….and the Funny Money Proposed to Pay for expanding and Extending the SR-170/I-170 Freeway
By Justin Gerdes | Photograph by Leila Dee Dougan
In November 2008, Los Angeles County voters approved Measure R, a half-cent sales tax increase expected to generate up to $40 billion for transportation projects over 30 years. The measure was sold as a means to relieve traffic congestion, dedicating $14 billion for new rail and bus rapid transit projects and $10 billion to rail and bus operations, but with $8 billion also allocated to highway improvements.
Measure R sales tax revenue was used as collateral under the 30/10 Initiative, led by then-Los Angeles Mayor Antonio Villaraigosa, to secure long-term bonds and a federal loan enabling the Los Angeles County Metropolitan Transportation Authority (Metro) to build 12 transit projects in 10 years, rather than 30 years as planned.
It is little known outside of California, where the stereotype of car-addicted Los Angeles prevails, that over the past 25 years Greater Los Angeles has made impressive gains in rebuilding a public transit system dismantled more than a half-century ago. Los Angeles and neighboring cities now boast mass transit ambitions that are the envy of any U.S. big-city mayor.
Though Metro has used innovative financing tools to build rail projects ahead of schedule, demand for dedicated funding to complete approved and proposed projects still outstrips supply. Measure J, which would have extended the Measure R sales tax increase through 2069, garnered 66.1% of the vote on the November 2012 ballot, just short of the required two-thirds threshold.
The Metro Board recently floated the idea of taking a new transportation-funding ballot measure to voters in 2014 or 2016. To be determined is whether such a measure would, like Measure J, extend Measure R to accelerate projects, or authorize an entirely new sales tax that might send more money to Measure R projects as well as fund new projects.
For some projects, such as the Westside Subway Extension, Measure R will cover much of the construction cost; in other cases, Measure R provides only seed money. Two such projects in the Measure R expenditure plan [PDF] are the far-reaching plans currently being studied by Metro and Caltrans for the 710 Freeway.
Listed in the “Highway Capital Projects” category of the plan are “Interstate 710 South and/or Early Action Projects” and “Interstate 710 North Gap Closure (tunnel).” The first project, with a cost estimate of $5.46 billion, is the placeholder for the I-710 Corridor Project, which could include widening an 18-mile stretch of the southern 710 Freeway to up to 10 general purpose lanes and a separated four-lane freight corridor. The second project, with a cost estimate of $3.73 billion, is a 4.5-mile freeway tunnel, one of five alternatives under consideration in the SR-710 North Study. The Measure R expenditure plan makes $590 million available for the I-710 corridor and $780 million for a project in the SR-710 study area.
Public-private Partnership Candidates
Metro readily concedes the gap between the cost estimates and dedicated funding for the 710 Freeway projects. “We recognize here at Metro that there’s not enough money to do everything we want to do–even with Measure R,” Doug Failing, Metro’s Executive Director of Highway Programs, told The Planning Report in a July 2013 interview. Failing said Metro has decided to embrace public-private partnerships (PPP) as a means to build projects that aren’t fully funded. Under such deals, a public agency signs a contract with a private entity assigning the private firm responsibility for tasks–such as design, finance, operations, and maintenance–typically the purview of the public sector. Failing identified three projects as prime PPP candidates: the High Desert Corridor, the I-710 freight corridor, and the so-called SR-710 “gap closure.” (According to Metro sources, Failing “left the agency” in February of 2014.)
“Those are great projects, but they are very big, 5-10-billion-dollar projects,” he said. “We recognized at Metro that we don’t have a track record with the industry for large projects and that we need to develop something smaller, work through the decision-making processes, and gain some confidence with the public-private sector that Metro is a good partner and that they want to work with us.” As a proof of concept, Failing said, Metro planned to bundle six small, shovel-ready highway improvement projects and offer them as a PPP package to a private contractor.
“The key part,” Failing continued, “is that Metro and Caltrans can partner to create a substantial and continuous funding stream that the private side can count on, so they can go to their banks and borrow money to build us the projects now and rest assured of repayment through Metro and Caltrans in a manner that keeps their interest rates low.”
