Value Capture Case Studies: Portland’s Cascade Station and Light Rail to PDX
By Chrissy Mancini Nichols
Mar 26, 2012
This post first appeared at metroplanning.org
Value Capture Case Studies is an ongoing series highlighting ways in which cities and regions across the country are using value capture mechanisms to fund transportation plans. These case studies present novel learnings for the Chicago region as it grapples with how to pay for necessary transportation improvements. Each post will focus on real-life examples of value capture mechanisms at work.
To learn more about the basics of value capture read: Value capture case studies: What is value capture?
Value capture mechanisms referenced in this post:
• Joint Development
• Tax Increment Financing
Portland’s MAX Red Line was built 10 years ahead of schedule due to an innovative financing scheme that required no new taxes or federal or state dollars.
Since the 1980s, plans have been on the books – specifically through a regional comprehensive plan – to build light rail to the Portland International Airport (PDX). Between 1990 and 2000, the urgency to do so grew even greater, as PDX had become one of the nation’s fastest growing airports, doubling passengers from 6 million to 14 million. The increase in plane passengers resulted in auto congestion around the airport, and while frequent bus service connected downtown Portland and the airport, itonly accounted for a small number of total trips.
To pave the way for the regional light rail plan, when Interstate 205 was designed and constructed in the early 1980s, a portion of the median right of way was reserved for transit. However, due to project costs and the length of time expected to obtain federal dollars, the regional plan called for actual rail construction closer to 2010.
That all changed in 1997, when Bechtel Enterprises approached the City of Portland, Port of Portland, and Tri-County Metropolitan Transportation District of Oregon (TriMet) to jointly develop the airport light rail line and Cascade Station, a 120-acre plot of land on the way to the airport. Under a Joint Development, the private and government entities cooperate on planning and funding to deliver transit-oriented development (TOD), usually located on government owned land.
In 1999, the Cascade Station Development Company (a development team consisting of Bechtel, the investor, and Trammel Crow, the real estate developer), Port of Portland (the entity that oversees the airport), City of Portland, Portland Development Commission, and Tri-Met signed the joint development agreement . The $125 million, 5.5 -mile light rail extension would have four stations, two of which would be located on the Cascade Station development site. Bechtel would contribute $28.2 million to fund the light rail line and in return would receive an 85-year lease to develop all 120 acres of land at Cascade Station, without paying rent to the City. Bechtel would also receive the $125 million design-build construction contract for the light rail without have to go through a competitive bidding process. Total compensation to Bechtel would be the value of its design-build construction contract ($125 million minus their contribution of $28.2 million) and any profits resulting from its real estate development efforts at Cascade Station.
Total Cost of Light Rail Construction : $125.8 million
Financing:
• City of Portland: $23.8 million
Partially funded light rail construction of 2.9-mile segment from downtown
Financed through Tax Incremement Financing
• TriMet: $45.5 million
Partially funded light rail construction along the 2.9 mile-segment from downtown
Funded through general fund, which comes from 0.64% payroll and self-employment taxes. Also will receive all fare box revenue
• Port of Portland: $28.3 million
For development of rail station inside airport terminal and 1.2-mile segment of the line to the airport
Funded through Passenger Facility Charge ($3 per passenger charge assessed to airlines for each passenger boarding through PDX)
• Bechtel: $28.2 million
Received 85-year lease to develop 120 acres of land at Cascade Station
In place of paying rent at Cascade Station, funds 1.4-mile segment of rail line, two stations, and an overpass
Can renew the lease at market rents for 14 years after expiration
Received the $125.8 million design-build construction contract for the light rail without have to go through a competitive bidding process.
Also received $500,000 each from Port, Transit Agency, and City for engineering studies, which Bechtel matched
Financed through a Transit Agency bond, which Bechtel assumed the responsibility to repay
Two factors that created a development opportunity for the land include its designation as an Urban Renewal Area and Portland’s Urban Growth Boundary regulations.
Tax Increment Financing
Cascade Station lies within the Airport Way Urban Renewal Area, which operates similar to a Tax Increment Financing (TIF) district. Property tax collections within the area are divided into two parts: taxes applied to the assessed value of the district at the time it was created, and taxes applied to the increase in value after the district was created. Taxes collected on the frozen tax base continue to be distributed to all taxing jurisdictions, including the city, county and school districts. Taxes collected on the increased value are only collected by the city for reinvestment in the area.
The Airport Way Urban Renewal Area was designated in 1986, allowing the City of Portland to use the TIF funding accrued to date to fund its contribution to the project. It issued bonds to raise funds repaying the debt services from the TIF revenues, meaning it did not have to use general budget revenues or increase taxes to fund its share of the project.
Urban Growth Boundary
An Urban Growth Boundary (UGB) is a mapped line that separates land that can be developed from land where development is prohibited, to promote density and infill, stop sprawl, and protect farm land and open space. Portland UGB, created in 1979, has resulted in higher land values and smaller land parcels in the city. As a result of the UGB, Metro Portland’s population has grown by 50 percent since 1973, while its land area has only grown by two percent.
The UBG has resulted in a scarce number of large contiguous tracks of land to build large-scale retail developments. Consequently, the 120-acre parcel at Cascade Station was extremely valuable to private investors and developers. It was even more appealing with the planned light rail line to the airport.
Opening Day
The line opened in Sept. 2001, one day before the terrorist attacks of Sept. 11. Plans to hold a ceremony to open the line were cancelled and ridership fell below projections for the first year. Ridership eventually recovered, but the downturn in the economy after the Sept. 11 attacks and the effects on Portland’s real estate market made it difficult to attract the transit-oriented development planned for Cascade Station. Plans to include small-scale retail development did not materialize, mostly because residential development was not permitted on the site due to Federal Aviation Administration regulations about housing near an airport. Eventually, the developers asked to change the plans to include big box retail stores. In 2005, the Portland City Council approved zoning changes to allow for larger retail uses. Since the revision, an IKEA has leased space, two hotels (Aloft and Hyatt) have been built, and many other tenants and restaurants have moved in. The commercial side of the development is 96 percent leased. Train ridership to the development has grown from 550 arrivals and departures a week to 6,000 since Ikea opened. Cascade Station is already the future home for the Portland headquarters of the Federal Bureau of Investigation, chosen for its access to light rail, transit, freeways, and ability to accommodate security concerns.
Trammel Crow, the project’s real estate developer, bought out Bechtel’s shares in the project in 2006. Some reports say Bechtel was struggling after the initial development failed, and needed to sell despite beginning to attract big boxes.
In the end, the public sector accomplished most of its original goals for the Cascade Station joint development. The light rail line was constructed without any state or federal funding, allowing for an expedited process 10 years ahead of what the regional plan called for. Though Cascade Station has not generated the job creation or small-scale retail development originally envisioned, when fully built out it has the potential to create an estimated 7,600 more jobs with an annual payroll of almost $200 million and $2.4 million in additional revenue annually for the City of Portland.
