Detailed Recommendations and Background

Detailed Recommendations and Background

Lesson Learned Regarding Planning Grants:
Bay Area MTC’s Transportation for Livable
Communities Program (TLC)

 

The Bay Area TLC program was created in 1998 to improve walking and bicycle access to public transit hubs and stations, major activity centers and neighborhood commercial districts through planning and capital grants to local jurisdictions and community partners. For the first ten years of the program, the majority of planning grants were awarded for modest technical assistance projects, averaging approximately $50,000 per grant. After a program evaluation in 2008, however, the TLC planning grant program was re-structured to focus on large-scale station area planning efforts. TLC now funds approximately two $750,000 planning grants per year; successful projects include implementation of land use and zoning code changes and include detailed financing and implementation strategies. The evaluation found that the smaller grants were more effective at generating demand for TLC capital grants than improving access, and that funding of fewer large-scale projects that implemented development regulation changes would better achieve program objectives.

A. Non-Capital Improvements: Planning, Education & Implementation Studies

The TOD Program currently has a limited TOD educational & promotions program (“Get Centered”) and provides some informal technical assistance to local jurisdictions planning for station areas. The Development Center also has a Development Opportunity Fund that is dedicated to grants for pre-development and implementation studies, but it is a pilot program with funding for only 2 years and is primarily focused on Regional and Town Centers.

The Lessons Learned sidebar, adjacent, describes the experience of the Bay Area’s metropolitan planning organization in awarding planning grants in support of transit access. Figure 35, on the following two pages, identifies a menu of possible strategies for expanding resources for station area planning, educational activities and implementation studies. Many of the strategies in this figure will require modification of policies outside of the control of the TOD Program, but offer information on ways that the region as a whole can maximize its support of planning, education, and implementation studies for TOD.

Figure 35 is followed by specific recommendations regarding non-capital improvements for the TOD Program.

 

Figure 35: Menu of resources for station area planning, educational programs, and implementation studies

Resource /
Potential Actor

Description

Exemplary Programs

Leverage Tool:
Regional TOD policies for transit funding

Metro

Require local governments to approve supportive land use plans and zoning designations to compete for regional transportation improvement funding

San Francisco Bay Area Metropolitan Transportation Commission (MPO) adopted a TOD policy in 2005 that requires adoption and implementation of transit-supportive land use and zoning designations and improvements in transit extension corridors that will receive regional discretionary transportation funds. The policy determines corridor housing thresholds, identifies whether each planned extension is in compliance and lays out the sequence of transit agency, city & MTC actions necessary to coordinate land use planning and transit implementation. (http://www.mtc.ca.gov/planning/smart_growth/tod/TOD_policy.pdf)

Leverage Tool:
Incentives for TOD-supportive land use & zoning

State / Metro

Financial or other incentives for adoption of higher density, sustainable land use and zoning designations within station areas or bus rapid transit corridors.

The State of Massachusetts has created financial incentives for smart growth-designated areas (including near high quality/frequency transit) that adopt smart growth overlay districts. The amount of the incentive payment is based on the potential number of new housing units. (http://www.mass.gov/envir/smart_growth_toolkit/pages/mod-40R.html)

Leverage & Funding Resource: Informal local fund-raising, partnerships & networking

Metro

MPOs solicit voluntary contributions from member jurisdictions and/or developers, partner with non-governmental associations, or facilitate peer information exchanges in order to support low or no cost TOD educational activities.

Denver Regional COG created a TOD educational program in 2006 that includes a Planner Idea Exchange, website (http://tod.drcog.org/), TOD Best Practices workshop series, and a “Who is TOD in Metro Denver?” study. The workshop series is largely an Urban Land Institute project, with assistance from DRCOG; the TOD study was paid for with contributions from local governments and one developer; the cost of the Planner Idea Exchange is the price of a dozen bagels.

Planning & Funding Resource: Unified Planning Work Program

Metro

Federally required regional plan detailing use of transportation funds and outlining work programs for mandated transportation planning activities. Station area plans, market studies, station access studies, technical assistance programs, corridor analysis and the development of regional typologies fall under the UPWP. UPWPs are regularly funded through: Federal Highway Administration Planning grants, Federal Transit Administration Planning Grants, State Regional Transportation Planning Organization Planning & Long-range Planning Grants, Special Award Planning Grants, and Non-Federal Match.

Metro Washington COG’s Transportation/Land Use Connection Program is paid for through the regional UPWP. It includes the TLC Technical Assistance Program which provides focused consultant assistance to local jurisdictions for sustainability projects. TA includes:

• Public involvement facilitation

• Development of visualization techniques

• Streetscape and infill design assistance

• Long-term plan scoping assistance

• Other transportation and land use coordination help

North Central Texas COG includes TOD education events implementation action plans, market analysis and visioning charrettes in their UPWP.

Funding Source: FTA State & Metropolitan Planning, Sections 5303 – 5305

ODOT / Metro

These programs provide funds to support planning for transportation investment decisions in metropolitan areas and statewide; they are typically used to support planning for new and extension fixed rail projects paid for by New Starts. Eligible uses include planning for projects that protect and enhance the environment, promote energy conservation, improve the quality of life, and promote consistency between transportation improvements and State and local planned growth and economic development patterns.

