Houston Leaders Fear Too Large, Too Quick a Commitment to Light Rail

» Reliance on bonds to be paid back over decades highlights some of the difficulties cities face in advancing multi-line construction programs.

Just a few years ago Houston had grand plans for an extensive new light rail system that would crisscross the nation’s fourth-largest city from end to end. With new sales taxes, the local transit authority would be able to afford the construction of five lines by the early 2010s, reshaping the commuting patterns of the city’s residents.

However, like Denver and Charlotte, which both had huge expansion plans of their own, Houston’s dreams have been seriously threatened by the reality of falling tax return revenues. It’s a disappointing setback for a city that received federal New Starts approval for two of its projects just last year and which finally is able to pursue construction without the noisy interference of anti-transit representatives in Congress.

Nonetheless, the Metro Solutions plan, which was put before the voters in 2003 and which aims to add 30 miles of light rail to the existing 7.5-mile corridor at a cost of $2.6 billion, may simply be too ambitious a project for a metropolis concerned about fiscal restraint in a period of budgetary black holes.

That’s how newly elected Mayor Annise Parker is portraying herself: as a champion for improved transit who simply wants to ensure that whatever money is spent, Houston will be able to afford. Though she has not called for the cancellation of the entire system — the North, East End, and Southeast Lines are currently under construction — she has openly questioned whether or not the east-west University Line and the closely connected Uptown Line, neither of which are yet underway, can be sponsored with existing revenues.

Her fears have some merit: the local 1% sales tax that pays for transit in the region has seen a huge decrease in returns over the past year. With the transit agency planning to issue $2.6 billion in bonds by 2014 to sponsor the system, it will have to assemble the resources to pay back the loans over time. If it cannot do so using the funds originally dedicated for the construction of fixed-guideway transit lines, it will have to find them elsewhere — a formula that could result in operations cutbacks to fill a budget gap.

To its credit, Metro has secured its fiscal health by signing a contract with builder Parsons Transportation Group that ensures a price guarantee of $1.56 billion on four of the five corridors (n0t including the expensive and controversial University Line). This means that cost increases due to unforeseen changes in the construction market will not affect this city. Other transit systems might want to follow Houston’s model in ensuring spending constraints through the deal made with the contractor.

Yet the decision to backload virtually all spending on the project through bonds will cause problems if the economy ten years from now doesn’t perform exactly as predictions assume today. In other words, it’s easy enough to suggest that the city will be able to pay back the loans taken out to cover construction costs by using sales tax revenues, but the recession is an unambiguous demonstration of the fact that those revenues aren’t stable enough to believe that these capital costs won’t eventually intrude on maintaining continual operations.

In transit, the last thing you want to do is pull back on services right after you’ve opened a new line.

Of course, bonds are the typical finance mechanism municipalities use to construct most new capital projects, with the assumption that growth spurred by the completion of new infrastructure will more than compensate for the extra interest paid for taking out a loan. This is the premise behind Los Angeles’ hope to win billions of federal dollars to complete a transit system three times faster than planned, and even the proposed national infrastructure bank.

Yet in a society in which increasing debt is the name of the game, instead of any attempt at ramping up revenues, perhaps we’ve gone too far, relied too much on future growth to make investments that we need to make today. Can Houston truly be sure that it won’t have problems maintaining its sales tax revenues into the foreseeable future? Does it really want to risk cutting back on bus services just to pay off the bank?

Even so, cities like Houston may have little other choice: there certainly aren’t enough federal grants going around to pay off the construction of the light rail project in cash, and the sales tax won’t produce nearly enough local revenue to complete the project by 2014 as hoped. Considering the high ridership along the initial Main Street corridor, more rail transit in this city seems very likely to be successful, so Houston should probably work to  find the most financially secure way to get it done as quickly as possible. Is the release of $2.6 billion in bonds over a five-year period sustainable? We’ll see.

Image above: Houston Main Street Light Rail, from Flickr user erigwg (cc)

13 Comments | Leave a Reply »
  • BB

    How do they pay for the continued operation of a freeway?

  • Future Schema

    So, philosophically, no city or entity should use a bond issue to pay for infrastructure because they can not guarantee future conditions? By that reasoning, you should only construct infrastructure in small incremental pieces that you fund as you go, which effectively prohibits cities from constructing much more than bus shelters in the current economic environment. Yes, bonds are risky and they create a liability for the entity that issues them and no one can control the economic conditions ten years from now, but in the absence of a huge honey pot like the highway trust fund used to be, cities have to take risks to transform themselves.

