NewYorkStateThruwayAuthority ClicktoeditMastertitlestyle ExecutiveSummaryReport

May24,2012

TableofContents

TableofContents
I. NatureofEngagement&Scope 3 5

II. SummaryofKeyFindings&Recommendations III. SituationalAssessment Background CurrentSituation CausativeFactors IV. KeyFindings V. Recommendations&NextSteps VI. Appendix

14 22 28 44 54 57

I. NatureofEngagement&Scope

NatureofEngagement&Scope
NavigantCapitalAdvisors(NCA)submitsthisExecutiveSummaryReport(theReport)atthe requestoftheThruwayAuthority(TA)to:(i)reviewandsummarizeapparentfactorsthatledtothe currentfinancialpositionoftheorganization,andto(ii)providepreliminaryrecommendations regardingareasofimmediateinterventionandfuturefocustoassisttheTAinrepositioningitselfto bestmeetitschallenges TheReport,subjecttothequalificationsandlimitationssetforthinAppendixA,summarizesthe reviewofhistoricalfinancialandoperatingreportsprovidedbytheagency,aswellascertainother publiclyavailableinformation.ConsistentwiththerequirementsoftheengagementtheReportis basedsolelyinrelianceupon: Specificpresentations,reportsandstudiespreparedbyTAmanagementforinternalpurposesas wellasforitsBoardofDirectors HistoricalfinancialinformationprovidedbytheTA; Certainpresentations,studies,bondissuancedocuments,reportsandanalysisregardingtheTA providedbythirdpartyconsultants,financialadvisors,theNewYorkStateDivisionofBudget, SAGECommission;and InterviewswithselectTAmanagementandBoardofDirectorsmembers

II. SummaryofKeyFindings&Recommendations

SummaryofKeyFindings&Recommendations
TheThruwayisfacinganurgentfinancialneedunrelatedtotheTappanZeeBridge
BondAnticipationNotes(BANs)totalinginexcessof$868MMmustberefinancedbyearly July Whilecertaincostcontainmentinitiativesareunderway,withoutdecisiveaction,currentcapital structureanddebtservicecoveragewillunlikelyabsorbtherefundingofBANswithlongterm debt,ortermingoutofBANs,inadditiontocontemplatedborrowingsrequiredtosupport ongoingcapitalneeds

Materialamountsofshorttermdebtwereutilizedin2009andextendedinto2012,but notreflectedinunderlyingcreditratios
Theboardapprovedaseriesofopaqueandpotentiallyrisky,shorttermBANsintheamountsof $681MMin2009,thenincreasedto$868MMandextendedin2011. Thispracticefollowedapriorperiod,from20002004,ofconsecutiveshorttermdebtissuances thatavoidedsignificantlyweakerdebtcoveragelevelsandalikelyratingsdowngradeatthetime Thedecisionappearstohavebeenmadewithashorttermfocusandnotnecessarilyafull appreciationforthepotentiallongtermconsequencesofrefundingonfuturecostofcapital, ratingagencyreviewandreaction,creditunderwritingimpact,andinterestrateenvironment uncertainty Questionsaboundabouttheprudenceofthedecisionatthetime,thatcreatedafunding mismatchofshorttermdebtvs.longtermassetsinaveryweakoperatingenvironment

SummaryofKeyFindings&Recommendations
The20052011engineeringdrivencapitalprogramwasputinplacewithoutadequatenet revenuestosupportit.Theprogramwasfinancedheavilywithdebt
In2005,theboardinitiateditsmostambitiouscapitalplantodate,withcostsestimatedtoexceed $2.7billionoverasevenyearperiod,fundedsubstantiallybygrowingdebtfrom$1.9billionin 2005to$3.2billionin2011 Theneedforthismagnitudeofcapitalspendingappearstohavebeenjustifiedbylifecycle requirementsofa50+yearoldhighwaysystem,withoutindependent,thirdparty,validating review.Atthecommencementofthisplan,theboardexpectedfuturerevenueadjustmentstobe requiredtorestorekeycovenantstoacceptableboardmandatedlevelsuponprogramcompletion Whilethecapitalprogramexpendedapproximately85%ofitsboardapprovedlevels, managementindicatesthatonly42%ofmajorrehabilitationgoalsand81%ofreconstruction goalswereachieved,suggestingtheneedformorereliablecapitalplanningandasset managementprocesses

Untilrecentappointmentsinleadership,theTAmanagementandBoardofDirectorstook anextremelypassiveapproachtorevenueenhancementandcostcontainmentinitiatives
From20002004,revenuegrowthstrendswerepreliminarydrivenbytrafficvolume;post2005, revenuegrowthwasfromtollhikes,whichwereoffsetbyrecessionarypressure,andEZPass discounting.Commercialandpassengertollsarenotrationalizedeithertopeerpricinglevelsor torecognizedisproportionatewearandtear.Performancetonontollrevenuesappearsaverage relativetopeers Historicalrevenuetrendsfrom20002004weremostlydrivenbymodestvolumeincreases inbothpassengerandcommercialtraffic,withnotollincreasesintroducedduringthe period.TrafficvolumeCAGRovertheperiodwas2.5%andtrafficrevenueCAGRwasonly 0.7%

SummaryofKeyFindings&Recommendations
Substantialpassengerandcommercialtollhikeswereintroducedin2005followedby modesthikesineachyearof20082010,however,trafficvolumessubsequentlyfelldueto:(i) recessionaryandgaspriceissues,(ii)regionaleconomicissues,(iii)traffic diversion,(iv) customerswitchingtodiscountedEZPass drivenbytollincreases,and(v)eliminationof certainbarriertolls,allofwhichcreatedmajorrevenuechallengesasanunprecedented capitalplanwaslaunched.Withthetollhikes,trafficvolumesdeclinedataCAGRof1.8% andtrafficrevenuegrew3.7% Commercialandpassengertolls(bothhighwayandbridge)onacentspermilebasisare relativelyinexpensivewhenbenchmarkedagainstcomparabletollway systems Commercialtollsarelowrelativetopassengertollswhenfactoringtherelativecontribution ofwearandtearbycommercialvehicles.Forexample,peraNYDOTanalysis,asingle maxload80,000poundgrossweightcommercialvehicle(typically5axle)causeswearand tearequaltoapproximately9,600passengervehicles(typically2axle),yetcommercialtolls areonly5timespassengertolls Nontollasa%oftotalrevenuesplacetheTAatthemedianrelativetopeerbenchmarking. IfTAachievedthetoptierofthebenchmarkat6.6%oftotalrevenues,anadditional$10MM ofincrementalrevenuecouldbeachieved Since2001,growthrateofexpenseshasexceededrevenuefurtherimpedingtheagencies financialperformance TheThruwaymustevaluateausteritymeasuressimilartoonestheStateofNewYorkhas taken,whereitexpectsitsStateOperationsbudgetinFY2013todeclineinclusive oflabor andbenefitcosts

SummaryofKeyFindings&Recommendations
TheTAcarries94%ofthebenefitcostswithasmanyas67%ofallemployees(activeand retired)not makinganycontributionfortheirhealthcarebenefits Ifallemployeesandretireescontributedatthecurrentrates,thiscouldyieldinexcessof $7.5MMofsavingstotheTA Whilenonpayrollexpenseshavebeenrelativelyflat,totaloperatingexpenseshavegrown 66%,from$257MMin2000to$427MMin2011,aCAGRof4.7% Hadtheboardofdirectorsandmanagementtimelyaddressedrationalizationoftolls, curtailmentofoperatingexpenses,employeehealthbenefitcontributionsandothermeasuresof costcontainment,itscurrentcircumstancemaylikelyhavebeenavoided

WhiletheThruwaysassetcompositionhaschangedmateriallysincethe1950s,the BoardofDirectorsormanagementhavenotrecognizedoradaptedtothestructural assetfundingmismatchingissuesthathavebeenevidentfordecades

TheBoardandManagementhistoricallyhavetakenahandsoffapproachwithassetssuchas theCanalandhaveneitheridentifiednoracteduponkeyrevenueenhancementandcost containmentinitiativessufficienttooffsettheirburden TheCanalsexpensesareexcludedfromkeycovenantcalculations,andasaresultcreatean inherentdisincentivetotakeaction

SummaryofKeyFindings&Recommendations
NewleadershipattheTAhasprovidedrenewedfocusonimportantrevenueandcost initiativesandtheseprocessesneedtobeacceleratedandsupportedwithappropriate forceamplificationiftheyaretobeeffective
Untilrecently,managementandtheBoardofDirectorsfailedtodemonstratefiscalresponsibility andcurtailtheballooningdeficits,electinginsteadtokickthecanfordecades,consequently allowingdebttogrowfrom$237MMin1990to$3.2billionaCAGRof13.1% TheChairmanoftheBoard,andExecutiveDirector,whowerebothappointedwithinthelast year,haveidentifiedcertainkeyinitiativesfocusedonnontollrevenue,costcontainmentand potentialtolladjustmentstoaddressseveraloftheaforementionedissues,howeverbroader supportandamandatetoacceleratetheseinitiativesareessential TheChairmanoftheBoard,ExecutiveDirectorandmanagementhavepreliminarilyidentified potentialcostsavingscurrentlyestimatedat$30MMfortheremainderofFY2012andpotentially $65MMforFY2013.Theseinitiativesneedtobevalidatedwithspecificactionplanstoensure effectiveimplementation

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SummaryofKeyFindings&Recommendations
ShorttermActions(30 60days)
1. Considerimplementation ofappropriatetollincreasetoalleviateimmediatefinancialstress,andaddresstherefunding oftheBANs 2. Implementimmediatecostcontainmentinitiatives identifiedbymanagement,including defininglaborstrategiesahead ofcontractnegotiationsas wellascollaboratingwithrepresentedemployeestomodifyworkrulesandcontract limitationsthatimpedeproductivityandefficiencyoftheagency 3. Implementausteritymeasurestoeffectivelyrestrictfuturecapitalspendingprojects(i.e.,otherthatthoseprojects continuedforpublicsafetyandotherrelatedconcerns)untilcapitalplanningandexecutionprocessesarereviewedand remediatedtoensureproperprioritization, andtheefficientandeffectivedeploymentofcapital 4. ConsiderappointmentofathreememberSpecialCommitteefromtheBoardofDirectors,authorizedtoleada restructuringprocess 5. Authorizeanindependentthirdpartytoconduct,insupportoftheSpecialCommittee,athoroughtoptobottom agencyreviewtoidentify, prioritize,andassist inthedevelopmentofimplementationplansfornontollrevenue enhancements,costcontainmentandotheropportunitiesforperformanceimprovement,SeeAppendix C,(The IndependentReview) 6. Assess theeffectsofcontemplatedtolladjustmentsandcostcontainmentmeasuresbeingpursuedtoevaluatethe viabilityandexecutionsuccessofvariousconsideredalternativesindealingwiththeJuly2012BANsmaturityincluding: (i)refundingwithlongtermdebts,(ii)termingoutandrestructuring,or(iii)shorttermrollover 7. Delayformalapprovalofthe20122017CapitalPlan,beyondthosereceivedfor2012budgetandcontracts program,until confidenceisestablishedincapitalplanningandprojectprioritizationprocess,aswellastheexecutionofcriticalasset managementinitiatives

