Funding highway projects with value capture could speed project completion

There’s broad agreement that the U.S. transportation system cannot continue to be funded with existing financing and revenue-generation methods. What’s not clear, however, is how to pay for highway projects in the future. The current transportation funding system emphasizes user fees, but there is growing interest in alternative funding strategies. One promising strategy is value capture, which aims to recover the value of benefits received by property owners and developers as a result of infrastructure improvements.Value Capture

In recent years, University of Minnesota researchers have helped lead the way in value capture research with a series of reports identifying value capture strategies. In a newly published study, the research team applied their previous work to a real-world scenario, with impressive results. The new research, sponsored by the Minnesota Department of Transportation (MnDOT), focused on the planned development of Trunk Highway 610 (TH 610) in Maple Grove, Minnesota—a stretch of planned state highway delayed for years by state transportation funding shortages. Researchers set out to discover how the value of the enhanced accessibility provided by the planned improvements could be predicted and captured to help fund the project’s completion.

The completion of TH610 in Maple Grove would lead to a more than $17 million increase in property value for the study area“Typically trunk highway funding is provided solely by MnDOT, and any enhanced value that comes from transportation improvements are windfalls enjoyed by property owners and developers or—to a lesser extent—local property tax gains,” says lead researcher and Humphrey School of Public Affairs associate professor Jerry Zhao. “However, by estimating the value of transportation improvements and implementing strategies to capture that revenue, we can supplement project financing and expedite project completion.”

“This research on a developing strategy to finance transportation infrastructure breaks new ground,” says Matt Shands, transportation economic development program director at MnDOT’s Office of Transportation System Management. “There has never been an attempt to quantify the potential revenue impact from value capture in Minnesota before. Understanding that impact will be essential as Minnesota and its local governments consider value capture financing strategies in the future.”

To accomplish their goal, researchers first defined a study area of about 10 square miles surrounding the unfinished highway segment. Then, they modeled property values based on five factors using parcel-level data. This model was designed to isolate the so-called “highway premium” by controlling for other factors that affect land value including water views, open space, railroads, transit stops, and existing highway exits. Using this model, researchers found significant evidence of a highway premium. 

Predicted estimated market value change

Researchers predict that if two new exits are added off TH 610 in Maple Grove, the 
estimated market value (EMV, $/acre) of nearby land would increase significantly.

“We discovered that the completion of this highway would lead to a more than $17 million increase in property value for the study area,” Zhao says. “The revenue potential of this increase using various value capture strategies ranges from about $12 million to about $37 million.”

Researchers expect these findings to have significant benefits for the TH 610 project and beyond. “If the value capture strategies are implemented, they could generate millions in additional funding and accelerate the completion of the project,” Zhao says. “Even if the results are not used to help with this project, we have demonstrated a way to estimate the value of transportation projects and communicate that to the public. This method can greatly assist transportation agencies and stakeholders as we work to solve our nation’s transportation funding shortage.”