OLA Jim Nobles Releases Critical Met Council Transit Audit: Legislative Leaders React
[This is the NewsAlert we released this morning. Photo of OLA Auditor Jim Nobles from Minneapolis Star Tribune.]
Rep. Linda Runbeck, Chair of Transportation and Regional Governance Policy in the Minnesota House of Representatives, asked today, “Who’s being told the truth?”
This was in reaction to the Office of the Legislative Auditor (OLA) report, entitled “Transit Financial Activity Review Through June 20, 2017.”
Here is the top line summary:
“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 OLA audit calls into question the reliability of the Council’s financial statements and the State Auditor’s process when issuing a clean audit opinion, “observed Kim Crockett, Vice President and Senior Policy Fellow at Center of the American Experiment. The Met Council’s 2016 Comprehensive Annual Financial Report or CAFR was issued an “unmodified (clean) audit opinion” by the Rebecca Otto, the State Auditor (see, Roman Numeral Page X here).
The Center has been working with an audit team for several months to determine whether the Council could maintain the existing transit system.
Crockett said, “Our team could not reconcile the Council’s federal filings about Southwest Light Rail with its public statements about its operational deficit. The answer to that question would determine whether Southwest Light Rail would be eligible for a billion dollars in federal funding, taxpayer support for operational expenses—and eventually capital replacement costs. That is a lot of public dollars running through this unaccountable entity.”
The report was prepared at the request of the 2017 Legislature after concerns arose about financial transparency of the Met Council’s budget. The release was the first in series of quarterly audits of the Metropolitan Council’s Transportation Division, also known as Metro Transit.
The report’s conclusion on page 1 was (emphasis added):
Based on our review, we did not see any significant problems in the Metropolitan Council Transportation Division’s historical balance sheets, and the Council has maintained adequate reserves in the past to adjust for variations in its transit revenues and expenses. However, the Council has projected financial difficulties for fiscal years 2020 and 2021. Additionally, we noted inconsistencies between these projections and those the Council has provided to the federal government in plans related to future light rail projects. Council staff told us they use one set of assumptions (based on historical state and local funding) when they prepare their federal financial plans, and a different set of assumptions (based on current appropriations law) when they prepare budget documents for the state or internal use. These different assumptions lead to significantly different projections of the Council’s future financial condition.
The Chair of the Legislative Audit Commission, Senator Mary Kiffmeyer, had this reaction:
“I am grateful for the Legislative Auditor’s work to bring transparency to the Met Council’s finances. The discrepancies pointed out in the OLA report underline why the Legislature asked for this audit. It is concerning that the Council’s inaccurate figures have apparently been used to secure funding from federal, state and local sources. The goal is accountability to taxpayers and their elected officials. You can be sure we will follow up.”
The report includes a letter from the Met Council, which the OLA worked with to prepare the report. Westin Kooistra, the regional administrator, wrote:
The Federal Transit Administration (FTA) requires a financial plan for new-starts projects, like SWLRT, that provides a 10-year look back at our operations as well as 20-year look forward of our budget expectations. The FTA has a well-established process for review of new starts projects that anticipates our historical patterns for state and local funding and potential fare increases into our long-term future. We meet with the FTA on a regular basis and they are well informed of our current law budget position as well as the assumptions clearly defined for our financial plan.
Other key findings (emphasis added):
- On Page 14: The plan submitted to the federal government does not show any future operating deficits in transit services, contrary to what the Council has presented in its own Transportation Finance Plan. Instead, the Council assumes that the state will continue to fund the operating costs of the Council’s Transportation Division, noting in its plan to the federal government that “the State has an unbroken history of assisting transit statewide and particularly in the metropolitan region.” We challenged this statement by the Council, given the 2017 Legislature’s actions prohibiting state funding for the Southwest Light Rail line. We also questioned whether the Council was fully disclosing to the federal government its true financial situation, given the Council’s projected deficit and decreased legislative support. This is an area we intend to examine more closely in future reports.
- On page 14: Although both the Council’s Southwest Light Rail Financial Management Plan and its more internal Transportation Finance Plan reflect projected numbers, the Council uses different assumptions for each plan. For instance, the two plans assume a different growth rate for Metro Mobility expenses, based largely on ridership assumptions.
Chair Linda Runbeck reacted this morning, saying “The bottom line is that the Met Council has manipulated a variety of assumptions that result in a major discrepancy between what the Met Council tells the feds and what they tell the state. Who’s being told the truth?”
You can read the full report here.