In a week-long series, TSTC will explore different aspects of a transit funding strategy known as land value capture. This series came about in light of New York City’s Midtown East rezoning proposal, which emphasizes the relationship between development and infrastructure improvements. This week, TSTC will highlight land value capture as a tool to generate revenue from development activity to fund transit—one of many in a toolbox of transit funding strategies. 

As the controversial proposal to rezone Midtown East continues to make its way through New York City’s review process, one of the most problematic aspects of the proposal—its development-first approach that allows developers to build higher before any transit improvements are made in the area—was recently flagged by Manhattan Borough President Scott Stringer and the Bloomberg administration. Earlier this month, Stringer granted his approval for the project, on the condition that transit improvement plans are implemented first. This approval came just days after promises from the Bloomberg administration to front money for infrastructure improvements related to the rezoning.

TSTC agrees that transit investments must come first, and we look forward to more detail from the Mayor’s office.

While this is a start, is it enough? As city agencies experience declines in revenue, innovative strategies, like land value capture, are beginning to be employed to supplement traditional funding sources.

What is Land Value Capture?

Land value capture (LVC) is a method of funding infrastructure improvements that is successful upon recovering all or some of the increase in property value generated by public infrastructure investment. LVC can help mitigate the challenges cities face in obtaining public funding, while also providing benefits to private sector partners.

Benefits from public infrastructure investment like transit, for example, can increase adjacent land values. Studies have shown that buyers are willing to pay a premium for property (both commercial and residential) in high-density, mixed-use, walkable and transit-accessible areas. When businesses locate close to transit, the potential pool of employees and customers grows, and overhead costs, like the provision of expensive parking go down.

A Center for Transit Oriented Development study shows that proximity to high-capacity transit stops yield particularly high land value premiums, ranging from one percent to over 150 percent. Arlington, Virginia’s Rosslyn-Ballston Corridor, just outside of Washington, D.C. saw land values increase by 81 percent between 1992 and 2002.

Capturing a portion of those land value increases can lead to new ways of funding public transit infrastructure, operations and maintenance.

What are some Land Value Capture Strategies?

• Transit Development Impact Fees (TDIF)

A one-time charge on new development designed to cover costs associated with its impact on public transit systems. This reflects a shift in policy where local governments increasingly look to developers to contribute to the impacts of development.

• Tax Increment Financing (TIF)

A funding strategy used by cities to promote economic development within a designated area that is deemed “blighted” or “underdeveloped”. Widely used in Chicago, TIF is used to divert anticipated property tax increases to a dedicated fund, which is then reinvested into public infrastructure within the TIF district.

•  Special Assessment Districts (SAD)

In districts in which land value has increased as a result of public infrastructure improvements, like upgraded transit systems, an additional tax is assessed on parcels to recover the costs of the public improvement project. SADs are most useful to fund localized improvements, such as new transit stations on existing lines or district-specific improvements like bus or light rail.

Join us tomorrow as we discuss a number of preconditions that must be in place for successful use of value capture: land taxes that encourage development, policies that promote dense, mixed use, walkable neighborhoods, and market demand.