EDC-5 Resources

Value Capture: Capitalizing on the Value Created by Transportation - Presentation

November 27, 2018

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Center for Accelerating Innovation: On-Ramp to Innovation - every day counts
Logo: EDCU.S. Department of Transportation Federal Highway Administration

Presenters

Katie Hulbert, Transportation Specialist, Office of Infrastructure, FHWA
Janine Ashe, Civil Rights Policy & Regulations Specialist, FHWA
Ken Atkins, Contract Administration Engineer, FHWA Technical Services Team (former Osceola County)
Rafael Aldrete, Senior Research Scientist, Texas A&M Transportation Institute
Sasha Page(facilitator), Principal, IMG Rebel

Agenda

  • What is the EDC-5 Value Capture initiative?
  • Why is Value Capture needed?
  • Value Capture Overview and Benefits
  • FHWA Role in Value Capture Initiative
  • Case Studies
  • Q&A/Do you know?

What is the EDC-5 Value Capture Initiative?

EDC 5 Value Capture Initiative

Promotes the use of value capture mechanisms as part of a mixed funding and innovative finance strategy to accelerate project delivery and provide equitable funding for sustainable transportation investments

What is Value Capture?

Source: NCHRP Research Report 873
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Text of flow chart:

Government invests in » transportation infrastructure and services » which increase nearby property values. » This increase in value goes to... » property owners as a profit. » A fraction is paid in taxes and Property value return fees are paid. » This money goes back to the government, which invests in...

Example: Value Capture Funds Corridor Improvement

Virginia Route 28 Transportation Improvement District

  • District formed in 1987 jointly by Loudon and Fairfax Counties
  • Maximum tax rate of $0.20 per $100 of assessed value
  • Raises ~ $23 million in revenue
  • $138 million, 14 - mile widening from two to six lanes completed in 1991
  • District and State share project costs 75/25
Map of Route 28 area

https://www.fhwa.dot.gov/ipd/project_profiles/va_route28.aspx

Why is Value Capture Needed?

View larger version of Capacity, Condition, Structures and Safety images.

The Case for Value Capture

  • Federal funding availability
  • Local project funding
  • Untapped revenue source
  • Equitable
  • Sustainable economic development

FHWA Roles in Value Capture Tools

  • FHWA seeks to improve consideration of all revenue and finance options in the project development process
  • FHWA seeks to build capacity for consideration and implementation of revenue options/value capture tools
  • USDOT's Build America Bureau offers innovative financing through the TIFIA and RRIF programs that can leverage value capture monies

Value Capture Overview & Benefits

What is Value Capture?

Source: NCHRP Research Report 873

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1. Transportation Improvement

2. Value Creation

3. Development or Economic Activity

4. Value Capture

5. Value Recycling

Value Capture Beneficiaries

Source: NCHRP Research Report 873
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Text of Value Capture Focus chart.

Value Capture Focus
General Property and Sales Tax Other real estate-based charges and sales Developer fees and other land-based charges Other benefits from proximity to transport project Tolls Use-based Fees Use-Based Taxes (Gas)
INDIRECT DIRECT

Potential Benefits of Value Capture

Provide gap funding sources for highway improvements & infrastructure life cycle costs

Value Capture Revenue leads to Innovative Finance
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  • Facilitate access to ongoing revenue stream to Local Public Agencies
  • Accelerate project delivery & safety Improvements
  • Induce private investment

Value Capture Techniques

How is the Value Captured?

