Weekly Report – July 27, 2015
One of Los Angeles’ best opportunities to generate economic and job growth is to advance sound initiatives that invest in the region’s transportation system.
L.A.’s network of roads, rail, highways, ports, bridges, and airports have a daily impact on residents, workers, businesses and travelers, providing access to jobs, the means by which goods are delivered and a gateway to the global consumer.
Two years ago, the American Society of Civil Engineers reported that California’s road surfaces cost drivers nearly $14 billion a year in repairs and operating costs. That works out to $586 per driver. In Los Angeles the cost is much higher, more than $1,000 per year. According to the California Department of Motor Vehicles (2012), Los Angeles County has nearly 10 million residents and more than 6 million of them have drivers licenses and 7 million cars and trucks registered. Which means Angelenos alone are spending $6 billion a year on costs that could be avoided.
What is not emphasized enough in this discussion is the impact underinvestment in our physical infrastructure has on the region’s workforce productivity – how much output workers produce per hour of work – which is the key to a healthy economy.
A recent article in City Journal by Nicole Gelinas – http://goo.gl/chxzpI – expressed the need to think beyond the typical economist’s contentions that worker productivity has been declining year after year because of burdensome regulations; today’s jobs are inherently inefficient and/or we are not measuring productivity properly; and look at the growing impact our nation’s weakening physical infrastructure is having on millions of commuters, their productivity levels and the economy as a whole. She contends that congestion leads to what commuters hate the most – unpredictability – which leads to stress and a reduction in workplace productivity.
According to the Texas Transportation Institute, the greater Los Angeles metropolitan area consistently leads the nation in the total annual hours – 490 million – of delay for all travelers and a total annual economic cost of $9 billion caused by congestion delay, up from $2 billion in 1982. A five-year estimate from the U.S. Census Bureau showed that the average travel time to work in Los Angeles County is 29.1 minutes and 76 percent of commuters drive alone, seven percent take transit, three percent walk and one percent bike. Though congestion is not unique to Los Angeles, the region’s multiple urban centers are much denser than the suburbs surrounding other major cities, which makes congestion worse.
Demographic and market shifts may flip this on its head. A large segment of the younger generations are choosing to live car-free. Only 70 percent of 19-year-olds in the United States had driver’s licenses in 2010, a drop from 87 percent in 1983, according to a study from the University of Michigan’s Transportation Research Institute. In that study, twenty-two percent said they had no plans of getting a license and nearly 20 percent said they prefer to ride transit or a bike. These changes were reflected in another study from the Frontier Group and U.S. PIRG, which revealed that transit ridership had increased 40 percent since 2001 among people 16 to 34. Additionally, as ride-sharing services evolve, which include Uber, Lyft, Sidecar and others, the social and work habits of younger generations will evolve along with it.
The good news – Los Angeles is making smart investments in some of its long-term physical infrastructure needs. Within the last four years Los Angeles has invested more than $4 billion into the Los Angeles International Airport (LAX) and approved plans to spend $4 billion more to upgrade its transportation network, and the port of Los Angeles has spent $1.2 billion on key projects. The region’s biggest investor is Los Angeles Metro, which is in the process of spending $14 billion, on a plan to spend $35 billion total, to build out 12 new public rail and bus lines throughout the region. This translates into tens of thousands of quality jobs.
To further increase productivity and the higher growth and wages rates that come with it, the public and private sectors should focus on the following:
Local Short-Term Solutions – Five-Year Time Frame
The Rand Corporation, with the support of Jim Thomas, the Los Angeles Music Center and Los Angeles Metro, recently released a report – http://goo.gl/VlLwsO – that highlights congestion relief solutions that could be implemented and produce significant improvements within five years or less.
Ideas include signal timing upgrades in more cities, restricting peak-hour curb parking on all congested thoroughfares and dedicating the additional capacity to bus-only lanes; developing a network of paired one-way streets in high-volume travel corridors, bolstering outreach efforts to promote voluntary ride-sharing, telecommuting, and flexible work schedules; and developing a bigger network of high-occupancy toll (HOT) lanes on freeways and apply any net revenue to the subsidization of express bus service in the HOT lanes. More recommendations can be found at: http://goo.gl/Icmzlw. The one caveat – the report did stress that any package of reforms that does not include pricing strategies will not achieve lasting reductions in traffic congestion.
