Upgrading Los Angeles' transport infrastructure: taking the measure of Measure M

In October 2016, the Los Angeles County Metropolitan Transportation Authority (LA Metro) published its Proposed Ordinance #16-01: 'Los Angeles County Traffic Improvement Plan'¹ (known as "Measure M").  

Measure M proposed to residents of Los Angeles County (LA County) a comprehensive approach to transportation within LA County by upgrading existing infrastructure (and allocating more funding for its maintenance) and developing a range of new transit options, including subway lines, bus rapid transit, light rail and highways. If implemented, Measure M would require an increase in LA County sales tax of half a cent, which would provide an expected $120 billion in project funding for transportation infrastructure over a 40-year period. In November 2016, LA County voters approved Measure M by a supermajority of 71.15 per cent.

Introduction

Measure M, and LA Metro’s associated Program Management Plan² (Program), is an unprecedented opportunity for the private sector to participate in the development of a transportation system which will revitalize transport, relieve traffic congestion, reduce pollution and spur economic development in the most populous county within the US.

For infrastructure projects, certain factors often stand out as good indicators of success. Large-scale infrastructure projects attract attention from a range of stakeholders, including the affected community, local, state and federal political forces, and private sector entities, each of which will have different criteria by which to measure whether a project "works" for them. The most successful programs address concerns from all these different perspectives. Critical considerations include:

• community support, political support, and private sector interest;
• sufficient long-term funding;
• well-defined program-wide goals and procurement strategies;
• projects which legitimately serve the public, align with the goals of the program and are marketable;
• the ability of the procuring authority to evaluate options and progress (often through the appointment of specialized advisors); and
• alignment with other local, state or federal government goals.

This article will examine how LA Metro's Measure M embodies each of the above, and why this creates a genuinely unprecedented opportunity for potential business partners.

Measure M’s development – reflecting public interest

The genesis of Measure M exemplifies the public and political support in LA County for improved transportation. Los Angeles traffic is no myth: LA County currently has 10.2 million residents, and they spend an average of 81 hours per year stuck in traffic. LA County’s population had been expected to grow by 2.3 million over the next 40 years, and traffic congestion and air pollution had been expected to become increasingly worse in line with that growth.³ Measure M is designed to raise the funds necessary to address LA County's serious transportation, congestion and pollution issues and simultaneously to stimulate the local economy (including creating an estimated 465,000 jobs over that 40-year period).  

Measure M is not LA County’s first ballot measure to propose an increase in sales tax to fund transportation infrastructure. In 2008, LA County residents voted to approve "Measure R", which passed with 67.22 per cent support. Measure R is also a half-cent sales tax which uses the ring-fenced revenue generated to fund transportation projects. Measure R is expected to generate $40 billion over its 30-year lifespan. ⁴ It is set to expire in 2038, at which point Measure M will increase from a half-cent to a full cent sales tax, effectively extending Measure R to run concurrently with Measure M until it expires in 2057.

Procuring authorities can struggle to accurately evaluate public perception of an infrastructure project or program. Public outreach requires time and resource, and its ability to predict or forestall troublesome public opposition is limited. Ballot measures, which are permitted in approximately half of US states, are one way for governments to clearly evaluate the public perception (and fate) of a proposed project. Bolstered by success at the polls, LA Metro can comfortably consider Measure M to enjoy support from most of LA County’s voting public, with even broader support for transportation improvement generally. In less than ten years, residents of LA County have twice elected to pay higher sales taxes in exchange for proposed transportation infrastructure development.  

The success of Measure R and Measure M is even more significant as a window into public perception when one considers the volume of information about Measure M which was made available to voters before election day. A ballot measure’s success is more indicative of shared public goals if there is substantial and clear available information, especially on long-term goals and effects. Before LA County voters decided on Measure M, they were able to review the proposed ordinance and the Program, including its administrative structure and a list of projects, future transit maps, groundbreaking and expected opening dates, cost estimates and expenditure allocations. After Measure M passed, Los Angeles Mayor Eric Garcetti (who recently began his second term as Chairman of LA Metro’s Board of Directors (LA Metro’s Board)) described voters’ response as "a mandate to build a better transportation system and a more connected regions."⁵

Oversight and accountability

LA County’s support for Measure M was not, however, a blank check to deliver projects. Measure M’s success was based on LA Metro's explanation of how Measure M and all aspects of project delivery would be administered, including procedures for ensuring that projects followed a timeline and budget and were subject to independent review. LA Metro’s Board recently selected the first members of Measure M’s Independent Taxpayer Oversight Committee (ITOC). Mayor Garcetti embraced LA Metro’s "responsibility to realize [Measure M’s] vision", and praised ITOC members as "an outstanding group of experts, and I am confident that their guidance and oversight will help us fulfill Measure M’s promise."⁶ 

