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Chapter 5. QUANTITATIVE ASSESSMENTS

5.1 Overview

The primary objective of quantitative assessments in making the value capture (VC) business/economic (B/E) case is to determine the magnitude of the potential VC revenues that could be allocated for infrastructure purposes. When the main VC driver is a major transportation corridor project where developments along the corridor are open ended and less well defined, the quantitative assessment can help determine the maximum VC potential that could support funding for both the core transportation corridor project and local transportation improvements ancillary to real estate development projects along the corridor. When the main VC driver is a relatively well-defined major real estate development project, the cost of ancillary improvements (including transportation) represents the anticipated VC potential that could serve as the basis for the quantitative assessment. This chapter focuses more on the former, i.e., open-ended case with maximum VC potential. The discussions should still apply for the latter case where the projects are better defined.

For the open-ended case, specific VC techniques considered in this chapter are tax increment financing (TIF), special assessment districts (SAD), and development impact fees (DIF), the three most common VC techniques that exist today. Transportation utility fees (TUF) are not included because they are not used for new developments but for existing properties to cover primarily infrastructure maintenance costs (often imposed as part of utility bills).¹⁷ For other techniques that are dependent on specific developers and their projects–such as negotiated exactions, development agreements (DA), community benefits agreements (CBA), joint development agreements (JDA), and various use agreements–VC revenue potential varies significantly on a case-by-case basis and therefore they are also not included in the discussion. For those that are included, the basis for estimating VC revenues varies depending on the technique. For tax-based VC techniques such as TIF and SAD, the basis for VC revenues is the increase in assessed value of properties within the developments. For fee-based VC techniques such as DIF, the basis is the increase in trip generation by land use associated with the developments.

The following sections describe the basic components of the quantitative assessments, which consist of:

• Defining VC opportunity areas (OAs) and developing buildout scenarios for the OAs

• For different VC techniques, estimating the basis for VC revenues for the buildout scenarios, i.e., incremental assessed value (AV) for TIF and SAD and incremental trip generation for DIF

• Estimating VC revenue potential for different VC techniques for the buildout scenarios, including developing cash flows over the VC life cycle

• Estimating corridor- or system-level VC revenue potential by integrating the cash flows across all OAs

5.2 Defining Value Capture Opportunity Areas and Buildout Scenarios

Quantitative assessments initially involve identifying the VC OAs along the transportation corridor under consideration where substantive new developments could occur. As mentioned in Section 3.2, defining the OAs first entails identifying areas having high propensity to value capture–e.g., major highway intersections or transit stations with high growth potentials. Local jurisdictions at these major "nodes" along the corridor usually have approved general plans (GPs) and specific plans (SPs) that establish their future growth and land use plans, which help identify preferred OA locations. For each OA node, these GPs and SPs also help define the geographic extent of the VC catchment area as well as the VC propensity based on their overall growth plans and the maximum allowable densities coded into their land use/zoning plans.

Appendix B (Section B.1) provides a detailed description of how OAs could be defined specifically for transit-oriented developments (TODs). TOD examples are chosen here because there are existing TOD practices–including guidance (e.g., recommended TOD density range) established by the Federal Transit Administration (FTA), local/regional agencies, and industry organizations–that are directly applicable to VC quantitative assessments that make it easier to demonstrate the basic concepts.¹⁸ The basic approach and concepts presented in Section B.1 are still relevant in the highway context. As highway VC applications expand, FHWA may consider supporting local jurisdictions in developing guidelines (e.g., the extent of VC catchment area and target densities based on locational characteristics of a given OA node) in the future for highways to facilitate the VC quantitative assessments.

Once the OAs are identified, the next challenge is to develop the VC buildout scenario within the VC catchment area associated with each OA node. This involves converting the current land use into higher density uses based on the maximum increase in density allowed by local land use/zoning plans as specified in the GPs and SPs. For this step, parcel-level GIS data for the VC catchment area is needed to help establish the existing conditions for the base case upon which incremental developments could be added to reach the buildout potential.¹⁹

Specifically, the existing GIS data needs include:

• For residential uses:

  • Number of dwelling units (DUs) and DUs per acre by low- and high-density housing (i.e., single- and multifamily, respectively) pertaining to the entire catchment area

  • Land and building areas (in square footage) for each residential parcel

• For all other nonresidential uses (i.e., commercial, industrial, and other):

  • Floor area ratio (FARs) by each nonresidential use pertaining to the entire catchment area

  • Land and building areas (in square footage) for each nonresidential parcel

In addition, maximum allowable density ranges for each residential and nonresidential use within the VC catchment area are needed, which are available from the local GPs and SPs linked specifically to the OA node under consideration. Developing the buildout scenario entails increasing the existing densities for residential and nonresidential uses to the maximum allowable density range consistent with the relevant GPs and SPs for that node. Appendix B (Section B.2) uses a TOD example to provide a detailed description of how VC buildout scenarios could be developed.

