Value Capture Financing in Washington
A New Tool For Growing
Transit Communities
Washington Economic Development Association
February 12, 2013
Value Capture Financing in Washington
Presentation Overview
• Growing Transit Communities
Partnership
• Value Capture Financing
Definition & Context in WA
• Research & Analysis
• Recommendations
2
Value Capture Financing in Washington
Growing Transit Communities Partnership
Three year effort funded by
HUD’s Partnership for
Sustainable Communities
Core Challenge:
How to attract more of region’s
residential and employment
growth in equitable transit
communities as we implement
$15B in high-capacity
transportation investments
Social
Equity
EQUITABLE
TransitOriented
TRANSIT
COMMUNITIES Development
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Value Capture Financing in Washington
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Goal of GTC’s Value Capture Work
Develop tax increment financing (TIF) alternatives that
provide infrastructure and affordable housing financing
in transit communities.
Committee Interests and Key Stakeholder Groups:
•
•
•
•
•
Cities
Counties
Developers
Environmental Groups
Affordable Housing advocates, developers,
and funders
• Community Organizations
• Bonding and Legal
Experts
• Department of Commerce
• Department of Revenue
• Legislative Staff
• Realtors and Builders
• Organized Labor Groups
• Economic Development
Value Capture Financing in Washington
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Capture Value Added From Public Investments
Value Capture: Public improvements increase private
property value and part of the added value can be
captured to benefit community
Value Capture Financing Strategies
Tax Increment Financing
Debt accumulated for public
improvements in an area are paid
back by capturing increases to all
taxing districts in that area
Special Assessments
Local government takes on debt to
finance public improvements that are
paid back by new tax levy on property
owners that benefit from public
improvements
Value Capture Financing in Washington
Transit Access Increases Property Values
Seattle’s Othello Light Rail Station Area land costs 1996-2011
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Value Capture Financing in Washington
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Regional incomes and market rate affordability
Household Income Distribution in
Central Puget Sound, 2006-2010
Affordability of Market Rate
Multifamily Housing in
Central Puget Sound, 2011
80%120%
AMI
>120%
AMI
30%-50%
AMI
50%-80%
AMI
Source: American Community Survey 2006-2010 Public Use
Mircodata Sample
Source: Dupre + Scott Spring 2011 Apartment Survey
Value Capture Financing in Washington
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Regional incomes and market rate TOD affordability
Household Income Distribution in
Central Puget Sound, 2006-2010
Affordability of New Market Rate
Multifamily Development in Light
Rail Station Areas, 2006-2011
50%-80%
AMI
>120%
AMI
80%-120%
AMI
Source: American Community Survey 2006-2010 Public Use
Mircodata Sample
Source: Dupre + Scott Spring 2011 Apartment Survey
Value Capture Financing in Washington
Challenges to Value Capture Financing in WA
1. Cannot divert State property tax revenues from schools
2. Property taxes are levied on a city’s planned budget not on
the value of property
3. Limits on property taxes force tax districts to compete
4. Cities have limited debt capacity
5. Local improvement districts lack flexibility and are
cumbersome to implement and administer
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Value Capture Financing in Washington
Successful Approaches to VCF in Washington
1) Ask local governments to allow city to divert revenues
• Community Revitalization Financing (CRF) - 2001
2) State matches local incremental property and sales tax
revenues (from State General Fund)
• Local Infrastructure Financing Tool (LIFT) - 2006
• Local Revitalization Financing (LRF) – 2009 & 2010
3) Counties give up incremental revenues in return for city
purchase of transferable development rights (TDRs)
• Landscape Conservation and Local Infrastructure Programs
(LCLIP) – 2011
4) Special assessment districts for roads, transit, utilities, and
other infrastructure
•
Local Improvement District (LID)
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Value Capture Financing in Washington
A Hybrid Approach to Value Capture Financing
Tax on the incremental growth of assessed property value in a district
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Value Capture Financing in Washington
Findings from GTC Work
• Significant legal challenges to value capture financing exist in
Washington
• Existing value capture financing tools are inadequate
• Capturing state and local tax revenues is unsustainable
• Directing a portion of value capture financing revenues to
affordable housing can ensure that households of all incomes
benefit from development
• Incentives need to be geographically targeted to prevent
urban sprawl
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Value Capture Financing in Washington
GTC Legislative Principles
• Enable city/county to partner with private sector when
opportunity presents itself
• Tool should work in conjunction with existing infrastructure
financing and affordable housing incentives
• Provide significant revenues for physical infrastructure
• Provide revenues for the development and preservation
affordable housing and to conserve rural lands
• No net loss of affordable housing or small businesses in the
district
• Create good jobs and no relocating businesses from within
the State
• Targeted to areas with, or planning to attract, transit service
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Value Capture Financing in Washington
How could a value capture financing tool work?
• Special property tax levy on a district within a city/county where public
improvements are needed. The levy amount is 1% of the projected
increase in property values and would end after 30 years.
NOTE: This would not affect state or local property tax revenues
• City/County works with willing property owners to establish a district
where tax levy will apply
• City/County passes a plan for affordable housing and infrastructure
improvements associated with district
• City/County is able to finance public improvements based on projected
revenues from the tax levy over 30 years
• 25% of the revenues go to support development and preservation of
affordable housing and/or land acquisition for affordable housing
purposes. Potential to use up to 5% for rural land conservation.
