$135,715,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2014-A

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1 NEW ISSUE-BOOK-ENTRY-ONLY RATINGS: Moody s: Aa2 S&P: AAA (See RATINGS herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to LACMTA, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2014-A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2014-A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2014-A Bonds. See TAX MATTERS. $135,715,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2014-A Dated: Date of Delivery Due: As shown on inside cover The Los Angeles County Metropolitan Transportation Authority ( LACMTA ) is issuing its Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2014-A (the Series 2014-A Bonds ) pursuant to the Trust Agreement, dated as of July 1, 1986, as amended and supplemented (the Trust Agreement ), by and between LACMTA and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ), and a Supplemental Trust Agreement, dated as of December 1, 2014 (the Series 2014-A Supplemental Agreement and, together with the Trust Agreement, the Agreement ), by and between LACMTA and the Trustee. The Series 2014-A Bonds are limited obligations of LACMTA payable from and secured by a first lien on and pledge of the Pledged Revenues (which includes the receipts from the imposition in the County of Los Angeles for public transit purposes of a one-half of 1% retail transactions and use tax (the Proposition A Sales Tax ) less 25% thereof paid to local jurisdictions and certain administrative fees) and by certain other amounts held under the Agreement. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS and PROPOSITION A SALES TAX AND COLLECTIONS herein. LACMTA will use the proceeds of the Series 2014-A Bonds and other available funds to (a) refund the Refunded Bonds (as defined herein), and (b) pay the costs of issuance of the Series 2014-A Bonds. The Series 2014-A Bonds will be issued in denominations of $5,000 and integral multiples thereof. The Series 2014-A Bonds will be issued in full-registered form and will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ), the securities depository for the Series 2014-A Bonds. Individual purchases and sales of the Series 2014-A Bonds may be made in book-entry form only. See APPENDIX G BOOK-ENTRY-ONLY SYSTEM. The Series 2014-A Bonds will bear interest at the rates set forth on the inside cover page. LACMTA will pay interest on the Series 2014-A Bonds on January 1 and July 1, commencing on July 1, The Series 2014-A Bonds are subject to optional redemption prior to maturity as described in this Official Statement. See DESCRIPTION OF THE SERIES 2014-A BONDS Redemption. Neither the faith and credit nor the taxing power of the County of Los Angeles, the State of California or any political subdivision or public agency thereof, other than LACMTA to the extent of the Pledged Revenues and certain other amounts held by the Trustee under the Agreement, will be pledged to the payment of the principal of or interest on the Series 2014-A Bonds. LACMTA has no power to levy property taxes to pay the principal of or interest on the Series 2014-A Bonds. This cover page contains certain information for general reference only. It is not a summary of the terms of, or the security for, the Series 2014-A Bonds. Investors are advised to read this Official Statement in its entirety to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page and not otherwise defined have the meanings set forth herein. The Series 2014-A Bonds were awarded at a true interest cost of % (prior to adjustment) pursuant to competitive bidding held on December 3, See SALE OF BONDS herein. LACMTA is offering the Series 2014-A Bonds when, as and if it issues the Series 2014-A Bonds. The validity of the Series 2014-A Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to LACMTA. The Los Angeles County Counsel, as General Counsel to LACMTA, and Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel, will pass on certain legal matters for LACMTA. LACMTA anticipates that the Series 2014-A Bonds will be available for delivery through the facilities of DTC on or about December 18, Date of Official Statement: December 3, 2014

2 MATURITY SCHEDULE $135,715,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2014-A Maturity Date (July 1) Principal Amount Interest Rate Price or Yield CUSIP No $5,655, % 0.270% 54466H AA ,940, H AB ,235, H AC ,545, H AD ,875, H AE ,950, H AF ,195, H AG ,455, H AH ,725, H AJ ,010, * 54466H AK ,315, * 54466H AL ,630, * 54466H AM ,960, * 54466H AN ,310, H AP ,525, * 54466H AQ ,825, * 54466H AR ,140, * 54466H AS ,465, * 54466H AT ,805, * 54466H AU ,155, * 54466H AV8 Copyright 2014, American Bankers Association. CUSIP is a registered trademark of the American Bankers Association. The CUSIP data herein is provided by the CUSIP Service Bureau, managed on behalf of the American Bankers Association by Standard & Poor s. The CUSIP numbers are not intended to create a database and do not serve in any way as a substitute for CUSIP service. CUSIP numbers have been assigned by an independent company not affiliated with LACMTA and are provided solely for convenience and reference. The CUSIP numbers for a specific maturity are subject to change after the issuance of the Series 2014-A Bonds. LACMTA does not take any responsibility for the accuracy of the CUSIP numbers. * Yield reflects pricing to a par call on July 1, 2024.

3 Go Metro metro.net P Chatsworth Nordhoff Roscoe Sherman Warner Ctr Way P P Canoga Pierce College P Reseda P Woodley Van Nuys P Valley College North Hollywood P Universal City/ Studio City P Hollywood/Highland P Hollywood/Vine P Hollywood/Western Union Station P LAC+USC Medical Ctr Cal State LA El Monte P Westwood/VA Hospital Westwood/UCLA Century City Wilshire/Rodeo Wilshire/La Cienega Wilshire/Fairfax Wilshire/La Brea Wilshire/Western Wilshire/Normandie Farmdale Expo/ Wilshire/Vermont Crenshaw P P Expo/ Westlake/ Western MacArthur Park Pico/Aliso Mariachi Plaza Soto P Indiana Maravilla East LA Civic Ctr P Atlantic P Expo/Bundy P Expo/Sepulveda Westwood/Rancho Park Palms P Culver City P La La Cienega/Jefferson Expo/La Brea Expo/ Vermont Expo Park/USC 37th St/ USC Slauson P Manchester P Harbor Fwy P Avalon P Hawthorne/ P Lennox P Vermont/Athens Rosecrans P Harbor Gateway Transit Center P SANTA MONICA PACIFIC OCEAN Ventura County Line De Soto 26th St/Bergamot P 17th St/SMC Downtown Santa Monica SAN FERNANDO VALLEY Tampa Balboa P LAX Sepulveda P CULVER CITY SOUTH BAY HOLLYWOOD KOREATOWN Crenshaw/ MLK Crenshaw/Slauson Florence/West Florence/La Brea Florence/Hindry Aviation/ Century Mariposa P El Segundo P Douglas P Redondo Beach Woodman Crenshaw/ Vernon LAX P Aviation/ Laurel Canyon P Crenshaw Vermont/Sunset Vermont/Santa Monica Vermont/Beverly HARBOR GATEWAY Antelope Valley Line DOWNTOWN LA 23rd St Jefferson/ USC P Pacific Av Downtown P Long Beach Pershing Sq P Pico 2nd Pl/ Hope 7th St/ Metro Ctr Grand P Lincoln/Cypress San Pedro St LONG BEACH P Heritage Sq 2nd St/ Broadway 1st St/Central Washington Vernon Slauson Florence P Firestone 103rd St/Watts Towers P Willowbrook P Compton Artesia P Del Amo P Wardlow P Willow St P Pacific Coast Hwy Anaheim St 5th St 1st St P P South Pasadena Highland Park Southwest Museum Chinatown Civic Center/ Grand Park P Long Beach Bl P Little Tokyo/ Arts Dist Lakewood Bl P NORWALK PASADENA EAST LOS ANGELES Orange County & 91 Lines Norwalk P Fillmore P Del Mar P Lake P Memorial Park Allen Sierra Madre Villa P EL MONTE Irwindale Arcadia Monrovia Duarte/City of Hope Azusa Downtown San Bernardino Line Riverside Line Under Construction Lines and Stations Expo Line Phase 2 Gold Line Foothill Extension Crenshaw/LAX Line Purple Line Extension Regional Connector Metro Rail lines and stations Red Line Purple Line Blue Line Green Line Gold Line Expo Line Metro Liner lines and stations Orange Line Silver Line Street stop Transfers Regional Rail Metrolink & Amtrak APU/Citrus College Airport Shuttle MAR 2014 LAX FlyAway LAX Shuttle (free) Free parking Paid parking Bike parking Subject to Change LACMTA

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5 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Board Members Eric Garcetti, Chair Mark Ridley-Thomas, First Vice-Chair John Fasana, Second Vice-Chair Michael D. Antonovich Mike Bonin Diane DuBois Jacquelyn Dupont-Walker Don Knabe Paul Krekorian Sheila Kuehl Ara J. Najarian Pam C. O Connor Hilda L. Solis Carrie Bowen, Non-Voting Member LACMTA Officers Arthur T. Leahy, Chief Executive Officer Nalini Ahuja, Executive Director, Finance and Budget Donna R. Mills, Treasurer LACMTA General Counsel Office of the County Counsel Los Angeles, California Financial Advisor Backstrom McCarley Berry & Co., LLC San Francisco, California Bond Counsel and Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Trustee and Escrow Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

6 LACMTA has not authorized any dealer, broker, salesperson or other person to give any information or to make any representation in connection with the offer or sale of the Series 2014-A Bonds other than as set forth in this Official Statement and, if given or made, such other information or representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2014-A Bonds, by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not a contract with the purchasers or owners of the Series 2014-A Bonds. Statements contained in this Official Statement which involve estimates, projections or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of facts. The information and expressions of opinion in this Official Statement are subject to change without notice, and the delivery of this Official Statement and any sale made pursuant to this Official Statement do not, under any circumstances, imply that the information and expressions of opinion in this Official Statement and other information regarding LACMTA have not changed since the date hereof. LACMTA is circulating this Official Statement in connection with the sale of the Series 2014-A Bonds and this Official Statement may not be reproduced or used, in whole or in part, for any other purpose. In making an investment decision, investors must rely on their own examination of the terms of the offering and the security and sources of payment of the Series 2014-A Bonds, including the merits and risks involved. The Series 2014-A Bonds have not been registered under the Securities Act of 1933, as amended, nor has the Agreement been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such acts. Neither the U.S. Securities and Exchange Commission nor any other federal, state or other governmental entity, nor any agency or department thereof, has passed upon the merits of the Series 2014-A Bonds or the accuracy or completeness of this Official Statement. The Series 2014-A Bonds have not been recommended by any federal or state securities commission or regulatory authority. Any representation to the contrary may be a criminal offense. This Official Statement contains statements relating to future results that are forward looking statements. When used in this Official Statement, the words estimate, forecast, projection, intend, expect and similar expressions identify forward looking statements. Any forward looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward looking statements. Some assumptions used to develop forward looking statements inevitably will not be realized, and unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward looking statements and actual results; those differences could be material.

7 TABLE OF CONTENTS Page INTRODUCTION... 1 LACMTA... 1 Purpose of the Series 2014-A Bonds... 1 Description of the Series 2014-A Bonds... 1 Security and Sources of Payment for the Series 2014-A Bonds... 2 Proposition A Sales Tax Obligations... 2 The Series 2014-A Bonds Are Limited Obligations of LACMTA Only... 2 Reserve Fund for the First Tier Senior Lien Bonds... 3 Continuing Disclosure... 3 Additional Information... 3 PLAN OF REFUNDING... 3 SOURCES AND USES OF FUNDS... 5 RISK FACTORS... 5 Economic Factors May Cause Declines in Proposition A Sales Tax Revenues... 5 California State Legislature or Electorate May Change Items Subject to Proposition A Sales Tax... 5 Increases in Sales Tax Rate May Cause Declines in Proposition A Sales Tax Revenues... 6 Increased Internet Use May Reduce Proposition A Sales Tax Revenues... 6 Impact of Bankruptcy of LACMTA... 6 Voter Initiatives and California State Legislative Action May Impair Proposition A Sales Tax... 7 Risks Related to Variable-Rate Bonds and Interest Rate Swaps... 7 DESCRIPTION OF THE SERIES 2014-A BONDS... 8 General... 8 Redemption... 9 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Security for the Series 2014-A Bonds Proposition A Sales Tax Obligations Flow of Funds Reserve Fund for First Tier Senior Lien Bonds Additional First Tier Senior Lien Bonds PROPOSITION A SALES TAX AND COLLECTIONS The Proposition A Sales Tax Initiatives and Changes to Proposition A Sales Tax Historical Proposition A Sales Tax Collections Proposition A Special Revenue Fund - GAAP Based Financial Results PROPOSITION A SALES TAX OBLIGATIONS General Debt Service Coverage Outstanding Proposition A Sales Tax Obligations COMBINED DEBT SERVICE SCHEDULE LITIGATION LEGAL MATTERS TAX MATTERS FINANCIAL ADVISOR FINANCIAL STATEMENTS i-

8 TABLE OF CONTENTS (continued) Page CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION VERIFICATION OF MATHEMATICAL COMPUTATIONS CONTINUING DISCLOSURE SALE OF BONDS DECEMBER 3, RATINGS ADDITIONAL INFORMATION APPENDICES APPENDIX A LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY... A-1 APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C LOS ANGELES COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION... C-1 APPENDIX D SUMMARY OF LEGAL DOCUMENTS; DEFINITIONS... D-1 APPENDIX E FORM OF BOND COUNSEL APPROVING OPINION... E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE... F-1 APPENDIX G BOOK-ENTRY-ONLY SYSTEM... G-1 -ii-

9 OFFICIAL STATEMENT $135,715,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2014-A INTRODUCTION This Official Statement, which includes the cover page and the appendices hereto, sets forth information in connection with the offering by the Los Angeles County Metropolitan Transportation Authority ( LACMTA ) of $135,715,000 aggregate principal amount of its Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2014-A (the Series 2014-A Bonds ). This Introduction is not a summary of this Official Statement. This Introduction is qualified by the more complete and detailed information contained in this entire Official Statement and the documents summarized or described in this Official Statement. Prospective investors should review this entire Official Statement, including the cover page and appendices, before they make an investment decision to purchase the Series 2014-A Bonds. LACMTA is only offering the Series 2014-A Bonds to potential investors by means of the entire Official Statement. Capitalized terms used but not defined herein have the meanings ascribed to them in APPENDIX D SUMMARY OF LEGAL DOCUMENTS; DEFINITIONS DEFINITIONS. LACMTA LACMTA was established in 1993 pursuant to the provisions of Section et seq. of the California Public Utilities Code (the LACMTA Act ). LACMTA is the consolidated successor entity to both the Southern California Rapid Transit District (the District ) and the Los Angeles County Transportation Commission (the Commission ). As the consolidated successor entity, LACMTA succeeded to all powers, duties, rights, obligations, liabilities, indebtedness, bonded or otherwise, immunities and exemptions of the Commission and the District, including the Commission s responsibility for planning, engineering and constructing a county wide rail transit system. The Commission was authorized, subject to approval by the electorate of the County of Los Angeles (the County ), to adopt a retail transactions and use tax ordinance, with the revenues of such tax to be used for public transit purposes. On November 4, 1980, the voters of the County approved the Proposition A Sales Tax. The Proposition A Sales Tax is a one half of 1% sales tax and is not limited in duration. For more information regarding the Proposition A Sales Tax, see PROPOSITION A SALES TAX AND COLLECTIONS The Proposition A Sales Tax. For further discussion of LACMTA, its other sources of revenues, the services it provides and the projects it is undertaking, see APPENDIX A LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY. For certain economic and demographic data about the County, see APPENDIX C LOS ANGELES COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION. Purpose of the Series 2014-A Bonds LACMTA will use the proceeds of the Series 2014-A Bonds, together with other available funds, to (a) refund a portion of its Proposition A First Tier Senior Sales Tax Revenue Bonds, Series 2005-A (the Series 2005-A Bonds ), and (b) pay the costs of issuance of the Series 2014-A Bonds. For a more detailed description of LACMTA s proposed use of proceeds from the issuance of the Series 2014-A Bonds, see PLAN OF REFUNDING and SOURCES AND USES OF FUNDS. Description of the Series 2014-A Bonds The Series 2014-A Bonds are limited obligations of LACMTA to be issued pursuant to, and payable from and secured under, the Trust Agreement, dated as of July 1, 1986, as amended and supplemented (the Trust Agreement ), by and between LACMTA (as successor to the Commission) and The Bank of New York Mellon 1

10 Trust Company, N.A., (formerly known as The Bank of New York Trust Company, N.A., as successor to BNY Western Trust Company, as successor in interest to Wells Fargo Bank, N.A., successor by merger to First Interstate Bank of California), as trustee (the Trustee ), and to be further supplemented by a Thirty-Fifth Supplemental Trust Agreement, to be dated as of December 1, 2014 (the Series 2014-A Supplemental Agreement ), by and between LACMTA and the Trustee. The Trust Agreement and the Series 2014-A Supplemental Agreement are collectively referenced herein as the Agreement. The Series 2014-A Bonds will be issued in registered form, in denominations of $5,000 or any integral multiple thereof. The Series 2014-A Bonds will be dated their initial date of delivery and will mature and will bear interest at the rates per annum as shown on the inside cover page hereof, computed on the basis of a 360-day year consisting of twelve 30-day months. The Series 2014-A Bonds will be delivered in book-entry-only form and will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Series 2014-A Bonds. See APPENDIX G BOOK- ENTRY-ONLY SYSTEM. Security and Sources of Payment for the Series 2014-A Bonds The Series 2014-A Bonds are limited obligations of LACMTA payable from and secured by a first lien on and pledge of Pledged Revenues, which include moneys collected as a result of the imposition of the Proposition A Sales Tax (the imposition of which is not limited in duration), less 25% thereof which is allocated to local jurisdictions for local transit purposes (the Local Allocation ) and less an administrative fee paid to the California State Board of Equalization (the State Board of Equalization ) in connection with the collection and disbursement of the Proposition A Sales Tax, plus interest, profits and other income received from investment of such amounts held by the Trustee, and all other amounts held by the Trustee under the Agreement except for amounts held in any rebate fund and any escrow fund. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS and PROPOSITION A SALES TAX AND COLLECTIONS The Proposition A Sales Tax. Proposition A Sales Tax Obligations LACMTA has issued other obligations under the Agreement that are secured by and payable from Pledged Revenues on a parity with the Series 2014-A Bonds, and LACMTA is permitted to issue additional parity obligations in the future upon satisfaction of certain additional bonds tests contained in the Agreement. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Additional First Tier Senior Lien Bonds. The Series 2014-A Bonds, the existing obligations on a parity with the Series 2014-A Bonds and all future obligations issued on a parity with the Series 2014-A Bonds are collectively referred to herein as the First Tier Senior Lien Bonds. As of November 1, 2014, $1,162,355,000 aggregate principal amount of First Tier Senior Lien Bonds (including the Refunded Bonds) were outstanding. See PLAN OF REFUNDING, SOURCES AND USES OF FUNDS and PROPOSITION A SALES TAX OBLIGATIONS. In addition, LACMTA has issued other obligations under the Agreement that are secured by and payable from Pledged Revenues on a basis subordinate to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds), and it may issue additional subordinate obligations in the future. See PROPOSITION A SALES TAX OBLIGATIONS. The Series 2014-A Bonds Are Limited Obligations of LACMTA Only Neither the faith and credit nor the taxing power of the County, the State of California or any political subdivision or agency thereof, other than LACMTA to the extent of the Pledged Revenues and certain other amounts held by the Trustee under the Agreement, is pledged to the payment of the principal of or interest on the Series 2014-A Bonds. LACMTA has no power to levy property taxes to pay the principal of or interest on the Series 2014-A Bonds. The Series 2014-A Bonds are limited obligations of LACMTA and are payable, as to both principal and interest, solely from a first lien on and pledge of the Pledged Revenues and certain other amounts held by the Trustee under the Agreement. Other than Pledged Revenues and such other amounts held by the Trustee under the 2

11 Agreement, the general fund of LACMTA is not liable, and neither the credit nor the taxing power of LACMTA is pledged, to the payment of the principal of or interest on the Series 2014-A Bonds. Reserve Fund for the First Tier Senior Lien Bonds Pursuant to the Agreement, the Reserve Fund was established and is held by the Trustee and used to make payments of principal of and interest on all First Tier Senior Lien Bonds, including the Series 2014-A Bonds, issued by LACMTA under the Agreement to the extent the amounts in the Bond Interest Account or the Bond Principal Account are not sufficient to pay in full the principal of and interest on the First Tier Senior Lien Bonds when due. The Reserve Fund is required to be funded in an amount equal to the Reserve Fund Requirement. At the time of issuance of the Series 2014-A Bonds, the Reserve Fund will be funded in an amount equal to the Reserve Fund Requirement (which is expected to be approximately $140,000,000 at the time of issuance of the Series 2014-A Bonds). At the time of issuance of the Series 2014-A Bonds, the Reserve Fund Requirement will be satisfied by an existing municipal bond debt service reserve insurance policy (the AGM Reserve Policy ) provided by Assured Guaranty Municipal Corp. (as successor to Financial Security Assurance Inc.) ( AGM ) with a policy limit of $85,500,000, and cash and investments in the amount of approximately $55,500,000. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Reserve Fund for First Tier Senior Lien Bonds AGM Reserve Policy. The Reserve Fund also contains a municipal bond debt service reserve fund policy (the FGIC Reserve Policy ) provided by Financial Guaranty Insurance Company (National Public Finance Guarantee Corporation by novation). The Reserve Fund Requirement is satisfied without taking into account the FGIC Reserve Policy. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Reserve Fund for First Tier Senior Lien Bonds FGIC Reserve Policy. Continuing Disclosure In connection with the issuance of the Series 2014-A Bonds, for purposes of assisting the Winning Bidder in complying with Rule 15c2-12 (the Rule ) promulgated by the U.S. Securities and Exchange Commission ( SEC ) under the Securities Exchange Act of 1934, as amended, LACMTA will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board s Electronic Municipal Market Access system (the EMMA System ), certain annual financial information and operating data relating to LACMTA and notice of certain enumerated events. See CONTINUING DISCLOSURE and APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE. Additional Information Brief descriptions of the Series 2014-A Bonds, the Agreement and certain other documents are included in this Official Statement and the appendices hereto. Such descriptions do not purport to be comprehensive or definitive. All references herein to such documents and any other documents, statutes, reports or other instruments described herein are qualified in their entirety by reference to each such document, statute, report or other instrument. The information herein is subject to change without notice, and the delivery of this Official Statement will under no circumstances, create any implication that there has been no change in the affairs of LACMTA since the date hereof. This Official Statement is not to be construed as a contract or agreement between LACMTA and the purchasers or Owners of any of the Series 2014-A Bonds. LACMTA maintains a website, the information on which is not part of this Official Statement, has not and is not incorporated by reference herein, and should not be relied upon in deciding whether to invest in the Series 2014-A Bonds. Copies of the Agreement may be obtained from LACMTA at One Gateway Plaza, 21st Floor, Treasury Department, Los Angeles, California 90012, or by ing TreasuryDept@metro.net, or by calling (213) PLAN OF REFUNDING LACMTA will use the proceeds of the Series 2014-A Bonds, together with other available funds, to (a) advance refund a portion of the Series 2005-A Bonds (the Refunded Bonds ), and (b) pay the costs of issuance of the Series 2014-A Bonds. LACMTA will use a portion of the proceeds of the Series 2014-A Bonds, along with certain other available moneys, to defease its Refunded Bonds on the date of issuance of the Series 2014-A Bonds. The Series 2005-A Bonds are currently outstanding in the aggregate principal amount of $191,955,000. 3

12 A portion of the proceeds of the Series 2014-A Bonds, together with certain available moneys to be contributed by LACMTA, will be deposited with The Bank of New York Mellon Trust Company, N.A., as trustee and escrow agent, and will be held in an escrow fund for the Refunded Bonds (the Escrow Fund ) to be created under the terms of an escrow agreement (the Escrow Agreement ) between LACMTA and The Bank of New York Mellon Trust Company, N.A., as trustee and escrow agent. All amounts deposited into the Escrow Fund will be invested in direct, noncallable obligations of the United States Treasury or held uninvested in cash. Amounts on deposit in the Escrow Fund will be used, on January 1, 2015, to pay interest due on the Refunded Bonds (as detailed in the table below) and on July 1, 2015 (the Redemption Date ), to pay the redemption price of the remaining Refunded Bonds of 100% of the principal amount thereof, plus accrued interest thereon. Proposition A First Tier Senior Sales Tax Revenue Bonds, Series 2005-A Refunded Bonds Maturity July 1, Coupon CUSIP Principal Amount Outstanding Principal Amount to be Redeemed (Refunded Bonds) % XG2 $ 7,400,000 $ 6,190, XH0 7,770,000 6,500, XJ6 8,160,000 6,825, XK3 8,570,000 7,165, XL1 8,995,000 7,525, XM9 6,730,000 5,630, XN7 7,065,000 5,910, XP2 7,420,000 6,205, XQ0 7,790,000 6,515, XR8 8,180,000 6,840, XS6 8,590,000 7,185, XT4 9,020,000 7,545, XU1 9,470,000 7,920, XV9 9,940,000 8,315, XW7 10,375,000 8,675, XX5 22,150,000 18,520, XY3 37,285,000 31,180,000 Total $184,910,000 $154,645,000 Grant Thornton LLP, certified public accountants, will verify that the amounts deposited to the Escrow Fund will be sufficient to pay principal, interest and redemption price due on the Refunded Bonds through and including the Redemption Date. See VERIFICATION OF MATHEMATICAL COMPUTATIONS herein. Subject to market conditions, LACMTA may elect to issue additional First Tier Senior Lien Bonds to refund then remaining outstanding 2005 Bonds on a current refunding basis within 90 days of the July 1, 2015 first optional call date. The Series 2005-A Bonds maturing on July 1, 2015 are scheduled for regular payment and not included in the refunding. Term Bond. 4

13 SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds in connection with the issuance of the Series 2014-A Bonds. Sources 1 Principal Amount $135,715, Original Issue Premium/(Discount) 18,843, Release of Funds from Series 2005-A Debt Service Fund 3,000, Release of Funds from Series 2005-A Reserve Fund 5,000, Total Sources $162,558, Uses 1 Deposit to Escrow Fund $162,119, Costs of Issuance 2 439, Total Uses $162,558, Totals may not add due to rounding. 2 Includes underwriter s discount, legal fees, rating agency fees, financial advisor fees, verification agent fees, financial printer costs and other costs of issuance. RISK FACTORS Economic Factors May Cause Declines in Proposition A Sales Tax Revenues The Series 2014-A Bonds are limited obligations of LACMTA payable solely from and secured by a first lien on and pledge of Pledged Revenues, consisting primarily of certain revenues of the Proposition A Sales Tax and other amounts that are held by the Trustee under the Agreement. The level of Proposition A Sales Tax revenues collected depends on the level of taxable sales transactions within the County, which, in turn, depends on the level of general economic activity in the County. In fiscal years 2009 and 2010, the national economic recession and regional general economic conditions resulted in reductions in economic activity and taxable sales within the County, and correspondingly Proposition A Sales Tax revenues received by LACMTA declined. Sales tax revenues increased in fiscal years 2011, 2012 and It is possible that Proposition A Sales Tax revenues could decline in the future, reducing amounts available to pay the principal of and interest on the Series 2014-A Bonds. Proposition A Sales Tax revenues fluctuate based on general economic conditions within the County. To project future Proposition A Sales Tax revenues for budgetary purposes, LACMTA relies on reports from local economists and other publicly available sources of data. LACMTA does not itself develop forecasts of current or future economic conditions. Furthermore, the State Board of Equalization does not provide LACMTA with any forecasts of Proposition A Sales Tax revenues for future periods. Therefore, LACMTA is unable to forecast or predict with certainty future levels of Proposition A Sales Tax revenues. In addition, the County is located in a seismically active region. A major earthquake or other natural disaster could adversely affect the economy of the County and the amount of Proposition A Sales Tax revenues. Future significant declines in the amount of Proposition A Sales Tax revenues could ultimately impair the ability of LACMTA to pay principal of and interest on the Series 2014-A Bonds. See PROPOSITION A SALES TAX AND COLLECTIONS Historical Proposition A Sales Tax Collections. California State Legislature or Electorate May Change Items Subject to Proposition A Sales Tax With limited exceptions, the Proposition A Sales Tax is imposed on the same transactions and items subject to the general sales tax levied statewide by the State of California. In the past, the California State Legislature and the California State electorate have made changes to the transactions and items subject to the State of California s general sales tax and, therefore, the Proposition A Sales Tax. In 1991, the California State Legislature enacted legislation which expanded the transactions and items subject to the general statewide sales tax to include fuel for aviation and shipping, bottled water, rental equipment and newspapers and magazines. In 1992, the California State electorate approved an initiative which eliminated candy, gum, bottled water and confectionery items as items 5

14 subject to the California State s general sales tax. In each case, the same changes were made to transactions or items subject to the Proposition A Sales Tax. In the future, the California State Legislature or the California State electorate could further change the transactions and items upon which the statewide general sales tax and the Proposition A Sales Tax are imposed. Such a change could either increase or decrease Proposition A Sales Tax revenues depending on the nature of the change. See PROPOSITION A SALES TAX AND COLLECTIONS. Increases in Sales Tax Rate May Cause Declines in Proposition A Sales Tax Revenues Increases in sales tax rates, whether by the electorate of a municipality within the County, the County or the State or by the State Legislature, may affect consumer spending decisions and as a result adversely impact sales transactions in the County and, thereby, reduce Proposition A Sales Tax revenues. Several increases in sales tax rates have occurred in recent years. In November 2008, County voters approved Measure R, which increased the sales tax rate within the County by ½ of 1% for a period of 30 years to fund LACMTA transportation projects and operations. Measure R sales tax revenues are separate from Proposition A Sales Tax revenues and do not secure the First Tier Senior Lien Bonds, including the Series 2014-A Bonds. Collection of the additional sales tax rate commenced July 1, In June 2012, the Board of Directors of LACMTA approved a proposal to extend the Measure R sales tax for 30 years beyond its current expiration date (June 30, 2039). The proposed extension failed to receive the required 2/3 approval of the voters of the County at the November 2012 election. In November 2012, the voters of the State approved an additional ¼ of 1% State general sales tax, which became effective on January 1, 2013 and will expire on December 31, Previously, in 2009, as part of its approval of the State of California s revised budget, the California State Legislature temporarily increased the State s general sales tax rate by 1.0 percent between April 1, 2009 and July 1, Additional increases in sales tax rates, while not currently pending, can be expected to be proposed and imposed, from time to time, in the County of Los Angeles. Increased Internet Use May Reduce Proposition A Sales Tax Revenues The increasing use of the Internet to conduct electronic commerce may affect the levels of Proposition A Sales Tax revenues. Internet sales of physical products by businesses located in the State of California, and Internet sales of physical products delivered to the State of California by businesses located outside of the State of California are generally subject to the retail transactions and use tax imposed by Proposition A. Legislation passed as part of the California Budget Act of 2011 imposes a use tax collection responsibility for certain out-of-state, and particularly Internet, retailers who meet certain criteria. The new responsibility took effect in September However, LACMTA believes that some Internet transactions still may avoid taxation either through error or deliberate non-reporting, and this potentially reduces the amount of Proposition A Sales Tax revenues. Impact of Bankruptcy of LACMTA LACMTA may be authorized under Chapter 9 of the United States Bankruptcy Code to file for Chapter 9 municipal bankruptcy under certain circumstances. Should LACMTA file for bankruptcy, there could be adverse effects on the holders of the Series 2014-A Bonds. If the Proposition A Sales Tax revenues are special revenues under the Bankruptcy Code, then Proposition A Sales Tax revenues collected after the date of the bankruptcy filing should be subject to the lien of the Agreement. Special revenues are defined to include taxes specifically levied to finance one or more projects or systems, excluding receipts from general property, sales, or income taxes levied to finance the general purposes of the governmental entity. If a court determined that the Proposition A Sales Tax was levied to finance the general purposes of LACMTA, rather than specific projects, then the Proposition A Sale Tax revenues would not be special revenues. No assurance can be given that a court would not hold that the Proposition A Sales Tax revenues are not special revenues or that the Series 2014-A Bonds are not of a type protected by the special revenues provisions of the Bankruptcy Code. Were the Proposition A Sales Tax revenues determined not to be special revenues, or were the Series 2014-A Bonds determined to not be protected by the Bankruptcy Code, then Proposition A Sales Tax revenues collected after the commencement of a bankruptcy case would likely not be subject to the lien of the Agreement. The holders of the Series 2014-A Bonds may not be able to assert a claim against any property of LACMTA other than the Proposition A Sales Tax revenues, and were these amounts no longer subject to the lien of the Agreement following commencement of a bankruptcy case, then there could thereafter be no amounts from which the holders of the Series 2014-A Bonds are entitled to be paid. 6

15 The Bankruptcy Code provides that special revenues can be applied to necessary operating expenses of the project or system from which the special revenues are derived, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. The law is not clear as to whether, or to what extent, the Proposition A Sales Tax revenues would be consider to be derived from a project or system. To the extent that the Proposition A Sales Tax revenues are determined to be derived from a project or system, LACMTA may be able to use Proposition A Sales Tax revenues to pay necessary operating expenses, before the remaining Proposition A Sales Tax revenues are turned over to the Trustee to pay amounts owed to the holders of the Series 2014-A Bonds. It is not clear precisely which expenses would constitute necessary operating expenses. If LACMTA is in bankruptcy, the parties (including the Trustee and the holders of the Series 2014-A Bonds) may be prohibited from taking any action to collect any amount from LACMTA or to enforce any obligation of LACMTA, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the holders of the Series 2014-A Bonds from funds in the Trustee s possession. The procedure pursuant to which the Proposition A Sales Tax revenues are paid directly to the Trustee by the California State Board of Equalization may no longer be enforceable, and LACMTA may be able to require that the Proposition A Sales Tax revenues be paid directly to it by the Board of Equalization. If LACMTA has possession of Proposition A Sales Tax revenues (whether collected before or after commencement of the bankruptcy) and if LACMTA does not voluntarily pay such moneys to the Trustee, it is not entirely clear what procedures the Trustee or the holders of the Series 2014-A Bonds would have to follow to attempt to obtain possession of such Proposition A Sales Tax revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. LACMTA may be able to borrow additional money that is secured by a lien on any of its property (including the Proposition A Sales Tax revenues), which lien could have priority over the lien of the Agreement, or to cause some of the Proposition A Sales Tax revenues to be released to it, free and clear of lien of the Agreement, in each case as long as the bankruptcy court determines that the rights of the Trustee and the holders of the Series 2014-A Bonds will be adequately protected. LACMTA may also be able, without the consent and over the objection of the Trustee and the holders of the Series 2014-A Bonds, to alter the priority, principal amount, interest rate, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Agreement and the Series 2014-A Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable. There may be delays in payments on the Series 2014-A Bonds while the court considers any of these issues, and any of these issues could result in delays or reductions in payments on the Series 2014-A Bonds. There may be other possible effects of a bankruptcy of LACMTA that could result in delays or reductions in payments on the Series 2014-A Bonds, or result in losses to the holders of the Series 2014-A Bonds. Regardless of any specific adverse determinations in an LACMTA bankruptcy proceeding, the fact of an LACMTA bankruptcy proceeding could have an adverse effect on the liquidity and market value of the Series 2014-A Bonds. Voter Initiatives and California State Legislative Action May Impair Proposition A Sales Tax Voters have the right to place measures before the electorate in the County or the State of California and the California State Legislature may take actions to limit the collection and use of the Proposition A Sales Tax. Such initiatives or actions may impact various aspects of the security, source of payment and other credit aspects of the Series 2014-A Bonds. See PROPOSITION A SALES TAX AND COLLECTIONS Initiatives and Changes to Proposition A Sales Tax. Risks Related to Variable-Rate Bonds and Interest Rate Swaps LACMTA has issued and may issue in the future First Tier Senior Lien Bonds that bear interest at a variable rate. The First Tier Senior Lien Bonds, including the Series 2014-A Bonds, are limited obligations of LACMTA payable from the Proposition A Sales Tax and certain other amounts held by the Trustee under the Agreement. If any series of First Tier Senior Lien Bonds that bears interest at a variable rate experiences a 7

16 substantial increase in that rate, then that increase may adversely affect the amount of Proposition A Sales Tax revenues available for payment of debt service on the First Tier Senior Lien Bonds, including the Series 2014-A Bonds. LACMTA is party to two interest rate swap agreements that are intended to manage its interest rate exposure with respect to its Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1, Series 2008-A2, Series 2008-A3 and Series 2008-A4. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Second Tier Obligations below. Under each of these interest rate swap agreements, the total notional amount of the respective interest rate swap agreement is equal to the aggregate principal amount of the related bonds. In accordance with the provisions of each of these interest rate swap agreements, LACMTA pays a fixed rate of interest to the applicable counterparty and receives a floating rate of interest from the applicable counterparty that is based on a percentage of the one-month London Interbank Offered Rate for deposits of U.S. dollars. The intended effect of these interest rate swap agreements is to hedge LACMTA s exposure to the volatility of interest rates. Although LACMTA has entered into these interest rate swap agreements to hedge its exposure to the volatility of interest rates, amounts that LACMTA receives under these interest rate swap agreements do not constitute Pledged Revenues. If interest rates on the variable rate First Tier Senior Lien Bonds increase, so will the amounts of debt service that LACMTA will need to pay on the First Tier Senior Lien Bonds. LACMTA has no obligation to offset that increase by applying amounts it receives under the interest rate swap agreements to the payment of debt service on the First Tier Senior Lien Bonds, including the Series 2014-A Bonds. Accordingly, the holders of the First Tier Senior Lien Bonds cannot rely on these interest rate swap agreements to hedge the risk of interest rate volatility of any series of First Tier Senior Lien Bonds issued as variable rate bonds. In addition, these interest rate swap agreements entail risk to LACMTA. The swap counterparties (Bank of Montreal and Deutsche Bank AG, New York Branch) may fail or be unable to perform, interest rates may vary from assumptions or LACMTA may be required to post collateral in favor of its counterparties (which LACMTA is currently doing) or to make significant payments to its counterparties in the event of an early termination of an interest rate swap. Such termination payments would be secured by a lien on certain remaining Proposition A Sales Tax revenues on a basis subordinate to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds). An early termination of an interest rate swap agreement could occur due to a default by either party or the occurrence of a termination event. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Second Tier Obligations in this Official Statement for further discussion of these interest rate swap agreements. General DESCRIPTION OF THE SERIES 2014-A BONDS The Series 2014-A Bonds are limited obligations of LACMTA to be issued pursuant to and secured under the Agreement. In connection with the issuance of the Series 2014-A Bonds, LACMTA will enter into the Series 2014-A Supplemental Agreement to provide for the issuance of the Series 2014-A Bonds and related matters. The Series 2014-A Bonds will bear interest at the rates and mature in the amounts and on the dates shown on the inside cover of this Official Statement. LACMTA will pay interest on each January 1 and July 1, beginning July 1, Interest on the Series 2014-A Bonds will be calculated on the basis of a 360 day year consisting of twelve 30 day months. The Series 2014-A Bonds will be issued in full-registered form in denominations of $5,000 or any integral multiple thereof. Upon initial issuance, the Series 2014-A Bonds will be registered in the name of Cede & Co. as registered owner and nominee of DTC. As long as the Series 2014-A Bonds are registered in such name or in the name of a successor nominee, the ownership of the Series 2014-A Bonds will be evidenced by book-entry as described in APPENDIX G BOOK-ENTRY-ONLY SYSTEM. Purchasers will not receive certificated Series 8

17 2014-A Bonds. So long as Cede & Co. is the registered owner of the Series 2014-A Bonds, reference herein to the Bondholders or registered owners will mean Cede & Co. as aforesaid and will not mean the Beneficial Owners (as defined herein) of the Series 2014-A Bonds. So long as Cede & Co. is the registered owner of the Series 2014-A Bonds, principal and redemption price of and interest on the Series 2014-A Bonds are payable by wire transfer of funds by the Trustee to Cede & Co., as nominee of DTC. DTC is obligated, in turn, to remit such amounts to its participants as described herein for subsequent disbursement to the Beneficial Owners. If the Series 2014-A Bonds cease to be held by DTC or by a successor securities depository, the principal and redemption price of the Series 2014-A Bonds will be payable at maturity or earlier redemption upon presentation and surrender of the Series 2014-A Bonds at the principle office or agency of the Trustee, and interest on the Series 2014-A Bonds will be payable by check mailed by first class mail on each Interest Payment Date to the Owners of the Series 2014-A Bonds as of the Regular Record Date; provided, that Owners of $1,000,000 or more in aggregate principal amount of Series 2014-A Bonds may arrange for payment by wire transfer of immediately available funds upon written request given to the Trustee at least 15 days prior to an Interest Payment Date. Redemption Optional Redemption of the Series 2014-A Bonds. The Series 2014-A Bonds are subject to redemption at the option of LACMTA on or after July 1, 2024, in whole or in part, in denominations of $5,000 (in such amounts and maturities as may be specified by LACMTA, or if LACMTA fails to specify such maturities, in inverse order of maturity), by lot within a maturity at any time, from any moneys that may be provided for such purpose and at a redemption price of 100% of the principal amount of such Series 2014-A Bonds to be redeemed, plus accrued interest to the date fixed for redemption, without premium. Selection of Series 2014-A Bonds to Be Redeemed; Notice of Redemption. If the Series 2014-A Bonds are redeemed at the option of LACMTA, it will select the maturities of the Series 2014-A Bonds to be redeemed. If less than all of the Series 2014-A Bonds of a maturity are to be redeemed, and the Series 2014-A Bonds are not held by DTC, the Trustee will select by lot, in such manner as the Trustee deems appropriate, the particular Series 2014-A Bonds or portions thereof to be redeemed. See also APPENDIX G BOOK-ENTRY-ONLY SYSTEM. The Trustee is required to give notice of redemption to the registered owners affected by such redemption at least 30 days but not more than 60 days before each redemption date, and to send such notice of redemption by first-class mail (or, with respect to Series 2014-A Bonds held by DTC, by an express delivery service for delivery on the next following Business Day). Each notice of redemption will specify the Series 2014-A Bonds to be redeemed; the redemption date; the CUSIP numbers of the Series 2014-A Bonds to be redeemed, the redemption price and the place or places where amounts due upon such redemption will be payable and if less than all of the Series 2014-A Bonds are to be redeemed, the numbers of the Series 2014-A Bonds and the portions of Series 2014-A Bonds to be redeemed; any condition to the redemption; and that on the redemption date, and upon the satisfaction of any such condition, the Series 2014-A Bonds to be redeemed shall cease to bear interest. If at the time of mailing of notice of an optional redemption moneys sufficient to redeem all the Series 2014-A Bonds called for redemption have not been deposited with the Trustee, at the election of LACMTA such notice may state that it is conditional, that is, subject to the deposit of the redemption moneys with the Trustee not later than the opening of business one Business Day prior to the scheduled redemption date, and such notice will be of no effect unless such moneys are so deposited. In the event sufficient moneys are not on deposit on the required date, then the redemption will be canceled and on such cancellation date notice will be mailed to the holders of such Series 2014-A Bonds to be redeemed in the same manner as the notice of redemption. Failure to give any required notice of redemption or any defect therein will not affect the validity of the call for redemption of any Series 2014-A Bonds in respect of which no failure or defect occurs. Any notice sent as provided above will be conclusively presumed to have been given whether or not actually received by the addressee. Effect of Redemption. If notice is given as described above under Selection of Series 2014-A Bonds to be Redeemed; Notice of Redemption and the moneys for payment of the redemption price are on deposit with the Trustee, the Series 2014-A Bonds called for redemption will be due and payable on the redemption date, interest on 9

18 such Series 2014-A Bonds will cease to accrue after such date, such Series 2014-A Bonds will cease to be entitled to any lien, benefit or security under the Agreement, and the registered owners of the redeemed Series 2014-A Bonds will have no rights under the Agreement after the redemption date other than the right to receive the redemption price for such Series 2014-A Bonds. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Security for the Series 2014-A Bonds The Series 2014-A Bonds are limited obligations of LACMTA payable from and secured by a first lien on and a pledge of the Pledged Revenues, which are moneys collected as a result of the imposition of the Proposition A Sales Tax, less 25% thereof which constitutes the Local Allocation and less an administrative fee paid to the State Board of Equalization in connection with the collection and disbursement of the Proposition A Sales Tax. In addition, the Series 2014-A Bonds are secured by all other amounts held by the Trustee under the Agreement except for amounts held in any rebate fund and any escrow fund. Additionally, the Agreement provides that Pledged Revenues also include any Local Allocation that a local jurisdiction authorizes to be pledged to secure the Series 2014-A Bonds, plus such additional sources of revenue, if any, which are hereafter pledged to pay the Series 2014-A Bonds under a subsequent supplemental trust agreement. As of the date of this Official Statement, no local jurisdiction has pledged any of its Local Allocation to secure any bonds issued under the Agreement, including the Series 2014-A Bonds. Pledged Revenues do not include any Proposition A Sales Tax revenues that are released by the Trustee to (a) the payment of the Second Tier Obligations (as defined herein), (b) the payment of the Proposition A Commercial Paper Notes, or (c) LACMTA for the payment, if necessary, of the General Revenue Bonds (as defined herein) and certain other amounts described herein and any other lawful purposes of LACMTA. Neither the faith and credit nor the taxing power of the County, the State of California or any political subdivision or agency thereof, other than LACMTA to the extent of the Pledged Revenues and certain other amounts held by the Trustee under the Agreement, is pledged to the payment of the principal of or interest on the Series 2014-A Bonds. LACMTA has no power to levy property taxes to pay the principal of or interest on the Series 2014-A Bonds. The Series 2014-A Bonds are limited obligations of LACMTA and are payable, both as to principal and interest, solely from a first lien on and pledge of the Pledged Revenues and certain other amounts held by the Trustee under the Agreement. Other than Pledged Revenues and such other amounts held by the Trustee under the Agreement, the general fund of LACMTA is not liable, and neither the credit nor the taxing power of LACMTA is pledged, to the payment of the principal of or interest on the Series 2014-A Bonds. Proposition A Sales Tax Obligations LACMTA has outstanding a variety of obligations that are payable from the Proposition A Sales Tax, including sales tax revenue bonds, commercial paper notes and certain amounts owed under interest rate swap agreements, letter of credit reimbursement agreements, pledge agreements and covenant agreements. At this time, LACMTA has three priority levels of obligations secured by the Proposition A Sales Tax: its First Tier Senior Obligations (which include all First Tier Senior Lien Bonds (including the Series 2014-A Bonds)), its Second Tier Obligations (which include certain payments under interest rate swap agreements and certain other obligations) and its Third Tier Obligations (which include the Proposition A Commercial Paper Notes and related obligations). Additionally, LACMTA has incurred other obligations which are secured by certain remaining Proposition A Sales Tax cash receipts. LACMTA has the ability to issue additional obligations that are payable from the Proposition A Sales Tax if it satisfies certain tests. See PROPOSITION A SALES TAX OBLIGATIONS. Flow of Funds Pursuant to an agreement between LACMTA and the State Board of Equalization, the State Board of Equalization is required to remit monthly directly to the Trustee the Proposition A Sales Tax revenues after deducting the State Board of Equalization s costs of administering the Proposition A Sales Tax and after paying directly to LACMTA the Local Allocation (25% of net Proposition A Sales Tax cash receipts) (which for purposes 10

