Value capture financing is an important and innovative funding mechanism for public transit improvement and expansion projects across the U.S. As public transit ridership continues to increase to historic levels not seen in more than 40 years, and with declining infrastructure money associated with dipping gas tax revenues, value capture financing for public transit projects remains as critical as ever.
Back in 2012, the Metropolitan Planning Council (MPC) ran a series on value capture financing for transportation projects. The series not only outlined the reason why value capture is an important tool for municipalities, but also highlighted several value capture initiatives around the country. Armed with more data and information about these projects, we can continue to learn important lessons for the Chicago region.
Silver Line Extension—Washington, D.C.
Elvert Barnes (flickr)
On July 26, 2014, Phase 1 of the Silver Line opened to the public. The new five-station, almost 12-mile extension is only the first part of a larger 11-station, 22-mile expansion of the Metro system that will connect Dulles International Airport to downtown Washington, D.C. So far the early returns on ridership for the new line are good. After only the first two months, ridership on the line was meeting and exceeding projections.
MPC’s first post about the Silver Line, outlined the financing structure for the project. The funds for both phases of construction will come from a combination of federal, state, county and toll-road revenues. The two counties involved in the project, Fairfax and Loudoun, are using special assessment districts to raise their share of the funding.
Fairfax County created two such special assessment districts, one for each phase of the project, that tax only commercial and industrial property surrounding the Silver Line project. In the Phase I special assessment the properties are levied a 22 cent tax per $100 of assessed value. The Phase I special assessment has collected taxes since 2005, and as of the end of 2013 the assessment has collected nearly $200 million of the $400 million that the assessment is designated to raise.
The Phase II assessment area started off in 2011 by levying a 5-cent tax per $100 of assessed value, and, per the initial agreement, has incrementally risen to 20 cents per $100. This assessment has collected a little over $21 million of its designated $330 , but with the rate now at 20 cents it is likely to fulfill its obligation at a much faster pace. Both of these special assessments are capped—$400 million for Phase I and $330 million for Phase II—and they will continue to accrue tax revenue until the cap is reached.
Realizing the community and economic value of extending the Silver Line to that will tax commercial and industrial properties as well to the tune of 20 cents per $100 of assessed value.
Both of these counties seem poised to successfully fulfill their funding obligations in a timely manner for the construction of this $5.6 billion transit project.
The Beltline—Atlanta, Ga.
Ted Thompson (flickr)
The ambitious Atlanta Beltline transit-oriented development project is already showing promise, although not without some controversy. The 22-mile rails to trails loop around the urban core of Atlanta will include light-rail transit, pedestrian and bike trails, parks and affordable housing when it is completed in 2030.
The plan, which was conceived by a Master’s student at Georgia Tech, Ryan Gravel, was originally estimated to cost around $2.8 billion. Funding for the project is coming from philanthropic organizations as well as a mix of federal, state and local dollars. Sixty percent of the funding was to come from a tax allocation district (similar to a tax increment finance district) that is managed by Atlanta Beltline Inc., a public-private partnership with the City of Atlanta.
The project is now estimated at $4.3 billion, and with lower than expected revenues the district is slated to provide only $1.5 billion or 33 percent of the funding. In its 2013 Strategic Plan, Atlanta Beltline Inc. cites the impact of the recession as the biggest contributing factor in the decline in revenues.
The project has also experienced two other challenges. First, a lawsuit was filed against the Beltline project that questioned the legality of using school taxes to pay for the project. This forced a referendum on the tax allocation district that wasn’t passed until 2008, several years after the original 2005 approval. Therefore, the Beltline didn’t collect any tax revenue until after the referendum passed, which was during the height of the recession.
The second issue facing the district has the yet to be resolved. In a standard tax increment financing district, the property tax base is frozen at the initiation of the district. Entities like the public schools receive property tax revenues based on the frozen base for the lifespan of the district. These entities do not receive the additional tax revenue from the improvement in property values due to the success of the project and new development in the area until after the district expires. However, under the Beltline tax allocation district, the Atlanta Public Schools receives a flat dollar amount annually above the frozen base. This would entitle them to some of the expected increase in property values and tax revenues from the development.
