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Innovative Revenue Strategies – An Airport Guide (2015)

Chapter: Chapter 6 - Value Capture and Other Innovative Financing

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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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Suggested Citation:"Chapter 6 - Value Capture and Other Innovative Financing ." National Academies of Sciences, Engineering, and Medicine. 2015. Innovative Revenue Strategies – An Airport Guide. Washington, DC: The National Academies Press. doi: 10.17226/22132.
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6 1 Chapter 6 Value Capture and Other Innovative Financing 6.1 Massachuses’ Value Capture Experience 6.2 Historical Context for Value Capture 6.3 Scope of Value Capture Strategy 6.4 Value Capture Techniques 6.5 Value Capture and Airport Cies 6.6 Marine Port Districts and Foreign Trade Zones 6.7 Other Sources of Public Financing 6.8 Key Points and Conclusions 6.9 Wrap up 6.10 Addional References Transportaon systems, and airports in parcular, are essenal to the conduct of business, producvity, and quality of life. User fees and taxaon are the primary revenue sources that fund transportaon, supplemented with loans, bonds, and public private partnerships. Given growing concerns that these sources will become inadequate, value capture is an alternate approach to transportaon finance. Value capture idenfies the user and non user beneficiaries of a parcular transportaon investment and then imposes taxes and user fees on those beneficiaries to recover some of the investment cost. This chapter of the Airport Guide explores the history of value capture and its use in different modes of transportaon. Airports create value for property owners located close to an airport, yet not many airport sponsors have implemented value capture techniques. The strategy merits consideraon as a way to finance airport improvements and recover improvement costs from beneficiaries of airport business and services. In this context, value capture applies to situaons in which an airport sponsor is able to capture addional revenue as property values increase and/or commercial or industrial development take place because of proximity to the airport. Off airport parking, rental cars, and hotels are examples of businesses that benefit directly by their proximity to an airport and candidates for value capture techniques. Capture Value from Off-Airport Businesses that Depend on Airport Activity

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 2 6.1 MASSACHUSETTS’ VALUE CAPTURE EXPERIENCE In the early 1990s, the Commonwealth of Massachuse s began to inves„gate the feasibility of building new conven„on facili„es in several areas of the state, including crea„ng a large new facility in Boston. Proponents of a downtown Boston loca„on, including the city administra„on, acknowledged that a new facility would not generate enough revenue to cover construc„on and opera„ng costs. They maintained, however, that the addi„onal tax revenue created by businesses dependent on conven„on center ac„vity and the jobs created would provide an economic benefit to the region and state, far in excess of the costs of the project. Furthermore, supporters contended the conven„on center would s„mulate private investment and development within the vicinity of the facility. The city and state decided to pursue financing through capturing some of this value generated at off site businesses that benefited from the conven„on center. The Boston Conven„on and Exhibi„on Center (BCEC) provides an instruc„ve example of how revenue genera„on through off site value capture can help to finance a capital improvement project. A number of public en„„es par„cipated in the financing of the project. The city of Boston financed the land acquisi„on, some of the site cleanup, and the prepara„on costs of the project with short term notes and long term special obliga„on bonds. The Commonwealth of Massachuse s issued special obliga„on bonds to finance construc„on of the facility. An occupancy tax for new hotels in Boston and exis„ng hotels near the conven„on center, sales taxes from businesses within the conven„on center finance district, vehicle rental fees, a fee on tours in the city of Boston, and the sale of hackney licenses provided a dedicated revenue stream for repayment of the bonds. These revenue sources—which represent value capture derived from off site economic ac„vity generated from the new conven„on center—were specifically dedicated to note and bond repayment because incremental increases in each could be „ed directly or indirectly to the success of the conven„on center. Use of this technique raised enough revenue to re„re a por„on of the bonds early and provided addi„onal revenues for conven„on center opera„ons, addi„onal capital investments, and contribu„ons to state and city general funds. The BCEC example is relevant to airports. Airports create demand for similar types of off site services, genera„ng economic development off airport through supplier rela„onships, visitor spending, and business loca„on benefits. The geographic area of influence of an airport for genera„ng regional economic development, and the types of industries that benefit from proximity to an airport, are greater than that of a conven„on center. For example, in metropolitan Washington, DC, the Dulles Corridor in northern Virginia is home to an es„mated 575,000 jobs.1 Hartsfield Jackson Atlanta Interna„onal Airport supports 317,000 jobs at firms that supply on airport businesses, businesses that benefit from visitor spending, and produc„on jobs that rely on air cargo.2 Thus, the off site value capture strategies used to finance the BCEC offer a high poten„al source of revenues for financing new airports or airport improvements. 1 NAI KLNB, h p://dullestechnologycorridor.com/ 2 Landau, S. R., “Airports, Airport Ci„es, Airport Corridors, Aerotropolises, & Economic Development,” PowerPoint presented at, Transporta„on Research Board Annual Conference, Washington, DC, January 24, 2012

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6-3 This chapter examines the applicaon of value capture strategies and alternave public financing opons that could be available for use by airports. 6.2 HISTORICAL CONTEXT FOR VALUE CAPTURE Scores of economic impact studies recognize that airports are economic engines for a region, although most of the economic impact occurs on land and with businesses not located on airport property. Such off-airport impacts are due primarily to visitor spending that is reported and to regional economic mulplier effects. In recognion of this relaonship, airport sponsors are now exploring opons for capturing some of the off-airport value they generate. Figure 6-1 provides examples of off-airport acvies that are direct beneficiaries of airport acvity. Figure 6-1: Examples of Off-Airport Avia€on-Dependent Businesses Source: KRAMER aerotek inc., 2014 Value capture has a long history of applicaon in the United States for transit development and, to a lesser extent, for highways.3 In these instances, policymakers, developers, landowners, businesses, and voters have recognized that improving access and mobility through development of transit and highway projects increases the value of surrounding properes, and somemes properes throughout the region. Convenonal funding for transportaon commonly comes from taxpayers using general fund appropriaons, earmarked property taxes, or special-purpose sales taxes. However, the increased value 3 Transit staons are one of the best-known applicaons of value capture. Following construcon of a transit staon, before and a˜er changes in neighboring property values can be measured.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 4 in land that comes from improved access benefits primarily private landowners and developers. If there are incremental increases in sales taxes, income taxes, and property taxes because of a project, these revenues typically flow back to municipal, county, and regional general funds to fund government opera†ons, services, and a variety of public projects. Although value capture techniques are not widely used by airports for development, airport sponsors do engage in value capture ac†vity through airport access fees levied on shuˆle buses, taxis, limousines, and couriers. In addi†on, off airport parking and rental car establishments pay a privilege fee that may amount to as much as 10% of gross revenues. Airport sponsors charge these fees for the right to access the airport and the airport’s customer base, and for recovery of costs associated with airport roadways, traffic control, and terminal curbside management. However, other establishments near the airport depend on and benefit from proximity to an airport but do not typically contribute monetarily to the airport. Logis†cs distribu†ons centers are good examples. Improved transit connec†ons to an airport can decrease roadway conges†on, reduce the need for parking (a revenue loss), and increase accessibility for travelers. Revenues generated by the value capture for transit connec†on projects typically finance the transit systems themselves. Airports do not share in value capture receipts for such projects, even though the transit connec†on to the airport can deliver increased ridership and higher land values along the way. Mul†ple projects are in place or in the planning stages to create transit connec†ons to airports. For example, value capture techniques support transit development that connects light rail in Portland, Oregon, to Portland Interna†onal Airport. The Dulles Corridor Metrorail Project will extend the Washington Metro transit system 23 miles and will include a sta†on at Dulles Interna†onal Airport. The East Rail Line in Denver will connect Union Sta†on to Denver Interna†onal Airport. 6.3 SCOPE OF VALUE CAPTURE STRATEGY Value capture can benefit an airport in many ways, such as through special assessment districts, fees, and property taxes. Value capture involves many groups to implement a par†cular technique. Par†cipants typically include the airport sponsor, property owners, developers, airport related businesses, passengers, taxing authori†es, and regulatory authori†es. Figure 6 2 summarizes the important elements of a value capture strategy. To implement a value capture strategy, proponents must: Demonstrate that the airport is crea†ng measurable value for a business or ac†vity that the airport sponsor does not own, directly manage, or finance. Iden†fy the beneficiaries of the value crea†on, such as landowners, developers or businesses. Implement a means of benefits measurement that establishes the direct connec†on and scale of incremental revenues generated in terms of dollars. An example of incremental growth is increased retail ac†vity and higher property values around a new light rail or subway sta†on. This translates into addi†onal property tax receipts, income taxes from new job crea†on, and

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 5 retail sales taxes from new commercial establishments. The before and a er difference is the measurable incremental change. Implement a legisla„ve/legal/regulatory funding mechanism to capture value on behalf of project par„cipants. Agree on a distribu„on formula for distribu„ng fees, taxes, and project revenues among public and private par„es par„cipa„ng in a project. Figure 6 2: Elements of a Value Capture Strategy Source: Adapted by KRAMER aerotek inc. in 2014 from University of Minnesota Center for Transporta„on Studies, Value Capture for Transporta„on Finance, 2009 Value Creaon •Operaon of the Airport •New Airport Facilies or Services •Improved Transit, Highway, or Rail Access to/from the Airport Idenficaon of Beneficiaries •Property Owners •Developers •Airport Dependent Businesses •Vehicle Operators •Passengers Measurement of Benefits •Land Value Growth •Property Tax Growth •Development Opportunies •Vehicle Access •Passenger Ridership •On Airport Development Privileges Funding Mechanisms •Land Value Taxes •Sales Taxes •Tax Increment Financing •Special Assessments •Privilege and Access Fees •Negoated Extracons •Tolls •Fares •Joint Ventures Governance •Seng the Authority to Collect Revenues •Deciding How Revenues from Funding Mechanisms Are Shared Among Public and Private Parcipants

