sr-062210-13e13-E
June 22, 2010
Council Meeting: Santa Monica, California
CITY CLERK'S OFFICE -MEMORANDUM
To: City Council
From: Mayor Pro Tem O'Connor
Councilmembers Bloom and McKeown
Date: June 22, 2010
13-E : Request of Mayor Pro Tem O'Connor and Councilmembers Bloom and
McKeown to adopt a resolution supporting Los Angeles Metro 30/10 Measure R
Project Acceleration Initiative for federal assistance designed to accelerate the
construction of transit projects identified in Measure R, the half cent sales tax
adopted by Los Angeles County voters in November of 2008.
INFORMATION:
The 30/10 Initiative, as proposed by Mayor Antonio Villaraigosa, is predicated on
creating federal financing and other assistance by which the Los Angeles County
Metropolitan Transportation Authority could access zero to very low interest
financing to accelerate projects listed in Measure R with the next ten years. The
12 key projects, originally scheduled to be built over three decades, include the
Metro Orange Line Extension, the Expo Transit Corridor to Santa Monica, the
Gold Line Foothill Extension, the East San Fernando Valley North-South
Rapidways, the Crenshaw/LAX Transit Corridor, the Regional Connector Transit
Corridor, the Westside Subway Extension, the West Santa Ana Branch Corridor,
the Eastside Transit Corridor Phase 2, the Green Line Extension to LAX, the
South Bay Metro Green Line Extension, and the San Fernando Valley 1-405
Corridor Connection. Mayor Villaraigosa and area cities are seeking federal
support to permit these transit projects to be built within 10 years, as opposed to
the 30 years outlined in Measure R.
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June 22, 2010
13-
June 22, 2010
While the Expo Line to Santa Monica is scheduled to be operational by 2015 and
is not dependent on federal assistance, the construction and completion of other
projects included in Measure R over the next ten years will improve regional
mobility and ease traffic congestion, reduce greenhouse gas emissions, and
generate hundreds of thousands of construction and other jobs to improve the
regional economy. These projects will also expedite the improvement of transit
service to and from Santa Monica and throughout the Westside cities.
Specifically, the Initiative will result in the extension of the Wilshire corridor
subway to the Westside by 2017, as opposed to 2036 as originally planned, and
will expedite the construction of the Regional Connector, which will improve
headways on the Expo Light Rail Line and provide a direct rail connection from
Santa Monica to Union Station.
The 30110 Initiative will result in the completion of critical transit projects within
the 20 year planning period identified in the City's Draft Land Use and Circulation
Element. The projects identified in the Initiative are consistent with the goals and
objectives of the City's Draft Land Use and Circulation Element, in that they will
expedite the expansion of high-quality regional rapid transit, including rail
service, to improve transit connections between Santa Monica and the region,
reduce greenhouse emissions, and ease traffic congestion.
13-E
2 June 22, 2010
tos Angeles County
Metropolitan Transportation Authority
Metro
One Gateway Plaza n;.gzz.zooo Tel
Los Angeles, CA gooiz-zq;z metro.net
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Revision #2
EXECUTIVE MANAGEMENT AND AUDIT COMMITTEE
April 15, 2010
SUBJECT: MTA POSITION ON " 30/101NITIATiVE"
ACTION: APPROVE RECOMMENDATION
RECOMMENDATION
1. Adopt a support position on the "30110 Initiative" subject to these policies and
conditions:
a. A specific MTA Board action is required to re-program highway capital
project funding for use on transit capital projects as result of 30/10,
unless such re-programming does not result in a net decrease to the
highway capital project funding;
b. Likewise, a specific MTA Board action is required to re-program transit
capital project funding for use on highway capital projects as result of
30110, unless such re-programming does not result in a net decrease
to the transit capital project funding;
c. MTA shall complete projects accelerated through 30110 in the same
sequence as the adopted 2009 Long Range Transportation Plan
(LRTP);
d. MTA shalt support any new or modtF'ied federal program that provides
financial assistance that would enable MTA to accelerate its Measure
R/LRTP transit projects;
e. MTA also shall support any new or modified federal program that
provides financial assistance that would enable MTA to accelerate its
Measure R/LRTP highway projects;
f. Adoption of an MTA support position is for securing a pledge of federal
financial assistance only; adoption of an accelerated project delivery
schedule shall be subject to future MTA Board approval;
g. Nothing in the contemplated- federal assistance would compel MTA to
actually accelerate its transit construction program;
h. MTA shall only utilize pledged federal assistance 'rf the construction
and financing costs are less than the available funds (adjusted for
inflation) planned for the 12 projects in the adopted 2009 LRTP, unless
those costs are being adjusted by the minimum necessary to
accomplish an operable segment for the corridar; and
i. MTA public-private partnership program and 30/10 shall be closely
coordinated to maximize leverage afforded by both.
