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IMPACT OF VALUE CAPTURE POLICY ON
SELECTION OF TRANSPORTATION FACILITY ALIGNMENTS

By

Kunwar Rajendra

A DISSERTATION
Submitted to
Michigan State University
in partial fquiTIment of the requirements
for the degree of
DOCTOR OF PHILOSOPHY
Department of Civil Engineering

1980

ABSTRACT

IMPACT OF VALUE CAPTURE POLICY ON
SELECTION OF TRANSPORTATION FACILITY ALIGNMENTS

By

Kunwar Rajendra

Financing of transportation facilities, such as highways.
railroads and rail transit is facing increasingly stiff competition
from other sectors of economy at the time of budget allocation.
While users of the facility due to the benefit derived by them,
have so far, been the largest single source for raising revenues
for the transportation funds, a relatively significant number of
other class of beneficiaries due to construction of the facility
have been usually ignored in the process. Those beneficiaries are
the prOperty owners adjacent to the new alignment who obtain wind-
fall profits totally unearned by the owners and created by the
society at large. These non-user benefits or unearned profits can
be a potential source for recycling into the cost of the facility
itself. The thesis examines the feasibility of affecting the
selection of the alignment of such a facility by adoption of a value
capture policy.

A description of the techniques which create value and those
which can be used to capture the created values has been given.

A methodology has been developed and described by which,

under different situations of market demand and potentially

Kunwar Rajendra

developable (or redevelopable) land the impact of Value Capture
policy on the alignments can be compared. Mathematical formulations
have been developed for computing thelrequired increase in a given
period of time due to Value Capture policy in order that a given
alignment may become relatively more cost effective than another.

The formulations have been applied to a case study of a high-
way corridor consisting of three different and unique segments:
fully developed central city area with very little potential for
creating the capturable windfalls; completely undeveloped rural area
with maximum potential for creation of windfall profits;and a transi-
tion and fringe area, in between the two extremes, with some potential
for creating and hence capture of the created values. The sensitivity
of the models established has been demonstrated.

The results indicate that if the enabling legislation and
the political climate to capture the unearned profits, created by
public moneys exist, the value capture policy can impact the
selection of a facility alignment under certain situations of mar-
ket demand and land development. An undeveloped land with a demon-
strated market demand for change in land uses has the highest
potential for determination of the impacts of the value capture
policy on selection of an alignment. On the other hand a fully de-
veloped central city area, with very little potential for re-
development,has relatively the least potential for creation of dif-
ferent levels of the windfalls due to the different alignments.
Under the described set of circumstances, it is shown that the value
capture policy can impact the selection process. The significance
of impact, however, depends upon the specific situations prevalent

in the case under study.

To my dear and respected

Mom and Dad

1'1

ACKNOWLEDGEMENTS

I am extremely grateful to all those who provided the inspira-
tion, motivation and encouragement to complete the dissertation.
Special thanks are due to Professor William C. Taylor, Chairman of
the Department of Civil Engineering and the Chairman of my doctoral
committee for his time, advise, criticism, patience and above all
his unqualified willingness to work with me on the research. My
thanks are due to the members of my dissertation committee,
Professor John L. Hazard, Department of Marketing and Transportation
Administration Graduate School of Business; Professor John B. Kreer,
Chairman, Department of Systems Science and Electrical Engineering;
Professor Francis X. McKelvy and Professor Gail Blomquist of the
Department of Civil Engineering for their valuable comments and
advise on the dissertation. Above all, the blend of affection in
every step of the process lavishly spent by Professor Taylor and
Professor Hazard made my efforts worthwhile; and I have tried, but
failed to find the right and adequate words to express my thanks to
them.

I am in a debt of gratitude to Shanno, my wife and Archana,
Rachana and Anuja my loving children for putting up with a long and
often frustrating period of wait, dull weekends and lonely evenings

in order to accommodate my desire to finish the work.

iii

I am thankful to Mrs. Noralee Burkhardt for her skillful
typing of the dissertation. I am extremely thankful to Don Hanna
Graphics Coordinator, Lansing Planning Department for his assistance
in completing the figures and charts in the dissertation.

I am thankful to Alan Tubbs, Planning Director, City of
Lansing for letting me use the material for the case study in the
dissertation and Turney Gratz of the Department of Redevelopment,
City of Lansing for useful discussion on the subject. I am thankful
to Mr. Frank So of the American Society of Planning Officals, Chicago
for permission to use a chart out of their publication 'Windfalls
for Nipeouts' by Donald Hagman et al.

I am thankful to so many others whose works I have freely
consulted, used or quoted in the development of the dissertation.

My thanks are due to the Office of Dean Graduate School, Michigan
State University for guidance whenever needed to make the document

acceptable.

iv

ACKNOWLEDGEMENTS

LIST OF TABLES

LIST OF FIGURES

Chapter

TABLE OF CONTENTS

I INTRODUCTION

A.
B.
C.

Need for Study
Objective of Study
Scope of Study

II LITERATURE REVIEW

A.

B.

C.

D

Windfalls

Revenues from Windfalls
Techniques

Selection of a Highway Alignment

III THEORY OF VALUE CAPTURE AND TECHNIQUES

Theory of Value

Categories of Created Value

Situations Suitable for Creation of Value
Techniques to Capture Unearned Value
Problems in Capturing the Unearned Value

IV METHODOLOGY

A.
B.

C
D

Process

Changes in Pr0perty Values and Captured
Revenues

Estimation of Revenues

Introduction of the Time Dimension

V CASE STUDY: LOGAN CORRIDOR IN LANSING, MICHIGAN

A
B
C.
‘ D
E

Why Logan Corridor as the Case Study
The Study Area

The Prevalent Land Uses

Design of Alternatives

The Selected Alternate

V

Page

vii

viii

01-5—4

10
24
28

28
32

36
50

55
55

58
62
7O

85

85
86
88
96
99

Chapter
VI

VII

BIBLIOGRAPHY
APPENDIX

Page

STUDY RESULTS AND ANALYSIS 105
A. Overview 105
B. Supply of Soft Areas 107
C. Market Analysis ~ 111
D. Supply-Demand Analysis 119
E. Analysis, 126
SUMMARY AND CONCLUSIONS 154
A. Summary 154
B. Conclusions 155
l. Land Development 155

2. Significance of Impact 157

3. Legislation 157

4. Translation of Experience 157

5 Further Research 158

159

Enacted and Proposed Legislation -
Comparative Chart 163

vi

Table

\JO‘U'l-DOON

ouooo

n
12
13
14
15
16

LIST OF TABLES

Primary Sources of Transportation Funding

Impact
Values
Values
Values
Values
Values
Values
Values

Values
01:0

of Highway Alignments on Property Values

of
of
of
of
of
of
of
of

02

with
with
with
with
with
with
with

with

A = 0; P = 50,000

A = 0; P = 500,000

A = O; P = 100,000 1

A = 10,000; P = 25,000

A = 50,000; P = 250,000

A = 250,000; P = 250,000

A = 0; P = 100,000; 01 = O
A = 50,000; P = 100,000;

Evaluation of Alternates

Preliminary Land Use Needs

Market Potential for Alignments

Values of Developable Properties, Segment B

Values of Developable Properties, Segment C

Computations of 02’ Segment C

vii

Page

68
74
75
76
77
78
79
8O

8O

98
116
124
133
143
145

Figure

01)

OkomeU'I-h

12
13
14
15
16
17
18
19
20
21

LIST OF FIGURES

Techniques for Windfall Capture
Analysis Process for Study

Graphical Representation of H, the Change in
Property Values Due to Various Alignment Alternates

Computation of Estimated Revenues by Value Capture
Change in Property Value with Public Improvement
Graphical Representation of Table 3

Graphical Representation of Table 8

Graphical Representation of Table 9

Graphical Representation of Table 10

Segments of Study Area

Study Area

Existing Land Use Segments A and B

Existing Land Use Segment C

Selected Alignment Segment A

Selected Alignment Segment B

Selected Alignment Segment C

Soft Sites

Development Near the State Complex

Process for Market Analysis

Employment Change 1980-1990

Tri County: Secondary Market Area

viii

Page
12
56

60
64
65
81
82
83
84
86
87
93
94

100

101

102

106

109

112

113

114

Figure
22
23
24
25

26
27
28
29

Primary and Corridor Market Areas
Market Demand
Modification in Development Plan

Comparative Costs of Acquisition for Various
Alternatives, Segment A

Graphical Representation of Segment B
Graphical Representation of Segment C
Graphical Representation of Segment C (continued)

(P2,t) Graph Showing Effect of (£.d.s)

ix

Page
115
117
119
130

138
147
148
151

CHAPTER I
I. INTRODUCTION

A. Need for Study

A transportation system is the lifeline of a nation's
economy. Transportation exerts a dual leverage on the economic
system by giving mobility to the factors of production, distribution
and consumption and by sustaining and including development and
growth as a result of new investment of capital funds. Trans-
portation at onCe becomes a part of the resource base for economic
development, a part of the economic superstructure that rests upon
that base and a part of the economic development process itself.1

In order to enable the governments to continue the maintenance
and improvement of the transportation system efficiently and effec-
tively, heavy and additional investment capital is required. This
release of resources has to compete with all other sectors of the
economy. More often than others, plans for improvements in the
transportation system have to be postponed or even cancelled due to
lack of resources.

The share of transportation sector in the total United
States budget has been consistently declining from 8.5 percent of
total civil/domestic expenditures in 1960 to 4.5 percent in 1979
according to the latest. highway statistics published by the United

States Department of Transportation.
1

Although transportation funds have been raised by several
sources, the user taxes have been the single most significant source.
For example, 63.7 percent of the total funds in 1977 allocated for
highways were provided by user tax.

The total expenditure for domestic transportation in 1972 was
26.6 billion dollars of which 19.2 billion dollars was the state and
local share and the remaining 7.4 billion dollars came from federal
sources. State and local governments have been spending over twice as
much as the federal government on transportation systems. This is
consistent with the tax sources of revenue for the federal, state and

local governments related to the transportation network.

During the year 1977 transportation related taxes account for
only a very small portion of the total revenues 1.3 percent at the
federal and 4.9 percent at the state and local levels.

The primary sources of funding for the transportation system,

at various levels of government are as follows:

Table 1. Primary Sources of Transportation Funding

 

Ranks
Levels 1 2 3
Federal Motor Fuel and general
lubricating oil fund
State Motor Fuel and registration tolls, fare
lubricating oil and licensing and direct
usercharge
Local Property tax tolls, fare
and direct
usercharge

 

r

The overall incidence of the transportation taxes as a financial
burden is mildly regressive although some of these are more regressive
than others when considered separately.

Inflation: Motor fuel tax, vehicle fees and highway related property
tax which together account for a good 75 percent of available trans-
portation funding have not kept pace with the rate of inflation. The
effective rates for the first two categories of taxes have, in fact.
declined. This is because the motor fuel tax and vehicle fee are flat-
rate taxes and not ad valorem taxes to be levied in phase with infla-
tion. As a consequence, the effective revenues have been constantly
falling short of the needs.

The question is: should the government continue to increase
the rate of taxation on the direct beneficiaries of the transportation
system in order to maintain and improve it. The direct beneficiaries
are the users of the system who pay taxes when they purchase fuel,
oil and parts for their vehicles. There are other direct but non user
beneficiaries such as the property owners alongside the new or
improved transportation facility that obtain unearned profits. These
profits, due to improved accessibility most of the times, are windfalls
conferred upon the owners as a result of the public action, that is,
transportation improvements. The transportation improvements can be
construction of a new highway, railroad, rapid transit, airport, sea-
port or improvement in an existing facility; such transportation

improvements suddenly open up new potential for development.

The windfalls created by the government action and unearned by
the property owner can be looked upon as a potential source of revenue

for transportation system improvements. An equitable portion of the

created profits in this fashion could be captured by a public agency

and dedicated to the cost of improvement of the facility that created
the profit in the first place.

This approach has been proposed for public transit improvements
under a title of value capture policy by several research groups and
writers. Rice University Center for Community Design and Research has
conducted detailed studies for many metropolitan areas in this regard.
However, a question still remains as to whether and how this concept

can be applied in planning for the projects.

B. Objectives of the Study

The essential requirement to enable the public agency to
capture value is the creation of value. Obviously, every government
action would not create additional value-n-at least not to a level worth
capturing under a new process.

The study has the following objectives:

1. To examine the situations under which the additional values or
windfalls are likely to be created (or not created) by governmental
actions related to transportation facility improvements.

2. To examine the various processes and mechanisms available and the
most feasible 0ne(s) to capture a portion of the created values.

3. To examine the feasibility of including a factor of windfall
capture in the process of selection of an alignment of a trans-
portation facility.

A specific case study shall be utilized to illustrate the

complexities, problems, findings and recommendations of the study.

C. Scope of the Study

The study consists of the following chapters:
Introduction
Literature Review, which will consist of a state-of-the—art
summary of work done in the subject area.
Theory of Value Capture and Techniques
Methodology
Case Study: Logan Corridor Joint Development Study in Lansing,
Michigan.
Results of the Study and Analysis.

Summary and Conclusions.

CHAPTER II
LITERATURE REVIEW '

This chapter defines windfalls or unearned profits. The
definition is followed by state-of-the-art discussions on the capture
of unearned profits. The last section deals with the status of
alignment selection process for highways. The chapter essentially
provides an overview of the literature and introduction to the next

chapter which deals with the subject in more detail.

