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EXECUTIVE SUMMARY

The growth in local transportation needs has outpaced the availability of funding from traditional State and Federal sources, leading to a growing funding gap. Value capture funding techniques have helped communities throughout the country narrow this funding gap while accelerating the delivery of critically needed transportation projects. 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.

Risks are present in any transportation project regardless of the funding source used to pay for them. The use of value capture techniques to fund transportation projects involves a set of risks associated with value capture’s 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 local government 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). 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. In this regard, transportation agencies and local governments often rely on the risk management process to understand existing risks, quantify their potential impact on the project, and elaborate a response to them. The risk management process consists of five sequential steps:

1) Risk identification

2) Risk assessment

3) Risk allocation

4) Risk mitigation

5) Risk monitoring

Transportation projects funded with value capture may be subjected to various risks that for the purposes of this primer are grouped into four risk categories:

• Exogenous economic risks. Risks determined by external factors at the regional, national, or sometimes the global level, and are outside the control or influence of project stakeholders. The three most common risk types inside this category are macroeconomic risks, real estate market risks, and other local economic and demographic risks.
• Endogenous economic risks. Risks determined by internal factors, processes, or decisions within the control of project stakeholders that result in the project not generating the anticipated economic development, thus affecting the local government’s financial standing. Common risk types in this category include economic growth impact and related risks, as well as fiscal impact risks.
• Legal and political risks. Includes risks associated with the legal/regulatory framework and with the political environment that may directly limit the ability of local governments and/or other project stakeholders to successfully use a value capture technique for project funding or financing. The most common risk types in this category include legal feasibility and legislative risks, as well as political climate and feasibility risks.
• Policy and institutional risks. Risks resulting from a local government’s management or administrative actions in the implementation of a project using value capture that may unintentionally result in undesirable project outcomes or negative public perception. The risk types identified in this category include social equity (including environmental and sustainability) concerns, as well as administration and transparency risks.

Finally, the development of a resilient value capture funding strategy is key to maximizing the value generated by the transportation investment and the long-term success of value capture as a funding source. The result of building resiliency into a value capture funding strategy is also called a “risk-adjusted value capture strategy.” In essence, a risk-adjusted value capture strategy is about accounting for risks and their timing early on through robust risk assessment and allocation work, along with identifying adequate mitigation measures.

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