Regional Transit Authority - Louisianaapp1.lla.la.gov/PublicReports.nsf/DC21222D426FF2AF...444.4% to...

REGIONAL TRANSIT AUTHORITY

FINANCIAL STATEMENTS AND SCHEDULES

DECEMBER 31,2006

Under provisions of state law, this report is a publicdocument Acopy of the report has been submitted tothe entity and other appropriate public officials. Thereport is available for public inspection at the BatonRouge office of the Legislative Auditor and, whereappropriate, at the office of the parish clerk of court.• i

Release Date,

P&NPostlethwaite & Netterville

A Professionol Accounting Corporation

www.pncpa.com


Table of Contents

Page

Independent Auditors' Report 1

Management's Discussion and Analysis (required supplementary information) 3

Basic Financial Statements:Statements of Net Assets 13Statements of Revenues, Expenses and Changes in Net Assets 14Statements of Cash Flows 15Notes to Financial Statements 17

Other Supplementary Information:

Schedule of Changes in Restricted Asset Bond Accounts 37

P&NPostlethwalte & Netterville

A Professionol Accounting CorporotionAssociated Offices in Principal Cities of the United States

www.pncpa.com

Independent Auditors' Report

Board of CommissionersRegional Transit Authority:

We have audited the accompanying statements of net assets of Regional Transit Authority (RTA) as ofDecember 31, 2006 and 2005, and the related statements of revenues, expenses and changes in net assets,and cash flows for the years then ended. These financial statements are the responsibility of RTA'smanagement. Our responsibility is to express an opinion on these financial statements based on ouraudits.

We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of RTA as of December 31, 2006 and 2005, and the respective changes in financialposition and its cash flows for the years then ended in conformity with accounting principles generallyaccepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued a report dated November 13,2007 on our consideration of RTA's internal control over financial reporting and on our tests of itscompliance with certain provisions of laws, regulations, contracts and grant agreements and othermatters. The purpose of that report is to describe the scope of our testing of internal control overfinancial reporting and compliance and the results of that testing, and not to provide an opinion on theinternal control over financial reporting or on compliance. That report is an integral part of an auditperformed in accordance with Government Auditing Standards and should be considered in assessing theresults of our audits.

The Management's Discussion and Analysis on pages 3 through 12 is not a required part of the basicfinancial statements but is supplementary information required by the Governmental AccountingStandards Board. We have applied certain limited procedures, which consisted principally of inquiries ofmanagement regarding the methods of measurement and presentation of the supplementary information.However, we did not audit the information and express no opinion on it.

30th Floor-Energy Centre • 1100 Poydras Street • New Orleans, LA 70163-3000 • Tel: 504.569.2978

2324 Severn Avenue • Metairie, LA 70001 • Tel; 504.837.5990 • Fax: 504.834.3609

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The other supplementary information as listed in the Table of Contents is presented forpurposes of additional analysis and is not a required part of the basic financial statements. Suchinformation has been subjected to the auditing procedures applied in the audit of the basic financialstatements and, in our opinion, is fairly stated in all material respects in relation to the basic financialstatements taken as a whole.

New Orleans, LouisianaNovember 13,2007

P&N

Regional Transit AuthorityManagement's Discussion and Analysis

Year Ended December 31, 2006

This section of the RTA's annual financial report presents a discussion and analysis of the RTA'sfinancial performance during the fiscal year that ended December 31, 2006. Please read it in conjunctionwith the RTA's financial statements, which follow this section.

FINANCIAL HIGHLIGHTS

2006

Recovery from Hurricane Katrina and the resulting flooding was the most significant event to occurduring 2006. Revenues from the federal emergency bus transportation contract with the Federal TransitAdministration (FTA) funded by the Federal Emergency Management Agency (FEMA) increased by444.4% to $55.8 million. Capital grants for the construction and acquisition of property and equipmentincreased by 2.9% to $7.9 million. Loan proceeds from the Debt Service Assistance Fund loan program of$12.5 million were used to pay principal and interest on bonds and capital leases payable.

$(10)

Comparison of Net Assets Fiscal Years 2006 and 2005

2006 2005

Invested in capital assets, net ofrelated debt

Restricted

Net Assets

2005Unrestricted

2005

Hurricane Katrina and the resulting flooding was the most significant event to occur during 2005. Thisevent resulted in severe damage to assets resulting in a loss of $37.8 million, net of insurance proceeds of$10.8 million, and significant decreases in RTA's tax revenues. Capital grants for the construction andacquisition of property and equipment decreased by 72.2% to $7.6 million due to the completion in 2004of the Canal Street Streetcar Line.

(Continued)

Comparison of Net Assets Fiscal Years 2005 and 2004

2004-

-2005 200*-

$(20)

Invested in capital assets, net ofrelated debt

Restricted

Net Assets

2004Unrestricted

OVERVIEW OF THE FINANCIAL STATEMENTS

This financial report consists of four parts: management's discussion and analysis (this section), the basicfinancial statements, the notes to the financial statements, and other supplementary information.

The financial statements provide both long-term and short-term information about the RTA's overallfinancial status. The financial statements also include notes that explain some of the information in thefinancial statements and provide more detailed data. The statements are followed by a section of othersupplementary information that further explains and supports the information in the financial statements.

The RTA's financial statements are prepared on an accrual basis in conformity with accounting principlesgenerally accepted in the United States of America (GAAP) as applied to government units. Under thisbasis of accounting, revenues are recognized in the period in which they are earned, expenses arerecognized in the period in which they are incurred, and depreciation of assets is recognized in theStatements of Revenues, Expenses, and Changes in Net Assets. All assets and liabilities associated withthe operation of the Authority are included in the Statements of Net Assets.

The Statement of Net Assets reports the RTA's net assets. Net assets, the difference between the RTA'sassets and liabilities, are one way to measure the RTA's financial health or position. The increase in theRTA's net assets during 2006 is an indicator of its financial health. The increase is largely attributed to anincrease in operating revenues due to the federal emergency bus transportation contract of $24.8 million, adecrease in operating expenses of $15.2 million and an increase in tax revenues of $2.4 million offset by adecrease in government operating grants of $15.7 million.

(Continued)

FINANCIAL ANALYSIS OF THE RTA

2006 Net Assets

The RTA's total net assets at December 31, 2006 declined to approximately $75.5 million, a 18.9%increase from December 31, 2005 (See Table A-l). Total assets increased 9.6% to $287.2 million, andtotal liabilities increased 6.7% to $211.7 million.

TableRegional Transit Aut

(in thousands

Current assetsRestricted assetsCapital assetsLong-term assets

Total assets

Current liabilitiesLong-term liabilities

Total liabilities

Net assets:Invested in capital assets, net of related debtRestrictedUnrestricted (deficit)

Total net assetsTotal liabilities and net assets

A-ltiority's Net Assetsof dollars)

2006

$ 88,4957,286

189,6541.805

287,230

52,812158.932211,744

64,9987,2863.202

75.486$ 287,230

2005

$ 60,2322,577

196,7022,458

261,969

40,764157.738198,502

65,5772,577

(4.687)63,467

$ 261,969

Increase(Decrease)

46.9%182.7%(3.6)%

(26.6)%9.6%

29.6%0.8%6.7%

(0.9)%182.7%

(168.3)%18.9%9.6%

(Continued)

2005 Net Assets

The RTA's total net assets at December 31, 2005 declined to approximately $63.5 million, a 45.1%decrease from December 31, 2004 (See Table A-2). Total assets decreased 18.4% to $262.0 million, andtotal liabilities decreased 3.3% to $198.5 million.

TableRegional Transit Aut

(in thousands

Current assetsRestricted assetsCapital assetsLong-term assets

Total assets

Current liabilitiesLong-term liabilities

Total liabilities

Net assets:Invested in capital assets, net of related debtRestrictedUnrestricted (deficit)

Total net assetsTotal liabilities and net assets

A-2dority's Net Assetsof dollars)

2005

$ 60,2322,577

196,7022,458

261,969

40,764157.738198,502

65,5772,577

(4.687)63,467

$ 261,969

2004

$ 54,0642,475

261,5122.844

320,895

38,150167.143205,293

123,0422,475

(9,915)115,602

$320,895

Increase(Decrease)

11.4%4.1%

(24.8)%(13.6)%(18.4)%

6.9%(5.6)%(3.3)%

(46.7)%4.1%

(52.7)%(45.1)%(18.4)%

2006 Changes in Net Assets

The change in net assets at December 31, 2006 was approximately $12.0 million or 123.1% greater than atDecember 31, 2005. The RTA's total operating revenues increased by 73.55% to approximately $59.1million, and total operating expenses decreased by 4.95% to approximately $107.0 million. The changesin net assets are detailed in Table A-3, and operating expenses are detailed in Table A-4.

Net assets invested in capital assets, net of related debt consists of capital assets net of accumulateddepreciation and reduced by the amount of outstanding indebtedness attributable to the acquisition,construction, or improvement of those assets. When there are significant unspent related bond proceeds,the portion of the debt attributable to the unspent proceeds are included in the calculation of this item.Instead, that portion of the debt should be included in the net assets component restricted for constructionas an offset to the related bond proceeds outstanding.

(Continued)

Table A-3Regional Transit Authority's Changes in Net Assets

(in thousands of dollars)

Operating Revenues:Passenger faresFederal emergency bus transportation contractOther

Total operating revenues

Operating Expenses:Operating expensesDepreciation and amortization

Total operating expenses

Operating lossNon-operating revenues-netCapital contributions

Change in net assets

Total net assets, beginning of the year

Total net assets, end of the year

2006

2,52755,803

57358,903

83,39613.98997,385

(38,482)42,631

7.870

12,019

63,467

2005

22,58910,2511.241

34,081

92,81019.793

112.603

(78,522)18,7407.647

(52,135)

115,602

S 63T467

Increase(Decrease)

(88.8)%444.4%(53.8)%

72.8%

(10.1)%(29.3)%(13,5)%

(51.0)%127.5%

2.9%

(123.1)%

(45.1)%

18.9%

Operating revenues increased by 72.8% to $58.9 million. The increase in revenue resulted from andecrease in regular passenger ridership following Hurricane Katrina, which was offset by a federalemergency bus transportation contract funded by the Federal Emergency Management Agency (FEMA).

Non-operating revenues increased by 127.5% to $42.6 million. Federal and State of Louisiana grants andsubsidies decreased $16.0 million or 76.3%. Sales tax revenue increased $3.0 million or 7.8% andHotel/Motel tax decreased $0.6 million or 17.2%. Non-operating revenues-net included a charge of$37.8 million offset by $10.8 mllion in insurance proceeds in 2005 as a result of damages sustained toproperty, equipment, and inventory. No additional losses were incurred nor insurance proceeds receivedduring 2006.

Capital contributions increased by 2.9% to $7.9 million due to contributions related to the St. CharlesCatenary System project.

(Continued)

Table A-4Regional Transit Authority's Operating Expenses


Labor and fringe benefitsDepreciationContract servicesInsurance and self-insured costsMaterials, fuel, and suppliesUtilitiesPurchased transportationTaxes, other than payrollRentMiscellaneous


2006

$ 62,21413,9897,2385,4576,085

93315655666097

S 97,385

2005

$ 65,17219,79311,8524,9698,0181,540

13542166538

S 112,603

Increase(Decrease)

(4.5)%(29.3)%(38.9)%

9.8%(24.1)%(39.4)%

1,100.0%2.6%

297.6%(81.6)%

(13.5)%

Contract services; materials, fuel, and supplies; and utilities decreased due to the loss and/or decrease intransit services, the damage to RTA facilities and assets, and the displacement of the majority of thepopulation of New Orleans and its surrounding areas, including most RTA/TMSEL employees due to thedevastation caused by Hurricane Katrina.

Depreciation expenses decreased by 29.3% to $14.0 million due to impairments recognized in 2005 as aresult of losses caused by the hurricane.

Insurance and self-insured costs increased by 9.8% to $5.5 million due to a $1.1 million increase ininsurance premiums offset by a $0.6 million decrease in the provision for claims due to increases inestimates on previously existing claims and a reduction in the number and amount of new claims incurredin 2006 as compared to prior years.

