The anticipated 2018 deficit of the NY MTA, $262 million, exceeds the total annual operations of most transit agencies. So when value capture is highlighted as a means of revenue generation for the $13.5B agency, it is rightly recognized as relatively small potatoes compared to the overall need. This was highlighted in a recent MTA Reinvention Commission document reported on by NYC Streetsblog. In the words of the folks at Streetsblog:
The report emphasizes the need to keep the Payroll Mobility Tax in place, and suggests revenue enhancements like requiring all-cash real estate transactions to pay a version of the mortgage recording tax, increasing the use of value capture throughout the region, and squeezing more revenue from advertising, which is already on the rise.
Given our current transit spending levels, politics, and institutions, value capture is bound to be a small part of the funding pie in any jurisdiction. Value capture's virtues are twofold, both as a gap filling funding source and as an incentive for high-quality transit planning and service provision.
Salon has a great article that discusses the debates in transit circles today, particularly perceived in-fighting between transit supporters. The article was spurred by the recent scuttling of a long-standing plan to build streetcars in Arlington, Virginia.
In this respect, the scuttling of the Arlington streetcars highlights the deepening rift in the American transit movement. Though nominally a disagreement about the purpose of transit infrastructure (moving people vs. spurring development) and the value of a streetcar that shares a lane with cars (is it better than a bus?), it’s more broadly a contest between pragmatists who laud transit investment despite flaws and idealists who hold out for something better.
I wrote just a few days ago about David Levinson's proposal for planning transit primarily for ridership, not development, and the role that transit value capture could play in funding real estate-oriented deviations from ridership-oriented routes. He suggested that real estate-oriented transit seldom delivered on its promises and we should focus on more efficient transit investments.
In the case of the Arlington Streetcar, they're not considering a route change. Rapid buses running along the same route may be that more efficient option. Eric Jaffe's latest piece on the Arlington Streetcar project suggests that the alternative bus-rapid-transit proposal was significantly cheaper with only slightly lower expected ridership. From a real estate development standpoint, economic analysis firms estimated that less development would occur along the route if BRT were built instead of rail. However, given the bus options lower cost, the BRT was projected to generate a better return on investment ($ corridor development / $ transit cost) than the streetcar.
In such cases where BRT gets you more real estate bang for your buck than a streetcar alternative, value capture mechanisms would collect nearly the same revenues while the transit capital costs that they could fund would be significantly lower. Levinson would be happy.
I can't say enough about my respect for David Levinson and his thoughtful, historically-grounded views on transportation policy (it doesn't hurt that we were both Georgia Tech undergrads and Berkeley PhDs). He can be a broad visionary (for example, Levinson's transit utopia). In fact, in a recent Transportationist blog post, he laid out a concise argument for a ideal transit planning rubric focused on efficiency.
While efficiency-focused transit planning views are nothing new (e.g., maximizing ridership or fare recovery rates), it is noteworthy that a proponent of value capture has highlighted its limitations and the need to question the economic development justification for some transit investments. However, by all but ignoring the political realities related to geographic equity, I find his argument idealistic. Yet, I appreciate the clarity, the role he sees for value capture, and the shift in the burden of proof this could bring to transit planning.
He argues that we should always build transit to existing dense, transit-oriented places unless the private sector would like to pick up the tab to extend new transit capital investments to places where development opportunities might exist. Picking up the tab would essentially be the private sector engaging in value capture, placing forward looking bets (upfront investment in transit) to be repaid through real estate value lift. Without saying it, he suggests we leave behind the existing methods we use to evaluate transit projects, particularly evaluations of future development.
He suggests that "build it and development will come" was an appropriate transit planning strategy when private firms took the risks. However, today, the results are mixed and the public is left holding the bag.
We are often building lines that aim to promote development. That is, they are serving non-places in the hope they become places. The evidence on this is mixed. Sometimes lines successfully promote development, sometimes they don’t. If the lines were privately built (as in times of yore), this would be much less of public policy question, as the public is not bearing the monetary risk.
(BTW, this is where I think Levinson overlooks the underlying political economy of these transit investments justified by "economic development." For example, the only way to get approval for a transit investment from Hypothetical, USA's downtown to Hypothetical, USA's midtown is to extend that service to the outlying county that has paid into the transit district since 1980 without seeing their perceived fair share of the benefits. In such cases, project proponents are essentially saying something like, "We'll build our $3B transit line once we secure the votes to build a decent $2B transit alignment by wasting an additional $1B on an unimpressive hinterland extension of that alignment." Envisioned suburban TOD--a.k.a. economic development--along the $1B portion of the investment is an acceptable public-facing framing/argument for such an unpalatable political reality.)
Levinson goes on to tell us where we should focus our transit investments. Since we're allocating finite federal funds (matched by state & local money), he suggests planners focus their attention on serving places where demand will better support the financial obligations of operating a major transit investment for the next 60 years. What/where are those places? In his historically mindful way, he answers that by looking to the past:
Will today’s places have any activity in 60 years? A good test of that is whether the place had activity 60 years ago. Look at the map of 60 years ago. Where was the activity? Where is it today? The intersection of those two maps show places with proven longevity. There are no guarantees those places will have activity in 60 years of course (“past performance is no guarantee of future results”), but they are more likely to because there is an underlying cause for the stability of the place. That is, there was a cause for that place to develop in the first place (e.g. a useful waterfall, a port, or a junction between intercity rail lines), and the positive feedback structure between transportation, accessibility, and land use actively worked to reinforce the strength of that place.
Then there's the role of value capture. He suggests that one could justify a transit investment to an out-of-the-way non-place if someone besides the public sector were to fund the investment (recall, he argued that public costs generally do not yield commensurate benefits anymore so the public sector should be looking to minimize our--the citizens'--losses).
If a private firm wanted to bear the risk of those prospective developments not working out, more power to them. But the public is asked to do this, while perfectly good markets go unserved or underserved for lack of capital.
If an interest group wants to argue that transit is justified based on future development, he suggests they put their money where their mouth is. I agree. There are plenty of value capture mechanisms that can be used and there are plenty of bond underwriters willing to provide a judgement on the validity of real estate-related revenue projections.
While I think Levinson's idea completely ignores the realities of geographic equity, this seems like a much more rational starting point for a discussion about "good transit planning" than a regional planning process that starts off looking for ways to serve every jurisdiction in the region with fixed-guideway transit so that downtown and midtown can be connected by a cost effective rail investment.
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.