19 of administrative ease is actually transferred first to the Trustee who then disburses the Local Allocation to LACMTA). Under the Agreement, the Trustee is required to deposit and apply the moneys received from the State Board of Equalization, as needed (75% of net Proposition A Sales Tax cash receipts), taking into consideration any other funds previously deposited or applied in such month for such purposes, as follows: FIRST, to the credit of the Bond Interest Account for the First Tier Senior Lien Bonds, an amount equal to the Aggregate Accrued Interest for the current calendar month less any Excess Deposit made with respect to the last preceding calendar month plus any Deficiency existing on the first day of the calendar month plus any amount of interest which has become due and has not been paid and for which there are insufficient funds in the Bond Interest Account or another special account to be used to make such payment; SECOND, to the credit of the Bond Principal Account for the First Tier Senior Lien Bonds, the Aggregate Accrued Principal for the current calendar month plus any Accrued Premium and any Deficiency existing on the first day of the calendar month plus any amount of principal which has become due and has not been paid and for which there are insufficient funds in the Bond Principal Account or another special account to be used to make such payment; THIRD, to the credit of the Reserve Fund for the First Tier Senior Lien Bonds, such portion of the balance, if any, remaining after making the deposits to the Bond Interest Account and the Bond Principal Account described above, as is necessary to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Fund Requirement for the First Tier Senior Lien Bonds, or if the entire balance is less than the amount necessary, then the entire balance will be deposited into the Reserve Fund; provided, however, that so long as any Reserve Fund Insurance Policy is in effect and the Reserve Insurer is not in default of its obligations thereunder, the Trustee will pay the Reserve Insurer the greater of (i) the minimum amount required to be paid in accordance with the provisions of such Reserve Fund Insurance Policy and any related agreements between LACMTA and the Reserve Insurer, or (ii) the amount necessary to reinstate the amount available to be drawn under such Reserve Fund Insurance Policy in order to meet the Reserve Fund Requirement for the First Tier Senior Lien Bonds (see Reserve Fund for First Tier Senior Lien Bonds below); FOURTH, to make deposits for the payment of Second Tier Obligations; provided that the Trustee may not use any portion of the remaining allocation for the Rail Development Program (See Table 2 Proposition A Sales Tax Apportionment ) to make payments under the Pledge Agreements; and FIFTH, to pay any remaining amount to the trustee under a subordinate trust agreement in such amounts and at such times as will be needed to provide for payment of such obligations in accordance with a Supplemental Trust Agreement or Supplemental Trust Agreements relating to such subordinate debt, including but not limited to the obligation of LACMTA with respect to the Proposition A Commercial Paper Notes described herein (including the reimbursement obligations of LACMTA related to letters of credit for such Proposition A Commercial Paper Notes). Any remaining funds will then be transferred to LACMTA and will be available to be used for any lawful purpose. Any Pledged Revenues after making deposits First through Fourth above will no longer be available to pay debt service on the First Tier Senior Lien Bonds. LACMTA has granted pledges on the remaining Proposition A Sales Tax revenues to payment of and reserve requirements for the General Revenue Bonds, termination payments under the Series 2008-A Swap Agreements and fees and other amounts owed under covenant agreements for the Index Interest Rate Bonds (as defined herein). See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Other Obligations for definitions of the capitalized terms used in the preceding sentence. After the payment of the General Revenue Bonds, LACMTA may use any remaining Proposition A Sales Tax revenues in accordance with the provisions of Ordinance No. 16 (as defined herein). Table 1 on the following page provides a graphic presentation of the flow of funds for Proposition A Sales Tax cash receipts as of the date of issuance of the Series 2014-A Bonds. 11

20 TABLE 1 Proposition A Sales Tax Flow of Funds Proposition A Sales Tax State Board of Equalization 25% of Net Sales Tax Cash Receipts (Local Allocation) 75% of Net Sales Tax Cash Receipts Trustee (First Tier Senior Obligations) To the Trustee who transfers such amounts to LACMTA (To be utilized for Local Allocation) Bond Interest Account (First Tier Senior Obligations) Bond Principal Account (First Tier Senior Obligations) Reserve Fund (First Tier Senior Obligations) Second Tier Subordinate Lien Obligation Fund (Second Tier Obligations) Commercial Paper Notes (Third Tier Obligations) (Transferred to Commercial Paper Trustee) To LACMTA for payment of General Revenue Bonds, certain swap termination payments and fees and other amounts under covenant agreements To LACMTA for any lawful purposes Also includes reimbursement obligations of LACMTA related to letters of credit for such Commercial Paper Notes. 12

21 Reserve Fund for First Tier Senior Lien Bonds General. Pursuant to the Agreement, the Reserve Fund was established and is held by the Trustee and used to make payments of principal and interest with respect to all First Tier Senior Lien Bonds, including the Series 2014-A Bonds, to the extent amounts in the Bond Interest Account or the Bond Principal Account are not sufficient to pay in full the interest on or principal of the First Tier Senior Lien Bonds when due. The Reserve Fund is required to be funded in an amount equal to the Reserve Fund Requirement, which is generally Maximum Annual Debt Service on outstanding First Tier Senior Lien Bonds. See APPENDIX D SUMMARY OF LEGAL DOCUMENTS; DEFINITIONS DEFINITIONS Reserve Fund Requirement for the complete definition of Reserve Fund Requirement. Under the terms of the Agreement, LACMTA may substitute an insurance policy provided by a bond insurer or a letter of credit in lieu of or in partial substitution for cash or securities deposited in the Reserve Fund in order to meet the Reserve Fund Requirement. The entity providing a Reserve Fund Insurance Policy must be rated, at the time such policy is issued, in one of the two highest classifications by Moody s Investors Service Inc. ( Moody s ) and Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). The Agreement provides that any Reserve Fund Insurance Policy is to be valued at its face value less any unreimbursed drawings (of which there currently are none). See APPENDIX D SUMMARY OF LEGAL DOCUMENTS; DEFINITIONS DEFINITIONS Reserve Fund Insurance Policy. On the date of delivery of the Series 2014-A Bonds, the Reserve Fund Requirement is expected to equal approximately $140,000,000, which will be satisfied in part by the AGM Reserve Policy with a policy limit of $85,500,000, with the balance satisfied by cash and investments held in the Reserve Fund totaling approximately $55,500,000. The Reserve Fund Requirement is satisfied without taking into account the FGIC Reserve Policy described below. AGM Reserve Policy. Generally, the AGM Reserve Policy unconditionally and irrevocably guarantees the payment of that portion of the principal of and interest on the First Tier Senior Lien Bonds that becomes due for payment but is unpaid by reason of nonpayment by LACMTA. Nonpayment means, in respect of a First Tier Senior Lien Bond, the failure of LACMTA to have provided sufficient funds for the payment in full of all principal and interest that is due for payment on such First Tier Senior Lien Bond. Nonpayment also includes any payment of principal or interest that is due for payment made to an Owner by or on behalf of LACMTA that has been recovered from such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The AGM Reserve Policy does not cover payments due as a result of optional redemption or acceleration of a First Tier Senior Lien Bond or payments of purchase price on tendered First Tier Senior Lien Bonds. The AGM Reserve Policy will terminate on July 1, The AGM Reserve Policy is noncancellable and the premium therefor has been paid in full. The cash and investments that are expected to be in the Reserve Fund as of the date of delivery of the Series 2014-A Bonds are in an amount at least sufficient to satisfy the Reserve Fund Requirement until July 1, 2021 with respect to the First Tier Senior Lien Bonds that will be outstanding as of the date of delivery of the Series 2014-A Bonds (excluding any future issuances of First Tier Senior Lien Bonds and assuming debt service is paid on the outstanding First Tier Senior Lien Bonds as scheduled). Assuming scheduled debt service on the First Tier Senior Lien Bonds that will be outstanding as of the date of delivery of the Series 2014-A Bonds (excluding any future issuances of additional First Tier Senior Lien Bonds and assuming debt service is paid on the outstanding First Tier Senior Lien Bonds as scheduled), an additional deposit to the Reserve Fund is expected to be required to be made on (or before) July 1, Such a deposit may also be required in the event that LACMTA issues additional First Tier Senior Lien Bonds in the future or does not pay debt service on First Tier Senior Lien Bonds as scheduled. The AGM Reserve Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law or by the California Insurance Guaranty Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code. 13

22 If LACMTA fails to reimburse AGM for draws on the AGM Reserve Policy or to pay expenses and accrued interest thereon, AGM is entitled to exercise any remedies available to it, including those provided under the Agreement, other than (i) acceleration of the First Tier Senior Lien Bonds, or (ii) remedies which would adversely affect holders of the First Tier Senior Lien Bonds. In addition, LACMTA and the Trustee have agreed with AGM that all cash and investments on deposit in the Reserve Fund will be used to pay debt service on the First Tier Senior Lien Bonds prior to any drawing on the AGM Reserve Policy or any other Reserve Policy and that draws on Reserve Policies will be made on a pro rata basis. Further, draws on the AGM Reserve Policy and any other Reserve Policy are required to be reimbursed on a pro rata basis prior to the replenishment of any cash withdrawn from the Reserve Fund. Assured Guaranty Municipal Corp. LACMTA makes no representation as to the accuracy or the completeness of such information or as to the absence of material adverse changes in such information. Additionally, LACMTA undertakes no responsibility for and makes no representations as to the accuracy or the completeness of the content of any material contained on the SEC s website or AGL s (as defined herein) website as described in this section including, but not limited to, updates of such information or links to other Internet sites accessed through the aforementioned websites. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA )and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s longterm rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On November 13, 2014, KBRA assigned an insurance financial strength rating of AA+ (stable outlook) to AGM. AGM can give no assurance as to any further ratings action that KBRA may take. On July 2, 2014, S&P issued a credit rating report in which it affirmed AGM s financial strength rating of AA (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On July 2, 2014, Moody s issued a rating action report stating that it had affirmed AGM s insurance financial strength rating of A2 (stable outlook). AGM can give no assurance as to any further ratings action that Moody s may take. 14

23 For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At September 30, 2014, AGM s policyholders surplus and contingency reserve were approximately $3,683 million and its net unearned premium reserve was approximately $1,810 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM s indirect subsidiary Municipal Assurance Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: i. the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (filed by AGL with the SEC on February 28, 2014); ii. the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (filed by AGL with the SEC on May 9, 2014); iii. the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (filed by AGL with the SEC on August 8, 2014)and iv. the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 (filed by AGL with the SEC on November 7, 2014). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Reserve Fund for First Tier Senior Lien Bonds- Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM or one of its affiliates may purchase a portion of the Bonds or any uninsured bonds offered under this Official Statement and such purchases may constitute a significant proportion of the bonds offered. AGM or such 15

24 affiliate may hold such Bonds or uninsured bonds for investment or may sell or otherwise dispose of such Bonds or uninsured bonds at any time or from time to time. AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom. FGIC Reserve Policy. Concurrently with the issuance of the Proposition A Sales Tax Revenue Refunding Bonds, Series 1991B on December 4, 1991, Financial Guaranty Insurance Company ( Financial Guaranty ), issued the FGIC Reserve Policy in an amount not to exceed the lesser of $111,463, or the Reserve Fund Requirement. The FGIC Reserve Policy terminates on July 1, The amount of cash and other investments in the Reserve Fund together with the AGM Reserve Policy satisfy the Reserve Fund Requirement without taking into account the FGIC Reserve Policy. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Reserve Fund for First Tier Senior Lien Bonds- Assured Guaranty Municipal Corp. FGIC is a New York stock insurance corporation and a wholly owned subsidiary of FGIC Corporation. FGIC emerged from rehabilitation on August 19, 2013, and is responsible for administering its outstanding insurance policies in accordance with the terms of the First Amended Plan of Rehabilitation for FGIC, dated June 4, As part of the Rehabilitation Plan, FGIC entered into a Novation Agreement dated as of September 14, 2012 (the Novation Agreement ) with National Public Finance Guarantee Corporation ( National Public ), pursuant to which the parties agreed to novate from FGIC to National Public certain FGIC policies covering U.S. public finance credits with total net par in force of approximately $92.6 billion as of the Effective Date, including the FGIC Reserve Policy, which previously had been reinsured by National Public (collectively, the National Public Reinsured Policies ). The novation of the National Public Reinsured Policies and the other transactions contemplated by the Novation Agreement became effective on the Effective Date, whereupon (i) National Public rather than FGIC) became the issuer of the National Public Reinsured Policies and became directly responsible for all obligations under the National Public Reinsured Policies and (ii) FGIC was released from all obligations under the National Public Reinsured Policies. No review of the business or affairs of Financial Guaranty has been conducted in connection with the issuance of the Series 2014-A Bonds. This Official Statement does not contain any financial information about Financial Guaranty or the FGIC Reserve Policy and does not refer to any such information that may be available elsewhere, and Financial Guaranty has not reviewed or approved this Official Statement. Both before and after the occurrence of a payment or other default by LACMTA in respect of the Series 2014-A Bonds, National Public may be entitled to exercise certain rights and remedies pursuant to the Agreement and a debt service reserve policy agreement with LACMTA; such remedies will not include acceleration or remedies which would adversely affect the holders of First Tier Senior Lien Bonds. While the FGIC Reserve Policy remains in effect, and so long as National Public is not in default with respect to its obligations thereunder, National Public will be entitled to consent to certain changes in documents, and if past due amounts are owing to National Public under the FGIC Reserve Policy, National Public will have the right to consent to the issuance of additional First Tier Senior Lien Bonds. The interests of National Public and the interests of the Bondholders may not be aligned with respect to these matters. Additional First Tier Senior Lien Bonds Upon compliance with the terms of the Agreement, LACMTA is permitted to issue Additional First Tier Senior Lien Bonds under the Agreement secured by Pledged Revenues on a parity basis with the Outstanding First Tier Senior Lien Bonds. First Tier Senior Lien Bonds may be issued for any purpose for which LACMTA at the time of issuance may incur debt, including, if LACMTA may then otherwise do so, for the purpose of loaning the proceeds to other entities. Pursuant to the Agreement, prior to issuance of any First Tier Senior Lien Bonds, including the issuance of the Series 2014-A Bonds, there will be delivered to the Trustee, in addition to other items, a certificate prepared by a Consultant showing that 35% (or such greater percentage permitted by the immediately following paragraph) of the 16

25 Proposition A Sales Tax collected for any 12 consecutive months out of the 15 consecutive months immediately preceding the issuance of the proposed First Tier Senior Lien Bonds was at least equal to 115% of Maximum Annual Debt Service for all First Tier Senior Lien Bonds which will be outstanding immediately after the issuance of the proposed First Tier Senior Lien Bonds. This covenant, combined with the fact that 75% of the Proposition A Sales Tax collected is available to LACMTA and pledged to debt service, creates an additional bonds test effectively requiring that Pledged Revenues be at least 2.46 times Maximum Annual Debt Service. If any city entitled to receive a Local Allocation has authorized the pledging of all or a portion of its share of the Local Allocation to secure the First Tier Senior Lien Bonds, the duration of such pledge is not less than the term of any First Tier Senior Lien Bonds then issued and Outstanding or currently proposed to be issued, and a certified copy of the city s ordinance, resolution or other official action authorizing the pledge and setting forth the terms of such pledge and a written opinion of bond counsel that the pledge of such portion of the Local Allocation is a valid pledge of LACMTA have been filed with the Trustee, then the reference to 35% in the immediately preceding paragraph will be replaced with the percentage which is equal to 35% plus the percentage determined by dividing the amount of the Local Allocation then included in Pledged Tax by the total Proposition A Sales Tax. For purposes of the comparisons set forth in the Consultant s certificate, the actual historical Proposition A Sales Tax revenues may be adjusted by the Consultant if there has been or upon the issuance of the proposed First Tier Senior Lien Bonds there will be a change in the base upon which the Proposition A Sales Tax is imposed, the Proposition A Sales Tax revenues for the 12 months used in the comparisons will be adjusted to reflect the amount of Proposition A Sales Tax revenues which would have resulted had the change in the base occurred on the first day of such 12 month period. Under the Agreement, Maximum Annual Debt Service generally means the greatest amount of principal and interest becoming due and payable on all First Tier Senior Lien Bonds in the fiscal year in which the calculation is made or in any subsequent fiscal year. However, if LACMTA issues variable rate bonds and enters into an interest rate swap agreement related to any First Tier Senior Lien Bonds, the Agreement permits LACMTA to use the fixed rate it pays under the interest rate swap agreement for purposes of determining the maximum amount of interest becoming due and payable on such First Tier Senior Lien Bonds. For a description of the interest rate swap agreements LACMTA has entered into and the First Tier Senior Lien Bonds to which such agreements relate, see PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Second Tier Obligations. For the definition of Maximum Annual Debt Service, see APPENDIX D SUMMARY OF LEGAL DOCUMENTS; DEFINITIONS. The certificate described above will not be required, however, if the Additional First Tier Senior Lien Bonds to be issued are being issued for the purpose of refunding then Outstanding First Tier Senior Lien Bonds and there is delivered to the Trustee, instead, a certificate of the Authorized Authority Representative showing that Maximum Annual Debt Service on all First Tier Senior Lien Bonds Outstanding after the issuance of the refunding First Tier Senior Lien Bonds will not exceed Maximum Annual Debt Service on all First Tier Senior Lien Bonds Outstanding prior to the issuance of such First Tier Senior Lien Bonds. The Proposition A Sales Tax PROPOSITION A SALES TAX AND COLLECTIONS Under the California Public Utilities Code, LACMTA is authorized to adopt retail transactions and use tax ordinances applicable in the incorporated and unincorporated territory of the County in accordance with California s Transaction and Use Tax Law (California Revenue and Taxation Code Section 7251 et seq.), upon authorization by a specified percentage of the electors voting on the issue. In accordance with the County Transportation Commissions Act (Section et seq. of the California Public Utilities Code (the Transportation Commissions Act )), the Commission (as predecessor to LACMTA), on August 20, 1980, adopted Ordinance No. 16 ( Ordinance No. 16 ) which imposed a retail transactions and use tax. Ordinance No. 16 was submitted to the electors of the County in the form of Proposition A and approved at an election held on November 4, Ordinance No. 16 imposes a tax of 1/2 of 1% of the gross receipts of retailers from the sale of tangible personal property sold at retail 17

26 in the County and a use tax at the same rate upon the storage, use or other consumption in the County, subject to certain limited exceptions. The retail transactions and use tax imposed by Ordinance No. 16 and approved by the voters with the passage of Proposition A is referred to in this Official Statement as the Proposition A Sales Tax. As approved by the voters, the Proposition A Sales Tax is not limited in duration. The validity of the Proposition A Sales Tax was upheld in 1982 by the California Supreme Court in Los Angeles County Transportation Commission v. Richmond. See LITIGATION. Collection of the Proposition A Sales Tax is administered by the State Board of Equalization, which imposes a charge for administration. Such charge is based on the actual costs incurred by the State Board of Equalization in connection with the administration of the collection of the Proposition A Sales Tax. In accordance with Ordinance No. 16, LACMTA is required to allocate the proceeds of the Proposition A Sales Tax as follows: TABLE 2 Proposition A Sales Tax Apportionment Use Percentage Local Allocation 25% Rail Development Program 1 35 Discretionary 40 TOTAL 100% 2 1 Pursuant to the Act of 1998 (as defined herein) LACMTA is prohibited from spending Proposition A Sales Tax revenues on the costs of planning, design, construction or operation of any New Subway (as defined herein), including debt service on bonds, notes or other evidences of indebtedness issued for such purposes after March 30, See Initiatives and Changes to Proposition A Sales Tax The Act of 1998 below. 2 Up to 5% of the Proposition A Sales Tax revenues received by LACMTA may be used by LACMTA to pay administrative costs. Administrative costs are payable only from Proposition A Sales Tax revenues that have been released to LACMTA and are no longer Pledged Revenues. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Flow of Funds above. Source: LACMTA. As described below, the State Board of Equalization has agreed to remit directly on a monthly basis the remaining Proposition A Sales Tax revenues to the Trustee after deducting the costs of administering the Proposition A Sales Tax and disbursing the Local Allocation to LACMTA (which for purposes of administrative ease, is first transferred to the Trustee who then disburses the Local Allocation to LACMTA). After application of Proposition A Sales Tax revenues to the funds and accounts related to the First Tier Senior Lien Bonds in accordance with the Agreement, the Trustee is required to transfer the remaining unapplied Proposition A Sales Tax revenues for deposit to the funds and accounts established and maintained for the Second Tier Obligations and the Proposition A Commercial Paper Notes and related obligations. Any Proposition A Sales Tax revenues remaining after the deposits described above are required to be released to LACMTA to be used by LACMTA first, if necessary, to pay debt service on the General Revenue Bonds, termination payments under the Series 2008-A Swap Agreements and fees and other amounts owed under covenant agreements for the Index Interest Rate Bonds (as defined herein), and second, for any lawful purposes of LACMTA. The First Tier Senior Lien Bonds do not have a lien on and are not secured by any Proposition A Sales Tax revenues that are released by the Trustee and deposited to the funds and accounts established and maintained for the Second Tier Obligations or the Proposition A Commercial Paper Notes or that are transferred to LACMTA to be used to pay debt service on the General Revenue Bonds, termination payments under the Series 2008-A Swap Agreements and fees and other amounts owed under covenant agreements for the Index Interest Rate Bonds, or for any lawful purposes of LACMTA. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Second Tier Obligations and Other Obligations below for definitions of certain of the capitalized terms used in the preceding sentence. The amount retained by the State Board of Equalization from collections of Proposition A Sales Tax is based on the total local entity cost reflected in the annual budget of the State of California, and includes direct, shared and central agency costs incurred by the State Board of Equalization. The amount retained by the State Board of Equalization is adjusted to account for the difference between the State Board of Equalization s recovered costs 18

27 and its actual costs during the prior two fiscal years. For fiscal years 2012 through 2014, the State Board of Equalization s fee for administering the Proposition A Sales Tax was as follows: TABLE 3 Fee for Administering the Proposition A Sales Tax Fiscal Year Ended (June 30) Percentage of Proposition A Sales Tax Revenues Fee ($ s in millions) 2012 $ % 2013 $ % 2014 $ % LACMTA assumes that such State Board of Equalization fee may increase incrementally each year. The State Board of Equalization can change the fee at its discretion in the future. Under the Agreement, LACMTA has covenanted that (a) it will not take any action which will impair or adversely affect in any manner the pledge of the Pledged Revenues or the rights of the holders of the First Tier Senior Lien Bonds, including the Series 2014-A Bonds; and (b) it will be unconditionally and irrevocably obligated, so long as any of the First Tier Senior Lien Bonds, including the Series 2014-A Bonds, are outstanding and unpaid, to take all lawful action necessary or required to continue to entitle LACMTA to receive the Pledged Revenues at the same rates as provided by law (as of the date of the Agreement), to pay from the Pledged Revenues the principal of and interest on the First Tier Senior Lien Bonds in the manner and pursuant to the priority set forth in the Agreement, and to make the other payments provided for in the Agreement. Under the LACMTA Act, the State of California pledges to, and agrees with, the holders of any bonds issued under the LACMTA Act and with those parties who may enter into contracts with LACMTA pursuant to the LACMTA Act that the State of California will not limit or alter the rights vested by the LACMTA Act in LACMTA until such bonds, together with the interest thereon, are fully met and discharged and the contracts are fully performed on the part of LACMTA. However, such pledge and agreement does not preclude the State of California from changing the transactions and items subject to the statewide general sales tax and thereby altering the amount of Proposition A Sales Tax collected. See RISK FACTORS California State Legislature or Electorate May Change Items Subject to Proposition A Sales Tax. The 1/2 of 1% Proposition A Sales Tax imposed by LACMTA in the County is in addition to the general sales tax levied statewide by the State of California (currently 7.5%), the 1/2 of 1% sales tax imposed by LACMTA pursuant to Ordinance No. 49 of the Commission known as Proposition C (such sales tax is referred to herein as the Proposition C Sales Tax ), the 30-year 1/2 of 1% sales tax approved by County voters in November 2008 to fund LACMTA transportation projects and operations known as the Measure R Sales Tax, and the taxes that apply only within certain cities in the County. The cities of Avalon, Commerce, Culver City, El Monte, Inglewood, San Fernando, Santa Monica and South El Monte in the County have each enacted a sales tax of 1/2 of 1% applicable to transactions within their respective city limits, and the cities of La Mirada, Pico Rivera and South Gate in the County have each enacted a sales tax of 1% applicable to transactions within their respective city limits. The combined various sales taxes described above results in (a) transactions within the County, and outside the cities of Avalon, Commerce, Culver City, El Monte, Inglewood, San Fernando, Santa Monica, South El Monte, La Mirada, Pico Rivera and South Gate, currently being taxed at an effective rate of 9%, (b) transactions within the cities of Avalon, Commerce, Culver City, El Monte, Inglewood, San Fernando, Santa Monica and South El Monte currently being taxed at an effective rate of 9.5%, and (c) transactions within the cities of La Mirada, Pico Rivera and South Gate currently being taxed at an effective rate of 10%. These tax rates and the items subject to the Proposition A Sales Tax are subject to change. See RISK FACTORS California State Legislature or Electorate May Change Items Subject to Proposition A Sales Tax and Increases in Sales Tax Rate May Cause Declines in Proposition A Sales Tax Revenues. See also APPENDIX A THE LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY OUTSTANDING DEBT. 19

28 Initiatives and Changes to Proposition A Sales Tax Proposition 218. In 1996, the voters of the State of California approved Proposition 218, known as the Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the California State Constitution. Among other things, Article XIIIC removes limitations, if any, that exist on the initiative power in matters of local taxes, assessments, fees and charges. Even though LACMTA s enabling legislation did not limit the initiative power of the electorate prior to Proposition 218, Proposition 218 has affirmed the right of the voters to propose initiatives that could impact the Proposition A Sales Tax. The Act of One such initiative was approved by the voters of the County in 1998 in the form of the Metropolitan Transportation Authority Reform and Accountability Act of 1998 (the Act of 1998 ). The Act of 1998 prohibits the use of Proposition A Sales Tax and Proposition C Sales Tax (but not the use of Measure R Sales Tax) to pay any costs of planning, design, construction or operation of any New Subway, including debt service on bonds, notes or other evidences of indebtedness issued for such purposes after March 30, New Subway is defined in the Act of 1998 to mean any rail line which is in a tunnel below the grade level of the earth s surface (including any extension or operating segment thereof), except for Segment 1, Segment 2 and Segment 3 (North Hollywood) of the Red Line. The Act of 1998 does not limit the use of Proposition A Sales Tax or Proposition C Sales Tax revenues to provide public mass transit improvements to railroad right of ways. The Act of 1998 does not limit in any way the collection of the Proposition A Sales Tax or the Proposition C Sales Tax; it only limits the uses of such taxes. LACMTA believes that the proceeds of all obligations previously issued by LACMTA which are secured by the Proposition A Sales Tax and/or the Proposition C Sales Tax have been used for permitted purposes under the Act of Therefore, the Act of 1998 has no effect on LACMTA s ability to continue to use the Proposition A Sales Tax or the Proposition C Sales Tax to secure payment of its outstanding obligations secured by the Proposition A Sales Tax or the Proposition C Sales Tax. Additionally, LACMTA will covenant not to use the proceeds of the Series 2014-A Bonds in a manner inconsistent with the provisions of the Act of 1998, and the Act of 1998 will not limit the ability of LACMTA to secure payment of the Series 2014-A Bonds with a pledge of the Proposition A Sales Tax. As required by the Act of 1998, LACMTA contracted with an independent auditor to complete an audit with respect to the receipt and expenditure of Proposition A Sales Tax and Proposition C Sales Tax between the effective dates of Proposition A and Proposition C and June 30, The independent auditor completed the audit in November The Act of 1998 further requires LACMTA to contract for an independent audit each subsequent fiscal year to determine LACMTA s compliance with the provisions of Proposition A, Proposition C and the Act of 1998 relating to the receipt and expenditure of Proposition A Sales Tax revenues and Proposition C Sales Tax revenues. For fiscal years 1999 through 2013, the independent auditors determined that LACMTA was in compliance with Proposition A, Proposition C and the Act of 1998 for each such respective fiscal year (the Annual Act of 1998 Audit ). In connection with each Annual Act of 1998 Audit, the independent auditor annually audits how LACMTA spends Proposition A Sales Tax revenues during the related fiscal year to ensure that it spends those revenues for the categories of use set forth in Proposition A. See The Proposition A Sales Tax above. Each fiscal year, a substantial portion of the Proposition A Sales Tax revenues are spent on the payment of principal of and interest on the First Tier Senior Lien Bonds. See COMBINED DEBT SERVICE SCHEDULE. For purposes of determining LACMTA s compliance with the categories of use set forth in Proposition A, LACMTA allocates the annual payments of principal and interest with respect to each series of First Tier Senior Lien Bonds to the categories of use for which such series of First Tier Senior Lien Bonds financed or refinanced. The Act of 1998 also established the Independent Citizens Advisory and Oversight Committee (the Committee ) whose responsibilities include reviewing LACMTA s annual audit of its receipt and expenditure of Proposition A Sales Tax and Proposition C Sales Tax, the holding of public hearings regarding the annual audit and issuing reports based upon those audits and public hearings. The Committee is made up of five members, of which one member is appointed by the chair of the Los Angeles County Board of Supervisors, one member is appointed by the chair of the Board, one member is appointed by the Mayor of the City of Los Angeles, one member is appointed by the Mayor of the City of Long Beach, and one member is appointed by the Mayor of the City of Pasadena. 20

29 Historical Proposition A Sales Tax Collections The following table presents, among other things, collections of net Proposition A Sales Tax revenues and corresponding Pledged Revenues for the Fiscal Years ended June 30, 2005 through June 30, TABLE 4 Historical Net Proposition A Sales Tax Revenues Local Allocations and Pledged Revenues (dollars in millions) Net Proposition A Sales Tax Revenue 1 Annual Percentage Change Allocations to Local Governments 2 Pledged Revenues 3 Fiscal Year 2005 $ % $154.9 $ (0.42) (9.15) (8.88) Reflects Proposition A Sales Tax revenues, reported according to accrual basis accounting, presented in LACMTA s audited financial statements, less administrative fees paid to the State Board of Equalization. Rounded to the closest $100, Rounded to the closest $100, Net Proposition A Sales Tax revenue less Allocations to Local Governments. Rounded to the closest $100, Unaudited results for the Fiscal Year ended June 30, Audited results may vary. Unaudited results include an increase in Proposition A sales taxes of $61.7 million due to an accounting accrual adjustment resulting in a one-time increase to the reported amount. Net Proposition A Sales Tax Revenues and Pledged Revenues are reported and calculated excluding the $61.7 million accounting accrual adjustment. Source: LACMTA. 21

30 The following table sets forth the amount of Proposition A Sales Tax revenues for the most recent nine quarters and the changes in such amounts from the corresponding period in the prior year. TABLE 5 Selected Actual Proposition A Sales Tax Revenue Information (values are cash basis) Change from Same Period of Prior Year Rolling 12 Months Receipts ($ millions) Change from Same Period of Prior Year Quarterly Receipts Quarter Ended ($ millions) September 30, 2014 $ % $ % June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, Reported according to cash basis accounting. Source: LACMTA. The Proposition A Sales Tax revenues on a cash basis for a quarterly period are determined by sales tax revenues generated by sales activity generally occurring in the last two months of the previous quarter and the first month of the current quarter. For example, for the three-month period ended September 30, 2014, reported according to cash basis accounting, Proposition A Sales Tax revenues were approximately $184.6 million, which receipts generally represented sales activity occurring in May, June and July of Total Proposition A Sales Tax revenues on a cash basis for fiscal year 2014 were approximately $711.8 million compared to $679.5 million for fiscal year For fiscal year 2014, Proposition A Sales Tax revenues (on a cash basis) were $711.8 million or 0.49% over budget. LACMTA s fiscal year 2015 budget assumes total Proposition A Sales Tax revenues of $734.2 million, and Proposition A Sales Tax revenues net of Local Allocation of $550.7 million. Proposition A Sales Tax revenues fluctuate based on general economic conditions within the County. To project future Proposition A Sales Tax revenues for budgetary purposes, LACMTA relies on reports from local economists and other publicly available sources of data. LACMTA does not itself develop forecasts of current or future economic conditions. Furthermore, the State Board of Equalization does not provide LACMTA with any forecasts of Proposition A Sales Tax revenues for future periods. Therefore, LACMTA is unable to predict with certainty future levels of Proposition A Sales Tax revenues. See RISK FACTORS Economic Factors May Cause Declines in Proposition A Sales Tax Revenues above. Proposition A Special Revenue Fund - GAAP Based Financial Results The tables below summarize the Fund Balance and the Statement of Revenues, Expenditures and Changes in Fund Balance for the Proposition A Special Revenue Fund as presented in LACMTA s Comprehensive Annual Financial Reports for Fiscal Years ended June 30, 2009 through Also included are the current, unaudited results for the Fiscal Year ended June 30, Additional information concerning the data in these tables is available in the Notes to Basic Financial Statements included in the audited Financial Statements for Fiscal Years ended June 30, 2009 through

31 TABLE 6 Los Angeles County Metropolitan Transportation Authority Proposition A Special Revenue Fund Balance Sheet (Amounts expressed in thousands) Assets * Cash and cash equivalents $ 20,882 $ 24,707 $ 15,688 $ 79,467 $ 8,654 $ 95,492 Investments 76,458 71,565 49,661 83,829 87, ,912 Receivables: Accounts Interest Intergovernmental Sales taxes 33,321 43,883 53,955 60,221 68, ,958 Due from other funds , , Restricted assets: Cash and cash equivalents Total Assets 131, , , , , ,362 Liabilities Accounts payable and accrued liabilities 16,783 21,036 21,763 24,822 30,325 42,797 Due to other funds -- 38,963 37,700 37,700 37,950 5,000 Deferred revenues Total Liabilities 16,783 59,999 59,463 62,522 68,275 47,797 Fund Balances Restricted , , , ,565 Committed Assigned Unassigned Reserved for Memoranda of understanding 132,708 56, Unreserved (18,093) 23, Total Fund Balances 114,615 80,536 69, , , ,565 Total Liabilities and Fund Balances 131, , , , , ,362 * Unaudited results for the Fiscal Year ended June 30, Audited results may vary. Unaudited results include an increase in Proposition A sales taxes of $61.7 million due to an accounting accrual adjustment resulting in a one-time increase to the reported amount. Source: Audited Financial Statements for Fiscal Years ended June 30,

32 TABLE 7 Los Angeles County Metropolitan Transportation Authority Proposition A Special Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances (Amounts expressed in thousands) Revenues * Sales taxes $620,797 $565,746 $601,883 $648,692 $687,172 $778,504 Intergovernmental Investment income 4,675 2,419 2, , Net appreciation in fair value of investment 1, (854) (82) (1,046) 529 Other Total Revenues 626, , , , , ,904 Expenditures Current: Administration and other Transportation subsidies 267, , , , , ,674 Total Expenditures 267, , , , , ,674 Excess (deficiency) of revenues over (under) expenditures 359, , , , , ,230 Other Financing Sources (uses) Transfers in -- 47, ,794 32, Transfer out (441,360) (420,897) (350,475) (326,569) (414,610) (327,776) Total other financing sources (uses) (441,360) (373,153) (350,475) (297,775) (382,386) (327,776) Net change in fund balances (82,024) (34,079) (11,487) 92,109 29, ,454 Fund balances beginning of year 196, ,615 80,536 69, , ,111 Fund balances end of year 114,615 80,536 69, , , ,565 * Unaudited results for the Fiscal Year ended June 30, Audited results may vary. Unaudited results include an increase in Proposition A sales taxes of $61.7 million due to an accounting accrual adjustment resulting in a one-time increase to the reported amount. Source: Audited Financial Statements for Fiscal Years ended June 30, General PROPOSITION A SALES TAX OBLIGATIONS LACMTA currently has three priority levels of obligations for Proposition A Sales Tax revenues: its First Tier Senior Lien Bonds (which includes the Series 2014-A Bonds), its Second Tier Obligations and its Third Tier Obligations (which include the Proposition A Commercial Paper Notes and related obligations). LACMTA may issue additional subordinate obligations, including additional Second Tier Obligations and Third Tier Obligations, in the future. LACMTA has incurred other obligations which are secured by certain remaining Proposition A Sales Tax cash receipts. See Outstanding Proposition A Sales Tax Obligations Other Obligations. LACMTA had outstanding the following Proposition A Sales Tax obligations as of November 1, 2014: First Tier Senior Lien Bonds in the aggregate principal amount of $1,162,355,000 (including the Refunded Bonds); Second Tier Obligations in the aggregate principal amount of $20,520,000 (excluding any regularly scheduled payment obligations due under certain of LACMTA s interest rate swap agreements); and Proposition A Commercial Paper Notes in the aggregate principal amount of $65,000,000. See Outstanding Proposition A Sales 24

33 Tax Obligations. With respect to its Proposition A Commercial Paper Notes, LACMTA is currently authorized to issue up to $350,000,000 aggregate principal amount if supported by a letter of credit. See Outstanding Proposition A Sales Tax Obligations - Third Tier Obligations. LACMTA may issue additional First Tier Senior Lien Bonds upon the satisfaction of certain conditions contained in the Agreement. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS Additional First Tier Senior Lien Bonds. Debt Service Coverage The following table presents historical Pledged Revenues and First Tier Senior Lien Bond debt service coverage ratios for the Fiscal Years ended June 30, 2005 through June 30, Debt service and coverage ratios shown are approximate annual amounts and do not consider maximum annual debt service for First Tier Senior Lien Bonds in any year. Fiscal Year TABLE 8 Proposition A Pledged Revenues and Debt Service Coverage (dollars in millions) First Tier Senior Lien Bonds Total Debt Service 2 First Tier Senior Lien Bonds Debt Service Coverage Ratio Proposition A Sales Tax Revenues Remaining After Payment of First Tier Senior Lien Bonds 3 Pledged Revenues $464.6 $ x $ % of Net Proposition A Sales Tax revenue (less administrative fee, special adjustments and Local Allocations). Rounded to closest $100,000. See Table 3 above. 2 Calculated on a bond year ending July 1 as opposed to a fiscal year ending June 30. Rounded to closest $100, Rounded to the closest $100, Unaudited results for the Fiscal Year ended June 30, Audited results may vary. Unaudited results include an increase in Proposition A sales taxes of $61.7 million due to an accounting accrual adjustment resulting in a one-time increase to the reported amount. Net Proposition A Sales Tax Revenues and Pledged Revenues are reported and calculated excluding the $61.7 million accounting accrual adjustment. Source: LACMTA. Outstanding Proposition A Sales Tax Obligations Outstanding obligations of LACMTA payable from the Proposition A Sales Tax consist of sales tax revenue bonds, commercial paper notes, and certain amounts owed under interest rate swap agreements, letter of credit reimbursement agreements, pledge agreements and covenant agreements. First Tier Senior Lien Bonds. LACMTA had the following First Tier Senior Lien Bonds outstanding as of November 1,

34 TABLE 9 Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Bonds (Outstanding as of November 1, 2014) Proposition A First Tier Senior Sales Tax Revenue Bonds 1 Outstanding Principal Amount 3 Senior Sales Tax Revenue Refunding Bonds, Series 2013-A $ 262,195,000 Senior Sales Tax Revenue Refunding Bonds, Series 2012-A 51,380,000 Senior Sales Tax Revenue Refunding Bonds, Series 2011-A 83,595,000 Senior Sales Tax Revenue Refunding Bonds, Series 2011-B 91,110,000 Senior Sales Tax Revenue Refunding Bonds, Series 2009-A 189,265,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1 61,675,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-A2 61,750,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-A3 61,750,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-A4 61,850,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-B 21,520,000 Senior Sales Tax Revenue Refunding Bonds, Series 2007-A 24,310,000 Senior Sales Tax Revenue Bonds, Series 2005-A 2 191,955,000 Total $1,162,355,000 1 The First Tier Senior Lien Bonds are payable from and secured by prior first liens on Pledged Revenues. 2 Upon the issuance of the Series 2014-A Bonds expected on December 18, 2014, $154,645,000 aggregate principal amount of the Series 2005-A Bonds will be refunded and defeased. 3 Rounded to the closest $100,000. Source: LACMTA. Index Interest Rate Bonds. Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1, Series 2008-A2, Series 2008-A3 and Series 2008-A4 (the Index Interest Rate Bonds ) bear interest at an Index Interest Rate. On July 28, 2014, the Series 2008-A1 Bonds were purchased by Banc of America Preferred Funding Corporation and on August 1, 2014, the Series 2008-A2 Bonds were purchased by Banc of America Preferred Funding Corporation and the Series 2008-A3 and 2008-A4 were purchased by U.S. Bank National Association. The Index Interest Rate Bonds bear interest at a rate equal to 70% of the LIBOR Index plus an interest rate spread. The Index Interest Rate Bonds will be subject to tender for purchase on July 28, 2016 (Series 2008-A1) and August 1, 2016 (Series 2008-A2, 2008-A3 and 2008-A4) with a one year early termination clause unless extended or modified. Under the terms of the Thirty-Fourth Supplemental Trust Agreement, dated July 28, 2014, the First Amendment to Amended and Restated Twenty-Eighth Supplemental Trust Agreement, dated June 28, 2012, and the Amended and Restated Twenty-Eighth Supplemental Trust Agreement, dated August 1, 2011, by and between LACMTA and the Trustee, the Series 2008-A1 Covenant Agreement (as defined herein), the Series A2 Covenant Agreement (as defined herein) and the Series 2008-A3/A4 Continuing Covenant Agreement (as defined herein), the Index Interest Rate Bonds are subject to mandatory redemption upon certain specified events. See also Other Obligations below. Second Tier Obligations. Series 2008-A Swap Agreements. In connection with the issuance of its Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2005-C1, Series 2005-C2, Series 2005-C3 and Series 2005-C4, LACMTA entered into an interest rate swap agreement with the Bank of Montreal ( BMO ) and an interest rate swap agreement with Deutsche Bank AG, New York Branch ( Deutsche Bank ). These interest rate swap agreements are now associated with the Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1, Series 2008-A2, Series 2008-A3 and Series 2008-A4 (collectively, the Series 2008-A Bonds ) for purposes of calculating Maximum Annual Debt Service and are referred to herein as the Series 2008-A BMO Swap Agreement and the Series 2008-A Deutsche Swap Agreement, respectively, and collectively as the Series 2008-A Swap Agreements. BMO and Deutsche Bank are collectively referred to herein as the Series 26

35 2008-A Swap Counterparties. Certain terms of the Series 2008-A Swap Agreements are included in Table 10 Series 2008-A Swap Agreements below. LACMTA s obligations to pay the Series 2008-A Swap Counterparties a fixed regular payment amount under the respective Series 2008-A Swap Agreements are Second Tier Obligations. The terms of the Series 2008-A Swap Agreements do not alter any of the obligations of LACMTA with respect to the payment of principal of or interest on the Series 2008-A Bonds or any other First Tier Senior Lien Bonds. The payments received by LACMTA from the Series 2008-A Swap Counterparties due under the Series 2008-A Swap Agreements do not constitute Pledged Revenues and are not pledged to the payment of principal of or interest on the Series 2008-A Bonds or any other First Tier Senior Lien Bonds, although payments made by BMO and Deutsche Bank under the Series 2008-A Swap Agreements (other than termination payments) will be deposited in the Series 2008-A Interest Subaccount and will be used to pay interest on the Series 2008-A Bonds. Under certain circumstances, LACMTA may be obligated to make termination payments to the Series 2008-A Swap Counterparties if the Series 2008-A Swap Agreements are terminated prior to their termination dates. The amount of any termination payment will be determined pursuant to several factors, including the level of comparable interest rates at the time the applicable Series 2008-A Swap Agreement is terminated. Such termination payments could be substantial. Estimated termination values that LACMTA would be required to pay are included in the table below. Such termination payments would be secured by a lien on Proposition A Remaining Sales Tax revenues on a parity with LACMTA s obligations to pay debt service on the General Revenue Bonds and the fees and expenses under the covenant agreements for the Index Interest Rate Bonds. See Other Obligations below. However, LACMTA may have to incur additional indebtedness secured by Proposition A Sales Tax revenue and/or Proposition C Sales Tax revenue to make any termination payments on the applicable Series 2008-A Swap Agreement; any such additional indebtedness may include the issuance of First Tier Senior Lien Bonds. Under the terms of the Series 2008-A Swap Agreements, LACMTA may be required to post collateral in favor of the applicable Series 2008-A Swap Counterparty if the estimated termination payment exceeds certain thresholds. As of November 1, 2014, LACMTA had no collateral posted under the Series 2008-A BMO Swap Agreement or the Series 2008-A Deutsche Swap Agreement. The following table sets forth certain terms of the Series 2008-A Swap Agreements as of October 31, TABLE 10 Series 2008-A Swap Agreements Series 2008-A Swap Agreements Series 2008-A Deutsche Swap Agreement Counterparty Bank of Montreal Deutsche Bank AG, New York Branch Associated First Tier Senior Lien Bonds Series 2008-A1 and 2008-A2 Bonds Series 2008-A3 and 2008-A4 Bonds Current Notional Amount $123,425,000 $123,600,000 Effective Date August 23, 2005 August 23, 2005 Maturity Date July 1, 2031 July 1, 2031 Optional Termination Date July 1, 2015 July 1, 2015 Fixed Rate Paid by LACMTA 3.373% 3.358% Variable Rate Received by LACMTA 63% of USD-LIBOR % 63% of USD-LIBOR % Estimated Termination Value as of October 31, 2014 $ 3,928,238 $ 3,915,172 Source: LACMTA. 27

