TABLE OF CONTENTS
LIST OF FIGURES
The sections below are illustrative and not intended to include all the types of public facilities and services that might be funded through special assessments.
Connecting an individual property to a municipal water or sewer line requires a modification of the water or sewer line. This modification primarily benefits the property being connected. This is a routine type of infrastructure modification, and many jurisdictions impose a fee based on the typical cost of establishing the connection.32
Paving streets and sidewalks, establishing street lights, and extending municipal water and sewer lines create particular and direct benefits to adjacent properties.33 Thus, these projects are suitable for being funded by special assessments levied against adjacent properties for a portion of project costs.34 These types of public works projects are very common, so each type of project typically has a standardized cost per unit of distance. Therefore, special assessments for such projects might typically be calculated by multiplying the linear cost per foot by the distance across each adjacent property. Such a special assessment would be based upon “front footage.”
Road and street improvements can create systemwide benefits, but they also create specific and direct benefits. In 1987, Fairfax County and Loudoun County in Virginia created a special assessment district for improvements to the Route 28 corridor.35 Improvements included additional lanes, intersection reconfigurations, and signal improvements, as well as pedestrian and stormwater facilities.36
Fairfax and Loudoun Counties teamed up again regarding the 23-mile extension of Metrorail transit service from Falls Church, VA, to Tysons Corner, Dulles Airport, and beyond. Both Fairfax and Loudoun Counties created special assessment districts (“transportation improvement districts”) to help fund the local share of the project.37
Creation or improvement of a highway interchange could create benefits, nuisances, or both for nearby properties. Assuming that the highway network functions well, benefits could arise from obtaining faster access to other locations accessible via the highway network. On the other hand, increased volumes of traffic (and particularly truck traffic) along with noise and exhaust could be perceived as a nuisance by some property owners. Thus, the value of land near the interchange could be enhanced for warehouses, fueling stations, etc., and could be diminished for residences, parks, playgrounds, etc. Creating a special assessment district for such a project would entail identifying the types (and magnitudes) of benefits created along with identifying which properties would receive these benefits. In this regard, local zoning and other development regulations are important factors to consider along with existing and future demand for specific development types (residential, commercial, industrial, etc.).
To the extent that improved access to the highway network is a benefit, that benefit will be greatest immediately adjacent to the interchange and will taper off with distance.
Like an interchange creation or improvement, the creation of a municipal parking garage creates a potential access improvement. In this case, the improvement would occur in areas where there is high demand for parking and low supply. Business properties in such areas are likely to become more valuable if convenient and affordable parking is provided. Typically, the area of impact would be walking distance from the garage. And while retail establishments and perhaps offices might benefit from enhanced parking availability, residential property, schools, and industrial property are less likely to receive enhanced accessibility, even if they are adjacent to the garage. Therefore, a special assessment district would be created to include benefiting properties within walking distance from such a garage, but it would also exclude properties within that area that do not benefit from proximity to a municipal parking garage.
In a community or region with significant traffic and parking congestion, transit benefits could include:
These benefits could enhance the value of nearby properties if they are used for residential, retail, or commercial purposes. But these benefits are typically not meaningful for industrial activities. Therefore, as in most cases, land use and zoning are very important in helping determine what benefits are produced, their magnitude, and to whom they are distributed.
To the extent that access to the transit network is a benefit, that benefit will be greatest immediately adjacent to the transit stops or stations and will taper off with distance.
Irrigation and flood control facilities benefit entire communities and regions. But they also provide a specific and direct benefit to properties that can access water for irrigation and properties that experience a reduced risk for flooding. Special assessments have been used to provide significant funding for these infrastructure facilities and services.
In the late 1800s, irrigation districts brought water to the arid lands of California to facilitate agriculture. Initially, these irrigation districts were funded by user fees levied on the amount of water withdrawn from the canals. This funding mechanism was easy to understand and it seemed fair. Those who used the water paid for it. The more they used, the more they paid.38
After the canals were constructed and began operations, there were large landholdings adjacent to the irrigation canals that lay fallow. The owners of these estates were not irrigating crops and therefore were not making any payments to their irrigation districts. Yet, these landowners were becoming wealthy because access to water made their land more valuable. 39
The Wright Act of 1897,40 which enabled the creation and operation of these irrigation districts, was amended to allow (and later to require) districts to levy fees based on the value of land served by them. Not only did this increase revenues, but the large landholdings were quickly developed into some of the most intensively farmed land in the United States.41 For landowners, it didn’t make sense to pay for access to water if they weren’t going to use it.
