U.S. Agency Threatens to Withhold Subway Money

The Reagan Administration on Friday lobbed a new political bomb at Los Angeles’ Metro Rail subway by threatening to withhold federal construction funds because of delays in the collection of a tax on downtown businesses to help finance the project.

In a letter to Southern California Rapid Transit District General Manager John Dyer, attorneys for the Urban Mass Transportation Administration said the transit district is “in technical breach of its (funding) contract” with the federal agency. The letter said federal funding will be suspended unless the federal government is quickly assured that all required local funds for the subway will be available.

President Reagan and his transit agency have strongly opposed the multibillion-dollar Metro Rail, but they have been ordered by Congress to fund about half of the project. The latest salvo, while not likely to sink the project, could raise fears among Los Angeles’ elected officials that local taxpayers will end up footing most of what was initially to be an 80% federally funded project.

Preliminary construction has begun on the subway and should the federal agency withhold funds for an extended period, local officials would be faced with interrupting construction or putting more local tax money into the project.

Dyer expressed shock at the agency’s action, charging that Reagan Administration officials are “trying to harass us.”

“I’m angry as a hornet,” he said, insisting that the RTD is in full compliance with the Metro Rail funding agreements and that the federal agency understood and approved the procedures being used.

Under agreements signed last year, the RTD promised to provide $130 million of construction costs by imposing a special tax on about 2,000 businesses near the five stations on the first segment of the line. In February, however, the RTD board delayed collection of the tax five years in response to protests from business owners, many of whom saw their property tax bills jump 500% or more.

The RTD board has agreed to proceed with the sale of about $200 million in bonds if it prevails against several legal challenges to the special tax. The lawsuits are expected to take up to 18 months to resolve.

Charge Denied

The Urban Mass Transportation Administration asserts that those actions have reduced the local funds guaranteed to be available for the project and “renders the SCRTD incapable of meeting its commitment”--a charge Dyer strongly denies.

But financial analysts for Los Angeles, a Metro Rail funding partner, have also expressed concerns about RTD’s deferral of the tax collection and the viability of the proposed bonding program. The city attorney is reviewing whether RTD is living up to its end of the agreement.

Dyer said that he will prepare a detailed response for the federal agency and that the district will consider legal action if the agency attempts to withhold funds.

‘Probably Not Interested’

Councilman Michael Woo, a strong Metro Rail supporter and chairman of the council’s Transportation Committee, said the RTD and city and county officials will have to carefully evaluate how to proceed. “My hunch is the council is probably not interested in increasing its funding,” he said.

Westside Councilman Zev Yaroslavsky, a Metro Rail supporter who has expressed concerns over funding of the project, said he is troubled further by the federal agency’s action. “If the RTD is in breach of the contract with UMTA, they are also in breach of the contract with us,” he said.

Dyer said if the proposed downtown property tax is thrown out by the courts, the Los Angeles County Transportation Commission could make up the shortfall from its revenues, generated by an extra half-cent sales tax.

However, the commission has never formally agreed to assume that financial burden.