metro’s 28 by 2028 plans and proposals are built on many ...€¦ · questionable assumptions and...

METRO’S28BY2028PLAN:ACRITICALREVIEWXII.METRO’SPLANSANDPROPOSALSAREBUILTONMANYQUESTIONABLEASSUMPTIONSANDERRORSByThomasA.Rubin,CPA,CMA,CMC,CIA,CGFM,CFMandJamesE.Moore,II,Ph.D.May2019

Metro’s28by2028Plan:ACriticalReview|XII.Metro’sPlansandProposalsAreBuiltonManyQuestionableAssumptionsandErrors

ThomasA.RubinandJamesE.Moore|Metro’s28by2028Plan:ACriticalReview

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XII.METRO’S28BY2028PLAN–ACRITICALREVIEW:METRO’SPLANSANDPROPOSALSAREBUILTONMANYQUESTIONABLEASSUMPTIONSANDERRORSThepreviousbriefshavedealtwithhighvalueitemsinthe28by2028Plan1(a.k.a.thePlan)ontheorderofbillionsoreventensofbillionsofdollars.Thefollowingitemsaresmaller,someaccountingforonlyhundredsofmillionsofdollarsacrossthe10yearsofthePlan.However,thetotalimpactoftheseitemsrunswellintothebillionsofdollars.ExaminingtheseitemsandMetro’ssupportinganalysisprovidesimportantinsightsintothequalityofstaffworkperformed,which,inturn,isadditionalinsighttotheoverallqualityofthePlan.

ThisfollowingsectionlistscommentsinthesameorderthattheunderlyingpointswerepresentedinaPowerPointpresentationtotheMetroBoardatitsDecember2018meeting.Generalconcernsarepresentedfirstwithspecificdetailsfollowing.

GENERALCONCERNS

1. TheplanforMetro’soriginal20MeasureMOrdinanceprojectsisrisky.2Theoriginalimplementationplanwasveryaggressive,andthatplanbeginswithfundingshortfalls.Addingeightmoreprojectsandadvancing$26.2billioninfundingtoacceleratetheseeightsignificantlyincreasesthealreadyveryhighrisks.3

2. Thereislittledetailprovidedtojustifythedollarvaluesattachedtothenewrevenuesources.Formost,consideringallPlandocuments,thereisnosupportingdetailfortransactionsperyear,norvalueforeachtransaction,norrevenuechangesovertime.

3. Thetotalcostforthe28projectsis$42.9billiontobeincurredover10years,whichismoreprojectsthanMetrohaseverundertakenbefore.Afteradjustingforpriorexpenditures,thisisaveragespendingofgreaterthan$4billion/year,significantlymorethanMetrohaseverspentbefore.

1 PowerPoint™presentation.28by2028FinancialPlan–LayingtheGroundwork.December2018.

http://metro.legistar1.com/metro/attachments/e48e3ad9-7f42-4011-849c-5666ed4f0cc6.pdf2 ProposedOrdinance#16-01.MeasureM–LosAngelesCountyTrafficImprovementPlan.

http://theplan.metro.net/wp-content/uploads/2016/09/measurem_ordinance_16-01.pdf3 28by2028FinancialPlan.Slide12.



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4. ThePlanproposesseveralpotentialfundingsourcesthatwouldlikelytakeyearstogainlegalauthoritytoimplementandmoreyearstodothetechnicalandinfrastructureworkrequired.However,inmostcases,thereareeightyearsofMetro’srevenuefromallfundingsources.WhilethePlanshowed10fullyearsforeach,Re-imagining4reducesthe10-yearfinancialprojectiononlyslightly,evenforthemanyelementsthatrequirestatutorychanges.Theadditionalprojectsposeand/orcompoundotherproblems:

• Timingofnewmoney:ThePlandependsuponnewmoneybeingavailable,whichincludesnewsourcesoffunding,mostofwhichwillrequireadditionallegislativeauthorityatthefederaland/orstatelevels.Metrowillalsoneedtopursuealargershareofexistingfederalandstategrantprograms,andworkwithlocalgovernmentstoobtainfundsunderlocalcontrol.ThesestepsmustbefinalizedbeforeMetrocanauthorizeconstructionactivitytocommence,sothetimingoftheseapprovalsiscritical.Constructingandpreparingeachprojectforrevenueservicewillrequiremultipleyears,sothefundingforeachprojectmustbefinalizedseveralyearsinadvancetohaveall28projectsinservicepriortotheLosAngelesOlympicsinJuly2028.

