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Publication Number:  FHWA-HRT-18-003    Date:  Spring 2018
Publication Number: FHWA-HRT-18-003
Issue No: Vol. 82 No. 1
Date: Spring 2018

 

Hot Topic

by Mark Sullivan

Leveraging Transportation Funding with Value Capture

Transportation improvements enhance accessibility and often generate significant increases in the value of surrounding land, benefiting landowners and developers. Value capture techniques harness part of these increased property values to pay for the transportation improvements themselves or to invest in future projects.

“Given the opportunity, value capture can fill in the gap when available funding falls short of transportation improvement needs,” says Thay Bishop, senior program advisor for the Federal Highway Administration’s Center for Innovative Finance Support (CIFS).

For agencies seeking funding alternatives for projects, CIFS provides tools, resources, and technical assistance on value capture and other options to help the transportation community implement alternative financial strategies to deliver infrastructure.

“We serve as a clearinghouse of best practices so States and localities can learn about what other jurisdictions have done,” says Bishop. “We can also arrange peer exchanges so agencies can share why and how they used value capture.”

Although value capture is more common in transit development, it also offers a funding source for highway projects. By tapping into ongoing revenue sources, such as property taxes, it can raise upfront dollars from lenders for projects or provide a stream of funds on a long-term basis.

“Given the opportunity, value capture can fill in the gap when available funding falls short of transportation improvement needs.

—Thay Bishop, CIFS senior program advisor

 

Applying Value Capture Strategies

A variety of value capture techniques are available for transportation investment in the United States. One of the most common is a special assessment or tax. Special assessment districts levy incremental property taxes on land and buildings that benefit from transportation improvements.

An example is the Route 28 Highway Transportation Improvement District in northern Virginia, where property owners agreed to assess an additional tax on commercial and industrial property on more than 10,200 acres (4,100 hectares) along the Route 28 corridor. The revenue is dedicated to highway improvements on the corridor, including road widening and interchange reconstruction.

Another value capture mechanism is the development impact fee, a one-time levy on new development to help recover the costs of growth-related public services, such as construction of local roads. Development impact fees are widely used in California, Colorado, Florida, and Texas.

Shirley Contracting
Photo. An aerial image of a highway interchange in Virginia.
This aerial photo shows the interchange of Route 625 with Route 28, part of the Highway Transportation Improvement District in Virginia.

In California, 90 percent of cities and counties have adopted development impact fees. One of them is Orange County, where two organizations—the Foothill/Eastern and San Joaquin Hills Transportation Corridor Agencies—operate four public toll roads totaling almost 51 miles (82 kilometers) to provide congestion relief and connectivity. Development impact fees levied on developers of residential and commercial properties are used to supplement toll revenues for debt service payments on the toll roads.

Finally, one of the oldest value capture tools is tax increment financing (TIF), which uses the expected increase in property value to pay off capital bonds for public improvements within a TIF district. Local governments commonly use the strategy to promote housing, economic development, and redevelopment in established neighborhoods.

Some State laws specifically authorize the use of TIF for transportation purposes. Missouri, for example, has funded more than $575 million in public infrastructure statewide using TIF districts, many of which have invested in highway upgrades and improvements.

Learn More

“We encourage States and localities to explore the creative ways they can leverage the local benefits of highway infrastructure and capture monetary value to meet transportation needs,” says Bishop.

More examples of value capture techniques and projects are on the CIFS website at www.fhwa.dot.gov/ipd/value_capture. For more information, contact Thay Bishop at 404–562–3695 or thay.bishop@dot.gov.


Mark Sullivan is director of the Center for Innovative Finance Support.

 

 

 

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