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State and Federal transportation funds are the traditional funding sources for transportation projects. However, the growth in local transportation needs has outpaced the availability of these funds, creating a funding gap. Value capture techniques have the potential to help communities narrow this funding gap, making delivery of critically needed transportation projects possible. Value capture techniques rely on increases in property values, business activity, and economic growth linked to transportation infrastructure to help fund current or future transportation improvements (1). Transportation reinvestment zones (TRZs) are a value capture technique that relies on the principles of tax increment financing (TIF) to help pay for transportation projects.
TRZs are currently available to local governments in Texas and Utah. Texas authorized TRZs in 2007, and the first TRZs were created in 2010. Since then, the legal framework has evolved as a result of accumulating implementation experience, expanding the use of TRZs, and clarifying the process or requirements to establish them (5). The legal framework for creating TRZs in Texas is laid out in Chapter 222 of the Texas Transportation Code (see Appendix B) and includes relatively detailed requirements for local governments to pursue their implementation.iv
Utah enacted its TRZ-enabling legislation in 2018 and amended it in 2019. To date, no TRZs had been created in Utah. The provisions governing the State’s legal framework for TRZs are contained in Section 11-13-227 of the Utah Code (see Appendix C). The implementation provisions offer relatively limited guidance compared to Texas. Because of the limited implementation guidance and lack of experience with TRZs in Utah, the information presented in this primer is largely based on the legal requirements and experience from Texas. Nevertheless, to the extent guidance is available, relevant Utah-specific differences are highlighted throughout this document.v
This chapter first introduces the TRZ concept. Next, it summarizes the main similarities and differences between TRZs and TIF districts, which is another value capture technique that relies on the same principles. Finally, this chapter concludes with an outline of the role that TRZs generally play in the delivery of transportation projects.
Creating a TRZ allows local governments to pledge funding contributions for a transportation project by capturing a portion of the land value increases, new development, and increased business activity spurred by the transportation improvement. When creating a TRZ, local governments designate a contiguous area around a transportation project as an impact zone to capture a portion of the increment in future local property and/or sales tax revenues resulting from the growth in the zone’s tax base.vi The incremental tax revenue is used to fund the transportation project. Thus, a portion of the land development and economic activity attributable to the project is used to fund the improvement. This allows the community to accelerate project delivery and thus reap the benefits of the increased business and economic activity spurred by the project earlier.
A TRZ is very similar to a TIF district in that a TRZ is also a TIF mechanism used to reallocate property tax increments for public investments within the zone. However, a TRZ is explicitly dedicated to transportation improvements in almost every transportation mode. TIF districts, on the other hand, are used to pay for a wider range of infrastructure improvements (e.g., transportation improvements, utilities, landscaping, and streetscaping) and other development projects within a district (e.g., affordable housing, convention centers, and hotels). Two other key differences between a TRZ and a TIF district have made TRZs a popular tool for transportation funding.
First, TRZs are easier to create. In Texas, for example, TRZs can be initiated by a local government and require approval only from its governing body (city council or commissioners court) after public hearings are held.5 On the other hand, like TIF districts in most states, a tax increment reinvestment zone (TIRZ)--the Texas version of a TIF district--has a more complex initiation mechanism(3). A TIRZ can be initiated by a municipality or by petition of the property owners who own the majority of the appraised property value within the zone.vii If initiated by the city, a majority of the property owners have to approve. In addition, a TIRZ can only be initiated by a city if not more than 10 percent of the land within the TIRZ is residential.
Second, TRZs have a less complex structure. According to Texas law, a TRZ does not require a separate oversight structure once it has been approved by the local governing body.5 On the other hand, the Texas Tax Code requires setting up a TIF Board of Directors for a TIRZ.vii
TRZs create funding for transportation projects by capturing and leveraging the growth in real estate/land development value and economic/business activity resulting from a transportation project. TRZs have played a pivotal role in the delivery of transportation projects for local communities. By using TRZs, local governments can leverage multiple traditional and nontraditional funding sources, including Federal and State transportation funds, tolls, and other value capture mechanisms, to expedite, or in some cases make possible, the execution of critically needed transportation projects.
TRZs are generally not intended to serve as the sole funding mechanism to deliver a transportation improvement (2). Rather, TRZ revenues are often used as a complementary funding source to help local governments close the funding gap, meet local match when required, or to pay for project development costs. A TRZ can be created to support single or multiple transportation improvements. Finally, neighboring local governments can establish TRZs within their jurisdictions and combine revenues to fund transportation projects that enhance regional mobility and traffic safety.
iv Texas Transportation Code § 222.105–111
v The Housing and Transit Reinvestment Zone Act was signed into law on March 22, 2021. The law creates a detailed framework for the creation of Housing and Transit Reinvestment Zones, a housing and transit-focused tax increment financing type of mechanism that relies on property and/or sales and use tax increments. The law does not amend or modify the existing framework for the more general TRZs allowed under Utah Code § 11-13-227 and discussed in this primer. The bill, which is included in Appendix C, took effect on May 5, 2021. More details on this new transit and housing value capture mechanism available to local governments in the State of Utah can be consulted by following this link: https://le.utah.gov/~2021/bills/static/SB0217.html#63n-3-610.
vi Although dedicating the sales tax increment within a TRZ is allowed by the Texas Transportation Code (222.105–111), none of the existing or planned TRZs in Texas to date have included sales tax increment provisions. Utah Code § 11-13-227 also allows local governments to dedicate a portion of sales tax increment collected within the zone, but as noted earlier, no TRZs have been created in Utah to date.
vii Texas Tax Code § 311.001-311.021.