2. Add the "30/10 Initiative" to the MTA federal legislative platform.
3. Direct the CEO to develop the supporting analyses and materials related to
travel demand benefits, economic benefits, operating and capital costs,
schedule, federal mandates and organizational readiness necessary to
secure federal assistance to finance the "30110 initiative".
4. Arrange/Coordinate for the MTA Board of Directors to aresent a request
to our Los Angeles Countv Congressional delegation to work with
President Obama. Congress. and federat agencies to develop a
financing/funding mechanism that will allow Los Angeles Countv to
accelerate its Measure R transit and highway projects to make our
region more sustainable and livable, create lobs and stimulate our
economy. and pursue our mobility goals.
ISSUE
30!10 is an idea proposed by MTA Board member and Los Angeles Mayor Antonio
Villaraigosa to accelerate construction of the 12 Measure R and Long Range
Transportation Plan (LRTP} transit projects and complete them by fiscal year (FY}
2019. The adopted 2009 LRTP has these 12 transit projects under construction
and opening over the next 30 years (FY 2010 to FX 2039).
30/10 could be a funding mechanism that provides MTA with the option of
accelerating its Board-adopted transit construction program. In short, 30/10 seeks
to 1) complete construction of 12 transit projects in i0 years; 2} reduce project costs
by aveiding minimizing anticipated cost escalation (due to inflation); 3) take
advantage of any continuation of the current soft construction market to reduce
costs potentially; and 4) reduce borrowing costs through one or more existing or
new federal programs.
The federal government has begun publicly discussing the idea and support is
emerging. 30/10 was discussed in Los Angeles on February 19, 2010 at the
USDOT "Surface Transportation Reauthorization Outreach Tour" and in
Washington, D.C., on March 11, 2010 at the United States Senate Committee on
Environment and Public Works "'Federal, State and Local Partnerships to
Accelerate Transportation Benefits" hearing. As such, there is an opportunity to
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secure federal assistance to accelerate the voter-approved transit projects in
Measure R and the MTA Board-adopted LRTP.
30/10 requires substantial additional revenue between FY 2010-2019 to meet the
cash flow necessary to pay for an accelerated construction program. Mayor
Viliaraigosa's office estimates that project delivery costs can be reduced from
$17.5 billion to $13.7 billion in year of expenditure dollars ($3.8 billion or 22% cost
reductioh). The reduced cost is due to minimized cost escalation assumed in the
LRTP. MTA staff has reviewed these figures and concurs that 30/10 would have
an estimated $13.7 billion cost in year-of-expenditure dollars over 10 years.
(Previously, the 30/10 cost was presented as $18.3 billion over 30 years with an
accelerated cost of $14.7 billion, but both figures were reduced to exclude
unallocated funds in the "Rail Capital & Transit Corridors" portion of the LRTP)
The LRTP programs $5.8 billion between FY 2010-2019 for the 12 protects, leaving
a net cash flow need of up to $8.0 billion. MTA s#aff is currently re-examining the
availability of the $5.8 billion using up-to-date revenue forecasts and project priorities
set by the MTA Board in March 2010. Due to the timing of the needed cash flow, the
cash flow need between FY 2010-2017 is up to $8.4 billion using the 2009 LRTP
assumptions. 30/10 proposes to close this gap through financing (loans and/or
bonds) and potential reductions in project costs. The actual amount financed could
be more or less than $8.4 billion, depending on the new revenue foredasts and the
actual price of construction bids received. Principal and interest costs would be
paid from Measure R 35°t° Transit Capital funds only, which were estimated at
$13.1 billion over 30 years in the LRTP for the 12 transit protects.
Financing involves interest costs that reduce the total size (dollar value) of a
construction program. 30110 is only feasible if the borrowing and/or construction
costs can be reduced sufficiently, such that total payments do not exceed Measure
R 35% revenue.
30110 contemplates federal assistance from an interest rate subsidy, loan guarantee,
direct/bridge loan, and/or creative re-payment terms. In layperson's terms, the initial
phases of 30/10 could be viewed as "pre-qualification" of financing analogous to how
individuals buy a house. Further MTA Board actions will be necessary to commit
formaflyto the-30>10 strategy. Nothing in the contemplated federal assistance would
compel MTA to actually accelerate its transit construction program. Modifying the
LRTP, adoption of MTA's annual budget, and approval of construction contracts
necessary to implement 30/i 0 alt would require subsequent MTA Board action.
