Incentives spur growth near rail lines

Call it gentle persuasion or plain subsidy. The idea is to reward and nurture cities and counties that put more people on less space while driving fewer cars.

"For three dollars I can go to" downtown San Francisco's Embarcadero, says Michael Murphy, community manager for the Mediterranean-style complex favored by young professionals. "I don't have to fight traffic."

California's groundbreaking incentive program stands at the forefront of a national movement that's also remodeling cities and suburbs from Portland, Ore., to historic Maryland. Fresh financial incentives from tax breaks to discounted land near light rail stations are stimulating more choices for people who want to live in cities and take the train or bus to work.

Trends show it's not just in traditional big-city downtowns, but also in suburbs with light rail lines. Incentives are nurturing a new generation's return to the multistory track-side living commonplace before the post-World War II suburban explosion.

While California's massive traffic problems make living closer to mass transit more desirable, financial incentives have become critical to entice developers and cities to build these projects.

"It's more difficult to build an urban infill project than it is to go out to Tracy and build on 300 acres," says Scott Tiernan, a spokesman for Orange County-based Irvine Co., which built the Franklin apartments.

Irvine Co., which reaped fortunes developing much of suburban Orange County in Southern California, has turned to upscale rental projects near transit, including the North Park Apartment Village with 2,600 eventual units near light rail in north San Jose.

Yet Irvine remains an exception, as most builders snub the complications and higher costs of infill. So growth continues to mean suburban sprawl, which states and cities want to slow to cut demand for expensive highways, ease pressure on farmland and return sparkle to older neighborhoods.

Redwood City, for one, aims to bring 3,400 new apartments to its reviving downtown halfway between the major job centers of Silicon Valley and San Francisco. There, senior city planner Maureen Riordan also wants more of the new $2,000 per-bedroom incentive that made Franklin Street Apartments pay its way.

Combinations of tax breaks, low-interest loans and outright financial aid from transportation funds are stimulating areas long overlooked for transit-friendly housing. In downtown Gresham, Ore., a suburb of Portland, incentives helped build 85 upscale apartments per acre, while instant property tax refunds for historic preservation spurred a $300 million rush of private capital in old buildings throughout Maryland.

Maryland, like Oregon, combines financial incentives with the nation's toughest policies against typical suburban-style growth of three to five homes per acre.

Weaning developers off easy subdivisions on open fields means providing financial breaks and rewarding those who build harder multistory projects near transit, said Harriett Tregoning, Maryland's special secretary for smart growth.

"The state has to do things to level that playing field," she says.

Likewise, Phil Whitmore, transit-oriented development manager at Portland's Metro regional government, contends that money motivates developers toward a public purpose.

So, Oregon gives builders a 20 percent break on property taxes for each floor above street level -- up to an 80 percent break for the project's first 11 years, Whitmore says. Another program uses federal and state transit dollars to buy development sites near light rail stations and sell them at discount to builders.

That appeals to Mike Rossman, owner of Peak Development LLC in Gresham, who received tax breaks and financial help on his first upscale apartment project in downtown Gresham. He says a second similar project will receive tax breaks, discounted land and a low-interest state loan.

"It's not as good as everybody thinks," Rossman says, adding that bank financing for infill projects is especially tricky, requiring the three financial breaks, the company's pledge to reinvest profits in the project, plus its own money.

"That's why you're still not seeing a lot of private developers," he says.

Without the breaks, one site would have turned into an office building, providing fewer property taxes over the long run.

Rossman says the incentives for his projects reflect Portland Metro's goal to house millions more people inside its 2040 urban growth boundary. That means more apartments "along light rail and bus stops to reduce traffic and congestion in the future."

Last year, the California Legislature adopted a similar vision for future growth. Amid forecasts of 58 million people by 2040, it passed a bill, AB857, declaring infill development a leading state priority.

But government planners and builders say the bill will prove toothless without financial incentives to overcome infill's complications.

Richard Napier, a former Sunnyvale city councilmember, now chief of the City/County Association of San Mateo Governments, agrees. He started the notion of giving cities and counties transportation funds for housing near transit stations.

Noting cities' tendencies to dislike housing while favoring stores for their lucrative sales taxes, Napier says, "This is to get them to stop and think and not just automatically choose that."

For example, San Mateo County is also soon to collect $309,000 for guiding 153 apartments onto two acres just steps from the Colma BART station.

The concept won a national Smart Growth award last year from the U.S. Environmental Protection Agency, and since has been copied across the Bay Area. But when a Bay Area lawmaker, Sen. Tom Torlakson, D-Martinez, wrote a statewide bill to spend transportation funds for housing, colleagues pounded him.

"They wanted it for highway buildings and buses," the senator says.

Napier remains upbeat about the seed he's planted in California.

"There are almost no tools out there that link transportation and land use," he says. "This, finally does draw a link, albeit a small one. But it's really nice to have that."<