Value capture - Minnesota Department of Transportation

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Transportation Finance Advisory Committee, June 2012
Value Capture Strategies for
Transportation Finance
fafa
Zhirong (Jerry) Zhao
Associate Professor
[email protected]
Land Value (EMV/Acre)
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The General Framework of Transportation Finance
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Value capture strategies: Type-I
-- on property owners
Land value tax
 Tax increment financing
 Special assessment
 Transportation utility fees

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Land Value Tax

The conventional property tax


Tax on buildings
Tax on land
Henry Georgia in 1865

A land value tax or split-rate tax


Captures more value from transportation
More efficient in land use
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Tax Increment Financing (TIF)
Public improvements tend to cause a rise in
property values in adjoining areas, causing an
increase in property taxes.
TIF uses these future increments in property taxes
generated by new development to finance the initial
costs of the development itself.
Tax Increment Financing (TIF)
Source: How TIFs work, Chicago, Illinois, 2004
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Special Assessments District
1.
2.
3.
A compulsory levy used to finance a particular public
improvement program
Its only levied against those parcels receiving a
special benefit from the improvement
Assessment amount is directly related to the value of
the benefits the property receives
(Source: League of Minnesota Cities)
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The Peachtree
Street Streetcar
Line Midtown
Neighborhood
SAD
Atlanta, GA
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Transportation Utility Fees


Transportation network functions as a utility
Facility use does not correlate with property
value


Depends on property type
More direct connection between costs and
benefits
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TUF Simulation:
Annual fee by land use - Minneapolis
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Value capture strategies: Type-II
-- on estate developers
Negotiated exactions
 Development impact fees
 Joint development
 Air rights

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Negotiated Exactions
Non formulaic or preset contributions for the
local transportation improvements decided
through negotiation.
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Development Impact Fees

One-time predetermined assessments levied on new
development

Offset the impact of the development on the capital cost of
providing regional transportation infrastructure
Development Impact Fees
With new highway exist
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Development Impact Fees
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Defining Joint Development

Joint development
private-sector sharing of capital costs
 private-sector payments to the public entity


Incentives
Public: additional $ for capital improvements
 Private: enhanced development potential

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Mechanisms of Joint development
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Air Rights Development
“The legal capacity to
make use of a threedimensional area for
development or
improvement.”
-The Use and Abuse of the
Term “Air Rights,” Sam
Galowitz, 1996
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Air Rights Development:
The Minnesota Context
Characteristics of Minnesota’s freeway system provide
unique opportunities for air rights development
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Air Rights Development:
Oases in Illinois State Tollway
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Features of Value Capture Strategies
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Exaction
Value Capture Strategies
Air Rights
JD
TIF
DIF
Land value tax
SAD
Transportation Utility Fee
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TH610: Value capture study
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Summary

Value capture



The rationale to link benefits to costs
A useful toolset with various features
Policy considerations
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


State authorization
Local discretion
Policy research and design
Public engagement
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