Bringing streetcars to Minneapolis: Some perplexing twists and turns

Courtesy of the Minnesota Historical Society
A 1918 postcard depicting the streetcars around Lake Harriet.

Streetcar service in Minneapolis ended about 60 years ago — except for the tourist trolley running between Lake Harriet and Lake Calhoun. But in a what’s-old-is-new-again twist, the city is looking to bring them back.  

Already, there have been studies and more studies — in 2007, in 2010 and another going on right now, not just of streetcars but also of the alternative, bus rapid transit. (BRT, as opposed to bus un-rapid transit, stops at set stations rather than every other block and sometimes uses dedicated lanes.)

Minneapolis is not alone in what Finance & Commerce, the local business daily, called “a desire named streetcar.” Atlanta, Cincinnati, Charlotte, Fort Lauderdale, Los Angeles, Portland, Seattle and Washington, D.C., among others, have either started operating a system recently or are in the process of getting one launched. Even pipsqueak Missoula, Mont., (population 67,000) has one under consideration. The revival has come partly at the behest of the federal government. In 2009, Transportation Secretary Ray LaHood pledged $280 million for urban-transit projects, such as streetcars, and the Department of Transportation has been doling out millions ever since.

There is a contention floating about — mainly from Randal O’Toole of the right-leaning Cato Institute — that streetcars are just the latest urban planning fad designed to benefit engineering and construction companies. But Peter Wagenius, policy director for Minneapolis Mayor RT Rybak, says there are reasons to prefer them over buses. Studies have shown that streetcars generate more economic activity. Developers have more confidence making an investment, he says, “when they know there’s a permanent amenity” like tracks, rather than bus routes, which can be changed. He also points out, “more people are willing to ride streetcars,” because they’re easier to get into than buses, quieter, smoother-riding and generate fewer fumes. And I would add: They are adorable. Who wouldn’t want to ride a one-car choo-choo rather than a big, smelly bus?  

On mayor’s agenda

Mayor Rybak has had streetcars on his agenda for years, but the goal has eluded him. In his final State of the City address this April, he vowed to have a financing plan in place before leaving office. The feds, after all, will not underwrite the entire cost of the line — about $220 million for the first route, which would run along Nicollet from a wee bit past University Avenue to Lake Street.  Minneapolis would have to come up with at least half the funds, probably more, given the ongoing sequester and Congressional tight-fistedness. And, it can’t look to the state, the county or Metro Transit for help since the streetcar’s use would be purely local.

So after an intense lobbying effort by the mayor — he gave House Tax Committee Chair Ann Lenczewski (DFL-Bloomington) a personal tour of potential streetcar sites — the state Legislature created a new, somewhat gimmicky financing tool: the value capture district. It allows the city to funnel new tax revenues from five specified districts to pay for the line.

For you wonks out there, it’s a variation on a Tax Increment Financing (TIF) district, another device commonly used by localities to see that both public and private projects get funded. The theory behind it is that completion of a sewer line, a housing development or some other improvement will boost the value of the real estate around it. That increment in value produces higher tax revenues, which are used to repay the bonds the city floated to help finance the thing in the first place. One of the latest TIFs allowed by the Legislature went to 3M to help it finance a new $150 million R & D lab in Maplewood.

TIFs have come in for heavy-duty criticism because there’s some question whether companies like 3M or Baxter Pharmaceuticals (another recent beneficiary) couldn’t finance expansion on their own. But Art Rolnick, a senior fellow at the Humphrey School of Public Affairs, who has long decried what might be called corporate welfare, says that most towns and cities are helpless to deny them. If a city doesn’t help a company, the next town over will. However, he adds, to create a value capture district for a public project like streetcars makes sense. After all, they would benefit the entire populace, not just one corporation.

Why not bonds?

But why resort to a value capture district? The city could instead merely float bonds to finance the line and presume that, as a result, new commerce springs up to produce more tax revenues to repay what was borrowed.

The answer to that is a bit murky — at least to me. Wagenius says that a value capture plan will help show the feds that “we are connecting land use and transportation.” In its approval process, the Department of Transportation looks for projects that don’t just move people from point A to point B but that  concentrate economic development as well — which presumably cuts energy costs and boosts job creation. “We want to demonstrate that revenue will come from properties right on the line,” says Wagenius.

Got a question for Marlys?
Ask her at a summer drinks-and-dinner event for MinnPost members and their guests. More details here.

I do not see why creation of a value capture district necessarily accomplishes that, but, OK, maybe there is some bureaucratic imperative from federal funders. Another thought, however, is that if the city merely floated bonds, any boost in tax revenues would have to be split with Hennepin County and the Metropolitan Council. With a value capture district, says Joel Michael of the research department at the Minnesota House of Representatives, the city gets to keep the entire tax increment.

Would that increment be enough to repay, say, $150 million in bonds? That’s questionable because the value capture district is restricted to five discrete areas near and not necessarily on Nicollet. The definitions are narrow. One area described by the legislation lies between First Avenue North, Washington Avenue, Hennepin and Second Street North. “We chose those areas because there are already new developments in the pipeline,” says Wagenius. He gave as examples Nic on Fifth, 222 Hennepin and Magellan Tower.

