Here is the Metro staff report on new project acceleration plan to be considered by agency's Board of Directors this month

by ,

Metro project acceleration plan

The Metro Board of Directors this month will consider a project acceleration plan that, on average, would lop an average of 10 years off the time it takes to build second and third decade Measure R transit and road projects. It’s a big deal for many reasons — the foremost being that it could allow the taxpaying public to enjoy the investments they’ve made in local transportation a lot sooner than originally planned.

The Metro staff report that explains the plan is above.

In order to best explain the plan being proposed by Metro staff, it helps first to understand two fundamental truths about Measure R, the half-penny sales tax increase approved by Los Angeles County voters in 2008.

The plus side of Measure R was that it provided funding to a long list of transit and road projects, many of which were long sought by the region but lacked funding. Measure R remedied that — and is the reason that five new rail lines will be under construction simultaneously by the middle of this decade along with a host of highway projects, including the widening of the I-5 between the 605 and the Orange County line.

Measure R, however, also posed a challenge. The sales tax would last for 30 years — from July 1, 2009, to June 30, 2039 — and the construction of projects it funded were staggered over that three decade span. The third phase of the Purple Line Extension, for example, is currently scheduled to open in the mid-2030s, meaning the future children of current Bruins may be able take the train to campus. In other words, it’s a long time from now. The is true not just for the Purple Line, but for other lines to the Eastside, the South Bay, Southern L.A. County, the Westside and the San Fernando Valley as well.

It’s precisely for this reason that the Metro Board of Directors adopted a policy in 2010 to accelerate projects if possible under the America Fast Forward plan, which proposed an expansion of low cost federal loans for transportation nationwide. Besides the obvious benefit of getting to ride or drive on projects earlier, acceleration may also allow Metro to save on construction and borrowing costs (recently both have been at historic lows due the Great Recession but may now be starting to rise) and to create much-needed jobs.

I’ll better explain the new acceleration plan in a moment, but first a very important caveat: Approval by the Board doesn’t guarantee that any transit or road project would be accelerated. Ultimately, the plan will depend on Metro’s ability to secure loans and bonds from the federal America Fast Forward program, as well as federal New Starts money. In other words, Congress and President Obama must act to expand the amount of loans and bonds available to transit agencies around the United States and to provide federal New Starts to Los Angeles County.

The required two-thirds vote of the Metro Board (nine votes of the 13) is no sure thing — it’s a big step and attempts at acceleration have raised questions in the past. I’m guessing the Board will likely raise questions about the funding of current projects and whether the agency can afford to accelerate new ones.

That said, Board approval is a critical first step in that process. It shows lawmakers in Washington D.C. that Metro is serious about fulfilling its Measure R program sooner rather than later and has a plan to do so. And it shows exactly how increased federal investments in transportation would be spent in Los Angeles County.

The new acceleration plan has a lot of moving parts and is a bit complicated. I hope the following Q&A is helpful.

What exactly is the Board considering?

Two basic items:

The first item asks the Board to amend Measure R’s expenditure plan so that five transit projects are eligible to receive funds earlier than in the current plan. It’s a legal requirement that must be fulfilled.

The second item asks the Board to adopt a financial strategy that seeks to accelerate transit and highway projects, plug any shortfalls that may occur in current projects, set aside enough money to operate all projects and to pay for keeping and/or returning Metro’s infrastructure and equipment in a state of good repair.

In total, the strategy guides the investment in about $66 billion dollars in the coming decades. Yes, it’s a lot of money but it’s not money that is just vanishing into the ether — it’s going to workers and firms that would build, operate and maintain Metro projects, meaning a lot of those dollars would be recirculated throughout the Southern California economy that you and me depend on.

Which transit projects would Metro try to accelerate under the plan?

The Purple Line Extension’s second and third phases (from La Cienega to Westwood), the South Bay Green Line Extension, the Eastside Gold Line Extension, the West Santa Ana Branch Corridor and the Sepulveda Pass Transit Corridor. Under Metro’s current long-range plan, the Airport Metro Connector project at LAX is already eligible to be accelerated though Metro can’t do so on its own without the America Fast Forward loans and a contribution from LAX. The new plan would seek to complete it within the next decade instead of the late 2020s.

It’s important to note that the plan preserves the order that the projects were to be built under Metro’s long-range plan adopted by the Board in 2010. That’s something that Board Members have asked for as a way of preserving the the original intent of Measure R and preventing one project from leapfrogging over another due to shifts in the political winds.

