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Notice
This document is disseminated under the sponsorship of the U.S. Department of Transportation (USDOT) in the interest of information exchange. The U.S. Government assumes no liability for the use of the information contained in this document.
The U.S. Government does not endorse products or manufacturers. Trademarks or manufacturers' names appear in this report only because they are considered essential to the objective of the document. They are included for informational purposes only and are not intended to reflect a preference, approval, or endorsement of any one product or entity.
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide information and clarity to the public regarding existing requirements under the law or agency policies. Value capture techniques and policies are often implemented outside of Federal funding or regulatory requirements.
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Cover photos source: FHWA
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16. Abstract Value capture refers to a set of techniques that rely on increases in property values, business activity, and economic growth linked to transportation infrastructure to help fund current or future transportation improvements. The use of value capture techniques involves a set of risks associated with value capture’s reliance on increased real estate values and economic development activity. However, real estate values and economic development depend on many other factors besides the condition of nearby transportation infrastructure. Many of these factors are sources of risk that are outside the control of project stakeholders (e.g., national recession, inflation). Assessing and managing these risks is critical to maximize the likelihood that the project will generate the value and the funding expected. This primer presents an overview of the risk management process in the context of value capture. It illustrates risks typically faced by local governments in projects funded through value capture using real-world examples. It also describes mitigation strategies that were used or could have been used to mitigate those risks. The primer concludes with a discussion on building resiliency into a project’s value capture funding strategy. |
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Form DOT F 1700.7 (8-72)
Reproduction of completed page authorized
The Federal Highway Administration (FHWA) would like to express appreciation to the local officials who provided feedback during the development of this primer, as well as to the members of FHWA’s Value Capture Implementation Team.
APS - Atlanta Public Schools
BID - Business improvement district
COVID-19 - Coronavirus 2019
DART - Dallas Area Rapid Transit
FHWA - Federal Highway Administration
JD - Joint development
LRT - Light-rail transit
ODOT - Ohio Department of Transportation
PILOT - Payments in lieu of taxes
PMBS - Private-label mortgage-backed security
SAD - Special assessment district
STD - Sales tax district
TAD - Tax allocation district
The Cap - The Cap at Union Station (Columbus, OH)
TID - Tax incremental district
TIF - Tax increment finance
TJD - Transit joint development
TOD - Transit-oriented development
TRZ - Transportation Reinvestment Zone
TUF - Transportation utility fee
TxDOT - Texas Department of Transportation
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. The use of value capture techniques to fund transportation infrastructure is relatively new and not free of risks.
Risk is an intrinsic component of any transportation project, regardless of the funding source used to pay for them. A host of reasons may affect the cost of construction and the construction schedule, and external factors may alter travel demand forecasts. From a funding perspective, the availability of financing and cash flow to pay for the project is a vital project element that almost always involves risk. As a result, using value capture to fund a project involves its own set of risks, particularly because it depends on value creation linked to real estate and economic development. Assessing and managing risks associated with value capture is critical to maximize the likelihood that the project will generate the value and the funding expected.
This primer is based on a review of relevant literature, interviews with practitioners, case studies, and lessons learned from practicing agencies. Its audience includes two groups:
This primer presents an overview of the risk management process in the context of value capture. Additionally, it defines four risk categories affecting value capture techniques and the types of risks that fall into each category. Moreover, this primer provides real-world examples that illustrate the types of risks faced by local governments using value capture techniques, as well as the mitigation strategies that were used or could have been used to mitigate those risks.
Next, the primer identifies and compares the risks associated with the use of each value capture technique along with the consequences they might have, if materialized, and mitigation strategies that could potentially improve the ability of local governments to control them. The primer then describes how local governments can build resiliency by incorporating means to cost-effectively deal with potential deviations in actual project outcomes. Finally, the primer provides a case example to illustrate how a local government has implemented the risk management process for systematically identifying, assessing, allocating, mitigating, and monitoring risk throughout the lifecycle of a project funded with a value technique.
