Metro sorcerers cast spells over 710 expansion

Image by whatadqr on Flickr

The story of the 710 expansion is one made possible by what can only be described as modern-day sorcery. This time, the standard issue sorcery we use in our long term transportation planning is rushing us headlong into a sobering collision with reality: increased competition through the expansion of the Panama Canal, a wildly unpredictable fuel market due to peak oil, and capital shortages due to the global financial system collapse of 2008.

Compounding the wand waving and sleeve rustling is a plan to expand a freeway that, even in the best case scenario, sends revenue outside of the bounds of the Los Angeles County while keeping billions in debt piled onto the citizens and business located within the county.

The bottom line for bond buyers looking at Metro 710 Corridor Expansion Project? Metro, even in their best case scenario, will be unable to pay off the bond debt with sales taxes. We are not heading into that best case scenario. Therefore, this project is a non-starter for any bond buyer interested in making money for their clients.

Image by Dean Terry on Flickr.

Best Case Scenario Leaves LA County Poor and Sick

Way back in the boom-days of 2005, before the global economy tanked in December of 2008, a group of somebodies at Metro noted a lot of truck and private auto traffic stuffing the 710 freeway full of vehicles and dumping tons of particulate matter into the air nearby.

When a freeway fills with vehicles, our best planners demand the same outcome time and again: build a wider freeway!

Since we are a cash-poor county, unable to come up with a measly $5 to $7 billion in bullion to pay for a freeway widening project, a bunch of “environmental” clearances had to be written to make bond buyers (i.e. the people who would supply the money to build this project) see that these roads were going to allow the county to pay a healthy dividend.

This is how the 710 expansion project, known officially as the “I-710 Corridor Project”, got its start.

At the time, our ports were being flooded with millions more cargo containers than ever before. Metro commissioned a feasibility analysis for the 710 expansion, romantically titled “Technical Memorandum – I-710 EIR/EIS Initial Feasibility Analysis” published December 24, 2008, projecting out to 2035.

The industry measures this flow of goods in TEU’s (Twenty-foot Equivalent Units), basically the amount of 20′ containers that could be filled with all the stuff being brought in.

Metro’s feasibility report proudly announced that container traffic would grow between 87% (“low growth”) to 174% (“high growth”) by 2035. There was no analysis of “no growth” nor one of “negative growth”.

With a growth in container traffic based on boom-time shipping numbers, the analysis projected that population and private automobile traffic would also increase ad infinitum. The result, loudly proclaimed in the feasibility analysis and the official Environmental Impact Report (EIR), was an unstoppable increase in traffic and even more horrible air quality along the 710 (already a zone of increased death, disease, and trauma due to high particulate matter counts from automobile exhaust).

The “solution”? We need to spend billions and build, build, build!

We don’t have the money to build, so what this in turn means is that we borrow, borrow, borrow!

How will we pay for all this building and borrowing? Growth, growth, growth! The 710 expansion is going to bring us growth! But where? How will Metro be able to capture the money it needs to service the debt for the 710 through this “growth”?

You’d think the feasibility analysis would mention that somewhere … since deciding whether something is feasible usually includes the question, “Can we make back enough from this project to pay for the project?”

Well, with all this increased port traffic we’re bound to see lots of new jobs in logistics by 2035.

“[T]he port model and the SCAG model assume that the inland ends of port truck trips will have the same geographic distribution in the future as they do today. This is highly unlikely, since most of these trips today go to or come from warehouse locations in the Gateway Cities and the older warehouse districts in Los Angeles and Orange County. These warehouse locations have limited expansion capability, and future demand for warehouse space is likely to significantly exceed this capacity. The location of new warehouses serving international trade is very uncertain, although what is clear is that it will be some distance inland from the current locations and most likely to the north and/or east of the I-710 study area.”
pg. 6 “Technical Memorandum – I-710 EIR/EIS Initial Feasibility Analysis” published December 24, 2008

In this flowery future from the feasibility analysis things don’t look so flowery for the agency footing the bill for all this growth. Metro gets the lions share of its money from sales taxes in Los Angeles County. New warehouse jobs in San Bernardino and Riverside County won’t buoy Metro’s finances at all.

Perhaps the widened freeway will help the 20th century’s common man, the lowly single occupant car driver along the 710? Maybe the 710 widening will help with development in Los Angeles County overall – you know, increased property taxes, permit fee income, payroll taxes, business license fees, etc.?

