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Credit FAQ: Going For The Gold: How Los Angeles Is Getting Its Infrastructure In Shape For The 2028 Summer Olympics


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Credit FAQ: Going For The Gold: How Los Angeles Is Getting Its Infrastructure In Shape For The 2028 Summer Olympics

In 2028, Los Angeles and the surrounding region will host the Summer Olympic Games for the third time, making it one of three cities globally to do so. In the past, hosting the games has encouraged cities to improve infrastructure ahead of the events. However, the scale and cost of the games commonly lead to large, unexpected expenses that are perceived to be a burden on the host city. In contrast, Los Angeles plans to use stadiums and concert venues that are already hosting large audiences. Furthermore, the games will benefit from the significant expansion of subways and light rail systems already underway as part of Measure M, which was approved in 2016 and provides sales tax-supported funding for transportation.

The Going for Gold panel, moderated by Trevor d'Olier-Lees of S&P Global Ratings, discussed the potential challenges Los Angeles could face in the wake of making the 2028 Olympics a car-free event. These panelists were:

  • Ernesto Chaves, Interim Senior Executive Officer for Roads & Highways, LA Metro
  • Dale Bonner, Executive Chairman, Plenary Concessions America
  • Duane Callender, Director of Credit Programs Office, Build America Bureau, U.S. Department of Transportation (DOT)
  • Allan Marks, Global Project Energy & Infrastructure Partner, Milbank

Historically speaking, the Olympic Games create significant challenges with substantial costs and dubious benefits for the host city. Enormous venues and housing accommodations are constructed for a one-time use that costs the host a significant amount.

We expect the 2028 Olympics to buck the trend of how the Olympics typically run because the city is not anticipating negative pressure from construction and the host committee estimates the forthcoming games will cost $6.9 billion as of 2022. The host committee plans to use existing stadiums and housing facilities in conjunction with an expanded transit system to accommodate the athletes and spectators and eschew the capital-intensive construction of new facilities that have historically led to substantial cost overruns. While the region was already planning for certain revitalization projects--such as the Inglewood Transit Connector (ITC), the Automated People Mover, and Metrolink's SCORE Projects--sponsoring entities are accelerating the timeline to support the Olympics. 

The games will be privately funded, according to host committee LA28, through sponsorships, ticket sales, and the International Olympic Committee with no burden to taxpayers; however, limited backstops are provided by both the City of Los Angeles and Los Angeles County if there are cost overruns that exceed specified thresholds. The city has contractually limited exposure from the games and its capital program is not an added stress to the leveraged profile as the city's unlimited tax general obligation rating is 'AA' and our municipal issuer credit rating on Los Angeles County is 'AAA'.

Frequently Asked Questions

How is Los Angeles preparing for the Olympics, and how are its many transportation projects supporting those efforts?

From a strategic standpoint, the main challenge presented is the car-free aspect, with no parking provided at the venues. Ernesto Chaves said the Metro Board recognized this as a historic opportunity and started working on a mobility concept plan with regional partners a few years ago. The mobility concept plan includes $17 billion worth of infrastructure projects that are already approved, planned, and projected to be delivered by 2028.

In addition, LA Metro is pursuing an estimated $10 billion in funding from the state and the federal government for a prioritized list of 50 capital projects, operational improvements, and program advancements. Some of the highest-ranking projects are bus-only lanes and mobility hubs to give walkers and cyclists easy access to and from each venue. Several of the projects are considered must-haves, such as the supplemental bus system and access service improvements to ensure safety and security during the games. The city also aspires to advance congestion-reduction programs to better manage travel demand on freeways and other roads. "It's really just to supplement our system and to enhance our ability to deliver car-free games," Mr. Chaves said.

The games will be held throughout the Southern California region, and there is not enough time to extend a rail line or create new ones. However, with additional local and federal government funding, Mr. Chaves believes there is time to make improvements to safety, connectivity, and reliability in the core system already in use.

How do you think the 2028 games will compare to the ones Los Angeles hosted in 1984, which were one of the only games ever to be profitable for the host city?

Allan Marks suggested that the investments that come out of the games will have lasting value. "If you look at some of the things planned on the transportation side, Ernesto mentioned bus-only lanes," Mr. Marks said. "Those were piloted and used during the '84 Olympics to great success… And bear in mind these venues are spread out across Southern California, an area that is considerably more populated now than it was in '84."

Mr. Marks also noted that the 1984 Olympics piloted the idea of controlling traffic dynamically by implementing an automated traffic surveillance and control system (ATSAC) that currently covers 4,700 different traffic intersections.

Dale Bonner emphasized that most of the infrastructure needed for the games is already built, and operational improvements are on track so far. The 2028 Olympic Games will be a major test of the operational and systemic performance of the Los Angeles transportation and mobility commitments. Political dynamics will also play a part in the attitude surrounding the games, as 2028 will introduce a new set of local leaders and will also be a presidential election year. Mr. Marks noted that the political landscape in 1984 was vastly different because coalition politics and no term limits led to political stability.

What is crucial to these games' success, and will there be a fair shot for everyone to participate in making it happen?

