Cities around the world are increasingly turning to property developers to help fund rail transport projects that will raise property value – a method known as value capture. Now a new US report from the University of Illinois at Chicago has highlighted what cities need to do to find success with value capture policies.
The report by the university’s Urban Transportation Center found that the most successful value capture policies — where government agencies recover infrastructure costs through special taxes or voluntary developer payments — occurred when developers and taxing bodies were brought together during the earliest stages of transportation planning.
The research team analysed various value capture methods employed in Chicago, New York, San Francisco and Washington DC – cities with large, developed transit systems, and which also had the greatest backlog of unfunded capital needs.
From the analysis, the researchers provided a series of recommendations for successful value capture, including that:
- transit agencies should cultivate staff experienced in working with tax authorities and property developers
- tax authorities should develop working relationships with transit agencies’ capital planners and station-area development team
- private developers should offer feedback to transit systems and understand the value of transit planning to their interests
A taskforce last year found Chicago needed $20 billion in transport improvements.
One value capture tool used heavily by the City of Chicago is tax increment financing. TIF districts allow municipalities to set a threshold on the assessed value of the property within the district and to divert tax revenues accrued from a higher valuation into a TIF fund, which can be used for neighbourhood revitalisation projects.
The researchers studied how TIF districts were used to fund improvements at six elevated train stations. The value capture to total budget ranged from two per cent to 100 per cent for the stations, with the researchers concluding that Chicago developers were open to value-capture options, and that opportunities existed for transit-specific value capture.
“Rather than use TIF funds, the city should look at transit-specific ways to maximise value capture,” research transportation planner and lead author of the report Jordan Snow said. “A more distinct set-aside would indicate to developers and the community how valuable the transit station is to neighbourhood development.”
New York, Hudson Yards
Redevelopment of the 45-block Hudson Yards on the west side of midtown Manhattan prompted New York City to extend the Number 7 subway to the area. The project’s estimated cost was $2.3 billion.
Two planning entities were created: one to control funding and financing, the other to produce the city’s development plan. Rezoning allowed developers to build higher-density buildings at a premium. The resulting funds, plus tax increment financing, will support debt financing.
Establishment of the two planning agencies was an unprecedented way to manage value capture funding, the researchers found, and the developers’ close cooperation with the New York Metropolitan Transit Authority was critical.
“The Hudson Yards project is a near-ideal case,” Mr Snow said. “Having project- or region-specific corporate entities that are staffed by all stakeholders would be ideal, especially when value capture supports debt payments.”
San Francisco, Parkmerced
Planners sought to add a new station and expand service on the Muni M Line serving San Francisco State University and Parkmerced, a 3400-unit housing complex being redeveloped.
From 2006 to 2014, more than 500 meetings were held among local and regional governments, Bay Area transit agencies, community and advocacy groups, and the new owners of Parkmerced. Funds for continued study and the new station were secured from community groups and the university.
The project succeeded because transit agencies and city staff cooperated, and because the hundreds of public meetings lent credibility when planners approached the property owner/developer for their contribution, the researchers said.
“We also believe that plan members with a long local history and civic involvement were crucial to the success of the project,” Snow said.
Washington, DC, NoMa-Gallaudet University
In 1999, the Washington Metropolitan Transit Authority identified the need for a new Red Line station between Union Station and Rhode Island Avenue.
Shortly after announcing the project, the transit agency brought developers, landowners and other stakeholders into the planning process by encouraging them to form an ad hoc, private, civic group. The group, called Action 29, gathered and reviewed development proposals and worked with the transit authority to obtain funding. Action 29 agreed to the creation of a special taxing district that generated $25 million, or roughly one-quarter of the station’s cost.
Since the station opened in 2004, private entities have invested $3 billion nearby in mixed-use development, government offices and redevelopment of older housing.
“This transit agency has embraced its role as an owner of land assets,” Snow said. “It has hired staff familiar with municipal taxation and with the developer community.”
- Read the full report