30/10 also seeks to reduce construction costs further by taking advantage of any
continuation of the soft construction market, although this potential savings has not
been quantified.
POLICY IMPLICATIONS
MTA has been a national leader in generating local transportation funding, with
Los Angeles County voters approving half-cent safes taxes three times:
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Proposition A (1980), Proposition G (1990), and Measure R (2008). Federal
programs that reward states and local government that generate non-federal
revenue should be supported. Approving the recommendation would provide an
official MTA Board position on an issue being actively discussed by the federal
government. 30/10 is an opportunity to accelerate completion of the voter-
approved and Board-adopted transit construction program contained in Measure
R and the LRTP.
The recommendation is consistent with the recent MTA Board policy decision
to accelerate funding and construction of the Gold Line Foothill Extension.
In addition, any federal financing tools made available to MTA would be
beneficial because they would provide the MTA: Board with the option of
utilizing them to accelerate some or the entire LRTP capital program and/or
reduce financing costs on existing and new borrowing.
OPTIONS
i. Oppose "30/10 Initiative" -Not recommended. 30/10 seeks to accelerate
12 Board-adopted transit projects and is consistent with existing Board policy.
The recommended accompanying policies and conditions address potential
concerns with 30(10, including impacts on the highway program.
2. No position -Not recommended. MTA staff needs to communicate the MTA
Board position when asked by federal officials.
BACKGROUND
Support & Opposition
30/10 appears to be.gaining traction and public support in Washington, D.C.
Various influential members of Congress and the U.S. Department of
Transportation (USDOT} indicated support for 30/10 and have pledged to help Los
Angeles secure federal assistance. These include: Sen. Barbara Boxer (Chair,
Committee on Environment and Public Works), Sen. Diane Feinstein, Rep. James
Oberstar (Chair, Transportation and infrastructure Committee), Rep. Peter DlFazio
(Chair, Subcommittee on Highway and Transit), Rep. Jane Harman, Secretary of
Transportation Ray LaHood, and Undersecretary for Policy Roy Kienitz.
In addition, a number of local stakeholders from a broad cross-section of interests
have expressed their support for 30/10, including:
• American Council of Engineering Companies (ACEC}, Los Angeles Co. Chapter
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• American Jewish Committee
• American Lung Association
• Fixing Angelenos Stuck in Traffic (FAST)
• Las Virgenes Malibu Council of Governments
• Los Angeles /Orange Counties Building and Construction Trades Council
• Los Angeles Area Chamber of Commerce
• Los Angeles Business Council (LABC)
• Los Angeles County Business Federation (BizFed)
• Los Angeles County Federation of Labor, AFL-CIO
• Move LA
• Natural Resources Defense Council (NRDC)
• Sierra Club
• Valley Industry & Commerce Association (VICA)
Both Move LA and the Los Angeles Area Chamber of Commerce traveled to
Washington, D.C. in March 2010 and lobbied in support of 30110.
However, local concerns have been raised that 30/10 may negatively impact funding
for the LRTP highway program. Questions have also been raised about whether the
30110 concept could be-used accelerate LRTP highway projects. Both issues are
addressed in the recommended policies and conditions. As currently described,
30/10 would only utilize non-Measure R funds already programmed in the LRTP plus
Measure R 35% Transit Capita! funds, which cannot be used for highway projects by
law.
Current MTA Plans
On November 4, 2008, 68% of the voters in Los Angeles County approved Measure
-R; a 30-year half-cent transportation sales tax. Measure R originally was estimated
__
to generate $40 billion in new revenue, with 65% for transit, 20% for highways, and
15% in d+ssret+onar-~ Iocai return funding for the cities and county. The largest
category of funding was for Transit Capital (35%), which provided $13.1 billion in
funding #or 12 new rail and busway projects.
The MTA Board subsequently adopted the 2009 LRTP that provided $17.5 billion
(inclusive of the Measure R 35% funding} over 30 years to build these 12 projects.
10-Year fFirst Decade) LRTP Transit Project implementation
30/10 seeks to complete all 12 transit projects within the first decade of the LRTP
(FY2010-2019). Based on status of planning, environmental, design, and
construction today, MTA's baseline project delivery schedule by FY 2019 (i.e., the
end of the 30/10 timeframe) is as follows:
Completed & Operational
San Fernando Valley North-South Canoga (2014)
Exposition -Phase II (2016)
East San Fernando Valley North-South Corridor (2018)
Gold Line Foothill Extension (from Pasadena) (2018)
Crenshaw-LAX (2019)
Regional Connector (2019)
Under Construction
Segment 1 of Subway Extension to Westwood
The Crenshaw/LAX and Gold Line Foothill Extension (from Pasadena) schedules
noted above are from the LRTP and do not reflect other MTA Board actions to
accelerate the projects.
