Guide to Value Capture Financing for Public Transportation Projects (2016) / Chapter Skim
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Value capture is the public recovery of a portion of increased property value created as a result of public infrastructure investment. Common value capture mechanisms are: • Impact fees, • Joint development, • Land value taxation, • Negotiated exactions, • Parking fees, • Sale or leasing of air rights, • Sales tax and special assessment districts, • Station naming rights, and • Tax increment financing (TIF)
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Capturing a portion of that value to fund transit projects is an increasingly viable and desirable option, subject to a number of enabling conditions: • Real estate market vitality; • Accommodative zoning and land use entitlements; • Statutory authority enabling use of value capture mechanisms; • Articulation of a compelling business case for value capture to public and private partners and to the financial markets on which they depend; • Development of project- and context-specific financial strategies that are feasible and incentivize and reinforce value creation; and • Institutional capacity on the part of transit agencies, local governments, developers, and other partners working together to maximize value creation and value capture. Value capture opportunities and strategies vary significantly due to context.
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Investment-relevant time horizons differ markedly among major value capture participants. The most successful value capture strategies will, to the greatest extent possible, align risk tolerances with time horizons and sensitivities among value capture participants.
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Value capture strategies can allow local government to invest in further enhanced transportation infrastructure, transit supportive infrastructure, expanded transit service, and various public amenities, which can induce additional value creation. Opportunity for value capture may be maximized to the extent that public and private stakeholders successfully cooperate in strategic value creation.
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However, credit rating agencies have been disinclined to assign an investment grade to debt secured solely by value capture revenue dependent on real estate that has yet to be developed. Transit agencies or local governments often issue bonds secured by a pledge or assignment of creditworthy sources of repayment in addition to a real estate–dependent revenue stream.
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In many cases, specific projects are financed with combinations of public, private, or quasi-public debt. Institutional Capacity and Partnership In order to optimize value capture and transit project feasibility, transit agencies need to engage early in partnerships with developers and local governments and participate strategically in the process of real estate value creation and realization.
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From page 7... ...
Approximately two-thirds of the construction cost was funded with special assessments, district sales taxes, and parking fees. • Portland Streetcar, Portland, OR: The City of Portland developed a 7.35-mile, $251 million streetcar in downtown Portland, 45% of the funding for which was provided by special assessments, TIF, and parking fees.
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