In 1966, after twenty years of unprecedented growth, the world economy finally began to reel. Surprisingly, it was not the US stock market that caused the collapse, nor did the Cold War intensify creating further repercussions for the world economy. Instead it proved to be events in the Middle East that shook the world. Since its 1948 founding, the State of Israel had been left unmolested – in deed if not in word – by its Arab neighbors, but it was a fragile peace, and inevitably something would break. Tensions were rising between the Arab natives and Jewish settlers in the holy city of Jerusalem, and the armistice line that divided the city between the two sides was beginning to buckle. It was clear that war was coming, and that Israel would most likely have the initiative due to the Arab forces being divided between three different states, so the Arab alliance decided that a pre-emptive strike was in order.
On September 15, 1966, as the Jewish faith awakened to the first of its High Holy Days, the Jordanian army crossed the border in Jerusalem. Simultaneously, the Syrian army invaded Galilee and Egypt broke out of its salient in Gaza to strike up the Israeli coast. Israel, being in the midst of its largest religious holiday, was caught completely off guard, and it took them several days to mobilize their armed forces. This sneak attack strategy ensured that the moral high ground was with Israel from the beginning, and several of the great powers of the West recalled their ambassadors from Jordan, Syria and Egypt. The Arab states in OPEC responded by cutting off oil exports to these countries.
Although only a portion of the oil supply was affected by this – the Arab states' oil market share was smaller then than it is now – a widespread panic ensued across Western markets, with some Western European states going so far as to impose fuel rationing to keep stocks from running dry as consumers panic-bought as much gasoline and diesel as they could come across. The US never went as far as that, but this was far from meaning that the markets were unaffected – on the contrary, Wall Street went into a full meltdown during 1967, and the ensuing economic slump would last the better part of a decade. Moreover, the price of oil rose sharply for virtually the first time since 1946, which not only impacted car commuters severely, but also put a dent in the economic argument for bus transit, which had turned on cheap operating costs from the start. It might be speculated that if the events of the late 1960s had never happened – or even been delayed a decade or so – several of America's streetcar systems might have suffered very different fates (see the Pittsburgh and New Orleans sections of this essay for further details on this point).
As for Los Angeles, however, the city had sadly already removed its entire surface streetcar network by 1966. The last of the LARy lines had closed in late 1964, and the Pacific Electric's last street-level route in downtown LA, the Venice Boulevard route that carried trains between 6th/Main and the Westside, was wound up when the Pico Subway opened the year after (this also meant the end of the PE Western District, as all its trunk routes had now been taken over by the LATC network). A number of track alignments remained in the streets by the point the crisis hit, and the LATC briefly revived two streetcar routes at the height of the crisis before finally deciding to sell its remaining cars to other cities. Having a more or less direct supply of locally-produced oil, LA weathered the crisis better than most places, and there was never serious talk of moving over to alternative fuel sources for the bus network. On the contrary, the city's fleet of diesel buses saw heavier use in the late 60s than ever before, and a number of the trunk routes that we know from the present day originated in this era.
With the opening of the Pico Subway, the entirety of the network proposed by the 1946 appropriations measure had been completed. In less than twenty years, the Los Angeles rapid transit system had gone from a single streetcar subway under Broadway to a comprehensive network providing fast travel from downtown to more or less any part of the city and back. Subway trains operated to and from Hollywood, Burbank, Van Nuys, Beverly Hills, Santa Monica, Culver City, Venice, Inglewood, Hawthorne, LAX, Willowbrook, Torrance, San Pedro and the Eastside – and with the Pacific Electric handling more or less everything east of the city, the network was in fact close to matching the Kelker-De Leuw report's original proposals. For the first time in the network's history, it wasn't in the suburbs that development was needed – it was downtown.