These programs constitute a significant portion of funds for planning of fixed rail projects in the UPWP (see above). Funds are first allocated to State DOTs and then apportioned to the MPOs, so the State transportation funding structure is critical to the degree of MPO control over these funds.

Finance Tool: Special tax districts

In some states, special tax districts can retroactively pay for plans related to improvements financed by the district.

In the State of California, Mello-Roos or community facilities districts established to pay for community improvements or services can also be used to pay for planning and design work directly related to the improvements being financed.

Non-Capital Improvements: Leveraging & Funding Recommendations

  • Participate in station area planning processes.
    As indicated by the shift in the TLC planning grant program design sidebar above, as well as the typology-derived needs identification for implementation of TOD in metropolitan Portland, station area planning is key to setting the stage for private investment in TOD. Given the significant need for station area planning in the region, there has been some discussion about whether the TOD Program is an appropriate lead agency to secure and allocate funding for station area plans. The cost implications of completing station area plans are potentially substantial. Based on the assessment of implementation needs in Figures 33 and 34, there are approximately 46 stations that would be appropriate for station area planning, and 36 that would be appropriate for implementation and predevelopment studies. Assuming roughly $350,000 for a full and robust station area planning process, and $100,000 for implementation or predevelopment studies, completing this work for all appropriate stations in the region could cost up to $20 million.

    It may be more strategic for Portland Metro to direct transportation planning funds toward station area plans at the local level via the Unified Planning Work Program, as described in Figure 35, and Program staff to participate in local development of these plans to ensure that Metro’s TOD objectives are met.
  • Leverage other resources toward comprehensive station area planning and supportive land use regulations in general.
    A regional TOD policy can require transit-supportive local development regulations as a prerequisite for transit funding; the HCT System Expansion Policy, which is currently being implemented, will do just this. Alternately, a state incentive program can reward jurisdictions that achieve housing density thresholds in designated areas. Finally, the existing corridor planning group in the long range planning division at Portland Metro can work more closely with Long Range Planning and TOD Program staff and local jurisdictions to achieve TOD-supportive regulations near transit nodes, and local jurisdictions can act more aggressively to fund plans via finance districts.
  • Develop discrete grant program for predevelopment & implementation studies in station areas.
    Though station area planning may be prohibitively costly for the TOD Program given its current resources, there are nonetheless many activities related to plan implementation and predevelopment that are appropriate to the scale of the program. Appropriate program activities may include, for example studies focused on correcting zoning barriers, identifying development opportunities, and devising implementation financing strategies for station area plans. The current Development Opportunity Fund at the Development Center completes many of these activities. However, it focuses on catalyzing development in Regional and Town Centers and is not focused explicitly on the station areas, except where those designations coincide; it also has only a two-year funding source. CTOD recommends creating a similar permanent grant program, possibly with a greater focus on station areas and bus corridor segments. Given the on-going housing market and real estate credit recession, these may be the Program’s best investment opportunities in the near future.
    TLC’s experience in the Bay Area with planning grants does point to the drawbacks of identifying and designing recommended public improvements without a larger framework for paying for them. Identification of these needs is critical to the integration of neighborhoods and job centers with transit, whether via walkability audits or more comprehensive infrastructure needs assessments. These assessments must tie into larger infrastructure capital improvement planning efforts and funding programs to be effective. The transportation planning group in long range planning at Portland Metro does capital improvement planning that ties in to the Metropolitan Transportation Improvement Plan; many access improvements identified through more localized, small efforts could be incorporated in the MTIP and paid for with federal transportation funds if they are of sufficient priority.
  • Expand current education and outreach program using staff
    resources.

    The TOD Program’s current “Get Centered” program and limited technical assistance efforts are akin to the Denver Region COG’s TOD education program, which is funded on a project-by-project basis. Given the widespread need for educational activities identified through the typology analysis (approximately 75 percent of station areas would benefit from educational activities), the Program could consider expanding its promotional and technical assistance efforts through greater devotion of staff time to these efforts. Such an expansion could be funded by direct fee-for-service by local jurisdictions, funding of Program staff from Metro general funds (discussed in greater detail in Section C: Transit-Oriented Real Estate Development), or the inclusion of an expanded educational program in the UPWP. However funded, TOD Program staff are the appropriate personnel for such an effort.

Lesson Learned Regarding Coordination of Infrastructure and Land Assembly Investments: Minneapolis-St. Paul Metropolitan Council's Livable Communities Demonstration Account

The LCDA is available to local jurisdictions applying on behalf of developers for infrastructure upgrades, transportation improvements (including parking structures), and land assembly. It does not have the same geographic focus of the Portland Metro TOD Program, rather applications are rated on criteria including land use, innovation and project readiness for selection by the Met Council. Because of this, some grants go to projects in areas that are not the highest regional priorities for TOD.

