In addition to naming new Metro board members, today was the day for Mayor Parker’s transition team to give its report on Metro. Here’s the Chron story about their report. I’m going to focus on one piece of it:
[James] Moncur, a former deputy city controller and former Metro finance employee, said the attorney general’s office has told the transition team it is unwilling to allow Metro to pledge certain federal grant revenues to help the agency repay the bonds.
The state agency believes counting on the continuation of these grants at a time of growing federal deficits is imprudent, Moncur said. A spokesman for the attorney general’s office has told the Houston Chronicle that it is in preliminary talks with Metro about the bonds but hasn’t disclosed the substance of the talks.
Without these funds, Moncur said, it’s doubtful Metro could support enough debt to build all five of its planned light rail lines by 2015. Funding for the three lines under construction — the North, East End and Southeast lines — seems secure, Moncur said.
The attorney general’s office, which must approve the bonds, “is OK with the three-line scenario,” Moncur said. “For the five lines, it’s kind of borderline.”
I was in a conference call with Moncur and George Greanias yesterday in which all of this information was previewed. (*) The grants in question are called 5307 grants, and it’s not clear to me why exactly the AG’s office has an issue with this. Moncur told us that Metro wants to pledge the revenue from these funds, about $50 million per year, for the life of the bonds, which is 30 or 40 years. The grants are recurring, and Metro has received them regularly. Obviously, people are concerned about the federal deficit, and it’s certainly possible that something like this could be affected by future budget-trimming efforts, but in the absence of any specifics, it has the feel of politics to me. I certainly could be wrong about that – we really don’t know much about what the AG and Metro’s bond lawyers have been saying to each other – and I suppose over that long a time frame anything can happen, but I don’t quite get the hangup here. Hopefully we’ll learn more soon.
This isn’t the only issue. As the story notes, Metro is making some assumptions that Greanias termed “optimistic” about sales tax revenues and operating costs, and it is also assuming future fare increases. The former is beyond anyone’s control, and the latter will surely run into political resistance. Overall, I feel better about this situation now than I did a week or so ago, and I do believe there is a commitment to getting the U lines built, just perhaps not on the schedule I’d want. But it ain’t gonna be easy, and I don’t envy the new Board the task of making it work.
Other items that came up: The idea of maybe reducing the fares seems like a non-starter – if you are committed to building the rail lines, then as Moncur put it “Eliminating fares would sink the rail program.” I asked about whether there was merit to the assertion that the 2003 referendum would not allow for Metro to float this $2.6 billion bond package without another referendum. The said they did not do a legal analysis, but they assumed that Metro’s bond attorney, who helped write the referendum, knew what he was doing. They said the economist Metro uses for their sales tax projections is Barton Smith, and that the FTA reviews those projections as well before they make any grants.
That’s what I’ve got for now. I’m going to need to read through the transition team’s reports for myself, and I’m sure I’ll have plenty to say as I do. Texas Watchdog has more.
(*) – I missed the beginning of the call due to bad cellphone reception, but the Chron’s Mike Snyder very kindly took notes and shared them with me, so I was able to get everything out of the call. My sincere thanks to Mike for his generosity.