• After 30 years (or when debt is retired) the tax levy stops and public
improvements have been made.
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Value Capture Financing in Washington
Why now? What’s different this time?
1. Special assessment method does not divert taxes from
state or other taxing districts
2. Special assessment method allows taxes to be collected
on property values
3. Improvements can be financed with revenues from
district
4. Principles ensure that existing community and future low
income households benefit from improvements
5. Need tool to capture the value of transit investments
before opportunity passes
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Value Capture Financing in Washington
What actions are necessary from the State?
Pass Legislation that identifies:
- Eligible locations
- Eligible uses of revenue
- Social equity goals for value capture financing districts
Amend the State Constitution to enable cities/counties to:
- Allow city/county to impose property tax on a district rather
than citywide
- Allow debt to be backed by revenues from district rather than
general obligation of city/county
- Prevent value capture financing tax from competing with other
tax revenues
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Value Capture Financing in Washington
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Is it worth it?
Estimated revenues from the Equitable Value Capture Financing
tool based on hypothetical development scenarios in planned
and existing light rail station areas over 25 years are:
$78.2 million at 130th Ave NE, Bellevue
$37.2 million at Mountlake Terrace’s Freeway/Tourist District
$60.1 million at Tacoma’s Dome District
For More Information
Tim Parham
tparham@psrc.org (206) 971-3278
Project Website
http://www.psrc.org/growth/growing-transit-communities
 Affordable Housing Steering Committee
 Value Capture Financing Subcommittee
Affordable Housing Tools Update
Eligible Locations & Growth Management
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Value Capture Case Study Analysis
Location
• 130th Ave NE Planned Light Rail Station Area, Bellevue
Value Capture Tools Considered
•
•
•
•
Local Revitalization Financing (LRF)
Landscape Conservation and Local Infrastructure Program (LCLIP)
Community Revitalization Financing Act of 2011 (CRFA)
Traditional TIF
Findings
Table 3. New Allocated Revenues To Sponsoring Jurisdiction (TIF-Tool Leverage)
TIF-TOOL
Minimum Alloc.
Revenues
Necessary to Max
TIF Leverage
New Allocated Revenues from Other Sources
Other
City
County
State
Port
Districts
Total TIF
Tool
Leverage
Leverage
Ratio
LRF
$5,800
N/A
-
$5,800
N/A
N/A
$11,600
2.00
State Sales Tax Credit
LCLIP
$2,600
N/A
$2,200
N/A
N/A
N/A
$4,800
1.85
Country Property Taxes
CRFA
-
$78,200
-
N/A
-
N/A
$78,200
N/A
1% Excess Levy
$4,900
N/A
$4,200
$12,300
$500
-
$21,900
4.47
Property Taxes
Traditional TIF
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Value Capture Tools considered by GTC
Local Revitalization Financing (LRF)
• Allows local governments to allocate up to 75% of incremental growth
on local property and sales tax revenues within a district in order to
receive a state contribution of up to $500,000 annually over 25 years
LRF Benefits
LRF Drawbacks
Could be modified to include
affordable housing requirements
Provides lesser potential revenues
than CRFA and Traditional TIF
Could be modified to prioritize use
in transit station areas
No current provisions for
affordable housing or TOD priority
Existing tool – passed by legislature
Currently not funded by the state
Does not require land conservation
(TDRs)
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Value Capture Tools considered by GTC
Landscape Conservation and Local Infrastructure Program (LCLIP)
• Allows cities with population over 25,000 in in King, Pierce, and
Snohomish Counties to capture up to 75% of the increment of city and
county property taxes if at least 25% of the allocated regional
transferable development rights (TDRs) are purchased.
LCLIP Benefits
LCLIP Drawbacks
Could be modified to include
affordable housing requirements
Lowest potential revenue of all TIF
tools considered
Could be modified to prioritize use in
transit station areas
No current provisions for affordable
housing or TOD priority
Existing tool – passed by legislature
Only available in central Puget Sound
region
Cost of securing regionally allocated
TDRs imposed on city and/or
developer
Requires land conservation (TDRs)
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Value Capture Tools considered by GTC
Community Revitalization Financing Act (CRFA) - As Proposed in 2011
• Would allow an excess levy on property owners within a district of up
to 1% of the incremental growth of assessed value above a base
value. Similar to a Local Improvement District (LID).
CRFA Benefits
CRFA Drawbacks
Not reliant on capturing other jurisdictions
revenues
New tax on property owners in district.
Could be modified to include affordable
housing requirements
No current provisions for affordable
housing or TOD priority
Could be modified to prioritize use in
transit station areas
Provides largest revenue potential
Does not require land conservation
(TDRs)
Not existing or legal. Legislation and
constitutional amendment are required.
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Value Capture Tools considered by GTC
Traditional TIF – As Available in Other States
• Would allow local government to cap assessed values and any
property tax revenues generated from increases to assessed value
over the cap accrue to fund improvements in the district over 25-30
years.
Traditional TIF Benefits
Traditional TIF Drawbacks
Could include affordable housing,
prioritization of transit station areas or TDR
requirements
Provides second largest revenue potential
Not existing or legal. Legislation and
constitutional amendment are required. This
tool was specifically ruled unconstitutional.