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Value Capture & Innovative Finance
- 1. Value Capture & Innovative Finance NADO Conference July 28, 2020
- 2. Value Capture Implementation TeamValue Capture Implementation Team Introduction to Value Capture • Innovative Finance overview • Value Capture overview • Value Capture mechanisms & examples • Steps to a successful implementation • Innovative Finance mechanisms
- 4. Value Capture Implementation Team Innovative Finance vs Conventional • Conventional Transportation Funding • Gas taxes • Pay-as-you-go • Issue State-backed bonds • Innovative Finance • Use of project-based revenues (e.g., tolling, value capture) • Debt Financing (Public or Private) • Expanded private sector role in financing and delivering projects • Value Capture leveraging • Funds leveraging –identifying projects that have dual funds’ eligibility across existing federal programs.
- 5. Value Capture Implementation Team Value Capture & Innovative Finance • Value Capture • Developer Contributions • Special Assessments • Fees • Incremental Growth • Joint Development • Concessions • Advertising Innovative Finance • Opportunity Zones • GARVEE Program • TIFIA • Joint Ventures • State Infrastructure Banks • FHWA Grant Programs • Other Federal Financing
- 6. Value Capture Implementation Team
- 7. Value Capture Implementation Team Expand your TIP Other Federal Financing USDOT Grants State Infrastructure Banks Joint Ventures TIFIA Loans GARVEE Program Opportunity Zones Constrained Unconstrained Project A: Funded Project C: Funded Project C: Funded Project B: Funded Project B: Funded Project A: Funded Project D: Unfunded Project D: Funded
- 8. Opportunity Zones Encourages investment in communities by granting investors extensive Federal tax advantages for using their capital gains to finance new projects and enterprises. There are more than 8,700 designated Qualified Opportunity Zones located in all 50 States, • 40% are in rural census tracts • 77 are in rural Kansas, 45 in rural Missouri
- 9. GARVEE Program GARVEE is used as a term for a debt instrument that has a pledge of future Title 23 Federal-aid funding. North Dakota - approximately $27 million of grant and revenue anticipation bonds (GARVEEs). • Replace historic Liberty Memorial Bridge • Widen 100-mile stretch of U.S. Highway 2 from 2 lanes to 4
- 10. TIFIA Federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects of national and regional significance. TIFIA can help advance qualified, large-scale projects that otherwise might be delayed or deferred because of size, complexity, or uncertainty over the timing of revenues. Elizabeth River Tunnels, Norfolk and Portsmouth, VA • Consists of 5 construction components involving 3 facilities in the Hampton Roads region of Virginia. • Midtown Tunnel portion consists of a new 2-lane tolled tunnel under the Elizabeth River
- 11. Joint Ventures
- 12. State Infrastructure Banks A SIB, much like a private bank, can offer a range of loans and credit assistance to public and private sponsors of Highway, Transit, and Rail projects. SIBs makes more efficient use of its transportation funds and significantly leverages Federal resources by attracting non-Federal public and private investment. SIBs are capitalized with Federal-aid surface transportation funds and matching State funds. (Several states have established SIBs or separate SIB accounts capitalized solely with state funds.)
- 13. FHWA & Other Grant Programs Availability Payments Build America Bonds Pass-Through Tolls Private Activity Bonds USDA Reimbursement Transportation Cost Payment Program
- 14. Value Capture
- 15. Value Capture Implementation Team What is Value Capture?
- 16. Value Capture Implementation Team What is Value Capture?