Purchased transportation increased by 1,100.0% to $156,000 due to the supplemental purchase ofparatransit services provided in Baton Rouge by Reliant Transportation Group.

Rent increased by 297.6% to $0.7 million due to increases in office and equipment leases necessary toconduct operations in Baton Rouge following Hurricane Katrina.

Miscellaneous expense decreased by 81.6% to $99,000 primarily due to a $78,000 decrease in the reservefor bad debt, a $77,000 decrease in advertising costs, and a $41,000 decrease in dues and subscriptions.

(Continued)

2005 Changes in Net Assets

The change in net assets at December 31, 2005 was approximately $52.1 million or 187.0% less than atDecember 31, 2004. The RTA's total operating revenues decreased by 5.4% to approximately $34.1million, and total operating expenses decreased by 21.0% to approximately $112.6 million. The changesin net assets are detailed in Table A-5, and operating expenses are detailed in Table A-6.

Net assets invested in capital assets, net of related debt consists of capital assets net of accumulateddepreciation and reduced by the amount of outstanding indebtedness attributable to the acquisition,construction, or improvement of those assets. When there are significant unspent related bond proceeds,the portion of the debt attributable to the unspent proceeds are included in the calculation of this item.Instead, that portion of the debt should be included in the net assets component restricted for constructionas an offset to the related bond proceeds outstanding.

Table A-5Regional Transit Authority's Changes in Net Assets


Operating Revenues:Passenger faresFederal emergency bus transportation contractOther


Operating Expenses:Operating expensesDepreciation and amortization


Operating lossNon-operating revenues-netCapital contributions

Change in net assets

Total net assets, beginning of the year

Total net assets, end of the year

2005

$ 22,58910,251

1.24134,081

92,81019,793

112,603

(78,522)18,7407.647

(52,135)

115,602

2004

$ 34,720

1.31636,036

120,79621.653

142,449

(106,413)60,76827.479

(18,166)

133,768

Increase(Decrease)

(34.9)%100%

(5.7)%(5.4)%

(23.2)%(8.6)%

(21.0)%

(26.2)%(69.2)%(72.2)%

187.0%

(13.6)%

(45.1)%

Operating revenues declined by 5.4% to $34.1 million. The decrease in revenue resulted from a declinein regular passenger ridership following Hurricane Katrina, which was offset by a federal emergency bustransportation contract funded by the Federal Emergency Management Agency (FEMA).

Non-operating revenues decreased by 69.2% to $18.7 million. Federal and State of Louisiana grants andsubsidies increased $3.7 million or 21.6%. Sales tax revenue decreased $6.5 million or 14.4% andHotel/Motel tax decreased $0.8 million or 18.1%. Non-operating revenues-net included a charge of$37.8 million in 2005 as a result of damages sustained to property, equipment, and inventory. Therecorded charges were reduced by $10.8 million in insurance proceeds applicable to these losses.

Capital contributions decreased by 72.2% to $7.6 million due to the decrease in grants earned onconstruction of the Canal Street Streetcar project which was opened for revenue service in April 2004.

(Continued)

Table A-6Regional Transit Authority's Operating Expenses


Labor and fringe benefitsDepreciationContract servicesInsurance and self-insured costsMaterials, fuel, and suppliesUtilitiesPurchased transportationTaxes, other than payrollRentMiscellaneous


2005

$ 65,17219,79311,8524,9698,0181,540

13542166538

£112*602

2004

$ 77,16921,65315,10814,6629,5081,9421,122

770250265

S142.449

Increase(Decrease)

(15.5)%(8.6)%

(21.6)%(66.1)%(15.7)%(20.7)%(98.8)%(29.6)%(33.6)%103.0%

(21.0)%

Labor and fringe benefits; contract services; materials, fuel, and supplies; utilities; taxes, other thanpayroll; and rent decreased due to the loss and/or decrease in transit services, the damage to RTAfacilities and assets, and the displacement of the majority of the population of New Orleans and itssurrounding areas, including most RTA/TMSEL employees due to the devastation caused by HurricaneKatrina.

Depreciation expenses decreased by 8.6% to $19.8 million due to impairments recognized as a result oflosses caused by the hurricane.

Insurance and self-insured costs decreased by 66.1% to $5.0 million due to a decrease in estimates onpreviously existing claims and a reduction in the number and amount of new claims incurred in 2005 ascompared to prior years offset by new claims.

Purchased transportation decreased by 98.8% to $13,000 due to the assumption of paratransit operationsby in-house operations, including all lift van and sedan services, during the fall of 2004.

Miscellaneous expense increased by 103.0% to $538,000 primarily due to a $250,000 increase in thereserve for bad debt.

CAPITAL ASSETS AND DEBT ADMINISTRATION

2006 Capital Assets

As of December 31, 2006, the RTA had invested approximately $349.8 million in capital assets. Net ofaccumulated depreciation, the RTA's net capital assets at December 31, 2006 totaled approximately$189.6 million. This amount represents a net decrease (including additions and disposals, net ofdepreciation) of approximately $7.1 million or 3.6% under December 31, 2005. This decrease includes a$14.0 million of current year depreciation expense.

10 (Continued)

2005 Capital Assets

As of December 31, 2005, the RTA had invested approximately $344.8 million in capital assets. Net ofaccumulated depreciation, the RTA's net capital assets at December 31, 2005 totaled approximately$196.7 million. This amount represents a net decrease (including additions and disposals, net ofdepreciation) of approximately $64.8 million or 24.8% under December 31, 2004. This decreaseincludes net book value of property losses and impairments of approximately $48.6 million due toHurricane Katrina damages and $19.8 million of current year depreciation expense.

2006 Debt Administration

The RTA continues to make its regularly scheduled payments on its 1998A Series Sales Tax RefundingBonds and its 1991 Series Sales Tax Revenue Bonds. During 2006, $2,965,000 in principal paymentswere made.

The RTA has a loan agreement with the Louisiana Local Government Environmental Facilities andCommunity Development Authority to borrow up to $65.8 million to finance the local match portion ofthe Canal Street Streetcar and Desire Street Streetcar projects; approximately $59.0 million has beenborrowed against this facility. During 2006, $932,800 of loan repayments were made on the LCDARevenue Bonds.

The RTA issued certificates of participation during 2002 to advance refund its capital lease for 175 Orionbuses. A defeasance escrow was established with the net proceeds to make the minimum lease paymentson the capital lease until it can be prepaid in May 2005 and the lease was removed from the financialstatements. The RTA makes annual minimum payments of variable amounts including principal andinterest.

In July 2006, RTA and the State of Louisiana (the State) entered into a Cooperative Endeavor Agreementwhereby the State agreed to lend up to $35,867,738 from State funds on deposit in the Debt ServiceAssistance Fund, authorized by the Gulf Opportunity Zone Act of 2005 and Act 41 of the FirstExtraordinary Session of the Louisiana Legislature of 2006, to assist in payment of debt servicerequirements from 2006 through 2008 due to disruption of tax bases and revenue streams caused byHurricanes Katrina and Rita. Drawdowns on the loan totaled $12,531,342 through December 31, 2006.

All bond debt and lease covenants have been met.

2005 Debt Administration

The RTA continues to make its regularly scheduled payments on its 1998A Series Sales Tax RefundingBonds and its 1991 Series Sales Tax Revenue Bonds. During 2005, $2,760,000 in principal paymentswere made.

The RTA has a loan agreement with the Louisiana Local Government Environmental Facilities andCommunity Development Authority to borrow up to $65.8 million to finance the local match portion ofthe Canal Street Streetcar and Desire Street Streetcar projects; approximately $59.0 million has beenborrowed against this facility. During 2005, $917,500 of loan repayments were made on the LCDARevenue Bonds.

The RTA issued certificates of participation during 2002 to advance refund its capital lease for 175 Orionbuses. A defeasance escrow was established with the net proceeds to make the minimum lease paymentson the capital lease until it can be prepaid in May 2005 and the lease was removed from the financialstatements. The RTA makes annual minimum payments of variable amounts including principal andinterest.

11

ECONOMIC FACTORS

With the reinstatement of regular fare rates in August 2006, the RTA has begun its road to recovery;however, it is unknown at this time what long term impact the substantial decrease in population of theCity of New Orleans will have on the RTA. A contract with the Federal Transit Administration fundedby FEMA for emergency bus transportation services subsidized the return of service in October 2005through November 2006. In addition, RTA returned streetcar service to St. Charles Avenue in November2007.

In New Orleans, the city has made steady progress rebuilding its infrastructure. The city's population hasreached an estimated 273,000, about 60 percent of its estimated pre-Katrina population of 455,000. Salestax revenues are approaching normal, and tourism and the port industry are recovering.

In post Katrina, there are significant other revenues and expenses, which impact RTA. State and federalgrants related to the disaster had a significant impact on 2006 and will continue to have a significantimpact in the future. Total FEMA debris removal, mitigation, and capital replacement grants areexpected to exceed $60.0 million. Of these, approximately $1,693,000 has been recognized through2006. FEMA revenues will be recognized as buildings, buses, streetcars, and other reimbursable assetsare repaired or replaced. In 2006, much of the construction and replacement will not have beencompleted and the revenues although measurable may not be available due to the slowness of actualreceipts of FEMA funds.

CONTACTING THE RTA'S FINANCIAL MANAGEMENT

This financial report is designed to provide our bondholders, patrons, and other interested parties with ageneral overview of the RTA's finances and to demonstrate the RTA's accountability for the money itreceives. If you have questions about this report or need additional financial information, contact DwightDuplessis, Deputy General Manager of Finance, at (504) 827-8372.

12

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Statements of Revenues, Expenses and Changes in Net Assets

For the years ended December 31,2006 and 2005

2006

Operating revenues:Passenger faresFederal emergency bus transportation contract (note 13)Other


Operating expenses:Labor and fringe benefits (note l(a))DepreciationContract servicesInsurance and self-insured costsMaterials, fuel and suppliesUtilitiesPurchased transportationTaxes, other than payrollRentMiscellaneous


Loss from operations

Nonoperating revenues (expenses):Tax revenues:

Sales taxHotel/Motel tax

Government operating grants:Federal subsidyFederal Emergency Management AgencyState Department of TransportationState training grantPlanning and technical study grants

Gain on sale of assetsHurricane lossInvestment incomeInterest expense

Total nonoperating revenues

Net loss before capital revenues

Capital contributions

Increase (decrease) in net assets

Net assets:Balance, beginning of year

Balance, end of year

See accompanying notes to financial statements.

