Creative Cincinnati Streetcar funding mechanism pays half of service cost

Happy New Year! Here's the math on 2015 thus far: A new year = a creative value capture mechanism! Actually, it's just a politically palatable variation on an old dog. Who says you can't teach an old dog new tricks?

Randy Simes over at UrbanCincy reports that the Cincinnati Streetcar is making great strides. Branding, initial ticket sales, and an operating budget are in place. Interestingly, the funding agreement for operating the new streetcar includes a real estate value capture component. Property taxes will pay approximately half of the operating cost of the new streetcar service.

The agreement also utilizes an innovative technique that would lower property tax abatements 7.5%. This is an important component of the agreement as it addresses a longstanding call from opponents for those benefiting from real estate valuation increases to cover more of the costs of modern streetcar system. It also eliminates the need to utilize the Haile Foundation’s $9 million pledge, and would instead only tap into those funds in a worst-case scenario.

Project officials estimate that the system will cost approximately $3.8 to $4.2 million annually to operate, and that those costs would be covered by $1.5 million in additional on-street parking revenue in Downtown and Over-the-Rhine, $1.3 million from fares and advertising, and an estimated $2 million annually from the tax abatement reductions.

This brilliant value capture method defies some aspects of tax theory while still being politically palatable. Taxes tend to be politically viable when their burden is felt widely and minimally while their benefits are accumulated by a small, influential group that has a special interest in the adoption of the tax. In this instance, a small and influential group of property owners are feeling the brunt of the burden while a broad group of transit riders and property owners expect benefits.

This instance is distinguished from a new tax because it is actually a roll back of a prior tax avoidance. This is the same idea as eliminating tax breaks for specific industries. The perception is that the rich are getting richer while the poor populace gets nothing. In this instance, the rich landowners get a little less rich and the populace gets streetcar service.

This is an interesting case study and I look forward to following the implementation. Thanks for the update, UrbanCincy!