One other important caveat: while this plan moves forward the dates that each transit project can get its allotment of Measure R funds, the plan does not expand those funds. Ongoing environmental studies still must be completed for most of the project to be accelerated (only the Purple Line Extension’s study is complete) and those studies will determine the type of project to be built — i.e. rail, bus rapid transit, etc. The bottom line  is that some of the transit projects will likely need additional funds in order for the most expensive alternatives to be built. That money may come through federal grants or, in the case of the Sepulveda Pass Transit Corridor, possibly a public-private partnership.

Which highway projects would be accelerated?

It is to be determined, based on decisions by sub-regions in the county. In plain English, elected officials from different cities will have to collectively make those decisions. As is the case with some transit projects, many highway programs would likely need to find additional funds in order to be fully realized.

How is Metro proposing to pay for transit and highway project acceleration?

The agency would borrow $9.4 billion using a variety of loans and bonds. The weighted average of the money borrowed would be paid back within 30 years. However, up to 15 percent could take until 2069 to pay back. The plan assumes this longer term borrowing to be no more than $1.37 billion of the $9.4 billion.  Since this longer term borrowing costs more, it will be the first borrowing Metro will seek to avoid over time as we implement the plan.

Again, the policy argument returns to this fundamental question: is it better to borrow to build now so that the region can improve its mobility or would it be better to build slower to avoid borrowing?

What has to happen at the federal level to make the acceleration plan a reality?

Three things:

1. Metro needs to sign a “Full Funding Grant Agreement” for New Starts funding for the Regional Connector and Purple Line Subway Extension’s first phase from the Federal Transit Administration. The grant has been in the works for quite some time and is expected to be completed and signed in late 2013 or early 2014.

2. Metro needs to secure about $4.5 billion from the low-interest TIFIA loan program that was expanded by Congress last year as part of the multi-year federal transportation spending bill. This was the first part of America Fast Forward legislation.

3. Metro would also need about $1.35 billion from an America Fast Forward bond program that Congress has yet to adopt. Here is a recent post on the Source about how the bonds work — the gist of it is that transportation agencies would use revenue from interest-free bonds while investors in those bonds would receive valuable federal tax credits. It’s a big ask of Congress, for sure, but there has been some bipartisan support for the concept thus far. The challenge for Metro and other supporters will be getting approvals from Congressional committees overseeing transportation and taxes, respectively.

How is this the new acceleration plan different than Measure J?

Measure J proposed to extend the Measure R sales tax by 30 more years — from its current expiration date of mid-2039 to mid-2069. Over time, Measure R revenues would have been used to pay back loans needed to accelerate projects. As you know, Measure J narrowly lost at the polls in November despite 66.1 percent of voters approving it; it needed 66.7 for passage.

With Measure R still scheduled to end in 2039, the new acceleration plan will rely on revenues from Prop A and Prop C to pay back loans and bonds after 2039.

Prop A and Prop C were the two half-cent sales taxes approved by L.A. County voters in 1980 and 1990, respectively. Unlike Measure R, both A and C had no sunset date — i.e. they would continue in perpetuity. 

Which transit projects don’t get accelerated?

The ones scheduled to be completed in the first decade or so of Measure R. The list includes the Orange Line Extension (opened in 2012), the second phase of the Expo Line (under construction), the Gold Line Foothill Extension to Azusa (under construction), the Regional Connector (utility relocations underway) and the first phase of the Purple Line Extension (utility relocations underway).

The East San Fernando Valley Transit Corridor is currently under study and scheduled to be complete in 2018 under Metro’s long-range plan. Therefore, it’s not included in the acceleration plan.

The project acceleration plan is scheduled to be considered by the Metro Board’s Finance, Budget and Audit Committee at noon on Wednesday, June 19, at Metro headquarters adjacent to Los Angeles Union Station. The item is also scheduled to be considered by the Executive Management and Audit Committee on Thursday, June 20, at 11:30 a.m. at Metro HQ. The full Board of Directors is scheduled to consider the item at its meeting on Thursday, June 27, at 9 a.m., also at Metro HQ. 

Categories: Policy & Funding, Projects

Tagged as: , , , , , , , , , , , , , , , , , , , , , , , ,

12 replies ›

  3. Michael,

    Actually you have it the other way around. The US private railways didn’t really put that much thought about making money off of the real estate in the surrounding area.

    On the contrary, it was the Japanese that you mentioned, which perfected the idea of private companies running mass transit, being real estate developers, and further, going on to becoming retailers themselves.

