New York Mayor Bill de Blasio's proposed 17-mile north-south streetcar line through Queens and Brooklyn waterfront neighborhoods has drawn some skepticism about its funding plan.
De Blasio, whose preliminary estimate for the purchase and installation of the system was about $2.5 billion, said the city would raise capital through a nascent nonprofit with the authority to issue tax-exempt bonds. He expects the city to pay off this debt through so-called value capture, or harnessing a percentage of the increase in values of existing and new development along the corridor.
"I have no separate knowledge of the economics, but I think it's a great idea," said Richard Ravitch, former lieutenant governor and chairman of the Metropolitan Transportation Authority from 1979 to 1983. "I think it's exciting and I believe in mass transit."
Unanswered for now is whether bondholders would insist on a city guarantee to finance the city's first streetcar in more than 50 years.
That answer is important, said Nicole Gelinas, a senior fellow at the think tank Manhattan Institute for Policy Research.
"If they can pay with future tax revenues, which they say they can, and not have to back it with a city guarantee, then you can serve areas like Williamsburg, Greenpoint and Long Island City cost-effectively," she said.
If bondholders require a guarantee, then the city would have to gauge the project's importance against others competing for the public dime.
"It becomes a much more muddled story," said Gelinas. "The city is struggling with its MTA contribution and the MTA is trying to add capacity. It's hard for people citywide to see it as a priority.
"We have lots and lots of other unfunded projects, including the [long-delayed] Second Avenue subway and better signal capacity on subways."
Under an agreement late last year among city, state and Metropolitan Transportation Authority officials, the city agreed to roughly quintuple its contribution to the MTA's five-year capital program to $2.5 billion from $657 million. A state review panel must still approve that $29 billion program.
The MTA runs New York City's subways and buses.
Howard Cure, the director of municipal bond credit research for Evercore Wealth Management, questions whether development revenues alone can support the project.
"I am dubious about this being a project self-supporting," said Cure, who cited the city subsidies required – even after construction downsizing – for the city-financed 1.5-mile westward extension of the No. 7 subway line from Times Square to the Hudson Yards area, another value-capture project. He, too, worries that the streetcar project could divert funds from mundane but necessary track-and-switch maintenance on the subways.
While principal on $3 billion of bonds the not-for-profit Hudson Yards Infrastructure Corp. issued in 2006 and 2011 will be repaid from revenues generated by new development near the subway extension, notably payments in lieu of property taxes, the city makes interest support payments – subject to appropriation -- to cover development revenue shortfalls.
According to Fitch Ratings, the city paid the corporation $39 million and $28 million in interest support payments in fiscal 2014 and 2015, respectively. Total interest expense in each year was $153 million, said Fitch, with the balance paid from the corporation's mostly non-recurring project revenues and other accumulated funds.
A report in 2013 by the watchdog Independent Budget Office said the corporation collected $170 million in total revenue in 2012 instead of the $283 million that real estate firm Cushman & Wakefield had projected in a study.
The Hudson Yards station didn't open until September 2015.
Revenues to HYIC have begun to accelerate, city budget officials said in their January financial plan for 2016 to 2020, and the corporation has begun to receive recurring Pilot revenue. Additionally, said officials, the corporation recently received about $18.6 million from the sale of transferable development rights as well as $51 million from the sale of the district improvement bonus.
"These revenues, along with other revenues, will eliminate the interest support the city would have to provide on the HYIC bonds for fiscal years 2016 and 2017," city officials said. "However, these revenues are not ongoing, and the city financial plan reflects appropriation for interest support on the HYIC bonds in the future."
Transit-related costs for Hudson Yards rose from $2.1 billion to $2.4 billion, despite dropping one station and several subway cars from the original plan.
"You have to be careful about these so-called tax-increment or value-capture deals," said Jonathan Peters, a business professor at the College of Staten Island.
De Blasio said that revenue from the streetcar fare, equal to a single-fare MetroCard, would cover about two-thirds of yearly operating costs upon full buildout - much higher farebox recovery than most transit systems. Additional revenue streams such as advertising could offset remaining costs.
But unanswered questions remain over how the fares would work -- particularly in regard to transfers.
"Without fare integration, potential riders will eschew the Brooklyn-Queens Connector," Benjamin Kabak wrote on his
Ravitch said the plan brings a permanent reliable transportation option to neighborhoods desperate for it. "Not everybody rides bikes," he said.
"Do I think the state and the city should chip in with a guarantee? Absolutely, just as I believe it is their responsibility to fully fund the MTA instead of these fairy godmother proposals I see politicians coming up with.
"What you have is a country with an ever-increasing percentage of people living in cities. In areas like Long Island City and Williamsburg, the rents are as high as they are in prime locations in Manhattan."
The so-called BQX route would link to 13 New York City Housing Authority developments and bind several "innovation clusters," including the Navy Yard and Army Terminal in Brooklyn, and the Cornell Tech campus on Roosevelt Island through a ferry connection.
Sam Schwartz Engineering, the namesake firm of former city traffic commissioner "Gridlock Sam" Schwartz, developed the route. Citing aesthetic and flooding concerns – the route hugs the East River – Schwartz constructed the line without overhead catenary cables to provide electricity.
The proposal comes amid continued growth in the city's four outer boroughs and increasingly loud calls to counter the MTA's century-old, Manhattan-centric hub-and-spoke system.
"Everybody in the outer boroughs has been crying about transit infrastructure. It's a challenge for New York City," said Peters, who noted that growth in travel demand between outer boroughs is exceeding that of outer boroughs into Manhattan. "If they can pull it off within the budget they're saying – and that's a big question – it can be a much more affordable project than, say, the Second Avenue [subway] line."
Still, said Peters, light rail can also financially strain a system.
He cited Portland, Ore., where manufacturing costs for a $150 million East Side extension to its Max line spiraled, forcing delays and a cutback in new train production. In Greater Boston, the eight-mile extension of the Green Line light rail from Cambridge to Somerville is in jeopardy, given cost overruns and the wobbly finances and general dysfunction of the Massachusetts Bay Transportation Authority, which is under a state oversight board.
An open question is the role of state agency MTA in the streetcar line. De Blasio, often at odds with Gov. Andrew Cuomo, could circumvent the state, given that the proposed route involves city thoroughfares, but according to Cure would do at the risk of funding sources directly or through the MTA.
MTA Chairman Thomas Prendergast said after Wednesday's board meeting that lacking particulars, it was premature to comment on the streetcar proposal.
"I'm thinking of moving to Williamsburg. Should I move?" one reporter asked.
Prendergast replied: "When?"
Meanwhile, other new transit frontiers loom in the outer boroughs.
New York State Assemblyman Phillip Goldfeder, D-Queens, said de Blasio's streetcar route still leaves a transit void in the southern part of his borough. He has requested $1 million in the state budget to study resumption of Rockaway Beach rail service, which the Long Island Rail Road shut down in 1962.
"The mayor's [streetcar] proposal, whether you agree with it or not, represents outside-the-box thinking. I give him all the credit in the world for his mindset," said Goldfeder. "However, as I've said before, the most effective and most environmentally efficient means of improving public transportation for Queens is to restore the Rockaway Beach rail line."
On Staten Island, home to a pending tourist Ferris wheel and outlet mall in an increasingly congested ferry terminal area, some advocates want rail service on the North Shore and West Shore, with a possible New Jersey connection for the latter.
The Staten Island Economic Development Corp., though, said it would end its West Shore rail push if funding is not in place by Sept. 30.
