Chicago gets $10 billion in transit projects

July 1, 2016

By Chrissy Mancini Nichols

Just when you thought nothing positive came out of Springfield, think again. On June 30th, 2016 the General Assembly approved SB2562, enabling the City of Chicago to fund billions in critical transit projects by using “Transit Facility Improvement Area” financing. At the Metropolitan Planning Council I long worked on and supported this solution that is used in many cities across the country including Denver, San Francisco, Atlanta, New York and Milwaukee.

Background

Chicago relies on transit to fuel its economy.  It’s one of the region’s biggest and best assets — getting people to jobs, attracting employers and reducing traffic congestion on the roads. So it’s critical the system is well maintained and keeps people moving.

But Chicago’s transit system has billions in funding needs — On the North Side, the Chicago Transit Authority’s (CTA) Red and Purple Lines are almost a century old and are in dire need of a renovation. On the South Side the Red Line stops at 95th street, leaving thousands of workers with no access to transit for their commute. And Union Station, hub for Metra suburban commuters, is at capacity.

The new law (Gov. Rauner said he will sign the bill) means Chicago can implement a “Transit Facility Improvement Area” to fund four major transit projects:

1.     Red and Purple Modernization

2.     Red Line extension to 130th Street

3.     Blue Line Modernization

4.     Union Station renovation and transportation plan

 Commuters waiting to get out of Union Station to get to their jobs

Commuters waiting to get out of Union Station to get to their jobs

The bill will also grant Chicago access to billions authorized under the last federal transportation bill. As with almost all federal transportation funding, a local match is required to get those funds — and now CTA has that local match. 

 Rendering of a renovated Union Station with wider and better access for commuters — funded with new Transit Facility Improvement Area

Rendering of a renovated Union Station with wider and better access for commuters — funded with new Transit Facility Improvement Area

This is a big deal for Metra and Amtrak riders too because it brings funding to renovate Union Station. Chicago Union Station is at capacity — Metra cannot add one more train route, which is necessary to get workers to their jobs and grow the Loop. Amtrak is currently doing phase 1 engineering for the transportation plan (to build wider platforms and allow more trains in and out of the station) and is seeking a master developer to redevelop the station and build on its three adjacent properties.  The new law will allow the additional property tax revenue generated from those developments to be captured for 35 years to finance the transportation improvements at the station.

What is a Transit Facility Improvement Area?

Called a “Transit Facility Improvement Area” in Illinois, this financing is a value capture mechanism— a type of public financing where increases in the private land values generated by public transportation investments are “captured” to repay the cost of the public investment.

Because transit increases people’s access to desirable destinations, like work and fun, people want to live within walking distance of a train station. In Chicago the total amount of land within a half-mile of a CTA rail station is 24.6 percent. And on that 24.6 percent of land—walking distance to the train—lives 35.3 percent of the population. Because of that demand, land near transit stations often commands higher prices. In an analysis of land values across Chicago, I found that the closer a property is to a CTA rail station, the higher its value. Properties one-fourth mile from a train station—roughly two blocks—have almost 160 percent more value per square foot than those one mile away and, while property values city-wide fell from 2010 to 2014, land near transit retained more value than land farther away.

So it’s beneficial to build transit both to give people options to get around and because it increases the value of the land surrounding the station —and it makes sense to then use that added property value to pay for the transit project that people want.

Similar to tax increment financing (TIF) under a Transit Facility Improvement Area (TFIA) a special district is created where the property tax base is frozen at the beginning of the project.  As assessed values increase from the enhanced transit service, the revenue (also called the tax increment) pays back the bonds used to finance the improvements.  More details on the TFIA:

1.     A TFIA can only be created in an area up to one-half mile around a transit station of the four projects

2.     Chicago Public Schools (CPS) are held harmless.  CPS will receive every dollar it would have if the TFIA was not in place

3.     Other local taxing districts, such as Cook County, still receive a portion (20 percent) of the increment

4.     The length is 35 years

5.     Must be used for transit infrastructure

This also gives the CTA and the Regional Transportation Administration access to the federal TIFIA and RRIF programs — low interest loans (pegged at the Treasury rate) at attractive repayment terms.  Both Denver and San Francisco have used TIFIA and RRIF loans to build transit, repaid with similar value capture financing.

Five years ago I held a roundtable on value capture to fund transit, bringing in leaders from Washington, D.C., Atlanta and San Francisco, all places that have used this financing to build transit projects. The work that went on from there to create and model the legislation and work with government partners to bring it to passage in the General Assembly was exciting and rewarding. Much credit goes to the original Senate and House sponsors of SB277, Heather Steans (D-Chicago) and Ron Sandack (R-Downers Grove); House leader Barbara Flynn Currie (D-Chicago) and Sen. Toi Hutchinson (D-Chicago Heights), who sponsored the ultimate bill, SB2562; members of the House who voted 78 to 27 in favor; and the Senate, which unanimously approved the measure.

 

 

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