The LCDA has two sister programs, the Local Housing Incentive Account for gap financing of affordable housing and the Tax Base Revitalization account that together comprise the Livable Communities Grant Program. Unlike the TOD Program and TLC, the program is funded at approximately $8 million per year by a regional property tax levy that must be renewed each year. While there is no cap on individual projects, the largest grant has been $2.5 million.

The LCDA has had many projects that received funding in multiple years. The combination of infrastructure and land assembly grants has had significant success in improving the feasibility of higher-density mixed use development projects in suburban and urban settings.

B. Public Infrastructure: Access, Utility and Amenity Improvements

Public infrastructure improvements are one of the two most widespread investment needs identified through the typology analysis. This includes walking, biking, vehicular and multi-modal access improvements needed to connect surrounding uses and travel paths to transit, utility capacity expansions needed for higher intensity development, and public amenity improvements, such as streetscaping, traffic calming, open space and greening efforts.

The typology analysis is based on the general characteristics of each station area and does not include any on-the-ground assessment of necessary improvements or engineering estimate of costs. A recent station-by-station engineering assessment of all public and private investment needed for the Central Corridor light rail line in the Twin Cities, Minneapolis, found $492 million in public above- and below-ground infrastructure investment needs and $957 million in transit station and line improvements, or approximately $1 in infrastructure investment needed for every $2 in transit investment.19

Unfortunately, while it is possible to include some of these improvements (i.e. access enhancements) in fixed-guideway transit projects, the current formulation of the New Starts’ cost effectiveness measure discourages inclusion of any additional costs, even if federal funds are not sought for that portion of the project. This can result in a significant disparity between new or extension rail transit projects and the surrounding public realm unless MPOs and local jurisdictions are simultaneously planning and implementing supportive connectivity and infrastructure improvements. These improvements set the stage for private TOD investment and are critical to the development of successful transit-oriented neighborhoods and job centers.

The TOD Program does not currently have a public infrastructure grant program. The Lessons Learned sidebar, adjacent, describes the Twin Cities metropolitan planning organization’s experience in distributing in infrastructure grants that support livability. Figure 36, on the following page, identifies opportunities for leveraging existing capital improvements funds toward TOD, new funding sources being developed in Portland and elsewhere and existing infrastructure financing tools. Recommendations follow.

Figure 36: Resources for infrastructure & public amenity improvements

Resource /
Potential Actor

Description

Exemplary Programs

Funding Source: Federal Transportation Funds

Metro

Federal transportation funding sources that can be used for infrastructure include Transportation Enhancements portion of Surface Transportation Program funds, Congestion Mitigation and Air Quality Improvement Program funds, and Urban Formula funds. States can also elect to transfer or "flex" considerable portions of other highway programs to programs that can pay for enhancements. Several MPOs, including Portland Metro, have also exchanged transportation funds for non-restricted sources of funding from local transit agencies or cities.

The Bay Area MTC Transportation for Livable Communities (TLC) program makes planning and capital grants for projects that improve walking and bicycle access to transit and activity centers. Two of the capital grant funding categories are streetscape improvements and non-transportation infrastructure improvements like sewer and water upgrades that support TOD; streetscape projects are funded primarily with direct CMAQ and STP funds, while utilities improvements are typically paid for with CMAQ or STP funds that have been swapped with local agencies for non-restricted funds. In 2010, the TLC program allocated $44 million towards planning, implementation, and capital grants.

Leverage Tool: Local Capital Improvement Plan & Metropolitan Transportation Improvement Plan

Metro / Local Governments

Local Capital Improvement Plans and Metropolitan or Regional Transportation Improvement Plans identify and coordinate funding for city and regional infrastructure projects. Inclusion of TOD-related public capital improvements in these plans is key to funding access.

The TLC program, as described above, requires a minimum 20% local match for allocation of funds to infrastructure projects. In many cases, local governments identify funds in their CIP program as the local match.

Funding Source: Regional Travel Options

Metro

Direction of existing vehicle miles travelled reduction programs to walking and biking improvements in station areas.

For FY 2011/2012, the Metro Regional Travel Options program has $533,000 for projects that improve air quality, address community health issues, reduce auto traffic and create more opportunities for walking and biking. The program has supported transportation demand management efforts, promotional events and biking and walking improvements. The scope of the program is limited, however, and insufficient to meet the needs of the entire region.

Finance Tool: Regional Toll Revenue

Metro

Entities with control over state highways may enter into agreements with tolling authorities to construct, operate and maintain toll roads. Funds generated by these agreements can be used to pay for sustainable transportation, infrastructure and planning efforts.

North Central Texas COG and Regional Transportation Council have instituted a tolling mechanism that will, in part, fund sustainable infrastructure and planning projects. In June, 2010, $41 million was allocated to Sustainable Development projects that:

• Reduce pollution by promoting mixed-use development through public/private partnerships.

• Support sustainable, walkable communities.

• Foster growth around historic downtowns, main streets, infill areas and passenger rail lines and stations.

