Guidebook to Funding Transportation Through Land Value Return and Recycling (2018)

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2018 N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP RESEARCH REPORT 873 Guidebook to Funding Transportation Through Land Value Return and Recycling Sharada Vadali Johanna Zmud Todd Carlson Texas a&M TransporTaTion insTiTuTe College Station, TX Karin DeMoors HigH sTreeT ConsulTing Chevy Chase, MD Rick Rybeck JusT eConoMiCs Washington, DC Steven Fitzroy Naomi Stein eConoMiC DevelopMenT researCH group Boston, MA Mark Sieber ernsT Basler + parTner Boston, MA Subscriber Categories Administration and Management • Finance • Policy Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration

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• Tom Murphy, former mayor, Pittsburgh, Pennsylvania, • Audrey Moruza, Virginia Department of Transportation, • Elizabeth Schuh, Chicago Metropolitan Planning Agency, • Barbara Fraser, Oregon Department of Transportation, and • Paul Jasin, Specialized Public Finance, Dallas, Texas. Thanks also go to the numerous individuals and panel members who provided feedback on the various versions of the guidebook and at different stages of the project. 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 CRP STAFF FOR NCHRP RESEARCH REPORT 873 Christopher J. Hedges, Director, Cooperative Research Programs Lori L. Sundstrom, Deputy Director, Cooperative Research Programs Andrew C. Lemer, Senior Program Officer Sheila A. Moore, Program Associate Eileen P. Delaney, Director of Publications Natalie Barnes, Associate Director of Publications Janet M. McNaughton, Senior Editor NCHRP PROJECT 19-13 PANEL Field of Administration—Area of Finance John W. Fuller, University of Iowa, Iowa City, IA (Chair) Ben T. Orsbon, South Dakota DOT, Pierre, SD Barbara K. Fraser, Oregon DOT, Salem, OR Myron G. Frierson, Michigan DOT, Lansing, MI Daniel G. Haake, SRF Consulting Group, Inc., Minneapolis, MN C. Russell Hulin, Oklahoma DOT, Oklahoma City, OK Karen J. Rae, New York State Empire Development Corporation, Galway, NY Stefan M. Natzke, FHWA Liaison Monica Starnes, TRB Liaison AUTHOR ACKNOWLEDGMENTS The authors would like to thank Sruthi Ashraf for her help and contributions during the initial phases of this research. Thanks go out to the following individuals for their participation in the discussions to inform the case studies and methods:

Investments in transportation infrastructure that improve access to land and resources often lead to increased property values. NCHRP Research Report 873: Guidebook to Funding Transportation Through Land Value Return and Recycling presents guidance for state depart- ments of transportation (DOTs) and other agencies seeking to mobilize some portion of that property-value increase to fund maintenance and operations as well as investment in the infrastructure. Because local government typically has authority to deal with matters related to land use and land-related revenue-generating mechanisms, DOT access to land value return and recycling—a subset of real estate–based value capture methods—may require enabling legislation or partnering with local agencies. The Guidebook includes examples of applications of land value return and recycling as well as model legislation and institutional structures to facilitate the strategy. Investments in new or enhanced facilities such as highway interchanges and transit sta- tions improve access and generate commercial activity, reduce transportation costs, or otherwise enhance the locational advantages of a geographic area; these advantages are often observable as increased land values. Land value return and recycling—a subset of real estate value capture mechanisms—is a method for generating revenue to pay for improve- ments in the transportation system by collecting fees or taxes on that increased value. Reve- nues generated by supplementary property taxes, other land-based fees or taxes, developers’ payments, or other mechanisms can provide funding for operation and maintenance of transportation infrastructure as well as investment. Land value return and recycling has been employed by local and regional transportation agencies in the United States and elsewhere—for example for development of rail transit stations or highway interchanges serving large commercial and employment centers—but DOTs have rarely used the practice. Not only does a state agency face the institutional chal- lenges of working with multiple local authorities to implement such practices, but many states lack legislation to enable the DOT to use land value return and recycling. The objective of NCHRP Project 19-13, Guidance for Use of Land Value Return and Recycling to Fund Transportation, was to produce a guide for DOTs, state policy makers, metropolitan planning organizations, development agencies, local government agencies, and others seeking to use land value return and recycling for funding transportation sys- tem improvements, including replacements and renewals as well as development of new facilities. The research was undertaken to present an analytical framework for assessing how land value return and recycling may be useful as a funding mechanism in settings typically encountered by DOTs, considering such factors as likely value enhancement, legislative and regulatory limitations and incentives, inter-governmental relationships, and stakeholder F O R E W O R D By Andrew C. Lemer Staff Officer Transportation Research Board

perspectives on the issues of the distribution of public and private benefits of transportation services. The analytical framework is supplemented by discussions of exemplary mecha- nisms for implementing land value return and recycling and illustrative cases and examples of land value return and recycling usage. The research team was led by the Texas A&M Transportation Institute and included High Street Consulting, Just Economics, Economic Development Research Group, and Ernst Basler + Partner. The research team reviewed the literature, interviewed practitioners, and drew on their own experience to characterize current and leading practices of land value return and recycling and develop guidance for DOT practitioners. The product of this research, NCHRP Research Report 873: Guidebook to Funding Transportation Through Land Value Return and Recycling, is intended to help DOT staff and other stakeholders to under- stand the principles and practices of land value return and recycling and how they may be useful in particular instances for generating revenue to fund the transportation system.

1 Summary 8 Chapter 1 Guidebook Purpose and Overview 8 What Is the Guidebook’s Purpose? 8 Is Land Value Return and Recycling the Same as Value Capture? 9 Who Is the Guidebook’s Intended Audience? 10 How Is the Guidebook Organized? 13 Chapter 2 Understanding Land Value Return and Recycling 13 Why Don’t We Pay for Infrastructure in the Same Way We Pay for Other Goods and Services? 13 What Is the Beneficiary Pays Principle? 14 What Is the Cost Principle? 15 What Is Land Value Return and Recycling? 16 What Are the Benefits and Drawbacks of Land Value Return and Recycling? 20 Chapter 3 How Land Value Return Works 21 Land Value Return and Recycling Methods 32 Land Value Return–Like Methods 41 Chapter 4 Funding Transportation with Land Value Return 41 What Is the Revenue-Generating Ability of Land Value Return Methods? 58 What Are the Legal Requirements for Land Value Return? 67 Chapter 5 Making Land Value Return Successful 67 How to Generate Stakeholder Support 70 How to Meet the Administrative and Institutional Requirements 71 How to Integrate Land Value Return into Transportation and Land Use Planning A-1 Appendix A Acronyms and Glossary B-1 Appendix B Summary of Case Examples C-1 Appendix C Common Questions and Answers D-1 Appendix D Legislative Aids E-1 Appendix E Economic Theory of Land Value Return and Recycling F-1 Appendix F Useful Resources and Prior Studies G-1 Appendix G NCHRP Project 19-13 Report H-1 Appendix H Implementation of Research Findings C O N T E N T S Note: Photographs, figures, and tables in this report may have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at www.trb.org) retains the color versions.