TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
The concept of value capture is not new and the techniques have been used since the medieval times. What is new is that their use for infrastructure funding can no longer be supplementary in nature to pay for ancillary public improvements or as a "gap" financing mechanism. With the increasing infrastructure funding responsibility on local and State governments, VC techniques are emerging as one of the primary funding sources to pay for critical infrastructure needs. As such, local governments are looking for more expansive and innovative ways of using the techniques, including, as necessary, in new precedent-setting ways.
Establishing an integrated VC policy framework–specifically designed to help pay for major infrastructure projects directly as well as to continue to support major real estate development projects that require additional public improvement capacity–is one step available for local governments. Such a policy framework would be multi-layered and risk-adjusted with the goal of ensuring that both benefits and costs linked to VC implementations are equitably distributed across key VC stakeholders. This framework would also help ensure transparency and accountability from the project outset to help local governments best manage stakeholder expectations.
Experience has shown that an effective VC strategy benefits from starting early–alongside project planning and development processes and long before the project opening date–when there is a general recognition of a project's potential value and before the project entitlement is granted without full assessment of its monetization potential based on benefits and costs to each major stakeholder involved. At a strategic level over the long run, the basic VC approach could be multi-layered, starting with those techniques that have the least new impact on stakeholders (real or perceived) (e.g., TIF with no new taxes) and followed by those involving new charges (e.g., SAD and, as needed, developer exactions) in a manner that is risk-adjusted so that the stakeholders can better bear the VC financial burden.
The integrated VC framework would basically entail what VC techniques would be used when and where, and how these techniques would be implemented. In the end, tackling the infrastructure funding problem with VC option would not be with one big cure-all blow, but rather with many mini strokes using multiple techniques. The framework would thus address how the use of multiple techniques would be integrated and phased over a project lifecycle by taking into consideration (1) the "equity" factor (i.e., those who benefit the most would pay the most) and (2) the "risk" factor (i.e., those who bear the risk would do so when they are best able).
For example, for regional transportation projects, an integrated VC framework could encourage (real estate) developments along the new corridors (including TODs) by incentivizing developers initially through the use of government-sponsored VC techniques (e.g., TIF first followed by, as needed, SAD). As the real estate project progresses, the project risks would decrease gradually and developers' willingness to pay would increase with increasing level of exactions/contributions accordingly.
VC revenues from all of these techniques would provide potential funding sources for both the transportation project and the ancillary improvements linked to the development project over their project lifecycle. Local governments' contribution to the regional transportation project, which would already have some funding from Federal/State sources, would increase the likelihood that the project would be completed as planned.40
Similarly, for major real estate development projects with significant public improvement needs, when project economics are sound, developers would be responsible for the improvements and their exactions/contributions would be the primary VC mechanism. When the project is critical to the local economy but its economics are in the balance, local governments would step in with TIF (and, as needed, SAD additionally) as the primary VC mechanism until such time as the project economics improve and developers are able to share the VC financial burden.
Ultimately, having the integrated VC policy framework would facilitate establishing such VC strategies at the project outset and help streamline the VC implementation process over the project lifecycle. This has been found to be especially beneficial when multiple stakeholders and techniques are involved and the process becomes quite complex. The VC streamlining would also help reduce the uncertainties associated with project revenue streams and minimize the cost of capital in project financing.
