New York

Betting On De Blasio’s $2.5 Billion Streetcar Paying For Itself Is “A Recipe For Disaster”

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At a Sunset Park “visioning meeting” for Mayor de Blasio’s Brooklyn-Queens Connector waterfront streetcar plan last June, one local resident responded with exasperation when asked by a city official how new transit would help his neighborhood. “You should get the neighborhoods like Canarsie and East Flatbush!” he complained. “There’s not a lot of trains over there.”

It’s an obvious criticism of streetcar, known as the BQX: The city would do little to aid the city’s worst transit deserts. Still, the plan has mostly been cheered by transit advocates eager for any new mass transit construction. “Public transit is the lifeblood of the city — beginning, middle, period,” says Ya-Ting Liu, the former Transportation Alternatives staffer who was hired last year to run the nonprofit Friends of the BQX. “It’s time for us to be bullish on these investments.”

And while some gentrification-weary residents suspect a stealth ploy by waterfront developers like David Walentas’s Two Trees Management — who not only first concocted the idea, but continue to play a central role in planning discussions — the city has put forward a simpler explanation: BQX may not be the transit system New York City most needs, but it’s the one we can get. By building in a hot neighborhood along the waterfront, de Blasio administration officials insist, they can use the magic of “value capture” to grab the resulting increase in property tax receipts and use it to pay off the project’s entire $2.5 billion construction cost, thus getting the city a new light rail line entirely for free.

That’s the claim, at least. But a Voice investigation of the economic studies underpinning the streetcar’s finances, along with interviews with development and transit experts and the project’s planners, finds that the city’s contention that the BQX would pay its own way relies on untenably optimistic assumptions and creative bookkeeping. For the financing plan to work, say those who’ve studied similar projects elsewhere, the new streetcar would have to single-handedly spur the wholesale redevelopment of a waterfront that has already been significantly redeveloped — and if that failed to occur, the city could end up footing the bill.

“People see it as ‘I’m not even going to worry about the money, because it’s self-sustaining,’” says Lauren Fischer, a Columbia University Ph.D. candidate who has written extensively on transit and property values. “But the truth is, it’s not.”

The premise of value capture is fairly simple: Build it, and they will come — and pay more in taxes. A 2016 study by the city Economic Development Corporation, the Department of Transportation, and consultants HDR estimated that installing light rail would boost waterfront property values more than enough for the surge in property taxes to pay off $2.5 billion in bonds. HR&A, a consulting firm that conducted a separate study for Friends of the BQX predicting 86,000 new jobs between now and 2045 as a result of the project, notes that cities that built new streetcars in recent years — which include San Francisco, Minneapolis, Kansas City, Portland, and Cincinnati — have seen economic activity rise in districts served by the new rail lines.

But development and tax experts point to two reasons why New York might not get the same boost. First off, most economic studies show only correlation between streetcars and economic growth, not causation. In other words, it’s possible that streetcars cause property values to rise — or just that hot areas with rising property values, such as San Francisco’s SoMa district, are the ones most likely to receive new transit improvements.

At the same time, many cities that have joined the rush to build light rail have extended new lines into largely undeveloped neighborhoods. Portland’s new streetcar system, for example, was constructed largely through a rundown former industrial area east of downtown, helping spark a flood of high-density construction.

That, needless to say, is not the Brooklyn and Queens waterfront. Williamsburg and Greenpoint have already experienced a major rezoning that continues to populate the river’s edge with new luxury housing towers; Long Island City and Dumbo have been substantially redeveloped as well, and developers AECOM have proposed dropping 45,000 new apartments on Red Hook. The neighborhoods that the BQX would pass through, from Astoria to Sunset Park, currently generate about $1 billion a year in residential property taxes, rising another 17 percent in just the last two years, according to city figures. To pay off a $2.5 billion streetcar, these values would need to rise by another 17 percent solely thanks to the BQX — and if that failed to materialize, the city would be left having to pay off the debt with money that would otherwise go into its general fund.

“New York is doing this backwards in some ways: They have the real estate development that’s gone all along the water, they rezoned all that stuff in Williamsburg ten years ago,” says Fischer. “They have the demand, they have the people — and now they’re putting in the transportation.”

As a result, she says, “I think there’s a lot more reason to be skeptical” of whether the projected gains will be realized, in either increased property values or faster transit, given New York’s already-pricey real estate and crowded streetscape. “In a lot of cities that are building streetcars, their street infrastructure is underutilized. In Kansas City, in Detroit, if they weren’t doing construction, there’d be hay bales rolling around.”