The ITOC is a key part of Measure M’s administration, explicitly required under the Measure M ordinance. The ITOC must have seven independent committee members who reside in LA County and must meet at least four times per year. Measure M also prescribes minimum requirements for each of the seven members, requiring LA Metro’s Board to select: (1) a retired federal or state judge, as well as industry professionals with at least ten years’ experience in their specialist fields, namely: (2) municipal/public finance, (3) transit, (4) financial management, (5) construction management, (6) transportation architecture or engineering and (7) senior level private sector management. The ITOC provides enhanced accountability for sales tax revenue expenditures, both made and planned, through the Program. It must approve the Program’s scope of work, review any proposed debt financing, direct audits and report on those audit results to LA Metro’s Board and to the public.

The fact that the oversight role undertaken by the ITOC was part of Measure M’s founding principles (i.e. not implemented as a reactionary measure) provides reassurance to LA County residents that their tax dollars are being spent judiciously from the Program’s outset. In addition, interested private sector parties can be confident that a project’s status will be clear and regularly updated, as the ITOC is required to provide annual audit reports and periodic comprehensive reviews of LA Metro’s Program, both of which cover allocation of project funding. Among other benefits, regular audits and reporting allow interested parties to assess the viability of individual projects: without this transparency, projects can appear to lose funding or support overnight, which can chill private sector confidence and interest in future projects. And while the ITOC has not yet begun directing audits or releasing reports, LA Metro regularly releases updates on its website and communicates with industry publications.

Unsolicited proposal policy

Another prominent feature of Measure M is its policy of embracing unsolicited proposals from the private sector. While LA Metro is not the first procuring authority to accept unsolicited proposals, it has made receiving and effectively evaluating unsolicited proposals a fundamental part of its innovative project delivery strategy under Measure M, particularly through its publication of a well-developed, comprehensive guide to unsolicited proposals and public/private sector engagement (Proposal Policy)⁷ and by setting up an Office of Extraordinary Innovation (OEI).

LA Metro released its Proposal Policy in February 2016. This describes the two-phase process through which the OEI⁸ will receive, evaluate and (potentially) approve unsolicited proposals. Interested parties must first submit a conceptual proposal, and if the conceptual proposal satisfies the Proposal Policy’s evaluation factors, the interested party must then submit a detailed proposal in accordance with the Proposal Policy’s technical and financial requirements. The Proposal Policy also includes a "Conceptual Proposal Form" and a "Contractor Pre-Qualification Application" (for both construction and non-construction projects), both of which are procurement forms generally only issued with a request for qualifications (RFQ) or request for proposals (RFP) for projects which are already defined. 

Unsolicited proposals have a mixed history in US infrastructure projects. There are clear benefits to both the public and private sectors in inviting unsolicited proposals, but certain challenges persist, to which authority-solicited projects are usually immune. Procuring authorities benefit most directly from unsolicited proposals through private sector parties identifying projects (or types of projects) likely to attract private investment. Unsolicited proposals also introduce far more potential projects than a procuring authority could develop on its own. Private parties often suggest technical and financial innovations, and a proposal with a private sector perspective may spur commercial interest more than government-issued solicitations. Projects that start as unsolicited proposals can also benefit from less political opposition than authority-solicited projects, as politicians can sometimes oppose projects solely on the basis that the project was developed by (or is associated with) the opposing political party, whereas unsolicited proposals have no such party affiliation.

Conversely, unsolicited proposals can fall foul of regulatory requirements, including environmental review and permitting processes, whereas projects developed by an authority are not, as a general rule, developed in any great detail if they are unlikely to comply with these requirements. In addition, authorities receiving unsolicited proposals may not have the legal authority to procure the proposed project. Unsolicited proposals may also be stifled if the authority lacks the funding, staff or internal support (or any combination of these) necessary to procure, or even review, the proposed project. Authority staff may also be more equipped and better motivated to support a project which they themselves developed, in contrast to a project proposed by an outside, private party, about which authority staff will be less knowledgeable and have less of an investment in.  

Just as clear evaluation criteria and submittal requirements benefit both bidder and grantor in a procurement at the RFQ or RFP stage, LA Metro’s development and release of the Proposal Policy helps make unsolicited proposals more valuable, and helps private parties to evaluate whether to submit an unsolicited proposal or not. Clear expectations on both sides also mean that the OEI is also better prepared to review and compare such proposals. By reviewing the Proposal Policy and the Program (and in light of the support from LA County residents), interested parties can prepare proposals which satisfy Measure M’s requirements and align with community goals, reducing the potential for cancelled projects, such as Florida’s SR 54/SR 56 Corridor. SR 54/56 advanced as an unsolicited proposal through an RFP process, resulting in the submission of a final bid. The project was cancelled soon afterwards, however, because the final bid, like the initial unsolicited proposal, faced substantial opposition from the community and because the proposer was unable to agree terms with the authority.

