HighLight Heading
August 2008
Legislature funds University study of ‘value capture’ for transportation finance
David Levinson
Zhirong (Jerry) Zhao
Adeel Lari
Examples of value capture techniques
- Joint (or linked) development of infrastructure systems and adjacent parcels through public-private partnership, so that the cost of the infrastructure can be offset by the benefits gained from adjacent development
- Rezoning and reselling, in which public agencies may buy low-density, privately held land near infrastructure improvements, increase the designated use density, and then sell the land back to private developers
- Impact fees (or development fees), which are applied on the construction of new buildings (or new improvements) in areas adjacent to the infrastructure investment
- Special assessment districts, defined areas in which an additional tax is apportioned to recover the cost of the improvement
- Tax increment financing, a tool to use future gains in taxes to finance the current improvements that will create those gains
Large public investments in state transportation infrastructure—such as new freeway interchanges, highways, or transit stations—can increase the value of surrounding private land, sometimes substantially. Capturing the value of this benefit through various tools is gaining interest as a finance mechanism for infrastructure investments. But many questions remain: Does “value capture” promote or hinder economic development? How high should the tax rate be? How stable is the revenue? To answer these and other questions, the state legislature appropriated funding to CTS to study the public policy implications of value capture.
Similar to the Reducing Greenhouse Gases study (see related article), CTS has assembled an interdisciplinary research team for this investigation. Principal investigators are David Levinson, the R.P. Braun/CTS Chair in Transportation Engineering and associate professor of civil engineering; Zhirong (Jerry) Zhao, assistant professor in the Humphrey Institute of Public Affairs; and Adeel Lari, research fellow in the Humphrey Institute. The team also includes Michael Iacono, a research fellow in the Department of Civil Engineering. Robert Johns, Linda Preisen, and Joe Barbeau of CTS will provide study leadership and coordination.
The study will investigate the experiences of other states with value capture. Researchers will review the relationship between transportation and land values, including the measurement of benefits from a transportation improvement, as well as the legal and economic frameworks for capturing the value gains. They will explore the major financing techniques associated with value capture (see sidebar) and some examples of their implementation. They will then evaluate several of the proposed policies and their suitability for implementation locally, based on the criteria of economic efficiency, social equity, adequacy as a revenue source, and feasibility.
“The project may provide suggestions for new financing methods that are not currently considered or are not available under current state statutes,” Levinson says. The project builds on another project that Levinson and Iacono are conducting for the Minnesota Department of Transportation (Mn/DOT), in which they are estimating the economic value of roadway capacity improvements.
Zhao says well-designed value-capture strategies could be a good way to supplement transportation finance in Minnesota. “Value capture may not only provide additional funding to meet underfunded transportation needs, it also may improve the allocation of societal resources by better linking social benefits and social costs of transportation improvement,” he says.
Preliminary findings are due to the legislature by March 1, 2009, and a full report by July 1, 2009. In addition, the appropriation requires CTS to offer a series of educational workshops for elected officials during the summer and fall of 2009.
For more information, contact Preisen at 612-626-1808, lpreisen@umn.edu.