11

SummaryofKeyFindings&Recommendations
MediumtermActions(60 180days)
1. ConducttheaforementionedIndependentReview(seeAppendix C forIllustrative WorkPlan) a) Evaluaterangeoftollandnontollrevenueenhancementopportunities b) Assessorganizationaldesignandinteragencyrelationships c) Collaborativelyevaluatelabor, thirdpartycontracting andvendorprograms d) Reviewofcurrentcapitalplanandmaintenanceprograms

2. Completelabornegotiationstoalignincentivesandachieveobjectivesofenhancedproductivityandefficiencies 3. Developarevisiontotheexisting5yearcapitalplanthatincorporatesupdatedrevenueandexpenseinitiativesand otherrecommendationsderivedfromtheaforementionedIndependentReview 4. Finalizeseparate financingalternativesandratingagencysupportforTappan Zeebridgefinancing

LongtermActions(180days+)
1. ImplementrecommendationsfromtheIndependentReview 2. Developacomprehensiverolling10yearintegratedstrategic,financialandcapitalplanwhichbalancescurrent operations,truecapitalexpenditureneedsandappropriateidentificationofrisksandcontingencies 3. Adopt optimizedbondpoliciesrelatingtothebestpracticesonprogrammaticdebtissuance

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III.SituationalAssessment

13

SituationalAssessment
Background
TheNewYorkStateThruwayAuthority(TA)wasfoundedin1952bytheNewYorkState Legislatureasanindependentpubliccorporationestablishedtobuild,operateandmaintainthehigh wayasaselfliquidatingproject,financedthroughbonds.Originalconstructioncostswere approximately$1.0billion Therevenuetoretirethesebondswasdependentprimarilyontolls AboardofthreememberswasappointedbythegovernorwiththeadviceandconsentoftheState SenatetoestablishThruwaypolicy TheTAs570mileroadwayisthelongestcontinuoustollroadsystemintheworld.Itpassesthrough over23counties,92townships,13citiesand24villages TheTAiscurrentlycomprisedof2,818lanemiles,coveringthefollowingsegments:
Thruway Section Name
THE MAINLINE (New York - Buffalo) ERIE SECTION (Buffalo - Pennsylvania Line) NIAGARA SECTION I-190 (Buffalo - Niagara Falls) BERKSHIRE SECTION (Selkirk - Massachusetts Line) NEW ENGLAND SECTION (I-95) (Bronx - Connecticut Line) GARDEN STATE PARKWAY CONNECTION (Spring Valley - New Jersey) CROSS WESTCHESTER EXPRESSWAY (I-287) (Mainline I-87 in Tarrytow n - I-95 in Rye) Total

Mileage
426 70 21 24 15 3 11 570

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SituationalAssessment
Background SummaryofHistoricalFinancials
Duringthe1990s,theTAenjoyedmoderaterevenuegrowthat3.1%annuallyoverthedecade,driven primarilybyconsistentincreasesintraffic From2000to2011,whileoperatingrevenuescontinuedtoincrease,atarateof4.1%annually, Thruwayoperatingexpensesfurtheroutgrewrevenuesatarateof4.8%annually AddedcostsrelatedtotheacquisitionoftheCanal,I84andothereconomicdevelopment projectsfurtherexceededrevenuegains,growingatanannualrateof4.4%overtheperiod

Thedebtbalancegrewover13times,from$237MMin1990tonearly$3.2 billionin2011due primarilytoincreasingcapitalexpendituresinexcessofavailablecashflow

CAGR 2000 $427.8 221.6 35.4 $170.8 78.5 4.8 83.3 $87.5 206.2 2.63x 2001 $434.7 229.1 38.8 $166.8 78.2 6.7 84.9 $81.9 205.6 2.63x 283.2 1,409.7 48% 2002 $441.7 268.0 48.2 $125.6 80.6 4.6 85.2 $40.4 173.8 2.16x 234.0 1,580.8 41% 2003 $445.8 272.5 48.4 $124.9 81.5 3.7 85.2 $39.7 173.3 2.13x 228.9 1,696.9 46% 2004 $463.5 300.2 55.0 $108.3 82.1 10.5 92.6 $15.7 163.2 1.99x 188.6 1,688.3 58% 2005 $547.3 307.4 55.2 $184.7 103.8 4.6 108.4 $76.3 239.9 2.31x 145.4 1,934.4 58% 2006 $594.0 323.7 64.0 $206.2 127.4 1.1 128.5 $77.7 270.2 2.12x 244.4 1,895.9 37% 2007 $581.7 339.0 62.1 $180.6 135.8 135.8 $44.8 242.7 1.79x 370.5 2,454.0 46% 2008 $596.2 337.3 49.2 $209.7 163.5 163.5 $46.2 258.9 1.58x 355.2 2,400.1 16% 2009 $638.3 346.7 52.2 $239.4 166.3 10.6 176.9 $62.5 291.6 1.75x 321.1 3,095.7 20% 2010 $672.5 364.2 52.5 $255.7 167.3 23.8 191.1 $64.6 308.2 1.84x 377.7 3,028.2 19% 2011 $665.5 370.0 56.6 $238.9 167.4 14.4 181.8 $57.1 295.5 1.77x 444.5 3,158.1 18% 6.0% 8.3% 7.4% (3.8%) 3.3% 0011 4.1% 4.8% 4.4% 3.1%

($inmillions) TotalThruwayReve nue (1) ThruwayOpe ratingExpe nse s Canal,I84,&Othe rOpe ratingExpense s Ne tRe ve nue s(afte rCanal,I84,&Othe r) Sr.Lie nDebtSe rvice Comme rcialPape r&BANsDe btSe rvice Ne tDebtSe rvice Ne tRe ve nue safte rDe btSe rvice NetRevenueusedforDSCR(2) DSCR(3)

CapitalExpe nditure (incl.Canal,I84,&other) 233.7 EndingDe btBalance PayGo%(4)

(1) (2) (3) (4)

1,307.4 40%

2000 2005includesdeductioninrevenueforCWEspecialbondexpense TotalThruwayRevenue ThruwayOperatingExpenses CalculatedasNetRevenuesforDSCR/DebtService fromSeniorDebtonly CalculatedasmoneyspentfromGeneralRevenueandMaintenanceReserveFunds+FederalandStateAid/TotalAnnualCapitalSpend Source:DataprovidedinternallybytheThruwayAuthority

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SituationalAssessment
Background HistoricalTrafficTrends
Fortheyears2000 2004,theTAenjoyedmodestyearoveryeargrowthinbothpassengerandcommercial revenues,withCAGRsof2.6%and1.0%,respectively,despitenoincreaseintollsovertheperiod
$700,000 $600,000 $500,000 200,000 $400,000 150,000 $300,000 100,000 $200,000 $100,000 $0 50,000 300,000

Total Toll Revenue ($ in 000's)

250,000

Total Traffic (in 000;s)

% ($inmillions) PassengerTraffic CommercialTraffic TotalTraffic PassengerRevenue CommercialRevenue TotalRevenue 2000 220.0 35.7 256 $239.3 $167.8 $407 2004 243.2 38.7 282 $264.8 $174.8 $440 Change 2005 2011 220.1 25.2 245 $403.9 $230.2 $634 11% 241.5 8% 32.5 10% 274

% Change 9% 23% 11% 30% 15% 24%

CAGR 0004 2.5% 2.0% 2.5% 2.6% 1.0% 0.7%

CAGR 0511 1.5% 4.2% 1.8% 4.4% 2.4% 3.7%

11% $311.1 4% $200.1 8% $511

Passenger Revenue

Commercial Revenue

Passenger Traffic

Commercial Traffic

(1) (2) (3)

TollswereincreasedinMay2005,January2008,January2009,andJanuary2010 InOctober2006,tollswereremovedfromtheBuffaloCityLineandBlackRockBarriers In2005,amajorvehiclereclassificationresultedinvolumeadjustments tollincreases

Source:DataprovidedinternallybytheThruwayAuthority

Commercialtollshavealwaysbeenasignificantcontributorofrevenue.Historicalcommercialtraffic hasaccountedforapproximately10%oftotaltraffic,but40%ofrevenues TotaltrafficontheThruwaydeclinedfrom2005to2011atarateof1.8%annually,withcommercialtraffic decliningmorerapidlyatarateof4.2% TheTAimplementedasystemwidetollhikein2005tosupportfundingofthe20052011capitalplan

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SituationalAssessment
Background TollViolationsandCollection
Since2007,theTAhasaccruedanaverageof$2.0MMinuncollectedtollviolationsand$5.2MMin feesonanannualbasis NonEZPass customersarefinedatalevelassumingfulldistance,becauseactualdistanceisnot tracked.Managementestimatestheincrementalrealizablerevenuetobeapproximately20%to 30%ofthetotalifthecurrentlegislationischanged
Targeted Realizable Revenue (3) ($ in 000's) 2007 $ 2008 2009 2010 2011 Average $
(1) (2) (3)

Tolls (1) 1,044 $ 1,635 2,043 2,640 2,515 1,975 $

Fees (2) 3,977 $ 4,879 5,637 5,933 5,821 5,249 $

Total 5,022 6,514 7,680 8,573 8,336 7,225 $ $

20% 1,004 $ 1,303 1,536 1,715 1,667 1,445 $

30% 1,506 1,954 2,304 2,572 2,501 2,167

IncludesviolationsforEZPass andnonEZPass customers Accountsfortheadministrativefeesassociatedwithnotifyingandcollectingfromviolators Givencomplexitywithlegislationandoutofstateviolations,estimatesarethat20% 30%ofoutstandingcollectionsare recoverable

Whilecurrentlegislationpermitsprosecutionofviolatorswithenforcementremediesincluding suspensionofvehicleregistrationrights,anycollectionsrefertolocalgovernmentoperating fundsandnotdirectlytothebenefitoftheTA OtherinitiativesbeingevaluatedincludepublicnoticesofalltollviolatorsviaTAswebsiteand linkingfeestoEZPass accountstoensurepaymentandreducecostofcollection.

