Public Transportation: Federal Role in Value Capture Strategies for Transit Is Limited, but Additional Guidance Could Help Clarify Policies
Published: 2010-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: State and local governments are looking for alternative strategies to help fund transit systems. Value capture strategies--joint development, special assessment districts, tax increment financing, and development impact fees--are designed to dedicate to transit either a portion of increased tax revenue or additional revenue through assessments, fees, or rents based on value expected to accrue as a result of transit investments. GAO was asked to review (1) the extent to which transit agencies and local governments use joint development and other value capture strategies to fund or finance transit; (2) what stakeholders have identified as facilitators of, or hindrances to, the use of these; and (3) what stakeholders have said about the effects of federal policies and programs on the use of these strategies. GAO analyzed data from 55 of the 71 transit agencies that responded to its information request; reviewed literature, and statutes and regulations; and interviewed transit agency, local government, and Federal Transit Administration (FTA) officials; developers; and experts.
section_title: What GAO Found
paragraphs: More than half of the transit agencies from which GAO collected data (32 of 55) reported that joint development--in which a transit agency and a private entity partner to create development at a transit station--has been used as a source of funding for transit, while about a third (19 of 55) reported that special assessment districts, tax increment financing, and development impact fees have been used. Transit agencies that have extensively used joint development typically share characteristics, such as having formal joint development policies and in-house real estate expertise. Financial data collected from several transit agencies indicate that revenue generated annually through joint development is generally small when compared with an agency's annual operating expenses. Revenue generated by the other three value capture strategies has varied, but in some cases has been critical to the financial feasibility of the transit project or to improvements that support transit-oriented development. Several factors can facilitate or hinder transit agencies' and state and local governments' use of value capture strategies, such as coordination and support from public- and private-sector entities, transit project location and design, and state laws. For example, transit agencies, which generally do not have taxing authority, often have to coordinate with local taxing authorities to help establish a tax increment financing district. Also, according to several stakeholders, value capture strategies have the potential to generate more revenue when a project is designed with land-use zoning that allows for high-density development. However, some states do not authorize the use of certain strategies or may limit their use. For example, tax increment financing is currently not authorized under Arizona state law. Several transit agency officials told GAO that FTA's joint development guidance is confusing, which can hinder their use of joint development when federal funding is involved. For example, transit agencies are sometimes unclear about which types of developments and structures are eligible for joint development sites and the extent to which FTA requires replacement of parking spaces when surface parking lots are converted to structured parking garages that support transit-oriented development. This confusion can delay final federal approval of a project. Transit agency officials also told GAO that federal requirements, such as limitations on the use of joint development revenue for operations, maintenance, or acquisition of land for future joint development, can be burdensome. Transit agency officials also said the strict cost-effectiveness requirement for federal New Starts funding limited the competitiveness of some transit projects designed to use value capture strategies. Recent changes to the New Starts program, including amending the current cost-effectiveness measure and increasing the significance of economic development along with other factors, may affect transit projects, yet it is unclear how these changes will ultimately affect the use of value capture strategies. The FTA should issue additional guidance on federal joint development requirements to clarify the types of developments eligible under current law, and requirements and conditions for parking replacement. FTA agreed to consider GAO's recommendations.

section_title: Letter
paragraphs: State and local governments across the country are increasingly looking to  build new transit systems to help alleviate the adverse effects of traffic  congestion and support growth and redevelopment in the urban cores of  metropolitan areas. However, the desire for increased investment in  transit infrastructure coincides with increasing strains on traditional  sources of funding for these projects. Fixed-guideway transit projects are  costly to build, and limited funding for transit projects at the state and  local level has created intense competition for federal transit funds.  Moreover, in addition to facing challenges in obtaining funds to construct  new transit systems, many transit agencies are struggling to keep up with  mounting operations and maintenance costs of existing transit systems.  Facing budget shortfalls, transit agencies are forced to raise fares or cut  service, either of which can drive transit users away, potentially reducing  ridership and exacerbating funding issues. Furthermore, the sales tax  receipts and other funding sources that many transit agencies rely on to  fund capital projects and agency operations have significantly declined  during the recent economic downturn. Given this economic environment,  transit project sponsors are increasingly looking for alternative  mechanisms to help finance and deliver new, large-scale transit projects.
There is a well-established relationship between public transit investments  and nearby property values. We have previously reported that plans for  transit stations and amenities commonly found in transit-oriented  developments generally increase nearby land and housing values, but the  magnitude of the increase varies greatly depending upon several  characteristics. Value capture strategies—mechanisms designed to  harness increases in value for properties surrounding transit to help fund  investments in public transit infrastructure or related improvements—are  designed to take advantage of this increase to create beneficial outcomes  for both the public and the private sectors, as well as link funding to the  beneficiaries of a transit system. Value capture strategies used to fund  transit vary in form; however each typically involves a private sector  contribution through an assessment or fee, or a public sector contribution  drawn from increased property tax revenue. One value capture strategy,  joint development, often generates revenue for the transit agency through  a lease or sale of publicly-owned land through partnerships with private or  nonprofit developers, or other public sector partners to create a portion of  a transit-oriented development.
Value capture strategies are administered at the state, regional, or local  level. As a result, the federal government does not play a direct role in  implementing value capture strategies—its role is primarily limited to  providing the federal share of capital construction and land acquisition  costs. However, federal policies and programs can affect the cost, design,  and routing of transit systems—characteristics vital to the viability of  value capture strategies. Recently, the federal government has increased  its focus on creating “livable” communities by better linking  transportation, housing, and environmental programs and policies. Part of  this focus reflects the federal government’s recognition of the increasing  demand for transit-oriented developments. Recent policy changes by the  Department of Transportation (DOT) are designed to provide more  flexibility for transit agencies and local governments to accommodate  transit-oriented development near stations and multi-modal transportation  sites. For example, in 2007, the Federal Transit Administration (FTA)  issued joint development guidance, which is intended to provide flexibility  for transit agencies interested in pursuing transit-oriented development on  lands purchased with federal funding. In addition, over the past year, FTA  has proposed and implemented several changes to how cost effectiveness,  economic development effects, and other factors are considered in the  evaluation and rating process for FTA’s New Starts grant program.
You asked us to provide information on the experiences of transit agencies  and local governments in using value capture strategies for transit. More  specifically, this report addresses the following questions:  1.  To what extent do transit agencies and state and local governments  use joint development and other value capture strategies to fund or  finance transit? 2.  What have selected stakeholders and literature identified as facilitators  of, or hindrances to, the use of joint development and other value  capture strategies to fund or finance transit? 3.  What have stakeholders said about the effects of federal policies and  programs on the use of joint development and other value capture  strategies to fund or finance transit?