A. Windfalls

Definition: In the context of the Crude Oil Windfall Profit Tax Act
hearings before the Committee on Ways and Means in the U.S. House of
Representatives, the then Secretary of Treasury Blumenthal was asked
by Rep. Schulze of Pennsylvania,"...to describe for me What conditions
create a windfall." To that Secretary Blumenthal replied:

We define a windfall as that revenue which is created

purely by virtue of decontrol or, in the instance of

the OPEC tax, by an arbitrary action taken by the

world cartel but which is not needed to bring forth

the additional production that we require.
In other words, windfall is created purely by specific governmental
action. This excludes any such increase in profits due to action by
the owner. This also excludes any increase in profits due to infla-

tion or normal growth of population, or environmental conditions

beyond control.

Scope of Governmental Action. For the sake of this report, the sub-

 

ject cases shall be restricted to real estate related windfalls, and
the only cases that will be considered here are the windfalls, or the
increase in property value purely due to a specific governmental action.
The specific action can be a planning decision; that is a
program or a project proposed for implementation or already initiated,
which directly or indirectly affects the basic value of the property
under consideration. Examples of the specific actions could be: an
approval for change in zoning, a decision in favor of a highway or
transit line, a significant public improvement or planned change in
the environment to the property.

Also, for analysis in this study the governmental actions will
be restricted to transportation related facilities. More specifically,
as the case study involves selection of a highway alignment, the
governmental action considered will be decisions on highway alignments.
However, later on in the analysis and recommendations an attempt will

be made to broaden the application to other situations.

Scope of Windfall: The question can be asked: how much profit or

 

benefit is excessive or is a windfall.
Since the purpose of this analysis is to examine the mechanisms
for recapture of the increase in property value, there is a need for
a threshold below which the administrative effort involved to set up
or trigger the recapture mechanism may not be justified. In that
case for the purpose of this study, the windfalls will not be considered

to be windfalls.

However, once the mechanism is established and legislation is
available, the marginal cost to trigger it may not be too much. Never-
theless, communities should be free to exercise their options to pursue
or drop the recapture if the difference between the estimated windfall
and the administrative effort required to capture it is less than a
certain agreed upon percentage, say 10 or 20 on a certain sum.
$10,000, for example, or whichever is less.

0n the other hand, an argument could be made that a law is a
law and once the mechanism is available.it must be followed regardless

of the cost involved.

Should the Windfall be Captured

 

The answer is provided by President Franklin D. Roosevelt in
his message on Interregional Highways to the Congress on January 12,
1944:

It hardly seems fair that the hazard of an engineering

survey should greatly enrich one man and give no profit

to his neighbor who may have had the right-of—way which

was equally good. After all, should the hazard of

engineering give one private citizen an enormous profit?

If there is to be an unearned profit, why should it not

accrue to the government - state or federal or both.
A tax on windfalls implies some given norm of earning level against
which windfall will be measured. If the earnings have been more than
an accepted standard, they will be called windfall. And if the
earnings were earned without any effort by the earner and due to the
action taken by the community or the government, the community or the
government should have a right to a reasonable portion of the wind-
fall. It would only be equitable because the government action which

resulted in the windfall for an individual would cost the public at

large for implementing that action. For example, construction cost
of a highway would be borne by taxes drawn from the public at large
while the windfalls would go to one person because of sheer luck.

The famouseconomist ,Adam Smith, refers to the concept as
'ground rent' and Henry George calls it 'economic rent' which can be'
realized as an unearned income due to the action of the community.

One of the famous quotes from Sir Winston Churchill exemplifies
the concept as follows:

The landlord who happens to own a plot of land on
the outskirts of a great city...watches the busy
population around him making the city larger, richer,
more convenient...and all the while sits still and
does nothing.

Roads are made...services are improved...water is
brought from reservoirs a hundred miles off in the
mountains...and all the while the landlord sits
still...To not one of those improvements does the
land monopolist contribute and yet by every one of
them the value of his land is enhanced...At last the
land becomes ripe for sale-m-that means that the
price is too tempting to be resisted any longer.

The greater the population around the land, the
greater the injury the public has sustained by its
protracted denial, the more inconvenience caused to
everybody the more serious the loss in economic
strength and activity, the larger will be the profit
of the landlord when the sale is finally accomplished.
In fact you may say that the unearned increment on
land is reaped by the land monopolist in exact pro-

portions, not to the service but to the disservice
done...

Hagman4

lists five reasons for recapturing windfalls:
Revenues will result.

The community is asking only for a return of wealth it
creates.

The windfall recapture tax (change, exaction, fee,levy

and so forth) would not raise land prices because supply

is fixed.

10

When the public needs to acquire land it should not have
to pay a price increased by its own activities.

It is a less socialistic scheme than public land owner-
ship.

Regardless of the opinions and views in favor of the capture
of the unearned profits ".1.it has ngt_been common practice in the
United States for benefit schemes to be developed and implemented."4

One important reason is the rule of society that each owner
has the right to enjoy whatever windfall or benefit accrues to his
land -- particularly the value of the land -- even though the bene-
fit was created by no action of the owner. The American tradition of
private property ownership-u-and the right to be lucky (or unlucky)
is still strong, even ifit is assailable.9

The other reasons for lack of enthusiasm in this approach is
the absence of a mechanism or enabling legislation. While the decision
makers agree that the concept is good.they do not see any precedence
that has worked. The perceived political price appears too high to
pay.

Apart from the American tradition, however, the concept has
found its way to the various stages of implementation in relatively

more socialistic countries.

B. Revenues from Windfalls
Numerous terms have been used in the literature within the
United States and various other countries to describe what may be called
a windfall profit tax, excess profit tax, betterment levy, and value

capture. However, the underlying principle is the same: capture of

11

a portion of the benefits or profits from the few by the public agency
for the welfare of the community at large. The windfall profits,
unearned profits and excess profits, however, reflect these profits
which resulted due to actions taken by the public authorities or the
governmental bodies rather than those who earned them. This capture
can be for the pursuance of a national goal such as the so-called
crude oil windfall profit tax or can be for a limited objective at the
local level where a special benefit district is established to recover
the benefits conferred upon the property owners.

The excess profits generated or the benefits conferred may be
in the production of values in an industry during a wartime emergency
situation or by speculation on a piece of land under normal times.

The objective of this research is to skim through two of the
techniques utilized in the non real estate related areas and dwell
more heavily on the real estate related mechanisms. The chart below

indicates the division and the techniques covered.

12

Excess Profits Tax/
Unearned Profits Tax/
Windfall Profits Tax

 

l
Non-Real'Estate Related - Real Estate Related
Examples: Examples:

-Excess Profits Tax
-Crude Oil Windfall Profits Tax

 

-Special Assessments
-Betterment Levy
-Exactions on Development
Permission
-Impact taxes
-Sale of Development
Permission
-Land value taxation
-Uthwatt Proposal
-Transfer taxes
-Special Capital and Real
Estate Windfall Taxes
-Finance Act 1910
-Betterment Levy Land
Comm. Act 1967
-A total of 17 categories
Table 20-1, [Ref. 4]
-Value Capture by Joint
Deve10pment

Figure 1. Techniques for Windfall Capture.

A brief description of some of the important concepts follows:

Excess Profit Tax: In both Great Britain and the United States during
World War I, excess profit taxes were introduced in response to a
widespread public demand for an effective profit control. In Great
Britain this demand "rested on a broad foundation which included

among other elements the dissatisfaction of consumers with high prices,
the conviction of businessmen that the burden of the war should be
borne by those making large profits, and the refusal of labor to

assist anybody to make money out of the war".2 This was basically a

13

tax on war profits. In the United States on the other hand, the
1917 excess profits tax was enacted before the United States was
actually engaged in hostilities. At the time, there was more concern
about the generally high level of profits that were being earned in
the United States' expanding economy than about war profits as such.
Consequently, except for the year 1918, when a concurrent war pro-
fits tax was also in effect, the United States undertood to tax not
war profits but all profits exceeding a certain conventional rate of
return on invested capital.2

In the First World War, the excess profits tax rate started
out with 12.5 percent of the profits and reached the 80 percent level
toward the end of the war and was confined to corporations. The tax
yield was $2.5 billion in 1918, $4.0 billion in 1920 but fell to
$335 million by 1921 due to post war depression. This was also the
end of the first federal excess profits tax in the United States.

During the Second World War, the excess profits tax was in-
troduced in 1940. During World War II, the excess profits tax rate
was as high as 85.5 percent in the United States. The tax recovered
$9.4 billion in 1944 and $35.1 billion during the six years 1940-45,
as compared with the total corporate income taxes of $23.1 billion.3

The experience gained from previous instances of the im-
position of excess profits tax, indicates that while there was less
controversy about the concept, the mechanics of realization were
simply too complex. Determination of a fair and equitable rate of
return, separation of normal from excessive profits, complicated

relief provisions to lessen inequities, problems in administration

14

and availability of other and better alternates for raising the same
level of revenues were some of the lessons learned. However, it
appears that this tax was a measure of political expediency and was

popular with the average citizen.

The Crude Oil Windfall Profits Tax Act of 1979:

The only justification to include this in the report is to
emphasize that the concept of capturing windfall profits is very much
alive even today.

The Act imposes an excise tax on the increases in domestic
crude oil prices resulting from the deregulation of crude oil prices
or from excessive increases in world oil prices. The tax would reduce
the profits of oil producers and royalty owners; it would not be
passed on as higher prices to consumers. Revenues from the tax would
be placed in an energy trust fund to finance programs for dealing with
the energy problem. Amounts in the trust fund would be available for
purposes to be specified by law at a later date, sUbject to the
usual authorization and appropriations process.

The tax applies to taxable crude oil produced in the United
States according to its classification in one of three tiers.
Essentially, the tax structure is the same for the three tiers ex-
cept that each tier has a different base price above which, price
increases are subject to tax. The tax equals the rate, times the
windfall profit. The windfall profit is defined as the difference
between the actual selling price of oil and its base price (with a

deduction for severance taxes on the windfall profit).

15

C. Techniques

Special Assessments: have usually been established by local govern-

 

ments to finance all or parts of the cost of a public improvement such
as streets, sidewalks, sewers, parking and recreational facilities.
The assumption is that pr0perties being taxed have received

or are expected to receive some form of benefit as a result of the

public improvement and there is a gain in property value involved.

The tax, usually called special assessment is levied in pro-
portion to the benefit the property is estimated to receive. To make
it as equitable as possible at least theoretically, it is proportioned
by area of property, length of frontage, distance from an improvement,
ad valorem or any other acceptable indicator which can be measured.

The concept has been successfully utilized since the earliest
available account in 1250 A.D. in England and 1691 A.D. in the United
States. However, Special assessments, proposed for major projects such
as the major highway projects and even the subway in New York have
had little success.

Hagman4

has listed in substantial detail the complexities and
the theory behind the use of special assessments for public improve-
ments. There are basically two ways to look at the Special assessment
concept:
1. That the property owners should not be taxed more than the cost
of the public improvement regardless of the amount of benefits
conferred (such as by increase in property values).

2. Completely ignores the cost factor and is essentially a tax on

the benefits.

16

Usually the boundaries of a special assessment district are
drawn to include the area and properties which stand to gain most.
This task is not easy because of the hazy line between the special
benefit the government or authority desires to tax and a general
benefit that may be conferred upon the property owners across the
line.

As pointed out earlier in this section, usually local govern-
ment is responsible for administration of special assessments. How-
ever, transit authorities, or other levels of government coUld also
do the special assessments either by themselves or in coordination
with the local governments.'

Special assessment still remains a very significant source
of capturing benefits and raising revenues for public improvements.
Considerable work and experience however, needs to be gained for its
usage in case of larger than ordinary projects.

The concept of Special assessments has also been successfully,

though not very efficiently, used in recapture of profits and bene-
fits for reclamation projects in the United States. The objec-

tives in such cases were to recoupe the investment of providing
reclamation water to attract small farmers and settlers. In this
case, 50 percent of the incremental profits over the base price was
taxed within the special district. The 1902, 1914, 1926 Acts, the
Columbia Basin Project Act, and Tucumcari Porject Act are some of
the examples where a windfall under the Federal Reclamation Program

was incrementally captured by legislation.

17

Betterment Recapture - British Experience:

 

Betterment means any increase in the value of property arising
from a governmental action. The British government, in 1909,
enacted the Town Planning Act to recaptureleO percent of the in-
crease in property value caused by planning decisions. It was both
a master plan and its implementation devices --zoning control (in-

cluding provisions for termination of non-conforming uses, sub-

division control, designation of lands for public facilities and for
governmental purchase. The 100 percent recapture provision was
revised down to 50 percent later as a result of protests, but revised
again in 1932 to 75 percent of the increase in value.
The government set up an Expert Committee on Compensation and
Betterment, also known as Uthwatt Committee, to conduct a study of
the betterment recapture and compensation of worsenment cases. The
committee submitted its report in 1942 and made several recommendations
which were never adopted in England. The Town and Country Planning
Act, 1947, ended all betterment levy of the kind prevalent earlier.
This Act nationalized all development rights thereby proposing to
capture the betterment by the government selling the land. This was
during the reign of the Labor Party.
Thereafter:
1951 - Conservatives won the election and the betterment
levy was repealed.