36 Other Second Tier Obligations. On October 6, 1993, the Community Redevelopment Financing Authority of the Community Redevelopment Agency of the City of Los Angeles, California issued its Grand Central Square Multifamily Housing Bonds, 1993 Series A (the Housing Bonds ) and its Grand Central Square Qualified Redevelopment Bonds, 1993 Series A (the Redevelopment Bonds ). The Redevelopment Bonds were refunded on April 30, 2002 with the proceeds of The Community Redevelopment Agency of the City of Los Angeles, California Grand Central Square Qualified Redevelopment Bonds, 2002 Refunding Series A (the Refunding Redevelopment Bonds ). The Housing Bonds were refunded on June 21, 2007 with the proceeds of The Community Redevelopment Agency of the City of Los Angeles, California Grand Central Square Multifamily Housing Revenue Refunding Bonds, 2007 Series A (the 2007 Series A Refunding Housing Bonds ) and Grand Central Square Multifamily Housing Revenue Refunding Bonds, 2007 Series B (the 2007 Series B Refunding Housing Bonds and, together with the 2007 Series A Refunding Housing Bonds, the Refunding Housing Bonds ). LACMTA is obligated (but only from LACMTA s 40% discretionary share of Proposition A Sales Tax revenues described in Table 2 of this Official Statement) pursuant to Pledge Agreements to make debt service payments with respect to the Refunding Redevelopment Bonds and the 2007 Series B Refunding Housing Bonds. To the extent the trustee for the Refunding Redevelopment Bonds and the 2007 Series B Refunding Housing Bonds has sufficient revenues and other funds, the trustee will reimburse LACMTA to the extent of its payment from such funds. As of November 1, 2014, $20,520,000 aggregate principal amount of the 2007 Series B Refunding Housing Bonds and the Refunding Redevelopment Bonds were outstanding. On June 28, 2011, State law was enacted which dissolved all redevelopment agencies in existence in the State of California as of February 1, 2012, and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. The obligations of the CRA/LA, a Designated Local Authority and Successor Agency to The Community Redevelopment Agency of the City of Los Angeles, California, with respect to the Refunding Redevelopment Bonds are unchanged but subject to certain statutory procedures with respect to its operations and providing tax increment revenues in support of enforceable obligations. The CRA/LA is not obligated to pay any amount in respect of the obligation of LACMTA on the Refunding Redevelopment Bonds and the 2007 Series B Refunding Housing Bonds if not paid when and as due. LACMTA s regularly scheduled payment obligations under the Series 2008-A Swap Agreements, the Refunding Redevelopment Bonds and the Refunding Housing Bonds constitute Second Tier Obligations, and are payable from Proposition A Sales Tax revenues on a subordinate basis to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds). Third Tier Obligations. Pursuant to the Subordinate Trust Agreement, dated as of January 1, 1991, as amended and supplemented, by and between LACMTA (as successor to the Commission) and U.S. Bank National Association, the successor to the BankAmerica Trust Company, as the successor to Security Pacific National Trust Company (New York), as trustee, LACMTA is authorized to issue up to $350,000,000 aggregate principal amount of its Proposition A commercial paper notes (the Proposition A Commercial Paper Notes ). The Proposition A Commercial Paper Notes can only be issued and outstanding if they are supported by a letter of credit. The Proposition A Commercial Paper Notes are payable from Proposition A Sales Tax revenues on a subordinate basis to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds) and the Second Tier Obligations. A portion of the Proposition A Commercial Paper Notes are supported by two letters of credit (the Proposition A CP Letters of Credit ) issued by Sumitomo Mitsui Banking Corporation, acting through its New York Branch, and MUFG Union Bank, N.A. LACMTA s reimbursement obligations with respect to the Proposition A CP Letters of Credit are payable from Proposition A Sales Tax revenues on parity with the Proposition A Commercial Paper Notes and on a subordinate basis to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds) and the Second Tier Obligations. The following table sets forth certain terms of the Proposition A CP Letters of Credit. 28

37 TABLE 11 Proposition A CP Letters of Credit Letter of Credit Provider Sumitomo Mitsui Banking Corporation, acting through its New York Branch MUFG Union Bank, N.A. Amount of Letter of Credit $74,999,724 1 $74,999,724 2 Issuance Date March 11, 2013 March 11, 2013 Expiration Date March 11, 2016 March 11, Supports $68,885,000 of principal and $6,114,724 of interest. Supports $68,885,000 of principal and $6,114,724 of interest. Source: LACMTA. The Proposition A Commercial Paper Notes and LACMTA s reimbursement obligations under the reimbursement agreement entered into with respect to the Proposition A CP Letter of Credit constitute Third Tier Obligations. As of November 1, 2014, $65,000,000 aggregate principal amount of Proposition A Commercial Paper Notes were outstanding. Other Obligations. Series 2008-A1 Covenant Agreement. In connection with the purchase of the Series 2008-A1 Bonds and Series 2008-A2 Bonds by Banc of America Preferred Funding Corporation, LACMTA entered into a Covenant Agreement dated July 29, 2014 (the Series 2008-A1 Covenant Agreement ), by and between Bank of America Preferred Funding Corporation and LACMTA. Pursuant to the Series 2008-A1 Covenant Agreement, LACMTA is obligated to pay certain specified fees and other amounts, which are payable from Pledged Revenues on a subordinate basis to the First Tier Senior Lien Bonds, the Second Tier Obligations and the Third Tier Obligations. Series 2008-A2 Covenant Agreement. In connection with the purchase of the Series 2008-A2 Bonds by Banc of America Preferred Funding Corporation, LACMTA entered into Covenant Agreements dated August 1, 2014 (the Series 2008-A2 Covenant Agreement ), by and between Bank of America Preferred Funding Corporation and LACMTA. Pursuant to the Series 2008-A2 Covenant Agreement, LACMTA is obligated to pay certain specified fees and other amounts, which are payable from Pledged Revenues on a subordinate basis to the First Tier Senior Lien Bonds, the Second Tier Obligations and the Third Tier Obligations. Series 2008-A3 and Series 2008-A4 Covenant Agreements. In connection with the purchase of the Series 2008-A3 and Series 2008-A4 Bonds by U.S. Bank National Association, LACMTA entered into a Covenant Agreement, dated August 1, 2014 (the Series 2008-A3 and Series 2008-A4 Covenant Agreement ), by and between U.S. Bank National Association and LACMTA. Pursuant to the Series 2008-A3 and Series 2008-A4 Covenant Agreement, LACMTA is obligated to pay certain specified fees and other amounts, which are payable from Pledged Revenues on a subordinate basis to the First Tier Senior Lien Bonds, the Second Tier Obligations and the Third Tier Obligations. Reference copies of these three Covenant Agreements are on file with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System (the EMMA System ) and can be accessed at General Revenue Bonds. On September 22, 2004, LACMTA issued $197,050,000 aggregate principal amount of its General Revenue Refunding Bonds (Union Station Gateway Project) Series 2004-A, Series 2004-B, Series 2004-C and Series 2004-D (the Series 2004 General Revenue Bonds ). In July 2010, LACMTA issued $79,620,000 aggregate principal amount of its General Revenue Refunding Bonds (Union Station Gateway Project) Series 2010-A (the Series 2010-A General Revenue Bonds and together with the Series 2004 General Revenue Bonds, the General Revenue Bonds ) to finance the purchase and cancellation of a portion of the Series

38 General Revenue Bonds. As of November 1, 2014, there was $86,175,000 Series 2004 General Revenue Bonds outstanding and $55,795,000 Series 2010-A General Revenue Bonds outstanding, for an aggregate principal amount of $141,970,000 General Revenue Bonds outstanding. The General Revenue Bonds are secured by a pledge of farebox revenues, fee and advertising revenues (collectively, General Revenues ) and Proposition A Sales Tax and Proposition C Sales Tax revenues that remain after the application of those revenues to the payment of principal and interest on the First Tier Senior Lien Bonds (including the Series 2014-A Bonds), Second Tier Obligations and Third Tier Obligations, in the case of the Proposition A Sales Tax, and certain Proposition C Sales Tax secured obligations, in the case of the Proposition C Sales Tax (the Proposition A Remaining Sales Tax and the Proposition C Remaining Sales Tax, respectively). LACMTA s obligation to pay principal of and interest on the General Revenue Bonds is secured by a lien on Proposition A Sales Tax that is junior and subordinate to the First Tier Senior Lien Bonds (including the Series 2014-A Bonds), the Second Tier Obligations and the Third Tier Obligations as to the lien on and source and security for payment from Pledged Revenues. LACMTA entered into an interest rate swap agreement (the General Revenue Swap Agreement ) with Bank of Montreal (the General Revenue Swap Provider ) on September 14, 2004 in connection with the Series 2004 General Revenue Bonds. LACMTA elected to exercise its option to terminate the General Revenue Swap Agreement on July 1, COMBINED DEBT SERVICE SCHEDULE The following table shows the combined debt service requirements on LACMTA s First Tier Senior Lien Bonds after giving effect to the issuance of the Series 2014-A Bonds and the refunding and defeasance of the Refunded Bonds. 30

39 TABLE 12 Los Angeles County Metropolitan Transportation Authority Combined Debt Service Schedule First Tier Senior Lien Bonds 1 Bond Years Ending July 1 Other Outstanding First Tier Senior Lien Bonds Debt Service 2, 3 Principal Series 2014-A Bonds Debt Service Interest Total Debt Service Combined Total Debt Service First Tier Senior Lien Bonds 2015 $ 133,250, $ 3,291,937 $ 3,291,937 $ 136,542, ,026,272 $ 5,655,000 6,140,400 11,795, ,821, ,678,983 5,940,000 5,857,650 11,797, ,476, ,834,504 6,235,000 5,560,650 11,795, ,630, ,713,262 6,545,000 5,248,900 11,793, ,507, ,745,899 6,875,000 4,921,650 11,796, ,542, ,175,337 4,950,000 4,577,900 9,527, ,703, ,276,681 5,195,000 4,330,400 9,525, ,802, ,315,516 5,455,000 4,070,650 9,525, ,841, ,397,868 5,725,000 3,797,900 9,522,900 51,920, ,448,706 6,010,000 3,511,650 9,521,650 51,970, ,418,468 6,315,000 3,211,150 9,526,150 51,944, ,252,257 6,630,000 2,895,400 9,525,400 37,777, ,159,772 6,960,000 2,563,900 9,523,900 24,683, ,853,590 7,310,000 2,215,900 9,525,900 15,379, ,878,898 7,525,000 1,996,600 9,521,600 15,400, ,869,403 7,825,000 1,695,600 9,520,600 15,390, ,243,725 8,140,000 1,382,600 9,522,600 11,766, ,240,250 8,465,000 1,057,000 9,522,000 11,762, ,243,500 8,805, ,400 9,523,400 11,766, ,241,750 9,155, ,200 9,521,200 11,762,950 Total $1,187,265,211 $135,715,000 $69,412,437 $205,127,437 $1,492,392, Totals may not add due to rounding. Assumes the Series 2008-A1 Bonds and the Series 2008-A2 Bonds bear interest at a fixed interest rate of 3.373% (the fixed rate payable by LACMTA under the Series 2008-A BMO Swap Agreement) and the Series 2008-A3 Bonds and the Series 2008-A4 Bonds bear interest at a fixed interest rate of 3.358% (the fixed rate payable by LACMTA under the Series 2008-A Deutsche Swap Agreement). 3 Previously issued debt excludes the debt service for the Refunded Bonds, which will be defeased on the date of issuance of the Series 2014-A Bonds. Source: LACMTA and Backstrom McCarley Berry & Co., LLC. LITIGATION There is no litigation pending or, to the knowledge of LACMTA, threatened, against LACMTA in any way questioning or affecting the validity of the Series 2014-A Bonds, the imposition and collection of the Proposition A Sales Tax or the pledge of the Pledged Revenues. On April 30, 1982, the California Supreme Court, in Los Angeles County Transportation Commission v. Richmond, upheld the validity of the Proposition A Sales Tax. Various claims of other types have been asserted against LACMTA. See APPENDIX A LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY LITIGATION AND OTHER REGULATORY ACTIONS. 31

40 LEGAL MATTERS The validity of the Series 2014-A Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to LACMTA. A complete copy of the proposed Bond Counsel opinion is contained in APPENDIX E hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel, will provide certain other legal services for LACMTA. The Los Angeles County Counsel, as General Counsel to LACMTA, will pass on certain legal matters for LACMTA. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2014-A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2014-A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX E hereto. To the extent the issue price of any maturity of the Series 2014-A Bonds is less than the amount to be paid at maturity of such Series 2014-A Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2014-A Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2014-A Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2014-A Bonds is the first price at which a substantial amount of such maturity of the Series 2014-A Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2014-A Bonds accrues daily over the term to maturity of such Series 2014-A Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2014-A Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2014-A Bonds. Beneficial Owners of the Series 2014-A Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2014-A Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2014-A Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2014-A Bonds is sold to the public. Series 2014-A Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Series 2014-A Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of Series 2014-A Bonds, like the Premium Series 2014-A Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Series 2014-A Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Series 2014-A Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2014-A Bonds. LACMTA has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2014-A Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2014-A Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2014-A Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance 32

41 with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel s attention after the date of issuance of the Series 2014-A Bonds may adversely affect the value of, or the tax status of interest on, the Series 2014-A Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Series 2014-A Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2014-A Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2014-A Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, Representative Dave Camp, Chair of the House Ways and Means Committee released draft legislation that would subject interest on the Series 2014-A Bonds to a federal income tax at an effective rate of 10% or more for individuals, trusts, and estates in the highest tax bracket, and the Obama Administration proposed legislation that would limit the exclusion from gross income of interest on the Series 2014-A Bonds to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2014-A Bonds. Prospective purchasers of the Series 2014-A Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Series 2014-A Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of LACMTA, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. LACMTA has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Series 2014-A Bonds ends with the issuance of the Series 2014-A Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend LACMTA or the Beneficial Owners regarding the tax-exempt status of the Series 2014-A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than LACMTA and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt Series 2014-A Bonds is difficult, obtaining an independent review of IRS positions with which LACMTA legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2014-A Bonds for audit, or the course or result of such audit, or an audit of Series 2014-A Bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2014-A Bonds, and may cause LACMTA or the Beneficial Owners to incur significant expense. FINANCIAL ADVISOR LACMTA has retained Backstrom McCarley Berry & Co., LLC, as Financial Advisor (the Financial Advisor ) for the sale of the Series 2014-A Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification, or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. 33

42 FINANCIAL STATEMENTS The financial statements of LACMTA for the Fiscal Year ended June 30, 2013 and the Management s Discussion and Analysis and certain supplementary information, and the Independent Auditors Report of KPMG LLP, independent accountants, dated December 20, 2013 (collectively, the 2013 Financial Statements ) are included as APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, LACMTA s financial statements as of June 30, 2013 and for the year then ended, included in this Official Statement, have been audited by KPMG LLP, independent accountants, as stated in their Report appearing in APPENDIX B. LACMTA has not requested, nor has KPMG LLP given, KPMG LLP s consent to the inclusion in APPENDIX B of its Report on such financial statements. In addition, KPMG LLP has not performed any post-audit review of the financial condition of LACMTA and has not reviewed this Official Statement. CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION Certain economic and demographic information about the County is included in APPENDIX C LOS ANGELES COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION. The economic and demographic information provided has been collected from sources that LACMTA considers to be reliable. Because it is difficult to obtain timely economic and demographic information, the economic condition of the County may not be fully apparent in all of the publicly available local and regional economic statistics provided herein. In particular, the economic statistics provided herein may not fully capture the impact of current economic conditions. VERIFICATION OF MATHEMATICAL COMPUTATIONS Grant Thornton LLP, certified public accountants, will verify, from the information provided to them, the mathematical accuracy of the computations contained in the provided schedules to determine that the amounts to be held in the Escrow Fund will be sufficient to pay principal, interest and redemption price due on the Refunded Bonds through and including the Redemption Date. Grant Thornton LLP will express no opinion on the assumptions provided to them, nor as to the exemption from taxation of the interest on the Series 2014-A Bonds. CONTINUING DISCLOSURE At the time of issuance of the Series 2014-A Bonds, LACMTA will execute a Continuing Disclosure Certificate (the Continuing Disclosure Certificate ), which will provide for disclosure obligations on the part of LACMTA. Under the Continuing Disclosure Certificate, LACMTA will covenant for the benefit of Owners and Beneficial Owners of the Series 2014-A Bonds to provide certain financial information and operating data relating to LACMTA by not later than 195 days after the end of the prior fiscal year (the Annual Reports ), and to provide notices of the occurrence of certain enumerated events (the Listed Events ). The Annual Reports and the notices of Listed Events will be filed with the MSRB through its EMMA System. LACMTA has not failed in the previous five years to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of enumerated events. See APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE. However, LACMTA has become aware that some information that was made available in a timely manner on the EMMA System was not linked to the CUSIP numbers for all affected series of bonds. LACMTA has corrected this issue. In addition, LACMTA has become aware that in a few instances, notices of changes in ratings on some of LACMTA s bonds were not filed in a timely manner. LACMTA has made corrective filings regarding these ratings changes. SALE OF BONDS DECEMBER 3, 2014 The Series 2014-A Bonds were sold at competitive sale on December 3, 2014 and awarded to Wells Fargo Bank, National Association (the Winning Bidder ) at a purchase price of $154,409, (consisting of the par amount of the Series 2014-A Bonds, plus net original issue premium of $18,843,674.55, and less an amount retained by the Winning Bidder as compensation (i.e., underwriter s discount) of $149,286.50). The Winning Bidder will purchase all of the Series 2014-A Bonds, subject to certain terms and conditions set forth in the Notice Inviting Bids, dated November 21, 2014, the approval of certain legal matters by counsel, and certain other conditions. 34

43 RATINGS Moody s Investors Service, Inc. ( Moody s ) and Standard & Poor s Financial Services LLC business ( S&P ) have assigned the Series 2014-A Bonds ratings of Aa2 (stable outlook) and AAA (stable outlook), respectively. Such credit ratings reflect only the views of such organizations and any desired explanation of the meaning and significance of such credit ratings, including the methodology used and any outlook thereon, should be obtained from the rating agency furnishing the same, at the following addresses, which are current as of the date of this Official Statement: Moody s Investors Service, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; and Standard & Poor s, 55 Water Street, New York, New York Generally, a rating agency bases its credit rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that the ratings will remain in effect for any given period of time or that any such rating will not be revised, either downward or upward, or withdrawn entirely, or a positive, negative or stable outlook announced, by the applicable rating agency, if, in its judgment, circumstances so warrant. LACMTA undertakes no responsibility to bring to the attention of the Owners of the Series 2014-A Bonds any announcement regarding the outlook of any rating agency with respect to the Series 2014-A Bonds. Any downward revision or withdrawal or announcement of negative outlook could have an adverse effect on the market price of the Series 2014-A Bonds. Maintenance of ratings will require periodic review of current financial data and other updating information by assigning agencies. 35

44 ADDITIONAL INFORMATION Additional information may be obtained upon request from the office of the Treasurer of the Los Angeles County Metropolitan Transportation Authority, One Gateway Plaza, Los Angeles, California 90012, Attention: Treasury Department, Telephone: (213) , or from LACMTA s Financial Advisor, Backstrom McCarley Berry & Co., LLC, Telephone: (415) LACMTA maintains a website at Information on such website is not part of this Official Statement and such information has not been incorporated by reference in this Official Statement and should not be relied upon in deciding whether to invest in the Series 2014-A Bonds. LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY By /s/ Donna R. Mills Treasurer [THIS PAGE INTENTIONALLY LEFT BLANK.] 36

45 APPENDIX A LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL The Los Angeles County Metropolitan Transportation Authority ( LACMTA ) is the largest public transit operator west of Chicago. As the principal transit provider in the southern California region, LACMTA serves about 75% of all transit trips within its 1,433 square mile service area, carrying an estimated 1.1 million passengers per day on buses and nearly 360,000 passengers on rail. LACMTA operates four light rail lines, serving 67 stations along 70.3 miles of track and two heavy rail lines that serve 16 stations along 17.4 miles of track. In addition to the transit services provided by LACMTA, it also provides funding to 40 other municipal operators that offer fixed-route service and more than 100 other local return and non-profit agencies that provide community-based transportation. LACMTA also provides highway construction funding and traffic flow management. LACMTA was established in 1993 pursuant to the provisions of Section et seq. of the California Public Utilities Code (the LACMTA Act ). LACMTA is the consolidated successor entity to both the Southern California Rapid Transit District (the District ) and the Los Angeles County Transportation Commission (the Commission ). As the consolidated successor entity, LACMTA succeeded to all powers, duties, rights, obligations, liabilities, indebtedness, bonded or otherwise, immunities and exemptions of the Commission and the District, including the Commission s responsibility for planning, engineering and constructing a county-wide rail transit system. The Commission was authorized, subject to approval by the electorate of the County of Los Angeles (the County ), to adopt a retail transactions and use tax ordinance, with the revenues of such tax to be used for public transit purposes. On November 4, 1980, the voters of the County approved the Proposition A Sales Tax pursuant to Ordinance No. 16. The Proposition A Sales Tax is in addition to a ½ of 1 percent sales tax imposed by LACMTA beginning in 1990 known as Proposition C Sales Tax and a 30-year ½ of 1 percent sales tax imposed by LACMTA beginning in 2009 known as the Measure R Sales Tax. Board of Directors LACMTA is governed by a 14-member Board of Directors (the Board ). The Board is composed of the five members of the County Board of Supervisors, the Mayor of the City of Los Angeles, two public members and one member of the City Council of the City of Los Angeles appointed by the Mayor of the City of Los Angeles, four members who are either a mayor or a member of a city council of a city in the County (other than the City of Los Angeles) and who have been appointed by the Los Angeles County City Selection Committee (comprised of individuals appointed by the Mayors of each city in the County), and a non-voting member appointed by the Governor. The Board of LACMTA exclusively exercises and discharges the following powers and responsibilities: (a) establishment of overall goals and objectives, (b) adoption of the aggregate budget for all of its organizational units, (c) designation of additional municipal bus operators under criteria enumerated in the LACMTA Act, (d) approval of all final rail corridor selections, (e) final approval of labor contracts covering employees of LACMTA and its organizational units, (f) establishment of LACMTA s organizational structure, (g) conducting hearings and setting fares for the operating organizational units, (h) approval of transportation zones, (i) approval of any debt instrument with a maturity date exceeding the end of the Fiscal Year in which it is issued, (j) approval of benefit assessment districts and assessment rates and (k) approval of contracts for construction and transit equipment acquisition which exceed $5,000,000 and making findings in connection with certain procurement decisions. The current members of the Board and a brief biography of each member are provided below. Eric Garcetti, Chair. Mr. Garcetti was elected Mayor of Los Angeles in From 2001 until taking office as Mayor, Mr. Garcetti served on the Los Angeles City Council representing the Thirteenth District and was elected to serve as President of the Los Angeles City Council four times from 2006 to Mr. Garcetti earned his B.A. and M.A. from Columbia University. He has also studied as a Rhodes Scholar at Oxford and the London School of Economics and taught at Occidental College and University of Southern California. A-1

46 Mark Ridley-Thomas, First Vice-Chair. Mr. Ridley-Thomas was elected to the Board representing the Second Supervisorial District in November 2008 and was reelected in June Previously, he served as a California State Senator, 26th District, 2006 to 2008, and chaired the Senate Committee on Business, Professions and Economic Development. Mr. Ridley-Thomas was first elected to public office in 1991, serving on the Los Angeles City Council for nearly a dozen years during which time he sat on the Board. He later served two terms in the California State Assembly, where he chaired the Committee on Jobs, Economic Development and the Economy and the Assembly Democratic Caucus. He earned a baccalaureate degree in Social Relations, minor in Government, and a master s degree in Religious Studies (concentration in Christian Ethics) from Immaculate Heart College. Mr. Ridley-Thomas received his Ph.D. in Social Ethics and Policy Analysis from the University of Southern California. John Fasana, Second Vice-Chair. Mr. Fasana has served on the Duarte City Council since 1987, and served as Mayor of the City of Duarte in 1990, 1997, 2004, and Mr. Fasana was selected by the Los Angeles County City Selection Committee and has represented the San Gabriel Valley Sector on the Board since its inception in Mr. Fasana serves as Chair of the San Gabriel Valley Council of Governments Transportation Committee and is a member of the board of the Metro Gold Line Foothill Extension Construction Authority. Mr. Fasana has worked 30 years with Southern California Edison and is a graduate of Whittier College with a Bachelor of Arts in Business Administration. Michael D. Antonovich. Mr. Antonovich has been the Los Angeles County Supervisor representing the Fifth Supervisorial District since his election in From 1972 to 1978, he served as a member of the California State Assembly. He also served as a member of the Board of Trustees of the Los Angeles Community College District from 1968 to Mr. Antonovich has held teaching positions with the Los Angeles Unified School District and Pepperdine University. He holds a Bachelor of Arts and master s degree from California State University, Los Angeles. Mike Bonin. Mr. Bonin was recently elected to Los Angeles City Council to represent the Eleventh District. He was appointed to the Board by Mayor Garcetti in July 2013 and acts as Chair of the City Council s Transportation Committee and as Vice Chair of the Metro Exposition Line Construction Authority. Previously, Mr. Bonin served as chief deputy to former Councilmember Bill Rosendahl. In that role, he was an alternate member on the Board of the Metro Exposition Line Construction Authority and a Co-Chair of the North Runway Safety Advisory Committee. He has also served as district director for U.S. Congresswoman Jane Harman and deputy chief of staff for Councilmember Ruth Galanter and is co-founder and program director of Camp Courage, a training program for LGBT community organizers. Mr. Bonin received his B.A. in U.S. History from Harvard University. Diane DuBois. In January 2009, the California League of Cities Los Angeles County Division appointed Lakewood City Councilmember Diane DuBois to the Board representing the Southeast Long Beach Sector. Councilmember DuBois was elected to the City Council of Lakewood in Prior to her City Council service, she was a Lakewood Planning and Environment Commissioner for 28 years. She has been a board member and volunteer of Lakewood Meals On Wheels, a board member of the Greater Long Beach Girl Scout Council, a governing board member of Lakewood Regional Medical Center, a member of Soroptimists International of Lakewood/Long Beach, and a volunteer at Pathways Volunteer Hospice. Jacquelyn Dupont-Walker. Ms. Dupont-Walker is the founding President of Ward Economic Development Corporation, a faith-based community development organization and is chair of the USC Master Plan Advisory Committee where she represents the residents of the West Adams district. She was appointed to the Board by Mayor Garcetti in July 2013 and is involved in numerous other civic organizations. She serves as the AME Church International Social Action Officer and as the Social Action Chair of Delta Sigma Theta Century City. Don Knabe. Mr. Knabe is the Los Angeles County Supervisor representing the Fourth Supervisorial District, having been elected in 1996 and re-elected in 2000, 2004, 2008 and Alongside a successful career as a small business owner, Mr. Knabe was elected to the Cerritos City Council in 1980 and served for eight years, including two terms as Mayor. Mr. Knabe was appointed to the President s Homeland Security Advisory Council and was Chair of the State and Local Officials Senior Advisory Committee. He holds a bachelor s degree in Business Administration from Graceland College in Lamoni, Iowa. A-2

47 Paul Krekorian. Mr. Krekorian was elected to the Los Angeles City Council to represent the Second District in 2009 and was re-elected in He was appointed to the Board by Mayor Garcetti in July Prior to his election to the Los Angeles City Council, he represented California s 43rd Assembly District in the California State Assembly for three years. Prior to being elected to public office, Mr. Krekorian served as President of the Burbank Board of Education and practiced law. He attended the University of Southern California and later earned his Juris Doctor from the University of California, Berkeley, School of Law. Sheila Kuehl. Ms. Kuehl was elected to the Board representing the Third Supervisorial District in Ms. Kuehl served eight years in the State Senate and six years in the State Assembly, and, in 2008, left the legislature under California's term limits statute. She served as Founding Director of the Public Policy Institute at Santa Monica College. In 2012, she was appointed Regents' Professor of Public Policy at UCLA. Prior to her election to the Legislature, Ms. Kuehl was a law professor at Loyola, UCLA and USC Law Schools and co-founded and served as managing attorney of the California Women s Law Center. She graduated from Harvard Law School in She served on the Harvard University Board of Overseers from 1998 to Ara Najarian. Mr. Najarian was elected to the Glendale City Council in April of 2005 and re-elected in 2009 and 2013; he served as Mayor from 2007 to 2008 and 2010 to He was selected to the Board in 2006 by the Los Angeles County City Selection Committee to represent the North County/San Fernando Valley Sector. He served as LACMTA Chairman from He is past Chair of the Glendale Housing Authority and previously served as Chair of the Glendale Redevelopment Agency. He was elected to serve on the Glendale Community College Board of Trustees from 2003 to Mr. Najarian was Chair of the Glendale Transportation and Parking Commission. Mr. Najarian also serves on Metrolink s Board of Directors. Mr. Najarian has been an attorney in private practice in Glendale for 25 years. He attended Occidental College where he received a Bachelor of Arts in Economics and later earned his Juris Doctor from University of Southern California School of Law. Pam C. O Connor. Ms. O Connor has served on the Santa Monica City Council since 1994 and has served as that city s mayor in 1997, 1999 and Ms. O Connor was appointed to the Board in 2001 by the Los Angeles County City Selection Committee to represent the Southwest Corridor Sector. She has served as a member of the Southern California Association of Governments Regional Council and the League of California Cities transportation and public works committee. Ms. O Connor also works as a private consultant, specializing in historic preservation. Ms. O Connor earned a Bachelor of Science in journalism from Southern Illinois University and holds master s degrees in historic preservation planning and in technology management from Eastern Michigan University. Hilda L. Solis. Ms. Solis was elected to the Board representing the First Supervisorial District in Prior to her election to the Board, Ms. Solis was confirmed as Secretary of Labor on February 24, 2009, becoming the first Latina to serve in the United States Cabinet. Prior to confirmation as Secretary of Labor, Secretary Solis represented the 32nd Congressional District in California, a position she held from 2001 to Solis graduated from California State Polytechnic University, Pomona, and earned a Master of Public Administration from the University of Southern California. A former federal employee, she worked in the Carter White House Office of Hispanic Affairs and was later appointed as a management analyst with the Office of Management and Budget in the Civil Rights Division. Carrie Bowen, Ex Officio Member. Ms. Bowen became the Acting Director of the California Department of Transportation District 7 in August She was appointed to the Board by Governor Brown in August 2013 and provides oversight to all divisions including administration, construction, design, environmental, external affairs, maintenance, operations, planning, project management and right-of-way. Previously, Ms. Bowen served as District 10 Director, following her appointment in January She has worked for Caltrans for approximately 30 years, rising to the position of Deputy District Director for the Central Region, Environmental Division. In addition to her work with Caltrans, Ms. Bowen also served on Assemblyman Jim Costa s staff from 1985 to Management General. The management of LACMTA is carried out under the direction of its Chief Executive Officer, who performs any duties delegated to him or her by the Board. The Board also appoints a General Counsel, Inspector General and Board Secretary. The Chief Executive Officer serves at the pleasure of the Board, as do the A-3

48 General Counsel, Inspector General and Board Secretary. Certain of LACMTA s executives and a brief biography of each executive are provided below. Chief Executive Officer. Arthur T. Leahy became LACMTA s Chief Executive Officer in April Prior to his appointment as Chief Executive Officer of LACMTA, Mr. Leahy was the chief executive officer of the Orange County Transportation Authority ( OCTA ), a county-wide transportation agency, where he oversaw planning, financing and coordination for Orange County s freeway, street and rail development, bus service, commuter rail service and paratransit services for the disabled, among other transportation programs. Prior to his service at OCTA, Mr. Leahy served as general manager of the transit agency in Minneapolis-St. Paul between 1997 and Mr. Leahy began his transit career in 1971 driving a bus for the District, a predecessor of LACMTA, while attending college, eventually becoming the head of the Operations Division for LACMTA, before taking the Minneapolis chief executive job. Mr. Leahy earned a bachelor s degree in political science from California State University, Los Angeles and a master s degree in Public Administration from the University of Southern California. Executive Director, Finance and Budget. Nalini Ahuja was appointed as Executive Director, Finance and Budget in February Prior to her appointment as Executive Director, Finance and Budget, Ms. Ahuja served as LACMTA s Executive Director, Office of Management, Budget & Local Programming from 2010 to 2012, at which point her duties were expanded to include oversight of LACMTA s Transit Access Pass ( TAP ) operations. As the Executive Director, Finance and Budget, she is responsible for oversight of LACMTA s Office of Management, Budget, Local Programming & TAP operations and the agency s Financial Services including accounting and treasury functions. She has also served LACMTA as Director, Countywide Planning; Transportation Manager V, Local Programming; Acting Budget Director, Office of Management & Budget; and Project Manager, South Bay Area Team. Ms. Ahuja began her career with LACMTA s predecessor, the Los Angeles County Transportation Commission, in 1986, as a technical and administrative analyst which led to her position as Project Manager with the South Bay Area Team in Ms. Ahuja earned a Bachelor s Degree in Economics from Miranda House, University of Delhi as well as a Master s Degree in Economics from Delhi School of Economics and a Master s Degree in Urban Planning from UCLA. Treasurer. Donna R. Mills was appointed Treasurer in July 2013, following her appointment to Interim Treasurer in January Ms. Mills previously served LACMTA as Assistant Treasurer beginning in April 2001, and as Senior Investment Manager beginning in December As Treasurer, she is responsible for directing LACMTA s revenue collection, investment management and debt management programs, and for overseeing pension and benefits administration. Prior to joining LACMTA, Ms. Mills served as a Financial Planning Administrator and as Cash Manager for Pacific Enterprises. She also worked as a Banking Analyst and as a Research Assistant for the Federal Reserve Bank of Philadelphia. Ms. Mills holds a Bachelor of Arts in Economics and Sociology from the University of Pennsylvania and an MBA from the University of California, Berkeley. Public Transportation Services Corporation In December 1996, LACMTA created the Public Transportation Services Corporation ( PTSC ), a nonprofit public benefit corporation organized under the laws of the State. PTSC was created in order to transfer certain functions, then performed by LACMTA, and the employees related to those functions, to this new corporation. The purpose of PTSC is to conduct essential public transportation activities including but not limited to the following: (a) to coordinate multimodal multi-jurisdictional transportation planning; (b) to program federal, State and local funds for transportation projects County-wide within the County; (c) to oversee construction; (d) to provide certain administrative services to the Los Angeles County Service Authority for Freeway Emergencies and the Southern California Regional Rail Authority; (e) to provide administrative support and security services for the foregoing and to the operation of LACMTA s bus and rail system; and (f) such other activities and services as it deems necessary. One advantage of PTSC is that it allows its employees, including those transferred from LACMTA, to participate in the California Public Employees Retirement System. TRANSPORTATION SERVICES LACMTA is a multi-faceted transportation agency responsible for the coordination of transportation policy, funding and planning within the County as well as the development and operation of bus, rail, highway and commuter rail within the greater Los Angeles region. This breadth of services distinguishes LACMTA from other A-4

49 transportation agencies across the country. Most other transportation agencies specialize in three or fewer of the referenced transportation services. Bus System LACMTA operates the second largest bus system in the United States. LACMTA provides bus service within its service area in the County and to portions of Orange and Ventura Counties, operating a vehicle fleet of over 2,200 buses. LACMTA s bus system covers 183 routes and serves approximately 16,000 bus stops, including two premium bus rapid transit dedicated busways. Systemwide, LACMTA buses provide approximately 6.9 million revenue service hours annually with an average of approximately 1.1 million weekday boardings for the three month period ended September 30, 2014 and total boardings of 87.3 million for the three month period ended September 30, 2014, including Orange Line busway ridership. In addition, LACMTA contracts with outside service providers, with approximately 54,100 average weekday boardings for the three month period ended September 30, Virtually all of LACMTA s bus fleet is composed of compressed-natural gas ( CNG ) powered buses. As of October 1, 2014, the average age of LACMTA s bus fleet was approximately 8.4 years. Metro Rapid Bus. In June 2000, LACMTA launched the Metro Rapid Demonstration Program ( Metro Rapid ). Initially, Metro Rapid consisted of two lines one along Ventura Boulevard in the San Fernando Valley and the other along the Wilshire/Whittier transit corridor. In September 2002, based on the success of Metro Rapid, the Board adopted the Metro Rapid Five-Year Implementation Plan that identified additional Metro Rapid corridors to be implemented through Fiscal Year All of the 25 Metro Rapid corridors are now operating, covering approximately 400 miles in the City of Los Angeles, the County and 34 other cities. In addition to LACMTA, Santa Monica s Big Blue Bus, Culver CityBus and Torrance Transit operate Metro Rapid. The Metro Rapid Program provides fast, frequent regional bus service throughout the County. Key features of the Metro Rapid Program include simple route layouts, frequent service, fewer stops, low-floor buses to facilitate boarding and alighting, color-coded buses and stations, and traffic signal priority. Metro Orange Line. The Metro Orange Line is a 14-mile Bus Rapid Transit service that operates along an exclusive right-of way and transports thousands of commuters between Warner Center in the west San Fernando Valley to the Metro Red Line subway station in North Hollywood. The Metro Orange Line buses operate in exclusive lanes along a 13-mile stretch of LACMTA-owned right-of-way and one mile in mixed flow traffic on public streets. The Metro Orange Line has 14 stations, each located roughly one mile apart, with park and ride facilities at seven stations providing approximately 4,700 parking spaces. The Metro Orange Line opened in October 2005, at a total cost of $273.1 million. The Metro Orange Line Extension Project (the MOL Extension ), a four-mile extension of the Metro Orange Line extending from the Canoga park-and-ride lot to the Chatsworth Amtrak/Metrolink Station, opened in June The MOL Extension includes: the busway, new station platforms at the Canoga park-and-ride lot, and new stations at Sherman Way, Roscoe Boulevard, Nordhoff Street, and the Chatsworth Metrolink Station, and added an additional 800 parking spaces. The original budget was $215.6 million, which was subsequently reduced to an estimated total cost for the MOL Extension of $154.0 million. Highway System The High Occupancy Vehicle ( HOV ) lane program is a cooperative effort between Caltrans and LACMTA, and is funded through a combination of federal, State and local resources. As part of a congestion reduction demonstration program, LACMTA has converted I-10 and I-110 High Occupancy Vehicle ( HOV ) Lanes to High Occupancy Toll Lanes and provide the choice for drivers of single occupant vehicles to pay to travel in a high occupancy lane, based on congestion pricing. The general purpose lanes on these highways are not tolled. This program also includes improvements to the transit service along the freeways, transit facility improvements and increased funding for vanpools. LACMTA also provides highway construction funding and traffic flow management. Rail System General. In 1992, the Commission developed a comprehensive rail rapid transit system development plan (the Rail System ) which has been revised from time to time. The Rail System currently consists of four light rail A-5

50 lines: the Metro Blue Line, the Metro Green Line, the Metro Gold Line (including the Gold Line Eastside Extension) and the Exposition Project; and two heavy rail lines: Metro Red Line and the Metro Purple Line. Metro Blue Line. The Metro Blue Line was designed as a modern, state-of-the-art light rail transit line, which extends approximately 22 miles from downtown Los Angeles, where it links to the Metro Red Line, to the City of Long Beach. The Metro Blue Line passes through portions of the cities of Los Angeles, Long Beach, Compton, Carson and other cities, and certain unincorporated areas of the County. A portion of the Metro Blue Line utilizes a reserved, but not necessarily grade-separated, right-of-way on which electrically powered vehicles, drawing current from overhead wire, operate singly or in trains. Passenger service began in July 1990 and had estimated ridership of approximately 7.0 million for the three month period ended September 30, The Metro Blue Line consists of a dual-track line with 22 stations, with a fleet of 54 articulated rail cars and a primary maintenance facility and yard located in Long Beach adjacent to the Long Beach Freeway with a storage and maintenance capacity of 89 vehicles. The vehicle maintenance facility supports vehicles from both the Metro Blue Line and the Metro Green Line. Total travel time between the terminal points of the Metro Blue Line is approximately 58 minutes. The Metro Blue Line project budget was $877 million and the project was completed within budget. Metro Green Line. The Metro Green Line is a 19.5-mile light rail line linking the El Segundo employment area near the Los Angeles International Airport to the City of Norwalk near the San Gabriel River Freeway. The Metro Green Line has 14 stations including a station that intersects the Metro Blue Line and one that provides passenger connections to the Harbor Freeway Transitway, an elevated busway developed by Caltrans. Travel time between the terminal points of the Metro Green Line is approximately 35 minutes. The Metro Green Line began operations in August 1995, and had estimated ridership of approximately 3.2 million for the three month period ended September 30, The Metro Green Line Project budget was $712.3 million and the project was completed within budget. Metro Gold Line and Gold Line Eastside Extension. The Metro Gold Line (formerly known as the Pasadena Gold Line) is a 13.7-mile light rail line which extends from downtown Los Angeles (where it links to the Metro Red Line) to the City of Pasadena. The Metro Gold Line consists of a dual-track line with 13 stations. Travel time of the Metro Gold Line between the Sierra Madre Villa station and downtown Los Angeles is approximately 35 minutes. The Metro Gold Line began operations in July The Metro Gold Line project budget was $725 million, $451 million of which was funded by the Pasadena Metro Blue Line Construction Authority and $274 million of which was funded by LACMTA. The Gold Line Eastside Extension Project ( Eastside Extension ), which opened in November 2009, is a six-mile, dual track light rail system with eight new stations and one station modification. The system originates at Union Station in downtown Los Angeles, where it connects with the Metro Gold Line, traveling generally east to Pomona and Atlantic Boulevards through one of the most densely populated areas of the County. The total estimated project cost for the Eastside Extension is $898.8 million. Estimated ridership for the Metro Gold Line, including the Eastside Extension, was approximately 3.5 million for the three month period ended September 30, Gold Line Foothill Extension. LACMTA has been working with the Metro Gold Line Foothill Extension Construction Authority to extend the existing Metro Gold Line from its current terminus in Pasadena to Montclair. The extension consists of two phases. Phase One will continue from Sierra Madre Villa in Pasadena east over 11 miles with stops in the cities of Arcadia, Duarte, Irwindale, Monrovia and two in Azusa. Phase One is currently being constructed, with revenue operations forecasted for $777 million of Measure R Sales Tax revenues have been committed to Phase One of the Metro Gold Line Foothill Extension. Funding is currently being sought for the second phase, which would continue east from Azusa to Montclair. Exposition Light Rail Transit Project. The Exposition Light Rail Transit Project (the Exposition Project ) is a light rail project under development by LACMTA that is being designed and constructed by the Exposition Metro Line Construction Authority ( Exposition Authority ), a single purpose entity created under State law. When completed, the light rail line will be approximately 15 miles and run from downtown Los Angeles to Santa Monica along the Exposition Boulevard corridor. Construction on the Exposition Project began in September Phase One of the project, which fully opened in June 2012, extends approximately 8.6 miles from downtown Los Angeles A-6

51 to Venice/Robertson in Culver City. Estimated ridership for Phase One of the Exposition Project was approximately 2.6 million for the three month period ended September 30, Since April 2005, the Board approved several increases to the original full funding plan for Phase One of the Exposition Project of $640 million, and the current approved budget is $971 million. Pursuant to the current full funding plan for Phase One, approximately 84% of the projected total costs are to be paid from State and federal sources, and the remainder are to be paid from Proposition A Sales Tax revenues, Proposition C Sales Tax revenues and other local sources. Phase Two of the Exposition Project, which is currently under construction, will extend westward from the Venice/Robertson station, primarily along the old Pacific Electric Exposition right-of-way, to 4th Street and Colorado in downtown Santa Monica. In February 2011, the Board approved a budget of $1.5 billion for Phase Two of the Exposition Project, of which approximately 52% of the costs are expected to be paid from Measure R Sales Tax revenues, 26% from Proposition A Sales Tax revenues, Proposition C Sales Tax revenues and other local sources, and the remainder from federal and State sources. Metro Red Line and Metro Purple Line. The Metro Red Line and Metro Purple Line were designed as state-of-the-art, modern heavy rail subway lines comparable to transit systems in San Francisco, Atlanta and Washington, DC. The Metro Red Line and Metro Purple Line are dual-rail steel-wheeled, high speed rapid subway systems that originally were to consist of a 19.7 mile 18-station line that was to connect the Los Angeles central business district to the San Fernando Valley, through the Wilshire Corridor and Hollywood, and to East Los Angeles through Union Station. However, due to the Act of 1998 and federal and State funding shortfalls, the development of the Metro Red Line and the Metro Purple Line has been drastically reduced, including the indefinite suspension of certain of the extensions. The Act of 1998 prohibits LACMTA from utilizing any of the Proposition A Sales Tax or the Proposition C Sales Tax revenues for the costs of planning, design, construction or operation of any new subway, including debt service on any obligations issued for such purposes after March 30, However, LACMTA is not precluded from continuing the construction of the Metro Red Line and the Metro Purple Line as long as such design, construction and operation are paid from funds other than Proposition A Sales Tax revenues and Proposition C Sales Tax revenues. The initial 4.4-mile Metro Red Line Segment 1 extends from Union Station to Alvarado Street in the downtown section of the City of Los Angeles, with five stations located along the line. Segment 1 began operating in January The total cost of constructing Segment 1 was $1.45 billion. In addition to constructing the rail line, the total cost of Segment 1 included the purchase of passenger vehicles, fare collection equipment, automatic train control equipment, the yards and shops required for the full construction of the Metro Red Line alignment. Segment 2 of the Metro Red Line is 6.8 miles long with eight stations extending west from Alvarado Street to Vermont Avenue where it branches north and west. The west branch continues west under Wilshire Boulevard to Western Avenue. The west branch became operational in July 1996 and was renamed the Purple Line in August The north branch turns up Vermont Avenue and travels through Hollywood to Hollywood Boulevard and Vine Street. The north branch opened for service in June The total cost of Segment 2 was $1.81 billion. Segment 3 of the Metro Red Line was originally designed to consist of the north and west extensions from Segment 2 and an east extension from Union Station of Segment 1. As a result of the passage of the Act of 1998, funding shortfalls and the internal guidelines adopted by the Board, only the north extension was completed. The eastside extension has been reengineered as a light rail line. See Metro Gold Line and Gold Line Eastside Extension above. The north extension runs west and north from the Segment 2 Hollywood and Vine station to a North Hollywood station with two intermediate stops. This final segment of the subway opened in June The total cost of the North Hollywood segment was $1.29 billion. The ridership estimate for the entire Metro Red Line and Metro Purple Line was approximately 12.3 million for the three month period ended September 30, As currently planned, primary passenger access to the Metro Red Line will be provided from the Orange Line, other rail projects and from LACMTA s extensive bus network. The extension of the Metro Purple Line from its current terminus at Wilshire and Western to the Westside of Los Angeles is included in LACMTA s Long Range Transportation Plan. The Westside Subway Extension is currently estimated to extend approximately nine miles from its current terminus and is expected to be A-7

