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Using the Economic Value Created by Transportation to Fund Transportation (2014)

Chapter: Chapter Four - Summary of Findings and Common Themes

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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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Suggested Citation:"Chapter Four - Summary of Findings and Common Themes ." National Academies of Sciences, Engineering, and Medicine. 2014. Using the Economic Value Created by Transportation to Fund Transportation. Washington, DC: The National Academies Press. doi: 10.17226/22382.
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87 FINDINGS FROM THE STUDY This synthesis examines local government options for land VC to fund public investment projects. The literature review and case examples covered 10 mechanisms from which sev- eral key findings and common themes may be summarized. The examples indicate that there is not a universal approach to VC funding and financing. Although several of these loca- tions undertook similar practices, the particulars of those approaches were tailored to fit each location. In many cases, more than one source was adopted (examples of those include Washington State, Montana, Virginia, Oregon, and Texas). The mechanisms reviewed in this document and for which case examples are documented were evaluated using the fol- lowing criteria: (1) political acceptability; (2) transaction cost- efficiency (includes implementation-related transaction costs to agencies); (3) practical considerations such as design and implementation considerations; (4) cost-efficiency from the point of revenue adequacy; (5) local partnerships involved; and (6) equity with regard to burden across different income groups and equity of revenues and costs attributed to different vehicle classes. Each of the findings is discussed in this chapter. Acceptability and Transactions Costs Table 10 shows a qualitative relative assessment of mecha- nisms in terms of political acceptability, implementation costs, and institutional capacity. Implementation and transaction costs provided by reporting agencies are used to compare mechanisms on a three-point scale: high, medium, or low. Often-reported transaction costs include those pertaining to administration, revenues, accountability, and a small portion of legal costs. These aspects are important in the context of understanding overall costs and benefits of each mechanism. GENERAL IMPLEMENTATION FINDINGS Tables 11 and 12 discuss the main design and implementation features of the adopted mechanisms based on case examples. Types of Mechanisms, Area of Applicability, Beneficiaries and Service Areas Types of Mechanisms Adopted and Area of Applicability The cases examined showcase a variety of mechanisms adopted. In some cases, more than one VC mechanism was also used. This was seen in the Oregon, Washington, and Virginia case examples. In general, Montana, Washington, Virginia, and Oregon are among the states that allow multi- ple mechanisms to be considered. The mechanisms adopted as seen in the examples seem to be context sensitive and driven by the local need and economic condition at the time, the gen- eral readiness, the existing guidance available, and finally, if applicable, the type of development (for IFs, exactions, and STARRs). Only IFs, LVTs, and sales taxes were reported to be used in the context of programmatic approaches to fund transportation projects screened from plans were considered for funding. In one case example, the property tax (through the road fund levy in Washington State) was used in a pro- grammatic way to fund local roads and transport projects. Programmatic Versus Project Funding Programmatic approaches tend to adopt taxes as the form of levies (Table 11), in comparison with project level funding, for which levies typically assume the form of fees. In most cases, taxes go into the government’s general fund, where the rev- enue can be used for whatever the government thinks is best, as guided by elected officials. In the case of project funding, governments may impose “fees” to cover the governments’ specific costs of providing particular services, and those fees normally can be used only to cover the costs of the services provided in that area. In increment finance approaches, where typically no new levies are issued, the portion of increments set aside from participating local jurisdictions may also be used to cover the costs of the services provided in that area. In general, in the case of programmatic funding, the notion of the general benefit area defines the geography of levy coverage. In the case of project funding, both the general benefit and special benefit area become applicable for the consideration of fees. However, the case examples previewed in this study showcase a few examples in which a programmatic approach is also used in the context of funding for a single project (such as in the Missouri and Butler County examples). Beneficiaries Both landowners and developer communities are seen to be the beneficiaries of the transportation improvements and have a significant role in VC mechanisms as the agents for whom value is created. Thus, buy-in from these groups is vital for most mechanisms. In some case examples, such as IFs, the developer beneficiaries are directly identifiable at the chapter four SUMMARY OF FINDINGS AND COMMON THEMES