Metrocanuseotherfundstoproceedwithpreliminaryworkwhilewaitingforsuchfundingtobefinalized,buteventhisisexpensiveandcaneasilyexceed10%ormoreofthetotalbudget.ThisapproachrunstheriskofMetromakingsubstantialexpendituresforpre-constructionactivitiesthatmightultimatelyservenopurpose,suchasthemorethan$135millionthatMetrospentontheRedLineMOS-3Eastsideprojectbeforeitwascancelled.Re-imaginingshowsmostofthesefundsbeingavailablebyJuly2020.Boththedollarvaluesandtheschedulesareextremelyaggressiveandquestionable.

• Constructionsectorcapacity:TheidealsituationforbothMetroanditssuppliersisarelativelyconstantlevelofconstructionactivityformultipledecades.Thiswouldallowconstructioncontractorsandothersupplierstoemployaconsistentnumberoftheemployeesandcontractorspecialistsneeded.ItwouldenableMetrotohavetherightlevelsofequipmentonhandatlowercostaswellashaveproventechnical,financial,projectcontrol,andmanagementsystemsinplace—allwhiledevelopingsignificantexperienceworkingunderstateandlocaloperatingconditions.

Whendemandforthesecapabilitiesexceedsavailablesupplyinaregion,thesuppliers’optionsareto:

4 TheRe-imaginingofLACounty:Mobility,Equity,andtheEnvironment.AttachmenttoBoardReport.

Thisisavailablethroughlinksatthemeetingagendawebpage,item43:

http://metro.legistar1.com/metro/meetings/2019/1/1472_A_Board_of_Directors_-_Regular_Board_Meeting_19-01-24_Agenda.pdf



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o Increasecapacitybybringinginresourcesfromothergeographicareas;

o Over-extendavailableassets,whichincreasescostsandtherisksofvariousothertypesofproblems;or

o Increaselocalcapacitypermanently.

Thelatteroptionisbestinthelongterm,butworksonlyifsuppliersbelievethattherewillbeahighlevelofworkformanyyears.Mostsuppliershaveexperiencewithpublicsectorconstructionactivitycycles,andareveryreluctanttomakesuchinvestments.Inthiscase,theywillbereluctantbecausetheriskassociatedwiththe20baselineprojectsbeingplannedforconstructionfor2028revenueserviceisalreadyhigh,andaddingeightmoreprojectsfurtherincreasestheprogramrisks.Theunusualaccelerationof28projectsfordeliveryby2028willmeanthatpost-2028annualconstructionactivitywillalmostcertainlybeasmallfractionoftheproposedpre-2028level.Thisarguesagainstconstructioncontractorsandothersrampinguptheirpermanentlevelsofcapacity.ThesolementionoftheseconcernsinthePlanisonslide32,“Bewareofcontractorcapacitypressures.”

5. ThePlanriskassessmentpresentation(slides15-19)reviewsonlyrisksassociatedwithpotentialnewfundingsources.Thereisnodiscussionofrisksassociatedwithexistingrevenuesources,norwithexpenditures.Thereisonlyminimaldiscussionoftherisksassociatedwithresultsthatarenotachieved,ornegativeimpactsonobjectivesoutsidethePlan,suchasreducedtransitutilization,trafficcongestion,equity,ordisplacementoflower-incomeresidentsfromtransit-orienteddevelopmentsites,etc.

6. Metrohasahistoryofunsuccessfulplans,yetthePlandoesnotmentiontheneedforaPlanB.Whatisthefallbackplanif(when)thePlanbeginstofailandthefinancialresourcesnecessarytocompletethevariousprojectsandmaintainexistingservicesarenotavailable?Whichcriteriawillberegularlyevaluatedtodetermineiftherearesubstantialrisks?Atwhatpointwilltherisksbedeemedsufficientlyhighthatactionsmustbetakenand,whenthisoccurs,whatactionswillbetaken?HowwilltheBoardandthepublicbekeptinformedofthesematters?

PLAN-SPECIFICCONCERNS

1. Slide5,thirdbullet,includesfourprojects(includingtheUnionStationupgradeproject),listedunder,“…wearemovingforwardonadditionalprojectsbeyondMeasureM.”Everydollarthatgoestosuchprojectsisadollarthatisnotavailablefortheeightproposedadded28by2028projects,increasingtherisktotheadditionalprojects,andtotheentireprogram.