Finance Tool: Special Regional, County, or City Sales, Transaction or Property Taxes

State/Metro

Dedicated sales taxes, taxes on real estate transactions, or ad valorem property tax levies may be passed at the local or regional level to pay for public improvements with broad benefit. The most common uses are for major funding of schools, parks, roads and transit, and affordable housing. Recently, packaging of many smaller above and below-ground improvements for dedicated taxation and bonding is having some success. Legal restrictions on special sales, and, in particular, property taxes, vary widely from state to state.

There are innumerable examples of special local taxation for public infrastructure improvements; none, however, specifically dedicated to TOD. However, inclusion of TOD improvements in a larger infrastructure tax effort could be a successful strategy. For example, In 2006, Seattle voters passed a nine-year, $365 million property tax levy for transportation-related maintenance and improvements known as Bridging the Gap, which included funds to repair pedestrian and bicycle safety.

The design of a campaign for passage of a dedicated regional tax to fund community infrastructure (Community Investment Fund) is currently underway for the Portland region. Public opinion polls are testing response to various types of needed improvements; anecdotally, the word “infrastructure” tests poorly, while specific improvements like parks or sidewalks have strong support.

Finance Tool: Special Assessment District

Local Government

Special assessment districts (i.e. local improvement districts in Oregon), which assess properties in proportion to the benefit conferred by the improvement, may be used to pay for local infrastructure improvements. Typical items financed include access improvements like street paving, curbs, sidewalks, and street lighting, utilities expansions such as water lines, storm and sanitary sewers and plant expansions, and shared facilities like open space and off-street parking. In Oregon, enactment of LIDs is governed by local ordinance, so requirements for passage of districts (i.e. percentage of residents or property owners and/or value of property represented in petition process) vary.

In the late 1990s, the Hillsboro Downtown Business Association petitioned its City Council for approval of a Downtown Hillsboro local improvement district. The project implemented the vision of the downtown TOD plan and included new sidewalks, curbs, decorative paving, street lamps, and greenery complementary to light rail street improvements.

Finance Tool: Tax Increment Finance

Local Government

Most states have tax increment finance tools that allow local jurisdictions to capture a greater portion of taxes generated by increases in property value in designated areas and use these funds to finance special improvements or services in those TIF districts. Districts must meet special criteria (i.e. blight conditions) to qualify as TIF districts. Historically, projected TIF revenues have been bonded and used to help pay for major development initiatives or infrastructure investments that catalyze private investment and increases in property values. The recent downturn in the real estate market and constriction of real estate investment capital has had a negative impact on the viability of new TIF districts.

In 2008, the City of Dallas created a TOD TIF District around the DART Lancaster Corridor to help pay for access improvements to the public rights-of-way, including sidewalks, and make the area more attractive to private investment. Unfortunately, the district has not yet generated any tax increment due to declines in property values; the City is currently expanding the district to encompass a large, newly proposed mixed-use development project with significant catalytic potential.

Finance Tool: Bonds

State / Metro / Local Government

General obligation bonds, revenue bonds, private activity bonds and Build America bonds are all different types of bonds that can be issued by cities or regional governments to help pay for different types of infrastructure, and are each best suited to different types and scales of improvements and variations in the bond market.

In 2004, the State of Massachusetts initiated a Transit-Oriented Development Infrastructure and Housing Support Grant Program to be paid for by $30 million in general fund bonding capacity. The multi-year program is dedicated to increasing compact, mixed-use, walkable development close to transit stations. It provides financing for pedestrian improvements, bicycle facilities, housing projects, and parking facilities within .25 (1/4) miles of a commuter rail station, subway station, bus station, bus rapid transit station, or ferry terminal.

Finance Tool: Development Impact Fees

Local Government

Local jurisdictions may exact fees or other exactions through approvals processes to compensate for the projected impact that new development will have on local public infrastructure and services; while fee eligibility varies by state, there must generally be a nexus between the impact of the project and the improvement to be paid for, as well as rough proportionality between the public burden and the exaction. The most common impact fees are for water and sewer systems, roads, schools, libraries, and other recreation facilities that can demonstrate an immediate increase in need from new development. The major drawback with development fees is that they are “pay-as-you-go” and therefore difficult to bond.

The City of Portland exacts a Transportation Systems Development Charge to new projects and changes in use. Fees are often dedicated to station area infrastructure and place-making investments in the city. SDC revenue, however, can only be used on new capacity improvements.

Placemaking Infrastructure and Amenities: Leveraging & Funding Recommendations

Of the four regional sustainable development investment programs highlighted above, the Metro TOD Program is the only one that emphasizes direct investment in real estate projects over infrastructure improvements. One of the TOD Program’s primary objectives is “causing construction of higher density housing, mixed-use projects,” and strategies that ensue from this include creating market comparables, building developer capacity and building community acceptance for sustainable development near transit.20

Unlike the majority of Metro programs, the TOD Program is explicitly charged with delivering ‘bricks and mortar’ rather than providing traditional planning and regulation.21” Investment in real estate is not the only way to meet this charge and incentivize private investment in sustainable development. Higher density and mixed-use projects that depart from surrounding suburban development patterns require significant place-making investments to succeed at lowering resident and worker vehicle miles travelled and provide a quality urban living environment. Such improvements, including pedestrian realm investments like sidewalks, bikeways, street trees and street crossings, amenities like neighborhood serving retail and services, open space and community facilities and utilities upgrades including water, sewer and drainage improvements have the additional advantage of benefiting many properties, both those that are likely to redevelop and those that are not. This physically sets the stage for multiple higher intensity development projects and builds community acceptance among existing single-family homeowners who also benefit from a better walking environment and higher quality public amenities and utilities.