12,019,928

63,466,542

75,486,470 $

2005

2,526,786 $55,802,870

573,611

58,903,267

62,214,37113,989,4917,237,5725,457,3146,084,966932,568155,999556,206659,66796,605

97,384,759

(38,481,492)

41,519,3833,022,723

464,555853,959

1,694,564-

1,947,1857,267

-1,992,928(8,871,580)

42,630,984

4,149,492

7,870,436

22,589,20810,251,3001,240,331

34,080,839

65,171,90219,792,53711,851,6034,968,8958,017,6291,540,482

13,551541,796166,186537,699

112,602,280

(78,521,441)

38,522,1113,651,635

18,433,842486,399

1,992,355160,525(107,276)

-(37,814,650)

439,503(7,024,589)

18,739,855

(59,781,586)

7,646,641

(52,134,945)

115,601,487

63,466,542

14


Statements of Cash Flows

For the years ended December 31, 2006 and 2005

2006 2005

Cash flows from operating activities:Cash received from operationsCash received from other sourcesCash paid to employees and for related expensesCash paid to suppliersCash paid for insurance, legal claims and related costs

Net cash used in operating activities

Cash flows from noncapital financing activities;Cash received from sales taxCash received from hotel/motel taxOperating subsidies received from other governments

Net cash provided by noncapital financing activities

Cash flows from capital and related financing activities:Acquisition and construction of capital assetsCapital revenues from federal grantsInterest paidRepayment of bondsRepayment of capital lease obligationProceeds from property insuranceProceeds from debt service assistance fund loanProceeds from sale of assets

Net cash provided by (used in) capitaland related financing activities

Cash flows from investing activities:Purchases of investment securitiesProceeds from sale and maturities of investment

securitiesInterest payments received

Net cash used in investing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

54,299,626 $100,443

(54,958,225)(17,846,062)

(4,572,757)

(22,976,975)

41,066,8572,928,7734,705,252

48,700,882

(6,377,577)19,590,521(6,097,828)(3,897,800)(5,355,000)6,702,584

12,531,342389,750

17,485,992

(365,000)

355,4561,992,928

1,983,384

45,193,283

17,755,411

62,948,694 $

27,951,9731,410,422

(58,104,441)(23,687,698)(7,781,149)

(60,210,893)

40,638,4404,485,674

20,398,580

65,522,694

(3,616,458)12,179,783(5,591,562)(3,677,500)(5,100,000)4,050,000

(1,755,737)

(12,494,742)

18,512,916439,503

6,457,677

10,013,741

7,741,670

17,755,411

15


Statements of Cash Flows

For the years ended December 31, 2006 and 2005

Reconciliation of loss from operations to netcash used in operating activities:

Loss from operationsAdjustments to reconcile loss from operations to net

cash used in operating activities:DepreciationAmortization of bond issue costsIncrease (decrease) in allowance for doubtful accountsIncrease in accounts receivableIncrease in prepaid assetsIncrease (decrease) in inventoryDecrease in accounts payable and

accrued expensesIncrease in amounts due to TMSELIncrease (decrease) in the provision for legal

and small claims liability

Net cash used in operating activities

2006

$ (38,481,492)$

886,354

(22,976,975) $

2005

(78,521,441)

13,989,491652,845(78,156)

(4,504,995)(1,829,703)

40,125

(907,590)7,256,146

19,792,537386,279250,727

(4,720,241)(292,084)(64,557)

(1,299,117)7,067,461

(2,810,457)

(60,210,893)

Reconciliation to statement of net assets:Cash and cash equivalents for cash flow statement include:

CashRestricted assets:

1991 series bond trustee accounts1998 series bond trustee accounts2000 and 2000A series bond trustee accountsSelf-insuranceCapital lease escrow

Total cash and cash equivalents

See accompanying notes to financial statements.

55,662,642 $

2,169,0982,630,207

987,5311,301,562

197,654

62,948,694 $

15,178,679

672,577258,796223,496

1,231,442190,421

17,755,411

16


Notes to Financial Statements

December 31,2006

(1) Summary of Significant Accounting Policies

(a) Organization and Reporting Entity

The Regional Transit Authority (RTA) is an independent political subdivision of the State ofLouisiana created in 1979 by Act 439 of the Louisiana Legislature in order to provide masstransportation within its jurisdiction, which comprises the Greater New Orleans area. EffectiveJuly 1, 1983 under a transfer agreement among the RTA, the City of New Orleans (the City) andNew Orleans Public Service, Inc. (NOPSI), the RTA assumed responsibility for all mass transitoperations in Orleans Parish and acquired transit-related assets and assumed certain transit-related liabilities of NOPSI and of the City through purchase, funded by federal and localgovernment grants, and through contributions from the City. Subsequently, the RTA has alsoassumed responsibility for mass transit operations of the City of Kenner. The RTA's area ofservice presently comprises Orleans Parish and the City of Kenner in Jefferson Parish and mayultimately include future transit operations throughout the Greater New Orleans area.

The RTA is governed by an eight-member Board of Commissioners composed of appointees ofthe participating local governments within the RTA's jurisdiction. The Board of Commissionersestablishes policies, approves the budget, controls appropriations and appoints an ExecutiveDirector responsible for administering all RTA operations and activities. At December 31, 2006and 2005, one position and two positions, respectively, on the Board of Commissioners werevacant.

The RTA holds title to substantially all assets and controls, or is entitled to, substantially allrevenue and funds used to support its operations and is solely responsible for its fiscal affairs.The Board of Commissioners is authorized to issue bonds, incur short-term debt and levy taxesupon approval of the voters in one or more of the parishes or municipalities served by the RTA.Prior to December 2002, the RTA conducted substantially all of its transit and related operationsthrough Transit Management of Southeast Louisiana, Inc. (TMSEL), pursuant to the managementcontract between RTA, TMSEL and Metro New Orleans Transit (METRO). Effective December17, 2002, the contract with METRO was terminated, but the contract as to TMSEL continuedwith no disruption in transit service. The contract provided for a payout to METRO of $504,000,which was disputed by RTA and was unaccrued as of December 31, 2003 pending finalsettlement. In addition, the RTA disputed $675,000 in charges by METRO, which was alsounaccrued as of December 31, 2003. During February 2005, a settlement was agreed to and waspaid in full in the amount of $650,000, all of which was accrued as of December 31, 2004. In alater settlement, the President of METRO agreed to pay the RTA $550,000 in three installments,which were received during 2006. The labor, fringe benefits and other similar costs reflected inthe statements of revenues, expenses and changes in net assets are TMSEL expenses which arereimbursed by RTA pursuant to the management contract.

The RTA is a stand-alone entity as defined by GASB 14, The Financial Reporting Entity. TheRTA is neither fiscally dependent on any other local government nor does it provide specificfinancial benefits to or impose specific financial burdens on any other government. No otherpotential component units meet the criteria for inclusion in the financial statements of the RTA.

(b) Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The accounting policies of the RTA conform to accounting principles generally accepted in theUnited States of America as applicable to governments. The basic financial statements arereported using the economic resources measurement focus and the accrual basis of accounting.

17



December 31,2006

Revenues are recorded when earned and expenses, excluding depreciation and amortization, arerecorded when a liability is incurred, regardless of the timing of related cash flows. The RTAhas no government or fiduciary funds. The RTA uses fund accounting to report its financialposition and results of operations. The RTA's accounts are organized into a single proprietaryfund. The enterprise fund (a proprietary fund) is used to account for operations (a) that areoperated in a manner similar to private business where the intent of the governing body is thatthe cost (expense, including deprecation) of providing goods and services to the general public isfinanced or recovered primarily through user charges or (b) where the governing body hasdecided that the periodic determination of revenues earned, expenses incurred and/or changes innet assets is appropriate for capital maintenance.

The RTA's principal operating revenues are the fares charged to passengers for service. As aresult of Hurricane Katrina, from October 2005 to August 2006, the RTA had a free fare policyfor bus, streetcar, and paratransit services. Fares were subsidized by a federal emergency bustransportation contract funded by the Federal Emergency Management Agency (FEMA).

The RTA applies all applicable FASB pronouncements issued on or before November 30, 1989in accounting for its operations unless those pronouncements conflict or contradict GASBpronouncements.

(c) Restricted Assets

Certain assets, principally consisting of cash, money market accounts, and investments, aresegregated and classified as restricted assets, which may not be used except in accordance withstate regulations or contractual terms.

(d) Investments

Investments are stated at fair value and generally consist of U.S. Government and Agencysecurities and time deposits. Fair value is based on quoted market prices. If quoted prices arenot available, fair value is estimated based on similar securities.

(e) Inventories

Inventories, principally repair parts and supplies, are stated at cost, which approximates market.Cost is determined by the average cost method.

(f) Property, Buildings and Equipment

Property, buildings and equipment are recorded at cost. Depreciation and amortization ischarged to expense over the estimated useful lives of the assets and is determined using thestraight-line method. Expenditures for maintenance and repairs, which do not materially extendthe useful life of the asset, are charged to expense as incurred.

The estimated useful lives used in computing depreciation and amortization are:

Buildings 20 yearsBuses and equipment 3-12 yearsStreetcars, track system and related equipment 20-30 yearsFurniture and fixtures 3-10 yearsLeasehold improvements 3-5 years

18



December 31,2006

(g) Federal and State Grants

Federal and state grants are made available to the RTA for the acquisition of public transitfacilities, planning studies, buses and other transit equipment, and lease maintenance services.Unrestricted operating grants and grants restricted as to purpose, but not contingent on the actualexpenditures of funds, are recognized at that point in time when the right to the funds becomesirrevocable. Where the expenditure of funds is the prime factor for determining the eligibility forthe grant proceeds, the grant is recognized at the time when the expense is incurred.

(h) Compensated Absences

RTA is obligated to reimburse TMSEL for vacation when earned by TMSEL employees, eitherin accordance with TMSEL's general personnel policy or under certain TMSEL unionagreements. The total liability for accrued vacation at December 31,2006 and 2005, included incurrent liabilities, was approximately $2.3 million and $2.4 million, respectively.

(i) Cash Flows

For the purposes of the statements of cash flows, cash and cash equivalents include investmentswith a maturity of less than one year.

Q) Budgets and Budgetary Accounting

In accordance with Act 186 of the Louisiana Legislature and under authority granted to theBoard of Commissioners of the RTA within the Regional Transit Authority Act (Act 439), anannual budget of revenue, expenses and capital expenditures is prepared under the accrual basisof accounting, consistent with accounting principles generally accepted in the United States ofAmerica. The budget is adopted by resolution of the Board of Commissioners after publichearings are conducted and public input is received. The RTA, operating as an enterprise fund,utilizes the budget and related budgetary accounting to assure that: (1) service objectives areattained; (2) expenditures are properly controlled; and (3) adequate resources will be available tofinance current operations, repay long-term liabilities and meet capital outlay requirements. Abudget presentation is not required and has not been included in the financial statements.

(k) Bond Issuance Costs and Refundings

Costs related to issuing bonds are capitalized and amortized based upon the methods used toapproximate the interest method over the term of the bonds.

Effective with fiscal years in 1994 and thereafter, gains and losses associated with refundingsand advance refundings are being deferred and amortized based upon the methods used toapproximate the interest method over the life of the new bonds or the remaining term on anyrefunded bond, whichever is shorter.

19



December 31,2006

(I) Claims and Judgments

The RTA provides for losses resulting from claims and judgments, including anticipatedincremental costs. A liability for such losses is reported when it is probable that a loss hasoccurred and the amount can be reasonably estimated. Actual losses may differ significantlyfrom RTA's estimates. Incurred but not reported claims have been considered in determining theaccrued liability.

(m) Deferred Revenue

Revenue collected more than one year in advance for interior and exterior bus and streetcaradvertising is deferred.

(n) Use of Estimates

Management of RTA has made a number of estimates and assumptions relating to the reportingof assets and liabilities to prepare these financial statements in conformity with accountingprinciples generally accepted in the United States of America. Actual results could differ fromthose estimates.

(o) Reclassification of Prior Year Balances

Certain amounts in the 2005 financial statements have been reclassified to conform to the 2006presentation.

(p) Recently Issued Accounting Standards

GASB Statement No. 45In June 2004 the Governmental Accounting Standards Board (GASB) issued Statement No. 45"Accounting and Financial Reporting by Employers for Post-Employment Benefits Other ThanPensions", which addresses the accounting and reporting requirements for the costs andliabilities associated with such benefits. This Statement improves the relevance and usefulnessof financial reporting by (a) requiring systematic, accrual-basis measurement and recognition ofother postemployment benefits (OPEB) cost (expense) over a period that approximatesemployees* years of service and (b) providing information about actuarial accrued liabilitiesassociated with OPEB and whether and to what extent progress is being made in funding theplan. This Statement is effective for periods beginning after December 15,2006 for phase 1governments (those with total annual revenues of $100 million or more.) This statement will beimplemented for the year ending December 31, 2007.

FASB Statement No. 158In September 2006, FASB issued SFAS 158 'Employers' Accounting for Defined BenefitPension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106,and 132(R).* This Statement improves financial reporting by requiring an employer to recognizethe overfunded or underfunded status of a defined benefit postretirement plan (other than amultiemployer plan) as an asset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur through comprehensiveincome of a business entity or changes in unrestricted net assets of a not-for-profit organization.

