LACTC begins to lower the boom on Santa Fe rail lines.

The Los Angeles County Transportation Commission, moving aggressively to break months of negotiating gridlock, is expected this week to unveil a series of tough, new legal moves to acquire 310 miles of rail track from Santa Fe Railway.

The change in strategy, which local transit officials term "dramatic," is needed to complete an $870 million commuter rail network that will link five Southern California counties by the mid-1990s.

As part of its four-pronged legal strategy, the LACTC is slated to file a petition with the federal Interstate Commerce Commission in Washington, D.C., on Oct. 21 to gain access to 25.5 miles of key track owned by Santa Fe in eastern Los Angeles County. Simultaneously, LACTC officials will seek congressional sponsorship for changes in federal transportation law that currently favors railroad land holdings.

Should those moves founder, the LACTC will consider playing its trump card -- the forced sale of rights-of-way through condemnation proceedings in the courts. In addition, the LACTC may seek the regulatory clout of the California Public Utilities Commission.

Deadlocked over the price of the rights-of-way and track access since mid-1990, the Schaumburg, Ill.-based railroad concern is asking $800 million, though the LACTC has only offered $300 million.

"Unfortunately, the railroad has not come forward with a deal that's fair to the tax-paying public," said LACTC Executive Director Neil Peterson.

However, Santa Fe negotiator Mickey Kantor, a partner in the influential Westside law firm Manatt, Phelps and Phillips, said Santa Fe's price is equitable and based on land assessment methods used successfully by other railroads that have sold rights-of-way to the LACTC (see related stories on page 13).

"Santa Fe is clearly cognizant that on one hand, it has a fiduciary responsibility to it 150,000 shareholders and also a corporate responsibility to operate in the public interest," Kantor said. "However, we can't, and won't, give away the rights of way and no one should expect us to."

Kantor added that Santa Fe's original asking price was $1.3 billion -- a tab LACTC Chairman Ray Grabinski labeled "train robbery in reverse" last April in an apparent attempt to mount public pressure on Santa Fe.

The LACTC, through a newly formed body called the Southern California Regional Rail Authority, is spearheading the efforts of Los Angeles, Orange, Riverside, San Bernardino and San Diego counties to acquire the future commuter-rail land.

By 1995, the LACTC expects an ambitious, nine-line, 410-mile commuter rail network known as "Metrolink" to be up and running. That network is one component of a 30-year, $150 billion transit system featuring subways, light rails and expanded bus service.

One-way ridership for the commuter rail system is projected to be 23,000 passengers daily at the system's outset, a conservative estimate that exceeds initial ridership figures for the L.A.-to-Long Beach Blue Line. LACTC officials contend a deal with Santa Fe must be cut because the railroad owns rights-of-way and track access needed for six of those commuter rail lines. They include: an 87-mile line from Orange County to Los Angeles; a 63-mile route from Riverside to L.A. via Fullerton; another Riverside-to-L.A. strip, 57 miles in length by way of Ontario; a 59-mile line connecting San Bernardino, Riverside and Irvine; a 40-mile Hemet-to-Riverside stretch; and an eight-mile route linking Redlands with San Bernardino.

The more cheaply and quickly LACTC can buy the property, the sooner it can begin erecting a modern-day "Red Car" system to move tens of thousands of people between their jobs, homes, recreation and shopping.

As local traffic and smog problems have worsened in recent years, congestion has been vaulted into the mainstream of political and business agendas. A study by the Southern California Association of Governments in the late 1980s estimated that traffic-related problems -- wasted employee time and higher freight charges -- has cost Southland industry $4 billion to $5 billion a year.

To deal with congestion, the South Coast Air Quality Management District now requires all employers with 100 or more workers to develop rideshare plans. The City of Los Angeles is also considering a controversial peak-hour truck ban.

Then too, the $500 million gap between the asking and offering price for the sale of 242 miles of rights of way and access to 68 miles of track owned by Santa Fe is enormous. LACTC's Peterson said the half-a-billion dollar difference could fund construction of two new, suburban light-rail systems.