88 time of permit issue. In other examples, identifying benefi- ciaries may be tied in with the delineation of a service area. Boundaries and Service Areas (Benefit Zones or Service Areas) A broader “general benefit” area defines the regions or areas that are served by the facility and assumed to refer to the direct beneficiaries. In almost all cases seen in this study, the general benefit area has been defined by host counties or cit- ies. Within the broader general benefit area, the geographic service area that is characterized by direct physical proximity has often formed the basis for further delineating beneficia- ries of transport investments. The review suggests that VC mechanisms can be justified as being economically efficient as long as the spatial distribution of project benefits can be internalized within a well-defined benefit area. The case examples provided the opportunity to see how the benefit zones were applied in the context of different regions and mechanisms. Thus, the examples were categorized by geographic scale. This showed that sometimes the same VC mechanism was adopted at a smaller geographic service area for project-level funding and on an areawide basis for programmatic applications. This was the case with sales tax, system development charges, and property-tax–related districts. First, the boundaries of a particular mechanism were found to vary with type of approach—programmatic versus project. Second, when an approach more closely tied to a cor- ridor or project-oriented SAD, TIF, or IF was used, the service area was defined as a much smaller area serviced by the proj- ect and was limited to its immediate vicinity. In most cases, a visual assessment and reviewed documents indicated that ser- vice areas were drawn and developed based on distance-based thumb rules even in the case of open systems. These distances typically were a maximum of 1 to 2 miles on either side of the project centerline in the case of all highway improvement Mechanism Institutional Capacity and Transactions Costs Acceptability IF High initial planning costs and in periodic rate studies as required by law Most widely adopted mechanism across the country. Acceptability and stakeholder support are based on transparency of process and larger goals of a region. NE Low Works on a case-by-case basis; it is generally more acceptable/applicable in most areas. Traffic and access from developments can be a cause for concern, and it is a gap-filling approach on existing networks. LVT High initial costs and in periodic rate studies Only adopted in Pennsylvania. One other city to adopt in Connecticut as of 2013. Requires a paradigm shift in thinking for most regions; thus, use has been limited to few regions in the country. However, it is also a mechanism that is being examined in some other regions and countries. TIF Moderate Can be applicable anywhere as long as there is a clear link between project and benefits. Acceptability is based on transparency, strong real estate markets, and longer-term vision. TIFs have been most widely adopted for financing transit- oriented development and related streetscapes but less often used in funding capital costs of projects. SAD Moderate to high Can be applicable anywhere as long as there is a clear link between project and benefits. Acceptability to stakeholders is based on transparency, strong real estate markets, and longer- term vision. STD Moderate Can be applicable anywhere as long as there is a clear link between project and benefits. Acceptability to stakeholders is based on transparency, longer-term vision, and demand for transportation services. TUF High initial costs and in periodic rate studies Limited applications so far but is applicable only for pavement maintenance. Acceptability is based on transparency of process and larger goals of a region, as is seen in Portland example. ARs High Works with JD. Stakeholder involvement and acceptability can be a long process. JD High Works with ARs and also in conjunction with real estate development. Acceptability can be a long process. Other— TCs Low—Funding tool to promote and coordinate use of one or more mechanisms Applicable with many funding mechanisms as a support framework. Acceptability is linked to transparency. All examples examined had all documents/agreements archived. Other—STARR Low Because it is applicable on a case-by-case basis, it is generally more acceptable. TABLE 10 EVALUATION OF MECHANISMS BASED ON REVIEW AND CASE EXAMPLE(S)

Value Capture Mechanism Beneficiary Basis Coordination Timing Initiation Levy Basis Levy Frequency Cost Coverage by Mode Level of Government/ Legal Area/Boundary L a n d o w n e r s D e v e l o p e r s P u b l i c T a x i n g A u t h o r i t y N e g o t i a t i o n P a r t n e r s h i p B e f o r e I m p r o v e m e n t A f t e r I m p r o v e m e n t N e w D e v e l o p m e n t E x i s t i n g D e v e l o p m e n t O n e t i m e A n n u a l H i g h w a y I m p r o v e m e n t C a p i t a l O p e r a t i o n s & M a i n t e n a n c e O t h e r ( S u c h a s T r a n s i t - O r i e n t e d D e v e l o p m e n t , T r a n s i t B i k e w a y s ) S t a t e L o c a l E n t i r e A r e a / J u r i s d i c t i o n L i m i t e d A r e a / S e r v i c e A r e a / N a m e A t t h e S i t e 1. IFs TSDC North Macadam Mercer TDD New Jersey X X X X X X X X X X X X X X X X X X X X X X X X X — 1 — X X/ Overlay X/TDD 2. SAD General Virginia—TID Denver— Metropolitan District (JSPIA) Illinois SSA Elgin O’Hare (Planned) Olathe, Kansas TDD Butler County TID X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Context Corridor improvement Corridor improvement Corridor improvement & transit Development related X X X X X X X X X X X X X — — — X—TID X X/TID X/Metropol itan District X/SSA X TDD 3. STD—General US Hwy 36 TDD Olathe, Kansas TDD X X X X X X X X X X X X X X X X — Development related X X X X X X X — — X X/TDD X/TDD 4. Negotiated Exactions Virginia I-495 X X X X X X X X X X X X X X X X X X 5. Typical TIF TIF-TRZ X X X X — X — X X X X X X X X X X X X X (via surpluses) X X X X X/TIF X/TRZ 6. ARs Boston’s ARs X X X X X X X X X X X X (lease) X X X — X X X — X X 7. JD Boston’s ARs, JD WMATA JD X X X X X X X X X X X X X X X X X—cost X— revenue X X — — — X X X (transit & other) X (transit & other) X X X X — — X X X 8. Other Transport Corporations (Hwy 67, Hwy 63) Other (STARR) — X X — X X X X X — X X Local street improv ement X — — X X — — X 1Implies not applicable. TABLE 11 BENEFICIARY BASIS, DESIGN FEATURES, AND APPLICABLE LEVEL OF GOVERNMENT—PROJECT OR CORRIDOR MECHANISMS

