Value Capture Implementation Manual

August 2019
Table of Contents

List of Figures

List of Tables

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Executive Summary

The funding challenge and opportunity

Value capture presents an opportunity to meet funding challenges for transportation projects at a local and State level and deliver on public policy objectives.

State and local governments often struggle to mobilize the necessary funds to maintain, rebuild, and expand their local transportation networks. Planned projects often face funding or financing hurdles that may result in projects being delayed for years, if not indefinitely, leaving important safety and mobility objectives unmet.

Value capture refers to a set of techniques that generally take advantage of increases in property values, economic activity, and growth linked to infrastructure investments to help fund current or future improvements. Under the right circumstances, this may allow practitioners to help close funding gaps and accelerate project delivery, as well as provide other real estate-related benefits.

Value capture also presents an opportunity to meet public policy objectives. With value capture, those who benefit from a new transportation investment - including property owners or developers - pay for some of its costs, which results in the funding burden being shared more equitably. Because communities like sharing the costs along with the benefits, projects funded by value capture may more likely meet community goals and advance equity, sustainability, and quality-of-life objectives.

The following list includes some of the many potential benefits of using value capture techniques:

  • Offers significant advantages for some projects (several are described in this Manual).
  • Helps fund maintenance and improvements.
  • Helps accelerate project delivery.
  • Encourages smarter land use.
  • Induces private development.
  • Facilitates projects that are tailored to maximize community benefits.

The opportunities of value capture need careful planning and implementation to be fully realized. Value capture can be an important source of funding for new transportation projects, but it is almost always used in concert with more traditional sources of funding. This Value Capture Implementation Manual (the Manual) focuses on how to adapt value capture solutions to project- or context-specific factors to create an overall funding strategy that makes the best use of available value capture alternatives.

Chapter 1: The Purpose of the Manual

The Manual fills knowledge gaps, providing best practices for identifying opportunities for value capture and integrating value capture into priority projects.

The Manual defines value capture and its opportunities and limitations. It provides best practices for selecting appropriate value capture techniques, developing a solid business case, assessing real estate and regulatory barriers, and effectively implementing value capture techniques. Case studies are used throughout the Manual and in the Appendix to highlight successful examples of value capture.

The Manual is primarily intended for public sector practitioners and partners across all levels of government. It may also serve as an educational tool for not-for-profit organizations, stakeholders and community members, and private developers.

Chapter 2: Assessing Funding Options and Need for Value Capture

Identify the funding and financing opportunities value capture is intended to address.

An opportunity for value capture begins with both a priority infrastructure project and public policy objectives that value capture is expected to serve. The next stage involves developing a plan for how the project will be funded and financed. A funding and financing plan will likely combine more traditional funding sources, such as Federal and State disbursements, with more innovative sources such as value capture.

Value capture can present a unique opportunity to "build the case" for Federal and State funds, because this technique can build community support for an infrastructure project, which can be a requirement for obtaining State and Federal funds, and because value capture revenues can help meet local matching requirements to access Federal and State funds. Other high-level concerns that may influence the appropriateness of value capture include regulatory and legal considerations, stakeholder and community support considerations, real-estate market considerations, and the stage of the planning process.

Chapters 3 through 9: Identify Appropriate Value Capture Techniques

Identify value capture techniques applicable to the project by carefully weighing considerations related to economic efficiency and equity, political acceptability, legal and institutional feasibility, and real estate market risks.

The Manual presents 12 value capture techniques grouped into six categories based on common characteristics. Developer contributions - including impact fees and negotiated exactions - refer to techniques that generate revenues for a project by collecting fees from private developers. Transportation utility fees generate revenues by levying fees on property owners or building occupants to pay for O&M. Special taxes and fees are levied via techniques that include special assessment districts, business improvement districts, sales tax districts, and land value taxes. Tax increment financing generates revenues by imposing or capturing an additional or incremental tax on properties within a defined district. Joint development refers to techniques in which governments work together with developers to improve the use of land above or near an infrastructure development. Finally, naming rights generate revenues to fund an infrastructure project.

