Value Capture Strategies for Transit Capital Projects

S. B. Friedman & Company (SB Friedman) was engaged, as part of an ongoing contract by the Chicago Metropolitan Agency for Planning (CMAP), to undertake research and analysis to determine potential value capture strategies as a funding source for transit capital investments in the Chicago region.  CMAP’s policy objective is to encourage walkable, sustainable and transit-supportive communities and to leverage increases in land value, proximate to mass transit as a means to generate capital to maintain and improve transit infrastructure.

SB Friedman researched and evaluated a series of potential value capture mechanisms and modeled the impact of three specific strategies, including impact fees, special assessments in the form of a Special Service Area, and a Tax Increment Financing-like mechanism. The new Oakton Station in Skokie on the CTA yellow line was chosen as the demonstration project to test the value capture scenarios.  This station was under construction at the time, so current project cost estimates were utilized, but higher constraints were placed on bonding terms and local match requirements to reflect a more prototypical project.  The quarter- and half-mile station areas also overlapped two existing TIF districts with preexisting monetary commitments, a situation likely to be typical for many potential transit improvement areas.

Specific analysis tasks included:

• An evaluation of multiple value capture methodologies and their feasibility in Illinois and the Chicago area, with the understanding that federal funding sources are requiring an increasingly high local match percentage before a project will be competitive to receive funds.
• Testing of the revenue-generation potential for quarter-and half-mile value-generation districts around the selected station area. This included projections of area-wide increases in assessed value due to transit improvements, separate value projections for the underlying TIF areas, accounting for required distributions to underlying TIF districts, creation of an impact fee based on ridership estimates, and estimation of Special Service Area taxes.
• A financial impact analysis for a hypothetical, station-adjacent development showing the value created by a new transit station and the potential impact of each of the three value capture mechanisms on development economics.

Results: The complete analysis has been submitted and is available on the CMAP website. CMAP presented the findings to RTA’s Regional TOD Working Group, and SB Friedman presented the findings to two CMAP committees in January 2011. SB Friedman is leading the team that has been selected to complete a second set of value capture analyses focused on larger projects, including extension of existing transit lines and a highway project. The value capture analysis was part of SB Friedman’s ongoing research and analytical work for CMAP, which began in October 2008. SB Friedman has completed several studies including: the fiscal cost-benefit of infill redevelopment of brownfields; the analysis of land use patterns in high sales tax revenue generating communities; a comparative analysis of the economic and fiscal impacts of retail, automotive, office and industrial land uses on a prototypical suburban site; and compiling and mapping sales taxes and effective average property taxes for core services across the region.