Los Angeles City and County
As Fixing Angelenos Stuck in Traffic (FAST) leads the effort to develop support and drive implementation for the above recommendations, the City of Los Angeles should commit to advancing the Vehicle Enhanced Network (VEN) in the Mobility Element of its General Plan, and prioritize the development of new transit services that connect residential communities and workers to the City’s job centers. Additionally, the county and city must create better land-use policies around transit-oriented communities.
Secondly, support is needed to advance Mayor Garcetti’s focus on the following: Extending the subway down Wilshire Boulevard, the so-called Subway to the Sea; finishing the Crenshaw line, a rail line in the works to connect an underserved part of South Los Angeles; bridging the 1.5-mile gap between the Green Line rail spoke and Los Angeles International Airport; creating a north-south connector in the rail system, linking the forthcoming Crenshaw line to the expanding line along Wilshire; and building a tunnel for rail through the heavily congested Sepulveda Pass on the 405.
L.A. Metro is the key component to success. Throughout the past 25 years, L.A. Metro has grown from only running buses into a robust system with a six-line, 80-station rail network, more than 180 bus lines covering 1,400 square miles, and an average weekday ridership of more than 1.5 million. The Mayor and Metro board are in the planning stages of placing a measure on the November 2016 ballot that will ask voters to increase the county’s sales tax to 9.5 percent from 9 percent. This would generate $120 billion for rail and highway projects throughout the next few decades. The sales tax in Los Angeles County is already 9 percent, one and a half percentage points higher than the statewide sales tax. That’s because Los Angeles County voters approved three separate half-cent sales tax increases to fund transportation projects: Proposition A in 1980, Proposition C in 1990, and Measure R in 2008. A fourth increase, Measure J, failed to win approval in 2012, falling just a little short of the two-thirds vote required to raise taxes in California. One pending state constitutional amendment (ACA4) and pending Senate Bill 767, if passed, would lower the threshold needed to pass the measure.
California Governor Jerry Brown called a special “extraordinary” session so the state legislature can figure out how to deal with the state’s $79 billion backlog of maintenance and repairs for local streets, roads and bridges and the $59 billion for the state highway system over the next decade. Experts say the funding shortfall happened because gas tax revenues (California has the fourth highest in the United States at 42.35 cpg) have sharply declined as cars become more fuel-efficient. Assembly Speaker Toni Atkins (D-San Diego) rolled out a $2 billion annual proposal in January that calls, in part, for a “road user fee” that her office says would cost most drivers around $52 a year. State Sen. Jim Beall (D-San Jose), chair of the Senate’s transportation committee, wants to raise around $3 billion a year with a mix of increases to the gas tax, the vehicle license fee and vehicle registration fee. He also wants to charge the owners of zero-emission vehicles $100 a year to use the roads, an idea that Brown’s administration has flatly rejected. Assembly Republicans unveiled their $6.6 billion annual plan last month, which includes some items the majority party is unlikely to back. Among those provisions: Taking money from the state’s cap-and-trade program aimed at climate change; redirecting $1 billion a year from the state’s general fund; laying off 3,500 Caltrans workers whose positions the nonpartisan Legislative Analyst’s Office has suggested are redundant; and eliminating one-quarter of state government’s currently vacant positions.
What should not be left out of the discussion is the impact California’s goods movement – shipping, port operations, rail, trucking, warehousing, etc. – has on the region’s, state’s and nation’s economy and jobs. More goods flow through California’s ports than any other state in the nation and it represents roughly one third of the economic activity and one third of all jobs in California’s economy. California Governor Brown just released Executive Order B-32-15 – http://goo.gl/BDs8WI – that directs all relevant state agencies and departments to develop an integrated action plan by July 2016 that establishes clear targets to improve freight efficiency, transition to zero-emission technologies, and increase the competitiveness of California’s freight system. The state should start reinvesting the proceeds of the AB 32 Cap and Trade program into goods movement related projects.
A tentative six-year deal has been struck to fund the nation’s surface-transportation programs. The bill, called the “Developing a Reliable and Innovative Vision for the Economy” (DRIVE) Act, was negotiated by Senate Majority Leader Mitch McConnell (R-Ky.) and Sen. Barbara Boxer (D-Calif.). The House of Representatives has already voted to extend the current law, which is set to expire July 31, until the end of the year to give Congress time to craft a long-term bill. The most likely scenario is that the Senate would vote to extend the current law for the same amount of time as did the House, and then both would return from recess to work from the framework established under the McConnell-Boxer deal. The bill provides three years of guaranteed funding from the Highway Trust Fund, the mechanism used to disburse funds for transportation projects.