  • Continue to invest in Urban Living Infrastructure Improvements, and promote mixed-use development. Modify ULI investment criteria.Another component of the TOD Program is reinforcing urban living infrastructure, or retail and service amenities that help to create complete, livable districts where people can walk to many basic daily needs. The presence of retail stores and services, such as a corner store or dry cleaners, can help deliver on the promise of transit to add amenity value to existing neighborhoods and reduce vehicular trips that households need to make on a regular basis. ULI have also been shown to boost surrounding residential property values, thereby enhancing the feasibility of new private investment in TOD.

    Figure 37: Urban Living Infrastructure by Station Areas and Frequent Bus Corridors.
    Figure 37: Urban Living Infrastructure by Station Areas and Frequent Bus Corridors
    Click to enlarge

    As with its market comparable investments, the TOD Program’s most effective investments in Urban Living Infrastructure will be in areas where targeted investments can help to complete the mix of retail and services in the area. Figure 37 shows the current ULI amenities that exist in station areas. Metro’s TOD program has been funding ULI as a pilot program. This important program should be established as a formal program element, but may require some refinement of eligibility criteria to tie ULI investments to appropriate place types. One key modification will be to enable ULI investments in station areas and corridor segments where Metro does not own land.

    Even within a station area or corridor with a strong critical mass of Urban Living Infrastructure, retail investments will need to be considered on a case-by-case basis. Parcels to be considered for mixed-use or ULI investment should enjoy a minimum level of access and visibility from major arterial roads, such that retail tenants will find it beneficial to locate in these places. Transit ridership alone is not sufficient to support retail businesses; retail patronage will require a combination of high visibility from transit users, surrounding residents and employees, and vehicular traffic.

  • Expand capital improvements grants to include infrastructure; work to secure portion of Community Investment Fund measure for TOD infrastructure
    Akin to other regional TOD programs across the country, Metro should consider expanding its resources so that capital grants could include station area infrastructure improvements as well as real estate investments, especially in the aftermath of the recession. In addition to the existing MTIP funding stream that may be used directly, or exchanged for farebox revenues depending on the type of improvement, the potential future Communities Investment Fund could provide a source of funding for such grants. It is recommended that Program staff work to dedicate some portion of Fund initiative proceeds to infrastructure improvements for TOD in station areas and corridors with significant in-fill or redevelopment potential.

C. Transit-Oriented Real Estate Development and TOD Grants

Direct grant investment in TODs is the mainstay of the Metro TOD program, as described previously. Program staff are diligent in performing pro forma financial analysis of development projects to ensure grant funds go to projects that meet the “but, for” litmus test: without Program investment, these projects would not move forward. This concept and its thorough application directs Program funds to projects that pioneer taller building construction types and more intense uses and mixed uses in areas that have not previously seen such development.

Current funding derives almost exclusively from the exchange of MTIP funds (Urban Formula, CMAQ and STP) for unrestricted TriMet revenues. Figure 38, on the following pages, outlines current and potential funding sources and planning and financing tools for expanding existing resources for TOD investment. Following Figure 38 are recommendations regarding real estate investments.

Figure 38: Resources for Public Investment in TOD

Resource

Description

Exemplary Programs

Funding Source: New Markets Tax Credits

Local Government / Developers

Issuance of tax credits to investors in exchange for stock or capital interest in designated Community Development Entities. Most of the investment must then be used for qualified projects in low-income areas.

Construction is currently underway on the MacArthur Park Metro Apartments next to and over the Westlake/MacArthur Park Red/Purple Line Station in Los Angeles. Phase I includes 90 units of affordable rental housing over approximately 15,000 square feet of ground floor retail space and residential, retail and commuter parking. Total development costs for Phase I are approximately $45 million and financing sources include New Markets Tax Credits.

Finance Tool: Joint Development

Tri-Met / Metro / Local Governments (with control of land)

There are many different tools that facilitate public and private co-development of real estate projects. These include Requests for Proposals for private development of publicly owned sites, development agreements that delineate investment, responsibilities and outcome for each participant, co-use of improvements and air rights/ground lease development whereby a property owner retains ownership of a parcel while allowing development over an extended lease period. Local and regional governments may use these to obligate private development in exchange for various public contributions, or to delineate agreements with other institutional partners engaged in real estate development.

The former surface parking lot at Woodlawn Station on the Green Line in suburban Boston has been redeveloped into a six story, 180 unit apartment project with 25% affordable units and a structured parking garage. The garage, new access road and re-designed station platform were built with prepayment fees from ground lease of the MBTA-owned property.

Finance Tool: Tax Increment Finance

Local Governments

See definition in Table 4. TIF may be used to pay for land assembly for private development projects.