20



December 31,2006

This Statement also improves financial reporting by requiring an employer to measure the fundedstatus of a plan as of the date of its year-end statement of financial position, with limitedexceptions. An employer without publicly traded equity securities is required to recognize thefunded status of a defined benefit postretirement plan and to provide the required disclosures asof the end of the fiscal year ending after June 15, 2007. This requirement will be applicablebeginning in the financial statements for the year ending December 31,2007. The requirement tomeasure plan assets and benefit obligations as of the date of the employer's fiscal year-endstatement of financial position is effective for fiscal years ending after December 15, 2008. Themanagement is currently evaluating the effect of this pronouncement on financial statements.

(2) Cash and Investments

The RTA's cash and investments consisted of the following:

December 31,2006 December 31,2005Restricted Unrestricted Restricted Unrestricted

Cash and cash equivalents $ 7,286,052 $ 55,662,642 $ 2,576,732 $ 15,178,679

Investments, at fair value:Certificates of deposit : 367,837 : 358,293

$ 7,286,052 $ 56,030,479 $ 2,576,732 $ 15,536,972

Custodial Credit Risk

Actual cash in banks and certificates of deposit as of December 31, 2006 and 2005, for restricted andunrestricted bank accounts, before outstanding checks and reconciling items, was $8,293,221 and$2,112,217, respectively. Of the total bank balances at December 31, 2006 and 2005, all amounts werecovered by federal depository insurance ($300,000 at December 31, 2006 and 2005) or by collateralheld in the RTA's name by its agent ($12,211,850 and $14,409,369, respectively). Actual cash inmoney market accounts was $11,972,729 and $7,108,982, respectively, and is included in cash andcash equivalents above.

Investments

Investments are held in the name of the RTA by its agent. Statutes authorize the RTA to invest indirect United States Treasury obligations; bonds, debentures, notes or other indebtedness issued orguaranteed by U.S. Government instrumentalities which are federally sponsored or federal agenciesthat are backed by the full faith and credit of the United States; short-term repurchase agreements; andtime certificates of deposit at financial institutions, state banks and national banks having theirprincipal offices in Louisiana.

As of December 31, 2006 and 2005, approximately $1,302,000 and $1,231,000, respectively, ofrestricted assets was pledged as collateral to the Louisiana Office of Workman's Compensation tomaintain RTA/TMSEL's self-insurance certificate.

21



December 31,2006

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value ofan investment. In general, the longer the maturity of an investment, the greater the sensitivity of its fairvalue to changes in market interest rates. RTA has a formal investment policy that limits investmentmaturities to five years, unless specific authority is given to exceed, as a means of managing itsexposure to fair value losses arising from increasing interest rates. In addition, the investment portfolioshould remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated.

Credit Risk

State law limits investments in securities issued, or backed by United States Treasury obligations, andU.S. Government instrumentalities, which are federally sponsored. RTA's investment policy does notfurther limit its investment choices, except that financial institutions and brokers/dealers must beauthorized and meet minimum creditworthiness standards.

As of December 31, 2006, cash and cash equivalents included $43,140,237 of short-term investmentsin mortgage backed securities, all of which have an original maturity of less than one year and are ratedAAA by Standard & Poor's.

(3) Accounts Receivable

Accounts receivable consist of the following as of December 31:

2006 2005

Sales tax $ 5,958,472 $ 6,487,811Hotel/motel tax 424,674 330,724Federal capital grants 9,648,183 21,368,268State operating subsidy 494,564 510,751Emergency bus transportation contract 11,434,096 7,141,175Federal Emergency Management Agency 757,597 486,399Property insurance 1,797 6,702,584Passenger (transpass and visitour) 585,098 847,989Kenner operating subsidy 410,465 107,278Other 438,991 269,010

30,153,937 44,251,989

Less allowance for uncollectible amounts (710,036) (788,192)

$ 29,443,901 $ 43,463,797

22



December 31,2006

(4) Property, Buildings and Equipment

A summary of changes in fixed assets follows:

LandBuildingsEquipment, primarily

transportation vehiclesFurniture and fixturesEquipment not in useConstruction in progress

Accumulated depreciationand amortization

LandBuildingsEquipment, primarily

transportation vehiclesFurniture and fixturesEquipment not in useConstruction in progress

Accumulated depreciationand amortization

January 1,2006

$ 6,988,812 589,379,308

214,434,72125,015,1063,889,3315,090,233

344,797,511

(148,095,313)

$ 196,702,198 5

January 1,2005

$ 6,988,812 J96,524,226

301,518,94827,572,022

4,289,551436,893,559

(175,381,908)

Additions

; a- 3

43,305

928,974811,132

5,261,645

7,045,056

(13,989,491)

I (6,944,435) 5

Additions

; - s342,356

815,5131,091,3933,889,3311,234,7267,373,319

(19,792,537)

Deletions

; - $

(1,763,949)(193,708)(62,910)

(2,020,567)

1,906,498

; (114,0691$

Deletions

; - $(7,487,274)

(87,899,740)(3,648,309)

(434,044)(99,469,367)

47,079,132

December 31,2006

6,988,81289,422,613

213,599,74625,632,530

3,826,42110,351,878

349,822,000

(160,178,306)

189,643,694

December 31,2005

6,988,81289,379,308

214,434,72125,015,1063,889,3315,090,233

344,797,511

(148,095,313)

$ 261,511,651 $ (12,419,218) $ (52,390,235) $ 196,702,198

At December 31, 2006 and 2005, equipment includes transportation vehicles under capital lease with anet book value of $2,035,769 and $2,442,445, respectively.

At December 31, 2006 and 2005, equipment not in use included $3,552,421 of rail transportation carsexpected to be repaired and $274,000 and $336,910, respectively, of salvaged vehicles and equipmentexpected to be sold.

23



December 31,2006

5) Due to City of New Orleans

The RTA has an agreement with the City of New Orleans (the City) to repay $5,891,177 foroverpayments of sales taxes collected by the City and remitted to the RTA, which was recorded as areduction of sales tax revenues for the year ended December 31, 2004. This amount is inclusive of anoffset of the amounts due from the City as of December 31, 2004 of $807,692. The repayments are tobe made in monthly installments ending April 2008 of $140,266 deducted from sales tax remittancesfrom the City. Deductions from sales tax remittances totaled $981,863 and $1,542,927 for the yearsended December 31, 2006 and 2005, respectively. The balance remaining as of December 31, 2006and 2005 was $2,945,587 and $3,927,451, respectively.

(6) Long-term Debt

Long-term debt consisted of the following as of December 31:

2006 20051998A Series, Sales Tax Refunding Bonds, interest rates between 6.8%and 8%, due in annual principal debt service requirements ranging from$1,645,000 to $2,815,000, final payment due December 2013 $ 15,830,000 $ 17,475,000

1991 Series, Sales Tax Revenue Bonds, interest rates between 5.5% and6.5% on current interest term bonds, and approximate yields of 7% and7.10% on capital appreciation bonds, with annual principal debt servicerequirements ranging from $348,633 to $1,500,000, final payment dueDecember 2021 10,895,733 12,215,733

2000 Series, LCDA Revenue Bonds, variable interest rate of 5.11% asof December 31, 2005, due in annual principal debt servicerequirements ranging from $844,600 to $2,372,500, final payment dueFebruary 2025 28,211,013 28,928,213

2000A Series, LCDA Revenue Bonds, variable interest rate of 4.77% asof December 31, 2005, due in annual principal debt servicerequirements ranging from $622,500 to $1,970,600, final payment dueNovember 2029 28,918,656 29,134,256

83,855,402 87,753,202

Plus unamortized premium 1,049,459 1,321,659

Less current maturities 4,757,500 4,903,200

Long-term debt less current maturities $ 80,147,361 $ 84,171,661

24



December 31, 2006

1998A Bond Series

In September 1997, the RTA agreed to issue, not later than December 1, 1998, $26,080,000 in SalesTax Revenue Bonds, Series 1998A. The net proceeds of the 1998A Refunding Bonds of $29,786,335was used to repay the principal and call premium on the outstanding 1988 Bonds and the anticipatedcosts of issuance of $827,339. The remaining $2,357,396, representing the present value of the interestsavings to the RTA, was released to RTA in December 1997 upon execution of the Forward BondPlacement agreement. A deferred premium of $2,918,093 was likewise recorded in December 1997and was amortized beginning in 1998 over the life of the Series 1998A Refunding Bonds.

The interest on the Series 1998A Refunding Bonds is due and payable on June 1 and December 1 ofeach year through December 2013. The Series 1998A Refunding Bonds are secured by a pledge andlien upon a portion of RTA's one cent sales revenue (one-half of one percent upon items and servicessubject to the sales tax). As a result of the 1997 effective date of this Forward Bond PlacementAgreement, the 1988 bond debt service restricted assets had been released by RTA's trustee. Bondissue costs were deferred and are being amortized over the life of the 1998A Refunding Bonds. Theunamortized premium related to the Series 1998A Refunding Bonds was $1,049,459 and $1,321,659 atDecember 31, 2006 and 2005, respectively.

1991 Bond Series

On December 26, 1991, the RTA issued $23,215,733 in Sales Tax Revenue Bonds, Series 1991. Thesebonds are to be repaid over 30 years. The net proceeds of $22,968,624 (after original issue discount of$103,661 and payment of $143,448 in underwriting fees and costs) received by the RTA on the sale ofthe bonds were applied as follows: (a) $19,193,382 was deposited in a reserve fund account designatedfor capital projects, including, but not limited to, the St. Charles facility renovation and restoration ofstreetcars used on the St. Charles Avenue Streetcar line, construction of maintenance facilities for theRiverfront streetcar line and the acquisition of buses; (b) $1,513,528 was deposited in a reserve fundfor payment of interest costs; (c) $1,596,845 was deposited in a reserve fiind account to satisfy thereserve fund requirement of the bonds; and (d) the remaining proceeds of $664,869 were used towardthe payment of issuance costs of the bonds. Bond issuance costs of $624,197 were recorded in August2000 upon the release of debt service reserves for the 1991 Bond Series. These costs will be amortizedover the remaining life of the bonds.

The current interest and capital appreciation bonds are secured by a pledge and lien upon a portion ofthe RTA's sales tax revenue (one-half of one percent upon the items and services subject to the salestax). The interest on the current interest bonds is due and payable on June 1 and December 1 of eachyear through December 1, 2021. The interest for the capital appreciation bonds is due and payable inseries in 2012, 2015 and 2021. Bond issuance costs were deferred and are being amortized over the30-year life of the sales tax bonds.

In accordance with the requirements of the bond indentures, the RTA maintains, with a designatedtrustee, certain restricted asset bond accounts. The RTA is in compliance with its bond covenants as ofDecember 31, 2006 and 2005.

25



December 31,2006

2000 Series and 2000A Series - LCDA Revenue Bonds

Under agreements with the Louisiana Local Government Environmental Facilities and CommunityDevelopment Authority (LCDA), RTA may borrow up to $65,820,000 in funds to finance the localmatch portion of the costs expected to be incurred in the construction of the Canal Street Streetcar andDesire Street Streetcar Projects. The funds are provided from a portion of the proceeds of a MasterIndenture Agreement and the sale of revenue bonds by LCDA. For the 2000 Series, the amount drawndown under this agreement as of December 31, 2006 and 2005 was $31,149,000. The principal balanceas of December 31, 2006 and 2005 is $28,211,013 and $28,928,213, respectively, of which $907,500 isdue in 2007. For the 2000A Series, the amount drawn down under this agreement as of December 31,2006 and 2005 was $29,848,156. The principal balance as of December 31, 2006 and 2005 is$28,918,656 and $29,134,256, respectively, of which $670,000 is due in 2007. Total bond issuancecosts of $160,787 were financed in 2001 and monthly payments are required. These costs areamortized over the life of the agreement.

