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Guide to Value Capture Financing for Public Transportation Projects (2016)

Chapter: Appendix E - Kansas City Streetcar, Kansas City, MO

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Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Page 74
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Page 75
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Page 76
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Page 77
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
×
Page 77
Page 78
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
×
Page 78
Page 79
Suggested Citation:"Appendix E - Kansas City Streetcar, Kansas City, MO." National Academies of Sciences, Engineering, and Medicine. 2016. Guide to Value Capture Financing for Public Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/23682.
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Page 79

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70 I Overview and Description On May 6, 2016, a 2-mile modern streetcar system opened for service in downtown Kansas City, MO, traversing the heart of downtown from the River Market to Union Station. Construc- tion of the $102 million starter line began in May 2014. In its first 2 days of operation, the new streetcar system served more than 32,000 riders, for a total of over 50,000 passenger miles, exceed- ing expectations. The City of Kansas City funded construction of the streetcar with $37.1 million in grants from the FTA for construction of the system and acquisition of vehicles. Local revenue sources, including the downtown streetcar transportation development district (TDD), a special assessment district, funded the balance (Kansas City Area Transportation Authority, 2013). This first phase of the streetcar system was envisioned as part of a new and modern streetcar network that would support a transforming downtown business district and improve mobility in the urban core. The 2-mile starter line has 16 stops and uses four American-built vehicles (see Figure 29 for a streetcar corridor map). The project became a multifaceted investment that included water and sewer main replacements, utility relocation, and upgrades to 24 other utili- ties. In addition to underground utilities, the project includes modern technological enhance- ments. The streetcar’s 16 accessible stops include digital kiosks, 125 LED streetlights, Wi-Fi networks, and video technology. The city entered into a tri-party agreement with a voter-approved transportation develop- ment district and a city-created not-for-profit, the Kansas City Streetcar Authority, Inc., which specifies and oversees funding, design, construction, and ongoing operations and maintenance of the system. Prior to this successful streetcar initiative, three previous streetcar initiatives failed in Kansas City. All three of these included a broader network (between 14 and 27 miles) than the current 2-mile project approved in 2012. II Project Funding Sources Total capital cost for the downtown streetcar project is $102 million. Federal grants received for the construction of the streetcar system included a $16 million Surface Transportation Program (STP) grant (used primarily for vehicles), a $1.1 million Congestion Mitigation and Air Quality (CMAQ) Improvement Program grant, and a $20 million Transportation Investment Generating Economic Recovery (TIGER) grant. Table 15 provides a detailed breakdown capital funding sources. Approximately 60% of the capital costs for the project were paid for by a special obligation bond issued in 2014. Funds collected through assessments and taxes associated with the TDD around the streetcar line are used to retire the bonds. Further discussion of TDD follows. A p p e n d i x e Kansas City Streetcar, Kansas City, MO

Kansas City Streetcar, Kansas City, MO 71 Source: Kansas City streetcar project website, http://kcstreetcar.org/. Figure 29. Kansas City downtown streetcar corridor map.

72 Guide to Value Capture Financing for public Transportation projects The 2016 budget for Kansas City’s streetcar includes $4.4 million in debt service and $2.8 million provided to the streetcar authority for managing, operating, and maintaining the system. Debt service and operating costs are funded through property and parking assess- ments for properties located within the TDD, in addition to a one-cent sales tax within the TDD. According to the fiscal year (FY) 2017 Kansas City budget, operations and debt service for the streetcar program amount to $9.2 million annually. The streetcar is fully funded by the TDD and receives no general fund support from the city (Kansas City, 2016b). III Local Economic Conditions and Market Considerations In the decade before the construction of Kansas City downtown streetcar, the downtown area experienced resurgence and transformation into a vibrant economic center. From 2000 to 2013 (the year before construction started on the project), investment totaling nearly $6 billion from both public and private sources stimulated economic activity and development. Approximately $4.5 billion of that investment is reflected in Table 16. In addition, more than $1 billion in residential development occurred in downtown Kansas City over the same period. From 2013 to 2016 alone, the combined cost of commercial and residential development within the TDD was $1,709.5 million. IV Capacity, Organization, Coordination, and Partnership In 2012, the city established a public–private partnership to manage the streetcar system. This partnership is governed and defined by a tri-party agreement that details the funding, design, con- struction, and ongoing operations and maintenance of the streetcar system. The city entered into an agreement with the Kansas City Downtown Streetcar Transportation Development District and the Table 15. KC streetcar capital sources, 2012. Capital Sources Amount Special obligation bond (repaid through TDD) $62,900,000 TIGER grant $20,000,000 CMAQ funds $1,100,000 Surface transportation program funds $16,000,000 City commitment $2,000,000 Total $102,000,000 Source: Kansas City Area Transportation Authority, 2013. Table 16. Major commercial investments in downtown Kansas City, MO, 2000–2013. Type of Development Amount Invested Office space $1,614M Convention/hotel $259M Arts, culture, and entertainment $1,054M Religious $9M Mixed use $402M Healthcare $658M Transportation $419M Total $4,415M Source: Downtown Council of Kansas City, 2015.