However, the public schools system receives a fixed dollar amount annually, regardless of how much revenue is actually in the tax allocation district. Due to the recession, the district hasn’t performed as anticipated. In 2014, the Beltline district owed Atlanta Public Schools $6.75 million—almost a third of its annual budget. Atlanta Public Schools has threatened legal action in order to recoup what it is owed.
The good news is a lot of work on the Beltline is already completed and many more projects are underway. Through 2014, the Beltline added more than six miles of trails, 200 acres of park and greenspace, and completed six parks. Over 13,300 housing units have been built in the planning area, with almost 1,000 of them affordable housing units, nearly one-fifth of the goal amount.
New development and redevelopment is cropping up all along the completed sections of the Beltline. Invest Atlanta states that since the Beltline’s inception in 2005 the project has delivered a return on investment of six to one, totaling $2.4 billion in private redevelopment.
As the construction and the project continues, residents and developers alike are taking advantage of the new amenities the Beltline has to offer.
Historic Union Station—Denver, Colo.
The desire to improve transit in the Denver area and to revitalize Union Station has been in the works for close to 20 years. An initial feasibility study was done back in 1995, and after years of planning and securing funding, construction on the actual station itself finally began on Sept. 7, 2010.
Steve Boland (cc)
The new and improved Union Station is planned to be not only the city’s main transit hub, but also a focal point for the redevelopment of a pedestrian-oriented mixed-use neighborhood. The total cost of the redevelopment is projected to be $500 million, of which $300 million will come from an approved tax increment financing district.
That district is located on 20.5 acres of land adjacent to Union Station, and revenue from the district will go to pay off the debt service on more than $300 million in federal Transportation Infrastructure Finance and Innovation Act and Railroad Rehabilitation & Improvement Financing loans. So far, everything about the project is ahead of schedule. With more than two million square feet of new mixed-use development either under construction or designed, the redevelopment is soaring past forecasts that called for 900,000 square feet by 2019, and the area is one of Denver’s hottest new neighborhoods.
The financials side of the equation, as one might expect from the success of the redevelopment thus far, is predictably ahead of schedule as well. Initial estimates put tax revenue around $400,000 a year for the first several years, and in 2013 alone the project garnered more than $1 million in tax increment financing .
Milwaukee Streetcar—Milwaukee, Wis.
It has been more than 60 years since the city of Milwaukee has seen a streetcar grace its streets, but with the recent approval of the city’s Common Council this December that is about to change. The proposed 4.6-mile initial route will connect the downtown, the lakefront and the regional train and bus station. While there are no concrete plans on adding future lines, the starter route is intended to be the first step in creating fixed transit for the city.
Mayor Tom Barrett, who is leading the push for the streetcar, views the investment as necessary to create a 21st century transit system for Milwaukee. The project is estimated to cost a total of $123.9 million. The city has $54.9 million in existing federal funds, and has an additional $10 million in U.S. Dept. of Transportation competitive TIGER funds set aside for the project. The remaining $59 million will come from three tax increment districts, one that currently exists and two more that have been recently approved. The two new districts will have a lifespan of 19 years.
Since 2004, the city of Milwaukee has seen over $2.6 billion in development in and around its downtown area, and with an additional $2 billion either under construction or in the planning stage, the city hopes that adding a streetcar route will continue to spur additional development in its downtown.
It’s clear that when cities use innovative financing mechanisms like value capture, it pays off. They gain a valuable transit asset that pay for itself because of the community and economic benefits transit brings to a neighborhood.
A bill currently in the Illinois General Assembly, SB277, will allow the City of Chicago to create a transit facility improvement area to use value capture to help fund the Union Station Master Plan, as well as the Chicago Transit Authority's Red and Purple Modernization and Red Line South extension. It would direct a percentage of the increase in property tax revenues surrounding the stations to fund the projects, while continuing to allocate in full all revenues that would go toward Chicago Public Schools.
Read MPC’s series, Value Capture Case Studies, which highlights ways in which cities and regions across the country are using value capture mechanisms to fund transportation plans. These case studies present novel learnings for the Chicago region as it grapples with how to pay for necessary transportation improvements. This series is intended to spur creative thinking and fresh ideas to turn Chicago’s transportation plans into reality.