A new streetcar line is encouraging private investment along Washington, DC’s H St. corridor. Photo by Mr.TinDC, via Flickr.
Great smart growth developments start with a vision and good planning, but to build the actual project, local governments, real estate developers and community members must secure the necessary capital funding. Innovative ways to finance smart growth projects was one of the main topics discussed at the June 2014 LOCUS Leadership Summit in Washington, DC where members of Smart Growth America’s Local Leaders Council and the LOCUS developers’ network met to talk about what it takes to bring a smart growth vision into reality.
Ben Miller, cofounder of Fundrise, believes that the real estate investment system is set up for very large investors and makes it nearly impossible for smaller investors to support local projects. “What if we squared the circle and let the community become both a capital resource and a partner in our real estate projects, so they would have some skin in the game?” posits Miller.
Fundrise is among the first in the country to apply crowd funding to real estate development, connecting smaller investors directly with developers of projects across the country. Miller sees this new model as an opportunity for community members to invest in their own neighborhood.
Depending on the project, typical investments can range from $100 to a couple of thousand dollars. Projects can be components of a larger development or even individual building renovations such as a single-family home. Local leaders responded to the concept with interest, asking many questions about how it works. Miller acknowledges that governments and large real estate companies are not the early adopters of this model. However, he believes the public sector could turn to financing projects this way. Several leaders saw an opportunity to bring the idea back to their hometowns to generate capital for neighborhood projects.
Many local communities are overlooking federal financing opportunities for their smart growth projects, according to Beth Osborne, President of Development Strategies for Transportation for America and formerly Deputy Assistant Secretary and Acting Assistant Secretary for Transportation Policy at the U.S. Department of Transportation.
“There are opportunities to finance local smart transportation projects through federal programs. I would encourage communities to learn about these options and use these programs to increase transportation choices locally,” said Osborne.
The Railroad Rehabilitation Improvement Financing program (RRIF) offered by the Federal Rail Administration can be used to acquire or improve rail facilities, refinance outstanding debt incurred for rail facility acquisition or improvement, and develop new intermodal or rail facilities. The loans can cover a substantial portion of the project cost with repayment periods of up to 35 years. While some loans are as small as $56,000, since 2002, grants exceeding $100 million have gone to Amtrak, Dakota Minnesota & Eastern Railroad, and Denver Union Station Project Authority.
The Transportation Infrastructure Finance and Innovation Act (TIFIA) makes loans directly available to local governments for transit, rail and multimodal projects. TIFIA loans can cover up to one third of a project’s cost at an interest rate of around 3.4%, but require a dedicated repayment source like a sales tax or user fee. Communities have frequently looked to TIFIA for projects like toll roads, but Osborne is urging leaders and developers to think about other transportation modes and leverage TIFIA for projects such as streetcars, which can open up enormous opportunities for revitalization.
Councilmember Tommy Wells of Washington, DC dug deeper into the funding and politics of streetcars. An unwavering champion of bringing streetcars back to DC, Wells believes it is one of the few transportation systems that can pay for and sustain itself, particularly through land value capture.
“A streetcar is more than a way to move people. It is a place-making tool that is a super-magnet for private investment all along its route. We can harness this economic energy and use it to fund the construction and operation of the system,” Wells says. He also stresses the importance of public relations around a streetcar project, which can often draw controversy if its goals and whom it benefits are misunderstood. Consistent political leadership, use of social media, community meetings, a supportive coalition of diverse stakeholders and positive branding are all critical to a successful project. If public opinion is not respected and turns against a streetcar proposal, it could result in years of delay that might sabotage the financing package.
From crowd funding capital to leveraging federal loans in a new way to sustaining public support for important long-term projects, these public- and private-sector leaders emphasized thinking outside the box when pursuing funding and implementation for local smart growth. They believe local innovation—even in financing—can trickle up and out and change the way smart growth is made to happen.
View more glimpses of the Local Leaders Policy Forum and the LOCUS Leadership summit here.
- Local leaders confront revitalization challenges
- Revitalizing underserved neighborhoods
- Creating revitalization in slow markets
Neha Bhatt contributed to this article.