2. Inslide6,under“LifeofaProject,”thelasttwoboxesare“Operation”and“Maintenance,”butthereisnoboxfor“CapitalRenewalandReplacement.”Overdecades,capitalrenewal



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andreplacementcostscanexceedoperationsandmaintenancesubsidiesforheavyraillinesliketheRed/PurpleLines.Forexample,forthe2017NationalTransitDatabasereportingyear,thenationaltotaloperatingexpensesandfareboxrevenuesforheavyrailoperatorswere$8,711millionand$5,510million,respectively,givingtotaloperatingsubsidiesof$3,201million,whilecapitalrenewalandreplacementexpenditureswere$4,268million,one-thirdhigher.5

3. Slide13ofthePlanstates,“StateofGoodRepair–maintain$475million/yeartoaccommodatethe10%backlog.”IdeallythisindicatesthatMetroisdedicatedtopropercapitalrenewalandreplacementofexistingassets.Additionaldetailwouldbevaluable,particularlyanassurancethatthecapitalrenewalandreplacementrequirementsofthenewPlanprojectsareproperlyconsidered.Unfortunately,Metrohasahistoryofnotplanningforthecostofunanticipatedproblemsaspartofprojectcosts,andthencreatingseparatebudgetlineitemsfromthemainprojectstopresentsuchcosts(seeBriefVIII:“MetroUnderstatesTransportationProjectCosts”).Theseandothercapitalcostsemergemorequicklyafterprojectsopenforservicethanmanydecisionmakersanticipate.

4. Slide8,“MeasureMOrdinanceParameters,”notesthattheMeasureMrequirementsforacceleratingprojectsareveryspecificandrestrictivetoensurethatfundingintendedforprojectsscheduledforlaterisnotutilizedforprojectsscheduledearlier.6Itwillbedifficulttocomplywiththeserequirements,andsomeoftheeightprojectstobeaddedwillencountermajorconstraints.TheMetrostaffmaybetemptedtocomplywithaBoarddirectivetomovetheseprojectsforwardasagroupassoonaspossible,butwithoutbeingabletoconfirmthatfundingisavailable,thiswouldbeagreatmistake.TherearesimilarrestrictionsforMeasureRfunds.

5. Slide12says,“28x2018FundingChallenges:…O&MExpenseforEarlierRevenueOperations–$2.2billion.”Thisfigureappearshigh,particularlysincetheFY19O&MBudgetforallexistingMetrotransitis$1.8billion.TheWhitePaper,7AttachmentA,“Twenty-Eightby’28ProjectListDeliveryStatus,givestheoriginalscheduledandproposedtargetcompletiondatesforall28projects.Allfouracceleratedrailtransitprojectsareshownbeingcompletedin2028,so,atmost,therewouldbeonefullyearofoperationforeachofthefour,andlessforatleastsome.MetroFY19AdoptedBudgetincludeda25%operatingratiofortransit,but

5 U.S.DepartmentofTransportation/FederalTransitAdministration.NationalTransitDatabase,2017.

OperatingExpenses,FareRevenues,andCapitalExpensestables,respectively.https://www.transit.dot.gov/ntd

6 Metro.Proposed1Ordinance#16-01.MeasureM,LosAngelesCountyTrafficImprovementPlan.Section7.“UseofRevenues.”http://theplan.metro.net/wp-content/uploads/2016/09/measurem_ordinance_16-01.pdf

7 Twenty-Eightby’28ProgramFinancing/FundingWhitePaper.BoardReportattachment.http://metro.legistar1.com/metro/attachments/18984512-fa10-4b43-aa52-524cfd8bb69a.pdf



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thereisnomentionofaddedfareorotheroperatingrevenuethatcouldbenettedagainstcoststoproducetheadditionalfundingrequired.

Twoofthefouracceleratedroadprojectsshow2028completion,andtwoshow2027.OneofthelatteristheI-105ExpressLanes,whichwouldbearevenuegenerator.Whileroadprojectshaveoperatingcosts,theyarerelativelylow,andcapitalrenewalandreplacementcostsforprojectsinoperationforonetotwoyearswouldlikelybesmallornon-existent.

Thiscostprojectionislikelyanoverestimate.

6. Slide13,“StaffRecommendedBaselineAssumptions,”recommendsnotviolatingpriorcommitmentstofullyfundhigherpriorityprogramsandprojects,whichiswiseandproper.However,thiswillcausethenewprojectstobeevenmoredifficulttoexecute,asitburdensthenewprojectstoreceivethefullimpactsofanyfundingshortfalls.Basedonpastexperience,ifthenewPlanprojectsaredelayed,therewillbepressuretoviolatethisrecommendation(seeBriefIV,“Metro’sLongRangePlansOverpromiseandUnderdeliver”).TheBoardReportprovidesmoredetailonthese,butnotenough.

7. Slide16,under“28x2028RiskAllocationMatrix,”discussesthefollowing:

• Farerevenues:Therevenuesshownforthepossible10%,15%,20%,and25%fareincreasesaredirectlyproportionaltothefareincreases,whichimpliesthattherewillbenoreductioninridershipasfaresincrease,whichcontradictsbasiceconomicsandoveracenturyoftransitindustryexperience.Anerrorthisfundamentalishardtoexplain.