VC Mechanism Beneficiary Basis Coordination Timing Initiation Levy Basis Levy Frequency Cost Coverage by Mode Level of Government/ Legal Area/Boundary L a n d o w n e r s D e v e l o p e r s P u b l i c T a x i n g A u t h o r i t y N e g o t i a t i o n P a r t n e r s h i p B e f o r e I m p r o v e m e n t A f t e r I m p r o v e m e n t N e w D e v e l o p m e n t E x i s t i n g D e v e l o p m e n t O n e t i m e A n n u a l H i g h w a y I m p r o v e m e n t C a p i t a l O p e r a t i o n s a n d M a i n t e n a n c e O t h e r ( s u c h a s T r a n s i t - O r i e n t e d D e v e l o p m e n t , T r a n s i t , B i k e w a y s S t a t e L o c a l E n t i r e A r e a / J u r i s d i c t i o n L i m i t e d A r e a / S e r v i c e A r e a A t t h e S i t e 1. IFs General Bozeman, Montana Mercer TDD, New Jersey X X X X X X X X X — X X X X X X X X X X X X X X X X X X X — — X (TDD) 2. STD Bellingham, TBD, Washington Ohio TIDs — — X X X X X X X X X X X X X X X X X X X X X X X X X X X X 3. SAD Washington Road Fund Levy X X X X X — X X X X X X X X X X X X X X X— County — X 4. LVT Harrisburg, Pennsylvania X X X X X X X X X X X X X X X X X X 5. TUF Pavement Maintenance Fee Corvallis, Oregon X X X X X X Utility company collects Utility company collects X X X X X X X X TABLE 12 BENEFICIARY BASIS, DESIGN FEATURES, AND APPLICABLE LEVEL OF GOVERNMENT—PROGRAMMATIC APPROACHES

91 funds to roll in before the project construction. Developer charges such as IFs, NEs, ARs, and JD are one-time fees or agreements on new development; however, assessment dis- tricts, TIF, LVTs, STDs, and programmatic approaches are all annual charges or fees on the same properties. IFs, although levied on a one-time basis, are collected every year on new developments as they apply for permits. ARs, JDs, and NEs are by their very nature one-time transactions. ARs and JD financial terms can include sale and lease-back arrange- ments, such as the 99-year lease seen in the case of Boston’s ARs example or other cost- or revenue-sharing agreements that can go over a longer duration. TIF, STD, and SAD pay- ments occur annually once established until the TIF, STD, or SAD expires. Financial terms, such as debt service or loan repayments, are primary criteria for the effective duration, although they typically may be set for 20 to 30 years. TUFs are also annual payments. Developer contributions, such as the STARR example, are also one-time agreements with annual developer rebates from sales taxes. Levy Basis or Who Pays? IFs, ARs, JDs, NEs, and STARRs are the only mechanisms that are based on new development and are levied on devel- opers. All other mechanisms are based on both existing and new development with the area defined for the situation. Finally, sales taxes are levied on the general public based on general sales. The sales tax levies are also sometimes capped to a maximum, but in most of the examples, the taxes ranged from a half-cent sales tax to a maximum of a one-cent addi- tional sales tax in support of transportation improvements. Levy Structures Although the review suggested many types of rate structures, the actual SAD case example’s rate structures were practi- cally led, and simplicity in rate setting through flat rates was a critical part of the acceptability. The rate was set at $0.20 (and capped at that) for all uses within the TID for the SR-28 corridor project. Rate structures for TSDC IFs and other IF examples follow standard procedures using trip generation estimates based on the ITE handbook. Although these rates are based on estimates of likely future trips, the rates are subject to debate at times. However, TSDC rate setting is a system- atic and transparent process that allows for credits, the use of other revenue mechanisms, and the multimodal nature of trips and investments. In the case of the TIF-like example, there were no rates, only cost-sharing agreements for incre- ment sharing with local entities. Revenue Collection and Coordination The revenues are collected by either a municipality/city or a county and deposited in a special fund for allocation to projects examined. As noted in chapter two, the E470 cor- ridor, for instance, used a prespecified threshold of 1.5 miles from the Tollway as a way to levy highway expansion fees. In special cases, such as Texas, where a TIF-like TRZ was adopted, the service areas had to account for other factors, such as impacts to general fund revenues of a municipality because the procedure involved local government cost-sharing agreements through increment sharing. This is not the case for STDs, SADs, or other mechanisms because they levy addi- tional fees and create new revenues. Other jurisdictional and contiguity provisions pertaining to boundaries as noted from the case examples refer to: • The multijurisdictional aspect: The Virginia TID, Illinois SSA, and Texas TRZ allow for multiple contiguous jurisdictions to develop service areas. The Virginia TID and Illinois SSA allow for multiple adjacent jurisdic- tions to develop assessment areas for a project that tra- verses multiple jurisdictions and also has a cost basis for the service area in those jurisdictions. For instance, both Fairfax County and Loudoun County were part of the ser- vice area for the SR-28 TID. • Contiguity aspects in boundaries: Contiguity within an individual jurisdiction’s service area is an important ele- ment of service area development. In principle, service areas based on assessments can have exemptions that may be perceived as breaking contiguity, but they still are included in the service area, if only to maintain con- tiguity. The Texas TRZ code is explicit in its reference to this type of contiguity. The Illinois and Virginia TIDs and Butler areawide TID are seen to satisfy this criterion visually. This implies that a service area cannot be bro- ken in any way because of parcels that have exemptions, including institutional and properties for which no pay- ment of taxes is required. Revenue Capture Considerations Timing and Availability of Revenues from Adoption of Mechanisms Tables 11 and 12 show that funding from many mechanisms is available before the improvement is in place and before the value can be fully realized. In the case of the SR-28 project, the revenues accrued during Phase 1 but before completion. This allows the possibility of financing methods that may be backed by those revenues for up-front investments, as the case examples have shown. This synthesis has provided several examples, such as SR-28, Texas TRZ, JSPIA, Missouri TDD, and Butler County TID, in which this approach has been used. When and How Often Are Payments Made? Almost all VC mechanisms that are project or corridor driven are set up early in the process and before the construction of the project. This implies that many VC mechanisms allow