The 18-page filing with the Interstate Commerce Commission -- if successful -- would grant the LACTC access to 24 miles of right-of-way owned by Santa Fe in Claremont, including a critical one-mile stretch where tracks owned by Santa Fe and the LACTC intersect. Last year, the LACTC concluded another set of difficult negotiations with Southern Pacific Railroad Co., paying it $450 million to buy 174 miles of rights-of-way for the Southland's commuter rail grid.

While Santa Fe to date has refused to make individual deals, transit officials believe they can prevail in their quest for the 25 miles. If the Interstate Commerce Commission finds there has been good faith negotiations and the filing is legal, it can order a sale or agreement, typically between 60 and 180 days after the filing.

The Interstate Commerce Commission, in such cases, would act as "an economic referee," LACTC officials said.

On a related front, LACTC officials said they believe they can find sponsorship within the Southland's congressional delegation for changes in federal transportation law modifying the powers of the Interstate Commerce Commission. If the federal body can be convinced that Santa Fe's rights-of-way serve "public convenience and necessity for public transit," it can order the two sides to negotiate for a sale or access agreement.

Because federal railroad law was written in the late 1800s, most emphasis is placed on anti-trust provisions and relations between railroad companies. But Los Angeles transportation official insist the law -- and the ICC's power -- must be changed because rights-of-way are critical for the construction of mass transit systems.

Furthermore, local transit officials are confident that local congressional members will be eager to front such legislation. Last June, in a rare show of political unity, 24 Southland congressmen wrote a letter to Santa Fe Chairman Robert Krebs saying "alternative solutions" to the impasse will be sought if talks stalemated.

The LACTC is also in the "preliminary stages" of asking the state's Public Utilities Commission to intervene on its behalf, Peterson said. Under state law, the PUC regulates intrastate rights-of-way and track if it involves health and safety issues to the general public. Recently, the PUC required Southern Pacific to provide commuter rail service in Oxnard.

LACTC officials would argue before the PUC that Santa Fe is under obligation to provide access to commuter rail rights-of-way and freight and passenger service into downtown L.A.'s Union Station, where many of the commuter lines would end.

Also in the background looms the LACTC's powers to use eminent domain -- literally condemning and seizing land in the public interest while its owners are paid "just compensation" determined by the state courts. Condemnation has been used to build many major highways and public-works projects, including the Metro Rail subway, LACTC officials point out.

Condemnation is a very powerful "fall-back strategy," according to attorney Anthony Zamora, a lawyer with the Los Angeles firm of Riordan & McKinzie, hired by the LACTC to work on the Santa Fe deal.

"It's the most coercive tool we have," said Zamora. "We're prepared to do it and believe we can be successful, but there's always hope that you never have to resort to this. We think the ICC will be receptive to our requests."

But that strategy is also risky, Zamora warned, because it can stall proposed agreements in the courts for a lengthy period.

If it comes to eminent domain, Zamora said the LACTC will rely in part on a 1978 state Court of Appeal decision that upheld condemnation by state transit officials of a 6,380-foot-long piece of right-of-way owned by the Southern Pacific Transportation Co. railroad. In that case, however, the court sided with the railroad's theory of land value.

Conflicting theories of land value lie at the heart of the LACTC-Santa Fe quarrel. Agreements covering environmental, mineral, fiber optic, property and other rights for the 310 miles are near completion.

Peterson said condemnation was not considered seriously until September, when LACTC negotiators began to lose hope in a friendly deal.

Carl Covitz promises Santa Fe won't get rich at public trough

Carl Covitz, California's recently approved Secretary of Business, Transportation and Housing, may emerge as a major player when it comes time to fork over public money for Santa Fe's tracks.

Covitz, 52, said the state will ante up 20 percent of the cost of buying the track from Santa Fe, but that he has final say-so on whether to commit the state bucks. The state money comes from bond measures voters passed last year.

And Covitz has a warning for Santa Fe: He is not going to buy into any deal that is "too rich."

Said Covitz recently, "What (Gov.) Wilson has said to me is that I was responsible to make sure projects are economical, viable, and can survive on operating revenues, so that the taxpayer is not footing the bill. . . . the $1.3 billion price was absolutely outrageous."

