» 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)