Debt Service Requirements

The following represents the debt service requirements for the bond issues as of December 31,2006:

200720082009201020112012-20162017-20212022-20262027-2029

1991 and1998A Bonds

Principal

3,180,0003,415,0002,534,3242,668,5272,820,0999,549,2482,558,535

--

1991 and1998A Bonds

Interest

1,453,8181,220,4922,099,9221,965,3991,816,594

18,255,77315,983,002

--

2000 and2000ABonds

Principal

1,577,5001,664,2001,756,4001,855,7001,959,100

11,578,00015,225,80015,457,1136,055,856

2000 and2000ABonds

Interest

3,045,4502,957,8652,865,4402,767,8572,664,793

11,563,2247,962,9813,431,905

513,520

TotalPrincipal

4,757,5005,079,2004,290,7244,524,2274,779,199

21,127,24817,784,33515,457,1136,055,856

TotalInterest

4,499,2684,178,3574,965,3624,733,2564,481,387

29,818,99723,945,9833,431,905

513,520

$ 26,725,733 42,795,000 57,129,669 37,773,035 83,855,402 80,568,035

26



December 31,2006

Changes in long-term debt

Long-term debt activity for the year ended December 31,2006 and 2005 are as follows:

January 1, December 31, Due Within2006 Additions Payments 2006 One Year

1998A Series, SalesTax Refunding Bonds $ 17,475,000$

1991 Series, Sales TaxRevenue Bonds 12,215,7332000 Series, LCDARevenue Bonds 28,928,2132000A Series, LCDARevenue Bonds 29,134,256

- $ (1,645,000)$ 15,830,000 $ 1,775,000

(1,320,000) 10,895,733 1,405,000

(717,200) 28,211,013 907,500

- (215,600) 28,918,656 670,000

$ 87,753,202 $ $ (3,897,800)$ 83,855,402 $ 4,757,500

January 1, December 31,2005 Additions Payments 2005

1998A Series, SalesTax Refunding Bonds $ 18,995,000$

1991 Series, Sales TaxRevenue Bonds 13,455,733

2000 Series, LCDARevenue Bonds 29,455,113

2000A Series, LCDARevenue Bonds 29,524,856

$ 91,430,702 $

Debt Service Assistance Fund Loan

$ (1,520,000)$ 17,475,000

(1,240,000) 12,215,733

(526,900) 28,928,213

(390,600) 29,134,256

$ (3,677,500)$ 87,753,202

In October 2006, RTA and the State of Louisiana (the State) entered into a Cooperative EndeavorAgreement whereby the State agreed to lend up to $35,867,738 from State funds on deposit in the DebtService Assistance Fund, authorized by the Gulf Opportunity Zone Act of 2005 and Act 41 of the FirstExtraordinary Session of the Louisiana Legislature of 2006, to assist in payment of debt servicerequirements from 2006 through 2008 due to disruption of tax bases and revenue streams caused byHurricanes Katrina and Rita. Draw downs on the loan will be made as debt service payments becomedue. No principal or interest shall be payable during the initial five year period of the loan. After theexpiration of the initial five year period, the loan shall bear interest at a fixed rate of 4.64 percent.Principal payments on the bonds begin in July 2012 and the loan will mature in July 2026. Interest ispayable semi-annually on January 15 and July 15 beginning January 2012. The loan may be prepaidwithout penalty or premium. The Board has the right to request one extension of its obligation to beginpayments under the loan not to exceed five years. As of December 31, 2006, RTA has drawn down$12,531,342 on this agreement. RTA has drawn down $23,373,858 through November 1, 2007.

27



December 31,2006

Debt service requirements relating to the bond are as follows:

Years Ending June 30 Principal Interest Total

2012-2016 $ 3,273,213 $ 2,617,282 $ 5,890,4952017-2021 4,106,416 1,784,079 5,890,4952022-2026 5,151,713 738,782 5,890,495

$ 12,531,342 $ 5,140,143 $ 17,671,485

(7) TMSEL Pension Plan

The RTA provides for the pension expense of TMSEL employees pursuant to the managementcontract. Effective August 19, 1986, TMSEL received from the Internal Revenue Service a favorableletter of determination and approval of its defined benefit retirement income plan (the Plan) coveringsubstantially all TMSEL employees. On October 15, 1986, the RTA completed the transfer of pensionfund assets from NOPSI to TMSEL, as called for under the terms of the Transfer Agreement betweenNOPSI and the RTA. Net pension plan assets transferred totaled $35,059,639 as of the actuarialvaluation, dated June 30,1986, nearest the date of transfer.

All TMSEL and former NOPSI employees over the age of 21 (age 25, if hired prior to January 1,1985)are eligible to participate in the Plan. Benefits vest after five years of benefit service. Those memberswho retire at age 65 are entitled to annual retirement benefits for life in the amount equal to 1.5(multiplier) percent (unless otherwise specified in the plan) of their five year average of compensationtimes years of benefit service. The Plan also provides early retirement, postponed retirement, anddeath benefits.

Members of Amalgamated Transit Union (ATU) Division 1560, effective February 2, 1990, received a"30 and Out" Pension Service. Effective January 1, 1998, the TMSEL Pension Plan was amended toincrease the multiplier from 1.6% to 1.8% and to change the participation eligible age from 25 to 21 forthose employees hired prior to January 1, 1985. Effective January 1, 1999, the multiplier wasincreased from 1.8% to 1.9%. Prior to February 2, 1990, members of ATU Division 1560 contributed0.77% of their weekly earnings to the Plan. To fund the "30 and Out" pension service, the members ofATU Division 1560 began contributing an additional 2.23%. To fund the increase in the multiplierfrom 1.6% to 1.8% and to change the participation eligible age from 25 to 21, members of ATUDivision 1560 contributed an additional 0.77%. To fund the increase in the multiplier from 1.8% to1.9%, members of ATU Division 1560 began contributing an additional 1.38%. Effective January 1,2001, to fund twenty percent (20%) of the increase in the multiplier from 1.5% to 1.8% and to changethe participation eligible age from 25 to 21 and one hundred percent (100%) of the increase inmultiplier from 1.8% to 1.9% for members of ATU 1611, members of ATU 1560 began contributingan additional 0.03%.

28



December 31,2006

Effective April 18, 1996, members of Amalgamated Transit Union (ATU) 1611 received a "30 andOut" Pension Service and contributed 2.45% of gross wages. On January 18, 2001, the Plan wasamended to increase the multiplier from 1.5% to 1.8% for members of ATU 1611, and to change theparticipation eligibility age from 25 to 21 for those employees hired prior to January 1, 1985, effectiveJanuary 1, 2001 with TMSEL paying 80% of the cost and the members of the Unions (ATU Division1560 and ATU Division 1611) paying 20% of the cost. The Plan was further amended increasing themultiplier form 1.8% to 1.9% with the members of Unions paying 100% of the cost. (These changeswere the result of the Collective Bargaining Agreement, whereas the ATU Division 16H*smembership was combined with ATU Division 1560).

Effective October 1, 2001, ATU Division 1611 merged with ATU Division 1560 into the survivingdivision, ATU Division 1560. On November 15, 2001, the Plan was amended to increase themultiplier from 1.9% to 2.0% effective retroactively to October 1, 2001 for members of this survivingdivision. The Plan was also amended to increase the multiplier from 2.0% to 2.1% effective July 1,2003 for members of ATU Division 1560. As of January 1, 2001, the total amount the Unioncontributes to the Plan is 5.18% of total salary.

Members of International Brotherhood of Electrical Workers (IBEW) Local 1700-4, effective March21, 1996, received a "30 and Out" Pension Service and contribute 2.45% of gross wages. EffectiveJuly 1, 1998, the Plan was amended, changing the participation age in the Plan from 25 to 21 for thoseemployees hired prior to January 1, 1985. To fund this benefit, the Members of IBEW Local 1700-4contribute 1.27% of gross wages. Since July 1, 1998, the total amount the Members of IBEW Local1700-4 contribute to the Plan is 3.72%, which represents the contribution of 2.45% of gross wages forthe "30 and Out" Pension Service, plus the 1.27% of gross wages for changing the participation age inthe Plan from 25 to 21. Effective January 18, 2001, the Plan was amended to increase the multiplierfrom 1.6% to 1.8%, with TMSEL paying 80% of the cost and the members of IBEW Local 1700-4paying 20% of the cost effective February 28, 2001. The Plan was further amended to increase themultiplier from 1.8% to 1.9% with members of IBEW Local 1700-4 paying 100% of the cost. To fundthis benefit, members of IBEW Local 1700-4 contribute an additional 1.83% of gross wages. OnNovember 15, 2001, the Plan was also amended to increase the multiplier from 1.9% to 2.0% effectiveJanuary 1, 2002. The Plan was further amended to increase the multiplier from 2.0% to 2.1% effectiveJuly 1, 2003. As of November 15, 2001, the total amount members of IBEW Local 1700-4 contributeto the Plan is 5.55% of total salary, which represents the 2.45% of gross wages for the 30 & OutPension Service, the 1.27% of gross wages for changing the participation age in the plan from 25 to 21,and the 1.83% of gross wages for the increase in the multiplier from 1.8% to 1.9%.

On March 13, 2003, the Internal Revenue Service issued a favorable determination letter for the Plangranting approval of a new optional form of payment. The Reduced Annuity Lump Sum (RAWLS)provides a portion of the retirement benefit in a lump sum, plus a reduced monthly benefit. Membersof ATU Division 1560 and IBEW 1700-4 are eligible for this form of benefit which is effectiveretroactively to January 1, 2002.

29



December 31,2006

The following table sets forth the plan's funded status and amounts recognized in the Authority'sstatements of net assets due to TMSEL as of December 31:

2006 2005

Accumulated benefit obligation $ 183,367,382 $ 185,513,610Projected future compensation levels effect 17,554,739 29,639,085

Projected benefit obligation forservice rendered to date 200,922,121 215,152,695

Plan assets at fair value 128,960,992 124,616,949Deficiency in plan assets over

projected benefit obligation (71,961,129) (90,535,746)

Accrued benefit cost (54,406,390) (60,896,661)Unrecognized prior service cost 10,987,350 13,251,175Unrecognized net liability 27,907,056 34,884,614

Accrued pension cost $ (15,511,984)$ (12,760,872)

Benefits cost included the following components for the years ended December 31 and are asfollows:

2006 2005

Benefit cost $ 10,582,775 $ 10,223,801Employer contributions 7,831,663 4,639,221Plan participants' contributions 1,126,843 1,320,135Benefits paid 15,676,533 10,378,692

The most recent projected pension benefit obligation was computed based on the actuarial valuationperformed as of January 1, 2006. Significant actuarial assumptions used in the valuation include (a) arate of return on the investment of present and future assets of 8.00% per year compounded annually,(b) a discount rate of 5.75%, and (c) projected salary increases including an inflation component of2.25%

The expected long-term rate of return on assets assumption is 8.00%. As defined in FAS 87, thisassumption represents the rate of return on plan assets reflecting the average rate of earnings expectedon the funds invested or to be invested to provide for the benefits included in the benefit obligation.The assumption has been determined by reflecting expectations regarding future rates of return for theinvestment portfolio, with consideration given to the distribution of investments by asset class andhistorical rates of return for each individual asset class.

30



December 31,2006

TMSEL funds actuarially determined pension costs when accrued. Any unfunded actuarial accruedliability is amortized over twenty-five years. Pension expense, which is included in labor and fringebenefits expense, was $18,379,547 and $10,049,536 in 2006 and 2005, respectively. The significantactuarial assumptions used to compute the actuarially determined contribution requirements are thesame as those used to compute the projected pension benefit obligation as described above. On May 7,2003, the Internal Revenue Service approved a change in funding method for the TMSEL RetirementPlan which was effective retroactively to January 1, 2002. Under the new funding method, the actuarialvalue of assets is determined using a method with a smoothing period of five years.

As of December 31, 2006 and 2005, the ERISA funding requirement of $19,912,654 (total fundingrequirement of $29,436,498 less payments and credits recognized in 2006 of $9,523,844) and$9,474,612, respectively, is included in amounts due to TMSEL on the statements of net assets.

