Value Capture

Not sure what the status is with CUNA’s talks with Ed Pawlowski on Community Benefits Agreements from developers in the Allentown NIZ, but I wanted to introduce people who are interested in that stuff to the “value capture” method of financing public improvements. If people want to bring back a trolley loop service to downtown Allentown, why not finance it this way?

“Value capture” is defined by Ian Carlton of TransACT as “the process by which all or a portion of increments in land value attributed to ‘community interventions’ – rather than landowner actions – are recouped by the public sector.”

Often, all that’s needed to get developer buy-in is a promise that they can double their density. Much of the explosive re-generation of Tyson’s Corner, Virginia, is made possible by developers tempted by newly unrestricted density near metro stations.

But there are lots of ways to capture value. Portland led the way, financing its streetcar system primarily with value capture strategies. They created two assessment districts, meaning that landowners near the proposed streetcar line paid extra taxes to help fund the transit because it would add value to their properties. The city also levied parking fees to help pay for it.

Washington, DC’s Metro agency has also been successful at implementing value capture, which currently covers about 0.7 percent of its annual budget.

The most common value capture strategy is joint development, meaning a transit agency collaborates with a private company to develop land or buildings the agency owns. About 60 percent of transit agencies say they’ve used it, compared with just 11 percent that have used tax increment financing, for example, which captures projected increases in tax revenue to fund the project.

(Thanks: Tanya Snyder)

Comments

  1. GDub says:

    I think you have the causation all wrong here. Those cities can make good money on developing land near stations because they are relatively wealthy places near large job centers. They aren’t wealthy because they developed land near rail stations.

    Allentown has nothing like the Federal Government as a regional employment draw.

    Not to say this isn’t a good idea down the road, but I don’t think anyone will make enough to fund a trolley at this point.

    • Jon Geeting says:

      Fair enough, but I think the general principle stands, that when you build a nice public asset, the properties next to it receive a windfall unless you capture it back somehow – namely by building densely around it, or levying higher taxes on the landowners next to it.

  2. John says:

    If you stand on that general principle, then you need to follow the reverse – when government takes action that decreases the value of a property (like the poor guy that owns a building across the street from the NIZ line) then you need to kick back taxes to the aggrieved property owner.

  3. John says:

    Did you ever hear anything on the Philly plan for annual valuations? That would solve both sides of this.

    You do agree that the principle applies to both sides, right?

    • Jon Geeting says:

      No, I’ve been monitoring it for Keystone Politics and haven’t read anything in a while. I agree though, more real-time monitoring of land values would be very helpful.

      I agree in principle, yes. There is a problem that all policy changes create some winners and losers, and a government can’t be put in the position of compensating everyone who loses out from a policy change. I think current takings law does a good job of sorting out the specific from the general.

      David Schleicher’s recent paper on reforming the zoning process also has a good idea for compensating neighbors for increased development externalities by giving them part of the tax increment gained from that development. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1990353

      Coasean bargaining is great, I wish cities did more of this.

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