“The study area is generally a low growth area as compared to the rest of the region. The communities in the study area are largely older built-out areas without much room for growth […] What is, of course, most striking about forecast traffic growth in the study area is the growth in heavy truck trips, driven largely by port growth. This means that trucks are becoming a much larger share of total traffic over time and because they take up much more roadway capacity per vehicle than autos ), the impact on overall traffic congestion levels will be greater than the overall trip growth patterns[…] Also, since trucks are much less likely to seek alternative arterial routes to I-710 than autos, they will take over more and more of the freeway capacity, diverting more autos to the parallel arterials.”
pg. 14 “Technical Memorandum – I-710 EIR/EIS Initial Feasibility Analysis” published December 24, 2008

This document is supposed to be selling this project to bond buyers, taxpayers, and policy makers? Let’s get this straight: even in the best case scenario, the 710 expansion will flood our freeway with trucks and send job growth to two counties who aren’t even paying for this thing to get built?!

Looking past Metro’s damning findings would require a seriously disengaged bond buying money manager. In Metro’s rosy scenario of near infinite growth, the 710 project will create growth outside of Metro’s financial base and will materially hurt the lives and health of those living within its boundaries with increased particulate matter and more truck traffic.

Let’s look beyond Metro’s feasibility report; let’s look down south, towards the Panama Canal.

Image by Pingouino on Flickr.

Reality Comes Rushing In

At around the same time the port complex in Los Angeles and Long Beach was being flooded with millions more TEU’s of goods, the government of Panama set into motion plans to expand the series of locks, lakes, and channels known as the Panama Canal. A few years later, in 2010 the International Energy Agency (IEA) published its World Energy Outlook, announcing that our supply of conventional oil hit its global peak in 2006. In late 2008 the pyramid of financial industry derivates, credit default swaps, and plain old hustles collapsed under its own weight – taking trillions in wealth along with it.

The 710 corridor expansion cannot pay for itself even in the best case scenario. What we are headed for is not the best case scenario.

In order to keep up with projections in Metro’s reports on the 710 corridor, container traffic would have to grow 3% per year until the year 2035. After the global financial system collapse of 2008, container traffic has flat-lined at around 17 million TEU’s, down about 1 million TEU’s from the peak of 18.5 million in 2008. Despite several years of alleged recovery, even the growth hawks at the ports have admitted that this decade will be one of depressed container traffic.

Experts have predicted that the opening of the Panama Canal in 2015 will divert anywhere between 1% to 25% of container traffic from Los Angeles and Long Beach through the canal to ports on the Gulf, East Coast, and ports in Europe and Africa.

We’re way behind the predicted growth numbers that “justified” (if you can call it that) the expansion of the 710. A global crisis of capital has brought growth at the ports to a halt. Now that the Panama Canal is set to open in 2015, any notions of growth seem like something more than sorcery – moving into the territory of fraud and deception.

Compiled on top of these two problems are the wild fluctuations in fuel prices that make doing business and predicting costs an increasingly complicated and difficult task. Our hyper-complex global economy requires a steady input of oil to keep the trucks rolling, the 1,000 mile cob salad cool, and the boiler rooms selling Metro’s bonds hot.

I asked Metro’s representative in charge of advertising the 710 corridor expansion, Ernesto Chavez, about the Panama Canal, global peak oil, and our messed up financial system. Here is how he replied:

Hello Josef,

Thank you for your interest in the I-710 Project. The Project’s traffic projections are based on regional population and employment growth projections and well as port activity projections developed by the Ports prior to the 2008 recession. These projections also already assume the expansion of the Panama Canal. The Ports re-evaluated their growth projections after the recession and made adjustments. The revised projections show slower growth in Port activity in the next decade, but the 2035 total TEU estimate remains the same: 42.7 Million. In other words, the Ports anticipate to handle 42.7 Million TEUs by 2035, even if growth is slower in the next few years. Since the 710 Project horizon year is 2035, we did not revise the traffic projections being used in the analysis. Let me know if you have any other questions.

Thanks again for your interest.

Ernesto

After a decade of zero, or negative, growth, in the year 2022, Metro expects growth in container traffic in an oil depleted, hyper-competitive, broke, world to zoom up at a rate of 13% (or more) per year from 2022 until the year 2035.

It doesn’t really matter if I like the 710 corridor expansion, and it doesn’t matter if the lay reader or every elected official in Los Angeles County likes the 710 corridor project. We can’t afford it, even in its best case scenario.

What matters is that the group of fund managers, who park hundreds of millions in pension and investment dollars in municipal bonds like the ones Metro is going to issue for this project, decide that Metro can pay back their debts with interest.

Let’s pretend we are one of those fund managers. Metro shows up with a glossy folder with pictures of trucks and cargo containers and tells us that they are going to pay us back with sales tax dollars for a project with a net zero or a negative impact on Metro’s ability to collect sales tax revenue on a project that fills demand for truck lane capacity that will never exist.

They had better arrive at our office ready to cast some serious spells if they think we’re going to buy that.