1967 - Labor Party came to power in 1964 and the Land
Commission Act of 1967 was enacted. The underlying
idea was that the land values are community created

and should be recaptured in part at least by the

18

community. It created a commission which acquired
and sold land and enacted a betterment levy. The
levy rate was to begin at 40 percent and gradually
go up to 45, 50 percent and higher.
1970 - Conservative Party won election and the Labor enacted
Land Commission Act was repealed.
1974 - Conservatives proposed the Finance Act of 1974 which
was enacted by Labor due to the defeat of the
Conservatives. But in 1975 a Development Land Tax
and Community Land Act of 1975 was enacted which be-
came effective August 1, 1976.
The details of the above three Acts are given in Appendix.
The game of see-saw with the enactment and repeal of successive
Labor and Conservative governments indicates that both parties were
in favor of some kind of betterment levy and recapture. The dif-
ferences existed in the modes of operation and details. Conserva-
tives, for example, favored the levy to be called a tax and to be
administered as a tax by Inland Revenue rather than by a new Land
Commission Department as proposed by Labor.
Under the 1975 Act, there are three phases of implementation:
Phase 1: local authorities bring all developable land into public
ownership;
Phase II: local authorities make available all_land needed for
particular types of development and all such lands must
pass through community ownership;4
Phase III: local authorities can sell or lease the development land

at market value.

19

The windfall recapture will take place, in fact, twice during the
three stages of the process: one at the end of Phases I and II and
another at the end of Phase III.
It should be pointed out that none of these Acts took in-
flationary increases into account while computing the betterment.
There are other notable Acts existing or repealed in several
areas of the world which are described in Table 20-1; some of them
are:
Australian Land Development Contribution Act of 1970, since
repealed in 1973, the underlying concept was
those lands which will derive a very considerable
benefit in increased value from rezoning, and will
require massive public investment in the provision of
essential services should contribute some propor-
tion of this gain towards the public expenditure
necessary for their development.
Ontario Land Speculation Tax Act of 1974
this tax was enacted to recapture 50 percent of the
speculative gains in land value. The results of
this are yet to be evaluated.
Vermont Land Gains Tax, 1973
this tax law was enacted to control the rampant
speculative market. The income realized from this
tax was used to compensate for the loss in revenues
due to another Act, which set an upper limit for the

prope-ty taxes as a percentage of one's income. The

20

tax rate varied from 5 percent to 60 percent gen-
erally on the change in land value between the pre-
sent transfer value and prior acquisition cost. The
collections have varied from approximately $756,000
to $1,300,000 per year. The tax law is still in
force although it was amended in 1976 to add some
exemptions.

Following Vermont's example, several other states have
initiated efforts to enact legislation. The District of Columbia,
Oregon and Montana have attempted to curb speculation and Washington,
Virginia and California have tried to raise revenues. The details

are given in Table 20-1.4

Value Capture Policy for Transit Implementation Funding

Rice Center for Community Design and Research at Rice
University, Houston, Texas, has been involved in studies and research
on the use of Value Capture Policy for Funding transit improvements.
The studies have been conducted under contract with the United States
Department of Transportation. The motivation for the studies which
have been completed notably for Houston, Chicago, Los Angeles, and
Louisville among several others has been:

...integrating mass transit and land use projects can
yield an opportunity to "create wealth" both finan-
cially anciin terms of other community benefits.

Given the proper set of circumstances, it is possible
for both public and private participants to capture
these values. Value Capture Policy is a means whereby
the land adjacent to transportation facilities is pur-
chased, managed or controlled in order for the public
to share in potential financial and community design
benefits from the facilities not otherwise possible.5

21

In these studies it has been found, at least for the cities

analyzed, that:

projects

The work

there were no substantial barriers to Value Capture,
that is, no situations requiring inordinate effort be-
yond the normal legislative, political, financial and
planning process associated with transit implementation
per se.

Value Capture offers clear opportunities for community
design benefits available through public participation
in land development related to mass transit implementa-
tion.

public finance benefits are realizable through special
forms of taxation and/or financial investment techni-

ques.S

The studies basically, have been oriented to mass transit

and development of land aro-nd the transit stops on the way.

has been conducted in three concern areas:

Legal Study of legal bases upon which to ground the

Aspects: recapture of financial benefits to the

community. The issues examined include ex—
ploration of proposed solutions based upon
supplemental condemnation or excess condemna-
tion, tax assessments, monetary transfers,
intergovernmental cooperation and air rights/

sub-surface development.

22

Financial These have been divided in two tasks: task

Aspects: 1 formulates alternative financial implementa-
tion strategies, these include three factors --
Administration Entities, Capital Structure and
Income Realization. A sample interrelation-
ship matrix of these factors which have still
been subdivided into entities, sources and
techniques is given in Report [Ref. 5]. Task 2
includes financial testing and evaluation of
the financial efficacy of the Value Capture
Policy as a viable tool in transit implementa-
tion.

Community These use the Transit Action Programs, such as

Enhance- in Houston which had the regional transit

ment corridors, approximate alignments for line haul

Aspects: components, system technologies and approximate
st0p locations. This aspect of study examines
the problems and opportunities for transit stop
related development designs. Specifically, the
study determined how various transit stop re-
lated land development designs perform toward
improving mobility, social, employment, en-
vironment and service aspects in the community
and how they achieve the goals of Value Capture
Policy.

A more detailed explanation of the terms, strategies, and techniques

used in the subjects study will be given in Chapter III.

23

Other Techniques

 

In addition to the major techniques described in the above
paragraphs, there are a few others which have been employed as de-
vices to recapture windfalls.

For example, dedications or donations to the local government
at the time of granting permissions for development, rezoning approvals,
and so forth. The assumption is made that as a result of the per-
mission accorded which was a governmental action there has been an in-
crease in value of the property and hence the community has a right
to recover at least part of it. However, beyond the dedication of
some part of land for parks or recreation, planting trees, donation
for development of a school or things of this nature, this technique
has not captured any real ”windfalls."

It is more common, however, to use this approach to recover
the part or full cost of any infrastructure installed by the govern-
ment, such as: sidewalks, curb and gutter, minor street improve-
ments, sewer extensions or tappins.

Other examples have been cited where the local government re-
covers the cost of public improvements by imposing a tax on the
residential development at a certain amount for each bedroom in the
deve10pment.

Still other examples are to tax the pr0perty at the time of
transfer of property, such as sale. The assumption is that this tax
will capture at least some part of the unearned income. The process,
however, does not take into account any change in property value but
only the total value of the property at the time of transfer, and

for whatever reasons, excludes the increase caused by inflation. The

24

increase does not have to be caused by any specific government action.
California is one of the states where the transfer taxes are allowed

to the counties and cities.

0. Selection of a Highway Alignment
The process is also termed as route location. In the follow-
ing pages the current practice(s) of selecting a highway alignment
will be reviewed. A perusal of the factors considered, of impacts
studied, and of the final decision process followed, indicates that
the potential of capturing unearned public benefits or windfalls has
not been considered.
According to the Policy on Design of Urban Highways and

Arterial Streets published by AASHO,10 the purpose of highway location
is to position a highway within a corridor to best accomplish the
broad goals of the transportation system along with the local goals
concerned with the immediate environs (p. 139). The Policy lays
down a ten step process including determinants of broad route require-
ments that is type of highway needed, control points, selection of
corridors, evaluation of alternative determination and evaluation of
the economic and environmental effects of each alternative, prepara-
tion, a route location report, conducting a public hearing and
finally determination by decision—maker of the route alternate for
advancement to the design stage.

I Included in the section on "Evaluation" are the following
factors:

- interagency coordination

- economic evaluation

25

- environmental evaluation

- public hearings

- the management decision.
The part most relevant to the present study is that on "Economic
Evaluation" which is proposed to be discusSed in more detail.

The purpose of economic evaluation, according to the Policy
is "to select the best alternative in terms of its monetary benefits
in relation to its monetary costs". It further states that in all
cases (when there are several alternates) the alternatives should be
compared to each other to determine their relative status in monetary
terms. The objective of this analysis becomes more clear when the
Policy states that "it is the relative monetary status that deter-
mines which alternative is "best" in monetary terms." The Policy
also states that "a fairly detailed estimate of the total costs and
benefits associated with each alternative is necessary to make an
economic evaluation."

The direct costs, maintenance and operation costs.and road
user costs and benefits are computed to develop an economic ranking
of the alternatives based upon one or more methods from the follow-
ing:

. Equivalent uniform annual cost method
. Present worth of cost method
. Benefit/cost ratio and
. Rate of return.
In each of the above, sufficiently detailed explanations are

included to clarify the intent. Elsewhere, (pp. 204-206), while the

26

Policy recognizes Unaanticipated economic gains or losses due to the
specific highway location,it does not even suggest capturing the
unearned benefits created by the highway itself. It does however,
point out that new development or intensification of existing de-
velopment in the vicinity of the new highway have typically offset the
local tax losses due to right-of-way acquisition.

1] which also follows the traditional

In another study,
approach to highway economic analysis,some sixty eight different
factors have been listed under four major categories:

1. Effects of the stationary environment (14 factors)

2. Effects on the transitory environment (11 factors)

3. Neighborhood and community impacts (23 factors) and

4. Traditional factors in highway improvement analysis

(20 factors).

The list of factors is fairly comprehensive but does not include the
potential for capturing unearned benefits created by the facility.
The economic analysis proposed is similar to the AASHO procedures.
The criteria listed by the Committee on Urban Transportation
of the American Society of Civil Engineers13 for location of urban

freeways and major streets includes the following factors:

27

Urban Freeways
Factors

Planning
(several factors)

Traffic Service
(several factors)

Design
(several factors)

Economics

-Average total cost/
lane mile

~Re1ative B/C ratio
excluding cost to
-community facilities

-Added cost to street
facilities

-Potential added cost to
community facilities

-Direct cost to the tax-
payer of one alt.

compared with another

Barkan14 discusses the latest methods of determining urban

highway routes. His discussion emphasizes the newly evolving con-

Major Streets
Factors

Planning
(several factors)

Traffic Service
(several factors)

Design
(several factors)

Cost estimates

Benefit/Cost Ratio

cepts of fitting urban highways into the twentieth century urban

setting. The economic analysis concepts in these two works make no

reference to the subject under study in this research.

CHAPTER III
THEORY OF VALUE CAPTURE AND TECHNIQUES

In the following sections the subject of value and Value
Capture will be explained with emphasis on

A. Theory of Value

B. Categories of Created Value

C. Situations Suitable for Creation of Value

0. Techniques to Capture the Unearned Value

E. Problems in Capturing the Unearned Value

A. Theory of Value

For almost three centuries the world's economists have been
developing various theories of value. There are, for example,
"direct" value theories which are concerned directly with value and
"indirect“ value theories concerned indirectly with value. The
"direct" theories attempt to explain its nature through one or more
of the basic causes of value such as supply or utility and are con-
cerned with analysis of the value of an individual economic good such
as a machine or a parcel of real estate.

Among the direct value theories the classical theories of
Adam Smith, Malthus, Ricardo, Stuart Mill and Thunen are generally

based upon the assumption that cost of production equals value.

28

29

These theories ignore the demand or utility side of the value, which
is the greatest weakness of this approach. This is the origin of the
cost approach used today in value estimation.

0n the other hand, the indirect theories concern the much
larger picture, such as the nation's economic policies, which only
indirectly affect the value of the economic good. Changes in tax
regulations or legal or financial systems initiated by institutions
are other examples which have indirect implications on the value of
the good.

The Marginal Utility Theory, which was developed by the
Austrian economists Menger, Von Wieser and Von Bohm Bawerk departs
radically from the classic approach in emphasizing the utility or
demand side. They say that the utility produced by the last unit of
an economic good or service (marginal utility) determines its value.
This bears close relationship to the income approach of the value
estimation. The marginal utility theory does not consider the cost
of production and short run decisions of marginal utility alone
govern the theory.40

It was left to the English economist Alfred Marshall41 to de-
velop what is known as a neoclassical theory in which he recognized
that the correct approach is a synthesis of the two earlier approaches
of supply and demand into one. He introduced the famous scissors
analogy of supply and demand operating in the market in his book
"Principles of Economics." As each blade of a pair of scissors is

necessary for the unit to function, so is supply and demand necessary

30

for the economic unit - a market - to function. This was the basis
of the sales approach of value estimation.

Based upon neoclassical economics.value is a market concept
which is the result of the interaction of supply and demand. In a
"perfect" market, which meets the following criteria, the price equals
value:

1. Homogeneity of products.
. Many buyers and sellers.
No buyer or seller large enough to influence the market.
No external influence.

Complete knowledge as to possible uses.

0‘ 01 -§ (40 N
O O C 0

Agreement as to expectations.

In reality, however, the market is not perfect, as it does not satisfy
the above conditions. Price, therefore, becomes a market estimate for
value.

The most relevant of the theories which have serious implica-
tions in an indirect way upon the value were formulated by the mer-
cantilists, physiocrats, the institutionalists and the Keynesians.
Although Ricardo, Veblen, Henry George and several others developed
the theories of comparative advantage, evolutionary nature of group
behavior and the single tax idea, yet the policy implication of
Keynesian theories remain most important even today for study of value.
This is because monetary, fiscal and debt management policies are
important tools in the Keynesian model for regulating economy and
thus in determining prices that occur for all economic goods including

real estate.

31

A definition of market value formulated by the Society of Real
Estate Appraising is: The price which a property will bring in a
competitive market under all conditions requisite to a fair sale, which
would result from negotiations between a buyer and a seller, each
acting prudently, with knowledge, and without undue stimulus.

This is a compromise market definition that encompasses the
classical, marginal utility and productivity theories of land value.
Since the real estate market is less than perfectly competitive,
this is the best attempt to define value of a property so far.