Schedule Constraints
The current LRTP schedule is constrained by cash flow, or by how much money is
forecasted to be available in a given fiscal year. Past plans by MTA and its
predecessor agencies were also constrained by cash flow. There is no inherent
reason why capital projects could not be built faster if construction, operating and
maintenance funds are available and the proper governmental requirements are
met.
30/i 0 assumes a 10-year implementation schedule for the LRTP transit projects
consisting of four main steps: planning, environmental, design, and construction.
MTA staff believes that the proposed schedule acceleration is feasible, but
aggressive, and would require improved project delivery capabilities at MTA (see
below).
Status of Measure R/LRTP Transit Projects
The table below illustrates the current status of the 12 transit projects funded in
Measure R and the LTRP and identified in 30/10. The status of each project is
based on prior action by the MTA Board, but is somewhat inconsistent with the
LRTP. For example, work on the Green Line Extension to LAX has not begun, while
two projects scheduled to open later are currently undergoing environmental
clearance (Eastside Extension from East Los Angeles and Green Line Extension -
South Bay). Also, the Gold Line Foothitl Extension (from Pasadena) is ready to start
construction in the near future even though Exposition -Phase II is scheduled to
open sooner, but is not as close to starting construction.
1 San Fernando Valley North-South Canoga
2 Exposition -Phase II
3 Gold Line Foothill Extension (ftom Pasadena}
4 East San Fernando Valley North-South Corridor
5 Crenshaw-LAX
6 RegionatConnector
7 Subway Extension to Westwood
Status
Under construction (design-build)
Construction pending (design-build)
Construction pending (design-build)
Planning complete
EIR/EIS underway
EIR/EIS underway
EIR/EIS underway
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8 West Santa Ana Branch Planning started (SCAG)
9 Green Line Extension to LAX ---
10 Eastside Extension from East Los Angeles EIR/EIS underway
11 Green Line Extension -South Bay EiR underway
12 San Fernando Valley i-405 ---
As the federal funding programs involved are likely to require federal environmental
clearances, al! projects still in the environmental phase should secure such
clearances.
Measure R/LRTP Transit Projects
30/10 proposes to accelerate the exact projects contained in the adopted 2009
LRTP and at the same funding levels (though reduced when adjusted for inflation),
consistent with current MTA Board policy. Four projects require additional
comments:
Gold Line Foothill F~ctension (from Pasadena} - 30110 assumes a
$778 million project ($836 million LRTP project?, in new year-of-expenditure
dollars} to Azusa consistent with the LRTP. It does not assume an extension
beyond Azusa, however if the Azusa extension (phase 2A) can be delivered
for less than the LRTP funding level, additional funds may be available to
extend the project further. This assumes that MTA Board reprograms the
surplus funds for such a purpose.
2. Crenshaw-LAX-30/10 assumes a $1.5 billion ($1.7 billion LRTP projects; in
new year-of-expenditure dollars} project consistent with the LRTP. Additional
design options approved by the MTA Board for further study are not funded in
the 30/10 concept.
3. Regional Connector - 30/10 assumes a $1.1 billion project ($1.1 billion
LRTP projects, in new year-of-expenditure dollars} consistent with the LRTP.
The third alternative approved by the MTA Board for further study would be
possible wfthin the existing funding level only by rescoping the project.
4. Subway Extension to Westwood - 30!10 assumes a $4.8 billion project
($6.0 billion LRTP projects; in new year-of-expenditure dollars} to Westwood
consistent with the LRTP. A westward extension beyond Westwood and an
extension to West Hollywood are not funded in 30/10.
