Part 4. David Levinson’s CityLab discussion on transit: Capital Cost Recovery Mic Drop and the 490 Burger Kings Problem

Ok, continuing on with my responses to David Levinson’s important contribution via CityLab on How to Make Mass Transit Funding Sustainable Once and For All. The series so far:

Part 1: Institutional Structure
Part 2: Competitive Tendering
Part 3: Farecards

and today, Part 4, is the capital cost recovery mic drop:

4. Capital costs for new or rebuilt transit systems should be recovered from land value capture. Transit services create value they cannot fully capture themselves through the farebox (though they would capture more of this with higher fares). That value spills over to nearby land owners, whose property value increases due to the accessibility transit provides and thus the higher rents they can charge. The amount of value captured by the system signals whether the investment is worth making. If some of that value were captured, more revenue would be available to make investments. Transit utilities should have the authority to develop land at stops and stations, and to develop air rights over their tracks, and to contract with private developers to coordinate station locations. Local units of government desiring routes and stations should have the authority to implement local taxes to subsidize the transit utility for the cost of building the line. But the line should only be built if it can at least break even operationally. If the route cannot be funded from land value capture and farebox revenues, it should not be built (emphasis mine).

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FWABOOOM!

Yeah, that’s a mic drop. Levinson here is a getting pretty emphatic, so much so that he contradicts himself a bit, but not intentionally, I don’t think. Levinson is arguing from the vantage point of the utility. Throughout the rest of the piece, he says that if jurisdictions want to contract for negative-revenue lines, then fine. If taxpayers have a democratic preference for transit, then so be it. His last statement here is a bit of an overstatement based on what he says elsewhere. That’s not as clear as it might be here because he uses general language for what I think is actually a mode-specific set of problems that are easily fixed with good risk assessment on the part of bond issuers and developers.

To wit: so let’s say that Jurisdiction A wants service. This is likely to be a money loser, given the people who live in Jurisdiction A. Jurisdiction A pays for bus service. If, eventually, Jurisdiction A decides they just don’t want service anymore, Transit Utility takes its buses and employs them elsewhere: no blood, no foul. If Transit Utility has been sucked into a big, immovable capital investment in Jurisdiction A and suddenly it doesn’t want to sponsor service anymore, then that is a problem, although some of the rolling stock can certainly go elsewhere.

What Levinson is trying to get at here simply concerns the “eyes bigger than market” problem that plenty of cities get into over things like stadium deals. If you actually live in a world where land taxes aren’t distorted (which I don’t, so there’s that), letting utilities buy and develop around train stations makes abundant sense. Here’s the part of the equation that I think really matters: if you require local jurisdictions to provide a portion of the capital and operating subsidies for service, they then have every incentive (instead of the incentive they have now), to alter their local zoning and approvals process ahead of time so that development around station areas can actually occur.

Right now, you have jurisdictions with people who are very avid about wanting rail transit. We must have rail now. We also have the people who wind up living next to the rail line, and some of them are much less avid. They, too, have influence on city hall. So it’s entirely too possible right at the moment, in many American cities, for suburban districts to demand very expensive investments and then only allow park-and-ride facilities by them because our residents are both pro-transit and anti-development. Well, screw that. (That? That’s a technical policy prescription). You want a train? Fine. Either let us build 70 100-story apartment complexes next to the station (if it pencils for us) or you pay whatever portion of the capital and operating costs that apartment complex would have covered for the utility. Your choice. Again, rich districts can have their single-acre lots if they want, and they can have their trains if they want them–even if nobody wants to take the train and they just use it as decoration. They just can’t stick the rest of us with the bills for those trains. That is what Levinson wants to get here. It’s not out of the question that some jurisdictions would be happier paying for negative revenue lines than they would be allowing development. I don’t think they should be allowed to get away with that, but zoning is still a local jurisdictional power and it should be. But if they want to pull that crap, it should be their financial problem to grapple with, not everybody else’s. Most jurisdictions would see the writing on the wall, stop playing games, and get the zoning and approvals done fast. Faster development near stations means more ridership faster.

In my example, you can see the implicit assumptions about cross-subsidies that Levinson is making here. Even if your train station gets 5 customers a day, a public utility with land development rights might actually be willing to operate service there if they can get real estate development to pencil out.

One last point he doesn’t discuss concerns “coordinating development” at stops. This point slips by, and it’s unfortunate because I like it very much because I think it’s the answer to what I call the “490 Burger Kings” problem. I’m not sure what he means here, but I do know that I would prefer to see far more coordinated land use planning and real estate development at the regional scale. Why? It’s complicated, which is why Levinson doesn’t get into it, but it’s important. So one way for a variety of land uses to be transit-accessible is to just have everywhere be accessible. Lots of transit advocates would love that, and I would, too, but it’s an expensive idea. One thing I have my undergrads do in class is that I ask them about their junior high and high school after school activities, and they range from tae kwon do, horseback riding, cello lessons, yoga, rock-climbing, etc. Then I ask them to route those activities via public transit. It’s illustrative: it’s really hard to do most of those trips on public transit. I can get you to 490 Burger Kings on LA’s transit, but I’ll be damned if I can get you to a geriatrician in anything less than 2.5 hours and three transfers (How families work through these questions are interesting: I suspect in some places, if a kid can’t take himself to activity on transit, he doesn’t do the activity.)

I’m getting to the idea that while some land uses and businesses are things that really flourish at all station areas, we could increase the usefulness of TOD if we could include a diversity of activities and businesses throughout the system. Nope, not every TOD needs a zumba studio, but it would be nice if a few did have them. Yep, cafes, Famima-type grabby-food stores? Those you probably want at all stations. Tae kwon do? Nah. But at some stations, yes. Because people spend a lot of time in leisure and entertainment activities, and if you could suss that, you’d increase the value of the transit system without having to extend the system everywhere it currently is not.