Our final post in a week-long series on land value capture highlights examples of land value capture strategies implemented in the tri-state region.

New York, NY: Tax Increment Financing.  To fund a westward extension of its number 7 subway line, New York City set up a TIF district covering the Hudson Yards development site. The city established the Hudson Yards Infrastructure Corporation (HYIC) to issue bonds to fund the extension in advance of anticipated development. The financing plan requires new developments to make payments in lieu of taxes (PILOTs) or, alternatively, tax equivalency payments (TEPs) to the City, which in turn uses those revenues to settle HYIC’s interest and principal repayments.

In the short term, the City agreed to make up any shortfalls in PILOTs and TEPs that did not entirely cover interest payments on the bonds, a deal that raised justifiable criticism over the city’s financial risk in the endeavor. The City also provided discounts (some as high as 40 percent off) to developers by agreeing to lower PILOTs than would have been otherwise paid as taxes. Nonetheless, the City believes such incentives are required in order to spur development, and once construction of the subway line is complete and new properties begin making PILOTs and TEPs, the City’s financial responsibility on the project is expected to drop.

Without the TIF arrangement, it is unlikely this major transportation project could have occurred so quickly, due to competition for MTA capital funds and federal grants enjoyed by other regional megaprojects such as the Second Avenue Subway and East Side Access. The success of this TIF financing plan, and the city’s (relative) lack of financial risk in the project, hinge on an increase in future property taxes and/or PILOTs for the Hudson Yards location.

Manchester, CT: Special Assessment District.  The Downtown Manchester Special Services District is one successful example of a special assessment district (SAD) in the tri-state area. Established in 1991, downtown property owners pay an additional premium on their property taxes. Similar to how a business improvement district (BID) operates, the funds are used for the “promotion and marketing of the District, business recruitment, parking management and supplemental maintenance and beautification efforts.” Although the SAD has not specifically funded any permanent transit improvements, it does pay for temporary trolley service that serves Manchester’s downtown and connects to off-site parking areas during special events. This program not only limits auto congestion on Main Street during busy periods, but also provides visitors a unique travel experience that encourages them to walk and shop in a traditional “Old Main Street” setting – a benefit to the downtown business owners who fund the SAD.

New Jersey: Improvement Districts.  Existing legislation in New Jersey limits the establishment of SADs (referred to in New Jersey as Improvement Districts) to the inclusion of commercial properties only. This rule hinders the effectiveness of SADs in funding large-scale transit improvements in New Jersey, which may be more appropriate when residential properties can be included in the assessment. However, the law defers to local communities’ ideas about how to fund infrastructure and “broadly allows for local self-determination regarding the funding mechanisms, provided that those who are assessed receive direct benefits for those assessments.” Municipalities looking to pay for transportation projects that will provide direct benefits to a specific locale can draft their own enabling Improvement District legislation that includes nearby residential development. One area where this tool could be utilized is in Jersey City, and the building of a Hudson Bergen Light Rail station at 18th Street and Jersey Avenue.

The Future of LVC Financing

LVC strategies should not be viewed as the solution for transit funding, but rather as one tool in a toolkit. The funding decisions made by the region’s elected officials remain the most important source of transportation support to take the tri-state area’s transit systems into the 21st century. But in an era of spending cuts threatening federal transportation funding, and with the burden to fund transportation pushed onto states and cities, the importance of innovative funding strategies like LVC for future transit projects is likely to increase.