Zhirong (Jerry) Zhao Associate Professor zrzhao@umn

1. Transportation Finance Advisory Committee, June 2012fafaValue Capture Strategies for Transportation Finance Zhirong (Jerry) Zhao Associate Professor zrzhao@umn.edu

2. Land Value (EMV/Acre)

3. The General Framework of Transportation Finance

5. Value capture strategies: Type-I -- on property owners • Land value tax • Tax increment financing • Special assessment • Transportation utility fees

6. Land Value Tax • The conventional property tax • Tax on buildings • Tax on land • A land value tax or split-rate tax • Captures more value from transportation • More efficient in land use Henry Georgia in 1865

7. Tax Increment Financing (TIF) Public improvements tend to cause a rise in property values in adjoining areas, causing an increase in property taxes. TIF uses these future increments in property taxes generated by new development to finance the initial costs of the development itself.

8. Tax Increment Financing (TIF) Source: How TIFs work, Chicago, Illinois, 2004

10. Special Assessments District • A compulsory levy used to finance a particular public improvement program • Its only levied against those parcels receiving a special benefit from the improvement • Assessment amount is directly related to the value of the benefits the property receives (Source: League of Minnesota Cities)

11. The Peachtree Street Streetcar Line MidtownNeighborhoodSADAtlanta, GA

12. Transportation Utility Fees • Transportation network functions as a utility • Facility use does not correlate with property value • Depends on property type • More direct connection between costs and benefits

13. TUF Simulation: Annual fee by land use - Minneapolis

14. Value capture strategies: Type-II -- on estate developers • Negotiated exactions • Development impact fees • Joint development • Air rights

15. Negotiated Exactions Non formulaic or preset contributions for the local transportation improvements decided through negotiation.

16. Development Impact Fees • One-time predetermined assessments levied on new development • Offset the impact of the development on the capital cost of providing regional transportation infrastructure Development Impact Fees With new highway exist

17. Development Impact Fees

18. Defining Joint Development Joint development private-sector sharing of capital costs private-sector payments to the public entity Incentives Public: additional $ for capital improvements Private: enhanced development potential

19. Mechanisms of Joint development

20. Air Rights Development “The legal capacity to make use of a three-dimensional area for development or improvement.” -The Use and Abuse of the Term “Air Rights,” Sam Galowitz, 1996

21. Air Rights Development: The Minnesota Context Characteristics of Minnesota’s freeway system provide unique opportunities for air rights development

22. Air Rights Development: Oases in Illinois State Tollway

23. Features of Value Capture Strategies

24. Value Capture Strategies Exaction Air Rights JD TIF DIF SAD Land value tax Transportation Utility Fee

26. TH610: Value capture study

27. Summary • Value capture • The rationale to link benefits to costs • A useful toolset with various features • Policy considerations • State authorization • Local discretion • Policy research and design • Public engagement