,000 Variable NX7

(1) Each subseries of Series 2004B Bonds shall be subject to optional redemption by MTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided, however, that in the event of a partial redemption of Series 2004B Bonds of a subseries, the aggregate principal amount of Series 2004B Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the Broker-Dealers.

7 Dedicated Tax Fund Variable Rate Bonds, Series 2004B (continued)

Subseries 2004B-4 Principal Amortization(1) Current Mode: 28-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2019 $ 8,200,000 2020 8,600,000 2021 8,925,000 2022 9,325,000 2023 9,700,000 2024 10,075,000 2025 10,525,000 2026 10,950,000 2027 11,400,000 2028 11,875,000 2029 (final maturity) 425,000 Variable NY5

Subseries 2004B-5 Principal Amortization(1) Current Mode: 28-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2019 $ 8,200,000 2020 8,625,000 2021 8,950,000 2022 9,325,000 2023 9,725,000 2024 10,075,000 2025 10,500,000 2026 10,950,000 2027 11,350,000 2028 11,850,000 2029 (final maturity) 450,000 Variable NZ2

8 $120,000,000 Dedicated Tax Fund Bonds, Series 2004C

Date of Issue: December 21, 2004 Credit Enhancement: All remaining maturities are insured by Ambac Assurance Corporation.

Principal Amortization(1) Due Interest Cusip No. November 15 Maturity Rate (Base 59259N) Ambac Insured Serial Bonds 2008 $ 2,425,000 5.000% PT4 2008 5,110,000 2.500 PU1 2009 4,755,000 5.000 PV9 2009 3,000,000 3.000 PW7 2010 5,610,000 5.000 PX5 2010 2,445,000 3.000 PY3 2011 6,460,000 5.000 PZ0 2011 1,920,000 3.125 QA4 2012 6,360,000 5.000 QB2 2012 2,460,000 3.250 QC0 2013 8,170,000 5.000 QD8 2013 955,000 3.375 QE6 2014 5,985,000 5.000 QF3 2014 3,675,000 3.500 QG1 2015 10,060,000 5.500 QH9 2016 10,640,000 5.500 QJ5 2017 11,195,000 5.500 QK2 2018 7,170,000 5.500 QL0

(1) The Series 2004C Bonds are not subject to redemption prior to maturity.

9 $280,000,000 Dedicated Tax Fund Variable Rate Bonds, Series 2004D $168,000,000 Subseries 2004D-1 $112,000,000 Subseries 2004D-2

Date of Issue: December 21, 2004 Credit Enhancement: All Series 2004D Bonds are insured by Ambac Assurance Corporation Liquidity Facility: Standby Bond Purchase Agreement with Wachovia Bank, N.A. (expires December 11, 2014) Current Mode: Weekly

Subseries 2004D-1 Principal Amortization(1)(2) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2018 $ 2,900,000 2019 7,500,000 2020 7,800,000 2021 8,200,000 2022 8,500,000 2023 8,900,000 2024 9,100,000 2025 9,600,000 2026 10,000,000 2027 10,400,000 2028 10,700,000 2029 11,200,000 2030 11,700,000 2031 12,200,000 2032 12,600,000 2033 13,100,000 2034 (final maturity) 13,600,000 Variable QM8

Subseries 2004D-2 Principal Amortization(1)(2) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2018 $ 1,800,000 2019 5,000,000 2020 5,300,000 2021 5,400,000 2022 5,700,000 2023 5,800,000 2024 6,200,000 2025 6,400,000 2026 6,600,000 2027 6,800,000 2028 7,300,000 2029 7,500,000 2030 7,700,000 2031 8,000,000 2032 8,500,000 2033 8,800,000 2034 (final maturity) 9,200,000 Variable QN6

(1) The Series 2004D Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

10 $350,000,000 Dedicated Tax Fund Variable Rate Refunding Bonds, Series 2005A Date of Issue: March 24, 2005 Credit Enhancement: All Series 2005A Bonds are insured by XL Capital Assurance Inc. Liquidity Facility: Standby Bond Purchase Agreement with Citibank, N.A. (expires March 9, 2012) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259N) 2008 $ 1,540,000 2009 1,610,000 2010 1,660,000 2011 1,720,000 2012 1,775,000 2013 1,850,000 2014 1,910,000 2015 1,975,000 2016 2,040,000 2017 2,120,000 2018 2,190,000 2019 20,670,000 2020 2,030,000 2021 20,520,000 2022 23,955,000 2023 24,800,000 2024 25,670,000 2025 26,590,000 2026 27,520,000 2027 28,495,000 2028 29,500,000 2029 30,550,000 2030 31,625,000 2031 (final maturity) 32,745,000 Variable RR6

(1) The Series 2005A Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

11 $350,000,000 Dedicated Tax Fund Bonds, Series 2006A

Date of Issue: June 21, 2006 Credit Enhancement: Certain maturities, as indicated below, are insured by MBIA Insurance Company.

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259N) Uninsured Serial Bonds 2008 $ 6,280,000 4.000% RV7 2009 6,535,000 4.000 RW5 MBIA Insured Serial Bonds 2010 $ 4,450,000 4.000% RX3 2010 2,345,000 5.000 RY1 2011 7,090,000 4.000 RZ8 2012 7,375,000 4.000 SA2 2013 2,570,000 4.000 SB0 2013 5,100,000 5.000 SC8 2014 3,275,000 4.000 SD6 2014 4,750,000 5.000 SE4 2015 8,395,000 4.000 SF1 2016 8,730,000 4.000 SG9 2017 9,080,000 4.000 SH7 2018 9,440,000 5.000 SJ3 2019 9,915,000 5.000 SK0 2020 10,410,000 5.000 SL8 2021 10,930,000 5.000 SM6 2022 11,475,000 5.000 SN4 2023 12,050,000 5.000 SP9 2024 12,655,000 5.000 SQ7 2025 13,285,000 5.000 SR5 2026 235,000 4.375 SS3 2026 13,715,000 5.000 ST1 2027 14,645,000 5.000 SU8 2028 15,380,000 5.000 SV6 $50,905,000 Term Bond Due November 15, 2031 2029 $16,150,000 2030 16,955,000 2031 17,800,000 5.000% SW4 $1,635,000 Term Bond Due November 15, 2035 2035 $ 1,635,000 4.500% SX2 $78,930,000 Term Bond Due November 15, 2035 2032 $18,690,000 2033 19,625,000 2034 20,610,000 2035 20,005,000 5.000% SY0

(1) The Series 2006A Bonds maturing on or after November 15, 2017 are subject to redemption prior to maturity on any date on or after November 15, 2016, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

12 $410,000,000 Dedicated Tax Fund Bonds, Series 2006B

Date of Issue: November 9, 2006 Credit Enhancement: Certain maturities, as indicated below, are insured by MBIA Insurance Company.

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259N) Uninsured Serial Bonds 2008 $ 6,955,000 4.000% TH6 MBIA Insured Serial Bonds 2010 $ 7,485,000 3.600% TK9 2011 7,755,000 3.600 TL7 2012 8,035,000 5.000 TM5 2013 8,435,000 3.700 TN3 2014 3,895,000 3.750 TP8 2014 4,855,000 5.000 TQ6 2015 9,135,000 5.000 TR4 2016 4,020,000 3.875 TS2 2016 5,575,000 5.000 TT0 2017 10,030,000 5.000 TU7 2018 10,530,000 5.000 TV5 2019 11,055,000 5.000 TW3 2020 11,610,000 5.000 TX1 2021 1,900,000 4.125 TY9 2021 10,290,000 5.000 TZ6 2022 12,780,000 5.000 UA9 2023 13,420,000 5.000 UB7 2024 14,090,000 5.000 UC5 2025 14,795,000 5.000 UD3 2026 15,535,000 4.750 UE1 $89,930,000 Term Bond Due November 15, 2031 2027 $ 16,275,000 2028 17,090,000 2029 17,945,000 2030 18,840,000 2031 19,780,000 5.000% UF8 $ 50,000,000 Term Bond Due November 15, 2036 2032 $10,000,000 2033 10,000,000 2034 10,000,000 2035 10,000,000 2036 10,000,000 4.500% UG6 $64,250,000 Term Bond Due November 15, 2036 2032 $10,770,000 2033 11,760,000 2034 12,800,000 2035 13,890,000 2036 15,030,000 5.000% UH4

(1) The Series 2006B Bonds maturing on or after November 15, 2017 are subject to redemption prior to maturity on any date on or after November 15, 2016, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2006B were defeased on September 20, 2007 at the principal amounts listed below. Maturity Principal Amount Principal Amount Interest CUSIP Number (November 15) Outstanding to be Defeased Rate (59259N) 2009 $7,235,000 $7,235,000 3.50% TJ2

13 Part 3. Nature of Continuing Disclosure

Where Located in Appendix A Undertaking Caption(s) Heading(s)

A. Description of the Transit and Commuter 1. THE RELATED ENTITIES All headings Systems operated by the MTA and its 2. TRANSIT SYSTEM affiliates and subsidiaries and their operation. 3. COMMUTER SYSTEM 4. RIDERSHIP AND 1. Transit System (MTA New FACILITIES USE York City and MaBSTOA) Ridership 2. Commuter System Ridership 5. FEDERAL AND STATE 1. Transit System LAWS 2. Commuter System

6. EMPLOYEES, LABOR 1. Transit System RELATIONS AND PENSION 2. Commuter System OBLIGATIONS B. Information regarding the Transit and 1. FINANCIAL PLANS AND 1. Capital Programs – Background Commuter Capital Programs. CAPITAL PROGRAMS and Development 2. 2005-2009 MTA Capital Program 3. 2000-2004 MTA Capital Program 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

C. Presentation of changes to indebtedness 1. DEDICATED TAX FUND 1. DTF Table 1 issued by MTA under the DTF Resolution, as BONDS 2. DTF Table 2 well as information concerning changes to MTA’s debt service requirements on such indebtedness payable from DTF Revenues.

D. Financial information and operating data, 1. FINANCIAL PLANS AND 1. 2007-2010 Financial Plan including information relating to the CAPITAL PROGRAMS following: Description of how the State allocates taxes to the MTA Dedicated Tax Fund.

Description of the material taxes allocated to the MTA Dedicated Tax Fund, together with a description of the tax rate, the tax base and the composition and collection of such taxes by the State.

For the material taxes then constituting a 1. DEDICATED TAX FUND 1. MTTF Receipts – Dedicated source of revenue for the MTA BONDS Petroleum Business Tax Dedicated Tax Fund, an historical 2. MTTF Receipts – Motor Fuel Tax summary of such revenue, if available, 3. MTTF Receipts – Motor Vehicle together with an explanation of the Fees factors affecting collection levels, for a 4. MMTOA Account – Special Tax period of at least the five most recent Supported Operating Subsidies completed fiscal years then available.

E. Information concerning the amounts, See Undertakings C and D sources, material changes in and material above. factors affecting DTF Revenues and debt service incurred under the DTF Resolution.

F. Material litigation relating to any of the 1. Litigation 1. MTA foregoing. 2. Transit System 3. Commuter System

14 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

X Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

X Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

X Defeasances.

Release, substitution or sale of property securing repayment of the securities.

Rating changes.

Explanation:

Substitution of credit or liquidity providers: The stated expiration date for the Standby Bond Purchase Agreement with Dexia Credit Local, New York Branch for the Dedicated Tax Fund Bonds, Series 2002B has been extended from May 7, 2010 to May 7, 2014. All other terms and conditions remain unchanged.

The stated expiration date for the Standby Bond Purchase Agreement with Wachovia Bank, N.A. for the Dedicated Tax Fund Bonds, Series 2004D has been extended from December 11, 2007 to December 11, 2014. All other terms and conditions remain unchanged.

Defeasances: The following principal amounts of MTA Dedicated Tax Fund Bonds were defeased to maturity with United States Treasury Securities – State and Local Government Series on September 20, 2007. All bonds mature on November 15, 2009. In each case, the amount of each maturity defeased (as designated by a separate CUSIP number) constitutes the entire principal amount of the maturity currently outstanding.

Series Principal Amount Interest Rate CUSIP Number 2001A $ 9,645,000 4.50% 59259N HL0 2002A 22,810,000 3.50 59259N KU6 2002A 11,725,000 5.00 59259N KV4 2006B 7,235,000 3.50 59259N TJ2

The following principal amounts of MTA Dedicated Tax Fund Bonds Series 2007A were redeemed in full prior to maturity on the respective redemption dates at the principal amount thereof, plus accrued interest up to but not including such date of redemption.

15 Subseries Principal Amount Redemption Date CUSIP Number 2007A-1 $ 86,000,000 March 25, 2008 59259N VE0 2007A-2 86,000,000 March 26, 2008 59259N VF7 2007A-3 86,000,000 March 27, 2008 59259N VG5 2007A-4 86,000,000 March 28, 2008 59259N VH3 2007A-5 86,000,000 March 24, 2008 59259N VJ9

Refundings: On May 1, 2008, the principal amounts of the following MTA Dedicated Tax Fund Bonds, Series 2004D bonds will be redeemed: Subseries Principal Amount Refunded CUSIP Number (59259N) 2004D-1* $ 23,000,000 QM8 2004D-2 112,000,000 QN6 * Partial refunding

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Metropolitan Transportation Authority.

16 MTA TRANSPORTATION REVENUE BONDS

Part 1. Issues Covered by this Annual Report

Par Outstanding Series Dated Date Par Issued (as of April 29, 2008) Interest Rate 2002A May 30, 2002 $2,894,185,000 $2,706,400,000 Fixed 2002B May 30, 2002 210,500,000 210,500,000 Auction 2002D May 30, 2002 400,000,000 400,000,000 Variable and Synthetic Fixed 2002E July 2, 2002 397,495,000 338,450,000 Fixed 2002F November 20, 2002 446,110,000 301,205,000 Fixed 2002G(2) November 20, 2002 400,000,000 400,000,000 Variable 2003A May 14, 2003 475,340,000 399,000,000 Fixed 2003B August 13, 2003 751,765,000 472,250,000 Fixed 2004A(2) June 24, 2004 500,000,000 472,170,000 Variable 2005A February 15, 2005 650,000,000 621,135,000 Fixed 2005B July 1, 2005 750,000,000 712,045,000 Fixed 2005C November 2, 2005 150,000,000 126,855,000 Fixed 2005D November 2, 2005 250,000,000 250,000,000 Synthetic Fixed 2005E November 2, 2005 250,000,000 250,000,000 Synthetic Fixed 2005F December 7, 2005 468,760,000 444,705,000 Fixed 2005G December 7, 2005 250,000,000 250,000,000 Variable 2005H December 7, 2005 173,370,000 107,610,000 Fixed 2006A July 20, 2006 475,000,000 436,675,000 Fixed 2006B December 20, 2006 717,730,000 701,940,000 Fixed 2007A(1) July 11, 2007 425,615,000 418,370,000 Fixed 2007B December 13, 2007 415,000,000 415,000,000 Fixed 2008A February 21, 2008 512,470,000 512,470,000 Fixed 2008B February 21, 2008 487,530,000 487,530,000 Variable Total $12,450,870,000 $11,434,310,000

Part 2. Details of Each Issue of Bonds

Uninsured Ratings Fitch Ratings ...... A Moody’s Investors Services ...... A2 Standard and Poor’s Ratings ...... A

Summary of State and City Redemption Provisions Pursuant to the MTA Act, the State, upon providing sufficient funds, may require MTA to redeem any series of MTA Transportation Revenue Bonds, prior to maturity, as a whole, on any interest payment date not less than

(1)In February 2007, MTA issued $750 million aggregate principal amount of commercial paper notes in the form of bond anticipation notes under the Transportation Resolution.

(2) On May 1, 2008, the principal amounts of the following Transportation Revenue Bonds will be redeemed in full:

Transportation Revenue Variable Rate Refunding Bonds, Subseries 2002G-2 Subseries Principal Amount Refunded CUSIP Number (59259R) 2002G-2 $ 200,000,000 LU6

Transportation Revenue Variable Rate Bonds, Series 2004A Subseries Principal Amount Refunded CUSIP Number (59259R) 2004A-1 $165,260,000 TD6 2004A-2 70,825,000 TE4 2004A-3 165,260,000 TF1 2004A-4 70,825,000 TG9

17 twenty years after the date of issue of that series of MTA Transportation Revenue Bonds, at 105% of their face value and accrued interest or at such lower redemption price provided for in that series of MTA Transportation Revenue Bonds in the case of redemption as a whole on the redemption date. The MTA Act further provides that the City, upon furnishing sufficient funds, may require MTA to redeem any series of MTA Transportation Revenue Bonds, as a whole, but only in accordance with the terms upon which each series of MTA Transportation Revenue Bonds are otherwise redeemable.

18 $2,894,185,000 Transportation Revenue Refunding Bonds, Series 2002A

Date of Issue: May 30, 2002 Credit Enhancement: Some, but not all, of the maturities of the Series 2002A Bonds are insured by Ambac Assurance Corporation, Financial Security Assurance Inc. (FSA), Financial Guaranty Insurance Company (FGIC) and MBIA Insurance Corporation, as set forth below.

Uninsured Series 2002A Bonds – Principal Amortization (1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 2,855,000 3.750% BS2 2008 1,550,000 5.000 BT0 2010 4,100,000 4.125 BW3 2010 6,515,000 5.000 BX1 2011 1,820,000 4.250 BY9 2011 290,000 5.000 BZ6 2012 1,810,000 4.350 CA0 2012 635,000 5.000 CB8 2013 1,190,000 4.400 CC6 2014 1,490,000 4.600 CD4 2015 825,000 4.625 CE2 2016 1,075,000 4.750 CF9 2017 735,000 4.800 CG7 2018 1,260,000 4.900 CH5 2019 2,685,000 5.000 CJ1 2020 3,890,000 5.125 CK8 2021 3,535,000 5.125 CL6 2022 8,930,000 5.125 CM4 $300,000,000 Term Bond Due November 15, 2031 2027 $ 48,785,000 2028 51,230,000 2029 53,855,000 2030 56,615,000 2031 89,515,000 5.125% CN2 $70,000,000 Term Bond Due November 15, 2032 2032 $ 70,000,000 5.750% CP7

(1) The Series 2002A Bonds (except for the Insured Series 2002A Bonds maturing on November 15, 2013 and November 15, 2014), are subject to redemption prior to maturity on or after November 15, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at a Redemption Price of 100%, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2002A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $18,955,000 $18,955,000 3.80% AG9 2009 2,090,000 2,090,000 3.90 BU7 2009 1,365,000 1,365,000 5.00 BV5 2009 15,795,000 15,795,000 5.00 AH7

19 Transportation Revenue Refunding Bonds, Series 2002A (continued)

Series 2002A Bonds insured by MBIA – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $24,005,000 3.625% AE4 2008 8,415,000 5.000 AF1 2010 15,715,000 4.000 AJ3 2010 13,305,000 5.000 AK0 2011 18,950,000 4.000 AL8 2011 20,160,000 5.000 AM6

Series 2002A Bonds insured by Ambac – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2012 $25,740,000 4.200% AN4 2012 15,300,000 5.000 AP9 2013 60,365,000 5.500 AQ7 2013 20,395,000 4.300 AR5 2014 84,965,000 5.500 AS3 2015 90,380,000 5.500 AT1 2016 95,175,000 5.500 AU8 2017 100,620,000 5.500 AV6 2018 106,985,000 5.500 AW4 2019 102,315,000 5.500 AX2 2020 76,110,000 5.000 AY0

Series 2002A Bonds insured by FGIC – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2021 $63,270,000 5.125% AZ7 2021 13,195,000 5.000 BA1 2022 39,860,000 5.125 BB9 2022 31,210,000 5.000 BC7 $419,510,000 Term Bond Due November 15, 2025 2023 $133,090,000 2024 139,760,000 2025 146,660,000 5.000% BD5 $100,000,000 Term Bond Due November 15, 2031 2031 $100,000,000 5.250% BF0

Series 2002A Bonds insured by FSA – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) $645,265,000 Term Bond Due November 15, 2030 2026 $154,615,000 2027 113,560,000 2028 119,315,000 2029 125,095,000 2030 132,680,000 5.000% BE3 $100,000,000 Term Bond Due November 15, 2032 2032 $100,000,000 5.750% BG8

20 $210,500,000 Transportation Revenue Variable Rate Refunding Bonds, Series 2002B $105,250,000 Subseries 2002B-1 $105,250,000 Subseries 2002B-2

Date of Issue: May 30, 2002 Credit Enhancement: All Series 2002B Bonds are insured by Financial Security Assurance Inc (FSA). Current Mode: Auction

Subseries 2002B-1 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2013 $4,500,000 2014 4,600,000 2015 4,900,000 2016 5,100,000 2017 5,600,000 2018 5,100,000 2019 9,300,000 2020 26,000,000 2021 29,150,000 2022 (final maturity) 11,000,000 Variable EE0

Subseries 2002B-2 Principal Amortization(1) Current Mode: 28-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2013 $4,500,000 2014 4,600,000 2015 4,900,000 2016 5,100,000 2017 5,600,000 2018 5,100,000 2019 9,300,000 2020 26,000,000 2021 29,150,000 2022 (final maturity) 11,000,000 Variable EF7

(1) Each subseries of Series 2002B Bonds shall be subject to optional redemption by MTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided however, that in the event of a partial redemption of Series 2002B Bonds of a subseries, the aggregate principal amount of Series 2002B Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the related Broker-Dealers.

21 $400,000,000 Transportation Revenue Variable Rate Refunding Bonds, Series 2002D $200,000,000 Subseries 2002D-1 $200,000,000 Subseries 2002D-2

Date of Issue: May 30, 2002 Credit Enhancement: All Series 2002D Bonds are insured by Financial Security Assurance Inc. Liquidity Facility: Series 2002D-1: Standby Bond Purchase Agreement with WestLB AG, New York Branch (expires May 9, 2012) Series 2002D-2: Standby Bond Purchase Agreement with Dexia Crédit Local, New York Branch, (expires May 27, 2008) Current Mode: Weekly

Subseries 2002D-1 Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2022 $ 46,900,000 2023 21,400,000 2024 22,600,000 2025 24,000,000 2026 24,800,000 2027 26,200,000 2028 27,700,000 2029 (final maturity) 6,400,000 Variable EC4

Subseries 2002D-2 Principal Amortization(1)(2) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2029 $ 22,800,000 2030 31,400,000 2031 31,000,000 2032 (final maturity) 114,800,000 Variable ED2

(1) The Series 2002D Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

(2) Transportation Revenue Bonds Series 2002D-2 are swapped to a fixed rate of 4.45% effective January 1, 2007. For more information, see Appendix A, Part 4, "Swap Agreements."

22 $397,495,000 Transportation Revenue Refunding Bonds, Series 2002E

Date of Issue: July 2, 2002 Credit Enhancement: Some, but not all, of the maturities of the Series 2002E Bonds are insured by MBIA Insurance Corporation

Uninsured Series 2002E Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) $115,245,000 Term Bond Due November 15, 2031 2026 $15,725,000 2027 16,515,000 2028 17,300,000 2029 18,420,000 2030 17,465,000 2031 29,820,000 5.250% FX7

Insured Series 2002E Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 7,260,000 3.500% EY6 2008 8,675,000 5.000 EZ3 2010 1,690,000 3.900 FC3 2010 16,025,000 5.000 FD1 2011 4,480,000 4.000 FE9 2011 14,230,000 5.250 FF6 2012 3,110,000 4.100 FG4 2012 16,185,000 5.500 FH2 2013 8,510,000 5.500 FJ8 2014 9,015,000 5.500 FK5 2015 9,410,000 5.500 FL3 2016 10,030,000 5.500 FM1 2017 10,325,000 5.500 FN9 2018 11,185,000 5.500 FP4 2019 13,155,000 5.500 FQ2 2020 12,265,000 5.500 FR0 2021 13,500,000 5.500 FS8 2022 10,935,000 5.000 FT6 2023 13,740,000 5.100 FU3 2024 14,405,000 5.125 FV1 2025 15,075,000 5.000 FW9

(1) The Series 2002E Bonds maturing on or after November 15, 2016 are subject to redemption prior to maturity on or after November 15, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at a Redemption Price of 100%, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2002E were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $ 3,615,000 $ 3,615,000 3.70% FA7 2009 13,085,000 13,085,000 5.00 FB5

23 $446,110,000 Transportation Revenue Refunding Bonds, Series 2002F

Date of Issue: November 20, 2002 Credit Enhancement: The remaining maturities of the Series 2002F Bonds are insured by MBIA Insurance Corporation

Insured Series 2002F Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 9,515,000 5.000% LB8 2008 9,335,000 3.000 LC6 2009 13,610,000 5.000 LD4 2009 6,040,000 3.150 LE2 2010 14,115,000 5.000 LF9 2010 2,350,000 4.000 LG7 2010 4,055,000 3.400 LH5 2011 17,615,000 5.000 LJ1 2011 3,845,000 3.500 LK8 2012 8,000,000 5.000 LL6 2012 1,075,000 4.000 LM4 2012 2,740,000 3.600 LN2 2012 10,615,000 5.500 LP7 2013 11,800,000 4.000 LQ5 $186,495,000 Term Bond Due November 15, 2031 2028 $43,270,000 2029 45,430,000 2030 47,705,000 2031 50,090,000 5.000% LS1

(1) The Series 2002F Bonds maturing on or after November 15, 2013 are subject to redemption prior to maturity on any date on or after November 15, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2002F Bonds were advance refunded and defeased by the Series 2006B Bonds on December 20, 2006 at the redemption prices and the redemption dates listed below.

Maturity Principal Amount Interest Redemption Date Redemption CUSIP Number (Nov. 15) to be Redeemed Rate (Nov. 15) Price (59259R) 2027 $ 60,890,000 5.250% 2012 100% LR3

24 $400,000,000 Transportation Revenue Variable Rate Refunding Bonds, Series 2002G $200,000,000 Subseries 2002G-1 $200,000,000 Subseries 2002G-2

Date of Issue: November 20, 2002 Credit Enhancement: All Series 2002G Bonds are insured by Ambac Assurance Corporation Liquidity Facility: Series 2002G-1: Standby Bond Purchase Agreement with The Bank of Nova Scotia, acting through its New York Agency, (expires November 20, 2008) Series 2002G-2: Standby Bond Purchase Agreement with Landesbank Hessen- Thüringen Girozentrale, New York Branch, (expires December 31, 2015) Current Mode: Weekly

Principal Amortization(1)(2)(4) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2013 $11,800,000 2014 24,540,000 2015 25,520,000 2016 26,510,000 2017 27,600,000 2018 28,710,000 2019 29,860,000 2020 31,030,000 2021 32,300,000 2022 33,590,000 2023 34,930,000 2024 36,320,000 2025 37,780,000 2026 (final maturity) 19,510,000 Variable LT9/LU6(3)

(1) Unless otherwise directed by MTA, each Subseries of the Series 2002G Bonds shall be redeemed with the proceeds from the Sinking Fund Installments pro rata, subject to rounding in accordance with authorized denominations. (2) The Series 2002G Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first. (3) The CUSIP Numbers for the Series 2002G Bonds are as follows: Series 2002G-1 – 59259RLT9 Series 2002G-2 – 59259RLU6

(4) On May 1, 2008, the principal amounts of the following Transportation Revenue Bonds will be redeemed:

Transportation Revenue Variable Rate Refunding Bonds, Subseries 2002G-2 Subseries Principal Amount Refunded CUSIP Number (59259R) 2002G-2 $ 200,000,000 LU6

25 $475,340,000 Transportation Revenue Bonds, Series 2003A

Date of Issue: May 14, 2003 Credit Enhancement: Some, but not all, of the maturities of the Series 2003A Bonds are insured by Financial Security Assurance Inc. (FSA), and Financial Guaranty Insurance Company (FGIC), as set forth below.

FSA Insured Series 2003A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $13,545,000 5.000% MZ4 2020 17,270,000 5.500 NT7 2021 17,440,000 5.500 NU4 2022 17,525,000 5.500 NV2 2023 17,460,000 5.500 NW0 2024 12,145,000 4.500 NX8 2024 5,950,000 5.000 NY6 2025 18,605,000 5.000 NZ3 2026 19,175,000 5.000 PA6 2027 19,760,000 5.000 PB4 2028 3,750,000 5.000 PC2

FGIC Insured Series 2003A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2010 5,615,000 3.125 NC4 2010 7,940,000 5.000 ND2 2011 995,000 4.000 NE0 2011 12,455,000 5.000 NF7 2012 3,560,000 3.500 NG5 2012 9,820,000 5.000 NH3 2013 2,510,000 4.000 NJ9 2013 10,760,000 5.000 NK6 2014 6,435,000 3.625 NL4 2014 7,345,000 5.000 NM2 2015 14,245,000 5.000 NN0 2016 14,805,000 5.000 NP5 2017 15,395,000 5.000 NQ3 2018 15,995,000 5.000 NR1 2019 16,635,000 5.500 NS9 $91,865,000 Term Bond Due November 15, 2032 2028 $ 16,605,000 2029 20,960,000 2030 21,665,000 2031 22,425,000 2032 10,210,000 5.000% PD0

(1) The Series 2003A Bonds maturing on or after November 15, 2016 (except for the Series 2003A Bonds maturing on November 15, 2019 through November 15, 2023) are subject to redemption prior to maturity on any date on or after November 15, 2013, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date. The Series 2003A Bonds maturing on November 15, 2019 through November 15, 2023 are not subject to redemption prior to maturity.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2003A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $5,975,000 $5,975,000 3.00% NA8 2009 7,650,000 7,650,000 5.00 NB6

26 $751,765,000 Transportation Revenue Bonds, Series 2003B

Date of Issue: August 13, 2003 Credit Enhancement: Some, but not all, of the maturities of the Series 2003B Bonds are insured by Financial Guaranty Insurance Company (FGIC), and MBIA Insurance Corporation, as set forth below.

Uninsured Series 2003B Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 10,335,000 3.000% PV0 2008 5,000,000 4.000 PW8 2023 30,490,000 5.000 RA4 2024 32,010,000 5.125 RB2 2025 33,655,000 5.250 RC0

(1) The Series 2003B Bonds maturing on or after November 15, 2014 (except for the Series 2003B Bonds maturing on November 15, 2019 through November 15, 2021 and bearing interest at a rate of 5.25%) are subject to redemption prior to maturity on any date on or after November 15, 2013, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date. The Series 2003B Bonds maturing on November 15, 2019 through November 15, 2021 and bearing interest at a rate of 5.25% are not subject to optional redemption prior to maturity.

The following maturities and principal amounts of the Series 2003B Bonds were advance refunded and defeased by the Series 2006B Bonds on December 20, 2006 at the redemption prices and the redemption dates listed below.

Maturity Principal Amount Interest Redemption Date Redemption CUSIP Number (Nov. 15) to be Redeemed Rate (Nov. 15) Price (59259R) 2026 $ 35,420,000 5.250% 2013 100% RD8 2032 171,455,000 5.250 2013 100% RF3

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2003B were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $10,845,000 $10,845,000 3.30% PX6 2009 5,000,000 5,000,000 4.00 PY4

27 $751,765,000 Transportation Revenue Bonds, Series 2003B (continued)

FGIC Insured Series 2003B Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2010 $ 11,400,000 3.400% PZ1 2010 5,000,000 4.000 QA5 2011 11,990,000 3.750 QB3 2011 5,000,000 4.000 QC1 2012 1,570,000 3.900 QD9 2012 16,070,000 5.000 QE7 2013 3,425,000 4.000 QF4 2013 15,080,000 5.250 QG2 2014 11,690,000 4.200 QH0 2014 7,740,000 5.250 QJ6 2015 4,160,000 4.300 QK3 2015 16,170,000 5.250 QL1 2016 710,000 4.400 QM9 2016 20,645,000 5.250 QN7 2017 695,000 4.450 QP2 2017 21,775,000 5.250 QQ0 2018 990,000 4.500 QR8 2018 22,655,000 5.250 QS6 2019 1,390,000 4.600 QT4 2019 23,490,000 5.250 QU1 2020 715,000 4.700 QV9 2020 25,460,000 5.250 QW7 2021 5,420,000 4.750 QX5 2021 22,130,000 5.250 QY3

MBIA Insured Series 2003B Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2022 $ 28,965,000 5.250% QZ0 $76,425,000 Term Bond Due November 15, 2028 2027 $ 37,280,000 2028 39,145,000 5.000% RE6

28 $500,000,000 Transportation Revenue Variable Rate Bonds, Series 2004A $175,000,000 Subseries 2004A-1 $75,000,000 Subseries 2004A-2 $175,000,000 Subseries 2004A-3 $75,000,000 Subseries 2004A-4

Date of Issue: June 24, 2004 Credit Enhancement: Subseries 2004A-1 and Subseries 2004A-2 Bonds are insured by CDC IXIS Financial Guaranty North America, Inc. and Subseries 2004A-3 and Subseries 2004A-4 are insured by XL Capital Assurance Inc. Liquidity Facility: Series 2004A (all subseries): Standby Bond Purchase Agreements with DEPFA BANK plc, acting through its New York Agency, (all expire June 10, 2015) Current Mode: Weekly Principal Amortization(1)(2)(4) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2008 $ 10,030,000 2009 10,430,000 2010 10,840,000 2011 11,280,000 2012 11,730,000 2013 12,200,000 2014 12,690,000 2015 13,200,000 2016 13,730,000 2017 14,270,000 2018 14,840,000 2019 15,440,000 2020 16,060,000 2021 16,700,000 2022 17,370,000 2023 18,060,000 2024 18,790,000 2025 19,530,000 2026 20,310,000 2027 21,130,000 2028 21,970,000 2029 22,860,000 2030 23,770,000 2031 24,710,000 2032 25,700,000 2033 26,730,000 2034 (final maturity) 27,800,000 Variable TD6/TE4/TF1/TG9(3)

(1) Unless otherwise directed by MTA, each Subseries of the Series 2004A Bonds shall be redeemed with the proceeds from the Sinking Fund Installments pro rata, subject to rounding in accordance with authorized denominations. (2) The Series 2004A Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first. (3) The CUSIP Numbers for the Series 2004 are as follows: Series 2004A-1 – 59259RTD6 Series 2004A-2 – 59259RTE4 Series 2004A-3 – 59259RTF1 Series 2004A-4 – 59259RTG9. (4) May 1, 2008, the principal amounts of the following Transportation Revenue Bonds will be redeemed: Transportation Revenue Variable Rate Bonds, Series 2004A Subseries Principal Amount Refunded CUSIP Number (59259R) 2004A-1 $165,260,000 TD6 2004A-2 70,825,000 TE4 2004A-3 165,260,000 TF1 2004A-4 70,825,000 TG9

29 $650,000,000 Transportation Revenue Bonds, Series 2005A

Date of Issue: February 15, 2005 Credit Enhancement: Some, but not all, of the maturities of the Series 2005A Bonds are insured by Ambac Assurance Corporation (Ambac), and MBIA Insurance Corporation (MBIA), as set forth below.

Uninsured Series 2005A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 9,805,000 3.000% TR5

Ambac Insured Series 2005A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2016 $12,015,000 5.500% UD4 2017 12,675,000 5.500 UE2 2018 13,375,000 5.500 UF9 2019 14,110,000 5.000 UG7 2020 14,815,000 5.000 UH5 2021 14,840,000 5.000 UJ1 2022 15,585,000 5.000 UK8 2030 35,615,000 4.750 UV4 $117,610,000 Term Bond Due November 15, 2033 2031 $37,305,000 2032 39,175,000 2033 41,130,000 5.000% UW2 Ambac Insured Series 2005A Bonds, continued 2034 $43,185,000 4.500% UX0

(1) The Series 2005A Bonds maturing on or after November 15, 2019 (other than the Series 2005A Bonds maturing on November 15, 2026 bearing interest at the initial rate of 3.40% per annum) are subject to redemption prior to maturity on any date on or after November 15, 2015, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2005A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $10,100,000 $10,100,000 3.00% TS3

30 $650,000,000 Transportation Revenue Bonds, Series 2005A (continued)

MBIA Insured Series 2005A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2010 10,405,000 3.000 TT1 2011 10,285,000 4.000 TU8 2012 5,220,000 3.200 TV6 2012 5,475,000 5.000 TW4 2013 3,670,000 3.300 TX2 2013 7,470,000 5.000 TY0 2014 2,695,000 4.500 TZ7 2014 8,940,000 5.000 UA0 2015 5,245,000 3.500 UB8 2015 6,955,000 5.000 UC6 2023 8,600,000 4.750 UL6 2024 9,005,000 4.750 UM4 2025 9,435,000 4.750 UN2 2026 9,885,000 4.750 UP7 $71,575,000 Term Bond Due November 15, 2026(2) 2023 $16,360,000 (2) 2024 17,345,000 (2) 2025 18,385,000 (2) 2026 19,485,000 (2) UQ5 MBIA Insured Series 2005A Bonds, continued 2027 31,005,000 4.750% UR3 2028 32,485,000 4.750 US1 2029 6,845,000 4.375 UU6 2029 27,180,000 4.750 UT9 2035 45,130,000 4.500 UY8

(2) The term bond due November 15, 2026 insured by MBIA is a “Step Coupon” security that bears interest at 3.40% per annum to and including November 15, 2010, at 4.00% per annum from November 16, 2010 to and including November 15, 2015, at 5.00% per annum from November 16, 2015 to and including November 15, 2020, and thereafter through maturity at 6.00% per annum. Subject to optional redemption prior to maturity on any date on or after November 15, 2010 at 100% of the principal amount.

31 $750,000,000 Transportation Revenue Bonds, Series 2005B

Date of Issue: July 1, 2005 Credit Enhancement: Some, but not all, of the maturities of the Series 2005B Bonds are insured by Ambac Assurance Corp., and MBIA Insurance Corp., as set forth below.

Uninsured Series 2005B Bonds – Principal Amortization(1) Due Sinking Fund Interest CUSIP No (November 15) Maturity Redemption Rate (Base 59259R) 2008 $ 12,920,000 3.000% VR2 2010 6,880,000 3.250 VU5 2010 7,000,000 5.000 VV3 $70,000,000 Term Bond Due November 15, 2031 2030 $31,755,000 2031 38,245,000 5.000% WW0

Ambac Insured Series 2005B Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2011 $ 5,095,000 3.250% VW1 2011 9,360,000 5.000 VX9 2012 5,090,000 3.375 VY7 2012 10,000,000 5.000 VZ4 2013 5,760,000 3.500 WA8 2013 10,000,000 5.000 WB6 2014 1,565,000 3.500 WC4 2014 14,895,000 5.000 WD2 2015 1,900,000 3.625 WE0 2015 15,360,000 5.000 WF7 2016 18,095,000 5.000 WG5 2022 24,485,000 5.250 WN0 2023 25,770,000 5.250 WP5 2024 27,120,000 5.250 WQ3 2025 925,000 4.125 WR1 2025 27,620,000 5.000 WS9 2026 29,965,000 5.000 WT7 2027 31,465,000 5.000 WU4 $72,390,000 Term Bond Due November 15, 2030 2028 $33,035,000 2029 34,690,000 2030 4,665,000 5.000% WV2

(1) The Series 2005B Bonds maturing on or after November 15, 2016, except the Series 2005B Bonds maturing on November 15, 2018 through November 15, 2024, inclusive, are subject to redemption prior to maturity on any date on or after November 15, 2015, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date. The Series 2005B Bonds maturing on November 15, 2018 through November 15, 2024, inclusive, are not subject to optional redemption prior to maturity.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2005B were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $6,310,000 $6,310,000 3.50% VS0 2009 7,000,000 7,000,000 5.00 VT8

32 $750,000,000 Transportation Revenue Bonds, Series 2005B, cont.

MBIA Insured Series 2005B Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 59259R) 2017 $ 19,000,000 5.000% WH3 2018 19,950,000 5.250 WJ9 2019 21,000,000 5.250 WK6 2020 22,100,000 5.250 WL4 2021 23,260,000 5.250 WM2 2035 1,580,000 4.375 WX8 $171,495,000 Term Bond Due November 15, 2035 2032 $ 40,155,000 2033 42,165,000 2034 44,270,000 2035 44,905,000 5.000% WY6

33 $150,000,000 Transportation Revenue Bonds, Series 2005C

Date of Issue: November 2, 2005 Credit Enhancement: None

Principal Amortization(1) Due Interest CUSIP No (November 15) Maturity Rate (Base 59259R) 2008 $ 7,110,000 3.350% YK4 2008 5,205,000 5.000 YL2 2009 5,055,000 3.500 YM0 2009 7,755,000 5.000 YN8 2010 5,720,000 3.625 YP3 2010 7,655,000 5.000 YQ1 2011 2,000,000 3.750 YR9 2011 11,965,000 5.000 YS7 2012 1,710,000 3.875 YT5 2012 12,930,000 5.000 YU2 2013 4,115,000 4.000 YV0 2013 11,240,000 5.000 YW8 2014 1,795,000 4.000 YX6 2014 14,285,000 5.250 YY4 2015 6,410,000 4.150 YZ1 2015 10,490,000 5.000 ZA5 2016 3,740,000 4.250 ZB3 2016 7,675,000 5.000 ZC1

(1) The Series 2005C Bonds are not subject to redemption prior to maturity.

34 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005D $90,000,000 Subseries 2005D-1 $60,000,000 Subseries 2005D-2 $60,000,000 Subseries 2005D-3 $40,000,000 Subseries 2005D-4

Date of Issue: November 2, 2005 Credit Enhancement: Subseries D-1 and Subseries D-2 are insured by CIFG Assurance N.A. (CIFGNA); Subseries D-3 and Subseries D-4 are insured by Financial Security Assurance Inc. (FSA). Current Mode: Auction

Subseries 2005D-1 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $1,125,000 2017 3,225,000 2018 3,350,000 2019 3,475,000 2020 3,625,000 2021 3,750,000 2022 3,900,000 2023 4,075,000 2024 4,225,000 2025 4,400,000 2026 4,575,000 2027 4,750,000 2028 4,950,000 2029 5,150,000 2030 5,350,000 2031 5,550,000 2032 5,775,000 2033 6,025,000 2034 6,250,000 2035 (final maturity) 6,475,000 Variable ZK3

(1) Each subseries of Series 2005D Bonds shall be subject to optional redemption by MTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided, however, that in the event of a partial redemption of Series 2005D Bonds of a subseries, the aggregate principal amount of Series 2005D Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the related Broker-Dealers.

35 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005D, cont.

Subseries 2005D-2 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $ 750,000 2017 2,150,000 2018 2,225,000 2019 2,325,000 2020 2,400,000 2021 2,500,000 2022 2,600,000 2023 2,700,000 2024 2,825,000 2025 2,925,000 2026 3,050,000 2027 3,175,000 2028 3,300,000 2029 3,425,000 2030 3,575,000 2031 3,700,000 2032 3,850,000 2033 4,000,000 2034 4,175,000 2035 (final maturity) 4,350,000 Variable ZH0

Subseries 2005D-3 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $ 750,000 2017 2,150,000 2018 2,225,000 2019 2,325,000 2020 2,400,000 2021 2,500,000 2022 2,600,000 2023 2,700,000 2024 2,825,000 2025 2,925,000 2026 3,050,000 2027 3,175,000 2028 3,300,000 2029 3,425,000 2030 3,575,000 2031 3,700,000 2032 3,850,000 2033 4,000,000 2034 4,175,000 2035 (final maturity) 4,350,000 Variable ZL1

36 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005D, cont.

Subseries 2005D-4 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $ 500,000 2017 1,425,000 2018 1,475,000 2019 1,550,000 2020 1,600,000 2021 1,675,000 2022 1,725,000 2023 1,800,000 2024 1,875,000 2025 1,950,000 2026 2,025,000 2027 2,100,000 2028 2,200,000 2029 2,275,000 2030 2,375,000 2031 2,475,000 2032 2,575,000 2033 2,675,000 2034 2,800,000 2035 (final maturity) 2,925,000 Variable ZJ6

37 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005E $125,000,000 Subseries 2005E-1 $125,000,000 Subseries 2005E-2

Date of Issue: November 2, 2005 Credit Enhancement: None Liquidity Facility: Direct-pay Letter of Credit with Fortis Bank, S.A./N.V., (expires October 9, 2012) Current Mode: Weekly

Subseries 2005E-1 Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $ 1,570,000 2017 4,465,000 2018 4,640,000 2019 4,825,000 2020 5,020,000 2021 5,220,000 2022 5,425,000 2023 5,645,000 2024 5,870,000 2025 6,105,000 2026 6,350,000 2027 6,600,000 2028 6,870,000 2029 7,145,000 2030 7,425,000 2031 7,725,000 2032 8,030,000 2033 8,350,000 2034 8,685,000 2035 (final maturity) 9,035,000 Variable ZF4

(1) The Series 2005E Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

38 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005E, Cont.

Subseries 2005E-2 Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 59259R) 2016 $ 1,580,000 2017 4,435,000 2018 4,635,000 2019 4,800,000 2020 5,030,000 2021 5,230,000 2022 5,450,000 2023 5,655,000 2024 5,855,000 2025 6,120,000 2026 6,350,000 2027 6,600,000 2028 6,855,000 2029 7,155,000 2030 7,400,000 2031 7,750,000 2032 8,045,000 2033 8,375,000 2034 8,665,000 2035 (final maturity) 9,015,000 Variable ZG2

39 $468,760,000 Transportation Revenue Bonds, Series 2005F

Date of Issue: December 7, 2005 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund CUSIP No. November 15 Maturity Redemption Interest Rate (Base 59259R) 2008 $ 8,590,000 3.375% ZU1 2008 4,505,000 5.000 ZV9 2009 4,750,000 3.500 ZW7 2009 8,860,000 5.000 ZX5 2010 4,675,000 3.700 ZY3 2010 9,540,000 5.000 ZZ0 2011 5,045,000 3.800 A20 2011 9,820,000 5.000 A38 2012 1,160,000 3.900 A46 2012 14,390,000 5.000 A53 2013 5,100,000 4.000 A61 2013 11,215,000 5.000 A79 2014 3,385,000 4.125 A87 2014 13,695,000 5.000 A95 2015 3,560,000 4.200 B29 2015 14,345,000 5.000 B37 $127,805,000 Term Bond Due November 15, 2030 2026 $ 3,130,000 2027 28,925,000 2028 30,375,000 2029 31,890,000 2030 33,485,000 5.000% B45 $4,215,000 Term Bond Due November 15, 2035 2031 $ 765,000 2032 805,000 2033 840,000 2034 880,000 2035 925,000 4.800% B52 $190,050,000 Term Bond Due November 15, 2035 2031 $34,395,000 2032 36,110,000 2033 37,920,000 2034 39,820,000 2035 41,805,000 5.000% B60

(1) All Series 2005F Term Bonds maturing on November 15, 2030 and November 15, 2035 are subject to redemption prior to maturity on any date on or after November 15, 2015, at the option of MTA, in whole or in part (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

40 $250,000,000 Transportation Revenue Variable Rate Bonds, Series 2005G $125,000,000 Subseries 2005G-1 $125,000,000 Subseries 2005G-2

Date of Issue: December 7, 2005 Credit Enhancement: None Liquidity Facility: Direct-pay Letter of Credit issued by BNP Paribas, acting through its San Francisco Branch, (expires December 8, 2010) Current Mode: Daily

Subseries 2005G-1 Principal Amortization(1) Current Mode: Daily Due Sinking Fund CUSIP No. November 1 Maturity Redemption Interest Rate (Base 59259R) 2016 $ 9,385,000 2017 9,760,000 2018 10,150,000 2019 10,560,000 2020 10,975,000 2021 11,420,000 2022 11,875,000 2023 12,350,000 2024 12,840,000 2025 13,360,000 2026 (final maturity) 12,325,000 Variable ZQ0

Subseries 2005G-2 Principal Amortization(1) Current Mode: Daily Due Sinking Fund CUSIP No. November 1 Maturity Redemption Interest Rate (Base 59259R) 2016 $ 9,385,000 2017 9,760,000 2018 10,150,000 2019 10,555,000 2020 10,980,000 2021 11,415,000 2022 11,875,000 2023 12,350,000 2024 12,845,000 2025 13,355,000 2026 (final maturity) 12,330,000 Variable B78

(1) The Series 2005G Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, MTA will redeem Bank Bonds first.

41 $173,370,000 Transportation Revenue Refunding Bonds, Series 2005H

Date of Issue: December 7, 2005 Credit Enhancement: None

Principal Amortization(1) Due Interest CUSIP No (November 15) Maturity Rate (Base 59259R) 2008 $ 5,000,000 3.400% C77 2008 17,950,000 5.250 C85 2010 1,665,000 3.625 D35 2010 24,615,000 5.250 D43 2011 2,690,000 3.750 D50 2011 25,530,000 5.250 D68 2012 3,150,000 3.800 D76 2012 27,010,000 5.250 D84

(1) The Series 2005H Bonds are not subject to redemption prior to maturity.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2005H were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $ 1,680,000 $ 1,680,000 3.50% C93 2009 22,855,000 22,855,000 5.25 D27

42 $475,000,000 Transportation Revenue Bonds, Series 2006A

Date of Issue: July 20,2006 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 1 Maturity Redemption Rate (Base 59259R) 2008 $ 7,975,000 4.000% G99 2010 2,685,000 4.000 H31 2010 5,940,000 5.000 H49 2011 9,030,000 4.000 H56 2012 4,270,000 4.000 H64 2012 5,125,000 5.000 H72 2013 2,750,000 4.125 H80 2013 7,070,000 5.000 H98 2014 3,260,000 4.250 J21 2014 7,025,000 5.000 J39 2015 8,345,000 4.250 J47 2015 2,430,000 5.000 J54 2016 3,600,000 4.500 J62 2016 7,655,000 5.000 J70 2017 4,455,000 4.400 J88 2017 7,340,000 5.000 J96 2018 12,360,000 5.000 K29 2019 12,980,000 5.000 K37 2020 13,625,000 5.000 K45 2021 14,310,000 5.000 K52 2022 15,025,000 5.000 K60 2023 15,775,000 5.000 K78 2024 16,565,000 5.000 K86 2025 17,390,000 5.000 K94 2026 18,260,000 5.000 L28 $105,950,000 Term Bond Due November 15, 2031 2027 $ 19,175,000 2028 20,135,000 2029 21,140,000 2030 22,195,000 2031 23,305,000 5.000% L36 $103,295,000 Term Bond Due November 15, 2035 2032 $ 24,475,000 2033 25,695,000 2034 26,980,000 2035 26,145,000 5.000% L51 Serial Bond, continued 2035 $ 2,185,000 4.750% L44

(1) The Series 2006A Bonds maturing on or after November 15, 2017 are subject to redemption prior to maturity on any date on or after November 15, 2016, at the option of MTA, in whole or in part (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2006A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $ 8,295,000 $ 8,295,000 4.00% H23

43 $717,730,000 Transportation Revenue Bonds, Series 2006B

Date of Issue: December 20, 2006 Credit Enhancement: Some, but not all, of the maturities of the Series 2006B Bonds are insured by Financial Security Assurance Inc., as set forth below.

Uninsured Series 2006B – Principal Amortization(1)

Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 7,570,000 4.000% P73 2010 8,190,000 4.000 P99 2011 8,515,000 5.000 Q23 2012 8,945,000 4.000 Q31 2013 9,300,000 5.000 Q49 2014 2,955,000 4.000 Q56 2014 6,805,000 5.000 Q64 2015 10,225,000 5.000 Q72 2016 2,065,000 4.000 Q80 2016 8,665,000 5.000 Q98 2017 620,000 4.000 R22 2017 10,630,000 5.000 R30 2018 11,805,000 5.000 R48 2019 12,395,000 5.000 R55 2020 13,015,000 5.000 R63 2024 15,820,000 5.000 S21 2025 16,615,000 5.000 S39 $ 65,000,000 Term Bond Due November 15, 2031 2027 $ 13,000,000 2028 13,000,000 2029 13,000,000 2030 13,000,000 2031 13,000,000 4.750% S54 $119,955,000 Term Bond Due November 15, 2036 2032 $20,600,000 2033 23,225,000 2034 24,270,000 2035 25,360,000 2036 26,500,000 4.500% S70

(1) Except for the Series 2006B Bonds maturing on November 15, 2026, the Series 2006B Bonds maturing on or after November 15, 2017 are subject to redemption prior to maturity on any date on or after November 15, 2016, at the option of MTA, in whole or in part (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date. The Series 2006B Bonds maturing on November 15, 2026 are not subject to optional redemption.

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2006B were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $7,875,000 $7,875,000 4.00% P81

44 $717,730,000 Transportation Revenue Bonds, Series 2006B, continued

Series 2006B insured by FSA – Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2021 $13,665,000 5.000% R71 2022 14,350,000 5.000 R89 2023 15,065,000 5.000 R97 2026 72,645,000 5.250 S47 $ 247,125,000 Term Bond Due November 15, 2032 2027 $ 46,465,000 2028 5,910,000 2029 47,890,000 2030 50,665,000 2031 53,560,000 2032 42,635,000 4.500% S62

45 $425,615,000 Transportation Revenue Bonds, Series 2007A

Date of Issue: July 11, 2007 Credit Enhancement: Some, but not all, of the maturities of the Series 2007A Bonds are insured by are insured by Financial Guaranty Insurance Company (FGIC), and Financial Security Assurance Inc. (FSA), as set forth below.

Uninsured Series 2007A – Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2008 $ 6,970,000 4.000% W42 2010 7,535,000 4.000 W67 2011 4,840,000 4.000 W75 2011 3,000,000 5.000 W83

Series 2007A insured by FGIC – Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2012 $ 8,180,000 4.000% W91 2013 8,510,000 4.000 X25 2014 5,350,000 4.000 X33 2014 3,500,000 5.000 X41 2015 9,240,000 4.125 X58 2016 9,620,000 4.125 X66 2017 8,850,000 4.125 X74 2017 1,165,000 5.000 X82 2018 6,245,000 4.250 X90 2018 4,195,000 5.000 Y24 2019 7,290,000 4.250 Y32 2019 3,625,000 5.000 Y40 2026 15,285,000 5.000 Z31 2027 3,950,000 4.500 Z49 2027 12,100,000 5.000 Z56 $96,855,000 Term Bond Due November 15, 2037 2034 $22,555,000 2035 23,625,000 2036 24,750,000 2037 25,925,000 4.750% Z72

The following maturities and principal amounts of the MTA Transportation Revenue Refunding Bonds, Series 2007A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Principal Maturity Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (59259R) 2009 $7,245,000 $7,245,000 4.00% W59

(1) The Series 2007A Bonds maturing on or after November 15, 2018 are subject to optional redemption prior to maturity on any date on or after November 15, 2017, at the option of MTA, in whole or in part (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

46 $425,615,000 Transportation Revenue Bonds, Series 2007A, continued

Series 2007A insured by FSA – Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2020 $11,405,000 5.000% Y57 2021 11,975,000 5.000 Y65 2022 12,575,000 5.000 Y73 2023 13,205,000 5.000 Y81 2024 13,865,000 5.000 Y99 2025 14,555,000 5.000 Z23 $114,485,000 Term Bond Due November 15, 2033 2028 $16,830,000 2029 17,675,000 2030 18,555,000 2031 19,485,000 2032 20,460,000 2033 21,480,000 5.000% Z64

47 $415,000,000 Transportation Revenue Bonds, Series 2007B

Date of Issue: December 13, 2007 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2008 $6,170,000 4.000% 3Q5 2009 6,940,000 4.000 3R3 2010 7,215,000 4.000 3S1 2011 7,505,000 4.000 3T9 2012 7,805,000 4.000 3U6 2013 8,115,000 4.000 3V4 2014 8,440,000 5.000 3W2 2015 8,865,000 5.000 3X0 2016 9,305,000 5.000 3Y8 2017 9,770,000 5.000 3Z5 2018 10,260,000 4.000 4A9 2019 10,670,000 5.000 4B7 2020 11,205,000 5.000 4C5 2021 11,765,000 5.000 4D3 2022 12,355,000 5.000 4E1 2023 12,970,000 5.000 4F8 2024 13,620,000 5.000 4G6 2025 14,300,000 5.000 4H4 2026 15,015,000 5.000 4J0 2027 15,765,000 4.500 4K7 2028 16,475,000 5.000 4L5 2029 17,300,000 5.000 4M3 $ 78,290,000 Term Bond Due November 15, 2033 2030 $18,165,000 2031 19,075,000 2032 20,025,000 2033 21,025,000 5.000% 4N1 $55,000,000 Term Bond Due November 15, 2037 2034 $ 13,750,000 2035 13,750,000 2036 13,750,000 2037 13,750,000 5.000% 4Q4 $39,880,000 Term Bond Due November 15, 2037 2034 $8,330,000 2035 9,390,000 2036 10,500,000 2037 11,660,000 4.500% 4P6

(1) The Series 2007B Bonds maturing on or after November 15, 2018 are subject to optional redemption prior to maturity on any date on or after November 15, 2017, at the option of MTA, in whole or in part (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

48 $512,470,000 Transportation Revenue Bonds, Series 2008A

Date of Issue: February 21, 2008 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest CUSIP No November 15 Maturity Redemption Rate (Base 59259R) 2009 $16,345,000 4.000% 5D2 2010 15,425,000 4.000 5E0 2016 1,710,000 5.000 5F7 2017 24,125,000 5.000 5G5 2018 25,335,000 5.000 5H3 $ 82,470,000 Term Bond Due November 15, 2036 2034 $37,470,000 2035 20,000,000 2036 25,000,000 5.25% 5J9 $200,000,000 Term Bond Due November 15, 2037 2030 $ 17,220,000 2031 43,180,000 2032 45,340,000 2033 47,610,000 2034 12,520,000 2035 10,000,000 2036 20,000,000 2037 4,130,000 5.00% 5K6 $147,060,000 Term Bond Due November 15, 2038 2035 $22,580,000 2036 10,150,000 2037 53,785,000 2038 60,545,000 4.500% 5L4

(1) The Series 2008A Bonds maturing on or after November 15, 2036 are subject to optional redemption prior to maturity on any date on or after November 15, 2017, at the option of MTA, in whole or in part at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

49 $487,530,000 Transportation Revenue Bonds, Series 2008B $ 93,500,000 Subseries 2008B-1 $134,030,000 Subseries 2008B-2 $130,000,000 Subseries 2008B-3 $130,000,000 Subseries 2008B-4

Date of Issue: February 21, 2008 Credit Enhancement: None Current Mode: Term Rate

Principal Amortization(1)(2) Due Sinking Fund Interest Reset Date CUSIP No November 15 Maturity Redemption Rate November 15 (Base 59259R) $93,500,000 Subseries 2008B-1 Mandatory Tender Bond Due November 15, 2016 2012 $17,040,000 2013 18,725,000 2014 20,470,000 2015 22,290,000 2016 14,975,000 5.00% 2011 5M2 $134,030,000 Subseries 2008B-2 Mandatory Tender Bond Due November 15, 2023 2016 $ 6,500,000 2017 1,000,000 2018 1,000,000 2019 26,825,000 2020 27,900,000 2021 29,015,000 2022 30,180,000 2023 11,610,000 5.00% 2012 5N0 $130,000,000 Subseries 2008B-3 Mandatory Tender Bond Due November 15, 2027 2023 $19,780,000 2024 32,650,000 2025 33,960,000 2026 35,320,000 2027 8,290,000 5.00% 2013 5P5 $130,000,000 Subseries 2008B-4 Mandatory Tender Bond Due November 15, 2030 2027 $28,550,000 2028 38,315,000 2029 39,230,000 2030 23,905,000 5.00% 2014 5Q3

(1)The Series 2008B Bonds are not subject to optional redemption prior to their respective Reset Dates. The Series 2008B Bonds are subject to optional redemption on their respective Reset Dates at the option of MTA, in whole or in part, from available amounts, on the related Reset Date and on any Business Day during the Delayed Remarketing Period (as defined below), at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium.

(2)The interest rate on the 2008B Bonds will be reset on each Reset Date. The 2008B Bonds are subject to mandatory tender on each Reset Date. The 2008B Bonds will be purchased solely with the proceeds from the remarketing of the 2008B Bonds. The 2008B Bonds will not be purchased upon mandatory tender on any Reset Date if remarketing proceeds are insufficient for such purchase. The 2008B Bonds then will bear interest at the maximum rate of 11% per annum during the period of time from and including the applicable Reset Date to (but not including) the date in which all of such Series 2008B Bonds are successfully remarketed (the Delayed Remarketing Period).

50 Part 3. Nature of Continuing Disclosure Where Located in Appendix A Undertaking Caption(s) Heading(s)

A. Description of the systems operated by the Related Transportation Entities and their operations. Related Transportation Entities 1. THE RELATED All headings ENTITIES Transit System 1. TRANSIT SYSTEM All headings Commuter System 1. COMMUTER SYSTEM All headings MTA Bus 1. MTA BUS COMPANY All headings

B. Description of changes to the fares or fare structures charged to users of the systems operated by the Related Transportation Entities. Transit System 1. REVENUES OF THE 1. Fares and Tolls – Transit System Fares RELATED ENTITIES Commuter System 1. REVENUES OF THE 1. Fares and Tolls – Commuter System Fares RELATED ENTITIES

C. Operating Data of the Related Transportation Entities. Transit System 1. TRANSIT SYSTEM All headings 2. RIDERSHIP AND 1. Transit System (MTA New York City Transit and FACILITIES USE MaBSTOA) Ridership 3. EMPLOYEES, LABOR 1. Transit System RELATIONS AND PENSION OBLIGATIONS Commuter System 1. COMMUTER SYSTEM All headings 2. RIDERSHIP AND 1. Commuter System Ridership FACILITIES USE 3. EMPLOYEES, LABOR 1. Commuter System RELATIONS AND PENSION OBLIGATIONS MTA Bus 1. EMPLOYEES, LABOR 1. MTA Bus RELATIONS AND PENSION OBLIGATIONS

D. Information regarding the Transit and Commuter 1. FINANCIAL PLANS 1. Capital Programs – Background and Development Capital Programs. AND CAPITAL 2. 2005-2009 MTA Capital Program PROGRAMS 3. 2000-2004 MTA Capital Program 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

E. Presentation of changes to indebtedness issued by 1. TRANSPORTATION 1. TRB Table 1 MTA under the Transportation Resolution, as well as REVENUE BONDS 2. TRB Table 2 information concerning changes to MTA’s debt service requirements on such indebtedness payable from pledged revenues.

F. Information concerning the amounts, sources, 1. REVENUES OF THE 1. Fares and Tolls material changes in and material factors affecting RELATED ENTITIES 2. State and Local General Operating Subsidies pledged revenues and debt service incurred under the 3. State Special Tax Supported Operating Subsidies Transportation Resolution. 4. MTA Bridges and Tunnels Surplus 5. Financial Assistance and Service Reimbursements from Local Municipalities 6. Miscellaneous Revenues

G. Additional financial information. See Undertakings E and F above.

H. Material litigation relating to any of the foregoing. 1. Litigation 1. MTA 2. Transit System 3. Commuter System 4. MTA Bus

51 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

X Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

X Defeasances.

Release, substitution or sale of property securing repayment of the securities.

Rating changes.

Explanation:

The following principal amounts of MTA Transportation Revenue Bonds were defeased to maturity with United States Treasury Securities – State and Local Government Series on September 20, 2007. All bonds mature on November 15, 2009. In each case, the amount of each maturity defeased (as designated by a separate CUSIP number) constitutes the entire principal amount of the maturity currently outstanding.

Principal Interest CUSIP Number Series Amount Rate (59259R) 2002A $18,955,000 3.80% AG9 2002A 2,090,000 3.90 BU7 2002A 1,365,000 5.00 BV5 2002A 15,795,000 5.00 AH7 2002E 3,615,000 3.70 FA7 2002E 13,085,000 5.00 FB5 2003A 5,975,000 3.00 NA8 2003A 7,650,000 5.00 NB6 2003B 10,845,000 3.30 PX6 2003B 5,000,000 4.00 PY4 2005A 10,100,000 3.00 TS3 2005B 6,310,000 3.50 VS0 2005B 7,000,000 5.00 VT8 2005H 1,680,000 3.50 C93 2005H 22,855,000 5.25 D27 2006A 8,295,000 4.00 H23 2006B 7,875,000 4.00 P81 2007A 7,245,000 4.00 W59

52 Refundings: On May 1, 2008, the principal amounts of the following Transportation Revenue Bonds will be redeemed:

Transportation Revenue Variable Rate Refunding Bonds, Subseries 2002G-2 Subseries Principal Amount Refunded CUSIP Number (59259R) 2002G-2 $ 200,000,000 LU6

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Metropolitan Transportation Authority and the New York City Transit Authority.

53 TBTA GENERAL REVENUE BONDS

Part 1. Issues Covered by this Annual Report

Interest Rate Series Dated Date Par Issued Par Outstanding Mode EFC 1996A June 26, 1996 $ 28,445,000 $ 16,590,000 Fixed 2001A November 15, 2001 1,125,720,000 504,930,000 Fixed 2001B and C December 19, 2001 296,400,000 291,520,000 Synthetic Fixed 2002A March 14, 2002 268,300,000 171,765,000 Fixed 2002B October 8, 2002 2,157,065,000 1,833,820,000 Fixed 2002C October 8, 2002 103,305,000 101,915,000 Synthetic Fixed 2002F November 13, 2002 246,480,000 240,930,000 Variable 2003B December 10, 2003 250,000,000 229,805,000 Variable 2005A May 11, 2005 150,000,000 144,755,000 Variable 2005B July 7, 2005 800,000,000 794,400,000 Synthetic Fixed 2006A June 22, 2006 200,000,000 191,360,000 Fixed 2007A June 20, 2007 223,355,000 219,570,000 Fixed 2008A March 27, 2008 822,770,000 822,770,000 Fixed 2008B March 27, 2008 252,230,000 252,230,000 Variable Total $6,924,070,000 $5,816,360,000

Part 2. Details of Each Issue of Bonds

Uninsured Ratings Fitch Ratings ...... AA Moody’s Investors Services ...... Aa2 Standard and Poor’s Ratings ...... AA-

Summary of State and City Redemption Provisions Pursuant to the TBTA Act, the State or City, upon providing sufficient funds, may require TBTA to redeem any series of TBTA Bonds as a whole at any time and at a price and in accordance with the terms upon which each series of TBTA are otherwise redeemable.

54 $28,445,000 TBTA General Revenue Bonds, Series EFC 1996A

Date of Issue: June 26, 1996 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate 2009 $ 1,380,000 5.550% 2010 1,455,000 5.600 2011 1,535,000 5.650 CUSIP numbers 2012 1,630,000 5.700 were not assigned to 2013 1,715,000 5.750 these bonds 2014 1,820,000 5.800 2015 1,925,000 5.850 $5,130,000 Term Bond Due January 1, 2018 2016 $ 2,040,000 2017 1,500,000 2018 1,590,000 5.900%

(1) All subseries are subject to optional redemption at 102% of the principal amount prior to maturity on any date on or after 1/1/2006, 101% of the principal amount on any date on or after 1/1/2007, and 100% of the principal amount prior to maturity on any date on or after 1/1/2008.

55 $1,125,720,000 TBTA General Revenue Bonds, Series 2001A

Date of Issue: November 15, 2001 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 896029) 2013 $ 8,745,000 4.100% 4S1 2014 9,105,000 5.250 4T9 2015 9,580,000 5.250 4U6 2016 10,085,000 5.250 4V4 2017 10,615,000 5.250 4W2 2018 11,170,000 5.250 4X0 2019 11,760,000 5.000 4Y8 2020 12,345,000 5.000 4Z5 2021 12,965,000 5.000 5A9 2022 13,610,000 5.000 5B7 2023 34,890,000 5.000 5C5 $256,165,000 Term Bond Due January 1, 2027 2025 $ 81,260,000 2026 85,315,000 2027 89,590,000 5.000% 5E1 $688,050,000 Term Bond Due January 1, 2032 2028 $103,895,000 5.000% 5F8

(1) The Series 2001A Bonds are subject to redemption prior to maturity on any date on or after January 1, 2012, at the option of TBTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2001A General Revenue Bonds were advance refunded by the Series 2005B General Revenue Bonds on July 7, 2005 at the redemption prices and on the redemption dates listed below.

Maturity Principal Amount to Interest Redemption Date Redemption CUSIP Number (January 1) be Redeemed Rate (January 1) Price (896029) 2024 $ 36,635,000 5.500% 2012 100% 5D3 2032 584,155,000 5.000 2012 100 5F8

Of the outstanding $688,050,000 Series 2001A Term Bonds maturing on January 1, 2032, $584,155,000 are being redeemed on January 1, 2012, leaving a balance of $103,895,000 that will be paid as a sinking fund installment on January 1, 2028. The following sinking fund installments will be satisfied at the redemption date:

Sinking Fund Installment Date Sinking Fund Remaining (January 1) Installments Redeemed Sinking Fund 2028 $ 3,600,000 $103,895,000 2029 127,470,000 0 2030 133,845,000 0 2031 155,725,000 0 2032 163,515,000 0 Total: $584,155,000 $103,895,000

56 $296,400,000 TBTA General Revenue Variable Rate Bonds, Series 2001B and C $148,200,000 Series 2001B $148,200,000 Series 2001C

Date of Issue: December 19, 2001 Credit Enhancement: All Series 2001B and C Bonds are insured by Ambac Assurance Corporation Liquidity Facility: Series 2001B: Standby Bond Purchase Agreement with State Street Bank and Trust Company, (expires January 10, 2009) Series 2001C: Standby Bond Purchase Agreement with Bayerische Landesbank Girozentrale, (expires November 30, 2015) Current Mode: Weekly

Principal Amortization(1)(2) Current Mode: Weekly Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 896029) 2009 $ 5,500,000 2010 5,725,000 2011 5,955,000 2012 6,200,000 2013 6,450,000 2014 7,635,000 2015 8,920,000 2016 9,530,000 2017 10,180,000 2018 10,870,000 2019 11,605,000 2020 12,205,000 2021 12,695,000 2022 13,200,000 2023 13,730,000 2024 14,280,000 2025 14,850,000 2026 15,445,000 2027 16,060,000 2028 16,705,000 2029 17,375,000 2030 18,070,000 2031 18,790,000 2032 (final maturity) 19,545,000 Variable 5U5/5V3(3)

(1) Unless otherwise directed by TBTA, the Series 2001B and Series 2001C Bonds shall be redeemed with the proceeds from the Sinking Fund Installments pro rata, subject to rounding in accordance with authorized denominations.

(2) The Series 2001B and C Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Holder, and otherwise by lot in such manner as the Trustee in its discretion deems proper), at any time, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date.

(3) The CUSIP Number for the Series 2001 Bonds are as follows: 2001B – 8960295U5 2001C – 8960295V3

57 $268,300,000 TBTA General Revenue Bonds, Series 2002A

Date of Issue: March 14, 2002 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 896029) 2014 $ 8,695,000 5.000% 6G5 2015 9,130,000 5.000 6H3 2016 9,590,000 5.000 6J9 2017 10,070,000 5.250 6K6 2018 10,595,000 5.250 6L4 2019 11,155,000 5.250 6M2 2020 11,740,000 5.250 6N0 2021 12,355,000 5.125 6P5 2022 12,990,000 5.125 6Q3 2023 13,655,000 5.000 6R1 $61,790,000 Term Bond Due January 1, 2027 2024 $ 14,335,000 2025 15,055,000 2026 15,805,000 2027 16,595,000 5.000% 6S9

(1) The Series 2002A Bonds maturing January 1, 2014 through January 1, 2031 are subject to redemption prior to maturity on or after January 1, 2012, at the option of TBTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Series 2002A General Revenue Bonds were advance refunded by the Series 2005B General Revenue Bonds on July 7, 2005 at the redemption prices and on the redemption dates listed below.

Maturity Amount Interest Redemption Date Redemption CUSIP Number (January 1) Outstanding Rate (January 1) Price (896029) 2031 $ 75,250,000 5.125% 2012 100% 6T7 2032 21,285,000 5.500 2009 100 6U4

58 $2,157,065,000 TBTA General Revenue Refunding Bonds, Series 2002B

Date of Issue: October 8, 2002 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 896029) 2008 $ 36,715,000 5.250% 7R0 2008 9,105,000 2.900 7S8 2008 10,000,000 4.500 7T6 2008 13,445,000 5.000 7U3 2010 67,480,000 5.000 7X7 2010 8,485,000 3.375 7Y5 2011 51,330,000 5.000 7Z2 2011 3,285,000 3.400 8A6 2011 25,000,000 4.000 8B4 2012 4,305,000 5.000 8C2 2012 11,030,000 3.500 8D0 2012 59,220,000 5.250 8E8 2013 69,565,000 5.250 8F5 2014 71,720,000 5.250 8G3 2015 75,480,000 5.250 8H1 2016 80,100,000 5.250 8J7 2017 11,440,000 4.125 8K4 2017 72,870,000 5.250 8L2 2018 90,285,000 5.250 8M0 2019 95,025,000 5.250 8N8 2020 100,015,000 5.000 8P3 2021 105,015,000 5.000 8Q1 2022 20,750,000 4.600 8R9 2022 68,920,000 5.000 8S7 2023 95,570,000 4.750 8T5 2024 56,000,000 5.000 8U2 2025 58,810,000 5.000 8V0 $113,140,000 Term Bond Due November 15, 2027 2026 $ 61,740,000 2027 51,400,000 5.000% 8W8 $80,755,000 Term Bond Due November 15, 2029 2028 $ 39,370,000 2029 41,385,000 5.125% 8X6 $22,950,000 Term Bond Due November 15, 2032 2032 $ 22,950,000 4.750% 8Y4 $246,010,000 Term Bond Due November 15, 2032 2030 $ 28,320,000 2031 29,730,000 2032 187,960,000 5.000% 8Z1

(1) The Series 2002B Bonds maturing on and after November 15, 2016 are subject to redemption prior to maturity on any date on and after November 15, 2012, at the option of TBTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Triborough Bridge and Tunnel General Revenue Refunding Bonds, Series 2002B were defeased on September 20, 2007 at the principal amounts listed below. Principal Maturity Principal Amount Amount to be CUSIP Number (November 15) Outstanding Defeased Interest Rate (896029) 2009 $ 13,175,000 $ 13,175,000 3.125% 7W9 2009 59,405,000 59,405,000 5.00 7V1

59 $103,305,000 TBTA General Revenue Variable Rate Refunding Bonds, Series 2002C

Date of Issue: October 8, 2002 Credit Enhancement: All Series 2002C Bonds are insured by Ambac Assurance Corporation Liquidity Facility: Standby Bond Purchase Agreement with WestLB AG, New York Branch (expires December 31, 2015) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 89602N) 2009 $ 1,450,000 2010 1,510,000 2011 1,855,000 2012 2,235,000 2013 2,650,000 2014 3,095,000 2015 3,220,000 2016 3,350,000 2017 3,485,000 2018 3,625,000 2019 3,765,000 2020 3,920,000 2021 4,075,000 2022 4,240,000 2023 4,410,000 2024 4,585,000 2025 4,765,000 2026 4,960,000 2027 5,155,000 2028 5,360,000 2029 5,575,000 2030 5,800,000 2031 6,030,000 2032 6,275,000 2033 (final maturity) 6,525,000 Variable AN4

(1) The Series 2002C Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, TBTA will redeem Bank Bonds first.

60 $246,480,000 TBTA General Revenue Variable Rate Refunding Bonds, Series 2002F

Date of Issue: November 13, 2002 Credit Enhancement: None Liquidity Facility: Standby Bond Purchase Agreement with ABN AMRO Bank N.V. (expires November 8, 2012) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 5,775,000 2009 6,005,000 2010 6,250,000 2011 6,500,000 2012 6,760,000 2013 7,030,000 2014 7,310,000 2015 7,605,000 2016 7,910,000 2017 8,230,000 2018 8,560,000 2019 8,900,000 2020 9,260,000 2021 9,630,000 2022 10,020,000 2023 10,420,000 2024 10,840,000 2025 11,275,000 2026 11,725,000 2027 12,195,000 2028 12,685,000 2029 13,195,000 2030 13,725,000 2031 14,275,000 2032 (final maturity) 14,850,000 Variable CG7

(1) The Series 2002F Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, TBTA will redeem Bank Bonds first.

61 $250,000,000 TBTA General Revenue Variable Rate Bonds, Series 2003B

Date of Issue: December 10, 2003 Credit Enhancement: None Liquidity Facility: Standby Bond Purchase Agreement with Dexia Crédit Local, (expires December 8, 2008) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 89602N) 2009 $ 5,560,000 2010 5,785,000 2011 6,015,000 2012 6,255,000 2013 6,505,000 2014 6,770,000 2015 7,040,000 2016 7,320,000 2017 7,610,000 2018 7,920,000 2019 8,235,000 2020 8,565,000 2021 8,905,000 2022 9,265,000 2023 9,630,000 2024 10,020,000 2025 10,415,000 2026 10,835,000 2027 11,270,000 2028 11,720,000 2029 12,185,000 2030 12,675,000 2031 13,180,000 2032 13,710,000 2033 (final maturity) 12,415,000 Variable FZ2

(1) The Series 2003B Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, TBTA will redeem Bank Bonds first.

62 $150,000,000 TBTA General Revenue Variable Rate Bonds, Series 2005A

Date of Issue: May 11, 2005 Credit Enhancement: None Liquidity Facility: Standby Bond Purchase Agreement with Dexia Crédit Local, New York Branch (expires May 9, 2012) Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 2,835,000 2009 2,925,000 2010 3,050,000 2011 3,175,000 2012 3,280,000 2013 3,465,000 2014 3,605,000 2015 3,745,000 2016 3,900,000 2017 4,065,000 2018 4,215,000 2019 4,425,000 2020 4,610,000 2021 4,795,000 2022 4,995,000 2023 5,205,000 2024 5,415,000 2025 5,660,000 2026 5,890,000 2027 6,140,000 2028 6,395,000 2029 6,655,000 2030 6,950,000 2031 7,240,000 2032 7,540,000 2033 7,860,000 2034 8,190,000 2035 (final maturity) 8,530,000 Variable GU2

63 $800,000,000 TBTA General Revenue Variable Rate Refunding Bonds, Series 2005B

Date of Issue: July 7, 2005 Credit Enhancement: None Liquidity Facility: Subseries 2005B-1: Standby Bond Purchase Agreement with DEPFA BANK plc., (expires July 7, 2015); Subseries 2005B-2: Standby Bond Purchase Agreement with Dexia Crédit Local, (expires July 6, 2012) ; Subseries 2005B- 3: Standby Bond Purchase Agreement with Bank of America, N.A., (expires July 6, 2012); and, Subseries 2005B-4: Standby Bond Purchase Agreement with Landesbank Baden-Württemberg, (expires July 6, 2012). Current Mode: Weekly

Principal Amortization for each Subseries(1)(2) Current Mode: Weekly Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 89602N) 2009 $ 700,000 2010 700,000 2011 800,000 2012 800,000 2013 800,000 2014 800,000 2015 900,000 2016 900,000 2017 900,000 2018 1,000,000 2019 1,000,000 2020 1,000,000 2021 1,100,000 2022 1,100,000 2023 1,100,000 2024 10,300,000 2025 1,000,000 2026 1,000,000 2027 1,100,000 2028 6,400,000 2029 37,500,000 2030 38,700,000 2031 43,800,000 2032 (final maturity) 45,200,000 Variable GV0/GW8/GX6/GY4(3)

(1) The sinking fund installments are the same for each Subseries of the Series 2005B Bonds. (2) The Series 2005B Bonds are subject to redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper), on any Business Day, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. If any such optional redemption shall occur, TBTA will redeem Bank Bonds first. (3) The CUSIP Numbers for Series 2005B Bonds are as follows: 2005B-1 – 89602NGV0 2005B-2 – 89602NGW8 2005B-3 – 89602NGX6 2005B-4 – 89602NGY4

64 $200,000,000 TBTA General Revenue Bonds, Series 2006A

Date of Issue: June 22, 2006 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2008 $ 3,635,000 4.000% HM9 2010 3,930,000 4.000 HP2 2011 4,090,000 4.000 HQ0 2012 4,250,000 4.000 HR8 2013 4,420,000 4.000 HS6 2014 4,600,000 4.000 HT4 2015 4,785,000 4.000 HU1 2016 4,975,000 4.000 HV9 2017 5,175,000 4.125 HW7 2018 75,000 4.125 HX5 2018 5,310,000 5.000 HY3 2019 5,655,000 5.000 HZ0 2020 5,940,000 5.000 JA3 2021 6,235,000 5.000 JB1 2022 6,545,000 5.000 JC9 2023 6,875,000 5.000 JD7 2024 7,215,000 5.000 JE5 2025 7,580,000 5.000 JF2 2026 135,000 4.450 JG0 2026 7,820,000 5.000 JH8 $46,160,000 Term Bond Due November 15, 2031 2027 $ 8,355,000 2028 8,770,000 2029 9,210,000 2030 9,670,000 2031 10,155,000 5.000% JJ4 $44,155,000 Term Bond Due November 15, 2035 2032 $ 10,660,000 2033 11,195,000 2034 11,755,000 2035 10,545,000 5.000% JL9 $1,800,000 Term Bond Due November 15, 2035 2035 $ 1,800,000 4.500% JK1

(1) The Series 2006A Bonds maturing on and after November 15, 2017 are subject to redemption prior to maturity on any date on and after November 15, 2016, at the option of MTA Bridges and Tunnels, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Triborough Bridge and Tunnel General Revenue Bonds, Series 2006A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Maturity Principal Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (89602N) 2009 $3,780,000 $3,780,000 4.00% HN7

65 $223,355,000 TBTA General Revenue Bonds, Series 2007A

Date of Issue: June 20, 2007 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2008 $ 3,640,000 4.000% KA1 2010 3,940,000 4.000 KC7 2011 4,095,000 4.250 KD5 2012 4,270,000 4.000 KE3 2013 4,440,000 4.000 KF0 2014 4,620,000 5.000 KG8 2015 4,850,000 4.250 KH6 2016 5,055,000 4.125 KJ2 2017 5,265,000 4.250 KK9 2018 5,490,000 4.250 KL7 2019 5,720,000 5.000 KM5 2020 6,005,000 5.000 KN3 2021 6,305,000 5.000 KP8 2022 6,625,000 5.000 KQ6 2023 6,955,000 4.500 KR4 2024 7,265,000 5.000 KS2 2025 7,630,000 5.000 KT0 2026 8,010,000 5.000 KU7 2027 8,410,000 5.000 KV5 2028 2,575,000 4.600 KW3 $46,185,000 Term Bond Due November 15, 2032 2028 $ 6,255,000 2029 9,265,000 2030 9,725,000 2031 10,215,000 2032 10,725,000 5.000% KX1 $62,220,000 Term Bond Due November 15, 2037 2033 $11,260,000 2034 11,825,000 2035 12,415,000 2036 13,035,000 2037 13,685,000 5.000% KY9

(1) The Series 2007A Bonds maturing on and after November 15, 2018 are subject to redemption prior to maturity on any date on and after November 15, 2017, at the option of MTA Bridges and Tunnels, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

The following maturities and principal amounts of the Triborough Bridge and Tunnel General Revenue Bonds, Series 2007A were defeased on September 20, 2007 at the principal amounts listed below.

Principal Maturity Principal Amount Amount to be Interest CUSIP Number (November 15) Outstanding Defeased Rate (89602N) 2009 $3,785,000 $3,785,000 4.00% KB9

66 $822,770,000 TBTA General Revenue Bonds, Series 2008A

Date of Issue: March 27, 2008 Credit Enhancement: None

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2009 13,715,000 5.00 LY8 2010 14,400,000 5.00 LZ5 2011 15,120,000 5.00 MA9 2012 15,875,000 5.00 MB7 2013 16,670,000 5.00 MC5 2014 18,340,000 5.00 MD3 2015 1,875,000 4.00 ME1 2015 18,020,000 5.00 MF8 2016 21,920,000 5.00 MG6 2017 23,015,000 5.00 MH4 2018 24,165,000 5.00 MJ0 2019 25,375,000 5.00 MK7 2020 26,645,000 5.00 ML5 2021 27,975,000 5.00 MM3 2023 30,550,000 4.50 MN1 2028 35,080,000 4.875 MP6 2029 39,145,000 4.75 MQ4 2030 41,005,000 4.75 MR2 $137,385,000 Term Bond Due November 15, 2033 2031 $42,955,000 2032 45,100,000 2033 49,330,000 5.00% MS0 $186,495,000 Term Bond Due November 15, 2037 2033 $ 1,495,000 2034 36,110,000 2035 42,715,000 2036 56,250,000 2037 49,925,000 5.000% MT8 $90,000,000 Term Bond Due November 15, 2038 2035 $ 5,000,000 2036 5,000,000 2037 10,000,000 2038 70,000,000 5.25% MU5

(1) The Series 2008A Bonds maturing on or after November 15, 2019 are subject to optional redemption prior to maturity on any date on or after May 15, 2018, at the option of MTA Bridges and Tunnels, in whole or in part at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

67 $252,230,000 TBTA General Revenue Bonds, Series 2008B $ 83,500,000 Subseries 2008B-1 $63,650,000 Subseries 2008B-2 $105,080,000 Subseries 2008B-3

Date of Issue: March 27, 2008 Credit Enhancement: None Current Mode: Term Rate

Principal Amortization(1)(2) Due Sinking Fund Interest Reset Date CUSIP No November 15 Maturity Redemption Rate November 15 (Base 9602N) $83,500,000 Subseries 2008B-1 Mandatory Tender Bond Due November 15, 2025 2022 $29,375,000 2024 31,925,000 2025 22,200,000 5.00% 2013 MV3 $63,650,000 Subseries 2008B-2 Mandatory Tender Bond Due November 15, 2027 2025 $11,000,000 2026 34,530,000 2027 18,120,000 5.00% 2014 MW1 $105,080,000 Subseries 2008B-3 Mandatory Tender Bond Due November 15, 2038 2027 $17,790,000 2028 2,265,000 2033 1,790,000 2034 19,115,000 2035 10,080,000 2036 12,485,000 2037 17,385,000 2038 24,170,000 5.00% 2015 MX9

(1) The Series 2008B Bonds are not subject to optional redemption prior to their respective Reset Dates. The Series 2008B Bonds are subject to optional redemption on their respective Reset Dates at the option of MTA Bridges and Tunnels, in whole or in part, from available amounts, on the related Reset Date and on any Business Day during the Delayed Remarketing Period (as defined below), at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium.

68 Part 3. Nature of Continuing Disclosure

Where Located in Appendix A Undertaking Caption(s) Heading(s)

A. Certain financial and operating data. 1. TRIBOROUGH BRIDGE AND 1. MTA Bridges and Tunnels Facilities TUNNEL AUTHORITY 2. Authorized Projects of MTA Bridges and Tunnels 2. RIDERSHIP AND FACILITIES 1. MTA Bridge and Tunnels Total USE Revenue Vehicles 2. Toll Rates 3. Competing Facilities and Other Matters 4. E-ZPass 3. EMPLOYEES, LABOR 1. MTA Bridges and Tunnels RELATIONS AND PENSION OBLIGATIONS

B. Information regarding the TBTA, Transit and Commuter Capital Programs. TBTA 1. FINANCIAL PLANS AND 1. 2005-2009 MTA Bridges and CAPITAL PROGRAMS Tunnels Capital Program 2. 2000-2004 MTA Bridges and Tunnels Capital Program 3. 1992-1999 MTA Bridges and Tunnels Capital Programs Transit and Commuter Systems 1. FINANCIAL PLANS AND 1. Capital Programs – Background and CAPITAL PROGRAMS Development 2. 2005-2009 MTA Bridges and Tunnels Capital Program 3. 2000-2004 MTA Capital Program 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

C. Presentation of changes to 1. MTA BRIDGES AND TUNNELS 1. MTA Bridges and Tunnels Senior indebtedness issued by TBTA under the SENIOR REVENUE BONDS Table 1 TBTA Senior Resolution, as well as 2. MTA Bridges and Tunnels Senior information concerning changes to Table 2 TBTA’s debt service requirements on such indebtedness payable from revenues.

D. Historical information concerning 1. REVENUES OF THE RELATED 1. MTA Bridges and Tunnels Surplus traffic, revenues, operating expenses, ENTITIES TBTA Senior Resolution debt service and debt service coverage 2. RIDERSHIP AND FACILITIES 1. MTA Bridges and Tunnels Total USE Revenue Vehicles 3. TBTA SENIOR REVENUE BONDS 1. MTA Bridges and Tunnels Senior Table 2

E. Material litigation relating to any of 1. Litigation 1. MTA Bridges and Tunnels the foregoing.

69 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

X Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

X Defeasances.

Release, substitution or sale of property securing repayment of the securities.

Rating changes.

Explanation:

The stated expiration date for the Standby Bond Purchase Agreement with ABN AMRO Bank N.V. for the Triborough Bridge and Tunnel Authority General Revenue Variable Rate Refunding Bonds, Series 2002F has been extended from November 8, 2007 to November 8, 2012. All other terms and conditions remain unchanged.

The following principal amounts of Triborough Bridge and Tunnel Authority Bonds were defeased to maturity with United States Treasury Securities – State and Local Government Series on September 20, 2007. All bonds mature on November 15, 2009. In each case, the amount of each maturity defeased (as designated by a separate CUSIP number) constitutes the entire principal amount of the maturity currently outstanding.

Principal Series Amount Interest Rate CUSIP Number 2002B $ 13,175,000 3.125% 896029 7W9 2002B 59,405,000 5.00 896029 7V1 2006A 3,780,000 4.00 89602N HN7 2007A 3,785,000 4.00 89602N KB9

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Triborough Bridge and Tunnel Authority.

70 TBTA SUBORDINATE REVENUE BONDS

Part 1. Issues Covered by this Annual Report

Series Dated Date Par Issued Par Outstanding Interest Rate Mode 2000AB(1) November 2, 2000 $ 263,000,000 $ 188,600,000 Synthetic Fixed 2000CD(1) November 2, 2000 $ 263,000,000 188,600,000 Synthetic Fixed 2002D October 8, 2002 261,700,000 255,750,000 Auction 2002E November 13, 2002 756,095,000 756,095,000 Fixed 2002G November 26, 2002 181,025,000 181,025,000 Synthetic Fixed 2003A March 5, 2003 500,170,000 440,640,000 Fixed 2004A(2) August 12, 2004 250,000,000 236,250,000 Auction Total $2,474,990,000 $2,246,960,000

Part 2. Details of Each Issue of Bonds

Uninsured Ratings Fitch Ratings ...... AA- Moody’s Investors Services ...... Aa3 Standard and Poor’s Ratings ...... A+

1 The former TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000A-D were consolidated into a new series TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB secured by a Standby Bond Purchase Agreement (SBPA) with JPMorgan Chase and (b) a new series TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD secured by a SBPA with Lloyds TSB Bank plc, acting through its New York Branch.

2 On the redemption dates below, the principal amounts of the following MTA Bridges and Tunnels Subordinate Revenue Bonds will be redeemed:

Subseries Principal Amount CUSIP Number Redemption Refunded (89602N) Date 2004A-1 $100,000,000 GK4 April 30, 2008 2004A-2 $75,000,000 GL2 May 1, 2008

71 $263,000,000 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB

Date of Issue: November 2, 2000 Credit Enhancement: Series 2000AB Bonds are insured by Financial Security Assurance Inc. Liquidity Facility: Standby Bond Purchase Agreement with JPMorgan Chase Bank, (expires October 7, 2014). Current Mode: Weekly

Principal Amortization(1) Current Mode: Weekly Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 89602N) 2009 $ 13,300,000 2010 14,100,000 2011 15,000,000 2012 15,950,000 2013 16,950,000 2014 18,000,000 2015 19,150,000 2016 20,350,000 2017 21,650,000 2018 23,000,000 2019 (final maturity) 11,150,000 Variable JY1

(1) The Series 2000AB Bonds are subject to optional redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Holder, and otherwise by lot in such manner as the Trustee in its discretion deems proper), at any time, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. 72 $263,000,000 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD

Date of Issue: November 2, 2000 Credit Enhancement: Series 2000CD Bonds are insured by Financial Security Assurance Inc. Liquidity Facility: Standby Bond Purchase Agreement with Lloyds TSB Bank plc, acting through its New York Branch, (expires October 7, 2014). Current Mode: Weekly

(1) The Series 2000CD Bonds are subject to optional redemption prior to maturity as a whole or in part (in accordance with procedures of DTC, so long as DTC is the Holder, and otherwise by lot in such manner as the Trustee in its discretion deems proper), at any time, subject to applicable notice, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest up to but not including the redemption date. 73 $261,700,000 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2002D $65,000,000 Subseries 2002D-1 $65,000,000 Subseries 2002D-2 $131,700,000 Subseries 2002D-3

Date of Issue: October 8, 2002 Credit Enhancement: All Series 2002D Bonds are insured by Ambac Assurance Corporation Current Mode: Auction

Subseries 2002D-1 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 1,525,000 2009 1,575,000 2010 1,650,000 2011 1,725,000 2012 1,775,000 2013 1,850,000 2014 1,925,000 2015 2,000,000 2016 2,075,000 2017 2,175,000 2018 2,250,000 2019 2,350,000 2020 2,450,000 2021 2,550,000 2022 2,650,000 2023 2,750,000 2024 2,850,000 2025 2,975,000 2026 3,100,000 2027 3,225,000 2028 3,350,000 2029 3,475,000 2030 3,625,000 2031 3,750,000 2032 (final maturity) 3,900,000 Variable AK0

(1) Each subseries of Series 2002D Bonds shall be subject to optional redemption by TBTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided, however, that in the event of a partial redemption of Series 2002D Bonds of a subseries, the aggregate principal amount of Series 2002D Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the related Broker-Dealers.

74 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2002D (continued)

Subseries 2002D-2 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 1,525,000 2009 1,575,000 2010 1,650,000 2011 1,725,000 2012 1,775,000 2013 1,850,000 2014 1,925,000 2015 2,000,000 2016 2,075,000 2017 2,175,000 2018 2,250,000 2019 2,350,000 2020 2,450,000 2021 2,550,000 2022 2,650,000 2023 2,750,000 2024 2,850,000 2025 2,975,000 2026 3,100,000 2027 3,225,000 2028 3,350,000 2029 3,475,000 2030 3,625,000 2031 3,750,000 2032 (final maturity) 3,900,000 Variable AL8

75 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2002D (continued)

Subseries 2002D-3 Principal Amortization(1) Current Mode: 35-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 3,100,000 2009 3,250,000 2010 3,350,000 2011 3,450,000 2012 3,625,000 2013 3,775,000 2014 3,925,000 2015 4,075,000 2016 4,250,000 2017 4,400,000 2018 4,600,000 2019 4,750,000 2020 4,925,000 2021 5,125,000 2022 5,325,000 2023 5,550,000 2024 5,800,000 2025 6,000,000 2026 6,250,000 2027 6,500,000 2028 6,750,000 2029 7,050,000 2030 7,300,000 2031 7,625,000 2032 (final maturity) 7,950,000 Variable AM6

76 $756,095,000 TBTA Subordinate Revenue Refunding Bonds, Series 2002E

Date of Issue: November 13, 2002 Credit Enhancement: All of the Series 2002E Bonds are insured by MBIA Insurance Corporation

Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2018 $31,645,000 5.500% AZ7 2019 56,490,000 5.500 BA1 2020 59,050,000 5.500 BB9 2021 61,745,000 5.500 BC7 2022 54,590,000 5.250 BD5 2023 57,455,000 5.250 BE3 $122,170,000 Term Bond Due November 15, 2026 2024 $38,515,000 2025 40,685,000 2026 42,970,000 5.000% BF0 $312,950,000 Term Bond Due November 15, 2032 2027 $45,370,000 2028 47,890,000 2029 50,535,000 2030 53,310,000 2031 56,225,000 2032 59,620,000 5.000% BG8

(1) The Series 2002E Bonds maturing on and after November 15, 2022 are subject to redemption prior to maturity on any date on and after November 15, 2012, at the option of TBTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date.

77 $181,025,000 TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2002G $90,500,000 Subseries 2002G-1 $90,525,000 Subseries 2002G-2

Date of Issue: November 26, 2002 Credit Enhancement: All Series 2002G Bonds are insured by MBIA Insurance Corporation Current Mode: Auction

Principal Amortization(1)(2) Current Mode: 35-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2024 $16,400,000 2025 18,100,000 2026 18,250,000 2027 19,525,000 2028 19,850,000 2029 21,050,000 2030 21,600,000 2031 22,725,000 2032 (final maturity) 23,525,000 Variable CE2/CF9(3)

(1) Unless otherwise directed by TBTA, the Series 2002G Bonds shall be redeemed with the proceeds from the Sinking Fund Installments pro rata, subject to rounding in accordance with authorized denominations. (2) Each subseries of Series 2002G Bonds shall be subject to optional redemption by TBTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided, however, that in the event of a partial redemption of Series 2002G Bonds of a subseries, the aggregate principal amount of Series 2002G Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the related Broker-Dealers.

(3) The CUSIP Number for the Series 2002G are as follows: 2002G-1 – 89602NCE2 2002G-2 – 89602NCF9

Notwithstanding the foregoing, TBTA has covenanted, pursuant to its right to optionally redeem Series 2002G Bonds and apply the proceeds of any such optionally redeemed Series 2002G Bonds to sinking fund installments or otherwise, cause Series 2002G Bonds to be retired no later than if the immediately preceding Series 2002G mandatory sinking fund redemption dates and sinking fund installments had been established for November 1 of the following years and in the following amounts (retirement in accordance with such schedule hereinafter referred to as the “Alternate Amortization Schedule” for the respective subseries):

Due November 1 Subseries 2002G-1 Subseries 2002G-2 2013 $2,075,000 $2,075,000 2014 3,225,000 3,225,000 2015 2,975,000 2,975,000 2016 3,350,000 3,375,000 2017 3,450,000 3,425,000 2018 700,000 725,000 2019 1,325,000 1,300,000 2020 1,350,000 1,350,000 2021 1,950,000 1,975,000 2022 7,100,000 7,075,000 2023 6,875,000 6,875,000 2024 6,050,000 6,050,000 2025 6,000,000 6,000,000 2026 6,275,000 6,275,000 2027 6,275,000 6,275,000 2028 6,500,000 6,525,000 2029 6,575,000 6,550,000 2030 6,800,000 6,800,000 2031 6,900,000 6,900,000 2032 4,750,000 4,775,000 78 $500,170,000 TBTA Subordinate Revenue Bonds, Series 2003A

Date of Issue: March 5, 2003 Credit Enhancement: Some, but not all, of the maturities of the Series 2003A Bonds are insured by Ambac Assurance Corporation and Financial Guaranty Insurance Company (FGIC) as set forth below.

Uninsured Series 2003A Bonds – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2008 $ 8,095,000 4.000% DT8 $64,595,000 Term Bond Due November 15, 2030 2029 $41,175,000 2030 23,420,000 5.250% ES9

Series 2003A Bonds insured by Ambac – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) 2010 9,495,000 3.250 DV3 2011 2,470,000 5.000 DX9 2011 6,865,000 4.000 DW1 2012 4,675,000 3.625 DY7 2012 5,770,000 5.000 DZ4 2013 5,650,000 3.750 EA8 2014 4,690,000 3.875 EB6 2015 4,495,000 5.250 EC4 2016 5,050,000 5.250 ED2 2017 5,060,000 5.250 EE0 2018 5,025,000 5.250 EF7 2019 5,320,000 5.250 EG5 2020 5,275,000 5.250 EH3 2021 5,865,000 5.250 EJ9 2022 5,935,000 4.500 EK6 2023 7,965,000 4.625 EL4 2024 32,220,000 4.750 EM2 2025 33,940,000 5.000 EN0 2026 35,465,000 5.125 EP5 2027 11,280,000 4.750 EQ3 $65,440,000 Term Bond Due November 15, 2028 2027 $26,135,000 2028 39,305,000 5.000% ER1

Series 2003A Bonds insured by FGIC – Principal Amortization(1) Due Sinking Fund Interest Cusip No. November 15 Maturity Redemption Rate (Base 89602N) $100,000,000 Term Bond Due November 15, 2032 2030 $19,980,000 2031 45,650,000 2032 34,370,000 5.000% ET7

The following maturities and principal amounts were defeased on September 20, 2007.

Maturity Principal Amount Principal Amount CUSIP number (November 15) Outstanding to be Defeased Interest Rate (89602N) 2009 $9,520,000 $9,520,000 4.00% DU5

(1) The Series 2003A Bonds maturing on and after November 15, 2014 (except for the Series 2003A Bonds maturing on November 15, 2015 and November 15, 2016) are subject to redemption prior to maturity on any date on and after November 15, 2013, at the option of TBTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at 100% of the principal amount thereof, together with accrued interest thereon up to but not including the redemption date. The Series 2003A Bonds maturing on November 15, 2015 and November 15, 2016 are not subject to redemption prior to maturity.

79 $250,000,000 TBTA Subordinate Revenue Variable Rate Bonds, Series 2004A $100,000,000 Subseries 2004A-1 $75,000,000 Subseries 2004A-2 $75,000,000 Subseries 2004A-3

Date of Issue: August 12, 2004 Credit Enhancement: Subseries 2004A-1 and Subseries 2004A-2 Bonds are insured by CDC IXIS Financial Guaranty North America, Inc. Subseries 2004A-3 Bonds are insured by MBIA Insurance Corporation Current Mode: Auction

Subseries 2004A-1 Principal Amortization(1)(2) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2018 $ 3,350,000 2019 4,400,000 2020 4,575,000 2021 4,775,000 2022 4,950,000 2023 5,175,000 2024 5,375,000 2025 5,600,000 2026 5,825,000 2027 6,050,000 2028 6,300,000 2029 6,575,000 2030 6,825,000 2031 7,125,000 2032 7,400,000 2033 7,700,000 2034 (final maturity) 8,000,000 Variable GK4

(1) Each subseries of Series 2004A Bonds shall be subject to optional redemption by TBTA, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Redemption Price equal to the principal amount thereof, plus accrued interest to the redemption date; provided, however, that in the event of a partial redemption of Series 2004A Bonds of a subseries, the aggregate principal amount of Series 2004A Bonds of such subseries which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the related Broker-Dealers.

(2) On the redemption dates below, the principal amounts of the following MTA Bridges and Tunnels Subordinate Revenue Bonds will be redeemed:

Subseries Principal Amount Refunded CUSIP Number Redemption (89602N) Date 2004A-1 $100,000,000 GK4 April 30, 2008 2004A-2 $75,000,000 GL2 May 1, 2008

80 TBTA Subordinate Revenue Variable Rate Bonds, Series 2004A, Continued

Subseries 2004A-2 Principal Amortization(1)(2) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2018 $ 2,500,000 2019 3,300,000 2020 3,425,000 2021 3,575,000 2022 3,725,000 2023 3,875,000 2024 4,025,000 2025 4,200,000 2026 4,375,000 2027 4,550,000 2028 4,725,000 2029 4,925,000 2030 5,125,000 2031 5,325,000 2032 5,550,000 2033 5,775,000 2034 (final maturity) 6,025,000 Variable GL2

(2) On the redemption dates below, the principal amounts of the following MTA Bridges and Tunnels Subordinate Revenue Bonds will be redeemed: MTA Bridges and Tunnels Subordinate Revenue Variable Rate Bonds, Series 2004A Subseries Principal Amount CUSIP Number Redemption Refunded (89602N) Date 2004A-1 $100,000,000 GK4 April 30, 2008 2004A-2 $75,000,000 GL2 May 1, 2008

Subseries 2004A-3 Principal Amortization(1) Current Mode: 7-day auction rate Due Sinking Fund Interest Cusip No. November 1 Maturity Redemption Rate (Base 89602N) 2008 $ 4,925,000 2009 5,175,000 2010 5,375,000 2011 5,600,000 2012 5,800,000 2013 6,050,000 2014 6,300,000 2015 6,575,000 2016 6,800,000 2017 7,100,000 2018 (final maturity) 1,550,000 Variable GM0

81 Part 3. Nature of Continuing Disclosure

Where Located in Appendix A Undertaking Heading(s)

A. Certain financial and operating data. 1. TRIBOROUGH BRIDGE AND 1. MTA Bridges and Tunnels Facilities TUNNEL AUTHORITY 2. Authorized Projects of MTA Bridges and Tunnels 2. RIDERSHIP AND FACILITIES 1. MTA Bridges and Tunnels Total USE Revenue Vehicles 2. Toll Rates 3. Competing Facilities and Other Matters 4. E-ZPass 3. EMPLOYEES, LABOR 1. MTA Bridges and Tunnels RELATIONS AND PENSION OBLIGATIONS

C. Presentation of changes to 1. MTA BRIDGES AND TUNNELS 1. MTA Bridges and Tunnels indebtedness issued by TBTA under the SUBORDINATE REVENUE BONDS Subordinate Table 1 TBTA Senior and Subordinate 2. MTA Bridges and Tunnels Resolutions, as well as information Subordinate Table 2 concerning changes to TBTA’s debt service requirements on such indebtedness payable from revenues.

D. Historical information concerning 1. REVENUES OF THE RELATED 1. MTA Bridges and Tunnels Surplus traffic, revenues, operating expenses, ENTITIES TBTA Subordinate Resolution debt service and debt service coverage 2. RIDERSHIP AND FACILITIES 1. MTA Bridges and Tunnels Total USE Revenue Vehicles 3. TBTA SUBORDINATE REVENUE 1. MTA Bridges and Tunnels BONDS Subordinate Table 2

E. Material litigation relating to any of 1. Litigation 1. MTA Bridges and Tunnels the foregoing.

82 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

X Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

X Defeasances.

Release, substitution or sale of property securing repayment of the securities.

Rating changes.

Explanation:

The former TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000A-D were consolidated into the new series TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB secured by a Standby Bond Purchase Agreement (SBPA) with JPMorgan Chase; and (b) the new series TBTA Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD secured by a SBPA with Lloyds TSB Bank plc, acting through its New York Branch.

The following maturities and principal amounts of the Triborough Bridge and Tunnel Subordinate Revenue Bonds, Series 2003A were defeased on September 20, 2007.

Principal Principal Maturity Amount Amount to be CUSIP number (November 15) Outstanding Defeased Interest Rate (89602N) 2009 $9,520,000 $9,520,000 4.00% DU5

On the redemption dates below, the principal amounts of the following MTA Bridges and Tunnels Subordinate Revenue Bonds will be redeemed:

Subseries Principal Amount CUSIP Number Redemption Refunded (89602N) Date 2004A-1 $100,000,000 GK4 April 30, 2008 2004A-2 $75,000,000 GL2 May 1, 2008

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Triborough Bridge and Tunnel Authority.

83 MTA STATE SERVICE CONTRACT BONDS

Part 1. Issues Covered by this Annual Report

Series Dated Date Par Issued Par Outstanding Interest Rate Mode 2002A June 27, 2002 $1,715,755,000 $1,653,305,000 Fixed 2002B July 2, 2002 679,450,000 565,515,000 Fixed Total $2,395,205,000 $2,218,820,000

Part 2. Details of Each Issue of Bonds

Uninsured Ratings Fitch Ratings ...... A+ Moody’s Investors Services ...... NAF Standard and Poor’s Ratings ...... AA-

Summary of State and City Redemption Provisions Pursuant to the MTA Act, the State, upon providing sufficient funds, may require MTA to redeem any series of the MTA State Service Contract Bonds, prior to maturity, as a whole, on any interest payment date not less than twenty years after the date of issue of that series of the MTA State Service Contract Bonds, at 105% of their face value and accrued interest or at such lower redemption price provided for in that series of MTA State Service Contract Bonds in the case of redemption as a whole on the redemption date. The MTA Act further provides that the City, upon furnishing sufficient funds, may require MTA to redeem any series of MTA State Service Contract Bonds, as a whole, but only in accordance with the terms upon which each series of MTA State Service Contract Bonds are otherwise redeemable.

84 $1,715,755,000 State Service Contract Refunding Bonds, Series 2002A

Date of Issue: June 27, 2002 Credit Enhancement: Some, but not all, of the maturities of the Series 2002A Bonds are insured by Ambac Assurance Corporation, Financial Guaranty Insurance Company (FGIC), and MBIA Insurance Corporation, as set forth below.

Uninsured Series 2002A Bonds – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) 1/01/09 $ 7,500,000 5.000% S74 1/01/10 7,500,000 4.000 S82 1/01/11 1,685,000 4.125 S90 1/01/12 7,500,000 5.000 T24 1/01/13 1,085,000 4.400 T32 1/01/14 1,490,000 4.500 T40 7/01/14 21,960,000 5.500 T57 1/01/15 28,385,000 5.500 T65 7/01/15 29,165,000 5.500 T73 1/01/16 29,970,000 5.750 T81 7/01/16 30,830,000 5.750 T99 1/01/17 31,715,000 5.750 U22 7/01/17 32,630,000 5.500 U30 1/01/18 33,525,000 5.750 U48 7/01/18 34,490,000 5.750 U55 1/01/21 10,000,000 5.100 U63 1/01/22 10,000,000 5.125 U71 1/01/23 43,665,000 5.250 U89 $90,770,000 Term Bond Due January 1, 2024 7/01/23 $ 44,810,000 1/01/24 45,960,000 5.125% U97 $399,900,000 Term Bond Due January 1, 2029 1/01/26 $ 52,900,000 7/01/26 54,330,000 1/01/27 55,675,000 7/01/27 57,045,000 1/01/28 58,450,000 7/01/28 59,890,000 1/01/29 61,610,000 5.125% V21

(1) The Series 2002A Bonds (except for the uninsured Series 2002A Bonds maturing on July 1, 2014 through July 1, 2018, inclusive) maturing on and after January 1, 2013, are subject to redemption prior to maturity on or after July 1, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at a Redemption Price of 100%, together with accrued interest thereon up to but not including the redemption date.

85 State Service Contract Refunding Bonds, Series 2002A (continued)

Series 2002A Bonds insured by FGIC – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) 7/01/08 $ 8,970,000 5.000% V39 7/01/09 3,985,000 4.000 V47 7/01/09 3,515,000 5.000 V54 7/01/10 11,345,000 4.000 V62 1/01/11 5,815,000 5.250 V70 7/01/11 7,500,000 4.000 V88 7/01/12 7,500,000 5.000 V96 7/01/13 7,500,000 4.300 W38 7/01/14 4,140,000 4.400 W53 1/01/21 29,550,000 5.000 X29 7/01/21 40,540,000 5.000 X37 $74,155,000 Term Bond Due July 1, 2022 1/01/22 $ 31,555,000 7/01/22 42,600,000 5.000% X45 $144,975,000 Term Bond Due July 1, 2025 7/01/24 $ 47,135,000 1/01/25 48,315,000 7/01/25 49,525,000 5.000% X52

Series 2002A Bonds insured by MBIA – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) 1/01/19 $ 35,480,000 5.500% W61 7/01/19 36,455,000 5.500 W79 1/01/20 37,460,000 5.500 W87 7/01/20 38,490,000 5.500 W95

Series 2002A Bonds insured by Ambac – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) $185,875,000 Term Bond Due July 1, 2030 7/01/29 $ 60,360,000 1/01/30 61,945,000 7/01/30 63,570,000 5.000% X60 $56,290,000 Term Bond Due July 1, 2031 1/01/31 $ 49,340,000 7/01/31 6,950,000 5.250% X78 $60,000,000 Term Bond Due July 1, 2031 7/01/31 $ 60,000,000 5.750% X86

86 $679,450,000 State Service Contract Bonds, Series 2002B

Date of Issue: July 2, 2002 Credit Enhancement: Some, but not all, of the maturities of the Series 2002B Bonds are insured by Financial Guaranty Insurance Company (FGIC), and MBIA Insurance Corporation, as set forth below.

Uninsured Series 2002B Bonds – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) $11,310,000 Term Bond Due July 1, 2015 1/01/15 $5,580,000 7/01/15 5,730,000 5.500% 3G1 $11,935,000 Term Bond Due July 1, 2016 1/01/16 $5,885,000 7/01/16 6,050,000 5.500% 3H9 $12,605,000 Term Bond Due July 1, 2017 1/01/17 $6,220,000 7/01/17 6,385,000 5.500% 3J5 $50,000,000 Term Bond Due January 1, 2030 1/01/25 $4,605,000 7/01/25 4,715,000 1/01/26 3,810,000 7/01/26 3,870,000 1/01/27 3,990,000 7/01/27 4,120,000 1/01/28 4,250,000 7/01/28 4,385,000 1/01/29 4,405,000 7/01/29 5,870,000 1/01/30 5,980,000 5.375% 3R7 $45,235,000 Term Bond Due January 1, 2031 1/01/25 $2,290,000 7/01/25 2,360,000 1/01/26 1,895,000 7/01/26 1,930,000 1/01/27 2,000,000 7/01/27 2,075,000 1/01/28 2,150,000 7/01/28 2,230,000 1/01/29 2,250,000 7/01/29 3,020,000 1/01/30 3,095,000 7/01/30 6,090,000 1/01/31 13,850,000 5.250% 3S5 $13,285,000 Term Bond Due July 1, 2031 7/01/31 $13,285,000 5.350% 3U0

(1) The Series 2002B Bonds (except for the MBIA Insured Bonds maturing on January 1, 2013 through July 1, 2014, inclusive, and the uninsured Series 2002B Bonds issued as term bonds and maturing on July 1, 2015, July 1, 2016 and July 1, 2017) maturing on and after January 1, 2013, are subject to redemption prior to maturity on or after July 1, 2012, at the option of MTA, in whole or in part on any date (in accordance with the procedures of DTC, so long as DTC is the sole registered owner, and otherwise by lot in such manner as the Trustee in its discretion deems proper) at a Redemption Price of 100%, together with accrued interest thereon up to but not including the redemption date. The MBIA Insured Bonds maturing on January 1, 2013 through July 1, 2014, inclusive, and the uninsured Series 2002B Bonds issued as term bonds and maturing on July 1, 2015, July 1, 2016 and July 1, 2017 are not subject to optional redemption.

87 State Service Contract Bonds, Series 2002B (continued)

Series 2002B Bonds insured by FGIC – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) 7/01/08 $ 2,665,000 3.450% 2K3 7/01/08 12,810,000 5.250 2L1 1/01/09 17,550,000 5.000 2M9 7/01/09 1,575,000 3.650 2N7 7/01/09 16,600,000 5.250 2P2 1/01/10 535,000 4.000 2Q0 1/01/10 18,275,000 5.250 2R8 7/01/10 1,025,000 3.850 2S6 7/01/10 14,580,000 5.500 2T4 1/01/11 380,000 5.000 2U1 1/01/11 19,720,000 5.250 2V9 7/01/11 1,065,000 3.950 2W7 7/01/11 19,745,000 5.500 2X5 1/01/12 1,665,000 5.000 2Y3 1/01/12 19,860,000 5.250 2Z0 7/01/12 4,060,000 4.000 3A4 7/01/12 18,215,000 5.500 3B2

88 State Service Contract Bonds, Series 2002B (continued)

Series 2002B Bonds insured by MBIA – Principal Amortization(1) Sinking Fund Interest Cusip No. Maturity Date Maturity Redemption Rate (Base 592597) 1/01/13 $29,460,000 5.500% 3C0 7/01/13 23,880,000 5.500 3D8 1/01/14 30,710,000 5.500 3E6 7/01/14 6,975,000 5.500 3F3 $13,310,000 Term Bond Due July 1, 2018 1/01/18 $ 6,565,000 7/01/18 6,745,000 5.500% 3K2 $14,050,000 Term Bond Due July 1, 2019 1/01/19 $ 6,930,000 7/01/19 7,120,000 5.500% 3L0 $14,830,000 Term Bond Due July 1, 2020 1/01/20 $ 7,315,000 7/01/20 7,515,000 5.500% 3M8 $32,070,000 Term Bond Due July 1, 2022 1/01/21 $ 7,720,000 7/01/21 7,920,000 1/01/22 8,115,000 7/01/22 8,315,000 5.000% 3N6 $17,285,000 Term Bond Due July 1, 2023 1/01/23 $ 8,525,000 7/01/23 8,760,000 5.500% 3P1 $18,250,000 Term Bond Due July 1, 2024 1/01/24 $ 9,000,000 7/01/24 9,250,000 5.500% 3Q9 $50,000,000 Term Bond Due January 1, 2031 1/01/25 $ 2,610,000 7/01/25 2,675,000 1/01/26 2,165,000 7/01/26 2,200,000 1/01/27 2,265,000 7/01/27 2,335,000 1/01/28 2,410,000 7/01/28 2,485,000 1/01/29 2,500,000 7/01/29 3,330,000 1/01/30 3,390,000 7/01/30 6,625,000 1/01/31 15,010,000 5.000% 3T3

89 Part 3. Nature of Continuing Disclosure

Where Located in Appendix A Undertaking Caption(s) Heading(s)

A. Operating Data of the Related Transportation Entities. Transit System 1. TRANSIT SYSTEM All headings 2. RIDERSHIP AND FACILITIES 1. Transit System (MTA New York USE City and MaBSTOA) Ridership 3. EMPLOYEES, LABOR 1. Transit System RELATIONS AND PENSION OBLIGATIONS Commuter System 1. COMMUTER SYSTEM All headings 2. RIDERSHIP AND FACILITIES 1. Commuter System Ridership USE 3. EMPLOYEES, LABOR 1. Commuter System RELATIONS AND PENSION OBLIGATIONS

B. Information regarding the Transit 1. FINANCIAL PLANS AND 1. Capital Programs – Background and and Commuter Capital Programs. CAPITAL PROGRAMS Development 2. 2005-2009 MTA Capital Programs 3. 2000-2004 MTA Capital Programs 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

C. Presentation of changes to 1. STATE SERVICE CONTRACT 1. SSC Table 1 indebtedness issued by MTA under the BONDS State Service Contract Resolution, as well as information concerning changes to MTA’s debt service requirements on such indebtedness payable from the State Service Contract.

D. Material litigation relating to any of 1. Litigation 1. MTA the foregoing. 2. Transit System 3. Commuter System

90 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

Defeasances.

Release, substitution or sale of property securing repayment of the securities.

Rating changes.

Explanation:

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Metropolitan Transportation Authority and the New York City Transit Authority.

91 2 BROADWAY CERTIFICATES OF PARTICIPATION

Part 1. Issues Covered by this Annual Report

Series Dated Date Par Issued Par Outstanding Interest Rate Mode 1999A June 15, 1999 $328,205,000 $ 41,235,000 Fixed 2000A June 1, 2000 121,200,000 16,095,000 Fixed 2004A September 22, 2004 357,925,000 355,525,000 Synthetic Fixed Total $807,330,000 $412,855,000

Part 2. Details of Each Issue of Certificates

Insured Ratings(1): Fitch Ratings ...... AA Moody’s Investor Service ...... Aaa Standard & Poor’s ...... AAA

(1) All 2 Broadway Certificates of Participation are insured by Ambac Assurance Corporation and have the ratings listed above. On January 18, 2008, Fitch Ratings downgraded Ambac Assurance Corporation from “AAA” to “AA”.

92 $328,205,000 Certificates of Participation, Series 1999A

Date of Issue: July 14, 1999 Credit Enhancement: All of the Series 1999A Certificates are insured by Ambac Assurance Corporation.

Principal Amortization(1) Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 649713) 2009 $ 7,405,000 5.000% AL8 2010 7,775,000 5.625 AM6 2011 8,215,000 5.625 AN4 2012 8,675,000 5.625 AP9 2013 9,165,000 5.625 AQ7

(1) The Series 1999A Certificates maturing on and after January 1, 2011 are subject to prepayment at the option of the Authority, on any date on and after January 1, 2010, either as a whole or in part (in accordance with the procedures of DTC, so long as DTC is the Holder, and otherwise by lot in such manner as the Certificate Trustee in its discretion deems proper) at the following Prepayment Prices (expressed as a percentage of principal amount) plus accrued interest up to but not including the date of prepayment:

Period Prepayment Both Dates Inclusive Prices January 1, 2010 through December 31, 2010 101% January 1, 2011 and thereafter 100%

The following maturities and principal amounts of the Series 1999A Certificates were advance refunded and defeased by the Series 2004A Certificates on September 22, 2004 at the prepayment prices and on the prepayment dates listed below.

Maturity Interest Prepayment Date CUSIP Number (January 1) Par Amount Rate (January 1) Redemption Price (649713) 2014 $ 9,680,000 5.625% 2010 101% AR5 2015 10,225,000 5.625 2010 101 AS3 2019 46,825,000 5.400 2010 101 AT1 2029 169,620,000 5.250 2010 101 AU8

93 $121,200,000 Certificates of Participation, Series 2000A

Date of Issue: June 15, 2000 Credit Enhancement: All of the Series 2000A Certificates are insured by Ambac Assurance Corporation.

Principal Amortization(1) Due Sinking Fund Interest Cusip No. January 1 Maturity Redemption Rate (Base 649713) 2009 $2,355,000 5.100% BD5 2010 2,475,000 5.200 BE3 2011 2,600,000 5.300 BF0 2012 2,740,000 5.300 BG8 2013 2,885,000 5.375 BH6 2014 3,040,000 5.400 BJ2

(1) The Series 2000A Certificates maturing on and after January 1, 2011 are subject to prepayment at the option of the Authority, on any date on and after January 1, 2010, either as a whole or in part (in accordance with the procedures of DTC, so long as DTC is the Holder, and otherwise by lot in such manner as the Certificate Trustee in its discretion deems proper) at the following Prepayment Prices (expressed as a percentage of principal amount) plus accrued interest up to but not including the date of prepayment:

Period Prepayment Both Dates Inclusive Prices January 1, 2010 through December 31, 2010 101% January 1, 2011 and thereafter 100%

The following maturities and principal amounts of the Series 2000A Certificates were advance refunded and defeased by the Series 2004A Certificates on September 22, 2004 at the prepayment prices and on the prepayment dates listed below.

Maturity Interest Prepayment Date CUSIP Number (January 1) Par Amount Rate (January 1) Redemption Price (649713) 2015 $ 3,205,000 5.500% 2010 101% BK9 2020 18,965,000 5.750 2010 101 BL7 2030 58,595,000 5.875 2010 101 BM5

94 $357,925,000 Variable Rate Certificates of Participation, Series 2004A $75,000,000 Subseries 2004A-1 $72,925,000 Subseries 2004A-2 $70,000,000 Subseries 2004A-3 $70,000,000 Subseries 2004A-4 $70,000,000 Subseries 2004A-5

Date of Issue: September 22, 2004 Credit Enhancement: All Series 2004A Certificates are insured by Ambac Assurance Corporation. Current Mode: All Series 2004A Certificates are currently in an Auction mode as follows: Subseries 2004A-1: 7-day Subseries 2004A-2: 7-day Subseries 2004A-3: 7-day Subseries 2004A-4: 35-day Subseries 2004A-5: 35-day

Principal Amortization(1)(2)(3) Current Mode: Auction Rate Due Sinking Fund Interest Cusip No. January 1(3) Maturity Redemption Rate (Base 649713) 2009 $ 2,475,000 2010 2,575,000 2011 2,675,000 2012 2,775,000 2013 2,875,000 2014 12,675,000 2015 16,375,000 2016 17,000,000 2017 17,625,000 2018 18,300,000 2019 19,000,000 2020 19,725,000 2021 20,475,000 2022 21,250,000 2023 22,075,000 2024 22,900,000 2025 23,775,000 2026 24,700,000 2027 25,625,000 2028 26,600,000 2029 27,625,000 2030 (final maturity) 6,425,000 Variable CF9/CG7/CH5/CJ1/CK8(4)

(1) Unless otherwise directed by an Authorized Officer, the Series 2004A Certificates shall be redeemed with the proceeds from the Sinking Fund Installments pro rata with respect to each subseries, subject to rounding in accordance with authorized denominations. (2) Each subseries of Series 2004A Certificates shall be subject to optional prepayment by MTA as agent, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at a Prepayment Price equal to the principal amount thereof, plus accrued interest to the prepayment date; provided, however, that in the event of a partial prepayment of Series 2004A Certificates of a subseries, the aggregate principal amount of Series 2004A Certificates of such subseries that will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by the Broker-Dealer. (3) The date on which a sinking fund installment will be due when the Series 2004A Certificates of a subseries entitled to such sinking fund installment are in the Auction Mode will be either the dates set forth above, or if such date is not an Interest Payment Date, then the Interest Payment Date immediately preceding the date set forth above. (4) The CUSIP Number for the Series 2004A Certificates are as follows: 2004A-1 - 649713CF9 2004A-2 - 649713CG7 2004A-3 - 649713CH5 2004A-4 - 649713CJ1 2004A-5 - 649713CK8

95 REVISED AGGREGATE BASE RENT REQUIREMENTS(1)(2)

The following schedule sets forth the aggregate Base Rent payable with respect to the Certificates, as well as each entity’s proportionate share.

12 months Aggregate Transit MTA TBTA ending Base Rent Authority share share Share January 1 Requirements (68.7%) (21.0%) (10.3%) 2009 $ 27,978,601 $ 19,221,299 $ 5,875,506 $ 2,881,796 2010 27,985,983 19,226,370 5,877,056 2,882,556 2011 27,993,572 19,231,584 5,878,650 2,883,338 2012 27,998,762 19,235,150 5,879,740 2,883,873 2013 28,006,422 19,240,412 5,881,349 2,884,662 2014 28,019,497 19,249,395 5,884,094 2,886,008 2015 28,065,597 19,281,065 5,893,775 2,890,756 2016 28,109,571 19,311,275 5,903,010 2,895,286 2017 28,135,070 19,328,793 5,908,365 2,897,912 2018 28,180,989 19,360,340 5,918,008 2,902,642 2019 28,231,660 19,395,150 5,928,649 2,907,861 2020 28,282,492 19,430,072 5,939,323 2,913,097 2021 28,335,368 19,466,398 5,950,427 2,918,543 2022 28,381,095 19,497,813 5,960,030 2,923,253 2023 28,452,092 19,546,587 5,974,939 2,930,566 2024 28,493,816 19,575,252 5,983,701 2,934,863 2025 28,557,951 19,619,313 5,997,170 2,941,469 2026 28,637,670 19,674,080 6,013,911 2,949,680 2027 28,686,253 19,707,456 6,024,113 2,954,684 2028 28,752,014 19,752,633 6,037,923 2,961,457 2029 28,833,605 19,808,686 6,055,057 2,969,861 2030 6,652,975 4,570,594 1,397,125 685,256 Total $600,771,055 $412,729,717 $126,161,921 $61,879,419

(1) Totals may not add due to rounding. (2) The Transit Authority is obligated to pay 68.7% of the principal and interest components of Base Rent payments due with respect to the Certificates and 68.7% of the Ground Lease Net Rental. MTA (solely on behalf of LIRR and MNCRC) is obligated to pay 21.0% of the principal and interest components of Base Rent payments due with respect to the Certificates and 21.0% of the Ground Lease Net Rental. TBTA is obligated to pay 10.3% of the principal and interest components of Base Rent payments due with respect to the Certificates and 10.3% of the Ground Lease Net Rental.

96 GROUND LEASE NET RENTAL PROPORTIONATE SHARES

The following schedule sets forth the aggregate Ground Lease Rental Payments based upon a settlement during 2003 with the building’s owner, as well as each entity’s proportionate share.

12 months Aggregate Transit MTA TBTA ending Base Rent Authority share share Share January 1 Requirements (68.7%) (21.0%) (10.3%) 2009 $21,039,015 $14,453,803 $ 4,418,193 $ 2,167,019 2010 23,112,514 15,878,297 4,853,628 2,380,589 2011 23,112,514 15,878,297 4,853,628 2,380,589 2012 23,112,514 15,878,297 4,853,628 2,380,589 2013 23,112,514 15,878,297 4,853,628 2,380,589 2014 23,112,514 15,878,297 4,853,628 2,380,589 2015 25,351,894 17,416,751 5,323,898 2,611,245 2016 25,351,894 17,416,751 5,323,898 2,611,245 2017 25,351,894 17,416,751 5,323,898 2,611,245 2018 25,351,894 17,416,751 5,323,898 2,611,245 2019 25,351,894 17,416,751 5,323,898 2,611,245 2020 27,770,425 19,078,282 5,831,789 2,860,354 2021 27,770,425 19,078,282 5,831,789 2,860,354 2022 27,770,425 19,078,282 5,831,789 2,860,354 2023 27,770,425 19,078,282 5,831,789 2,860,354 2024 27,770,425 19,078,282 5,831,789 2,860,354 2025 30,382,438 20,872,735 6,380,312 3,129,391 2026 30,382,438 20,872,735 6,380,312 3,129,391 2027 30,382,438 20,872,735 6,380,312 3,129,391 2028 30,382,438 20,872,735 6,380,312 3,129,391 2029 30,382,438 20,872,735 6,380,312 3,129,391 2030 35,815,017 24,604,917 7,521,154 3,688,947 Total(1) $589,940,387 $405,289,045 $123,887,482 $60,763,861

(1) Totals may not add due to rounding. 97 Part 3. Nature of Continuing Disclosure

Where Located in Appendix A Transit Authority Undertaking Caption(s) Heading(s)

A. Description of the Transit System 1. TRANSIT SYSTEM All headings and its operations.

B. Description of changes to the fares or 1. REVENUES OF THE RELATED 1. Fares and Tolls – Transit System fare structures charged to users of the ENTITIES Fares Transit System.

C. Information concerning the amounts, 1. REVENUES OF THE RELATED 1. Fares and Tolls sources, material changes in and ENTITIES 2. State and Local General Operating material factors affecting Available Subsidies Transit Authority Revenues and 3. State Special Tax Supported sublease payments incurred under the Operating Subsidies Leasehold Improvement Sublease. 4. MTA Bridges and Tunnels Surplus 5. Financial Assistance and Service Reimbursements from Local Municipalities 6. Miscellaneous Revenues

D. Information regarding the Transit 1. FINANCIAL PLANS AND 1. Capital Programs – Background and Capital Program. CAPITAL PROGRAMS Development 2. 2005-2009 MTA Capital Program 3. 2000-2004 MTA Capital Program 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

E. Material litigation relating to any of 1. Litigation 1. MTA the foregoing. 2. Transit System

98 Where Located in Appendix A MTA Undertaking Caption(s) Heading(s)

A. Description of the Commuter 1. COMMUTER SYSTEM All headings Systems and its operations.

B. Description of changes to the fares or 1. REVENUES OF THE RELATED 1. Fares and Tolls – Commuter System fare structures charged to users of the ENTITIES Fares Commuter System.