But because those are already in the pipeline, they wouldn’t provide any increment, right? The hope is, he says, that those buildings will stimulate more development both in and outside the special district. What’s built within the district would provide a tax increment of about $5 million to $6 million a year, Wagenius estimates. What’s built outside would generate taxes for the general fund. That in turn could also be tapped to pay off the bonds supporting the streetcar line.

The whole arrangement sounds woefully complex, but it’s a done deal now. Anyway, as with all things transit-related, there’s never an end to complexity. Another looming question is: Who will pay for operating and maintaining the  line? Revenues from the value capture district may be used only for planning and construction. Doubtless, there will be a need for operating subsidies, as there is with all forms of transit, from cars to light rail. Can the city afford the expense or will it be able to convince Metro Transit to take it on?

That’s a story for another day.

You can also learn about all our free newsletter options.

Comments (11)

  1. Submitted by mark wallek on 06/04/2013 - 10:21 am.

    Had them once

    The great unpunished conspiracy between General Motors, Firestone and Standard Oil that got rid of the old system should be the entities that put them back. After decades, the punishment would fit the crime, which is why it will not ever happen. The citizens were lied to and robbed, the perps went unpunished. This is historical fact. Another fact: pols no longer work for the citizen, they work for the perps.

  2. Submitted by Matt Brillhart on 06/04/2013 - 02:19 pm.

    Unrelated & Disingenuous

    The City’s current quest for toy trains has nothing to do with our former TCRT system. It’s disingenuous to even bring them up, and not a whole lot less incorrect than when Star Tribune writers lump Light Rail and Commuter Rail into the same failure basket. We have bus lines that run on just about every former alignment of the old streetcar system. Slow, infrequent, and underfunded buses at that, with sorry excuses for stations that are mostly just a pole in the ground with zero creature comforts or route information. Remind me again how building a 3 mile streetcar at $60MM+ per mile is going to help our transit system…

    The shortest variant of the Route 18 (Nicollet Avenue) goes to 66th Street in Richfield and many go further than that. Same goes for the Route 10 (Central Avenue) in Columbia Heights/Fridley. How many decades and how many hundreds of millions of dollars need to be spent before ONE streetcar line replaces even its shortest bus line counterparts? Oh who cares, lets give politicians and developers what they want. TIF district not paying off the streetcar bonds? Rob the general fund! No money for operating costs? Rob it from the already starved bus system! Who cares if people use transit to actually move about the city?

  3. Submitted by David Frenkel on 06/04/2013 - 02:20 pm.

    street car history

    Somebody might publish the history of street cars in the Twin Cities. GM got a little local help to get rid of the street cars many ended up in places like Newark, NJ.

  4. Submitted by Scott Stocking on 06/04/2013 - 03:54 pm.

    Please read “Twin Cities by Trolley” by

    Diers and Isaacs. It is a wonderful history of the Twin Cities Rapid Transit company, and they put to rest the conspiracy theories about the demise of the streetcar system in the Twin Cities. Remember, the trolley system was privately owned, publicly regulated company. There was no public subsidy and they could not raise fares to cover costs without approval by a government agency. Ridership peaked in the 1920’s and the rise of the automobile hastened the streetcar’s demise. Firestone, Standard Oil and GM were not the cause of the abandonment of streetcar systems in the U.S. They were the vultures who picked the carcasses of failing businesses.

  5. Submitted by Ray Schoch on 06/05/2013 - 09:12 am.

    Love the idea, but…

    …I don’t think streetcars are likely to be successful until automobile ownership becomes expensive enough that lots o’ people will see mass transit as a viable alternative. Around here, that doesn’t seem to have happened yet, at least on an area-wide basis. Northstar trains are full on their morning inbound runs, but that doesn’t mean there’s no backup on eastbound I-94 in the northwest ‘burbs, and southbound I-35 north of the inner-ring ‘burbs is a barely-mobile parking lot every morning. That suggests to me that most people, correctly or not, environmentally-savvy or not, are following what seems to them to be the most practical and economical transit mode. That it’s not sustainable, and carries huge environmental costs, doesn’t matter enough to most people to get them to change their behavior. At least partly, that’s a consequence of the auto-dependent society we’ve built since World War II.

    That will eventually change, though I doubt I’ll be around to witness it. Few things human are genuinely permanent, and while it might be comforting to some to note the relative permanence of a street car line over a bus route, the key word there is “relative.” I lived for years in suburban St. Louis less than a block from a former streetcar line, the tracks for which had been quickly removed and replaced with pavement when the time came.