To address these questions, we reviewed relevant literature to determine  the most commonly used value capture strategies and to help identify  facilitators of, and hindrances to, using value capture strategies. We  requested data from the 71 transit agencies that we identified as operating  a fixed-guideway or large bus system on the extent to which value capture  strategies were used to fund or finance transit on their system. We  analyzed data from the 55 transit agencies that provided data to us in  response to our request. We conducted site visits to the  Washington/Baltimore metropolitan area; Atlanta, Georgia; Los Angeles,  Sacramento, San Jose, and the San Francisco Bay metropolitan area in  California; Portland, Oregon; and Seattle, Washington. We selected this  nongeneralizable sample of cities and metropolitan areas based on criteria  we established, including locations where value capture strategies had  been used or were under formal consideration for use, and geographical  diversity. During our site visits, we interviewed transit agency, state, and  local government officials, and private developers about selected transit  projects, as well as individuals with expertise in the area of value capture  strategies, to determine the extent to which value capture strategies are  used to fund or finance transit and to identify facilitators of, and  hindrances to, using value capture strategies. We also interviewed federal,  state, and local transit officials to identify ways federal policies and  programs affect the use of value capture strategies. Finally, we reviewed  applicable state constitutions, statutes, and regulations to identify  facilitators of, and hindrances to, using value capture strategies, and  relevant federal statutes and regulations to determine federal requirements  and program implications for joint development and other value capture  strategies. We conducted this performance audit from August 2009 to July  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. See appendix I for more  information about our scope and methodology.
subsections: section_title: Background
paragraphs: Numerous local communities are seeking to expand housing opportunities  and other amenities located near transit by promoting transit-oriented  development—commonly defined as compact, mixed-use, walkable  neighborhoods located near rail stations or other permanent transit  facilities. Many transit agencies view such development as a way to  accomplish multiple goals, including promoting transit-supportive land use  near stations and increasing ridership. In addition, research generally  shows that land and housing values tend to increase with proximity to a  transit station. While the magnitude of these increases can vary, residents  place a premium on living near public transportation, retail development,  and other amenities such as parks and sidewalks commonly found in  transit-oriented developments.
Both the private and public sector entities benefit financially from these  increases in value; private parties through increased land values and rents  and public-sector agencies through increased revenue from property or  other taxes. For the purposes of this report, the term “value capture”  generally refers to strategies that allow local governments or transit  agencies to dedicate to transit either a portion of the increased tax  revenue, or additional revenue through assessments or fees based on value  expected to accrue as a result of public improvements or investments.  While many of these strategies are used in the United States to fund or  finance infrastructure improvements, such as water, sewer, and other  utility systems, this report focuses on the use of these strategies  specifically to fund or finance transit or transit-related facilities or  improvements. The four strategies that are the focus of this report are as  follows:    Joint development is generally defined as a real estate development  project that involves a cooperative arrangement between public and  private sector partners, often as part of a transit-oriented development.  Joint development arrangements can take a number of forms, including a  lease of land, air rights, or space to a developer; sale of land for specific  types of development; joint construction of a transit facility and private  development; and others. Public and private partners can share costs,  revenues, or financial risk depending on the particular arrangement. Any  joint development using federal funds to make capital improvements must  follow FTA’s joint development guidance and meet the statutory definition  of an eligible capital project. See figure 1.
Special assessment districts designate a formal boundary in which  taxes or fees are assessed on properties expected to see a projected  benefit due to the geographic proximity of a new transit facility or other  unique amenity. The revenue collected is then used to help pay for such  facility or amenity. See figure 2.
Tax increment financing is a public financing technique used by local  entities to encourage economic development. Typically, a public-sector  agency issues a special bond to finance the infrastructure necessary to  support new development and then uses the incremental increase in  property value within a formally designated tax increment financing  district to fund repayment of the bonds for the development-related costs,  including the costs of transit infrastructure improvements. See figure 3.
Development impact fees are one-time charges collected by local  governments from developers to help defray the cost of new or expanded  infrastructure and services associated with new development, including  capacity-increasing transit projects. See figure 4.
The use of value capture strategies may be authorized by the state, and can  be limited or restricted by state governments. For instance, state  legislatures generally provide the authority to public entities to establish  special assessment districts or tax increment financing districts and to use  the revenue generated from the districts for specific purposes. State and  local governments also play a role in creating the environment needed to  optimize the value created by transit projects or improvements. For  example, local governments create the zoning environment, which may,  for example, allow developers to build mixed-use developments at higher  densities. The implementation of any of the above strategies requires  coordination among a number of key public and private sector entities.  Their principal roles are summarized as follows.
Local transit agencies, such as transit authorities or transit operators,  are responsible for building, maintaining, and operating transit systems.  These transit systems can include fixed-guideway transit systems—such as  light or heavy rail, streetcars, ferry systems, and some bus rapid transit— and local bus service. Transit agencies may be direct recipients of federal  transit funds, particularly in major urban areas.
State and local departments of transportation and metropolitan  planning organizations develop transportation plans and improvement  programs; build, maintain, and operate transportation infrastructure and  services; and distribute federal funds to local entities for specific  projects.
Local county and city governments are typically responsible for  assessing and collecting property taxes, development impact fees, or  special assessments. In addition, local governments, through agencies  such as county or city planning departments or redevelopment agencies,  have control over land use planning, which includes zoning and growth  management policies.
Private developers decide on and create developments and build and  manage housing units and commercial developments. In some cases,  private developers enter into sale or lease agreements with transit  agencies or other public-sector entities when undertaking joint  developments.
Property owners, in addition to paying property taxes, sometimes agree  to enter into formally established districts and pay assessments to local  public-sector entities for the purpose of funding new transit projects, other  infrastructure (e.g., sidewalks, utilities), or improvements to existing  transit services.
In general, FTA plays no role in the direct implementation of most value  capture strategies. However, transit agencies must follow a number of  federal requirements if, for example, a joint development includes land  that was purchased as part of a federally funded transit project or receives  federal funds. In 2007, FTA issued guidance on joint development  requirements that clarified the eligibility of joint development activities for  federal capital funding. Transit agencies must receive FTA concurrence  to sell or lease federally funded property for joint development purposes.  To use program income or FTA grant funds for a joint development  improvement, a local transit agency must demonstrate that the  improvement provides economic and public transportation benefits, raises  revenue for public transportation, and covers a reasonable share of costs  (if applicable).
While FTA does not have formal policies or programs related to forms of  value capture for transit other than joint development, FTA programs fund  capital transit projects—a key step in creating a transit-oriented  development and of creating value. FTA’s New Starts program—its major  capital investment program for new, and extensions to, existing fixed- guideway transit systems—awards funds to individual projects through a  competitive selection process, which applies ratings to potential projects  based on local financial commitment and project justification criteria,  including cost effectiveness, land use, operating efficiencies,  environmental benefits, economic development effects, and mobility  improvements. FTA also provides funding to state and local  governments, and metropolitan planning organizations through a num of other programs, that may be used for transit, including:    Transit Capital Assistance (Recovery Act)  the Congestion Mitigation and Air Quality Improvement Program    Transportation Investment Generating Economic Recovery Discretionary    Transit Formula and Discretionary Programs  In addition, the federal government also currently has two programs  designed to offer credit assistance to states for surface transportation  projects. The Transportation Equity Act for the 21st Century established  the Transportation Infrastructure Finance and Innovation Act of 1998  (TIFIA), which authorized DOT, who later delegated this authority to the  Federal Highway Administration (FHWA), to provide credit assistance, in  the form of direct loans, loan guarantees, and standby lines of credit, for  projects of national significance. A similar program, the Railroad  Rehabilitation and Improvement Financing (RRIF) program, offers loans  to acquire, improve, develop, or rehabilitate intermodal or rail equipment  or facilities.