Kansas City Streetcar, Kansas City, MO 73 Kansas City Streetcar Authority (KCSA). Per the terms of the agreement, the streetcar will be oper- ated and managed by KCSA. In addition to overseeing streetcar operations, KCSA supports system branding, marketing, safety oversight, public communications, and community engagement. KCSA is a not-for-profit corporation established by the city after the TDD vote and is com- posed of 13 individuals representing private citizens, business, and government interests within the TDD. KCSA’s executive director has responsibility for managing the streetcar system and contracting with third parties to handle marketing and branding, maintenance of the track, and operational issues such as routing, dispatch, and transfers. KCSA has a 13-member board of directors. Seven of the directors are private individuals who reside or own properties or busi- nesses within the TDD. The other six directors are appointed by the city or the Port Authority of Kansas City through various processes. Table 17 shows KCSA’s budget. The FTA considers KCSA a no-bid third-party contractor because it was appointed, rather than selected through a competitive process, to its role within the tri-party agreement. The FTA’s current interpretation of the city’s relationship with KCSA makes the city ineligible for operational grants on the KC streetcar starter line. Because a local funding mechanism exists for operations, the city has not used and does not plan to apply for FTA operational grants on the KC streetcar starter line and is thus not in conflict with current FTA grant agreements. Addi- tionally, the tri-party agreement calls for revenue generated by the streetcar to be deposited into KCSA’s accounts. Table 18 details the major participants of the project and their respective roles. Table 17. Kansas City Streetcar Authority budget. Source: Kansas City, 2016b. Table 18. Major project participants. Partner Role City of Kansas City (KCMO) Local project sponsor providing local funding match for federal grants; led environmental analysis, design, and procurement of project Kansas City Area Transportation Authority Provides transit service in KCMO and coordinates with KCMO to implement project Mid-America Regional Council The region’s metropolitan planning organization; leads the region’s long-range transportation plan KCSA Not-for-profit formed at the direction of the city council to provide the TDD taxpayers an active and ongoing role in the oversight and administration of the system U.S. DOT Provided a TIGER grant to this project

74 Guide to Value Capture Financing for public Transportation projects V Master Planning, Zoning, and Other Regulatory Considerations Major public infrastructure investments, such as streetcars, can be catalysts for economic growth and development. In order to capitalize on its investment in streetcar infrastructure, Kansas City adopted zoning changes within a two-block radius of the streetcar route to ensure that the area would be positioned to take advantage of new development opportunities. Changes included adoption of zoning districts tailored for dense, mixed-use urban development down- town and the removal of mandatory off-street parking requirements for new businesses. These changes were proposed and adopted in 2012 (Kansas City, 2012b). These changes were also in concert with efforts started in 2010 to rezone and create new development standards for the Downtown Loop area. This is part of the overall implementation program for the Greater Downtown Area Plan. The goal of the rezoning and revised develop- ment standards is to implement the land use and development recommendations of the Greater Downtown Area Plan (Kansas City Area Transportation Authority, 2013). The two resulting zoning districts used near the streetcar alignment are DC (downtown core) and DX (downtown mixed use). (There is also a special exemption zone for off-street parking.) The purposes of the DC and DX zones are defined in the zoning code as follows: • 88-130-02-B.DC, Downtown Core: The DC district is primarily intended to promote high- intensity office and employment growth within the downtown core. The DC district regula- tions recognize and support downtown’s role as a center of regional importance and as a primary hub for business, communications, offices, government, retail, culture, education, visitor accommodations, and entertainment. The district regulations are primarily intended to accommodate a broad mix of office, commercial, public, recreation, and entertainment uses. The DC district also accommodates residential development, both in a stand-alone, high-density form and mixed with office and retail uses. • 88-130-02-C.DX, Downtown Mixed-Use: The DX district is primarily intended to accom- modate office, commercial, custom manufacturing, public, institutional, and residential development, generally at lower intensities than in the DC district. The DX district promotes a mix of land uses both horizontally (i.e., adjacent to one another) and vertically (i.e., within the same building). Section 88-420-04-E of the code provides that “uses within the Down- town Loop are not required to provide off-street parking” (Kansas City, 2012b). VI Transportation Development District The Kansas City downtown streetcar TDD is a political subdivision of the state created to fund the streetcar. A TDD is an economic development tool established by property owners to tax themselves for transportation improvements. TDDs are a product of Missouri state law and require the creation of a TDD administrative board and for a county judge to rule on the lawfulness of the TDD. TDDs can be used to pay for parking garages, new roads, bus stops, or any variety of transportation improvements or infrastructure. The Missouri Transportation Development District Act (the TDD Act) became effective on May 30, 1990 through §238.200-.275. The TDD Act provides for the formation of a transporta- tion development district to fund, promote, plan, design, construct, improve, maintain, and operate one or more projects or to assist in such activity. Missouri state law requires voter approval of a transportation development district. In 2012, the city and the Port Authority of Kansas City filed jointly for an election to form the TDD. Voters approved the district and authorized sales, property, and surface parking taxes to build and operate

