Jack Humphreville of CityWatch discusses the near crippling level of debt that plagues the railway connection between LA and its ports.
The Alameda Corridor is a well-managed public private partnership between the Ports of Los Angeles and Long Beach and the Union Pacific and Burlington Northern Santa Fe Railroads that has resulted in massive transportation efficiencies and savings. At the same time, countless backups at surface street railroad crossings have been eliminated and truck traffic on our congested freeways has been reduced by over 10,000 trips a day. This has resulted in significant reductions in pollution and greenhouse gas emissions.
Yet for all of the efficiencies of this 20 mile rail expressway that connects San Pedro to the downtown rail yards that serve as a gateway to the rest of the country, the finances of the Alameda Corridor Transportation Authority and its $2.2 billion of assets are upside down, relying on the credit of the Ports of Los Angeles and Long Beach to back stop this highly leveraged financing vehicle.
Over the past year, the Authority has raised over $330 million in new money, including a very successful $248 million public offering of bonds in January. These funds were used to refinance existing debt which allowed the Authority to defer almost $100 million in principal repayments over the next seven years.
However, these bonds are backed by an insurance policy with Assured Guaranty, a multibillion insurance company that is relying not only on the operating performance of the Alameda Corridor, but the partial guarantees of the two ports.
The reliance on the credit of the two ports is understandable since the Alameda Corridor’s operating cash flow before depreciation of almost $90 million does not cover the interest expense of almost $120 million, resulting in an unacceptable interest coverage ratio of only 75%.
This annual shortfall was offset by deferring over $55 million in cash interest expense through the prior issuance of zero coupon bonds, a financing technique that has come under considerable criticism because they are considered weapons of mass financial destruction that will burden future generations with mounds of debt.
This annual shortfall has resulted in an ever increasing amount of debt. Since 2004, total debt has increased from $1.9 billion to $2.2 billion at the end of fiscal 2012, an amount that is 25 times the Alameda Corridor’s operating profit before depreciation. This debt burden includes almost $500 million in accrued interest that has accumulated through the use of these funny money financing instruments cooked up by fee mongering Wall Street wizards.
It is time to end this shell game of deferring over $50 million of interest payments a year and the serial refinancing of outstanding debt, all of which result in an ever increasing debt load that will haunt future Angelenos and decrease their standard of living.
Rather, the Ports of Los Angeles and Long Beach need to develop a financial plan that provides additional revenue to the Authority so that it has the financial resources to pay its interest in full and to reduce the absolute level amount of debt to a more reasonable level over the next ten years.
While the management of the Ports may protest that this may increase their cost structure in the very competitive shipping business, it is not fair to burden the future generations with current obligations. As it is, the our City has done more than its fair share by sticking our children and grandchildren with $30 billion in unfunded pension liabilities and deferred maintenance on our streets, sidewalks, and the rest of our failing infrastructure.
It is time to face reality and stop kicking the damn can down the road to insolvency.