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Capital Metro repayment plan spawns more debt for city

Friday, April 23, 2010 by Michael Kanin

The inability of Capital Metro to pay the City of Austin in full for a host of infrastructure improvements is going to leave taxpayers with yet another ancillary cost. As part of its approval of a gradual repayment deal between the transportation organization and the city, the City Council heard Thursday that Austin would likely have to issue $16 million in certificates of obligation to cover a funding gap produced by the agreement.


That short-term financing option will be used to pay for road projects that Capital Metro would have provided the city in sales tax rebates. These include work on Brazos and Second streets, as well as current and future improvements in the Seaholm redevelopment area.


All told, the issuance will cost the city between $2 million and $3 million dollars in interest.


“These are bonds which, absent this agreement—absent this obligation we’ve made—we would not have to enter in to,” Council Member Bill Spelman told In Fact Daily. “This is coming off of our bonding capacity, which is now around $200 million. So it reduces our ability to issue bonds for some other purpose—without a tax increase—by about $16 million.”


At the hearing, the city’s Chief Financial Officer Leslie Browder described the impact of Capital Metro’s inability to reimburse the city.


“Out of the $51 million commitment that is currently outstanding, we looked at developing an interim funding plan since, obviously, Capital Metro is not going to be able to…pay us back as we incur those (infrastructure) costs,” she said.


Council’s decision to issue certificates of obligation comes on a day that the Sunset Commission issued a financial and governance audit of Capital Metro that Sen. Kirk Watson requested under Senate Bill 1263 during the last session. The audit accuses the transportation agency of a series of serious financial missteps that have led to a heavy debt obligation for the transit agency.


Despite the fact the report was leaked a day early, lawmakers continue to be tight-lipped about the report’s findings. Most stakeholders, including lawmakers, Capital Metro and many Capital Metro board members, were unwilling to discuss the report in advance of its release Friday, with the exception of a press release from Watson’s office mid-afternoon.


“This review, resulting in a detailed report, is exactly what I wanted – and what this community has needed – for some time,” Watson said. “Since I was elected to the state Senate, I’ve been working to bring reform to Capital Metro. This report builds on changes I’ve already made to the agency through legislation affecting its practices and its board. It represents the next step in this process.”


Even union leader Jay Wyatt, rarely the agency’s strongest supporter, deferred commenting on the report until he had a chance to digest its contents. In the meantime, the report offers a 55-page timeline for the decisions that put the transit agency into its current financial crunch.


The report outlines a series of decisions that anyone who follows Capital Metro has seen in recent media reports: admitted miscalculations on rail line construction due to inexperienced leadership; ongoing excessive subsidies for UT shuttle and paratransit services; cutting political deals to return tax dollars to local jurisdictions rather than setting aside money for reserves; and maintaining fare rates that cover only 10 percent of the budget.


Declining sales tax revenues only made the demise come faster, and according to the report, it was coupled with poor choices by the board, such as a lavish $7,500-a-month pension package for outgoing CEO Fred Gilliam and an inability, or unwillingness, to put the Star Tran contract out for competitive bid.


Few of these points are surprising. Interim CEO Doug Allen made an unprecedented mea culpa on the sins of the Red Line launch to both the public and Council. And the agency has attempted, albeit more slowly than it should have, to hike fares, raise paratransit prices and acknowledge its inability to pay for its sales tax rebates to local cities, including Austin.


The report suggests a number of changes, including the competitive bidding of the contract that now belongs to Star Tran. It also suggests a rail manager. Balancing costs and savings, Sunset Commission staff estimated its recommendations could save the agency $66.4 million over five years.


Faced with its own financial problems due to Capital Metro’s miscalculations, Browder said the city “identified alternate funding sources (and) we identified a number of projects that we felt we could defer until later in the program, when they have the ability to repay.”


“Everybody agrees these are projects that clearly ought to be done,” Spelman said, “but we simply can’t pay for them in cash—we haven’t got that kind of money laying around.”


More details are expected to emerge at next week’s Audit and Finance Committee hearing.

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