Source:DataprovidedinternallybytheThruwayAuthority

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SituationalAssessment
Background TrendsinOperatingEfficiency
Theincreaseintollsin2005partiallyoffsettherevenuelostfromdecliningtrafficduringtheperiod, however,thehikeswereinsufficienttocovertherelatedoperatingexpensegrowth From2000to2011,operatingrevenuesgrewatarateof4.1%annuallyvs.operatingexpenses growthat4.7%annually

Operating efficiency improvements shown in '05 and '08-'10 are primarily due to toll increases

$800.0 $700.0 $600.0 $500.0 $400.0

45.0% 40.0%
CAGR: 4.1%

35.0% 30.0% 25.0% 20.0%

CAGR: 4.7%

$300.0 $200.0 $100.0 $0.0

15.0% 10.0% 5.0% 0.0%

Total Thruway Revenue

(1)IncludesCanal,I84&Otherexpenses Source:DataprovidedinternallybytheThruwayAuthority

Total Operating Expenses (1)

Operating Margin (%)

tollincreases

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SituationalAssessment
Background EmployeeCost&BenefitTrends
Laborcostsandbenefitshavegrownsignificantlyoverrecentyears
$350.0 $300.0 $100,000 $90,000 CAGR: 13.6% CAGR: 8.0%

Labor & Benefit Costs ($ in millions)

$80,000 $250.0 $200.0 $150.0 $100.0 $50.0 $10,000 $0.0 $0

Average Expense per Employee

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000

Personal Services

Health Insurance

Pension

Other Benefits

Average Employee Expense

Source:DataprovidedinternallybytheThruway

Outsideofhealthcareandpensioncosts,andextraordinaryeventssuchasHurricaneIreneandTropical StormLee,theTAhasmanagedoperatingcostsclosetozerogrowthsince2007 Whilemanagementhasmitigatedcostgrowth,significantcostreductions,suchasmajor divisionalordepartmentalconsolidation,havenotbeenimplemented RecentausteritymeasuresannouncedbytheStateofNewYork,whichactuallyhastheFY2013 StateOperationsbudgetdecliningincludingpensionandhealthcare,shouldbecloselystudied

$350.0
Net Expenses ($ in millions)

$300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2007 2008 2009 2010 2011

CAGR:1.0%

Net Total Operating Expenses - Less Pension, Health Insurance, Irene and Lee

Source:DataprovidedinternallybytheThruwayAuthority

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SituationalAssessment
Background CapitalProgramFunding
Asanassetmanagerwithaginginventory,theTA,intheory,hassignificantcapitalexpenditure requirements Theboardapproved20052011CapitalPlanauthorizedanunprecedented$2.7billionincapital expenditures,withtheobjectiveofsignificantreconstructionandrehabilitationforsubstantial lifecyclegains Tosupportthe20052011CapitalPlan,debtbecamealargersourceoffunding,growingfrom$1.9 billionin2005to$3.2billionin2011 Averageannualcapitalexpendituresincreasedfrom$233.7MMin20002004to$322.9MM2005 2011 AtthesametimeaveragePayGodecreasedfrom47%in20002004to31%20052011drivenby softernetrevenuelevels
500.0 450.0 $3,000.0 $3,500.0

Total Outstanding Debt ($ in millions)

400.0 350.0 300.0 250.0 200.0 150.0 100.0 $500.0 50.0 40% 48% 41% 46% 58% 58% 37% 46% 16% 20% 19% 18% $0.0 $1,500.0 $2,500.0

Total Capex ($ in millions)

$2,000.0

$1,000.0

Net Revenues Used for Funding - Pay-Go (1), (2) Funding from Debt (3)

Federal, State & Other Aid -Pay-Go (2) Total Indebtedness

(1) (2) (3)

Doesnotequalnetrevenuesavailabletofundcapexfortheyear;reflectsmoneyspentfromGeneralReserveandMaintenanceReserveFunds.Netrevenues availabletofundcapexareallocatedtothesereservefundsonamonthlybasis PayGo%iscalculatedasmoneyspentfromGeneralRevenueandMaintenanceReserveFunds+FederalandStateAid/TotalAnnualCapitalSpend MoneyspentfromtheConstructionReserveFund;whendebtisissued,proceedsaretransferredtotheConstructionReserveFund Source:DataprovidedinternallybytheThruwayAuthority

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SituationalAssessment
Background GrowingDebtBalances
TheTAcreditprofilehasdeterioratedovertheyears NetRevenuedeclinescoupledwithincreasingcapitalprojectneedshaveresultedinmounting debtandrelianceonopaqueandpotentiallyrisky,shorttermfundingsources Totaldebtoutstandingmorethandoubledfrom$1.3billionin2000tonearly$3.2billionin2011 In2008,debtratingsweredowngradedtoA+andA1byS&PandMoodysrespectively

3,500.0 2.63x 3,000.0

3.00x

In 2008, debt ratings were downgraded to A+ and A1, for reasons including:
Debt Service Coverage Ratio

2.50x

Recent and forecast erosion in DSC levels Recent negative traffic trends and growing debt service combined with the need to fund a large capital program. High fuel prices and regional economic conditions, Nationwide flattening out of travel growth.

Total Debt ($ in millions)

2,500.0 1.99x 2,000.0 Pre-2005 toll increases 1.77x 1.50x 1,500.0 Beginning of economic recession 1.00x 1,000.0 2.00x

500.0

0.50x

0.00x

DSCR does account for the BANs which are excluded from the calculation In addition, the DSCR calculation does not reflect operating expenses incurred by the Canals

Bond Anticipation Notes (1)

Bond Debt

DSCR

(1)Includesoutstandingcommercialpaperbalancesfrom20002004 Source:DataprovidedinternallybytheThruwayAuthority

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SituationalAssessment
CurrentSituation PhysicalImpactofCommercialTraffic
CommercialtollratesattheTA,unlikeotherhighwaysystems,donotkeeppacewiththeimpactof therelativewearandtearfromcommercialvehicles Commercialtollsareonly5timespassengertolls Commercialvehicles,andoverweighttrucksrepresentthesinglegreatestdemandonNYStates infrastructurefrombothanengineeringandeconomicstandpointperastudyreleasedbyNYState DepartmentofTransportation; Anaveragepassengervehicle(typically2axle)operatingat4,000poundscausesminimal harmtohighwaypavementorbridges Pavementdamageincreasesexponentiallyasvehicleweightincreases Onelegallyloaded80,000poundgrossweight(typically5axle)commercialvehiclecauses wearandtearontheroadequaltoapproximately9,600passengervehicles Ifatruckisloadedto95,000pounds(15,000poundsoverweight/beyondthelegallimit),its pavementdamagingimpactwillnearlydoubletothesimilardegreeofthedamagecausedby 19,000passengervehicles

Source:NYStateDepartmentofTransportation 22

SituationalAssessment
CurrentSituation AssetManagement
Whilefairtogoodsurfaceratingshavebeenmaintainedontheagingassets,fundamentalrehabilitation needsareinevitable.Extensiverehabilitationandreconstructioneffortsalwaysyieldextendedlifespan valuerelativetomildmillandfilltypecompletions,however,givencapitalconstraints,refinementin decisionmakingontheselectionofalternativemeansofrehabilitationexecutioniscritical
NYS Thruway Authority 1988 - 2011 Annual Pavement Surface Condition Rating Average
10

NYS Thruway Authority 1988 - 2011 Annual Bridge Condition Rating Average
7.0

Excellent
9 8 7

Excellent
6.5 6.0

Good

Good
5.5 5.0

6
Rating

Fair
Rating

4.5

Fair
4.0 3.5

Poor
4 3 Historical 2

Poor
3.0 2.5 Historical 2.0
1

1.5
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1.0

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year

Year

Currentassetconditionratingsareconductedasfollows: Pavementsurfaceconditionsarevisualreviews withoutassessmentofunderlyingsubsurface conditions,accidenthistory,andmaintenanceactivity Bridgeinspectionsaredetailedbiannualreviews Canalconditionsarebasedononsitefieldinspections

Canal Ratings Summary (5-7 implies "good or better" rating) Rating Structure Count % of Total 01234567None Total 39 10 12 74 214 313 99 21 54 836 5% 1% 1% 9% 26% 37% 12% 3% 6%

Giventhemagnitudeofcapitalspending,enhancedasset managementtoolsareneededtogaugelifecycleextensions relativetocostsincurred

Source:DataprovidedinternallybytheThruwayAuthority

2011

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SituationalAssessment
CurrentSituation SAGEBenchmarking
InformationprovidedfromtheSAGECommissionreportcomparestheNYDOTtotheThruwayAuthority, showingvariousdifferencesinthesystems Oneparticularcomparisonhighlightsthattheadministrative/supportfunctionsarestaffedatequallevels, thoughtheNYDOThasasystemoflanemilesmorethan15timesthesizeoftheThruwayAuthority
Department of Transportation RoadMiles Lane Miles Bridges Budget (1) DebtOutstanding TotalEmployees Engineering SystemMaintenance Administrative/Support BargainingUnits
15,102 ~43,000 Over7,500 $4.2 billion N/A 8,784 2,639 4,829 534 2

ThruwayAuthority
570 2,818 885 $1.1 billion $2.9 billion 2,767 (+1,120) (2) 193 2,018 556 4

Budgetand AgencyScope

Employees

(1) (2)

Includesoperationalandcapitalspend.NYDOTdataexcludesspendingonlocaltransitauthorities(e.g.,MTA). 2,767figureincludesCanalCorporation;additional1,120withinTA

Source:SAGECommissionStudy

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SituationalAssessment
CurrentSituation Benchmarks
Comparedtothepeergroup,bothThruwaycommercialandpassengertollratesarerelativelylow

