Published Friday, November 22, 2002, in the San Jose Business Journal

VTA selling land to meet payroll

By Timothy Roberts and Andrew F. Hamm

The Valley Transportation Authority is so hard up for cash that it
recently had to sell a five-acre piece of land on Evans Lane to help
keep its trains and buses rolling.

The buyer was the city of San Jose, which plunked down $8.55 million
for the property on which it plans to build affordable housing. There
are five more VTA properties that the city also has its eye on, says
Leslye Corsiglia, the city's director of housing.

"They sold that piece of property to meet payroll," says David
Cortese, a San Jose city councilman who also serves on the VTA's board
of directors.

"VTA is completely illiquid," he says. "It will be completely
insolvent next year. They are selling land. They are throwing things
overboard."

By its own admission, VTA will run out of money by June 30 if it
doesn't come up with a new source of cash. It has been hit hard by the
economic downturn, which has dried up more than 20 percent of the
sales tax revenue it was counting on. Ridership is also down 11
percent, cutting further into operating funds.

Sales taxes, which can be raised by voters, are popular with local
governments, but they are also the most volatile form of tax
revenue. The VTA depends on sales taxes to fund 64 percent of its $342
million operating budget.

VTA serves about 52,000 people each day with 461 buses and 50
light-rail cars. It pays 41 percent of the cost of operating Caltrain
to San Francisco and 43 percent of the cost of running the Altamont
Commuter Express to the Central Valley. It also provides automobile
rides for the elderly and the handicapped.

Hoping to keep the system running, VTA officials ? which include
elected officials from across Santa Clara County ? may ask the voters
to increase the local sales tax by as much as a half-cent, increase
vehicle license fees or hike development fees.

The Silicon Valley Manufacturing Group, at the behest of VTA, put
together a review team to look for ways that VTA could save money.

The six-point list of recommendations released Nov. 18 calls for some
politically sensitive reforms, including cutting service for the
disabled and the elderly, and hefty fare increases. Among the options
in front of VTA include 10 percent fare hikes every other year.

However, Carl Guardino, the manufacturing group's chief executive
officer, admits even these actions would not balance VTA's budget.

"There is no silver bullet," he says. "But we must decide whether we
are running a transit system that has social benefits or a welfare
system that also has some transportation system benefits."

Mr. Guardino endorses the VTA land-sale proposal.

"We are going to have to look for any way available to find funds," he
says.

Leaders of BayRail Alliance, a mass transit ridership group, were
skeptical about the land-for-cash deals, but Executive Director
Margaret Okuzumi says she understands VTA is desperate for cash.

"It's not a good model for doing business," she says. "It's like a
farmer eating his crop seed."

Ms. Okuzumi condemned the Silicon Valley Manufacturing Group's
recommendations, calling them "shortsighted" and hurting the people
who need mass transit the most: the poor and people on fixed incomes.

"Talk about sour grapes and spilt milk," Mr. Guardino replies. "They
haven't been able to come up with any solutions and are now just
reaching for straws."

[BATN: Guardino fails to mention that these outcomes were predicted
by opponents of key programs which his organization pushed, and for
which he campaigned incessantly. The spilled milk should hardly be a
surprise.]

However, both groups say the key is increasing ridership and money
coming into the fare box. VTA gets only 14 percent of its operating
costs from the fare box and 8 percent of its overall expenses. That is
the second-lowest number in the nation, Mr. Guardino says.

John McLemore, a member of the Metropolitan Transportation Commission,
which oversees the 26 Bay Area mass-transit systems, says VTA is
trying to stem the flow of red ink any way it can until it can come up
with a long-term plan.

MTC has agreed to allow VTA to transfer maintenance funds into its
operating fund, reduce its spending on transbay express buses, and has
backed off on pressuring it to come up with money to fund Caltrain and
ACE improvements.

"Of all the 26 systems it is recognized that VTA has the worst
situation in front of it," Mr. McLemore says. "People have been
bending over backwards to help them get through this."

One of the more worrisome solutions would be an increase in the sales
tax.

San Jose already has a sales tax of 8.25 percent, just a quarter-point
less than the state-imposed maximum of 8.5 percent. To increase the
tax by a half-cent, the VTA would need special legislation from
Sacramento, a dicey prospect.

Assemblyman Joe Simitian, a Democrat from Palo Alto, warns that there
will be many competing interests for sales tax revenue as the
Legislature tries to cope with a budget deficit of its own.

Any legislative action allowing a half-cent sales tax increase for VTA
also would be contingent on the need for approval from two-thirds of
the voters, he said.

The chance for an OK from Sacramento?

"I wouldn't dismiss it out of hand, but it would be no small
challenge," he says.

The land-for-cash deals are simply stemming the oncoming tide, says
VTA spokesman John Pilger.

The VTA wants to sell six pieces of land originally designed to
provide parking at train stations. It has decided the parking isn't
going to be needed after all, Mr. Pilger says.

The city of San Jose, however, is an eager buyer of land for
affordable housing.

Ms. Consiglia is now looking at a second site at Capitol and Narvaez
avenues near the Capitol Light Rail Station.

The land was part of a larger 7.37-acre plot the VTA bought in 1981
for a park-and-ride lot for the Guadalupe Corridor. The path of the
light-rail line was modified, however, and the land was never used for
parking. It is now leased to Almaden RV and Boat Storage for about
$90,000 a year.

But with the looming budget crisis, the VTA decided a sale of the land
would be better.

"We're in a position where we have to do this." Mr. Pilger says.

[BATN note: $8.55 million is enough to cover VTA operations
for 7 weeks. Mr Guardino will soon have more "sour grapes and
spilt milk" to contemplate.]

Timothy Roberts covers government and politics for the Business Journal.
Andrew F. Hamm covers sports management, energy issues and
transportation for the Business Journal.