Some districts abandoned user fees, relying exclusively on access fees (based on land values). Soon, they became aware that water was being wasted, and they reinstituted fees based on the amount of water being used. This history demonstrates the relationship between user fees (per-gallon water charges) and access fees (special assessments based upon land value). If user fees are high compared to the value of the facility or service, the infrastructure might not be used and land values will increase very little. If user fees are low compared to the value of the facility or service, the infrastructure might be overutilized and land values will increase more substantially.42
This example related to the transportation of water reveals some important principles related to infrastructure funding:
Charging for infrastructure access with a fee based on land value ensures that landowners pay for infrastructure access in proportion to the access benefit that they receive. This is comprehensible and fair. Unlike many taxes and fees, infrastructure access fees encourage development where land values are high—close to the infrastructure. This creates more compact and efficient land use patterns that allow more people and businesses to be served by infrastructure at lower costs (both absolute and per capita) than when development is more disbursed and infrastructure must be extended at great cost over wider areas with fewer taxpayers.43
32 For example, DC Code 2001 Ed., § 9–401.08.
33 For example, DC Code 2001 Ed., § 9–401.09.
34 The portion of costs paid by special assessments versus the portion paid for by general fund revenues would be based on a determination regarding the proportion of benefits that accrue to the general public compared to the proportion of benefits accruing to adjacent properties. See Sections 6 and 8 below.
35 See https://www.fairfaxcounty.gov/transportation/rt28-tax-district and https://www.loudoun.gov/1897/Route-28-Transportation-Improvement.
36 Virginia Route 28 transportation improvement district and a wide variety of other types of value capture projects can be found at https://www.fhwa.dot.gov/ipd/value_capture/project_profiles.
37 FHWA. “Value Capture Implementation Manual.” Appendix Case Studies: VIII Silver Line/Dulles Metrorail—Special Tax District. https://www.fhwa.dot.gov/ipd/value_capture/resources/value_capture_resources/value_capture_implementation_manual/appendix.aspx#metrorail
38 See Robert V. Andelson, ed., “Land Value Taxation Around the World, Third Edition,” 2000, pp. 154–156.
39 Ibid.
40 Now incorporated into the California Water Code, Division 11, IRRIGATION DISTRICTS [§§2500-29978] https://law.justia.com/codes/california/2011/wat/division-11. In particular, see §23511 and §23532 (power to create an ad valorem assessment) and §25650 indicating that an assessment against land value shall cover enumerated costs.
41 See Robert V. Andelson, ed., “Land Value Taxation Around the World, Third Edition,” 2000, pp. 154–156.
42 In the case of a new highway interchange, free use of the highway or very low tolls may result in land value increases near the interchange, whereas very high tolls may result in little or no appreciation in nearby land values. Likewise, with transit, high transit fares will reduce transit use and limit land value increases near transit stops and stations, whereas low transit fares will induce transit use and increase land prices near transit stops and stations. See Rybeck, R. “Funding Infrastructure to Rebuild Equitable Green Prosperity” in Revitalization News, Issue 7, July 15, 2015, at https://justeconomicsllc.com/pdfs/Revitalization%20News%20-%20Funding%20Infra%20To%20Rebuild%20Equitable%20Green%20Prosperity%20July%2015%202015.pdf
43 Rybeck, R. “Using Value Capture to Finance Infrastructure and Encourage Compact Development,” Public Works Management & Policy, Vol. 8, No. 4, April 2004, pp. 249–260 at 253. See also DiMasi, J. (1987, December). “The effects of site value taxation in an urban area: A general equilibrium computational approach.” National Tax Journal, Vol.40, pp 577–590.
44 Rybeck, R. “Financing Infrastructure with Value Capture: The Good, The Bad & The Ugly.” https://www.strongtowns.org/journal/2018/2/20/financing-infrastructure-with-value-capture-the-good-the-bad-the-ugly
