Executive Summary
Metropolitan areas form economic regions that benefit from passenger rail systems. Communities have learned that the benefits of public transport can be enhanced when station-area planning makes it easier for people to walk or bike as well as take transit or drive, provides affordable housing options, and offers businesses greater access to potential employees and customers from across the region. This type of planning, known as transit-oriented development (TOD), brings together housing, transportation, and jobs.
But while transit and TOD can offer a community a host of advantages, the infrastructure is costly. A street network is required to get people to their local destinations. This street network must also have infrastructure and facilities to support drivers, transit users, bikes, and pedestrians. Sidewalks and on-street parking will be needed, and commuters, residents, and commercial users often need parking garages. Energy, water, and storm water must be addressed and managed. Regardless of who delivers the infrastructure, it must be funded, and a municipal commitment might be needed to instill market confidence.
Rail projects and TOD are long-term economic commitments. Whether a particular market is expanding or contracting, passenger rail and TOD can catalyze economic prosperity. A municipality does not want to pass up long-term transportation investments for lack of funding or financing. In many cases, places with or considering passenger rail already have professional staff with experience in sophisticated financial transactions for various types of infrastructure and transportation finance. Yet funding might already be allocated to other projects, or existing sources of funding such as revenue, formula funds, or grants might no longer be available at past levels. This raises the troubling issue of how to balance investments for long-term growth and development when the ability to fund these projects is limited.
This report provides information about funding mechanisms and strategies that communities can use to provide innovative financing options for TOD. It explains dozens of tools that provide traditional financing as well as new tools. The tools are broadly categorized under:
- Direct fees, including user and utility fees and congestion pricing.
- Debt tools, including private debt,bond financing, and federal and state infrastructure debt mechanisms.
- Credit assistance, including federal and state credit assistance tools and the Transportation Infrastructure Finance and Innovation Act (TIFIA).
- Equity, including public-private partnerships and infrastructure investment funds.
- Value capture, including developer fees and exactions, special districts, tax increment financing, and joint development.
- Grants and other philanthropic sources, including federal transportation and community and economic development grants and foundation grants and investments.
- Emerging tools, including structured funds, land banks, redfields to greenfields, and a national infrastructure bank.
This report also describes how 11 communities across the country have used these tools as stand-alone devices, in combination with other tools, or in phasing strategies in four categories:
- Station and station-area infrastructure financing strategies.
- District and downtown infrastructure financing strategies.
- Transit corridor infrastructure financing strategies.
- Regional initiatives.
The report also introduces four innovative models that communities could consider as they develop plans for financing infrastructure and creating TOD:
- Anchor institution partnerships with nonprofit or private entities such as universities, hospitals, and corporations that are inextricably tied to their locations because of real estate holdings,capital investment, history, or mission.
- Corridor-level parking management that would set parking prices and manage parking demand across a transit corridor or system, including both transit station parking and surrounding on-and off-street spaces.
- Land banking that can make it easier and more affordable to assemble and acquire land for TOD infrastructure.
- District energy systems that could reduce individual buildings’ energy use, encourage renewable energy, and facilitate compact development.
A community’s context, needs, and resources will determine which strategy or combination of strategies is most appropriate for funding TOD infrastructure.Strong markets will have more tools at their disposal than weaker markets. Certain infrastructure components such as structured parking might always be difficult to finance, whether due to costs and risk, market synergies, or project dynamics. Some communities might find that the tools are helpful but that they must overcome administrative challenges such as statutory requirements, hiring new staff, or creating new entities that have authority to originate the funding, enter into financing agreements, and administer the funding program. Some places might face the challenge of limited local capacity, such as a lack of public understanding of the opportunity, lack of local organizations to engage and partner with, or a lack of qualified developers. As they determine how to proceed, local governments could consider some guidelines for thinking strategically about TOD infrastructure:
- Have a plan thatestablishes a broad, long-term vision for a TODareayet isflexible enoughto respond to a changing market cycle, funding opportunities, and other conditions. Constant monitoring and proactive coordination can allow local governments to take advantage of new opportunities as they emerge.
- Think strategically about prioritizing public investments and public funds.Starting with small steps and moving forward incrementally helps to build market confidence and attract other sources of capital.
- Look for multiple funding sources.
- Look for a broad funding base, both to generate the most funding possible and to create a more stable revenue stream, which could allow the project to get a lower interest rate. Look for synergies among infrastructure projects. By grouping projects together, communities might be able to create efficiencies.
- Look for partnerships to fill the gaps left by traditional funding sources.