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80 The streetcar system in Portland is perhaps the exemplary case among the modern-era streetcar sys- tems operating in the U.S. The Portland streetcar lines are frequently pointed out for their strong role in promoting adjacent urban development, their relatively high ridership, and their relatively strong service performance (Brown, Nixon, and Ramos, 2015). I Case Selection The Portland streetcar system was chosen as a case study due to its high ridership, cost- effectiveness, and successes in structuring and implementing a productive publicâprivate part- nership and effective value capture strategies. Portland successfully developed a streetcar system that functions both as a transportation solution and as an economic and real estate development tool (McIntosh, Trubka, and Newman, 2014). Value creation along Portlandâs streetcar system also provides a useful corollary to observations regarding light rail or other transit modes. Port- land transit agency representatives and planners have observed that streetcars seem to create value all along the line (Personal communication, 2016). II History and Overview Portland has a rich streetcar history. The Portland Street Railway Company began operating a horse-drawn service in 1872. In 1889, the Willamette Bridge Railway began operating an electric streetcar. A steam-powered cable car was introduced by the Portland Cable Railway Company in 1890. The Portland Railway, Light and Power Company âoperated 40 lines over 300 miles of track with 583 streetcarsâ between 1906 and 1920 (Thompson, 2006). Portland streetcar service ended in 1932, and the interurban streetcar service between Portland and Oregon City was dis- continued in 1958âthe same year that the Portland Development Commission was created to foster urban renewal. A preliminary concept for Portlandâs contemporary streetcar system was incorporated into the cityâs 1988 Central City Plan (City of Portland Bureau of Transportation, 2009). In 1996, funding for the first phase of a new streetcar system was approved by the City of Portland, the TriMet transit agency, and by the federal government. In 1999, a rolling stock manufacturer from the Czech Republic was selected to provide five streetcars. Ground was broken on April 5, 1999, and service between Legacy Good Samaritan Hospital and Portland State University com- menced on July 20, 2001 (Ramos, Brown, and Nixon, 2015). Between 2004 and 2012, the system was expanded in four phases and now serves 76 stations with 11 cars on two lines extending over 7.35 miles of double track, most of which is in mixed traffic (see Figure 32). The Portland streetcar system is the first modern streetcar system in North America. The system was developed and expanded through publicâprivate partnership and value capture A p p e n d i x F Portland Streetcar, Portland, OR
portland Streetcar, portland, OR 81 Figure 32. Portland Streetcar service map. Source: Transit Maps, 2016.
82 Guide to Value Capture Financing for public Transportation projects strategies focused on special assessments and TIF. Portlandâs initial streetcar investment of $103 million (which grew to $251 million through all five phases) has induced billions of dollars of private investment and millions of square feet of residential, office, retail, hotel, and institu- tional development within the streetcar development corridors. Between 1997 and 2006, 55% of all central business district (CBD) development within Portland occurred within one block of the streetcar, whereas development within this corridor accounted for 19% of CBD development activity prior to 1997 (Adams, 2008). III Local Economic Conditions, Market, and Value Creation Considerations Market considerations were central to conceptualizing and implementing the Portland street- car system and have been largely responsible for its success. Urban planners, long-term streetcar/ transit advocates, transit agency representatives, and the business community all point to the importance of early private-sector initiative in jump-starting the Portland streetcar project. Property and business owners and developers, motivated by opportunities for development, redevelopment, and revitalization of dormant urban areas, embraced local improvement dis- tricts (LIDs), specific forms of special assessment districts, as a means to contribute financially to the streetcar project. A 2015 study that included interviews with key stakeholders reported that special assessments were seen as a âfinancial and political strategyâ that demonstrated strong private-sector commitment to the idea of a streetcar (Ramos, Brown, and Nixon, 2015). One regional transit planner reported that key stakeholders viewed the streetcar line as âmore of a land use project than a transit project. . . . It was part of the package of a development strat- egy.