Chapters 3 through 9 of the Manual help practitioners select the most appropriate value capture technique(s) for their project based on legal, economic and equity, political, implementation, and real estate considerations. Relevant decision-making factors include the extent to which the technique is more commonly used to fund capital expenditures (or operations and maintenance costs), whether the technique has been used for highway and road projects, how much revenue it can generate for the project and when those revenues are expected to materialize, the ease with which the technique can be administered and implemented, and its degree of political acceptance.

Chapter 10: Develop the Business and Economic Case

Define the business and economic case for a project and associated use of value capture techniques, based on goals and objectives defined through stakeholder consultation.

Value capture is more than a way of achieving project funding. It can be a planning and policy lever to align public and private objectives in the planning and delivery process.

It is important that the rationale for pursuing value capture techniques be integrated into a coherent vision for transportation, mobility, and land use. A key feature of a strong business case is equity from both a public and private perspective. This means an equitable distribution of costs and risks among participants. The business case should also consider the need of investors and developers to meet profitability, financing, and timing thresholds. Public and private benefits and costs should appropriately balance return and risk for each party to make value capture investment feasible.

It is critical for sponsors of transportation projects involving value capture techniques to involve stakeholders and foster public involvement.

Stakeholder involvement can help improve the project's benefit to the community, municipality, and/or the State, and to the stakeholders themselves. It can also help mitigate some of the negative impacts of the project.

Chapter 11: Assess and Address Real Estate Market Risk

Assess and understand the characteristics of the broader real estate market as well as the unique project characteristics that may impact property values.

Implementing agencies should take the time to understand and assess national and regional trends in the real estate market, including the unique characteristics of the market at and around the transportation facility.

The value of real estate, the main source of the "value" in many value capture strategies, is driven by several economic and demographic factors. It is also driven by regional, local, and neighborhood trends. The real estate market is an enormous component of the U.S. economy, consisting of a number of categories including housing, office, retail, and industrial. Each sector has unique characteristics affecting the level of demand, business cycle, and access to capital. Real estate markets are subject to business market changes that can be significant, as experienced during the 2007-2009 recession. A variety of trends, including a growing desire to live in denser urban areas and use alternative transportation modes and technologies, affect real estate demand.

In addition to recognizing longer-term trends, implementing agencies need to understand the unique local considerations of their project that may impact property values.

Chapter 12: Address Regulatory Framework

Ensure value capture techniques are used within the appropriate local, State, and Federal supporting regulations.

Local regulations, particularly zoning, play an important role in value capture techniques.

Jurisdictions that are open to updating zoning policies may ease the application of value capture techniques. In particular, jurisdictions that allow for upzoning or greater density at and around transportation facilities makes value capture more attractive.

State governments can foster the application of value capture techniques.

State-enabling legislation is fundamental to providing value capture options for municipalities. Well-designed State-level policies can go even further and streamline value capture adoption in less developed communities. States can also play a role in ensuring that value capture projects benefit from fiscal policies that give cities, towns, and counties the authority to raise funds from value capture and spend them as intended.

Federal regulations can play a supporting role to local and State regulations in value capture.

Federal regulations and policies can support value capture by ensuring value capture techniques are recognized as appropriate project funding sources and by helping educate local agencies on value capture benefits. Environmental review is integral to most all project development processes involving Federal funds, including those that utilize value capture techniques.

Chapter 13: Implement the funding and financing plan

Develop and implement a funding and financing plan utilizing value capture, based on the unique features of the chosen value capture technique.

The mechanics of collecting value capture proceeds need to be finalized before a value capture technique is applied, especially when financing is involved.

With some value capture techniques, municipalities will ring-fence value capture revenues (i.e., protect the funds from being used for other purposes). This is particularly important when value capture revenues are pledged to repay bonds or loans. It is also important for preserving the integrity of using transportation's indirect benefits for transportation purposes. With other techniques such as impact fees or negotiated exactions, value capture revenues are paid up front. For all techniques, the process of collecting and depositing these monies should be clear and detailed in legal documentation. Implementing agencies should carefully consider how they will manage the value captured or collected and for which purposes the funds will be used.

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