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 6 6.4 VALUE CAPTURE TECHNIQUES Because value capture has its origin in transit projects, evaluaon of techniques includes both exisng pracces by airport sponsors and evaluaon of pracces used to finance transit projects. This secon introduces eleven value capture techniques. 6.4.1. Types of Value Capture Funding Mechanisms The five main ways that airports can implement a value capture strategy are: Access and privilege fees Fixed assessments Loan/fee hybrids Land development Taxes or special allocaon of tax receipts Table 6 1 describes each of these approaches and provides examples. Table 6 1: Types of Value Capture Funding Mechanisms Classificaon Definion Techniques Access and Privilege Fees A fee is levied on off airport businesses that access the airport to pick up or drop off customers. Can be a percent of gross revenues or a charge per day, per trip, or per transacon Fixed Assessments A fixed sum is charged to the beneficiaries of a public investment. Business Improvement District, Buy in Charges/Connecon Fees, Payment in Lieu of Taxes, Transportaon Ulity Fee Loan/Fee Hybrid Landowners who directly benefit from a public investment pay a fee over me to rere the bonds used to pay for the investment. Special Assessment District or Be­erment District Land Development Land owned by an airport is leased or sold to a developer, with the revenues accruing to the airport and other partners in the project. Joint Development, Sale/Lease of Development Sites, Tax Sharing Agreements, Transfer of Development Rights Taxes or Special Allocaon of Tax Receipts A financial charge or levy is imposed on a group (e.g., property owners, employees, employers, consumers, hotel occupants) by a public authority (e.g., municipality, county, special taxing district, state), somemes assessed by transacon and somemes at regular me intervals. Because most airports do not have taxing authority, special taxes would emanate from the state, county, or city/township with jurisdicon. Greenfield Development Tax, Land Value Tax, Local Income or Payroll Tax, Sales Tax, Tax Increment Financing (TIF) Source: Economic Development Research Group, Inc., 2014

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 7 Each of these techniques has the potenal for generang revenue for airport sponsors, but varies in the degree of financial risk and difficulty/complexity to implement. Table 6 2 describes each technique according to the following a‹ributes: Contributors – the main beneficiaries of a project (ulmately, the groups asked to contribute resources because of the improvement) Coordinators – groups involved with administering the value capture mechanism Timing – when the technique is implemented (before or a“er the improvement is completed) Impacted Area – the geographic area subject to the value capture mechanism Benefit Basis – how the value creaon is measured and assessed Use of Revenue –Whether revenues collected are dedicated to a specific project or are discreonary; also, if revenues finance inial capital costs and/or on going operaons and maintenance (O&M)

Table 6 2: Techniques to Implement Value Capture Strategy Contributor Coordinator Timing Impacted Area Benefit Basis Use of Revenue Code Value Capture Techniques P r o p e r t y O w n e r s D e v e l o p e r s V e h i c l e O p e r a t o r s R e s i d e n t s / E m p l o y e e s V i s i t o r s / P a s s e n g e r s A i r p o r t T a x i n g A u t h o r i t y N e g o  a  o n P a r t n e r s h i p M a n a g e m e n t / O v e r s i g h t B e f o r e D e v e l o p m e n t / A c  v i t y A  e r D e v e l o p m e n t / A c  v i t y O n A i r p o r t S p e c i fi c O f f A i r p o r t A r e a E n  r e J u r i s d i c  o n N e w D e v e l o p m e n t O l d D e v e l o p m e n t L e v e l o f A c  v i t y / U s e I n i  a l C a p i t a l C o s t s O n G o i n g O & M Finance and Property Management – FN FN 4 Joint Development FN 6 Airport Access Fees and Privilege Fees FN 7 Tax Increment Financing (TIF) District FN 8 Local Income and Payroll Tax FN 9 Sales Tax/Occupancy Tax FN 10 Transfer of Development Rights (TDRs) FN 11 Connecon Fees FN 12 Business Improvement Districts (BIDs) FN 13 Special Assessment/Beerment Districts FN 14 Land Value Tax FN 15 Transportaon Ulity Fees (TUFs) Sources: Adapted by KRAMER aerotek inc. in 2014 from University of Minnesota, Center for Transportaon Studies, Value Capture for Transportaon Finance, 2009

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 9 6.4.2. Value Capture Techniques with Potential for Airport Application Various techniques are available to convert value creaon into value capture. Some of these techniques are directly applicable to airports; others are more difficult to apply. This secon describes techniques that have either already been used by airport sponsors or demonstrate potenal for use. Secon 6.4.3 describes capture techniques with somewhat lower potenal for use by airport sponsors. FN 6: AIRPORT ACCESS FEES AND PRIVILEGE FEES Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges - Key Low Moderate High Not Relevant Most airports levy airport access fees and some privilege fees on off airport users. The fees are charged to help pay for the construcon and maintenance of roads, which these businesses use, as well as to pay for other airport costs. The jusficaon for the la‘er “is based on the premise that the existence of the airport is responsible for much or all of the revenues generated by the off airport business.”4 In this way, these fees fall into the category of value capture techniques. Airport access fees can have two different structures. Some airports choose to impose a per trip cost, which varies depending on the type of vehicle or the number of passengers the vehicle carries. For example, in 2010, Los Angeles World Airports (LAWA), which operates Los Angeles Internaonal Airport (LAX), charged fees amounng to $4.00 per trip for limousines, $1.47 per circuit for shu‘le buses, $0.50 per trip for taxis, $1.87 per circuit for off airport rental car and parking shu‘le buses, and $1.87 per circuit for hotel courtesy vehicles.5 McCarron Internaonal Airport (Las Vegas) charged $1.80 per trip for taxis and other vehicles carrying 1 8 people, $3.00 per trip for 9 to 15 passenger vehicles, $4.50 for vehicles carrying 16 30 passengers, and $15 per trip for vehicles carrying 31 or more passengers.6 In Australia, some airports are charging premium fees to businesses for the right to curbside drop off and pick up at prime terminal locaons. A government study that found the fees to be legimate stated that “The prime locaon of these stops provides the company with a ‘readily idenfiable, strong branded and 4 Sims, R. L., Airport Law 101, City of Dallas, no date, Retrieved September 13, 2011 from: h‘p://www.texascitya‘orneys.org/2009speaker_papers/Airport%20101%20061009%20%20Final.pdf 5 “LAX Airport Proposes Increase in Ground Transportaon Access Fees,” Transportaon Reviews, September 14, 2010, retrieved September 13, 2011, from: h‘p://transportaonreviews.com/news/2010/09/lax airport proposes increase in ground transportaon access fees/ 6 Spillman, B., “Airport Parking Fees to Increase,” ReviewJournal.com, August 1, 2008, retrieved September 12, 2011, from: www.lvrg.com/business.26171894.html

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 10 unclu ered’ posion at the terminal.”7 The government’s finding, together with the willingness of some providers to pay a premium for curbside service, demonstrates that these businesses derive value from such locaons. Airport sponsors are moving toward charging companies a percentage of gross revenues for airport access. Denver Internaonal Airport (DIA) changed from a per trip fee to a flat charge of 8% of gross revenues for off airport parking companies, plus an addional fee if vans spend more than 15 minutes circulang on airport. Some airport sponsors, including Dallas/Fort Worth Internaonal (DFW), Orlando Internaonal (MCO), Dulles Internaonal (IAD), and Indianapolis Internaonal (IND) charge a fee as high as 10% of gross revenues.8 In 2004, charging a 6% fee (which has since increased to 10%), MCO generated over $13.8 million in parking privilege fees.9 George Bush Interconnental Airport Houston also charges a percent of gross revenues, as well as an annual per vehicle charge.10 In some cases, such as in Las Vegas, fees were increased in 2008 at the request of the airlines, which believed they carried an unfair burden for the maintenance of the airport, and which were seeing cost increases as a result of higher fuel costs, thus reducing compeveness.11 At DFW, parking privilege fees were promoted to offset airport expenses and reduce landing fees.12 Access and privilege fees most o¤en require local ordinances or state legislaon. Airport access fees have been ligated in court, with companies claiming that the fee violates the commerce clause of the U.S. Constuon. In almost every case, the courts ruled in favor of the airport sponsor and determined that the fees do not constute a tax. 7 Lucas, C., “Airport Parking Fees not a Ripoff,” theage.com, August 23, 2011, retrieved September 12, 2011, from: h p://www.theage.com.au/travel/travel news/airport parking fees not a ripoff 20110822 1j6qg.html 8 Leib, J., “DIA hikes fees for off airport parking vendors,” The Denver Post, January 19, 2011, retrieved September 12, 2011, from: www.denverpost.com/news/ci_17132310?source+rss 9 Dallas City Council, Transportaon and Environmental Commi ee, “Dallas/Fort Worth Internaonal Airport – Airport Parking Privilege Fees,” PowerPoint presentaon, October 9, 2006, p. 7, retrieved September 12, 2011 from: h p://www.dallascityhall.com/commi ee_briefings/briefings1006/20061009_TEC_Parking_Fees.pdf 10 Dallas City Council, p. 6 11 Spillman 12 Dallas City Council, p. 8

