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Auditors warn UTA is piling up debt, on financial tightrope
This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Legislative auditors say the Utah Transit Authority is trying to walk a shaky financial tightrope — and it may be using faulty figures and projections as it tries to keep its balance.

"Our concern is that UTA's revenue projections are optimistic, while expenses may be understated," says a Legislative Auditor General's report released Thursday morning. That "may threaten the agency's ability to operate the system that is being built," and "may force UTA to reduce transit service and/or delay future transit projects."

But the UTA says that while the recession may have put it on a tightrope, it is confident it can shift as needed to find proper balance as it proceeds.

"The audit suggest that UTA is walking a financial tightrope. We appreciate this view and believe it demonstrates UTA's ability to monitor and adjust to changes in the external financial environment while at the same time moving ahead with the projects," wrote UTA General Manager Michael Allegra and Board Chairman Greg Hughes in a response to the audit.

Gov. Gary Herbert said he hadn't had time to review the audit but, "clearly on principle, if we don't have enough revenue to pay for expenses, we ought to be concerned."

The governor said mass transit is critical to the state, but it should be economical.

House Speaker Becky Lockhart, meanwhile, noted that UTA is funded with a portion of the sales tax and the agency controls its own budget. The Legislature could change that, but is not likely to intervene and said there would be "no bailout for UTA."

Auditors outlined several reasons for concern.

First, UTA is in the process of finishing the $2.3 billion FrontLines 2015 projects, including four new TRAX lines and an extension of its FrontRunner commuter rail to Provo. Auditors noted that past rail projects were funded 75 percent by the federal government, but the new ones only have 25 percent federal funding.

So it says the UTA has borrowed heavily to build the new lines. Debt payments will grow from $70.7 million in 2010 to $166 million in 2020 — and will require $4 billion in debt payments over the next 30 years. The heavy debt and lower sales tax revenue led rating companies to downgrade UTA's bond rating last year to A+, down from AA-. Many Utah governments have a much higher AAA rating.

Those debt payments have come at the same time that sales tax revenues — which provide 80 percent of UTA's income — are much lower because of the recession than projections made when the new projects were planned.

"UTA's 2010 sales tax revenues were $67 million below 2007 projections, and by 2020, UTA's cumulative sales tax revenue is expected to be $1.2 billion below 2007 projections," the audit says.

Also, over the next decade, auditors say UTA is now counting on sales taxes bringing in $111 million more than the State Tax Commission says is likely.

And auditors worry the UTA is also overly optimistic about increases it projects for farebox collections and federal grants. It projects a 141 percent increase in federal operating subsidies, and a 125 percent increase in farebox revenue.

But auditors note that UTA assumes that federal grants will not only continue but increase, while it says discussion in Congress shows that it could be cut.

The report said UTA is counting on increasing its fare revenue by going to a distance-based fare system, instead of charging a flat fee for trips of any length. But auditors said the system is yet to be developed, faces technical challenges, and would be different than any system used elsewhere — so auditors question if projections are realistic.

On top of all those questions, auditors noted that UTA is also planning to add many other projects from streetcars to bus rapid transit systems and commuter rail extensions. Auditors recommended that reliable revenue sources to cover their operating costs be identified before construction begins.

But Allegra and Hughes wrote UTA is confident in its figures and future. They said UTA has been even more conservative than the state in its short-range revenue projections, and its "long-range forecast is based on the past 30 years of actual performance."

They said UTA has shown that it adjusted well to the recession. "While many transit agencies have significantly reduced service, have substantially raised fares, or canceled construction of new rail lines to meet budget obligations, UTA has avoided those drastic measures" through cuts in staff and benefits and increased efficiency.

Allegra and Hughes said, however, that UTA will do a "thorough evaluation and prepare detailed work plans to address all of the audit recommendations."

— Robert Gehrke contributed to this report.

Transit • Critics say revenue projections use faulty figures.
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