Still working on the railroad: funding fuzzy for South Coast rail

INTRO TEXT “it’s easy to say, ‘Give me this, give me that,’” said Rep. Joseph Wagner, the Chicopee Democrat who co-chairs the Joint Committee on Transportation, during testimony on a commuter rail proposal this spring. “It’s not so easy to finance it.” That sums up the South Coast rail conundrum. But Gov. Deval Patrick says he will accomplish what at least three previous governors never did—namely, move beyond plans and designs to running actual trains between Boston, New Bedford, and Fall River.

At an estimated $1.4 billion, South Coast rail is the first mass transit project to gain Patrick’s imprimatur. How does he plan to pay for it? Clues are scarce.

The administration has committed $17 million in state bonding to the project through fiscal 2010, $2 million of which will go to a land use and economic development study team. A financing plan for design and construction isn’t scheduled to hit the streets until January 2010, but the sticker shock is already here. According to the administration’s South Coast Rail: A Plan for Action, the line will be “one of the most expensive public works projects in Massachusetts history” after the Big Dig ($14.7 billion and counting) and the Deer Island Sewage Treatment plant program ($3.8 billion). That’s a stomach-churning thought in a state that “has a history of poorly estimating the costs associated with new spending for programs and projects,” according to a report by the Pew Center on the States.

That’s not even considering the billions of dollars needed just to maintain the state’s existing transportation infrastructure over the next two decades. “‘Fix it first’ is not an adequate solution,” says Administration and Finance assistant secretary Jay Gonzalez, referring to the Romney administration’s emphasis on maintenance. The Transportation Finance Commission takes a similar view, concluding in a recent report that it is not “practical, plausible, or prudent” to avoid enhancements or expansions.

South Coast rail has had a “long, frustrating history,” says Sen. Mark Montigny, a New Bedford Democrat, who negotiated a $600 million transportation bond bill to fund the line in 2002.That measure was signed by Acting Gov. Jane Swift, but Gov. Mitt Romney did not follow through with implementation. That didn’t stop him from later signaling support for the project, at least on paper, budgeting $670 million for it in his 2005 draft transportation plan.

Montigny’s experience with the project actually dates to 1994, when he wrote legislation to fund a $3.5 million study. “Since that date, obviously, we have studied it to death,” he says. (See “South Coast railing gets commuter rail on track—sort of,” CW, Summer ’04.)

Yet Stephen Silveira, chairman of the Transportation Finance Commission, sees Patrick’s funding of a study team as a “perfectly reasonable thing to do,” adding, “if you want to have commuter rail to the South Coast or anywhere in 2017, 2018, you need to come up with a plan today.”

A plan to pay for the rail line could be the toughest part of all. One concept being floated by the administration is “value capture,” a mechanism that rests on projected economic development to help bankroll, or at least recoup, some of the costs of a project. According to Gonzalez, revenue from economic activity along the rail corridor—including 15,000 new jobs, new development, and higher values of existing real estate—will pay for the state’s investment and ongoing operating expenses.

Photograph by Meghan Moore

He points to the Boston Convention and Exhibition Center as a successful use of a value capture model. Sales and meal tax revenue from the convention center’s “finance district” (with boundaries defined by state legislation) help to pay off the center’s bonds, as well as a portion of operating expenses after debt service.

“Obviously, we can’t say with certainty today that this will absolutely happen, but that’s what we are working toward and conceptually trying to do,” Gonzales says.

Using value capture to finance transit has yet to produce any significant success stories that could be duplicated in a New Bedford–Fall River rail scenario, transportation experts say. But one system counting on projected development revenues to help finance a new commuter rail line is the Triangle Transit Authority that serves fast-growing Durham, Orange, and Wake counties in North Carolina.

The TTA signed an agreement with Cherokee Investment Partners, which will build and manage transit stations, housing, and other structures along a proposed $810 million, 12-station, 28-mile commuter rail corridor. The plan is to create two development areas by amalgamating TTA-owned land with adjacent acreage purchased by Cherokee. The transit system will get a percentage of the profits from investments in these areas.

Should the state add to its debt load?
According to Paul Vespermann, senior manager for transit corridor planning and development, the authority hopes to see $60 million from the arrangement, to be used for the line’s construction and operation. Lee Norris, a Cherokee managing director, says the sites for four or five of the planned stations are already great development opportunities. “Hopefully, the train will show up one day and enhance [the value of] the area even more,” says Norris, whose company is also working on a rail project in Charlotte. Partnering with a private sector master developer is “very, very cutting-edge,” says Gloria Ohland, a vice president of the Oakland, Calif.-based nonprofit research group Reconnecting America. “Because transit agencies are desperate, they are really interested in pursuing these kinds of opportunities.”

