Value Capture: Lessons from Latin America
Of all the themes explored in Meeting of the Minds related to urban development and infrastructure, the elephant in the room remains the question of financing. The fiscal situation is dire at the local, state, and federal level, just at the time when new investments are needed for the support of the 21st-century city.
So it is that a hitherto obscure policy – value capture – is getting more attention in the broader context of public-private partnerships. Value capture is based in the recognition that public investments and government actions – a new light rail line, for example, or a zoning change – result in increases in property value for private landowners. Governments are increasingly identifying these specific increases in value, known as the land value increment, and are working with private landowners and developers to seek a commensurate contribution.
The approach is being tested in the U.S. in cities such as San Francisco and Chicago, and in the construction of the Cotton Belt rail system in the Dallas-Fort Worth region. An article last year in The Next City provides a comprehensive overview of these efforts. One tale cited in that article is a particularly vivid illustration of how taxpayer investments are essentially privatized: the case of Frank McCourt, who owned more than 25 acres of prime waterfront property in Boston’s emerging Seaport district. The parcel, just across the Fort Point Channel from downtown Boston, was the site of two major projects: the I-90/Ted Williams Tunnel connector and interchange that was part of the $16 billion Big Dig, and the $1 billion bus rapid transit corridor, the Silver Line, snaking its way underground from South Station through the Seaport and on to Logan Airport. Both a major highway interchange and a Silver Line station were positioned right at McCourt’s property, which became so valuable for residential and commercial development, McCourt was able to sell the land to help him buy the LA Dodgers.
McCourt contributed funds for the Silver Line station, but in retrospect, local and state leaders questioned why he wasn’t asked to pay more, based on the identifiable increase in the value of his property that these major infrastructure projects prompted.
The rest of the world, it turns out, isn’t waiting to pose that question in hindsight. Many countries in Latin America, notably Brazil and Colombia, have passed legislation that supports value capture principles, says Martim O. Smolka, director of the Lincoln Institute’s Program on Latin America and the Caribbean, and author of the newly published Policy Focus Report Implementing Value Capture in Latin America: Policies and Tools for Urban Development.
The policy is manifesting in several key areas of both voluntary and compulsory methods: property taxation and betterment contributions; exactions and broader charges for building rights or for the transfer of development rights; and large-scale approaches such as development of public land through privatization or acquisition, land readjustment, and public auctions of entitlements for additional building rights.
Value capture has long been part of the worldwide urban planning agenda. Its increasing popularity in Latin America, Smolka says, is attributed to urbanization putting pressure on serviced land and concerns about equity and affordable housing. Although in most places revenues are still low, the applications of betterment contributions in Bogotá and of building right entitlements (CEPACs) in São Paulo have generated revenues in excess of a billion dollars for those cities.
Yet value capture is often resisted by powerful stakeholders, notably landowners, opinion leaders, and academics all along the ideological spectrum, Smolka says. He advocates a better dialogue about how value capture actually works in practice, careful management, and public participation. Value capture tools, he adds, are more likely to succeed when used to solve a locally recognized problem.
Cities in North America might do well to look south for some valuable lessons in changing the paradigm for urban development and financing key infrastructure.
Leave your comment below, or reply to others.
Read more from the Meeting of the Minds Blog
Spotlighting innovations in urban sustainability and connected technology
From an energy type standpoint, a city’s electric utility can make a big difference regarding which actions cities should undertake. For instance, a city in the service territory of an electric utility with ambitious plans to decarbonize its generation mix may want to focus greater attention on future emissions scenarios versus current emissions when making decisions on priorities. This would mean focusing actions on transportation, space heating, and industrial processes, since those would likely be greater contributors to emissions (vs. electricity) in such a future scenario.
While it may sound like a simple process, there are challenges to consider when it comes to the effectiveness of parking sensors, such as their location. For example, in-ground sensors, a technology used by some cities in the past, presented a myriad of problems, including ineffective readings that can result in unreliable data and lost revenue.
In the long run, even the largest, most powerful cities will struggle to rein in sophisticated global mobility companies. Thoughtful regulation at the state and federal level will eventually be necessary. Cities are becoming more active in setting policy for emerging services like bikes and scooters, and can incorporate thoughtful requirements in their license schemes. There are steps that government can take today to avoid some of the worst long-term risks.