If San Francisco could magically get the “Subway to Nowhere” Central Subway installed today for free it would still be a bad deal for San Francisco, mostly owing the very small amount benefits it would provide to a very small number of people and the very large hole it would put into MUNI”s annual budget.

But unless the Feds help out San Francisco by cancelling funding, politically connected players such as AECOM are all set to make a mint off of this project. Oh well.

Anyway, San Francisco officials are still trying to reassure the Feds about how great this horrible project is going, so, as of tomorrow, we’ll be on the hook for another $100,000,000, or so, to make up for the fact that California doesn’t want to chip in the money.

Check it out, from SaveMuni.com:

“On May 1, 2012, the San Francisco Municipal Transportation Agency (MTA) Board will be asked to approve Central Subway revenue bonds, of undetermined amount, to plug a large hole that has developed in the Central Subway budget. This is a very risky course of action.

A shortfall of between $61.3 million and $140 million has now appeared in the project budget. In order to make up for this substantial loss of previously anticipated State of California funding, the MTA staff is asking its Board and the San Francisco Board of Supervisors to approve a revenue bond sale of undetermined amount. On the agenda of the May 1, 2012 MTA Board meeting, the bond authorization is scheduled as Item 10.4 which is unaccountably included under the Board’s consent calendar rather than its regular calendar. In the Agenda packet, the staff attributes the need for the revenue bond sale to “uncertainty regarding HSR in California.” This statement is false and misleading, for the reasons set forth below.”

Here are the deets:

“SaveMuni.com

April 30, 2012

MTA’s Stealth Maneuver to Commit Additional City Funds to the Central Subway

On May 1, 2012, the San Francisco Municipal Transportation Agency (MTA) Board will be asked to approve Central Subway revenue bonds, of undetermined amount, to plug a large hole that has developed in the Central Subway budget. This is a very risky course of action.

MTA Board Agenda, Tuesday, May 1, 2012: See Item 10.4.

Particulars

The cost of the MTA’s Central Subway project has ballooned from $647 million to the current estimate of $1.58 billion.i The original plan was for $983 million of this total to come from the federal government, $471 from the State of California and $124 million from San Francisco’s Prop K sales tax fund.

In attempting to sell the subway to the public, MTA has repeatedly called the public’s attention to its “success” in leveraging a mere $124 million City & County contribution into a $1.58 billion subway.ii However, a shortfall of between $61.3 million and $140 million has now appeared in the project budget.

In order to make up for this substantial loss of previously anticipated State of California funding, the MTA staff is asking its Board and the San Francisco Board of Supervisors to approve a revenue bond sale of undetermined amount. On the agenda of the May 1, 2012 MTA Board meeting, the bond authorization is scheduled as Item 10.4 which is unaccountably included under the Board’s consent calendar rather than its regular calendar. In the Agenda packet, the staff attributes the need for the revenue bond sale to “uncertainty regarding HSR in California”. This statement is false and misleading, for the reasons set forth below.

The MTA is caught between a skittish Federal Transportation Administration (FTA) appropriately worried about the MTA’s financial ability to handle the Central Subway project and a huge shortfall in the non-federal share of the project budget. The MTA apparently believes the solution to this problem is to skim millions of dollars a year from already overburdened Muni revenues, in order to sell revenue bonds as necessary to make up for the loss in State capital—all in hopes that the action will reassure the feds and therefore put the hoped-for federal grant back on track.

The best that could be said of the MTA’s plan is that it is extremely risky. By far, the most important element of that risk is that the costs of servicing the revenue bonds, coupled with an indeterminate amount of project overrun (estimated by CGR Management Consultants to be as high as $422 million), could result in unacceptably high Muni fare increases and/or unacceptably damaging Muni service cuts.”

Ever more deets after the jump

Background

The MTA’s application for the federal New Starts funding is being administered by the

FTA. The FTA requires that the non-federal portion of the total (in this case $595

million) be secured and guaranteed before it will recommend federal New Starts financial

participation in the project to the U.S. Congress.

Included in the $471 million, which the MTA told the FTA the Central Subway project

would be receiving from the State of California, was $61.3 million in Prop 1A High

Speed Rail “connectivity” funds. However, on June 30, 2011, Governor Jerry Brown

vetoed an attempt to allocate those funds to the subway, stating in his veto message that

the subway doesn’t connect to the planned HSR system. In recent months, the MTA

spokespeople have brushed aside concerns over the Governor’s veto, assuring everyone

that they were certain the Governor could be convinced to change his mind.

The MTA’s fantasy as to HSR participation in its Central Subway project was put

permanently to rest on April 6, 2012, when it received a memo from Laurel Janssen of

the California Department of Transportation confirming that under the CAHSRA’s new

business plan, the HSR stop at 4th & Townsend had been eliminated—adding that

connectivity funding would be provided only to transit systems that actually connected to

HSR.

The FTA, which has previously demonstrated concern over both the merits of the project

and the MTA’s ability to administer and manage it, evidently learned of this funding

setback. It is believed that the FTA subsequently made it clear to the MTA of the

requirement to “lock down” an alternative source of funding. Hence the current interest

in revenue bond financing.

As indicated above, in an attempt to allay FTA concerns, the MTA staff has placed a

vague and open-ended request for authorization to sell MTA revenue bond funds of

undefined amount on the MTA Board’s May 1, 2012 agenda. If as now scheduled, the

item remains on the consent calendar, there would be no public staff presentation and

therefore no discussion of the following vitally important questions:

(1) Why a Central Subway revenue bond sale is needed.

(2) The anticipated amount of the sale or sales.

(3) The identity of the Muni revenues that would need to be committed to cover

the cost of servicing the bond.

(4) The term of the bond or bonds in years.

(5) The annual cost of servicing and retiring the resulting debt.

(6) A full explanation of the FTA’s current concerns about the project and

MTA’s ability to successfully manage it without jeopardizing the remainder of

the Muni operation.iii

SaveMuni Recommendations

1.) Item 10.4 should be removed from the MTA Board’s consent calendar.

2.) If the MTA desires authorization to sell Central Subway revenue bonds, the matter

should be placed upon the MTA Board’s regular agenda so that the MTA staff can

answer the six above questions, and fully inform the MTA Board, the Board of

Supervisors and the public of any other relevant matters before any votes are taken.

i CGR Management Consultants of LA recently conducted a study for the San Francisco

County Transportation Authority of the MTA’s track record with respect to capital

projects and concluded there is a substantial risk of the final capital cost of the subway

running to as much as $2 billion. Since under FTA rules, the MTA would be responsible

for all cost overruns, a total price of $2 billion would increase the City and County of San

Francisco’s financial obligation to the Central Subway project by $422 million, thereby

raising its total contribution to $546 million.

ii This “leveraging” is not the “win-win” for San Francisco that is frequently portrayed by

MTA spokespeople, because fails to take into account the fact that the $595 million in

local and state funds allocated to the subway could otherwise be spent on other, more

pressing Muni needs. In addition, it ignores the potential for an increased liability of up

to $422 million under CGR’s worst case cost overrun scenario and of course fails to take

into account the cost of servicing revenue bonds.

iii As soon as the revenue bond item appeared on the MTA’s calendar. SaveMuni issued a

Sunshine request asking for any documentation received by the MTA that set forth the

FTA’s concerns over Central Subway financing. The MTA’s response was to delay

disclosure of this information for the maximum legal period of 14 days – in an obvious

attempt to keep everyone from learning of the FTA’s specific concerns until after it had

received approval of the bond financing from the MTA Board and the Board of

Supervisors.

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