Whether the quantitative assessment is for highways or transit, the basic exercise of developing a buildout scenario is about increasing higher density and higher value uses–i.e., (a) adding more higher density multifamily residential units and more commercial building areas for higher FAR and (b) where feasible, converting industrial uses and vacant lands to higher value residential and commercial uses. In general, most of the remaining uses–e.g., government/institutional, open space, etc.–are left unchanged. If local governments are performing the quantitative assessments, they will already be familiar with their GPs and SPs and have an understanding of the extent to which the densities could be increased and land uses could be converted.²⁰,²¹ On the other hand, if metropolitan planning organizations (MPOs), regional agencies, or State departments of transportation (DOTs) are performing the assessments, they will need to coordinate with local jurisdictions linked to each OA node under consideration to gain practical insight into the local plans.

For demonstration purposes, Table 5 summarizes the real-world example presented in Appendix B (Section B.2) for Greenwood Station, a light rail transit (LRT) station on the new Gold Line extension currently under planning by Los Angeles County Metropolitan Transit Authority (LACMTA or LA Metro). Based on FTA recommendations, a 1/2-mile radius around the station is used as the VC catchment area where higher density TODs are most likely to occur (FTA 2014). Leaving single-family residential and other uses unchanged, the buildout scenario resulted in the following:

• Multifamily DUs increased by 1,730 units from 1,402 to 3,132 by increasing the density from 18 to 30 DUs per acre to 20 to 35 DUs per acre, which is still within the maximum allowable density range of 22 to 35 specified in the local zoning ordinance

• Leaving the land area unchanged, the building area for commercial uses increased by 212,200 square feet (SF) from 121,500 SF to 333,700 SF by increasing the FAR from 0.36 to 1.0, which is well within the range observed in nearby areas

• To accommodate the increase in multifamily and commercial uses, industrial uses were reduced by 858,700 SF and 2,760,200 SF in building and land area, respectively.

Table 5 Summary of buildout scenario–Greenwood Station example.

Land Use	Density Category	Unit	Existing	Buildout Scenario	Incremental Development
Residential	Single Family	No. of DUs	819	819	Unchanged
		DUs/Acre	6.5	6.5	Unchanged
		Allowable DUs/Acre	0 to 8
	Multifamily	No. of DUs	1,402	3,132	1,730
		DUs/Acre	18 to 30	20 to 35	2 to 17
		Allowable DUs/Acre	22 to 35
Commercial		Building Area (SF)	121,500	333,700	212,200
		Land Area (SF)	333,700	333,700	0
		FAR	0.36	1.00	0.64
Industrial		Building Area (SF)	2,811,700	1,953,000	-858,700
		Land Area (SF)	9,038,200	6,278,000	-2,760,200
Other		Building Area (SF)	67,100	67,100	Unchanged
		Land Area (SF)	7,882,500	7,782,500	Unchanged

5.3 Estimating Value Capture Revenue Basis

The basis for estimating VC revenues varies depending on the VC technique used. For TIF and SAD, the VC revenues are from taxes (whether ad valorem or special taxes requiring voter approval) derived from incremental AV of properties. For DIF, the revenues are from fees (generally no voter approval required) derived from the increase in number of trips generated by different land uses.

5.3.1 Increase in Assessed Value

In general, real property values increase from change in use and intensity of use resulting in (1) increase in density, (2) increase in unit value, and (3) reassessment where the increase in assessed value can exceed the statutory limit.²² Estimating the increase in AV associated with the buildout scenario involves projecting the increase in unit price by use and applying that price to the incremental development by use.²³

For demonstration purposes, Table 6 presents the AV estimates for the same Greenwood Station example presented in Table 5. As shown, incremental AVs are estimated by applying unit price projections to the increase in number of multifamily DUs and commercial and industrial square footages presented in Table 5. The resulting total incremental AV associated with the buildout scenario is about $451 million, consisting of increases of $478 million and $58 million in residential and commercial uses, respectively, reduced by $85 million in industrial use that was converted. For Greenwood Station TOD, this $451 million increase in AV is the basis for applying, respectively, the ad valorem property tax and various special assessments linked to each OA node for TIF and SAD techniques.