  • Daniel

    BB: By popular logic, freeways are a “future investment”, rail is an “expensive boondoggle”. This isn’t exactly surprising for Houston, one of the most sprawl-friendly and transit-averse cities in the U.S. Houston actually had a plan for several heavy-rail subway lines in the early 80′s, but a new mayor (a real estate magnate) came in and scrapped the whole plan, and invested the money in building freeways to the exurbs instead. Probably made him a lot of money.

  • Tom West

    Sales taxes will pick up when the economy does. The City should postphone construction of the new lines until sales tax revenue reaches some objective, pre-defined and publicised level.

    Very often, postphonement means cancellation – by setting an objective requirement, it will ensure that the project will happen, and everyone knows that.

  • AlexB

    It’s a shame about the University line because it would travel through relatively dense (for Houston), upscale neighborhoods in areas with high bus usage. It would go out to the first of Houston’s loops at the Galleria, a major destination for retail, residential and office space. It was also the single longest segment to be built and would have made the system really seem “complete” for central Houston. Oh well.

    • Mike

      It would be a shame if they do not build the line. At this point Mayor Parker has expressed some skepticism that the line can be built with the original funding sources and given the current state of the economy, but she has said she does want to see this line built. Which is more, I believe, than former mayor Bill White (who was otherwise a great mayor) ever said on the subject of light-rail. I would like to see Mayor Parker specify how it is going to be built, but I don’t doubt that she is going to attempt to get all LRT lines built somehow.

      Just yesterday she appointed Christof Spieler, a well-known blogger and transit advocate (ctchouston.org), to the Metro Board. That made me feel a little better about transit going forward for Houston.

  • Jim

    I’ve never understood short-sighted local governments that stop bond issues for capital improvements during a recession.

    It is absolutely the *best* time to issue bonds. You are going to get the best possible rates. The lead time to get a major project into the construction phase pretty much guarantees that the economy will be improved by the time you need the tax revenues to gebin servicing the bonds. And if the economy hasn’t improved, you’ll be adding design, engineering and constructions jobs into your local economy at a time when you need it most!

    By waiting until the recovery is in place, they are only making the project more expensive, via increase borrowing expense.

  • Nathanael

    The University Line is the most slam-dunk of the Houston lines, and will probably actually save on operations costs. They really ought to build it.

    And as Jim says, this is the best time to issue bonds. Interest rates are dirt low, construction bids will come in very low, and it acts as a stimulus.

    The real trick is to get the politicians to PAY OFF THE BONDS once the economy is booming again, instead of just rolling them over at higher interest rates!

  • Allen

    “Considering the high ridership along the initial Main Street corridor, more rail transit in this city seems very likely to be successful, so Houston should probably work to find the most financially secure way to get it done as quickly as possible. ”

    The past performance has little if anything to do with how other different lines will perform. In fact, those new lines could in fact make a previously successful line into an unsuccessful one. For example, when Denver opened their new SE LRT line, the number of daily trips on the old, existing SW line dropped by 20-25%.

    • Woody

      I’m with you here. Past performance indicates very little when routes can be so very different. In fact, usually each additional new route underperforms the existing routes, for the very solid reason that usually cities are smart enough to build their best route first.

      Certainly in H-town, the Main Street line connects a U of H campus, the civic center, the performing arts center, the downtown office district, kinda sorta the baseball stadium and convention center, the museum district, Rice U, the medical center area, and the huge park-and-ride facilities near the football stadium on the loop, wow. No wonder that route is a national winner.

      But I do think the University route would also do well, from the main campus of the U of H, connecting to the Main Street line, along a major commercial strip to the Galleria area. The Galleria is Houston’s second downtown, with plenty of jobs, shopping, and entertainment venues.

      I’m sure this line is worth doing. But I’m not mad at the Mayor for looking to get the money lined up first. Whether they can get more from the feds, or in a miracle from the state, or whatever, this is no time for transit agencies to rush deeper into debt on a wing and a prayer.

  • DBX

    I’ll add to the chorus; these politicians are nuts if they don’t go ahead with these projects now. All-time record low interest rates. Construction companies desperate for work. A looming international scramble for the world’s last remaining natural resources about to run materials costs up.

    For many schemes, it’s now, or never. And “never” means the real possibility of a future of African-style gonzo minivan, multi-passenger cab drivers to fill the infrastructure gap. And/or stranded, dead-end suburbs in the age of peak oil.

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