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Transportation's Value-Added Funding Option

As if we needed more reminding, the country has a huge gap between costs required for transportation needs and the funding sources to pay for them. The shutdown of the San Francisco Bay Bridge last week due to faulty repairs earlier this year at least had the miraculous silver lining that there were no deaths from falling structural steel onto the crowded road way.

The Washington Post reported Friday that the conversion of the Tyson’s Corner--the country’s largest suburban-based commercial center with 46 million square feet of traffic-strangled office and retail--into a 100 million square foot walkable urban place will cost $15 billion in transportation improvements. That is a huge sum even for extremely wealthy Fairfax County, equaling over $40,000 per household to be spent in only 1.2 percent of the county’s land area.

Where will that money come from? That is the question as we debate the reauthorization and hoped-for reform of the federal transportation bill. This is particularly vexing since the Highway Trust Fund is on life-support, being bailed out twice in the last two years as gas tax revenues continue to fall.

The Washington Post article went down the line of usual suspects; increased gas taxes, shift to a vehicle miles driven tax, tax increment financing ,and ended with the private property owners taxing themselves.

This last idea is one whose time has come… again. Two hundred years ago, long distance roads were privately funded and built, supported by tolls. One hundred years ago, the vast majority of streetcars were built by private real estate developers. The history of streetcars is particularly important for today’s funding needs. The private developers were not choo-choo nuts; they wanted to get their customers out to the farm land they were converting to urban uses. The profits from the real estate development subsidized the streetcar lines.

Developers and streetcar owners such as Tom Lowry in Minneapolis, Henry Huntington in Los Angeles or Sen. Francis Newlands in Washington, DC were active in nearly every metropolitan area in the country in the late 19th and early 20th century. Newlands, perversely from Nevada, owned the Rock Creek Railway, a streetcar going out Connecticut Avenue. He also owned the Chevy Chase Land Company, initially 1700 acres served by the streetcar. Once the land was developed, he sold the streetcar since it was a losing proposition on its own. The Chevy Chase Land Company lives on to this day, owning $2 billion in real estate assets.  

The name for the linking of land improvement profits to help pay for the transportation improvements which made those profits possible is value capture. You will be hearing a lot more about value capture in the debate over transportation policy; it will be one of the major ways we will use to pay for America’s critically needed transportation improvements. The private real estate development and investment industry has to be at the table in figuring out how and contributing to the transportation improvements needed to meet the pent-up market demand for high density, walkable urban places.