County’s Transfer of MTA Funds Overturned

In a potential blow to Los Angeles County’s fragile health care system, a Superior Court judge has ruled unconstitutional a state law that allowed the transfer of $50 million in Metropolitan Transportation Authority funds to help rescue the county from its budget crisis last year.

The tentative ruling was being closely watched in Orange County, where officials feared it could overturn a similar law that helped the county emerge from bankruptcy earlier this year.

Los Angeles County officials expressed confidence that they can overturn the ruling on appeal, but Board of Supervisors Chairman Zev Yaroslavsky warned Tuesday: “If it is not, it will wreak havoc.”

County health officials say that the loss of $50 million would add to a projected $212-million deficit in the health department’s $2-billion-plus budget for the coming fiscal year.

County officials say they do not believe they will have to return the money for now, while the appeal is being decided.

In his ruling, which was made public Tuesday, Judge Richard C. Hubbell found that the law violates the state Constitution “in that it is a special statute for the benefit only of Los Angeles County.”

Richard I. Fine, the Century City attorney who filed the suit on behalf of a taxpayer, said he may challenge the Orange County law as well.

In order to be able to sell $880 million in bankruptcy recovery bonds, Orange County officials and the Legislature agreed to divert $38 million a year for 15 years--money that previously had been allocated to run the county’s bus system. That money is now set aside to repay the bonds.

After learning of the ruling, “I could hear the screaming through my window here in San Diego,” said Patrick C. Shea, a lawyer who represented a committee of cities, schools and other government agencies that shared in the $1.64-billion loss suffered by an Orange County-run investment pool.

In the legislation approved last fall for Los Angeles, the county was allowed to accept $50 million and borrow an additional $100 million from the MTA. The MTA completed the transfer of $50 million in June, but the supervisors rejected the $100-million loan, saying they did not want to incur any more debt.

It was not immediately clear what role the MTA would play in an appeal. The agency is badly in need of money to keep its subway project on schedule, but its 13-member board includes the five county supervisors.

A bitterly divided MTA board voted in September 1995 to turn over the $50 million to the county, even before Gov. Pete Wilson signed the legislation allowing the transfer. Transit officials feared that if they did not act, the Legislature would shift even more money from the MTA to the county.

Fine said he will ask the judge to order the county to immediately return the $50 million plus interest to the MTA. The county has five days to reply to the ruling before the judge decides whether to make the decision final.

County budget analysts and lawyers were still assessing the impact of the ruling late Tuesday.

“If any of the money has to come out of the [health] department’s hide, it will certainly aggravate our current and future budget problems,” said Kate Edmundson, executive assistant to health director Mark Finucane, who was in Sacramento on Tuesday lobbying for more money.

Donald Petit, the department’s chief financial officer, added: “We have no idea if the supervisors will ask us to make more curtailments in our budget as a result of this, or whether the cuts would be spread among all departments if we have to pony up the money at all.”

Even with the MTA money, the health department has undergone its largest downsizing ever, laying off about 2,500 employees during last year’s budget crisis and dramatically scaling back on inpatient and outpatient care.

Fine filed the taxpayer suit on behalf of Raymond Veltman, a retired trucking company owner from Brentwood. Fine said he and Veltman previously teamed up on a suit that in 1995 blocked the transfer of $360 million from Los Angeles and Long Beach harbors to city coffers.

“You can’t continue to spend taxpayers’ money to bail out a government when those responsible for its fiscal health fail in their responsibilities,” Fine said.

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Veltman, who served on the city Transportation Commission during the administration of former Mayor Tom Bradley, said he became upset with the fund transfer and believes that tax money should be used only for its intended purpose. Yaroslavsky said county officials were extremely careful in helping draft the legislation because they expected such legal challenges.

“We think we have good grounds for appeal,” added Chief Assistant County Counsel Gerald F. Crump.

Crump said the county contends that special legislation can be created for a county if there is “a rational basis” for applying it to only one governmental entity.

County Supervisor Yvonne Brathwaite Burke said that even though the county is appealing the ruling, officials must come up with a plan to deal with the possible loss of the $50 million.

Even with the MTA money, the county needed a $364-million federal bailout to help solve its financial problems.

Times staff writer Michael G. Wagner contributed to this story.