• NotRecommended:Re-imaginingstates,“Currentlyengagedinstudytosimplifyandright-sizeourfaremedia.WillreturntotheboardinJune2019.”Thisleavesopenthequestionofchangesthatwouldincreasethecostsofridingtransit.“Returntotheboard”couldincludeafareincreaseorrestructuringrecommendation.

Iffareincreasesweretobeimplemented,theresultwouldbeareductioninridership,which,basedonpastexperience,Metrowouldusetojustifyareductionintransitservicesoperated.Thiswillproduceacostreduction,butmovesMetroawayfromthebusinessofmovingpeopleandfurtherintothebusinessoftransportationprojectcapitalconstruction.Thetrade-offismoreprojectsandfewerriders.

• Advertising:“ExpandedAdvertisingandCorporateSponsorships–$1.0billion,”or$100millionannuallyifinitiatedimmediately.GiventhattheFY19AdoptedBudgetincludes$25millionforadvertisingrevenue,thisisaveryaggressiveassertion.

8. Slide17lists“IncreaseRevenuesfromExistingSources:”Notallofthesefundingsourceswillbeimplemented.Theslideisaninventoryofpossibilities,eachofwhichwouldbedifficulttoaccomplishindividually.Implementinganyofthesewouldbechallenging.Eachofthese



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prospectshasobstaclestoimplementation.Inmanycases,theimplementationofonemakesimplementingtheothersmoredifficultandproblematic.

• “Multi-YearSub-regionalFunds…–$846.4million”isacomponentofMeasureM.Eachsubregionmustagreetotheutilizationofthesefunds,aprocesssubjecttotheusuallocalprioritiesandpoliticalrealities.8

• Slide17alsoaddresses“LocalReturnFundsbyimpactedcitiesoneightacceleratedprojects–$2,689million”and“Require3%ofacceleratedcoststobefundedfromcities’LocalReturn—$711million.”TheWhitePaper,page13,shows$12,689milliontotalLocalReturnForecastforthe10-yearperiodforCitiesthatBenefitfromAcceleration,sothesetwocombinedwouldbe~26%oftheprojectedtotal,ahighvaluetoassume.Thenumberofprojectswithineachcityandtheallocationoflocalfundingdonotmatchupwell.Ifthetwolargestrecipients(LosAngeles,$1.08billion;LongBeach,$348million)areexcluded,thentheother25citiesareprojectedtoreceiveanaverageof$50millioneachoverthe10-yearperiod.Metromightnotreceivesupportfromcitiesreceiving$5millionayearinsuchfunds.Obviously,therewouldbevariationintheexpectedcontributionsfromthevariouscitiesforthedifferentprojects.

• IndividualcitiesandnotMetrodecidehowthesefundsareused,withinbroadlimits.9Itisnearlycertainthatanycityaskedtocontributefundingfortheseprojectswillnotagreeimmediately.Localpoliticiansandtransportationandfinancestaffmemberslikeusetheirfundslocally.Metromaybeabletopersuadesomejurisdictionstoallocatetheirfundsfortheseprojects,butthiswouldbeachallengingprocesswithuncertainoutcomes.

• “IncreaseFederalfundingsharefrom15.4%to19.2%,…–$953.2million”and“IncreaseFederalfundingsharefrom15.4%to22.1%,…–$1,965.7million”referprimarilytomore49USC5309discretionarygrantfundingformajorcapitalprojects.Collectinganadditional$100millionto$200millionayearforadecadefromapopularsourcethatforFY19allocates$2,527millionfortheentirenation10presentsastrongpoliticalchallenge.AddingthismuchadditionalfundingtowhatMetroisalreadyexpectingtoreceivewouldbedifficult.SuccessmaydependonwhichpoliticalpartycontrolsWashingtonoverthenextdecade,andmaydependmoreonincreasingthemagnitude

8 Metro.“MeasureMFinalGuidelines.”SectionIX,“Multi-YearSubregionalPrograms.”23-27.

http://theplan.metro.net/wp-content/uploads/2017/07/guidelines_measurem_2017-0714.pdf9 Ibid.73-89.ThereareverysimilarrequirementsforPropositionAandCandMeasureRlocalreturnfunds.10 FederalTransitAdministration.“FY2019FullYearAppropriationsandApportionmentsforGrant

Programs.”https://www.transit.dot.gov/funding/apportionments/table-1-fy-2019-fta-appropriations-and-apportionments-grant-programs-full



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oftotalfundingfornewrailstartsunderfederal5309grants.Theoriginaltop-of-rangedollarvaluefromthePlanisnotchangedinRe-imagining;thelowervalueiseliminated.

