Value capture & private transit financing

NoMA Development. CC image from bankbryan.

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.

Changing suburbia

Some suburban items to share today:

Design: Infrastructurist takes a look at the problem of culs-de-sac (which I believe is the proper plural of cul de sac).

cul-de-sacs

Commenters take note of some serious issues with this particular study, but the general point still stands – culs de sac remove key links from the street network, requiring longer and more circuitous routes to get to the same destinations.  Developments of these kind of street patterns are no small part of America’s long history of vehicle miles traveled increasing far faster than the rate of population growth.

Diversity: The Washington Post has an article on the changing face of suburbia – more socially and economically diverse, and dealing with new sets of problems that many of these communities have never had to deal with before:

Demographers at Brookings say suburbs are developing many of the same problems and attractions that are more typically associated with cities. And cities, in turn, have been drawing more residents who are young and affluent, so the traditional income gap between wealthier suburbs and more diverse cities narrowed slightly.

“The decade brought many cities and suburbs still closer together along a series of social, demographic and economic dimensions,” said the report, titled “State of Metropolitan America.”

The other substantive point is about how Americans perceive their surroundings (urban, suburban, rural) compared to how their city and their urban economy actually functions:

The report outlines a decade in which several demographic milestones were passed as the nation’s population topped 300 million midway through. About two-thirds of Americans live in the nation’s 100 largest metropolitan areas, virtually all regions with populations of 500,000 or more.

“We think we’re a small-town nation,” Berube said. “But small towns exist because they’re connected to something bigger, which allows residents to make a living.”

Density: Ryan Avent has long marked the economic benefits of density and the nature of urban agglomerations, but he has an interesting point on the marginal benefits of added density, noting that modest increases in the less dense suburbs could have a troubling impact, while modest increases in the already dense core, already designed at a walkable scale, would have serious benefits for local retail.

So let’s think about the effects of doubling density in Fairfax and the District. Now on the one hand, the benefits to doubling density in Fairfax are likely to be larger than those in Washington for reasons of scale alone — in the Fairfax example, more people are added. That makes for a deeper labour pool, a larger skills base, and so on. On the other hand, Fairfax density is likely to be less effective density. Fairfax is built in a fairly standard, suburban way. It’s not built at a walkable scale, the road system is arterial rather than gridded, transit options are limited, and so on. Doubling density, absent major infrastructure improvements, might actually reduce the metropolitan access of Fairfax residents.

Not so in the District. Yes, with more people roads, buses, and the Metro would be more heavily taxed. At the same time, every neighborhood would become individually more convenient. Brookland is fairly low density for a District neighborhood, but it’s basically built to be walkable. Were density in Brookland to double, the retail and commercial options within easy walking distance of Brookland residents would more than double.

The problem with doubling the density in a place like Fairfax County, aside from the infrastructure issues that Ryan highlights, is that you’d end up with a place that’s stuck in the no-man’s land of density – too dense for the auto-oriented infrastructure to function smoothly, but not dense enough to really tap into the critical mass and benefits of walkable urban places.

NYT Infographics – VMT and Oil

Two great infographics from the New York Times – both related to petroleum.

First, a great graph of per capita VMT compared to changes in gas prices:

nyt_vmt_gasprices

Putting vehicle miles traveled per capita along the x-axis instead of time makes the swings in both price and VMT more obvious. The massive growth of VMT over time despite the swings in prices shows just how entrenched car culture and automobility are in the US.

All that VMT must need a lot of oil. The Times also has a handy map of the Coast Guard’s forecasts for the extent of the growing oil slick in the Gulf of Mexico.

April 22:

nyt-oil-1

April 28:

nyt-oil-2

May 1:

nyt-oil-3

May 4:

nyt-oil-4

Briefly noted

7000Series

Some items of note today:

Weekend Reading

CC image from sabeth718

CC image from sabeth718

There’s a whole host of good stuff out there this weekend, covering the economy, smart growth, transit, high speed rail, and more:

Smart growth is nothing to fear: Roger Lewis aims to quiet the fears of Washington Post readers:

In fact, as new long-range plans are implemented in the coming decades, your property’s value will probably go up, your way of life and neighborhood character will be enhanced, and traffic congestion will not worsen. Indeed, it may ease. Also remember that such plans primarily serve future generations.

Optimism is justified. Stable, low-density residential neighborhoods and subdivisions will remain untouched. Transportation network plans do not depend on routing future traffic through subdivisions and local residential streets, many of which are loops and cul-de-sacs. And redeveloped areas actually will provide new, desirable conveniences for residents able to walk or bike to buy a quart of milk or sip coffee in a cafe.

