EDC-5 Resources

Presenters

• Jill Stark, Office of Planning, FHWA
• Chip Millard, Office of Freight Management and Operations, FHWA
• Rafael Aldrete, Senior Research Scientist, Texas A&M Transportation Institute. Texas Transportation Reinvestment Zones
• Daniel D'Angelo (facilitator), Applied Research Associates, Principal Civil Engineer

Agenda

• What is the EDC-5 Value Capture initiative?
• Why is Value Capture needed?
• Value Capture Overview and Benefits
• FHWA Role
• Case Study
• 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?

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

Virginia Route 28 Transportation Improvement District project profile

Why is Value Capture Needed?

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?

Value Capture Beneficiaries

Potential Benefits of Value Capture

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

• 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 technique

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 Role

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
  • 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. Clearing House website.

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)

Value Capture Clearinghouse

• Currently under development
• Value Capture Manual "How to" implement value capture under development
• Clearinghouse for best practices/lessons learned
  • Value Capture Resources
  • Project Profiles
  • Value Capture Mechanism Fact Sheets

Case Study - Texas Transportation Reinvestment Zones - Concepts & Implementation

Federal Highway Administration
Every Day Counts Regional Summit
St. Louis, Missouri
October 29-30, 2018

Rafael Aldrete, Texas A&M Transportation Institute

Outline

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

Introduction

• Funding Transportation Needs
• Creative Thinking
  • Doing more with less
  • Alternative funding sources
• Texas Legislature SB 1266 (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
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

• 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
• 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

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

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

1. Initiation
2. Zone Formation
3. Public Hearing and Adoption
4. TRZ Operation
5. Termination

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

2. Zone Formation

Refine	Establish	Provide Notice	Analyze
Refine Boundaries, Zones, Parcels Must be contiguous Unproductive/ underdeveloped region Practical considerations drive boundaries Can establish boundaries without knowing exact project limits	Establish Benchmark Year for Tax Increment Collection	Provide 60-day Notice Hearing 30 Days Before Expected TRZ Designation	Refine Value Capture Revenue Analysis

3. Public Hearing and Adoption

Public Hearing Timing	30 Days after Hearing
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	TRZ adopted/designated by order/resolution

4. Operation

Every Year after TRZ Adoption	Monitoring, Evaluation Become Critical
Tax increment transferred into account	Not a legal requirement Optimizes revenue, payment streams Monitoring information valuable E.g., if revenue is below expectations, develop insights to activate contingency plan

5. Termination

Dissolution of TRZ	OR	Dissolution of TRZ
Dec. 31 of compliance year with contractual requirement		Dec. 31 of the 10th year after establishment if not used

TRZs: Opportunities

TRZs: Limitations

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

Transportation Reinvestment Zone No. 2

Transportation Reinvestment Zone No. 3

Questions

Rafael Aldrete, Ph.D. Senior Research Scientist

(915) 532-3759 Ext. 14101
r-aldrete@tti.tamu.edu

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