DOT has recently begun to emphasize livable communities. For example,  DOT has refocused the goals of some existing programs and entered into  the Sustainable Communities Partnership with the Department of Housing  and Urban Development and the Environmental Protection Agency. This  partnership is intended to help American families gain better access to  affordable housing, more transportation options, and lower transportation  costs by coordinating and leveraging federal programs. FTA also  introduced funding opportunities for fiscal year 2010 for urban circulator  and bus-related livability projects that promote livability, sustainability,  economic development, and the leveraging of public and private  investments. In addition, FTA grant program funds can promote livability  by funding eligible expenses, such as joint developments, bicycle and  pedestrian access, and other amenities near transit stations.
section_title: Use of Joint Development and Other Value Capture Strategies Has Been Limited but Is Sometimes Critical in Funding and Financing Transit
subsections: section_title: The Few Transit Agencies with Extensive Joint Development Experience Have Common Characteristics
paragraphs: According to data collected from 55 transit agencies, experience with joint  development varies widely, both in quantity and type. More than half of  the transit agencies we collected data from (32 of 55) have used joint  development, while one-fifth (11 of 55) have used joint development  extensively (6 or more joint developments). Moreover, the 11 agencies  with extensive joint development experience were responsible for 115 of  the 166 reported developments, and just 3 agencies (Los Angeles Metro,  Washington Metro, and Metropolitan Atlanta Rapid Transit) were  responsible for 58 of the 166 reported developments. These developments  varied greatly in size and type. For example, while joint developments are  often small and on a single parcel of land near a transit station, a few  transit agencies have completed neighborhood-scale transit-oriented joint  developments. For instance, Atlanta’s Lindbergh City Center will  eventually encompass 47 acres of mixed-use development near a  Metropolitan Atlanta Rapid Transit station. Joint developments also varied  in the types of uses; while many joint developments include housing,  offices, and retail space, they sometimes include hotels, youth services,  clinics, or other civic uses.
We found that transit agencies that have used joint development  extensively typically share certain characteristics. Specifically, these  transit agencies generally    operate older, larger fixed-guideway systems;    have formal joint development or transit-oriented development policies;    have in-house real estate expertise; and    have developable land holdings on which to build joint developments.
According to state and local transit officials we spoke with, the  permanency of stations along fixed-guideway systems makes station areas  on these systems more attractive for joint development than station areas  along bus lines or other non-fixed-guideway systems. Although joint  development is more often undertaken on fixed-guideway systems, King  County Metro in Seattle has implemented a number of joint developments  at permanent intermodal transit centers and park-and-ride lots along its  bus routes.
Most transit agencies with extensive joint development experience also  have formal joint development or transit-oriented development policies  and in-house real estate expertise. State and local transit officials we  spoke with told us that formal policies allow transit agencies to prioritize  joint developments and align them with broader agency and community  goals. Based on our review of transit agencies’ joint development policies,  we found that these policies often have common goals, which include  increasing transit ridership; reducing automobile dependency; generating  revenue to support transit operations; and partnering with local  communities to achieve intensive, high-quality development near transit  stations.
In addition, state and local transit officials we spoke with emphasized the  importance of having an in-house real estate office, along with outside  consultants, dedicated to managing their agency’s real estate assets,  including its joint developments. For instance, Maryland Department of  Transportation (MDOT) officials told us the department’s Office of Real  Estate has a $3 million bi-annual budget and several in-house staff  dedicated to transit-oriented development. The officials further estimated  that the Office of Real Estate spends about $300,000 a year on outside real  estate consultants to assist its in-house staff in managing MDOT-owned  property. According to MDOT officials, transit-oriented joint development  is unlikely to take place unless state and local transit agencies have an  office dedicated to managing agency-owned properties in ways that  promote transit-oriented development.
Also, transit agencies with extensive joint development experience are  also likely to have developable land holdings on which to build joint  developments and transit-oriented developments. Many state and local  transit officials we spoke with told us their agency made land available for  joint development by converting expansive, underutilized surface park- and-ride lots at their stations into transit-oriented developments with  structured parking garages. Several of these transit agencies have also  constructed a number of joint developments on land holdings they  originally acquired for construction staging purposes during their system’s  initial construction and subsequent expansions.
section_title: Joint Development Revenue Is Generally Small Relative to a Transit Agency’s Annual Operating Expenses
paragraphs: Although several transit agencies have generated millions of dollars in  annual revenue from joint development, this annual revenue is generally  small when compared with an agency’s annual operating expenses. For  example, the three transit agencies with the most joint development  experience—Los Angeles Metro, Washington Metro, and Metropolitan  Atlanta Rapid Transit— generated between $184,000 and $8.8 million in  revenue from their joint developments in fiscal year 2008, while their total  operating expenses for fiscal year 2008 ranged from $374 million to $1.3  billion. Specifically, each agency’s fiscal year 2008 annual joint  development revenue—when compared with the agency’s total annual  operating expenses—amounts to no more than 1 percent. See table 1.
State and local transit officials we spoke with told us that joint  development revenue goes into either a set-aside joint development fund  or the agency’s general fund. Whereas general fund revenue is used by  transit agencies for operations and maintenance as well as capital  projects—including joint developments—set-aside funds target funds for  specific purposes. For example, Santa Clara Valley Transportation  Authority officials told us that revenue from the agency’s joint  developments is placed in a set-aside fund, rather than its general fund,  and used to fund the continued operation and development of the agency.  Moreover, revenue from one phase of a joint development can also be  used to fund a later phase of the same development. For example, MDOT  transferred approximately 10.2 acres of state-owned land adjacent to one  of its commuter rail stations to a developer for a transit-oriented  development at the station. The developer considered this land  contribution (valued at $3.3 million) a credit toward the construction of a  commuter garage on the transit-oriented development site.
A majority of transit agency officials we spoke with told us that, for a  variety of reasons, they prefer to lease agency-owned land rather than  selling it when entering into joint development agreements. Agencies often  favor leasing because it allows them to maintain direct control over land  use and receive an ongoing revenue stream. For instance, Los Angeles  Metro officials told us that leasing land generates significant revenue for  the transit agency, and allows the agency to require “attractive”  developments and hold developers accountable if they walk away from a  failed development. But several transit agencies told us that, in some  cases, selling land makes sense. For example, Washington Metro officials  told us that although the transit agency’s board members prefer to lease  agency-owned parcels, the agency may sell the parcel if it needs upfront  money to build a parking structure on the development site. Furthermore,  if a planned joint development includes for-sale condominiums,  Washington Metro officials stated they may sell the parcel rather than  lease it because the agency does not have the authority to own land where  condominiums are sold.
section_title: Other Value Capture Strategies Have Not Been Widely Used to Fund or Finance Transit
paragraphs: According to transit agencies that we collected data from and relevant  literature that we reviewed, special assessments, tax increment financing,  and development impact fees (other value capture strategies) have not  been widely used as a source of funding for transit. Nineteen of the 55  transit agencies that we collected data from reported that one or more of  these strategies was used to fund transit projects on their system. Five of  the 55 reported that at least two of the three other value capture strategies  had been used to fund transit projects on their system. These transit  agencies reported that special assessment districts had been used in 17  instances, tax increment financing in 13 instances, and development  impact fees in 22 instances. See table 2.
In addition, according to literature on value capture strategies that we  reviewed, public entities more often use special assessment districts, tax  increment financing, and development impact fees to fund public  infrastructure improvements—such as water and sewer systems, roads,  schools, or parks—than they do to fund transit or transit-related projects.  However, state and local transit officials we spoke with told us about  several major transit infrastructure projects funded by one or more other  value capture strategies. For example:    Local governments in the Washington, D.C., region have generated  revenue for two major projects on Washington Metro’s system through  special assessment districts: the Dulles Corridor Metrorail Project, which  is extending the Washington Metro system 23 miles, including a station at  Dulles International Airport, and the New York Avenue Metro Station  project, which is the agency’s first infill station built without discontinuing  passenger service.
