Sunday, September 14, 2008

Possible Streetcar Network Funding Idea

As cities look to build streetcars, its easy to come up with an initial amount from businesses but its that last few million that seems to be troublesome. A lot of cities look to TIF funding, but that source of funding has limits and many want to use it for different purposes including affordable housing and basic infrastructure such as water/gas lines and sidewalks.

So here I'm about to toss out another crazy idea that I'll need help from my economist friends to see if it is really possible to do. I'll use the Minneapolis streetcar network plan as an example. We know there is not enough funding to do it all at once. If we use Detroit's recent fundraising success from local businesses as seed money, one corridor exists to fuel the others. The fueling is in real estate transfer taxes off of the increase in value that is created by the new streetcar line. Since infrastructure such as the streetcar has been seen to add value, it's only fair that some of that value be reinvested in other areas that will receive similar infrastructure. So bear with me here as I go through the process.

1. Do an initial study to figure out the streetcar network. Once completed this will serve as the base funding area for engineering. A basic TIFF district for the whole in town streetcar network would serve as a base for the rest of the plan. The district boundaries will stay because they will be used later.

2. The Detroit instance shows that businesses and foundations are interested in their cities future. They have raised 75% of an initial $100 million in Capital Costs for a new line down Woodward. The first line should try to pull in money from outside entities and use that line to feed the others.

3. Before the first line is constructed though, a baseline is set on real estate costs in the area defined by the very small increment TIF district that was initially used for the engineering studies. This baseline would be used to calculate a real estate transfer tax that allows the streetcar network to capture the value of rising real estate values along the line. There should also be a transportation fee for new square footage. I believe that San Francisco for a long time had a fee that went to Muni at 5$ for every new square foot in a building. These linkage fees could be tied to parking reductions so its not as much of a burden on the developer, and leaves money for other endeavours such as affordable housing.

4. After completion of the first line using funding raised locally, the rising coffers funded by the transfer tax and linkage fees from the first investment go into the construction of the second line in the district. Once the second line is complete, the real estate around that line goes to the third line and so on starting off a chain of funding that creates the network. Over a 20 year period, I believe it would be possible to build each line.

I also think that if a plan like this was created, it would create more incentive for the federal government to help out if this were tied to a national strategy. So there is the idea. Funding one line at a time by fueling one line at a time as a primer for the next one.

Minneapolis Planned Streetcar Network


Michael said...

If you're expecting each line to provide a boost in property values that can be captured through increment financing, why not just float the bonds to cover constructing the entire network as fast as possible? You could use the increment financing as collateral to hopefully increase the credit quality of the bonds.

I'm not in public finance, but I'm not sure why doing it line-by-line is better if you expect each line to be successful (as measured by increasing property values enough to pay for them all).

Additionally, by paying for the network with bonds, the people using them over the next 30-50 years can pay for them year by year, rather than all in the first few years (decades) while they're being built.

Pantograph Trolleypole said...

I guess I was thinking in terms of a more immediate pay as you go method that is triggered by the investments. But this might work as well. I hope it gives people ideas and they can use the idea how they see fit for their community.

Pantograph Trolleypole said...

In thinking about it more, another thing to consider is that if you build all of these investments at once, you won't be able to concentrate benefits from development. There is a ceiling on demand and it seems to me that perhaps more funding could be had by concentrating on one corridor at a time. But I'll let some others comment on this as well as again, its just an idea to think about.

Michael said...

That's a good point. If you glut the market with "new TOD near streetcars" all at once, without giving the market time to digest, prices will crash and developers won't build any more.