- 17. Value Capture Implementation TeamValue Capture Implementation Team Funding shortages • U.S. transportation infrastructure • End of useful lifecycle • Deferred maintenance • Maintenance backlog • Federal funding • The Federal gas tax has lost its purchasing power by nearly 40% since 1993 • Increased fuel efficiency and reduced growth in VMT has further eroded the growth in fuel tax revenues • “Smart” Infrastructure Investment needs
- 18. Value Capture Implementation TeamValue Capture Implementation Team Supplemental Funding Sources • General Fund transfers have kept the Highway Trust Fund solvent • Exploring new funding sources, such as the mileage-based user fee • Innovative financing • Transportation Infrastructure Finance and Innovation Act (TIFIA) • Railroad Rehabilitation and Improvement Financing (RRIF) • Private Activity Bonds • State Infrastructure Banks • Section 129 Loans • Leases
- 19. Value Capture Implementation TeamValue Capture Implementation Team Value Capture Techniques Category Technique Purpose Fund or Finance Developer Contributions Impact fees Capital Expenses Fund Negotiated Exactions Capital Expenses Fund Special Assessments Special Assessment Districts Capital Expenses Fund or Finance Business Improvement Districts Capital or Maintenance Fund or Finance Sales Tax Districts Capital or Maintenance Fund or Finance Land Value Taxes Capital or Maintenance Fund or Finance Fees Transportation Utility Fees Operations and Maintenance Fund Incremental Growth Tax Incremental Finance Capital Expenses Fund or Finance Transportation Reinvestment Zones Fund or Finance Tax Allocation District Fund or Finance Joint Development At Grade Capital Expenses Fund or Finance Below Grade Capital Expenses Fund or Finance Above Grade (Air Rights) Capital Expenses Fund or Finance Concessions Asset Recycling Capital Expenses Fund or Finance Advertising Advertising Capital or Maintenance Fund Naming Rights Capital or Maintenance Fund
- 20. Value Capture Implementation TeamValue Capture Implementation Team Developer Contributions • A one-time fee assessed on new development • Used for roadways, less frequently • Used in transit Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 21. Value Capture Implementation TeamValue Capture Implementation Team Hamilton Core Fund Hamilton, OH • Public-private partnership of the City of Hamilton, the Hamilton Community Foundation, and local lending institutions • Provides financial resources for real estate projects within the city’s urban core. • Today, Hamilton’s CORE Fund engages in three different activities: • Provides gap financing • Purchases and repurposes underutilized properties • Acquires historic residential properties Source: www.revitalization.org
- 22. Value Capture Implementation TeamValue Capture Implementation Team Bozeman, Montana Impact fees funded all major expansions: • Recoupment (past improvements) • New development is paying for its share • Incremental expansion (concurrent improvements) • Documents current level-of-service standards • Plan-based fees (future improvements) • Allocates costs
- 23. Value Capture Implementation TeamValue Capture Implementation Team Special Assessments • A special fee levied on property owners to pay for infrastructure development • Specific geographical area • Assessed against those properties receiving benefit from the improvement • The tax represents a portion of the estimated benefit to properties in close proximity Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 24. Value Capture Implementation TeamValue Capture Implementation Team Lake Shannon Road Improvement Tyrone Township, MI • Petition for repaving roads in exchange for a 10- year tax assessment • Assessment will be paid in 10 annual installments starting in 2018 • Total cost $1,310,000 in special assessment bonds Source: Lake Shannon Assoc.
- 25. Value Capture Implementation TeamValue Capture Implementation Team Fees • Applies to all residents and businesses • Payed by property occupants rather than property owners • Based on the estimated number of roadway trips generated by a property • Fees are typically added to city utility bill Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 26. Value Capture Implementation TeamValue Capture Implementation Team Mission, KS • Calculated by estimating the average number and intensity (type/size) of use • Single-family homes pay a flat fee of $72 per year • Other property types pay by land use type • 91% of all multi-residential or tenant spaces pay less than $100 per year • 60% of all commercial spaces pay less than $1000 per year
- 27. Value Capture Implementation Team Mission, KS, cont. • Streets • Oakwood Rd • Overhill Rd • Parks and facilities • Sunken Garden Park • Spot curb replacement program • Assessment of curbs, gutters, and sidewalks throughout Source: https://www.facebook.com/SunkenGardenRestoration
- 28. Value Capture Implementation Team Milwaukee, WI • Fees assessed on properties based on transportation demand created • Applied annually to specific users • Typically levied on a area-wide basis • Most commonly applied to roads • Generally for maintenance rather than capital projects Source: Master Fee Schedule, 2018. City of Milwaukie, Oregon. Value Capture Implementation Team
