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

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

8 What Is the Guidebook’s Purpose? Landowners often receive a direct and unique benefit from well-performing transportation infrastructure. By returning a portion of that benefit to the public (land value return) and using it to fund transportation (recycling), land value return and recycling methods can be both trans- parent and equitable. With transportation investment needs significantly outweighing available resources, exploring land value return—a largely overlooked revenue source—could benefit the public agencies that build, maintain, and operate the transportation system. How transportation facilities and services are funded is just as important as how much funding is provided. Taxes and fees create behavioral incentives that affect how transportation resources are used and how nearby land is developed. Different sets of fees might raise the exact same revenue but have very different impacts on development, mode choice, traffic congestion, pol- lution, and energy consumption. Not only are land value return techniques overlooked sources of revenue, but, properly structured and implemented, they can help make transportation facili- ties and services more efficient by encouraging more compact development patterns that reduce congestion, the environmental impacts of development, and the need for the expensive dupli- cation of roads and other infrastructure, thereby saving states and communities considerable resources related to infrastructure construction, maintenance, and replacement. Finally, support for infrastructure funding depends on the public’s belief that funding is fair. Tolls are generally perceived as fair because those who use a facility pay the toll. Those who do not use it do not pay. Landowners near a highway interchange or transit facility might never drive on that highway or use the transit service, but the value of their land is typically enhanced by proximity to these public facilities. Through land value return, landowners pay for infra- structure in proportion to the land value benefit that they receive. Achieving the right balance between user fees (e.g., parking fees, tolls) and land value return can help create a transparent funding system that can be perceived as fair and equitable. The purpose of Guidebook to Funding Transportation Through Land Value Return and Re- cycling (the Guidebook) is to engage and motivate public policy makers to understand, con- sider, and, where appropriate, implement land value return methods for funding transportation investments. The Guidebook also aims to assist public policy makers in adapting land value return methods to their unique circumstances. Is Land Value Return and Recycling the Same as Value Capture? Well-performing transportation systems and services that improve access and result in time and cost savings for customers, suppliers, employers, and residents may benefit landowners C H A P T E R 1 Guidebook Purpose and Overview

Guidebook Purpose and Overview 9 through increased land value and other economic impacts. If residents and businesses are willing to pay more to locate near well-performing transportation facilities, land values increase. The public investment in these facilities, therefore, benefits the landowners, and conventional prop- erty taxes only recover a small fraction of the benefits created by the government’s investment. The Guidebook defines land value return and recycling as the public recovery of a portion of the increased land value that is created by public investment that results in performance gains in the transportation system or other infrastructure. By including the word “recycling,” the terminology denotes that the public sector reinvests the portion of land value returned into infrastructure such as transportation. In many instances, government investment in transpor- tation facilities and services generates increases in the value of privately owned land. If such investments create direct and unique benefits to specific parcels of land, it is unfair and unjust to collect funds from all taxpayers to pay the cost of the transportation investment. Instead, land value return methods impose charges on those who benefit directly and uniquely. Land value return and recycling methods are fundamentally a means to generating funding to pay for infrastructure investments, but these methods also can be used to incentivize or dis- incentivize development, encourage reinvestment in land, and achieve other land use–related policy goals such as increased development density. This Guidebook’s focus is on increased land value related to well-performing transportation infrastructure and the ability to generate revenue from land value return to pay for transportation investments. Some may be familiar with the term “value capture.” Value capture is often defined to encom- pass a broad range of funding methods related to real estate, regardless of whether these methods involve public recovery of publicly created land value. The Guidebook seeks to clarify the defini- tion by defining land value return methods as only those that recover a portion of increased land values attributed to a well-performing transportation system. The ability of transportation to increase land values was demonstrated as early as the 1890s by the construction of the Connecticut Avenue Streetcar by the Chevy Chase Land Company (Box 1-1). Further, the concept of public recovery of a portion of increased land values also is not new. Public recovery of increased land values attributed to public investment was advocated as early as the 1800s by Henry George, a land reformer and economist who proposed a single tax upon land values (but not improvements) as the sole source of government revenue. The Guidebook does not suggest that land value return and recycling methods could replace existing taxes; rather, it presents several methods for generating funding from increased land values related to transportation investments that could supplement existing transportation fund- ing sources. Recognizing that interest in land value return methods is driven by the ability of these methods to generate funding, the Guidebook also includes other real estate–based funding methods, such as those commonly discussed under value capture. For clarity of definition, these methods are referred to as “land value return–like.” The concept of land value return is described fully in Chapter 2. Who Is the Guidebook’s Intended Audience? The Guidebook is geared toward public policy makers in state and local government, includ- ing governors; state legislators; officials in state transportation agencies and state economic development agencies; and officials within local governments and agencies. Federal and state funds are the primary funding sources for most major transportation investments. Many of the benefits of these investments, however, accrue to property taxed and regulated by local jurisdic- tions, and the capitalization of these benefits into land value is dependent on local regulations relating to permissible property use, density, and zoning. States have the authority to implement