2L Passenger Tolls (Ticket Cash Rates) (1) Massachusetts Turnpike Maine Turnpike NYS Thruway Ticket Indiana Toll Road West Virginia Turnpike Central Turnpike (NH) Pennsylvania Turnpike Illinois Tollway JFK Highway (MD) New Jersey Turnpike Blue Star Turnpike (NH) Dulles Toll Road (VA) Chesapeake Expressway (VA) Pocahontas Parkway (VA) Delaware Turnpike Dulles Greenway (VA) Chicago Skyway $0 $10 $20 $30 $40 3.8 4.6 4.7 5.7 6.8 6.8 9.3 10.5 12.0 12.3 12.4 14.3 18.2 34.1 36.4 39.6 44.9 $50 Cents Per Mile

5H Commercial Tolls (Ticket Cash Rates) (1) Central Turnpike (NH) Massachusetts Turnpike Maine Turnpike West Virginia Turnpike Indiana Toll Road NYS Thruway Ticket Dulles Toll Road (VA) Illinois Tollway Blue Star Turnpike (NH) Pennsylvania Turnpike Chesapeake Expressway (VA) New Jersey Turnpike Pocahontas Parkway (VA) JFK Highway (MD) Delaware Turnpike Dulles Greenway (VA) Chicago Skyway $0 $50 $100 $150 $200 8.9 16.7 18.3 23.0 23.1 23.9 26.8 28.0 34.0 35.4 43.8 44.0 68.2 72.0 81.8 113.6 215.4 $250 Cents Per Mile

(1)

2Lclassificationincludesanyvehiclewith2axles,under7feet6inchesinheight

Source:DataprovidedinternallybytheThruwayAuthority

(1) 5Hclassificationincludesanyvehiclewith5axles,over7feet6inchesinheight Source:DataprovidedinternallybytheThruwayAuthority

25

SituationalAssessment
CurrentSituation Benchmarks
Likewise,bothcommercialandpassengerbridgetollrates arelowincomparisontopeers
2L Passenger Tolls - Round Trip Cash Tolls - 2012 NYS Bridge Authority Bridges Tappan Zee Bridge Port Authority - GW Bridge Port Authority - MTA - Whitestone/Throgs MTA - Brooklyn $0 $2 $4 $6 $8 $10 $12 $1.50 $5.00 $12.00 $12.00 $13.00 $13.00 $14

5H Commercial Tolls - Round Trip Cash Tolls - 2012 NYS Bridge Authority Bridges Tappan Zee Bridge Port Authority - GW Bridge Port Authority - MTA - Whitestone/Throgs MTA - Brooklyn $0 $10 $20 $30 $40 $50 $60 $70 $12.50 $32.75 $65.00 $65.00 $70.00 $70.00 $80

Source:DataprovidedinternallybytheThruwayAuthority

26

SituationalAssessment
CurrentSituation Benchmarks
Withnontollrevenuescomprising4.9%oftotalrevenues,theTAisinthemiddleofthegroup TheTAlagsitspeersinrelativecontributionfromnontollrevenues,particularlyconcessions Thisispartlymotivatedbyadesiretocompetewithlocaloffsystemconcessionoperators IftheTAmanagedtoachievethetoppeerat6.6%,itwouldgenerateanapproximate$10MMin additionalrevenues
NonTollRevenueasa%ofTotalRevenue
Illinois State Toll Highway Authority Ohio Turnpike Commission New York State Thruway New Jersey Turnpike Authority Floridas Turnpike System Pennsylvania Turnpike Commission 0.0% 1.0% 2.0% 2.5% 2.3% 3.0% 4.0% 5.0% 6.0% 7.0% 4.1% 4.9% 6.6% 6.5%

Source:VariousAgencyannualreports(2010)

27

CausativeFactors
Summary
Therearesevenmajorcausativefactorsthatappeartohaveledtothecurrentsituation: Decisionin2009toissueasignificantamountofshorttermBondAnticipationNotes subsequentlyupsizedandextendedin2011, resultinginanoverrelianceonopaqueand potentiallyrisky,shortterm debtfundingmechanismstofundlongtermcapitalneeds.Decision madeinfaceof: Realizationofaprotractedrecession andmotivationtocontinuetofundthecapitalplanto completion Falloutofmonolineinsureravailability ofcreditwraps Potentialratingsdowngradeandrelatedincreasesincostofcapital Avoidanceofweakerdebtservicelevels Ambitious,engineeringdriven,capitalprograminitiatedin2005,notratcheteddown significantlywhenrecessionaryheadwindswereencountered,andweakprojectexecution reflectedby: Lackofthirdpartyindependentreviewtojustifyspend Failuretoachieve targetedassetlifecyclecurveimprovements Insufficientcoordinationofstrategicandfinancialplanning,lackingannualassessmentof rolling10yearcapitalplan Suboptimalassetmanagementpractices Significanttrafficand revenuegrowthchallenges withabsenceofclearmitigationstrategies
28

CausativeFactors
Summary(contd)
Operatingcostgrowthoutpacingrevenueswithnocomprehensiverevieworactionplan identifyingandtrackingkeyinitiativestoachievemeaningfulcostsavings Failuretorecognizethestructuralsignificanceandnecessaryactionsrequiredintakingon responsibilityandfundingoftheCanals,I84,I287andothereconomicdevelopmentprojects Priortotherecentappointmentsinleadership,theTAhistoricallyhadsystemiccorporate governanceproblems.Thisresultedinapparentineffectivestrategicplanning,andchronically stymiedcorrectiveactions(withashorttermkickthecanphilosophy),compromisinglong termviability.Correctiveactionscouldhaveotherwisebeenachievedthroughproperrisk identification,contingencyplanning,andtheintegrationofstrategic,operating,financialand capitalplanningcyclesandgoals Diminishingandinsufficientfederalaidtomeetaggregatefundingneeds

29

CausativeFactors
UseofShortTermDebttoFundLongTermAssets
ShorttermfinancingwasusedtofundamaterialportionoftheTAscapitalplan
In2009theTAfounditselfatacrossroadsregardingthenatureofdebttoissuetofund$680MMof newcapexneeds Notwithstandingdecliningnetrevenues,adequatebondingcapacityexistedtofundlongterm debtthatmayhaveresultedinadebtdowngradesandassociatedincreasesinpricingby80120 bps Adebtdowngradewouldhavepotentiallyimpactedtheabilitytoissuewellpricedlongterm debt Theboardapprovedopaqueandpotentiallyrisky,shorttermBANs Decisiontakeninlightof(i)realizationofaprotractedrecessionandmotivationtocontinueto fundthecapitalplantocompletion,(ii)falloutofmonoline insureravailabilityofcreditwraps, (iii)potentialratingsdowngradeandrelatedincreasesincostofcapital,and(iv)avoidanceof weakerdebtservicelevels Questionsaboundregardingtheprudenceofthedecisionatthetime,including: Riskestablishedwithdebtmarketsperceptionsofpotentiallygamingthecapitalstructure withasizablepieceofneartermpaper Mismatchofshorttermdebtagainstlongtermassetsinaweakoperatingenvironment Potentialconsequencesofrefundingriskonfuturecostofcapital,dependingonratingagency review,creditunderwritings,andinterestrateenvironment

30

CausativeFactors
UseofShortTermDebttoFundLongTermAssets
Trendsondebtservicecoveragereflectarapidlyerodingcreditprofilewithcreditstatistics from20002004and2009onwardsimprovedthroughBANsissuance
4,500.0 4,000.0 3,500.0
CommercialPaper andBANprogram In2008,debtratingswere downgradedfromAA toA+ andAa3toA1byMoodys andS&P,respectively

3.00x

2.50x

Debt Service Coverage Ratio

Total Debt ($ in millions)

3,000.0 2,500.0

2.00x

1.50x 2,000.0

1.20x (4)
1,500.0 1,000.0 0.50x 500.0 0.00x 1.00x

(1) Bond Anticipation Notes (1) (1) (2) (3) (4)

Bond Debt

Pro-forma DSCR (2)

DSCR

Includescommercialpaperbalancefrom20002004 From20002004and20092011,assumeslongtermdebtissuedinplaceofshorttermata5%rateover30years AssumesBANsareineffectforaportionof2012,ultimatelyrefundedbylongtermdebtinthatyear Minimumdebtservicecoveragelevelperbondcovenants Source:DataprovidedinternallybytheThruwayAuthority

BANSarenotintendedforserialissuancebutrathershorttermbridgetolongtermdebt.Byissuing inthisfashion,avoidedinclusioninthecovenantcalculation,withsamereflectingstrongercoverage thanwhatwouldneedtobeserviced,andavoidedrestrictedcovenantsdesignedtorestrainissuance ofexcessamountsofdebt

31

CausativeFactors
LackofSophisticatedCapitalPlanningandAssetManagementTools
Effectivecapitalplanningprocessesandassetmanagementcapabilitiesmustbeenhanced
Priorto2005,thecapitalplanningprocesslackedasophisticatedapproachtovalidateitsneeds, priorities,costeffectiveness,financialcapacity,andensureproperalignmentwiththeTAsstrategic goals.OutsideconsultantsandtheNewYorkStateOfficeoftheComptrollerfindingsechoedthis assessmentinpriorreviewsoftheAuthority The$2.7billion20052011TAcapitalplandidnotutilizeindependentengineeringconsultantsfor verificationofthenecessityandprioritizationoftheaggregatespendpriortoboardapproval Whiletheprocesshasbecomemorecentralizedandintegrated,additionalimprovementsare warrantedsuchas(i)improvedprojectscoping,prioritizingand costestimating;(ii)tighter coordinationwithstrategicandfinancialgoalsincluding10+yearrollingcapitalplans;(iii)andmore sophisticatedassetmanagementpractices,thatarecurrentlylackinginsystematic,consistent,robust, andinterpretablecontentdeficientinidentifyingalternativeinvestmentscenarioperspectives TAestimatesarethatwithonly70of570milesoforiginalroadreplacedandtypically3040yearsof usefullife,theremayexistover$5.0billionofpotentiallongtermoverhaulneedstobeenacted to reconstructandrehabilitatetheroadandbridgeinfrastructuretokeepitsafeandfunctional.This shouldbeindependentlyevaluatedbythirdpartyengineers Giventhemagnitudeofpotentialcapitalneeds,itiscriticaltheTAhasindependentengineering assessmentstosupporttheproperandmostefficientmeansformaintenanceofstateofgoodrepair

32

CausativeFactors
CapitalExecutionDidntAchieveGoals
Whilethecapitalprogramexpendedapproximately85%ofitsboardapprovedlevels, managementindicatesthatonly42%ofmajorrehabilitationgoalsand81%of reconstructiongoalswereachieved
$2,800.0 $2,600.0 $2,400.0 $2,200.0 $2,000.0 $1,800.0 $1,600.0 $1,400.0 $1,200.0 $1,000.0 $2,700
A B C

