Bill Explores “Transit Benefit Districts”

Update: 3/3/11

An update from Kris, the bill will get a hearing:

Great news: HB 3178 will be heard Fri., 1-3, in the Trans. & Econ. Dev. Comm., HR D. Also possible work session (vote). We’d suggest sending a letter of support to Co-chair Cliff Bentz, R-Ontario: rep.cliffbentz@state.or.us, and Vice Co-chair Patrick Sheehan, R-Clackamas: rep.patricksheehan@state.or.us.

Original Post: 2/21/11

Kris Nelson, principal of Geonomics Consulting and an adjunct faculty in Marylhurst University’s Sustainable MBA program, consults and researches on incentive taxation, renewable energy and policy, and sustainable business development. He’s co-authored several studies, articles, and policy proposals on land value taxation and value capture finance with Tom Gihring, Ph.D., of International Planning Consulting. He can be reached at krisjn@earthlink.net.

Oregon has become internationally recognized for its quality urban transit service and planning for development near rail transit stops. However the government-funded subsidies and incentives that have been available to developers for transit oriented development (TOD) are not inexhaustible, and cannot be relied upon to keep up with expanding rail systems and the corresponding interest in transit communities.

What is needed now is a new source of funding to support TOD that is targeted specifically for this purpose, yet will not impose a burden on local general taxpayers. Oregon could pioneer the next generation of walkable, attractive transit station communities if a market-based mechanism were available to finance the public infrastructure needed to support their development.

An innovative version of a special assessment district is currently being offered in the state legislature, termed a Transit Benefit District (TBD). This is a form of ‘value capture’, whereby the uplift in land values within a district circumscribing a rail station that is caused by the presence of rail transit access becomes a levy base. Proceeds from the captured share of land value gains are used by local jurisdictions to finance public works supportive of transit oriented development (TOD).

Place-making public improvements include right-of-way improvements, the enhancement of street connectivity and feeder transit connections, bicycle & pedestrian amenities, public art, parks and plazas. Revenue may also be used for gap financing of replacement or additional below-market rate housing.

Recovering land value increments attributed to public investments has dual purposes: (1) to finance public place-making capital improvements that support successful TOD; and (2) to spur highest and best land use supported by market demand, and inhibit the holding of idle sites in station areas.

A multitude of empirical studies have shown that as soon as station areas within a new rail corridor are announced, land values begin to rise, sometimes rapidly; then, when re-zoning to a higher density follows, the increased building capacity translates to a second, often dramatic increase in land values.

A TBD is similar to a local improvement district (LID), whereby a contiguous group of property owners share in the cost of installing new infrastructure (ORS, Chap. 223). But there are important differences: The LID is cost-driven; property owners pay a portion of the project costs. The TBD levy base is limited to annual land value increments – that is, community-created value “given” to property owners. This is the fairest form of taxation because it captures no value that owners themselves create through capital investment in building improvements. It is market-based because the levy amount is determined solely by the market response to a given transit station. If demand for TOD does not immediately manifest in higher land values, then district property owners will not be liable for any assessments on their land.

Oregon communities need this self-financing option as they struggle to recover from the economic slump and improve employment levels.

For further information, please see the attached summary of the TBD enabling bill (PDF, 32K) and an article (PDF, 97K) on the rationale and proposed implementation of TBDs.

[Ed. note – this legislative concept is now embodied in HB3178.]

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