  • Developer Contributions
    • Impact fees
    • Negotiate Exaction and Ongoing developer contributions
  • Transportation Utility Fees (TUFs)
  • Special Tax and Fee Approaches
    • Special assessment district
    • Sales tax district
    • Business improvement district
    • Land value tax
  • Incremental Growth Approaches
    • Tax increment financing (TIF)
    • Transportation reinvestment zones (TRZ)
  • Joint Development
    • ROW Use Agreements
      • Concessions, leasing
      • Airspace (above or below)
      • Parking
      • Fiber-optic leasing
      • Pipelines or other utilities not addressed by Utility Accommodation Policies or State Law
  • Advertising Rights and Sales
    • Naming rights
  • Other
    • Transportation Corporation (TC)
    • Section 63-20 Corporation

Challenges

  • Every jurisdiction is different
  • Must target projects with economic benefits for leveraging
  • Stakeholder involvement process can be lengthy, due to:
    • Coordination between multiple jurisdictions
    • Discussions with private developers and property owners
    • Establishing project location and design
    • Considering legal issues
  • Securing political support
  • Perceived as another tax
  • Requires accuracy of activity and real estate projections:
    • If I build it, will they come?
    • If I build it, will developers build on nearby property?
  • Identify the magnitude benefits & boundary of value capture mechanism

Ingredients of a Successful Value Capture Project

  • Identified in long-term planning/capital improvement program - primarily local
    • Incorporated early in the project development process
    • Right technique selected for the right project
  • Integrated funding and finance strategy
  • Community support generated through effective outreach

Value Capture Summary

Value Capture is…

  • A set of powerful funding tools that can help address funding gaps. (USDOT supports Value Capture)
  • Can be part of the mix of funding sources for transportation improvement solutions
  • Can accelerate project delivery, save time and money when done properly

Federal Roles

FHWA Roles in Value Capture

  • Build capacity among partners
  • Assemble VC Implementation Team
  • Interact with key stakeholders
  • Develop VC Implementation manual
  • Develop clearinghouse for VC resources
  • Conduct various peer exchanges, training, and technical assistance activities
  • Funding

Value Capture Implementation Team

Co-Leads

  • Thay Bishop, FHWA Office of Innovative Program Delivery
  • Stefan Natzke, FHWA Office of Planning, Environment, and Realty

Members

  • Jennifer Ahlin, Virginia Department of Transportation
  • Janine Ashe, FHWA District of Columbia Division
  • John Duel, FHWA Office of Planning, Environment, and Realty
  • Ben Hawkinson, FHWA Transportation Policy Studies
  • Kathleen Hulbert, FHWA Infrastructure Office
  • Chip Millard, FHWA Freight Management & Operation
  • Diane Mobley, FHWA Chief Counsel Office
  • Kevin Moody, FHWA Resource Center
  • Ben Orsbon, South Dakota Department of Transportation
  • Jill Stark, FHWA Office of Planning, Environment, and Realty
  • Lindsey Svendsen, FHWA Office of Planning, Environment, and Realty
  • Jim Thorne, FHWA Office of Planning, Environment, and Realty
  • Marshall Wainright, FHWA Resource Center

VCIT Focus Areas

  • Communication - Developing the tools to help FHWA staff and others promote Value Capture to local public agencies (Value Capture Implementation Manual)
  • Technical assistance - Providing technical assistance to local public agencies interested in pursuing Value Capture (Peer Program)
  • Clearing House (website) - Identification of best practices and lessons learned and promoting further discussion on innovative funding options for local public agencies, lessons learned from past and current efforts, etc.

Key Stakeholders

  • State Department of Transportations
  • Federal Agencies (HUD, USDA, FTA)
  • Metropolitan Planning Organizations (MPOs, RTPOs)
  • Local & Tribal Governments
  • Transportation Providers (Transit Operators)
  • Business Communities
  • Developers
  • Community residents

Value Capture Activities

  • Webinars
  • Workshops
  • Peer Exchanges
  • Case Studies
  • Sponsorships (local, regional, & national events)
  • Technical Assistance
  • Website (Clearinghouse)
Report Cover - Capitalizing on the Value Created by Transportation

