Growth. Texas enjoys it, benefits from it, but in many regards, is plagued by it. Managing growth strategically will be vital to preserve the quality of life here. A long-term forecast by SMU economist Michael Cox predicts 1,000,000 new residents of the Dallas-Ft. Worth area every six years. Not only will we need to provide water and sewers, but we’ll have to figure out how to move people around.
At a Texas CEO – Pierpont Communications executive roundtable, eight executives from government, academics, public authorities and private industry met to discuss those issues. The participants were: Barbara Becker, Ph.D., Dean of the School of Urban & Public Affairs at UT-Arlington; Michael Morris, Director of Transportation at the North Central Texas Council of Governments; Gary Fickes, Tarrant County Commissioner; Jack Wierzenski, Director of Economic Development, Dallas Area Rapid Transit (DART); Mike Hegarty, Vice President, HNTB North Texas; Stephen Mattingly, Professor of Civil Engineering, UT-Arlington; Phil Ritter, Executive Vice President, DFW International Airport; and Rose Cannaday, Irving City Council.
A recent McKinsey and Company report on making a city great notes that although civic leaders want their cities to grow, that growth can often lead to problems – problems that must be addressed instead of planning to accommodate new growth. The trick, said the report, is to adopt a “smart growth” approach.
In the Dallas-Ft. Worth area, 230 different municipalities are charting their futures. That’s smart, said Michael Morris of the North Central Texas Council of Governments. But at the same time, he said, “Your strength is your weakness.” In other words, Texas is blessed with the conditions that foster growth, such as tax policy, relatively inexpensive housing, and public-private partnerships. But because they foster growth, they also bring along the problems that accompany growth.
“One of the consequences of that for the state is that we’ve become much more of an urban state than a rural state,” said Phil Ritter of DFW International Airport. He said we haven’t really planned for that at the state level, and in order to do so, we must take a close look at our fiscal policy.
“The state has not been responsive to local communities’ requests for additional funding options for infrastructure,” Ritter said. “As we think about planning and growth we also need to step back and encourage the legislature to look at the fiscal system by which we fund infrastructure in Texas.”
Tarrant County Commissioner Gary Fickes localized the issue. “In my precinct, I have 16 separate cities,” he said, “and all 16 cities have their own road management plans from an economic development standpoint, for their infrastructure, for water and sewer and for transportation. The only thing we all have in common is our ‘big picture’ of transportation.”
That “big picture” comes from the Regional Transportation Council, which Morris chairs. Fickes said the key to smart growth is cooperation between all the different government entities. “In my area we’ve had a significant amount of work being done,” he said. “But still, it got done because all 16 cities were willing to work together in a partnership to get it done.”
The success of DART – the Dallas Area Rapid Transit system – is an example of that cooperation. “We now work with all the governmental entities, especially our cities,” said DART’s Jack Wierzenski. “We’re doing joint projects today with the City of Carrollton and the City of Dallas on potential TOD (Transit Oriented Development) projects.”
But TOD involves more than just building and improving roads. It’s mixed use – neighborhoods close to public transportation – that has not been given much attention in Texas. “If I’m a developer I can go way out to the Red River and build out there, or do I come in and go through the bureaucracies of the cities and the restrictions and work with DART?” asked Wierzenski.
Right now, there is a disconnect between the kinds of projects cities would like to see and the kinds of projects developers will build. Irving city councilwoman Rose Cannaday said her city is trying to get high-rise condominiums because they create stable communities, but they are not being built.
“Right now our developers are only building four or five story condos instead of high rises because that’s what they can easily get funding for,” she said. “Changing the mind of developers is difficult because they are going for easy money.”
Wierzenski said the market will need to change first. Developers are building apartments that will be turned into condos, he said, but, “Mixed use is minimal because putting retail on the lower floors is not going in the pro forma because they just assume they won’t get any funding off of retail.”
Stephen Mattingly, the civil engineering professor from UT-Arlington, said we’re being reactive to where development happens as opposed to really shaping and controlling smart growth. “You see someone buying a home in Anna and not thinking about congestion on US 75; or buying a home in Frisco and not thinking about driving on the North Dallas Toll Road for the rest of their lives as the cost of tolls increase for the rest of their lives,” he said.
Ritter disagreed. He said people have different transportation needs depending upon their stage in life. “If you’re a young professional, you want to live in a high density area downtown near the rail line,” he said. “When you marry and have a family, what’s the number one priority in making a decision about where you live? It’s school districts.”
Wierzenski said changing demographics are driving transit decisions. Eighteen-to-35-year-olds aren’t getting drivers’ licenses. Empty nesters are getting rid of their single family homes and want to be in a convenient location that doesn’t include a lot of driving. “That’s the future market and what virtually every transit system in the U.S. is planning and preparing for,” he said.
Becker said it’s not enough to concentrate on downtown and the nice suburbs. She said the first ring suburbs are going downhill, and that can’t be allowed to happen. “We have to go into those first ring communities and redo them and there’s trouble getting the banks to invest there,” she said. “Some of those areas would be perfect for mixed use – we can get the developers, but we can’t get the bankers.”
