Met Council Attempts to Explain Away OLA Audit Findings: Will the FTA Care?

Last week the Office of the Legislative Auditor (OLA) released the first in a series of quarterly audits of Metro Transit. The audits were requested by the Legislature. The conclusion of the first report is troubling at best. But the attempt by the Met Council to spin the audit to elected officials is even more troubling.

Here is the top line summary from the OLA:

“Metropolitan Council staff told us they use one set of assumptions (based on historical state and local funding) when preparing their federal transportation financial plans, and different assumptions (based on current appropriations law) when preparing internal reports and information for the Minnesota Legislature.”  Page 14 Office of the Legislative Auditor (OLA) report, entitled “Transit Financial Activity Review Through June 20, 2017.”

The reason why this matters: if the Met Council cannot convince the Federal Transit Administration (FTA) that it can operate and maintain the current transit system, the FTA is less likely to give the Council grants for either Southwest or Bottineau LRT.

But at the state level, the Council wants to get as much money from the Legislature as possible.

The problem is, nobody knows which financial picture is accurate.

Are you ready? Here is the spin: The Met Council’s Government Affairs Director, Judd Schetnan, a well-known figure at the Capitol, sent this cheery email to certain elected officials last week:

Good afternoon Transportation Finance and Policy Committee Members,

This week, the Office of the Legislative Auditor (OLA) released a review of the Metropolitan Council’s Transit Financial Activity. In their review, the OLA concluded they “did not see any significant problems in the Metropolitan Council Transportation Division’s historical balance sheets.” The OLA also noted that “the Council has maintained adequate reserves in the past.”  We are pleased with these findings.

However, one sentence in the audit report’s conclusion has been misinterpreted. The attached memo from Wes Kooistra, the Council’s Regional Administrator, provides further background and clarity on the conclusions of the audit and specifically, on how the Council reports budget forecasts to the State Legislature versus how we report financial capacity to the federal government as part of our FTA New Starts (Southwest, Bottineau and Orange Line project) applications.  I would encourage to you take a minute to review the memo.

Please don’t hesitate to reach out to me with any questions regarding this or other Metropolitan Council items.

Thanks and have a great weekend,

Judd Schetnan, Government Affairs Director, Metropolitan Council

Mr. Schetnan’s characterization of the audit is inaccurate; it does not acknowledge the elephant in the room. The Council says one thing to the legislature and another to the feds. Did he not think legislators would read the audit?

The regional administrator does the same thing but his letter gives us much more insight into the problem we face. (Here is a link to the letter.) The Council’s explanation is simple:

“Ultimately, the federal government and the state require different perspectives on the data, which is what the Council accurately provided in these two separate and distinct reports.”

Here are the assumptions made by the Council when reporting to the FTA [I have made a few notes notes]:

• Future state legislatures will increase appropriations to continue to meet its statutory commitment to fund 50% of the subsidized portion existing light rail operations. Counties will continue to fund their 50% share. [Legislature specifically did not fund SWLRT]
• Future Hennepin County Boards will fund 100% of the subsidized portion of SWLRT operations in accordance with the current Board’s resolution. [True right now; Hennepin and Ramsey raised taxes to pay for it]
• Future state legislatures will fully fund the subsidized portion of Metro Mobility costs because providing this service at specified levels is both a federal and state mandate.
• Future state legislatures will provide reasonable appropriations increases necessary to support existing bus service.
• Future Metropolitan Councils will approve periodic fare increases. [2017 fare increase only brings in about $14 million; last fare increase was 2008]
• The Metropolitan Council’s Metro Transit Division will reasonably reduce administrative overhead and take other actions to improve service efficiency and reduce service costs in the coming decades. [Gosh, thanks.]

What’s the old saying? You are entitled to your own opinion but you are not entitled to your own facts—and wildly optimistic assumptions. Here are some more:

• The audit notes that for Metro Mobility expenses the state was given an 8.95% growth rate; the Feds 5% growth, resulting in a $42 million difference over five years.
• The Council reported obligations for suburban transit of $122 million to the state even though the Council is “not directly responsible” for the expenses. (The Council might have to make up for a shortfall if the suburban lines need help but it is not a direct obligation.) And of course, the Council did not include that expense in its financial update to the Feds.

The upshot is that the FTA was told the Council had reserves of well over $100 million in both 2016 and 2017, and over $152 million in 2021; the state was told there was a deficit of about $68 million over those two years and into the future (which is why the Legislature appropriated $70 million in one-time money last session and ordered this audit).

Let’s give the Met Council the benefit of the doubt; they were just answering two masters with very different demands.

Still the OLA notes that certain assumptions (e.g. Metro Mobility growth) should be held constant. And I would add, that it does not seem reasonable for the Council to assume it will have additional revenues that have yet to be appropriated especially when the Legislature just axed the project.

This does not mean the OLA will not resolve these issues in the next few audits—or even that the FTA will find this audit troubling. Transportation planning has to project well into the future so the Council can apparently look back 10 years to project out for the next 20 years.

It is troubling, however, if the FTA allows this particular MPO to use the last 10 years of funding/operations to project out 20 years. This is not a normal MPO with oversight and control from elected officials. As a result, it does not have the same stable, budget to budget bi-partisan support and buy-in for long term transportation/transit plans as other regions. The Council has utterly failed to sell its 30-year plan to local and state officials. This should worry the FTA.

For all I know, the FTA’s New Starts grant program tells applicants, “Lie to me, tell me what I want to hear so I can give you the billions in funds appropriated by Congress. Oh, and I am not going to require you to put away funds to replace the system when it wears out.” That would explain why the nation’s transit system operates in the red, fails to relieve congestion and does not have the ridership it projected. How else did we get LRT in Minnesota?

Please share this with your Legislators.