Transit projects generate more interest than cash.

Taxation looks to be the only likely source of funding

Southern California officials are being deluged by a wave of proposals for privately financed transportation projects that could turn a profit while aiding the war on gridlock and smog. But finding the money to take the concepts from the drawing board to the construction site could be a potentially derailing experience.

The reason, transit and lending experts agree, is that major U.S. financial institutions are simply in no mood to make loans for start-up enterprises because of the recession, the resulting credit crunch and new federal lending restrictions passed in the wake of the saving-and-loan debacle.

"The banks are trying to control risk and are being very cautious, even though infrastructure-building is one of the strengths of this economy," said Lynn Reaser, chief economist for Los Angeles-based First Interstate Bancorp. "It may take government guarantees before lending loosens up."

In some cases, taxpayer coffers are turning out to be the only funding source -- a fact that raises questions about the commercial marketability of the projects.

Consider the path Cal-Start -- a for-profit transportation consortium founded by Rep. Howard Berman, D-Panorama City -- has taken to secure seed money. Instead of going directly to the banks, the group has obtained $4 million in federal subsidies, $300,000 in grants from the South Coast Air Quality Management District, $500,000 from Southern California Edison Co. and a $110,000 building rehabilitation loan from the Burbank City Council.

Among other things, Cal-Start is working to develop a prototype electric car by year's end through its founding member, Monrovia-based Amerigon Inc. In addition, a handful of Southland aerospace companies may also soon join the consortium as part of their entree into development and production of equipment for light rails and clean fuel buses.

"We've started talking to financial institutions and venture capitalists about everything from loans to tax-exempt industrial bonds," said Berman legislative aide John Slikco. "But it's unknown how much we can fully rely on them."

Perhaps a separate reason banks are wary is that the major automakers, most notably General Motors Corp., have been working on electric cars for years and have a huge financial and manufacturing edge over entrepreneurs, according to one source, who requested anonymity.

Added Jane Touras, a research associate at UCLA's Lewis Center for Regional Policy Studies, "It's risky for a small electric-car builder to go to a lender because production is not taking place and, hence, no cash flows are being generated."

Meanwhile, there is no shortage of public zeal for Southland mass transit work. Just last month, the Los Angeles County Transportation Commission endorsed spending $183 billion on a 400-mile rail grid, a 3,900-vehicle bus fleet and a panopoly of upgrades for the area's snarled freeways and major arteries over the next 30 years. Approximately three-quarters of the funds will come from taxpayer-approved sales taxes, bonds and commuter fares.

The LACTC work will mean roughly 45,000 transit-related jobs in the county each year -- jobs considered increasingly vital because of the slump in construction and the need to bolster employment in the aftermath of last month's rioting.

As part of the transportation commission's 30-year blueprint, four privately financed transit projects are being mapped out, including a Burbank monorail and a light rail connecting Dodger Stadium with Pasadena, each of which will cost several hundred million dollars.

Said First Interstate's Reaser, "The banks look at the track records of these projects and there is not a lot of evidence of solid success."

According to Reaser, private transit builders should look to investment bankers, venture capitalists or even stock offerings as ways to raise start-up funds vital for research, prototype development and investments in manufacturing plants.

But with real estate investment still considered shaky and short-term treasury notes and certificates of deposit only producing yields in the 4-percent range,

now may be a good time to hunt for transportation-equipment investors, Reaser added.

Shell Lytton, a counsel at the West Los Angeles law firm of Troy & Gould, said while many entrepreneurs view mass-transit projects as "hottest" economic game in town because of all the LACTC activity, privately financed mass transit hasn't caught fire with bankers.

"The banks are not in the altruism business," Lytton said. "They want to know how they can get their money back. And if they think the project is risky or politicized, it may never get off the ground."

Lytton is working with Laidlaw Transit on a proposal to build school buses that are powered by either electricity or compressed natural gas, instead of diesel like today -- a deal that could be worth $1 billion in local and state government orders. Like Cal-Start, Laidlaw is trying to form a public-private partnership with Edison and others so funding for a prototype and production plans can be inked.