Once the integrated policy framework is in place, contract-based vehicles such as DAs or JDAs can serve to implement integrated VC strategies at project levels. For a single project, the Inglewood Sofi Complex presented in Section 2.5.2 provides a case example of how an integrated multi-layered VC strategy involving multiple VC techniques can be implemented effectively on a given project by using a DA. DAs can also be very effective when dealing with multiple projects. As mentioned earlier, VC techniques can generate new funding sources not only for the public improvement needs linked to major real estate development projects but also for major infrastructure projects as well.41
The City of Inglewood situation also provides a case example for demonstrating the multiple project context. Achieving the overall development potential linked to the SoFi Complex encompasses four major projects that need to occur in parallel (see Figure 3):42
In general, there are three primary
reasons for property value appreciation: (1) increase in density,
(2) increase in unit value (by changing to higher value land use), and (3)
increase in turnovers (with new developments that trigger reassessments and
enable assessed value increases over the statutory limit). All four projects
above would trigger such value appreciations and present VC opportunities in
the two real estate projects (i.e., SoFi Complex and Metro station TODs) to
generate potential revenue sources for all four projects. Table 6 provides a
potential scenario of how DAs can be used in multiple project context to
maximize potential revenue generation by casting as wide a net of VC
opportunity areas as possible.44
As shown in Table 6, a DA contract vehicle could be applied to engage multiple VC techniques in all four projects to generate new funding sources. First and foremost, VC revenues from the SoFi Complex and TODs would be used to support their own internal public improvement needs. By engaging additional VC techniques, additional revenues could be generated for potential supplementary funding for the APM connector. This would be justified because the APM connector would benefit both the SoFi Complex and TODs (in large part through property value appreciations).
Finally, if an agreement can be reached between Metro and the City, some part of the new VC revenues could also be used as local contributions to the construction of the three Inglewood stations. This would help ensure that the stations are built and on time. This approach is in line with Metro's existing "acceleration" policy, which defines conditions under which local governments can accelerate those Metro projects that directly benefit their communities. Among others, these conditions include (1) local funding contributions, (2) strong local partnership with Metro, and (3) opportunities for innovations such as engaging private partners.
Figure 2. Integrated VC Strategy Across Multiple Diverse Projects
Project |
Project Type |
Year Open |
VC Technique or Project Delivery Model |
Infra |
Potential VC Techniques as Funding Source |
|||
|---|---|---|---|---|---|---|---|---|
Publicly Sponsored (TIF, SAD, etc.) |
Developer-Based |
Private/Corporate (Naming Rights, Ads, Sponsor-ships, etc.) |
Other (Density Bonus, TDR, 3rd Pty Franchise, etc.) |
|||||
SoFi Complex |
Real Estate |
2020 |
DA |
Primary |
✔︎ |
|||
Secondary |
✔︎ |
✔︎ |
✔︎ |
|||||
Metro Regional Corridor (Inglewood Stations) |
Infra. |
2022 |
Traditional D-B-B |
Primary |
Sales Tax District (Ballot Measures) |
|||
Secondary (from Station TODs) |
✔︎ |
✔︎ |
✔︎ |
✔︎ |
||||
APM Connector |
Infra. |
2026 |
AP P3 (CDA) |
Primary |
Per P3 Concession CDA |
|||
Secondary (from SoFi & Station TODs) |
✔︎ |
✔︎ |
✔︎ |
✔︎ |
||||
Inglewood Metro Station TODs |
Real Estate |
2022 |
DA |
Primary |
✔︎ |
|||
Secondary |
✔︎ |
✔︎ |
✔︎ |
|||||
40 Sometimes, local communities are reluctant to dedicate their VC revenues to major infrastructure projects that they consider as the Federal/State responsibilities. In these cases, the local VC contributions could be justified on a "but-for" grounds based on the recognition that VC from corridor developments and the resulting increase in local revenues would not be possible but for the transportation project.
41 It should be noted that VC techniques would be applied for real estate development projects only where the new revenues are generated from real estate property value appreciations. For example, when considering transit stations (which are infrastructure projects), TODs around the stations are considered real estate development projects that can generate additional revenues to pay for the transit stations.
42 Figure 3 is compiled from multiple sources available from City of Inglewood, LA Metro, and real estate developers.
43 Buffer zone is the transit station catchment area where TODs are likely to take place. According to FTA guidelines, the TOD "buffer zone" for dedicated heavy and light rail transit system is defined by a 1/2-mile radius around each station along the transit corridor. See 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.
44 Table 6 is compiled from multiple sources available from the City of Inglewood, LA Metro, real estate developers, and others. It represents a potential future scenario of how various VC techniques could be applied in the multiple project context based on ongoing activities as well as specific characteristics of different VC techniques.