How does this help Los Angeles.? The Highway Trust Fund is made up of two accounts — one for highways and one for transit. On the local level, Metro currently has $14 billion in transit, highway and other major initiatives currently in the works within Los Angeles County. Approximately $8.5 billion, for example, is being invested in building five new rail lines. Another $4.3 billion is being invested in freeway improvement projects on the I-5, I-10, SR-138 and I-710, and the remaining $1.2 billion will be used to purchase new buses and rail vehicles, as well as to make Metro Blue Line enhancements and to build a brand new bus division near Union Station. The successful completion of these projects depend on the smooth flow of federal dollars into the region.
Three key initiatives that need support and best leverage the resources generated by the leadership of local regions.
- Los Angeles Metro is pushing Congress to create America Fast Forward Transportation Bonds. These qualified tax credit bonds are taxable bonds issued by state, local or other eligible issuers where the federal government subsidizes most or all of the interest cost through granting investors annual tax credits in lieu of interest payments. The U.S. Congress to date has authorized qualified tax credit bond programs totaling in excess of $36 billion for forestry conservation, renewable energy projects, energy conservation, qualified zone academies and new school construction. America Fast Forward Transportation Bonds would represent a sixth class of such bonds authorized in the amount of $4.5 billion annually to expedite infrastructure projects throughout Los Angeles, California and the nation.
- The L.A. Metro Board continues to work with California Congressmember Karen Bass to make permanent a federal pilot program that allows local transportation agencies to consider hiring local workers for transit and highway project that use federal funds. Currently, local agencies that receive federal funds can only consider income, not geography, when hiring workers. To address this issue the Department of Transportation established a pilot program that will permit L.A. Metro to prioritize local hiring on over two billion dollars in transit and highway projects. This investment will translate into tens of thousands of well-paying jobs for Angelenos, putting these tax dollars back into the communities that paid for the projects. Congressmember Bass wants this program to become permanent to allow for more local control to transit agencies to ensure that people who need jobs today will be the first in line for the jobs these projects create.
- Senator Feinstein serves on the Senate Committee on Appropriations, Subcommittee on Transportation, Housing and Urban Development. She is committed to securing funding for Los Angeles Metro’s two New Starts transit projects – the Purple Line subway to La Cienega (section 1) and the downtown Regional Connector – at $100 million each in the FY2016 transportation spending bill. Both the House and Senate transportation spending bills for FY2016 include extra funds for transit projects that will have their Full Funding Grant Agreements signed during Federal Fiscal Year 2016. Los Angeles Metro is advocating to have additional funding set aside in the bill for their Purple Line to Century Century project (section 2) because that project should have its Full Funding Grant Agreement signed by the Obama Administration by July 2016. If approved, the funds would likely be disbursed annually at a rate of $100 million through the annual appropriations process up to $1.2 billion, in addition to Metro seeking a $307 million TIFIA loan.
Private Sector Capital
The dire need for projects, from new toll roads to retrofitted ports, has led to greater collaboration between the public and private sectors, especially as public-sector budgets continue to shrink. Public–private partnerships, or P3s, are becoming an integral part of infrastructure financing and development, offering a hybrid financing model that allows private investors to provide capital for infrastructure projects that they, too, could not afford to finance, build, or operate on their own. Recently, as more states and public authorities have recognized the value of P3s, there has been additional legislation to authorize such partnerships, and a steady growth of projects. The President and Congress have discussed the creation of a “national infrastructure bank” in which the federal government would seed the bank with capital, with which it would then extend loans or loan guarantees to state, local and private borrowers. The bank would have a primary mission of attracting capital from the private sector to stretch the decreasing amount of federal dollars spent on infrastructure projects. A professional staff would choose projects based on economic and technical merits, the contribution to national and regional growth, job creation and environmental benefit.
Congressman John K. Delaney (MD-6) is promoting his own bipartisan legislation to address the Highway Trust Fund solvency crisis and spur new infrastructure projects across the country. The Infrastructure 2.0 Act uses international corporate tax reform to patch the Highway Trust Fund hole for six years, creates a new financing tool and establishes a path for broader pro-growth tax reform and improved infrastructure financing. Delaney’s Infrastructure 2.0 Act would establish deemed repatriation at an 8.75% tax rate for existing overseas earnings. This produces enough revenue to provide an additional $120 billion to the Highway Trust Fund, enough for six years of solvency at increased levels, as well as funding for the creation of a new $50 billion dollar American Infrastructure Fund, which will be leveraged to finance $750 billion in new infrastructure projects in transportation, water, energy, communications and education.