In his recent state of the city address, New York City mayor Bill de Blasio talked about a lot, but might have made the biggest impression on listeners when he endorsed the idea of a new Brooklyn-Queens Connector. This grade-level streetcar project would run 16 miles along the East River and be funded by tax increment financing. For many onlookers, including the New York Times, it was surprising to hear a mega-project be a top priority of the likes of de Blasio and it immediately raised concerns about the pitfalls of grand infrastructure projects.
For Mr. de Blasio, a Democrat focused on social reform, the plan also represents a shift to the kind of ambitious Robert Moses-style planning that New Yorkers more often associate with his predecessor, former Mayor Michael R. Bloomberg, who made transportation a hallmark of his tenure.
(Wow, de Blasio drew a Robert Moses comparison? Nobody would have predicted that when he was elected!)
As CityLab's headline suggested ("New York Has a Streetcar Plan that Isn't Totally Awful"), the perception of the project is that, if done well, it could be very beneficial for the community and a wise investment. High on the list of factors contributing to skepticism about the project is the value capture aspect of the proposal. There has been recent value capture backlash in New York City due to issues with TIF in similar transit-related circumstances, including the modest - relative to initial promises - portion of capital costs that value capture covered on the downsized transit project at Hudson Yards. There's always the problem with mega-project cost increases and budget overruns, but concerns around value capture often focus on its modest or unpredictable funding capacity.
It is true that, depending on its format, value capture can be an unpredictable or volatile funding source. Tax increment financing relies on increased property taxes in an area and, depending on the local property assessment regime, property taxes can produce volatile revenue streams. And, if increment projections rely heavily on new development, then future revenues can be as unpredictable as future market cycles.
When such volatility exists, politicians must consider who backstops the bond repayments. If the Brooklyn and Queens neighborhoods around the proposed Connector do not experience significant value increases in the future and value capture yields fall short of expectations, will the City of New York help fund the bond payments (a general obligation guarantee)? If not the City, are there other reputable funding sources (according to bond underwriters) that can backstop transit construction and operations costs?
Like any funding mechanism (consider sales tax-funded transit programs like Denver's FastTracks!), transit value capture poses financial risks and, therefore, political risks. Robust forecasts of value capture revenues can help politicians like Bill de Blasio confidently stride to the podium and announce that a new transit project is forthcoming. Let's hope de Blasio's advisors got the projections right for the Brooklyn-Queens Connector!
Ian Carlton is a transportation and land use expert specializing in transit-oriented development (TOD). He helps clients - including transit agencies, planning departments, and landowners - optimize real estate development around transit.
Special thanks to Burt Gregory at Mithun for permission to use the Portland Streetcar image above.