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4. Economic and Fiscal Risks

Economic Growth Impact and Related Risks

Risks resulting in the generation of less revenue than expected or inability to secure financing to fund the project.

Example 8: Lack of experience with transit joint development (TJD) – early years of the Dallas Area Rapid Transit (DART) LRT stations.

In the 1990s, DART struggled to generate TJD along its new LRT system. Expected developer contributions to the City Place station failed to materialize when the real estate market softened.

Other transit agencies across the country had similar experiences.

The main problem in these early cases was the lack of appreciation for the complexity of TJD rather than a misreading of the market.

Mitigation: Ensure that the local government is knowledgeable of and fully invested in the TJD concept. Work with developers with a successful track record in TJD.

Sources:

• Cervero, R., Ferrell, C., & Murphy, S. (2002). Transit-oriented development and joint development in the United States: A literature review. Transit Cooperative Research Program Research Results Digest, (52). http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rrd_52.pdf
• https://www.aiadallas.org/v/columns-detail/Unbuilt-Dallas/qj/

Fiscal Impact and Risks

Risks affecting the local government’s ability to sustain basic government services as a result of the commitments made to the project.

Example 9: TIF projects not spurring the expected economic development.

One study found that there are instances when TIF projects do not generate the economic development expected in the “But-For” test.

In practice, this means that the TIF projects end up being subsidized rather than creating additional revenue.

Mitigation: Rigorous “But-For” test feasibility studies that are based on realistic expectations and that stress-test developers’ assumptions.

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