Implementation Considerations

There are several considerations and key steps that should be factored in while pursuing a value capture strategy. First, it is important to verify enabling legislation exists and statutory requirements for value capture can be met in your area. If legislation does not exist, implementation will be delayed as you seek support for legislative approval. Creating sustained support from the public, business leaders, local politicians, and policy makers is important for implementation and for longevity as some value capture techniques require renewal. Upon nearing implementation, the value capture implementation should be appropriately specified to meet the funding needs in terms of funding needed, duration, and consider potential risks.

For all these aspects you will need the support of internal or external experts, which will ensure value capture funding is appropriate for the use, will withstand challenge, and was designed with potential risks in mind. The details for the main implementation considerations and potential impediments are presented below:

Verify Legal and Statutory Requirements

The successful implementation of value capture techniques depends on compliance with existing statutory requirements for their use. Statutory requirements can become significant delays to the use of certain value capture techniques if a project design does not fit into the statutory framework or if there are changes to existing State legislation after an agency has already begun the implementation of a value capture technique. Some value capture techniques may be vulnerable to judicial challenges if the authority of a jurisdiction to implement such techniques is unclear under existing legislation. An important step to maintaining value capture when legal authority is unclear or ambiguous is to document and establish the legal precedent for meeting the core legal tests for value capture (rational nexus, rough proportionality, and but-for). See the “Essential Nexus, Rough Proportionality, and But-For Tests” document for more information on legal standards, issues, and tests surrounding value capture techniques.

Building Public, Business, and Political Support

The lack of public or stakeholder support for a specific value capture technique can present itself as a hurdle to implementation, especially if a project is contingent on voter approval. Ways in which agencies have navigated public or stakeholder opposition to a value capture technique center largely on direct public outreach programs to address misconceptions about value capture and to educate the public on the benefits of the project and how the technique distributes the cost. Public processes also result in changes to the project design to ensure that input from members of the public was heard, and potential impacts are reviewed and addressed in the planning process and the value capture technique implementation.

Although a project may meet all the criteria to fulfill statutory requirements for a value capture technique, it may still lack the support of elected representatives for reasons political or otherwise. The following can help bolster support in the long run:

• Continue with patience and persistence to build project supporters despite political conditions. After a lengthy delay, a TIF was implemented in Yankton County, South Dakota following the election of new County Commissioners that were in favor of a road fostering economic development.
• Utilizing and developing powerful project champions is important. Local mayors in Maricopa County, AZ performed direct public outreach programs that helped the public to better understand how the funding was going to be used and how these projects benefit the region. These efforts secured the reauthorization of the countywide sales tax district in the 2004 ballot measure.
• Make connections with developers and businesses. Make the case for mutually beneficial improvements to foster economic development or mitigate impacts of growth or changes in density.

Mitigate Risk and Create Flexible Strategies

Ill-suited or implemented value capture can be critiqued for creating market distortions, by making development more expensive through fees or exactions, developers may build less. Therefore, careful market studies and planning analyses are important for implementing a flexible and saleable value capture strategy.

Some value capture techniques inherently involve market risk which can affect the ability to successfully generate adequate revenue to fund the project. This market risk may be related to unexpected responses or inadequate buy-ins from stakeholders. Similar to the strategies for navigating an economic or real estate market downturn, an implementing agency should anticipate potential ways in which key stakeholders may respond to the project or value capture mechanism, plan for how to address funding shortfalls, and create contingency plans.

It is best to prepare for the possibility of a downturn from the project’s inception, anticipating potential ways in which key stakeholders may respond to a downturn, planning for how to address funding shortfalls, and creating contingency plans. Preparation for a potential market downturn will require a detailed understanding of the local and larger real estate markets. These can be obtained through internal or external transportation and market analyses to inform the range of revenue outcomes.

Some agencies face the challenge that the impacts of a value capture technique may affect different areas of the jurisdiction in ways that are at odds with other public policy goals such as job attraction or affordable housing. Similarly, sub-areas within a jurisdiction may have significantly different needs from the rest of the jurisdiction.

• When Pasco County realized that their impact fee program could disincentivize certain types of development in some areas within the county, they established a program to reduce mobility fees for certain land uses.
• The City of Portland realized that two areas in the city experienced higher levels of infrastructure demand than the rest of the city, so they created two overlay districts for their TSDC program that fund transportation infrastructure projects within those high-demand areas.

Staff Capacity and Expertise

Data collection for a full market study is time consuming, particularly for agencies that do not have access to regional data and analysis provided by a metropolitan planning organization, regional planning agency, council of governments, or university research department. Analyzing the data requires experience in planning and land use, market analysis, and specialized knowledge of the real estate market.

Large agencies, such as transportation departments of major cities or metropolitan planning organizations for large metropolitan areas, may have the resources to maintain a dedicated staff with the necessary skills and experience to perform complex market analysis. Smaller agencies may have the staff capacity and experience to perform market analysis for smaller infrastructure projects and may opt to hire consultants for more complex projects. Agencies of all sizes and capacities sometimes opt to hire consultants with expertise in real estate analysis, financial analysis, legal and regulatory analysis, or environmental economics when a market analysis incorporates those more specialized aspects. Some agencies may choose to accept market analyses provided by the developer. Preferably, such studies will be performed by an independent consultant hired by the developer, or at the very least, will be reviewed by an independent consultant hired by the agency. Independent analysis is not only the basis for good decision-making, but it is also the basis for creating stakeholder buy-in.

As these are a select list of high-level considerations, there are many more resources available to help navigate and evaluate your use case for value capture. The following resources will help agencies assess their readiness, the skills needed to pursue, and research and guidelines for implementing value capture. We recommend starting with FHWA’s Center for Innovative Finance Support’s Value Capture Resource page which contains information for practitioners and policy makers.¹² The website includes implementation manuals, case studies, how to briefs, and links to other tools and resources.

Footnotes

¹² FHWA Center for Finance Support, Value Capture Resources website: https://www.fhwa.dot.gov/ipd/value_capture/.