New MTA Budget Could Increase $7-Billion Debt

The Metropolitan Transportation Authority’s board of directors will be asked today to approve a budget that would increase the agency’s $7-billion debt by $442 million and would use much of that borrowed money to pay for subway cost overruns and rail cars, some of which never will be used.

And in an apparent effort to circumvent an initiative headed for the November ballot that would prevent use of proceeds from the county’s transit sales tax for construction of new subway lines, the agency’s top officials also propose to use money already borrowed for a Pasadena light-rail project to pay expenses for subway extensions to the Eastside and Mid-City.

Some of that money also would go to pay bills on projects that MTA officials now concede are unlikely ever to be built, such as a subway extension to the Westside and a now-shelved second leg of the Eastside subway project.

The $442 million in new debt plus the interest on the bonds would be backed by part of the county’s penny-on-the-dollar transit sales tax.

The Times reported Sunday that the MTA has borrowed heavily to pay for the county’s foray into rail transit, for cost overruns on the subway project and to construct the agency’s extravagant headquarters.

Payments on the $7 billion in outstanding debt will be the biggest single expenditure in the MTA’s operating budget during the next year, more than the salaries of the agency’s employees.

Much of the $442 million in new debt would be spent on the troubled $1.7-billion, 6.7-mile Hollywood leg of the Red Line subway. Through the sales tax, Los Angeles County residents, businesses and visitors are responsible for paying the full amount of subway cost overruns. The Hollywood segment now is $290 million over budget.

About $60 million would be used to pay for light rail cars, some of which will not be needed because work on the Pasadena line has been halted. Work on the line has been suspended because of the MTA’s financial problems.

The agency has been looking for someone to buy or lease the surplus cars, but still must pay off a $160-million bill for 52 custom-made light-rail cars.

Perhaps the most controversial action proposed by MTA chief executive Julian Burke is using some of the 1995 bond proceeds that have been sitting unspent in the bank for almost three years to pay for work that would be prohibited by the anti-subway initiative sponsored by county supervisor and MTA board member Zev Yaroslavsky.

Because the initiative would prohibit issuing new sales tax bonds to pay for any new subway project beyond North Hollywood, the MTA staff is proposing to spend $88 million in proceeds from the 1995 sales tax bonds set aside for a light rail line from Union Station to Pasadena.

An angry Yaroslavsky said the MTA is “robbing Peter to pay Paul” by taking funds already set aside for Pasadena and “laundering that money” to pay for the expenses on the Eastside project.

“This is why this agency is $7 billion in debt,’ said Yaroslavsky, a longtime subway backer, now turned opponent.

But MTA deputy chief executive Allan Lipsky denied that the shift was an effort to circumvent restrictions in the initiative. “We’re clearly not going to do anything that is contrary to the restrictions in the initiative.”

Plans to Use 1995 Bond Funds

Lipsky and the MTA’s top finance official, Terry Matsumoto, said the agency must find a use for the unspent 1995 bond funds within three years or risk federal tax penalties.

Using the funds now is “a good business decision . . . rather than keep the money in the bank unspent,” Lipsky said.

He said the MTA will replace the $88 million set aside for the Pasadena project with “a new bond issue at the time it’s needed.”

Lipsky said the new borrowing called for in the budget before the MTA board today is essential to finance continued work on the subway from Wilshire Boulevard and Vermont Avenue to Hollywood and Vine.

The $2.5-billion budget comes before the MTA board as transit officials--facing critical decisions in Los Angeles, Sacramento and Washington--scramble to blunt the political damage caused by revelations of their borrowing to build a skeletal rail system used by less than 9% of the agency’s customers.

Mayor Richard Riordan, the MTA board chairman, sent a letter to Los Angeles County’s congressional delegation seeking to reassure them that MTA is deserving of additional federal funding for the North Hollywood subway extension, notwithstanding its financial problems.

“The MTA is in a turn-around mode,” Riordan said in the letter, referring to reports of its debt as “old news.” He said MTA chief Burke, a corporate turnaround specialist personally recruited by the mayor, has moved aggressively to get the MTA’s fiscal house in order.

Turning to developments in the state Capitol, Riordan predicted that a bill by Assembly Speaker Antonio Villaraigosa (D-Los Angeles) designed to lessen the influence of politics on transit decisions by replacing the MTA board of elected officials with non-elected appointees has a good chance of passing this year.

MTA officials have said they need a healthy appropriation from Washington to keep the North Hollywood subway extension on track to open in May 2000 and to prevent their already precarious budget from becoming more constraining.

Congress is expected to act after the July 4 recess on the agency’s requests for $100 million in federal funds this year for the Metro Rail project and $25 million for purchase of new buses.

But even before its new troubles, the MTA was facing a tough fight for federal funds. That was made apparent by a letter sent last week to congressional members by Chairman Frank R. Wolf (R-Va.) of the House transportation appropriations subcommittee warning that requests “far exceed” available funding.

Congressional members have requested nearly $2.8 billion for construction, design and planning of rail systems, and $1.7 billion for purchase of new buses and bus-related equipment, says the letter. Yet slightly more than $900 million is expected to be available for rail systems and $200 million for buses and bus-related equipment. “Clearly, it will be extremely difficult to accommodate all of the requests,” says the letter.

On Thursday, the MTA board will face two more politically sensitive issues: whether to take the formal action to place Yaroslavsky’s anti-subway initiative on the November ballot and whether to allow the San Fernando Valley and other regions to break away from the MTA and take control of their own bus operations.

A consultant’s report says that the MTA could save more than $20 million by subcontracting its bus lines to outside operators, except in the San Fernando Valley, where an independent transit zone would probably just break even for the county transit agency.

Times staff writer Jeff Leeds contributed to this story.