Political economists will tell you that a viable tax is one that burdens many people very little (e.g., sales tax) while benefiting a narrow constituency (e.g., construction firms or defense contractors). The taxed don't put up a fight and the beneficiaries make sure the tax passes. The Economist recently published an opinion piece that suggests the popular-amongst-economists land value tax (particularly because of its value capture potential and non-distorting attributes) is infrequently used in practice because it burdens a minority (in this case, land owners) and its benefits are widely felt (that could be argued but their description makes it work). We'll be looking out for a response from the Lincoln Land Institute!
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Stephen Miller at StreetsBlogNY has published a blog post about transit value capture. He compares the seldom used NYC transit density bonus granted to developers willing to invest in subway improvements to the transit impact fee assessed in the City of San Francisco. When pointing out the differences between the two programs, the author did not recognize that the lack of overlap in the mechanisms' justifications suggests that both NYC and SF could adopt both value capture mechanisms simultaneously.
The big distinction that Stephen points out is the different geographic scopes of the value capture mechanisms. The density bonus applies only to properties adjacent to NYC subway stations. In contrast, the SF transit impact fee is assessed on development occurring citywide. What isn't highlighted in the post are the distinct justifications for the two forms of value capture. In NYC, policymakers saw an opportunity to grant valuable building rights to developers in exchange for costly subway improvements. In addition, one might also assume that policymakers perceived that locations proximate to transit were viable and potentially desirable locations for additional density. The transit density bonus is a voluntary transaction that we can assume only occurs when developers see more value in the additional density than the cost of making the improvements (including transaction costs of the public-private interaction). On the other hand, the SF impact fee is justified based on addressing the externalities of new development. Policymakers justify the fee on evidence that real estate developments in SF generate additional transit demand which adds to the cost of providing transit (because new riders do not cover their full costs). For the mandatory fee to hold up legally, the fees be proportional to the impacts. Thus, it is likely that a similar NYC fee would need to account for the predicted ridership impacts that a project would have on the system--impacts proportional to the size of the development, land uses in the project, proximity to transit services, etc.. Because of the distinctiveness of the two programs' underlying justifications, it may be possible that the two value capture mechanisms could be implemented simultaneously. Now that's something the author might be very excited about! O Canada! Vancouver's business Journal has a story on the role the developers have played in funding transit, including direct contributions and sales levies/fees. I'm surprised at how often transit value capture arises in the Canadian context (Toronto blog post example) relative to the U.S., their close neighbors to the south. In one instance, a Vancouver business leader offered an opinion about the need for infrastructure investment in that region and points to value capture as a means to do so. In Metro Vancouver, governments may be able to capture a portion of the increase in land value that results when new transit projects lead to rezoning and significantly higher real estate values. These funds could be used to help finance other capital projects. In this instance, I find it interesting that it was suggested that the value captured from transit investments be spent on other capital projects. That is certainly the prerogative of those crafting value capture policies. However, one of the attractions of value capture is the potential symmetry of the process, it's very strong conformance with the "beneficiary pays" principle of taxation.
I had a great conversation with a former colleague, Amanda Rhein, who has taken over the TOD efforts at the Metropolitan Atlanta Rapid Transit Authority. She and I were touring Manhattan at the ULI Fall Meeting and discussing our experiences with pre-recession downtown Atlanta development in comparison to today's frothy market (scary). I also learned that Amanda is applying many of the skills she gained at Atlanta's redevelopment authority to the region's rail stations.
She hit the ground running early this year and has gotten some great press on MARTA's TOD work. For example, a CityLab article on the efforts to carry out value capture on agency-owned properties was picked up by several outlets (e.g., TRA picking up the piece from NationSwell). While praise is deserved for any agency able to garner national attention for its TOD program, there is some misinformation in these and other articles out there. For example, the Saporta Report said, "For the first time, MARTA plans to find out how much desire developers have to build high-rise mixed-use projects over the transit authority’s urban train stations." This "bold" new endeavor by MARTA is actually old hat for the agency. In fact, MARTA was planned at a time when value capture was thought to be a promising funding gap filler and many of its stations were designed with TOD and joint development in mind. For example, the photo of the North Avenue station in the CityLab article has a caption that points to opportunities for air rights development over stations. It is appropriate because that station was originally constructed under the Bell South headquarters building, the largest in Atlanta (by sq ft) at the time (in the photo, you can see the base of that white building to the north of the station access portal). Likewise, the Sloppy Floyd government complex was built over a station, Peachtree Center station is below numerous downtown high rises, and both stations in the Buckhead area are topped by buildings constructed using air rights contracts. MARTA's former real estate teams have spent decades of their careers trying to develop MARTA's parking lots and agency-owned properties. It was a longstanding effort of the agency that went dormant after the onset of the great recession. It's great to give the reemergence of the program attention, but let's not discount the long value capture legacy at MARTA. To do that would lead us to believe that this new round of value capture efforts will be a resounding and immediate success when most value capture programs--including those at MARTA--have been characterized by consistent, long-term effort and occasional victories. |
AuthorIan Carlton is a transportation and land use expert specializing in transit-oriented development (TOD). He helps clients - including transit agencies, planning departments, and landowners - optimize real estate development around transit. Archives
March 2019
CategoriesSpecial thanks to Burt Gregory at Mithun for permission to use the Portland Streetcar image above.
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