Table 6. Assessed value estimates–Greenwood Station example.

Land Use	Unit	Existing	Buildout Scenario*	Incremental Development
Residential: Single-Family	Total AV ($)	$215,900,000	$215,900,000	Unchanged
Residential: Multifamily	$/DU	$136 to $150	$165 to $215	$250 to $300
	Total AV ($)	$207,500,000	$685,200,000	$477,700,000
Commercial	$/SF	$168	$204	$275
	Total AV ($)	$20,500,000	$78,800,000	$58,300,000
Industrial	Total AV ($)	$279,400,000	$194,100,000	-$85,300,000
Other	Total AV ($)	$14,400,000	$14,400,000	Unchanged
TOTAL		$737,700,000	$1,188,400,000	$450,700,000

* Buildout scenario includes existing properties and unit price presented is average of existing and incremental developments.

As a check and balance, the higher density buildout scenario must be reviewed with respect to market absorption, i.e., whether there is sufficient population and employment base to accommodate the proposed future growth (see Appendix B, Section B.3 for additional discussion on this topic). In considering market absorption, it should be recognized that new developments associated with the buildout scenario will generally occur over a long period (10 to 20 years) and the terms of VC financing (e.g., TIF- or SAD-backed bonds) are also generally quite long (typically 30 years).

5.3.2 Increase in Trip Generation

VC revenues from using DIF techniques are generally derived from the increase in the number of trips generated by incremental developments. New developments associated with VC buildout scenarios, especially those that are not primarily transit oriented, will likely generate new vehicle trips, where the rate of trip generation is generally dependent on land use. There are significant variations across different States on how and the extent to which DIF techniques are used, both in terms of the fee structure and the methodology for determining the fee levels. More often, the use of the DIF technique is project specific and likely to be negotiated on a case-by-case basis, an approach that is more vulnerable to legal challenge and more staff intensive to administer.

Local or regional governments are increasingly choosing to legislate impact fee structures and standardize fee schedules to make them more transparent. Among other benefits, this makes it easier for developers to determine all fee-related cost implications of their development projects upfront. These legislated impact fee structures and standard fee schedules are often based on comprehensive nexus studies on long-term capital improvement programs (CIP) linked to local GPs and SPs, where
(1) the legal basis for essential nexus and rough proportionality tests are established programmatically, and (2) a clear methodology for determining the fee schedules is presented. The methodology often involves estimating trip generation by land use and developing the fee schedule based on the trip generation. Both the standard fee schedules and nexus studies are generally made available online and updated on a regular basis.²⁴

Table 7 presents an example for the city of East Palo Alto, California, where a comprehensive nexus study was recently conducted to establish a formal development impact program consistent with the city's GP and SP (East Palo Alto 2019). Table 7 summarizes the nexus study results, where the overall growth plan by land use in the GP and SP was translated into dwelling units of residential developments and square footage of nonresidential developments. These developments were the basis for estimating trip generation by residential and nonresidential uses.

Table 7. Trip generation and DIF fee estimates–East Palo Alto nexus study example.

Land Use	ITE Land Use Code	Trip Generation (Evening Peak Hour [PH])			Capital Improvement Transportation Projects Attributable to New Developments		Transportation Nexus Fee Estimate
					Total Cost ($)	$/Evening PH Trip
Residential:		DUs	Trips/DU (Adj.)*	Total Trips	$25,282,063	$6,898	$/DU
Town Houses	230	1,486	0.34	508			$2,358
Multifamily	220	1,033	0.26	266			$1,776
Nonresidential		Building SF	Trips/1000 SF (Adj.*	Total Trips			$/SF
Office/ Research & Development	710	1,939,853	1.06	2,063			$7.34
Retail	820	333,406	1.93	643			$13.30
Industrial	119	267,987	0.69	185			$4.76
Total				3,665

* Trip generation rates shown represent Institute of Transportation Engineers (ITE) rates by land use adjusted to reflect special local conditions.