Last year, the American Society of Civil Engineers issued its report card on infrastructure, and Texas got a C. Bridges were scored better, at a B-plus, but roads managed only a D.
“If you can get me home 20 minutes earlier every day, that’s worth something,” said HNTB’s Mike Hegarty. “I will pay for that.”
The way people will pay for that is by tolls. Morris said the RTC created a policy fifteen years ago that all new freeways and new rights-of-way would be built as toll roads. “All freeways, when they are reconstructed, will be tested to see if they can warrant a toll express lane,” he said. “If they do, then some of those lanes will be tolled as managed lanes.”
The reason for adding toll lanes is because gas tax money is being used up to maintain existing roads, said Morris. Out of $15 billion in road projects, $6 billion comes from gas tax money. That money was used to build Texas 121 in the north Dallas suburbs, and the LBJ Freeway.
“To leverage $15 billion worth of projects and you’ve got $6 billion, then you can go spend part of the $6 billion on rail systems, or commit $220 million to build the Denton County line, and $3.2 billion for 121,” Morris said. “It’s not just the leverage, it’s the fact you can leverage and bring the funds back into play as part of building other things that are not toll roads. All the gas tax supported stuff is being built with revenues that are coming off of tolled facilities.”
Public-private partnerships – or P3s – could be one way to fund TODs. Ritter pointed out that Dallas-Ft. Worth International Airport is an excellent example. “Our infrastructure is financed by long term leases whereby airports agree with airlines on rates and charges to build facilities and the federal government invests in the airfield and the air space,” he said.
“What it comes down to is who takes on the risk on these projects?” asked Wierzenski.
Morris ticked off a number of area projects that resulted from P3s, including downtown Ft. Worth, 35 W, east on 120 to the airport, 183 through Irving, Loop 12, and the LBJ Freeway – I-635. “There are public-private partnerships where the private side is taking 100 percent of the risk against the revenue on those projects,” he said. “The public sector is paying the gap in the money – perhaps 20 cents on the dollar, and the private sector is taking 80 cents on the dollar with a 50 year concession.”
“We have a very good track record in delivering on these kinds of projects,” said Hegarty. He said the private sector is looking for a couple of things in P3s – simple legislation and an efficient contracting method that minimizes red tape.
In fact, JR Central, a Japanese corporation, is planning a high-speed rail line from Houston to Dallas as a purely private venture. Fickes said the company does not want the strings that are attached to a federally-funded project. “They have told me they think they can build the railroad for 30 percent less money than anything we’ve seen before,” he said.
Then there’s Tax Increment Financing (TIF). Fickes said in his district six or seven cities have tax increment financing districts, where the construction of a city or county building becomes a catalyst for future development. Wierzenski said one of the attractions of tax increment financing is that is supports infrastructure against future tax revenues that the project will bring on.
“A lot of development would not occur without TIFs in Dallas,” he said.
Federal policy could affect public-private partnerships in Texas, said Ritter. “What makes these projects financially successful, oftentimes, is that public entities can issue bonds that can be bought by investors with a favorable tax treatment, and that is often the margin of profitability for these types of projects,” he said. “The tax treatment of public debt is a big issue at the federal level in the context of tax reform, and if it breaks the wrong way it could detrimentally affect our ability to do these types of public-private partnerships and make them profitable.”
“One of the things we don’t want to miss in this discussion,” said Fickes, “is the fact that there are very few developments, whether it’s a P3 or not, that happens if there are not good roads.” Development starts at the bottom with water, sewer and transportation, he said. Once that is in place, development will generally follow.
Back to the question of smart growth, Morris took a Texan point of view. “Our strength is individual land owner rights — sort of the ‘Texas Spirit,’” he said. “We don’t want developers to turn a horse farm into housing, because we want our kids to know 100 years from now what a horse farm looks like,” he said. But it might be smart to work with developers to put deep restrictions on their projects by setting aside some acreage. “It’s not then smart growth government restrictions, but rather, an innovative way to accomplish growth in a Texas-like way with land endowment,” he concluded.
Hegarty said he’s “guardedly optimistic” that we can find a “Texas” solution. “I’m a big proponent of giving the locals the authority to figure out for themselves what it is they need and then take care of it – that’s the evolution,” he said.
The big issue facing the state and the Metroplex as far as controlling growth, however, is money. “Adequate revenue for transportation for the future is the number one issue,” said Morris.
“The other issue tied to that is educating the public about the need and having them understand how infrastructure, particularly transportation, is tied to quality of life,” said Fickes.
Becker said we can’t forget about an educated labor force. “We must be careful we don’t take away from our educational system to finance infrastructure,” she said.
“I think those of us who are involved in infrastructure management have to do a better job of convincing the public we are using our resources efficiently and we are driving innovation into every segment of our business,” said Ritter. By doing that, not only will the public lend its support, but it will also come at the state and federal level.
“We need to start thinking of transit as an integral element of this region,” said Wierzenski. “If we’re going to accommodate growth in the future, it needs to start on the hierarchy of importance versus being another service.”
This executive roundtable was sponsored by Pierpont Communications.