Debt load weighs on Alameda Corridor


The ports of Los Angeles and Long Beach are a cargo powerhouse, handling about 40% of the country’s imported goods and making possible hundreds of thousands of well-paying freight-related jobs.

Such a record would be impossible if not for the Alameda Corridor, a $2.4-billion engineering marvel that allows freight trains to travel the 20 miles from the ports to the transcontinental yards near downtown Los Angeles in 30 minutes, compared with four hours previously. With the help of the rail expressway, the twin ports moved nearly 16 million containers at the height of the international trade boom in 2006, up from 9.7 million in 2001, the last full year before the corridor opened.

“Without the Alameda Corridor, it just wouldn’t be possible to handle that much cargo,” said Jack Kyser, an economist with the Southern California Assn. of Governments. “The freeways and surface streets outside of the ports couldn’t handle the burden, and you would have containers stacking up at the ports and lines of ships offshore waiting to load and unload.”


But for all of its prowess in speeding up the flow of the nation’s Asian imports, the rail route may become a financial burden for the ports it was supposed to help.

The corridor was intended to pay for itself through user fees on each shipping container, and for many years the setup worked, even generating a financial surplus. But port cargo is down sharply from its 2006 peak because of the worldwide recession, and the payments on debt that was taken on to build the route will rise — sometimes steeply — through 2033.

“Until two years ago, we were on track, no pun intended, to have the traffic we needed,” said Los Angeles City Councilwoman Janice Hahn, who also serves as chairperson of the seven-member Alameda Corridor Transportation Authority Board, which oversees the rail route.

“We were going to triple the amount of cargo we received. We weren’t going to be able to handle the growth. My, how a few years have changed that outlook.”

The Alameda Corridor Transportation Authority hopes to refinance about a third of the debt, or $550 million, with a federal loan. If the government lends only part of that amount or none at all, the authority would sell new bonds with later maturity dates and use the proceeds to buy older bonds that mature sooner. If that solution fails or is delayed, officials will have to ask the ports for loans, or “shortfall advances,” by October 2011.

At the Port of Los Angeles, Executive Director Geraldine Knatz dutifully says that “we stand ready to help” if the corridor authority runs out of options. But port officials want to avoid the payout after slashing their budgets and reining in job-producing projects.


“This will put pressure on the budgets of the ports at least until this recession is finally over and done with, and that is taking a lot longer than anyone thought,” said John Husing, an international trade expert.

“If you’re lucky, recession recoveries look like a ‘V’ on a chart, quickly down and quickly back up. This one is starting to look like an ‘L,’” staying down a long time.

In 2009, the recession caused cargo traffic at the ports to drop nearly 17.5% compared with the year before, to 11.8 million containers, the lowest total since 2003. So far in 2010, the ports have seen more business but not nearly enough.

In 2007, the corridor collected $96 million in revenue to cover debt payments. In 2009, its revenue fell to $76 million. Through June, revenue had climbed 10% above the same period a year earlier but was still running 15% below what the corridor earned in 2007. And the surplus amassed during better years is running out.

The corridor authority’s payments on debt principal and interest will jump to $117.1 million in 2012 from $102.5 million the year before. The tab keeps rising so that in 2033 the corridor will need to handle twice the cargo it received in 2009 to make $198.6 million in debt payments — an unlikely prospect.

Underscoring the difficulties, Moody’s Investors Service in February downgraded the ratings on $1.7billion in Alameda Corridor Transportation Authority bonds and put the bonds on its watch list for possible further downgrade.

“At the time that it was built, they were expected to comfortably meet the debt-service requirements with natural cargo growth,” said Baye B. Larsen, a Moody’s public finance group analyst who tracks the Alameda Corridor. “They are now going into a period of debt-service growth from a much-lower-than-expected revenue level.”

John T. Doherty, the corridor authority’s chief executive, said the ports would have to experience annual cargo growth of 15% to 17% “to make all of this go away.... That’s not going to happen.”