10 Guidebook to Funding Transportation Through Land Value Return and Recycling many land value return methods independently. However, in most instances, the use of land value return to fund state projects necessitates state and local government partnering. Private-sector entities involved in land development, such as developers, realtors, and apprais- ers, also will take interest in the Guidebook, as will other stakeholders involved in transportation or land use planning. The body of the Guidebook is written to clearly and simply communicate complex concepts to a broad audience. The appendices provide readers interested in further details and analysis with additional resources. How Is the Guidebook Organized? The remainder of the Guidebook is organized into four chapters and eight appendices. The contents and topics covered by each chapter are summarized below. Throughout the Guide- book, case examples are provided to illustrate specific concepts. • Chapter 2. Understanding Land Value Return and Recycling. Chapter 2 describes the concept of land value return in detail along with the benefits and drawbacks of land value return. Addi- tional detail on the economic concepts behind land value return can be found in Appendix E, “Economic Theory of Land Value Return and Recycling.” Chapter 2 covers the following topics: – Why Don’t We Pay for Infrastructure in the Same Way We Pay for Other Goods and Ser- vices? This section explains why public infrastructure is funded differently from privately provided goods and services. – What Is the Beneficiary Pays Principle? Because land value return methods are motivated by the beneficiary pays principle, this section explains the principle’s tenet: those who benefit from the transportation system should bear responsibility for its costs. Box 1-1. Connecticut Avenue Streetcar In the 1890s, the Chevy Chase Land Company (CCLC) acquired about 1,700 acres of land along both sides of the northwest boundary between Washington, D.C., and Maryland. Most of the land was farmland or forest. The land was inexpen- sive, as it was difficult to get to downtown Washington, D.C., from this location. CCLC then acquired a controlling share in the Rock Creek Railway Company and constructed a streetcar line along Connecticut Avenue from downtown Washing- ton, D.C., to the land just purchased by CCLC. The streetcar charged a few pen- nies to ride, which probably covered the cost of the conductor but did not cover the capital construction expenditures. CCLC recouped its costs of constructing the streetcar through the sale and lease of the land it had purchased. The land increased in value because the Connecti- cut Avenue Streetcar provided cheap and convenient access to downtown. It is important to note that if CCLC had tried to recoup its construction costs through fares, the streetcar would have been unaffordable for riders and the streetcar and land development would have failed. By keeping user fees low, CCLC was able to capitalize the value of the streetcar service into the value of its land, which was then sold at much higher prices to homeowners and businesses. Source: www.chevychasehistory.org.

