Value Capture Finance: Seeing is Believing

One of the trends I've observed here over the last year, is that multiple factors are prompting more consideration of value capture finance – the mechanics of "capturing" development values and benefits to pay for elements of the development itself.  Among the drivers are:
  • Diminishing public willingness to support funding for services traditionally considered to be core public functions; 
  • Increasing gathering of data and readiness of access to this data; and
  • Improving ability to use this data to measure property value, patterns of how people use places, and the economic health of small or large areas (just to cite a few examples) using geographic information systems (GIS).
Value capture finance, in summary, is a method of using future financial or economic benefits precipitated by a development, to repay part or all of the debt incurred to create the development in the first place.  A typical example is tax increment finance (TIF), authorized in forty-eight U.S. states, which allows increased tax revenues (property and/or sales) generated by redevelopment to be channeled to the project’s debt service or other uses.  A less typical example, not currently contemplated in Minnesota law, is the financing of public fixed-rail infrastructure through commercial districts, using neighboring properties’ increased tax revenues caused by enhanced access to LRT or streetcar service. 

I’ve just completed some analysis for the Midtown Community Works partnership pursuing this line of inquiry:  If state law could be amended to allow for a "transit TIF" district, for example, what kind of value could be captured in future years?  How much capital could be raised by borrowing against these future tax receipts?  What planning and equity issues demand consideration in exploring such an approach?  

This concept may strike some readers as marginal to the planning and public finance worlds.  I don’t agree.  The three forces described above are at the root of analysis commissioned by the Minnesota Legislature earlier this year, and continuing economic impact analysis of the state’s first LRT line, the Hiawatha.  Identifying what value is created by transit infrastructure is a critical step in leveraging this value for investment in a regional system, and made more feasible by improvements in GIS technology. 

And regardless of whether the infrastructure is constructed by a private, public or public/private entity, the end outcome – investment in places that work for people – represents an increasingly important competitive advantage for regions in the U.S. and abroad.