Los Angeles asks feds for help in borrowing money for transit

Three decades is a long time to wait for a train. So Los Angeles is asking the federal government for help in borrowing $9 billion to speed construction of 12 new mass-transit rail lines, The Wall Street Journal reports. With Washington's backing, city officials say they could make a dramatic improvement to public transportation in just 10 years -- including a dreamy-sounding Subway to the Sea -- after decades of stalled attempts to equip the sprawling metro area with a comprehensive public-transportation system.

If the plan succeeds, it
could create a novel way to accelerate big locally funded projects around the
country.

Los Angeles Mayor Antonio
Villaraigosa insists the deal presents little risk for the federal government.
The reason: Los Angeles County voters in 2008 passed a half-cent sales tax to
fund the rail project over 30 years. But Los Angeles leaders say it can be done
in 10 if they get the money up front. The city would pay back the loans over 30
years using the sales tax.

The proposal comes at an
unusual political moment. The city of Los Angeles is trying to close a massive
budget shortfall at the same time that Washington is struggling to corral its
own runaway deficit. But the plan has some support in Washington. The federal
government could take some credit for spurring economic growth in a major metro
area without necessarily spending too much money itself.

Los Angeles basically wants
the federal government to help the city get the money up front, either through
guaranteeing bank loans, helping to pay interest on bonds, lending the money to
the city itself, or some combination of those moves. The city can’t issue bonds
on its own to fund the project, officials say, because it can’t guarantee lenders
the amount of revenue that the sales tax will generate.

Los Angeles officials say
getting the project done sooner rather than later would create 165,000
construction jobs over 10 years, rather than spreading the employment gain out
over 30 years. It would also save the city money by getting the work done now,
and not paying what are likely to be higher labor and material costs in the
future; any interest costs on a loan, officials hope, would be eased by the
federal help.

"We’re not asking for
special treatment for L.A., we’re asking for L.A. to be a positive example for
the country," said Los Angeles Chief Deputy Mayor Jay Carson.

After weeks of lobbying for
what he calls the "30/10" proposal in Washington, Mr. Villaraigosa
will make his pitch in public March 11, at a hearing of California Democratic
Sen. Barbara Boxer’s Committee on Environment and Public Works.

City officials say they
have already explored the idea with several big banks, which have laid out
plans for how the loan could be structured, depending on the type and level of
federal support.

While Sen. Boxer and
Minnesota Rep. Jim Oberstar, a Democrat who heads the House Committee on
Transportation and Infrastructure, have voiced support for the mayor’s plan,
obstacles remain. Right now, there is no mechanism in place to supply the type
of up-front funding Los Angeles wants.

 One way to fund the rail project might be through the
creation of a so-called national infrastructure bank — which would offer
low-cost loans directly from the federal government to local governments. But
longstanding plans to create such a bank remain stalled. Another solution could
be a combination of private and federal loans and loan guarantees. That plan
relies on extending the "Build America Bonds" program, begun in 2009
to spur job growth, beyond its scheduled expiration at the end of this year.

The bonds generally carry
higher-than-normal rates, but Washington picks up 35 percent of the interest.
The Obama administration has proposed making the bonds permanent, but reducing
the subsidy to 28 percent. Los Angeles, however, is seeking a much higher
interest-rate subsidy of 70 percent.

Los Angeles’s request might
also be accomplished with administrative tweaks to existing loan programs.

On the other hand, Los
Angeles’s plan might have to wait for the more sweeping changes envisioned in a
massive federal transportation bill that is currently stalled over a $125-billion
funding gap.