52 constructed in three sections. See FUTURE TRANSPORTATION IMPROVEMENTS Long Range Transportation Plan below. Commuter Rail. The Southern California Regional Rail Authority ( SCRRA ) oversees commuter rail services in the region that includes Los Angeles, Riverside, Ventura, Orange, San Bernardino and San Diego Counties. SCRRA operates the Metrolink system, which consists of seven lines totaling 512 miles and 55 stations and is primarily geared toward providing commuter rail service from outlying communities to downtown Los Angeles. Average weekday boardings were approximately 38,200 for the first quarter of fiscal year LACMTA is the Los Angeles County participant in SCRRA and contributes funds to SCRRA. Other participants include the Orange County Transportation Authority, the Riverside County Transportation Commission, the San Bernardino Association of Governments and the Ventura County Transportation Authority. FUTURE TRANSPORTATION IMPROVEMENTS LACMTA, as the State-designated planning and programming agency for the County, identifies future transportation needs and transportation funding and construction priorities in the County. LACMTA prepares a Long Range Transportation Plan that identifies the costs of major transportation projects and the anticipated funding sources. Long Range Transportation Plan General. In October 2009, the Board approved a 2009 Long Range Transportation Plan ( 2009 LRTP ), which updated the prior long range transportation plan. The 2009 LRTP identifies projected costs of planning, constructing and running the transportation system based on a financial forecast of future revenue assumptions through During the planning process, data was reviewed that predict where and what the current challenges are on the existing transportation system, where mobility issues could arise in 2040, and how the transportation system could be improved with new investments. The 2009 LRTP reflects LACMTA s assessment of growth patterns, regional congestion, strategies to improve local air quality, transit-oriented development, the latest technical assumptions and climate change issues, and incorporates Measure R projects. The 2009 LRTP identified a $297.6 billion countywide investment in the County s transportation system through 2040, funded with more than 45 sources of federal, State and local funds. The 2009 LRTP is now the guiding policy behind funding decisions on subsequent transportation projects and programs in the County. Major capital projects and programs that are identified in the 2009 LRTP have priority for future programming of funds. While these projects and programs require further Board approval at various stages of their development, they are priorities for further planning, design, construction and the pursuit of additional funding. Projected Debt. In May 2013, the Board approved an update to assumptions in the 2009 LRTP, including projections of debt financing by LACMTA of $7.5 billion from Fiscal Year 2013 through Fiscal Year 2040, composed of a combination of Proposition A, Proposition C and Measure R-secured debt. Of the total projected amount of LACMTA debt issuance, approximately $4.5 billion is estimated to be financed through Fiscal Year The actual amount and timing of any debt issuance depends on a number of factors including the actual scope, timing and cost of transportation projects, the ability to obtain funding from other sources and the amount of Proposition A, Proposition C and Measure R sales tax revenues available to fund the projects in the LRTP, and the actual amounts and timing of future debt issuance may be materially different from the estimate in the May 2013 update of the 2009 LRTP. Short Range Transportation Plan. In July 2014, the Board approved the 2014 Short Range Transportation Plan ( 2014 SRTP ), which identifies the ten-year plan through 2024, based on the long-term goals identified in the 2009 LRTP. The 2014 SRTP updates the assumptions about debt issuance and assumes approximately $2.4 billion in new debt financing from Fiscal Year 2015 through Fiscal Year 2019, not including the TIFIA loans described below under Transit Projects. The 2014 SRTP assumes the issuance of approximately $933 million in additional Proposition A Senior Bonds through Fiscal Year Based on historical practice, LACMTA expects that actual bond issuance during this period will be less. A-8

53 Transit Projects. The May 2013 update of the 2009 LRTP included the Crenshaw/LAX Transit Corridor, the Regional Connector and the Westside Purple Line Subway Extension Section 1 as major transit projects currently planned to be under construction in the first decade of the LRTP. These are in addition to the Gold Line Foothill Extension and Phase 2 of the Exposition Project discussed above under Rail System Gold Line Foothill Extension and Exposition Light Rail Transit Project. The Crenshaw/LAX Transit Corridor Project is a north/south corridor that serves the cities of Los Angeles, Inglewood, Hawthorne and El Segundo as well as portions of unincorporated Los Angeles County. The alignment extends 8.5 miles, from the intersection of Crenshaw and Exposition Boulevards to a connection with the Metro Green Line at the Aviation/LAX Station. The total project budget is $2.058 billion. The project has been approved to receive a $545.9 million Transportation Infrastructure Finance & Innovation Act ( TIFIA ) loan, to be repaid from Measure R revenues, although LACMTA has not drawn any loan proceeds to date. The Regional Connector is a 1.9 mile light rail line with three underground stations in downtown Los Angeles. The Project will provide a direct connection from the 7th/Metro Center Station to the existing Metro Gold Line tracks to the north and east of 1st and Alameda. This connection will provide through service between the Metro Blue Line, Metro Gold Line and Metro Exposition Line corridors, enhancing regional connectivity. The total project budget is $1.460 billion. LACMTA has been awarded a $669.9 million Full Funding Grant Agreement in Federal New Starts funds for the Regional Connector project. LACMTA has been approved for a $160 million TIFIA loan for the project, to be repaid from Measure R revenues, although LACMTA has not drawn any loan proceeds to date. The Westside Purple Line Extension is an extension of the Purple Line from its current terminus at Wilshire and Western. The LACMTA Board has certified the Final Environmental Impact Report (FEIR) and has adopted the Project definition for the nine-mile Westside Subway Purple Line Extension Project. The Project currently is planned to be constructed in three sections. Section 1 is planned to extend 3.92 miles from the existing Wilshire/Western Station to a terminus station at the intersection of Wilshire/La Cienega. The total project budget is $2.86 billion for Section 1. LACMTA has been awarded a $1.25 billion Full Funding Grant Agreement in Federal New Starts funds for the Westside Subway Extension Section 1 project and was approved for a TIFIA loan for $856 million to be repaid from Measure R revenues, although LACMTA has not drawn any loan proceeds to date. General LABOR RELATIONS As of November 1, 2014, LACMTA had approximately 9,470 employees, of which approximately 87% are covered by labor agreements. Full and part-time LACMTA bus and train operators are represented by the United Transportation Union ( UTU ); LACMTA mechanics and service attendants are members of the Amalgamated Transit Union ( ATU ); LACMTA clerks are members of the Transportation Communications Union ( TCU ); bus and rail transportation and maintenance supervisors are members of the American Federation of State County and Municipal Employees ( AFSCME ); and LACMTA security guards are members of the Teamsters Union. The following table summarizes the number of employees covered by the labor agreements of LACMTA with each of its employee bargaining units as of November 1, 2014 and the current expiration dates of the labor agreements. Employee Bargaining Unit Number of Employees Contract Expiration Date United Transportation Union 4,390 06/30/17 Amalgamated Transit Union 2,265 06/30/17 Transportation Communications Union /30/17 Am. Fed. of State, County and Municipal Employees /30/17 Teamsters Union 77 06/30/14 LACMTA is currently in discussions with the Teamsters Union. A-9

54 Since September 16, 2000, LACMTA has suffered two major work stoppages. In September 2000, members of UTU went on strike and many members of TCU, ATU and AFSCME honored the picket lines, and in October 2003, members of ATU went on strike and many members of UTU, TCU and AFSCME honored the picket lines. During both strikes LACMTA was able to provide substitute service on a limited basis through contracted services and other operators. The strike in 2000 lasted 32 days and the strike in 2003 lasted 35 days. Defined Benefit Pension Plan LACMTA has a single-employer public employee retirement system that includes five defined benefit plans (the Plans ) that cover substantially all employees (except PTSC employees) and provides retirement, disability, and death benefits. The benefit provisions and all other requirements are established by State statute, ordinance, collective bargaining agreements or Board actions. Four of the Plans are restricted to specific union members, while the fifth provides benefits to non-represented employees and to members of the Teamsters Union. In addition, LACMTA provides pension benefits to most PTSC employees through a defined benefit plan administered by the California Public Employees Retirement System ( PERS ), a multiple-employer pension system. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. For a description of these defined benefit plans and LACMTA s obligations to make contributions to these plans, see Note III DETAILED NOTES ON ALL FUNDS J. Pensions in the Notes to the Financial Statements in APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Other Post-Employment Benefits LACMTA provides post-employment health care and life insurance benefits for retired employees and their families. Pursuant to Governmental Accounting Standards Board Pronouncement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (OPEB), LACMTA is required to account for its expenses and a portion of the present value of future expenses related to these benefits. For a description of these benefits, LACMTA s obligations to account for certain projected future costs of these benefits and other matters regarding these benefits, see Note III DETAILED NOTES ON ALL FUNDS J. Other Postemployment Benefits (OPEB) in the Notes to the Financial Statements in APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, General OUTSTANDING DEBT In addition to obligations issued by LACMTA that are secured by Proposition A Sales Tax, LACMTA has issued debt secured by the Proposition C Sales Tax, the Measure R Sales Tax, and other revenues of LACMTA, and may issue additional obligations so secured upon satisfaction of certain additional bonds tests in the applicable indentures governing such debt. See FUTURE TRANSPORTATION IMPROVEMENTS Long Range Transportation Plan above. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2014-A BONDS in the front part of this Official Statement for a discussion of obligations secured by the Proposition A Sales Tax. Debt and Interest Rate Swap Policies In February 2014, the Board approved an updated Debt Policy for LACMTA (the Debt Policy ). The Debt Policy sets forth guidelines for the issuance and management of LACMTA s debt. Among other things, the Debt Policy sets forth allowable uses of debt and debt policy maximums. It requires LACMTA to develop a capital improvement plan which includes the capital projects LACMTA plans to undertake in future years. The Debt Policy also sets forth guidance on the type of debt that may be incurred by LACMTA (e.g., long-term versus short-term), the source of payment for such debt, and other factors to be considered when incurring debt. A-10

55 In February 2014, the Board approved an updated Interest Rate Swap Policy for LACMTA (the Swap Policy ). The Swap Policy includes guidelines to be used by LACMTA when entering into interest rate swaps and management practices that address the special risks associated with interest rate swaps. The Swap Policy requires that LACMTA evaluate the risks, on an ongoing basis, of existing interest rate swaps. Proposition C Sales Tax Obligations General. LACMTA has two priority levels of obligations secured by the Proposition C Sales Tax: its Proposition C Senior Sales Tax Revenue Bonds and Proposition C Senior Parity Debt, and its Proposition C Subordinate Lien Obligations. In addition, LACMTA has incurred other obligations, which are secured by certain remaining Proposition C Sales Tax cash receipts. See Other Obligations below. Proposition C Senior Sales Tax Revenue Bonds. LACMTA had the following Proposition C Senior Sales Tax Revenue Bonds outstanding as of November 1, 2014: Los Angeles County Metropolitan Transportation Authority Proposition C Senior Sales Tax Revenue Bonds (Outstanding as of November 1, 2014) Proposition C Senior Sales Tax Revenue Bonds Principal Amount Senior Sales Tax Revenue Refunding Bonds, Series 2014-A $ 61,180,000 Senior Sales Tax Revenue Refunding Bonds, Series 2013-A 127,890,000 Senior Sales Tax Revenue Refunding Bonds, Series 2013-B 309,760,000 Senior Sales Tax Revenue Refunding Bonds, Series 2013-C 63,785,000 Senior Sales Tax Revenue Refunding Bonds, Series 2012-A 14,635,000 Senior Sales Tax Revenue Refunding Bonds, Series 2012-B 74,885,000 Senior Sales Tax Revenue Refunding Bonds, Series 2010-A 37,150,000 Senior Sales Tax Revenue Refunding Bonds, Series 2009-B 195,125,000 Senior Sales Tax Revenue Refunding Bonds, Series 2009-D 66,115,000 Senior Sales Tax Revenue Refunding Bonds, Series 2009-E 96,690,000 Senior Sales Tax Revenue Refunding Bonds, Series 2008-A 70,405,000 Senior Sales Tax Revenue Refunding Bonds, Series 2006-A 117,900,000 Total $1,235,520,000 Source: LACMTA. Proposition C Senior Parity Debt. LACMTA may designate as Proposition C Senior Parity Debt certain indebtedness, installment sale obligations, lease obligations or other obligations for borrowed money, or payment obligations under interest swaps or other arrangements payable on parity with the Proposition C Senior Sales Tax Revenue Bonds. LACMTA currently has no Proposition C Senior Parity Debt outstanding. LACMTA may incur Proposition C Senior Parity Debt upon the satisfaction of certain additional bonds tests. Proposition C Subordinate Lien Obligations. On June 9, 1993, LACMTA received authorization to issue and have outstanding, at any one time, up to $150,000,000 (principal of and interest thereon) of commercial paper notes (the Proposition C Commercial Paper Notes ) payable from and secured by Proposition C Sales Tax revenues. The Proposition C Commercial Paper Notes are payable from Proposition C Sales Tax revenue on a basis subordinate to the lien on Proposition C Sales Tax revenues granted to the Proposition C Senior Sales Tax Revenue Bonds and the Proposition C Senior Parity Debt. As of November 1, 2014, the Proposition C Commercial Paper Notes were outstanding with a maturity value of $20,399,000. The Proposition C Commercial Paper Notes are supported by a letter of credit (the Proposition C CP Letter of Credit ) issued by State Street Bank and Trust Company. LACMTA s reimbursement obligations with respect to the Proposition C CP Letter of Credit are payable from Proposition C Sales Tax revenues on a parity with the Proposition C Commercial Paper Notes. In addition, LACMTA is authorized to issue and have outstanding, from time to time, up to $75,000,000 in aggregate principal amount of its Subordinate Proposition C Sales Tax Revenue Revolving Obligations (the A-11

56 Proposition C Revolving Obligations ), which are payable from Proposition C Sales Tax revenues on a parity with the Proposition C Commercial Paper Notes and which are considered part of the $150,000,000 authorization for Proposition C Commercial Paper. As of November 1, 2014, LACMTA has $45,000,000 Proposition C Revolving Obligations outstanding. All Proposition C Revolving Obligations issued by LACMTA are purchased by the Wells Fargo Bank, National Association, in accordance with the terms of a revolving credit agreement (the Proposition C Revolving Credit Agreement ). The Proposition C Revolving Obligations bear interest at variable rates determined pursuant to the terms of the Proposition C Revolving Credit Agreement. Except as otherwise provided in the Proposition C Revolving Credit Agreement, the principal of all Proposition C Revolving Obligations outstanding are due and payable on April 22, However, subject to the terms of the Proposition C Revolving Credit Agreement, on April 22, 2016, LACMTA can convert any outstanding Proposition C Revolving Obligations to a term loan that will be payable in twelve equal quarterly installments following April 22, The following table sets forth certain terms of Proposition C Commercial Paper Notes, including the Proposition C CP Letter of Credit and the Proposition C Revolving Obligations. Proposition C CP Letter of Credit Proposition C Revolving Obligations Letter of Credit Provider State Street Bank and Trust Company Revolving Obligations Bank Wells Fargo Bank, National Association Principal Amount $68,885,000 Principal Amount $75,000,000 Expiration Date April 22, 2016 Expiration Date April 22, Plus $6,114,724 of interest. Source: LACMTA. 1 Can be converted to term loan payable in twelve equal quarterly installments. Measure R On November 16, 2010, LACMTA issued $732,410,000 aggregate principal amount of its Measure R Senior Sales Tax Revenue Bonds, Series 2010-A and Series 2010-B (the Measure R Bonds ) to finance certain transportation projects. These bonds are payable from the Measure R Sales Tax. As of November 1, 2014, there was $686,050,000 aggregate principal amount of the Measure R Bonds outstanding. LACMTA may incur additional debt secured by and payable from the Measure R Sales Tax. LACMTA has received approval for three TIFIA loans (though it has not drawn any loan proceeds to date), to be repaid from Measure R revenues. All three TIFIA loans are subordinate to the Measure R Bonds. See FUTURE TRANSPORTATION IMPROVEMENTS Long Range Transportation Plan Transit Projects for additional information on the TIFIA loans. Lease/Leaseback and Lease-to-Service Obligations From January 1997 through July 2003, LACMTA entered into ten defeased lease/leaseback leveraged lease agreements for assets including heavy rail vehicles, buses, light rail vehicles, and various real property operating facilities. Under these agreements, LACMTA entered into a head lease as lessor with an investor and simultaneously into a sublease agreement as lessee to lease the assets back. LACMTA received upfront rent prepayments which were invested in fixed income investments in an amount that, including interest income, would be sufficient to fund all scheduled sublease payments through exercise of an early buyout option. LACMTA has realized $64.7 million in net benefit after funding of fixed income investments and payment of transaction expenses. American International Group Inc. or its affiliates ( AIG ) provided a fixed income investment product known as a payment undertaking agreement ( PUA ) that was used in eight of the lease/leaseback transactions in order to invest the proceeds to fund all the scheduled rent payments and early buy-out option payments. In addition, LACMTA obtained credit enhancement from AIG and Assured Guaranty Municipal Corp. (as successor to Financial Security Assurance Inc.) ( AGM ) for several of the transactions. As a result of declines in AIG s and AGM s credit ratings, LACMTA was contractually obligated to replace the PUAs or provide credit enhancement for eight transactions. The remaining two were unaffected. A-12

57 LACMTA has terminated two of the eight affected leases and has entered into collateral posting agreements for four others. Issues remain with two of the affected leases and LACMTA is discussing potential solutions with the applicable lessors. Failure to reach a solution with respect to the two remaining affected transactions could result in early termination of the transactions and could require LACMTA to pay up to $41.98 million, plus legal costs. See Note III DETAILED NOTES ON ALL FUNDS M. Long-term Debt Lease/leaseback and Leaseto-service Obligations in the Notes to the Financial Statements in APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, General INVESTMENT POLICY Certain features of LACMTA s Investment Policy are summarized in Note III DETAILED NOTES ON ALL FUNDS A. Cash and Investments in the Notes to the Financial Statements in APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Investment Balances As of September 30, 2014 (based on unaudited financial information), LACMTA had approximately $825.4 million in market value deposited in non-discretionary bond proceeds and debt service trust accounts, primarily invested in U.S. Treasury securities, Federal Agencies, money market funds, forward purchase agreements and the County of Los Angeles Pooled Surplus Investments maintained by the County of Los Angeles Treasurer and Tax Collector. LACMTA had an additional approximately $1.701 billion in non-discretionary trust accounts, primarily for pension and OPEB. As of September 30, 2014, LACMTA also had approximately $1.89 billion in book value deposited in discretionary (operating) accounts. Such discretionary investments are summarized below: Percentage of Total Book Value as of Investments September 30, 2014 Local Agency Investment Fund 5.3% Bank Deposits 2.5 Managed Investments U.S. Treasuries 25.9 Federal Agencies 24.5 Corporate Notes 16.4 Commercial Paper 9.4 Municipal Securities 2.3 Money Market Funds 8.6 Asset Backed Securities 5.2 Sub Total Managed Investments 92.2 Total Cash and Investments* 100.0% * Numbers may not add due to rounding. Source: LACMTA. As of September 30, 2014, the liquid reserve of the discretionary accounts, which totaled approximately $539 million in both book value and market value, was managed internally by LACMTA and had an average maturity of 36 days. LACMTA s Investment Policy prohibits investing in reverse repurchase agreements. A-13

58 Additional information regarding LACMTA s investments are included in Note III DETAILED NOTES ON ALL FUNDS A. Cash and Investments in the Notes to the Financial Statements in APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Sales Tax Litigation LITIGATION AND OTHER REGULATORY ACTIONS On April 30, 1982, the California Supreme Court, in Los Angeles County Transportation Commission v. Richmond, upheld the constitutionality of the Proposition A Sales Tax. On March 3, 1992, the California Court of Appeal, in Vernon v. State Board of Equalization, upheld the validity of the Proposition C Sales Tax. On September 28, 1995, the California Supreme Court affirmed the California Court of Appeal s ruling in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a half cent sales tax by the Santa Clara County Local Transportation Authority. LACMTA does not believe such decision has any effect on the validity of LACMTA s Proposition A Sales Tax. Construction Litigation Tutor-Saliba-Perini ( TSP ), a joint venture construction company, filed suit against LACMTA claiming extra charges under certain Metro Red Line Segment 2 contracts. LACMTA cross-complained for violation of the California False Claims Act and for breaches of contract. The trial on the complaint and cross-complaint concluded in August 2001, with a judgment for LACMTA, which judgment was reversed in January After retrying portions of this case, certain rulings, including a jury verdict in favor of LACMTA on one of its cross-claims, a stipulation for judgment in favor of TSP on certain of its undisputed claims, and a final judgment in the case were entered and appeals were filed. In June 2014, the appellate court issued an opinion which upheld the jury verdict in favor of LACMTA. The opinion remanded the sureties request for $21,000,000 in attorneys fees from LACMTA to the trial court. LACMTA does not believe the outcome of the litigation will have a material adverse impact on its ability to pay debt service on any of its obligations. Kiewit Infrastructure West Co., f/k/a Kiewit Pacific Company, a Delaware corporation, in connection with a design/build contract for the I-405 Sepulveda Pass Widening Project, claims damages in the $350 million to $450 million range. LACMTA has rejected the claim and Kiewit has filed a complaint for declaratory relief, anticipatory breach of the dispute resolution and DRB (Disputes Review Board) process, breach of contract and breach of implied covenant of good faith and fair dealing. The case is pending and no trial date has been set. LACMTA does not believe the outcome of the litigation will have a material adverse impact on its ability to pay debt service on any of its obligations. Other Litigation In addition to the matters herein discussed, various other claims have been asserted against LACMTA. In the opinion of LACMTA, none of the pending claims will materially and adversely affect LACMTA s ability to pay the principal of and interest on any of its obligations. [THIS PAGE INTENTIONALLY LEFT BLANK.] A-14

59 APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 [THIS PAGE INTENTIONALLY LEFT BLANK.]

60 [THIS PAGE INTENTIONALLY LEFT BLANK.]

61 Los Angeles County Metropolitan Transportation Authority California comprehensive annual financial report for the fiscal year ended june 30, 2013

62 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Los Angeles, California COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 Prepared by the Accounting Department Josephine V. Nicasio, Controller Terry Matsumoto, Chief Financial Services Officer

63 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal... 1 Management Organizational Chart... 5 Board of Directors... 6 List of Board Appointed Officials... 7 FINANCIAL SECTION Independent Auditors Report... 9 Management s Discussion and Analysis Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Activities Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Net Position Proprietary Fund Enterprise Fund Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Fund Enterprise Fund Statement of Cash Flows Proprietary Fund Enterprise Fund Statement of Net Position Fiduciary Funds Statement of Changes in Net Position Fiduciary Funds Notes to the Financial Statements Required Supplementary Information: Schedule of Funding Progress - Pension Plans Schedule of Funding Progress - OPEB Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund Proposition A Fund Proposition C Fund Measure R Fund PTMISEA Fund Transportation Development Act Fund State Transit Assistance Fund i

64 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 TABLE OF CONTENTS Other Supplementary Information: Combining and Individual Fund Financial Statements and Schedules: Combining Balance Sheet Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual: Service Authority for Freeway Emergency Fund Other Special Revenue Funds Combining Statement of Fiduciary Net Position Employee Retirement Trust Funds Combining Statement of Changes in Fiduciary Net Position Employee Retirement Trust Funds STATISTICAL SECTION Financial Trends: Net Position by Component (Table 1) Changes in Net Position (Table 2) Fund Balances of Governmental Funds (Table 3) Changes in Fund Balances of Governmental Funds (Table 4) Revenue Capacity: Governmental Activities Sales Tax Revenues by Source (Table 5) Program Revenues by Source (Bus and Rail) (Table 6) Farebox Recovery Percentage by Mode (Table 7) Debt Capacity: Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Expenditures (Table 8) Historical Debt Service Coverage Ratios Proposition A, Proposition C and Measure R (Table 9) Graphical Presentation of Table 9 Proposition A, Proposition C, Measure R, and Debt Service Coverage Ratios Ratio of Outstanding Debt by Type (Table 10) Demographic and Economic Information: Demographic and Economic Statistics (Table 11) Ten Largest Employers in Los Angeles County (Table 12) Los Angeles County Taxable Transactions by Type of Business (Table 13) Operating Information: Business-type Activities Transit Operations: Operating Indicators by Mode (Table 14) Graphical Presentation of Table 14 Passenger Fares and Operating Expenses by Mode Passenger Boardings by Mode (Table 15) Operating Expenses by Function (Bus and Rail) (Table 16) Full-Time Equivalent Employees by Function (Table 17) Revenues and Operating Assistance Comparison to Transit Industry Trend (Table 18) Operating Expenses by Function Comparison to Transit Industry Trend (Table 19) ii

65 Introductory Section

66 December 20, 2013 The Board of Directors Los Angeles County Metropolitan Transportation Authority Los Angeles, California Dear Honorable Board of Directors: Subject: Comprehensive Annual Financial Report The Comprehensive Annual Financial Report for the Los Angeles County Metropolitan Transportation Authority (LACMTA) for the fiscal year ended June 30, 2013 is submitted herewith. State law requires LACMTA publish a complete audited financial statements within six months of the close of each fiscal year. LACMTA is required to undergo an annual Single Audit in conformity with the provisions of the Single Audit Act of 1984 and the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Information related to the Single Audit, including the schedule of federal financial assistance, findings, and recommendations, and auditors reports on the internal control structure and compliance with applicable laws and regulations are set forth in a separate Single Audit report. KPMG LLP, a firm of licensed certified public accountants, has issued an unmodified (clean) opinion on LACMTA s financial statements for the fiscal year ended June 30, The independent auditors report is located at the front of the financial section of this report. Management assumes full responsibility for the completeness and reliability of information contained in this report, based upon a comprehensive framework of internal controls. Because the cost of internal control should not exceed anticipated benefits, the objective of the controls is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. All material disclosures necessary to enable the reader to gain an understanding of LACMTA s financial activities have been included. The management s discussion and analysis (MD&A), shown on pages 11 to 25 provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. Profile of the Government LACMTA was created by State of California Assembly Bill 152, Los Angeles County Metropolitan Transportation Authority Reform Act of 1992, which became effective on February 1, LACMTA is unique among the nation s transportation agencies. It serves as transportation planner and coordinator, designer, builder, and operator of one of the country s largest and most 1

67 populous counties. More than 10 million people, nearly one-third of California s residents, live, work, and play within its 1,433-square-mile service area. As one of the largest providers of public transportation in the United States, LACMTA s coordinated systems have nearly half a billion bus and rail boardings a year. LACMTA s financial reports include the activities of the Public Transportation Service Corporation (PTSC), PTSC-MTA Risk Management Authority (PRMA), Exposition Metro Line Construction Authority (EXPO), Crenshaw Project Corporation (CPC) and the Service Authority for Freeway Emergencies (SAFE). Although they are legally separate entities, their activities are reported as blended component units in LACMTA s financial statements. Balancing LACMTA s FY14 Budget LACMTA began this process after adoption of the FY13 budget. The first step in the process was to update the Ten-Year Forecast using known parameters and future assumptions agreed to by the Executive Management. The Ten-Year Forecast included revenue and expense forecasts and trend analysis for all funds and major programs. The Ten-Year Forecast identified potential situations where deficits might occur and highlights instances when expenses growth pattern may not be in synch with related revenue growth. The $5.0 billion FY14 adopted budget is nearly 9% more than the LACMTA s FY13 budget. The increase is largely due to new highway and transit construction projects. Altogether, LACMTA is overseeing the largest public works program in the nation. More transit and highway projects will be either opening, under construction or in the planning stages in the coming year than at any other time in the history of Los Angeles County. LACMTA is also committed to maintaining and improving the safety, security, reliability and customer friendliness of LACMTA existing facilities and service. Budgetary Controls LACMTA s legal level of budgetary control is at the fund level. Comprehensive multi-year plans are adopted when major capital projects are approved and provide life-of-project budgetary control. The portion of costs expected to be incurred on each project during the fiscal year is included in annual appropriations. LACMTA maintains an encumbrance accounting system as another tool of budgetary control. The Board of Directors (Board) approves the budget by June 30 of each fiscal year. The annual budget establishes the legal level of appropriation. The budget includes operating, capital, regional funding, and other components necessary to implement the policy directions contained in previously Board adopted long-term plans such as the Long Range Transportation Plan (LRTP) and the more detailed Short Range Transportation Plan (SRTP). Local Economy Los Angeles County (County) covers more than 4,000 square miles with 88 dynamic cities that are culturally diverse and with approximately 10 million residents and the County would rank the 8 th largest state in the U.S. if it were a state. The County generates more than $500 billion in annual economic activity which is considered among the world s largest economies. Based on Gross Domestic Product (GDP) alone, the County is ranked as the 21 st largest economy in the world, just behind Saudi Arabia and Switzerland. 2

68 The County s economy continues to grow. Employment shows steady gains with an increase of 52,000 jobs in June 2013 compared to March Personal income is expected to increase by 8% in Taxable retail sales are projected to grow by 3.4%. The County is showing evidence of a slow but steady recovery from the recession mainly on job gains, the decreasing unemployment rate, and a significant rebound in housing. The primary business segments that contributed to the economic growth of the County in fiscal year 2013 were health care and social assistance, leisure and hospitality, professional, scientific, and technical services, and administrative and support services. Health care and social assistance and leisure and hospitality created the most jobs in the County. The transportation and trade industry is very extensive and is one of the prominent industries in the County. International trade continues to play an important role in economy. The San Pedro Bay ports of Los Angeles and Long Beach and Los Angeles International Airport are the largest container ports and busiest air cargo terminals in the nation, respectively. In response to the growing population and increasing commercial traffic, LACMTA has established several projects to alleviate congestion problems in the County by increasing access to bus and rail services and to promote ease on the use of the freeway system especially during peak hours. In addition, there is an array of mass transit options including various bus operators, Amtrak, Metrolink (commuter rail), and Metro Rail (subway and light rail). Rail freight services are provided by Burlington Northern Santa Fe and Union Pacific. The County s economy experienced a steady but fragile growth in Although growth is visible, economic recovery is still far from reaching the pre-crisis prosperity. The County Board of Supervisors together with the LA County Economic Development Corporation has formulated a strategic plan to address this concern which will promote economic development while gaining competitive advantage and stimulating sustainable and stronger growth in an aggressively changing global environment. Long-term Financial Planning Long-term financial planning is accomplished in three stages at LACMTA: (1) the Long Range Transportation Plan (LRTP), (2) the Short Range Transportation Plan (SRTP), and (3) the Ten- Year Forecast. The LRTP is a year plan that is updated every 2-3 years. The LRTP is adopted by the Board and prioritizes the highway and transit infrastructure projects and transit services for the entire region. The SRTP is a five-year plan that is updated periodically and adopted by the Board. The SRTP refines the schedules and budgets for adopted LRTP projects that are occurring in the nearer term. The Ten-Year Forecast is updated annually using the current year budget as the baseline year. The LRTP and the SRTP use the most recent Ten-Year Forecast as the baseline for the period covered in those plans. Relevant Financial Policies The Board approves the financial stability policy at the same time the annual proposed budget is approved each year. The policy remains in effect until it is amended or changed by the Board. The Financial Stability Policy is divided into three sections: Goals, Strategies, and General Fiscal Policies. The purpose of the policy is to ensure that LACMTA prudently manages its 3

69 financial affairs and establishes appropriate cash reserves to be able to meet its future financial commitments. Also included in the policy are Business Planning Parameters and Debt Financial Standards. The purpose of the Business Planning Parameters is to provide management with a framework for developing the following year s budget and other LACMTA financial plans and to establish future business targets for management to achieve. The purpose of the Debt Financial Standards is to limit the level of debt that may be incurred and to ensure that debt assumptions used in financial planning are based on financial parameters similar to or more conservative than those that would be placed on LACMTA by the financial marketplace. These standards are consistent with the Board-approved Debt Policy. Major Initiatives In FY14, LACMTA has the following five major initiatives: 1) begin construction of the Crenshaw/LAX Transit Corridor project that will extend from the EXPO Line at the intersection of Exposition and Crenshaw Boulevards to the Metro Green Line near the existing Aviation/LAX station, 2) continue construction of the EXPO Line Phase II from Culver City to the City of Santa Monica, 3) execute a full funding grant agreement for the Regional Connector that will connect the Metro Gold, Blue and EXPO light rail lines, 4) continue construction of the Gold Line Phase 2A (Foothill Extension) that includes the cities of Pasadena, Arcadia, Monrovia and Azusa, and 5) execute a full funding grant agreement for Segment 1 of the Westside Subway extension from the existing Purple Line station at Wilshire and Western Boulevards to Wilshire and La Cienega Boulevards. In addition, LACMTA will unveil a Master Plan for the historic Union Station to become a major transportation hub and engine of economic growth for the region. Acknowledgments The preparation of this report would not have been possible without the skills, effort and dedication of the entire staff of the Accounting Department. We wish to thank all other departments for their assistance in providing the data necessary to prepare this report. Credit also is due to the Board and to the CEO for their unfailing support in maintaining the highest standard of professionalism in the management of LACMTA s finances. 4

70 Los Angeles County Metropolitan Transportation Authority Management Organizational Chart 5

71 Los Angeles County Metropolitan Transportation Authority BOARD OF DIRECTORS (Updated as of July 2013) Diane DuBois Chair of the Board Council Member City of Lakewood Eric Garcetti First Vice Chair Mayor, City of Los Angeles Mark Ridley-Thomas Second Vice Chair LA County Supervisor 2 nd Supervisorial District Michael D. Antonovich LA County Supervisor 5th Supervisorial District Mike Bonin City Council Member City of Los Angeles Jacquelyn Dupont-Walker City of Los Angeles Appointee John Fasana City Council Member City of Duarte Don Knabe LA County Supervisor 4 th Supervisorial District Paul Krekorian Council Member City of Los Angeles Gloria Molina LA County Supervisor 1st Supervisorial District Ara Najarian Council Member City of Glendale Pam O Connor Mayor, City of Santa Monica Zev Yarovlasky LA County Supervisor 3 rd Suprvisorial District Carrie Bowen Non-Voting 6

72 Los Angeles County Metropolitan Transportation Authority List of Board Appointed Officials Arthur T. Leahy Chief Executive Officer Charles Safer General Counsel Karen Gorman Ethics Officer Michele Jackson Board Secretary Karen Gorman Acting Inspector General Executive Staff Paul Taylor Deputy Chief Executive Officer Debra Johnson Chief Operations Officer Martha Welborne Executive Director, Countywide Planning Michelle Lopes Caldwell Chief Administrative Services Officer Roger Moliere Chief Real Property Management & Development Nalini Ahuja Executive Director, Office of Management Budget & Local Programming Brian Boudreau Executive Director, Project Management Oversight Don Sepulveda Executive Director, Regional Rail Ruthe Holden Chief Auditor Terry Matsumoto Chief Financial Services Officer Kimberly Yu Interim Chief Communication Officer Kimberly Yu Director of Special Projects Office of the CEO Doug Failing Executive Director, Highway Programs K.N. Murthy Executive Director, Transit Project Delivery 7

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74 Financial Section

75 KPMG LLP Suite South Grand Avenue Los Angeles, CA Independent Auditors Report The Board of Directors Los Angeles County Metropolitan Transportation Authority: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Los Angeles County Metropolitan Transportation Authority (LACMTA), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the LACMTA s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the defined benefit pension plan financial statements of the Los Angeles County Metropolitan Transportation Authority Retirement Income Plans, which represent 76%, 77%, and 73%, respectively, of the assets, net position, and revenues/additions of the aggregate remaining fund information. Those statements were audited by another auditor whose report thereon has been furnished to us, and our opinions, insofar as they relate to the amounts included for the Los Angeles County Metropolitan Transportation Authority Retirement Income Plans, are based solely on the report of the other auditor. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the LACMTA s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the LACMTA s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the LACMTA, as of June 30, 2013, and 9 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

76 the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with U.S. generally accepted accounting principles. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis, the schedules of funding progress, and the budgetary comparison information on pages and be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the LACMTA s basic financial statements. The accompanying other supplementary information on pages and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying other supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections on pages 1-7 and have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2013 on our consideration of the LACMTA s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the LACMTA s internal control over financial reporting and compliance. Los Angeles, California December 20,

77 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 As management of the Los Angeles County Metropolitan Transportation Authority (LACMTA), we offer readers of LACMTA s financial statements this narrative overview and analysis of the financial activities of LACMTA for the fiscal year ended June 30, The LACMTA s financial statements are designed to: Provide an overview of LACMTA s financial activities Highlight significant financial issues Discuss changes in LACMTA s financial position Explain any material deviations from the approved budget Identify individual major fund issues We encourage readers to consider the information presented here in conjunction with additional information that we have in our letter of transmittal which can be found on pages 1-4 of this report. All dollar amounts are expressed in thousands unless otherwise indicated. Financial Highlights LACMTA s total assets and deferred outflows of resource exceeded its liabilities and deferred inflows of resources as of June 30, 2013 by $8,342,922. Of this amount, $196,336 is reported as unrestricted net position. LACMTA s total net position increased by $479,108, 6.09%, over the previous year. Business-type activities net position increased by $96,318, 1.94%, and governmental activities net position increased by $382,790, 13.19%. The increase in the businesstype activities net position is due to increase in capital and operating grants. For governmental activities, the increase in net position is primary due to increases in program and sales tax revenues. At the close of the current fiscal year, the LACMTA s governmental funds reported combined fund balances totaling $2,471,754, an increase of $354,057 in comparison with prior year. Of this amount, $2,003,319 is restricted, $20,280 is committed and assigned, and $448,155 is unassigned available for spending at LACMTA s discretion. At the end of current fiscal year, the unrestricted fund balance, the total of the committed, assigned and unassigned components of fund balance, for the general fund was $468,435 or approximately 436% of total general fund expenditures. LACMTA s total outstanding long-term debt decreased by $118,315 during the current fiscal year because of scheduled principal payments. Additionally, LACMTA did not issue new bonds in fiscal year

78 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to LACMTA s basic financial statements. LACMTA s basic financial statements comprise of three components: (1) the government-wide financial statements; (2) the fund financial statements; and (3) notes to basic financial statements. This report also includes required supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements provide a broad overview of LACMTA s finances in a manner similar to private-sector entities. The Statement of Net Position, page 27, presents information on all of LACMTA s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, trends of increasing or decreasing net position may serve as useful indicator of whether the financial position of LACMTA is improving or deteriorating. The Statement of Activities, pages 28-29, presents information showing how LACMTA s net position changed during the most recent fiscal year. It reports these changes when the underlying event occurs, total economic resources measurement focus, regardless of the timing of related cash flows. It shows the gross and net costs of LACMTA s functions. Both of the government-wide financial statements distinguish between those functions that are intended to recover a significant portion of their costs from user fees and charges, business-type activities, and those functions that are principally supported by governmental revenues, governmental activities. The government-wide financial statements include LACMTA and its legally separate entities that are financially accountable to LACMTA. Since they are in substance part of LACMTA s operations, their information has been blended with LACMTA s information. These entities include Public Transportation Services Corporation (PTSC), PTSC-MTA Risk Management Authority (PRMA), Exposition Metro Line Construction Authority (EXPO), Crenshaw Project Corporation (CPC) and the Service Authority for Freeway Emergencies (SAFE). Fund Financial Statements A fund is a group of related accounts that is distinguished by specific activities or objectives in accordance with special regulations or restrictions. LACMTA uses fund accounting to ensure and demonstrate compliance with legal requirements. LACMTA s funds are divided into three categories: proprietary, governmental, and fiduciary. 12

79 Proprietary Funds Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 LACMTA maintains only one proprietary fund: the Bus and Rail Operations Enterprise fund. All transit-related transactions, including support services, capital, debt, ExpressLanes, and the Union Station operation activities are recorded in this fund and presented in the business-type activities in the government-wide financial statements. The Enterprise fund is used to report the type of functions presented in the business-type activities in the government-wide financial statements. The proprietary fund financial statements can be found on pages Governmental Funds Governmental funds are used to account for the functions reported as governmental activities in the government-wide financial statements. Unlike the government-wide financial statements, governmental funds use the current financial resources measurement focus. Thus, they report near term inflows and outflows of spendable resources, as well as on balances of available spendable resources at the end of current fiscal year. The basic governmental fund financial statements can be found on pages and Since the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information provided for governmental activities in the government-wide financial statements. As a result, readers may better understand the long-term impact of the government s near-term financing decisions. Reconciliation statements on pages 33 and 36 are shown to facilitate the comparison between the governmental funds and the government-wide financials. LACMTA maintains eleven individual governmental funds, seven of which are considered major funds. Individual fund data for the major funds are presented in the governmental funds balance sheet and governmental funds statement of revenues, expenditures, and changes in fund balances. LACMTA adopts a spending plan each year. Budgetary comparison schedules are provided for the General fund and for each major special revenue funds on pages , for the nonmajor fund on page 115, and the aggregate remaining special revenue funds on page 116. Fiduciary Funds Fiduciary funds are used to account for assets held by LACMTA in a trustee capacity. Since these assets are not available to fund LACMTA s programs, they are excluded from the government-wide financial statements. They cover the five employee pension plans and the 13

80 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Other Postemployment Benefits (OPEB) Trust fund that are administered by LACMTA. The basic fiduciary fund statements can be found on pages Notes to Basic Financial Statements Various disclosures accompany the government-wide and fund financial statements in order to provide a full understanding of LACMTA s finances. The notes to basic financial statements are on pages Other Information In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary and statistical information beginning on page

81 Statement of Net Position Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Government-wide Financial Analysis LACMTA s net position increased by $479,108, 6.09%, compared to the previous year. The increase was mainly due to higher sales tax revenue and lower spending on both governmental and business type activities. The following table is a summary of the statement of net position as of June 30, 2013 and 2012: Los Angeles County Metropolitan Transportation Authority Summary Statement of Net Position Business-type Activities Governmental Activities Total Current & other assets $2,076,544 $2,295,600 $2,798,508 $2,346,745 $4,875,052 $4,642,345 Capital assets 8,229,462 7,881, , ,794 9,002,256 8,654,522 Deferred outflows derivatives 78,944 2, ,944 2,004 Total assets and deferred outflows 10,384,950 10,179,332 3,571,302 3,119,539 13,956,252 13,298,871 Long-term liabilities 4,972,161 4,933,054 21,187 22,267 4,993,348 4,955,321 Other liabilities 353, , , , , ,959 Deferred inflows - derivatives 27 5, ,777 Total liabilities and deferred inflows 5,326,116 5,216, , ,241 5,613,330 5,435,057 Net investment in capital assets 4,908,034 4,561, , ,794 5,680,828 5,334,789 Restricted for debt service 469, , , ,009 Restricted for other purposes - - 1,996,731 1,642,101 1,996,731 1,642,101 Unrestricted (318,227) (30,488) 514, , , ,915 Total net position $5,058,834 $4,962,516 $3,284,088 $2,901,298 $8,342,922 $7,863,814 The decrease in current and other assets of $219,056, 9.54%, in the business-type activities was substantially due to utilization of Measure R bond proceeds for the on-going construction of Metro Gold Line Foothill Extension and the Phase 2 of the EXPO light rail line. The increase in the business-type unrestricted deficit net position of $287,739 was primarily due to the use of LACMTA s resources to fund capital assets acquisition. The increase in current and other assets of $451,763, 19.25%, in the government-type activities was mainly due to higher sales tax and intergovernmental revenues. These revenue increases contributed a corresponding increase of $354,630 in the restricted net position. 15

82 Statement of Activities Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 The following table is a summary of the statement of activities for the years ended June 30, 2013 and 2012: Revenues: Program revenues: Los Angeles County Metropolitan Transportation Authority Changes in Net Position Business-type Activities Governmental Activities Total Charges for services $382,003 $375,917 $23,770 $15,740 $405,773 $391,657 Operating grants and contributions 272, , , , , ,168 Capital grants and contributions 135, , , ,509 General revenues: Sales tax - - 2,519,720 2,386,439 2,519,720 2,386,439 Investment income 16,775 13,785 14,421 19,055 31,196 32,840 Net appreciation (decline) in fair value of investments 1,202 1,695 (9,599) (1,226) (8,397) 469 Loss on disposition of capital assets (2,850) (2,850) - Miscellaneous 7,549 6,653 42,203 32,205 49,752 38,858 Total program revenues 813, ,076 3,092,889 2,853,864 3,906,172 3,748,940 Program expenses: Bus and rail operations 1,916,041 1,835, ,916,041 1,835,735 Union station operations 6,586 4, ,586 4,167 Toll operations 10, ,102 - Transit operators programs , , , ,782 Local cities programs , , , ,409 Highway projects , , , ,690 Regional multimodal capital programs ,528 96, ,528 96,174 Paratransit programs ,097 10,227 13,097 10,227 Other transportation subsidies ,964 63, ,964 63,875 General government , , , ,295 Total program expenses 1,932,729 1,839,902 1,494,335 1,236,452 3,427,064 3,076,354 Increase (decrease) in net position before transfers (1,119,446) (944,826) 1,598,554 1,617, , ,586 Transfers 1,215,764 1,099,751 (1,215,764) (1,099,751) - - Increase in net position 96, , , , , ,586 Net position beginning of year 4,962,516 4,807,591 2,901,298 2,383,637 7,863,814 7,191,228 Net position end of year $5,058,834 $4,962,516 $3,284,088 $2,901,298 $8,342,922 $7,863,814 Business-type activities recovered 28.66% of total operating expenses from operating revenues, excluding depreciation and interest, compared to 30.21% in the prior year. The remaining costs were covered by grants and transfers provided by LACMTA s governmental activities. Capital asset replacement costs have traditionally been funded as needed with governmental resources and grants. 16

83 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Operating grants and contributions in the governmental activities was higher by $100,723, 25.1%, compared to the previous year primarily due to higher grant reimbursements related to the I-405 project. Sales tax revenues in the governmental activities increased by $133,281, 5.58%, compared to the previous year due to increase in Proposition A, Proposition C, Transportation Development Act and Measure R sales tax revenue, and higher receipts of State Transit Assistance funds. Most of the governmental activities expenditures are subsidies related to countywide transportation planning and development programs. These programs are primarily funded by local sales taxes. Subsidies to other agencies totaling $1,061,239 increased 20.76% from prior year and represented the largest governmental expenditures. Subsidies consisted of pass-through federal, state and local funding to other agencies in Los Angeles County for public transit, traffic system, street and road maintenance and other transit related improvement projects. Highway project expenditures in the governmental activities were higher by $78,117, 33.29%, compared to the previous year mainly due to the increase in project expenditures related to the I-405 car pool lane and the I-710 improvement projects. Regional multimodal capital program expenses increased by $50,354, 52.36%, primarily due to the subsidies for Metrolink capital projects for the purchase of rail cars and improvements for the I-5 South freeway from the Orange County line to I-605. Below is a graphical depiction of the components of business-type revenues for the year ended June 30, Revenue by Source - Business-type Activities Charges for services 47% Miscellaneous 1% Investment income 2% Operating grants and contributions 34% Capital grants and contributions 16% 17

84 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Below are graphical depictions of the components of governmental revenues and expenditures for the year ended June 30, Revenue by Source - Governmental Activities Sales tax 82% Operating grants and contributions 16% Charges for services 1% Miscellaneous 1% Expense by Program - Governmental Activities General government 15% Highway projects 21% Local cities programs 29% Transit operators programs 16% Other transportation subsidies 9% Paratransit programs 1% Regional multimodal capital programs 9% 18

