Mass transit agencies developing land to generate revenues

The actions of New York’s MTA – Metropolitan Transportation Authority – suggest a way American mass transit agencies can generate money: through partnering on transit-oriented development.

That is what inspired Harrison’s Halstead Avenue project, a $76.8 million mixed-use real estate development built in collaboration between the Metropolitan Transportation Authority (MTA), which oversees the Metro-North, and developer AvalonBay Communities. It is the first time ever that the Metro-North will sell a parcel of its land for transit-oriented development (TOD); in this case: 143 apartments, 27,000 square feet of retail space, two pedestrian plazas, and a 598-space parking garage, most of which is reserved for the public and commuters…

The New York MTA, the largest transit agency in the U.S., is becoming more familiar with this type of construction. The Hudson Yards project—where the MTA decked over its train yards, and sold the rights to developers for $1 billion to build an entire Manhattan neighborhood on top, with a new subway line extension beneath—is perhaps the largest TOD project in American history. At One Vanderbilt Avenue, an office building being constructed across from Grand Central Terminal, developer fees to the MTA will pay for interior improvements throughout the huge hub.

But the Harrison project marks a new direction for the cash-strapped MTA, which is on the hunt for new revenue: Decades of underinvestment and recent ridership declines have left the MTA with a projected $433 million budget shortfall, a gap that a recession could worsen. Meanwhile, critics agree that Manhattan’s soon-to-come congestion pricing scheme cannot alone cover the cost of the subway system’s badly needed overhaul. Capturing revenues from transit-oriented development on MTA-owned lots could help. So the agency is eyeing projects in suburban communities outside of Manhattan, with the hopes that the prospect of economic development will prod smaller towns to plot their futures near its train stations…

Transit agencies in Europe and Asia are much more likely use development as a revenue tool much more commonly than their U.S. counterparts. David King, a professor at Arizona State University who has studied transit-oriented development, said that this is largely due to the fragmented (and car-centric) nature of land and transit planning, capital investment and operation in the United States. For example, as a state-regulated public authority, with a variety of funding pots for capital and operating costs, the MTA has to comply with home rule for a housing project.

Private transportation firms in the United States have promoted and/or participated in development for years. It was good business for transportation providers to promote travel and now more accessible properties. Railroad and streetcar lines made special trips to the end of their lines where they would then sell riders on new properties.

What could make this more complicated in the United States is that transit agencies could be drawing on public funds and the United States has a history of concern about how public funds are used for development. If public money helps support traditional suburban life – think the single-family homes and highways the federal government and others groups helped make possible before and after World War II – then there may be limited outcry. Try using such monies for affordable housing, particularly for poorer residents, and opposition will arise.

Thus, this project in suburban Harrison, New York fits existing patterns. Transit-oriented development along rail lines in suburban downtowns is very common and desired by many suburbs. The project is not too big. It sounds like the suburb wants some denser downtown development. It does not involve housing considered too cheap by the community. But, whether this tactic could expand across metropolitan regions remains to be seen.

Creative (trolls out of recycled wood!) and profitable (record attendance!) art at Morton Arboretum

How do you attract more people to a suburban arboretum? Have unique art installations with one large work loom over a busy highway:

Created by famed Danish artist Thomas Dambo, the exhibit features six large troll statues — most 15 to 20 feet high — made of repurposed wood and other recycled and natural materials, and spread throughout the 1,700-acre arboretum…

In July, about 163,000 people visited the arboretum — the most ever reported in a single month, Sargent said. The previous monthly record of 150,000 was set in October 2011. And last month was also a successful one, Sargent said, with more than 140,000 visitors.

In surveys and anecdotally, visitors explain they come specifically to see the trolls, but they’re also staying to see other parts of the arboretum they’ve never seen before, she said…

Dambo told the Tribune earlier this year that after he was approached to work on the exhibit — similar to art installations he’s completed in Copenhagen, Denmark, and South Korea — he would ride his bike around the arboretum to identify spots to place his creations. He wanted people to explore the grounds and its hiking paths to find all the trolls.

