Academic journal article The American Journal of Economics and Sociology

Value Capture as a Policy Tool in Transportation Economics: An Exploration in Public Finance in the Tradition of Henry George

Academic journal article The American Journal of Economics and Sociology

Value Capture as a Policy Tool in Transportation Economics: An Exploration in Public Finance in the Tradition of Henry George

Article excerpt

H. WILLIAM BATT [*]

ABSTRACT. Value capture is a means by which to finance capital infrastructure, particularly transportation services, in a way that allows for efficient economic performance, simple administration, financial justice, and social facility. Because American society needs to find new means to finance transportation capital investment, particularly public transit, value capture offers an essentially painless opportunity to achieve these goals. It has the ancillary benefit also of concentrating population densities in a way that makes public transit particularly viable. This study shows how value capture could have been used to finance a portion of the New York State Interstate Highway System, a nine-mile stretch of I-87 known as the Northway, from its southern terminus to the point where it crosses the Mohawk River in Albany County. This section is the most heavily traveled area of the Northway and has experienced the greatest contiguous development of any location along the Northway's 178 miles since its construct ion in the late 1950s. While the right of way and construction costs of this stretch were in the range of $128 million (current dollars), the additional land value that has been generated on its account within just two miles on either side has totaled $3.734 billion. This study shows that the capital finance of the Northway, at least in this area, could easily have been done by recapturing these windfall gains that fell to private landowners. One could argue that this added value, the direct result of public investment, should rightfully be returned to the public and should be recaptured to pay off the bonds that were issued to build the project, rather than left for opportunistic speculators to reap private gain. Value capture therefore offers a promising approach for funding future transportation development, leaving fees, that are presently used, to recover operating and environmental costs.

I

Introduction

THIS STUDY EXPLORES how a large infrastructure investment in the Capital Region of New York State might have been financed through value capture with greater effect and benefit than the method that was used. As with every bit of the Interstate Highway System, the chosen method was the Highway Trust Fund, established in the 1950s, which relies upon motor fuel revenues to support both capital and maintenance costs. The cost shifting and the diversion of burdens which this approach entails has resulted in a transportation system that has been expensive, inefficient, and unbalanced. An alternate approach would have been to employ a method known as value capture. This method would have better balanced costs and benefits and also discouraged the over-consumption of infrastructure and land that we have witnessed under the existing approach.

Although the interstate highway system is essentially complete and the only further costs involved for the most part are in its maintenance, value capture offers a convincing approach in ensuring that the highway systen will remain adequate to serve motor vehicle needs for the indefinite future. This can be done by the inducement it offers to capitalize on the land value created in the vicinity of the access and exit nodes, and the discouragement for speculators to continue holding their parcels off the market in expectation of future gains. Indeed, value capture can be an attractive means for the capital finance of future enterprises and infrastructure, particularly if the public elects to build transit projects to complement and redress our current over-reliance on private motor vehicle use. The record shows that the illustrations of value capture applied to date have been in the finance of public transit systems, not for highway service. But it can work for many infrastructure projects.

II

Motor Vehicle Ascendancy

IN THE POST WORLD WAR II ERA, the pent-up consumer demand of the American population was nowhere more manifest than in the acquisition of motor vehicles. …

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