Public-Private Partnerships

For LA Metro, unsolicited proposals are especially important in determining projects with the potential to be delivered as public-private partnerships (P3s). Before Measure M was introduced, LA Metro and its consultants had identified six projects as initial candidates for P3 (Crenshaw/LAX Transit Corridor; Purple Line Extension; Regional Connector Transit Corridor; SR-710 North Gap Closure; High Desert Corridor and I-710 Corridor). LA Metro’s Chief Innovations Officer, Joshua Schank, has described LA Metro’s evolved approach to identifying P3 projects under Measure M as "unique", explaining:

"[t]he traditional project delivery approach is to define a project and invite the private sector to bid on it. The public agency tells the industry what it needs and lays out the parameters, and then proposers design a project scheme to fit it. This approach can be very effective in ensuring that we end up with the project requested, but it does not leave much room for the industry to bring ideas and innovations forward. Instead of starting with the project end in mind, at LA Metro we are starting with the outcomes and performance objectives, and leaving the development of the solutions to the private sector." 

LA Metro’s Program stresses that projects should be delivered using the most appropriate delivery method. So far, LA Metro has only used design-bid-build (DBB) or design-build (DB) methods, although the Program also describes the benefits of both design-build-operate-maintain (DBOM) and design-build-finance-operate-maintain (DBFOM) approaches. In these delivery methods, the procuring authority runs a competitive bid process, usually including discussions regarding bidders' technical, legal and financial competence. The procuring authority finally selects a successful bidder, and that bidder's integrated team (operating as a single legal entity and contractual counterparty to the authority) is responsible for designing and constructing the project, and subsequently operating and maintaining the completed project (with a DBFOM structure, the private entity also provides project financing). LA Metro’s Program notes that DBFOM offers "further risk sharing and financial support that may enable projects to be started sooner". The official guidelines for Measure M (Guidelines), adopted by LA Metro's Board in July 2017, also cite the benefits offered by P3 projects, specifically listing P3 as a potential solution when projects have been delayed by funding deficiencies, environmental issues, litigation or other issues.

LA Metro has advanced four unsolicited P3 proposals to Phase II evaluation: (i) proposals from each of Skanska USA Civil West and Kiewit Infrastructure West Co in respect of the West Santa Ana LRT and (ii) proposals from each of Cintra US Services and Parsons Transportation Group in respect of the Sepulveda Pass Transit Corridor. Following review, LA Metro may decide to issue wider RFPs in respect of one or more of these unsolicited proposals.

LA Metro declined to advance a proposal submitted by Dragados for the West Santa Ana LRT, explaining that the financing proposed would affect other LA Metro projects, which is unacceptable under the terms of the Proposal Policy. While there may initially have been some negative reaction to LA Metro’s decision not to take the HDR proposal further, the long-term implications of this decision are positive, in that LA Metro followed its own Proposal Policy and required all unsolicited proposals to demonstrate sufficient innovation, project acceleration or cost savings (or a combination of these) at Phase I, thereby affirming its commitment to preserving the Measure M budget over its 40-year term and prioritizing the viability of its currently defined projects.  

In late September 2017, LA Metro announced that (based on unsolicited proposals received) it intends to issue RFPs for three projects which will advance as P3s¹²: the Sepulveda Transit Corridor, the West Santa Ana Branch Transit Corridor and an expansion of LA Metro's ExpressLanes network.  Given the sheer number of projects remaining to be procured under Measure M, and LA Metro’s openness to private sector proposals on P3 development, LA Metro could quickly become the single largest source for viable P3 projects in the US.

Projects and funding

Measure M is expected to generate $120 billion over 40 years (measured from FY 2018 – FY 2057). Over that period, the major expenditure categories and levels of funding will be: (i) $32.29 billion for transit operations and maintenance; (ii) $44.25 billion for transit construction (including airport connections and countywide bus rapid transit); (iii) $22.72 billion for highway construction, and (iv) $20.33 billion for local projects and transit services.

Los Angeles County Transportation Expenditure Plan

(2015 $ in thousands)

Certain key projects

In February 2017, the office of California Governor Jerry Brown published a list of 51 "priority" infrastructure projects, three of which are part of Measure M (i.e. Westside Purple Line Extension; Orange Line BRT and the Airport Metro Connector). The lists below highlight certain priority projects for: (1) LA Metro; (2) the private sector; and (3) both LA Metro and the private sector.