Typically, the trip generation methodology used in DIF is based on the Institute of Transportation Engineers' (ITE) Trip Generation Manual (ITE 2017/2020).²⁵ ITE trip generation rates by land uses–e.g., trips/DU for residential and trips/SF for non-residential–are generally the basis for initial estimates, which are often adjusted to account for special local conditions.²⁶ The estimate of the total number of trips is then linked directly to the specific projects identified in the capital improvement project (CIP) as part of the GP and SP.

As shown in Table 7, in the case of East Palo Alto, the specific transportation infrastructure projects identified in the CIP attributable to new residential and nonresidential developments were identified to be about $25.3 million, which is divided by the total evening peak hour (PH) trips of 3,665 to obtain the per-trip cost of $6,898. This per-trip cost is the basis for allocating the transportation capital costs across different uses and for calculating the final impact fees by use (which is obtained by multiplying the per-trip cost by number of evening PH trips by each use divided by dwelling units and square footage, respectively, for each residential and nonresidential use).²⁷

Provided that the buildout scenario is consistent with the local GP and SP at a given OA node, where there are formal fee programs and published fee schedules at that node, they can be used in estimating potential VC revenues for the buildout scenarios by applying them to the buildout dwelling units and square footages. When applying these fees, the land use categorization in the buildout scenario must be consistent with those specified in the formal fee structure.

5.4 Estimating Value Capture Revenue Potential by VC Technique

For TIF and SAD, the incremental AV described in the previous section is the primary basis for determining the total new tax revenues–both ad valorem property tax and various special taxes–that could be generated under the buildout scenario. The more difficult challenge for these tax-based techniques is determining what portion of these new revenues local and regional governments are willing to allocate for transportation corridor projects that are outside their jurisdictions.

For DIF, where available, published fee schedules based on trip generation described in the previous section are the primary basis for determining total fee revenues that could be generated under the buildout scenario. The main challenge for these fee-based techniques is twofold: (1) most local governments may not have a formal fee structure or schedule that could be applied and (2) where there are formal fee schedules, they are based specifically on local CIPs that do not include transportation corridor projects that are outside their local jurisdictions.

5.4.1 Tax Increment Financing (TIF)

Jurisdictions generally consider the organic increase in ad valorem tax revenues resulting from the increase in AVs as their own revenues, wholly at their discretion and without any consideration for investments in transportation corridors that may have helped to generate them. To generate new revenues sources for transportation infrastructure using TIF, cities and counties must agree to contribute some part of their incremental revenues to the transportation authority that is responsible for building the transportation corridor.

Typically, each State allocates a portion of ad valorem property tax rate every year to cities and counties based on a pre-established formula (with the remaining balance going to the State). For Greenwood Station, for example, Table 8 presents how a 1 percent ad valorem tax is allocated to Los Angeles County and the cities that are included within the 1/2-mile VC catchment area–in this case, the cities of Montebello, Pico Rivera, and Commerce. As shown, taxes are allocated based on tax rate areas (TRA) with different city/county tax allocation formula where there can be multiple TRAs within a given city with different tax implications. The table also shows total current AV associated with each TRA and the corresponding annual tax revenues due to the county and the cities.

Table 8. Ad valorem tax allocation–Greenwood Station example.

Jurisdiction City	TRA	1% Ad Valorem Tax Allocation		Current AV	Ad Valorem Tax Revenue (Annual)
		City	County		City	County
Montebello	6311/6330	0.344154112	0.098586280	$691,790,702	$2,380,826	$682,011
	6331	0.344154255	0.098586236	$19,068,826	$65,626	$18,799
	6338	0.344146086	0.098589214	$23,131,141	$79,605	$22,805
	7955	0.356172378	0.100571800	$5,863	$21	$6
	7965	0.354417465	0.101027208	$49,402	$175	$50
Pico Rivera	7947/7971	0.243537959	0.066671148	$616,234	$1,501	$411
Commerce	12462	0.373908792	0.069513598	$3,165,730	$11,837	$2,201
Avg./Total		0.3441982767	0.0984351551	$737,827,898	$2,539,591	$726,282

It is important to note that these are annual tax revenues at a single OA node along the Gold Line extension transit corridor where the Greenwood station is located. If an agreement could be reached with the Los Angeles County and the affected cities (in this case, Montebello, Pico Rivera, and Commerce), a portion of these tax revenues could be allocated every year through TIF for LA Metro for all stations on the Gold Line extension. In the case of Greenwood, for example, a potential tax allocation scenario could be a 50 percent contribution from the county and the cities for any new tax revenues derived specifically from the TOD buildout. The revenues thus allocated could be leveraged to secure the upfront TIF debt financing with a term that could be as long as 30 years or more.²⁸