C. Information concerning the amounts, 1. REVENUES OF THE RELATED 1. Fares and Tolls sources, material changes in and ENTITIES 2. State and Local General Operating material factors affecting Available Subsidies Authority Revenues and sublease 3. State Special Tax Supported payments incurred under the Leasehold Operating Subsidies Improvement Sublease. 4. MTA Bridges and Tunnels Surplus 5. Financial Assistance and Service Reimbursements from Local Municipalities 6. Miscellaneous Revenues

D. Information regarding the Commuter 1. FINANCIAL PLANS AND 1. Capital Programs – Background and Capital Program. CAPITAL PROGRAMS Development 2. 2005-2009 MTA Capital Program 3. 2000-2004 MTA Capital Program 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

E. Material litigation relating to any of 1. Litigation 1. MTA the foregoing. 2. Commuter System

99 Where Located in Appendix A TBTA Undertaking Caption(s) Heading(s)

A. Description of TBTA Facilities and 1. TRIBOROUGH BRIDGE AND 1. MTA Bridges and Tunnels Facilities of the projects it is authorized to TUNNEL AUTHORITY 2. Authorized Projects of MTA Bridges undertake or finance. and Tunnels

B. Description of TBTA’s toll rates and 1. RIDERSHIP AND FACILITIES 1. Toll Rates toll structures. USE

C. Historical information concerning 1. REVENUES OF THE RELATED 1. MTA Bridges and Tunnels Surplus traffic, revenues, operating expenses ENTITIES and payments on Senior TBTA Obligations. 2. RIDERSHIP AND FACILITIES 1. MTA Bridges and Tunnels Total USE Revenue Vehicles 3. MTA BRIDGES AND TUNNELS 1. MTA Bridges and Tunnels Senior SENIOR REVENUE BONDS Table 2

D. Description of the financing 1. MTA Bridges and Tunnels SENIOR 1. MTA Bridges and Tunnels Senior activities of TBTA. REVENUE BONDS Table 1 2. MTA Bridges and Tunnels Senior Table 2

E. Information regarding the TBTA, Transit and Commuter Capital Programs. TBTA 1. FINANCIAL PLANS AND 1. 2005-2009 MTA Bridges and CAPITAL PROGRAMS Tunnels Capital Program 2. 2000-2004 MTA Bridges and Tunnels Capital Program 3. 1992-1999 MTA Bridges and Tunnels Capital Programs Transit and Commuter Systems 1. FINANCIAL PLANS AND 1. Capital Programs – Background and CAPITAL PROGRAMS Development 2. 2005-2009 MTA Bridges and Tunnels Capital Program 3. 2000-2004 MTA Capital Programs 4. 1992-1999 Transit Capital Program Objectives 5. 1992-1999 Commuter Capital Program Objectives

F. Material litigation relating to any of 1. Litigation 1. MTA Bridges and Tunnels the foregoing.

100 Part 4. Notice of Material Events

If any of the following events are checked, an explanation of each such event is set forth below.

Principal and interest payment delinquencies.

Non-payment related defaults.

Unscheduled draws on debt service reserves reflecting financial difficulties.

Unscheduled draws on credit enhancements reflecting financial difficulties.

Substitution of credit or liquidity providers, or their failure to perform.

Adverse tax opinions or events affecting the tax-exempt status of the securities.

Modifications to the rights of security holders.

Bond calls (which do not include regularly scheduled or mandatory sinking fund redemptions effectuated in accordance with the resolution).

Defeasances.

Release, substitution or sale of property securing repayment of the securities.

X Rating changes.

Explanation: On January 18, 2008, Fitch Ratings downgraded Ambac Assurance Corporation from “AAA” to “AA”.

Part 5. Audited Financial Statements

Attached hereto are the audited financial statements of the Metropolitan Transportation Authority, the New York City Transit Authority and Triborough Bridge and Tunnel Authority.

101 APPENDIX A

THE RELATED ENTITIES

This Appendix A is dated April 29, 2008 and contains information only through that date (or the specific earlier dates noted herein, such as year-end December 31, 2007 financial and statistical information). MTA intends to update and supplement specific information contained herein (1) through revised Continuing Disclosure Filings, (2) by additional information posted on its website at www.mta.info/mta/investor/index.html, (3) as part of its quarterly financial statement reports, and (4) in connection with its periodic issuance of bonds, notes and other obligations. MTA retains the right to update and supplement specific information contained herein as events warrant.

MTA has contracted with Digital Assurance Corporation (“DAC”), a dissemination agent recognized as such by the SEC, to file certain information with the Nationally Recognized Municipal Securities Information Repositories and to post certain information on its website (www.dacbond.com). DAC has contracted to email copies of the information that the Related Entities file with DAC to any person who registers with DAC in the manner set forth on its website.

All of the information (1) set forth in revised Continuing Disclosure Filings, (2) contained in quarterly financial statement reports, and (3) filed with DAC is included herein by specific cross- reference. Such information is also posted on the MTA website at www.mta.info/mta/investor/index.html for convenience. Such information is accurate as of its respective date.

Certain statements included in this Appendix A constitute “forward-looking statements.” Such statements generally are identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget,” “project,” “forecast” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the captions “STATISTICAL AND FINANCIAL INFORMATION – FINANCIAL PLANS AND CAPITAL PROGRAMS” in Part 3 and “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS” in Part 4. 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 paragraphs, 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.

APPENDIX A Table of Contents

Page A

PART 1. BUSINESS...... 1 THE RELATED ENTITIES ...... 2 Legal Status and Public Purpose...... 2 Governance...... 3 Facilities and Operations...... 3 Financial Operations ...... 5 Management...... 8 PART 2. OPERATIONS...... 10 TRANSIT SYSTEM ...... 11 Legal Status and Public Purpose...... 11 Management...... 11 History of the Transit System ...... 12 Description of the Transit System...... 13 Relationships with the State, the City and the Federal Government...... 14 COMMUTER SYSTEM...... 15 Legal Status and Public Purpose...... 15 Management...... 15 Description of the Commuter System...... 16 Relationships with the State, Certain Local Governments and the Federal Government ...... 16 TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY ...... 17 Legal Status and Public Purpose...... 17 Management...... 17 MTA Bridges and Tunnels Facilities ...... 18 Authorized Projects of MTA Bridges and Tunnels...... 19 MTA CAPITAL CONSTRUCTION COMPANY ...... 20 Legal Status and Public Purpose...... 20 Management...... 20 East Side Access ...... 20 Second Avenue Subway ...... 22 No. 7 Subway Line Extension...... 23 Lower Manhattan Projects: Fulton Street Transit Center and South Ferry Terminal...... 23 STATEN ISLAND RAPID TRANSIT OPERATING AUTHORITY...... 27 Legal Status and Public Purpose...... 27 Management...... 27 METROPOLITAN SUBURBAN BUS AUTHORITY ...... 28 Legal Status and Public Purpose...... 28 Management...... 28 MTA BUS COMPANY ...... 29 Legal Status and Public Purpose...... 29 Description of the MTA Bus System...... 29 Management...... 29 PART 3. STATISTICAL AND FINANCIAL INFORMATION...... 31 RIDERSHIP AND FACILITIES USE...... 32 Transit System (MTA New York City Transit and MaBSTOA) Ridership...... 32 Commuter System Ridership ...... 39 MTA Bus Ridership...... 42 MTA Bridges and Tunnels – Total Revenue Vehicles ...... 44 Toll Rates...... 45

Competing Facilities and Other Matters ...... 47 E-ZPass...... 48 REVENUES OF THE RELATED ENTITIES...... 49 Fares and Tolls...... 49 State and Local General Operating Subsidies...... 51 State Special Tax Supported Operating Subsidies ...... 52 MTA Bridges and Tunnels Surplus ...... 53 Financial Assistance and Service Reimbursements from Local Municipalities...... 56 Miscellaneous Revenues...... 56 Mortgage Recording Taxes...... 57 Operating Funding for the Transit and Commuter Systems...... 60 METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS ...... 62 MetroCard...... 62 E-ZPass...... 62 Commuter Railroads ...... 63 General...... 63 FINANCIAL PLANS AND CAPITAL PROGRAMS ...... 64 2008-2011 Financial Plan ...... 64 Capital Programs – Background and Development ...... 66 2008 – 2013 Capital Program Required by Congestion Pricing Legislation ...... 67 2005-2009 MTA Capital Program ...... 67 Construction Cost Overruns...... 72 Proposed Amendments to the MTA Capital Programs...... 72 2005-2009 MTA Bridges and Tunnels Capital Program ...... 74 1992-2004 Transit Capital Program Objectives...... 74 1992-2004 Commuter Capital Program Objectives...... 75 1992-2004 MTA Bridges and Tunnels Capital Programs...... 75 Oversight and Review of Administration of Capital Programs ...... 75 Non-Capital Program Projects ...... 76 FUTURE CAPITAL NEEDS...... 77 INVESTMENT POLICY...... 77 PART 4. PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS...... 78 GENERAL...... 79 Financing of Capital Projects and Statutory Ceiling...... 79 MTA Capital Program Bonds ...... 80 Non-Capital Program Securities ...... 81 Interagency Loans...... 82 Leasing...... 82 Types of Debt Outstanding ...... 83 Swap Agreements Relating to Synthetic Fixed Rate Debt...... 83 Counterparty Ratings ...... 89 Risks Associated with the Swap Agreements ...... 90 TRANSPORTATION REVENUE BONDS ...... 97 General...... 97 Pledged Transportation Revenues...... 98 Description of Pledged Revenues ...... 101 Factors Affecting Revenues...... 101 Security – General ...... 102 Pledge Effected by the Resolution...... 103 Flow of Revenues ...... 103 Covenants ...... 105 MTA BRIDGES AND TUNNELS SENIOR REVENUE BONDS...... 106 Sources of Payment ...... 107 Security – General ...... 109 Pledge Effected by the MTA Bridges and Tunnels Senior Resolution...... 110 Revenues and Additional MTA Bridges and Tunnels Projects...... 110

Flow of Revenues ...... 110 Rate Covenant...... 111 Additional Bonds ...... 111 Refunding Bonds ...... 112 Subordinate Obligations...... 112 MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS ...... 113 Sources of Payment ...... 114 Security – General ...... 115 Pledge Effected by the MTA Bridges and Tunnels Subordinate Resolution ...... 116 Revenues and Additional Subordinate MTA Bridges and Tunnels Projects...... 116 Flow of Revenues ...... 116 Rate Covenant...... 117 Additional Subordinate Revenue Bonds ...... 117 Refunding Subordinate Revenue Bonds ...... 118 DEDICATED TAX FUND BONDS ...... 119 Sources of Payment – Revenues from Dedicated Taxes...... 120 Factors Affecting Revenues from Dedicated Taxes...... 123 Security – General ...... 123 Pledge Effected by the DTF Resolution...... 124 Flow of Funds ...... 124 Debt Service Fund ...... 127 Covenants ...... 127 Parity Debt...... 128 Appropriation by the State Legislature ...... 128 Agreement of the State...... 129 MTTF Receipts – Dedicated Petroleum Business Tax ...... 129 MTTF Receipts – Motor Fuel Tax...... 133 MTTF Receipts – Motor Vehicle Fees...... 135 MMTOA Account — Special Tax Supported Operating Subsidies ...... 136 STATE SERVICE CONTRACT BONDS...... 141 Sources of Payment – General...... 142 Conditions in the State Service Contract ...... 142 Nature of State’s Obligation to Make State Service Contract Payments ...... 143 Pledge Effected by the State Service Contract Bond Resolution...... 143 Agreement with the State...... 144 PART 5. REGULATORY, EMPLOYMENT, INSURANCE AND LITIGATION MATTERS...... 145 FEDERAL AND STATE LAWS...... 146 General...... 146 Transit System ...... 146 Commuter System...... 146 MTA Bridges and Tunnels...... 147 EMPLOYEES, LABOR RELATIONS AND PENSION AND OTHER POST- EMPLOYMENT OBLIGATIONS...... 148 General...... 148 MTA Headquarters ...... 148 Transit System ...... 148 MTA Bus ...... 149 Commuter System...... 149 MTA Bridges and Tunnels...... 149 MTA Staten Island Railway...... 149 MTA Long Island Bus ...... 150 OPEBs...... 150 INSURANCE...... 152 General...... 152 Property Insurance Program ...... 152

iii

Commuter Stations and Force Liability ...... 153 FMTAC Excess Loss Fund...... 154 All Agency Protective Liability ...... 156 Paratransit and Non-Revenue Vehicle Policies...... 156 Premises Liability ...... 156 Owner Controller Insurance Program...... 157 Builder’s Risk ...... 157 LITIGATION...... 158 General...... 158 MTA ...... 158 Transit System ...... 159 MTA Bus ...... 159 Commuter System...... 159 MTA Bridges and Tunnels...... 159 MTA Long Island Bus ...... 160

PART 1. BUSINESS

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THE RELATED ENTITIES

Legal Status and Public Purpose

The Metropolitan Transportation Authority (“MTA”), a public benefit corporation of the State of New York (the “State”), has the responsibility for developing and implementing a unified mass transportation policy for The City of New York (the “City”) and Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester counties (collectively with the City, the “MTA Commuter Transportation District”).

MTA carries out these responsibilities directly and through its subsidiaries and affiliates, which are also public benefit corporations. The following entities, listed by their legal names, are subsidiaries of MTA:

• The Long Island Rail Road Company, • Metro-North Commuter Railroad Company, • Staten Island Rapid Transit Operating Authority, • Metropolitan Suburban Bus Authority, • MTA Bus Company, and • MTA Capital Construction Company.

The following entities, listed by their legal names, are affiliates of MTA:

• Triborough Bridge and Tunnel Authority, and • New York City Transit Authority, and its subsidiary, the Manhattan and Bronx Surface Transit Operating Authority.

MTA and the foregoing subsidiaries and affiliates are collectively referred to herein, from time to time, as the “Related Entities.” Throughout this Appendix A, the Related Entities are referred to by their popular names, which are listed below under “Use of Popular Names.”

Certain insurance coverage for the Related Entities is provided by a New York State-licensed captive insurance public benefit corporation subsidiary of MTA, First Mutual Transportation Assurance Company (“FMTAC”). See “INSURANCE” in Part 5.

MTA and its subsidiaries are generally governed by the Metropolitan Transportation Authority Act, being Title 11 of Article 5 of the New York Public Authorities Law, as from time to time amended (the “MTA Act”).

Triborough Bridge and Tunnel Authority is generally governed by the Triborough Bridge and Tunnel Authority Act, being Title 3 of Article 3 of the New York Public Authorities Law, as from time to time amended (the “MTA Bridges and Tunnels Act”).

The New York City Transit Authority and its subsidiary are generally governed by the New York City Transit Authority Act, being Title 9 of Article 5 of the New York Public Authorities Law, as from time to time amended (the “MTA New York City Transit Act”).

Due to the continuing business interrelationship of the Related Entities and their common governance and funding, there are provisions of each of these three acts (the MTA Act, the MTA Bridges and Tunnels Act and the MTA New York City Transit Act) that affect some or all of the other Related Entities in various ways.

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Use of Popular Names

The following table sets forth the legal and popular names of the Related Entities. Throughout this Appendix A, reference to each agency will be made using its popular name.

Legal Name Popular Name Metropolitan Transportation Authority MTA

New York City Transit Authority MTA New York City Transit Manhattan and Bronx Surface Transit Operating Authority MaBSTOA Staten Island Rapid Transit Operating Authority MTA Staten Island Railway MTA Bus Company MTA Bus Metropolitan Suburban Bus Authority MTA Long Island Bus

The Long Island Rail Road Company MTA Long Island Rail Road Metro-North Commuter Railroad Company MTA Metro-North Railroad

MTA Capital Construction Company MTA Capital Construction

Triborough Bridge and Tunnel Authority MTA Bridges and Tunnels

Governance

MTA’s Board consists of a Chairman and 16 other voting Members, two non-voting Members and four alternate non-voting Members, all of whom are appointed by the Governor with the advice and consent of the State Senate. The four voting Members required to be residents of the counties of Dutchess, Orange, Putnam and Rockland, respectively, cast only one collective vote. The other voting Members, including the Chairman, cast one vote each. Members of MTA are, ex officio, the Members or Directors of the other Related Entities and FMTAC.

On recommendation of the Chairman, the Board appoints the Executive Director who serves as the Chief Executive Officer of MTA and is responsible for the discharge of the executive and administrative functions and powers of the Related Entities. The Executive Director of MTA is, ex officio, Executive Director of the other Related Entities.

Facilities and Operations

The following is a summary of the facilities and operations presently conducted by the Related Entities.

MTA Headquarters. MTA Headquarters includes the executive staff of MTA, as well as a number of departments that perform largely all-agency functions, including audit, budget and financial management, capital programs management, finance, governmental relations, insurance and risk management, legal, planning, procurement, real estate and treasury. In addition, MTA maintains its own Police Department with non-exclusive jurisdiction over all facilities of the Related Entities, and MTA Headquarters is responsible for the costs and expenses of such police department.

Transit System. MTA New York City Transit and its subsidiary MaBSTOA operate all subway transportation and substantially all of the public bus transportation within the City (the “Transit System”). Throughout this Appendix A, unless otherwise noted, the term “Transit System” includes only the operations of MTA New York City Transit and its subsidiary MaBSTOA, and does not include the operations of MTA Staten Island Railway (except for certain capital projects included in the Transit Capital Programs, as defined below under “—Capital Programs”), MTA Bus or MTA Long Island Bus.

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Commuter System. MTA Long Island Rail Road and MTA Metro-North Railroad operate commuter rail services in the MTA Commuter Transportation District (the “Commuter System”).

• MTA Long Island Rail Road operates commuter rail service between the City and Long Island and within Long Island.

• MTA Metro-North Railroad operates commuter rail service between the City and the northern suburban counties of Westchester, Putnam and Dutchess; from the City through the southern portion of the State of Connecticut; through an arrangement with New Jersey Transit, the Port Jervis and Pascack Valley commuter rail services to Orange and Rockland Counties; and within such counties and the State of Connecticut.

MTA Bus. MTA Bus operates certain bus routes in the City formerly served by seven private bus operators pursuant to franchises granted by the City (the “MTA Bus System”). Under an agreement between the MTA and the City, the City is responsible for paying MTA Bus the difference between the actual cost of operation and all revenues and subsidies received by MTA Bus and allocable to the operation of the routes. Certain portions of the MTA Bus capital program are included in the capital programs approved by the Review Board as described below under “—Capital Programs.” The City is not currently responsible for paying debt service on bonds issued by MTA for the benefit of MTA Bus; the debt service on such bonds is being paid by MTA Bus and MTA. MTA Bus is an “Additional Related Transportation Entity” within the meaning of the Transportation Resolution (as hereinafter defined), which allows MTA Bus to finance its capital projects with Transportation Revenue Bonds. See “TRANSPORTATION REVENUE BONDS” in Part 4.

MTA Long Island Bus. MTA Long Island Bus operates bus service on Long Island, predominantly in Nassau County. MTA pays from unencumbered funds the operating expenses of MTA Long Island Bus not covered by fares, State and local subsidies and other amounts. Capital needs of MTA Long Island Bus are funded by Nassau County, which owns the MTA Long Island Bus facilities.

MTA Staten Island Railway. MTA Staten Island Railway operates a single rapid transit line extending from the Staten Island ferry terminal at St. George to the southern tip of Staten Island. MTA pays from unencumbered funds the operating expenses of MTA Staten Island Railway not covered by fares, State and local subsidies and other amounts. Capital needs of MTA Staten Island Railway are financed under Transit Capital Programs.

MTA Bridges and Tunnels. MTA Bridges and Tunnels operates all nine of the intra-State toll bridges and tunnels in the City.

• MTA Bridges and Tunnels is authorized to issue its own obligations to finance the cost of capital costs and projects of its own facilities and the Transit and Commuter Systems.

• MTA Bridges and Tunnels’ annual operating surplus, after meeting its own expenses and after payment of debt service on its own obligations, is used to fund the operating expenses of the Transit System and the Commuter System and/or to finance the cost of certain capital costs and projects of the Transit System and the Commuter System, including payment of debt service on obligations of MTA issued to finance such costs and projects.

• MTA Bridges and Tunnels’ annual surplus investment income, after meeting its own expenses and after payment of debt service on its own obligations, is used at the MTA Board’s discretion to fund the operating or capital expenses of any of the Related Entities.

MTA Capital Construction. MTA Capital Construction is responsible for the planning, design and construction of current and future major MTA system expansion projects for the other Related Entities, including East Side Access (bringing MTA Long Island Rail Road into Grand Central Terminal), extension of the No. 7 subway line from Times Square south to 34th Street and Eleventh Avenue in Manhattan, the

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Lower Manhattan Fulton Street Transit Center, the new South Ferry station complex in lower Manhattan, system-wide capital security projects, and the Second Avenue Subway.

Capital Programs. MTA is required to prepare and submit for approval to the Metropolitan Transportation Authority Capital Program Review Board (the “Review Board”) successive five-year capital programs for the (1) Transit System and MTA Staten Island Railway and (2) Commuter System. MTA Bridges and Tunnels, MTA Bus and MTA Long Island Bus undertake their own capital planning that is not subject to Review Board approval; however, certain security projects of MTA Bridges and Tunnels and certain capital projects of MTA Bus have been included in Review Board-approved MTA Capital Programs (as defined below).

As used in this Appendix A, the following terms shall have the following definitions:

• The term “Capital Program,” as used in connection with any five-year period, shall refer to the combined “MTA Capital Program” and “MTA Bridges and Tunnels Capital Program” for that period. For example, the term “2005-2009 Capital Program” shall refer to the combined “2005- 2009 MTA Capital Program” and the “2005-2009 MTA Bridges and Tunnels Capital Program.”

• The term “MTA Capital Program,” as used in connection with any five-year period, shall refer to the combined “MTA Transit Capital Program” and “MTA Commuter Capital Program” for that period. For example, the term “2005-2009 MTA Capital Program” shall refer to the combined “2005-2009 Transit Capital Program” and the “2005-2009 Commuter Capital Program.”

• The term “Transit Capital Program,” as used in connection with any five-year period, shall refer to the capital program for MTA New York City Transit, MaBSTOA and MTA Staten Island Railway that is approved by the Review Board for that five-year period.

• The term “Commuter Capital Program,” as used in connection with any five-year period, shall refer to the capital program for MTA Long Island Rail Road and MTA Metro-North Railroad that is approved by the Review Board for that five-year period.

• The term “MTA Bridges and Tunnels Capital Program,” as used in connection with any five-year period, shall refer to the capital program for MTA Bridges and Tunnels that is adopted by the Board, but that does not need the approval of the Review Board to become effective.

Financial Operations

The MTA Board has adopted financial planning and budgeting practices for the Related Entities that require the preparation of four-year financial plans covering the existing and three future fiscal (or calendar) years. The preparation of the financial plans of the Related Entities includes provision for capital spending (including debt service) authorized by the Capital Programs of the Related Entities, including those Capital Programs approved by the Review Board as described above.

The implementation of the financial plans, as adopted from time to time, and the Capital Programs, as submitted and amended from time to time, are interrelated and complex. Any failure to implement an important component of one can adversely affect the implementation of the other. See generally “FINANCIAL PLANS AND CAPITAL PROGRAMS” in Part 3.

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Financial Plans and Budgetary Practices.

• The MTA Board’s financial planning and budgeting practices for the Related Entities require the following in each year:

o In July of each year, the Executive Director will submit to the MTA Board a preliminary budget for the next year and an update to the four-year financial plan (which includes the next year and the three years thereafter).

o In September and October, the MTA Board and the operating committees of the MTA Board will include the July preliminary budget and financial plan on their agendas. Public comments will be solicited at the September meeting.

o In November, a proposed final budget for the next fiscal year, together with a revised four-year financial plan, will be submitted to the MTA Board.

o A final budget for the next fiscal year, following public comment, will be adopted by the MTA Board by no later than December 31.

o No later than February, the MTA Budget staff will issue a report containing the supporting schedules for the current year budget as adopted by the MTA Board the preceding December, as well as an update to the four-year financial plan.

• Budget and financial plan documents are distributed to certain elected officials and posted on MTA’s website for review by the public.

• Each of the Related Entities (other than MTA Bridges and Tunnels) is required by law to adopt an annual budget that is self-sustaining on a cash basis, including self-generated fares, tolls and other revenues, as well as operating subsidies of various types from numerous sources, including the State and local governments. MTA Bridges and Tunnels generates surplus funds to finance the Transit and Commuter Systems.

• MTA is required each year to update and submit to the Governor a five-year strategic operation plan (that extends by one year the period covered by the four-year financial plan referenced above) that includes not only estimated operating and capital cost information, but also long-range goals and objectives, planned service and performance standards, and strategies to improve productivity.

• The State Comptroller has promulgated regulations that require the Related Entities to follow certain guidelines in reporting certain budget and financial plan information.

• In an effort to present standardized financial reporting among all of the Related Entities, a common chart of accounts has been adopted and other financial reporting changes have been made.

• MTA prepares quarterly unaudited consolidated financial statements on behalf of the Related Entities as described below under “—Quarterly Financial Statement Reports.”

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Five-Year Capital Programs.

• The MTA Act requires the preparation of five-year capital programs for the (1) Transit System and MTA Staten Island Railway and (2) Commuter System. MTA has included certain aspects of funding the MTA Bus capital program in approved Capital Programs and certain MTA Bridges and Tunnels security projects are included in a broader list of security projects in approved Capital Programs.

• Though not required by law, MTA Bridges and Tunnels prepares its own capital program that covers the same time period as the MTA Capital Programs.

• MTA Bus’ annual capital program is prepared by MTA.

• MTA Long Island Bus’ annual capital program is prepared and funded by Nassau County after consultation with MTA.

• The capital programs of MTA Bridges and Tunnels, MTA Bus and MTA Long Island Bus are not required to be approved by the Review Board.

• For information relating to the most recent Capital Programs, see “FINANCIAL PLANS AND CAPITAL PROGRAMS” in Part 3.

Quarterly Financial Statement Reports. MTA issues unaudited quarterly financial statement reports for the Related Entities on a consolidated basis. The reports will be filed with the Nationally Recognized Municipal Securities Information Repositories and will be posted on MTA’s website. The review of the quarterly financial statements is conducted in accordance with the standards established by the American Institute of Certified Public Accountants.

Interagency Loans. The Related Entities are authorized to transfer their revenues, subsidies and other moneys or securities to another Related Entity for use by such other Related Entity, provided at the time of such transfer it is reasonably anticipated that the moneys and securities so transferred will be reimbursed, repaid or otherwise provided for by the end of the next succeeding calendar year. The use of interagency loans has allowed the Related Entities to meet their operating needs and other periodic financial commitments without the use of public or private cash flow borrowings. The last publicly-offered cash flow borrowing was in 1996.

Public Statements and Reports by Others. From time to time, the Governor, the State Comptroller, the Mayor of the City, the City Comptroller, County Executives, State legislators, City Council Members and other persons or groups may make public statements, issue reports, institute proceedings or take actions that contain predictions, projections or other information relating to the Related Entities or their financial condition, including potential operating results for the current fiscal year and projected baseline surpluses or gaps for future years, that may vary materially from, question or challenge the information provided herein or in budgets or financial plans prepared by MTA. While MTA may not directly respond to each such statement or action, MTA intends to keep its Continuing Disclosure Filings current and to prepare the quarterly financial statement reports described above. Investors and other market participants should, however, refer to MTA’s filings, from time to time, for information regarding the Related Entities and their financial condition.

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Management

• The Chairman and Members of MTA, by statute, are also the Chairman and Members of the other Related Entities.

• On recommendation of the Chairman, MTA is required to appoint an executive director and, pursuant to the by-laws of MTA, is authorized to appoint additional officers, who are together responsible for the administration and day-to-day operations of MTA.

• The Executive Director of MTA is its chief executive officer and is responsible for the discharge of the executive and administrative functions and powers of the Related Entities. The Executive Director of MTA is, ex officio, Executive Director of the other Related Entities.

• Each of the Related Entities has its own management structure that is responsible for its day-today operations.

The following are brief biographies of MTA’s senior officers.

H. Dale Hemmerdinger, Chairman since October 2007. Mr. Hemmerdinger is president and director of the Hemmerdinger Corporation, a commercial and residential real estate ownership and development company based in New York City. He also serves as president of Atco Properties & Management and Atco Properties Services Corporation. Within the industry he serves as executive vice president of the Realty Foundation of New York, is a member of the Real Estate Board of New York, and is a former commissioner of the City of New York Conciliation and Appeals Board. Mr. Hemmerdinger is active in civic and business affairs and is a trustee and secretary/treasurer of the NYC Police Foundation, a partner in the Partnership for New York City, and trustee and chairman emeritus of the Citizens Budget Commission. He is a board member of Valley National Bank. He is a 1967 graduate of New York University and is a trustee of the university, where he is on the budget/finance, alumni relations as Chairman, library, and executive committees.

Elliot “Lee” Sander, Executive Director and Chief Executive Officer of the Metropolitan Transportation Authority since January 2007. Mr. Sander has over 25 years of public and private sector experience executing high profile transportation programs and projects in the New York metropolitan area. He is a former Senior Vice President at DMJM Harris, a global transportation infrastructure firm, and former Director and Founder of the Rudin Center for Transportation Policy and Management at New York University. In his public service career he has served in a variety of positions, including Commissioner of New York City Department of Transportation, Commissioner on the New York City Taxi and Limousine Commission, Director of Transit for New York State Department of Transportation, Deputy Commissioner in the New York State Division of Housing and Community Renewal, where he oversaw the State’s rent regulatory system, Assistant General Manager for MTA New York City Transit, where he ran the Manhattan Bus System, and Executive Director of Operational Services at New York City Department of Transportation, where he oversaw the City’s municipal parking system and borough traffic engineering. Mr. Sander began his career as a budget analyst in the New York City Office of Management and Budget. He is also a graduate of the School of Foreign Service at Georgetown University.

Susan Kupferman, Chief Operating Officer since October 2007. Previously, Ms. Kupferman served as Acting Chief Operating Officer from January 2007 through October 2007 and had been President of MTA Bridges and Tunnels from March 2006 through January 2007. Prior to then, Ms. Kupferman served as Director of the New York City Mayor’s Office of Operations for Mayor Michael R. Bloomberg where she was responsible for promoting the efficient and effective delivery of public services. During her tenure as the Director, Ms. Kupferman also served as the Mayor’s advisor and leading representative on the Board of MTA. Prior to her appointment in City government, Ms. Kupferman was the first full-time Co-Director of the Rudin Center for Transportation Policy and Management, a research and policy arm of New York University’s Robert F. Wagner Graduate School of Public Service. Ms. Kupferman guest lectured at graduate level courses, and today continues her affiliation with the Center as both a Visiting Scholar, and as a member of its Advisory Committee. Prior to her Rudin Center position, Ms. Kupferman enjoyed a 20-

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year career in New York State government, serving in senior positions in a variety of transportation and infrastructure organizations, including as Deputy Executive Director for Planning, Policy and Capital Programs at MTA, Director of the Department of Strategic Planning and External Affairs at the New York State Thruway Authority, Assistant Secretary for Transportation under Governor Mario M. Cuomo, and on the staff of the New York State Senate Finance Committee. She holds Master of Arts and Bachelor of Arts degrees from The State University of New York at Albany.

Gary Dellaverson, Chief Financial Officer since March 2007. In this position, Mr. Dellaverson is responsible for the Budgets and Financial Management, Finance and Treasury departments at the MTA. Prior to this position, Mr. Dellaverson served as MTA’s Director of Labor Relations and Chief Labor Negotiator since 1990. He was also responsible for the MTA’s Human Resource functions. Prior to joining MTA, Mr. Dellaverson served as Deputy Fire Commissioner for Administration for the New York City Fire Department, Assistant Director for the Mayor’s Office of Labor Relations, and as an attorney representing labor and management clients. Mr. Dellaverson is a graduate of Columbia College and New York University’s School of Law.

Gary M. Lanigan, Director of Budgets and Financial Management since March 2004 and Deputy Director of Budgets and Financial Management since June 2003. Prior to his position at the MTA, Mr. Lanigan served as the First Deputy Commissioner of the New York City Department of Correction where he was responsible for the administrative and operational workings of the largest detention system in the country. He also served as the Deputy Commissioner of Administration at the Department of Correction where he was directly responsible for the preparation and administration of the Department’s expense and capital budgets, personnel and payroll functions, management information systems and telecommunications. Before embarking on his 10-year career at the Correction Department, Mr. Lanigan held various positions in the New York City Police Department, including Assistant Commissioner of the Financial Management Division where he researched, prepared and analyzed the NYPD annual expense budget and ten-year capital program, as well as the ancillary revenue and contract budgets, and the four-year financial plan. Mr. Lanigan also held various positions at the New York City Office of Management and Budget. Mr. Lanigan received his MPA and BBA from Bernard M. Baruch College, School of Business & Public Administration. He has also completed executive training at Columbia University, Police Management Institute; Harvard University, John F. Kennedy School of Government; and the National Institute of Justice Executive Development for Deputy Directors.

James B. Henly, General Counsel since January 2007. Prior to joining MTA, Mr. Henly was Chief of the Litigation Bureau at the Office of State Attorney General from 1999 to January 2007. Mr. Henly served as an Assistant Corporation Counsel in the New York City Law Department from 1991 to 1999, prior to which he worked as a law clerk to United States District Court Judge Robert W. Sweet, Southern District of New York and as a litigation associate at the firm of Debevoise & Plimpton. Mr. Henly received a B.A. in Anthropology from Stanford University in 1984 and a J.D. from Yale Law School in 1987.

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PART 2. OPERATIONS

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TRANSIT SYSTEM (popular names – MTA New York City Transit and MaBSTOA)

Legal Status and Public Purpose

MTA New York City Transit was created in 1953 pursuant to the MTA New York City Transit Act for the purposes of acquiring the transit facilities then operated by the City and operating them for the convenience and safety of the public.

MaBSTOA was created as a public benefit corporation in 1962 as a statutory subsidiary of MTA New York City Transit to operate the bus routes that had been operated by Surface Transit, Inc. and Fifth Avenue Coach Lines, Inc. prior to their acquisition by the City.

Pursuant to the MTA New York City Transit Act, MTA New York City Transit and the City entered into an agreement of lease dated June 1, 1953 providing for the lease to MTA New York City Transit of the transit facilities then owned or thereafter to be acquired or constructed by the City for use in the fulfillment of MTA New York City Transit’s corporate purposes. In connection with the creation of MaBSTOA, MTA New York City Transit agreed that bus lines acquired by the City would be leased to MaBSTOA by the City for operation and maintenance by MaBSTOA. Such lease with MaBSTOA was entered into on March 20, 1962.

MTA New York City Transit became an affiliate of MTA in 1968. The Chairman and Members of MTA, by statute, are also the Chairman and Members of MTA New York City Transit and Directors of MaBSTOA, and the Executive Director of MTA is, ex officio, Executive Director of MTA New York City Transit. The Executive Director is responsible for the discharge of the executive and administrative functions and powers of MTA New York City Transit. The President of MTA New York City Transit is primarily responsible for the general management and operation of MTA New York City Transit. The executive personnel of MTA New York City Transit and MaBSTOA report to the President of MTA New York City Transit.

Management

The following are brief biographies of the MTA New York City Transit’s senior officers, who also serve as MaBSTOA’s senior officers.

Howard H. Roberts, Jr., President since April 2007. Mr. Roberts served in the U.S. Army from 1961 to 1981, and served in positions of leadership at MTA New York City Transit from 1981 to 1986, first as Finance and Administration Vice President (June 1981 to April 1983) and then as Surface Transit Vice President and Chief Operating Officer (April 1983 to September 1986). Mr. Roberts joined the Southeastern Pennsylvania Transportation Authority (SEPTA) in 1989, where he served as Deputy General Manager until January 1997. In that role, Mr. Roberts was responsible for managing all operations and overseeing construction for the fourth largest regional transportation system in the country. Mr. Roberts graduated from the United States Military Academy at West Point and holds masters degrees in public affairs and engineering from Princeton University.

Michael P. Chubak, Executive Vice President since October 2007. Mr. Chubak is responsible for budget and controller, procurement and distribution, revenue collection, information services, operations planning, and government and community relations functions. Prior to his appointment in 2007, Mr. Chubak was Director of MTA New York City Transit’s Office of Management and Budget, and his 26-year career with the agency also includes managerial positions in the Department of Capital Budget. He began his career with MTA in the Department of Subways. Mr. Chubak holds BA and MBA degrees, both from Columbia University.

Cosema E. Crawford, P.E., Senior Vice President and Chief Engineer since January 2004. Ms. Crawford is responsible for Capital Program Management. Prior to joining MTA New York City Transit in May 2001, Ms. Crawford served as Chief Engineer for the NYC Department of Transportation, and was a

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senior manager at Parsons Transportation Group. Ms. Crawford holds bachelors and masters degrees in engineering from Princeton University.

Martin B. Schnabel, Vice President and General Counsel since November 1996. Mr. Schnabel joined MTA New York City Transit in 1976. Prior to being appointed General Counsel, Mr. Schnabel served as Executive Assistant General Counsel. Mr. Schnabel is responsible for managing the various Law Department divisions. Mr. Schnabel received his Juris Doctor degree from Boston University.

Steven A. Feil, Senior Vice President, Subways since November 2007. Mr. Feil oversees the maintenance and operation of the subway systems signals, track, power distribution, rolling stock, and station infrastructure. In addition, Mr. Feil is responsible for telecommunications and electronic maintenance. Mr. Feil returned to NYC Transit in August, 2007 as the Chief of Operations, Service Delivery, having served previously in the position of Superintendent /General Superintendent in the Track Division. Mr. Feil has held the position of Chief Operating Officer of Washington Metropolitan Area Transit Authority and also has held senior management positions with Bergen Light Rail and Amtrak. Mr. Feil holds a BA cum laude in political science from CUNY-Lehman College and a MS in transportation engineering from Brooklyn Polytechnic University.

Joseph J. Smith, Senior Vice President, Buses since July 2007. Mr. Smith oversees all aspects of NYCT bus operations. Since joining MTA New York City Transit's Department of Buses in 1977, he has served in a variety of increasingly high-level management positions including General Manager of the Manhattan Division. In 2004, Mr. Smith coordinated the effort to consolidate seven private bus companies, operating under franchises granted by the New York City Department of Transportation, into a single MTA subsidiary, MTA Bus Company. He has attended executive management courses at Harvard University and Northeastern University.

History of the Transit System

General. Mass transit has played a vital role in the development of the City from its earliest days. It continues to be essential to the economic life of the metropolitan area and for a substantial portion of the population of the metropolitan area it represents the principal means of transportation within the City and to and from places of employment. The intense concentration of commercial, financial, cultural, industrial and residential development that exists in the 22 square miles comprising the Borough of Manhattan, particularly its central business district, would not be feasible without an extensive system of mass transit.

Subway System. Construction of the first subway in the City (the IRT) began in 1900 and was completed in 1904. Although built with City funds, it was leased to and operated by a private company. A major expansion of the subway system was completed in various stages between 1918 and 1922. A portion of the expanded system was incorporated into the IRT and the remainder, the BMT, was leased to another private company. In 1924, the City Board of Transportation was created to plan, construct and operate a third subway system (the IND). That system was completed in various stages between 1932 and 1940.

In 1940, the City acquired the franchise rights and properties of the IRT and BMT from the private companies that had operated those lines and that were then in reorganization and the entire subway system was placed under the control of the City Board of Transportation. In 1953, the subway system was leased to the then newly-formed MTA New York City Transit.

Although a number of changes have been made to the fixed physical plant of the subway system since 1940, such as the closing of the oldest elevated lines and the integration of the several systems, there were no significant alterations of the basic physical configuration of the subway network since that time until MTA New York City Transit opened the Archer Avenue Line extension and the 63rd Street Tunnel in 1988 and 1989, respectively, along with three new subway stations along each of these routes.

With the opening of the 63rd Street Connector in December 2001, MTA New York City Transit introduced the first new subway line in more than two decades. The Connector links the Queens Boulevard

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subway line to the 63rd Street Tunnel into Manhattan. The new “V” train provided immediate benefits to riders who travel the Queens Boulevard line each day.

MTA is in the process of developing new expansions and improvements to the Transit System, including the extension of the No. 7 subway line from Times Square south to 34th Street and Eleventh Avenue in Manhattan, the Lower Manhattan Fulton Street Transit Center, the new South Ferry station complex in lower Manhattan and the Second Avenue Subway. For more information about these projects, see “MTA CAPITAL CONSTRUCTION COMPANY” below in this Part 2.

Bus System. During the 1940’s and 1950’s, the City acquired the properties and franchises of a number of private bus companies operating within the City, all of which were leased to MTA New York City Transit at the time of its creation. MaBSTOA was created in 1962 to operate the bus lines formerly operated by the Fifth Avenue Coach Lines, Inc. and Surface Transit, Inc. Both MTA New York City Transit and MaBSTOA have since assumed the operation of additional franchises and routes.

Although most bus service within the City is operated by MTA New York City Transit and MaBSTOA, private bus companies continue to operate local service on certain routes within the City and provide certain bus services between the outer boroughs and the Manhattan central business district. MTA Bus is currently operating the bus routes formerly operated by seven of those franchise private bus companies. See “MTA BUS COMPANY” below.

Description of the Transit System

Subway System. The City’s rapid transit system is by far the largest in the nation. Only a few cities in the world have a subway system comparable in physical size and ridership. The subway system has over 656 miles of mainline track extending 230 route miles. It operates 24 hours a day, 365 days a year, although certain lines are not in service the entire day and frequency of service varies by route and time of day. In calendar year 2007, 1.6 billion revenue passengers used the subway. It currently has a fleet of 6,485 subway cars, two major subway car repair shops, 13 maintenance shops, 23 subway car storage yards and 466 active passenger stations. As of December 31, 2007, MTA New York City Transit employed 27,885 workers in rapid transit.

Bus System. MTA New York City Transit and MaBSTOA presently operate bus service on 244 local and express routes throughout the City. The majority of bus routes are designed to serve passengers traveling within a particular borough or to serve as feeders to the subway system. In calendar year 2007, over 738 million revenue passengers used the bus system. The bus system operates on a continuous basis, although certain bus routes are not in service the entire day and frequency of service varies by route and time of day. As of December 31, 2007, the bus system employed 14,736 persons and operated MTA Budget 4,459 buses.

Paratransit. On July 1, 1993, MTA New York City Transit assumed responsibility from the City for the Access-a-Ride paratransit service in order to increase the efficiency of providing such services by vesting responsibility in a single entity. Access-a-Ride service is provided by private vendors under contract with MTA New York City Transit. Paratransit fares are currently equivalent to the regular undiscounted passenger fare rate of $2.00. Paratransit operations are also supported by six percent of the revenue from the Urban Tax (a portion of a mortgage recording tax and a portion of a property transfer tax imposed upon commercial property in the City). The City contributes an operating subsidy to support paratransit, equal to the lesser of (i) one third of the operating deficit, calculated after deducting paratransit passenger revenue, the above-described Urban Tax revenue, and MTA New York City Transit administrative expenses, or (ii) an amount that is twenty percent greater than the amount paid by the City for the preceding calendar year. Any remaining operating deficit is funded by MTA New York City Transit. Over the years, the costs of the paratransit program have risen substantially in excess of the City’s twenty percent additional funding contribution, so MTA New York City Transit has assumed, and expects to continue to assume, greater costs with respect to the paratransit service.

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Relationships with the State, the City and the Federal Government

State and City. MTA New York City Transit and MaBSTOA receive substantial amounts of funding for the operating and capital costs of the Transit System from appropriations and subsidies provided by the State and the City. In calendar year 2007, State and City operating assistance, special tax supported subsidies and reimbursements for the Transit System constituted, on a cash basis, approximately 47% of the total pledged revenues of MTA New York City Transit and MaBSTOA. To the extent that future operating assistance and the funding of the capital costs of subsequent capital programs projected to be funded by the State and City are subject to their receipt of tax revenues and the making of annual appropriations, the level of such funding may be affected by the general economic conditions in, and the financial condition of, the State and City.

In addition to the operating and capital assistance received by MTA New York City Transit and MaBSTOA from the City, MTA New York City Transit and MaBSTOA are dependent upon the City for the maintenance and repair of City-maintained bridges, streets and other infrastructure necessary for the operation of the Transit System. Water main breaks and other infrastructure problems, including problems on bridges, have in the past and may in the future cause service disruptions.

City infrastructure problems that restrict or preclude service on the Transit System could decrease ridership and revenue levels of the Transit System. The materiality of any such decrease would depend on the nature, severity and duration of the service interruptions.

Federal. MTA New York City Transit and MaBSTOA also receive substantial amounts of funding for the capital costs of the Transit System from grants provided by the Federal government. The Federal government also supplied substantial capital funds for prior Transit Capital Programs. Federal operating assistance is not currently authorized by Federal law for mass transit operations, including the Transit System.

Other. Officials of the State, City and Federal governments and the Inspector General of MTA periodically conduct audits and reviews of the operations of MTA New York City Transit and MaBSTOA. Officers of MTA New York City Transit and MaBSTOA respond to these reports and adopt some of the recommendations made therein or take other appropriate remedial actions.

MTA New York City Transit and MaBSTOA are subject to regulation by Federal and State agencies with responsibilities for safety. In general, they must maintain and equip their tracks and rolling stock in compliance with minimum standards, file reports with respect to certain accidents and incidents and respond to recommendations for improving transit system safety.

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COMMUTER SYSTEM (popular names – MTA Long Island Rail Road and MTA Metro-North Railroad)

Legal Status and Public Purpose

MTA Long Island Rail Road. Through MTA Long Island Rail Road, MTA directly operates commuter railroad service between the City and Long Island and within Long Island (the “MTA Long Island Rail Road Commuter Service”).

MTA Long Island Rail Road was incorporated as a privately-held railroad company in 1834. In 1966, MTA acquired all of the capital stock of MTA Long Island Rail Road from its parent, the Pennsylvania Railroad Company. In February 1980, MTA Long Island Rail Road’s Certificate of Incorporation was amended to convert it into a subsidiary public benefit corporation of MTA organized pursuant to the MTA Act. MTA Long Island Rail Road owns, leases or has easements or other rights to the rolling stock, physical plant and equipment material to its operations.

MTA Metro-North Railroad. Through MTA Metro-North Railroad, MTA directly operates the New Haven Line (pursuant to a joint service agreement with the Connecticut Department of Transportation (“CDOT”)) and the Harlem and Hudson commuter rail services and subsidizes and performs certain other services relating to the State portion of the Port Jervis and Pascack Valley Lines operated, pursuant to a joint service agreement, by NJ Transit (collectively, the “Metro-North Commuter Services”). The Metro- North Commuter Services provide service between the City and the northern suburban counties of Westchester, Putnam and Dutchess and from the City through the southern portion of the State of Connecticut to New Haven, Connecticut and within such counties and such state. The Port Jervis and Pascack Valley Lines provide service from the northern New York suburban counties of Orange and Rockland to northern New Jersey and the City.

MTA Metro-North Railroad was incorporated by MTA on September 22, 1982 as a subsidiary public benefit corporation. MTA or MTA Metro-North Railroad owns, leases or has easements or other rights to the rolling stock, physical plant and equipment material to the operation of the Harlem and Hudson Lines, and to the physical plant and equipment material to the operation of the State portion of the New Haven Line. With respect to the New Haven Line, MTA or MTA Metro-North Railroad owns approximately 55% of the rolling stock and CDOT owns the remainder.

The New Haven Line is operated by MTA Metro-North Railroad pursuant to the terms of an Amended and Restated Service Agreement dated as of June 21, 1985, among the State of Connecticut, by CDOT, MTA and MTA Metro-North Railroad (the “ASA”). Under the provisions of the ASA, at the expiration of each term, it is automatically extended for five years, subject to the right of CDOT or MTA to terminate the ASA on 18 months’ written notice. The current term of the ASA expires on January 1, 2010.

The Port Jervis and Pascack Valley Lines are operated by NJ Transit Rail Operations, Inc. (“NJTRO”) pursuant to the terms of an Agreement for Operation dated as of July 27, 2006, between NJTRO and MTA Metro-North Railroad (the “AFO”), the initial term of which expires on June 30, 2012. Under the provisions of the AFO, at the expiration of each term, it is automatically extended for an additional year, subject to the right of NJTRO or MTA Metro-North Railroad to terminate the AFO by no later than March 15, in which case the AFO will terminate on June 30 of that same year.

Management

The following are brief biographies of the chief operating officers of MTA Long Island Rail Road and MTA Metro-North Railroad.

Helena E. Williams, President of MTA Long Island Rail Road since June 2007. Ms. Williams is the first woman to lead the nation’s busiest commuter railroad. Just prior to joining the LIRR, Ms. Williams worked briefly as Senior Counsel at Cablevision. Prior to that position, Ms. Williams served for five years in the administration of Nassau County Executive Tom Suozzi. Ms. Williams first served at the MTA

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beginning in 1985, where she rose from labor counsel to chief of staff of Long Island Bus before assuming the presidency of Long Island Bus in 1993. In 1999 Williams was inducted into the New York Public Transit Association’s Hall of Fame. Ms. Williams began her career in New York City, working for the Mayor’s Office of Municipal Labor Relations. She holds a J.D. from the St. John’s University School of Law and is admitted to practice law in New York. She has a B.A. with honors from the State University of New York at Oneonta.

Peter A. Cannito, President of MTA Metro-North Railroad since May 1999. Prior to joining MTA Metro-North Railroad, from 1997 to 1999, Mr. Cannito served as Vice President of Rail and Transit Programs with Raytheon Infrastructure Inc., as Executive Vice President of ABB Traction from 1995 to 1997, and in various positions, including Assistant Vice President/General Manager Transportation and Vice President of Engineering, with Amtrak from 1974 to 1995. Mr. Cannito received his B.S. in Business Administration from Canisius College and attended the Advanced Management Program at Harvard Business School.

Description of the Commuter System

MTA Long Island Rail Road Commuter Service and Metro-North Commuter Service are, respectively, the largest and second largest commuter railroad services in the nation. MTA Long Island Rail Road uses 29 yards and 6 major repair shops. MTA Metro-North Railroad uses 15 yards and 5 major repair shops. The commuter services operate every day of the year, although frequency of service varies by route, day of the week and time of day. The following table further details the MTA Long Island Rail Road Commuter Service and the Metro-North Commuter Services.

MTA Long Island Rail Road and MTA Metro-North Railroad Commuter Services as of December 31, 2007(1) Revenue Actual Main Line Passengers Route Track Passenger (in thousands)(2) Stations Miles Miles Cars

MTA Long Island Rail Road 86,098 124 319.1 594.1 1,136 MTA Metro-North Railroad 78,231 109 272.9 701.2 1,057 Totals 164,329 233 592.0 1,295.3 2,193

(1) Certain of the stations, track and passenger cars are not owned by MTA, MTA Long Island Rail Road or MTA Metro-North Railroad. (2) The number of revenue passengers is determined in part by ascribing an assumed frequency of use to holders of weekly and monthly commutation tickets.

Relationships with the State, Certain Local Governments and the Federal Government

State and Local Governments. MTA receives substantial amounts of funding for the operating and capital costs of the Commuter System from appropriations and subsidies provided by the State and certain local governments. In calendar year 2007, State and local operating assistance, special tax supported subsidies and reimbursements for the Commuter System constituted, on a cash basis, approximately 40% of the total pledged revenues of MTA relating to the Commuter System. To the extent that future operating assistance and the funding of the capital costs of subsequent capital programs projected to be funded by the State are subject to its receipt of tax revenues and the making of annual appropriations, the level of such funding may be affected by the current economic conditions in, and the financial condition of, the State.

Federal. MTA also receives substantial amounts of funding for the capital costs of the Commuter System from grants provided by the Federal government. The Federal government supplied funds for prior Commuter Capital Programs. Federal operating assistance is not currently authorized by Federal law for mass transit operations, including the Commuter System.

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Other. Officials of the State, City and Federal governments and the Inspector General of MTA periodically conduct audits and reviews of the operations of MTA Long Island Rail Road and MTA Metro- North Railroad. Officers of MTA Long Island Rail Road and MTA Metro-North Railroad respond to these reports and adopt some of the recommendations made therein or take other appropriate remedial actions.

MTA Long Island Rail Road and MTA Metro-North Railroad are subject to regulation by Federal, State and, with respect to MTA Metro-North Railroad, State of Connecticut agencies with responsibilities for railroad safety. In general, they must maintain and equip their roadbed and rolling stock in compliance with minimum standards, file reports with respect to certain accidents and incidents and respond to recommendations for improving Commuter System safety.

TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY (popular name – MTA Bridges and Tunnels)

Legal Status and Public Purpose

MTA Bridges and Tunnels, a public benefit corporation, became an affiliate of MTA effective March 1, 1968. MTA Bridges and Tunnels is empowered, among other things, to construct and operate certain vehicle bridges, tunnels and highways and other public facilities in the City. The following are the vehicular toll facilities (the “MTA Bridges and Tunnels Facilities”) operated by MTA Bridges and Tunnels:

MTA Bridges and Tunnels Facilities 7 Bridges 2 Tunnels Triborough Bridge Brooklyn-Battery Tunnel Verrazano-Narrows Bridge Queens Midtown Tunnel Bronx-Whitestone Bridge Throgs Neck Bridge Henry Hudson Bridge Marine Parkway-Gil Hodges Memorial Bridge Cross Bay Veterans Memorial Bridge

A more detailed description of the MTA Bridges and Tunnels Facilities is set forth below.

MTA Bridges and Tunnels also operates, pursuant to a management agreement with a private contractor, the Battery Parking Garage located adjacent to the Manhattan plaza of the Brooklyn-Battery Tunnel. The garage was opened in 1950, was recently renovated, and has space for 2,100 vehicles.

Title to the MTA Bridges and Tunnels Facilities and the Battery Parking Garage is vested in the City, but MTA Bridges and Tunnels has the use and occupancy of such facilities so long as its corporate existence continues.

Management

The following are brief biographies of certain senior operating officers of MTA Bridges and Tunnels.

David Moretti, Acting President since January 2007. Prior to being appointed Acting President, Mr. Moretti was Executive Vice President and Chief Financial Officer responsible for Labor Relations, Health and Safety, Technology, Planning and Budget and Finance. Mr. Moretti joined MTA Bridges and Tunnels in 1988 and has held the positions of Deputy CFO and Budget Director. Prior to joining MTA Bridges and Tunnels, Mr. Moretti served as Deputy Assistant Director for the New York City Office of Management and Budget and also participated in research on the privatization of municipal services for the Columbia University Graduate School of Business. Mr. Moretti earned his undergraduate degree in economics from Boston University and has attended the Program for Senior Executives in State and Local Government at Harvard University.

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Thomas Bach, Vice President and Chief Engineer since December 2004. Mr. Bach directs a staff of 170 professionals responsible for the planning, design and construction of MTA Bridges and Tunnels’ capital and major maintenance programs. Prior to coming to MTA Bridges and Tunnels in 1990, Mr. Bach worked for Thomas Crimmins Contracting Company and later Namrod Construction Company. Mr. Bach was involved in numerous high profile projects in the City, including the Second Avenue Subway, 63rd Street Railroad Tunnels, 7 World Trade Center, and 60 Wall Street. Mr. Bach holds a Bachelor of Engineering in Civil Engineering (BECE) from The Cooper Union, 1973, and a Master of Science from Columbia University, 1979. Mr. Bach has been a registered professional engineer in the State of New York since 1978. He was elected to The Moles, a professional organization, in 1988 and is a member of the American Society of Civil Engineers.

Robert M. O’Brien, General Counsel since May 1990. Prior to his present appointment, Mr. O’Brien served as the Chief of Construction Litigation at MTA New York City Transit. He has been a law clerk in the United States Court of International Trade, an Assistant Corporation Counsel of the City of New York and a Senior Trial Attorney with the Criminal Division of the Legal Aid Society. Mr. O’Brien is a graduate of St. John’s Law School and Fordham College. He has completed a program for Senior Government Executives at the John F. Kennedy School of Government at Harvard University.

Donald Spero, Acting Chief Financial Officer since January 2007. Prior to his current appointment, Mr. Spero served as Deputy Chief Financial Officer for Planning and Budget. Since joining MTA Bridges and Tunnels in 1988, he has also served as Director of Capital and Strategic Planning and Director of Capital Budget. Before coming to MTA Bridges and Tunnels, he worked for the New York City Mayor’s Office of Operations as Chief of Staff and Deputy Assistant Director and for the New York City Comptroller’s Office. Mr. Spero holds degrees from Syracuse University and the George Washington University.

MTA Bridges and Tunnels Facilities

The following is a brief description of the MTA Bridges and Tunnels Facilities, listed in order of revenue generation:

Triborough Bridge-Crosses the East River and the Harlem River and connects the Boroughs of Queens, The Bronx and Manhattan. Opened to traffic in 1936, it carries eight traffic lanes between Queens and The Bronx via Ward’s Island and Randall’s Island, and six traffic lanes between Randall’s Island and Manhattan. These three major crossings are interconnected by viaducts.

Verrazano-Narrows Bridge-Connects the Boroughs of Brooklyn and Staten Island. It is a double deck structure with each deck carrying six traffic lanes. The upper deck was opened to traffic in 1964 and the lower deck in 1969.

Throgs Neck Bridge-Crosses the upper East River between the Boroughs of Queens and The Bronx approximately two miles east of the Bronx-Whitestone Bridge. Opened in 1961, it has two roadways, each carrying three traffic lanes.

Bronx-Whitestone Bridge-Crosses the East River and connects the Boroughs of Queens and The Bronx. The roadways of the bridge, which was opened to traffic with four lanes in 1939, were widened so as to carry six traffic lanes commencing in 1946.

Queens Midtown Tunnel-Crosses under the East River and connects the Boroughs of Queens and Manhattan. Opened to traffic in 1940, it consists of twin tubes, carrying an aggregate of four traffic lanes.

Brooklyn-Battery Tunnel-Crosses under the East River at its mouth and connects the Boroughs of Brooklyn and Manhattan. Opened to traffic in 1950, it consists of twin tubes, carrying an aggregate of four traffic lanes.

Henry Hudson Bridge-Crosses the Harlem River between the Spuyten Duyvil section of The Bronx and the northern end of Manhattan. It has two roadway levels, carrying an aggregate of seven traffic lanes,

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the lower level having been opened to traffic in 1936 and the upper level in 1938. The operation of this bridge includes the maintenance of a small part of the Henry Hudson Parkway.

Marine Parkway-Gil Hodges Memorial Bridge–Crosses Rockaway Inlet and connects Rockaway Peninsula, in Queens, with Brooklyn. Opened in 1937, it carries four traffic lanes. The operation of this bridge includes the maintenance of the Marine Parkway from the toll plaza to Jacob Riis Park.

Cross Bay Veterans Memorial Bridge–Crosses Beach Channel in Jamaica Bay to Rockaway Peninsula, and is located in Queens. Reconstructed and opened to traffic in May 1970, this bridge carries six traffic lanes. Its operation includes the maintenance of a small part of the Cross Bay Parkway.

MTA Bridges and Tunnels also operates the Battery Parking Garage. Only the bridges and tunnels constitute MTA Bridges and Tunnels Facilities under the MTA Bridges and Tunnels bond resolutions(1), though the net revenues derived from the operation of the Battery Parking Garage are included as net revenues that are pledged to the payment of such bonds.

MTA Bridges and Tunnels is a founding member of the E-ZPass Interagency Group (“IAG”), which is a consortium of 24 agencies in 12 states that operate an interoperable electronic toll collection system.

Authorized Projects of MTA Bridges and Tunnels

• MTA Bridges and Tunnels’ powers have been broadened by the State Legislature beyond its traditional role as a vehicular toll facility authority within the City. MTA Bridges and Tunnels is also authorized to participate in the financing of the following two public benefit projects:

o the Transit and Commuter Project, and

o the Convention Center Project (Jacob K. Javits Convention Center in Manhattan).

• The Transit and Commuter Project consists of certain capital projects for the benefit of the Commuter System and the Transit System and MTA Staten Island Railway. The capital assets constructed or acquired by MTA Bridges and Tunnels as part of the Transit and Commuter Project are to be transferred or leased for a nominal consideration to MTA or MTA New York City Transit, and neither such conveyance nor any capital grants made as part of the Transit and Commuter Project will produce revenues for MTA Bridges and Tunnels. Alternatively, such capital assets may be sold to parties other than MTA or MTA New York City Transit and leased back by MTA Bridges and Tunnels for subleasing for a nominal consideration to MTA or MTA New York City Transit or leased directly to MTA or MTA New York City Transit at the expense of MTA Bridges and Tunnels.

• The Convention Center Project is not and cannot become a project for which MTA Bridges and Tunnels can issue its Senior Revenue Bonds. In accordance with legislation enacted in 2004, it is expected that MTA Bridges and Tunnels’ outstanding convention center bonds will be defeased with the proceeds of bonds issued by another State-created entity in connection with the financing of the expansion of the Javits Convention Center.

• Under existing law, MTA Bridges and Tunnels has no obligation with respect to the operation and maintenance of the equipment or facilities financed as the Transit and Commuter Project or the Convention Center Project.

(1) For purposes of the bond resolutions, the MTA Bridges and Tunnels Facilities are referred to as the “TBTA Facilities.”

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MTA CAPITAL CONSTRUCTION COMPANY (popular name – MTA Capital Construction)

Legal Status and Public Purpose

MTA Capital Construction Company (“MTACC”) was created as an MTA subsidiary in 2003. MTACC is responsible for administration of the planning, design and construction of major MTA projects. Current projects include three major MTA system expansion projects—East Side Access, Second Avenue Subway, and extension of the No. 7 subway line; two Lower Manhattan Recovery Projects, Fulton Street Transit Center and the new South Ferry Terminal station; and the MTA-wide capital security projects.

Management

The following is a brief biography of the chief operating officer of MTA Capital Construction.

Veronique Hakim, Acting President and Vice President and General Counsel for MTACC since February 2008. Prior to serving as the Acting President, she served as MTACC’s General Counsel. Prior to her work at MTACC, she was Special Counsel at MTA New York City Transit, where she worked since 1987. Ms. Hakim has worked on various large construction and technology projects, including several design/build projects and the development and implementation of the MetroCard System. She earned her Bachelor of Arts from the University of Rochester and her Juris Doctor degree from Pace University School of Law.

Ms. Hakim leads a program management team experienced in executing complex construction projects within funding and schedule constraints. The team frequently employs unique project management strategies in project financing, design management, contract procurement, stakeholder management, and construction management.

East Side Access

The East Side Access project consists of construction of a 3.5 mile commuter rail connection between MTA Long Island Rail Road’s Main and Port Washington lines in Queens to a new terminal to be constructed beneath Grand Central Terminal. The new connection will increase MTA Long Island Rail Road’s capacity into Manhattan, dramatically shorten travel time for Long Island and eastern Queens commuters traveling to the east side of Manhattan, and provide for a new commuter rail station in Sunnyside, Queens. The project cost estimate at completion is $7.2 billion, excluding financing costs, and is scheduled for completion in 2015.

MTA Long Island Rail Road’s current daily passengers total almost 270,000, of which approximately 240,000 depart at Penn Station on the west side of Manhattan, accounting for more than three-quarters of the work trips to Manhattan’s central business district from Queens, Nassau and Suffolk counties. Many of these passengers then walk or take other forms of transportation (including subway, bus and cab) to their jobs on the east side of Manhattan. MTA Long Island Rail Road shares Penn Station, which is at or near its service limits, with trains and subways operated by Amtrak, New Jersey Transit and MTA New York City Transit. This project will allow MTA Long Island Rail Road not only to add service to the east side of Manhattan (the genesis of its name “East Side Access”), but also to provide capacity for new MTA services at Penn Station.

New tunnels will be constructed from the Mainline tracks in Queens, under Amtrak’s Sunnyside Yard and MTA Long Island Rail Road’s existing rail yard, connecting to the existing 63rd Street Tunnel. In Manhattan, new tunnels will be bored from the existing bellmouth at Second Avenue and 63rd Street, west and south, under Park Avenue and MTA Metro-North Railroad’s four-track right-of-way. At Grand Central Terminal, a new passenger concourse will be constructed in space currently occupied by MTA Metro-North Railroad’s Madison Avenue yard. Eight tracks and four wide platforms will be constructed, along with mezzanines and concourses, beneath Park Avenue at an elevation below the existing lower level.

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In 2006, MTA executed a Full Funding Grant Agreement (the “East Side Access FFGA”) with the U.S. Department of Transportation, Federal Transit Administration (“FTA”), which will provide up to $2.6 billion in Federal funding to MTA for the East Side Access project. Under the East Side Access FFGA, MTA will be responsible for funding the local share of this project. To date, the FTA has awarded a total of $0.9 billion in Federal capital new starts financial assistance to the East Side Access project, with up to an additional $1.7 billion to be awarded subject to the availability of funding from Federal appropriations.

MTA began construction of certain portions of the East Side Access project in 2001. To date, the following contracts or projects have been successfully completed:

• Highbridge Yard – A new storage and maintenance facility in the Bronx, which makes room for the new concourse at Grand Central Terminal’s lower level, was completed in December 2003. The facility provides six tracks for train storage for MTA Metro-North Railroad trains previously stored in Grand Central Terminal, as well as a maintenance facility.

• Environmental Remediation – Hazardous material abatement within the Grand Central Terminal’s East Yard on the lower level was completed in September 2003 and the removal of asbestos- containing materials from the lower level of the 63rd Street Tunnel was completed in January 2004, in preparation for contracts that will lay new track work.

• Shaft Construction at Existing Bellmouth – Completed in November 2003, this Queens shaft sets the stage for open-cut excavation between Northern Boulevard and the existing rail yard. It also makes the bellmouth of the 63rd Street Tunnel in Manhattan accessible to the hard-rock tunnel boring machine contractor.

• Demolition of Buildings and Existing Rail Yard Preparation – Completed in September 2003, three buildings were demolished and tracks removed from the existing rail yard in Queens. To pave the way for future contracts, a construction access road was built and new track was installed to accommodate the New York & Atlantic Railway freight service.

• Arch Street Yard and Shop – Completed in June 2005, the yard and shop are being used for the delivery, testing and acceptance of new M-7 train cars as part of the fleet replacement program. In the future, it will support mid-day inspection, maintenance and cleaning of trains that will be used in East Side Access service.

• Manhattan Approach Tunnel Utilities and Excavation – Completed in August 2004, this contract included the removal of the existing bulkhead and installation of tunnel lighting and other utilities in the 63rd Street Tunnel. A limited amount of rock excavation has also been performed.

The following contracts are currently underway or in the procurement stage:

• Woodside Interlocking – High speed switches, signal instrument houses and signal bridges are currently being installed to provide operational flexibility at Woodside Interlocking in Queens to support East Side Access construction.

• Manhattan Approach Tunnels – Tunnel boring of the running tunnels from the existing 63rd Street Tunnel and Second Avenue to the south end of the Grand Central Terminal is underway with two Tunnel Boring Machines (“TBMs”) in operation. The work will include the excavation for cross passages between the tunnels and a central instrument room.

• Queens Open-Cut Excavation – MTA Long Island Rail Road’s existing rail yard is being connected to the 63rd Street Tunnel through open-cut excavation south of Northern Boulevard and a permanent crossing under Northern Boulevard. The open-cut excavation is underway. The open-cut structure will be decked over and serve as the tunnel boring machine (“TBM”) launch for

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the Queens tunnels prior to its permanent use, which is to house an interlocking and an emergency exit/ventilation facility.

• Harold Structures (Part 1) – This contract is constructing various civil infrastructure elements in Harold Interlocking in Queens and is expanding the existing MTA Long Island Rail Road/Amtrak right-of-way for the future TBM tunnels and Mainline track diversions.

• Manhattan Structure Part 1 – This contract is excavating the station caverns and escalator shafts at Grand Central Terminal and building the structures of the same.

• Queens Bored Tunnels and Structures – This contract in procurement will use soft-ground TBMs to construct three revenue tunnels, one non-revenue tunnel, and supporting substation and ventilation structures in Sunnyside Yard and Harold Interlocking.

Second Avenue Subway

MTA and MTA New York City Transit have undertaken the process of planning and designing a full- length Second Avenue Subway, which will be the City’s first major expansion of the subway system in over 50 years. When fully completed, the Second Avenue Subway will provide customers with a new service, now expected to be designated as the “T” Line, running approximately 8.5 miles along the length of Manhattan’s East Side, generally under Second Avenue, from 125th Street in Harlem to Hanover Square in Lower Manhattan. This new line will also connect at 63rd Street with the existing Broadway Line, which runs south through Manhattan and into Brooklyn over the Manhattan Bridge.

Sixteen new Americans with Disabilities Act (“ADA”) accessible stations will be built, serving communities in Harlem, the Upper East Side, East Midtown, Gramercy Park, the East Village, the Lower East Side, Chinatown and Lower Manhattan. The Second Avenue Subway will reduce overcrowding and delays on the Lexington Avenue subway line, improving travel for both City and suburban commuters, and provide better access to mass transit for residents of the far East Side of Manhattan. Stations will have a combination of escalators, stairs and, in compliance with the ADA, elevator connections from street-level to station mezzanine and from mezzanine to platforms.

Under the current plan, the project is expected to be built in four phases.

• Phase One: Construction will include tunnels from 105th Street and Second Avenue to 63rd Street and Third Avenue, with new stations along Second Avenue at East 96th, 86th and 72nd Streets and new entrances to the existing Lexington Avenue/63 Street Station. The first segment will provide service from East 96th Street to the existing Lexington Avenue/63rd Street Station and connect the new service to the Broadway Line. The first construction contract, which is now constructing a TBM launch box in advance of the excavation and construction of the running tunnels from East 92nd Street to East 63rd Street, was awarded in March 2007. Subsequent contracts will provide for the construction of stations at 96th, 72nd, and 86th Streets and a 3rd Avenue entrance to the existing 63rd/Lexington station. The cost for Phase One is estimated at $4.3 billion, excluding financing costs, and is expected to be completed in 2015. On November 19, 2007, MTA executed a Full Funding Grant Agreement (“Second Avenue Subway FFGA”) with the FTA, which will provide up to $1.3 billion in funding for the project, subject to the availability of funding from Federal appropriations. To date, the FTA has awarded a total of $36 million in Federal financial assistance to the project. When completed, Phase One subway service is projected to carry nearly 200,000 weekday riders.

• Phase Two: From 125th Street to 105th Street, including the utilization of an existing subway tunnel section from 110th to 120th Streets. Subway service will be provided from 125th Street to West Midtown Manhattan and Brooklyn via the Broadway Line.

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• Phase Three: From 72nd Street to Houston Street. New “T” service will run from 125th Street to Houston Street and Second Avenue. Subway service will continue to be provided by the Broadway Line.

• Phase Four: From Houston Street to Hanover Square. New “T” service will be extended to Hanover Square in Lower Manhattan and service will continue to be provided from 125th Street to West Midtown Manhattan and Brooklyn via the Broadway Line.

No. 7 Subway Line Extension

MTA and the City are jointly working on the redevelopment of the Hudson Yards area of Manhattan (the “Hudson Yards Area”), which extends generally from West 28th Street on the south, Eighth Avenue on the east, West 43rd Street on the north and the Hudson River Park on the west. As a part of the redevelopment, the No. 7 subway line will be extended from its current terminal near Times Square on West 41st Street between Seventh and Eighth Avenues to a new terminal at West 34th Street and Eleventh Avenue. The extension will provide a transit link to the Javits Convention Center and is expected to help transform the surrounding manufacturing and industrial neighborhood into a mixed-use community. The scope of the project also includes the construction of subway tail tracks extending to West 25th Street and Eleventh Avenue to permit the storage of six subway trains, which will enhance operational reliability. The MTA is also considering the construction of part or all of a station at West 41st Street and Tenth Avenue, which would lie between the current terminal and the new terminal. The structure for this station is an option in the first contract that must be exercised by September 2008. The negotiated cost for the option is $450 million.

On September 28, 2006, the MTA Board authorized the execution of a memorandum of understanding with the City and two City-controlled corporations with respect to the design, construction and funding of the No. 7 subway line extension (the “No. 7 Line MOU”). The No. 7 Line MOU outlines the parameters for the participation of the City, the Hudson Yards Infrastructure Corporation (“HYIC”), the Hudson Yards Development Corporation (“HYDC”) and MTA. Pursuant to the MOU, HYIC is providing funding for the subway extension and the real estate acquisition needed for the project. MTACC, working with MTA New York City Transit, is currently managing the completion of the final design and construction of the project.

The budget for the No. 7 subway line extension is $2.1 billion, including contingency funds. On December 21, 2006, HYIC issued bonds, a portion of which is being used to fund design and engineering and initial construction. If additional work in excess of the budget is required by the City, HYDC or HYIC, or issues associated with real estate development being coordinated by the City, then those costs will be borne by the City, and its capital investment in the subway line will be correspondingly increased. Neither MTA nor TBTA can issue bonds or notes to fund any cost overruns in excess of the $100 million agreed to by the City, unless the additional costs are included in a capital program amendment or future capital program that is approved by the Review Board.

MTACC awarded the first construction contract for the structure of the running tunnels and the terminal station structure at 34th Street and 11th Avenue (plus the option of the structure of a station at West 41st Street and Tenth Avenue) in November 2007. Substantial project completion is scheduled for January 1, 2014.

Lower Manhattan Projects: Fulton Street Transit Center and South Ferry Terminal

On December 3, 2003, $1.15 billion in Federal funding was approved for the Fulton Street Transit Center and new South Ferry Terminal projects. Subsequent agreements with the FTA (which are called Construction Agreements and are similar to full funding grant agreements) raised the Federal commitment to a total of $1.27 billion.

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Fulton Street Transit Center. The Fulton Street/Broadway-Nassau complex is the busiest in Lower Manhattan, with over 275,000 passenger entries, exits and transfers daily. Many of these trips are made by commuters traveling to or from their homes in the metropolitan area or to or from commuter rail hubs at Penn Station, Grand Central Terminal, and Atlantic Terminal in Brooklyn. Subway connections are also available to the subway station at Howard Beach Station and the subway and commuter rail stations at Jamaica, both of which are served by the Port Authority’s AirTrain automated rail service to John F. Kennedy International Airport.

The Fulton Street Transit Center, a centerpiece of the plan to improve mobility in Lower Manhattan, will greatly facilitate connections between 13 subway lines that serve the Fulton Street/Broadway-Nassau complex in Lower Manhattan and nearby stations, will link MTA New York City Transit facilities with Port Authority PATH train services, and will provide access to the redeveloped World Trade Center site and World Financial Center ferry services. The goal of the Fulton Street Transit Center project is to improve circulation and reduce crowding by reconfiguring the current maze of tunnels and stairways that now connect subway lines that were built years apart (between 1905 and 1932) by separate entities.

Another element of the project is a free transfer connector between the R/W and the E Lines. The link will run through the World Trade Center site, so MTA is coordinating the design and construction plan with the Port Authority.

The current cost estimate for the project is $1.2 billion with completion expected in 2012.

To date the following portions of the project have been successfully completed:

• 2/3 Fulton Street Station Rehabilitation and 4/5 Fulton Street Station Southern Entrances – Was completed in 2007 and involved the rehabilitation of the Fulton Street Station on the 2/3 line, including structural repairs, a new platform to mezzanine stairs, a new platform to mezzanine elevator, new wall and floor finishes, new electrical services, new lighting, and new communications systems, bringing the station to a state of good repair and improving overall functionality and customer convenience. Entrances and access stairways in the north and southbound directions at the south end of the 4/5 Line Fulton Street Station have also been constructed to help relieve severe passenger congestion currently experienced at existing entrances. Future construction work at the complex will also be facilitated by these new access points.

• Deconstruction of Buildings on Transit Center Site – Was completed in 2007 and coordinated with Hazmat removal efforts to deconstruct four of the five buildings on the site of the new Fulton Street Transit Center. The fifth building, at the northeast corner of John Street and Broadway, will be preserved as a recognized historic resource.

The following contract is underway:

• Dey Street Concourse Structural Box – This design-build contract involves constructing a pedestrian concourse under Dey Street from Broadway to Church Street. The full-length of the excavation necessary for this project is approximately 400 feet at an average depth of 45 feet. The contract includes the construction of underpasses under the R/W and 4/5 Lines at either end. Once completed, the Dey Street Concourse will link the Fulton Street Transit Center to the World Trade Center. Contract completion is expected in 2008.

The remaining scope of the project includes the reconstruction and reconfiguration of the existing A/C mezzanines, construction of the finishes on the Dey Street Concourse (the product of the Dey Street Concourse Structural Box referenced above), rehabilitation of the 4/5 Fulton Street Station, installation of new elevators and escalators throughout the complex plus an aboveground Transit Center. The aboveground scope will include restoration of the façade of the historic building at the northeast corner of Broadway and John Street, including a new entrance into the complex.

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South Ferry Terminal Station. The South Ferry station is at the southern end of the No. 1 subway line and is used by more than six million people each year, including commuters transferring from the adjacent Staten Island Ferry Terminal, and tourists visiting such nearby sites as Battery Park, the Statue of Liberty and Ellis Island. This project will replace the deficient existing station with a full-length, two-track terminal station with three station entrances, ADA accessibility, and a new free transfer between the No. 1 and R/W subway lines. The project cost estimate at completion is $517 million, with $420 million in Federal funding, and is projected to be completed by early 2009 with service to the new station starting before then in December 2008.

The investment will improve service along the entire West Side of Manhattan and into the Bronx by eliminating end-of-the-line bottlenecks and other physical deficiencies that have an impact on the Nos. 1, 2, and 3 subway lines. The existing station, which was built in 1905, is on a single service track on a sharp curve with only one short platform and only one staircase entrance/exit from the street. Because the platform can accommodate only the first five cars of each train, customers in the rear cars must walk forward to exit. With only one service track, terminal train storage, which can be used to improve service reliability, is not possible. The curvature of the platform is so severe that mechanical “gap fillers” are used to fill the space between the platform and the train door and moving trains generate a very unpleasant screeching noise. Failure of the gap fillers, with delays on terminal operations that reverberate through the whole line, are not uncommon. The single egress point significantly limits passenger flow and the efficiency of operations.

The new station is expected to reduce customer travel times and improve the overall quality of service. The additional station entrances will reduce congestion, improve station safety and provide improved access to the Staten Island Ferry Terminal, Battery Park, the Statue of Liberty and the commercial and residential buildings nearby. In the long term, the new terminal will increase the potential for future service growth and support for the redevelopment of Battery Park and Lower Manhattan.

The following contracts are currently underway:

• Structural Box Design/Build Contract – This contract, largely complete, is constructing the structural box for the project, including modifications to the existing No. 1 subway line tunnel under Battery Place along Greenwich Street. The scope of the contract includes the new station, the approach tunnel, and the bellmouth connecting the existing right-of-way with the new approach tunnel. The full-length of the structural box is approximately 1,700 feet and the platform will be 600 feet in length, adequate to service two full-length train sets. Both cut-and-cover and tunneling excavation has been used to create the space for the box. Construction work included a significant amount of rock excavation. Tunneling excavated the new station’s section under the existing No. 1 subway line and No. 4/5 subway line tunnels, which required underpinning. Under the same contract, but funded with World Trade Center-related insurance proceeds, a ventilation facility structural box is being constructed in the tunnel bellmouth section beneath Battery Place. The fan plant will serve the tunnel sections and the adjacent station to the north in emergency situations of fire and/or smoke. Contract completion is expected in 2008.

• Signal Equipment Fabrication, Delivery, Testing Contract – The signal equipment fabrication, delivery, and testing contract is furnishing the signal equipment required to fit out the structural box of the station, approach tunnels, and bellmouth of the South Ferry Terminal station project. In addition to fabrication, the work includes circuit design and in-place testing to put the equipment in-service. The finishes/systems contractor is installing all equipment and finishes necessary to turn the structural box into part of an operating railroad. The signal equipment was procured outside of the finishes/systems contract because of the long lead-time needed for design and fabrication. Contract completion is expected in February 2009 with completion of the overall project.

• Finishes/Systems Contract – The finish work is turning the structural box into an actual subway station, support facilities and subway right-of-way. The work is outfitting the passenger spaces, including platforms, mezzanines, and station entrances. The work includes staircases, two ADA-

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compliant elevators (one from street to concourse mezzanine level and one from mezzanine to platform level) and eight escalators and 13 staircases. Non-passenger spaces are being fit out with major operational and support infrastructure and equipment, including track and switches, signal and train control systems, electrical power systems for lighting and train propulsion, communications systems, a water pumping system, and an air-tempering system. Fan plants in the station mezzanine will be used for station ventilation in fire or smoke emergencies. The finish contractor will also install MTA Arts for Transit commissioned artwork in the new station space. Under the same contract but funded with World Trade Center-related insurance proceeds, the finishes/systems contractor will equip the Battery Place fan plant structural box with the equipment and systems necessary to operate and benefit from the facility. Contract completion is expected in February 2009 with completion of the overall project.

• Battery Park Improvements and Restoration of Peter Minuit Plaza – In addition to the Peter Minuit Plaza restoration that will be done within the South Ferry project, a follow-on contract for additional Plaza work will be done in collaboration with the New York City Departments of Transportation and Parks and Recreation.

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STATEN ISLAND RAPID TRANSIT OPERATING AUTHORITY (popular name – MTA Staten Island Railway)

Legal Status and Public Purpose

MTA Staten Island Railway was created as a public benefit corporation subsidiary of MTA in 1970. MTA Staten Island Railway is responsible for the operation of a rapid transit railroad system on Staten Island pursuant to a lease and operating agreement with the City.

MTA Staten Island Railway service runs 24 hours daily between the St. George and Tottenville stations. At the St. George station, customers can make connections with Staten Island Ferry service. MTA Staten Island Railway’s capital needs are funded as a part of the Transit Capital Program approved by the Review Board and its operating losses are funded by the City and/or MTA.

Management

Howard H. Roberts, Jr., the President of MTA New York City Transit, is also the President of MTA Staten Island Railway.

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METROPOLITAN SUBURBAN BUS AUTHORITY (popular name – MTA Long Island Bus)

Legal Status and Public Purpose

MTA Long Island Bus was created as a public benefit corporation subsidiary of MTA in 1972. MTA Long Island Bus is responsible for the operation of the public transit bus system and the paratransit system (Able-Ride) predominantly in Nassau County. Nassau County and MTA Long Island Bus entered into a Lease and Operating Agreement, dated as of January 15, 1973 (the “MTA Long Island Bus Lease”), that has since been amended a number of times. The MTA Long Island Bus Lease provides generally for the following:

• Service levels, route structure, maintenance and administration are the responsibility of MTA Long Island Bus, with such financial assistance as may be provided by Nassau County and others, but is not the obligation of MTA. However, MTA provides operating assistance from mortgage recording tax collections.

• Providing of capital assets for MTA Long Island Bus is, in general, the responsibility of Nassau County, with such State and Federal financial assistance as it may be successful in securing. MTA administers the MTA Long Island Bus capital program.

• Changes in the levels of fares and major service changes generally require public hearings, but are not subject to approval by any governmental entity other than the MTA Long Island Bus Board.

Management

The following is a brief biography of the chief operating officer of MTA Long Island Bus.

Neil Yellin was appointed President of MTA Long Island Bus in February 1998. Prior to his appointment, he was MTA Long Island Bus’ Vice President of Policy and Planning from 1993 and served in a number of senior management positions beginning in 1987 when he joined the agency. Before his service at MTA Long Island Bus, he held various management positions within New York City government from 1978 through 1987. Mr. Yellin holds a master’s degree in Administrative Management from State University of New York at Albany. In addition, he has completed a professional degree program in Finance from New York University and the Program for Senior Executives in State and Local Government from the Kennedy School at Harvard University. Mr. Yellin is also a U.S. Navy veteran.

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MTA BUS COMPANY (popular name – MTA Bus)

Legal Status and Public Purpose

MTA Bus was created as a public benefit corporation subsidiary of MTA in 2004. At its meeting in December 2004, the MTA Board approved a letter agreement with the City with respect to MTA Bus’ establishment and operation of certain bus routes (the “City Bus Routes”) in areas then served by seven private bus companies pursuant to franchises granted by the City. The letter agreement with the City provides for the following:

• A lease by the City to MTA Bus of the bus assets to operate the City Bus Routes.

• The City agrees to pay MTA Bus the difference between the actual cost of operation of the City Bus Routes (other than certain capital costs) and all revenues and subsidies received by MTA Bus and allocable to the operation of the City Bus Routes. The letter agreement permits the parties after a period of 18 months to negotiate an agreement to establish a formula-based approach for the payment of the City subsidy.

• If the City fails to timely pay any of the subsidy amounts due for a period of 30 days, MTA Bus has the right, after an additional 10 days, to curtail, suspend or eliminate service and may elect to terminate the agreement. The City can terminate the agreement on one year’s notice.

• Certain portions of the MTA Bus capital program are included in the Capital Programs approved by the Review Board. The City is not currently responsible for paying debt service on certain bonds issued by MTA for the benefit of MTA Bus; the debt service on such bonds is being paid by MTA Bus and MTA.

MTA Bus completed the consolidation of the seven bus lines in the first quarter of 2006. As discussed below under “FINANCIAL PLANS AND CAPITAL PROGRAMS,” the Review Board has included certain capital funding for MTA Bus in the 2000-2004 MTA Capital Program.

Effective as of April 1, 2006, MTA Bus pledged its operating revenues to the Trustee under the Transportation Resolution (as hereinafter defined) and became a signatory to the Interagency Agreement securing the Transportation Revenue Bonds. All or a portion of MTA Bus’ capital needs may be financed from the proceeds of the Transportation Revenue Bonds.

Description of the MTA Bus System

MTA Bus presently operates bus service on 46 local routes in The Bronx, Brooklyn and Queens and 35 express routes between Manhattan and The Bronx, Brooklyn and Queens. In calendar year 2007, nearly 110 million revenue passengers used the MTA Bus system. As of December 31, 2007, the MTA Bus system employed 3,301 persons and operated 1,354 buses. The MTA Bus system operates on a continuous basis, although certain bus routes are not in service the entire day and frequency of service varies by route and time of day.

Management

The following is a brief biography of the chief operating officer of MTA Bus.

Thomas J. Savage was designated to be President of MTA Bus in October 2004, which was before its incorporation. Prior to being appointed President, Mr. Savage was MTA Chief Operating Officer from October 20, 2003. Prior to that, Mr. Savage was Senior Vice President for MetroCard Operations at MTA New York City Transit, where he was responsible for MetroCard-related activities including the Automated Fare Collection Program on MTA New York City Transit’s subways and buses, as well as customer

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services, marketing, AFC equipment maintenance and revenue collection. Mr. Savage joined MTA New York City Transit in 1971 and has held various positions in the Office of Management & Budget, Human Resources and the Transit Police Department. Prior to being Senior Vice President for MetroCard Operations, he served as Chief of Police for MTA. Mr. Savage received his Bachelor of Science degree in Finance from Long Island University and has earned credit from New York University’s Graduate School and the New York City Police Academy.

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PART 3. STATISTICAL AND FINANCIAL INFORMATION

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RIDERSHIP AND FACILITIES USE

Transit System (MTA New York City Transit and MaBSTOA) Ridership

General. Subway revenue passengers in 2007 totaled 1.6 billion, an increase of 4.2% over 2006. The primary reason for the increase was a strong local economy. Bus ridership in 2007 was 738 million, 0.5% lower than in 2006.

To meet the overall growth in demand in recent years, MTA New York City Transit has been expanding service since 1996, adding new capacity on 93% of its subway lines and 98% of its bus routes. Since 1996, subway service has increased by 13% and bus service has increased by 31%. MetroCard fare incentives were introduced beginning in 1997.

While some of the Transit System changes in use in the past few years have been attributable to the changes in the economy, overall ridership changes are also attributable to other factors including successful efforts to reduce fare evasion and improve security. Significant factors which impact ridership, discussed more fully below, include fares and fare incentives, Transit System performance and levels of services, Transit System security and employment in the City generally as well as the relative level and cost of service provided by competing transportation modes such as taxis, licensed and unlicensed vanpools, private car and bus services and charter operators. Interruptions to service or temporary closures of lines resulting from major capital improvement projects to the Transit System by MTA New York City Transit or service disruptions caused by City infrastructure problems which are not under the control of MTA New York City Transit and MaBSTOA or from repairs to or rehabilitation of City infrastructure by the City or its agencies could adversely impact ridership and revenues. The effect would depend on the nature, severity and duration of the service interruptions.

Historical Ridership. The following table sets forth annual ridership on the Transit System since 1996 (introduction of MetroCard fare incentives began in 1997), and the percentage increase/(decrease) each year.

(1) Revenue Passengers (in thousands) Subway Bus Paratransit Total Increase/ Increase/ Para- Increase/ Revenue Total Increase/ (2) (3) (4) Years Subway (Decrease) Bus (Decrease) Transit (Decrease) Passengers (Decrease) 1996 1,110,026 1.6 480,049 (6.1) 740 9.1 1,590,815 (0.9) 1997 1,129,514 1.8 529,856 10.4 967 30.7 1,660,337 4.4 1998 1,199,419 6.2 607,593 14.7 1,240 28.2 1,808,252 8.9 1999 1,283,082 7.0 659,344 8.5 1,557 25.6 1,943,983 7.5 2000 1,381,079 7.6 691,822 4.9 2,295 47.4 2,075,196 6.7 2001 1,405,300 1.8 732,445 5.9 2,710 18.1 2,140,455 3.1 2002 1,413,178 0.6 754,718 3.0 3,030 11.8 2,170,926 1.4 2003 1,384,069 (2.1) 727,607 (3.6) 3,564 17.6 2,115,240 (2.6) 2004 1,426,040 3.0 740,586 1.8 3,983 11.8 2,170,609 2.6 2005 1,449,109 1.6 736,493 (0.6) 4,663 17.1 2,190,265 0.9 2006 1,498,916 3.4 741,420 0.7 5,202 11.6 2,245,538 2.5 2007 1,562,515 4.2 738,040 (0.5) 5,872 12.9 2,306,427 2.7

(1) “Revenue Passengers” are defined as all passengers for whom revenue is received, either through direct fare payment (cash, tokens, MetroCards) or fare reimbursements (senior citizens, school children, the physically disabled). “Revenue Passengers” statistics count passengers that use a free intermodal or bus- to-bus transfer as an additional passenger though they are not paying an additional fare. (2) Bus ridership is measured as unlinked trips, i.e., each bus boarding is counted as a trip, including bus-to- bus transfers. Bus ridership prior to July 1997 includes estimates for student ridership and bus-to-bus transfers. (3) Paratransit ridership includes trips made by Personal Care Attendants and guests. (4) Includes subway, bus and paratransit.

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Fares. Since September 1975 when the base fare was 50 cents, the base fare charged for use of the Transit System has been raised eight times.

Date of New Amount of Percent Increase Base Fare Increase Increase 1980 – June $0.60 $0.10 20.0% 1981 – July 0.75 0.15 25.0 1984 – January 0.90 0.15 20.0 1986 – January 1.00 0.10 11.1 1990 – January 1.15 0.15 15.0 1992 – January 1.25 0.10 8.7 1995 – November 1.50 0.25 20.0 2003 – May 2.00 0.50 33.3

The period between the fare increases in 1995 and 2003 represented one of the longest periods of time without an increase in the history of MTA New York City Transit. Each fare increase, except the 1986 increase, has been followed by an immediate decrease in ridership.

In addition to the above-referenced increases in the base fare, on February 27, 2005, MTA New York City Transit increased the cost of a 30-day unlimited-ride MetroCard from $70 to $76, the cost of a 7-day unlimited-ride MetroCard from $21 to $24, and express bus fares from $4 to $5 without increasing the local base fare.

On December 19, 2007, the MTA New York City Transit Board approved a tariff change which became effective on March 2, 2008, increasing the cost of a 1-Day unlimited-ride MetroCard from $7.00 to $7.50, the cost of a 7-Day unlimited-ride MetroCard from $24 to $25 and the cost of a 30-Day unlimited- ride MetroCard from $76 to $81. A 14-Day unlimited-ride MetroCard priced at $47 was introduced. The bonus on Pay-Per-Ride MetroCards was changed from 20% on purchases of $10 or more to 15% on purchases of $7 or more. The local base fare of $2.00, express bus fare and the price of the Express Bus Plus MetroCard were unchanged.

Nevertheless, current fares, without giving effect to any changes in ridership patterns, remain, on average, low in real terms as compared to 1982 (the year in which MTA’s first capital program began) after adjusting for inflation based on increases in the Consumer Price Index (“CPI”). The following chart shows historical fare information since 1996.

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Historical Fare Information Base Fare Non-Student Real Fare Average Average Year CPI-U(1) Base Fare 1982$(2) Fares(3) Fares(4) 1996 166.9 1.50 0.857 1.284 1.378 1997 170.8 1.50 0.837 1.229 1.323 1998 173.6 1.50 0.824 1.084 1.160 1999(5) 177.0 1.50 0.808 1.028 1.093 2000 182.5 1.50 0.783 1.013 1.075 2001 187.1 1.50 0.764 1.001 1.058 2002 191.9 1.50 0.745 0.986 1.044 2003(6) 197.8 2.00 0.964 1.120 1.189 2004 204.8 2.00 0.931 1.174 1.244 2005 (7) 212.7 2.00 0.896 1.198 1.272 2006 220.7 2.00 0.864 1.215 1.294 2007 226.9 2.00 0.840 1.218 1.294 2008 (projected)(8) 231.7 2.00 0.823 1.257 1.335

MTA New York City Transit offers the following MetroCard discount and bonus programs:

• free intermodal (subway-to-bus and bus-to-subway) transfers, • MetroCard Bonus Program, offering customers a 15% bonus on purchases of, or additions to, a single MetroCard of $7 or more, • unlimited-ride 1-day, 7-day, 14-day and 30-day passes, • unlimited-ride 7-day combined express bus and regular bus pass, • free and half-fare student programs, • half-fare programs for senior citizens and persons with disabilities, and • free replacement of lost or stolen unlimited-ride 14-day, 30-day and 7-day express passes (limit of 2 per calendar year per holder) if the holder paid by credit or debit card.

On January 31, 2007, the MTA New York City Transit Board approved a tariff change which became effective on April 1, 2007, establishing reciprocal free transfers between Westchester County Bee-Line Bus service and (1) MTA New York City Transit subways, (2) MTA Staten Island Railway, and (3) buses operated by MTA New York City Transit, MaBSTOA, MTA Bus or MTA Long Island Bus. A step-up fare is required for transfer from local bus or subway service to express bus service.

Subway System Performance and Level of Service. Since implementation of the capital programs began in early 1982, Transit System performance, on the whole, has improved. MTA New York City Transit has replaced or overhauled its entire fleet. The entire fleet is now free of painted graffiti, and subway cars now run an average of 149,646 miles between breakdowns, up from an average of 7,145 in 1982. Since the end of 1992, all of the Transit System’s 656 miles of mainline track has been maintained in a state of good

(1) CPI All Urban Consumers, New York, N.Y. – Northeastern N.J.; 1982-84=100.0. The CPI levels listed are the annual average for each year. 2008 estimate based on Global Insight forecast of 2.10% increase in NY/NJ CPI-U. (2) Base fare after adjusting for inflation since 1982 (1982 CPI = 95.3). (3) Total farebox revenue divided by revenue passenger trips (including students). Average fares in the table are for the full year. (4) Non-student revenue divided by revenue passenger trips (excluding students). Average fares in the table are for the full year. (5) 1999 is the first complete calendar year in which unlimited ride passes were available. (6) Base fare increased from $1.50 to $2.00 in May 2003. Average fares in the table are for the full year. (7) 30-day unlimited ride, 7-day unlimited ride and express bus fares increased effective February 27, 2005. Average fares in the table are for the full year. (8) 30-day unlimited ride, 7-day unlimited ride and express bus fares increased effective March 2, 2008; 14-day unlimited ride MetroCard introduced. Average fares in the table are for the full year.

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repair, which has reduced track related mainline derailments and delays. Weekday on-time performance based upon terminal departures and arrivals was 92.8% in 2007, a reduction of 1.7% from the 2006 level of 94.5%. This decrease was due mostly to increases in construction activity, passenger-related delays and signal/track problems. MTA New York City Transit has also rehabilitated shops, depots, warehouses and stations, which has helped make operations more efficient.

Other aspects of the passenger environment have also experienced significant improvement. Almost all cars have adequate climate control and are displaying the correct signage.

MTA New York City Transit believes that these improvements are attributable to better management and maintenance of the Transit System and implementation of capital projects pursuant to the capital programs. Further improvements, as well as the maintenance of these significant improvements since the inception of the capital programs in 1982 and the improvements in Transit System performance produced as a result thereof, are dependent upon the completion of final work under prior plans and of the 2005-2009 Transit Capital Program and subsequent capital programs.

A number of measures are used to quantify Transit System performance and the level of Transit System service, including total vehicle miles traveled (“VMT”), train abandonments and mean distance between failures (“MDBF”).

The following table shows the VMT for subways since 1996.

Vehicle Miles Traveled by Subways Subway VMT Increase/ Year (in millions) (Decrease) 1996 309 N/A 1997 314 1.6% 1998 315 0.3 1999 323 2.5 2000 333 3.1 2001 336 0.9 2002 344 2.4 2003 345 0.3 2004 350 1.4 2005 346 (1.1) 2006 350 1.2 2007 349 (0.3)

The decline in subway VMT from 2004 to 2005 was due to the three day strike in December 2005, reduced service during the recovery from the Chambers Street fire in the first quarter of 2005 and service diversions to support major construction projects such as the Fulton Street Transit Center, the new South Ferry station and implementation of communication-based equipment on the “L” line. The relatively minor decrease from 2006 was due primarily to weekend service diversion to support major construction projects.

An important factor affecting the quality of subway service is the frequency of train abandonments, either in the form of terminal abandonments or en route abandonments. Terminal abandonments occur when trains scheduled for operation cannot be put into service. En route abandonments occur whenever a train misses one or more of its regularly scheduled station stops after the train has left its originating terminal. Of the two, en route abandonments have a potentially greater impact on service due to the compounding effect they may have on a portion of the Transit System. For example, if a train is abandoned en route, it may be immobilized in place for an extended period delaying other trains behind it or causing trains to be switched to another track.

The Transit Capital Program has necessitated and will continue to necessitate temporary service disruptions that adversely affect certain aspects of Transit System performance such as on-time performance and train abandonments, because the skipping of a regularly scheduled station stop is counted

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as an en route train abandonment. These disruptions are required to facilitate work on certain capital projects. Such disruptions include the rerouting of subway trains, the closing of either part or all of certain passenger stations, cessation of either local or express service, train delays and reduction of train speeds. The increase in the level of terminal and en route abandonments that was occasioned by the major capital rebuilding program in progress throughout the Transit System has been reduced.

Subway MDBF represents total revenue car miles divided by the number of car failures. A car failure is any incident, including delays, relating to equipment in revenue service that is attributable to that equipment and/or its maintenance. Since 1996, subway MDBF has increased by 119.3%

The following table shows subway MDBF since 1996.

Subway MDBF Increase/ Year (in miles) (Decrease) 1996 68,238 N/A 1997 77,161 13.1% 1998 80,990 5.0 1999 86,884 7.3 2000 110,180 26.8 2001 109,914 (0.2) 2002 114,619 4.3 2003 139,960 22.1 2004 156,815 12.0 2005 178,085 13.6 2006 156,624 (12.1) 2007 149,646 (4.5)

In general, there has been steady improvement in fleetwide MDBF since the beginning of the capital program in 1997 with the exceptions of 2001, 2006 and 2007. These improvements are attributable to a number of factors, including: increased supervision and management control of the MTA New York City Transit work force, improved maintenance and inspection procedures, better training of employees, and the influx of replacement and overhauled subway cars funded through the capital program. The Scheduled Maintenance System (“SMS”) program is the agency’s primary means of maintaining fleet reliability. Under SMS, important car components and subsystems are overhauled or replaced at regular intervals – six years for most subsystems.

Fleet MDBF declined from 178, 085 miles in 2005 to 156,624 miles in 2006 and to 149,646 miles in 2007, mainly due to the performance of the oldest and newest cars in the fleet. The oldest cars – 1,570 cars purchased in the 1960s, all scheduled for retirement within the next five years – are experiencing some degradation in performance as they near the end of their lives, although they continue to perform well by historical standards. The newest cars – 1,842 R142s, R142As and R143s – also experienced MDBF declines, as their first six-year SMS cycle began in 2007. The new cars have been experiencing some technical issues, which MTA New York City Transit is resolving through maintenance campaigns developed in consultation with the car builders and component manufacturers.

Bus System Performance and Level of Service. Bus MDBF measures the average rate of bus failure in terms of miles of operation. While declining bus MDBF affects the quality of bus service, it generally is not expected to have as significant an impact on bus ridership as MDBF has on subway ridership, since the breakdown of one bus generally does not affect the operations of other buses on the same route.

There has been an increase in bus MDBF since the beginning of the capital program process. Since 1996, the bus MDBF has increased by 135.5%. However, limited availability of standard and articulated buses from our manufacturers over the last several years has led to the increasing of average bus fleet age. Given the expected delivery of schedules of new vehicles, some fleets will continue to age for the next few years, which may negatively impact MDBF and could jeopardize the ability to improve performance.

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The following table shows bus MDBF since 1996.

Bus MDBF

Year (in miles) Increase/(Decrease) 1996 1,745 N/A 1997 2,033 16.5% 1998 2,084 2.5 1999 2,149 3.1 2000 2,608 21.4 2001 3,242 24.3 2002 3,478 7.3 2003 3,554 2.2 2004 3,564 0.3 2005 3,618 1.5 2006 4,059 12.2 2007 4,109 1.2

Since 1996, bus VMT has increased by 26.3%. Numerous schedule and route adjustments have been and continue to be made to better match bus availability to passenger demand. The following table shows the VMT for buses since 1996.

Vehicle Miles Traveled by Buses Year (in millions) Increase/ (Decrease) 1996 95 N/A 1997 98 3.2% 1998 104 6.1 1999 109 4.8 2000 115 5.5 2001 118 2.6 2002 119 0.8 2003 121 1.7 2004 122 0.8 2005 119 (2.5) 2006 120 0.8 2007 120 0.0

The decline in bus VMT from 2004 to 2005 was due to the three day strike in December 2005, conversion of two routes to articulated service in Spring 2004 and cessation of two temporary September 11, 2001 related bus services in 2004 and by bus service near Coney Island in mid-2005 that temporarily replaced subway service during construction of the new Stillwell Avenue station.

Transit System Security. Ridership is also affected by the public’s perception of security and order in the Transit System. Security around the Transit System has been increased since the terrorist attacks on the World Trade Center (“WTC”).

The public’s perception of security and order is also affected by the presence of homeless people, beggars, illegal vendors and fare evaders in the Transit System. MTA New York City Transit and the New York City Police Department have taken significant steps to address these problems. These include instituting an outreach program to transport the homeless from the Transit System, increasing the uniformed police presence throughout the Transit System and reducing fare evasion and serious crimes. In 2007, major felonies dropped, continuing a trend that has seen serious crime drop dramatically since 1990. Since 1990, major felonies were down 86.5%. Aggressive enforcement and fare control area modifications contributed to a drop in the fare evasion ratio to 0.32% in 2007 from 1.08% in 1997 and from 5.91% in the peak year of fare evasion in 1991. Police presence has been important to reductions in subway crime and fare evasion.

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Employment. City employment levels generally have a significant impact on the level of subway ridership. In the 1992 to 2000 period, employment grew by approximately 13.3%, and then declined 5.0% from 2000 to 2003. From 2003 to 2007, employment grew by 6.1%. Subway ridership gains, however, outpaced the upswing in the local economy between 1992 and 2000, and ridership increased slightly between 2000 and 2003. Subway ridership increased 12.9% from 2003 to 2007. The terrorist attack on the World Trade Center and general economic conditions have had an adverse impact on City employment, including the number of jobs lost and relocated, either temporarily or permanently. However, City employment has been growing since 2004, and by 2007, the City surpassed the 2000 job level.

Average weekday subway passengers increased 36.9% from 1996 to 2007, including a 3.6% increase in 2007, and average weekend subway passengers increased by 65.5% since 1996, including a 6.3% increase in 2007.

Automated Fare Collection. MTA New York City Transit employs an automated fare collection (“AFC”) system in all subway stations and on all MTA New York City Transit, MaBSTOA, MTA Long Island Bus, MTA Bus and Westchester County Bee-Line buses. AFC includes, among other elements, subway turnstiles and bus fare boxes that accept a magnetic farecard (“MetroCard”) in payment. AFC provided the technical capability to eliminate two-fare zones as well as to implement flexible intermodal and interagency fare structures. MetroCard enables passengers to purchase multiple rides and use the MetroCard to enter the Transit System through AFC turnstiles that automatically deduct the cost of each use. The subway turnstiles are designed to be tamper-resistant and to inhibit fare evasion by being more difficult to pass without payment. The bus fareboxes issue magnetically encoded transfers that are designed to reduce fare evasion resulting from the use of invalid transfers.

In 2007, 93.4% of non-student trips were made with MetroCard, surpassing the record high set in 2006, and up from 23.0% in June 1997, the month before the introduction of free intermodal transfers. 44.0% of 2007 non-student trips were made with pay-per-ride MetroCards, and 49.4% were made on unlimited-ride MetroCards (31.3% with 30-day cards, 17.0% with 7-day cards and 1.0% with one-day cards). The market share of all non-MetroCard fare media (cash and single-ride tickets) was 6.6% in 2007.

Out-of-system sales outlets, including approximately 4,700 active retail locations, generated approximately $548 million in MetroCard sales in 2007, a 10% increase over 2006. Market share for MetroCard out-of-system sales is approximately 18%. During 2007, employers ordered 1.5 million TransitChek MetroCards valued at $81 million, with unlimited ride products accounting for approximately 75% of non-premium TransitChek MetroCard sales. In addition, total premium TransitChek MetroCard sales for the year were $75 million, with more than 85,000 employees enrolled in the program at year’s end. TransitChek MetroCard sales are expected to continue to grow due to Federal legislation that provides certain tax benefits with respect to employer-based transportation programs.

MetroCard Vending Machines (“MVMs”) allow riders to purchase MetroCards using cash, credit or debit cards. The MetroCard Express Machine (“MEM”) is a compact vending unit that accepts only credit or debit cards for payment. A total of 1,627 MVMs were servicing 466 active stations throughout MTA New York City Transit’s subway system in 2007, as well as the New York City Convention and Visitors Bureau, the Staten Island Ferry’s St. George terminal, Orchard Beach in the Bronx, the Long Island Bus Hempstead Terminal, Roosevelt Island Tramway and Grand Central Station. In addition, 584 MEMs were in service in 316 active stations by the end of the year. Vending machine sales totaled $1.6 billion in 2007, accounting for 70% of total in-system sales.

Purchasers of a 14-day, 30-day or 7-day express unlimited ride MetroCard passes with a credit or debit card through the MVMs and MEMs are the beneficiaries of a free replacement if their MetroCards are lost or stolen, subject to a limit of 2 per holder per calendar year.

See generally “METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS” below in this Part 3.

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Commuter System Ridership

From 1998 to 2007, ridership on MTA Metro-North Railroad increased by 20% and ridership on MTA Long Island Rail Road increased by 7.3%. In 2007, MTA Long Island Rail Road ridership increased to 86.1 million, and MTA Metro-North Railroad ridership increased to 78.2 million.

The following table details annual commuter services ridership over the last ten years and the percentage increase/(decrease) each year.

Revenue Passengers(1) (in thousands) MTA Long MTA Long Island MTA Metro-North Island Rail Rail Road Increase/ MTA Metro- Railroad Increase/ Year Road(2) (Decrease) North Railroad (Decrease) 1998 80,272 2.1% 65,022 3.9% 1999 82,113 2.3 67,071 3.2 2000 84,731 3.2 70,246 4.7 2001 85,603 1.0 71,426 1.7 2002 83,918 (2.0) 71,637 0.3 2003 80,924 (3.6) 70,502 (1.6) 2004 79,254 (2.1) 70,757 0.4 2005 80,131 1.1 72,784 2.9 2006 82,037 2.4 75,044 3.3 2007 86,098 5.0 78,231 4.0

(1) A single rider traveling to and from the same destination is counted as two revenue passengers. The number of revenue passengers is determined in part by ascribing an assumed frequency of use to holders of weekly and monthly commutation tickets. (2) Beginning January 1, 1999, MTA Long Island Rail Road adopted a new methodology for converting ticket sales data into ridership estimates that is consistent with the methodology employed by MTA Metro-North Railroad. MTA Long Island Rail Road revenue passengers for 1998 have been revised using this new methodology.

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A variety of factors affect ridership on the Commuter System. Among the most important are level of fares, Commuter System performance and regional employment discussed below. Other factors that may be important to Commuter System ridership include the amount and level of service provided and security.

Fares. Since 1982, the base fares charged for the use of the Commuter System within New York State have been raised seven times.

Approximate Date of Increase in NYS Increase Average Fares 1984 – January 20% 1986 – January 11 1990 – January 15 1995 – November 9 2003 – May 25 2005 – March 7.6/6.2 (1) 2008 – March 3.85

1 Effective March 1, 2005, the average fare increased by 7.6% on MTA Long Island Rail Road and by 6.2% on Metro-North Railroad for service between points in New York State, which resulted in an approximately 5% increase in revenues over prior fare structures.

In addition, CDOT approved the implementation of changes in fare levels for travel to and from Connecticut stations effective July 1, 1991 and January 1, 1992. CDOT also increased fares by approximately 5% to and from Connecticut on January 1 in the years 1993, 1994, 1996 and 1997, and by approximately 4.5% on January 1, 1998. Most recently, CDOT implemented a 15% average fare increase on July 1, 2003 and an additional 5.5% average fare increase on January 1, 2005.

Fares on MTA Long Island Rail Road and MTA Metro-North Railroad increased effective March 1, 2008 for service between points in New York State. A discount is offered to Mail&Ride customers who purchase a combined monthly commuter ticket and MetroCard. MTA Long Island Rail Road and MTA Metro-North Railroad sell reduced-fare $3.00 weekend rides between points within the City.

Nevertheless, current fares, without giving effect to any changes in average length of trip or other ridership patterns, remain, on average, low in real terms as compared to 1982 after adjusting for inflation based on increases in the CPI.

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MTA Long Island Rail Road MTA Metro-North Railroad ______Harlem______Hudson______New Haven____ Average Average Average Average Nominal Real Fare Nominal Real Fare Nominal Real Fare Nominal Real Fare (1) (2) Year CPI Fare 1982$ Fare 1982$ Fare 1982$ Fare 1982$ 1998 173.6 $ 4.16 $ 2.28 $ 3.99 $ 2.19 $ 4.76 $ 2.61 $ 5.27 $ 2.90 1999 177.0 4.17 2.24 3.96 2.14 4.77 2.57 5.24 2.82 2000 182.5 4.16 2.17 4.00 2.09 4.83 2.52 5.26 2.75 2001 187.1 4.20 2.14 4.00 2.04 4.86 2.48 5.24 2.67 2002 191.9 4.19 2.08 3.99 1.98 4.85 2.41 5.23 2.60 2003 197.8 4.86 2.34 4.64 2.24 5.66 2.73 5.76 2.77 2004 204.8 5.18 2.41 4.91 2.29 6.00 2.79 6.12 2.85 2005 212.7 5.52 2.47 5.16 2.31 6.29 2.82 6.50 2.91 2006 220.7 5.58 2.41 5.19 2.24 6.40 2.76 6.51 2.81 2007 226.9 5.57 2.34 5.22 2.19 6.44 2.71 6.56 2.75 2008Est(3) 231.7 5.74 2.36 5.36 2.20 6.66 2.74 6.58 2.71

(1) CPI All Urban Consumers, New York, N.Y. – Northeastern N.J.; 1982-84=100.0. The CPI levels listed are the annual average for each year. 2008 estimate based on Global Insight forecast of a 2.10% increase in NY/NJ CPI-U. (2) Average Nominal Fare means the fare paid per ride, determined by dividing total passenger revenues by total revenue passengers. (3) 2008 estimates provided by MTA.

Characteristics of Commuter System Performance. Characteristics of performance potentially affecting ridership include on-time performance, the fleet’s average distance between failures, the number of standees and platform waiting time. Since implementation of the capital program began in early 1982, Commuter System performance as measured by those indicia has, on the whole, improved, although some of those indicia have shown declines during certain periods. Implementation of certain capital projects that are part of the Commuter Capital Programs may involve temporary disruptions of service as various portions of the Commuter System are refurbished or replaced. MTA Long Island Rail Road and MTA Metro-North Railroad schedule capital project work so as to minimize disruption of operations. In addition, as the Commuter Capital Program for rolling stock replacement progresses from achieving a state of good repair to normal system replacement and the rolling stock is retired at the end of its useful life, further fluctuations may appear in various measures of Commuter System performance.

The following table shows on-time performance for MTA Long Island Rail Road and MTA Metro-North Railroad for the last ten years.

On-Time Performance (%) Year MTA Long Island Rail Road MTA Metro-North Railroad 1998 90.5 96.6 1999 91.0 96.3 2000 92.7 96.7 2001 93.1 96.6 2002 94.0 97.3 2003 93.1 96.4 2004 92.7 96.1 2005 92.2 97.5 2006 93.3 97.8 2007 94.1 97.7

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The following table shows the fleet’s MDBF for MTA Long Island Rail Road and MTA Metro-North Railroad for the last ten years. The substantial increase in MDBF during the last few years has been mainly due to the new fleet of cars.

MDBF MTA Long Island Rail Road MTA Metro-North Railroad MDBF Increase/ MDBF Increase/ Year (in miles) (Decrease) (in miles) (Decrease) 1998 27,758 (4.1)% 59,672 (5.0)% 1999 28,159 1.4 70,328 17.9 2000 28,405 0.9 54,355 (22.7) 2001 30,660 7.9 50,390 (7.3) 2002 37,139 21.1 70,288 39.5 2003 39,579 6.6 56,578 (19.5) 2004 44,760 13.1 52,324 (7.5) 2005 51,993 16.2 67,996 30.0 2006 78,597 51.2 103,377 52.0 2007 107,825 37.2 110,361 6.8

Regional Employment. Regional employment levels, primarily in the City, have a significant impact on commuter railroad ridership. See “RIDERSHIP AND FACILITIES USE – Transit System Ridership – Employment” above in this Part 3.

MTA Bus Ridership

General. MTA Bus was created as a public benefit corporation subsidiary of MTA in 2004 to integrate seven private bus companies into the MTA. The final MTA Bus company merger was completed in February 2006.

Since MTA Bus launched operations, bus performance, on the whole, has improved. MTA Bus has replaced more than 50% of its fleet with 575 new express buses and 284 Low Floor Hybrid Electric local buses. Since February 20, 2006, (the first day of complete consolidated operations) the average bus fleet age has decreased from 9.43 years to 5.44 years at the end of 2007. However, recent limited availability of standard and articulated buses from manufacturers over the last several years may lead to the increasing of average bus fleet age in the future. Given the expected delivery schedules of new vehicles, some fleets will continue to age for the next few years, which may negatively impact MDBF and could jeopardize the ability to improve performance in the future.

Historical Ridership. MTA Bus revenue passengers in 2007 totaled 109.7 million, an increase of 11% over 2006*. The primary reason for the increase was improved service availability and reliability. To meet the overall growth in demand in recent years, MTA Bus has been enhancing service since 2006*, incrementally increasing capacity on all of its bus routes.

The following table sets forth annual ridership for MTA Bus since 2006 when the merger was completed, and the year over year percentage increase; however, it should be noted that only partial year data is reported for 2006 because the merger at MTA Bus was completed during the first quarter.

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Revenue Passengers(1) (in thousands) Years Ridership Bus Increase/(Decrease)

2006* 99.253 2007 109.744 11% * 2006 represents partial year data because the merger at MTA Bus were completed during the first quarter.

Fares. Since March 2005, the base fare has been $2.00 local bus service and $5.00 express service.

MTA Bus offers the following MetroCard discount and bonus programs:

Performance and Level of Service. Buses ran an average of 3,369 miles between breakdowns during 2007, a greater than 40% improvement from an average of 2,369 MDBF at the end of 2006*, the year MTA Bus completed merging the previously private bus companies. Weekday on-time performance based upon depot departures and arrivals was 99.3% in 2007, an increase of 15 percent from the 2006* level of 97.8%. This increase was due mostly to improved reliability resulting from improved maintenance programs and the infusion of new vehicles. MTA Bus also began rehabilitation of depots, helping make operations more efficient.

The following table shows bus MDBF since 2006*.

Bus MDBF

Year (in miles) Increase/(Decrease)

2006* 2,369 2007 3,369 42% * 2006 represents partial year data because the merger at MTA Bus were completed during the first quarter.

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Since 2006*, vehicle miles traveled increased by 14%. Numerous incremental schedule and route adjustments have been and continue to be made to better address passenger demand patterns. The following table shows the VMT for buses since 2006*.

Vehicle Miles Traveled by Buses

Year (in millions) Increase/ (Decrease) 2006* 29.3 million 2007 35.5 million 14%

* 2006 represents partial year data because the merger at MTA Bus were completed during the first quarter.

MTA Bridges and Tunnels – Total Revenue Vehicles

The following table shows the total number of revenue vehicles at the MTA Bridges and Tunnels Facilities for the past ten years.

MTA Bridges and Tunnels Facilities Total Revenue Vehicles Revenue Revenue Vehicles Increase/ Vehicles Increase/ Year 000’s (Decrease) Year 000’s (Decrease) 1998 279,463 4.9% 2003(2) 297,465 (0.8)% 1999 289,107 3.5 2004 302,995 1.9 2000 296,633 2.6 2005(3) 300,385 (0.9) 2001(1) 293,220 (1.2) 2006 302,059 0.6 2002 (1) 299,995 2.3 2007 304,364 0.8

(1) The MTA Bridges and Tunnels Facilities and the Battery Parking Garage were not damaged in the terrorist attack at WTC on September 11, 2001. However, the Battery Parking Garage was closed temporarily following the attack and subject to clean-up thereafter. In addition, some of the bridges and tunnels were subject to closure and/or traffic restrictions for significant periods of time. There was no interruption in the use of the E-ZPass system. (2) Toll increase became effective May 18, 2003. (3) Toll increase became effective March 13, 2005.

MTA Bridges and Tunnels’ independent engineers, URS Corporation – New York (“URS”), have conducted a study (the “URS Study”) to develop projections of traffic, revenues and expenses for the MTA Bridges and Tunnels Facilities entitled “History and Projection of Traffic, Toll Revenues and Expenses and Review of Physical Conditions of the Facilities of Triborough Bridge and Tunnel Authority,” dated April 29, 2008. The report also contains certain historical revenue, traffic and more detailed toll rate information not included herein. A copy of the URS Study is attached to the Continued Disclosure Filings as Appendix E and has also been posted on the MTA website at www.mta.info/mta/investor/index.html. The URS Study is included by specific cross-reference herein.

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Toll Rates

General Power to Establish Tolls.

• MTA Bridges and Tunnels’ power to establish toll rates is not subject to the approval of any governmental entity. However, prior to implementing proposed changes in its toll rates, MTA Bridges and Tunnels is required to comply with the State Environmental Quality Review Act, which generally requires an assessment of environmental impacts of the proposed action, if any.

• Tolls on the Verrazano-Narrows Bridge and the Throgs Neck Bridge, which were constructed pursuant to the General Bridge Act of 1946, 33 U.S.C. 525 et seq., may be subject to the standard imposed by Section 135 of the Federal-Aid Highway Act of 1987, Pub.L. 100-17, that tolls on bridges constructed under the authority of certain Federal legislation, including the General Bridge Act of 1946, be “just and reasonable.” MTA Bridges and Tunnels believes that the tolls on all of its vehicular toll facilities are just and reasonable.

Resident Token, Discount and Rebate Programs.

• The MTA Bridges and Tunnels Act was amended in 1981 to require that residents of Broad Channel and the Rockaway Peninsula be afforded the right to purchase tokens for the Cross Bay Veterans Memorial Bridge at a cost of 66-2/3% of the regular crossing fare.

• The MTA Bridges and Tunnels Act was further amended in 1983 to:

o eliminate the residency requirement for the purchase of reduced rate tokens for the Cross Bay Veterans Memorial Bridge,

o require the offering of tokens for the Marine Parkway-Gil Hodges Memorial Bridge at a cost of 66-2/3% of the regular crossing fare, and

o require the offering of tokens to residents of Richmond County (Staten Island) for the Verrazano-Narrows Bridge at a cost of 80% of the regular crossing fare.

• The MTA Bridges and Tunnels Act was amended in 1993 to provide that surcharges, in addition to the regular toll, imposed by MTA Bridges and Tunnels on the Verrazano-Narrows, Marine Parkway-Gil Hodges Memorial and Cross Bay Veterans Memorial Bridges shall not be treated as part of the regular crossing fare for the purpose of computing the reduced token cost discussed in this paragraph. The 1993 amendment also provided that residents of Staten Island, Broad Channel and the Rockaway Peninsula are entitled to a permanent exemption from any applicable surcharge imposed in 1993 on such bridges.

• MTA has a program to rebate the tolls of E-ZPass customers who are residents of Broad Channel and the Rockaway Peninsula using the Cross Bay Veterans Memorial Bridge, effectively eliminating the only intra-borough toll for residents traveling to the principal part of their borough and returning. The 2008 rebate program is expected to cost approximately $4 million, and a deposit to MTA Bridges and Tunnels or its designee in such amount has been funded from MTA’s unencumbered funds. In the event such amount is not sufficient, MTA Bridges and Tunnels will collect the tolls from the user’s E-ZPass account, unless additional moneys are deposited with MTA Bridges and Tunnels for such purpose from another source.

• A class action suit was filed in 2006 alleging unequal treatment by MTA Bridges and Tunnels on toll collection policies on certain bridges. See below under the caption “LITIGATION – MTA Bridges and Tunnels – Janes and Schwartz v. TBTA, MTA, Kalikow and Ascher” in Part 5.

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One-Way Collection in Staten Island. On March 20, 1986, in accordance with Federal law, MTA Bridges and Tunnels instituted one-way toll collection on the Verrazano-Narrows Bridge for all vehicles. Federal law now prohibits MTA Bridges and Tunnels from discontinuing one-way toll collection on vehicles exiting such bridge in Staten Island.

Current Toll Rates. Tolls were increased effective March 16, 2008. For the Verrazano-Narrows Bridge, the two-axle passenger vehicle crossing charge (one-way collection) increased from $9 to $10, with a $1.70 discount for E-ZPass users. For the Bronx-Whitestone Bridge, Brooklyn-Battery Tunnel, Queens Midtown Tunnel, Triborough Bridge and Throgs Neck Bridge, the two-axle passenger vehicle crossing charge increased from $4.50 to $5.00, with an $.85 discount for E-ZPass users. For the Henry Hudson Bridge, the two-axle passenger vehicle crossing charge increased from $2.25 to $2.75, with an $.85 discount for E- ZPass users. And for the Marine Parkway-Gil Hodges Memorial Bridge and the Cross Bay Veterans Memorial Bridge, the two-axle passenger vehicle crossing charge increased from $2.25 to $2.50, with a $.95 discount for E-ZPass users. Additional charges apply for additional axles and/or weight. Certain resident discounts apply to the Verrazano-Narrows Bridge, the Marine Parkway-Gil Hodges Memorial Bridge and the Cross Bay Veterans Memorial Bridge.

A more complete description of the current toll structure is set forth in the URS Study under the caption “TOLL COLLECTION ON THE TBTA FACILITIES.”

See “METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS” below for a discussion of changes that have been implemented, and others that are possible, to the traditional pay-as- you-go cash, and pay-before-you-go, basis of payment. See also “E-ZPass” below.

Minimum Toll Covenants in MTA Bridges and Tunnels Bond Resolutions. The MTA Bridges and Tunnels Senior Resolution and MTA Bridges and Tunnels Subordinate Resolution provide that:

• discounts to automobiles carrying not more than two persons may not exceed 20% of the regular crossing fare on any facilities other than the Henry Hudson Bridge, the Marine Parkway-Gil Hodges Memorial Bridge and the Cross Bay Veterans Memorial Bridge, on which latter facilities such discount may not exceed 33 1/3%,

• the minimum undiscounted toll rate for automobiles carrying not more than two persons be at least $3.00 for each crossing over or through the Triborough Bridge, the Bronx-Whitestone Bridge, the Throgs Neck Bridge, the Brooklyn-Battery Tunnel or the Queens Midtown Tunnel, $2.50 for each crossing over the Verrazano-Narrows Bridge, at least $1.50 for each crossing over the Henry Hudson Bridge, and at least $1.25 for each crossing over the Marine Parkway-Gil Hodges Memorial Bridge or the Cross Bay Veterans Memorial Bridge,

• in the event MTA Bridges and Tunnels shall impose a surcharge in addition to the regular toll rate, such surcharge shall not constitute part of the toll rate for purposes of computing the maximum discount described in the first bullet point above and MTA Bridges and Tunnels may provide exemptions from such surcharges without regard to the limits on maximum discounts,

• in the event MTA Bridges and Tunnels imposes different undiscounted toll rates for vehicles utilizing an electronic toll collection system and based upon time of day, day of week or period of the year mode of pricing, the limits on the maximum discounts shall be measured against the undiscounted toll rate applicable to the particular crossing, and

• the minimum crossing charge, however denominated, and after giving effect to any exemption, exclusion or discount, for automobiles carrying not more than two persons be at least $3.20 for each westbound crossing over the Verrazano-Narrows Bridge, at least $1.60 for each crossing over the Triborough Bridge, the Bronx-Whitestone Bridge or the Throgs Neck Bridge or through the Brooklyn-Battery Tunnel or the Queens Midtown Tunnel and at least 66.7 cents for each crossing

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over the Henry Hudson Bridge, the Marine Parkway-Gil Hodges Memorial Bridge or the Cross Bay Veterans Memorial Bridge.

Limitations on Free Crossings. The MTA Bridges and Tunnels Senior Resolution and MTA Bridges and Tunnels Subordinate Resolution limit toll free crossings with respect to the MTA Bridges and Tunnels Facilities to (i) the vehicles of present and former MTA Bridges and Tunnels members, officers and employees, (ii) military, police, fire, ambulance and other emergency, service and maintenance vehicles, (iii) vehicles of persons employed on Ward’s Island or Randall’s Island traveling to and from such Islands over the Triborough Bridge and (iv) other vehicles by passes or permits, provided that there shall not be more than 500 passes or permits outstanding at any one time.

Legislative Proposals. From time to time bills have been introduced by various State legislators seeking, among other things, to restrict the level of tolls on certain of the MTA Bridges and Tunnels Facilities, to require approval of future toll increases by the Governor, to eliminate minimum tolls or to require discounts or free passage to be accorded to certain users of MTA Bridges and Tunnels Facilities. Under the MTA Bridges and Tunnels Act, however, the State has covenanted to holders of MTA Bridges and Tunnels’ bonds that it will not limit or alter the rights vested in MTA Bridges and Tunnels to establish and collect such charges and tolls as may be convenient or necessary to produce sufficient revenue to fulfill the terms of any agreements made with the holders of such bonds or in any way to impair their rights and remedies.

Legislation enacted in connection with the State’s Fiscal Year 2006-07 budget prohibits all public authorities, including MTA Bridges and Tunnels, from imposing, on and after June 1, 2006, a periodic administrative or other charge on electronic payment accounts, such as the E-ZPass toll collection system described below, for the privilege of using such electronic method of payment. The legislation does not prevent the authorities from making any charge for extra services requested by a holder of such electronic method of payment, any charge for lost or damaged equipment, or for defaults, such as charges for dishonored checks.

Competing Facilities and Other Matters

In addition to the Triborough, Bronx-Whitestone and Throgs Neck Bridges and Brooklyn-Battery and Queens Midtown Tunnels, there are four vehicular bridges operated by the City crossing the East River which are toll-free at the present time, namely: the Queensborough, Williamsburg, Manhattan and Brooklyn Bridges.

In addition to the Triborough and Henry Hudson Bridges, there are nine vehicular bridges crossing the Harlem River, which are toll-free at the present time. The City has explored, from time to time, the possibility of tolling some or all of these bridges to raise revenue for the City; however, MTA Bridges and Tunnels cannot predict the effect that the tolling of such bridges will have on its revenues if it occurs.

The State agrees in the MTA Bridges and Tunnels Act that while any bonds of MTA Bridges and Tunnels are outstanding, there will not be constructed any vehicular connection competitive with the MTA Bridges and Tunnels Facilities and crossing (a) the East River north of 73rd Street or south of 59th Street in Manhattan, (b) New York Bay, or (c) Jamaica Bay or Rockaway Inlet to Rockaway Peninsula within a specified distance (approximately 2½ miles) east of the Cross Bay Veterans Memorial Bridge. There is no provision in the MTA Bridges and Tunnels Act regarding competitive vehicular crossings over the Harlem River.

Under the MTA Bridges and Tunnels Senior Resolution and MTA Bridges and Tunnels Subordinate Resolution, the owners of the MTA Bridges and Tunnels bonds waive the foregoing agreement of the State with respect to the construction of any East River vehicular toll crossing to be operated by MTA Bridges and Tunnels.

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A significant reduction in the availability of fuel to motorists would, or significant increases in the cost thereof could, have an adverse effect on the revenues derived from the MTA Bridges and Tunnels Facilities. The use of automobiles in the New York City metropolitan area is subject to increased governmental concern and promulgation of governmental regulations relating to environmental and other concerns restricting the use of vehicles, which could also adversely affect revenues from the MTA Bridges and Tunnels Facilities. The Clean Air Act Amendments of 1990 (“Clean Air Amendments”) require the State to adopt transportation control strategies and measures to control emissions, and establish among other matters, specific measures the State may adopt to reduce air pollution. The impact on MTA Bridges and Tunnels and revenues from the MTA Bridges and Tunnels Facilities of the Clean Air Amendments and the State implementation plan that must be developed thereunder cannot be assessed at this time.

Revenues derived from the MTA Bridges and Tunnels Facilities could also be adversely affected by the condition of arteries feeding and approach and access roads leading to and from such facilities over which MTA Bridges and Tunnels has no control. A number of those arteries and approach and access roads are in need of significant repairs. Major repairs to the Gowanus Expressway, the main arterial link between the Verrazano-Narrows Bridge and the Brooklyn-Battery Tunnel, will result in off-peak lane closures during the years over which these repairs are to be made and may impact traffic at these facilities. Revenues have been and may hereafter be affected by access to, and conditions and restrictions on use of, the toll-free facilities over which MTA Bridges and Tunnels has no control and which compete with MTA Bridges and Tunnels’ bridges and tunnels. In addition, construction relating to the Second Avenue Subway could materially affect the approach to the Queens Midtown Tunnel. The URS Study referenced in this Appendix A under the caption “MTA Bridges and Tunnels – Total Revenue Vehicles” also lists current and proposed construction projects that could adversely affect bridge and tunnel use.

E-ZPass

MTA Bridges and Tunnels’ electronic toll collection system (“E-ZPass”) can be used by motorists to pay tolls charged by various authorities (currently 24) in twelve states. MTA Bridges and Tunnels’ E-ZPass program requires prepayment on behalf of the customers. More than 85% of the customers pay by credit card. For 2007:

• overall E-ZPass market share was 73.5%;

• average weekday E-ZPass market share was 75.7%; and

• average weekend E-ZPass market share was 68.1%.

See “METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS” below in this Part 3.