$455

Original 2005-2011 Capital Plan Cash Flow Estimates (August 2005)

A) Removed Projects B) Deferred Projects

$2,700 (455) (140) (140) (55) (80) 150 110 10 ? 200 $2,300

$140 $140 $55

D E F

$200 $80 $150 $110

G

C) Downscoped Projects D) Construction Contract Closeouts

$10
H I

E) In House Projects, Equipment and Systems F) Scope Changes/Increases

$2,300

G) Added Projects H) Cost Overruns (1) I) Inflation/Commodity Price Increases

Actual 2005-2011 Capital Plan Cash Flow

20052011Capital Planat2005 Source:DataprovidedinternallybytheThruwayAuthority

20052011Capital Planat2011

(1)Whileonly$10MMofcostoverrunshavebeenreported,itislikelyan understatednumberbasedonindustrynorms,resultingfrommovementof baselineexpectedcostsassociatedwithprojectupscoping,deferrals,and added/removedprojects Note:NCAhasnotreviewedthecontentandaccuracyoftheseallocations

TheTAsmajorrehabilitationandreconstructioncapitalplanfailedtorealizeitsobjectivesdue primarilytocommoditycostincreases,deferralanddownscopeinprojects,andprojectsubstitutions Whileover85%ofthefundswereexpended,considerablylessvalueincompletedprojectsand associatedlifecycleimprovementswererealized: Rehabilitationsgoals:targetedcompleting105ofthe570milesofhighway,actuallycompleted44 miles(42%oftarget) Reconstructiongoals:targetedcompleting27miles,actuallycompleted22miles(81%oftarget)

33

CausativeFactors
SourcesofFundingw/TotalIndebtedness
Netrevenuesavailabletofundcapexhavecontinuedtodrop,dramaticallyreducingthe PayGo%andincreasingrelianceondebtissuance
In2008onwardseconomicconditions dictatedhigherusageofbondfunds
$500.0 $450.0 60% $400.0 $350.0 $300.0 50% 70%

CAGR 0011 Passe nge rRe ve nue Comme rcialRe ve nue Othe rRe ve nue TotalRevenue ThruwayOpe ratingExpe nse s
Pay-Go (%)

4.9% 2.9% 3.9% 4.1% 4.8% 4.4% 3.1% (3.8%)

($ in millions)

40%

Canal,I84,&Othe rOpe ratingExpe n NetRevenues Ne tRe ve nue sAvailable toFundCape

$250.0 $200.0 $150.0 $100.0 10% $50.0 $0.0 0% 30%

20%

Capital Expenditure (incl. Canal, I-84, & other facilities & equipment)

Net Revenues Available to Fund Capex

Pay-Go %

Source:DataprovidedinternallybytheThruwayAuthority

The20052011multiyearcapitalplanwasscheduledtobefundedby$1.8billionofbondsandnotes NotwithstandingstiffeconomicchallengesanddecliningPayGolevels,theTAcontinuedtofundthe programwith$1.6billionofbondsfinancingsinclusiveof$0.9billioninshorttermdebt Debtdoubledovertheperiodofthe2005 2011capitalplan

34

CausativeFactors
Traffic&RevenueGrowthIssues
Twodifferingrevenuetrendsareevidentfrom20002004and20052011
$700,000 $600,000 $500,000 200,000 $400,000 150,000 $300,000 100,000 $200,000 $100,000 $0 50,000 300,000

Total Toll Revenue ($ in 000's)

250,000

Total Traffic (in 000;s)

% ($inmillions) PassengerTraffic CommercialTraffic TotalTraffic PassengerRevenue CommercialRevenue TotalRevenue 2000 220.0 35.7 256 $239.3 $167.8 $407 2004 243.2 38.7 282 $264.8 $174.8 $440 Change 2005 2011 220.1 25.2 245 $403.9 $230.2 $634 11% 241.5 8% 32.5 10% 274

% Change 9% 23% 11% 30% 15% 24%

CAGR 0004 2.5% 2.0% 2.5% 2.6% 1.0% 0.7%

CAGR 0511 1.5% 4.2% 1.8% 4.4% 2.4% 3.7%

11% $311.1 4% $200.1 8% $511

Passenger Revenue

Commercial Revenue

Passenger Traffic

Commercial Traffic

(1) (2) (3)

TollswereincreasedinMay2005,January2008,January2009,andJanuary2010 InOctober2006,tollswereremovedfromtheBuffaloCityLineandBlackRockBarriers In2005,amajorvehiclereclassificationresultedinvolumeadjustments Source:DataprovidedinternallybytheThruwayAuthority

Historicalrevenuetrendsfromtheperiod20002004werealmostentirelydrivenbymodestvolume increasesinbothpassengerandcommercialtraffic,andnotollincreaseswereintroducedduringthe period Volumesfellfrom2005onwardsreflecting(i)recessionaryandgaspriceissues,(ii)regionaleconomic issues,(iii)traffic diversiontoalternativeroutes,(iv)customerswitchingtodiscountedEZPassdriven bytolladjustments,and(v)barriertolls,whichwereeliminatedatBlackRockandCityLine,creating significantrevenuechallengesjustastheTAlauncheditsmostambitiouscapitalplanever

35

CausativeFactors
LackofNonTollRevenues
NonTollRevenues,particularlymorepredictableconcessionrevenues,remainflat
$50.0 $45.0 $40.0

Revenue ($ in millions

$35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 2000 2001 2002 2003 2004 Other (1) 2005 2006 2007 2008 2009 2010 2011

Concessions

Canal Development Revenue

(1)IncludesInterestonInvestments,SundryRevenue,andSpecialHaulingRevenue Source:DataprovidedinternallybytheThruwayAuthority

Concessionrevenuesarederivedfromrestaurantsandgasstations.Otherrevenuesincludefeesfrom specialpermits(suchasspecialhaulingfees),EZPassviolationfees,interestoninvestmentsandother miscellaneousrevenues ConcessionrevenueCAGRwasonly0.7%duringtheperiod,onarelativelysmallbase TAlagsitspeersinrelativecontributionfromnontollrevenues,particularlyconcessions,partlydue tomaintainingconcessionpricingagainstoffsystemconcessionoperators PrivatesectoradvertisingandsponsorshipalongThruwayroadsorontollbooths,hasbeenidentified aspotentialsourceofrevenueenhancement.TheTAleadershiprecentlyestablishedaspirationalgoals for$20$50MMperannuminadditionalnontollrevenues

36

CausativeFactors
OperatingExpenseGrowth
Operatingexpensegrowthhasmateriallyoutpacedrevenuegrowth
$450.0 $400.0
CAGR: 7.4%

Operating Expenses ($ in millions)

$350.0
CAGR: 6.0%

$300.0 $250.0 $200.0 $150.0

CAGR: 3.6% CAGR: 5.4%

CAGR: 4.4%

$100.0
CAGR: 3.4%

$50.0 $0.0

CAGR: 3.4% CAGR: 0.4%

Toll Collection & Traffic Services Administrative Services Equipment Maintenance

Finance & Accounts Canal, I-84 & Other Opex General Charges Undistributed (1)

State Police Thruway Maintenance

(1) Includesemployeepayrollandbenefitsexpenses Source:DataprovidedinternallybytheThruwayAuthority

Operatingexpenses,includinggeneralcharges(includesEEbenefits),statepoliceandequipment maintenance,alloutpacedrevenuegrowthwitha4.7%operatingexpenseCAGRversus4.1%on revenuessince2000 WhileTAscurrentmanagementhasreferencedmeaningfulpotentialcostsavings,theseinitiativesare inearlystagesandNCAhasbeenunabletovalidatethatanyhaveactuallybeenimplementedtodate Expensecostincreaseshavebeendrivenbysizablegrowthinlaborcostsandbenefits

37

CausativeFactors
LaborCostsandBenefits
Laborcostsandbenefitshavegrownsignificantlyovertherecentyears
$350.0 $300.0 $100,000 $90,000 CAGR: 13.6% CAGR: 8.0%

Labor & Benefit Costs ($ in millions)

$80,000 $250.0 $200.0 $150.0 $100.0 $50.0 $10,000 $0.0 $0

Average Expense per Employee

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000

Personal Services

Health Insurance

Pension

Other Benefits

Average Employee Expense

Source:DataprovidedinternallybytheThruwayAuthority

Healthinsuranceandotherbenefitscontinuetogrowsignificantlywithfringebenefitsgrowingfrom $49MMin2000to$105MMin2011,orasa%ofsalaryfrom32%to54% Unionandcivilservantstatuteslimittheabilitytoharnessemployeeproductivity,e.g.suchasthe inabilitytointerchangeTAandCanalemployeeswhenasuitablejobneedarises Theneedtoworkcollaborativelywithorganizedlabortoachieveoutcomestoworksmartertogetherto removebarriersfor(i)greaterproductivity,(ii)efficiencygainsinthecurrentenvironment TheSAGEcommissionbenchmarkedTAcompensationagainsttheNYDOT,withTAhigherinthevast majorityofcategories.Additionally,theSAGECommissionalsoidentifiedpotentialsynergieswhichare summarizedinAppendixB

38

CausativeFactors
LimitedRealizedCostSavings
AmajorityofTAemployeesdonotcurrentlycontributetohealthcarecosts
Currently,theTAcovers94%ofthetotalhealthinsuranceexpensewithasmanyas67%ofall Thruwayemployeesandretireesnot contributingtotheirhealthinsuranceplans.Amajorityofthe contributorsarecomprisedofretireeswhopayasmallpercentageofthecostdifferencesofan individualversusfamilyhealthplan Theaveragegrossannualexpenseperenrolleeis$11,184whiletheaveragecontributionisonly$699 onaverageperemployee Ifallenrolleescontributedtotheirrelativecost,theTAcouldrealizeanestimated$7.5MMincost savings,withcontributionsnowcoveringablended19%ofhealthcarecosts
Active EE Enrolled CURRENT STATE Non-Represented Represented Retirees Total Average per Enrollee ALL EMPLOYEES CONTRIBUTE Non-Represented Represented Retirees Total Average per Enrollee
Source:DataprovidedinternallybytheThruway Source:DataprovidedinternallybytheThruwayAuthority (1)