For a given OA node, the final step in the quantitative assessment is to develop long-term cash flow estimates for both the full life cycle of the VC revenue potential and the potential TIF bonding capacity. This step requires additional information on:

• Timeframe of the VC revenue collection

• Timeframe for the TOD buildout, i.e., the market absorption period discussed earlier

• Statutory property value appreciation rate allowed for existing properties

• Average turnover rate on existing properties (and resulting average appreciation rate over the statutory rate to account for turnovers)

• Discount rate for net present value (NPV) analysis

Appendix B (Section B.4) provides a detailed description of how annual TIF VC revenue is estimated and how TIF life-cycle cash flow is developed for the Greenwood Station example. Assuming 50 percent contribution by the county and all cities, the total nominal revenues over the VC life cycle are shown to be $167.4 million, which translates into $65.4 million in NPV.²⁹

5.4.2 Special Assessment District (SAD)

Maximum VC revenue potential for SADs can also be estimated from the same incremental AV for the buildout scenario. This requires an understanding of basic local tax structure. As an example, the local tax structure for TRA 6311 in the city of Montebello included in the Greenwood case is presented in Table 9 below.

Table 9. Local tax structure (city of Montebello)–Greenwood Station example.

Taxing Agency	TRA 6311 Tax Rate (2020-2021)
City of Montebello	0.197875
Community College	0.040162
LA County	0.000000
General (Ad Valorem–See Table 6 for City/County Allocation)	1.000000
Metro Water District	0.003500
Unified Schools	0.097063
Total Effective Tax Rate	1.338600
Total Special Taxes Already Spoken For (Non-Ad valorem)	0.338600
Maximum Statutory Tax Rate	2.000000
Residual Tax Rate (Available for Additional Special Taxes)	0.661400

As shown, the total current effective tax rate for this area is 1.3386 percent, which is made up of 1 percent ad valorem general tax rate and additional 0.3386 percent of special taxes that are allocated variously to the city of Montebello, the county, local school systems, and the water district. Assuming a maximum allowable effective tax rate of 2 percent,³⁰ this leaves a residual tax rate of 0.6614 percent available to impose new special taxes.

At a conceptual level, the maximum possible revenues from all special tax-based VC techniques can be estimated by applying this residual special tax rate to the incremental AV under the buildout scenario. This is shown in Table 10 for the Greenwood example. As shown, under the buildout scenario, the $451 million increase in AV can potentially generate almost $3 million additional revenues each year in special taxes if the total tax rate is taken to its maximum statutory limit of 2 percent. Using a 30-year term with 5 percent interest rate more typical of SAD bond issuance, the corresponding NPV is estimated at about $46 million–in comparison to $65 million under the TIF technique. As practical, for this step, alternative taxing scenarios could also be tested. For example, instead of taking the special tax rate to the maximum statutory limit, a maximum tax rate of 1.75 percent could be considered more reasonable and acceptable by the industry, making the residual tax rate 0.41 percent instead of the 0.66 percent shown in Tables 8 and 9.

Table 10. Maximum potential for SADs–Greenwood Station example.

Description	Greenwood TOD
Current Assessed Value	$738,000,000
TOD Buildout Assessed Value	$1,189,000,000
New Incremental Assessed Value Under Buildout Scenario	$451,000,000
Current Total Effective Tax Rate	1.34%
Maximum Statutory Tax Rate	2.00%
Residual Tax Rate Unspoken For	0.66%
Remaining Taxing Capacity at Buildout	$2,976,600
NPV at 5% for 30 years	$45,800,000

As is the case for TIF, it is important to recognize that the SAD quantitative analysis presented in this section is conceptual, with a goal of determining the maximum potential tax revenues that could be achieved if the special tax-based VC techniques were used without consideration for potential implementation challenges.³¹ Nevertheless, the maximum potential VC revenue estimates show the extent to which the use of VC techniques could supplement Federal, State, and other more traditional infrastructure funding sources.

5.4.3 Development Impact Fees (DIF)

For DIF, the published fee schedules by land use described in the previous section are the primary basis for determining total VC fee revenues that could be generated under the buildout scenario.³²Most local governments, however, do not have formal impact fee programs and standard fee schedules by land use that could be easily applied in the context of VC quantitative assessment. Even for those local jurisdictions that already have established fee schedules, there is a significant level of specificity associated with their uses that makes it difficult to apply in the VC context. The need for such specificity stems largely from the need to establish a clear legal basis to meet the nexus and proportionality tests.

