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Economic Development and Streetcars in NC

posted on in Fiscal Insight

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Over the last ten years there have been a number of cities across the country that have pursued streetcars as a method of economic revitalization.  The two cities that have been the backbone of the streetcar movement have been Portland and Seattle.  Both of these cities have claimed overwhelming positive results with increasing property values,increased marketability for local businesses, and an increase in the development of depressed areas.  Most of these projects are funded through an increase in the cities’ property taxes and federal grants, which are ultimately paid for with local and federal tax dollars.  However, the city of Charlotte will not receive any federal grants this year to pursue and extend the streetcar, even with former mayor Anthony Foxx as the new U.S. Secretary of Transportation.  So, is that a telling sign that Charlotte’s streetcar isn’t as important as some city council members believe? Or maybe, in the wake of a recession, city leaders need to focus on economic growth and not economic development.

North Carolina has had direct experience with streetcars and their controversy.  In as early as 2009, McCrory’s final year as mayor, the Charlotte city council overrode the then mayor’s veto against using city money for a streetcar engineering study.  That vote set aside $8 million in the city’s budget for a street car study, staff costs, and engineering plans. The results from that study were not anything to be overly excited about:

Future property tax proceeds in 2035 were compared between the No Streetcar and Low, Medium, and High funding scenarios to allow an even comparison of fiscal benefit….  The growth in annual property tax proceeds only by 2035 above current levels would be approximately:

  • No Streetcar: $11.8 million per year
  • Low Scenario: $15.2 million per year
  • Moderate Scenario: $16.0 million per year
  • High Scenario: $17.9 million per year

Remember, this study does not take into account any other events that could impact Charlotte’s property tax.  If we look at the no streetcar scenario and compare to the high scenario, there is only a $6.1 million difference.  Is that worth 25 years of increased property tax and federal tax dollars?

Regardless of the study findings, the City of Charlotte decided to continue with its streetcar project with its new mayor Anthony Foxx as a strong proponent of the project.  The plan was originally set to cost around $926 million and include a 4 cent increase in property tax to pay for the project.  The plan then changed many times as council members felt it unfair to impose a higher property tax to pay for the streetcar when there was already a 1/2 cent transit tax imposed on Charlotte residents for transit projects.  Deals have been made, and now part of the project is under construction with a 1.5-mile portion in downtown costing $37 million, of which $25 million is from an earlier federal grant.

Many believed the streetcar controversy in Charlotte was over when Foxx was named the new U.S. Secretary of Transportation.  That changed this week when Charlotte’s plans did not make the latest list of projects receiving funding from the federal agency.  Phase 2 of Charlotte’s streetcar is estimated to cost $126 million, of which reserve funds will pay for half and federal grant money for the other $63 million to keep from increasing property taxes.

So the moral of the story is that economic development (streetcars) is not the same as economic growth.  Cities and counties should pursue a policy of sustained economic growth, which makes the possibility of investment attractive to all businesses, not of targeted economic development.  Local government has a role in society to provide sound and reliable infrastructure services.  This comes in the form of effective police and fire departments, efficient trash collection, a dependable sewer system and water supply that can accommodate future economic growth, etc.  Streetcars do not fall into that category and don’t create an environment that is conducive to investment in business activity for all, but rather just for a politically favored few that happen to be located in downtown or along the streetcar line.  Most people are supportive of their property taxes paying for services they all take advantage of such as police, fire,sewer, roads, etc.  Streetcars are targeted and not for the overall benefit, thus additional tax dollars (whether it be local property taxes or federal tax dollars in the form of a grant) should not be spent on something that is not a general need of the city.

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Sarah Curry is Director of Fiscal Policy Studies at the John Locke Foundation. Previously, she worked for the North Carolina State Senate as a research assistant for the chairs of the Senate Agricultural Committee and headed the research efforts for… ...

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