• Redirectingsomeofthefundsfromotherfederalgrantprogramscouldrequiretrade-offsleadingtofundingshortfallsforothertransportationneeds.Forexample,MetrodecideshowCongestionMitigationandAirQualityImprovement(CMAQ)11andSurfaceTransportationFunds(STP)12—“flexiblefunds”—areused.Suchfundscouldbespentonconstructionofnewtransitprojects,buttheseareformulafundingprograms,andtheamountreceivedbyeachurbanizedareaiscalculatedonthebasisofstandardizeddatareportedtoUSDOT.Whileusingsuchfundstosupportapassengerrailcapitalprojectispermissible,andMetrohasdonesointhepast,thetotalfundingcomingtotheregiondoesnotchange.

• “IncreaseStatefundingsharefrom11.8%to14.5%,…–$700.4million”wouldalmostcertainlyrequireacorrespondingstatewideincreaseintransitfunding.Metrodoesnotspecifytheprogram(s)fromwhichitexpectstogainthisadditionalfunding,butalargeincreaseinthesizeofMetro’scurrentshareofstateresourceswilldrawoppositionfromothercounties,transitagencies,andotherpotentialfundingrecipients.Aspreviouslynoted,thismaybemoreeasilyaccomplishedbyworkingtoincreasethesizeofthepiethanbytryingtoincreaseMetro’ssliceofthepie.

• “IncreaseStatefundingsharefrom11.8%to17.9%,…–$1,695.5million”referstothesamefundingsourceasthepreviousbullet.Itwould,asabove,requireacorrespondingstate-wideincreaseintransitfunding,butanevenlargerincrease.Theoriginaltop-of-rangedollarvaluefromthePlanisunchangedinRe-imagining,butthelowervalueassociatedwiththepriorbulletiseliminated.

• “IncreasethepercentageofCapandTradeFundsallocatedtopublictransit–$600million”isperhapspossibleiftheCaliforniaHighSpeedRail(CHSR)projectterminates.Thiscouldfreeupcap-and-tradefundsotherwisecommittedtotheCaliforniaHighSpeedRailAuthority(CHSRA).However,thefederalgovernmentmayrequireCaliforniatorepayfederalHSRgrantfundsreceived,withcap-and-tradefundsasthemostlikelysource.Cap-and-tradefundsarenotmentionedinRe-imagining.

TheCHSRprojectaside,thereisintensecompetitionforcap-and-tradefunds.Increasingthesizeofthecap-and-tradeprograminCaliforniahaslimits,inpart

11 FederalHighwayAdministration(FHWA).“CongestionMitigationandAirQualityImprovement(CMAQ)

Program–CMAQEssentials.”https://www.fhwa.dot.gov/Environment/air_quality/cmaq/reference/cmaq_essentials/

12 FHWA.“SurfaceTransportationBlockGrantProgram.”https://www.fhwa.dot.gov/fastact/factsheets/stbgfs.cfm



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becausetheprogram’scriticsdonotviewitassufficiently“green.”Thereissomelimitedmovementtowarddroppingcap-and-tradeandshiftingthestatetoacarbontax,butturningthisshifttoMetro’sadvantagewouldrequiretheagencytobeanactiveparticipantinamajorlobbyingeffort.

• “ReconfigureexistingSB1programstogeneratemorefundsforLosAngelesCounty–$1billion,”wouldbeneithereasytowinnorquick.Metro,astheLosAngelesCountytransportationplanningandfundingagency,shoulddoeverythingitcantomakesurethatLosAngelesperformswelloneverymetricthatdrivestheSB1allocationprocess,butthisaloneisnotsufficient.Anincreaseofthismagnitudewouldlikelyrequireafurtherincreaseinmotorfuelexcisecharges,whichwouldrequireatwo-thirdsmajorityinthestatelegislatureorbythestateelectorate.ThislineitemisalsoabsentfromRe-imagining.PerhapstherevenueshownfortheotherstatefundsinRe-imaginingisintendedtoincludegastaxrevenue.

Insummary,thisisalonglistofpossibilities,anyofwhichisdifficulttoaccomplishindividually.WhenMetropursuesfundsfrommultiplesourcescontrolledbythesamedecision-makingagency,anyinitialsuccessreducesthelikelihoodofbeingfundedinsubsequentefforts.

9. Slide19,“GenerateRevenuesFromNewSources,”identifiespotentialsourcesoffundingforthe$26.2billionshortfallforcompletingtheeightadditionalprojects.

• Theproposalisunclear.Aspreviouslydiscussed,fundsmustbelegallyauthorizedpriorto2028,orelseconstructioncannotbeinitiatedintimetocompletetheprojectstomeetthe2028deadline.