92 development patterns, there was little case evidence of cost- efficiency in the literature. The case examples explored here provided an opportunity to investigate the ability of mecha- nisms to meet project needs in terms of timing and the ability to recoup cost and to understand the ability of these mecha- nisms to meet their stated share in project costs. This is pri- marily meaningful for project and corridor funding in contrast to programmatic approaches. Developer exactions and IFs approach VC from the cost side. They are one-time, up-front charges designed to recover the infrastructure costs associated with growth. NEs in this synthesis refer to the requirement that developers either install at their own cost the internal infrastructure required to meet development standards or pay for infrastructure elements pro- vided by public authorities or donate in-kind. IFs aim to cover the costs of the external infrastructure caused by new devel- opment. For these approaches to be used for cost recovery, they are required to satisfy rational nexus tests, be limited to a proportionate share of infrastructure costs, be used exclu- sively for the capital investment purpose cited to justify the fee, and finally, follow the state-provided guidance. Several of the projects examined were under way at the time of this investigation, but three projects allowed the oppor- tunity to get greater insights. The SR-28 project allowed the opportunity to track the timing and collection of revenues in relation to project-related needs, as did the Texas TRZ and the TDD US-63 project in Missouri. No example was fully complete, so an adequate picture cannot be drawn yet, but the evidence suggests that the SADs, TIFs, IFs, TSDCs, LVTs, and TUFs are meeting their obligations. A brief summary of the revenue contributions of some of the examples looked at is presented in Table 13. Most of the examples suggest that the mechanisms meet the needs based on timing and gross dollars available. However, most approaches, including those related to sales taxes with their reliance on real estate markets, do require risk arrangements in the event of inadequate revenues to meet debt or loan obligations in any year. Table 13 suggests that VC mechanisms have supported a significant share of cap- ital cost needs with a rare maximum of 75% of project costs. The three categories with highest construction cost support coming in from VC tools include STDs, TID special assess- ments, and TIF-like TRZ options. Value of a Guiding Framework The case examples and review show that a higher-level frame- work played an important role in setting the trajectory of agency choices of mechanisms. In most cases, the observed higher-level framework was also a legal one. Another observed guiding framework provided is a CIP, or a long-term plan, that identifies transportation projects for a region. This review points to a study by Rappa (2002), who showed that IF guid- ance in at least 14 states was developed in ways that the mech- anism could only be used in connection with a CIP. In the IF type examples examined in the current study, Oregon TSDC transportation projects by the entity overseeing the proj- ect funding and financing. In some case examples, as when a sales-tax–related TDD was used, a more formal revenue collection and reporting process was noted with the involve- ment of the Department of Revenue. TUFs are collected by the municipality’s public works department. With respect to the coordination of VC mechanisms, the taxing authorities have a significant role. These taxing author- ities are different in each case. In the case of TUFs, the taxing authority is the municipal public works authority or utility ser- vices. In the case of all property tax-based mechanisms such as SADs or increment-based approaches, the taxing author- ity is the local government (municipality or county), but the mechanism is operationalized through the appraisal districts so landowners know they are or are not part of a service area. In all other cases, the taxing authority is the local govern- ment, such as a municipality or county. Duration In most cases in which a sales tax, property tax, or increment approach was used, whether in the context of a project, cor- ridor, or more areawide programmatic approach, the duration was long term (20 to 30 years) and defined to expire when the project loan or debt was serviced, after which the tax would be repealed. General Financing and Risk Considerations The revenues from VC have been used in the case examples as a project finance method. VC returns are dependent on real estate and land, and the risks are associated with cyclical vari- ations in real estate markets. In cases of mechanisms used at the project or corridor level, a different kind of fiscal respon- sibility was noted by interviewees in which default clauses and provisions were placed in contracts to address economic risk and contingencies. The associated risk with revenue pro- jections places emphasis on the need for analyzing and evalu- ating the value potential itself. This has been noted in many case examples, and some have noted the need for undertaking preliminary feasibility assessments. Three projects had con- tract clauses that dealt with default arrangements to meet debt or loan requirements. During the recessionary time period of 2009, the revenues from the SR28-HTID did fall, just as they did in the early years. However, the Northern Virginia State Highway Allocation covered the payments. In the case of the Missouri Route 36 project, the repayment clauses from sales tax revenues were relaxed for the first 3 years from 2007. Cost Efficiency—Ability of Revenues to Meet Stated Project Needs Although in principle all mechanisms are efficient from the perspective of generating price signals that increase the effi- ciency of urban land markets and help rationalize the urban