- 29. Value Capture Implementation TeamValue Capture Implementation Team Incremental Growth • Within a defined geographic area or zone • Authorized by 49 state statutes and the District of Columbia • Offers a source of long-term revenues and generates significant “gap financing” • Flexible, powerful tool to foster high quality development and redevelopment Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 30. Value Capture Implementation TeamValue Capture Implementation Team State of Ohio • Implemented at the local level • Payments derived from the increased assessed value of any improvement • Implementation steps: • Designate the parcel • Declare improvements to serve a public purpose • Delineate improvements that will directly benefit the parcel • Specify equivalent funds for redirected monies Source: www.development.ohio.gov
- 31. Value Capture Implementation Team Expansion of Star Container Pkg. Facility Leominster, MA • 8-year term agreement with $6.2 million investment from Star • $23,000 annual gain for the City in additional property taxes • Front-loading sliding scale of exemptions from taxation of the TIF Year % of Increment 1 100 2 90 3 75 4 60 5 45 6 30 7 15 8 0
- 32. Value Capture Implementation TeamValue Capture Implementation Team Joint Development • Involves a partnership between a public entity and a private developer to develop certain infrastructure assets • Sale/lease of development rights over a transit station or highway • Plays a key role in some urban projects Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 33. Value Capture Implementation TeamValue Capture Implementation Team Madison, AL Town Madison project: Madison has seen a 45% population growth since 2000 • $300 million • 100-acre mixed land use • Luxury apartments (280 units) Source: https://www.al.com/business/2017/05/town_madison_partners_with_atl.html
- 34. Value Capture Implementation TeamValue Capture Implementation Team Concessions • A long-term lease of existing highway facilities (i.e. toll facility) and use of the lease revenues to pay for other highway improvement needs • U.S. experience with infrastructure asset recycling is limited Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 35. Value Capture Implementation TeamValue Capture Implementation Team Indiana Toll Road • $3.8 billion • 75-year agreement • Received $3.8 billion upfront • Funded 10 transportation plans • Retained all public employees • Other examples: https://www.fhwa.dot.gov/ipd/value_capture/project_profiles/ Source: Atkins Acuity
- 36. Value Capture Implementation TeamValue Capture Implementation Team Advertising • Can be derived by selling space on transportation facility assets • Inside transit vehicles • Transit stations or bus stops • Roadway billboards Developer Contributions Special Assessments Fees Incremental Growth Joint Development Concessions Advertising
- 37. Value Capture Implementation TeamValue Capture Implementation Team Naming Rights, State of Virginia • Anticipated revenue would generate $27.3 million in the first five years and $273 million in 20 years to go to road repairs • Functional classification determines cost • $200,000 urban interstates • $75,000 rural interstates • $20,000 - $50,000 Primary roads • $5,000 - $17,000 Secondary roads
- 38. Value Capture Implementation Team Value Capture Summary Value Capture is … • A set of powerful funding tools that can help address • funding gaps (USDOT supports Value Capture) • Can be part of the mix of funding sources for transportation improvement solutions • Can accelerate project delivery, enhance safety, and save time and money when done properly
- 39. Value Capture Implementation Team Steps to a Successful Value Capture Project Identify Needs Long- Range CIP Strategic Plan Identify Funding & Financing Five-Year CIP Plan Annual Capital Budget Implement Projects & Programs
- 40. 40 Solution A • USDA Rural Development Loan • Money available right away • 3% interest rate Used other federal financing source • Each household on trail head pays $50 annually • Duration for 15 years • Fees collected beyond loan payback will go to maintenance Transportation Fee • Trail will be built sooner • Households that benefits from trail invest for a low feeBenefits
- 41. Value Capture Implementation Team Jill Stark, FHWA Office of Planning Stewardship & Oversight E-mail: Jill.Stark@dot.gov Tel: 202-366-8870
Notas del editor
- Talk about Vermont example
- Capital Improvement Program
- Grant Anticipation Revenue Vehicles are a mechanism where securities (debt instruments) are issued when moneys are anticipated from a specific source.
- Each dollar of Federal funds can provide up to $10 in TIFIA credit assistance - and leverage $30 in transportation infrastructure investment.
- Availability Payments are made to a private concessionaire by a public project sponsor based on project milestones or facility performance standards in exchange for particular services. 10 of these in the US BAB the issuer elects to have the interest on the bond be taxable in return for a federal interest subsidy. Texas has pass-through tolls Per-vehicle or per-vehicle-mile fees paid by a state or local agency or authority to a private concessionaire as reimbursement for particular services. Private Activity Bonds (PABs) are debt instruments authorized by the Secretary of Transportation and issued by a conduit issuer on behalf of a private entity for highway and freight transfer projects, allowing a private project sponsor to benefit from the lower financing costs of tax-exempt municipal bonds.