He said long-term forecasts are for a 5% growth rate.

Doherty said he hoped that the loan application process to the federal government can be completed in just a few months. If not, Doherty said, it should still be possible to refinance by selling the new bonds before October 2011, which would remove the burden of a loan from the two ports. The debt payments would then be much more manageable, he said.

The Alameda Corridor’s woes are just one of the problems weighing on Southern California’s ports.

Husing, an economist who tracks the effect of trade on the Inland Empire, said the two ports had been losing business to competitors. He called the Alameda Corridor’s financial headache another reason that “the diversion of cargo from this harbor to competing ports would be such a serious problem.”

Freight that goes to a port outside of Southern California represents a missed opportunity for the Alameda Corridor, Councilwoman Hahn said.

“When the Alameda Corridor was being built, there were no new ports in Mexico or Canada that would compete with us. There were no plans to expand the Panama Canal to accommodate much larger ships,” she said.

“Now all of those changes are real. We have to be competitive in everything we do. We want that cargo coming here.”

Another challenge facing the Alameda Corridor was never imagined by planners more than two decades ago.

Only about a third of the ports’ cargo traffic moves from ship to train and then through the corridor. The largest percentage of the cargo bypasses the corridor because the containers ride on trucks bound for Southern California delivery or for nearby national distribution centers. These include the sprawling warehouse complexes in the Inland Empire, where the goods are repackaged into lighter domestic containers when retailers need the products.

That mode of freight movement, called transloading, developed as the corridor’s backers worked to get funding as well as approval for the route from multiple jurisdictions.

“Transloading has taken the largest share of the cargo moving through the ports,” said Asaf Ashar of the National Ports and Waterways Institute in Washington.

“The corridor cannot generate more business for itself. It does not work that way,” Ashar said. “The ports will have to try to hold on to their status as the preeminent trade gateway, and that will not be easy.”

Discussions about the need for an express rail route between the ports and the downtown rail hubs date to the early 1980s. Another decade would pass before there was any significant momentum behind the project, propelled by a shift in the nation’s overseas trade focus to the Pacific Rim from Europe.

In 1994, the Los Angeles Customs District, which includes Los Angeles International Airport, topped New York in total trade value for the first time.

The ports of L.A. and Long Beach responded with $4.8 billion in construction and expansion projects, including a man-made island in the middle of San Pedro Bay. The growth spurt would place the neighboring ports among the five busiest harbors in the world.

But port officials and regional planning experts feared that those expensive projects would become useless because of an inland railroad bottleneck. Three meandering rail lines, each controlled by a separate railroad — Union Pacific, which bought Southern Pacific, the owner of the second route; and Atcheson, Topeka & Santa Fe, which would become Burlington Northern Santa Fe, or BNSF — led cargo on a lethargic pace from the waterfront to the downtown rail hubs.

Along the way, the rail lines crossed streets 200 times, causing so many traffic tie-ups that residents referred to the trains as their version of the Berlin Wall. Cars idling at rail crossings added to the region’s pollution problems.

The rail corridor was badly needed to end neighborhood opposition to dockside rail facilities at the ports that would put more of the harbor’s imports on trains instead of on pollution-spewing trucks, said Knatz, the L.A. port’s executive director.

“You could say that the Alameda Corridor was one giant environmental mitigation project,” Knatz said.

The corridor changed everything, making a large portion of the rail route all but invisible at street level because of its main feature: a mid-corridor trench, 50 feet wide and 33 feet deep, that accommodates three rail lines. Overpasses and underpasses took care of the street crossings.

During its eight years of operation, the corridor has handled 31.1 million cargo containers on 132,846 trains and collected $628.5 million in user fees, officials say. An estimated 12,000 tons of pollutants have been prevented because of rail efficiency and the end of traffic snarls along the route.

“There was a lot of market share that we were able to grab because of the Alameda Corridor,” said Art Wong, a spokesman for the Port of Long Beach. “It was essential to our future, and we couldn’t run really long cargo trains without it.”