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 11 FN 7: TAX INCREMENT FINANCING (TIF) DISTRICT Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Many transit projects in the United States use tax increment financing (TIF). For example, a TIF district will help to finance an esˆmated 33% of the $4.2 million cost of the new San Francisco Transbay Transit (Intermodal) Center building. In Portland, Oregon, a TIF was used to finance $41 million of the total $103 million cost for a 0.8 mile streetcar system. In Dallas, Texas, TIFs are rouˆnely used to finance a variety of projects along the light rail system, including water, sewer, and parking at seven transit oriented development sites. Airport sponsors have used TIFS on a limited basis. How a TIF Works Within a designated geographic impact area (o˜en referred to as a district), bonds are issued to pay for infrastructure improvements that are expected to increase property values within the district, thus increasing property tax revenues. All increases in property taxes collected because of the increase in value are set aside to pay the debt service on the bonds, as illustrated by Figure 6 3. The baseline revenues are those collected prior to designaˆon of the TIF district. The total revenues are both the baseline dollars held constant and the annual total tax revenues. The gap between the baseline and total revenues is the incremental revenue stream that is dedicated to financing the new project. Figure 6 3: Illustraon of Tax Increment Gap Source: Economic Development Research Group, Inc., 2011 1 2 3 4 5 6 7 8 9 Year Baseline Revenues Total Revenues

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 12 The amount of revenue generated by TIF will depend on several factors, including the size of the TIF district, the type of improvements made in that district, and general market condi„ons. Risk varies by requirements of the enabling legisla„on. For example, legisla„on may require the agency benefi„ng from a TIF project to assume responsibility for bond payments if TIF revenues are insufficient to cover debt service. Extent of Airport Applicability TIFs have been used to finance development of vacant airport land. For example, the Allegheny Airport Authority (the Authority) used a TIF to cover the gaps in funding industrial development on property owned by PiŽsburgh Interna„onal Airport (PIT). The Authority reached out to a well known industrial developer and proposed that the Authority would be willing to enter into a risk sharing arrangement with respect to development of the first building in a new warehouse industrial park, now known as the Clinton Commerce Park. The developer was required to proceed with a “spec” building; that is, a building that is not pre leased but rather built based on the specula„on that tenants will be aŽracted to the building at a future date. Addi„onally, to ensure the necessary financing for the infrastructure work that needed to be undertaken, the developer agreed to fund a TIF loan, secured by a guarantee from the commonwealth of Pennsylvania. This loan filled a gap in the funds needed to complete the grading, roadway construc„on, and u„lity installa„on for the park. The structure of the TIF involved the crea„on of a TIF district to include the 150 acres comprising the proposed industrial park. The taxing bodies, including the local township, school district, and the county, agreed to contribute 75% of the real estate revenues generated by the development in excess of the tax base on the date that the TIF district was created. Based on that commitment, the County Redevelopment Authority issued its TIF Notes, which were, in turn, payable from the posi„ve tax increments realized from the TIF district. The Authority arranged with the developer to purchase all of the issued TIF Notes. Because of the crea„on of the TIF district, the expected private investment originally projected at $60 million dollars proved conserva„ve. Clinton Commerce Park has produced many direct and indirect benefits to the local communi„es, the airport market area, and southwestern Pennsylvania. Implementaon TIFs require state enabling legisla„on. Many, but not all, states have adopted TIF legisla„on. The legisla„on varies from state to state in terms of how the tool can be used, which agencies can use it, and what types of projects can be financed. Polical, Governance, and Legal Issues The lead agency for administering a TIF district is usually a city or other established taxing authority. In the San Francisco case, the Transbay Joint Powers Authority was formed with representa„on from the city of San Francisco, Alameda Contra Costa Transit District, and other transporta„on agencies. In Dallas, the city and DART co operate the district.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 13 Advantages of TIFs TIFs allow municipal control but do not usually count against a municipality’s debt limit (because there is a dedicated repayment stream) and typically are not viewed by the public as a tax increase. In addi‡on, a direct rela‡onship exists between who pays for and who benefits from the infrastructure investment. Disadvantages of TIFs Actual TIF revenues may not cover debt service on the bonds. This may occur if the an‡cipated level of development does not occur or is delayed. In other cases, public or non profit en‡‡es have acquired land within a TIF district, removing the property from the tax rolls, and thus reducing TIF revenue. Unforeseen project costs can also impede the success of a TIF district. In many states, establishment of a TIF requires that the district be designated as blighted, limi‡ng its usefulness in areas that do not suffer from blight. Although the most common form of TIF is based on property tax revenues, state/local income taxes and sales taxes also may be used to create the revenue stream. FN 8: LOCAL INCOME AND PAYROLL TAX Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Local income or payroll taxes include taxes on income (assessed on individuals) or payroll (assessed on businesses) within impact areas that benefit from a transporta‡on investment. More than 20 states authorize the imposi‡on of local income and payroll taxes. The Oregon Department of Revenue administers a payroll tax program to help finance the Tri Met District in Portland and the Lane Transit District in Eugene. Between 1966 and 1998, New York City levied a tax on income and used the revenue to fund municipal services. In 2008, the New York State legislature began to explore the possibility of a mobility tax to be imposed on the payroll of employers within the Metropolitan Transit Authority’s jurisdic‡on in order to help fund the transit agency. Advantages of Local Income Taxes or Payroll Taxes Local income or payroll taxes can provide a steady and increasing source of income over ‡me. The tax aœempts to target specifically those who benefit from the service provided. Disadvantages of Local Income Taxes or Payroll Taxes In the case of an airport, not all individuals or en‡‡es that pay these taxes may benefit from or use the airport equally, and there is no precedent to date for use of local income taxes or payroll taxes to finance airport improvements.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 14 FN 9: SALES TAX/OCCUPANCY TAX Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges States, counes, or municipalies can levy special sales taxes in an area that will benefit from a transportaon facility (the impact area) to create financing specifically dedicated to that facility. Transit agencies have used special sales tax levies in several jurisdicons, including the area around San Francisco, California; in Charlo‹e, North Carolina; and in metropolitan Boston, Massachuse‹s. Sales taxes helped finance the extension of San Francisco’s Bay Area Rapid Transit (BART) heavy rail system to the airport, including construcon of the line itself, staons, parking, and roadway improvements. Sales taxes also helped finance construcon of the Lynx Blue Line light rail system in Charlo‹e. In these cases, the sales tax dedicated to paying for the transit investment are set to expire once the project is completely paid. In Massachuse‹s, a special sales tax funded part of the operang budget of the Massachuse‹s Bay Transportaon Authority (MBTA). Pennsylvania passed a tax on gaming in the state, and a poron of the proceeds was directed to airports for economic development purposes, primarily real estate development. A variaon of this approach for airports could be a statewide or countywide hotel occupancy tax, either (a) dedicated to pay for specific infrastructure improvements, or (b) used to finance an infrastructure fund. Implementaon would likely require a legislave change at the state level. Some communies have also approved dedicaon of some poron of the occupancy tax for air service development. For example, the city of Telluride, Colorado, dedicates proceeds from a 2% restaurant tax and 50% of the 4% lodging tax for airline guarantees to serve the area. Advantages of Sales Taxes Because voters must approve the tax (directly though a referendum or indirectly through elected officials), there is generally majority support among those paying the tax that it is a valuable and reasonable way to pay for the infrastructure investment or service. In addion, because sales taxes can generate a significant amount of revenue, they can help finance major infrastructure investments. Disadvantages of Sales Taxes A sales tax or occupancy tax for airport projects may require state enabling legislaon. Revenues from both a sales tax and an occupancy tax will fluctuate based on general economic condions. This has been the case in Massachuse‹s, where the sales tax revenues have declined dramacally, leaving the MBTA with an operang revenue shor›all and forcing the agency to ask the state legislature for addional funding. With an occupancy tax, only some of those who benefit from the project would be helping to pay for the project through the taxes. In addion, an occupancy tax typically will generate less income than a general sales tax, as it targets hotel customers only. Finally, there will always be some opposion to the imposion of any new tax.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 15 FN 4: JOINT DEVELOPMENT Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Public private partnerships (P3s) involve partnerships between a public agency and a private developer to develop a site, usually on publicly owned land, wherein project par†cipants will both help pay for the costs of the development and share in the revenues generated by the development. The revenue from a joint development project can fund the capital costs of transporta†on improvements or new facili†es and/or can help to pay for opera†ons and maintenance. Joint development is considered a value capture technique because transporta†on improvements raise the value to adjacent property and offer mutual benefits to public en††es and private property owners. Through the sale or lease of property or development rights or through special extrac†ons, public agencies can share the cost of a large scale transporta†on investment with private partners.13 Joint development is widely used by transit agencies in Atlanta; Washington, DC; Portland; San Francisco; Boston; and Dallas. Highway agencies and airports increasingly use joint development as a preferred approach to finance capital projects and to manage opera†ons and maintenance of transporta†on facili†es. Joint development projects can be structured either to create a revenue stream for a transporta†on agency or as a mechanism for cost and revenue sharing with a private sector partner. For example, in some transit joint development projects, a developer agrees to share some percentage of the rental or sales income with the transit agency, crea†ng an on going income stream for the transit agency. In other cases, transit agencies have agreed to share the cost of hea†ng, ven†la†on, and air condi†oning (HVAC) systems and other infrastructure as a component of a joint development deal. The amount of revenue generated by joint development will depend on the number and size of joint development projects undertaken, as well as market condi†ons within the municipality where the project is located. Annual joint development revenue for the Washington Metropolitan Area Transit Authority (WMATA), which has more than 50 joint development projects, exceeds $6 million, represen†ng a small frac†on of the agency’s annual opera†ng budget. Extent of Airport Applicability There are many on airport joint developments. Off airport joint development might occur if an airport owned off airport land in proximity to the airport. An airport sponsor might choose to locate a training facility or other airport related use on the site, and to partner with a private developer to build addi†onal space at the site and share rental income. Rail access projects to airports also are candidates for a joint development structure. 13 Special extrac†ons ožen refer to arrangements that involve fees paid to a landowner who has “mineral rights” in exchange for the right to extract minerals (e.g., coal, oil, or gas) from the land. Mineral rights are discussed in more detail in Chapter 5 of this Airport Guide.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 16 Implementaon Joint development is a form of public private partnership (P3). An es€mated 23 states have enabling legisla€on that permits P3 rela€onships.14 The terms of P3 projects are highly individualized with regard to scope, financial contribu€ons, and revenue sharing. Advantages of Joint Development Joint development projects provide mutual benefits to both the private sector and public sector par€cipants. A joint development project may not only provide a direct revenue stream for an airport, it may also increase the customer base of the airport. The technique can be used either to generate revenue or as a mechanism for cost sharing. Disadvantages of Joint Development Joint development projects are complicated and require that the transporta€on agency involved in the transac€on have a knowledgeable real estate development staff and outside counsel. Regulatory barriers also may impede joint development as a value capture technique on certain types of federally funded projects. FN 10: TRANSFER OF DEVELOPMENT RIGHTS (TDRs) Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges The ownership of land involves a variety of separable rights. Among the most common rights are those that pertain to mineral estates, surface and ground water, and development. Through zoning ordinances and regula€ons, governments can constrain a property owner’s use of these rights, and consequently can influence the value of a par€cular property. The implementa€on of land use controls separates development rights from land ownership. The transfer of development rights (TDR) provides a mechanism for landowners to retain exis€ng rights to use their land, but if development is restricted, the development rights can be sold to a TDR bank15 or to a developer and transferred to another site within a given jurisdic€on. A TDR program has four main components: A development restricted area (the sending area) A designated development growth zone (the receiving area) A pool of development rights that is legally severable from the land A procedure for transferring development rights from one property to another16 14 Lari, et al., Value Capture for Transporta€on Finance: Technical Research Report, Center for Transporta€on Studies, University of Minnesota, June 2009 15 TDR banking occurs when development rights purchased from a sending site are not used right away on a receiving site. A TDR bank is a formal, government recognized public private en€ty that tracks and administers these transac€ons.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 17 A TDR can be used to pay for a specific infrastructure investment or for maintenance and opera­ng costs. Municipali­es may also choose to deposit TDR proceeds into the general fund. TDR has been widely used in New York City to shi‰ development density within a given city block. The city has now approved the use of TDRs for the mul­ block Hudson Yards development project. In this case, the development rights were established in the east yards, where a park has been sited, thus reducing the amount of space that will be used for building in that area. TDRs have been sold to developers of other sites within the Hudson Yards planning area, and the proceeds are being used to help pay debt service on bonds used to pay for the subway extension to the site, as well as other infrastructure investments. Extent of Airport Applicability Airports holding large acreage of land or off airport parcels may be candidates for this technique. On airport building height restric­ons limit the density of development at an airport. Poten­ally, a municipality or an airport authority working with a municipality could establish a TDR program by which the underlying development poten­al of non aeronau­cal airport land is sold to a developer for use in higher density development elsewhere in the municipality. Proceeds from the sale of a TDR may be dedicated to an airport infrastructure fund or used to pay for other airport related costs. TDR could generate substan­al revenues, depending on the volume of development rights that exist at the airport. The revenues also will vary based on the real estate market in individual communi­es. Implementaon More than 20 states have enacted legisla­on or amended statutes to allow the use of TDRs. For example, both New Jersey and New York enacted enabling legisla­on that establishes TDR procedures and a Development Rights Bank that can acquire and retain development rights and hold them un­l demand develops for their use. Advantages of TDR TDR provides a mechanism for extrac­ng value from land that is restricted for development, such as land at an airport. TDR revenue generated from the sale of non aeronau­cal airport development rights would be directly ­ed to the airport, leading to broader public support for using the funds for airport ac­vity. TDR also can generate revenue for a municipality in excess of the value of the TDR itself, because the sites that are built at a higher density as a result of the TDR will likely generate greater property tax revenues than they otherwise would. Disadvantages of TDR TDR programs can be complicated to set up. They require a defined sending area (the area from which the development rights will be separated from the land itself) and a defined receiving area (the area to which the development rights will be sent and exercised). There may be resistance to increased development densi­es in the receiving area. TDR programs func­on best if the receiving area is located in a strong development market. 16 Pla˜, R. H., Land Use and Society: Geography, Law, and Public Policy, Island Press: Washington DC, 1996

