MTA Assures Wall Street It’s on Track

Top officials of the Metropolitan Transportation Authority reassured Wall Street on Friday that the anti-subway measure overwhelmingly approved by Los Angeles County voters in November does not threaten billions of dollars in outstanding bonds or new debt to be issued by the agency this month.

Despite New York’s icy weather, MTA Deputy Chief Executive Officer Allan Lipsky received a warm reception from financial analysts as he portrayed the transit agency as operating on much firmer financial ground than in years past.

Lipsky explained that the ballot initiative solidly approved by voters does not threaten holders of $3.2 billion in existing debt or the buyers of $125 million in bonds to be sold in two weeks. The initiative outlaws the use of the county’s transit sales tax to finance construction or operation of new subways once Metro Rail reaches the San Fernando Valley next year.

When interest and fees are included, the MTA’s total outstanding debt approaches $7 billion. The money was used to build the nation’s most expensive subway, to construct light-rail lines, pay cost overruns and erect the MTA’s palatial high-rise headquarters.

The New York meeting with about 30 Wall Street bond specialists was held at the Downtown Athletic Club, best known for the annual ceremony in which the Heisman Trophy is awarded to the nation’s outstanding college football player.

Lipsky injected Hollywood glitz and self-deprecating humor into his one-hour presentation. He accompanied his remarks with a slide show featuring posters of Hollywood movies meant to illustrate his themes.

Optimistically, he flashed an image of “The Greatest Story Ever Told” near the outset of his overview of the MTA. And to underscore the rockiness of the 1993 merger that created the MTA by combining two agencies responsible for rail and bus lines, Lipsky showed a poster of “Twins,” starring Arnold Schwarzenegger and Danny DeVito as mismatched twin brothers.

But his biggest laugh came when he acknowledged the $5-billion subway project’s financial woes with a poster from “The Money Pit.”

The slide show began with a poster from “Hollywood or Bust” and ended with a preview of coming attractions: the planned opening of the subway to Hollywood in late May or early June.

It included “A Streetcar Named Desire” about the historic decision to build the subway. And it depicted MTA chief executive Julian Burke as “The Miracle Worker” for his efforts to turn around the troubled agency.

The MTA’s new debt policy, adopted last fall after The Times detailed the agency’s frenzy of borrowing, was depicted as “The Ten Commandments.”

Before taking the show on the road to Lower Broadway, Lipsky tested the movie motif at a California public finance conference in San Diego in October. There, he suggested that the much-maligned subway project will have a happy ending, although at times it has resembled a horror story.

Nowhere in his presentation Friday was there any mention of the disaster movie “Volcano,” which featured lava oozing from the La Brea Tar Pits to wreak havoc on the city and subway.

Instead, Lipsky provided an upbeat assessment of progress in getting the MTA’s finances in order after years of promising more rail projects than could be delivered and neglecting the bus system that is the backbone of mass transit in Los Angeles.

He updated analysts on the federal court order that requires the MTA to improve bus service and reduce overcrowding. But he did not discuss the fact that the agency and bus rider advocates are hundreds of millions of dollars apart in what they believe will be necessary over the next six years to comply with the order.

In a question-and-answer session, Lipsky was asked why bondholders should not worry that Los Angeles County voters, having rebuked the MTA once with the anti-subway initiative, might not withdraw authorization for the 1% county sales tax that is the MTA’s lifeblood.

Lipsky said the initiative’s author, county Supervisor Zev Yaroslavsky, deliberately limited its scope because he recognized the county’s ongoing need for improved public transportation.

“The issue [with voters] was never the amount of the tax,” but rather a concern with how the money is spent, he said.

The remarks were well-received by the Wall Street experts who may sell, insure or provide ratings for the bonds to be sold this month.

John Hallacy, manager of municipal credit research at Merrill Lynch, said that “progress appears measurable” in the agency’s campaign to rescue its financial reputation.

Ironically, Hallacy said the ballot measure had the effect of increasing the financial security of the MTA’s bonds because it effectively limits future borrowing for new subway construction, leaving more tax revenue available to repay existing bonds.

Despite subway construction debacles, cost overruns, management and political problems, the bondholders are well-protected because they are paid first before any MTA bus rolls or train runs.

Although Wall Street analysts rely mainly on black-and-white financial data to make their decisions, several of those at Friday’s meeting said it was important that the MTA officials appeared in person to make their case.

William W. Cobbs of Public Resources Advisory Group, a firm that provides financial advice to the MTA, said such reassurances can translate into big savings for the agency on the interest rate it must pay to attract bond buyers.

“If this [meeting] saved them even one basis point, it was worth it many times over,” Cobbs said.

A basis point is 0.01 of a percentage point on the interest rate. On a $125-million, 20-year bond issue, such a difference would amount to more than $100,000.

One questioner asked whether retail sales over the Internet, which are not subject to sales taxes, represent a threat to the revenue stream of MTA bonds, considering that Internet sales are growing so fast and Los Angeles is “so wired.”

Terry Matsumoto, the MTA’s executive officer for finance, responded that the agency is concerned about the issue as a potential long-term problem but that Internet sales have not yet had any significant effect on county tax receipts.

Mulligan reported from New York and Rabin from Los Angeles.