For
clues to the future of transportation funding in the
Commonwealth, pay heed to two new real estate
developments in
Northern Virginia.
In
one little-noted project,
KSI Inc., a Fairfax County developer, has received
permission from the Fairfax County Board of
Supervisors to build a mixed-use project at the
intersection of Waples Mill Road and Lee Highway. On
an 18-acre property originally zoned industrial, the
Ridgewood project will consist of 152,400 square
feet of offices, 32,100 square feet of retail and
500 residential units.
As
part of the deal, KSI will pay for local road
improvements: an extension of the four-laned,
median-divided Government Center Parkway. The
company also will put into place a Transportation
Demand Management (TMD) plan to offset the traffic
impact of the high-density development. Many of the
traffic-reduction features are baked into the
project. A mixed-use project, by its very nature,
creates an environment where people can conduct some
of their routine errands and trips on foot. The company
also has promised to participate in
a shuttle-bus program. And, because KSI has designed eight percent of the
apartments/condos as "workforce" housing,
dozens of teachers, police officers, clerks,
tradesmen and other blue- and pink-collar workers
can live and work locally instead of commuting 50
miles from Stafford or Spotsylvania counties.
In
Loudoun County, Greenvest, another Fairfax-based
developer, is proposing to build a gargantuan
development west of Dulles Airport. According to
proposed amendments to the Loudoun County
comprehensive plan, Villages at Dulles South would
encompass nearly 14,800 residential units and almost
800,000 square feet of commercial space. If
approved, it would be the second largest housing development
in the East Coast of the United States.
Fully
aware that a project of that magnitude would swamp
the carrying capacity of the local country roads,
Greenvest has proposed setting up a Community
Development Authority (CDA) to help pay for $192
million in road improvements. The project remains
highly controversial -- foes contend that the
improvements will offset only a fraction of the
traffic congestion generated by the project. But the
fact remains, the project would put an
unprecedented sum of transportation money on the
table.
Apparently,
it is the view of Virginia's governor, members of
the General Assembly, the capitol press corps and
the newspaper pundits who set the political
agenda in Virginia that these developments are
matters of purely local interest. A
revolution in real estate finance capable of raising
billions of dollars for transportation projects may
be sweeping Virginia, but it has yet to make the
slightest impact on the taxes-for-transportation
debate. Developers and boards of supervisors may be
collaborating to mitigate transportation demand on a scale
once unimaginable in the Old
Dominion, but these innovations have yet to seep
into the public discourse in Richmond.
The
taxes-and-transportation debate cannot ignore what's
happening on the ground forever. Mark my words,
eventually CDAs, TIFs and TDMs will become a routine
part of the political lexicon. That's because they
provide the General Assembly a way to have its cake
and eat it too: raising money for transportation
without taxing or tolling the public.
When
the General Assembly reconvenes later this summer to
discuss transportation funding, there will be one
thought on the mind of every lawmaker: Where can we
find more money to build more roads and lay more
railroad track?
The
dilemma is that the last round of revenue-raising
proposals --
insurance premiums, sales taxes on cars, wholesale
gas taxes -- proved politically unworkable. The
House of Delegates was unwilling to bend on the
issue of higher taxes, and, barring a disaster at
the polls that convinces them otherwise, is not
likely to change.
The
only readily available alternative to taxes is tolls. The Kaine
administration is already soliciting toll-financed proposals to
increase the capacity of the Capital Beltway, Interstate 95 in Northern
Virginia and U.S. 460 in Tidewater. Remarkably, a
Democratic governor is presiding over the
privatization of large chunks of Virginia's primary
highway system. But there are limits to the
tolls-and-privatization strategy: Tolls are
practicable only on bridges or limited access
highways. That leaves most projects unfundable.
House
Speaker William J. Howell has tried to extend the
privatization concept by suggesting that the Commonwealth consider
selling off certain transportation assets, such as
the Chesapeake-Bay Bridge Tunnel, and redeploying
the proceeds to
pay for roads projects that the state could not afford
otherwise. But that idea has yet to gain traction.
Outside of the investment bankers who would make a
fortune selling off state assets, most Virginians
don't warm to the idea of auctioning off the family
heirlooms to pay ongoing expenses. (A good argument
can be made for Howell's idea, but that's another
time, another column.)
As
the KSI and Greenvest projects demonstrate, however,
the Commonwealth has an as-yet-unexplored revenue source
-- the increased value of real estate made
possible by the transportation improvement itself.
Major
transportation improvements such as Metro stations,
light rail stations, highway interchanges and road
widenings create windfalls for the landowners lucky
or shrewd enough to own property in the right
location. Those land owners did nothing to create
that value (unless you count lobbying for the public
investment). It is not unreasonable, therefore, for
the state to tap some of the value created by the
public investment.
I
see a four-step methodology that could be applied in
dozens of projects around the state:
-
Sweeten
the pot, as necessary, by giving landowners the
right to develop their parcels at greater
density. The combination of higher density
and public improvements would more than
compensate landowner/developers for the expense
of the special tax district.
-
Require
developers to implement Traffic Demand
Management (TDM) plans to offset local
congestion resulting from denser development. It is critical that
these plans be robust, capable of taking large
numbers of cars off local streets. They also must
be sustainable, capable of standing on their own
after developer has completed the project and
has ended subsidies to van pools and other
ride-sharing programs.
(For
a detailed look at how this methodology would work
in at least one instance,
I refer readers to my column, "Rail
Rip-off," about the Rail-to-Dulles
project.)
Not
only would this approach tap a new revenue source -- the
increase in property values resulting from the
transportation improvements -- it would incentivize developers to design more
transportation-efficient projects. We could expect
to see more projects that blended residential,
retail and office uses, designed more pedestrian-friendly
streetscapes and exploited the opportunities
presented by mass transit. Adoption of this
methodology on a wide scale even could stimulate
entrepreneurs to devise entirely novel traffic-demand solutions.
Of
course, there are many potential pitfalls, and local
government must be ever vigilant. Most critical is for government to manage its risks.
properly. Big
developers and bond underwriters are very
sophisticated at analyzing and managing risk; local
governments are not.
CDA
bonds offer developers the benefit of low, tax-free
interest rates backed by the moral authority of the
local government. If the financial projections don't pan
out and the CDAs default, depending on how the bonds
are structured, bond
holders may turn to the local government to make
them whole. Even if the bonds never default, they
still may count against a local government's debt
capacity.
A
related issue is this: Do the CDA bonds tax the property
owners whose property values benefit from the public
improvements they finance? Or are they a mechanism
for shifting the cost of those improvements to
someone else -- businesses that benefit only
marginally from the transportation improvements, for
instance, or homeowners, who may come to resent
paying what amounts to a second tax for amenities
that other people enjoy without the tax?
Finally,
it is crucial that CDAs and TIFs be used to finance
development projects that enhance the evolution of
balanced, better integrated communities -- not as a
financial gimmick to perpetuate dysfunctional human
settlement patterns. Local governments must display
discipline; they cannot approve every project that
some developer gins up.
If
the General Assembly wants to do something
constructive in the upcoming transportation session,
legislators could take a close look at CDAs, TIFs
and TDMs. It would represent a tremendous step
forward if the Commonwealth integrated these novel
tools into its long-term transportation strategy.
--
July 10, 2006
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