Transcription:
Keeley Webster (00:03):
Hello, this is Keeley Webster, west coast senior reporter for The Bond Buyer.
Today I have with me Rudy Salo, a partner with Nixon Peabody who specializes in transportation bonds. Transportation is suffering through a Dickens moment. It is the best and worst of times. The push towards electric vehicles is taking off all over the country as states vie to attract EV car manufacturers. But mass transit received a negative outlook from S&PGlobal Ratings with ridership numbers off as city workers continue to work from home.
Rudy, you joined me for a bond buyer podcast on a similar topic, a few years ago in the pre-covid days. Mass transit was still doing fairly well, but you were cautioning against heavy investment in it because of ride sharing apps like Uber and growth in electric vehicles. So what's your take on that today?
Rudy Salo (00:50):
That was pre-Covid Keeley and that let's just call Covid something that nobody anticipated happening at that particular time. I have to admit at the time prior to Covid, I was all-in on public transportation. I was somebody who in my Forbes.com articles was touting how I've been able to branch out and do some other things while still maintaining a high level of practicing bond law because I got back two hours of my day because I wasn't commuting. I was only using public transportation. Now, COVID hits and I'm at home and along with everybody else, and I'll be honest, I have personally been slow to go back to public transportation. Number one, I'm working from home. Number two a lot of things can just be done in the mornings now from home and then I can head into the office.
(01:58)
So I'm sure I'm not the only person out there that has altered their commuting patterns. It's pretty obvious that I'm like many other Americans. If you look at the statistics that have been coming out, public transportation as a whole nationally are about, maybe at best, maybe 70% of the pre Covid numbers. So it's about approximately 30% down from where we were prior to March 2020. Am I still a believer in mass transit? I'm slowly coming back into it. I'm slowly redoing my own personal routine, commuting into work and bringing mass transit into it. These are tough times. I mean, take a look at the California budget, the proposed budget that came down, I think there was $2 billion less for transportation allocated, at least in the preliminary budget. Thankfully on the federal side, we have the Infrastructure Act bill that was passed focusing more funds towards not only just public transportation, but transportation as a whole.
(03:16)
But we have this other rising, how do I say this because, so I paused there on purpose because I was about to say this rising new transportation option, but it really isn't a rising new transportation option. The electric vehicles that are finally starting to, as a percentage of the number of cars that are being sold every year, they're starting to rise year over year. I mean, they used to be only 1% and then 2%, and I believe in 2022, they were finally up to 6% and they are rising in certain parts of the country. But at the end of the day, that's still a car, right? It's replacing it with a cleaner type of car rather than the combustible engine. So that's not really a change per se, it's just a cleaner way to do what we've been doing for the last almost 100 years.
Keeley Webster (04:13):
So what about mass transit? I mean, do you think that because some companies are asking people to come back to the office, what happens with Los Angeles has invested a lot in building out its rail network ahead of the Olympics. I mean, do you think that's a mistake now or do you think we'll see those numbers start to return?
Rudy Salo (04:35):
No, I do not think it's a mistake. And here, I'm glad you brought up Los Angeles in particular. Keeley, I don't know if you have been to a Rams game yet at SoFi Stadium. Now, SoFi Stadium is in Inglewood between downtown Los Angeles is more eastern and it's a closer towards LAX. There is not a train that actually goes directly to SoFi Stadium. However, there is a train that goes about less than a mile away, the green line. And one of the worst experiences getting in and out of SoFi Stadium is if you actually drive there, it is horrible. Even if you choose to use a ride share app, it could take you up to an hour and a half to two hours just to get out of that stadium. The best and easiest way for you to get in and out of SoFi Stadium is actually to use the train because they have constant shuttle buses going to and from the nearby train station and soon to be train stations because one of the lines, the Crenshaw line's going to be opened, and that's going to be pretty close to the stadium as well.
