I Told You So: City Hall May As Well Have Mined The Harbor

I told you so, big time.

Over two years ago, yours truly sounded the collision alert on the Port of L.A.  In an essay entitled "Why Don't They Just Mine The L.A. Harbor," I pointed out that Villaraigosa and the City Council, by approving $1.6 billion in additional fees on importers, exporters and trucking companies to fund the "clean trucks" program at the port, would divert shipping to other ports.

Six days after I posted that essay, moreover, the Boston Consulting Group reached the same conclusion, and predicted the Port would lose at least three percent of its business.  The Los Angeles Times reported as much at the time, by the way, in an article entitled, "Risk seen in Port plan; L.A.'s cargo business could shrink under a proposal on truckers."

So the risk was both foreseeable and foreseen.

Now, not only has it happened, but it is triggering another financial crisis by preventing these same geniuses from repaying a $1.65 billion debt they incurred to build the Alameda corridor, a rail line from the port to downtown L.A.

Today's Los Angeles Times explains the new financial problem:

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 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. 

You may have noticed that the reporter attributed the drop in business at the port to "the worldwide recession." The recession, however, is only partly to blame for the port's problems: excessive fees are diverting ships to other ports.

Put another way:  Not only is the pie smaller, but our share of the pie is smaller.

Villaraigosa, Janice Hahn and the rest of the Spring Street Gang have put the port at a competitive disadvantage by raising fees beyond what is necessary to operate the port.  Having never actually lived in the real world, it never occurs to them that raising fees and taxes tends to drive people to do business elsewhere.

Where do you think the $1.6 billion for Villaraigosa's "Clean Trucks" program at the port is supposed to come from? The plan -- like the plan for the corridor -- is to pay for it by additional fees Villaraigosa and his appointees have imposed exporters, importers and trucking companies that use the port.

Yours truly told you years ago that raising the fees would divert traffic -- told you as soon as City Hall jacked up the rates for the "clean truck" program.  When was that? Two years ago -- the point at which, by Janice Hahn's own reckoning, quoted above, the Alameda corridor revenue decline just happened to begin.

Ever since, as an economist quoted in the Times article confirms, the ports of Los Angeles and Long Beach have been losing market share to competitors:

[John] 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."

Bottom line:  If you elect people who have never lived in the real world, who have never run a business, who don't understand basic economics, you get a debt-laden city, teetering on bankruptcy, with an unemployment rate above national, state and county averages. You get -- if I may mix my transportation metaphors -- a train wreck.