Assumptions:
First, let's examine some of the assumptions. The study assumes that the population of the city will continue to declines as will commercial real-estate units in the central business district. To give you an idea, here's the city population graph cited:
The study's "Community Development Benefits" are based off this base-line. However, the baseline doesn't appear to be accurate. Census restatements have shown the city has actually grown since 2000, and the populations of downtown and OTR have increased at a swift pace. The principle benefit of the project is difference between the "projected incremental growth in property values in the Base Case (without a Streetcar System) and Alternative (with a Streetcar System) over the period 2008- 2042." This benefit takes into account the opportunity of unused real-estate along the route that has a large potential upside. But, since growth has already occurred without the streetcar, this potential upside is overstated. Also, they don’t take into account the casino (Of course, how could they in 2007), which is also working to increase occupancy in downtown and OTR. As you can’t really redevelop the same unused building twice, the study is likely overstating this potential benefit.
Here are the projected Usable Residential and Commerical Real Estate Unit Growth in Over the Rhine with (blue) and without (pink) the Streetcar. They project a decline in usable real-estate in OTR without the streetcar. This has not been the case in the three years since the study took place, and it certainly doesn't gut check with me - especially with the various new developments going on in the area.
Actual Growth / Political Economy:
So, I believe the study has an overly negative base-line forecast for Over-the-Rhine. However, this does not disprove that there will be some additional growth due to the streetcar. The study’s authors point to increases in property values along streetcar lines in other cities (It’s worth mentioning that most of the cities are studied during the recent property bubble, so they almost certainly have overstated property value gains). Nonetheless, I believe this claim. This comment about Philadelphia is typical “Voith (1993) found a premium for single family homes with access to rail stations of 7.5% to 8.0% over the average home values.” That is fair enough - When expensive transportation is provided along a certain route, the value of land along that route is higher than other land not served by the mass-transit. The city has decided to spend a disproportionate amount of it's transportation budget along a certain route, and of course the land values will increase somewhat along the well-served route. If not, there would be no benefit at all to public transportation, which I don't believe is true. The relevant question is whether the benefits exceed the costs.
The study estimates the total Residential property along the route will see a value increase of $107 million and the Commercial real estate will increase by $272 million (in NPV). Due to the inaccurate assumptions above, this almost certainly overestimates the benefit of streetcars to the affected neighborhoods. Nonetheless, I’m sure there will be some value that landowners will be able to collect from being relatively advantaged transportation-wise. And, if there are few landholders who think they can gain a significant chunk of this $379 million benefit, they will be willing to exert a lot of influence to make sure this project goes through. This presents a political-economical problem.
Cost Benefit to the City Budget:
HDR uses a Monte Carlo simulation (a common statistical technique) to produce a median expected annual operating cost of $2.2 million for the streetcars. The Economic analysis does not include fare estimates. However, an Feasibility Study included on the city's website estimates ridership of 4,600 per day with a $0.50 fare. This implies 4,600 x $0.50 x 365 = $840,000 in revenue annually. So, even in the study sponsored by the city, fares will only be able to cover 38% of operating costs. Compare this to the much more economically rational New York subway, where fares cover 67% of operating expenses.
Furthermore, if you include the capital costs (As basic finance says you should) and assume a 30 year depreciation - That’s $75.7 million (the study’s capital assumption, not the $128 million now proposed) / 30 years = $2.5 million annually.
Thus, annually: $840,000 Revenue - ($2,200,000 operating cost + $2,530,000 Depreciation) = $3,890,000 in projected annual losses for each of the next 30 years.
So, by the project’s own estimates fares will pay for 18% of the streetcar - much less than the current rate for Metro buses. Also, worth mention - This budget structure is much less flexible than Metro, as over half of its funds are tied up in debt payments. If, as happened recently, a budget cut is mandated - we may have to cut 10% of bus service. But an equal percentage budget cut to a streetcar system may require a 20% cut in service, as its debt payments to cover the large capital expense cannot be cut.
Cost Benefit to Cincinnati:
So, the streetcar will put Cincinnati's goverment further into debt. This strikes one as unwise after the upheaval over last year's budget cuts. Nonetheless, the streetcar could conceivably be worthwhile if the benefits to the community are large enough. Here is how HDR lists the total Costs and Benefits of the project:
On this, I would fault the study for being insufficiently reflective. HDR only tells us that property values will probably go up along the route (obviously). It does not estimate the net effect for the city, and so quietly assumes that there cannot be a downside. So, it does not take into account all the factors you would want to consider when making an investment decision. The Cato Institute (admittedly a libertarian think tank) makes this argument about streetcars displacing invesment “To the extent that rail transit increases property values along its route, for an urban region as a whole, this is a zero-sum game: increases along the route are offset by lower property values elsewhere. It may even be a negative-sum game is higher taxes and land-use regulation need to support the rail lines discourage economic growth.” The City's Streetcar page includes a limited response to Cato's study, but it does not address this very important point.
Let me give an exaggerated example. The city could give a large tax incentive to move offices to 13th Street. However, if Procter and Gamble agrees to move it does not mean that tax break was a brilliant move with a great payback. It does not mean that the policy produced the benefit to the city of now having P&G's offices at a relatively small expense. It would significantly increase land values on 13th Street, but this would not be a net gain for the city. This is merely reshuffling development. But, this type of activity has been included in the growth assumptions based on the experiences of other cities. The Federal Transit Administration has found that “urban rail transit investments rarely ‘create’ new growth,” they “redistribute growth that would have taken place without the investment.” This benefits those who own property along the route, but does not benefit the city.
With the streetcar, marginally more restaurants and apartments will most likely pop up along the route. However, just about all of this development would have occurred elsewhere in the city - People do have to eat and sleep. More development will occur along the route because that will probably be best (and most expensively) served area in the city transportation-wise. Other areas will be marginally more poorly served, both because they have to pay for this benefit for this politically favored route with their taxes and because their own budgets will be squeezed to help pay for the streetcar.
My Conclusion:
Here are my major points:
- The Benefits that will accrue along the proposed streetcar route are exaggerated, but do exist.
- The Streetcar will put the city further in debt, and will never operate near a profit.
- The Benefits to property values along the route will be offset by a decline in property values elsewhere in the city.
- As a result, taking into account the streetcar's price tag, a streetcar investment would be a bad deal for Cincinnati.
As for my recommendation - There have been many cities that have seen a strong increase in mass transit ridership in recent years. That increase is attributable to buses. They are simply a better economic decision. ...Instead of New York or Portland, I think a more relevant comparison for Cincinnati mass transit is to Cleveland's RTA Rapid Transit. There are some differences and the Cleveland mass transit system is larger and a little different than the one proposed in Cincinnati. But Cleveland is one of the most similar cities to Cincinnati and is under the same state government. Cleveland has a significant rail mass transit system with 30,000 daily riders, Cincinnati does not. Which city is more prosperous and dynamic? The difference isn't all due to the streetcar, but this is an example we should look at when planning our transportation future.
If Cincinnati sinks money into at a streetcar system, in ten years it will find itself with a larger fiscal problem, a marginally worse transportation system, and relatively less competitive.
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