The original Broadway subway, which was built as a simple two-track line, had been expanded to four tracks in the mid-1950s, but in spite of this it struggled to cope with the increased traffic volumes brought about by the extensions. The only new lines that didn't operate through Broadway were the PE routes and the Seventh Street line, and this was quickly becoming untenable. The Kelker plan had suggested that a second north-south subway be opened in Olive Street, connecting the Pico and Hollywood lines two blocks west of Broadway with interchange only possible via the Seventh Street subway. This idea was not well-liked by the planning ethos of the 1960s, for which speed of travel and ease of transfer were the highest ideals, and in either case its implementation would've been problematic for two main reasons. Firstly, by the time the Seventh Street line had actually been built, the Olive Street station had been removed from the plans, and the line ran (and indeed runs) direct between Flower Street and Broadway. Secondly, related to the above, the focal point of downtown had moved west since the 1920s, as more and more development was focused around the Harbor Parkway and the relatively-flattened Bunker Hill [1]. Naturally, the planners wanted better transit access to these areas, and so the idea arose for the three-corridor system that we know today.
The plan essentially called for the Broadway line to be split into two, one connecting the Hollywood and Valley lines in the north to the Harbor and Hawthorne lines in the south, and the other connecting the Highland Park line in the northeast to the Pico subway in the southwest. The former line would run in a more or less straight north-south path through downtown, diverging from the Hollywood Tunnel before Bunker Hill Station and joining up with the Broadway line at Broadway Place. The latter would diverge from Broadway after City Hall, then run in Grand Avenue from 4th to Pico. The sections of the Broadway line between City Hall and Broadway Place would quite simply be abandoned.
This proposal sparked a raucous debate, which came to encompass not only transit development but the future of downtown Los Angeles as a whole. The proponents of the plan, whose main organization was called “Citizens for the Grand Avenue Subway”, argued that it would better reflect the travel patterns of future decades, as the new central station would be located very near the middle of the Financial District at Grand and 7th. They came to represent the old progress-above-all attitude to planning, and several of downtown's big employers backed them (after all, the plan would bring the subway closer to many of the skyscrapers going up to serve them). The opposing side united under the banner of the “Save Historic Downtown Committee”, whose main point was that rapid transit should direct development rather than follow it. If the old downtown core was actually dying, the subway was a great instrument for the city to keep it afloat. The committee argued that the parkway's role in focusing development westward could be negated by constructing park-and-ride facilities at subway stations at the edge of downtown, letting drivers change to the subway for the final part of their commute and perhaps taking some traffic off downtown streets in the process.
It was ultimately a compromise proposal that won through. The Grand Avenue subway became a white elephant after the economic crash, and the city was eager to find a cheaper way to take pressure off the Broadway line. At some point in the process, someone whose identity is lost to history suggested shortening the new lines so that no actual stations need be abandoned on the Broadway line, simply shifting Downtown Crossing a block or so westward and constructing the shortest possible new alignments to connect it to both Broadway and the two Westside lines. Ironically, this plan didn't actually differ too much from the Kelker plan, aside from stops being less frequent and the two lines crossing over one another rather than running parallel. After some revision, the proposal was put to the voters in 1969, and it was passed by a healthy 56-to-44 majority of LA voters.
Construction on the “Downtown Connection Project” or DCP, as it was dubbed, began rather ignominiously in the spring of 1971, already six months behind schedule – for the first time, the cut-and-cover method that had been used for the previous lines was abandoned in favor of a modern tunnel boring machine, delivery of which was significantly delayed. This was a rather appropriate start for what was to be one of the longest-running construction projects in Los Angeles history, taking eight years to complete and running over its initial projected cost by almost 200%. A pierced groundwater vein under Bunker Hill proved the first challenge to overcome, and Governor Reagan considered withdrawing funding in 1974 after the project had failed to even reach the halfway point by the scheduled completion date. Meanwhile, Broadway trains were prevented from running between Broadway Place and 3rd Street, forcing the city to run a large fleet of replacement buses and causing utter mayhem in downtown traffic.
Although public discontent rose throughout the period, and even the city authorities that had launched the project were beginning to wonder if it wouldn't have been better to just leave the Broadway line as it was, the project ultimately wasn't defunded, and in 1979, the new Downtown Crossing station was finally opened by Mayor Lindsay and Governor Moretti to great fanfare. The economy was finally recovering, and thanks to the social reforms of the Muskie administration (the “Three M's” as they're often known), the growth came to benefit more Americans than ever before. Things were finally looking up for the United States again.
[1] This shift is less pronounced than IOTL, where LA's Financial District is more or less entirely centered on Flower and Figueroa Streets and the former center of downtown was more or less a decaying slum from the 60s until recent gentrification, but it still occurs.