The Statesman has finally written a truly critical and well stated article that fully details how CMTA management has run out of control for years. To sum up all the details in the article, CMTA overspent more than the 3/4 cent tax revenue for years and also spent all of the $50 million that they owed the City of Austin. Oh, yeah, the City of Austin kinda needs that money since they are in a budget crisis.
Remember as you read it that CMTA never - ever accepts any responsibility or admits that they made a mistake. Whenever anything negative comes up they put their hands in the pocket and sort slouch and go, 'well, I don't know what happened'. This is how Fred Gilliam comes off with a really lame reply about how they spent all the money!
CAPITAL METRO
Capital Metro spent millions but still owes Austin
Transit agency, with reserves depleted after spending blitz, owes city tens of millions.
By Ben Wear
AMERICAN-STATESMAN STAFF
Sunday, March 15, 2009
During a six-year, $300 million blitz of capital spending, Capital Metro used money promised to the City of Austin and other local governments to help pay for passenger rail, park-and-ride lots, freight rail improvements, a $42 million bus-and-train facility, information technology, a child care center and other projects.
The transit agency, which as recently as 2002 had more than $200 million in the bank, now has little savings beyond a standard two-month cushion for operating costs and a self-insurance reserve. It owes Austin and other governments in the agency's jurisdiction between $85 million and $110 million, most of it the balance on a $200 million promise made in 2000 and 2001 to stifle public calls for a lower sales tax rate.
"We kept the liability, but we didn't keep the cash," said Capital Metro Chief Financial Officer Randy Hume, who joined the agency in 2007. "We did spend it, and now we have the obligation. We still owe them what we promised them."
The depleted reserves, coupled with the city obligation, other debt and ebbing sales tax revenue, have already led the agency to cut costs by hiring outside contractors to drive and maintain buses for more routes. In addition, the financial situation led the agency to freeze most hiring and cut spending in agency departments 15 percent this year and probably contributed to the labor standoff last fall that ended with a three-day strike, according to at least one board member.
The crunch hamstrings the agency's ability to execute the ambitious dreams that Capital Metro and other transit advocates have laid out in recent years, including rail lines to Elgin and Pflugerville, downtown streetcars and a 133-mile "rapid bus" system.
Even current bus service is threatened. In a recent briefing, the agency's chief financial office said Capital Metro will have to re-evaluate "redundant trips related to rail service" and "very low productive (bus) trips."
City of Austin officials, facing their own financial squeeze, say dozens of city projects depend on getting that promised Capital Metro money.
Fred Gilliam, Capital Metro's president and chief executive officer since April 2002, said the rapid drawdown of reserves was no accident. The agency had needs, including passenger rail authorized by voters in a 2004 referendum, and it had money. And politically, the cash stash was something of a problem.
"Everyone in town thought we were rich, and they were coming after it," Gilliam said. "So the sooner we spent it down, the criticism quieted down."
Lee Walker, chairman of the Capital Metro board from 1997 until May, worked closely with Gilliam and Capital Metro's staff on the agency's long-term financial picture. He did not return calls and e-mails seeking comment for this story.
The strategy of spending money obligated to the City of Austin and the other governments, though in progress for several years, was never explained to the public, and several members of the Capital Metro board said it was not clear to them.
"I've been operating under the assumption that these (capital) items were annually budgeted within the sales tax revenue that was coming to Capital Metro and not being drawn down from cash reserves," said board member Mike Martinez, also an Austin City Council member. "Spending money that you don't have is not acting very responsibly."
The annual budgets approved by the board each September, though showing levels of "designated reserves" falling in recent years, present the overall picture in terms of "net assets" that have tended to remain relatively stable in the $300 million to $350 million range.
The all-volunteer board includes five elected officials whose primary responsibilities lie with the jurisdictions that elected them and by and large leaves the day-to-day operations to paid staffers.
Travis County Commissioner Margaret Gómez, a board member since 1997 and now chairwoman, and Austin City Council Member Lee Leffingwell, who served on the board in 2006 and 2007, said they were unaware of the ebbing reserves and significant remaining obligation to the city.
The agency's accounting, showing reserves as "all just one big pot of money, with no set-asides," Leffingwell said, "made it look like they had a whole lot of money when they really didn't."
Gilliam said board members were kept informed about the agency's overall financial situation.
"There was no secret that the money was running out," he said. "Every board member, when they come on board, we give them a briefing on these things. Whether they retain it, I don't know."
Martinez acknowledged that ultimately the buck, or in this case several hundred million bucks, stops with the board.
"I can't blame any one individual," he said. "It's the board's responsibility. It's my responsibility."
Capital Metro officials, while saying they've known for about three years that available reserves were headed to near zero, also said the overall impact of various spending decisions was not always obvious — even to the agency.
Doug Allen, the executive vice president and chief development officer who has been with Capital Metro for a year, said that although the agency had a good handle on spending for its commuter rail project, oversight of capital spending overall was flawed and the "burn rate" of the agency's reserves occurred faster than expected.
"Processes should have been in place to better track what those other capital expenditures were," said Allen, who said that agency leaders have better command of finances now.
The rash of capital improvements and the resulting cash crunch have put Capital Metro in the position of having to borrow money for needs both past and projected.
It owes about $29.5 million ($4.2 million annually for seven more years) for the six rail cars it ordered from a Swiss manufacturer three years ago, and it would have to spend (and probably borrow) a comparable amount for a second batch of six cars if it wants to expand service. And agency officials are embarking on a seven- or eight-year program to replace 270 buses, about two-thirds of the fleet.