The Skyland Mall redevelopment project, in the Anacostia Station area in Washington, D.C. received $25.7 million in TIF funds for acquisition of 18.5 acres of strip mall and vacant property from 15 different property owners. The properties will be redeveloped as a 915,000 square foot transit-oriented development.

Finance Tool: Private Activity Bonds

State / Local Governments

Private activity bonds are issued by local or state governments to finance the project of a private user. Interest on private activity bonds is taxable unless they meet certain qualifications, including issuances for multifamily housing with affordable units; redevelopment in blighted areas, facilities owned and used by 501(c)(3) organizations.

Cities in the Denver Metro Mayors’ Caucus have pooled their PAB authority to provide an incentive for TOD projects with a minimum of 50 units that include affordable housing (45% of units at or below 60% AMI).

Finance Tool: Structured Acquisition Funds

Metro / CDFI / Philanthropy / Nonprofit Entities

Structured acquisition funds combine debt, equity and grant investments from public entities, community development finance institutions, commercial banks seeking CRA credit and foundation program and mission-related investment to proved lower cost property acquisition financing to equitable TOD projects (affordable, workforce and mixed income housing). These funds help meet the acquisition financing gap created by the limitations of permanent affordable housing finance which are exacerbated for TOD by the higher cost and scarcity of quality opportunity sites near transit. Public subsidy investments with no return expectations occupy the critical top loss risk position for these funds and are essential to their formation.

There are approximately 12 different structured acquisition loan funds for affordable housing in operation or being formed across the country. The Denver TOD fund, which closed in early 2010 and is operated by Enterprise Community Loan Fund, is the first to have an exclusive TOD dedication. Top loss investment for this fund come from Xcel Energy franchise fee revenues and Economic Development Business Incentive funds. The Low Income Investment Fund in the Bay Area and the Seattle Office of Housing (a housing finance authority) in Seattle are currently soliciting investment for equitable TOD funds in those regions. The Bay Area fund has a commitment of $10 million in top loss grant investments from MTC in the form of exchanged STP & CMAQ funding. The Puget Sound fund will have some top loss investment from the Seattle Housing Levy and is seeking additional federal funds through the HUD Sustainable Communities Grant process, as is the Denver Fund.

Finance Tool: Tax Abatement

State

Full or partial exemption from real estate taxes for a limited time period.

The State of Oregon has a Vertical Housing property tax exemption program that allow local governments to designate areas in which multi-story mixed-use projects receive tax abatements for 10 years; the percent exemption increases with the height and affordability of the project. Under this program, the city of Portland created the TOD Property Tax Abatement Program which exempts qualifying projects from property taxes on residential improvements and non-residential improvements with public benefit for 10 years. Qualifying projects meet a 10 to 20% affordability requirement, TOD design specifications, minimum of 10 units, and are located in designated areas. This program will sunset in 2012 unless re-authorized.

TOD Grants: Recommendations for the TOD Program

In the first decade of the Program’s life, prior to 2008, its focus on small direct grants that shift the development feasibility of TODs dovetailed with burgeoning housing and real estate credit markets to bring higher intensity development prototypes to many Portland Metro station areas for the first time. Unfortunately, the 2008 financial crisis and subsequent downturn in the housing market has changed the credit environment for real estate development. This challenge is likely to persist for several more years, as the economy as a whole recovers, and the real estate investment market stabilizes and returns to growth.

The TOD Program should continue with its current level of judicious, detailed analysis of the eligibility and feasibility of all projects proposed for grant assistance. Given the current scarcity of debt for anything other than apartments, the Program could focus its investments in this product type given the greater likelihood that pioneering projects of this type will have short-term catalytic effects. The Program might also consider prioritizing investment in existing properties that could become multi-use, as foreclosed properties change hands and seek funding and financing for rehabilitation and conversion. While the for-sale housing market and real estate debt investment market recover, we have also recommended consideration of the extension of the Development Opportunity Fund and Urban Living Infrastructure Program toward implementation and predevelopment studies and place-making amenities to help set the stage for the return of significant private investment in new product.

The following bulleted paragraphs describe opportunities and recommendations for expansion of the Program’s direct investments in TOD:

  • Figure 39: Recommended modifications to project evaluation based on the TOD Typology and Framework.
    Figure 39: Recommended modifications to project evaluation based on the TOD Typology and Framework
    Click to enlarge

    Use the typology and framework as a first filter for project eligibility, and develop a project-specific evaluation form that considers how well a proposed project achieves program priorities.
    Developing a simple project evaluation form that staff could work with developers to complete, showing how specific criteria affect project qualification/awards, would create a more formal process for communicating program priorities. Another specific action might be to create and include a map in a project application that shows preferred investment zones based on the typology work. Such a form could also include further project screens such as a minimum and maximum award amount, and a “but for” test to show that other funding sources are not available to cover the gap. This type of evaluation will ensure that program dollars are spent more efficiently and with the maximum impact. Figure 39 shows the basic flow of the proposed project evaluation process, stressing that the cost effectiveness model and a standardized project assessment application be used iteratively to determine project merit and award value.

