Tax Increment Financing for Transit Projects (2020)

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4 TCRP LRD 55 only a few TIF applications have involved transit per se, and of these none could be found that touch on the subject matter of TIF for non-capital expenditures. TIF is also complex in struc- ture4 and often contentious. On the other hand, this work also finds some support in the literature for the premise that expenditures on transit ser- vice operations can enhance the underlying value of proper- ties adjacent to the service. If transit service increases property values, room for using TIF revenues to fund improvements in service and operations would seem appropriate. On a general note, a small but important set of studies suggests that spending on transit operations has positive economic multiplier effects, providing a basis from which to consider TIF applications for transit operating expenditures. Further, some work shows more specifically that transit service improvements that shorten travel times can be capitalized into higher lease rates and sale prices for properties. Still, more nuanced studies are needed, first to differentiate transit by its service quality—captured with indica- tors like service speed, frequency, or reliability, for instance— and next to assess how changes in quality impact land values. Where transit operators themselves or their advocates would strengthen the institutional framework for expending TIF rev- enue on routine system operations and maintenance, this work suggests various possibilities for doing so. The review of enabling statutes conducted here shows that state legislatures frequently revise TIF laws, seeking to enhance how they perform in the context of that particular state. Where legislators are amending or revising TIF legislation, transit agencies might explore the possibility of legislative amendments that name transit in gen- eral as an allowable TIF expenditure; that name improvements in system operations and maintenance in particular as eligible activities for TIF expenditures, where such improvements are anticipated to lift surrounding property values; and that allow transit operators or agencies to form TIF districts. Together, state legislators, public transportation operators, transit stake- holders, and local officials could consider whether such revi- sions to the legal framework for TIFs would useful in their state. I. INTRODUCTION A. Background Federal and state transportation funding trends make it increasingly difficult to pay for transportation improvements. U.S. transit operators and the cities and regions they serve bear direct witness to the funding challenges for transportation in general and for transit in particular. Stagnant state and federal investment available for transit projects has led public transportation agencies increasingly to look for innovative funding approaches, including value capture 4 For example, in Univ. of Idaho Found., Inc. v. Civic Partners, Inc. (In re Univ. Place/Idaho Water Ctr. Project, 146 Idaho 527) the TIF structure utilized—a complexity of local jurisdiction districts, the uni- versity and private partners private to create this new development. In another case, bonds that were issued in anticipation of a TIF district were assessed for distribution within contentious divorce proceedings (Crider v. Crider 15 N.E.3d 1042*; 2014 Ind. App. LEXIS 416). penditures generically for transportation facilities, without explicitly mentioning transit. A smaller number explic- itly mention mass transportation or transit facilities, struc- tures, rail lines or spurs, or transit-oriented development. Still, it is exceedingly rare for TIF statutes to suggest that transit operating costs are eligible TIF expenditures, except perhaps—as Maine law specifies—where those costs sup- port a new transit system expansion. Local tax increment financing arrangements created under state enabling laws have faced legal challenges on various grounds. Case law surrounding TIFs thus provides further in- stitutional undergirding for the use of tax increment revenue arrangements. For transit agencies that would use TIF, prior legal challenges illuminate the complex and often contentious dimensions of TIF. For instance: • Because the use of TIF was pioneered in many places to advance urban renewal projects, TIF laws in a majority of states invoke “blight” as a precondition for establishment of a TIF district. Blight requirements may inhibit transit- focused TIF applications, as seen with Chicago’s Red and Purple Line Modernization TIF, profiled in Appendix A.II. Determinations of blight for TIF districts have also been heavily litigated. Variation in how blight is defined and inter preted mean transit operators ought to be familiar with any blight requirements and definitional standards applied in their state. • Case law also underscores the delicacy of tapping incre- ments of property or sales tax when other taxing districts or entities share a claim to those revenues. Indeed, a com- mon criticism levied against Tax Increment Financing is that it diverts tax revenue to benefit a narrower taxing entity or district at the expense of wider tax districts and constituents. • The role of school districts has figured centrally in chal- lenges to TIF districts where a TIF scheme would prevent local schools from accessing marginal revenue increases and redirect those instead toward TIF projects. The case of Atlanta’s BeltLine is illustrative. Atlanta Public Schools consented to participate in the tax allocation district, as TIFs are called in Georgia, only if foregone tax revenue were exchanged for up front and ongoing payments from the city. The Georgia Supreme Court, however, ruled that the use of school tax revenue to fund the BeltLine project violated the state constitution. • Where statutes do not explicitly include general or ongoing maintenance or operating expenses among the allowable uses for TIF funds, courts may rule that such expenditures are not permissible, as has been the case in Indiana. On the one hand, this study suggests that the institutional framework for tax increment financing and associated legal issues are likely to limit transit agencies’ use of TIF for operating expenditures. Though TIF is widely used in the United States,