Guide to Value Capture Financing for Public Transportation Projects (2016)

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2016 T R A N S I T C O O P E R A T I V E R E S E A R C H P R O G R A M TCRP RESEARCH REPORT 190 Research sponsored by the Federal Transit Administration in cooperation with the Transit Development Corporation Subject Areas Public Transportation Guide to Value Capture Financing for Public Transportation Projects Sasha Page IMG Rebel Bethesda, MD William L. Bishop DevelopMent plannInG & FInancInG GRoup, Inc. Chapel Hill, NC Waiching Wong IMG Rebel Bethesda, MD

TCRP RESEARCH REPORT 190 Project J-11/Task 22 ISSN 1073-4872 ISBN 978-0-309-44599-3 © 2016 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FRA, FTA, Office of the Assistant Secretary for Research and Technology, PHMSA, or TDC endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The research report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the National Academies of Sciences, Engineering, and Medicine. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; or the program sponsors. The Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; and the sponsors of the Transit Cooperative Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. TRANSIT COOPERATIVE RESEARCH PROGRAM The nation’s growth and the need to meet mobility, environmental, and energy objectives place demands on public transit systems. Cur- rent systems, some of which are old and in need of upgrading, must expand service area, increase service frequency, and improve efficiency to serve these demands. Research is necessary to solve operating prob- lems, adapt appropriate new technologies from other industries, and introduce innovations into the transit industry. The Transit Coopera- tive Research Program (TCRP) serves as one of the principal means by which the transit industry can develop innovative near-term solutions to meet demands placed on it. The need for TCRP was originally identified in TRB Special Report 213—Research for Public Transit: New Directions, published in 1987 and based on a study sponsored by the Urban Mass Transportation Administration—now the Federal Transit Administration (FTA). A report by the American Public Transportation Association (APTA), Transportation 2000, also recognized the need for local, problem- solving research. TCRP, modeled after the successful National Coop- erative Highway Research Program (NCHRP), undertakes research and other technical activities in response to the needs of transit ser- vice providers. The scope of TCRP includes various transit research fields including planning, service configuration, equipment, facilities, operations, human resources, maintenance, policy, and administrative practices. TCRP was established under FTA sponsorship in July 1992. Proposed by the U.S. Department of Transportation, TCRP was authorized as part of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). On May 13, 1992, a memorandum agreement outlining TCRP operating procedures was executed by the three cooperating organi- zations: FTA; the National Academies of Sciences, Engineering, and Medicine, acting through the Transportation Research Board (TRB); and the Transit Development Corporation, Inc. (TDC), a nonprofit educational and research organization established by APTA. TDC is responsible for forming the independent governing board, designated as the TCRP Oversight and Project Selection (TOPS) Committee. Research problem statements for TCRP are solicited periodically but may be submitted to TRB by anyone at any time. It is the responsibility of the TOPS Committee to formulate the research program by identi- fying the highest priority projects. As part of the evaluation, the TOPS Committee defines funding levels and expected products. Once selected, each project is assigned to an expert panel appointed by TRB. The panels prepare project statements (requests for propos- als), select contractors, and provide technical guidance and counsel throughout the life of the project. The process for developing research problem statements and selecting research agencies has been used by TRB in managing cooperative research programs since 1962. As in other TRB activities, TCRP project panels serve voluntarily without compensation. Because research cannot have the desired effect if products fail to reach the intended audience, special emphasis is placed on disseminat- ing TCRP results to the intended users of the research: transit agen- cies, service providers, and suppliers. TRB provides a series of research reports, syntheses of transit practice, and other supporting material developed by TCRP research. APTA will arrange for workshops, train- ing aids, field visits, and other activities to ensure that results are imple- mented by urban and rural transit industry practitioners. TCRP provides a forum where transit agencies can cooperatively address common operational problems. TCRP results support and complement other ongoing transit research and training programs. Published research reports of the TRANSIT COOPERATIVE RESEARCH PROGRAM are available from Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet by going to http://www.national-academies.org and then searching for TRB Printed in the United States of America

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C O O P E R A T I V E R E S E A R C H P R O G R A M S AUTHOR ACKNOWLEDGMENTS This guide has been developed with funding provided through TCRP Project J-11, “Quick-Response Research on Long-Term Strategic Issues.” TCRP Project J-11 is intended to fund quick-response studies on behalf of the TCRP Oversight and Project Selection Committee, the FTA, and APTA and its committees. Sasha Page, Principal, IMG Rebel, was the principal investigator and coauthor. William L. Bishop, Principal, Development Planning & Finance Group, Inc., was senior investigator and coauthor. Waiching Wong of IMG Rebel was also a coauthor. The research team thanks the individuals and numerous organizations that participated in the case study interviews and who provided feedback on the draft guide. CRP STAFF FOR TCRP RESEARCH REPORT 190 Christopher J. Hedges, Director, Cooperative Research Programs Dianne S. Schwager, Senior Program Officer Daniel J. Magnolia, Senior Program Assistant Eileen P. Delaney, Director of Publications Doug English, Editor TCRP PROJECT J-11/TASK 22 PANEL Field of Special Projects Kevin DeGood, Center for American Progress, Washington, DC Sharon Greene, HDR/Sharon Greene & Associates, Irvine, CA David Leininger, Dallas Area Rapid Transit, Dallas, TX Scott Polokiv, Gateway Planning Group, Dallas, TX Tina M. Votaw, City of Charlotte, Charlotte, NC Stan Wall, HR&A Advisors, Inc., Washington, DC Faith Hall, FTA Liaison Darnell Grisby, APTA Liaison