Measure R/LRTP Transit Project Schedules
The following table summarizes the LRTP schedule (fiscal year) for the
12 projects identified in the 30/10 initiative as well as accelerated schedules
estimated by Mayor Villaraigosa's office, sorted by LRTP revenue operation date
(i.e. start of service):
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Revenue Operation Date
# Project LRTP 30!10 ~__
1 San Fernando Valley North-South Canoga 2013 2013
2 Exposition -Phase II 2015 2015
3 Gold Line Foothill Extension (from Pasadena) 2017 2014
4 East San Fernando Valley North-South Corridor
5 Crenshaw-LAX
6 Regional Connector
7A Subway Extension to Westwood -Segment 1
76 Subway Extension to Westwood -Segment 2
8 West Santa Ana Branch
9 Green Line Extension to LAX
10 Eastside Extension from East Los Angeles
11 Green Line Extension -South Say
7C Subway Extension to Westwood -Segment 3
12 San Fernando Valley I-405
2018 2018
2018 2016
2019 2017
2019 2017
2026 2017
2027 2018
2028 2018
2035 2017
2035 2018
2036 2017
2039 2018
** MTA staff will evaluate the early completion dates for projects based on a chosen delivery method for
each project and will present its recommendation for Board approval
MTA staff understands that the 30/10 accelerated completion dates were
estimated based on the status of planning, environmental, and design work for
each project plus an aggressive five-year construction schedule. MTA staff would
need to perform additional analyses, but believes that the accelerated completion
dates are possible and that some of the schedules may be too aggressive. Ali
12 projects could be completed by FY 2019 from a constructability standpoint, if
funding was available and necessary steps are taken to streamline MTA's
procurement and management practices and greatly expand their capacity.
30/10 assumes best case completion dates based on the status of pre-
construction work. Under 30/10, certain projects would be completed in an order
different than the LRTP. These projects are the Eastside Extension from East Los
Angeles and the Subway Extension to Westwood -Segment 3. This is because
both projects are completing environmental clearance and are further along in
pre-construction work. However, 30110 contemplates have all 12 transit projects
under construction by FY 2014 wfth the aforementioned projects completed only
one year sooner than projects scheduled for earlier completion in the LRTP.
If the MTA Board pursues 30/10, it may either adopt minor modrfications in the
transit project completion dates or delay construction by about one year for the
aforementioned projects so that the current LRTP project sequence is maintained.
Benefits of 30/10
Some or ail of the first decade LRTP projects could potentially see their
completion dates accelerated one to four years, but further analysis by MTA
staff would be necessary to better estimate the actual schedule accelera#ion
feasibility.
However, projects currently scheduled for construction in the second and third
decades could potentially see their completion dates accelerated significantly by up
to 21 years:
Project Acceleration
Subway Extension to Westwood -Segment 2 9 years
West Santa Ana Branch 9 years
Green Line Extension to LAX 10 years
Eastside Extension from East Los Angeles 18 years
Green Line Extension -South Bay 17 years
Subway Extension to Westwood -Segment 3 19 years
San Fernando Valley 1-405 21 years
The Goid Line -Phase 2A (Azusa) has been accelerated by the MTA Board by
providing the MTA Gold Line Foothill Extension Construction Authority with
funding earlier than the adopted 2009 LRTP.
30/10 would generate job, environmental, and mobility benefits associated with the
12 transit projects sooner than anticipated in the LRTP. In particular, acceleration
of expanded rail transit coverage may well be critical to the Sustainable
Community Strategy SCAG is developing to meet requirements of SB375.
In 2008, MTA staff estimated the following benefits associated with the
recommended LRTP transit projects (subsequently adopted in the 2009 LRTP):
• Transit boardings - 77,016,120 more annual transit boardings
• Emissions reduction - 568,458 fewer pounds of reactive organic gases
{ROG), nitrous oxides (NOx), carbon monoxide {CO), and particulate matter
{PM 2.5 and PM 10)
• Vehicle miles traveled - 207,942,017 less VMT annually
• Gasoline consumption -10,294,159 fewer gallons of gasoline consumed
annually
These benefits are measured against population and emolovment forecasts for
2020.
MTA also commissioned an economic impact study from Los Angeles Economic
Development Corporation. LAEDC estimates that the Measure RILRTP transit
construction program would generate 165,990 annual full-time equivalent jobs
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over 30 years. By compressing the schedule as in 30/10, this would average over
16,000 jobs annually over the next 10 years.
Project Delivery Capacity
MTA would have to undergo re-organization to successfully deliver the 30/10
program by building in-house planning, finance, and construction management and
oversight capacity and/or relying more heavily on the private sector. MTA as
currently organized would be challenged to deliver either the current LRTP transit
program or the 30/10 program.
MTA management is undergoing an organizational readiness assessment and
changes will be made to prepare for LRTP implementation, even without 30/10.
30/10 would increase the needed organizational changes.
Protect Costs
The LRTP assumes annual inflation in construction costs. A project built 20 years
from now would cost more than the same project built today. 30/10 proposes to
reduce project costs by building the LRTP transit projects sooner and avoid
inflationary cost escalation. The fallowing table summarizes the cost savings
identified in 30/10 by Mayor Viilaraigosa's staff. The 30/10 cash flows are simplified
and assume equal expenditures over afive-year construction period for most
projects, which differs from the more detailed project cash flow needs MTA staff
used in developing the LRTP. To be successful, we believe that the projects in
30/10 need to be fully analyzed in our comprehensive LRTP travel demand,
financial, and economic models. Only this comprehensive modeling will reveal the
order of magnitude of travel time, air pollution, financial, and economic impacts
necessary to close the deal with the FTA and the public. Having said this, we are
not recommending that 30/i0 idea be held-up until we finish these analyses.