This value, according to Brighamazis a fUnction of five sets

of variables as follows:

<
II

T (P1. A1. T1, U1, H;), where:

V = the value of the ith Site
Pi = the accessibility of the ith site to economic activities
A, = the amenities, including the neighborhood effects,

associates with the ith site.

_.|
ll

1 the t0pography of the ith site.
U; = the present and future uses (residential, commercial,
or industrial) of the ith site.
H = certain historical factors which affect the utilization
of the ith site.
Brigham also maintains that accessibility, amenities, topography, and
historical factors will have noticeably different effects upon the

value of land in different uses. Thus, there actually will be a family

32

of land value functions of the form V. - f: (P

13 - 1 AL, Ti’ Hi) where

i’ 1

the j subscript designates the present and future use of the ith
site. Empirical results have been presented by Brigham to support
these assertions.

Rueter, however, disagrees with the above model and asserts
that the above mentioned factors can probably be assumed to be uniform
across all properties if these sets of estimates are restricted to a
relatively limited geographic area (a specific zoning district within
a specific federal census tract). Rueter developed his own model, one
which estimates the market value of a site (sale value) and many of
the neighborhood characteristics which influence that value, holding
constant the location and zoning classification of the property. He
found that there is much more independence in urban property markets
than the zoning ordinance anticipates. The only variables which might
be viewed as having a reasonably consistent influence on property
values are the assessed valuation and the Consumer Price Index. Thus,
the value of a residential property, according to Rueter, seems to be
affected much more significantly by the attributes of the improvements
to that property and by aggregate economic conditions than it is by

any features of the neighborhood.

B. Categories of Created Value
A created value is an additional benefit due to construction
or improvement of a highway or transportation facility. Sloane9
clearly describes the three categories of non user benefits due to a

particular improvement.

33

1. Land use related benefits-n-usually those associated with
the use of the land made more accessible by the improvement.

2. Land value related benefits-u-those associated with the
increase in the monetary value of the land affected by the particular
transportation improvement.

3. Benefits derived from the transfer of rights in the land
affected by the improvement.

In Case 1, several examples have been cited in which the
benefit is in kind rather than in monetary terms. In this case, con-
struction of a highway or an interchange can act as a catalyst to de-
velop the adjacent property for the good of the general public.
Examples could be development of a park, rest area,or even zoning
controls to check traffic congestion in surrounding areas.

Case 11 includes the situations where a highway (or any trans-
portation facility) results in an increase in the value of an abutting
or adjacent property. This increase takes place due to improvement
in accessibility. The beneficiary in this case is the owner of the
property such as a farmer who has been holding on to his farm land
for years with the hope that the highway improvement will make it
possible for him to sell his land and retire; the home owner whose
home and land suddenly become more attractive for commercial develop-
ment; and numerous other examples.

The last case refers to the benefits derived from transfer of
development rights (TDR). The underlying principle for this is
that the development potential of privately held land is in part a

community asset that government may allocate to enhance the general

34

welfare. In concept, TDR severs the development potential from the
land and treats it as a separate marketable item. This is essentially
a land management device which is viewed by its proponents as a means
of providing an equitable return on land investment to property owners.
whose return otherwise might be lessened by regulatory activity.4 Con-
servation and transfer zones are established and a process of density
transfer or sale from conservation zones to transfer zones is allowed.
Transfer of air rights, water rights or development rights, generally
are accompanied with a suitable compensation. The developer in the
transfer zone could, for example, compensate the "public“ in the form
of a direct purchase or lease of the air rights over the highway --
a mechanism to recapture at least part of the created benefits or
values.

In this thesis the category 2 is the subject of primary focus,
although the other categories have been used in practice to capture

created value.

C. Situations Suitable for Creation of Value

All public improvements do not result in enhancement of value
of the adjacent property. The factors described earlier in the section
on values affect property values in general, but there are also unique
situations which have to be considered in predicting the creation of
additional values for real estate. These situations are described
in the following paragraphs.

1. Demand: Construction of a highway in itself although
necessary is not sufficient for the creation of windfalls. One of the

most important factors is the market for a change in land use. A

35

vacant parcel of land with excellent accessibility to a new roadway

but located far from any area with a demonstrable market for residential,
industrial, commercial or other usage may not show an increase in pro-
perty value of any significance. While the property may be an

excellent location for a highway related use, lack of a market for a
specific use would negate any chances for enhancement in property

value.

2. Zoning and other Land Use Controls: Zoning can be defined
as the regulation of the character and intensity of use of the land
and improvements thereon. It is one of the more popular and widely
practiced forms of land use controls although other forms such as
variances, use permits and contracts are also used as discretionary
devices for land use controls.

Zoning has been found to affect property values positively or
negatively. It has also been suggested that zoning results in shifting
property values: in other words it increases land value of some land
and decreases the value of other land but neither creates nor destroys
land values. However according to Ohls et al.4, the impact of zoning
on overall land values in a community cannot be predicted and is de-
pendent upon the relative elasticities of demand of the land uses in-
volved. Their analysis assumes a jurisdiction with a fixed area in
which no parcel has any relative locational advantage and there is
a demand curve for each type of land use. The interaction of the
combined demand and the fixed supply of land is the determinant of
price for the various land uses. If zoning is introduced, the supply

of some land use is restricted and thus increases the supply of others.'

36

The overall effect will depend upon the relative elasticities of
demand for various uses.

According to Hagman,4 a zoning policy in a growing city might
have a considerable influence on land values even if excess land is
zoned for a particular kind of development.

Crecine, Davis and Jackson16

among others have also measured
the impact of zoning on property values. However the observation
that needs to be made here is that the same property can have a dif-
ferent value under otherwise similar conditions if only the zoning
was different.

3. Timing for development. There are some benefits that
can be retained long after a highway improvement has been made (de-
velopment of air rights, or use of excess land in a right of way, and
so forth) but most of the types of benefits come about during the de-
velopment of the improvement. It has been urged that the highway
planning process be widened in ways that will allow these benefits to
be anticipated and methods for retention and realization designed during
the development stage. However, there are legal problems in trying
to recapture benefits through imposition of special public actions

after the issues of land use, taxation, ownership, and so forth are

settled and established.

0. Techniques to Capture the Created Value
Given the situation where a highway facility is planned,
under construction or has been constructed there are several dif-
ferent techniques that can be applied to capture the additional

unearned value, created by the facility. For a specific set of

37

conditions the selection of the most appropriate technique would depend
upon the careful examination of issues involved, the ramifications
in the prevailing political environment and available legislative and
legal support.

0f the techniques that'can be used to capture the unearned
benefits, three major sources of research are the moSt important:

Hagman,4 Rice Universitys’6

and Sloan et a1.9 All three have dis-
cussed the techniques at length.

Hagman lists nine techniques to capture windfall profits and
three more for "windfall capture and wipeouts-mitigation". It is
argued that a combination of windfalls recapture with wipeout
mitigation would lead to more consistent planning and implementation
as it would check the rezoning pressure. In this research,however,
only windfall recapture aspect has been examined. Not because wipe-
out mitigation is of any less importance but it was considered a little
farther removed from the main though of the thesis. (Rice University
Center for Community Design and Research lists nine different
techniques,and Sloan et al. under three basic categories lists four-
teen techniques. As pointed out by Sloan, the techniques may be
merged and combined in various ways so that the distinctions between
the categories are often blurred. The techniques are a function of
the entire setting for the benefit scheme (recapture of value).

Basically from an implementation perspective,all the value
capture techniques can generally be classified in two situation
categories:

1. Land in Private sector

2. Land in Public sector.

38

I. Land in Private Sector

 

In this situation, a highway is planned or is under construc-
tion while the adjacent land in private ownership gains in value be-
cause of the improved accessibility. The authority (or authorities)
financing the highway do not own any part of the subject land. The
authority still has the option of exercising its taxing power to
realize a portion of the value it helped create.

This can be done in several different ways:

A. Special assessments: This has been discussed on page 14
in Chapter II. The State of California is a pioneer in this area.

In 1968 California enacted a "special benefit assessment" feature
which enabled the local authorities to create special benefit dis-
tricts along a mass transit line. This legislation gives flexi-
bility to the transit district in apportioning costs in direct pro-
portion to benefits. Care needs to be exercised in differentiating
the special benefits pr0posed to be taxed from the general benefits
that are diffused throughout the community. For a highway improvement
a typical district would be linear,along the highway,with the increase
in property value declining with distance from the highway.

Generally, local governments have exercised the power of
special assessments, under enabling state legislation. However, in
the case of a state-federal highway project whether local government
will still be authorized to collect the assessment is not yet clear.
Also if the highway runs through multiple contiguous jurisdictions,
various governments may have different tax philosophies which may
complicate the tax administration. This is especially true if those
government units are competing with each other for development and/or

tax revenues.

39

The approval of the special assessment project by a majority
of the affected property owners is normally required under law. In
case of a highway project passing through multiple jurisdictions, there
may be some areas where the majority may turn it down. A state
appointed commission authorized to decide the rates like that in
Massachusetts disallowed majority dissent.

Special assessments for major highway projects have yet to be
tried at a sufficient scale to gain experience in the legal, political
and technical ramifications.

8. Development Permission exaction: This is a mandatory
contribution of‘a psecified percentage of the assessed valuation of a
subdiviser‘s land paid by the subdivider to the municipality for the
right to subdivide his land.9 This attempts to allocate the public
cost of new development to the development itself. The developers
are asked to provide public improvements and/or facilities such as
streets, sidewalks, curbs, gutters, sewers, storm drains, parks,
schools, etc. to be provided (or a fee to be paid in lieu of them)
toe the municipality. This mechanism recaptures the costs of improve-
ments and not unearned profit.

C. Impact Taxes:4 There are taxes on new development to
defray the cost of public services or even to increase the source of
general revenue. Examples are bedroom tax or business license tax.
They are usually a flat fee per given unit as defined in the ordinance.
This device also recaptures costs and not unearned profits.

0. Sale of Development Permission:4 This is a revolutionary

concept proposing transition from our present system of development

40

permission through regulation to one in which development permission

is sold. Hagman4

points out that windfall recapture upon rezoning

has not been recognized by the courts as a valid exercise of the zoning
power. The courts still hold a traditional view of the function of
zoning: to regulate land use uniformly, based on a comprehensive

plan which is itself based on the Police power criteria of public
health, welfare and safety. Sale of development permission such as

by auction would make it more convenient for large firms and busi-
nesses to outbid the smaller enterprenuer thus accelerating the
inequities between rich and poor. Moreover, this mechanism will
encourage speculators.. The suggestion has also been made by Dr.

‘5 that it is an in-

Marion Clawson of Resources for the Future Inc.
correct contention that property owners have an inherent right to
major gifts in property values, at public expense.

E. Land Value Taxation (or single tax): A single tax
system is one in which there are no taxes on income, Sales, or any
other kind of tax, only a pr0perty tax, with land as the only pro-
perty in the base. A land value tax system is one in which there
are other taxes, but the property tax is only on land, and comes in
two varieties, an Unimproved land value and a land value tax. The
first is a "purer" form because the base of the tax is the value of
the land in its raw state surrounded by its milieu. For example,
land located in the center of New York City and fenced off since
time immemorial with nothing done to it would still have considerable
value accrued over time as the city developed.. A land value tax,

on the other hand, is a tax on unimproved land plus invisible im-

provements. The least pure form of land value taxation is known as

41

graded tax, where land is assessed at a higher ratio to market value
than is used in assessing structures.4
Seligman in his classic work explains that taxes levied on
buildings are shifted as they are paid not by the landlords but by
the tenants. A tax on land on the other hand reduces the market
price of the land by the capitalized amount of the tax.
The concept of land value taxation is based upon the premise
that it recaptures the unearned profits. The tax on land which is
' being held undeveloped by a speculator would be so high under this
system that he will be encouarged to develop it to the best and highest
use to defray the taxes. There are strong arguments in favor and
against the land value taxation as a device directly physical de-
velopment and capturing unearned profits.

17 points out ( p. 302) that there is no evidence that

Bryant
this or any other kind of change in the tax system can play more than
a marginal role in directing physical deve10pment. sydney, Australia
is often pointed out as a city which has enjoyed the advantages of site
value taxation for a couple of generations but it has the same sort
of difficulties and problems as any other great metropolis. Pittsburgh,
Pennsylvania is the site of the most signfiicant land value tax ex-
periments in America. However, a study by Richman shows that after
the tax was introduced in 1913, the tax was gradually reduced on
buildings; consequently, the tax has had no important economic effects.
It has not precluded blight and slum areas.

F. Transfer Taxes: A transfer tax on real estate is required

to be paid at the time of transfer of pr0perty from one oWner to

42

another. It is a flat rate tax proportional to the yalue_of the real
estate. The transfer taxes differ from capital gains tax which are
based upon the change_in value but resemble the concept of sales tax.

The transfer taxes are characterized by many as a mechanism to
capture the unearned benefits or increase in value. However these
taxes do not apply to change in value, which is really the unearned
increase. A property which changed hands three times in a year at a
price of $3,000 will be paying transfer tax on $3,000, three times that
year m-even without any increase in property value. It is therefore
more like a sales tax.