Daniel Gross puts that into a larger context: Complete with quotes from Richard Florida, Mr. Gross looks to optimistic visions of the future and the chance to re-shape our economy, using the pending economic rebound to re-shape things – putting those kinds of smart growth plans into action:

So what will our new economy look like once the smoke finally clears? There will likely be fewer McMansions with four-car garages and more well-insulated homes, fewer Hummers and more Chevy Volts, less proprietary trading and more productivity-enhancing software, less debt and more capital, more exported goods and less imported energy. Most significantly, there will be new commercial infrastructures and industrial ecosystems that incubate and propel growth—much as the Internet did in the 1990s.

Not everyone is so optimistic: Reihan Salam at The Daily Beast isn’t nearly as optimistic about our economic prospects, despite the good intentions and aspirations of folks like Roger Lewis.

But one could just as easily argue that we’ve been furiously spending taxpayer dollars propping up the McMansion-and-Hummer economy. To protect homeowners, we’ve launched an extraordinary series of interventions designed to buttress housing prices, an approach that effectively transfers wealth from those who rent to those who own. Collapsing housing prices could prove a boon for less-affluent households or cautious investors who were reluctant to buy at the top of the market. That can’t help unless we accept that housing prices can and should collapse, even if that hurts key constituencies in the short term. And the same goes for efforts to keep the domestic automotive industry on life support.

So, are we in a moment of change or not?  The point about renters and owners is well taken, it reminds me of plenty of discussion around tax day about the perils of the mortgage interest deduction.

Beyond these big, national-level policy questions, there’s plenty of room to debate the local impact.  Housing Complex notes that DC has lots of jobs (relatively) and high rents, circling back to the notion that the ability to change things won’t be uniform across the nation.  Places like DC are positioned well to make the transformation – provided the Federal framework enables these kinds of changes.

On that note, Aaron Renn looks at a potential city-friendly federal policy framework, emphasizing talent, innovation, and connection – looking at policy areas of transportation, housing, the environment, and immigration.  Perhaps the key takeaway is the requirement of flexibility – many of today’s problems stem from federal policies that are too rigid to be of much use in urban environments.

Density discussions: Density is good for cities.  It’s also often misunderstood and feared – see Roger Lewis’ calming of fears regarding smart growth.  A few posts on the subject:

  • Yonah Freemark questions whether streetcar suburb densities are enough to get real urbanism and transit use.
  • Aaron Renn asks if density is overrated for smaller cities, as they can still compete without it, taking advantage of highways and cars that work well at lower densities.
  • Cap’n Transit criticizes both thoughts, emphasizing the bigger picture about why we want to encourage urbanism and transit use in the first place – arguing that Renn’s rationalization isn’t helpful in the long run.

Miscellany:

Enjoy the journey

Metro-North Bar Car

The New York Times has a couple interesting pieces on transportation, one dealing with volcanoes and the other with booze.

First, the obligatory volcano story: Seth Stevenson thinks the eruption of Iceland’s Eyjafjallajökull and the subsequent shutdown of air travel across the continent offers an opportunity to really enjoy travel, rather than just flying over the landscape (and all the interesting stuff) at 35,000 feet.

In the five decades or so since jets became the dominant means of long-haul travel, the world has benefited immeasurably from the speed and convenience of air travel. But as Orson Welles intoned in “The Magnificent Ambersons,” “The faster we’re carried, the less time we have to spare.” Indeed, airplanes’ accelerated pace has infected nearly every corner of our lives. Our truncated vacation days and our crammed work schedules are predicated on the assumption that everyone will fly wherever they’re going, that anyone can go great distances and back in a very short period of time.

So we are condemned to keep riding on airplanes. Which is not really traveling. Airplanes are a means of ignoring the spaces in between your point of origin and your destination. By contrast, a surface journey allows you to look out on those spaces — at eye level and on a human scale, not peering down through breaks in the clouds from 35,000 feet above — from the observation car of a rolling train or the deck of a gently bobbing ship. Surface transport can be contemplative, picturesque and even enchanting in a way that air travel never will be.

Stevenson is so dedicated to this idea that he and his girlfriend successfully circumnavigated the globe without leaving the surface of the earth.

Stevenson’s admonishment of the jet age also stands in contrast to a piece in Sunday’s Washington Post, instructing us to ignore nostalgia for the golden years of airline travel.  Brett Snyder defends airline deregulation and the seemingly inevitable fees for carry on luggage as a further step into the purity of free markets.

I have a copy of TWA’s flight schedule from June 1, 1959. The first jets were being introduced into the fleet, but the vast majority of flights were still on propeller-driven aircraft. There’s an ad in the timetable for TWA’s low coast-to-coast “excursion fares.” Los Angeles to New York was only $168.40 roundtrip, if you traveled Monday through Thursday in Sky Club Coach class. That bargain is roughly equivalent to $1,225 today, before tax.