93 ples. Mechanisms vary conceptually in terms of type of theo- retical equity and how they are perceived. However, in actual implementation, rate structures and considerations such as multimodality credits (TSDCs, for example) and affordable housing (ARs or JDs) allow opportunities for addressing ver- tical equity and modal equity provisions. This study finds that perceived equity, theoretical equity, and equity in imple- mentation are all different. Equity in implementation is often noted in the literature and cases as either a stated goal or required by a framework to address any perceived vertical, geographic, or modal equity considerations. COMMON THEMES The synthesis has carried out a review of several mechanisms and documents practices that were matched to the specific legal and geographic framework. A wide range of VC mechanisms was observed in funding highway projects. Many of the prac- tices described in this report benefited from creative imple- mentation of available mechanisms. Some of the mechanisms adopted were undertaken within the framework provided by comprehensive plans, whereas others were adopted either in the context of a corridor vision, and yet others were adopted on a piecemeal basis. Yet, several recurring themes relating to the implementation of an adopted mechanism emerged and are important for a wider audience seeking to implement such mechanisms in their regions. These themes include (1) the recognition of a need for higher levels of stakeholder and Montana-Bozeman IFs were both examples of adopting funding options in the context of the 10-year CIP. In the context of other mechanisms, the Ohio TID, Texas TRZ, Oregon TSDC, and Mercer County TDD were all adopted to fund a specific project or group of projects from long-term improvement plans. Virginia Route 28, for exam- ple, and Boston’s ARs were adopted in the context of a long- term strategic vision for the region or corridor. Equity of Mechanisms Equity on the basis of standard benefit principles is seen in the case of SADs, TIFs, exactions (cash), STARRs, JDs, and ARs. Equity on the basis of costs imposed on the society is seen in the case of LVTs, TUFs, and IFs. Equity on the basis of ability to pay is implicit in SAD rates, but it was not in the case of the SR-28 example (flat rate). With respect to equity of an adopted mechanism, equity provisions of the case exam- ples were examined. Equity in adoption was addressed as part of the rate structure, exclusions of certain types of land uses, or by means of external provisions, such as affordable housing and transit (LVTs, ARs, TIFs). Modal equity and vertical equity were both addressed through rate structures in IFs adopted in Oregon. Finally, the Texas TIF example also addressed through policy and legal guidance the use of surplus revenues set aside toward transit. Equity in terms of participation was noted in all project and corridor case exam- Example Revenue Duration Share in Costs TUF, Bozeman, Montana Proposed $29 million 2013–2022 80% of cost of service due to new development or $25 million AR/JD, Copley Place, Massachusetts $12 million ARs premium 99-year lease Cost share and revenue share Route 36/I-72, Missouri $12+ million paid (38% of project costs) 2005–2020 $34.3 million (50% of project costs) Highway 63, Missouri $11.5 million paid 2003–2013 30% of project costs from sales tax or $38.2 million Highway 67, Missouri Adequate so far 2005–2035 50% of project costs only ($60 million) CenterCal, STARR Tax rebates capped at $35 million 2011 onward Cost share: $25.4 million TDD, Olathe Pointe, Kansas $2 million so far 2005–2027 (22 years) $14.94 million State Route 28, Virginia $227.13 million since 1996, initial few years inadequate Ongoing for 25 years as of 2013 75% of project costs JSPIA, Colorado $30+ million 1983 (20 years) — TSD, North Macadam 2008 projection $18 million 20 years — TRZ, Texas $641,132 2010 onward (30 years) Cost share up to $30 million or a goal to reach 21% of the interchange project cost Mercer County IF TDD, I-95/295 Corridor Paid 1990–2010 (20 years) Approximately $6 million share (13% of improvements through District) TID, Butler, Ohio Paid 1993 (20 years) $17 million share TUF, Corvallis, Oregon Generates approximately $400,000 annually 2005 onward — TABLE 13 REVENUE TO NEED COMPARISONS OF VC MECHANISMS

