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.]


19 responses to “Bill Explores “Transit Benefit Districts””

  1. A few things which are a bit unclear to me, even after reading the two explainatory documents.

    1) Does implementation of a TBD (as proposed) cause an increase in the effective tax rate that property owners pay, similar to a LID, or is it simply diverting increased revenues caused due to increased property valuations, a la an urban renewal district?

    2) How does it interact with BM47/50–are increases in value attributed to nearby transit improvements not subject to the 3% cap on assessment increases?

    3) A longstanding criticism of urban renewal is that UR tends to assume any change in value of subject properties are the result of the improvements; and not the result of variations in the economy or real estate market. How is this addressed? (The summary doc says “The Department of Revenue shall adopt rules applicable to transit benefit districts that establish a methodology for determining the total attributable increase in land value and individual property assessments under this section”, which isn’t reassuring). In a down market, could it be determined that a transit-oriented development caused properties within a TBD to decrease in value less than the market overall, and thus still be subject to a levy?

    4) Why only transit? Why not finance other infrastructure improvements in this fashion? My immediate concern is this may make transit projects less attractive to property owners and developers, compared to other projects, if the transit project comes with a tax increase. After all, we don’t fund road construction in this fashion. (Maybe we should!)

    At any rate, color me skeptical.

  2. It’s a minor concern, but one of the things about the LO streetcar extension that really bugs me is the fact that it would take away the decent but second rate transit we have now (1/2 block from a 35 stop which averages about 26 minutes to/from downtown Portland), replace it with an inferior service (4 blocks away and 45 minutes to/from downtown), and then hit us with an LID or TBD.

    We bought our townhouse style home during construction and spent a lot of money putting in modifications so that we wouldn’t be forced to move as we aged. One of the location/location reasons we moved here was because of transit access, not the prospect of fliping our home because of some perceived increase in value after degrading transit service, making it slower and harder to use.

    There’s no problem with new development picking up the tab for all of the costs of new development. The problem is with all the various schemes which leave existing property owners and residents holding the bag, picking up the pieces, and covering the check after all the promoters and beneficiaries go on to their next big thing.

  3. Portland is certainly not alone in this issue. Couldn’t we benefit from observing what other cities—-in fact, scores of them have done—to both make urban housing and high density development affordable and to keep costs of public transit under control, as well? That’s why I have tried to raise the issue of high capacity and rapid bus transit, as with the double deckers.

    Personally I am not obsessed or enamored with autos, but recognize the fact that for many people they are indispensable. When a person needs to get somewhere distant in a hurry, and isn’t settled in a commuting routine, it’s about the only possibility. I just could never have seen myself getting to a construction job fifteen miles away at 7 am in the morning on a bicycle. Probably be DOA. Moreoever, those who can get to their employment on a bike, or easily on public transit, may, just as well as not, have a job in the private sector that actually relies on consumerist behavior. So that seems rather inconsistent.

    There are a lot of advantages to high density urban living, and Portland with its mixture of funky, old town scenes and low maintenance condo living is one city that does it pretty well. But keeping the costs down is a big issue, IMO. Having worked on a number of high rise projects I can see some of the factors that drive the prices high—–but not all of them. Some of it is still a bit puzzling. Maybe what is needed is mass production technology applied to urban condos. An updated version of the post war “manufactured housing” concept. Or like Henry Kaiser’s Liberty Ships. I know it would be possible.

    And one other point on keeping urban living costs under control—-ever notice how many cities around the world do have affordable urban living? I’m sure people in cities in South America or SE Asia aren’t particularly rich, yet their cities have a of of high rise buildings to live in. How did they do it?

  4. OK, lots of bolt together components and several cranes going at the same time. We have been making some progress here, as is in concrete floors poured over metal panels, rather than formed-in-place floors. I’m not sure if the Chines methods would meet our engineering requirements since the bolts could have a poor shear rating. Yet that problem could be solved. I would feel safe in it, but have a hunch that those methods might nor pass our codes.

    Very impressive, nonetheless, and it shows that it can be done. I was going to mention China.

    Perhaps units assembled in a factory and then assembled together with large scale fasteners acceptable to our engineering standards for seismic safety? Like stacked cargo containers—–but with 1000 sq. ft. of living area? Plus… much more than a basic, utilitarian design, as the R.C.’s did. Hey, I’m a builder and sure wouldn’t want to live in any old plain jane cube. The typical high rise condo bldg. of heavy concrete floors setting on top of concrete columns never has made me feel too safe, although they are sound proof and low maintenance. Especially if you are more than five stories up. A building can only sway so much with the rolling ground motions….

  5. Response to Engineer Scotty:
    Scotty wrote:

    A few things which are a bit unclear to me, even after reading the two explainatory documents.

    1) Does implementation of a TBD (as proposed) cause an increase in the effective tax rate that property owners pay, similar to a LID, or is it simply diverting increased revenues caused due to increased property valuations, a la an urban renewal district?

    TBD is similar to an LID; it is outside of the ad valorem property tax. It does not divert any property tax revenues, like UR.

