The Metropolitan Transportation Authority’s money must be carefully watched. With literally billions of public dollars flowing through Metro’s fingers, the need for careful financial controls, and for fairness in Metro contracting, is greater than ever before.
Sensing intolerable traffic congestion, mounting concerns for global air quality and renewed interest in urban living, a unique coalition of business, labor and public sector voices joined with the electorate to sponsor and fund Measure R.
This half-cent-per-dollar sales tax is dedicated exclusively to transportation. Under Mayor Antonio Villaraigosa’s “30/10” initiative to build 30 years of rail and highway improvements in 10 years, the critical path is now implementation, and a crucial element on that path will be Metro’s ability to manage its financial affairs.
Metro’s financial team is in constant contact with their peers in Washington, D.C., over the detailed financial mechanisms required for 30/10. These mechanisms include TIFIA (Transportation Infrastructure Finance and Innovation Act) and QTIB (Qualified Transportation Infrastructure Bond) requests. The TIFIA program of low-interest loans has been used by Metro before, but never on this scale. The QTIB package involves a new program of interest-free, federally guaranteed bonds. Together, the dollar amounts on these requests start with a big “b,” as in “billions.”
These requests have inspired considerable scrutiny on Capitol Hill. Our local congressional delegation, led by Sen. Barbara Boxer, and including Reps. Jane Harman and Judy Chu, and Congresswoman-elect Karen Bass, are actively working the corridors of power. The Obama administration has signaled a preliminary willingness to support this congressional initiative.
One ready-to-build project, the Crenshaw/LAX Light Rail Corridor, will be the prototype first phase of implementation for the larger 30/10 program. As such, it is receiving particular attention and support, witness the first TIFIA loan of $546 million, announced by Boxer last month to kick-start Crenshaw/LAX.
At the same time, advocacy for traditional federal funding sources, such as the New Starts program for the Purple Line subway to Westwood and the Downtown Regional Connector, are also in play.
Measure R will give Metro the ability to move 12 major urban transit and multiple highway improvement projects ahead simultaneously. This places special attention on the financing practices of the Metropolitan Transportation Authority.
Like almost everything in this economy, Metro suffered significant battering and blows in the aftermath of the financial crisis of 2008. Positions involving hedging, debt swaps and nontraditional credit enhancements turned sour. This left Metro facing increased costs to recover its liquidity positions and maintain covenants. The cost of these losses to the public is still unknown.
Metro staff members moved quickly after 2008 to arrange alternative credit enhancements for threatened leveraged positions, and now are reviewing the agency’s debt policy to include further safeguards and a more conservative approach. I joined with other Metro directors in September to support a revised debt policy for future financings.
Two months ago, I authored a motion to expand the financial advisory services available to Metro by bringing in three financial advisers, as opposed to the current single adviser. Private sector financial advisers provide both market forecasting and technical capitalization plans for Metro’s Financial Services Group. Metro’s expanding need for project capitalization coincides with continuing volatility in municipal debt markets. Therefore, the need for expanded financial advice, and a carefully crafted financial plan, is more critical than ever before.
At the same time, my office is concerned that Metro’s stable of financial service vendors, including financial advisers, underwriters and bond counsel firms, reflects the diverse skills of our community, with appropriate opportunities available for small and local businesses.
Metro made a positive step in this direction with its recently approved list of underwriting firms that include African-American, women and Latino co-managers for major debt issues.
Therefore, while much public attention will be focused on proposed light-rail and subway alignments, grade crossings and, hopefully soon, groundbreakings and grand openings for transit systems, an ever-vigilant eye should be maintained on the financial practices and economic well-being of the transit agency itself.
Mark Ridley-Thomas is a Los Angeles County supervisor. He represents the Second District.