PDF June 30, 2019

MTA Transform ation Plan

Prelim inary Report

June 3 0 , 2 0 1 9

PLEASE SEE DI SCLAI MER ON PAGE 18

I N TROD UCTI ON

I m petus for transform ing the MTA into a cost effective, high- perform ing agency that the riders and taxpayers dem and and deserve

I n its first full year of operation in 1905, annual subway ridership was 73 m illion rides1 --in st ark cont rast --in t he past 10 years alone, MTA ridership has increased 15% by a quarter billion riders16; with 2.6 billion rides per year2-- m aking it the busiest transportation network in North Am erica. During this t im e, t he MTA and it s Agencies have oft en endured crit icism and poor reviews from riders, the business com m unity, political constituents and the public at large for underperform ance in m any facets of the organization, but m ost notably service levels and construction and developm ent activities. Since the founding of t he MTA, t he Agencies have operat ed aut onom ously and alm ost entirely independent of each other, with few instances of successful collabor at ion .

On June 29, 2017, Governor Cuom o declared t he NYC Subway Syst em in a st at e of em ergency and t asked t he MTA wit h hiring consult ant s t o analyze t he problem s and chart a pat h forward. The St at e m andat ed t he MTA develop a " turnaround" plan and was an active partner in its creation and im plem ent at ion. The result was t he New York Cit y Subway Act ion Plan of 2017 ( SAP) , which provided an addit ional $836 m illion in funding, approved additional resources through independent contractors to catch up on overdue m aint enance and ot her service im provem ent act ivit ies. The SAP im plem entation was supported by thousands of hours of extra assistance and partnership from other advisers.

Three m ont hs ago, t he New York St at e Legislat ure direct ed t he MTA t o develop a

personnel and reorganizat ion plan by June 30, 2019 ( under Sect ion 1279- e of t he New York Public Aut horit ies Law, t he " Transform at ion Plan" ) . Sect ion 1279- e also requires

t hat t he plan be approved by t he board no lat er t han July 30, 2019. I n addit ion, t he state legislature m andated reform s to end waste, fraud, abuse. I n response to t his m andat e, t he MTA Board em ployed AlixPart ners LLP, a consult ing firm , t o aid them in the process.

This Prelim inary Report sum m arizes t he proposed MTA Transform at ion Plan and m akes recom m endat ions for MTA- wide reorganizat ion act ivit ies, changes t o business processes, and other cost reduction opportunities.

These ident ified im provem ent opport unit ies and recom m endat ions, sum m arized in t his prelim inary report , would becom e part of t he MTA's plan t o address budget deficit s and im prove cust om er service. The m agnit ude and scale of t he proposed t ransform at ion is unprecedent ed in t he MTA's hist ory.

To support t he findings and recom m endat ions, AlixPart ners int erviewed m ore t han 100 MTA em ployees represent ing all Agencies and funct ions, reviewed MTA hist orical perform ance, financial and operat ional records and analyzed peer dat a published by t he Federal Transit Adm inist rat ion of t he Unit ed St at es Depart m ent of Transport at ion ( FTA) and ot her resources.

The init ial funding of t he SAP is ending. A new challenge lies ahead: institutionalizing the progress and approach of the SAP without further ext raordinary and out of capit al plan cycle funding infusions. This likely requires t he MTA t o fundam ent ally t ransform it self int o t he cost effect ive, highperform ing Agency the riders and taxpayers dem and and deserve.

Please see sources on page 19

PLEASE SEE DI SCLAI MER ON PAGE 18

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BACKGROUN D

The Subw ay Action Plan has been im plem ented in tw o phases, focused on stabilization of the system , and institutionalization of im proved perform ance levels

The MTA was form ed in 196515 essent ially as a holding com pany for several independent corporat ions including t he Long I sland Railroad ( LI RR) , t he New York Cit y Transit Aut horit y ( NYCTA) , Met ro Nort h and t he Triborough Bridge Tunnel Aut horit y ( TBTA) ( t oget her, t he " Agencies" ) .