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REVENUES OF THE RELATED ENTITIES

The following is a general description of certain revenues generated by the Related Entities. While it is not a complete list of all revenues available, it does cover substantially all the revenues pledged to pay any one or more of the securities described under “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS” in Part 4. Each different MTA or MTA Bridges and Tunnels credit is supported by different revenue streams. Reference is made to the audited financial statements of the various entities for more information relating thereto. The information in the audited financial statements may differ with the information set forth below in certain respects due to the classification of revenues or timing of receipt thereof. For example, while the Related Entities use a calendar year as their fiscal year, the State has a fiscal year that begins on April 1. Some of the information set forth below and under the caption “DEDICATED TAX FUND BONDS” in Part 4 relating to the State subsidies reflects revenues received during the State’s fiscal year.

Fares and Tolls

Transit System Fares. Revenues are derived from fares charged to users of the Transit System. Fare revenues on an accrual basis (not including school, elderly and paratransit reimbursement described below) for the past eight years are as follows:

Fare Revenues Fare Revenues Year (in millions) Year (in millions) 2000 $2,100 2004 $2,570 2001 2,137 2005 2,643 2002 2,135 2006 2,759 2003 2,396 2007 2,855

The current fare schedule includes a basic bus and subway fare of $2.00, as well as a variety of discounted fare arrangements (as described in the next paragraph) covering a significant and growing portion of passenger trips. Special fares are available for senior citizens, persons with disabilities and school children and on certain special services. For a description of historical fare levels and certain recently completed and ongoing changes in payment and collection methods and discount programs, see “RIDERSHIP AND FACILITIES USE – Transit System Ridership – Fares” and “RIDERSHIP AND FACILITIES USE – Transit System Ridership – Automated Fare Collection” above in this Part 3.

For MetroCard users only, MTA has continued the elimination of two-fare zones, as well as the provision of volume bonuses (a 15% increase in the face value of purchases of MetroCards costing $7 or more), unlimited-ride 7-day, 14-day and 30-day and daily subway and bus passes and unlimited-ride 7-day combined express bus and regular bus passes. On March 2, 2008, MTA introduced a 14-day unlimited ride subway and local bus pass. MTA also offers a program for unlimited-ride 14-day, 30-day and 7-day express pass holders that enables the holder to replace his or her lost pass at no cost (limit of 2 per calendar year per holder) if the pass was paid for by credit or debit card. Although these programs decrease revenues per trip, MTA currently projects that, over the next few years, revenues derived from fares charged to users of the Transit System will increase. Expenses of operating the Transit System, due in part to service levels required to accommodate ridership, are also expected to increase. The MetroCard system and the addition of new means for the sale and payment of MetroCards have changed, and in the future will continue to change, the manner and timing of receipt of revenues derived from fares and can be expected to provide the basis for additional future incentive/discount programs. See “RIDERSHIP AND FACILITIES USE – Transit System Ridership – Automated Fare Collection” above in this Part 3 and “METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS” below in this Part 3.

MTA New York City Transit may fix and adjust Transit System fares without the approval or consent of any other body or entity. However, as a recipient of Federal funding, MTA New York City Transit is obligated to receive public comment prior to raising fares.

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Transit System Fare Reimbursements from the City. MTA New York City Transit and MaBSTOA are required by law to permit, upon the request of the Mayor of the City, free or reduced fares for one or more classes of users of their facilities upon the agreement of the City to assume the burden of the resulting differential in fares and the associated administrative costs. Pursuant to an ongoing request of the Mayor, MTA New York City Transit and MaBSTOA have instituted free fare programs for certain school children and, as a requirement for obtaining grants from the Federal government, have continued a half-fare program for senior citizens and have instituted a half-fare program for eligible disabled persons.

The City no longer reimburses MTA New York City Transit and MaBSTOA for costs of the free fare program for students; however, pursuant to an agreement with the State and the City, MTA, MTA New York City Transit and MaBSTOA continue the student program with the State and the City have each agreed to pay $45 million towards the program’s cost. MTA’s 2008-2011 Financial Plan assumes the continuation of the joint funding of the free fare program for students through 2011. The State Enacted Budget for State Fiscal Year 2008-2009 reduces the State contribution from $45 million to $43.843 million. It is unknown at this time whether this modest reduction, which stemmed from statewide budget cuts, will be recurring.

Commuter System Fares. Revenues, on an accrual basis, are derived from fares charged to users of the Commuter System. Fare revenues on an accrual basis for the past eight years are as follows:

Fare Revenues Fare Revenues Year (in millions) Year (in millions) 2000 $688 2004 $814 2001 698 2005 880 2002 691 2006 912 2003 771 2007 956

Fares are set in accordance with complicated formulae and vary in relation to the distance traveled. Discounts are generally available for travel during off-peak hours, for senior citizens, children and persons with disabilities, and for the purchase of weekly or monthly tickets by commuters. Monthly ticket purchasers can also receive an additional discount for purchasing a 30-day unlimited-ride MetroCard with their commuter ticket.

A 2% discount is offered on the rail fare to Mail&Ride customers who purchase a combined monthly commuter ticket and either $0 or $40 MetroCard. Additionally, MTA Long Island Rail Road and MTA Metro-North Railroad offer a 5% discount on the rail fare with the $81 unlimited ride MetroCard option MetroCard. MTA Long Island Rail Road and MTA Metro-North Railroad offer reduced-fare rides between points within the City on weekends. As described in the next paragraph, MTA cannot increase fares in the State of Connecticut without the approval of CDOT.

MTA may fix and adjust Commuter System fares, except with respect to the New Haven Line, without the approval or consent of any other body or entity. However, MTA is required to hold public hearings prior to the change in any fare. In the case of the New Haven Line, MTA’s ability to change fares is subject to the approval of CDOT pursuant to the terms of the joint service agreement among MTA, MTA Metro- North Railroad and CDOT. At the present time, MTA is exempt from all Federal requirements relating to fares charged on interstate travel on the New Haven Line.

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MTA Bridges and Tunnels Toll Revenues. Revenues are derived from tolls at the MTA Bridges and Tunnels Facilities. Toll revenues on an accrual basis for the past ten years are as follows:

Toll Revenues Toll Revenues Year (in thousands) Year (in thousands) 1998 $ 884,439 2003 $1,021,938 1999 912,792 2004 1,096,988 2000 940,607 2005 1,204,944 2001 914,856 2006 1,241,551 2002 933,134 2007 1,250,549

The average toll increased from $3.62 per vehicle in 2004 to $4.11 in 2007 primarily due to the March 13, 2005 toll increase. The average toll is expected to increase to $4.31 in 2008, due to the March 16, 2008 toll increase.

For more information relating to MTA Bridges and Tunnels’ tolls, see “RIDERSHIP AND FACILITIES USE – Toll Rates” above in this Part 3 and “METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS” below in this Part 3. See also the URS Study under the captions “TOLL COLLECTION ON THE TBTA FACILITIES.”

State and Local General Operating Subsidies

Section 18-b Program. A statewide mass transportation operating assistance program (“Section 18-b Program”) is administered by the State Commissioner of Transportation. Section 18-b Program payments to MTA for the Transit System and Commuter System are made quarterly on the basis of specific annual appropriations by the Legislature rather than pursuant to the formula set forth in the statute that is applicable to other transportation systems throughout the State.

The State appropriates substantially all of such Section 18-b Program payments from a separate account (the “Transportation District Account”) in a special State fund derived from the special taxes described below, the Metropolitan Mass Transportation Operating Assistance Fund (the “MTOA Fund”). The remainder of such payments is appropriated from the State’s General Fund. Appropriation from the Transportation District Account reduces the amount that would otherwise be available to be appropriated to (1) MTA New York City Transit and MaBSTOA, and (2) MTA for the Commuter System, from such Account, as described below under “State Special Tax Supported Operating Subsidies – MMTOA Receipts.”

Under the Section 18-b Program:

• Whenever MTA New York City Transit or MaBSTOA receives a payment from the State, the City is required to make a matching payment in accordance with amounts established by the Legislature. In the event the City fails to make any required payment, the State Comptroller is authorized to withhold an equivalent amount from certain State aid to the City and to pay such amount directly to MTA New York City Transit or MaBSTOA.

• Whenever MTA receives a payment from the State for the Commuter System, the City and counties served by the Commuter System are required to make a matching payment in accordance with amounts established by the Legislature. In the event the City and counties fail to make any required payment, the State Comptroller is authorized to withhold an equivalent amount from certain State aid to the City and counties and to pay such amount directly to MTA for the Commuter System.

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State Special Tax Supported Operating Subsidies

MTTF Receipts. Subject to annual appropriation, a specified share of the following (the “MTTF Receipts”) are deposited in the State’s dedicated mass transportation trust fund and paid to MTA by deposit into a dedicated tax fund (the “Dedicated Tax Fund”):

• a portion of the revenues derived from certain business privilege taxes imposed by the State on petroleum businesses (see “DEDICATED TAX FUND BONDS – MTTF Receipts – Dedicated Petroleum Business Tax” in Part 4),

• a portion of the motor fuel tax on gasoline and diesel fuel (see “DEDICATED TAX FUND BONDS – MTTF Receipts – Motor Fuel Tax” in Part 4), and

• a portion of certain motor vehicle fees, including both registration and non-registration fees (see “DEDICATED TAX FUND BONDS – MTTF Receipts – Motor Vehicle Fees” in Part 4).

MMTOA Receipts. Subject to annual appropriation, a specified share of the following (the “MMTOA Receipts”) are deposited in the MMTOA Account and paid to MTA by deposit into the Dedicated Tax Fund:

• a 3/8 of one percent regional sales tax,

• a temporary regional franchise tax surcharge,

• a portion of taxes on certain transportation and transmission companies, and

• an additional portion of the business privilege tax imposed on petroleum businesses.

See “DEDICATED TAX FUND BONDS – MMTOA Account – Special Tax Supported Operating Subsidies” in Part 4 for a more detailed description of the MMTOA Receipts.

Use of MTTF Receipts and MMTOA Receipts. MTTF Receipts are used first to pay debt service on the Dedicated Tax Fund Bonds described under “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS” in Part 4. To the extent that MTTF Receipts are insufficient, MMTOA Receipts are used to pay the remainder of the debt service on the Dedicated Tax Fund Bonds. All remaining MTTF Receipts and MMTOA Receipts are then allocated to MTA New York City Transit and the Commuter System in accordance with the formula provided by statute (85% to the Transit System and 15% to the Commuter System in the case of MTTF Receipts; the relative percentage of that year’s State appropriation to the Transit System and the Commuter System, respectively, in the case of MMTOA Receipts; in each case reducing from their final payments the respective amounts used for debt service).

A table showing five-year historical MTTF Receipts and MMTOA Receipts is set forth under “DEDICATED TAX FUND BONDS – Sources of Payment – Revenues from Dedicated Taxes” in Part 4.

Urban Taxes for Transit System. In addition to the aforementioned special tax supported subsidies, a portion of the amounts collected by the City from certain mortgage recording and real property transfer taxes with respect to certain real property located within the City (collectively, the “Urban Taxes”) are, as required by State statute, paid by the City’s Commissioner of Finance directly to MTA New York City Transit on a monthly basis. As in the case of mortgage recording taxes described below, the Urban Taxes can change dramatically from year to year depending on the level of real estate activity.

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The following table sets forth the amount of Urban Taxes received by MTA New York City Transit on an accrual basis in each of the last eight years.

Urban Taxes Urban Taxes Year (in millions) Year (in millions) 2000 $174.6 2004 $360.2 2001 210.5 2005 594.6 2002 178.7 2006 751.6 2003 173.1 2007 953.3

MTA Bridges and Tunnels Surplus

General. MTA Bridges and Tunnels provides capital and operating assistance to the Transit and Commuter Systems in three important ways:

• it pays debt service on bonds that were issued to finance transit and commuter capital projects,

• it generates an annual MTA Bridges and Tunnels Operating Surplus, as described below, that is distributed to MTA New York City Transit and to MTA for the commuter railroads in accordance with a statutorily mandated formula, and

• it generates an annual MTA Bridges and Tunnels Surplus Investment Income, as described below, that is distributed at the discretion of the MTA Board.

From 2005 – 2007, MTA Bridges and Tunnels did not issue new money bonds to finance capital projects for the benefit of the Transit and Commuter Systems. On March 27, 2008, MTA Bridges and Tunnels issued General Revenue Bonds, Series 2008A and Series 2008B (“Series 2008 Bonds”) in the aggregate amount of $1,075 million. The Series 2008 Bonds were issued to finance bridge and tunnel projects, and are expected to be used to refinance indebtedness issued by MTA or MTA Bridges and Tunnels to finance Transit and Commuter projects.

The following chart sets forth for the last four years MTA Bridges and Tunnels’ total support to the Transit and Commuter Systems, consisting of the debt service paid on bonds issued for transit and commuter capital projects, the MTA Bridges and Tunnels Operating Surplus and the MTA Bridges and Tunnels Surplus Investment Income.

Total Support to Transit and Commuter Systems Year (in millions) 2004 $ 690 2005 784 2006 759 2007 735

MTA Bridges and Tunnels Operating Surplus. Section 569-c of the MTA Bridges and Tunnels Act and Section 1219-a of the MTA New York City Transit Act require MTA Bridges and Tunnels to transfer its operating surplus (“MTA Bridges and Tunnels Operating Surplus”) to MTA New York City Transit and to MTA for the commuter railroads in accordance with a statutorily mandated formula hereinafter described.

For such purposes, the MTA Bridges and Tunnels Operating Surplus subject to such transfer is the amount remaining from all tolls and other operating revenues derived from the MTA Bridges and Tunnels Facilities after (1) payment of (a) operating, administration and other expenses of MTA Bridges and Tunnels properly chargeable to such projects, and (b) principal of and sinking fund installments and interest on its bonds, including bonds issued under the MTA Bridges and Tunnels Senior Resolution and the MTA Bridges and Tunnels Subordinate Resolution (as defined under “PUBLIC DEBT SECURITIES AND

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OTHER FINANCIAL INSTRUMENTS” in Part 4) to the extent, if any, paid from such sources, and (2) provision for (x) reserves and for all contract provisions with respect to any such bonds and (y) other obligations, including MTA Bridges and Tunnels’ base rent payments in connection with the 2 Broadway Certificates of Participation, incurred in connection with any of its authorized projects. See “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS” in Part 4.

The first $24 million of MTA Bridges and Tunnels Operating Surplus must be allocated to MTA New York City Transit, and any excess is divided equally between MTA New York City Transit and MTA for the benefit of LIRR and MNR; however, the cash payments are reduced by the proportional amounts of MTA Bridges and Tunnels’ debt service reasonably attributable to the bond proceeds used for their respective benefit.

The MTA Chairman is authorized in his discretion to advance to MTA and MTA New York City Transit monthly, from available funds, an aggregate amount not to exceed 90% of the Chairman’s estimate of the sum which that month’s operations will contribute to the “operating surplus” of MTA Bridges and Tunnels that he anticipates will or may be certified and transferred for the fiscal year in which such month falls.

The MTA Bridges and Tunnels Operating Surplus declined in 2002 as shown below due primarily to the fact that, before the debt restructuring, certain MTA Bridges and Tunnels bonds were secured in the first instance by mortgage recording taxes and, thereafter, by MTA Bridges and Tunnels revenues. Those bonds were eliminated and replaced by bonds paid solely from MTA Bridges and Tunnels revenues. Consequently, more MTA Bridges and Tunnels debt service was paid from MTA Bridges and Tunnels revenues without the set-off from the mortgage recording taxes.

The MTA Bridges and Tunnels Operating Surplus decreased in 2006 and in 2007 as shown below due primarily to increased operating and debt service costs.

MTA Bridges and Tunnels Surplus Investment Income. MTA Bridges and Tunnels generates investment income on funds held by it (the “MTA Bridges and Tunnels Surplus Investment Income”). Prior to the debt restructuring in 2002, a large portion of this income was generated by the debt service reserve funds that secured the various MTA Bridges and Tunnels bond issues. With the elimination of the debt service reserve funds in 2002, the income is currently generated principally from the smaller debt service funds and operating and capital reserves held by MTA Bridges and Tunnels.

Combined Surplus Amounts. The MTA Bridges and Tunnels Operating Surplus and the MTA Bridges and Tunnels Surplus Investment Income (together, the “MTA Bridges and Tunnels Combined Surplus”) are used to fund the operating expenses of the Transit System and the Commuter System and/or to finance the cost of certain capital costs and projects of the Transit System and the Commuter System, including payment of debt service on obligations of MTA issued to finance such costs and projects.

The MTA Bridges and Tunnels Combined Surplus amounts transferred for each of the last eight years on an accrual basis are as follows. The amounts set forth as MTA Bridges and Tunnels Operating Surplus are net of amounts paid for debt service and other obligations described above.

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MTA Bridges MTA New York and Tunnels Fiscal Year City Transit Share MTA Share Combined Surplus 2007 Operating Surplus $156,474,331 $249,968,331 $406,442,662 Investment Income -0- 5,558,000 5,558,000 Total $156,474,331 $255,526,331 $412,000,662

2006 Operating Surplus $166,640,098 $259,394,202 $426,034,300 Investment Income -0- 8,636,828 8,636,828 Total $166,640,098 $268,031,030 $434,671,128

2005 Operating Surplus $179,985,259 $271,719,439 $451,704,698 Investment Income -0- 5,357,650 5,357,650 Total $179,985,259 $277,077,089 $457,062,348

2004 Operating Surplus $153,579,633 $241,938,839 $395,518,472 Investment Income -0- 1,368,407 1,368,407 Total $153,579,633 $243,307,246 $396,886,879

2003 (1) Operating Surplus $178,276,053 $251,871,472 $430,147,525 Investment Income -0- 2,333,684 2,333,684 Total $178,276,053 $254,205,156 $432,481,209

2002 Operating Surplus $103,961,853 $144,239,990 $248,201,843 Investment Income -0- 14,727,029 14,727,029 Total $103,961,853 $158,967,019 $262,928,872

2001 Operating Surplus $137,948,870 $173,255,462 $311,204,332 Investment Income -0- 23,777,588 23,777,588 Total $137,948,870 $197,033,050 $334,981,920

2000 Operating Surplus $167,741,914 $189,682,616 $357,424,530 Investment Income -0- 33,219,362 33,219,362 Total $167,741,914 $222,901,978 $390,643,892

(1) Operating Surplus includes approximately $25 million from the settlement of insurance claims resulting from the terrorist attacks on the WTC in 2001, the proceeds of which were received in 2004 but attributed, for accounting purposes, to 2003.

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Financial Assistance and Service Reimbursements from Local Municipalities

Commuter System Station Maintenance Payments. The City and each of the seven counties in the Transportation District outside the City are each billed an amount fixed by statute for the operation, maintenance and use of Commuter System passenger stations within the City and each such county as adjusted each year for increases or decreases in the consumer price index for wage earners and clerical workers in the New York, Northeastern-New Jersey Consolidated Metropolitan Statistical Area. The State Legislature has not made any changes in the base amounts since 2000. Further modifications may be recommended to the State Legislature every five years (the next such year being 2010) based upon changes made to commuter services.

The following table sets forth the station maintenance, operation and use assessments received by MTA on an accrual basis in each of the last eight years:

Payments Payments Year (in millions) Year (in millions) 2000 $110 2004 $129 2001 120 2005 134 2002 117 2006 137 2003 125 2007 142

Transit System Service Reimbursements from the City. Policing of the Transit System is being carried out by the New York City Police Department at the City’s expense. MTA New York City Transit is responsible for certain capital costs and support services related to such police activities, a small portion of which is reimbursed by the City.

Under an agreement with MTA, the City contributes an operating subsidy to support paratransit, equal to the lesser of (i) 33% of the operating deficit, calculated after taking into account paratransit passenger revenue, certain Urban Tax revenues and MTA New York City Transit administrative expenses, or (ii) an amount that is twenty percent greater than the amount paid by the City for the preceding calendar year. Any remaining operating deficit is funded by MTA New York City Transit. See “TRANSIT SYSTEM – Description of the Transit System – Paratransit” in Part 2.

Miscellaneous Revenues

Transit System. MTA New York City Transit and MaBSTOA receive revenues from concessions granted to vendors, revenues from advertising and other space rented in transit vehicles and facilities, and fines collected by the Transit Adjudication Bureau.

The following table sets forth the miscellaneous revenues received by MTA New York City Transit and MaBSTOA on an accrual basis in each of the last eight years:

Miscellaneous Revenues Miscellaneous Revenues Year (in millions) Year (in millions) 2000 $75.6 2004 $85.5 2001 68.3 2005 89.9 2002 72.3 2006 92.0 2003 77.9 2007 95.4

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Commuter System. MTA Long Island Rail Road and MTA Metro-North Railroad receive revenues from concessions granted to vendors, advertising and other space rented in Commuter System vehicles and facilities, the sale of power, the sale of food and beverage and other sundry revenues. The following table sets forth the miscellaneous revenues received by MTA Long Island Rail Road and MTA Metro-North Railroad (excluding concessions at Pennsylvania Station and Grand Central Terminal that are not pledged to the Transportation Revenue Bonds described under “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS” and “TRANSPORTATION REVENUE BONDS” in Part 4) on an accrual basis in each of the last eight years:

Miscellaneous Revenues Miscellaneous Revenues Year (in millions) Year (in millions) 2000 $51.7 2004 $35.8 2001 34.1 2005 36.9 2002 31.4 2006 54.1 2003 32.3 2007 46.0

Mortgage Recording Taxes

General. Certain moneys paid to MTA by the City and counties in the Transportation District pursuant to certain mortgage recording taxes may be used for the operating and capital costs, including debt service and reserve requirements, of or for MTA, MTA New York City Transit and their subsidiaries. During 2002, MTA Bridges and Tunnels defeased all outstanding bonds that were secured by the mortgage recording taxes, and such taxes no longer secure any MTA or MTA Bridges and Tunnels bonds. Neither MTA Bridges and Tunnels nor MTA expects to secure future bonds with mortgage recording taxes.

MRT-1 Receipts. Pursuant to Section 253(2)(a) of the New York State Tax Law (the “Tax Law”), a tax is imposed (the “MRT-1 Tax”) on recorded mortgages of real property situated within the State, subject to certain exclusions (such net MRT-1 Tax collections remitted to MTA are referred to as the “MRT-1 Receipts”). The tax was increased effective June 1, 2005 from 25 cents per $100 of mortgage recorded to 30 cents per $100. The MRT-1 Tax is paid by the property owner(s) taking out the mortgage loan.

MRT-1 Receipts must be applied by MTA,

• first, to meet MTA Headquarters Expenses (as hereinafter defined), and

• second, to make deposits into the Transit Account (55% of the remaining amount) and the Commuter Railroad Account (45% of the remaining amount) of the Special Assistance Fund.

Moneys in the Transit Account are required to be used to pay operating and capital costs of the MTA New York City Transit, its subsidiaries, and MTA Staten Island Railway, and moneys in the Commuter Railroad Account, after first making the transfers described below under “Transfers to State Suburban Transportation Fund,” are required to be used to pay operating and capital costs of the commuter railroad operations of MTA, other than MTA Staten Island Railway.

MRT-2 Receipts. Pursuant to Section 253(1-a) of the Tax Law, an additional tax is imposed (the “MRT-2 Tax”) on recorded mortgages of real property situated within the State, subject to certain exclusions. The MRT-2 Tax is paid by the institution (or other persons) making the mortgage loan to the property owner(s). The State Tax Law requires that the portion of the MRT-2 Tax collected on certain residential dwelling units be remitted to MTA for deposit into the Corporate Transportation Account of the Special Assistance Fund (such net MRT-2 Tax collections remitted to MTA are referred to as the “MRT-2 Receipts”).

Moneys deposited into the Corporate Transportation Account are applied as follows:

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• first, to make deposits into the Dutchess, Orange and Rockland Payment Subaccount described below under “Transfers to Counties,” and

• second, to make deposits into the Corporate Purposes Subaccount to be used to pay operating and capital costs, including debt service and debt service reserve requirements, if any, of, or incurred for the benefit of, MTA, MTA New York City Transit and their respective subsidiaries.

MRT-1 and MRT-2 Receipts. Under existing law, no further action on the part of the State Legislature is necessary for MTA to continue to receive such moneys (i.e., the State is not required to appropriate the moneys to MTA, so the moneys continue to be paid to MTA whether or not the State budget has been adopted). However, the State is not obligated to impose, or to impose at current levels, the MRT-1 Tax or the MRT-2 Tax or to direct the proceeds to MTA as presently provided.

MRT-1 Receipts and MRT-2 Receipts (collectively, “MRT Receipts”) are subject to significant volatility from year-to-year. This volatility reflects the discretionary nature of the transactions that lead to the collection of the tax. Such transactions are influenced by economic, social and demographic factors. For more information, see “FINANCIAL PLANS AND CAPITAL PROGRAMS – Recent Developments – Real Estate Market” above in this Part 3.

The following charts show the historical annual MRT Receipts, on an accrual basis, available for operations and capital costs for the last eight calendar years.

MRT-1 Receipts Increase/ MRT-1 Receipts Increase/ Year (in millions) (Decrease) Year (in millions) (Decrease) 2000 $123.9 N/A 2004 $353.4 42% 2001 155.4 25% 2005* 443.5 26 2002 204.2 31 2006 478.7 8 2003 248.7 22 2007 450.4 (6) ______* Reflects the increase in MRT-1 effective June 1, 2005. Source: Metropolitan Transportation Authority

MRT-2 Receipts Increase/ MRT-2 Receipts Increase/ Year (in millions) (Decrease) Year (in millions) (Decrease) 2000 $ 90.2 N/A 2004 $ 291.4 39% 2001 115.9 28% 2005 299.0 3 2002 173.6 50 2006 282.0 (6) 2003 209.8 21 2007 236.5 (16) ______Source: Metropolitan Transportation Authority

Deductions for Headquarters Expenses. The general, administrative and operating expenses of MTA, net of reimbursements, recoveries and adjustments (“MTA Headquarters Expenses”), to the extent not paid from other sources, are required to be paid from MRT-1 Receipts prior to making any deposits to the Transit Account or the Commuter Railroad Account. MTA Headquarters Expenses do not include capital expenditures for headquarters operations. Among other uses, MTA pays the following annual amounts as MTA Headquarters Expenses:

• expenses of operating MTA Headquarters, including MTA Police,

• an amount paid to MTA Bridges and Tunnels to effectively eliminate the toll that residents of Broad Channel and the Rockaway Peninsula pay when using E-ZPass on the Cross Bay Veterans Memorial Bridge, and

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• the operating expenses of MTA Staten Island Railway and MTA Long Island Bus not covered by fares, State and local subsidies and other amounts.

The amount of MTA Headquarters Expenses in any year is neither contractually nor statutorily limited. The amount of MTA Headquarters Expenses in future years may be affected by inflation, expansion or contraction of activities the expenses for which are not reimbursable, non-recurring expense items and other circumstances including changes in MTA’s reimbursement practices with respect to the other Related Entities. The amount of MRT-1 Receipts received by MTA each month that is required to be applied to MTA Headquarters Expenses may vary widely based on MTA’s cash flow requirements and the timing of reimbursements from the other Related Entities.

Transfers to State Suburban Transportation Fund from MRT-1 Receipts. State law requires MTA in each year to transfer up to $20 million of MRT-1 Receipts (in equal quarterly installments of $5 million) deposited in the Commuter Railroad Account to the State Suburban Transportation Fund to pay for or finance certain types of highway capital projects in certain areas of the Transportation District. In the event the transfer would result in an operating deficit, the amount of the deficit is appropriated to MTA for commuter railroad operating purposes. Due to such a deficit, no transfers were made in 2001 and 2002; however, such transfers have been made since 2003.

Transfers to Counties from MRT-2 Receipts. MTA is required to transfer, in equal quarterly installments, in each year from the MRT-2 Corporate Transportation Account to the Metropolitan Transportation Authority Dutchess, Orange and Rockland Fund an annual amount of $1.5 million for each of the counties of Dutchess and Orange, and $2.0 million for the county of Rockland. Additionally, MTA must transfer from that Account to such fund for each of these three counties, respectively, an amount equal to the product of (i) the percentage by which such county’s mortgage recording tax payment to MTA in the preceding calendar year (calculated as if the increase in the MRT-1 Tax from 25 cents per $100 to 30 cents per $100 did not occur) increased over such payment in calendar year 1989 and (ii) $1.5 million each for Dutchess and Orange Counties and $2.0 million for Rockland County. The following chart shows the amounts (in excess of the base amount of $5 million) transferred to the counties for the last four years:

Year County Additional Amounts 2004 Dutchess $ 5,963,871 Orange 5,416,891 Rockland 5,881,240 Total $17,262,002

2005 Dutchess $ 5,882,857 Orange 5,526,762 Rockland 6,702,721 Total $18,112,340

2006 Dutchess $ 4,520,597 Orange 5,164,895 Rockland 5,450,369 Total $15,135,861

2007 Dutchess $ 3,569,316 Orange 3,945,482 Rockland 4,169,009 Total $11,683,807

The decline in additional mortgage recording tax payments between 2005, 2006 and 2007 reflects a general decline in residential mortgage activity.

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Operating Funding for the Transit and Commuter Systems

The chart on the following page shows the types of revenues and relative percentages of revenue streams that are currently available and required to be used to fund the Transit System (MTA New York City Transit and MaBSTOA) and the Commuter System (MTA Long Island Rail Road and MTA Metro- North Railroad). From time to time, MTA may, in its discretion, additionally subsidize the Transit and Commuter System operations, or the operations of the other Related Entities, from other available excess moneys, including mortgage recording taxes. All of the revenues listed on the following chart are revenues that are pledged for the payment of Transportation Revenue Bonds (as described in “TRANSPORTATION REVENUE BONDS” in Part 4), with the exception of (1) mortgage recording taxes that do not become pledged revenues until after the payment of MTA Headquarters Expenses, and (2) concession revenues at Penn Station and Grand Central Terminal.

The percentages of MMTOA Receipts reflected below for the Transit and Commuter Systems are based upon the Enacted Budget for State Fiscal Year 2008-09.

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Operating Funding for the Transit and Commuter Systems

MTA New York City Transit MTA Long Island Rail Road and and Manhattan and MTA Metro-North Railroad Bronx Surface Transit Operating Authority

transit fares and commuter fares and reimbursements station maintenance from the City and payments State (inc. CDOT)

Section 18-b Section 18-b Program – State Program – State appropriation and appropriation and local match local match

MTTF Receipts – MTTF Receipts – 85% 15% (DTF Bonds debt (DTF Bonds debt service paid first) service paid first)

MMTOA Receipts MMTOA Receipts – 66.7% – 33.3%

TBTA Surplus – TBTA Surplus – $24 million plus 50% of remainder 50% of remainder after paying NYCTA share

Miscellaneous – Miscellaneous – concessions, concessions, advertising and advertising and other revenues other revenues

Mortgage Recording Mortgage Taxes (55% of MRT- Recording Taxes 1 after HQ (45% of MRT-1 Expenses) plus after HQ Expenses) Urban Taxes

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METHODS OF PAYMENT AND COLLECTION OF FARES AND TOLLS

MetroCard

MTA New York City Transit employs an automated fare collection (“AFC”) system that utilizes MetroCard, as more fully described under “RIDERSHIP AND FACILITIES USE – Transit System Ridership – Automated Fare Collection” above in this Part 3. MTA New York City Transit has installed automated vending machines in almost all of its stations in order to sell, or add value to, MetroCards through cash, and credit and debit card transactions. In addition to in-system sales at station booths and through vending machines, MetroCards are presently sold through out-of-system vendors, by MTA Long Island Rail Road, MTA Metro-North Railroad, MTA Long Island Bus and MTA Bus, and directly to businesses. In connection with certain of these sales, a sales commission is netted out of the amounts paid to MTA New York City Transit.

MTA New York City Transit offers a Mail&Ride pre-payment program wherein customers pay for MetroCards by check, and credit and debit card, and such MetroCards are mailed to the customer. MTA New York City Transit also has a program with senior citizens wherein their MetroCard usage is determined after the month and they are retroactively charged at the least cost based upon their usage.

MTA New York City Transit has integrated its MetroCard system with MTA Bus, MTA Long Island Bus, PATH, JFK AirTrain and Westchester County Bee Line, and has future plans to integrate with New Jersey Transit, to allow payment of fares on all of the systems with the same card. PATH and MTA New York City Transit are separately currently testing the use of a Smartcard computer chip technology that does not have to be “swiped” through the turnstile, but will register the fare simply by tapping at a marked area on the turnstile. It is contemplated that this test will be expanded to MTA New York City Transit buses during 2008.

The introduction and expansion of the use of MetroCards facilitated:

• the ability of MTA New York City Transit and MaBSTOA to eliminate “two-fare zones” for MetroCard users,

• certain discount bonuses, and

• the introduction of unlimited ride 30-day, 14-day, seven-day and daily passes.

MTA also offers a free replacement program for lost or stolen unlimited-ride 14-day, 30-day MetroCard and 7-day express passes (limit of 2 per calendar year per holder) for holders that purchased with credit or debit cards.

MTA currently has no plans to implement any additional discount or reduction proposals.

E-ZPass

MTA Bridges and Tunnels employs an electronic toll collection system (E-ZPass) at all of its bridges and tunnels, as more fully described under “RIDERSHIP AND FACILITIES USE – E-ZPass” above in this Part 3. MTA Bridges and Tunnels has integrated, and continues to integrate, its electronic toll payment media system with those of other governmental entities, whereby the integrated electronic toll payment media can be used on any entity’s facilities. Substantially all of the E-ZPass users prepay with credit cards or checks. MTA Bridges and Tunnels is a founding member of the E-ZPass IAG, which has grown to include toll authorities in Delaware, Pennsylvania, New Jersey, New York, Maryland, Massachusetts, Virginia, West Virginia, New Hampshire, Illinois, Maine and the Peace Bridge between Buffalo, New York and Fort Erie, Ontario. Payments are settled among all such entities after use of the facilities. MTA Bridges and Tunnels transfers significantly more cash to IAG members than it receives from them, which at times could adversely affect MTA Bridges and Tunnels’ cash position.

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The following chart shows the amount of annual transfers to and from other IAG members during the last three years.

Transfers to IAG Members Transfers from IAG Members Year (in millions) (in millions) 2005 $347.8 $219.7 2006 390.7 239.8 2007 370.5 246.3

MTA Bridges and Tunnels has negotiated agreements with commercial entities (such as parking facility operators) whereby the electronic media can be used to purchase goods and services. E-ZPass Plus is currently available to certain E-ZPass customers for use at Albany International Airport, John F. Kennedy International Airport, LaGuardia Airport and Newark International Airport. MTA Bridges and Tunnels may expand the use of agreements with commercial entities.

Commuter Railroads

Both MTA Long Island Rail Road and MTA Metro-North Railroad permit payment of certain fares by check and by credit and debit card at most sales venues except “On Board”. MTA Metro-North Railroad will be implementing the use of portable “On Board” ticket issuing machines to permit additional sales by credit and debit cards in the very near future. The MTA Long Island Railroad is closely following the use of “On Board” ticket issuing machines and will evaluate the progress for use on MTA Long Island Rail Road. MTA Long Island Rail Road and MTA Metro-North Railroad Mail&Ride customers can purchase a combined MetroCard-monthly commuter ticket through Mail&Ride or at ticket office or ticket vending machines. In addition, MTA has implemented a program offering reduced intra-City weekend commuter tickets.

General

Payment by means other than cash (1) creates a potential risk of actual collection of payments for goods and services and (2) could delay the timing of the actual receipt of payment by the goods and services providers. Following the standard industry practice for credit, debit and smart cards, fare and toll payments made by those means will produce cash receipts to the applicable authority and trustee which are net of standard discounts and transaction fees to the merchant processors, card associations and card issuers. Further, (1) the collection of fares and tolls by other governmental entities using an integrated payment system, such as MetroCard or E-ZPass, whereby a customer can purchase a card or pass from any of the entities for use on all of the systems, and (2) the use of the Related Entities’ electronic media at commercial establishments, may subject the amounts due to MTA New York City Transit, MTA Bus and MTA Bridges and Tunnels to multiple liens and claims prior to the time that the fares or tolls are actually earned through use of the applicable facilities. The payment of fares and tolls by non-cash methods, including checks and credit, debit and smart cards, is subject to, among other things, collection risk, including, without limitation, bankruptcy, insolvency and other creditor and debtor rights involving both the user of the facilities and the collection and processing entities.

Continued implementation of the MetroCard and E-ZPass systems may permit the implementation of additional “discount or reduced fare or toll” proposals, such as time of day toll rates.

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FINANCIAL PLANS AND CAPITAL PROGRAMS

2008-2011 Financial Plan

General. MTA has prepared a financial plan for the years 2008 through 2011 for itself and the other Related Entities (the “2008-2011 Financial Plan”). The 2008-2011 Financial Plan is designed to maintain the fiscal stability of the Related Entities and enable all those entities to maintain their respective operations on a self-sustaining basis. The 2008-2011 Financial Plan is also designed to continue a program of capital expenditures that would support the ongoing maintenance of MTA’s transportation network and provide needed improvements to enhance services to its customers, as well as expand service through a number of initiatives described below under “2008-2013 MTA Capital Program.”

The 2008-2011 Financial Plan includes a final budget that was adopted by the MTA Board for 2008 (the “2008 Budget”) and a financial plan for the years 2009–2011. A copy of the 2008-2011 Financial Plan, which includes the 2008 Budget, is posted on MTA’s website under “Financial Plan/Capital Program” and is included by specific cross-reference herein.

2007 Actual Results. The 2007 year-end results appearing in the audited financial statements are prepared on a GAAP basis, while the financial plan is prepared on a modified accrual basis. The modified accrual format allows the financial plan to show the MTA’s cash availability, which is the measurement for achieving operating budget balance. Differences occurring between the audited financial statements and the financial plan are caused by the use of these different reporting formats. The most notable difference is the treatment of debt service – the GAAP statements reflect long-term interest, while the financial plan reflects cash principal and interest payments paid out of operating funds. Moreover, cash transactions are reflected in the GAAP balance sheet, while the financial plan reflects completed cash transactions and does not include account receivables or payables.

MTA’s 2007 closing net cash balance at year-end was $502 million, which includes the use of the $937 million prior-year carryover from 2006. The $502 million balance was net of certain cash management actions were taken in 2007. In September, the MTA defeased approximately $300 million of debt maturing in 2009, which will result in savings of approximately $20 million. In November, the MTA made a $200 million pension pre-payment, the investment of which will generate future savings. In December, the MTA put aside $150 million so that it could invest in fuel pre-purchases by locking in approximately 30% of fuel purchases for 2008 and 2009. This has not yet been accomplished and MTA continues to explore ways of locking in future fuel prices. Because fuel costs have risen sharply, MTA established a fuel reserve of $22 million in 2008 to compensate for recent price increases.

When compared with the 2007 Final Estimate, that is included within the 2008-2011 Financial Plan, MTA’s cash balance was $21 million unfavorable; however, this was the result of unfavorable cash-flow timing in several areas that are for the most part expected to result in improved 2008 results and will be addressed in the July 2008 Financial Plan. MTA’s 2007 General Reserve was not spent in 2007 and is available for subsequent use. Subsidies were $29 million unfavorable as a timing delay in the receipt of subsidies from New York City for MTA Bus expenses was partially offset by higher than programmed real estate transaction tax receipts. MTA expects receipt of the MTA Bus prior year City subsidy payments after completion of the 2007 audit.

2008- 2011 Financial Plan. Subject to the 2007 actual results noted above, the MTA 2008-2011 Financial Plan projected the following, after taking into consideration the application of MTA Bridges and Tunnels’ operating surplus to mass transit:

• After policy and gap closing actions, the 2008 Budget projected a net cash balance of $368 million.

• After policy and gap closing actions, the 2008-2011 Financial Plan projected net cash deficits of $216 million, $335 million and $416 million in the years 2009 through 2011, respectively.

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Other than normal growth in expenses due to inflation, the major portions of the projected deficits are caused by substantial growth in debt service costs, additional pension contributions, and additional health and welfare benefit costs. Also contributing to the growth is an increase in service provided as well as significant improvements in facilities and fleet maintenance.

Recent Developments. Real estate-related taxes collected between January and April 2008 were $43 million (10%) below the level anticipated in the 2008 Adopted Budget. MRT-1 was $11 million below; MRT-2 was $10 million below; and the Urban Taxes were $22 million below. The 2008 Budget anticipates that collections from these taxes would be 21% below 2007, but the drop-off in the first third of 2008 has been greater than expected.

Agency operational results for the first quarter of 2008 are better than budget, with expenses running lower (about 1%) and revenues running slightly higher (+1%).

The State enacted its budget on April 8, 2008. The only material change for MTA affected the appropriation for NYCT's and the Commuter Railroad's MMTOA; the appropriation was $37 million lower than expected in the 2008 budget. This reduction resulted from late state-wide reductions to state aid to localities. MTA has not yet identified how this shortfall will be made up; the July 2008 financial plan will address this loss.

Implementation of the 2008-2011 Financial Plan. MTA is required to balance its budget on a cash basis and, therefore, a plan which could include future cost reductions, fare and toll adjustments and additional subsidies will be necessary to address deficits beginning in 2009. The 2008-2011 Financial Plan assumes a level of capital spending consistent with the approved Transit and Commuter Capital Programs. The 2008-2011 Financial Plan assumes that MTA and MTA Bridges and Tunnels will continue to issue bonds to finance projects set forth in the 2005-2009 Capital Program and prior Capital Programs. In addition, the 2008-2011 Financial Plan is based on a number of assumptions including implementation of certain cost reductions, maintenance of assumed ridership levels on MTA’s Transit and Commuter Systems and traffic volumes on the MTA Bridges and Tunnels Facilities and receipt of certain operating and capital assistance from other governmental entities. While MTA believes that its assumptions regarding fare and toll increases, budget cuts, ridership levels, traffic volumes and capital and operating assistance are reasonable, there can be no assurance that all cost reductions can be achieved in the amounts and at the times required, that general economic or employment conditions or weather-related events will not adversely affect ridership levels, traffic volumes or operating costs or that operating and capital assistance will be received in the amounts and at the times required. To the extent any of the assumptions underlying the implementation of the 2008-2011 Financial Plan do not materialize, MTA may have to make revisions to the 2008-2011 Financial Plan, the 2005-2009 Capital Program and prior and future capital programs, which could be significant.

The implementation of the 2008-2011 Financial Plan and the capital programs described below are interrelated and complex. Any failure to fully achieve each of the various proposals could have an adverse impact on one or more of the other proposals contained in the 2008-2011 Financial Plan, including those capital programs. Implementation will require, among other things, administrative approvals, stable or favorable economic, employment and market conditions, and cooperation of third parties. There is no assurance that each of those actions will occur or that all of the assumptions underlying the 2008-2011 Financial Plan or the various approved capital programs will be realized.

The 2008-2011 Financial Plan may be amended by MTA from time to time in response to changing economic and operational factors as well as changes in the approved capital programs.

Issuance of Bonds. The 2000-2004 Capital Program assumes the issuance of approximately $12.062 billion of new money bonds to finance a portion of the capital programs proposed for the Transit System, the Commuter System and MTA Bridges and Tunnels’ capital needs. To date, $10.9 billion of bonds has been issued to finance projects included in the 2000-2004 Capital Program.

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The 2005-2009 Capital Program assumes the issuance by MTA and MTA Bridges and Tunnels of approximately $4.3 billion of new money bonds, together with an issuance of $5.1 billion in bonds backed by increased State taxes and fees as approved in the 2005-06 State budget. To date, $431 million of bonds has been issued to finance projects included in the 2005-2009 Capital Program.

In addition, the State expects to issue State general obligation bonds that were approved by the voters in November 2005 in an amount sufficient to contribute $1.45 billion of proceeds for the benefit of the Transit and Commuter Systems. To date, $124 million of such proceeds have been received by MTA.

Capital Programs – Background and Development

Transit and Commuter Systems. The MTA Act requires MTA to submit to the Review Board for its approval successive five-year capital programs, one for the Transit System and MTA Staten Island Railway and another for the Commuter System. The Review Board previously approved capital programs for the Transit System and MTA Staten Island Railway and the Commuter System for the five-year periods beginning in the years 1982, 1987, 1992 and 1995. The last two years of the 1992-1996 MTA Capital Program were incorporated into the 1995-1999 MTA Capital Program. Substantially all of the projects included in the 1982-1999 MTA Capital Programs have been completed.

MTA and the Review Board have also approved separate five-year MTA Capital Programs covering the periods 2000-2004 and 2005-2009 for (1) the commuter railroad operations conducted by MTA Long Island Rail Road and MTA Metro-North Railroad (the “2000-2004 Commuter Capital Program” and the “2005-2009 Commuter Capital Program,” respectively), and (2) the transit system operated by MTA New York City Transit and its subsidiary, MaBSTOA, and the rail system operated by MTA Staten Island Railway (the “2000-2004 Transit Capital Program” and the “2005-2009 Transit Capital Program,” respectively).

The 2005-2009 Capital Programs, as amended to date, are effective and are described in detail below under “2005-2009 MTA Capital Program.” In addition, as more fully described below, with the creation of MTA Bus, certain portions of its capital program have been incorporated into the 2000-2004 MTA Capital Program and the 2005-2009 MTA Capital Program. References to the 2000-2004 Capital Program and the 2005-2009 Capital Program include all amendments through the date of this Appendix A.

Funding for the MTA Capital Programs comes from a variety of sources, including bonds, State, City and MTA Bridges and Tunnels assistance, and Federal funds. The Federal government supplied approximately 32% of the funds required for the 1982-1999 Capital Programs. MTA estimates that the Federal government will supply approximately 24.6% of the funds required for the 2000-2004 MTA Capital Program, not including the lower Manhattan projects (Fulton Street and South Ferry) that are substantially 100% Federally funded. MTA estimates that the Federal government will supply approximately 31.1% of the funds required for the 2005-2009 MTA Capital Program.

MTA Bridges and Tunnels Facilities. MTA Bridges and Tunnels undertook, beginning in 1989, its first multi-year capital program totaling $160 million for the 3-year period 1989-1991. The funds for such program were raised from revenues deposited in its own capital reserve fund and the proceeds of MTA Bridges and Tunnels bonds.

Since then, while not required to do so by statute, MTA Bridges and Tunnels has developed its own five-year capital programs covering the same periods as the MTA Capital Programs to enable MTA Bridges and Tunnels to keep its own facilities in good operating condition while also maintaining its role in MTA’s unified transportation policy. The MTA Bridges and Tunnels Capital Programs are not subject to approval by the Review Board and bonds issued to finance MTA Bridges and Tunnels Facilities are not subject to the statutory ceiling.

Although substantial annual investments in major maintenance and bridge painting have regularly been made and additional expenditures are planned, MTA Bridges and Tunnels expects that capital investments

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in the rehabilitation or reconstruction of its facilities will become increasingly necessary as components approach the end of their current useful life and require normal replacement.

2008 – 2013 Capital Program Required by Congestion Pricing Legislation

In July 2007, legislation was enacted to, among other things, create a New York City Traffic Congestion Mitigation Commission to undertake a review and study of plans to reduce traffic congestion and other related health and safety issues within the City, including issues relating to implementing a traffic congestion mitigation plan to be developed and submitted by the Mayor of the City. Pursuant to that legislation, MTA submitted to the Capital Program Review Board on March 31, 2008 an MTA Capital Program for the period July 1, 2008 through December 31, 2013 for the Transit and Commuter systems, incorporating components to support the implementation of a congestion pricing plan. The Review Board is required to act on this submission by June 30, 2008; currently, a decision is still pending.

Legislation to enact the congestion pricing report and recommendations which were submitted by the Commission to State Legislature and Governor on January 31, 2008 did not pass. In light of this action, the status of the 2008-2013 proposed plan is uncertain; however, the Review Board could chose to leave the current 2005-2009 Capital Program in place until its expiration instead of adopting a new plan at this time.

2005-2009 MTA Capital Program

General. The “2005-2009 MTA Capital Program” consists of the following components:

• Transit Core Program, • Commuter Core Program, • MTA Bus Program, • MTA Capital Construction Program (the Network Expansion Program), • Security Program, and • Interagency Program.

The transit and commuter core programs consist mainly of state-of-good-repair, normal replacement and modernization projects.

There can be no assurance that all the necessary governmental actions to implement the 2005-2009 MTA Capital Program will be taken, that funding sources currently proposed or assumed will be available in the amounts or at the times projected, or that the projects included in the 2005-2009 MTA Capital Program, or parts thereof, will not be delayed or reduced. MTA regularly evaluates the status of all funding sources and projects and may, from time to time, submit amendments to the 2005-2009 MTA Capital Program needed to bring funding sources and expected project costs into balance. If the implementation of the 2005-2009 MTA Capital Program or any modification thereof is significantly delayed, MTA’s efforts to bring the entire Transit System and Commuter System to a state of good repair and to prevent deterioration of portions of the Transit System and Commuter System that have already reached a state of good repair may be impeded with potential negative effects on ridership and fare revenues.

Funding. The following table (which includes the proposed amendments described below under “Proposed Amendments to the MTA Capital Programs,” even though, with respect to the Transit and Commuter Systems, they have not yet been approved by the Review Board) sets forth the expected sources for funding the 2005-2009 MTA Capital Program and the 2005-2009 MTA Bridges and Tunnels Capital Program.

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Program Amount Funding Source (in millions) Federal Formula and Flexible $5,234 Federal New Start 2,255 Federal Security 354 City 401 City No. 7 Subway Line Funds 2,100 City Match for Buses (MTA Bus) 28 Operating to Capital 10 Asset Sales/Program Income/Carryover 1,273 New York State Bond Act Proceeds 1,450 MTA Bonds (including MTA Bridges and Tunnels) 4,341 MTA Bonds – New Source* 5,100 Other 40 Total** $22,586 ______* New Source revenues included the increase, in 2005, of the (1) District Sales Tax from one-quarter of 1% to three-eighths of 1%, (2) MRT-1 from 25 cents for each $100 of mortgage recorded to 30 cents, and (3) amount of Department of Motor Vehicle fees included in MTTF distribution.

**Total may not add due to rounding.

2005-2009 Transit Core Program. The following table (which includes the proposed amendments described below under “Proposed Amendments to the MTA Capital Programs,” even though, with respect to the Transit and Commuter Systems, they have not yet been approved by the Review Board) represents the capital program by category of work for the Transit System and MTA Staten Island Railway under the 2005-2009 Transit Capital Program (does not include MTA Network Expansion Projects related to the Transit System).

2005-2009 Transit Core Program (in millions) MTA New York City Transit Subway Cars $1,805 Buses 847 Passenger Stations 1,667 Track 1,156 Line Equipment 925 Line Structures 622 Signals & Communications 1,736 Power 503 Shops 306 Yards 267 Depots 591 Service Vehicles 119 Miscellaneous 591 MTA Staten Island Railway 85 Total* $11,220 ______*Total may not add due to rounding.

Among the projects included in the 2005-2009 Transit Core Program are the following:

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For rolling stock, the plan includes normal replacement of 912 B Division cars, as well as fleet growth for the A Division with the purchase of 47 cars. A total of 1,360 new buses will be ordered, including 1,010 standard (all using clean fuel technology), 112 articulated and 238 express buses. The new bus purchases represent a fleet growth of approximately four percent in “standard bus equivalents” (SBEs) over the current fleet as of 2004. In addition, 951 new paratransit vehicles will be purchased to replace older units and to expand the total fleet by approximately 33 percent over 2004.

The plan funds the rehabilitation of 44 stations, normal replacement of approximately 51 miles of mainline track and 165 mainline switches, as well as installation of 50 track miles of continuous welded rail, which is expected to significantly lower occurrences of rail breaks and cracks.

For signals and communications, the MTA New York City Transit’s major improvements feature expansion of new signal technology with the installation of communication based train control (CBTC) on the Flushing line, rehabilitation of interlocking on three other lines and completion of signal modernization on the White Plains Road line. Communications system improvements feature the continued extension of the existing fiber optic network to all passenger stations.

MTA New York City Transit’s line equipment investments include replacing approximately 48 track miles of tunnel lighting, rehabilitating or expanding six fan plants to replace 10 existing units and adding three new fan plants, and state of good repair work at 17 pump rooms. Various line structure repairs and related work are addressed, including 9 route miles of subway structure, 8 route miles of elevated structure, painting, and rehabilitation of 125 emergency exits throughout the subway system. The power category includes modernizing nine substations, rehabilitating three IRT and three IND substation enclosures, and replacing substation equipment at various locations. For shops, major work includes improvements at the 207th Street Overhaul Shop, an overhead crane at the Pitkin Shop and rehabilitation of a support shop (38th Street Yard Shop). In yards, a major project is Corona Yard Phase 3. In addition, the program will replace approximately seven miles of yard and non-revenue track, replace 100 yard switches and address other yard equipment and security needs. Also planned are various safety and security improvements.

For depots, major projects include a new depot to replace the existing Jamaica Depot, improvements to the East New York Depot and reconstruction of the Clara Hale Depot. Rehabilitation work also is planned at three other depots. Projects are planned to replace bus lifts, roofs, washers and heavy depot equipment, and secure property for parking needs. In addition, a new bus locator system will be extended system-wide and a new system-wide radio system deployed.

For service vehicles, the plan replaces 212 heavy-duty rubber-tire vehicles, such as heavy-duty trucks and specialty vehicles, and 22 work trains, such as ballast regulators, diesel-electric locomotives and a track geometry/rail inspection car.

In miscellaneous, the plan provides funds to purchase the Tiffany St. Warehouse, which currently is leased, and to support the program’s technical needs, including insurance, engineering, services, scope- development and the MTA independent engineer. In addition, improvements to employee facilities across the system are funded. Certain management information systems, such as PBX node sites and servers, will be addressed. Also, MTA New York City Transit will address various environmental and safety needs, such as asbestos monitoring and removal, installation of fire alarms at various facilities and environmental remediation.

For MTA Staten Island Railway, the Atlantic and Nassau stations, which are dilapidated and located very close to each other, will be replaced with a single, new ADA-accessible “Arthur Kill” passenger station. Also planned are the modernization of track and switches at the St. George Terminal, repair of six bridges/thru-spans and rehabilitation of four station houses.

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2005-2009 Commuter Core Program. The following table (which includes the proposed amendments described below under “Proposed Amendments to the MTA Capital Programs,” even though, with respect to the Transit and Commuter Systems, they have not yet been approved by the Review Board) represents the capital program by agency and by category of work for the Commuter System under the 2005-2009 Commuter Core Program (does not include MTA Network Expansion Projects related to the Commuter System).

2005-2009 Commuter Core Program (in millions) MTA Long Island Rail Road Rolling Stock $371 Passenger Stations 105 Track 561 Line Structures 283 Communications & Signals 349 Shops & Yards 169 Power 145 Miscellaneous 187 Total* $2,170

MTA Metro-North Railroad Rolling Stock $253 Passenger Stations 236 Track & Structures 245 Communications & Signals 75 Power 103 Shops & Yards 378 Miscellaneous 87 Total* $1,376 ______*Totals may not add due to rounding.

Among the projects included in the approved 2005-2009 Commuter Core Program are the following:

The rolling stock investment for the MTA Long Island Rail Road electric fleet includes the purchase of 158 new M-7 electric cars, continuing the normal life cycle replacement of M-1 electric multiple units nearing the end of their useful lives. The MTA Metro-North Railroad investments in this area continue the modernization of the fleet with the continuation of the M-2 overhaul. Also included are the purchase of 100 M-8 electric cars to begin the replacement of the New Haven Line’s M-2 fleet (with CDOT) and 36 M-7 electric cars to complete the replacement and expansion of the M-1 fleet.

Station investments include platform rehabilitations, replacement of stairs, escalators, elevators and overpasses at locations system-wide and the construction of new, and rehabilitation of existing, parking spaces. MTA Metro-North Railroad will continue the structural rehabilitation of Grand Central Terminal. Also included is MTA Long Island Rail Road’s purchase and installation of up to 87 ticket vending machines for stations throughout the system, expanding the number already in service.

The ongoing track program consists of the normal replacement of track components and installation of concrete ties in selected segments of the right-of-way. For MTA Long Island Rail Road, also included is Phase 1 of design and construction of grade crossing eliminations and track capacity improvements on the Main Line from Queens Village to Hicksville. For MTA Metro-North Railroad, the plan includes interlocking/switch replacement throughout the entire MTA Metro-North Railroad territory in New York State. Investments in line structures consist of the rehabilitation of bridges and viaducts. For MTA Long Island Rail Road, the plan includes the Atlantic Avenue viaduct and fire and life safety improvements in

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the East River Tunnels’ ventilation systems, bench walls, tunnel lining and floodgates. For MTA Metro- North Railroad, the plan includes work on welfare, storage and other facilities and West of Hudson track improvements.

MTA Long Island Rail Road’s communications investments include the continued expansion of the fiber optic network and the redesign of the Communications Network Operations Center. MTA Long Island Rail Road’s VHF radio system will be modernized and audio/visual paging systems will be deployed at 80 additional stations, providing improved customer communications at stations. MTA Long Island Rail Road will also continue its normal replacement of deteriorated communications poles system-wide. The proposed signal projects begin the rehabilitation of several of MTA Long Island Rail Road’s busiest interlockings, invest in signals as far east as Speonk, begin work on the centralized train control system and continue cyclical normal replacement in an effort to maintain this infrastructure in a state of good repair. MTA Metro-North Railroad’s investments in communications and signals replace the aging signal system (wayside and operations control center) with the latest technology and provide for the optimization of train capacity at locations system-wide.

MTA Long Island Rail Road’s investments in shops and yards include the replacement of rolling stock support equipment, infrastructure improvements to accommodate maintenance and repair of the new electric and diesel fleets, soil remediation at Long Island City yard, and reconfiguration of Babylon yard to increase lay-up storage capacity. The shops and yards investments for MTA Metro-North Railroad include upgrades to three facilities to accommodate additions to the rolling stock fleet and support for the reliability centered maintenance philosophy. Also, additional funds were transferred to fund significant cost increases in the ongoing Croton-Harmon Shop Master Plan.

The power category includes the replacement and upgrade of the systems necessary to support the movement of electric trains. Power investments maintain the condition of existing assets and increase traction power capacity system-wide.

For miscellaneous purposes, the plan includes various program administrative costs, including program contingency. Also included for MTA Long Island Rail Road is environmental remediation at 23 electric substations, Yaphank landfill, Long Island City car wash, Richmond Hill, Holban Yard, Morris Park and various other locations system-wide.

MTA Bus Program. As part of the transition of the private bus operations from the City to MTA, the City and MTA have agreed to a reallocation of Federal urbanized formula funds that the City had received for the benefit of the private bus companies. This reallocation is expected to provide $138.2 million and is comprised of $110.6 million in Federal funds and $27.6 million in City and State matching funds. The funding will support investments to bring bus maintenance facilities up to a state of good repair, thereby ensuring efficient and economical maintenance practices, as well as improving employee safety at the facilities. In addition, the need to replace heavy-duty, non-revenue vehicles will be addressed.

MTA Network Expansion Projects. MTA Capital Construction is in the process of designing and beginning the construction of the following major projects: East Side Access, the Second Avenue Subway and the No. 7 subway line extension. Funding has been placed in reserve for the Lower Manhattan rail link to JFK project.

The MTA Board has approved the addition of $1.255 billion to East Side Access’ approved 2005-2009 budget of $1.15 billion reflecting the approval of a Federal Full Funding Grant Agreement (FFGA) for this project. With this addition, subject to the approval of the Review Board, the total CPRB-approved budget in the 2005-2009 MTA Capital Program for expansion projects including East Side Access, Second Avenue Subway and JFK Rail Link is $3.655 billion. (In December 2007, the MTA Board approved the addition of $764 million to the Second Avenue Subway project’s approved budget of $1.150 billion reflecting the approval of a signed FFGA for this project. Submission to the Review Board of this increase is pending). The No. 7 subway line extension project, currently estimated at $2.1 billion, is to be 100% funded by the City.

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Full implementation of the Second Avenue Subway, East Side Access and JFK Rail Link projects will require significant additional resources in future capital programs.

Security Program.

In the wake of the September 11, 2001 terrorist attacks on the World Trade Center, MTA initiated an intense planning effort to determine how to best protect its customers and key assets from a terrorist incident. In late 2001, experts in this field defined critical vulnerabilities and determined appropriate protective or response strategies. The result of these efforts was the implementation of a multi-faceted plan. This plan included developing immediate near-term operating initiatives to protect vulnerable locations, developing a set of mid-term protective measures that included both operating and smaller-scale capital initiatives to protect vulnerable assets and enhance response capabilities; and finally, identifying 57 longer- term large-scale capital investments to harden vulnerable assets and implement the networks and equipment necessary to conduct targeted surveillance, control access, stop intrusion and provide the command and control systems to support incident response.

The 2005-2009 MTA Capital Program includes an allocation of $495 million to fund priority security initiatives. MTA expects to secure funding from the Federal Department of Homeland Security and other Federal sources to help support these critical projects.

Interagency Program. The MTA Interagency Program is made up of three initiatives: Customer Service Projects for $46.3 million; MTA Police Department capital investments for $64.1 million; and an MTA-wide integrated computer systems initiative for $45 million.

Construction Cost Overruns

Over the last year, MTA has received bid prices for construction of portions of several of its major public works projects that are significantly in excess of MTA’s estimated and budgeted costs for such work. MTA believes that this inflation is due to a number of factors, including heavy demand for and a short supply of contractors for large scale public works projects regionally and nationally. MTA conducted a review of the impact of such construction cost inflation on these major projects and a report was presented to the MTA Board in February 2008. The report presented updated project cost estimates to reflect current market conditions, standardized assumptions for factors such as contingency and profit, recent scope modifications, and the latest schedule forecasts. The report also recommended specific cost mitigations and strategies to protect projects against further market risk. One of the proposed strategies is a program- wide fund for project and market uncertainty. Release of these funds for specific requirements will be dependent on the review of the MTA Board’s Independent Engineering Consultant and the MTA’s Office of Construction Oversight, both of which will be carrying out project risk assessments for projects as needed. The new cost estimates and the proposed fund for project and market uncertainty were incorporated in the MTA’s proposed 2008-2013 Capital Program presented in March 2008. It is not expected that construction cost inflation will have a material adverse effect the MTA’s ability to complete the state of good repair and normal replacement projects included in the existing 2005-2009 MTA Capital Program.

Proposed Amendments to the MTA Capital Programs

On December 13, 2006, the MTA Board amended the 2000-2004 Capital Programs and the 2005-2009 Capital Programs for the purposes of updating capital project budgets and recognizing changes in funding sources. The amendments were subsequently submitted for approval to the Review Board on April 9, 2007. The amendments referenced below reflect MTA’s projections of capital project costs to the date of the amendments. MTA will submit amendments to the Capital Programs from time to time to balance capital costs with funding sources. The amendments relating to the MTA Bridges and Tunnels’ capital programs were effective upon adoption by the Board and are reflected in the information set forth below under “2005-2009 MTA Bridges and Tunnels Capital Program.”

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The amendments outlined below were approved by the MTA Board for the Transit and Commuter Systems was submitted to the Review Board for approval in April 2007, but has not yet been approved. The amendments to the 2000-2004 MTA Capital Program and the 2005-2009 MTA Capital Program, insofar as they relate to the Transit and Commuter Systems, will not become effective until they are submitted to, and approved by, the Review Board.

2000-2004 Capital Programs.

The value of the plan (including the Transit, Commuter and MTA Bridges and Tunnels programs) was increased by $253 million, from $20.89 billion to $21.15 billion, with the Transit and Commuter programs increasing by $285 million and the MTA Bridges and Tunnels program decreasing by $32 million (which was transferred to the 2005-2009 MTA Bridges and Tunnels capital program to fund cost increases).

The operating agency programs increased by $133 million, which includes transfers from the 2005-2009 Capital Program to fund cost increases for work still underway and the addition of new projects for MTA Metro-North Railroad’s Yankee Stadium station and MTA Long Island Rail Road’s Shea Stadium station. The two stadium projects are funded by the transfer of allocations from the discontinued LaGuardia Airport Access project.

The Phase I Security Program was allocated an additional $129 million in MTA operating and Federal sources (bringing the total to $721 million) to fund the completion of the Phase I initiatives.

The South Ferry Terminal project was allocated an additional $34 million in MTA operating sources to fund additional costs needed for the final contract award.

MTA Bus received an additional $33.5 million of City funding representing its match for Federal funds transferred by the City as part of the City-MTA agreement relating to the takeover of the private bus companies by MTA Bus. MTA Bus also received an additional $1.5 million in Federal funds transferred by the City.

2005-2009 Capital Programs.

The value of the plan (including the Transit, Commuter and MTA Bridges and Tunnels programs) was increased by $45 million, from $21.29 billion to $21.33 billion. The changes in the plan included a $99 million decrease in the core Transit and Commuter programs and the interagency program, a $34 million increase in the MTA Bridges and Tunnels program ($32 million of which was transferred from the 2000-2004 MTA Bridges and Tunnels capital program), and a $110 million increase in City funding for the No. 7 subway line extension.

The operating agency programs decreased by $95 million to transfer funds to ongoing elements in the 2000-2004 MTA Capital Program that have experienced cost increases.

An amendment to the Phase II Security Program reflects the substitution of $141 million in MTA Bridges and Tunnels bonds and cash to fund critical security needs of the bridges and tunnels to displace a like amount of originally anticipated Federal funding for these projects that has not materialized.

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On February 28, 2007, the MTA Board amended the 2005-2009 MTA Capital Program to add $1.255 billion of East Side Access FFGA funds to the East Side Access project budget to provide sufficient funding to progress the 2005-2009 elements of such project.

2005-2009 MTA Bridges and Tunnels Capital Program

The 2005-2009 MTA Bridges and Tunnels Capital Program, as amended in December 2006, provides for $1.202 billion in capital commitments, which is expected to be financed with MTA Bridges and Tunnels pay-as-you-go capital and MTA Bridges and Tunnels bonds. The following table represents the current scope of the program.

2005-2009 Capital Program Category of Project (in millions) Structures $178 Roadways & Decks 744 Toll Plazas 75 Utilities 37 Buildings & Sites 147 Miscellaneous 22 Total* $1,202 ______* Total may not add due to rounding.

Among the major projects included are the following:

• Triborough Bridge rehabilitation program – deck replacement at Randall’s Island and construction of new ramps, • Bronx-Whitestone Bridge – replacement of the elevated and on-grade approaches in the Bronx, • Verrazano-Narrows Bridge – continuation of the rehabilitation of the elevated approaches, • Henry Hudson Bridge – replacement of lower level deck, • Throgs Neck Bridge – rehabilitation of the orthotropic deck, • Cross-Bay Bridge – deck and structural rehabilitation, • Marine Parkway-Gil Hodges Memorial Bridge – structural steel repairs, and • Throgs Neck Bridge – suspended span cable rewrapping and anchorage and tower protection.

1992-2004 Transit Capital Program Objectives

Highlights of the investments funded in the 1992-2004 Transit Capital Program include the purchase or remanufacture of 3,637 buses, rehabilitation and upgrade of 87 subway stations and three subway station complexes, including the addition of elevators and escalators at several of these stations, to make them accessible for the elderly and disabled; construction of a Rail Control Center; modernization of signal systems on four subway lines and the Williamsburg Bridge; development of communications-based train control; construction of two bus maintenance facilities; and the completion of the 63rd Street connector project, which is expected to significantly relieve overcrowding on the Queens Boulevard line. The 1992- 2004 Transit Capital Program also includes investments to modernize Transit’s electrical power system, reconstruct the Franklin Avenue shuttle, reconstruct a section of the Lenox Avenue Line, and replace signals on the Staten Island Railway.

The projects included in the 1992-1999 Transit Capital Programs have been substantially completed. As of December 31, 2007, $10.102 billion of the $10.295 billion for MTA New York City Transit, MaBSTOA and MTA Staten Island Railway projects included in the 2000-2004 Transit Capital Program have been committed, $9.139 billion have been expended and $6.834 billion of projects have been completed.

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1992-2004 Commuter Capital Program Objectives

Highlights of key investments funded under the 1992-2004 Commuter Capital Program for MTA Long Island Rail Road include replacement of MTA Long Island Rail Road’s diesel fleet of coaches and locomotives, the purchase of electric cars to replace a portion of its electric fleet, conversion of diesel territory station platforms to high level platforms, extension of platform 11 at Penn Station, start of preliminary engineering for the Network Expansion project East Side Access, and rehabilitation of stations system-wide. MTA Metro-North Railroad’s key investments include the purchase of diesel coaches and dual-mode locomotives for replacement of a portion of its electric fleet, extensive infrastructure renovations at Grand Central Terminal, station and platform improvements, installation of concrete ties, construction of a third track on the Mid-Harlem line, and the extension of service from Dover Plains to Wassaic.

The projects included in the 1992-1999 Commuter Capital Program have been substantially completed. As of December 31, 2007, $3.933 billion for Commuter System projects of the $3.959 billion of projects included in the 2000-2004 Commuter Capital Program have been committed, $3.719 billion have been expended and $1.638 billion of projects have been completed.

1992-2004 MTA Bridges and Tunnels Capital Programs

Highlights of key investments funded under MTA Bridges and Tunnels’ 1992-2004 capital programs include rehabilitation of approaches, roadways and decks at the Bronx-Whitestone Bridge, the Triborough Bridge, the Throgs Neck Bridge, the Verrazano-Narrows Bridge and the Marine Parkway-Gil Hodges Memorial Bridge and rehabilitation of roadways and drainage systems at the Henry Hudson Bridge; rehabilitation of the Randall’s Island Junction Structure, the Harlem River lift span, anchorages and suspension cables at the Triborough Bridge and walls and ceilings at the Queens Midtown Tunnel; rehabilitation and upgrading of air conditioning at toll booths at all facilities, rehabilitation of fan housing at the Brooklyn-Battery Tunnel and rehabilitation of bridge electrical substations and power feeders at the Throgs Neck Bridge; expansion of the service building at the Bronx-Whitestone Bridge, structural rehabilitation and repairs at the ventilation building and overpasses of the Queens Midtown Tunnel; and rehabilitation of toll plazas, including electronic toll collection systems.

The projects included in the 1992-1999 MTA Bridges and Tunnels Capital Program have been substantially completed. As of December 31, 2007, $971 million for MTA Bridges and Tunnels projects of the $1,003 million of projects included in the 2000-2004 MTA Bridges and Tunnels Capital Program have been committed, $887 million have been expended and $828 million of projects have been completed.

Oversight and Review of Administration of Capital Programs

A committee on capital program oversight was established within MTA that consists of at least three Members of MTA. The committee monitors various capital program actions and activities, including

• current and future funding availability, • contract awards, • program expenditures, and • timely progress of projects within the programs.

The legislation establishing the committee also requires MTA to submit a five-year strategic operations plan to the Governor and to amend such plan at least annually. Such plan must include, among other things, planned service and performance standards and the projected fare levels for each year covered by the plan and an analysis of the relationship between planned capital elements and the achievement of planned service and performance standards. MTA communicates with the State officials responsible for monitoring the strategic operations plan in order to keep them informed of such matters.

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Non-Capital Program Projects

2 Broadway. MTA (on behalf of MTA Long Island Rail Road and MTA Metro-North Railroad), MTA New York City Transit and MTA Bridges and Tunnels each authorized and subsequently entered into lease and related agreements whereby as sublessees they will rent, for at least an initial stated term until June 30, 2048, an aggregate of approximately 1.6 million rentable square feet of space at 2 Broadway in lower Manhattan. A portion of the building houses the employees of MTA New York City Transit and MTA Bridges and Tunnels that formerly occupied space at the New York Coliseum that was sold in 2000. Other portions of the building are occupied by MTA Capital Construction and certain MTA Headquarters personnel, such as the audit department. MTA New York City Transit, MTA Bridges and Tunnels and/or MTA occupy substantially all of the remainder of 2 Broadway. See “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS – Non-Capital Program Securities – 2 Broadway Certificates of Participation” in Part 4 for a description of the source of funding certain improvements to 2 Broadway. West Side Development. MTA Bridges and Tunnels currently owns the land (except for a small portion owned by MTA) in Manhattan generally bounded by West 30th Street on the south, West 33rd Street on the north, 10th Avenue on the east and 12th Avenue on the west (and including rights to operate under 11th Avenue), on which MTA Long Island Rail Road operates its layup and maintenance yard (the “West Side Yard”) for trains not in service pending travel from Penn Station, its Manhattan hub. The Eastern Rail Yard (“ERY”) portion of the West Side Yard, located between 10th and 11th Avenues, was rezoned by the City in 2005. The Western Rail Yard (“WRY”) portion of the West Side Yard, located between 11th and 12th Avenues, is currently zoned for low density industrial uses and must be rezoned by the City prior to more extensive development.

On September 28, 2006, the MTA Board authorized the execution of, and the MTA thereafter entered into, a memorandum of understanding with the City (the “Rail Yards MOU”) with respect to the development of the West Side Yard and the sale of certain transferable development rights (“TDRs”) on the ERY created by the 2005 rezoning of the ERY by the City. The Rail Yards MOU provides, among other things, that HYIC will purchase 50% of the transferable development rights (“TDRs”) on the ERY from MTA for $200 million. HYDC has the authority to market and negotiate the price and payment terms for all of the ERY TDRs, subject to the terms and conditions set forth in the Rail Yards MOU. Pursuant to the Rail Yards MOU, once the HYIC has realized from the TDRs sales its original $200 million plus interest, all remaining proceeds from the sale of the TDRs will be paid to MTA. MTA retains all on-site development rights on the ERY. MTA received the first $100 million in TDR payments in 2006 as well as the first of three equal annual installments of $33.3 million of the second $100 million in 2007. The second and third installments of the second $100 million payable in $33.3 million installments are payable to the MTA in September 2008 and September 2009.

In July of 2007, pursuant to the Rail Yards MOU, MTA issued two separate Requests for Proposals for the sale of and/or long term leasing of air space and related real property interests for development at the ERY and the WRY, respectively. On October 11, 2007, MTA received proposals from five real estate development teams in response to the RFP. Following analysis of those proposals, MTA solicited supplemental proposals from all five teams in late January 2008. Four out of five of the firms submitted supplemental proposals in response to the follow-up request. MTA staff met with each of the four remaining developer teams and a recommendation was presented to the MTA Board which, at its March 26, 2008 meeting, authorized the MTA Executive Director and CEO, upon successful completion of negotiations, to enter into Conditional Designation Letters with Tishman Speyer Properties for the development of the ERY and the WRY, including the construction of a roof over the portion of the West Side Yard used for LIRR operations. Successful conclusion and execution of the Conditional Designation Letters would be followed by a several month period during which the final documentation for the transactions would be negotiated. If the Tishman Speyer Properties proposal comes to fruition, it is estimated that it would provide a net present value of approximately $1 billion to support the 2005-2009 MTA Capital Program.

Substantial work, including negotiation of the detailed documentation and key governmental approvals, need to be completed before the development of the ERY and WRY can be commenced. In addition, a case

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has been commenced in New York State Supreme Court, New York County challenging certain aspects of the City’s Hudson Yards area rezoning, including the rezoning of the ERY. Additional litigation in connection with the development of the ERY and/or the WRY is possible.

FUTURE CAPITAL NEEDS

MTA periodically updates its 20-year capital needs assessment which revisits its asset inventory, assesses the conditions of those assets and identifies the long-term investment schedules required to maintain a state of good repair. Long-term investments that improve and expand the system to meet operating goals and strategies are also identified. This long-term plan provides the basis for sizing and configuring the successive five-year capital plans and establishes the rationale for the funding levels that are requested to support the program.

No assurances can be given that MTA will be able to identify sufficient sources to fully pay for current and those future capital needs or that, if identified, those funding sources will be received. Some of the prospective funding sources, such as Federal, City and State funds, are not within the control of MTA and the receipt of such funding is contingent, among other things, upon the ability and willingness of such entities to provide such funding. If MTA does not receive sufficient moneys to fund current and future capital needs, the improvements to the Transit System’s and MTA Staten Island Railway’s, the Commuter System’s and MTA Bridges and Tunnels’ state of good repair achieved through implementation of previous capital programs could erode.

INVESTMENT POLICY

MTA’s Treasury Division is responsible for the investment management of the funds of the Related Entities. The investment activity covers all operating and capital funds, including bond proceeds, and the activity is governed by State statutes, bond resolutions and the Board-adopted investment guidelines (the “Investment Guidelines”). The MTA Act currently permits the Related Entities to invest in the following general types of obligations:

• obligations of the State or the United States Government; • obligations the principal and interest of which are guaranteed by the State or the United States government; • obligations issued or guaranteed by certain Federal agencies; • repurchase agreements fully collateralized by the obligations of the foregoing United States Government and Federal agencies; • certain certificates of deposit of banks or trust companies in the State; • certain banker’s acceptances with a maturity of 90 days or less; • certain commercial paper; • certain municipal obligations; and • certain mutual funds up to $10 million in the aggregate.

Investment obligations and collateral are held by one of MTA’s custodians or trustees.

As of December 31, 2007, $1,022 million market value non-bond capital funds consisted of approximately 9.9% cash and repurchase agreements, 42.3% United States Treasury obligations, 43.8% agency obligations, 3.2% commercial paper, and 0.8% in certificates of deposit. The maturity of non-bond capital funds was less than five months.

As of December 31, 2007, the operating and working capital of the Related Entities amounted to $450.1 million, and was invested with an average weighted days of less than four months.

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PART 4. PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS

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GENERAL

Financing of Capital Projects and Statutory Ceiling

Financing of Capital Projects. Some of the Related Entities are authorized to issue bonds, notes and other obligations for the purpose of undertaking and financing capital projects as well as for other purposes. All bonds and notes are expected to be issued through either MTA or MTA Bridges and Tunnels. Such obligations are secured by and payable from the revenues and other receipts specified in the bond resolution, indenture or other document authorizing the issuance of such obligations. Bonds, notes and other obligations issued to finance capital projects included in the MTA Capital Programs have in the past been and are currently subject to a statutory limitation on the principal amount of such obligations referred to herein as the statutory ceiling. It is anticipated that obligations issued to finance future MTA Capital Programs will also be subject to a statutory ceiling expected to be imposed by the State Legislature. Obligations issued by MTA Bridges and Tunnels to fund capital projects relating to its seven bridges and two tunnels, the MTA Bridges and Tunnels Facilities, and obligations issued by the Related Entities for purposes other than financing projects in the MTA Capital Programs are not subject to the current statutory ceiling.

Current Statutory Ceiling. The MTA Act permits MTA, MTA Bridges and Tunnels and MTA New York City Transit, collectively, to issue on or after January 1, 1993 an aggregate of $28.877 billion of bonds, notes and other obligations (net of certain statutory exclusions, including refunding bonds) for the MTA Capital Programs for the years 1992-2009. MTA and MTA Bridges and Tunnels have previously issued a substantial amount of such bonds pursuant to prior statutory ceilings. MTA, MTA Bridges and Tunnels and MTA New York City Transit have issued approximately $17.6 billion of bonds (not including $750 million of commercial paper) net of such statutory exclusions under the current statutory ceiling. MTA expects that the current statutory ceiling will allow it to fulfill the bonding requirements of all MTA Capital Programs approved by the Review Board to date, including the 2005- 2009 MTA Capital Program.

Set forth below under “MTA Capital Program Bonds” is a brief summary of the types of obligations issued by the Related Entities to finance or refinance the MTA Capital Programs that are governed by past and current statutory ceilings. Only a portion of the MTA Bridges and Tunnels Senior Revenue Bonds and MTA Bridges and Tunnels Subordinate Revenue Bonds (as each is defined below) were issued to finance or refinance items in such MTA Capital Programs and, consequently, were subject to the statutory ceiling; the remainder were issued to finance capital costs of the MTA Bridges and Tunnels Facilities that are not subject to the statutory ceiling.

The following pie chart shows, by percentages, the amount of debt MTA and MTA Bridges and Tunnels have outstanding as of March 31, 2008, under the resolutions relating to the MTA Transportation Revenue Bonds, MTA Dedicated Tax Fund Bonds, MTA Bridges and Tunnels Senior Revenue Bonds and MTA Bridges and Tunnels Subordinate Revenue Bonds, and the 2 Broadway Certificates of Participation Trust Agreement, all as described below.

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Debt Outstanding by Credit

TBTA MTA COPS Subordinate 2% 8%

TBTA Senior 22% Trans. Rev. 46%

Dedicated Tax Fund 14% Service Contract 8%

MTA Capital Program Bonds

MTA Transportation Revenue Bonds. Bonds are issued pursuant to the General Resolution Authorizing Transportation Revenue Obligations of MTA, adopted on March 26, 2002 (the “Transportation Resolution”), and are payable solely from and secured by a pledge of the items pledged under such bond resolution, which include amounts derived from fares received for the use of the subway and bus systems operated by MTA New York City Transit and MaBSTOA and the commuter railroads operated by MTA Long Island Rail Road and MTA Metro- North Railroad, concession revenues, and operating subsidies (not including Federal operating subsidies), including expense reimbursement payments, from the State, the City and MTA Bridges and Tunnels. The proceeds from the sale of such bonds are used solely to finance capital projects set forth in the MTA Capital Programs.

For more information on the Transportation Revenue Bonds, see “TRANSPORTATION REVENUE BONDS” below in this Part 4.

MTA Dedicated Tax Fund Bonds. Bonds are issued pursuant to the Dedicated Tax Fund Obligation Resolution of MTA, adopted on March 26, 2002 (the “DTF Resolution”), and are payable solely from and secured by the MTTF Receipts and the MMTOA Receipts described under “DEDICATED TAX FUND BONDS – Sources of Payment – Revenues from Dedicated Taxes,” subject to appropriation by the State Legislature. The proceeds from the sale of such bonds are used solely to finance capital projects of the MTA Capital Programs. For more information on the Dedicated Tax Fund Bonds, see “DEDICATED TAX FUND BONDS” below in this Part 4.

MTA Bridges and Tunnels Senior Revenue Bonds. Bonds are issued pursuant to the General Resolution Authorizing General Revenue Obligations of MTA Bridges and Tunnels, adopted on March 26, 2002 (the “MTA Bridges and Tunnels Senior Resolution”), and are payable from the net revenues collected on the MTA Bridges and Tunnels Facilities described under “TBTA – MTA Bridges and Tunnels Facilities.” The proceeds from the sale of such bonds are used to finance capital projects relating to the MTA Bridges and Tunnels Facilities and the MTA Capital Programs (i.e., the Transit System, MTA Staten Island Railway and the Commuter System), as described herein under “TBTA – Authorized Projects of MTA Bridges and Tunnels” in Part 2. Only that portion of any such bonds issued to finance capital projects of the MTA Capital Programs is subject to the current statutory ceiling. For

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more information on the MTA Bridges and Tunnels Senior Revenue Bonds, see “MTA BRIDGES AND TUNNELS SENIOR REVENUE BONDS” below in this Part 4.

MTA Bridges and Tunnels Subordinate Revenue Bonds. Bonds are issued pursuant to the 2001 Subordinate Revenue Resolution Authorizing Subordinate Revenue Obligations of MTA Bridges and Tunnels, adopted on March 26, 2002 (the “MTA Bridges and Tunnels Subordinate Resolution”), and are payable from the net revenues collected on the MTA Bridges and Tunnels Facilities after the payment of operating expenses and debt service as required by the MTA Bridges and Tunnels Senior Resolution. The proceeds from the sale of such bonds are used to finance capital projects relating to the MTA Bridges and Tunnels Facilities and the MTA Capital Programs. Only that portion of any such bonds issued to finance capital projects of the MTA Capital Programs is subject to the current statutory ceiling. For more information on the MTA Bridges and Tunnels Subordinate Revenue Bonds, see “MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS” below in this Part 4.

MTA Service Contract Bonds. Bonds are issued pursuant to the State Service Contract Obligation Resolution of MTA adopted on March 26, 2002 (the “State Service Contract Resolution”). These bonds are payable solely from and secured by certain payments made by the State, subject to annual appropriations, under the service contract referred to in such bond resolution. The proceeds from the sale of such bonds are used solely to finance capital projects of the MTA Capital Programs. Other than refunding bonds, MTA does not expect to issue additional bonds under the State Service Contract Resolution, unless the State service contract is amended to permit the issuance of additional new money bonds. For more information on the State Service Contract Bonds, see “STATE SERVICE CONTRACT BONDS” below in this Part 4.

Non-Capital Program Securities

The Related Entities have also issued other obligations that are not subject to the current or any prior statutory ceiling and that were issued for projects that are not part of the Capital Programs, as follows:

2 Broadway Certificates of Participation. The Certificates of Participation were executed and delivered pursuant to a Certificate Trust Agreement, dated as of June 1, 1999, as amended and restated as of September 1, 2004, by and among MTA New York City Transit, MTA (solely on behalf of MTA Long Island Rail Road and MTA Metro-North Railroad), and MTA Bridges and Tunnels, as obligors with respect to their base rent proportionate shares (68.7% in the case of MTA New York City Transit, 21.0% in the case of MTA (solely on behalf of MTA Long Island Rail Road and MTA Metro-North Railroad), and 10.3% in the case of MTA Bridges and Tunnels), The Bank of New York, as Lessor-Trustee, and The Bank of New York, as Certificate Trustee. The Certificates are payable primarily from the respective base rent proportionate shares to be made by MTA New York City Transit, MTA and MTA Bridges and Tunnels pursuant to a Leasehold Improvement Sublease Agreement, dated as of June 1, 1999, as amended and restated as of September 1, 2004, by and among the same parties to the Certificate Trust Agreement. The obligation of MTA New York City Transit to pay its base rent proportionate share is treated as an operating and maintenance expense, subordinate to the payment of bonds, notes and other obligations currently outstanding and hereafter issued or incurred as described in the Certificate Trust Agreement. The obligation of MTA (solely on behalf of MTA Long Island Rail Road and MTA Metro-North Railroad) to pay its base rent proportionate share is treated as an operating and maintenance expense of the commuter railroads, subordinate to the payment of bonds, notes and other obligations currently outstanding and hereafter issued or incurred as described in the Certificate Trust Agreement. The obligation of MTA Bridges and Tunnels to pay its base rent proportionate share is, by agreement, subordinate to MTA Bridges and Tunnels’ payment of other operating and maintenance expenses of MTA Bridges and Tunnels, as well as bonds, notes and other obligations currently outstanding and hereafter issued or incurred as described in the Certificate Trust Agreement.

The proceeds from the sale of the Certificates of Participation were used to finance certain building and leasehold improvements to an office building occupied by MTA New York City Transit, MTA or its subsidiaries (MTA Long Island Rail Road and MTA Metro-North Railroad), and/or MTA Bridges and Tunnels at 2 Broadway in lower Manhattan. The office building is not a project within the Capital Programs. There are $412,855,000 aggregate principal amount of Certificates of Participation outstanding.

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MTA Bridges and Tunnels Convention Center Project Bonds. Bonds issued pursuant to the Convention Center Project Revenue Bond Resolution of MTA Bridges and Tunnels, adopted on July 23, 1980, are not payable from any MTA Bridges and Tunnels revenues, but are payable solely from and secured by payments to be made by the State to MTA Bridges and Tunnels pursuant to a sublease agreement. The proceeds from the sale of such bonds were used to refund certain outstanding bonds that were used to construct and develop the original Jacob K. Javits Convention Center in Manhattan. There are $152,445,000 aggregate principal amount of such Convention Center Project Bonds outstanding.

Revenue Anticipation Notes. MTA and MTA New York City Transit have in the past and may, from time to time, in the future issue revenue anticipation notes for their working capital needs and the needs of their respective affiliates and subsidiaries occasioned by delays in the receipt of subsidies or other irregularities in the timing of receipt of revenues. The ability of the Related Entities to engage in the interagency loans described below has lessened the need for the issuance of revenue anticipation notes. Neither MTA nor MTA New York City Transit has issued revenue anticipation notes since 1996. All those notes previously issued were paid on their due dates.

Interagency Loans

The Related Entities are authorized to transfer their revenues, subsidies and other moneys or securities to another Related Entity for use by that other Related Entity, provided at the time of the transfer it is reasonably anticipated that the moneys and securities so transferred will be reimbursed, repaid or otherwise provided for by the end of the next succeeding calendar year.

Leasing

The Related Entities lease real property, facilities, equipment and other personal property in the normal course of business. In addition, the Related Entities have entered into financing leases and other financial transactions, including sale-leaseback and lease-leaseback arrangements, pursuant to which existing assets are sold or leased to other parties and leased or subleased back by the Related Entities. In certain cases, the basic rent payment obligation of the Related Entities under such leases and subleases, together with a purchase option, is legally defeased and in other cases is economically defeased by a pledge of financial obligations and/or securities of other entities, including, in certain cases, United States government obligations. The expected economic result of such transactions is the receipt by the Related Entities of a net up-front payment, while pursuant to the agreement, the relevant operating agency retains full use of the facility or equipment. In those lease transactions where the applicable Related Entity’s obligations are economically, but not legally defeased, if a defeasance obligor were to default on its financial obligations under its respective defeasance instrument, it is possible that the applicable Related Entity would be required to pay the related rent obligations or purchase option amounts from other sources. In addition, the event of loss, default, indemnification, and guaranty provisions of these transactions could create substantial undefeased financial obligations of the Related Entities in the unlikely event that they were triggered; if those financial obligations were, in turn, not timely met, the relevant operating agency could lose use of the leased facilities or equipment. For all of the lease transactions entered into after 1996, MTA has covenanted that all rent and supplemental rent obligations under such lease transactions which are not paid by defeasance obligors shall be paid from those “Revenues” (as defined in Section 102 of the Transportation Resolution) available for release from the lien of the Transportation Resolution in accordance with Section 504(d) of the Transportation Resolution, immediately following all transfers pursuant to Section 504(a), (b) and (c) of the Transportation Resolution, on a pari passu basis among all such lease transactions and prior to the transfer or use of any such amounts for any other purpose, including the payment of operating and maintenance expenses. The payment obligations of the Related Entities under such leases and subleases is generally subordinate to the payment of debt service on the bonds of the agency obligated to make the payments, but to the extent the undefeased financial obligations were obligations (including guaranties) of MTA Bridges and Tunnels, a reduction in the amount of operating surplus transferred from MTA Bridges and Tunnels could result.

For more information with respect to certain of these leasing and other financial transactions, reference is made to the footnotes in the financial statements of the Related Entities for a summary of certain capital lease obligations. See, in particular, Footnote 8 to the combined financial statements of MTA for the years ended December 31, 2007 and 2006, Footnote 5 to the consolidated financial statements of MTA New York City Transit for the years ended

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December 31, 2007 and 2006, and Footnotes 14 and 17 to the financial statements of MTA Bridges and Tunnels for the years ended December 31, 2007 and 2006.

Types of Debt Outstanding

The following pie chart shows, by percentages, the types of debt MTA and MTA Bridges and Tunnels have outstanding under the resolutions relating to the MTA Transportation Revenue Bonds, MTA Dedicated Tax Fund Bonds, MTA Bridges and Tunnels Senior Revenue Bonds and MTA Bridges and Tunnels Subordinate Revenue Bonds, and the 2 Broadway Certificates of Participation Trust Agreement as of March 31, 2008.

Variable Rate 21%

Fixed Rate 65% Synthetic Fixed Rate 14%

Swap Agreements Relating to Synthetic Fixed Rate Debt

Board-adopted Guidelines. The Related Entities adopted guidelines governing the use of swap contracts to manage the interest rate exposure of their debt. The Guidelines establish specific requirements that must be satisfied for a Related Entity to enter into a swap contract, such as suggested swap terms and objectives, credit ratings of the counterparties, collateralization requirements and reporting requirements.

Objectives of the Swaps. In order to protect against the potential of rising interest rates, to achieve a lower net cost of borrowing, to reduce exposure to changing interest rates on a related bond issue, or, in some cases where Federal tax law prohibits an advance refunding, to achieve debt service savings through a synthetic fixed rate, MTA, MTA Bridges and Tunnels and MTA New York City Transit have entered into separate pay-fixed, receive-variable interest rate swaps at a cost anticipated to be less than what MTA, MTA Bridges and Tunnels and MTA New York City Transit would have paid to issue fixed-rate debt.

Fair Value. Relevant market interest rates on the valuation date (March 31, 2008) of the swaps reflected in the following charts in some cases were higher than, and in some cases were lower than, market interest rates on the effective date of the swaps. Consequently, as of the valuation date, some of the swaps had negative fair values and some had positive fair values. A negative fair value means that MTA, MTA Bridges and Tunnels and/or MTA New York City Transit would have to pay the counterparty that approximate amount to terminate the swap. In the event there is a positive fair value, MTA, MTA Bridges and Tunnels and/or MTA New York City Transit would be entitled to receive a payment from the counterparty to terminate the swap; consequently, MTA, MTA Bridges and

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Tunnels and/or MTA New York City Transit would be exposed to the credit risk of the counterparties in the amount of the swaps’ fair value should the swap be terminated.

The fair values listed in the following tables represent the theoretical cost to terminate the swap as of the date indicated, assuming that a termination event occurred on that date. The fair values were estimated using the zero- coupon method. This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bond due on the date of each future net settlement on the swap. In the event both parties continue to perform their obligations under the swap, there is not a risk of termination and neither party is required to make a termination payment to the other. MTA, MTA Bridges and Tunnels and MTA New York City Transit are not aware of any event that would lead to a termination event with respect to any of their existing swaps. See “Termination Risk” below.

Terms and Fair Values. The terms, fair values and counterparties of the outstanding swaps of MTA and MTA Bridges and Tunnels, as well as the swaps entered into in connection with the 2 Broadway Certificates of Participation refunding, are reflected in the following tables. The MTA swaps are reflected in separate tables for the Transportation Revenue Bonds and Dedicated Tax Fund Bonds. The MTA Bridges and Tunnels swaps are reflected in separate tables for the senior lien and subordinate revenue bonds.

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MTA TRANSPORTATION REVENUE BONDS Notional Amounts Fair Values as of as of 3/31/08 3/31/08 Swap (Unaudited) Effective Fixed Rate Variable (Unaudited) Termination Associated Bond Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2002D-2 200.000 01/01/07 4.45 69% of one-month $ (38.944) 11/01/32 Bear Stearns Capital Markets LIBOR(1) Inc. Series 2005D and Series 500.000 11/02/05 3.561 67% of one-month (39.769) 11/01/35 60% – UBS AG 2005E LIBOR 20% – Lehman Brothers Special Financing Inc. 20% – AIG Financial Products Corp. Series 2012(2) 359.450 11/15/12 3.563 67% of one-month 9.163 11/01/32 Bear Stearns Capital Markets LIBOR Inc. Series 2012(2) 153.700 11/15/12 3.563 67% of one-month 5.041 11/01/32 Lehman Brothers Special LIBOR Financing Inc. Total $1,213.15 $ (64.509)

(1) London Interbank Offered Rate. (2) Under the Series 2012 swaps, counterparties Bear Stearns Capital Markets Inc. and Lehman Brothers Special Financing Inc. have an option to cancel these swaps on June 15, 2012 prior to the effective date listed above. In the event each swap is canceled, each counterparty is required to make monthly cancellation payments to the MTA commencing on December 1, 2012 and ending on November 1, 2032.

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MTA DEDICATED TAX FUND BONDS Notional Amounts Fair Values as of as of 3/31/08 3/31/08 Swap (Unaudited) Effective Fixed Rate Variable (Unaudited) Termination Associated Bond Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2002B $440.000 09/05/02 4.06 % Actual bond rate until $ (28.669) 09/01/13 Morgan Stanley Capital 04/30/10, and Services Inc. thereafter, BMA Series 2005A 345.060 03/24/05 3.3156 67% of one-month (16.123) 11/01/31 Citigroup Financial LIBOR Products Inc.

Total $785.060 $ (44.792)

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MTA BRIDGES AND TUNNELS SENIOR LIEN REVENUE BONDS Notional Amounts Fair Values as of as of 3/31/08 3/31/08 Swap Associated Bond (Unaudited) Effective Fixed Rate Variable (Unaudited) Termination Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2001B and $177.900 01/01/02 5.777% Actual bond rate $ (30.645) 01/01/19 Citigroup Financial 2001C(3) Products Inc. Series 2002C(4) 77.100 01/01/00 5.634 Actual bond rate (8.178) 01/01/13 Ambac Financial Services, L.P. Series 2005B 794.400 07/07/05 3.076 67% of one-month (9.980) 01/01/32 25% each – Citibank, LIBOR N.A., JPMorgan Chase Bank, BNP Paribas North America, Inc. and UBS AG Series 2005B 794.400 07/07/05 67% of one- BMA minus 10 basis 1.519 01/01/12 UBS AG month LIBOR points plus 43.7 basis points(5) Total $1,843.800 $ (47.285)

(3) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $19,204,000. (4) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $8,400,000. (5) For the purpose of mitigating the basis risk during the escrow period with respect to the $797.2 million notional amount swaps entered into in connection with the Series 2005B Bonds, MTA Bridges and Tunnels will pay 67% of one-month LIBOR plus 43.7 basis points to the UBS AG and receive a variable rate equal to the BMA Index minus 10 basis points.

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MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS Notional Amounts Fair Values as of as of 3/31/08 3/31/08 Swap (Unaudited) Effective Fixed Rate Variable (Unaudited) Termination Associated Bond Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2000AB(6) $188.600 01/01/01 6.08 % Actual bond rate $ (32.728) 01/01/19 Bear Stearns Capital Markets Inc. Series 2000CD(6) 188.600 01/01/01 6.07 Actual bond rate (32.624) 01/01/19 Citigroup Financial Products Inc. Series 2002G-1 90.500 11/26/02 3.218 Lesser of actual bond (7.497) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Series 2002G-2 90.525 11/26/02 3.218 Lesser of actual bond (7.607) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Total $558.225 $ (80.456)

(6) In accordance with a swaption entered into on August 12, 1998 with each Counterparty paying to MTA Bridges and Tunnels a premium of $22,740,000.

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In addition to the foregoing, MTA, MTA New York City Transit and MTA Bridges and Tunnels entered into separate ISDA Master Agreements with UBS AG relating to the $357,925,000 Variable Rate Certificates of Participation, Series 2004A (Auction Rate Securities) in connection with the refunding of certain certificates of participation originally executed to fund certain improvements to the office building located at 2 Broadway in Manhattan. The 2 Broadway swaps have (1) an effective date of September 22, 2004, (2) a fixed rate paid of 3.092%, (3) a variable rate received of the lesser of (a) the actual bond rate, or (b) 67% of one-month LIBOR minus 45 basis points, and (4) a termination date of January 1, 2030. Based on the aggregate notional amount of $355,525,000 outstanding as of March 31, 2008, MTA New York City Transit is responsible for $244,250,000 aggregate notional amount of the swaps, MTA for $74,650,000 aggregate notional amount, and MTA Bridges and Tunnels for $36,625,000 aggregate notional amount. As of March 31, 2008, the aggregate unaudited fair value of the swaps was -$24.728 million.

Counterparty Ratings

The ratings as of March 31, 2008 of the counterparties are as follows:

Ratings of the Counterparty Counterparty or its Credit Support Provider S&P Moody’s Fitch AIG Financial Products Corp. AA Aa2 AA Ambac Financial Services, L.P. AAA Aaa AA Bear Stearns Capital Markets Inc. AA- Baa1 A- BNP Paribas North America, Inc. AA+ Aa1 AA Citibank, N.A. AA Aa1 AA Citigroup Financial Products Inc. AA- Aa3 AA JPMorgan Chase Bank AA- Aa2 AA- Lehman Brothers Special Financing Inc. A+ A1 AA- Morgan Stanley Capital Services Inc. AA- Aa3 AA- UBS AG AA Aaa AA

Except as set forth below, the notional amounts of the swaps match the principal amounts of the associated bonds. The following table sets forth the notional amount and the outstanding principal amount as of March 31, 2008 for the swap where the notional amount does not match the outstanding principal amount of the associated bonds.

Principal Amount of Notional Bonds Amount Associated Bond Issue (in millions) (in millions) MTA Bridges and Tunnels General Revenue Variable $291.520 $177.900 Rate Refunding Bonds, Series 2001B and 2001C MTA Bridges and Tunnels General Revenue Variable $101.915 $77.100 Rate Refunding Bonds, Series 2002C

Except as discussed below under the heading “Rollover Risk,” the swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the principal amount of the associated bonds.

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Risks Associated with the Swap Agreements

From MTA’s, MTA Bridges and Tunnels’ and MTA New York City Transit’s perspective, the following risks are generally associated with swap agreements:

• Credit Risk – The counterparty becomes insolvent or is otherwise not be able to perform its financial obligations. In the event of a deterioration in the credit ratings of the counterparty or MTA/MTA Bridges and Tunnels/MTA New York City Transit, the swap agreement may require that collateral be posted to secure the party’s obligations under the swap agreement. See “Collateralization” below. Further, ratings deterioration by either party below levels agreed to in each transaction could result in a termination event requiring a cash settlement of the future value of the transaction. See “Termination Risk” below.

• Basis Risk – The variable interest rate paid by the counterparty under the swap and the variable interest rate paid by MTA, MTA Bridges and Tunnels or MTA New York City Transit on the associated bonds may not be the same. If the counterparty’s rate under the swap is lower than the bond interest rate, then the counterparty’s payment under the swap agreement does not fully reimburse MTA, MTA Bridges and Tunnels or MTA New York City Transit for its interest payment on the associated bonds. Conversely, if the bond interest rate is lower than the counterparty’s rate on the swap, there is a net benefit to MTA, MTA Bridges and Tunnels or MTA New York City Transit.

• Termination Risk – The swap agreement will be terminated and MTA, MTA Bridges and Tunnels or MTA New York City Transit will be required to make a termination payment to the counterparty and, in the case of a swap agreement which was entered into for the purpose of creating a synthetic fixed rate for an advance refunding transaction may also be required to take action to protect the tax exempt status of the related refunding bonds.

• Rollover Risk – The notional amount under the swap agreement terminates prior to the final maturity of the associated bonds on a variable rate bond issuance, and MTA, MTA Bridges and Tunnels or MTA New York City Transit may be exposed to then market rates and cease to receive the benefit of the synthetic fixed rate for the duration of the bond issue.

Credit Risk. The following table shows, as of March 31, 2008, the diversification, by percentage of notional amount, among the various counterparties that have entered into ISDA Master Agreements with MTA and/or MTA Bridges and Tunnels, or in connection with the 2 Broadway Certificates of Participation refunding. The notional amount totals below include all five swaps (including the UBS basis risk swap) in connection with the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2005B. The counterparties have the ratings set forth above.

Notional Amount % of Total Counterparty (in thousands) Notional Amount UBS AG $1,648,525 34.66% Bear Stearns Capital Markets Inc. 748,050 15.73 Citigroup Financial Products Inc. 711,560 14.96 Morgan Stanley Capital Services Inc. 440,000 9.25 JPMorgan Chase Bank 379,625 7.98 Lehman Brothers Special Financing Inc. 253,700 5.33 BNP Paribas North America, Inc. 198,600 4.18 Citibank, N.A. 198,600 4.18 AIG Financial Products Corp. 100,000 2.10 Ambac Financial Services, L.P. 77,100 1.62 Total $4,755,760 100.00%

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The ISDA Master Agreements entered into with the following counterparties provide that the payments under one transaction will be netted against other transactions entered into under the same ISDA Master Agreement:

• Bear Stearns Capital Markets Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB, • Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD, • Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2001B and 2001C, and • Ambac Financial Services, L.P. • Bear Stearns Capital Markets Inc. with respect to the MTA Transportation Revenue Variable Rate Refunding Bonds, Series 2002D-2 and Series 2012, • Lehman Brothers Special Financing Inc. with respect to the MTA Transportation Revenue Variable Rate Refunding Bonds, Series 2005E and Series 2012.

Under the terms of these agreements, should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the nondefaulting party to accelerate and terminate all outstanding transactions and net the transactions’ fair values so that a single sum will be owed by, or owed to, the nondefaulting party.

Collateralization. Generally, the Credit Support Annex attached to the ISDA Master Agreement requires that if the outstanding ratings of MTA, MTA Bridges and Tunnels or MTA New York City Transit, as the case may be, or the counterparty falls to a certain level, the party whose rating falls is required to post collateral with a third-party custodian to secure its termination payments above certain threshold amounts. Collateral must be cash or U.S. government or certain Federal agency securities.

The following tables set forth the ratings criteria and threshold amounts relating to the posting of collateral set forth for MTA, MTA Bridges and Tunnels or MTA New York City Transit, as the case may be, and the counterparty for each swap agreement. In most cases, the Counterparty does not have a Fitch rating on its long-term unsecured debt, so that criteria would not be applicable in determining if the Counterparty is required to post collateral.

MTA Transportation Revenue Bonds Then the downgraded party must post collateral if its If the highest rating of the related MTA estimated termination Associated bonds or the counterparty’s long-term payments are in excess of Bond Issue unsecured debt falls to Series 2002D-2 Fitch – BBB+, Moody’s – Baa1, or $10,000,000 S&P – BBB+ Fitch – BBB and below or unrated, $0 Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated Series 2005D and Series 2005E Fitch – BBB+, $10,000,000 Moody’s – Baa1, or S&P – BBB+ Fitch – below BBB+, $0 Moody’s – below Baa1, or S&P – below BBB+ Series 2012 Fitch – BBB+, Moody’s – Baa1, or $10,000,000 S&P – BBB+ Fitch – BBB and below or unrated, $0 Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated

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MTA Dedicated Tax Fund Bonds Then the downgraded If the highest rating of the related MTA bonds or party must post collateral Associated the counterparty’s long-term if its estimated termination Bond Issue unsecured debt falls to payments are in excess of Series 2002B Fitch – BBB+, or $10,000,000 S&P – BBB+ Fitch – BBB and below or unrated, or $0 S&P – BBB and below or unrated Series 2005A [Note: for Fitch – A-, or $10,000,000 this swap, MTA is not Moody’s – A3, or required to post collateral S&P – A- under any circumstances.] Fitch – BBB+ and below, or $0 Moody’s – Baa1 and below, or S&P – BBB+ and below

2 Broadway Certificates of Participation Then MTA, MTA Bridges and Tunnels and MTA New York City Transit must post collateral Associated If the highest rating of the MTA Transportation if its estimated termination Agencies Revenue Bonds falls to payments are in excess of MTA Fitch – BBB+, $25,000,000 MTA Bridges and Moody’s – Baa1, or Tunnels S&P – BBB+ MTA New York Fitch – BBB and below or unrated, $0 City Transit Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated Then the Counterparty must post collateral if its If the highest rating of the Counterparty’s estimated termination long-term payments unsecured debt falls to are in excess of Moody’s – Baa1 or lower, or $0 S&P – BBB+ or lower

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MTA Bridges and Tunnels Senior Lien Revenue Bonds Then the downgraded If the highest rating of the related MTA party must post Bridges and Tunnels bonds or the collateral if its estimated Associated counterparty’s long-term termination payments Bond Issue unsecured debt falls to are in excess of Series 2001B and 2001C N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Citigroup is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2002C N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Ambac is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2005B interest rate swap and For counterparty, $10,000,000 Series 2005B basis risk swap Fitch – A-, or Moody’s – A3, or S&P – A-

For MTA, Fitch – BBB+, or Moody’s – Baa1, or S&P – $30,000,000 BBB+

For MTA, Fitch – BBB, or Moody’s – Baa2, or S&P – BBB $15,000,000 For counterparty, $0 Fitch – BBB+ and below, or Moody’s – Baa1 and below, or S&P – BBB+ and below

For MTA, $0 Fitch – BBB- and below, or Moody’s – Baa3 and below, or S&P – BBB- and below

MTA Bridges and Tunnels Subordinate Revenue Bonds Then the downgraded If the highest rating of the related MTA party must post Bridges and Tunnels bonds or the collateral if its estimated Associated counterparty’s long-term termination payments Bond Issue unsecured debt falls to are in excess of Series 2000AB N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Bear Stearns is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2000CD N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Citigroup is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2002G-1 and 2002G-2 Fitch – BBB+, $10,000,000 Moody’s – Baa1, or S&P – BBB+ Fitch – Below BBB+, $0 Moody’s – Below Baa1, or S&P – Below BBB+

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Notwithstanding the foregoing, in the event any downgraded party is responsible for an event of default or potential event of default as defined in the ISDA Master Agreement, the downgraded party must immediately collateralize its obligations irrespective of the threshold amounts.

Under each MTA and MTA Bridges and Tunnels bond resolution, the payments relating to debt service on the swaps are parity obligations with the associated bonds, as well as all other bonds issued under that bond resolution, but all other payments, including the termination payments, are subordinate to the payment of debt service on the swap and all bonds issued under that bond resolution. In addition, MTA and MTA Bridges and Tunnels have structured each of the swaps (other than the 2 Broadway swaps) in a manner that will permit MTA or MTA Bridges and Tunnels to bond the termination payments under any available bond resolution.

The payments relating to debt service on the 2 Broadway swaps are parity obligations with respect to the sublease payments under the 2 Broadway Certificates of Participation, payable solely from available transportation revenues after the payment of the MTA’s transportation revenue bonds and additional parity and subordinate bonds. All other payments, including the termination payments, are payable from substantially the same pool of available transportation revenues after the payment of the MTA’s transportation revenue bonds and additional parity and subordinate bonds.

The ISDA Master Agreement sets forth certain termination events applicable to all swaps entered into by the parties to that ISDA Master Agreement. MTA, MTA Bridges and Tunnels and MTA New York City Transit have entered into separate ISDA Master Agreements with each counterparty that governs the terms of each swap with that counterparty, subject to individual terms negotiated in a confirmation.

The following table sets forth, for each swap, the additional termination events for the following associated bond issues. In certain swaps, where the counterparty has a guarantor of its obligations, the ratings criteria applies to the guarantor and not to the counterparty.

MTA Transportation Revenue and Dedicated Tax Fund Bonds Associated Bond Issue Additional Termination Event(s) Transportation Revenue Bonds Series 2002D-2, Series 2005D and Series The ratings by S&P and Moody’s of the Counterparty or the 2005E MTA Transportation Revenue Bonds falls below “BBB-” and “Baa3,” respectively, or are withdrawn. Series 2012 The ratings by S&P and Moody’s of the Counterparty or the MTA Transportation Revenue Bonds falls below “BBB-” and “Baa3,” respectively, or are withdrawn. Dedicated Tax Fund Bonds Series 2002B The ratings by S&P and Fitch of the Counterparty or the MTA Dedicated Tax Fund Bonds falls below “BBB-” or are withdrawn. Series 2005A Bonds The ratings by S&P or Moody’s of the Counterparty fall below “BBB+” or “Baa1,” respectively, or the ratings of S&P or Fitch with respect to the MTA Dedicated Tax Fund Bonds falls below “BBB” or, in either case the ratings are withdrawn.

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2 Broadway Associated Bond Issue Counterparty Additional Termination Event(s) 2 Broadway Certificates UBS AG Negative financial events relating to the swap insurer, Ambac of Participation, Series Assurance Corporation. 2004A

MTA Bridges and Tunnels Senior and Subordinate Revenue Bonds Associated Bond Issue Additional Termination Events Senior Lien Revenue Bonds Series 2001B and 2001C and Series 1. MTA Bridges and Tunnels can elect to terminate the swap relating to 2002C that Series on 10 Business Days’ notice if the Series of Bonds are converted to a fixed rate, the fixed rate on the converted Bonds is less than the fixed rate on the swap and MTA Bridges and Tunnels demonstrates its ability to make the termination payments, or MTA Bridges and Tunnels redeems a portion of the Series of Bonds and demonstrates its ability to make the termination payments.

Subordinate Revenue Bonds Series 2000AB and 2000CD 1. MTA Bridges and Tunnels can elect to terminate the swap relating to that Series on 10 Business Days’ notice if the Series of Bonds are converted to a fixed rate, the fixed rate on the converted Bonds is less than the fixed rate on the swap and MTA Bridges and Tunnels demonstrates its ability to make the termination payments, or MTA Bridges and Tunnels redeems a portion of the Series of Bonds and demonstrates its ability to make the termination payments.

2. Negative financial events relating to the related swap insurer, Financial Security Assurance Inc. Series 2002G-1 and Series 2002G-2 1. The ratings by S&P and Moody’s of the Counterparty or the MTA Bridges and Tunnels Subordinate Revenue Bonds falls below “BBB-” and “Baa3,” respectively, or are withdrawn.

2. MTA Bridges and Tunnels may terminate the swap at no cost on or after December 29, 2010 in the case of the Series 2002G-1 swap, and on or after January 5, 2011 in the case of the Series 2002G-2 swap.

Rollover Risk. MTA and MTA Bridges and Tunnels are exposed to rollover risk on swaps that mature or may be terminated prior to the maturity of the associated debt. When these swaps terminate, MTA or MTA Bridges and Tunnels may not realize the synthetic fixed rate offered by the swaps on the underlying debt issues. The following debt is exposed to rollover risk:

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Bond Swap Maturity Termination Associated Bond Issue Date Date MTA Dedicated Tax Fund Variable Rate Bonds, Series 2002B 11/01/22 09/01/13 MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 01/01/32 01/01/19 2001B and 2001C MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 01/01/33 01/01/13 2002C MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, 11/01/32 01/01/18 Series 2002G(1)

(1) The swap relating to the Subseries 2002G-1 Bonds in the notional amount of $90,500,000 may be terminated at the option of MTA Bridges and Tunnels on or after December 29, 2010, and the swap relating to the Subseries 2002G-2 Bonds in the notional amount of $90,525,000 may be terminated at the option of MTA Bridges and Tunnels on or after January 5, 2011.

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TRANSPORTATION REVENUE BONDS

General There are $12,184,310,000 aggregate principal amount of outstanding Transportation Revenue Bonds as of March 31, 2008. In addition, MTA issued $750 million aggregate principal amount of commercial paper notes in the form of bond anticipation notes under the Transportation Resolution in anticipation of the issuance of MTA Transportation Revenue Bonds. The following TRB Table 1 sets forth, on a cash basis for the bond year ending November 15, the debt service on outstanding MTA Transportation Revenue Bonds as of March 31, 2008.

TRB Table 1 -- Aggregate Debt Service* (in thousands) Year Ending November 15 Aggregate Debt Service(1) 2008(2) $726,064 2009(2) 628,515 2010 775,340 2011 759,144 2012 775,067 2013 776,036 2014 775,715 2015 775,426 2016 775,396 2017 775,779 2018 775,808 2019 775,087 2020 775,146 2021 775,218 2022 775,283 2023 783,964 2024 784,057 2025 784,183 2026 784,287 2027 784,487 2028 784,632 2029 784,142 2030 784,562 2031 784,937 2032 734,466 2033 381,359 2034 381,497 2035 352,740 2036 144,743 2037 117,045 2038 63,270 Total $20,653,395

(1) Includes the following variable rate assumptions for debt service: Series 2002D-2, Series 2005D and Series 2005E Bonds at their swap rates of 4.45%, 3.561% and 3.561%, respectively; Series 2002B, Series 2002D-1, Series 2002G, Series 2004A and Series 2005G Bonds at an assumed variable interest rate of 4% per annum; and Series 2008B at an assumed rate of 4.0% after their respective Reset Dates. Due to the effects of volatile conditions in the market affecting all auction rate securities and other variable rate bonds, the recent interest rates to the MTA for these variable rate securities have at times been higher than the assumed 4% rate. However, based on historical averages and mitigating actions taken or actions to be taken by the MTA, MTA continues to believe that its 4% variable rate assumption is reasonable for long term cost calculations.

(2) Takes into account the effects during 2008 and 2009 of the cash defeasance.

* Debt service will be reduced after May 1, 2008 due to prior announced redemptions of the MTA Transportation Revenue Variable Rate Refunding Bonds, Subseries 2002G-2, and MTA Transportation Revenue Variable Rate Bonds, Series 2004A.

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Under New York law, the Transportation Revenue Bonds are MTA’s special obligations, which means that they are payable solely from the money pledged for payment under the Transportation Resolution. They are not MTA’s general obligations.

MTA has filed summaries of certain provisions of the Transportation Resolution, including certain defined terms used therein, and the form of the Interagency Agreement relating thereto with the following Nationally Recognized Municipal Securities Information Repositories (“NRMSIRS”), all of which are incorporated by specific cross-reference herein:

Bloomberg Municipal Repository DPC Data Inc. FT Interactive Data Standard & Poor’s Securities Evaluations, Inc.

In addition, copies of the summaries and the Interagency Agreement can be obtained at no cost on MTA’s website at www.mta.info/mta/investor/index.html or from the MTA Finance Department at 347 Madison Avenue, New York, New York 10017.

Capitalized terms used under this caption “TRANSPORTATION REVENUE BONDS” not otherwise defined herein have the meanings set forth in the Transportation Resolution.

Pledged Transportation Revenues

MTA receives “transportation revenues,” directly and through certain subsidiaries (currently, MTA Long Island Rail Road, MTA Metro-North Railroad and, effective as of April 1, 2006, MTA Bus) and affiliates (currently, MTA New York City Transit and MaBSTOA), and its receipts from many of these sources are pledged for the payment of Transportation Revenue Bonds. The Transportation Resolution provides that bondholders are to be paid from pledged revenues prior to the payment of operating or other expenses, as described in more detail below. MTA has covenanted to impose fares and other charges so that pledged revenues, together with other available moneys, will be sufficient to cover all debt service and operating and capital costs of the systems. See “Factors Affecting Revenues—Ability to Comply with Rate Covenant and Pay Operating and Maintenance Expenses” below.

TRB Table 2 sets forth the following for the five years ended December 31, 2007:

• by general category, the amount of pledged revenues (calculated in accordance with the Transportation Resolution). A general description of the pledged revenues in the general categories referenced in TRB Table 2 follows the table, and a more detailed description is set forth in this Appendix A in Part 3 under the heading “REVENUES OF THE RELATED ENTITIES,” and

• the amount of transit, commuter and MTA Bus operating expenses.

TRB Table 2 is based on the historical audited financial statements of MTA and its subsidiaries, MTA Long Island Rail Road, MTA Metro-North Railroad and MTA Bus, and MTA New York City Transit and its subsidiary MaBSTOA. The audited financial statements for MTA and MTA New York City Transit for the last two years covered by TRB Table 2 are included herein by specific cross-reference and should be read in connection with this information. This information in TRB Table 2 may not be indicative of future results of operations and financial condition. TRB Table 2 does not include MTA Bus information prior to 2006 since MTA Bus signed the Interagency Agreement effective as of April 1, 2006. The information contained in the table has been prepared by MTA management based upon the historical financial statements and notes.

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TRB Table 2 Summary of Pledged Revenues (Calculated in Accordance with the Transportation Resolution) and Expenses Historical Cash Basis (in millions)

Years Ended December 31,

2003 2004 2005 2006 2007

Revenues from Systems Operations Fares from Transit System $2,420 $2,567 $2,668 $2,778 $2,857 Fares from Commuter System 772 819 881 911 956 Fares from MTA Bus N/A N/A N/A 104 160 Other Income(1) 109 245 129 79 210 Subtotal – Operating Revenues 3,301 3,631 3,678 3,872 4,183 Revenues from MTA Bridges and Tunnels Surplus 395 377 477 435 406 MTA Bridges and Tunnels – Refund of Excess Debt Service Payments 164 0 0 0 0 Revenues from Governmental Sources State and Local General Operating Subsidies 380 377 415 391 396 Special Tax-Supported Operating Subsidies DTF Excess(2) 322 411 361 391 363 MMTOA Receipts 731 736 946 1,219 1,576 Urban Tax 177 344 551 669 883 Excess Mortgage Recording Taxes 228 163 193 249 27 Subtotal Special Tax-Supported Operating Subsidies 1,458 1,654 2,051 2,528 2,849 Station Maintenance and Service Reimbursements 307 311 349 376 410 City Subsidy for MTA Bus N/A N/A N/A 162 187 Revenues from Investment of Capital Program Funds(3) 14 26 52 66 71 Subtotal – Non-Operating Revenues(4) 2,718 2,745 3,344 3,958 4319

Total Transportation Resolution Pledged Revenues $6,019 $6,376 $7,022 $7,830 $8,502

Debt Service $257 $389 $506 $629 $681 Transit Operating Expenses $4,161 $4,198 $4,483 $4,788 5,454 Commuter Operating Expenses 1,512 1,609 1,632 $1,731 1,954 MTA Bus Operating Expenses N/A N/A N/A 315 387 Total Operating Expenses $5,673 $5,807 $6,115 $6,834 $7,795 Total Operating Expenses and Debt Service $5,930 $6,196 $6,621 $7,463 $8,476

(1) Other income in the case of the Transit System includes advertising revenue, interest income on certain operating funds, station concessions, Transit Adjudication Bureau collections, rental income and miscellaneous. Other income in the case of the Commuter System includes advertising revenues, interest income on certain operating funds, concession revenues (excluding Grand Central Terminal and Pennsylvania Station concessions), rental income and miscellaneous. In December 2004, MTA provided MTA New York City Transit with a $13 million subsidy from operating funds. (2) Calculated by subtracting the debt service payments on the Dedicated Tax Fund Bonds from the MTTF Receipts described in Part 4 of this APPENDIX A under the caption “DEDICATED TAX FUND BONDS.” (3) Represents investment income on capital program funds held for the benefit of the Transit and Commuter Systems on an accrual basis. (4) Sum of (a) Revenues from MTA Bridges and Tunnels Surplus, (b) MTA Bridges and Tunnels – Refund of Excess Debt Service Payments, (c) Revenues from Governmental Sources (including State and Local General Operating Subsidies and Special Tax-Supported Operating Subsidies), (d) Station Maintenance and Service Reimbursements, (e) City Subsidy for MTA Bus and (f) Revenues from Investment of Capital Program Funds.

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The following should be noted in TRB Table 2:

• Revenues from Systems Operations – In 2003, the level of fares increased on May 4 for the Transit System and May 1 for the Commuter System. In 2005, the level of fares increased on February 27 for the Transit System and March 1 for the Commuter System.

• Other Income in 2004 includes World Trade Center and other insurance settlement moneys. Other Income for 2006 and 2007 were affected by the timing of actual receipts by transit.

• MTA Bridges and Tunnels Surplus increased in 2003 based upon the toll increases that became effective on May 18, 2003 and again in 2005 based upon the toll increases that became effective on March 13, 2005.

• MTA Bridges and Tunnels – Refund of Excess Debt Service Payments – for 2003, approximately $164 million in non-recurring excess debt service payments resulting from the debt restructuring that were on deposit with the MTA Bridges and Tunnels bond trustees were applied for the benefit of the Transit and Commuter Systems.

• Beginning in 2003, MTA receives annually four quarters of MMTOA Receipts, with the first quarter of each succeeding year’s receipts similarly advanced. MTA continues to monitor the effect of not having MMTOA Receipts available during the first quarter of the calendar year on its cash flow needs to determine if future working capital borrowings may be necessary. The increased amount of MMTOA Receipts in 2005 reflects the imposition of an additional 1/8% regional sales tax commencing June 1, 2005. MMTOA receipts have been increasing since 2005 due to increased tax collections and additional appropriations to MTA.

• The “Urban Tax” collection reflects the activity level of certain residential and commercial real estate transactions in the City. Mortgage recording tax and urban tax proceeds from 2004 through 2006 reflect the very high level of real estate sale and refinancing activity during those years. Urban Tax receipts continued to increase in 2007.

• Excess Mortgage Recording Taxes – Beginning in 2003, excess mortgage recording taxes were available for Transit and Commuter Systems purposes after the payment of MTA Headquarters Expenses. Declining mortgage recording taxes receipts in 2007 and increasing MTA Headquarters Expenses reduced Excess Mortgage Recording Tax transfers to transit and commuter.

• Revenues from Investment of Capital Program Funds – substantially all of the investment income is generated from bond proceeds, such as funds held in anticipation of expenditure on project costs.

• Operating Expenses – transit and commuter operating expenses increased from 2006 to 2007 due to increased maintenance and additional costs for health and welfare, pensions, energy and paratransit service.

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Description of Pledged Revenues

Each of the following pledged revenues is described in more detail in this Appendix A in Part 3 under the caption “REVENUES OF THE RELATED ENTITIES”:

• Fares and Tolls – Transit System Fares, • Fares and Tolls – Transit System Fare Reimbursements from the City, • Fares and Tolls – Commuter System Fares, • State and Local General Operating Subsidies, • State Special Tax Supported Operating Subsidies, • MTA Bridges and Tunnels Surplus, • Financial Assistance and Service Reimbursements from Local Municipalities, and • Miscellaneous Revenues.

Pledged revenues also include payments made by the City under its agreement with MTA Bus to reimburse MTA Bus the difference between the actual cost of operation of the City Bus Routes (other than certain capital costs) and all revenues and subsidies received by MTA Bus and allocable to the operation of the City Bus Routes, as further described under the caption “MTA BUS COMPANY” in Part 2.

Factors Affecting Revenues

Ridership. The level of fare revenues depends to a large extent on MTA’s ability to maintain and/or increase ridership levels on the Transit, Commuter and MTA Bus Systems. Those ridership levels are affected by safety and the quality and efficiency of systems operations, as well as by financial and economic conditions in the New York metropolitan area.

Fare Policy. MTA determines the rate or rates of fares charged to users of the Commuter System and MTA Bus system, and MTA New York City Transit and MaBSTOA, together with MTA, do the same for the Transit System. After adopting operating expense budgets and assessing the availability of governmental subsidies, each makes a determination of fares necessary to operate on a self-sustaining cash basis in compliance with State law and covenants in the Transportation Resolution. Considering the impact of increased fares on riders and on the regional economy, MTA’s policy is to attempt to reduce costs or obtain additional revenues from other sources, mainly governmental sources, before increasing fares. As a result, even though MTA does not generally need other governmental approvals before setting fares, the amount and timing of fare increases may be affected by the Federal, State and local government financial conditions, as well as by budgetary and legislative processes. MTA’s obligation to obtain approval of fare increases on the New Haven line from CDOT can also affect the amount and timing of fare increases.

Ability to Comply with Rate Covenant and Pay Operating and Maintenance Expenses. The Transit, Commuter and MTA Bus Systems have depended, and are expected to continue to depend, upon government subsidies to meet capital and operating needs. Thus, even though MTA is legally obligated by the Transportation Resolution’s rate covenant to raise fares sufficiently to cover all capital and operating costs, there can be no assurance that there is any level at which Transit, Commuter and MTA Bus Systems fares would produce revenues sufficient to comply with the rate covenant, particularly if the current level (or the assumed level in the budget prepared in connection with 2008 and the forecasts prepared in connection with 2009, 2010 and 2011) of collection of dedicated taxes, operating subsidies, and expense reimbursements were to be discontinued or substantially reduced.

Operating Results and Projections. Based upon the adoption of the 2008-2011 Financial Plan, the budgets of the Related Entities are expected to be substantially in balance through 2008, but there are expected to be substantial gaps thereafter. Any of the Transit System, the Commuter System or MTA Bus or all of them may be forced to institute additional cost reductions (which, in certain circumstances, could affect service which, in turn, could adversely affect revenues) or take other additional actions to close projected budget gaps, which could include raising fares.

2008-2011 Financial Plan. The 2008-2011 Financial Plan, the 2005-2009 Capital Program and prior and future Capital Programs are interrelated, and any failure fully to achieve the various components of these plans could have an adverse impact on one or more of the other proposals contained in the 2008-2011 Financial Plan, the 2005-2009 Capital

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Program and prior and future Capital Programs, as well as on pledged revenues. See “FINANCIAL PLANS AND CAPITAL PROGRAMS” in Part 3.

MTA Bridges and Tunnels Operating Surplus. The amount of MTA Bridges and Tunnels operating surplus to be used for the Transit and Commuter Systems is affected by a number of factors, including traffic volume, the timing and amount of toll increases, the operating and capital costs of MTA Bridges and Tunnels Facilities, and the amount of debt service payable from its operating revenues, including debt service on obligations issued for the benefit of MTA’s affiliates and subsidiaries and for MTA Bridges and Tunnels’ own capital needs.

Government Assistance. The level of government assistance to MTA may be affected by several different factors, such as:

• Subsidy payments by the State may be made only if and to the extent that appropriations have been made by the Legislature, and money is available to fund those appropriations.

• The Legislature may not bind or obligate itself to appropriate revenues during a future legislative session, and appropriations approved during a particular legislative session generally have no force or effect after the close of the State fiscal year for which the appropriations are made.

• The State is not bound or obligated to continue to pay operating subsidies to the Transit, Commuter or MTA Bus Systems or to continue to impose any of the taxes currently funding those subsidies.

• The financial condition of the States of New York and Connecticut, and the City and counties in the Transportation District, could affect the ability or willingness of the States and local governments to continue to provide general operating subsidies, the City and local governments to continue to provide reimbursements and station maintenance payments, and the State to continue to make special appropriations.

• Successful court challenges to the State taxes that are the sources of various State and City operating subsidies to MTA could adversely affect the amount of pledged revenues generated by such State taxes.

Security – General

Transportation Revenue Bonds are MTA’s special obligations payable as to principal (including sinking fund installments), redemption premium, if any, and interest from the security, sources of payment, and funds specified in the Transportation Resolution.

The payment of principal (including sinking fund installments, if any), redemption premium, if any, and interest on the Transportation Revenue Bonds is secured by, among other sources described below, the transportation revenues discussed in the preceding section which are, together with certain other revenues, referred to as “pledged revenues.”

Holders of Transportation Revenue Bonds are to be paid prior to the payment, from pledged revenues, of operating or other expenses of MTA, MTA New York City Transit, MaBSTOA, MTA Long Island Rail Road, MTA Metro-North Railroad and MTA Bus. However, MTA’s ability to generate major portions of the pledged revenues depends upon its payment of operating and other expenses.

MTA Transportation Revenue Bonds are not a debt of the State or the City, or any other local governmental unit. MTA has no taxing power.

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Pledge Effected by the Resolution

The Transportation Resolution provides that there are pledged to the payment of principal and redemption premium of, interest on, and sinking fund installments for, the Transportation Revenue Bonds and Parity Debt, in accordance with their terms and the provisions of the Transportation Resolution the following, referred to as the “trust estate”:

• all pledged revenues as described above; • the net proceeds of certain agreements pledged by MTA to the payment of transit and commuter capital projects; • the proceeds from the sale of Transportation Revenue Bonds, until those proceeds are paid out for an authorized purpose; • all funds, accounts and subaccounts established by the Transportation Resolution (except those established by a supplemental obligation resolution for variable interest rate obligations, put obligations, parity debt, subordinated contract obligations or subordinated debt); and • the Interagency Agreement dated as of April 1, 2006, among MTA, MTA Long Island Rail Road, MTA Metro- North Railroad, MTA Bus, MTA New York City Transit and MaBSTOA.

The Trustee may directly enforce an undertaking to operate the Transit System, the Commuter System or MTA Bus to ensure compliance with the Transportation Resolution.

Under the Transportation Resolution, the operators of the Transit, Commuter and MTA Bus Systems are obligated to transfer to the Trustee for deposit into the Revenue Fund virtually all pledged revenues as soon as practicable following receipt, or with respect to revenues in the form of cash and coin, immediately after being counted and verified. The pledge of money located in the State of Connecticut may not be effective until that money is deposited under the Transportation Resolution.