    The term is called “rail integrated communities” which can be read on Journal of Transport and Land Use, Vol 5, No 1 (2012) by John Calimente https://www.jtlu.org/index.php/jtlu/article/view/280

    Private companies like the Seiyu Group or the Odakyu Group laid out the tracks, built the stations, and ran the rail lines. At the same time, they also built the homes and businesses surrounding the immediate railway serving area. They will also go on to build a major department store at their railway hub so that a station would directly link into their department store chain.

    Profits earned from real estate goes back into improving rail service, and by improving rail service, it brought people to their department store rail station hub where people went and shopped, completing a full revenue circle of profit and constant improvements in transit, real estate, and consumer buying of goods.

    A family would live in a home that was built on Seiyu Group owned land, they would commute using the Seiyu Railway or the Seiyu Bus to a business which was again built on Seiyu Group owned land, and they will go shop at the Seiyu Department store.

    Japan let private railways freely compete with the nationalized Japanese National Railway by being real estate developers as well as expanding their business into retail.

    For something like this to happen in LA, it’s like Ralphs becoming real estate developer and laying out the tracks themselves while also running their main core supermarket business.

    Be as it might, I doubt we’re going to be seeing that in LA where per every mile we ride on Ralphs Rail, we earn Ralphs Rewards points to get discounts at Ralphs Supermarket as we commute from Ralphs High-Rise Condos to Ralphs Business Park.

    • James,

      Hm, I thought people like Henry Huntington, who was a real estate tycoon here in LA and founded the Pacific Electric streetcar company, built lines out to the suburbs where they had bought land and profited from the increased value of their land.

      Regardeless, the point I’m trying to make is that real estate values around transit stations go up, and if the public is going to invest in rail transit (which I believe they should), then that increased value is a potential means for funding the system (borrow against the potential increased tax revenue). That seems to me to be at least as politically feasible, if not moreso, than taxing the whole region to pay for a line or lines that only serve a limited area.

      Best,
      Michael

  5. Steve,
    Has Metro looked at using value capture (taxing some of the increased value of land around transit stations) to finance any of their projects? It seems such a no-brainer in this era of tight budgets, and could almost be self-perpetuating.

    Best,
    Michael Moore

    • Hi Michael;

      I don’t believe that Metro has directly studied this, although I believe (not sure) that similar concepts have been proposed by elected officials in the past. The one that I recall the most is tax increment financing, which has been used in other places for infrastructure. This is far from my area of expertise, but I think one big issue is scale — to raise a lot of money, I think you would need to tax a significant area, which is tricky to do practically and politically.

      A different approach taken by other regions/counties is to impose a fee on new development that goes toward transportation improvements. Metro, in fact, is proposing to do just that, although the money would likely go to smaller projects. That will likely go before the Metro Board as early as this summer. More on that soon on the blog.

      Steve Hymon
      Editor, The Source

      • Steve,

        I think this has been used extensively overseas, specifically for the Hong Kong subway system, and possibly in Japan, as well. In fact, I believe that’s how the private sector built subways and streetcars in the U.S. back in the day – they were real estate developers, and pocketed the profits from the increased value in their land after transit went in.

        Best,
        Michael

  6. In 1902 Henry Huntington rec’d permit for the PE car. It took him 11 years to build the best trolly line in the world. It took the oil, car, tire company’s and with the help of carrier politicians a few years in the 1950’s to dismantle the Pacific Electric Car. THAT IS WAY IT IS TAKING SO LONG-SPECAIL INTEREST GROUPS: oil, car, tire etc.

  7. This Project Acceleration plan is great but that is with a huge qualifier that funds that Metro wants to borrow are already earmarked for certain already approved projects and although Steve’s statement that Congress could provide funding for projects that do not have enough funding from Measure R, well, simply, that doesn’t appear possible. Thus a need for a Measure J take 2.

    The $9.4 billion that Metro proposes to borrow INCLUDES funds for the Purple Line Extension phase 1 and the Regional Connector and these need to be subtracted from the total as they are already projects that Metro has committed to but not yet applied for funds.

    Page 23 states that Measure R total transit project costs are 19.114 Billion. Of course, the projects beyond those in construction or pre-construction will most probably cost more, way more, The Crenshaw Line is now over 2 Billion dollars. How many more times can/will Metro shake the piggy bank for change?

    Page 45 states that the 405/Sepulveda Pass project is estimated at 6 Billion But then on Page 47 states “10-12 Billion (Central Segment) 30.754 Billion to 38.735 Billion”. Very Hard to follow, even though I have seen their earlier reports, and can guess what that is about, it is somewhat disconcerting that Metro can’t easily and simply explain in their own reports what is going on with these numbers.