The transfer taxes were first introduced in the United States
in 1765 after a similar tax in England. That they have stood so long
attests to their relative political acceptability. The transfer tax
has proven a significant revenue producer in several states. 0n the
other hand, numerous proposals for using transfer taxes in California
to finance open spaces acquisition and regional planning have been

defeated.4

0. Special Capital and Real-estate Windfall Taxes (SCREWTS):4
The key feature of SCREWTS is their tax base, which is the increase
in the value of real estate between specified taxable events.
Historically several attempts have been made in the United States and
other countries to impose special capital and real estate windfall
taxes. A chart summarizing the important features is reproduced from

Hagman4

who very eloquently analyzes the pros and cons of the
SCREWTS. Some of the points are:
i) SCREWTS have not been limited to the increases in property

values caused by governmental or public actions alone rather they tax

43

all_increasesir1property value, or some part thereof, however caused.

ii) SCREWTS are payable on an event only such as a change in
ownership of land or status of land, rather than on a regular periodic
basis as in the Uthwatt proposal.

iii) SCREWTS are typically national or state taxes.

iv) SCREWTS have been controversial whenever and wherever and
whatever form introduced. However none have been broad enough to
end all speculation in real estate; they may have changed its nature,
amount or direction, and actually increased the amount of speculation
in some types of property.

v) Only a few SCREWTS were motivated by a desire to recapture
windfalls more broadly. When revenue is not a goal, a tax is not a tax
at all.

vi) SCREWTS are more similar to capital gains taxes than they
are to capture value taxes. A capital gains tax on a sale of capital
asset is taxed because the gain is considered income. To the extent
that a capital gains tax applies to gains from the transfer of real
estate, it does have windfall recapture features.4 In the United
States, however, capital gains have been considered taxable since the
beginning of income taxation. With the exception of a modest in-
crement recapture experiment under the reclamation laws, specific
land betterment has never been recaptured in the United States.

Since 1965, experience in England, Ontario, New Zealand and
Vermont (U.S.) has indicated that both can coexist, as they have in
these places. One major reason why both taxes should coexist where

one exists already is that while capital gains tax is applicable only

44

at transfers or sales, SCREWTS gap_be levied on events other than
transfers to ensure that a portion of all windfall is recaptured.
Some of these events, development, for example, are simply not applic-

able to other capital assets. Hagman also discusses various options to

separate the two kinds of taxes.4

II. Land in Public Ownership

 

The techniques to capture the created value when the land which
increased in value due to public improvements belongs in public owner-
ship are different. The realization of a share of unearned profits
from real estate in this case would depend upon whether the taking of
land is within the power of the government. Under most circumstances
excess condemnation beyond the highway right of way is not allowed.
However, some developments in the field of supplemental condemnation
and air and subsurface rights are worth looking into as devices for
recapture of the created value.

The basis of acquisition of land by a public agency is eminent
domain, which is defined as: the inherent power of the sovereign to
take private property for public use upon payment of just compensation

thereof.18

The key word is public-use. A reasonable legislative
mandate on public purpose is generally acceptable to most courts.
The touchstone of the exercise of the power of eminent domain is
"necessity". No private property may be taken unless there is a
justifiable necessity for the taking. Of course, property may be
acquired on a voluntary basis without a requisite public purpose.

In conjunction with construction of a highway, for example the

specific "highway purpose" for which land may be acquired is set

45

forth in Michigan Compiled Laws Annotated 213.361 enumerated here:

a. property necessary for the right of way

0. material necessary for construction

c. property necessary for clear view

d. property necessary for a water coUrse

e. abutting property necessary for storage

f. property necessary for parking

9. property necessary for air traffic

h. property necessary for construction, landscaping, parks,

test areas, scenic area and look outs, and so forth.

1. non-residential properties necessary for rehabilitation

or redevelopment under the Blighted Area Rehabilitation
Act [MCLA 125.71 to 125.84]

j. property necessary for water or sewer systems.

The Michigan Constitution, Art. 10, §2 prohibits the govern-
ment from condemning pr0perty in excess of that which is actually
needed for the specified public use.

However, the government has an affirmative duty under MCLA
§213.365(d) to take unused and unusable remnants:

The right and duty to acquire and take the fee to a

whole of a particular parcel of land whenever the

acquisition of the portion thereof actually needed

would destroy the practical value of utility of the

remainder of such parcel...

As pointed out earlier, Supplemental Condemnation or excess
property condemnation is possible, if the property owner requests that
it be acquired on a voluntary basis. There is ample evidence that

the courts have accepted such acquisition is such schemes have had

their bases in either a constitutional or a statutory provision.

46

These PFOVlSIODS roughly fall in four categories:19

a. Supplemental condemnation essential to the successful
operation of a district or the operation of a public
facility.

b. Supplemental condemnation for future use and disposition
of surplus property. Essentially the future expansion
and use are permitted. Also permitted are temporary use
of the property for income and later even to sell the
land outright if not needed.

c. Protective theory of supplemental condemnation. In this
case, the acquiring authority preferably should have a plan
to develop the pr0posed excess land to protect or pre-
serve the public use of a facility or district.

d. Remnant theory of supplemental condemnation. The acquiring
authority could be permitted by the legislature to acquire
the remnant portion of the required lots, otherwise not
needed for the public facility.

Air Rights Utilization: With proper legislation it is possible to
utilize the air rights and/or sub surface rights of the high-
way right-of-way for selling or leasing to prospective
developers at a fee or price. This use of air space above
and below the highway can contribute to a reduction in right
of way acquisition costs.

However, lack of state enabling legislation remains as an

obstruction to the utilization of air space in numerous states. Where

comprehensive legislation has not been adopted, the highway agency may

47

be uncertain as to the full extent of its powers in joint development
activities.

Possibilities of improvement of joint development within the
air rights can be enhanced if the states take action to enact legisla-
tion on the lines of the Model Air Space Act. This Act was proposed
by Dr. Robert R. Wright of the University of Oklahoma in conjunction
with a committee of the Real Property, Probate and Trust Law Section
of the American Bar Association. The Act defines Airspace as that
space which extends from the surface of the earth upward and outward
and states that it is real property.

Air rights are very expensive to utilize and high density and
high land value are required to support them. A National League of
Cities staff report involving a study of 54 questionnaire responses
noted that 28 cities reported the existence of public or private air
space projects, that 13 more reported plans to develop air space in
the future, and that three cities were considering the development of
air space plans.9

Other possibilities are Urban Renewal Areas which are
essentially the blighted, deteriorated or deteriorating areas
designated for thorough replanning and redevelopment. The possibility
of a government acquisition of land adjacent to a highway as part of
an urban renewal area and the subsequent sale of that land after the
highway improvement has increased its value, suggests a method of re-
capturing some of the windfalls accruing from highway development.

If the original acquisition was justified in terms of the prevention

of the development of blighted areas or in furtherance of sound

48

community growth, there Should be no real constitutional issues. The

acquisition cannot constitutionally be based upon the sepculation of

making a profit; regardless of whether the income was generated by the

government's own improvement.

9

These techniques have been derived from Ref. 6 in concept and

modified to the highway situation from transit stops. These can be

used after the land has been brought under public ownership.

A.

Develop/Lease or Sell: The administrative authority may
undertake the development of land adjacent to the highway
and hold the property for lease, rental or subsequent '
sale. The development of various uses, of course, and
especially in air rights utilization, should be in public
purpose such as parking structure, institutional uses,
high density or subsidized housing.

Hold/Lease or Sell: After fee simple interest and other
development rights have been acquired, at some future
date when the development of these parcels meets an
appropriate public purpose,the rights of land are leased
or sold to recapture the value. This will apply to
ground air and subsurface rights.

Participation: Interest in the subject land parcels or
development rights are ceded to other private or public
parties for development. Under some circumstances the
development entity may participate in a portion of the

income stream produced.

49

Land Banking: Land Banking is defined rather broadly as
public, or publicly authorized, acquisition of land to be held for
future use to implement public land use policies. The policy of
land banking generally had two objectives 1) providing a mechanism
by which public agencies can direct where development can take place
and the nature of that development, and 2) exerting an influence on
land prices in order to keep them at "reasonable" level. However
in Sweden and Netherlands.where the policy has been more successful,
there is an implicit belief that landowners are not entitled to

unearned increments in land values38

and that society as a whole shoUld
share the increment in land values resulting from planning decisions.
In both the countries, land banking continues to be desirable on the

grounds of efficiency and equity.38

In France also, where land bank-
ing has been an accepted national policy since 1958, the belief is
that windfalls may be avoided by public purchase of sites intended
for intensive development. The land banking programs in France are
considered to be worthwhile and important and have been well con-
ceived in legal and administrative terms.

In the United States, public-private ratio of land ownership
is 42 percent to 58 percent; and of the public ownership, 34 percent
is federal, 6 percent state and local, and 2 percent Indian. Most of
the public land is remote from major urban concentrations, far from
the pressure of land use change and,therefore,of limited suitability
for incorporation into a land bank system. The land banking will

38 Due to lack

have to be authorized by legislative appropriations.
of a national land use policy, the decisions made on investments,

tax investments and program aims are often inconsistent.

50

Strong38 suggests that the major policy issue that must be

faced is whether land banking is compatible with current American
attitudes toward public land ownership and public capture of unearned
increments in land value. The American Institute of Architects says
in "Plan for Urban Growth" that

We favor public acquisition and preparation of land

in advance of development. We believe that the

appreciating value of urbanizing land should be re—

cycled into the cost of developing, serving and main-

taining it.

The Douglas Commission (National Commission on Urban Problems)
says

Where actual purchase will result in the government's

recapturing increases in land values for the public,

government should deem this a legitimate function and
an added incentive for direct action.

Kamm,39 however, cautions that due to differences in tradi-
tion of public ownership of land, municipal fiscal autonomy, effec-
tiveness of planning, secrecy of planning and central city dominance
of suburbs, a simple transfer of experience from European success
stories to United States may not be feasible._ He points out that
because the Swedish programs were closely tailored to peculiar

circumstances, any American approach will have to be tailored to its

own institutions.

E. Problems in Capturing the Unearned Value
Implementationtrfany of the techniques described in the above
paragraphs or some suitable modifications of them may be dependent
upon a complex set of factors such as the prevalent political

philosophy, social traditions, attitudes towards land ownership and

51

right to profits. Some of the major issues are discussed in the
following pages.

1. Private and public interests: Every society must have its
own equilibrium between private rights and social responsibilities.
There is a broad zone of interaction between private and public in-
terests. Even within the general framework of Western democracy,
the line of demarcation within this broad zone varies enormously as
between Sweden and Texas. In the Netherlands, for example, it is
normal and acceptable for the public authorities to intervene in the
use and disposition of land, to an extent that would be considered
unthinkable in the United States-u-yet both are democratic countries
in the generally accepted sense of that term. The point is, of course,
that the mental climate in each country is the product of history

17

and conditions. In some other nations, the accumulation of the

benefits solely by private pr0perty owners is looked upon with

disfavor, while in the United States this is the standard practice.9

The 'rules' of the society affecting private property.which either

accept or deny the right of the private owner to be lucky.play an

extremely important role in capture of benefits. Sloane9 says

further:

While there are police power restrictions on how pro-
perty may be used, there are few restrictions on how much
an owner can profit from sale of his property. While
property can be "condemned" by a public authority and
purchases at "fair market value" for a public purpose,
most state legislatures have restricted the use of this
power for programs and purposes that are clearly public
...as they involve public benefits coming from some-
thing that happens on private property.

52

2. Legislative restraints: The transportation authorities
do not have the power to acquire any land outside of that which is
required for the transportation facility. The prime role of the
transportation agencies has been recognized to be just that and not
land development or real estate management. It is widely recognized,
however, that plans and actions of the transportation agencies play
the key role in determining when, if, and how the benefits are
manifested even if the agency does not play the prime role in owning
or controlling the benefitted land.9

3. Local political dynamics: The benefits and the created
values are usually area-specific and fall within the domain of local
governments. If the local government favors private development and
economic and tax base expansion, the public benefits by way of in-
creased tax revenues may be the farthest the local government may
like to go. The local political and power dynamics play the most
important role in realization of benefits (as they Very often do in
the location of a specific highway facility).9

4. Some unanswered questions: Besides the above difficulties,
there are questions in the minds of people, which do not have de-
finite answers. This is partly because of lack of research and ex-
perience and partly because of fear of the unknown. Such a state
evidently is not very reassuring to those who are presently against
any concept of capture of unearned profits. One question is of
incidence and is very important: Who ultimately pays the windfall
profit tax? The law in each case designates the payer of the tax,

the seller for example, in this situation. However, according to

53

Hagman4, the economic incidence of a tax may be quite different from
its legal incidence. If the unearned increment tax gets passed for-
ward to the new home buyers or backward to the developers and con-
struction workers, it is no longer an unearned increment levy -- for
the ethical nexus is lost. The land owner would then be able to keep
his unearned increment and the public's effort to recapture it would
victimize the hapless bystanders.4 There are no clear cut answers

to this question. The research is contradictory, at best, to indicate
whether the taxes have resulted in increase of property values.

The other question is how the system can be designed to be
the most equitable and efficient both at the same time. Again Hagman4
dwells upon both the concepts and say that efficiency is the easier
of the two words to define; one can be almost scientific about it.
Equity, on the other hand, is a slippery conceptl the thinking of
social scientists, lawyers, planners and politicians about equity
is often sloppy. But, he later says that one should not expect much
more of contemporary efficiency and equity analysis. Even the best
of it does not yield really convincing answers to very many dif-
ficult public policy questions.