Flow of Revenues

The Transportation Resolution creates the following funds and accounts:

• Revenue Fund (held by the Trustee), • Debt Service Fund (held by the Trustee), and • Proceeds Fund (held by MTA).

The Transportation Resolution requires the trustee promptly upon receipt of the pledged revenues in the Revenue Fund, to deposit the revenues into the following funds and accounts, in the amounts and in the order of priority, as follows:

• to the debt service accounts, the net amount, if any, required to make the amount in the debt service accounts equal to the accrued debt service for Transportation Revenue Bonds and Parity Debt to the last day of the current calendar month; • to pay, or accrue to pay, principal of and interest on any Subordinated Indebtedness or for payment of amounts due under any Subordinated Contract Obligation; • to MTA for deposit in the Proceeds Fund, as directed by one of MTA’s authorized officers, to fund Capital Costs of the Transit and Commuter Systems; and • to accounts held by MTA or any of the Related Transportation Entities for payment of operating expenses or any other authorized purpose.

All amounts paid out by MTA or the Trustee either for an authorized purpose (excluding transfers to any other pledged fund or account) or under the last bullet point above are free and clear of the lien and pledge created by the Transportation Resolution.

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The following chart illustrates the basic elements of the flow of revenues described above:

TRANSPORTATION REVENUE OBLIGATIONS - FLOW OF PLEDGED REVENUES

PLEDGED REVENUES

REVENUE FUND (Held by the Trustee) Transportation Resolution Funds BOND AND PARITY DEBT DEBT SERVICE ACCOUNTS (Held by the Trustee)

SUBORDINATED INDEBTEDNESS AND SUBORDINATED CONTRACT OBLIGATIONS

PROCEEDS FUND (Held by MTA)

OPERATING EXPENSES OR ANY OTHER AUTHORIZED PURPOSE

Normal Flow Discretionary Flow

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Covenants

Rate Covenants. MTA must fix the transit and commuter and MTA Bus fares and other charges and fees to be sufficient, together with other money legally available or expected to be available, including from government subsidies –

• to pay the debt service on all the Transportation Revenue Bonds; • to pay any Parity Debt; • to pay any Subordinated Indebtedness and amounts due on any Subordinated Contract Obligations; and • to pay, when due, all operating and maintenance expenses and other obligations of its transit and commuter affiliates and subsidiaries.

Operating and Maintenance Covenants.

• MTA, MaBSTOA, MTA New York City Transit, MTA Bus, MTA Metro-North Railroad and MTA Long Island Rail Road are required at all times to operate, or cause to be operated, the systems properly and in a sound and economical manner and maintain, preserve, reconstruct and keep the same or cause the same to be maintained, preserved, reconstructed and kept in good repair, working order and condition.

• Nothing in the Transportation Resolution prevents MTA from ceasing to operate or maintain, or from leasing or disposing of, all or any portion of the systems if, in MTA’s judgment it is advisable to do so—if the operation is not essential to the maintenance and continued operation of the rest of the systems and this arrangement does not materially interfere with MTA’s ability to comply with MTA’s rate covenants.

Additional Bonds. The Transportation Resolution permits MTA to issue additional Transportation Revenue Bonds and to issue or enter into Parity Debt, from time to time, to pay or provide for the payment of qualifying costs, without meeting any specific debt-service-coverage level, as long as MTA certifies to meeting the rate covenant described above for the year in which the additional debt is being issued. Under the Transportation Resolution, MTA may only issue additional Transportation Revenue Bonds for the Transit and Commuter Systems if those bonds are issued to fund projects pursuant to a Review Board-approved MTA Capital Program.

There is no covenant with bondholders limiting the aggregate principal amount of additional Transportation Revenue Bonds or Parity Debt that MTA may issue. There is a limit under current New York law that covers the Transportation Revenue Bonds and certain other securities. See “PUBLIC DEBT SECURITIES AND OTHER FINANCIAL INSTRUMENTS—General—Current Statutory Ceiling” above in this Part 4 for a description of the current statutory cap.

Refunding Bonds. MTA may issue Transportation Revenue Bonds to refund all or any portion of the Transportation Revenue Bonds or Parity Debt.

Non-Impairment. Under New York law, the State has pledged to MTA that it will not limit or change MTA’s powers or rights in such a way that would impair the fulfillment of MTA’s promises to holders of the Transportation Revenue Bonds.

No Bankruptcy. New York law specifically prohibits MTA or the other Related Entities from filing a bankruptcy petition under Chapter 9 of the U.S. Federal Bankruptcy Code. As long as any Transportation Revenue Bonds are outstanding, the State has covenanted not to change the law to permit MTA or its affiliates or subsidiaries to file such a petition.

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MTA BRIDGES AND TUNNELS SENIOR REVENUE BONDS

There are $5,816,360,000 aggregate principal amount of outstanding MTA Bridges and Tunnels Senior Revenue Bonds. The following MTA Bridges and Tunnels Senior Table 1 sets forth, on a cash basis, the debt service thereon as of March 31, 2008.

MTA Bridges and Tunnels Senior Table 1 Aggregate Senior Lien Debt Service (in thousands)

Year Ending Aggregate December 31 Debt Service(1) 2008(2) $346,726 2009(2) 313,634 2010 390,639 2011 390,535 2012 390,404 2013 390,353 2014 389,150 2015 389,032 2016 388,914 2017 389,209 2018 389,051 2019 388,957 2020 389,240 2021 389,085 2022 388,953 2023 390,482 2024 389,069 2025 388,972 2026 389,229 2027 389,271 2028 389,143 2029 389,020 2030 389,163 2031 389,025 2032 359,809 2033 108,645 2034 108,658 2035 108,669 2036 100,039 2037 100,038 2038 98,812 Total(3) $10,211,923

(1) Includes the following variable rate assumptions for debt service: Series 2001B, Series 2001C and Series 2002C – assumed net payments made by MTA Bridges and Tunnels under the respective swap agreements relating thereto and a variable interest rate of 4% per annum thereafter; and Series 2002F, Series 2003B and Series 2005A – assumed variable interest rate of 4% per annum. Debt service payable on January 1 of each year is included in the prior year’s debt service; Series 2005B – assumes interest at a rate of 3.513% per annum based on the related interest rate swaps through January 1, 2012 and 3.076% per annum based on the related interest rate swaps from January 1, 2012 through final maturity; and takes into account the effects during 2008 and 2009 of the cash defeasance described under “Cash Management Actions.” Due to the effects of volatile conditions in the market affecting all auction rate securities and other variable rate bonds, the recent interest rates to the MTA for these variable rate securities have at times been higher than the assumed 4% rate. However, based on historical averages and mitigating actions taken or actions to be taken by the MTA, MTA continues to believe that its 4% variable rate assumption is reasonable for long term cost calculations.

(2) Takes into account the effects during 2008 and 2009 of the cash defeasance

(3) Totals may not add due to rounding.

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Sources of Payment

MTA Bridges and Tunnels receives its revenues from all tolls, rates, fees, charges, rents, proceeds of use and occupancy insurance on any portion of its tunnels, bridges and other facilities, including the net revenues of the Battery Parking Garage, and MTA Bridges and Tunnels’ receipts from those sources, after payment of MTA Bridges and Tunnels’ operating expenses, are pledged to the holders of the MTA Bridges and Tunnels Senior Revenue Bonds for payment, as described below.

MTA Bridges and Tunnels is required to fix and collect tolls for the MTA Bridges and Tunnels Facilities, and MTA Bridges and Tunnels’ power to establish toll rates is not subject to the approval of any governmental entity. For more information relating to MTA Bridges and Tunnels’ power to establish tolls, see “RIDERSHIP AND FACILITIES USE – Toll Rates” in Part 3.

MTA Bridges and Tunnels Senior Table 2 sets forth, by MTA Bridges and Tunnels Facility, the amount of revenues for each of the last five years, as well as operating expenses.

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MTA Bridges and Tunnels Senior Table 2

Historical Revenues, Operating Expenses and Senior Lien Debt Service (in thousands)

Years Ended December 31, 2003 2004 2005 2006 2007

Bridge and Tunnel Revenues: Triborough Bridge $ 222,224 $247,937 $280,516 $288,301 $285,847 Verrazano-Narrows Bridge 233,482 246,322 267,276 274,100 272,837 Bronx Whitestone Bridge 175,393 187,231 188,808 186,384 200,076 Throgs Neck Bridge 172,603 184,338 210,242 223,756 217,958 Henry Hudson Bridge 37,744 40,149 43,920 44,901 44,779 Marine Parkway Gil Hodges Memorial Bridge 9,694 10,102 11,234 11,536 11,635 Cross Bay Veterans’ Memorial Bridge 8,993 9,477 10,988 11,630 12,090 Queens Midtown Tunnel 99,994 107,067 121,666 127,075 129,347 Brooklyn-Battery Tunnel 61,810 64,365 70,294 73,868 75,980 Total Bridge and Tunnel Revenues: $1,021,937 $1,096,988 $1,204,944 $1,241,551 1,250,549

Investment Income and Other(1) 87,743 38,376 60,102 31,603 23,885

Total Revenues $1,109,680 $1,135,364 $1,265,046 $1,273,154 $1,274,434

Operating Expenses(2) Personnel Costs $159,976 $158,403 $173,549 $183,268 $196,755 Maintenance and Other Operating Expenses 169,041 160,812 170,123 169,642 172,270 Total Operating Expenses $329,017 $319,215 $343,672 $352,910 $369,025

Net Revenues Available for Debt Service $780,663 $816,149 $921,374 $920,244 $905,409

MTA Bridges and Tunnels Senior Lien Debt Service $206,946 $251,139 $284,462 $300,450 $313,042

Senior Lien Coverage 3.77x 3.25x 3.24x 3.06x 2.89x

(1) Includes the net revenues from the Battery Parking Garage, as well as E-ZPass administrative fees and miscellaneous other revenues. Investment earnings include interest earned on bond funds, including debt service and debt service reserve funds, that were applied to the payment of debt service as follows for the years 2003 through 2007, respectively: $11,863; $4,048; $5,578; $5,044 and $5,334. The amounts set forth in this footnote, as well as all of MTA Bridges and Tunnels Senior Table 2, are derived from MTA Bridges and Tunnels’ audited financial statements for the years 2003 through 2007. (2) Excludes depreciation and other post-employment benefits other than pensions.

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The following should be noted in MTA Bridges and Tunnels Senior Table 2:

• Bridge and Tunnel Revenues – In 2003, crossing charges were increased effective May 18, 2003. In 2005, crossing charges were increased effective March 13, 2005.

• Investment Income and Other –For 2003, other income includes non-recurring revenues of $37 million in security reimbursements and $24.6 million in World Trade Center insurance settlement proceeds allocable to MTA Bridges and Tunnels. For 2005, other income includes $25.9 million in security reimbursements and $9.5 million relating to the $1 per month account maintenance fee that MTA Bridges and Tunnels imposed on all E-ZPass subscribers effective July 1, 2005. Legislation enacted with the State’s budget for State Fiscal Year 2006-07 prevents MTA Bridges and Tunnels from charging that fee effective June 1, 2006. Prior to 2006, MTA Bridges and Tunnels was reimbursed for security expenses by MTA Headquarters. Since these are ongoing expenses, all security programs were included in MTA Bridges and Tunnels’ baseline Financial Plan beginning in 2006, thus eliminating the need for reimbursement.

• Operating Expenses—Personnel Costs – The 2003 increase in personnel costs was caused by additional expenditures for security staff, worker’s compensation adjustments and health and welfare benefits rate increases. 2004 personnel costs were marginally lower. The 2005 increase in personnel costs was caused by worker’s compensation and pension cost adjustments. The 2006 increase in personnel costs was caused by increases in salaries and wages, health and welfare, and pension costs. The 2007 increase in personnel costs was caused by increases in salaries and wages and pension costs.

• Operating Expenses—Maintenance and Other Operating Expenses – In 2003, the following major costs were more than in 2002: major maintenance (consisting of additional roadway and standpipe repair on the Verrazano) – $9.1 million; and bridge painting – $6.3 million. In 2004, non-labor expenses were 4.5% lower than in 2003 due to a decrease in the required number of E-ZPass tag purchases. In 2005, major maintenance and bridge painting were more than in 2004.

Security – General

MTA Bridges and Tunnels Senior Revenue Bonds are general obligations of MTA Bridges and Tunnels payable solely from the trust estate (described below) pledged for the payment of the Bonds and Parity Debt pursuant to the terms of the MTA Bridges and Tunnels Senior Resolution, after the payment of Operating Expenses.

MTA Bridges and Tunnels has filed summaries of certain provisions of the MTA Bridges and Tunnels Senior Resolution, including certain defined terms used therein, with the NRMSIRS identified under “TRANSPORTATION REVENUE BONDS – General,” all of which are incorporated by specific cross-reference herein. In addition, copies of the summaries can be obtained on MTA’s website at www.mta.info/mta/investor/index.html or from the MTA Finance Department at 347 Madison Avenue, New York, New York 10017.

Capitalized terms used under this caption “MTA BRIDGES AND TUNNELS SENIOR REVENUE BONDS” not otherwise defined herein have the meanings set forth in the MTA Bridges and Tunnels Senior Resolution, except that the term “MTA Bridges and Tunnels” is used herein in place of the definition “TBTA.” So, for example, the term “MTA Bridges and Tunnels Facilities” as used herein is referred to in the MTA Bridges and Tunnels Senior Resolution and in the summaries thereof as “TBTA Facilities.”

MTA Bridges and Tunnels Senior Revenue Bonds are not a debt of the State or The City of New York, or any local governmental unit. MTA Bridges and Tunnels has no taxing power.

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Pledge Effected by the MTA Bridges and Tunnels Senior Resolution

The Bonds and Parity Debt issued in accordance with the MTA Bridges and Tunnels Senior Resolution are secured by a net pledge of Revenues after the payment of Operating Expenses.

Pursuant to, and in accordance with, the MTA Bridges and Tunnels Senior Resolution, MTA Bridges and Tunnels has pledged to the holders of the MTA Bridges and Tunnels Senior Revenue Bonds a “trust estate,” which consists of

• Revenues, • the proceeds from the sale of the MTA Bridges and Tunnels Senior Revenue Bonds, and • all funds, accounts and subaccounts established by the MTA Bridges and Tunnels Senior Resolution (except those established by a supplemental obligation resolution for variable interest rate obligations, put obligations, parity debt, subordinated contract obligations or subordinated debt).

Revenues and Additional MTA Bridges and Tunnels Projects

Revenues from MTA Bridges and Tunnels Facilities. MTA Bridges and Tunnels does not currently derive any significant recurring Revenues from any sources other than the MTA Bridges and Tunnels Facilities and investment income. Income from the MTA Bridges and Tunnels Transit and Commuter Project (the Transit and Commuter Systems) is not derived by or for the account of MTA Bridges and Tunnels; consequently, no revenues from any portion of the MTA Bridges and Tunnels Transit and Commuter Project are pledged to the payment of debt service on the MTA Bridges and Tunnels Senior Revenue Bonds.

Additional MTA Bridges and Tunnels Projects that can become MTA Bridges and Tunnels Facilities. If MTA Bridges and Tunnels is authorized to undertake another project, whether or not a bridge or tunnel, that project can become an MTA Bridges and Tunnels Facility for purposes of the MTA Bridges and Tunnels Senior Resolution if it is designated as such by MTA Bridges and Tunnels and it satisfies certain conditions more fully described under “SUMMARY OF CERTAIN PROVISIONS OF THE TBTA RESOLUTION – Additional TBTA Facilities” in the summaries of documents.

The Convention Center Project is not and cannot become an Additional MTA Bridges and Tunnels Project, and no MTA Bridges and Tunnels Senior Revenue Bonds may be issued under the MTA Bridges and Tunnels Senior Resolution to finance the Convention Center Project. The revenues and expenses of the Convention Center Project are also not included in MTA Bridges and Tunnels’ financial statements or projections.

Flow of Revenues

The MTA Bridges and Tunnels Senior Resolution establishes the following funds and accounts, each held by MTA Bridges and Tunnels:

• Revenue Fund, • Proceeds Fund, • Debt Service Fund, and • General Fund.

Under the MTA Bridges and Tunnels Senior Resolution, MTA Bridges and Tunnels is required to pay into the Revenue Fund all Revenues as and when received and available for deposit.

MTA Bridges and Tunnels is required to pay out from the Revenue Fund, on or before the 25th day of each calendar month, the following amounts in the following order of priority:

• payment of reasonable and necessary Operating Expenses or accumulation in the Revenue Fund as a reserve (i) for working capital, (ii) for such Operating Expenses the payment of which is not immediately required, including amounts determined by MTA Bridges and Tunnels to be required as an operating reserve, or (iii) deemed necessary or desirable by MTA Bridges and Tunnels to comply with orders or rulings of an agency or regulatory body having lawful jurisdiction;

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• transfer to the Debt Service Fund, the amount, if any, required so that the balance in the fund is equal to Accrued Debt Service to the last day of the current calendar month; provided, however, that in no event shall the amount to be so transferred be less than the amount required for all payment dates occurring prior to the 25th day of the next succeeding calendar month;

• transfer to another person for payment of, or accrual for payment of, principal of and interest on any Subordinated Indebtedness or for payment of amounts due under any Subordinated Contract Obligations; and

• transfer to the General Fund any remaining amount.

All amounts paid out by MTA Bridges and Tunnels for an authorized purpose (excluding transfers to any other pledged Fund or Account), or withdrawn from the General Fund in accordance with the MTA Bridges and Tunnels Senior Resolution, are free and clear of the lien and pledge created by the MTA Bridges and Tunnels Senior Resolution.

Under the MTA Bridges and Tunnels Senior Resolution, MTA Bridges and Tunnels is required to use amounts in the General Fund to make up deficiencies in the Debt Service Fund and the Revenue Fund, in that order. Subject to the preceding sentence and any lien or pledge securing Subordinated Indebtedness, the MTA Bridges and Tunnels Senior Resolution authorizes MTA Bridges and Tunnels to release amounts in the General Fund to be paid to MTA Bridges and Tunnels free and clear of the lien and pledge created by the MTA Bridges and Tunnels Senior Resolution.

MTA Bridges and Tunnels is required by law to transfer amounts released from the General Fund to MTA, and a statutory formula determines how MTA allocates that money between the Transit and Commuter Systems.

Rate Covenant

Under the MTA Bridges and Tunnels Senior Resolution, MTA Bridges and Tunnels is required at all times to establish, levy, maintain and collect, or cause to be established, levied, maintained and collected, such tolls, rentals and other charges in connection with the MTA Bridges and Tunnels Facilities as shall always be sufficient, together with other money available therefor (including the anticipated receipt of proceeds of sale of Obligations or other bonds, notes or other obligations or evidences of indebtedness of MTA Bridges and Tunnels that will be used to pay the principal of Obligations issued in anticipation of such receipt, but not including any anticipated or actual proceeds from the sale of MTA Bridges and Tunnels Facilities), to equal or exceed in each calendar year the greater of

• an amount equal to the sum of amounts necessary in such calendar year

o to pay all Operating Expenses of MTA Bridges and Tunnels, plus o to pay Calculated Debt Service, as well as the debt service on all Subordinated Indebtedness and all Subordinated Contract Obligations, plus o to maintain any reserve established by MTA Bridges and Tunnels pursuant to the MTA Bridges and Tunnels Senior Resolution, in such amount as may be determined from time to time by MTA Bridges and Tunnels in its judgment, or

• an amount such that Revenues less Operating Expenses shall equal at least 1.25 times Calculated Debt Service on all senior lien Bonds for such calendar year.

Additional Bonds

Under the provisions of the MTA Bridges and Tunnels Senior Resolution, MTA Bridges and Tunnels may issue one or more series of Additional Bonds on a parity with the outstanding MTA Bridges and Tunnels Senior Revenue Bonds to provide for Capital Costs.

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Certain Additional Bonds for MTA Bridges and Tunnels Facilities. MTA Bridges and Tunnels may issue Additional Bonds without satisfying any earnings or coverage test for the purpose of providing for Capital Costs relating to MTA Bridges and Tunnels Facilities for the purpose of keeping such MTA Bridges and Tunnels Facilities in good operating condition or preventing a loss of Revenues or Revenues after payment of Operating Expenses derived from such MTA Bridges and Tunnels Facilities.

Additional Bonds for Other Purposes. MTA Bridges and Tunnels may issue Additional Bonds to pay or provide for the payment of all or part of Capital Costs relating to any of the following purposes:

• MTA Bridges and Tunnels Transit and Commuter Project, • any Additional MTA Bridges and Tunnels Project (that does not become a MTA Bridges and Tunnels Facility), or • any MTA Bridges and Tunnels Facilities other than for the purposes set forth in the preceding paragraph.

In the case of Additional Bonds issued other than for the improvement, reconstruction or rehabilitation of MTA Bridges and Tunnels Facilities as described under the preceding heading, in addition to meeting certain other conditions, all as more fully described in “SUMMARY OF CERTAIN PROVISIONS OF THE TBTA RESOLUTION – Special Provisions for Capital Cost Obligations” in the summaries of documents, an Authorized Officer must certify that the historical Twelve Month Period Net Revenues are at least equal to 1.40 times the Maximum Annual Calculated Debt Service on all senior lien Bonds, including debt service on the MTA Bridges and Tunnels Senior Revenue Bonds to be issued.

Refunding Bonds

MTA Bridges and Tunnels Senior Revenue Bonds may be issued for the purpose of refunding MTA Bridges and Tunnels Senior Revenue Bonds if (a) the Maximum Annual Calculated Debt Service (including the refunding MTA Bridges and Tunnels Senior Revenue Bonds then proposed to be issued but not including the MTA Bridges and Tunnels Senior Revenue Bonds to be refunded) is equal to or less than the Maximum Annual Calculated Debt Service on the MTA Bridges and Tunnels Senior Revenue Bonds as calculated immediately prior to the refunding (including the refunded MTA Bridges and Tunnels Senior Revenue Bonds but not including the refunding MTA Bridges and Tunnels Senior Revenue Bonds) or (b) the conditions referred to above under Additional Bonds for the category of MTA Bridges and Tunnels Senior Revenue Bonds being refunded are satisfied.

For a more complete description of the conditions that must be satisfied before issuing refunding Bonds, see “SUMMARY OF CERTAIN PROVISIONS OF THE TBTA RESOLUTION – Refunding Obligations” in the summaries of documents.

Subordinate Obligations

The MTA Bridges and Tunnels Senior Resolution authorizes the issuance or incurrence of subordinate obligations. See “MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS” below.

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MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS

There are $2,246,960,000 aggregate principal amount of outstanding MTA Bridges and Tunnels Subordinate Revenue Bonds. The following MTA Bridges and Tunnels Subordinate Table 1 sets forth, on a cash basis, the debt service thereon and on the MTA Bridges and Tunnels Senior Revenue Bonds March 31, 2008.

MTA Bridges and Tunnels Subordinate Table 1 -- Aggregate Senior and Subordinate Debt Service* (in thousands) MTA Bridges and Aggregate Senior Year Ending Tunnels Senior Lien and Subordinate December 31 Bonds Debt Service(1) Debt Service(2) 2008(3) $346,726 $502,062 2009(3) 313,634 462,157 2010 390,639 547,881 2011 390,535 547,381 2012 390,404 548,033 2013 390,353 546,859 2014 389,150 546,727 2015 389,032 545,579 2016 388,914 546,448 2017 389,209 546,437 2018 389,051 545,460 2019 388,957 545,972 2020 389,240 545,368 2021 389,085 546,071 2022 388,953 545,159 2023 390,482 547,519 2024 389,069 545,890 2025 388,972 545,643 2026 389,229 546,092 2027 389,271 546,031 2028 389,143 546,188 2029 389,020 545,842 2030 389,163 546,240 2031 389,025 546,061 2032 359,809 499,116 2033 108,645 123,144 2034 108,658 123,157 2035 108,669 108,669 2036 100,039 100,039 2037 100,038 100,038 2038 98,812 98,812 Total $10,211,923 $14,136,075

(1) The variable rate assumptions for debt service on the MTA Bridges and Tunnels Senior Revenue Bonds are set forth in MTA Bridges and Tunnels Senior Table 1 on page A-109 above. (2) Includes the variable rate assumptions set forth in connection with the MTA Bridges and Tunnels Senior Revenue Bonds, as well as the following variable rate assumptions for debt service on the MTA Bridges and Tunnels Subordinate Revenue Bonds: Series 2000A – D and Series 2002G at their respective swap rates; and Series 2002D and Series 2004A at an assumed variable interest rate of 4% per annum. Due to the effects of volatile conditions in the market affecting all auction rate securities and other variable rate bonds, the recent interest rates to the MTA for these variable rate securities have at times been higher than the assumed 4% rate. However, based on historical averages and mitigating actions taken or actions to be taken by the MTA, MTA continues to believe that its 4% variable rate assumption is reasonable for long term cost calculations. (3) Takes into account the effects during 2008 and 2009 of the cash defeasance. * Debt service will be reduced after May 1, 2008 due to the prior announced redemptions of the MTA Bridges and Tunnels Subordinate Bonds, Subseries 2004A-1 and 2004A-2.

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Sources of Payment

The revenues that are pledged to pay the MTA Bridges and Tunnels Subordinate Revenue Bonds are the same as the revenues that are pledged to pay the MTA Bridges and Tunnels Senior Revenue Bonds. See “MTA BRIDGES AND TUNNELS SENIOR REVENUE BONDS – Sources of Payment” above.

MTA Bridges and Tunnels Subordinate Table 2 sets forth, by MTA Bridges and Tunnels Facility, the amount of revenues for each of the last five years, as well as operating expenses.

MTA Bridges and Tunnels Subordinate Table 2 Historical Revenues, Operating Expenses and Senior and Subordinate Debt Service (in thousands) Years Ended December 31, 2003 2004 2005 2006 2007

Bridge and Tunnel Revenues: Triborough Bridge $ 222,224 $ 247,937 $280,516 $288,301 $285,847 Verrazano-Narrows Bridge 233,482 246,322 267,276 274,100 272,837 Bronx-Whitestone Bridge 175,393 187,231 188,808 186,384 200,076 Throgs Neck Bridge 172,603 184,338 210,242 223,756 217,958 Henry Hudson Bridge 37,744 40,149 43,920 44,901 44,779 Marine Parkway Gil Hodges Memorial Bridge 9,694 10,102 11,234 11,536 11,635 Cross Bay Veterans’ Memorial Bridge 8,993 9,477 10,988 11,630 12,090 Queens Midtown Tunnel 99,994 107,067 121,666 127,075 129,347 Brooklyn-Battery Tunnel 61,810 64,365 70,294 73,868 75,980 Total Bridge and Tunnel Revenues: $1,021,937 $1,096,988 $1,204,944 $1,241,551 $1,250,549

Investment Income and Other(1) 87,743 38,376 60,102 31,603 23,885

Total Revenues $1,109,680 $1,135,364 $1,265,046 $1,273,154 $1,274,434

Net Revenues Available for Debt Service $780,663 $816,149 $921,374 $920,244 $905,409

MTA Bridges and Tunnels Senior Lien Debt Service $206,946 $251,139 $284,462 $300,450 $313,042 Subordinate Bond Fund Investment Earnings $1,720 $1,201 $1,384 $1,963 $1,949 Net Revenues Available for Subordinate Debt Service(3) $575,437 $566,211 $638,296 $621,757 $594,316 Debt Service on Subordinate Revenue Bonds $118,766 $138,257 $150,253 $154,114 $155,233 Total Debt Service (Senior and Subordinate) $325,712 $389,396 $434,715 $454,564 $468,275 Combined Debt Service Coverage Ratio 2.40x 2.10x 2.12x 2.02x 1.93x

(1) Includes the net revenues from the Battery Parking Garage, as well as E-ZPass administrative fees and miscellaneous other revenues. Investment earnings include interest earned on bond funds, including debt service and debt service reserve funds, that were applied to the payment of debt service as follows for the years 2003 through 2007, respectively: $11,863; $4,048; $5,578; $5,044 and $5,334. The amounts set forth in this footnote, as well as all of MTA Bridges and Tunnels Subordinate Table 2, are derived from MTA Bridges and Tunnels’ audited financial statements for the years 2003 through 2007. (2) Excludes depreciation and other post-employment benefits other than pensions. (3) Does not include certain mortgage recording tax revenues that were pledged to the payment of MTA Bridges and Tunnels 1991 Mortgage Recording Tax Special Obligation Bonds that were refunded and defeased.

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The following should be noted in MTA Bridges and Tunnels Subordinate Table 2:

• Bridge and Tunnel Revenues – In 2003, crossing charges were increased effective May 18, 2003. In 2005, crossing charges were increased effective March 13, 2005.

• Operating Expenses—Personnel Costs – The 2002 results reflect certain additional expenses incurred after the terrorist attack to provide additional security at all facilities. The 2003 increase in personnel costs was caused by additional expenditures for security staff, worker’s compensation adjustments and health and welfare benefits rate increases. 2004 personnel costs were marginally lower. The 2005 increase in personnel costs was caused by worker’s compensation and pension cost adjustments. The 2006 increase in personnel costs was caused by increases in salaries and wages, health and welfare, and pension costs. The 2007 increase in personnel costs was caused by increases in salaries and wages and pension costs.

Security – General

MTA Bridges and Tunnels Subordinate Revenue Bonds are special obligations of MTA Bridges and Tunnels payable solely from the trust estate (described below) pledged for the payment of the MTA Bridges and Tunnels Subordinate Revenue Bonds and Parity Debt pursuant to the terms of the MTA Bridges and Tunnels Subordinate Resolution, after the payment of Operating Expenses and after payment of debt service as required by the MTA Bridges and Tunnels Senior Resolution.

MTA Bridges and Tunnels has filed summaries of certain provisions of the MTA Bridges and Tunnels Subordinate Resolution, including certain defined terms used therein, with the NRMSIRS identified under “TRANSPORTATION REVENUE BONDS – Pledged Transportation Revenues,” all of which are incorporated by specific cross-reference herein. In addition, copies of the summaries can be obtained on MTA’s website at www.mta.info/mta/investor/index.html or from the MTA Finance Department at 347 Madison Avenue, New York, New York 10017.

Capitalized terms used under this caption “MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS” not otherwise defined herein have the meanings set forth in the MTA Bridges and Tunnels Subordinate Resolution, except that the term “MTA Bridges and Tunnels” is used herein in place of the definition “TBTA.” So, for example, the term “MTA Bridges and Tunnels Facilities” as used herein is referred to in the MTA Bridges and Tunnels Subordinate Resolution and in the summaries thereof as “TBTA Facilities.”

MTA Bridges and Tunnels Subordinate Revenue Bonds are not a debt of the State or The City of New York, or any local governmental unit. MTA Bridges and Tunnels has no taxing power.

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Pledge Effected by the MTA Bridges and Tunnels Subordinate Resolution

The lien on the trust estate described below created by the MTA Bridges and Tunnels Subordinate Resolution is junior and subordinate to the lien created by the MTA Bridges and Tunnels Senior Resolution.

Pursuant to, and in accordance with, the MTA Bridges and Tunnels Subordinate Resolution, MTA Bridges and Tunnels has pledged to the holders of the MTA Bridges and Tunnels Subordinate Revenue Bonds a “trust estate,” which consists of

• Revenues (after the application of those Revenues as required by the MTA Bridges and Tunnels Senior Resolution, including the payment of Operating Expenses and MTA Bridges and Tunnels Senior Resolution debt service), • the proceeds from the sale of the MTA Bridges and Tunnels Subordinate Revenue Bonds, and • all funds, accounts and subaccounts established by the MTA Bridges and Tunnels Subordinate Resolution (except those established by a supplemental obligation resolution for variable interest rate obligations, put obligations, parity debt, subordinated contract obligations or subordinated debt).

Revenues and Additional Subordinate MTA Bridges and Tunnels Projects

For a discussion of other projects that MTA Bridges and Tunnels is authorized to undertake, see “MTA BRIDGES AND TUNNELS– Authorized Projects of MTA Bridges and Tunnels” in Part 2.

Additional Subordinate MTA Bridges and Tunnels Projects. One or more projects owned or to be owned by MTA Bridges and Tunnels or another Related Entity may become an Additional Subordinate MTA Bridges and Tunnels Project without satisfying any earnings or coverage test if:

• MTA Bridges and Tunnels is authorized to undertake that project, and • the project is designated by MTA Bridges and Tunnels to be an Additional Subordinate MTA Bridges and Tunnels Project.

Upon satisfaction of certain conditions, MTA Bridges and Tunnels is authorized to issue Subordinate Revenue Bonds to fund the Capital Costs of Additional Subordinate MTA Bridges and Tunnels Projects. See “—Additional Subordinate Revenue Bonds” below.

Flow of Revenues

The MTA Bridges and Tunnels Subordinate Resolution establishes the following funds and accounts, each held by MTA Bridges and Tunnels:

• Proceeds Fund, and • Debt Service Fund.

MTA Bridges and Tunnels is required to transfer to the Debt Service Fund under the MTA Bridges and Tunnels Subordinate Resolution, from time to time, but no less frequently than on or before the 25th day of each calendar month, from amounts as shall from time to time be available for transfer from the Revenue Fund under the MTA Bridges and Tunnels Senior Resolution, free and clear of the lien of the MTA Bridges and Tunnels Senior Resolution, the amount, if any, required so that the balance in the fund is equal to Accrued Debt Service to the last day of the current calendar month; provided, however, that in no event shall the amount to be so transferred be less than the amount required for all payment dates occurring prior to the 25th day of the next succeeding calendar month.

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Rate Covenant

MTA Bridges and Tunnels is required at all times to establish, levy, maintain and collect, or cause to be established, levied, maintained and collected, such tolls, rentals and other charges in connection with the MTA Bridges and Tunnels Facilities as shall always be sufficient, together with other money available therefor (including the anticipated receipt of proceeds of sale of Obligations or other bonds, notes or other obligations or evidences of indebtedness of MTA Bridges and Tunnels that will be used to pay the principal of Obligations issued in anticipation of such receipt, but not including any anticipated or actual proceeds from the sale of MTA Bridges and Tunnels Facilities), to equal or exceed in each calendar year the greater of

• an amount equal to the sum of amounts necessary in that calendar year

o to pay all Operating Expenses of MTA Bridges and Tunnels, plus o to pay Calculated Debt Service on all senior lien and subordinate lien bonds and parity debt, plus o to maintain any reserve established by MTA Bridges and Tunnels pursuant to the MTA Bridges and Tunnels Senior Resolution, in such amount as may be determined from time to time by MTA Bridges and Tunnels in its judgment, or

• an amount such that Revenues less Operating Expenses shall equal at least 1.10 times Calculated Debt Service on all senior lien and subordinate lien bonds and parity debt for such calendar year.

For a more complete description of the rate covenant and a description of the minimum tolls that can be charged at the MTA Bridges and Tunnels Facilities, see “SUMMARY OF CERTAIN PROVISIONS OF THE TBTA RESOLUTION – Rates and Fees” and “SUMMARY OF CERTAIN PROVISIONS OF THE SUBORDINATE REVENUE RESOLUTION — Additional Provisions Relating to the Series 2002D and Series 2002E Bonds—Rate Covenant” in the summaries of documents.

Additional Subordinate Revenue Bonds

Under the provisions of the MTA Bridges and Tunnels Subordinate Resolution, MTA Bridges and Tunnels may issue one or more series of Additional Subordinate Revenue Bonds to pay or provide for the payment of all or part of Capital Costs relating to any of the following purposes:

• MTA Bridges and Tunnels Facilities, • MTA Bridges and Tunnels Transit and Commuter Project, or • any Additional Subordinate MTA Bridges and Tunnels Project.

In addition to meeting certain other conditions, all as more fully described in “SUMMARY OF CERTAIN PROVISIONS OF THE SUBORDINATE REVENUE RESOLUTION – Special Provisions for Capital Cost Obligations” in the summaries of documents, an Authorized Officer must certify that the historical Twelve Month Period Net Revenues are at least equal to 1.10 times the Combined Maximum Annual Calculated Debt Service for all MTA Bridges and Tunnels Subordinate Revenue Obligations, subordinate parity debt, MTA Bridges and Tunnels Senior Obligations and senior parity debt.

In addition, MTA Bridges and Tunnels covenants that, prior to the issuance of MTA Bridges and Tunnels Senior Revenue Bonds, an Authorized Officer must certify that the historical Twelve Month Period Net Revenues are at least equal to 1.10 times the Combined Maximum Annual Calculated Debt Service for all MTA Bridges and Tunnels Subordinate Revenue Obligations, subordinate parity debt, MTA Bridges and Tunnels Senior Obligations and senior parity debt. See “SUMMARY OF CERTAIN PROVISIONS OF THE SUBORDINATE REVENUE RESOLUTION — Additional Provisions Relating to the Series 2002D and Series 2002E Bonds—Covenant Regarding Senior Resolution” in the summaries of documents.

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Refunding Subordinate Revenue Bonds

MTA Bridges and Tunnels Subordinate Revenue Bonds may be issued for the purpose of refunding MTA Bridges and Tunnels Subordinate Revenue Bonds, subordinate parity debt, MTA Bridges and Tunnels Senior Revenue Bonds or senior parity debt if

• the Combined Maximum Annual Calculated Debt Service (including the refunding MTA Bridges and Tunnels Subordinate Revenue Bonds then proposed to be issued, but not including the MTA Bridges and Tunnels Subordinate Revenue Bonds, subordinate parity debt, MTA Bridges and Tunnels Senior Revenue Bonds or senior parity debt to be refunded) is equal to or less than the Combined Maximum Annual Calculated Debt Service as calculated immediately prior to the refunding (including the refunded MTA Bridges and Tunnels Subordinate Revenue Bonds, subordinate parity debt, MTA Bridges and Tunnels Senior Revenue Bonds or senior parity debt, but not including the refunding MTA Bridges and Tunnels Subordinate Revenue Bonds), or

• the conditions referred to above under “— Additional Subordinate Revenue Bonds” are satisfied.

For a more complete description of the conditions that must be satisfied before issuing refunding MTA Bridges and Tunnels Subordinate Revenue Bonds, see “SUMMARY OF CERTAIN PROVISIONS OF THE SUBORDINATE RESOLUTION – Refunding Subordinate Revenue Obligations” in the summaries of documents.

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DEDICATED TAX FUND BONDS

There are $3,842,240,000 aggregate principal amount of outstanding Dedicated Tax Fund Bonds. The following DTF Table 1 sets forth, on a cash basis, the debt service thereon as of March 31, 2008.

DTF Table 1 Aggregate Debt Service* (in thousands)

Year Ending Aggregate DTF March 31(1) Debt Service(3) 2009(2) $253,741 2010(2) 202,652 2011 255,888 2012 255,856 2013 255,762 2014 255,824 2015 255,364 2016 255,525 2017 255,825 2018 255,718 2019 255,852 2020 255,465 2021 255,774 2022 255,845 2023 256,071 2024 257,045 2025 257,079 2026 257,180 2027 257,177 2028 257,196 2029 257,319 2030 257,370 2031 257,355 2032 257,417 2033 259,983 2034 116,986 2035 72,362 2036 48,950 2037 26,232 Total $6,620,813

(1) Based on the State’s fiscal year ending March 31.

(2) Assumes interest at a rate of 4.06% per annum on the Series 2002B Bonds until September 1, 2013 based on an interest rate swap relating thereto, and 4.00% thereafter. Assumes interest at a rate of 4.00% per annum on the Series 2004B Bonds and the Series 2004D Bonds. Assumes interest at a rate of 3.3156% per annum on the Series 2005A Bonds based on an interest rate swap relating thereto. Due to the effects of volatile conditions in the market affecting all auction rate securities and other variable rate bonds, the recent interest rates to the MTA for these variable rate securities have at times been higher than the assumed 4% rate. However, based on historical averages and mitigating actions taken or actions to be taken by the MTA, MTA continues to believe that its 4% variable rate assumption is reasonable for long term cost calculations.

(3) Takes into account the effects during the calendar year 2009 of the cash defeasance described under “Recent Developments – MTA Financial Plan Information Updated – Cash Management Actions” in Part I.

* Debt service was reduced due to the prior announced redemption of the Dedicated Tax Fund Variable Rate Bonds, Series 2007A which were redeemed during the week of March 24, 2008 and will be further reduced by May 1 due to the partial redemption of the Dedicated Tax Fund Variable Rate Bonds, Series 2004D.

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Sources of Payment – Revenues from Dedicated Taxes

Under State law, MTA receives money from certain dedicated taxes and fees described in this section. This money is deposited into MTA’s Dedicated Tax Fund and is pledged by MTA for the payment of its Dedicated Tax Fund Bonds.

MTA Revenues from PBT, Motor Fuel Tax and Motor Vehicle Fees (MTTF Receipts). In 1991, as part of a program to address the need for continued capital investment in the State’s transportation infrastructure, the State Legislature established a State fund, called the PBT Dedicated Tax Funds Pool, from which money is apportioned by statutory allocation under current State Tax Law to a State fund, called the Dedicated Mass Transportation Trust Fund (MTTF). Currently, portions of the following taxes and fees are deposited into the PBT Dedicated Tax Funds Pool, of which 34% is allocated to the MTTF for the benefit of MTA:

• A group of business privilege taxes imposed on petroleum businesses operating in the State (the “PBT Taxes”), generally consisting of o a basic tax that varies based on product type, o a supplemental tax which, in general, is applied at a uniform rate, and o a petroleum business carrier tax.

A significant portion (currently, 80.3%) of net PBT receipts from the basic tax and all of the supplemental tax and the carrier tax are required by current law to be deposited in the PBT Dedicated Funds Pool.

• Motor fuel taxes on gasoline and diesel fuel.

• Certain motor vehicle fees administered by the State Department of Motor Vehicles, including both registration and non-registration fees. Effective October 1, 2005, certain registration and non-registration fees were increased.

Thirty-four percent (34%) of the PBT Dedicated Funds Pool is currently deposited in the MTTF for MTA’s benefit. Subject to appropriation by the State Legislature, money in that account is required by law to be transferred to the MTA Dedicated Tax Fund, held by MTA. Amounts transferred from the MTTF Account to the MTA’s Dedicated Tax Fund constitute “MTTF Receipts.”

A more detailed description of the MTTF Receipts is set forth herein under the following headings herein:

• MTTF Receipts – Dedicated Petroleum Business Tax, • MTTF Receipts – Motor Fuel Tax, and • MTTF Receipts – Motor Vehicle Fees.

MTA Revenues from Special Tax-Supported Operating Subsidies (MMTOA Receipts). Like other mass transit systems in the nation, the Transit System and Commuter System have historically operated at a deficit and have been dependent upon substantial amounts of general operating subsidies from the State, as well as the City and Federal governments. Over time, the ongoing needs of State mass transportation systems led the State to supplement the general operating subsidies with additional operating subsidies supported by special State taxes.

Starting in 1980, in response to anticipated operating deficits of State mass transit systems, the State Legislature enacted a series of taxes, portions of the proceeds of which have been and are to be deposited in a special State Fund – the Mass Transportation Operating Assistance Fund - to fund the operations of mass transportation systems. The Metropolitan Mass Transportation Operating Assistance Account, or MMTOA Account, was established in that State Fund to support operating expenses of transportation systems in the MTA Commuter Transportation District, including MTA New York City Transit, MaBSTOA and the commuter railroads operated by MTA’s subsidiaries, MTA Long Island Rail Road and MTA Metro-North Railroad. After payment of Section 18-b general operating assistance to the various transportation systems, MTA gets approximately 86% of the moneys deposited into the MMTOA Account, with the remaining 14% available to other transportation properties within the MTA Commuter Transportation District, such as MTA Long Island Bus and MTA Bus, which currently operates the routes formerly operated by the City private franchise bus lines.

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Since the creation of the MMTOA Account, MTA has requested and received in each year significant payments from that Account in order to meet operating expenses of the Transit and Commuter Systems. It is expected that payments from the MMTOA Account will continue to be essential to the operations of the Transit and Commuter Systems. Although a variety of taxes have been used to fund the special tax-supported operating subsidies, the taxes levied for this purpose, which MTA refers to collectively as the “MMTOA Taxes,” currently include:

• MMTOA PBT. The products that are subject to the tax, the tax rates, and the transactions excluded from the tax are identical to those of the basic PBT tax dedicated to the PBT Dedicated Funds Pool and the MTTF Account in that Pool. Pursuant to State law, of the remaining 19.7% of the PBT Basic Tax that is not deposited into the PBT Dedicated Funds Pool, 55% (or 10.835% of the PBT Basic Tax collections) is deposited in the MMTOA Account.

• District Sales Tax. The District Sales Tax consists of a 0.375 percent sales and compensating use tax imposed on sales and uses of certain tangible personal property and services applicable only within the MTA Commuter Transportation District.

• Franchise Taxes. Also deposited in the MMTOA Account is a legislatively-allocated portion of two taxes imposed on certain transportation and transmission companies (such as trucking, telegraph and local telephone companies) —

o an annual franchise tax based on the amount of the taxpayer’s issued capital stock, and o an annual franchise tax on the taxpayer’s gross earnings from all sources calculated to be in the State pursuant to statutory formulae.

• Temporary Franchise Surcharge. The Temporary Franchise Surcharge is imposed on the portion of the franchise and other taxes of certain corporations, banks and insurance, utility, transportation and transmission companies attributable (according to various complex formulae) to business activity carried on within the MTA Commuter Transportation District. In accordance with State Tax Law, the tax revenue generated under these provisions, after the deduction of administrative costs, is to be deposited to the MMTOA Account, as taxes are received.

In order to assist MTA in balancing its budgets for calendar year 2002, the State advanced the payment of a fifth quarter of MMTOA Receipts scheduled for the first quarter of calendar year 2003 into the fourth quarter of calendar year 2002 (approximately $231.6 million). Currently, MTA receives the equivalent of four quarters of MMTOA Receipts each year, with the first quarter of each succeeding calendar year’s receipts similarly advanced. This results in little or no MMTOA Receipts being received during the first quarter of each calendar year; MTA has made other provisions to provide for cash liquidity during this period. There has been no change in the timing of the State’s payment of, or MTA’s receipt of, MTTF Receipts, and MTA anticipates that such receipts will be sufficient to make required monthly principal and interest deposits into the Debt Service Fund.

A more detailed description of the MMTOA Taxes is set forth herein under the heading “– MMTOA Account – Special Tax Supported Operating Subsidies.”

Five-Year Summary of MTTF Receipts and MMTOA Receipts. DTF Table 2 sets forth a five-year summary (based on the State’s fiscal year ending March 31) of the following:

• actual collections by the State of receipts for each of the sources of revenues that, subject to appropriation and allocation among MTA and other non-MTA transit agencies, could become receipts of the MTA Dedicated Tax Fund, • amount of MTTF Receipts and MMTOA Receipts, and • debt service coverage ratio based upon MTTF Receipts, and MTTF Receipts plus MMTOA Receipts.

The information in the following DTF Table 2 relating to MTTF Receipts and MMTOA Receipts was provided by the New York State Division of the Budget and the remaining information was provided by MTA.

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Table 2 Summary of MTTF Receipts and MMTOA Receipts State Fiscal Year ending March 31, Dedicated Taxes ($ millions) 2004 2005 2006 2007 2008 MTTF PBT $ 313.2 $ 323.1 $ 340.8 $ 325.9 $ 345.8 Motor Fuel Tax 96.6 101.4 101.9 98.9 101.4 Motor Vehicle Fees(1) 96.1 126.6 145.9 170.6 164.5 Total Available MTTF Taxes(2) $ 505.9 $ 551.1 $ 588.6 $ 595.4 $ 611.7 MTTF Receipts(3) $ 495.2 $ 559.7 $ 569.3 $ 608.9 $ 613.4

MMTOA PBT $ 72.2 $ 74.2 $ 78.8 $ 72.5 $ 76.0 District Sales Tax(4) 399.3 428.9 603.1 688.1 716.5 Franchise Taxes 57.4 64.5 73.6 68.4 60.3 Temporary Franchise Surcharges(5) 484.2 571.4 766.2 962.3 982.5 Total Available MMTOA Taxes(6) $1,013.1 $1,139.0 $1,521.7 $1,791.3 $1,835.3 MMTOA Receipts(7) $ 730.9 $ 736.4 $1,146.7(8) $1,069.2(8) 1,525.9

Total Pledged Revenues (MTTF Receipts plus MMTOA Receipts) $1,226.1 $1,296.1 $1,516.0(8) $1,878.1(8) $2,139.3

Debt Service $ 141.9 $ 156.8 $ 195.4 $ 231.4 $263.8 Debt Service Coverage Ratio – MTTF Receipts Only 3.49x 3.57x 2.91x 2.63x 2.33x Debt Service Coverage Ratio – MTTF Receipts plus MMTOA Receipts 8.64x 8.27x 7.76x(8) 8.12x(8) 8.11x

(1) Beginning on April 1, 2005, all remaining General Fund revenues derived from motor vehicle fees were moved to the Dedicated Funds Pool. In accordance with the 2005-06 Enacted Budget, additional motor vehicle fees were deposited into the Dedicated Funds Pool beginning on October 1, 2005. (2) Represents the amount of MTTF taxes collected by the State that was deposited into the MTTF. (3) Represents the amount in the MTTF that was, subject to appropriation, paid to MTA by deposit into the MTA Dedicated Tax Fund, thereby becoming MTTF Receipts. The amount of MTTF Receipts in any State fiscal year could be greater than the amount collected for deposit into the MTTF due to, among other things, investment earnings or surplus amounts retained in the MTTF that were not paid out in prior years. (4) The district sales tax was increased from 1/4 % to 3/8% effective June 1, 2005. (5) For 2006, 2007 and 2008, includes certain non-recurring amounts related to increased audit activities. (6) Represents the amount of MMTOA taxes collected by the State that was deposited into the MMTOA Account. Amounts in the MMTOA Account are available, subject to appropriation, to pay operating expenses of the various public transportation systems throughout the MTA Commuter Transportation District, including MTA. (7) Represents the amount in the MMTOA Account that was, subject to appropriation, requested by, and paid to, MTA for deposit into the MTA Dedicated Tax Fund, thereby becoming MMTOA Receipts. The difference between Total Available MMTOA Taxes and MMTOA Receipts generally represents the amount appropriated for operating expenses of the various non-MTA systems in the MTA Commuter Transportation District, as well as the amounts appropriated to MTA and other transportation agencies, primarily in accordance with the Section 18-b Program as described in this Appendix A under the caption “REVENUES OF THE RELATED ENTITIES – State and Local General Operating Subsidies.” (8) At the end of the State’s 2005-06 fiscal year, the State accelerated the payment of $200 million of MMTOA Receipts to the MTA in the following manner: it increased appropriations from levels enacted in that fiscal year and upon payment within that fiscal year, required that appropriations that were recommended and subsequently enacted in the State’s 2006-07 fiscal year be commensurately reduced. This money is not additional money to MTA since it is received in the same calendar year as originally expected. Total Pledged Revenues for 2006 does not include this $200 million and, consequently, the Debt Service Coverage Ratios reflected above for 2006 also exclude the effect of this $200 million advance. Total Pledged Revenues for 2007 does include this $200 million and, consequently, the Debt Service Coverage Ratios reflected above for 2007 are calculated as if this $200 million advance had not occurred.

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Factors Affecting Revenues from Dedicated Taxes

Legislative Changes. The requirement that the State pay MTA Dedicated Tax Fund Revenues to the MTA Dedicated Tax Fund is subject to and dependent upon annual appropriations being made by the State Legislature for such purpose and the availability of moneys to fund such appropriations. The State Legislature is not obligated to make appropriations to fund the MTA Dedicated Tax Fund, and there can be no assurance that the State Legislature will make any such appropriation. The State is not restricted in its right to amend, repeal, modify or otherwise alter statutes imposing or relating to the MTA Dedicated Tax Fund Revenues or the taxes or appropriations that are the source of such Revenues.

In late 2005, MTA proposed legislation which would have provided for the creation of an additional bonding program secured solely or primarily by the additional 1/8 of one percent of district sales tax which was imposed effective June 1, 2005. Such legislation was not enacted. In connection with the financing of the 2005-2009 MTA Capital Program or future capital programs, MTA may propose similar legislation or other legislation affecting components of the taxes currently securing MTA Dedicated Tax Fund Bonds.

Litigation. Aspects relating to the imposition and collection of the Dedicated Taxes have from time to time been and may continue to be the subject of administrative claims and litigation by taxpayers.

Economic Conditions. Many of the Dedicated Taxes are dependent upon economic and demographic conditions in the State and in the MTA Commuter Transportation District, and therefore there can be no assurance that historical data with respect to collections of the Dedicated Taxes will be indicative of future receipts.

Government Assistance. The level of government assistance to MTA through Dedicated Taxes may be affected by different factors, two of which are as follows:

• The State Legislature may not bind or obligate itself to appropriate revenues during a future legislative session, and appropriations approved during a particular legislative session generally have no force or effect after the close of the State fiscal year for which the appropriations are made. However, in the case of the PBT that is deposited as a portion of the MTTF Receipts, the State Legislature has expressed its intent in the State Finance Law to enact for each State fiscal year an appropriation for the current and the next year. See the heading “— Appropriation by the Legislature” below.

• The State is not bound or obligated to continue to pay operating subsidies to the Transit or Commuter System or to continue to impose any of the taxes currently funding those subsidies.

Security – General

The Dedicated Tax Fund Bonds are MTA’s special obligations payable as to principal, redemption premium, if any, and interest solely from the security, sources of payment and funds specified in the DTF Resolution. Payment of principal of or interest on the Dedicated Tax Fund Bonds may not be accelerated in the event of a default.

Dedicated Tax Fund Bonds are secured primarily by the SOURCES OF PAYMENT described above, and are not secured by

• the general fund or other funds and revenues of the State, or • the other funds and revenues of MTA or any of its affiliates or subsidiaries.

The Bonds are not a debt of the State or The City of New York, or any other local governmental unit. MTA has no taxing power.

MTA has filed summaries of certain provisions of the DTF Resolution, including certain defined terms used therein, with the NRMSIRS identified under “TRANSPORTATION REVENUE BONDS – General.” In addition, copies of the summaries can be obtained on MTA’s website at www.mta.info/mta/investor/index.html or from the MTA Finance Department at 347 Madison Avenue, New York, New York 10017.

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Capitalized terms used under this caption “DEDICATED TAX FUND BONDS” not otherwise defined herein have the meanings set forth in the DTF Resolution.

Pledge Effected by the DTF Resolution

Trust Estate. The DTF Resolution provides that there are pledged to the payment of principal and redemption premium of, interest on, and sinking fund installments for, the Dedicated Tax Fund Bonds and Parity Debt, in accordance with their terms and the provisions of the DTF Resolution, subject only to the provisions permitting the application of that money for the purposes and on the terms and conditions permitted in the DTF Resolution, the following, referred to as the “trust estate”:

• the proceeds of the sale of the Dedicated Tax Fund Bonds, until those proceeds are paid out for an authorized purpose, • the Pledged Amounts Account in the MTA Dedicated Tax Fund (which includes MTTF Receipts and MMTOA Receipts), any money on deposit in that Account and any money received and held by MTA and required to be deposited in that Account, and • all funds, accounts and subaccounts established by the DTF Resolution (except funds, accounts and subaccounts established pursuant to Supplemental Resolution, and excluded by such Supplemental Resolution from the Trust Estate as security for all Dedicated Tax Fund Bonds, in connection with Variable Interest Rate Obligations, Put Obligations, Parity Debt, Subordinated Indebtedness or Subordinated Contract Obligations), including the investments, if any, thereof.

The DTF Resolution provides that the trust estate is and will be free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge created by the DTF Resolution, and all corporate action on the part of MTA to that end has been duly and validly taken.

Flow of Funds

The DTF Resolution establishes a Proceeds Fund held by MTA, and a Debt Service Fund held by the Trustee. See the summaries of documents for a description of the provisions of the DTF Resolution governing the deposits to and withdrawals from the Funds and Accounts. Amounts held by MTA or the Trustee in any of such Funds shall be held in trust separate and apart from all other funds and applied solely for the purposes specified in the DTF Resolution or any Supplemental Resolution thereto.

The following two charts summarize (i) the flow of taxes into the MTA Dedicated Tax Fund, and (ii) the flow of MTA Dedicated Tax Fund Revenues through the MTA Dedicated Tax Fund and the Funds and Accounts established under the DTF Resolution.

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MTA DEDICATED TAX FUND BONDS – SOURCES OF REVENUE (through March 31, 2009(1))

Dedicated Funds Pool Metropolitan Mass Transportation Operating • Petroleum Business Tax Assistance Account ° Carrier Tax (100%) (MMTOA) ° Basic Tax ($7.5 million) ° Remaining Basic Tax (80.3%) • Petroleum Business Tax ° Supplemental Tax (100%) ° Remaining Basic Tax (10.835%)(3) • Motor Fuel Tax ° Gasoline Tax (4.00¢) • 3/8% District Sales Tax (100%) ° Diesel Tax (8.00¢) • Franchise Tax (80%) (2) • Motor Vehicle Fees • Temporary Franchise Surcharge (100%) ° Registration Fees (54.5%)

° Certain Non-Registration Fees

37%

Dedicated Mass Transportation Trust Fund (MTTF)

(4) (5) 34% 86.86%

----Subject to appropriation---- by Legislature

MTA Dedicated Tax Fund

MTTF MMTOA Receipts Receipts

Available for Debt Service

Notes (1) Parenthetical amounts and percentages, as well as flow of fund percentages, indicate the amount or percent of that tax or fund deposited for the year ending March 31, 2009 in the respective fund or account. The allocations shown may be changed at any time by the State Legislature. (2) Includes the additional Motor Vehicle Fees deposited into the Dedicated Funds Pool from time to time. (3) The foregoing percentage does not include the 8.865% share of the Basic Tax that is deposited in an account for certain upstate transportation entities. (4) Percentage of Dedicated Funds Pool. (5) Percentage based upon appropriations in the Enacted Budget for State Fiscal Year 2008-09.

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MTA DEDICATED TAX FUND BONDS – RESOLUTION FLOW OF FUNDS

MTA Dedicated Tax Fund Pledged Amounts Account MTTF MTTF Receipts MMTOA Receipts MMTOA Receipts Receipts

Debt Service Fund

MTTF Receipts MMTOA Receipts Debt Service Account Debt Service Account

Subordinated Indebtedness and Subordinated Contract Obligations

MTA Dedicated Tax Fund Operating and Capital Costs Account

Normal Contingent Flow

All amounts on deposit in the Pledged Amounts Account – MTTF Receipts Subaccount are paid out before any amounts on deposit in the Pledged Amounts Account – MMTOA Receipts Subaccount are paid out.

Amounts paid out from any fund or account for an authorized purpose (excluding transfers to any other pledged fund or account) are free and clear of the lien and pledge created by the DTF Resolution.

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Debt Service Fund

Pursuant to the DTF Resolution, the Trustee holds the Debt Service Fund, consisting of the MTTF Receipts DS Account and the MMTOA Receipts DS Account. Moneys in the Debt Service Fund are applied by the Trustee to the payment of Debt Service on the Dedicated Tax Fund Bonds in the manner, and from the accounts and subaccounts, more fully described under “SUMMARY OF CERTAIN PROVISIONS OF THE DTF RESOLUTION – Debt Service Fund” in the summaries of documents.

MTA is required to make monthly deposits to the appropriate account of the Debt Service Fund of interest (1/5th of the next semiannual payment) and principal (1/10th of the next annual payment), first from MTTF Receipts and then, to the extent of any deficiency, from MMTOA Receipts.

Covenants

Additional Bonds. The DTF Resolution permits MTA to issue additional Dedicated Tax Fund Bonds from time to time to pay or provide for the payment of Capital Costs and to refund outstanding Dedicated Tax Fund Bonds.

Under the DTF Resolution, MTA may issue one or more Series of Dedicated Tax Fund Bonds for the payment of Capital Costs, provided, in addition to satisfying certain other requirements, MTA delivers a certificate that evidences MTA’s compliance with the additional bonds test set forth in the DTF Resolution.

Such certificate must set forth:

(A) for any 12 consecutive calendar months ended not more than six months prior to the date of such certificate: (i) MTTF Receipts, (ii) MMTOA Receipts, and (iii) investment income received during such period on amounts on deposit in the Pledged Amounts Account, the MTTF Receipts Subaccount, the MMTOA Receipts Subaccount and the Debt Service Fund; and

(B) the greatest amount for the then current or any future Debt Service Year of the sum of (a) Calculated Debt Service on all Outstanding Dedicated Tax Fund Obligations, including the proposed Capital Cost Obligations and any proposed Refunding Obligations being treated as Capital Cost Obligations, but excluding any Obligations or Parity Debt to be refunded with the proceeds of such Refunding Obligations, plus (b) additional amounts, if any, payable with respect to Parity Debt; and then state:

(x) that the sum of the MTTF Receipts and investment income (other than investment income on the MMTOA Receipts Subaccount) set forth in clause (A) above is not less than 1.35 times the amount set forth in accordance with clause (B) above and

(y) that the sum of the MTTF Receipts, MMTOA Receipts and investment income set forth in clause (A) above is not less than 2.5 times the amount set forth in clause (B) above.

See “SUMMARY OF CERTAIN PROVISIONS OF THE DTF RESOLUTION—Special Provisions for Capital Cost Obligations” in the summaries of documents for a description of further provisions which apply to the additional bonds test if the percentage of available existing taxes deposited into the MTA Dedicated Tax Fund is increased or additional taxes are added to the amounts so deposited.

For a discussion of the requirements relating to the issuance of Refunding Dedicated Tax Fund Bonds, see “SUMMARY OF CERTAIN PROVISIONS OF THE DTF RESOLUTION—Special Provisions for Refunding Obligations” in the summaries of documents.

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Parity Debt

MTA may incur Parity Debt pursuant to the terms of the DTF Resolution that, subject to certain exceptions, would be secured by a pledge of, and a lien on, the Trust Estate on a parity with the lien created by the DTF Resolution with respect to Dedicated Tax Fund Bonds. Parity Debt may be incurred in the form of a Parity Reimbursement Obligation, a Parity Swap Obligation or any other contract, agreement or other obligation of MTA designated as constituting “Parity Debt” in a certificate of an Authorized Officer delivered to the Trustee.

Appropriation by the State Legislature

The State Constitution provides that the State may not expend money without an appropriation, except for the payment of debt service on general obligation bonds or notes issued by the State. An appropriation is an authorization approved by the State Legislature to expend money. The State Constitution requires all appropriations of State funds, including funds in the MTTF and MMTOA Account, to be approved by the State Legislature at least every two years. In addition, the State Finance Law provides, except as described below, that appropriations shall cease to have force and effect, except as to liabilities incurred thereunder, at the close of the State Fiscal Year for which they were enacted and that to the extent of liabilities incurred thereunder, such appropriations shall lapse on the succeeding June 30th or September 15th, depending upon the nature of the appropriation. The State Legislature may not be bound in advance to make any appropriation, and there can be no assurances that the State Legislature will appropriate the necessary funds as anticipated. MTA expects that the State Legislature will make appropriations from amounts on deposit in the MTTF and MMTOA Account in order to make payments when due.

The State Legislature has expressed its intent in the State Finance Law to enact for each State Fiscal Year in the future in an annual budget bill an appropriation from the MTTF (with respect to the PBT portion only) to the MTA Dedicated Tax Fund for the then current State Fiscal Year and an appropriation of the amounts projected by the Director of the Budget to be deposited in the MTA Dedicated Tax Fund from the MTTF (with respect to the PBT portion only) for the next succeeding State Fiscal Year. In any State Fiscal Year, if the Governor fails to submit or if the State Legislature fails to enact a current year appropriation from the MTTF (with respect to the PBT portion) to the MTA Dedicated Tax Fund, MTA is required to notify the State of amounts required to be disbursed from the appropriation made during the preceding State Fiscal Year for payment in the current State Fiscal Year. The State Comptroller may not make any payments from the MTTF to the MTA Dedicated Tax Fund from such prior year appropriation prior to May 1st of the current State Fiscal Year. Until such time as payments pursuant to such appropriation are made in full, revenues in the MTTF shall not be paid over to any entity other than MTA.

In order to reduce the risk that the State Legislature may fail to make an annual appropriation or that such appropriation may be delayed to the MTA Dedicated Tax Fund, the adopted State budget for 2008-09 includes two appropriations from the MTTF to the MTA Dedicated Tax Fund. One such appropriation is for the State Fiscal Year that ends March 31, 2009 and the other such appropriation is for the succeeding State Fiscal Year that ends March 31, 2010. The appropriation for the 2008-09 State Fiscal Year took effect on April 1, 2008. MTA has periodically availed itself of such prior year’s appropriation to meet operating costs in response to delays in the adoption of the State budget in such years.

A budgetary imbalance in the present or any future State Fiscal Year could affect the ability and willingness of the State Legislature to appropriate and the availability of moneys to make the payments from the MTTF and the MMTOA Account. However, MTA believes that any failure by the State Legislature to make appropriations as contemplated would have a serious impact on the ability of the State and its public benefit corporations to raise funds in the public credit markets.

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Agreement of the State

The MTA Act prohibits MTA from filing a petition in bankruptcy under Chapter 9 of the Federal Bankruptcy Code or such successor chapters or sections as may from time to time be in effect and the State has pledged that so long as any notes, bonds or lease obligations of the MTA are outstanding, it will not limit or alter the denial of authority to MTA to so file.

Under the MTA Act, the State pledges to and agrees with the holders of any notes, bonds or lease obligations issued or incurred by the MTA, including the Dedicated Tax Fund Bonds, that the State will not limit or alter the rights vested in the MTA to fulfill the terms of any agreements made by the MTA with the holders of its notes, bonds and lease obligations, including the Dedicated Tax Fund Bonds, or in any way impair the rights and remedies of such holders. Notwithstanding the foregoing, in accordance with State law, nothing in the DTF Resolution shall be deemed to restrict the right of the State to amend, repeal, modify or otherwise alter statutes imposing or relating to the MTA Dedicated Tax Fund Revenues or the taxes or appropriations which are the source of such Revenues. No default under the DTF Resolution would occur solely as a result of the State exercising its right to amend, repeal, modify or otherwise alter such taxes or appropriations.

MTTF Receipts – Dedicated Petroleum Business Tax

General. The PBT is the business privilege tax, which includes both a base tax and a supplemental tax, imposed on petroleum businesses operating in the State. The base of the PBT is the quantity of various petroleum products refined or sold in the State or imported into the State for sale or use therein.

Tax Rates. The basic and supplemental PBT tax rates are subject to separately computed annual adjustments on January 1 of each year, to reflect the change in the Producer Price Index (“PPI”) for refined petroleum products for the 12 months ended August 31 of the immediately preceding year. The tax rates, therefore, increase as prices rise and decrease as prices fall. Current legislation provides that the PBT rates would be adjusted annually subject to a maximum change of five percent of the current rate in any year. In addition to the five percent cap on rate changes, the statute also requires basic and supplemental rates to be rounded to the nearest tenth of one cent. Subsequent legislation provided that diesel rates be rounded to the nearest hundredth of one cent. As a result, the tax rates usually do not change by the full five percent allowed under the statutory formula.

The table below shows the changes in the PPI for refined petroleum products and the capped PBT index change over the last ten years.

Petroleum Business Tax Index Change (percent) Year for PPI Change PPI for Refined PBT Index (September 1 Petroleum Year for Change to August 31) Products Change PBT Index (January 1) 1998-99 -7.85 2000 -5.00 1999-2000 55.84 2001 5.00 2000-01 13.08 2002 5.00 2001-02 -19.51 2003 -5.00 2002-03 27.01 2004 5.00 2003-04 12.94 2005 5.00 2004-05 35.10 2006 5.00 2005-06 36.01 2007 5.00 2006-07 -1.20 2008 -1.20 2007-08(a) 24.70 2009(a) 5.00 ______(a) Estimated. Source: New York State Division of the Budget.

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The table below shows the rates per gallon for the PBT in effect for 2007 and 2008 and estimated rates for 2009, respectively.

PETROLEUM BUSINESS TAX RATES FOR 2007 AND 2008 AND ESTIMATED RATES FOR 2009 (cents per gallon) 2007 2008 Estimated 2009* Petroleum Products Base Supp Total Base Supp Total Base Supp Total Automotive Fuel Gasoline and other Non-diesel fuels 10.00 6.60 16.60 9.90 6.50 16.40 10.30 6.80 17.10 Diesel 10.00 4.85 14.85 9.90 4.75 14.65 10.30 5.05 15.35

Aviation gasoline 10.00 6.60 16.60 9.90 6.50 16.40 10.30 6.80 17.10 Net rate after credit 6.60 0.00 6.60 6.50 0.00 6.50 6.80 0.00 6.80

Kero-jet fuel 6.60 0.00 6.60 6.50 0.00 6.50 6.80 0.00 6.80

Non-automotive diesel fuels 9.00 6.60 15.60 8.90 6.50 15.40 9.30 6.80 16.10 Commercial gallonage after credit 9.00 0.00 9.00 8.90 0.00 8.90 9.30 0.00 9.30 Nonresidential heating after credit 4.90 0.00 4.90 4.80 0.00 4.80 5.00 0.00 5.00

Residual petroleum products 6.90 6.60 13.50 6.80 6.50 13.30 7.10 6.80 13.90 Commercial gallonage after credit 6.90 0.00 6.90 6.80 0.00 6.80 7.10 0.00 7.10 Nonresidential heating after credit 3.70 0.00 3.70 3.70 0.00 3.70 3.80 0.00 3.80

Railroad diesel fuel 10.00 4.85 14.85 9.90 4.75 14.65 10.30 5.05 15.35 Net rate after exemption/refund 8.70 0.00 8.70 8.60 0.00 8.50 9.00 0.00 9.00

______*Estimated – An estimated fuel price increase of 24.70% through August 2008 will result in an increase of 5.0% in the PBT index on January 1, 2009.

Source: New York State Division of the Budget.

Tax Base. Generally, transactions that are excluded from the basic PBT base are also excluded from the supplemental tax base. Exemptions include sales for export from the State, sales of fuel oil for residential heating purposes and manufacturing use, and sales to government entities when such entities buy petroleum for their own use. Sales of kerosene (other than kero-jet fuel) and liquefied petroleum gas and sales of residual fuel oil used as bunker fuel also are exempted. Regulated electric utilities that use petroleum to generate electricity obtain credits or reimbursements to offset a portion of the basic tax. These utilities receive no credit or reimbursement with respect to the supplemental tax.

The State also imposes a petroleum business carrier tax under the PBT on fuel purchased by motor carriers outside the State but consumed within the State. The carrier tax rates are the same as the PBT automotive gasoline and diesel rates listed above.

Legislative Changes. The Legislature has, from time to time, changed the percentage of the PBT basic tax which is available for distribution to the Dedicated Funds Pool. The percentage of the Dedicated Funds Pool which is, subject to appropriation, deposited in the MTA Dedicated Tax Fund has remained constant at 34 percent. The changes in the percentage of the PBT basic tax which is available for distribution to the Dedicated Funds Pool have been designed to be, and were, revenue neutral to the Dedicated Funds Pool.

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Legislation enacted in 1996, effective January 1, 1998, expanded the partial exemption provided for residual and distillate fuels used in manufacturing to a full exemption. In addition, such legislation provided: (i) rate reductions for diesel motor fuel used by motor vehicles, phased in on January 1, 1998 and April 1, 1999; (ii) a full exemption from the supplemental tax imposed on residual and distillate fuels used by the commercial sector for heating, effective March 1, 1997; (iii) a partial reduction in the basic tax and a full exemption from the supplemental tax imposed on diesel motor fuel used by railroads, effective January 1, 1997; and (iv) an increase in the credit against the basic tax for residual and distillate fuels used by utilities, effective April 1, 1999. Where applicable, the new rate structure maintains indexing by allowing the rates to be adjusted by the index and then subsequently reducing such rate, or increasing such credit, by a fixed cents per gallon rate. To preserve dedicated funds revenue flows, the 1996 legislation also increased the share of the basic tax going to the Dedicated Funds Pool from 63.3 percent to 66.2 percent, effective January 1, 1997; from 66.2 percent to 68.1 percent, effective January 1, 1998; and from 68.1 percent to 69.8 percent, effective April 1, 1999.

Legislation enacted in 1999 reduced the PBT rate on commercial heating oil by 20 percent and provided for reimbursement of PBT tax imposed on fuels used for mining and extraction, effective April 1, 2001. To preserve dedicated funds revenue flows, the 1999 legislation increased the share of the basic tax going to the Dedicated Funds Pool from 69.8 percent to 70.5 percent, effective April 1, 2001. Like the aforementioned changes made in 1996, these changes were designed to be revenue-neutral to the Dedicated Funds Pool.

Legislation adopted with the 2000-01 State Enacted Budget eliminated the PBT minimum taxes, effective March 1, 2001, and reduced the PBT rate on commercial heating oil by 33 percent, effective September 1, 2002. To save the Dedicated Funds Pool harmless from these tax cuts, the legislation earmarked certain motor vehicle registration fees to the Dedicated Funds Pool (see “MTTF Receipts – Motor Vehicle Fees” below). Legislation adopted with the 2000-01 State Enacted Budget and effective April 1, 2001, also increased revenues flowing to the Dedicated Funds Pool by earmarking $7.5 million of the PBT basic tax, which had been directed to the State General Fund, to the Dedicated Funds Pool; increasing the percentage of the remaining basic tax receipts earmarked to the Dedicated Tax Funds Pool from 70.5 percent to 80.3 percent; and depositing receipts from the PBT carrier tax to the Dedicated Tax Funds Pool.

Legislation enacted in 2004 eliminated the PBT on fuels used for aircraft overflight and landing, effective November 1, 2004, and exempted fuel burned on takeoff by airlines operating non-stop flights between at least four cities in the State. The financial impact to the MTTF and MMTOA funds is minimal.

Legislation adopted with the 2005-06 State Enacted Budget required the collection of PBT on sales to non-Native Americans on New York reservations.

Legislation adopted with the 2006-07 State Enacted Budget exempted or partially exempted PBT on certain alternative fuels. The financial impact to the MTTF and MMTOA funds is minimal.

Legislation adopted with the 2007-08 State Enacted Budget included a package of business tax loophole closers; however, the impact on the receipts of the MTTF funds is minimal.

Tax Imposition and Payment. Imposition of the tax occurs at different points in the distribution chain, depending upon the type of product. The tax is imposed on motor fuels at the same time as the eight-cent- per-gallon motor fuel tax. Gasoline, which represents the preponderance of automotive fuel sales in the State, is taxed upon importation into the State for sale or upon manufacture in the State. Other non-diesel automotive fuels such as compressed natural gas, methanol and ethanol become subject to the tax on their first sale as motor fuel in the State. Automotive diesel motor fuel becomes taxed upon its first non-exempt sale or use in the State. Nonautomotive diesel fuel (such as No. 2 fuel oil used for commercial heating) and residual fuel usually become taxable on the sale to the consumer or upon use of the product in the State.

Most petroleum businesses remit this tax on a monthly basis. Taxpayers with yearly motor fuel tax and PBT liability totaling more than $5 million now remit tax for the first 22 days of the month by electronic

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funds transfer by the third business day thereafter. Tax for the balance of the month is paid with the monthly returns filed by the 20th of the following month. The Department of Taxation and Finance advises that, in State Fiscal Year 2006-07, 38 taxpayers, accounting for almost 95 percent of all PBT receipts, participated in the electronic funds transfer program.

Aspects relating to the imposition and collection of the PBT have from time to time been and may continue to be the subject of administrative claims and litigation by taxpayers.

Historical Summary of PBT Revenue

The following table provides historical information for the last ten years on the basic PBT and the supplemental PBT, the major funding source for the MTTF.

Basic and Supplemental PBT Collections (in millions) State State Fiscal Year Basic PBT Supplemental PBT Fiscal Year Basic PBT Supplemental PBT 1998-99 $ 602.0 $ 409.9 2003-04 $ 674.2 $ 358.3 1999-00 587.2 398.0 2004-05 692.3 370.9 2000-01 562.4 389.3 2005-06 735.0 389.3 2001-02 635.7 347.4 2006-07 676.2 391.9 2002-03 618.9 384.5 2007-08 709.0 423.2 Source: New York State Department of Taxation and Finance.

The healthy economy and low fuel prices produced an increase in New York State gasoline consumption of nearly three percent and diesel consumption of more than eight percent in State Fiscal Year 1998-99. The consumption of residual fuel for utilities grew dramatically in State Fiscal Year 1998-99 due to lower residual fuel prices relative to natural gas. PBT receipts for State Fiscal Year 1998-99 also reflect the annual indexing provisions that increased the 1997 rates by up to 5 percent on January 1, 1998 and that decreased the 1998 rates by up to 5 percent on January 1, 1999.

Continued economic growth contributed to an increase in New York State motor gasoline and diesel consumption in State Fiscal Year 1999-2000. Consumption growth would have likely been even greater, absent higher fuel prices. Collections also reflect the annual indexing provisions that reduced PBT tax rates by up to 5 percent on January 1, 1999 and January 1, 2000. PBT receipts in 1999-2000 also reflect the impact of legislation enacted in 1996 that reduced tax rates on diesel motor fuel and fuels used for utilities, effective April 1, 1999.

Tax receipts in State Fiscal Year 2000-01 were $16.4 million less than State Fiscal Year 1999-2000 mainly due to the economic slowdown and high fuel prices. However, tax receipts from residual fuel used by utilities were higher due to the decrease in the relative price of residual fuel compared to natural gas. Tax collections for State Fiscal Year 2000-01 also reflect the 5 percent decrease in PBT rates that took effect on January 1, 2000, and the 5 percent increase effective January 1, 2001.

Receipts for State Fiscal Year 2001-02 reflect about a two percent increase in gasoline consumption. Diesel consumption declined about 9 percent due to the economic slowdown. Aviation fuel consumption dropped more than 23 percent in the second half of the year due to the terrorist attack on the World Trade Center in New York City on September 11, 2001. Receipts from residual fuel used by utilities declined due to the warm winter. Collections also reflect the 5 percent increase in PBT rates effective January 1, 2001, another 5 percent increase effective January 1, 2002 and $19.3 million from the carrier tax.

Receipts for State Fiscal Year 2002-03 reflect the more than two percent increase in gasoline consumption. Diesel consumption increased about 7 percent. Collections reflect the 5 percent increase in PBT rates effective January 1, 2002, and 5 percent decline effective January 1, 2003. Collections also include $20.2 million from the carrier tax.

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Receipts for State Fiscal Year 2003-04 reflect the 5 percent decline in PBT rates effective January 1, 2003, and the 5 percent increase effective January 1, 2004. Receipts from residual fuels used by utilities increased due to the decrease in the relative price of residual fuel oil compared to natural gas. Collections also include $19.9 million from the carrier tax.

Receipts for State Fiscal Year 2004-05 reflect the 5 percent increase in PBT rates effective January 1, 2004 and another 5 percent increase effective January 1, 2005. Collections also include $21.9 million from the carrier tax.

Receipts for State Fiscal Year 2005-06 reflect the impact from the higher fuel price on fuel consumption. Collections also reflect the 5 percent increase in PBT rates effective January 1 2005 and another 5 percent increase effective January 1, 2006. Collections also include $21.6 million from the carrier tax.

Receipts for State Fiscal Year 2006-07 reflect the 5 percent increase in PBT rates effective January 1, 2006 and the 5 percent increase effective January 1, 2007. Collections also include $22.2 million from the carrier tax.

Receipts for State Fiscal Year 2007-08 reflect the five percent increase on January 1, 2007 and the 1.2 percent decrease in PBT rates effective January 1, 2008. Collections also include $23.1 million from the carrier tax.

Actual Revenues from Dedicated PBT. Receipts from the dedicated PBT for the last ten years are as set forth in the following table:

MTTF Revenues from Petroleum Business Taxes (in millions) State Dedicated Funds Related Entities’ Fiscal Year Pool MTTF Total(1) Share of MTTF(2) 1998-99 $ 814.8 $ 301.5 $ 277.0 1999-00 802.7 297.0 272.9 2000-01 776.7 287.4 264.1 2001-02 878.7 325.1 298.8 2002-03 901.7 333.6 306.6 2003-04 921.1 340.8 313.2 2004-05 950.2 351.6 323.1 2005-06 1,002.4 370.9 340.8 2006-07 958.6 354.7 325.9 2007-08 1,017.1 376.3 345.8

(1) Represents 37% of the Dedicated Funds Pool. (2) Represents 34% of the Dedicated Funds Pool.

Source: New York State Division of the Budget.

MTTF Receipts – Motor Fuel Tax

General. Motor fuel and diesel motor fuel taxes (“MFT”) are derived from an eight-cent-per-gallon excise tax levied with respect to gasoline and diesel motor fuels, generally for highway use. The aggregate rate of tax on gasoline was last changed on February 1, 1972, when it was increased from seven cents to eight cents per gallon. The aggregate rate of tax on diesel motor fuel was last changed on January 1, 1996, when it decreased from ten cents per gallon to eight cents per gallon.

Effective April 1, 2000, legislation enacted in 2000 earmarked 2.25 cents of the gasoline MFT and 4 cents of the diesel MFT to the Dedicated Funds Pool, of which 34% is deposited in the MTA Dedicated

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Tax Fund. Effective April 1, 2001, legislation enacted in 2000 earmarked an additional 2.25 cents of the diesel MFT to the PBT Dedicated Funds Pool, of which 34% is deposited in the MTA Dedicated Tax Fund.

Effective April 1, 2003, legislation adopted with the 2000-01 State Enacted Budget earmarked an additional 1.75 cents tax on gasoline and diesel motor fuels to the Dedicated Funds Pool.

Tax Imposition and Payment. The tax on motor fuel is payable by distributors registered with the State. The gasoline motor fuel tax is imposed when gasoline is imported (or caused to be imported) into the State for sale or use in the State, or manufactured in the State. Generally, the tax on other nondiesel motor fuels earmarked to the Dedicated Funds Pool (such as compressed natural gas, propane, methanol and ethanol) is remitted by the dealer selling them as motor fuels. The tax on diesel motor fuel is imposed on the first non- exempt sale of diesel in the State.

Most petroleum businesses remit these taxes on a monthly basis. Businesses with yearly MFT and PBT liability totaling more than $5 million remit the PBT and MFT for the first 22 days of the month by electronic funds transfer by the third business day thereafter. Tax for the balance of the month is paid with the monthly returns filed by the 20th of the following month. In State Fiscal Year 2006-07, almost 90 percent of the MFT was paid by 33 taxpayers that participated in the electronic funds transfer program.

Although the tax is remitted by distributors, the incidence of the tax falls primarily on final users of the fuel on the highways and waterways of the State. Governmental purchases are exempt from the tax. Fuel purchased for certain road vehicles (such as fire trucks, buses used in local transit, taxicabs and ambulances), upon which the tax has been paid, may be eligible for full or partial reimbursement of the MFT. Reimbursement of the tax is also available for fuel not used on the highways (e.g., fuel used in farming).

Actual Revenues from Dedicated Motor Fuel Taxes

MTTF Revenues from Motor Fuel Tax ($ millions)

State MTTF Portion of MTTF portion of Related Entities’ Fiscal Year Gasoline MFT(1) Diesel MFT(2) MTTF Total(3) Share of MTTF(4) 2000-01 $46.7 $11.4 $58.1 $53.4 2001-02 44.9 16.9 61.8 56.7 2002-03 49.8 18.8 68.6 63.0 2003-04 85.6 19.5 105.1 96.6 2004-05 85.8 24.5 110.3 101.4 2005-06 85.4 25.5 110.9 101.9 2006-07 82.9 24.7 107.6 98.9 2007-08 84.0 26.3 110.3 101.4

(1) From the gasoline motor fuel tax, effective April 1, 2000, 2.25 cents per gallon is paid to the Dedicated Funds Pool, and, effective April 1, 2003, 4 cents per gallon is paid to the Dedicated Funds Pool. The MTTF portion is 37% of the Dedicated Funds Pool deposit. (2) From the diesel motor fuel tax, effective April 1, 2000, 4 cents per gallon is paid to the Dedicated Funds Pool, effective April 1, 2001, 6.25 cents per gallon is paid to the Dedicated Funds Pool, and effective April 1, 2003, 8 cents per gallon is paid to the Dedicated Funds Pool. The MTTF portion is 37% of the Dedicated Funds Pool deposit. (3) Represents 37% of the Dedicated Funds Pool. (4) Represents 34% of the Dedicated Funds Pool.

Source: New York State Division of the Budget.

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MTTF Receipts – Motor Vehicle Fees

General. Motor vehicle fees are derived from a variety of sources, but consist mainly of vehicle registration and driver license fees. A percentage of State motor vehicle registration fees is earmarked to the MTA Dedicated Tax Fund. These motor vehicle fees derive from the registration of passenger vehicles, trucks, vans, motorcycles, trailers, semitrailers, buses and other types of vehicles operating on the public highways of the State.

The State Department of Motor Vehicles administers motor vehicle registration provisions of the State Vehicle and Traffic Law. County clerks in most counties act as agents for the State in administering the issuance of most types of motor vehicle registration. Motor vehicle registration renewals generally are accomplished by mail.

With the exception of buses, which are charged according to seating capacity, and semitrailers, which are currently registered at a flat fee of $23, motor vehicle registration fees in the State are currently based on vehicle weight. Since July 1, 1998, passenger vehicles are registered at graduated annual rates of 64.5 cents per 100 pounds up to 3,500 pounds, and 97 cents for each 100 pounds over 3,500 pounds, with a maximum yearly registration fee of $56.06. The yearly registration fee for trucks and light delivery vehicles is $2.88 per 500 pounds of maximum gross weight. Tractors are registered at an annual fee of $1.21 per 100 pounds of maximum gross weight. Motorcycles, snowmobiles, all-terrain vehicles, ambulances, trucks used exclusively in the transportation of household goods, and other specialized vehicles have separate registration fee schedules.

Legislation enacted in 1989 mandated biennial registration of all motor vehicles weighing less than 18,000 pounds. Thus, most motor vehicle registrations are issued and renewed for two-year periods; registrations are staggered evenly throughout the months to ensure an even workload.

Pursuant to legislation enacted in 2000, effective April 1, 2001, 23.5 percent of certain motor vehicle registration fees is deposited in the Dedicated Funds Pool. Effective April 1, 2002, that percentage increased to 54.5 percent. In addition, legislation enacted with the 2000-01 State Enacted Budget and effective April 1, 2003 directs the State Comptroller to deposit $67.9 million in motor vehicle fees other than registration fees to the Dedicated Funds Pool. Effective April 1, 2005, all remaining General Fund revenues derived from motor vehicle fees were moved to the Dedicated Funds Pool. In accordance with legislation enacted with the 2005-06 State Enacted Budget, additional motor vehicle fees were deposited into the Dedicated Funds Pool beginning on October 1, 2005. The MTA Dedicated Tax Fund will receive 34 percent of such revenues. The following table provides information related to the amount of motor vehicle fees dedicated to the MTTF.

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MTTF Revenues From Motor Vehicle Fees (in millions) Related State Registration MTTF Entities’ Share (2) (3) Fiscal Year Fees(1) Other Fees Total of MTTF 2001-02 $27.8 $ -0- $ 27.8 $ 25.5 2002-03 67.4 8.3 75.7 69.6 2003-04 79.3 25.1 104.6 96.1 2004-05 78.7 59.1 137.8 126.6 2005-06 83.7 75.1 158.8 145.9 2006-07 78.0 107.6 185.6 170.6 2007-08 79.6 99.4 179.0 164.5

(1) 54.5% of registration fees is dedicated to the Dedicated Funds Pool, of which 37% is dedicated to the MTTF. (2) Represents 37% of the Dedicated Funds Pool. Does not include SRF Motor Vehicle Fees. (3) Represents 34% of the Dedicated Funds Pool. Does not include SRF Motor Vehicle Fees.

Source: New York State Division of the Budget.

MMTOA Account — Special Tax Supported Operating Subsidies

General. The Transit System and Commuter System have historically operated at a deficit and have been dependent upon substantial amounts of general operating subsidies from the State, as well as the City and Federal governments. Over time, the ongoing needs of State mass transportation systems led the State to supplement the general operating subsidies with additional operating subsidies supported by State special taxes.

Starting in 1980, in response to anticipated operating deficits of State mass transportation systems, the State Legislature enacted a series of taxes, portions of the proceeds of which have been and are to be deposited in a special State fund, the MTOA Fund, to fund the operations of mass transportation systems. The MMTOA Account was established in the MTOA Fund to fund the operating expenses of transportation systems in the Transportation District, including MTA New York City Transit, MaBSTOA and the commuter railroads operated by MTA. Payments from this Account are made to MTA and its affiliates periodically to the extent that: (i) appropriations are made by the Legislature, (ii) the State Director of the Budget certifies that the Account contains sufficient funds to make such payments, and (iii) State officials determine that the funds are necessary to finance operations of MTA and its affiliates and subsidiaries. Such payments are allocated among the various public transportation systems within the Transportation District in accordance with schedules as specified by such appropriations. Such payments to MTA are first deposited in the Pledged Amounts Account of the MTA Dedicated Tax Fund to meet the requirements of the DTF Resolution and then any remaining amounts are transferred to the Operating and Capital Costs Account to be used to meet operating costs of the Transit System and MTA Staten Island Railway and the Commuter System.

The table below summarizes the historical amounts appropriated and paid to MTA from the MMTOA Account (including investment income) for the last ten years.

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MMTOA Account (in millions) State Fiscal Appropriations Payments State Fiscal Appropriations Payments Year to MTA(1) to MTA(2) Year to MTA(1) to MTA(2)

1998-99 $ 848.6 $ 878.6 2003-04 $ 730.9 $ 730.9 1999-00 907.2 818.6 2004-05 736.4 736.4 2000-01 755.2 755.2 2005-06 946.7 1,146.7 2001-02 755.2 755.2 2006-07 1,269.2 1,069.2 2002-03 772.9 861.5 2007-08 1,525.9 1,525.9

(1) Does not include $155.1 million appropriated to MTA in each of the State Fiscal Years 1998-99 through 2003-04, $164.6 million in State Fiscal Year 2004-05, $170.2 million in each of the State Fiscal Years 2005-06 and 2006-07 and $172.9 million in State Fiscal Year 2007-08 through the Section 18-b program. (2) Payments to MTA in certain years may be in excess of the amount appropriated for that year due to the payment in that year of amounts appropriated, but not paid, in prior years. At the end of the State’s 2005- 06 fiscal year, the State accelerated the payment of $200 million of MMTOA Receipts to the MTA in the following manner: it increased appropriations from levels enacted in that fiscal year and upon payment within that fiscal year, required that appropriations that were recommended and subsequently enacted in the State’s 2006-07 fiscal year be commensurately reduced.

Although a variety of taxes have been used to fund the special tax supported operating subsidies, the taxes levied for this purpose currently include the MMTOA PBT, the District Sales Tax, the Franchise Taxes and the Temporary Franchise Surcharge (MMTOA Taxes), all described in more detail below. State law gives State officials the authority to disburse funds to MTA from the MMTOA Account to the extent such officials determine that the funds are necessary to finance operations of the Transit System and MTA Staten Island Railway and the Commuter System. Fluctuations in the economic and demographic conditions of the Transportation District are directly related to the growth of economically sensitive taxes, including the District Sales Tax and the Temporary Franchise Surcharge. Therefore, there can be no assurance that such taxes will generate tax receipts at current levels. If shortfalls are experienced in the collection of MMTOA Taxes, the Commissioner of Transportation is authorized to reduce each recipient’s payment from the MTOA Fund proportionately. MTA has historically received approximately 86 percent of such amounts deposited in the MMTOA Account.

MMTOA PBT

General. The products that are subject to the tax, the tax rates and the transactions excluded from such tax are identical to the basic PBT as described above under “MTTF Receipts – Dedicated Petroleum Business Tax” which is dedicated to the MTTF.

As described above in “MTTF Receipts--Dedicated Petroleum Business Tax,” legislation in 1996 and 1999 added new exemptions and credits and certain rate reductions with respect to the MMTOA PBT. To preserve dedicated funds revenue flow such legislation increased the share of the PBT basic tax earmarked to the MTOA Fund. As a result, the share of the PBT basic tax earmarked to the MMTOA Account increased to 10.615 percent, effective April 1, 1996; to 10.725 percent effective January 1, 1998; and to 10.835 percent effective April 1, 2001.

As described above in “MTTF Receipts--Dedicated Petroleum Business Tax,” aspects relating to the imposition and collection of the MMTOA PBT have from time to time been and may continue to be the subject of administrative claims and litigation by taxpayers.

Historical Summary of MMTOA PBT. The following table provides historical information relating to MMTOA PBT receipts deposited into the MMTOA Account for the last ten years.

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MMTOA Petroleum Business Taxes State Fiscal Net Receipts State Fiscal Net Receipts Year (in millions) Year (in millions)

1998-99 $ 63.8 2003-04 $ 72.2 1999-00 62.2 2004-05 74.2 2000-01 60.4 2005-06 78.8 2001-02 68.1 2006-07 72.5 2002-03 66.3 2007-08 76.0

Source: New York State Division of the Budget.

District Sales Tax

General. The District Sales Tax consists of a 0.375 percent sales and compensating use tax imposed on sales and uses of certain tangible personal property and services applicable only within the Transportation District. The rate was increased from 0.25 percent to 0.375 percent on June 1, 2005.

District Sales Tax receipts have been a significant source of tax receipts deposited in the MMTOA Account. The level of District Sales Tax receipts is necessarily dependent upon economic and demographic conditions in the Transportation District, and therefore there can be no assurance that historical data with respect to collections of the District Sales Tax will be indicative of future receipts.

The base of the District Sales Tax is identical to the base of the State’s 4 percent sales and compensating use tax. The tax now applies to (1) sales and use of most tangible personal property; (2) certain utility service billings; and (3) charges for restaurant meals, hotel and motel occupancy, and for specified admissions and services. The base of the tax has been amended periodically by the Legislature, with changes such as the following: temporary exemptions for certain clothing and footwear in 1997, 1998 and 1999 and the first quarter of 2000; exemptions for college textbooks and certain computer system hardware in 1998; and expanded exemptions for equipment used to provide telecommunications services for sale in 1999.

Legislation enacted in 1997 and modified in 1998 and 1999 exempts clothing and footwear costing less than $110 from the State sales and use tax on a year-round basis. Legislation enacted in 2003, 2004 and 2005 suspended the year-round exemption through March 31, 2007 and temporarily replaced it with two exemption weeks annually at the same $110 threshold. Under these statutes, the District Sales Tax on such clothing and footwear is removed in those counties and cities that opt to exempt such items from local sales tax within their jurisdictions.

Clothing and footwear costing less than $110 were permanently exempted from State sales tax on April 1, 2006. Localities have an option to also offer this exemption. Pursuant to Tax Law, localities opting to remove their tax must reimburse MTA for one-half of the foregone District Sales Tax revenue, while the State will provide the other half, but these reimbursements are paid to MTA and such reimbursements are not deposited into the MMTOA.

On June 1, 2006, the State placed a cap on the amount of State sales tax collected on motor fuel and diesel motor fuel at eight cents per gallon. Localities have an option to continue to use the percentage rate method or to change to a cents-per-gallon method of computing sales tax. Pursuant to Tax Law, the State must reimburse MTA for the entire foregone District Sales Tax revenue, but these reimbursements are paid from the State General Fund to MTA and such reimbursements are not deposited into the MMTOA.

MTA is expected to be held harmless from the impact of the clothing and footwear exemption and the cap on motor fuel and diesel motor fuel. This entire held harmless amount is reflected in the following table, but such amounts are not deposited into the MMTOA.

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Historical Summary of District Sales Tax. The following table provides historical information relating to District Sales Tax receipts deposited into the MMTOA Account for the last ten years.

District Sales Tax (in millions) Held Held State Net Harmless State Net Harmless Fiscal Year Receipts Amount(1) Total Fiscal Receipts Amount(1) Total Year

1998-99 $ 321.4 $ 0.0 321.4 2003-04 $399.3 $ 15.4 $ 414.7 1999-00 345.6 0.0 345.6 2004-05 428.9 3.2 432.1 2000-01 368.2 10.8 379.0 2005-06(2) 603.1 1.9 605.0 2001-02 364.7 13.9 378.6 2006-07 688.1 20.4(3) 708.5 2002-03 361.9 23.8 385.7 2007-08 716.5 39.3(4) 755.8

(1) This amount includes moneys paid by both the State and the localities. Such amounts are not deposited into the MMTOA. (2) The regional sales tax was increased from 0.25% to 0.375% effective June 1, 2005. (3) Includes $17.5 million from the State and localities for the clothing exemption and $2.9 million from the State for the cap on motor fuel and diesel fuel. (4) Includes $31.8 million from the State and localities for the clothing exemption and $7.5 million from the State for the cap on motor fuel and diesel fuel.

Franchise Taxes

General. A legislatively allocated portion of two taxes imposed on certain transportation and transmission companies (such as trucking, telegraph and local telephone companies), consisting of (a) an annual franchise tax based on the amount of the taxpayer’s issued capital stock, and (b) an annual franchise tax on the taxpayer’s gross earnings from all sources calculated to be in the State pursuant to statutory formulae are deposited in the MMTOA Account.

For State Fiscal Year 1996-97, 48 percent of such moneys were required to be deposited in the MMTOA Account. The percentage of such deposit increased to 54 percent in calendar years 1998 and 1999, 64 percent in 2000, and to 80 percent thereafter. These changes were made to preserve the dedicated funds revenue flow subsequent to changes enacted in 1995 reducing the base of the gross earnings tax and enacted in 1996 and 1997 reducing the tax rates.

Historical Summary of the Franchise Taxes. The following table provides historical information relating to the portion of Franchise Tax receipts deposited into the MMTOA Account for the last ten years. A one-time election to remain under the taxes imposed on trucking and railroad companies was enacted in 1996 for elections made before March 15, 1998. Companies not electing to remain under Sections 183 and 184 were taxed under the general corporate franchise tax. As part of the same legislation, the Section 184 rate was reduced from 0.75 percent to 0.6 percent on gross earnings. The MMTOA revenue distribution was held harmless. Additional rate reductions occurred beginning in 1998 but do not affect MMTOA.

Franchise Taxes (in millions) State Fiscal Year Net Receipts State Fiscal Year Net Receipts

1998-99 $ 64.9 2003-04 $ 57.4 1999-00 70.5 2004-05 64.5 2000-01 70.1 2005-06 73.6 2001-02 82.9 2006-07 68.4 2002-03 71.1 2007-08 60.3

Source: New York State Division of the Budget.

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Temporary Franchise Surcharge

General. The Temporary Franchise Surcharge is imposed on the portion of the franchise and other taxes of certain corporations, banks and insurance, utility, transportation and transmission companies attributable (according to various complex formulae) to business activity carried on within the Transportation District. This surcharge, originally imposed in 1982, was extended by the State Legislature in April 2008 and is now scheduled to expire at the end of the last tax year of such entities ending prior to December 31, 2013; thus for calendar-year taxpayers no payments for 2013 will be due in the 2013-2014 State fiscal year unless the surcharge is further extended by the State Legislature. In accordance with Section 171-a of the State Tax Law, the tax revenue generated under these provisions, after the deduction of administrative costs, is to be deposited to the MMTOA Account, as such taxes are received.

Aspects relating to the imposition and collection of the Temporary Franchise Surcharge have from time to time been, are currently and may continue to be the subject of administrative claims and litigation by taxpayers. The financial impact of such challenges commenced to date has not been and is not expected to be material.

Historical Summary of the Temporary Franchise Surcharge. The following table provides historical information relating to the Temporary Franchise Surcharge receipts deposited into the MMTOA Account for the last ten years.

Temporary Franchise Surcharges (in millions) State Fiscal Year Net Receipts State Fiscal Year Net Receipts

1998-99 $ 547.0 2003-04 $ 484.2 1999-00 586.9 2004-05 571.4 2000-01 563.2 2005-06 766.2 2001-02 483.4 2006-07 962.3 2002-03 509.5 2007-08 982.5

Source: New York State Division of the Budget.

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STATE SERVICE CONTRACT BONDS

There are $2,218,820,000 aggregate principal amount of outstanding State Service Contract Bonds. The following SSC Table 1 sets forth, on a cash basis, the debt service thereon.

SSC Table 1 Aggregate Debt Service

Year Ending Aggregate January 1 Debt Service(1) 2009 $164,993,993 2010 164,992,940 2011 164,997,453 2012 164,991,756 2013 164,992,223 2014 164,996,620 2015 164,995,778 2016 164,991,298 2017 164,996,998 2018 164,995,635 2019 164,996,885 2020 164,993,948 2021 164,992,873 2022 164,997,735 2023 164,992,360 2024 164,994,041 2025 164,996,685 2026 164,996,276 2027 164,992,085 2028 164,993,807 2029 164,997,894 2030 164,993,016 2031 164,993,335 2032(2) 82,497,811

Total $3,877,373,445

(1) Totals may not add due to rounding. (2) Includes final debt service payment on July 1, 2031.

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Sources of Payment – General

MTA has entered into a service contract, dated as of May 15, 2002, called the “State Service Contract,” with the State of New York, acting by and through the Director of the Budget of the State, pursuant to the State Service Contract Legislation, comprised of Section 16 of Chapter 314 of the Laws of 1981, Section 42 of Chapter 929 of the Laws of 1986, and Section 34 of Part O of Chapter 61 of the Laws of 2000.

MTA has filed a copy of the State Service Contract and summaries of certain provisions of the State Service Contract Resolution, including certain defined terms used therein, with the NRMSIRS identified under “TRANSPORTATION REVENUE BONDS – General.” In addition, copies of the summaries and the State Service Contract can be obtained on MTA’s website at www.mta.info/mta/investor/index.html or from the MTA Finance Department at 347 Madison Avenue, New York, New York 10017.

Capitalized terms used under this caption “STATE SERVICE CONTRACT BONDS” not otherwise defined herein have the meanings set forth in the State Service Contract Resolution.

The State Service Contract Legislation authorizes the Director of the Budget, acting on behalf of the State, to enter into a long-term service contract with MTA for the purposes of financing and refinancing transportation facilities, as defined in subdivision 14 of Section 1261 of the Public Authorities Law, as well as refunding obligations issued by MTA and its affiliates.

Under the State Service Contract, in consideration of MTA’s undertaking various transportation projects for the benefit of the people of the State, the State agrees to make annual payments to MTA over a period of years, with the obligation of the State subject in each year to the making of annual appropriations by the State Legislature.

The State Service Contract Legislation authorizes MTA to pledge, and assign the annual payments to be made by the State as security for obligations which have been designated “State Service Contract Bonds” issued for the following purposes:

• to finance and refinance transportation projects; • to refund obligations issued by MTA or any affiliate; and • to refund obligations secured in whole or in part by any or all of the prior State service contracts authorized by the State Service Contract Legislation.

Conditions in the State Service Contract

MTA may only issue State Service Contract Bonds subject to the following conditions and limitations:

• no State Service Contract Bond shall mature later than the Expiration Date of the State Service Contract, currently July 1, 2031; • the aggregate amount of debt service on all State Service Contract Bonds (plus debt service amounts on all Old State Service Contract Bonds) shall not exceed, in any State fiscal year, $165,000,000; and • no State Service Contract Bond (other than a refunding Bond) shall be issued after March 31, 2003.

The aggregate debt service on the outstanding State Service Contract Bonds has exhausted MTA’s current capacity under the State Service Contract to issue additional bonds (other than refunding bonds).

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Concluding on the Expiration Date, the State is required to pay to MTA, on or before the Business Day next preceding each January 1 and July 1 of each calendar year, an amount equal to the current year’s debt service on all State Service Contract Bonds in two substantially equal semi-annual installments.

Nature of State’s Obligation to Make State Service Contract Payments

Notwithstanding anything in the State Service Contract to the contrary,

• the obligation of the State to pay the amounts therein provided for is subject to annual appropriation by the State Legislature, • the obligation of the State to pay the amounts therein provided for shall not constitute a debt of the State within the meaning of any constitutional or statutory provision and shall be deemed executory only to the extent of moneys available and no liability shall be incurred by the State beyond the moneys available for the purpose, and • the State Legislature is not obligated to make appropriations to satisfy the State’s obligations under the State Service Contract and there can be no assurance that the State Legislature will make any such appropriations.

Subject to the foregoing, the State’s obligation to make the payments provided for in the State Service Contract is absolute and unconditional, without any rights of set-off, recoupment or counterclaim the State may have against MTA or any other person or entity having an interest in the State Service Contract or the payments made under the State Service Contract.

The State Legislature has appropriated and the State has made all of the payments required to date under contracts relating to the Old State Service Contract Bonds.

Pledge Effected by the State Service Contract Bond Resolution

The “Trust Estate” – which consists primarily of all payments made to MTA by the State under the State Service Contract and the proceeds of the State Service Contract Bonds – is pledged for the payment of the principal and Redemption Price of, interest on, and Sinking Fund Installments for, the State Service Contract Bonds, in accordance with their terms and the provisions of the State Service Contract Resolution, subject only to the provisions of that resolution permitting the application thereof for the purposes and on the terms and conditions set forth in that resolution.

The pledge of the Trust Estate in all respects secures on a pari passu basis all of the State Service Contract Bonds, and the Trust Estate is and will be free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge created by the State Service Contract Resolution, and all corporate action on the part of MTA to that end has been duly and validly taken.

The State Service Contract Bond Resolution establishes –

• the State Service Contract Proceeds Fund, which MTA holds and administers, and • the State Service Contract Debt Service Fund, which the Trustee holds and administers.

Amounts held at any time by MTA or the Trustee in either of those Funds shall be held in trust separate and apart from all other funds.

Proceeds Fund. MTA is required to deposit, upon receipt, into the State Service Contract Proceeds Fund, the proceeds of the sale of State Service Contract Bonds as provided for in a supplemental resolution. Amounts in any account or sub-account of the State Service Contract Proceeds Fund are required to be applied to the payment of Capital Costs.

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Debt Service Fund. MTA is required to deposit each State Service Contract Payment, upon receipt or on the next succeeding business day, into the State Service Contract Debt Service Fund. In addition, amounts remaining in the State Service Contract Proceeds Fund after the payment of Capital Costs and not applied to pay such Capital Costs are required to be deposited in the State Service Contract Debt Service Fund. If, on the business day next preceding a Debt Service Payment Date, the amount in the State Service Contract Debt Service Fund is less than the Debt Service payable on that date, then MTA is required to apply amounts from the State Service Contract Proceeds Fund to the extent necessary to make up the deficiency. Amounts in the Debt Service Fund will be used to make debt service payments on the State Service Contract Bonds.

Agreement with the State

The MTA Act prohibits MTA from filing a petition in bankruptcy under Chapter 9 of the Federal Bankruptcy Code or such successor chapters or sections as may from time to time be in effect and the State has pledged that so long as any notes, bonds or lease obligations of MTA are outstanding, it will not limit or alter the denial of authority to MTA to so file.

Under the MTA Act, the State pledges to and agrees with the holders of any notes, bonds or lease obligations issued or incurred by MTA, including the State Service Contract Bonds, that the State will not limit or alter the rights vested in MTA (which do not include the right to an appropriation of debt service from the State) to fulfill the terms of any agreements made by MTA with the holders of its notes, bonds and lease obligations, including the State Service Contract Bonds, or in any way impair the rights and remedies of such holders.

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PART 5. REGULATORY, EMPLOYMENT, INSURANCE AND LITIGATION MATTERS

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FEDERAL AND STATE LAWS

General

Federal and State laws concerning, among other things, protection of the environment and access to transportation and non-transportation facilities by the physically disabled will require future operating and capital expenditures by the Related Entities. Those expenditures are material. Many of the capital projects are being funded through MTA Capital Programs.

Future Federal and State laws and regulations concerning the environment and access by the physically disabled could subject the Related Entities to additional operating and capital costs, which costs may be material.

Transit System

Environmental. MTA New York City Transit is currently the subject of a cleanup consent decree with a State governmental entity. Approved Transit Capital Programs include capital expenditures to replace underground storage tanks in accordance with the decree.

MTA New York City Transit has received approval from the Federal Transportation Administration to meet the requirement to provide certain alterations for access by persons with disabilities over a twenty- year period. MTA New York City Transit is also subject to certain provisions of the State Public Buildings Law (the “Public Buildings Law”) relating to facilities for the physically disabled, under which its key station accessibility requirements under the Americans with Disabilities Act, or ADA, and the Public Buildings Law are extended to 2020.

Commuter System

Environmental. MTA Long Island Rail Road and MTA Metro-North Railroad are required to file annual reports with the State Department of Environmental Conservation (“NYSDEC”) identifying areas of environmental concern. MTA Long Island Rail Road and MTA Metro-North Railroad have each incurred and will continue to incur costs of asbestos abatement and lead paint removal on their respective properties. The Commuter Capital Programs allocate funds for, among other matters, asbestos abatement, costs of fuel handling and storage, and wastewater treatment and other environmental remediation. MTA Long Island Rail Road and MTA Metro-North Railroad each are required to clean up various conditions on properties they own, and each has established reserves for the clean-up costs. MTA Long Island Rail Road has completed interim remediation on up to 20 substations for mercury contamination due to the utilization of mercury rectifiers that were removed during the 1970’s. To date, one substation has been fully remediated as per NYSDEC requirements and it is anticipated that five additional substations will begin final remediation in mid-2008. State and Federal environmental agencies are currently investigating the presence of pollutants at certain MTA Long Island Rail Road and MTA Metro-North Railroad facilities. The extent of pollution, the cost of clean-up and MTA Long Island Rail Road’s and MTA Metro-North Railroad’s liability, if any, which may be material, cannot be determined at this time.

Access by Physically Disabled. MTA Long Island Rail Road and MTA Metro-North Railroad are in substantial compliance with ADA requirements.

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MTA Bridges and Tunnels

General. MTA Bridges and Tunnels regularly reviews its facility maintenance programs, both remedial and preventive, and believes the same to be of high quality. MTA Bridges and Tunnels intends to continue its comprehensive inspection and maintenance programs for the MTA Bridges and Tunnels Facilities and to continue to engage independent engineering firms to provide biennial inspections of its bridge and tunnel facilities. MTA Bridges and Tunnels’ independent engineers, URS Corporation – New York, have reviewed the inspection reports of the bridges and tunnels undertaken by MTA Bridges and Tunnels’ engineering consultants. Their report thereon entitled “History and Projection of Traffic, Toll Revenues and Expenses and Review of Physical Conditions of the Facilities of Triborough Bridge and Tunnel Authority,” dated April 29, 2008, is attached to the Continued Disclosure Filings as Appendix E and has also been posted on the MTA website at www.mta.info/mta/investor/index.html. The URS Study is included by specific cross-reference herein.

Environmental. MTA Bridges and Tunnels’ Capital Programs incorporate the removal and clean-up of lead paint on its bridges and tunnels in compliance with Federal, State and local laws, codes and regulations.

Bridge Inspections. The New York State Department of Transportation (“NYSDOT”) maintains a program of comprehensive bridge management, maintenance and inspection applicable to MTA Bridges and Tunnels’ bridges. That program includes the uniform code of bridge inspection, which:

• meets or exceeds applicable Federal law, • requires that bridges be inspected at least every two years in accordance with the provisions of that code, • prescribes qualifications for licensed professional engineers who inspect bridges, and • requires that all bridge inspections be performed or supervised by such persons.

Bridge inspection and maintenance reports must be filed with NYSDOT and NYSDOT may close bridges found unsafe for public use. MTA Bridges and Tunnels is in compliance with the NYSDOT program.

Tunnel Inspections. In accordance with engineering and construction procedure, tunnel inspections are required every two years with a comprehensive inspection every ten years. MTA Bridges and Tunnels has implemented a new schedule for tunnel inspections wherein they will be undergoing formal inspection on a regular basis every two years.

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EMPLOYEES, LABOR RELATIONS AND PENSION AND OTHER POST-EMPLOYMENT OBLIGATIONS General

The transportation services provided by the Related Entities, as well as related maintenance and support services, are labor intensive. Consequently, the major portion of the Related Entities’ expenses consists of the costs of salaries, wages and fringe benefits for employees and retirees.

The employees of MTA and its affiliates and subsidiaries, other than MTA Long Island Rail Road and MTA Metro-North Railroad, are prohibited by the State’s Taylor Law from striking. Nevertheless, represented employees of MTA New York City Transit and MaBSTOA engaged in an illegal three-day strike during December 2005. There have been no labor stoppages at MTA Bridges and Tunnels since 1976. The Taylor Law also requires the TWU (and permits other unions) and MTA New York City Transit and MaBSTOA to submit a dispute preventing the voluntary resolution of contract negotiations to binding arbitration before a three-member public arbitration panel upon the occurrence of certain events. The three- member panel would be chosen as follows: one member appointed by MTA, one member by the affected union, and one member appointed jointly by the parties. Almost all of the unions have elected to be bound by the Taylor Law’s binding arbitration provisions.

The employees of MTA Long Island Rail Road and MTA Metro-North Railroad are not subject to the same State prohibition, but are governed by Federal railroad employment statutes.

MTA Headquarters

As of December 31, 2007, MTA Headquarters had 684 employees (full and part time), 46 of whom were represented by one union. Included in the MTA Headquarters staff are 70 employees from MTA Capital Construction, 77 employees from the MTA Inspector General’s office and 27 Police Command staff employees (rank of Captain and higher). In addition, the MTA Police force (not including Command Staff) numbered 645, all of whom were represented by one union.

Most of the employees of MTA Headquarters, other than the MTA Police, are members of the New York State and Local Employees’ Retirement System. The MTA Police are members of the MTA Defined Benefit Pension Plan, which has a substantial unfunded accrued actuarial liability (“UAAL”). MTA is required to make significant annual contributions to the respective plans on a current basis. See Footnote 4 to the Combined Financial Statements of MTA for more information relating to the MTA Defined Benefit Pension Plan, as well as the Required Supplementary Information attached thereto that sets forth information relating to the UAAL.

Transit System

As of December 31, 2007, MTA New York City Transit had 40,809 employees (full and part time), 37,728 of whom were represented by 20 different unions. As of December 31, 2007, MaBSTOA had 8,287 employees (full and part time), 6,019 of whom were represented by 10 different unions. The current contract with the unions expires on January 15, 2009.

Employees of MTA New York City Transit are members of the New York City Employees Retirement System (“NYCERS”). Employees of MaBSTOA have a separately funded pension plan that offers benefits similar to NYCERS. The MaBSTOA pension plan has a substantial UAAL. MTA New York City Transit and MaBSTOA are required to make significant annual contributions to the respective plans on a current basis. See Footnote 6 to the Consolidated Financial Statements of MTA New York City Transit for more information. See also the Required Supplementary Information attached to the Combined Financial Statements of MTA that sets forth information relating to the UAAL.

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MTA Bus

As of December 31, 2007, MTA Bus had 3,301 employees (full and part time), 88% of whom were represented by three different unions. MTA Bus has a contract with 69% of its represented employees through March 31, 2006, and the other 31% through December 31, 2005. MTA Bus is in negotiations with all three unions at this time.

The companies that formerly operated the City Bus Routes had a number of different pension plans. MTA, on behalf of MTA Bus, has amended the MTA Defined Benefit Pension Plan to include retirement programs which replicate the benefits provided by the prior plans. MTA Bus makes significant annual contributions to the plan on a current basis. See Footnote 4 to the Combined Financial Statements of MTA for more information relating to the MTA Defined Benefit Pension Plan, as well as the Required Supplementary Information attached thereto that sets forth information relating to the UAAL.

Commuter System

As of December 31, 2007, MTA Long Island Rail Road had approximately 6,470 employees, approximately 5,700 of whom were represented by 11 different unions. For the period January 1, 2007 – June 15, 2010, MTA Long Island Rail Road has reached collective bargaining agreements with all of the major unions.

As of December 31, 2007, MTA Metro-North Railroad had 5,886 employees, 4,876 of whom were represented by 18 different unions with a total of 22 different bargaining units. For the period 2003-2007, MTA Metro-North Railroad and 18 unions representing approximately 4,876 employees reached agreement. All unions subsequently adopted collective bargaining agreements effective through June 15, 2010.

Both MTA Long Island Rail Road and MTA Metro-North Railroad supplement the Federal Railroad Retirement Act benefits through other pension plans and also maintain pension plans for other employees. MTA Long Island Rail Road and MTA Metro-North Railroad have substantial UAAL under such plans and are required to make significant annual contributions on a current basis. In addition, significant portions of the estimated obligations under certain MTA Long Island Rail Road pension plans to make payments in future years are currently unfunded. See Footnote 4 to the Combined Financial Statements of MTA for more information on the pension plans, as well as the Required Supplementary Information attached thereto that sets forth information relating to the UAAL.

MTA Bridges and Tunnels

As of December 31, 2007, MTA Bridges and Tunnels had 1,771employees, 1,345 of whom were represented by four different unions. The Local 1931 collective bargaining agreement covering 313 employees expired on July 14, 2006. The Bridge and Tunnel Officers Benevolent Association collective bargaining agreement covering 756 employees expired on March 1, 2006, the Local 1655 collective bargaining agreement covering 115 employees expired on March 2, 2008, and the Superior Officers Benevolent Association collective bargaining agreement covering the remaining 161 represented employees expired on December 14, 2005, but the terms of the agreements remain in effect by operation of law until a successor agreement is concluded or an award in arbitration has been rendered.

Substantially all of MTA Bridges and Tunnels’ employees are eligible to be members of NYCERS and MTA Bridges and Tunnels is required to make significant annual contributions on a current basis. See Footnote 7 to MTA Bridges and Tunnels’ audited financial statements for more information.

MTA Staten Island Railway

As of December 31, 2007, MTA Staten Island Railway had 264 employees, 237 of whom were represented by three different unions. The UTU (covering the majority of the represented employees), the TCU (covering all clerical staff, tower operators, station agents and janitors), and the ATDD (representing

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the train dispatchers) have signed contracts through December 31, 2006. Currently, all represented emplyees are working without a contract. The MTA Staten Island Railway Police were merged with the MTA Police effective June 1, 2005.

Employees of MTA Staten Island Railway are members of the MTA Defined Benefit Pension Plan with benefits similar to what NYCERS offers. MTA Staten Island Railway is required to make significant annual contributions to the plan on a current basis. See Footnote 4 to the Combined Financial Statements of MTA for more information relating to the MTA Defined Benefit Pension Plan, as well as the Required Supplementary Information attached thereto that sets forth information relating to the UAAL.

MTA Long Island Bus

As of December 31, 2007, MTA Long Island Bus had 1,156 employees, 996 of whom were represented by either TWU Local 252 or the Subway Surface Supervisors Association (“SSSA”). The current collective bargaining agreement with TWU Local 252 expires on April 15, 2009, and the agreement with SSSA expires on September 1, 2009. There is also a small group of 160 paratransit workers that are represented by TWU Local 252 under a separate contract that expires on April 15, 2010.

Employees of MTA Long Island Bus hired on or before January 23, 1983 are members of the MTA Defined Benefit Pension Plan. In 1999, the former MTA Long Island Bus retirement plan was merged with and into the MTA Defined Benefit Pension Plan. At the time of the merger, the MTA Long Island Bus Plan was fully funded and closed to new employees. In addition, the fund had a surplus that was also merged into the MTA Defined Benefit Pension Plan. Since the merger, the MTA Plan has not required MTA Long Island Bus to make any additional contributions.

Employees of MTA Long Island Bus hired after January 23, 1983 are members of the New York State and Local Employees’ Retirement System. MTA Long Island Bus is required to make significant annual contributions to the plan on a current basis.

OPEBs

In addition to pensions, many state and local governmental employers, including the Related Entities, provide other post-employment benefits (“OPEB”) as part of the total compensation offered to attract and retain the services of employees. OPEB includes post-employment healthcare, as well as other forms of post-employment benefits when provided separate from a pension plan. The Related Entities offer a variety of post-employment benefits that vary among the agencies. GASB Statement No. 45 applies to the MTA in its first quarter 2007 unaudited financial statements.

In general terms, the statement requires the MTA to determine each year (1) the present value of the current year’s cost of providing an additional year of OPEB to its current employees (the “normal cost”), and (2) an amortization (over a period not to exceed 30 years) of the present value of OPEB costs accrued to date for past and current employees, including retirees (the “past service cost”). Among other decisions, the MTA must choose the amortization period of the past service cost, whether it is amortizing the past service cost using a level dollar or level percentage basis, and certain interest rate assumptions. In each year, the sum of the normal cost and the amortization of past service cost, after making certain technical adjustments, is referred to as the “Annual OPEB Cost,” which is recorded on the income statement.

The amount to be recorded on the balance sheet is the amount of the previous year’s liability (zero as of January 1, 2007), plus the current year’s Annual OPEB Cost, less the amount funded by the MTA (either as pay-as-you-go or deposited into a trust fund dedicated to OPEB costs). This amount is referred to as the “Net OPEB Obligation.”

The Net OPEB Obligation will increase each year to the extent that the MTA’s funding of OPEB through pay-as-you-go payments and trust fund deposits is less than the Annual OPEB Cost. Consequently, it is expected that the Net OPEB Obligation will increase each year (1) during the period of time that MTA

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has chosen to amortize the past service cost until fully amortized, and (2) MTA’s pay-as-you-go funding is less than that year’s normal cost. The principal way of reducing the Net OPEB Obligation is to fund a trust fund dedicated specifically to paying OPEB costs.

The MTA has completed the process of evaluation and adopting GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions. The Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers.

The MTA has received a report from an independent consultant and actuary firm that values, consistent with GASB Statement No. 45, the present value of OPEB costs for past and current employees, including retirees, of the Related Entities to be approximately $13.6 billion. The following chart allocates that value by agency:

Agency Frozen Accrued Liability (in millions) NYC Transit $10,465 Long Island Rail Road 1,187 Metro-North Railroad 470 Bridges & Tunnels 577 MTA Headquarters 379 Long Island Bus 47 Staten Island Railway 26 MTA Bus Company 473 Total $13,623

MTA has adopted certain methods and assumptions to determine the 2007 expense for OPEB and to amortize the liability. See Footnote 5 to the Combined Financial Statements of MTA for more information relating to the methods and assumptions used those expenses and liabilities.

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INSURANCE

General

MTA’s Department of Risk and Insurance Management (“MTA RIM”) is responsible for administering the insurance programs for the Related Entities, including obtaining insurance. Marsh, USA serves as MTA’s master insurance broker and Willis Management (Vermont), Ltd. acts as the captive manager for the MTA captive subsidiary, First Mutual Transportation Assurance Corporation (FMTAC).

The insurance needs of the Related Entities vary. One of the biggest differences relates to how employees are covered for injuries on the job. The recovery by employees of the Related Entities other than the commuter railroads who get injured on the job is limited by the State workers compensation law. Recoveries by employees of the commuter railroads are governed by Federal law, and are not limited by State law, and, consequently, they can sue for damages if they are injured on the job.

The Related Entities maintain insurance coverage through MTA’s captive insurance company subsidiary, FMTAC, and through the commercial marketplace. MTA RIM, which also serves as the staff of FMTAC, sets the insurance premiums for the Related Entities at levels that are expected to be sufficient to purchase the commercial insurance or reinsurance, or permit FMTAC to pay the claims and costs for claims administration. Since its creation, FMTAC, with funding from the Related Entities, has assumed greater responsibility for the direct insurance and reinsurance risk of the Related Entities.

FMTAC is licensed in New York State as both a direct insurer and as a reinsurer. When FMTAC is a direct insurer, it may reinsure all or a portion of its potential liabilities with commercial reinsurers. FMTAC retains independent entities to handle the claims administration process. FMTAC may deposit certain of its assets in trust with third parties in order to secure its insurance or reinsurance obligations under some of the insurance policies.

New York State Department of Insurance Regulations require that every captive insurance company licensed in the State be audited by State regulators every three to five years for compliance with State regulations and generally accepted accounting standards. FMTAC’s first and, to date, only audit covering the period from its creation to December 31, 2003 was completed during 2004 and a favorable sign-off from the State Insurance Department was received on March 21, 2006.

The following major insurance policies are maintained for the benefit of the Related Entities and the expiration dates of such policies are set forth in the following chart.

Insurance Program Expiration Date Property Insurance April 30, 2009 Commuter Stations and Force Liability December 14, 2007 FMTAC Excess Loss Fund October 30, 2007 Commercial Excess Liability Policy October 30, 2007 All Agency Protective Liability May 31, 2007 Paratransit and Non-Revenue Vehicle Policies February 28, 2008 Premises Liability December 6, 2007 Builder’s Risk various Owner Controlled Insurance Programs (“OCIPs”) various

Property Insurance Program Effective October 31, 2007, FMTAC renewed the all-agency property insurance program. For the period October 31, 2007 through May 1, 2009, FMTAC directly insures property damage claims of the Related Entities in excess of a $25 million per occurrence self-insured retention (“SIR”), subject to an annual $75 million aggregate. Losses occurring after the retention aggregate is exceeded are subject to a

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deductible of $7.5 million per occurrence. The total program limit has been maintained at $1.25 billion per occurrence covering property of the Related Entities collectively. With the exception of acts of terrorism (both domestic and foreign), FMTAC is reinsured in the domestic, London, European and Bermuda marketplaces for this coverage. Given the absence of major catastrophes in 2006 and 2007, available capacity has emerged, along with pricing reductions. As a result, FMTAC was able to obtain additional reinsurance capacity over last year and has fully reinsured the all-risk component for the full $1.25 billion, subject to certain program sublimits.

The property insurance provides replacement cost coverage for all risks of direct physical loss or damage to all real and personal property, with minor exceptions. The policy also provides extra expense and business interruption coverages.

With respect to acts of terrorism, FMTAC is reinsured by the United States Government for 85% of “certified” losses, as covered by the Terrorism Risk Insurance Act of 2007 (originally introduced in 2002). Under the 2007 extension, terrorism acts sponsored by both foreign and domestic organizations are covered. Until 2007, the Act only provided coverage for acts sponsored by foreign organizations. The remaining 15% of MTA losses would be covered under an additional policy described below. Additionally, no federal compensation will be paid unless the aggregate industry insured losses exceed a $100 million (“trigger”).

To supplement the reinsurance to FMTAC through TRIA 2007, the MTA obtained an additional commercial reinsurance policy with Lexington Insurance Co. (part of AIG). This policy provides coverage for (1) 15% of any “certified” act of terrorism - up to a maximum recovery of $183.75 million for any one occurrence, or (2) 100% of any “certified” terrorism loss which does not reach the $100 million trigger – up to a maximum recovery of $100 million for any occurrence. This coverage expires on April 30, 2009. Recovery under this policy is subject to a retention of $25 million per occurrence and $75 million in the annual aggregate – in the event of multiple losses during the policy year. Should the MTA’s retention in any one year exceed $75 million, future losses in that policy year are subject to a retention of just $7.5 million.

Commuter Stations and Force Liability

• Commuter Station Liability Insurance. FMTAC directly insures MTA Long Island Rail Road and MTA Metro-North Railroad under the stations policy, which covers third party liability, bodily injury and property damage and personal injury at passenger stations, including moving train hazards while confined to the station area, and includes elevators, escalators, platforms, appurtenances, land, approaches and parking lots, if they are owned by the Related Entities. These policies insure up to the Self-Insured Retention set forth in the table included under the caption “FMTAC Excess Loss Fund” per occurrence with no aggregate stop loss protection.

• Commuter Force Account Insurance. FMTAC directly insures MTA Long Island Rail Road and MTA Metro-North Railroad under the force account policy, which covers third party liability, physical damage and medical payments on force account work (i.e., employees of the commuter railroads in the course of doing work for the benefit of the Related Entities) reimbursed by others. These policies insure up to the Self-Insured Retention set forth in the table included under the caption “FMTAC Excess Loss Fund” per occurrence with no aggregate stop loss protection.

• The cost of the Stations Insurance is factored into the level of station maintenance payments required to be paid by the City and the Counties in the MTA Commuter Transportation District. See “REVENUES OF THE RELATED ENTITIES – Financial Assistance and Service Reimbursements from Local Municipalities – Commuter System Station Maintenance Payments” in Part 3.

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On November 1, 2006, FMTAC increased the primary coverage on the Station Liability and Force Account liability policies from $7 million to $8 million for MTA Metro-North Railroad and MTA Long Island Rail Road.

FMTAC Excess Loss Fund

FMTAC operates an excess liability insurance program (“ELF”) that insures certain claims in excess of the self-insured retention limits of the agencies on both a retrospective (claims arising from incidents that occurred before October 31, 2003) and prospective (claims arising from incidents that occurred on or after October 31, 2003) basis. For claims arising from incidents that occurred on or after November 1, 2001, but before November 1, 2006, the self-insured retention limits are: $7 million for MTA New York City Transit, MaBSTOA, MTA Bus, MTA Staten Island Railway, MTA Long Island Rail Road and MTA Metro-North Railroad; $2 million for MTA Long Island Bus; and $1.4 million for MTA and MTA Bridges and Tunnels. Effective November 1, 2006, the self-insured retention limits for ELF were increased to the following amounts: $8 million for MTA New York City Transit, MaBSTOA, MTA Bus, MTA Staten Island Railway, MTA Long Island Rail Road and MTA Metro-North Railroad; $2.3 million for MTA Long Island Bus; and $1.6 million for MTA and MTA Bridges and Tunnels. The maximum amount of claims arising out of any one occurrence is the total assets of the program available for claims, but in no event greater than $50 million. The retrospective portion contains the same insurance agreements, participant retentions, and limits as existed under the ELF program for occurrences happening on or before October 30, 2003. On a prospective basis, FMTAC issues insurance policies indemnifying the MTA, its subsidiaries and affiliates above their specifically assigned self-insured retention with a limit of $50 million per occurrence with a $50 million annual aggregate. FMTAC charges appropriate annual premiums based on loss experience and exposure analysis to maintain the fiscal viability of the program. On December 31, 2007, the balance of the assets in this program was $76.7 million.

Self-Insured Retention Occurrence on or after November 1, 2001, but before Occurrence on or after Related Entity November 1, 2006 November 1, 2006 MTA New York City Transit, MaBSTOA, MTA Staten Island Railway, MTA Long Island Rail Road, MTA Metro-North Railroad and MTA Bus $7,000,000 $8,000,000 MTA Long Island Bus 2,000,000 2,300,000 MTA Bridges and Tunnels and MTA Headquarters 1,400,000 1,600,000

MTA also maintains an All-Agency Excess Liability Insurance Policy that affords the MTA and its subsidiaries and affiliates additional coverage limits of $350 million, for a total limit of $400 million ($350 million in excess of $50 million). In certain circumstances, when the assets in the program described in the preceding paragraph are exhausted due to payment of claims, the All-Agency Excess Liability Insurance will assume the coverage position of $50 million.

