Houston Metro: Irresponsible or Dishonest?
River Oaks Examiner – News
Metro tied bonds to fare hikes in early ’10
Fare box revenues have declined as fiscal 2010 ends.
By MICHAEL REED
Published: 09.15.10
An idea to use automatic fare hikes as collateral to secure approval for at least $400 million in Metro bond sales had been known at City Hall for nearly six months, documents show.
In fact, a lawyer already working toward securing approval for such a plan met with committee members prior to the release of the Mayor’s Transition Task Force report on the Metropolitan Transit Authority on March 13.
George Smalley, Metro vice president of communications, confirmed the Funding Structure Committee discussed such a rate structure — which could not be revoked by future boards of directors — during its interviewing process.
Among those who met with the committee, the report showed, was Andrews Kurth attorney Robert M. Collie Jr., who was employed by Metro to lobby toward gaining approval for the plan from the state Attorney General’s office.
Collie wrote a Feb. 26 letter to the AG’s Finance Division stating that the transit agency wanted to secure its future bond debt through fare hikes that would increase “as needed to replace lost revenue,” due to a possible decrease in federal funds.
Future boards of directors would not be able to repeal the fare increases, according to Collie, because the rate structure would be part of a “bond covenant,” rather than a fare-increase formula.
Since then, however, at least the portion of that plan that would tie the hands of future boards has fallen out of favor with Metro’s leadership.
“The new Metro believes it would be ill-advised to issue bonds that would require automatic fare increases without action by this or future Metro boards,” said in a jointly issued statement to the Examiner on Friday. “The new Metro needs to issue bonds in responsible amounts that it can realistically repay.”
Prior to Collie’s Feb. 26 letter, Metro had been informed by the Attorney General’s office that anticipated future federal grants for mass transportation would not be considered income in computing the state’s debt-service coverage test, because receiving such subsidies is not automatic.
That left Metro with less revenue than it would need to gain approval for the sale of all of the about $1.1 billion in revenue bonds it planned to request. State law requires the attorney general’s approval before a public entity can issue revenue-based bonds.
However, in a March 18 letter — five days after the task force report was released — Collie acknowledged the AG’s position in a letter, thanking the AG’s Thomas Griess for his help “over the past few months.”
He then went on to leave the “bond covenant” option open, “if and when Metro proposed to issue additional bonds and cannot satisfy the coverage test without including Section 5307 (federal) grants or giving effect to the proposed rate covenant.”
In its report, the Mayor’s Task Force listed built-in fare hikes among the consequences of funding light rail.
And, calling the issuance of revenue bonds “the only option currently on the table that could be employed to go forward with rail at this time,” the Funding Structure Committee wrote:
“Revenue bonds may have a rate covenant that automatically raises fares annually based on an index such as CPI (consumer price index).”
While saying the transit agency needed to keep all of its services affordable to its customers, Greanias and Garcia did not rule out future fare hikes as a means to bolster lagging revenues.
On Monday, Metro’s Finance Committee listed “no fare hikes” among its key budgetary decisions for fiscal 2011.
Metro documents show fare box revenues for the first 10 months of fiscal 2010 have declined 10.5 percent, or more than $2.6 million, compared to the same period last year.
Mayor Annise Parker told the Examiner on Friday it would be the Metro board’s responsibility to evaluate all the options as funding for Metro and light-rail construction move forward.
“That decision may have consequences,” she said. “In keeping with the spirit of openness and transparency at the new Metro, I know the agency will be up front with the public about those consequences.”
In reaching its findings, in addition to Collie, the task force committee met with then-Chairman David Wolff, Chief Financial Officer Louise Richman, Executive Vice President John Sedlak and chief bond consultant Drew Masterson of First Southwest, among others.
The report also stated “subordination” of general mobility payments intended for the city “to transit needs is an important part of funding.”
However, in an announcement Monday, Metro said it would stop borrowing money to pay for general mobility costs.
General mobility funds are the quarter of Metro’s 1 percent sales-and-use tax revenues that are supposed to go toward nontransit activities, such as street repair.
Additionally, a Feb. 11 letter from Wolff to Parker said her “idea of eliminating fares” throughout the transit system would thwart efforts to fund the light-rail system.“Put quite simply, without a revenue base we could not sell revenue bonds,” he wrote. “Without revenue bonds we would not be able to generate $1.1 billion of matching funds required to receive $1.6 billion from the Federal Transit Administration.”Revenue bonds became a necessary part of the financial equation, in part, because voters approved a limit of $640 million in sales tax bonds for rail in the 2003 referendum. To issue sales tax bonds beyond that limit, would require another voter referendum.
Related articles:“Metro’s liquidity ratio officially 0.86 to 1 for 2009”http://alturl.com/3iibf“Metro’s cash quandary: An investment portfolio under water”http://alturl.com/d3bui
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