Tax Increment Financing for Transit Projects (2020)

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OCTOBER 2020 TRANSIT COOPERATIVE RESEARCH PROGRAM TCRP LRD55 Background The nation’s 6,800 plus public transportation agencies need to have access to a program that can provide author- itatively researched, specific studies of legal issues and problems having national significance and application to the public transportation industry. Some legal issues and problems are unique to transit agencies. For example, compliance with transit-equipment and operations guide- lines, FTA financing initiatives, private-sector programs, and labor or environmental standards relating to transit operations. Also, much of the information that is needed by public transit attorneys to address legal concerns is not summarized in a single source. Consequently, it would be helpful to the transit lawyer to have well-resourced and well-documented reports on specific legal topics avail- able to the public transportation legal community. The Legal Research Digest (LRDs) are developed to assist public transit attorneys in dealing with initiatives and problems associated with transit start-up and opera- tions, as well as with day-to-day legal works. The LRDs address such issues as eminent domain, civil rights, con- stitutional rights, contracting, environmental concerns, labor, procurement, risk management, security, tort lia- bility, and zoning. The transit legal research, when con- ducted through the TRB’s legal studies process, either collects primary data that generally are not available else- where or performs analysis of existing literature. Foreword Tax Increment Financing (TIF) is a public financing meth- od that some local governments and transportation agen- cies may use to capture a portion of additional property (or sales) tax revenues that result when public investments cause property values (or total sales revenues) to increase. Typically, a TIF district is established to raise revenues from properties within the district’s boundaries; it may also be referred to as a special taxing district, develop- ment authority district, community facilities district, or community management district. TIF is an increasingly important source of funds for transportation projects, and it has the potential to be a key part of project financing. This digest examines whether and under what circum- stances TIF might be used to fund transit operations and maintenance, as well as the challenges that such arrange- ments might face. It discusses the available evidence sug- gesting how transit service can boost the value of transit- adjacent properties. It also reviews the legal underpinnings of TIF in the United States, focusing on the state enabling laws that define the parameters for TIF. Relevant litigation surrounding TIFs is also examined. A review of case law highlights the ways in which TIF programs have been chal- lenged in court and concerns that may arise with respect to other taxing districts. The digest also discusses opportuni- ties to include transit operations and maintenance as eligi- ble expenditures for TIF revenues, and potential demands and challenges that agencies might face in doing so. This digest will be useful to professionals and students working at the intersection of public transportation, com- munity development and real estate, and public finance. Interested readers will include administrators, planners, attorneys, and public finance officers working in the tran- sit arena; developers; tax professionals working in debt financing; and transportation economists and students. Tax Increment Financing for Transit Projects This report was prepared under TCRP Project J-5, “Legal Aspects of Transit and Intermodal Transportation Programs,” for which the Transportation Research Board is the agency coordinating the research. The report was prepared under Topic 18-01 by Gian Claudia Sciara, Lisa Loftus-Otway, and Timothy McCarthy, The University of Texas at Austin, TX. The opinions and conclusions expressed or implied in this digest are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; or the program sponsors. The responsible program officer is Gwen Chisholm Smith. LEGAL RESEARCH DIGEST