    2) How does it interact with BM47/50–are increases in value attributed to nearby transit improvements not subject to the 3% cap on assessment increases?

    Land value increases (uplift) are not limited to the M-50 3% cap on assessments, because it is not the general property tax.

    3) A longstanding criticism of urban renewal is that UR tends to assume any change in value of subject properties are the result of the improvements; and not the result of variations in the economy or real
    estate market.How is this addressed?(The summary doc says “The
    Department of Revenue shall adopt rules applicable to transit benefit districts that establish a methodology for determining the total attributable increase in land value and individual property assessments under this section”, which isn’t reassuring). In a down market, could it be determined that a transit-oriented development caused properties within a TBD to decrease in value less than the market overall, and thus still be subject to a levy?

    Value capture is not linked to improvements at all. Yes, I can think of two methods of measuring land value uplift: longitudinal (after the station designation – previous 10-yr trend in the district), or geographic comparison (current LV change within district – current LV change outside district, in the vicinity). DOR can establish conditions for choosing one or the other; and other similar measurements. If the uplift is zero or less, then no levy would be collected. But a multitude of empirical studies have consistently shown significant uplift caused by the presence of a rail station.

    4) Why only transit? Why not finance other infrastructure improvements in this fashion? My immediate concern is this may make transit projects less attractive to property owners and developers, compared to other projects, if the transit project comes with a tax increase.
    After all, we don’t fund road construction in this fashion. (Maybe we
    should!)

    No reason other kinds of projects couldn’t be financed from land value increments. But the TBD is one tool specifically tailored to rail transit in that it emphasizes a uniform method to be used in all TOD-designated stations within a given rail corridor.

    At any rate, color me skeptical.

    Thanks for the comments. Maybe you’d like to have a look at the working paper which explains the TBD approach in greater detail.

    [Moderator: Personal info redacted — ES]

  6. This is a great proposal, and a long time coming. Enacting this enabling legislation at the state level will make Oregon a national leader in value-capture financing for transit, and could provide a much-needed jump-start to the economy, by enabling the construction of new transit lines and TODs…

  7. In response to RA Fontes’ comment:
    “We bought our townhouse style home during construction and spent a lot of money putting in modifications so that we wouldn’t be forced to move as we aged. One of the location/location reasons we moved here was because of transit access, not the prospect of fliping our home because of some perceived increase in value after degrading transit service, making it slower and harder to use.”

    First, before any TBD would be formed through a city council resolution, for example, a study of land uses and density within a quarter mile radius of the proposed station would be required (as with any LID). Then a projection of land value increases would be made based on the anticipated upzoning and increased density over the life of bonds or pay-as-you-go financing to complete TOD improvements, such as pedestrian and bicycle access.

    In primarily single-family station areas, a TBD is unlikely to support adequate land value capture to pay off TOD amenities. If the bill were written with a wider radius, such as a half mile, then some residential areas with sufficient multi-family density might generate enough revenues to support limited TOD improvements.

  8. Thank you, Kris Nelson, for your explanation regarding a TBD.

    With MLR, Oregon City and Gladstone lose their single-seat options to Portland but people who live close to the Lake or Park stations will get significantly improved service. The LO streetcar project seems to be unique in that it degrades service for almost everyone, even for people who live close to stops.

    Our home is in a mixed commercial-residential area, less than three blocks from the WSL ROW. Wizer’s is across the street and the north 1/3rd of our block is commercial. Even a 1/4 mile radius from the B Avenue stop will include our home as well as nearby retail property.

    This combination of degraded service and proximity to non-residential property may be so rare that it isn’t worth much more space in a general discussion of TBD’s, LID’s, and similar schemes. However, I do think that people who find themselves in similar circumstances need to be protected from overly broad legislation.

  9. This is such a money grubbing horrible idea that it will NEVER pass.

    Same as the TOD/commercal tax abatement idea.

    These are all part of the call by Michael Jordan to find money to keep the “agenda” alive.

    And they fly in the face of the trend and inevitable movement in the opposite direction.

    It’s amazing that Jordan recognized the failures that he did in last summer while at the same time putting out the call for money to continue it all.

    You’re obviously not noticing but the
    scramble for fees, taxes and abatements for this agenda is not getting a very good reception.

    Besides these bills going nowhere, the Clackamas fee will be repealed, the UR petition will succeed, Milwaukie residents are moving to stop their $5 million share of MLR, LO will halt their funding of the Streetcar and Foothills TOD and the Clark County C-Tran vote will kill funding for operating CRC light rail.

    Naturally that won’t deter the proponents from pushing harder to force upon the communities what they do not want and do not want to pay for.

  10. So, Steve, you are now predicting that the entire CRC project will be killed? Oregon will not fund it if does not have light rail.

    And you should be concerned about CC voters not paying for the Sellwood bridge. Because, of course, if it is only funded by Multnomah County and Portland, we will just build a streetcar and pedestrian bridge… right?

  11. No need to build a new pedestrian bridge; simply close the existing bridge to traffic. It’s only structurally obsolete if it needs to handle the weight of automobiles.

    If and when it becomes time to extend streetcar across the Willamette in that location, a bridge can be built at that time.

