Los Angeles Infrastructure Development Lags Behind Anticipated Global Trade Demand

Los Angeles is one of the world's great laboratories for mapping globalization's multifaceted dynamics. The region is a premier crossroads for immigrants from the Pacific Rim, Mexico and Latin America. The L.A. area is home for one-fifth of the country's new immigrants. With Hollywood and the multimedia, fashion and design industries, L.A. is a capital of the global entertainment industry, and a leading incubator for global innovation. Yet, Southern California also aspires to be the nation's leading Pacific Rim gateway and a major center for NAFTA trade with Mexico. L.A.'s trade ambitions, and the contributory role of its trade infrastructure, are the focus here.

This study examines Los Angeles' meteoric rise but still uncertain future as one of the nation's leading trade and transshipment centers. L.A. has a reputation as a trade underachiever because its goods exports lag relative to regions such as the Bay Area and Seattle. But its strong service exports and enormous imports warrant its consideration as a major trade center. While L.A.'s sizeable domestic market, large Asian Pacific and Latino communities, and strategic Pacific Rim location all have contributed to its trade prominence, the area's superior trade infrastructure has played a significant, albeit underrecognized, catalytic role.

In the postwar era, L.A. built one of the world's great trade transportation complexes: the Ports of Los Angeles and Long Beach, and Los Angeles International Airport (LAX). Southern California also built major trade corridors such as the landmark Alameda Corridor separated-grade rail system from the ports to the downtown railyards, and the "NAFTA network" of border ports-of-entry and highways linking California to Mexico. More so than most regions, L.A. trades on its superior infrastructure; its other trade development efforts pale in comparison. In the global economy, a world-class trade infrastructure can confer substantial regional advantage by lowering transportation costs that, in a just-in-time economy, now include shipping time and reliability.

Growing Project Challenges

Today, L.A.'s once-vaunted trade infrastructure is under mounting stress. The region's trade is expected to more than double, 2000-2020, further straining an already congested transportation system. In response, local officials launched the nation's most ambitious program of port, trade corridor and airport development. To date, the results of these efforts have been uneven. Port development generally is on schedule, the Alameda Corridor project has been completed, and several major NAFTA (North American Free Trade Agreement) border projects are nearing completion. Yet, other regional rail and highway projects are experiencing severe difficulties and delays. In particular, airport development has languished with LAX Master Plan delays and downsizing, and voter defeat in 2002 of a proposed new international airport at El Toro.

Infrastructure projects now encounter major obstacles. There has been serious erosion in regional leadership, the growth consensus, and public financing. The collapse of the region's once-sturdy growth regime has revealed the soft political underbelly of these projects: they feature concentrated costs-traffic, noise, air pollution-and widely dispersed economic benefits. Given this incentive structure, it is much easier to organize project opponents, particularly nearby residents, than supporters. NIMBY ("Not-in-My-Backyard") community and environmental opposition has thwarted major projects. Since September 11, 2001, there has been a daunting new challenge: to protect ports, trade corridors and airports against terrorist attack. With federal military priorities, a growing national budget deficit, and a massive state budget crisis, the region can expect limited help from Washington and Sacramento. The region now must marshal its political forces ever more effectively to secure its fair share of dwindling transportation dollars.

Given growing regional concerns, what are the benefits and costs of L.A.'s trade involvement and infrastructure investments? Premier gateway regions such as L.A. facilitate both regional and state and national trade. Yet, as Manuel Pastor, Jr., argues, trade can create local strugglers as well as winners. Further, infrastructure investments such as airports generate sizeable dispersed economic benefits (jobs), but in dense, urban environments produce concentrated environmental costs (noise, traffic, and air pollution).

Is Southern California up to the challenge of expanding its global gateways? This study explores the linkages between the region's infrastructure, global trade, economic development and quality of life. It is organized into seven parts. The first section surveys the trade/infrastructure connection, both in L.A. and elsewhere. Parts two through four examine the history, status and pre-9/11 challenges facing the area's major port, trade corridor and airport projects, respectively. We consider (a) Los Angeles/Long Beach port development; (b) the Alameda Corridor rail project and successor rail projects as well as key highway projects (e.g., the I-710 serving the ports and the "NAFTA" network of border crossings and highways); and (c) the LAX Master Plan, El Toro airport proposal, and Inland Empire (San Bernardino/Riverside Counties) airport plans.

The fifth section examines the new challenge of providing security for trade and infrastructure against terrorist attack. The sixth part offers a balance sheet for Greater Los Angeles in terms of the benefits and costs of its trade engagement and infrastructure investments. Finally, we outline a strategy for Southern California trade infrastructure development so that the region can make the most of its global engagement.

Due to its common trade transportation network, Southern California is broadly defined here to include the area from Santa Barbara County to the Mexican border. The Los Angeles/Long Beach port, rail and airport facilities serve as the Pacific Rim transportation hub not only for the five-county L.A. area (Los Angeles, Orange, Ventura, San Bernardino and Riverside Counties), but also for Santa Barbara, San Diego and Imperial Counties, and even northern Baja California. Because of San Diego's limited port and airport facilities, the Los Angeles/Long Beach ports and LAX serve California's trade needs from San Luis Obispo to the Mexican border. Two-thirds of the Golden State's international trade now passes through L.A.'s global gateways. Because the L.A. region generates much of the NAFTA truck trade crossing the California/Mexico border, we also focus upon the border ports-of-entry and connecting highways in San Diego and Imperial Counties.