94 Some examples showcase the use of TCs as a funding aid to garner stakeholder support and to aid in the process of funding and financing a project or set of projects. This was seen in all of the Missouri case examples. Others have exten- sive community involvement protocols, such as the Boston ARs examples, and to a smaller extent, the SR-28 project. Phase 2 of that project moved along as a full PPP; thus, clar- ity with respect to funding was critical for support. A third category of examples included those in which stakeholder involvement, cooperation, and collaboration were achieved early in the process through a vision captured by a long-range transportation plan or a CIP. Examples from Oregon, New Jersey, Texas, and Ohio were discussed. In the Texas example, public hearings were part of the stake- holder involvement process and were used for establishing the ordinance. Many of the practices were noted to have early collabo- ration with partnering agencies and other stakeholders with messages related to the opportunities made possible by the roadways, as in the US-63 example in Missouri. These case examples also underscore the need for pragmatic approaches; in many cases, success was enabled by the ability of the pro- fessionals involved to form a realistic assessment of the insti- tutional, political, or financial framework at play and to adapt an approach that fit within that framework. Local partnerships showed a subset of the following agen- cies and stakeholders involved in the collaborative process, depending on the special circumstances of the location/project context: • Community, landowners (SADs, TIFs, STDs, LVTs, TUFs). • Departments of transportation (all). • Corporations, if applicable (Missouri examples). • A private company involved in a PPP contract for proj- ect delivery, if applicable (Virginia example). • USACE (Missouri examples). • Developer community (NEs, JDs, ARs, STARRs). • County commissioners (for countywide mechanisms). • Municipalities/jurisdictions (all). • Local metropolitan planning organizations (Texas and Oregon examples). Although all mechanisms can meet with local opposition, some examined here met with more local opposition than others. Among those were TUFs and LVTs. Value Capture as Part of Funding Toolbox A common theme from the literature review and case exam- ples is the acknowledgment that these mechanisms can be considered as part of a larger funding toolkit to ensure that the most critical projects are delivered. involvement and outreach, (2) the realization that VC has an integral role to play in a fiscally constrained environment as part of a larger toolbox of funding mechanisms, (3) the ability of mechanisms to deliver project delivery benefits in a num- ber of ways, (4) the recognition of challenges and barriers in support of mechanisms, and (5) the role of feasibility studies and modeling in addressing many aspects of adopting any mechanism. This synthesis does not prescribe a method or an approach because this is contextually driven and dependent on a variety of factors. Stakeholder Involvement Almost all of the project and corridor case examples note that stakeholder involvement is a major step. It can be a very time- consuming and protracted process, as in the case of ARs, or one that is simpler but still involves stakeholder coordination, as in TIF mechanisms. The programmatic approaches involve either public hearings or voter approval (as in the case of a sales tax). Missouri has enlisted the support of TCs to help with the stakeholder support process, in which the nonprofit corpora- tions serve as project champions. In almost all cases, the stake- holder involvement process has taken 1 to 5 years. In yet other cases, having a legal framework in place has not been adequate. Lags in Adoption of Mechanism A common point noted across examples is that the develop- ment of an enabling framework is not adequate to promote adoption of a mechanism. Much like a new technology, there is a time lag in diffusion or adoption of a mechanism. In other words, there is a gap between the legal provision and actual use, during which stakeholder involvement plays an impor- tant role. This is seen in the case of the Missouri TDDs, Ohio TIDs, Virginia TID, and Texas TRZ. In all these cases, the time lag was 1 to 9 years. It is important to point to the exam- ple of North Carolina’s adoption of the Project Development Financing Act. This provision has not been used at all. In North Carolina’s case, this lack of use is tied to a lack of fuller understanding of how the TIF mechanism could work. Local Partnerships Local governments and communities at the municipal level are the central players involved in the implementation of these VC mechanisms. Many state efforts support these efforts by pro- viding these mechanisms with an enabling framework. Depart- ments of transportation are noted to initiate a process, but local governments are often responsible for the planning and design of all of these VC mechanisms. The nature of the overlapping interests and jurisdictions underscores the need for cooperation and collaboration among state DOTs, counties, municipalities, and other local authorities. Many of the examples presented in this synthesis show that the involvement process can be quite lengthy, spreading over a few years.

