Our region's transportation network is one of its most important assets, key to our economic prosperity. While our transportation system enjoys a global reputation, it is aging quickly and falling behind other industrialized parts of the world. A 21st century transportation system requires strategic investments that support economic growth and quality of life, and GO TO 2040 recommends innovative funding for transportation infrastructure, including locally-based options like value capture. If signed by the governor, the legislation promoting four transit projects supported by value capture would provide increased access and quality of service to some of the region's most heavily utilized transit facilities.
Property owners often benefit from the construction of new or improved transit through increased rents, sales, and land values. Value capture levies taxes or fees to utilize a portion of these benefits to pay for the cost of the transit improvement. One value capture strategy already practiced in Illinois, known as tax increment financing (TIF), is commonly used for a variety of public investments. TIF has already been used to improve both suburban and City of Chicago transit stations.
On June 30, 2016, the Illinois General Assembly approved a modified form of TIF to raise local revenues to fund four major transit improvements in Chicago and adjacent municipalities: Red and Purple Line Modernization, Union Station improvements, the Red Line South Extension, and the Blue Line Modernization project. The new districts are called Transit Facility Improvement Areas (TFIA) and would use incremental property tax revenue to fund improvements. The legislation limits the scope and revenue compared to a typical TIF, requiring that all revenues be spent on transit facilities and identifying revenue set-asides for the Chicago Board of Education and other jurisdictions receiving property taxes. The TFIAs would support development of high-priority infrastructure investments recommended by GO TO 2040.
Understanding value capture
Value capture is an increasingly common method to raise revenue for transit and road projects nationally and globally. Many states use an added property tax or TIF mechanism to raise value capture revenues for major transportation improvements. Virginia has used special assessment districts called Transportation Investment Districts to fund both rail and highway improvements. Atlanta uses a type of TIF district to fund the Atlanta Beltline project. Texas uses a transportation-specific TIF called a transportation reinvestment zone to fund road and highway investments.
CMAP produced two reports on value capture, one in 2010 and the second in 2011, that highlighted potential value capture mechanisms and explored case studies in the region. Value capture tools are varied and can include TIF districts, special assessment (SA) and special service area (SSA) districts, land value taxes, and special local taxes such as sales or hotel taxes. CMAP's reports and subsequent project-specific analyses have highlighted several key findings: TIF-like districts provide the highest revenue potential, and underinvested areas need significant additional resources to supplement value capture revenues.
Transit Facility Improvement Areas
The legislation outlines a new type of TIF for Illinois, with some notable differences between the TFIAs and a typical TIF. The chart below highlights the major differences in revenue sharing, lifespan, establishment criteria, and eligible expenditures.
| TIFS | TFIAs | |
Revenue sharing to underlying jurisdictions | 1) Taxes on the equalized, assessed value in year of establishment | 1) Taxes in the equalized, assessed value in year of establishment, plus 20 percent of incremental revenues 2) Chicago Board of Education revenues are excluded from the TFIA |
| Timespan | 23 years, up to 35 with legislative approval* | 35 Years |
| District establishment criteria | Areas meeting specific blight, age, and property value criteria | Areas up to one half mile from the four transit projects identified in legislation |
| Eligible expenditures | Planning, redevelopment, affordable housing, and similar expenses as outlined in statute | Transit infrastructure, transit stations, and similar infrastructure |
The new requirement for sharing revenues with overlapping districts that receive property tax revenues represents a departure from current TIF requirements. In each TIF (or TFIA), property values are frozen at the establishment year to create a "base value." In a TIF, all jurisdictions may only tax this base value. This may lead to increases in property tax rate over time for jurisdictions with a large proportion of their property value in a TIF. The proposed TFIA institutes revenue-sharing provisions to reduce this effect. Within the city of Chicago, a TFIA would return all revenues to the Chicago Board of Education, as if there were no TFIA, and share 20 percent of incremental revenues with the remaining underlying districts. This distribution method does not apply to municipalities other than Chicago.
Other departures from current TIF requirements include lifespan, establishment criteria, and eligible expenditures. To repay the cost of the improvements, a 35-year lifespan is likely the most feasible option because the TFIAs receive a smaller amount of revenue, which in turn would require a longer amount of time to repay the costs of constructing transit infrastructure. The proposed TFIAs must be within a half-mile of one of the four transit facilities outlined in the bill, and do not need to meet typical TIF blight criteria. Finally, all revenues generated by a TFIA must be spent on transit improvements. The focus on infrastructure costs may allow the district to have a shorter lifespan if costs are repaid earlier.
The legislation outlines a process to incorporate existing TIFs into the proposed TFIAs, which is significant because a large proportion of the potential TFIA areas already have existing TIFs. In some cases, these TIFs may have preexisting obligations to developers or other infrastructure projects. While the legislation does not provide a clear path for resolving these obligations, the City of Chicago may choose to repay them with other funds or wait until these agreements are completed.
Supporting major capital projects
The transit improvements supported by TFIA legislation provide the region with a critical tool to implement GO TO 2040's recommendations. Indeed, three of the projects identified in the legislation are approved Major Capital Projects in GO TO 2040: Red and Purple Line Modernization, Union Station improvements, and the Red Line South Extension. The fourth project, the Blue Line Modernization and Extension program, supports CMAP's recommendations to reinvest in and modernize the existing transportation system. The legislation limits the TFIA district length for this project to nine miles, approximating the existing length of the Blue Line from downtown to Forest Park, without an extension. As shown in the map, potential TFIA districts for these four projects overlap, indicating that implementation will involve consideration of project benefits and funding needs. In fact, the proposed TFIA districts overlap downtown, emphasizing the regional benefits of transit investments.
Cost estimates for each of these projects range from $900 million for the first phase of the Union Station Master Plan to up to $4.2 billion for all phases of the Red and Purple Line reconstruction. Federal support for these projects is available through the New Starts program and its component Core Capacity program for existing transit systems, and potentially other grant programs. But the federal share for the New Starts and Core Capacity programs is limited to 60 percent of project costs, with the remaining 40 percent drawn from state and local sources, such as farebox revenues.
Looking forward
Leveraging the value that transit infrastructure creates to fund long-term improvement and expansion offers a key option in the current constrained funding environment. ON TO 2050 will underscore the region's need to increase investments in modernizing existing infrastructure and pursuing strategic expansions of the system. Value capture mechanisms could be an important transportation system funding concept for the region. CMAP will closely monitor the implementation of the TFIA legislation, which is pending the Governor's approval.