  • Dedicate MTIP funds exclusively to TOD capital improvements; shift staff operations to the Metro General Fund.
    While there are several other finance tools that can be used to assist development of TOD, MTIP funds, brownfield redevelopment funds, and affordable housing funds are the only on-going types of federal equity or grant investment that can be directed to real estate development. For the non-affordable portion of TOD projects, MTIP-derived grant funds are critical; current programs include higher-density mixed-use TOD grants and ULI grants. For this reason, CTOD recommends devoting all MTIP funds toward capital improvements and funding program operations through another more flexible source of funds such as Metro general funds, like other Metro programs, allowing greater dedication of available MTIP toward capital improvements.
  • Develop a strategy for investment in equitable TOD.
    The TOD Program can use the station area typology to create an explicit policy and strategy regarding investments in equitable TOD, defined as affordable, workforce or mixed income TOD. While 12 of 17 completed TOD projects have included a majority of housing affordable to lower income households, development of equitable TOD is not an explicit program objective and there is no current policy that identifies those stations areas, or locations within station areas, that are best suited for affordable housing. The TOD Typology and Framework now provides a powerful tool in helping Metro staff engage with equitable TOD stakeholders to define a strategy for future investments and program criteria around equitable TOD.

    There may be different needs in different station areas with respect to equitable TOD. For example, households in East Portland and West Gresham tend to be lower income and are more likely to be renters than households in the region’s other station areas. While subsidized affordable housing investments in these types of station areas may have improved the housing stock overall through higher quality design, they add to the concentration of lower income housing in certain parts of the region and miss the opportunity to promote mixed-income housing in more amenity-rich station areas.

    Future TOD Program investments in affordable and workforce housing should be focused on maximizing access of low and moderate income households to opportunities provided in the region’s emerging and strong market station areas and corridors. Affordable housing can be difficult to build in these station areas, which generally have higher land costs, but such opportunities are critical to maximize opportunities for the region’s transit dependent populations who most greatly benefit from living in these places. Given that many other sources of public and private funding are available for affordable housing, the TOD Program’s limited flexible funds can often be better directed towards other catalytic activities or investments.

    There may continue to be affordable projects where TOD Program investment makes sense, but staff should carefully consider whether these projects achieve the Program’s many other objectives. In addition to the transit access equity needs met by various kinds of affordable TOD, higher-density affordable projects that are more insulated from market forces can begin to alter the physical environment of station areas to be more urban and transit-supportive, thereby setting the stage for future market-rate housing and employment uses. Such investments should be made only in station areas where affordable or workforce units increase the diversity of housing options available, rather than further concentrating disadvantage households, as identified by the typology analysis.

    Affordable housing is not currently a designated Metro funding target, however, the recent proposed Community Investment Strategy includes alleviating the disproportionate burdens of growth borne by lower income households. This may generate further sources of funding to help achieve the equity objectives associated with TOD.
  • Support Employment or Destination Uses to Advance the 2040 Growth Concept.
    The majority of the TOD Program’s development investments are more residential in nature, but TOD Program investments have also supported employment or institutional uses where appropriate. Such investments create additional transit-accessible destinations and can significantly boost transit ridership by creating more transit destinations and promoting bidirectional flows. Moreover, research has shown that areas with a greater mix of land uses enjoy reduced auto dependence by encouraging walk and bike trips. The Metro TOD program should continue to consider appropriate opportunities to support destination retail, entertainment, cultural and institutional uses in addition to office and residential development types.

    Certain station areas are more readily able to support destination-related uses than others. A wholly residential station, for example, will be an unlikely candidate for a new office building. Many office developers require candidate sites to maintain a minimum critical mass of adjacent office space or supporting commercial space, or require easy arterial and highway access. Figure 8 mapped existing employment clusters throughout the region; where these clusters intersect with transit stations and corridors, there is some potential to support new employment uses. This figure additionally shows that while all of the centers designated in Metro’s 2040 vision plans are designated for some mixed-use development, only some of these centers currently maintain a large enough critical mass of jobs to support future employment growth in the short- to mid-term.
  • Coordinate with other regional and state programs.
    There are other regional resources that could benefit TOD projects with coordination of planning efforts and targeting of funds. One program that appears to have opportunity for coordination is Regional Travel Options, which funds and implements Travel Demand Management programs throughout the region. TOD Program staff participation in the Portland Metro Consolidated Housing Plan process could also help steer available housing subsidy towards the station areas.
  • As described in Figure 37, the state of Oregon is one of only 14 states that do not have a transit preference or points for transit locations in its Low Income Housing Tax Credit (LIHTC) Qualified Allocation Plan. LIHTC currently accounts for almost 90% of subsidized affordable housing finance and is critical to the development of equitable TOD. Especially given current tightening of the tax credit and exempt bond markets, LIHTC should be strongly concentrated in station areas to ensure equitable access to higher quality transit service and relief from lengthy commutes. Albeit on a much smaller scale, New Markets Tax Credits (NMTC) are one of the few federal finance tools that could help support ULI investments. Metro and the TOD Program should lobby for preference for transit locations in the state allocation criteria for both LIHTC and NMTC.