â Investors, property owners, and developers perceived the streetcar as a prospective catalyst for redevelopment. The initial phase of the streetcar system was associated with a redevelopment plan that included 10,000 new residential units and 3.5 million ft2 of retail and mixed-use devel- opment. Planners have observed that although development entitlements are necessary to real- ize development, they are not sufficient to induce value creation. Further, the full development potential reflected in zoning entitlements is seldom realized (Personal communication, 2016). Notwithstanding such observations, many of Portlandâs initial development goals have been achieved or exceeded. The city has attracted development of relatively high-density, mixed-use, pedestrian-friendly, urban amenityârich environments, including some affordable housing, in areas that were previously blighted or abandoned. Eric Hoveeâs 2008 study, Streetcar-Development Linkage: The Portland Streetcar Loop, used assessed valuation records to evaluate the value creation impacts of the streetcar. Tax assessorâs records reveal that between 1997 and 2006, those properties near the streetcar developed at sig- nificantly higher densities, at significantly higher velocities, and with lower parking ratios than those further away. Prior to 1997, new development projects within the corridor were built to less than 50% of allowable density [floor area ratio (FAR)]. âSince the streetcar alignment was chosen in 1997, new development [through the 2005 study date] achieved an average of 90% of the FAR potential within one block of the streetcar line. This percentage steadily dropped to 43% at three or more blocks from the alignment. Over the same period, building stock increased by almost 6% per year within one block of streetcarâmore than triple the rate of any other central city geography. Within just 7 years, new development amounted to nearly half (46%) of ground floor area within one blockâcompared to just 8% more than three blocks awayâ (Hovee, 2008). Although the streetcar is widely perceived as a catalyst of positive change within the Pearl Dis- trict, the South Waterfront, and the east side of the Willamette River, some of the leadership of the Portland Development Commission is understood to attribute relatively little of Portlandâs redevelopment and vitality to the streetcar (Personal communication, 2016).
portland Streetcar, portland, OR 83 IV Capacity, Organization, Coordination, and Partnership The streetcar system is owned by the City of Portland but was designed and developed (and continues to be operated) by Portland Streetcar, Inc. (PSI), a not-for-profit corporation. PSIâs board is representative of the public, city agencies, and private property owners within the street- car corridor. Design, development, and operation of the streetcar have all benefitted from the multitude of perspectives and range of expertise represented by the board. Prior to implementation of the streetcar and the TOD it induced, the Pearl District was largely abandoned industrial warehouse land and rail yards. Although contiguous to Portlandâs central business district, it contributed little to the communityâs economic vitality. Many businesses, landowners, and developers perceived that the opportunity presented by the Pearl Districtâs excellent location could be realized with transit service. Through the streetcar project, public and private interests were persuaded to invest in the transit line and TOD redevelopment of the Pearl District, including participation in a value capture strategy that included higher parking fees, special (LID) assessments, and TIF (Bachels and Newman, 2011). Successful publicâprivate TOD partnerships frequently require a local champion to lead part- nership efforts toward successful value creation and capture. In the case of the Portland streetcar project, that champion was Vic Rhodes, the head of the Portland Department of Transportation (Schachter, Daniel, and Liu, 2014). Rhodes developed strategic partnerships between the City of Portland, TriMet, PSI, and private-sector developers and participants. V Regulatory Considerations V.A Oregonâs Local Improvement Districts Portlandâs streetcar system leveraged LIDs, a form of special assessment district, to finance all five phases of the project. A separate LID was established for each phase of the streetcar system. LIDs were created by city council resolutions in response to petitions by private property owners and are regulated by state law. Although specific assessment methodologies varied from LID to LID, the goal was to cap- ture some part of the value created directly as a result of the streetcar investment. Assessment methodologies were varied to account for variation in real property types and tenancies and to manage opposition from property owners. Owner-occupied residences were exempted from assessment. The State of Oregon LID required improvements to be substantially complete prior to assessments being levied. Once approved, projected LID revenues were used to secure LID- backed bonds that provided construction funding (Mathur, 2014). Special assessments within five LIDs have made up approximately $35 million, or 14%, of the Portland streetcarâs overall capital costs. LID contributions have ranged from 10% to 33% of individual segment costs. V.B Oregonâs Urban Renewal Areas Increment Financing In 1951, the Oregon state legislature authorized the establishment of urban renewal areas (URAs) to undertake redevelopment of blighted areas using TIF and federal funds. In 1958, Portland established an urban renewal agency called the Portland Development Commission (PDC). The PDC has established 20 URAs, 11 of which remain active. Oregonâs TIF districts are referred to as urban renewal areas and require a âfinding of blightâ for creation (Stapleton, 2009). Oregon allows use of TIF to fund transportation infrastructure capital costs but not operations