The cities of Seattle and Portland have constructed several new  streetcar lines using value capture strategies. Seattle’s South Lake Union  streetcar capital costs were funded in part through a special assessment  district, and Portland has funded portions of its 4-mile streetcar line using  special assessment districts and tax increment financing.
Sacramento County is planning to dedicate a portion of a development  impact fee to fund three proposed bus rapid transit lines in the county.
The Transbay Joint Powers Authority (TJPA) in San Francisco is  using tax increment financing revenue to fund repayment of a TIFIA loan  it received for the construction of a planned new multimodal transit center  in the city’s downtown.
The city of Atlanta established a tax increment financing district to pay  for a majority of the costs associated with the proposed Atlanta Beltline  project, a 22-mile transit loop that will run along existing underused rail  corridors.
In addition, transit agency and local government officials we spoke with  informed us that other value capture strategies are being used to fund  basic infrastructure and streetscape and station improvements at several  transit-oriented developments. Several of these transit-oriented  developments also include a parcel (or parcels) that is being jointly  developed by a transit agency and a private sector partner:    Contra Costa County, California, is using combined revenue from  special assessments and tax increment financing to construct a variety of  public infrastructure improvements at the Pleasant Hill transit-oriented  development. These improvements include backbone infrastructure, such  as roads and drainage systems; place-making infrastructure, such as parks  and plazas; and a new structured parking garage to replace the station’s  existing surface parking lot.
The city of Dallas, Texas, has recently established a transit-oriented  development tax increment financing district that includes seven station  areas along Dallas Area Rapid Transit’s light rail system. According to  Dallas Area Rapid Transit officials, funds generated by this tax increment  financing district can be used to help pay for basic infrastructure  improvements—such as streets, water and sewer systems, and a portion of  structured parking garages—at the transit-oriented developments.
In Baltimore County, Maryland, locally administered tax increment  financing revenue will be used to pay for two state-owned structured  parking garages at the planned Owings Mills transit-oriented development.  MDOT officials told us that a special assessment district will also be  established to help fund operation and maintenance of the state-owned  structured parking garages, roads, and other on-site improvements. In  addition, revenue generated through the special assessment district may  be used to help pay bond debt if the tax increment financing district is  unable to generate sufficient revenue to cover debt service payments.
section_title: Revenue Generated by Other Value Capture Strategies Has Varied, and in Some Cases Has Been Critical to Projects’ Feasibility
paragraphs: Based on our review of financial data for several major transit  infrastructure projects and transit-oriented developments that have been  (or are being) funded in part by other value capture strategies, these  strategies have generated—or are projected to generate—between    $20 million and $1.7 billion—or between 4 percent and 61 percent of the  total project costs—for nine major transit infrastructure projects; and    between $14 million and $750 million for the construction of parking  garages, parks, and other place-making and basic infrastructure at five  transit-oriented developments.
Tables 3 and 4 provide additional information about these projects and  developments, including their status and the types of value capture  strategies used.
Although revenue generated from other value capture strategies varies— and typically represents one of multiple sources used to fund a transit  project or the infrastructure supporting a transit-oriented development— this revenue can be critical to the financial feasibility of these projects and  developments. Several state and local transit officials we spoke with told  us that the use of one or more other value capture strategies was critical to  the feasibility of their project or development, typically because it filled a  funding gap. For instance:    Washington Metro officials told us that the New York Avenue Metro  station project would not have happened without nearby property owners’  financial support through a special assessment district. According to a key  private sector partner for the project, the local government’s financial  situation at the time prevented it from funding the entire nonfederal share  of the station’s construction costs. As a result, nearby property owners  voluntarily agreed to provide the remaining $25 million needed for the  station’s construction through a special assessment district.
Seattle Department of Transportation officials explained that a special  assessment district was critical to funding the city’s South Lake Union  streetcar line because the city of Seattle does not have a stream of money  dedicated to large capital transit projects.
Local transit officials in Portland explained that special assessment  districts and tax increment financing have played a major role in funding  the city’s streetcar system because, unlike many other cities, Portland  does not have a sales tax dedicated to transit. An official from one local  government also noted that Portland’s lack of a sales tax may explain why  residents are more supportive of tax increment financing than residents of  other cities.
MDOT officials told us that tax increment financing is being used to pay  for the construction of structured parking garages at several new transit- oriented developments throughout the state. According to MDOT officials,  finding a way to pay for the construction of structured parking garages  represents the biggest hurdle for all jurisdictions undertaking transit- oriented developments.
section_title: Several Factors Can Facilitate or Hinder the Use of Joint Development and Other Value Capture Strategies to Fund or Finance Transit
subsections: section_title: Public-Sector Coordination and Private-Sector Support Can Facilitate Implementation of Transit Projects Using Value Capture Strategies
paragraphs: Coordination among public-sector entities can facilitate the  implementation of projects using value capture strategies because such  projects generally require the involvement of multiple public entities with  different authorities. Specifically, transit agencies are responsible for  building, maintaining, and operating transit, but need to coordinate with  local and state governments that generally have authority over taxation,  land use, and development. For instance, when tax increment financing is  involved, transit agencies—which generally do not have taxing authority— often have to coordinate with local taxing authorities to help establish a  tax increment financing district and dedicate a portion of the tax  increment toward a transit project. In addition, because high-density  zoning around transit stations helps optimize the value available for  capture, transit agencies often work with local zoning authorities to  modify zoning regulations to allow for higher-density development. Zoning  regulations may also need to be modified to allow for mixed-use  development, particularly in joint developments.
Some transit agency officials told us that they have successfully  coordinated with local governments when using value capture strategies,  while others have faced challenges. For example, officials told us that  transit projects have been successful because of effective coordination  with local governments to rezone areas surrounding the transit project to  allow for more dense development, while effective coordination with  redevelopment agencies helped dedicate some of the tax increment  collected from the urban renewal area to transit projects and transit- oriented developments. Moreover, some transit agencies in California have  created joint powers authorities—partnerships with local jurisdictions,  which allow multiple public entities to operate collectively. Through such  authorities, officials told us that the partners can collaborate to establish  common goals and ensure that the design for the transit project is  integrated with the surrounding development. Conversely, officials from  other transit agencies said it was challenging to convince local  governments to allow for higher-density development near transit and they  are working to improve their relationships with local governments. An  official from one transit agency that operates a transit system through a  large metropolitan area told us the agency has not yet been able to  capitalize on some joint development opportunities because of  disagreements between the transit agency and some local governments  about the level of density a new development should have.
Transit agency and local government officials told us that support from  private developers advances the implementation of projects that  incorporate the use of value capture strategies. For instance, private or  nonprofit developers or other public sector partners must have an interest  in partnering with a transit agency to develop the area around a transit  station for joint developments to occur. Several officials from transit  agencies and local governments that we spoke with emphasized that the  support of private developers, typically financial support, was critical to  implementing their projects or developments. For example, officials from  a few transit agencies said that the upfront funds provided by the private  developer for one of its joint developments helped fund the transit  infrastructure, including the parking structure and other transit station  improvements. Another official from a different transit agency said that  in-kind land contributions (paid in lieu of a monetary development impact  fee) will be critical to implementing a planned transit project.  Furthermore, an official from one county government noted that  substantial interest from developers has allowed the county to be more  selective about which transit projects it undertakes because it can focus  on projects with the highest priority and revenue generation potential.  Some officials stressed that the private developer’s long-term support was  critical to the success of their joint developments because publicly funded  infrastructure projects may take longer than a typical developer is  accustomed to.