(05:45)
And in anticipation of the 2028 Olympics in Los Angeles and SoFi being a big part of that. I'm a hundred percent believer in everything that Los Angeles is doing to build out alternatives to public transportation and alternatives to just using your car. Another thing that I think is very, very interesting, Keeley, that I don't know if we specifically spoke about it during our prior podcast, but I've been writing about it in my own Forbes.com pieces. The rise of electric bicycles in Southern California and in Northern California. And in fact, I believe in New York City and in other cities throughout the country, the rise of E-bikes, and I'm talking about personal e-bikes, not necessarily the renting of e-bikes or the renting of e-bikes. Some people will say that e-bikes not going to name companies at all was kind of a failure. I don't think that was a failure in any way, shape or form, but the rise of personal bicycles has been incredible.
(06:52)
I think in that, my opinion is the missing link that is the first mile, last mile solution where, cause public transportation doesn't necessarily go exactly to where everybody lives, but the amount of electric bicycles that I'm seeing out on the roads and people taking those electric bicycles, in particular in Los Angeles, you're allowed to take your bike onto buses and into to trains. That is the missing link where I think more and more people will use public transportation because they can then take their bicycle home. And so I am a firm believer in more mass transit build out as well as tax credits and other types of credits for electric bicycles.
Keeley Webster (07:43):
Do you think they need to redesign the trains? Because I have a folding bike and I used to commute from the valley to downtown and it was usually just me and maybe one other person, and there's only really space on each train for maybe two bikes and my bike was small and those electric bikes are bigger. So do you think that's something that city needs to think about when they order trains or when they design the space, is room for bikes?
Rudy Salo (08:14):
I believe there's a lot of things that need to be redesigned, including trains. I absolutely do believe that maybe they have a dedicated car where literally there's no seats where people just stand there with their bicycles. They take out all the seats. I mean, that wouldn't be that hard. Really, if you take out all of the seats from one of the cars and that's where all the bikes and scooters can go, that's fantastic. Another thing that needs to be redesigned are our streets. Our streets are not safe enough for the amount of electric bicycles that are riding on them today. And I have been arguing for years that redesigning our streets is going to revolutionize. It one of the first steps in revolutionizing for the future of transportation. I've always said that our streets are not ready for autonomous vehicles. And I think that some of the news stories that have come out of San Francisco with some of the robo taxis and them getting confused and getting stuck on our streets supports that I believe that I think we should have dedicated lanes in the future for autonomous vehicles. I think we should have more dedicated lanes for alternatives to cars like bikes and scooters. Redesign should be like the key word any transportation planner should be focusing on.
Keeley Webster (09:39):
So where does the money for all this come from? I mean, you mentioned earlier with the volatility in our income and based on income taxes and in capital gains in California, we have a deficit this year and we have high speed rail and we have a proposed line from Vegas to Victorville to connect Los Angeles to Vegas. So I mean, there are a lot of things like asking for this money and most of the transportation of people have said that the federal money is only going to be supplemental. It's a trillion dollars, but by the time you split that between 50 states, it doesn't work out to be the big push that everybody thought it would be. So I don't know, can you, breakdown all those things I just threw at you.
Rudy Salo (10:35):
I hear <laugh>, I can give you an answer and my answer is, and if you've read any of my articles that I've been writing over the last couple years, the money needs to come from somewhere and I think that's where the critical rethinking of both citizen and government needs to occur. Keeley, if I had the actual answer, guess who would've been asked at Davos last week? That'd be me. I wouldn't be sitting here, Mr. Bond lawyer. I'd be having all the answers as to, well, here's the magic solution of where all the money is going to come from for the redesigning of transportation. I think about this stuff a lot and it's got to be some kind of a combination of private companies, I don't know, I don't want to use the word taxing themselves, but private companies seeing that their bottom line, it will only get better if they actually participate in the redesigning of the streets.