Value Capture Clearinghouse

Case Study - Osceola County Florida
Transportation Impact Fees & Funding

Kenneth E. Atkins, P.E., FHWA

Minimize The Frustration

  • Periods of Dynamic Growth Are Frustrating
    • Crowded Roads
    • Developers were frustrated w/ County
    • Poor Levels of Service
    • Locals were frustrated w/ changing culture
  • Strategic Planning Minimizes The Problems
  • Vision of The End Product Helps

Transportation Impact Fee Background

  • Approved in 1989
  • Implemented in 1990
  • Last update in 2007
  • Suspension/ moratorium in 2011 & Repealed 2012
  • Replace with Mobility Fee, effective date June 22, 2015

Value Capture Advances Roadway & Bridge Program

  • Projects bundled using Alternative Contracting Methods (ACMs)
  • Countywide 11 projects with 13 bridges
    • Bridges were part of roadway projects
  • 1 billion dollar program - started w/ bundling $350- million
  • 100% locally funded by Value Capture -impact fees

Transportation Mobility Fee

Transportation system charge on development that allows local governments to assess the proportionate cost of transportation improvements needed to serve the demand generated by development projects.

MOBILITY FEE =
Additional transportation demand from development
X
Identified cost for transportation improvements to mitigate associated development impact

The Results

  • Most accelerated program in Nation
  • 11 Major Roadways in 1-year
  • Returned $80 million to local economy in first 4 months of construction
  • 11 times previous production
  • Returned 36 million dollars in savings to the County's budget
  • Start of design to ground breaking as fast as 15 months
  • Saved numerous local contractors from going out of business

Case Study - Texas Transportation
Reinvestment Zones - Concepts & Implementation

Rafael Aldrete, Texas A&M Transportation Institute

Texas Transportation Reinvestment Zones - Concepts and Implementation

Logo - Texas A&M Transportation Institute

Federal Highway Administration
Every Day Counts Regional Summit
St. Louis, Missouri

October 29-30, 2018

Outline

Text of outline.

  • Introduction and Background
  • The Texas TRZ
  • Evolution of the TRZ Legal Framework
  • The TRZ Implementation Process
  • Opportunities and Limitations
  • Active Texas TRZs

Introduction

Text of Introduction chart.

Funding Transportation Needs

Creative Thinking

  • Doing more with less
  • Alternative funding sources
Texas Legislature SB 1255 (2007) Created TRZs 14 Local TRZs Since 2007

Background

Types of Value Capture Mechanisms used in Transportation #1 of 2
Mechanism Definition Applicable Purpose Examples (State)
Impact Fees (IF)
  • One-time charge
  • Local governments collect from developers to finance new infrastructure and services for new development.
Cost recovery
  • Transportation System Development Charges
  • In OR used to fund existing and new capacity
  • Also used in WA and NJ
Special Assessment District (SAD)
  • Additional fee on properties benefiting from proximity to a new facility
  • District vote is needed
  • Projects require district vote
Capture of project expansion benefits
  • VA and OH (Downtown Improvement Districts),
  • IL Special Service Areas
Sales Tax District (STD)
  • Type of SAD requiring project beneficiaries to pay limited sales tax instead of property tax
Capture of project expansion benefits
  • IL Special Service Areas;
  • MO and KS Transportation DD
Negotiated Exaction (NE)
  • One-time charge similar to IFs but not requiring a formal process
  • Example: in-kind contributions to local infrastructure (roads, parks, etc.) for development approval
Capturing opportunity for value creation and cost recovery
  • VA proffer

