Value Capture for Transportation
Finance
Chris Zegras
Associate Professor of Transportation & Urban
Planning
Department of Urban Studies and Planning
18 November 2014
Transportation Finance Background:
Fiscal Federalism Principles
1. Fiscal equivalence: match beneficiaries with payees
2. Efficiency: marginal benefits = marginal costs
3. Externalities:
– inter-system
– intra-system
– and inter-jurisdictional
4. Equity: Transportation as “public good…?”
5. Administrative ease
Externalities
Equity
(Horizontal)
Administrative
Ease
Fuel Taxes
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Other Vehicle Taxes, Fees
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Road Charges
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Public Transport Fares
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Transport
Finance Instrument
General Taxes – Income,
Sales, etc.
Land Taxes
Fiscal
Equivalence
Efficiency
Zegras et al, 2013
What About
Land Valuebased
Instruments
?
http://www.csiss.org/classics/content/9
Zegras et al, 2013
Land value instruments?
Funding Mechanism
Description
Tax Increment Finance • Captures property value increase in a defined
area to finance transportation improvement
(TIF)
• Special non-ad valorem tax in a defined area over
Special Assessment
a period of time to pay for an improvement
Districts (SAD)
• Can be “tiered” based on relative benefits
Transportation Utility
Fees (TUF)
Development Impact
Fees (DIF)
Negotiated Exactions
Joint Development
Air Rights
• Fee, rather than tax, based on property
attributes, and estimated demand impacts
• One-time impact fee to cover related off-site
transportation improvements (formula-based)
• Less-formal type of DIF, often of on-site public
improvement or in-kind consideration
• Spatially coincidental development: transport &
land development cross-subsidize one another
• Sale/lease of development rights over a
transport facility
How TIFs Work
Lari et al, 2009, p. II-97
Portland, OR: Central City Streetcar
en.wikipedia.org
TIF Precedents: Chicago
• Illinois since 1977; Cook County since 1984
• End of 2005,
– 373 TIF projects in Cook County: 136 in Chicago
• In 2005
– 10% of Chicago tax $ in TIFs ($386 million)
– 26% acreage
– = to 4th largest budget category
Quigley, 2007.
Lari et al, 2009
TIF Transit Precedents: Chicago
• $13.5 million: Randolph/Washington Station
• $1.2 million: Dearborn Subway-Lake/Wells
• $24 million: Several other Central Loop transit
projects
www.cityofchicago.org
Chicago’s Lincoln Ave. TIF
Lari et al, 2009, p. II-92
TIF: Challenges
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Land development goals
Regional Efficiency
Existing land values
Equity of net revenues
“Corporate welfare”
Gentrification
Metropolitan Chicago
http://webapps.cityofchicago.org/ChicagoTif/
Chicago: Fiscal Equivalence of Costs
and Benefits
Antos, 2007.
Chicago CTA Operating Budget:
Source of Funds
Zegras et al, 2013
Public Transport Capital Financing in
Chicago
Zegras et al, 2013
Property Tax Distribution to Different
Taxing Agencies in Chicago
Zegras et al, 2013
Chicago Land Value Capture?
($ per sq. ft.)
Zegras et al, 2013
Walk time to CTA Stations and
Zegras et al, 2013
Property Values
Total Residential “Value Add” from CTA
Stations
• $4 billion ($2-6 bn)
• $450K per mile CTA rail
• #320K per CTA station
Zegras et al, 2013
VC hypothetical scenario
Zegras et al, 2013
Zegras et al, 2013
Zegras et al, 2013
CTA Revenue
Scenarios
Zegras et al, 2013
Bottom Line
Residential only
• $11.5 to $32.8 million (in present values)
– 18.6% to 54.6% of two stations’ construction costs
• Mitigating negative externalities (at-grade
lines)
– + revenue to $43.9 to $170.6 million
– Worth it?
With commercial
• $330 to 360 million (in present values)
Zegras et al, 2013
Broader Observations
• Explicitly recognize inter-system effects and get
the prices right
– Technology allows this
• Target subsidies to the users who need it
– Technology allows this
• Use resources to incentivize cooperation
– Among local governments
• Practice the fiscal federalism
• Don’t forget: transportation has “nuisance” effect
Appendices
Revenue Sources for Transit Operations
USA Large Cities
Antos, 2007.
Farebox Recovery Ratios
Antos, 2007.
References
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Antos, J. (2007) Paying for public transportation : the optimal, the actual, and the
possible. MIT: Masters Thesis: http://hdl.handle.net/1721.1/40101.
Lari, A., Levinson, D., Zhao, Z., Iacono, M., Aultman, S. Das, K.V., Junge, J., Larson,
K., Scharenbroich, M. (2009) Value Capture for Transportation Finance: Technical
Research Report. Minneapolis: The Center for Transportation Studies, University of
Minnesota: www.cts.umn.edu/Publications/
Quigley, M. (2007) A tale of two cities: Reinventing Tax Increment Financing. Cook
County: Technical report, County Commissioners Office:
http://www.tifreports.com/wp-content/uploads/2011/02/Tale_Two_CitiesQuigley.pdf
Zegras, C., S. Jiang, C. Grillo (2013) Sustaining Mass Transit through Land Value
Taxation?
Prospects for Chicago. MIT: Paper prepared for Lincoln Institute of Land Policy:
http://web.mit.edu/czegras/www/Zegras%20et%20al_LVT%20and%20CTA.pdf