The Metropolitan Transportation Authority has built much more than a troubled subway. It has dug a $7-billion financial hole that has crippled the nation's second-largest bus system and left Los Angeles County taxpayers to foot the bill for the next 30 years.
The MTA and the agencies that preceded it have financed construction of a rail system, including the shortest and most expensive subway in American history, by engaging in a nearly nonstop frenzy of borrowing that began in the mid-1980s.
A mountain of debt, which when interest and fees are taken into account totals $7.01 billion, has been piled up to build the Metro Rail subway and two light rail lines, to pay contractors for cost overruns, and to erect the agency's unprecedentedly extravagant headquarters.
The sum has grown so large that debt service alone will devour more than 30% of the MTA's nearly $1.2-billion operating budget in the next year. Payments on the outstanding debt--almost $360 million a year--have become the agency's biggest single operating expense, more than the salaries of all the MTA's employees.
And the share of the agency's operating expenses devoted to repaying its debt will remain huge for decades to come, hampering the MTA's ability to address the transportation needs of the nation's most populous county.
Already, the MTA board has borrowed against a critical share of anticipated receipts from its portion of the county's penny-on-the-dollar transit sales tax until 2029.
With Washington and Sacramento increasingly wary of investing federal and state funds in more rail projects, the MTA board is struggling to find the money needed to finish building the last segment of an almost $5-billion subway line from downtown Los Angeles through Hollywood to the San Fernando Valley.
This shortage of money has forced a halt to extensions of the Metro Red Line subway to the Eastside and Mid-City and sidetracked construction of a light rail line from Union Station to Pasadena.
The vast majority of the money borrowed by the MTA and one of its predecessors, the Los Angeles County Transportation Commission, has gone to rail projects, which had political support from a powerful alliance of business and labor, as well as local and elected officials.
All but $50 million of $2.4 billion in sales tax bonds issued by the MTA has been spent on rail projects currently utilized by less than 9% of the people who rely on the agency for public transit.
That money helped build the subway and construct two light rail lines: the Blue Line from Long Beach to Los Angeles and the Green Line, which runs from Norwalk to El Segundo, but fails to reach Los Angeles International Airport.
Sales tax bonds provided the funds to plan other rail lines and to acquire railroad rights-of-way that laid the groundwork for the Metrolink system of commuter trains.
The decrepit, overcrowded bus system, which provides critical transportation for more than nine of every 10 MTA customers, has received virtually nothing from the agency's frenzied borrowing.
It is this neglect of the backbone of mass transit in Los Angeles that prompted a civil rights lawsuit and a 1996 federal court consent decree requiring the MTA to improve bus service. But complying with that decree has been made extraordinarily difficult by the necessity of making payments on MTA's outstanding debt.
"That's one of the realities that makes this a difficult job," Julian Burke, the MTA's chief executive, said in a recent interview. "If you are asking me whether or not we would be able to do more to meet the transportation needs of this county if we didn't have any debt to serve, the answer is yes. But that's not reality."
Maybe the MTA should not have pledged as much future income as it did, he said.
But at this point, the MTA has only two choices. "Pay for it or refinance it," Burke said.
Investors Come First
Far from Los Angeles, in the canyons of Wall Street, bus riders take a back seat to bondholders--for the investors who buy the MTA's bonds are guaranteed they will be paid before any buses or trains roll.
In this world of high finance, billions of dollars are raised to construct public works projects, including mass transit systems. To borrow, public agencies make a legal pledge that they will repay investors with interest over time.
Investment bankers, brokerage houses, rating agencies, bond fund managers and individual investors look for a source of revenue to repay the debt. In the MTA's case they found that source in the county's voter-approved sales tax for mass transit, a financial powerhouse that generated more than $820 million in the 1997 fiscal year.
With that kind of money involved, the MTA proved irresistible to contractors and businesses of all types, including Wall Street firms that, over the years, have offered a steady stream of advice to agency officials on how to finance or refinance the foray into rail transit.