Total Ees Contributing (1) 41 491 1,183 1,715 % 20% 19% 48% 33%

Gross Annual Cost 2,755,473 28,372,775 27,846,020 58,974,269

Gross Annual EE Contribution (98,579) (812,419) (2,776,312) (3,687,311) % 4% 3% 10% 6%

Net Annual Cost 2,656,894 27,560,356 25,069,708 55,286,958

205 2,590 2,478 5,273

$11,184

($699)

$10,485

205 2,590 2,478 5,273

190 2,441 5,109

93% 94% 97%

2,755,473 28,372,775 27,846,020 58,974,269

(542,093) (4,808,508) (5,783,749) (11,134,350)

20% 17% 21% 19%

2,213,380 23,564,268 22,062,271 47,839,919

2,478 100%

$11,184

($2,112)

$9,073 $7,447,039 AB

TotalEstimatedAnnualSavings

DifferenceinTotalEEscontributingandEnrolleesinAllEmployeesContributescenarioisforEEswhooptoutandchooseaplanabovetheplanofferedattheThruwayAuthority

39

CausativeFactors
LongTermStructuralIssues
WhilenoncoreassetshavebeenapartofThruwayoperationsfordecades,therehavebeen inadequaterevenueandcostsavingsinterventionstooffsetthecarryingcostsofthese assets
$120.0 $1,574 $110.0 $1,400.0 $100.0 $1,600.0

CumulativeNonCoreDisbursements (since1991)
Cumulative Economic Development $58.5 Cumulative I-84 $174.4 Cumulative I-287 $46.4

Cumulative Non-Core Disbursements ($ in milions)

Total Non-Core Disbursements ($ in millions)

$90.0 $80.0

$1,200.0

$1,000.0 $70.0 $60.0 $50.0 $600.0 $40.0 $30.0 $20.0 $200.0 $10.0 $0.0 $0.0 $400.0 $800.0

Cumulative Canal $1,217.5

Source:DataprovidedinternallybytheThruwayAuthority (1) 19911999cumulativenoncoredisbursements were$490MM

Gross Canal Disbursements Gross I-84 Disbursements Cumulative Non-Core Disbursements (1)

Gross Economic Development Disbursements Gross I-287 Disbursements

Source:DataprovidedinternallybytheThruwayAuthority

Asaconsequence,nearly$1.6billionofgrossoperatingandcapitalexpenditureshavebeenborneby theTAsince1991,withthepotentialforanadditional$1.5billionneededtorestoreCanalassetsalone toagoodconditionsrating

40

CausativeFactors
LongTermStructuralIssues
Aggressiverevenueenhancementandcostcontainmentinitiativesmustbepursuedto addresstheassetfundingmismatchingthathasbeenevidentfordecades
Currently,theCanalscostapproximately$80MM$90MMincapitalandoperatingexpensesannually, andareonlysupportedbyroughly$2MMinrevenues PriortothetransferoftheCanalassets,the1991TransitionAdvisoryCouncilreportreflectedthatthe TAhadstrongbondingcapacitywithafavorableeconomicoutlook CanalsintegrationintotheoperationsoftheTAhavebeenlimitedandtheCanalsdonotformpartof thecreditgroupthatisearmarkedforprioritycapitalfunding FederalaidhashistoricallybeenreceivedforpartialfundingofCanalcapitalneeds,howeverfederal aidfundinghasbeendecliningsince2004andcontinuestotaperoff Approximately50%ofCanalstructureconditionswererecentlyratedpoor/fairastheTAhas consistentlyconstrainedfinancialresourcestofundCanalcapitalprogramneeds TheTAshouldevaluatethecurrentpermitfeestructures,includingHydropowereasementsfor potentialrevenueenhancements AlternativeideasformaximizingCanalinfrastructurehavebeenconsidered,including:closing portionsoftheCanals;monetizingattractivenoncorelandownedadjacenttotheCanals;andpublic privatepartnershiprecreationaldevelopmentprojects.Howevertodate,nomeaningfulstrategyhas beenpursuedbytheTAboardormanagement

projects.Howevertodate,no meaningfulstrategyhasbeen pursuedbytheTAboardor management

41

CausativeFactors
EffectivenessofGovernanceStructuresandProcesses
Historically,alackofcomprehensivestrategicplanninghascreatedanenvironmentof inactionandashorttermkickthecanphilosophy
Seniorexecutivesandboardmembershaveidentifiedmaterialshortcomingsoftheagencyincluding: lackofinnovation,lackofcostconsciousness,andweakinternalprocesses Historically, theBoardofDirectorsandmanagementdidnotpursuerevenueenhancementandcost savingsinitiatives.However,recentseniorappointmentstotheboardhaveinitiateddiscussions aroundsubstantial,identifiableinitiatives,yettheseinitiativeshaveyettobeembodiedinastrategic planningdocument PriorindependentreviewsontheTAspolicies,processesandoperationstoassesscurrent managementpractices,highlighteddeficienciesandprovidedrecommendationsforimproved organizationalefficiencyandeffectiveness.TheseareinvaryingstagesofexecutionbyTA managementhoweverthereappearstobelackofdefinitiveworkplans,withdiscreteactionsteps, andclearaccountability Organizationalchangesincludingconsolidationwithothertransportationagenciesanddivisionsoffer substantialpotentialsavingsopportunitiesbuthaveyettobeactedupon.Duplicatedivision consolidationatThruwayandCanalsalonecouldrealizemeaningfulsavings Currentlaborcontractworkrulesandcivilservicerequirementsmakeitdifficulttoeffectuate significantorganizationalchanges,howeveridentificationofpriorityissuesandchange implementationplansareessentialifanymeaningfulprogressistobemade AnextensiveindependentmanagementreviewwascompletedinMay2010.Recommendationsareat varyingstagesofcompletion,thoughcertainkeyrecommendations,suchasdevelopinga10year strategicplanthataddressescriticalorganizationalchallenges,haveyettobeapprovedbytheBoard ofDirectorsandexecutivemanagement
42

CausativeFactors
DecliningTrendsinFederalAid
Federalaidhasbeenmarkedlyreduced
$120.0
Federal Aid ($ in millions)

$100.0 $80.0 $60.0 $40.0 $20.0 $0.0

FederalAidincreasedin2004toprevent aneedtoincreasetolls.Over$183MM offederalaidhasbeenreceivedtofund Canalcapitalprograms

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Federal Aid as a % of Total Receipts

Thruway Federal Aid Economic Development Federal Aid

Source:DataprovidedinternallybytheThruwayAuthority

Canal Federal Aid Federal Aid as a % of Total Receipts

FederalaidandgrantsunderIMandTEPprogramshavediminishedduetosmallerfederal allocationstothestateandlossofformersharingarrangementswiththeNYDOTthatexpiredin2005 TAshouldpushforreinstatedallocationssimilartoitsformerarrangementthatcouldyield$35 $50MMofannualfundingunderIMandTEP.Managementhasnotangiblesourcescurrently identifiedandisworkingoffcloseoutfundingofprioraidprojects

43

IV.KeyFindings

44

KeyFindings
UrgentFinancialNeed
TheThruwayisfacinganurgentfinancialneedunrelatedtotheTappanZeeBridge
BANstotalinginexcessof$868MMmustberefinancedbyearlyJuly AdditionalborrowingsareprojectedtosupporttheThruwayscapitalplanandoperations requirements,intheabsenceofalternativerevenueenhancementandcostcontainmentinitiatives Withoutdecisiveintervention,currentcapitalstructureanddebtservicecoverageisinsufficientto absorbtherefundingofBANswithlongtermdebt,ortermingoutofBANs,inadditionto contemplatedborrowingsrequiredtosupportongoingcapitalneeds TAneedstopresentacrediblerevenueenhancementandcostcontainmentstrategytosupportshort termandlongtermfinancinghorizonandrelatedfinancingneeds Thecostofissuingdebt,ifassumedavailable,isattractiveinthecurrentlowyieldenvironment relativetoTAsmostrecentlongtermdebtissuancescompletedpriorto2008

45

KeyFindings
FinancialForecastsShowImmediateInterventionWarranted
ConstraintsexistontheThruwayfinancesthatimperilitsfutureoutlookabsenttimelyintervention Absentcurrentandadditionalrevenueenhancementandcostcontainmentinitiatives,debtservice coverageisprojectedtofallbelowthe1.2xminimumrequirementby2013
NetRevenueShortfall$000s
$000s TotalRe ve nue (1) Ope ratingExpe nse s(1) Ne tRe ve nue s Ne tDe btSe rvice (unadjuste d)(2) Ne tRe ve nue safte rNe tDe btSe rvice DSCR CapitalExpe nditure (3) CanalOpe rating(4) EndingDe btBalance (5)
(1) (2) (3) (4) (5)

2012B 664.7 375.3 289.4 202.3 87.1 1.43x 384.0 55.7 3,164.9

2013E 668.0 389.9 278.1 259.6 18.5 1.07x 374.0 53.2 3,423.8

2014E 676.1 401.5 274.6 282.7 (8.1) 0.97x 377.0 54.8 3,684.2

2015E 685.2 413.5 271.7 308.1 (36.4) 0.88x 383.5 56.4 3,945.9

DSCR 1.2x 1.3x 1.4x

2012B NA NA NA

2013E

2014E

2015E

(33.4) (64.6) (98.0) (59.4) (92.9) (128.8) (85.3) (121.2) (159.6)

1.5x (14.1) (111.3) (149.5) (190.5) 1.6x (34.3) (137.3) (177.7) (221.3) 1.7x (54.5) (163.2) (206.0) (252.1)

ExcludesI84andCanalSystem DSCR NetRevenues/NetDebtService IncludesCapexforFacilities,TravelPlazasandEquipmentandCanalCapitalandOtherAuthorityProjects CanalOperatingCosts IncludesGeneralRevenueBonds,CWEBondsandBANs,Excludesunamortizedbonddiscounts/premiumsand deferredlossonrefundings Source:DataprovidedinternallybytheThruwayAuthority.ForecastshavenotbeenreviewedbyNCA.

Inordertomaintainacceptable DSCR,acombinationofrevenue enhancement,costcontainment,and capitalspendingreduction initiatives shouldbeurgently pursued.

