147: From Freeway to Boulevard - Pt 2: Math

This is the second post in my series about converting the Durham Freeway into a city Boulevard. If you haven't read part 1, you can find it here.

After some high level designing, I decided to run some numbers. How much would this all cost? Would it end up paying for itself in tax revenue and if so, how long would that take? Basically, is this project worth doing from a financial standpoint?

Land Area

Let's start by looking at the wide view of the design again, for reference:

This design would create 1.42 miles of boulevard. The new area created to the north and south of the boulevard (cyan blue) that would be dedicated to new commercial, civic, or residential parcels would be 35.72 acres. That is a ton of new land for a downtown core. Most of these parcels would be 80 feet deep, which is plenty compared to many of the lots within the downtown loop (I will get to how wide I would make the lots a little later).

Meanwhile, the current plan has 5.97 new acres of park space and 1.22 acres of green space along the medians for trees, benches, etc.

Costs

Note: for the rest of this post, I am not going to address different public ownership (NCDOT vs the city, etc). That is a big issue, but I am not equipped to tackle it. Instead, I am going to assume costs and incomes as "public" in aggregate and assume that the public benefit/cost is equal regardless of the specific public entity.

Estimating costs here is difficult, so I went with a conservative approach, building in all the costs I could imagine. Here is what I based the costs off of:

1. I recently came across a study that estimated that converting the downtown loop would cost $30 million. This would include everything from utility line work, traffic lights, road repaving and adjustments, and all the bicycle, transit, and pedestrian infrastructure necessary. The downtown loop is about 1.25 miles. In many ways the downtown loop has trickier conflict points and certainly more intersections per mile than this boulevard conversion would have, BUT we are going conservative, so at 1.42 miles, that cost would be $34 million.
   
   
2. There is still the whole roadbed to construct. I used an estimate from the American Road and Transportation Builders Association, which gave a range for a 4-lane highway (the closest type I could find). I used the top of the range, which is $10 million per mile, or about $14 million for this project.
   
   
3. Construction overages, demolition of the current freeway and other unforeseen costs can always creep in. In many ways, those costs are already embedded in my numbers above, but again, I am going with conservative estimates, so let's tack on another $2 million. Besides, it gets us to a nice round number.

So, at this point, the whole project costs us $50 million. That seems like a HUGE number. However, when you compare it to the estimated cost of the East End Connector ($142 million), it doesn't seem so bad. Especially since the boulevard project would directly generate revenue as opposed to the indirect benefit of the East End Connector (I am sure the connector will benefit residents' ability to access jobs and will be a win for economic development, but it doesn't create new, tax-generating parcels).

Income

As I mentioned, as parcels are built, they generate new tax revenue that wasn't there before. I estimated tax revenue based on comps from downtown of similar size. Here is where I contemplated how wide to make the parcels. I wanted them to be small. I wanted to create spaces that local businesses, small developers, and individual entrepreneurs could build and occupy, creating a diverse, resilient, and adaptable ecosystem of uses along the boulevard.

Therefore, I decided to create three different widths of parcel:

• 403 small parcels: 25 foot frontage
• 70 medium parcels: 50 foot frontage
• 40 large parcels: 100 foot frontage

For brevity, I won't get into the comps that I pulled (happy to share those upon request), but here are the breakdowns of the estimated tax value per parcel:

• Small parcels: slightly over $1 million per parcel
• Medium parcels: almost $3.2 million per parcel
• Large parcels: over $6.1 million per parcel
  

Combine all those parcels together and there could be nearly $900 million of tax value once all the land is developed and put in use. That would equate to a little over $11 million in tax revenue each year for the city.

Returns

At a $50 million cost, $11 million per year in revenue would mean that it would only take 5 years of tax revenues for the city to come out ahead.

This already seems like a no-brainer. Five years is not that long. But maybe some of the readers are yelling at their computer screens now that I overlooked a key piece of income. Up until now, I have assumed NO income for selling the land! Right now, this is all NCDOT right of way, so owned publicly, free and clear.

I have less ability to estimate the cost of raw land downtown, but I think $1 million per acre is pretty conservative (maybe much too conservative, but that's ok for this exercise).

That means that selling the land would yield $35 million and it would only take 2 years of taxes for the entire project to pay for itself and generate positive returns. This would be in addition to all of the indirect benefits of creating a great place and generating more development AROUND the project, not just on those specific parcels.

Now, the project would take a LONG time. The parcels wouldn't sell right away, the tax value would take many years to get to the levels outlined above. Given this time frame, I wanted to answer one question: if the private sector took on this project, would it be worth it? Obviously, this is a hypothetical because the private sector can't collect tax revenue (directly), but I thought this would be a good measuring stick for whether or not this would be a good investment for Durham. So many public projects have a negative monetary return, but benefit the community. But wouldn't it look like a home run if a project actually provided a good positive return?

I did a cashflow analysis and the returns come out to over 18% returns! If I were a private developer, I would be very interested in those returns. I would probably work my tail off to decrease costs and shorten the construction timetables, but that is a really good starting point.

Now this number is based on a ton of assumptions, which may or may not be accurate. I won't paste the whole table here, but I will break down some of those assumptions:

• For expenses, I had the city paying $15 million in year 1, $10 million in year 3, $15 million in year 7, and $10 million in year 10. This assumes multiple phases of the project, which I think would be necessary.
  
  
• I had the city selling $5 million in land in years 4-7 and then again in years 10-12. Again, the $1 million per acre assumption is quite low, I would think.
  
  
• Tax revenue ramped up. In year 4, it is only $50,000, based on the land that was JUST starting to be sold. It's not until year 14 that we reach the full $11 million of annual tax revenue.

At the very least, I think these numbers show that this project warrants a more in-depth look! In fact, since the city/county/NCDOT do not need hugely positive returns, this project opens up a TON of possibilities for non-income generating or lower income generating uses for the land as well. I will discuss some of these options in part 3 of the series, coming up!

In the meantime, come discuss this post in the forums! I'd love to hear critique of this financial analysis!