Instead, we are suggesting that we move forward and develop this data for the final
push to close the deal.
Attachment A presents a discussion of issues affecting the costs of projects and
potential revenue sources.
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Cost Estimates ($ Millions, beginning FY 2010}
_Project LRTP 30110 Variance
San Fernando Valley North-South Canoga 212.2 212.2 -
Exposition-Phasell 1,292.4 1,292.4 -
Gold Line Foothill Extension (from Pasadena) 836.0 778.0 (58.0)
East San Fernando Valley North-South Corridor 168.1 168.2 0.1
Crenshaw-LAX 1,709.7 1,641.0 (68.7)
Regional Connector 1,067.0 1,074.8 7.8
Subway Extension to Westwood -Segment 1 1,940.9 1,915.0 (25.9)
Subway Extension to Westwood -Segment 2 2,450.0 1,927.6 (522.4}
West Santa Ana Branch 385.0 289,4 (95.6)
Green Line Extension to LAX 330.0 241.3 {88.7)
Eastside Extension from East Los Angeles 2,490.0 1,525.5 (964.5)
Green Line Extension -South Bay 555.0 332.5 (222.5)
Subway Extension to Westwood -Segment 3 1,615.0 955.8 (659.2)
San Fernando Valley I-405 2 468.0 1 380.1 (1 087.9)
Total 17,519.3 13,733:9 (3,785.42)
-21.6%
Subway Extension to Westwood -All Segments 6,005.9 4,798.4 (1,207.5)
10-Year (First Decade) LRTP Transit Funding Assumations
The 2009 LRTP includes $7.5 billion in funding (inclusive of debt financing} for the
12 Measure R &LRTP transit projects between FY 2010-2019:
Source $ Millions
Measure R 35% (Net}* 3,772.4
New Starts 1,598.2
Other Local State & Federal 2 117 1
Total 7,487.7
* Cash + Bond Revenue -Debt Service
Excluding debt financing, the 2009 LRTP includes $5.8 billion in funding over the
same period:
Source $ Millions
Measure R 35% (Cash) 2.648.9 e,c
New Starts 1,598.2
Other Local State & Federal 1 546 8 X11.7 4
Subtotal LRTP 5.793.9 5,-364-.2
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30/10 Capital Funding Assumptions
30/10 assumes $13.7 billion in year of expenditure costs between FY 2010-2019
funded through Measure R 35%, New Starts, and other local, state, and federa!
funds (per the 2009 LRTP) plus new financing.
Source $ Millions
Measure R 35% {cash) 2,648.9
New Starts 1,598.2
Other Local State & Federal 1 546.8 2~-1~~
Subtotal LRTP 5.793.9 6,~64:~
30/10 Financinq_(Net) 7 948 4
Total 30/10 Funding 13.742.3 #4;31-s~:S
Therefore the 30/10 financing cash flow need {FY 2010-2017) is about $8 t~tilliers
billion.
30!10 Onerating &_Maintenance Costs
30/10 does not address the additional operating and maintenance costs associated
with completing 12 transit projects in ten years instead of over the next three
decades. MTA staff will need to quantify these costs and identify for the MTA Board
a series of options to meet for these added costs. Preliminary estimates place the
total annual cost of operating and maintaining the new lines at $250 million or more.
That is the annual equivalent of two or three million hours of transit service. The FTA
has required that reEOrd-ef MTA and its predecessor agencies ~;~ee„~
identify and budget operating and maintenance funds for new transit lines.
Highway Capital Projects
A significant share of Measure R funds is earmarked to deliver projects on highways,
roads and streets throughout the county. Financing of transit projects -whether
under 30110 or not -must not encroach on programmed funding for the highway
program, streets or roads.
NEXT STEPS
Formal adoption of 30/10 implementation would be subject to future acticn by
the MTA Board. Staff will evaluate the approved project delivery method for
each of the projects and make recommendations to the Board. Any project
receiving federal assistance would have to meet sore all federal requirements.