For the city of East Palo Alto, for example, different impact fees are established for different infrastructure types. In addition to transportation, there are separate impact fee schedules derived from using different methodologies for parks and trails, public facilities (government buildings, libraries, etc.), and storm drainage infrastructure categories. The total CIP associated with the city's current GP and SP amounts to about $255 million with individual projects identified under each category. For each category, the project needs for new developments must be separated out from those for existing developments to develop different impact fee schedules for that category. In addition, fee schedules are different for areas covered in SP from those for GP. For most cities and counties, there are also separate and distinct fee schedules for different districts within their jurisdictions.

In general, real estate development projects play an important role for local governments both in terms of the economic impetus provided by the projects and potential local revenues generated from development-related fees.³³ Therefore, it may be reasonable to assume that most local governments have a good handle on how to pay for local infrastructure (including local roads) needed to support major development projects–whether through DIF, other VC techniques, and/or other non-VC related funding sources–which is reflected in their general and specific planning processes.

The more difficult challenge is identifying new VC revenue sources that could help pay for transportation corridor projects that are outside local jurisdictions. For TIF and SAD, the VC revenues are value based and market dependent and, as long as cities and counties are willing to contribute, there is a strong
"but-for" rationale³⁴to attribute the incremental value to transportation corridor investments. For DIF, the VC revenues are cost based (irrespective of market conditions) where the fees are linked directly to the local CIPs that generally do not include capital projects outside the local jurisdictions.³⁵

If DIF techniques are to be used to pay for transportation corridor projects, it is necessary for each local government linked to each OA node to conduct additional nexus studies to identify a specific portion of the corridor project where clear legal basis for the nexus/proportionality requirements can be established for that node. Currently, it is generally accepted that local governments are not responsible for infrastructure projects outside their jurisdictions. As an example, even when local governments develop SPs that are specifically transit oriented and dependent on new transit stations nearby, no part of the transit-related costs are included in the SPs' CIPs because of the generally accepted assumption that the transit system will be paid for elsewhere.

In short, compared to TIF and SAD, it may be more challenging to estimate DIF-related revenue potential for open-ended cases without a significant shift in current practices and additional nexus study efforts on the part of local governments. For a major highway corridor project, provided that there is significant local buy-in and support for the project, one potential approach might be to define the VC OA as a 1/4-mile³⁶band on either side of the corridor and develop a cost-per-trip unit measure that could be used by local jurisdictions to develop their own district-specific impact fees pertaining to that part of the corridor OA that falls within their jurisdictions. Potential DIF revenues from such an approach could work in concert with potential revenues from TIF and SAD as described earlier to defray some portion of the corridor funding gap. Ultimately, the goal is to use multiple VC techniques to spread out the capital costs as much as possible across multiple jurisdictions and stakeholders.

5.5 Quantitative Assessment at Corridor and System Level (Multiple Nodes)

The quantitative assessment described in all of the previous sections of this chapter is for a single node–e.g., a regional shopping mall project at a single highway intersection or TODs at a single transit station–which is a useful exercise particularly for the local jurisdiction where the node is located. Using the same approach used for a single node, similar assessments can be made at multiple nodes to determine the VC potential at corridor and/or system levels. These broader assessments are useful for Federal, State, and/or other regional agencies (including MPOs and transit authorities) that are engaged in providing major infrastructure projects that cut across multiple jurisdictions.³⁷

To continue with the Greenwood example, the station is part of the Gold Line Eastside Extension that includes six new stations altogether along the new extended corridor. Using the same approach for the other stations as for Greenwood, the total VC revenues for the entire corridor are estimated to be more than $1 billion in nominal value and more than $410 million in NPV (see Appendix B, Section B.5, for additional details on these estimates).

Likewise, quantitative assessment can be performed at the system level involving multiple corridors. Whether for transit or highways, the only difference is that the implementation of each corridor may be phased with a different timeline and the cash flows need to be staggered to reflect such phasing. Figure 3 provides an example for all future corridors currently under construction or planning by LA Metro, inclusive of the Gold Line Eastside Extension (and Greenwood Station) discussed earlier (see Appendix B for VC revenue estimates for all new future corridors presented in Figure 3).