Source: Vadali, S. NCHRP Synthesis 459. 2014

Types of Value Capture Mechanisms used in Transportation #2 of 2
Mechanism Definition Applicable Purpose Examples (State)
Joint Development (JD or P3)
  • Development of a transit facility and adjacent private real estate
  • Private partner provides facility or makes financial contribution to offset construction costs
Capturing opportunity for value creation and cost sharing and revenue sharing with private sector Massachusetts Turnpike (MA) and Washington Metropolitan Transit Authority (VA)
Air Rights (AR)
  • Form of JD
  • Dev. rights above or below infrastructure facility used to generate / capture incremental increase in land value
Capturing opportunity for value creation and cost sharing and revenue sharing with private sector Massachusetts Turnpike (MA) Interstate 5 (WA)
Land Value Tax (LVT)
  • Tax imposed on land value benefiting from infrastructure
Capture of project expansion benefits Pennsylvania counties (PA)
Transportation utility fees (TUFs)
  • Utility fees assessed on characteristics more closely related to transportation demand than property taxes
Cost recovery: operating and maintenance costs Oregon TUF for pavement maintenance (OR)
Tax increment financing (TIF)
  • Mechanism to allocate any increase in total property tax revenues toward public investment within a designated district
Capture of project expansion benefits TRZs (TX)

Source: Vadali, S. NCHRP Synthesis 459. 2014

The Texas TRZ - Definition (#1 of 2)

  • Texas TRZs
    • Designated contiguous zone around a planned transportation improvement where properties are expected to benefit from the project through land development, value increases
    • Legal arrangement to facilitate value capture via the property and sales tax mechanism and allow the local government to use incremental tax revenue as collateral
  • Texas TRZs are not a new tax
    • Tax rates do not change
    • Revenue realized only if real property develops / increases in value

The Texas TRZ - Definition (#2 of 2)

  • TRZs Expedite Transportation Projects
    • Local match contributions
    • Multiple funding sources leveraged
  • TRZ Legal Framework Has Evolved
    • Process / requirements clarified
    • Uses / types modified or expanded
  • Three TRZ Types
    • Municipal
    • County
    • Port Authority

The Texas TRZ - How it Works

View larger version of the chart.

The Texas TRZ - Financing Options

Three Financing Options Available for TRZ Revenue Funds
Type Form Advantage Disadvantage
Pay-as-you-go
  • Expenditure within the budget limit
  • No financial cost
  • Slow/late delivery due to capital constraints
Municipal bond financing
  • Public financing from capital markets
  • Earlier availability of capital
  • Flexibility to finance different project types
  • Higher transaction, interest costs
  • Faster than pay-as-you- go
State Infrastructure Bank (SIB)
  • Long-term debt from the state
  • Earlier availability of capital
  • Lower transaction, interest costs
  • Competition with other jurisdictions
  • Federalization: added time and cost
  • Restrictions on financing of projects off the state system

The Texas TRZ - How Funds Flow

Bond and SIB Loan Financing

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Start: Public entity borrows money with TRZ revenue as collateral.

Construction: Government starts construction

Operation: Government repays debt using tax increment

Evolution of the TRZ Legal Framework

Categories (SB 1266) (HB 563) (SB 1110 HB 2300 & SB 971) (SB 1305)
Project Type
  • State Highway (pass-through toll)
  • State Highway
  • Local Roads
  • Transit
  • Port
  • Multimodal
 
TRZ Type
  • Municipal
  • County
 
  • County Energy
  • Port Authority
  • County Energy (Repealed)
TRZ Management
  • Property Tax TRZ
  • Partial allocation of tax increment
  • 10-year termination if project is not identified
  • Contracting with public/private entities
  • Bonding
  • Real property may be added in future years
  • Fund multiple projects
  • TRZ joint administration
  • Multiple administration for multiple TRZs
 

TRZ Implementation Process

Five Steps: Initiation to Termination

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Text of the five steps diagram.