• Additionalfundswouldbewelcome,andcouldbeusedforotherpurposes,butanyexcessdoesnotprovideadditionalbenefitwithrespecttogettingtheeightadditionalprojectsreadyintime.Fundsthatwillnotbereceiveduntilafter2028canbeutilizedasthedebtserviceforissuingbondspriorto2028.ThereisnostatementtothiseffectinthePlanand,giventheorganizationofthePlan,thisdoesnotappeartobewhatisintended.Slide16presentsadiscussionofraisingfundsbyMetroissuingdebt,butRe-imaginingspecificallyrejectsmoredebt.

• “SeektobackthecreationofaWhiteHouseTaskForceonthe2028OlympicsandParalympicSummerGames–$2billion”ismostlikelydouble-countingfederalfundingalreadylistedabove.Inthepast,thefederalgovernmenthasapprovedsometransportationprojectswiththeobjectivethattheprojectsbeinservicepriortomajorevents,suchastheOlympics.However,onslide19above,Metrohasalreadylisted,“IncreaseFederalfundingsharefrom15.4%to19.2%,…–$953.2million,”and“IncreaseFederalfundingsharefrom15.4%to22.1%,…–$1,965.7million.”Thiswas



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doubtfulthefirsttimeMetrolistedit,anditisdoubtfulthatthedollaramountcanbedoubledto$4billion.

• “ValueCapture(Varietyoflocations)–$93million”and“(Desirablelocations)–$370million”canbeexecutedtoasignificantextentbyMetroandotherlocalgovernmentsactingontheirown.Theseestimatedrevenuesaresubjective,butreasonable.ManysucharrangementscanbeexecutedbycontractsbetweenMetroandindividualdevelopers.Theoriginaltop-of-rangedollarvaluefromthePlanisnotchangedinRe-imagining,butthelowervalueiseliminated.

• Metrohasamixedhistorywithco-locationanddevelopmentagreements.Examplesinclude:

o TheoriginalagreementfortheUniversalCityRedLineStationwithMCA,Inc.,whichprovidesthat“MTAwillprovideMCAwitharightoffirstofferintheeventthatMTAlaterdecidestosell,lease,orenterintojointdevelopmentactivitiesforthestationsite;”13

o The subsequent construction of the $29.585 million pedestrian bridge overLankershimBlvd.betweenthestationandthehigh-risebuildingontheotherside,whichwasacostpaidbyMetro,notMCA.14Thiswasjustifiedasasafetyimprovement for pedestrians, but there are hundreds of highly traveledpedestriancrossingsacrossmajorarterialstreetsnearMetrorailstationsandthousandsnearMetrobusstops.

o The Metro financial commitment to support construction of Grand CentralMarket.Thisisacomplextransactionwithmultiplepartiesandcontingenciesthat Metro justified on the basis that “The Project developer (the YellinCompany) has been unable to obtain conventional construction andpermanentfinancingduetoadversemarketconditions,”and“MTAwillmakedebtservicepayments…inanannualamountnottoexceed$2.8million…”15ThistransitorientedinvestmentprojectwasacosttoMetro.

Theseprojectsallinvolvedfundingflowingfrom,notto,Metro,andcaremustbetakeninanyfuturesuchnegotiations.

• “NewMobilityFees,”whichdiscusseschargingprivaterideshareoperatorsforroaduse,presentsthreeoptionsthatinvitethequestions:“Whatisthelegalabilityof

13 Metro.February22,1994Boardmeeting.Item25,“UniversalCityStation–Memorandumof

UnderstandingwithMCAonAdoptedSite.”3.http://boardarchives.metro.net/Items/1994/02_February/items_k_0233.pdf

14Metro,FY17AdoptedBudget,page62.15Metro,June6,1993BoardMeeting,Agendaitem30,“PledgeofPropositionAFundstoFacilitiateJointDevelopmentoattheGrandCentralSquareProject,”http://boardarchives.metro.net/Items/1993/06_June/items_h_0077.pdf



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Metrotoputsuchachangeinplaceunderitscurrentstatutoryauthority?”and“Wouldnewlegislationberequired?”

Itwouldtakesometimetoestablishpoliciesandprocessesthatwouldallowthesefeestobeimplemented.Howmanyyearsofsuchrevenuesareassumed,andwhatistheyear-by-yearpatternofthecashflow?Whataretheprojectednumbersoftransactionsperyear,andwhatistheproposedunitcharge?