Value capture is the public recovery of a portion of increased property and other value created as a result of public infrastructure investment. Capturing a portion of that value to fund transit projects is an increasingly viable and desirable option. TCRP Research Report 190: Guide to Value Capture Financing for Public Transportation Projects is a resource for transit agencies, local governments, developers, and others interested in value capture as a strategy for funding and financing public transportation projects. The guide will be relevant to many public transportation modes, including bus rapid transit, light rail, heavy rail, commuter rail, and intercity passenger rail. TCRP Research Report 190 identifies the requirements necessary for (1) successful value creation through transportation infrastructure investment and (2) capturing a portion of that value through specific value capture mechanisms. It emphasizes that value capture opportunities and strategies vary significantly due to context and addresses the conditions necessary for value capture, including: • Real estate market vitality; • Accommodative zoning, regulations, and land use entitlements; • Statutory authority enabling use of value capture mechanisms; • Articulation of compelling business cases of value capture to public and private partners and to the financial markets on which they depend; • Development of project- and context-specific financial strategies that are feasible and that incentivize and reinforce value creation; and • Institutional capacity on the part of transit agencies, local governments, developers, and other partners, working together to maximize value creation and value capture. The guide conveys the importance of articulating the business case of value capture to a broad array of transit, public, and private stakeholders. The cornerstone of successful value capture implementation is the clear identification of the broader economic opportunity associ- ated with (1) transit projects and (2) embracing a value capture strategy that optimizes benefits both for public and private partners. The guide stresses the importance of building relation- ships with stakeholders and partnerships to help implement value capture strategies. From the perspective of local government, the business case for value capture rests on its ability to fund or finance elements of a transit project, municipal infrastructure, or other public needs. TCRP Research Report 190 includes six case studies that provide practical examples of successful value capture from public transportation investments and illustrate the principles presented in the guide. By Dianne S. Schwager Staff Officer Transportation Research Board F O R E W O R D

1 Summary 8 Chapter 1 Introduction 9 1.1 Background and National Context 9 1.2 Partnerships That Optimize Value Creation 10 1.3 How This Guide Fits into Existing Literature 10 1.4 Methodology and Approach 12 1.5 Guide Organization 13 Chapter 2 Definitions of Value Capture Mechanisms 13 2.1 Value Capture 21 2.2 Value Capture Participants 22 2.3 Public Transportation Modes 22 2.4 Transit-Influenced Development and Value 24 Chapter 3 Local Economic Conditions and Market Considerations 24 3.1 Local Economic Conditions and Market Considerations 26 3.2 Density Considerations 26 3.3 Network and Station Characteristics 27 3.4 Timing 29 Chapter 4 Regulatory Considerations 29 4.1 Zoning, Land Development Regulations, and TOD Design Standards 30 4.2 Statutory Authority for Value Capture Mechanisms 30 4.3 Municipality Fiscal, Political, and Regulatory Characteristics 30 4.4 Compliance with Federal Regulations 31 4.5 Regulatory Influences on Transit Project Design and Execution 32 Chapter 5 Articulating the Business Case 32 5.1 Incorporating Risk 33 5.2 Business Case for Transit Agencies and Local Governments 33 5.3 Business Case for Developers 36 5.4 Value Capture and Land Speculation 38 Chapter 6 Creditworthiness, Finance, and Funding 38 6.1 Funding 38 6.2 Tax-Exempt Financing 40 6.3 Innovative Finance 42 6.4 FAST Act TOD Provisions for TIFIA, RRIF, and FTA TOD Pilot Planning Grant Program 43 6.5 Public–Private Partnership Financing C O N T E N T S

44 Chapter 7 Institutional Capacity and Partnership 45 7.1 Overcoming Development Complexity and Risk 46 7.2 Fostering an Ethos of Cooperation 46 7.3 Institutional Capacity 47 Appendix A Considerations Checklist 49 Appendix B Boston Landing at Allston/Brighton Station, Boston, MA 54 Appendix C Denver Union Station, Denver, CO 63 Appendix D Hong Kong Mass Transit Railway Corporation, Hong Kong 70 Appendix E Kansas City Streetcar, Kansas City, MO 80 Appendix F Portland Streetcar, Portland, OR 88 Appendix G Dulles Metrorail, Washington, D.C. 97 Appendix H Interviews 99 Acronyms and Abbreviations 101 References 106 Notes