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Since January 1, 2007, a number of settlements have been provided from the Excess Loss Fund in an amount of approximately $16 million. The following pending cases and claims could result in payments under this liability policy in excess of agency retentions:

LIRR

• Gutierrez v. LIRR and Amtrak – This is an action by a LIRR employee under the Federal Employers Liability Act, which was settled on February 26, 2008, prior to jury selection, for $3,500,000, from which LIRR will recover a Disability/Accident lien in the amount of $68,902.78. The plaintiff was a signal worker replacing rotted floorboards on the #16 signal bridge near the Harold Interlocking. Apparently, he fell from the bridge and his lifeline/harness kept him from falling to the ground, but was not shortened enough to keep him above the catenary wires, which were approximately five feet below the bridge. He came in contact with the high voltage catenary wires and sustained an electrical shock, although he was not severely injured. When he hit the wires, he caused the circuit to “trip” and the power was turned off. Employees of Amtrak, which owned and operated the wires, determined to turn the circuit back on, without ascertaining why it had “tripped” off. Gutierrez received another shock, and his clothes caught fire, resulting in his sustaining severe burns over more than 65% of his body. He underwent numerous operative procedures. LIRR intends to proceed in arbitration against Amtrak, which owned and operated the catenary wires, to recover the settlement amount.

NYCTA

• Huang v. NYCTA – This is an action by a woman who became trapped between the platform and a train. The jury returned a verdict of $28.5 million. The verdict was appealed, and the Appellate Division sustained the liability finding, but reduced the damages to approximately $11.5 million. Upon entry of the amended judgment, NYCT intends to move for leave to appeal to the Court of Appeals FMTAC’s excess loss fund program would be responsible for the amount in excess of NYCT’s retention of $7 million at the time of the event.

• Hernandez v. NYCTA – This is an action by a woman who was struck by a bus on October 29, 2003 and suffered severe injuries. Plaintiff was granted summary judgment on the issue of liability, and a jury verdict was returned in the amount of $12,477,529 on damages. All aspects of the case are currently on appeal. FMTAC’s excess loss fund program would be responsible for the amount in excess of the NYCTA’s retention of $7 million at the time of the event.

• Lopez v. NYCTA – This is an action brought by a man, who, while riding a bicycle on September 16, 2003, was struck by a bus, suffering a severe injury. The jury awarded damages in the gross amount of $11.0 million but also found the plaintiff to be thirty per cent at fault and thus the net award was in the amount of $7.2 million. All aspects of the case are currently on appeal. FMTAC’s excess loss fund program would be responsible for the amount in excess of the NYCTA’s retention of $7 million at the time of the event.

MTA Bridges and Tunnels (“MTA B&T”)

• Kane v. TBTA – This case arises out of a collision of two non-B&T vehicles on the Marine Parkway Bridge. Plaintiff claimed that the surface of the bridge was defective and thus caused the accident despite the fact that it was raining and the plaintiff was speeding and under the influence of alcohol. The case was recently tried for a third time, and the jury returned a liability verdict for the plaintiff. Prior liability verdicts in favor of the plaintiff were reversed by the Appellate Division and the case remanded for a new trial. The parties have stipulated that total damages in the case are in the amount of $3.5 million. The agency has again appealed the liability verdict to the Appellate Division. FMTAC’s excess loss fund program would be responsible for the amount in excess of MTA B&T’s retention of $1.2 million at the time of the event.

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MTA Long Island Bus (“MTA LIB”)

• Sanoh v. LI Bus – Plaintiff, a young woman, alleges that in October 2007 she was in the middle of a crosswalk when an MTA LI Bus, struck her and caused her to slip under the bus’s front wheel, running over her left leg. She thereafter underwent multiple hospitalizations and surgeries. FMTAC’s excess loss fund program would be responsible for the amount in excess of the MTA LI Bus’s retention of $2.3 million at the time of the event.

All Agency Protective Liability

• FMTAC All-Agency Protective Liability Program. Under the All-Agency Protective Liability Program (“AAPL”), FMTAC directly insures the Related Entities against claims arising out of work performed by independent contractors on capital projects. The policy provides coverage of $2 million per occurrence, with a $4 million annual aggregate.

• Commercial All-Agency Protective Excess Liability Program. FMTAC obtained commercial insurance to provide excess coverage for the Related Entities on top of the AAPL. The policy provides coverage of $6 million in excess of $2 million per occurrence, with a $12 million annual aggregate. Any excess is covered by the FMTAC Excess Loss Fund policy.

Paratransit and Non-Revenue Vehicle Policies

• MTA New York City Transit Paratransit Program. FMTAC maintains a commercial policy that provides automobile liability coverage for all vendors hired to perform services on behalf of MTA New York City Transit’s Paratransit Access-A-Ride program with policy limits of liability of $3 million per occurrence, subject to a $1 million deductible. On March 1, 2007, the “Access-A- Ride” automobile liability policy program was renewed.

• MTA Non-Revenue Auto Liability. This program covers non-revenue vehicles (i.e., administrative and other vehicles not used for the generation of passenger revenues) of MTA Long Island Rail Road, MTA Metro-North Railroad, MTA Staten Island Railway, MTA Police, the MTA Inspector General, MTA Headquarters, MTA Bus and MTA Long Island Bus. FMTAC obtained a commercial policy that provides coverage to the above entities with a $7 million per occurrence combined single limit and a $500,000 deductible for each accident, with the exception of MTA Long Island Bus which is subject to a $2 million per occurrence combined single limit and a $500,000 deductible for each accident. In addition, FMTAC insures $1 million excess of $7 million for the Related Entities where the self-insured retention has increased to $8 million. On March 1, 2007, the “non-revenue fleet” automobile liability policy program was renewed. FMTAC also renewed its deductible buy back policy, where it assumes the liability of the agencies for their deductible.

• The paratransit program and non-revenue auto liability policies are currently issued by the same commercial vendor.

• Claims and claims administration are funded out of the General Operating Account.

Premises Liability

Premises Liability insurance covers liability arising out of the ownership, maintenance and use of various MTA locations, including 341/345/347 Madison Avenue, the MTA Inspector General’s lease of 11 West 40th Street, and 2 Broadway. The program provides the Related Entities with coverage of up to $1 million per occurrence with a $1 million aggregate.

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Owner Controller Insurance Program

In an owner controller insurance program (“OCIP”), MTA RIM arranges for the insurance coverage for all of the construction activity covered by the OCIP, rather than reimbursing the individual contractors and subcontractors for obtaining their own insurance. OCIPs have historically been more economical than requiring the contractors and subcontractors to obtain the insurance due to, among other things, the risk pooling nature of the program (i.e., the risks relating to insuring each individual project separately is generally considered greater than the risks associated with collectively insuring many projects) and the MTA, due to its financial strength and successful operation of safety management programs at the job sites, is generally better able to procure insurance at favorable rates than individual smaller contractors and subcontractors. In addition, an OCIP provides the same level of insurance coverage at each project, which was not always possible when the individual contractors and subcontractors were required to obtain the insurance.

Generally, commercial insurance policies are obtained for the OCIP, but FMTAC will typically retain a significant portion of each insured loss which ranges from the first $250,000 or $500,000 of each insured workers compensation or general liability loss up to the first $50 million of a builders risk loss on a network expansion project. FMTAC holds deposit moneys and/or collateral in trust with a commercial bank as security for its reimbursement obligation to the commercial insurance carrier for any losses. Unexpended funds are returned to the Related Entities at the conclusion of the program. The following are active OCIPs:

o MTA New York City Transit Station, Escalators and Elevators (2000-2004 Program) o MTA New York City Transit Line Structures, Shops, Yards and Depots (2000-2004 Program) o MTA Long Island Rail Road East Side Access o MTA Long Island Rail Road and MTA Metro-North Railroad 2000-2004 MTA Capital Programs o MTA New York City Transit 2005-2009 MTA Capital Program o MTA New York City Transit Second Avenue Subway o MTA Long Island Rail Road and MTA Metro-North Railroad 2005-2009 MTA Capital Programs

Builder’s Risk

• Builder’s Risk insurance is a type of property insurance that provides coverage for physical damage to the insured structure during the course of construction. Builder’s Risk insurance is not liability insurance.

• Builder’s Risk for the Capital Program OCIPs covers the projects for the full project value up to a limit of either $50 million or $100 million depending upon the program and/or the value of the project. The East Side Access Project has a limit of $300 million and Second Avenue Subway has a limit of $500 million.

• Claims and claims administration are funded out of the General Operating Account.

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LITIGATION

General

The Related Entities maintain extensive property, liability, station liability, force account, construction and other insurance as generally described above in this Part 5 under “INSURANCE.” Many of the claims for money damages described below may be fully or substantially covered by insurance, subject to the individual agency retention set forth under “INSURANCE – FMTAC Excess Loss Fund.” Each of the Related Entities additionally annually budgets an amount that it projects will be sufficient to pay for judgments and claims during that year.

The Related Entities also provide accruals in their financial statements for their estimated liability for claims by third parties for personal injury arising from, among other things, bodily injury (including death), false arrest, malicious prosecution, and libel and slander, for property damage for which they may be liable as a result of their operations, and advertising offense, including defamation, invasion of right of privacy, piracy, unfair competition and idea misappropriation. The estimated liabilities are based upon independent actuarial advice obtained by the Related Entities. However, except in special circumstances and except for the annual judgments and claims budgeted amounts, additional cash reserves are not generally established in an amount equal to the full amount of the accrual.

MTA

Janes and Schwartz v. TBTA, MTA, Kalikow and Ascher. See description below under “MTA Bridges and Tunnels.”

In the Matter of Nicholas Casale v. MTA, et al. In May 2003, MTA discharged petitioner, the then- Deputy Director of Security, as well as the Director of Security, Louis Anemone. Thereafter, each submitted identical notices of claim demanding damages of $10 million. On September 5, 2003, petitioner commenced an Article 78 proceeding in New York State Supreme Court against MTA, claiming that his dismissal was defamatory, that he was deprived of his liberty right to clear his name, and that his dismissal was arbitrary, capricious and contrary to law. He sought his attorney fees, back pay and other unspecified damages provided by law. The Court granted petitioner a “name-clearing hearing,” and a hearing to determine if his termination was contrary to law. The Court also granted petitioner’s request to file an amended petition in order to include a claim for compensatory and other money damages, and petitioner did so. Subsequently, the matter was removed to Federal court by the defense, but that court granted petitioner’s request to remand the case back to state court. The name-clearing hearing was conducted in June 2007 before a jointly-selected independent hearing officer, who ruled that petitioner did not meet his burden of proof. On or about January 30, 2008, petitioner moved in New York State Supreme Court for an order vacating and reversing the independent hearing officer’s determinations, which petition MTA has opposed. The motion is pending. MTA cannot determine the outcome of the litigation at this time.

In the Matter of Louis Anemone v. MTA, et al. In May 2003, MTA discharged plaintiff, the then-Director of Security, and his Deputy Director of Security, Nicholas Casale. Thereafter, each submitted identical notices of claim demanding damages of $10 million. In March 2005, plaintiff filed a civil rights action in the United States District Court for the Southern District of New York, alleging retaliation and due process violations, and seeking unspecified compensatory and punitive damages. Defendants have answered the complaint and set forth various factual and legal defenses to the allegations. The parties have now completed both fact and expert discovery. Defendants have moved for summary judgment on all claims. Argument was heard, and the motion is pending. MTA cannot determine the outcome of the litigation at this time.

Actions for Personal Injuries. There are numerous actions pending against MTA claiming personal injuries under the Federal Employers’ Liability Act (“FELA”) for injuries sustained while on duty, wrongful dismissal and other torts.

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Transit System

Actions for Personal Injuries. As of December 31, 2007, MTA New York City Transit and MaBSTOA had an active inventory of approximately 7,800 personal injury cases and approximately 2,000 property damage claims arising out of the operation and administration of the Transit System.

Workers’ Compensation and No-Fault. As of December 31, 2007, MTA New York City Transit and MaBSTOA had an active inventory of approximately 12,000 compensation cases and approximately 5,000 no-fault claims.

Actions Relating to the Transit Capital Program. MTA New York City Transit has received claims from several contractors engaged in work on various capital program projects. The aggregate amount demanded by all such claimants, if recovered in full, could result in an increase in the cost of the capital projects that are the subject of such disputes. The capital program contemplates the payment of such claims from project-specific and general program contingency funds, as well as other available moneys pledged for capital purposes.

MTA Bus

As of December 31, 2007, MTA Bus had an active inventory of approximately 435 open personal injury claims, approximately 1,765 open property damage claims and 295 open no-fault claims arising out of the operation and administration of the MTA Bus System.

Commuter System

Actions for Personal Injuries. MTA Long Island Rail Road and MTA Metro-North Railroad are involved in numerous claims, lawsuits and administrative proceedings arising out of the operation and administration of the Commuter System. Most of these MTA Long Island Rail Road and MTA Metro- North Railroad lawsuits are personal injury claims.

Actions Relating to the Commuter Capital Program. From time to time, MTA Long Island Rail Road and MTA Metro-North Railroad receive claims relating to various Capital Program projects. In general, the aggregate amount demanded by all such claimants, if recovered in full, could result in a material increase in the cost of the capital projects that are the subject of such disputes. The capital program contemplates the payment of such claims from project-specific and general program contingency funds, as well as other available moneys pledged for capital purposes.

MTA Bridges and Tunnels

Janes and Schwartz v. TBTA, MTA, Kalikow and Ascher. This putative class action suit was filed in U.S. District Court in the Southern District of New York on February 22, 2006, alleging unequal treatment by the MTA and MTA Bridges and Tunnels on toll collection policies at the Verrazano-Narrows Bridge, Cross Bay Veterans Memorial Bridge, and Marine Parkway-Gil Hodges Memorial Bridge. The complaint alleges that the toll collection policy, which allows discounts for Staten Island and Rockaway peninsula residents, unfairly discriminates against out-of-state residents and New Yorkers who do not live in those geographic areas. The complaint alleges violations of the Commerce, Privileges and Immunities, and Equal Protection Clauses of the U.S. Constitution, as well as the civil rights clause of the New York State Constitution. The complaint seeks relief which includes: certification of the class of plaintiffs; a judgment declaring the toll collection policy unconstitutional; a preliminary and permanent injunction; restitution to the class of plaintiffs; and attorney’s fees. The authorities filed an answer on May 15, 2006.

The authorities are vigorously defending this lawsuit, which is still in its early stages. The authorities have produced documents and depositions have been held of certain employees of MTA Bridges and Tunnels. On April 7, 2008, Magistrate Judge Pitman issued an order granting the authorities’ application and staying proceedings in the action, including the making of plaintiffs’ motion for class certification,

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until the earlier of October 6, 2008 or the issuance of the Second Circuit’s decision in a similar case, Selevan v. New York Thruway Authority, where the district court dismissed the complaint. What will happen in Janes after the Second Circuit decides Selevan depends on the substance of the Selevan decision, but a lower court decision is not expected in Janes before the end of 2008. The authorities believe that the challenged toll discounts are constitutional.

Actions for Personal Injuries. MTA Bridges and Tunnels is involved in numerous claims, lawsuits and administrative proceedings arising out of the operation and administration of the MTA Bridges and Tunnels Facilities. Most of these are personal injuries claims. MTA cannot determine the outcome of any of the litigation at this time.

Actions Relating to MTA Bridges and Tunnels’ Capital Program. From time to time, MTA Bridges and Tunnels receives claims relating to various Capital Program projects. In general, the aggregate amount demanded by all such claimants, if recovered in full, could result in a material increase in the cost of the capital projects that are the subject of such disputes. The capital program contemplates the payment of such claims from project-specific and general program contingency funds, as well as other available moneys pledged for capital purposes.

MTA Long Island Bus

As of December 31, 2007, LI Bus had an active inventory of approximately 611 personal injury claims, 431 auto property damage claims and 300 open no-fault claims arising out of the operation and administration of the LI Bus System.

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Metropolitan Transportation Authority (A Component Unit of the State of New York)

Independent Auditors’ Report

Consolidated Financial Statements Years Ended December 31, 2007 and 2006

METROPOLITAN TRANSPORTATION AUTHORITY

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ REPORT B-1 – B-2

MANAGEMENT’S DISCUSSION AND ANALYSIS B-3 – B-18

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006:

Consolidated Balance Sheets B-19 – B-20

Consolidated Statements of Revenues, Expenses and Changes in Net Assets B-21 – B-22

Consolidated Statements of Cash Flows B-23 – B-24

Notes to Consolidated Financial Statements B-25 – B-79

Required Supplementary Information – Schedule of Pension Funding Progress B-80

Supplementary Information – Schedule of Financial Plan to Financial Statements Reconciliation B-81

Supplementary Information – Consolidated Reconciliation Between Financial Plan and Financial Statements B-82

Supplementary Information – Consolidated Subsidy Accrual Reconciliation Between Financial Plan and Financial Statements B-83

Deloitte & Touche LLP Two World Financial Center New York, NY 10281-1414 USA Tel: +1 212 436 2000 Fax: +1 212 436 5000 www.deloitte.com

INDEPENDENT AUDITORS’ REPORT

To the Members of the Board of Metropolitan Transportation Authority

We have audited the accompanying consolidated balance sheets of the Metropolitan Transportation Authority (the “MTA”), a component unit of the State of New York, as of December 31, 2007 and 2006, and the consolidated statements of revenues, expenses and changes in net assets, and consolidated cash flows for the years then ended. These consolidated financial statements are the responsibility of the MTA's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We did not audit the financial statements of the New York City Transit Authority (“MTA New York City Transit”), Staten Island Rapid Transit Operating Authority (“MTA Staten Island Railway”), and the Metropolitan Suburban Bus Authority (“MTA Long Island Bus”), which represent 56 percent and 54 percent, and 42 percent and 43 percent, of the assets and revenues of the MTA, respectively, as of and for the years ended December 31, 2007 and 2006. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for MTA New York City Transit, MTA Staten Island Railway and MTA Long Island Bus, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the MTA's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the respective consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the respective consolidated balance sheets of the MTA, as of December 31, 2007 and 2006, and the respective changes in the consolidated statements of revenues, expenses and changes in net assets, and consolidated cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 5 to the consolidated financial statements, in 2007, the MTA adopted Governmental Accounting Standards Board Statement (GASB) No. 45, Accounting and Financial Reporting by Employers for Post Employment benefits Other Than Pensions.

Member of Deloitte Touche Tohmatsu

The Management’s Discussion and Analysis on pages 3 through 18 is not a required part of the basic consolidated financial statements, but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of the MTA’s management. We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

Our audits were conducted for the purpose of forming an opinion on the MTA’s consolidated basic financial statements. The schedule of pension funding progress, schedule of financial plan to financial statements reconciliation, schedule of consolidated reconciliation between financial plan and financial statements, and schedule of consolidated subsidy accrual reconciliation between financial plan and financial statements are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. This supplementary information is the responsibility of the MTA’s management. The schedule of pension funding progress has been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic consolidated financial statements and, in our opinion, based on our audits and the reports of other auditors, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. The schedule of financial plan to financial statements reconciliation, schedule of consolidated reconciliation between financial plan and financial statements, and schedule of consolidated subsidy accrual reconciliation between financial plan and financial statements have not been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, accordingly, we express no opinion on them.

April 24, 2008

B-2

METROPOLITAN TRANSPORTATION AUTHORITY

MANAGEMENT’S DISCUSSION AND ANALYSIS YEARS ENDED DECEMBER 31, 2007 AND 2006 (Amounts in Millions)

1. OVERVIEW OF THE FINANCIAL STATEMENTS

Introduction This report consists of four parts: Management’s Discussion and Analysis (“MD&A”), Consolidated Financial Statements, Notes to the Consolidated Financial Statements, and Supplementary Information.

Consolidated Financial Statements include:

Consolidated Balance Sheets which provide information about the nature and amounts of investments in resources (assets) and the obligations to Metropolitan Transportation Authority (the “MTA”) creditors (liabilities), with the difference between the two reported as net assets.

Consolidated Statements of Revenues, Expenses, and Changes in Net Assets which provide information about the MTA’s changes in net assets for the period then ended and accounts for all of the period’s revenues and expenses, measures the success of the MTA’s operations during the period and can be used to determine how the MTA has funded its costs.

The Consolidated Statements of Cash Flows which provide information about the MTA’s cash receipts, cash payments and net changes in cash resulting from operations, non-capital financing, capital and related financing and investing activities.

Notes to the Consolidated Financial Statements provide information that is essential to understanding the consolidated financial statements, such as the MTA’s accounting methods and policies, details of cash and investments, employee benefits, long-term debt, lease transactions, future commitments and contingencies of the MTA, and information about other events or developing situations that could materially affect the MTA’s financial position.

Required Supplementary Information provides information concerning the MTA’s progress in funding its obligation to provide pension benefits to its employees.

Management’s Discussion and Analysis provides a narrative overview and analysis of the financial activities of the MTA for the years ended December 31, 2007 and 2006. This management discussion and analysis is intended to serve as an introduction to the MTA’s consolidated financial statements. It provides an assessment of how the MTA’s position has improved or deteriorated and identifies the factors that, in management’s view, significantly affected the MTA’s overall financial position. It may contain opinions, assumptions, or conclusions by the MTA’s management that should not be considered a replacement for, and must be read in conjunction with, the consolidated financial statements.

2. FINANCIAL REPORTING ENTITY

The Metropolitan Transportation Authority was established under the New York Public Authorities Law and is a public benefit corporation and a component unit of the State of New York whose mission is to continue, develop, and improve public transportation and to develop and implement a unified public transportation policy in the New York metropolitan area.

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MTA Related Groups

 Headquarters (“MTAHQ”) provides general oversight, planning and administration, including budget, cash management, finance, legal, real estate, treasury, risk management, and other functions to the related groups listed below.

 The Long Island Rail Road Company (“MTA Long Island Rail Road”) provides passenger transportation between New York City and Long Island.

 Metro-North Commuter Railroad Company (“MTA Metro-North Railroad”) provides passenger transportation between New York City and the suburban communities in Westchester, Dutchess, Putnam, Orange, and Rockland counties in New York State and New Haven and Fairfield counties in Connecticut.

 Staten Island Rapid Transit Operating Authority (“MTA Staten Island Railway”) provides passenger rail transportation on Staten Island.

 Metropolitan Suburban Bus Authority (“MTA Long Island Bus”) provides public bus service in Nassau and Queens counties.

 First Mutual Transportation Assurance Company (“FMTAC”) operates as a captive insurance company to provide insurance coverage for property and primary liability.

 New York City Transit Authority (“MTA New York City Transit”) and its subsidiary, the Manhattan and Bronx Surface Transit Operating Authority (“MaBSTOA”) provide subway and public bus service within the five boroughs of New York City.

 Triborough Bridge and Tunnel Authority (“MTA Bridges and Tunnels”) operates seven toll bridges, two tunnels, and the Battery Parking Garage.

 MTA Capital Construction Company (“MTA Capital Construction”) provides oversight for the planning, design, and construction of current and future major MTA system expansion projects.

 MTA Bus Company (“MTA Bus”) operates certain bus routes in areas previously served by private bus operators pursuant to franchises granted by the City of New York.

3. CONDENSED FINANCIAL INFORMATION

The following sections discuss the significant changes in the MTA’s financial position for the year ended December 31, 2007. An analysis of major economic factors and industry trends that have contributed to these changes is provided. It should be noted that for purposes of the MD&A, the information contained within the summaries of the consolidated financial statements and the various exhibits presented were derived from the MTA’s consolidated financial statements. All dollar amounts are in millions.

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Total Assets, Distinguished Between Capital Assets, Net and Other Assets

December December December 2007 2006 2005 (Amounts in Million)

Capital assets, net (see Note 6) $ 40,611 $ 38,307 $ 35,900 Other assets 11,158 11,778 10,726

Total assets $ 51,769 $ 50,085 $ 46,626

Capital Assets, Net December 31, 2007 December 31, 2006

Land 0% Land 0%

Other 15% Construction work- Other 15% Construction work- in-progress 15% in-progress 14%

Buildings and Infrastructure Buildings and Infrastructure structures 24% 24% structures 23% 24%

Bridges and Buses 2% Buses 2% Bridges and Tunnels 4% Tunnels 4% Passenger cars and Passenger cars and locomotives 17% locomotives 17%

December 31, 2007 versus 2006

 Net capital assets increased at December 31, 2007 by $2,304. The largest increase, $1,035, occurred in other capital assets (which includes work trains, service vehicles, passenger stations, and other equipment, excluding passenger cars and locomotives and buses); infrastructure, $860; construction in progress, $700; passenger cars and locomotives, $658; and buildings and structures, $362. These increases were partially offset by additional accumulated depreciation of $1,637. Some of the more significant projects contributing to the increase included:

 Rehabilitation of the East River tunnel, including safety improvements and ventilation projects.

 Projects upgrading shops and yards and a new automated materials handling system in the Hillside Complex of MTA Long Island Rail Road.

 Milestone costs for construction, testing, and quality assurance of new electric passenger cars.

 MTA Long Island Rail Road signals and communication assets have continued to grow with a number of projects nearing completion, such as the fiber optic network and various microprocessor signal projects.

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 Passenger station rehabilitations continue, including the Atlantic Terminal Phase II and Broadway station.

 MTA Long Island Rail Road security projects, including hardening of Penn Station, Jamaica, and the 63rd Street tunnel.

 MTA Long Island Rail Road placed into service an additional 34 new M-7 electric cars during the year and retired 8 M-1 electric cars.

 Improvements to MTA Long Island Rail Road’s infrastructure road-assets continued under the 2007 Track Program that provided the replacement of various track elements and branches.

 Design and installation of a pilot Communications Based Train Control system on Canarsie Line.

 MTA New York City Transit station rehabilitation at various locations on various lines, and the Fulton Street Transit Center.

 MTA New York City Transit placed the following in service during 2007, R160 subway cars (294) and passenger buses (150).

 Elevated line structural rehabilitation and subway tunnel rehabilitation.

 Design and construction of a new depot at the Grand Avenue facility.

 Installation of chemical, biological, and radiological early detection equipment in Grand Central Terminal.

 Replacement of the deck at the Triborough and Bronx-Whitestone Bridges, including span replacement on the Bronx-Whitestone Bridge and rehabilitation of the electrical and mechanical systems at the Triborough Bridge. Also, the rehabilitation of the lower level approaches and suspended deck at the Verrazano-Narrows Bridge and the lower deck replacement at the Henry Hudson bridge

 Other assets had a net decrease of $620. The items contributing to this change include but are not limited to:

 A net decrease in current and non-current investments and investments held under capital leases of $1,232 due to use of funds for capital expenditures, debt service payments on bonds lease obligations, and operating expense.

 A decrease of $59 in State and regional mass transit taxes receivable for NYS Petroleum Business Tax Funds accrued receivable being uncollected, not yet received due to timing differences between the recording of revenue and the collection of such funds.

 Cash decreased by a net $25 primarily due to a decrease of $40 by MTA Headquarters related to reductions in operating and capital cash funds available. Also affecting the cash position is New York City Transit’s decrease of $3, FMTAC’s increase of $14, Long Island Rail Road’s increase of $4, MTA Bridges and Tunnels’ increase of $4, and Metro-North Railroad’s reduction in cash of $4.

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 Amounts due from New York City increased by $73. This amount is due primarily to MTA Bus’s receivable.

 Station maintenance, operation, and use assessments increased by $3. This is due to the amount accrued in 2007 for the various counties which was based on the prior year’s bill.

 Other subsidies receivable decreased by $27 due to a decrease of $34 at MTA Bus for various advance payments and an increase at New York City Transit of $7 for the urban tax subsidy receivable.

 Advances to defined benefit pension decreased $259 as a result of $325 transferred to noncurrent assets, $32 being amortized in the current year, and $2 miscellaneous adjustment. Offsetting these decreases is an $100 prepayment to the defined benefit pension plan.

 Material and supplies increased by $64. This increase is attributable primarily to increases at MTA New York City Transit of $20, MTA Long Island Rail Road of $19, and MTA Metro- North Railroad of $20. The increase is to insure availability of parts and supplies for emergency needs.

 Prepaid expense and other current assets increased by $144 due mainly to prepaid rent, NYSLERS and insurance premiums

 Other non-current assets increased by $604. This was due primarily to un-requisitioned funds for NYCT capital expenditures and for defined benefits pension assets that will be amortized over a future period. The increase was offset by miscellaneous decreases by other agencies.

December 31, 2006 versus 2005

 Net capital assets increased at December 31, 2006 by $2,407. The most significant portion of the increase occurred in infrastructure, $1,316; followed by other (which includes work trains, service vehicles, and other equipment, excluding passenger cars and locomotives and buses), $1,074; buildings and structures, $1,055; and passenger cars and locomotives, $483. These increases were partially offset by normal depreciation expenses, the decommissioning of 206 M-1 electric passenger cars, and a locomotive from MTA Long Island Rail Road service, a total of 72 M-1, M-2, and M-3 cars, 79 MU cars, and 1 dual-mode locomotive from Metro-North Railroad service and the recording of a loss on defective concrete ties. Some of the more significant projects contributing to the increase included:

 Rehabilitation of the Dutch Kills Bridge and the East River tunnel, including safety improvements and ventilation projects.

 Projects upgrading shops and yards, and a new automated materials handling system in the Hillside Complex of MTA Long Island Rail Road.

 The 2006 MTA Long Island Rail Road Track Program and various other line structure projects in addition to purchase of new track equipment.

 Passenger station rehabilitation including Atlantic Terminal.

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 Placing in service 244 M-7 electric cars at MTA Long Island Rail Road and 76 at MTA Metro-North Railroad and the overhaul of 15 M-2 cars at MTA Metro-North Railroad.

 Maintaining mainline track replacement program on MTA New York City Transit subway lines.

 MTA New York City Transit switch replacements, tunnel lighting rehabilitation, ventilation facilities at various locations, and rehabilitation of a fan plant at Stenton and Chrystie Streets.

 New Corona maintenance shop and car washer for subway cars and design and construction of new subway depot at Grand Avenue facility.

 Subway station reconstruction and rehabilitation at various locations.

 Purchase of new subway cars and buses.

 Additional milestone costs for construction, testing, and quality assurance oversight associated with the continued purchase of new M-7 electric cars.

 Rehabilitation of the tunnel walls and roadway of the Brooklyn-Battery Tunnel.

 Other assets had a net increase of $1,052. The items contributing to this change include but are not limited to:

 A net increase in current and non-current investments and investments held under capital leases of $388 due in part to the issuance of new bonds offset by use of funds for capital expenditures, debt service payments on bonds and lease obligations, and operating expense.

 An increase of $54 in State and regional mass transit taxes receivable due to recording the accrual of Metropolitan Mass Transit Operating assistance after the New York State budget was approved. The approved budget amount was increased by $323 in 2006 over 2005. In addition, the 2005 appropriation had been received at December 31, 2005 while at December 31, 2006 there remained an outstanding receivable.

 Other subsidies receivable increased by $73 due to the increase in MTA New York City Transit urban tax subsidies.

 In 2006 an advance contribution was made to the MTA Defined Benefit Plans’ Master Trust in the amount of $365 and $60 to the MaBSTOA Pension Plan. No such advances were recorded in 2005.

 Prepaid expenses and other current assets increased a net $24. The increase includes prepaid rent, NYSLERS expense, insurance premiums, and farecard media related with ticket machines, WebTickets, and AirTrain tickets.

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 Material and supplies increased by $25 – primarily at MTA New York City Transit, MTA Long Island Rail Road and MTA Metro-North Railroad – to insure availability of parts and supplies for emergency needs.

Total Liabilities, Distinguishing Between Long-Term Liabilities and Other Liabilities

December December December 2007 2006 2005 (Amounts in Millions)

Current liabilities $ 3,492 $ 3,073 $ 2,834 Long-term liabilities 28,980 27,649 25,799

Total liabilities $ 32,472 $ 30,722 $ 28,633

Total Liabilities

December 31, 2007 December 31, 2006

Other long-term Other long-term liabilities 5% liabilities 9% Accounts Accounts Other current payable/Accrued payable/Accrued liabilities 1% Other current expenses 8% expenses 8% liabilities 1% Obligations under Obligations under capital lease capital lease (Note 7) 9% (Note 8) 5%

Long-term debt Long-term debt (Note 6) 77% (Note 7) 77%

Significant Changes in Liabilities Include:

December 31, 2007 versus 2006

 Current liabilities increased by $419. This net increase is due primarily to:

 Accounts payable and accrued expenses having a net increase of $365. This increase is primarily due to:

o Account payable decreased by $29 due primarily to acceleration of invoices submitted for payments.

o $49 reduction to salaries, wages, and payroll taxes due to payment of retroactive wages on labor contract settlements as well as all increase of headcount at MTA Bus and LIRR.

o A $44 increase on current portion of retirement and death benefits derived mainly from NYCT.

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o $343 increase on other current liabilities. This was due to the increase of the MTAHQ capital and operating accrual for work done on station, track and signal rehabilitation and improvement projects. Also contributing to this increase were increases at FMTAC and MTA Bus.

– The current portion of long-term debt increased $53 related to the impact of debt service payments for State Service Contract Bonds, Certificate of Participation (“COPS”) Bonds, and MTA Bridges and Tunnels General Revenue Bonds.

 Non-current liabilities increased by $1,331. This net increase is primarily related to:

 Increase of $1,290 for other post-employment benefits other than pension (OPEB). This increase is due to the first-time implementation of GASB 45. This statement requires systematic accrual-based measurement and recognition of OPEB costs.

 Long-term debt increased by $971 due primarily to the issuance by MTA of Transportation Revenue Bond, Series 2007A in July of 2007 in the amount of $425.6, Series 2007B in December of 2007 in the amount of $415, Dedicated Tax Fund Bonds in November of 2007 in the amount of $430 and MTA Bridges and Tunnels General Revenue Bonds issue in June 2007 for $223. These increases were offset by a cash defeasance that took place in December 2007 for Transportation Revenue Bonds, DTF Bonds, and MTA Bridges and Tunnels General and Subordinate bonds for a total amount of $296.8. Other variances are due to amortization of premium and discount of prior issuances.

 Obligations under capital lease decreased by $989 due to principal payments in 2007 for various MTA leases

December 31, 2006 versus 2005

 Current liabilities increased by $239. This net increase is due primarily to:

 Accounts payable and accrued expense having an increase of $179. Accounts payable increased by $45 due primarily to timing differences in invoices submitted for payment. Accrued expenses increased by a net of $134. This increase results primarily from increases in salaries, wages, and payroll taxes of $106 due for the most part to TWU wage rate increases based on a contract settlements achieved through arbitration at MTA New York City Transit on December 15, 2006 and accruals for retroactive wage rate adjustments and applicable railroad retirement tax for those unions at MTA Metro-North Railroad which had not settled their contracts for the years 2003, 2004, and 2005, an increase of $45 in vacation and sick pay benefits due to wage rate and headcount increases. This increase is partially offset by a reduction in current portion – retirement and death benefits of $23, due in part to a favorable non-recurring NYCERS pension adjustment and a $15 reduction in the current portion – estimated liability from injuries to persons (See Note 8).

 Other current liabilities had a net increase of $60. This was due to an increase of $32 in the current portion of long-term debt and an increase of $28 in deferred revenue. The deferred revenue increase is due primarily to an increase in the value of unused fare media.

 Non-current liabilities increased by $1,850. This net increase is primarily related to:

 The net increase of $1,891 in long-term debt due primarily to the issuance of $450 of

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Transportation Revenue Bond Anticipation Notes Commercial Paper, $760 MTA Dedicated Tax Fund Bonds (Series 2006A, $350; and Series 2006B, $410), $1,193 of Transportation Revenue Bonds (Series 2006A, $475; and Series 2006B, $718), and $200 of MTA Bridges and Tunnels General Revenue Bonds; and an increase of $82 in miscellaneous other long-term liabilities. These increases are offset by reductions in contract retainage, $36; obligations under capital lease, $34; and reductions in retirement and death benefits, $54.

Total Net Assets, Distinguishing Among Amounts Invested in Capital Assets, Net of Related Debt, Restricted Amounts, and Unrestricted Amounts

December December December 2007 2006 2005 (Amounts in Million)

Invested in capital assets, net of related debt $ 15,903 $ 14,777 $ 14,044 Restricted for debt service and claims 1,088 1,095 1,069 Unrestricted 2,306 3,491 2,880

Total $ 19,297 $ 19,363 $ 17,993

December 31, 2007 versus 2006

At December 31, 2007, the total net assets decreased by $66 from December 31, 2006. This decrease includes net non-operating revenues of $3,735 and appropriations, grants, and other receipts externally restricted for capital projects of $2,035 offset by operating losses of $5,836.

The investment in capital assets, net of related debt increased by $1,126. Though the Authority increased its fixed assets, it also issued new debt.

Funds restricted for debt service and claims decreased by $7 due to bond cash defeasance, and unrestricted decreased by $1,185.

December 31, 2006 versus 2005

At December 31, 2006, the total net assets increased by $1,370 from December 31, 2005. This increase includes net non-operating revenues of $3,953 and appropriations, grants, and other receipts externally restricted for capital projects of $1,260, offset by operating losses of $3,843.

Capital assets, net of related debt, increased by $733 due to the fact that new capital expenditures net of depreciation and retirements were greater than the amount of new debt issued less debt retirement.

Funds restricted for debt service increased by $26 due to the issuance of new bonds.

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Condensed Statement of Revenues, Expenses and Changes in Net Assets

December December December 2007 2006 2005 (Amounts In Millions) Operating Revenues Passenger and tolls $ 5,246 $ 5,081 $ 4,811 Other 420 406 387 Total operating revenues 5,666 5,487 5,198 Nonoperating Revenues Grants, appropriations and taxes 4,504 4,119 3,466 Other 322 275 223 Total nonoperating revenues 4,826 4,394 3,689

Total Revenues 10,492 9,881 8,887

Operating Expenses Salaries and wages 4,339 4,123 3,819 Retirement and other employee benefits 1,690 1,623 1,618 Postemployment benefits other than pensions 1,575 - - Depreciation and amortization 1,689 1,606 1,474 Other expenses 2,209 1,978 1,841 Total operating expense 11,502 9,330 8,752 Nonoperating Expense Interest on long-term debt 1,054 1,039 984 Other nonoperating expense 37 40 45 Total nonoperating expense 1,091 1,079 1,029

Total Expenses 12,593 10,409 9,781 Appropriations, grants and other receipts externally restricted for capital projects 2,035 1,898 1,291 Change in net assets (66) 1,370 397 Net assets, beginning of year 19,363 17,993 17,596

Net assets, end of year $ 19,297 $ 19,363 $ 17,993

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Revenues and Expenses, by Major Source:

December 31, 2007 versus 2006

 Total operating revenues for the year ended December 31, 2007 were $179 higher than for the year ended December 31, 2006.

 Fare and toll revenue increased by $165. Passenger revenue increased by $155 due to ridership and toll revenues increased by $10 due to increased traffic and reduced E-Z pass fees.

 Total operating expenses for the year ended December 31, 2007 were higher than the year ended December 31, 2006 by $2,172.

 Labor costs, including retirement and other employee benefits, were higher by approximately $283. This is primarily due to payroll and overtime increases of $216 for wage rate increases and headcount increases mostly for customer safety, maintenance programs, and the MTA Bus Company’s acquisition and operation of additional bus routes. Retirement and other employee benefits increased $67 primarily for NYCT pension expenses based on an actuarial valuation. Also, contributing to this increase are other fringe benefits costs for additional headcount.

 Post-employment benefits other than pensions increased by $1,575 due to the implementation of GASB 45 adopted in 2007.

 Non-labor operating costs were higher by approximately $314. Cost elements contributing to this increase were depreciation resulting in part from new capital assets being placed into service, $83; traction and propulsion power and fuel expense increases of $31 are due primarily to fuel price increases. Public liability claims expense increased $71 primarily due to actuarial review of current claims data. Materials and supplies costs increased by $70 due mainly to additional subway car body structure parts, bus electrical systems, heating/air conditioning equipment, and subway propulsion motors. Paratransit service contract costs increased $49 primarily due to increased trip volume and a decrease in productivity based on a line assigned to new vendors.

 Total grants, appropriations, and taxes were higher by approximately $385 for the year ended December 31, 2007 compared to the year ended December 31, 2006. The major components of the increase are tax-supported subsidies-NYS, $237, and tax-supported subsidies-NYC and local, $143.

 The increase in tax-supported subsidies from New York State is due primarily to an increase of $260 in Metropolitan Mass Transportation Operating Assistance, a decrease of $12 from NYS for debt service payments, and a decrease of $11 in Petroleum Business Tax.

 The increase in tax-supported subsidies NYC and local is primarily due to an increase in the urban tax and other subsidies received by MTA New York City Transit of $189 and MTA Bus of $27; offset by a net decrease in the Mortgage Recording Taxes of $73.

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December 31, 2006 versus 2005

 Total operating revenues for the year ended December 31, 2006 were $289 higher than in the year ended December 31, 2005.

 Fare revenues and vehicle toll revenues were higher due to increased ridership and traffic and realization for the full year in 2006 of the fare adjustment implemented for 30-Day and 7-Day Unlimited Ride MetroCard, and the express bus fare increases that went into effect on February 27, 2005 generated additional revenues of $134 at MTA New York City Transit; the commuter rail fares that went into effect on March 1, 2005 generated additional revenues of $50; the full-year effect of MTA Bus operation generated $96 additional revenues; and the increased bridge and tunnel crossing charge schedule that went into effect on March 13, 2005 along with the one dollar per month E-ZPass account maintenance fee that went into effect on July 1, 2005 (which fee was terminated effective June 1, 2006) resulted in an additional $5 at MTA Bridges and Tunnels. Long Island Rail Road attributed an increase in its ridership to the higher gasoline prices and job gains in New York City.

 Total operating expenses for the year ended December 31, 2006 were higher than the year ended December 31, 2005 by $578.

 Labor costs, including retirement and other employee benefits, were higher by approximately $309. Wage rate increases, including accrued estimated rate increases in anticipation of wage contract settlements, additional sick and vacation reserve requirements, and the impact of MTA Bus operation of the additional bus routes due to transition in service after the first nine months of 2005 are the primary reasons for the $304 labor cost increases; health and welfare cost increased by approximately $64 due primarily to escalating premium rates for health and welfare plans. Pension expense decreased by $46 due in large part to a NYCERS pension revaluation adjustment based on recently-enacted legislation affecting New York City Transit, partially offset by increases at other agencies. The other fringe benefits increase of $15 is due in large part to the fringe benefit cost associated with MTA Bus operations including workers compensation insurance and other costs directly associated with wages at the other agencies.

 Non-labor operating costs were higher by approximately $269. Cost elements contributing to this increase were depreciation resulting in part from new capital assets being placed into beneficial service, $132; traction and propulsion power and fuel expense increases of $60 are due primarily to fuel price increases. Maintenance and other operating contracts increased by $67 due to increases in operating and facility repair and maintenance requirements, facility heating fuel and power costs, bus tire and tube rental requirements, recycling costs, cost associated with Penn Station tunnel resurfacing, and costs resulting from the discovery of chlordane contamination. Materials and supplies costs increased by $43 primarily at New York City Transit and MTA Bus for parts for fleet maintenance, including bus body structure parts, bus electrical systems, bus engines/cooling systems, bus suspensions and springs, subway propulsion motors, and subway trucks, wheels, and undercarriages. Professional service contracts decreased by $50. Paratransit service contract costs increased $26 primarily due to increased trip volume. Total grants, appropriations, and taxes were higher by approximately $653 for the year ended December 31, 2006 compared to the year ended December 31, 2005. The major components of the increase are tax-supported subsidies-NYS, $389, and tax-supported subsidies-NYC and local, $288.

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 The increase in tax-supported subsidies from New York State is due primarily to an increase of $329 in Metropolitan Mass Transportation Operating Assistance and an increase of $52 in Petroleum Business Tax.

 The increase in tax-supported subsidies NYC and local is primarily due to an increase in the urban tax and other subsidies received by MTA New York City Transit of $147 and MTA Bus of $126; and a net increase in the Mortgage Recording Taxes of $15 partially offset by a reduction in the NYS special aid of $24. In addition Mortgage Recording Tax 1 rate was increased from 25 cents per 100 dollars of mortgage recorded to 30 cents per 100 dollars of mortgage recorded effective June 1, 2005.

4. OVERALL FINANCIAL POSITION AND RESULTS OF OPERATIONS AND IMPORTANT ECONOMIC CONDITIONS

Economic Conditions - Metropolitan New York is the most transit-intensive region in the United States. A financially sound and reliable transportation system is critical to the region’s economic well-being. The MTA’s business consists of urban subway and bus systems, suburban rail and bus systems, and bridge and tunnel facilities, all of which are affected by many different economic forces. In order to achieve maximum efficiency and success in its operations, the MTA must identify economic trends and continually implement strategies to adapt to changing economic conditions.

Through December 2007, system-wide utilization—excluding MTA Bus Company—continued to increase significantly, with 2007 MTA ridership 2.8 percent higher (67.9 million more trips) compared to ridership through December 2006. In addition, MTA Bus Company experienced ridership growth of 10.6 percent through the fourth quarter of 2007, carrying 10.5 million more revenue passengers than in 2006. The transition from private to MTA Bus service was not completed until part-way through the first quarter of 2006. At the start of 2006, service had been transitioned from four of the former franchisees; in early January service was transitioned from Green Bus; at the end of January service was transitioned from Jamaica Bus; and towards the end of February service was transitioned from Triboro Coach. Some of the 2007 ridership increase for MTA Bus, therefore, reflects incomplete ridership numbers from the first quarter of 2006. MTA system-wide utilization, including MTA Bus, was 3.1 percent higher (79.0 million more trips). Vehicle crossing levels at MTA Bridges and Tunnels facilities were 0.8 percent higher (2.3 million more crossings).

Between the fourth quarter of 2006 and the fourth quarter of 2007, New York City added 56,000 new jobs. According to the Federal Reserve Bank’s Coincident Economic Indicator (CEI), an index of broad economic activity, the regional economy continued to experience modest growth. From the fourth quarter of 2006 to the fourth quarter of 2007, the CEI for New York State grew by 1.2 percent, while New Jersey’s increased by 0.9 percent. Economic growth in New York City, however, was more robust than in the larger two-state area: stimulated in part by the rebuilding of the downtown infrastructure and the MTA’s multi-billion-dollar capital programs, the CEI for New York City increased 3.7 percent.

The city’s economic growth was accompanied by an increase in consumer prices, but inflation was lower than the average for all U.S. cities: the consumer price index (CPI-U) in the New York metropolitan area increased by 3.6 percent in the fourth quarter of 2007 relative to the fourth quarter of 2006, while the national consumer price index increased 4.0 percent. Fourth-quarter energy prices were the main contributor to overall inflation, as rising prices built upon the large increases that had occurred in the first and second quarters: fourth-quarter energy prices in the New

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York area were 17.7 percent higher than those prevailing in the fourth quarter of 2006, while consumer prices excluding energy were only 2.5 percent higher. The New York Harbor spot price for conventional gasoline averaged $2.31 per gallon in the fourth quarter, a large increase of 45.3 percent compared to the average spot price in the fourth quarter of 2006. Like energy prices overall, much of this increase took place in the first and second quarters of 2007. Between January and May gasoline prices rose nearly 57 percent, fell throughout the summer, then resumed increasing in the fall at a slower pace.

While New York City continued to experience strong growth, the national economy slowed considerably in the fourth quarter, and growth of real Gross Domestic Product fell to only 0.6 percent annually. This compares to annual real GDP growth of 3.8 percent and 4.9 percent in the second and third quarters, respectively. Consequently, third and fourth quarter interventions by the Federal Reserve Bank, aimed at forestalling recession, contrast sharply with prior Federal Reserve Bank actions in the recent past. As the national economy emerged from the recession of 2001- 2003, the Federal Reserve Board adjusted its monetary policies in an effort to keep inflation under control. From the end of June 2003 – when the Federal Funds Rate was at a 46-year low of 1.0 percent – through June 2006, the Federal Reserve Board raised the Federal Funds Rate by one- quarter point on each of 17 occasions, resulting in a rate of 5.25 percent. These increases had an impact on 30-year conforming fixed mortgage rates, which slowly rose during the first and second quarters of 2006.

Federal restraint between June 2006 and June 2007 reflected steady national income growth with acceptable rates of inflation, and contributed to falling mortgage rates in three consecutive quarters, from the beginning of the third quarter of 2006 through the end of the first quarter of 2007. However, 30-year mortgage rates began to increase thereafter, and did so throughout the second quarter.

Recent decisions by the Federal Reserve Board indicate that inflation, though now a concern, has become secondary to mounting insecurity in financial and housing markets. In the third quarter of 2007, the Federal Reserve Board elected to lower the Federal Funds Rate by a half point, from 5.25 to 4.75 percent, the first diminution since the end of June 2003. In the fourth quarter, the rate was lowered by a quarter point in October and again in December, resulting in a target rate of 4.25 percent. These moves were intended to foster moderate growth and to counter tightening credit conditions, especially in mortgage markets, where the housing downturn threatened to put a brake on economic expansion or, worse, to pull the economy into recession.

The influence of Federal Reserve monetary policy on the mortgage market is a matter of interest to the MTA, since variability of mortgage rates can affect the number of real estate transactions and can thereby impact receipts from the Mortgage Recording Tax and Urban Tax, two sources of MTA revenue. Although Urban Tax receipts outpaced 2006 receipts through the fourth quarter (up 32 percent), MRT receipts fell by 8 percent and there were strong signs that residential transactions in the MTA region had slowed. Both MRT-1 and MRT-2 receipts declined in the MTA region as a whole. Through December, revenues from MRT-1 dropped 4 percent and MRT-2 revenues fell by 15 percent. MRT-1 is paid on all mortgages, while MRT-2 is paid only on residential mortgages where the structure contains one to six individual dwelling units. The decline in both MRT-1 and MRT-2 provides the strongest indication in some time of a slowdown across the entire MTA region in real estate markets, and even a 4 percent increase in MRT-1 receipts in New York City was not enough to offset the downturn.

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Results of Operations – Paid MTA Bridges and Tunnels’ traffic level for the year ended December 31, 2007 reached 304.4 million vehicles. Total volume was 0.8 percent greater in 2007 compared to 2006. Through October 2007, traffic was up by 1.4 percent primarily due to relatively favorable weather. The largest increases occurred in May and June, with volumes growing 2.9 percent each month due to considerably less rain in 2007 than in 2006. The traffic gains through October were partially offset by declines of 1.2 percent in November and 4.6 percent in December. Weather conditions were not as favorable in November and December of 2007 as compared to 2006. In addition, gas prices were higher in November and December of 2007, with regional prices exceeding $3.00 per gallon.

MTA New York City Transit’s fare revenues for the year ended December 31, 2007 were higher than in 2006 by $96 or 3.5 percent. Total ridership from fares was 2,306, the highest annual ridership since 1969, and an increase of 61 or 2.7 percent above 2006. Subway ridership was 1,563, an increase of 64 or 4.2 percent above 2006, and the highest subway ridership since 1951.

MTA Long Island Rail Road’s ridership for the year ended December 31, 2007 was at 86.1 million on passenger revenues of $479.4. Revenues increased by approximately $22 or 4.8 percent for the year ended December 31, 2007 over the year ended December 31, 2006. Long Island Rail Road served this record number of customers while at the same time hitting a modern-day high for yearly on-time performance in 2007 of 94.1 percent.

MTA Metro-North Railroad’s operating revenue increased by $22.3 or approximately 4.9 percent for the year ended December 31, 2007 over the year ended December 31, 2006. Ridership on the Harlem, Hudson, and New Haven Lines increased in 2007 by approximately 4.0 percent. This includes increases in commuter ridership to Manhattan, increases in customers traveling between stations, and weekend travel.

The MTA receives the equivalent of four quarters of Metropolitan Mass Transportation Operating Assistance receipts each year, with the State advancing the first quarter of each succeeding calendar year’s receipts in the fourth quarter of the current year. This results in little or no Metropolitan Mass Transportation Operating Assistance receipts being received during the first quarter of each calendar year. The MTA has made other provisions to provide for cash liquidity during this period. During the first quarter of 2008, the State did not advance any payments of MMTOA assistance to the MTA from MTA’s 2008 appropriation. There has been no change in the timing of the State’s payment of, or MTA’s receipt of, Dedicated Mass Transportation Trust Fund (“MTTF”) receipts, which MTA anticipates will be sufficient to make monthly principal and interest deposits into the Debt Service Fund for the Dedicated Tax Fund Bonds.

Over the last few years, the mortgage recording taxes payable to the MTA generally exceeded expectations, due primarily to the high level of home buying and refinancing encouraged by historically low interest rates. In the last quarter of 2007, however, the national downturn in housing markets began to impact the frequency of local real estate transactions, and the collection of mortgage recording taxes fell. In spite of the Federal Reserve Bank’s determination to forestall a recession by successively lowering interest rates, the MTA expects mortgage recording taxes to continue to decline in 2008.

Capital Programs – At December 31, 2007, $11,021 had been committed and $3,674 had been expended for the combined 2005-2009 MTA Capital Programs and the 2005-2009 MTA Bridges and Tunnels Capital Program, and $19,957 had been committed and $17,014 had been expended for the combined 2000-2004 MTA Capital Programs and the 2000-2004 MTA Bridges and Tunnels Capital Program.

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MTA’s and MTA Bridges and Tunnels’ capital programs are described in Note 1 to the consolidated financial statements.

5. CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS

During the first quarter of 2008, ratings of several municipal bond insurers were downgraded by the three rating agencies, thereby lowering the ratings of MTA and MTA Bridges and Tunnels bonds insured by such insurers. The bond insurer downgrades have affected municipal issuers nationwide, including all major New York State issuers, in terms of market volatility and increased interest costs on variable rate bonds. These downgrades have not affected the underlying MTA and MTA Bridges and Tunnels bond ratings.

Additionally many regularly scheduled auctions of variable rate bonds currently in the auction mode have been failing since there are not enough buy orders to cover sell orders. In the event of a “failed” auction, the periodic rate for such bonds is set at a stated percentage of one month LIBOR (London Interbank Offered Rate) index. In mid-April MTA and MTA Bridges and Tunnels were obligated to pay interest rates on such failed auction rate bonds ranging from 125 percent to 175 percent of one month LIBOR which was setting around 2.7 percent.

* * * * *

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METROPOLITAN TRANSPORTATION AUTHORITY

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

ASSETS

CURRENT ASSETS: Cash (Note 3) $ 130 $ 155

Investments (Note 3) 1,703 2,604 Restricted investment held under capital lease obligations (Notes 3 and 8) 8 - Receivables: Station Station maintenance, maintenance, operation, operation, and and use use assessments assessments 104 101 State State and and regional regional mass mass transit transit taxes taxes 47 106 MRT Mortgage Receivable Recording Tax receivable 43 60 State State and and local local operating operating assistance assistance 8 8 Other Other subsidy subsidies 81 108 Connecticut Connecticut Department Department of of Transportation Transportation 20 7 Due New from York New City York City 101 28 Due from Hudson Yards Infrastructure Corporation 67 - Capital project receivable from federal and state government 209 - Other Other 222 353 Less Less allowance allowance for for doubtful doubtful accounts accounts (23) (25)

Total Total receivables receivables - net- net 879 746

Materials and supplies 381 317 Advance to defined benefit pension trust 166 425 Prepaid expenses and other current assets (Note 2) 258 114

Total Total receivables current assets - net 3,525 4,361 NONCURRENT ASSETS: Capital assets - net (Note 6) 40,611 38,307 Restricted investment held under capital lease obligations (Notes 3 and 8) 1,483 2,463 Investments (Notes 3 and 6) 2,224 1,583 Receivable from New York State 2,197 2,246 Other noncurrent assets 1,729 1,125

Total Total noncurrent noncurrent assets assets 48,244 45,724

TOTAL ASSETS $ 51,769 $ 50,085

(continued) See notes to consolidated financial statements.

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METROPOLITAN TRANSPORTATION AUTHORITY

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Accounts payable $ 447 $ 476 Accrued expenses: Interest 201 200 Salaries, wages and payroll taxes 231 280 Vacation and sick pay benefits 684 652 Current portion - retirement and death benefits 228 184 Current portion - estimated liability from injuries to persons (Note 9) 199 176 Other 751 408

Total accrued expenses 2,294 1,900

Current portion - long-term debt (Note 7) 391 338 Current portion - obligations under capital lease (Note 8) 7 7 Deferred revenue 353 352

Total current liabilities 3,492 3,073

NONCURRENT LIABILITIES: Retirement and death benefits 42 6 Estimated liability arising from injuries to persons (Note 9) 1,033 984 Post employment benefits other than pensions (Note 5) 1,290 - Long-term debt (Note 7) 24,515 23,544 Obligations under capital leases (Note 8) 1,619 2,608 Contract retainage payable 177 180 Other long-term liabilities 304 327

Total noncurrent liabilities 28,980 27,649

Total liabilities 32,472 30,722

NET ASSETS: Invested in capital assets, net of related debt 15,903 14,777 Restricted for debt service and claims 1,088 1,095 Unrestricted 2,306 3,491

Total net assets 19,297 19,363

TOTAL LIABILITIES AND NET ASSETS $ 51,769 $ 50,085

(Concluded) See notes to consolidated financial statements.

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METROPOLITAN TRANSPORTATION AUTHORITY

CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

OPERATING REVENUES: Fare revenue $ 3,995 $ 3,840 Vehicle toll revenue 1,251 1,241 Rents, freight, and other revenue 420 406

Total Total operating operating revenues revenues 5,666 5,487

OPERATING EXPENSES: Salaries and wages 4,339 4,123 Retirement and other employee benefits 1,690 1,623 Postemployment benefits other than pensions 1,575 - Traction and propulsion power 294 278 Fuel for buses and trains 193 178 Insurance 66 49 Claims 164 93 Paratransit service contracts 233 184 Maintenance and other operating contracts 520 527 Professional service contracts 181 177 Materials and supplies 518 448 Depreciation 1,689 1,606 Other 40 44 Total operating expenses 11,502 9,330

OPERATING LOSS (5,836) (3,843)

NON-OPERATING REVENUES (EXPENSES): Grants, appropriations, and taxes: Tax-supported subsidies-NYS 2,291 2,054 Tax-supported subsidies - NYC and local 1,814 1,671 Operating subsidies - NYS 211 206 Operating subsidies - NYC and local 188 188 Total grants, appropriations, and taxes $ 4,504 $ 4,119

(Continued) See notes to consolidated financial statements.

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METROPOLITAN TRANSPORTATION AUTHORITY

CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

Operating subsidies recoverable from Connecticut Department of Transportation related to New Haven Line $ 64 $ 53 Subsidies paid to Dutchess, Orange, and Rockland Counties (17) (20) Suburban Highway Transportation Fund subsidy (20) (20) Interest on long-term debt (1,054) (1,039) Station maintenance, operation and use assessments 142 137 Other non-operating revenue 116 85

Net non operating revenues 3,735 3,315

LOSS BEFORE APPROPRIATIONS (2,101) (528)

APPROPRIATIONS, GRANTS, AND OTHER RECEIPTS EXTERNALLY RESTRICTED FOR CAPITAL PROJECTS 2,035 1,898

CHANGE IN NET ASSETS (66) 1,370 NET ASSETS, BEGINNING OF YEAR 19,363 17,993

NET ASSETS, END OF YEAR $ 19,297 $ 19,363

(Concluded) See notes to consolidated financial statements.

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METROPOLITAN TRANSPORTATION AUTHORITY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES: Passenger receipts/tolls $ 5,472 $ 5,302 Rents and other receipts 326 207 Payroll and related fringe benefits (6,376) (6,128) Other operating expenses (2,406) (1,879)

Net cash used in operating activities (2,984) (2,498)

CASH FLOWS PROVIDED BY/(USED IN) NONCAPITAL FINANCING ACTIVITIES: Grants, appropriations, and taxes 4,512 4,209 Operating subsidies from CDOT 60 52 Suburban transportation fund subsidy (20) (20) Subsidies paid to Dutchess, Orange, and Rockland counties (20) (23) Net cash provided by noncapital financing activities 4,532 4,218 CASH FLOWS PROVIDED BY/(USED IN) CAPITAL AND RELATED FINANCING ACTIVITIES: MTA bond proceeds 1,290 2,020 MTA Bridges and Tunnels bond proceeds 228 207 MTA bonds refunded (211) (281) MTA Bridges and Tunnels bonds refunded (91) - MTA anticipation notes proceeds 750 450 MTA anticipation notes redeemed (439) (11) Capital lease payments (158) (22) Grants and appropriations 2,017 2,191 CDOT capital contributions 1 4 Capital expenditures (4,197) (4,092) Debt service payments (1,608) (1,824) Net cash used in capital and related financing activities (2,418) (1,358)

CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES: Purchase of long-term securities (5,015) (3,551) (Purchase)/sales of maturities of securities - long-term 4,938 3,249 Sale/(purchase) of short-term securities 682 (171) Earnings on investments 240 128

Net cash provided by/ (used in) investing activities 845 (345) NET (DECREASE)/INCREASE IN CASH (25) 17 CASH, BEGINNING OF YEAR 155 138 CASH, END OF YEAR $ 130 $ 155

See notes to consolidated financial statements. (Continued)

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METROPOLITAN TRANSPORTATION AUTHORITY

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 ($ in Millions)

2007 2006

RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Operating loss $ (5,836) $ (3,843) Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 1,689 1,606 Net increase in payables, accrued expenses, and other liabilities 1,390 337 Net increase in receivables (32) (125) Net increase in materials and supplies and prepaid expenses (195) (473) NET CASH USED IN OPERATING ACTIVITIES $ (2,984) $ (2,498)

(Concluded) See notes to consolidated financial statements.

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METROPOLITAN TRANSPORTATION AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2007 AND 2006 (Amounts in Millions)

1. BASIS OF PRESENTATION

The Metropolitan Transportation Authority (“MTA”) was established in 1965, under Section 1263 of the New York Public Authorities Law, and is a public benefit corporation and a component unit of the State of New York (“NYS”) whose mission is to continue, develop and improve public transportation and to develop and implement a unified public transportation policy in the New York metropolitan area.

These consolidated financial statements are of the Metropolitan Transportation Authority, including its related groups (collectively, the “MTA”) as follows:

Metropolitan Transportation Authority and Related Groups -

 Metropolitan Transportation Authority Headquarters (“MTAHQ”) provides support in budget, cash management, finance, legal, real estate, treasury, risk and insurance management, and other services to the related groups listed below.

 The Long Island Rail Road Company (“MTA Long Island Rail Road”) provides passenger transportation between New York City (“NYC”) and Long Island.

 Metro-North Commuter Railroad Company (“MTA Metro-North Railroad”) provides passenger transportation between NYC and the suburban communities in Westchester, Dutchess, Putnam, Orange, and Rockland counties in NYS and New Haven and Fairfield counties in Connecticut.

 Staten Island Rapid Transit Operating Authority (“MTA Staten Island Railway”) provides passenger transportation on Staten Island.

 Metropolitan Suburban Bus Authority (“MTA Long Island Bus”) provides public bus service in NYC and Nassau County, New York.

 First Mutual Transportation Assurance Company (“FMTAC”) provides primary insurance coverage for certain losses, some of which are reinsured, and assumes reinsurance coverage for certain other losses.

 MTA Capital Construction Company (“MTA Capital Construction”) provides oversight for the planning, design and construction of current and future major MTA system-wide expansion projects.

 MTA Bus Company (“MTA Bus”) operates certain bus routes in areas previously served by private bus operators pursuant to franchises granted by the City of New York.

 MTAHQ, MTA Long Island Rail Road, MTA Metro-North Railroad, MTA Staten Island Railway, MTA Long Island Bus, FMTAC, MTA Capital Construction, and MTA Bus, collectively are referred to herein as MTA. MTA Long Island Rail Road and MTA Metro-North Railroad are referred to collectively as the Commuter Railroads.

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 New York City Transit Authority (“MTA New York City Transit”) and its subsidiary, Manhattan and Bronx Surface Transit Operating Authority (“MaBSTOA”), provide subway and public bus service within the five boroughs of New York City.

 Triborough Bridge and Tunnel Authority (“MTA Bridges and Tunnels”) operates seven toll bridges, two tunnels, and the Battery Parking Garage, all within the five boroughs of New York City.

MTA New York City Transit and MTA Bridges and Tunnels are operationally and legally independent of the MTA. These related groups enjoy certain rights typically associated with separate legal status including, in some cases, the ability to issue debt. However, they are included in the MTA’s financial statements because of the MTA’s financial accountability for these entities and they are under the direction of the MTA Board. Under accounting principles generally accepted in the United States of America (“GAAP”), the MTA is required to include these related groups in its financial statements. While certain units are separate legal entities, they do have legal capital requirements and the revenues of all of the related groups of the MTA are used to support the organization as a whole. The components do not constitute a separate accounting entity (fund) since there is no legal requirement to account for the activities of the components as discrete accounting entities. Therefore, the MTA financial statements are presented on a consolidated basis with segment disclosure for each distinct operating activity.

Capital Program - The MTA has ongoing capital programs, which except for MTA Bridges and Tunnels, MTA Long Island Bus and MTA Bus are subject to the approval of the Metropolitan Transportation Authority Capital Program Review Board (“CPRB”), and are designed to improve public transportation in the New York Metropolitan area.

2005-2009 Capital Program – Capital programs covering the years 2005-2009 were originally approved by the MTA Board in April 2005 and subsequently by the CPRB in July 2005 for (1) the commuter railroad operations of the MTA conducted by MTA Long Island Rail Road and MTA Metro-North Railroad (the “2005–2009 Commuter Capital Program”), (2) the transit system operated by MTA New York City Transit and its subsidiary, MaBSTOA, and the rail system operated by MTA Staten Island Railway (the “2005–2009 Transit Capital Program”), and (3) the toll bridges and tunnels operated by MTA Bridges and Tunnels (the “2005–2009 MTA Bridges and Tunnels Capital Program”). The 2005–2009 MTA Bridges and Tunnels Capital Program was effective upon adoption by the MTA Board in April 2005. The 2005–2009 amended Commuter Capital Program and the 2005–2009 Transit Capital program (collectively, the “2005–2009 MTA Capital Programs”) were last amended by the MTA Board in March 2007. This latest 2005-2009 MTA Capital Program amendment was submitted to the CPRB for approval in April 2007, but was subsequently vetoed.

As last amended by the MTA Board, the 2005–2009 MTA Capital Programs and the 2005–2009 MTA Bridges and Tunnels Capital Program, provide for $22,586 in capital expenditures, of which $11,220 relates to ongoing repairs of, and replacements to, the transit system operated by MTA New York City Transit and MaBSTOA and the rail system operated by MTA Staten Island Railway; $3,546 relates to ongoing repairs of, and replacements to, the commuter system operated by MTA Long Island Rail Road and MTA Metro-North Railroad; $5,830 relates to the expansion of existing rail networks for both the transit and commuter systems to be managed by MTA Capital Construction; $495 relates to a multi-faceted security program; $155 relates to MTA interagency initiatives including MTA Police Department plus an MTA-wide integrated computer systems initiative, $138 relates to MTA Bus company initiatives; and $1,202 relates to the ongoing repairs of, and replacements to, MTA Bridges and Tunnels facilities.

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The combined funding sources for the MTA Board-approved 2005–2009 MTA Capital Programs and 2005–2009 MTA Bridges and Tunnels Capital Program include $9,441 in MTA and MTA Bridges and Tunnels Bonds, $1,450 in New York State general obligation bonds approved by the voters in the November 2005 election, $7,842 in Federal Funds, and $3,853 from other sources.

At December 31, 2007, $11,021 had been committed and $3,674 had been expended for the combined 2005-2009 MTA Capital Programs and the 2005-2009 MTA Bridges and Tunnels Capital Program.

2000-2004 Capital Program – Capital programs covering the years 2000-2004 were originally approved by the MTA Board in April 2000 and subsequently by the CPRB in May 2000 for (1) the commuter railroad operations of the MTA conducted by MTA Long Island Rail Road and MTA Metro-North Railroad (the “2000-2004 Commuter Capital Program”), (2) the transit system operated by the MTA New York City Transit and its subsidiary, MaBSTOA, and the rail system operated by MTA Staten Island Railway (the “2000-2004 Transit Capital Program”), and (3) the toll bridges and tunnels operated by MTA Bridges and Tunnels (the 2000-2004 MTA Bridges and Tunnels Capital Program”). The 2000-2004 MTA Bridges and Tunnels Capital Program was effective upon adoption by the MTA Board in April 2000. The 2000-2004 amended Commuter Capital Program and the 2000-2004 amended Transit Capital Program (collectively, the “2000-2004 MTA Capital Programs”) were most recently amended by the MTA Board in December 2006. This latest 2000-2004 MTA Capital Program amendment was submitted to the CPRB for approval in April 2007, but was subsequently vetoed.

As last amended by the MTA Board, the 2000-2004 MTA Capital Programs and the 2000-2004 MTA Bridges and Tunnels Capital Program through December 31, 2007 provide for $21,147 in capital expenditures, of which $10,295 relates to ongoing repairs of, and replacements to, the Transit System operated by MTA New York City Transit and MaBSTOA and the rail system operated by MTA Staten Island Railway; $3,959 relates to ongoing repairs of, and replacements to, the Commuter System operated by MTA Long Island Rail Road and MTA Metro-North Railroad; $4,689 relates to the expansion of existing rail networks for both the transit and commuter systems to be managed by MTA Capital Construction; $450 relates to planning and design and customer service projects; $249 relates to World Trade Center repair projects; $1,003 relates to the ongoing repairs and replacements to MTA Bridges and Tunnels facilities; and $502 relates to MTA Bus.

The combined funding sources for the MTA Board-approved 2000–2004 MTA Capital Programs and 2000–2004 MTA Bridges and Tunnels Capital Program include $7,919 in bonds, $6,522 in Federal funds, $4,575 from the proceeds of the MTA/MTA Bridges and Tunnels debt restructuring in 2002, and $2,131 from other sources.

At December 31, 2007, $19,957 had been committed and $17,014 had been expended for the combined 2000-2004 MTA Capital Programs and the 2000-2004 MTA Bridges and Tunnels Capital Program.

The federal government has a contingent equity interest in assets acquired by the MTA with federal funds, and upon disposal of such assets, the federal government may have a right to its share of the proceeds from the sale. This provision has not been a substantial impediment to the MTA’s operation.

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2. SIGNIFICANT ACCOUNTING POLICIES

In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Fund Accounting, the MTA applies all applicable GASB pronouncements as well as Financial Accounting Standards Board (“FASB”) Statements and Interpretations issued on or before November 30, 1989 that do not conflict with GASB pronouncements. The MTA has elected not to apply FASB Standards issued after November 30, 1989.

Estimates - Financial statements prepared in accordance with GAAP require the use of estimates made by management for certain account balances and transactions. Actual results may differ from these estimates.

Principles of Consolidation - The consolidated financial statements consist of MTAHQ, MTA Long Island Rail Road, MTA Metro-North Railroad, MTA Staten Island Railway, MTA Long Island Bus, FMTAC, MTA Bus, MTA Capital Construction, MTA New York City Transit, and MTA Bridges and Tunnels. All significant related group transactions have been eliminated for consolidation purposes.

Basis of Accounting - The MTA follows enterprise fund and accrual basis of accounting, which is similar in presentation to private business enterprises.

Investments - The MTA’s investment policies comply with the New York State Comptroller’s guidelines for such operating and capital policies. Those policies permit investments in, among others, obligations of the U.S. Treasury, its agencies and instrumentalities, and repurchase agreements secured by such obligations. FMTAC’s investment policies comply with New York State Comptroller guidelines and New York State Department of Insurance guidelines.

Investments expected to be utilized within a year of December 31 have been classified as current assets in the financial statements.

All investments are recorded on the balance sheets at fair value and all investment income, including changes in the fair value of investments, is reported as revenue on the statement of revenues, expenses and changes in net assets. Fair values have been determined using quoted market values at December 31, 2007 and December 31, 2006.

Materials and Supplies - Materials and supplies are valued principally at the lower of average cost or market value, net of obsolescence reserve.

Prepaid Expenses and Other Current Assets – Prepaid expenses and other current assets reflect advance payment of insurance premiums as well as farecard media related with ticket machines, WebTickets and AirTrain tickets.

Capital Assets - Properties and equipment are carried at cost and are depreciated on a straight-line basis over estimated useful lives. Expenditures for maintenance and repairs are charged to operations as incurred.

Liability Insurance – FMTAC, an insurance captive subsidiary of MTA, operates a liability insurance program (“ELF”) that insures certain claims in excess of the self-insured retention limits of the agencies on both a retrospective (claims arising from incidents that occurred before October 31, 2003) and prospective (claims arising from incidents that occurred on or after October 31, 2003) basis. For claims arising from incidents that occurred on or after November 1, 2001, but before

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November 1, 2006, the self-insured retention limits are: $7 million for MTA New York City Transit, MaBSTOA, MTA Bus, MTA Staten Island Railway, MTA Long Island Rail Road, and MTA Metro- North Railroad; $2 million for MTA Long Island Bus; and $1.4 million for MTA and MTA Bridges and Tunnels. Effective November 1, 2006, the self-insured retention limits for ELF were increased to the following amounts: $8 million for MTA New York City Transit, MaBSTOA, MTA Bus, MTA Staten Island Railway, MTA Long Island Rail Road and MTA Metro-North Railroad; $2.3 million for MTA Long Island Bus; and $1.6 million for MTA and MTA Bridges and Tunnels. The maximum amount of claims arising out of any one occurrence is the total assets of the program available for claims, but in no event greater than $50 million. The retrospective portion contains the same insurance agreements, participant retentions, and limits as existed under the ELF program for occurrences happening on or before October 30, 2003. On a prospective basis, FMTAC issues insurance policies indemnifying the MTA, its subsidiaries and affiliates above their specifically assigned self-insured retention with a limit of $50 million per occurrence with a $50 million annual aggregate. FMTAC charges appropriate annual premiums based on loss experience and exposure analysis to maintain the fiscal viability of the program. On December 31, 2007, the balance of the assets in this program was $76.7 million.

MTA also maintains an All-Agency Excess Liability Insurance Policy that affords the MTA and its subsidiaries and affiliates additional coverage limits of $350 million, for a total limit of $400 million ($350 excess of $50). In certain circumstances, when the assets in the program described in the preceding paragraph are exhausted due to payment of claims, the All-Agency Excess Liability Insurance will assume the coverage position of $50 million.

On March 1, 2007, the “non-revenue fleet” automobile liability policy program was renewed. This program provides third-party auto liability insurance protection for the MTA and its member agencies with the exception of MTA New York City Transit and MTA Bridges and Tunnels. The policy provides $7 million per occurrence limit with a $0.5 million per occurrence deductible. FMTAC renewed its deductible buy back policy, where it assumes the liability of the agencies for their deductible. FMTAC issued a comprehensive automobile excess liability policy that provides $1 million per occurrence excess of $7 million.

On March 1, 2007, the “Access-A-Ride” automobile liability policy program was renewed. This program provides third-party auto liability insurance protection for the MTA New York City Transit’s Access-A-Ride program, including the contracted operators. This policy provides a $3 million per occurrence limit with a $1 million per occurrence deductible.

On December 15, 2007, FMTAC renewed the primary coverage on the Station Liability and Force Account liability policies $8 million per occurrence loss for MTA Metro-North Railroad and MTA Long Island Rail Road.

Property Insurance – Effective October 31, 2007, FMTAC renewed the all-agency property insurance program. For the period October 31, 2007 through May 1, 2009, FMTAC directly insures property damage claims of the related entities in excess of a $25 million per occurrence self-insured retention (“SIR”), subject to an annual $75 million aggregate. Losses occurring after the retention aggregate is exceeded are subject to a deductible of $7.5 million per occurrence. The total program limit has been maintained at $1.25 billion per occurrence covering property of the related entities collectively. With the exception of acts of terrorism (both domestic and foreign), FMTAC is reinsured in the domestic, London, European, and Bermuda marketplaces for this coverage. Given the absence of major catastrophes in 2006 and 2007, available capacity has emerged, along with pricing reductions. As a result, FMTAC was able to obtain additional reinsurance capacity over last year and

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has fully reinsured the all-risk component for the full $1.25 billion, subject to certain program sublimits.

The property insurance, which was subject to a renewal on October 31, 2007, provides replacement cost coverage for all risks of direct physical loss or damage to all real and personal property, with minor exceptions. The policy also provides extra expense and business interruption coverages.

With respect to acts of terrorism, FMTAC is reinsured by the United States Government for 85 percent of “certified” losses, as covered by the Terrorism Risk Insurance Act of 2007 (originally introduced in 2002). Under the 2007 extension, terrorism acts sponsored by both foreign and domestic organizations are covered. Until 2007, the Act only provided coverage for acts sponsored by foreign organizations. The remaining 15 percent of MTA losses would be covered under an additional policy described below. Additionally, no federal compensation will be paid unless the aggregate industry insured losses exceed a $100 million (“trigger”).

To supplement the reinsurance to FMTAC though TRIA 2007, the MTA obtained an additional commercial reinsurance policy with Lexington Insurance Co. (part of AIG). That policy provides coverage for (1) 15 percent of any “certified” act of terrorism - up to a maximum recovery of $183.75 million for any one occurrence, or (2) 100 percent of any “certified” terrorism loss which does not reach the $100 million trigger – up to a maximum recovery of $100 million for any occurrence. This coverage expires on April 30, 2009. Recovery under this policy is subject to a retention of $25 million per occurrence and $75 million in the annual aggregate – in the event of multiple losses during the policy year. Should the MTA’s retention in any one year exceed $75 million, future losses in that policy year are subject to a retention of just $7.5 million

Operating Revenues

Passenger Revenue and Tolls - Revenues from the sale of tickets, tokens, electronic toll collection system, and farecards are recognized as income as they are used. Deferred revenue is recorded for the estimated amount of unused tickets, tokens, and farecards.

Nonoperating Revenues

 Operating Assistance - The MTA receives, subject to annual appropriation, NYS operating assistance funds that are generally recognized as revenue when all applicable eligibility requirements are met. Generally, funds received under the NYS operating assistance program are fully matched by contributions from NYC and the seven other counties within the MTA’s service area.

 Mortgage Recording Taxes (“MRT”) - Under NYS law, the MTA receives capital and operating assistance through a Mortgage Recording Tax (MRT-1), which is collected by NYC and the seven other counties within the MTA’s service area, at the rate of .25 of one percent of the debt secured by certain real estate mortgages. Effective June 1, 2005, the rate was increased from 25 cents per 100 dollars of recorded mortgage to 30 cents per 100 dollars of recorded mortgage. The MTA also receives an additional Mortgage Recording Tax (MRT-2) of .25 of one percent of certain mortgages secured by real estate improved or to be improved by structures containing one to six dwelling units in the MTA’s service area. MRT-1 and MRT-2 taxes are recognized as revenue based upon reported amounts of taxes collected.

 MRT-1 proceeds are initially used to pay MTAHQ’s operating expenses. Remaining funds, if any, are allocated 55 percent to certain Transit Operations and 45 percent to the Commuter

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Railroads. The Commuter Railroad portion is first used to fund the NYS Suburban Highway Transportation Fund in an amount not to exceed $20 annually (subject to the moneys being returned under the conditions set forth in the governing statute if the Commuter Railroads are operating at a deficit). As of December 31, 2007 and 2006 the amount payable to the NYS Suburban Highway Transportation Fund was $20 for each of the years. Of the MTA New York City Transit portion, the MTA distributed $0 and $111.7 as of December 31, 2007 and December 31, 2006, respectively.

 The first $5 of the MRT-2 proceeds is transferred to the MTA Dutchess, Orange, and Rockland Fund ($1.5 each for Dutchess and Orange Counties and $2 for Rockland County). Additionally, the MTA must transfer to each County’s fund an amount equal to the product of (i) the percentage by which each respective County’s mortgage recording tax payments (both MRT-1 and MRT-2) to the MTA increased over such payments in 1989 and (ii) the base amount received by each county as described above. The counties do not receive any portion of the June 1, 2005 increase in MRT-1 from 25 cents per $100 of recorded mortgage to 30 cents. Excess amounts transferable to the counties as of December 31, 2007 and December 31, 2006, were $11.7 and $15.1, respectively. Through December 31, 2007, the MTA has distributed $26.2 from the MRT-2 funds to MTA Bus and advanced to MTA Bridges and Tunnels $90.8 for the defeasance of MTA Bridges and Tunnels Senior and Subordinate bonds. In the same period in 2006 MTA distributed $40.8 from the MRT-2 fund to the Commuter Railroads and $95.1 to MTA New York City Transit for their current operations. During 2006, $2.1 of MRT-2 funds was transferred to fund the MaBSTOA Pension Plan and $267.1 was transferred to fund the MTA Defined Benefit Pension Plan.

 In addition, MTA New York City Transit Authority receives operating assistance directly from NYC through a mortgage recording tax at the rate of .625 of one percent of the debt secured by certain real estate mortgages and through a property transfer tax at the rate of one percent of the assessed value (collectively referred to as “Urban Tax Subsidies”) of certain properties.

 Dedicated Taxes - Under NYS law, subject to annual appropriation, the MTA receives operating assistance through a portion of the Dedicated Mass Transportation Trust Fund (“MTTF”) and Metropolitan Mass Transportation Operating Assistance Fund (“MMTOA”). The MTTF receipts consist of a portion of the revenues derived from certain business privilege taxes imposed by the State on petroleum businesses, a portion of the motor fuel tax on gasoline and diesel fuel, and a portion of certain motor vehicle fees, including registration and non-registration fees. Effective October 1, 2005, the State increased the amount of motor vehicle fees deposited into the MTTF for the benefit of the MTA. MTTF receipts are applied first to meet certain debt service requirements or obligations and second to pay operating and capital costs. The MMTOA receipts are comprised of .375 of one percent regional sales tax (which was increased effective June 1, 2005 from .25 of one percent), a temporary regional franchise tax surcharge, a portion of taxes on certain transportation and transmission companies, and an additional portion of the business privilege tax imposed on petroleum businesses. MMTOA receipts, to the extent that MTTF receipts are not sufficient to meet debt service requirements, will also be applied to certain debt service obligations, and secondly to operating and capital costs of the Transit System, and the Commuter Railroads.

The State Legislature enacts in an annual budget bill for each state fiscal year an appropriation to the MTA Dedicated Tax Fund for the then-current state fiscal year and an appropriation of the amounts projected by the Director of the Budget of the State to be deposited in the MTA Dedicated Tax Fund for the next succeeding state fiscal year. The assistance deposited into the

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MTTF is required by law to be allocated, after provision for debt service on Dedicated Tax Fund Bonds (see Note 7), 85 percent to certain Transit Operations (not including MTA Bus) and 15 percent to the Commuter Railroads. Revenues from this funding source are recognized based upon amounts of tax reported collected by NYS, to the extent of the appropriation.

 Operating Subsidies Recoverable from Connecticut Department of Transportation (“CDOT”) - The portion of the deficit from operations relating to MTA Metro-North Railroad’s New Haven line is recoverable from CDOT. Under the terms of a renewed Service Agreement, which began on January 1, 2000, and the 1998 resolution of an arbitration proceeding initiated by the State of Connecticut, CDOT pays 100 percent of the net operating deficit of MTA Metro-North Railroad’s branch lines in Connecticut (New Canaan, Danbury, and Waterbury), 65 percent of the New Haven mainline operating deficit, and a fixed fee for the New Haven line’s share of the net operating deficit of Grand Central Terminal (“GCT”) calculated using several years as a base, with annual increases for inflation and a one-time increase for the cost of operating GCT’s North End Access beginning in 1999. The Service Agreement also provides that CDOT pay 100 percent of the cost of non-movable capital assets located in Connecticut, 100 percent of movable capital assets to be used primarily on the branch lines and 65 percent of the cost of other movable capital assets allocated to the New Haven line. Remaining funding for New Haven line capital assets is provided by the MTA. The Service Agreement provides for automatic five-year renewals unless a notice of termination has been provided. The Service Agreement has been automatically renewed for an additional five years beginning January 1, 2005. Capital assets completely funded by CDOT are not reflected in these financial statements, as ownership is retained by CDOT. The Service Agreement provides that final billings for each year are subject to audit by CDOT. Years subsequent to 2000 remain subject to final audit.

 Reimbursement of Expenses - The cost of operating and maintaining the passenger stations of the Commuter Railroads in NYS is assessable by the MTA to NYC and the other counties in which such stations are located for each NYS fiscal year ending March 31, under provisions of the NYS Public Authorities Law. This funding is recognized as revenue based upon an amount, fixed by statute, for the costs to operate and maintain passenger stations and is revised annually by the increase or decrease of the regional Consumer Price Index.

 Pursuant to an agreement NYS and NYC each pays to MTA $45 annually to cover a portion of the cost of the free-fare student program. The estimated cost of this program is approximately $173 for the 2007-2008 school year. It is believed that NYC will continue to provide for the City’s $45 contribution for the 2007-2008 school year, of which $15 was received in December 2007. The MTA NYC Transit approved 2008 Adopted Budget assumes that the remaining $30 from NYC will be received in 2007. It also assumes that the full $45 for the 2006–2007 school year will be received in 2008. The Transit Operation’s 2009–2011 Financial Plan assumes the continuation of the joint funding of the free-fare program for students.

 Policing of the transit system is carried out by the NYC Police Department at NYC’s expense. The MTA, however, continues to be responsible for certain capital costs and support services related to such police activities, a portion of which is reimbursed by NYC. The MTA received approximately $4.2 in the twelve months ended December 31, 2007, and $3.7 in the twelve months ended December 31, 2006 from NYC for the reimbursement of transit police costs. In addition, $0.9 was received in January 2008 for calendar 2007

 Federal law and regulations require a paratransit system for passengers who are not able to ride the buses and trains because of their disabilities. Pursuant to an agreement between NYC and the MTA, MTA New York City Transit had assumed operating responsibility for all paratransit

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service required in NYC by the Americans with Disabilities Act of 1990. The services are provided by private vendors under contract with MTA New York City Transit. NYC reimburses the MTA for the lesser of 33 percent of net paratransit operating expenses defined as labor, transportation, and administrative costs less fare revenues and 6.0 percent of gross Urban Tax Subsidies, or an amount that is 20.0 percent greater than the amount paid by the City for the preceding calendar year. Fare revenue and reimbursements aggregated approximately $111.8 in the twelve months ended December 31, 2007, and $90.8 in the twelve months ended December 31, 2006 Total paratransit expenses, including paratransit service contracts, were $282.3 and $226.8 in 2007 and 2006, respectively.

Grants and Appropriations - Grants and appropriations for capital projects are recorded when requests are submitted to the funding agencies for reimbursement of capital expenditures and beginning in 2001 were recorded as nonoperating revenues in accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. These amounts are reported separately after Total Nonoperating Revenues in the Statements of Revenues, Expenses, and Changes in Net Assets.

Recent Accounting Pronouncements - The MTA has completed the process of evaluating the impact that will result from adopting GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions and has disclosed the required information as per this statement in Note 5. The Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. The Statement was effective for financial statement periods beginning after December 15, 2006.

The MTA has completed the process of evaluating the impact that will result from adopting GASB Statement No. 46, Net Assets Restricted by Enabling Legislation - an amendment of GASB Statement No. 34. The MTA has concluded that GASB Statement No. 46 had no impact on its financial position, results from operations, and cash flows based upon the MTA’s current reporting of its net assets. The Statement clarifies the definition of a “legally enforceable” enabling legislation restriction on a government’s net assets. The statement is effective for fiscal periods beginning after June 15, 2005.

The MTA has completed the process of evaluating the impact that will result from implementing GASB Statement No. 47, Accounting for Termination Benefits. The MTA has concluded that the impact of adopting GASB Statement No. 47 did not have a material impact on its financial position, results of operations, and cash flows. The Statement establishes the accounting standards for voluntary termination benefits (for example, early-retirement incentives) and involuntary benefits (for example, severance benefits). The Statement was effective for fiscal periods beginning after June 15, 2005.

The MTA has completed the process of evaluating the impact that will result from adopting GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of assets and Future Revenues. The MTA has concluded that GASB Statement No. 48 had no impact on its financial position, results from operations, and cash flows. The Statement establishes criteria that governments will use to ascertain whether proceeds received should be reported as revenues or as a liability. The Statement is effective for fiscal periods beginning after December 15, 2006.

The MTA has not completed the process of evaluating the impact that will result from implementing GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation

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Obligations The MTA is therefore unable to disclose the impact GASB Statement No. 49 will have on its financial position, results of operations, and cash flows when such statement is adopted. This Statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations. The Statement is effective for fiscal periods beginning after December 15, 2007.

The MTA has not completed the process of evaluating the impact that will result from implementing GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. The MTA is therefore unable to disclose the impact GASB Statement No. 51 will have on its financial position, results of operations, and cash flows when such statement is adopted. This statement amends GASB Statement 34, paragraphs 19-21, and GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, paragraphs 9e, 16, and 18 and relates to the recognition and recording of intangible assets as capital assets in the statement of net assets. The requirements of this Statement are for financial statements for periods beginning after June 15, 2009.

3. CASH AND INVESTMENTS

Cash, including deposits in transit, consists of the following at December 31, 2007 and 2006:

December December 2007 2006 (Amounts in Million)

Carrying Bank Carrying Bank Amount Balance Amount Balance

FDIC insured or collateralized deposits $ 69 $ 69 $ 72 $ 66 Uninsured and not collateralized 61 79 83 14

$ 130 $ 148 $ 155 $ 80

All collateralized deposits are held by the MTA or its agent in the MTA’s name.

The MTA, on behalf of the Transit operations, MTA Bridges and Tunnels, MTA Long Island Bus, and MTA Bus operations, invests funds which are not immediately required for the MTA’s operations in securities permitted by the New York State Public Authorities Law, including repurchase agreements collateralized by U.S. Treasury securities, U.S. Treasury notes, and U.S. Treasury zero coupon bonds.

The MTA’s uninsured and uncollateralized deposits are primarily held by commercial banks in the metropolitan New York area and are subject to the credit risks of those institutions.

Investments, at fair value, consist of the following at December 31, 2007 and 2006:

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December December 2007 2006 (Amounts in Millions)

Repurchase agreements $ 585 $ 680 U.S. Treasuries due 2007 - 2020 1,967 1,639 Investments restricted for capital lease obligations US Treasury Notes 8 8 Treasury Strips 112 121 Other Agencies 1,371 2,334 Sub-total 1,491 2,463 Other Agencies due 2007 - 2011 1,276 651 Commercial Paper due 2008 99 1,217

Total $ 1,491 $ 5,418 $ 2,463 $ 6,650

Fair values include accrued interest to the extent that interest is included in the carrying amounts. Accrued interest on investments other than Treasury bills and coupons is included in other receivables on the balance sheet. The MTA’s investment policy states that securities underlying repurchase agreements must have a market value at least equal to the cost of the investment.

In connection with certain lease transactions described in Note 8, the MTA has purchased securities or entered into payment undertaking, letter of credit, or similar type agreements or instruments (guaranteed investment contracts) with financial institutions that have a credit rating of AAA by Standard and Poor’s, which generate sufficient proceeds to make payments under the terms of the leases. If the obligors do not perform, the MTA may have an obligation to make the related rent payments.

All investments are either insured or registered and held by the MTA or its agent in the MTA’s name. Investments had weighted average yields of 4.1 percent and 5.0 percent for the years ended December 31, 2007 and 2006, respectively.

Of the above cash and investments, amounts held for restricted purposes were as follows at December 31, 2007 and December 31, 2006: December December 2007 2006 (Amounts in Millions)

Construction or acquisition of capital assets $ 1,975 $ 1,858 Funds received from related groups for investment 830 1,071 Debt service 230 489 Payment of claims 296 269 Restricted for capital leases 1,491 2,463 Other 306 432

Total $ 5,128 $ 6,582

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Credit Risk

At December 31, 2007, the following credit quality rating has been assigned to MTA investments by a nationally recognized rating organization:

Quality Rating Percent of Moody's Total Portfolio

A-1+ $ 181 3.94% A-1 63 1.36% AAA* 1,122 24.43% AA 23 0.50% A 64 1.39% BBB 30 0.65% Not Rated 505 11.01% Government 2,604 56.72%

Total $ 4,592 100.00% * Includes government agencies

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of the investment. Duration is a measure of interest rate risk. The greater the duration of a bond or portfolio of bonds, the greater its price volatility will be in response to a change in interest rate risk and vice versa. Duration is an indicator of bond price’s sensitivity to 100 basis point change in interest rates.

Securities Fair Value Duration

U.S. Treasuries $ 2,293 0.13 U.S. Agencies 1,070 0.25 Tax Benefits Lease Investments 311 15.91 Repurchase Agreement 620 0.00 Certificate of Deposits 11 0.16 Commercial Paper 99 0.07 Asset-Backed Securities (1) 27 1.15 Collateralized Mortgage-Backed Securities (1) 22 5.47 Corporates (1) 121 5.03 Total Fair Value 4,574 Modified Duration 1.37 Equities (1) 18 Total $ 4,592

(1) These securities are only included in the FMTAC portfolio.

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MTA is a public benefit corporation established under the New York Public Authorities Law. MTA’s Treasury Division is responsible for the investment management of the funds of the Related Entities. The investment activity covers all operating and capital funds, including bond proceeds, and the activity is governed by State statutes, bond resolutions and the Board-adopted investment guidelines (the “Investment Guidelines”). The MTA Act currently permits the Related Entities to invest in the following general types of obligations:  obligations of the State or the United States Government;  obligations the principal and interest of which are guaranteed by the State or the United States government;  obligations issued or guaranteed by certain Federal agencies;  repurchase agreements fully collateralized by the obligations of the foregoing United States Government and Federal agencies;  certain certificates of deposit of banks or trust companies in the State;  certain banker’s acceptances with a maturity of 90 days or less;  certain commercial paper;  certain municipal obligations; and  certain mutual funds up to $10 million in the aggregate.

Investment obligations and collateral are held by one of MTA’s custodians or trustees.

FMTAC is created as a MTA subsidiary and is licensed as a captive direct insurer and reinsurer by the New York State Department of Insurance. As such FMTAC is responsible for the investment management of its funds. The investment activity is governed by State statutes and the FMTAC Board-adopted investment guidelines.

The minimum surplus to policyholders and reserve instruments are invested in the following investments:  obligations of the United States or any agency thereof provided such agency obligations are guaranteed as to principal and interest by the United States;  direct obligations of New York or of any county, district or municipality thereof.  any state, territory, possession or any other governmental unit of the United States;  certain bonds of agencies or instrumentalities of any state, territory, possession or any other governmental unit of the United States;  the obligations of a solvent American institution which are rated investment grade or higher (or the equivalent thereto) by a securities rating agency;  certain mortgage backed securities in amounts no greater than five percent of FMTAC’s admitted assets.

FMTAC may also invest non-reserve instruments in a broader range of investments including the following general types of obligations:  certain equities;  certain mutual funds.

FMTAC is prohibited from making the following investments:  Investment in an insolvent entity;  Any investment as a general partner.  Any investment found to be against public policy.

FMTAC investment guidelines do include other investments, but FMTAC has limited itself to the above permissible investments at this time.

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4. EMPLOYEE BENEFITS

Substantially all of the MTA’s related groups and pension plans have separately issued financial statements that are publicly available and contain descriptions and supplemental information regarding employee benefit plans. These statements may be obtained by calling the administrative office of the respective related group.

Pension Plans - The MTA sponsors and participates in a number of pension plans for its employees. These plans are not component units of the MTA and are not included in the combined financial statements.

Defined Benefit Pension Plans

 Single-Employer Pension Plans - The Long Island Rail Road Company Plan for Additional Pensions (“Additional Plan”) is a contributory, defined-benefit pension plan that covers employees who began service with MTA Long Island Rail Road prior to January 1, 1988. This plan is in addition to the Long Island Rail Road Company Pension Plan which merged into the MTA Defined Benefit Pension Plan in 2006 (discussed below). Benefit provisions are established by MTA Long Island Rail Road and are based on length of qualifying service and final average compensation.

 The MaBSTOA Pension Plan is a defined-benefit plan covering substantially all of its employees. In accord with applicable collective bargaining agreements, the plan’s benefits, in general, are the same as those which a similarly situated NYC Transit Authority employee would receive from the New York City Employees’ Retirement System. This plan assigns authority to amend the plan and determine employer contributions to the MaBSTOA Board.

 For the plan years ended December 31, 2007 and 2006, MTA New York City Transit made contributions to the MaBSTOA Plan of $179.2 and $159.6, respectively, equal to or in excess of the required contributions for each year. The MTA Board recently approved amendments authorizing the MaBSTOA Plan to invest in alternative investments. Such investments will be subject to specific investment guidelines and monitored by the Plan’s independent investment adviser. On September 28 and October 25, 2006, MTA made contributions to the MaBSTOA Plan of $100.0 and $.3 to reduce unfunded pension liabilities. In December 2006, MTA New York City Transit made an advance payment of $12.5.

 MTA Staten Island Railway has a contributory defined benefit plan that was a single-employer public employee retirement system covering certain employees. Authority to amend the plan and to determine contributions rests with the MTA Board. In 2005, that plan was merged with the MTA Defined Benefit Pension Plan and administered by the MTA.

 Multi-Employer Pension Plan - The MTA Defined-Benefit Pension Plan (“MTA Plan”), a defined benefit pension plan for certain MTA Long Island Rail Road non-represented employees hired after December 31, 1987, and MTA Metro-North Railroad non-represented employees, certain MTA Long Island Bus employees hired prior to January 23, 1983, MTA Police, certain MTA Long Island Rail Road represented employees hired after December 31, 1987, certain MTA Metro-North Railroad represented employees, employees of MTA Staten Island Railway and certain employees of the MTA Bus Company (“MTA Bus”) is a cost-sharing multiple-employer retirement plan. MTA Long Island Rail Road, MTA Metro-North Railroad, MTA, MTA Staten Island Railway and MTA Bus contribute to the MTA Plan, which offers distinct retirement,

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disability, and death benefits for covered MTA Metro-North Railroad and MTA Long Island Rail Road employees, covered MTA Bus employees, and participants of the MTA 20-Year Police Retirement Program, MTA Long Island Bus Employees’ Pension Plan, and the Staten Island Railway Pension Program. Participants of the MTA Police Program contribute to that program at various rates. Annual pension costs and related information about this plan are presented in the following table for all years presented as if the plan was a single-employer plan at the MTA level.

 Beginning in 2005, certain employees of MTA Bus became participants of defined benefit programs within the MTA Plan. Those programs, most of which are contributory, are based on the pension plans which covered these employees when they were employed by bus companies which previously provided the service now provided by MTA Bus.

 The MTA Board in 2006 approved plan and trust amendments to provide for and implement the merger of the Long Island Rail Road Company Pension Plan into the MTA Plan. The Board also approved amendments pursuant to which the LIRR Plan for Additional Pensions, which includes the same members as the LIRR Company Pension Plan, will participate in the MTA Plan’s Master Trust. The Board of Managers of Pensions of the MTA Plan also administers the LIRR Plan for Additional Pensions. Such investments will be subject to specific investment guidelines and monitored by the Plan’s independent investment adviser. On September 28, 2006, MTA made a contribution to the MTA Master Trust of $363.7 to reduce unfunded pension liabilities of the MTA Plan and the LIRR Plan for Additional Pensions. This amount has been allocated $229.7 to the MTA Plan and $134.0 to the LIRR Plan for Additional Pensions. On October 25, 2006, an additional $1.4 was contributed to the Trust. In 2007 an additional contribution of $100 were transferred into the Plan. Of that $49 will be allocated to the LIRR additional Plan and $51 to the MTA Defined Benefit Pension Plan. The amount allocated to these Plans will be used to cover the Actuarial Required Contribution for 2008.

 The Metro-North Commuter Railroad Company Cash Balance Plan (“Cash Balance Plan”) is a single employer plan. The Cash Balance Plan covers noncollectively bargained employees, formerly employed by Conrail, who joined the MTA Metro-North Railroad as management employees prior to July 1, 1983, and were still employed as of December 31, 1988. Those currently employed are now covered by the MTA Defined Benefit Pension Plan.

 The MTA Metro-North Railroad funded the full amount of the pension benefit obligation (“PBO”) of $2,977 to a separate trust fund in 1989. As participants retire, distributions from the Plan have been made by the trustee. The market value of net assets available for benefits in the trust fund at December 31, 2007 and 2006 was $1,336 and $1,361, respectively, which is less than the current PBO of $1,398 and $1,457, respectively. The MTA Metro-North Railroad has accrued this unfunded liability.

 The MTA Plan may be amended by action of the MTA Board.

A stand-alone financial report may be obtained by writing to the MTA Comptroller, 347 Madison Avenue, New York, New York, 10017.

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Annual pension costs and related information about each plan follows:

Single-Employer Plans LIRR MaBSTOA MTA Plan

Date of valuation 1/1/2007 1/1/2007 1/1/2007 Required contribution rates: Plan members variable variable variable Employer: actuarially actuarially actuarially determined determined determined

Employer contributions made in 2007 $ 100.9 $ 179.2 $ 81.7 Three-year trend information: Annual Required Contribution 2007 $ 100.9 $ 179.2 $ 81.7 2006 124.5 159.6 72.6 2005 109.1 153.4 58.2 Percentage of ARC contributed: 2007 100% 100% 100% 2006 100% 163% 100% 2005 100% 100% 100% Annual Pension Cost (APC): 2007 $ 100.4 $ 180.7 $ 86.6 2006 124.6 157.6 72.6 2005 109.2 151.4 58.2

Net Pension Obligation (NPO) (assets) at end of year: 2007 40.4 (46.0) - 2006 (4.6) (47.5) - 2005 (4.6) 54.9 -

Percentage of APC contributed: 2007 100% 99% 100% 2006 100% 165% 100% 2005 100% 101% 100% Components of APC Annual required contribution (ARC) $ 100.9 $ 179.2 $ 81.7 Interest on NPO 3.3 (3.8) (32.8) Adjustment of ARC (3.8) 5.3 37.7 APC 100.4 180.7 86.6 Contributions made 100.9 179.2 81.7 Change in NPO (assets) (0.5) 1.5 5.0 NPO (assets) beginning of year 40.9 (47.5) -

NPO (assets) end of year $ 40.4 $ (46.0) $ 5.0

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Single-Employer Plans

LIRR MaBSTOA MTA Plan

Actuarial cost method Entry age Entry age Entry age normal normal normal frozen initial frozen initial liability liability

Method to determine actuarial value of plan assets 5-year 5-year 5-year smoothing smoothing smoothing

Investment return 8.00% 8.00% 8.00%

Projected salary increases 3.5% 3.5% - 18.0% 3.5% - 36.2%

Consumer price inflation 2.50% 2.50% 2.50%

Amortization method and period level dollar / level dollar / level dollar / 27 years 30 years 23 years

Period closed or open closed closed closed

Cost-Sharing Multiple-Employer Plans

New York City Employees’ Retirement System (“NYCERS”)

Plan Description – MTA New York City Transit and MTA Bridges and Tunnels contribute to the New York City Employees’ Retirement System, a cost-sharing multiple-employer retirement system for employees of NYC and certain other governmental units. NYCERS combines features of a defined-benefit pension plan with those of a defined-contribution pension plan. NYCERS provides pension benefits to retired employees based on salary and length of service. In addition, NYCERS provides disability benefits, cost-of-living adjustments, and death benefits subject to satisfaction of certain service requirements and other provisions. The NYCERS plan functions in accordance with existing NYS statutes and NYC laws and may be amended by action of the State Legislature. NYCERS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the New York City Employees’ Retirement System, 335 Adams Street, Suite 2300, Brooklyn, New York 11201.

Funding Policy - NYCERS is a contributory plan, except for certain employees who entered prior to July 27, 1976 who make no contribution. Employees who entered qualifying service after July 1976, contribute 3 percent of their salary. The State legislature passed legislation in 2000 that suspended the 3 percent contribution for employees who have 10 years or more of credited service. MTA New York City Transit and MTA Bridges and Tunnels are required to contribute at an actuarially determined rate. The contribution requirements of plan members and MTA New York City Transit and MTA Bridges and Tunnels are established and amended by law. MTA New York City Transit’s required contributions for NYCERS fiscal years ended June 30, 2007 and 2006 were $333.2 and $220.5, respectively. MTA Bridges and Tunnels’ contributions to NYCERS for the years ended December 31, 2007 and 2006 were $18.5 and $12.9, respectively, which were equal to or in excess of the actuary’s recommendation, plus interest.

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New York State and Local Employees’ Retirement System (“NYSLERS”)

Plan Description and Funding Policy - MTAHQ and MTA Long Island Bus employees who were hired after January 23, 1983, are members of NYSLERS. In addition, employees of the Capital Company who are on its payroll are also members of NYSLERS. NYSLERS is a cost-sharing multiple-employer plan and offers a broad spectrum of benefits including retirement, death and disability benefits, and cost of living adjustments. Employees who became members prior to July 27, 1976 make no contributions. Employees who became members after that date contribute 3 percent of salary. In 2000, the State Legislature passed legislation that members who have 10 or more years of credited service are no longer required to make the 3 percent contribution. MTAHQ, the Capital Company, and MTA Long Island Bus recognize pension expense based upon annual assessments made by NYSLERS. NYSLERS pension expense was approximately $10.9 and $11.2, for the years ended December 31, 2007 and 2006, respectively, and was equal to the annual required contributions for each year. Further information about the plan is more fully described in the publicly available statement of NYSLERS and may be obtained by writing to New York State and Local Retirement System, Office of the State Comptroller, 110 State Street, Albany, New York, 12244-0001.

Defined Contribution Plans

Single-Employer

The Long Island Rail Road Company Money Purchase Plan (“Money Purchase Plan”) is a defined contribution plan that covers certain represented employees who began service with MTA Long Island Rail Road after December 31, 1987. Beginning January 1, 2004, employees who were participants in the Money Purchase Plan have become participants in a New Program in the MTA Plan (“New Program”) and have similar benefits as those applicable to non-represented employees of MTA Long Island Rail Road in the MTA Plan. The MTA Board has voted to terminate this Plan.

The Metro-North Commuter Railroad Company Defined Contribution Pension Plan for Agreement Employees (“Agreement Plan”), established January 1, 1988, covers represented employees in accordance with applicable collective bargaining agreements. Under this plan, MTA Metro-North Railroad will contribute an amount equal to 4 percent of each eligible employee’s gross compensation to the plan on that employee’s behalf. For employees who have 19 or more years of service MTA Metro-North Railroad contributes 7 percent. In addition, employees may voluntarily contribute up to the amount of MTA Metro-North Railroad’s contribution to the plan, on an after-tax basis. The plan is administered by MTA Metro-North Railroad and the Plan’s Board of Managers of Pension. Effective January 1, 2004, certain employees who were participants of the Agreement Plan became participants in the New Program in the MTA Plan and have similar benefits as those applicable to non- represented employees of MTA Metro-North Railroad in the MTA Plan. In 2007, the remaining represented employees also became participants in the New Program, unless they opted-out of the New Program. The “opt-out” employees became participants of the MTA 401(k) plan with the same employer contributions as the Agreement Plan.

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December 31, 2007 December 31, 2006 ($ in Millions) ($ in Millions) LIRR LIRR MNCR Money MNCR Money Agreement Purchase Agreement Purchase Plan Plan Plan Plan Employer contributions $ 5.1 $ - $ 10.8 $ - Employee contributions $ 0.3 $ - $ 0.6 $ 0.3

Deferred Compensation Plans - As permitted by Internal Revenue Code Section 457, the MTA has established a trust or custodial account to hold plan assets for the exclusive use of the participants and their beneficiaries. Plan assets and liabilities are not reflected on the MTA’s combined balance sheets.

Certain MTA employees are also eligible to participate in a second deferred compensation plan established in accordance with Internal Revenue Code Section 401(k). Participation in the plan is available to most represented and non-represented employees. All amounts of compensation deferred under the plan, and all income attributable to such compensation, are in trust for the exclusive use of the participants and their beneficiaries. Accordingly, this plan is not reflected in the accompanying combined balance sheets.

Cash Balance Plan - Metro-North Railroad Cash Balance Plan (“Cash Balance Plan”) covers noncollectively bargained employees, formerly employed by Conrail, who joined the MTA Metro- North as management employees prior to July 1, 1983, and were still employed as of December 31, 1988. Metro-North Railroad funded the full amount of the pension benefit obligation (“PBO”) of $2,977 to a separate trust fund in 1989. As participants retire, distributions from the Plan have been made by the trustee. The market value of net assets available for benefits in the trust fund at December 31, 2007 was $1,336, which is less than the current PBO of $1,398. The MTA Metro- North Railroad has accrued this unfunded liability.

5. OTHER POST-EMPLOYMENT BENEFITS

The MTA has implemented GASB Statement No. 45, “Accounting and Financial Reporting for Employers for Postemployment Benefits Other Than Pensions” (“GASB 45”). This Statement establishes the standards for the measurement, recognition, and display of Other Postemployment Benefits (“OPEB”) expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (“RSI”) in the financial reports of state and local governmental employers.

Postemployment benefits are part of an exchange of salaries and benefits for employee services rendered. Most OPEB have been funded on a pay-as-you-go basis and have been reported in financial statements when the promised benefits are paid. GASB 45 requires state and local government’s financial reports to reflect systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees’ years of service and provides information about actuarial accrued liabilities associated with the OPEB and whether and to what extent progress is being made in funding the plan.

Plan Description: The Benefits provided by the MTA and its Agencies include medical, pharmacy, dental, vision, and life insurance, plus monthly supplements for Medicare Part B or Medicare supplemental plan reimbursement and welfare fund contributions.

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Annual OPEB Cost and Net OPEB Obligation: The MTA’s annual OPEB cost (expense) represents the accrued cost for post-employment benefits under GASB 45. The cumulative difference between the annual OPEB cost and the benefits paid during a year will result in a net OPEB obligation, included on the balance sheet. The annual OPEB cost is equal to the annual required contribution (ARC) less adjustments if a net OPEB obligation exists. The ARC is equal to the normal cost plus an amortization of the unfunded frozen actuarial accrued liability.

For determining the ARC, the MTA has chosen to use Frozen Initial Liability (“FIL”) cost method with the initial liability amortized over a 22 year period.

In order to recognize the liability over an employee’s career, an actuarial cost method divides the present value into three pieces: the part that is attributed to past years (the “Accrued Liability” or “Past Service Liability”), the part that is being earned this year (the “Normal Cost”), and the part that will be earned in future years (the “Future Service Liability”). Under FIL, an initial past service liability is determined based on the Entry Age Normal (“EAN”) Cost Method and is amortized separately. This method determines the past service liability for each individual based on a level percent of pay. The Future Service Liability is allocated based on the present value of future compensation for all members combined to determine the Normal Cost. In future years, actuarial gains/losses will be incorporated into the Future Service Liability and amortized through the Normal Cost.

Actuarial Methods and Assumptions: The Frozen Initial Liability (“FIL”) Cost Method was used for determining the Normal Cost. The Entry Age Normal (“EAN”) Cost Method was used to determine the Frozen Accrued Liability and will be used to determine the unfunded actuarial accrued liability in the GASB 45 supplementary schedules. This method determines the Frozen Accrued liability for each individual based on a level percent of pay for service accrued through the initial valuation date. The difference between the Actuarial Present Value of Benefits and the Frozen Accrued Liability equals the Present Value of Future Normal Cost. The Normal Cost equals the Present Value of Future Normal Cost divided by the present value of future compensation and multiplied by the total of current compensation for members less than certain retirement age.

Valuation Date: January 1, 2006 (January 1, 2007 for MTA Bus Company)

Discount Rate: 4.2%

Per Capita Claim Costs: For members of NYSHIP and certain SIRTOA and Transit members who retired prior to NYSHIP availability, unadjusted premiums were used.

For (1) some of the self-insured benefits provided to Pre-NYSHIP Transit members, (2) TWU Local 100, ATU 1056, and ATU 726 represented employees, and (3) MTA Bus Company employees, per capita claim costs adjusted by age were used. A sample of these claim costs are shown below:

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TWU TWU Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Local 100 Local 100 Group 1 Retirees Group 2 Age GHI Medical Pharmacy Hospital Pharmacy Hospital

Male Employees

30-34 132.40 41.43 79.28 46.79 69.79 35-39 157.83 59.00 98.72 66.64 86.91 40-44 199.16 75.24 131.16 84.97 115.47 45-49 256.98 100.57 178.35 113.59 157.01 50-54 320.34 121.05 234.54 136.72 206.48 55-59 364.78 126.36 277.66 142.71 244.44 60-64 473.09 149.15 372.58 168.45 328.00

TWU TWU Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Local 100 Local 100 Group 1 Retirees Group 2 Age GHI Medical Pharmacy Hospital Pharmacy Hospital

Female Employees

30-34 259.97 69.63 173.83 78.64 153.03 35-39 257.28 82.61 167.05 93.30 147.07 40-44 261.23 101.58 162.14 114.73 142.74 45-49 294.56 127.90 181.72 144.45 159.97 50-54 330.81 150.66 210.21 170.16 185.06 55-59 352.73 164.37 233.16 185.64 205.27 60-64 432.35 181.08 304.58 204.52 268.14

Medicare Part B Premiums: The Medicare Part B premium reimbursement was included in the 2006 premium for those members covered by NYSHIP. Recently NYSHIP issued revised premiums for 2007 removing this reimbursement. Assuming the adjustment to the 2006 premium rate would be similar to that announced for 2007, the impact of using the revised premium rates (including the percentage increase in the premium rates from 2006 to 2007) on the Annual Required Contribution (ARC) for the MTA was estimated. For other members, where applicable, the reimbursement was determined using the 2006 premium level and increasing this amount by the Health Care Cost Trend rates.

Health Care Cost Trend Rates: Fiscal Year Trend Fiscal Year Trend 2007 11.0% 2014 7.5% 2008 10.5 2015 7.0 2009 10.0 2016 6.5 2010 9.5 2017 6.0 2011 9.0 2018 5.5 2012 8.5 2019+ 5.0 2013 8.0

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In addition, 2006 premiums and claim costs were trended 11 percent to 2007.

Participation: For members that participate in NYSHIP, 100 percent of eligible members, including current retirees and surviving spouses, are assumed to elect the Empire PPO Plan. For groups that do not participate in NYSHIP, various coverage election rates are used. The following table displays the election rates used for future union retirees in NYC Transit:

TWU 100 ATU 1056 ATU 726

Future Retiree Plan Election Percentage

GHI 65% 65% 35% HIP 35 35 49 Aetna 0 0 16

Medicare HIP/Aetna HMO Elections

VIP 1 80% 100% 75% VIP 2 20 0 0 Aetna 0 0 25

Dependent Coverage: Current retirees are valued using coverage reported by the MTA. Based on an analysis of members who retired within the last 5 years, we have assumed that, for future retirees, 85 percent of male members and 55 percent of female members elect family coverage with a spouse.

Demographic Assumptions: Mortality: Preretirement and postretirement healthy annuitant rates are projected on a generational basis using Scale AA, as recommended by the Society of Actuaries Retirement Plans Experience Committee.

Preretirement: RP-2000 Employee Mortality Table for Males and Females with blue collar adjustments. No blue collar adjustments were used for management members of Headquarters.

Postretirement Healthy Lives: RP-2000 Healthy Annuitant mortality table for males with Blue Collar adjustments and 133 percent of the rates from the RP-2000 Healthy Annuitant mortality table for females. No blue collar adjustments were used for management members of Headquarters.

Postretirement Disabled Lives: 75 percent of the rates from the RP-2000 Disabled Annuitant mortality table for males and females. At age 85 and later for males and age 77 and later for females, the disability rates are set to the male and female healthy rates, respectively.

Turnover and retirement rates:

All demographic assumptions were based on assumptions utilized in the 2006 actuarial valuations for the pension plans, with the exception of the mortality assumption. The following is a table displaying the various sources of the assumptions utilized by group.

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Group Pension Plan MaBSTOA MaBSTOA New York City Transit Authority NYCERS - TA MTA Bridges and Tunnels NYCERS – MTA Bridges and Tunnels LIRR Pre-1988 LIRR Plan LIRR Post-1987 MTA DB Plan Metro-North Mgrs and ACRE MTA DB Plan Metro-North Other Unions DC Plan – used same as ACRE MTA Police MTA DB Plan Headquarters Mgrs and IBT NYSLERS Long Island Bus Pre-1983 MTA DB Plan Long Island Bus Post-1982 NYSLERS Staten Island Railway MTA DB Plan Yonkers, Eastchester, College Point MTA DB Plan Baisley Park, LaGuardia TWU - NYC Private Bus Lines Pension Plan JFK Green Bus Lines Pension Plan Spring Creek Command – Local 1181 Pension Plan

Vestee Coverage: For members that participate in NYSHIP, certain vestees (members who have terminated employment with 10 or more years of retirement service credit, but not yet eligible to retire) are eligible for NYSHIP benefits provided by the Agency upon retirement, but must maintain NYSHIP coverage at their own expense from termination to retirement. Vestees are assumed to retire at first eligibility and would continue to maintain NYSHIP coverage based on the following percentages. This assumption is based on the Development of Recommended Actuarial Assumptions for New York State/SUNY GASB 45 Valuation report provided to Participating Employers of NYSHIP. These percentages were also applied to current vestees, which were only provided by Headquarters.

Age at Percent Termination Electing <40 0% 40-43 5 44 20 45-46 30 47-48 40 49 50 50-51 80 52+ 100

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The following table shows the elements of MTA’s estimated net OPEB cost for the year ended December 31, 2007, the amount paid, and changes in MTA’s net OPEB for the Year ended December 31, 2007:

Amount (In Millions)

Annual required contribution $ 1,575.5 Interest on net OPEB obligation - Adjustment to annual required contribution - Annual OPEB cost/expense $ 1,575.5 Payments made 285.5 Increase in net OPEB obligation 1,290.0 Net OPEB obligation - beginning of year - Net OPEB obligation - end of year $ 1,290.0

The MTA’s annual OPEB cost, the percentage of annual OPEB cost contributed, and the net OPEB obligation for the year ended December 31, 2007 is as follows:

Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost to be Paid Obligation (In Millions) (In Millions) 12/31/2007 $ 1,575.5 18.1% $ 1,290.0

6. CAPITAL ASSETS

Capital assets and improvements include all land, buildings, equipment, and infrastructure of the MTA having a minimum useful life of two years, having a cost of more than $.025.

Capital assets are stated at historical cost, or at estimated historical cost based on appraisals, or on other acceptable methods when historical cost is not available. Capital leases are classified as capital assets in amounts equal to the lesser of the fair market value or the present value of net minimum lease payments at the inception of the lease.

Accumulated depreciation and amortization are reported as reductions of fixed assets. Depreciation is computed using the straight-line method based upon estimated useful lives of 25 to 50 years for buildings, 2 to 40 years for equipment, and 25 to 100 years for infrastructure. Capital lease assets and leasehold improvements are amortized over the term of the lease or the life of the asset whichever is less. Capital assets consist of the following at December 31, 2007 and December 31, 2006:

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Balance Balance Balance December 31, December 31, December 31, 2005 Additions Deletions 2006 Additions Deletions 2007 ($ in Millions) Capital assets, not being depreciated Land $ 136 $ 1 $ - $ 137 $ 9 $ - $ 146 Construction work-in- progress 5,641 2,083 2,469 5,255 1,655 955 5,955 Total capital assets, not being depreciated 5,777 2,084 2,469 5,392 1,664 955 6,101 Capital assets, being depreciated Buildings and structures 11,812 1,096 41 12,867 424 62 13,229 Bridges and tunnels 1,647 65 - 1,712 102 - 1,814 Equipment Passenger cars and locomotives 9,151 666 183 9,634 661 3 10,292 Buses 2,056 182 - 2,238 215 - 2,453 Infrastructure 11,448 1,395 79 12,764 890 30 13,624 Other 7,767 1,095 21 8,841 1,044 9 9,876 Total capital assets, being depreciated 43,881 4,499 324 48,056 3,336 104 51,288 Less accumulated depreciation Buildings and structures 3,167 364 1 3,530 376 17 3,889 Bridges and tunnels 353 15 - 368 16 - 384 Equipment Passenger cars and locomotives 2,841 341 181 3,001 336 3 3,334 Buses 1,246 122 - 1,368 145 - 1,513 Infrastructure 3,235 398 18 3,615 430 16 4,029 Other 2,916 363 20 3,259 386 16 3,629 Total accumulated depreciation 13,758 1,603 220 15,141 1,689 52 16,778 Total capital assets, being depreciated, net 30,123 2,896 104 32,915 1,647 52 34,510 Capital assets, net $ 35,900 $ 4,980 $ 2,573 $ 38,307 $ 3,311 $ 1,007 $ 40,611

Interest capitalized in conjunction with the construction of capital assets at December 31, 2007 and December 31, 2006 was $62.8 and $75.9, respectively.

Capital assets acquired prior to April 1982 for MTA New York City Transit were funded primarily by NYC with capital grants made available to MTA New York City Transit. NYC has title to a substantial portion of such assets and, accordingly, these assets are not recorded on the books of the MTA. Subsequent acquisitions, which are part of the MTA Capital Program, are recorded at cost by MTA New York City Transit. In certain instances, title to MTA Bridges and Tunnels’ real property may revert to NYC in the event the MTA determines such property is unnecessary for its corporate purpose. The MTA New York City Transit placed 294 new R160 subway cars and 150 new buses in service during 2007. In 2007 at the MTA Long Island Rail Road $7 was recognized for losses on disposal of capital asset due to impairment of concrete ties. During 2007, MTA Long Island Rail Road placed 34 new M-7 Electric Cars into service and retired 8 M-1 Electric Cars.

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For certain construction projects, the MTA holds in a trust account marketable securities pledged by third-party contractors in lieu of cash retainages. At December 31, 2007 and December 31, 2006 these securities totaled $82.4 and $71.6, respectively, and had a market value of $89.7 and $75.9, respectively, and are not included in these financial statements.

7. LONG -TERM DEBT

Original December 31, December 31, Issuance 2006 Issued Retired Refunded 2007

MTA:

Transportation Revenue Bonds 2.25% - 5.752% due through 2036 $ 11,671 $ 9,940 $ 841 $ 191 $ 156 $ 10,434 Transportation Revenue Bond Anticipation Notes Commercial Paper 750 440 750 440 - 750 State Service Contract Bonds 3.00% - 5.50% due through 2031 2,395 2,289 - 46 - 2,243 Dedicated Tax Fund Bonds 3.00% - 6.25% due through 2037 6,080 3,972 430 79 51 4,272

Certificates of Participation 4.40% - 5.625% due through 2030 807 431 - 9 - 422

$ 21,703 17,072 2,021 765 207 18,121

Less net unamortized bond discount and premium (315) 23 35 1 (328)

$ 16,757 $ 2,044 $ 800 $ 208 $ 17,793

TBTA:

General Revenue Bonds 4.00% - 5.77% due through 2033 $ 5,846 $ 4,701 $ 223 $ 87 $ 80 $ 4,757 Subordinate Revenue Bonds 4.00% - 5.77% due through 2032 2,858 2,324 402 445 9 2,272

$ 8,704 7,025 625 532 89 7,029

Less net unamortized bond discount and premium 100 - 16 - 84

$ 7,125 $ 625 $ 548 $ 89 $ 7,113

Total $ 23,882 $ 2,669 $ 1,348 $ 297 $ 24,906

Current portion (338) (391)

Long-term portion $ 23,544 $ 24,515

MTA Transportation Revenue Bonds – Prior to 2006, MTA issued eighteen series of Transportation Revenue Bonds secured under its General Resolution Authorizing Transportation Revenue Obligation adopted on March 26, 2002 in the aggregate principal amount of $9,637. The Transportation Revenue Bonds are MTA’s special obligations payable solely from transit and commuter systems revenues and certain state and local operating subsidies.

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During 2006, the MTA issued the following Transportation Revenue Bonds: Series 2006A in the amount of $475 to finance transit and commuter projects; and Series 2006B in the amount of $717.7 to pay in full the principal portion of MTA’s outstanding commercial paper notes and to refund certain MTA bonds that were previously issued to fund transit and commuter projects.

During 2007, the MTA issued the following Transportation Revenue Bonds: Series 2007A in the amount of $425.6 and Series 2007B in the amount of $415 to finance transit and commuter projects.

MTA Bond Anticipation Notes (commercial paper program) – From time to time, MTA issues Transportation Revenue Bond Anticipation Notes in accordance with the terms and provisions of the General Resolution described in the preceding paragraph in the form of commercial paper to fund its transit and commuter capital needs. The interest rate payable on the notes depends on the maturity and market conditions at the time of issuance. Payment of principal and interest on the notes are additionally secured by a letter of credit issued by a bank. The MTA Act requires MTA to periodically (at least each five years) refund its commercial paper notes with bonds.

In February 2007, MTA issued Transportation Revenue Bond Anticipation Notes, Series CP1 Credit Enhanced in the amount of $750.

MTA State Service Contract Bonds – Prior to 2006, MTA issued two series of State Service Contract Bonds secured under its State Service Contract Obligation Resolution adopted on March 26, 2002, in the aggregate principal amount of $2,395. The State Service Contract Bonds are MTA’s special obligations payable solely from certain payments from the State of New York under a service contract.

MTA Dedicated Tax Fund Bonds – Prior to 2006, MTA issued eight series of Dedicated Tax Fund Bonds secured under its Dedicated Tax Fund Obligation Resolution adopted on March 26, 2002, in the aggregate principal amount of $3,741. The Dedicated Tax Fund Bonds are MTA’s special obligations payable solely from monies held in the Pledged Amounts Account of the MTA Dedicated Tax Fund. State law requires that the MTTF revenues and MMTOA revenues (described above in footnote 2 under “Nonoperating Revenues”) be deposited, subject to appropriation by the State Legislature, into the MTA Dedicated Tax Fund.

During 2006, the MTA issued the following series of Dedicated Tax Fund Bonds to finance certain transit and commuter projects: Series 2006A in the amount of $350 and Series 2006B in the amount of $410.

During 2007, the MTA issued Dedicated Tax Fund Bonds, Series 2007A, in the amount of $430 to finance certain transit and commuter projects.

MTA Certificates of Participation – Prior to 2006, MTA, MTA New York City Transit and MTA Bridges and Tunnels executed and delivered two series of Certificates of Participation in the aggregate principal amount of $479 to finance certain building and leasehold improvements to an office building at Two Broadway in Manhattan occupied principally by MTA New York City Transit, MTA Bridges and Tunnels, MTA Capital Construction, and MTAHQ. The Certificates of Participation which represent proportionate interests in the principal and interest components of Base Rent paid severally, but not jointly, in their respective proportionate shares by MTA New York City Transit, MTA, and MTA Bridges and Tunnels, pursuant to a Leasehold Improvement Sublease Agreement.

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MTA Bridges and Tunnels General Revenue Bonds – Prior to 2006, MTA Bridges and Tunnels issued ten series of General Revenue Bonds secured under its General Resolution Authorizing General Revenue Obligations adopted on March 26, 2002, in the aggregate principal amount of $5,397. The General Revenue Bonds are MTA Bridges and Tunnels’ general obligations payable generally from the net revenues collected on the bridges and tunnels operated by MTA Bridges and Tunnels.

During 2006, MTA Bridges and Tunnels issued the following series of General Revenue Bonds to finance bridge and tunnel projects: Series 2006A in the amount of $200.

During 2007, MTA Bridges and Tunnels issued the following series of General Revenue Bonds to finance bridge and tunnel projects: Series 2007A in the amount of $223.4.

MTA Bridges and Tunnels Subordinate Revenue Bonds – Prior to 2006, MTA Bridges and Tunnels issued nine series of Subordinate Revenue Bonds secured under its 2001 Subordinate Revenue Resolution Authorizing Subordinate Revenue Obligations adopted on March 26, 2002, in the aggregate principal amount of $2,412. The Subordinate Revenue Bonds are MTA Bridges and Tunnels’ special obligations payable generally from the net revenues collected on the bridges and tunnels operated by MTA Bridges and Tunnels after the payment of debt service on the MTA Bridges and Tunnels General Revenue Bonds described in the preceding paragraph.

Debt Limitation - The NYS Legislature has imposed limitations on the aggregate amount of debt that the MTA and MTA Bridges and Tunnels can issue to fund the approved transit and commuter capital programs. The current aggregate ceiling, subject to certain exclusions, is $28,877 compared with issuances totaling approximately $16,116 at December 31, 2007. The MTA expects that the current statutory ceiling will allow it to fulfill the bonding requirements of the 2000-2004 MTA Capital Program and the 2005-2009 MTA Capital program.

Bond Refundings - During 2002, as part of the Debt Restructuring, the MTA and MTA Bridges and Tunnels retired most of their outstanding debt with either funds available or by issuing new bonds. From time to time, the MTA and MTA Bridges and Tunnels issue additional refunding bonds to achieve debt service savings or other benefits. The proceeds of refunding bonds are generally used to purchase U.S. Treasury obligations that were placed in irrevocable trusts. The principal and interest within the trusts will be used to repay the refunded debt. The trust account assets and the refunded debt are excluded from the consolidated balance sheets.

In accordance with GASB Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, gains or losses resulting from debt refundings have been deferred and will be amortized over the lesser of the remaining life of the old debt or the life of the new debt.

At the end of September 2007, the MTA defeased a total of $296.8 Bonds being $155.7 from Transportation Revenue Bonds, $51.4 from Dedicated Tax Bonds, and $89.7 from MTA Bridges and Tunnels General and Subordinate Bonds. All the bonds defeased had a maturity date of November 15, 2009. The Bonds were retired with a total transfer of cash from MTA unencumbered funds to the Trustee account in the amount of $303.6.

At December 31, 2007, the following amounts of MTA bonds, which have been refunded, remain valid debt instruments and are secured solely by and payable solely from their respective irrevocable trusts.

