Why is this important
The summit (see invitation below) showed how suburban light rail projects may be financed, what improvements in urban life might arise, and some of the practicalities involved in doing so. It covered how councils and the State Government could use rates and other revenue to finance both the new tram projects themselves and then go on to pay for other amenities.
The data and breadth of experience displayed by the experts was comprehensive, eminently practical and adaptable to Adelaide. In the material that follows, key terms to look out for are “city building” and “value capture”.
Both terms intimately relate to the body of work that is Transit Oriented Development, regarding which PPT has various papers on our website.
The meeting was attended by several inner city mayors, some of their councillors, the Minister for Transport (in part) and was addressed by persons with high level expertise. Significantly, the Minister and mayors retired to a separate meeting immediately after the summit. It seemed that the discussion would cover how councils would use the $4 million in funds announced by the State Government for a detailed study of proposed AdeLink tram routes, and by extension how to achieve “value capture” from these routes.
As these notes were being written, the proposed extension of the Tonsley Rail-line to Flinders Medical Centre was announced (http://www.abc.net.au/news/2016-05-13/funding-pledge-for-train-between-adelaide-to-flinders-university/7410668 ). Notably, the proposal states that some $800m of investment and 2,000 jobs may result for Commonwealth/State expenditure of about $85m – some substantial “value capture” potential right there!
What was said
In addition to the Minister and the Lord Mayor, the meeting was addressed by four experts. See below for how to access the full notes and videos of the sessions. We urge you to take the time to look at these videos.
Our notes provide a brief summary of what was said, and how PPT attendees view the information. Arguably, the most important speakers were Darrin Grimsey and Joe Langley with their data on financing and value capture.
Speaker 1 – Bridget Smyth, City of Sydney
- Sydney is establishing a new tram line which features 19 stops over 12 km and will link Circular Quay to a major railway terminal further south. Some 13,600 passengers per hour are projected to use the line.
- The council will outlay $220 million over and above the cost of the line for further public improvements.
- A doubling of retail rents over future years will help to finance the project. A record number of development applications are being received.
- The City of Sydney sees the project as primarily an exercise in city building rather than a transport project. This key theme was repeated by the other speakers.
- Contracts for the project must incorporate the design features from the beginning rather than leave them as a matter for later adjustment.
Speaker 2 – Alton Twine, City of Gold Coast
- The Gold Coast project involves 16 stations over 13 km, and later stages can extend to the airport, Coolangatta and spur lines will link additional locations. In its various stages it will link university, hospital and residential areas and also connect to heavy rail networks. It allows for redesign of the bus system.
- The project is the focus for city building and new development.
- The light rail is explicitly seen by the Property Council and many individual developers as a sign of commitment by the Council, in contrast to bus systems which are seen as likely to be moved at a whim.
Speaker 3 – Darrin Grimsey, Ernst & Young
- Darrin used the Canberra Metro for his example of the financing issues for this urban renewal and densification project. He clearly stated the intent to avoid the term “public transport” as this was not the full scope of this and other such projects.
- A distinction was made between “Funding” and “Financing”. The former is generally based on government revenue, user pays approach, and might include value capture over the longer term, but is highly dependent on getting governments to invest in the first place. Financing however uses direct grants from government alongside private financing within a framework of debt models, and may involve government guarantees of debt and other commercial costs that need to be repaid. However, financing in Australia is getting cheaper.
- He noted the difference between flat rate levies on land owners versus that of flexible value capture based on the increased value of land and rents on property adjacent to light rail projects.
- The design stage for light rail projects needs to integrate residential and commercial developments so as to generate value capture. Although not referenced by Darrin, the Minister’s address earlier on noted that the AdeLink tram stops are intended to link into retail sites.
Speaker 4 – Joe Langley, AECOM Consultants
- Value capture is not a new tax - “value capture internalises the positive externalities of public investments, allowing public agencies to tax the direct beneficiaries of the investment.” As PPT, we saw this discussion as a sophisticated and intentional means of identifying where land values may increase as a result of public transport project.
- Joe went on to give some examples of how value capture had been applied – or not.
- In Perth, the Mandurah rail project increased revenues for associated councils by $506 million over 30 years, or about one third of the cost of the program. If value capture investigations had been done beforehand the estimated revenue will have been $1.7 billion.
- A retrospective study (SKM) of the Glenelg tram line upgrade indicated that if value “in job and economic uplift from the project could have been captured it could have paid for the cost of the extension project.”
- The Crossrail Project London (the new Elizabeth line) followed upon a “deep investigation” into the associated value capture.
- The Denver Union Station project – some 200 km of light and heavy lines – is all funded by value capture.
When asked by PPT after the session, Joe confirmed that value capture underlies financing of Transit Oriented Development.
We note that revenue from value capture can be used to fund other worthwhile projects e.g. the affordable housing components of new residential developments, provided government has a clear focus on social objectives as well.
Notes and Video
The Adelaide City Council has provided both written notes and videos relating to the summit.
Use the links below to see the notes for all four consultant speakers, as well as YouTube videos for three of them. Also on YouTube are the speeches by the Lord Mayor, Martin Haese and Stephen Mullighan, Minister for Transport.
Q&A and panel discussion following the presentations