95 authority have to coordinate with local taxing authori- ties to help establish the district and dedicate a portion of the tax increment toward the project or set aside the revenues from assessments. • Because zoning helps optimize the value available for capture, agencies often have to work with local zoning authorities to modify zoning regulations. This typically arises in the case of NEs or JD. Some agencies have successfully coordinated with local governments when using VC strategies, but others have faced challenges. Partnering agencies may lack precedent for active collaborations. Some form of higher level of support has been important in urging agencies to cooperate. This higher level of support can be a common vision that binds the regions together; this is seen in the SR-28 project. Challenges Related to Support of an Approach The success of many of the practices included in this report is predicated on buy-in or acceptance of the practice from multiple players, especially the general public and high-level officials in the area. It is therefore important that these prac- tices garner public support. Often, opposition from the general public is not seen on the policy level but rather in response to specific projects. This occasionally can occur because of the public’s lack of understanding regarding the benefits of a trans- portation project or because many members of the public do not pay close attention to municipal planning processes until a project is proposed in their back yard, and then the “not in my back yard” response is to be expected. Almost all of the mecha- nisms need public support, either through a public hearing for an ordinance or through voter approval. Thus, communities can opt out of the funding mechanism. This was very clear in the Missouri case example, in which Ralls County did not want to be a partner in the project funding. Most of the mechanisms focus on some form of community outreach. In the cases of Boston’s ARs, the process was very involved. In Missouri’s case, TCs helped with the messaging. The TTD in New Jersey required a JPP to ensure buy-in at every stage. In a few cases, the implementing agency found that a community champion could be invaluable in building support among neighbors. In other cases, the use of TCs has been charged with the task of garnering support, as was seen in the Missouri case. Challenges Related to Balancing of Funding Sources This synthesis documents that local entities have a variety of options available for funding. However, balancing those resources is a complex process. Role of Feasibility Studies in Addressing Implementation Considerations Several implementation aspects and finally design of VC mechanisms are interconnected. For instance, the general Benefits The case examples, together with follow-on surveys of the literature and interviews with agency personnel, demonstrate at least three broad classes of tangible benefit from the adop- tion of mechanisms. Benefits—Accelerated Delivery Despite the often lengthy stakeholder involvement process, the most cited benefit was accelerated project delivery and investments made possible for projects on long-range plans. Benefits—Local Match A second benefit reported in three project-level case exam- ples was the ability of revenues to be used as a local match to pool with other funding sources. This benefit was noted in the case of the SR-28 TID, Texas TRZ, and Ohio TID (Butler County). VC can rarely ever be used on its own to fund proj- ects, but it can be part of the mix of financing mechanisms used to advance a project or contribute to ongoing operations. Benefits—Revenue and Financing A third benefit in many cases was the stream of revenues that allowed either debt or loan finance or other mechanisms that provided the much-needed seed money to get the project off the ground. The revenue yield in all assessment-based approaches was linked to the strength of the real estate cycle. In all the project and corridor-level approaches examined in this study, a common point was perceived riskiness of the revenue sources for the purposes of debt financing. Challenges The methods are not without problems. The challenges and barriers to implementation of practices that support VC are related to the support of an approach. A substantial portion of the transportation professionals interviewed for this report mentioned this aspect. Challenges Related to Coordination Among Multiple Jurisdictions Chief among the factors required for successful implementa- tion of VC strategies is the need for coordination among many diverse public sector entities across different jurisdictional boundaries and with different authorities (and interests). Inter- jurisdictional and partnering entities present challenges. In general, the following two situations are associated with particular coordination challenges: • When TIF, such as tools or special assessment are involved, agencies that generally do not have taxing

96 such as rates, service areas, and revenue potential, and to inform key stakeholders early in the process. As evident from several case examples, use of high-quality land cadastral data is of vital importance in assessing and determining feasibility. Most early case examples did not emphasize the value of any economic assessment to garner support besides evaluating the feasibility of the mechanism itself. More recent ones, such as the Texas example, do emphasize the value of economic assessments in all stages of the case study, starting with gathering support. VC Mechanisms and Fiscal Responsibility If assessment districts, developer charges, STDs, and other options can provide part of the solution to urban infrastructure funding, they can also create new types of problems and risks if implemented and designed poorly. According to a World Bank study (Peterson 2009), these mechanisms are termed capital budgeting options for the short- or medium-term but not necessarily the longer term. The same study also points out that these mechanisms have significant practical advan- tages as part of the mix of capital budgeting for infrastructure as supplemental funding sources. Some national models/toolkits developed by FHWA explicitly consider alternative local rev- enue sources, such as those from VC methods (FHWA 2012). Toolkits such as the FHWA toolkit allow consideration of PPP projects in which VC mechanisms (such as the E470 Tollway, which used highway expansion fees, as noted in chapter two) form a mix of the funding formula. Many of the mechanisms discussed in this synthesis have a PPP aspect in the sense that they are essentially non commercial PPPs. In two examples, they have accompanied traditional design–build–maintain PPPs, as seen in the case of the SR28- HTID and Missouri example. Risks from Use of Multiple Value Capture Mechanisms or Excessive Reliance on a Single Source: Two observations are worth noting in the case of regions with a programmatic approach to mechanisms and a guiding framework: • Three case examples (Wisconsin, Washington State, and Montana) reported having guidance in place for more than one mechanism set. For instance, the Washington State RCW and Municipal Research Services Center provide for multiple revenue options. The Montana DOT also maintains a toolkit in which the agency reports mul- tiple mechanisms and shares case examples conducted by other regions and cities across the country with their municipalities and counties. In the case of Wisconsin and Montana, interviewees noted that they track their reve- nues and have local entities report their revenue sources, allowing local governments to assess the balance of their revenue sources. • Montana’s Bozeman case example showed that a more formal fiscal analysis was part of the analytical frame- work in the adoption of IFs as part of the city’s overall capital budgeting plan to reduce risk from a single source. and benefit service areas, rates, and duration for which a mechanism will be in place are all strongly linked to the fund- ing or revenue potential and eventually financing. To that end, several case examples pointed to the role of feasibility studies in addressing the implementation considerations. City of Portland examples pointed to the use of routinely con- ducting rate studies in support of broader equity goals. Use of Mechanisms as Part of a Broader Strategy The review and case examples show that mechanisms can be used individually or jointly as part of a strategy. The most typical jointly used mechanisms observed are the use of ARs in conjunction with JD. In principle, there may be limits on how many such mechanisms may be jointly considered, and the overall expected economic benefits and return on invest- ments also may place limits on the mechanisms. The prac- tices considered here suggest that at most two mechanisms are seen in accompaniment. Mechanisms such as SAD, TIF- TRZ, TID may also be used as part of a broader funding and financing strategy, in which the ongoing revenues may be used to defray loan or debt service requirements, as seen in the Virginia SR-28, Texas, and Butler County examples. Finally, individual mechanisms such as IFs and sales taxes are also seen as part of a broader strategy to fund parts of trans- portation improvement plans. Viewed individually, each case example shows how project finance methods and local condi- tions can affect the decision for a project to come to fruition. However, on a collective scale there are some common char- acteristics of agencies that have been successfully applying VC mechanisms with other methods as part of a broader strategy, including: • An integrated approach to projects in transportation plans and use of specific VC mechanisms. This is observed in the IF and STD case examples. This may be partly the result of the requirements imposed by the IF legal frame- work, as noted in chapter one. Prioritization and screen- ing are noted to be approached by means of feasibility studies. • An integrated approach to blending VC revenues from user fees and other sources to aid project delivery. Agencies such as those from Washington, Montana, and Oregon showcase examples of several funding tools in use at the same time. Agencies, such as these on the upper end of the spectrum, pointed to the reliance on fis- cal impact feasibility studies to balance revenue sources. On the other hand, the Missouri and Texas examples dem- onstrate the integrated use of multiple sources of funding in conjunction with one VC mechanism. Use of Economic and Land Development Impacts and Other Models in Feasibility Studies Many studies pointed to the need to rely on economic feasibil- ity studies to determine a variety of implementation aspects,