85 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Financial Analysis of LACMTA s Funds Proprietary Fund The proprietary fund financial statements provide the same information found in the business-type section of the government-wide financial statements, but in more detail. The increase of $96,318, 1.94%, in net position was primarily due to increases in capital and operating grants and a decrease in bus and rail operating expenses. Governmental Funds As previously stated, governmental funds present information about current financial, resources because they directly impact short-term flow of resources and financing requirements. This situation is particularly true in regard to the different categories of fund balances. The Unassigned fund balance of $448,155 represents uncommitted available resources as of the end of the fiscal year. LACMTA s governmental funds ended the fiscal year with $2,471,754 in total fund balance. The major governmental funds are discussed below: The General fund balance decreased by $573 mainly due to higher planning and professional services incurred for the highway and transportation projects. Of the $475,023 fund balance, $26,868 is restricted, committed, and assigned for future expenditures. The Proposition A fund balance increased by $29,953 mainly due to increase in sales tax receipts and lower subsidy payments to bus and rail operations. The entire amount of $191,111 fund balance is restricted as to use by the Proposition A ordinance. The Proposition C fund balance decreased by $94,595 primarily due to large capital expenditures and higher subsidy provided to other operators. The Proposition C ordinance restricts the use of the fund balance of $40,057. The Measure R fund balance increased by $273,922 mainly due to increase in sales tax revenue and lower bus and rail related subsidies provided to municipal operators. The restricted fund balance of $1,189,279 will be used to fund future programs eligible under the Measure R ordinance. The Public Transportation Modernization and Service Enhancement Account (PTMISEA) fund balance increased by $126,761 mainly due to grant receipts of Proposition 1B State allocations, which were offset by increases in expenditures for the Bus Rehabilitation, Regional Downtown Connector, Crenshaw/LAX Transit Corridor, and Divisions Building Improvement projects. The PTMISEA fund has a restricted fund balance of $158,

86 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Transportation Development Act fund balance increased by $27,323 primarily due to the increase in sales tax revenue. The fund balance of $324,387 is restricted under the Transportation Development Act s regulations. The State Transit Assistance fund balance decreased by $13,751 due to lower State allocations received and increased subsidy payments for bus operations. The fund balance of $13,195 is restricted under the State Transit Assistance regulations. General Fund Budgetary Highlights The General Fund includes activities associated with the government that are not legally or otherwise required to be accounted for in another fund. It accounts for only 2.62% of LACMTA s total governmental fund revenues, while expenditures represent 7.18% of total governmental fund expenditures. The original budget increased by $17,031 due to higher expenditures for governmental activities and highway improvements. Revenues The General Fund s main sources of revenues were expected from lease and rental income from LACMTA s owned properties and receipts of Federal alternative fuel tax refunds. The federal alternative fuel tax credit program was extended from January Total actual revenues were higher than budget by $31,546 due to Federal alternative fuel tax credit that had expired but was renewed retroactively after the budget was adopted. Expenditures The General Fund provides resources to pay for bus and rail operations, joint development administration, property management expenditures, administration of LACMTA s rideshare services and other general expenditures. The favorable variance in expenditures of $23,335 compared to budget was mainly due to lesser payment of subsidies and expenditures related to governmental and oversight activities, transit planning and other programming and planning activities. The favorable variance in the other financing sources of $53,522 compared to budget was mainly due to the administration fees transferred from Proposition A and C administration funds to the General Fund. 20

87 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Capital Assets As of June 30, 2013, LACMTA had $9,002,256, net of accumulated depreciation, invested in capital assets, as shown below, a 4.02% increase from the previous fiscal year. Los Angeles County Metropolitan Transportation Authority Capital Assets (Net of accumulated depreciation) Business-type Activities Governmental Activities Total Land $ 813,003 $ 760,232 $ 772,794 $ 772,794 $ 1,585,797 $ 1,533,026 Buildings 5,286,363 5,339, ,286,363 5,339,603 Equipment 74,319 90, ,319 90,085 Vehicles 828, , , ,868 Construction in progress 1,227, , ,227, ,940 Total Capital Assets $ 8,229,462 $ 7,881,728 $ 772,794 $ 772,794 $ 9,002,256 $ 8,654,522 Major capital asset projects in various stages of development at the end of the current fiscal year included the following: The Exposition light rail project is a $2.4 billion project that traverses 15.2 miles between Downtown Los Angeles and Santa Monica. The EXPO line is being built in two phases: The first phase of the EXPO Line, with a budget of $932 million, is approximately 8.6 miles long and parallels the heavily congested I-10 freeway extending from Downtown Los Angeles to Culver City with a travel time of less than 30 minutes. It operates in a dual track configuration on Flower Street and along the Exposition right-of-way. It has twelve stations, including three aerial stations. The project is electrically powered from overhead power lines. As of June 30, 2013, $867 million has been expended on Phase 1. This phase of the project is already operational. The second phase estimated to cost $1.5 billion, is approximately 6.6 miles and continues from the Phase 1 terminus in Culver City to 4th Street and Colorado Avenue in the City of Santa Monica. It travels along the Exposition right-of-way until it reaches 17th Street in Santa Monica and operates in street-running mode down the middle of Colorado Avenue. It will have seven new stations, two of which will be aerial. The estimated travel time between downtown Los Angeles and Santa Monica is less than 46 minutes. As of June 30, 2013, $447.4 million has been expended on Phase 2 project. The Metro Gold Line Phase II, Foothill Extension, corridor includes the cities of Pasadena, Arcadia, Monrovia, Duarte, Irwindale, Azusa, Glendora, San Dimas Glendora, La Verne, Pomona, Claremont, and Montclair in the counties of Los Angeles and San Bernardino. The Foothill Extension is being built in two segments. The first segment, Segment 2A, is budgeted at $741 million and extends from the Sierra Madre Villa Station in Pasadena to the City of Azusa. The second segment, Segment 2B, is currently unbudgeted and would include an extension from Azusa to the City of Montclair. Segment 2A is under construction. The project includes approximately 11.4 miles of double light rail main track, new bridges, 21

88 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 improvements to existing bridges, retaining walls, sound walls, 6 at-grade passenger stations, parking structures, surface parking lots, power systems, train control systems, grade crossings and roadway improvements. Segment 2A also includes 5 miles of freight rail track relocations and improvements. Revenue service along this segment is planned for the fiscal year As of June 30, 2013, $263.2 million has been expended. The Regional Connector Transit Corridor is a $1.4 billion project of which $163.8 million has been approved interim LOP budget as of June 30, The cost includes the Environmental Planning and Preliminary Engineering phases of the project. This project will connect the Metro Gold, Blue and EXPO Lines and the length of this proposed route would be approximately 1.9 miles. The proposed project from the 7th/Metro Center Station will extend north along Flower Street turning east on 2nd Street. At 2nd Street, the underground tunnel would extend east with new underground stations to provide access to Bunker Hill and to the areas between Los Angeles Street and Broadway with stations at 2nd/Hope Street and 2nd/Broadway. Tracks would continue east underneath 2nd Street to Central Avenue and veer northeast to a new Little Tokyo/Arts District underground station. Tracks would continue from the station under the intersection of 1st and Alameda Streets into a new underground rail junction. The alignment will connect to the existing Gold Line east of the intersection of 1st and Alameda Streets and north of Temple Street. As of June 30, 2013, $71.3 million has been expended. The Crenshaw/LAX Transit Corridor project has an approved life-of-project (LOP) budget of $2.1 billion that covers the design and construction of a new 8.5-mile double-track LRT line, including eight transit stations, the procurement of a minimum of 20 light rail vehicles, and the construction of a full service maintenance facility known as the Southwestern Yard. The Project will extend from the EXPO Line (at the intersection of Exposition and Crenshaw Boulevards) and the Metro Green Line near the existing Aviation/LAX Station. The efforts in fiscal year 2013 included the advanced relocation of major utilities by a contractor as well as by third parties. In June 2013 the LACMTA board awarded a $1.3 million design-build contract which includes the final design and major construction components for the project. As of June 30, 2013, $149.3 million has been expended. The LACMTA Board has certified the Final Environmental Impact Report (FEIR) and has adopted the Project definition for the nine-mile Westside Subway Purple Line Extension Project. The Project is planned currently to be constructed in three sections. Section 1 will extend 3.92 miles from the existing Wilshire/Western Station to a terminus station at the intersection of Wilshire/La Cienega. Section 1 has an estimated total budget of $2.9 billion and an interim life-of-project budget of $274.0 million. It includes three underground stations, an expansion and modifications to the existing Division 20 Yard and Maintenance Facility, and will procure 34 heavy rail vehicles. As of June 30, 2013, $98.3 million has been expended. The Metro ExpressLanes, budgeted at $120.6 million, introduced congestion pricing by converting high occupancy vehicle (HOV or carpool) lanes to high occupancy toll (HOT) lanes, on the I-110 freeway between the SR91 freeway and Adams Blvd in downtown Los Angeles and the I-10 freeway between the I-605 freeway and Alameda Street in downtown 22

89 \ Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Los Angeles. This allows drivers of single occupant vehicles to use the high occupancy vehicle lane and promotes increased transit ridership and carpool/vanpool usage. The minimum toll per mile is $0.25 with a maximum of $1.40 per mile. The start of revenue operations on the I-110 and I-10 HOT lanes began November 2012 and February 2013, respectively. As of June 30, 2013, $103.1 million has been expended. LACMTA entered into a $158.7 million contract to acquire 50 light rail vehicles, which includes spare parts, special tools, and test equipment. As of FY13, 50 vehicles were delivered and placed into service. As a result of a contract modification settlement agreement, the revised contract value is $119.8 million. As of June 30, 2013, $113.3 million has been expended. In FY13, LACMTA received 125 buses under an $84 million bus acquisition project for composite, compressed natural gas (CNG) transit buses. As of June 30, 2013, $81.0 million has been expended. There is an ongoing new procurement for CNG buses at an estimated cost of $297 million. On behalf of the Advanced Transit Vehicle Consortium, a partnership between LACMTA, the City of Los Angeles, Los Angeles County and AQMD, a future procurement of up to 30 Zero Emission and Super Low Emission Buses is budgeted at a cost of $30 million. Additional information on capital assets can be found on page 64. Long-term Debt Administration As of June 30, 2013, LACMTA had a total of $4,484,810 in long-term debt outstanding. Of this amount, $3,107,215 relates to bonds secured by sales tax revenue, $154,940 is secured by farebox and other general revenues and $815,369 relates to lease/leaseback obligations. The remaining balance consists of commercial paper notes, and other debt as shown below: Los Angeles County Metropolitan Transportation Authority Long-term Debt Business-Type Activities Governmental Activities Total Sales tax revenue bonds and refunding bonds $ 3,107,215 $ 3,361,495 $ - $ - 3,107,215 3,361,495 Lease/lease to service obligations 815, , , ,983 General revenue bonds 154, , , ,770 Commercial paper notes 148,114 33, ,114 33,551 Other debt 6,516 8,590 21,187 22,267 27,703 30,857 Total long-term debt 4,232,154 4,349,389 21,187 22,267 4,253,341 4,371,656 Unamortized bond premium 231, , , ,633 Unamortized bond discount (138) (65,949) - - (138) (65,949) Total long-term debt, net $ 4,463,623 $ 4,442,073 $ 21,187 $22,267 $ 4,484,810 $ 4,464,340 The decrease in long-term principal balances was mainly due to scheduled principal payments. $126,520 of new commercial paper notes were issued to reimburse the LACMTA General Fund for the purchase of the Los Angeles Union Station and to provide funding for 23

90 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 the Proposition A debt service reserve fund. Unamortized bond premiums increased as a result of refundings. As a result, there was a net increase in the total long-term debt balance. In fiscal year 2013, LACMTA issued Proposition C Series 2012-A, Series 2012B and Series 2013-A Refunding Bonds, for an aggregate principal amount of $14,635, $74,885 and $138,960, respectively to achieve debt service savings associated with more favorable financing terms. These bonds, except for Proposition C 2012-A, which were issued at a discount, were issued at a premium and the proceeds were used to refinance outstanding Proposition C Series 1999-A, Series 2009-C and Series 2009-A Refunding Bonds with principal balances of $15,020, $89,625 and $165,625 respectively. The refundings generated an aggregate net present value of net cash flow savings of $33,062 over 15 years and a decrease of $255,520 in the amount of liquidity facilities needed for the Proposition C Series 2009-A and 2009-C variable rate bonds. The interest rate swap agreements related to Proposition C Series 2009-A and 2009-C were also terminated with LACMTA paying $2,471 and $953, respectively in swap termination values. LACMTA also issued Proposition A Series 2012-A and Series 2013-A Refunding Bonds totaling $330,400 in principal amount generating a total of $54,574 in net present value of net cash flow savings over 8 years. The bonds were issued at a premium and the proceeds were used to purchase $28,820 Prop A Series 2003-A Bonds and Prop A Series 2003-B Bonds, refund and defease $116,815 of Prop A 2003-A Bonds and $194,645 of Prop A Series 2003-B Bonds refunding bonds and Prop A 2003-B outstanding sales tax revenue refunding bonds. The refundings resulted to a $4,753 excess of the total bonds net carrying value over total reacquisition price which are reported under Deferred Outflow of Resources or Deferred Inflow of Resources in the business-type activities of the government-wide financial statements and are being amortized over the life of the refunded or the refunding bonds, whichever is shorter. In fiscal year 2013, LACMTA reduced its letter of credit facilities supporting its Proposition A Commercial Paper program from $250 million to $150 and replaced its $150 million expiring letters of credit supporting the Proposition C Commercial Paper program with $75 million letter of credit and a $75 million revolving credit facility. Bond Ratings LACMTA s bonds are rated by Standard & Poor s, Moody s, and Fitch. As of June 30, 2013, the ratings are as follows: Bond Issue Type Standard & Poor s Moody s Fitch Proposition A First Tier Senior Lien Bonds AAA Aa2 AA Proposition C Senior Sales Tax Revenue Bonds AA+ Aa3 AA General Revenue Bonds A A1 n/a Measure R Sales Tax Revenue Bonds AAA Aa2 n/a Additional information on LACMTA s long-term debt can be found on pages 80 to

91 Los Angeles County Metropolitan Transportation Authority Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Economic Factors and Next Year s Budget The main economic factors affecting LACMTA s financial capacity to deliver transportation programs and projects include: Economic conditions influencing local sales tax revenues Capital grant revenues availability Fuel and labor costs Inflation LACMTA uses forecasts from various governmental sources as a basis for its future funding assumptions. The budget for FY14 assumed a 5.0% growth in sales tax revenues from Prop A, Prop C, TDA and Measure R over the FY13 budget. Also, the FY14 budget assumed the allocation of $115.5 million of STA from the state. Other budget assumptions included: Increase of 192,899 (not in thousands) in bus revenue service hours due to the addition of Orange Line service and longer hours of run to alleviate the congestion on other bus lines. Increase of 59,852 (not in thousands) in rail revenue service hours as a result of overall improvement on mid-day headways on weekend and night operations. Full Time Equivalents (FTEs) are added to accommodate the increase in bus and rail service hours. Wage and salary increases based on Board adopted contracts. Local sales taxes, the largest revenue sources for LACMTA, comprised 43% of LACMTA s total FY14 estimated revenues. From this revenue base, LACMTA constructs a budget that balances anticipated revenues with area transportation needs. For details of LACMTA s FY14 budget, please visit LACMTA s website at Further Information This report has been designed to provide our stakeholders with a general overview of LACMTA s financial condition and related issues. Inquiries should be directed to the Chief Financial Services Officer and Treasurer, One Gateway Plaza, Mail Stop , Los Angeles, CA, or visit LACMTA s website at 25

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93 Los Angeles County Metropolitan Transportation Authority Statement of Net Position June 30, 2013 (Amounts expressed in thousands) Business-type Activities Governmental Activities Total ASSETS Cash and cash equivalents - unrestricted $ 97,510 $ 521,754 $ 619,264 Cash and cash equivalents - restricted 448, ,083 Investments unrestricted 286,998 1,638,645 1,925,643 Investments restricted 189, ,126 Derivative instrument asset commodity swap Receivables (net of allowance for doubtful accounts) 299, , ,656 Internal balances (128,054) 128,054 - Inventories 60,257-60,257 Prepaid and other current assets 7, ,628 Lease accounts 815, ,368 Capital assets: Land and construction in progress 2,040, ,794 2,813,162 Other capital assets, net of depreciation 6,189,094-6,189,094 TOTAL ASSETS 10,306,006 3,571,302 13,877,308 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows on derivatives - interest rate swap 12,024-12,024 Deferred outflows on refunding 66,920-66,920 TOTAL DEFERRED OUTFLOWS OF RESOURCES 78,944-78,944 LIABILITIES Accounts payable and accrued liabilities 254, , ,381 Accrued interest payable 55,418-55,418 Pollution remediation obligation 7,581-7,581 Net pension obligation 2,849-2,849 Net OPEB obligation 122, ,235 Derivative instrument liability interest rate swap 14,156-14,156 Unearned revenues and unamortized credits 14,046 13,061 27,107 Other liabilities 29,753 24,296 54,049 Long-term liabilities: Due within 1 year 431, ,901 Due in more than 1 year 4,394,106 20,520 4,414,626 TOTAL LIABILITIES 5,326, ,214 5,613,303 DEFERRED INFLOWS OF RESOURCES Deferred inflows on derivatives commodity swap TOTAL DEFERRED INFLOWS OF RESOURCES NET POSITION Net investment in capital assets 4,908, ,794 5,680,828 Restricted for debt service 469, ,027 Restricted for other purposes - 1,996,731 1,996,731 Unrestricted (deficit) (318,227) 514, ,336 TOTAL NET POSITION $ 5,058,834 $ 3,284,088 $ 8,342,922 The notes to the financial statements are an integral part of this statement. 27

94 Los Angeles County Metropolitan Transportation Authority Statement of Activities For the Year ended June 30, 2013 (Amounts expressed in thousands) Program Revenues Charges for Operating Grants Expenses Services and Contributions Functions/Programs Business-type activities: Bus and rail operations $ 1,916,041 $ 364,553 $ 264,452 Union Station operations 6,586 4,459 - Toll operations 10,102 12,991 8,499 Total business-type activities 1,932, , ,951 Governmental activities: Transit operators programs 239, Local cities programs 431, Highway project 312, ,274 Regional multimodal capital programs 146, Paratransit programs 13, Other transportation subsidies 130,964-2,018 General government 219,751 23, ,082 Total governmental activities 1,494,335 23, ,374 Total $ 3,427,064 $ 405,773 $ 775,325 General revenues: Sales tax Investment income Net appreciation (decline) in fair value of investments Loss on disposition of capital assets Miscellaneous Transfers Total general revenues Change in net position Net position beginning of year Net position end of year The notes to the financial statements are an integral part of this statement. 28

95 Net (Expense) Revenue and Changes in Net position Capital Grants Business-type Governmental and Contributions Activities Activities Total $ 135,653 $ (1,151,383) $ - $ (1,151,383) - (2,127) - (2,127) - 11,388-11, ,653 (1,142,122) - (1,142,122) - - (239,718) (239,718) - - (431,470) (431,470) - - (36,533) (36,533) - - (146,528) (146,528) - - (13,097) (13,097) - - (128,946) (128,946) ,101 28, (968,191) (968,191) $ 135,653 (1,142,122) (968,191) (2,110,313) - 2,519,720 2,519,720 16,775 14,421 31,196 1,202 (9,599) (8,397) (2,850) - (2,850) 7,549 42,203 49,752 1,215,764 (1,215,764) - 1,238,440 1,350,981 2,589,421 96, , ,108 4,962,516 2,901,298 7,863,814 $ 5,058,834 $ 3,284,088 $ 8,342,922 29

96 Los Angeles County Metropolitan Transportation Authority Balance Sheet Governmental Funds June 30, 2013 (Amounts expressed in thousands) S p e c i a l General Fund Proposition A Proposition C ASSETS Cash and cash equivalents unrestricted $ 24,696 $ 8,654 $ 6,164 Investments unrestricted 249,601 87,685 62,933 Receivables: Accounts 6,150-2,167 Interest 1, Intergovernmental 3, ,495 Sales taxes - 68,128 68,174 Notes 4, Due from other funds 233,900 94,500 14,558 Restricted assets: Cash and cash equivalents TOTAL ASSETS $ 523,663 $ 259,386 $ 295,491 LIABILITIES Accounts payable and accrued liabilities $ 15,037 $ 30,325 $ 116,853 Due to other funds 22,041 37,950 77,000 Unearned revenues 10,341-61,581 Other liabilities 1, TOTAL LIABILITIES 48,640 68, ,434 FUND BALANCES Restricted 6, ,111 40,057 Committed 8, Assigned 11, Unassigned 448, TOTAL FUND BALANCES 475, ,111 40,057 TOTAL LIABILITIES AND FUND BALANCES $ 523,663 $ 259,386 $ 295,491 The notes to the financial statements are an integral part of this statement. 30

97 R e v e n u e F u n d s Measure R PTMISEA TDA STA Other Governmental Funds Total Governmental Funds $ 97,285 $ 21,531 $ 307,616 $ 19,953 $ 35,855 $ 521, , , ,093 1,638,645 3, ,992 2, , , , ,074-32,592 26, ,195 18, ,000 23, , $ 1,263,799 $ 193,714 $ 340,514 $ 46,215 $ 113,678 $ 3,036,460 $ 58,563 $ - $ 2,149 $ 5,177 $ 566 $ 228,670 15,800 34,771 13,978 27,843 8, , ,515 73, ,075 24,296 74,520 34,771 16,127 33,020 33, ,706 1,189, , ,387 13,195 79,759 2,003, , , ,155 1,189, , ,387 13,195 79,759 2,471,754 $ 1,263,799 $ 193,714 $ 340,514 $ 46,215 $ 113,678 $ 3,036,460 31

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99 Los Angeles County Metropolitan Transportation Authority Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Activities June 30, 2013 (Amounts expressed in thousands) Fund balance total governmental funds (page 31) $ 2,471,754 Government capital assets are not financial resources and, therefore, are not reported in the funds 772,794 Governmental funds account for cost of refunding bond obligation as expenditures. However, in the Statement of Net Position Governmental Activities, these costs are reported as prepayments and amortized over the life of the bonds 194 Unearned revenues recognized in the Balance Sheet but not reported in the Statement of Net Position Governmental Activities. These revenues are not available in the current period 72,694 Bonds and notes payable are not due and payable in the current period and, therefore, are not reported in the funds (21,187) Governmental funds report revenue only to the extent that it increases current financial resources. However, in the Statement of Activities, revenues are reported when earned. This is the amount of revenues pertaining to future periods (12,161) Net position of governmental activities (page 27) $ 3,284,088 The notes to the financial statements are an integral part of this statement. 33

100 Los Angeles County Metropolitan Transportation Authority Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2013 (Amounts expressed in thousands) S p e c i a l General Fund Proposition A Proposition C REVENUES Sales taxes $ - $ 687,172 $ 687,332 Intergovernmental 30, ,298 Investment income 3,412 1, Net appreciation (decline) in fair value of investment (2,662) (1,046) (141) Lease and rental 15, Licenses and fines Other 32, TOTAL REVENUES 80, , ,150 EXPENDITURES Current: Administration and other transportation projects 90, ,403 Transportation subsidies 14, , ,353 Debt and interest expenditures: Principal 1, Interest and fiscal charges 1, TOTAL EXPENDITURES 107, , ,756 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (26,982) 412, ,394 OTHER FINANCING SOURCES (USES) Transfers in 78,046 32,224 2,419 Transfers out (51,637) (414,610) (305,408) TOTAL OTHER FINANCING SOURCES (USES) 26,409 (382,386) (302,989) NET CHANGE IN FUND BALANCES (573) 29,953 (94,595) Fund balances beginning of year 475, , ,652 FUND BALANCES END OF YEAR $ 475,023 $ 191,111 $ 40,057 The notes to the financial statements are an integral part of this statement. 34

101 F u n d s Measure R PTMISEA TDA STA Other Governmental Funds Total Governmental Funds $ 684,862 $ - $ 343,806 $ 116,548 $ - $ 2,519,720 1, , , ,194 7, , ,624 (5,752) (9,599) , ,607 8, , , , , ,742 23,871 3,065,221 58, , , , ,612 24,531-1,061, , , , ,612 24,531 7,663 1,495, , , ,152 92,211 16,208 1,569,821 31, ,575 (199,903) (67,799) (203,829) (105,962) (11,191) (1,360,339) (168,017) (67,799) (203,829) (105,962) (11,191) (1,215,764) 273, ,761 27,323 (13,751) 5, , ,357 32, ,064 26,946 74,742 2,117,697 $ 1,189,279 $ 158,943 $ 324,387 $ 13,195 $ 79,759 $ 2,471,754 35

102 Los Angeles County Metropolitan Transportation Authority Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2013 (Amounts expressed in thousands) Net change in fund balances total governmental funds (page 35) $ 354,057 Governmental funds account for principal payment as expenditures. The payment of principal of long-term debts consumes current financial resources but has no effect on net assets. Principal payments are included in the fund financials 1,080 Governmental funds account for cost of refunding bond obligation as expenditures. However, in the Statement of Net Position - Governmental Activities, these costs are reported as prepayments and amortized over the life of the bonds. This is the current amount of deferred charges (14) Miscellaneous revenues in the Statement of Activities that do not provide current financial resources to governmental funds. However, these are reported as revenues in the Statement of Activities in the prior period 1,429 Investment income accrued in the Statement of Activities in the prior year, and now reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances as they became available (1,017) Investment income accrued in the Statement of Activities but not reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances. These unearned revenues are not reported in the current period because they are not available 814 Revenues accrued in the Statement of Activities but not reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances. These deferred revenues are not reported in the current period because they pertain to future periods 71,880 Revenues reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances provide current financial resources to governmental funds. However, these are reported as revenues in the Statement of Activities in the prior period (45,439) Change in net position of governmental activities (page 29) $ 382,790 The notes to the financial statements are an integral part of this statement. 36

103 Los Angeles County Metropolitan Transportation Authority Statement of Net Position Proprietary Fund Enterprise Fund June 30, 2013 (Amounts expressed in thousands) ASSETS Current assets: Cash and cash equivalents unrestricted $ 97,510 Cash and cash equivalents restricted 206,174 Investments unrestricted 286,998 Investments restricted 4,471 Derivative instrument asset commodity swap 27 Receivables (net of allowance for doubtful accounts) 297,163 Inventories 60,257 Prepaid and other current assets 7,434 Total current assets 960,034 Noncurrent assets: Cash and cash equivalents restricted 242,028 Investments restricted 184,655 Notes receivable 2,513 Lease accounts 815,368 Capital assets Land and construction in progress 2,040,368 Other capital assets, net of depreciation 6,189,094 Total noncurrent assets 9,474,026 Total assets 10,434,060 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows on derivatives interest rate swap 12,024 Deferred outflows on refunding 66,920 Total deferred outflows of resources 78,944 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 254,711 Accrued interest payable 55,418 Due to other funds 128,054 Claims payable 84,737 Compensated absences payable 64,462 Bonds and notes payable 282,035 Other current liabilities 29,753 Total current liabilities 899,170 Noncurrent liabilities: Claims payable 193,099 Compensated absences payable 19,419 Pollution remediation obligation 7,581 Net pension obligation 2,849 Net OPEB obligation 122,235 Bonds and notes payable 4,181,588 Derivative instrument liability interest rate swap 14,156 Unearned revenues and unamortized credits 14,046 Total noncurrent liabilities 4,554,973 Total liabilities 5,454,143 DEFERRED INFLOWS OF RESOURCES Deferred inflows on derivatives commodity swap 27 NET POSITION Net investment in capital assets 4,908,034 Restricted for debt service 469,027 Unrestricted deficit (318,227) Total net position $5,058,834 The notes to the financial statements are an integral part of this statement. 37

104 Los Angeles County Metropolitan Transportation Authority Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Fund Enterprise Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) OPERATING REVENUES Passenger fares $ 340,010 Auxiliary transportation 24,543 Lease and rental 4,459 Toll revenues 12,991 TOTAL OPERATING REVENUES 382,003 OPERATING EXPENSES Salaries and wages 449,918 Fringe benefits 371,076 Professional and technical services 173,580 Material and supplies 89,013 Casualty and liability 42,264 Fuel, lubricants, and propulsion power 73,823 Purchased transportation 37,771 Depreciation 465,103 Other 95,457 TOTAL OPERATING EXPENSES 1,798,005 OPERATING LOSS (1,416,002) NON-OPERATING REVENUES (EXPENSES) Local grants 412 State grants 340 Federal grants 272,199 Investment income 16,775 Net appreciation in fair value of investments 1,202 Interest expense (134,724) Loss on disposition of capital assets (2,850) Other revenue 7,549 TOTAL NET NON-OPERATING REVENUES 160,903 LOSS BEFORE CAPITAL GRANTS AND CONTRIBUTIONS (1,255,099) CAPITAL GRANTS AND CONTRIBUTIONS Local grants 604 State grants 44,534 Federal grants 90,515 Transfers in capital 589,809 TOTAL CAPITAL GRANTS AND CONTRIBUTIONS 725,462 TRANSFERS IN OPERATING 625,955 CHANGE IN NET POSITION 96,318 Net position beginning of year 4,962,516 NET POSITION END OF YEAR $5,058,834 The notes to the financial statements are an integral part of this statement. 38

105 Los Angeles County Metropolitan Transportation Authority Statement of Cash Flows Proprietary Fund Enterprise Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 385,894 Payments to suppliers (349,638) Payments to employees (780,963) Net cash used for operating activities (744,707) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfer from other funds 619,556 Federal operating grants 356,129 Receipts from other non-operating activities 7,549 Net cash provided by non-capital financing activities 983,234 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from issuance of debt 790,684 Proceeds from disposition of capital assets 536 Capital contributions 727,429 Payments for matured bonds and notes payable (839,972) Acquisition and construction of capital assets (1,008,027) Interest paid (179,086) Net cash used for capital and related financing activities (508,436) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturity of investments 22,058,038 Purchase of investments (22,057,750) Investment earnings 19,312 Net cash flows from investing activities 19,600 Net decrease in cash and cash equivalents (250,309) Cash and cash equivalents beginning of year 796,021 Cash and cash equivalents end of year $ 545,712 Reconciliation of operating loss to net cash used for operating activities Operating loss $(1,416,002) Adjustment to reconcile operating loss to net cash used for operating activities Depreciation expense 465,103 Increase in receivables (3,710) Increase in prepaid and other current assets (2,903) Decrease in inventories 1,287 Increase in accounts payable and accrued liabilities 65,947 Decrease in claims payable (4,746) Increase in compensated absences payable 1,883 Decrease in net pollution remediation obligations (50) Increase in net pension obligation 1,142 Increase in net OPEB obligation 36,815 Increase in unearned revenues and unamortized credits 98,125 Increase in other current liabilities 12,402 Total adjustments 671,295 Net cash used for operating activities $ (744,707) Non-cash investing, capital, and financing transactions: Lease/leaseback accretion $ 37,337 Write-off of capital assets 2,007 Loss on disposition of capital assets 2, (2,850) Net appreciation in fair value of investments 1,202 The notes to the financial statements are an integral part of this statement. 39

106 Los Angeles County Metropolitan Transportation Authority Statement of Net Position Fiduciary Funds June 30, 2013 (Amounts expressed in thousands) Employee Retirement Trust Funds OPEB Trust Fund ASSETS Cash and cash equivalents $ 15,559 $ 10,712 Investments Bonds/Derivatives 244,976 50,970 Domestic stocks 166,273 47,055 Non-domestic stocks 6,048 14,569 Pooled investments 630, ,037 Receivables Member contributions Securities sold 40,657 - Interest and dividends 4, Receivable from sponsor Prepaid items and other assets 34 - Total assets 1,109, ,950 LIABILITIES Accounts payable and other liabilities 1, Securities purchased 68,004 - Total liabilities 69, NET POSITION Held in trust for pension and OPEB benefits $ 1,040,009 $ 231,090 The notes to the financial statements are an integral part of this statement. 40

107 Los Angeles County Metropolitan Transportation Authority Statement of Changes in Net Position Fiduciary Funds For the year ended June 30, 2013 (Amounts expressed in thousands) ADDITIONS Employee Retirement Trust Funds OPEB Trust Fund Contributions Employer $ 54,637 $ 24,126 Member 22, Total contributions 76,990 25,012 From investing activities Net increase in fair value of investments 113,071 20,356 Investment income 12,819 6,735 Investment expense (3,346) (904) Other income 1,135 - Total investing activities income 123,679 26,187 Total additions 200,669 51,199 DEDUCTIONS Retiree benefits 78,102 19,073 Administrative expenses 1,601 - Total deductions 79,703 19,073 Net increase 120,966 32,126 Net assets beginning of year 919, ,964 NET POSITION END OF YEAR $1,040,009 $ 231,090 The notes to the financial statements are an integral part of this statement. 41

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109 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The notes to the basic financial statements are a summary of significant accounting policies and other disclosures considered necessary for a clear understanding of the accompanying basic financial statements. Unless otherwise stated, all dollar amounts are expressed in thousands. INDEX Note Page I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity B. Government-wide and Fund Financial Statements C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation D. Assets, Liabilities, and Net Position E. Effects of New Pronouncements II. III. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information B. Encumbrances DETAILED NOTES ON ALL FUNDS A. Cash and Investments B. Receivables C. Interfund Receivables, Payables, and Transfers D. Lease Accounts E. Capital Assets F. Long-Term Liabilities G. Risk Management H. Compensated Absences I. Deferred Compensation and 401(k) Savings Plan J. Pension K. Other Postemployment Benefits (OPEB) L. Pollution Remediation Obligation M. Long-Term Debt N. Derivative Instruments O. Leases P. Capital and MOU Commitments Q. Joint Powers R. Litigation and Other Contingencies S. Subsequent Events

110 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The Los Angeles County Metropolitan Transportation Authority (LACMTA) is governed by a 14-member Board of Directors (Board). The Board is comprised of the five members of the County Board of Supervisors, the Mayor of the City of Los Angeles, three members appointed by the Mayor, four members who are either mayors or members of a city council and have been appointed by the Los Angeles County City Selection Committee to represent the other cities in the County, and a non-voting member appointed by the Governor of the State of California. Management has prepared LACMTA s financial statements and those of its blended component units. The blended component units discussed below are included as part of the reporting entity because they are financially dependent upon LACMTA and because LACMTA s approval is needed for the units to expend their budgets or charges, and issue long-term debt. Although they are legally separate entities, the blended component units are in substance part of LACMTA s operations and data from these units are combined with LACMTA s financial data. LACMTA administers the activities of the Public Transportation Service Corporation (PTSC), the PTSC-MTA Risk Management Authority (PRMA), the Exposition Metro Line Construction Authority (EXPO), Crenshaw Project Corporation (CPC), and the Service Authority for Freeway Emergencies (SAFE) and includes the activities of these organizations in the accompanying financial statements. PTSC, PRMA, and EXPO provide services exclusively to LACMTA. LACMTA shares its governing board with CPC and SAFE. PTSC, PRMA, EXPO, and CPC are presented and reported in the business activity type funds and SAFE is reported in the governmental fund type. Additional detailed financial information for each of these entities can be obtained from LACMTA s Accounting Department, One Gateway Plaza, Los Angeles, CA or visit LACMTA s website at PTSC was created in August 1997 to conduct activities essential to the provision of public transportation in and around Los Angeles County. To achieve this goal, LACMTA entered into an acquisition agreement under which the planning, programming, administrative, operational management, and construction functions of LACMTA were transferred to and acquired by PTSC. Under this agreement, these functions are provided by PTSC and funded by LACMTA. PRMA was established in October 1998 for the purpose of establishing and operating a program of cooperative self-insurance and risk management. PRMA provides workers compensation coverage for all LACMTA and PTSC employees and provides public liability and property damage insurance coverage for all LACMTA properties. EXPO was established in February 2006 for the purpose of constructing the Exposition Light Rail Line, the newest extension of the 73-station Metro Rail system. The first phase of the 44

111 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 project runs 8.6 miles from Metro Rail Station at 7 th and Flower Streets in downtown Los Angeles to Washington and National Boulevards in Culver City. The second phase is approximately 6.6 miles and is continuing from Phase 1 terminus in Culver City to 4 th Street and Colorado Avenue in the City of Santa Monica. The first phase of the project commenced revenue operations in April CPC was established in March 2012 for the purpose of securing a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan for the Crenshaw/LAX Corridor project. This project covers the design and construction of a new 8.5 mile double-track light rail lines with a minimum of six transit stations and a full service maintenance facility known as Southwestern Yard. The Crenshaw/LAX Corridor project will extend from the EXPO Line at the intersection of Exposition and Crenshaw Boulevards and the Green Line near the existing Aviation/LAX station. SAFE was established in 1988 under the authority of the California Legislature to provide emergency aid to motorists on freeways and expressways within Los Angeles County. B. Government-wide and Fund Financial Statements LACMTA s financial statements, prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No.34, as amended, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, consist of government-wide statements, including a Statement of Net Position and a Statement of Activities, and fund financial statements, which provide a more detailed level of financial information. The government-wide financial statements report information on all of the non-fiduciary activities of the primary government and its component units. Business-type activities, which rely to a significant extent on fees and charges for services, are reported separately from governmental activities, which normally are supported by taxes and intergovernmental revenues. The Statement of Activities demonstrates the degree to which the direct expenses, including centralized expenses of a given function or segment, are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not included within program revenues are reported as general revenues. Certain indirect costs are included in the reported program expenses. Separate fund financial statements are provided for proprietary funds, governmental funds, and fiduciary funds, even though the latter are excluded from the government-wide financial 45

112 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 statements. Major individual governmental funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide and the proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and contributions are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. The fiduciary fund financial statements also use the accrual basis of accounting and are reported using the economic resources measurement focus. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, LACMTA considers revenues to be available if they are collected within 90 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred and a valid claim is presented. Transportation subsidies are recorded when all of the eligibility requirements have been met, including the receipt of the reimbursement request. Long-term debt is recorded only when payment is due. Interest income associated with the current fiscal period is subject to accrual and has been recognized as revenues of the current fiscal period. The effect of interfund activity has been eliminated from the government-wide financial statements. However, intra-activity billing for services provided and used are not eliminated in the process of consolidation. Amounts reported as program revenues include: 1) charges to customers of transit services or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. General revenues include all taxes, investment income, and miscellaneous revenues. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of LACMTA s Enterprise fund are charges to customers for services, rental, and toll revenues. Operating expenses include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 46

113 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 When both restricted and unrestricted resources are available for use, it is LACMTA s policy to use restricted resources first. Unrestricted resources are used as they are needed. Fund Accounting LACMTA utilizes fund accounting to report its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Funds are classified into three categories: proprietary, governmental, and fiduciary, as described below. The Proprietary fund is used to account for LACMTA s ongoing operations and activities similar to those found in the private sector where the determination of net income is necessary or useful to provide sound financial administration. The Enterprise fund, which accounts for the bus and rail operations and the Union Station leasing program, is LACMTA s only proprietary fund. Bus and rail operations are financed and operated in a manner similar to private businesses where the intent is that costs, including depreciation, of providing goods or services to the general public on a continuing basis be recovered primarily through user charges and governmental transfers. All major transit operations capital projects are partially funded by proceeds from debt secured by sales tax revenue, State and Federal grants, and contributions from the governmental funds. Sales tax secured debt are reported as liabilities in the Enterprise fund. The financial resources used to pay the debt principal and interest are reported as contributions from the governmental funds. The Union Station is a hub for rail and bus services. Amtrak, Metrolink, Metro light rail and subway, and Metro buses are the major providers of services that operates within the Union Station s facilities. There are also private businesses providing food services and general merchandising within the Union Station facilities. Union Station is used to account for activities associated with the rental of spaces and reported in the enterprise fund of LACMTA. Metro ExpressLanes is a one-year pilot program funded through a federal grant from U.S. Department of Transportation (USDOT). The ExpressLanes convert existing carpool High- Occupancy Vehicle (HOV) to High-Occupancy Toll (HOT) lanes. The Metro ExpressLanes consists of 11 miles on the I-110 Harbor Transit-way between Adams Boulevard and Harbor Gateway Transit Center that was opened in November 2012 and 14 miles on the I-10 El Monte Bus-way between Alameda Street and I-605 that was opened in February All vehicles using the ExpressLanes are required to have a transponder to access the lanes. Tolls are collected electronically. The activities of the Metro ExpressLanes are reported in the enterprise fund of LACMTA. 47

114 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA reports all operations-related transactions, including capital and related debt, in the Enterprise fund. Governmental funds are used to account for LACMTA s governmental activities. The measurement focus is the determination of changes in financial position, rather than net income determination. LACMTA uses the following governmental fund types: The General Fund is used to account for those financial resources that are not required to be accounted for in another fund. The General Fund is one of LACMTA s major governmental funds. Special revenue funds are used to account for proceeds of specific revenue sources including sales taxes that are legally restricted to expenditures for specified purposes. The following are LACMTA s other major governmental funds: Proposition A This fund is used to account for the proceeds of the voter-approved one-half percent sales tax that became effective on July 1, Revenues collected are to be allocated: 1) 25% to local jurisdictions for local transit; 2) 35% to be used for construction and operation of rail rapid transit systems; and 3) 40% is allocated to county-wide operators at the discretion of LACMTA. Proposition C The Los Angeles County Anti-Gridlock Transit Improvement Fund is used to account for the proceeds of the voter-approved one-half percent sales tax that became effective on April 1, Revenues collected are to be allocated: 1) 5% to improve and expand rail and bus security; 10% for Commuter Rail and construction of transit centers, park-and-ride lots and freeway bus stops; 2) 20% to local jurisdictions for public transit and related services; 3) 25% for essential countywide transit-related improvements to freeways and state highways; and 4) 40% to improve and expand rail and bus transit county-wide. Measure R The Traffic Relief and Rail Expansion Ordinance is used to account for the proceeds of the voter-approved half-cent sales tax that became effective on July 1, 2009 and continuing to June 30, Revenues collected are allocated to: 1) 2% for Metro rail capital improvements; 2) 3% for Metrolink capital improvements; 3) 5% for rail operations for new transit projects; 4) 15% for local return; 5) 20% for bus operations allocated using LACMTA s formula allocation procedure (based on vehicle service miles and fare revenue); 6) 20% for highway capital projects; and 7) 35% for specific transit capital projects. Public Transportation Modernization, Improvement, and Service Enhancement Account (PTMISEA) This fund is part of the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of This fund is intended to pay for projects that protect the environment and public health, conserve energy, reduce congestion, and provide alternative mobility and access choices for Californians. 48

115 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Transportation Development Act (TDA) This fund is used to account for revenues received from the State as part of the Transportation Development Act and are paid out to various transit operators, including LACMTA, for operating and capital uses. State Transit Assistance (STA) This fund is used to account for revenue received from the State Assistance Program under the Transportation Development Act formulas that determine the allocation of the proceeds among eligible recipients. Under the provisions of the Gas Tax Swap enacted in 2010, the STA program is funded by an excise tax on diesel fuel and based on actual consumption of diesel fuel rather than an annual budget appropriation. The LACMTA also has the following nonmajor special revenue funds: Service Authority for Freeway Emergencies (SAFE) This fund is used to account for revenues received from the State Department of Motor Vehicles, generated by a $1 per car registration fee in Los Angeles County to improve freeway emergency response programs including call box operations. Other Special Revenue Funds - This fund is used to account for specific revenue sources related to funds not classified as a nonmajor special revenue funds. Fiduciary funds are used to account for assets held by LACMTA in a trustee capacity or as an agent for individuals, other governmental units, or other funds. Fiduciary funds include the following fund types: Employee retirement trust funds account for the assets of the five defined-benefit pension plans that LACMTA administers and are accounted for in essentially the same manner as the proprietary funds. Other Postemployment Benefits (OPEB) trust funds account for the resources held in trust by LACMTA for the other postemployment benefits of members and beneficiaries not offered as an integral part of a pension plan. D. Assets, Liabilities, and Net Position Cash and Investments LACMTA applies the provisions of GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and External Investment Pools, which generally requires investments to be recorded at fair value and the difference between cost and fair value recorded as appreciation (decline) in fair value of investment. Investments are stated at fair value based on quoted market prices. The net appreciation (decline) in fair value of investments are shown in the Statement of Revenues, Expenditures, and Changes in Fund Balances for all governmental fund types, and in the Statement of Revenues, Expenses, and Changes in Net Position for the proprietary funds. 49

116 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Cash and Cash Equivalents LACMTA considers all highly liquid investments with maturities of three months or less at date of purchase to be cash and cash equivalents as they are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of change in value. State statutes and LACMTA s policy allows LACMTA to invest in U.S. Treasury, commercial paper, repurchase agreements, and the State Treasurer s Investment pool. As required by California State statutes, LACMTA is required to deposit surplus cash of the STA and TDA funds with the County Treasurer. LACMTA is an involuntary participant in the County Treasurer s external investment pool. Deposits in the cash management pool of the County Treasurer are presented as cash and cash equivalents as they are available for immediate withdrawal or deposit at any time without prior notice or penalty and there is no significant risk of principal. Restricted Cash and Cash Equivalents Certain cash and cash equivalents are restricted as these assets are either advances used for specific purpose with the balance being refunded upon project completion or funds restricted for debt service. Restricted Investments Certain investments are classified as restricted on the Statement of Net Position because their use is limited externally by applicable bond covenants, laws or regulations or there exists as imposed restriction through enabling legislation. Non-current Restricted Cash, Cash Equivalents, and Investments In accordance with GASB 62, certain restricted cash, cash equivalents, and investments are non-current as these funds are restricted as to withdrawal or use for other than current operations that are designated for disbursement in the acquisition or construction of non-current assets, or that are segregated for the liquidation of long-term debt. Receivables and Payables Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as due to/from other funds. Any residual balance outstanding between the governmental activities is reported in the government-wide financial statements as internal balances. All receivables are shown as net of allowance for doubtful accounts. 50

117 Inventories and Prepaid Items Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Inventories, consisting primarily of bus and rail vehicle parts, are valued at weighted average cost. Inventory items of governmental funds are recorded as expenditures when consumed. Certain payments to vendors applicable to future accounting periods are recorded as prepaid items. Capital Assets Capital assets are reported in the applicable business-type or governmental activities in the government-wide financial statements. Capital assets are defined by LACMTA as assets with an initial individual cost of more than $5,000 (amount not in thousands). Such assets are recorded at historical cost if purchased or constructed. If donated, capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset s life is expensed. Capital assets are carried at cost and depreciated using the straight-line method based on the estimated useful life of the related assets as follows: Asset Type Useful Life in Years Buildings and structures 30 Rail cars 25 Buses 7-14 Equipment and other furnishings 5-10 Other vehicles 5 Proprietary fund capital assets acquired with federal, state, and local capital grants are included in the Statement of Net Position. Depreciation on these capital assets is included in the accompanying Statement of Revenues, Expenses, and Changes in Fund Net Position. Compensated Absences It is LACMTA s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is no liability for unpaid accumulated vacation and sick leave in the governmental fund. All vacation and sick leave pay is accrued when earned in the government-wide and proprietary fund financial statements. Accumulation and payment of vacation and sick leave is based on the collective bargaining agreements with the various unions. Long-term Obligations In the government-wide and proprietary fund type fund financial statements, long-term debt and other long-term obligations are reported as liabilities, net of related original issue 51

