Bills Allow 2 Counties to Tap Transit Funds

In a dramatic bid to help yank Orange County out of bankruptcy and help Los Angeles County avoid a similar fate, state lawmakers agreed early Sunday to let the financially strapped counties siphon tax dollars that would normally go to finance mass transit.

The late-night legislation calls for Los Angeles County to shift $75 million a year in transit funds for five years and for Orange County to tap $70 million annually for 15 years.

But there are still some big catches and questions with the plan, which was approved 46 to 19 by the Assembly and 23 to 12 by the Senate.

Although the measure represents one of the first budgetary breaks for counties mired for months in financial quicksand, it could still be vetoed by Gov. Pete Wilson. And if Wilson does sign, it could become entangled in legal challenges.

The Metropolitan Transportation Authority and Los Angeles Mayor Richard Riordan are lobbying Wilson to reject the legislation, warning that it could cripple light-railconstruction projects. MTA officials say they may sue to stop the county from tapping the fund, which now levies a quarter-cent sales tax.

Moreover, for Orange County to get its share, the Legislature must craft a second bill that would authorize a state-appointed trustee who would virtually take over county government if the county stumbles.

Eager to avoid a dicey issue that threatens to cloud his presidential aspirations, Wilson vetoed an earlier bill that would have authorized a trustee for Orange County. His advisers have expressed serious qualms over this latest effort.

“The governor is going to take a look at it,” said Wilson spokesman Paul Kranhold. “We have not taken a position on it at this time.”

Under the legislation drafted by an unusual alliance of Los Angeles County Democrats and conservative Orange County Republicans, the annual infusion of $75 million could help Los Angeles County keep many hospitals, libraries and parks open.

The passage of the bills was hailed by the Los Angeles County Board of Supervisors, which Friday endorsed the funding raid to help deal with its unprecedented $1.2-billion deficit.

“California and Los Angeles have a choice--keep our hospitals, health clinics and parks open or not have the subway delayed for a year or two,” Supervisor Zev Yaroslavsky said. “No one will die if the subway is delayed, but people will die if hospitals or health clinics have to be closed.”

But Yaroslavsky acknowledged that the funding transfer is not a fait accompli , and conceded that it is not nearly enough to cope with a budget shortfall that county leaders have warned will result in mass layoffs and health care cuts.

“There’s no scenario where we’ll be able to avoid cuts,” he said, “but this will help us buy some time we need to restructure the way the county does business.”

“It’s a victory for us, but we’re still facing stiff opposition. I hope the governor will sign it.”

On Friday, Riordan, who is vice chairman of the MTA board, phoned Wilson and urged him to reject the shift. And Pasadena city officials, worried that the $75-million shift would mean construction delays for the Blue Line from Union Station, dispatched a weekend memo to Wilson urging a veto.

MTA board Chairman Larry Zarian said Sunday that MTA leaders will meet in special session Tuesday and that they are in contact with attorneys to determine whether to sue.

“We will be examining the legal propriety of what’s been done,” said MTA Chief Executive Officer Franklin E. White, who termed the legislation “profoundly unwise.”

Zarian said the funding raid would have a dramatic impact on the Pasadena line and on North Hollywood and Eastside extensions. It also could delay next year’s opening of the next segment of the subway to Wilshire Boulevard and Western Avenue, he said.

“This will be detrimental to jobs, it will hurt people who are transit-dependent, and the long-run effects will hurt everyone,” said Zarian, a Glendale city councilman.

The $75 million would come from a $3-billion-a-year transit budget. But with federal agencies potentially matching the local spending, transit officials assert that the five-year loss to them would be $750 million.

The legislation prohibits the MTA from making up for the lost funds by paring bus service. According to White, the MTA has only about $700 million in rail construction funds that can be cut after the agency sets aside funds legally obligated to pay bonds and other debts.

Orange County’s part of the legislation would allow county officials to reroute up to $70 million a year for 15 years in existing sales tax money that now goes to fund bus service. But state lawmakers must first forward a second bill outlining the duties of a trustee to shepherd the county’s fiscal affairs. Wilson would have the option of appointing a trustee or deeming such a state overseer unnecessary.

Senate Leader Bill Lockyer (D-Hayward) pushed for the trustee proviso, saying it is needed to ensure that the Orange County Board of Supervisors follows through quickly with a plan to pay back the county’s debts on Wall Street and elsewhere.

Under the legislation, the trustee would at a minimum have the authority to supervise all matters relating to the county’s budget and fiscal affairs. In addition, the trustee could order the county to file a motion to pull out of bankruptcy; the trustee then would oversee the county’s recovery efforts unfettered by the Bankruptcy Court. In the alternative, the trustee could submit a plan to the court for the payment of the county’s debts.

Past proposals have called for a trusteeship composed of a three-member board of directors, consisting of state Treasurer Matt Fong, state Controller Kathleen Connell and Russell Gould, Wilson’s finance director.

Orange County transportation officials called the legislation potentially disastrous, saying it would endanger road construction projects, bring bus service to a near standstill and force layoffs of hundreds of county transportation workers.

“It essentially eliminates public transportation in Orange County,” said Stan Oftelie, Orange County Transportation Authority chief executive officer. If the diverted taxes are not replaced, he said, the agency would be forced to operate a bus system only 10% to 17% of its current size.

To keep operating “some semblance of a bus system,” Oftelie said, the county may have to stop work on a major portion of its freeway expansion program.

“You don’t solve a bankruptcy problem by creating a new problem,” said county Supervisor William Steiner, who also serves as vice chairman of the Orange County transit agency.

The measure won approval despite opposition from Assembly Speaker Doris Allen of Orange County, who argued that the county should come up with its own solution to its bankruptcy, which occurred when the county’s high-flying investment portfolio suffered $1.7 billion in losses after a series of financial miscues by former Treasurer Robert L. Citron.

In particular, Allen is backing a plan to be unveiled this week by a new coalition of Orange County cities and special districts calling itself the Family of Governments. The coalition is expected to propose that the county finance its recovery mostly by swapping assets such as John Wayne Airport for debt forgiveness or cash payments.

“What does a family do if it cannot pay its bills? A family cuts back on its expenses,” Allen, a Cypress Republican, said in a statement. “A family sells a car, sells a motorcycle, sells a vacation home, holds a garage sale. . . . Orange County’s financial crisis is not different than a family financial crisis. Orange County owns many valuable assets such as its airports and landfills, and clearly the best way to solve this cash-flow problem is to use those assets to raise money.”

Feldman reported from Los Angeles and Bailey from Sacramento. Also contributing to this report were staff writers Rich Simon, Josh Meyer and Jeff Rabin in Los Angeles.