NoMA Development. CC image from bankbryan.

Jarrett Walker’s weekend links post directed me to this article in The Atlantic by Chris Leinberger, asking if we might return to the days when private interests invested in transit as a means to facilitate real estate development.  Our own urban history is one of linked transportation and land use planning, accomplished through the market and real estate development:

How did the country afford that extensive rail system? Real-estate developers, sometimes aided by electric utilities, not only built the systems but paid rent to the cities for the rights-of-way.

These developers included Henry Huntington, who built the Pacific Electric in Los Angeles; Minnesota’s Thomas Lowry, who built Twin City Rapid Transit; and Senator Francis Newlands from Nevada, who built Washington, D.C.’s Rock Creek Railway up Connecticut Avenue from Dupont Circle in the 1890s. When Newlands got into the rail-transit business, he wasn’t drawn by the profit potential of streetcars. He was a real-estate developer, and he owned 1,700 acres between Dupont Circle and suburban Chevy Chase in Maryland, land served by his streetcar line. The Rock Creek Railway did not make any money, but it was essential to attracting buyers to Newlands’s housing developments. In essence, Newlands subsidized the railway with the profits from his land development. He and other developers of the time understood that transportation drives development—and that development has to subsidize transportation.

The result of these transportation and real estate investments were the now ubiquitous streetcar suburbs.  Leinberger proposes to return to that model, where the value added to a given area of land from transit can be re-captured through some means and invested in the transportation network.

When the streetcar/real estate barons controlled the entire system, such value capture was merely an exercise in accounting.  Additionally, the ease of developing greenfield sites on the rapidly expanding fringe of the city (Leinberger’s DC example of growth along Newlands’ Connecticut Ave rail line represents the first real urbanization of that space) makes things much simpler than dealing with already established urban environments.

With those key differences in mind, Jarrett throws a wet blanket over Leinberger’s nostalgia for the way things used to be. Rightly, Jarrett notes that we won’t be able to re-create the environment of those private real estate and transportation investments.

Nevertheless, Leinberger is talking about a broader concept – one of leveraging the value transit has and capturing that value as a means to finance the infrastructure itself.  Jarrett’s follow-up on the subject concurs – the same basic concept of capturing that value is the core of the issue.

Leinberger cites a of local example, the New York Avenue Metro station and the subsequent development of the NoMA area:

How would the private funding of public transit work? Most states already have laws in place that allow local groups of voters to create “special-assessment districts,” in which neighborhood property owners can vote to fund an upgrade to infrastructure by charging themselves, say, a onetime assessment, or a higher property-tax rate for some number of years. If a majority of the property owners believe they would benefit from the improvement, all property owners in that district are obligated to help pay for it. These districts can vote to fund new transit as well (potentially, the transportation-financing agency could even receive a minority-ownership stake in the district’s private property in return for building new transit). In the late 1990s, property owners paid for a quarter of the cost of a new Metrorail station in D.C. using this approach; after the station opened, an office developer told me he believed his investment was being returned manyfold.

The idea of a transit or government agency owning a stake in real estate development is another interesting idea – Hong Kong’s MTR Corporation both operates the rail system and develops/manages real estate around stations.   However, vesting this kind of authority in the government can be problematic, as mixing of eminent domain capabilities and the desire for private, transit-oriented real estate development can be a touchy subject, as some experience from Colorado shows.

Existing mechanisms for value capture, such as tax-increment financing (again, as Jarret notes) do work, but are limited.  As one of the commenters at The Atlantic notes, Leinberger’s example of an infill Metro station only works because the value of such a station is that it provides a link to an existing, robust transit network.  Such a mechanism wouldn’t work for starting a system from scratch.

The current battle over how to re-shape Tysons Corner is illustrative of many of the issues.  In Tysons, many land owners have agreed to tax themselves in order to add transit.  This works because they’ll be adding a linkage to Metro’s already robust and successful network.  At the same time, the initial plans aimed to maximize the return on the transit investment by substantially upzoning the area and increasing density – but now some parties are getting cold feet.

The other piece that Leinberger raises (as well as several commenters on Jarrett’s post) is reforming the federal piece of transit financing to be more responsive and agile in partnership with private capital:

We could hasten the process by making a much-needed change in federal transportation law. The federal government typically provides 20 to 80 percent of the money for local transportation projects (with local and state governments paying the rest). Yet federal funding of projects that involve private partners is extremely rare—in large part because federally funded projects typically take years to approve, and private developers usually can’t tie up their capital waiting for the government wheels to turn. Over the past few years, private corporations and foundations in Detroit raised $125 million to help build a light-rail line, and have been working for some time to secure federal funds to complete the project. Fixing federal transportation law to expedite transit projects would allow faster development at lower public cost.

None of these mechanisms is perfect, but each will likely be a part of future transit financing discussions – value capture, tax-increment financing, public-private partnerships, upzoning, etc.