Given the infrastructure projects' scale, bringing in a wide range of stakeholders is imperative. Mr. Marks noted that many successful large-scale projects' stakeholders have included trade unions and other service employees, neighborhood and community businesses, and women- and minority-owned businesses. There are over 80 cities within Los Angeles County, so including the communities as stakeholders gives them a voice to be heard when highlighting concerns such as housing, housing affordability, and education. "2023 is going to be a big planning year for the operational elements of the infrastructure, but a lot of the stakeholders have to be supported as well," said Mr. Bonner.

This year will also be instrumental for the City of Los Angeles as it works with nonprofit partner LA28 to establish working groups to strengthen participation. The establishment of these working groups is required by the agreement between the City of Los Angeles and the International Olympic Committee. Notable working groups include an energy council that will combat energy emissions; a labor, local hire, and community benefit working group that will help remedy the turbulence within the labor sector; and a sustainability working group.

How do the Build America Bureau's loan programs play a role in advancing the overall infrastructure for the games?

LA Metro has had a successful partnership with the DOT and has been provided $1.5 billion for other projects that were paid well in advance of their maturity date. There is about $100 billion available through the Transportation Infrastructure Finance and Innovation Act (TIFIA), which has eligibility with rail, transit, highway, transit-oriented development, and some aviation. There is also $30 billion available through the Railroad Rehabilitation & Improvement Financing (RRIF) program for rail projects. Many of the projects being considered for the 2028 Olympics are eligible and appropriate for these loans. "There are always more needs than money," Mr. Callender said.

There is a lot of structural flexibility within the programs. Transit and transit-oriented development (TOD) projects are eligible for loans up to 49% of project costs with low interest rates and no pre-payment penalty. TIFIA requires an investment-grade rating on the debt for a project. Loans have flexible amortization and can have a repayment period of up to 35 years. The new Bipartisan Infrastructure law allows repayment periods up to 75 years for projects with a longer useful life. In addition, the Outreach and Project Development Team has access to other grant money and grant programs orchestrated to help the early progress of projects.

"A lot of the infrastructure that Ernesto alluded to earlier in our conversation today is being funded, financed, and delivered through new generations of delivery methods, financing tools and things that have come about not only since 1984, but even since 2004," Mr. Bonner said. "There is a lot of innovation behind these projects that I think will be part of the untold story."

How much are supply-chain issues affecting the projects in Los Angeles?

Construction costs have gone up significantly, and supply-chain issues globally have presented an issue for the capital program in Los Angeles. New projects will also face these challenges, and Mr. Chaves believes P3 alternative project delivery is crucial.

From the private sector, Mr. Bonner highlighted the games' inflation risks as well as increasing raw material costs and unprecedented spikes in insurance costs. Such escalation has made it difficult to manage the risk around certain assets. In addition, some assets are difficult to find coverage for now as opposed to 30 years ago. Climate change will also continue to increase insurance costs as extreme weather events happen more frequently. Part of the challenge is how increasingly difficult it is to model the risks and reserves required if one of these events were to occur.

Mr. Marks suggested the main challenges are supply-chain interferences and permitting, as they both affect a project's schedule. There is a lot of operational complexity when working within an accelerated timeframe. Project documentation could be more robust than in previous years. "I think we will see a change in how risks are allocated and perhaps more granularity in how those risks can be shared in ways that provide more value and don't add extra premium," he said.

Duane Callender suggested that the impacts of the supply chain, the pandemic, and inflation have created challenges with financial feasibility and overall availability in the market. Equity justice, environmental justice, and climate-transition risk (from a lender perspective) are key policy objectives of the department and key factors of a project. "It is not just the federal requirements from a credit standpoint," Mr. Callender said. "It is all the rest of the things baked into these projects that need to be evaluated in the early stages."

How important is the Infrastructure Investment and Jobs Act (IIJA) to the available funding for rail and other public transportation, as well as complex permitting processes?

The historic IIJA has an incredible amount of money available in grant programs and financing tools and will be extremely helpful to the significant increase in needs nationwide. The bill allocates about $5 billion for a national electric vehicle charging network along interstate highways, in which all 50 states have applied for funding. Mr. Marks noted that the bipartisan infrastructure bill incentivizes funding for electric buses and other electric vehicles, accompanied with charging stations for personal vehicles. This bill--in addition to the non-bipartisan Inflation Reduction Act--aims to advance transportation, energy, and digital infrastructure as well as water supply and efficiency.

Private investment in emission-reducing infrastructure has been disincentivized due to the risks of project delays in the permitting and environmental review process. The IIJA has improved permitting by establishing the Federal Permitting Improvement Steering Council (FPISC) through FAST-41. FPISC enhances interagency coordination at the start of the permitting process to reduce timelines for larger infrastructure projects.

By design, more coordinated agency reviews in permitting should result in better projects with less adverse impacts, higher quality of service, more environmental consciousness, and community benefits. Mr. Marks highlighted that there are many permitting obstacles and litigation risks remaining for some of these projects and that streamlining permitting and interagency cooperation are crucial.

"This history in California has been around outcome-oriented relief," said Mr. Bonner. "If someone is building a new stadium, you pass legislation that streamlines the process for that project, and you leave the rest in place."

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Primary Credit Analysts:Trevor J D'Olier-Lees, New York + 1 (212) 438 7985;
Olyvia Gendron, New York;
Secondary Contact:Tim Tung, CFA, San Francisco + 1 (415) 371 5041;

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