Once federal assistance is secured, MTA would need to follow an iterative
process to determine if the agency could build all 12 transit projects:
1. Start or accelerate planning, environmental, and design work for all
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12 projects, incorporating value engineering efforts in the EIR/EIS process to
avoid expensive project scope additions
2. Seek bids for each project as design work is completed
3. Compare the sum of the costs to date and the bid price to the available LRTP
funding, as (de-escalated per 30!10) plus 30/10 bond proceeds
4. If the price plus construction bond proceeds is less than the available funds,
then MTA would execute a contract
5. If the price plus financing costs is more than the available funds, then MTA
would not execute a construction contract unless the MTA Board identified
other funds to make up the difference
Prepared by: Paul C. Taylor, Deputy Ghief Executive Officer
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Paul C. aylor
Deputy Chief Executive Officer
Arthur T. Leahy
Chief Executive Officer
MTA Position On "30J101nitiative"
ATTACHMENT A
DISCUSSION OF FINANCIAL ISSUES
Construction Market
Recent bids for major public works projects in the region and state have been
sign'rficantly under the engineer's estimate. This is consistent with the overall
macroeconomic climate and indicates a softness in the construction market. While
past bids do not guarantee future prices, there. may be an opportunity to reduce
costs by accelerating MTA's capital program if MTA can receive favorable bids in a
continuing soft construction market.
The following table illustrates the recent cost savings on transportation and other
major public works projects:
A e~?cY Period Variance
Calif~nia C?epertrnent of Transportation (Caltrans) .Jul. 2008-Dec. 2t}tl9 -2£3.2°!~
MetnQpoiitan Transportation Authority (Metro} Jan.2008-Feb. 2010 -21.8°Ifl
City of Los Angeles Bureau of Engineering. Jan. 2008-Mar. 2010 -16.4°!°
Conversely, public agencies were seeing double-digit construction cost growth in
the years before the current economic recession.
An economic recovery may create increased demand for major contractors and
materials at the local, state, national, and global levels. This in turn could create
contractor and material scarcity and increase prices, as well as the cost of
construction.
Risk Analvsis
Both the adopted 2009 LRTP and 30110 have risks that create uncertainty. If the
risks materialize, then both the LRTP (#ransit and highway capital) and 30110
programs would be delayed, downsized, and/or the MTA Board would have to
program additional resources to complete the projects.
Revenue risk -The LRTP is based on assumptions about how
economically-sensitive revenues (e.g. Proposition A, Proposition C, and
Measure R) will grow in the future as well as future state and federal
formula funds and grants. In general, revenue risk increases in future years
due to greater uncertainty (e.g., what will the federal surface transportation
bill look like in 2020?} and higher impact of revenue variances in future
years.
14
Table A illustrates this second point. For example, if revenue was $100
million per year and expected to grow 3% annually, revenue in year 30 would
be $236 million. However, if actual growth was only 2.5%, then year 30
revenue would be $205 million (-$31.0 million/-13.2%). However, the impact
of this same lower growth rate in year 10 would be considerably less (-$5.6
million/-4.3%). Both the LRTP and 30/10 are vulnerable to revenue risk
however, the risk is greater in the LRTP because revenue projections were
made over a longer planning horizon (30 years).
5 2014 112.6 190.4 (2.2) -1.9°~
90 2019 130.5 924.9 (5.6) -4.3%
15 2024 951.3 141.3 (90.0) -6.fi~`°
20 2029 175.4 159.9 (15.5} -8.8%
25 203,4 203.3 180.9 (22.4} -11.I1°~
30 2039 235.7 204.6 (39.0} -13.2°
`otal 4,757.5 4,390.3 (367.3} -7.7°~
2. Cost risk -The LRTP is based on assumptions about construction costs in
the future, i.e., market conditions. As with revenue risk, there is increased
uncertainty in the future. In general, it is more likely that cost estimates in the
next five or ten years are closer to actual bids than estimates for the second
and third decade on the LRTP.
3. Interest rate risk -The LRTP includes $14.3 billion in debt revenue (long-
term bonds and short-term commercial paper) paid through various sub-funds
in Proposition A (35% Rail Development}, Proposition C (40% Discretionary,
25% Highway, and 10% Commuter Rail), and Measure R (35% Transit
Capital and 2% Rail Capital}. The LRTP assumes constant bond interest
rates of 5.5%.
The current bond market has relatively favorable interest rates making it a
good time to issue new debt. In addition, the federal Build America Bond
program provides a 35% interest rate subsidy that would reduce the net
borrowing cost if MTA opted to utilize it.
