The Red Line: Hype or Logical Analysis?
There are two different paths this project can take from this point forward:
We can continue to dream and offer hype as in the current draft plan, or
We can determine what is necessary to perform a proper analysis and then evaluate the possible funding mechanisms.
Dream path
The draft business/finance plan for the Red Line regional rail project is touted as a “last-ditch effort”to garner support for the project. The new approach claims there is regional value to the possible increased use of the rail line for freight traffic. That sounds promising. The draft also suggests there is a better way to fund the project. It presents grandiose projections of the money that will be available – even projecting excess funds. All this before presenting any assumptions on which the projections are based!
What are the assumptions on which this proposal is based? We need to look at the statements made in recent presentations.
Freight
“Over the course of the first six months of 2011, a redefinition of the Project recommended adding potential Freight Oriented Development (FOD) sites along with the Transit Oriented Development (TOD) sites to the analysis, in recognition that the Project will operate on an existing freight line and create a dual-purpose network benefit. Upgrading of the tracks and peripherals will accommodate greater activity than the current single-train-per-day service to freight dependent industries along the line. This dual purpose strategy led to the reformation of the Project as a major regional economic development initiative.” (While this appears to be a great idea, given the position of Norfolk-Southern it is questionable.)
“In the case of the FODs, only the Centennial Station in Huntersville (an industrial park funded jointly by three towns) has active industrial development underway. Huntersville also plans to expand the industrial park and has identified new tenants for the expansion. For the balance of the FOD sites, it is assumed that little or no new industrial development will occur prior to the completion of the rail improvements because the more active freight schedule by Norfolk Southern will not yet be realized.” The consultants must believe the North Mecklenburg towns are in a blighted area when in fact Huntersville is the fastest growing town in the state and the 19th largest municipality in North Carolina.
Benefit
“Transit improvements create benefits for three beneficiaries: The general public, which benefits from broad economic and social returns. (Only in a limited area.) Transit users, who benefit from reduced travel times (not likely) and enhanced safety (probably true). Property owners and developers, who benefit from increased property values…” (Very true).
“Several joint developments and negotiated agreements have been identified in the North Corridor through work sessions with the Finance Working Group and local developers.” “The plans for specific developments were reviewed with each jurisdiction, the private developers and landowners.” “The phasing for each aspect of each development project was established through work sessions with developers and Red Line Task Force Working Groups. Using these factors, the model projects the incremental property taxes that will be generated over time in the UBD.”
We normally expect to see a cost/benefit analysis when discussing an expenditure of 100’s of millions of dollars. But we are told these details are not important. There are significant benefits to some. The consultants will make a bundle of money using the same words and hype they have used in other venues to sell a project to the naïve. The designers and builders of the rail line will make a fortune at no risk to themselves. The owners of the property that will enjoy increased property value may be able to retire on the profits. And as you can see from the quotes above, the developers helped to design the project. It is no wonder developers support the rail line; they will make very large profits by building high density housing and high intensity commercial projects on the roads adjacent to the rail line.
What about the 99 % of county residents who are not included in the list above?
Congestion
“Simultaneously, the Red Line can create an attractive alternative corridor to I-77, where congestion poses problems for both transportation mobility and continued economic growth.” (This implies a reduction in congestion due to the Red Line – not true.)
“Transporting freight by rail (vs. highways) offers a variety of public benefits including energy efficiency, environmental friendliness, congestion relief and safety.” (Probably true.)
“Increases in the capacity of each transit mode in response to rising demand leads to increases in land value, whereas allowing congestion to worsen eventually lowers values.” (Again, this implies a reduction in congestion!)
The reality is that in order to even come close to supporting the rail line, the zoning will have to force high density housing (20 to 40 units per acre) and high intensity commercial development. The hype implies that congestion will be reduced by the rail line. Nothing could be further from the truth. Increases in housing density and intense commercial development will result in more residents needing to use the existing roads. Less than 5 % of residents close to a station will be able to justify using the rail line. The other 95 % will be driving! Congestion will increase drastically. The cost of the new required road infrastructure to move that 95 % will be substantial. The regional impact will be worse congestion on the interstate highway system, specifically I-77.
Taxes
“The City of Charlotte (with the exception of the Gateway Station TOD) and the towns of Huntersville, Cornelius, Davidson and Mooresville establish the special assessment rate at .75/$100 of assessed values, and allocate 100 percent of the assessment revenues to the JPA specifically for the funding of the Red Line. (Sounds fine, but can the business community afford the added expense?)
“It does not add any new taxes to an area, nor does it require a tax rate change or deprive governments of existing property tax revenues. Instead, part of or all of future property taxes (above a set baseline) resulting from increased property values created by Project induced new development are dedicated to pay for the public improvement that drives this revenue.”
“….each jurisdiction retains 25 percent of the property tax increment in its general fund, and allocates the remaining 75 percent to the JPA to fund the Project.”
This is where the assumptions fail miserably. The “base line” assumes no growth other than existing or in progress development. Clearly the people who wrote this draft feel that ¾ of property taxes collected are in excess of what is required to support development. In fact, more development means higher taxes! If that were not true, large cities with higher density would have lower taxes. Clearly, the statement that taxes will not go up is far from the truth. Both town and county taxes will be increased to replace the ¾ that has been used to subsidize the rail line. Normally the impact on others of Tax Increment Financing (TIF) can be hidden in the shear scale of taxes for the entire county, but this subsidy is so large it will be difficult to hide.
Not only will the project take ¾ of the property taxes, it will impose an additional tax (special assessment) on existing and future development in the district. The taxes on a $200,000 apartment will be $1500 more per year than a comparable apartment just across the street that is outside the district. At least this tax is voluntary to a degree – a vote by a majority of the property owners.
Logical path
First, determine the projected growth in real terms. While there is currently an economic downturn, the area has had extraordinary growth and there are signs of recovery. A projection of the growth that will likely occur without the Red Line must be developed. That would have to be prepared for each year, for the 30 year study period. We cannot assume, as the draft plan does, that future development will only occur due to the Red Line.
Second, in order to properly evaluate Tax Increment Financing (TIF), a study of the historical funds required to support growth must be completed. That would recognize the different cost of service for single family, multi-family, commercial and industrial development. It should include the funds required by the state, county, and local governments. The growth mix that will occur as a result of a rail line that includes Freight Oriented Development (FOD) must also be projected since it will surely be different from the historical mix.
Third, the conservative approach touted by the draft plan should be used. To recognize our inability to forecast the future, the funds available for subsidizing the rail line should be no more than 50 % of what the TIF analysis shows.
Bruce A. Andersen
Huntersville, NC
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