Financing Infrastructure Through "Value Capture"
H. William Batt
GroundSwell, November-December 2011]
(On Nov. 14, 2011, Dr. Bill Batt of the Central
Research Group, Albany, NY and of the Center for the Study of
Economics, Philadelphia, testified before the New York State
Assembly Transportation Committee. His testimony is reprinted below
and copies were distributed to committee members. He also cited
various studies (which GroundSwell does not have room to reprint but
are available from him on request). Citations of other materials on
Value Capture include the University of Minnesota, Lincoln
Institute, The Infrastructurist, Urban Land Institute, Rick Rybeck,
World Bank, and the American Journal Economics & Sociology.)
The most equitable and efficient means of financing infrastructure is
Value Capture taxes the added increment of value that results in the
area benefiting from the infrastructure investment. It taxes it to pay
off the bonds that were floated to finance the project.
The method is equitable because the value is created by the public
and not by the titleholder to any parcel site. It also assures that
the parcel site will be used to the full extent that its site value
warrants. A titleholder is thereby induced by the added tax burden to
develop his property parcel to the full extent that that its value
warrants - this in a way to recover his increased carrying
The method is efficient because there is no excess burden or
deadweight loss incurred. This is the lost productivity that otherwise
arises when other means are employed to pay for the projects.
Consider a concrete example: I am citing my Northway study done
fifteen years ago. Transportation Planners and Engineers can point to
numerous projects that have been financed by such means.
This approach works for the finance any kind of infrastructure
development. It was used for the California Irrigation system. It was
used for parts of the Tennessee Value Authority basin.
The University of Minnesota has a special center for the study of
Value Capture. I helped plan a conference this past summer with
leaders there; I represented the school of economic thought that is
responsible for the theory of this approach, following the ideas of
Henry George. I am also an invited reader /editor of the new
professional journal: Journal of Transportation and Land Use.
The beauty of the design is that the added increment of land value in
the area benefiting from the investment is at least equal to the
capital cost of that investment. Many times the benefit far exceeds
the cost of the project. In fact if the project doesnt at least
return a commensurate benefit, it shouldnt be undertaken. We
have many cases, in New York and elsewhere, of Bridges to
Nowhere. But this is what we want to avoid.
The unity of the investment formula: that the value of the benefits
generated are equal to costs, is something that for many years was
theoretically true but couldnt be proven. Now with higher
mathematics and computer power, we can show that this is so. It is
known as the Henry George Theorem, and is now part of the canon of
Public Finance instruction. Some of our best economists have written
on the subject: Joe Stiglitz and Bill Vickrey among them. I brought a
book back into print last year on this subject: The Self-Supporting
City, by Gilbert Tucker. There are several other books I can mention:
Wheels of Fortune by Fred Harrison, and Taken for a Ride by Don Riley,
both books published in London.
I would be happy to work with people interested in pursuing this
further; there are many more materials I can point to, and have
written some myself. In fact, I presented testimony before the Oregon
State Legislature last year on this very subject. I have already
provided the coordinator of the Transportation Committee with a copy
of that material.