Layoffs Likely as MTA Lowers Expectations

Far from public view, Metropolitan Transportation Authority officials are desperately trying to find the bottom of a financial sinkhole so deep that it is about to swallow scores of the agency’s jobs and most of what remains of its proposed regional rail construction program.

For almost two months, the MTA’s newest chief executive, Julian Burke, has been struggling behind the scenes to get a grip on the agency’s Byzantine finances.

Unable to determine the MTA’s financial health, Burke brought in KPMG Peat Marwick, one of the world’s largest accounting firms, to get to the bottom of the heretofore impenetrable budget problems.

Peat Marwick found that the county transit agency is running tens of millions of dollars in the red. Ever since, Burke--a corporate turnaround specialist recruited by Los Angeles Mayor Richard Riordan--has been quietly huddling with top managers to plan a major restructuring that will include layoffs at MTA’s posh headquarters.

The layoffs will probably come from among about 2,100 nonunion positions that encompass such administrative functions as planning, construction management and public relations. The agency has almost 7,900 budgeted positions.

“To untangle this Gordian knot is a complicated problem,” Burke said in an interview Friday. “Everything is intertwined. It’s complex and it’s elusive.”

But, Burke said, “unless we make changes, there is going to be a deficit for the current year.”

Although he refused to describe the full extent of planned changes, he confirmed that to balance the agency’s $2.8-billion budget, “there are going to be not only staff and program reductions, but also some changes in the way our operations are run.”

And Burke said the agency’s overly optimistic projections of income from the penny-on-the-dollar transit sales tax in Los Angeles County must be lowered, which could cost the agency tens of millions of dollars a year in matching federal funds.

The agency faces deficits in both its operating and construction budgets, which means that the Red Line subway extension to the Eastside and construction of a light rail line from downtown to Pasadena will probably join the cross-Valley and Mid-City lines in the MTA’s “dream deferred” category.

“This time around the reality has sunk in,” said a source familiar with the agency’s financial woes. “It’s going to be a real problem.”

Riordan, who is also chairman of the MTA, said the agency must make decisions about future projects based on financial reality. “We’re not going to have the resources to do everything that we thought we could do several months ago,” he said. “The board has to come to that realization.”

The forced lowering of expectations comes just as MTA is on the verge of what should be a major triumph--completion of the subway tunnel beneath the Santa Monica Mountains.

But after the bleak financial picture presented by Burke’s outside experts, it seems increasingly likely that the subway link between Hollywood and the San Fernando Valley may, in fact, turn out to be the end of the line for a subway network that was to have crisscrossed the entire city.

The agency’s current round of troubles took a dramatic turn for the worse in August, when U.S. transportation officials--concerned about the MTA’s finances--halted all federal funding for a planned 3.4-mile extension of the Red Line subway from Union Station to the Eastside until the agency provides an acceptable “recovery plan” for its troubled rail project.

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The Federal Transit Administration took the action after rejecting for the second time this year an MTA blueprint for getting the subway project back on track. Once again, federal officials demanded that the agency submit a “recovery plan that is financially and technically responsible.”

They harshly criticized the county transit agency for promising more than it can deliver and said the MTA’s plans for extending the subway to the Eastside and Mid-City are based on “optimistic . . . and questionable” financial assumptions.

Further complicating the picture is a landmark federal court order a year ago requiring the MTA to improve service on the nation’s most overcrowded bus system.

Foreshadowing what promises to be an intense competition between bus and rail projects, federal officials questioned the MTA’s projections about the cost of improving bus service, calling them unrealistic and risky.

Against that backdrop, Congress this month agreed to provide $61.5 million for the subway project in the new federal fiscal year--the lowest annual amount provided to Los Angeles this decade. But the MTA’s adopted budget counted on $100 million, leaving yet another hole.

And the money comes with big strings attached.

None of it will be released until the MTA produces a third recovery plan that details how it intends to pay for its rail projects while improving bus service. Moreover, lawmakers required the Federal Transit Administration to certify that “the fiscal management of the project meet or exceed accepted U.S. government standards.”

With its financial, political, ethical and construction problems widely known, the MTA board was unable to find a candidate to fill the agency’s top job as chief executive.

So Riordan, in his role as chairman of the MTA’s board, in August turned to Burke, his friend and one-time colleague, to help sort out the agency’s problems.

First, Riordan dispatched a team of financial advisors, including Burke, to do an independent analysis of the budget adopted by the MTA board. They reported finding sloppy internal controls, poor financial reporting, unrealistic revenue forecasts, and the growing use of debt to pay interest on previous borrowing.

Like a consumer using one credit card to pay off another, the MTA will spend nearly $238 million this fiscal year to pay interest on its debt, up from $218 million last year.

Then the mayor tapped Burke to fill the top job at the MTA.

Since assuming the post, the 70-year-old attorney, whose long career has focused on turning around troubled corporations, has zeroed in on the agency’s financial difficulties.

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From his 25th floor office with a commanding view of downtown’s skyline, Burke has demanded answers from top MTA officials about where their departmental budgets can be cut.

Preferring to operate behind the scenes and out of the media spotlight, Burke made clear early on that his mission is to stabilize the agency’s deficit-ridden finances.

Burke said Friday that he will call special meetings of the MTA board in November and December to deal with the deficits in operating and construction budgets.

Beyond staff and program cuts, he said, the immediate blow will be softened by using reserves and other one-time money to bring “this fiscal year reasonably close to break even.”

But the MTA faces more difficulty.

As it struggles to buy new buses and improve bus service, Burke said the MTA also must reduce the high cost of maintaining its bus fleet and make changes in its “very costly” insurance.

It also must do something about its habitually inflated estimates of its revenues from the transit sales tax--a practice federal officials have sharply criticized.

Although the MTA’s adopted budget calls for a 7% increase in sales tax receipts to $889 million this year, other governmental agencies are using much lower estimates. For instance, Los Angeles County is anticipating a 4% growth in sales taxes through the turn of the century.

Burke said the range is actually between slightly more than 3% and 4.75%, and the MTA “certainly is not going to be using 7%.” Since the sales tax is critical to both bus purchases and subway and light rail construction, using a lower forecast will inevitably require scaling back the agency’s long-range plans.

So, for the time being at least, a rail construction program that was to have spanned the county will narrow to just 11 unfinished miles of subway from Hollywood through the Santa Monica Mountains to the San Fernando Valley.