According to several transit agency and local government officials, the  support of private property owners in the vicinity of their transit project  was critical to the establishment of a special assessment district, which in  turn was critical to the financial feasibility of the project. In one instance,  the special assessment district—which was established while the transit  project was still in the planning stage—could have dissolved at two points  because of delays in acquiring other funding. However, the property  owners petitioned to maintain the district and the fees. Without this  support, a sizeable funding source for the project would have been  eliminated. Another local agency official told us that the support of one  property owner, who was a majority owner in a proposed special  assessment district, was critical to bringing a project to fruition. In  contrast, officials from another transit agency told us that opposition from  property owners surrounding a planned transit station prevented the  establishment of a special assessment district. The transit agency then had  to downsize the project because the available funding was less than  anticipated.
section_title: Transit Project Location and Design Influence How Much Value Can Be Captured
paragraphs: Transit project location and design—including zoning and parking  requirements—affect the feasibility of using value capture strategies and  the amount of revenue that can be generated. Based on our review of  literature and the views of transit officials, we found that some  metropolitan areas—and locations within these areas—have the potential  to raise more revenue than others through value capture strategies. For  example, officials from one transit agency told us their agency cannot  generate as much revenue from its joint developments as other  metropolitan areas in the country, such as the Washington D.C.,  metropolitan area or San Francisco, California, because ridership and  density are not comparable. Furthermore, an individual with expertise on  value capture strategies told us that land in locations that are deemed  regionally significant—areas that are important to a region’s economy, and  include employment, commercial, and residential areas—as opposed to  locations that are mostly residential in nature, can generate more value, or  revenue, through new transit infrastructure or improvements to existing  transit service. Also, as previously discussed, the extent to which land and  housing values increase depends on several project characteristics. The  quality of transit service and the project’s proximity to neighborhood  amenities, such as retail services, parks, and schools can generate larger  increases while lower relative incomes and higher crime rates have been  found to negatively affect the increase in property values. One transit  agency official added that a good transit system with a lifestyle level of  service—beyond simple commuting—is essential for successful use of  value capture strategies and transit-oriented development.
In addition, several officials, as well as an individual with expertise in the  area of value capture strategies that we spoke with stated that for value  capture strategies to be useful, it is critical that the project be designed  with land use zoning that allows for high-density development. High- density zoning is needed around transit infrastructure because it  encourages private development—particularly joint development—by  increasing the project’s revenue potential, which in turn helps optimize the  value available for capture by the public sector. On the other hand, the  need to replace parking in joint developments can limit the benefits of  using joint development. Commonly, joint developments involve replacing  surface parking with structured parking on a portion of the former surface  lot to allow space for new development. Several officials and experts that  we spoke with acknowledged a need to replace at least a portion of the  existing parking spaces, but emphasized that the construction of  structured parking—needed to maintain parking capacity and to free up  space on the parcel for new development—can limit the amount of value  that can be captured because such construction can substantially increase  a project’s cost, thereby reducing the revenue raised through the use of the  value capture strategy.
section_title: Unfavorable Economic Conditions Can Hinder the Use of Joint Development and Other Value Capture Strategies
paragraphs: Unfavorable economic conditions can hinder the implementation of transit  projects that incorporate the use of value capture strategies, as well as the  ability of value capture strategies to raise revenue. Most transit agency,  state and local government, and FTA officials that we spoke with told us  that the current economic downturn has negatively affected the use of  value capture strategies to fund transit. For instance:    Several joint developments have been recently stalled or terminated  because of the current weak economy. For example, an official from one  transit agency told us that one joint development project is on hold until  the developer can obtain financing for construction of the development. In  addition, this agency has identified other parcels that it would like to use  in joint developments, but the head of the agency’s economic development  department said the agency is currently waiting until the economy  improves before issuing requests for proposals for projects.
The use of tax increment financing is hindered by difficulty in selling  bonds on the market at a favorable interest rate due to a weak local  economy. Specifically, officials from several governments told us their  transit projects are (or were) delayed or postponed until the agency is able  to issue bonds at a favorable interest rate.
Revenue raised through development impact fees is directly dependent on  new development projects. Because new development generally slows  down during a weak economy, development impact fees may yield little or  no revenue. For example, officials from one county government told us  their timetable for collecting the total revenue needed to fund their transit  project will likely be longer than originally expected because of the weak  economy and lack of new development.
Special assessment districts are more difficult to establish, and the  assessments are more difficult to collect during a weak economy. Property  owners in the vicinity of transit may be less likely to voluntarily contribute  fees toward a project if they see a decline in their property value. On the  other hand, another official told us that the strong economic conditions  that preceded the current downturn helped facilitate implementation of a  project that was funded in part by a special assessment district.
section_title: State Laws Can Authorize but May Also Limit Use of Value Capture Strategies
paragraphs: Some state laws specifically authorize the use of value capture strategies  for transit purposes. For example, a California law passed in 1968  specifically allows the board of directors of any rapid transit district to  establish special assessment districts for the purpose of raising revenue  for transit. In Maryland, legislation passed in 2009 allows revenue  generated from special assessment districts to fund infrastructure  improvements, and related operations and maintenance, located in or  supporting a transit-oriented development. By contrast, some states do  not have laws authorizing the use of certain value capture strategies,  which effectively precludes their use of these strategies. For example,  Arizona does not have a law authorizing the use of tax increment  financing.
Furthermore, in some states, revenue generated through special  assessment districts or tax increment financing districts cannot be used  for funding operations and maintenance of the transit system. For  example, in California, a state statute permits the Southern California  Rapid Transit District to establish a special assessment for financing a rail  transit station or related facility. However, the statute specifically limits  the revenue generated from that assessment to the financing of the facility  for which it was levied—the revenue cannot be used for any other  purpose, including transit, transportation, or operating expenses.  Additionally, in Maryland, state statutes authorize the use of tax increment  financing for development projects, including transit-oriented  developments, but do not allow revenue from bond proceeds to be used to  operate and maintain projects.