46

KeyFindings
Unsupported20052011CapitalPlan
The20052011aggressivecapitalprogramwasputinplacewithoutadequatenetrevenues tosupportit.Theprogramwasfinancedheavilywithdebt
Priorto2005,thecapitalplanningprocesslackedasophisticatedapproachtooverallneeds,priorities, costeffectiveness,financialcapacity,andalignmentwiththeTAsoverallstrategicgoals In2008,theNewYorkStateOfficeoftheComptrollerfoundthattheAuthorityscapitalplanning processallowedpracticesthatdidnotsufficientlyconsidertheneedforaccountabilityand transparency Subsequentindependentreviewsin2010,indicatedthatsignificantprogresshadbeenmadeinthe areasof(i)establishmentofCapitalProgrammanagers,(ii)ExecutiveCapitalProgramSteering Committeeandinoveralltrackingofspendandremainingbudgets Whiletheprocesshasbecomemorecentralizedandintegrated,additionalimprovementsare warrantedsuchas(i)improvedprojectscoping,prioritizingandcostestimating;(ii)tighter coordinationwithstrategicandfinancialgoalsincluding10+yearrollingcapitalplans;(iii)andmore enhancedassetmanagementpractices,whicharecurrentlylackinginsystematic,consistentand interpretablecontentdeficientinidentifyingalternativeinvestmentscenarioperspectives In2005,theboardinitiateditsmostambitiouscapitalplanever,withcostsestimatetoexceed$2.7 billionoverasevenyearperiod.TheThruwayhadnoestablishedtrackrecordinexecutingaplanof thismagnitudenorhadtheyidentifiedrisksandcontingencieswithappropriatemitigatingreserves orotherbackstops ThemagnitudeofcapitalspendingappearstohavebeeninternallyjustifiedbyTAlifecycle assumptionsandrudimentaryinspections,andnoindependentengineeringconsultantswereretained forpurposesofverificationofneedandpriorityoftheexpenditurespriortotheboardapprovalofthe $2.7billionplan
47

KeyFindings
UseofShortTermDebttoFundLongTermAssets
Shorttermdebtwasutilizedthatwasnotreflectedintheunderlyinganddeteriorating creditratios
4,500.0 4,000.0 3,500.0
CommercialPaper andBANprogram In2008,debtratingswere downgradedfromAA toA+ andAa3toA1byMoodys andS&P,respectively

3.00x

2.50x

Debt Service Coverage Ratio

Total Debt ($ in millions)

3,000.0 2,500.0

2.00x

1.50x 2,000.0

1.20x (4)
1,500.0 1,000.0 0.50x 500.0 0.00x 1.00x

(1) Bond Anticipation Notes (1) (1) (2) (3) (4)

Bond Debt

Pro-forma DSCR (2)

DSCR

Includescommercialpaperbalancefrom20002004 From20002004and20092011,assumeslongtermdebtissuedinplaceofshorttermata5%rateover30years AssumesBANsareineffectforaportionof2012,ultimatelyrefundedbylongtermdebtinthatyear Minimumdebtservicecoveragelevelperbondcovenants Source:DataprovidedinternallybytheThruwayAuthority

BANSarenotintendedforserialissuancebutrathershorttermbridgetolongtermdebt.Byissuing inthisfashion,avoidedinclusioninthecovenantcalculation,withsamereflectingstrongercoverage thanwhatwouldneedtobeserviced,andavoidedrestrictedcovenantsdesignedtorestrainissuance ofexcessamountsofdebt.

48

KeyFindings
RefundingRiskConcerns
Therewassignificantrefundingriskcreatedwiththeutilizationofshorttermdebt
Theboardapprovedopaqueandpotentiallyrisky,shorttermBANs Decisiontakeninlightof(i)realizationofaprotractedrecessionandmotivationtocontinueto fundthecapitalplantocompletion,(ii)falloutofmonolineinsureravailabilityofcreditwraps, (iii)potentialofratingsdowngradeandrelatedpricingincreases,and(iv)avoidanceoftighter debtservicelevels Questionsaroundtheprudenceofthedecisionatthetime Riskestablishedwithdebtmarketsperceptionsofpotentiallygamingthecapitalstructure withasizablepieceofneartermpaper Mismatchofshorttermdebtagainstlongtermassetsinaweakoperatingenvironment Potentialconsequencesofrefundingriskonfuturecostofcapital,dependingonratingagency review,creditunderwritings,andinterestrateenvironment

49

KeyFindings
DebtServiceCoverageRatiosDecliningforYears
StructuralissueswithassetfundingmatchingwithintheThruwaysportfoliohavebeen apparentforyears,butyetThruwaymanagementandtheBoardfailedtotakeaction
$1,200 $1,100 $1,000 $900 $800
($ millions)
MinimumCoverageRatioof 1.2xperBondCovenants MinimumCoverageRatioof 1.5xperBoardResolution MinimumCoverageRatioof 1.7xperThruwayTarget In2008,debtratingswere 3.00x downgradedtoA+andA1 2.75x byS&PandMoodys, respectively 2.50x

2.25x
Debt Service Coverage Ratio

2.00x 1.75x 1.50x 1.25x 1.00x 0.75x 0.50x 0.25x 0.00x 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$700 $600 $500 $400 $300 $200 $100 $0

Total Revenue Net Debt Service Thruway Operating Expenses Pro Forma DSCR (incl. Canal, I-84 & Other)
Source:DataprovidedinternallybytheThruwayAuthority

Capital Expenditure (incl. Canal, I-84, & other facilities & equipment) Canal, I-84, & Other Operating Expenses DSCR

TheCanalsdonotformpartofthecreditgroupyethavetheirexpensesbornebytheTAresultingin DebtServiceCoverageRatiosthatarerepresentedtobehigherthaneconomicreality
50

KeyFindings
RevenueEnhancementandTrue CostReductionMustBecomeAWayofLife
Untilrecently,theTAmanagementandBoardofDirectorshastakenapassiveapproachto revenueenhancementandcostcontainmentinitiatives
Significantchangeswerenevertakentoaddressstructuralassetfundingmismatch Costcontinuedtoexceedrevenuegrowth Whileoperatingcostcontainmentwasinitiatedin2007tokeepnonpayrollbenefitcostsclosetozero growth,significantyearoveryearcostreductionshavenotbeenaddressed
$350.0 $300.0 $100,000 $90,000 CAGR: 13.6% CAGR: 8.0%

Labor & Benefit Costs ($ in millions)

$80,000 $250.0 $200.0 $150.0 $100.0 $50.0 $10,000 $0.0 $0

Average Expense per Employee

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000

Personal Services

Health Insurance

Pension

Other Benefits

Average Employee Expense

Source:DataprovidedinternallybytheThruwayAuthority

TheThruwaymusttakeausteritymeasurescomparabletothoseenactedbytheStateofNewYork, whichexpectsitsStateOperationsbudgetinFY2013todecline,inclusive oflaborandbenefitcosts

51

KeyFindings
RevenueEnhancementandTrue CostReductionMustBecomeAWayofLife
TheThruway,totheextentpossible,mustprioritizeandenactimmediatelyidentifiable nontollrevenueenhancementandcostcontainmentinitiatives
2012 ($inmillions) RevenueEnhancement HealthcareContributionSavings OtherEmployeeBenefits OtherOperatingInitiatives Equipment,Capital,andDebtServiceSavings Total(1) Impact 2013+ Impact

$1.00 $6.50 2.00 9.00 1.00 8.00 22.00 35.50 4.00 6.00 30.00 65.00

(1)NumbersareapproximatedfromdataprovidedbytheTA,andhavenotbeenreviewedbyNCA

TheBoardofDirectorsandmanagementhavepreliminarilyidentifiedpotentialcostsavingscurrently estimatedat$30MMfortheremainderofFY2012andpotentially$65MM2013.Theseinitiativesneed tobevalidatedwithspecificactionplanstoensureeffectiveimplementation Revenueenhancementinitiativesincludeactivelymarketinglandforleaseorsale HealthcarecontributionsavingsincludesadoptingNewYorkStateplanforretireesandemployees Otheremployeebenefits savingsincludeeliminationofsickleavebonuspaymentsandvacationbuy backsaswellasimplementationofselectfurloughdays Otheroperatinginitiativesincludeeliminationofadditionalpositionvacancies,reducestatepolice TroopTauthorizedheadcount,consolidationofEZPass walkincenters,reducedtolllanestaffing, reducedovertime,installationofautomatedtollmachines,amongothers Equipment,CapitalandDebtservicesavings relatetofinancingheavyequipmentpurchases
52

KeyFindings
RevenueEnhancementandTrue CostReductionMustBecomeAWayofLife
Otherinitiativesthatshouldbeexplored,orarebeinganalyzedinclude: GreaterintegrationwithCanaloperatingunits Thruwaydivisionalconsolidation Saleorleaseof landrightsalongkeywaterfrontareasonthecanal ExploretheSAGEcommissionfindingsfurthertounderstandThruwaypotentialsavings StrengthentollviolationcollectionprocessesandaddresslegislativeissueofdesignatingTA beneficiaryoffundscollected BridgeAuthorityconsolidationandrelatedimpactonrevenueandexpenses

53

V.Recommendations&NextSteps

54

SummaryofKeyFindings&Recommendations
ShorttermActions(30 60days)
1. Considerimplementation ofappropriatetollincreasetoalleviateimmediatefinancialstress,andaddresstherefunding oftheBANs 2. Implementimmediatecostcontainmentinitiatives identifiedbymanagement,including defininglaborstrategiesahead ofcontractnegotiationsas wellascollaboratingwithrepresentedemployeestomodifyworkrulesandcontract limitationsthatimpedeproductivityandefficiencyoftheagency 3. Implementausteritymeasurestoeffectivelyrestrictfuturecapitalspendingprojects(i.e.,otherthatthoseprojects continuedforpublicsafetyandotherrelatedconcerns)untilcapitalplanningandexecutionprocessesarereviewedand remediatedtoensureproperprioritization, andtheefficientandeffectivedeploymentofcapital 4. ConsiderappointmentofathreememberSpecialCommitteefromtheBoardofDirectors,authorizedtoleada restructuringprocess 5. Authorizeanindependentthirdpartytoconduct,insupportoftheSpecialCommittee,athoroughtoptobottom agencyreviewtoidentify, prioritize,andassist inthedevelopmentofimplementationplansfornontollrevenue enhancements,costcontainmentandotheropportunitiesforperformanceimprovement,SeeAppendix C,(The IndependentReview) 6. Assess theeffectsofcontemplatedtolladjustmentsandcostcontainmentmeasuresbeingpursuedtoevaluatethe viabilityandexecutionsuccessofvariousconsideredalternativesindealingwiththeJuly2012BANsmaturityincluding: (i)refundingwithlongtermdebts,(ii)termingoutandrestructuring,or(iii)shorttermrollover 7. Delayformalapprovalofthe20122017CapitalPlan,beyondthosereceivedfor2012budgetandcontracts program,until confidenceisestablishedincapitalplanningandprojectprioritizationprocess,aswellastheexecutionofcriticalasset managementinitiatives