The MTA has a 17- m em ber board represent ing t he New York Cit y m et ropolit an region wit h appoint ees from t he Governor, Mayor and surrounding Count y Execut ives, am ong ot hers. No single elect ed official cont rols t he m aj orit y of t he board. The Governor appoint s t he great est num ber of m em bers.

The organizat ion st ruct ure it self does not appear t o be opt im al. Five m ain separat e corporat ions operat e wit h different rules and regulat ions, wit h different m anagem ent syst em s and m ult iple union represent at ion.

On June 29, 2017 t he syst em 's failings, riders' dissat isfact ion and corresponding negat ive publicit y becam e so significant t hat Governor Cuom o declared a st at e of em ergency. This was t he cat alyst t o t he product ion of t he Subway Act ion Plan ( SAP) . The SAP was developed by MTA leadership, t ransit expert s, innovat ors, com m unit y represent at ives and t op m anagem ent consult ant s. Addit ional ext ensive assist ance was provided by various St at e Officials, including t he Governor him self, as well as select MTA Board m em bers. The SAP cent ralized m anagem ent cont rol wit h Chairm an Lhot a and Managing Direct or Hakim and norm al MTA m anagem ent and processes were bypassed. I ndependent cont ract ors, work proj ect s, and t im elines were cent rally m anaged and expedited.

The SAP evaluat ed t he MTA condit ions and operat ing difficult ies, and ident ified crit ical issues and new approaches t o address t hem . I t provided an addit ional $836 m illion in funds t o accom plish t he goal, waived lengt hy and cum bersom e procurem ent rules, m anaged com plex em ployee relat ions, and approved t he hiring of a record num ber of independent cont ract ors and em ployee overt im e t o accom plish basic, but delinquent , ongoing MTA funct ions. Basic m anagem ent syst em failings were t arget ed wit h ext raordinary int erevent ions3.

Please see sources on page 19

The SAP began wit h syst em ic analysis of t he MTA t hat had t wo phases:

Pha se One . Phase One of t he SAP st art ed im m ediat ely and focused on delivering im provem ent s wit hin 18 m ont hs. I t focused on a bet t er cust om er experience t hrough increased reliabilit y and capacit y, enhanced st at ions and safet y, and clear and accurat e com m unicat ion. Phase One st rat egically t arget ed addit ional personnel and equipm ent focusing on crit ical syst em com ponent s wit h t he highest incidence of failure. The five com ponent s of Phase One were4:

Addressing Signal and Track Maint enance,

I m proving Car Reliabilit y,

I m proving Public Safet y & Cleanliness,

Transform ing Cust om er Com m unicat ion and

Launching t he Crit ical Managem ent Group.

Pha se Tw o. Phase Two is t he inst it ut ionalizat ion of t hose reform s and m odernizat ion of t he syst em by int roducing new t echnology, best pract ices and new m eans and m et hods for m aint enance.

The MTA believes im plem ent at ion of t he SAP was effect ive and a result of overcom ing t he MTA's com plex and inefficient ways of doing business. The MTA believes t he SAP's success was achieved in part t hrough bypassing t he norm al operat ions prot ocols, exist ing m anagem ent and procedures. However, t he MTA believes t he SAP's progress is not sust ainable wit hout a significant financial and organizat ional t ransform at ion and inst it ut ionalizing t he lessons learned in t he SAP.

PLEASE SEE DI SCLAI MER ON PAGE 18

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I M M ED I ATE ON GOI N G OPERATI ON AL CH ALLEN GES

The MTA continues to face ongoing operational challenges, m any of w hich w ere brought to light by the Subw ay Action Plan

The SAP has been a st ep in t he right direct ion, but not all of t he work is done and t he int ensive work has revealed ot her problem s. According t o t he MTA:

? I nst allat ion of cont inuous welded rail and frict ion pads need t o be com plet ed and expanded.5

? 366 out of 472 subway st at ions m ust st ill be t horoughly cleaned by t he independent cont ract ors or by union forces who use proven m eans and m et hods.6