The above example represents 45-year cash flows consistent with the maximum TIF bond term allowed in California, which are staggered based on the opening date of each corridor. Figure 3 also assumes that the TOD buildout will occur over 20-year period (indicated by the black squares) starting with the opening date for each corridor. It also shows that the TIF district formation and, therefore, the collection of VC revenues could start a few years prior to the opening date to coincide with the construction start date for each corridor (see Appendix B for additional discussion).

Figure 3. Chart. Cash flow phasing under systemwide assessments–LA Metro example.

Line/Corridor	No. Stations	Opening Date (Status)	2020-30					2030-40					2040-50					2050-60					2060-70					2070-80
			2	4	6	8	10	2	4	6	8	10	2	4	6	8	10	2	4	6	8	10	2	4	6	8	10	2	4	6	8	10
Crenshaw/LAX	9	2022	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
Regional Connector	4	2022	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
Purple Line Extension	5 (Sect 1&2)	2024	⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
	2 (Sect 3)	2028			⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
Gold Line Extension	4 (Foothill)	2026		⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
	6 (Eastside)	2036							⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
E. San Fernando Valley	14	2028			⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
Green Line to Torrance)	2	2030				⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
W. Santa Ana Branch	9	2042										⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
Sepulveda Transit	4 (to Westside)	2034						⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿	⦿
	5 (to LAX)	2058																		⦿	⦿	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	◼︎	⦿

Source: LA Metro (2020). (Note: "⦿" denotes the 45-year span in the VC assessment life cycle and "◼︎" denotes the 20-year buildout period with the 45-year span.)

5.6 Additional Considerations

Delimiting Factors. Basic characteristics of specific VC techniques can provide certain delimiting factors in quantifying the VC revenue potential. In general, VC tools can be either value based (e.g., TIF, based on existing ad valorem tax base) or primarily cost based (e.g., SAD based on special taxes). When using TIF for TODs, for example, as described in this chapter, the maximum VC revenue potential can be derived based on the maximum assessed value that could be achieved by applying the highest density possible. When using SAD on a major real estate project, special taxes assessed are based primarily on the cost of ancillary public improvements necessitated by the project and the minimum VC revenue required in this case is based on these costs. These delimiters can serve as an indication of the outer range of VC revenue potential that could be obtained.

Under the SAD technique, when a direct nexus between the real estate project and a core infrastructure project (such as a major transportation corridor) can be proven, additional costs of core infrastructure could be added to the special tax assessments. Even without any allocations to core infrastructure, these special tax-based VC tools enable real estate developments to occur and help increase property values and tax revenues (which could alternatively be captured through TIF).

Simplifying the Quantitative Assessment. Depending on the needs of a project, the quantitative assessments described in this chapter can be simplified. In particular, instead of going through the exercise of developing the VC buildout scenario (with its outcome as presented in Table 5)–which is perhaps the most involved and cumbersome step that may require local real estate market knowledge– a set of reasonable what-if buildout scenarios could be developed simply based on percent increase from the current AV. For example, two potential buildout scenarios might be represented, respectively, by 50 percent and 100 percent increase from the current AV, which could be based on the range of historical growth observed around new stations with similar locational characteristics. This simplified approach still requires that the total current AV for the VC catchment area be estimated based on actual data. Once the buildout scenarios are established with respect to the current AV, the rest of the steps will be simpler, involving applying appropriate existing tax rates and building the corresponding cash flows.

Need for Fiscal Impact Assessment/Economic Impact Assessment (FIA/EIA). If possible, along with the VC quantitative assessments, it is beneficial for local jurisdictions to conduct relevant fiscal and economic impact assessments. Given that local revenues have competing needs, local agencies can gain a better understanding through these assessments of the overall fiscal impact of contributing part of their future tax revenues for VC purposes (while keeping in mind that real estate developments and the resulting increase in local revenues may not have been possible "but for" the core infrastructure projects). In addition to revenue impacts, it is helpful for such fiscal assessments to also consider any costs involved on the part of the local governments in administering specific VC techniques. Assessing overall economic impacts of implementing one or more VC techniques uncovers potential tradeoffs if the VC revenues are allocated for other public benefit purposes.

Footnotes

¹⁷ This primer focuses primarily on capital costs of new developments. For techniques such as TUF that cover maintenance costs, potential VC revenues could be estimated based on the same trip generation by land use estimates provided for DIF in this chapter.