118 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 premiums and discounts. Bond issue costs are reported as deferred outflows of resources and are amortized over the life of the related bonds. Accounting gains and losses resulting from refunding of debts are also reported as deferred outflows of resources or deferred inflows of resources. In the governmental fund type fund financial statements, bond issuance costs and refunding gains/losses are recognized as current period expenditures. Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Financial Position reports a separate section for the deferred outflows of resources. This separate financial statement element represents a consumption of net assets that applies to future reporting periods and so will not be recognized as an outflow of resources (expense) until that time. LACMTA reported under this category 1) the cumulative change in fair value of interest rate swap, a hedging derivative instrument, 2) unamortized balance of bond issue costs, 3) unamortized balance of deferred charges resulting from the difference in the carrying value of the refunded debt and its reacquisition price. Bond issue costs and deferred charges resulting from refunding of debts are deferred and amortized over the shorter of the life of the refunded or the refunding debt. In addition to liabilities, the Statement of Financial Position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net assets that applies to future reporting period and so will not be recognized as an inflow of resources (revenue) until that time. LACMTA reported only one item that qualified under this category, the cumulative change in fair value of commodity swap, a hedging derivative instrument. Unearned Revenues and Unamortized Credits In the government-wide and proprietary fund type fund financial statements, unearned revenues are resource inflows that do not meet the criteria for revenue recognition. Unearned revenues arise when resources are received by LACMTA before it has a legal claim to them, such as grant monies received prior to the incurrence of the qualifying expenditures, presale of passes and tokens, and others. When revenue recognition criteria are met, or when LACMTA has a legal claim to the resources, unearned revenue is removed from the Statement of Net Position and the revenue is recognized. The unamortized credits represent unamortized bond premiums. In the governmental fund type fund financial statements, unearned revenues represent revenues not collected within the 90-day period at the end of the current fiscal period. 52

119 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Fund Balances LACMTA reported its fund balance in various categories based on the nature of the limitations requiring the use of resources for specific purpose. LACMTA classified its governmental fund balances into: Restricted fund balances include amounts that can be spent only for specific purposes stipulated by enabling legislation, by the grants, creditors, or by regulations of other government. Propositions A, C and Measure R sales taxes are restricted by the ordinances that created the taxes. Funds received from TDA, STA, SAFE, and other grants are restricted by the grants providing the funds. Committed fund balances are amounts that can be used only for specific purposes imposed by a formal action of the LACMTA s Board of directors, the primary government s highest decision-making authority. Those committed amounts cannot be used for any other purposes unless the Board removes or changes the specific use of the funds. Assigned fund balances are amounts that do not meet the criteria to be classified as restricted or committed but are intended to be used for specific purposes. Under the LACMTA s board policy, contracts that are $1,000 or less can be approved and assigned by the Chief Executive Officers or his designee. Unassigned fund balances are the residual classification for the General fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General fund. The fund balances are included in the Governmental Funds Balance Sheet on pages E. Effects of New Pronouncements The following summarizes recent GASB pronouncements and their impact, if any, on the financial statements: In March 2012, GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. This statement also provides other financial reporting guidance related to the impact of the financial statement elements of deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limits the use of the term deferred in the financial statement presentations. The requirements of this Statement are effective for fiscal periods beginning after December 15, 53

120 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, LACMTA plans to implement the new reporting requirements of GASB 65 for the fiscal year ending June 30, In March 2012, GASB issued Statement No. 66, Technical Corrections an amendment of GASB Statements No. 10 and No. 62. This statement enhances the usefulness of financial reports by resolving conflicting accounting and financial reporting guidance that could diminish the consistency of financial reporting. It amends Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, by removing the provision that limits fund-based reporting of a state and local government s risk financing activities to the general fund and the internal service fund type. It also amends Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, by modifying the specific guidance for (1) operating lease payments that vary from a straightline basis, (2) the difference between the initial investment (purchase price) and the principal amount of a purchased loan or group of loans, and (3) servicing fees related to mortgage loans that are sold when the stated service fee rate differs significantly from a current (normal) servicing fee rate. The provisions of this Statement are effective for financial statements for periods beginning after December 15, LACMTA plans to implement the new reporting requirements of GASB 66 for the fiscal year ending June 30, In June 2012, GASB issued Statement No. 67, Financial Reporting for Pension Plans. This Statement replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and GASB 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of GASB 25 and GASB 50 remain applicable to pension plans that are not administered through trusts covered by this Statement and to the defined-contribution plans that provide postemployment benefits other than pensions. This Statement is effective for financial statements for fiscal years beginning after June 15, LACMTA plans to implement the new reporting requirements of GASB 67 for the fiscal year ending June 30, In June 2012, GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of GASB 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This statement establishes standards for governmental employer recognition, measurement, and presentation of information about pensions provided through pension plans that are within the scope of this statement. It also establishes requirements for reporting information about pension-related financial support provided by entities that make contributions to pension plans that are used to provide pensions to the employees of other entities. The requirement of this Statement is effective for fiscal years 54

121 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 beginning after June 15, LACMTA plans to implement the new reporting requirements of GASB 68 for the fiscal year ending June 30, In January 2013, GASB issued Statement No. 69, Government Combinations and Disposals of Government Operations. This Statement establishes accounting and financial reporting standards related to government combinations and disposals of government operations. As used in this Statement, the term government combinations include a variety of transactions referred to as mergers, acquisitions, and transfers of operations. Government mergers include combinations of legally separate entities without the exchange of significant considerations. This Statement requires the use of carrying values to measure the assets and liabilities in a government merger. This Statement also provides guidance for transfers of operations that do not constitute entire legally separate entities and in which no significant consideration is exchanged. This Statement requires disclosures to be made about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. The requirements of this Statement are effective for government combinations and disposals of government operations occurring in financial reporting periods beginning after December 15, LACMTA plans to implement the new reporting requirements of GASB 69 for the fiscal year ending June 30, 2015, if applicable. In April 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. Some governments extend financial guarantees for the obligations of another government, a not-for-profit entity, or a private entity without directly receiving equal or approximately equal value in non exchange transactions. This Statement requires a government that extends a non exchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make payment on the guarantee. This Statement requires a government that has issued an obligation guaranteed in a non exchange transaction to recognize revenue to the extent of the reduction in its guaranteed liabilities. This Statement also requires a government that is required to repay a guarantor for making a payment on a guaranteed obligation or legally assuming the guaranteed obligation to continue to recognize a liability until legally released as an obligor. This Statement specifies the information required to be disclosed by governments that extend non exchange financial guarantees. In addition, this Statement requires new information to be disclosed by governments that receive non exchange financial guarantees. The requirements of this Statement are effective for fiscal years beginning after June 15, LACMTA plans to implement the new reporting requirements of GASB 70 for fiscal year ending June 30, 2015, if applicable. II. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information The budget cycle begins in August when the Capital call process is initiated this involves identifying capital needs for the coming fiscal year s budget, and reviewing/prioritizing the 55

122 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 requests. The capital budget process is usually concluded by the end of November or early December. In December, the CEO establishes/updates core missions and operating/support objectives for the coming fiscal year budget. Between January and February, LACMTA submits budgeted planning parameters to the Board outlining basic assumptions to be used in preparing the coming year s annual budget. In February or March of each year, all LACMTA departments submit requests for appropriations to management so that an operational and capital projects budget can be prepared. OMB works with the requesting departments to finalize the annual budget request and begins the process of selling the proposed budget drafts to Board staff from mid-march through early April. In late April, OMB prepares the Proposed Budget book and posts the final version to the metro.net website at least two weeks prior to the public hearing in May. The proposed budgets are submitted to the Board in mid-may for review and adoption. Prior to adoption, the Board conducts public hearings in May for discussion of the proposed annual budgets. The Board adopts the final budget at the conclusion of the hearings, which is planned to occur in late May, but no later than June 30. Enabling legislation and adopted policies and procedures provide that LACMTA s Board approve an annual budget. Annual budgets are adopted on a basis consistent with U.S. Generally Accepted Accounting Principles (GAAP) for all governmental and proprietary funds. The Board also approves the life of project budget whenever new capital projects are approved. All non-capital appropriations lapse at fiscal year-end. The appropriated budget is prepared by fund, cost center, expense type, and project. The legal level of control is at the fund level and the Board must approve additional appropriations. By policy, the Board has provided procedures for management to make revisions within operational or project budgets only when there is no net dollar impact to the total appropriations at the fund level. Quarterly updates for operating and capital expenditures are submitted to the Board. Budget amendments are made when needed. B. Encumbrances Encumbrance accounting is employed in the general and special revenue funds. Under this method, purchase orders, contracts, Memoranda of Understanding (MOU), and other commitments outstanding at year-end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. These commitments will be recognized in subsequent years appropriations. 56

123 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 III. DETAILED NOTES ON ALL FUNDS A. Cash and Investments As of June 30, 2013, the following are LACMTA s cash deposits and investments: 57 Business-type Activities Governmental Activities Cash Deposits and Investments: Cash deposits $ 47,074 $ 11,742 $ 58,816 Asset-backed securities 3, ,235 Certificate of deposits 5,416 3,585 9,001 Commercial paper 11, , ,112 Guaranteed investment contracts 33,615-33,615 Medium-term notes 7,672 3,950 11,622 Mortgage-backed securities 45, , ,731 Pooled funds and mutual funds 429,891 94, ,407 State/County investment pools 98, , ,727 U.S. Agency securities 201, ,899 1,012,468 U.S. Treasury obligations 137, , ,382 Total fair value $ 1,021,836 $ 2,161,280 $ 3,183,116 Reported in the Statement of Net Position and Balance Sheet: Cash and cash equivalents - unrestricted $ 97,510 $ 521,754 $ 619,264 Cash and cash equivalents restricted 206, ,055 Investments unrestricted 286,998 1,638,645 1,925,643 Investment - restricted 4,471-4,471 Cash and cash equivalents restricted non current 242, ,028 Investments restricted noncurrent 184, ,655 Total $ 1,021,836 $ 2,161,280 $ 3,183,116 LACMTA internally pools all cash deposits and investments. All proprietary and governmental funds maintain an equity interest in the pool. Each fund s positive equity in the internally pooled cash deposits and investment account is presented as cash and cash equivalents on the Statement of Net Position and Balance Sheet. Negative equity balances have been reclassified and are reflected as interfund receivables/payables. Interest income earned and expenses incurred as a result of investing are allocated to the various funds based on their monthly equity balances. For purposes of the Statement of Net Position, Balance Sheet, and Statement of Cash Flows, all highly liquid investments, including restricted assets with an original maturity date of 90 days or less when purchased, are considered to be cash and cash equivalents. Otherwise, they are classified as investments. All investments are stated at fair value. Net changes in the fair value of investments are shown in the Statement of Revenues, Expenses, and Changes in Fund Net Position in the Enterprise fund and the Statement of Revenues, Expenditures, and Changes in Fund Balances in the Governmental fund. LACMTA s most recent investment policy, adopted by the Board on January 24, 2013, requires LACMTA s investment program to meet three criteria in the order of their Total

124 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 importance: Safety preservation of capital, diversification, and the protection of investment principal; Liquidity investment portfolios will remain sufficiently liquid to enable LACMTA to meet operating requirements that might be reasonably anticipated; Return on Investments LACMTA will maximize yield on the portfolio consistent with the safety and liquidity objectives. The table below briefly describes LACMTA s investment policy. This table does not address cash deposits and investments held by bond trustees that are governed by the provisions of LACMTA s bond trust agreements. Authorized Investment Type Maximum Effective Maturity Maximum Percentage of Portfolio Maximum Investment In One Issuer Minimum Ratings Bonds issued by LACMTA 5 years No limit No limit None U.S. Treasury obligations 5 years No limit No limit None State of California obligations 5 years 25% No limit A1/P-1 short term or Aa/AA long term Local Agency within the State of California 5 years 25% No limit A1/P-1 short term or Aa/AA long term U.S. Agency securities 5 years 50% 15% None Bankers acceptance 180 days 40% 10% A1/P1 Commercial paper 270 days 25% 10% A Negotiable certificates of deposit 5 years 30% 10% A Repurchase agreements 90 days 20% None None Medium-term notes 5 years 30% 10% A Pooled funds and mutual funds Not applicable 20% 10% AAA/Aaa Asset-backed securities Mortgage-backed securities 5 years 5 years 15% combined with any mortgagebacked securities None AAA 15% combined with any mortgagebacked securities None AAA Local Agency Investment Fund Not applicable No Limit Set by LGIP Not applicable Local Government Investment Pool (LGIP) Not applicable No Limit Set by LGIP Not applicable LACMTA s investment policy prohibits investing in derivatives or reverse repurchase agreements. The management of LACMTA s cash and investments can be categorized as follows: Cash deposits Short-term investments Bond proceeds and debt service investments LACMTA s investment policy is applicable to the cash deposits and short-term investments. Bond proceeds and debt service investments accounts are governed by LACMTA s debt policy. 58

125 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Cash Deposits As of June 30, 2013, LACMTA s carrying amount of cash comprises $815 in cash on hand and $58,001 in checking accounts for a combined total of $58,816. LACMTA s total bank balance was $47,509 with the difference represented primarily by outstanding checks and deposits in transit. Accounts with banks were insured by Federal Deposit Insurance Corporation (FDIC) for up to $250,000 (amount not in thousands) each and amounts uninsured are collateralized by securities held by the bank s trust department or its agent in LACMTA s name. Short-term Investments As of June 30, 2013, LACMTA had the following short-term investments: Weighted Average Investment Type Fair Value Duration (in years) per Investment Type Concentration of Investments Ratings Asset-backed securities $ 3, % AAA Certificate of deposits 9, % A-1+ Commercial paper 269, % A-1 to A-1+ State/County investment pools 427, % Not Rated Medium-term notes 11, % A- to AA+ Mortgage-backed securities 229, % A to AAA Pooled funds and mutual funds 126, % A to AAA U.S. Agency securities 930, % Not Rated to AAA U.S. Treasury obligations 480, % Not Rated to AAA Total $ 2,488, % Portfolio weighted average duration The weighted average duration is calculated using the investment s effective duration weighted by the investment s fair value. LACMTA is a voluntary participant for its investments with the California Local Agency Investment Fund (LAIF) totaled $99,099. The LAIF Advisory Board, whose Chairman is the State Treasurer or designee, provides regulatory oversight for LAIF. The net position value of involuntary participation in Los Angeles County Investment Pool (LACIP) totaled $328,376 as of June 30, The County Board of Supervisors provides regulatory oversight for LACIP. 59

126 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Bond Proceeds and Debt Service Investments As of June 30, 2013, the following table addresses the investments held by the bond trustees for the benefit of LACMTA in accordance with the provisions of the various bond trust agreements: Investment Type Fair Value Weighted Average Maturities (in years) per Investment Type Concentration of Investments Ratings Guaranteed investment contracts $ 33, % Not Rated Pooled funds and mutual funds 397, % Not Rated State/County Investment Pools 49, % Not Rated U.S. Agency securities 81, % Not Rated U.S. Treasury obligations 73, % Not Rated to AAA Total $ 635, % Portfolio weighted average maturities The net position value of involuntary participation of debt service investments in LGIP totaled $49,252 as of June 30, The County Board of Supervisors provides regulation oversight for LGIP. Risk In accordance with GASB Statement No. 40, Deposit and Risk Disclosure an Amendment of GASB Statement No.3, certain required disclosures regarding investment policies and practices with respect to the risk associated with their credit risk, concentration of credit risk, custodial credit risk, interest rate risk, and foreign currency risk are discussed in the following paragraphs: Credit Risk Investments are subject to credit risk, which is the chance that an issuer will fail to pay principal or interest in a timely manner, or that negative perceptions of the issuer s ability to make these payments will cause price to decline. The tables above for shortterm investments and bond proceeds and debt service investments summarize the market value of investment and the related credit ratings. LACMTA maintains policies to manage credit risks, which include requiring minimum credit ratings issued by nationally recognized statistical rating organizations for its investments. Concentration of Credit Risk Concentration of credit risk is the risk associated with a lack of diversification or having too much invested in a few individual shares. As disclosed above, LACMTA maintains 60

127 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 investment policies that establish thresholds for holdings of individual securities. LACMTA does not have any holdings meeting or exceeding these threshold levels. As of June 30, 2013, LACMTA does not have any investments with more than 5% of the total investments under one issuer except for obligations of the U.S. government or obligations explicitly guaranteed by the U.S. government. Custodial Credit Risk LACMTA has no known custodial credit risk for deposits as financial institutions are required by the California Government Code to collateralize deposits of public funds by pledging government securities as collateral. Such collateralization of public funds is accomplished by pooling. The market value of pledged securities must be in accordance with the Government Code for the State of California. California law also allows financial institutions to collateralize public fund deposits by governmental securities with a value of 110% of the deposit or by pledging first trust deed mortgage notes having a value of 150% of a governmental unit s total deposits. LACMTA may waive collateral requirements for deposits that are fully insured up to $250,000 (amount not in thousands) by the FDIC. All investment securities purchased were held and registered in LACMTA s name and maintained for the benefit of the LACMTA in the trust department or safekeeping department of a financial institution as established by a written third-party safekeeping agreement between LACMTA and the financial institution. Interest Rate Risk Interest rate risk is the risk that changes in interest rate will adversely affect the fair value of an investment. LACMTA measures interest rate risk on its short-term investments using the effective duration method. LACMTA maintains policy requiring the average duration of the externally managed short-term investments not to exceed 150% of the benchmark duration and the average duration of the internally managed short-term investments not to exceed three years. This policy does not apply to investments of proceeds related to bond financings. LACMTA measures interest rate risk on its bond proceeds and debt service investments using the weighted average maturity method. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair values of the cash deposits or investments. As of June 30, 2013, there is no exposure to currency risk as all LACMTA cash deposits and investments are denominated in U.S. dollar currency. 61

128 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 B. Receivables Receivables as of June 30, 2013, as shown in the government-wide financial statements, in the aggregate, including the applicable allowance for doubtful accounts, are as follows: Business-type Governmental Receivables Activities Activities Total Accounts $ 15,157 $ 11,992 $ 27,149 Interest 44 4,837 4,881 Intergovernmental 282, , ,889 Leases and other Sales tax - 323, ,195 Notes 2,513 22,000 24,513 Gross receivables 300, , ,697 Less: Allowances for doubtful accounts (1,041) - (1,041) Net receivables $ 299,676 $ 508,980 $ 808,656 Receivables as of June 30, 2013 for governmental activities by individual major funds and non-major funds are as follows: Receivables Fund Name Accounts Interest Intergovernmental Sales tax Notes Total $ 1,021 $ 3,414 $ - $ 4,000 $ 14,585 General Fund $ 6,150 Prop A ,128-68,547 Prop C 2, ,495 68, ,836 Measure R 3,675 2, ,074 18, ,065 PTMISEA TDA ,592-32,898 STA ,227-26,262 Others , ,730 Total $ 11,992 $ 4,837 $ 146,956 $ 323,195 $ 22,000 $ 508,980 C. Interfund Receivables, Payables, and Transfers Internal fund balances represent receivables/payables owed to a particular fund by another fund for temporary loans, advances, goods delivered, or services rendered. As of June 30, 2013, the Enterprise fund is indebted to the Governmental funds in the amount of $128,054. Payable (Receivable) from/to Governmental Funds Enterprise Fund General fund $ 171,959 Measure R 23,242 PTMISEA (34,771) STA (27,843) TDA (13,978) Others 9,445 Total $ 128,054 62

129 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Transfers in and out by fund are as follows: Transfers In General Prop A Prop C Transfers Out Enterprise Fund Fund Fund Fund Measure R General Fund $ 46,249 $ 116 $ - $ 664 $ 4,608 $ 51,637 Prop A 368,618 45, ,610 Prop C 220,024 25,882 32,224-27, ,408 Measure R 199, ,903 PTMISEA 67, ,799 TDA 197,743 6, ,829 STA 105, ,962 Others 10, ,191 Total Total $ 1,215,764 $ 78,046 $ 32,224 $ 2,419 $ 31,886 $ 1,360,339 D. Lease Accounts LACMTA entered into various lease/leaseback agreements in the form of Payment Undertakings, Equity Payment Undertakings, and Guaranteed Investment Certificates with various investment providers. These were general obligations of the investment providers for the benefit of the trust except for $62,521 of Guaranteed Investment Certificates held in LACMTA s name. As of June 30, 2013, these lease/leaseback agreements totaled $815,

130 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 E. Capital Assets A summary of changes in capital assets for the year ended June 30, 2013 is as follows: Business-type Activities Beginning Balance Increases Decreases Ending Balance Capital assets, not being depreciated: Land $ 760,232 $ 53,418 $ (647) $ 813,003 Construction in progress 829, ,670 (191,245) 1,227,365 Total capital assets, not being depreciated 1,590, ,088 (191,892) 2,040,368 Capital assets, being depreciated: Buildings 8,404, ,926 (568) 8,636,761 Equipment 680,850 32,472 (3,046) 710,276 Vehicles 2,129, ,541 (87,009) 2,142,588 Total capital assets, being depreciated 11,214, ,939 (90,623) 11,489,625 Less accumulated depreciation for: Buildings (3,064,800) (285,958) 360 (3,350,398) Equipment (590,765) (47,797) 2,605 (635,957) Vehicles (1,267,188) (131,348) 84,360 (1,314,176) Total accumulated depreciation (4,922,753) (465,103) 87,325 (5,300,531) Total capital assets, being depreciated, net 6,291,556 (99,164) (3,298) 6,189,094 Business-type activities capital assets, net 7,881, ,924 (195,190) 8,229,462 Governmental Activities Capital assets, not being depreciated: Land 772, ,794 Governmental Activities capital assets, net 772, ,794 Total capital assets $ 8,654,522 $ 542,924 $ (195,190) $ 9,002,256 Depreciation expense charged to functions and/or programs are as follows: Business-type Activities Bus operations $228,356 Rail operations 233,482 Union Station operation 1,662 Metro Express Toll Lanes 1,603 Total depreciation expense Business-type activities $465,103 64

131 F. Long-Term Liabilities Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 As discussed in more detail in Notes G, H, and M, the following is a summary of changes in long-term liabilities reported in the government-wide financial statements for the year ended June 30, Business-type activities: Balance June 30, 2012 Addition Reduction Balance June 30, 2013 Due Within One Year Bond payable $ 4,442,073 $ 828,021 $ 806,471 $ 4,463,623 $ 282,035 Claims and judgments 282,582 79,991 84, ,836 84,737 Compensated absences 81,998 67,328 65,445 83,881 64,462 4,806, , ,653 4,825, ,234 Governmental activities: Bonds payable 22,267-1,080 21, Total long-term liabilities $ 4,828,920 $ 975,340 $ 957,733 $ 4,846,527 $ 431,901 G. Risk Management The primary emphasis of risk management activities at LACMTA is to prevent or reduce the risk of injury to persons and damage to or loss of property. Where losses cannot be prevented, LACMTA endeavors to self-insure or to assume such losses as it may deem advisable and economical, giving due consideration to the frequency and severity of probable losses. The consideration of the effect of potential self-insured or assumed losses is part of LACMTA s financial planning process. Capital For its construction projects, LACMTA requires contractors to maintain a contractor controlled insurance program (CCIP) to minimize LACMTA s risk of exposure to construction-related losses. These policies provide property, liability, and workers compensation insurance and cover many of the risks arising from the work of contractors and subcontractors on LACMTA construction projects. Operations The reserves for the public liability and property damage and workers compensation claims are actuarially determined and subject to periodic adjustment as conditions warrant. The reserves are discounted using an average discount rate of 3.0%. LACMTA believes that the estimated liability for self-insured claims as of June 30, 2013 will be sufficient to cover any costs arising from claims filed or to be filed for incidents that occurred through that date. The liability is based, in part, upon an independent actuarial estimate of reserves required for unsettled claims including losses that have been incurred but not reported and legal expenses but excluding direct administration costs both by LACMTA employees and thirdparty administrators. 65

132 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA is partially self-insured for public liability and property damage for nonconstruction activities up to $5,000 per occurrence. LACMTA has acquired outside insurance coverage for losses of $250,000 in excess of self-insurance retentions. LACMTA is self-insured for losses greater than $250,000. Furthermore, LACMTA has an all-risk property insurance program that covers all of its property. The property insurance policy covers insurable values of approximately $9.3 billion on a probable maximum loss basis with policy limits of $350,000 for damages ($150,000 for flood damages). Earthquake coverage is not included in the current program structure. LACMTA does not set aside funds to cover potential gaps in property insurance coverage in case of losses. As of June 30, 2013, a designated investment has been set aside in the amount of $90,140 equal to the property and casualty liabilities. The workers compensation program is both self-insured and self-administered by LACMTA. As of June 30, 2013, a designated investment has been set aside in the amount of $187,696 equal to the workers compensation liabilities. The following table summarizes changes in the claims and judgments reserves for the years ended June 30, 2013 and 2012: Unpaid claims and claim adjustment Property and Casualty Workers Compensation Total reserves beginning of year $ 93,907 $ 94,669 $ 188,675 $ 187,932 $ 282,582 $ 282,601 Provisions for insured events 37,603 36,962 41,586 37,770 79,189 74,732 Interest income 157 1, , ,833 Total incurred claims and claims adjustment expense 131, , , , , ,166 Payment attributable to insured events (41,527) (38,750) (43,210) (38,834) (84,737) (77,584) Total unpaid claims and claim adjustment reserves end of year $ 90,140 $ 93,907 $ 187,696 $ 188,675 $ 277,836 $ 282,582 As of June 30, 2013, $84,737 of the total claims liability is considered current. Claims payable is reported in the Statement of Net Position in the Enterprise Fund. H. Compensated Absences LACMTA s and PTSC s contract employees represented by the United Transportation Union (UTU), the Amalgamated Transportation Union (ATU), Transportation Communications Union (TCU), American Federation State, County, Municipal Employees (AFSCME), and the Brotherhood of Teamsters (Teamsters) accumulate vacation leave pay and sick leave pay in varying amounts based on the collective bargaining agreements with the various unions. 66

133 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Under the existing collective bargaining agreements, vacation periods are not cumulative. However, employees may carry forward vacation pay of up to 40 hours for TCU and ATU, while 40 hours may be carried forward to the next vacation period for UTU if notice is given by April 1. Otherwise, unused vacation hours earned for the year are paid off on May 31. UTU, TCU, and Teamsters employees may request payment of a limited amount of unused sick leave each year at a rate of 75% of face value. Unused sick leave for contract employees is payable at the rate of 100% of the face value upon retirement or death. LACMTA, PTSC, and EXPO have a combined vacation and sick leave program for its nonrepresented and AFSCME represented employees. Under this program, vacation and sick leave are combined as time off with pay (TOWP), which accrues at varying rates throughout the year. Accumulated vacation and sick leave prior to the implementation of TOWP policy on January 1, 1995 were considered frozen and remained on the books as a liability. Frozen vacation may be converted into TOWP once per year at the request of the employee, or will be paid at 100% at retirement, termination, or death. Frozen sick leave may be converted to TOWP prior to retirement at a 75% conversion rate when an employee reaches the age of 55 and has five years or more service. Upon retirement, unused sick pay is paid at 75%, except for those individuals who retire between the ages 50 and 55, wherein the payout rate varies from 50% to 75% depending on the employee s age at retirement. All employees with 30 or more years of service, regardless of age at retirement, have a payout rate at 75%. Upon death, payment of frozen sick leave will be at 100% to the employee s beneficiary. The following is a summary of the compensated absences payable as of June 30, 2013: Balance June 30, 2012 Earned Used Balance June 30, 2013 Due Within One Year Union Employees: Vacation leave $ 24,987 $ 25,140 $ (25,323) $ 24,804 $ 24,635 Sick leave 29,993 16,528 (15,060) 31,461 15,045 TOWP 6,714 8,525 (8,255) 6,984 8,176 Subtotal 61,694 50,193 (48,638) 63,249 47,856 Non-Union Employees: Vacation leave (14) Sick leave 2, (240) 2, TOWP 17,049 17,063 (16,553) 17,559 16,352 Subtotal 20,304 17,135 (16,807) 20,632 16,606 Total $ 81,998 $ 67,328 $ (65,445) $ 83,881 $ 64,462 As of June 30, 2013, $64,462 of the total compensated absences payable is considered current. Compensated absences payable is reported in the Statement of Net Position in the Enterprise Fund. 67

134 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 I. Deferred Compensation and 401(k) Savings Plan Deferred Compensation Plan LACMTA has a deferred compensation plan for all employees established in accordance with Internal Revenue Code (IRC) Section 457, which permits employees to defer a portion of their current salary to future years. Under this plan, employees may contribute up to the lesser of $17,500 (not in thousands) or 100% of their earnings in calendar year A special provision in the law allows an additional $5,500 (not in thousands) if an employee is a Baby Boomer, age 50 or older by December 31, 2013, and employees eligible for retirement within three years can avail of the catch up provision, totaling $35,000 (not in thousands). The plan is managed by a third-party plan administrator and trustee. Employee deferrals can be allocated among several investment options as directed by the employee. Although the employee is always 100% vested in the plan, withdrawals are not available to employee until termination, retirement, age 59-1/2, death, or unforeseeable emergency. In the opinion of management, LACMTA has no liability for any losses under the plans, but does have the fiduciary responsibility of due professional care that would be required from a prudent investor. Accordingly, the assets of the deferred compensation plan and the related liability to employees are not reported in the accompanying financial statements. LACMTA does not match employees contribution to the deferred compensation plan. As of June 30, 2013, the deferred compensation plans had assets stated at fair value of $258, (k) Savings Plan LACMTA also offers a deferred savings plan to all employees created in accordance with IRC Section 401(k). Under this plan, employees may contribute up to the lesser of $17,500 (not in thousands) or 100% of their earnings in calendar year A special provision in the law allows an additional $5,500 (not in thousands) if an employee is a Baby Boomer, age 50 or older by December 31, The 401(k) Savings Plan is managed by a third-party plan administrator, and the participants can direct the plan administrator to allocate their deferral based on several investment options. Plan benefits are based solely on amounts contributed by employees to their own accounts. Withdrawals are not available to employees until termination, retirement, age 59-1/2, death, or unforeseen emergency. In the opinion of management, LACMTA has no liability for any losses under the plans, but does have the fiduciary responsibility of due professional care that would be required from a prudent investor. Accordingly, the plan s assets and liability to employees are not reported in the accompanying financial statements. LACMTA does not match employees contribution to the 401(k) savings plan. As of June 30, 2013, the 401(k) savings plan had assets at fair value totaling $327,

135 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Employees may participate in both deferred compensation and 401(k) savings plan. The maximum annual combined contribution per calendar year using both plans is $46,000 (not in thousands). Also, the maximum annual combined contribution per calendar year using both plans is $52,500 if an employee falls within the catch up provision and less than 50 years of age, or $58,000 (not in thousands) if an employee falls within the catch up provision and age 50 or older. J. Pensions LACMTA provides pension benefits that cover substantially all full-time employees through five self-administered defined-benefit pension plans and the California Public Employees Retirement System (CalPERS). Four of the self-administered plans are restricted to specific union members, while the fifth provides benefits to Non-Represented employees and Teamsters. California Public Employees Retirement System (CalPERS) CalPERS is an agent multiple-employer public retirement system. Most full-time employees of PTSC are covered members under CalPERS and become fully vested in their accrued benefits after five years of credited service. Normal retirement is at age 60 with five years of credited service. The form of the normal benefit is a modified straight-line annuity equal to 2% benefit factor, of final average compensation, generally the last or the highest consecutive 36 months of employment, times years of credited service. Other optional benefits are available at a reduced amount. Early retirement is available at age 50 with five years of credited service. For employees hired before January 1, 2013, The benefit factor is actuarially reduced for retirement prior to age 60 and actuarially increased after age 60 up to age 63. For employees first employed on or after January 1, 2013 the benefit factor is actuarially reduced for retirement prior to age 62 and actuarially increased after age 62 up to age 67. The plan provides for survivor and disability benefits. The benefit provisions and all other requirements are established by contract with CalPERS in accordance with the provisions of the Public Employees Retirement Law. An annual stand-alone financial report is issued and a copy can be obtained by a request from CalPERS, P.O. Box , Sacramento, CA or visit CalPERS website at The employer and employee contributions are a percentage of the employee s compensation. The rates are defined by law and are based on the employer s benefit formula as determined by periodic actuarial valuations. These contributions are deposited in a fund established for each entity for the purpose of creating actuarial reserves for future benefits. For the year ended June 30, 2013, the contribution rate of covered payroll for employees hired before January 1, 2013 was 15.67%. This rate includes the mandatory employee contribution of 7.0% that is currently paid by PTSC. The Public Employees Pension Reform Act of 2013 (PEPRA) took effect January 1, Under PEPRA, new employees first employed on or after January 1, 2013 pay 50% of the 69

136 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 normal cost of the defined benefit plan. In FY13, new employees hired under PEPRA contributed at a rate of 6.25%. The employer rate was 8.67%. Total Annual Required Contributions (ARC) for the years ended June 30, 2013, 2012, and 2011 were $22,900, $22,656, and $19,951, respectively, all of which were attributable to PTSC. Such contributions were made in accordance with the latest CalPERS actuarial valuation as of June 30, These pension contributions for normal costs include the employees portion, and for the years ended June 30, 2013, 2012, and 2011, were $10,228, $10,153, and $9,519, respectively. While the required employer contribution rate for the current fiscal year is determined by the actuarial valuation two years prior and the expected dollar amounts of the ARC is determined by multiplying the rate by the expected payroll for the applicable year, the actual contributions are made using the same rate applied to the actual current payroll resulting in a net pension obligation of $2,642 as of June 30, Annual required contribution Payment for normal costs $ 10,834 Payment for amortization bases 1,837 Total pension cost 12,671 Actual payments (11,842) Net pension obligation (NPO) - beginning of year 1,813 Net pension obligation (NPO) - end of year $ 2,642 The smoothing of market value method was used to determine the actuarial value of assets, which was set to be no less than 80% or greater than 120% of actual market value for the purpose of determining 2012/2013 employer contributions. Initial unfunded liabilities are amortized over a closed period that depends on the plan s entry date into CalPERS with subsequent plan amendments amortized as a level percentage of pay over a closed 20-year period. As of valuation date June 30, 2010, the average remaining period is 19 years. The actuarial assumptions are 7.75% investment rate of return, an inflation rate of 3.00%, and projected salary increases of 3.55% to 14.45% dependent on age, service, and type of employment and payroll growth of 3.25% compounded annually. LACMTA-administered Plans LACMTA has a single-employer public employees retirement system that includes five defined-benefit pension plans (Plans) covering substantially all employees, providing retirement, disability, and death benefits. Generally, employees rights to retirement benefits vest after five (5) years for non-represented, Teamsters, and AFSCME employees and after ten (10) years for UTU, ATU, and TCU employees. All contract and non-contract retirement benefits are based on the individual employee s years of service, age, final compensation, bargaining units, and disability status. The benefit provisions and all other requirements are established by state statute, ordinance, collective bargaining agreements, or Board s actions. An annual stand-alone financial report is issued for the plans and can be obtained by requesting a copy from the Accounting Department, One Gateway Plaza, Los Angeles, CA

137 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The Plans member contributions, benefits paid, and refunds are recorded using the accrual basis of accounting. Plans member contributions are recognized in the period in which the contributions are due. The Plans member benefits and refunds are recognized when due and payable in accordance with the terms of the plan. The Plans equity securities, pooled equity trust, and the fixed income securities are reported at the fair value based on quoted market prices as of fiscal year end. LACMTA s funding policy is to make annual contributions to the Plans in amounts that, when combined with employees contributions, fund the actuarially computed cost as they accrue. Actuarially computed costs are determined using the projected unit credit method. The employee and employer contributions are required by the plan agreement as either a percentage of annual earnings which is applicable only to ATU pension plan or the dollar amount recommended to finance the benefits provided in the UTU, TCU, AFSCME, and Non-Contract plans on a sound actuarial basis. LACMTA uses the level percentage of payroll method to amortize the unfunded liability or surplus of the base plan over 15 years for UTU, TCU, Non-Contract, and AFSCME, and through 2023 for ATU. The ARCs, for LACMTA and employees, by plan, for the years ended June 30, 2013, 2012, and 2011, are as follows: United Transportation Union Plan Transportation Communication Union Plan Amalgamated Transit Union Plan Non-Contract Employees Plan AFSCME Total Contributions 2013 Employer $ 24,104 $ 5,270 $ 18,663 $ 4,785 $ 1,816 $ 54,638 Employee 15,378 1,654 5, ,826 Total $ 39,482 $ 6,924 $ 24,457 $ 4,785 $ 1,816 $ 77, Employer $ 20,379 $ 4,145 $ 16,906 $ 3,114 $ 1,350 $ 45,894 Employee 13,948 1,632 4, ,669 Total $ 34,327 $ 5,777 $ 20,995 $ 3,114 $ 1,350 $ 65, Employer $ 20,311 $ 4,040 $ 17,070 $ 2,515 $ 1,253 $ 45,189 Employee 16,108 2,027 4, ,017 Total $ 36,419 $ 6,067 $ 21,952 $ 2,515 $ 1,253 $ 68,206 71

138 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The annual pension cost, annual amount contributed, and net pension obligation for the years ended June 30, 2013, 2012, and 2011 are as follows: United Transportation Union Plan Transportation Communication Union Plan Amalgamated Transit Union Plan Non- Contract Employees Plan AFSCME Total Year Ended 2013 Annual Pension Cost $ 24,072 $ 5,270 $ 18,677 $ 4,785 $ 1,816 $ 54,620 Annual Amount Contributed 24,104 5,270 18,663 4,785 1,816 54,638 54,620 Net Pension Obligation (Asset) (543) Annual Pension Cost 20,347 4,145 16,934 3,114 1,350 45,890 Annual Amount Contributed 20,379 4,145 16,722 3,114 1,350 45,710 Net Pension Obligation (Asset) (358) Annual Pension Cost 20,278 4,040 17,098 2,515 1,253 45,184 Annual Amount Contributed 20,311 4,040 17,070 2,515 1,253 45,189 Net Pension Obligation (Asset) (570) The components of the net pension obligation for UTU employees for the years ended June 30, 2013, 2012, and 2011 are as follows: Annual Required Contribution (ARC) NPO at the beginning of the year (BOY) Interest on the NPO at the BOY 72 Amortization of NPO at the BOY (Decrease in NPO) Amount NPO at the end of Year contributed the year Ended (a) (b) (c) (d) (e) (a)+(b)+(c)+(d)-(e) 2013 $ 24,104 $ 803 $ 55 $ (108) $ 24,104 $ , (95) 20, , (98) 20, The components of the net pension asset for ATU employees for years ended June 30, 2013 and 2012 are as follows: Year Annual Required NPO at the beginning of Interest on the NPO at Adjustment to ARC Amortization of NPO at the BOY NPO at the end of the year Ended (a) (b) (c) (d) (e) (a)+(b)+(c)+(d)-(e) 2013 $ 18,663 $ (358) $ (42) $ (143) $ 18,663 $ (543) ,906 (570) (48) 76 16,722 (358) ,070 (598) (48) 76 17,070 (570) LACMTA s contributions to the Plans for the year ended June 30, 2013 were made in accordance with the actuarially determined requirements computed as of December 31, 2011, except for ATU, which was made in accordance with actuarial valuation report as of January 1, Actuarially computed costs are determined using the projected unit credit method. The ARC for all plans for the years ended June 30, 2013, 2012, and 2011, were $54,638, $45,894, and $45,189, respectively. Annual pension cost, which is equivalent to ARC plus interest on NPO less amortization of NPO, amounted to $53,974, $45,890, and

139 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 $45,184, for the years ended June 30, 2013, 2012, and 2011, respectively. The net pension obligations for the UTU Plan for the years ended June 30, 2013, 2012, 2011, were $750, $803, and $835, respectively while net pension asset for the ATU Plan as of June 30, 2013, 2012 and 2011 were $543, $358 and $570, respectively. There was no NPO at June 30, 2013, 2012, and 2011, for the TCU, Non-Contract, and AFSCME Plans. The required contribution rate by employees for the fiscal years ended June 30, 2013, 2012, and 2011 were between 0 and 8.45%, 0 and 7.67%, and 0 and 8.47%, respectively, of their annual wages. The employer rate is equal to the ARC. Effective December 31, 2008, the actuarial value of assets for UTU, TCU, Non-Contract and AFSCME Plans were revised from the average of book and market values to a 5-year smoothed market value of assets restricted to a 20% corridor around the market value of assets. Effective with the actuarial valuation as of December 31, 2007, the ATU Plan adopted the 4-year smoothed market value method with a 15% corridor to determine the actuarial value of assets. The key actuarial assumptions include: 7.5% investment rate of return including a 2.75% rate for inflation on ATU Plan, projected salary increases tied to age-based rates, and no postemployment benefit increases. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information, which shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The LACMTA s funding progress information as of June 30, 2013 is presented below: K. Other Postemployment Benefits (OPEB) Plan Description Normal Accrued Liability On February 22, 2007, the Board adopted a resolution authorizing the establishment of an irrevocable Retiree Health Care and Welfare Benefits Trust (Plan). The Plan is a singleemployer, defined benefit plan administered by LACMTA to provide OPEB benefits, such as 73 Unfunded Actuarial Accrued Liability (UAAL) UAAL as a Percentage of Covered Payroll Actuarial Value of Assets Funded Ratio Annual Covered Payroll (a) (b) (a)-(b) (b)/(a) (c) (a)-(b)/(c) Actuarial Valuation Date PTSC June 30, 2011 $ 403,848 $ 374,041 $ 29, % $ 125, % LACMTA January 1, 2013 ATU 404, , , % 114, % December 31, 2012 UTU 605, , , % 177, % TCU 109,766 70,250 39, % 28, % Non-Contract 144,423 99,654 44, % 4,412 1,014.71% AFSCME 57,047 42,817 14, % 4, %

140 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 medical, dental, vision, life insurance, and similar benefits offered by LACMTA to its active and retired employees. The Plan covers benefits administered by LACMTA to Non-contract employees and employees represented by AFSCME and the Teamsters and the contractual obligations to the respective Union Health and Welfare Trusts for employees represented by ATU, TCU, and UTU. Generally, eligibility for coverage is based on employee s service and age. An annual stand-alone financial report is prepared for the Plan and can be obtained by requesting a copy from the Accounting Department, LACMTA, One Gateway Plaza, Los Angeles, CA Plan Accounting Practices Basis of Accounting The Plan s financial statements have been prepared using the accrual basis of accounting. Revenues are recognized when earned and expenses are recorded when a liability is incurred. Contributions and Benefits Plan member contributions are recognized in the period in which the contributions are due. LACMTA contributions are funded on a pay-as-you-go basis reflecting budgeted retirees medical and life insurance benefits. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plan. Method Used to Value Investments Investments are reported at fair value based on quoted market prices at fiscal year end. Investment income is recognized on an accrual basis. Gains and losses on sales and exchange of securities are recognized on the trade date. Gains or losses on sales of securities are determined on the basis of average cost. Enrollment The numbers of participants (not in thousands) by employee group as of January 1, 2009 and 2011, the effective dates of the biennial OPEB valuations, are as follows. There have been no significant changes in the number of employees covered since that date. Union Health & Welfare Trusts Participant LACMTA ATU TCU UTU Total As of January 1, 2013 Active Employees 1,888 2, ,966 8,963 Retirees under ,031 1,792 Retirees over ,220 2,710 Total Active and Retirees 2,859 3,288 1,101 6,217 13,465 As of January 1, 2011 Active Employees 1,727 2, ,840 8,452 Retirees under ,069 1,910 Retirees over ,125 2,446 Total Active and Retirees 2,680 3, ,034 12,808 74

141 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Funding Policy Member Contribution Contributions made by Non-Contract/AFSCME/Teamsters retirees are established and approved by the Board. Generally, the contribution is calculated as a percent of the premium cost based on service. The benchmark is 25 years or more to qualify for the active employee contribution rate. For each year of service less than 25 years, the retiree pays an additional 4% of LACMTA s cost. Contributions are remitted by LACMTA to the Plan. The Union Health and Welfare Trusts establish the plan member contribution rates (not in thousands). ATU retirees contributions are $80/month pre-65 years of age and $60 per month post-65 years of age. TCU retiree contributions are $45 per month with an additional $15 per month contribution for dependent coverage. UTU retiree contributions are $50 per month with no additional contribution for dependent coverage. Contributions made by employees represented by ATU, TCU, and UTU are directly remitted to their respective union healthcare trusts. LACMTA Contribution LACMTA s funding policy is to contribute the ARC as determined by GASB 45 unless budgetary constraints require lower contribution. In no event will the annual contribution be less than the LACMTA s direct pay-as-you-go costs as determined by required premium payments and contracted contributions to the union healthcare trusts. In the near-term, LACMTA expects that contributions will be approximately $5 million above pay as you go costs. Actuarially computed costs are determined using the projected unit credit method. Since LACMTA has committed to fund in excess of the pay-as-you-go cost but less than the ARC, contributions were determined reflecting a partial funding approach. LACMTA elected to use a blended discount rate of 4.25%, which implicitly assumes a level of funding in excess of pay-as-you-go costs and the investment policy of the trust to support a long-term expected rate of return on assets of 7.5%, while LACMTA s general assets support a return on assets of 3.5%. The ARC calculation uses an open 20-year rolling amortization that meets the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan, the Plan as understood by the employer and the plan members, and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members. Actuarial valuations for OPEB plans involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined 75

142 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 amounts reflect a long-term perspective and are subject to continual revision as results are compared with past expectations, and new estimates are made about the future. The most significant actuarial assumptions include: a) 4.25% discount rate, compounded annually; b) increase in future payroll of 3.5% per year, compounded annually; c) mortality using RP Mortality Table, male and female with blue collar adjustments, with mortality improvements projected to year 2025; d) health care cost trend rate of 8.50%; and e) included an inflation rate of 2.5%. The healthcare cost trend assumptions comprised of three elements: 1) initial trend rate, 2) ultimate trend rate, and 3) the grade-down period. The trend rate assumptions exclude the expected impact of aging since this impact is explicitly reflected elsewhere in the valuation. The initial trend rate is the expected increase in health care costs into the second year of the valuation, i.e., the first assumed annual increase in starting per capita rates, which is established separately for pre-medicare medical claims, Medicare-eligible medical claims, prescription drug claims, and administrative expenses. These expected trend rates, which are based on market assessments and surveys and take into account actual historical experience, expected unit cost information, changes in utilization, plan design leveraging, cost shifting, and new technology, are blended together based on a cost-weighted average basis. The assumed ultimate trend rate and grade-down period are based on macroeconomic principles reflecting assumed long-term general information, nominal gross domestic product growth rates, and the excess of national health expenditures over other goods and services, and an adjustment for an assumed impact of population growth. The healthcare cost trend rate were adjusted to reflect the impact from the 40% excise tax provision on high cost plans beginning in 2018 under the healthcare reform. LACMTA s contractual contributions are assumed to increase in years after the current contract in accordance with medical trend, and while LACMTA plan retirees/dependent contributions are assumed to increase at the same rate as medical costs, retiree contributions for ATU, TCU, and UTU participants are not assumed to increase. The actuarial value of assets is based on a five-year, moving average of expected and market values adjusted by recognition of gains or losses and limited to be no more than 120% and no less than 80% of market value. LACMTA opted to perform biennial valuations of its liabilities under the provision of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. As such, the January 1, 2013 valuation is used to determine the Annual Required Contributions (ARC) for the fiscal years ending June 30, 2014 and In the January 1, 2013 valuation, the ARC is equal to normal cost plus amortization of the unfunded actuarial accrued liability determined under the projected credit method. The amortization period is an open 20-year period as a level percentage of expected payroll. The total ARC as a percentage of payroll is equal to 13.87%. The aggregate payroll is assumed to grow at 3.5% per year. 76

