Transit officials say ruling won't stop Metro Rail; court invalidates tax to fund rail construction.

Transit officials say ruling won't stop Metro Rail

Court invalidates tax designed to fund rail construction

Southland transit officials shifted gears on the fly last week, saying they can still deliver $205 million to help build Metro Rail after a state court derailed plans to tax property owners millions of dollars for the subway project.

A state Court of Appeal in Los Angeles ruled May 1 that attempts by the Southern California Rapid Transit District to tax commercial property owners $130 million for Metro Rail Phase One was unconstitutional. While the court's decision was a blow to the subway funding scheme, it will not delay completion of Metro Rail's first leg. That $1.25 billion route is set to run 4.4 miles from Union Station to MacArthur Park by 1993.

But the ruling did throw a monkey wrench into RTD plans to raise $75 million for Metro Rail Phase Two. The district had been planning to tax commercial property owners within one-half mile of 11 planned depots an average of 18 cents a square foot for 29 years.

For the moment that plan is dead in the water. But the ruling raises new question how public officials can politically and financially attack problems of traffic and air pollution that has the business community increasingly worried.

"The court's decision was a temporary setback and as far as cash flow is concerned, it will not affect us," said RTD Board Member Nick Patsaouras.

The squabble over the tax -- which had split the area's real estate community and focused political heat on the RTD -- is far from over.

The district intends to ask the appellate court to rehear the case. If that effort fails the district will request that the California Supreme Court review the matter, according to RTD General Counsel Suzanne Gifford.

Transit leaders, teaming with Mayor Bradley, had been trying to sell the tax by telling property owners that proximity to Metro Rail stations would hike property values and increase retail sales. Some business leaders agreed, but others vigorously resisted the fee, even threatening to sue the RTD if it didn't call a special election to decide the tax.

Andy Miliotis, spokesman for a group opposing the tax planned for phase two, called the court's decision a major victory.

`We are obviously very pleased and excited with the decision of the appellate court," Miliotis said. "It's obvious that the justices recognized many of the issues regarding the assessment districts were unfair."

The $130 million for Metro Rail Phase One represented 11 percent of its total cost, although critics say that leg is $60 to $130 million over budget. The $75 million for phase two represented 3 percent of Phase Two's $1.4 billion price tag. That second phase will stretch 6.7 miles from MacArthur Park to Hollywood in 1996, with an extension sending it an additional 6.3 miles into North Hollywood.

Justice Lynn Compton, who wrote the unanimous decision for the three-judge slate, said the RTD's tax plan was flawed on two counts. Echoing the complaints of Miliotis' group, Compton said the district blundered by exempting residential property owners from the tax plan.

"We are convinced that the benefits and burdens of the RTD's assessment fall indiscriminately on property owner and non-property owner alike," she wrote.

In addition, the justices said the RTD's method for allowing property owners to vote on the fee was unconstitutional because it failed to let everyone affected by the subway vote in a special election.

Said Compton, "We can only conclude that the election provisions of the statute are not separable from the remaining portions of the enactment, and that, as a result, the statutory scheme in its entirety must fall as unconstitutional."

The court's decision, officials say, temporarily takes the heat off the RTD and places it on the Los Angeles County Transportation Commission. The LACTC, which until recently was waging a bitter turf war with the RTD, is the lead designer and builder of the Metro Rail and a host of other Southland rail project.

"When push comes to shove, the commission can't be happy because they'll have to pick up the bill," said Patsaouras.

Even before the decision, the LACTC was banking on the passage of Propositions 111 and 108 as a way of providing millions of dollars for rail projects. Now the estimated $4.5 billion that would come to Southern California if the measures pass in June is even more critical.

LACTC Executive Director Neil Peterson said the commission bears the ultimate responsibility for making up the $205 funding shortfall.

"The worst-case scenario is that the commission would have to find the funding, and that means we would have to divert money from other projects and there's no desire to do that," Peterson said.

He noted the federal government's decision to give millions of dollars for the Metro Rail, instead of other cities, was based on the idea that money from the private sector could be generated. Just last month the LACTC received $667 million from the Urban Mass Transit Administration for phase two; the commission already received $695 million from UMTA for the first leg.

Peterson, however, said he was optimistic that adjustments could be made to the tax, which the RTD calls benefit assessments. The RTD is considering asking the state legislature to revise the public utilities code to make the benefit assessment apply to residential owners.

"It would be a real mistake to read this court decision as an indication anyone wants to back away from a private-public partnership. If there are some technical changes needed to be made [to the benefit assessment], my guess is that we would it. The original concept for private financing is still strong."

With that in mind, Miliotis' group, called the Committee Opposing Metro Rail Taxation, has decided not to disband.

The tax case began in 1986, when the RTD sued its District Secretary, Helen Bolen, as a way to validate the concept of the benefit assessment. After a Los Angeles Superior Court judge agreed the tax scheme was valid, Bolen appealed the decision, saying the assessment still lacked a constitutional basis.

Joining Bolen in that appeal were a group of downtown Los Angeles property owners who said the tax was selectively targeting them. That group included the Santa Fe Railroad, Union Pacific Railroad, Southern Pacific Railroad, the owner of the Broadway Plaza, S&P Co. and a conglomeration of 40 smaller commercial property owners.

The RTD had wanted to tax property owners 30 cents a square foot for more than 20 years. That tax was intended to raise $200 million so the RTD could finance the $130 million in construction bonds.

The court's decision is "a tremendous first step for the property owners and we are confident about the appeal," said Dean Dennis, the attorney representing property owners on Phase One. "Our lawsuit was not an attack on the Metro Rail, but we felt the way the RTD established the assessment was completely unfair."