Taken for a Ride:
The Real Deal on Mass Transit

Oct 14, 2013

From a presentation given at a SPARK public meeting in L.A. on September 22, 2013.

Politicians Sell Tax Hike

Five years ago in 2008, Los Angeles politicians went to voters in the middle of the economic collapse that was destroying millions of peoples’ jobs and life savings to say they wanted a half-cent sales tax increase: money that most workers didn’t have. The reason for this tax increase was that it would pay for better mass transit. Of course, a sales tax is extremely regressive. It falls much more heavily on working people and the poor. An unemployed worker who has to pay for diapers for their kid pays the same tax as a multi-billionaire.

But voters agreed to the sales tax increase. They voted for it. That just shows how desperate the need is for better mass transit–for everybody.

Where Didn’t the Money Go?

So after the vote five years ago, what did we get in return for paying a higher sales tax? A fare increase and big service cuts. Bus service has been cut by 20% since then. That’s over a million hours less bus service per year. This makes it much longer and harder for people to get around using mass transit.

The money did not go to the transit workers either. They haven’t had a raise in over six years. That means that every year, their buying power is reduced by inflation. Not only that, but operators saw their medical costs double this January. Transit workers are also forking over higher contributions for retirement pensions. So the standard of living for transit workers is being cut.

The money didn’t go to maintenance. The MTA admits to deferring 1.3 billion dollars worth of maintenance on trains, buses, tracks, signals, etc. And $250 million just on the Blue Line. These buses and trains are used heavily and have to be constantly checked and repaired. This is not being done because the MTA doesn’t hire enough employees to do the work. It means that trains and buses are rolled out despite being broken. At the very least, this means there are a lot of unnecessary breakdowns, not to speak of accidents. So trains and buses are late or don’t show up at all. Of course, when trains and buses are late, or break down in the middle of their run, often it is the MTA employees who are the target of the passengers’ anger.

You would think with all of these cuts in service, or lousy service, that the MTA did not have any money, that it was suffering huge budget shortfalls. But the opposite is the case. The sales tax increase has provided over one billion dollars per year in new funding for the MTA–a substantial increase on a budget that was about four billion dollars.

Where Did Billions of Dollars Go?

First of all, it is being swallowed up by contractors and subcontractors. Basically they live off of contracts with governments in this country and around the world. These companies are experts at wringing every penny they can from the government. Every single transit line that is being built is budgeted at top dollar for the work. There are then undoubtedly years of delays, during which these companies charge more and more. The MTA doesn’t bat an eye. It pays the extra money. A couple of months ago, the MTA announced that it had budgeted 1.2 billion dollars for the construction of the Crenshaw Line. It then budgeted an extra $200 million as a contingency fund–that is, to cover cost overruns. That is an admission ahead of time that the budget is a fiction, that it will spend much more money.

So the MTA is an important source of profits for big contractors. It is also an important source of profits for the banks and big finance companies. These companies don’t just make a killing every time the MTA uses them to float a bond. They augment that by all kinds of seedy tricks and schemes, some of which were exposed after the financial system crashed and burned in 2008.

One of their schemes is called a sale lease back. The pros call it a SILO–sale in, lease out. Starting in the late 1980s, government officials began to promote what they called public-private partnerships–supposedly to augment the pathetically low levels of infrastructure spending. In fact, these partnerships only augmented private profits even more. The MTA, like public agencies everywhere, sold off its rail equipment, more than 1,000 buses, a parking garage and maintenance facilities in separate deals to investors including Wells Fargo, Comerica and Phillip Morris. Of course, one could ask what the maker of Marlboro cigarettes would do with a bunch of transit equipment, buses and trains–or if they even knew what to do with them. No, they bought them just in order to lease them back to the MTA. This allowed these investors to score a big tax break from the federal government, among other things.

When the 2008 crisis hit and financial markets froze up, other complicated, exotic and very profitable deals that the MTA had with the banks also came to light. One of these was reported on by L.A. Times business columnist Michael A. Hiltzik in 2008. As Hiltzik wrote, one of these financial instruments was a hybrid municipal bond or a variable-rate demand note. Hiltzik reported that the payouts to the banks by the MTA on many of these deals were driven sky-high by the credit crisis.

In 2010, the New York Times reported that the MTA had another kind of financial instrument on its books called interest rate swaps. The largest of the swaps was with Goldman Sachs. The swaps were supposed to protect the MTA from rising interest rates. But as the Times said, to get this protection, the MTA had to agree to pay extra if interest rates went down. For the MTA, taking out this kind of protection was a losers’ bet, because in the years since the MTA took out these swaps, interest rates had mostly fallen. So the MTA paid these banks tens of millions of dollars every year–on top of the interest they owed.

So the banks have been bleeding the MTA.

At the same time, mass transit has spurred the profits of real estate developers. All you have to do is look at nearby North Hollywood to see how this works. First the MTA paid for the Red Line. Then other government agencies provided financing and tax breaks to the big developers to pay for the big luxury apartment buildings and stores. Of course, this development has driven up rents and house prices, driving out working people and the poor from the area. This is being replicated in other parts of the city, such as in East L.A. along the Gold Line.

The MTA owns a lot of land that it turns over to companies to develop. In this way, it relieves the developers of the cost of the land. Currently, Metro owns 16 developments near transit stations, including the Wrigley Marketplace shopping center in Long Beach and Grand Central Market in downtown Los Angeles. Three projects are also under construction, and 12 others are in negotiation.

This gives you an idea of how the MTA is used to provide for the needs of big construction companies, banks and real estate developers. One cannot expect, under these circumstances, that workers’ transportation needs would ever be taken care of adequately–no matter how high they agree to be taxed.

Workers’ Needs Denied

Nor would one expect that when transit workers demand a simple increase in wages, that the government would do anything else but move to block them. To see how this works, just look at what happened in San Francisco earlier this year, when transit workers went on strike after years of wage freezes and wage concessions. When the transit workers dared strike, the news media screamed bloody murder. How dare these workers strike, they said, when the people they transport make so much less. The news media told all kinds of stories about how the transit workers are privileged because they still have pensions. Of course, the logic of these accusations was that no one should have pensions anymore. In reality, what the transit workers were fighting for was only right and just, because after a lifetime of work, everyone should be able to retire with a decent income. They earned that right.

Workers Make it Run

Neither the politicians, nor the bankers, nor the other parasites who feed off the MTA are the ones who actually make transit run. The transit workers do that. And that gives the transit workers a lot of power–if they mobilize and organize. And, given the immediate impact of a fight by transit workers, they have the possibility to address other workers and poor people–to say that we all are facing the same few wealthy blood suckers.