Using Value Capture Strategies to Finance Transportation Infrastructure
The Virtuous Circle: Infrastructure creates access, access creates value, value can be captured to finance infrastructure and therefore create further access, and thus value (click on image to enlarge ).
"Value Capture is a method for public agencies to fund transportation and transit and at the same time create more transparency and accountability in selecting and managing public projects. In a time of declining revenues, government is searching for innovative ways to finance public infrastructure. Value Capture mechanisms are a type of public financing that “captures” increases in property values resulting from public investments in infrastructure, transit and transportation. These captured values are then used to leverage further investments or repay the public investment. Successfully applied Value Capture mechanisms can support 10% to 50% of capital costs in the form of dedicated tax revenues, land grants, zoning variances, to name a few."
Image Source: Michael Iacono et al., “Value Capture for Transportation Finance: Report to the Minnesota Legislature. ” Report No CTS 09-18S (University of Minnesota Center for Transportation Studies, 2009).
3 Phases of an Infrastructure Development Project
Content provided with permission by Richard Arena - Complete reference provided below
Phase 1: Proposals, Design Work, Permitting and Other Approvals
A quasi-independent joint powers authority (JPA) may be established to run the project. At this point the government entity must be in the process of identifying a funding source(s) such as dedicated sales tax, land grants and/or federal/state grants. The funding is city/local, county/regional, state, or federal, or some combination and are required by the underwriters of the bonds for construction. The underwriters might also require that a government entity guarantee interest payments should the revenue projections come up short. There is limited opportunity for revenue from private developers, mainly in the form of transferable development rights, which are essentially easements or zoning variances.
Phase 2: Construction and Development
This phase is capital intensive. The bonds are underwritten to provide the cash necessary for construction. The JPA is responsible for generating sufficient income to pay the interest on the bonds. Most underwriter covenants prevent the use of bond capital to make interest payments. Phase 2 offers few opportunities for revenues from private developers.
Phase 3: Infrastructure Construction and Private Development Align
The JPA can start collecting passenger facility charges from direct users of the transportation infrastructure, and special assessments or payments in lieu of taxes from the private developers. For existing properties in the infrastructure development envelope, special business improvement districts can be established to funnel a tax-like assessment to the JPA for their appreciated value.
Value Capture Terminology
Joint Powers Authority (JPA)
The governmental or quasi-governmental entity that has overall management and financial responsibility, including bonding authority for the project.
Special Assessment District or Business Improvement District (BID)
A predefined geographic area in which the JPA or managing entity can assess taxes or fees to support the project.
Tax Increment Financing (TIF)
A method for collecting taxes or fees in a BID. A baseline assessment is established for the properties and the increase in value of those properties in future years, relative to the baseline year, is subject to special assessments.
Interest Support Payments (ISP)
If the JPA is unable to generate enough income to cover the interest payments to bondholders, another entity can be compelled to make up the difference.
Development Impact Fees
One time fees assessed to cover the cost of public facilities (water, public safety, schools, etc.) required to support the new development.
Transferable Development Rights (TDR)
Special rights to a property that grant zoning variances to the developer. The most common is permission to exceed established height or density regulations.
Passenger Facility Charge (PFC)
A per-ticket or per-vehicle charge for users of the facility.
Payment in Lieu of Taxes (PILOT)
JPAs can establish a property tax-free zone as an incentive to developers. The developers are required to make payments to the JPA based on the assessed value. PILOTs are lower than what the developer would normally pay to the city under prevailing tax rates.
Tax Equivalency Payment (TEP)
Remittance by the local taxing authority to the JPA of the taxes collected in the BID for existing buildings and improvements.
For more information on Parsons Brinckerhoff Value Capture Website: http://www.pbworld.com/capabilities_projects/strategic_consulting/value_capture.aspx
Blog: www.valuecapture.org
Twitter: @valuecapture
Mark Briggs Richard J. Arena
Director, Finance & Investment President, Association for Public Transportation
Parsons Brinckerhoff Advisory Board, US High Speed Rail
Office: (714) 564-2720 Office: (732) 576-8840
rjarena@aptmarp.org
References (PDF available below):
The Virtuous Circle: Infrastructure creates access, access creates value, value can be captured to finance infrastructure and therefore create further access, and thus value (click on image to enlarge ).
