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August 2009
Study identifies value capture strategies to raise
Adeel Lari
Zhirong "Jerry" Zhao
David Levinson
Current funding and finance mechanisms for transportation face serious challenges. A possible alternative revenue source—value capture—is the topic of a recently completed research project led by CTS.
“The project provides new financing methods that are not currently considered or are not available under current Minnesota state statutes,” says David Levinson, the Braun/CTS Chair in Transportation Engineering at the University of Minnesota and one of the lead investigators of the study. Other principal investigators were 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 included Michael Iacono, a research fellow in the Department of Civil Engineering.
Value capture is a type of infrastructure financing in which increases in private land values generated by public investment are in part “captured” to help pay for infrastructure projects.
CTS was commissioned by the state legislature in 2008 to conduct this first-of-its-kind research to look at value capture as a potential finance mechanism for future infrastructure investments in Minnesota.
“The need for this study grew out of the transportation funding debate in the 2008 legislative session,” says Robert Johns, CTS director and study principal investigator. “Legislators and interest groups felt new methods needed to be investigated for financing our transportation system and asked CTS to study how value capture policies might be implemented in Minnesota.”
The study identified eight policies that can be classified as value capture strategies: land value tax, tax increment financing, special assessments, transportation utility fees, development impact fees, negotiated exactions, joint development, and air rights. Some of the strategies target property owners, while others target developers. The strategies differ in how, when, and where they may be applied. They also give different outcomes, which can be assessed along four criteria: economic efficiency, equity, sustainability, and feasibility.
Important legal considerations for units of government wishing to apply some or all of these policies were also considered. Statutory adjustments in Minnesota law would be needed to allow for implementation of several of the policies.
CTS will offer a series of educational workshops for elected officials and policymakers during the summer and fall of 2009 to explain the study results.
The technical report, the report to the legislature, and a policy summary of the research can be found at www.cts.umn.edu/research/ValueCapture.