They say that although some of the $26 million they expect to get through the federal stimulus program could be spent on buses, they'll have to borrow much of the $100 million-plus cost of those buses.
That is a marked departure from past agency practice, which typically has involved buying buses without borrowing using a combination of federal grants and local money. The agency anticipates that such loans for buses, which have a useful life of about a dozen years, would have to be paid back over seven to 10 years.
That debt, along with the periodic payments for what is still owed to the City of Austin and other governments in Capital Metro's jurisdiction (among them Leander, Manor and Volente), would constitute an ongoing drain on what is available for day-to-day operations.
The 2008-09 operating budget is $186.7 million, although actual spending probably will be several million dollars lower because of falling diesel fuel costs.
Those future obligations may have influenced agency decisions to double fares by late 2010, hire cheaper outside contractors to handle some bus routes and cut back on Dillo service downtown.
Did the disappearing reserves spark the hard line Capital Metro took last year in negotiations with its union workers? No, Allen said. "We're really scrubbing our budget because of those issues," Allen said, but he said the reserves and the agency's labor stance are unrelated.
"It was an independent issue," Allen said. "Just being good, prudent stewards of the public money."
Martinez scoffed at that interpretation. Capital Metro, he noted, gets its money for both capital and operations from the same sources: sales taxes, fares and federal transportation grants. Spending on capital, he said, inevitably means there's less money available to pay employees.
"It's directly related," Martinez said.
Building up reserves
The buildup in Capital Metro reserves began in earnest in 1995, when the agency board decided — on short notice and to instant derision from critics — to raise its sales tax from three-fourths of 1 percent to a full 1 percent, the maximum allowed under state law. By September 2000, when the board announced a November light rail election, the reserves had reached $176 million, money mostly intended for the $1.9 billion proposed system.
But voters said no to rail that November, though barely. Calls were instant for the sales tax to go back down to 0.75 percent, if not lower, potentially freeing that money for other Austin-area transportation needs.
The Capital Metro board acted quickly to head that off, voting in December 2000 to give away revenue from a quarter percent of its sales tax that year to Austin and the other partner governments. The city has used the money for, among other things, toll road right-of-way purchases, intersection upgrades, bicycle projects and Cesar Chavez Street beautification. That quarter-cent commitment was later extended for three more years, which in the end amounted to $113.5 million.
But that still left the money that had built up by 2000. So in February 2001, the board passed a resolution making "a strong and proactive commitment of $91 million for regional mobility," a bequest that would leave the agency with about half of the money that it had banked. Of that $91 million, $47 million was to go to the City of Austin over the next 12 years, and $20 million was to go to the existing Build Greater Austin program (which would also go to the city).
The other $24 million was left unallocated, subject to future agreements with the city. All of this was formalized in an "interlocal agreement" signed in June 2001 between the city and Capital Metro, which does not mention the $24 million.
As of Sept. 30, Capital Metro still owed at least $85.1 million. Regarding that other $24 million, however, Capital Metro's position now is that perhaps it wasn't as "strong and proactive" a commitment as the board resolution indicates.
"It was viewed as a contingency," Allen said. "Our commitment is what's in the (2001) interlocal agreement."
Leffingwell took issue with that assertion. "Seems like the other party (the city) might have something to say about that," he said.
No matter the total figure, $85 million or almost $110 million, Capital Metro no longer has that cash on hand to give to the city. This comes just as Austin, according to budget director Greg Canally, is gearing up to spend much of the remaining quarter-cent commitment from Capital Metro on dozens of projects: extension of the Pfluger pedestrian bridge, improvements at six major intersections, an overhaul of East Seventh Street and bicycle projects across the city, among others.
The Capital Metro staff has "never said 'we want out of our obligation,' " Canally said. "Because then the (city) projects would go away."
But the transit agency, to avoid having to pay huge slugs of money to the city over the next two or three years, might work out some sort of drawn-out payment schedule to blunt the year-to-year impact, officials say.
Facing a cash crunch
Capital Metro's condition comes at a bad time for the agency, with sales tax receipts, which make up about 70 percent of its revenue, falling well below projections this fiscal year. Bus ridership, meanwhile, has been dipping after an increase last year when gas prices mushroomed, and the full force of passenger rail operating costs are about to hit. The 32-mile Red Line between Leander and downtown Austin is now scheduled to open in April.
Now the agency faces an ongoing cash crunch, with what amounts to significant debt, new and growing needs and no financial safety net.
"Is it an ideal situation? No," Gilliam said. "Would I prefer it be different? Yes."
Longtime Capital Metro critic Jim Skaggs, who retired as president and chairman of the high-tech company Tracor Inc., said there's enough blame to go around.
"The staff was inadequate in presenting the financial picture," said Skaggs, who has studied the inner workings of Capital Metro for a decade. "And ... the board was inexperienced in knowing what questions to ask. The two sides together are very dangerous."
Former Austin City Council Member Betty Dunkerley, who before her council days was the city's chief financial officer, studied the agency's operations and accounting over the past couple of years while heading a peer review of Capital Metro. She said that the agency, unlike the City of Austin, did not designate reserve accounts for any purpose in its accounting system, including for an operations cushion.
In that situation, Dunkerley said, she could see the money owed to the city taking a back seat to capital projects such as the $41.9 million North Operations and Maintenance Facility, the $13.9 million spent on the Tech Ridge park-and-ride lot or the $41.8 million spent on the agency's chronically money-losing freight rail operation.
"What I would criticize them for, and I've told them directly, they really need to continue to work toward making their financial information clearer and more understandable by the general public," Dunkerley said. "So that when decisions get made, you can't come back and say, 'I didn't understand it.'"
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