    Public transit only succeeds (i.e., has enough riders to minimize or even eliminate subsidies, meaning that it’s fulfilling a public need) when there’s enough density and enough rider demand. Environmentally, we’d all be much better off if it were successful, but unless/until the financial equation of automobile ownership changes enough to bring real pain to enough formerly-middle-class households, I don’t think public transit in just about any form is going to become the panacea that many (including me) would like it to be. The fact that the state’s most expensive bridge is going to be built so that a few thousand commuters from Wisconsin can cross the St. Croix a bit more conveniently by automobile (and thus spur more auto-dependent development) strikes me as proof that public (and governmental) attitudes haven’t changed enough to make streetcars and other forms of public transit socially desirable once again. I hope they continue to change, but more and more, that change looks to me like an evolutionary one rather than the revolutionary alternative.

  6. Submitted by Alex Bauman on 06/05/2013 - 04:22 pm.

    Proof please?

    “Peter Wagenius, policy director for Minneapolis Mayor RT Rybak, says there are reasons to prefer them over buses. Studies have shown that streetcars generate more economic activity.”

    I don’t suppose Wagenius cited any specific studies that compare economic activity attributed to a streetcar line to economic activity attributed to an enhanced bus line? If not, and you can’t find one (because it doesn’t exist), probably best not to repeat his claim.

    • Submitted by Sam Rockwell on 06/11/2013 - 01:43 pm.

      Re “Proof please?”

      There are very few and limited studies about the economic impacts of streetcar systems in the U.S. because there are so few streetcar systems and they are all so new. However, it seems fairly intuitive that development and economic activity occurs around reliable and (relatively) permanent transportation corridors that are capable of significant capacity: our cities are built on waterways, rail corridors, and highways.

      Streetcars may be worthy objects of experimentation. If we do not use intuition and common sense (as opposed to studies) when building new types of transit systems, we will never create new systems. You cannot study something that does not exist.

      Finally, for what it is worth, the limited recent studies about economic activity and streetcars indicate that streetcars DO induce economic development and activity. See TCRP Synthesis 86, Relationships Between Streetcars and the Built Environment (2010) sponsored by the Federal Transit Administration (available at http://www.reconnectingamerica.org/assets/Uploads/streetcars_tcrp_syn_86.pdf).

  7. Submitted by Paul Udstrand on 06/06/2013 - 09:16 am.

    Two points for Ray… and others

    The 1st point is that very few transportation systems in the world runs without any subsidies and none our US systems including our roads and bridges for cars. Defining the “success” of a transit system in terms of it’s financial self sustainability is poor metric. Second, you don’t build transit to relieve automobile congestion, if you think THAT’s going to happen you don’t understand transit. A lot of people go wrong here because we have such an auto-centric mentality in the US. The truth is you don’t build transit to benefit the people who DON’T use it, i.e. the drivers on the roads. You build transit for the people who actually use it, THEY’RE the ones who benefit from it, not the drivers who never use it. There’s not a urban road or freeway in the world that free of congestion because of a transit system, from Paris to Tokyo we have congested rush hour traffic.

    We need good transportation infrastructure whether it’s profitable or not, that’s why most privately owned systems in the world have since become public owned or at least publicly subsidized. It’s not about the system’s profitability, it’s about the commerce and mobility transportation systems provide. The point is transit provides more affordable and convenient transport options for people. They’re success is not measured in terms of traffic congestion, it’s measured in terms of usage. Thus far, with the exception of the North Star line, we’ve seen most rail systems (light rail or street care) in the US exceed projections. If the North Star is filled to capacity, then it’s a success regardless of congestion on 35W.

    Elsewhere on Minnpost there’s been a discussion about Fare Recovery Rates, i.e. whether or not transit system fares can pay for the systems (actually a Street’s Blog): http://www.minnpost.com/minnesota-blog-cabin/2013/06/farebox-recovery-economics-public-transit

    There’s also nice little Wiki with the comparative numbers from system to system nation and world wide: I was surprised to see that Washington DC and San Fransisco actually out perform most European cities. The key is the system, the better the system is the more people use it.

    But then again I’m just a liberal who likes choo choos who lives next to a parking lot called 394.

    • Submitted by Karen Sandness on 08/08/2013 - 10:43 pm.

      True: the real purpose of a transit system is to provide OPTIONS

      for people who can’t or don’t want to drive: children, the elderly, the disabled, the poor, and those who hate to drive. Right now, they’re forced either to drive a car they can’t afford or can’t use safely, beg rides from other people, take taxis, use an inadequate bus system, or stay home.

      All the large Japanese cities have horrible traffic problems, despite their magnificent transit systems. But commuters in places like Tokyo and Osaka have a choice. They aren’t forced to drive, and if they have any sense, they don’t.

  8. Submitted by Paul Udstrand on 06/06/2013 - 09:29 am.

    Oops I forgot the wiki-link

    That link to the nice little wiki about farebox recovery: http://en.wikipedia.org/wiki/Farebox_recovery_ratio

  9. Submitted by Paul Udstrand on 06/06/2013 - 09:31 am.

    Cars on Nicolette Mall

    I remember a while back some idiot consultant recommended restoring automobile traffic to the Mall in order to increase foot traffic… I’m glad that insane piece of advice was ignored.

Leave a Reply