• “SharedDevices–Feeat$1perdeviceperday–$580million.”What“shareddevices”meansisnotdiscussedatallinthePlanorelsewhere,butweassumethisreferstopersonaltransportationequipment,suchaspoweredand/orunpoweredbicyclesandscooters.Thesearespringingupasshort-termrentalmobilityoptionsinmanyU.S.urbanareas.At$58millionperyear,andthe$1/dayrateshown,thisis58millionannualtransactions.Assuming365servicedaysayear,thisisapproximately160,000transactionseveryday,whichcorrespondstoapproximately1.5%ofthecountypopulationusingsuchadeviceeachday—notconsideringthecostsofcollectionofthe$1fee.Detailsareneededtomakethiscase.

• “LevyafeeonTNC[TransportationNetworkingCompanies]–Feeof$0.20,–$401million;”and“LevyafeeonTNC–Feeof$2.75–$5,500million,”appeartorefertoUber,Lyft,andsimilarservices.Thetwofeesaregivenonpage4oftheWhitePaper,AttachmentE,asthehighandlowvaluesnowchargedintheU.S.:$0.20inMassachusettsand$2.75inNewYorkCity.Slide28providesmoredetailontheserevenuesthanforalmostanyotheritemlistedinthePlan,butstillmoredetailisneeded,asdiscussedunderSlide28below.

(ThetwocurrentdominantTransportationNetworkingCompanies(TNC)—UberandLyft—haveconsistentlypracticedastrategyofenteringmarketsbyinitiatingoperationswithoutseekingpermissionorlicensesfromanyagency.Ifchallenged,theagencieslobbiedstatelegislaturesandfiledlawsuitsagainstgovernmentstoavoidorminimizerestrictions.)

10. Slide20,“DebtCapacityAnalysis,”givesthepotentialrangeofadditionalfundingas$6.7billionto$10.8billion.IssuingmoredebtisexplicitlynotrecommendedinRe-imagining,andthemoreimportantquestionis,“WillMetrobeabletoissuewhatdebtispresentlyplanned?”

• ThedatainthetwocasespresentedimplythatMetroassumesanadditionalannualdebtserviceof~$300millionthatwouldpermittheagencytocarrynewdebtof~$4.1billion,aratioof$13.67ofdebtperdollarofannualsalestaxrevenue.Thismeansthat,ifsalestaxrevenuesare$100millionunderprojections,Metroloses$1,367millionofbondingcapacitythatyear.AsdiscussedinBriefVIIonMetro’ssalestaxprojections,Metrohasalonghistoryofitssalestaxprojectionsfallingshort.



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• ThecostofdebtserviceandthustheamountofdebtservicethatMetrocancarrydependsupontheinterestrateMetropaystoissuenewdebt,whichinturndependsontheratesofinflation,theactionsoftheFederalReserveBoard,andotherfactorsoutsideofMetro’scontrol.Changesintaxlawcanalsohaveamajorimpact,ascouldachangeinMetro’screditrating.Itisvitalthattheserisksbeunderstoodandevaluatedbytrulyindependentexperts.TheagencyshouldincludeananalysisofhowtheinterestratechangesthatMetromightface,alongwithchangesinotherfactors,wouldaffectimplementationofthePlan.

11. Slide23,“LocalReturn&Multi-YearSubregionalGuidelines,”makesthekeypointthat,underthetermsofthefourlocalhalf-centsalestaxordinancesapprovedbythevoters,decisionsrelatingtohowthesefundsarespentarealmostentirelyuptothevariouslocaljurisdictionsthatreceivethem.ThereishistoryofthevariouscitiesandthecountysupervisorsusingsuchfundstosupportMetroprojects,butingeneraltherearemanymorelocalprojectsproposedthancanbefundedfromtheseannualallocations.

12. Slide28,“NewRevenuePrimer–MobilityFees,”providesadditionalinformationthatbuildsonthematerialinslide19.At1:03:15intheBoardmeetingrecordingofDecember6th,CEOPhilWashingtonsuggeststhatTransportationNetworkingCompanies(TNC)shouldpayMetrosomeoftheprofitstheyaremakingontheiruseofthecountystreets.ThisisquestionablebecausetheavailableevidenceisthatTNCsarecurrentlylosingsubstantialamountsofmoney.

• Therecentpre-initialpublicofferinginformationpromulgatedbyLyftshowedlosseslastyearof$911.3millionontotalrevenuesof$2.2billion,or41%.Uberreportedan$843millionlossinthelastquarterof2018onrevenuesof$3billion,or28%.16Further,TNCsareexposedtomajorcostincreasesiftheirdrivers,whoarenowclassifiedbytheTNCsascontractors,subsequentlymustbeclassifiedasemployees.Thiswouldimposeminimumwagerequirementsandstatutorybenefits.TNCscouldalsobeexposedtoliabilityclaimsforsafetyincidentsandoperatormisconduct.Thereisalreadylowercourtcaselawonthesematters.