Art works often serve two masters: aesthetic beauty and reflection on the world as well as commercial concerns. Artists may not often talk about the commercial imperative – they have to eat too – while other actors may use art to bring in money.

Take public art displayed on street or public spaces of communities. On one hand, the art can enhance the experience of being in particular locations. Think of the Picasso statue in Daley Plaza in Chicago: it is a unique work by a very famous artist that is not easy to interpret. It is still popular decades later. Without the art, the plaza could be interpreted as a dreary concrete land amid tall buildings.

PicassoStatueChicago

On the other hand, art can draw people to a location and help encourage them to spend money. Communities want more visitors because they then buy items in shops, eat at restaurants, and bring in more money through payment to local businesses as well as through tax revenues. Take this statue of Paul Revere on the Freedom Trail in Boston:

paulrevereboston.jpg

The statue commemorates an important historical event but think of all the visitors that come to Boston to partake in this colonial history. Think of how much money they spend on hotels and food and tourist activities. This statue is part of a system that helps the local economy. It is still art but it also helps generate money.

There are inevitably tensions between these two poles: beauty and money. We have terms for this, such as sellout, someone who has given up on the artistic and creative side and now is just in it for the money. With public art, the two sides often go hand in hand: creativity leads to money which can lead back to more funds and will for creativity and so on. It is probably too simple to say everyone can win in these scenarios and yet many communities (and artists) continue to seek public art installations.

The price to get your business on those blue highway amenities signs

It is a surprisingly complicated – and possibly costly – process to promote your business on a blue sign along the highway:

Roadside advertising programs are administered by individual states, though specific service signs like the one in the picture above tend to be farmed out to contractors. One of the biggest of these contractors is a company called Interstate Logos, which works with transportation agencies in 23 states to not only install the huge blue panels, but also to work with businesses to run the programs…

But even if your business meets all the requirements, and you’ve submitted your online application, there may be competition from other nearby businesses. As for which of those businesses get to be on the signs, that depends on the state’s policy. Colorado rotates the businesses at the end of each contract year, but other states like Michigan give preference to businesses nearer the highway, while still others like Washington use a first come-first serve (with waiting list) approach…

Typical mainline logo signs are about 48 inches by 36 inches, so based on WSDOT’s ballpark figures, it’s probably safe to figure about $300 to $500 per sign (this agrees with the Lexington Herald Leader’s claim of $1,253 for four logos)…

The sites says that in 2010, Kentucky Logos—contracted by the Kentucky DOT—paid the state $618,904.91. That’s great for the state, but according to the report, of the businesses on the 1,568 signs in the state, only 1 to 2 percent leave annually. So it seems the businesses are happy, too.

America: combining public services (highways) with business opportunities (advertising a select number of places for travelers to spend their money).

More thoughts on these signs:

  1. Why not include signs for big box stores? Places like Walmart or Target or Costco could provide most or all of these amenities in one stop.
  2. I don’t think the signs are as effective in denser areas where there a lot more options as you approach the exit. They can highlight a few options but you can already see a lot more signs in the distance.
  3. The lodging and camping signs seem outdated. How many people now drive down the highway and pick out a hotel at the side of the road? That sign space could be better used for other amenities.
  4. How effective are these advertisements compared to other forms? Does McDonald’s get a bigger return on the blue sign or a forty foot tall arch or a combination of both?

Video gambling in Illinois trickles money into local coffers

As video gambling has spread across Illinois, who is making money? A little is going to local governments:

Video gaming revenues, after payouts, are taxed at a flat 30 percent rate. Five-sixths of those tax proceeds go to the state and one-sixth to the local government. Remaining revenues — the other 70 percent — go to the establishments, like Lucky Jack’s, and the video terminal operators.In the year ended in September, almost $12.7 million was played at Lucky Jack’s in Waukegan, and $11.7 million was won by gamblers, according to Illinois Gaming Board statistics. That means the terminals netted just shy of $1 million. Of that, more than $246,000 went to the state and about $49,000 to Waukegan. The rest is split between Lucky Jack’s and Gold Rush Gaming, its terminal operator…

In Waukegan, a resolution passed in 2014 earmarked virtually all of its cut of gambling revenues for the underfunded pension plans of its police officers and firefighters. Were it not for video gambling, the resolution said, taxpayers might have to cover the shortfall.

