The Trump administration has promoted the need to harness the windfall gains property owners enjoy when infrastructure is built in close proximity. The Legislative Outline for Rebuilding Infrastructure in America includes the following section:
1. Require Value Capture Financing as Condition of Receipt of Transit Funds for Capital
(A) Federal programs for transit capital projects do not require value capture
financing. Current law includes a broad definition of “value capture” to mean
“recovering the increased property value to property located near public
transportation resulting from investments in public transportation.” (49 U.S.C.
5302(24)). Value capture can include joint development, land value taxes, tax
increment financing, special assessment districts, transportation utility fees,
development impact fees, negotiated extractions, transit oriented
development, and air rights.
(B) Failure of transit authorities to use value capture financing reduces funds
available for transit capital projects.
(C) Amending the law to include value capture financing as a prerequisite for
Section 5309 Capital Investment (Discretionary) Grants, excluding Small Starts
projects, would increase resources available for transit capital projects and
decrease dependence on Federal grant programs for continued development.
We draw your attention to the various forms of value capture listed in 1A. It is important for readers to recognise the differences inherent in the various forms of value capture. Please read our submission outlining these differences to the Select Committee to the Scrutiny of Government Budget Measures.
The most concerning is Tax Increment Financing. TIFs lift the tax revenue take from the density dividend of infrastructure. The additional number of businesses in a prescribed area face a higher tax take in the form of either sales, company or some other from of locally orchestrated tax. TIFs are a tax upon the productive sector. Thus the property lobby heavily support this form of value capture. US infrastructure financing expert Rick Rybeck calls this nothing more than a form of ‘revenue segregation’. Land value capture ensures the ‘beneficiary pays’ principle is met. Landholders who benefit from windfall gains are required to repay the public according to their locational advantage.
The Trump infrastructure proposal has been criticised for the large scaling back from a $1.5 trillion electioneering promise to a $200 billion spend. This implies the need to utilise land value capture to deliver the needed infrastructure outcome. Using record low interest rates, infrastructure bonds could be sold to the market to finance the upfront costs. Over time the rise in land values is recouped via the land value capture mechanism to repay bondholders.
In further reading of Trump’s infrastructure proposal we notice a theme, a theme familiar to many Australians. The document sets the scene for an alternative funding stream – the large-scale privatisation of infrastructure. The ability to privatise airports has been increased. The removal of public funding priorities for state owned clean water facilities has been floated as an incentive for greater private investment. The public control of hydropower is also under question.
Some may well be joining the dots by now. We expect the executives at Transurban certainly are. Tolling flexibility has been introduced for interstate highways. The commercialisation of rest areas has also been proposed. Thankfully this does not include the right to charge for water or toilet access.
It appears that public lands will be opened up for mining on the proviso that mineral rents are quarantined for the $12 billion infrastructure backlog the US Fish and Wildlife Service requires.
In short the vague term ‘value capture’ is held out as an olive branch to counter the mass privatisations proposed. What future will America adopt – public land sales and privatised infrastructure or land value capture?