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 18 FN 11: CONNECTION FEES Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges A connec on fee is a one me fee charged to a private landowner to allow a direct connec on to a transporta on infrastructure investment, u lity line, or other facility. For example, in Atlanta, in Washington, DC, and in Sea†le, transit agencies nego ated connec on fees with property owners interested in direct connec ons to transit sta ons. Municipali es commonly use connec on fees to hook up private proper es to municipal services such as sewer and water lines. Gas and cable companies also levy connec on fees to connect users to suppor ng infrastructure. Extent of Airport Applicability Airport sponsors can charge connec on fees for access to airport provided u li es or Internet backbones. Furthermore, if security and “through the fence” agreements are addressed, an airport sponsor can levy connec on fees on tenants in adjacent industrial parks that request gates or access roads to the airport property. Revenue collected through connec on fees can pay for general opera ng and maintenance costs. Connec on fees are either a one me payment or an annual payment. The amount of revenue generated will depend on the number of connec on fees that an airport can nego ate, and the value of the connec on to the property owner. A one me connec on fee for a single user will generate a larger one me payment, while annual connec on fees will provide an on going revenue stream. Implementaon Implemen ng connec on fees will require approval by airport governing bodies and the appropriate airport security departments. Through the fence connec ons must meet FAA requirements. The lead agency would be the airport authority or municipality. Partners include the property owner wishing to connect to the facility. Advantages of Connecng Fees An airport sponsor has complete control over how connec on fees are structured, and because sponsors nego ate fees on a case by case basis, this technique allows flexibility in implementa on. Disadvantages of Connecng Fees Direct connec ons from off site proper es may require addi onal security procedures and expense. In addi on, the amount of revenue generated by buy in charges and connec on fees is small; also, there may be limited opportuni es for connec on fees, depending on the surrounding land uses. 6.4.3. Value Capture Techniques with Lower Potential for Use by Airport Sponsors The value capture techniques included in this sec on provide less net revenue poten al for airports than those described in Sec on 6.4.2. In general, the complexi es of organizing and implemen ng

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 19 these techniques appear to outweigh the gains that airport sponsors could realize. They have been included in this Airport Guide because, depending on the local situa…on, adap…ng one or more of these techniques may be a viable strategy. For example, one technique listed below is to organize a special assessment/beŠerment district. If a community near an airport has a successful history with using this type of district, a wide degree of public acceptance may already exist, along with a clear local legisla…ve, legal, and governance structure that could be modified for the airport requirements, thus minimizing the …me and expense of implementa…on. FN 12: BUSINESS IMPROVEMENT DISTRICTS (BIDs) Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges A business improvement district (BID) is a geographic area inside which property owners will benefit from capital improvements, maintenance ac…vi…es, special services, and marke…ng. A BID is established when a majority of the property owners within the area vote to pay a fee to help cover the costs for these benefits. The most common applica…ons of BIDs are downtowns and commercial districts. Within the districts, property owners assess a fee on their proper…es to fund streetscape improvements, marke…ng, street cleaning, or other small infrastructure investments. BIDs generate modest revenues that typically pay for inexpensive programs or investments. In San Diego, for example, property owners pay between $40 and $500 annually for these services (with some anchor proper…es paying up to $5,000). Revenues will vary based on the number of proper…es within the BID and on the annual fee assessed. Extent of Airport Applicability A BID may support access to and from the airport. On the airport itself, a BID could pay for Internet access and phone lines for tenants or shared cargo facili…es. A BID could be established in a business or industrial park outside of, but in proximity to, an airport to fund an improvement, such as a new entrance to the airport from the park or a shuŠle service to the airport. Funds could also be used to provide off site flight informa…on display systems (FIDS) or similar systems. Typically, BIDs are administered by a business associa…on set up within the district. In some instances, the work financed by the BID is managed by a municipality or, if it is an on airport BID, it is managed by the airport sponsor. Implementaon BIDs require state enabling legisla…on. Legisla…on may allow establishment of districts by geography, affec…ng all businesses or landowners within the district, or by use within the district. BID assessments can be based on a number of factors, such as square footage of a building, linear square footage along a