By Covitz' reasoning, the higher the pricetag on the land, the less chance that Southland rail transit can break-even at the farebox.

And Covitz has already stared down one deal. "On a similar case, we have already told the San Francisco Metropolitan Transit Authority we felt the price was too high (on land they proposed to acquire)," Covitz said.

In order to convince officials that its price-tag on the tracks is not exorbitant, Santa Fe has hired big-gun Westside lawyer Mickey Kantor, 52, partner at the politically connected law firm of Manatt, Phelps and Phillips. Kantor is deeply tied to the state and national Democratic party, having chaired California campaigns for former President Jimmy Carter and presidential hopeful Walter Mondale.

Kantor, a Georgetown Law School graduate, represented Mayor Tom Bradley during state probes of alleged conflict of interest violations. The self-described liberal Democrat was also appointed to the Christopher Commission.

For its part, the LACTC has hired "Mr. Establishment" -- Richard Riordan, 61, the downtown-based lawyer, financier and politico. Riordan, founding partner of the Riordan and McKinzie law firm, is allied with politicians of all stripes, and has used his wits, charm and fortune to become close to Cardinal Roger Mahoney. Riordan, a Republican with populist leanings, graduated from the University of Michigan Law School.

Riordan, Kantor, LACTC Executive Director Neil Peterson, and Santa Fe's Chicago counsel have been negotiating in the Security Pacific's Bunker Hill office tower, according to sources.

Both Riordan and Peterson have been successful in unifying Southern California's often-warring counties against Santa Fe. The reason is simple: local politicians must face voters eager for reduced traffic and smog.

Said San Bernardino County Supervisor Larry Walker, "We will exhaust all legal and legislative means to achieve the full commuter rail route between San Bernardino and Los Angeles."

Santa Fe, meanwhile, has kept a lower public profile, though it bristles at LACTC suggestions that its price for 310 miles of commuter rail rights-of-way is tantamount to "holding the public hostage."

Doing public affairs for Santa Fe, is Marathon Communications, a veteran L.A. political consulting firm.

Differing valuation methods cause stalemate

The Santa Fe Railway sale is hamstrung over price disputes because several conflicting methods to assess the value rights-of-way are being used.

* Santa Fe has advocated an "across-the-fence value" method. That would peg value to land parcels adjacent to a right-of-way, such as an apartment building, school, park or shopping center. Using this theory, Santa Fe arrived at $1.3 billion for its land. In August it knocked that down to $800 million.

* The Los Angeles County Transportation Commission argues for a "net liquidated value" method. This discounts an across-the-fence value, based on several considerations. They include topography, poor access and other limitations. Essentially, this value represents what the property might fetch if the right-of-ways were sold in a piecemeal fashion. Using this theory, the LACTC first proposed $200 million, which it later upped to $300 million.

* The state Board of Equalization revalues all utility property every year for property-tax purposes. It uses a "going-concern value" method. This represents the value of that land to its owner, which is operating a going business.

The board first establishes a value for the entire company based on its financials, like capitalized earnings, stock and bond values, and costs. Sale prices of other railroads are considered, along with other factors. The board, which administers state tax law, then allocates a value to the railroad's California holdings, and then to each county here.

In January 1991, the board assigned a value of $274 million to all the railroad property Santa Fe owns in five Southland counties. That property -- which includes land, tracks, locomotives and rail cars -- was valued at $365 million for all of California. In public hearings, Santa Fe unsuccessfully argued that statewide value was instead $97.1 million.

How then can Santa Fe ask for $800 million for roughly the same property?

"There are totally different theories" used to value land for tax purposes, compared with sale purposes, said Mickey Kantor, Santa Fe's negotiator. He said a sales value, in general terms, is based on what other railroad land has sold for recently. He pointed to the recent $450 million purchase by the LACTC of 174 miles of Southern Pacific railroad right-of-way as a rough benchmark.

In the 1978 condemnation lawsuit People v. Southern Pacific Transportation Co., the appellate decision favored a "cost of reproduction" method. Advocated by the railroad, that set value at the supposed cost to duplicate the right-of-way elsewhere.