Transportation Finance Advisory Committee, June 2012

fafaValue Capture Strategies for Transportation Finance

Zhirong (Jerry) ZhaoAssociate Professorzrzhao@umn.edu

Land Value (EMV/Acre)

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The General Framework of Transportation Finance

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Value capture strategies: Type-I-- on property owners

Land value tax Tax increment financing Special assessment Transportation utility fees

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Land Value Tax The conventional property tax

Tax on buildings Tax on land

A land value tax or split-rate tax Captures more value from transportation More efficient in land use

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Henry Georgia in 1865

Tax Increment Financing (TIF)

Public improvements tend to cause a rise in property values in adjoining areas, causing an increase in property taxes.

TIF uses these future increments in property taxes generated by new development to finance the initial costs of the development itself.

Tax Increment Financing (TIF)

Source: How TIFs work, Chicago, Illinois, 2004

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Special Assessments District

1. A compulsory levy used to finance a particular public improvement program

2. Its only levied against those parcels receiving a special benefit from the improvement

3. Assessment amount is directly related to the value of the benefits the property receives

(Source: League of Minnesota Cities)

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The Peachtree Street

Streetcar Line Midtown

NeighborhoodSAD

Atlanta, GA

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Transportation Utility Fees

Transportation network functions as a utility

Facility use does not correlate with property value Depends on property type

More direct connection between costs and benefits

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TUF Simulation: Annual fee by land use - Minneapolis

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Value capture strategies: Type-II-- on estate developers

Negotiated exactions Development impact fees Joint development Air rights

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Negotiated Exactions

Non formulaic or preset contributions for the local transportation improvements decided through negotiation.

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One-time predetermined assessments levied on new development

Offset the impact of the development on the capital cost of providing regional transportation infrastructure

Development Impact Fees

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Development Impact Fees

With new highway exist

Development Impact Fees

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Defining Joint Development

Joint development private-sector sharing of capital costs private-sector payments to the public entity

Incentives Public: additional $ for capital improvements Private: enhanced development potential

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Mechanisms of Joint development

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Air Rights Development

“The legal capacity to make use of a three-dimensional area for

development or improvement.”

-The Use and Abuse of the Term “Air Rights,” Sam

Galowitz, 1996

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Air Rights Development: The Minnesota Context

Characteristics of Minnesota’s freeway system provide unique opportunities for air rights

development

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Air Rights Development: Oases in Illinois State Tollway

Features of Value Capture Strategies

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Value Capture Strategies

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Land value tax

TIF

SADDIF

JD

Transportation Utility Fee

Air Rights

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TH610: Value capture study

Summary Value capture

The rationale to link benefits to costs A useful toolset with various features

Policy considerations State authorization Local discretion Policy research and design Public engagement

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