Introduction

This quick start guide, in conjunction with the value capture toolkit, is a concise reference guide and a collection of resources to help policy makers and private entities explore value capture as a finance mechanism for transportation projects and programs. The guide covers what value capture is, the different forms it can take, resources needed to implement, and lessons learned from small county and municipal applications to larger statewide programs. This quick start guide will provide wayfinding for individuals and organizations with little or no experience with value capture and still provide resources helpful to practitioners with experience using value capture.

What is Value Capture?

Value capture offers an equitable means of recouping value from the private sector in proportion to the benefit received from transportation improvements. Applied correctly, value capture is narrow and targeted. It is generally not only palatable to, but often supported by, private property owners because they receive a direct and tangible benefit from their investment. Recapturing and reinvesting value back into the transportation system maintains and even enhances the value of local private land.

Value capture presents the opportunity to fund infrastructure in a more equitable way, and to align infrastructure provision with a wide range of public policy needs such as smart growth, affordable housing, and environmental protection. This occurs in part because value capture is really composed of three elements: value creation, value capture, and value expenditure. Public infrastructure investments create value, a portion of that value created is in private gains, and a portion of that value can be captured for existing or future infrastructure expenses. Successful value capture implementation considers the potential market response to all three components:

1. Value creation: How much value does the transportation infrastructure create and for whom?
2. Value capture: How can that value be captured in a way that maximizes equity and minimizes unintended market responses (negative externalities and market distortions)?
3. Value expenditure: How can value created by public investment be allocated to support public benefits?

Value capture techniques have the potential to close funding gaps for critical infrastructure and align those investments with other local and regional public policy goals. Value capture is not a magic bullet or a one-size-fits-all financing solution, but when implemented well, these techniques ensure that infrastructure investments reflect the true cost of infrastructure and land development patterns and promote taxpayer equity and fairness.¹

Why Use Value Capture Techniques?

Traditional funding sources, including the Highway Trust Fund, are inadequate to meet the funding needs for capacity improvements and to fix deteriorating infrastructure conditions. Estimates suggest that there is an investment gap of more than $8.2 trillion that are needed by 2039 for transportation in the US. If the investment gap is not addressed, the economy is expected to lose more than $10.3 trillion cumulatively in GDP by 2039.² Sustained investment is thus required to address the need for infrastructure improvements to mitigate congestion, improve highway pavement conditions, maintain bridges, improve safety, retain economic competitiveness, and focus on new transportation issues. Capacity and condition challenges that highway and road systems face include:

• Severe or extreme traffic congestion impacts. 30% of trips on roadways nationally, while 47% of urban Interstate s face congestion during peak trip hours.³
• 43% of US roads are in poor or mediocre condition, most of which are on rural and urban collectors and not the Interstate system. By 2040, higher temperatures and severe weather events will add an estimated $19 billion to pavement costs annually.
• 46,000 bridges are in poor condition and 42% (259,000 bridges) are at least 50 years old.
• The estimated backlog of road and bridge capital needs is around $786 billion.
• Pedestrian deaths on US roads have increased 60% over a ten-year period, with over 6,000 deaths in 2019, illustrating the need for continued safety improvements.

Value capture is a set of innovative finance tools and techniques that can close State and local funding gaps or accelerate delivery for critical infrastructure and align those investments with other local and regional public policy goals. Value capture techniques enable flexibility to fund at the individual project level, groups of projects, or infrastructure programs. Funding can be used to fill gaps, accelerate projects, provide local matches, or be directed to uses that other Federal or State funding sources cannot be applied to.⁴ In practice, value capture can:

Finance public investment in infrastructure to reduce physical vulnerabilities due to floods and damage by other severe weather events.

Secure (or reimburse) upfront infrastructure funding by recouping real estate value gains generated by public sector infrastructure improvements. Capture “windfall gains” that would otherwise accrue to a small number of individuals because of public infrastructure improvements.

• Promote infrastructure cost-sharing with win-win outcomes to public and private stakeholders; and
• Incentivize wider policy measures that increase land value, e.g., reduction of local risks.

Whether the need is at the neighborhood, district, municipal, county, or State level, there are value capture techniques available for most applications. Depending on the technique, value capture can accommodate funding needs ranging from hundreds of thousands to billions of dollars over time. The business case and design of the value capture implementation requires careful consideration of the needs, benefits of the project(s) or programs, and value the infrastructure will create. Lastly, value capture techniques can be implemented for a short period of time or long-term depending upon the transportation infrastructure needs of the State or community.

Local Implementation Needs and Resources

While this quick start guide will provide guidance on some of the key steps needed to implement value capture, the high-level needs and processes are the same as other funding pursuits. The four major local needs are defined in Table 1. Depending on the agencies or departments involved, these skills and needs can come from internal resources or external partners.

