Transportation Financing Districts Provide a More Powerful Value Capture Tool: Are Local Governments Ready to Use It?

By Jon Honeck, PhD, GOPC Senior Policy Fellow

The state budget bill (Ohio House Bill 49), which was enacted in June, creates a more powerful value capture tool to help pay for transportation infrastructure.  Value capture refers to increases in property valuation on land near a major transportation improvement, such as a transit stop.  The new value capture procedure allows county boards of commissioners that participate in a regional transportation improvement project (RTIP) to create a “transportation financing district” to pay for streets, highways, and rail projects.  Within the district, increases in property tax revenue owing to increases in assessed valuation are converted into service payments to pay for project costs.  In essence, this is the same mechanism used in a tax increment financing (TIF) arrangement, which is a familiar form of project support for Ohio local governments.  

The new law contains guidelines for designating which parcels can be included in the district.  The district cannot include parcels that are already subject to a TIF or downtown development district, and it cannot include any areas that are used exclusively for residential purposes.  On the other hand, the district may include territory in more than one county, and may include parcels that are not contiguous with the rest of the district as long as they will also benefit economically from the project as determined by the county sponsoring the district. 

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The new law comes with significant procedural hurdles that might make it difficult to use in some circumstances.  Existing TIF law generally allows the local government to designate a TIF for up to 10 years and 75 percent of the increased valuation.  In order to exceed these limits, the local government must obtain approval from the local school board that receives property taxes from the district.  It is common for local governments to negotiate compensation agreements with school districts in these situations.

The new transportation financing law goes farther, however, by requiring the county to obtain the approval of every political subdivision and taxing authority affected by the transportation improvement district for any level of exemption (R.C. 5709.48(E)).  The level of exemption can be 100 percent, capturing the entire value of the increased valuation.  Although the new law permits the county to negotiate compensation agreements with political subdivisions, this hurdle could potentially require bargaining with many different governmental bodies. 

After the approval is obtained from the affected political subdivisions, the county must notify and obtain approval from every real property owner whose property is included in the district.  Property owners who opt out will not be included in the district.  While this would not prevent the county from creating a district, it could mean that strategically important properties would not contribute service payments to the project, even though they might benefit from it.   As a final step, the district must be approved by the Ohio Development Services Agency. 

Given the procedural hurdles, the new law might prove easier to use in more sparsely populated, “greenfield” developments with fewer property owners and political subdivisions.  This might mitigate its potential value for public transit in urban areas.  Transit systems across the country are increasingly turning to “value capture” strategies to provide funding for transit improvement and expansion, especially for light rail and streetcars.  The benefits of being near a transit stop are well-documented, and are part of the overall rationale for making transit-oriented development the cornerstone of urban redevelopment strategies.  (For further information on transit and value capture, see Reconnecting America and the U.S. Department of Transportation.)  GOPC will be encouraging ODSA to make sure that this new tool is adaptable for high density development in Ohio’s cities and is not used extensively to fuel new greenfield development.

 

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