PA: Editorial: All aboard federal railroad loan program could be key to Downtown renaissance

A huge but little-known federal loan program may be one of the most important keys to revitalizing Downtown Pittsburgh — and all because of a railroad.

To make this actually work, however, the federal government must make it work. That means reducing the cumbersome red tape that slows eager developers from accessing the program and, in the case of the Trump administration, being willing to disburse these funds despite misgivings about legacy subsidy programs. In fact, as we will see, this program isn't a subsidy at all, but is potentially a model of public-private partnership that could be replicated elsewhere.

The big test case in Pittsburgh is the grand old Gulf Tower, owned by Rugby Realty, which has been slated for years for conversion into a 126-room hotel alongside 225 apartments. The project is expected to cost $230 million and, while some construction is underway, it still needs some financing to get across the finish line. Enter the Department of Transportation's Railroad Rehabilitation and Improvement Financing program, or RRIF.

Ring of fire

RRIF goes back to a 1998 federal transportation funding law, and reached its current form during the Obama administration after the $305 billion Fixing America's Surface Transportation (FAST) Act. It's a $35 billion fund that offers low-interest loans, pegged to Treasury rates, with flexible terms for projects related to America's rail infrastructure. The idea is to supplement private capital, and private financing, to get complex projects of public importance from nearly enough to just enough money to get to work.

Many of the rules and regulations associated with the program, such as an 18-month wait period from application to closing and lengthy environmental reviews, relate to its primary purpose as a railroad program. But at the bottom of the list of uses for RRIF financing is something intriguing and different: financing transit-oriented development (TOD). And according to DOT rules, projects within half-a-mile of intercity train stations qualify as TOD.

This is brilliant for Pittsburgh, which has an Amtrak station in its urban core and one of the densest central business districts in America. The half-mile radius from the train station on Liberty Ave creates an arc from roughly the Andy Warhol Bridge to Heinz Hall to the Tower at PNC Plaza to the City-County Building — all in all, encompassing about two-thirds of the Golden Triangle. For good measure, the qualifying area also includes the Strip District to about 17th Street and much of the Lower Hill District, including the entire Civic Arena development site.

RRIF could be a lifeline for Pittsburgh developers, especially those planning office-to-residential conversions, which qualify as TOD under federal rules. While Pittsburgh leaders hemmed and hawed over a LERTA — that is, a tax abatement program — that's still far less generous than those in comparable cities, RRIF actually gives Pittsburgh a leg up over more sprawling competitors.

That is, as long as the program actually works.

Fixing flaws

Last January, Rugby Realty president Aaron Stauber wrote directly to President Joe Biden and Transportation Secretary Pete Buttigieg to express both the promise of RRIF for Pittsburgh and its limitations.

The railroad-oriented regulations led to years of delay completely out of keeping with the necessities of property development, Mr. Stauber said, and the $1 million nonrefundable application fee to fund the government's army of consultants was cost-prohibitive. He asked for the closing process to be streamlined to six months and for National Environmental Policy Act (NEPA) review to be waived for office conversions that don't change the footprint of the original structure.

Because of the program's burdensome requirements, despite being completely funded and existing for many years, it hadn't received a single TOD financing application. It's a prime example of a great idea gummed up in a government completely heedless of the workings of the private sector.

Mr. Stauber's intervention bore fruit: In August of last year, the Biden administration released new guidance for RRIF loans, exempting conversions from NEPA and at least theoretically cutting back the closing period to under a year. It wasn't everything needed to make RRIF work for transit-oriented development in Pittsburgh, or anywhere, but it was a step in the right direction. Rugby applied to be the first developer to receive an RRIF loan.

Then, Donald Trump entered office — and with him, extreme suspicion of federal largesse.

Model program

RRIF, however, is exactly the kind of federal program Mr. Trump and his allies should appreciate. Its problems aren't in its conception, but in its execution. And if the Trump administration finishes the fixes its predecessor started, RRIF could be transformational not just for the Gulf Tower, but for much of Pittsburgh's urban core.

First of all, RRIF is a loan program, which means the government typically gets its money back, with interest. It's not a giveaway of taxpayer dollars that may or may not produce anything of value.

Second, RRIF requires a significant investment of private capital into the projects it finances. It's about supplementing, not replacing, private initiative and market mechanisms. That is, it fills funding gaps, which means that a relative small federal loan can be the catalyst for a much larger project.

Third, for these reasons, in the long run RRIF loans for TOD projects are likely to produce massive returns both for the community and the federal coffers. One analysis by a New York developer suggests that, in interest and taxes, an RRIF loan for Gulf Tower could return 2.5 times its value to Washington.

This is a model of a fiscally responsible program that leverages the federal government's ability to absorb credit risk to get potentially transformative projects from blueprint to reality. The problem was that actually accessing the program required jumping through so many hoops, that it might as well not exist at all.

The Biden administration improved this, but there's more to be done. The Trump administration should strengthen RRIF further, and turn it into an example of what Washington can do for places like Pittsburgh.