Exploring Eric Garcetti’s Street Repair Bond Idea

Eric Garcetti, the L.A. city councilman and candidate for mayor, has stated that he would like to explore issuing a bond to fix the worsening condition of Los Angeles’s city streets.
For years, the city has been unable to fund necessary street repairs, so potholes and cracks have continued to accumulate. When asked by a voter on an online forum how he would fund street repairs, Garcetti wrote, "We have money lined up for the next 26 years under Measure R (already passed) to pave our streets. I'd like to explore taking out a bond to frontload the 26 years of funds and pave that amount of streets in my first term as mayor. It costs us 5% more each year to pave a street but interest rates are so low that we could get a bond for 3.75%, so this would be cheaper, quicker, and pave more streets than we have seen in decades.”
Similar financial maneuvers have been proposed before. In 2011, Mayor Antonio Villaraigosa proposed an $800 million bond for street repairs backed by Measure R funds. That year Bill Robertson, the former head of the city Bureau of Street Services, told the Los Angeles Times that approximately “1,000 of the city’s 6,500 miles of streets are “failed” and in need of total reconstruction.”
In January, Councilmembers Mitch Englander and Joe Buscaino made an abortive proposal for a $3 billion bond to pay for street repairs.
There are multiple issues with dedicating sales tax revenues to pay for a bond, according to Tim Schaefer, a public financing consultant. One issue is that it would tie up 26 years of revenues for one project. “Once we borrow money against the local share of Measure R, it’s gone.” He explained, “It can’t be used for anything other than repaying the debt.”
“Interest rates on sales tax-secured bonds are considerably higher than those on general obligation bonds,” Schaefer continued, saying that because sales tax revenues depend on a constantly growing economy, they are more unpredictable. That means a bond like the one Garcetti proposes would be significantly more costly.
Another problem, says Schaefer, is that street repair costs may not keep increasing by 5 percent every year. He said, “Over the last several years public works contracts have actually gotten, in many instances, less expensive, not more. That’s just a function of the economy being as weak as it is.”
The increasing cost of street repairs depends on economic conditions and inflations, but part of that increase is also driven by the deferred maintenance of Los Angeles’s roadways.
“Road costs increase a lot because if you allow a roadway to deteriorate longer, more layers down will crack and need repair. If cracks get into the subsurface, it gets even more expensive,” explained Genevieve Giuliano, the director of the METRANS Transportation Center at USC. “Pavement damage is a nonlinear phenomenon. The longer you let it go on, the more it will cost.”
Part of the reason that the city is struggling to pay for street repairs is the roadway network keeps expanding. 20 percent of the proceeds of Measure R go to building new roads and widening existing ones, while repairing the streets we already have is just a line item in Measure R’s list of projects.
The worsening condition of Los Angeles streets – and the escalating costs of repairing them – are issues that Garcetti has expressed interest in solving. A bond issue is not a permanent fix to the problem because a long term funding source still needs to be found. However, Schaefer made clear that Garcetti’s idea could be viable. “It’s not always as easy as it looks,” he said of a potential bond issue. “But it’s promising.”
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