However, there is an optimistic trend developing here in
the United States which may be a good sign of the things to come,
that is, the attitude towards land management. The gradual strengthen-
ing and acceptance of zoning and other "police power“ measures, the
process of review of development plans by local planning commissions,
and in recent years, the rise in number of legislative acts on coastal

zone protection, and restrictions on wetland development, are signs

54

that indicate that land is being recognized as a critical public re-
source. Even in the United States, the management of private land
and its development is becoming an accepted public-private negotia-
tion process. In other words, the decision on what a private owner
can do on his own land is no longer totally in his own hands but is

subject to the constraints of public interest.

CHAPTER IV
METHODOLOGY

A. Process

The objective of the research, as stated earlier, is the
determination of the impact of value-capture policy on the selection
of transportation facility alignments. The analysis was carried out
in the following sequence:

1. Definition of the corridor: The Corridor is the strip
of land wide enough to include all the feasible alternatives and the
zone of impact of the alternatives. The width of the corridor is

based on the local conditions. The width of the corridor can be
different in different sections depending upon the alignments and
zones of impact. A

2. Identification of alignment alternatives: Once the
corridor is generally defined, a conceptual set of alternative align-
ments is drawn for a preliminary evaluation. While the list may in-
clude every possible alternate, a detailed technical evaluation should
be conducted for a relatively more practical list of alternatives.
Again, local factors, community goals, public reaction, environmental
social and economic impacts are considered in this evaluation.

3. Identification of "Soft" areas of development: The land
adjacent to each of the alignments can be broadly classified as

"hard" or "soft" depending upon the potential for change in its usage.
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For example, a completely developed area with no vacant parcels of land
and committed by the local government for continuation in its existing
use can be termed as "hard", while another area with several vacant
parcels of land and/or deteriorating in its existing land use may
have relatively more potential for development and hence can be called
"soft".‘

4. Land use market analysis: A market study is conducted
to determine the demand for various land uses such as commercial, in-
dustrial, office or residential. This study shall be conducted
from top-down that is from a wider and regional level to the corridor
level. Care shall be exercised not to examine the corridor in isola-
tion from the rest of the region but a part of it. The end product
shall be the estimated market demand for the various developments
within the corridor. A time horizon can be assigned to such a study.

5. Potential for redevelopment: For each of the soft areas,
based upon the market analysis, a set of land development options is
assigned. This is done on the basis of land area, location, accessi-
bility, local policies and similar factors.

6. Supply-demand analysis: At this stage, there should be
a list of soft areas with various developmental possibilities associated
with each alignment alternative. The soft areas and the developmental
possibilities for them may in many cases be the same for several or
all the alignments.

7. Value Capture options: A study of various techniques
available that can be applied in the area of study needs to be made.

Enabling legislation is an extremely important factor. The array of

58

techniques described in ChapterIII needs to be evaluated for applica-
tions, possibly with modifications tailored to suit the local situa-
tions.

8. Estimation of property value changes and captured
revenues: The present assessed values can be easily obtained from
the assessors records. If the records are not current, appr0priate
multipliers can be used based upon past sales to determine the
realistic value of the property "before" the impact of the alignment.
Any impact on the property value due.to some other public improvement
needs to be added to the value to obtain the base value.

As a result of the improvement in the transportation facility
such as construction of a highway or transit line the soft areas
identified in the above steps are likely to attract and thus benefit
by the new land developments for which market demand has been

established.

B. Changes in Property Values and Captured Revenues

The most important entity in this research is the ghapge
introduced or estimated to be introduced by the highway alignment.
Unless there is an element of change, created by the alignment, value
capture is not possible. Even if there is a change in the positive
direction created by the alignment, unless the extent of the change
exceeds a minimum threshold to be defined, value capture may not be
worth the effort.

If P1 and P2 represent the value of a property before and
after the impact of the alignment alternate Ak is considered, the

essential conditions that must be satisfied to capture a part of the

59

increase are:
i) (P2 - P1) > 0
ii) (P2 - P1) >4, which is a minimum threshold change in
property value that would be able to impact the align-
ment selection. In other words, the essential condition
is
hk = (P2 - P1) > O > 0
where h is the change in property value due to Ak.
Generally, it would be more than one property, say n,
involved for which the change in value is being con-
sidered for potential recapture. In that case, the con-
dition becomes,

n

Hk = 1 (P2 - P1) > O > 0

where H is the sum of the changes in property values
due to an alignment Ak' 7

In case the change in value is expected to occur
over a finite period of time (t) instead of in one

step and Hk = f(t), the condition becomes
t n
Hk = [0 {a (92 - P])}dt > a > 0,

where” dt is a small interval of time and o' is the

changed threshold and H' the total change due to align-

ment Ak in property values over the same period of time t.
So far, the development of the conditions have taken into

account the change brought about by one alignment Ak. Given, that

60

the change in property values due to one alternate alignment, either
in one step or over a period of time t is more than a certain
minimum 4, the question now becomes: how should the different values
of the Hk for k = 1,2.3,... be utilized to effect the decision on
selection of one of the alignments Ak.

We have thus far generated one Hk for every Ak. These
values can be plotted on a graph which would look like the one in

Figure 3. .

1

1
I
1 ,4,
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I
I
1
1

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61

In the graph, at t = 0 change in property values due to
the alignment Ak is zero. It is assumed that Hk the "change" is
a linear function of t.

At t = t1, the first change in the property values is
anticipated and estimated. This event may be the selection of the
alignment with a firm commitment for construction. Intuitively,
if the commitment for construction is uncertain, there would be no
change due to the alignment. However, uncertainty is often the most
fertile environment for speculation, the effect on property values may
start even under those situations.

t = T, is the period over which the change in property values
is proposed to be estimated.

The different lines represent the plots of H = f(t) for
different alignment alternates A], A2 and A3.

4 represents the minimum threshold limit established, which
must be exceeded for the consideration of value capture as a factor
for evaluation of alignment alternates. Oi and 0; are the arbitrary
thresholds at time t = T and 4] and 02 at time t = t].

. In the illustration represented on the graph, at t = t],
alignment A2 falls short of the minimum change 4] in property value.
In such a case, either the decision makers may lower 4 or assign a
relatively lower score for this factor in the evaluation process.
However, if the threshold was set at 02, more of the alignments is
able to generate enough change in property values and the factor for
value capture would not be worth consideration in the evaluation pro-

CESS.

62

An interesting,Innzhypothetical case could arise, if the
change in values H is a different function of t for an alignment,
for example, A3 than for A2. If that happens, the alignment A2
which was the lowest in score at time t = t1 may score higher at

a later time t = T over a period (T - t1).

C. Estimation of Revenues

The preceding discussion dealt with the expected change in
property values created by an alignment. In reality, the main
thrust of the research is one step further then the estimated change
and that is: the estimated revenues that can be captured from the
change in values.

Several factors affect the change in values between the times
they are created and captured.

Inflation: The argument for capture of the values created
by an alignment (or by a public improvement at expenses paid by the
public) is that the private owner otherwise would be entitled to pro-
fits he did not earn. However, the alignment or the public improve-
ment did not create the additional value if it was due to general
inflation. The increase is purely due to inflationary reasons. It
will be unfair to capture any part of the increase, therefore, which
the alignment did not create in the first place.

Risk protection: An individual, who purchased property at
a location which happened to be adjacent to a highway alignment
several years later was holding on to this property as an investment.
This action was evidently totally at his own risk. The highway

alignment or a public improvement may never have been selected in the

63

vicinity and the investment of the individual may never have brought
those high returns. Moreover, a land development in the vicinity
with negative impacts could have resulted in a substantial loss in
value for the property. The owner, during all this time was in fact
paying some price to cover the risk to which he is entitled in all
fairness. It could be 25 percent, 50 percent or any other such
percentage of the profits as decided by the appr0priate authority.

Administrative cost of value capture: The expense involved
in setting up a mechanism, support staff, probably litigation and
additional unforeseen activities are included in this item. This
cost may be negligible and can be ignored if so desired after the
initial time and effort involved to set up the mechanism.

Then, the anticipated revenues Rk can be represented by the
following expression for an alignment Ak and total number of pro—

perties involved for the alignment to be n.

n
= _ _ _£_. - .2. -.Jl.
Rk [4 {P2 (H 100)P1}](‘ 100”1 100)
where r = % rate of inflation
a = % risk protection allowed
9 = % administrative cost for the value

capture mechanism
The formula can be used in practice in a rather simple set up

illustrated below:

64

Project Name:

Assume inflation rate r %; (l + 1001 = a, say

Risk protection factor a %; (l - 1601

. _ _9_.
%’ (1 100)

Administrative cost factor 9

 

a - i - =
(A ' 100) x (A 100) 8’ say.
The formula for Rk can be rewritten as

n
Rk = (g P2 - a ; P1)B

 

Alignment A1 Alignment A2 Alignment A3

 

Property # P1 P2 Property # P1 P2 Property # P1 P2

 

 

 

 

 

 

 

 

 

Sum 2P1 2P2 2P] 2P2 2P] 2P2
2P2 ' a Z P-l = 2P2 ’ a 2 P] = 2P2 “ a. Z P] =
(2P2 - a 2 P])B = (2P2 - a z P])B = (2P2 - a z P])B =

= R] = R2 = R3

 

 

 

Figure 4. Computation of Estimated Revenues by Value Capture

Determination of P]: P has been defined earlier to be the base

 

1
price-— before the impact of alignment is considered. This is the

base, computed from the assessed value of the property for its high-
est and best use on the day before the alignment decision is announced.

Subsequent changes in property values will be measured with P1 as

65

the datum. Recent appraisals of the property if available and
acceptable to the administration would be a better indication of P1
than the assessment for tax purposes because the assessments, usually
lag behind the real market value by several years.

An interesting but complicated case could be considered where
the subject pr0perty has appreciated in value due to some public
improvement other than the transportation facility alignment. The

base price in such a case would be the appreciated price due to those

public improvements.

P,

   
     

 

// 44/44 44/62/4154”
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4/4 5 0444/44 41/ 44444?” 44/44 74/74 44444 4444424414
/ 7415 4462 44 4 454/444 444444 41/ 44/44 4/47' 4444/4)

Determination of P2: P2 is far more complicated and difficult to
determine than P1 or any other factor in the formula. As previously

listed in Chapter IV, there are numerous factors which affect the property

66

values. Some additional factors4 will be:
a) permissive zoning ang_market demand
0) land use relationship to CBD, public transportation,

parks, landfills, shopping centers, factories, employment

centers
c) open space policy of the city
d) boundary, point linear or ubiguitous externalities
e) land assemblage possibilities
f) interaction with the city's economy
9) interaction with contiguous cities
h) time of development and whether there is a partial

or full moratorium

i) interest rates

j) prevalent system of assessment

One of the difficulties encountered in determining assessed
value is a measurement of the increase in property Value of unsolved
and probably also undeveloped parcel due to a specific future action
such as building a highway. This is particularly true for one of a
kind downtown corner lots near freeway off ramps, transit stops, or
strategic important public and private buildings.

The appraisal would be much more reliable if there were
several comparable sales, which are generally not available. Hagman4
points out that the quality of assessment depends on the political
and other motivation of the appraiser or assessor. He says that in

many jurisdictions, property tax assessments for example, are

reportedly very low on at least some kinds of property because local

67

politics deem that it should be so. The appraisers in general use
one or more of the following approaches to assess the property values:

a) market comparison method

b) capitalization of income method

c) replacement cost method

d) regression analysis

The selection of a method would depend upon the resources and
data available and the degree of accuracy desired. Any standard text
book on appraisal would provide details of the techniques listed above.

A compilation of results of some important studies conducted
in various geographical areas illustrates a wide'range of (P2 - P1)
due to highway alignments. Evidently there are special factors in
each case which make the range of increase in property value so wide.

Gabmel et al.29

in their study of the effects of I-495 in
Washington, D.C. estimate that the highway induced benefits that pro-
perty owners realized in North Springfield, Virginia totaled about
$5 million compared to the adverse environmental impacts due to the
highway of only $303,000.

Rams22 describes the study of the impact of a new subway in
New York where the increase in property values above 135th Street
was $39.2 million while the cost of building the subway was $7.3

million or about 15 percent of the actual rise caused by the line.
Similarly, the increase in the Bronx land values of more than $30
million was caused by subway construction costing $5.7 million.

Numerous additional examples can be cited to indicate the
wide range of the impact of highway and other transportation facilities'

alignments on property values.

68

Table 2. Impact of Highway Alignments on Property Values

 

 

Project Source Increase in Any
Property_Value Comments
US-l67 Louisiana Rives et a1. 8.28%, 36%, 146%, excluding the
Reference 25 350% per year ~general in-
flation in-
crease in
values
I-94, Michigan Mich. Dept. of Service Stations

Highways, Ref. 3232% for major city interchange
27 2089% secondary land and city
interchange
2179% small town interchange
9740% rural interchange
Other uses
424% for major city interchange
115% for secondary and city
interchange
104% for small town interchange
90% for rural interchange

Note: 1) some of the sites sold

up to $170,000 per acre

2) these increases took
alace between 1959 and
9

3) the increments probably
include inflation and
general increase also
as no mention was found
to that effect.

Akartheast ex- James H. Lemly From a decline of During the
pressway Ref. 23 4.5% in one area period of
Atlanta, Georgia to an increase 1941-56.

ranging from 113.0% over a

to 159.2% in the selected

other three areas. control area,
approximately
44% showed a
rate of in-
crease in
land value
from 12% to
1370%. The
rest showed
a decline
from 194
17%. These
numbers are
exclusive of
inflation.