    Sounds good to me! :)

  12. No Chris I said what I actually said.

    But to elaborate, the CRC as TriMet/Metro/Adams et al demands, will never be funded. Clark County voters will defeat the C-Tran measure to operate light rail.

    Of course that won’t deter the push.

    I heard Tina Kotek essentially laugh at the suggestion that a no vote by Clark county would prevent light rail or the bridge.
    She also, like all other proponents, avoided the true cost problems with light rail and the freeway interchanges.

    IMO the current sea change will proihibit the excalating madness that has tripled the cost of the CRC to the many billion.

    The “cost doesn’t matter” era is over.

    The Sellwood bridge will be built as designed and Clackamas County will not pay for part of it.

    It’s a foolish design that, again, wastes millions.

    There are so many ways that the chickens are coming home to roost that it is astounding that
    you can’t see any of them.
    TriMet itself is plunging into the fiscal abyss approaching the imminent splat.

    Oh well.

  13. Whenever someone hears a politician or an academic using the word “fairness” when it comes to taxation, you should immediately be looking for the screw job. This proposal is just that. It’s a regressive tax that created a disincentive for living within and developing transit corridors.

    Let’s frame this argument in a different way: If you purchase a hybrid car or install solar panels on your home, should you be taxed more because of your behavior? No, of course not, that would be insanity. You’re creating a disincentive for behavior that helps reduce negative externalities and improves sustainability. This proposal is no different.

    If you really wanted this proposal to be fair, and if the author of this research was truly interested in sustainability, you would be taxing people who live outside transit corridors and using that money to subsidize transit development for those people who are smart enough to live inside them. This proposal would do the opposite, and push people further away from them. Mark my words, this bill is poison, regressive, and a very bad idea.

  14. Regarding the CRC:

    The “elaborate game of chicken” comment seems particularly relevant. None of the parties at the table has the political power to checkmate the others; nor is any one of them going away anytime soon.

    That said–were I to guess who blinks first, it would be ODOT. The departure of Lynn Peterson and Michael Jordan to Salem may have consequences going forward. The next milestone for Governor Kitzhaber is this June, when Michael Nelson’s 2nd term at the Oregon Transportation Commission expires–if the governor is serious about reform, he find someone who ain’t a realtor to occupy the post.

  15. “It’s amazing that Jordan recognized the failures that he did in last summer while at the same time putting out the call for money to continue it all.”

    This is called giving up the short con, to set up the long con.

  16. Steve, do you think that people using the Sellwood Bridge to get from Clackamas County to Clakamas County, or people from Clackamas County and use it to get to/from Multnomah County, shouldn’t have to pay anything towards the Sellwood Bridge?

    The Multnomah County portion of the funding is being paid for by a vehicle registration fee, which can’t tax people who come into Multnomah County (and use the bridge) but have their vehicle registered in Clackamas County.

    Overall, some of the people in Clackamas County have reasonable gripes (e.g. having to contribute to a bridge far away that they don’t ever use), but Multnomah County people are being affected far worse (the registration fee is almost four times higher there).

  17. some body,
    No, I do not think Clackamas County residents should pay for Multnomah county’s bridge. (That’s really for Milwaukie Light Rail)

    Because they don’t want to and were never asked.

    Before the shell game campaign began even Ted Wheeler thought it was ridiculous. “Why, after we neglected our bridge for decades would Clackamas county want to help pay for it?”

    The trips across the Sellwood Bridge to and from by CC has been debated ad nauseam on story threads. It means no more than it did the first discussion and does nothing to address or counter the core complaints against the scheme this is.

    No one needs to hear about the trips again. Or that it’s only $5 dollars (that’s not even true) No one needs to hear the bridge is old and needs to be replaced. Or comparisons to the Minneapolis bridge collapse.

    Multnomah County easily could have avoided the their vehicle registration fee. They are screwing their tax payers with the identical misspending that had them neglecting the bridge for decades. Only it’s worse today.

    Multnomah and Clackamas County both have seats on JPACT and both voted to give $204 million from Metro’s regional flex funds to MLR and $0.00 to the Sellwood Bridge.

    Multnomah County folks apparently find this acceptable and are now angered because Clackamas County folks do no. They are doing something about it.

    They already got stung by the ridiculous Green Line and Urban Renewal to pay for it.

    Clackamas county gave away $70 million in future infrastructure funding in that one JPACT decision alone. Lynn Peterson was the loudest voice.

    The county is huge with many transportation needs and a white paper detailing how they are NOT more rail connections to Portland.

    Clackamas county will also not approve the new Urban Renewal to fund their other $25 million for Milwaukie Light Rail.

    I’ll wager the Streetcar will not be paid for by LO or CC.

    Will Multnomah county throw fit over those too? Probably.

    But get over it and just have TriMet bond another $100 million against their future operations. Why not?

  18. I think it would make sense to merge all the transit in the state and call it Or-Trans or something like that. There is so much overlap and all the agencies basically do the same thing, anway, take federal money and transport people at a subsdidy. I think it would be awesome to have a state wide commuter rail and take it over from Amtrak.

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