(11:40)
I don't want to specifically reference any names of ride sharing companies because we do represent them in some capacity, but I'll just say some ride sharing companies are in the red. They are not in the black getting positive cash flow and their stock prices are not going very well. I think some of those companies, part of their business plan was that, oh, well, autonomous vehicles are going to be here any day now and then we're just going to get rid of our drivers and then it's going to be money falling from the sky for us. Well, that was unrealistic because we're, we're decades away from that happening because our streets and our infrastructure has not been properly rebuilt for autonomous vehicles. Maybe they should start thinking about, well, what can we do to help out in rebuilding our streets and our infrastructure? I think, and I'm not saying that public private partnerships are going to fix everything.
(12:36)
No, I don't believe that P3s are the answer to everything. I mean a critical rethinking of how our transportation is financed. Keeley, as you know it is, or hopefully our listeners know, the vast majority of our transportation infrastructure in this country is financed from the gas tax. Now as the gas, as our vehicles are becoming more and more fuel efficient as more electric vehicles are coming online, where's the money going to come from? How are we going to finance the highway trust fund? How are our states going to have money for transportation? Something has to change and it's got to change quickly. States like California and Oregon have had pilot mileage tax programs for some years now. I understand when you're dry, when paying per mile, a lot of people are going to be worried about Big Brother. A lot of people are going to be worried about privacy issues. At the end of the day, if our roads are crumbling, which after these rainstorms in LA and these heavier electric vehicles damaging our roads, there's a lot of potholes. If we're not going to be able to drive anywhere because our roads are so terrible and they're so dangerous, we have to change the way that we finance. And I know I don't have a great answer for you, but I hope I at least scratched the surface as to some of the rethinking that I'm suggesting.
Keeley Webster (14:08):
You've definitely given us some food for thought. So now we will pause for a commercial break and we are back. So kind of jumping onto the charging station issue is funding for most of those coming from the state or cities getting involved in creating such projects.
Rudy Salo (14:30):
As you know current President Biden, what he would like to have by 2023 Biden's goal by 2023 is the installation of a half a million EV charging stations by 2030. In furtherance of that goal the Infrastructure Act of 2021 established a National Electric Vehicle infrastructure formula program. It's called the NEVI formula to provide funding to states to deploy EV charging infrastructure. So it's coming from the infrastructure Act from the feds, but it's being deployed to the states and just very recently. In September 22 the federal government approved the nevi deployment plans for all 50 states, the District of Columbia and Puerto Rico. With the approval, all states now have access to the Nevi Fund fund NEVI Formula funding in 2022 and 2023, which is currently going to total about 1.5 billion to help build EV chargers coming approximately 75,000 miles of highway across the country. One of the issues Keely, is that the Infrastructure Act, also included the Build America Buy American Act, which requires that all iron steel manufactured products and construction materials used in infrastructure projects like EV charging, they need to be produced in the United States for all federal financial assistance obligated for these projects.
(16:05)
There's currently a deadline to have the EV chargers built domestically in January, but there's a proposed waiver of this requirement. It's currently in the works. Hopefully that waiver has either come through, I haven't checked it a couple of days but that waiver has actually come through. So the money is there, but the materials unfortunately are being built overseas. And so you can't actually get that money to start rolling this out because of this Build America Buy American Act so that there's a little bit of a conflict there, Keely and oh, hopefully that'll be addressed. Well I think, I mean one way it's going to be addressed is if we could bring all that manufacturing back to the United States, and there's a lot of plans for that to occur. And you're seeing that some manufacturing, both of EV charging as well as EV vehicles are coming back to the states. I believe the southeast of the United States is starting to benefit from those plans. So it's going to be a slow process, but the money is there.
Keeley Webster (17:07):
So are you surprised that the southeast, the same region of the country that has banned underwriters for moving away from oil and coal is going full bore in attempts to attract EV manufacturers?
Rudy Salo (17:19):
No, I'm not because the southeast there's already a history there. Let's just call it, how do I say this without being offensive? There's a history there of being more pro-employer as opposed to pro-employee ie. less unions, et cetera, et cetera.
Keeley Webster (17:38):
Okay. Oh, okay.