Table 2 (continued)

69

 

 

Project Source Increase in Any
Prpperty Value _ Comments
Highway improve- Bureau of Median annual per-
ments in Los Public Roads, centage changes in
Angeles, Cal.; Ref. 28 property values:

Atlanta, Ga.;
Dallas, Houston
and San Antonio,
Texas

I-80 Bogata, N.J.
I-95 Rosedale, MD
I-695 and I-83
Towson, MD
I—495, North
Springfield, VA

I-45 Dallas, Texas

FHWA, Ref. 21

FHWA, Ref. 21

17% for industrial

10.5% for commercial

8.5% for residential

12.5% for unimproved
land

+9% (one time effect)

+10.6% over 17 years or
6% per year for un-
improved land

70

9. Analysis: The analysis will consist of evaluation of
value capture policy on the different alignments. The end product
will be a determination of the additional value that one alignment
can capture over another alignment.

The analysis, in the case study described in the next chapter
assumes that the impact of land use deve10pment. size and geometry of
the parcels, and the distance of the parcels of land in "soft" areas
from the alignment on the change in property values is negligible.
However, as demonstrated and discussed in that chapter, these factors
could have an impact on the property values and hence the captured
revenues due to an alignment.

The complete process is shown in the flow chart in Figure 2.

0. Introduction of the Time Dimension

In the analysis discussed in the preceding paragraphs, the
value that can be captured in one step for various alignments has
been formulated. However, one may desire to capture the value over
a given period of time, say t years. The static case discussed
above would not permit one to do that. It is necessary to consider
the time factor.

Let the following notation be defined for two sets of de-
velopable properties A and B such that the set A is related to align-
ment 1 and set B to another alignment 2.

A = difference hithe base values of the properties A and 8,

say 8 > A
R = the value required to be captured over a given time t.

This, usually will be the difference in the total cost

71

of the two alignments l and 2, including acquisition of
right-of-way, relocation and construction costs. The
amount R, expressed in dollars is the total value that is
required to be captured exclusive of the factors of in-
flation and risk protection discussed earlier in this
chapter.

01 = the slope of the line for the set A on the value-

time graph, expressed in percent per year

02 = the slope of the line for the set 8 on the value-
time graph expressed in percent at the end of time
t
P = base value of property set A.

The problem can be stated thus:
Given: P,A,R,Q]; find 02 at a desired time t.

In other words, given the base values of the sets of properties
related to alignments #1 and #2, and the amount that needs to be
captured to make #2 preferred to #1, at the end of a desired time
period t years, can be estimate the required increase in the value
of the set of properties A?

The slopes Q1 and 02 are expressed in percentage at the end
of the time period given. If 0] = 10%, it means an increase of 10%
each year.

Two cases are generally possible. Case I, when A = 0, i.e.
the property values related to both the alignments being compared are
the same. This is likely to happen in the situation where the align-

ments are close enough to impact either the same or similar properties

72

equally. The differences in the property values due to permissible
land use, size and geometry of the parcels and distance of properties
from the alignments, in such a case is negligible, or A = B in value.
Case 11, when A f 0, i.e. when there is a difference in pro-
perty values of the sets A and B equal to A; B > A in value.
The expressions for both the cases are as follows:

Case I, A = O,

 

R R + QlPt
Q2 = 13’“ Q1t = “‘17—"
Case II, A f 0
(R - A) + 01Pt
%‘ lp+m

A special case can arise for the Situation 0] = 0 when the
values of pr0perty in set A are not expected to increase due to

saturation of development in that area. Thus

Case IA, A = 0, 01 = O

-.3 .
02 - p , and

Case IIA, A f 0, Q] = 0
_ R - A
02 - ipf:1§}

Tables 3 through ulhave been constructed with assumed values
of the variables for both the cases and subcases. Also, geographical
representation in Figures 6 to 9 for each of the four situations
have been shown.

From the tables, values of 02, can be read in percentage at

the end of the time t. It can be seen that in several cases, an

73

increase of several thousand percent over the base price is required.
Locus of 02: It can be seen from the graphs that the locus
of 02 points is always a line parallel to Q.l line and at a distance

equal to R.

74

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P :
2 : 50,000

0, 3 10%; 50%
c = (25,10 1424

0
50,000

 

f 1
1

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l

51;Yaufil

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Figure 6. Graphical Representation of Table 3.

  

82

C465 A: Z50,000

 

 

 

P = 260.000
0,: 1004,2070
I: : 1,2,15,10 yes-
R='60Q000
/ I
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a .60-
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Figure 7. Graphical Representation of Table 8.

83

041% A =0
P: (00,000
12: 50,000 3 100,000
0.: 0%
‘C 2 1,2610 Yfig

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t , VEAIZs

Figure 8. Graphical Representation of Table 9.

DOLLAR? (Y 1000)

Figure 9.

CA4 E

  

84

A: 60,000
P; {00,000
2: 50,000
E: 12610 YQG

I!)

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Graphica] Representation of Tabie 10.

CHAPTER V
CASE STUDY: LOGAN CORRIDOR IN LANSING, MICHIGAN

An overview of the area selected for the case study is pre-
sented. A rationale for selection of the corridor, description of
the study area, outline of the study process, prevalent land uses
in the corridor design of alternate alignments and the selected

alignment are described in this order.

A. Why Logan Corridor as the Case Study
The Logan Corridor project in Lansing/Dewitt Township pro-
vided an excellent setting for a case study for the following
reasons:

1. The mix of land uses within the corridor was diverse
which provides a good range of possible impacts of the
options pertinent to this research. The land uses
included well developed, residential areas as part of
the central city; industrial areas, such as Oldsmobile
and Fisher Body; major governmental offices; the State
Capitol Complex, and the Health Complex. All these
land uses offered a distinct (lack of) possibility for
redevelopment as compared to the unique potential for
redevelopment, induced by the transportation facility in

the rural and undeveloped acres of land in the last

85

86

segment. The middle segment was typically a transition
area between the well developed central city and the
undeveloped agricultural land and with the gradual and
somewhat linear change in the potential for redevelop-
ment.

2. The opportunity to examine the potential application of
Value Capture policy from the very initial stages of the
project when alternate alignments were being conceived.

3. Availability of data for research and analysis with
relatively little difficulty.

The objectives of the study were defined as follows:

T. To determine the best possible treatment and alignment for
solving the present and future transportation problems
on Logan Street.

2. To conduct a Land Use Market Analysis for the corridor

and recommend a land use plan.

B. The Study Area
The whole study area which fell into two political jurisdic-

tions was divided into three segments for study purposes (Figure 10 ):

North-South

 

 

Political Boundaries Length
Jurisdiction Segment From To {miles}
City of Lansing, - A Kalamazoo.St.. The Grand l.75
Ingham County River
City of Lansing, B The Grand Sheridan Road 0.96.
Ingham County River
DeWitt Township, C Sheridan Road Proposed I-69 3.00

Clinton County
Figure l0. Segments of Study Area

87

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88

The rationale behind this division was based uponthe land use in the
respective areas. Segment A is predominately residential, Segment

B is industrial and commercial and Segment C is predominantly
agricultural.

The Study Area boundaries for the Corridor were chosen as
follows:30

Kalamazoo Street on the south.

Proposed 1-69 on the north in Dewitt Township, Clinton

County.

Clare Street extended to Daggot Road on the west.

Pine Street extended to Turner Street on the east.

Kalamazoo Street is the northern most terminus for the state
trunkline M-99 (Logan Street) which has already been reconstructed.
This was therefore the beginning point for the present study.
Similarly, the northern limit of the study area was chosen to be
the proposed I-69 as this was the farthest limit to which any change
in land uses and the induced developments could be meaningfully pre-
dicted.

The eastern and western limits were set at the extent at

which the impacts of improvements were expected to be significant.

C. The Prevalent Land Uses

The study area encompasses many of the City's existing and
proposed major land uses. Each of these is discussed below.

Central Business District

 

The Central Business District of Lansing, at the time, was

the primary retail center in the Lansing Metropolitan area. With

89

the development of several shopping malls in the area, however, the
importance of the Central Business District of Lansing as a retail
center has declined. Even so, over 90,000 trips per day are made
into the downtown.32

Lansing's Mayor and City Council have recently initiated
several efforts to bolster the status of the Central Business Dis-
trict. These methods include the creation of a built-in market
around the C.B.D. by increasing the number of housing units close
to it; improving and increasing the convention facilities in the
C.B.D. in an effort to increase the convention industry; rehabilita-
tion and/or redevelopment of deteriorated retail structures in the

0.8.0.; and the construction of the pedestrian mall.

Oldsmobile

 

Oldsmobile currently employs approximately l9,000 people at
three plants?2 All three plants are located relatively close to Logan
Street. The main assembly plant which employs l5,000 persons is
located on South Logan Street. It has been five years since
Oldsmobile constructed the last building addition at the Logan Street
plant. However, the corporation has been acquiring land to the west
since then for expanded employee parking and possibly future expan-

sions. Industrial Welding also occupies space in this area. There

are over l80 persons employed there.

State and Local Government

 

There are in excess of l3,000 state employees working down-

town?’2 Money has been appropriated for two new office buildings which

will house approximately 5,500 employees. One of these, at Ottawa

90

and Pine, housing 2,500 employees is ready for construction in l980.
In addition, there are plans for two more office buildings, a State
Court House and a new State Capitol. This is compatible with a 1973
Doxiadis study calling for 22,000 state employees downtown. The main
access to a large number of existing employees and a majority of
employees in the new buildings on the State Complex would be on Logan
Street.

In addition to the State employees, there are approximately
2,000 Federal and Local workers working downtown at the present time.
These government offices generate not only worker traffic, but other
traffic that has business to do with these various agencies. Our

figures, for instance, do not include legislators or lobbyists.

Capitol Commons

Abutting the southern periphery of the State of Michigan pro-
perty is the Capitol Commons residential rehabilitation project. The
site is 32 acres in area and when completed will Contain 800 dwelling
units of various types and sizes. The City is now screening de-
velopers' proposals. Ground breaking for the project is scheduled

for Spring l980.

Riverfront Towers

 

Currently 200 units of elderly housing are being constructed
in the block bounded by Cedar Street, Shiawassee Street, the Grand
River and Saginaw Street. An additional 100 units of regular town-

house and garden apartments are also scheduled for this site.

91

Kingslgy_Place

 

This school-park-community facility is two blocks west of
Capitol Commons. It is designed to be a focal point for the
residential neighborhood bounded by Logan Street, St. Joseph Street,
Clare Street and Oakland Avenue. Ten to thirteen thousand (10 to
13,000) persons living in the service area have access to intensive

30
social, recreational and educational serv1ces.

St. Lawrence Hospital

 

This facility, located just west of Logan Street between
Saginaw and Oakland, is changing its emphasis from inpatient to out-
patient services. A new facility has just been completed adjacent
and west of the present building. The portions of the old building
are being phased into the new one. Once the transition is completed
a reduction of lOO beds will be realized. The reduction in bed
numbers will not mean, however, a reduction in services. Outpatient
services will be expanded considerably. This will mean a substantial
increase in outpatient visits. Outpatient visits now number 83,000
per year including 50,000 emergency room visits. Present staff
levels, around 700 full time, 300 part time and l4O associated
physicians, will remain the same.

Once the old facility is vacated it will be renovated and
used for elderly housing (estimated at over lOO units). The rest of
the area west of Comfort Street will remain residential according to
the River Island Comprehensive Plan adopted by the Planning Board in

October of 1978.

92

Fisher Body,

 

Fisher Body is located on the western edge of the corridor
just north of Michigan Avenue. Over 4,600 persons are employed

there building bodies for Oldsmobile Division of General Motors.32

Michigan School for the Blind

 

This facility occupies a 2.8 acre area bounded by Willow,
Pine, Maple extended and Princeton and has l4O resident students and
a total of l80 students. In addition, there are 200 staff members.

There are no expansion plans at the present time.32

Sunset Industrial Area

 

This area is located at Willow and Sunset and extends north
to Melvin Street. It contains three small manufacturers, a large
scrap metal processing yard, a sewerage treatment plant and several
other comnercial and quasi industrial uses. In total 280 persons

are employed in the area.32

Lansing Community College

 

Lansing Community College is located downtown at the northern
end of the Washington Square promenade. According to l978 figures,
there were l8,000 students enrolled at the College. These students
attend classes at all hours of the day (from 7 a.m. to lO p.m.). In
addition there are 474 persons employed full time and 826 to 1,526
persons employed part time by the College. The variance in part time

employment is due to reduced summer enrollment.

State Health Complex
The State Health Complex straddles Logan Street and DeWitt

Road at the Dewitt Township/City of Lansing boundary. About 20

94

 

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buildings occupy approximate1y 20 acres 1eaving 80 acres avai1ab1e
for future development. A new laboratory bui1ding is expected to

be under construction within a year and emp1oyment wi11 expand an
estimated 400 persons -- from 1,100 to 1,500 persons within the next
five years. Parking 1ots in the comp1ex can accommodate in excess

of 2,000 cars.32

Capita1 City Airport

 

Immediate1y north of the Hea1th Comp1ex is the Capital City
Airport. P1ans ca11 for its doub1ing in size. The acquisition of 1and
for expansion of the Airport began in 1975. A major reorientation
to DeWitt Road wi11 have taken p1ace by 1990. Projections of demand
indicate a growth to 500,000 enp1anements by 1995 from a 1972 1eve1

of approximate1y 150,000. 32

I-69 Intersection

 

In the p1anning stages of I-69, provision was made for an
interchange with DeWitt Road north of the airport. It was anticipated
that the projects 1isted in conjunction with norma1 growth factors,
wou1d generate a demand sufficient to warrant an improvement in the
Logan-DeWitt Road Corridor. 0f great significance is the fact that
each of the situations described is quite 1ike1y to occur regard1ess
of any programmed improvements to Logan Street.

