Friday, May 1, 2009

Special Assessment Financing for Transportation Improvements

Special assessment districts are geographic areas within which property owners gain some special benefit from a public improvement. Within the boundaries of the district, property owners are assessed a portion of the cost related to the special benefit accruing to their property as a result of the improvement. The rationale for the use of SADs is that property owners close to public improvements realize benefits that are greater than those experienced by the larger community. For example, the community may see a rise in economic activity as a result of a transit improvement, but those located nearby the transit improvement may also realize benefits based upon their proximity to the improvement. 

Special assessments are typically used to finance improvements like street construction, street lighting, sewer and water infrastructure, or transit infrastructure. More recently, cities have used special assessment districts to finance the construction of local transit systems. During the 1980s, Southern California Regional Transit District (SCRTD), now the Los Angeles Metropolitan Transit Authority (LAMTA), used special assessment districts around four metro stations to finance their construction. In Miami, special assessments helped finance a portion of their downtown people mover system. Through the 1990s, SADs remained a viable strategy for financing rail stations, with the opening of the New York Avenue Metro station in Washington, DC in 2000. More recently, cities such as Tampa, Seattle, Portland and Charlotte have used special assessment districts along urban corridors to finance streetcar and light rail infrastructure with many other cities including Columbus, Cleveland, Atlanta and Minneapolis considering its use for similar purposes. Such special assessment districts are often larger than other kinds of special assessment districts, since the benefits of such an investment are typically felt across a broader geographical base. For example, Atlanta's proposed Peachtree Street Streetcar Line will be over a mile long and half a mile long. Special assessments for transit use may be particularly appealing in high-density commercial districts, because benefits from the improvement are immediately felt in the form of higher traffic, increased revenues and higher demand for adjacent commercial and retail space.

While the cumbersome regulatory process required to implement and approve the use of special assessment financing reduces operational efficiency, the special assessment collection process is highly efficient, since special assessments are collected with property taxes. Moreover, special assessments are relatively economically efficient, because they do not distort the market. They are also relatively equitable, since the cost of the improvement is determined by each payor’s benefit. Where property value is a good measure of income, they are also equitable from an ability to pay perspective, because assessments are often based upon property value. However, where home value isn’t a good measure of income, special assessments may become regressive. Special assessments rarely provide adequate revenue to pay for the entirety of an improvement, but they can provide a crucial final financing source. In addition, special assessments are highly predictable, making them attractive to local governments. Finally, special assessments are administratively difficult to implement, they are easy to manage, since payments are collected with existing property tax collection resources. The political feasibility of special assessment financing depends on the nature and location of special assessments. As mentioned above, commercial property owners may be supportive of special assessments, since they realize immediate benefits in the form of more traffic deriving from the improvement. However, homeowners may be opposed to special assessments because they do not realize substantive benefits until they sell their home.

1 comment:

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