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($ In Millions)

MTA Transit and Commuter Facilities: Transit Facilities Revenue Bonds $ 1,285 Commuter Facilities Revenue Bonds 1,419 Commuter Facilities Subordinate Revenue Bonds 16 Transit and Commuter Facilities Service Contract Bonds 835 Dedicated Tax Fund Bonds 1,330 Excess Loss Trust Fund 13

MTA New York City Transit: Transit Facilities Revenue Bonds (Livingston Plaza Project) 113

MTA Bridges and Tunnels: General Purpose Revenue Bonds 2,135 Special Obligation Subordinate Bonds 219 Mortgage Recording Tax Bonds 207

Total $ 7,572

Debt Service Payments - Principal and interest debt service payments (excluding refunded bonds) at December 31, 2007, are as follows:

MTA MTA BRIDGES AND TUNNELS Senior Revenue Subordinate Revenue Debt Service Principal Interest Principal Interest Principal Interest Principal Interest (Amounts in Millions) 2008 $ 358 $ 807 $ 101 $ 217 $ 44 $ 111 $ 503 $ 1,135 2009 168 793 26 213 38 107 232 1,113 2010 391 784 110 211 50 105 551 1,100 2011 408 766 116 206 52 103 576 1,075 2012 427 747 113 200 55 100 595 1,047 2013-2017 2,470 3,402 688 895 290 453 3,448 4,750 2018-2022 3,127 2,743 879 699 449 356 4,455 3,798 2023-2027 3,982 1,947 1,059 466 482 240 5,523 2,653 2028-2032 4,728 927 1,524 198 784 98 7,036 1,223 2033-2037 1,312 131 141 15 28 2 1,481 148

$ 17,371 $ 13,047 $ 4,757 $ 3,320 $ 2,272 $ 1,675 $ 24,400 $ 18,042

The above interest amounts include both fixed- and variable-rate calculations. The interest rate assumptions for variable rate bonds are as follows:

 Transportation Revenue Refunding Bonds, Series 2002B – 4.00% per annum  Transportation Revenue Refunding Bonds, Series 2002D – 4.00% per annum on Subseries 2002D-1 and 4.45% per annum on subseries 2002D-2 taking into account the interest rate swap  Transportation Revenue Refunding Bonds, Series 2002G – 4.00% per annum  Transportation Revenue Bonds, Series 2004A – 4.00% per annum  Transportation Revenue Bonds, Series 2005D – 3.561% per annum taking into account the interest rate swaps

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 Transportation Revenue Bonds, Series 2005E – 3.561% per annum taking into account the interest rate swaps  Transportation Revenue Bonds, Series 2005G – 4.00% per annum  Dedicated Tax Fund Bonds, Series 2002B – 4.06% per annum until September 1, 2013 based on the interest rate swap and 4.00% per annum thereafter  Dedicated Tax Fund Bonds, Series 2004B – 4.00% per annum  Dedicated Tax Fund Bonds, Series 2004D – 4.00% per annum  Dedicated Tax Fund Refunding Bonds, Series 2005A – 3.3156% per annum taking into account the interest rate swap  Dedicated Tax Fund Bonds, Series 2007A – 4.00% per annum  MTA Bridges and Tunnels Subordinate Refunding Bonds, Series 2000A B – 6.08% per annum taking into account the interest rate swap  MTA Bridges and Tunnels Subordinate Refunding Bonds, Series 2000CD – 6.07% per annum taking into account the interest rate swap  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2001B and Series 2001C – 5.777% per annum taking into account the interest rate swap and 4.00% per annum on portions not covered by the interest rate swap  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002C – 5.634% per annum taking into account the interest rate swap and 4.00% per annum on portions not covered by the interest rate swap  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002D – 4.00% per annum  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002F – 4.00% per annum  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002G – 3.218% taking into account the interest rate swap  MTA Bridges and Tunnels General Revenue Bonds, Series 2003B – 4.00% per annum  MTA Bridges and Tunnels Subordinate Revenue Bonds, Series 2004A – 4.00% per annum  MTA Bridges and Tunnels General Revenue Bonds, Series 2005A – 4.00% per annum  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2005B – 3.513% per annum based on the Basis Risk Interest Rate Swap through January 1, 2012 and 3.076% per annum based on the Initial Interest Rate Swaps thereafter.  Certificates of Participation, Series 2004A – 3.542% per annum taking into account the interest rate swaps

Tax Rebate Liability - Under the Internal Revenue Code of 1986, the MTA accrues a liability for an amount of rebateable arbitrage resulting from investing low-yielding, tax-exempt bond proceeds in higher-yielding, taxable securities. The arbitrage liability is payable to the federal government every five years and is reported as part of other long-term liabilities. MTA made an arbitrage payment of $1.9 in 2007. No payment was incurred in 2006.

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MTA and MTA Bridges and Tunnels have entered into several Standby Bond Purchase Agreements (SBPA) and Letter of Credit Agreements (LOC) as listed on the table below:

Type of Resolution Series Swap Provider (Insurer) Facility Exp. Date Transportation 2002D-2 Y Dexia (FSA) SBPA 5/27/2008 Revenue Transportation Bank of Nova Scotia 2002G-1 N SBPA 11/20/2008 Revenue (Ambac) MTA Bridges and Tunnels General 2003B N Dexia SBPA 12/8/2008 Revenue MTA Bridges and Tunnels General 2001B P State Street (Ambac) SBPA 1/10/2009 Revenue Transportation 2005G N BNP Paribas LoC 12/8/2010 Revenue Dedicated Tax Fund 2005A Y Citibank (XL Capital) SBPA 3/9/2012 MTA Bridges and Tunnels General 2005A N Dexia SBPA 5/9/2012 Revenue Transportation 2002D-1 N West LB (FSA) SBPA 5/9/2012 Revenue MTA Bridges and Tunnels General 2005B-2 Y Dexia SBPA 7/6/2012 Revenue MTA Bridges and Tunnels General 2005B-3 Y Bank of America SBPA 7/6/2012 Revenue MTA Bridges and Landesbank Baden- Tunnels General 2005B-4 Y SBPA 7/6/2012 Wurttemberg (NY) Revenue Transportation 2005E Y Fortis LoC 10/9/2012 Revenue MTA Bridges and Tunnels General 2002F N ABN AMRO SBPA 11/8/2012 Revenue Dedicated Tax Fund 2002B Y Dexia (FSA) SBPA 5/7/2014 MTA Bridges and 2000AB Y JPMorgan (FSA) SBPA 10/7/2014 Tunnels Subordinate MTA Bridges and Lloyds TSB Bank (NY) 2000CD Y SBPA 10/7/2014 Tunnels Subordinate (FSA) Dedicated Tax Fund 2004D N Wachovia Bank (Ambac) SBPA 12/11/2014 Transportation 2004A-1 N Depfa Bank (CIFG) SBPA 6/10/2015 Revenue Transportation 2004A-2 N Depfa Bank (CIFG) SBPA 6/10/2015 Revenue Transportation 2004A-3 N Depfa Bank (XL Capital) SBPA 6/10/2015 Revenue Transportation 2004A-4 N Depfa Bank (XL Capital) SBPA 6/10/2015 Revenue MTA Bridges and 2005B-1 Y Depfa Bank SBPA 7/7/2015 Tunnels General

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Revenue MTA Bridges and Tunnels General 2001C P Bayerische LB (Ambac) SBPA 11/30/2015 Revenue MTA Bridges and Tunnels General 2002C P West LB (Ambac) SBPA 12/31/2015 Revenue

Swap Agreements Relating to Synthetic Fixed-Rate Debt

Objectives of the Swaps. In order to protect against the potential of rising interest rates, to achieve a lower net cost of borrowing, to reduce exposure to changing interest rates on a related bond issue, or, in some cases where Federal tax law prohibits an advance refunding, to achieve debt service savings through a synthetic fixed rate, MTA, MTA Bridges and Tunnels, and MTA New York City Transit have entered into separate pay-fixed, receive-variable interest rate swaps at a cost anticipated to be less than what MTA, MTA Bridges and Tunnels, and MTA New York City Transit would have paid to issue fixed-rate debt.

Fair Value. Relevant market interest rates on the valuation date of the swaps reflected in the following charts (December 31, 2007) in some cases were higher than, and in some cases were lower than, market interest rates on the effective date of the swaps. Consequently, as of the valuation date, some of the swaps had negative fair values and some had positive fair values. A negative fair value means that MTA, MTA Bridges and Tunnels, and/or MTA New York City Transit would have to pay the counterparty that approximate amount to terminate the swap. In the event there is a positive fair value, MTA, MTA Bridges and Tunnels, and/or MTA New York City Transit would be entitled to receive a payment from the counterparty to terminate the swap; consequently, MTA, MTA Bridges and Tunnels, and/or MTA New York City Transit would be exposed to the credit risk of the counterparties in the amount of the swaps’ fair value should the swap be terminated.

The fair values listed in the following tables represent the theoretical cost to terminate the swap as of the date indicated, assuming that a termination event occurred on that date. The fair values were estimated using the zero-coupon method. This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bond due on the date of each future net settlement on the swap. In the event both parties continue to perform their obligations under the swap, there is not a risk of termination and neither party is required to make a termination payment to the other. MTA, MTA Bridges and Tunnels, and MTA New York City Transit are not aware of any event that would lead to a termination event with respect to any of their existing swaps. See “Termination Risk” below.

Terms and Fair Values. The terms, fair values, and counterparties of the outstanding swaps of MTA and MTA Bridges and Tunnels, as well as the swaps entered into in connection with the 2 Broadway Certificates of Participation refunding, are reflected in the following tables. The MTA swaps are reflected in separate tables for the Transportation Revenue Bonds and Dedicated Tax Fund Bonds. The MTA Bridges and Tunnels swaps are reflected in separate tables for the senior lien and subordinate revenue bonds.

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MTA TRANSPORTATION REVENUE BONDS Notional Amounts Fair Values as of as of 12/31/07 12/31/07 Swap (in millions) Effective Fixed Rate Variable (in millions) Termination Associated Bond Issue Date Paid Rate Received Date Counterparty

Series 2002D-2 200.000 01/01/07 4.45 69% of one-month $ (29.794) 11/01/32 Bear Stearns Capital Markets LIBOR(1) Inc. Series 2005D and Series 500.000 11/02/05 3.561 67% of one-month (20.587) 11/01/35 60% – UBS AG 2005E LIBOR 20% – Lehman Brothers Special Financing Inc. 20% – AIG Financial Products Corp. Series 2012(2) 359.450 11/15/12 3.563 67% of one-month 4.764 11/01/32 Bear Stearns Capital Markets LIBOR Inc. Series 2012(2) 153.700 11/15/12 3.563 67% of one-month 3.063 11/01/32 Lehman Brothers Special LIBOR Financing Inc. Total $1,213.15 $ (42.553)

(1) London Interbank Offered Rate.

(2) Under the Series 2012 swaps, counterparties Bear Stearns Capital Markets Inc. and Lehman Brothers Special Financing Inc. have an option to cancel these swaps on June 15, 2012 prior to the effective date listed above. In the event each swap is canceled, each counterparty is required to make monthly cancellation payments to the MTA commencing on December 1, 2012 and ending on November 1, 2032.

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MTA DEDICATED TAX FUND BONDS Notional Amounts Fair Values as of as of 12/31/07 12/31/07 Swap (in millions) Effective Fixed Rate Variable (in millions) Termination Associated Bond Issue Date Paid Rate Received Date Counterparty

Series 2002B $440.000 09/05/02 4.06 % Actual bond rate until $ (23.268) 09/01/13 Morgan Stanley Capital 04/30/10, and Services Inc. thereafter, BMA Series 2005A 345.060 03/24/05 3.3156 67% of one-month ( 3.643) 11/01/31 Citigroup Financial LIBOR Products Inc.

Total $785.060 $ (26.911)

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MTA BRIDGES AND TUNNELS SENIOR LIEN REVENUE BONDS Notional Amounts Fair Values as of as of 12/31/07 12/31/07 Swap Associated Bond (in millions) Effective Fixed Rate Variable (in millions) Termination Issue Date Paid Rate Received Date Counterparty

Series 2001B and $205.200 01/01/02 5.777% Actual bond rate $ (29.312) 01/01/19 Citigroup Financial 2001C(3) Products Inc. Series 2002C(4) 77.200 01/01/00 5.634 Actual bond rate (7.794) 01/01/13 Ambac Financial Services, L.P. Series 2005B 797.200 07/07/05 3.076 67% of one-month 18.631 01/01/32 25% each – Citibank, LIBOR N.A., JPMorgan Chase Bank, BNP Paribas North America, Inc. and UBS AG Series 2005B 797.200 07/07/05 67% of one- BMA minus 10 basis (9.677) 01/01/12 UBS AG month LIBOR points plus 43.7 basis points(5) Total $1,876.800 $ (28.152)

(3) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $19,204,000.

(4) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $8,400,000.

(5) For the purpose of mitigating the basis risk during the escrow period with respect to the $797.2 million notional amount swaps entered into in connection with the Series 2005B Bonds, MTA Bridges and Tunnels will pay 67% of one-month LIBOR plus 43.7 basis points to the UBS AG and receive a variable rate equal to the BMA Index minus 10 basis points.

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MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS Notional Amounts Fair Values as of as of 12/31/07 12/31/07 Swap (in millions) Effective Fixed Rate Variable (in millions) Termination Associated Bond Issue Date Paid Rate Received Date Counterparty

Series 2000AB(6) $201.100 01/01/01 6.08 % Actual bond rate $ (31.557) 01/01/19 Bear Stearns Capital Markets Inc. Series 2000CD(6) 201.100 01/01/01 6.07 Actual bond rate (31.447) 01/01/19 Citigroup Financial Products Inc. Series 2002G-1 90.500 11/26/02 3.218 Lesser of actual bond (4.293) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Series 2002G-2 90.525 11/26/02 3.218 Lesser of actual bond (4.444) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Total $583.225 $ (71.741)

(6) In accordance with a swaption entered into on August 12, 1998 with each Counterparty paying to MTA Bridges and Tunnels a premium of $22,740,000.

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2 Broadway Certificates of Participation Swaps

In addition to the foregoing, MTA, MTA New York City Transit and MTA Bridges and Tunnels entered into separate ISDA Master Agreements with UBS AG relating to the $357,925,000 Variable Rate Certificates of Participation, Series 2004A (Auction Rate Securities) in connection with the refunding of certain certificates of participation originally executed to fund certain improvements to the office building located at 2 Broadway in Manhattan. The 2 Broadway swaps have (1) an effective date of September 22, 2004, (2) a fixed rate paid of 3.092 percent, (3) a variable rate received of the lesser of (a) the actual bond rate, or (b) 67 percent of one-month LIBOR minus 45 basis points, and (4) a termination date of January 1, 2030. Based on the aggregate notional amount of $355,525,000 outstanding as of December 31, 2007, MTA New York City Transit is responsible for $244,250,000 aggregate notional amount of the swaps, MTA for $74,650,000 aggregate notional amount, and MTA Bridges and Tunnels for $36,625,000 aggregate notional amount. As of December 31, 2007, the aggregate fair value of the swaps was -$12.028 million.

Counterparty Ratings

The ratings of the counterparties as of December 31, 2007 are as follows:

Ratings of the Counterparty Counterparty or its Credit Support Provider S&P Moody’s Fitch AIG Financial Products Corp. AA Aa2 AA Ambac Financial Services, L.P. AAA Aaa AAA Bear Stearns Capital Markets Inc. A A1 A+ BNP Paribas North America, Inc. AA Aa1 AA Citibank, N.A. AA+ Aa1 AA Citigroup Financial Products Inc. AA Aa3 AA JPMorgan Chase Bank AA- Aa2 AA- Lehman Brothers Special Financing Inc. A+ A1 A+ Morgan Stanley Capital Services Inc. AA- Aa3 AA- UBS AG AA Aaa AA

Except as set forth below, the notional amounts of the swaps match the principal amounts of the associated bonds. The following table sets forth the notional amount and the outstanding principal amount as of December 31, 2007 for the swap where the notional amount does not match the outstanding principal amount of the associated bonds.

Principal Amount of Notional Bonds Amount Associated Bond Issue (in millions) (in millions) MTA Bridges and Tunnels General Revenue Variable $296.400 $205.200 Rate Refunding Bonds, Series 2001B and 2001C MTA Bridges and Tunnels General Revenue Variable $103.305 $77.200 Rate Refunding Bonds, Series 2002C

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Risks Associated with the Swap Agreements

From MTA’s, MTA Bridges and Tunnels’, and MTA New York City Transit’s perspective, the following risks are generally associated with swap agreements:

 Credit Risk – The counterparty becomes insolvent or is otherwise not be able to perform its financial obligations. In the event of a deterioration in the credit ratings of the counterparty or MTA/MTA Bridges and Tunnels/MTA New York City Transit, the swap agreement may require that collateral be posted to secure the party’s obligations under the swap agreement. See “Collateralization” below. Further, ratings deterioration by either party below levels agreed to in each transaction could result in a termination event requiring a cash settlement of the future value of the transaction. See “Termination Risk” below.

 Basis Risk – The variable interest rate paid by the counterparty under the swap and the variable interest rate paid by MTA, MTA Bridges and Tunnels, or MTA New York City Transit on the associated bonds may not be the same. If the counterparty’s rate under the swap is lower than the bond interest rate, then the counterparty’s payment under the swap agreement does not fully reimburse MTA, MTA Bridges and Tunnels, or MTA New York City Transit for its interest payment on the associated bonds. Conversely, if the bond interest rate is lower than the counterparty’s rate on the swap, there is a net benefit to MTA, MTA Bridges and Tunnels, or MTA New York City Transit.

 Termination Risk – The swap agreement will be terminated and MTA, MTA Bridges and Tunnels, or MTA New York City Transit will be required to make a termination payment to the counterparty and, in the case of a swap agreement which was entered into for the purpose of creating a synthetic fixed rate for an advance refunding transaction may also be required to take action to protect the tax exempt status of the related refunding bonds.

 Rollover Risk – The notional amount under the swap agreement terminates prior to the final maturity of the associated bonds on a variable rate bond issuance, and MTA, MTA Bridges and Tunnels, or MTA New York City Transit may be exposed to then market rates and cease to receive the benefit of the synthetic fixed rate for the duration of the bond issue.

Credit Risk. The following table shows, as of December 31, 2007, the diversification, by percentage of notional amount, among the various counterparties that have entered into ISDA Master Agreements with MTA and/or MTA Bridges and Tunnels, or in connection with the 2 Broadway Certificates of Participation refunding. The notional amount totals below include all five swaps (including the UBS basis risk swap) in connection with the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2005B. The counterparties have the ratings set forth above.

Notional Amount % of Total Counterparty (in thousands) Notional Amount UBS AG $1,652,025 34.32% Bear Stearns Capital Markets Inc. 760,550 15.80 Citigroup Financial Products Inc. 751,360 15.61 Morgan Stanley Capital Services Inc. 440,000 9.14 JPMorgan Chase Bank 380,325 7.90 Lehman Brothers Special Financing Inc. 253,700 5.27 BNP Paribas North America, Inc. 199,300 4.14 Citibank, N.A. 199,300 4.14 AIG Financial Products Corp. 100,000 2.08 Ambac Financial Services, L.P. 77,200 1.60 Total $4,813,760 100.00%

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 Bear Stearns Capital Markets Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB,  Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD,  Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2001B and 2001C  Ambac Financial Services, L.P.  Bear Stearns Capital Markets Inc. with respect to the MTA Transportation Revenue Variable Rate Refunding Bonds, Series 2002D-2 and Series 2012, and  Lehman Brothers Special Financing Inc. with respect to the MTA Transportation Revenue Variable Rate Refunding Bonds, Series 2005E and Series 2012.

Under the terms of these agreements, should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all outstanding transactions and net the transactions’ fair values so that a single sum will be owed by, or owed to, the non-defaulting party.

Collateralization. Generally, the Credit Support Annex attached to the ISDA Master Agreement requires that if the outstanding ratings of MTA, MTA Bridges and Tunnels, or MTA New York City Transit, as the case may be, or the counterparty falls to a certain level, the party whose rating falls is required to post collateral with a third-party custodian to secure its termination payments above certain threshold amounts. Collateral must be cash or U.S. government or certain Federal agency securities.

The following tables set forth the ratings criteria and threshold amounts relating to the posting of collateral set forth for MTA, MTA Bridges and Tunnels, or MTA New York City Transit, as the case may be, and the counterparty for each swap agreement. In most cases, the Counterparty does not have a Fitch rating on its long-term unsecured debt, so that criterion would not be applicable in determining if the Counterparty is required to post collateral.

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MTA Transportation Revenue Bonds Then the downgraded party must post collateral If the highest rating of the related MTA if its estimated Associated bonds or the counterparty’s long-term termination payments are Bond Issue unsecured debt falls to in excess of Series 2002D-2 Fitch – BBB+, Moody’s – Baa1, or $10,000,000 S&P – BBB+ Fitch – BBB and below or unrated, $0 Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated Series 2005D and Series 2005E Fitch – BBB+, $10,000,000 Moody’s – Baa1, or S&P – BBB+ Fitch – below BBB+, $0 Moody’s – below Baa1, or S&P – below BBB+ Series 2012 Fitch – BBB+, Moody’s – Baa1, or $10,000,000 S&P – BBB+ Fitch – BBB and below or unrated, $0 Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated

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For MTA, Fitch – BBB+, or Moody’s – Baa1, or S&P – $30,000,000 BBB+

For MTA, Fitch – BBB, or Moody’s – Baa2, or S&P – BBB $15,000,000

For counterparty, $0 Fitch – BBB+ and below, or Moody’s – Baa1 and below, or S&P – BBB+ and below

For MTA, $0 Fitch – BBB- and below, or Moody’s – Baa3 and below, or S&P – BBB- and below

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Dedicated Tax Fund Bonds Series 2002B The ratings by S&P and Fitch of the Counterparty or the MTA Dedicated Tax Fund Bonds falls below “BBB-” or are withdrawn. Series 2005A Bonds The ratings by S&P or Moody’s of the Counterparty fall below “BBB+” or “Baa1,” respectively, or the ratings of S&P or Fitch with respect to the MTA Dedicated Tax Fund Bonds falls below “BBB” or, in either case the ratings are withdrawn.

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MTA Bridges and Tunnels Senior and Subordinate Revenue Bonds Associated Bond Issue Additional Termination Events Senior Lien Revenue Bonds Series 2001B and 2001C and Series 1. MTA Bridges and Tunnels can elect to terminate the swap relating to 2002C that Series on 10 Business Days’ notice if the Series of Bonds are converted to a fixed rate, the fixed rate on the converted Bonds is less than the fixed rate on the swap, and MTA Bridges and Tunnels demonstrates its ability to make the termination payments, or MTA Bridges and Tunnels redeems a portion of the Series of Bonds and demonstrates its ability to make the termination payments.

Subordinate Revenue Bonds Series 2000AB and 2000CD 1. MTA Bridges and Tunnels can elect to terminate the swap relating to that Series on 10 Business Days’ notice if the Series of Bonds are converted to a fixed rate, the fixed rate on the converted Bonds is less than the fixed rate on the swap, and MTA Bridges and Tunnels demonstrates its ability to make the termination payments, or MTA Bridges and Tunnels redeems a portion of the Series of Bonds and demonstrates its ability to make the termination payments.

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Swap payments and Associated Debt. The following tables contain the aggregate amount of estimated variable-rate bond debt service and net swap payments during certain years that such swaps were entered into in order to: protect against the potential of rising interest rates; achieve a lower net cost of borrowing; reduce exposure to changing interest rates on a related bond issue; or, in some cases where Federal tax law prohibits an advance refunding, achieve debt service savings through a synthetic fixed rate. As rates vary, variable-rate bond interest payments and net swap payments will vary. Using the following assumptions, debt service requirements of MTA’s and MTA’s outstanding variable-rate debt and net swap payments are estimated to be as follows:

 It is assumed that the variable-rate bonds would bear interest at a rate of 4.0 percent per annum.  The net swap payments were calculated using the actual fixed interest rate on the swap agreements.

MTA (in millions) Variable-Rate Bonds Fiscal Year Ended Net Swap December 31 Principal Interest Payments Total

2008 $ 1.5 $ 59.4 $ (3.4) $ 57.5 2009 1.6 59.3 (3.4) 57.6 2010 1.7 59.3 (3.4) 57.6 2011 1.7 59.2 (3.4) 57.6 2012 1.8 59.1 (3.3) 57.6 2013-2017 208.8 282.8 (17.6) 474.0 2018-2022 435.1 218.8 (15.5) 638.4 2023-2027 255.4 145.2 (9.5) 391.0 2028-2032 473.2 82.2 (2.6) 552.8 2033-2036 104.3 7.8 - 112.1

MTA Bridges and Tunnels (in millions) Variable-Rate Bonds Fiscal Year Ended Net Swap December 31 Principal Interest Payments Total

2008 $ 34.1 $ 69.8 $ 3.5 107.4 2009 36.4 68.4 3.0 107.7 2010 38.2 66.9 2.1 107.2 2011 41.1 65.2 1.2 107.5 2012 43.4 63.5 0.2 107.2 2013-2017 298.1 283.3 (21.1) 560.2 2018-2022 194.2 231.3 (35.2) 390.3 2023-2027 219.2 191.4 (32.4) 378.1 2028-2032 869.0 84.4 (15.8) 937.6 2033-2036 6.5 - - 6.5

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8. LEASE TRANSACTIONS

Hillside Facility - On March 31, 1997, the MTA entered into a lease/leaseback transaction with a third party whereby the MTA leased MTA Long Island Rail Road’s Hillside maintenance facility. The term of the lease is 22 years, but the third party has the right to renew for a further 21.5 year term. The facility was subsequently subleased back to the MTA as a capital lease, and sub-subleased by the MTA to MTA Long Island Rail Road.

Under the terms of the lease/leaseback agreement, the MTA initially received $314, which was utilized as follows. The MTA paid $266 to an affiliate of the third party’s lender, which has the obligation to make a portion of sublease rent payments equal to this amount, thereby eliminating the need for the MTA to make these payments to the third party. The MTA used $21 to purchase Treasury securities, which it deposited under pledge to the third party. This deposit, together with the aforementioned obligation of the third party’s lender, resulted in a financial defeasance of all sublease obligations, including the cost of purchasing the third party’s remaining rights at the end of the 22 year sublease period, if the purchase option is exercised. A further $0.6 was used to pay for legal and other costs of the transaction, and $3 was used to pay the first rental payment under the sublease. A further $23 is the MTA’s net benefit from the transaction, representing consideration for the tax benefits. MTA Bridges and Tunnels has entered into a guarantee with the third party that the sublease payments will be made. At December 31, 2007, the MTA has recorded a long-term capital obligation and capital asset of $274 arising from the transaction.

Subway and Rail Cars - On December 12, 1997, the MTA entered into lease/leaseback transactions whereby the MTA leased certain of MTA Metro-North Railroad’s rail cars to a third party and MTA New York City Transit leased certain subway maintenance cars to the same third party. The lease periods for MTA Metro-North Railroad’s rail cars expire between 2009 and 2014, depending on the asset, and the lease period for MTA New York City Transit’s subway maintenance cars expires in 2013. The third party has the right to renew the lease for an additional period of 12 years for MTA Metro-North Railroad cars, depending on the asset, and a further 12 years for MTA New York City Transit’s subway maintenance cars. The cars were subsequently subleased back to the MTA as a capital lease, and sub-subleased by the MTA to MTA Metro-North Railroad and MTA New York City Transit, respectively.

Under the terms of the lease/leaseback agreement, the MTA initially received $76.6, which was utilized as follows: The MTA paid $59.8 to an affiliate of the third party’s lender, which has the obligation to make a portion of sublease rent payments equal to this amount, thereby eliminating the need for the MTA to make these payments to the third party. The MTA used $12.5 to purchase a Letter of Credit from an affiliate of the third-party’s lender, guaranteed by the third-party lender’s parent. This payment, together with the aforementioned obligation of the third-party’s lender, is sufficient to settle all obligations, including the cost of purchasing the third party’s remaining rights at the end of the sublease period if the purchase options are exercised. At December 31, 2007, the MTA has recorded a long-term capital obligation and capital asset of $44 arising from the transaction. The net proceeds are deferred and amortized to operations over the period of the lease.

On September 25, 2002 and December 17, 2002 the MTA entered into four sale/leaseback transactions whereby MTA New York City Transit transferred ownership of certain MTA New York City Transit subway cars to the MTA, the MTA sold those cars to third parties, and MTA leased those cars back from such third parties. The MTA subleased the cars to MTA New York City Transit. The four leases expire in 2032, 2034, 2033, and 2033, respectively. At the lease expiration, the MTA has the option of either exercising a fixed price purchase option for the cars or returning the cars to the third party owner.

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Under the terms of the sale/leaseback agreements, the MTA initially received $1,514.9, which was utilized as follows: The MTA paid $1,058.6 to affiliates of certain of the lenders to the third parties, which affiliates have the obligation to make a portion of the lease rent payment equal to the debt service on the related loans, thereby eliminating the need for MTA to make these payments to the third parties. The MTA also purchased Freddie Mac, FNMA, and U.S. Treasury debt securities in amounts and with maturities which are sufficient to make the lease rent payments equal to the debt service on the loans from the other lenders to the third parties. In the case of one of the four leases, MTAHQ also purchased Freddie Mac debt securities in amounts and with maturities which are expected to be sufficient to pay the remainder of the lease rent payments under that lease and the purchase price due upon exercise by the MTA of the purchase option if exercised. In the case of the other three leases, the MTA entered into Equity Payment Agreements with Premier International Funding Co. (which are guaranteed by Financial Security Assurance, Inc.) whereby that entity has the obligation to provide to the MTA the amounts necessary to make the remainder of the basic lease rent payments under the leases and to pay the purchase price due upon exercise by the MTA of the purchase options if exercised. The amount remaining after payment of transaction expenses, $96.2, was the MTA’s net benefit from these four transactions. These amounts are deferred and amortized to operations over the period of the lease.

During 1995, MTA Bridges and Tunnels entered into a sale/leaseback transaction with a third party whereby the MTA Bridges and Tunnels sold certain subway cars, which were contributed by the MTA New York City Transit, for net proceeds of $84.2. These cars were subsequently leased back by MTA Bridges and Tunnels under a capital lease. The deferred credit of $34.2 was netted against the carrying value of the leased assets, and the assets were recontributed to the MTA New York City Transit. MTA Bridges and Tunnels transferred $5.5 to the MTA, representing the net economic benefit of the transaction. The remaining proceeds, equal to the net present value of the lease obligation, of which $71.3 was placed in an irrevocable deposit account and $7.5 was invested in U.S. Treasury Strips. The estimated yields and maturities of the deposit account and the Treasury Strips are expected to be sufficient to meet all obligations under the lease as they become due. The capital lease obligation is included in other long-term liabilities. At the end of the lease term MTA Bridges and Tunnels has the option to purchase the subway cars for approximately $106, which amount has been reflected in the net present value of the lease obligation, or to make a lease termination payment of approximately $89.

Sale/Leaseback Transactions - On December 19, 2002, the MTA entered into four sale/leaseback transactions whereby MTA New York City Transit transferred ownership of certain MTA New York City Transit qualified technological equipment (QTE) relating to the MTA New York City Transit automated fare collection system to the MTA. The MTA sold that equipment to third parties and the MTA leased that equipment back from such third parties. The MTA subleased the equipment to MTA New York City Transit. The four leases expire in 2022, 2020, 2022, and 2020, respectively. At the lease expiration the MTA has the option of either exercising a fixed-price purchase option for the equipment or returning the equipment to the third-party owner.

Under the terms of the sale/leaseback agreements the MTA initially received $507.4, which was utilized as follows: The MTA paid $316.2 to affiliates of certain of the lenders to the third parties, which affiliates have the obligation to make a portion of the lease rent payment equal to the debt service on the related loans, thereby eliminating the need for the MTA to make these payments to the third parties. The MTA also purchased FNMA and U.S. Treasury debt securities in amounts and with maturities which are sufficient to make the lease rent payments equal to the debt service on the loans from the other lenders to the third parties. In the case of three of the four leases the MTA also purchased U.S. Treasury debt securities in amounts and with maturities which are expected to be sufficient to pay the remainder of the lease rent payments under those leases and the purchase price

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due upon exercise by the MTA of the purchase options if exercised. In the case of the other lease the MTA entered into an Equity Payment Undertaking Agreement with XL Insurance (Bermuda) Ltd. (which is guaranteed by XL Financial Assurance Ltd.) whereby that entity has the obligation to provide to the MTA the amounts necessary to make the remainder of the equity portion of the basic lease rent payments under that lease and to pay the equity portion of the purchase price due upon exercise by the MTA of the purchase option if exercised. The amount remaining after payment of transaction expenses, $57.6, was the MTA’s net benefit from these four transactions. As consideration for the cooperation of the City of New York in these transactions, including the transfer of any property interests held by the City on such equipment to MTA New York City Transit and the MTA, the MTA is obligated to pay to the City 24.11 percent of the net benefit received from these four QTE transactions. At December 31, 2007, MTA had paid the City of New York $13.7.

On February 7, 2008, MTA learned that XL Insurance (Bermuda) Ltd. was downgraded to a level that under the applicable transaction documents requires MTA to replace the Equity Payment Undertaking Agreement with other permitted collateral. MTA intends to either pledge U.S. Treasury debt obligations, having a cost of approximately $75, which will be sufficient to make the remainder of the equity portion of the basic lease rent payments under that lease and to pay the equity portion of the purchase price due upon exercise by the MTA of the purchase option if exercised, or to enter into a termination agreement with all of the parties to the transaction to terminate the transaction at a cost to MTA approximately equal to the cost to MTA of purchasing the U.S. Treasury debt obligations that would otherwise be required to be pledged as a replacement for the Equity Payment Undertaking Agreement. In either event, the Equity Payment Undertaking Agreement will be released from the lien of the pledge.

On June 3, 2003, the MTA entered into a sale/leaseback transaction whereby MTA New York City Transit transferred ownership of certain MTA New York City Transit subway cars to the MTA, the MTA sold those cars to a third party, and the MTA leased those cars back from such third party. The MTA subleased the cars to MTA New York City Transit. The lease expires in 2033. At the lease expiration, the MTA has the option of either exercising a fixed-price purchase option for the cars or returning the cars to the third-party owner.

Under the terms of the sale/leaseback agreement, the MTA initially received $168.1 million, which was utilized as follows: The MTA paid $126.3 to an affiliate of one of the lenders to the third party, which affiliate has the obligation to make a portion of the lease rent payment equal to the debt service on the related loan, thereby eliminating the need for MTAHQ to make these payments to third parties. The MTA also purchased FNMA and U.S. Treasury securities in amounts and with maturities which are sufficient to make the lease rent payments equal to the debt service on the loans from the other lender to the third party and to pay the remainder of the rent under that lease and the purchase price due upon exercise by the MTA of the purchase option if exercised. The amount remaining after payment of transaction expenses, $7.4, was the MTA’s benefit from the transaction.

On September 25, 2003 and September 29, 2003, MTA entered into two sale/leaseback transactions whereby MTA New York City Transit transferred ownership of certain MTA New York City Transit subway cars to MTA, MTA sold those cars to third parties, and MTA leased those cars back from such third parties. MTA subleased the cars to MTA New York City Transit. Both leases expire in 2033. At the lease expiration, MTAHQ has the option of either exercising a fixed-price purchase option for the cars or returning the cars to the third-party owner.

Under the terms of the sale/leaseback agreements, MTA initially received $294, which was utilized as follows: In the case of one of the leases MTA paid $97 to an affiliate of one of the lenders to the third party, which affiliate has the obligation to make a portion of the lease rent payment equal to the

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debt service on the related loan, thereby eliminating the need for MTA to make these payments to the third party. In the case of the other lease MTA purchased U.S. Treasury debt securities in amounts and with maturities which are sufficient to make the lease rent payments equal to the debt service on the loan from the other lender to the third party. In the case of both of the leases MTA also purchased REFCO debt securities that mature in 2030 under an agreement with AIG Matched Funding Corp. (guaranteed by American International Group, Inc.) whereby AIG Matched Funding Corp. receives the proceeds from the REFCO debt securities at maturity and is obligated to pay the remainder of the lease rent payments under those leases and the purchase price due upon exercise by MTA of the purchase options if exercised. The amount remaining after payment of transaction expenses, $24, was MTA’s net benefit from these two transactions. These amounts are deferred and amortized to operations over the period of the respective leases.

Other Lease Transactions - On July 29, 1998, the MTAHQ, MTA New York City Transit, and MTA Bridges & Tunnels entered into a lease and related agreements whereby each agency, as sublessees, will rent, for an initial stated term of approximately 50 years, an office building at Two Broadway in lower Manhattan. The lease term expires on July 30, 2048, and, pursuant to certain provisions, is renewable for two additional 15-year terms. The lease comprises both operating (for the lease of land) and capital (for the lease of the building) elements. The total annual rental payments over the initial lease term are $1,602 with rent being abated from the commencement date through June 30, 1999. During 2002 and 2001 the MTA made rent payments of $21. In connection with the renovation of the building and for tenant improvements, the MTA issued $121 and $328 in 2000 and 1999, respectively, of long-term obligations (see Note 7). The office building is principally occupied by MTA New York City Transit and MTA Bridges & Tunnels.

On April 8, 1994, the MTA amended its lease for the Harlem/Hudson line properties, including Grand Central Terminal. This amendment initially extends the lease term, previously expiring in 2031, an additional 110 years and, pursuant to several other provisions, an additional 133 years. In addition, the amendment grants the MTA an option to purchase the leased property after the 25th anniversary of the amended lease. The amended lease comprises both operating (for the lease of land) and capital (for the lease of buildings and track structure) elements.

In August 1988, the MTA entered into a 99-year lease agreement with Amtrak for Pennsylvania Station. This agreement, with an option to renew, is for rights to the lower concourse level and certain platforms. The $45 paid to Amtrak by the MTA under this agreement is included in other assets. This amount is being amortized over 30 years. In addition to the 99-year lease, MTA Long Island Rail Road entered into an agreement with Amtrak to share equally the cost of the design and construction of certain facilities at Pennsylvania Station. Under this agreement, the MTA may be required to contribute up to $60 for its share of the cost. As of December 31, 2000 the project was closed and $50 was included in property and equipment.

Total rent expense under operating leases approximated $25.8 for the year ended December 31, 2007 and $28.5 for the year ended December 31, 2006.

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At December 31, 2007, the future minimum lease payments under non-cancelable leases are as follows:

Year Operating Capital ($ in Millions)

2008 $ 46 $ 1,099 2009 46 100 2010 44 305 2011 43 174 2012 43 70 2013 - 2017 201 539 2018 - 2022 199 433 2023 - 2027 210 574 2028 - 2032 216 175 2033 - 2037 242 1,627 Thereafter 926 551

$ 2,216 5,647

Amount representing interest (4,021)

Present value of capital lease obligations $ 1,626

9. ESTIMATED LIABILITY ARISING FROM INJURIES TO PERSONS

A summary of activity in estimated liability as computed by actuaries arising from injuries to persons, including employees, and damage to third-party property, for the years ended December 31, 2007 and 2006 is presented below:

December 31, December 31, 2007 2006 ($ in Millions)

Balance, beginning of year $ 1,160 $ 1,174 Activity during the year: Current year claims and changes in estimates 260 146 Claims paid (188) (160)

Balance, end of year 1,232 1,160

Less current portion (199) (176)

Long-term liability $ 1,033 $ 984

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10. COMMITMENTS AND CONTINGENCIES

The MTA actively monitors its properties for the presence of pollutants and/or hazardous wastes and evaluates its exposure with respect to such matters. When the expense, if any, to clean up pollutants and/or hazardous wastes is estimable it is accrued by the MTA.

Management has reviewed with counsel all actions and proceedings pending against or involving the MTA, including personal injury claims. Although the ultimate outcome of such actions and proceedings cannot be predicted with certainty at this time, management believes that losses, if any, in excess of amounts accrued resulting from those actions will not be material to the financial position, results of operations, or cash flows of the MTA.

11. OPERATING ACTIVITY INFORMATION

Bridges and Consolidated MTA Commuters Transit Tunnels Eliminations Total

December 31, 2007 Operating revenue $ 254 $ 1,024 $ 3,159 $ 1,263 $ (34) $ 5,666 Depreciation and amortization 68 490 1,061 70 - 1,689 Subsidies and grants 1,939 - 1,330 - (1,170) 2,099 Tax revenue 1,459 - 1,247 - (301) 2,405 Interagency subsidy 406 - 156 (401) (161) - Operating (deficit) surplus (833) (1,475) (4,291) 763 - (5,836) Net (deficit) surplus 828 (1,411) 452 80 (15) (66) Capital expenditures 4,042 285 898 297 (1,325) 4,197

December 31, 2007 Total assets 11,435 9,884 28,747 4,062 (2,359) 51,769 Net working capital 1,274 (31) 261 (363) (1,108) 33 Long-term debt - (including current portion) 17,793 - - 7,156 (43) 24,906 Net assets (10,835) 8,820 25,119 (3,792) (15) 19,297

December 31, 2007 Net cash (used in)/provided by operating activities (690) (931) (2,297) 893 41 (2,984) Net cash provided by/(used in) noncapital financing activities 4,121 939 2,718 (414) (2,832) 4,532 Net cash provided by/(used in)capital and related financing activities (3,992) (22) (638) (557) 2,791 (2,418) Net cash provided by/(used in) Investing activities 536 13 214 82 - 845 Cash at beginning of year 78 26 38 13 - 155 Cash at end of period 53 25 35 17 - 130

NOTE: Only MTA and MTA Bridges and Tunnels agencies are issuing debt. (Continued)

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Bridges and Consolidated MTA Commuters Transit Tunnels Eliminations Total

December 31, 2006 Operating revenue $ 232 $ 990 $ 3,041 $ 1,259 $ (35) $ 5,487 Depreciation and amortization 52 484 1,012 58 - 1,606 Subsidies and grants 376 - 314 - (156) 534 Tax revenue 2,646 - 2,111 - (1,172) 3,585 Interagency subsidy 435 - 167 (435) (167) - Operating (deficit) surplus (585) (1,276) (2,830) 848 - (3,843) Net (deficit) surplus 648 (1,223) 1,781 164 - 1,370 Capital expenditures 3,931 272 857 185 (1,153) 4,092

December 31, 2006 Total assets 11,735 9,610 27,288 3,833 (2,381) 50,085 Net working capital 2,578 (95) 290 (178) (1,307) 1,288 Long-term debt - (including current portion) 16,757 - - 7,169 (44) 23,882 Net assets (10,123) 8,691 24,667 (3,872) - 19,363

December 31, 2006 Net cash (used in)/provided by operating activities (944) (749) (1,767) 931 31 (2,498) Net cash provided by/(used in) noncapital financing activities 3,816 783 2,399 (440) (2,340) 4,218 Net cash (used in)/provided by capital and related financing activities (2,509) (33) (476) (429) 2,089 (1,358) Net cash provided by/(used in) Investing activities (319) (4) (181) (61) 220 (345) Cash at beginning of year 34 29 63 12 - 138 Cash at end of period 78 26 38 13 - 155

NOTE: Only MTA and MTA Bridges and Tunnels agencies are issuing debt. (Concluded)

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12. SETTLEMENT OF CLAIMS The case of Cruz v. MTA Long Island Rail Road settled on January 20, 2006 for the total sum of $12.1 with FMTAC being responsible for the amount in excess of the MTA Long Island Rail Road’s retention of $6.0 at the time of the event. FMTAC paid its portion of such settlement from the ELF.

13. SUBSEQUENT EVENTS Fare increases

On December 19, 2007 the MTA Board voted to increase the Authorities Fares and Tolls to generate an estimated 3.85% increase in revenues.  Subway, Bus and Paratransit Fares – Cash, single ride tickets and Regular Pay-Per-Ride MetroCard fares remained unchanged. Effective March 2, 2008, the price of the 7-Day Unlimited Ride MetroCard will increase to $25 from $24 and the 30-Day Unlimited Ride MetroCard increase to $81 from $76. The fare for the new 14-Day Unlimited Ride MetroCard is $47. The MetroCard bonus percentage will be reduced from 20% to 15%. On January 30, 2008, the MTA Board authorized that the MetroCard minimum purchase amount for the bonus to apply will be reduced to $7 from $10.

 Commuter Rail– For travel within New York State, effective March 1, 2008, one-way, ten-trip, weekly and monthly ticket prices will increase to yield an average change in ticket prices of 3.85%.

 Bridges and Tunnels – Effective March 16, increase cash tolls for cars on major facilities and the Henry Hudson Bridge by $.50 ($1.00 for cash one-way on the Varrazano-Narrows Bridge) and on minor facilities by $.25. E-ZPass tolls for cars will increase up to 3.8% except on the Henry Hudson Bridge, where the increase will be 8.6% ($0.15). Cash tolls for trucks will increase 10.3-14.7% depending on the number of axles. Trucks using E-ZPass will receive a 25% discount from the cash toll, in increase from the current discount of 20%.

Bond issuances

 On February 21, 2008, MTA issued $512.470 Series 2008A and $487.530 Series 2008B Transportation Revenue Bonds to refinance prior debt issued by MTA.

 On March 27, 2008, Triborough Bridge and Tunnel Authority issued General Revenue Bonds, Series 2008A for $822.8 and General Revenue Bonds, Series 2008B for $252.2. The Series 2008 Bonds were issued to finance bridges and tunnel projects, and may also be used to finance projects and/or to refinance indebtedness issued by MTA Bridges and Tunnels.

On March 28, 2008, MTA announced the future redemption of the following series of bonds totaling over $1.4 billion: MTA TRANSPORTATION REVENUE BONDS Transportation Revenue Variable Rate Refunding Bonds, Subseries 2002G-2 Subseries Principal Amount Interest Rate CUSIP Redemption Date Refunded Mode Number (59259R) 2002G-2 $200,000,000 Weekly LU6 May 1, 2008

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Transportation Revenue Variable Rate Bonds, Series 2004A Subseries Principal Amount Interest Rate CUSIP Redemption Date Refunded Mode Number (59259R) 2004A-1 $165,260,000 Weekly TD6 May 1, 2008 2004A-2 70,825,000 Weekly TE4 May 1, 2008 2004A-3 165,260,000 Weekly TF1 May 1, 2008 2004A-4 70,825,000 Weekly TG9 May 1, 2008

MTA DEDICATED TAX FUND BONDS

Dedicated Tax Fund Variable Rate Bonds, Series 2004D Subseries Principal Amount Interest Rate CUSIP Redemption Refunded Mode Number Date (59259N) 2004D-1* $ 23,000,000 Weekly QM8 May 1, 2008 2004D-2 112,000,000 Weekly QN6 May 1, 2008

* Partial refunding

Dedicated Tax Fund Variable Rate Bonds, Series 2007A* Subseries Principal Amount Interest Rate CUSIP Redemption Date Refunded Mode Number (59259N) 2007A-1 $86,000,000 7-Day Auction VE0 March 25, 2008 2007A-2 $86,000,000 7-Day Auction VF7 March 26, 2008 2007A-3 $86,000,000 7-Day Auction VG5 March 27, 2008 2007A-4 $86,000,000 7-Day Auction VH3 March 28, 2008 2007A-5 $86,000,000 7-Day Auction VJ9 March 24, 2008

* Redemption of these bonds was previously announced on February 22, 2008

MTA BRIDGES AND TUNNELS SUBORDINATE BONDS

MTA Bridges and Tunnels Subordinate Revenue Variable Rate Bonds, Series 2004A

Subseries Principal Amount Interest Rate CUSIP Redemption Date Refunded Mode Number (89602N) 2004A-1 $100,000,000 7-Day Auction GK4 April 30, 2008 2004A-2 $75,000,000 7-Day Auction GL2 May 1, 2008

In the future MTA may redeem additional MTA and/or MTA Bridges and Tunnels Bonds in order to manage its interest cost risk.

* * * * *

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METROPOLITAN TRANSPORTATION AUTHORITY

REQUIRED SUPPLEMENTARY INFORMATION: SCHEDULE OF PENSION FUNDING PROGRESS (Dollars - In Millions)

January 1, January 1, January 1, 2007 2006 2005 LIRR a. Actuarial value of plan assets $ 509.1 $ 625.0 $ 659.6 b. Actuarial accrued liability (AAL) 1,543.5 1,898.6 1,786.7 c. Total unfunded AAL (UAAL) [b-a] 1,034.4 1,273.6 1,127.1 d. Funded ratio [a/b] 33.0 % 32.9 % 36.9 % e. Covered payroll $ 94.0 $ 117.3 $ 137.1 f. UAAL as a percentage of covered payroll [c/e] 1100.4 % 1085.8 % 822.1 %

MaBSTOA a. Actuarial value of plan assets $ 1,057.9 $ 841.0 $ 762.1 b. Actuarial accrued liability (AAL) 1,938.3 1,725.2 1,680.5 c. Total unfunded AAL (UAAL) [b-a] 880.5 884.2 918.4 d. Funded ratio [a/b] 54.6 % 48.7 % 45.3 % e. Covered payroll $ 519.7 $ 498.0 $ 479.5 f. UAAL as a percentage of covered payroll [c/e] 169.4 % 177.5 % 191.5 %

MTA a. Actuarial value of plan assets $ 1,361.6 $ 613.6 $ 463.6 b. Actuarial accrued liability (AAL) 1,477.6 793.3 625.5 c. Total unfunded AAL (UAAL) [b-a] 116.0 179.7 161.9 d. Funded ratio [a/b] 92.2 % 77.4 % 74.1 % e. Covered payroll N/A* N/A* $ 480.8 f. UAAL as a percentage of covered payroll [c/e] N/A* N/A* 33.7 %

*Not applicable since the benefits for former employees of New York Bus, Queens Surface and Liberty Lines are not related to Pay. * * * * *

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METROPOLITAN TRANSPORTATION AUTHORITY

SUPPLEMENTARY INFORMATION SCHEDULE OF FINANCIAL PLAN TO FINANCIAL STATEMENTS RECONCILIATION YEAR ENDED DECEMBER 31, 2007 (Dollars in Millions) UNAUDITED FINANCIAL PLAN ACTUAL - OPERATING LOSS $ (5,813.2)

Reconciling items:

FMTAC revenues are recorded as operating on the Financial Plan and recorded as non-operating on the (8.0) Financial Statements.

Various agencies recorded adjustments to the Financial Statements and not to the Financial Plan was 11.7 completed.

The Financial Plan excluded Capital Construction and East Side Access. (3.3)

The Financial Plan includes TBTA capital transfer to agencies (22.5)

FINANCIAL STATEMENT - OPERATING LOSS $ (5,835.3)

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METROPOLITAN TRANSPORTATION AUTHORITY SUPPLEMENTARY INFORMATION CONSOLIDATED RECONCILIATION BETWEEN FINANCIAL PLAN AND FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2007 (Dollars in Millions)

Financial Financial Plan Statement Category Actual GAAP Actual Variance (Unaudited) REVENUE Farebox Revenue $ 3,995.4 $ 3,995.4 $ - Vehicle Toll Revenue 1,250.5 1,250.5 - Other Operating Revenue 480.0 420.4 (59.6) Total Revenue 5,725.9 5,666.3 (59.6) EXPENSES Labor: Payroll 3,861.5 3,894.8 (33.3) Overtime 481.8 443.6 38.2 Health and Welfare 888.3 592.4 295.9 Pensions 851.2 852.4 (1.2) Other Fringe Benefits 444.3 481.0 (36.7) Postemployment Benefits 1,291.1 1,575.5 (284.4) Reimbursable Overhead (274.4) (236.2) (38.2) Total Labor Expenses 7,543.8 7,603.5 (59.7) Non-Labor: Traction and Propulsion Power 294.4 294.4 - Fuel for Buses and Trains 192.7 192.7 - Insurance 64.9 66.6 (1.7) Claims 163.9 163.9 - Paratransit Service Contracts 233.2 233.2 - Maintenance and Other 533.3 519.6 13.7 Professional Service Contract 173.7 180.6 (6.9) Materials & Supplies 516.1 518.4 (2.3) Other Business Expenses 152.0 40.0 112.0 Total Non-Labor Expenses 2,324.2 2,209.4 114.8 Other Expenses Adjustments: TBTA Transfer 22.5 - 22.5 GASB General Reserve 1.7 - 1.7 Interagency Subsidy (41.8) - (41.8) Other - - - Total Other Expense Adjustments (17.6) - (17.6) Total Expenses Before Depreciation 9,850.4 9,812.9 37.5 Depreciation 1,688.7 1,688.7 -

Total Expenses (Excluding TBTA Depreciation) 11,539.1 11,501.6 37.5

Net Operating Deficit Excluding Subsidies and Debt Service $ (5,813.2) $ (5,835.3) $ (22.1)

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METROPOLITAN TRANSPORTATION AUTHORITY

SUPPLEMENTARY INFORMATION CONSOLIDATED SUBSIDY ACCRUAL RECONCILIATION BETWEEN FINANCIAL PLAN AND FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2007 (Dollars in Millions)

Financial Plan Financial Statement Accrued Subsidies Actual GAAP Actual Variance (Unaudited)

Mass Transportation Operating Assistance $ 1,570.8 $ 1,570.8 $ - Petroleum Business Tax 601.5 601.5 - Mortgage Recording Tax 1 and 2 686.9 686.9 - MRT transfer (36.7) (36.7) - Urban Tax 893.7 893.7 - Operating subsidies from NYC 242.3 223.6 (18.7) {1} State and Local Operating Assistance 378.8 378.8 - Additional Mass Transportation Assistance Program 20.0 20.0 - Nassau County Subsidy to Long Island Bus 10.8 10.8 - Station Maintenance 141.6 141.6 - Connecticut Department of Transportation (CDOT) 63.9 63.9 - NYS Grant for Debt Service - 117.7 117.7 {2} Investment Income 2.3 40.6 38.3 {3} Total Accrued Subsidies 4,575.9 4,713.2 137.3 Net Operating Surplus/(Deficit) Excluding Accrued Subsidies and Debt Service (5,813.2) (5,835.3) (22.1)

Total Net Operating Surplus/(Deficit) $ (1,237.3) $ (1,122.1) $ 115.2

Interest on Long-Term Debt $ 1,054.0

Debt Service $ 1,414.6

{1} The Financial Plan records on a cash basis while the Financial Statement records on an accrual basis.

{2} In the Financial statement funds received from NYS to cover debt service payments for Service Contract Bonds are included in the subsidies. The Financial Plan does not include either the funds received or disbursed.

{3} The Financial Plan excludes certain pool and capital income.

B-83 New York City Transit Authority Consolidated Financial Statements Management’s Discussion and Analysis December 31, 2007 and 2006 New York City Transit Authority Index December 31, 2007 and 2006

Page(s)

Report of Independent Auditors ...... 1

Management’s Discussion and Analysis...... 2–12

Consolidated Financial Statements

Balance Sheets ...... 13–14

Statements of Revenues, Expenses and Change in Net Assets ...... 15–16

Statements of Cash Flows ...... 17–18

Notes to Financial Statements ...... 19–46

Required Supplementary Information

Schedule of Funding Progress...... 47–48 PricewaterhouseCoopers LLP 300 Atlantic St. Stamford CT 06901 Telephone (203) 539 3000 www.pwc.com

Report of Independent Auditors

Members of the Board Metropolitan Transportation Authority

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of revenues, expenses and changes in net assets, and cash flows present fairly, in all material respects, the financial position of the New York City Transit Authority (the Authority) at December 31, 2007 and 2006, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Authority’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in the notes to the consolidated financial statements, the Authority is a public benefit corporation that receives a significant portion of its operating and capital financing requirements from The City of New York, the State of New York, federal and regional governmental entities and from the sale of bonds to the public. Also, the Authority has material transactions with affiliated agencies and other public transportation agencies.

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The Management’s Discussion and Analysis for the years ended December 31, 2007 and 2006 on pages 2 through 12 and the required supplementary information on pages 47 and 48 are not required parts of the basic consolidated financial statements, but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

April 11, 2008

1 NEW YORK CITY TRANSIT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Unaudited) For the Years Ended December 31, 2007 and 2006

OVERVIEW OF THE CONSOLIDATED FINANCIAL STATEMENTS

Introduction to the Annual Report

This annual report consists of three parts: Management’s Discussion and Analysis, Consolidated Financial Statements and Notes to the Consolidated Financial Statements and Supplementary Information.

The Consolidated Financial Statements Include:

The Consolidated Balance Sheets provide information about the nature and amounts of investments in resources (assets) and the obligations (liabilities) to New York City Transit Authority’s (the Authority’s) creditors, with the difference between the two reported as net assets.

The Consolidated Statements of Revenues, Expenses and Changes in Net Assets show how the Authority’s net assets changed during each year. They account for all of the current year’s revenues and expenses, measures the financial results of the Authority’s operations over the past year and can be used to determine how the Authority has funded its costs.

The Consolidated Statements of Cash Flows provide information about the Authority’s cash receipts, cash payments and net changes in cash resulting from operations, non-capital financing, capital and related financing and investing activities.

The Notes to the Consolidated Financial Statements and Supplementary Information Provide:

Information that is essential to understanding the basic consolidated financial statements, such as the Authority’s accounting methods and policies.

Details of cash and investments, capital assets, employee benefits, long-term debt, lease transactions and future commitments and contingencies of the Authority.

Any other events or developing situations that could materially affect the Authority’s financial position, results of operations and cash flows.

The Required Supplementary Information provides information concerning the Authority’s progress in funding its obligation to provide pension benefits to its employees and postemployment benefits (OPEB).

Management’s Discussion and Analysis:

The following is a narrative overview and analysis of the financial activities of the Authority for the years ended December 31, 2007 and 2006. This management discussion and analysis (MD&A) is intended to serve as an introduction to the Authority’s basic consolidated financial statements. It provides an assessment of how the Authority’s position has improved or deteriorated and identifies the factors that, in management’s view, significantly affected the Authority’s overall financial position. It may contain opinions, assumptions or conclusions by the Authority’s management that should not be considered a replacement for, and must be read in conjunction with, the consolidated financial statements described above.

2 Financial Reporting Entity

The New York City Transit Authority and its subsidiary, Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) (collectively, the Authority) are public benefit corporations established pursuant to the New York State (the State) Public Authorities Law, to operate public subway, bus and paratransit services within The City of New York (the City). The Authority is a part of the financial reporting group of the Metropolitan Transportation Authority (MTA), which is a component unit of the State and whose mission is to continue, develop and improve public transportation and to develop and implement a unified public transportation policy in the New York Metropolitan area.

CONDENSED FINANCIAL INFORMATION

All amounts are in millions, except as noted.

The following sections will discuss the significant changes in the Authority’s consolidated financial position for the years ended December 31, 2007 and 2006. Additionally, an examination of major economic factors and industry trends that have contributed to these changes is provided. It should be noted that for purposes of the MD&A, summaries of the consolidated financial statements and the various exhibits presented conform to the Authority’s consolidated financial statements, which are presented in accordance with Generally Accepted Accounting Principles.

Total Assets, Distinguishing Between Capital and Other Assets

Increase/(Decrease) 2007 2006 2005 2007-2006 2006-2005 Gross Capital Assets $ 37,559 $ 34,983 $ 32,662 2,576 2,321 Accumulated Depreciation (11,135) (10,087) (9,080) (1,048) (1,007) Net Capital Assets $ 26,424 24,896 23,582 1,528 1,314 Other Assets 2,323 2,392 1,847 (69) 545 Total Assets $ 28,747 $ 27,288 $ 25,429 $ 1,459 $ 1,859

The Authority’s Gross Capital Assets totaled $37.6 billion at year-end 2007. Of the total, depots/yards/signals and stations were 36%, subway cars and buses accounted for 22% and track/structures were also 22%. These gross capital assets exclude significant infrastructure assets such as tunnels and elevated structures which are on the books of New York City.

Significant changes in assets include:

December 31, 2007 versus 2006 Net Capital Assets increased from December 31, 2006 to December 31, 2007 by $1,528, or 6.1%. The net increase is due primarily to capital asset additions of $2,587. Significant additions included station rehabilitations ($963), subway cars ($532), track & structures ($353) and signals ($216). These additions are partly offset by incremental annual depreciation of $1,061.

Other Assets decreased by $69, or 2.9%, compared with the prior year. This decrease was due mostly to a reduction in funds held in the MTA investment pool of $181, partly offset by an increase in prepaid pension expenses of $87, primarily due to a 2007 pension prepayment of $100.

3 CONDENSED FINANCIAL INFORMATION (CONTINUED)

December 31, 2006 versus 2005 Net Capital Assets increased from December 31, 2005 to December 31, 2006 by $1,314, or 5.6%. The net increase is due primarily to capital asset additions of $2,326. Significant additions included station rehabilitations ($602), track & structures ($594), signals ($538) and depots/yards ($489). These additions are partly offset by incremental annual depreciation of $1,012.

Other Assets increased by $545, or 29.5%, compared with the prior year. This increase included a higher balance of receivables from the MTA and constituent Authorities of $253, additional funds held in the MTA investment pool of $203, due primarily to an increase in tax subsidies from a continuation of the strong regional real estate market, and increased deferred pension assets/prepaid pension expenses of $60.

Total Liabilities, Distinguishing Between Long-Term Liabilities and Current Liabilities

Increase/(Decrease) 2007 2006 2005 2007-2006 2006-2005 Current Liabilities $ 1,482 $ 1,505 $ 1,341 $ (23) 164 Long-Term Liabilities 2,147 1,117 1,203 1,030 (86) Total Liabilities $ 3,629 $ 2,622 $ 2,544 $ 1,007 $ 78

At the end of 2007, the Authority’s liabilities consisted primarily of employee fringe benefit-related liabilities (for pensions, health and other benefits), 51%, and injuries to persons (public liability and workers’ compensation), 24%. Included in the employee fringe benefit-related liabilities was $991 of postemployment benefits other than pensions based upon adoption of GASB Statement No. 45 in 2007.

Significant changes in liabilities include:

December 31, 2007 versus 2006 Total Liabilities increased from December 31, 2006 to December 31, 2007 by $1,007, or 38.4%. Current Liabilities decreased by $23, or 1.5%, while Long-Term Liabilities increased by $1,030, or 92.2%.

The decrease in Current Liabilities was due primarily to lower salary & wage accrued expenses of $46, due to the timing of labor contract settlements and payrolls, and reduced bank overdraft payables of $39. Accrued retirement benefits increased by $47, due to higher pension costs, and accrued vacation and sick leave increased by $22, due to increased wage rates, both of which partly offset the liability reductions.

The increase in Long-Term Liabilities was due largely to the recording of $991 of post-employment benefits other than pensions based upon the adoption of GASB Statement No. 45 in 2007.

4 CONDENSED FINANCIAL INFORMATION (CONTINUED)

December 31, 2006 versus 2005 Total Liabilities increased from December 31, 2005 to December 31, 2006 by $78, or 3.1%. Current Liabilities increased by $164, or 12.2%, while Long-Term Liabilities decreased by $86, or 7.1%.

The increase in Current Liabilities was due primarily to increases in accrued salaries & wages ($76), accounts payable ($41) and accrued vacation and sick leave ($29). The salary & wage increase was due mostly to TWU wage increases effective December 15, 2005, based upon a contract settlement achieved through arbitration on December 15, 2006. Accrued vacation and sick leave increased due to increased wage rates and headcount levels.

The decrease in Long-Term Liabilities was due largely to a reduction of $55 in accrued retirement and death benefits caused by a MaBSTOA pension prepayment and a decrease of $30 in liabilities associated with injuries to persons due to an adjustment based upon actuarial experience to reduce the liability consistent with recent claims payout history and current payout projections.

Total Net Assets, Distinguishing Among Amounts Invested in Capital Assets, Net of Related Debt; Restricted Amounts and Unrestricted Amounts

Increase/(Decrease) 2007 2006 2005 2007-2006 2006-2005 Investment in Capital Assets, Net of Related Debt $ 26,031 $ 24,505 $ 23,189 $ 1,526 1,316 Restricted - - - - - Unrestricted (912) 162 (303) (1,074) 465 Total Net Assets $ 25,119 $ 24,667 $ 22,886 $ 452 $ 1,781

Net assets represent the residual interest in the Authority’s assets after liabilities are deducted and consist of three components: Invested in capital assets, net of related debt, restricted and unrestricted. Net assets invested in capital assets, net of related debt include capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Net assets are reported as restricted when constraints are imposed by third parties or enabling legislation. All other net assets are unrestricted.

December 31, 2007 versus 2006 Total net assets were $25,119 at the end of 2007, a net increase of $452, or 1.8% from the end of 2006. The net increase was comprised of capital contributions from the MTA of $2,003, net nonoperating income of $2,740, partially offset by operating losses of $4,291.

December 31, 2006 versus 2005 Total net assets were $24,667 at the end of 2006, a net increase of $1,781, or 7.8% from the end of 2005. The net increase was comprised of capital contributions from the MTA of $2,020, net nonoperating income of $2,591, partially offset by operating losses of $2,830.

The operating losses and non-operating income results are summarized on the following table and addressed in subsequent sections.

5 CONDENSED FINANCIAL INFORMATION (CONTINUED)

Condensed Statements of Revenues, Expenses, and Changes in Net Assets

Year Ended December 31, 2007 2006 2005 Operating Revenues $ 3,159 $ 3,041 $ 2,908 Operating Expenses (7,450) (5,871) (5,672)

Operating Loss (4,291) (2,830) (2,764)

Nonoperating Revenues (Expenses) Subsidies-New York State & City 2,578 2,425 1,880 Triborough Bridge & Tunnel Authority 156 167 180 Interest Expense (29) (24) (29) Loss on Disposal of Buses and Subway Cars - - (2) Other Nonoperating Revenue/Expenses 35 23 8

Total Nonoperating Revenues 2,740 2,591 2,037

Loss before Capital Contributions (1,551) (239) (727)

Capital Contributions 2,003 2,020 1,839

Change in Net Assets 452 1,781 1,112

Total Net Assets - Beginning of Year 24,667 22,886 21,774

Total Net Assets - End of Year $ 25,119 $ 24,667 $ 22,886

6 CONDENSED FINANCIAL INFORMATION (CONTINUED)

Revenue from Fares/Ridership

Increase/(Decrease) 2007 2006 2005 2003-20022007-2006 2002-20012006-2005 Subway Revenue $ 2,030 $ 1,947 $ 1,857 $ 83 90 Bus Revenue 772 775 762 (3) 13 Expired Fare Media Revenue 44 29 17 15 12 Paratransit Revenue 9 8 7 1 1 Total Revenue from Fares $ 2,855 $ 2,759 $ 2,643 $ 96 $ 116 Total Ridership (millions) 2,3062 2,2452 2,1902 61 55 Non-Student Average Fare $ 1.29 $ 1.29 $ 1.27 $ - $ 0.02

2007 versus 2006 Total revenue from fares was $2,855 in 2007, an increase of $96, or 3.5%. This increase was primarily due to subway ridership growth, mostly caused by a strong local economy. Additionally, expired fare media revenue increased due mostly to reduced MetroCard fare evasion losses and increased MetroCard usage from NYCT and other transit system ridership increases. Total ridership from fares was 2,306, the highest annual ridership since 1969, and an increase of 61 or 2.7% above 2006. Subway ridership was 1,563, an increase of 64 or 4.2% above 2006, and the highest subway ridership since 1951.

Fare evasion (turnstile/gate evasion) was estimated to be 0.32% in 2007, 0.33% in 2006 and 0.37% in 2005. This is an improvement from 1996, when fare evasion was estimated to be 1.45% and from the 1991 high of 5.91%.

2006 versus 2005 Total revenue from fares was $2,759 in 2006, an increase of $116, or 4.4%. This increase was primarily due to reduced fares during the Holiday Bonus Program in 2005, the three-day transit strike in December, 2005, an estimated 1.2% increase (net of the transit strike) in non-student ridership and the full-year impact of the February 27, 2005 fare adjustments. Total ridership from fares was 2,245, the highest since 1969, and an increase of 55 or 2.5% above 2005 due mostly to the transit strike in December 2005, higher student ridership and continued growth in City employment. The non-student average fare increased by $0.02 or 1.6%, primarily due to the 2005 Holiday Bonus Program and fare adjustments.

7 CONDENSED FINANCIAL INFORMATION (CONTINUED)

Operating Expenses, by Major Function

Increase/(Decrease) 2007 2006 2005 2007-2006 2006-2005 Salaries and Wages $ 2,894 $ 2,758 $ 2,625 $ 136 133 Health and Welfare 398 368 370 30 (2) Pensions 596 393 457 203 (64) Other Fringe Benefits 242 195 204 47 (9) Postemployment Benefits other other than Pensions 1,202 213 188 989 25 Traction and Propulsion Power 161 147 137 14 10 Fuel for Buses and Trains 124 120 103 4 17 Fuel & Power for Support Services 79 72 69 7 3 Insurance 37 34 30 3 4 Public Liability Claims 71 24 52 47 (28) Paratransit Service Contracts 233 184 158 49 26 Maint. & Other Oper. Expenses 107 122 108 (15) 14 Professional Service Contracts 81 85 89 (4) (4) Materials and Supplies 291 275 241 16 34 Depreciation 1,061 1,012 955 49 57 Other Expenses 41 37 35 4 2 Reimbursed Overhead Expenses (168) (168) (149) - (19)

Total Operating Expenses $ 7,450 $ 5,871 $ 5,672 $ 1,579 $ 199

2007 versus 2006 Total operating expenses increased by $1,579, or 26.9% versus the prior year, including in 2007 $991 of post-employment benefits other than pensions (post-2007 retiree health & welfare accrued expenses) based upon adoption of GASB Statement No. 45 in 2007. Excluding this amount, total operating expenses increased by $588, or 10.0% as follows:

Salaries & wages exceeded 2006 by $136, or 4.9%, largely due to wage increases averaging between 3.0% and 4.0%, additional overtime requirements, and increased headcount levels mostly in support of customer safety and satisfaction pilot programs and subway car maintenance programs.

Health & welfare expenses increased by $30, or 8.2%, primarily due to increased rates for health & welfare plans, partly offset by employee health & welfare contributions established in recent labor contracts, which totaled $33 in 2007.

Pension expenses increased by $203, or 51.7%, due primarily to higher costs based upon current actuarial valuations and a favorable 2006 non-recurring NYCERS pension adjustment of $120.

Other fringe benefit expenses increased by $47, or 24.1%, due mostly to a Workers’ Compensation reserve adjustment based upon current actuarial information and increased medical costs.

Total energy costs (power and fuel) increased by $25, or 7.4%, due mainly to higher prices.

Public liability claims expenses of $71 in 2007 were based upon the yearly actuarial review of current claims data. The increase of $47, year over year, is attributable to a $35 reduction in reserve amounts required at the end of 2006.

Paratransit service contract expenses increased by $49, or 26.6%, driven mainly by higher trip volume and a decrease in productivity. The productivity decrease resulted from the addition of six new vendors to help meet increased capacity requirements. For control purposes, these new vendors were only

8 CONDENSED FINANCIAL INFORMATION (CONTINUED) assigned trips within given boroughs, leaving the longer and more time-consuming inter-borough trips to the eight primary vendors. It is anticipated that new carrier awards to be made in August, 2008 will provide for more balanced and productive trip assignments.

Maintenance & other operating expenses decreased by $15 or 12.3%, due largely to lower expenses for facility and operating maintenance/repairs, refuse and recycling, and real estate rental costs.

Materials & supplies increased by $16 or 5.8%, due mostly to additional requirements for subway/bus fleet maintenance and safety and elevator & escalator equipment.

Depreciation expenses increased by $49 or 4.8%, due to the capitalization of capital projects reaching beneficial use in 2007, including mainly projects for signals/communications, station rehabilitations and subway cars.

2006 versus 2005 Total operating expenses increased $199, or 3.5% versus the prior year, as follows:

Salaries & wages exceeded 2005 by $133, or 5.1%, largely due to wage increases of approximately 3.0%, additional sick & vacation reserve requirements consistent with wage increases and headcount levels, and payroll reductions associated with striking workers during the three-day transit strike in December 2005.

Pension expenses decreased by $64, or 14.0%, due primarily to a favorable 2006 non-recurring NYCERS pension adjustment.

Total energy costs (power and fuel) increased by $30, or 9.7%, due mainly to higher prices.

Public liability claims expenses decreased by $28, or 53.8%, due to non-recurring favorable non-cash reserve adjustments consistent with current and projected payout rates.

Paratransit service contract expenses increased by $26, or 16.5%, driven mainly by higher trip volume.

Maintenance & other operating expenses increased by $14, or 13.0%, due largely to increased requirements for facility and operating maintenance, water and sewage, and tire & tube rentals.

Materials & supplies increased by $34, or 14.1%, due mostly to additional bus/subway fleet maintenance requirements, data processing maintenance requirements and inventory adjustments.

Depreciation expenses increased by $57, or 6.0%, due to the capitalization of capital projects reaching beneficial use in 2006 including projects for signals/communications, line structures/equipment, station rehabilitations, shops/depots and track & switches.

Reimbursed overhead expenses represent those expenses that are allocable to direct labor expenses incurred in support of capital program work and are therefore eligible for reimbursement by the MTA through the Capital Program. The level of reimbursed overhead expenses increased by $19, or 12.8%, due primarily to higher overhead rates based upon cost increases.

9 CONDENSED FINANCIAL INFORMATION (CONTINUED)

Nonoperating Revenues and Expenses

The Authority receives a variety of tax-supported subsidies from New York State and New York City. These subsidies represent corporate franchise, sales, energy, mortgage recording and real estate taxes and are sensitive to the strength of the State and City economies and prevailing interest rates.

Operating assistance subsidies from New York State and New York City have been maintained at the same level each year.

The Triborough Bridge & Tunnel Authority, another affiliate of the MTA, distributes to the Authority each year funds that vary based upon its operating surplus.

Capital contributions from the MTA of $2,003 in 2007 and $2,020 in 2006 represent capital program funding from several sources including bonds, Federal, State and City funding.

Changes in Net Assets

The change in net assets represents the excess of capital contributions over the net of operating losses and nonoperating revenues before capital contributions. The net assets increased by $452 in 2007, due to capital contributions mostly offset by increased operating losses primarily from the recording of postemployment benefits other than pensions based upon adoption of GASB Statement No. 45. The net assets increased by $1,781 in 2006, due mostly to capital contributions.

Budget Highlights

Total revenue from fares in 2007 was $2,855, $77, or 2.8% higher than budget due primarily to increased subway revenue of $70, or 3.6%. This increase was due to subway ridership growth mostly caused by a strong local economy.

Total Operating expenses in 2007 were $7,450. Excluding unbudgeted other post-employment benefits of $991 initially recorded in 2007, operating expenses were $6,459, essentially equal to budget. Labor- related expenses of $4,172 exceeded budget by $91, or 2.2%, due mostly to: increased MaBSTOA pension expenses based on revised actuarial assumptions; increased Workers’ Compensation expenses based upon the most recent actuarial evaluation of outstanding claims; increased subway and bus overtime requirements and increased headcount mostly in support of customer safety and satisfaction pilot programs. Underruns in health & welfare expenses partly offset the above labor expense increases. Non labor expenses of $2,287 were below budget by $90, or 3.8%. Expense underruns that were partly timing related resulted mostly in maintenance and other operating expenses, professional service contracts, and materials & supplies. Depreciation and energy expenses were also favorable to budget.

10 GOVERNMENT’S OVERALL FINANCIAL POSITION, RESULTS OF OPERATIONS AND IMPORTANT ECONOMIC CONDITIONS

Important Economic Conditions

Metropolitan New York is the most transit-intensive region in the United States. A financially sound and reliable transportation system is critical to the region’s economic well-being.

Recent economic improvement in the City has benefited the Authority’s overall ridership.

The Authority expects that, over time, Federal and State economic stimulus measures and the rebuilding of downtown infrastructure will further improve the New York City economy.

Results of Operations and Overall Financial Position

The year 2007 ended with an operating cash surplus. This surplus was due, in large part, to better than anticipated real estate tax subsidies from a continued strong commercial real estate market and improved subway farebox revenues, mostly due to a strong local economy. Accrued expenses for “Post- Employment Benefits other than Pensions” were recorded by the Authority based upon adoption of GASB Statement No. 45 in 2007.

The Authority’s 2008 Adopted Budget also projects an operating cash surplus due largely to an assumed continuation of strong real estate tax subsidies and gap closing actions including increased fare yields effective March, 2008 and Authority cost savings and efficiency programs. The projected cash generated from these sources also would enable the Authority to fund several service initiatives. Actual implementation of these service initiatives is subject to a review of revenues at the end of June, 2008. Large budget gaps are forecasted in each year of the Authority’s 2009-2011 Financial Plan caused, in large part, by significant growth in debt service requirements and a structural deficit as the growth of operating expenses exceeds the growth of operating revenues annually. The Financial Plan outlines steps to bring the out-year gaps to more manageable levels including: 1.5% annual agency cost reductions; alternate year fare increases; new State revenues in 2009; additional governmental aid beginning in 2010 and modest contributions from employees.

SIGNIFICANT CAPITAL ASSET ACTIVITY

Capital Program

The Authority’s portion of the current MTA Capital Program for 2005-2009 totals $11.2 billion. As of December 31, 2007, $5.7 billion has been committed under the five-year plan, of which $2.0 billion has been expended. Funding for the Capital Program comes mostly from new money bonds, federal grants, the New York State voter approved State-Wide Transportation Bond Act, bonds supported by new State taxes and fees, City capital funding and other sources.

Among the projects in the 2005-2009 Transit Capital Program are the following: normal replacement of 912 B Division Subway Cars; fleet growth of 47 A Division Cars; the purchase of 1,360 new buses, including 1,010 standard, 112 articulated and 238 express buses; the purchase of 951 new paratransit vehicles; rehabilitation of 45 stations; replacement of 25 escalators; replacement of 51 miles of mainline track and 165 mainline switches; signal modernization; communications improvements and improvements to shops, yards, and depots.

11 CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS

It is expected that the Authority will be adopting GASB Statement No. 49 Accounting and Financial Reporting for Pollution Remediation Obligations in 2008.

Funding of the capital program is dependant on the MTA’s ability to secure funding from the Federal, State and City governments as well as the municipal bond market.

12 New York City Transit Authority Consolidated Balance Sheets December 31, 2007 and 2006 (in thousands)

2007 2006

Assets

Current assets: Cash (note 3) $ 34,281 $ 37,509 MTA Investment Pool (note 4) 740,336 920,997 Receivables: Billed and unbilled charges due from New York City 28,017 26,231 Accrued subsidies 81,075 70,974 Due from MTA and constituent Authorities 458,494 409,403 Other 56,340 92,640 Less allowance for doubtful accounts (18,179) (20,351)

Net receivables 605,747 578,897

Materials and supplies 190,778 170,644 Deferred pension asset 46,003 47,467 Prepaid pension expense (note 6) 100,000 12,500 Prepaid expenses and other current assets 25,741 28,241

Total current assets 1,742,886 1,796,255

Due from MTA for purchase of capital assets 558,191 571,558 Capital assets, net of accumulated depreciation (note 5) 26,157,964 24,615,529 Leased property under capital lease, net of accumulated amortization (note 5) 93,190 95,602 Leasehold improvements on property, net of accumulated depreciation (note 5) 172,593 185,058 Deferred expenses related to issuance of debt 21,506 23,356 Restricted deposits and other escrow funds 902 816

Total assets $ 28,747,232 $ 27,288,174

See accompanying notes to consolidated financial statements.

13 New York City Transit Authority Consolidated Balance Sheets December 31, 2007 and 2006 (In thousands)

2007 2006

Liabilities and Net Assets

Current liabilities: Bank overdrafts payable $ 51,059 $ 89,612 Accounts payable 117,744 128,666 Accrued expenses: Salaries, wages, and payroll taxes 124,235 170,018 Vacation, sick pay and other benefits 517,240 495,331 Retirement and death benefits (note 6) 223,325 175,925 Estimated liability arising from injuries to persons (note 12) 121,448 114,981 Other 111,522 117,847

Total accrued expenses 1,097,770 1,074,102

Due to MTA for repayment of debt, current portion (note 8) 6,368 6,073 Unredeemed farecards and tokens 201,743 200,134 Deferred subsidy revenue 6,885 6,885

Total current liabilities 1,481,569 1,505,472

Due to MTA for repayment of Certificates of Participation (note 8) 247,627 250,998 Obligations under capital lease, long-term (note 5) 138,572 134,549 Postemployment benefits other than pensions (note 7) 991,330 - Estimated liability arising from injuries to persons (note 12) 736,715 697,490 Other long-term liabilities 31,834 32,313 Restricted deposits and other escrow funds 902 816

Total liabilities 3,628,549 2,621,638

Net assets: Invested in capital assets, net of related debt 26,031,180 24,504,569 Restricted - - Unrestricted (912,497) 161,967

Total net assets 25,118,683 24,666,536

Commitments and contingencies - -

Total liabilities and net assets $ 28,747,232 $ 27,288,174

See accompanying notes to consolidated financial statements.

14 New York City Transit Authority Consolidated Statements of Revenues, Expenses and Changes in Net Assets Years Ended December 31, 2007 and 2006 (In thousands)

2007 2006 Revenues: Operating revenues: Rapid transit $ 2,030,025 $ 1,946,774 Surface transit 772,260 775,198 Expired fare media 43,580 28,632 Paratransit fares 9,494 8,279 School, elderly, and paratransit reimbursement 206,039 186,321 Advertising and other 97,896 96,162

Total operating revenues 3,159,294 3,041,366

Expenses: Operating expenses: Salaries and wages 2,894,315 2,758,199 Health and welfare 398,530 367,544 Pensions 595,729 393,461 Other fringe benefits 241,471 195,301 Postemployment benefits other than pensions 1,201,677 213,166 Traction and propulsion power 160,554 147,342 Fuel for buses and trains 124,378 120,110 Fuel and power for support services 79,016 72,613 Insurance 37,252 33,450 Public liability claims 71,357 23,939 Paratransit service contracts 233,170 183,553 Maintenance and other operating expenses 107,284 121,272 Professional service contracts 80,527 84,565 Materials and supplies 291,480 275,104 Depreciation 1,061,085 1,012,113 Other expenses 40,691 36,881 Reimbursed overhead expenses (168,620) (167,524)

Total operating expenses 7,449,896 5,871,089

Operating loss (4,290,602) (2,829,723)

See accompanying notes to consolidated financial statements.

15 New York City Transit Authority Consolidated Statements of Revenues, Expenses and Changes in Net Assets Years Ended December 31, 2007 and 2006 (In thousands)

2007 2006 Nonoperating revenues: Tax-supported subsidies: New York State 1,369,915 1,406,576 New York City 893,697 704,666 Operating Assistance subsidies: New York State 158,672 158,672 New York City 158,672 158,672 Triborough Bridge and Tunnel Authority 156,474 166,640 Less: Amounts provided to Staten Island Rapid Transit Operating Authority (4,244) (3,364)

Total nonoperating revenues 2,733,186 2,591,862

Interest expense (28,760) (24,293) Interest income and other nonoperating revenues 35,099 22,889

Total nonoperating income 2,739,525 2,590,458

Loss before capital contributions (1,551,077) (239,265)

Capital contributions 2,003,224 2,020,245

Change in net assets 452,147 1,780,980

Net assets: Beginning of year 24,666,536 22,885,556

End of year $ 25,118,683 $ 24,666,536

See accompanying notes to consolidated financial statements.

16 New York City Transit Authority Consolidated Statements of Cash Flows Years Ended December 31, 2007 and 2006 (In thousands)

2007 2006

Cash flows from operating activities: Cash received from passengers, tenants, advertisers, and others $ 3,217,748 $ 3,000,166 Cash payments for payroll and related employee costs (4,200,368) (3,692,485) Cash payments to suppliers for goods and services (1,249,291) (1,092,243)

Net cash used in operating activities (2,231,911) (1,784,562)

Cash flows from noncapital financing activities: Subsidies received 2,717,830 2,498,944 Deferred pension payments - (100,331) Cash transferred to GASB OPEB fund (26,832) - (Decrease) increase in bank overdraft (38,553) 17,817

Net cash provided by noncapital financing activities 2,652,445 2,416,430

Cash flows from capital and related financing activities: Cash paid for MTA bond defeasance (135,870) - Principal payments (6,368) (6,073) Interest paid (14,837) (10,731) Payments on MTA Transportation bonds issued to fund capital assets (543,531) (503,919) Subsidies designated for debt service payments 207,226 180,439 Capital project costs incurred for capital program (773,348) (752,185) Cash transferred to capital program fund (124,682) (105,053) Reimbursement of capital project costs from MTA 754,111 721,394

Net cash used in capital and related financing activities (637,299) (476,128)

Cash flows from investing activities: Decrease (increase) in MTA Investment Pool 180,661 (203,439) Interest on investments 32,876 22,014

Net cash provided by (used in) investing activities 213,537 (181,425)

Net decrease in cash (3,228) (25,685)

Cash at: Beginning of year 37,509 63,194

End of year $ 34,281 $ 37,509

(Continued)

See accompanying notes to consolidated financial statements.

17 New York City Transit Authority Consolidated Statements of Cash Flows Years Ended December 31, 2007 and 2006 (In thousands)

2007 2006

Reconciliation of cash flows from operating activities: Operating loss $ (4,290,602) $ (2,829,723) Adjustments to reconcile operating loss to net cash used in operating activities Depreciation 1,061,085 1,012,113

Changes in operating assets and liabilities: Increase (decrease) in operating receivables 56,845 (60,281) Decrease (increase) in prepaid expenses and other current assets 2,500 (3,153) Increase in prepaid/deferred pension expense/asset (86,036) (12,500) Increase in materials and supplies (20,134) (5,090) Increase in farecard and token liability 1,609 19,081 (Decrease) increase in accrued salaries, wages, and payroll taxes (45,783) 76,349 (Decrease) increase in accounts payable and other accrued liabilities (17,726) 50,097 Increase in accrued vacation, sick pay and other benefits 21,909 28,700 Increase (decrease) in accrued retirement and death benefits 47,400 (25,022) Increase in postemployment benefits other than pensions 991,330 - Increase (decrease) in estimated liability and arising from injuries to persons 45,692 (35,133)

Net cash used in operating activities $ (2,231,911) $ (1,784,562)

Supplemental schedule of noncash capital and related financing activities: Fair value of assets contributed $ 1,459,714 $ 1,302,131

See accompanying notes to consolidated financial statements.

18 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

1. Financial Statements

Reporting Entity

The accompanying consolidated financial statements include the accounts of the New York City Transit Authority (Transit Authority), and its subsidiary, the Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) (collectively, the Authority), which are public benefit corporations created pursuant to the Public Authorities Law (the Act) of the State of New York (the State) to operate public subway and bus services within The City of New York (the City).

MaBSTOA is a subsidiary of the Transit Authority and, therefore, the financial results of MaBSTOA are combined with those of the Transit Authority in the consolidated financial statements. The MaBSTOA Pension Plan (the Plan) is not a component unit of the Transit Authority, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and, therefore, the financial results of the Plan are not included in the Authority’s consolidated financial statements.

The Authority has material transactions with affiliated agencies included in the Metropolitan Transportation Authority (MTA) financial reporting group. Such agencies include the MTA, Triborough Bridge and Tunnel Authority (TBTA), Metro North Commuter Railroad (MNCR), Long Island Rail Road (LIRR), Metropolitan Suburban Bus Authority (MSBA or LIB), and the Staten Island Rapid Transit Operating Authority (SIRTOA).

The Authority is a part of the financial reporting group of the MTA and is included in the combined financial statements of the MTA in accordance with GASB Statement No. 14. The MTA is a component unit of the State and is included in the State of New York Comprehensive Annual Financial Report of the State Comptroller as a public benefit corporation.

In July 2003, the MTA Capital Construction Company was created by action of the MTA Board of Directors as a public benefit corporation subsidiary of the MTA under section 1266(s) of the Public Authorities Law. The mission of this new subsidiary company is to plan, design and construct current and future major MTA system expansion projects. Projects currently underway, include all activities associated with the Long Island Rail Road East Side access, the Number 7 Line Extension, the Lower Manhattan Fulton Transit Center, the new South Ferry station complex, system-wide capital Security Projects, and the Second Avenue Subway, which are consolidated under the management of the MTA Capital Construction Company.

In December of 2004, MTA Bus Company (“MTA Bus”) was created as a public benefit corporation subsidiary of the MTA specifically to operate certain City bus routes. These routes are currently operated by MTA Bus and not by the Authority. All material transactions between MTA Bus and the Authority have been properly recorded as of December 31, 2007.

Operations

Operations are conducted pursuant to leases with the City which expired on November 1, 1989, except that the terms of the leases continue so long as any financing agreement between the Authority and the MTA and any MTA Transportation Revenue Bonds remain outstanding (see note 8). The City has the option to terminate the leases at any time. In the event of termination, the City is required to assume the assets and liabilities of the Authority and must pay or make provision for the payment of any debt incurred pursuant to financing agreements of the Authority.

Substantial operating losses (the difference between operating revenues and expenses) result from the essential services that the Authority provides; such operating losses will continue in the

19 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

foreseeable future. To meet the funding requirements of these operating losses, the Authority receives subsidies from:

a. The State, in the form of annual subsidies of special State and regional tax revenues, operating assistance, and reimbursement of certain expenses;

b. The City, in the form of operating assistance, tax revenues, and reimbursement of certain expenses; and

c. An affiliated agency (TBTA), in the form of a portion of its operating surplus.

The New York State Public Authorities Law and the financing agreement between the Authority and the MTA provide that the Authority shall establish fares, tolls, and other fees for the use of its facilities as may be necessary to maintain its combined operations on a self-sustaining basis as defined in such law. It is the opinion of management that the Authority is in compliance with these requirements. The Authority is not liable for real estate taxes, franchise taxes, or sales taxes on substantially all of its purchases or other excise taxes on its properties.

Capital Financing

1992-1999 Capital Programs

The MTA has ongoing programs on behalf of the Authority and other affiliated agencies, subject to approval by the New York State Metropolitan Transportation Authority Capital Program Review Board (the State Review Board), which are intended to improve public transportation in the New York Metropolitan area. The 1992-1999 Capital Programs (the Capital Programs) totaled $18.1 billion, of which the Authority’s portion amounted to $12.7 billion. The Capital Programs are, and are expected to continue to be, funded by federal capital grants, City capital funds, MTA bonds secured by system revenues and other sources, bonds issued and to be issued by the TBTA, proceeds from the sale of tax benefits on leasing transactions, and by direct transfers of operating budget revenues raised expressly for the purpose of supporting the Capital Programs.

At December 31, 2007, $12.6 billion has been committed to Authority projects from the 1992-1999 approved plan, of which approximately $12.5 billion has been expended.

Approved 2000-2004 Capital Program

The 2000-2004 Capital Program, which was approved by the State Review Board in May 2000, provided for $17.1 billion in capital expenditures, of which the Authority’s portion was $10.3 billion. In May and December of 2002, the MTA Board approved amendments to the program reflecting changes to budgets, schedules, funding and added to the infrastructure and facilities security programs. In December 2003, the MTA Board approved a general update to the plan to incorporate changes and authorized its submission to the MTA Capital Program Review Board (CPRB). In January 2004, the MTA Board approved a further modification to that program to support the accelerated purchase of additional commuter railcars. In December 2004, the MTA Board approved an amendment that incorporated the creation of the MTA Bus Company, including additional funding from the City for the #7 Extension design work, as well as additional security grant funding. This amendment was approved by the CPRB in March 2005. In December 2005, the MTA Board approved an amendment that increased the overall capital program total to $19.9 billion, of which the Authority’s share is $10.2 billion. This amendment included additional federal funds for the Fulton Street Transit Center, South Ferry Station, a new Bus Depot on Staten Island and CCTV installation in NYCT stations. In December 2006, the MTA Board approved an amendment that increased the overall capital program total to $20.1 billion, of which the Authority’s

20 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

share remained at $10.3 billion. Among the projects included in the 2000-2004 Transit Capital Program and subsequent amendments are the following: rebuilding the 1/9 line track and structures destroyed by the September 11, 2001 attacks on the World Trade Center, design and initiation of construction of the full-length Second Avenue Subway, acquisition of 1,210 new subway cars, replacing 927 existing cars and expanding the fleet by 283 cars, acquisition of 1,005 new buses, including 135 CNG buses, rehabilitation of 70 stations, provision of full Americans with Disability Act (ADA) accessibility at 23 stations, replacement of 20 escalators at various stations, replacement of approximately 42 miles of mainline track, signal modernization, communications improvements, and improvements to shops, yards, and depots.

The combined funding sources for the 2000-2004 Capital Program are comprised of $7.9 billion in new money bonds, $6.5 billion in federal funds, $4.6 billion from debt restructuring, $0.5 billion in City capital funding, $0.2 billion from sale and leasing of assets and $1.4 billion from other sources.

As part of the 2000-2004 Capital Program, the MTA, the TBTA and the Authority have refunded and defeased substantially all of their outstanding debt and consolidated most of their existing credits.

At December 31, 2007, $10.1 billion has been committed to Authority projects from the 2000-2004 approved plan, of which approximately $9.1 billion has been expended.

2005-2009 Capital Program

The proposed MTA Capital Program for 2005-2009 was approved by the CPRB in July 2005 and amended in July 2006. The 2005-2009 Program, as approved, provided for $20.1 billion in capital expenditures, of which the Authority’s share is $11.2 billion. In February 2007, the MTA Board further amended the Program to add $1.2 billion of Federal East Side Access Full Funding Grant Agreement funds to the East Side Access project, which relates to the Capital Construction Company’s capital program.

The 2005-2009 Capital Program is designed to continue a program of capital expenditures that would support on-going maintenance and provide needed improvements to enhance services to its customers. The 2005-2009 Capital Program, including the amendment noted above, totals $21.3 billion, of which the Authority’s share remains at $11.2 billion. The Authority’s portion of the capital program excludes $5.1 billion of approved capital projects managed by the MTA Capital Construction Company on behalf of the Transit Authority and the Long Island Rail Road. Among the projects in the 2005-2009 Transit Capital Program are the following: normal replacement of 912 B Division Cars, fleet growth of 47 A Division Cars, the purchase of 1,360 new buses including 1,010 standard, 112 articulated and 238 express buses, the purchase of 951 new paratransit vehicles, rehabilitation of 45 stations, replacement of 25 escalators, replacement of 51 miles of mainline track and 165 mainline switches, signal modernization, communications improvements, and improvements to shops, yards, and depots.

The combined funding sources for the 2005-2009 Capital Program are comprised of $4.3 billion in new money bonds, $7.8 billion in federal funds, $1.5 billion from the New York State voter approved State-Wide Transportation Bond Act, $5.1 billion of Bonds supported by $350 million per year in new State taxes and fees, $2.5 billion in City capital funding, and $1.3 billion from other sources.

At December 31, 2007, $5.7 billion has been committed to Authority projects from the 2005-2009 approved plan, of which approximately $2.0 billion has been expended.

21 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

2. Accounting Policies

Basis of Accounting

In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Authority applies all applicable GASB pronouncements, as well as all Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989 that do not conflict with GASB pronouncements. Subsequent to November 30, 1989, the Authority exclusively applies all applicable GASB pronouncements.

These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Recent Accounting Pronouncements

In November 2006, GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. This statement establishes accounting and reporting for obligations and costs related to existing pollution remediation obligations, such as obligations to clean up hazardous waste spills and remove contamination. This Statement is effective for financial statements for periods beginning after December 15, 2007. The Authority has established an ongoing program for identifying pollution remediation obligations. The Authority has determined that the adoption of GASB 49 will have a significant impact on the Authority’s 2008 consolidated financial statements.

Net Assets

The Authority follows the “business type” activity requirements of GASB 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments which requires that resources be classified for accounting and reporting purposes into the following three net asset categories:

 Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.

 Restricted:

Nonexpendable – Net assets subject to externally imposed stipulations such that the Authority maintains them permanently. For the years ended December 31, 2007 and 2006, the Authority did not have nonexpendable net assets.

Expendable – Net assets whose use by the Authority is subject to externally imposed stipulations that can be fulfilled by actions of the Authority pursuant to those stipulations or that expire with the passage of time.

 Unrestricted: Net assets that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by actions of management or the Board of Directors or may otherwise be limited by contractual agreements with outside parties.

22 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Subsidies

The Authority receives subsidies from various sources, including the State and the City. In general, these subsidies are subject to annual appropriations by the governmental units and periodic approval of the continuation of the taxes supporting the subsidies.

The principal funding sources for the Authority are as follows:

Operating Assistance Appropriations and Grants

The Authority receives, subject to annual appropriations, State and City operating assistance funds. The funds received under the State transit operating assistance program are fully matched by contributions from the City. State and City operating assistance subsidies are recognized as non-operating revenue in the amount of the respective annual appropriation when such appropriation becomes effective.

Triborough Bridge and Tunnel Authority

The New York State Public Authorities law requires the TBTA to transfer its annual operating surplus, as defined, to the Authority and the MTA. The initial $24 million of the operating surplus is provided to the Authority and the balance is divided equally between the Authority and the MTA. However, the amounts transferred to the Authority and the MTA are net of a provision for debt service on TBTA bonds issued to finance the acquisition of facilities under their respective portions of the Capital Program. For the years ended December 31, 2007 and 2006, $220.3 million was paid from the operating surplus of the TBTA to satisfy the Authority’s portion of debt service requirements.

Mortgage Recording Taxes

Under New York State law, the MTA receives operating and capital assistance from the State Mortgage Recording Tax, which is collected by the City and the seven counties within the MTA transportation region, at the rate of three-tenth of 1% of the debt secured by certain real estate mortgages. Such legislation governs the use of the funds from this revenue source whereby the proceeds of this tax are first used by the MTA to meet the operating costs of the MTA headquarters, with the remaining funds allocated 55% to the Authority and 45% to the commuter railroads for their capital and operating needs. The Authority recognizes such sources of funds when designated by the MTA for the Authority’s use. The portion of this subsidy attributable to the Authority is reported in “tax-supported subsidies: New York State” in the accompanying consolidated statements of revenues, expenses and changes in net assets. The Authority records the portion of its State Mortgage Recording Tax subsidy which funds principal and interest payments on long-term debt, net of investment earnings on unexpended proceeds, used to construct capital assets as capital contributions.

In addition, the State designated for the MTA’s use an additional mortgage recording tax (the Additional Mortgage Recording Tax) of one-quarter of 1% of mortgages secured by real estate improved or to be improved by structures containing one to six dwelling units in the MTA transportation region. The funds from this additional tax are available, after satisfying debt service requirements, to meet the capital and operating needs of the Authority and the commuter railroads to be disbursed at MTA’s discretion.

In 2006, the MTA disbursed $97.2 million of the available funds from the Additional Mortgage Recording Tax (after satisfying debt service requirements) to the Authority. The Authority utilized these funds to meet capital and operating needs. No funds were disbursed to the Authority in 2007. 23 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

The Authority receives operating assistance directly from the City through the City Mortgage Recording Tax at the rate of five-eighths of 1% of the debt secured by certain real estate mortgages and through the Real Property Transfer Tax at the rate of 1% of certain properties’ assessed value (collectively referred to as Urban Tax Subsidies). These Urban Tax Subsidies are reflected in tax supported subsidies: New York City, in the accompanying consolidated statements of revenues, expenses and changes in net assets. These funds are recognized as revenue, based upon the reported amount of taxes collected by the City from underlying transactions, within the Authority’s fiscal year.

New York State Regional Mass Transit Taxes

The Authority receives, subject to annual appropriations, revenues from taxes enacted by the State legislature from various taxing sources.

In 1980, the State enacted a series of taxes, portions of which are deposited in the Metro Mass Transportation Operating Account (MMTOA), to fund the operating deficits of State mass transportation systems. MMTOA taxes currently include a business privilege tax imposed on petroleum business in the State, a one-quarter of 1% sales and use tax on certain personal property and services, a corporate franchise tax imposed on transportation and transmission companies, and a temporary franchise tax surcharge on certain corporations, banks, insurance, utility, and transportation companies attributable to business activity carried on in the State. MMTOA taxes are subject to annual appropriation, availability of sufficient tax collections, and determination of operating need by the State for the MTA. They are recognized as revenue in the amount of the annual appropriation when such appropriation becomes effective.

Under New York State law, subject to annual appropriation, the MTA receives operating and capital assistance through a portion of petroleum business tax receipts, certain motor fuel taxes, and certain motor vehicle fees, which are collected by the State. Such assistance is required by law to be allocated, after provision for debt service on any bonds secured by such taxes, 85% to the Authority and 15% to the commuter railroads for their operating and capital needs. MTA Dedicated Tax Fund Bonds (DFT Bonds) are secured by certain petroleum business tax receipts. The Authority recognizes such sources of funds when designated by the MTA for the Authority’s use. A portion of the petroleum business tax receipts collected by the MTA is used to satisfy the debt service requirements for the DTF Bonds and is recorded as capital contributions.

The composition of New York State tax-supported subsidies for 2007 and 2006 is as follows:

2007 2006 Accrued Accrued Revenue Revenue (In thousands)

Petroleum business tax* $ 300,331 $ 335,700 Metro mass tax 1,016,602 835,866 Mortgage recording taxes 52,982 235,010

$ 1,369,915 $ 1,406,576

*Net of $207,226 and $180,439 for debt service payments in 2007 and 2006, respectively.

24 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Paratransit

Pursuant to an agreement between the City and the MTA, the Authority, effective July 1, 1993, assumed operating responsibility for all paratransit service required by the Americans with Disability Act of 1990. Services are provided by private vendors under contract with the Authority. The City reimburses the Authority for the lesser of 33% of net paratransit operating expenses defined as labor, transportation, and administrative costs less fare revenues and 6% of gross urban tax proceeds as described above, or an amount that is 20% greater than the amount paid by the City for the preceding calendar year. Fare revenues and the City reimbursement aggregated approximately $111.8 million in 2007 and $90.8 million in 2006. Total paratransit expenses, including paratransit service contracts, were $282.3 million and $226.8 million in 2007 and 2006, respectively.

Reimbursement of Expenditures

Engineering and labor costs incurred by the Authority for capital projects are reimbursed under the capital program by the MTA to the extent that they relate to approved expenditures applicable to capital projects primarily initiated after April 1, 1982. They are reimbursed by the City to the extent they relate to amounts approved for prior projects. In 2007 and 2006, reimbursements were netted against gross operating expenses on the consolidated statements of revenues, expenses and changes in net assets.

Fare and Service Reimbursement from the State and City

The City no longer fully reimburses the Authority for costs of the free fare program for students; however, pursuant to a 1995 agreement with the State and the City, the Authority continued the student program beginning with the 1995-1996 school year, with the State and the City each agreeing to pay $45 million per annum. The estimated cost of this program is approximately $173 million for the 2007-2008 school year. It is believed the City will continue to provide for the continuation of the City’s $45 million contribution for the 2007-2008 school year, of which $15 million was received in December 2007. The Authority’s approved 2008 Adopted Budget assumes that the remaining $30 million from the City will be received in 2008. It also assumes that the State’s full $45 million for the 2007-2008 school year will be received in 2008. The Authority’s 2009-2011 Financial Plan assumes the continuation of the joint funding of the free fare program for students.

Prior to April 1995, the City was obligated to reimburse the Authority for the transit police force. As a result of the April 1995 merger of the transit police force into the New York City Police Department, the City no longer reimburses the Authority for the costs of policing the Transit System on an ongoing basis since policing of the Transit System is being carried out by the New York City Police Department at the City’s expense. The Authority continues to be responsible for certain capital costs and support services related to such police activities, a portion of which is reimbursed by the City. The Authority received approximately $4.2 million in 2007 and $3.7 million in 2006 for the reimbursement of transit police costs (see note 13). In addition, $0.9 million was received in January 2008 for calendar 2007.

Due from MTA and Constituent Authorities

Due from MTA and constituent Authorities consists of reimbursements due from the MTA Capital Program for billed and unbilled charges relating to capital projects, farecards and intercompany operating receivables, payables, and inter-agency loan transactions.

25 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Prepaid Expenses and Other Current Assets

The Authority prepaid $11.0 million to the New York State Health Insurance Plan (NYSHIP) and $14.3 million for insurance coverage during 2007. In 2006, $10.6 million was paid to NYSHIP and $16.0 million towards insurance coverage.

Due from MTA for Purchase of Capital Assets

Due from MTA for purchase of capital assets consists of funds held by the MTA which are restricted for capital asset acquisitions by the Authority pursuant to the 2002 Transportation Revenue Bond Resolution. This capital program pool is comprised of non-bond proceed funds derived from safe harbor and sale/leaseback transactions, operating fund transfers, legal settlements, TBTA bond purchase rights and swap option agreements, and interest earnings on these pooled funds.

Capital Assets

Capital assets acquired prior to April 1982 were funded primarily by the City, with capital grants made available to the Authority. The City has title to a substantial portion of such assets and, accordingly, these assets are not recorded on the books of the Authority. Subsequent acquisitions, which are part of the capital program, are recorded at cost by the Authority. Funding sources for the acquisition of these capital assets include Federal, State, and City capital grants, grants from the Port Authority of New York and New Jersey, the proceeds from the issuance of Transportation Revenue Bonds, and various TBTA bonding and other sources. Capital assets are recorded at cost and are depreciated on a straight-line basis over 25 or 35 years for subway cars, 12 years for buses, and lives generally ranging from 10 years to 60 years for the other capital assets. Cost includes capitalized interest apportioned to assets during construction. For the purposes of this calculation, interest expense is reported net of investment income.

Contributed Capital

Capital assets contributed by the MTA and restricted funds due from the MTA for the purchase of capital assets are recorded as capital contributions on the consolidated statement of revenues, expenses and changes in net assets. Contributed capital is recognized upon identification of capital costs to be funded by the MTA. Capital contributions for the years ended December 31, 2007 and 2006 consist of the following:

2007 2006 (In thousands) Capital assets contributed by MTA from: Federal grants $ 996,694 $ 1,144,079 Other than federal grants 1,331,699 939,090 Capital assets contributed by MTA for WTC disaster replacement 11,837 10,782 Petroleum business taxes received for principal and interest payments on debt 207,226 180,439 Principal and interest payments on MTA Transportation bonds issued to fund capital assets (299,947) (279,019) Increase (decrease) in funds due from MTA for purchase of capital assets (108,415) 24,874 Extinguishment of debt issued to fund capital assets (135,870) - Total capital contributions $ 2,003,224 $ 2,020,245

26 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Passenger Revenue

Revenues from the sale of farecards are recognized as income as the farecards are used and are reported as operating income.

Materials and Supplies

Materials and supplies are recorded at weighted average cost, net of a reserve for obsolescence.

Staten Island Rapid Transit Operating Authority

The Staten Island Rapid Transit Operating Authority (SIRTOA) is a wholly owned subsidiary of the MTA and provides transportation service on Staten Island. SIRTOA is managed by the Authority on behalf of the City. The Authority has no responsibility for the operating deficit of SIRTOA. The Authority collects, on SIRTOA’s behalf, its share of certain operating assistance subsidies determined by formula, and transfers such subsidies to SIRTOA. The amount of subsidy funds to which SIRTOA is entitled is recorded as a reduction of the subsidy revenues of the Authority.

Employee Benefits

Pension cost is required to be measured and disclosed using the accrual basis of accounting. Annual pension cost should be equal to the annual required contributions (ARC) to the pension plan, calculated in accordance with certain parameters.

In 2003, and as a result of the most recent collective bargaining agreement, the Authority assumed responsibility for providing health benefits to its employees who are members of the TWU Local 100, as well as to retirees who were members of the TWU Local 100 and reach normal retirement age while working for the Authority. During 2005, the Authority also began providing health benefits for active and retired members of the ATU Local 1056 and Local 726. Previously, these benefits were being provided by the TWU and ATU Health Benefits Trusts (the Trusts) with the Authority required to make monthly contributions to the Trusts on behalf of the participants on a ‘pay as you go’ basis. The majority of the benefits provided under the plan are self insured with administrative services provided by various health insurance companies.

The Authority has recorded a liability for claims incurred but not reported (IBNR). The liability represents those estimated future payments that are attributable, under the plan’s provisions, to services rendered to participants prior to year end. The estimated liability of claims includes benefits expected to be paid to retired or terminated employees or their beneficiaries and present employees or their beneficiaries, as applicable. The estimated liability for claims incurred but not reported or paid is $46.6 million and $41.2 million as of December 31, 2007 and 2006, respectively.

In June 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition, and display of OPEB expense / expenditures and related liabilities (assets), note disclosures, and if applicable required supplementary information (RSI) in the financial reports of state and local governmental employers. In June 2005, GASB issued Statement No. 47, Accounting for Termination Benefits. This Statement establishes accounting standards for termination benefits. For termination benefits provided through an existing defined benefit OPEB plan, the provisions of this Statement should be implemented simultaneously with the requirements of Statement No. 45. The Authority has adopted these standards for its Postemployment Benefits Other Than Pensions.

27 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Receivables

Receivables are recorded as amounts due to the Authority, reduced by an allowance for doubtful accounts, to report the receivables at their net realizable value.

Reclassifications

Expenses of $213 million included in health and welfare in 2006 were reclassed to postemployment benefits other than pensions to be consistent with 2007 classification.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3. Cash

Cash consists of the following at December 31:

2007 2006 Book Book Balance Balance (In thousands) Insured and collateralized deposits* $ 4,439 $ 5,666 Less escrow and other restricted deposits (1,163) (1,072) Commercially insured funds on-hand and in-transit 31,005 32,915

$ 34,281 $ 37,509

*Deposits are insured up to FDIC limits ($100,000).

The on-hand and in-transit funds consist primarily of passenger revenue funds collected, but not yet deposited.

4. MTA Investment Pool

The MTA, on behalf of the Authority, invests funds which are not immediately required for the Authority’s operations, in securities permitted by the State Public Authorities Law, including repurchase agreements collateralized by U.S. Treasury securities, U.S. Treasury notes, and U.S. Treasury zero coupon bonds. All investments are held by the MTA’s agent, in custody accounts, in the name of the MTA. The Authority records its position in the Pool based upon a net asset value derived on assets invested in the Pool plus all realized income and losses earned. Unrealized appreciation, which is not significant to the Authority, is retained on the MTA’s books and not included in the Authority’s financial statements. The Authority’s earnings from short-term investments approximated $33.2 million and $22.9 million for the years ended December 31, 2007 and 2006, respectively. Approximately $740.3 million and $921.0 million of funds are included in

28 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

the MTA investment pool in the consolidated balance sheets for the years ended December 31, 2007 and 2006, respectively.

5. Capital Assets

Capital assets, at December 31, consist of the following:

December December 2006 Additions 2007 (In thousands)

Subway cars $ 5,796,459 $ 531,594 $ 6,328,053 Buses 1,988,946 79,392 2,068,338 Track and structures 7,928,916 352,544 8,281,460 Depots and yards 3,661,313 101,401 3,762,714 Stations 5,725,343 963,172 6,688,515 Signals 3,040,816 216,262 3,257,078 Service vehicles 221,441 11,972 233,413 Building 169,584 - 169,584 Other 2,890,724 1,367 2,892,091 Under construction 3,142,272 315,314 3,457,586

34,565,814 2,573,019 37,138,833

Less: Accumulated depreciation (9,950,285) (1,030,584) (10,980,869)

$ 24,615,529 $ 1,542,435 $ 26,157,964

In 1990, the Authority issued approximately $202.8 million of Transit Facility Revenue Bonds, Series 1990 to fund the acquisition of an office building located in Brooklyn, New York. The bonds were subsequently defeased in May 2002 by the MTA Transportation bonds. The property is located on land owned by the New York City Economic Development Corporation, as trustee for the City, with whom the Authority has entered into a 99-year ground lease. Rent expense, on a cash basis, under the lease for 2007 and 2006, was approximately $566,000 each year.

Capitalized interest totaled $36.4 million and $44.5 million in 2007 and 2006, respectively.

Lease Transaction

In July 1998, the MTA, the Authority and TBTA authorized and entered into a lease and related agreements whereby each agency, as a subleasee, rents office space at Two Broadway in lower Manhattan. The triple-net-lease has an initial stated term of approximately 50 years, with the right to extend the lease for two successive 15-year periods at a rental of at least 95% of fair market rent. Remaining payments under the lease approximate $1.37 billion. Under the subleases, the lease is apportioned as follows: the Authority, 68.7%, MTA, 21%; and TBTA, 10.3%. However, the involved agencies have agreed to sub-sublease space from one another as necessary to satisfy actual occupancy needs. The agencies will be responsible for obligations under the lease based on such actual occupancy percentages. Actual occupancy percentages at December 31, 2007 for the Authority, TBTA and MTA were 80.6%, 11.3% and 7.9%, respectively. The Authority’s sublease is for a year-to-year term, automatically extended, except upon the giving of a nonextension notice by the Authority.

29 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

The lease is comprised of both operating and capital elements, with the portion of the lease attributable to the land recorded as an operating lease, and the portion of the lease attributable to the building recorded as a capital lease. Operating rent expenses under the Authority’s sublease amounted to $7.9 million in 2007 and 2006.

Assuming the occupancy percentage at December 31, 2007 will continue, the future minimum lease payments under the Authority’s sublease are as follows:

Year Ending December 31: Operating Capital (In thousands)

2008 $ 7,945 $ 9,013 2009 7,945 10,684 2010 7,945 10,684 2011 7,945 10,684 2012 7,945 10,684 2013-2017 39,724 60,639 2018-2022 39,724 70,242 2023-2027 39,724 80,612 2028-2032 39,724 100,232 2033-2037 39,724 120,235 2038-2042 39,724 134,749 2043-2047 39,724 148,858 2048 3,972 15,172

Total minimum lease payments $ 321,765 782,488 Less imputed interest (643,916)

Present value of net minimum lease payments $ 138,572

The adjusted capital lease for the aforementioned building is being amortized over the remaining life of the lease. The cost of the building and related accumulated amortization at December 31, 2007 and 2006 is as follows:

2007 2006 (In thousands)

Capital lease - building $ 114,489 $ 114,489 Less accumulated amortization (21,299) (18,887)

Capital lease - building, net $ 93,190 $ 95,602

In July 1999 and 2000, the MTA issued Certificates of Participation in the amount of $328.2 million and $121.2 million, respectively, to finance the renovation of the building and certain other tenant improvements (see note 8).

30 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

The amount of such improvements apportioned to the Authority as of December 31, 2007 and 2006 are as follows:

2007 2006 (In thousands)

Base building improvements $ 132,883 $ 132,883 Tenant improvements 130,792 130,707 Furniture and fixtures 11,434 11,434 Computers and equipment 10,781 10,779 Development fees 6,893 6,893 Capitalized interest 13,702 9,532

306,485 302,228 Less: Accumulated depreciation (133,892) (117,170)

Total leasehold improvements $ 172,593 $ 185,058

6. Employee Benefits

New York City Employee’s Retirement System

Plan Description

The Authority contributes to the New York City Employees’ Retirement System (NYCERS), a cost- sharing, multiple-employer public employee retirement system (PERS) for employees of the City and certain other governmental units whose employees are not otherwise members of the City’s four other main pension systems. The NYCERS plan combines features of a defined benefit pension plan with those of a defined contribution pension plan. NYCERS provides pension benefits to retired employees based on salary and length of service. In addition, NYCERS provides disability benefits, accident benefits, cost-of-living adjustments, and death benefits subject to satisfaction of certain service requirements and other provisions. The NYCERS plan functions in accordance with existing New York State statutes and New York City laws and may be amended by action of the State legislature. NYCERS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the New York City Employees’ Retirement System, 335 Adams Street, Suite 2300, Brooklyn, NY 11201-3751.

Funding Policy

The contribution requirements of Plan members and the Authority are established and amended by law. The Authority’s contribution to NYCERS is actuarially determined. The current rate is 14.0% of annual covered payroll. The Authority’s required contributions for NYCERS’s fiscal years ending June 30, 2008, 2007, and 2006 were $426.4, $333.2 and $220.5 million, respectively.

For most Transit Authority employees hired prior to July 27, 1976, NYCERS is noncontributory. Certain employees who entered qualifying service after July 27, 1976, commonly referred to as Tier 4, contribute 3% of their salary (see chapter 10 and 126 of the laws of 2000 below).

55/25 and Age 57 Pension Elections

In 1994, hourly employees and certain operating supervisors participating in the NYCERS plan were given the opportunity to elect the Transit 55/25 option, which enabled such employees to 31 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

become eligible for pension benefits upon reaching 25 years of service and at least 55 years of age. Employees hired after July 26, 1994 in the above titles are mandated into the Transit 55/25 option. All participants were required to make an additional employee contribution of 2.3%.

In 1995, managerial employees and certain other employees participating in the NYCERS plan were given the opportunity to elect a 25 Year Early Retirement plan, which enabled such employees to become eligible for pension benefits upon reaching 25 years of service and at least 55 years of age. Managerial and certain other employees entering after June 28, 1995 were mandated into the Age 57 option. Legislation finalized in 2000 changed the 57/10 plan to allow service retirement after age 57 and completion of five years of service (five-year vesting). Employees electing these options must contribute an additional 2.85% of their gross salary.

Legislation passed in 1999 enabled elective participants in the Transit 55/25 and the 25 Year Early Retirement plans who, by age 62 would not have 25 years of allowable service with the Authority, to withdraw from the applicable plan and revert back to their previous plan.

Amendments enacted by State legislation in 2000 reflect the most recent significant changes to the plan and are summarized as follows:

For operating employees (Chapter 10 of the Laws of 2000)

 All operating employees are automatically included in the Transit 55/25 plan, except those who are in the Age 57 plan who elect to remain in that plan.

 Elimination of the 2.3% additional employees contributions applicable to members of the Transit 55/25 plan.

 Reduction in the Tier 3 and 4 employee contribution rate from 3.0% to 2.0%.

For nonoperating employees (Chapter 126 of the Laws of 2000):

 Vesting under the Age 57 plan requires only five years of service.

 As of October 1, 2000, regular Tier 3 and 4 employee contributions cease after the completion of ten years of credited service.

For retired members (Chapter 125 of the Laws of 2000):

 Automatic COLAs. The COLAs apply to retired members as follows:

Retired or Receiving Benefits Retirees at Least Age for at least

62 5 years 65 10 Disabled retirees 5 Accidental death beneficiaries 5

 Initial COLA payable September 30, 2000 based on the first $18,000 of the maximum retirement allowance.

32 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

 Thereafter, annual COLAs of 50% of the increase in the consumer price index (CPI), but not less than 1% or more than 3% of the first $18,000 of maximum retirement allowance will be payable.

These benefit enhancements, as well as the automatic COLA for retirees, were reflected in the actuarial valuation beginning with the June 30, 2000 valuation.

The Plan adopted several amendments during 2002 as a result of State legislation. Amendments include changes to the definition of active service for Tier 1 and Tier 2 members, extension of the phase in period from five years to ten years for funding liabilities created by the benefits provided by Chapter 125 of the Laws of 2000 and increases in accidental disability benefits for Tier 3 and Tier 4 members.

During 2006, pursuant to legislative amendment, the NYCERS Plan enacted significant changes in actuarial assumptions used to determine employer contributions. The more salient changes were the adoption of new demographic assumptions, the actuarial asset valuation method changed from a five-year moving average to six-year, which had the effect of smoothing 2001-2003 investment losses, and the shortening of the amortization period for the 2000 COLA. In addition, the One-Year Lag Methodology was adopted, which used June 30, 2004 payroll data to determine the June 30, 2006 employer contribution. The contribution for June 30, 2007 will be adjusted for retroactive wage settlements for Transit Authority operating employees.

In September 2006 and June 2007, pursuant to legislation (Chapter 734 of the Laws of 2006 and Chapter 379 of the Laws of 2007), current and former members of the ATU 726/1056 and the TWU Local 100, respectively, who had an accumulated balance of additional member contributions made in accordance with the NYC Transit 55/25 Plan enacted in 1994, were allowed to apply for a refund of such contributions. Refunds of employee contributions from the Transit 55/25 Plan amounted to approximately $88.8 million through December 31, 2007.

33 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Actuarial Assumptions

The more significant actuarial assumptions and methods used in the calculation of employer contributions to NYCERS for the plan’s fiscal years ended June 30, 2008 and 2007 are as follows:

Valuation dates June 30, 2005 (Lag) (1) June 30, 2004 (Lag) (1)

Actuarial cost method Frozen initial liability(2) Frozen initial liability(2) Amortization method for Level dollar for UAAL Level dollar for UAAL Unfunded Actuarial Accrued attributable to 2002 Early attributable to 2002 Early Liabilities (UAAL) Retirement Incentive (ERI). Retirement Incentive (ERI). All outstanding All outstanding components of UAAL are components of UAAL are being amortized over closed being amortized over closed periods. periods. Remaining amortization period 2 years for 2002 ERI. 1 year for 2000 ERI. 3 years for 2002 ERI Actuarial Asset Valuation Method Modified six-year moving Modified six-year moving (AAVM) average of market values average of market values with Market Value Restart with Market Value Restart as of June 30, 1999. As of as of June 30, 1999. As of June 30 thereafter, the AAVM June 30 thereafter, the AAVM recognizes investment recognizes investment returns greater or less than returns greater or less than expected over a period of expected over a period of 6 years. 6 years. Assumed rate of return on 8.0% per annum(3) 8.0% per annum(3) investments Postretirement mortality Tables based on recent Tables based on recent experience experience Active service, withdrawal, death, Tables based on recent Tables based on recent disability, service retirement experience experience Salary increases In general, merit and promotion In general, merit and promotion increase including an increase including an assumed general wage assumed general wage increase of 3.0% per year(3) increase of 3.0% per year(3) Cost-of-living adjustments 1.3% per annum(3) 1.3% per annum(3)

(1) Under the One-Year Lag Methodology, the actuarial valuation determines the employer contribution for the second following fiscal year (June 30, 2005 valuation data used for fiscal year June 30, 2007 contribution). (2) Under this actuarial cost method, the initial liability has been established by the Entry Age Actuarial Cost Method, but with the UAAL not less than zero. (3) Developed assuming a long-term consumer price inflation assumption of 2.5% per year.

34 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Manhattan and Bronx Surface Transit Operating Authority

Plan Description

The Authority contributes to the Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) Plan, a single employer governmental retirement plan. MaBSTOA provides retirement, disability, and death benefits to plan members and beneficiaries which are similar to those benefits provided by NYCERS to similarly situated Transit Authority employees. Article 12.08 of the MaBSTOA Plan assigns the authority to establish and amend the benefit provisions to the MaBSTOA Board. MaBSTOA issues a publicly available financial report that includes financial statements and required supplementary information for the plan. That report may be obtained by writing to MaBSTOA Pension Plan, New York City Transit Authority, Operations Accounting, 2 Broadway, 15th Floor, New York, NY 10004.

Funding Policy

The contribution requirements of plan members are established and may be amended only by the MaBSTOA Board in accordance with Article 10.01 of the MaBSTOA Plan. MaBSTOA’s funding policy for periodic employer contributions is to provide for actuarially determined amounts that are designed to accumulate sufficient assets to pay benefits when due. It is MaBSTOA’s policy to fund, at a minimum, the current year’s normal pension cost plus amortization of the unfunded actuarial accrued liability.

The Authority’s contributions to the MaBSTOA Plan for the years ended December 31, 2007, 2006, and 2005 were $179.2 million, $159.6 million and $153.4 million, respectively, equal to the annual required contributions for each year. In calendar years 2007 and 2006, the Authority made advance payments of $100.0 million and $12.5 million, respectively, resulting in the recognition of a prepaid pension expense in the accompanying consolidated balance sheets. During 2006, the Authority also made additional contributions totaling $100.3 million to the Plan. The $100.3 million in contributions had the effect of reducing the net pension obligation of $54.9 million at December 31, 2005 to zero and recognizing a deferred pension asset of $47.5 million at December 31, 2006, in the accompanying consolidated balance sheets. The amortized value of this deferred pension asset was $46.0 million at December 31, 2007.

For employees, the Plan has both contributory and noncontributory requirements depending on the date of entry into service. Employees entering qualifying service on or before July 26, 1976 are non-contributing. Certain employees entering qualifying service on or after July 27, 1976 are required to contribute 3% of their salary (see 2000 Plan Amendments).

The MaBSTOA Pension Plan includes the Transit 55/25 Plan, the 25 Year Early Retirement Plan, the Age 57 Plan, and the 2000 amendments under the same terms and conditions as NYCERS.

The MaBSTOA Plan also adopted the legislative provisions of Chapter 379 regarding the refunding of additional member contributions for certain TWU Local 100 employees. Refunds of employee contributions from Plan assets amounted to approximately $12.0 million in 2007.

The cost of additional benefit enhancements to the Plan will be funded by an increase in the employer’s normal contribution rate.

35 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Annual Pension Cost and Net Pension (Asset) Obligation

The Authority’s annual pension cost and net pension (asset) obligation for MaBSTOA for the years ended December 31, 2007 and 2006 were as follows:

2007 2006 (In thousands)

Annual required contribution $ 179,228 $ 159,638 Interest on net pension (asset) obligation (3,797) 4,394 Adjustment to annual required contribution 5,261 (6,457)

Annual pension cost 180,692 157,575

Contributions made (179,228) (259,968)

Decrease in net pension asset (obligation) 1,464 (102,393)

Net pension (asset) obligation at beginning of year (47,467) 54,926

Net pension (asset) obligation at end of year $ (46,003) $ (47,467)

Actuarial Assumptions

The January 1, 2007 valuation reflects the actuarial assumptions adopted by the Authority based on the 2001 – 2005 Experience Study effective with this valuation. These changes increased the life expectancy for members included in the valuation, incorporated future anticipated mortality improvements, decreased rates of turnover and modified rates of retirement, so fewer retirements are expected for members with less than 20 years of service and more retirements are expected for members with at least 20 years of service. These changes increased the unfunded accrued liability by $135.5 million, which is being amortized over 10 years, and increased the total employer contribution by $24.4 million.

The more significant actuarial assumptions and methods used in the calculation of employer contributions to the MaBSTOA Plan for the years ended December 31, 2007 and 2006 are as follows:

Valuation dates January 1, 2007 January 1, 2006

Actuarial cost method Frozen initial liability(1) Frozen initial liability(1)

Amortization method for 30-year level dollar 30-year level dollar UAAL

Actuarial asset Market value restart as of Market value restart as of valuation method 1/1/96, then five-year moving 1/1/96, then five-year moving average of market values average of market values

Interest rate 8.00% per annum(2), prior to 8.00% per annum(2), prior to expenses expenses

Provision for expenses 0.50% of market value of 0.50% of market value of assets for investment assets for investment expenses plus two-year expenses plus two-year 36 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Valuation dates January 1, 2007 January 1, 2006

average of administrative average of administrative charges charges

Deaths after retirement Tables based on recent Tables based on recent experience experience

Separations other than Tables based on recent Tables based on recent for normal retirement experience experience

Rates of normal Tables based on recent Tables based on recent retirement experience experience

Salary increases In general, merit and In general, merit and promotion increases plus promotion increases plus assumed general wage assumed general wage increases of 3.5% to 18.0% increases of 3.5% to 18.0% for operating employees and for operating employees and 4.5% to 7.0% for 4.5% to 7.0% for nonoperating employees per nonoperating employees per year, depending on years of year, depending on years of service service

Overtime Except for managerial Except for managerial employees, 8.5% of base employees, 8.5% of base salary for operating salary for operating employees and 3.0% of base employees and 3.0% of base salary for nonoperating salary for nonoperating employees, with different employees, with different assumptions used in the year assumptions used in the year before retirement before retirement

Cost-of-living 1.3% per annum(2) 1.3% per annum(2) adjustments

(1) Under this actuarial method, the initial liability has been established by the Entry Age Actuarial Cost Method, but with the UAAL not less than zero.

(2) Assumes a long-term consumer price inflation assumption of 2.5% per annum.

Deferred Compensation Plans

As permitted by Internal Revenue Code Section 457, the Authority has established a trust or custodial account to hold plan assets for the exclusive use of the participants and their beneficiaries. Plan assets and liabilities are not reflected on the Authority’s consolidated balance sheets.

Certain Authority employees are participants in a second deferred compensation plan established in accordance with Internal Revenue Code Section 401(k). Participation in the plan is available to all nonunion and certain other employees. All amounts of compensation deferred under the plan,

37 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

and all income attributable to such compensation, are solely the property of the participants; accordingly, this plan is not reflected in the accompanying consolidated balance sheets.

7. Other Postemployment Benefits

The Authority has implemented GASB Statement No. 45, Accounting and Financial Reporting for Employers for Postemployment Benefits Other Than Pensions (“GASB 45”). This Statement establishes the standards for the measurement, recognition, and display of Other Postemployment Benefits (“OPEB”) expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (“RSI”) in the financial reports of state and local governmental employers.

Plan Description

The benefits provided by the Authority include medical, pharmacy, dental, vision and life insurance, plus monthly supplements for Medicare Part B or Medicare supplemental plan reimbursement and welfare fund contributions.

In 2003 and as a result of collective bargaining agreements, the Authority assumed responsibility for directly providing health care benefits to TWU retirees or their beneficiaries, rather than via the TWU Health & Welfare Trust Fund. In 2005, the Authority also began to administer health care benefits for ATU Local 1056 and Local 726 retirees or their beneficiaries as their respective health and welfare trust funds were dissolved. At December 31, 2007 and 2006, there were 29,447 and 29,469 retired employees, respectively.

Annual OPEB Cost and Net OPEB Obligation

The Authority’s annual OPEB cost (expense) represents the accrued cost for post-employment benefits under GASB 45. The cumulative difference between the annual OPEB cost and the benefits paid during a year will result in a net OPEB obligation, included on the consolidated balance sheets. The annual OPEB cost is equal to the annual required contribution (ARC) less adjustments, if a net OPEB obligation exists. The ARC is equal to the normal cost plus an amortization of the unfunded frozen actuarial accrued liability.

For determining the ARC, the Authority has chosen to use the Frozen Initial Liability (“FIL”) cost method with the initial liability amortized over a 22 year period.

In order to recognize the liability over an employee’s career, an actuarial cost method divides the present value into three pieces: the part that is attributed to past years (the “Accrued Liability” or “Past Service Liability”), the part that is being earned this year (the “Normal Cost”), and the part that will be earned in future years (the “Future Service Liability”). Under FIL, an initial past service liability is determined based on the Entry Age Normal (“EAN”) Cost Method and is amortized separately. This method determines the past service liability for each individual based on a level percent of pay. The members combined to determine the Normal Cost. In future years, actuarial gains/losses will be incorporated into the Future Service Liability and amortized through the Normal Cost.

38 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Actuarial Methods and Assumptions

The Frozen Initial Liability (“FIL”) Cost Method was used for determining the Normal Cost. The Entry Age Normal (“EAN”) Cost Method was used to determine the Frozen Accrued Liability and will be used to determine the unfunded actuarial accrued liability in the GASB 45 supplementary schedules. This method determines the Frozen Accrued liability for each individual based on a level percent of pay for service accrued through the initial valuation date. The difference between the Actuarial Present Value of Benefits and the Frozen Accrued Liability equals the Present Value of Future Normal Cost. The Normal Cost equals the Present Value of Future Normal Cost divided by the present value of future compensation and multiplied by the total of current compensation for members less than certain retirement age.

Valuation Date January 1, 2006

Discount Rate 4.2%

Per Capita Claim Costs For members of NYSHIP and members who retired prior to NYSHIP availability, unadjusted premiums were used.

For some of the self-insured benefits provided to Pre-NYSHIP members and TWU Local 100, ATU 1056 and ATU 726 represented employees, per capita claim costs adjusted by age were used. A sample of these claim costs are shown below:

TWU TWU Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Local 100 Local 100 Group 1 Retirees Group 2 Age GHI Medical Pharmacy Hospital Pharmacy Hospital

Male Employees

TWU TWU Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Local 100 Local 100 Group 1 Retirees Group 2 Age GHI Medical Pharmacy Hospital Pharmacy Hospital

Female Employees

39 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Medicare Part B Premiums The Medicare Part B premium reimbursement was included in the 2006 premium for those members covered by NYSHIP. Recently NYSHIP issued revised premiums for 2007 removing this reimbursement. Assuming the adjustment to the 2006 premium rate would be similar to that announced for 2007, the impact of using the revised premium rates (including the percentage increase in the premium rates from 2006 to 2007) on the Annual Required Contribution (ARC) for the Authority was estimated. For other members, where applicable, the reimbursement was determined using the 2006 premium level and increasing this amount by the Health Care Cost Trend rates.