But Paul Regan, the MBTA Advisory Board’s executive director, warns that the Bay State has not done a particularly good job at capturing nontraditional revenue streams. He argues that tax increment financing business development districts, whereby developers gain tax breaks to invest in certain areas, have not been a strong success in Massachusetts largely because there are too many stakeholders. Municipalities will try to capture and retain as much value provided by commuter rail as they possibly can, according to Regan. Could the MBTA and local governments end up squabbling over any rail-generated windfall? Steve Smith, executive director of the Southeastern Regional Economic Planning and Development District, says: “I know that the cities and towns wouldn’t necessarily willingly fork it over to the state.”

“We’re going to need more than that,” says Rep. Antonio Cabral, a New Bedford Democrat, of value capture. Cabral is a sponsor of a proposal to set up a Massachusetts Transit Fund, divided into one statewide and five regional accounts, to finance the New Bedford–Fall River extension and another four rail lines. The fund would rely on a mix of existing taxes (gasoline and vehicle sales taxes, plus Registry of Motor Vehicles fees, all of which had been going toward the Big Dig) and new revenue (from charges on greenhouse gas emissions and tourism-related money such as fees on hotel rooms, rental cars, and airline tickets). Former governor and rail enthusiast Michael Dukakis labeled the bill “very creative” during his testimony before the transportation committee, but the levies-laden measure got a lukewarm reception from committee members.

Most observers concede that Massachusetts will have to rely on bonding to finance new rail. But should the state add to its per-capita debt load, already one of the highest in the country? Regan sees the state’s ability to bond $1.4 billion as “limited.” He says that the judgment that needs to be made is, “How much of available revenues do you want to spend on debt service and how much of it do you want to spend on services?”

Montigny, who co-chairs the Joint Committee on Bonding, Capital Expenditures, and State Assets, admits that even though “any new revenue stream is nice,” the rail line “will be paid for by the users and the Commonwealth.”

Then there’s the “fuhgeddaboudit” option. With no revenues yet available to offset the line’s already projected $21 million annual operating deficit, Sen. Richard Tisei is calling for a moratorium on new commuter rail projects. A nine-year moratorium, in the form of an amendment to the fiscal 2008 Senate budget, recently failed. But the Wakefield Republican says that the proposal may resurface as an amendment to a future transportation bond or a capital improvement bill. “We’re just saying that before the administration really charges ahead with a new rail line, they really do have an obligation to take a look at the big picture,” Tisei says.

“The financing strategy doesn’t have to be painstakingly precise, but it has to be not so far wrong that you can’t put it right,” says Joseph Giglio, a professor of strategic management at Northeastern University’s College of Business.

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Gabrielle Gurley

Senior Associate Editor, CommonWealth

About Gabrielle Gurley

Gabrielle covers several beats, including mass transit, municipal government, child welfare, and energy and the environment. Her recent articles have explored municipal hiring practices in Pittsfield, public defender pay, and medical marijuana, and she has won several national journalism awards for her work. Prior to coming to CommonWealth in 2005, Gabrielle wrote for the State House News Service, The Boston Globe, and other publications. She launched her media career in broadcast journalism with C-SPAN in Washington, DC. The Philadelphia native holds degrees from Boston College and Georgetown University.

About Gabrielle Gurley

Gabrielle covers several beats, including mass transit, municipal government, child welfare, and energy and the environment. Her recent articles have explored municipal hiring practices in Pittsfield, public defender pay, and medical marijuana, and she has won several national journalism awards for her work. Prior to coming to CommonWealth in 2005, Gabrielle wrote for the State House News Service, The Boston Globe, and other publications. She launched her media career in broadcast journalism with C-SPAN in Washington, DC. The Philadelphia native holds degrees from Boston College and Georgetown University.

“Before you start running a New Bedford or other expansion line, you’ve got to ask, ‘What is it that I’m trying to achieve with my transit system and why?’” he says. “Financing tools are tactical questions. We can give those to the [Administration and Finance] guys and add up the numbers.”

And, as Montigny well knows, financing schemes come and go. “Until I’m riding on the train coming down here someday, I will not be anything other than a healthy skeptic,” he says.