Cash-strapped transportation agencies in the United States are increasingly turning to public-private partnerships, commonly used in Europe, Latin America, and Asia for the construction of new toll roads, as an alternate means to build projects that aren’t completely funded. In a status update [PDF, p. 5] on its PPP programs released in September 2013, Metro said the three projects identified by Failing, including the I-710 freight corridor and the SR-710 tunnel “are recommended for PPP project development and delivery using either the availability payment model or the toll revenue concession model.”
Under the availability payment model, the private entity receives fixed, predictable payments from the public agency for meeting construction milestones and operational performance targets. The public agency, and thus ultimately taxpayers, bears the project’s revenue risk. Under the toll revenue concession model, the private firm, the concessionaire, is paid through the right to collect tolls but bears the risk that traffic and tolls do not meet projections.
Along the 710 Freeway, Metro proposes to build [PDF, p. 6] a separate truck-only freight corridor running north from the Ports of Long Beach and Los Angeles to rail yards south of downtown Los Angeles. Metro is recommending that the project be developed as an availability payment-based public-private partnership. “To create economic viability and to serve the primary purpose of reducing congestion and improving safety, tolls would need to be charged to all trucks using the I-710 corridor,” says Metro. But, there is also discussion to lower or eliminate tolls for trucks able to run on zero-emissions technology. Such a move “would put into question the economic viability of an availability payment financial structure,” Metro warns, adding that “a significant funding gap exists between available funding sources and the costs necessary to construct and operate this facility.”
A little more than 20 miles north of the ports, the I-710, there known as SR-710, ends at Valley Blvd. in Alhambra. Under one of the alternatives being studied by Metro, a 4.5-mile freeway tunnel would connect SR-710 to the 210 Freeway. Metro has repeatedly stated that the freeway tunnel is but one alternative under consideration in a draft environmental document scheduled for release in spring 2014. (Metro declined to make officials available to be interviewed for this series.)
If selected as the preferred alternative, Metro says the “SR-710 North Gap Project” [PDF, p. 6] would be a toll concession, “with the concessionaire taking revenue risk owing to projected financial strength of the toll revenue stream. Traffic volumes, and therefore toll revenues, are projected to be extremely high from opening day and thus, the interim preliminary business plan concedes that there is a strong likelihood the SR-710 North Gap Project would be successful in attracting private capital.”
The Metro Board has placed both projects–the I-710 freight corridor and SR-710 freeway tunnel–on the agency’s “accelerated highway projects” list. If the PPP alternative is selected in the environmental review process, Metro says, then a business case will be completed for each that analyzes project financing, cash flow, and uses of funds.
How Much Will this Cost?
Of the 710 Freeway proposals put forth by the transportation agencies, the one that has engendered the most intense debate is the freeway tunnel. Opponents maintain that by extending SR-710 to the 210 Freeway, Metro and Caltrans will make it more convenient for heavy-duty trucks to continue north from the ports to the 210 Freeway. A draft report [PDF, p. 72] prepared for the Southern California Association of Governments (SCAG) in 2009 found that “construction of the Missing Link will increase traffic volumes and truck volumes along the I-210 Freeway north of SR-134,” with truck trips increasing by more than 2,500 daily. Critics further claim that the agencies have not established the financial feasibility of the project nor provided a clear estimate of costs.
In response to a motion by Metro Board Director Ara Najarian, the agency’s Finance, Budget, and Audit Committee released a report [PDF] in September 2011 stating that “the best estimate of total project cost utilizing nominal assumptions for a dual-bore 7.96 mile tunnel is that total cost will fall between $2.7 billion and $3.5 billion, with the most likely cost being $3.25 billion.” The Measure R expenditure plan, remember, puts the estimated cost at $3.73 billion. Meanwhile, SCAG’s 2012-2035 Regional Transportation Plan lists the estimated cost as $5.6 billion [PDF, p. 3].
“I have fought for years to get a realistic estimate on the tunnel costs–my hope being that with a realistic estimate, we could make that very first go, no-go decision before we spend hundreds of millions of dollars on the studies that would accompany a tunnel and the engineering costs, and the EIR costs, and the community outreach costs,” Najarian, also a City of Glendale councilmember, told me. “Upon real insistence, I got a variety of numbers, ranging anywhere from $3 billion up to $13 billion.”
