Report 98119 Summary - October 1998

Los Angeles County Metropolitan Transportation Authority:

Its Plan for Managing Debt Is Reasonable

RESULTS IN BRIEF

The Los Angeles County Metropolitan Transportation Authority (MTA) coordinates all public transportation services in Los Angeles County, including long-range regional transportation planning, light and heavy commuter rail systems, and bus service. Our review focused on the MTA's existing financial condition and the impact of its current and proposed mix of debt type and composition, its debt structure, on its financial viability and solvency.

As of June 30, 1998, the MTA had approximately $3.2 billion in outstanding long-term debt. Additionally, over the remaining term of the debt, the MTA will pay interest totaling approximately $2.8 billion. Most of this debt will be paid by sales tax revenues from voter-approved Proposition A and Proposition C. Each proposition imposes a 0.5 percent sales and use tax on goods and services purchased in Los Angeles County. Expenditures incurred for principal and interest represented approximately 24 percent of the MTA's total operating expenditures during fiscal year 1997-98.

Our review found that the MTA has taken a number of steps to ensure that its existing and proposed long-term debt structure does not jeopardize its overall financial viability and solvency. Specifically, the MTA is reasonably projecting its financial activities, particularly local sales tax receipts, a primary source of revenues dedicated to debt repayment. In addition, as a condition of receiving certain federal funds, it has prepared a seven-year restructuring plan outlining its strategies for addressing future anticipated deficits. Federal agencies have reviewed and approved this plan and concluded that the MTA's recent efforts, if carefully monitored, should assist in improving its financial condition. The MTA also continues to ensure that its long-term debt structure falls within prescribed limits for ongoing solvency. However, it does not prepare formal written analyses discussing the type and composition of its new debt, nor has it issued a formal long-term debt policy summarizing its goals and strategies, practices that we believe would further strengthen its overall financial viability.

RECOMMENDATIONS

To continue maintaining its future financial viability and solvency, the MTA should do the following:

  • Formalize its long-term debt policy to be clear on its objectives and strategies. This policy should reflect its recent focus of using conservative revenue projections.

  • Prepare written analyses describing its decisions on the type and composition of each proposed new debt issue. In light of recent criticism of its debt structure and financial condition, the MTA should describe why its choice is financially viable. In addition, the analysis should explain how the type and composition of the debt are consistent with the MTA's long-term debt policy, particularly if the structure of the proposed new debt may appear unusual or questionable.

AGENCY COMMENTS

The MTA agrees with our recommendations and plans to present a formal debt policy to its board of directors for adoption. The debt policy will require written analyses describing the decisions on the type and composition of each debt transaction.


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