143 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The following table summarizes the valuation results applying the level percentage of pay method to the valuation date of January 1, 2013: Summary of Costs Normal Cost $ 37,835 Percentage of Total Payroll 6.07% Amortization of Unfunded Actuarial Accrued Liability $ 48,654 Percentage of Total Payroll 7.80% ARC with 20-year Level Percent of Payroll Amortization $ 86,489 Percentage of Total Payroll 13.87% Annual OPEB Cost and Net OPEB Obligation The ARC represents a level of funding that if paid on an ongoing basis, is projected to cover normal costs each year, and amortize any unfunded actuarial liabilities, or funding excess, of the plan over a period not to exceed 30 years. Amounts required but not set aside to pay for these benefits are accumulated as part of the Net OPEB Obligation. LACMTA s annual OPEB cost for the year, the amount paid on behalf of the plan, and changes in the LACMTA s Net OPEB Obligation to the plan for the year ended June 30, 2013 are as follows: Annual Required Contribution $ 81,750 Interest on Net OPEB obligation 3,844 Adjustment to ARC (4,991) Total Annual OPEB Cost 80,603 Less Contributions made 43,788 Increase in Net OPEB Obligation 36,815 Net OPEB Obligation (Asset) beginning of year 85,420 Net OPEB Obligation end of year $ 122,235 LACMTA s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB Obligation for the years ended June 30, 2013, 2012, and 2011 are as follows: Funding Progress Year Ended OPEB Cost Percentage of OPEB Cost Contributed Net OPEB Obligation 2013 $ 80, % $ 122, , % 85, , % 45,223 The schedule of funding progress presents multi-year trend information on whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 77

144 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The LACMTA s funding progress information as of June 30, 2013 is illustrated as follows: Projected Unit Credit Accrued Liability Actuarial Value of Assets Unfunded Actuarial Accrued Liability (UAAL) Annual Covered Payroll UAAL as a Percentage of Covered Payroll Funded Actuarial Valuation Ratio Date (a) (b) (a)-(b) (b)/(a) (c) (a)-(b)/(c) January 1, 2013 LACMTA $ 181,326 $ 35,736 $ 145, % $ 177, % ATU 522, , , % 160, % TCU 77,417 15,258 62, % 38, % UTU 282,600 55, , % 246, % Healthcare Reform The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, One key provision of the PPACA is the assessment of the excise tax on high cost plans (Cadillac Plans) beginning in Under this act, a 40% excise tax applies to plans with costs exceeding certain thresholds: $11,850 (not in thousands) single; $30,950 (not in thousands) family for early retirees. Significant uncertainties exist regarding the impact of the excise tax on high cost plans without further regulatory guidance. Management s estimated potential liability of the effect of the tax is based on unadjusted thresholds and assumes that the tax is shared between LACMTA and its participants in the same way that the current costs are shared. The estimated impact of the 40% excise tax provision on high cost plans beginning in 2018, under the healthcare reform, is reflected in the actuarial valuation report as of January 1, It is estimated that the financial effect of reflecting the excise tax is $85 million representing 8.5% of the total accrued liability of $1 billion as of January 1, In addition, an adjustment for anticipated health care reform fees beginning in 2014 was also reflecting in the actuarial valuation. L. Pollution Remediation Obligation LACMTA follows the guidance of GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, establishing accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. LACMTA is responsible for the pollution remediation obligations for various facilities and capital projects. These facilities and projects include those with known soil and/or groundwater impacts or either current or anticipated future litigation involving contamination of soil or groundwater at locations not controlled by LACMTA. 78

145 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA calculates expected outlays related to this pollution remediation using established potential environmental liability estimates for three different cost categories namely: external remediation costs, internal administration costs, and litigation and settlement costs, in which each cost categories has a different way to estimate the costs. External remediation costs are estimated on a life cycle basis through retirement of the pollution remediation obligations or a forecasted, year-by-year scope of the remaining project life cycles to No Further Action (NFA), i.e., closure. The scoping period for newly identified sites and for the continuance of other identified obligation at other sites was assumed to start July 1, Internal administration costs use a full time equivalent (FTE) basis. An FTE value of $200,000 (amount not in thousands) per annum was multiplied by the annual FTE equivalent anticipated for each site and the projected duration period required to retire the pollution remediation obligations. Litigation and settlement costs are based on LACMTA's proportionate share of cleanup and remediation costs at each clean up sites that received LACMTA s generated hazardous waste, based on volume, ongoing remediation costs, and prior years expenses. The remediation obligation estimates as of June 30, 2013 are subject to change over time. Cost may vary due to price fluctuations, changes in technology, changes in potential responsible parties, results of environmental studies, changes to status and regulations, and other factors that could result in revisions to these estimates. Prospective recoveries from responsible parties may reduce LACMTA s obligation. Capital assets may be created when pollution outlays are made under specific circumstances. LACMTA is not expecting recovery from other responsible parties. LACMTA does not currently have any pollution remediation activities for liabilities not yet recognized because they are not reasonably estimable. As of June 30, 2013, LACMTA has an estimated pollution remediation obligations of $7,581 related to soil and/or groundwater pollution cleanup activities. 79

146 M. Long-term Debt Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA s long-term debt activities for the year ended June 30, 2013 are summarized as follows: Series Balance June 30, 2012 Additions Reductions Balance June 30, 2013 Due Within One Year Business-type Activities Sales tax revenue and refunding bonds $ 3,361,495 $ 558,880 * $ 813,160 $ 3,107,215 $ 164,180 Lease/leaseback to service obligations 784,983 37,337 ** 6, ,368 84,644 General revenue bonds 160,770-5, ,940 6,255 Commercial paper 33, ,520 11, ,114 - Notes payable 7,760-1,243 6,517 1,295 Capitalized lease Total long-term debt 4,349, , ,972 4,232, ,374 Add: Unamortized bond premium 158, ,430 32, ,607 25,670 Less: Unamortized bond discount (65,949) (146) (65,957) (138) (9) Net Business-type activities long-term debt 4,442, , ,471 4,463, ,035 Governmental Activities Redevelopment and housing bonds 22,267-1,080 21, Total long-term debt $ 4,464,340 $ 828,021 $ 807,551 $ 4,484,810 $ 282,702 *Represent refunding bonds. **Represent Lease/leaseback accretion. Unamortized bond premium and bond discount reflected on the table above are associated with the issuance of sales tax revenue and refunding bonds and general revenue bonds. 80

147 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Sales tax revenue and refunding bonds outstanding as of June 30, 2013 are as follows: Series Original Borrowing Year Issued Final Maturity Interest Rates to Maturity Beginning Balance Additions Reductions 81 Ending Balance Due Within 1 Year Proposition A 2003A $ 273, to 5.00% $ 174,760 $ - $ (159,870) $ 14,890 $ 14, B 243, to 5.00% 243,635 - (243,635) A 242, to 5.00% 211,150 - (6,090) 205,060 6, B 43, % 11,280 - (5,505) 5,775 5, A 46, % 46,430 - (75) 46,355 10, A 263, VRDB* 258,600 - (1,600) 257,000 1, B 26, to 5.00% 24,030 - (805) 23, A 320, to 5.00% 268,325 - (34,980) 233,345 21, A 144, to 5.00% 144,000 - (15,135) 128,865 24, B 91, to 5.00% 91, , A 68, to 5.00% - 68,205-68, A 262, % - 262, ,195-1,473, ,400 (467,695) 1,336,025 86,125 Proposition C 1999A 124, % 15,020 - (15,020) A 94, % 21,615 - (10,540) 11,075 11, A 176, to 5.25% 152,845 - (4,205) 148,640 4, A 129, to 5.00% 127,820 - (325) 127,495 4, A 128, to 5.00% 110,305 - (19,320) 90,985 20, A 167, VRDB* 166,075 - (166,075) D 118, to 5.00% 98,700 - (10,365) 88,335 10, C 89, VRDB* 89,625 - (89,625) E 118, to 5.00% 112,295 - (4,965) 107,330 5, B 245, to 5.00% 235,300 - (5,535) 229,765 5, A 45, % 41,365 - (4,215) 37, A 14, to 3.125% - 14,635-14, B 74, % - 74,885-74, A 138, to 5.00% - 138, ,960-1,170, ,480 (330,190) 1,069,255 62,170 Measure R 2010A 573, to 5.74% 573, , B 158, to 5.00% 143,260 - (15,275) 127,985 15, ,210 - (15,275) 701,935 15,885 Total $ 3,361,495 $ 558,880 $ (813,160) $ 3,107,215 $ 164,180 * include Variable Rate Demand Bonds (VRDB) and Index Interest Rate Bonds

148 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Sales Tax Revenue and Sales Tax Revenue Refunding Bonds LACMTA issues sales tax revenue bonds to provide funds for the acquisition of revenue vehicles and construction of major capital projects. Sales tax revenue bonds are secured by the Los Angeles County voter approved Proposition A, Proposition C, or Measure R sales taxes less administration costs and allocations to local governments. LACMTA issues sales tax revenue refunding bonds generally to reduce debt service costs by refinancing previously issued sales tax revenue bonds and/or commercial paper notes when more favorable interest rates or financing terms are available. Refundings may also be executed for reasons other than to achieve cost savings, such as to restructure the repayment schedule of the debt, to change the type of debt instruments being used or to retire an indenture in order to remove undesirable covenants. The principal is payable in annual installments on July 1 on Proposition A and Proposition C bonds, and on June 1 on Measure R bonds. Interest is payable semi-annually on January 1 and July 1 on Proposition A and Proposition C bonds, and on December 1 and June 1 on Measure R bonds. The Proposition A Series 2008A bonds, with outstanding balance of $64,175 as of June 30, 2013, are variable-rate demand bonds supported by a standby bond purchase agreement with Bank of America, N.A. The Proposition A Series 2008-A2 Bonds, with an outstanding balance of $64,250 as of June 30, 2013, and the Proposition A Series 2008-A3 and A4 Bonds, with outstanding balances of $64,250 and $64,325, respectively, are Index Interest Rate Bonds. The Series 2008-A2 Bonds were purchased by Sumitomo Mitsui Banking Corporation and the Proposition A Series 2008-A3 Bonds and the Proposition A 2008-A4 Bonds were purchased by RBC Capital Markets, LLC. The Proposition A Index Interest Rate Bonds bear interest at a rate equal to the SIFMA Municipal Swap Index announced by Municipal Market Data plus an interest rate spread of 0.60% with respect to the Proposition A Series 2008-A2 Bonds and 0.55% with respect to the Proposition A Series 2008-A4 Bonds. The Proposition A Index Interest Rate Bonds will be subject to tender for purchase on August 1, 2014, unless extended or modified. The Proposition A Index Interest Rate Bonds are also subject to mandatory redemption upon certain specified events. It is LACMTA s intention to renew the facilities or exercise its rights to tender the debt as a long-term financing; thus these variable-rate bonds were classified as long-term liabilities in the financial statements. The principal due in the next fiscal year was included in the current portion of the long-term debt. Lease/leaseback and Lease-to-service Obligations From January 1997 through July 2003, LACMTA entered into a number of lease/leaseback leveraged lease agreements for assets including heavy rail vehicles, buses, light rail vehicles, and various real property operating facilities. Under these agreements, LACMTA entered into a head-lease as lessor with an investor and simultaneously entered into a sublease agreement as lessee to lease the assets back. LACMTA received upfront rent prepayments that were invested in fixed income investments in an amount that, including interest 82

149 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 income, will be sufficient to fund all scheduled payments through exercise of the early buyout option. LACMTA realized $64,700 in net benefits after funding of the fixed income investments and payment of transaction expenses. For the leveraged lease transactions, LACMTA was obligated to insure and maintain the facilities, buses, and rail cars. The leveraged lease agreements were provided for LACMTA s right to continue to use and control the facilities, buses, and rail cars during the term of the sublease. LACMTA agreed to indemnify the investors against increased costs, and any new or increased taxes or fees imposed on the leased assets, and cash flows or income of the lease, other than changes to the income tax rate. The proceeds from the various finance obligations have been recorded as lease accounts in the Statement of Net Position Enterprise Fund. These funds were placed with fiscal agents and are sufficient to cover all scheduled payments. The related liabilities are shown as longterm debt in the business-type activities. This debt will be repaid from earnings on the related investments together with the principal amounts of the investments. American International Group (AIG) provided a fixed income investment product known as payment undertaking agreement that was used in seven of the lease/leaseback transactions in order to invest the proceeds to fund all the scheduled rent payments and early buy-out option payments. In addition, AIG provided credit support in the form of letters of credit for three lease/leaseback transactions. Under the lease/leaseback documents, AIG was required to be replaced or credit enhanced if any of its credit ratings fall below either Aa2/AA or A2/A, depending on the transactions. In September 2008, AIG s credit rating was downgraded to A- by S&P, requiring replacement of the payment undertaking agreements and credit enhancement, as appropriate, and in two instances required AIG to post collateral. Since 2008, most products specified in the lease/leaseback transaction documents as acceptable replacement facilities have not been available under current market conditions. Since May 2011, LACMTA has reached agreements with two lessors to terminate the respective lease/leaseback transactions with minimal settlement costs and has reached agreement with two other lessors to post collateral under three leases in lieu of obtaining a replacement facility. Failure to reach a solution with the two remaining lessors could result in early termination and could require LACMTA to pay up to $30,000 plus legal costs. In January 2013, Assured Guaranty was downgraded triggering a technical default for a third lease, in addition to the two already affected by the AIG downgrades. The downgrade increased MTA s potential liability to $53,000 if replacement products were not put in place. As of June 30, 2013, LACMTA is currently negotiating with one of the lessors to post collateral to cure the default and in discussion with another lessor to reach an agreement. 83

150 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Lease/leaseback obligations activities for the fiscal year ended June 30, 2013 are as follows: Lease Interest Rate Beginning Balance Additions Reductions Ending Balance Due Within One Year Comerica / CIBC / Norwest Lease 6.79% % $ 224,421 $ 6,711 $ - $ 231,132 $ (7,202) Comerica Lease 7.12% 60,635 4,068 (1,363) 63,340 (442) First Hawaiian Lease 6.61% 52,355 3,156 (2,364) 53,147 (2,783) Philip Morris Lease 5.0% % 394,688 20, ,871 98,369 Fleet Lease 6.79% % 52,884 3,219 (3,225) 52,878 (3,298) Total $ 784,983 $ 37,337 $ (6,952) $ 815,368 $ 84,644 Note: Additions represent loan accretion, which is the accrued interest, or a portion thereof, added to principal amount. General Revenue Bonds General revenue bonds are issued to generate financing for the acquisition, construction and major rehabilitation of capital assets. The general revenue bonds were issued to fund the cost of the LACMTA s 27-story headquarters building, including parking and related improvements. Refunding bonds were subsequently issued to refinance the original debt to achieve debt service savings. The 2004 Bonds are auction rate bonds with an Interest Rate Swap agreement with a counterparty bank and as such the interest rate varies and the rates shown below is the fixed rate provided on the swap agreement. The 2010 Bonds are fixed rate. General Revenue Bonds outstanding as of June 30, 2013 are as follows: Series Original Borrowing Year Issued Final Maturity Interest Rates to Maturity Outstanding Balance Unamortized Bond Premiums Bonds Payable as of June 30, Bonds $ 197, % $ 86,175 $ - $ 86, A Bonds 79, to 5.00 % 68,765 5,965 74,730 Total $ 154,940 $ 5,965 $ 160,905 Commercial Paper Notes LACMTA issues Commercial Paper Notes (CPN) to provide interim financing for construction and acquisition activities, including construction of transit and rail capital projects and rail right-of-way acquisitions. LACMTA operates two commercial paper programs, Proposition A and Proposition C CPN, to maintain access to a low cost and flexible source of capital financing. Taxable and tax-exempt CPN are issued by LACMTA with maturity dates ranging from one to 270 days at various interest rates. 84

151 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 As of June 30, 2013, LACMTA s Proposition A CPN program has a $150,000 letter of credit while the Proposition C CPN program has $150,000 credit capacity that includes a $75,000 letter of credit and another $75,000 revolving credit facility. Both of the credit facilities supporting the Proposition C commercial paper program will expire on April 12, 2016, while the letters of credit supporting the Proposition A commercial paper program will expire on March 11, As of June 30, 2013, LACMTA has a total of $148,114 outstanding CPN including $126,520 and $21,594 under the Proposition A and Proposition C letters of credit, respectively, all of which are taxable. Under the terms of the commercial paper programs, maturing principal amounts can be rolled-over by issuing new notes. It is the intention of LACMTA to pay the accrued interest and reissue the principal amounts as they mature. Therefore, the outstanding amounts were classified as noncurrent liabilities. LACMTA periodically retires CPN by issuing longterm, fixed rate bonds. The Proposition A and Proposition C commercial paper programs are supported by directpay irrevocable letters of credit. The letters of credit are issued by one bank for the Proposition C CPN program and another two banks for the Proposition A CPN program. All of the banks are required to have a short-term credit rating of at least A-1/P-1. The letters of credit are drawn upon at each note maturity to pay the principal and interest due. Principal advanced by the banks and paid to the holders of the matured notes is reimbursed to the banks either by issuing new notes or by direct payment from LACMTA. Interest is paid on a current basis from sales tax revenues. In the event that the CPN dealers are unable to remarket the commercial paper and/or LACMTA is unable to repay the interest or principal, the banks will incur an unreimbursed draw on the letters of credit. Unreimbursed draws are converted to term loans following a specified period of time. The term loan for Proposition C CPN is repayable over a period of four years with equal quarterly principal payments. The term loan for Proposition A CPN is repayable beginning nine months after the commencement of the term loan, with quarterly principal payments over a period of two years and three months. Interest is charged at rates specified in the applicable Reimbursement Agreement. Under the Proposition C Revolving Credit Agreement between the LACMTA and Wells Fargo Bank, LACMTA is authorized to issue up to $75,000 in Subordinate Proposition C Sales Tax Revenue Revolving Obligations. As of June 30, 2013, no obligations were outstanding under the agreement. All Proposition C Revolving Obligations issued by LACMTA are purchased by Wells Fargo Bank in accordance with the Proposition C Revolving Credit Agreement. The Proposition C Revolving Obligations are payable from the Proposition C sales tax revenue on a basis subordinate to the lien on Proposition C Senior Bonds. Pursuant to the terms of the Proposition C Revolving Credit Agreement, the Proposition C revolving obligations bear interest at variable rates determined pursuant to the terms of the Proposition C Revolving Credit Agreement. The principal balances of all Proposition C revolving obligations outstanding are due and payable on April 22, 2016, except as provided 85

152 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 in the Proposition C Revolving Credit Agreement. However, subject to the terms of the Proposition C Revolving Credit Agreement, on April 22, 2016, LACMTA can convert any outstanding Proposition C revolving obligations to a term loan that will be payable in twelve equal quarterly installments following April 22, Notes Payable LACMTA s notes payable relates to the Acquisition Fund and Control Agreement between LACMTA and Banc of America Public Capital Corp, for financing the acquisition of the solar energy generation and conservation equipment and installation at the Metro Support Services Center. The note bearing interest of 4.04% matures in February Principal and interest are due monthly on the 6 th of each month. At June 30, 2013, notes payable principal outstanding was $6,517. The note was later sold to retain all of the terms and conditions of the original note. Redevelopment and Housing Bonds Redevelopment and Housing Bonds consist of two issues: the 2002 Grand Central Square Qualified Redevelopment Bonds Series 2002A (Series 2002A) and Grand Central Square Multi Family Housing Revenue Refunding Series 2007B (Series 2007B). The outstanding balances as of June 30, 2013, were as follows: Series Original Borrowing Year Issued Final Maturity Interest Rates to Maturity Outstanding Balance 2002A Bonds $20, to 5.375% $ 14, B Bonds 8, To 5.00% 6,545 Total $ 21,187 The Redevelopment and Housing Bonds were issued by the Community Redevelopment Financing Authority of the CRA/LA, a Designated Local Authority, formerly Community Redevelopment Agency (CRA) of the City of Los Angeles, secured by LACMTA revenues, pursuant to the pledge agreement between the two parties. Proceeds were used to purchase certain CRA/LA obligations and to finance CRA/LA s projects that include Grand Central Square Housing Project, which relates to the rehabilitation of a portion of the Grand Central Market, and Central Business District Area Redevelopment Project. Both projects are located in downtown Los Angeles, served by and accessible to Metro Red Line subway station. LACMTA agreed to support these projects as a means of encouraging the use of mass transit and reducing traffic congestion. The projects were completed and LACMTA makes the debt service payments on the related refunding bond issues Series 2002A and 2007B, to be reimbursed by Grand Central Square Limited Partnership (the Developer ), pursuant to the reimbursement agreement. The Developer issued two promissory notes, collateralized by real property of the Grand Central Square Housing Project, with a combined value of $41,112 due in fiscal year

153 Annual Debt Service Requirement Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA s annual debt requirement for long-term debt, lease and leaseback obligations, and notes payable are as follows: Business-type Activities Sales tax revenue and refunding bonds Proposition A Proposition C Year Ending June 30 Principal Interest Total Principal Interest Total 2014 $ 86,125 $ 54,695 $ 140,820 $ 62,170 $ 46,870 $ 109, ,545 54, ,396 66,705 46, , ,625 51, ,709 69,030 43, , ,740 46, ,684 71,835 40, , ,525 42, ,148 74,840 36, , , , , , , , ,745 46, , ,795 43, , ,320 19, , ,740 14, ,798 $1,336,025 $ 455,788 $ 1,791,813 $ 1,069,255 $ 397,804 $ 1,467,059 Measure R Year Ending June 30 Principal Interest Total 2014 $ 15,885 $ 37,784 $ 53, ,630 37,039 53, ,365 36,308 53, ,180 35,490 53, ,040 34,631 53, , , , , , , , , ,473 $ 701,935 $ 608,698 $ 1,310,633 General revenue and refunding bonds and notes payable General revenue refunding bonds Notes Payable Year Ending June 30 Principal Interest Total Principal Interest Total 2014 $ 6,255 $ 5,910 $ 12,165 $ 1,295 $ 239 $ 1, ,715 5,644 12,359 1, , ,160 5,368 12,528 1, , ,655 5,076 12,731 1, , ,140 4,738 12,878 1, , ,090 17,694 67, ,925 6,302 75, $ 154,940 $ 50,732 $ 205,672 $ 6,517 $ 662 $ 7,179 87

154 Lease/leaseback to Service Obligation Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Year Ending June 30 Principal Interest Total 2014 $ 84,644 $ 35,719 $ 120, ,152 22, , ,535 20,287 40, (16,292) 20,750 4, (20,803) 21,863 1, (696) 122, , ,275 75, , ,553 20, ,020 Governmental Activities $ 815,368 $ 338,990 $1,154,358 LACMTA s annual debt service requirement for Redevelopment and Housing Bonds are as follows: Redevelopment and Housing Bonds Year Ending June 30 Principal Interest Total 2014 $ 667 $ 1,001 $ 1, ,160 1,014 2, , , , , , , ,755 3,060 10, , ,608 $ 21,187 $ 8,596 $ 29,783 Pledged Revenues LACMTA pledged its Proposition A, Proposition C and Measure R sales tax revenues, excluding sales tax allocated for administrative fees and local allocations, to repay sales tax revenue bonds, sales tax revenue refunding bonds, and redevelopment and housing bonds while farebox revenues are pledged for the payment of the general revenue and refunding bonds. These bonds were used to finance the acquisition of revenue vehicles and construction and renovation of major capital facilities. LACMTA is subject to a maximum annual debt service policy limits set forth in its Debt Policy annually adopted by the MTA s Board of Directors. 88

155 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The table below presents LACMTA s pledged revenue, annual debt service, and debt service coverage for the fiscal year ended June 30, 2013: Source Gross Receipts * Local Allocations Pledged Revenue Total Debt Service Debt Service Coverage Prop A $ 687,172 $ 171,793 $ 515,379 $ 152, Prop C 687, , , , Measure R 684, , ,133 53, General revenue bonds 382, ,003 12, * Sales tax revenues are reported using the accrual basis of accounting. This is net of the State Board of Equalization administrative fees. Gross receipts presented in the general revenue bonds represent farebox revenues, advertising, revenue derived from LACMTA s leased properties, investment earnings, and other revenues under non-operating revenue categories of the Enterprise Fund. Significant Changes to Long-Term Bond and Note Obligations The summary of changes in long-term debt is presented in the table on page 81 of this report. LACMTA issued an aggregate of $330,400 principal amount of Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2012-A and 2013-A with interest rates from 4% to 5%. The net proceeds including $59,421 of bond premiums and net of underwriter s discount of $1,015, together with funds available from the refunded bonds reserve accounts, were used to (a) purchase $28,820 Prop A Series 2003-A Bonds and $48,990 Prop A Series 2003-B Bonds (b) refund and defease $116,815 of Prop A 2003-A outstanding sales tax revenue refunding bonds which had interest rates ranging from 3.75% to 4.14% and $194,645 of Prop A 2003-B outstanding sales tax revenue refunding bonds with interest rates ranging from 4.5% to 5% to generate an aggregate net present value cash flow savings of $54,574, and (c) pay the costs associated with issuing the refunding bonds. LACMTA also issued an aggregate of $228,480 principal amount of Proposition C sales tax revenue refunding bonds Series 2012-A, 2012-B, and 2013-A with interest rates ranging from 2% to 5%. The net proceeds, net of bond premiums and discount of $45,862 and after payment of $742 of underwriting fees, together with funds available from the refunded bonds reserve accounts, were used to (a) refund and defease $15,020 of Prop C Series 1999-A with interest rates from 4.7% to 7%, $89,625 of Series 2009-C with variable interest rates and $165,625 of Series 2009-A with variable interest rates, (b) pay interest and termination fees associated with termination of the related interest rate swap agreements, (c) pay associated bond issuance costs, and (d) deposit required debt service reserve funds of the refunding bonds. The net carrying amount of the refunded Proposition A sales tax revenue refunding bonds exceeded the reacquisition price by $7,696. The difference between the net carrying amount and the reacquisition price is reported as deferred inflow of resources in the business-type 89

156 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 activities of the government-wide financial statements and is amortized over the shorter of the life of the refunded or refunding bonds. The reacquisition price of the refunded Proposition C sales tax revenue refunding bonds exceeded the net carrying amount by $2,943. This is being reported as deferred outflow of resources in the business-type activities of the government-wide financial statements and amortized over the shorter of the life of the refunded or refunding bonds. The net cash flow savings that resulted from the refundings are as follows: Refunding Debt Prior Net Cash Flow Refunding Debt Service Net Cash Flow Savings Net Present Value of Net Cash Flow Savings Prop C refunding bonds 1999-A $ 26,037 $ 21,561 $ 4,476 $ 2,862 Prop C refunding bonds 2009-A 180, ,498 26,002 20,999 Prop C refunding bonds 2009-C 127, ,425 12,927 9,201 Prop A refunding bonds 2003-A and 2003-B 505, ,660 72,882 54,574 Total $ 839,431 $ 723,144 $ 116,287 $ 87,636 LACMTA issued in fiscal year 2013 a total of $126,520 new commercial paper notes, $75,000 of which was used to reimburse MTA s general fund for the purchase of the Los Angeles Union Station, and $51,520 was used to meet the funding requirement of the Proposition A Bonds debt service reserves. Both commercial paper notes are subject to the terms of the Proposition A CPN program. Interest are paid upon maturity, which may range between 1 to 270 days with variable rate and maturing principal amounts may be rolled over or retired by issuing long-term fixed rate bonds. All of the $126,520 remain outstanding and are included in the balance of the commercial paper notes payable as of June 30, In September 2012, LACMTA secured a loan for $545,900 from the U.S. Department of Transportation under the Transportation Infrastructure Finance and Innovative Act (TIFIA) and a capital grant under the Transportation Investment Generating Economic Recovery (TIGER II) to partially finance the construction of the Crenshaw/LAX Corridor project. The TIFIA loan is secured by a pledge of a portion of LACMTA s Measure R sales tax revenue allocated for the funding of the Crenshaw/LAX Corridor Project. The loan bears interest at 2.43% per annum on the outstanding balance. Interest payments are due on June 1 and December 1 of each year beginning December 1, 2020 until paid in full at maturity on June 1, The scheduled principal amounts due are payable on June 1 of each year beginning June 1, As of June 30, 2013, there is no balance outstanding on this loan. 90

157 N. Derivative Instruments Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA entered into interest swap agreements and commodity swap agreements to hedge or reduce financial risk such as interest rates and commodity price fluctuations related to variable rate bonds and compressed natural gas. Derivative instruments are reported at fair value in the Statement of Net Position. The fair value is the theoretical cost that LACMTA will pay or receive to terminate the swap at the valuation date. The fair values were estimated by discounting the future monthly net cash flows on commodity swap or future net settlement payments required by the interest rate swap. The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2013, classified by type, and the changes in fair value of such derivative instruments for the year ended June 30, 2013, are as follows: Business-Type Activities Fiscal Year Change Year End Fair Value Classification Amount Amount Classification Notional Value Cash Flow Hedges: Pay fixed interest rate swaps Deferred Outflows $ 15,482 $ (14,156) Noncurrent liability $ 343,175 Commodity swaps Deferred Inflows 2, Current asset 584 MMBTU* * Million Metric British Thermal Units (MMBTU) These derivative instruments are evaluated to determine if they are effective, which will significantly reduce the identified financial risk, at year end. Effectiveness is determined by considering whether the changes in cash flows or fair values of the potential hedging derivative instrument substantially offset the changes in cash flows or fair values of the hedgeable item. Hedge accounting is applied to effective derivative instruments. Effective derivatives are reported, at fair value, as assets or liabilities with corresponding deferred outflows of resources or deferred inflows of resources on the Statement of Net Position. Changes in fair value are recognized as deferred outflows or inflows. If the derivative instrument is determined to be ineffective, it is classified as investment derivative. An ineffective derivative s fair value is reported as an asset or liability on the Statement of Net Position. Change in fair value is reported within investment revenue classification on the Statement of Activities. As of June 30, 2013, all of LACMTA s derivative instruments were determined to be effective hedges. 91

158 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 As of June 30, 2013, LACMTA had the following hedging derivative instruments within the business-type activities. Type Interest Rate Swap Pay Fixed Interest Rate Swap Pay Fixed Interest Rate Swap Pay Fixed Interest Rate Swap Objective Notional Value Effective Date Maturity Date To reduce the risks associated with the changes in interest rates of the 2004 Gateway Bonds $ 86,175 9/22/2004 7/1/2027 $ (2,286) To reduce the risks associated with the changes in interest rates of the Prop A Series 2008-A1 and A2 128,425 8/23/2005 7/1/2031 (5,949) To reduce the risks associated with the changes in interest rates of the Prop A Series 2008-A3 and A4 128,575 8/23/2005 7/1/2031 (5,921) Total $ 343,175 $ (14,156) Fair Value at June 30, 2013 Terms Receives 64% of LIBOR; Pays 3.501% Receives 63% of LIBOR; Pays 3.373% Receives 63% of LIBOR; Pays 3.358% Commodity Swap Commodity Forward Contract To reduce the risks associated with the changes in the costs of Compressed Natural gas 584 MMBTU 7/1/2013 6/30/2014 $ 27 Client receive SOCAL- BORDER-NGI, Max Min per MMBTU Interest Rate Swap LACMTA entered into interest rate swap agreements to manage the exposure of changes in variable interest rate related to its debt obligations. LACMTA makes a fixed rate payment to the counterparty and receives a variable rate payment in order to achieve a synthetic fixed rate for the bonds and hedge exposure to variable interest rates. LACMTA has entered into these swap agreements at a cost anticipated to be less than what LACMTA would have paid to issue fixed rate debt. LACMTA neither received nor paid any upfront amount when these swaps were initiated. The fair value of the interest rate swap hedging derivatives at valuation date was negative, as reflected in the table on previous page, because the market interest rates on the valuation date of the swaps were lower than market interest rates on the effective date of the swaps. The Board annually adopts an Interest Rate Swap Policy that governs the use and management of interest rate swaps as they are used in conjunction with debt issues. The policy establishes guidelines to be used when considering the use of swaps, as well as in the ongoing management of existing swaps. Guidance is provided specifying appropriate uses: selection of acceptable swap products, swap providers and swap advisors, negotiation of favorable terms and conditions, and stipulating annual inspection of the swaps and the providers. 92

159 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 The Interest Rate Swap Policy specifies that interest rate swaps may be used to lock-in a fixed rate or to create additional variable rate exposure. Interest rate swaps may be used to produce interest rate savings, limit or hedge variable rate payments, alter the pattern of debt service payments, or for asset/liability matching purposes. As of June 30, 2013, LACMTA s outstanding interest swap fair values along with the changes in fair values for the year then ended, and the associated counterparties and credit ratings are as follows: Bond Series Fair Value June 30, 2012 Change in Fair Value Ratings Fair Value at June 30, 2013 Counterparty Moody s S&P Fitch 2004 Gateway $ (4,526) $ 2,240 $ (2,286) Bank of Montreal Aa3 A+ AA- Prop A Series 2008-A/A2 (9,372) 3,423 (5,949) Bank of Montreal Aa3 A+ AA- Prop A Series /A4 (9,451) 3,530 (5,921) Deutsche Bank AG A2 A+ A+ Prop C Series 2009 (2,930) 2,930 - Goldman Sachs Mitsui Marine Derivative Products, LP N/A N/A N/A Prop C Series 2009-A (3,359) 3,359 - Wells Fargo Bank N/A N/A N/A Total $ (29,638) $ 15,482 $ (14,156) LACMTA is exposed to the following risks generally associated with the interest rate swap agreements: Credit Risk The counterparty could experience weakening financial condition or insolvency, which could affect its ability to perform its financial obligations. In the event of deterioration in the credit ratings of the counterparty, the swap agreement may require that collateral be posted to secure the party s obligations under the swap agreement. Further ratings deterioration by either party below levels agreed-to in each swap agreement could result in a termination event requiring a cash settlement. See Termination Risk below. To mitigate credit risk, LACMTA monitors the credit ratings of the counterparties on a quarterly basis. In addition, if the outstanding ratings of the counterparties fall to certain levels, the counterparties must post collateral with a thirdparty custodian to secure their potential termination payments above certain threshold amounts. Collateral must be in cash, U.S. Government securities or certain federal agency securities. As of June 30, 2013, no collateral was required to be posted. Basis Risk The variable interest rate paid by the counterparty under the swap agreement and the variable interest rate paid by LACMTA on the associated bonds may not be equal. If the counterparty s rate under the swap is lower than the bond interest rate, then the counterparty s payment under the swap agreement would not fully reimburse LACMTA for its interest payment on the associated bonds. Conversely, if the bond interest rate is lower than the counterparty s rate on the swap, there would be a net benefit to LACMTA. LACMTA monitors the basis differential for its existing swaps on a 93

160 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 monthly basis. Prior to entering into any new interest rate swaps, LACMTA and its swap advisor review the historical trading differentials between LACMTA s outstanding variable rate bonds and the proposed index. This allows LACMTA to structure its interest rate swaps to minimize basis risk. Termination Risk Under certain conditions, the swap agreement could be terminated and depending on current market interest rates, either LACMTA or the counterparty could be required to make a termination payment. LACMTA s swap agreements only permit the counterparty to terminate if an Event of Default or a Termination Event has occurred. Events of Default include non-payment, false or misleading representations, or the bankruptcy of LACMTA or the counterparty. Termination Events include, a downgrade of LACMTA s rating to below BBB, an event of taxability, or conversion of bonds to fixed rate. To closely monitor the risk, LACMTA calculates its termination exposure for all existing and proposed swaps at market value monthly. A contingency plan is periodically updated identifying alternatives to finance a termination payment and/or replace or restructure the hedge. As of June 30, 2013, two of the swap agreements were terminated at LACMTA s option, under the terms of the swap termination provisions of the swap agreements in connection with the refunding of two bond issues for a net present value savings. The Proposition C Series 2009-C variable rate bonds, with a par amount outstanding of $89,625 at the time of refunding, were refunded on July 30, 2012, by the issuance of Proposition C Series 2012-B Refunding Bonds with fixed interest rate of 5% until final maturity. Proposition C Series 2009-A variable rate bonds, with a par amount of $165,625 outstanding, were refunded on May 30, 2013, by the issuance of $138,960 Proposition C Series 2013-A Refunding Bonds at fixed rates ranging from 2.0% %. LACMTA paid swap termination fees of $2,470 for the swap associated with the Proposition C Series 2009-C Refunding Bonds and $953 for the swap associated with the Proposition C Series 2009-A Refunding Bonds. Rollover Risk When the notional amount under the swap agreement terminates prior to the final maturity of the hedged bonds, the governmental issuer would then be exposed to the current short-term bond interest rates, as well as to current swap pricing in order to continue the benefit of the synthetic fixed rate for the duration of the bond issue. As of June 30, 2013, LACMTA did not have any swap termination subject to exposure of rollover risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair values of a government's financial instruments or a government's cash flows. In certain circumstances, a swap can have the effect of increasing the risk of loss as a result of changes in interest rates, such as a swap from a fixed rate to a variable rate. As of June 30, 2013, LACMTA does not have any swaps that have any fixed to variable rate swaps. Market-access Risk Market-access risk is the risk that a government will not be able to enter credit markets or that credit will become more costly. If a governmental issuer were to enter into a derivative in anticipation of entering the credit market at a later date, but was ultimately unable to do so, there is a risk that the lack of market access would 94

161 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 frustrate the purpose of the derivative and could result in a termination payment becoming due. As of June 30, 2013, LACMTA has not entered into a derivative in anticipation of entering the credit market at a later date. Liquidity Risk At some point in the future, LACMTA could be unable to obtain liquidity support for its variable rate bonds that require liquidity and are currently hedged with interest rate swaps. This situation could result in LACMTA incurring additional costs to convert the bonds to a different variable rate product that does not require liquidity support or to refund the bonds to a fixed rate mode, which would require the swaps to be either canceled or terminated. LACMTA periodically evaluates the expected availability of liquidity support for hedged and unhedged variable rate debt. As of June 30, 2013, LACMTA has sufficient liquidity support. Annual debt service requirements on variable rate obligations and net swap payments on interest rate swaps outstanding at June 30, 2013 are as follows: Variable-rate Bonds Fiscal Year Principal Interest Interest Rate Swaps, Net Total 2014 $ 1,650 $ 1,670 $ 10,678 $ 13, ,325 1,645 10,523 20, ,625 1,602 10,260 20, ,775 1,538 9,866 28, ,250 1,462 9,401 24, ,125 6,055 39, , ,875 2,578 16, , , ,195 Total $ 343,175 $ 16,640 $ 107,195 $ 467,010 As rates vary, variable rate bond interest payments and net swap payments will vary. The debt service requirements are reflected in the table of sales tax revenue bond debt service requirements to maturity and can be found on page 87. Commodity Swap In January 2011, the Board approved the updated CNG hedging program, adding commodity options and the use of cost stabilization reserves in addition to the continued use of commodity swaps. The addition of commodity options and the use of stabilization reserves enhance the mix of tools for use to hedge under various market conditions. Subsequent to the update to the CNG hedging program, LACMTA has used a costless collar strategy to hedge approximately 102% fiscal year 2013 natural gas volume. As of June 30, 2013, approximately 12% of the planned natural gas volume for fiscal year 2014 had been hedged. Bids are periodically taken to establish the strike prices for the upper and lower limits that are referred to as the ceiling and the floor of the dollar. With the costless collar, there is no upfront cash outlay as the purchase price of the ceiling is exactly offset by the sale 95

162 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 price of the floor. When using a costless collar, LACMTA retains exposure to the price movements between floor and ceiling. As of June 30, 2013, the fair value of LACMTA s outstanding commodity swaps, along with the changes in fair values for the year then ended, the associated counterparties, and credit ratings are as follows: Fair Value Fair Value Change in at June 30, Ratings June 30, 2012 Fair Value 2013 Counterparty Moody s S&P Fitch $ (1,135) $ 1,135 $ - RBC-Capital Markets* (622) Citibank, N.A. New York* (21) 21 - Citibank, N.A. New York* (117) Merrill Lynch Commodities, Inc* (109) Merrill Lynch Commodities, Inc. Baa2 A- A $ (2,004) $ 2,031 $ 27 *The swap agreements expired on June 30, The net changes in fair value of commodity swap are reported as Deferred Inflow of Resources under the bus and rail operations in the business-type activities on the Statement of Activities. The fair value is the theoretical cost that LACMTA will receive to terminate the swap at the valuation date. The fair values were estimated by discounting the future monthly net cash flows that would be anticipated based on future pricing. LACMTA is exposed to the following risks generally associated with commodity swap agreements: Counterparty Risk The risk that the counterparty fails to make required payments or otherwise comply with the terms of the swap agreement. This non-performance would usually result from financial difficulty, but could also occur for physical, legal, or business reasons. This risk is mitigated by establishing minimum credit quality criteria, establishing maximum credit limits and requiring collateral on counterparty downgrade. To mitigate credit risk, LACMTA monitors the credit ratings of the counterparties on a quarterly basis. Basis Risk The risk that there is a mismatch between the variable rate payment received from the swap counterparty and the variable rate paid for gas purchases. LACMTA mitigates this risk by conducting an extensive survey of relevant products and indices, and selecting one that has a strong correlation with the price changes of the cost of gas. Termination Risk The risk that there will be a mandatory early termination of the commodity swap that would result in LACMTA either paying or receiving a termination payment. Mandatory terminations generally result when a counterparty or if LACMTA suffers degraded credit quality, illiquidity, bankruptcy, or failure to perform. LACMTA mitigates this risk by establishing minimum credit quality 96

163 O. Leases Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 criteria, establishing maximum credit limits, requiring collateral on counterparty downgrade, and employing credit rating surveillance. LACMTA monitors the credit ratings of the counterparties on a quarterly basis. LACMTA calculates quarterly its termination exposure for all existing and proposed swaps at market value. Operating Leases LACMTA has entered into various lease agreements as lessor of various parcels of land located within the vicinity of the Red Line stations, including LA Union Station, which was acquired by LACMTA in April The majority of these leases will expire between 50 years and 99 years. These leases are considered operating leases for accounting purposes. The carrying value of the land held for lease as of June 30, 2013, is $94,983 and is included under the Land caption in the capital assets section of the notes to the basic financial statements found on page 64. The following is a schedule by years of minimum future rentals to be received on noncancelable operating leases as of June 30, 2013: Year Ending June Amount 2014 $ 5, , , , , , , , , , , , , , , , , , , , , ,518 Total $ 611,211

164 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 LACMTA is committed under various leases as lessee of building and office spaces. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2013 totaled $ 5,294. Future minimum lease payments for these leases are as follows: P. Capital and MOU Commitments Year Ending June 30 Amount 2014 $ 1, , , , ,590 Total $ 8,681 Construction in Progress and Other Significant Commitments LACMTA s commitments to vendors for capital projects, which are in various phases of development as of June 30, 2013 are as follows: Contract Commitments Project Total Remaining Rail Projects $ 2,352,552 $ 1,032,159 Bus Rapid Transitways 88,315 4,387 Bus Acquisition and Others 811, , $ 3,252,500 $ 1,322,704 LACMTA has entered into various Memoranda of Understanding (MOU) to fund local transportation projects. As of June 30, 2013, LACMTA has reserved Proposition A, Proposition C, Measure R, TDA, and STA funds totaling $1,758,029. Q. Joint Powers LACMTA is a member of the Southern California Regional Rail Authority (SCRRA), which was formed as a regional Joint Powers Agency between the transportation commissions of the counties of Los Angeles, San Bernardino, Orange, Riverside, and Ventura. SCRRA s purpose is to plan, design, construct, and administer the operation of regional passenger rail lines serving the participating counties. SCRRA named the regional commuter rail system Metrolink. Metrolink s capital acquisition and expansion have been funded by contributions from member agencies and the State of California. LACMTA provides funding for the majority of Metrolink s operating and capital costs. As of June 30, 2013, the total outstanding payables and commitments were $2,514 and $41,294, respectively.

