42 ways to fund transit-oriented development


Philip Langdon

New Urban Network

There are a lot of reasons why transit-oriented development (TOD) is harder to produce than a conventional real estate project.

“Many of these barriers relate to the need for increased public and private funding for planning, land acquisition, infrastructure, construction and maintenance of transit-oriented development projects,” Reconnecting America says in its recently released 2010 Inventory of TOD Programs, available here.

What’s encouraging, says Sarah Kline, policy director for the Washington-based organization, is that numerous state, regional, and local programs have been created to make money available for TOD plans and projects. The 25-page report summarizes 42 “ongoing, institutionalized programs that provide direct funding or financial incentives.”

In addition to 18 programs that operate at the state level, Reconnecting America found that across the country there are 15 regional or transit agency programs benefiting TOD and another nine programs conducted at the local level.

Advocates for concentrating more of the country’s development around mass transit are especially excited about Maryland state government, which “has been aggressive under Governor Martin O’Malley” in promoting TOD, said Kline. She pointed out that Maryland now “defines TOD as an eligible transportation purpose.” This means that TOD can get funds from the Transportation Trust Fund and can obtain support from state staff.

Legislation enacted in 2008 allows the Maryland Department of Transportation to designate specific TOD projects and then direct departmental resources and support to those projects. Fourteen TOD sites were designated last June.  Maryland DOT has $3 million in dedicated funds for implementation of TOD projects. In addition, the Maryland Sustainable Communities Act of 2010 authorizes $10 million in grants for historic structures, and expands eligibility for the grant program to nonhistoric structures in TOD locations.

In California, there’s enthusiasm about the support being offered by the San Francisco Bay Area’s Metropolitan Transportation Commission. The Commission’s Transportation for Livable Communities (TLC) grant program supplies both capital grants and  planning grants.

The TLC grants are made to local jurisdictions for creation of station area plans or for “capital projects that improve walking and bicycle access to public transit hubs and stations, major activity centers and neighborhood commercial districts.” The Metropolitan Transportation Commission also provides planning grants for transit expansion. In the Bay Area, says Reconnecting America, “$11.8 billion in regional transit expansion funds are hinged on meeting density thresholds.”

In gathering information for the report, Kline told New Urban Network, the biggest surprise was that “so many things are going on at all these levels of government. No two of these programs are the same. They’re all quite different, but there are a lot of them.”

A chief reason for the programs’ variety is that transit-oriented development is not a one-size-fits-all proposition. Projects differ greatly, reflecting each project’s location, size, traffic, and other factors.

What’s needed

The report makes three recommendations:

• TOD programs must fit the needs of the place they are designed to serve. “The type of program (i.e. planning vs. implementation) and the target audience will depend on a range of factors, such as the scale and quality of the regional transit network, the nature of the land development market and the extent to which TOD has been successfully implemented in the region.”

• Adopting TOD-supportive programs is just one piece of the puzzle. “Implementing TOD requires an alignment of policies, plans and investments at many scales, as well as the involvement of a broad set of actors, including development and real estate professionals, community organizations, citizens and elected leaders, to name a few. In addition, removing policy barriers to TOD may prove equally important. Common policy barriers include zoning that prohibits mixed-uses or higher densities near transit, transportation investment patterns that do not support transit ridership, or state laws that prohibit the use of value capture mechanisms like tax- increment financing to support TOD.”

• Affordable housing is not part of all TOD programs, but often it should be included. Many places “may be able to use their TOD programs to create an incentive for localities to zone for appropriate levels of affordable housing near transit, agencies to acquire properties for mixed-income TOD, or developers to include below-market rate units in their projects. Without including affordable housing in the TOD program, the agency may risk investing in plans or projects that exclude lower income people, a group that can particularly benefit from living near transit.”

Program snapshots

Here are a few of the other programs presented in the report:

• The Atlanta Development Authority’s Beltline Affordable Housing Trust Fund makes grants available for private developers and community housing development organizations to create or preserve affordable housing within the Atlanta BeltLine Tax Allocation District (a future 22-mile transit loop). The program has $8.3 million of general funds from the City as well as a set-aside of BeltLine tax-increment revenues. Projects receive up to $2.5 million per multifamily development or $750,000 per single-family development.

• In the Denver area, seven cities that are part of the regional Mayors Caucus pooled their Private Activity Bond authority to finance the construction or rehabilitation of multifamily rental projects near existing or planned transit. The money cannot be used to purchase or hold land. Projects that meet criteria on size, affordability, and transit accessibility gain access to lower debt-financing costs and Low Income Housing Tax Credits. The fund contains $65 million.

• California’s TOD Housing Program, administered by the state Department of Housing and Community Development, provides low-interest loans for gap financing for rental housing developments of 50 units or more; mortgage assistance for homeownership; and grants for the construction of infrastructure and mixed-income housing projects close to transit. Housing projects must be within a half-mile walk of public transit, and at least 15 percent of the units must be affordable. The program includes $1.35 billion in general obligation bonds.

• The Illinois Business Location Efficiency Incentive Act of 2006 provides 10 percent tax credits to businesses selecting sites within one mile of affordable housing and public transportation. The incentives are part of a larger Economic Development for a Growing Economy (EDGE) program, which provides tax incentives for businesses to locate in Illinois when they are actively considering a competing location in another state.

The Reconnecting America report does not include policies that support TOD only in non-financial ways, such as zoning codes, joint development policies, and authorizing legislation.

The organization intends to use the inventory to develop an interactive web tool that will include a broader set of policies. It will be able to be updated by users, much the way that Wikipedia is kept current by users.