Not every municipality, however, is looking at the terminals as a cash cow. Chicago, Naperville and Arlington Heights don’t allow them…

The cities with the most video gambling terminals are Springfield, Rockford and Decatur. The counties with the most machines are Cook, Lake and Winnebago counties, the commission report said.

In an era when many municipalities are looking for every cent they can, video gambling can provide some revenue. But, many communities likely consider a fraught deal: it may start a trickle of money but it also projects a particular image. One anecdote in the article suggested people pull up to a local establishment with video gambling and idle as they wait from some signal from inside that a spot at one of the machines is open. Is this what a wealthier community wants to be known for? Like tattoo parlors and bars, many places wouldn’t want to avoid the stigma of gambling establishments.

It would also be interesting to know whether these more local operations siphon money from casinos which could generate significant revenues for local governments. In other words, if every gas station or local eatery had video gambling, would there be enough money to go around? Do people simply go to the places that are most convenient to them or would they cluster in places with either better or more video gambling options?

Cities rethink privatization efforts

Leading with the example of Chicago’s 75 year parking meter lease, here is a look at how some communities are rethinking privatization of local services and amenities:

In states and cities across the country, lawmakers are expressing new skepticism about privatization, imposing new conditions on government contracting, and demanding more oversight. Laws to rein in contractors have been introduced in 18 states this year, and three—Maryland, Oregon, and Nebraska—have passed legislation, according to In the Public Interest, a group that advocates what it calls “responsible contracting.”

“We’re not against contracting, but it needs to be done right,” said the group’s executive director, a former AFL-CIO official named Donald Cohen. “It needs to be accountable, transparent, and held to high standards for quality of work and quality of service.” Cohen’s organization, a national clearinghouse exclusively devoted to privatization issues, is the first advocacy group of its kind…

Donahue, who has studied the issue since 1988, sees privatization as inherently neither good nor bad. Academic studies paint a mixed picture, he said. The private sector can deliver efficiencies when the task being sought is well defined, easy to measure, and subject to competition—mowing public parks, perhaps, or collecting trash.

But when the goals are fuzzier or competition is lacking, the picture gets cloudier. Is the purpose of municipal parking meters to maximize revenue, or is it to provide a low-cost amenity to citizens and the businesses they patronize? How do you value the various objectives of a prison system—justice, rehabilitation, social order—when the financial incentive is to lock more people up? In many cases, Donahue said, privatization and contracting save governments money not through increased efficiency but by undercutting public-sector wages and pensions or, as in the case of the parking meters, by effectively robbing the future to pay for the needs of the present. (By mid-2011, the city had spent all but $125 million of the $1.2 billion parking-meter payment.)

Three things seem fairly clear (to me):

1. One big mistake is privatization contracts that are way too long. Seventy-five years is a long time deal, particularly given how conditions can change. If the deal goes sour quickly or the public turns on it, this is a long time to wait for the contract to expire.

2. Not having enough time to read through contracts and then debate the particulars is a problem. Deals shouldn’t be entered into quickly, particularly when the public interest is at stake.

3. A lot of the public discussion of privatization seems more ideological rather than looking at research (some referenced in this article). Government vs. the private sector is a pretty large debate to have and there may be areas where each could perform better or might better protect the interests of residents.

Even if skepticism about privatization is increasing, this issue will continue to be important as numerous cities and communities seek to squeeze out more revenue from stagnant or limited resources.

Property values, city finances, and downtown development: controversy over approved senior housing in downtown Wheaton

New development projects in already-developed suburban areas can attract controversy. Here is an example from downtown Wheaton, Illinois: the city council just approved a senior housing project but some of the neighbors are not happy with the change to the site and there are some questions about funding and whether the city will be left with a bill.

