Governmental Impediments to Urban Development

Fiscal realities at all levels of government may put a brake on smart urban development, such as resistance to high-speed rail systems and the abolishment of TIFs.

As we look to the next development boom, there are many potential impediments to redevelopment.

As part of a national trend toward a more economically conservative policy that shrinks the role of government and lowers taxes, Republican mayors who have swept into office in the last election cycle are refusing to accept the money from the federal government to expand their rail system and develop the nation’s first bullet train system in their states. President Obama had proposed $8 billion in stimulus money for rail projects in his State of the Union address last year, and an additional $20 billion that has not yet been approved.

Wisconsin Governor Scott Walker and Ohio Governor John Kasich, both Republicans, have rejected the stimulus money. In Ohio, the project would have created passenger train service between Cincinnati, Columbus and Cleveland. And in Wisconsin, the high-speed rail would have linked Milwaukee and Madison, and would have been a vital component of 110-mph bullet trains linking Chicago, Milwaukee, Madison and Minneapolis-St. Paul. The Obama Administration announced it is taking the $1.2 billion in rail funding for these two states and distributing it to 12 other states, including California and Florida.

Fortunately, the creation of bullet trains may not be as directly pertinent to multi-housing development. According to Tom Murphy, a senior fellow at the Urban Land Institute (ULI) and former Pittsburgh mayor, bullet trains are greatly needed in the nation, given a growing population and little new airport construction, let alone a dearth of alternative mass transportation systems if, and when, gas prices should spike. However, the high-speed trains concerned link cities rather than multi-housing developments, he notes.

More directly relevant to multi-housing transit-oriented developments are local light-rail systems and their availability or creation. Light rail has been built in the downtown areas of many cities, such as Seattle, Charlotte, Salt Lake City and Dallas. In most cities in which they have been built, the rail systems have been very popular, says Murphy. But even in this case, government budgetary constraints are limiting the future of development, Murphy acknowledges.

“We are seeing across America a significant increase in the people who want to live downtown. At the same time, the federal government is retreating from funding local transportation systems that would get people out of cars,” says Murphy.

Redevelopment agencies

In another development that reflects the new fiscal realities of the United States, California Governor Jerry Brown has proposed abolishing all 260 redevelopment agencies in the state to make $1.7 billion in funds available. The measure is seen as a way to enable the state to obtain the Tax Increment Financing (TIF) funds from the redevelopment agencies and put them to other uses.

But the implications of eliminating the TIFs and their housing function could spell bad news for smart urban development. Most of the state’s redevelopment agencies, though not all, use the TIF funds to encourage both market-rate and affordable housing projects, and a lot of projects are at risk as a result of the proposal, says Cynthia Parker, president and CEO of Bridge Housing. In particular, 20 percent of all TIFs collected in the states are required to be set aside for affordable housing.

The impact on housing development could be significant. The TIF funds obtained from redevelopment agencies in California can fund as much as 25 percent to 30 percent of a project’s capital costs, says Parker. Bridge Housing, she says, has at least three large projects in redevelopment areas that would be impacted.

So far, the measure did not pass in the state Senate, but it is one vote away from being passed in the Assembly. Nevertheless, does it portend similar actions across the nation? Fortunately, that may be unlikely, as unlike California, redevelopment agencies are already devolved to the local government authorities in most states. However, Parker notes the bill does not transfer the ability to use TIFs for redevelopment purposes to any entity. It is clear, says Parker, that there are “less funds available at all levels of government.”

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