- Value Capture refers to a toolbox of strategies used by public agencies to recover a portion of the increased property value created as a result of public infrastructure investment Promotes the use of value capture mechanisms as part of a mixed funding and innovative finance strategy to accelerate project delivery and provide equitable funding for sustainable transportation investments
- Innovative financing is used to deliver large capital projects, leveraging private capital or borrowing from government-backed loan programs, such as:
- Impact Fess and Negotiated Exactions A one-time fee assessed on new development Intended to pay the cost of expanding & extending public services resulting from new development Assessed at the time a building permit is issued and are paid prior to the issuance of a Certificate of Occupancy
- Pop 62,092 Today, Hamilton’s CORE Fund engages in three different activities: Provides gap financing for large development projects Purchases and repurposes key underutilized commercial properties Acquires historic residential properties and works with potential homeowners to renovate and occupy the homes
- Developmental Impact fees which are Imposed upon private land developers to fund additional service capacity required by the development Pop 46,496 This is of 2009 Recoupment (past improvements) New development is paying for its share of the useful life and remaining capacity of facilities already built Incremental expansion (concurrent improvements) Documents current level-of-service standards for each type of public facility to expand or provide additional facilities Plan-based fees (future improvements) Allocates costs for a specified set of improvements to a specified amount of development
- Special assessment districts Business improvement districts Sales tax districts Land value taxes Special assessments involve assessing incremental property taxes on land and often the buildings on that land deriving direct benefits due to a transportation improvement. The tax levied typically represents a portion of the estimated benefit to the properties located with a designated zone in close proximity to the improvement. Special assessments, which are also known as benefit assessments or special taxes, are one of the most prominent forms of value capture in the United States. In addition to transportation improvements, special assessments may be used in other sectors, including water and waste water.
- Special assessment district Pop 10,447
- Transportation Utility Fees
- Pop 9,409 Transportation Utility Fees (TUFs) are a user fee obtained through property tax bills Includes all developed properties, including tax exempt properties
- And even though this is from an urban example, it shows the scheduling of Utility fees
- Tax incremental finance Transportation reinvestment zones Tax allocation district
- Tax Increment Financing (TIF) is an economic development mechanism available to local governments in Ohio to finance public infrastructure improvements and, in certain circumstances, residential rehabilitation.
- Tax incremental finance Pop 41,615 https://www.mass.gov/smart-growth-smart-energy-toolkit-case-studies Additional 54,000 square feet and purchase of equipment The TIF Agreement had an eight year term, and provided for a front loaded sliding scale of exemptions from taxation of the tax increment as follows; Year 1 100% of the increment Year 2 90% of the increment Year 3 75% of the increment Year 4 60% of the increment Year 5 45% of the increment Year 6 30% of the increment Year 7 15% of the increment Year 8 0% of the increment Star Container invested approximately $6.2 million into the facility and equipment. The TIF provided for the creation of 25 new full time manufacturing and managerial jobs. 150 existing jobs were retained by ensuring the facility stayed at the existing site. At the end of the TIF period, the city will gain approximately $23,000.00 annually in additional property taxes. Star Container is located in the state designated Economic Target Area of Northern Worcester County. Therefore, Star Container can seek other state economic incentives in addition to the TIF Agreement with the city. Leominster uses TIF agreements only for manufacturing businesses. This is compatible with the needs of the city, which historically has had a manufacturing base in the plastics industry. Star Container distributes its packaging to many local and regional firms. The focus on manufacturing has the effect of creating jobs, which pay higher than the minimum wage, bringing a greater economic benefit to the area. The shorter term TIF is also geared towards manufacturing, and is tied to the equipment life.
- At Grade Below grade Above grade (air rights)
- Joint Development Negotiated Exactions Impact fees Pop 48,861 The first phases of mixed-use development will include a 100-acre site at the corner of I-565 and Zierdt Road and 55 acres on Wall Triana where the old Intergraph buildings were torn down. Crews will break ground this fall on the first phase of luxury apartments at Town Madison. The first 280 units will operate in a four-story facility with elevators and high-end amenities within the mixed-use retail portion of the site.
- Asset Recycling
- Advertising Naming rights Advertising revenue can be derived by selling space on transportation facility assets; for example, inside transit vehicles, at transit stations or bus stops, or on billboards along highways. Most transit agencies currently have advertising programs that generate revenue for their systems. The revenue from transit advertising as a percent of the operating budget is small, but the total dollars are significant. The four largest transit agencies in the U.S., not including New York, average $6.1 million a year.
- Takes effect July 1, 2019 due to a recent bill passed in state legislation
- Not all techniques are applicable for all contexts. Some help spur economic development while others work better in growing areas
- Capital Improvement Program
- Go into benefits/steps