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APP 2013 Honors - LAX Connectors

APP 2013 Honors: Joint Financing Strategies for the Metro to LAX Airport Connector Project

By: Jonathan Overman, Gregory Maul, Masashi Sato

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The Los Angeles County Metropolitan Transportation Authority (Metro) is planning to connect existing and planned rail transit to the Los Angeles International Airport (LAX). Additionally, Los Angeles World Airports (LAWA) is preparing to implement a number of major capital projects at LAX, including ground access to offsite projects adjacent to the planned light rail, specified in its master plan. Furthermore, the project has a high profile at the local level, as both the Mayor and the Metro Board are interested in seeing the project initiated. These conditions make the timing for a fixed public transit connection to LAX attractive; however, the actual project alignment and the funding strategy for the airport transit connection, the “Airport Connector”, have not been determined. LAWA asked us to research the funding opportunities on their behalf.

This report outlines the basic alternatives for a fixed public transit connection to LAX and presents an evaluation of the multi-agency funding strategies for each alternative from the perspective of LAWA. In order to identify possible sources of funding, the project team reviewed the literature on transportation finance and studied other cases of ground access projects at airports in the US. We established criteria by which to evaluate each funding source and identified the funding sources that would maximize the benefits and minimize the burden to Metro and LAWA.

The preferred funding strategy for the project depends on the chosen alignment and associated total project costs. We present five alternative projects with differing costs and possible user groups. Potential users of the Airport Connector include those who circulate within the terminal, those connecting between the terminal and an offsite facility, and those who travel between offsite facilities without visiting the terminal. Each alternative contains project components that may be utilized by the different user groups. We believe that the user groups should help determine relative cost share for each agency. There is $200 million earmarked for the Airport Connector through the voter-approved Measure R, a local sales tax passed in 2008. Those funds are available for any of the project alternatives. Additionally, Metro suggests that an additional $130 million will be available for the project through federal and local sources. The remaining project costs must be covered by LAWA or Metro, or a combination of sources from each agency. From LAWA’s perspective, any additional funding that Metro can contribute will allow LAWA to prioritize other airport development projects. Metro is responsible for disbursing a variety of federal, state, and local funding sources, and would therefore need to shift funds away from other projects to program more than $330 million to the Airport Connector project.

For its share of the costs, we recommend LAWA seek sources from which few other projects at LAX could be funded, sources with flexible funding amounts, and sources with a low cost of capital. With low interest rates on external financing sources and the ability of LAWA to bond against future revenue, we recommend borrowing as a way to accelerate the project timeline and smooth the future cash flows. We recommend that LAWA apply for a federally supported Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. To the extent possible, we recommend raising the Customer Facility Charges for rental car customers and bonding most of this future revenue stream.