Non-Road Pricing Revenue: Sources and Tools
Value Capture Revenue
Transportation networks and urban land value are closely linked. A transportation improvement increases accessibility to desirable destinations, such as jobs or schools. Locations with higher accessibility tend to command higher prices for land. Landowners and developers benefit from this increased value. Using value capture mechanisms, a part of this created land value can be captured in the form of revenue. The revenue generated can help finance the transportation improvement, or it can go toward further transportation investment, spurring a new round of increased accessibility and land value. Among the menu of options for implementing value capture, the following mechanisms are most widespread in the United States: special assessments, tax increment financing, development impact fees, developer contributions, joint development. Note: Nomenclature of these strategies may vary in permutation, as other strategies may be dissimilar in terminology but similar in practice or implementation to one listed here. For additional information view the FHWA Center for Innovative Finance Support Value Capture Resources page.
- Special assessments - a tax assessed on parcels identified as receiving a direct and unique benefit as a result of the public improvement. The tax levied typically represents some fraction of the estimated benefit per development unit. The use of special assessments (also known as benefit assessments or special taxes) is the most prominent form of value capture in the United States. The following examples are links to transportation projects that have utilized special assessment districts as well as additional information on the use of special assessments for transit.
- Tax Increment Financing - A special provision in state law that allows the diversion of the property tax increment derived from the increase in property value over a base year to a fund used to pay off capital bonds for public improvements within a tax increment financing (TIF) district. Tax increment financing levies taxes on the future increment in property value within a development (or redevelopment) project to finance development-related costs, including infrastructure improvements. TIF districts can be expanded beyond the site of an improvement to encompass a small district. The strategy is commonly used by local governments to promote housing, economic development, and redevelopment in established neighborhoods. Although TIF has not been used extensively to fund transportation infrastructure, some state laws specifically authorize the use of TIF for transport purposes. Below are links to cities and states that have used TIF for transportation-related projects.
- Development Impact Fees - Development impact fees (DIFs) are one-time charges levied on new development. They are charged primarily to new development to help recover growth-related public service costs, but differ in that impact fees can be levied for off-site services such as local roads, schools, or parks. Development impact fees are typically determined through a formulaic process, rather than through negotiations as done for developer contributions. Transport related DIFs are used by numerous public entities throughout the United States. The following examples are links to projects, and city and state information on the use of impact fees to finance public infrastructure projects.
- Developer Contributions - The promise of capturing value from transport investments also extends to private developers and investors. Under the right conditions, the gains that result from a public improvement can be used to attract private equity capital to the project. Developer contributions can take the form of up-front contributions or as periodic contributions paid over the duration of a project. The links below provide additional information on projects and local programs that use developer contributions to fund transportation projects.