84 Guide to Value Capture Financing for public Transportation projects or maintenance. TIF can also be used to fund certain residential and mixed-use development and for land acquisition related to redevelopment or public projects (Mathur and Smith, 2012; Portland Development Commission, 2015). Portland has used TIF within five URAs to finance between 12% and 53% of the streetcar capital projects. TIF has provided approximately 20% of the capital funding across all five streetcar phases. Although TIF has been the subject of legal challenges in other states and jurisdictions, the Portland streetcar projects have not experienced these problems. State legislation clearly authorizes TIF for the purposes for which it has been used, and the projects enjoy broad popular support. It may be noteworthy that the TIF component of capital funding was not used to purchase streetcar rolling stock given the fact that the cars travel between, and in and out of, individual URA (TIF) districts, and TIF financed capital expenditures are limited to within districts where funds were realized. Initiatives to allow cross-district or inter-district cooperative TIF projects have been proposed elsewhere, such the legislation (House Bill 4094) introduced in May 2016 in the Commonwealth of Massachusetts, titled Supplemental Infrastructure Financing for Transportation (SIFT). If passed, SIFT would allow for a TIF district to be established across an entire transit corridor, possibly across multiple local jurisdictions. VI Business Case The City of Portland attributed developersâ confidence in the value creation potential of the streetcar, combined with willingness of developers and property owners to accept LID assess- ments, as two of the three main factors underpinning the success of the project (Mathur and Smith, 2012). The third factor was the publicâs perception of the positive impacts of the streetcar and TOD, including rapid value creation through development. The City of Portland used multiple strategies to build a market-friendly business case for the streetcar. One such strategy was based on increasing the market value of property through density increases. The PDC allowed density increases for a 40-acre brownfield property in the heart of the River District through a master development agreement. The master development agreement with the property owners, Hoyt Street Properties, tied densities to public improve- ments. For example, the minimum required housing density increased incrementally from 15 to 87 units per acre when the Lovejoy Viaduct was deconstructed. Density increased again to 109 units per acre when the streetcar construction commenced, and increased again to 131 units per acre when the first neighborhood park was built. The developer has stated that without the streetcar and the accessibility it provides, these densities would not have been possible (Adams, 2008). Another element of Portlandâs market-sensitive strategy was to keep costs low. The system was expressly designed for cost-effectiveness, both in development and operation. PSIâs design criteria included: â¢ Use of preexisting rights-of-way; â¢ Limiting investment in new facilities and infrastructure to just the essentials; â¢ Using commercially available off-the-shelf equipment where possible; â¢ Operating the system operation safely but on a no-frills basis; and â¢ Minimizing construction costs by avoiding costly utility and roadway relocation and develop- ing bus stopâlike station facilities (Adams, 2008). PSI selected Czech Republicâmanufactured streetcars that are 8 ft wide and 66 ft long. The scale of the cars allowed them to operate at grade in mixed traffic within conventional street rights-of-way.
portland Streetcar, portland, OR 85 VII Creditworthiness, Finance, and Funding The first phases of the Portland streetcar system involved no federal funding. Private initiative and civic leadership were central to project viability and success. Where any of the various value capture revenue streams were used to service bonded indebtedness, the cityâs full faith and credit was required to guarantee those bonds (Personal communication, 2016). VIII Funding Major funding sources for the five phases of Portlandâs streetcar system are identified in Table 19. The five streetcar segments are defined as: â¢ Phase I: Legacy Good Samaritan Hospital (LGSH) to Portland State University (PSU); â¢ Phase II: PSU to River Place (RP); â¢ Phase III: RP to SW Gibbs Street (SWGS); â¢ Phase IV: SW Moody and Gibbs (SWM/G) to SW Lowell (SWL); and â¢ Phase V: Pearl District (PD) to the Oregon Museum of Science and Industry (OMSI). Table 20 shows that it took over 15 years to complete the project. IX Additional Considerations The great success of Portlandâs streetcar system has revealed a variety of unexpected tensions. At the outset, private property interests recognized that they had to contribute significantly to finance the first phase of the streetcar in order to get it built. As additions to the successful streetcar system have come to be seen as near certainties, private interests increasingly negoti- ate to shift financial burden to the public sector. On the public policy side, greater awareness has developed regarding residential and commercial displacement, unresolved workforce and affordable housing issues, the nature and extent of transit-induced value creation, and the eco- nomic potential for value capture. Each of these now influence ongoing policy debates. In some cases, property owners who contributed through assessments toward initial streetcar system development are now disappointed, even angry, that their particular station is being Notes: Funding sources for smaller project elements are excluded. Dollar figures do not sum to project totals. Table 19. Portland streetcar major funding sources by phase.