“I don’t begrudge Alhambra and those other cities for trying to find a solution to their traffic problem,” he adds. “But there are much better ways than just digging a tunnel. For that kind of money, we could do many, many better things that are more sustainable, that are more friendly, that would move the whole region forward into a means of transportation that does not rely on a single-occupant vehicle and does not rely on dirty diesel trucks hauling limited cargo containers one by one up and down our freeway system.”
Trucks, or No Trucks? Tolls, or No Tolls?
Tunnel opponents also make a compelling case that Metro and Caltrans have avoided providing clear answers to other basic questions about the project: Is it intended for trucks heading north from the ports? And will it be tolled? “When Pasadena and South Pasadena asked if there would be trucks through this tunnel, they were told ‘No,’ that there would be a prohibition on trucks. When the same three people from SCAG, MTA, and Caltrans went to other cities and were asked about trucks, they said, ‘Yes, there will be trucks because that’s how we’ll get federal dollars because of goods movement,’” Anthony Portantino, a former member of the California State Assembly from La Cañada Flintridge, told me.
He goes on: “Consultants, lawyers, and engineers are spending tens of millions of taxpayer dollars on a project where we don’t know the answer to two fundamental questions: How much is it going to cost? And how many cars and trucks are going to use it? And the fundamental reason why they don’t want to answer those two questions is they’re touting this as a public-private partnership. If you know the cost, and you know the use, you can figure out the toll. They don’t want people to know how high the toll would be because the project would die under its own weight. So they want to spend $780 million over the next decade on a flawed process, on a project that doesn’t solve a problem, and can’t be financed.”
“Over the past 10 years, the proponents will get up and say, ‘This project will be the single biggest improvement to air quality in the region.’ And when you ask them, ‘Can you give us that study? They say, ‘No.’ When you ask them that their own traffic engineers say that the project will open up at level service F, which is the worst service possible, and that it will be instantly gridlocked. When you ask them to show you the traffic models that say it will alleviate traffic on the surface arterial streets, they will not give you the information. The proponents make very sweeping, powerful statements without any substantiating documentation. My point is this: If you have the facts behind you, you put them on the table,” says Portantino.
At a September 25 special meeting of the South Pasadena City Council, councilmembers took turns pressing Frank Quon, Metro’s Executive Officer for Highway Programs for these details. Mayor Richard Schneider asked Quon about the tunnel.
Schneider: “It’s being evaluated without tolls? Is that correct?”
Schneider: “How are they going to compare that to the other alternatives? When are they going to add the tolls as a requirement? If they don’t have the tolls, they don’t have funding. So how can you compare a tunnel without tolls to a tunnel with tolls and the rest of the alternatives?”
Quon: “The study will look at the variations of each alternative. It will look at a freeway alternative without tolls–an open, free facility. It will look at a facility that has tolls. And it will also look at a facility with and without trucks. That will all be part of the environmental document–the technical analysis. It gives you an indication of how each alternative will perform, and then the costs associated with each of those.”
Schneider: “Up until this time, they have not evaluated the tunnel with tolls? In the preliminary analysis – the alternative analysis that was published in December of 2012–they did not consider tolls at all? Is that correct?”
Councilmember Philip C. Putnam asked about toll assumptions. What could tunnel users be expected to pay? Five dollars? Ten dollars? Twenty dollars? “I don’t have that answer right now because we are still completing the traffic analysis to determine what that is. We will be looking at what our current toll policies are,” Quon said.
Councilmember Michael A. Cacciotti wanted to know who would have the final say on whether the tunnel goes forward–Metro or Caltrans. The Metro Board votes on a preferred alternative, and then what? he asked.
Quon: “Caltrans will then take that all into consideration into the locally preferred alternative to take forward.”
Cacciotti: “And when you say, ‘Caltrans’ does it go to the California Transportation Commission or to Caltrans itself as a department?”
Quon: “Caltrans as a department.”
