MTA Takes Steps to Put a Limit on Borrowing

Stunned by disclosures that the Metropolitan Transportation Authority has amassed $7 billion in debt to build a skeletal rail system and an elaborate headquarters, the agency’s directors approved a new budget Thursday, but took steps to impose a limit on borrowing and on the MTA’s habitual practice of using money obtained for one project to pay for another.

One board member, county Supervisor Mike Antonovich, described the burden imposed by the debt as “so large that it jeopardizes the ability of the Metropolitan Transportation Authority to do its business.” Payments on the borrowed money now constitute the MTA’s largest annual operating expense.

The chairman of the state Senate Transportation Committee, Sen. Quentin L. Kopp (I-San Francisco), said Thursday in San Francisco that he has called a July 13 committee hearing in Los Angeles to examine the MTA’s financial condition. He said that he also will ask the state auditor to assist in determining whether state legislation is needed to “protect the interests of state taxpayers.”

Julian Burke, the MTA’s chief executive, promised that he would return to the board with the agency’s first policy on debt. “It would be so much easier for this management and so much easier for the directors themselves, if they had . . . a crisp debt policy that could guide their decisions,” he said.

The stage for the board’s abrupt break with its uncritical past acceptance of borrowing for rail projects was set earlier in the meeting, when Los Angeles Mayor Richard Riordan, the chairman of the MTA board, subjected John Molloy, administrator of the city’s Community Redevelopment Agency, to an unusual public dressing down. Molloy’s agency runs an MTA-funded program to help businesses hurt by the Hollywood subway construction, and its expenditures on the program brought Riordan literally to his feet.

The visibly angry mayor accused Molloy of handing the board “bullshit” by misrepresenting as loans $7 million in grants to Hollywood businesses. The money, like much of the MTA’s spending, comes directly from the county’s penny-on-the-dollar sales tax for mass transit paid by Los Angeles County residents, businesses and visitors.

But after hearing Molloy say that businesses are not required to pay the money back if they remain in Hollywood for 10 years, Riordan pointedly told the CRA administrator: “These are not loans. They’re grants.

“We’re deceiving the public by calling them loans,” the mayor said. “If I ever hear that again, some heads are going to roll.”

Riordan ordered the redevelopment chief to stop making any other grants in Hollywood until “we have had a chance to sit down and discuss it.” He demanded to know details and dispatched his top transportation aide to the CRA offices to find out who has benefited from the grants.

The program has provided a long list of Hollywood property owners with up to $375,000 for preserving their buildings, and lower amounts for upgrading storefront facades, protecting neon signs, and keeping entertainment companies in the area adjoining the subway.

Riordan said that, in the long run, businesses “are going to come out much better because the subway is there.”

But Councilman Richard Alatorre, usually a Riordan ally and a strong proponent of rail transit on the MTA board, retorted: “During the time construction took place, these people got impacted tremendously.”

Councilwoman Jackie Goldberg--who represents Hollywood and whose transportation deputy is paid for by the MTA fund--told the board that the agency agreed to provide the assistance in exchange for the community’s agreement to endure greater disruption by accepting construction methods less expensive than tunneling.

“Certainly, no one would say that the construction in Hollywood has been easy,” Goldberg said.

Before hastily leaving the posh MTA boardroom, Goldberg said the assistance is “a matching grant, a disappearing loan,” before finally conceding: “It’s ultimately a grant.”

To which, Supervisor Zev Yaroslavsky rejoined, “Hallelujah!”

The $7 million is part of a $16.7-million fund set up by the MTA several years ago to ease the impact of subway construction on the Hollywood community. Figures obtained from the CRA show that grant recipients include a state agency, the California Film Commission, $125,000; Max Factor-Dadigan, $375,000; El Capitan, $250,000; 1st National Bank Building, $250,000; and Cyber Java, a retail outlet, $125,000.

The board also put on the November ballot an initiative sponsored by MTA board member Yaroslavsky, which would prohibit further use of the transit sales tax on subway construction beyond the line to North Hollywood. Antonovich, another subway critic, called the initiative an “emancipation proclamation.”

Riordan told the board that a vote to place the measure on the ballot was a ministerial act and has “nothing to do with whether we’re in favor of the initiative or not.” Still, board members took an opportunity to begin campaigning for or against the initiative.

Supervisor Yvonne Brathwaite Burke spoke out against the initiative. “I recognize that subway is a huge cost, but I believe there are certain places environmentally where we should do some kind of tunneling,” she said.

Later in the meeting, Supervisor Burke asked the MTA’s inspector general to conduct an investigation into what she called allegations in The Times concerning the nonprofit Transportation Foundation of Los Angeles. Burke wanted a report to the board on whether there was any inappropriate activity relating to the expenditure of funds by the foundation.

The Times reported that the foundation, which has been promised $800,000 in seed money from the MTA, also received a contribution from a major Wall Street bond firm that underwrote the agency’s sale of bonds in 1995 to finance its Gateway Center headquarters.

Goldman Sachs made the $2,000 donation to the foundation in lieu of a traditional bond closing dinner, former MTA Treasurer Leslie V. Porter wrote.

But before agreeing to the inquiry, the board engaged in its first full public discussion of the massive debt accumulated while building the subway, two light-rail lines and the agency’s extravagant headquarters.

The new $2.5-billion budget calls for increasing the MTA’s $7-billion debt by $442 million.

Although 30% of the almost $1.2-billion operating budget will go to pay off debt, transit chief Burke told the board: “It is not a signal that we are on the brink of a disaster.”

“We are not overburdened with debt,” Burke said.

Deputy CEO Allan Lipsky said: “We’re not making judgments about whether this is too much or too little debt. We have the responsibility to try to find ways to pay it back and still maintain our basic transportation services and complete subway construction.”

It was Yaroslavsky who pressed his colleagues to “put some kind of debt ceiling on this agency.” He also complained that there is “a lack of accountability in our system” about where proceeds from the agency’s bond issues are being spent.

The budget puts off a previously proposed 10-cent increase in the $1.35 bus and train fare until at least next spring.

Funding is provided to start work on extending Blue Line platforms to accommodate longer trains and relieve crowding on the Los Angeles-to-Long Beach line and continue replacement of the aging bus fleet. But the plan calls for increasing the wait--from 12 minutes to 15 minutes--between trains on the lightly used Green Line.

The budget also cuts out funding for so-called freeway service patrol on all freeways except those in downtown Los Angeles between 10 a.m. and 3 p.m., but left intact the emergency tow truck service during rush hour. Funds also are provided to keep the MTA library open at least for six more months.

Although Riordan on Wednesday delayed a vote on the budget until Thursday so that all members could be present--three board members didn’t show up for Thursday’s meeting--Supervisors Gloria Molina and Don Knabe and Duarte Councilman John Fasana. Knabe was out of town on vacation.

A Molina spokesman said the supervisor was attending a long-planned staff retreat at her Eastside field office. “We felt it was more important for her to spend a day talking to her staff about a proactive agenda for her staff than to be at MTA discussing a budget that she doesn’t support,” he said.