Court Bars Subway Fare Increase; Riders May Enjoy Odor and Ambience of System at Same Price

The New York State Metropolitan T ransportation Authority (MTA) announced at a public board meeting in November 2002 that it has a $24.6 million surplus in fiscal year 2002 and that it had a projected $2.8 billion deficit for fiscal years 2003-04. The MTA then approved a financing plan repeating this projection and calling for a 33% increase in subway, bus, and commuter railway fares to narrow the gap.

The MTA was required by law to conduct a public hearing on the proposed fare increase and issued notices of a public hearing reiterating the projected deficit and the need for the fare increase. In February 2003 the MTA held 10 low-key public hearings throughout the five boroughs and ultimately approved the fare change without receiving further comment.

Meanwhile, the state comptroller had been surprised by the MTA's projected deficit and ordered an audit. After subpoenaing the records from the MTA, the comptroller determined that the MTA had two sets of financial plans, a public financing plan and an internal plan. The internal plan revealed that the MTA actually had a surplus of $537.1 million in 2002 and had secretly used the bulk of the surplus for "off-budget reserves" to be drawn down in 2003-04.

In New York Public Interest Research Group Straphangers Campaign, Inc. v. Metropolitan Transportation Authority, No. 107871/03 (N.Y. Sup. Ct., New York Co., May 14, 2003), a public interest group sued to prevent the rate hike on the grounds that the MTA's misleading of the public had undermined the public hearing requirements by chilling any dissent in the face of a supposed major deficit.

The court noted that the purpose of the public hearings requirement was to have the public assist the MTA in establishing a reasonable rate structure and to allow the public an open forum in which to express their views. The court held that the public hearing statute had an implicit requirement that the MTA provide accurate financial information in order to ensure a fair and open hearing for these purposes.

The court concluded that once the notice preceding a public hearing is deemed invalid the subsequent administrative determination cannot stand because it must be considered arbitrary and capricious. The court found that the notice was invalid and ordered that the fares be rolled back to their prior levels.