"Value Capture is a method for public agencies to fund transportation and transit and at the same time create more transparency and accountability in selecting and managing public projects. In a time of declining revenues, government is searching for innovative ways to finance public infrastructure. Value Capture mechanisms are a type of public financing that “captures” increases in property values resulting from public investments in infrastructure, transit and transportation. These captured values are then used to leverage further investments or repay the public investment. Successfully applied Value Capture mechanisms can support 10% to 50% of capital costs in the form of dedicated tax revenues, land grants, zoning variances, to name a few."
Image Source: Michael Iacono et al., “Value Capture for Transportation Finance: Report to the Minnesota Legislature. ” Report No CTS 09-18S (University of Minnesota Center for Transportation Studies, 2009).
3 Phases of an Infrastructure Development Project
Content provided with permission by Richard Arena - Complete reference provided below
Phase 1: Proposals, Design Work, Permitting and Other Approvals
A quasi-independent joint powers authority (JPA) may be established to run the project. At this point the government entity must be in the process of identifying a funding source(s) such as dedicated sales tax, land grants and/or federal/state grants. The funding is city/local, county/regional, state, or federal, or some combination and are required by the underwriters of the bonds for construction. The underwriters might also require that a government entity guarantee interest payments should the revenue projections come up short. There is limited opportunity for revenue from private developers, mainly in the form of transferable development rights, which are essentially easements or zoning variances.
Phase 2: Construction and Development
This phase is capital intensive. The bonds are underwritten to provide the cash necessary for construction. The JPA is responsible for generating sufficient income to pay the interest on the bonds. Most underwriter covenants prevent the use of bond capital to make interest payments. Phase 2 offers few opportunities for revenues from private developers.
Phase 3: Infrastructure Construction and Private Development Align
The JPA can start collecting passenger facility charges from direct users of the transportation infrastructure, and special assessments or payments in lieu of taxes from the private developers. For existing properties in the infrastructure development envelope, special business improvement districts can be established to funnel a tax-like assessment to the JPA for their appreciated value.
Value Capture Terminology
Joint Powers Authority (JPA)
The governmental or quasi-governmental entity that has overall management and financial responsibility, including bonding authority for the project.
Special Assessment District or Business Improvement District (BID)
A predefined geographic area in which the JPA or managing entity can assess taxes or fees to support the project.
Tax Increment Financing (TIF)
A method for collecting taxes or fees in a BID. A baseline assessment is established for the properties and the increase in value of those properties in future years, relative to the baseline year, is subject to special assessments.
Interest Support Payments (ISP)
If the JPA is unable to generate enough income to cover the interest payments to bondholders, another entity can be compelled to make up the difference.
Development Impact Fees
One time fees assessed to cover the cost of public facilities (water, public safety, schools, etc.) required to support the new development.
Transferable Development Rights (TDR)
Special rights to a property that grant zoning variances to the developer. The most common is permission to exceed established height or density regulations.
Passenger Facility Charge (PFC)
A per-ticket or per-vehicle charge for users of the facility.
Payment in Lieu of Taxes (PILOT)
JPAs can establish a property tax-free zone as an incentive to developers. The developers are required to make payments to the JPA based on the assessed value. PILOTs are lower than what the developer would normally pay to the city under prevailing tax rates.
Tax Equivalency Payment (TEP)
Remittance by the local taxing authority to the JPA of the taxes collected in the BID for existing buildings and improvements.
For more information on Parsons Brinckerhoff Value Capture Website: http://www.pbworld.com/capabilities_projects/strategic_consulting/value_capture.aspx
Blog: www.valuecapture.org
Twitter: @valuecapture
Mark Briggs Richard J. Arena
Director, Finance & Investment President, Association for Public Transportation
Parsons Brinckerhoff Advisory Board, US High Speed Rail
Office: (714) 564-2720 Office: (732) 576-8840
rjarena@aptmarp.org
References (PDF available below):
- Access for Value: Financing Transportation Through Land Value Capture (April 2, 2013). Retrieved From: http://www.reconnectingamerica.org/assets/Uploads/20110428transportationfunding.pdf
- Using Value Capture Strategies to Finance Transportation Infrastructure (April 2, 2013). Retrieved From: http://www.masstransitmag.com/article/10877254/using-value-capture-strategies-to-finance-transportation-infrastructure
| using_value_capture_to_fund_infrastructure.pdf |
| mass_transit_mag_-_value_capture_financing.pdf |
| access_for_value.pdf |