55

SummaryofKeyFindings&Recommendations
MediumtermActions(60 180days)
1. ConducttheaforementionedIndependentReview(seeAppendix C forIllustrative WorkPlan) a) Evaluaterangeoftollandnontollrevenueenhancementopportunities b) Assessorganizationaldesignandinteragencyrelationships c) Collaborativelyevaluatelabor, thirdpartycontracting andvendorprograms d) Reviewofcurrentcapitalplanandmaintenanceprograms

2. Completelabornegotiationstoalignincentivesandachieveobjectivesofenhancedproductivityandefficiencies 3. Developarevisiontotheexisting5yearcapitalplanthatincorporatesupdatedrevenueandexpenseinitiativesand otherrecommendationsderivedfromtheaforementionedIndependentReview 4. Finalizeseparate financingalternativesandratingagencysupportforTappan Zeebridgefinancing

LongtermActions(180days+)
1. ImplementrecommendationsfromtheIndependentReview 2. Developacomprehensiverolling10yearintegratedstrategic,financialandcapitalplanwhichbalancescurrent operations,truecapitalexpenditureneedsandappropriateidentificationofrisksandcontingencies 3. Adopt optimizedbondpoliciesrelatingtothebestpracticesonprogrammaticdebtissuance

56

VI.Appendix

57

Appendix A

58

AppendixA
ReportQualificationsandLimitations
ThisconfidentialreporthasbeenpreparedfortheThruwayAuthorityinconjunctionwiththePortAuthorityofNewYorkandNewJerseypursuant totheAgreement,datedasofNovember23,2011,assupplementedbythatcertainFirstSupplementtoAttachmentA,datedasofApril26,2012,by andbetweenNCAandthePortAuthorityofNewYorkandNewJersey. ThisreportcontainsinformationrelatedtotheNewYorkThruway Authority(theThruwayAuthority)andisbeingprovidedonastrictlyconfidentialbasis. Thecontentofthisreportisnottobeusedforanyother purposeand,exceptasmayberequiredbylaworanyotherregulatoryorgovernmentalauthorityhavingjurisdictionovertheThruwayAuthority, cannotbedistributedwithoutthewrittenconsentofNCAandmaynot,inanycase,berelieduponbyanythirdpartieswithoutNCAspriorwritten consent. Duetotimeandotherlimitations,thisreporthasbeenpreparedutilizinglimitedduediligence. Itisbasedonassumptions,forecastsandestimates madebythemanagementoftheThruwayAuthority,informationprovidedtoNCAbyThruwayAuthoritypersonnel,informationprovidedby industrysources,and,insomecases,assumptionsmadebyNCA,whichmaynothavebeenreviewedwithThruwayAuthoritymanagement. Any historicalfinancialinformationorotherinformationgivento,andsubsequentlypresentedbyNCAmaynotbereliable. Anyfinancialstatementsor otherdatacontainedherein,includinganyforecasts,arethefinancialstatementsandforecastsofThruwayAuthoritymanagement,notNCA.NCA hasnotsubjectedtheinformationcontainedhereintoanexaminationinaccordancewithgenerallyacceptedauditingorattestationstandardsorthe StatementsonStandardsforProspectiveFinancialInformationissuedbytheAICPA.Further,theworkinvolveddidnotinclude adetailedreviewof anytransactions,andcannotbeexpectedtoidentifyerrors,irregularitiesorillegalacts,includingfraudordefalcationsthatmayexist.Accordingly, NCAcannotanddoesnotexpressanopinionoranyotherformofassuranceonthefinancialinformationanddoesnotassumeresponsibilityforthe accuracyorcorrectnessofthehistoricalandforecastedfinancialdata,informationandassessmentsuponwhichthisreportispresented. Inadditionbutnotinanywayslimitingtheforegoing,itshouldbenotedthatthesourceofallfinancialinformationorother informationrelatingto theThruwayAuthoritycontainedintheTables,FiguresandbodyofthisReportwasinformationprovidedtoNCAbyThruwayAuthoritypersonnel. Itmustberecognizedthatanyprojectionsofresultsorbenefitssetforthintheattachedmaterialsarenecessarily,bytheirnature,inherently uncertain,andnowarrantyorrepresentations,expressedorimplied,isgiventhattheresultsorbenefitssetforthinsuchprojectionswillbeachieved orrealized,orotherwisewithrespecttoanyoftheinformationcontainedherein. NCAisneitheralawfirmnoracertifiedpublicaccountingfirm. Accordingly,theinformationcontainedhereinisnotintended tobeandshouldnot berelieduponaslegal,auditingoraccountingadvice.

59

AppendixB

60

AppendixB
KeyInitiativesfortheBenefitoftheTA
SAGECommissioncompletedapreliminaryTransportationAssessmentinAprilof2011 Focusofstudywastoevaluateopportunitiesforsharedservicesand/orfunctionsaswellasbest practicesbetweentheBridgeAuthority,NewYorkStateDOTandThruwayAuthority Assumednochangeinborrowingstructurebothforexistingdebtoutstandingandfutureborrowing needs Assumednonewfundingsources SAGEcreated7workinggroupsbyfunctionalrolesandidentified40+opportunities Majorpotentialsynergiesinclude:
SAGEInitiative Field supportconsolidation Field /coreactivityconsolidation Strategicrealignments EstimatedSynergies(1) $11MMto$17MM $29MMto$49MM $20MM to$37MM

(1)PotentialsynergyallocationtoThruwayAuthorityhasnotbeendetermined

TheThruwayshouldanalyzeitspotentialshare ofthesesynergiesontheorganizationandquantify estimatedimpact

61

Appendix C

62

Appendix C
IllustrativeWorkPlanforPhaseII
DraftworkplanforPhaseII I. Organizational&OperationalReview 1. FacilitatetheBoardofDirectorsevaluationoftheThruwayAuthoritysvision,mission,andstrategy tomeetthechallengesofthe21stcentury. a) Affirmorrevaluatecurrentstrategicmission b) Assistinimplementationofconcretestrategicplanningstructuresbasedon recommendationsdetailedfromindependentconsulting reports c) Assistindevelopmentofstrategicdashboard,whichwillfacilitateprioritizationand trackingofkeyinitiativesattheboardof directorlevelandthroughouttheThruway Authority d) AssistinSpecialCommitteeestablishmentofmission,includingsettinggoalsinreferenceto aboveareas e) Identificationofspecific actionsplansandforceamplificationforimplementationsupport Studypotentialorganizationalrealignmentstrategiesinlightofcurrenteconomicenvironment a) ReviewofcurrentRegional/Divisionalcorporatestructuretoidentify operationaland managementefficiencies b) Evaluatestrategies for integrationofCanalsystemoperationwithinThruwayAuthority c) Evaluateopportunitiesforcostsharingandcollaboration/outsourcingofserviceswithother stateagencies d) DetailedanalysisofpotentialbenefitsfromtheSAGECommissionstudy. e) Evaluateorganizationalbestpracticesascomparetootheragencies. f) Identificationofspecific actionsplansandforceamplificationforimplementationsupport TBD TargetDue Date Status/Comments

2.

TBD

63

Appendix C
IllustrativeWorkPlanforPhaseII(contd)
DraftworkplanforPhaseII 3. Comprehensive operationalandfinancialreviewofThruwayAuthority a) Identifyanypotentialrevenueenhancementopportunities i. Longtermstrategic/policyplansforimplementationofscheduledtolladjustments ii. Nontollopportunities(advertising, leasing,recreationalprograms) b) Benchmarkingoflabor,materialsandthirdparty servicesrelativetocomparableagencies andorganizations c) Comprehensivereviewofcurrentworkforce a) Evaluatenumber, classification,description,compensationofallrepresentedand nonrepresentedpositions d) Conductdetailedanalysisofunioncontractworkrules(inconjunctionwithspecialcounsel anddivisionmanagers),thecurrentapplicationofsame,andthepotentialcorrectiveactions toremoveimpedimentstoproductivityandefficiency,andestablishafoundationoffocus. e) Reviewofprocurementprocessesandproceduresforallmaterialsandservicespurchased anddevelopbestpracticesforimplementation. f) FurtherreviewandanalysisofThruwayAuthorityscostcontainmentprogramtoidentify additionalareasofimprovement. g) Identificationofspecific actionsplansandforceamplificationforimplementationsupport TargetDue Date TBD Status/Comments

II.CapitalPlanning&Financing 1. ComprehensiveCapitalProjectsAssessmentincluding a) Evaluationofexistingassetmanagementsystems andpolicies b) Reviewcurrentcapitalplanningprocessincludingprioritizationofcapitalspend,project trackingandreportingthroughoutalllevelsoftheorganizationfromBoardofDirectorsto projectmanagers c) Reviewstatusandcompositionof20122017capitalplanincludingassessmentofproject buildup,viabilityandnecessityinlightofliquidityavailabilityandbondingcapacity TBD

d) Identificationofspecific actionsplansandforceamplificationforimplementationsupport 64

Appendix C
IllustrativeWorkPlanforPhaseII(contd)
DraftworkplanforPhaseII 2. Assistindevelopmentoflongerrangecapitalplanningprocess(tenplusyears)including developmentofmoresophisticatedlongertermintegratedfinancialmodel.Supportevaluationof alternativecapitalstructuresassociatedwithresultsfromoperationalandfinancialreview,including scenariodiscussionsaroundfinancingofTappanZeebridgeproject. a) Identificationofspecific actionsplansandforceamplificationforimplementationsupport Assessmentandsupportofkeyfinancingandtreasurysupportinitiatives,including: a) BANsrefunding/termingoutobligations assessmentoffinancingalternativesandoptimal pathforwardincludinginterfacewithratingsagencies,preparationofkeysupportmaterials b) TappanZeeBridgereplacementfinancing assessmentofalternativesourcesoffunding, positioningofthestory,preparationofrelevantmaterialsandrelatedmodeling,support withkeyrelatedstrategicdiscussion(suchastieupwithBridgeAuthorityorcollaboration agreementwithNewburghBeaconBridge) c) Identificationofspecific actionsplansandforceamplificationforimplementationsupport TargetDue Date TBD Status/Comments

3.

TBD

65