86 Guide to Value Capture Financing for public Transportation projects closed or relocated due to evolving program and operational decisions. At the same time, some philosophical tension has developed between planners and policy makers focused on providing transit service to existing or preexisting populations and those focused on inducement of new development and ridership (Personal communication, 2016). The streetcar systemâs many economic successes have engendered competition over prospec- tive revenue sources. Different agencies and departments of government realize revenue differ- ently and from different sources. Transit agency planners wonder why so much financial benefit accrues to other agencies while value creating transit remains subject to scarce resources. Some perceive an increasing tendency for value captureâgenerated revenue to find its way into the general fund or to otherwise fund aspects of urban renewal largely unrelated to transportation infrastructure (Personal communication, 2016). Even within the sphere of transit investment and operation, there is some tension regarding which funding sources and mechanisms are appropriate for operating costs and which for capital costs. X Takeaways This case study demonstrates the application of transit value capture mechanisms that can be applicable to all transit and rail modes; however, it is probably most relevant to streetcar, light rail, and bus rapid transit projects. Important takeaways include: â¢ Rigorous plan: The Portland streetcar provides an exemplary demonstration of how rigorous cost discipline, strategic publicâprivate partnership, high-quality TOD, and creative com- bination of value capture and other funding mechanisms can contribute to transformative value creation and economic development. The project incorporates multiple value capture methodologies, including TIF and SADs in particular. Context-appropriate technology selec- tion and rigorous cost discipline allowed project feasibility with a strong role of local funding, with more than one-third of the total capital costs funded through TIF and SADs, 19.6% and 13.9%, respectively. Project Stage Date Years from Central City Plan Portland Central City Plan 1988 N/A Streetcar feasibility study 1990 2 Streetcar Citizens Advisory Committee 1990 2 Preliminary engineering 1994 6 Request for bids 1996 8 Federal funding commitment 1996 8 TriMet commitment 1996 8 Portland city council funding commitment 1997 9 Contracts let for rail and construction 1998 10 Contract let for acquisition of streetcars 1999 11 Groundbreaking: Phase I 1999 11 Commencement of service: Phase I 2001 13 Groundbreaking: Phase II 2004 16 Commencement of service: Phase II 2005 17 Groundbreaking: Phase III 2005 17 Commencement of service: Phase III 2006 18 Groundbreaking: Phase IV 2006 18 Commencement of service: Phase IV 2007 19 Groundbreaking: Phase V 2009 21 Commencement of service: Phase V 2012 24 Table 20. Portland streetcar timeline.
portland Streetcar, portland, OR 87 â¢ Early engagement: Early engagement and strategic partnership between public and private- sector interests resulted in an alignment of policies successful in achieving common goals addressing both public and private ends. Specific policies included accommodation of TIF and SAD design and implementation; land use regulation, zoning, and development stan- dards; fiscal incentives; and both public and private investment in a variety of urban amenities. â¢ Private involvement: Private-sector initiative and engagement were crucial for the proj- ectâs success. The P3 was effective in achieving financial, political, and public support and credibility. â¢ Value of agreements: From a political standpoint, the ability to point to an agreement with joint obligations on the part of respective public and private partners carried substantial clout and provided dependability and flexibility that both parties could rely upon (Adams, 2008). â¢ Timing: Commencement of service required more than 10 years from initial planning even with extensive public and private support. â¢ Flexibility: Line-/segment-specific flexibility in structuring TIF and special assessments opti- mized funding opportunities. Even within contiguous TOD areas, value capture was not a one-size-fits-all proposition. â¢ Infrastructure permanence: The fixed-rail nature of the streetcar system induced confidence on the part of landowners, investors, and developers because it was âperceived as a permanent commitment of the cityâ as opposed to the route design flexibility of buses or other nonâ fixed-guideway technologies (Ramos, Brown, and Nixon, 2015).