Some officials we spoke with also reported that state laws have sometimes  indirectly hindered the use of value capture strategies. Some states limit  the amount of revenue that can be raised or the locations from which it  can be raised. For example, California’s Proposition 13, which amended  the Constitution of California, caps local property tax increases by limiting  the annual real estate tax to 1 percent of a parcel of property’s assessed  value (which can only be increased by 2 percent annually absent a change  in ownership). An official in California told us that this cap can limit the  amount of revenue that can be raised through tax increment financing  until or unless a property changes ownership. Also, in both California and  Oregon, tax increment financing can be used only in areas that are  “blighted” and are designated as redevelopment or urban renewal areas,  respectively. Moreover, in Oregon, the amount of land that can be  established as an urban renewal area is capped by state law—as little as 15  percent of the total land area or 15 percent of the total assessed property  value for municipalities with a population over 50,000 and 25 percent of  each for municipalities with a population under 50,000.
section_title: Stakeholders Report That Uncertainty over FTA Policy Can Hinder the Use of Joint Development
subsections: section_title: Transit Agencies Say FTA’s Joint Development Policy Is Confusing and Impedes Joint Development
paragraphs: A number of transit agency officials told us that following FTA’s joint  development guidance and requirements is confusing, burdensome, and  time consuming, which can impede the transit agency’s use of joint  development. These agencies are required to follow the FTA guidance  when joint development revenue is collected using land purchased as part  of a federally funded transit project, or improvements are being built as  part of the development using federal funds. Transit agency or local  government officials identified specific FTA joint development guidelines  they find confusing or burdensome. For example:    These officials have had difficulty understanding FTA guidance on which  types of developments are eligible to become joint developments and  which types of structures can be constructed using federal transit funds.  Some officials told us that, in their view, confusion partially exists because  the flexibility provided by FTA’s joint development guidance does not  necessarily seem consistent with federal statutes cited in the guidance.  Specifically, these officials told us that the flexibility in FTA’s joint  development guidance that allows for ancillary development to support  the overall vision of a transit project is not consistent with the law that  prohibits the use of federal transit funds for private use or benefit. Both  transit agency officials and FTA regional officials told us that as a result of  confusion over eligibility of certain uses and developments, increased  interaction between FTA officials and transit agency officials is often  necessary, which lengthens the approval process. These officials told us  that the guidance seeks to allow the maximum flexibility under the law,  and they are working internally to clarify which uses are eligible and  whether statutory changes are necessary for certain developments to be  eligible. FTA regional officials noted that interaction between FTA and  transit agencies earlier in negotiations could help ease the joint  development approval process. Sometimes transit agencies first contact  FTA about a potential joint development when negotiations between the  transit agency and the private developer are already too far along to allow  changes to the design without significantly disrupting or delaying the  development’s implementation. In 2007, FTA helped clarify certain uses  that are eligible by eliminating a requirement for transit agencies to find  the “highest and best transit use” for a joint development—a requirement  that transit agencies told us was challenging for transit agencies because  appraisers could not properly define projects in these terms.
These officials are unclear to what extent FTA requires parking  replacement in joint developments, particularly when they plan to convert  existing surface park-and-ride lots into transit-oriented developments.  FTA’s joint development guidance does not provide examples of shared  parking, but does address parking replacement. In response to a concern  raised by a commenter, FTA stated that “FTA does not require [transit  agencies] to replace parking spaces on a one-to-one basis if those spaces  are used for joint development purposes and using them for such purposes  will not decrease public transportation trips to and from the station.” In  addition, FTA officials told us that shared parking arrangements are  allowed with complementary uses such as theaters, so long as there is an  agreement in place that spaces will be available primarily for transit  purposes—which typically involves transit riders using park and ride lots  between mornings and afternoons, Monday through Friday. However,  several local government officials told us that FTA required that the  agency replace all existing parking spaces, and did not allow shared use  even though arranging a shared parking agreement with the new  development, or reducing the total number of spaces, was preferable to  replacing all existing surface parking with parking garages at great cost.  Another agency interested in constructing a joint development on an  underutilized surface park-and-ride lot told us the joint development  guidance is unclear as to whether FTA would allow the agency to replace  all the current parking spaces or whether FTA would ask for the agency to  return the funds invested by FTA to purchase the land for the park-and- ride lot because the parking spaces were not used to support transit—the  original intent of the FTA investment.
Transit agency officials told us that federal laws require they receive  highest possible return value for the sale of property through a  competitive bidding process and these requirements can be burdensome in  certain circumstances. FTA requires transit agencies to receive the highest  possible return from the sale of property purchased using federal grant  funds. Transit agency officials told us this requirement can stall  negotiations with developers and limit flexibility, which transit agencies  need to create incentives for investment in transit-oriented joint  developments because these developments can be more expensive to  build than traditional developments. One agency cited competitive  bidding requirements as an obstacle to a proposed joint development in  which the developer plans to develop transit-agency-owned-land as part of  a larger adjacent development—an arrangement that would give this  developer a competitive advantage. Transit agency officials told us that in  this case, when the outcome is likely predetermined, the requirement  could add time and cost to the efforts of both the public and the private  sector. FTA officials highlighted that there are established procedures to  potentially grant a waiver from this requirement. In addition, such  requirements promote full and open competition.
One transit agency official told us that federal requirements to maintain  continuing control over property purchased with federal funds can be  confusing and burdensome. Specifically, if a property purchased with  federal transit funds is sold for joint development, FTA requires that the  grant recipient maintain effective continuing control of the use of the  project property. The transit agency official told us that although the  joint development guidance describes several methods of maintaining  effective continuing control, FTA regional officials require a deed  restriction—and monitoring of the property indefinitely to ensure the land  is being used as specified in the deed restriction is a long-term burden for  the agency and an impediment to creating a transit-oriented development .  FTA officials told us these requirements reflect governmentwide  procurement or excess land disposal requirements, and FTA regional  officials said they do their best to help transit agencies solve these types issues within the law.
Transit agency officials noted that federal restrictions on the use of  revenues generated by joint developments can be a hindrance for transi agencies. Per statute, the proceeds of a sale or lease of land purchase d  with federal dollars must go back to FTA or be applied toward other  eligible capital transit projects. Some transit agency officials stated tha FTA’s requirement to use joint development revenue for capital transit  purposes precludes the use of these funds for operations or maintenance, or to acquire land for future transit-oriented joint development. F stated, however, that transit agencies are permitted to use joint  TA has  development revenues for these purposes in certain circumstances. A one agency, officials told us they would like to see their agency’s joint  development revenue (for projects with a federal interest) go into a  transit-oriented development fund. In this official’s view, FTA’s  requirements prioritize earning revenue from joint developmen than as a catalyst for transit-oriented development and livable  communities.
While FTA guidance is confusing or burdensome to many transit agen officials, a few others with extensive joint development told us their  experience using the guidance has helped clarify the process and lessen the burden. Officials from one transit agency told us that although the  requirements are initially confusing, they have learned through experience  t  to anticipate and work through significant issues. According to officials a these agencies, joint development guidance issued by FTA in 2007 is an improvement over past versions, and FTA regional officials have been  helpful in clarifying FTA’s requirements. However, according to some o these officials, additional clarification and guidance on which typ developments and structures are eligible for joint development,  particularly given recent policy changes due to DOT’s livability in could help ea developers.  se the process and potentially entice more private  FTA officials told us they are aware of ongoing confusion, and noted that  additional issues have arisen because of recent policy changes due to the  current administration’s livability initiative. These officials also told us that a task force is clarifying activities that are eligible for support through the  provisions and applications of FTA’s joint development requirements,  including whether transit funds can be used to purchase land and how to  dispose of land or release it to other government entities, such as housing  authorities or regional governments. In addition, FTA’s 2007 joint  development guidance indicates that FTA intends to consolidate guidance  on the eligibility of joint development improvements currently appended  to three circulars (guidance for new Major Capital Investments, Grants  Management, and Formula Capital Grants), as a stand-alone FTA Circula r  titled The Eligibility of Joint Development Improvements under Federal  Transit Law. As of July 2010 this Circular has not been issued.
