A streetcar desired? Doing the math on how the taxpayer-funded Kansas City project adds up

KANSAS CITY, Mo - Right now, it's a big hole in the ground. But come January, construction is scheduled to begin on the $18 million "Hilton Home 2" extended stay hotel at the corner of 20th and Main.

Kansas City's Sunflower Development Group is spearheading the project located right on the new streetcar line.

"It was really one of the deciding factors for us in choosing the site," said Chris Vukas, Sunflower's director of Economic Development.

Kansas City's first streetcar in 50 years arrived on Monday.

"I think we're already seeing the return on investment and I think it's coming in faster than city officials anticipated," said Kansas City government spokesman Chris Hernandez.

City leaders point to more than $1.5 billion in proposed or completed construction projects in an area around the streetcar known as the Transportation Development District, or TDD.

According to a recent survey of the developers for those projects, leaders responsible for more than $609 million of that $1.5 billion of investment said the streetcar was a positive or major positive factor in their location decision.

See the full results of the survey here.

"The streetcar would provide the hotel guests with a way to get from downtown to our hotel and access all the great restaurants and night life in Kansas City," Vukas said.

A streetcar not desired?

But for local activist Sherry DeJanes, the project is on the wrong track.

"You're not getting enough bang for your buck," she said.

According to city records, the streetcar project cost about $100 million to build. Federal grants covered more than a third of that cost: $37.1 million, including a $20 million TIGER (Transportation Investment Generating Economic Recovery) grant. Just under $63 million in construction bonds covered the rest.

The debt service for the bonds is based on the 4.42 percent interest rate is $4.4 million a year for 24 years.

  • According to the streetcar's current budget, it will cost about $4 million to operate the system in the next year.
  • With the debt payment, the total cost of the two-mile stretch is $8.4 million in the next year.
  • DeJanes contends with the relocation of some infrastructure to make way for the streetcar, the actual construction cost is more like $141 million.

"It doesn't work out economically for the you and me that are affected by that," she said.

Paying the fare

Anyone who buys anything in Kansas City is helping finance the streetcar. A portion of the city-wide public mass transportation sales tax accounts for $1.2 million of the streetcar financing.

There's also an additional 1 percent sales tax within an area around the streetcar TDD. That sales tax generated $4.8 million this past budget year towards the streetcar.

There's also an additional property tax on businesses, homes, city-owned property and nonprofits within the TDD.

For commercial real estate, that tax is 48 cents per $100 of assessed value.

The assessed value is 32 percent of market value.

The math

For example, the owners of a commercial building with a market value of $1 million would pay an additional $1,536 in taxes each year.

Homeowners in the TDD  pay 70 cents per $100 of assessed value. The assessed value for residential properties is 19 percent of market value.

So, the owner of a home with a $200,000 market value would pay an additional $266 in property taxes each year.

For city-owned property within the TDD, $1.04 per $100 of assessed value is being submitted to the streetcar budget. The city contributed $860,000 in tax money from that city owned property.

Coupled with the portion of the city wide public mass transportation tax, the city is contributing $2 million each year to the streetcar.

Larger nonprofit organizations are also contributing to the streetcar. Nonprofit property within the TDD is being taxed at 40 cents per $100. However, the first $300,000 of market value is exempt from the tax.

Additionally, each surface parking spot within the TDD is taxed at $54.75 per year.

"We feel like that's the price of having a streetcar," said Vukas.

One group not paying is the estimated 2,700 daily streetcar riders, because there's no fare.

"The cost of administering the fare almost negates the income you would get," said Hernandez.

About the streetcar

  • Two-mile route running primarily along Main Street connecting Kansas City’s River Market area to Crown Center and Union Station. MAP
  • The streetcar will travel in vehicle lanes along Main Street.
  • Free to ride.
  • Service until 2 a.m. weeknights.

MORE: kcstreetcar.org

NEXT: Streetcars: Good or bad?

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Various studies done on streetcars have mixed results. A Cato Institute study states the "the only thing rail transit can do that buses cannot is cost lots of money."

The Reason Foundation cites increased private development and property values in Portland, Ore., Atlanta and Tuscon, Ariz.

That study says in 2001, a Portland westbound streetcar line attracted new business and housing valued at 24 times construction cost.The study goes on to say streetcars in Atlanta and Tuscon resulted in hundreds of millions of dollars in private investment and raised property values.

But a Brookings Institution study says "a well designed bus route can spur economic development at a far lower cost."

"No matter how you slice it, it does not work out to be as economically feasible as a bus system," said DeJanes.

The Federal Transit Administration is overseeing the streetcar project due to the federal funding included in its construction.

FTA funded streetcar research concluded the "relationship is not clear to development" and found a bus route can carry five times more people per hour than streetcars.The study also noted streetcars' "slow speed and frequent stops cause more congestion."

"You're going to have collisions, you're going to have traffic tied up," said DeJanes. "The developers, the business owners know that the streetcar stop is going to be there long term."

PHOTO: City of Kansas City, Mo., Public Works Dept.

The Cato Institute study also raises concerns about the federal oversight process.

The study says, "Congress requires transit agencies to evaluate cost effectiveness as part of the process for seeking federal funding for new rail transit projects. However, the Obama Administration has re-written the already weak cost effectiveness rules to avoid considering buses as an alternative to rails when they evaluate cost effectiveness meaning they won't evaluate at all."

Hernandez says the feds are watching their investment closely.

"They're keeping a good eye on it and working with us on it. They're actually using us as an example to other cities," he said. "There's not a separation between the streetcars and the buses. They work complimentary, they work together."

A taxing issue

Some business owners and developers paying the streetcar tax are getting or asking for other tax breaks.

The Kansas City Star, for example, reached a new two-year deal which effectively cuts its streetcar tax nearly in half for its massive downtown distribution plant. According to the Star's website, it cost $200 million to build the plant.

Jackson County tax records show between 2011 and 2014, the building's property value was listed at $42 million. The result was a $64,512 tax bill for the streetcar in 2014. However, the Star got a two-year deal reducing the market value of the plant to $22 million. As a result, its 2015 tax bill for the streetcar dropped from $64,512 to $33,792.

DeJanes believes the reduction coupled with a new 15-year city extension of the Star's tax abatement for the same downtown property is a cynical attempt by local leaders to get favorable news coverage for the streetcar.

"They didn't get exactly what they asked for," said Hernandez. "I think anyone who wants to draw any other conclusions is really reading a little to much into it."

"The Star supported the streetcar long before any of these tax deals," said Roxsen Koch, an attorney who helped the Star get the tax abatement.

DeJanes believes the entire streetcar project is open to question.

"What we're looking at downtown doesn't provide transport to people where they need to go. Where they go to have entertainment, perhaps," she said. "But they're going to have to drive to Union Station or somewhere else to get on there."

"We know that this project was more than about transportation," Hernandez said. "We've always said it was about economic development also."

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Andy Alcock can be reached at anderson.alcock@kshb.com.

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