Kansas City Streetcar, Kansas City, MO 75 a downtown streetcar system. The TDD is wholly within the city and will operate within rights-of- way owned and controlled by the city. VI.A Downtown Streetcar TDD The downtown streetcar TDD was established through a concerted effort to target specific communities that would benefit directly from the 2.2-mile starter line. Resolution No. 120043, passed on January 19, 2012, called for joint establishment of one or more TDDs. The petition to form the TDD was filed by the city and the Port Authority of Kansas City, MO, with the Jackson County Circuit Court for the purpose of implementing and funding the design, engineering, construction, and operation of a downtown streetcar (Kansas City, 2016a). The process of creating the TDD included two approvals by voters. The first was a vote to approve the formation of the TDD, and the second was an election to approve the various sources and amounts of revenue. Revenue projections in the TDD financial model assumed no growth in property values or taxable sales beyond a modest inflation factor. Although most involved with the project believed that a fixed-rail streetcar system would spur growth and rede- velopment of vacant and underused parcels within the corridor, a conservative set of assump- tions was used in development of the financial models to prevent overestimation of future value within the TDD. Kansas City believed that conservatism helped it establish high levels of cred- ibility with the property owners along the line and did not speculate too highly on the value proposition of the streetcar. Final TDD assessments, approved by voters, were: • A sales tax not to exceed 1% on sales within the Phase 1 TDD boundary (see Figure 30 for a map of the TDD boundary). • A special assessment on real estate within the Phase 1 TDD boundary, with maximum annual rates as follows: – 48¢ for each $100 of assessed value for commercial property ($1,536 for each $1 million of market value); – 70¢ for each $100 of assessed value for residential property ($266 for each $200,000 of market value); – $1.04 for each $100 of assessed value for property owned by the city (which would mean a total annual city payment of about $810,000); and – 40¢ for each $100 of assessed value for real property exempt from property tax, such as reli- gious, educational, or charitable property, but only on market value of more than $300,000 and less than $50 million. • A supplemental special assessment on surface pay parking lots within the Phase 1 TDD boundary (not garages and not free parking lots). The maximum rate for the supplemental special assessment on surface pay parking lots will be $54.75 per space per year (Kansas City, 2016a). Pro forma estimates from a Moody’s 2014 report suggest that the sales tax and property assessments would generate $3.5 million and $4.2 million per year, respectively (Moody’s Inves- tor Service, 2014). VI.B Expanded TDD Effort Following the success of the first TDD, Kansas City embarked on an effort to expand the streetcar system beyond the initial 2.2-mile starter line. A planning effort was initiated to assess the potential of additional streetcar lines for the system, and three lines were selected as preferred expansion routes. The expansion plan extended the starter route farther south on Main Street to

76 Guide to Value Capture Financing for public Transportation projects Source: Kansas City, 2016a. Figure 30. Phase 1 TDD map.

