The Business Case for Public Transit
September 30, 2011 Lewis Kelly, Alberta Venture Magazine
Arguments in favour of expanding rail transit typically focus on environmental and social benefits; looking out for the little guy while cutting greenhouse gas emissions makes for sound political strategy. But the biggest beneficiary of the new LRT lines in Edmonton and Calgary might be business owners in both cities.
“Ease of movement is a key requirement for a world-class city, period,” says Ben Brunnen, chief economist at the Calgary Chamber of Commerce. “That’s what businesses care about: they care about moving their people to and from the workplace; they care about moving their goods throughout the city.” Though a precise return on investment is impossible to calculate, experts say investment in transit can multiply productivity not just for businesses near major transit hubs but across entire cities.
Calgary’s new six-station line through the west of the city and Edmonton’s new route from Churchill Square to NAIT will help move tens of thousands of people a day. The lines will also raise property values along their routes and increase pedestrian traffic at businesses near stations. They will also make Edmonton and Calgary more efficient. As Brunnen points out, more commuting by train means fewer cars on the road, and reduced traffic congestion benefits businesses across the city. “In Calgary right now, the average round trip from home to work is 52 minutes, and that’s down from 66 minutes in 2005,” he says.
But while capital-intensive projects like trains may save commuters time and money, they still cost the taxpayer a lot of cash. Calgary’s new line comes with a $1-billion price tag; Edmonton’s tab will run to $755 million by the time the NAIT line opens in 2014. Expenditures on this scale require more funding than municipal budgets can afford, so the provincial government is kicking in $900 million for Calgary’s extension and $500 million for the one in Edmonton. That’s a lot of money, but according to Peter Wallis, it’s money well spent.
As president and CEO of the Van Horne Institute, a transit research group based in Calgary, Wallis sees transit infrastructure as an investment rather than a sunk cost. Think of a city’s total business like a pie, he says, and good transit as a way of growing the whole thing. “What you’re doing is not shrinking the pie or dividing up the pie differently,” he says. “You’re increasing the size of the pie.”
That bigger pie brings more customers to businesses in the city and grows the pool of potential employees. Together, these can create a multiplier effect that increases the profitability of individual businesses and boosts regional GDP.
Eric Miller, a professor of civil engineering at the University of Toronto, says economies of scale make better-connected transit systems service more people per capita. As a system grows, “it just becomes more and more attractive and more people buy into it,” he says. “The transit system is attractive for more trips for more purposes for more destinations for more people as the system gets bigger.”
But the most important benefit of better transit networks in Alberta’s major cities might be the one most difficult to measure: the quality of life that prospective employees can expect. “When you have that ability to move people around, you can attract people because it offers a higher quality of life,” Brunnen says. “That ultimately will form a comparative advantage. When you’re able to attract the best and brightest and have a world-class city by making it easy for people to mobilize themselves, that’s going to lead to economic development.”
“Whenever transit systems are developed and put in place in cities which really need them, the productivity of those cities increases manyfold,” says Murtaza Haider, a professor of supply chain and logistics management at Ryerson University. Haider sees access to a bigger pool of potential employees as the biggest boost that good transit gives business. “The most important benefit to the businesses is that they can draw from a much wider network of eligible, qualified workers,” he says.
Businesses in downtown Austin, Texas got greater access last year. The renowned technological and entrepreneurial hub, which loses upwards of 30 million person-hours a year to traffic delays, opened up a 50-kilometre, nine-station rail line in March. It runs from downtown to the northwest suburb of Leander, where housing is markedly cheaper than in downtown Austin.
After some scheduling tweaks, the line proved popular and now meets its ridership goals. This can make for some crowded trains, according to Beth Ann Ray, vice-president of regional infrastructure for the Austin Chamber of Commerce. “It’s a good problem to have,” she says. “Now we just need to see how to handle adding any new capacity moving forward.” The city, she says, plans to hold a vote next year on beginning an urban rail project.
Calgary and Edmonton, of course, also plan to expand their systems beyond the lines currently under construction. Calgary hopes to build new lines running southeast and north out of downtown. Edmonton plans to add stations beyond both current terminus stations and add new lines to Lewis Estates in the west end and Mill Woods in the southeast on top of the new northern line to NAIT.
Projects like these don’t always make strict financial sense. Austin recovers less than 10 per cent of its transit spending from fares, while Edmonton and Calgary both recoup less than 40 per cent. LRT projects might not even be the best use of transit funding in low-density cities. Richard Gilbert, a transit consultant whose clients include the Organization for Economic Co-operation and Development, says Calgary could put 965 buses on the road for 35 years for the same price as the west LRT line. Gilbert says $50 million per kilometre is a reasonable cost for LRT construction. Edmonton’s line to NAIT will cost over four times that rate.
Regardless of their fiscal efficiency, rail lines tend to get built because of their political expediency – and the reasons for that are the same reasons that make building new train lines do wonders for business. People like riding trains and living in cities with extended rail networks. There’s an expectation among prospective employees that any world-class city will offer a certain level of cultural sophistication, diversity and a well-run rail network. “It really comes down to incubating and becoming a draw for talent,” says Brunnen at the Calgary chamber. “When we invest in these major public-transit infrastructure projects, we become more desirable for new investment – because we become more desirable as an international destination of talent.”
Other advantages exist, too. Reports issued by the Real Estate Investment Network predict that transportation improvements will make real estate values increase up to 20 per cent for property near the development in either city. And increased pedestrian traffic near the new stations should boost the revenue of nearby retail businesses.
But the main advantage of bigger LRT networks in Calgary and Edmonton is their impact on the cities’ reputations as desirable places to live and work. Improving that reputation provides benefits for businesses, and not just those fortunate enough to be located near the new stations.
“When we have a city that makes it easy for people to get around, it’s a draw for investment, it’s a draw for job creation,” Brunnen says. “That’s going to improve our attractiveness on a global scale.”