Getting Los Angeles on the right track

How can Union Station’s true potential be realized as a 21st century transit hub? This question was explored in a ground-breaking financial innovation lab that focused on how to effectively use public capital and attract private financing, write city experts Stephen Engblom, Kelli Bernard, and Jon Dearing.

An architectural gem, and the centerpiece of the city, county and regional public transport system, Los Angeles Union Station has an unrivalled opportunity to positively impact resilience and mobility in the LA region. To discover how best to maximize this opportunity, the station was the subject of the first in a new Financial Innovations Lab® program convened by the Milken Institute, in collaboration with AECOM.

Los Angeles faces a variety of resilience challenges and stresses on its urban systems, including the region’s overburdened and congested transportation networks. Technically, the Link Union Station (Link US) project will transform the current stub-end station, which limits capacity, to a station with new through tracks to accommodate greater passenger volumes. This update will increase station capacity by up to 63 percent, from 172 trains to 280 trains daily, and ultimately enable Union Station to become a vital interchange node with future high-speed rail. The benefits, however, go far beyond capacity improvements.

This investment in Union Station will further establish it as a transit hub that will enable LA to compete on the global scale by keeping up with population growth, and the associated mobility demands, while creating new opportunities for economic development. The project is expected to generate an additional US$1.5 billion in economic activity for the LA region and catalyze revitalization of the surrounding area into a centerpiece of LA’s reunification with the LA River. Currently cut off from Downtown LA by the 101 Highway and from the LA River by underperforming land uses, the Union Station neighborhood will provide a critical link between Downtown LA and the river.

A path forward for Link US

The Milken Institute, in collaboration with AECOM, convened its first lab in this series in July 2018. The lab examined the proposed Link US project and associated redevelopment scenarios to explore opportunities to effectively use public capital and attract increased private financing in support of accelerating this transformational project.

Participants agreed the increased rail capacity of a modernized Union Station would be catalytic to the city, region, and state. Additionally, there was consensus that an enhanced Union Station district could provide future linkages between Downtown LA and the LA River attracting jobs, housing and attractions to the neighborhood. Through discussions during the lab, participants developed the following key recommendations:

  • Amplify the project vision and benefits to the communities and users. Plans for a project the scale of Union Station should serve as a visionary roadmap to guide all aspects of surrounding development. Given the location and timing challenges of Link US, lab participants recommended that LA Metro re-examine the existing project plan to enhance the case for the infrastructure improvements, including a strong narrative that qualitatively tells the story of regional impacts, all supported by quantitative data.
  • Determine viable strategy for core infrastructure. Different structures for delivering financing components with mechanisms that included public and private investment were explored in the lab. Participants examined the potential benefits of using a public-private partnership (P3) model. In addition to potential financing implications of a P3, benefits could include reducing the overall construction timeline and associated project costs, optimizing design outcomes, and improving lifecycle performance of the asset. Participants suggested that Metro re-examine components of Link US capital and operating plans to make the investment offering more opportunistic and less prescriptive to attract a larger audience.
  • Develop an inclusive governance structure. Link US is a large project for the city of Los Angeles and will involve a variety of stakeholders at various stages of its development. Lab participants discussed recent case studies and highlighted the direct correlation between successful project outcomes and strong, inclusive governance structures.
  • Explore alternative development opportunities. Given the limited commercial development opportunities today in and around Union Station, the project should incorporate a more flexible approach to engage private developers, which could include entering into a pre-development contract or exploring how to create a timed release of additional funds for the project once the commercial development proceeds could be realized. A transit or regional Enhanced Infrastructure Financing District (EIFD) was proposed as potentially appropriate for value capture.

Through the lab, the benefits brought by the technical rail engineering and improvements works were successfully linked to the broader economic development and life-enhancing benefits of Union Station, to the immediate neighborhood and the city as a whole. As a result, LA Metro and the city are better able to articulate the strong narrative around the relationship between infrastructure investment and its transformational impact on the city and county’s quality of life and to the region’s future economic viability regionally and globally.

As intended, this lab initiated an impactful dialogue between government agencies, private investors, and commercial real estate developers that will be critical for the success of Link US in creating short-term success and build long-term value. Advancing the suggestions and recommendations will require continued partnerships by those already involved and others. Through this collaboration with the Milken Institute, we hope to provide innovative solutions to accelerate and bring these transformational projects to life.

Connecting the dots to address the gap

As cities around the world grow at unprecedented rates, the effects of climate change are having significant and often dramatic physical, financial, and social impacts, especially in our urban environments. Although no two cities or projects are the same, all cities must be ready to withstand, respond to, and adapt to environmental shocks, geopolitical risks, and social challenges to ensure that their development strategies and investment decisions enhance the resilience of their urban fabric, benefit their communities, and support the future health and wellbeing of their residents.

Traditional models for funding and financing projects, including large-scale infrastructure, are outdated — proving ineffective and inefficient to meet rapidly changing demands. In this context, there needs to be a common understanding of how resilient urban infrastructure can be paid for and built across the public and private sectors, from policy-makers and investors, to corporate partners and philanthropists. While the private capital markets are an obvious source of financing for infrastructure development and urban renewal, the challenge faced by cities is how to best capture and redirect the value generated by these investments to repay capital and service the debt.

The LA lab was the first in a new four-part series of the Milken Institute’s signature Financial Innovations Lab program, hosted in collaboration with AECOM. The series examines ways to engage and accelerate new forms of capital that attract investors to the infrastructure space and explore innovative value capture mechanisms. By bringing together interdisciplinary leaders from government, research bodies, financial institutes, and industry experts, we generate market-based solutions to overcome a city’s resiliency challenges. The series provides the opportunity to leverage a diverse pool of knowledge that can help expedite and identify new, innovative ways of funding impactful infrastructure projects.

The series is designed to respond to this need by focusing on a single case study per city — a critical resilient urban infrastructure project or program that lacks a clear path to full funding. The next lab discussions will explore recent infrastructure development and new investment vehicles in Chicago, New York City, and London. Following each lab, an executive summary that encapsulates the lab discussions and recommendations is produced

The full LA lab executive summary is available here.

Financial Innovations Lab is a registered trademark of the Milken Institute.