The Republican-sponsored tax legislation moving through Congress has sparked alarm among Southern California transportation officials, who say changes to several lesser-known tax deductions could slow the renovation of Los Angeles International Airport and L.A. County’s ambitious plan to build more than a dozen new rail lines over the next four decades.
“This will mean more traffic,” Los Angeles Mayor Eric Garcetti said at a news conference this week at the Metropolitan Transportation Authority headquarters in downtown Los Angeles. “Next time you’re stuck on the tarmac at LAX, thank the Republican tax bill ... because that’s what it’s going to do.”
The House has already passed a version of the tax bill, and the Senate is considering a separate bill this week. California Sens. Dianne Feinstein and Kamala Harris oppose the plan.
Here are three of the proposed changes in one or both versions of the tax-cut legislation that transportation officials say could hamper Southern California’s infrastructure goals:
Changes to bonds
The House version would eliminate private activity bonds, a financing tool that helps developers and non-profit organizations borrow at low interest rates typically reserved for government agencies.
The bonds are sold by governments on behalf of the private sector, and are frequently used to finance infrastructure projects, including affordable housing developments and toll roads. Income from the bonds is tax-exempt, meaning investors are willing to accept lower interest rates.
Eliminating the bonds would save the federal government about $39 billion over the next decade, according to a summary of the House bill. The current Senate version would not eliminate them.
Experts, including the American Public Transportation Assn., a trade group, have criticized the proposal. Eliminating the bonds runs contrary to a Trump administration initiative to attract more private-sector investment to repair the country’s crumbling infrastructure, they say.
“It doesn’t make a lot of sense for Republicans to have chosen this particular program to cut,” said Darien Shanske, a UC Davis law professor who specializes in taxation and local government law.
LAX officials plan to use private activity bonds to fund key aspects of a $14-billion airport expansion and renovation, including a new concourse and a rail connection to the central terminal area that officials say must be finished before the 2028 Summer Olympics.
Without the deduction, the airport overhaul could cost at least $500 million more in interest payments, Los Angeles World Airports officials said. The higher cost could force the city of Los Angeles to reduce the project’s scope, Garcetti said, adding: “We’re not going to be able to afford to do as much.”
The same bonding strategy would play an “essential” role in a plan Metro and Garcetti announced this week to accelerate the construction of major infrastructure projects in time for the Olympics, said Raffi Hamparian, Metro’s director of federal affairs.
The lines are partially funded through Measure M, the half-cent sales tax Los Angeles County voters approved last year, but the tax does not provide enough funding to finish the line in time for the Olympics without outside investment.
Transportation officials say they hope private companies could pay for some construction costs, in exchange for something — most likely, a cut of the revenue from the projects. Private activity bonds would be essential to making the partnership attractive, Metro said.
The House and Senate bills would also bar agencies from repaying bonds ahead of schedule. In the last five fiscal years, Metro has paid back more than $300 million in debt early, saving more than $40 million in interest payments.
Transportation costs are the second-biggest expense for most U.S. households, according to federal labor statistics. The tax code encourages employers to defray some of those costs by giving workers lump sums for commuting costs, or by allowing employees to pay for commuting expenses with pre-tax income.
Companies that offer commuter benefits can deduct those costs as a business expense, with a cap of $260 per month per employee. The House bill and a version passed by a Senate committee earlier this month would eliminate the employer deduction.
Southern California officials say the deduction makes transit a more competitive option in the traffic-choked region.
The employer tax write-off is “the cornerstone” of Metrolink’s efforts to encourage transit ridership among the employees of Southern California’s biggest companies, said Whitney O’Neill, Metrolink’s director of governmental affairs.
About 17% of the agency’s annual revenue comes from a corporate partnership program that encourages workers at major employers like USC, Disney and the Children’s Hospital of Los Angeles to buy tickets and transit passes, the agency said.
Metrolink officials say they’re not sure what effect the elimination would have on ridership or on ticket sales. But the current tax deduction helps “take cars off the freeway,” Metrolink Chief Executive Art Leahy said. The majority of Metrolink riders own a car, he said, and could choose to drive to work if taking the train were more expensive.
Another proposal in the Senate bill would eliminate a benefit that reimburses up to $20 per month in expenses for people who bike to work.
Alternative fuel tax credit
Every year since 2005, Metro has received about $18 million per year in tax savings for buying and operating a largely gasoline-free fleet.
The tax credit that rewards Metro for its more than 2,400 compressed natural gas buses was created in 2005 and expired at the end of last year. Those savings typically go back to Metro’s operating budget, paying for expenses such as fuel and janitorial services.
In a letter to Rep. Linda Sanchez (D-Whittier), who sits on the House committee that oversees tax legislation, Metro Chief Executive Phil Washington asked lawmakers to extend the program.
Washington also urged an extension of the credit for agencies that run electric buses. This year, Metro’s board bought 95 electric buses that will go into service over the next five years.