Funding highway projects with value capture could speed project completion


Photo: SRF Consulting Group, Inc.

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

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

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

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

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

Read the full article in the March issue of Catalyst.

Posted in Infrastructure, Transportation funding, Transportation research
One comment on “Funding highway projects with value capture could speed project completion
  1. Arlene Mathison says:

    This comment from lead researcher and Humphrey School of Public Affairs associate professor Jerry Zhao responds to a question about the fact that the estimated amount of taxable property value increase is less that the total cost of the road ($17 million compared to $50 million).

    Transportation improvements may create economic benefits, of which the growth of property value is only a portion. Other benefits may show up as the growth of personal income and business activities. Property values could be taxed at the local level; likewise, personal income and business activities can translate into tax revenues at other levels of government. This is the reason why transportation improvements in US are never funded through property tax alone, but with joint efforts from different levels of government.

    Moreover, the completion of TH610, as a state trunk highway, is likely to have regional benefits far beyond the study area, which represents only about 30% of the City of Maple Grove.

    In the project, we are glad to find that value capture strategies could yield some substantive amount of revenues as supplement funding to expedite the project completion. Even if these strategies are not directly applied in this project, the study would have ample impactions. It is nice to be able to demonstrate the value of transportation improvement and to communicate the value to the public. This kind of analysis would be very helpful for informed policymaking; such positive results may provide incentives for local governments to make sensible infrastructure investments.

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