What happens when the appetite for rail transit keeps growing while traditional revenue dries up?
The answer may come in the form of new public/private arrangements that capture tax values from future real-estate projects to help finance the laying of track and the buying of train sets.
That’s what’s happening in Dallas-Fort Worth where public and private investors are looking into borrowing from the expected housing, retail and office developments generated by a new Cotton Belt commuter rail line. Waiting for traditional funding (sales tax) wouldn’t produce a new rail line until 2030, given all the other projects underway. So, the regional planning agency and potential private investors are investigating more than 120 potential funding sources with, perhaps, a special eye toward real estate. The plan is to get trains rolling by as early as 2013.
In one sense, there’s nothing new about the government and private partners hatching transportation/land deals. In the 1860s, Congress passed the Pacific Railway Acts that granted vast public lands to private railroads for laying track across the West. The railroads, in turn, sold the land to settlers at huge profits while also creating markets for shipping goods and passengers by rail.
Private streetcar companies later took the concept to urban America, creating patterns of development that generated riders for streetcars and tax revenues for cities. Thomas Lowry’s Twin City Rapid Transit Company was one of the most successful. At its peak in 1922, the company carried 226 million passengers on mostly public right-of-ways stretching from Stillwater to Excelsior.
Dallas: More demand than money
At the turn of the 21st century, few could imagine auto-bound Dallas as a hotbed of rail revival. But Dallas Area Rapid Transit‘s light rail trains, launched in 1996, carry more than 70,000 riders a day. In December DART will open a new 24-mile stretch of light rail, bringing its rail system to 106 miles, with another 14 miles under construction.
Trouble is, the system’s slice of the sales tax (1 cent) can’t keep up with demand, especially in the rapidly expanding northern suburban tier. The financial mismatch became clearer after the 2008 crash, when sales tax revenues slipped badly. Another factor, according to DART, was an ongoing shift in demographics. The core of the DART service area has grown poorer, younger and more ethnically mixed. In other words, its buying power has declined and so has its ability to generate sales tax revenues. A new funding model was needed to accelerate the Cotton Belt line.
“Our plate was completely full,” said DART spokesman Morgan Lyons. “We couldn’t take this on alone.”
Enter the North Central Texas Council of Governments, the region’s metro planning agency, with its public/private idea to accelerate the Cotton Belt line. The route is a 62-mile freight corridor purchased by DART in 1990. It runs from Dallas’ northeast suburbs, across the northern tier, skirting DFW airport and into Fort Worth, where that city’s transportation authority (known as “The T”) plans to run it diagonally across town to the southwest. The likely technology would be diesel-electric hybrid, similar to light weight trains already running in Austin, Tex., and on New Jersey Transit’s River Line between Trenton and Camden.
Most important, however, is the Cotton Belt’s huge potential for growth and redevelopment, especially near DFW airport, which is emerging as the region’s focal point. Tapping into that growth seems a logical move. It’s a cousin, of sorts, to the trend toward tolling on freeways; those benefiting most directly from the transportation investment pay a greater share of the cost.
“The development potential in this corridor is absolutely staggering,” said Steve Salin, DART’s vice president for rail planning. If the growth is going to explode, he asked, why not concentrate as much of it as possible along the Cotton Belt corridor as a way to save energy and infrastructure costs, as well to preserve the environment?
“It’s a way to encourage incremental growth in a unified way so that everyone benefits rather than having individual cities competing for growth,” he said.
How to create balanced development?
“We are in a new era,” is how the Council of Governments begins to explain its public/private effort. “We must harness the value of transit oriented development to create an entire corridor of desirable communities and traditional neighborhoods.” The focus, it says, will be to attract private investors for “designing, building, operating and maintaining” passenger service and adjoining public spaces.
What’s contemplated is a kind of tax increment financing (TIF) arrangement that would plant seeds and build confidence in transit-friendly development in order to offset the built-in cost advantages that auto-friendly development enjoys. It also fulfills a public purpose by offering a travel choice that uses less energy and infrastructure while doing less harm to the environment.
In other words, it creates a more even playing field to compete with auto-friendly development — an outcome sought by the Obama administration and by many metro regions across the country, notably Denver. That city’s strapped transit agency, hit hard by declining sales tax revenues, managed to launch a new $1 billion commuter rail connection to Denver International Airport by employing a private consortium to finance, build and operate the 23-mile line.
Key players in the Twin Cities have also considered value capture as a potential funding source for transit or, more precisely, for transit districts. The concept first emerged in the late 1990s when opponents of the Hiawatha light rail line proposed extra property taxes in the corridor to help fund the line. Proponents pointed out that no comparable tax was assessed on property near freeway interchanges.
An evolving idea
Since then, the idea has evolved, not as a penalty to development but as a way to capture incremental value on future development to make transit districts more attractive for private investment. Hennepin County Commissioner Peter McLaughlin, chair of the Counties Transit Improvement Board, said he sees value capture not as a way to fund transit directly, but as a way to “set the table” for redevelopment opportunities in transit districts.
“The idea is to create an attractive atmosphere for private development that serves a public purpose,” he said. That purpose is to encourage new markets that rely less on auto travel and make a smaller footprint on the environment.
If experiences in Dallas and Denver are a guide — and they probably are — Twin Cities residents will be hearing more about value capture and private rail partners in the months ahead.