Lesson Learned Regarding Acquisition Loans: North Central Texas Council of Governments (NCTCOG) Sustainable Development Program (Dallas-Fort Worth, Texas)

The Sustainable Development Program funds planning, infrastructure and land banking efforts by local jurisdictions with public-private development partnerships in place for projects in targeted transit corridor or infill areas. The program was originally funded with $40.6 million in local capital improvement funds swapped for CMAQ and STP Metropolitan Mobility funds, similar to the TOD Program and TLC, and to be disbursed over a four year funding cycle. Future funds will come from toll revenue from the North Texas Toll Authority, as described in Table 4.

$8.1 million of these funds are designated for no-interest loans of no more than $1 million for land banking. Loans require a 20% minimum local match and the city partner may keep any profit, but also incurs any loss. Unfortunately, the scale of funding requests has far outstripped program resources and the NCTCOG/City/ Developer relationship has been challenging for program staff to manage. Staff feels the land banking program has not been successful and is not recommending a next round of funding.

D. Property Acquisition/Land Banking

Since its inception, the TOD Program has acquired strategic properties for development as TODs. Properties in Milwaukee, Hillsboro, Gresham and Beaverton remain in Metro ownership until an appropriate transit-oriented project is proposed. All of these properties were acquired opportunistically, as desirable property became available and/or the TOD Program had access to federal funding resources that could be used for acquisition.

Metro is the only regional government in the United States that directly acquires land for development as TOD; most local governments with interest in stimulating TOD via land assembly assist private developers in acquiring land, rather than directly purchasing, owning and maintaining property themselves. Several regional governments and central cities make grants or no-interest loans toward private acquisition of property for development as TOD. As described previously, the Twin Cities has a regional grant program that assists sustainable development projects with infrastructure, transportation access and land assembly costs; the constellation of these grants, often multiple grants to the same project over several years, has improved the feasibility of higher-density mixed use development throughout the region. As described in the adjacent sidebar, The North Central Texas Council of Governments has a no-interest loan program that makes loans to cities which then makes loans to sustainable projects, but the COG/city/developer relationship has been challenging to manage and the program is not likely to be renewed.

As described in Figure 38, Bay Area MTC and the Cities of Denver and Seattle have contributed federal or local sources of revenue towards the development of structured property acquisition loan funds for equitable TOD projects. These funds make short-term, below-market rate loans to developers seeking to acquire property near fixed guideway transit for development as affordable or mixed-income TOD. Loans are repaid when projects receive construction or permanent financing. Public investments in these funds are usually grant funds that are instrumental in risk absorption and leveraging of private source of debt investment because they have no return requirements and are not repaid, but continue to revolve.

Unlike these structured loan funds or the MPO land assembly grant/loan programs, the TOD Program’s current approach to acquisition is more oriented towards preservation than near-term catalyst objectives. As described in the Work Plan, the purpose of establishing site control is “to ensure design and density of a TOD can be determined before the land is developed.22” Public holding of these properties preserves them for eventual development at densities, mixes and with design features that support transit usage. Because Metro is exempt from property taxes as a public entity and has in-house legal and maintenance staff, it has relatively low carrying costs for land banking and can hold property in perpetuity without significant burden.

There are, however, opportunity costs involved with investment in land holding where there is no prospective development deal. Given the high cost of property, the TOD Program has significant program capital investment resources invested in TOD sites that could be going towards investments in immediate real estate projects or infrastructure improvements that would have immediate catalytic impacts on TOD. Given the orientation of other Program activities toward catalyst objectives, clarification and elaboration of the purpose of its property acquisition activities is needed.

  • Evaluate Program intentions regarding property acquisition.
    The immediate objectives of the TOD Program’s property acquisition activities need to be aligned with the larger mission of the TOD Program. The ultimate goal of ensuring transit-supportive uses, densities and building design on key sites, as described in the Work Plan, could also be met through local zoning and design requirements at a cost that is more in line with the scale of resources currently available to the program. Though there is a need to address the financial gaps faced by developers, truly addressing this need will require a substantially greater pool of money for land acquisition. Moreover, most of the other current activities of the TOD Program are catalytic in nature, which is not often the case with property acquisition.

    However, there may be specific circumstances in which acquisition for land banking, as opposed to near-term development, is needed; i.e. where key properties will otherwise be developed in a manner that does not support transit, or where owner circumstances result in a particularly advantageous and time-limited opportunity. Depending on Metro’s objectives for acquisition, the relative lack of market demand and credit supply could result in new acquisition opportunities for the Program in the next couple of years. More precisely defining the Program’s goals for acquisition will assist in strategic decision-making regarding use of program resources towards any opportunities that arise.
  • Develop guidelines for strategic disposition of both current and future acquisitions.
    Program staff should develop a disposition strategy for current properties under the ownership of the TOD Program, as well as future potential acquisition opportunities. This strategy should take the program’s goals for acquisition (recommended above) into account. If such a disposition strategy were required particularly for future acquisitions, it might help program staff to determine whether and how this activity will further the Work Plan for the program.