For the purposes of this report, the term “value capture”  generally refers to strategies that allow local governments or transit  agencies to dedicate to transit either a portion of the increased tax  revenue, or additional revenue through assessments or fees based on value  expected to accrue as a result of public improvements or investments. Most transit agencies with extensive joint development experience also  have formal joint development or transit-oriented development policies  and in-house real estate expertise. Joint Development Revenue Is Generally Small Relative to a Transit Agency’s Annual Operating Expenses

Although several transit agencies have generated millions of dollars in  annual revenue from joint development, this annual revenue is generally  small when compared with an agency’s annual operating expenses. Other Value Capture Strategies Have Not Been Widely Used to Fund or Finance Transit

According to transit agencies that we collected data from and relevant  literature that we reviewed, special assessments, tax increment financing,  and development impact fees (other value capture strategies) have not  been widely used as a source of funding for transit. Revenue Generated by Other Value Capture Strategies Has Varied, and in Some Cases Has Been Critical to Projects’ Feasibility

Based on our review of financial data for several major transit  infrastructure projects and transit-oriented developments that have been  (or are being) funded in part by other value capture strategies, these  strategies have generated—or are projected to generate—between    $20 million and $1.7 billion—or between 4 percent and 61 percent of the  total project costs—for nine major transit infrastructure projects; and    between $14 million and $750 million for the construction of parking  garages, parks, and other place-making and basic infrastructure at five  transit-oriented developments. For instance, when tax increment financing is  involved, transit agencies—which generally do not have taxing authority— often have to coordinate with local taxing authorities to help establish a  tax increment financing district and dedicate a portion of the tax  increment toward a transit project. According to several transit agency and local government officials, the  support of private property owners in the vicinity of their transit project  was critical to the establishment of a special assessment district, which in  turn was critical to the financial feasibility of the project. By contrast, some states do  not have laws authorizing the use of certain value capture strategies,  which effectively precludes their use of these strategies. Stakeholders Report That Uncertainty over FTA Policy Can Hinder the Use of Joint Development

		Transit Agencies Say FTA’s Joint Development Policy Is Confusing and Impedes Joint Development

A number of transit agency officials told us that following FTA’s joint  development guidance and requirements is confusing, burdensome, and  time consuming, which can impede the transit agency’s use of joint  development. Some transit agency officials stated tha FTA’s requirement to use joint development revenue for capital transit  purposes precludes the use of these funds for operations or maintenance, or to acquire land for future transit-oriented joint development. This  rulemaking follows FTA’s change to consider economic development  separate from land use. Recommendation for Executive Action

To facilitate transit agencies use of joint development, we recommend that  the Secretary of Transportation direct the Administrator of the Federal  Transit Administration to issue additional guidance on federal joint  development requirements including at a minimum,  further clarification on the types of developments and structures that are  eligible under current law, and  further clarification on any requirements or conditions for parking  replacement. Appendix I: Objectives, Scope, and Methodology

To address the use of value capture strategies to fund or finance transit,  we reviewed (1) the extent to which transit agencies and state and local  governments use joint development and other value capture strategies to  fund or finance transit; (2) what selected stakeholders and literature  identified as facilitators of, or hindrances to, the use of joint development  and other value capture strategies to fund or finance transit; and (3)  stakeholders’ views about the effects of federal policies and programs on  the use of joint development and other value capture strategies to fund or  finance transit.
Why GAO Did This Study

State and local governments are looking for alternative strategies to help fund transit systems. Value capture strategies--joint development, special assessment districts, tax increment financing, and development impact fees--are designed to dedicate to transit either a portion of increased tax revenue or additional revenue through assessments, fees, or rents based on value expected to accrue as a result of transit investments. GAO was asked to review (1) the extent to which transit agencies and local governments use joint development and other value capture strategies to fund or finance transit; (2) what stakeholders have identified as facilitators of, or hindrances to, the use of these; and (3) what stakeholders have said about the effects of federal policies and programs on the use of these strategies. GAO analyzed data from 55 of the 71 transit agencies that responded to its information request; reviewed literature, and statutes and regulations; and interviewed transit agency, local government, and Federal Transit Administration (FTA) officials; developers; and experts.

What GAO Found

More than half of the transit agencies from which GAO collected data (32 of 55) reported that joint development--in which a transit agency and a private entity partner to create development at a transit station--has been used as a source of funding for transit, while about a third (19 of 55) reported that special assessment districts, tax increment financing, and development impact fees have been used. Transit agencies that have extensively used joint development typically share characteristics, such as having formal joint development policies and in-house real estate expertise. Financial data collected from several transit agencies indicate that revenue generated annually through joint development is generally small when compared with an agency's annual operating expenses. Revenue generated by the other three value capture strategies has varied, but in some cases has been critical to the financial feasibility of the transit project or to improvements that support transit-oriented development. Several factors can facilitate or hinder transit agencies' and state and local governments' use of value capture strategies, such as coordination and support from public- and private-sector entities, transit project location and design, and state laws. For example, transit agencies, which generally do not have taxing authority, often have to coordinate with local taxing authorities to help establish a tax increment financing district. Also, according to several stakeholders, value capture strategies have the potential to generate more revenue when a project is designed with land-use zoning that allows for high-density development. However, some states do not authorize the use of certain strategies or may limit their use. For example, tax increment financing is currently not authorized under Arizona state law. Several transit agency officials told GAO that FTA's joint development guidance is confusing, which can hinder their use of joint development when federal funding is involved. For example, transit agencies are sometimes unclear about which types of developments and structures are eligible for joint development sites and the extent to which FTA requires replacement of parking spaces when surface parking lots are converted to structured parking garages that support transit-oriented development. This confusion can delay final federal approval of a project. Transit agency officials also told GAO that federal requirements, such as limitations on the use of joint development revenue for operations, maintenance, or acquisition of land for future joint development, can be burdensome. Transit agency officials also said the strict cost-effectiveness requirement for federal New Starts funding limited the competitiveness of some transit projects designed to use value capture strategies. Recent changes to the New Starts program, including amending the current cost-effectiveness measure and increasing the significance of economic development along with other factors, may affect transit projects, yet it is unclear how these changes will ultimately affect the use of value capture strategies. The FTA should issue additional guidance on federal joint development requirements to clarify the types of developments eligible under current law, and requirements and conditions for parking replacement. FTA agreed to consider GAO's recommendations.