By Rachel Uranga
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Sluggish trade from Asia through the ports of Los Angeles and Long Beach have created financial peril for the once-heralded Alameda Corridor, the 20-mile train expressway designed to speed goods to market.
When it was opened in 2002, the $2.4 billion route connecting the ports to the national train system in downtown Los Angeles was hailed as a job creator, a promising public and private partnership and a key to future success of the ports.
It came in on time and on budget. But now, 14 years later, the line has run into trouble paying for itself and is saddled with $4 billion in debt.
“When we hit the recession, it threw (our assumptions) into a little bit of a tailspin,” said John T. Doherty, chief executive officer of the Alameda Corridor Transportation Authority, an obscure government agency created to maintain and pay for the rail route.
The assumptions went like this: Import volume would continue to rise at a raise of 6 percent as Americans devoured Asian imports that were shipped through the twin ports, and the beneficiary would be ACTA, whose revenue stream is based on user fees.
But when imports lagged, the authority had to borrow $5.9 million from the ports of Los Angeles and Long Beach in 2011 and another $5.9 million in 2012 to meet its debt obligations.
Worrying debt would pile up and the ports would be on the hook for a $200 million advance, the authority reissued nontraditional bonds this spring.
But the borrowing could continue if cargo volumes at the ports don’t continue to rise 4 percent through 2040, as officials have estimated they must to pay for debts. In one scenario, the port of Los Angeles estimates the ports would need to lend another S245 million in the coming two decades.
The corridor is at 25 percent capacity now, moving about 2.3 million 40 foot-cargo boxes filled with televisions, shoes, apparel and other consumer goods every year. But it would need to more than double that percentage by 2035 to cover most of its debt.
How ACTA works
Created in 1989, the joint powers authority brought together the cities of Los Angeles and Long Beach, their ports and Los Angeles County with what was then four rail agencies (now two, after mergers) to make a deal. At the time, rail cars from the port complex ran on different lines and crisscrossed neighborhoods such as Bell Gardens, Lynwood and Carson — holding up traffic, delaying emergency vehicles and polluting the air as cars idled behind rail crossings and spewed emissions.
Everyone agreed it was a headache and all the parties wanted to create a faster, more efficient way for goods to get from the ports to the railyards and on to customers in the Midwest. So the agencies brokered a public-private partnership to build costly infrastructure.
That tactic has come under more intense scrutiny as projects like the George Deukmejian Courthouse in Long Beach saddled California with heavy debt loads.
In this case, the authority gathered the rights of way to build the route and issued bonds. The rails committed to use it and the authority would pay for itself through user fees on shipping containers — now about $47 per container — charged to Union Pacific and BNSF Railway. But the volumes never rose as expected and there were disputes early on as some shippers sought to avoid cargo fees by bypassing the corridor and placing cargo on the route later.
Los Angeles County Supervisor Don Knabe, who sits on ACTA’s governing board, confirmed disputes have erupted between the railroad and the authority over payments in the past, but he said overall the partnership has worked.
Much like homeowners during the Great Recession, the authority found that it had borrowed more than it could pay. Many of its bonds were capital appreciation bonds that grew near maturity in 2017.
Those types of bonds have been under scrutiny because they push debt off toward the end of a loan cycle. The port of Los Angeles’ chief financial officer told the port’s harbor commission in March that if it didn’t issue new bonds to pay for the maturing one, ACTA would be regularly knocking on the door of the ports to the tune of $200 million because, under an agreement with the authority, the ports are required to advance for the any shortfalls.
This spring, with the ports’ backing, the authority issued “scoop and toss” bonds, a method often employed by cash-strapped governments that will allow them to pay off maturing bonds by raising funds through new bonds. It also pushes back the steepest payments, giving the authority some breathing room.
For instance, in 2016 the debt service cost was $74 million, but by 2027 it will be $220 million and by 2035 it will be $292 million.
Doherty said if there is a 5 percent increase of import and export containers through 2026, it “should minimize the need for any further shortfall loans from the ports.” But there is no guarantee.
Last year, the two ports combined experienced modest growth, still not as high as its 2006 peak, when it hit 15.7 million 20-foot-equivalent units, a measure of cargo.
“The biggest risk to all of this is consumers, to the extent people spend on products made in Asia,” Doherty said. In other words, the more clothes, cellphones, and shoes made in Vietnam, China and other Asian countries purchased, the more demand there will be for cargo containers to be shipped to the ports and through the Alameda Corridor.
Final cost unknown
But some critics say the complex financing scheme that was supposed to save money has left communities in the dark.
“How you finance things has an impact. This turns out to be a $4 billion project. It wasn’t sold that way,” said Jesse Marquez, founder of Coalition for a Safe Environment, an environmental justice organization that has been critical of the ports.
The money to pay higher debt loads could rob spending on anti-pollution or other programs, Marquez said, criticizing the railroad companies for not going far enough in its spending on less polluting equipment.
“What’s the real, final cost in all of this?”