97 the implementation of VC mechanisms by the interviewees, common findings became evident: • The need for a clear legal framework supporting the VC mechanism chosen. • The need for a high level of collaboration and coop- eration among stakeholders. • The need for creative thinking regarding which mech- anisms might be useful for a given project. • The need for a vision to use these mechanisms to comple- ment a larger set of funding mechanisms. Based on the case examples discussed in chapter three, the benefits identified include the following: • Accelerated Delivery. VC mechanisms facilitate project delivery by making investments available earlier in the development process, thereby capturing the opportunity for infrastructure improvements that might not other- wise have been possible. Two case examples involving state highways demonstrate the impact of VC on delivery speed for projects that were originally unfunded and on long-range (10-year) plans. • Local Funding Matches. In three of the case examples, revenues from a capitalization benefit allowed local fund- matching opportunities to finance a portion of project costs and to be pooled with other funding sources. In two cases, the use of mechanisms also accompanied PPPs. • Getting a Project off the Ground. In some cases, VC mechanisms can identify scarce initial funding by pro- viding needed revenue streams that allow loan or bond financing. In at least three case examples, revenue streams (assessments and TIF) came in before the improvements, and risks of revenue streams were dealt with through default clauses or backstop arrangements. Several other common themes beyond benefits were iden- tified. They include the following: • Stakeholder Involvement Process. The process can be lengthy, the number of stakeholders can be large, and consensus must occur over these groups. • VC as Part of Larger Toolbox. There is general agree- ment that the mechanisms potentially can be considered as part of a larger funding toolbox. • Feasibility Studies. Economic and other feasibility studies have a role in addressing several implementa- tion aspects, including rates, service areas, duration, and timing; as part of broader strategy; or to ensure greater fiscal responsibility in revenue projections for financing purposes. Risk from Revenue Shortfalls in the Use of a Single Source: The need to meet debt service and loan commit- ments place a higher level of fiscal responsibility on the valuation of revenues and approaches to deal with risk. This has been noted in the discussion on General Financing and Risk Considerations. Ongoing Area of Study and Analysis The screening survey and literature review also provided an opportunity to showcase regions and cities in the coun- try that are increasingly beginning to consider VC mecha- nisms. The trend is also echoed in some of the international research explored in this study. Some examples of recently completed work include the study by the Center for Trans- portation Studies (Lari et al. 2009) and the Maryland DOT’s (2012) National Governor’s Association study. Some agen- cies also indicated that they were exploring VC mechanisms in greater detail. SUMMARY Information from the literature review was combined with anecdotal evidence derived from interviews and discussions with agency personnel who applied the mechanisms sum- marized in chapter two. No universal VC approach exists, of course. Each location/application is unique, and agency personnel proved adept at tailoring mechanisms to their indi- vidual needs. In many cases (e.g., in Washington State, Mon- tana, Virginia, Oregon, and Texas), more than one source was adopted. The geographic distribution of case examples helps to illustrate some of the issues that transportation finance professionals and planners face with regard to funding trans- portation projects and the different approaches and solutions used to address these challenges. To assess how different states apply the mechanisms, members of the SCOFA and SCOP, both of the AASHTO, were surveyed. Twenty-two case examples (organized by geo- graphic scale and mechanism used) are presented, profiling applications at the corridor, project, local, and regional levels that showcase how different agencies have adopted the mecha- nisms and the features of the final adopted mechanism in the specific project context. Generally speaking, communities across the United States face similar challenges when attempting VC. Although some mechanisms were implemented as part of comprehensive plans, others were adopted as the need arose. When examining

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 459: Using the Economic Value Created by Transportation to Fund Transportation presents information on financing mechanisms used by transportation agencies to capture a portion of the economic value created by public investment in transportation infrastructure to fund transportation improvements.

The report provides an overview of ten types of “value capture” mechanisms and presents case examples of how transportation agencies have used these mechanisms to help fund specific highway projects.

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