HighLight Heading
May 2009
Research team presents value capture strategies
The research team for the Value Capture for Transportation Finance study presented the pros and cons of eight potential value capture strategies at a March 26 stakeholder workshop. CTS hosted the half-day event to share preliminary findings from the study and receive feedback for the final report. CTS director Robert Johns gave welcoming remarks and moderated the event.
Adeel Lari, David Levinson, Jerry Zhao, Mike Iacono
The state legislature appropriated funding to CTS in 2008 to study the public policy implications of “value capture”—public financing methods that capture part of the increased value of private property following a public investment such as a highway interchange or transit station. CTS assembled an interdisciplinary research team to conduct the effort.
Principal investigators are David Levinson, the Braun/CTS Chair in Transportation Engineering and associate professor of civil engineering; Zhirong (Jerry) Zhao, assistant professor in the Hubert H. 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.
The workshop began with a presentation by Iacono about transportation and value creation.A transportation improvement increases accessibility to destinations; this increased accessibility increases land value. In some cases, a part of this created value can be captured to fund further transportation investment, he said, closing the feedback loop and spurring a new round of increased accessibility and development.
Zhao then placed value capture in the framework of transportation finance. On the one hand are user fees (such as the gas tax) paid by direct beneficiaries; on the other hand are general revenues (such as the sales tax) paid by the general public, which benefits indirectly through broad economic and social returns. Value capture mechanisms lie in between: They target the property owners and developers who benefit from increased land value. “The question,” Zhao said, “is how can we capture the value to invest in and improve the efficiency of the transportation system?”
Four of the project’s graduate students next described the eight value-capture strategies identified in the study and assessed them using four criteria: economic efficiency, equity, sustainability (as a stable funding source), and political/ administrative feasibility.
- Jason Junge (advisor—Levinson): land value tax, transportation utility fees
- Kirti Vardhan Das (advisor—Zhao): tax increment financing (TIF), joint development
- Kerstin Larson (Zhao): special assessments, air rights
- Michael Scharenbroich (Levinson): negotiated exactions, development impact fees
Levinson then illustrated how strategies could be applied and combined along different dimensions. Some strategies are aimed at developers while others target property owners; some fees are paid before a transportation improvement, others afterwards; some strategies are applied on-site, others extend over a broader area; and so on. A new transit station, for example, could use several strategies: air rights for development above an underground facility, negotiated exactions at the site, and an impact fee across the affected area.
In the final presentation, graduate student Sara Aultman (who worked under Lari’s direction) reviewed highlights of current Minnesota law, innovative practices from other states, and potential statutory changes needed in Minnesota.
Throughout the workshop, the audience of state and local stakeholders offered input and asked questions, including a request to recommend strategies that warrant further study for Minnesota. Levinson advised policymakers to let “eight flowers bloom” and allow experimentation. Except for TIF, he said, the Twin Cities area lacks much experience with value capture, “so we should make use of the laboratory of democracy” to learn what unit of government is best suited for an approach. “Success will be emulated,” he predicted. Johns noted that CTS and University researchers play a neutral role by providing objective information for policymakers.
A draft report was delivered to the legislature on March 1, and a final report is due July 1, 2009.
For more information about the study, contact Linda Preisen, CTS research administration director, at 612-626-1808 or lpreisen@umn.edu, or see www.cts.umn.edu/Research/Featured/ValueCapture/index.html