A STRATEGY FOR SOUTHERN CALIFORNIA

Southern California's ambitious trade infrastructure projects raise a host of complex strategic and policy issues-requiring coordinated action at the regional, state, federal and binational levels-involving project priorities, planning and financing. Should global trade flows be unconstrained, merchandise trade in Southern California is projected to nearly triple, 2000 to 2020, to $661 billion. However, the actual total may be lower than forecast if the region is unable to add sufficient capacity to its trade transportation network. Looming capacity shortfalls, particularly in international air passenger service, along the rail mainlines, on the freeways, and at intermodal rail yards, threaten to substantially diminish the region's trade growth. Here we highlight key strategic issues and, where appropriate, make policy recommendations.

Looming Policy Challenges

The relative status and regional benefits of key infrastructure projects raise important questions about the character of Southern California's global future. There is a growing debate about whether the area can be a major export-based trade center or merely a gigantic transshipment hub-a West Coast New Orleans-with fewer trade benefits captured by the region. To date, the evidence points to the primacy of transshipment. Imports represent three-quarters of the total value of Los Angeles customs district trade-the largest such share in the nation. While many of the region's major transshipment projects-San Pedro Bay port expansion and the Alameda Corridor rail project-are on schedule or completed, its export-oriented airport projects are not.

At the ports, the issue is no longer system capacity but rather achieving greater operating efficiency. Port modernization involving labor-saving technologies is a controversial subject-and the core of ongoing labor disputes. Another contentious issue involves who should pay for enhanced port security. A key port bottleneck is now landside transportation. Cargo leaving the ports by truck is delayed by chronic congestion at terminal gates and the need to relieve heavily congested arterials and freeways, most notably I-710, but also I-605 and SR-60.

Rail cargo fares somewhat better now that the Alameda Corridor has improved rail service to the ports, but challenges remain. Near the docks, more rail yards are needed so that containers can be loaded onto rail. East of the Alameda Corridor terminus, regional rail corridors require capacity upgrades and grade-separation. Inadequate funding could delay these projects for years. The looming political challenge is to assemble powerful regional, state and national goods-movement coalitions to press for scarce federal transportation dollars for trade-corridor projects. The L.A. County Metropolitan Transportation Authority and the L.A. Chamber of Commerce are involved in such a regional coalition-building effort.

Regional leaders need to argue that scarce transportation dollars should be allocated to intermodal projects of national significance such as the Alameda Corridor East rail projects. A similar logic suggests that for these projects, federal funds should be made available to pay an equitable share of local environmental mitigation costs. Port security moneys also could be allocated on this basis. Innovative new revenue sources still will be needed. One intriguing possibility is to reinvest increments of future growth in customs duties in the trade transportation infrastructure upon which they depend. With 45 percent of all U.S. customs duties collected in the L.A. Customs District, it makes sense to use a substantial portion of these revenues for Southern California port and trade corridor projects that will yield greater trade volumes and thus higher customs revenue collections.

Airports: The Achilles Heel

Airports threaten to be the Achilles heel of Southern California's globally-based economy. With their emphasis on the export of locally produced, high value-added goods and services, airports contribute more to the region's economy than do ports. If the region is to become a leading export-based, high-tech trade center, governmental, business and civic leaders need to refocus their efforts on developing new airport and ground-access capacity. With the downsizing of LAX expansion and the demise of El Toro, the region's air future appears headed to the Inland Empire. Yet, even with the development of outlying airports, LAX‘ must be expanded in some fashion or the economic cost to the region could be enormous.

If Ontario is to be the region's second international airport, its plans must include convenient mass transit connections to more populated centers. There also may be environmental costs. Ontario expansion could necessitate another runway (causing increased environmental impacts on communities), and require relaxation of state-imposed air-quality ceilings. If Ontario and the inland area's former military bases can substantially expand their cargo capacity, export-oriented, high-tech businesses may have incentive to move there. Inland Empire communities, rather than coastal areas (tied to LAX), could be the region's future trade winners. Inland lures also include affordable housing and commercial real estate. Should San Diego not solve its airport problems, it too could lose some of its high-tech future to San Bernardino and Riverside Counties.

There are hopeful signs of cooperative airport planning. Although the Southern California Regional Airport Authority is being dismantled, the City of Los Angeles has pledged to coordinate its Ontario master planning effort with that of other Inland Empire airports. However, should NIMBY and environmental opposition inhibit further airport development, Southern California's global future could be severely curtailed. Regional rivals with excellent international air service such as San Francisco, Las Vegas and Phoenix, stand poised to benefit from the Los Angeles region's inability to solve its airport capacity shortfall.

Another major concern for the area's policymakers should be regional infrastructure deficits and the resulting transportation imbalances. One involves San Diego/northern Baja California. A promising sign is the recent creation of a county-wide regional airport authority in San Diego. San Diego/Tijuana trade infrastructure development-which should be a top regional priority-could yield significant benefits to metropolitan Los Angeles by relieving congestion at its ports, airports and highways. To rectify regional inequities, policymakers might consider legislation to withhold federal transportation funding from recalcitrant counties that are unwilling to shoulder their fair share of the regional transportation burden such as for airport development.

Finally, regional policy makers need to make goods-movement planning and priority funding of intermodal projects central elements of a globally-oriented regional economic development strategy for the twenty-first century. This effort should include a regional goods-movement master plan, and the inclusion of a funded freight movement program in the County Transportation Commissions' Long Range Transportation and Capital Improvement Programs.

International trade has become a driving force of the Southern California economy, and transportation investments are essential to future regional development, such as for high-tech industries, and global competitiveness. Of all the region's infrastructure projects, airport development is the furthest behind schedule, faces the greatest completion challenges, and yet offers the greatest regional benefits. Southern California's aspirations to become a leading export-based world trade center-rather than merely being the Pacific Rim's top import transshipment hub-rest, in large measure, upon its uncertain airport future.