The Metropolitan Transit Authority of Harris County, TX (METRO) provides a range of transit services to about 3.6 million people in the Houston area. The House Appropriations Committee directed us to conduct a financial solvency audit of METRO. Our objective was to evaluate METRO’s financial condition and capacity, including its ability to fund new services while maintaining current operations. We hired Steer Davies Gleave (SDG) to conduct an evaluation of METRO’s financial condition and capacity, subject to our oversight. We conducted our work from September 1, 2016 to August 10, 2017, prior to Hurricane Harvey’s impact on the Houston area.
Based on SDG’s analysis, we found that METRO’s financial condition—its ability to operate and maintain its transit system at present levels of service—was satisfactory but vulnerable to adverse revenue or cost changes. Specifically, SDG projected that METRO would be able to maintain its current operations and debt obligations through fiscal year 2021 while maintaining its minimum required level of operating reserves—15 percent of operating expenses. METRO may also encounter difficulties maintaining its added cash reserves if it faces adverse revenue or cost changes. For example, adverse revenue changes of 5 percent or adverse cost changes of 10 percent in fiscal year 2017 could prevent METRO from meeting its added cash reserve targets in each of the 5 fiscal years from 2017 through 2021.
We also found, through SDG’s analysis, that METRO’s financial capacity—which includes both general financial condition and the stability and reliability of revenue sources needed to meet future annual capital, operating and maintenance costs—was significantly restricted due to a recent lack of reliability and stability in revenues. As a result, METRO’s ability to fund new services while maintaining operations is limited.