These fares weren’t valid on the fastest aircraft, so you had only two options, neither of which went nonstop. There was the 10:10 a.m. departure from Los Angeles that arrived in New York at 11:41 p.m. that night or the 7:55 p.m. departure that arrived at 10:56 a.m. the next day — more than 12 hours in the air. This was on a Lockheed Constellation, which, while beautiful, bounced you around in the weather at about 20,000 feet, far below the 35,000 to 40,000 feet you’d cruise at today. Even when the weather was good, that trademark prop vibration left you feeling like you were sitting on a washing machine for hours after you landed.

It is curious that Snyder chose to contrast today’s deregulated jet age with the age of turboprops – he could have easily picked a schedule from 1973 instead of 1959 – flying on a brand-new Boeing 747, rather than a dusty old Constellation – and at least been comparing jet-age apples to apples.

Still, the contrast between Stevenson’s nostalgia and Snyder’s rejection of is interesting, even if both are speaking toward different ends. Snyder writes about the benefits of market efficiency and competition for passengers, while Stevenson writes of enjoying the journey.

Perhaps there’s no greater way to enjoy the journey than to enjoy happy hour at the same time.  With that in mind, the New York Times writes about the endangered bar cars on Metro-North trains from Grand Central to Connecticut.

A new fleet of cars will soon replace the 1970s-era models now used by commuters on the Metro-North Railroad line heading to Connecticut. But with money tight, railroad officials said they could not yet commit themselves to a fresh set of bar cars, citing higher costs for the cars’ custom design.

“They’re being contemplated,” said Joseph F. Marie, Connecticut’s commissioner of transportation. “But we have not made any final decisions.”

Defenders of the boozy commute say it helps raise revenue: After expenses, bar cars and platform vendors made $1.5 million last year, up from $1.3 million in 2008. (Officials would not say if a bar car makes more money than a car with the normal number of seats.)

The Times note that fellow bar cars in Chicago, New Jersey, Westchester County, and the Long Island Railroad have all gone the way of the Dodo – though LIRR trains still occasionally have bar carts that make it on trains.

Modeled after the private club cars of the early 20th century, the Grand Central bar car sought to bring a perk of high society to the everyday commuting class. Still, the car’s current incarnation is more bar-around-the-corner than Tavern on the Green.

The cars tend to break down, air-conditioning is creaky, and commuters have been known to sneak duct tape aboard for impromptu repairs.

The article’s accompanying slide show has great historical images of the bar cars in action.

Economists for cities, density

CC image from urbanfeel on flickr

CC image from urbanfeel on flickr

Ed Glaeser, professor of economics at Harvard, chimes in on cities, density, and their economic value on the Economix blog:

But now humanity is marked more by concentration than by spread. In 2007, one-half of the world’s population became officially urban. One-third of Americans inhabit just 16 large metropolitan areas, which collectively use only a tiny fraction of the country’s land mass…

Understanding the appeal of proximity — the economic advantages of agglomeration — helps make sense of the past and future of cities.   If people still clustered together primarily to reduce the costs of moving manufactured goods, then cities would become increasingly irrelevant as transportation costs continue to decline.

If cities serve, as I believe, primarily, to connect people and enable them to learn from one another, than an increasingly information-intensive economy will only make urban density more valuable.

Glaeser highlights several conclusions – including a key one that density increases productivity. Ryan Avent has harped on this before.  Any way you slice it, the end idea is that cities are the intellectual and economic hubs of our country.

Improvements in transportation and communication costs made it cost-effective to manufacture in low-cost areas, which led to the decline of older industrial cities like Detroit. But those same changes also increased the returns to innovation, and the free flow of ideas in cities make them natural hubs of innovation. Since the death of distance increased the scope for new innovation, idea-intensive innovating cities were helped by the same forces that hurt goods-producing cities.

Humanity is a social species and our greatest gift is our ability to learn from one another. Cities thrive by enabling that learning, and they have become only more important as knowledge has become more valuable. Understanding what makes cities work is more important than ever.

In order to avoid alienating groups on political grounds, it’s worth noting that we’re talking about cities, broadly defined.   Just as the focus on urban, walkable places is an urban design distinction rather than a political one, the benefits of urban agglomerations are regional.  Design matters, of course – I’d be curious to see if an economist could measure if economic benefits of agglomeration can be attributed to any other characteristics other than density.