¹⁸ See, for example, FTA, Planning for Transit-Supportive Development: A Practitioner's Guide, June 2014, FTA Report No. 0052, https://www.transit.dot.gov/sites/fta.dot.gov/files/FTA_Report_No._0052.pdf.

¹⁹ These parcel-level data are available from multiple data sources, including: (1) GIS data from State departments of transportation, metropolitan planning organizations, and/or local transportation agencies, (2) property assessors' data from local jurisdiction(s), and (3) local GPs and SPs pertinent to the VC catchment area.

^[20] As relevant, as part of the buildout exercise, local governments may need to consider local practices regarding up- and down-zoning and other zoning changes that are granted outside their GPs and SPs (e.g., variances, non-conforming uses, conditional use permits, spot zoning, etc.).

²¹ In cases where GPs and SPs are outdated, local governments may need to revisit their growth plans for this exercise.

²² In California, for example, assessed value for an existing property cannot increase more than 2 percent per annum statutorily unless there is a change in the property ownership (1978 Proposition 13, California Constitution Article 13, Section 1 - 7).

²³ Unit price projections require input from local real estate market expertise.

²⁴ In California, for example, the Mitigation Fee Act (Government Code § 66000 et seq.)that regulates development fees requires that the nexus studies be updated every 5 years if the fees are legislated into local code. Local governments also typically update standard fee schedules on an annual basis to account for cost escalation.

²⁵ The ITE Manual provides trip generation by 176 different land uses, including 16 residential and 89 commercial uses.

²⁶ In the case of East Palo Alto, significant adjustments had to be made to account for local, specialized travel demand characteristics, intrazonal, nonmotorized, and public transit trips.

²⁷ Nexus studies produce maximum legally allowable fee levels based on capital investment needs. Final published fee schedules often represent further adjustments from nexus study results based on additional economic feasibility studies to ensure that the fees are not so high that they discourage developments. In the case of East Palo Alto, for example, the fee schedule for retail developments was adjusted down from the maximum nexus study fee levels to make it more market responsive.

²⁸ Most States have specific requirements on how long TIF districts can exist and the maximum term of TIF debt financing. Although not always the case, TIF districts are generally designed to dissolve once capital improvement costs are paid off. Also, a TIF financing term is generally about 30 years.

²⁹ These estimates are based on 45 years for VC revenue collection (consistent with the maximum term available for TIF debt financing associated with enhanced infrastructure financing districts [EIFDs] in California), 20 years for buildout, 1 percent additional appreciation over the 2 percent statutory limit to account for turnovers, and 3 percent discount rate. See Appendix B for a more detailed explanation of these assumptions. See footnote 38 for additional description of EIFDs.

³⁰The 2 percent represents the maximum ad valorem tax rate generally accepted by industry professionals and often used in community facilities district (CFD) tax feasibility analyses in California. The ad valorem rate includes the 1 percent property tax rate and any additional voter-approved obligations.

³¹The practical implementation challenges should be part of the qualitative assessment discussed in Chapter 4. For one, SADs sometimes require more stringent voter approvals (sometimes as high as 2/3) relative to TIF from property owners within the district.

³² In the absence of full nexus studies and published fee schedules, rough market-responsive DIF revenues could potentially be estimated based on the prevailing DIF rates in adjacent local communities with similar real estate market characteristics.

³³ Among others, California and Florida are two States that make the most use of development-related fees. In California, for example, up to a third of some cities' budgets are composed of development-related fees.

³⁴ The recognition that real estate developments (and the resulting substantial increase in local tax revenues) would not be possible but for the core infrastructure project.

³⁵ Even for those impact fees whose benefits may extend beyond locally, such as a system development charge (SDC) or intersection development charge (IDC), the transportation facilities being considered must be part of the local CIPs.

³⁶ 1/4-mile is used here as a placeholder for discussion purposes; it is based on FTA's TOD zone recommendation for bus rapid transit (BRT) systems.

³⁷In California, there is a unique "integrative" VC tool called Enhanced Infrastructure Financing District (EIFD) (Section 53398.51 of the California Government Code) that allows the formation of a district across multiple jurisdictions (which can be noncontiguous) that have a common interest in funding critical infrastructure projects with regional significance. EIFDs can issue 45-year TIF bonds secured by any and all existing revenue sources agreed to by the member jurisdictions. At the corridor or system level, a VC technique such as EIFD is a useful tool to integrate the VC potential at multiple nodes.

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