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 20 road, occupancy, revenues, impacts, and so forth. For example, in West Hollywood, California, a BID fee is assessed on hotel occupants within the district.17 Polical, Governance, and Legal Issues BIDs rely on businesses or property owners deciding to assess a fee on themselves or their customers. At least 51% of the affected parŽes must vote for the imposiŽon of the fee. In some instances, only those businesses that vote for the fee have to pay into the program, so benefits can accrue to businesses or property owners who do not pay for the improvements. BIDs generate only modest revenues. However, buy in by the property owners or businesses creates good will for projects. The businesses and property owners can decide what is financed with the revenues generated. In some cases, BIDs are short term, for the period needed to make and pay for specific improvements agreed upon by the property owners/businesses within the district. Fees collected through BIDs can serve as a match for larger grants. Extent of Airport Applicability This tacŽc is suitable if there is a business district close to an airport, with a preponderance of airport related businesses (hotels, restaurants, warehousing, rental cars, etc.). Advantages of BIDs BIDs are used throughout the United States, so many consultants and other individuals have experience with how to organize and administer them. BID assessments are voluntary fees; if implemented, a BID indicates good will between a business district and an airport sponsor, and may strengthen relaŽonships between the airport sponsor and neighboring businesses. Disadvantages of BIDs Revenue potenŽal with BIDs is modest. AllocaŽon and administraŽon of BID funds may be contenŽous and/or subject to compeŽng prioriŽes. Organizing a BID requires a majority support and, thus, requires considerable outreach to recruit support. FN 13: SPECIAL ASSESSMENT/BETTERMENT DISTRICTS Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges A “special assessment district” or “beœerment district” is a value capture technique that imposes specific charges on property owners within a geographic area to cover the cost of an improvement of a facility with direct benefit to the property owners. The local jurisdicŽon designates the special 17 In 1989, the West Hollywood City Council approved its first BID with the establishment of the West Hollywood Business Improvement Area and the Hotel MarkeŽng Benefit Zone. In 2013, the new West Hollywood Tourism Improvement District was created, replacing the previous Hotel MarkeŽng Benefit Zone and increasing the hotel assessment from 1.5% to 3%. Visit West Hollywood manages the work program of the Tourism Improvement District.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 21 assessment district and requires property owners to pay either a one  me fee or annual assessment to cover the cost of the improvement. Special assessment/be‡erment districts differ from BIDs in that the assessments are not voluntary, and they become part of a property owner’s tax bill. Special assessment/be‡erment districts oŽen are established when a public investment benefits proper es in more than one taxing jurisdic on. These types of districts require state enabling legisla on. Prerequisites for establishment of a district vary by state. Special assessments are most typically used for sewer and water improvements, highway improvements, and transit improvements. Special assessments have financed transit related improvements in Los Angeles, Miami, Tampa, Washington, DC, Atlanta, Cleveland, Columbus, Minneapolis, Portland, and several other ci es. They are widely used throughout the United States to finance roadway infrastructure projects. For example, a special assessment district was established to help fund the construc on of the E 470 highway in the Denver region. Extent of Airport Applicability Typically, special assessment/be‡erment districts are established to finance sewer and water line extensions; transit investments, including new sta ons and new lines; roadway investments, including new roadways and improvements to exis ng roadways. A special assessment could be imposed on proper es within an industrial area that benefit from the expansion of cargo facili es at an airport or other access to the airfield. Similarly, a special assessment could help fund an airport improvement, such as a runway extension in a region with an industrial base that relies heavily on just in  me deliveries by air. The amount of the assessment can be set up to pay for any por on of an investment, up to the total cost. Polical, Governance, and Legal Issues Special assessment/be‡erment districts fall under the aegis of exis ng property taxing authori es or newly established taxing authori es if the affected proper es are located in more than one local jurisdic on. Advantages of Special Assessment/Beerment Districts Special assessments/be‡erments can be structured to ensure repayment of the en re cost of the public investment. Only those who benefit from the investment are subject to the assessment. In many states, the imposi on of an assessment does not require voter approval. Disadvantages of Special Assessment/Beerment Districts Property owners view special assessments as another tax, and owners may resist the imposi on of a fee over which they have no input. Furthermore, how the fee is imposed will have different impacts on different types of property owners. For example, if a fee for the expansion of a water line is assessed based on usage, some property owners will pay more than others will. Similarly, if the fee is assessed based on property value, different owners may shoulder a larger or smaller propor on of the assessment. The imposi on of the fee also may make a property less compe  vely priced than other proper es.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 22 FN 14: LAND VALUE TAX Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Land value taxes separate the value of the land itself from the value of any development (anything that may be built on the land). Land value taxes may be used as a value capture technique by separa„ng the rate of property tax paid on the land itself from the rate of property tax paid on the buildings. The presump„on is that land increases in value when facili„es (including public transporta„on facili„es) are added or improved. With regard to undeveloped land, conven„onal approaches to property tax will capture some of this differen„al in value, but a separate land value tax will reflect a greater por„on of the value generated by development. Extent of Airport Applicability A land value tax that supports the differen„al in land value between undeveloped and developed proper„es represents a poten„al source of revenue that can be used to finance addi„onal infrastructure investments, as well as maintenance and opera„on of exis„ng transporta„on facili„es. This tax is most applicable in loca„ons where the taxing authority also owns and operates the airport. In this instance, revenues from a land value tax could help to finance capital, opera„ng, or maintenance costs in areas around the airport. Land value taxes can produce an on going, stable source of revenue that would vary based on (1) the amount of undeveloped land that benefits from transporta„on access improvements, (2) the tax rate applied to such land, and (3) how the taxing authority chooses to allocate revenues among various municipal departments. Implementaon A land value tax requires state enabling legisla„on. Few states have such legisla„on in place. In some states, imposi„on of the tax may require voter approval. Because property taxes are assessed at the local level, each local jurisdic„on would need to adopt a split tax rate for buildings and land. Further, the taxing authority would have to develop a clear method for calcula„ng how much value the transporta„on infrastructure (e.g., an airport) adds to individual parcels of land. Polical, Governance, and Legal Issues Some ci„es in Pennsylvania use a land value tax. This technique is more commonly used in Canada, Australia, and New Zealand. Advantages of a Land Value Tax Local residents with developed property may view a land value tax as posi„ve because it broadens the tax burden to include undeveloped land, thus reducing the tax burden on land used primarily for residen„al purposes. The tax also provides an on going revenue stream and can encourage development of land in close proximity to transporta„on infrastructure.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 23 Disadvantages of a Land Value Tax Use of a split tax strategy like a land value tax could decrease the compeƒƒve posiƒon of property in communiƒes that adopt it relaƒve to communiƒes that do not adopt it. The taxing authority may find it difficult to assess the relaƒve benefit of the airport to individual parcels of land. The availability of revenues for an airport may fluctuate as the local government faces compeƒng demands for use of these revenues. FN 15: TRANSPORTATION UTILITY FEES (TUFs) Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Most local jurisdicƒons depend on property taxes as their principal source of revenue. However, the value of property does not always fully reflect the burden a parƒcular property places on the transportaƒon system. Accordingly, the value capture technique of transportaƒon uƒlity fees (TUFs) has gained acceptance over the last several decades. States impose TUFs on individual land uses (e.g., residenƒal, office, retail) based on the amount of traffic that a parƒcular property generates on a transportaƒon facility and the costs of construcƒon and maintenance of the facility. Revenues from TUFs primarily fund the maintenance of a facility. The raƒonale for a TUF equates public transportaƒon with other uƒliƒes, such as water, sewer, or electricity. However, not all states permit the use of TUFs. These fees exist in Colorado, Oregon, and Texas, but courts in Florida, Idaho, Wisconsin, and Washington State have deemed TUFs invalid. TUFs are not strictly a value capture technique in that the level of fee charged under a TUF must reflect the cost of providing transportaƒon services, whereas revenues from value capture are derived from the value a property owner derives from access or proximity to the service [Lari]. For TUFs, actual fees vary by specific applicaƒon. A fee formula can include such factors as the trip generaƒon of the use (usually based on naƒonal trip generaƒon rates), the square footage of a building, the linear footage of a building along a transportaƒon corridor, a flat fee per unit, or a flat fee per parking space. A TUF can provide an on going revenue source that can increase as development intensifies. The magnitude of the revenue will vary based on the size of the fee and number of properƒes to which it is applied. Extent of Airport Applicability Use of TUFs by airport sponsors is largely untested. Establishing a direct relaƒonship between an airport and proximate uses and then idenƒfying an equitable fee structure may prove difficult. Specific land uses, such as hotels and car rental agencies, are potenƒal targets; however, these businesses are more typically assessed access fees or privilege fees if they are shu™ling passenger to or from the airport. This fee may also be applicable toward warehouses specifically used to store goods that will be enplaned, or to store goods that have been unloaded from aircraš.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 24 Implementaon State enabling legislaon is required to implement TUFs. Local taxing authories administer the fees. For airports not owned and operated by a municipality or county, a revenue sharing agreement may be necessary to establish a TUF. TUFs have been widely challenged, and any jurisdicon pursuing TUFs should be prepared to defend the nexus between those who are charged the fee (such as businesses or residents) and the use of the revenues generated by the fee (such as funding of airport operaons, maintenance, or infrastructure investments.) Advantages of TUFs TUFs relieve the tax burden on residenal properes and may thus receive strong support from residents. Further, there is a direct connecon between those who benefit from transportaon facility or service and those who pay for it. Disadvantages of TUFs Given that this is a fee and not a tax, use of revenues collected from a TUF must be clear in the enabling legislaon and/or ordinance. Direct costs to businesses would increase and may reduce the compeve posion of areas where TUFs are imposed. The administrave workload of the taxing authority is increased, and training may be required to help staff learn how to apply the fee to individual users. 6.5 VALUE CAPTURE AND AIRPORT CITIES Many airports in the United States, Europe, and Asia are implemenng development programs associated with the concept of an “airport city.” Terms like aerotropolis, airport city, and airport corridor refer to airport dependent economic development that occurs both on and off airports and is formed because of airport acvity.18 The terms are used somewhat interchangeably, although Peneda classifies airport cies as including an airport and proximate land outside the fence; an aerotropolis as a more expansive, aviaon related “urban economic region”; and an airport corridor as development along a direct surface transportaon connecon from the airport. Figure 6 4 sketches the spaal differences between an airport city, airport corridor, and aerotropolis as put forward by Peneda.19 For purposes of this Airport Guide, airport cies include all of these pa˜erns of development. In addion to airport cies, value capture techniques can occur in the context of foreign trade zones (FTZs) and marine port districts. Each of these concepts is described further in this chapter. BD 7: AIRPORT CITIES Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges 18 For an in depth discussion of these terms, see Peneda, M., V. Reis and M. Marcario, “Crical Factors for Development of Airport Cies,” Transportaon Research Record, Journal of the Transportaon Research Board, No. 2214, Transportaon Research Board of the Naonal Academies, 2011, pp. 1 9. 19 Peneda, Reis and Marcario, 2011, pp. 1–9