Streetcar smackdown watch

Over the last few days, the Washington Post featured a number of streetcar pieces.  First, Lisa Rein laid out the basis for the debate on overhead wires.  The Post’s editorial board then chastised all the players to find a realistic and reasonable solution.

Today’s print edition features two pieces delving deeper into how streetcars fit into the mold of historic preservation, urbanism, and urban untidiness.  The first comes from Adam Irish, a member of the DC Preservation League and a volunteer at the DC Historic Preservation Office.  Irish starts by marking the difference between those who seek to preserve urbanism and those that seek to preserve DC’s monumentality above all else:

This kerfuffle is about more than just ugly wires, however. It gets to the heart of an old and familiar conflict over how Washingtonians and Americans at large envision the city. In its coverage, The Post has referred to opponents of wires as “preservationists,” but I think “D.C. monumentalists” better describes their stance. For the monumentalist, Washington, D.C., the city comes second to Washington, D.C., the sanitized and photogenic capital.

The monumentalist vision of Washington has choked nearly all urban life from the Mall and its environs. It has fashioned large sections of our city into pleasing vistas for tourists but has given the rest of us lifeless wastelands (if you’ve ever stepped foot outside at L’Enfant Plaza, you know what I’m talking about).

Urban life and urban form isn’t always pretty.  In fact, the sometimes-messy complexity is part of what makes cities such interesting places to live in.  Spiro Kostof described it as “energized crowding,” a kind of messiness that’s inherent to creativity and day to day life.  This isn’t to discredit the formalism of Washington’s City Beautiful aesthetic – merely asserting that such monumentalism shouldn’t trump all other facets of urbanism.

Philip Kennicott expands on those themes in his piece, also running in Sunday’s print edition:

If you listen to preservationists, the most ardent of whom oppose any overhead wires in the city, you might think Washington was loaded with great vistas. And it is, but not the awe-inspiring views they’re thinking about, which turn out to be fairly few and often not that impressive. Even down our wide avenues, sightlines tend to terminate in small monuments that are best seen up close.

The great views down the streets of Washington are just coming into their full glory as the leaves of spring return. These aren’t wide-open vistas with monumental buildings in the far distance; they are tunnel-like views of shaded streets, overarched by majestic elms, oaks and maples. These shady tubes of green, which are rare in newer and suburban neighborhoods, are the truly distinctive beauty of Washington. The only reasonable concern about running overhead wires should be the protection of trees that create these glorious canopies.

Nobody in this debate would argue that overhead wires look good, but too often the debate is framed in either/or terms – either the wires are ugly or they are not.  Kennicott addresses this false dichotomy as well:

Arguments against overhead wires rest on two essential assumptions: that the city is filled with streets that have historically significant and aesthetically impressive views; and that wires and poles would be ugly intrusions on these grand vistas. The former is questionable, the latter a matter of opinion.

The point about wires obstructing views that don’t always exist is a good one.  As noted, DC’s canopy of street trees is a legacy worth protecting, yet these same trees (on, say, East Capitol street) make for a wonderful streetscape – but at the cost of forgoing views of the Capitol Dome beyond a few blocks.

East Capitol dome view

Google street view of Capitol Dome (it's in there somewhere) from East Capitol Street, near 4th Street.

This isn’t to say that wires wouldn’t obstruct this view – but the key point is that the streetcar plan does not propose to obstruct these types of views with wires at all.  Kennicott hammers on this point, noting that the current plans do not include major obstructions, both by avoiding major view corridors and considering the fact that wire ‘obstruction’ is relatively minor.  Like the trees that line many of these grand avenues, the positive benefits of the streetcars vastly outweigh the negative costs.

The takeaway message from all of these articles should be that a reasonable compromise – a hybrid of wires and battery power to protect key viewsheds – is both realistic and palatable to most Washingtonians.

The easy oil is almost gone

CC image from StuffEyeSee

CC image from StuffEyeSee

So says the Department of Defense:

The US military has warned that surplus oil production capacity could disappear within two years and there could be serious shortages by 2015 with a significant economic and political impact.

The energy crisis outlined in a Joint Operating Environment report from the US Joint Forces Command, comes as the price of petrol in Britain reaches record levels and the cost of crude is predicted to soon top $100 a barrel.

The implications for urban planning and transportation are huge.  Part of the big push for a VMT tax instead of merely raising the gas tax stems from the macro-level supply and demand issues.  Seeing crude oil prices spike would almost certainly lead to a drop in consumer demand for gasoline, thus lowering gas tax revenues.   Add in mandated improvements in fuel efficiency for cars and light trucks, and the long-term stability of the gas tax as a funding source doesn’t seem that robust.

Certainly, there are many other potential implications, but this long-term funding issue ought to be front and center in the current debate over how to fund transportation.