section_title: FTA Is Not Directly Involved in the Use of Other Value Capture but Some Strategies, Federal Programs Can Affect the Use of These Strategies
paragraphs: According to FTA officials, FTA has no authority on the use of other valu capture strategies because they are administered by local governments.  FTA’s role is primarily to provide the federal share of capital constructio and land acquisition costs when a local share is funded through a value  capture strategy. FTA officials told us that i value capture strategy as a source of local funding for a transit project,  t  they evaluate the viability of the revenue source and the likelihood tha revenue projections will be met in the future the same as they would for  any other proposed local funding source.  f a transit agency proposes a  However, transit agency officials told us that past New Starts project  selection criteria and program requirements limited the competitiveness of some transit projects that promote economic development—an important  element to the successful use of value capture strategies. For example:    Several transit agency officials told us that the New Starts program’s past  s  emphasis on cost effectiveness favored less expensive routes over route that better incentivize economic development. For example, the cost- effectiveness criterion favors travel time savings, which puts streetcar o light rail projects at a disadvantage because they are often designed frequent stops to promote economic development and create value for  property owners. Furthermore, features of a transit-oriented  development such as parks, bike access, and pedestrian amenities add  costs and potentially make them less competitive. Several officials  representing potential project sponsors with a planned contribution fr value capture strategy, told us their projects will not be competitive for  New Starts funding because frequently stopping trains, designed to  generate economic development, do not necessarily generate the travel  time savings needed to meet federal cost-effectiveness requirements.
Similarly, transit officials told us that the New Starts cost-effectiven criterion limits the potential for joint development by deterring land  acquisition near transit stations because costs for extra land purchases  potentially reduce the cost effectiveness and competitiveness of a  potential New S tarts project. According to several transit agency officials,  this requirement in effect allows transit agencies to acquire land to attract  riders through surface parking lots, but not through transit-oriented joint  developments.
Other New Starts program requirements can also limit transit agencies’ us of joint development and other value capture strategies.
Some transit agency and local government officials told us that ridership  forecasting models generally used to determine cost-effectiveness for New Starts projects limit longer-term transit-oriented development  opportunities by creating unrealistic requirements for parking spaces stations. For instance, officials at one transit agency told us the results of  their forecasting models require that they purchase land to construct park and-ride lots near six proposed stations, even though they expect to  attract riders through high-density transit-oriented developments arou nd  the transit stations once construction of the transit system is completed.  However, according to these officials, the New Starts process does not  effectively take into account the effects of future high-density transi oriented developments (which are in-line with FTA’s livability goals) on  parking when seeking funds for transit capital projects. In effect, the need  to purchase land for the park-and-ride lots significantly increases a  project’s cost, which reduces the project’s cost-effectiveness. Moreover,  the transit agency pursues transit-oriented joint development in the future parking replacement requirements—in this case imposed by other local  governments—could create a challenge to constructing transit-oriented joint developments on the sites of the parking lots built for the new lin e.  FTA officials explained that FTA does not have parking requirements in  the New Start program and that project sponsors assume a number of parking spaces in their ridership models based on the design of their  proposed project. FTA requires that the ridership estimates for the project  be consistent with the number of parking spaces the project sp intends to build. However, without accounting for future high-density  development around the station in the forecasting model—which a transit  agency cannot do until these effects are taken into account in  metropolitan planning organization travel forecasts—the results of the  onsor  model would likely include a ridership level that does not generate enough  benefits to make the proposed system competitive in the New Starts grant  evaluation process.
According to officials at a few transit agencies and local govern length of the New Starts grant approval process can erode the  effectiveness of value capture strategies. For example, one local  government official told us that during the multiyear review of a proposed  New Starts project, construction costs for the project more than doubled,  while the contribution from a special assessment district remained fixe through an agreement with affected property owners. As a result , the  proportion of the local share of the project paid for using special  assessment district revenue was significantly lower than anticipated,  forcing the local government to draw from other local revenue source complete funding for the project. In addition, another transit agency  official noted that private developers often work with narrow timelines  an effort to open the development during favorable market condition Developers calculate the feasibility of a development over about 12  months, whereas transit projects can take several years to plan and  develop. FTA noted that the New Starts process includes multiple st that are required by law, and shortening the process would require  legislative changes. In addition, FTA officials cited a number of reasons that a project could be delayed during preliminary engineering or final  design that are outside FTA’s control such as changes to a project changes in local political leadership, or the loss of local financial  commitment.  s.  ’s scope,  DOT and FTA have recently implemented and proposed several changes to  the New Starts program and procedures. In 2009, FTA revised the weights  given to each of the project justification criteria in accordance with  direction in the Safe, Accountable, Flexible, Efficient, Transportation Equity  Act: A Legacy for Users (SAFETEA-LU) Technical Corrections Act of 2008  that they be “…comparable, but not necessarily equal….” As part of this,  according to FTA, the weight given to cost effectiveness was lessened and  the land use and economic development criteria were split apart and each  assigned specific weights rather than being considered together as had  previously been the case. In January 2010, the Secretary of Transportation  announced that transit agencies are no longer required to have at least a  “medium” cost-effectiveness rating for their project to be recommended in  the President’s budget for New Starts funding. In addition, FTA issued a  request for comments in an Advance Notice of Proposed Rulemaking in  June 2010 to seek input on how to improve its calculation of ‘‘cost  effectiveness’’ and input on how FTA should evaluate economic  development effects and environmental benefits in the evaluation and rating  process for the New Starts grant program, among other things. This  rulemaking follows FTA’s change to consider economic development  separate from land use. Prior to July 2009, the project justification rating  was split evenly between cost effectiveness and land use. These changes  have encouraged some transit agencies that are considering the use of value  capture strategies, however the overall effect is still unclear. For some  transit agencies officials, the removal of the medium cost-effectiveness  rating requirement may affect planned transit projects, but one transit  agency official noted that regardless of the change, the routes will still need  to be cost effective because finding funds for the local match will always  limit how much additional land or other user-friendly amenities the agency  can buy. One agency official told us that planned transit routes would be  aligned differently if spurring economic development becomes a heavily  weighted criterion in the New Starts process. Another agency official said  that changes are not going to alter where the agency plans new projects;  however, the elimination of a minimum cost-effectiveness rating certainly  might influence agency plans to acquire additional land in station areas. FTA  officials told us they are not sure how the recent and proposed changes to  New Starts project evaluation criteria will affect the number or cost of  projects seeking funding under the program. Transit agencies could have  more flexibility to purchase land for joint development, or additional  parking to help meet ridership projections, which has been a challenge in  the past. However, FTA also noted that local transit agencies will still need  to fund the local match, which can also be a challenge.
section_title: Stakeholders See an Expanded Federal Role in Supporting the Use of Value Capture Strategies through Potential and Existing Federal Loan Programs
paragraphs: Some stakeholders and transit agency officials we spoke with told us that  the federal government could further support the use of value capture  strategies by providing financing options for projects with a value capture  revenue stream. Some project sponsors and experts believe federal loans,  loan guarantees, or credit enhancements could help bridge a financing  gap. Several agency officials noted that the federal government could  better promote livable communities and transit-oriented development if it  could help agencies overcome parking replacement challenges through  targeted grants or loans.
Currently, DOT provides loans for major capital infrastructure projects  through the TIFIA and RRIF loan programs. However, most TIFIA projects  have been used to finance highway projects, typically with user charges or  another revenue source to repay loans. Transit systems farebox revenue  rarely covers capital and operations expenses, so another revenue stream  is necessary to repay loans. Value capture strategies are one way to create  a revenue stream from a transit project to repay the loan. Two specific  projects—Denver’s Union Station and San Francisco’s Transbay Transit  Center—are planning to use tax increment financing to repay TIFIA and  RRIF loans.
