Minnesota Report Lists LVT for Value Capture
GroundSwell, May-June 2009]
"Value Capture for Transportation Finance" is the title of
a Feb. 27, 2009 draft report released by the Center for Transportation
of the University of Minnesota. Funding for the study was provided by
the Minnesota State Legislature The report's Executive Summary
acknowledges: "Funding for streets, highways and transit is
provided by joint efforts of federal, state, and local government. ...
To ensure adequate and sustainable transportation investment for
current and future needs, policymakers need to reassess the current
mechanisms of transportation finance in the United States and explore
alternative revenue sources. ... One possible alternative is known as
'value capture'. Large public investment in transportation
infrastructure can substantially increase the value of adjacent land.
Capturing the value of this benefit through various tools is gaining
interest as a finance mechanism for infrastructure investments. ...
Accessibility to desired destinations by customers and employees tends
to play a major role in location decisions and, therefore, drives up
the value of land in highly accessible locations. ... Transportation
improvements create benefits for three groups of beneficiaries: the
general public, transportation users, and property owners and
The report discusses "value capture techniques, examining each
in relation to economic efficiency, equity, sustainability,
feasibility and, where required, implementation considerations."
The value capture techniques discussed include land value tax, tax
increment financing, -special assessment districts, transportation
utility fees, development impact fees, negotiated exactions, joint
development, and air rights.
Quoted here is the Value Capture Evaluation and Implementation
Considerations section on Land Value Tax (LVT).
"Rather than being assigned to a specific project, land value
taxes more generally capture the value created by the provision of
public goods, including the accessibility afforded by transportation
networks. A tax on land would be preferred to a tax on buildings, as
the former would result in less economic distortion due the fixed
supply of land. A pure tax on land is possible, though rarely used.
While land value taxes are desirable from the standpoint of economic
efficiency and sustainability, they would most likely be slightly
regressive in terms of ability-to-pay. Further, land value taxes may
prove politically infeasible due to high visibility and potential
In the Evaluation section, it is reported of the Land Value Tax, as
"Land value taxes (LVTs) are the most general type of value
capture policy we will describe. Rather than being designed to apply
to a specific project, land value taxes are designed to capture the
value that is created by the provision of public goods more generally,
including the accessibility that transportation networks provide.
Conventional methods of local public finance rely heavily on the
property tax, which serves as a tax on both land and any improvements,
including buildings, that are made to the property. In principal, a
tax on land rather than buildings would be desirable, as it would be
less distortionary. Where part of the tax burden falls on buildings
rather than land, the higher price for buildings discourages
additional investment in the supply of buildings. On the other hand,
the supply of land is fixed, implying that while an additional tax
might raise the price of the tax good (land), it will not affect its
"In principle, a pure tax on land is possible, though there are
few documented examples of its application. Variations on the LVT
principle have been experimented with, however. The most common is a
form of split-rate property tax, in which the land and improvements
that constitute a property are valued separately and taxed at
different rates, most often with a heavier emphasis on land. While
variations on the land tax mechanism have been adopted abroad in
countries like Canada, Australia, and New Zealand, their application
in the United States has been limited to a handful of experiments with
split-rate property taxes. Along with isolated instances in the towns
of Fairhope, Alabana, and Arden, Delaware, both of which were
initially established as development corporations, most of the
applications of split-rate property taxes in this country have been in
various cities in Pennsylvania."
(For a related article, see the Jan.-Feb. 2000 GroundSwell about the
Dec. 1999 Minnesota Planning Environmental Quality Board's report, "Smart
Signals: Economics for Lasting Progress.")