Friday, October 18, 2013

Can the US Get Value Capture Right?

Value capture is a promising financing mechanism where increases in property values associated with new transportation investment are used--or "captured"--to pay for the initial transport investments. (See here for links to reports that provide an overview of value capture mechanisms.)Value capture better ties together land development and transportation infrastructure and has been used successfully to build new transit systems, stations and lines around the world.  New York City, Kansas City, Chicago, Los Angeles, Dallas, Minneapolis and others have all pursued some type of value capture for transit and/or roads. Now the US DOT looks favorably at projects that use value capture when considering what to fund. Yet for all of it's promise the US experience offers mixed results, at best, and at worst is just another example of pernicious rent seeking and inadequate representation.

Here are three examples of value capture gone wrong that deserve further study:

Hudson Yards and the 7 Line Extension, NYC:
The city pushed forward with an extension of the 7 subway line to the west side of Manhattan. To expedite the process the city avoided federal funding and associated federal rules and regulations. Local funding was through a Tax Increment Finance (TIF) district managed by the Hudson Yards Investment Corp. Earlier this year the NYC IBO released a report that detailed how the TIF was not generating as much revenue as expected. This week it was reported that Related Companies will actually get a subsidy up to $328 million to build in the TIF district.  Subsidizing development is, of course, exactly the opposite of capturing increased property values.

Los Angeles Downtown Streetcar:
I wrote about this last month, but the residents of part of downtown voted to tax businesses based on their location to the streetcar. Having residents vote to raise specific taxes on targeted populations that can not vote (businesses in this case) raises questions of representative for me*, but even more problematic is that the streetcar project has changed for the worse as it is more expensive for less service. That's not what people voted for, and now, as with the NYC case above, the city will likely have to pick up the balance of the costs above and beyond any value capture mechanism.

Chicago's new Morgan/Lake CTA Station:
This station was paid for through a TIF and is credited, ex post, with reviving the neighborhood. Of course, the reason the station was planned there was that the neighborhood was already attracting lots of development. From CNT:
In 2002, the Chicago Department of Transportation (CDOT) investigated the feasibility of constructing a new infill station to boost train ridership and encourage economic growth along the Lake and South Side branches of the Green Line. Morgan Station, with its recent influx of residential and commercial development, was chosen as the optimal station location. The 2006 construction of the Pink Line, which will also be serviced by the new station, was also a consideration in the final decision.
It is great that investment follows demand. This a good way to build a great transit system. But it does call into question economic development claims, and a TIF in this situation may skim off property taxes that would otherwise have gone to the city's general fund. The TIF situation in Chicago is already nuts, though. Google is moving to the neighborhood, too, which is viewed as new development even though Google is already in Chicago in a nearby location. I will also note that even though Google considers transit access a plus, as mentioned here, they are moving from a neighborhood with about the same level transit access. What really improves with Google's new location is freeway access, as one of my students pointed out.

Ultimately, value capture is promising but also vulnerable to abuse (like all things). Before we start capturing value everywhere we need to design and enforce some safeguards to protect the public purpose. Value capture is not a panacea. For whatever reason, US cities and states are essentially incapable of writing decent and fair contracts. This is a generalization, but the US does privatization, contracting out and cost controls worse than most other countries with mature economies. I worry that value capture will end up added to this list of things the US can't get right.

*Also with regard to representation is that only 351 people voted in favor of the property tax to pay for the Kansas City streetcar. Direct democracy is no way to manage collective goods. We elect representatives for a reason--to represent. But this deserves much more space and time than I can supply here.

1 comment:

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