Tag Archives: value capture

Funding highway projects with value capture could speed project completion

There’s broad agreement that the U.S. transportation system cannot continue to be funded with existing financing and revenue-generation methods. What’s unclear, however, is how to pay for highway projects in the future. The current transportation funding system emphasizes user fees, but there is growing interest in alternative funding strategies. One promising strategy is value capture, which aims to recover the value of benefits received by property owners and developers as a result of infrastructure improvements.

In recent years, University of Minnesota researchers have helped lead the way in value capture research with a series of reports identifying value capture strategies. In a newly published study, the research team applied their previous work to a real-world scenario, with impressive results.

The new research, sponsored by the Minnesota Department of Transportation, focused on the planned development of Trunk Highway 610 (TH 610) in Maple Grove, Minnesota—a stretch of planned state highway delayed for years by state transportation funding shortages. Researchers set out to discover how the value of the enhanced accessibility provided by the planned improvements could be predicted and captured to help fund the project’s completion.

To accomplish their goal, researchers first defined a study area of about 10 square miles surrounding the unfinished highway segment. Then, they modeled property values based on five factors using parcel-level data. This model was designed to isolate the so-called “highway premium” by controlling for other factors that affect land value including water views, open space, railroads, transit stops, and existing highway exits. Using this model, researchers found significant evidence that the completion of the highway could lead to an over $17 million increase in property value.

Researchers expect these findings to have significant benefits for the TH 610 project and beyond.

Read the full article in the March issue of Catalyst.

Photo courtesy of SRF Consulting Group, Inc.

Value capture alternative finance model tested on Highway 610

Those who use the roads in Minnesota are generally those who pay for them — through gasoline and vehicle taxes.

But motorists aren’t the only ones who benefit when a new interchange is built or a highway is improved. Home and business values along the corridor go up and the price of undeveloped land can skyrocket.

With highway funds strapped, a new method of funding road expansion, called “real estate value capture,” is garnering attention.

This emerging technique strives to identify beneficiaries of transportation improvements beyond just the highway user, so they provide their fair share of the costs — a concept not dissimilar from residential street assessment.

For instance, a local government might dedicate the additional property tax revenue generated due to a new highway to offset some construction costs, or collect fees on land that is developed near an interchange.

However, value capture is a relatively new technique that has been used primarily for transit projects. To be considered for roads or bridges, questions need to be addressed about potential revenue, impacts and public acceptability.

In a new case study, researchers use a long-delayed planned extension of Highway 610 in Maple Grove to model the impact of a completed highway on nearby property values, and, for the first time, quantify the potential revenues from several value capture strategies.

With properties near new highway exits worth an additional $65,450 more per acre, researchers calculated that $37.1 million in revenue could be generated through assessments on existing development and impact fees for future development.

Other strategies explored include tax-increment financing and private-public development of undeveloped parcels, in which revenue generated by that development is split.

“This research demonstrates a way to estimate the value of transportation improvement and to communicate that to the public,” said principal investigator Jerry Zhao, an associate professor of public administration at the University of Minnesota’s Humphrey School of Public Affairs.

This map projects the anticipated increase in estimated market value (EMV Change) of parcels near Highway 610 that will result from completion of the highway and construction of exits at the two locations marked in purple. The impacted parcels are currently vacant, farmland or residential.
This map projects the anticipated increase in estimated market value (EMV Change) of parcels near Highway 610 that will result from completion of the highway and construction of exits at the two locations marked in purple. The impacted parcels are currently vacant, farmland or residential.
Study links:
    • Real Estate Value Capture: An Emerging Strategy to Pay for New Transportation Infrastructure – Technical Summary (PDF, 1 MB, 2 pages);  Final Report (PDF, 5 MB, 36 pages).