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 25 An airport city begins on the airport and includes third party passenger, cargo, and general avia€on services that generate rent to airport sponsors. Off airport, the airport city includes businesses that rely on or support: Frequent, speedy access to air freight Passenger air service (for client mee€ngs, visitors from corporate headquarters/branch offices, and supplier/vendor representa€ves) Other services that provide goods and services to passengers (e.g., hotels, restaurants, and entertainment), businesses on airport, and other businesses in the airport city In loca€ng near the airport and near one another, these businesses take advantage of the core benefits of agglomera€on: economies of scale and network effects. In a par€cularly dynamic economy, an airport may a’ract a wide range of land uses, including just in €me manufacturing, warehouses, and trucking, commercial centers, and even retail establishments. Addi€onal businesses will be a’racted because they wish to sell or buy products and services to the airport dependent firms.20 These integrated land uses reflect those of a complete city—earning the label aerotropolis or airport city. For an airport city to s€mulate agglomera€on, the airport sponsor must support the effort and the local or regional government must control the planning and development of the land around the airport. Other factors cri€cal to the success of an airport city include extensive mul€ modal connec€vity to/from airports and areas in the vicinity of the airport with economic development poten€al that can translate into an airport dependent ac€vity. To date, no mature airport ci€es in the United States have been successfully developed from state or local ini€a€ves.21 Rather, these agglomera€ons have emerged ad hoc from vibrant airport corridors connected to airports. A prominent example is Dulles Interna€onal Airport and the Dulles Toll Road. Other examples include airport agglomera€ons at Dallas/Fort Worth (which began with a FTZ) and Chicago O’Hare Airport. Denver Interna€onal Airport is planning an airport city development on airport property it owns. 20 Assume that two firms (a warehouse and a small corporate headquarters) are a’racted to an airport as a transportaon asset. They may develop or expand warehousing and office space to specifically take advantage of the airport (for freight shipment and passenger travel, respec€vely). Other companies may subsequently be a’racted to the site in order to be near the first two companies (for example, a trucking company or a sandwich shop). These secondary firms are not directly related to the airport itself, but would not be there if not for the presence of the airport. 21 Peneda, Reis and Marcario, 2011, pp. 1–9

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 26 Figure 6 4: Spaal Layout of Airport City Development Concepts Source: Adapted from Peneda, M., V. Reis and M. Marcari, “Crical Factors for Development of Airport Cies,” Transportaon Research Record: Journal of the Transportaon Research Board, No. 2214, Transportaon Research Board of the Naonal Academies, 2011. A well known example of an airport city is Schiphol Airport in Amsterdam. The amount of underulized or vacant space near the airport is limited. The naonal government and regional and local governments collaborated to apply planning and land use regulaons and to limit development to airport dependent and airport related uses, such as maintenance facilies, hotels, offices, or warehouses. The aim of the development policies was to leverage Schiphol’s market posion and enhance economic development (Warffemius et. al.). Today, the airport and its surrounding property have become a major European cargo and industrial center. A formal airport city concept is slow in gaining tracon in the United States. For example, an “aerotropolis” bill targeted for Lambert St. Louis Internaonal Airport failed in the Missouri General Assembly in 2012. In Detroit, state and city authories collaborated to launch an airport city anchored by the Detroit Metro and Willow Run airports. In February 2011, the state of Michigan designated the Detroit Region Aerotropolis Development Corporaon (ADC) a cerfied Next Michigan Development Corporaon to a›ract businesses engaging in mul modal commerce. In 2013, however, the ADC renamed itself VantagePort as part of a rebranding markeng effort, and there is speculaon whether the new branding also signifies the end to the aerotropolis and a turn toward a logiscs center.22 A designated airport city is a potenal framework to adopt value capture techniques and share revenues between the airport and local jurisdicons. Airport sponsors could share in development fees, property taxes, sales taxes, and income taxes stemming from business acvity in the airport city. The specific mix 22h›p://www.crainsdetroit.com/arcle/20130718/NEWS/130719796/aerotropolis rebrands as vantageport as part of 25 year build out plan and h›p://detroit.cbslocal.com/2013/07/18/aerotropolis effort rebrands as vantageport hires ceo/ Aerotropolis Airport City Airport Corridor Airport

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 27 of value capture techniques and revenue sharing would be defined in the enabling regulaƒon and legislaƒon for the airport city, and would be transparent to businesses coming into the airport city. Designaƒon of airport ciƒes will require extensive and coordinated land use planning, zoning, enforcement, and clear definiƒons of airport related businesses. If the airport and local jurisdicƒons offer aŒracƒve development incenƒves, it would not be surprising to see poliƒcal pressure to expand the definiƒon of an airport related business. Experience with establishment of marine port districts and FTZs indicates that acƒvely developing areas can experience pressure from many different groups that wish to purchase or lease property. 6.6 MARINE PORT DISTRICTS AND FOREIGN TRADE ZONES In the United States, marine port districts are models for the airport city concept, and FTZs represent a limited step toward implementaƒon. Neither applicaƒon represents a comprehensive urban environment, but the two models represent concepts of an airport logisƒcs corridor or adjacent airport city, as opposed to a comprehensive aerotropolis environment. These alternate concepts are discussed in Secƒon 6.5 and illustrated by Figure 6 4. Moreover, the tenuous steps toward implementaƒon of designated airport ciƒes in the United States, as exemplified by the Detroit and St. Louis experiences, call for flexibility in defining and designaƒng a range of airport city concepts. Ample examples exist of master plans for ports that restrict nearby uses to marine related uses, much as a governing authority might restrict land to aviaƒon related uses for a planned airport city. Typically, marine related land uses include cargo faciliƒes and services, logisƒcs, mariƒme manufacturing, and support services for the port. Airport related FTZs can be viewed as nascent airport ciƒes in that off airport land is set aside for logisƒcs, warehouses, and manufacturing companies that would seek a locaƒon near access to internaƒonal air cargo services. Table 6 3 lists 30 airports that have FTZ status or operate an FTZ on behalf of a grantee. Airport sponsors and other enƒƒes, such as ciƒes, counƒes, and port commissions, operate the FTZs. Some FTZs designate special aviaƒon land uses. Table 6 3: Sample Airports/Airport Operators Affiliated with FTZs FTZ Number Airport/Airport Operator State FTZ Number Airport/Airport Operator State 39 Dallas/Fort Worth Internaƒonal Airport Board TX 157 Natrona County Internaƒonal Airport WY 42 Greater Orlando Aviaƒon Authority FL 158 Jackson Municipal Airport Authority MS 73 Maryland Aviaƒon Administraƒon MD 165 Midland Internaƒonal Airport TX 82 Mobile Airport Authority AL 175 Cedar Rapids Airport Commission IA 83 Authority/Huntsville FTZ Corporaon AL 176 Greater Rockford Airport Authority IL 88 Great Falls Internaonal Airport Authority MT 203 Moses Lake, Grant County Airport WA 94 Laredo Internaonal Airport TX 204 Tri Cies Airport Commission TN 103 Grand Forks Regional Airport Authority ND 207 Capital Region Airport Commission VA 104 Savannah Airport Commission GA 215 Sebring Airport Authority FL (connued on next page)

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 28 Table 6 3 (Connued). FTZ Number Airport/Airport Operator State FTZ Number Airport/Airport Operator State 106 Dept. of Airports of the city of Oklahoma OK 217 Ocala Regional Airport FL 110 City of Albuquerque Aviaˆon Department NM 224 Spokane Airport Board WA 111 JFK Internaˆonal Airport NY 237 Santa Maria Public Airport District CA 125 St. Joseph County Airport Authority IN 250 Sanford Airport Authority FL 127 Operator: Richland Lexington Airport SC 275 Capital Region Airport Authority MI 137 Washington Dulles FTZ VA 276 County of Kern Department of Airports CA Source: 71st Annual Report of the Foreign Trade Zones Board to the Congress of the United States, November 2010 BD 8: FOREIGN TRADE ZONES (FTZs) Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Airports that are also U.S. Customs ports of entry are able to use FTZs to increase cargo acvity.23 By taking advantage of the FTZ, companies are able to defer, reduce, or eliminate U.S. Customs dues on products admi ed to the zone. The actual zones can be on airport or off airport, in designated parcels/buildings, and usually includes industrial parks near the airport. Zone sites must be within or adjacent to a U.S. Customs and Border Protecon (CBP) port of entry, which may include, but are not limited to, airports. Facilies associated with the FTZ remain within the jurisdicon of local, state, or federal governments or agencies. FTZs are found in all 50 U.S. states, and have two designaons: General purpose zones – usually located at ports or industrial parks and open to mulple zone users. The most common acvity uses for general purpose zones are warehouse and distribuon acvies, although these zones also can accommodate manufacturing. Special purpose zones (subzones) – usually at manufacturing plants. A subzone of a general purpose zone can be approved if the company is unable to relocate exisng facilies into a general purpose zone site. On a naonal level, the largest industrial users of FTZs are petroleum refiners.24 Significant zone manufacturing also occurs in the automove, electronic, and pharmaceucal product areas. Currently, about 250 general purpose zones and more than 450 subzones are approved, with 70 applicaons 23 FTZs are designated sites licensed by the Foreign Trade Zones Board of the U.S. Department of Commerce. 24 See h p://enforcement.trade.gov/“zpage/annualreport/ar 2012.pdf (published in August 2013)