The initial streetcar study performed by the city’s Economic Development Corporation projected plenty of property-tax cash for BQX to pay its own way — but, crucially, didn’t attempt to determine whether the streetcar itself would cause waterfront property values to surge over and above their already-healthy clip. Rather, it just projected that they’d rise from what they are now, not relative to what they would be without the BQX. (An EDC spokesperson says a “net new” analysis is being prepared for release this spring.) This runs the risk that by diverting new tax receipts to pay off the streetcar, the city would siphon off money that it would be getting anyway, stealing cash resources that could otherwise be spent on other uses.

According to EDC, BQX would use a similar funding mechanism to what Mayor Bloomberg used for the 7 train extension to 11th Avenue. There, the city chose to exempt the entire Hudson Yards district from taxes, then levy payments in lieu of taxes — PILOTs — in their place and funnel those into paying off the subway extension, which the MTA had balked at funding with its own money.

“At Hudson Yards it’s all the property taxes generated there that’s being redirected, so money that once went to the city’s general fund to help meet needs citywide is now being used just to pay for the improvements on the far west side of Manhattan,” says city Independent Budget Office chief of staff Doug Turetsky. “Will it be exactly the same with BQX? We don’t know yet, but a similar scenario is plausible, where all or some of the property tax revenues that were once applied citywide would instead go just to fund the trolley. That’s a tradeoff that may benefit one part of the city at the expense of others.”

The danger of double-booking existing revenues is one reason why tax increment financing — the original variant of value capture — is viewed skeptically by many development experts. “TIFs have been used for everything under the sun in Chicago,” says University of Illinois-Chicago urban planning professor Rachel Weber, who co-authored a report on the TIF districts that now cover 30 percent of that city’s land area. The difficulty, she says, is knowing how much an area’s property values would rise even without the subsidized project: “They’re all growing and changing at really different rates, and you need to be able to make some kind of speculative judgment on how property values are going to increase.”

The flip side is the worry that property values could soar — but at the cost of massive redevelopment and displacement of the residents and businesses that BQX is ostensibly intended to serve. The streetcar’s advocates have been reassuring residents of waterfront neighborhoods that it won’t jump-start gentrification, but merely allow buildings like the largely derelict Brooklyn Army Terminal in Sunset Park to be fully occupied by startups and other businesses that rely on transit to bring their workers to the office.

Fischer, though, says that wouldn’t be enough to feed the value capture kitty. “To get the value gains they’re talking about, you need major changes in intensity use,” she says. “Not just taking a four-story building where one story is not used as efficiently – you need that four-story building to become a 15-story building. Because these systems are expensive to build” — and can get even pricier, she warns, once cities cut open their road beds and discover the state of the water mains and other infrastructure underneath. “You can often double the cost of these projects.”

None of which is to say that a new streetcar wouldn’t have benefits: Friends of the BQX estimates that it would cut commute times by 18 minutes for those traveling from the Astoria waterfront to Midtown, and even more for anyone traveling between two waterfront neighborhoods — albeit at the cost of an additional fare, since the BQX would be separate from the MTA and isn’t guaranteed to take MetroCards (the City says they are still negotiating a possible transfer with the MTA). But once you dispense with the “it’ll pay for itself” argument, all sort of other options present themselves: The Regional Plan Association’s long-discussed Triboro Line proposal, for example, would connect underserved areas of southern Brooklyn, central Queens, and the Bronx for an estimated $1 to 2 billion — and is projected to reduce travel times between some outer borough neighborhoods by as much as half an hour.

Or the city could just scrap trains entirely and build dedicated express bus lanes, which, while undeniably less sexy, would provide similar commute time improvements for about one-tenth the price of light rail, according to Fischer. (A recent Select Bus Service route in the Bronx cost just 1.2% the per-mile cost of a streetcar.) Friends of the BQX’s Liu does note that select buses can only carry half as many passengers of light rail, and can run fewer trips per hour — but even that figure might still provide better bang for the buck than BQX.

Either way, Weber agrees that it’s foolish to expect a big jump in property values from a streetcar project in an already-hot neighborhood like the Brooklyn-Queens waterfront. If there’s one lesson from value capture programs, she says, it’s “don’t trust any argument that says ‘it’ll pay for itself.’ That’s a recipe for disaster.”

Correction: An earlier draft of this story stated that the BQX “wouldn’t take MetroCards.” The city is still in the process of negotiating a possible transfer with the MTA, so we have changed that phrase to “isn’t guaranteed to take MetroCards.”

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