LA Metro priority projects 

• Airport Metro Connector Terminal on Green Line¹³

− To provide a connection to Los Angeles Airport and the developing Automated People Mover Project 
− Target completion date 2024
− Key project for Los Angeles's hosting of the 2028 Summer Olympics 

• Gold Line Foothill Extension to Claremont¹⁴

− Part of Phase 2 of the Gold Line Foothill Extension (Phase 1 opened March 2016)
− Preliminary engineering began Summer 2014 
− The construction authority is preparing the project for design-build procurement and anticipates breaking ground in October 2017

• Bus Rapid Transit Connection from North Hollywood Red Line Station to Gold Line in Pasadena¹⁵

− LA Metro reviewed a technical study of two possible alignments in February 2017 

•  I-710 South Corridor (Phase 1)/(Phase 2)¹⁶

− LA Metro plans to identify its Preferred Alternative in mid-2017 and complete final Environmental Impact Report (EIR)/Environmental Impact Study (EIS) in late 2017

• High Desert Corridor¹⁷ 

− EIR released late 2014. Preferred Alternative identified in July 2015

• SR 710 Gap Closure¹⁸ 

− Study funded by Measure R. Draft EIR/EIS has been released 

− As of August 2014, the project had been under study for several years, and LA Metro has cited "significant local concerns" about this project and wants to select a locally preferred alternative 

Private sector priority projects

• Managed lanes (unsolicited proposal from Goldman Sachs)¹⁹

− Proposal for a regional network approach to develop and manage LA Metro's High Occupancy Toll (HOT) lanes 

• Financing Mechanism (unsolicited proposal from Parker Infrastructure Partners)²⁰  

− This proposal would provide LA Metro with flexibility to fund projects in different stages of development; contents remain confidential 

LA Metro and private sector's aligned priority projects

• Sepulveda Pass Corridor²¹ 

− LA Metro has moved two unsolicited proposals to Phase II review and will determine whether to issue an RFP for the projects following its review
− In April 2017, LA Metro sought a consultant to conduct a 14-month study of transit modes. The deadline for the feasibility study has since been extended

• West Santa Ana Branch Transit Corridor²² 

− LA Metro has moved two unsolicited proposals to Phase II review and will determine whether to issue an RFP following its review 

• West Side Purple Line to Westwood/Veteran's Administration Medical Center²³ 

− An unsolicited proposal submitted by Skanska did not advance
− LA Metro still intends to begin construction in 2018 ²⁴

• Orange Line Conversion to Light Rail25

− LA Metro received an unsolicited proposal for the project from Fluor Enterprises in March 2017 and will now assemble a Phase 1 review team to evaluate the financial and technical merits of the proposal 

A general upward spiral

Given how Measure M has progressed to date, there is strong evidence that LA Metro has proactively addressed (or has prepared as best it can for) several areas of potential challenge which have delayed other projects, or stopped them in their tracks. Few projects or programs have established such significant long-term funding, favorable public perception, early private sector involvement, clear program-wide goals, well-defined administrative roles, fiscal restraint and independent oversight mechanisms, especially from the start. Measure M is also well positioned to succeed for a number of additional noteworthy reasons, as described below.

LA Metro is committed to investing in specialized, highly-qualified advisors, a commitment that many procuring authorities do not make until much later in the process. The Program includes "utilization of outside consultants" in its strategic initiatives for program staffing, with outside consultants set to comprise approximately 50 per cent of staffing levels (and up to 70 per cent for the crucial early stages of projects). The OEI will play a significant role in managing consultant advisory services, which is appropriate given the OEI's role in relation to "innovation, unsolicited proposals and public-private partnerships." LA Metro's clear commitment to staffing Measure M with additional and more specialist advisors (recognizing that it cannot simply rely more heavily on its existing advisors) sends an encouraging message to potential private investors.  

LA Metro is likely to benefit from federal funding for infrastructure projects. While President Trump has yet to release his administration's national infrastructure plan, the details currently available bode well for LA Metro. His administration have stressed that federal infrastructure funding will be focused on promoting development at a local level, achieving the president's $1 trillion figure for infrastructure investment by using $200 billion in federal money to attract $800 billion from local governments and private investors.26 Federal grant programs have also been revised in conjunction with the new INFRA Grant program, all to incentivize investment in infrastructure from private investors, local governments or a combination of the two.²⁷ One well-placed source has specifically cited LA Metro and Measure M as an example of how this could work, explaining that LA Metro could combine federal money with funding from both Measure M and the private sector.²⁸ 

For LA County residents, most Measure M news has been good news. The recent news that Los Angeles will host the 2028 Summer Olympics has only increased focus on the need for improved transportation infrastructure.²⁹ Given public demand for a comprehensive transportation system, LA Metro will be closely scrutinized for its ability to stay the proposed course for Measure M, an achievable goal with an interested community and a twelve-digit budget.