2005 Annual Report Comprehensive Annual Financial Report for the Year Ended December 31, 2005 Contents The MTA Comprehensive Annual Financial Report Message from the Chairman and the Executive Director 2 Introductory Section MTA Leadership 4 Letter of Transmittal 1 2005 Consolidated Financial Highlights 6 Certificate of Achievement for Excellence in Financial Reporting 8 Capital Program Progress 7 MTA Organizational Structure 9 MTA Operations 8 – 19 2005–2009 Capital Program • Ridership • Customer Financial Section Satisfaction • Transit Strike • Safety • Security and Independent Auditors’ Report 13 Preparedness • Environment • People with Disabilities Management’s Discussion and Analysis 14 • MTA Arts for Transit • Transit Museum • Consolidated Balance Sheets 28 MTA Holiday Bonus Consolidated Statements of Revenues, Financial Performance 20 – 23 Expenses, and Changes in Net Assets 30 Revenue and Budget • Finance • Insurance Consolidated Statements of Cash Flows 32 Operations • Real Estate and Advertising Notes to Consolidated Financial Statements 34 Required Supplementary Information: The MTA Agencies Schedule of Pension Funding Progress 69 MTA New York City Transit 24 Supplementary Information: MTA Long Island Rail Road 28 Schedule of Financial Plan to Financial MTA Long Island Bus 30 Statements Reconciliation 70 MTA Metro-North Railroad 32 Supplementary Information: Consolidated Reconciliation between Financial Plan and MTA Bridges and Tunnels 34 Financial Statements 71 MTA Capital Construction 36 Supplementary Information: Consolidated MTA Bus Company 38 Subsidy Accrual Reconciliation between Financial Plan and Financial Statements 72 Statistical Section 10-Year Statistical Tables 74 2005 Operating Statistics 78 MTA Board and Agencies 80 1 Message from the Chairman and the Executive Director May 1, 2006 Peter S. Kalikow, Chairman While 2005 was filled with significant challenges for the MTA, it was nonetheless also a year of positive achievement. Putting the Authority’s financial house in order continued to be front and center as projected long-term deficits were masked by a number of short-term positive developments on the revenue side of the ledger. Lower bor- rowing costs and strength in the regional real estate market, which provided a temporary spike in transit-dedicated tax revenues, com- bined to provide an unanticipated budget surplus. The good news was that the additional revenue enabled us to pay down some pen- sion and other costs that threatened our future budgets—and to give customers back a portion of the surplus in a first-ever Holiday Bonus program. Nevertheless, it did not entirely solve a series of structural problems that remain. Katherine N. Lapp, Executive Director Two developments in 2005 validated the MTA’s efforts in rebuilding the system over the past 20 years and ushered in a new era for our regional public transportation network. When the state Capital Program Review Board approved the MTA’s 2005-2009 Capital Program and the state’s voters approved the Rebuild and Renew Bond Act, they gave the MTA a vote of confidence as a driving force keeping our region and its economy vital and growing by serving cur- rent and future riders. Both actions committed substantial funds to continue incremental improvement—replacing out-of-date signals and hardware, maintain- ing and upgrading the system in general. They also earmarked funds to make the next five years a definitive breakthrough to expand a transit network that has not grown in decades. In the next five years, we will begin to construct the first elements of a series of expansion projects that will dramati- cally enhance our capacity and flexibility: the East Side Access Project, which will bring Long Island Rail Road commuters into Grand Central Terminal and relieve overcrowding in Penn Station, and the Second Avenue Subway, which will relieve congestion on the nation’s most crowded subway line and give 400,000 commuters an alternate route from 125th Street to Lower Manhattan. In addition, we’ll begin working on elements of a direct rail link between JFK International Airport and Lower Manhattan. These projects and others will fill strategic gaps in our ability to respond to the needs of today’s customers and prepare to handle the flood of new customers projected to sweep into the region in the future. The next few years will bring tangible bricks-and-mortar progress. 