Health Care Cost Trend Rates

Fiscal Year Trend Fiscal Year Trend 2007 11.0% 2014 7.5% 2008 10.5 2015 7.0 2009 10.0 2016 6.5 2010 9.5 2017 6.0 2011 9.0 2018 5.5 2012 8.5 2019+ 5.0 2013 8.0

In addition, 2006 premiums and claim costs were trended 11% to 2007.

Participation For members that participate in NYSHIP, 100% of eligible members, including current retirees and surviving spouses, are assumed to elect the Empire PPO Plan. For groups that do not participate in NYSHIP, various coverage election rates are used. The following table displays the election rates used for future union retirees:

TWU 100 ATU 1056 ATU 726

Future Retiree Plan Election Percentages

GHI 65% 65% 35% HIP 35 35 49 Aetna 0 0 16

Medicare HIP/Aetna HMO Elections

VIP 1 80% 100% 75% VIP 2 20 0 0 Aetna 0 0 25

Dependent Coverage Current retirees are valued using coverage reported by the MTA. Based on an analysis of members who retired within the last 5 years, we have assumed that, for future retirees, 85% of male members and 55% of female members elect family coverage with a spouse.

Demographic Assumptions Mortality: Preretirement and postretirement healthy annuitant rates are projected on a generational basis using Scale AA, as recommended by the Society of Actuaries Retirement Plans Experience Committee.

40 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Preretirement: RP-2000 Employee Mortality Table for Males and Females with blue collar adjustments. No blue collar adjustments were used for management members of the Authority.

Postretirement Healthy Lives: RP-2000 Healthy Annuitant mortality table for males with Blue Collar adjustments and 133% of the rates from the RP-2000 Healthy Annuitant mortality table for females. No blue collar adjustments were used for management members of the Authority.

Postretirement Disabled Lives: 75% of the rates from the RP-2000 Disabled Annuitant mortality table for males and females. At age 85 and later for males and age 77 and later for females, the disability rates are set to the male and female healthy rates, respectively.

Turnover and retirement rates: All demographic assumptions were based on assumptions utilized in the 2006 actuarial valuations for the pension plans, with the exception of the mortality assumption. The following is a table displaying the various sources of the assumptions utilized.

Group Pension Plan MaBSTOA MaBSTOA New York City Transit Authority NYCERS - TA

Vestee Coverage For members that participate in NYSHIP, Vestees (members who have terminated, but not yet eligible to retire) are eligible for NYSHIP benefits provided by the Authority upon retirement, but must maintain NYSHIP coverage at their own expense from termination to retirement. Vestees are assumed to retire at first eligibility and would continue to maintain NYSHIP coverage based on the following percentages. This assumption is based on the Development of Recommended Actuarial Assumptions for New York State/SUNY GASB 45 Valuation report provided to Participating Employers of NYSHIP. These percentages were also applied to current vestees.

Age at Percent Termination Electing <40 0% 40-43 5 44 20 45-46 30 47-48 40 49 50 50-51 80 52+ 100

41 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

The following table shows the elements of the Authority’s annual OPEB cost for the year ending December 31, 2007, the amount contributed, and changes in the Authority’s net OPEB for the Year ending December 31, 2007:

Amount (In thousands)

Annual required contribution $ 1,201,677 Interest on net OPEB obligation - Adjustment to annual required contribution -

Annual OPEB cost/expense 1,201,677

Contributions made (210,347)

Increase in net OPEB obligation 991,330

Net OPEB obligation - beginning of year -

Net OPEB obligation - end of year $ 991,330

The Authority’s annual OPEB cost, the percentage of annual OPEB cost contributed, and the net OPEB obligation for the year ending December 31, 2007 were as follows:

Percentage of Year Annual Annual OPEB Net OPEB Ending OPEB Cost Cost Contributed Obligation (in thousands) (in thousands)

12/31/2007 $ 1,201,677 17.5% $ 991,330

8. Due to MTA for Repayment of Debt

Transit Facilities Revenue Bonds

Prior to December 31, 2002, the Authority recognized as a liability in the accompanying consolidated balance sheets the portion of the bond proceeds pledged to the Authority by the MTA for the acquisition of capital assets to the extent of the Authority’s expenditure of such bond proceeds. As a result of the MTA’s bond restructuring during fiscal year 2002, except for the Authority’s portion of the Certificates of Participation, the Authority no longer records a liability to the MTA for the portion of the bonds utilized to fund the Authority’s Capital Program.

The Authority is required to deposit all of its pledged revenues with a trustee for the bondholders. Such funds are first applied to meet all obligations under the revenue bonds, and the remainder is returned to the Authority for its operating needs.

The MTA is responsible for all payments from these bond proceeds and for administering the debt service reserve funds and the unexpended bond funds and has recorded the liability for these bonds. Prior to the debt restructuring, the Authority had recorded a liability to the MTA to the extent of the Authority’s expenditure of such bond proceeds. Debt service paid by the Authority is net of the amount provided from the MTA’s investment of the unexpended bond funds.

42 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

Certificates of Participation

In June 1999 and 2000, the MTA issued approximately $328.2 million and $121.2 million, respectively, of its Series 1999A and Series 2000A Certificates of Participation, which were substantially defeased with the issuance of the Series 2004A variable rate Certificates of Participation totaling $357.9 million in September 2004. The proceeds from these issuances were used to finance certain building and leasehold improvements to an office building at Two Broadway to be occupied by the Authority, the MTA or its subsidiaries, and the TBTA. The 1999A, 2000A, and 2004A series represent proportionate interests in the principal and interest components of base rent paid severally, but not jointly, by the Authority, the MTA, and the TBTA pursuant to a Leasehold Improvement Sublease Agreement dated as of June 1, 1999. The Authority, the MTA, and the TBTA are obligated to pay 68.7%, 21.0%, and 10.3%, respectively, of the base rent under the Leasehold Improvement Sublease. The Authority’s payable to the MTA for its portion of the Certificates of Participation is $254.0 million as of December 31, 2007. Transit’s share of future debt service payments to the MTA for the Certificates of Participation totals approximately $420.5 million at year-end 2007.

Interest paid on the Certificates of Participation amounted to $14.8 million and $10.7 million in 2007 and 2006, respectively.

9. Advertising and Other Income

Advertising and other income for the years ended December 31, 2007 and 2006 consist of:

2007 2006 (In thousands)

Advertising revenue $ 72,470 $ 68,804 Transit Adjudication Bureau collections 11,885 11,802 Station income 6,451 7,415 Rental income 3,812 3,136 Fare media transaction fees 3,868 3,308 All other (590) 1,697

$ 97,896 $ 96,162

10. Other Expenses

Other expenses for the years ended December 31, 2007 and 2006 consist of:

2007 2006 (In thousands)

Credit and debit card fees for fare media sales $ 19,737 $ 17,019 Fare media sales commissions 11,986 10,754 Training courses and programs 6,267 6,238 Allowance for uncollectible accounts (2,045) (939) Business travel, meetings and conventions 1,402 1,251 Dues and subscriptions 950 988 Other miscellaneous expenses 2,394 1,570

$ 40,691 $ 36,881

43 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

11. Maintenance and Other Operating Expenses

Maintenance and other operating expenses for the years ended December 31, 2007 and 2006 consist of:

2007 2006 (In thousands)

Operating maintenance and repair services $ 24,400 $ 29,203 Facility maintenance and repairs 12,958 17,585 2 Broadway operating expenses 13,695 14,149 Security services 9,000 9,022 Refuse and recycling 8,761 9,785 Telephone services 8,844 8,795 Tire and tube rentals 6,714 6,748 Janitorial and custodial services 5,374 5,904 Water and sewage 5,506 6,395 Real estate rentals 3,220 5,638 Data communications 3,975 3,670 Other miscellaneous expenses 4,837 4,378

$ 107,284 $ 121,272

12. Risk Management

The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of its assets; injuries to persons, including employees; and natural disasters.

The Authority is self-insured up to certain per occurrence limits for liability claims arising from injuries to persons, excluding employees. Claims arising between November 1, 2001 and October 31, 2006 are subject to a $7 million per occurrence limit; and claims arising after October 31, 2006 are subject to an $8 million per occurrence limit. Lower limits applied for claims arising prior to November 1, 2001. The Authority is self-insured for work-related injuries to employees. The annual cost associated with injuries to persons, other than employees, and damage to third-party property, is reflected in expenses as public liability claims in the accompanying consolidated statements of revenues, expenses and change in net assets.

The Authority establishes its liability for injuries to employees and to the general public on the basis of independent actuarial estimates of future liability.

44 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

A summary of activity in estimated liability arising from injuries to persons, including employees, and damage to third-party property, for the years ended December 31, 2007 and 2006, is as follows:

2007 2006 (In thousands)

Balance at beginning of year $ 812,471 $ 847,604 Activity during the year: Current year claims and changes in estimates 155,960 69,594 Claims paid (110,268) (104,727)

Balance at end of year 858,163 812,471 Less: Current portion (121,448) (114,981)

Long-term liability $ 736,715 $ 697,490

First Mutual Transportation Assurance Company

First Mutual Transportation Assurance Company (“FMTAC”), a captive insurance company subsidiary of MTA, insures certain claims in excess of the self-insured retention limits of the MTA agencies. The maximum amount of claims arising out of any one occurrence is the total assets of the program available for claims, but in no event greater than $50 million. Since October 31, 2003, FMTAC issues insurance policies indemnifying the MTA, its subsidiaries and affiliates above their specifically assigned Self-Insured Retention with a limit of $50 million per occurrence with $50 million annual aggregate. FMTAC will charge appropriate annual premiums based on loss experience and exposure analysis to maintain the fiscal viability of the program.

Effective October 31, 2007, an All-Agency Excess Liability Insurance Policy was renewed. This coverage affords the MTA and its subsidiaries and affiliates an additional limit of $350 million (an increase of $100 million from the previous policy), for a total limit of $400 million ($350 million in excess of $50 million). In certain circumstances, when FMTAC’s assets are exhausted due to payment of claims, the All-Agency Excess Liability Insurance will assume FMTAC’s coverage position of $50 million.

Effective October 31, 2007, FMTAC renewed the all-agency property insurance program. For the period October 31, 2007 through May 1, 2009, FMTAC directly insures property damage claims of the related entities in excess of a $25 million per occurrence self-insured retention (“SIR”), subject to an annual $75 million aggregate. Losses occurring after the retention aggregate is exceeded are subject to a deductible of $7.5 million per occurrence. The total program limit has been maintained at $1.25 billion per occurrence covering property of the related entities, collectively. With the exception of acts of terrorism (both domestic and foreign), and subject to certain parts of the program limit that have been retained by FMTAC, as discussed in the next paragraph, FMTAC is reinsured in the domestic, London, European and Bermuda marketplaces for this coverage. Given the absence of major catastrophes in 2006 and 2007, available capacity has emerged, along with pricing reductions. As a result, FMTAC was able to obtain additional reinsurance capacity over last year and has fully reinsured the all-risk component for the full 1.25 billion, subject to certain program sublimits

45 New York City Transit Authority Notes to Consolidated Financial Statements December 31, 2007 and 2006

With respect to acts of terrorism, FMTAC is reinsured by the United States Government for 85% of “certified” losses as covered by the Terrorism Risk Insurance Act of 2007 (originally introduced in 2002). Under the 2007 extension, terrorism acts sponsored by both foreign and domestic organizations are covered. Until 2007, the Act only provided coverage for acts sponsored by foreign organizations. The remaining 15% of MTA losses would be covered under an additional policy described below. Additionally, no federal compensation will be paid unless the aggregate industry insured losses exceed a $100 million “trigger”.

To supplement the reinsurance to FMTAC through TRIA 2007, the MTA obtained an additional commercial reinsurance policy with Lexington Insurance Co. (part of AIG). That policy provides coverage for (1) 15% of any “certified” act of terrorism – up to a maximum recovery of $183.75 million for any one occurrence, or (2) 100% of any “certified” terrorism loss which does not reach the $100 million trigger – up to a maximum recovery of $100 million for any occurrence. This coverage expires on April 30, 2009. Recovery under this policy is subject to a retention of $25 million per occurrence and $75 million in the annual aggregate – in the event of multiple losses during the policy year. Should the MTA’s retention in any one year exceed $75 million, then future losses in that policy year are subject to a retention of just $7.5 million.

At December 31, 2007, the Authority has no outstanding claims covered by FMTAC. At December 31, 2007, FMTAC had $542 million of assets to insure current and future claims.

13. Contingencies

The Authority is involved in various litigations and claims involving personal liability claims and certain other matters. The ultimate outcome of these claims and suits cannot be predicted at this time. Nevertheless, management does not believe that the ultimate outcome of these matters will have a material effect on the consolidated financial position of the Authority.

The Authority was cited in 1991 by the New York State Department of Environmental Conservation (NYSDEC) for not complying with a State requirement for tightness testing of underground storage tanks and for failure to notify NYSDEC of leaking tanks. The Authority is obligated to remediate contaminated soil and groundwater. In 2007 and 2006, the Authority expended $5.9 million and $1.4 million, respectively, on such cleanup efforts. Expenditures exclude the cost of capital improvements. At December 31, 2007, the Authority has recorded an accrued liability of $27.6 million to cover future costs associated with this cleanup. With the adoption of GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations in early 2008, the Authority expects to record a significant increase in environmental liabilities pursuant to the requirements of Statement 49.

14. Recent Developments

On December 19, 2007, the MTA Board voted to increase the Authority’s Subway and Bus fares effective March 2, 2008. MetroCard seven-day passes increase from $24 to $25 and MetroCard thirty-day passes increase from $76 to $81. A new fare instrument, a fourteen-day MetroCard will be $47. The basic fare, cash or single ride ticket does not change. It remains at $2. However, the bonus value decreases from 20% to 15%. The estimated increase in passenger revenue from the fare increase is $86.6 million for 2008 (partial year March-December) and $107.5 million for 2009.

46 New York City Transit Authority Required Supplementary Information Schedule of Funding Progress for the MaBSTOA Pension Plan (Unaudited) December 31, 2007 and 2006 (in millions)

Actuarial Accrual Liability (UAAL) As a Actuarial Actuarial (AAL) Unfunded Percentage Valuation Value of Initial Entry (AAL) Funded Covered of Covered Date Assets Age (UAAL) Ratio Payroll Payroll (a) (b) (b-a) (a/b) (c) ((b-a)/c)

1/1/98 (1) 404.5 1,286.2 881.7 31.45 343.3 256.8 1/1/99 467.6 1,342.0 874.4 34.84 362.0 241.5 1/1/00 (2) 540.1 1,471.8 931.7 36.70 378.9 245.9

1/1/01 (3) 611.5 1,592.5 981.0 38.40 400.5 244.9 1/1/02 656.4 1,614.9 958.6 40.60 432.7 221.5

1/1/03 (4) 629.8 1,564.6 934.8 40.30 450.6 207.5 1/1/04 (5) 713.2 1,663.3 950.1 42.87 460.9 206.1 1/1/05 762.0 1,680.5 918.4 45.34 479.5 191.6 1/1/06 841.0 1,725.2 884.2 48.74 498.0 177.5 1/1/07 (6) 1,057.9 1,938.3 880.5 54.58 519.7 169.4

(1) The method for determining valuation compensation and the use of the overtime assumption were changed. (2) Pension supplementation payable on September 30, 2000 increased the Plan's UAAL by $67.9 million. (3) Automatic COLA adjustment for 2001 increased the Plan's UAAL by $75.2 million. This increase was offset, in part, by changes in certain actuarial assumptions, which decreased the Plan's UAAL by $16.9 million. (4) Increased employer contributions in 2003 have resulted in a decrease in the Plan's UAAL. (5) Lowering of the valuation interest rate from 8.25% to 8.0% increased the Plan's UAAL by $41.4 million. (6) Assumption changes in life expectancy, mortality turnover, and retirement rates increased the Plan's UAAL by $135.5 million.

47 New York City Transit Authority Required Supplementary Information Schedule of Funding Progress for the New York City Transit Postemployment Benefit Plan December 31, 2007 and 2006 (in millions)

1/1/06 - 10,465.3 10,465.3 - 3,077.8 340.1

48 Triborough Bridge and Tunnel Authority

Independent Auditors’ Report

Financial Statements Years Ended December 31, 2007 and 2006

TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ REPORT D-1

MANAGEMENT’S DISCUSSION AND ANALYSIS D-2 – D-8

FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006:

Balance Sheets D-9 – D-10

Statements of Revenues, Expenses, and Changes in Excess of Liabilities Over Assets D-11

Statements of Cash Flows D-12 – D-13

Notes to Financial Statements D-14 – D-51

Deloitte & Touche LLP Two World Financial Center New York, NY 10281-1414 USA Tel: +1 212 436 2000 Fax: +1 212 436 5000 www.deloitte.com

INDEPENDENT AUDITORS’ REPORT

To the Members of the Board of Metropolitan Transportation Authority:

We have audited the accompanying balance sheets of Triborough Bridge and Tunnel Authority (the “MTA Bridges and Tunnels”), a public benefit corporation which is part of the related financial reporting group of Metropolitan Transportation Authority (“MTA”), as of December 31, 2007 and 2006, and the statements of revenues, expenses and changes in excess of liabilities over assets, and cash flows for the years then ended. These financial statements are the responsibility of MTA Bridges and Tunnels’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of MTA Bridges and Tunnels’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the respective financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of MTA Bridges and Tunnels, as of December 31, 2007 and 2006, and the respective changes in revenues, expenses and changes in excess of liabilities over assets, and cash flows, for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 7 to the financial statements, in 2007, the MTA Bridges and Tunnels adopted Governmental Accounting Standards Board Statement (GASB) No. 45, Accounting and Financial Reporting by Employers for Post Employment benefits Other Than Pensions.

The Management’s Discussion and Analysis on pages 2 through 8 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of MTA Bridges and Tunnels’ management. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

March 28, 2008

Member of Deloitte Touche Tohmatsu

TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

MANAGEMENT’S DISCUSSION AND ANALYSIS YEARS ENDED DECEMBER 31, 2007 AND 2006 (IN THOUSANDS)

1. OVERVIEW OF THE FINANCIAL STATEMENTS

The following is a narrative overview and analysis of the financial activities of Triborough Bridge and Tunnel Authority (“MTA Bridges and Tunnels”) for the years ended December 31, 2007 and 2006. This discussion and analysis is intended to serve as an introduction to MTA Bridges and Tunnels’ financial statements which have the following components: (1) Management’s Discussion and Analysis (“MD&A”), (2) Financial Statements and (3) Notes to the Financial Statements.

The Financial Statements Include

The Balance Sheets provide information about the nature and amounts of investments in resources (assets) and the obligations to MTA Bridges and Tunnels creditors (liabilities), with the difference between the two reported as excess of liabilities over assets.

The Statements of Revenues, Expenses and Changes in Excess of Liabilities Over Assets show how MTA Bridges and Tunnels’ excess of liabilities over assets changed during each year and accounts for all of the current and prior year’s revenues and expenses, measure the success of MTA Bridges and Tunnels’ operations over the twelve months and can be used to determine how MTA Bridges and Tunnels has funded its costs.

The Statements of Cash Flows provide information about MTA Bridges and Tunnels’ cash receipts, cash payments, and net changes in cash resulting from operations, noncapital financing, capital and related financing, and investing activities.

The Notes to the Financial Statements Provide

Information that is essential to understanding the financial statements, such as MTA Bridges and Tunnels’ basis of presentation, and significant accounting policies, details of cash and investments, capital assets, employee benefits, long-term debt, lease transactions, future commitments and contingencies, and subsequent events of MTA Bridges and Tunnels.

The notes to the financial statements also describe any other events or developing situations that could materially affect MTA Bridges and Tunnels’ financial position.

Management’s Discussion and Analysis

This MD&A provides an assessment of how MTA Bridges and Tunnels’ position has improved or deteriorated and identifies the factors that, in management’s view, significantly affected MTA Bridges and Tunnels’ overall financial position. It may contain opinions, assumptions, or conclusions by MTA Bridges and Tunnels’ management that should not be considered a replacement for and must be read in conjunction with the financial statements.

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2. FINANCIAL REPORTING ENTITY

Triborough Bridge and Tunnel Authority is a public benefit corporation, separate and apart from the State of New York, without any power of taxation. Triborough Bridge and Tunnel Authority is empowered to operate and maintain nine toll bridges and tunnels and the Battery-Parking Garage, all located in New York City. The board members of the Metropolitan Transportation Authority (“MTA”) also serve as the board of Triborough Bridge and Tunnel Authority. Triborough Bridge and Tunnel Authority operates under the name of MTA Bridges and Tunnels. The MTA is a component unit of the State of New York.

MTA Bridges and Tunnels’ operations and capital costs (debt obligations) for its bridges and tunnels are paid by the revenues it generates from its facilities. MTA Bridges and Tunnels’ surplus amounts are used to fund transit and commuter operations and finance capital projects for the transit and commuter systems operated by other affiliates and subsidiaries of the MTA.

3. CONDENSED FINANCIAL INFORMATION

The following sections will discuss the significant changes in MTA Bridges and Tunnels’ financial position for the years ended December 31, 2007 and 2006. Additionally, an examination of major economic factors and industry trends that have contributed to these changes is provided. It should be noted that for purposes of the MD&A, summaries of the financial statements and the various exhibits presented are in conformity with MTA Bridges and Tunnels’ financial statements, which are presented in accordance with accounting principles generally accepted in the United States of America. All amounts are in the thousands.

As of December 31, ASSETS 2007 2006 2005

Current Assets $ 279,638 $ 350,376 $ 248,826

Noncurrent Assets 3,782,741 3,482,935 3,321,881

Total Assets $ 4,062,379 $ 3,833,311 $ 3,570,707

Significant Changes in Assets

Current assets decreased by $70,738 for the year ended December 31, 2007. The decrease was primarily due to a decrease in short term investments.

Current assets increased by $101,550 for the year ended December 31, 2006. The increase was primarily due to an increase in short term investments associated with bond proceeds from the Series 2006A issuance.

Noncurrent assets increased by $299,806 for the year ended December 31, 2007. Two factors were primarily responsible for this change. First, capital assets, net of accumulated depreciation increased by $272,989. This increase is attributed to capitalization of construction in progress costs relating to the span and deck replacement at the Bronx Whitestone Bridge, deck replacement and rehabilitation of the electrical and mechanical systems at the Triborough Bridge, rehabilitation of lower level approaches and suspended deck at the Verrazano-Narrows Bridge and lower deck replacement at the Henry Hudson Bridge. Second, there was an increase in long-term investments of $40,450.

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Noncurrent assets increased by $161,054 for the year ended December 31, 2006. Two factors were primarily responsible for this change. First, capital assets, net of accumulated depreciation increased by $198,050. This increase is attributed to capitalization of construction in progress costs relating to the span and deck replacement at the Bronx Whitestone Bridge, and deck replacement and rehabilitation of the electrical and mechanical systems at the Triborough Bridge. In addition, there was a decrease in long-term investments of $31,830.

As of December 31, TOTAL LIABILITIES 2007 2006 2005

Current Liabilities $ 642,589 $ 527,912 $ 484,573

Noncurrent Liabilities 7,211,953 7,177,051 7,121,733

Total Liabilities $ 7,854,542 $ 7,704,963 $ 7,606,306

Significant Changes in Liabilities

Current liabilities increased by $114,677 for the year ended December 31, 2007. This increase is primarily due to an increase in the net amount due the MTA of $71,211 principally due to the recording of an interagency loan of $90,844 offset by a reduction in the amount due for operating and capital purposes of $16,578. In addition, accounts payable increased by $25,621 and the current portion of long- term debt increased by $14,565.

Current liabilities increased by $43,339 for the year ended December 31, 2006. This increase is primarily due to an increase in accounts payable of $21,437, an increase in prepaid tolls of $7,581, an increase in the current portion of long-term debt of $6,522 and a net increase in payables due the MTA and TA of $6,172.

Noncurrent liabilities for the twelve months ended December 31, 2007 increased by $34,902. This was primarily due the recognition of the liability for post employment benefits other than pensions of $61,283. This was partially offset by a decrease in long-term debt of $27,524.

Noncurrent liabilities for the twelve months ended December 31, 2006 increased by $55,318. This was primarily due to the new bond issue Series 2006A of $200,000 offset by principal payments of $126,278 on prior year issuances and by the reclassification of long-term debt to current of $6,522.

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Condensed Statements of Revenues, Expenses, and Changes in Excess of Liabilities Over Assets

Years Ended December 31, 2007 2006 2005

OPERATING REVENUES $ 1,263,356 $ 1,259,350 $ 1,253,917 OPERATING EXPENSES (500,101) (411,226) (393,509) OPERATING INCOME 763,255 848,124 860,408 TOTAL NONOPERATING EXPENSES: (290,008) (277,788) (275,613) INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 473,247 570,336 584,795 TRANSFERS IN 12,685 19,645 24,033 TRANSFERS OUT (406,443) (426,034) (457,062) CHANGES IN EXCESS OF LIABILITIES OVER ASSETS 79,489 163,947 151,766

TOTAL EXCESS OF LIABILITIES OVER ASSETS - BEGINNING (3,871,652) (4,035,599) (4,187,365)

TOTAL EXCESS OF LIABILITIES OVER ASSETS - ENDING $ (3,792,163) $ (3,871,652) $ (4,035,599)

Operating Revenues

For the year ended December 31, 2007, the Operating Revenues increased by approximately $4,006 as compared to December 31, 2006. This increase can be primarily attributed to an increase in toll revenue of $8,998 due to increased traffic, an increase in fees received from the Battery Parking Garage of $3,263, offset by the elimination of the $1 E-ZPass maintenance fee of $7,888, which was discontinued, effective June 1, 2006.

For the year ended December 31, 2006, the Operating Revenues increased by approximately $5,400 as compared to December 31, 2005. This increase can be primarily attributed to the full year’s effect of the March 18, 2005 toll increase of $27,096 offset by a change in the MTA policy of reimbursing Agencies for security related expenses of $25,875.

Revenue by Major Source

Bridge and Tunnel tolls accounted for 99.0 % and 98.6% of operating revenue in 2007 and 2006, respectively. The remaining revenue primarily represented income from parking fees (net of operating expenses) collected at the Battery Parking Garage, and fees collected from E-ZPass customers.

Toll revenues were $1,250,549 for the year ended December 31, 2007. This was $8,998 more than in 2006 and was due to increased traffic.

Toll revenues were $1,241,551 for the year ended December 31, 2006. This was $36,607 more than in 2005. The toll increase implemented on March 13, 2005 generated additional revenues of $27,096 during the first quarter of 2006. The remaining $9,511 gain is attributable to considerably higher traffic volumes over the last quarter of 2006 stemming from markedly favorable weather and falling gas prices of $9,438, higher average tolls generated from increased commercial volumes through most of 2006 of $3,157, offset by revenue losses associated with a decline in overall traffic volume for the first three quarters due to relatively unfavorable weather conditions and higher gas prices of $3,084.

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Operating Expenses

Operating expenses, including depreciation, increased for the year ended December 31, 2007 as compared to the prior year by $88,875. The increase was principally due to the implementation of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, of $61,283, increased pension costs of $5,611, and increased depreciation expense of $11,477.

Operating expenses, including depreciation, increased for the year ended December 31, 2006 as compared to the prior year by $17,717. Maintenance and other operating contracts increased by $12,392 (primarily bridge painting), salaries, wages and retirement and other employee benefits increased by $9,719, depreciation increased by $ 8,479 and materials and supplies decreased by $11,015 (primarily E- ZPass tag purchases).

Nonoperating Expenses

Nonoperating expenses increased by $12,220 for the year ended December 31, 2007. During 2007, interest expense increased by $9,204 as compared to the prior year due to increased rates. Investment income decreased in 2007 by $3,016.

Nonoperating expenses increased by $2,175 for the year ended December 31, 2006. During 2006 interest expense increased by $5,375 as compared to the prior year due to a larger debt base. Investment income increased in 2006 by $3,200 due to an arbitrage refund of $2,775 and higher cash balances and yields during the year.

4. OVERALL FINANCIAL POSITION AND RESULTS OF OPERATIONS AND IMPORTANT ECONOMIC CONDITIONS

Economic Conditions Two key economic factors that have statistically significant relationships to changes in traffic volumes are regional non-farm employment and inflation (“CPI-U”). Based on preliminary data from the U.S. Bureau of Labor Statistics, regional employment grew by 1.3% in both 2007 and 2006. The CPI-U increased by 2.8 % in 2007 and by 3.8% in 2006.

Results of Operations

Paid traffic reached a record high of 304.2 million vehicles in 2007. Total volume was 0.7% greater in 2007 compared to 2006. Through October 2007, traffic was up by 1.4% primarily due to relatively favorable weather. The largest increases occurred in May and June, with volumes growing 2.9% each month due to considerably less rain in 2007 vs. 2006. The traffic gains through October were partially offset by declines of 1.2% in November and 4.6% in December. Weather conditions were not as favorable in November and December of 2007 as compared to 2006. In addition, gas prices were higher in November and December of 2007, with regional prices exceeding $3.00 per gallon.

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E-ZPass electronic collection system continued to facilitate the management of high traffic volumes. Average market shares were up for the year as the following table illustrates:

2007 2006 Total 73.5% 72.6% Average Weekday 75.7% 74.9% Passenger Vehicles 74.7% 73.9% Commercial Vehicles 86.6% 85.6% Average Weekend 68.1% 67.1%

5. SIGNIFICANT CAPITAL ASSET ACTIVITY

Capital Program

MTA Bridge and Tunnels’ facilities are all in a state of good repair. MTA Bridge and Tunnels’ portion of the MTA’s Capital Program for 2005-2009 totals $1,202,114 for normal replacement and system improvement projects. The commitments made during 2007 were $121,058 bringing the total commitments under the five-year plan to $721,859. MTA Bridge and Tunnels’ portion of the MTA Capital Program for 2000-2004 totals $1,002,674. The commitments made during 2007 were $314, bringing the total commitments under the five-year plan to $971,445.

Approximately 60% of the projected 2005-2009 expenditures in the current capital program will be incurred at three facilities: the Triborough Bridge, the Bronx-Whitestone Bridge, and the Verrazano- Narrows Bridge. Other major projects in the 2005-2009 Plan include lower level deck replacement at the Henry Hudson Bridge, replacement of the concrete deck and rehabilitation of the abutments and retaining walls at the Throgs Neck Bridge, deck/structural rehabilitation at the Cross Bay Bridge, and rehabilitation of the ventilation system at the Brooklyn-Battery Tunnel.

Approximately 50% of the projected expenditures in the 2000-2004 capital program have been incurred at two facilities: the Triborough Bridge and the Bronx-Whitestone Bridge. Other major projects include roadway and drainage system rehabilitation at the Brooklyn-Battery Tunnel, rehabilitation of electrical system on suspension spans at the Verrazano-Narrows Bridge, and the replacement of all exhaust fans at the Queens Midtown Tunnel. Variable message signs will be installed on all approach roads/spans to facility toll plazas.

6. CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS

The MTA Board passed an increase in the Crossing Charge Schedule on December 19, 2007. The new Crossing Charge Schedule went into effect at 3:00 AM., March 16, 2008.

During the first quarter of 2008 ratings of several bond insurers were downgraded by the three rating agencies thereby lowering the ratings of TBTA bonds insured by such insurers. The bond insurer downgrades have affected municipal issuers nationwide, including all major New York State issuers in terms of market volatility and increased interest costs on variable rate bonds. These downgrades have not affected the underlying TBTA bond ratings. Additionally most regularly scheduled auctions of variable rate bonds currently in the auction mode have been failing due to lack of investor interest, thereby impairing the marketability of several series of TBTA bonds. In a “failed” auction TBTA has agreed to the auction agent setting the periodic rate at percentage of one month LIBOR (London Interbank Offered Rate) index. In mid-April TBTA was obligated to pay interest rates on failed auctions ranging from 125% to 175% of one month LIBOR which was setting around 2.7%. On March 28, 2008, MTA on behalf of TBTA announced the redemption of $175 million of Series 2004A-1 and 2004A-2

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Variable Rate Bonds on April 30, 2008 and May 1, 2008 using a portion of the proceeds of the TBTA Series 2008A and 2008B Bonds. In the future TBTA may redeem additional TBTA Bonds in order to manage its interest cost risk.

******

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TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands)

2007 2006 ASSETS

CURRENT ASSETS: Cash — unrestricted (Note 3) $ 17,398 $ 13,452 Investments (Notes 4 and 5): Unrestricted 21,103 69,360 Restricted 201,743 227,770 Accrued interest receivable 1,675 2,262 Accounts receivable — net of allowance of $2,841 in 2007 and $2,558 in 2006 18,815 21,100 Due from MTA (Note 21) 1,886 2,153 Prepaid expenses 17,018 14,279

Total current assets 279,638 350,376

NONCURRENT ASSETS: Investments (Notes 4 and 5): Unrestricted 52,058 15,234 Restricted 255,761 252,135 Capital assets — net (Note 6) 3,104,620 2,831,631 Bond issuance costs 370,302 383,935

Total noncurrent assets 3,782,741 3,482,935

TOTAL ASSETS $ 4,062,379 $ 3,833,311

See notes to financial statements. (Continued)

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TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands)

2007 2006 LIABILITIES AND EXCESS OF LIABILITIES OVER ASSETS

CURRENT LIABILITIES: Current portion — long-term obligations (Notes 11 to 13) $ 146,000 $ 131,435 Interest payable due 65,775 67,457 Accounts payable 118,767 93,146 Payable to MTA — capital expense — operating (Note 21) 8,345 24,923 Payable to NYCTA — operating expense (Note 21) 457 618 Accrued salaries 12,477 7,693 Accrued vacation and sick pay benefits 16,008 15,299 Current portion of estimated liability arising from injuries to persons (Note 15) 14,954 13,193 Due to NYCTA (Note 1 and 21) 15,097 15,020 Current portion of capital lease obligation (Note 14) 6,541 6,594 Due to MTA (Note 1 and 21) 127,644 39,855 Prepaid tolls revenue (includes $22,930 and $28,940 in 2007 and 2006, respectively, due to other toll agencies) 110,524 112,679

Total current liabilities 642,589 527,912

NONCURRENT LIABILITIES: Estimated liability arising from injuries to persons (Note 15) 6,866 5,723 Escrow Obligation 16,401 16,401 Other postemployment benefits other than pensions (Note 8) 61,283 - Long-term debt (Notes 10 to 13) 7,010,151 7,037,675 Capital lease obligations (Note 14) 115,444 115,444 Other long-term liabilities 1,808 1,808

Total noncurrent liabilities 7,211,953 7,177,051

Total liabilities 7,854,542 7,704,963

EXCESS OF LIABILITIES OVER ASSETS: Invested in capital assets — net of related debt 1,642,784 1,666,489 Restricted 457,504 465,827 Unrestricted (5,892,451) (6,003,968)

Total excess of liabilities over assets (3,792,163) (3,871,652)

TOTAL LIABILITIES AND EXCESS OF LIABILITIES $ 4,062,379 $ 3,833,311 OVER ASSETS

See notes to financial statements. (Concluded) D-10

TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN EXCESS OF LIABILITIES OVER ASSETS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands)

2007 2006 OPERATING REVENUES: Bridges and tunnels $ 1,250,549 $ 1,241,551 Building rentals and fees 12,172 16,986 Other income 635 813 Total operating revenues 1,263,356 1,259,350 OPERATING EXPENSES: Salaries and wages 129,244 124,989 Retirement and other employee benefits 128,794 58,279 Insurance 9,126 6,600 Maintenance and other operating contracts 135,400 140,530 Professional service contracts 12,366 11,559 Materials and supplies 14,008 10,358 Depreciation expense 69,793 58,316 Other expenses 1,370 595

Total operating expenses 500,101 411,226 OPERATING INCOME 763,255 848,124 NONOPERATING REVENUES (EXPENSES): Interest expense (Notes 10 to 13) (295,752) (286,548) Investment income (Notes 1, 4 and 5) 5,744 8,760 Total nonoperating revenues (expenses) (290,008) (277,788) INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 473,247 570,336 TRANSFERS IN — Metropolitan Transportation Authority 12,685 19,645 TRANSFERS OUT (Note 1): New York City Transit Authority (156,474) (166,640) Metropolitan Transportation Authority (249,969) (259,394) CHANGE IN EXCESS OF LIABILITIES OVER ASSETS 79,489 163,947 TOTAL EXCESS OF LIABILITIES OVER ASSETS — Beginning (3,871,652) (4,035,599) TOTAL EXCESS OF LIABILITIES OVER ASSETS — Ending $ (3,792,163) $ (3,871,652)

See notes to financial statements.

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TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands)

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES: Tolls collected $ 1,247,552 $ 1,246,617 Building rentals and fees received 28,913 21,069 Payments to employees and related costs (150,325) (160,057) Other operating costs (232,929) (176,892)

Net cash provided by operating activities 893,211 930,737

CASH FLOWS FOR NONCAPITAL FINANCING ACTIVITIES: Subsidies paid to affiliated agencies (414,979) (440,032)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES FOR THE AUTHORITY AND AFFILIATES: Purchase of capital assets (297,994) (184,974) Principal payments on Senior, Subordinate, and COPS (131,435) (126,278) Proceeds from new bond issues 227,179 205,616 Interest payments on Senior, Subordinate, and COPS (354,336) (323,552)

Net cash used in capital and related financing activities (556,586) (429,188)

See notes to financial statements. (Continued)

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TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands)

2007 2006

CASH FLOWS FROM INVESTING ACTIVITIES: Gross sales of short-term securities $ 29,140,250 $ 28,855,388 Gross purchases of short-term securities (29,187,648) (28,827,587) Gross sales of long-term securities 372,878 88,022 Gross purchases of long-term securities (291,584) (180,015) Increase in MTA investment pool 36,421 (16,200) Unrestricted income from investments 6,569 9,274 Investment income restricted for capital purposes 5,414 11,007

Net cash provided by (used in) investing activities 82,300 (60,111)

NET INCREASE IN CASH 3,946 1,406

CASH — Beginning of year 13,452 12,046

CASH — End of year $ 17,398 $ 13,452

RECONCILIATION OF INCOME FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Income from operations $ 763,255 $ 848,124

ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation 69,793 58,316 Capitalized salary expense (16,057) (13,896)

CHANGES IN OPERATING ASSETS AND LIABILITIES: Decrease in receivables 2,552 492 Increase in operating payables 70,165 32,970 Increase in prepaid expenses and deferred charges (2,739) (3,924) Increase in accrued salary costs, vacation and insurance 8,397 1,074 (Increase) decrease in prepaid toll revenue (2,155) 7,581

NET CASH PROVIDED BY OPERATING ACTIVITIES $ 893,211 $ 930,737

See notes to financial statements. (Concluded)

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TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY

NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands)

1. BASIS OF FINANCIAL STATEMENTS

The Triborough Bridge and Tunnel Authority (the “Authority” or “MTA Bridges and Tunnels”) is a public benefit corporation created pursuant to the Public Authorities Law (the “Act”) of the State of New York (the “State”). MTA Bridges and Tunnels is part of the related financial reporting group of the Metropolitan Transportation Authority (MTA). The MTA is a component unit of the State and is included in the State of New York Comprehensive Annual Financial Report of the Comptroller as a public benefit corporation.

MTA Bridges and Tunnels operates seven toll bridges, two toll tunnels, and the Battery Parking Garage. All Authority toll facilities operate E-Z Pass in conjunction with a regional electronic toll collection system, E-Z Pass. MTA Bridges and Tunnels’ annual net earnings before depreciation and other adjustments (“operating transfer”) are transferred to the New York City Transit Authority (the “TA”) and the MTA pursuant to provisions of the Act. In addition, MTA Bridges and Tunnels annually transfers its unrestricted investment income to the MTA. The operating transfer and the investment income transfer can be used to fund operating expenses or capital projects. The TA receives $24,000 plus 50% of MTA Bridges and Tunnels’ remaining annual operating transfer, as adjusted, to reflect certain debt service transactions and the MTA receives the balance of the operating transfer, as adjusted, to reflect certain debt service transactions, plus the annual unrestricted investment income. Transfers are made during the year. The remaining amount due at December 31, 2007 and 2006, of $51,897 and $54,875, respectively, is recorded as a liability in MTA Bridges and Tunnels’ financial statements.

MTA Bridges and Tunnels certified to the City of New York (the “City”) and the MTA that its operating transfer and its unrestricted investment income at December 31, 2007 and 2006, were as follows:

2007 2006

Operating transfer $ 406,443 $ 426,034 Investment income 5,558 8,637

$ 412,001 $ 434,671

2. ACCOUNTING POLICIES

Basis of Accounting — The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

In accordance with Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Fund Accounting, MTA Bridges and Tunnels applies all applicable GASB pronouncements as well as all Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, that do not conflict

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with GASB pronouncements. Subsequent to November 30, 1989, MTA Bridges and Tunnels exclusively applies all applicable GASB pronouncements.

New Accounting Standards — The MTA Bridges and Tunnels has completed the process of evaluating the impact that will result from adopting GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions and has disclosed the required information as per this statement in Note 8. The Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. The Statement is effective for financial statement periods beginning after December 15, 2006.

The MTA Bridges and Tunnels has completed the process of evaluating the impact that will result from adopting GASB Statement No. 46, Net Assets Restricted by Enabling Legislation--an amendment of GASB Statement No. 34. The MTA Bridges and Tunnels has concluded that GASB Statement No. 46 had no impact on its financial position, results from operations and cash flows based upon the MTA Bridges and Tunnels’ current reporting of its net assets. The Statement clarifies the definition of a “legally enforceable” enabling legislation restriction on a government’s net assets. The statement is effective for fiscal periods beginning after June 15, 2005.

The MTA Bridges and Tunnels has completed the process of evaluating the impact that will result from implementing GASB Statement No. 47, Accounting for Termination Benefits. The MTA Bridges and Tunnels has concluded that the impact of adopting GASB Statement No. 47 did not have an impact on its financial position, results of operations and cash flows. The Statement establishes the accounting standards for voluntary termination benefits (for example, early- retirement incentives) and involuntary benefits (for example, severance benefits). The Statement was effective for fiscal periods beginning after June 15, 2005.

The MTA Bridges and Tunnels has completed the process of evaluating the impact that will result from adopting GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of assets and Future Revenues. The MTA Bridges and Tunnels has concluded that GASB Statement No. 48 had no impact on its financial position, results from operations and cash flows. The Statement establishes criteria that governments will use to ascertain whether proceeds received should be reported as revenues or as a liability. The Statement is effective for fiscal periods beginning after December 15, 2006.

The MTA Bridges and Tunnels has not completed the process of evaluating the impact that will result from implementing GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. The MTA Bridges and Tunnels is therefore unable to disclose the impact GASB Statement No. 49 will have on its financial position, results of operations and cash flows when such statement is adopted. This Statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations. The Statement is effective for fiscal periods beginning after December 15, 2007.

The MTA Bridges and Tunnels has not completed the process of evaluating the impact that will result from implementing GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. The MTA Bridges and Tunnels is therefore unable to disclose the impact GASB Statement No. 51 will have on its financial position, results of operations and cash flows when such statement is adopted. This statement amends GASB Statement 34, paragraphs 19-21, and GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, paragraphs 9e, 16, and 18 and relates to the recognition and recording of

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intangible assets as capital assets in the statement of net assets. The requirements of this Statement are for financial statements for periods beginning after June 15, 2009.

Use of Management’s Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the market value of investments, allowances for doubtful accounts, arbitrage rebate liability, accrued expenses and other liabilities, depreciable lives of capital assets, estimated liability arising from injuries to persons, and other postemployment benefits. Actual results could differ significantly from those estimates.

Operating Revenues — Bridges and tunnel revenue is recorded as earned (i.e., as tokens are used and tolls are paid in cash or when vehicles pass through the electronic toll collection system).

Investments — It is MTA Bridges and Tunnels’ intent to hold its investments to maturity. Investments are recorded on the balance sheet at fair value which is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. All investment income, including changes in the fair value of investments, is reported as revenue (either as investment income or net increase (decrease) in fair value of investments) on the statements of revenues, expenses and changes in excess of liabilities over assets.

Capital Assets — Capital assets include all land, buildings, toll equipment, and other structures of MTA Bridges and Tunnels having a useful life of greater than two years and having a cost of at least $25.

Capital assets are generally stated at historical cost, or at estimated historical cost based on appraisals or on other acceptable methods when historical cost is not available. Capital leases are classified as capital assets in amounts equal to the lesser of the fair market value or the present value of net minimum lease payments at the inception of the lease.

Accumulated depreciation and amortization are reported as reductions of fixed assets. Depreciation is computed using the straight-line method based upon estimated useful lives, generally 99 years for primary structures, 10 to 50 years for buildings and improvements, 30 years for roadways, and 2 to 7 years for all other equipment. Capital lease assets and leasehold improvements are amortized over the term of the lease or the life of the assets, whichever is less.

Major reconstruction and improvements to such facilities are capitalized. Expenditures for maintenance and repairs which do not extend the useful life of the asset are charged to operations as incurred.

Title to substantially all real property is vested in the City of New York, and MTA Bridges and Tunnels has the use and occupancy thereof as long as its corporate existence continues.

Compensated Absences — MTA Bridges and Tunnels has accrued the full value (including fringe benefits) of all vacation and sick leave benefits earned by employees to date if the leave is attributable to past service and it is probable that MTA Bridges and Tunnels will compensate the employees for the benefits through paid time off or some other means, such as cash payments at termination or retirement.

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Subsidies — Subsidies provided by MTA Bridges and Tunnels represent its operating transfer and investment income computed on an accrual basis.

3. CASH

The Bank balances are insured up to $100 in the aggregate by the Federal Deposit Insurance Corporation (FDIC) for each bank in which funds are deposited.

The Bank balances that were not insured were maintained in major financial institutions considered by management to be secure. The difference between the carrying amount and the bank balance for the years ended December 31, 2007 and 2006 is due to the petty cash and change funds which are maintained at the various toll facilities and not recorded by the bank. In addition, there were deposits in transit in each of the years ended December 31, 2007 and 2006.

Cash at December 31, 2007 and 2006 consists of the following:

2007 2006 Carrying Bank Carrying Bank Amount Balance Amount Balance

Insured deposits $ 100 $ 100 $ 100 $ 100 Collateralized deposits 9,149 9,149 8,953 5,162 Uncollateralized deposits 8,149 966 4,399 -

$17,398 10,215 $13,452 $5,262

4. INVESTMENTS

MTA Bridges and Tunnels’ investment policies comply with the New York State Comptroller’s guidelines for investment policies. MTA’s All-Agency Investment Guidelines restrict MTA Bridges and Tunnels’ investments to obligations of the U.S. Treasury, its agencies and instrumentalities and repurchase agreements backed by U.S. Treasury securities. All investments were managed by the MTA, as MTA Bridges and Tunnels’ agent, in custody accounts kept in the name of MTA Bridges and Tunnels for restricted investments and in the name of the MTA for unrestricted investments. MTA’s All-Agency Investment Guidelines state that securities underlying repurchase agreements must have a market value at least equal to the cost of the investment. As of December 31, 2007 and 2006, all investments are at fair value as set forth below: 2007 2006

Investments maturing in 2008 to 2015 under terms of repurchase agreements $ 123,645 $ 124,641 U.S. Treasuries due 2008 to 2016 172,766 116,170 U.S. Treasury Notes 218 125,798 MTA Investment Pool 156,119 119,697 Other government agencies 1,417 1,693 Irrevocable deposit account 76,500 76,500

$ 530,665 $ 564,499

The fair value of the above investments consists of $73,161 and $84,594 in 2007 and 2006 in unrestricted investments, respectively, and $457,504 and $479,905 in 2007 and 2006 in restricted

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investments, respectively. Investments had weighted average monthly yields ranging from 4.24 % to 5.1 %, for the year ended December 31, 2007, and 4.12% to 5.02%, for the year ended December 31, 2006. The net unrealized gain on investments for the years ended December 31, 2007 and 2006 were $185 and $123, respectively.

Unrestricted cash and investments available to pay operating and maintenance expenses, debt service and operating surplus transfers, at December 31, 2007 and 2006, are as follows:

Investments: 2007 2006

CURRENT: Restricted: General Purpose Revenue Bonds 1980 Resolution — Operating Funds $ 20,068 $ 82,995 Bond Proceeds Fund 52,640 47,793 Debt Service Fund 127,361 95,585 Cost of Issuance Fund 1 298 COPS 2 Broadway 1,673 1,099

Total current - restricted 201,743 227,770

Total current - unrestricted 21,103 69,360

Total - current $ 222,846 $ 297,130

LONG-TERM: Restricted: General Purpose Revenue Bonds $ 22,359 $ 5,963 General Purpose Debt Service Fund 24,389 34,520 Senior Revenue Bonds 110,860 37,738 General Purpose Bond Proceeds Fund 14,995 90,756 Capital Lease Obligation: US Treasury Strips 6,658 6,658 Irrevocable Deposit Account 76,500 76,500

Total long term - restricted 255,761 252,135

Total long term - unrestricted 52,058 15,234

Total - long-term $ 307,819 $ 267,369

The unexpended bond proceeds of the General Purpose Revenue Bonds 1980 Resolution, not including proceeds held for the Transportation Project, were restricted for payment of capital improvements of MTA Bridges and Tunnels’ present facilities. The Debt Service Funds are restricted for the payment of debt service as provided by the bond resolutions.

MTA Bridges and Tunnels’ accrual of the liability to the federal government for rebate of arbitrage income from tax-exempt borrowings was $1,526 and $1,458 at December 31, 2007 and 2006, respectively. In 2007 and 2006, MTA Bridges and Tunnels’ transfer of its unrestricted investment income to the MTA was not increased for such arbitrage rebate accruals.

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5. MTA INVESTMENT POOL

The MTA, on behalf of MTA Bridges and Tunnels, invests funds which are not immediately required for MTA Bridges and Tunnels’ operations in securities permitted by the MTA’s All- Agency Investment Guidelines in accordance with the State Public Authorities Law, including repurchase agreements collateralized by U.S. Treasury securities, U.S. Treasury notes, and U.S. Treasury zero-coupon bonds.

6. CAPITAL ASSETS

Balance Balance Balance December 31, December 31, December 31, 2005 Additions Deletions 2006 Additions Deletions 2007

CAPITAL ASSETS NOT BEING DEPRECIATED: Land $ 27,940 $ - $ - $ 27,940 $ - $ - $ 27,940 Construction in progress 413,647 251,227 347,797 317,077 338,316 198,351 457,042

Total capital assets not being depreciated 441,587 251,227 347,797 345,017 338,316 198,351 484,982

CAPITAL ASSETS BEING DEPRECIATED: Building — 2 Broadway 82,114 284 - 82,398 - - 82,398 Primary structures 1,646,710 65,486 - 1,712,196 101,587 - 1,813,783 Toll plazas 206,187 - - 206,187 - - 206,187 Toll equipment 98,199 - - 98,199 8,834 - 107,033 Buildings 344,641 15,051 - 359,692 16,970 - 376,662 Roadway 370,153 252,687 - 622,840 51,907 - 674,747 Other 62,756 19,428 - 82,184 23,519 - 105,703

Total capital assets being depreciated 2,810,760 352,936 - 3,163,696 202,817 - 3,366,513

LESS ACCUMULATED DEPRECIATION: Building — 2 Broadway 19,810 3,193 - 23,003 3,152 - 26,155 Primary structures 352,684 14,819 - 367,503 15,663 - 383,166 Toll plazas 83,534 4,660 - 88,194 4,660 - 92,854 Toll equipment 24,323 2,454 - 26,777 2,564 - 29,341 Buildings 55,066 8,596 - 63,662 8,996 - 72,658 Roadway 38,954 16,549 - 55,503 21,627 - 77,130 Other 44,395 8,045 - 52,440 13,131 - 65,571

Total accumulated depreciation 618,766 58,316 - 677,082 69,793 - 746,875

TOTAL CAPITAL ASSETS BEING DEPRECIATED — Net of accumulated depreciation 2,191,994 294,620 - 2,486,614 133,024 - 2,619,638

CAPITAL ASSETS — Net $ 2,633,581 $ 545,847 $ 347,797 $ 2,831,631 $ 471,340 $ 198,351 $ 3,104,620

In 2007 and 2006, capital asset additions included $16,057 and $13,896, respectively, of costs incurred by engineers working on capital projects.

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MTA Bridges and Tunnels’ 1992-1999 Capital Program, which was developed to rehabilitate MTA Bridges and Tunnels’ bridges and tunnels, totals $1,140,770. Over the 1992 to 1999 period, MTA Bridges and Tunnels committed $1,140,421 under the Capital Program for such activities.

MTA Bridges and Tunnels’ 2000-2004 Capital Program totals approximately $1,002,674. Total amounts committed through December 31, 2007 and 2006, totaled $971,445 and $969,206, respectively.

MTA Bridges and Tunnels’ 2005-2009 Capital Program totals $1,201,956. Total amounts committed through December 31, 2007, total $721,859.

7. EMPLOYEE BENEFITS

Most employees of MTA Bridges and Tunnels are members of the New York City Employees’ Retirement System (“NYCERS”), which is a cost sharing, multi-employer retirement system. MTA Bridges and Tunnels’ total payroll costs were $129,739 or 89.3 % for 2007 and $127,751 or 92.0% for 2006, which includes the cost of capital engineers charged to capital projects, of which such costs relate to employees who participate in NYCERS.

NYCERS provides retirement, as well as death, accident and disability retirement benefits. Benefits vest after 5 years of credited service depending on date of employment. Certain retirees also receive supplemental benefits from MTA Bridges and Tunnels.

Benefit and contribution provisions, which are contingent upon the point in time at which the employee last entered qualified service and length of credited service, are established by State law and may be amended only by the State legislature. NYCERS has both contributory and noncontributory requirements, with retirement age varying from 55 to 70 depending upon when an employee last entered qualifying service. Employees entering qualifying service on or before June 30, 1976, are enrolled in a noncontributory plan. Employees entering qualifying service after June 30, 1976, are enrolled in a plan, which requires a 3% contribution of their salary. The State legislature passed legislation in 2000 that suspends the 3% contribution for employees who have 10 years or more of credited service. In addition, members who meet certain eligibility requirements will receive one month’s additional service credit for each completed year of service up to a maximum of two additional years of service credit.

NYCERS established a “special program” for employees hired on or after July 26, 1976. A plan for employees, who have worked 20 years, and reached age 50, is provided to Bridge and Tunnel Officers, Sergeants and Lieutenants and Maintainers. Also, an age 57 retirement plan is available for all other such MTA Bridges and Tunnels employees. Both these plans required increased employee contributions.

Certain participants are permitted to borrow up to 75% of their own contributions including accumulated interest. These loans are accounted for as reductions in such participants’ contribution accounts. Upon termination of employment before retirement, certain participants are entitled to refunds of their own contributions, including accumulated interest, less any loans outstanding.

Employee contributions amounted to $9,288 (7.16% of covered payroll) and $8,769 (6.86% of covered payroll) in 2007 and 2006, respectively. For 2007 and 2006, employer contributions of approximately $18,537 and $12,926, respectively, were equal to or in excess of the actuary’s recommendation, plus interest.

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Additional information about the plan is presented in the component unit financial report prepared by NYCERS.

Postretirement Benefits — In addition to providing pension benefits, MTA Bridges and Tunnels provides certain health care and life insurance benefits for retired employees. Substantially all of MTA Bridges and Tunnels’ employees who are members of NYCERS may become eligible for those benefits if they reach normal retirement age while working for MTA Bridges and Tunnels. The insurance premiums for these benefits are recorded on a pay-as-you-go basis and totaled $10,217 and $9,998 in 2007 and 2006, respectively. No contributions are made by participants. As of December 31, 2007 and 2006, 1,420 and 1,397 retirees, respectively, including spouses and dependents, met those eligibility requirements. See Note 8 for further disclosure on Other Post- Employment Benefits.

8. OTHER POSTEMPLOYMENT BENEFITS

The MTA and its Related Groups, which includes the TBTA, has implemented GASB Statement No. 45, “Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions” (“GASB 45”). This Statement establishes the standards for the measurement, recognition, and display of Other Postemployment Benefits (“OPEB”) expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (“RSI”) in the financial reports of state and local governmental employers.

Plan Description

The Benefits provided by the MTA and its Related Groups include medical, pharmacy, dental, vision and life insurance, plus monthly supplements for Medicare Part B or Medicare supplemental plan reimbursement and welfare fund contributions.

Annual OPEB Cost and Net OPEB Obligation

The TBTA’s annual OPEB cost (expense) represents the accrued cost for post-employment benefits under GASB 45. The cumulative difference between the annual OPEB cost and the benefits paid during a year will result in a net OPEB obligation, included on the balance sheet. The annual OPEB cost is equal to the annual required contribution (“ARC”) less adjustments if a net OPEB obligation exists. The ARC is equal to the normal cost plus an amortization of the unfunded frozen actuarial accrued liability.

For determining the ARC, the MTA and its Related Groups have chosen to use Frozen Initial Liability (“FIL”) cost method with the initial liability amortized over a 22-year period.

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will be earned in future years (the “Future Service Liability”). Under FIL, an initial past service liability is determined based on the Entry Age Normal (“EAN”) Cost Method and is amortized separately. This method determines the past service liability for each individual based on a level percent of pay. The Future Service Liability is allocated based on the present value of future compensation for all members combined to determine the Normal Cost. In future years, actuarial gains/losses will be incorporated into the Future Service Liability and amortized through the Normal Cost.

Actuarial Methods and Assumptions

Valuation Date

January 1, 2006

Discount Rate

4.2%

Per Capita Claim Costs

For members of NYSHIP who retired prior to NYSHIP availability, unadjusted premiums were used. For some of the self-insured benefits provided to Pre-NYSHIP Transit members per capita claim costs adjusted by age were used. A sample of these claim costs are shown below:

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Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Group 1 Retirees Group 2 Age Hospital Pharmacy Hospital

Male Employees

30-34 79.28 46.79 69.79 35-39 98.72 66.64 86.91 40-44 131.16 84.97 115.47 45-49 178.35 113.59 157.01 50-54 234.54 136.72 206.48 55-59 277.66 142.71 244.44 60-64 372.58 168.45 328.00

Pre-NYSHIP Pre-NYSHIP Pre-NYSHIP Group 1 Retirees Group 2 Age Hospital Pharmacy Hospital

Female Employees

30-34 173.83 78.64 153.03 35-39 167.05 93.30 147.07 40-44 162.14 114.73 142.74 45-49 181.72 144.45 159.97 50-54 210.21 170.16 185.06 55-59 233.16 185.64 205.27 60-64 304.58 204.52 268.14

Medicare Part B Premiums

The Medicare Part B premium reimbursement was included in the 2006 premium for those members covered by NYSHIP. Recently NYSHIP issued revised premiums for 2007 removing this reimbursement. Assuming the adjustment to the 2006 premium rate would be similar to that announced for 2007; the impact of using the revised premium rates (including the percentage increase in the premium rates from 2006 to 2007) on the Annual Required Contribution (ARC) for the MTA and its Related Groups was estimated. For other members, where applicable, the reimbursement was determined using the 2006 premium level and increasing this amount by the Health Care Cost Trend rates.

Health Care Cost Trend Rates

Fiscal Year Trend Fiscal Year Trend 2007 11.0% 2014 7.5% 2008 10.5 2015 7.0 2009 10.0 2016 6.5 2010 9.5 2017 6.0 2011 9.0 2018 5.5 2012 8.5 2019+ 5.0 2013 8.0

In addition, 2006 premiums and claim costs were trended 11% to 2007.

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Participation

For members that participate in NYSHIP, 100% of eligible members, including current retirees and surviving spouses, are assumed to elect the Empire PPO Plan. For groups that do not participate in NYSHIP, various coverage election rates are used.

Dependent Coverage

Current retirees are valued using coverage reported by the MTA. Based on an analysis of members who retired within the last 5 years, we have assumed that, for future retirees, 85% of male members and 55% of female members elect family coverage with a spouse.

Demographic Assumptions

Mortality: Pre-retirement and postretirement healthy annuitant rates are projected on a generational basis using Scale AA, as recommended by the Society of Actuaries Retirement Plans Experience Committee.

Pre-retirement: RP-2000 Employee Mortality Table for Males and Females with blue-collar adjustments. No blue-collar adjustments were used for management members of Headquarters.

Postretirement Healthy Lives: RP-2000 Healthy Annuitant mortality table for males with Blue Collar adjustments and 133% of the rates from the RP-2000 Healthy Annuitant mortality table for females. No blue-collar adjustments were used for management members of Headquarters.

Group Pension Plan TBTA NYCERS - TBTA

Vestee Coverage

For members that participate in NYSHIP, Vestees (members who have terminated, but not yet eligible to retire) are eligible for NYSHIP benefits provided by the Agency upon retirement, but must maintain NYSHIP coverage at their own expense from termination to retirement. Vestees are assumed to retire at first eligibility and would continue to maintain NYSHIP coverage based on the following percentages. This assumption is based on the Development of Recommended Actuarial Assumptions for New York State/SUNY GASB 45 Valuation report provided to Participating Employers of NYSHIP. These percentages were also applied to current vestees, which were only provided by Headquarters.

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Age at Percent Termination Electing <40 0% 40-43 5 44 20 45-46 30 47-48 40 49 50 50-51 80 52+ 100

The following table shows the elements of TBTA’s estimated net OPEB cost for the year ended December 31, 2007, the amount paid, and changes in TBTA’s net OPEB for the year ended December 31, 2007:

Amount

Annual required contribution $ 71,500 Interest on net OPEB obligation - Adjustment to annual required contribution - Annual OPEB cost/expense 71,500 Payments 10,217 Increase in net OPEB obligation 61,283 Net OPEB obligation - beginning of year - Estimated net OPEB obligation - end of year $ 61,283

The TBTA’s annual OPEB cost, the percentage of annual OPEB cost contributed, and the net estimated OPEB obligation for the year ended December 31, 2007 projected is as follows:

Percentage of Year Annual Annual OPEB Net OPEB Ended OPEB Cost Paid Obligation

12/31/2007 $71,500 14.3% $61,283

9. THE TRANSPORTATION PROJECT

2005-2009 Capital Programs

Capital programs covering the years 2005-2009 have been approved for (1) the commuter railroad operations of the MTA conducted by The Long Island Rail Road Company (“MTA Long Island Rail Road”) and the Metro-North Commuter Railroad Company (“MTA Metro-North Railroad”) (the “2005-2009 Commuter Capital Program”), (2) the transit system operated by the New York City Transit Authority (“MTA New York City Transit”) and its subsidiary, the Manhattan and Bronx Surface Transit Operating Authority (“MaBSTOA”), and the rail system operated by the Staten Island Rapid Transit Operating Authority (“MTA Staten Island Railway”) (the “2005-2009 Transit Capital Program”) and (3) the toll bridges and tunnels operated by MTA Bridges and Tunnels (the “2005-2009 MTA Bridges and Tunnels Capital Program”). The 2005-2009 MTA

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Bridges and Tunnels Capital Program was effective upon adoption by the Board. The 2005-2009 Commuter Capital Program and the 2005-2009 Transit Capital Program (collectively, the “2005- 2009 MTA Capital Programs”) have been approved by the Metropolitan Transportation Authority Capital Program Review Board (the “Review Board”) and are also effective. The Review Board consists of one member each appointed by the Governor of the State, the Majority Leader of the State Senate, and the Majority Leader of the State Assembly and, in the case of transit programs only, the Mayor of the City of New York.

The 2005-2009 MTA Capital Programs and the 2005-2009 MTA Bridges and Tunnels Capital Program provide for $21,285,300 in capital expenditures, of which $11,301,100 relates to ongoing repairs of, and replacements to, the Transit System operated by MTA New York City Transit and MaBSTOA and the rail system operated by MTA Staten Island Railway; $3,559,100 relates to ongoing repairs of, and replacements to, the commuter system operated by MTA Long Island Rail Road and MTA Metro-North Railroad; $495,000 relates to a security program throughout the transit, commuter and bridge and tunnel network; $159,100 relates to certain interagency projects; $2,475,000 relates generally to the expansion of existing rail networks for both the transit and commuter systems to be managed by the MTA Capital Construction Company (including the East Side Access, Second Avenue Subway and JFK rail link projects); $1,990,000 relates to the City’s funding of the proposed extension of the #7 subway line; $1,167,900 relates to the ongoing repairs of, and replacements to, bridge and tunnel facilities operated by MTA Bridges and Tunnels; and $138,200 relates to capital projects for the MTA Bus Company (“MTA Bus”).

The combined funding sources for the 2005-2009 MTA Capital Programs and the 2005-2009 MTA Bridges and Tunnels Capital Program include $6,716,200 in Federal funds; $1,450,000 in proceeds from New York State general obligation bonds approved by the voters in November 2005; $2,417,600 from the City; $1,384,200 in asset sales, program income and carryover from the 2000- 2004 capital program; and $9,317,300 in bonds.

On December 13, 2006, the MTA Board amended the 2005-2009 Capital Programs for the purposes of updating capital project budgets and recognizing changes in funding sources. The amendments, insofar as they relate to the Transit and Commuter Systems, will not become effective until they are submitted to, and approved by, the Review Board. The amendments relating to the MTA Bridges and Tunnels’ capital programs were effective upon adoption by the Board.

 The value of the plan (including the Transit, Commuter and MTA Bridges and Tunnels programs) was increased by $45,000, from $21,285,300 to $21,330,600. The changes in the plan included a $99,000 decrease in the core Transit and Commuter programs and the interagency program, a $34,000 increase in the MTA Bridges and Tunnels program ($32,000 of which was transferred from the 2000-2004 MTA Bridges and Tunnels capital program), and a $110,000 increase in City funding for the No. 7 Subway Line extension.

 The operating agency programs decreased by $95,000 to transfer funds to ongoing elements in the 2000-2004 MTA Capital Program that have experienced cost increases.

 An amendment to the Phase II Security Program reflects the substitution of $141,000 in MTA Bridges and Tunnels bonds and cash to fund critical security needs of the bridges and tunnels to displace a like amount of originally anticipated Federal funding for these projects that has not materialized.

On February 28, 2007, the MTA Board amended the 2005-2009 MTA Capital Program to add $1,255,000 of Federal East Side Access Full Funding Grant Agreement funds to the East Side

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Access project budget to provide sufficient funding to progress the 2005-2009 elements of such project. The amendments will not become effective until they are submitted to, and approved by, the Review Board.

On December 11, 2007, the MTA submitted to the MTA Capital Program Review Board an amendment to the 2005-2009 Capital Program, reallocating $13.7 million from MTA New York City Transit’s East New York Depot project (in the 2005-2009 Capital Program) to Transit’s Charleston Depot Construction project (in the 2000-2004 Capital Program). This amendment was approved by the Review Board on January 14, 2008.

2000-2004 Capital Programs

Capital programs covering the years 2000-2004 have been approved for (1) the commuter railroad operations of the MTA conducted by MTA Long Island Rail Road and MTA Metro-North Railroad (the “2000-2004 Commuter Capital Program”), (2) the transit system operated by MTA New York City Transit and its subsidiary, MaBSTOA, and the rail system operated by the MTA Staten Island Railway (the “2000-2004 Transit Capital Program”) and (3) the toll bridges and tunnels operated by MTA Bridges and Tunnels (the “2000-2004 MTA Bridges and Tunnels Capital Program”). The 2000-2004 MTA Bridges and Tunnels Capital Program was effective upon adoption by the Board. The 2000-2004 Commuter Capital Program and the 2000-2004 Transit Capital Program (collectively, the “2000-2004 MTA Capital Programs”) have been approved by the Review Board and are also effective.

The 2000-2004 MTA Capital Programs and the 2000-2004 MTA Bridges and Tunnels Capital Program provide for $20,893,900 in capital expenditures, of which $10,227,300 relates to ongoing repairs of, and replacements to, the Transit System operated by MTA New York City Transit and MaBSTOA and the rail system operated by MTA Staten Island Railway; $3,894,300 relates to ongoing repairs of, and replacements to, the commuter system operated by MTA Long Island Rail Road and MTA Metro-North Railroad; $4,531,700 relates generally to the expansion of existing rail networks for both the transit and commuter systems to be managed by the MTA Capital Construction Company (including $658,100 for a security program throughout the transit, commuter and bridge and tunnel network); $489,700 relates to planning and design and customer service projects; $248,900 relates to World Trade Center repair projects; $467,200 relates to bus purchases for MTA Bus Company; and $1,034,800 relates to the ongoing repairs of, and replacements to, bridge and tunnel facilities operated by MTA Bridges and Tunnels.

The combined funding sources for the 2000-2004 MTA Capital Programs and the 2000-2004 MTA Bridges and Tunnels Capital Program include $7,919,300 in bonds; $6,482,400 in Federal funds; $4,575,000 from the proceeds of the MTA/MTA Bridges and Tunnels debt restructuring in 2002; and $1,917,200 from other sources.

On December 13, 2006, the MTA Board amended the 2000-2004 Capital Programs for the purposes of updating capital project budgets and recognizing changes in funding sources. The amendments, insofar as they relate to the Transit and Commuter Systems, will not become effective until they are submitted to, and approved by, the Review Board. The amendments relating to the MTA Bridges and Tunnels’ capital programs were effective upon adoption by the Board.

 The value of the plan (including the Transit, Commuter and MTA Bridges and Tunnels programs) was increased by $253,000, from $20,893,900 to $21,146,600, with the Transit and Commuter programs increasing by $285,000 and the MTA Bridges and Tunnels program decreasing by $32,000 (which was transferred to the 2005-2009 MTA Bridges and Tunnels capital program to fund cost increases).

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 The operating agency programs increased by $133,000, which includes transfers from the 2005-2009 Capital Program to fund cost increases for work still underway and the addition of new projects for MTA Metro-North Railroad’s Yankee Stadium station and MTA Long Island Rail Road’s Shea Stadium station. The two stadium projects are funded by the transfer of allocations from the discontinued LaGuardia Airport Access project.

 The Phase I Security Program was allocated an additional $129,000 in MTA operating and Federal sources (bringing the total to $721,000) to fund the completion of the Phase I initiatives.

 The South Ferry Terminal project was allocated an additional $34,000 in MTA operating sources to fund additional costs needed for the final contract award.

 MTA Bus received an additional $35,000 of City funding representing its match for Federal funds transferred by the City as part of the City-MTA agreement relating to the takeover of the private bus companies by MTA Bus.

On December 11, 2007, the MTA submitted to the MTA Capital Program Review Board an amendment to the 2000-2004 Capital Program, reallocating $13.7 million from MTA New York City Transit’s East New York Depot project (in the 2005-2009 Capital Program) to Transit’s Charleston Depot Construction project (in the 2000-2004 Capital Program). This amendment was approved by the Review Board on January 14, 2008.

10. LONG-TERM DEBT

MTA Bridges and Tunnels issues long-term bonds to fund its own capital projects, as well as the Transportation Project, through the following two credits:

 General Revenue Bonds, and

 Subordinate Revenue Bonds.

The following represents MTA Bridges and Tunnels’ issuance of long-term debt in 2007:

 $223,355 General Revenue Fixed Rate Bonds, Series 2007A — the net proceeds of the Series 2007A Bonds were used to finance certain improvements of MTA Bridges and Tunnels’ bridges and tunnels

 $201,120 Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB, and $201,080 Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD as a result of combining Subordinate Revenue Variable Rate Refunding Bonds, Series 2000A and 2000B and Series 2000C and 2000D, respectively as part of its “Remarketing Plan”.

The following represents MTA Bridges and Tunnels’ issuance of long-term debt in 2006:

 $200,000 General Revenue Fixed Rate Bonds, Series 2006A — the net proceeds of the Series 2006A Bonds were used to finance certain improvements of MTA Bridges and Tunnels’ bridges and tunnels

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MTA Bridges and Tunnels’ long-term debt as of December 31, 2007 and 2006 is comprised of the following:

2007 2006

Senior Revenue Bonds (Note 11) $ 4,731,793 $ 4,702,792 Subordinate Revenue Bonds (Note 12) 2,236,560 2,292,117 2 Broadway Certificates of Participation (Note 13) 41,798 42,766

Total long-term debt — net of premiums and discounts $ 7,010,151 $ 7,037,675

TBTA has entered into several Standby Bond Purchase Agreements (SBPA) as listed on the table below.

Resolution Series Provider (Insurer) Exp. Date TBTA General Revenue 2003B Dexia 12/8/2008 TBTA General Revenue 2001B State Street (Ambac) 1/10/2009 TBTA General Revenue 2005A Dexia 5/9/2012 Transportation Revenue 2002D-1 West LB (FSA) 5/9/2012 TBTA General Revenue 2005B-2 Dexia 7/6/2012 TBTA General Revenue 2005B-3 Bank of America 7/6/2012 TBTA General Revenue 2005B-4 Landesbank Baden-Wurttemberg (NY) 7/6/2012 TBTA General Revenue 2002F ABN AMRO 11/8/2012 TBTA Subordinate 2000AB JPMorgan (FSA) 10/7/2014 TBTA Subordinate 2000CD Lloyds TSB Bank (NY) (FSA) 10/7/2014 TBTA General Revenue 2005B-1 Depfa Bank 7/7/2015 TBTA General Revenue 2001C Bayerische LB (Ambac) 11/30/2015 TBTA General Revenue 2002C West LB (Ambac) 12/31/2015

According to each respective SBPA, if the remarketing agent fails to remarket any of the bonds listed above that are tendered by the holders, the bank is required (subject to certain conditions) to purchase such unremarketed portion of the bonds. Bonds owned by the bank and not remarketed after a specified amount of time (generally 90 days) are payable to the bank as a term loan over five years in ten equal semiannual principal payments including interest thereon.

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11. LONG-TERM DEBT — SENIOR REVENUE BONDS

Senior Revenue Bonds at December 31, 2007 and 2006, consist of the following:

Principal Repayments Original December 31, & Retirements December 31, Issuance 2006 Issued During 2007 2007

Series EFC 1996A $ 23,530 $ 19,135 $ - $ 1,240 $ 17,895 Series 2001A, 5.77%, due through 2032 1,125,720 504,930 - - 504,930 Series 2001B&C, 4.10% – 5.25% 296,400 296,400 - - 296,400 Series 2002A 268,300 171,765 - - 171,765 Series 2002B 2,157,065 1,972,800 - 138,980 1,833,820 Series 2002C 103,305 103,305 - - 103,305 Series 2002F 246,480 246,480 - 5,550 240,930 Series 2003B 250,000 240,300 - 5,145 235,155 Series 2005A 150,000 147,415 - 2,660 144,755 Series 2005B 800,000 800,000 - 2,800 797,200 Series 2006A 200,000 198,635 - 7,275 191,360 Series 2007A 225,000 - 223,355 3,785 219,570 5,845,800 4,701,165 223,355 167,435 4,757,085 Add net unamortized bond discount and premium 88,917 - - 75,583

$ 4,790,082 $ 223,355 $ 167,435 $ 4,832,668

Debt Service Requirements:

Year Ending Aggregate December 31 Principal Interest Debt Service

2008 $ 100,875 $ 217,176 $ 318,051 2009 25,620 212,714 238,334 2010 110,410 211,100 321,510 2011 116,035 205,770 321,805 2012 112,635 200,211 312,846 2013–2017 688,260 895,255 1,583,515 2018–2022 879,030 699,161 1,578,191 2023–2027 1,059,445 466,236 1,525,681 2028–2032 1,523,740 197,677 1,721,417 2033–2037 141,035 14,500 155,535 $ 4,757,085 $ 3,319,800 $ 8,076,885

The above interest amounts include both fixed and variable rate calculations. The interest rate assumptions for Senior Revenue variable rate bonds are as follows:  MTA Bridges and Tunnels General Revenue Bonds, Series 2005A – 4.00% per annum

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 MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2005B – 3.513% per annum based on the Basis Risk Interest Rate Swap through January 1, 2012 and 3.076% per annum based on the Initial Interest Rate Swaps thereafter.  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002F – 4.00% per annum  MTA Bridges and Tunnels General Revenue Bonds, Series 2001B&C - 4.00% per annum and including net payments made by MTA Bridges and Tunnels under the swap agreements  MTA Bridges and Tunnels General Revenue Refunding Bonds, Series 2002C - 4.00% per annum and including net payments made by MTA Bridges and Tunnels under the swap agreements  MTA Bridges and Tunnels General Revenue Bonds, Series 2003B - 4.00% per annum

12. LONG - TERM DEBT – SUBORDINATE REVENUE BONDS

Subordinate Revenue Bonds at December 31, 2007 and 2006 consist of the following:

Principal Repayments Original December 31, & Retirements December 31, Issuance 2006 Issued During 2007 2007

Series 2000A $ 181,300 $ 152,100 $ - $ 152,100 $ - Series 2000B 72,500 60,750 60,750 - Series 2000AB 201,120 - 201,120 - 201,120 Series 2000C 157,200 132,010 - 132,010 - Series 2000D 96,600 80,840 - 80,840 - Series 2000CD 201,080 - 201,080 - 201,080 Series 2002D 261,700 261,700 - 5,950 255,750 Series 2002E 756,095 756,095 - - 756,095 Series 2002G 181,025 181,025 - - 181,025 Series 2003A 500,170 459,170 - 18,530 440,640 Series 2004A 250,000 241,025 - 4,775 236,250 2,858,790 2,324,715 402,200 454,955 2,271,960 Add net unamortized bond discount and premium 10,637 - - 8,770

$ 2,335,352 $ 402,200 $ 454,955 $ 2,280,730

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Debt Service Requirements:

Year Ending Aggregate December 31 Principal Interest Debt Service

2008 $ 44,170 $ 110,887 $ 155,057 2009 38,175 107,449 145,624 2010 49,720 105,446 155,166 2011 51,935 103,402 155,337 2012 55,220 100,161 155,381 2013–2017 290,445 453,115 743,560 2018–2022 448,590 355,637 804,227 2023–2027 481,720 239,583 721,303 2028–2032 784,485 97,760 882,245 2033–2037 27,500 1,506 29,006 $ 2,271,960 $ 1,674,946 $ 3,946,906

The Subordinate Revenue Bonds are special obligations issued in accordance with the 2001 Subordinate Revenue Resolution Authorizing Subordinate Revenue Obligations.

The above interest amounts include both fixed and variable rate calculations. The interest rate assumptions for Subordinate Revenue variable rate bonds are as follows:  MTA Bridges and Tunnels Subordinate Revenue Refunding Bonds, Series 2000AB - 4.00% per annum and including net payments made by MTA Bridges and Tunnels under the swap agreements  MTA Bridges and Tunnels Subordinate Revenue Refunding Bonds, Series 2000CD - 4.00% per annum and including net payments made by MTA Bridges and Tunnels under the swap agreements  MTA Bridges and Tunnels Subordinate Revenue Refunding Bonds, Series 2002D - 4.00% per annum  MTA Bridges and Tunnels Subordinate Revenue Refunding Bonds, Series 2002G - 4.00% per annum and including net payments made by MTA Bridges and Tunnels under the swap agreements

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13. CERTIFICATES OF PARTICIPATION

In 2000, the Trust (Note 14) issued $121,200 of fixed rate Serial and Term Certificates of Participation, Series 2000A. In 1999, the Trust issued $328,205 of fixed rate Serial and Term Certificates of Participation, Series 1999A. In 2004, the Trust issued $357,925 of fixed rate Serial and Term Certificates of Participation, Series 2004A. The proceeds of the Certificates were used to finance certain building and tenant improvements to the 2 Broadway office building in New York City, occupied by the Transit Authority, MTA, on behalf of its subsidiaries, The Long Island Rail Road Company, Metro-North Commuter Railroad Company, and MTA Bridges and Tunnels (Notes 14 and 21). The Transit Authority is obligated to pay 68.7% of the debt service, the MTA 21.0%, and MTA Bridges and Tunnels 10.3%.

Certificates of Participation 2007 2006

Serial Bonds, 4.60%–5.625%, due through 2015 $ 6,860 $ 7,770 Variable rate Certificates of Participation due 2030 36,619 36,619

Subtotal 43,479 44,389

Unamortized discount (785) (785) Unamortized premium 59 72

$ 42,753 $ 43,676

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MTA Bridges and Tunnels’ share of the debt service requirements:

Certificates of Participation

Year Ending Aggregate December 31 Principal Interest Debt Service

2008 $ 955 $ 1,622 $ 2,577 2009 1,260 1,562 2,822 2010 1,321 1,494 2,815 2011 1,389 1,422 2,811 2012 1,461 1,347 2,808 2013–2017 8,409 5,716 14,125 2018–2022 10,172 4,033 14,205 2023–2027 12,265 2,011 14,276 2028–2030 6,247 148 6,395 $ 43,479 $ 19,355 $ 62,834

The above interest amounts include both fixed and variable rate calculations. The interest rate assumptions for Certificates of Participation are as follows:  Certificates of Participation, Series 2004A – 3.542% per annum taking into account the interest rate swaps

14. CAPITAL LEASE OBLIGATIONS

2 Broadway

During 1998, the MTA, TA, and MTA Bridges and Tunnels entered into an agreement with the United States Trust Company of New York (collectively, the “Trust”) to provide for the lease of an office building located at 2 Broadway in New York City. Subsequently, the same parties provided for the delivery of certain certificates of participation to finance building and tenant improvements at 2 Broadway (Note 13). The lease is composed of both an operating lease (for the lease of land) (Note 20) and capital lease (for the lease of the building) elements.

The lease term expires June 30, 2048, with the right to extend the term of the lease for two successive periods of fifteen years each. Rental payments will be allocated to the MTA, TA, and MTA Bridges and Tunnels based upon usage.

MTA Bridges and Tunnels has recorded capital lease assets using the net present value, and using a borrowing rate of 9.11%, and has reflected a capital lease obligation as of December 31, 2007 and 2006, of $38,826 and $38,879, respectively.

Subway Cars

During 1995, MTA Bridges and Tunnels entered into a sale-leaseback transaction with a third party whereby MTA Bridges and Tunnels sold certain subway cars, which were contributed by the TA, for net proceeds of $84,229. These cars were subsequently leased back by MTA Bridges and Tunnels under a capital lease. The gain on the sale of $34,231 was deferred and netted against the carrying value of the leased assets, and the assets were recontributed to the TA. MTA Bridges and

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Tunnels transferred $5,488 to the MTA, representing the net economic benefit of the transaction. The remaining proceeds equal the net present value of the lease obligation, of which $71,258 was placed in an irrevocable deposit account and $7,483 was invested in U.S. Treasury Strips. The estimated yields and maturities of the deposit account and the Treasury Strips are expected to be sufficient to meet all obligations under the lease as they become due.

In 2007 and 2006, there were no capital lease obligation payments which were funded by the aforementioned investments. At December 31, 2007 and 2006, the balance in the irrevocable deposit account was $76,500 and the investments in U.S. Treasury Strips had a market value of $6,658.

At the end of the lease term, MTA Bridges and Tunnels has the option to purchase the subway cars for approximately $106,000, which amount has been reflected in the net present value of the lease obligation, or to make a lease termination payment of approximately $89,000, which is expected to be covered by the irrevocable deposit.

Total obligations under all capital leases as of December 31, 2007 and 2006 are as follows:

2007 2006

2 Broadway $ 38,826 $ 38,879 Subway cars 83,159 83,159

121,985 122,038

Less current portion (6,541) (6,594)

$ 115,444 $ 115,444

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Minimum lease payments are as follows:

Aggregate Years Ending Lease December 31 Payments

2008 $ 11,398 2009 11,397 2010 11,494 2011 11,566 2012 11,663 2013–2017 157,654 2018–2022 31,968 2023–2027 33,731 2028–2032 34,324 2033–2037 32,053 2038-2042 26,406 2043-2047 15,461 2048-2049 1,528

Minimum future lease payments 390,643 Less amount representing interest (268,658) $ 121,985

Total accumulated depreciation under capital leases was approximately $26,155 and $23,003 in 2007 and 2006, respectively.

15. RISK MANAGEMENT

MTA Bridges and Tunnels is exposed to various risks of loss related to torts; theft of, damage to, and destruction of its assets; injuries to persons, including employees; and natural disasters.

MTA Bridges and Tunnels is self-insured up to $1,400 per occurrence for liability arising from injuries to persons, excluding employees. MTA Bridges and Tunnels is self-insured for work- related injuries to employees and for damage to third-party property. MTA Bridges and Tunnels provides reserves to cover the self-insured portion of these claims, including a reserve for claims incurred but not reported. The annual cost arising from injuries to employees and damage to third– party property is included in “Retirement & other employee benefits” and “Insurance” in the accompanying statements of revenues, expenses and changes in excess of liabilities over assets.

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A summary of activity in estimated liability arising from injuries to persons, including employees, and damage to third-party property, as of December 31, 2007 and 2006, is as follows:

2007 2006

Balance — beginning of year $ 18,916 $ 19,029

Activity during the year: Current year claims and changes in estimates 7,198 2,730 Claims paid (4,294) (2,843)

Balance — end of year 21,820 18,916

Less current portion (14,954) (13,193)

Long-term liability $ 6,866 $ 5,723

Claims for injuries to persons, excluding employees, over $1,400 per occurrence (up to a limit of the lesser of the assets available for claims or $50,000) are insured by First Mutual Transportation Assurance Company (“FMTAC”), a public benefit corporation subsidiary of the MTA. FMTAC insures MTA Bridges and Tunnels, MTA and the other MTA affiliates and subsidiaries for such claims. FMTAC assumed such coverage from the MTA Excess Loss Trust Fund, which was terminated during 2003.

Effective October 31, 2005, the MTA renewed an all-agency catastrophic liability insurance policy providing limits of $250,000. This policy covers liability above FMTAC’s policy described in the preceding paragraph (excess of $50,000) and is designed to drop down to replace the FMTAC policy if the assets of FMTAC held for such purpose are exhausted and total claims exceed $125,000.

FMTAC also directly insures property damage claims of MTA Bridges and Tunnels, MTA and its affiliates and subsidiaries in excess of a $25,000 per occurrence self-insurance retention, subject to an annual $75,000 aggregate. The aggregate limitation of $1,250 per occurrence covers all property of MTA Bridges and Tunnels, MTA and its affiliates and subsidiaries collectively. The property insurance provides replacement cost coverage for all risks of direct physical loss or damage to all real and personal property, with minor exceptions. The policy also provides extra expense and business interruption coverages. With the exception of acts of terrorism (both domestic and foreign), FMTAC is fully reinsured in the domestic, London and European marketplace, for this coverage. With respect to acts of international terrorism covered by the Terrorism Risk Insurance Act of 2002 (“TRIA”), FMTAC is reinsured by the United States Government for 90% of losses, subject to an annual cap on all losses payable under TRIA of $100,000. The remaining 10% of losses would be covered under an additional policy. With respect to acts of terrorism not covered by TRIA, MTA obtained an additional all-agency commercial reinsurance policy that provides coverage against all acts of terrorism in an amount of up to $100,000 per occurrence (subject to the $25,000 per occurrence self-insurance retention). In the event the occurrence is covered by TRIA, the coverage afforded by the additional policy would provide for the payment of the remaining 10% not covered by TRIA as described above.

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16. CONVENTION CENTER PROJECT

Convention Center Project Bonds are secured solely by lease payments from New York State under a sublease and the funds and accounts established under the bond resolution. These special obligation bonds are not secured by or payable from any revenues or assets of MTA Bridges and Tunnels. In view of the foregoing, and since the State is obligated to make rental payments equal to the debt service on these bonds pursuant to its sublease and MTA Bridges and Tunnels has no obligation for the operation and maintenance of the Convention Center, MTA Bridges and Tunnels does not include the Convention Center bond liability and other related accounts in its financial statements. MTA Bridges and Tunnels continues to collect rental payments from the State and deposits such sums with paying agents for the bonds.

A summary of the Convention Center accounts which are excluded from the financial statements as of December 31, 2007 and 2006 is as follows:

2007 2006

Assets: Debt service Fund $ 36,922 $ 35,839 Futures sublease receivables due from New York State 141,770 171,558 $ 178,692 $ 207,397

Liabilities: Convention Center Bonds $ 141,770 $ 171,558 Bond principal due 2008 and 2007 32,000 29,835 Interest payable due January 1, 2008 and 2007 4,922 6,004 $ 178,692 $ 207,397

All interest income earned on investments related to the Convention Center reduces the amounts due from New York State to repay the outstanding bonds.

17. LEASE-LEASEBACK TRANSACTION

On March 31, 1997, the MTA entered into a lease-leaseback transaction with a third party whereby the MTA leased a facility operated by an affiliate, Long Island Rail Road. The term of the lease is 22 years but the third party has the right to renew for a further 21.5-year term. The facility was subsequently subleased back to the MTA as a capital lease and sub-subleased by the MTA back to the affiliate.

Under the terms of the lease-leaseback agreement, the MTA initially received $313,466, which was utilized as follows: MTA paid $266,446 to an affiliate of the third party’s lender, which has the obligation to make a portion of sublease rent payments equal to this amount, thereby eliminating the need for the MTA to make these payments to the third party. The MTA used $20,696 to purchase Treasury securities which it deposited under pledge to the third party. This deposit, together with the aforementioned obligation of the third party’s lender resulted in a financial defeasance of all sublease obligations, including the cost of purchasing the third party’s remaining rights at the end of the 22-year sublease period if the purchase option is exercised. $600 was used to pay for legal and other costs of the transaction, and $3,233 was used to pay the first rental payment under the sublease. A further $22,491 is MTA’s net benefit from the transaction, representing consideration for the tax benefits. MTA Bridges and Tunnels has entered into a guarantee agreement with the

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third party that guarantees the payments under the sublease will be made. It is expected that the amounts described above will be sufficient to make such payments.

18. COMMITMENTS AND CONTINGENCIES

At December 31, 2007 and 2006, MTA Bridges and Tunnels had unused standby letters of credit, relative to insurance, amounting to $2,712.

MTA Bridges and Tunnels is involved in various litigations and claims involving personal liability claims and certain other matters. Although the ultimate outcome of these claims and suits cannot be predicted at this time, management does not believe that the ultimate outcome of these matters will have a material effect on the financial position, results of operations and cash flows of MTA Bridges and Tunnels.

19. SWAP AGREEMENTS

Board-adopted Guidelines - The Related Entities adopted guidelines governing the use of swap contracts to manage the interest rate exposure of their debt. The Guidelines establish specific requirements that must be satisfied for a Related Entity to enter into a swap contract, such as suggested swap terms and objectives, credit ratings of the counterparties, collateralization requirements, and reporting requirements.

Objectives of the Swaps - In order to protect against the potential of rising interest rates, to achieve a lower net cost of borrowing, to reduce exposure to changing interest rates on a related bond issue, or, in some cases where Federal tax law prohibits an advance refunding, to achieve debt service savings through a synthetic fixed rate, MTA Bridges and Tunnels entered into separate pay-fixed, receive-variable interest rate swaps at a cost anticipated to be less than what MTA Bridges and Tunnels would have paid to issue fixed-rate debt.

Fair Value - Relevant market interest rates on the valuation date of the swaps reflected in the following charts (December 31, 2007) in some cases were higher than, and in some cases were lower than, market interest rates on the effective date of the swaps. Consequently, as of the valuation date, some of the swaps had negative fair values and some had positive fair values. A negative fair value means that MTA Bridges and Tunnels would have to pay the counterparty that approximate amount to terminate the swap. In the event there is a positive fair value, MTA Bridges and Tunnels would be entitled to receive a payment from the counterparty to terminate the swap; consequently, MTA Bridges and Tunnels would be exposed to the credit risk of the counterparties in the amount of the swaps’ fair value should the swap be terminated.

The fair values listed in the following tables represent the theoretical cost to terminate the swap as of the date indicated, assuming that a termination event occurred on that date. The fair values were estimated using the zero-coupon method. This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bond due on the date of each future net settlement on the swap. In the event both parties continue to perform their obligations under the swap, there is not a risk of termination and neither party is required to make a termination payment to the other. MTA Bridges and Tunnels are not aware of any event that would lead to a termination event with respect to any of their existing swaps. See “Termination Risk” below.

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Terms and Fair Values - The terms, fair values and counterparties of the outstanding swaps of MTA Bridges and Tunnels, as well as the swaps entered into in connection with the 2 Broadway Certificates of Participation refunding, are reflected in the following tables. The MTA Bridges and Tunnels swaps are reflected in separate tables for the senior lien and subordinate revenue bonds.

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MTA BRIDGES AND TUNNELS SENIOR LIEN REVENUE BONDS

Notional Amounts Fair Values as of as of Swap Associated Bond 12/31/07 Effective Fixed Rate Variable 12/31/07 Termination Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2001B and $205.200 01/01/02 5.777% Actual bond rate $ (29.312) 01/01/19 Citigroup Financial 2001C(1) Products Inc. Series 2002C(2) 77.200 01/01/00 5.634 Actual bond rate (7.794) 01/01/13 Ambac Financial Services, L.P. Series 2005B 797.200 07/07/05 3.076 67% of one-month 18.631 01/01/32 25% each – Citibank, LIBOR N.A., JPMorgan Chase Bank, BNP Paribas North America, Inc. and UBS AG Series 2005B 797.200 07/07/05 67% of one- BMA minus 10 basis (9.677) 01/01/12 UBS AG month LIBOR points plus 43.7 basis points(3) Total $1,876.80 $ (28.152) 0

(1) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $19,204,000.

(2) In accordance with a swaption entered into on February 24, 1999 with the Counterparty paying to MTA Bridges and Tunnels a premium of $8,400,000.

(3) For the purpose of mitigating the basis risk during the escrow period with respect to the $797.2 million notional amount swaps entered into in connection with the Series 2005B Bonds, MTA Bridges and Tunnels will pay 67% of one-month LIBOR plus 43.7 basis points to the UBS AG and receive a variable rate equal to the BMA Index minus 10 basis points.

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MTA BRIDGES AND TUNNELS SUBORDINATE REVENUE BONDS

Notional Amounts Fair Values as of as of Swap 12/31/07 Effective Fixed Rate Variable 12/31/07 Termination Associated Bond Issue (in millions) Date Paid Rate Received (in millions) Date Counterparty

Series 2000AB(4) $201.100 01/01/01 6.08 % Actual bond rate $ (31.557) 01/01/19 Bear Stearns Capital Markets Inc. Series 2000CD(4) 201.100 01/01/01 6.07 Actual bond rate (31.447) 01/01/19 Citigroup Financial Products Inc. Series 2002G-1 90.500 11/26/02 3.218 Lesser of actual bond (4.293) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Series 2002G-2 90.525 11/26/02 3.218 Lesser of actual bond (4.444) 01/01/18 JPMorgan Chase Bank rate, or 67% of one- month LIBOR minus 45 basis points Total $583.225 $ (71.741)

(4) In accordance with a swaption entered into on August 12, 1998 with each Counterparty paying to MTA Bridges and Tunnels a premium of $22,740,000.

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2 Broadway Certificates of Participation Swaps

In addition to the foregoing, MTA, MTA New York City Transit and MTA Bridges and Tunnels entered into separate ISDA Master Agreements with UBS AG relating to the $357,925,000 Variable Rate Certificates of Participation, Series 2004A (Auction Rate Securities) in connection with the refunding of certain certificates of participation originally executed to fund certain improvements to the office building located at 2 Broadway in Manhattan. The 2 Broadway swaps have (1) an effective date of September 22, 2004, (2) a fixed rate paid of 3.092%, (3) a variable rate received of the lesser of (a) the actual bond rate, or (b) 67% of one-month LIBOR minus 45 basis points, and (4) a termination date of January 1, 2030. Based on the aggregate notional amount of $355,525,000 outstanding as of December 31, 2007, MTA New York City Transit is responsible for $244,250,000 aggregate notional amount of the swaps, MTA for $74,650,000 aggregate notional amount, and MTA Bridges and Tunnels for $36,625,000 aggregate notional amount. As of December 31, 2007, the aggregate fair value of the swaps was ($12.028) million.

Counterparty Ratings

The current ratings of the counterparties are as follows:

Ratings of the Counterparty Counterparty or its Credit Support Provider S&P Moody’s Fitch Ambac Financial Services, L.P. AAA Aaa AAA Bear Stearns Capital Markets Inc. A A2 A+ BNP Paribas North America, Inc. AA Aa1 AA Citigroup Financial Products Inc. AA Aa3 AA Citibank, N.A. AA+ Aa1 AA JPMorgan Chase Bank AA- Aa2 AA- UBS AG AA Aaa AA

Except as set forth below, the notional amounts of the swaps match the principal amounts of the associated bonds. The following table sets forth the notional amount and the outstanding principal amount as of December 31, 2007 for the swap where the notional amount does not match the outstanding principal amount of the associated bonds.

Principal Amount of Notional Bonds Amount Associated Bond Issue (in millions) (in millions) MTA Bridges and Tunnels General Revenue $296.400 $205.200 Variable Rate Refunding Bonds, Series 2001B and 2001C MTA Bridges and Tunnels General Revenue $103.305 $77.200 Variable Rate Refunding Bonds, Series 2002C

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Risks Associated with the Swap Agreements

From MTA Bridges and Tunnels’ perspective, the following risks are generally associated with swap agreements:

 Credit Risk – The counterparty becomes insolvent or is otherwise not be able to perform its financial obligations. In the event of deterioration in the credit ratings of the counterparty or MTA Bridges and Tunnels the swap agreement may require that collateral be posted to secure the party’s obligations under the swap agreement. See “Collateralization” below. Further, ratings deterioration by either party below levels agreed to in each transaction could result in a termination event requiring a cash settlement of the future value of the transaction. See “Termination Risk” below.

 Basis Risk – The variable interest rate paid by the counterparty under the swap and the variable interest rate paid by MTA Bridges and Tunnels on the associated bonds may not be the same. If the counterparty’s rate under the swap is lower than the bond interest rate, then the counterparty’s payment under the swap agreement does not fully reimburse MTA Bridges and Tunnels for its interest payment on the associated bonds. Conversely, if the bond interest rate is lower than the counterparty’s rate on the swap, there is a net benefit to MTA Bridges and Tunnels.

 Termination Risk – The swap agreement will be terminated and MTA Bridges and Tunnels will be required to make a termination payment to the counterparty.

 Rollover Risk – The notional amount under the swap agreement terminates prior to the final maturity of the associated bonds on a variable rate bond issuance and MTA Bridges and Tunnels may be exposed to then market rates and cease to receive the benefit of the synthetic fixed rate for the duration of the bond issue.

Credit Risk - The following table shows, as of December 31, 2007, the diversification, by percentage of notional amount, among the various counterparties that have entered into ISDA Master Agreements with MTA Bridges and Tunnels, or in connection with the 2 Broadway Certificates of Participation refunding. The notional amount totals below include all five swaps (including the UBS basis risk swap) in connection with the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2005B. The counterparties have the ratings set forth above.

Notional % of Total Counterparty Amount Notional Amount (in thousands) UBS AG $1,033,125 41.38% Citigroup Financial Products Inc. 406,300 16.27 JPMorgan Chase Bank 380,325 15.23 Bear Stearns Capital Markets Inc. 201,100 8.05 BNP Paribas North America, Inc. 199,300 7.98 Citibank, N.A. 199,300 7.98 Ambac Financial Services, L.P. 77,200 3.09 Total $2,496,650 100.00%

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 Bear Stearns Capital Markets Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000AB,  Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, Series 2000CD  Citigroup Financial Products Inc. with respect to the MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 2001B and 2001C, and  Ambac Financial Services, L.P. (though there is only one transaction outstanding under the Master Agreement.)

Collateralization - Generally, the Credit Support Annex attached to the ISDA Master Agreement requires that if the outstanding ratings of MTA Bridges and Tunnels or the counterparty falls to a certain level, the party whose rating falls is required to post collateral with a third-party custodian to secure its termination payments above certain threshold amounts. Collateral must be cash or U.S. government or certain Federal agency securities.

The following tables set forth the ratings criteria and threshold amounts relating to the posting of collateral set forth for MTA Bridges and Tunnels and the counterparty for each swap agreement. In most cases, the Counterparty does not have a Fitch rating on its long-term unsecured debt, so that criteria would not be applicable in determining if the Counterparty is required to post collateral.

2 Broadway Certificates of Participation Then MTA, MTA Bridges Associated If the highest rating of the MTA Transportation and Tunnels and MTA New Agencies Revenue Bonds falls to York City Transit must post collateral if its estimated termination payments are in excess of MTA Fitch – BBB+, $25,000,000 MTA Bridges and Moody’s – Baa1, or Tunnels S&P – BBB+ MTA New York Fitch – BBB and below or unrated, $0 City Transit Moody’s – Baa2 and below or unrated by S&P & Moody’s, or S&P – BBB and below or unrated Then the Counterparty must If the highest rating of the Counterparty’s post collateral if its estimated long-term unsecured debt falls to termination payments are in excess of Moody’s – Baa1 or lower, or $0 S&P – BBB+ or lower

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MTA Bridges and Tunnels Senior Lien Revenue Bonds Then the downgraded If the highest rating of the related MTA party must post Bridges and Tunnels bonds or the collateral if its Associated counterparty’s long-term estimated termination Bond Issue unsecured debt falls to payments are in excess of Series 2001B and 2001C N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Citigroup is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2002C N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Ambac is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2005B interest rate swap and For counterparty, $10,000,000 Series 2005B basis risk swap Fitch – A-, or Moody’s – A3, or S&P – A-

For MTA, Fitch – BBB+, or Moody’s – Baa1, or S&P – $30,000,000 BBB+

For MTA, Fitch – BBB, or Moody’s – Baa2, or S&P – BBB $15,000,000 For counterparty, $0 Fitch – BBB+ and below, or Moody’s – Baa1 and below, or S&P – BBB+ and below

For MTA, $0 Fitch – BBB- and below, or Moody’s – Baa3 and below, or S&P – BBB- and below

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MTA Bridges and Tunnels Subordinate Revenue Bonds Then the downgraded If the highest rating of the related MTA party must post Bridges and Tunnels bonds or the collateral if its Associated counterparty’s long-term estimated termination Bond Issue unsecured debt falls to payments are in excess of Series 2000AB N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Bear Stearns is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2000CD N/A – Because MTA Bridges and Tunnels’ swap payments are insured, MTA Bridges and Tunnels is not required to post collateral, but Citigroup is required to post collateral if its estimated termination payments are in excess of $1,000,000. Series 2002G-1 and 2002G-2 Fitch – BBB+, $10,000,000 Moody’s – Baa1, or S&P – BBB+ Fitch – Below BBB+, $0 Moody’s – Below Baa1, or S&P – Below BBB+

Under each MTA Bridges and Tunnels bond resolution, the payments relating to debt service on the swaps are parity obligations with the associated bonds, as well as all other bonds issued under that bond resolution, but all other payments, including the termination payments, are subordinate to the payment of debt service on the swap and all bonds issued under that bond resolution. In addition, MTA Bridges and Tunnels have structured each of the swaps (other than the 2 Broadway swaps) in a manner that will permit MTA or MTA Bridges and Tunnels to bond the termination payments under any available bond resolution.

The ISDA Master Agreement sets forth certain termination events applicable to all swaps entered into by the parties to that ISDA Master Agreement. MTA Bridges and Tunnels has entered into separate ISDA Master Agreements with each counterparty that governs the terms of each swap with that counterparty, subject to individual terms negotiated in a confirmation.

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2 Broadway Associated Bond Issue Counterparty Additional Termination Event(s) 2 Broadway Certificates of UBS AG Negative financial events relating to the swap insurer, Ambac Participation, Series Assurance Corporation. 2004A

2. Negative financial events relating to the related swap insurer, Ambac Assurance Corporation. Series 2005B interest rate swap and basis The ratings by S&P or Moody’s of the Counterparty fall below “BBB+” risk swap or “Baa1,” respectively, or the ratings of S&P or Moody’s with respect to the MTA Bridges and Tunnels Senior Lien Revenue Bonds falls below “BBB” or “Baa2,” respectively, or , in either case the ratings are withdrawn. Subordinate Revenue Bonds Series 2000AB and 2000CD 1. MTA Bridges and Tunnels can elect to terminate the swap relating to that Series on 10 Business Days’ notice if the Series of Bonds are converted to a fixed rate, the fixed rate on the converted Bonds is less than the fixed rate on the swap and MTA Bridges and Tunnels demonstrates its ability to make the termination payments, or MTA Bridges and Tunnels redeems a portion of the Series of Bonds and demonstrates its ability to make the termination payments.

Rollover Risk - MTA and MTA Bridges and Tunnels are exposed to rollover risk on swaps that mature or may be terminated prior to the maturity of the associated debt. When these swaps terminate, MTA or MTA Bridges and Tunnels may not realize the synthetic fixed rate offered by the swaps on the underlying debt issues. The following debt is exposed to rollover risk:

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Bond Swap Maturity Termination Associated Bond Issue Date Date MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 01/01/3 01/01/19 2001B and 2001C 2 MTA Bridges and Tunnels General Revenue Variable Rate Refunding Bonds, Series 01/01/3 01/01/13 2002C 3 MTA Bridges and Tunnels Subordinate Revenue Variable Rate Refunding Bonds, 11/01/3 01/01/18 Series 2002G(1) 2

Swap payments and Associated Debt. The following tables contain the aggregate amount of estimated variable-rate bond debt service and net swap payments during certain years that such swaps were entered into in order to: protect against the potential of rising interest rates; achieve a lower net cost of borrowing; reduce exposure to changing interest rates on a related bond issue; or, in some cases where Federal tax law prohibits an advance refunding, achieve debt service savings through a synthetic fixed rate. As rates vary, variable-rate bond interest payments and net swap payments will vary. Using the following assumptions, debt service requirements of MTA Bridges and Tunnel’s outstanding variable-rate debt and net swap payments are estimated to be as follows:

 It is assumed that the variable-rate bonds would bear interest at a rate of 4.0% per annum.  The net swap payments were calculated using the actual fixed interest rate on the swap agreements.

MTA Bridges and Tunnels (in millions) Variable-Rate Bonds Fiscal Year Ending Net Swap December 31 Principal Interest Payments Total

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20. OPERATING LEASES

During 1998, the MTA, TA and MTA Bridges and Tunnels entered into a lease and related agreements whereby each, as sub lessees, will rent for at least an initial stated term of approximately 50 years, space at 2 Broadway in lower Manhattan (Note 14).

The total annual rental payments over the initial lease term are $1,600,000. Of this amount, approximately $488,000 represents land accounted for under an operating lease agreement. Rental payments will be allocated to the MTA, TA, and MTA Bridges and Tunnels based upon usage.

Minimum lease payments representing MTA Bridges and Tunnels’ share of the operating lease are as follows:

Aggregate Twelve Months Ending Lease December 31 Payments

2008 $ 2,405 2009 2,405 2010 2,405 2011 2,405 2012 2,405 2013–2017 2,405 2018–2022 2,405 2023–2027 2,405 2028–2032 2,405 2033–2037 2,405 Thereafter 74,560 Minimum future lease payments $ 98,610

21. RELATED PARTY TRANSACTIONS

MTA Bridges and Tunnels and other affiliated MTA agencies receive support from MTA in the form of budget, cash management, finance, legal, real estate, treasury, risk and insurance management, and other services, some of which are charged back.

The resulting receivables and payables from the above transactions are recorded in the due from/to MTA and affiliated agencies account included in the accompanying balance sheets.

Due from/to MTA and affiliated agencies consists of the following at December 31, 2007 and 2006:

2007 2006 Receivable (Payable) Receivable (Payable)

Due from (due to) MTA $ 1,886 $ (135,989) $ 2,153 $ (64,778) Due from (due to) affiliated agencies - (15,554) - (15,638) - - - - $ 1,886 $ (151,543) $ 2,153 $ (80,416) Total MTA and affiliated agencies

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22. SETTLEMENT OF CLAIMS

On November 4, 2003, MTA entered into agreement to end the litigation between the MTA and the owners of the 2 Broadway facilities. The settlement provides for a rent credit to MTA Bridges and Tunnels over a 30-year period commencing January 1, 2004.

23. SUBSEQUENT EVENTS

On March 27 2008, Triborough Bridge and Tunnel Authority issued General Revenue Bonds, Series 2008A for $822,770 and General Revenue Bonds, Series 2008B for $252,230. The Series 2008 Bonds were issued to finance bridge and tunnel projects, and may also be used to finance transit and commuter projects and/or to refinance indebtedness issued by MTA or MTA Bridges and Tunnels.

******

D-51 APPENDIX E

HISTORY AND PROJECTION OF TRAFFIC, TOLL REVENUES AND EXPENSES

and

Review of Physical Conditions

Of the Facilities of

Triborough Bridge and Tunnel Authority

April 29, 2008

Prepared for the Triborough Bridge and Tunnel Authority

TABLE OF CONTENTS Page TRANSPORTATION INFRASTRUCTURE ...... E-1 Triborough Bridge and Tunnel Authority (TBTA)...... E-1 Metropolitan Area Arterial Network ...... E-3 Other Regional Toll Facilities...... E-4 Regional Public Transportation ...... E-4

TOLL COLLECTION ON THE TBTA FACILITIES...... E-5 Current Toll Structure and Operation ...... E-5 E-ZPass Electronic Toll Collection System ...... E-7 TBTA’s Role in E-ZPass...... E-9 Passenger Car Toll Rate Trends and Inflation ...... E-9

HISTORICAL TRAFFIC, REVENUES AND EXPENSES AND ESTIMATED/BUDGETED NUMBERS FOR 2008 ...... E-12 Traffic and Toll Revenue, 1997 to 2007...... E-12 Traffic by Facility and Vehicle Class, 2007 ...... E-15 Monthly Traffic, 2007...... E-17 Changes in Monthly Traffic, 2006 to 2007...... E-17 Estimated Traffic and Toll Revenue, 2008...... E-19 Operating Expenses 1997 to 2007 ...... E-20 2008 Budget...... E-22

FACTORS AFFECTING TRAFFIC GROWTH ...... E-22 Employment, Population and Motor Vehicle Registrations ...... E-22 Fuel Conditions...... E-27 Toll Impacts and Elasticity ...... E-29 Bridge and Tunnel Capacities...... E-32 TBTA and Regional Operational and Construction Impacts...... E-33 Other Considerations ...... E-40 Summary of Assumptions and Conditions ...... E-41

PROJECTED TRAFFIC, REVENUES AND EXPENSES ...... E-43 Traffic and Toll Revenue at Current Tolls...... E-44 Traffic and Toll Revenue with Periodic Toll Increases...... E-45 Effects of Second Avenue Subway Construction in Forecast Years ...... E-48 Operating Expenses ...... E-48 Net Revenues from Toll Operations ...... E-50

REVIEW OF PHYSICAL CONDITION ...... E-51 Review of Inspection Reports...... E-53 Other Systemwide Improvements...... E-58 Long-Term Outlook for TBTA Facilities ...... E-60

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TABLES

Table Page

Table 1 Toll Rates at TBTA Facilities, Effective March 16, 2008 E-6 Table 2 E ZPass Participation Rates E-8 Table 3 Historical Trends in Non-Discounted Cash Passenger Car Toll Rates E-10 Table 4 Cash Passenger Toll Rates Versus Consumer Price Index E-11 Table 5 Annual Toll-Paying Traffic and Toll Revenue: 1997 to 2007 E-14 Table 6 Summary of Annual Paid Traffic and Toll Revenue: 1997 to 2007 E-15 Table 7 Traffic by Facility and Vehicle Class, 2007 E-16 Table 8 Monthly Traffic Variations, 2007 E-17 Table 9 Changes in Monthly Traffic – 2006 to 2007 E-18 Table10 Estimated Changes in Annual Traffic – 2007 to 2008 E-19 Table 11 Estimated 2008 Toll-Paying Traffic and Toll Revenue E-20 Table 12 Historical Operating Expenses: 1997 to 2007 E-21 Table 13 Employment Trends and Projections E-24 Table 14 Population Trends and Projections E-25 Table 15 Motor Vehicle Registrations E-26 Table 16 Historical Elasticity Factors E-30 Table 17 Elasticity Factors for 2010-2018 E-31 Table 18 Estimated Percent Change in Average Toll Rates and Traffic E-31 Table 19 Comparison of 2007 Traffic with Highest Recorded Levels Since 1970 E-32 Table 20 Traffic and Toll Revenue Forecast, Constant Tolls E-46 Table 21 Traffic and Toll Revenue Forecast, Periodic Toll Increases E-47 Table 22 Projected Operating Expenses E-49 Table 23 Net Toll Revenue Forecast E-50 Table 24 Opening Dates of TBTA Facilities E-51 Table 25 Capital Commitments by Facility, 2005 to 2009 E-52

FIGURES Figure 1: Location Map E-2 Figure 2: Aggregated TBTA Facilities Paid Traffic and Toll Revenue, 1970 to 2007 E-12

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April 29, 2008

To Triborough Bridge and Tunnel Authority:

In accordance with your request, URS Corporation-New York (URS) conducted this annual study to develop projections of traffic, revenues and expenses for the toll bridge and tunnel facilities operated by Triborough Bridge and Tunnel Authority (TBTA), and to provide an overview of the physical conditions of each facility. We have reviewed the bridge and tunnel inspection reports provided by TBTA, toured the facilities in light of these inspection reports with TBTA Engineering and Facilities staff, and discussed TBTA’s on-going maintenance and capital programs with its engineering staff.

Our projections have taken into account: (1) the general physical condition of TBTA’s toll facilities; (2) traffic and revenue data, reflecting the 13 toll increases since 1972; (3) the impact of the E-ZPass electronic toll collection system; (4) the toll structure; (5) possible future toll increases; (6) population, employment and other demographic forecasts in the New York Metro- politan Area; (7) the traffic capacities of the bridges and tunnels and the existing roadway network that feeds the facilities in terms of the potential for future growth of peak versus non-peak period traffic; (8) current and programmed construction activities on TBTA’s facilities and the arterial highway network serving the New York Metropolitan Area, including the toll-free East River bridges; (9) mass transit network projects; and (10) the impacts of recent economic and political events on metropolitan area traffic.

In 2007, actual total toll revenues for the TBTA were $1,250.5 million, or 0.2 percent lower than the URS forecast of $1,253.0 million.

TRANSPORTATION INFRASTRUCTURE

The New York Metropolitan Area’s transportation infrastructure consists of an extensive network of highways, tunnels and bridges (both tolled and toll-free), regional commuter rail and the New York City transit system.

Triborough Bridge and Tunnel Authority (TBTA)

TBTA operates nine toll facilities within New York City (the “City”), consisting of seven bridges and two tunnels that provide vital links across the City’s rivers and bays. In 2007, these facilities carried 307.8 million total vehicles, of which 304.2 million were toll paying, and generated $1,250.5 million in toll revenue. (Non-revenue transactions include police, emergency and TBTA vehicles.) The locations of the facilities are shown on the following map in the context of the regional highway network.

URS Corporation One Penn Plaza, Suite 610 New York, NY 10119-0698 Tel: 212.736.4444 Fax: 212.629.4249 www.urscorp.com

Figure 1: Location Map

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The facilities are briefly described as follows:

Verrazano-Narrows Bridge - a two-level suspension bridge, with three lanes of traffic in each direction on both decks. It crosses the entrance to New York Harbor and connects Brooklyn and Staten Island.

Triborough Bridge - a complex of three bridges connecting Manhattan, the Bronx and Queens, with a central connecting interchange on Randall’s Island. Manhattan is reached via a six-lane vertical lift bridge over the Harlem River. The Bronx is accessed via a six-lane truss bridge over the Bronx Kill. An eight-lane suspension bridge over the East River leads to Queens.

Bronx-Whitestone Bridge - a suspension bridge, with three lanes of traffic in each direction, which crosses the East River connecting the boroughs of Queens and the Bronx.

Throgs Neck Bridge - a suspension bridge, with three lanes of traffic in each direction, which crosses the upper East River also connecting the boroughs of Queens and the Bronx.

Queens Midtown Tunnel - a twin-tube tunnel with each tube carrying two lanes of traffic under the East River between the boroughs of Queens and Manhattan. During normal morning commuting hours, three lanes are operated in the peak traffic direction.

Brooklyn-Battery Tunnel - a twin-tube tunnel with each tube carrying two lanes of traffic under the East River connecting the southern tip of Manhattan with Brooklyn. During normal morning commuting hours, three lanes are operated in the peak traffic direction.

Henry Hudson Bridge - a two-level steel arch bridge, with four southbound lanes on its lower deck and three northbound lanes on its upper deck that crosses the Harlem River to connect the northern tip of Manhattan with the Spuyten Duyvil section of the Bronx.

Marine Parkway - Gil Hodges Memorial Bridge (Marine Parkway) - a four-lane crossing of the Rockaway Inlet that connects the Rockaway peninsula in Queens with Brooklyn.

Cross Bay Veterans Memorial Bridge (Cross Bay) - a pre-stressed concrete viaduct with three lanes of traffic in each direction crossing Beach Channel in Jamaica Bay, connecting the Rockaway peninsula in Queens with the Queens mainland, via Broad Channel.

Metropolitan Area Arterial Network

The New York Metropolitan Area is served by an extensive network of highway facilities. Many of the bridges and tunnels operated by TBTA are links in the Interstate highway network, as these limited-access expressways pass through New York City to serve both local and long distance traffic. These regional facilities are shown on the map on page 2.

The Verrazano-Narrows Bridge is part of I-278 (Staten Island, Gowanus and Brooklyn-Queens Expressways), which connects with the Brooklyn-Battery Tunnel and the Triborough Bridge. The Queens Midtown Tunnel carries I-495 (Long Island Expressway) into Manhattan. The

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Triborough Bridge joins I-87 (Major Deegan Expressway) and I-278 (Bruckner Expressway) with I-278/Grand Central Parkway in Queens and the FDR Drive in Manhattan. The Bronx- Whitestone Bridge carries traffic between the Hutchinson River and Merritt Parkways and Long Island via I-678 (Whitestone and Van Wyck Expressways) and the Cross Island Parkway. The Throgs Neck Bridge carries traffic between I-95 (New England Thruway and George Washington Bridge) and Long Island via I-295.

The Henry Hudson Bridge is part of the Henry Hudson Parkway, a major commuter route into Manhattan from the extensive parkway network in western Westchester County and beyond.

In addition to TBTA facilities and their expressway/parkway connections, New York City’s toll- free East River bridges — Brooklyn, Manhattan, Williamsburg and Queensboro — also connect Manhattan with Brooklyn and Queens; and nine toll-free bridges over the Harlem River connect Manhattan with the Bronx. Unlike the TBTA facilities, the approaches to these bridges are mostly surface arterials, such as Flatbush Avenue and Queens Boulevard. Only a few have expressway ramp connections (such as the Brooklyn-Queens Expressway connection to the Williamsburg Bridge), and the Alexander Hamilton Bridge, or I-95, is part of the Cross Bronx Expressway.

Other Regional Toll Facilities

TBTA is one of a number of toll authorities that operate bridge, tunnel and highway facilities in the New York Metropolitan Area. The agency whose facilities are geographically closest to TBTA’s bridges and tunnels is the Port Authority of New York and New Jersey. The Port Authority’s George Washington Bridge is linked to the Triborough, Bronx-Whitestone and Throgs Neck bridges via the expressway system in the Bronx (plus the George Washington- Triborough Bridge connection in Manhattan via the Harlem River Drive and the George Wash- ington-Henry Hudson Bridge connection in Manhattan via the Henry Hudson Parkway); while the Bayonne Bridge, Goethals Bridge and Outerbridge Crossing are linked to the Verrazano- Narrows Bridge via the expressway system in Staten Island. Only motorists using the Port Authority’s two tunnels — Holland and Lincoln — must traverse surface streets (in Manhattan) to reach TBTA’s and the City’s East River crossings.

The other toll authorities in the region are the New York State Thruway Authority (Tappan Zee Bridge and several Thruway sections), New York State Bridge Authority (five Hudson River bridges) and the New Jersey Turnpike Authority (Garden State Parkway and New Jersey Turnpike).

All of these authorities, together with eighteen others beyond the New York Metropolitan Area, are linked through the E-ZPass Interagency Group (IAG) to better serve the regional traveler. E-ZPass and its impact on the TBTA facilities are discussed further in this report.

Regional Public Transportation

In addition to the TBTA facilities, most of the public transportation facilities within the City and the suburban counties north and east of the City are part of the Metropolitan Transportation

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Authority (MTA) system. These include the New York City Transit Authority subway and buses, MTA Bus Company, Staten Island Rapid Transit, Metro-North Commuter Railroad, Long Island Rail Road, and the Long Island Bus system (in Nassau County, and serves adjacent portions of Queens and Suffolk County).

For those major TBTA facilities directly serving Manhattan — Triborough Bridge, Queens Midtown Tunnel and Brooklyn-Battery Tunnel — the motorist can, for the most part, choose to use transit. For the outlying bridges, however, the choice is more difficult, due to a reduced level of transit service or different trip characteristics.

TOLL COLLECTION ON THE TBTA FACILITIES

The nine TBTA toll facilities have three toll structures, in terms of toll levels and methods of collection: major, minor and the Verrazano-Narrows Bridge. The major crossings include the Triborough Bridge, Bronx-Whitestone Bridge, Throgs Neck Bridge, Queens Midtown Tunnel and Brooklyn-Battery Tunnel. The minor crossings are the Henry Hudson Bridge, Marine Park- way-Gil Hodges Memorial Bridge and Cross Bay Veterans Memorial Bridge. The Verrazano- Narrows Bridge is the only facility on which tolls are collected in one direction only, while the cash tolls for passenger cars on the minor bridges are half the level of those on the major facilities, with the exception of the Henry Hudson Bridge.

Current Toll Structure and Operation

The current toll structure, in place since March 16, 2008, is shown in Table 1. Tolls are determined using a basic rate as modified by variables specific to a number of factors. These factors include:

• crossing used • vehicle classification • toll payment method • place of residence • vehicle occupancy

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Table 1 Toll Rates at TBTA Facilities, Effective March 16, 2008

Triborough Bridge Marine Parkway- Bronx-Whitestone Bridge Gil Hodges Memorial Verrazano-Narrows Throgs Neck Bridge Henry Hudson Bridge Bridge Bridge (a) Classification Queens Midtown Tunnel Cross Bay Veterans Brooklyn-Battery Tunnel Memorial Bridge

Cash E-ZPass Cash E-ZPass Cash E-ZPass Cash E-ZPass Two-axle vehicles, including: Passenger vehicles, SUVs, station wagons, self- propelled mobile homes, ambulances, hearses, vehicles with seating capacity of not $5.00 $4.15 $ 5.00 $4.15 $2.75 $1.90 $2.50 $1.55 more than 15 adult persons (including the driver) and trucks with maximum gross weight of 7,000 lbs. and under 2.25 2.25 2.25 2.25 1.50 1.50 1.50 1.50 Each additional axle costs The following discounted prepaid charges are presently available for the two-axle

E-6 vehicles referenced above: Prepaid charges through token roll purchases 1.67(b) Prepaid charges per crossing for registered Staten Island Residents using an eligible 1.165 vehicle with three or more occupants Prepaid charges per crossing for registered Staten Island Residents using an eligible 3.35(b)

vehicle through token roll purchase Registered Staten Island Residents using an eligible vehicle 2.49 Prepaid charges per crossing for registered Rockaway Peninsula/Broad Channel 1.40(b) 1.03(c) Residents using an eligible vehicle All two axle vehicles greater than 7,000 lbs. and buses (other than franchise buses 10.00 7.50 10.00 7.50 5.00 3.75 and motor homes) (d) (d) 3 Axle 16.00 12.00 16.00 12.00 8.00 6.00 4 Axle 21.00 15.75 21.00 15.75 10.50 7.88 5 Axle 27.00 20.25 27.00 20.25 13.50 10.13 6 Axle 32.00 24.00 32.00 24.00 16.00 12.00 7 Axle 38.00 28.50 38.00 28.50 19.00 14.25 Each additional axle above 7 6.00 4.50 6.00 4.50 3.00 2.25 Two-axle franchise buses 4.00 3.00 4.00 3.00 (d) (d) 2.00 1.50 Three-axle franchise buses 4.75 3.56 4.75 3.56 (d) (d) 2.50 1.88 Motorcycles 2.25 1.86 2.25 1.81 2.25 1.29 2.25 1.29 Each additional axle costs 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Notes: (a) Under the Verrazano-Narrows one-way crossing charge collection program, all per crossing charges shown should be doubled; toll is collected in the westbound direction only. (b) Prepaid discount token roll sales may be discontinued when permissible. (c) Rockaway Peninsula and Broad Channel residents using E-ZPass at the Cross Bay Veterans’ Memorial Bridge receive a rebate of this amount, reimbursed to TBTA by MTA. This program was instituted January 1, 1998. (d) Passage prohibited.

Passenger Car Tolls

TBTA crossings are separated into major and minor categories for toll classification purposes. The passenger car cash toll is $5.00 for the major crossings. The minor crossing passenger car cash toll is $2.50 on the Gil Hodges Memorial and Cross Bay Bridges and $2.75 on the Henry Hudson Bridge. All tolls are collected in each direction except on the Verrazano-Narrows Bridge where the round-trip tolls are collected only in the westbound (Staten Island-bound) direction in order to comply with a provision of Federal law.

Tolls for passenger cars are discounted under the following programs: (1) E-ZPass and tokens; (2) place of residence/crossing used; (3) place of residence/vehicle occupancy; and (4) some combination of the foregoing. E-ZPass electronic toll collection is available on all TBTA toll facilities (see the following section for a more complete description of E-ZPass and its impact). Motorists open a pre-paid E-ZPass account and receive a transponder that they mount on their windshields. TBTA toll plazas are all equipped with E-ZPass antennas that identify and read the on-board tags and electronically debit the toll from the motorist’s prepaid account. Passenger cars equipped with E-ZPass are allowed a $0.85 discount per trip at all major facilities ($1.70 for Verrazano-Narrows Bridge westbound only) and the Henry Hudson Bridge, and $0.95 at the Cross Bay Veterans Memorial and Marine Parkway-Gil Hodges Memorial bridges.

A separate discount program is in place for registered Staten Island residents on the Verrazano- Narrows Bridge and for registered Rockaway peninsula and Broad Channel residents on the Cross Bay and Marine Parkway-Gil Hodges Memorial bridges. A toll-rebate program for the benefit of E-ZPass customers who are residents of Broad Channel and the Rockaway peninsula was implemented on January 1, 1998 for use on the Cross Bay Bridge. MTA reimburses the TBTA in the amount of approximately $4.0 million annually in toll rebates.

Tolls for Vehicles over 7,000 Pounds

The toll charges for vehicles over 7,000 pounds are a function of weight/number of axles as well as the crossing used. For the major crossings (except for the Verrazano-Narrows Bridge), the cash rate for these vehicles is $10.00 for two axles and is $6.00 for each additional axle over seven. Vehicles with three to seven axles pay varying rates, as shown in Table 1. For the Verrazano-Narrows Bridge, the cash rate for vehicles over 7,000 pounds is the same; however, rates should be doubled, since the toll is collected in the westbound direction only. These vehicles are eligible for a 25 percent discount with E-ZPass.

For the minor crossings, the two-axle cash rate for vehicles over 7,000 pounds is $5.00, with an additional per axle rate over seven axles of $3.00. Vehicles with three to seven axles pay varying rates, as shown in Table 1. These vehicles are eligible for a 25 percent discount with E-ZPass. Commercial vehicles are not permitted on the Henry Hudson Bridge.

E-ZPass Electronic Toll Collection System

The E-ZPass Electronic Toll Collection (ETC) system has been fully installed at all TBTA bridges and tunnels since December 1996. E-ZPass usage at each facility has shown strong

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growth as motorists have become more familiar with the system and its time saving advantages. Unlike cash transactions, vehicles equipped with E-ZPass tags can use the gated E-ZPass-only lanes. An electronic reader identifies the tag code at the toll plaza and the toll is deducted from the customer’s pre-paid account. TBTA has over 2.9 million E-ZPass tags in use. Currently, participation rates are at 73.5 percent of toll-paying traffic system-wide. The total number of active Interagency Group (IAG) tags in use for all agencies in the extended region as of Decem- ber 31, 2007 was over 17 million.

With the introduction of E-ZPass at all TBTA crossings, toll plaza operations have improved and vehicle-hours of delay have been reduced. This, in turn, has led to even more motorists enrolling in E-ZPass. Electronic payment of tolls has accelerated vehicle processing through the E-ZPass lanes, thereby reducing the overall vehicle queue at the plazas. TBTA estimates that manual toll lanes are able to process approximately 250 vehicles per hour, and dedicated E-ZPass lanes are able to process approximately 900 to 1,000 vehicles per hour. Prior to implementation of E-ZPass, vehicle processing through the TBTA toll plazas during peak periods was a primary cause of congestion at the crossings.

Table 2 lists the E-ZPass annual system-wide participation rates starting in 1999, the third year since all nine crossings had E-ZPass in operation. Implementation of E-ZPass started in October 1995 on the Verrazano-Narrows Bridge and was phased in gradually on the remaining crossings through December 1996. Also shown are the participation rates for each of the facilities for 2007.

Table 2 E ZPass Participation Rates

Yearly Average 1999 2000 2001 2002 2003 2004 2005 2006 2007 Percent Participation 60.1% 63.7% 67.4% 68.5% 69.8% 70.1% 71.5% 72.6% 73.5% (All Facilities) Bronx- Henry Marine Queens Brooklyn Throgs Verrazano- Facility Triborough Whitestone Hudson Parkway Cross Bay Midtown Battery Neck Narrows Percent Participation 66.4% 66.5% 80.2% 79.5% 74.8% 78.0% 81.4% 73.3% 77.0% (2007)

Source: TBTA

Based on customer acceptance of the technology, TBTA expects that the E-ZPass share of total transactions will continue to increase, albeit marginally, over time.

E-ZPass is fully integrated at facilities operated by 24 agencies located in 12 states. The transportation network includes the six interstate crossings of the Port Authority of New York and New Jersey, the New Jersey Turnpike, the Garden State Parkway, the New York State Thruway including its Tappan Zee Bridge, the five bridges of the New York State Bridge Authority (from Bear Mountain northward), the Buffalo and Fort Erie Public Bridge Authority’s Peace Bridge, the Atlantic City Expressway, the four toll bridges between New Jersey and Pennsylvania operated by the Delaware River Port Authority, the seven toll bridges between New Jersey and Pennsylvania operated by the Delaware River Joint Toll Bridge Commission, the

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Delaware Memorial Bridge between New Jersey and Delaware operated by the Delaware River and Bay Authority, the two toll roads in Delaware, toll facilities in Virginia and Maryland, the West Virginia Turnpike, the Maine Turnpike, the Massachusetts Turnpike, the Tobin Bridge operated by the Massachusetts Port Authority, the Pennsylvania Turnpike, the New Hampshire Turnpike System, eight bridges between New Jersey and Pennsylvania operated by the Burlington County Bridge Commission, the toll roads maintained by the Illinois State Toll Highway Authority, the Chicago Skyway Bridge operated by the Skyway Concession Company, LLC, the Indiana Toll Road Concession Company and the Chesapeake Bay Bridge and Tunnel Commission. In addition, the Ohio Turnpike Commission joined the IAG in 2008 and they are expected to be fully operable by the end of 2009.

