Auditors: MARTA made $119 million on lease deals

By Ariel Hart

The Atlanta Journal-Constitution

MARTA has made $119 million so far from transactions that officials recently feared would cost the agency a fortune, according to a special report that state auditors released this week.

The report also gave MARTA a clean bill of health in a number of accounting areas that legislators had called into question.

After the financial crisis hit last year, news broke of collateral damage: Complicated lease-back deals MARTA entered into had gone sour, and getting out of them might cost the agency up to $391 million.

But, so far, the process of unwinding them made MARTA a $15 million profit, according to the report.  A third of the deals were yet to be resolved.

In addition to that profit from winding down the deals, the report said, MARTA netted approximately $104 million over the period of its involvement in the transactions. State auditors could not confirm MARTA's hopes that it would make an additional $8 million following remaining negotiations.

In such deals, transit agencies across the nation leased their rail lines to equity investors, then leased them back.  The transit agencies made a profit on the leases, and the investors got a tax break.  The Internal Revenue Service was not amused, but the Federal Transit Administration encouraged them.  All was well until financial companies that guaranteed the deals, such as the insurance company AIG, took a dive, triggering huge possible fees.

State Rep. Jill Chambers (R-Atlanta), chairwoman of the legislative committee that oversees MARTA and requested the audit, said she was "thrilled."  However, she said federal pressure aided transit agencies such as MARTA in escaping fees on the transactions, and the other findings were not a vindication of MARTA leaders' decision-making.

"I’m not sure they knew what they were really voting on," Chambers said, describing the transactions as too complicated for the average person. Asked whether the findings restored any confidence, she said she would know more after upcoming meetings with MARTA.  She stressed that the report was a spot-check of specific issues, not a traditional top-to-bottom agency audit.

At the time her committee ordered the audit, Chambers questioned MARTA's financial statements and decision-making.

For its part, MARTA crowed.

The report “only confirms the obvious,” read a statement released by MARTA, which also deplored the “woefully inaccurate allegations that were leveled against MARTA when the audit was requested.”

MARTA Board Chairman Michael Walls added Tuesday, "I’m not sure she knew what she was getting into when she ordered this audit," noting the time it had taken of auditors and MARTA staff.  He said the report "shows we’re a well-run organization."

MARTA's accounts may be in order, but they don’t paint a pretty picture.  Looming deficits are projected at $40.2 million for the fiscal year 2011 and $96.7 million for fiscal 2012.

The auditors investigated several issues, including a large increase in operating expenses in fiscal year 2008 over fiscal year 2007, which they found was due to new capital programs placed in service then.  They reviewed contracts that had increased significantly and found no deficiencies in documentation.  They also double-checked MARTA’s projections of a looming deficit and the transit agency's practice of hedging its bets against rising fuel costs.