The Plan's weighted-average asset allocations at December 31, 2006, and 2005, by asset category areas follows:

Asset Category 2006 2005

Equity securities 51.85% 38.42%Debt securities 38.64% 52.72%Other 9.51% 8.86%Total 100.00% 100.00%

The following benefit payments, which reflect expected future service, as appropriate, are expected tobe paid:

2007 $ 9,527,4482008 10,056,1072009 10,687,4432010 11,292,0872011 12,161,3372012-2016 72,870,026

(8) 401(K) Plan

TMSEL employees participate in a 401 (K) profit sharing and savings plan (the Plan) sponsored byTMSEL. Employees who have elected to participate, and have 1000 hours of service and are 21 yearsof age or older, or were employed as of the effective date of the Plan of April 1, 2002 are eligible toparticipate. The Plan is subject to the provisions of the Employee Retirement Security Act of 1974(ERISA). The Plan provides for discretionary matching contributions in an amount determined byTMSEL on an annual basis. The Plan also provides for annual profit-sharing contributions if approvedby the sponsor. Matching contributions are allocated only to participants who defer compensationunder the Plan. Profit sharing contributions are allocated to each participant in the ratio that suchparticipant's compensation bears to the compensation of all participants. TMSEL did not make anymatching or profit sharing contributions in 2006 or 2005.

The Plan was terminated effective December 31, 2006. The liquidating value of the Plan's assetsapproximates fair market value of the Plan's assets. All participant account balances were distributedas of March 31,2007.

31



December 31,2006

(9) Other Post Employment Retirement Benefits

NOPSI Retiree Employees

As part of the Transfer Agreement among the RTA, NOPSI and the City, the RTA, through TMSEL,began providing benefits for health care and life insurance to retired and disabled transit employees ofNOPSI. In addition, the RTA assumed liability for benefits payable to those employees who retired orbecame disabled prior to July 1, 1983. On July 1, 1983, the actuarially determined present value ofsuch benefits was approximately $24,000,000. A preliminary actuarial valuation, performed in 1991,indicated that the present value of future benefits, as of December 31, 1991, was $20,500,000. Inconsideration for the assumption of liability under the terms of the Employee and Retiree PensionBenefits Agreement (the Agreement), NOPSI and the City of New Orleans agreed to reimburse theRTA for future health care and life insurance claims of retired and disabled transit employees ofNOPSI in amounts of $13,000,000 and $11,000,000, respectively, plus an interest factor of 9%.

Also, NOPSI paid $7,330,000 to the RTA for indemnification against any unforeseen losses arisingfrom the transaction, and this amount has been reflected by the RTA as employee benefits payable onbehalf of TMSEL and former NOPSI employees.

TMSEL Retirees

The RTA, pursuant to the TMSEL management contract, underwrites benefits for health care and lifeinsurance to TMSEL retirees who were NOPSI transit employees prior to July 1, 1983. Theseemployees retain full retirement benefits under the plan. All other employees of TMSEL are noteligible to receive post-retirement health and life insurance under the plan benefits. The health careplan is self-insured and is financed on a pay-as-you-go-basis. During 2006 and 2005, total TMSELexpense relating to the above plan for retirees was $2,161,757 and $1,388,234, respectively. As ofDecember 31, 2006, no actuarial evaluation of the plan has been performed.

(10) Commitments and Contingencies

(a) Operating Leases

The RTA is obligated under various operating leases for radio communications antenna space,record storage space and copy machines. The operating leases contain renewal options forvarying periods at equal or increased annual rentals. Future operating lease payments for theremaining lives of the leases following December 31, 2006 are as follows:

2007 $ 145,4672008 59,667

Total lease and rental payments for the years ended December 31, 2006 and 2005 were $659,667and $166,186, respectively.

32



December 31,2006

(b) Capital Leases

The RTA entered into a lease agreement to acquire 175 buses. As of December 31, 1999, theRTA received the 175 buses. RTA issued $43,205,000 of certificates of participation in 2002with stated interest rates ranging from 3.0% to 5.0% to advance refund the capital lease. Theamount of the certificates is net of premium of $2,183,493, which is being amortized over the lifeof the new debt. The lease is due May 1, 2010, however; it can be prepaid beginning May 1,2005. The certificates of participation were issued at par and after paying issuance costs of$1,594,493, the net proceeds were $43,794,000. The net proceeds from the issuance of thecertificates of participation were used to purchase U.S. government securities and thosesecurities were deposited in an irrevocable trust with an escrow agent to provide debt servicepayments until the lease can be prepaid on May 1, 2005. The advance refunding met therequirements of an in-substance debt defeasance and the lease was removed from the RTA'sfinancial statements. The reacquisition price exceeded the net carrying amount of the old leaseby $4,844,338. This amount is being netted against the new debt and amortized over theremaining life of the refunded debt, which is equal to the life of the new debt issued. Thisadvance refunding was undertaken to reduce total debt service payments over the next 8 years by$605,529 and resulted in an economic gain of $547,089. The RTA is reimbursed for 80% of itslease payments by federal grants from the Federal Transit Administration. The reimbursementsare included as federal subsidy revenue to the extent of 80% of the interest expense on thecapitalized lease; the remainder is credited to capital contributions. As a result of HurricaneKatrina, 151 of the 175 leased buses were flooded and rendered non-operable. The FederalTransit Administration has suspended the 80% reimbursement of lease payments for these 151buses. Since Katrina, the required principal and interest payments for the certificates ofparticipation have been paid from the Debt Service Assistance Fund loan program proceeds andwill continue through June 2008.

The following is a schedule of future minimum lease payments under the capital lease and thepresent value of the net minimum lease payments as of December 31, 2006:

2007200820092010

Present valueof minimum

lease payments5,625,0005,905,0006,105,0006,415,000

Interest908,801684,558409,78193,552

Totalminimum

leasepayments6,533,8016,589,5586,514,7816,508,552

Plus unamortized premiumLess unamortized refunding lossLess current portion

Long-term portion

24,050,000 $ 2,096,693 $ 26,146,693497,539

(1,103,848)(5,625,000)

$ 17.818,691

33



December 31,2006

(c) Contingencies

The RTA receives financial assistance directly from Federal agencies, which is subject to auditand final acceptance by these agencies. In the opinion of management, amounts that might besubject to disallowance upon final audit, if any, would not have a material effect on the RTA'sfinancial position.

(d) Grant Commitments

As of December 31, 2006 and 2005, the RTA is committed to funding local matchingrequirements under grants for which a contractual obligation existed at the end of each year. Thelocal matching requirement under Federal Transit Administration grants has been waived untilDecember 24, 2010. The outstanding federal share of grants at December 31, 2006 and 2005totals approximately $51,500,000 and $57,150,000, respectively. These amounts includeamounts outstanding from the full funding grant agreement for the Canal Street Streetcar Line,which were approved in March 2003 and authorized in December 2004.

(11) Self-insurance and Legal Claims

The RTA is, from time to time, involved in lawsuits arising in the ordinary course of its business.Management provides for a provision for claims when such amounts are known or can be estimated.The RTA is also exposed to various risks of loss related to torts, damage to and destruction of assets,errors and omissions, injuries to TMSEL employees and natural disasters. The RTA is self-insured forgeneral liability claims up to $1,000,000 prior to April 1, 1996, $2,000,000 through January 25, 2002,$500,000 through April 15,2004, $1,000,000 beginning May 27, 2005 through September 1, 2006, and$1,000,000 beginning November 15, 2006. Commercial insurance for general liability covers annualclaims in excess of up to $14,000,000 prior to April 1, 1996, $10,000,000 through April 15, 2004, and$25,000,000 beginning May 27, 2005 through September 1, 2006, and $25,000,000 beginningNovember 15, 2006. The RTA was fully self-insured for general liability claims for the period fromApril 15, 2004 through May 26, 2005 and from September 2, 2006 through November 14, 2006.Settled claims have not exceeded this commercial coverage in any of the past four fiscal years.Pursuant to the TMSEL management contract, RTA reimburses TMSEL for its employees' workers'compensation and health care claims. Claim expenses and liabilities are reported when it is probablethat the loss has occurred and the amount of the loss can be reasonably estimated. These losses includean estimate of claims that have been incurred but not reported.

At December 31, 2006 and 2005, $29,653,807 and $28,767,453, respectively, of accrued generalliability and small claim estimates were recorded to cover such claims. The long-term portion of theseaccruals at December 31, 2006 and 2005, were $25,206,944 and $27,366,745, respectively. Theaccruals, which are based upon experience with previous claims, the advice of counsel, and actuarialevaluation are, in the opinion of management, sufficient to provide for all probable and reasonablyestimable claims liabilities at December 31, 2006 and 2005.

34



December 31,2006

Changes in legal and small claims liability during the years ended December 31 were as follows:

Beginningof yearliability

27,290,695 331,577,910 328,767,453 3

Current yearclaims andchanges inestimates

8 12,676,557 $G 2,548,112 $G 2,534,535 $

Claimpayments

(8,389,342)$(5,358,569)$(1,648,181)$

Balance atyear end

31,577,91028,767,45329,653,807

200420052006

TMSEL's self-insured reserves for workers* compensation and health benefits are included in amountsdue to TMSEL on the statements of net assets and total $3,947,177 and $3,525,875 as of December 31,2006 and 2005, respectively. As of December 31, 2006 and 2005, approximately $1,301,000 and$1,231,000, respectively, of restricted assets was pledged as collateral to the Louisiana Office ofWorkman's Compensation to maintain RTA/TMSEL's self-insurance certificate.

(12) Related Parties

The RTA has a standing agreement with the City of New Orleans to provide mutually beneficialservices (interagency agreement). The RTA offset $1,200,000 in police and other services provided bythe City against state parish transportation fund proceeds appropriated by the State of Louisiana in2006 and 2005.

The members of the Board of Commissioners who were paid a per diem for the attendance at boardmeetings in calendar years 2006 and 2005 are listed below. Some commissioners elect not to receive aper diem. There were three member changes on the Board of Commissioners during 2006.

The amounts received by each commissioner for the years ended December 31, 2006 and 2005 were asfollows:

Expense2006: Per Diem Reimbursement Total

Ron Austin $ - $ - $Cesar R. BurgosCharlotte Burnell 975 - 975Walter Campbell 375 - 375Connie GoodlyBarbara Major 825 - 825Jeanne Monte . . .James Reiss, J r . . . .Earline Roth 975 - 975Sharon Wegner 750 - 750

$ 3,900 $ - $ 3,900

35



December 31,2006

Expense2005: Per Diem Reimbursement Total

Daniel Alfortish $ 525 $ - $ 525Walter Campbell 525 - 525Dennis Dimarco 225 - 225Connie Goodly -Barbara Major 600 - 600Jeanne Monte 225 - 225James Reiss, Jr. -EarlineRoth 600 - 600

2,700 $ - $ 2,700

(13) Federal Emergency Bus Transportation Contract

Under the terms of a contract with the Federal Transit Administration (FTA) funded by the FederalEmergency Management Agency (FEMA), RTA provided free rides in the City of New Orleans sincetransit service resumed after Hurricane Katrina on October 2, 2005 through August 5,2006. As part ofthe agreement between RTA, FTA, and FEMA signed on June 30, 2006 under which FEMA iscontinuing to partially subsidize the cost of running transit service in New Orleans, Baton Rouge andsurrounding communities, RTA reinstated fares for buses and streetcars to the rates prior to HurricaneKatrina effective August 6, 2006. As of December 31, 2006, the base fare for buses and streetcars was$1.25 per one-way ride. The base fare for paratransit was $2.00 per one-way ride. Revenuesrecognized under this contract amounted to $55,802,870 and $10,251,300 for the years endedDecember 31,2006 and 2005, respectively.

(14) Natural Disaster

On August 29, 2005, the New Orleans region suffered significant damage to property and lives whenHurricane Katrina struck the Gulf Coast area. The RTA sustained significant damage to RTA-ownedfacilities, buses, streetcars, other revenue vehicles, and inventory, which were flooded and/or winddamaged.

