State officials agreed Thursday to allow the East Baton Rouge Mortgage Finance Authority to give $500,000 to the parish’s financially strapped bus system.

For now, the money is a grant, designed to help the Capital Area Transit System close a $1.5 million budget deficit and to keep buses running.

The grant could convert into a loan, repayable over seven years, if CATS receives a dedicated revenue source.

“This is an economic development issue because a lot of people have to use that system to get to work,” Mayor Kip Holden told the state Bond Commission Thursday.

The grant is one square of a patchwork approach to averting an October shutdown of a bus system that operates 90 transit buses and vans along 20 routes.

The state Office of Community Development is contributing $500,000 in federal block grants. Additional federal dollars are closing the rest of the gap.

The bond commission’s director, Whit Kling, said the Capital Area Transit System has a history of operating losses.

Kling questioned the mechanics of possibly turning the mortgage agency’s grant into a loan, saying no security has been identified for it.

“It’s a laudable purpose. I can’t object to it, but, at the same time, I can’t recommend it,” he said.

Jim Ellis, an attorney for the East Baton Rouge Mortgage Finance Authority, said CATS is in a desperate situation. “It’s a purely philanthropic act,” he said.

The authority is a privately funded agency that provides affordable housing and economic development projects.

Holden said parish officials are at work on a permanent solution.

A panel of parish leaders studied long-term recommendations about mass transit.

State Treasurer John Kennedy, who chairs the bond commission, asked Holden to identify a possible permanent revenue stream.

Holden said a combination of sales and property tax increases are on the table.

The commission agreed to the grant but decided to revisit the issue if a funding stream materializes and the grant needs to become a loan.

After the meeting, John Carpenter, the mayor’s chief administrative officer, said the commission’s approval was the final step needed for the grant to be made.

Carpenter said movement has not been made on identifying a sustainable revenue source because of tweaks that are needed by the Legislature. The Louisiana Legislature is not scheduled to meet again until next year.

He said the city-parish is considering a number of options for increasing the bus system’s profits, including expanding routes to focus on riders who do not necessarily have to take a bus to get where they’re going.

Carpenter said the system currently transports what are known as riders of need rather than riders of choice.

He said any tax increases would not occur before next year, when the Legislature will be asked to make changes in law to allow the bus system to levy them with voters’ approval.