Table 1 : Local Implementation Needs and Resources

Implementation Needs	Description of Local Needs and Resources
Legal support	Legal counsel familiar with land use law and with experience in municipal finance are advantageous to definitively identify available value capture techniques that can be used locally. Legal counsel will be able to evaluate proposed value capture implementations to ensure they satisfy statutory requirements. Legal counsel will be able to establish the legal basis, precedent, and supporting evidence to avoid potential legal challenges or invalidation.
Strong finance and property assessing services	Value capture will require revenue collection, property value assessment, and accounting staff support and systems from jurisdictional offices covering finance, auditing, and assessments. These staff and resources are needed during exploration, implementation, and operations phases of any value capture pursuit. These skills will be important to determine the appropriate techniques and financial instruments required to generate needed revenue.
Strong public engagement and political support	Support from the public, policy makers, and local politicians can expedite implementation and maintain use of value capture in the future. Clear messaging on the benefits (including equity), transparency on where and how funds will be spent, and where value is extracted from are important aspects of outreach and education. Cross neighborhood or jurisdictional projects will require support from multiple communities and leadership. Close political ties across communities are essential for any cross jurisdictional projects.
Motivation and the business case	Make the business case by communicating the value the proposed infrastructure creates and the benefits of funding it through value capture - to stakeholders who will now be asked to contribute a fair share. Articulating the benefits and economic development potential can be key motivating factors to generate or maintain support.

Examples of Successful Value Capture Implementations

The following summaries of successful value capture implementations were drawn from a larger selection of more in-depth case studies that can be found on FHWA’s Center for Finance Support’s Value Capture Case Studies website.⁵

N Street Bikeway—Complete streets project with a sizeable funding gap

The city of Lincoln, Nebraska wanted to connect its extensive 128-mile bicycle train network to and through its growing downtown to solve the downtown’s “last mile problem” that had left it disconnected. In order to meet the final project cost of $3.7 million, the city assembled a comprehensive funding package from over 20 different sources, including a significant share from four TIF districts. The TIF districts were crucial in closing the funding gap to enable the project, providing nearly half of the total funding. Since the completion of the N Street Protected Bikeway in 2016, over $165 million in private development has occurred in the downtown area, including the development of over 500 new residential units. The project has also motivated further support for active transportation in Downtown Lincoln and promoted the development of more bike lanes.

Yankton County Service Road—Rural economic development

Yankton County, South Dakota in partnership with a private developer, wanted to update a gravel road to a concrete industrial access road to connect the site of a future rail-served industrial park with necessary access to the highway. The project did not meet the criteria to receive Federal funding, so the county received a low-interest loan through the State DOT infrastructure loan program to fund the project and established a TIF district to make debt service repayments. The completion of the service road and related infrastructure supported the development of a $40 million high-speed grain receiving facility that employs 10 full-time equivalent employees along with other sites available for development, furthering the county’s economic development goals.

Pasco County—Impact fees with mitigation measures

Pasco County, Florida had a variety of key transportation-related goals that they needed to fund, including mobility infrastructure improvements, reduction of sprawl to rural areas, and promotion of economic development. The county developed the Multi-modal mobility fee program (an impact fee) as a one-time capital charge to recover the proportionate cost of transportation improvements needed to serve the demand generated by new development projects. The Multimodal Mobility Fee Program has proved particularly successful due to its being tailored to the county’s land use goals of smart growth, allowing the county to satisfy Florida’s growth management objectives of reducing sprawl. The program is expected to generate $627 million in revenues between 2025-2045.

Texas TRZs—Overlay districts and developer fees

El Paso, Texas was facing a large financing gap to fund important transportation improvements. To fill this gap, the Camino Real Regional Mobility Authority developed two transportation reinvestment zones (TRZs) in El Paso, Texas to fund transportation improvements. One notable improvement is the Americas Interchange, which is a significant crossroads between the United States and Mexico. The implementation of TRZs in El Paso filled a $70 million financing gap for large transportation infrastructure improvements.

Maricopa County Sales Tax District—An urban, multi-jurisdictional large-scale project

The Loop 202 South Mountain Freeway project in the Phoenix metropolitan area, the largest single project in Arizona history, faced a local funding gap despite receiving Federal funds. Maricopa County established a countywide sales tax district that imposes a half-cent tax on retail sales in order to close the funding gap and provide further funding for other transportation projects in the Maricopa Association of Governments Regional Transportation Plan. The sales tax was the largest source of funding for the Loop 202 project, covering 38% ($702 million) of the total project cost. The project, which provides important connections and alleviates traffic congestion in downtown Phoenix, would not have been financed absent the value capture technique.

The Value Capture Techniques section of this Quick Start Guide presents more examples of how the techniques have been implemented across the country.

What Is Included in this Value Capture Quick Start Guide?

Value capture is not a new revenue or financing concept, and some techniques are called by different names in different places. The technique has been widely used in transit projects and as this guide will show, is applicable to highway and roadway projects. Value capture is a flexible funding opportunity for State and local agencies. This guide will describe the techniques, their requirements, and applications. It will also provide examples of successful implementations and direct readers to key resources.

Footnotes

¹ User fees capture value from system users, and general taxes spread the cost of an infrastructure investment across all taxpayers regardless of how much they use or benefit from that infrastructure. User fees and general taxes do not capture a fair share of the concentrated benefits that accrue to property owners, developers, and businesses served by the infrastructure.

² American Society of Civil Engineers, 2021 Report Card for America’s Infrastructure, https://infrastructurereportcard.org/.

³ Ibid.

⁴ For example, Pasco County did this with their multimodal mobility fee program, see https://www.fhwa.dot.gov/ipd/pdfs/value_capture/case_studies/pasco_county_fl_multimodal_mobility_fee.pdf.

⁵ FHWA’s Center for Finance Support’s Value Capture Case Studies website, https://www.fhwa.dot.gov/ipd/value_capture/case_studies/.