Cacciotti: “Doesn’t the California Transportation Commission have to vote on that, too?”
Quon: “The California Transportation Commission only acts on funding elements–if they are any funds they have control of in the project. Currently, the only funding that has been identified for the project is Measure R.”
But in policy guidance [PDF] released by the California Transportation Commission in October 2009, the Commission states that public-private partnership projects proposed by Caltrans or regional transportation agencies like Metro “shall be submitted to the California Transportation Commission,” and that the Commission “shall select and approve the projects” before the agencies begin a public review process for a final lease agreement. The CTC will only approve a P3 project if agencies can show that the project will improve mobility, “improve the operation or safety of the affected corridor,” and “provide quantifiable air quality benefits for the region.”
According to the CTC, the proposed project’s financial plan must also describe the allocation of risk between public and private entities and include the following: forecasts of revenues from tolls and user fees; a list of commitments of state or local revenues; the alternative source of project revenue should revenues from tolls and user fees fail to meet projections; and disclosure of public financial responsibility for meeting project costs in case of default by the concessionaire.
In January of 2014, the State Smart Transportation Initiative, working under the aegis of the California State Transportation Agency, issued a report, called The California Department of Transportation: SSTI Assessment and Recommendations, that has been widely interpreted as excoriating the agency for being mired in the past and holding back progressive transportation development.
The Way Forward, Changes Afoot
In an interview at Pasadena City Hall, I asked Mayor Bill Bogaard for his assessment of current cost and toll estimates for the freeway tunnel. “It’s very hard to know what a professional cost estimate would be at this point,” he says. “They’re using $5 or $6 billion–maybe $5.6 billion, but we all know that estimates are only estimates, and the reality of a unique project like this is almost certainly going to be much greater than that, and will never be less. The largest vulnerability of the project is the cost.”
“Metro blithely refers to tolls as covering the gap. And touts a public-private partnership as solving all the financial problems,” he adds. “It remains to be seen whether there’s a company that would qualify for the job–ready, willing, and able to take it on. It remains to be seen what carefully prepared estimates of toll revenues might be. It remains to be seen what the impact on the toll scenario–depending on whether trucks are permitted.” Bogaard said he’s seen toll estimates ranging from $6.00 to $26.00 per vehicle per trip.
Writing about the proposed freeway tunnel at The Source, the Metro Blog, in August 2012, Editor Steve Hymon said, “It remains unknown whether there are even private firms out there willing to take on that kind of risk.” Recent trends suggest that Hymon may be right. Metro proposes that an SR-710 freeway tunnel could operate as a toll revenue concession, with private firms bearing the risk that traffic and toll projections will be sufficient to pay back loans used to build the project.
With the rapid build-out of the Los Angeles County transit system, many commuters have, for the first time in generations, options other than a car to get around. A report [PDF, p. 38] published in December 2013 by the U.S. Public Interest Research Group found that in Greater Los Angeles vehicle miles traveled (VMT) per capita declined by 2.3% from 2006 to 2011 and the number of passenger miles traveled (PMT) on transit per capita increased by 13.6% from 2005 to 2010.
On December 16, the USC Price School of Public Policy released what it says is the first experimental study of the effects of a new rail line in Los Angeles. Within six months of the opening of the Expo Line last year, residents living within a half-mile of a rail station had reduced daily driving by 40% and tripled trips taken on rail. “Los Angeles has made a large commitment to rail transit, and this study is the best evidence to date that persons near rail lines are driving less,” Marlon Boarnet, the study’s lead author said in a statement.
“The routine commuting patterns should be addressed,” says Ara Najarian. “If we can do that, if we can knock off 5% or 10% of the vehicles, the entire freeway system opens up, and the transit system just flows that much more and it justifies even a greater investment in public transit.”
“All eyes are on Los Angeles,” he says. “We have transformed from being the car-crazy culture of the nation to a group of forward-thinking residents. We’re looking for transit. We don’t need two cars. Some of us don’t even need any car, depending on if we can live close enough to transit. I’m proud that L.A. has taken great strides to change our image. We need to continue that. Stay away from building freeways, and encourage transit.”