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 29 pending. FTZs handle over $500 billion of goods and employ 350,000 people. These aggregate numbers reflect FTZs located by marine ports and land borders, as well as at airports.25 El Paso Internaonal Airport The FTZ Board approved FTZ # 68 in 1981. The original grantee was El Paso Interna’onal Airport, which acted to establish, maintain, and operate a 60 acre site within its Bu“erfield Trail Industrial Park. In late 1982, the airport transferred the grant to the City of El Paso, Texas, with the airport ac’ng as operator. FTZ #68 is now heralded as an integral part of the city’s regional and interna’onal investment strategy, linking the airport and industrial park with the Global Reach Science & Technology Park, the Union Pacific and Burlington Northern railroads, and Interstate Highways I 10 and I 25.26 Today, the El Paso FTZ is the fišh largest general purpose zone in the na’on based on dollar volume (reaching $10.2 billion in 2013), and the largest FTZ on the U.S./Mexico border. This FTZ leverages its border loca’on to take advantage of trade s’mulated by NAFTA, possesses ample land that is developed as business parks, and benefits from intermodal connec’ons to domes’c and interna’onal markets. The zone consists of 21 sites containing 3,443 acres spread out through the east, central, northeast, and lower valley areas of the city and outside the city limits but within El Paso County. On average, more than 70 firms use the FTZ, handling more than 200 different items from more than 80 countries. The FTZ regions offer one stop shopping for interna’onal trade with on site U.S. Customs personnel to assist FTZ users and the import/export community. Figure 6 5 shows that the FTZ consists of both on airport and off airport facili’es. Dallas/Fort Worth Internaonal FTZ #39 Dallas/Fort Worth Interna’onal Airport (DFW) has an airport use plan that will add a comprehensive airport city environment to its FTZ as it develops airport property located in the ci’es of Irving, Euless, Grapevine, and Coppell.27 The plan is based on es’mates of market demand for office, retail, and industrial space, and supports the growth of the airport’s core business as a global air transporta’on facility. Plans include mul’ use development of approximately 6,600 acres.28 25 h“p://ia.ita.doc.gov/šzpage/info/summary.html 26 h“p://home.elpasotexas.gov/šz/_documents/Promo’onal%20Brochure.pdf 27 h“p://www.dfwairport.com/vfr2030/land/index.php 28 h“p://www.dallascityhall.com/council_briefings/briefings0811/DFW LandUse_080311.pdf

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 30 Figure 6 5: El Paso Internaonal Airport FTZs Source: Annual report to the U.S. Foreign Trade Zones Board, October 1, 2009–September 30, 2010, El Paso Interna…onal Airport BD 9: MARINE PORT DISTRICTS Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Water ports and working waterfronts provide examples of municipali…es and states adop…ng regulatory measures to support and encourage uses specific to a par…cular transporta…on facility or feature. Airports

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 31 Several U.S. cies have adopted marine industrial zoning that designates land near fishing harbors and deep water ports for marine related industrial uses only. This zoning is a way to preserve important economic sectors that create industrial and logiscs jobs. In 2004, the city of Balmore, Maryland, passed an ordinance adopng a Marine Industrial Zone Overlay District (MIZOD) for land along the Balmore Harbor that provides deep water access. Such land is scarce throughout the United States and is crical to future expansion of the port and to job creaon. The ordinance, which was set to expire in 2014, permits heavy industrial uses and other uses that require both deep water (18 feet) and railroad or highway access. It prohibits planned unit developments, taverns, live entertainment, most hotels and commercial uses, and residenal uses.29 Balmore’s port currently is home to 47 marine terminals, seven of which are owned by the state. It “represents 16,500 direct jobs; 33,700 indirect jobs; $3.6 billion in annual personal wages and salaries; $1.9 billion in annual business revenues; and $388 million in state, county, and municipal taxes.”30 Furthermore, “naonwide, it is recognized as the leader in handling imported forest products, construcon equipment, gypsum, iron ore, coal, and sugar. It is the second largest port in the country for handling exports of vehicles and heavy equipment.”31 In 2009, developers launched a concerted effort to buy up land within the MIZOD for future development of hotels, condominiums, and related uses in ancipaon of the expiraon of the ordinance in 2014. In May 2009, however, the mayor of Balmore signed an extension of the ordinance, keeping it in effect through 2024. Port related businesses believe this extension will help them secure bank loans, with the assurance that the port will remain compeve at least through 2024. For example, one business spent $20 million for a deep dra¤ pier. The bankers financing the project wanted assurances that the land around the pier would stay industrial.32 The Maryland Port Administraon’s execuve director has noted the importance of the ordinance for retaining Balmore’s posion as an excellent port. Supporters also believe that the ordinance posions the port to take advantage of the ancipated 2014 widening of the Panama Canal, which will allow larger ships from the Far East to access ports on the East Coast of the United States.33 These economic opportunies would be lost if land with deep water access was developed for non marine uses. The extension does allow individual property owners to peon to have their property removed from the MIZOD. The peon process will allow flexibility in reviewing how prohibited uses might fit into the future of the port as a working waterfront. 29 Broadwater, K., “The Importance of MIZOD in a Compeve and Growing Port of Balmore,” PowerPoint presentaon at the Maryland Freight Summit, September 14, 2009, retrieved September 21, 2011, from: h¨p://www.mdot.maryland.gov/OFM/2009FreighSummitpresentaons/MIZODandImpactonthePort.pdf 30 Redding, J., “City must Protect Port: Developers’ Moves to Grab Up Waterfront Property Imperil Powerful Economic Engine,” The Balmore Sun, March 8, 2009, p. 1, retrieved September 21, 2011, from: h¨p://arcles.balmoresun.com/2009 03 08/news/0903060106_1_port represents maryland port port administraon 31 Redding, J., 2009 32 Schuh, M., “Development Crowds Out Some Balmore Industries,” reporng for WJZTV, no date, retrieved September 21, 2011, from h¨p://mpa.maryland.gov/_media/client/News Publicaons/2009 /051209press.pdf 33 Schuh, M., “Mayor Dixon Signs Bill Protecng Port of Balmore’s Marime Zoning Unl 2024,” Balmore Business Journal, May 12, 2009, retrieved September 21, 2011 from: www.bizjournal.com/balmore/stories/2009/05/11/dailly21.html

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 32 The city of Gloucester, Massachuses, has had marine industrial zoning in place since 1969 to protect its working waterfront. In 1978, the Massachuses Coastal Zone Management Program enhanced protecŠon of the working waterfront by naming the area a Designated Port Area. Municipal and state regulaŠons in Gloucester were adopted to protect the fishing industry, the backbone of the city’s economy. Both regulaŠons give priority to water dependent industrial uses and prohibit residenŠal and most recreaŠonal boaŠng uses.34 As in BalŠmore, the regulaŠons are seen as important to securing financing for investment in new marine industrial infrastructure and buildings because they ensure that the properŠes will remain Šed to viable marine uses. At issue is that marine related uses, such as fish processing, are noisy, smelly, and occur at off peak hours. IncompaŠble uses, such as hotels and residences, will create fricŠon with the marine uses. In 2006, the Gloucester zoning was amended to split the waterfront district into three disŠnct zones, recognizing differences in the configuraŠon of parcels within the districts, and their proximity to water access. The districts all sŠll favor marine related uses. In recent years, however, changes in fishing regulaŠons have limited the amount of fish a vessel can catch, thus hindering the viability of the fishing industry. As demand for waterfront residenŠal development has increased, there has been substanŠal pressure on the city to revise the zoning to allow addiŠonal uses along the waterfront. The response of the marine industry has been strong, advocaŠng retenŠon of the strict land use regulaŠons that support the industry.35 The city government has been trying to reach a compromise with landowners and the marine industries in an effort to redevelop a long vacant food processing facility into a hotel. Gloucester has suffered economically in recent years, and many individuals, including the mayor, believe development of a waterfront hotel will support and encourage tourism, another important industry in Gloucester. The idea of zoning to retain land for marine related development differs from zoning to support airport related uses for value capture. Marine ports are discussed in the context of airport value capture because they offer a public policy model of se˜ng aside land for the purpose of supporŠng transportaŠon faciliŠes and leveraging economic development and public revenues due to the presence of the ports. Nonetheless, there are significant differences. Marine ports are primarily cargo faciliŠes, with limited passenger services (which mostly relate to recreaŠonal cruise ships, along with some ferry operaŠons that account for limited business travel). Airports, on the other hand, support cargo operaŠons as well as naŠonal and global business travel. Accordingly, land use regulaŠon in the context of airport related industries is beer exemplified by the Schiphol experience, where allowable development is limited to airport dependent and related uses. In Schiphol, for example, hotels and other commercial (non industrial) development are encouraged if there is an airport nexus. Establishing the airport nexus is the first step in jusŠfying the case for value capture. 34 Wiggin, J., Preserving and Promong a Working Harbor: The Experience of Gloucester, Massachuses, paper for the Urban Harbor InsŠtute, University of Massachuses, Boston, no date, retrieved September 21, 2011, from: hp://www.uhi.umb.edu/pdf_files/Norfolk_May_07.pdf 35 Gaines, R., “Property Owners: Regs ‘Strangle’ Harbor Development,” The Gloucester Times, July 27, 2007, retrieved September 21, 2011, from: hp://www.gloucesterŠmes.com/local/x645280642/Property owners regs strangle harbor development

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 33 6.7 OTHER SOURCES OF PUBLIC FINANCING Value capture techniques provide alternate ways to raise capital for improvements and pay for regular opera‚ons and maintenance. Because of high capital requirements for transporta‚on improvements, capital projects increasingly depend on a combina‚on of public and private finance. Two addi‚onal sources of public financing in use by airports are infrastructure banks and assistance through the Transporta‚on Infrastructure Finance and Innova‚on Act (TIFIA).36 Historically, infrastructure banks and credit assistance under TIFIA primarily helped to finance highway, transit, and rail projects. Because airport sponsors are beginning to tap these sources of state and federal funds, however, they deserve a men‚on in this Airport Guide. FN 16: INFRASTRUCTURE BANK An infrastructure bank is a revolving fund that can offer direct loans at low interest rates as well as loan guarantees and lines of credit. States establish and operate infrastructure banks; however, Congress has introduced several versions of legisla‚on to fund a na‚onal infrastructure bank. Currently, 33 states have passed enabling legisla‚on, but in 10 of these states the infrastructure banks are unfunded. Table 6 4 lists the ac‚ve and inac‚ve infrastructure banks. Table 6 4: Acve and Inacve Infrastructure Banks Acve Infrastructure Banks Inacve Infrastructure Banks Alaska North Dakota Washington Arizona Colorado Ohio Wisconsin Arkansas Florida Oregon Wyoming California Maine Pennsylvania Delaware Michigan South Carolina Indiana Minnesota South Dakota Iowa Missouri Texas New York Nebraska Utah Oklahoma New Mexico Vermont Rhode Island North Carolina Virginia Tennessee Source: CPCS, Alternave Funding and Financing Mechanisms for Passenger and Freight Rail Projects, 2014 State infrastructure banks can provide support for both public and private transporta†on projects. Some banks capitalize loans strictly with state funds; others capitalize with a combina†on of state and federal funds. Because a na†onal infrastructure bank does not yet exist, individual airport operators seeking this type of funding must consult their own state programs for eligibility. However, there are many examples of the use of this type of funding for avia†on facili†es. The Avia†on Element of the Colorado State Infrastructure Bank (SIB) has financed 12 projects at rela†vely low interest rates that span airport capital 36 Transporta†on Infrastructure Finance and Innova†on Act (TIFIA), informa†on available at: h—p://www.™wa.dot.gov/ipd/†fia/