2 We are proud of the creativity and long hours MTA At the same time as we engage the great staff put into crafting a visionary yet prudent new challenges of the new Capital Program, Capital Program. We are gratified that the effort we we will also advance initiatives that have devoted to briefing legislators, working with the con- deep impact and consequences beyond struction and financial industries, and mounting a pub- headlines, as we did last year. Those lic education campaign to highlight the past and future included additional strides in contributions of public transportation to our collective improving the transparency of prosperity have won over these constituencies in sup- the MTA’s operations, espe- port of the plans we laid out to maintain the system cially our financial status and and expand it. plans, in assuming the routes Difficult challenges remain, however. The issues of once operated by formerly the 2005 transit strike are still not resolved and we will city-franchised bus companies through the work towards forging a fair, fiscally sound settlement, newly created MTA Bus Company, and in searching exhaustively for ways to solve the looming awarding major contracts for state-of-the- crisis that growing pension and health care costs art security systems. pose. We also take this opportunity to herald the And while the MTA ended 2005 with a balanced day-to-day work of our 63,500 employees. Their budget and a $1.18 billion cash surplus, projections efforts last year brought our customers many service show deficits beginning in 2007 and reaching $1.5 bil- records and enhancements, better safety perform- lion by 2009—due to debt service, benefit and pen- ance, and countless visible and invisible infrastructure sion costs, paratransit costs, inflation, insurance, and upgrades to make the daily commute more routinely increased materials costs. Even a continuation of the uneventful and comfortable. strong real estate market that generated so much of The next five years will be no less demanding than the 2005 surplus, along with the increased tax-related the past five, but we are confident that the skills, subsidies that will have full effect in 2006, are not plans, working relationships, and commitment we expected to cover these increases. have developed will prove to make them even more We always like to report tangible, measurable, fruitful. results: increases in ridership, number of stations reha- bilitated, reductions in number of breakdowns, increases in number of miles traveled between break- downs. Achievements of this kind speak for them- Sincerely, selves; customers, regulators, and the financial com- munity readily appreciate them. The 2005-09 phase of our core program will enable us to continue to achieve such benchmarks; the rest of the Capital Program will enable us to actually begin building the expansion Peter S. Kalikow projects that have been on the drawing board for Chairman many years. Finding solutions to budgetary and financial challenges will be equally if not more demanding and will require the same if not more daily creativity and energy. We learned in 2005 that working with our Katherine N. Lapp constituencies to heighten their awareness of how Executive Director public transportation contributes centrally to their prosperity is essential for success, and we will continue to develop the support we have built with our funding partners as well as with the general public to find these solutions. 3 MTA Leadership MTA Board Left to right: Edward B. Dunn, Vice Chairman (retired December 31, 2005) Peter S. Kalikow, Chairman David S. Mack, Vice Chairman Left to right: Carl V. Wortendyke, Mitchell H. Pally, Left to right: Nancy Shevell Blakeman, Left to right: Barry L. Feinstein, Susan L. Kupferman,* James H. Harding Jr. Michael J. Canino Andrew B. Albert, Donald Cecil Left to right: Anthony J. Bottalico, Left to right: Francis H. Powers, Left to right: John H. Banks III, Mark D. Lebow, Ed Watt Susan G. Metzger, James L. Sedore Jr. James F. Blair, James L. McGovern 4 * Resigned from Board March 26, 2006 to assume presidency of MTA Bridges and Tunnels. Not shown: Mark Page MTA Management Left to right: William Wheeler, Director of Special Project Development and Planning; Thomas Kelly, Director, Communications; William Morange, Deputy Executive Director/Director of Security; Paul Spinelli, Auditor General; Katherine N. Lapp, Executive Director; Linda G. Kleinbaum, Deputy Executive Director/Administration; Gary M. Lanigan, Director, Budgets and Financial Management; Catherine A. Rinaldi, Deputy Executive Director/General Counsel; Timothy A. O’Brien, Corporate Secretary/Chief of Staff (Named Deputy Director, Communications on March 31, 2006); Christopher Boylan, Deputy Executive Director/Corporate and Community Affairs MTA Agency Presidents Left to right: James J. Dermody, MTA Long Island Rail Road; Mysore L. Nagaraja, MTA Capital Construction; Lawrence G. Reuter, MTA New York City Transit; Peter A. Cannito, MTA Metro-North Railroad; Thomas J. Savage, MTA Bus Company; Neil S. Yellin, MTA Long Island Bus (Not in photo: Susan L. Kupferman, who became president