165 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 A summary of audited financial information for the SCRRA for the year ended June 30, 2012 (most recent data available) is as follows: Current Assets $ 154,047 Noncurrent Assets 59,517 Capital Assets, net 1,201,590 Total Assets 1,415,154 Total Liabilities 174,369 Net Position $ 1,240,785 Total Revenues $ 374,804 Total Expenses (256,928) Increase in Net Position $ 117,876 Additional detailed financial information is available from the Office of Finance and Administration, SCRRA, One Gateway Plaza, 12 th Floor, Los Angeles, CA 90012, or visit Metrolink s website at R. Litigation and Other Contingencies Litigation LACMTA is named as a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of management, the resolution of these matters will not have a material adverse effect on the financial condition of LACMTA. Federal, State, and Other Governmental Funding LACMTA receives significant funding from federal, state, and other governmental grant funds as reimbursement for costs incurred. Such grants are subject to review and audit by the grantor agencies. These audits could result in disallowed expenditures under the terms of the grant or in reductions of future grant monies. Based on prior experience, LACMTA s management believes that costs ultimately disallowed, if any, would not materially affect the financial condition of LACMTA. Excise Tax on Lease/Leaseback Transactions On May 17, 2006, President Bush signed into law the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Pursuant to the 2005 Tax Act, a new Section 4965 was added to the Internal Revenue Code of 1986, as amended (Code). Section 4965 imposes a federal excise tax (New Excise Tax) on the net income or proceeds of Sale In/Lease Out transactions entered into by tax-exempt entities, including states and their political subdivisions. On February 7, 2007, the Internal Revenue Service (IRS) released Notice , which addresses how the provisions of new section 4965 will be applied. This provision could impact LACMTA s leveraged leasing transactions. The proposed regulations clarified which transactions are subject to the New Excise Tax and the calculation of the New Excise 99

166 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Tax. Based on the proposed regulations, LACMTA believes that the New Excise Tax will not have a material adverse effect on its financial condition or results of its operation. S. Subsequent Events State Public Employee Pension Reform Act (PEPRA) In October 2012, the State Legislature adopted and the Governor signed into law the Public Employee s Pension Reform Act of 2013 (PEPRA). The new pension law increased local and state government employees contributions and provided lower retirement benefits for workers who joined the public pension fund on or after January 1, Several unions representing certain public transit employees in the State, including employees of LACMTA, asserted to the U.S. Department of Labor (DOL) that PEPRA is inconsistent with the collective bargaining provisions that are described under the former Section 13(c), now Section 5333, of the Federal Transit Act. Section 13(c) requires that employee protective arrangements must be certified by the DOL as being compliant with Section 13(c) before Federal transit funds can be released to a mass transit provider. By November 5, 2013, the DOL was withholding certification of $373.9 million in federal grants requested by LACMTA. The California Legislature passed Assembly Bill 1222 in September 2013, temporarily exempting transit workers from PEPRA and assuring the resumption of federal grants to California transit agencies while the Federal Court considers if PEPRA violates union members collective bargaining rights. On November 6, 2013, the DOL certified ten federal grants applications from LACMTA totaling $264.5 million. LACMTA is waiting for the other grants awards from the Federal Transportation Administration (FTA). Alameda Corridor East Working Capital Loan In July 2013, LACMTA entered into an agreement with Alameda Corridor East (ACE) Construction Authority for the purpose of providing a working capital loan to ACE of up to $45 million. On behalf of ACE, LACMTA borrowed $20,000 under the Proposition C taxexempt revolving credit facility in September, 2013 and another $25,000 Proposition C taxable revolving credit facility in November, The term of the working capital loan shall commence on the date of the first drawdown and shall terminate on the earlier to occur of i) 10 years from commencement date, or ii) the point in time where LACMTA has an outstanding obligation to fund its last $75,000 in Measure R or Proposition C funds. 100

167 Los Angeles County Metropolitan Transportation Authority Notes to the Financial Statements June 30, 2013 Long-Term Debt In December 2013, LACMTA issued Proposition C Sales Tax Revenue Bonds Senior Bonds Series 2013-B and Sales Tax Revenue Refunding Bonds Senior Bonds Series 2013-C for an aggregate par amount of $313,490 and $63,785, respectively. The Bonds were issued at a premium of $30,695 and $10,063, respectively. The proceeds from the Proposition C Bonds Series 2013-B are to be used to finance the development and construction of the rail, bus and highway transit system, including certain capital expenditures for EXPO Phase 1, certain expenditures of the Crenshaw Transit Corridor Project, and to finance highway capital project expenditures, as well as other Proposition C eligible capital expenditures. The net proceeds from the Proposition C Bonds Series 2013-C were used to partially refund $68,075 of the Proposition C Bonds Series 2004-A maturing on July 1, 2015 through July 1, 2026 to achieve a net present value savings of $7,

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169 Required Supplementary Information

170 Los Angeles County Metropolitan Transportation Authority Required Supplementary Information Schedule of Funding Progress Pension Plans For the Fiscal Year Ended June 30, 2013 The schedule of Funding Progress below shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll for the pension funds contributed to by: Normal Accrued Liability (a) Actuarial Value of Assets (b) Unfunded Actuarial Accrued Liability (UAAL) (Excess Assets) (a)-(b) Funded Ratio (b)/(a) Annual Covered Payroll (c ) UAAL as a % of Payroll (a)-(b)/ (c) Valuation Date PTSC * 06/30/11 $ 403,848 $ 374,041 $ 29, % $ 125, % 06/30/10 360, ,282 20, % 132, % 06/30/09 326, ,097 18, % 131, % LACMTA ** UTU 12/31/12 605, , , % 177, % 12/31/11 546, , , % 181, % 12/31/10 534, , , % 181, % TCU 12/31/12 109,766 70,250 39, % 28, % 12/31/11 105,148 67,668 37, % 26, % 12/31/10 94,415 65,518 28, % 26, % ATU 12/31/12 404, , , % 114, % 12/31/11 339, , , % 111, % 12/31/10 323, , , % 107, % Non-Contract 12/31/12 144,423 99,654 44, % 4,412 1,014.71% 12/31/11 144, ,523 41, % 4, % 12/31/10 134, ,488 23, % 5, % AFSCME 12/31/12 57,047 42,817 14, % 4, % 12/31/11 55,847 43,597 12, % 5, % 12/31/10 52,654 45,079 7, % 5, % LACMTA TOTAL 12/31/12 $ 1,320,771 $ 854,550 $ 466, % $ 330, % 12/31/11 1,192, , , % 330, % 12/31/10 1,138, , , % 326, % Annual Financial Report can be obtained by writing to: * CalPERS, PO BOX , Sacramento, CA or visit CalPERS s website at ** Finance Department, LACMTA, One Gateway Plaza, Los Angeles, CA See accompanying independent auditors report. 103

171 Los Angeles County Metropolitan Transportation Authority Required Supplementary Information Schedule of Funding Progress OPEB For the Fiscal Year Ended June 30, 2013 The schedule of Funding Progress below shows the recent history of actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll for the OPEB fund established by LACMTA: Projected Unit Credit Accrued Liability Actuarial Value of Assets Unfunded Actuarial Accrued Liability (UAAL) Annual Covered Payroll UAAL as a Percentage of Covered Payroll Funded Actuarial Valuation Ratio Date (a) (b) (a)-(b) (b)/(a) (c) (a)-(b)/(c) January 1, 2013 LACMTA $ 181,326 $ 35,736 $ 145, % $ 177, % ATU 522, , , % 160, % TCU 77,417 15,258 62, % 38, % UTU 282,600 55, , % 246, % Total $ 1,064,017 $ 209,700 $ 854, % $ 623, % January 1, 2011 LACMTA $ 172,997 $ 32,322 $ 140, % $ 159, % ATU 499,030 93, , % 154, % TCU 70,017 13,082 56, % 38, % UTU 262,005 48, , % 257, % Total $ 1,004,049 $ 187,591 $ 816, % $ 609, % January 1, 2009 LACMTA $ 148,150 $ 22,934 $ 125, % $ 165, % ATU 462,109 71, , % 142, % TCU 90,227 13,968 76, % 35, % UTU 314,221 48, , % 236, % Total $ 1,014,707 $ 157,082 $ 857, % $ 580, % *As of January 1, 2013, the actuarial value of assets is based on a five-year, moving average of expected and market values adjusted by recognition of gains or losses and limited to be no more than 120% and no less than 80% of market value. Please see related notes to the basic financial statements on pages 73 to 78. Annual Financial Report can be obtained by writing to: Finance Department, LACMTA, One Gateway Plaza, Los Angeles, CA See accompanying independent auditors report. 104

172 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Intergovernmental $ 30,268 $ 29,795 $ 30,948 $ 1,153 Investment income 4,060 4,060 3,412 (648) Net decline in fair value of investments - - (2,662) (2,662) Lease and rental 13,864 13,864 15,509 1,645 Licenses and fines Other ,658 32,050 TOTAL REVENUES 49,300 48,827 80,373 31,546 EXPENDITURES Current: Administration and other 99, ,655 90,664 24,991 Transportation subsidies 12,858 12,858 14,497 (1,639) Debt and interest expenditures: Principal 1,060 1,060 1,080 (20) Interest and fiscal charges 1,117 1,117 1,114 3 TOTAL EXPENDITURES 114, , ,355 23,335 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (64,832) (81,863) (26,982) 54,881 OTHER FINANCING SOURCES (USES) Transfers in 25,334 25,334 78,046 52,712 Transfers out (52,447) (52,447) (51,637) 810 TOTAL OTHER FINANCING SOURCES AND (USES) (27,113) (27,113) 26,409 53,522 NET CHANGE IN FUND BALANCES (91,945) (108,976) (573) 108,403 Fund balances beginning of year 475, , ,596 - FUND BALANCES END OF YEAR $ 383,651 $ 366,620 $ 475,023 $ 108,403 *Budget prepared in accordance with GAAP See accompanying independent auditors report. 105

173 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Proposition A Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Sales taxes $ 629,304 $ 629,304 $ 687,172 $ 57,868 Investment income - - 1,270 1,270 Net decline in fair value of investments - - (1,046) (1,046) TOTAL REVENUES 629, , ,396 58,092 EXPENDITURES Current: Transportation subsidies 253, , ,057 (21,897) TOTAL EXPENDITURES 253, , ,057 (21,897) ** EXCESS OF REVENUES OVER EXPENDITURES 376, , ,339 36,195 OTHER FINANCING SOURCES (USES) Transfers in - (94) 32,224 32,318 Transfers out (384,828) (372,066) (414,610) (42,544) TOTAL OTHER FINANCING SOURCES AND (USES) (384,828) (372,160) (382,386) (10,226) NET CHANGE IN FUND BALANCES (8,684) 3,984 29,953 25,969 Fund balances beginning of year 161, , ,158 - FUND BALANCES END OF YEAR $ 152,474 $ 165,142 $ 191,111 $ 25,969 * Budget prepared in accordance with GAAP **The variance was due to allowable expenditures budgeted for in the prior year which were incurred in the current year. See accompanying independent auditors report. 106

174 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Proposition C Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Sales taxes $ 629,304 $ 629,304 $ 687,332 $ 58,028 Intergovernmental 178, , ,298 62,838 Investment income Net decline in fair value of investments - - (141) (141) TOTAL REVENUES 807, , , ,386 EXPENDITURES Current: Administration and other 214, , ,403 (61,634) Transportation subsidies 413, , ,353 (31,675) TOTAL EXPENDITURES 628, , ,756 (93,309) ** EXCESS OF REVENUES OVER EXPENDITURES 179, , ,394 28,077 OTHER FINANCING SOURCES (USES) Transfers in 8,142 8,142 2,419 (5,723) Transfers out (271,057) (280,800) (305,408) (24,608) TOTAL OTHER FINANCING SOURCES (USES) (262,915) (272,658) (302,989) (30,331) NET CHANGE IN FUND BALANCES (83,565) (92,341) (94,595) (2,254) Fund balances beginning of year 134, , ,652 - FUND BALANCES END OF YEAR $ 51,087 $ 42,311 $ 40,057 $ (2,254) *Budget prepared in accordance with GAAP **The variance was due to allowable expenditures budgeted for in the prior year which were incurred in the current year. See accompanying independent auditors report. 107

175 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Measure R Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Sales taxes $ 629,304 $ 629,304 $ 684,862 $ 55,558 Intergovernmental 1,336 1,147 1, Investment income - - 7,002 7,002 Net decline in fair value of investments - - (5,752) (5,752) TOTAL REVENUES 630, , ,365 56,914 EXPENDITURES Current: Administration and other 61,694 84,596 58,237 26,359 Transportation subsidies 213, , ,189 12,908 TOTAL EXPENDITURES 274, , ,426 39,267 EXCESS OF REVENUES OVER EXPENDITURES 355, , ,939 96,181 OTHER FINANCING SOURCES (USES) Transfers in 9,998 8,498 31,886 23,388 Transfers out (307,320) (275,320) (199,903) 75,417 TOTAL OTHER FINANCING SOURCES (USES) (297,322) (266,822) (168,017) 98,805 NET CHANGE IN FUND BALANCES 58,527 78, , ,986 Fund balances beginning of year 915, , ,357 - FUND BALANCES END OF YEAR $ 973,884 $ 994,293 $ 1,189,279 $ 194,986 *Budget prepared in accordance with GAAP See accompanying independent auditors report. 108

176 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual PTMISEA Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts * Original Final Actual Amounts Variance with Final Budget REVENUES Intergovernmental $ - $ - $ 194,532 $ 194,532 Investment income TOTAL REVENUES , ,560 OTHER FINANCING SOURCES AND (USES) Transfers out (266,991) (294,906) (67,799) 227,107 TOTAL OTHER FINANCING SOURCES AND (USES) (266,991) (294,906) (67,799) 227,107 NET CHANGE IN FUND BALANCES (266,991) (294,906) 126, ,667 Fund balances beginning of year 32,182 32,182 32,182 - FUND BALANCES END OF YEAR $ (234,809) $ (262,724) $ 158,943 $ 421,667 *Budget prepared in accordance with GAAP See accompanying independent auditors report. 109

177 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Transportation Development Act Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Sales taxes $ 314,652 $ 314,652 $ 343,806 $ 29,154 Investment income - - 1,958 1,958 TOTAL REVENUES 314, , ,764 31,112 EXPENDITURES Current: Transportation subsidies 110, , ,612 (3,695) TOTAL EXPENDITURES 110, , ,612 (3,695) ** EXCESS OF REVENUES OVER EXPENDITURES 203, , ,152 27,417 OTHER FINANCING SOURCES (USES) Transfers out (207,188) (208,188) (203,829) 4,359 TOTAL OTHER FINANCING SOURCES AND (USES) (207,188) (208,188) (203,829) 4,359 NET CHANGE IN FUND BALANCES (3,453) (4,453) 27,323 31,776 Fund balances beginning of year 297, , ,064 - FUND BALANCES END OF YEAR $ 293,611 $ 292,611 $ 324,387 $ 31,776 *Budget prepared in accordance with GAAP **The variance was due to allowable expenditures budgeted for in the prior year which were incurred in the current year. See accompanying independent auditors report. 110

178 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual State Transit Assistance Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) REVENUES Budgeted Amounts* Original *Budget prepared in accordance with GAAP **The variance was due to allowable expenditures budgeted for in the prior year which were incurred in the current year. Final Actual Amounts Variance with Final Budget Sales taxes $ 123,683 $ 123,683 $ 116,548 $ (7,135) Investment income TOTAL REVENUES 123, , ,742 (6,941) EXPENDITURES Current: Transportation subsidies 17,139 17,139 24,531 (7,392) TOTAL EXPENDITURES 17,139 17,139 24,531 (7,392) ** EXCESS OF REVENUES OVER EXPENDITURES 106, ,544 92,211 (14,333) OTHER FINANCING SOURCES (USES) Transfers out (105,952) (105,952) (105,962) (10) TOTAL OTHER FINANCING SOURCES AND (USES) (105,952) (105,952) (105,962) (10) NET CHANGE IN FUND BALANCES (13,751) (14,343) Fund balances beginning of year 26,946 26,946 26,946 - FUND BALANCES END OF YEAR $ 27,538 $ 27,538 $ 13,195 $ (14,343) See accompanying independent auditors report. 111

179 THIS PAGE INTENTIONALLY LEFT BLANK 112

180 Other Supplementary Information

181 Los Angeles County Metropolitan Transportation Authority Combining Balance Sheet Nonmajor Governmental Funds June 30, 2013 (Amounts expressed in thousands) Service Authority For Fwy Emergency S p e c i a l R e v e n u e F u n d s Other Total Nonmajor Governmental Funds ASSETS Cash and cash equivalents $ 33,688 $ 2,167 $ 35,855 Investments - 76,093 76,093 Receivables Interest Intergovernmental 144 1,515 1,659 TOTAL ASSETS $ 33,903 $ 79,775 $ 113,678 LIABILITIES Accounts payable and accrued liabilities $ 474 $ 92 $ 566 Due to other funds 974 7,789 8,763 Deferred revenues - 1,515 1,515 Other liabilities - 23,075 23,075 TOTAL LIABILITIES 1,448 32,471 33,919 FUND BALANCES Restricted 32,455 47,304 79,759 TOTAL FUND BALANCES 32,455 47,304 79,759 TOTAL LIABILITIES AND FUND BALANCES $ 33,903 $ 79,775 $ 113,678 See accompanying independent auditors report. 113

182 Los Angeles County Metropolitan Transportation Authority Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2013 (Amounts expressed in thousands) REVENUES S p e c i a l R e v e n u e F u n d s Service Authority For Fwy Emergency Other Total Nonmajor Governmental Funds Intergovernmental $ 61 $ 16,102 $ 16,163 Investment income Net appreciation in fair value of investments Licenses and fines 7,607-7,607 TOTAL REVENUES 7,721 16,150 23,871 EXPENDITURES Current: Administration and other 7, ,663 TOTAL EXPENDITURES 7, ,663 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES ,903 16,208 OTHER FINANCING SOURCES AND (USES) Transfers out (933) (10,258) (11,191) TOTAL OTHER FINANCING SOURCES AND (USES) (933) (10,258) (11,191) NET CHANGE IN FUND BALANCES (628) 5,645 5,017 Fund balances beginning of year 33,083 41,659 74,742 FUND BALANCES END OF YEAR $ 32,455 $ 47,304 $ 79,759 See accompanying independent auditors report. 114

183 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenses, and Changes in Fund Balances Budget and Actual Service Authority for Freeway Emergency Fund For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Intergovernmental $ - $ - $ 61 $ 61 Investment income (447) Licenses and fines 8,063 8,063 7,607 (456) TOTAL REVENUES 8,563 8,563 7,721 (842) EXPENDITURES Current: Administration and other 12,494 12,494 7,416 5,078 TOTAL EXPENDITURES 12,494 12,494 7,416 5,078 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (3,931) (3,931) 305 4,236 OTHER FINANCING SOURCES AND (USES) Transfers out - - (933) (933) TOTAL OTHER FINANCING SOURCES AND USES - - (933) (933) NET CHANGE IN FUND BALANCES (3,931) (3,931) (628) 3,303 Fund balances beginning of year 33,083 33,083 33,083 - FUND BALANCES END OF YEAR $ 29,152 $ 29,152 $ 32,455 $ 3,303 *Budget prepared in accordance with GAAP See accompanying independent auditors report. 115

184 Los Angeles County Metropolitan Transportation Authority Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Other Special Revenue Funds For the Year Ended June 30, 2013 (Amounts expressed in thousands) Budgeted Amounts* Original Final Actual Amounts Variance with Final Budget REVENUES Intergovernmental $ - $ - $ 16,102 $ 16,102 Investment income Net appreciation in fair value of investments TOTAL REVENUES ,150 16,150 EXPENDITURES Current: Administration and other (247) TOTAL EXPENDITURES (247) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES ,903 15,903 OTHER FINANCING SOURCES AND (USES) Transfers out (4,725) (4,725) (10,258) (5,533) TOTAL OTHER FINANCING SOURCES AND (USES) (4,725) (4,725) (10,258) (5,533) NET CHANGE IN FUND BALANCES (4,725) (4,725) 5,645 10,370 Fund balances beginning of year 41,659 41,659 41,659 - FUND BALANCES END OF YEAR $ 36,934 $ 36,934 $ 47,304 $ 10,370 *Budget prepared in accordance with GAAP See accompanying independent auditors report. 116

185 Los Angeles County Metropolitan Transportation Authority Combining Statement of Fiduciary Net Position Employee Retirement Trust Funds Fiduciary Funds June 30, 2013 (Amounts expressed in thousands) United Transportation Union Plan Transportation Communication Union Plan Amalgamated Transportation Union Plan American Federation of State, County and Municipal Employee Plan Non-Contract Employee Plan Total ASSETS Cash and cash equivalents $ 6,944 $ 1,357 $ 4,773 $ 802 $ 1,683 $ 15,559 Investments Bonds 109,343 21,370 75,150 12,620 26, ,976 Domestic stocks 74,215 14,504 51,007 8,565 17, ,273 Non-domestic stocks 2, , ,048 Pooled investments 281,435 55, ,428 32,481 68, ,536 Receivables Member contribution Securities sold 18,147 3,547 12,472 2,094 4,397 40,657 Inter-plan receivable , ,191 Interest and dividends 1, , ,250 Receivable from sponsor Prepaid items and other assets Total assets 495,033 96, ,258 58, ,017 1,111,674 LIABILITIES Accounts payable and other liabilities ,470 Inter-plan payable 1, ,191 Securities purchased 30,353 5,932 20,862 3,503 7,354 68,004 Total liabilities 32,632 6,379 21,456 3,636 7,562 71,665 NET POSITION Held in trust for pension benefits $ 462,401 $ 90,413 $ 318,802 $ 54,938 $ 113,455 $ 1,040,009 See accompanying independent auditors report. 117

186 Los Angeles County Metropolitan Transportation Authority Combining Statement of Changes in Fiduciary Net Position Employee Retirement Trust Funds Fiduciary Funds For the Year Ended June 30, 2013 (Amounts expressed in thousands) United Transportation Union Plan Transportation Communication Union Plan Amalgamated Transportation Union Plan American Federation of State, County and Municipal Employee Plan Non-Contract Employee Plan Total ADDITIONS Contributions: Employer $ 24,103 $ 5,270 $ 18,663 $ 1,816 $ 4,785 $ 54,637 Member 12,903 1,451 5,734 1, ,353 Total contributions 37,006 6,721 24,397 3,240 5,626 76,990 From investing activities: Net appreciation in fair value of investments 50,712 9,630 34,085 5,940 12, ,071 Investment income 5,745 1,097 3, ,430 12,819 Investment expense (1,498) (287) (1,013) (175) (373) (3,346) Other income (expenses) net ,135 Total investing activities income 55,813 10,486 37,105 6,459 13, ,679 Total additions 92,819 17,207 61,502 9,699 19, ,669 DEDUCTIONS Retiree benefits 42,901 3,965 16,905 3,148 11,183 78,102 Administrative expenses ,601 Total deductions 43,402 4,208 17,285 3,366 11,442 79,703 Increase in net position 49,417 12,999 44,217 6,333 8, ,966 Net Position beginning of year 412,984 77, ,585 48, , ,043 NET POSITION END OF YEAR $ 462,401 $ 90,413 $ 318,802 $ 54,938 $ 113,455 $ 1,040,009 See accompanying independent auditors report. 118

187 Statistical Section

188 Los Angeles County Metropolitan Transportation Authority STATISTICAL SECTION This section of LACMTA s comprehensive annual financial report presents trend information about LACMTA s financial results, major revenue sources, outstanding debt obligations, demographic statistics, and operating activities to help the reader understand LACMTA s overall financial condition. Contents Page Financial Trends 120 These schedules contain trend information to help the reader understand how LACMTA s financial performance has changed over time. Revenue Capacity 125 These schedules contain information to help the reader assess LACMTA s local revenue sources: sales taxes, operating assistance, and passenger fares. Debt Capacity 128 These schedules present information to help the reader assess the affordability of LACMTA s current outstanding debts and LACMTA s ability to issue additional debt in the future. Demographic and Economic Information 132 These schedules contain demographic and economic indicators to assist the reader in understanding the environment within which LACMTA s financial activities take place. Operating Information 135 These schedules contain service and facilities statistics to help the reader understand how LACMTA s financial report relates to its services and operating activities and how it compares to the transit industry. 119

189 Los Angeles County Metropolitan Transportation Authority Table 1 Net Position by Component Last Ten Fiscal Years (Accrual basis of accounting) (Amounts expressed in thousands) Fiscal Year Governmental activities: Net investment in capital assets $ 779,120 $ 779,046 $ 778,972 $ 772,905 $ 772,838 $ 772,794 $ 772,794 $ 772,794 $ 772,794 $ 772,794 Restricted for other purpose 599, , ,629 1,289,360 1,442,723 1,268,069 1,244,855 1,111,759 1,642,101 1,996,731 Unrestricted 265, , , , , , , , , ,563 Total governmental activities net position 1,643,460 1,647,516 1,813,737 2,359,368 2,347,997 2,141,103 2,252,050 2,383,637 2,901,298 3,284,088 Business-type activities: Net investment in capital assets 3,555,066 3,555,446 3,694,487 3,671,581 3,911,725 3,900,614 4,366,480 4,497,567 4,561,995 4,908,034 Restricted for debt service 266, , , , , , , , , ,027 Unrestricted (263,936) (137,312) (24,924) 111,273 76, ,781 (1,909) (130,868) (30,488) (318,227) Total business-type activities net position 3,557,716 3,716,321 3,983,185 4,072,523 4,309,716 4,532,677 4,811,449 4,807,591 4,962,516 5,058,834 Primary government: Net investment in capital assets 4,334,186 4,334,492 4,473,459 4,444,486 4,684,563 4,673,408 5,139,274 5,270,361 5,334,789 5,680,828 Restricted for debt service 266, , , , , , , , , ,027 Restricted for other purpose 599, , ,380 1,289,360 1,442,723 1,268,069 1,244,855 1,111,759 1,642,101 1,996,731 Unrestricted 1,347 77, , , , , , , , ,336 Total primary government net position $ 5,201,176 $ 5,363,837 $ 5,796,673 $ 6,431,891 $ 6,657,713 $ 6,673,780 $ 7,063,499 $ 7,191,228 $ 7,863,814 $ 8,342,922 Source: Comprehensive Annual Financial Report See accompanying independent auditors report. 120

190 Los Angeles County Metropolitan Transportation Authority Table 2 Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts expressed in thousands) Expenses Governmental activities: Transit operators programs $ 169,882 $ 221,400 $ 202,964 $ 235,476 $ 209,299 $ 282,305 $ 201,354 $ 238,624 $ 220,782 $ 239,718 Local cities programs , , , ,470 Highway projects 271, , , , , , , , , ,807 Regional multimodal capital programs 69,393 60, , , , , ,084 80,221 96, ,528 Paratransit programs 66,913 35,010 11,397 12,440 14,355 14,208 25,283 16,456 10,227 13,097 Other transportation subsidies 49,335 55,471 66,234 49,997 57,711 79,910 88,180 56,504 63, ,964 Debt service interest 600 1,540 1,505 1,456 1,408 1,444 1,249 1,205 1,161 1,114 General government 95, , , , , , , , , ,637 Total government activities 722, , , ,512 1,083,679 $ 1,066,819 1,254,422 1,160,911 1,236,452 1,494,335 Business-type activities Transit operations 1,430,484 1,471,539 1,567,469 1,691,649 1,747,243 1,807,037 1,808,257 1,910,466 1,835,735 1,916,041 Union Station operations ,052 4,167 6,586 Toll operations ,102 Total business-type activities expenses 1,430,484 1,471,539 1,567,469 1,691,649 1,747,243 1,807,037 1,808,257 1,911,518 1,839,902 1,932,729 Total expenses $ 2,153,167 $ 2,251,158 $ 2,392,741 $ 2,547,161 $ 2,830,922 $ 2,873,856 $ 3,062,679 $ 3,072,429 $ 3,076,354 $ 3,427,064 Program Revenues Governmental activities: Charges for services $ 10,963 $ 10,945 $ 12,742 $ 13,311 $ 10,915 $ 10,101 $ 15,713 $ 16,302 $ 15,740 $ 23,770 Operating grants and contributions 64,132 20,054 30, , , , , , , ,374 Total governmental activities program 75,095 30,999 43, , , , , , , ,144 Business-type activities: Charges for services Operating grants and contributions Capital grants and contributions 233, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,653 Total business-type activities program 820, , , , , , , , , ,607 Total program revenues $ 895,446 $ 778,584 $ 1,018,533 $ 1,157,930 $ 958,836 $ 1,169,400 $ 1,276,333 $ 1,004,177 $ 1,290,334 $ 1,316,751 Net (expense) / revenue: Governmental activities $ (647,588) $ (748,620) $ (782,053) $ (499,198) $ (881,718) $ (894,331) $ (971,403) $ (975,348) $ (819,061) $ (968,191) Business-type activities (610,133) (723,954) (592,155) (890,033) (990,368) (810,125) (814,943) (1,092,904) (966,959) (1,142,122) Total net expense $ (1,257,721) $ (1,472,574) $ (1,374,208) $ (1,389,231) $ (1,872,086) $ (1,704,456) $ (1,786,346) $ (2,068,252) $ (1,786,020) $(2,110,313) 121

191 Los Angeles County Metropolitan Transportation Authority Table 2 Changes in Net Position (continued) Last Ten Fiscal Years (Accrual basis of accounting) (Amounts expressed in thousands) General Revenues and Other Changes In Net Position Governmental activities Sales taxes Investment income* Miscellaneous Transfers $ 1,478,408 $ 1,587,517 $ 1,738,996 $ 1,908,416 $ 1,801,291 $ 1,596,152 $ 2,085,370 $ 2,104,072 $ 2,386,439 $ 2,519,720 5,352 14,886 32,764 51,186 70,782 55,284 39,268 24,628 17,829 4,822 19,288 12,847 13,484 29,736 39,273 41,063 26,979 49,218 32,205 42,203 (885,345) (862,574) (837,219) (944,260) (1,040,999) (1,005,062) (1,069,267) (1,070,983) (1,099,751) (1,215,764) Total government activities 617, , ,025 1,045, , ,437 1,082,350 1,106,935 1,336,722 1,350,981 Business-type activities: Investment income* Miscellaneous Transfers 12,495 15,525 17,418 29,282 15,586 7,793 8,102 13,191 15,480 17, ,460 4,382 5,829 5,237 20,231 16,346 4,872 6,653 4, , , , ,260 1,040,999 1,005,062 1,069,267 1,070,983 1,099,751 1,215,764 Total business-type activities 898, , , ,371 1,061,822 1,033,086 1,093,715 1,089,046 1,121,884 1,238,440 Total primary government $ 1,515,752 $ 1,635,235 $ 1,807,044 $ 2,024,449 $ 1,932,169 $ 1,720,523 $ 2,176,065 $ 2,195,981 $ 2,458,606 $ 2,589,421 Change in Net Position Governmental activities Business-type activities Total primary government $ (29,885) $ 4,056 $ 165,972 $ 545,880 $ (11,371) $ (206,894) $ 110,947 $ 131,587 $ 517,661 $ 382, , , ,864 89,338 71, , ,772 (3,858) 154,925 96,318 $ 258,031 $ 162,661 $ 432,836 $ 635,218 $ 60,083 $ 16,067 $ 389,719 $ 127,729 $ 672,586 $ 479,108 Source: Comprehensive Annual Financial Report * Including net appreciation/(decline) in fair value of investments See accompanying independent auditors report. 122

192 Los Angeles County Metropolitan Transportation Authority Table 3 Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts expressed in thousands) General Fund Reserved $ 8,397 $ 6,727 $ 2,320 $ 3,047 $ 2,890 $ 1,780 $ 1,843 $ - $ - $ - Unreserved 138,295 86, , , , , , Restricted* ,827 9,023 6,588 Committed* ,564 3,492 8,877 Assigned* ,818 11,403 Unassigned* , , ,155 Total General Fund $ 146,692 $ 93,353 $ 116,158 $ 154,042 $ 147,403 $ 160,627 - $ 180,454 $ 489,748 $ 475,596 $ 475,023 All other governmental funds Reserved $ 509,432 $ 535,519 $ 473,013 $ 542,896 $ 656,807 $ 825,140 $ 1,201, Unreserved: Proposition A 60,178 40, , , ,077 (18,093) 23, Proposition C (3,858) 19,965 85,824 75, ,583 (44,054) (871,854) Measure R , PTMISEA , ,614 56, TCRP , Transportation Development Act 6,728 31,833-53,579 52,292 17,572 (8,529) (1,107) State Transit Assistance 13,960 16,088 32,756 36,505 7,684 33, , Nonmajor Governmental 12,617 9,979 14,809 25, , , , Restricted* Proposition A , , ,111 Proposition C , ,652 40,057 Measure R , ,357 1,189,279 PTMISEA , ,943 Transportation Development Act , , ,387 State Transit Assistance ,714 26,946 13,195 Nonmajor Governmental ,968 74,742 79,759 Total all other governmental funds 599, , ,409 1,301,515 1,457,692 1,266,863 1,238,504 1,111,759 1,642,101 1,996,731 Total governmental funds $ 745,749 $ 746,982 $ 906,567 $ 1,455,557 $ 1,605,095 $ 1,427,490 $ 1,418,958 $ 1,601,507 $ 2,117,697 $ 2,471,754 Source: Comprehensive Annual Financial Report * Reclassification of fund balances with the implementation of GASB Statement No. 54 Fund Balance Reporting and Government Fund Type Definitions See accompanying independent auditors report. 123

193 Los Angeles County Metropolitan Transportation Authority Table 4 Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts expressed in thousands) Revenues Sales taxes $1,478,408 $1,587,517 $1,738,996 $1,908,416 $1,768,916 $1,628,527 $2,085,370 $2,104,072 $2,386,439 $2,519,720 Intergovernmental 64,132 20,054 26, , , , , , , ,194 Investment income* 5,352 14,886 32,764 51,186 70,782 55,284 39,268 24,628 16,812 5,025 Lease and rental 10,963 10,945 12,741 11,293 10,915 10,101 15,713 16,206 15,740 15,509 Licenses and fines 7,794 8,088 8,157 8,246 8,407 8,091 7,962 8,023 8,065 8,115 Other 9,343 2,608 3,170 26,784 28,706 30,811 16,820 34,071 13,095 32,658 Total revenues 1,575,992 1,644,098 1,822,783 2,348,928 2,082,291 1,895,201 2,316,179 2,415,469 2,853,413 3,065,221 Expenditures Current Administration and other 93,368 91,942 93,912 98, , , , , , ,967 Transportation subsidies 620, , , , , , , , ,796 1,061,239 Principal, interest, and fiscal charges 1,444 2,283 2,283 2,226 2,217 2,269 2,274 2,270 2,196 2,194 Total expenditures 715, , , , ,754 1,067,744 1,255,444 1,161,937 1,237,472 1,495,400 Excess of revenues over expenditures 860, , ,808 1,493,249 1,190, ,457 1,060,735 1,253,532 1,615,941 1,569,821 Other financing sources (uses) Transfers out, net of transfers in (885,345) (862,574) (837,221) (944,260) (1,040,999) (1,005,062) (1,069,267) (1,070,983) (1,099,751) (1,215,764) Total other financing sources (uses) (885,345) (862,574) (837,221) (944,260) (1,040,999) (1,005,062) (1,069,267) (1,070,983) (1,099,751) (1,215,764) Net change in fund balances $ (24,736) $ 1,229 $ 159,587 $ 548,989 $ 149,538 $ (177,605) $ (8,532) $ 182,549 $ 516,190 $ 354,057 Debt service expenditures expressed as a percentage of non-capital expenditures 0.20% 0.29% 0.28% 0.26% 0.25% 0.21% 0.18% 0.20% 0.18% 0.15% Source: Comprehensive Annual Financial Report * Includes net of appreciation (decline) in fair value of investments See accompanying independent auditors report. 124

194 Los Angeles County Metropolitan Transportation Authority Table 5 Governmental Activities Sales Tax Revenues by Source Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts expressed in thousands) Fiscal Year Proposition A Proposition C Measure R Transportation Development Act Other Total 2004 $ 576,651 $ 576,655 $ - $ 294,016 $ 31,086 $ 1,478, , , ,457 33,988 1,587, , , ,742 62,245 1,738, , , , ,074 * 1,908, , , ,548 61,486 1,768, , , ,406 76,458 1,628, , , ,480 ** 285, ,087 2,085, , , , ,610 - *** 2,104, , , , , ,062 2,386, , , , , ,548 2,519,720 Source: Comprehensive Annual Financial Report *The substantial increase was due to the State of California voter-approved Proposition 42, which requires existing revenues resulting from state sales and use tax on the sale of motor vehicle fuel to be used for transportation purposes as provided by law. **Measure R is a voter-approved half-cent sales tax that took effect in July 2009 for Los Angeles County to finance new Transportation projects and programs. ***No allocation from State of California due to budget deficit. See accompanying independent auditors report. 125

195 Los Angeles County Metropolitan Transportation Authority Table 6 Business-type Activities Transit Operations Program Revenues by Source (Bus and Rail) Last Ten Fiscal Years (Accrual basis of accounting) (Amounts expressed in thousands) Federal Auxiliary Passenger Operating Operating Transportation/ Lease and Toll Fiscal Year Fares Grants Subsidies Route Subsidies Rental* Revenues** Total 2004 $ 221,454 $ 115,219 $ 548,667 $ 12,534 $ - $ - $ 897, , , ,369 15, , , , ,103 17, ,050, , , ,855 18, ,114, , , ,665 20, ,188, , , ,242 23, ,200, , , ,221 25, ,200, , , ,808 28,000 1,195-1,189, , , ,998 27,815 4,088-1,186, , , ,955 24,543 4,459 12,991 1,280,157 Source: Comprehensive Annual Financial Report *LACMTA purchased Union Station property in April **Metro Express Lanes commenced revenue operations in November 2012 for I-110 and February 2013 on I-10 See accompanying independent auditors report. 126

196 Los Angeles County Metropolitan Transportation Authority Table 7 Business-type Activities Transit Operations Farebox Recovery Percentage by Mode Last Ten Fiscal Years Fiscal Year Heavy Rail Light Rail Bus All Modes % 17% 26% 25% % 16% 30% 28% % 17% 28% 27% % 14% 28% 26% % 19% 30% 29% % 21% 29% 28% % 18% 27% 27% % 21% 29% 28% % 19% 29% 28% % 19% 27% 26% Source: National Transit Database Report See accompanying independent auditors report. 127

197 Los Angeles County Metropolitan Transportation Authority Table 8 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Expenditures Last Ten Fiscal Years (Amounts expressed in thousands) Principal $ 368,194 $ 209,357 $ 233,522 $ 195,023 $ 244,887 $ 293,606 $ 262,992 $ 325,173 $ 215,522 $ 180,432 Interest and others 163, , , , , , , , , ,724 Total debt service expenditures $ 531,335 $ 343,573 $ 407,834 $ 351,703 $ 406,863 $ 463,343 $ 400,179 $ 473,304 $ 373,464 $ 315,156 Total general expenditures $ 1,862,553 $ 1,975,716 $ 2,112,185 $ 2,574,205 $ 2,716,469 $ 3,168,395 $ 3,326,242 $ 3,397,117 $ 3,292,896 $ 3,608,561 Percent of debt service to general expenditures (%) 28.53% 17.39% 19.31% 13.66% 14.98% 14.62% 12.03% 13.93% 11.34% 8.73% Source: Comprehensive Annual Financial Report See accompanying independent auditors report. 128

198 Los Angeles County Metropolitan Transportation Authority Table 9 Historical Debt Service Coverage Ratios Proposition A, Proposition C, and Measure R Last Ten Fiscal Years (Amounts expressed in thousands) Net Sales Tax Revenue Amount Available for Debt Service On Sales Tax Bonds 129 Aggregate Debt Service Requirement Source Fiscal Year Less Local Return* Debt Service Coverage Ratio Proposition A 2004 $ 576,651 $ 144,163 $ 432,488 $ 137, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Proposition C , , ,324 96, , , , , , , ,220 97, , , ,046 93, , , , , , , , , , , , , , , , , , , , , , , , , Measure R** ,480 82, , ,647 89, ,850 25, ,026 96, ,272 53, , , ,133 53, Source: Comprehensive Annual Financial Report * % Local Return of net sales tax revenue - Proposition A 25%, Proposition C 20%, and Measure R 15% ** Measure R started in July 2010 See accompanying independent auditors' report.

199 Graphical Presentation of Table 9 Proposition A, Proposition C, and Measure R Debt Service Coverage Ratios See accompanying independent auditors report. 130

200 Los Angeles County Metropolitan Transportation Authority Table 10 Ratio of Outstanding Debt by Type (Excluding Claims and Compensated Absences) Last Ten Fiscal Years (Amounts expressed in millions except per capita amount) Governmental activities: Redevelopment and housing bonds $ 30 $ 28 $ 28 $ 27 $ 26 $ 25 $ 24 $ 23 $ 22 $ 21 Total governmental activities Business-type activities: Sales tax revenue and refunding bonds 2,904 2,996 3,160 3,062 2,951 2,873 2,834 3,448 3,361 3,107 Sales tax revenue bonds local allocation Lease revenue bonds Lease/leaseback obligation General revenue bonds Commercial paper Certificates of participation Capitalized lease Capital grant receipts revenue bonds Total business-type activities 4,457 4,593 4,709 4,558 4,447 4,377 4,170 4,611 4,342 4,225 Total primary government $ 4,487 $ 4,621 $ 4,737 $ 4,585 $ 4,473 $ 4,402 $ 4,194 $ 4,634 $ 4,364 $ 4,246 Percentage of Personal Income* 1.36% 1.32% 1.28% 1.23% 1.03% 1.14% 1.04% 1.10% 0.99% 0.93% Per Capita* $ $ $ $ $ $ $ $ $ $ Source: Comprehensive Annual Financial Report * See the Schedule of Demographic and Economic Statistics for population and personal income data See accompanying independent auditors report. 131

201 Los Angeles County Metropolitan Transportation Authority Table 11 Demographic and Economic Statistics Last Ten Fiscal Years (Amounts and population expressed in thousands) (1) (1) (2) (3) (3) (4) Per Capita Unemployment Population Population Taxable Sales Personal Income Personal Income Rate County of State of County of County of County of County of Fiscal Year Los Angeles California Los Angeles Los Angeles Los Angeles Los Angeles ,078 36,199 $ 122,533,104 $ 326,402,466 $ % ,163 36, ,722, ,423, % ,223 37, ,162, ,174, % ,276 37, ,820, ,228, % ,364 38, ,881, ,568, % ,393 38, ,744, ,579, % ,825 37, ,942, ,144, % ,861 37, ,440, ,913, % ,912 37, ,939, ,465, % ,963 38, ,437, ,017, % Sources: (1) California Department of Finance, data estimates as of January 1, 2009 (2) State Board of Equalization (3) U.S. Department of Commerce, Bureau of Economic Analysis (4) State Department of Employment Development for the County of Los Angeles not seasonally adjusted August 2009 See accompanying independent auditors report. 132

202 Los Angeles County Metropolitan Transportation Authority Table 12 Ten Largest Employers in Los Angeles County Last Ten Fiscal Years Sources: * Los Angeles Almanac research ** City-Data Los Angeles Economy Report *** California Employment Development Department, Labor Market Information Division n/a Data not available Note: Information for 2005, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 are not available See accompanying independent auditors report * 2006 ** 2011* Percent of Percent of Total Number of Total Number of Employment Employees Employment Employees Percent of Total Employment Major Employers Number of Employees County of Los Angeles 93, % 93, % 95, % Los Angeles Unified School District 78, % 74, % 73, % Federal Government 56, % 53, % 48, % University of California, Los Angeles 36, % 35, % 41, % City of Los Angeles 35, % 53, % 47, % State of California (non-education) 32, % 30, % 30, % Kaiser Permanente 27, % 32, % 36, % Northrop Grumman Corp n/a n/a 21, % 18, % Boeing 23, % 15, % n/a n/a Kroger Co. (formerly Ralph's Grocery) 17, % 14, % n/a n/a University of Southern California n/a n/a n/a n/a 16, % Target Corp. n/a n/a n/a n/a 14, % Total 400, % 423, % 421, % Total Employment in LA County *** 4,454,100 4,613,200-4,323,

203 Los Angeles County Metropolitan Transportation Authority Table 13 Los Angeles County Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts expressed in millions) * 2013** Non-retail outlets $ 30,761 $ 35,240 $ 35,218 $ 36,316 $ 36,759 $ 34,301 $ 34,767 $ 37,189 $ 39,611 $ 42,033 Auto dealers and service stations 26,519 26,908 29,162 29,387 29,746 20,431 22,298 26,081 29,864 33,647 Specialty stores 13,027 14,045 14,333 14,703 14,882 12,896 13,125 13,543 13,961 14,379 General merchandise stores 12,592 13,322 13,729 13,825 13,994 10,059 10,369 10,866 11,363 11,860 Eating places and alcoholic beverages 12,036 12,516 13,751 14,473 14,650 13,877 14,291 15,287 16,283 17,279 Building materials 7,311 6,722 7,872 7,495 7,586 5,755 6,130 6,307 6,484 6,661 Business and personal services 5,275 6,017 5,391 5,409 5, Family apparel stores 4,807 4,836 5,527 5,829 5,901 7,146 7,608 8,357 9,106 9,855 Food stores and alcoholic beverages 4,222 4,938 4,680 4,912 4,972 5,411 5,405 5,591 5,777 5,963 Home furnishings and appliances 4,031 4,114 4,307 4,287 4,339 2,058 2,158 2,322 2,486 2,650 Retail stores other 1,952 2,064 2,193 1,184 1, ,003 1,109 Total $ 122,533 $ 130,722 $ 136,163 $ 137,820 $ 139,502 $ 112,745 $ 116,942 $ 126,440 $ 135,938 $ 145,436 Source: California State Board of Equalization *Data not available, estimates only based on % change from FY10 to FY11 **Data not available, estimates only based on % change from FY11 to FY12 See accompanying independent auditors report. 134

204 Los Angeles County Metropolitan Transportation Authority Table 14 Business-type Activities Transit Operations Operating Indicators by Mode Last Ten Fiscal Years (Amounts expressed in thousands except Buses, Rail Cars, and Passenger Stations) (1) (2) PASSENGER FARES: Heavy Rail $ 16,895 $ 16,298 $ 24,015 $ 23,739 $ 31,843 $ 29,402 $ 34,983 $ 34,789 $ 33,665 $ 34,753 Light Rail 18,900 19,912 22,657 20,752 29,690 28,682 30,725 36,627 37,778 44,565 Bus* 185, , , , , , , , , ,692 OPERATING EXPENSES: (excluding depreciation) Heavy Rail $ 65,829 $ 76,373 $ 77,541 $ 87,368 $ 95,930 $ 88,793 $ 90,320 $ 97,631 $ 105,620 $ 116,829 Light Rail 111, , , , , , , , , ,047 Bus* 707, , , , , , , , , ,155 PASSENGER MILES: Heavy Rail 152, , , , , , , , , ,760 Light Rail 241, , , , , , , , , ,032 Bus* 1,270,902 1,414,359 1,474,733 1,497,245 1,462,317 1,517,647 1,486,802 1,492,820 1,519,263 1,496,480 REVENUE VEHICLE MILES: Heavy Rail 5,399 5,877 5,867 5,986 6,003 6,078 5,885 5,908 6,156 6,865 Light Rail 7,704 8,114 8,047 8,688 8,812 9,051 9,646 10,155 11,153 13,239 Bus* 82,498 92,054 92,937 84,700 90,282 88,535 87,128 81,489 76,390 75,465 BUSES AND RAIL CARS: Heavy Rail Light Rail Bus* 2,714 2,856 2,870 2,733 2,738 2,460 3,010 2,712 2,536 2,362 PASSENGER STATIONS: Heavy Rail Light Rail Source: National Transit Database Report * Includes Purchased Transportation and Orange Line (1) There was a 33-day strike during this period thereby reducing miles and revenue fares. (2) More stations added due to opening of new segment See accompanying independent auditors report. 135

205 Graphical Presentation of Table 14 Passenger Fares and Operating Expenses by Mode See accompanying independent auditors report. 136

206 Los Angeles County Metropolitan Transportation Authority Table 15 Business-type Activities Transit Operations Passenger Boardings by Mode Last Ten Fiscal Years (Boardings expressed in thousands) Fiscal Year Heavy Rail Light Rail Bus* Total ,870 32, , , ,273 37, , , ,277 42, , , ,883 41, , , ,585 43, , , ,891 46, , , ,906 46, , , ,454 49, , , ,736 53, , , ,516 63, , ,672 Source: National Transit Database Report *Includes Purchased Transportation See accompanying independent auditors report. 137