In recent years, proposals to expand federal financing for infrastructure  projects have surfaced from stakeholders, including the current  administration and Congress. Proposals have included creating a National  Infrastructure Bank, other forms of a national infrastructure loan fund,  and expanding TIFIA’s allocation limits. DOT recently announced that  demand for the TIFIA program now exceeds budgetary resources, and as a  result, DOT will now, among other changes, evaluate projects against  criteria including livability and economic competitiveness.
section_title: Conclusions
paragraphs: Value capture strategies can be an effective means for the direct users and  beneficiaries of a transit system to contribute to its funding, although past  use of these strategies to fund and finance transit is limited. Because these  strategies largely involve funding sources administered by local  governments, the federal role in the use of value capture strategies is likely  to remain relatively limited. However, federal transportation policies can  affect local governments’ ability to use some value capture strategies,  particularly when a federal grant is part of the funding for a transit project.  DOT’s proposal to change how it evaluates economic development effects  in the New Starts evaluation and rating process, and the removal of the  requirement that projects receive a medium cost-effectiveness rating or  better to be recommended in the President’s budget could enhance federal  funding prospects for transit projects with contribution from a value  capture strategy, as well as transit agencies’ ability to pursue joint  development. However, value capture strategies are not a panacea. Funds  generated through the use of value capture strategies are typically only a  limited portion of the total funding needed to complete a transit project.  Additionally, states may preclude or limit the use of these strategies or  support may not be forthcoming from all the private- and public-sector  parties whose concurrence is needed to implement the strategies.
Moreover, transit agencies’ confusion about aspects of FTA’s joint  development policy hinders the use of this value capture strategy. This  confusion—despite the 2007 guidance from FTA—about which types of  developments and structures are eligible for joint development and how  many surface parking spaces must be replaced with structured parking has  contributed to project delays and potentially limited transit agencies’  ability to facilitate transit-oriented development and “livable” communities  along transit corridors. Clarifying early in a project’s design phase which  types of structures are eligible for joint development could streamline  negotiations with developers and FTA and produce more cost-effective  results for all parties. In addition, clarifying FTA’s requirements and  conditions for parking replacement would reduce the potential for transit  agencies to design projects with more parking than is actually needed or  required and to invest money in costly structured parking that could be  put toward enhancing other aspects of the project’s design, including  economic development components.
section_title: Recommendation for Executive Action
paragraphs: To facilitate transit agencies use of joint development, we recommend that  the Secretary of Transportation direct the Administrator of the Federal  Transit Administration to issue additional guidance on federal joint  development requirements including at a minimum,  further clarification on the types of developments and structures that are  eligible under current law, and  further clarification on any requirements or conditions for parking  replacement.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Transportation for  its review and comment. DOT agreed to consider the recommendations in  this report, and provided technical comments, which we incorporated, as  appropriate.
We are also sending copies of this report to interested congressional  committees, the Secretary of Transportation, and other interested parties.  In addition, the report will be available at no charge on the GAO Web site  at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  David Wise at (202) 512-2834 or wised@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Individuals making key contributions to this report  are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To address the use of value capture strategies to fund or finance transit,  we reviewed (1) the extent to which transit agencies and state and local  governments use joint development and other value capture strategies to  fund or finance transit; (2) what selected stakeholders and literature  identified as facilitators of, or hindrances to, the use of joint development  and other value capture strategies to fund or finance transit; and (3)  stakeholders’ views about the effects of federal policies and programs on  the use of joint development and other value capture strategies to fund or  finance transit.
We addressed four value capture strategies: (1) joint development; (2)  special assessment districts; (3) tax increment financing; and (4)  development impact fees. We chose to focus on these strategies because  our review of relevant literature on value capture strategies and interviews  with relevant stakeholders found that these four strategies were the most  commonly used value capture strategies by transit agencies and state and  local governments to fund or finance transit.
To determine the extent to which transit agencies and state and local  governments use joint development and other value capture strategies to  fund or finance transit, we requested information from the 71 transit  agencies that we identified as operating a fixed-guideway system— commuter rail, heavy rail, light rail, streetcar, and bus rapid transit—and  the 30 largest U.S. bus agencies. We requested information on the use of  each type of value capture strategy in projects on or around any of their  transit stations, including the number of projects and the lead agency of  the project. In response to our request, we obtained information from 55  of the 71 transit agencies contacted. We then analyzed the information  reported by the transit agencies. To ensure the reliability of the  information provided, we interviewed stakeholders about the design of  our information collection instrument, reviewed responses to ensure that  the value capture strategies reported met our definitions of each value  capture strategy, and when possible corroborated the reliability of the  information through interviews or other agency documents obtained. The  information we collected was deemed reliable for our purposes.
We also conducted site visits to, or interviewed officials from, transit  agencies, state and local governments, and private developers in Atlanta,  Georgia; Dallas, Texas; Portland, Oregon; Los Angeles, Sacramento, the  San Francisco Bay metropolitan area, and San Jose, California; Seattle,  Washington; and the Washington/Baltimore metropolitan area on selected  transit or transit-related projects incorporating the use of value capture  strategies. Using information from literature that we reviewed and  information we collected from the 55 transit agencies, we selected this  nongeneralizable sample of cities and metropolitan areas based on criteria  we established, including locations where value capture strategies had  been used or were under formal consideration for future use and  geographical diversity. Where available, we collected and reviewed  information obtained from transit agencies on the costs and value capture  revenue for projects that used value capture strategies.
To identify facilitators of, and hindrances to, the use of joint development  and other value capture strategies, we reviewed relevant literature on  value capture strategies. We also interviewed transit agency, state and  local government, and FTA headquarters and regional officials, as well as  representatives from private developers and individuals with expertise in  the area of value capture strategies. In addition, we reviewed applicable  state statutes and regulations.
To identify stakeholders’ views about the effects of federal policies and  programs on the use of joint development and other value capture  strategies to finance transit, we interviewed federal, state, and local  officials to identify ways federal policies and programs affect the use of  value capture strategies. We also reviewed applicable federal regulations  and statutes to determine federal requirements and program implications  for joint development and other value capture strategies.
We conducted this performance audit from August 2009 to July 2010 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Descriptions of Select Transit Projects or Developments
subsections: section_title: Major Transit Infrastructure Projects (by Percentage of Revenue Contributed by Value Capture) Atlanta BeltLine
paragraphs: Maryland Department of Transportation is planning to lease state-owned land to a developer to  construct a transit-oriented development at the Owings Mills Metro Station in Baltimore County, MD.  Project sponsors plan to use tax increment financing to help pay for the construction of two state- owned parking garages at the transit-oriented development. According to State officials, revenue  generated from a special assessment will be used to pay for operations of the state-owned garages,  roads, and other improvements; however it may also be used to help pay bond debt in the event that  the tax increment financing revenues are insufficient.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Raymond Sendejas, Assistant  Director; Lauren Calhoun; Elizabeth Eisenstadt; Terence Lam; Matthew  LaTour; Amanda Miller, Sara Ann Moessbauer; Jaclyn Nidoh; Josh  Ormond; and Gretchen Snoey made key contributions to this report.