Meeting_Body
MEASURE M INDEPENDENT TAXPAYER OVERSIGHT COMMITTEE
DECEMBER 3, 2025
Subject
SUBJECT: MEASURE M SHORT TERM BORROWING PROGRAM
Action
ACTION: APPROVE RECOMMENDATION
Heading
RECOMMENDATION
Title
ADOPT a resolution (Attachment A) which finds, in accordance with Section 8(h)(1)(C) of the Measure M Ordinance, that the benefits from acceleration of projects exceed the issuance and interest costs of the proposed debt financing.
Issue
ISSUE
The Measure M Ordinance requires the Measure M Independent Taxpayers Oversight Committee of LACMTA (“Measure M Oversight Committee”) “review all proposed debt financings and make a finding as to whether the benefits of the proposed financing for accelerating project delivery, avoiding future cost escalation, and related factors exceed the issuance and interest costs”.
Background
BACKGROUND
Metro is focused on ensuring delivery of the transit capital and highway projects set forth in the Measure M Expenditure Plan. Large capital project costs and timing are subject to change and difficult to predict. The establishment of the Measure M short-term borrowing program will provide interim taxable or tax-exempt financing until grant reimbursement or other funding sources, including proceeds from Measure M revenue bonds or TIFIA loans, are received.
The Long Range Transportation Plan assumes the use of short-term borrowing as well as long-term bonds to deliver Measure M capital projects. Short-term borrowing tools, such as Commercial Paper (“CP”) and revolving credit facilities, have been utilized successfully across Metro’s short-term borrowing programs for Prop A, Prop C and Measure R, and offer flexible, low-cost financing alternatives that support prudent and effective debt program management.
CP is a short-term debt instrument that can be issued for maturities from 1 to 270 days. Amounts borrowed typically remain outstanding longer than the maturity of the notes themselves; as notes mature, new notes are simultaneously issued, i.e., rolled over. CP requires a letter of credit from a bank to guarantee liquidity to investors when their notes mature. As a result of the letter of credit bank’s guaranty of payment, the CP enjoys the favorable short-term credit ratings of the letter of credit bank.
A revolving credit facility is an alternative to CP that has similar benefits. A revolving credit facility is a direct loan from a bank, at a rate that will float based on an index plus a spread, which is generally reset every month. In addition, a fee is charged for the unutilized amount of the facility. As a floating-rate borrowing that may be drawn over time, it is similar to a CP program for practical purposes, but because the borrowing occurs directly from a bank, no ratings or broker-dealer fees are required.
Discussion
DISCUSSION
Findings
The Measure M Ordinance anticipated, and in Section 12 authorized, the use of debt (bonds, notes, or other obligations) to finance projects in the Measure M expenditure plan. In addition, LACMTA’s Board approved Debt Policy (Attachment B) provides guidelines for the issuance and management of debt. New debt issues are permitted for financing capital projects and certain capital equipment where financing over time, with interest, allows us to meet certain public policy goals such as accelerating the completion of projects or improvements.
Considerations
The proposed $500 million short-term borrowing program will provide Metro with the financing mechanism to meet these public policy goals while offering low-cost financing strategies that bridge the gap between future revenues and near-term expenditures of Measure M capital projects.
Without a short-term borrowing program in place, many of the Measure M capital projects may be delayed until either funds are accumulated to deliver projects on a “pay go” basis, or when grant or bond proceeds from a fixed-rate bond financing become available. Project delays often lead to escalating project costs including labor overruns and material price hikes, potential renegotiations with subcontractors, all of which have an impact on budget forecasts and overall project success.
Further, Metro is not obligated to borrow the full amount of the program and will maintain flexibility to draw down funds only as needed. This allows Metro to borrow more efficiently since borrowing a large amount upfront without a defined project scope, costs and budget will likely require Metro to borrow more than current project requirements and make larger interest payment on unspent proceeds. Responses for request for proposals for short-term borrowing facilities under Measure M is tentatively scheduled to be received by several banks in November.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this report will not impact the safety of Metro's patrons or employees.
Financial_Impact
FINANCIAL IMPACT
Funding for the Measure M programs are included in the FY2026 budget in Cost Center #0521, Treasury Non-Departmental, under project #670301, task 01. The cost center manager and the Chief Financial Officer will be accountable for budgeting the cost in future years.
Impact to Budget
The funding sources of Measure M are eligible for bus & rail operations and capital projects.
Equity_Platform
EQUITY PLATFORM
Approval of this item is intended to reduce financial risk and provide funding for Metro capital projects financed by Measure M. The capital projects include highway improvements and expansion, bus operations and maintenance, transit and rail improvements and upgrades, airport connections, and bike and pedestrian connections. The financing will also help keep senior, student and disabled transit fares more affordable and reduce congestion. The resolution finds that the benefits from acceleration of projects exceed the issuance and interest costs of the proposed debt financing.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
The recommendation supports Metro Vision 2028 Strategic Plan Goal 5 as follows:
Goal 5: Provide responsive, accountable, and trustworthy governance within the Metro organization.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The capital projects that require immediate cash flow to continue moving forward would not have financing mechanisms in place. These capital projects will be delayed until funds can be accumulated to construct projects on a “pay go” basis. However, these projects may face increasing costs due to increases in labor costs or materials. Another alternative funding source would be issuing long-term fixed-rate tax-exempt bonds. Issuing long-term fixed-rate bonds, without a defined project scope, cost and budget will likely require Metro to borrow more than current project requirements.
Next_Steps
NEXT STEPS
Treasury staff will request LACMTA Board authorization for the short-term borrowing program and will then negotiate the final terms and conditions with the providers of bank letters of credit and revolving credit facilities. Once these credit agreements are in place, the treasury staff will send the necessary documents to rating agencies to obtain credit ratings for the commercial paper. Following the receipt of ratings, treasury staff will complete the commercial paper offering memorandum for investors. Upon finalization of all documentation, Measure M commercial paper notes will be issued to provide short-term financing for eligible projects.
Attachments
ATTACHMENTS
Attachment A - Finding of Benefit Resolution
Attachment B - LACMTA Debt Policy
Prepared_by
Prepared by: Rodney Johnson, Treasurer, (213) 922-3417
Matthew Wingert, Senior Budget Manager, (213) 922-2553
Robert Suh, Budget Manager, (213) 922-4102
Reviewed_By
Reviewed by: Michelle Navarro Interim Chief Financial Officer, (213) 922-3056