TBTA’s Role in E-ZPass

TBTA was a founding member of the E-ZPass IAG, originally comprised of toll authorities in Delaware, Pennsylvania, New Jersey and New York, and the IAG now includes Maryland, Massachusetts, Virginia, West Virginia, New Hampshire, Illinois, Indiana and Maine, as well as the Peace Bridge between Buffalo and Fort Erie, Ontario. The IAG has been working since 1991 toward the development and delivery of a compatible electronic toll collection system for the entire region. In July 1998, TBTA entered into an inter-operability agreement with the IAG.

Customers of the member IAG agencies are able to use their tags at any E-ZPass-equipped facility operated by an IAG member. All IAG members provide inter-operability among agencies for their customers. As IAG members implement electronic toll collection systems, the E-ZPass customer base will increase, which will help increase usage of E-ZPass on TBTA facilities.

TBTA customers must pre-pay their E-ZPass accounts. These pre-payments are based on a customer’s E-ZPass usage at both TBTA and other IAG member facilities. Through the IAG system, TBTA and other member agencies transfer payments associated with inter-operability to each other on a routine basis. For 2007, TBTA transferred $370.5 million to other members and received $246.3 million from other members within the IAG.

Passenger Car Toll Rate Trends and Inflation

Since 1971, toll rates have been increased periodically on the TBTA facilities. Table 3 displays passenger car toll rates for the nine TBTA bridges and tunnels over the past 37 years.

Since 1982, passenger car toll rates have been separated into three categories, as follows:

• Major crossings - Triborough, Bronx-Whitestone and Throgs Neck bridges, and the Queens Midtown and Brooklyn-Battery tunnels;

• Minor crossings - Henry Hudson, Marine Parkway-Gil Hodges Memorial and Cross Bay Veterans Memorial bridges; and

• Verrazano-Narrows Bridge – a major crossing with one-way toll collection.

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Table 3 Historical Trends in Non-Discounted Cash Passenger Car Toll Rates

Triborough, Marine Parkway- Verrazano- Brooklyn- Henry Bronx-Whitestone and Gil Hodges Narrows Battery Hudson Throgs Neck Bridges and Memorial & Cross Bridge Tunnel Bridge Queens Midtown Tunnel Bay Bridges 1971 $0.50 $0.25 $0.35 $0.10 $0.10 1972 – 1975 0.75 0.50 0.70 0.25 0.25 1975 – 1980 1.00 0.75 0.75 0.50 0.50 1980 – 1982 1.00 1.00 1.00 0.60 0.75 1982 – 1984 1.25 1.25 1.25 0.90 0.90 1984 – 1986 1.50 1.50 1.50 0.90 0.90 1986 – 1987 1.75(a) 1.75 1.75 1.00 1.00 1987 – 1989 2.00(a) 2.00 2.00 1.00 1.00 1989 – 1993 2.50(a) 2.50 2.50 1.25 1.25 1993 – 1996 3.00(a) 3.00 3.00 1.50 1.50 1996 – 2003 3.50(a) 3.50 3.50 1.75 1.75 2003 – 2005 4.00(a) 4.00 4.00 2.00 2.00 2005 – 2008 4.50(a) 4.50 4.50 2.25 2.25 2008(b) – Present 5.00(a) 5.00 5.00 2.75 2.50

Notes: (a) Effective March 20, 1986, round-trip tolls (twice the amount shown) have been collected on the Verrazano-Narrows Bridge in the westbound direction only in compliance with a Federal legislative mandate. Eastbound traffic uses the bridge toll-free. These amounts are the equivalents of collecting tolls in each direction. (b) Last toll rate increase effective March 16, 2008.

On the minor crossings, cash tolls on the Henry Hudson Bridge are $2.75 and cash tolls on the Gil Hodges Memorial and Cross Bay Bridges are $2.50, collected in each direction.

Verrazano-Narrows Bridge

The Verrazano-Narrows Bridge one-way cash toll of $10.00 is collected westbound only. The current one-way cash passenger car toll rate, effective March 16, 2008, for the major crossings is $5.00, collected in each direction.

Over the years, various discount programs have been introduced. In March 1987, the Staten Island Carpool Program was initiated. Staten Island residents were offered 30-round trip coupons for vehicles with three or more occupants at a discounted price of $30.00. This program was revised to 24 coupons for $30.00 in July 1989, to 24 coupons for $42.00 in May 2003, and to 24 coupons for $54.00 in March 2005. Effective March 16, 2008, the cost of 24 coupons increased $1.92 to $55.92.

In general, tolls for vehicles over 7,000 pounds have also been adjusted upward whenever passenger car toll rates were increased. Notable exceptions occurred in 1987 and 1989 when these toll rates were not raised while there was a general increase for passenger cars. Historically, these vehicles received discounts on any TBTA facility when they used pre-paid accounts. This plan continues with E-ZPass.

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Inflation

The Consumer Price Index (CPI), compiled by the US Department of Labor, Bureau of Labor Statistics for United States Cities, is intended to represent the average inflation rate for all urban consumers. Table 4 displays the TBTA major crossing passenger car toll rates from the 1971 level of $0.25 to the toll rate of $5.00 set in 2008, alongside the CPI.

Table 4 Cash Passenger Toll Rates Versus Consumer Price Index

Triborough, Bronx- Tolls Adjusted Whitestone and Throgs Consumer Year to 1982-84 Neck Bridges and Queens Price Index(a) Dollars(b) Midtown Tunnel 1971 $0.25 43.6 $0.57 1972 0.50 45.5 1.10 1975 0.75 57.6 1.30 1980 1.00 82.1 1.22 1982 1.25 95.3 1.31 1984 1.50 104.8 1.43 1986 1.75 112.3 1.56 1987 2.00 118.0 1.69 1989 2.50 130.6 1.91 1993 3.00 154.5 1.94 1996 3.50 166.9 2.10 2003 4.00 197.8 2.02 2005 4.50 212.7 2.12 March 2008 5.00(c) 233.1(d) 2.15 Ratio 2008/1971 20.0 5.3 3.8 Notes: (a) New York Metropolitan Statistical Area: New York–Northern New Jersey-Long Island, NY-NJ- CT-PA, All Urban Consumers, All Items. Base period: 1982-1984 = 100.0. Source: US Department of Labor, Bureau of Labor Statistics. (b) The current toll divided by the CPI and expressed as a decimal. (c) Effective March 16, 2008. (d) Not seasonally adjusted. Seasonally adjusted data not available at the MSA level.

As indicated in the table, TBTA tolls in current dollars have risen faster than the CPI during the 37-year period. As can be seen in Table 4, the current $5.00 toll in 2008 dollars is equivalent to a toll of $2.15 in 1982-1984 dollars. The actual (current) 2008 cash toll for passenger cars is 20 times the actual toll in 1971. However, if adjusted for inflation, the toll today is only 3.8 times that in 1971 (in each case based on 1982-1984 dollars). Notwithstanding the aforementioned rise in tolls, traffic volumes have remained strong.

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HISTORICAL TRAFFIC, REVENUES AND EXPENSES AND ESTIMATED/BUDGETED NUMBERS FOR 2008

Historical traffic, revenues and expenses were reviewed for the nine TBTA bridges and tunnels. Over the last 37 years, paid traffic volumes on the crossings have ranged from approximately 220 million in the 1970s to 304 million in 2007. As displayed in Figure 2, the growth of traffic reflects the region’s moderate overall growth in population and employment, offset by the impact of 12 periodic toll increases. By 2000, with tolls at 14 times the 1971 level, toll revenues had increased more than 13-fold, from $72 million to a high of $941 million in 2000. Revenues then declined to $915 million in 2001 primarily due to the closures and restrictions on TBTA facilities following the September 11 terrorist attack on the World Trade Center and the regional decline in employment. In 2007, with tolls having been increased again in 2003 and 2005, revenue reached $1,251 million, $9 million greater than revenues in 2006.

Figure 2: Aggregated TBTA Facilities Paid Traffic and Toll Revenue, 1970 to 2007

Total Annual Toll Revenue Total Annual Paid Traffic

325 ) $1,400 300 $1,200

275 $1,000 $800 250 $600 $400 225 $200 $0 200 Annual Revenue (millions Facilities Paid Traffic (millions) Traffic Paid Facilities 70 74 78 82 86 90 94 98 02 06 78 82 90 94 06 19 19 19 19 19 19 19 19 20 20 1970 1974 19 19 1986 19 19 1998 2002 20

Since 1970, annual operating expenses for the toll facilities have risen by a multiple of 15, from $25 million to $369 million in 2007, during which time the CPI for the New York Metropolitan Statistical Area increased a multiple of 5.5. Among the significant increases over this period were additional expenses to maintain the facilities and increased security costs after the events of September 11, 2001.

Traffic and Toll Revenue, 1997 to 2007

Table 5 lists the traffic and toll revenue record for each of the nine crossings for the 1997-2007 period. Total TBTA traffic and toll revenue are shown in Table 6. The peak in toll-paying traffic during this period, 304 million crossings, occurred in 2007. The general system-wide pattern has been that when toll rates are increased, traffic declines moderately and then traffic begins to rise until the next rate increase. (The relationship between toll increases and traffic volume is described in the Toll Impacts and Elasticity section of this report.) The two most recent toll increases (prior to the 2008 toll increase) shown in this table, in 2003 and 2005, are evident in the jump in average tolls in those years. The strong growth of almost 10 percent in revenues between 2004 and 2005 is due to the toll increase in March 2005.

In 1997, toll revenue was reported at $852 million. As stated above, revenues rose to $941 million in 2000, an increase of approximately 16 percent, and then declined in 2001 due to the

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impact of September 11 and a decline in regional employment. The greatest impact from September 11 was due to closures and restrictions at the Brooklyn-Battery Tunnel, with negative impacts also occurring at the Queens Midtown Tunnel and at the Triborough Bridge. In 2002, residual effects due to September 11-related traffic restrictions were seen particularly in the results for the Brooklyn-Battery Tunnel. Also in 2002, the positive impact on the Verrazano- Narrows Bridge was brought about by the truck restrictions at the Holland Tunnel as well as New York City’s single occupancy vehicle restrictions. Since November 17, 2003, when the morning peak-period ban on Manhattan-bound single occupancy vehicles south of 14th Street was lifted, there have been no externally imposed traffic restrictions on any of TBTA’s facilities. Revenue in 2003 topped $1 billion, as a result of the May 18, 2003 toll increase. After the March 13, 2005 toll increase, 2005 traffic volumes decreased 0.9 percent and revenue rose to $1,205 million in 2005 and then increased to $1,242 million in 2006 and increased further to $1,251 in 2007.

Traffic on the Bronx-Whitestone and Throgs Neck Bridges was nearly equal in 2007. These two bridges generally serve the same areas in the Bronx and Queens, and historically traffic has shifted back and forth to the crossing providing the better level of service.

The Triborough Bridge reported the highest toll revenue for 2007 at $285.8 million, while the Marine Parkway-Gil Hodges Memorial Bridge registered the lowest revenue at $11.6 million.

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Table 5 Annual Toll-Paying Traffic and Toll Revenue: 1997 to 2007 (000’s)(a)

Verrazano-Narrows Bridge Triborough Bridge Bronx-Whitestone Bridge Year Traffic Average Traffic Average Traffic Average Revenue (c) Revenue Revenue Volume(b) Change Toll Volume Change Toll Volume Change Toll 1997 62,848 4.4 $185,131 $2.95 56,766 3.3 $200,451 $3.53 36,372 –2.4 $135,593 $3.73 1998(d) 65,886 4.8 192,788 2.93 59,524 4.9 208,324 3.50 38,112 4.8 140,083 3.68 1999(d) 67,496 2.4 196,556 2.91 61,943 4.1 216,414 3.49 40,155 5.4 147,597 3.68 2000(d) 69,107 2.4 203,172 2.94 63,677 2.8 222,612 3.50 42,334 5.4 155,938 3.68 2001 70,929 2.6 208,164 2.93 62,506 –1.8 215,241 3.44 42,090 –0.6 152,881 3.63 2002 73,361 3.4 216,312 2.95 60,747 –2.8 208,905 3.44 44,359 5.4 160,730 3.62 2003 71,108 –3.1 233,482 3.28 58,339 –4.0 222,224 3.81 44,413 0.1 175,393 3.95 2004 71,404 0.4 246,322 3.45 61,638 5.7 247,937 4.02 45,223 1.8 187,231 4.14 2005 69,980 –2.0 267,276 3.82 62,841 2.0 280,516 4.46 41,198 –8.9 188,808 4.58 2006 70,381 0.6 274,100 3.89 63,063 0.4 288,300 4.57 39,488 –4.2 186,384 4.72 2007(f) 70,349 0.0 272,837 3.88 62,491 –0.9 285,847 4.57 42,372 7.3 200,076 4.72

Throgs Neck Bridge Brooklyn-Battery Tunnel Queens Midtown Tunnel Year Traffic Average Traffic Average Traffic Average Revenue Revenue Revenue Volume Change Toll Volume Change Toll Volume Change Toll 1997 36,711 4.3 $147,106 $4.01 17,029 –0.2 $56,166 $3.30 24,600 4.6 $83,543 $3.40 1998(d) 37,660 2.6 149,711 3.98 19,651 15.4 63,578 3.24 25,362 3.1 85,626 3.38 1999(d) 38,076 1.1 152,134 4.00 20,778 5.7 67,080 3.23 25,969 2.4 87,284 3.36 2000(d) 37,535 –1.4 152,453 4.06 21,298 2.5 69,018 3.24 26,573 2.3 89,451 3.37 2001 37,802 0.7 150,764 3.99 16,452(e) –22.8 52,188 3.17 26,177(e) –1.5 87,067 3.33 2002 39,687 5.0 157,988 3.98 15,447(e) –6.1 48,880 3.16 26,901(e) 2.8 88,865 3.30 2003 39,082 –1.5 172,603 4.42 17,806(e) 15.3 61,810 3.47 27,512(e) 2.3 99,994 3.63 2004 39,439 0.9 184,338 4.67 17,700 –0.6 64,366 3.64 28,181 2.4 107,067 3.80 2005 41,199 4.5 210,242 5.10 17,426 –1.5 70,294 4.03 28,751 2.0 121,666 4.23 2006 43,186 4.8 223,756 5.18 17,718 1.7 73,868 4.17 28,966 0.7 127,075 4.39 2007(f) 41,914 –2.9 217,958 5.20 18,132 2.3 75,980 4.19 29,366 1.4 129,348 4.40

Marine Parkway-Gil Hodges Memorial Henry Hudson Bridge Cross Bay Veterans Memorial Bridge Bridge Year Traffic Average Traffic Average Traffic Average Revenue Revenue Revenue Volume Change Toll Volume Change Toll Volume Change Toll 1997 19,757 –0.8 $28,687 $1.45 7,304 3.1 $8,589 $1.18 5,133 3.3 $6,727 $1.31 1998(d) 20,300 2.7 28,731 1.42 7,322 0.2 8,577 1.17 5,647 10.0 7,021 1.24 1999(d) 21,287 4.9 30,068 1.41 7,391 0.9 8,461 1.14 6,012 6.5 7,199 1.20 2000(d) 22,546 5.9 31,938 1.42 7,207 –2.5 8,374 1.16 6,356 5.7 7,651 1.20 2001 23,290 3.3 32,242 1.38 7,263 0.8 8,344 1.15 6,712 5.6 7,965 1.19 2002 24,657 5.9 34,045 1.38 7,745 6.6 8,938 1.15 7,091 5.6 8,471 1.19 2003 24,582 –0.3 37,744 1.54 7,704 –0.5 9,694 1.26 6,919 –2.4 8,993 1.30 2004 24,703 0.5 40,149 1.63 7,719 0.2 10,102 1.31 6,989 1.0 9,477 1.36 2005 24,136 –2.3 43,920 1.82 7,673 –0.6 11,234 1.46 7,182 2.8 10,988 1.53 2006 24,159 0.1 44,901 1.86 7,737 0.8 11,536 1.49 7,361 2.5 11,630 1.58 2007(f) 24,110 –0.2 44,779 1.86 7,831 1.2 11,635 1.49 7,676 4.3 12,090 1.57

Notes: (a) Toll rate increases occurred on May 18, 2003 and March 13, 2005. (b) Westbound toll traffic volume doubled. (c) Average toll on basis of revenues divided by doubled westbound volume. (d) Includes write-offs due to unredeemed tokens and tickets. (e) Reflects traffic restrictions and closures beginning September 11, 2001 and ending gradually through November 17, 2003. (f) Traffic numbers are preliminary and subject to final audit.

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Total annual TBTA toll traffic volume and revenue are shown in Table 6 for the period 1997 through 2007.

Table 6 Summary of Annual Paid Traffic and Toll Revenue: 1997 to 2007

Total

Paying Total Toll Year Traffic Revenue Volume (000) (000) 1997 266,520 $851,993 1998 279,463 884,439(b) 1999 289,107 912,793(b) 2000 296,633 940,607(c) 2001 293,220 914,856 2002 299,995 933,134 2003(a) 297,465 1,021,937 2004 302,995 1,096,989 2005(a) 300,385 1,204,944 2006 302,059 1,241,551 2007(d) 304,240 1,250,549

Notes: (a) Toll rate increases occurred on May 18, 2003, and March 13, 2005. (b) Includes $2.5 million relating to the write-off of unredeemed tokens and tickets. (c) Includes $9.7 million relating to the write-off of unredeemed tokens and tickets. (d) Traffic numbers are preliminary and subject to final audit. Source: TBTA

Traffic by Facility and Vehicle Class, 2007

TBTA maintains traffic counts for each crossing in 13 toll-paying categories, ranging from passenger cars to trucks with seven axles. Displayed in Table 7 are the 2007 traffic volumes by facility. Passenger cars totaled 282 million crossings and represented 93 percent (which has remained relatively constant over time) of the total toll-paying vehicles. Of the TBTA facilities, the Verrazano-Narrows Bridge registered the highest two-way traffic volume of 70.3 million toll-paying vehicles. The lowest toll-paying volume, 7.7 million vehicles, was recorded at the Cross Bay Veterans Memorial Bridge.

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Table 7 Traffic by Facility and Vehicle Class, 2007 (000’s)

Franchise Buses 2 3 1 Pass. Cars Pass. Cars 4 6 7 Passenger w/one-axle w/two-axle Trucks 5 11 Trucks Trucks Facility Cars Trailer Trailer 2 Axles 2 Axles 3 Axles 3 Axles 4 Axles Throgs Neck Bridge 37,307 51 45 1,726 2 0 360 368 Bronx-Whitestone Bridge 39,243 13 8 1,402 161 1 342 225 Triborough Bridge 57,662 25 11 2,927 105 259 592 116 Queens Midtown Tunnel 26,976 6 6 1,696 94 85 399 33 Brooklyn-Battery Tunnel 16,614 2 1 670 33 535 189 14 Verrazano-Narrows Bridge(a) 65,745 31 26 1,948 143 401 435 237 Henry Hudson Bridge(b) 23,932 1 1 122 0 0 3 1 Marine Parkway Bridge 7,574 2 1 181 26 0 21 3 Cross Bay Bridge 7,200 3 1 330 37 4 58 5 Total 282,253 134 101 11,001 600 1,285 2,398 1,001 Percent of Paid Vehicles 92.8% 0.0% 0.0% 3.6% 0.2% 0.4% 0.8% 0.3%

Total 8 9 12 13 14 Toll- 10 Trucks Motor- Trucks Trucks Other Paying Non-Rev Total Facility 5 Axles cycles 6 Axles 7 Axles Vehicles Vehicles Vehicles(c) Vehicles Throgs Neck Bridge 1,898 75 79 1 2 41,914 256 42,170 Bronx-Whitestone Bridge 892 66 19 0 1 42,372 217 42,589 Triborough Bridge 647 104 42 0 1 62,491 1,212 63,704 Queens Midtown Tunnel 17 50 3 0 0 29,366 409 29,774 Brooklyn-Battery Tunnel 8 65 2 0 0 18,132 498 18,630 Verrazano-Narrows Bridge(a) 1,191 149 42 1 2 70,349 685 71,034 Henry Hudson Bridge(b) 1 49 0 0 0 24,110 91 24,201 Marine Parkway Bridge 9 13 1 0 0 7,831 88 7,919 Cross Bay Bridge 17 18 2 0 0 7,676 129 7,806 Total 4,681 589 189 2 5 304,240 3,585 307,825 Percent of Paid Vehicles 1.5% 0.2% 0.1% 0.0% 0.0% 100.0% Notes: Totals may not add due to rounding. Traffic numbers are preliminary and subject to final audit. (a) Westbound traffic doubled. (b) Truck passage prohibited. (c) Includes police, fire and other emergency vehicles and TBTA vehicles. Source: TBTA

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Monthly Traffic, 2007

Monthly traffic variations on the nine crossings are normally attributed to several factors. Traf- fic volumes historically have been weather-related, e.g., severe winter weather may result in lower volumes. Conversely, traffic reaches its highest levels during the summer months when recreational travel peaks. Toll rate increases have also affected the traffic volumes in the aftermath of a toll increase. Furthermore, individual facilities can be affected by construction projects on the facility itself or its approaches and on adjacent arterials or competing bridges. The limited number of crossings in the region sustains the overall demand for TBTA’s bridges and tunnels. In addition to these normal impacts, there are extraordinary events such as the effects of September 11.

The data in Table 8 indicate that total traffic on the nine crossings in 2007 peaked in June. August was the second highest month in 2007. For the combined facilities, the monthly variations in 2007 ranged from 8 percent below the annual average in February to 8 percent above in June. This is indicative of a stable traffic mix comprised of a solid base of commuting and commercial traffic.

Table 8 Monthly Traffic Variations, 2007

Average Daily Toll-Paying Traffic Ratio to Month Throgs Bronx- Tri- Queens B’klyn Verrazano- Henry Marine Cross Total AADT Neck Whitestone borough Midtown Battery Narrows(a) Hudson Pkwy Bay January 104,960 105,591 156,550 75,441 48,084 182,489 61,735 18,743 19,037 772,632 0.93 February 103,940 105,389 156,173 76,504 49,120 180,484 61,320 18,007 18,399 769,336 0.92 March 109,289 110,691 168,117 81,118 52,195 189,922 64,989 19,783 19,910 816,014 0.98 April 113,667 114,223 173,060 80,733 49,432 193,081 65,512 19,370 19,824 828,902 0.99 May 121,090 120,184 181,481 83,099 51,695 200,938 70,539 22,695 22,246 873,967 1.05 June 123,187 125,179 185,566 84,741 53,607 206,577 70,569 25,317 24,063 898,806 1.08 July 121,967 123,042 175,851 77,229 47,556 196,728 65,032 26,108 23,610 857,122 1.03 August 125,256 125,454 178,526 82,204 49,758 201,539 66,303 25,526 22,946 877,512 1.05 September 119,302 119,812 174,888 81,001 47,738 193,558 67,257 22,269 21,753 847,577 1.02 October 116,559 115,880 174,200 84,036 50,783 191,944 69,564 20,459 21,260 844,685 1.01 November 113,627 116,247 169,481 82,046 48,806 188,100 67,777 19,648 20,037 825,769 0.99 December 104,425 110,676 159,749 77,125 47,318 186,642 61,808 19,222 19,084 786,048 0.94 AADT(b) 114,832 116,087 171,209 80,454 49,676 192,738 66,053 21,455 21,031 833,535 1.00 Notes: May not add due to rounding. Traffic numbers are preliminary and subject to final audit. (a) Westbound traffic doubled. (b) Annual Average Daily Traffic

Changes in Monthly Traffic, 2006 to 2007

All of the traffic restrictions that were introduced at TBTA facilities following the September 11, 2001 attack have been removed. However, a ban on large commercial vehicles remains in effect at the Holland Tunnel and on the lower level of the George Washington Bridge. The recovery of traffic has differed considerably between the crossings depending on the timing of the lifting of restrictions, but by now, traffic at most facilities has returned to or exceeded pre-September 2001 levels. At the Brooklyn-Battery Tunnel, traffic volumes are below the 2000 level due to the loss of employment in lower Manhattan.

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Table 9 lists the monthly traffic changes that have occurred between 2006 and 2007.

Table 9 Changes in Monthly Traffic – 2006 to 2007

Percent Change Comparing 2007 Monthly Traffic to 2006 Month Throgs Bronx- Queens Brooklyn- Verrazano- Henry Marine Cross Bay Triborough Neck Whitestone Midtown Battery Narrows Hudson Parkway Bridge January 1.2% 3.6% 0.5% 4.4% 6.9% 2.0% 1.7% 3.9% 7.3% February –0.9 2.6 1.0 3.7 6.5 1.8 0.8 2.3 4.8 March –4.2 5.4 –1.9 1.1 3.1 –0.4 –0.8 0.4 3.7 April –3.9 6.5 –1.6 0.0 3.7 –0.3 –3.3 0.8 4.0 May –1.9 10.7 0.2 3.3 5.8 2.6 3.3 3.0 7.7 June –2.3 13.1 0.4 1.3 6.6 1.8 1.7 7.8 9.6 July –5.4 13.6 0.1 –0.3 4.7 0.3 2.1 –0.2 0.1 August –4.2 14.6 –0.3 2.1 1.8 0.5 0.8 2.1 5.1 September –2.6 10.9 –1.0 0.9 –1.7 –0.7 –1.0 2.4 6.5 October –1.2 3.5 –0.1 1.5 1.4 –0.7 0.6 0.3 5.6 November –1.9 2.9 –2.2 1.2 –3.5 –2.5 –1.2 –3.9 0.3 December –7.0 –0.3 –5.8 –1.9 –5.8 –4.6 –6.8 –4.9 –2.8 Annual –2.9 7.3 –0.9 1.4 2.3 0.0 –0.2 1.2 4.3

Reasons for monthly traffic changes include:

• Following major construction at the Bronx-Whitestone Bridge in 2006, traffic returned to more normally distributed levels between that facility and the Throgs Neck Bridge in 2007. Many drivers who diverted to the Throgs Neck Bridge in 2006 went back to the Bronx-Whitestone Bridge in 2007, as can be seen from the percentage declines at the Throgs Neck Bridge and the gains at the Bronx-Whitestone Bridge through most of the latter year; • Traffic was also down through much of 2007 at the Triborough-Bronx plaza, which also saw unusually large volumes in 2006 due to diversions from the Bronx-Whitestone Bridge; • Traffic was up at all facilities in January, and at all but the Throgs Neck Bridge in February (for the reasons discussed above) primarily due to relatively favorable winter weather in 2007. Conversely, the weather was harsher in December 2007 vs. 2006, which resulted in volume declines across all facilities; • Considerable traffic growth occurred in May and June largely due to less rainfall compared to 2006; and • Traffic declines occurred in November 2007 despite more favorable weather. Gas prices, however, were much higher compared to the prior year. For the New York-Northern New Jersey-Long Island area, gas averaged $3.13 per gallon in November 2007, vs. $2.28 per gallon in November 2006.

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Estimated Traffic and Toll Revenue, 2008

The development of the traffic and toll revenue estimates for 2008 took into account the forecast of normal growth, as well as the impact of the latest toll increase of March 16, 2008. The results for 2007 fully reflected the effects of the toll increase implemented in 2005; therefore, no additional adjustments were necessary. The impacts in the long term, regarding the national and regional economies, projected employment in lower Manhattan and the traffic and revenue forecasts beyond 2008, are covered in the following sections of the report. In developing the traffic and toll revenue estimates for 2008, we assumed that traffic changes for 2007 to 2008 would be at the same rate as the change in traffic for the last six months of 2006 to the same period in 2007. By using this time period, the impacts of the changes in the economy that took place in the latter half of 2007 were taken into account in the analysis. The growth rates projected in this manner were further adjusted for the latest toll increase of March 16, 2008 using the historic elasticities observed from the previous 12 toll increases. The forecast percent changes are shown in Table 10. The percentages reflect normal growth and the estimated effect of the latest toll increase.

Table10 Estimated Changes in Annual Traffic – 2007 to 2008

Percent Facility Change Throgs Neck Bridge –4.0% Bronx-Whitestone Bridge 1.6 Triborough Bridge –2.2 Queens Midtown Tunnel –0.2 Brooklyn-Battery Tunnel –2.0 Verrazano-Narrows Bridge –1.5 Henry Hudson Bridge –3.2 Marine Parkway-Gil Hodges Mem. Bridge 0.3 Cross Bay Veterans Memorial Bridge 2.4

The traffic and toll revenue estimates for 2008 are presented in Table 11.

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Table 11 Estimated 2008 Toll-Paying Traffic and Toll Revenue

Traffic Average Revenue(*) Facility (000s) Toll (000s) Throgs Neck Bridge 40,258 $5.50 $221,340 Bronx Whitestone Bridge 43,045 5.02 216,186 Triborough Bridge 61,097 4.86 296,748 Queens Midtown Tunnel 29,310 4.63 135,808 Brooklyn Battery Tunnel 17,776 4.46 79,181 Verrazano-Narrows Bridge 69,307 4.14 287,036 Henry Hudson Bridge 23,337 2.03 47,484 Marine Parkway Bridge 7,851 1.57 12,350 Cross Bay Bridge 7,864 1.69 13,315 Total 299,844 $4.37 $1,309,449 (*) Includes adjustment for increase in E-ZPass usage.

The 1.4 percent decrease in traffic and the overall increase in revenue of 4.7 percent reflect actual performance through January 31, 2008, the toll increase of March 16, 2008 and anticipated growth for the remainder of the year.

Table 11 provides the transition between the historical traffic and revenue data presented on the preceding pages and the 10-year forecasts in Tables 19 and 20. The methodology used to develop the estimated growth rates beyond 2008 is discussed under the “Projected Traffic, Revenue and Expenses” section of this report.

Operating Expenses 1997 to 2007

Table 12 displays the historical operating expenses for the TBTA facilities from 1997 through 2007. TBTA divides operating expenses into two major categories: labor and non-labor. Labor includes salaries, overtime and fringe benefits, net of capital reimbursements. Major maintenance, bridge painting, outside services, insurance, Coliseum operations (until its sale in 1999), TBTA’s share of the E-ZPass Customer Service Center, and other non-personnel expenses are included in non-labor.

TBTA labor expenses increased from $111.7 million in 1997 to 196.8 million in 2007. A significant part of this increase was due to the creation of 265 new security positions after the events of September 11, 2001. Because of the introduction of the E-ZPass system, TBTA was able to eliminate over 200 bridge and tunnel officer positions through attrition with E-ZPass, and these reductions were the primary offset to growth in wage and fringe benefit expenses in recent years.

Non-labor expenses increased from $112.2 million in 1997 to $172.3 million in 2007. The primary driving factors in TBTA’s non-labor expense growth were inflation, an increase in major maintenance and bridge painting activities.

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Timing of major expenses and other items has also resulted in some year-to-year fluctuations. An enhanced bridge painting program, including lead paint removal, implemented as part of TBTA’s effort to extend the useful life of the structural elements of its facilities, began to increase Non-labor expenses starting in 1995.

E-ZPass startup costs for tags and customer service center operations were primarily responsible for non-labor growth in 1996 and 1997. In 1998, E-ZPass startup costs eased and bridge painting activities were delayed due to an extensive evaluation of contractor experience. Resumption of the planned level of bridge painting increased non-labor costs in 1999, and rental expenses for TBTA administrative offices at 2 Broadway that were formerly in the New York Coliseum office building increased non-labor costs in 1999 and 2000.

Table 12 Historical Operating Expenses: 1997 to 2007

Operating Expenses (000s) Percent Year Non-Labor (c) Labor (a) Total Change (b) 1997 $111,651 $112,222 $223,873 – 1998 106,603 101,587 208,190 –7.0 1999 107,430 120,561 227,991 9.5 2000 112,256 129,002 241,258 5.8 2001 123,316 133,198 256,514 6.3 2002 140,967 159,229 300,196 17.0 2003 159,976 169,039 329,015 9.6 2004 158,403 160,811 319,214 –3.0 2005 173,549 170,123 343,672 7.7 2006 183,268 169,642 352,910 2.7 2007 196,755 172,270 369,025 4.6

Notes: (a) Includes salaries, overtime and fringe benefits, net of capital reimbursements. (b) Non-labor includes the following categories: major maintenance and supplies, bridge painting, outside services, insurance, power, leases and rentals and other expenses. (c) For discussion on expense fluctuations, see accompanying text. Source: TBTA

The 2001-2003 numbers reflect the additional expenses that were incurred in the aftermath of the attack on the World Trade Center. TBTA describes the added expenses as overtime labor costs for security, cleanup costs for the Brooklyn-Battery Tunnel and Battery Parking Garage, and emergency electricity generation for the Brooklyn-Battery Tunnel. Also included are costs associated with overtime incurred by represented employees required to make up for lost time as a result of the temporary closure of 2 Broadway. Some of the increases associated with these additional costs have been reimbursed to TBTA through MTA from a combination of insurance proceeds and emergency grants from the Federal Emergency Management Agency (FEMA).

The 2002 results reflect the additional expenses incurred after the terrorist attack that include an upgrade of communication and electrical systems and the replacement of a radio communication

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system. Also included is a delay in bridge painting from 2001 to 2002, additional security at all facilities, and E-ZPass tag replacement.

The 2003 increase in labor costs was caused by additional expenditures for security staff, worker’s compensation adjustments and health and welfare benefits rate increases. The 2003 increase in labor costs was the result of the hiring of additional security staff, adjustments to worker’s compensation and increases in health and welfare fringe benefit rates. In non-labor expenses, increases due to major maintenance and bridge painting were partially offset by decreases in insurance costs, E-ZPass Customer Service Center (CSC) costs and other business expenses.

In 2004, non-labor expenses were 4.9 percent lower than 2003 due to a decrease in the number of E-ZPass tag purchases. In 2005, expenses reflected a continuation of the security measures noted above, E-ZPass tag replacement, and increases in major maintenance and bridge painting, offset by a reduction in 2 Broadway lease charges. Labor costs increased in 2006 primarily due to rising payroll, pension and health and welfare expenses. Regarding non-labor expenses, increased funding for additional bridge painting needs in 2006 was offset by a decrease in E-ZPass tag purchases and lower insurance costs. In 2007, labor costs increased 7.3 percent primarily due to rising payroll and related expenses, while non-labor expenses increased less than two percent as the bridge painting program costs were less costly than in 2006 and the non- labor costs associated with the transition to the new contract for the E-ZPass CSC that were anticipated for 2007 were deferred to 2008.

2008 Budget

Operating expenses have been budgeted by TBTA for 2008 at $426.9 million. These expenses are divided into the following two categories: labor of $211.0 million and non-labor at $215.9 million. Personnel costs are expected to rise another 7 percent in 2008 due to in-filling of some positions that were vacant in 2007. The non-labor portion is 25 percent higher than 2007 because of the afore-mentioned E-ZPass CSC transition costs and increased major maintenance and bridge painting expenses anticipated for 2008.

FACTORS AFFECTING TRAFFIC GROWTH

The previous section of the report set forth the historical traffic, revenue and expense data for the nine TBTA bridges and tunnels. Before developing the forecasts, several factors affecting future traffic were considered, including projected growth (population and other demographics), TBTA and regional construction impacts, capacity constraints in the regional highway network, and toll and elasticity impacts. E-ZPass improvements were discussed previously. This section of the report concludes with a summary of the assumptions and conditions upon which the traffic and toll revenue forecasts were based.

Employment, Population and Motor Vehicle Registrations

Regional demographic data providing information on long-term trends are maintained by the New York Metropolitan Transportation Council (NYMTC). Information from NYMTC regard-

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ing employment and population history and projections from 1970 to 2035 is included in the following tables. In general, traffic volumes in the region are affected by changes in employment and population. Normally the demand on the TBTA facilities tends to be less influenced by regional demographic trends because water crossings are limited. Another indicator of trends in traffic volumes is motor vehicle registrations, which have continued on an upward trend since 1970 in the tri-state region. To better understand how these indicators may influence traffic volumes on the TBTA crossings, URS reviewed historical trends and forecasts by NYMTC and others.

Employment Trends and Projections

Jobs traditionally influence traffic generation. Generally, when the economy is robust and jobs are plentiful, there is an increase in traffic. Conversely, when employment trends are downward, traffic volumes generally decline.

The long-term trend in employment in the region is shown in Table 13. A downward trend in employment occurred between 1970 and 1980 in New York City. Jobs declined by 1.2 percent per year, from 4,066,500 in 1970 to 3,614,000 in 1980. Staten Island, where employment increased by 3.5 percent per year, was the exception. The most recent employment forecasts were released by NYMTC in March 2008. The latest data show that employment was the highest it has been since 1970. Projections show a steady growth through 2035.

Between 1970 and 2005, employment increased in the New York suburbs, in Northern and Central New Jersey and in Southern Connecticut. NYMTC projected that employment in the region (including New York City) as a whole, would grow during their forecast period through 2035, in the range of 0.7 to 1.4 percent annually.

In the New York Metropolitan Statistical Area (MSA), the unemployment rate (as calculated from the monthly data) for 2007 was 4.4 percent, down from the 4.5 percent in 2006 as reported by the Bureau of Labor Statistics. The unemployment rate has been generally decreasing since hitting a high of 6.6 percent in September 2003. These data correspond with the Class A commercial real estate vacancy rates for Manhattan from the City of New York’s Office of Management and Budget. Vacancy rates were at their peak in mid-2003 and have since experienced steady decline. In 2007, the vacancy rate stood at 5.3 percent, and asking rents jumped 33 percent. According to the city’s Office of Management and Budget Monthly Report on Economic Conditions, released March 4, 2008:

“There are some signs that the New York City office market has started to show the impact of the national economic malaise and Wall Street turbulence. One sign of loosening is that leasing activity in the City has steadily decelerated. From January 2007 to January 2008, leasing activity in Class A buildings fell to its lowest twelve month total since 2004. One explanation is that there is simply little available space to lease and what is left is prohibitively expensive.” The report goes on to say that “The other more worrisome explanation for the deceleration in leasing activity is that demand has weakened.”

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As noted in the report, the real estate industry anticipates that vacancy rates will increase over the next five years to an estimated 7.4 percent in 2012 and employment will increase 0.5 percent per year during that time period. This estimate is slightly more conservative than NYMTC’s as shown in Table 13.

Table 13 Employment Trends and Projections (000s)

New York City New York New Jersey Connecticut Year (b) (c) (d) Manhattan Bronx Brooklyn Queens Staten Island Total (a) Region Region Region

1970 2,550.3 251.3 631.9 586.0 47.1 4,066.5 1,554.6 2,447.6 727.4 1980 2,277.5 216.9 516.4 536.7 66.4 3,614.0 1,918.6 2,828.2 869.3 1990 2,565.1 237.8 504.5 567.3 91.6 3,966.1 2,339.0 3,403.9 1,008.9 2000 2,682.2 269.4 584.6 624.1 116.9 4,277.3 2,537.5 3,676.3 1,065.5 2005 2,680.7 306.1 605.4 646.1 122.6 4,360.9 2,715.9 3,894.6 1,099.6 2010 - Projected 2,824.2 342.1 707.7 724.4 149.3 4,747.8 2,888.6 4,148.3 1,176.6 2015 - Projected 2,885.1 367.6 760.3 751.2 164.5 4,928.8 3,017.7 4,352.9 1,229.7 2020 - Projected 2,948.0 388.9 809.3 776.7 177.8 5,100.7 3,129.1 4,521.5 1,277.0 2025 - Projected 3,069.7 408.8 855.2 806.6 192.0 5,332.4 3,250.5 4,717.2 1,324.9 2030 - Projected 3,171.5 425.8 896.1 831.5 205.1 5,530.0 3,367.0 4,905.4 1,378.8 2035 - Projected 3,288.7 442.3 936.7 858.2 218.4 5,744.3 3,491.8 5,078.7 1,440.9 Average Annual Percent Change 1970 to 1980 –1.1% –1.5% –2.0% –0.9% 3.5% –1.2% 2.1% 1.5% 1.8% 1980 to 1990 1.2 0.9 –0.2 0.6 3.3 0.9 2.0 1.9 1.5 1990 to 2000 0.4 1.3 1.5 1.0 2.5 0.8 0.8 0.8 0.5 2000 to 2005 0.0 2.6 0.7 0.7 1.0 0.4 1.4 1.2 0.6 2005 to 2010 1.0 2.2 3.2 2.3 4.0 1.7 1.2 1.3 1.4 2010 to 2015 0.4 1.4 1.4 0.7 1.9 0.8 0.9 1.0 0.9 2015 to 2020 0.4 1.1 1.3 0.7 1.6 0.7 0.7 0.8 0.8 2020 to 2025 0.8 1.0 1.1 0.8 1.5 0.9 0.8 0.9 0.7 2025 to 2030 0.7 0.8 0.9 0.6 1.3 0.7 0.7 0.8 0.8 2030 to 2035 0.7 0.8 0.9 0.6 1.3 0.8 0.7 0.7 0.9

Notes: (a) Totals may not add due to rounding. (b) Consists of the following counties: Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, Sullivan, Ulster and Westchester. (c) Consists of the following counties: The 13 counties of the North Jersey Transportation Planning Authority (Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren) plus Mercer. (d) Consists of the following counties: Fairfield, Litchfield, New Haven.

Source: New York Metropolitan Transportation Council, March 2008.

A review of historical traffic demand for the TBTA crossings indicated that volumes did fluctu- ate system-wide during the 1970s and increased through the 1980s. During the 15-year period from 1985 to 2000, and again in 2003 and 2005, fluctuations occurred in response to toll increases, when traffic declined while revenues increased.

Population Trends and Projections

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Between 1970 and 1980, population in New York City declined in the Bronx, Brooklyn, Manhat- tan and Queens, but increased on Staten Island. For the five boroughs, population totaled 7.9 million in 1970 and 7.1 million in 1980, as displayed in Table 14. The 1990 Census indicated that there was a turnaround and population grew at an average annual rate of approximately 0.3 percent. The Census results for the year 2000 show the population of New York City grew by approximately one percent annually and now exceeds 8,000,000. Nearby New York, New Jersey and Connecticut counties also show increased growth.

Table 14 Population Trends and Projections (000s) New York City New York New Jersey Connecticut Year (b) (c) (d) Manhattan Bronx Brooklyn Queens Staten Island Total (a) Region Region Region

1970 1,539 1,472 2,602 1,987 296 7,895 4,372 5,800 1,682 1980 1,428 1,169 2,231 1,891 352 7,072 4,537 5,857 1,725 1990 1,488 1,204 2,301 1,952 379 7,323 4,635 6,097 1,806 2000 1,537 1,333 2,465 2,229 444 8,008 4,933 6,662 1,889 2005 1,606 1,365 2,511 2,257 475 8,214 5,072 6,874 1,935 2010 - Projected 1,663 1,372 2,525 2,279 481 8,320 5,188 6,994 1,968 2015 – Projected 1,691 1,382 2,534 2,297 487 8,391 5,314 7,184 2,018 2020 - Projected 1,743 1,415 2,609 2,370 509 8,646 5,467 7,422 2,079 2025 - Projected 1,778 1,450 2,694 2,462 528 8,911 5,664 7,656 2,151 2030 - Projected 1,820 1,489 2,778 2,585 546 9,218 5,898 7,940 2,249 2035 - Projected 1,885 1,528 2,860 2,752 561 9,586 6,123 8,230 2,368 Average Annual Percent Change 1970 to 1980 –0.7% –2.3% –1.5% –0.5% 1.8% –1.1% 0.4% 0.1% 0.3% 1980 to 1990 0.4 0.3 0.3 0.3 0.7 0.3 0.2 0.4 0.5 1990 to 2000 0.3 1.0 0.7 1.3 1.6 0.9 0.6 0.9 0.4 2000 to 2005 0.9 0.5 0.4 0.2 1.4 0.5 0.6 0.6 0.5 2005 to 2010 0.7 0.1 0.1 0.2 0.3 0.3 0.5 0.3 0.3 2010 to 2015 0.3 0.1 0.1 0.2 0.3 0.2 0.5 0.5 0.5 2015 to 2020 0.6 0.5 0.6 0.6 0.9 0.6 0.6 0.7 0.6 2020 to 2025 0.4 0.5 0.6 0.8 0.7 0.6 0.7 0.6 0.7 2025 to 2030 0.5 0.5 0.6 1.0 0.7 0.7 0.8 0.7 0.9 2030 to 2035 0.7 0.5 0.6 1.3 0.5 0.8 0.7 0.7 1.0

Notes: (a) Totals may not add due to rounding. (b) Consists of the following counties: Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, Sullivan, Ulster and Westchester. (c) Consists of the following counties: The 13 counties of the North Jersey Transportation Planning Authority (Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren) plus Mercer. (e) Consists of the following counties: Fairfield, Litchfield, New Haven.

Source: New York Metropolitan Transportation Council, March 2008.

NYMTC’s latest population projections for the region as a whole (including New York City) for 2010 to 2035 were released in March 2008. NYMTC projects steady population growth throughout the entire region as a whole ranging from 0.3 percent to 0.8 percent.

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With the 2000 Census exceeding previous expectations and population increases region-wide, population growth should have a positive effect on traffic demand on the TBTA crossings. NYMTC’s most recent projection is for a population of over 9 million for New York City by 2030.

Motor Vehicle Registrations

One of the indicators of traffic stability and/or growth in an area is the trend in the number of motor vehicle registrations. As shown in the following table, motor vehicle registrations increased for the period 2000 through 2007 in New Jersey, decreased slightly in New York City and remained relatively constant throughout New York State. The most recent data available indicate that between 2000 and 2007 vehicle registrations grew by an average annual rate of growth of 1.6 percent in New Jersey. In Connecticut, registrations increased between 2006 and 2007, continuing an upward trend. From 2000 to 2007, registrations in Connecticut grew at an average rate of 1.5 percent per year. These data are illustrated in Table 15.

Motor vehicle registrations are not projected for future years. However, based on past trends, it is expected that growth will continue in regional motor vehicle registrations in parallel with the demographic indicators.

Table 15 Motor Vehicle Registrations (000s)

New York New York Year New Jersey Connecticut City State (a) 2000 2,044 10,661 6,907 2,735 2001 2,025 10,707 7,086 2,796 2002 1,946 10,445 7,325 2,893 2003 1,869 10,414 7,420 2,928 2004 1,849 10,450 7,475 2,989 2005 1,857 10,477 7,545 3,011 2006 1,833 10,551 7,621 3,016 2007 1,926 10,665 7,728 3,035 Average Annual Growth 2000-2007 –0.8% 0.0% 1.6% 1.5%

Notes: (a) Including New York City. Sources: New York State Department of Motor Vehicles, Connecticut Department of Motor Vehicles and New Jersey Department of Motor Vehicles.

In summary, generally, employment indicators overall seem to have had a more noticeable effect on traffic volumes on the TBTA facilities than population growth. However, regional demographic trends are not always independently discernable relative to the yearly traffic variations. As discussed throughout this report, demand for the TBTA facilities has been strong overall, and NYMTC’s regional population projections indicate an increasing trend throughout the forecast period. With regard to employment, there may be some years that will show declines, but there will be other years that will be characterized by significant growth. Overall growth is expected from 2008 to the end of NYMTC’s forecast period in 2035.

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Fuel Conditions

The availability and pricing of motor fuel has historically affected the use of TBTA facilities. During the previous 35 years, fluctuations in traffic volumes occurred when fuel was either in short supply and/or prices increased rapidly. These conditions existed in 1973-1974, the summer of 1979, during the first war in the Persian Gulf in 1990-1991 and most recently during the second war in the Persian Gulf and in the aftermath of Hurricane Katrina.

In 1974, while the economy slowed and fuel prices rose, there was a 4.9 percent decline in TBTA traffic and lowering of traffic growth rates from 3.8 percent prior to 1974 to 1.5 percent after 1974. Succeeding fuel shortages caused temporary traffic decreases that resulted in no permanent effects on traffic growth in subsequent years.

In the aftermath of the 1973-1974 Oil Embargo, the United States established the Strategic Petroleum Reserve (SPR) to provide protection against such short-term disruptions to petroleum supplies. In the most recent drawdown, the SPR sold 11 million barrels and gave 9.8 million barrels in an emergency loan in response to Hurricane Katrina, which mitigated gasoline prices that exceeded $3.00 per gallon in September and October of 2005. Gasoline prices spiked after Hurricane Katrina hit the Gulf Coast and temporarily closed eleven of the twenty oil refineries in the Gulf. During the first week of September 2005, the retail price for regular gasoline for the United States was $3.07 per gallon representing a 66 percent increase from the same week in 2004. Prices gradually decreased to a low point of $2.15 per gallon by the first week of December 2005.

U.S. gasoline prices reached $3.22 for all formulations of regular the week of May 21, 2007. Prices for regular in the New York City area averaged $2.95 per gallon during the summer, with the maximum being $3.14 per gallon the week of May 28, 2007. As of April 14, 2008, the average price for a gallon of regular gasoline in the U.S. was $3.39―up $0.51 per gallon (17.8 percent) from a year ago. The price in the New York City area was $3.29 per gallon, an increase of $0.44 per gallon (15.3 percent) from the same time last year. The $3.39 per gallon still falls short of the all time high, set in March 1981, when a gallon of regular gasoline cost $3.41 in today’s (March 2008) dollars.

Such fluctuations in gasoline prices have increased substantially since 1998. According to the Energy Information Administration (EIA): world oil market conditions, growth in U.S. demand, and ongoing implementation of domestic fuel quality requirements are expected to keep consumer prices for motor fuel high in 2008. It is anticipated that there may be future increases in gasoline prices due to increases in crude oil prices triggered by potential unrest in producing areas, and because of supply adjustments due to phase out of the additive MTBE. MTBE is being replaced with ethanol, but there are doubts within the Energy Department and the oil industry about whether there will be enough of the corn-derived fuel to meet the anticipated surge in demand and whether the country’s distribution system is ready to handle it. Conversely, U.S. refinery capacity is being increased, and refineries in the Netherlands and United Kingdom are supplying more gasoline to the U.S. since more Europeans are switching to diesel.

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Other factors putting upward pressure on fuel prices are:

• Gasoline consumption is expected to continue to grow, albeit at moderate rates; • Demand for gasoline and petroleum products from China and other developing nations; • Volatility and political unrest in oil producing countries, particularly in the Middle East; • Gasoline quality requirements under the U.S. Environmental Protection Agency’s (EPA) Tier 2 Vehicle and Gasoline Sulfur Program mandate further reduction in sulfur content. EPA estimates that the sulfur program will cost the refining industry about 2 cents per gallon to produce low-sulfur gasoline; • Higher diesel fuel prices are also expected because of the additional cost of producing ultra-low-sulfur diesel fuel; • Hurricanes and tropical storms with a potential to cause significant outages could add to the volatility of prices of motor fuel.

During 2007, transactions on TBTA facilities increased, over 2006 even though gasoline prices continued to generally rise. While gasoline prices rose to over $3.00 per gallon in September 2005, the effect the higher gas prices had on transactions was slight and seemed only to appear on Labor Day weekend and the following weekend.

From 1995 to 2000, TBTA traffic increased 2.3 percent per year when gasoline prices were relatively stable; whereas from 2000 to 2007 TBTA traffic increased 0.4 percent per year while New York City regular gasoline prices increased 8 percent per year. (One toll rate increase occurred in 1996 during the first period, and two during the second period—in 2003 and 2005).

Gasoline prices in New York City are now over $3.00 per gallon. If this level is exceeded for a prolonged period of time, it may have an adverse effect on travel in the region. Discretionary travel (vacation and recreational trips) may decline. Most of the trips on the TBTA facilities, however, are commuter or work-oriented, so there should not be a significant change in work travel unless the price increases continue at a rate comparable to previous years.

According to the EIA Short-Term Energy Outlook, released April 8, 2008:

The projected higher costs for crude oil will contribute to higher petroleum product prices. Motor gasoline prices are projected to average $3.36 per gallon in 2008, up 55 cents from last year. Diesel prices are projected to show even larger increases in 2008, averaging $3.62 per gallon, or 74 cents above the 2007 average price. The monthly average gasoline price is projected to peak at about $3.60 per gallon this spring, while monthly diesel prices are expected to average about $3.90 per gallon in March and April. Weekly diesel prices have already crossed the $4.00-per-gallon threshold in many regions of the country.

U.S. consumption of liquid fuels and other petroleum is expected to decline in 2008 by about 85,000 barrels per day (bbl/d) as a result of the economic slowdown and high petroleum prices. After accounting for increased ethanol use, U.S. petroleum consumption is projected to fall by 210,000 bbl/d in 2008.

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U.S. real gross domestic product (GDP) is expected to decline in the first half of the year and then start growing again, with annual growth in 2008 at 1.2 percent, the slowest annual rate since 2001. An expected modest economic recovery in 2009, combined with lower petroleum prices, is projected to boost total U.S. liquid fuels and other petroleum consumption by about 200,000 bbl/d.

This projection assumes no significant unplanned refinery outages or crude oil production losses.

According to the EIA’s This Week In Petroleum of February 21, 2008 “both planned and unplanned refinery outages were high in early 2007.” “EIA expects refinery outages in late spring and early fall, since that is the time between peak heating and driving seasons when refiners typically do most of their planned maintenance.” However, while most hurricane- affected refinery capacity (from Katrina and Rita in 2005) recovered in 2006, more than half the unplanned loss in capacity in early 2007 was associated with BP's Texas City refinery and Valero's McKee refinery. The article goes on to state:

Availability of refinery capacity for 2008 may be significantly improved over 2007. Given lower planned outages scheduled for this spring season, and assuming the return of unplanned outages to more typical levels, including the return of BP's Texas City refinery to full operation, gasoline production could increase from 100 to 200 thousand barrels per day over last year's level. The uncertainty behind the timing of the return of BP's Texas City refinery, and the recent tragedy at Alon's 67 thousand-barrel-per-day Big Spring refinery are a reminder of the seriousness of this business and of how quickly incidents can turn the supply situation around. Nevertheless, the likelihood of improved production availability over 2007 levels seems relatively high to EIA. At least some of the "lost" 2007 capacity appears likely to be "found."

Toll Impacts and Elasticity

Tolls that are increased periodically affect traffic usage, especially if they outpace the rate of inflation, as they have on the TBTA facilities, as well as in those instances where competing facilities provide a good alternative. Elasticity, as used herein, is the relationship between traffic volume and the toll rate change, and represents the relative decrease in traffic corresponding to a given increase in toll. Elasticity is expressed as a negative value and the higher the absolute value, the more apt a facility is to lose traffic, which can be due to diversions to competing facilities, switches in travel modes, consolidation of trips and elimination of trips.

URS developed a set of elasticity factors for each of the TBTA crossings based on twelve toll increases between 1997 and 2005. Elasticity, in this sense, is used to analyze the relationship between tolls and use, i.e., when tolls are increased, motorists react and travel patterns may change. These historic elasticity factors are shown in Table 16.

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Table 16 Historical Elasticity Factors

Elasticity Location Factors Bronx-Whitestone/Throgs Neck –0.106 Brooklyn-Battery Tunnel –0.358 Cross Bay Bridge –0.137 Henry Hudson Bridge –0.289 Marine Parkway Bridge –0.101 Queens Midtown Tunnel –0.192 Triborough Bridge –0.208 Verrazano-Narrows Bridge –0.127

Note: For each 1% increase in toll the volume is expected to decrease by the elasticity factor; e.g. for each 1% increase in the toll at the Queens-Midtown Tunnel, volume would decrease by .192%.

Elasticity factors vary, demonstrating that users react differently to toll increases depending on influencing conditions. On the TBTA crossings, elasticity tends to be influenced by the prox- imity of the toll-free City bridges and other considerations. The low factors for the Throgs Neck and Bronx-Whitestone bridges indicate their relative isolation from the nearest toll-free com- petitor, the Queensboro Bridge. Further south on the East River at the Triborough Bridge and the Queens Midtown and Brooklyn-Battery tunnels, elasticity increases as the degree of toll-free competition increases. The TBTA tunnels tend to lose traffic particularly when the competing crossings are operating under reasonable levels of traffic service and providing motorists with viable toll-free alternatives during non-peak periods. In addition, trip purpose influences demand, i.e., peak-period, work-related trips are less elastic than off-peak trips that have fewer travel-time constraints.

A new toll increase was implemented on March 16, 2008. At this date, it is too early to evaluate the effects of this increase and to determine if the elasticity factors have changed. Revenue projections for 2008 have been calculated using the historical elasticity factors shown on Table 16.

It is our understanding that TBTA intends to implement future toll increases of 5 percent every two years in the future. For the forecast period of this report, this would be toll increases in 2010, 2012, 2014, 2016 and 2018. The 5 percent biennial increases (2.47 percent per year, compounded) will be at approximately the same level as recent general cost increases due to inflation. This relatively small increase coupled with the high usage of Electronic Toll Collection (ETC) on TBTA facilities would tend to reduce the historical elasticity. Also, the elasticities resulting from the 2003 and 2005 toll increases (the first two toll increases of the ETC era) were lower than the historical elasticities. Such results for TBTA – that show that ETC users are not as affected by toll increases as those who pay cash tolls – are consistent with results of other toll agencies with substantial ETC usage. Therefore, the elasticity factors used in projecting toll facility volumes for 2010 through 2018 have been assumed to be 60 percent of the historical elasticity factors. These are shown on Table 17.

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Table 17 Elasticity Factors for 2010-2018

Elasticity Location Factors Bronx-Whitestone/Throgs Neck –0.063 Brooklyn-Battery Tunnel –0.215 Cross Bay Bridge –0.082 Henry Hudson Bridge –0.174 Marine Parkway Bridge –0.061 Queens Midtown Tunnel –0.115 Triborough Bridge –0.125 Verrazano-Narrows Bridge –0.076

Note: For each 1% increase in toll the volume is expected to decrease by the elasticity factor; e.g. for each 1% increase in the toll at the Queens-Midtown Tunnel, volume would decrease by .115%.

Two sets of forecasts have been prepared: one at constant tolls (at the present level); and the other with toll increases assumed by URS to occur in January 2010, 2012, 2014, 2016 and 2018.

For the toll-increase alternative, it was assumed that the toll levels (i.e., the cash toll for passenger cars) on the major and minor crossings would be increased by 5 percent every two years from 2010 to 2018. It was also assumed that the truck tolls would be increased proportionately, and that the relationships between cash and E-ZPass tolls for passenger cars would remain the same as those implemented for the latest toll increase on March 16, 2008.

As for the impacts of the toll increases on traffic demand, the elasticity factors from Table 17, as described above, were used to calculate traffic decreases, as shown in Table 18. These traffic impacts represent the reduction in values from the corresponding annual traffic levels that would be expected if the tolls were not increased.

Table 18 Estimated Percent Change in Average Toll Rates and Traffic

Elasticity 2010 2012 2014 2016 2018 Facility Factor Toll Traffic Toll Traffic Toll Traffic Toll Traffic Toll Traffic Bronx–Whitestone/Throgs Neck Bridge –0.063 5.00% –0.32% 5.00% –0.32% 5.00% –0.32% 5.00% –0.32% 5.00% –0.32% Brooklyn-Battery Tunnel –0.215 5.00 –1.08 5.00 –1.08 5.00 –1.07 5.00 –1.07 5.00 –1.08 Cross Bay Bridge –0.082 5.00 –0.41 5.00 –0.41 5.00 –0.41 5.00 –0.41 5.00 –0.41 Henry Hudson Bridge –0.174 5.00 –0.87 4.50 –0.78 5.53 –0.96 4.74 –0.82 5.00 –0.87 Marine Parkway Bridge –0.061 5.00 –0.30 5.00 –0.30 5.00 –0.30 5.00 –0.30 5.00 –0.30 Queens Midtown Tunnel –0.115 5.00 –0.58 5.00 –0.58 5.00 –0.58 5.00 –0.58 5.00 –0.58 Triborough Bridge –0.125 5.00 –0.62 5.00 –0.62 5.00 –0.62 5.00 –0.62 5.00 –0.62 Verrazano Narrows Bridge –0.076 5.00 –0.38 5.00 –0.38 5.00 –0.38 5.00 –0.38 5.00 –0.38

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The periodic toll increases indicated above were selected by URS to provide increases for cash passenger cars of 5 percent every two years on all facilities. These increases have been assumed by URS for forecasting purposes only. For the purposes of this analysis, it has been assumed that the annual rate of inflation over the forecast period will be three percent.

Bridge and Tunnel Capacities

URS assessed the peak-hour capacity level of each facility at the mid-point of the bridge or tunnel, based on a highway-type capacity analysis. We recognize, however, that the TBTA bridges and tunnels have different physical and operational characteristics than do highways. Therefore, in our capacity assessment, we considered operational factors such as ramp approaches, vehicle merges, grades, sight lines, lane widths, lack of shoulders, and vehicle spacing and lane configuration at toll plazas, including E-ZPass lanes.

The local street system feeding the TBTA crossings also becomes constrained during peak periods, with unstable traffic flows occurring on congested roadways.

We also reviewed toll plaza operations with the electronic toll payment system. Characteristics of the E-ZPass system are discussed throughout this report. The acceleration of vehicle through- put for E-ZPass customers has mitigated congestion at the toll plazas. With E-ZPass participation rate at 73.5 percent in 2007, and the customer base increasing, efficient toll plaza operations are anticipated throughout the forecast period.

Additionally, we have reviewed past annual traffic volumes at each facility for comparison with the current traffic levels. URS conducted this review (in early 2008), matching the 2007 traffic volumes against the highest annual volumes recorded, by facility, going back to 1970. Note in Table 19 that the Cross Bay Bridge and the Queens Midtown Tunnel carried their highest volumes in 2007.

Table 19 Comparison of 2007 Traffic with Highest Recorded Levels Since 1970

Highest Volume 2007 Percent 2007 Volume* Facility Since 1970 of Highest (000s) Volumes Year Volume (000s) Throgs Neck Bridge 2006 43,186 41,914 97% Bronx - Whitestone Bridge 2004 45,223 42,372 94 Triborough Bridge 1988 64,215 62,491 97 Queens Midtown Tunnel 2007 29,366 29,366 100 Brooklyn-Battery Tunnel 1971 22,920 18,132 79 Verrazano-Narrows Bridge 2002 73,361 70,349 96 Henry Hudson Bridge 2004 24,703 24,110 98 Marine-Parkway- Gil Hodges Bridge 1971 9,150 7,831 86 Cross Bay Veterans Memorial Bridge 2007 7,676 7,676 100 * From Table 5

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While traffic volumes during peak hours may approach capacity and limit traffic growth during these hours, there is room for traffic growth during non-peak conditions through peak spreading. Traffic volumes can continue to grow, but growth would be at a slower pace.

TBTA and Regional Operational and Construction Impacts

Traffic volumes on TBTA facilities are influenced by construction and rehabilitation projects involving roadways and bridges in the New York City area.

Major projects that result in long-term closures on the competing bridges may increase volumes on TBTA’s facilities. Also, long-term lane closures on the roadway network serving the TBTA crossings or on the TBTA crossing themselves may affect TBTA traffic volumes or cause traffic to shift from the affected crossing to either another TBTA facility or to one of the City’s toll-free bridges. For example, when the replacement of the deck on the Bronx-Whitestone Bridge began in June of 2005, some traffic diverted to the Throgs Neck Bridge.

A number of roadway construction/rehabilitation projects, over the past few years, have influenced traffic volumes on TBTA facilities, and future construction will also affect traffic. The following descriptions also highlight area construction activities and measures that have influenced TBTA volumes and other planned and proposed projects that may affect traffic during the forecast period. Information on future construction activity was obtained from the New York State Department of Transportation, New York City Department of Transportation, NYMTC, and the Port Authority of New York and New Jersey.

In general, the majority of construction activities programmed for the TBTA facilities themselves are scheduled to take place during off-peak hours, including nighttime lane closures in the tunnels. Therefore, they are expected to have no discernible effect on toll revenue.

• On the Verrazano-Narrows Bridge, the lower level approach deck rehabilitation will require the closure of one lane in each direction through August 2008.

• The Cross Bay Veterans Memorial Bridge superstructure/deck rehabilitation began in 2007. The roadway is to be reduced to two lanes in each direction through 2010. Due to low traffic volumes, this should not have a detrimental effect on traffic flows.

• The Marine Parkway-Gil Hodges Memorial Bridge will have daily lane closures until April 2009 for on-going construction.

• On the Bronx-Whitestone Bridge, the replacement of the approach decks will begin in the Bronx in 2008, and in Queens are expected to be scheduled in 2011-2012 once the Bronx approach is completed. Three lanes will be maintained in the peak direction, with two lanes in the reverse direction during staged construction.

• The Throgs Neck Bridge has multiple rehabilitation projects scheduled, including replacing the concrete deck. Installation of an orthotropic deck is expected to begin in 2012. With a contraflow lane, three lanes will be maintained in the peak direction. Cross

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Island Parkway ramp closures are scheduled to occur during 2008 to 2009 (for 35 days on each ramp). It is anticipated that traffic will divert to the Bronx-Whitestone Bridge during these construction projects, or in the case of the Cross Island Parkway ramps, to the Clearview Expressway (Queens) approach to the Throgs Neck Bridge.

• Redecking of the lower level of the Henry Hudson Bridge is underway, with completion scheduled by 2010. Construction is staged to minimize traffic impacts. Replacement of the Upper Level Deck in the vicinity of the toll plaza that was scheduled for 2008 is currently on hold.

• Triborough Bridge deck widening and repair on Wards and Randalls Islands and at the Bronx toll plaza requires off peak closures but no peak restrictions.

• Queens-Midtown Tunnel has no on-going work.

Operational Changes Resulting from September 11, 2001

• The ban on eastbound commercial vehicles remains in effect at the Holland Tunnel. Some commercial vehicles (classes 1,2 and 3 - 2 and 3-axle single unit trucks) may now use the westbound Holland Tunnel to exit New York City. Vehicle classes 4, 5 and 6 are banned in both directions. In addition, no trailers or towed vehicles are allowed in both directions.

Competing Ferry Service

• New York Water Taxi operates East River ferry service between Manhattan, Brooklyn and Queens. However, service on both the East River routes and the south Brooklyn route have been suspended due to decreased winter ridership coupled with increasing fuel prices. The East River service is scheduled to resume on May 1, 2008. The East River routes include Pier 11/Wall Street and East 34th Street to Fulton Ferry Landing, Hunters Point and Schaefer Landing. In addition to the East River routes, New York Water Taxi provides service between Yonkers and both the World Financial Center and Pier 11/Wall Street. Service generally operates during peak periods.

• NYC Department of Transportation (NYCDOT) operates the Staten Island Ferry between the Battery and St. George. Ferries carry vehicles and passengers on frequent schedules around the clock. Additional weekend service began in 2006 with 30-minute service during the day.

• PlaNYC, as further described in the section on “Other Considerations” below, proposes to expand ferry service to growing waterfront communities.

Since ferries have limited or no capacity for vehicles, ferry services will not significantly affect TBTA facilities.

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Competing East River Crossings Construction

• Queensboro Bridge – Since 1981, numerous rehabilitation projects have involved the upper or lower levels, or ramp approaches to the bridge. Miscellaneous items at various locations throughout the bridge, approaches and ramps that were not addressed or were deleted from previous contracts were begun in November of 2003. The rehabilitation of the north and south lower outer roadways was recently completed. Contract 6 was expected to be complete by June 2007. Cleaning and repainting structural steel of the main spans and approach roadways is scheduled to be completed in January 2009. Seismic retrofitting of the Queensboro Bridge is programmed to be completed in 2013.

• Williamsburg Bridge – Miscellaneous rehabilitation of the main span began in March 2003 and is expected to be completed in December 2008. This project includes rehabilitation of tower bearings, truss system and steel structure of the towers, replacement or adjustment of cable suspenders, installation of maintenance travelers (inspection platforms) under the main span, and painting of stiffening trusses. The project also includes installation of an Intelligent Transportation System (ITS). With the reopening of the lower roadway of the Manhattan Bridge in October 2007, new traffic patterns took effect on the Williamsburg Bridge, which includes four lanes of traffic in the peak direction. Seismic retrofitting of the Williamsburg Bridge is programmed to commence in 2011.

• Manhattan Bridge – The current contract is scheduled for completion in April 2008. The contract includes complete removal and replacement of the lower roadway and milling Sands Street in Brooklyn to create additional clearance for trucks. It also includes reconstruction of the lower roadway; rehabilitation of the anchorages; rehabilitation of the travelers; installation of new lighting on the north upper roadway and lower roadway; upgrading of the lower roadway lane control signals, installation of a fire protection system, and rehabilitation of the tower canopies and balconies. The work on the lower roadway began in October 2006 and was completed in October 2007. Closure of the lower roadway until October 2007 may have induced some traffic to divert to the Brooklyn-Battery Tunnel and Williamsburg Bridge. Replacement of the Manhattan Bridge suspender ropes and rewrapping all cables is expected to be complete in 2012. Seismic retrofitting is scheduled to be completed in 2014.

• Brooklyn Bridge – The reconstruction program that began in 1980 is expected to be complete in 2014.Maintenance and inspection of the maintenance travelers on the main span of the Brooklyn Bridge is expected to be completed in June 2009. At that time, rehabilitation of the approaches and ramps and the painting of the bridge is scheduled to begin. An Intelligent Transportation System is scheduled to be implemented after 2009. All construction projects, including seismic retrofitting of the Brooklyn Bridge, are programmed to be complete in 2014.

It is unlikely any of the TBTA facilities will gain materially from these construction projects but it is possible that the Brooklyn-Battery Tunnel will experience slightly higher usage levels.

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Other Major Bridge and Roadway Construction

During the forecast period, several major roadway and bridge projects, which are part of NYMTC’s Transportation Improvement Program (TIP) for 2008-2012, will potentially have traffic implications for the TBTA facilities. The TIP includes the planned year of construction; however, adherence to this schedule is not mandated. Some of these projects do not yet have lane closure plans, which will be developed in coordination with NYCDOT and local community boards. As a matter of policy, NYCDOT seeks to restrict lane closures to off-peak and nighttime hours.

Other bridges, roads and overpasses programmed for construction include:

• Willis Avenue Bridge – Connects the FDR Drive, Major Deegan Expressway and Bruckner Expressway Construction of a new Willis Avenue Bridge started in 2007 and is scheduled to be completed by the end of 2012. A new off-line bridge is to be constructed south of the existing bridge, which will be maintained in service until the new bridge is opened to traffic. Any restrictions on the Willis Avenue Bridge or approach ramps would induce some diversions to the Triborough Bridge.

• Third Avenue Bridge – Replacement of the span over the Harlem River was completed in 2006. All five lanes are open to traffic, and approaches in the Bronx have been restored. Whatever diversions to the Triborough Bridge that had occurred during reconstruction should have returned to routings based on normal driver preferences.

• Broadway Bridge ― Rehabilitation of the Broadway Bridge over the Harlem River is scheduled to begin in 2010, which may divert some traffic to the Henry Hudson Bridge.

• Madison Avenue Bridge ― Rehabilitation of the Madison Avenue Bridge over the Harlem River is scheduled to begin in 2011.

• Major Deegan Expressway (I-87) – Rehabilitation of various overpasses along the Major Deegan Expressway between 138th Street and Mosholu Parkway is scheduled for completion in 2009. Safety improvements northbound at West 230th Street are scheduled for 2008. Traffic impacts at the Triborough Bridge should not be significant.

• Three Bridges ― The Three Bridges Project in the Bronx included reconstruction of: o I-295 (Cross Bronx Extension) bridge over Randall Avenue; o East Tremont Ave. over I-295 (CBE); and o I-95 bridge over I-695 (Throgs Neck Expressway).

Reconstruction of these overpasses has reached substantial completion. The first two projects necessitated the closing of one lane in each direction of the CBE between East Tremont Avenue and Randall Avenue during midday. This allowed for two lanes in each direction during peak hours. More lane closures occurred during the off-peak and night hours to facilitate project work. Motorists experienced lane closures on I-95 northbound and I-695 north and southbound during off-peak hours. Service roads in this

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area were subject to shifts to temporary lanes. Because of these construction projects, traffic may have shifted from the Throgs Neck Bridge to the Bronx-Whitestone Bridge or possibly the Triborough Bridge. Intelligent Transportation System (ITS) components were installed.

• I-278 Gowanus Expressway Repair and Interim Deck Replacement ― The project includes replacement of the concrete deck and deteriorated elements, until a permanent improvement is constructed. One construction contract between the Brooklyn-Battery Tunnel and Sixth Avenue was completed in 2007.Construction on the eastbound BQE Connector ramp, from the Brooklyn-Battery Tunnel to the Prospect Expressway, the Prospect Expressway to the Shore Parkway and the Lower Gowanus is currently underway and is scheduled for completion in the summer of 2009. Brooklyn-Battery Tunnel approaches and Prospect Expressway interchange construction are scheduled from summer 2008 to fall 2010. The Shore Parkway interchange is scheduled from 2009 to 2011. The project is being designed to minimize lane closures and traffic disruption. The Bus/HOV lane is being maintained from the Verrazano-Narrows Bridge to the Brooklyn-Battery Tunnel during the AM peak period, and a westbound Bus/HOV lane is to be operated from 2009 to 2010.

• I-278 Brooklyn Queens Expressway ― Park Avenue Viaduct. New York State Depart- ment of Transportation (NYSDOT) began reconstruction of the Brooklyn Queens Expressway between Flushing Avenue and Sands Street in 2005, which is anticipated to be completed in 2009. Six travel lanes are available at all times except midnight to 5:00 AM.

• Reconstruction of the I-278 Brooklyn Queens Expressway cantilever section between Atlantic Avenue and Sands Street is programmed for design in 2010-2012.

• I-278 BQE Kosciusko Bridge ― New York State Department of Transportation completed the Draft Environmental Impact Statement for the Kosciuszko Bridge Project. the project’s final EIS is currently completing the agency review process and should be released in the Spring of 2008. Alternatives provide for maintaining all lanes on the Brooklyn Queens Expressway and local connections, while constructing a replacement bridge. Construction is programmed to begin no sooner than 2011.

• Another phase of the I-278 Brooklyn Queens Expressway reconstruction project runs from 61st Street to Broadway in the Woodside area of Queens. Construction work begun in the spring of 2005 is estimated to be completed by the end of 2008. During construction, three lanes will generally be available for travel in each direction with many lane shifts such as use of shoulders or use of median area to accommodate the rehabilitation projects. Lane closures, if necessary, will only occur at night or on weekends. It is anticipated that traffic diversion from the Triborough Bridge to the Bronx-Whitestone Bridge will be insignificant.

• Whitestone Expressway bridge (I-678) over the Flushing River – The estimated completion date of the project is mid-2009. All existing travel lanes will be maintained

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during peak hours. Lane closures will take place during non-peak hours. There will be no lane closures two hours before and two hours after a New York Mets home game. Rehabilitation of the northbound and southbound Whitestone Expressway and construction of the new northbound Van Wyck Expressway ramp to the northbound Whitestone Expressway, as well as an Intelligent Transportation System, have been completed. There should be no significant effect on Bronx-Whitestone Bridge traffic.

• Route 9A – After Route 9A (West Street) was heavily damaged when the World Trade Center was attacked, a six lane temporary road was opened, allowing the Brooklyn- Battery Tunnel to re-open. Further construction to improve Route 9A to a six- to eight- lane urban highway is scheduled for completion in 2009. This will have a positive impact on traffic using the Brooklyn-Battery Tunnel as motorists achieve the comfort level with the permanent traffic patterns that will be in place after completion.

• Long Island Expressway (I-495) –Van Wyck Expressway to Grand Central Parkway ― a Record of Decision is expected in March 2008. Alternatives include: (1) rehabilitation of overpasses, or (2) rehabilitation plus three new connecting ramps.

• Brooklyn Queens Expressway (I-278) – Grand Central Parkway ― Rehabilitation from 25th Avenue to 71st Street is scheduled to begin in 2009 and from Astoria Boulevard to 44th Street in 2010.

• Clearview Expressway (I-295) – Grand Central Parkway ― Rehabilitation of interchange is scheduled to begin in 2010.

• Van Wyck Expressway (I-678) – Rehabilitation of Roosevelt Avenue bridge is scheduled to begin in 2010.

• Belt Parkway – Provides access to the Verrazano-Narrows Bridge from southern Brooklyn, JFK Airport, Queens and the Long Island parkway system. Rehabilitation of bridges over four waterways and three overpasses are underway or scheduled for 2008- 2014. Traffic impacts should be limited to detours or alternative access routes during off- peak periods, when construction severely limits capacity.

• Staten Island Expressway (I-278) – NYSDOT is operating exclusive bus lanes in both directions in the median of the Staten Island Expressway on a 24-hour/7-day basis, between Slosson Avenue and the Verrazano-Narrows Bridge toll plaza. A recent Bus Lane / Priority Lane Study analyzed the feasibility of extending the bus lanes west to the Goethals Bridge toll plaza; and allowing use of the lanes by high-occupancy vehicles (HOV3+). These improvements would provide alternatives to single-occupant automobile use, particularly during peak periods. Construction between Slosson Avenue and Victory Boulevard is programmed to begin in 2011. One of the feasible scenarios would allow off-peak and weekend use of the lanes by all traffic, which would make the Verrazano-Narrows Bridge more attractive to motorists at those times.

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• Staten Island Expressway (I-278) access improvement between the Verrazano-Narrows Bridge toll plaza and Renwick Avenue is programmed for construction beginning in 2010, to include 5 new ramps, relocating/reconfiguring 3 ramps and adding auxiliary lanes. These improvements will improve traffic flows between the Staten Island Expressway and Verrazano-Narrows Bridge, as well as reduce accidents.

• FDR Drive – 34th Street Viaduct – Design of reconstruction of the FDR viaduct from East 24th to East 42nd Street is scheduled to begin in 2008. The project will reconstruct this section of the FDR to reasonable standards and improve safety. It is anticipated that the construction schedule will resemble the current project on the FDR extending from East 53rd to East 64th Streets.

• Harlem River Drive ― Design of safety alignment improvements between East 116th and East 125th Streets is scheduled to begin in 2009, followed in 2011 by reconstruction between East 125th and East 132nd Streets including a new entrance ramp from Third Avenue onto southbound Harlem River Drive.

• Henry Hudson Parkway ― The viaduct from West 72nd to West 82nd Streets is programmed for rehabilitation beginning in 2009.

• Bruckner/Sheridan Expressway Interchange - Preliminary engineering and Draft Environmental Impact Statement are currently underway on reconstructing the interchange of Bruckner Expressway (I-278) and Sheridan Expressway (I-895). The project will relieve the four-lane bottleneck on the six-lane Bruckner Expressway and improve access to the Hunts Point peninsula. The scenarios include deconstructing the Sheridan Expressway. It is anticipated that construction will be completed by 2016. Traffic patterns to/from the Triborough Bridge would be altered somewhat, depending on the alternative selected.

• I-278 – Gowanus Project – For long-term improvements, NYSDOT and the Federal Highway Administration (FHWA) are now preparing a Draft Environmental Impact Statement (DEIS). Several project alternatives are being explored: No-build/maintenance; relief viaduct; rehabilitation and tunnel. Construction is projected to begin in 2013 if funding is available, and to be finished by 2020-2022. It can be assumed that some traffic would divert to the Holland Tunnel from the Verrazano- Narrows Bridge and Brooklyn-Battery Tunnel.

• Goethals Bridge Replacement (I-278) – The Environmental Impact Statement is scheduled for completion in 2007. All alternatives would have six lanes. Construction might be completed by approximately 2015.

• Staten Island Expressway–West Shore Expressway (I-278/NY-440) interchange ― Design of reconstruction is scheduled to begin in 2012. This project is to support potential Bus/HOV lanes on the Staten Island Expressway and reconstruction of the Goethals Bridge, and provide better connections to Howland Hook intermodal marine/rail/highway facilities.

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The Goethals Bridge and Staten Island Expressway-West Shore Expressway improvements would positively affect traffic volumes on the Verrazano-Narrows Bridge.

• Intelligent Transportation Systems are scheduled to be installed beginning in 2008 in Brooklyn, including on the Gowanus Expressway (I-278), on State routes in Queens, on the New England Thruway (I-95), and fiber optic cable on the Henry Hudson Parkway. Substantial funds are programmed for ITS planning, coordination and management, and for operational support of NYCDOT’s Traffic Management Center and Integrated Incident Management System. Active management of traffic and incidents should result in smoother flow on the highway system including TBTA facilities, and increase reliability and motorists’ satisfaction.

Other Considerations

Other considerations in the development of traffic and revenue forecasts for the TBTA facilities include the potential impacts of PlaNYC and transit improvements in the metropolitan area.

• On April 22, 2007 Mayor Bloomberg announced PlaNYC which proposes congestion pricing in Manhattan along with transit improvements, including:

Provide more capacity for trips into Manhattan on East River Bridges Bus/HOV Lanes with priority given to the most space-efficient forms of transportation. New York City could dedicate roadway capacity on the three City-owned East River bridges that can accommodate buses (the Manhattan Bridge, Williamsburg Bridge and Queensboro Bridge) and high occupancy vehicles only. Access routes in Brooklyn and Queens may also be assigned bus lanes to ensure that buses would avoid congestion in accessing the bridges, buses could travel from areas of Brooklyn and Queens that now have limited transit service, cross the East River in a dedicated lane, and use the First and Second Avenue Bus Rapid Transit (BRT) system and other existing bus lanes in Manhattan. The bus and HOV lanes on the East River bridges could be in place by 2009.

Expand ferry service to growing waterfront communities.

Build a rail link to connect Lower Manhattan with Brooklyn, Jamaica, JFK Airport and Long Island.

Implement a congestion pricing system to reduce traffic in the Manhattan Central Business District (CBD) and surrounding areas and encourage people to use alternatives to private automobiles. Drivers would be charged for traveling on interior streets in Manhattan south of 86th Street, between 6 AM and 6 PM weekdays.

A Congestion Mitigation Commission to study plans to reduce traffic congestion and other related health and safety issues within the City of New York was created. The Commission evaluated the City's plan as well as a number of other proposals. They held public hearings in each of the five boroughs, as well as in Westchester and on Long

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Island. The plan was voted on and approved by the City Council in April 2008. After this approval, it was submitted to the New York State Legislature. The State Legislature did not take any action on the plan before the federal deadline of April 7, 2008. The plan needs New York State legislative approval and therefore cannot be implemented at this time. It is possible that this plan or a similar plan could be submitted to the Legislature, for approval, at a future date.

• Impact of Transit Improvements. Significant transit improvements, when completed, are expected to affect TBTA traffic levels during the forecast period through the year 2017:

MTA Second Avenue Subway: Construction of Phase 1 started in April 2007 and is scheduled for completion in 2013. Service from new stations at 96th, 86th and 72nd Streets along Second Avenue will connect to the 63rd Street line. Phases 2, 3 and 4 will extend service to 125th Street and to Lower Manhattan by 2018 as funding becomes available, resulting in the creation of 16 new subway stations on Second Avenue. Four traffic lanes will be maintained through construction zones, and cross streets will be kept open.

The second section from 96th Street north to 125th Street is not yet funded and construction will probably be included in the 2010-2014 Capital Plan. Construction of the Second Avenue/34th Street station might result in a loss of capacity on the access routes to the Queens Midtown Tunnel due to inefficient flow during peak hours and closure of side streets adjacent to the construction area. During the construction on the northern portion of Second Avenue adjacent to the Triborough Bridge, the ramps between the Triborough Bridge and 125th Street may experience a loss of capacity. The high-volume ramps between the FDR Drive and the Triborough Bridge would not be affected.

MTA/LIRR East Side Access: This project will result in a new connection from the LIRR mainline tracks in Queens under Sunnyside Yard, connecting to the 63rd Street Tunnel leading to Grand Central Terminal. New tunnels are being bored in Manhattan west from Second Avenue, then under Park Avenue and into the lower level of Grand Central Terminal. Completion is scheduled for 2013. MTA anticipates that some travelers to the East Side will shift to the LIRR from other modes, including TBTA facilities.

Summary of Assumptions and Conditions

TBTA traffic, revenues and expenses have been projected by URS on the basis of the historical record of traffic, revenues and expenses, the capacities of the TBTA facilities, traffic growth forecasts, the estimated traffic elasticity due to toll variations, impacts of construction projects and the following assumptions and conditions, which we believe are reasonable.

• All TBTA facilities will be operated efficiently and maintained in good physical condition in order to attract customers and to sustain traffic demand levels.

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• The TBTA adopted capital program for 2005-2009 will be carried out throughout the forecast period. Future capital programs sufficient to maintain the structural integrity of bridges and tunnels will be adopted and implemented throughout the forecast period.

• Electronic toll payment by E-ZPass will continue to be available on all TBTA crossings, and the payment of revenue in full to TBTA will continue to be in accordance with current interagency agreements.

• Congestion pricing in Manhattan will not be implemented in the near future.

• For the scenario with periodic toll increases, tolls on TBTA facilities will be increased every other year by approximately five percent (2.47 percent per year compounded) beginning in 2010 and continuing through 2018. These increases are very close to recent increases due to normal inflation. Almost three-quarters of all tolls paid on TBTA facilities are ETC transactions. Toll elasticities for toll increases in 2003 and 2005 (the first two toll increases in the ETC era) were lower than historical elasticities. Such results for TBTA – that show that ETC users are not as affected by toll increases as those who pay cash tolls – are consistent with results of other toll agencies with substantial ETC usage. Therefore, it was assumed that elasticities for future toll increases will be 60 percent of historical toll elasticities.

• Capacity constraints in the arterial highway network will continue to limit traffic growth on the nine TBTA crossings.

• Highway/crossing improvements, in general, for the competing bridges and roadway network will be made in accordance with the plans and schedules described herein.

• Major TBTA roadway and structural improvements will continue to be performed during nighttime and non-peak hours, and/or in the off-peak direction, and approaches to the nine TBTA crossings will not be significantly impaired by construction work beyond the items discussed in this report.

• The forecasts are based on the assumption that E-ZPass usage will grow at the rate of 0.5 percent annually during the period included in these forecasts. While usage at a higher level would improve toll plaza operating conditions, it would also result in lower average tolls and, therefore, could reduce the level of increase in gross toll revenues. Growth in traffic volumes would be limited without E-ZPass at toll plazas.

• Competing East River crossings will continue to operate toll-free and to be maintained in efficient operating condition. (This would be affected by implementation of PlaNYC).

• The trends in regional employment and population, forecast by the New York Metropoli- tan Transportation Council and presented in this report, will be realized in the Tri-State area and in New York City.

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• Over the past several months, motor fuel (and crude oil) prices have been steadily increasing until they are now above the $3.00 per gallon level. If this trend continues and prices rise substantially above the $3.00 level, discretionary travel could decline and there may be fewer recreational trips. In general, however, TBTA facilities carry regular commuters and other non-discretionary trips so that the overall impact on toll volumes and toll revenues is not expected to be significant.

• LIRR East Side Access will shift some auto commuters to rail. If PlaNYC is not implemented, public transportation systems will not undergo other major construction programs nor schedule changes that would materially alter regional commuter patterns and result in significant traffic diversions from TBTA facilities. Congestion Pricing proposed in PlaNYC could shift vehicle trips from toll-free bridges to TBTA facilities. Bus/HOV lanes on City bridges could accommodate diversion from single-occupant auto trips.

• Current toll discount programs remain in effect at current projected levels, including the discount for E-ZPass customers and the Staten Island residents’ discount program for the Verrazano-Narrows Bridge.

• The effects of the toll-rebate program, implemented in January 1998, for the benefit of E-ZPass customers who are residents of Broad Channel and Rockaway peninsula traveling on the Cross Bay Bridge, are fully reflected in the results since 1998 and, therefore, no further impact will occur.

• No other toll discount programs will be introduced that would adversely affect the TBTA toll facilities' revenue stream.

• No material natural disaster, or local, state or national emergency will occur that would alter travel patterns and divert traffic from the TBTA facilities.

While the projections are made and presented year-by-year by URS, they are intended to show trends on the basis of its analysis of historical data and the assumptions and conditions set forth above. Variations in the year-to-year forecasted results may occur and such variations may be significant.

PROJECTED TRAFFIC, REVENUES AND EXPENSES

Future traffic and toll revenues are estimated for the 10-year (2008-2018) forecast period for each TBTA facility based on historical trends in traffic and revenue, elasticity factors for future toll increases, toll collection operations, capacities of the nine crossings, facility maintenance, E-ZPass participation levels, externalities such as area roadway improvement plans and regional demographic projections, and the assumptions and conditions summarized previously. Changes in these factors, which may potentially affect future traffic and toll revenue, are detailed throughout this report.

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Trends in operating expenses for the toll facilities, TBTA’s 2008 budget and 2009 through 2011 financial plans, and growth estimates based on the CPI-U for “All Urban Consumers–New York PMSA” for labor expenses and CPI-U for “All Urban Consumers–U.S. City Average” for non- labor items are input to the future operating expense forecast. Future operating expense estimates are used to develop net revenue projections over the forecast period.

Traffic and toll revenues were first projected on the basis that the current tolls will be continued throughout the forecast period. Then, using these estimates as a base, URS applied the elasticity impact factors listed in Table 17 and adjusted the average tolls to develop the forecast with periodic toll increases.

Traffic and Toll Revenue at Current Tolls

The methodology employed by URS to forecast traffic was based on the development of an annual growth rate for each facility (based on the historical traffic trends), the construction activities (historical and projected) throughout the highway network (bridges, tunnels and arterials) and the traffic capacity constraints in the network. Regional demographic projections were also taken into consideration.

All indicators point to the potential for traffic increases in the future at modest rates of growth. URS estimates that traffic on the Throgs Neck, Triborough, Henry Hudson and Verrazano- Narrows, Cross Bay bridges and Queens Midtown Tunnel will increase primarily during the off- peak period, since these facilities are presently near (95 percent +) or at their capacity levels with respect to the highest recorded levels achieved since 1970 (from Table 18). Capacity constraints in the highway network are contributing factors.

The technique used in the forecast was to reduce the potential growth rates by 50 percent to reflect lower overall growth once the previous highest annual level is reached in the peak period. This approach produces conservative forecasts inasmuch as the introduction of E-ZPass has provided some additional capacity at the toll plazas. For example, if grown at its full growth rate, the Throgs Neck Bridge will reach the previous highest annual traffic volume in 2013. After that, an application of the 50 percent growth factor was used for the remainder of the forecast period. The Queens Midtown Tunnel exceeded its previous high traffic volume in 2007, so its growth rate was halved beginning in 2008.

On this basis, starting with the 2008 estimated traffic by facility from Table 11, URS projected the traffic by facility as shown in Table 20, and calculated the corresponding toll revenue based on the estimated 2008 average tolls (also from Table 11).

General overall traffic growth in the range of 0.57 to 0.65 percent annually is estimated in the forecast period. This growth is based on the actual growth in traffic on each facility during the last 11 years, after the impact of toll increases were taken into account, and a review of actual and forecast population and employment growth in the region. Adjustments have been made to the forecast for the Triborough Bridge to reflect the impacts during construction of the Second Avenue Subway.

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Traffic and Toll Revenue with Periodic Toll Increases

As mentioned previously, the traffic forecast with periodic toll increases was built upon the base (current tolls) forecast (from Table 20), to which the elasticity impacts (from Table 17) were applied. URS then applied the appropriate increased average tolls increased by the percentages in Table 18, in the years 2010, 2012, 2014, 2016 and 2018 (effective January 1) to calculate the corresponding toll revenues in the respective years. The traffic and revenue forecasts with periodic toll increases are listed in Table 21.

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Table 20 Traffic and Toll Revenue Forecast, Constant Tolls

Marine Parkway- Cross Bay Bronx- Gil Hodges Veterans Throgs White- Tri- Queens Brooklyn Verrazano- Henry Memorial Memorial Year Neck (b) stone borough Midtown (b) Battery Narrows Hudson Bridge Bridge Total Annual Traffic (000s) 2007(a) 41,914 42,372 62,491 29,366 18,132 70,349 24,110 7,831 7,676 304,240 2008(c) 40,258 43,045 61,097 29,310 17,776 69,307 23,337 7,851 7,864 299,844 2009(e) 40,719 43,261 61,402 29,570 17,859 69,654 23,454 7,868 7,992 301,777 2010 41,186 43,477 61,709 29,831 17,942 70,002 23,571 7,886 8,121 303,726 2011 41,658 43,694 62,018 30,096 18,026 70,352 23,689 7,903 8,253 305,689 2012 42,135 43,913 62,328 30,362 18,110 70,704 23,807 7,921 8,387 307,667 2013 42,618 44,132 62,639 30,631 18,195 71,058 23,926 7,939 8,524 309,661 2014 42,862 44,353 62,952 30,902 18,280 71,413 24,046 7,957 8,662 311,426 2015 43,107 44,575 63,267 31,176 18,365 71,770 24,166 7,974 8,803 313,203 2016 43,354 44,798 63,584 31,452 18,451 72,129 24,287 7,992 8,946 314,992 2017 43,603 45,022 63,902 31,730 18,537 72,489 24,408 8,010 9,091 316,792 2018 43,853 45,247 64,221 32,011 18,624 72,852 24,530 8,028 9,238 318,604 Traffic Growth 2007-2008(c) –3.95% 1.59% –2.23% –0.19% –1.96% –1.48% –3.20% 0.25% 2.45% –1.44% 2008-2009 1.15 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.64 2009-2010 1.15 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.65 2010-2011 1.15 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.65 2011-2012 1.15 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.65 2012-2013 1.15 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.65 2013-2014 0.57 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.57 2014-2015 0.57 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.57 2015-2016 0.57 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.57 2016-2017 0.57 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.57 2017-2018 0.57 0.50 0.50 0.89 0.47 0.50 0.50 0.22 1.62 0.57 Average Toll 2007(a) $5.20 $4.72 $4.57 $4.40 $4.19 $3.88 $1.86 $1.49 $1.57 $4.11 2008(c) 5.50 5.02 4.86 4.63 4.46 4.14 2.03 1.57 1.69 4.37 2009(e) 5.57 5.09 4.92 4.69 4.52 4.21 2.08 1.59 1.72 4.43 2010-2018 5.57 5.09 4.92 4.69 4.52 4.21 2.08 1.59 1.72 4.43 Toll Revenues (000s) 2007(a) $217,958 $200,076 $285,847 $129,348 $75,980 $272,837 $44,779 $11,635 $12,090 $1,250,549 2008(c)(d) 221,340 216,186 296,748 135,808 79,181 287,036 47,484 12,350 13,315 1,309,449 2009(e) 226,628 220,131 302,204 138,544 80,732 293,083 48,733 12,547 13,759 1,336,361 2010 229,225 221,232 303,715 139,770 81,109 294,548 48,977 12,575 13,983 1,345,134 2011 231,851 222,338 305,234 141,008 81,488 296,021 49,222 12,603 14,210 1,353,974 2012 234,508 223,449 306,760 142,256 81,869 297,501 49,468 12,631 14,441 1,362,883 2013 237,195 224,567 308,294 143,516 82,251 298,989 49,715 12,660 14,675 1,371,861 2014 238,554 225,690 309,835 144,787 82,635 300,484 49,964 12,688 14,913 1,379,549 2015 239,921 226,818 311,384 146,069 83,022 301,986 50,213 12,716 15,156 1,387,285 2016 241,295 227,952 312,941 147,362 83,409 303,496 50,464 12,745 15,402 1,395,067 2017 242,678 229,092 314,506 148,667 83,799 305,014 50,717 12,773 15,652 1,402,897 2018 244,068 230,237 316,079 149,983 84,191 306,539 50,970 12,802 15,906 1,410,774 (a) Actual 2007. Traffic numbers are preliminary and subject to final audit. (b) Growth rates reduced by 50 percent because volume is at or near capacity level. (c) Reflects partial-year toll increase from March 16, 2008 through December 31, 2008. (d) Toll revenue adjusted in 2008 and thereafter to reflect estimated increase in E-ZPass usage of 0.5 percent per year. (e) Reflects full year of toll increase implemented on March 16, 2008 for 2009 and thereafter.

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Table 21 Traffic and Toll Revenue Forecast, Periodic Toll Increases

Marine Parkway- Cross Bay Gil Hodges Veterans Throgs Bronx- Tri- Queens Brooklyn Verrazano- Henry Memorial Memorial Year Neck Whitestone borough Midtown(b) Battery Narrows Hudson Bridge Bridge Total Traffic Change (from Table 17) due to Toll Elasticity 2007-2008 –3.95% 1.59% –2.23% –0.19% –1.96% –1.48% –3.20% 0.25% 2.45% 2009-2010 –0.32 –0.32 –0.62 –0.58 –1.08 –0.38 –0.87 –0.30 –0.41 2011-2012 –0.32 –0.32 –0.62 –0.58 –1.08 –0.38 –0.78 –0.30 –0.41 2013-2014 –0.32 –0.32 –0.62 –0.58 –1.07 –0.38 –0.96 –0.30 –0.41 2015-2016 –0.32 –0.32 –0.62 –0.58 –1.07 –0.38 –0.82 –0.30 –0.41 2017-2018 –0.32 –0.32 –0.62 –0.58 –1.08 –0.38 –0.87 –0.30 –0.41 Annual Traffic (000s) 2007(a) 41,914 42,372 62,491 29,366 18,132 70,349 24,110 7,831 7,676 304,240 2008(c) 40,258 43,045 61,097 29,310 17,776 69,307 23,337 7,851 7,864 299,844 2009(e) 40,719 43,261 61,402 29,570 17,859 69,654 23,454 7,868 7,992 301,777 2010 41,055 43,339 61,324 29,659 17,749 69,737 23,366 7,862 8,088 302,179 2011 41,525 43,556 61,631 29,922 17,832 70,085 23,483 7,879 8,220 304,133 2012 41,868 43,634 61,553 30,013 17,723 70,168 23,416 7,873 8,319 304,566 2013 42,347 43,853 61,860 30,279 17,805 70,519 23,533 7,891 8,454 306,541 2014 42,455 43,932 61,781 30,370 17,697 70,602 23,424 7,885 8,556 306,702 2015 42,698 44,152 62,090 30,639 17,779 70,955 23,541 7,902 8,695 308,452 2016 42,806 44,231 62,011 30,732 17,670 71,039 23,464 7,896 8,800 308,650 2017 43,052 44,453 62,321 31,004 17,753 71,394 23,581 7,914 8,943 310,415 2018 43,161 44,533 62,242 31,098 17,644 71,479 23,493 7,907 9,051 310,608 Average Toll(d) 2007(a) $5.20 $4.72 $4.57 $4.40 $4.19 $3.88 $1.86 $1.49 $1.57 $4.11 2008(c) 5.50 5.02 4.86 4.63 4.46 4.14 2.03 1.57 1.69 4.37 2009(e) 5.57 5.09 4.92 4.69 4.52 4.21 2.08 1.59 1.72 4.43 2010-2011 5.59 5.59 5.17 4.92 4.75 4.42 2.18 1.67 1.81 4.65 2012-2013 5.87 5.87 5.43 5.17 4.99 4.64 2.28 1.76 1.90 4.89 2014-2015 6.17 6.17 5.70 5.42 5.23 4.87 2.41 1.85 1.99 5.13 2016-2017 6.48 6.48 5.98 5.70 5.50 5.12 2.52 1.94 2.09 5.39 2018 6.80 6.80 6.28 5.98 5.77 5.37 2.65 2.04 2.20 5.66 Toll Revenue (000s) 2007(a) $217,958 $200,076 $285,847 $129,348 $75,980 $272,837 $44,779 $11,635 $12,090 $1,250,549 2008(c)(d) 221,340 216,186 296,748 135,808 79,181 287,036 47,484 12,350 13,315 1,309,449 2009(e) 226,628 220,131 302,204 138,544 80,732 293,083 48,733 12,547 13,759 1,336,361 2010 229,592 242,365 316,882 145,898 84,256 308,100 50,977 13,164 14,621 1,405,855 2011 232,222 243,577 318,466 147,190 84,650 309,641 51,232 13,193 14,858 1,415,029 2012 245,867 256,242 333,953 155,015 88,345 325,528 53,385 13,843 15,789 1,487,968 2013 248,685 257,523 335,623 156,388 88,758 327,156 53,652 13,874 16,045 1,497,703 2014 261,805 270,914 351,973 164,707 92,623 343,928 56,353 14,556 17,051 1,573,910 2015 263,305 272,268 353,733 166,165 93,056 345,648 56,635 14,589 17,328 1,582,727 2016 277,192 286,420 370,943 175,008 97,112 363,388 59,126 15,306 18,415 1,662,909 2017 278,780 287,852 372,798 176,558 97,566 365,205 59,421 15,340 18,714 1,672,233 2018 293,472 302,803 390,953 185,959 101,823 383,912 62,162 16,095 19,889 1,757,067 (a) Actual 2007. Traffic numbers are preliminary and subject to final audit. (b) Growth rates reduced by 50 percent because volume is at or near capacity level. (c) Reflects partial-year toll increase from March 16, 2008 through December 31, 2008. (d) Toll revenue adjusted in 2008 and thereafter to reflect estimated increase in E-ZPass usage of 0.5 percent per year. (e) Reflects full year of toll increase implemented on March 16, 2008 for 2009.

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Effects of Second Avenue Subway Construction in Forecast Years

The foregoing tables forecasting traffic and toll revenues incorporate estimated effects of the construction of the Second Avenue Subway. Activity associated with such construction could result in changes to traffic patterns, possibly resulting in a shift of traffic volumes to other TBTA facilities, as well as the untolled East River Bridges or a diversion to mass transit. Such changes in traffic patterns could have an adverse effect on the forecasts set forth in the foregoing tables as described in the following paragraphs.

Various stages of the project will result in visible construction activity on segments of Second Avenue at any given time. In addition, tunnel construction, either through the use of a tunnel boring machine or cut-and-cover, will affect vehicular activity not only on Second Avenue, but also on adjacent avenues and streets.

The first phase of the project will be between 96th Street and 63rd Street. URS anticipates some changes to current traffic volumes for TBTA’s facilities when construction begins, thereby necessitating the rerouting of some traffic, as well as a change of street rules (traffic movements, parking restrictions and enforcement). Accordingly, URS has made an order-of-magnitude estimate of potential impacts on TBTA traffic on the Triborough Bridge.

For the Triborough Bridge, 27.6 percent of the traffic exits onto Second Avenue at 125th Street, 56.0 percent exits onto the FDR Drive, and 17.4 percent exits onto the Harlem River Drive via the 125th Street/Second Avenue intersection. Construction may result in a shift of traffic to the FDR Drive, if capacity were to be available during the peak. If capacity is not available, it is estimated that the Triborough Bridge will lose up to 2 percent of total traffic (3 to 5 percent of traffic on the Manhattan span) for the period when construction is in the vicinity of the bridge.

The relocation of utility lines beneath Second Avenue in the vicinity of the Queens Midtown Tunnel would affect traffic patterns. This could also have an impact on the access route to the Queensboro Bridge. As mentioned previously, a 20 percent decrease in access route capacity may be anticipated and could result in a decrease in total traffic of approximately 3 to 6 percent during the period when construction is in the vicinity of the tunnel; however, this is not anticipated in the period included in the current estimates.

In addition to the potential reduction in traffic noted, it is possible that construction activities limiting access to the toll-free East River crossings could result in traffic diversions to the TBTA facilities.

Operating Expenses

The projection of operating expenses is shown in Table 22. Total operating expenses, consisting of labor and non-labor, are estimated to increase from $369.1 million in 2007 to $545.8 million in 2018. Labor expenses consist of wages, salaries, overtime and fringe benefits. Non-labor expenses include items such as maintenance, supplies, utilities and other expenses.

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Operating expenses have been budgeted by TBTA for 2008 through 2011 as shown in Table 22. Nonrecurring costs include costs associated with the transition to a new contract for the E-Zpass Customer Service Center in 2008, additional bridge painting requirements in 2009 and the start of the next E-ZPass Replacement Program in 2010. The decrease in non-labor expenses from 2008 to 2009 is a result of decreases in budget for the Maintenance and Other Operating Contracts category.

The E-ZPass replacement program is estimated to be in effect for a five-year period, with an approximate cost of $20.3 million in 2010 and $23.1 million in 2011 and around half that level for 2012 through 2014. Other expenses are projected to increase at 4.5 percent in 2011, with growth tapering down to 3.0 percent in 2014 and then remaining at that level through 2018.

URS does not project any variation in operating expenses resulting from the reduced traffic levels brought about by periodic toll increases.

Table 22 Projected Operating Expenses (000s)

Year Labor(a) Non-Labor(b) Total(c) 2008(d) $210,968 $215,894 $426,862 2009(d) 220,608 214,495 435,103 2010(d) 229,916 234,882 464,798 2011(d) 239,812 230,364 470,176 2012(e) 245,328 234,971 480,299 2013(e) 250,970 239,671 490,641 2014(e) 256,743 244,464 501,207 2015(e) 262,648 249,353 512,001 2016(e) 268,689 254,340 523,029 2017(e) 274,868 259,427 534,296 2018(e) 281,190 264,616 545,806

(a) Salaries, overtime and fringe benefits, net of capital reimbursement. (b) Non-labor includes the following categories: maintenance and supplies, outside services, insurance, power, leases, rentals and other expenses. (c) Totals may not add due to rounding (d) From TBTA estimates. (e) Increases in labor expenses based on NY Region Average CPI, All Consumers; non-labor expenses based on All U.S. Cities Average CPI, All Consumers.

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Net Revenues from Toll Operations

Finally, the projected operating expenses were deducted from the respective toll revenue forecasts to produce the two sets of estimated net revenues, one at constant tolls and the other with periodic toll increases, as shown in Table 23. For 2008, net toll revenue under either scenario is estimated at $882.6 million. In year 2018, net toll revenue at constant tolls is estimated to be $865.0 million and, with periodic toll increases, net toll revenue is estimated to be $1,211.3 million.

Table 23 Net Toll Revenue Forecast (000s)

Gross Toll Revenues Net Toll Revenues Operating Year Periodic Toll Periodic Toll Constant Tolls Expenses Constant Tolls Increases Increases 2008 $1,309,449 $1,309,449 $426,862 $882,587 $ 882,587 2009 1,336,361 1,336,361 435,103 901,258 901,258 2010 1,345,134 1,405,855 464,798 880,336 941,057 2011 1,353,974 1,415,029 470,176 883,798 944,853 2012 1,362,883 1,487,968 480,299 882,584 1,007,669 2013 1,371,861 1,497,703 490,641 881,220 1,007,062 2014 1,379,549 1,573,910 501,207 878,343 1,072,704 2015 1,387,285 1,582,727 512,001 875,284 1,070,726 2016 1,395,067 1,662,909 523,029 872,038 1,139,880 2017 1,402,897 1,672,233 534,296 868,601 1,137,937 2018 1,410,774 1,757,067 545,806 864,968 1,211,261

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REVIEW OF PHYSICAL CONDITION

The facilities under TBTA’s jurisdiction include two tunnels and seven bridges listed in Table 24, together with Randall’s Island Facilities and a parking garage in Manhattan near the Brooklyn-Battery Tunnel. Some of these crossings have been in service since the 1930s, i.e., the Triborough, Henry Hudson, Marine Parkway-Gil Hodges Memorial and Bronx-Whitestone bridges. The Queens Midtown Tunnel opened to traffic in 1940, and the Brooklyn-Battery Tun- nel in 1950. Two bridges opened to traffic in the 1960s: the Throgs Neck in 1961 and the Ver- razano-Narrows in 1964 (lower level in 1969). The present Cross Bay Veterans Memorial Bridge, replacing the previous span, opened to traffic in 1970. The aging of the TBTA facilities will influence the overall upkeep and capital improvements that will be necessary to maintain the infrastructure over the forecast period and beyond. Table 25 lists TBTA’s capital commitments for each facility from 2005 through 2009 (as amended in December 2006).

Table 24 Opening Dates of TBTA Facilities

Open to Years Facility Traffic in Use Triborough Bridge 1936 72 Bronx-Whitestone Bridge 1939 69 Throgs Neck Bridge 1961 47 Henry Hudson Bridge 1936(a) 72 Queens Midtown Tunnel 1940 68 Brooklyn-Battery Tunnel 1950 58 Verrazano-Narrows Bridge 1964(b) 44 Cross Bay Veterans Memorial Bridge 1970(c) 38 Marine Parkway-Gil Hodges Memorial Bridge 1937 71

Notes: (a) Upper deck was added and opened in 1938. (b) Lower level opened in 1969. (c) The present structure replaced the previous structure that had been in service since 1939.

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Table 25 Capital Commitments by Facility, 2005 to 2009 (Millions of dollars)

Total by Facility Facility 2005 through 2009(a, b) Agency Wide(c) $89.7 Brooklyn-Battery Tunnel 51.3 Bronx-Whitestone Bridge 174.9 Cross Bay Bridge 67.9 Henry Hudson Bridge 111.6 Marine Parkway Bridge 22.8 Queens Midtown Tunnel 16.3 Triborough Bridge 407.3 Throgs Neck Bridge 105.7 Verrazano-Narrows Bridge 154.6 Total $1,202.1

Notes: (a) Does not add due to rounding. (b) Amended December 2006. (c) Agency-wide refers to projects that have been, or will be, carried out at two or more facilities.

Periodic contact with TBTA personnel is maintained by URS to monitor and review material, as it becomes available, pertaining to the physical condition of their seven bridges and two tunnels. This review material includes pertinent sections and updates of the following:

• Biennial Bridge Inspection Reports; • Scheduled Tunnel Inspection Reports; • Interim Inspection Reports; • TBTA’s current Capital Program; • Current Quality Assurance Plan; and • TBTA’s Routine and Major Maintenance Program.

The review by URS of the pertinent material consists of the following subtasks:

• Comparison of Conclusions and Recommendations sections of the current inspection reports with the previous inspection reports to note significant changes in observed deterioration, if any; • Review of the current Capital Program to verify that the repairs recommended by the latest inspection reports are being addressed; and • Review of TBTA’s Routine Maintenance Program with the facility engineers to verify that the maintenance-related recommendations of the current inspection reports are being addressed.

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Review of Inspection Reports

TBTA’s seven bridges and two tunnel facilities undergo periodic condition inspections. Bridges are inspected biennially per federal and state mandate, with interim yearly inspections of any components that require monitoring. The purpose of the biennial inspection program is to maintain the safety and structural integrity of bridges. A recent report which assessed the TBTA’s Bridge Inspection Program by an independent engineering firm well known in the field of structural inspection and appraisal, noted that “the program is meeting the minimum state and federal standards” and “In several respects the program exceeds the minimum standards” and “with respect to the accuracy, clarity, and thoroughness of the reports generated, we find them to be of the highest quality”.

While there is no federal or state mandate, TBTA has decided that it will adopt biennial inspections for their tunnels as well, with more comprehensive inspections every ten years. The FHA/FTA Tunnel Inspection Manual recommends an interval of 2-5 years between inspections, thus TBTA is in conformance with this guideline. The regular biennial inspection of the Queens Midtown Tunnel was awarded in 2007 and will be completed this year. The Brooklyn-Battery Tunnel will undergo a comprehensive condition inspection in 2008.

The TBTA bridges were last inspected and their physical condition appraised in 2006/2007 by various consultants, under the New York State Biennial Bridge Inspection Program. New cycles of NYSDOT Biennial Bridge Inspection are currently underway. In addition, separate under- water and substructure inspections were performed in accordance with the five-year cycles of NYSDOT to obtain riverbed contours and to assess potential scour conditions at the substructure. These ongoing inspections, performed by the inspection consultants, consisted of close visual examination, 100% hands on inspection of designated critical elements, sounding and chipping concrete, scraping and cleaning steel, and taking appropriate measurements to determine the physical conditions of the bridges and tunnels. The biennial bridge inspection is performed per the guidelines of the New York State Bridge Inspection Manual and the Federal Guidelines. Under these guidelines, each bridge component is inspected and assigned a rating. Any priority conditions are reported immediately to the TBTA for prompt attention. The ratings are reviewed by TBTA personnel to assess what components of the bridge require more comprehensive inspection and rehabilitation, which is then awarded as contracts under the Capital and Maintenance Programs.

The biennial inspections of the tunnels will fill a similar function. The biennial tunnel inspections will consist of an overall assessment and rating of the various tunnel components, as documented in TBTA’s ECP-318 guidelines, and will provide the function of ongoing monitoring of the tunnels for safety, operations and overall structural integrity. Since some tunnel components are not as readily accessible as bridge components, the comprehensive inspections will complement the biennials by providing a more in-depth assessment at regularly spaced intervals.

The consulting engineering firms who performed the 2006 and 2007 biennial inspections and those who performed or are performing the 2001 and 2008 tunnel inspections for each facility were/are:

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Facility Consulting Firm

Triborough Bridge Charles H. Sells, Inc. (2006/2007) Throgs Neck Bridge Charles H. Sells, Inc. (2007) Bronx-Whitestone Bridge Hardesty and Hanover (2007) Henry Hudson Bridge HAKS (2007) Queens Midtown Tunnel Jenny Engineering (2008) facility approach bridges: HAKS (2007)) Brooklyn-Battery Tunnel Parsons Brinckerhoff (2001)

Verrazano-Narrows Bridge Lichtenstein Engineering Associates (2006/2007) Marine Parkway/Gil Hodges Mem. Br. HNTB (2007) Cross Bay Bridge HNTB (2007)

These firms are well known in the field of structural inspection and appraisal. Copies of pertinent sections of the final inspection reports for the various facilities were requested and made available by TBTA. Bridges that are part of the even-year inspection cycle listed above will be undergoing inspections this summer, and therefore the results of these inspections are not available at this time. The results of these inspections, also done by experts in the field, will generally be available at the end of the year.

Funds programmed for TBTA’s 2005-2009 Capital Program total approximately $1.2 billion dollars. The plan breaks this amount into specific projects by facility as well as agency-wide projects. Comparisons between the Capital Program projects and total repair item lists for each facility, as prepared by inspection consultants, confirm that the Capital Program gives high priority to key rehabilitation projects. Conclusions, recommendations and cost estimates for each facility can be found in the latest biennial bridge and tunnel inspection reports. By prioritizing necessary facility rehabilitation projects, TBTA addresses all high priority recommendations in the current Capital Program or under maintenance programs that have not been addressed as part of the previous Capital Program.

Current major rehabilitation projects (and designs) addressing the recommendations of the latest inspection consultants’ reports include:

Triborough Bridge - The design phase of the contract for the deck replacement for the Bronx toll plaza and ramps is underway with construction anticipated for 2011/2012, and Manhattan toll plaza construction anticipated for 2015. Deck widening and replacement construction of Ward’s Island and Randall’s Island viaducts began in August 2005, and completion is anticipated for spring 2009. The Ward’s Island Approach Deck Replacement will include widening by one lane in each direction to minimize the traffic impacts. Minor priority maintenance steel repairs of components noted in the most recent inspection are being incorporated into the on-going work at the facility. Maintenance painting of Ward’s Island Viaduct and the superstructure of the suspended spans are ongoing and is nearing completion. A contract to perform anchorage

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rehabilitation and dehumidification was awarded in August 2006 and should be complete by spring of 2009. Projects completed within recent years include the main cable rewrapping and anchorage rehabilitation, and bridge deck replacement at the Queens approach. Numerous repair projects such as repair of the bridge deck joint drains, cracked deck, piers, superstructure, substructure, and suspended span deck replacement, and mechanical rehabilitation associated with the Harlem River and Manhattan lift span have also been completed.

Bronx-Whitestone Bridge - A major program to paint the main cables, suspender ropes and towers was awarded in October of 2007 and will continue through 2009. Design of interior and exterior anchorage rehabilitation is ongoing and construction is scheduled to begin in 2010. Portions of the recommendations from studies that investigated deck replacement with a lightweight deck and improving the aerodynamic and seismic performance of the bridge are continuing to be implemented through TBTA’s capital projects. The following describes these projects and their status. The construction of the lightweight windfaring to replace the stiffening truss on the suspended span was completed in 2004. The installation of a lightweight orthotropic deck, required to replace the roadway deck, was recently completed. The feasibility study for complete replacement of the main cables, should that become necessary in the future, is complete, and it has been concluded that replacement is feasible if it becomes necessary. Several replacement options are being studied, including some that could increase the structure’s traffic capacity. There is no need to replace the cable in the near future, thus monitoring and maintenance of the main cables is ongoing. The design for the replacement of the Bronx approach span is complete, with construction anticipated to begin in fall of 2008. The Queens approach span replacement design will begin in summer of 2008, with construction in 2011-2015. Flag repairs in the approaches will continue until the approaches are replaced. Projects completed within recent years include: replacement of the stiffening truss with lightweight windfaring, painting and replacement of the collars of the suspender ropes, construction and testing of the prototype deck replacement for the suspended span, installation of orthotropic bridge deck in the suspended span, addition of three new tollbooths, the installation of acoustic sensors for cable monitoring at the main cables, and the rehabilitation of the Bronx/Queens approach ramps.

Throgs Neck Bridge - A full-scale design study of how to best implement orthotropic deck replacement has been awarded, with design anticipated for 2012. Construction of a major rehabilitation contract is ongoing that includes tower and structural steel painting, steel repairs of the suspended span superstructure, main cables and suspender ropes investigation and catwalk replacement, with completion anticipated in 2009. Full-scale lighting replacement on the structure will begin in 2008, phased with the deck replacements. Design for deck rehabilitation and replacement on the Queens approach is completed with construction expected to start in 2008. Design for rehabilitation of the fenders at the towers and anchorages began in April of 2006 with construction anticipated for spring of 2009. Structural repairs to address flag conditions from the most recent biennial inspection will be completed in spring/summer 2009. Projects completed within recent years include: the new bridge electrical system upgrade, including the installation of new electrical switchgear at the four electrical substations, reconstruction of the Bronx approach slab north of the tollbooths, rehabilitation of the Bronx approach, south of the tollbooths, scour backfilling at piers 20, 42, 47, 49, 52, 55 and 56 and protection of piers 19, 20, and 46 to 57, structural steel rehabilitation, drainage system improvements, roadway barrier painting and replacement of the slab on grade in the toll plazas.

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Henry Hudson Bridge - The study for the southbound lower level toll plaza expansion, replacement of the garage and the south approach replacement is in the scoping phase, and design is anticipated to start in 2010. The garage and south approach is expected to be replaced in 2015. The lower level toll plaza expansion is expected to take place in 2020-2023. The design for the replacement of the upper level deck in the vicinity of the toll plaza is on hold pending discussions of how to implement new tolling options. Funds for this work are programmed in the 2010-2014 Capital Program. Construction of the lower level deck replacement will continue through 2010. The design for the removal of the sidewalk and the curb stringers on the upper level, and the widening of the bridge is ongoing with construction anticipated for 2010. The cross drainage of the approaches between Dyckman Street and the main span are undergoing rehabilitation/replacement design with construction anticipated in August of 2008. Construction for the replacement of pier caps in the approaches is ongoing to address flagged conditions from a previous biennial inspection. Full depth deck repairs are ongoing and will be complete before summer. Ongoing major maintenance includes limited rehabilitation of the lower level garage consisting of concrete repairs, and repaving and waterproofing the roadway above the garage which will be complete in 2009. Miscellaneous rehabilitation of the Staff Street. and Dyckman Street. bridges and the northbound parkway are scheduled. Projects completed within recent years include: replacement of deck joints at Staff Street and spall repairs on abutments, and rock bolting, netting and scaling of the slopes adjacent to the approaches, comprehensive maintenance painting and steel repairs for the entire bridge structure including the main span and approaches, and major maintenance projects including spall repairs at the towers, resealing the upper level deck, and light pole rehabilitation on the parkway approaches. The stone wall guide rail was repaired, repair of steel stringer pedestal defects on the main bridge were completed, as well as the repair of bearings and installation of safety ladders and platforms to the Dyckman Street electrical rooms.

Queens Midtown Tunnel -A construction contract to replace the exhaust fans and to perform minor repair to the supply fans is ongoing and scheduled for completion in 2008. Design for the electrical rehabilitation on the vent building is in procurement, with construction planned in the next capital program. The rehabilitation of two overpasses including deck repair and beam encasement repair in the Manhattan approach area was completed. Construction of an annex to the service building and replacement of the facility engineer’s building with connection to the Service Building, and exterior rehabilitation of the Service Building is under design with construction scheduled to begin in 2008. Major maintenance projects include paving in portions of the tunnel and plazas, which is ongoing. Projects completed within recent years include the following: the rehabilitation of the pipe gallery connection between the Service Building and the Queens Emergency garage, replacement of drainage pumps inside the ventilation building and at the plazas, rehabilitation of tunnel ceiling and walls (tunnel finish and leak repairs and upgrading of the fire standpipe system), reconfiguration of the traffic island in the Manhattan entrance plaza to provide better traffic flow, and various structural repairs in the ventilation buildings.

Brooklyn-Battery Tunnel - The rehabilitation of the Brooklyn plaza pipe chase is complete. The design of structural and architectural repairs for vent structures is complete and construction is to be awarded in phases from 2007 through 2011. The second phase of rehabilitation of the tunnel walls and fire suppression system is anticipated for award in the next capital program.

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Modernization and upgrade of the control room is ongoing and construction is scheduled for completion in fall of 2008. On Governor’s Island, a new pump system to get water runoff into the sanitary system was designed with construction to be completed in summer of 2008. Design for repair of the exhaust fans in the ventilation structure is ongoing with construction planned for 2009 through 2012. Electrical design to replace the tunnel feeders and switchgears is ongoing with construction planned for the next capital program. Projects completed within recent years include: the construction of the elevator upgrades in the ventilation structures, egress improvements and the replacement of the facade in the Governor’s Island building, construction of a second story addition with recladding, window replacement and masonry and roof repairs to the existing service building, construction of tunnel roadway and drainage system rehabilitation, tunnel leakage repairs and wall tile replacement, fire standpipe and waterline valve replacement, installation of a new ethanol fuel tank, and installation of new electrical generators.

Verrazano-Narrows Bridge - Lower Level and Lily Pond Avenue bridge have ongoing deck replacement projects that will finish this year. Design for the widening of the Belt Parkway ramps is scheduled for 2009. The toll plaza east and west bound ramps are currently in design and are scheduled to be re-decked in 2010-2012. Design for the utility relocation necessary for re-decking of the upper level suspended span is complete with construction to be awarded in 2008/2009. Redecking is planned for 2010. Design for tower/suspended spans seismic retrofit is scheduled for 2010. Miscellaneous steel repairs to address priority conditions noted in the most recent biennial inspection reports are being addressed in ongoing maintenance and capital programs. Rehabilitation and expansion of the service building is being considered. General maintenance paving is ongoing. Rehabilitation of the traveler is ongoing. The rehabilitation of the electrical substation design is expected to be complete and construction should be awarded in 2011. The Salt Storage Facility in Staten Island is in construction, and should be complete by the end of 2008. The installation of sensors with the provision of real time under bridge clearance is under development. Projects completed within recent years include: maintenance bridge painting of the entire suspended spans, rehabilitation, sealing and dehumidifying of the Brooklyn and Staten Island anchorages, rehabilitation of the service building roof , and maintenance painting of the Brooklyn approaches and tower painting including drainage rehabilitation of the lower level and top lower strut of the Brooklyn approaches.

Marine Parkway-Gil Hodges Memorial Bridge - The design-build contract for a pre-engineered service building is complete. Repairs of secondary members and at lower priority locations are in construction and are expected to be completed in spring of 2009. Ongoing maintenance work includes replacement of the span locks, painting of the deck trusses and repairs to the steel roadway and grating, which will be complete in spring of 2009. Projects completed within recent years include: major maintenance painting of the superstructure, east and west side structural steel repairs, deck replacement and bridge widening, boiler replacement, navigation lights and signs for mariners, replacement of on-grade slab prototype with pre-cast slab in the toll plaza, priority steel repairs, refurbishing of the tollbooths and main motor shaft west, bearing replacement in the towers and replacement of the elevators in the towers.

Cross Bay Veterans Memorial Bridge - A contract to rehabilitate the deck and superstructure is ongoing with construction scheduled to be completed in 2010. A design to rehabilitate the substructure of the bridge, including the concrete piles and pile caps is complete and will be bid

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with construction scheduled for 2010. A facility engineer’s trailer was installed in 2007. Painting and refurbishing of the exteriors of the tollbooths is planned. Fender repair, and bike path rehabilitation are planned for the next capital program. Projects completed within recent years include: a salt dome, rehabilitation of the air conditioning system in the service building, boiler replacement, installation of continuity plates in the median barrier, the construction of structural and electrical rehabilitation of the concrete slab on grade at Ramp ‘D’ (southbound ramp extending from the main bridge lanes), the replacement of the main high voltage feeders from the south abutment to the main service building, the rehabilitation of the drainage system at the promenade at the Rockaway approach, repair to the office trailers, refurbishing of the interior of the tollbooths, and the complete concrete and drainage rehabilitation of the promenade and seawall.

Other Systemwide Improvements

Agency-Wide - Since the September 11 attack on the World Trade Center, TBTA has engaged consultants to assess security risks of their facilities. As a result of these risk assessments, increased security improvements including various monitoring, surveillance and hardening projects have been implemented or will enter construction shortly at TBTA facilities. TBTA has also maintains a security department and incorporates mitigation measures into their operations, capital and maintenance programs.

TBTA is currently in the process of conducting a Weigh-In-Motion (WIM) project, which uses WIM technology to identify and restrict the passage of overweight vehicles on their facilities to dissuade illegal overweight vehicles from using their structures. Trucks up to the bridge formula with a maximum weight of 80,000 lbs are currently allowed by permit on TBTA facilities. Heavier trucks are allowed on the Throgs Neck Bridge only, driving in the center lane with their speed restricted to 30 mph, for a type T6 configuration up to 105,000 pounds, and five axle milk trucks up to 100,000 pounds. Three and four axle concrete trucks with up to 11 cubic yards of concrete are allowed through the Queens Midtown and Brooklyn Battery tunnels. Overload trucks, above these limits, may be allowed on and through TBTA facilities with special handling and a permit. According to the TBTA, these increases in allowable load were demonstrated by computations performed by its consultants to be within safe limits for the structures. Bridges generally can accommodate overweight vehicles safely, but over time, these vehicles can contribute to increased wear on the facility, requiring increased maintenance repairs. In order to mitigate this, future rehabilitation designs on bridges, where feasible, will allow for heavier vehicles on some facilities, while more stringent enforcement is maintained.

Current Intelligent Transportation System project initiatives include:

• Further enhancements (additional sensors, redundant communication paths) to the previously completed weather recording systems at all facilities. • Installation of additional Closed Circuit Television (CCTV) equipment for effective monitoring and managing of traffic and incidents as well as upgrading of the communications network with fiber.

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• Installation of Video Incident Detection Systems (VIDS) is complete at the Brooklyn- Battery and Queens Midtown Tunnels, and the Throgs Neck Bridge. This system uses video feeds from in-tunnel cameras to automatically detect stopped traffic and alert facility personnel of possible traffic or security issues. • Upgrading of the operations centers at all TBTA’s facilities as well as internal integration with the Randall’s Island Operations Control Center (RIOCC) is complete. The RIOCC has also been upgraded and linked externally to regional transportation operations centers such as TRANSCOM, for improving transportation services both at TBTA facilities and the region as a whole. Installation and expansion of TRANSMIT (an E-ZPass-based system) and other incident detection systems is also proceeding well. TRANSMIT is now operational at 6 facilities and under construction at three more. • The Variable Message Sign (VMS) program is proceeding well. Seven new VMS have been installed and approximately 23 more are in various stages of design and procurement. Even more are planned in the next capital program. • Seven Variable Speed Limit Signs have now been installed. Approximately 64 additional are in various stages of design and construction. • With respect to the E-ZPass toll collection system, a number of major improvements are now complete. All lane controllers and Plaza Host computers have been replaced. New Central Toll Registry (CTR) computers are being tested prior to installation. Further, TBTA is in the process of replacing a number of sensor devices in each toll lane.

Other projects completed within recent years include: the installation of the Computer Aided Drafting and Design system, traffic, safety improvements, tank testing and replacements, installation of weather recording system and inspection platform, Randall’s Island Garage roof replacement, E-ZPass initial installation at 119 tollbooths systemwide, facility improvements to comply with Americans with Disabilities Act requirements, the installation of main electrical feeders to increase capacity at Randall’s Island, and the installation of the heating, ventilation and air conditioning system at the Robert Moses Building. Restoration of the Robert Moses Building at Randall’s Island, and the installation of CCTV to allow observation of traffic and activity at all bridges and tunnels were also completed.

As part of the Capital Program planning process, TBTA personnel conduct a 20-year capital needs assessment every five years. The assessment is compiled from data from biennial inspections, and system improvements suggested by the technical departments, and include factors such as service life of various structural components and normal replacement cycles. Plans for scheduling major maintenance under the 20-year capital needs assessment are developed with input from operating personnel, which consider how to implement construction properly to maintain the optimal level of service to the traveling public both locally and system wide.

URS’ review of pertinent sections of the recent facility inspection reports found them to be extensive and detailed. Report conclusions and rehabilitation recommendations, based on URS’ limited review, appear, in the opinion of URS, to be reasonable appraisals of the required effort to maintain the operational integrity of each facility.

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URS performed a facility review of each TBTA facility with the facility engineer. The review included an on-site meeting with each facility’s engineer to obtain an update of the respective facility’s status relative to the following issues:

• Ongoing rehabilitation projects; • Ongoing maintenance projects; • Rehabilitation projects addressing the recommendations of the previous inspection reports; and • Repairs to alleviate the flagged conditions of the previous inspection reports.

The reviews proved informative. Facility projects and agency-wide projects specific to each structure were discussed.

It is important to note, however, that URS’ testing or inspection of portions of the work of other parties shall not relieve such other parties from their responsibility for performing their work in accordance with applicable requirements and the customary standard of care. URS shall not be responsible for the acts or omissions of other parties engaged by TBTA.

Long-Term Outlook for TBTA Facilities

The useful lives of bridges and tunnels, in general, could possibly be cut short for two main reasons: (a) they are geometrically and functionally unsatisfactory because they are too narrow, too steep, lacking in clearance or sufficient spatial capacity to handle the traffic; or (b) they are structurally unsafe because of deterioration or because their load-carrying capacity is inadequate to handle the loads imposed under current conditions. Deterioration may occur for a variety of reasons, including aging, but it will occur sooner if there has been inadequate or improper maintenance.

On the basis of the foregoing review and information available to us, from reports of others, it is our opinion that the TBTA bridges, tunnels and approaches are all geometrically and functionally adequate and structurally sound and generally maintained to good standards. Ongoing maintenance requirements of the structures are assessed, prioritized and addressed in an appropriate manner by TBTA to maintain a high level of safety to the traveling public, and maintain the structures for many years to come.

TBTA is looking forward, and planning to add lanes, and sometimes use peak counterflow principles on its structures, in addition to maintaining the structures, to ensure their future service- ability. We are of the opinion that all the TBTA facilities are and will be physically capable of accommodating traffic volumes at the levels projected for 2018 through the duration of the outstanding bonds that have been issued and future bonds to be issued based on a pledge of TBTA revenues through 2038, assuming maintenance consistent with past practice.

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Respectfully,

URS CORPORATION – NEW YORK

Arthur H. Goldberg, P.E. Vice President

Neal Cohen Project Manager

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