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Railing Over Rail

June 17, 2012 by Jim Burton filed under Editorial, Opinion No Comments
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Printed with permission from www.jimburton.org

The Board of Supervisors must decide by July 4 whether or not Loudoun will participate in the Phase II Metrorail project which will bring rail to Dulles Airport and two Loudoun stations west of Dulles. It has been one of the most hotly debated subjects in recent memory. The blogosphere has been full of comments pro and con, some articulate and fact-based, as well as those which have been ideologically based, emotional, or totally irrational.

The key question being debated is whether or not the projected costs are worth the projected benefits.

What are the Projected Costs?

Loudoun taxpayers, in one form or another, will be responsible for two categories of costs: 4.8 percent of the total capital cost (approximately $270 million for Loudoun plus interest, if borrowed) to actually construct the rail line to the airport and the two Loudoun stations, plus $135 million for two parking garages associated with the Loudoun stations;

Since system-wide Metro fares only generate sufficient revenue to cover approximately 80 percent of the overall operating costs, each participating jurisdiction is required to contribute an annual subsidy to make up the difference. The annual subsidy covers system operating costs plus capital replacement and repair costs.

Loudoun’s debt service costs are now estimated at $18.5 million per year beginning in 2013 (level payment each year for 30 years). In 2018, Loudoun will begin its annual contribution to the Metro operating costs. That annual subsidy is predicted to increase every year, and by 2043 the combination of annual debt service (level payment) plus the operating subsidy will exceed $50 million per year. This is a tremendous bill to pay, and the Board is currently examining many financing options, none of which appear attractive and most of which involve a special Tax District of one kind or another.

Years ago the County committed to pledging its annual gas tax revenue to help pay for Metro, should Metro be approved. The approximately $9 million per year of gas tax revenue has historically been used for road construction. Obviously, if road construction is to continue, a new source of revenue must be found.

The Lesser Report, funded by the County, concluded that the economic development associated with the Metro stations would generate more tax revenue over a 30-year period than what was required to provide County services to that new development. However, the Lesser Report did not consider the capital costs or the annual subsidy mentioned above.

When those costs were factored into the equation, as the County staff did in a separate analysis, the net result is that it takes approximately 25 years before the presence of Metro in Loudoun shows a net fiscal positive for the County. This assumes that the construction and operating costs remain as currently projected, which is unlikely.

Whereas the Lesser Report assumed that the new development near the Metro stations would be mostly a reallocation of development that would normally occur elsewhere in the County, Dr. Stephen Fuller’s analysis assumes that Metro will generate significant new development that would be over and above what would normally occur elsewhere in the County. Thus Fuller’s analysis predicts a significantly larger fiscal positive for the County if Metro is approved.

Fuller’s analysis, however, must be viewed with caution. Dr. Fuller is an excellent source of historical economic data, but his track record on predicting economic activity is spotty at best. His credibility has been damaged in the past by producing analyses that tended to support the view of his clients. As he said in an April 15, 2011, interview with Lydia DePillis on another subject:

“If I were asked to make a case for it, I could make a really strong case for it, and if I were asked to make a strong case against it, I could make a really strong case against it. You do what you are asked to do, and you don’t answer other questions….” (“The Economics of Stephen Fuller”, Washington City Paper, April 15, 2011 )

What are the Benefits of Metro?

There are two kinds of benefit to consider: benefits to the public at large and benefits to private land owners, developers, and speculators.

The most obvious benefit to the public is that Metro will provide an alternative mode of transportation to the job centers in Washington and, if they are reasonably close to the line, in Fairfax and Arlington as well. Since the majority of Loudoun’s workforce commutes eastward, any alternative to the daily congestion on Route 7 and 50, or the ever increasing tolls on the Greenway is a benefit.

Unfortunately, there is a downside that must also be considered. The overall funding scheme for Metro calls for the majority of the construction costs to be borne by tolls on the Dulles Toll Road. The combination of toll increases to meet the debt payment plus the number of commuters using Metro instead of driving is predicted to reduce the vehicle traffic on the Toll Road by 30 percent (from 107,000 per day to 75,000). While this may reduce the congestion on the Toll Road, it also causes an upward pressure on the tolls since fewer drivers will be generating the debt service revenue.

Another benefit is that the net fiscal positive generated by the presence of Metro will help reduce homeowners’ tax bills. Eventually (in 25 years or so), Metro will increase the commercial tax base near the stations sufficiently to produce a net fiscal positive to the County. Will Loudoun taxpayers have the patience to wait 25 years (more or less) while paying up to $50 million per year for Metro? How many current residents will still be living here in 25 years in order to reap that tax benefit?

Of course, this assumes that a future Board does not decide to add stations westward – the construction of which would be financed entirely by the County less any funds extended by the State and Federal governments.

The Lesser Report claims that Metro will not increase development pressures in western Loudoun, a conclusion that is highly debatable, and one with which I would strongly disagree. The construction of the Dulles Toll Road and the Greenway accompanied by the widening of Route 7 from two lanes to four lanes between Leesburg and Round Hill opened up western Loudoun to tremendous development pressures over the past 20 years. In my view, Metro will only add to those pressures, since it will make it easier to live in western Loudoun and commute to the east. Certainly, that was the experience in Fairfax County with the extension of the Orange line to Vienna.

Most of the planned development in the immediate vicinity of the two Loudoun stations has already been approved by the County. Thus, many individual landowners and development companies have a strong vested interest in the decision. There are hundreds of millions of dollars to be made, possibly even a billion or so. There are also hundreds of millions to be lost if the Board’s decision is to opt out. If Metro is approved, there will be additional pressure and opportunities for more dense development in the general area beyond the immediate vicinity of the station. As we have seen again and again in Loudoun County, a Comprehensive Plan and Zoning Ordinance are only as permanent as the five votes on the Board to defend them.

I do not know how this Metro decision is going to turn out. There are many factions that supported the current Board members during last fall’s election: Tea Partiers who oppose any tax increase for Metro, the business community as represented by the Chamber of Commerce, various developers (Comstock and Kincora come immediately to mind), individuals and corporations who stand to make many millions on Metro construction contracts, and, finally, homeowners, some of whom favor Metro and others who oppose it for various reasons. No matter what the Board decides, many supporters will be disappointed and angered.

In the last election many people and corporations who stand to profit from the Metro decision contributed large sums of money to the campaigns of most of the current members of the Board of Supervisors ([go to www.jimburton.org] to see the campaign finance reports prepared by Lina). In the end, given all the various factions and their competing interests, the role of money may be the deciding factor in this decision, especially now that the labor issue has been removed from the decision.

My suspicion is that the Board will approve Metro: as the old adage says, money talks.

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