Show Us the Money
Cap Metro and city closing the deal
By Lee Nichols, Fri., April 16, 2010
"At this point, in terms of their general financial condition, I think they've come forward with the best they think they can do," says Leslie Browder, the city's chief financial officer. "We're interested in getting together a revised ILA that will allow us to continue to move forward on the projects and basically set up a mechanism for a payment plan, so in that regard this will be some progress. ... Our goal was to get paid back as quickly as they could."
The money originally owed should have been paid in full by 2013 – but when sales tax receipts dropped off precipitously during the economic downturn, Cap Metro took advantage of a provision in the ILA that said payment could occur "as funds are available" and, on that basis, stopped all transfers to the city. It made a proposal to the city in February, but the city wanted the money sooner than the transit agency offered and on March 1 made a counter-proposal; most recently, Cap Metro has been waiting for the city's response to the agency's revised proposal. One sign that an agreement may already be in the works: The Capital Metro board of directors is having a special meeting today (Thursday, April 15) to discuss the ILA. If the board approves, it would then go before the City Council. The key issues:
• Since Cap Metro must retain sufficient funds to keep transit services running, a sales tax threshold must be met before payments to the city can resume. Cap Metro wanted to set that threshold at the fiscal year 2009 receipts of $140 million but agreed to the city's demand of FY 2010's $134 million.
• Cap Metro has depleted its cash reserves over the past six years and is trying to rebuild those reserves while simultaneously paying the city. It proposed that, of the income above the sales tax threshold, it would pay 15% to the city until its reserve target is met, and 35% thereafter. Not good enough, responded city negotiators: They want 35% until the reserve is met, and 50% thereafter. Cap Metro's revised offer is to forget about the reserve target and just pay 25% per year (of funds beyond the threshold).
• The city wanted to add interest payments of $2 million to $3 million to cover borrowing it has had to do on its projects. But Cap Metro's auditors (KPMG) say it cannot pay interest on the Quarter Cent liabilities, because the ILA is a "nonexchange transaction" – meaning that Cap Metro doesn't actually owe anything until the city actually completes work on a project. If Cap Metro paid interest on any part of the $51 million, the agency would have to book it as an actual liability on its balance sheet. Cap Metro says any future interest the city may incur could be billed within a project, but the total would have to stay within the promised $51 million.
• Under Cap Metro's original pitch – with payments to resume in 2014 and assuming an annual sales tax growth rate of 3.5% – the $51 million would be paid in full in 2019. But the city wants payments to begin in 2011; with a more cautious growth expectation of 2.5%, the debt would be settled by 2017. Capital Metro accepted the 2011 start date but wants to keep the 25% pay rate, which would still repay the debt in full by 2019, presuming a more ambitious growth rate of 3.3%.
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