Moreimportantly,profitabilityshouldnotbeajustificationforsuchcharges.ItdoesnotmatterwhetherTNCsaremakingaprofitornot.TheTNCvehiclesareusingtheroads.Conventionaltaxioperatorsarechargedfortheirrightstooperateincitiesandcounties,anditisfairandreasonabletochargeTNCssimilartypesoffeesortaxes.

• Theassertionthatnewmobility“…feescouldgenerate$25[million]-350millionannually,”doesnotaddup.Dividingthesevaluesintothedatafromslide19,whichshowstotalrevenuesforthislineitemof$401millionto$6,500million,impliesthat

16 Conger,KateandMichaelJ.delaMerce.“Lyft’sI.P.O.FilingRevealsNearly$1billioninLosses.”TheNew

YorkTimes.March1,2019.https://www.nytimes.com/2019/03/01/technology/lyft-ipo-filing.html



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theadditionalrevenueforthe10-yearperiodendinginFY28willconsistofbetweenapproximately16($401millionto$25million)and18.6($6,500millionto$350million)yearsoffullraterevenues.Thisinconsistencyisanobviouserror.

• Thestatement“Taxingnewmobilitytripsshouldbeusedincarefullytargetedwaysdesignedtoreducesingle-occupancytravel,”requiresfurtherexplanation.SeveralTNCsaredevelopingandimplementingshared-rideTNCservices,butatpresent,thegreatmajorityofsuchtripsaresingle-passenger,orevenno-passenger,asthevehicleisdeadheadingtobeginservice,fromtheendofservice,orbetweenpaidtrips,orotherwisegeneratingvehicle-milestraveledwithoutdeliveringpassenger-milesofservice.SeveralrecentstudiespurporttoshowthatTNCsareincreasingtrafficcongestion.17ThetransportationaspectsofTNCoperationmaynotbepositiveinallrespects,whichwillconstrainwhatispossiblewithrespecttochangingtravelbehaviorthroughTNCfees.WeknowthatMetroisactivelyexploring“micro-transit,”18whichcanrelatetoTNCs,buttheconnectiontothisrevenue-producinglineisunclear.Moreexplanationisneeded.

CONCLUSIONS

1. TheplanforMetro’soriginal20MeasureMOrdinanceprojectswasriskywhenitwasadoptedin2016,andaddingeightmoreprojectsmakesitevenriskier.

2. Metroanditspredecessoragencieshaveahistoryofunsuccessfulplans,yetthePlandoesnotevenmentiontheneedforaPlanBiforwhenthePlanbeginstofail.

3. MeasureMandRrequirementsforacceleratingprojectsareveryspecificandrestrictive.Thiswillcausethenewprojectstobeevenmoredifficulttoexecute,asitburdensthenewprojectswiththefullimpactsofanyfundingshortfalls.

4. ItisunrealisticforMetrotoexpecttobeabletoshiftsubstantialsharesofSB1fundingallocationsandlocalreturnfunds,state-widetransitfunding,andfederaldiscretionarygrant

17 SanFranciscoCountyTransportationAuthority.TNCsandCongestion,draftreport,October2018.

https://thesource.metro.net/2018/04/26/three-contracts-awarded-to-firms-to-design-microtransit-service/

Schaller,Bruce.SchallerConsulting.TheNewAutomobility:Lyft,Uber,andtheFutureofAmericanCities.July25,2018.http://www.schallerconsult.com/rideservices/automobility.pdf

Gehrke,StevenR.,AlisonFelixandTimothyReasdonfor(Boston)MetropolitanAreaPlanningCouncil.FareChoices:ASurveyofRide-HailingPassengersinMetroBoston.February2018.http://www.mapc.org/wp-content/uploads/2018/02/Fare-Choices-MAPC.pdf

18 Metro,pressrelease.“ThreecontractsawardedtofirmstodesignMicrotransitservice.”April26,2018.https://thesource.metro.net/2018/04/26/three-contracts-awarded-to-firms-to-design-microtransit-service/



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fundingformajorcapitaltransportationprojectstowarditself.Thecompetitionfortheseresourcesistoointenseatthelocal,state,andnationallevels.

5. ThemobilityfeesMetroproposesarelargelyunexplained,andthosethatareexplaineddonotaddupbasedontheinformationprovided.ItisunclearTransportationNetworkingCompaniesareasyetprofitableenterprises,butprofitabilityisnotanappropriatecriterionforlicensingTNCsinanyevent.

metro’s 28 by 2028 plans and proposals are built on many ...€¦ · questionable assumptions and...

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