Rudy Salo (17:39):
I'll just say that they already have a history of manufacturing of vehicles there. There are a number of vehicle companies, I don't want to say specific names because they may be clients of the firm. They're already in the southeast. So there's already this logistics and experience and very well trained engineers that are already living in the Southeast. So quite frankly, it makes sense that a lot of that is happening over there because of tax breaks, because of the more employer aspect of that is historically in the southeast. I mean we in California, we still have a fair amount of manufacturing as well. Of course, we're not as pro-employer or them. In fact, some people would say we're absolutely 100% pro-employee. But yes, the wave, it seems to be focusing in the southeast. I didn't know this, or I did not until I did some reading as I was preparing for this interview. I learned at least from one indicator that I found that Florida apparently is the third state in the union for the number of EV vehicles out on the road. I didn't know that now that was fascinating. But yeah, it's kudos to Florida and you will not hear Rudy Salo saying that a lot, but kudos to them for there is some adoption there.
Keeley Webster (19:09):
So an article in the San Francisco Chronicle suggested that a shortage of electricians is making it difficult for people in the Bay Area to install the home solar charging stations for EVs. How big of a problem do you think that is for forward movement in the industry?
Rudy Salo (19:25):
I think it's a problem, we have had, it's no secret that California is my state. Yes, I'm a hardcore Californian. There was no dig on Florida. Folks. I've been to Florida, I love all of our states. I love everybody equally. So I'm not trying to offend anybody, but I'm a hardcore Californian. We are losing some population, and some people are leaving, because of the housing affordability crisis. That's just very obvious. In California in particular, in Northern California, people are leaving California and unfortunately, I believe that people who have the jobs that are leaving to go to more affordable places are not, not historically been the people in the tech industry or in the other, I hate to use this term, but white collar jobs, they're more in the other types of jobs that electricians are categorized in and they happen to be leaving California. I think it's a major problem. The number one issue facing California is housing affordability and that, or has a huge ripple effect through all kinds of industries like electricians. If electricians and teachers and other folks are not able to afford to live in that they love and they leave here, what is that going to do for the future of California? We must solve the affordability crisis in California or we are going to face all kinds of issues, like not having electricians to install EV stations.
Keeley Webster (21:03):
So I told you we would focus primarily on mass transit and EVs, but I'm curious about your current take on California's high-speed rail project in the Vegas to Victorville line. So why does this country seem to have such a hard time getting rail projects done as compared to Asian countries like Japan and China?
Rudy Salo (21:22):
Well, not knowing a lot about Japan, and I'm not trying to say anything negative about China. I do believe that we have to this in proper perspective. We have more land use environmental and other types of laws that need to be addressed in order to build large scale projects. I'm not saying that China doesn't do that, but I mean, when you live in a democracy, in my opinion, some things can be harder. Okay? I mean, that's one of the costs of living in a democracy, and I prefer to live in democracy. So if our rail projects are tougher and more expensive, well then that's one of the costs that I have to deal with in living here. When you live in a place that, once again, I said, I'm not talking about Japan in any way, shape or form because I don't know enough about it to speak about it, but I do know that China's one party system, and if they say they're going to do something it, they're just going to do it, period.
(22:31)
That's it then. And then that's just kind of how it works.
Keeley Webster (22:34):
So how do we get a balance between what we have and what they have though, because CEQA and NEPA have been blamed for slowing up everything from housing projects to transportation. Is there a nexus between protecting the environment and allowing for community input, but speeding up projects so we don't have the kind of cost overruns that has been experienced on massive infrastructure projects?
Rudy Salo (22:56):
I think there needs to be, I agree with you, Keeley. I think what you just said is the answer, and at some point we are going to reach the breaking point. Let's be honest, some people, rich people, and I mean super duper, rich people take advantage of the environmental laws to slow down projects, as you NIMBYs, not in my backyard, et cetera, et cetera. They actually use those tools. Why? Because they can afford very expensive lawyers. And quite frankly, look, it's their right. If you have the money and you're these laws on the books and you want no stone left unturned on alternatives, you could pay for it. Well, that's the way it works. So that's the way the laws are currently written, and until those laws are changed, people are going to continue to take advantage of that, and as they take advantage of it, the costs are going to skyrocket mean, it's just, once again, we live in a democracy and this is one of the prices we have to pay.
