Some readers may have been following a difficult issue for Metro in recent weeks. The U.S. Department of Labor has indicated that it believes that pension reform legislation in California (known as PEPRA) violates the collective bargaining rights under federal law of unions representing transit workers. As a result, Metro and other large transit agencies in California may lose billions of dollars in federal grants if the issue isn’t resolved. (Here is a news story and an editorial in the Sacramento Bee).

Obviously, many public officials in California do not agree with the Department of Labor, arguing that states have the right to invoke pension reform and that current federal law — which dates back to the 1960s — was intended to protect the rights of employees of private transit companies that were being converted to government agencies.

Complicating matters, Moody’s has indicated that the threat of losing federal grants could impact the credit rating of transit agencies in California. That, in turn, could impact the ability of agencies to secure federal loans and New Starts money needed to build new rail projects. Here is the update issued Friday by Metro’s government relations team:

Moody’s Places 15 California Transit Agencies Under Review For Downgrade Due to PEPRA/13C Issues

Moody’s Investors Service announced that it had placed under review for downgrade the ratings of 15 California transit agencies. The possible ratings action is prompted by the possibility that the agencies will lose federal grants that on average comprise about 13% of their operating revenue and 40% of their capital funding.

Today, Metro staff fielded calls from the Wall Street Journal about the potential downgrade and the PEPRA/13C issue that gives rise to it. Metro’s largest exposure to negative financial impacts due to the possible downgrade arises from our $1 Billion Transportation Infrastructure Finance and Innovation Act (TIFIA) loan requests for the Purple Line Extension and the Regional Connector. These loans assume the Secretary of Transportation will grant a waiver that requires a rating of “A” by two rating agencies. A downgrade by either ratings agency would make the waiver impossible.

Without the waiver, a complete restructuring of the loan proposal now formally before the U.S. Department of Transportation TIFIA Office would be necessary. It is likely that a restructured TIFIA proposal would require up to six months to process and even then it is unknown whether a restructured TIFIA loan proposal could be approved.

Without the TIFIA loans, the underlying financial commitments necessary for a New Starts Full Funding Grant Agreement would not be in place, also jeopardizing those funding agreements. We were also informed that the United States Department of Labor will not issue determinations regarding Section 13C certifications today. We will continue to work with the Governor’s office, legislative leadership and our two Senators on this issue.