1. Initiation

2. Zone Formation

3. Public Hearing and Adoption

4. TRZ Operation

5. Termination

1. Initiation

  • Project Identification and Need
    • Specific development/economic benefits from project(s)
    • Determine area eligibility/preliminary boundaries
    • Conduct preliminary feasibility analysis
  • Developing Stakeholder Relations and Champions
flow chart

Text of flow chart:

1 Data Collection

2 Definition of TRZ Boundaries

3 Value Capture (Financial) Analysis

2. Zone Formation

Refine

  • Refine Boundaries, Zones, Parcels
    • Must be contiguous
    • Unproductive/ underdeveloped region
    • Practical considerations drive boundaries
    • Can establish boundaries without knowing exact project limits

Establish

  • Establish Benchmark Year for Tax Increment Collection

 

Provide Notice

  • Provide 60-day Notice
    • Hearing 30 Days Before Expected TRZ Designation

Analyze

  • Refine Value Capture Revenue Analysis

3. Public Hearing and Adoption

Public Hearing Timing

  • Public notice
  • What government can do during 30-day period
    • Update expected project costs
    • Consider joint funding agreements
    • Conduct final boundary/parcel review, assess expected revenue impacts
    • Finalize parcel list included in TRZ

30 Days after Hearing

  • TRZ adopted/designated by order/resolution

4. Operation

Every Year after TRZ Adoption

  • Tax increment transferred into account

Monitoring, Evaluation Become Critical

  • Not a legal requirement
  • Optimizes revenue, payment streams
  • Monitoring information valuable
    • E.g., if revenue is below expectations, develop insights into activate contingency plan

5. Termination

Dissolution of TRZ

  • Dec. 31 of compliance year with contractual requirement

OR

Dissolution of TRZ

  • Dec. 31 of the 10th year after establishment if not used

 

TRZs: Opportunities

Opportunities flow chart
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Text of flow chart

Partnership opportunities (common goal) » Multimodal networks (resulting from project scope) » Easier to operate compared to other finance mechanisms » Opportunities

TRZs: Limitations

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Limitations « Constitutional restrictions on counties « SIB: only cost- effective lending Institution

Active TRZs - 14 in Planning or Operation Phase (2017)

TRZ Name and Location TRZ Type Date Established
City of El Paso TRZ No. 2 Municipal December 2010
City of El Paso TRZ No. 3 Municipal December 2010
City of El Campo TRZ No. 1 Municipal December 2012
Town of Horizon City TRZ No. 1 Municipal November 2012
City of Socorro TRZ No. 1 Municipal October 2012
City of San Marcos TRZ No. 1 Municipal December 2013
Cameron County, TRZ No. 6 County December 2015
Hidalgo County TRZ No. 2 County December 2011
El Paso County TRZ No. 1 County December 2012
Hays County TRZ No. 1 County December 2013
Port of Beaumont TRZ No. 1 Port Authority and Navigation District December 2013
Port of Arthur TRZ No. 1 Port Authority and Navigation District December 2013
Sabine-Neches Navigation District TRZ
No.1
Port Authority and Navigation District December 2013
Port of Brownsville TRZ No. 1 Port Authority and Navigation District December 2013

Active Texas TRZs: City of El Paso TRZ

  • Comprehensive Mobility Plan 2008 ~ $1 Billion
  • TRZ Contribution: $70M (7%)
  • TRZ Boundaries Designation:
    • 1/16 to 1/4 of a mile, depending on location
      • TRZ No.2: 4,434 Acres
      • TRZ No.3: 5,513 Acres
traffic photo

Transportation Reinvestment Zone No. 2

TRZ #2 area map
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Transportation Reinvestment Zone No. 3

TRZ #3 area map
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El Paso TRZ No.3 Land Use Change 2009-2015

Area maps - 2009 and 2015
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El Paso TRZ No.3 Development Status 2009-2015

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El Paso TRZ No.2 Taxable Value Change 2009-2015 (partial)

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Taxable Value Increment within TRZ No.2

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Taxable Value Increment within TRZ No.3

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Questions

Rafael Aldrete, Ph.D.
Senior Research Scientist
(915) 532-3759 Ext. 14101
r-aldrete@tti.tamu.edu

Questions & Answers

Do you know? Value Capture Techniques

Thank You

Katie Hulbert & Janine Ashe

Co-leads:
Stefan Natzke; Stefan.Natzke@dot.gov
Thay Bishop: Thay.Bishop@dot.gov

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