Building the Southwest Light Rail Transitway

Transit spending in the Twin Cities is dedicated to the following modes: light rail transit (LRT), commuter rail, and bus. Light rail expenditures consist of $11.3 million dollars, or 3.8% of total transit expenditures of $293.6 million.  This analysis will focus in on the Southwest LRT line.  The determinants of demand for the Southwest LRT project are: congestion, gas prices, and employment location.  The providers of revenue for the SouthwestLRT line are numerous and are present at all levels of government and the private sector.  The constraints to implementing the Southwest LRT project include political unwillingness tosupport tax increases, administrative complexity interfacing with the Federal government, and intergovernmental conflict regarding the distribution of costs and benefits among the five cities involved: Minneapolis, St. Louis Park, Hopkins, Minnetonka, and Eden Prairie.  The outcomes of implementing the Southwest LRT project in terms of adequacy, efficiency, and equity are presented, along with recommendations to improve the quality of these outcomes for the communities impacted by the project.  

Figure 1

The Metropolitan Council estimates that the total cost of implementing the Southwest LRT project is as follows: total capital costs in 2015 dollars are estimated at between $865 million - $1.4 billion.  The total operating costs in 2015 dollars are estimated at $12-17 million.  These costs are supported by revenue from users in the form of fares, and from an equal contribution from the State of Minnesota and the Counties Transit Improvement Board (CTIB). The amount of governmental subsidy, or cost, of providing transit service on the Southwest LRT line equals $23.5 million per year.

The taxprice for the Southwest LRT project differs considerably based on income and geographic location within the State of Minnesota.  For example, a resident of Eden Prairie pays for transit benefit on several levels: the State of Minnesota bonding expenditures, Metropolitan Council property tax, CTIB sales tax, and Hennepin County tax.  A resident of Scott County pays for   transit benefit on fewer levels: the State of Minnesota bonding expenditures, and Metropolitan Council property tax (Figure 2).  Therefore, the resident of Scott County receives a larger benefit because the difference between tax paid and benefit received is greater than the Eden Prairie resident.

There are numerous governmental levels of funding for transit, and the Southwest LRT project illustrates the complexity among these levels.  In addition to governmental providers, the private sector contributes to the cost of providing the good through user fares.  The following list describes the share of costs among these levels:

• Federal Government (Federal Transit Administration) – (50%)
• State Government & CTIB - (10%)
• Local Government (Hennepin County Regional Rail Authority) – (10%)
• Private Sector – user fares

The purpose of CTIB is to provide a reliable funding source for the local match for large federally funded projects.  This body has greatly increased the region’s capacity to fund transit projects.  However, CTIB is advocating for a higher sales tax in order to build out the system more rapidly than is provided through the current funding stream of .25/cent sales tax. 

The political constraints include the level of taxation required to provide adequate revenue.  In January of 2013, the local Chambers of Commerce conducted a poll that found 65% of respondents state-wide supported an increase in the metro area sales tax in order to support transit.  However, the current MN House bill H.F 1044, which is a transit finance proposal to increase the sales tax for transit, was not supported by legislators.

The results in an inadequate funding system for transit in the Twin Cities, in part because of a lack of efficiency in aligning cost and benefits.  Therefore, localities within the proposed transit corridor should be encouraged to raise a property tax levy.  This tax will align benefits to costs and is less regressive than the current sales tax proposal. Furthermore, the property tax could be implemented in a way that captures future value.  A regional partnership of chambers of commerce quantified the return on investment from Southwest as 9 to1, which could be captured through targeted means such as TIF by localities.  This would increase the political feasibility of implementing a property tax by decreasing visibility.