As of December 31, 2006, RTA has received cash reimbursements from the Federal EmergencyManagement Agency (FEMA) totaling $1,268,144. Included in accounts receivable at December 31,2006 and 2005 is $757,597 and $486,399, respectively, of reimbursements due from FEMA.Additional FEMA grants totaling in excess of $65 million are in various stages of the approval processand include amounts for building repairs, vehicle and equipment repairs and replacements, temporarypower, supplies and other costs.

36

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SINGLE AUDIT REPORTS


A Professional Accounting Corporation

www.pncpa.com

REGIONAL TRANSIT AUTHORITYNew Orleans, Louisiana

Single Audit Reports

December 31, 2006

Table of ContentsPage

Report on Internal Control over Financial Reportingand on Compliance and Other Matters Based onan Audit of Financial Statements Performed inAccordance with Government Auditing Standards 1

Report on Compliance with Requirements Applicableto Each Major Program, on Internal Control over Compliancein Accordance with OMB Circular A-133 and the Scheduleof Expenditures of Federal Awards 3

Schedule of Expenditures of Federal Awards 5

Notes to Schedule of Expenditures of Federal Awards 6

Schedule of Findings and Questioned Costs 7

Summary Schedule of Prior Audit Findings 12


A Professional Accounting CorporationAssociated Offices in Principal Cities of the United States

www.pncpa.com

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGAND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDITOF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

To the Board of CommissionersRegional Transit Authority:

We have audited the financial statements of the Regional Transit Authority (the RTA) as of and for the yearended December 31, 2006, and have issued our report thereon dated November 13, 2007. We conducted ouraudit in accordance with auditing standards generally accepted in the United States of America and thestandards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the RTA's internal control over financial reporting as abasis for designing our auditing procedures for the purpose of expressing our opinion on the financialstatements, but not for the purpose of expressing an opinion on the effectiveness of the RTA's internal controlover financial reporting. Accordingly, we do not express an opinion on the effectiveness of the RTA'sinternal control over financial reporting.

Our consideration of the internal control over financial reporting was for the limited purpose described in thepreceding paragraph and would not necessarily identify all deficiencies in internal control over financialreporting that might be significant deficiencies or material weaknesses. However, as discussed below, weidentified a certain deficiency in internal control over financial reporting that we consider to be a significantdeficiency.

A control deficiency exists when the design or operation of a control does not allow management oremployees, in the normal course of performing their assigned functions, to prevent or detect misstatements ona timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, thatadversely affects the RTA's ability to initiate, authorize, record, process, or report financial data reliably inaccordance with generally accepted accounting principles such that there is more than a remote likelihood thata misstatement of the RTA's financial statements that is more than inconsequential will not be prevented ordetected by the RTA's internal control. We consider the deficiency described in the accompanying scheduleof findings and questioned costs as item 2006-1 to be a significant deficiency in internal control over financialreporting.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in morethan a remote likelihood that a material misstatement of the financial statements will not be prevented ordetected by the RTA's internal control.

1

30th Floor - Energy Centre • 1100 Poydras Street • New Orleans, LA 70163-3000 • Tel: 504.569.2978

2324 Severn Avenue • Metairie, LA 70001 • Tel: 504.837.5990 • Fax: 504.834.3609

Our consideration of the internal control over financial reporting was for the limited purpose described in thefirst paragraph of this section and would not necessarily identify all deficiencies in internal control that mightbe significant deficiencies, and accordingly would not disclose all significant deficiencies that are alsoconsidered to be material weaknesses. However, we consider the significant deficiency described above to bea material weakness.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the RTA's financial statements are free of materialmisstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts andgrant agreements, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not anobjective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosedno instances of noncompliance or other matters that are required to be reported under Government AuditingStandards.

We noted certain matters that we reported to management of the RTA in a separate letter dated November 13,2007.

The RTA's response to the finding identified in our audit is described in the accompanying schedule offindings and questioned costs. We did not audit the RTA's response and accordingly, we express no opinionon it.

This report is intended solely for the information of the RTA, the RTA's management, and federal awardingagencies and pass-through entities, such as the State of Louisiana and Legislative Auditor's Office, and is notintended to be and should not be used by anyone other than these specified parties. However, underLouisiana Revised Statute 24:513, this report is distributed by the Legislative Auditor as a public document.

New Orleans, LouisianaNovember 13,2007

P&N

P&NPostiethwaite & Netterville

A Professional Accounting CorporationAssociated Offices in Principal Cities of the United States

www.pncpa.com

REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJORPROGRAM, ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH

OMB CIRCULAR A-133 AND THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

To the Board of CommissionersRegional Transit Authority:

Compliance

We have audited the compliance of the Regional Transit Authority (the RTA) with the types of compliancerequirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 ComplianceSupplement that are applicable to its major federal program for the year ended December 31, 2006. TheRTA's major federal programs are identified in the summary of auditors* results section of the accompanyingschedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contractsand grants applicable to each of its major federal programs is the responsibility of the RTA's management.Our responsibility is to express an opinion on the RTA's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the UnitedStates of America; the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, LocalGovernments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we planand perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major federalprogram occurred. An audit includes examining, on a test basis, evidence about the RTA's compliance withthose requirements and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legaldetermination on the RTA's compliance with those requirements.

In our opinion, the RTA complied, in all material respects, with the requirements referred to above that areapplicable to its major federal program for the year ended December 31, 2006. However, the results of ourauditing procedures disclosed instances of noncompliance with those requirements that are required to bereported in accordance with OMB Circular A-133 and which are described in the accompanying schedule offindings and questioned costs as items 2006-2, 2006-3, and 2006-4.

Internal Control Over Compliance

The management of the RTA is responsible for establishing and maintaining effective internal control overcompliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs.In planning and performing our audit, we considered the RTA's internal control over compliance withrequirements that could have a direct and material effect on a major federal program in order to determine ourauditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose ofexpressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do notexpress an opinion on the effectiveness of the RTA's internal control over compliance.

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30th Floor - Energy Centre • 1100 Poydras Street • New Orleans, LA 70163-3000 • Tel: 504.569.2978

2324 Severn Avenue • Metairie, LA 70001 • Tel: 504.837.5990 • Fax: 504.834.3609

A control deficiency in the RTA's internal control over compliance exists when the design or operation of acontrol does not allow management or employees, in the normal course of performing their assignedfunctions, to prevent or detect noncompliance with a type of compliance requirement of a federal program ona timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, thatadversely affects the RTA's ability to administer a federal program such that there is more than a remotelikelihood that a type of compliance requirement of a federal program that is more than inconsequential willnot be prevented or detected by the RTA's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in morethan a remote likelihood that material noncompliance with a type of compliance requirement of a federalprogram will not be prevented or detected by the RTA's internal control.

Our consideration of the internal control over compliance was for the limited purpose described in the firstparagraph of this section and would not necessarily identify all deficiencies in internal control that might besignificant deficiencies or material weaknesses. We did not identify any deficiencies in internal control overcompliance that we consider to be material weaknesses, as defined above. However, we did identify a controldeficiency, which we do not consider to be a significant deficiency, which is included in this report as item2006-5.

Schedule of Expenditures of Federal Awards

We have audited the financial statements of the RTA as of and for the year ended December 31, 2006, andhave issued our report thereon dated November 13,2007. Our audit was performed for the purpose of formingan opinion on the financial statements taken as a whole. The accompanying schedule of expenditures offederal awards is presented for purposes of additional analysis as required by OMB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financialstatements. Such information has been subjected to the auditing procedures applied in the audit of thefinancial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financialstatements taken as a whole.

RTA's responses to the findings identified in our audit are described in the accompanying schedule offindings and questioned costs. We did not audit RTA's response and, accordingly, we express no opinion onit.

This report is intended solely for the information of the RTA, the RTA's management, and federal awardingagencies and pass-through entities, such as the State of Louisiana and Legislative Auditor's Office, and is notintended to be and should not be used by anyone other than these specified parties. However, underLouisiana Revised Statute 24:513, this report is distributed by the Legislative Auditor as a public document.

New Orleans, LouisianaNovember 13, 2007

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Schedule of Expenditures of Federal Awards

For the year ended December 31,2006

Federal Grantor/Program Title CFDA Number Expenditures

United States Department of Transportation,Federal Transit Administration - FederalTransit cluster:

Capital Investment Grants 20.500 $ 7,870,436Formula Grants 20.507 2,411,740

Total Federal Transit cluster 10,282,176

United States Department of Homeland Security,Federal Emergency Management Agency,passed through the State of Louisiana

Disaster Assistance Grants 97.036 853,959

Total Federal Awards $ 11,136,135

See accompanying notes to Schedule of Expenditures of Federal Awards.


Notes to Schedule of Expenditures of Federal Awards

December 31,2006

(1) General

The accompanying Schedule of Expenditures of Federal Awards presents the activity of the federalawards of the Regional Transit Authority (RTA). RTA's reporting entity is defined in note 1 to thefinancial statements for the year ended December 31, 2006. All federal awards received fromfederal agencies are included on the schedule.

(2) Basis of Accounting

The accompanying Schedule of Expenditures of Federal Awards is presented using the accrualbasis of accounting, which is described in note 1 to RTA's financial statements for the year endedDecember 31,2006.

(3) Relationship to Financial Statements

Federal awards are included in statement of revenues, expenses and changes in net assets asfollows:

Nonoperating revenues (expenses):Government operating grants:

Federal subsidy $ 464,555Federal Emergency Management Agency 853,959Planning and technical study grants 1,947,185

Capital contributions 7,870.436


Schedule of Findings and Questioned Costs

Year ended December 31,2006

(1) Summary of Auditors' Results

(a) The type of report issued on the basic financial statements: unqualified opinion

(b) Significant deficiencies in internal control were disclosed by the audit of the financialstatements: yes: Material weaknesses: yes

(c) Noncompliance which is material to the financial statements: no

(d) Significant deficiencies in internal control over major programs: no: Material weaknesses: no

(e) The type of report issued on compliance for major programs: unqualified opinion

(f) Any audit findings which are required to be reported under Section 510(a) of OMB CircularA-133: yes

(g) Major programs:

Federal Transit Administration - Federal Transitcluster:

Capital Investment Grants 20.500Formula Grants 20.507

United States Department of Homeland Security,Federal Emergency Management Agency,passed through the State of Louisiana

Disaster Assistance Grants 97.036

(h) Dollar threshold used to distinguish between Type A and Type B programs: $334,084

(i) Auditee qualified as a low-risk auditee under Section 530 of OMB Circular A-133: no


Schedule of Findings and Questioned Costs, Continued

(2) Findings Relating to the Financial Statements Reported in accordance with Government AuditingStandards: None

2006-1 INTERNAL CONTROL OVER FINANCIAL REPORTING

Condition: General ledger account reconciliations for some significant accounts or transactionclasses were not performed in a timely manner.

Criteria: The definition of internal controls over financial reporting is that policies and proceduresexist that pertain to an entity's ability to initiate, record, process, and report financial data consistentwith the assertions embodied in the annual financial statements, which for the RTA is that financialstatements are prepared in accordance with generally accepted accounting principles (GAAP). Ourresponsibility under current audit standards requires us to communicate this issue to managementand the Board of Commissioners.

Effect: During the course of our audit procedures we identified significant adjusting entries togeneral ledger accounts. Due to the significance of the financial statement adjustments, this is anindication that the internal control over financial reporting of the RTA meets the definition of asignificant deficiency and reaches the level of a material weakness.

Cause: Clear responsibility for the performance of these reconciliations was not designated to aparticular user department or individual. In addition, RTA does not have adequate experiencedstaffing to perform reconciliations of the general ledger accounts in a timely manner.

Auditor's recommendation: All significant general ledger accounts should be reconciled in a timelymanner and reviewed by management. This review should be documented.

Management response: Management concurs with the finding and will implement correctivemeasures.



(3) Findings and Questioned Costs relating to Federal Awards: Listed as follows.

Federal program identification:CFDA Title: Federal Transit clusterCFDA Number: 20.500 and 20.507

INSTANCES OF NONCOMPLIANCE

2006-2 INDIRECT COST PLAN

Condition: The RTA did not prepare the indirect cost plans for 2004,2005, and 2006.