Keeley Webster (23:59):
So it looks like the San Francisco Bay area is now working out how to connect high speed rail to the existing rail line there. Do you think that project has gained some needed momentum?
Rudy Salo (24:11):
Well, I mean, I understand the costs are a lot higher. There were some projections in 2015 and now those costs are like 34% higher since 2015. But honestly, what isn't 34% higher than 2015? I'm a big believer in the connection of the high speed rail and connecting things into San Francisco. I hope it happens. I really do. Why I advocate for, and have always advocated for transportation alternatives. The primary focus, the primary beneficiary of our transportation dollars in the United States has been the personal vehicle. The vast majority of our infrastructure, the vast majority of our cities, the vast majority of everything has been focused on personal vehicles. A lot of money has gone towards personal vehicles, high speed rail, whether you like it or not, it's at least an alternative. At least you have another choice to travel.
(25:19)
And like I was saying about thinking about the redesigning of everything, the rethinking of everything. If you want to not own a car and you want to have an e-bike and you want to use that e-bike to go to public transportation, and I'm throwing the high speed rail into public transportation in there, God bless you, that's great. At least that you should have the right to not be forced to have a personal vehicle in order to put food on your table in order to live in this country. And if you want to have a personal vehicle, that's great. You should be able to have one as well. It's just too much focus, with our infrastructure and our money on the personal vehicle, we need to move away from that. Yes, there have been cost overruns for high speed rail. Sure, maybe we could have used the money for other things, but I'm trying to focus on the positives of it. It's at least an alternative to the personal vehicle.
Keeley Webster (26:20):
So what do you think it'll take to get the Vegas line moving in? Any thoughts on why there wasn't more interest in the private activity bonds issued through California, Nevada?
Rudy Salo (26:28):
Yeah good question there. Ever since I was a kid, my parents, we, I'll admit it. Hey, if you know me, we used to go to Vegas a lot. My parents like Las Vegas. I like Las Vegas. We always talked about, oh, we heard there's going to be a train going from LA to Vegas. Oh, it's going to happen. Oh, it's going to happen. <laugh>. Everyone in southern California that's ever driven on the 15 freeway on a weekend would die for a train to Las Vegas to actually happen. We want it, but we both know where they were building the train, to Victorville, I don't know. I bet llisteners probably don't have a clue of where Victorville actually is. Victorville is a good hour and a half, two hours, and that's without traffic from Los Angeles. It's about a good hour and 15 minutes from Orange County. And I mentioned Orange County because if you've been to Anaheim, if you've been to the Anaheim Angel Stadium or where the Ducks play, the city of Anaheim is going to build this really beautiful futuristic train station module intermodal station for the train line.
(27:46)
Then the high speed rail had built there. Have you ever been there? You really can see the train actually happening. I hope it happens. Why? Because it's another alternative to get to Vegas, and I believe one of the areas where the train was going to end up in Las Vegas is very close to where the Las Vegas Raiders play. So you can imagine like, Hey, we're going to jump on the, there's a three o'clock game in Las Vegas on Sunday. We're going to jump on the train. We're going to be in Vegas in an hour and a half, and we can catch the game and come back. That'd be incredible, what kind of an incredible experience that is. I don't know enough about what happened with the private activity bonds and where that wound up to speak on it.
Keeley Webster (28:30):
So it's exciting times for the transportation sector as we look towards the future. Rudy, it's been a pleasure as always. Thanks for joining me here today. I'm Keeley Webster from The Bond Buyer and I produced this episode with audio production by Kevin Parise. Rate us, review us and subscribe to our content at www.bondbuyer.com/subscribe. Thanks for tuning into the Bond Buyer Podcast.