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 34 improvements, air traffic control towers, snow removal equipment, pavement reconstrucon, and land acquision. FN 17: TIFIA The federal Transportaon Infrastructure Finance and Innovaon Act (TIFIA) provides flexible credit assistance to highway, transit, rail, seaport, and intermodal freight projects through direct loans, loan guarantees, and standby lines of credit. By statute, credit assistance under TIFIA can make up no more than 33% of total project costs. The TIFIA program targets large projects, generally in excess of $50 million by statute. For Intelligent Transportaon System (ITS) projects,37 the minimum project cost is $15 million. The program offers three types of financial assistance featuring maturies up to 35 years a˜er substanal compleon of the project. Secured loans are direct federal loans providing long term financing of capital costs with flexible repayment terms. Loan guarantees provide full faith and credit guarantees by the federal government of a poron of project loans made by instuonal investors. Standby lines of credit represent secondary sources of financing in the form of conngent federal loans that can supplement project revenues during the first 10 years of project operaons. Eligible projects can include 100% public financing or private co investment. Demand for TIFIA financing has increased as other sources of transportaon funding has declined. Also, TIFIA is one of a few federal programs that encourage the use of innovave financing, joint development, and public private partnerships (P3s) to reduce costs, accelerate project delivery, lessen public sector exposure, and contribute private capital to projects. Several airports, P3s, and transit agencies have used TIFIA financing to improve ground transportaon at or to airports. For example T.F. Green Airport in Providence, Rhode Island, was one of the earliest airport parcipants in the program. The Rhode Island Airport Corporaon (RIAC) was the project sponsor for construcon of Interlink, an intermodal project connecng air, rail, bus, automobiles, and car rentals at the airport. Denver’s Regional Transportaon District (RTD) received a $280 million TIFIA loan to help fund the Eagle P3 commuter rail project that will operate from Union Staon east 23 miles to Denver Internaonal Airport. The Florida Department of Transportaon (DOT) and Miami Dade County Aviaon Department used TIFIA funds as part of the financial package to build the Miami Intermodal Center, which includes transit, Amtrak, intercity bus services, a rental car center (RCC) and an automated people mover system to connect the RCC and the intermodal staon with the airport. More recently, TIFIA loans went to Chicago O’Hare Internaonal Airport to help fund a consolidated Joint Use Facility Project that included relocaon and consolidaon of rental car operaons and public parking. TIFIA also will help fund connecon of the new facility into the airport transit system. 37 According to U.S. DOT, Intelligent Transportaon Systems (ITS) is the applicaon of advanced informaon and communicaons technology toenhance safety and mobility while reducing the environmental impact of transportaon.

CHAPTER 6 – VALUE CAPTURE AND OTHER INNOVATIVE FINANCING 6 35 Table 6 5 summarizes the funding sources for the project to illustrate the magnitude and complexity of the Chicago O’Hare financial package. Table 6 5: Financing Mechanisms Used for the Chicago O’Hare Consolidated Joint Use Facility Project Funding Source Amount General Airport Revenue Bonds $95.6 million Customer Facility Charge (CFC) Senior Lien Revenue Bonds $250. 5 million Airport Development Funds $62.4 million CFC PAYGO $141.7 million Passenger Facility Charge (PFC) Revenues $37.7 million TIFIA Loan $288.1 million Source: h™p://www.œwa.dot.gov/ipd/project_profiles/il_ohare.htm 6.8 KEY POINTS AND CONCLUSIONS Given the high cost of airport improvements, mul¡ple sources of funding will con¡nue to finance projects and on going opera¡ons. These include grants and loans, taxes and fees. Value capture, infrastructure banks, and TIFIA offer alterna¡ve sources of funding and finance; for airports, however, these techniques are rela¡vely underused. Going forward, they may gain trac¡on. Regions that support interna¡onal airports have a compe¡¡ve advantage for a™rac¡ng firms doing business throughout the world. This nexus between the access benefits created by the airport and land development near the airport provides a strong case for adop¡ng value capture techniques. Development parcels in close proximity to an airport are desirable for a wide range of uses. A quick look at most commercial service airports shows clusters of hotels, restaurants, gas sta¡ons, parking, and rental car companies near the airports. Because of late evening arrivals or early morning departures, air passengers seek these accommoda¡ons, and therefore provide a customer base for the other associated services. Industrial and office parks have also sprouted up near airports across the country. Just in ¡me delivery requirements, increased global trade, and the uncertainty associated with highway conges¡on make loca¡ons near airfreight facili¡es and passenger terminals highly desirable. With the excep¡on of access and privilege fees, value capture techniques represent unchartered territory for airports. There is, however, considerable precedent to use value capture as a mechanism to par¡ally fund transit and roadway projects. For example, value capture techniques were used to finance parts of transit related improvements in Los Angeles; Miami; Tampa; Washington, DC; Atlanta; Cleveland; Columbus; and Minneapolis. The measurement of impacts associated with road and transit projects has a deep history, with precedents that public transporta¡on agencies can use to quan¡fy the incremental value that accrues with new improvements or facili¡es. Similarly, airport economic impact studies establish a founda¡on to assess how airports add value to surrounding property. Despite many barriers to implementa¡on, the airport city concept offers another way that airport sponsors are defining the region around an airport as an area of influence and impact. Value capture techniques for airports offer poten¡al revenue sharing opportuni¡es that may gain future acceptance in jurisdic¡ons where strong land use controls

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 36 near an airport and development plans can effecvely target and recruit aviaon related industries and businesses. 6.9 WRAP UP The value capture strategy is parcularly relevant in a funding environment for large capital projects that involves public and private investment from mulple sources. This chapter has idenfied a variety of ways that either the user or beneficiary of a transportaon improvement can parcipate in the costs to build or maintain the facility. Table 6 6 provides a summary of the techniques presented in the chapter.

Table 6 6: Summary of Value Capture and Other Public Sector Financing Techniques Code Value Capture Techniques Extent of Airport Use Revenue Potential Airport Assumption of Risk Capital Required Complexity to Implement Political & Institutional Challenges Finance and Property Management – FN FN-4 Joint Development FN-6 Airport Access Fees and Privilege Fees - FN-7 Tax Increment Financing (TIF) District FN-8 Local Income and Payroll Tax FN-9 Sales Tax/Occupancy Tax - FN-10 Transfer of Development Rights (TDRs) FN-11 Connection Fees FN-12 Business Improvement Districts (BIDs) FN-13 Special Assessment/Betterment Districts FN-14 Land Value Tax FN-15 Transportation Utility Fees (TUFs) FN-16 Infrastructure Bank FN-17 TIFIA Business Development – BD BD-7 Airport Cities BD-8 Foreign Trade Zones (FTZs) BD-9 Marine Port Districts Key Low Moderate High Not Relevant

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 6 38 6.10 ADDITIONAL REFERENCES CPCS, First Class Partnerships, Harral Winner Thompson Sharp Klein, Inc., Portscape Inc., Thompson Galenson and Associates, LLC, Alternave Financing Approaches for Passenger and Freight Rail Projects, Dra€ Working Paper 1: Global Scan and Assessment of Established Financing Models, NCRRP 0701, Washington DC, August 2013 Enrico, S., B. Boudreau, D. Reimer, and S. Van Beek, ACRP Report 66: Considering and Evaluang Airport Privazaon, Transporta‘on Research Board of the Na‘onal Academies, Washington, DC, 2012 Lari, A., D. Levinson, Z. (Jerry) Zhao, M. Iacono, S. Aultman, K. Vardhan Das, J. Junge, K. Larson, and M. Scharenbroich, Value Capture for Transportaon Finance: Technical Research Report, Center for Transporta‘on Studies, University of Minnesota, June 2009 Pla™, R. H., Land Use and Society: Geography, Law, and Public Policy. Island Press: Washington DC, 1996 Smith, J. J. and T. A. Gihring, with T. Litman, Financing Transit Systems Through Value Capture: An Annotated Bibliography, Victoria Transport Policy Ins‘tute, December 30, 2009 U.S. Government Accoun‘ng Office, Federal Role in Value Capture Strategies for Transit is Limited, but Addi‘onal Guidance Could Help Clarify Policies, Report to Congressional Commi™ees, GAO 10 781, July 2010 Warffemius, P., T. van der Hoorn, and H. Klaassen, “The Dynamic Spa‘al Impact of Amsterdam Airport Schiphol,” Economic Spaal Research, E Zine Edi‘on #42

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TRB’s Airport Cooperative Research Program (ACRP) Report 121: Innovative Revenue Strategies – An Airport Guide describes a broad range of tools and techniques to improve airport revenue streams, recover costs, and achieve operational efficiencies. The report identifies customer needs; airport-provided services and shared services, facilities, and equipment; revenue participation in real estate and natural resource development; value capture and other financing opportunities; and improvements to existing airport businesses.

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