Guidebook Purpose and Overview 11 – What Is the Cost Principle? This section explains that under the cost principle, those who impose costs on the transportation system should compensate the public for those costs and that if users are not responsible for paying their fair share, overuse and inefficiencies in the system result. – What Is Land Value Return and Recycling? This section expands on the brief definition of land value return given in Chapter 1 and provides a complete explanation with graphic illustrations to aid the reader. It also examines how land value return and recycling differs from land value return–like methods. – What Are the Benefits and Drawbacks of Land Value Return and Recycling? While land value return methods can generate revenues for transportation investment and create desired land use incentives (or disincentives) sought by a public agency, they are not suit- able for every circumstance. This section discusses both potential benefits and drawbacks of land value return as a funding method. • Chapter 3. How Land Value Return Works. Chapter 3 describes individual land value return and recycling and land value return–like methods. For each method, the chapter provides a description, a discussion of considerations for implementation, and at least one case example. The methods covered include the following: – Land value return and recycling methods: � Land value tax or split rate tax, � Betterment levy, � Special assessment district fee, � Sale of public land or air rights, � Lease of public land or air rights, and � Joint development fee or interface fee. – Land value return–like methods: � Transportation utility fee, � Tax increment financing, � Development impact fee, and � Exaction or proffer. • Chapter 4. Funding Transportation with Land Value Return. Chapter 4 addresses the revenue-generating ability of land value return and the legal requirements to enable imple- mentation by state, federal, and local agencies. Chapter 4 covers the following topics: – What Is the Revenue-Generating Ability of Land Value Return? The discussion of revenue-generating ability provides guidance on how first to identify the transportation performance benefits created by investments and then to determine whether the benefits are capitalized into land value that can be monetized and shared. The topics covered by this section include the following: � Identifying and defining the benefits of transportation investments, � Determining whether transportation investment benefits can be shared through public– public partnering (e.g., intergovernmental agreements) or public–private partnering, � Estimating revenue potential considering the benefits created by the transportation facil- ity and the form and level of the land value return fee, and � Determining the ability to leverage land value return revenue with debt instruments. – What Are the Legal Requirements for Land Value Return? The discussion of legal require- ments outlines the legal and regulatory context for land value return. The topics covered in this section include the following: � Key legal issues associated with implementing new taxes and fees and � Legal considerations specific to each land value return method and reference to legal aids, such as examples of legislation provided in Appendix D, “Legislative Aids.” • Chapter 5. Making Land Value Return Successful. Chapter 5 walks readers through imple- mentation considerations critical for success. Chapter 5 seeks to identify specific roles of state

12 Guidebook to Funding Transportation Through Land Value Return and Recycling and local agencies in contributing to the conditions necessary for the success of such methods. The topics covered in Chapter 5 include the following: – How to Generate Stakeholder Support. This section provides information to enable devel- opment of a communication strategy to build support from the full range of stakeholders, including community groups and elected officials across jurisdictions. – How to Meet Administrative and Institutional Requirements. This section outlines administrative and institutional requirements of implementing land value return, includ- ing which capacities likely already exist within governmental entities and which will need to be developed within agencies or acquired through outside advisors. – How to Integrate Land Value Return into Transportation and Land Use Planning. As land use and transportation planning are closely linked, this section outlines practices that can help to bring together these processes and further reap the benefits of the land use goals through land value return methods. • Appendix A. Acronyms and Glossary. Appendix A defines acronyms and key terms used in the Guidebook. • Appendix B. Summary of Case Examples. For readers seeking more in-depth information, Appendix B provides an index of the case examples used throughout the Guidebook and a summary of key details for each case, including mode and project type, name of the proj- ect, location, key land value return aspects, lead agency and department, and bibliographical information. In the electronic version of the Guidebook, hyperlinks are provided between the case summaries in Appendix B and the case examples presented in Chapters 3 through 5. • Appendix C. Common Questions and Answers. Appendix C is a quick resource for readers with specific questions related to land value return concepts and implementation. • Appendix D. Legislative Aids. Appendix D provides select examples of existing legislation related to land value return, an example of a letter that can be modified to a state’s particular circumstances and then sent to the State Attorney General to inquire about the authority to implement certain land value return methods, and model legislation of the type that poten- tially could be used to revise property tax law to enable the implementation of land value return. • Appendix E. Economic Theory of Land Value Return and Recycling. Appendix E is a discus- sion of the economic theory behind the concept of land value return. • Appendix F. Useful Resources and Prior Studies. Appendix F is a bibliography of prior studies and other resources related to land value return (known in other literature as “value capture”) that could benefit readers seeking additional information. • Appendix G. NCHRP Project 19-13 Report. Appendix G is the project report for NCHRP 19-13, the study that served as the basis for the Guidebook. Appendix G is not printed herein but can be downloaded from the TRB website (trb.org) by searching for “NCHRP Research Report 873.” • Appendix H. Implementation of Research Findings. Appendix H presents steps an agency may take to facilitate both dissemination and application of land value return and recycling.