The council voted 4-3 this week to allow construction of a 167-unit facility on a site once slated for luxury condominiums as part of the Courthouse Square complex at the corner of Naperville Road and Willow Avenue…

The approval came after nine planning and zoning board meetings totaling more than 24 hours with testimony from experts, opponents and supporters. In a nearly unanimous vote in August, that board recommended the council deny the zoning plans.

The original proposal for the complex, supported by the council in 2004, called for a mix of townhouses and condos. But developers cited the housing market crash when they pulled the plug on what were supposed to be the second and third midrise buildings. Northfield-based Focus Development Inc. and West Chicago-based Airhart Construction Corp. partnered on the project.

The saga continued when developers asked to amend the plan to allow senior housing, angering some Courthouse Square residents who argued they were promised a strictly residential community when they bought their units.

I’m not sure how this will all play out in court and whether the current residents have a case against the developers. However, here are a few thoughts about this:

1. Senior citizen housing would be helpful in Wheaton. As a more mature community that is relatively wealthy, there are relatively less places in the community for seniors to live in affordable housing. Indeed, when communities like Wheaton do talk about affordable, they tend to be talking about seniors and young people who would like to be in the community but don’t have the resources due to their stage in life to remain.

2. Wheaton has been on a longer program of introducing more housing into the downtown, starting with the condominiums built in the early 1990s across the street from the downtown train station. While higher-end housing might bring in more revenue and people who have more spending power to spread around the downtown, having some development in this space rather than none might be preferable.

3. Like in many suburban debates about development, it sounds like this is partly (mainly?) about property values. The existing residents don’t want their higher-end units to suffer because senior-citizen housing is built nearby instead of other high end units. This could be one of those situations where it would help to take a bigger view: Wheaton would like to offer more affordable housing for seniors and this land is available so perhaps property values can’t or shouldn’t be the overriding concern here.

4. More than ever because of the economic crisis, revenues matter in these situations. Some are concerned that the city, and therefore, taxpayers, might be on the hook if the development doesn’t work out in a certain way. This would be a strike against downtown redevelopment plans; the goal is to generate new revenues, property and sales taxes, not saddle the municipality with new costs.

“More U.S. cities set to enter default danger zone”

A Reuters story suggests more municipalities are having trouble keeping up with their debt:

Bond defaults were $25.355 billion in 2011, or nearly five times the value of defaults in 2010, according to Lehmann. In 2012’s first quarter, defaults totaled $1.245 billion, or more than double the $522 million of last year’s first quarter.

Municipal bankruptcies, such as last November’s landmark, $4.23 billion Chapter 9 filing by Alabama’s Jefferson County mainly because of its excessively expensive sewer system mocked as a Taj Mahal project, have picked up, too.

Chapter 9 municipal bankruptcy filings doubled to 13 in 2011 from six in 2010, but still remain rare among the more than 60,000 issuers, with only 49 of the 264 cases since 1980 being towns, cities, villages or counties, according to James Spiotto of Chapman and Cutler LLP. States are ineligible for Chapter 9.

Outsized pension-deficit payments and other liabilities, as well as depressed local economies or failing government projects such as Harrisburg’s trash incinerator, often herald crises, according to Ciccarone.

While much of the focus has been on the national debt and national figures (such as unemployment, jobs created, where to set the tax brackets, etc.), all of this is trickling down to the local level. Since many municipalities and local taxing bodies are heavily dependent on property taxes, a decrease in housing values and a continued sluggish housing market suggests many communities will struggle to find revenue. In other circumstances, local bodies might be able to look to states and the federal government for monetary help but they have their own issues during this economic crisis.

I would love to see experts speculate on where this all will end up in five or ten years. Are we legitimately in danger of a lot of municipal governments defaulting? If so, how will this affect local services? How will residents respond to what will be more fees and taxes even as their services might decrease? Could the wealthier people respond with their feet and move to more financially solvent communities?