Criteria: As required by FTA Circular 5010.1C, once the FTA has accepted a grantee's costallocation plan or indirect cost rate proposal, the grantee must update it annually. The update shouldbe retained and made available for review at the time of the grantee's organization-wide audit.

Effect: The RTA may not have charged the correct indirect cost rates during 2006.

Cause: The 2005 indirect cost plan was not prepared upon conclusion of the 2005 audit in February2007.

Recommendation: Indirect cost rate plans should be prepared for 2006. Procedures should beestablished to ensure that an indirect cost plan is prepared and submitted upon conclusion of theannual financial statement audit.

RTA Response: The RTA will solicit the services of a professional firm to develop a revised costallocation plan for 2006. This finding was included in the 2006 Financial Management Oversightreview conducted by the Federal Transit Administration (FTA) and the finding has been closed.

2006-3 REQUIRED PHYSICAL INVENTORY

Condition: The RTA has not conducted the required annual physical inventory since 2003.

Criteria: As required by the FTA Circular, a physical inventory of equipment must be taken and theresults reconciled with equipment records at least once every two years. Any differences must beinvestigated to determine the cause of the difference.

Effect: The RTA is in violation of FTA requirements.

Cause: The RTA Accounting Department was understaffed since 2003 and did not have theresources to complete the reconciliation. Furthermore, a fixed asset count was initiated duringAugust 2005 but was not completed due to the disruption caused by Hurricane Katrina.

Recommendation: The RTA should perform a physical inventory of its assets and reconcile theinventory to its equipment records on a timely basis. An investigation of any differences should beperformed to determine the cause of the difference and adjustments should be made to the propertyledger and general ledger as necessary.



RTA Response: The reconciliation of fixed assets to the general ledger was not performed in a timelymanner due to a lack of staffing and disruptions caused by Hurricane Katrina. However, the RTAhas completely reconciled physical inventory of grant-funded assets to the J.D. Edwards FinancialManagement System for 4 of its facilities. The remaining 3 facilities will be completed byDecember 28,2007.

2006-4 FINANCIAL STATUS REPORTS

Condition: The required Financial Status Reports for 2006 have not been submitted to the FederalTransit Administration.

Criteria: According to the grant agreements, the RTA is to provide Financial Status Reportselectronically via the electronic award and management (TEAM) system on a quarterly basis. Thereports are due within 30 days after the end of each calendar quarter.

Effect: The RTA is in violation of FTA requirements.

Cause: The required reports were not filed because the financial information was not available fromthe J.D. Edwards system following Hurricane Katrina.

Recommendation: The required reports should be submitted as soon as accurate data is available.

RTA Response: The RTA has submitted financial status reports to FTA in April 2007, whichincluded all activity for 2006 as well as the quarter ended March 31, 2007. The RTA is presentlycurrent with all financial status report submissions.

INTERNAL CONTROL RELATED MATTERS

2006-5 DAVIS-BACON ACT

Condition: While the provisions are included in construction contracts for Davis-Bacon prevailingwages and for reporting by contractors, the RTA did not document testing compliance with therequirements of the Davis-Bacon Act of individual contractors during 2006.

Criteria: As required by the Davis-Bacon Act, all laborers and mechanics employed by contractorsor subcontractors to work on construction contracts in excess of $2,000 financed by Federalassistance funds must be paid wages not less than those established for the locality of the project(prevailing wage rates) by the DOL.

Effect: The RTA cannot provide reasonable assurance that individual construction contractors arecomplying with the requirements of the Davis-Bacon Act.

Cause: Documentation procedures established to monitor compliance of individual contractors arenot being followed.

Recommendation: Monitoring procedures should be documented to provide assurance thatprocedures are being followed.

RTA Response: The RTA agrees with the above finding and will implement corrective measures.

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OTHER REPORTS

RTA received a final report dated September 21, 2006 from the Federal Transit Administrationregarding the FY06 Triennial Review. This report noted several deficiencies and required correctiveactions. RTA is in the process of addressing this report.

RTA received a draft report dated October 2006 from the Federal Transit Administration regarding aTechnical Review of Grantee's Technical Capacity and Capability. This report noted severalfindings and recommendations. RTA is in the process of addressing this report.

RTA received a final report dated March 21,2007 from the Federal Transit Administration regardinga Financial Management Oversight Review of the effectiveness of internal control over RTA'sfinancial management system. This report noted several findings and recommendations. RTA is inthe process of addressing this report.

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Summary Schedule of Prior Audit Findings

05-1 REQUIRED ANNUAL PHYSICAL INVENTORY

Condition: The RTA did not conduct the required annual physical inventory during 2005 and the resultsof the inventory taken in September 2003 were not reconciled with equipment records.

Current Status: The reconciliation of fixed assets to the general ledger was not performed in a timelymanner due to a lack of staffing and disruptions caused by Hurricane Katrina. However, theAccounting Department is presently seeking assistance and other resources to get this taskcompleted. Upon completion, the Accounting Department will immediately adjust the generalledger and property ledger accordingly.

05-2 FINANCIAL STATUS REPORTS AND MILESTONE/PROGRESS REPORTS

Condition: The required Financial Status Reports and Milestone/Progress Reports for the third andfourth quarters of 2005 have not been submitted to the Federal Transit Administration.

Current Status: The RTA has submitted milestone reports to FTA for the third and fourth quarters of2005. However, the financial data cannot be submitted until the completion of the financial audit.

05-3 INDIRECT COST PLAN

Condition: The RTA did not prepare the indirect cost plans for 2004 and 2005.

Current Status: The RTA will solicit the services of a professional firm to develop a revised costallocation plan for 2006. This finding was included in the 2006 Financial Management Oversightreview conducted by the Federal Transit Administration (FTA) and the finding has been closed.

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A Professional Accounting CorporationAssociated Offices in Principal Cities of the United Stoles

www.pncpa.com

November 13,2007

Board of CommissionersRegional Transit Authority2817 Canal StreetNew Orleans, Louisiana 70119

Dear Commissioners:

We have audited the financial statements of the Regional Transit Authority (RTA) for the year endedDecember 31, 2006, and have issued our report thereon dated November 13, 2007. In planning and performingour audit of the financial statements of the RTA, we considered the RTA's internal control in order todetermine our auditing procedures for the purpose of expressing our opinion on the financial statements and notto provide assurance on internal control. We have not considered internal control since the date of our report.

During our audit we noted certain matters involving internal control and other operational matters that arepresented for your consideration. These comments and recommendations, all of which have been discussedwith the appropriate members of management, is intended to improve internal control or result in otheroperating efficiencies and is summarized in Appendix A. Appendix A also contains management's response(management's corrective action plan) to the comments and recommendations. Appendix B contains a list ofthe status of prior year comments.

Our audit procedures are designed primarily to enable us to form an opinion on the financial statements and,therefore, may not bring to light all weaknesses in policies or procedures that may exist. We aim, however, touse our knowledge of the RTA's organization gained during our work to make comments and suggestions thatwe hope will be useful to you.

We would be pleased to discuss these comments and recommendations with you at any time.

This report is intended solely for the information and use of the Board of Commissioners, the LouisianaLegislative Auditor's Office, federal and state grantors, management, and others within the RTA.

30th Floor - Energy Centre

2324 Severn Avenue1100 Poydras Street

Metairie, LA 70001New Orleans, LA 70163-3000 • Tel: 504.569.2978

Tei: 504.837.5990 • Fax: 504.834.3609

Appendix A

CURRENT YEAR MANAGEMENT LETTER COMMENTS AND MANAGEMENT'S RESPONSE ANDCORRECTIVE ACTION PLAN TO CURRENT YEAR COMMENTS

Recording and Reconciliation of FEMA Grant Transactions

A reconciliation of the activity to the general ledger related to Federal Emergency Management Agency(FEMA) grants was not prepared on a timely basis by the RTA during the year. In addition, receivables werenot recorded as reimbursement requests were made or as transactions eligible for reimbursement wereidentified. The RTA should develop procedures whereby the Accounting Department can adjust FEMAreceivables and revenues as needed at least on a monthly basis throughout the year. The RTA should utilize itsGrants Department, which already has adequate policies and procedures in place to properly and timelyrecognize grant-related transactions, to accomplish this task.

Management Response

Management concurs with the finding and will implement the recommended action.

Recording and Reconciliation of Debt Service Assistance Fund Loan Draw Downs

A reconciliation of the activity to the general ledger related to Debt Service Assistance Fund Loan draw downswas not prepared by the RTA during the year. The RTA should develop procedures whereby the AccountingDepartment can properly record draw downs on the loan program as needed on a monthly basis throughout theyear. This should be performed in conjunction with the reconciliation process for the restricted cash accounts.

Management Response

Management concurs with the finding and will revise the restricted cash account reconciliation procedures toensure that drawdowns on the Debt Service Assistance Fund Loan are properly recorded.

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Appendix B

DISPOSITION OF PRIOR YEAR'S MANAGEMENT LETTER COMMENTS

PRIOR YEARS'RECOMMENDATION STATUS

COMMENTDISPOSITION

Legal Reserve Reconciliation

A report of legal reserves which aremaintained by a third party administratorwas not reviewed by the RTA during theyear. A reconciliation of these reserves tothe general ledger was also not performedduring the year. The RTA should developprocedures whereby the AccountingDepartment can adjust reserves as neededon at least a quarterly basis throughout theyear and the RTA's management can bettermonitor the fluctuations of legal reservesduring the year.

Unresolved The current Third Party Administrator (TPA)administers claims and Workers Comp mattersand processes litigated expenses. Quarterlyreserve reports provided by the TPA willprovide the necessary information to theAccounting Department to adj ust reservesthroughout the year. This will also assistManagement in monitoring the fluctuation ofthe legal reserves.

Investments Reconciliation

Certain investments, for which statementsare not received by the AccountingDepartment, are not reconciled to thegeneral ledger. In order to ensure thattransactions are properly recorded, theAccounting Department should receivestatements directly and reconcile allinvestments, and record any changes inmarket value at least quarterly. Thereconciliation should be reviewed by theDeputy General Manager of Finance andAdministration for his concurrence.

Unresolved Financial investment institutions have beenrequested to forward their monthly statementstimely. Management concurs with the findingand reconciliations will be performed asrecommended for all investment accounts.

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COMMENTDISPOSITION

Accounts Receivable Receipts

The cash receipts for several largecustomers are not being posted accuratelyto the corresponding invoice in theaccounts receivable sub ledger system.Therefore, the aging does not represent thetransactions that have occurred. The RTAshould ensure that all cash receipts arematched to corresponding invoices andposted accordingly. The Accounting andTreasury Departments should coordinatewith each other to accomplish this.

Resolved The Accounting and Treasury Departments willinvestigate and resolve all discrepancies. TheTreasury and Information TechnologyDepartments are implementing the salesmodule of the JD Edwards system. Salesrelated data will be properly recorded;discrepancies investigated and resolved; andreported to management.

Property Inventory

During property test work, several itemswere noted which could not be located,were found in a location other than whatwas listed on the property ledger, or whichcontained incomplete or inadequatedescriptions. The RTA should review itsprocedures to determine processes toreduce or eliminate these discrepancies.

In Progress As a result of Hurricane Katrina, RTAcompletely reconciled physical inventory to itsJD Edwards Financial Management system forfour (4) of its facilities. The remaining three(3) facilities are scheduled for completion byDecember 28,2007.

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COMMENTDISPOSITION

Life Insurance Payroll Withholdings

The calculation of the employeecontributed portion of the company lifeinsurance did not include the most currentpay rates. The tables used in thecalculation were not updated at the timethat raises were implemented. The impactof this miscalculation was that theemployer incurred excess expenses.

All calculations dependent on current payrates should be based on data that iscentrally located and updated. These ratesshould be verified by the Human Resourcesdepartment.

Unresolved Human Resources is taking the necessarymeasures to ensure that the calculation table forthe life insurance deduction is corrected ASAP.Human Resources indicated that this will takeplace with the new contract.

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