Kansas City Streetcar, Kansas City, MO 77 the University of Missouri–Kansas City, east on Independence Avenue to Benton Boulevard, and east on Linwood Boulevard to Prospect Avenue. In order to fund the expanded system, Kansas City proposed to voters an expanded TDD (shown in Figure 31). The proposed TDD expansion included a sales tax sunset of 30 years and a special assessment sunset of 25 years. The special assessment rates for the expansion TDD would be no more than the maximum approved rate for the Phase 1 TDD. Following are the assessments proposed to voters within TDD expansion areas: • $66.50/year for every $50,000 of residential property market value (as assessed by Jackson County); • $1,536/year for every $1,000,000 of commercial property market value (as assessed by Jackson County); and • Special assessments that would also be imposed on property owned by the city and by not- for-profit entities (property valued under $300,000 would be exempt), as well as surface pay parking lots (Kansas City, 2016a). None of the TDD tax rates or assessments would have gone into effect unless the city secured enough federal or state matching funds to make the project feasible. Creating and funding the expansion TDD required two public votes. The first vote, in August 2014, asked voters to approve creating the expansion TDD. Voters rejected this proposal, with 60% voting against. Although the second vote, planned for November 2014, would have asked for voter approval for specific revenue sources and levels of assessment, it never come to fruition because the first vote did not pass (Ishmael, 2014). VII Creditworthiness, Finance, and Funding The City of Kansas City, MO, issued special obligations bonds to pay for the construction of the streetcar. Funds collected through the TDD will be used to retire these bonds. Every new structure built within the TDD adds revenue unanticipated in the pro forma TDD financial model, minimizing estimated future burdens on sales tax and assessment revenues. Exten- sive new construction and rehabilitation activity suggests that real estate developers have not been turned away by the additional assessment burdens but may perceive benefits related to proximity to the fixed-guideway streetcar line and its expected ridership (Personal commu- nication, 2016). Special obligation bonds issued in 2014 received an “A1” rating by Moody’s and an “AA-” rating by Standard & Poor’s (Moody’s Investor Service, 2014). Of these Series 2014A bond proceeds, $62.9 million was applied to capital costs for the streetcar project. The “A1” rating on the special obligation bonds incorporated the city’s fundamental credit quality, risk of appropriation, the lack of pledged assets securing the debt, and the non-essential nature of the project financed. Key strengths of these bonds were as follows: • Area has a large and diverse economy and population, and is an employment hub of western Missouri/eastern Kansas; • Management’s proven record at closing large, multiyear budget gaps; • Substantial liquidity available outside the general fund; • Recent passage of pension reform, providing greater long-term fiscal health and viability for the city’s four pension plans; and • Continued support from the earnings tax, a voter-approved revenue source (approved in 2011 by 78% to 22% margin) (Moody’s Investor Service, 2014).

78 Guide to Value Capture Financing for public Transportation projects Source: Kansas City, 2016a. Figure 31. Proposed Phase II extended TDD boundary map.

Kansas City Streetcar, Kansas City, MO 79 VIII Takeaways The Kansas City streetcar project is an example of a U.S. streetcar project that was successful in capitalizing on value generated within the project area’s boundaries. As with all projects, the Kansas City streetcar comprised many unique elements. A number of strategic choices made by Kansas City have contributed to the success of this system: • Focused and concerted appeal to voters: The initial downtown TDD was approved due partially to its focus and concentration on a small subset of stakeholders. The expanded TDD suffered from an inability to reach or persuade all voters within the expanded TDD with respect to the value a new streetcar system could bring. • Creativity in organizational structure: Under Missouri law, only residents within a pro- posed TDD boundary can vote for its establishment. Unless they are also residents, property owners within the TDD, who will bear the economic burden of a TDD, are not eligible to vote regarding establishment. As part of its strategy toward establishment of the TDD, Kansas City created a not-for-profit organization, the KCSA, which included business and property owners who have significant responsibility for ongoing operation of the streetcar. Creation of KCSA helped to provide confidence in the project for property owners who would support significant project costs. • Meaningful planning: Kansas City adjusted its zoning codes in the area immediately sur- rounding the streetcar line in order to capitalize and position the area for redevelopment. • Managing value capture burden: The TDD assessment included parking lots, government property, and a mix of assessments and taxes. This flexibility distributed the burden associated with funding the TDD. • Conservative estimation: In modeling the revenue projection on which assessments were based, Kansas City deliberately assumed no additional development and no significant capital appre- ciation of real estate assets within the TDD. This conservatism went a long way toward providing confidence and comfort to the property owners and other stakeholders within the TDD.

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TRB's Transit Cooperative Research Program (TCRP) has released Research Report 190: Guide to Value Capture Financing for Public Transportation Projects. Value capture is the public recovery of a portion of increased property and other value created as a result of public infrastructure investment. The report identifies the requirements necessary for successful value creation through transportation infrastructure investment and capturing a portion of that value through specific value capture mechanisms. It includes six case studies that provide practical examples of successful value capture from public transportation investments.

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