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1. INTRODUCTION

State and Federal transportation funds are the traditional funding sources for transportation projects. However, the growth in local transportation needs has outpaced the availability of these funds, creating a funding gap. Value capture techniques have the potential to help communities narrow this funding gap, making delivery of critically needed transportation projects possible. Value capture techniques rely on increases in property values, business activity, and economic growth linked to transportation infrastructure to help fund current or future transportation improvements (1). Public investment in infrastructure results in increased economic activity and real estate development, which in turn leads to increasing property values and commercial activity, and subsequently generates government revenue, a portion of which may be reinvested into new infrastructure. Local governments have used value capture techniques for many years to fund different types of local infrastructure improvements. However, the use of value capture to generate funds for transportation infrastructure is relatively new. Table 1 lists the main categories of value capture techniques and defines some of the most common techniques used in transportation funding within each category.

Table 1 . Value Capture Techniques (1)

Category	Technique	Definition
Developer Contributions	Impact Fee	Fees imposed on developers to help fund additional public services, infrastructure, or transportation facilities required due to the new development.
	Negotiated Exactions	Negotiated charges imposed on developers to mitigate the cost of public services or infrastructure required as a result of the new development.
Transportation Utility Fees	Transportation Utility Fee (TUF)	Fees paid by property owners or building occupants to a municipality based on estimated use of the transportation system.
Special Taxes and Fees	Special Assessment District (SAD)	Fees charged on property owners within a designated district whose properties are the primary beneficiaries of an infrastructure improvement.
	Business Improvement District (BID)	Fees or levies charged on businesses within a designated district to fund or finance projects or services within the district’s boundaries.
	Land Value Taxes	Split tax rates, where a higher tax rate is imposed on land than on buildings.
	Sales Tax District (STD)	Additional sales taxes levied on all transactions or purchases in a designated area that benefits from an infrastructure improvement.
Tax Increment Finance	Tax Increment Finance (TIF)	Charges that capture incremental property tax value increases from an investment in a designated district to fund or finance the investment.
Joint Development	At-Grade Joint Development	Projects that occur within the existing development rights of a transportation project.
	Above-Grade Joint Development	Projects that involve the transfer of air rights, which are development rights above or below transportation infrastructure.
	Utility Joint Development	Projects that take advantage of the synergies of broadband and other utilities with highway right-of-way.
Asset Recycling	Asset Recycling (U.S.)	In an asset recycling value capture strategy, proceeds from leases or sales of existing infrastructure are reinvested ("recycled") in much-needed new infrastructure improvements to spur economic development. The new infrastructure investment can include both revenue- and non-revenue generating facilities. Value Capture by Asset Recycling strategies create a continuous funding cycle that stretches lease proceeds much further and supplements traditional funding sources.1
Naming Rights	Naming Rights	A transaction that involves an agency selling the rights to name infrastructure to a private company.

Risk is an intrinsic component of any transportation project, regardless of the funding source used to pay for it. A host of reasons may affect the cost of construction and the construction schedule, and external factors may alter travel demand forecasts. From a funding perspective, the availability of financing and cash flow to pay for the project is a vital project element that almost always involves risk. As a result, and particularly because it depends on value creation linked to real estate and economic development, using value capture to fund a project involves its own set of risks. Assessing and managing risks associated with value capture is critical to maximize the likelihood that the project will generate the value and the funding expected, and to ensure that value capture remains a sustainable funding source.

This chapter presents the goals and objectives of this primer, lays out the risk definitions used throughout the document, and introduces the concept of risk in value capture funding for transportation.

1.1 Goals and Objectives of the Primer

This primer is based on a review of relevant literature, interviews with practitioners, case studies, and lessons learned from practicing agencies. The overarching goal of this primer is to assist practitioners in understanding the typical risks associated with value capture in transportation and assessing them to build resiliency into a project’s funding strategy. More specifically, the objectives of the primer include:

• Identifying typical risks that may have a bearing on different value capture techniques at different stages of a project and illustrating them with examples.
• Describing how to assess value capture risks to build resiliency into a project’s funding strategy.

Building resiliency is about incorporating means to cost-effectively deal with potential deviations in actual project outcomes that may affect:

• The ability of the project to generate the value expected.
• The ability to capture or use the value generated by the project.

The primer provides references and descriptions to help identify, understand, and assess the risks most relevant to each value capture technique, and illustrates the concept of building value capture resiliency into a project’s funding strategy. To the extent possible, the primer provides case examples, as well as references to relevant literature on risk management, risk management tools, and project-specific analyses that interested readers may use to gain additional insight.

1.2 Risk Definitions

In this primer, risk is defined as the possibility of deviation in the actual project outcome from the expected project outcome, as measured by the benefits and costs accruing to each project stakeholder. Risk comprises the possibility of unexpectedly good, as well as unexpectedly bad outcomes (2). Table 2 provides other definitions used in the rest of the primer.

Table 2. Risk Definitions

Concept	Definition
Risk event	Discrete occurrence that affects total project value for better or worse (3). This could be a particular outcome of a continuous variable that is different from its expected value, such as revenue streams, or a one-off event, such as critical damage to the project structure due to floods.
Probability or likelihood of risk event	A measure of how likely a condition or event is to occur (3). It is often expressed as a percentage, but it may also be expressed qualitatively (for example, rare, unlikely, possible, likely or almost certain).
Risk category	In this primer, a risk category is a set of risks that have a common source or share similar characteristics. In this primer, the risk categories used include: exogenous economic risks; endogenous economic risks; legal and political risks; and policy and institutional risks. Each risk category is further subdivided into risk types.
Risk type	In this primer, a risk type is simply a more specific subset of risks within a risk category.
Value or severity of loss	The size of the loss associated with a specific risk event, regardless of the event's probability of occurrence (4). This can be expressed either quantitatively (as a cost), or qualitatively, relative to the other project risks (e.g., insignificant, minor, moderate, major, or extreme).
Risk management	A continuous process to systematically identify, assess, control, mitigate, and monitor risk throughout the life of a project using a cost-benefit-justified approach (5).

1.3 Risk in Value Capture for Transportation Funding

As noted earlier, risk is an inherent part of value capture because of its reliance on increased real estate and economic development activity. Real estate and economic development depend on many other factors aside from having good transportation accessibility. Many of these factors are sources of risk that are completely outside of the local government’s control (e.g., economic growth, inflation, and interest rates), or for that matter, outside the control of any other project stakeholders (e.g., State government, private developers). Nevertheless, it has been noted in the risk management literature that public-sector agencies cannot be risk-averse and be successful (5). Risk is present in all infrastructure projects, and in almost every other public-sector effort aimed at increasing a community’s quality of life (5). Hence, it is important to use effective risk management to balance opportunity and risk. Effective risk management in value capture is about evaluating the uncertainties and implications of each value capture technique considered, as well as about managing impacts once a value capture choice has been made. Maximizing the probability that the project will generate the value expected and that the local government will be able to capture or use the value generated by the project builds resiliency into the project’s funding strategy and helps ensure the sustainability of value capture as a funding source.

Risks that have not been identified cannot be assessed, mitigated, and monitored. Subsequent chapters in the primer describe the different risks that value capture projects may be subject to, illustrating them with examples to help practitioners identify and assess risks, and recognize actions other local governments have taken to mitigate them.

Footnotes

¹ Additional information on asset recycling can be found in FHWA’s Asset Recycling Frequently Asked Questions: https://www.fhwa.dot.gov/ipd/value_capture/defined/faq_asset_recycling.aspx.

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