Late last month, the Illinois General Assembly passed legislation allowing what may become one of the largest transit value capture measures in the US.
“Value capture” is a transit funding mechanism based on the idea that public transit creates broad social benefits—from more housing demand to swifter commerce in newly accessible shopping districts—and ought to be able to monetize some of those benefits to cover a portion of its construction and operation costs. It takes various forms, from special taxing districts to the direct ownership, development, and selling of transit-adjacent land by transit agencies.
In the case of Illinois, the new law authorizes the city of Chicago and a few inner-ring suburbs to create “tax increment financing” (or “TIF”) districts around four prospective transit projects, including the reconstruction of two heavy rail lines, a rail extension, and improvements to a major commuter rail hub. Essentially, regular property tax revenue within these districts would be capped at current levels, and if property values grow above those levels, the extra revenue would be directed into special funds for these transit projects. Because the projects pass through many neighborhoods where residential and commercial demand has been growing very rapidly, and would last for up to 35 years, they may end up contributing hundreds of millions of dollars, if not more, to these funds.
In the context of a chronically underfunded system that, like many around the country, has a long maintenance backlog and hasn’t had a major expansion for a generation, these funds are a lifeline. But there are also some tradeoffs to consider.
For one, at a conceptual level, the link between increased property values along these lines and the transit services themselves is murky. As with most value capture in the United States, the additional revenue won’t be based on some sophisticated econometric model meant to capture exactly how much extra value was created by transit: it will just assume that all new value is a result of the transit lines—or perhaps even the additional value of the rehabbed lines over their in-need-of-maintenance state. While evidence certainly suggests that rapid transit contributes to growing property values, many neighborhoods in central Chicago outside of rapid transit sheds have been growing in value as well, suggesting that there is a general trend towards the center city that goes beyond just transit access. And in some other cities, a general shortage of housing has been pushing up real estate values across entire metropolitan areas, making the connection even murkier.
Perhaps this is a philosophical splitting of hairs. But if transit advocates justify new revenue by making the standard value capture argument and it doesn’t hold up, expect opponents to exploit that gap.
There is another political issue with this type of value capture as well. Because of the way property taxes work, TIF districts sometimes function as de facto tax increases: municipalities are allowed to collect a given amount of revenue, and so if a TIF district siphons off some money in one neighborhood, the city will simply make up for it by taking more everywhere else.
Again, this isn’t necessarily a problem: it’s perfectly defensible to support raising taxes to support public transit. But if it’s not sold to the public that way, then voters may understandably feel cheated, and be less likely to support such measures in the future. The famous Measure R sales tax referendum in Los Angeles required building a political coalition in favor of explicitly raising taxes to pay for transit. TIF districts may not enjoy any such coalition. Indeed, a Measure R-style campaign to raise taxes in Chicago’s Cook County for transit has so far failed to take off. That leaves this sort of value capture policy potentially vulnerable to backlash.
On a more nitty-gritty level, value capture generally requires increasing real estate values. But what about neighborhoods where real estate values are stagnant or falling? One of the approved projects in Chicago is an extension of the Red Line on the far South Side, where home prices have struggled to rebound since the economic crash. The law gets around this problem by appearing to allow the transfer of money collected in the North Side Red Line district to the South Side—but that just exacerbates the already-strained “value capture” justification, and allows residents of the North Side to complain that money they thought would be returned to their communities is instead being used twenty miles or more away.
But if these sorts of transfers aren’t allowed—or aren’t available—then value capture has little to offer most working-class or high-poverty neighborhoods, which are often in the greatest need of both economic development and low-cost transportation options.
Finally, the Chicago value capture bill appears to be entirely focused on building new infrastructure, rather than supporting service—more frequent buses or trains, for example. This isn’t a necessary part of all value capture policies, but their structures often encourage it. More frequent service generally makes sense as a policy enacted across an entire system—if not on every line, then on a selection of lines that span many parts of a city—but value capture tends to be focused on particular neighborhoods or lines. TIF districts almost always have a pre-established limited lifespan, and relying on a revenue source that will one day disappear for ongoing expenses like operations makes little sense. Indeed, virtually all of the value capture examples provided by the American Public Transportation Association involve capital construction, not operations. That means value capture is unlikely to help reverse the ongoing deterioration of bus service and ridership.
Value capture has helped pay for significant new transit projects in cities across the country, and the bill in Illinois provide funding for undoubtedly necessary maintenance and rehabilitation that has no other obvious funding sources. But there are political and substantive issues to work through before embracing it as the answer to transit funding problems more generally.