Current municipal bonds rates (yield to investors) with a AAA rating are
lower than assumed in the LRTP:
15
'fable A - Example of Impact o>~ Gro~t+th Rates on Revenue
Yield for 30-Year [Maturity
f2ating To
d
ay Last
e
e
k Last Y
s
a
r
AAA ~
£
,
4.45°/d gg
E
{~
4.45 f° ~
~(
~
5.t3V Fd
AA 5.'15°/d 5.20% 5:40°ld
A 5.50°fo 5.50°Id 5.80°/d
Source: http://www.fmsbonds.com/Market Yieldslindex.asp, 03/24(10
There is a risk in both the LRTP and 30110 that interest rates will rise in the
future and/or low interest federal programs will not exist. For example, Build
America Bonds are set to expire on December 31, 2010, although it is
proposed to continue at least one more year in President Obama's proposed
budget, albeit at a lower (less beneficial) interest rate subsidy.
if interest rates are higher than assumed in the LRTP, MTA will not be
able to generate as much bond revenue. The exact impact would depend
on the variation between the actual and LRTP interest rates as well as
the total bond revenue assumed for affected projects.
Table S illustrates the impact of interest rates on bond revenue. For
example, if MTA had $100 million in revenue per year to make as an annual
payment over 30 years, a 4°/d interest rate would yield $1.7 billion in bond
revenue. This is $192 million (11.1%) more in one-time bond revenue than a
5% interest ra#e and $353 million (20.4%) more than a 6°/d interest rate.
Ta€sle S - Example of Impact o€ Annsrai Interest Rates on Bortd Reven€re
Annual ate 4% 5°l° 6% 7%
Term (Years} 30 3i1 30 34
P~rnent ($ Mitliorts) 1413.0 100.4 1(10.4 100.0
8csru( Revenue (~ MiNians} 3,72~J.2 1,537.2 1,376.5 1,240.9
~tariance - {132.4} (352.7} (488.3}
~fsriarrce °~ 0.0% -11.1 °lo -20.4°fd -28.2°f°
Proposed Federal Assistance
The exact federal assistance necessary to implement 30110 has not been identified
however, the following options have been discussed:
• Loan Guarantee (TiFIA or similar program) - A federal loan guarantee would
improve the credit rating of bonds, reduce the coverage ratio, and leverage
16
up to 100% of Measure R 35% Transit Capital funds. In the event of a
revenue shortfall, the federal government would pay that amount to
bondholders. The bond market requires a minimum coverage ratio of 1.3,
meaning that for every $100 million of revenue, MTA could only issue bonds
with payments totaling $77 million. The fallowing table shows the impact of
coverage ratios on borrowing:
Revenue ( fvlilfions)
Mlaxirnum Payrr~ertt ($ rufll(iansj
Annual Rate
R~tsxirnu Bond Revenue
100.0 100.0 100.0
100.0 76
.9 5
0
.0
6°l0 +
6°/O /
yy
~..
V°f0
1,376.5 1,058..8 688.2
Interest Rate Subsidy (Build America Bonds or similar program) - An
interest rate subsidy would reduce the net interest rate cost. MTA would pay
market rate interest on bonds, but the federal government would pay MTA a
portion of the interest each year. Build American Bonds generally have a 35%
subsidy, except some expenditure categories have higher subsidy levels, e.g.
qualified school construction bonds have a subsidy of 100%. For example, a
6% bond with a 35% subsidy would have a net rate of 3.9%. MTA would need
a multi-year commitment and program availability through FY 2019 (10
years). MTA would need an interest rate subsidy higher than 35% to afford
paying principal plus interest costs from Measure R 35%, though the exact
subsidy required would depend on bids.
Direct Loan (TIFIA or similar program) - A direct loan from the federal
government would be advantageous if the interest rate was lower than what
MTA could secure in the market. The Transportation Infrastructure Finance
and Innovation Act of 1998 (TIFIA) program currently provides below market
rate loans and deferred repayment, but is limited to 33% of project costs and
is not funded at a high enough level to provide all the financing assistance
.required under 30/10. TIFIA's current rate is 4.59% fora 35-year loan
(http://www.fhwa.dot.gov/ipd/tifia/index.htm, 03!22/10). Modifications to TIFIA
or a new direct loan program could fund some or all of the 30/10 cash flow
needs.
Grants (New Starts, TIGER, or similar program) -One or more federal grants
could fund some or all of the 30/10 cash flow needs. New Starts #unding will
be resolved by Congress during reauthorization of the surface transportation
bill. Transportation Investment Generating Economic Recovery {TIGER)
grants are another potential funding source, but as currently structured could
only fund some of the 30/10 costs in any given year; also, MTA is part of a
Southern California consensus to use TIGER funds for a list of goods
movement projects.
17
Reference Resolution No.
10501 (CCS).