? All of t he new syst em im provem ent s and equipm ent , including power and signals, m ust be m aint ained. The drainage work, of clearing drain boxes and pipes t hrough t he ent ire syst em , is nearly com plet e but now t he drainage net work m ust be m aint ained, or t he problem will recur. The MTA believes t hat union work rules m ust be m odified, and new m anagem ent personnel m ust be hired, in order t o sust ain t he progress m ade on all SAP init iat ives t o dat e.7

? While SAP work has repaired over 1,700 signal com ponent s, t he MTA has acknowledged t hat t here are a num ber of slow clearing signals in t he syst em . At t hese signals, operat ors drive below post ed lim it s t o avoid wrongful discipline. NYCT has been aware of t his problem for at least five years. Com pounding t his problem , som e of t he syst em speed lim it s were apparent ly set decades ago, and have not been reviewed since. The MTA believes t his sit uat ion has been unnecessarily slowing t rains t hroughout t he syst em and t hus lengt hening com m ut es. The St at e recent ly m andat ed t he MTA t o aggressively and quickly rem edy t he problem and set a sixm ont h t im et able for a full review of speed lim it s.8

? Few of t he new best pract ices t hat t he MTA believes have been dem onst rat ed effect ive by independent cont ract ors have been incorporat ed int o MTA pract ices at any significant scale. This appears t o be indicat ive of reluct ance or inabilit y t o m ake basic changes in m anagem ent or in t he workforce9.

? Due in part t o t he hiring freeze, lim it ed new hires have occurred. The MTA believes exist ing workforce and m anagers appear t o be vest ed in t he exist ing MTA processes. On a m anagem ent st aff of t housands, over t he past t wo years, approxim at ely a dozen new personnel have been brought in at a senior level t o " refresh" t he inst it ut ion wit h st at e- of- t he- art pract ices.8

? Procurem ent is st ill a m aj or challenge hindered by siloed and duplicat ive approaches. The MTA appears t o negot iat e poorly for m at erial, const ruct ion, consult ant s, or design right s. For exam ple, in t he key procurem ent of new t rain cars, vendors are four or five years lat e on delivering cars wit h lit t le sanct ion. I n fact , t he sam e delinquent car vendors win repeat business from t he MTA.10

? Fare evasion and violence against t ransit workers has been increasing and dem ands im m ediat e response. A plan has recent ly been announced by MTA but m ust st ill be im plem ented.11

? Access t o t he syst em for disabled riders and com m ut ers is a m aj or priorit y of MTA.12

? The SAP addressed " m odernizing" t he MTA wit h new t echnology and best pract ices. Current ly t he MTA has no single ent it y charged wit h assessing new t echnology and it s applicat ion t o t he MTA net work t oday and int o t he fut ure.

? Const ruct ion proj ect s and act ivit ies appear t o be rout inely lat e and over budget . Const ruct ion m anagem ent is decent ralized in each subdivision, m aking it difficult t o at t ract and m anage t he level of expert ise and professionalism necessary t o com plet e com plicat ed proj ect s. The MTA believes t he Capit al Const ruct ion unit has dem onst rat ed recent progress and provides a m anagem ent alt ernat ive for const ruct ion proj ect s.13

Please see sources on page 19

PLEASE SEE DI SCLAI MER ON PAGE 18

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CON CLUSI ON S & RECOM M EN D ATI ON S

W e have identified seven recom m endations that underpin the MTA's Transform ation Plan ? Part 1 of 3

The MTA int ends t o build on t he m om ent um of t he SAP in a second phase: m odernizat ion of t he ent ire net work, st art ing wit h t he MTA it self. The core st rat egy behind MTA's t ransform at ion is t o cent ralize and sim plify t he organizat ion wit h t he goal t hat t ransit service and syst em expansion can be great ly im proved at a lower t ot al cost . To do t his requires fundam ent ally changing t he MTA's legacy st ruct ure int o an organizat ion t hat is m ore nim ble, efficient , and cost effect ive.

The MTA Transform at ion Plan proposes a reorganizat ion of t he ent ire ent erprise t owards a singular goal: safe, on- t im e, reliable, clean, and cost - effect ive t ransport at ion services. Cust om er experience is at t he cent er of every act ivit y, enabling t he Agencies t o focus singularly on safet y, operat ions and m aint enance.

The MTA is inefficient and com plex, which creat es an urgent need for a t ransform at ion of business processes t o im prove cust om er service. We found m any com m on business funct ions and/ or processes are split bet ween MTA and t he Agencies creat ing duplicat ion and redundancy. Part ial consolidat ions in funct ions ( i.e., Procurem ent ) , differing organizat ional st ruct ures across t he different Agencies, lack of st andardizat ion and cum bersom e legacy processes have creat ed addit ional layers of com plexit y and inefficiencies. Furt herm ore, rigidit y of Civil Service laws lim it s t he abilit y of MTA t o at t ract , ret ain, develop and m anage t alent in t he current j ob m arket while syst em wide. The MTA includes 32 unions across 70 cont ract s, which adds com plexit y.

I n t he current MTA st ruct ure, each Agency perform s support funct ions like Hum an Resources, const ruct ion m anagem ent , and Procurem ent independent ly. This duplicat ive and inefficient m odel appears t o divert valuable st aff and m anagem ent resources from core funct ions like safet y, im proving service levels, and m aint aining a st at e of good repair across t he syst em s. By consolidat ing t hese funct ions, Agencies will be able t o focus on t he core m ission, cust om er- facing act ivit ies like day- t o- day operat ions and m aint enance. We have ident ified hundreds of m illions of dollars in pot ent ial cost savings across support funct ions and Agencies.

Please see sources on page 19

Specifically, our proposal would address a host of challenges t hrough t he following act ions:

1. I n t he new organizat ion, t he Agencies should focus exclusively on safet y, day- t oday operat ions and m aint enance, rat her t han general support funct ions. The Agencies will have report ing lines t o a Chief Operat ing Officer. All ot her services will be m erged and coordinat ed cent rally wit h a goal of driving a higher level of services at lower cost s. This would result in consolidat ion of m ore t han 40 funct ional groups wit hin t he exist ing MTA Agencies t o 6 depart m ent s in t he new MTA organizat ion. Furt herm ore, t he Transform at ion Plan calls for changes t o t he fundam ent al ways t he MTA does business in order t o achieve m ore effect ive and efficient perform ance. Recom m endation: MTA should refocus Agencies on core safety, operations and m aintenance activities, and centralize all support functions.

2. To address slow, cost ly, and bureaucrat ic processes and t o creat e account abilit y, all Capit al- relat ed funct ions across t he MTA should be m erged int o a cent ral group. This new capit al group will be account able for planning, developm ent , and delivery of t he Capit al Program . This group would ident ify opt im al proj ect delivery ( groupings, t im ing, delivery) , increase com pet it ion in a hist orically concent rat ed supplier m arket , and com plet e im port ant capit al proj ect s t hat im prove service and cust om er experience quicker. Recom m endat ion: M TA should cent ralize all Ca pit a l- r e la t e d funct ions a cr oss M TA int o a ne w ce nt r a l gr oup r e sponsible for pla nning, de ve lopm e nt , a nd de live r y of a Ca pit a l Pr ogr a m t ha t im pr ove s service, the custom er experience and accountability.

3. To address inconsist ent engineering m et hods across agencies and elim inat e t he duplicat ion of processes and st andards and ensure qualit y and sust ainabilit y of infrast ruct ure, a new cent ral Engineering group report ing t o a Chief Engineering Officer will est ablish clear engineering and m aint enance st andards t o be execut ed consist ent ly across all agencies. This will provide consist ent st andards and specificat ions and elim inat e unnecessary com plexit y and duplicat ion. Recom m endat ion: MTA should creat e a new cent ral Engineering funct ion r e por t ing t o a ne w Chie f Engine e r ing Office r t o se t st a nda r ds, e nsur e quality and sustainability of infrastructure.

PLEASE SEE DI SCLAI MER ON PAGE 18

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