The study was initiated on Ju1y 1, 1975.: A Draft Environmenta1
Impact Statement was circu1ated in June of 1977; pub1ic hearings were
he1d in Ju1y of 1977; the DeWitt Township Board recommended the fina1

a1ternative in August of 1977; the City Counci1 of Lansing se1ected

96

the final alternate in July of 1978; and the Final Environmental
Impact Statement was completed in 1979.

During the study which followed, the ”3c" process there had
been significant involvement by the public and technicians and it
generated, at times, lengthy discussions at the political and media
1eve1. Finally, the political jurisdictions decided in favor of the

major improvements alternative.

0. Design of Alternatives

The State of Michigan prepared an Action Plan which described
the processes to be followed in the development of the Transportation
projects in the state. The Action Plan was approved by the Federal
Highway Administration and signed by Governor Milliken in 1974.
According to the Action Plan on page IV-3:

Michigan's approach to alternative development is
designed to be a hierarchical, sequential decision
making process in which each sequential phase re-
duces the number of potential alternatives in a
manner that takes into consideration a hierarchy
of values from the national and state level, to
the regional, area, and community level and,
finally, neighborhood and individual interests.

Also, the basic p1anning methodology and the modified
methodology are designed to handle the process of
alternative development and impact analysis through-
out the various subphases to insure that an adequate
range of alternatives have been evaluated in an
objective manner. This objective is achieved by
providing a two step approach directed toward first
uncovering a set of illustrative alternatives that
represent the full range of issues; and objectives
inherent in the particular transportation problem
being considered.

The process of selection of an alignment alternative is pre-

ceded by an almost similar process for selection of a corridor

97

alignment. In the case under study, however, the corridor was al-
ready defined to be the Logan Street Corridor. The beginning was
therefore, to be made with designing of illustrative alignment
alternatives within the Logan Street Corridor. In other words, the
study was limited in scope to preparing and studying alternatives
associated within the Corridor approximately 1 1/6 mile in width and
6 miles long. The existing Logan Street is located almost centrally
within this width of the Corridor.

One of the constraints for not going any wider than this was
the finalized plans for Logan Street widening as M-99 south of the
Kalamazoo Street. The plans had been finalized for a six lane
boulevard in the southern portion with a 60 foot median at the time
the present study was being initiated. Therefore, any alternate for
improvement of Logan Street,north 0f the Kalamazoo Street could not
sway more than a few blocks on either side of this Terminus.
PreliminarygEvaluation:

To arrive at the list of feasible or practical alternates,

a screening process was designed to be applied to the Preliminary
set of alternates. The factors shown in Table 11 were used in the
evaluation of these alternates. Table 11 also indicates the

relative weights assigned to the factors on a scale of 1 to 10 with

10 being the most important. These weights were assigned on the

basis of a survey~of citizens, agencies and technicians.

98

Table 11. Evaluation of Alternates.

Relative Weights

 

Factors for evaluation Segment A Segment 8 Segment C

1. Preservation of houses 8 No 8
2. Preservation of schools 8 R 6
3. Preservation of industry 8 E 4
4. Preservation of neighborhoods 8 S 6
5. Preservation of agricultural P
lands 8 6
0
6. Preservation of air quality 8 8
N
7. Reduction of noise 10 6
S
8. Preservation of trees/
woodlots 8 E 6
9. Preservation of surface
water quality 8 8
10. Preservation of parks and
open space 8 6
11. Safety 8 10
12. Access to schools 8 8
13. Historical preservation NA 6
14. Conformance with Master
Plan 6 4
15. Lower relocation acquisition,
construction costs 10 10

The survey does not indicate a wide spread of weights between dif-
ferent factors. However, one interesting, clear and extremely
important conclusion was that cost was one of the two most important
factors in the minds of the citizens, agencies and technicians who

assigned these weights.

99

It may be pointed out that there was no factor for evalua-
tion of the alternatives such as: Increased potential for value
capture. It is believed that such a factor, if included, would have
earned the 'most important' ranking because this could significantly
impact the cost of the facility. At the initial stages of screening
and evaluation, inclusion of a factor to explore the extent of value
that can be captured would be of paramount importance. In fact,
consideration of out of pocket and indirect costs without consider-
ing the dollars that can be pumped back into the facility to change

the cost would be an incomplete analysis.

E. The Selected Alternate37

However, as a result of the 3-c process, involvement of
citizens, agencies and governmental units, public hearings and en-
vironmental impact statement process, a final alternate was selected
for each of the three segments. The selected alternates were
approved by the respective governmental jurisdictions and Planning
commissions. The selected alternate is shown in Figure and is

briefly described below:

Segment A: (Kalamazoo Street to the Grand River)

Alignment A-6 which includes:
.Acquisition of homes on both sides of existing Logan
Street except that no acquisition will take place on west
side between Saginaw and Oakland and no acquisition from
the Willow School playground which is on the east side of

Logan north of Willow Street.

100

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Selected Alignment-Segment C

Figure 16

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.Six lanes of pavement (presently it has four) with 60 foot
landscaped median.

.A l6 foot right hand lane in each direction to accommodate
a four foot bicycle lane.

.Bus turn outs, pedestrian overpasses.

.Almost continuous and landscaped noise berms to protect the
remaining homes adjacent to the new roadway. There would
be no berms between the roadway and the Medical Center, two
blocks of State Government Complex and the Willow School

playground.

Segment B: The Grand River and Sheridan Road

Alignment B-S (East of Jones Lake) which includes:
.Four lanes of pavement (presently it is two lanes) with
60 foot median.
.Noise barriers to protect residential areas on the north-
east quadrant of Logan-Grand River Avenue intersection.
.Development of Jones Lake Park as a linear recreational
facility as a joint development project on the lake front.

Segment C: Sheridan Road to the Proposed I-69

Alignment C-S which includes:
.Relocation of DeWitt Road south of Stoll Road 1600 feet to
the east.
.Westward return on the alignment to the location of the

I-69 interchange at DeWitt Road.

CHAPTER VI
STUDY RESULTS

The results of this project are presented under four sections:
the supply of "soft" areas for each alignment; the demand for land
uses in the corridor; a supply-demand analysis; and the estimated
change in land values and revenues.

. The four sections are part of a process which links all these
steps as depicted in the block diagram (Figure 2 ).

The first section describes various alignments considered
during the study and identifies existing land use developments
as "hard" or "soft". Hard areas are those which have been fully developed
into stable land uses and for which there is apparently no potential
for transition into a different land use. Soft areas are either
vacant or unstablein regard to present land use and provide potential
for redevelopment. For each alignment considered in the study, a
list of soft areas was prepared as if the other alignments did not
exist. This indicates the extent of supply of the potentially
redevelopable areas.

The second section describes the market analysis made for
various land uses in the area in order to provide an estimate of
demand. A regionwide analysis was then "screened" through the corridor
to determine the demand for those land uses within the corridor studied.

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The third section attempts to develop a correlation between
each alignment's soft areas and the land use market for the corridor.
This provides an analysis of the supply and demand situation. The
outcome is essentially a series of potential land uses for each
alignment. .

The last section deals with the impact of the new develop-
ments on future land values and, consequently, on the potential
revenues that can be captured by any of the techniques described in

Chapter IV.

Supply of Soft Areas

 

Figure I7 shows the study corridor, alternate alignments
considered during the study, and potential development of soft areas.
As briefly discussed earlier, soft areas can be defined as
locations or areas which have a potential for redevelopment into
different land uses. Identification of these sites was based upon
the following factors:
- adopted city policies for the area;
- the political environment for change in land uses;
- the master plan;
- citizens' participation';
. normal growth in the area; and
- induced growth due to special plans and projects.
The areas listed below as the soft sites were approved by
the City of Lansing, Dewitt Township, and the project's Technical

Steering Committee, which had representatives from federal, state,

108

and regional transportation agencies, the county road commission, and

the airport authority. The areas included essentially the following:

(1) vacant parcels,

(2) land with deteriorated housing that could be redeveloped, and

(3) land that may experience induced growth due to improved

accessibility provided by the new roadway.

The soft areas thus agreed upon are listed below.

Area A.

Area B.

Area C.

Area 0.

Area E.

Area F.
Area G.

Area H.

Area I.

Logan-Birch triangle, approximately 4 acres.

Bounded by Riddle School, Allegan, Butler, and I-496,
approximately 24 acres.

Bounded by Jenison, Oakland, Butler, and Saginaw,
approximately 20 acres.

Bounded by Willow Street, School for the Blind,
Daleford Street, and Logan Street, approximately 6 acres.
Between Grand River and Sheridan, basically the in-
dustrial area and the newly opened land parcel,
approximately 150 acres.

Near Jones Lake, approximately 20 acres.

Near Capital City Airport, approximately 720 acres.
Interchange with the proposed I-69 with Dewitt Road,
approximately 80 acres.

Right-of—way proposed alignments (for multiple uses
thereof).

These areas are indicated in Figure 17. A brief description

of each follows.

109

Area A is bounded by Logan and Birch (now renamed South Logan).
It was acquired as a result of a lawsuit by residents following a pro-
posal that it be left in the median created by the two legs of the new
Logan Street. The cause of the lawsuit was environmental effects such
as noise, air pollution, and safety.

Area B has extremely poor housing conditions. There are

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several boarded up houses, especially west of Logan Street. Most of
the area is presently zoned two family. The population density is high:
35 to 41 persons per acre according to the 1970 census. The area is
bounded by the two major developments proposed on the north and east
side, a new school on the west, a major roadway cutting through the
middle, and a vacant undeveloped parcel on the southwest corner.

Area C is bounded by M-43 on the north and south. It has been

put to mixed use, including the Medical Center, St. Lawrence Hospital,

110

business and commerical agencies, and housing. 0n the east it is
bounded by Butler Blvd., which is predominately residential, and on
the west by the divided roadway, Saginaw-Oakland.

Area D is a long narrow residential strip sandwiched between
busy Logan Street and the Michigan School for the Blind. Almost half
the land, if split north-south, will have to be acquired for construction
of Logan Street, and one row of houses backing on Logan will be left.
This parcel was included to determine whether any redevelopment market
exists for the strip of land.

Area E is in transition. In the south is a predominately
residential portion, and in the north a completely undeveloped and
agricultural area above Sheridan Street. The mixed use includes
residences, industry, commercial buldings, and vacant land, including
the state health complex. This portion is essentially segment B of
the study area. Two of the three alignments considered in this segment
are entirely new alignments of roadways, opening up possibilities of
new development due to realigned accessibility.

Area F consists of the existing residential area to the east
of Jones Lake, which the alignment of Logan Street east of the lake would
abut. This area has been far removed from any major roadway traffic
so far. It consists of low quality and deteriorating housing stock.

Area G contains the most undeveloped land. It is part of
segment C and is mostly in agricultural use, although no portion is
of prime arable quality. 0n the west side it abuts the airport, which
is in the process of expanding and reconstructing its runway and

terminal. A large portion of the existing Dewitt Road and even the

lll

alternate alignment of the newly proposed roadway would lie on the
property currently being purchased for the expansion of the airport.
In the master plan for the airport it is proposed to relocate access
to the airport from the present North Grand River Avenue to the new
Dewitt Road (extended Logan Street). This portion will also have direct
access from the proposed I-69 at the northern terminus, as there is an
interchange planned at Dewitt Road on I-69. This land may have the
best potential for redevelopment, as the area is completely undeveloped.
Area H, around the interchange of 1-69 and Dewitt Road, will
have excellent accessibility and hence will have enhanced potential
for redevelopment. To the immediate north of the interchange is the
city of Dewitt (population 2500). ,
Area I is proposed for exploration of the potential of multiple
use of the highway right-of-way throughout the length of the roadway.

Market Analysis

This section deals with the market for development of various
land uses in the area. It is extremely important to point out that
any potential for recapture of land or property values is dependent
upon the existence of demand to create the value. Projections of
enhanced land and property values without a careful study of the
market would be absurd.

The market for the corridor will be considered as a subset
of the Tri-County region. The market for the region will be examined
for major categories of land uses, and then the market for the corridor

will be derived. The categories of major land uses considered here are

112

residential, commercial, industrial, and public.

Harland Bartholomew Associates, consultants, were retained by

the City of Lansing to conduct a land use and marketability study for

the Logan corridor.

based upon their analysis.

They made recommendations on potential land uses

Although the consultants allocated the share

.of the market to the Logan corridor from the Tri-County region , they did

not adequately recognize the major forces of attraction acting on the

corridor.

Their findings, while fairly realistic for the corridor to

the north of the Grand River, need to be modified for segment A, in the

central city area.

Regionwide analysis:

The present analysis makes those modifications.

To determine the demand for various land

uses translated into terms of areas for those uses, projections of employ-

ment were analyzed.

Total employment is expected to grow in the Tri-County

region according to the estimates made by the Regional Planning Commission.

For the decade ending in 1990, the employment picture probably will change

as shown in Figure 20.

 

 

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12.519. 129.0. @2093.
Total employment: 164,960 194,190 29.230
Manufacturing 40,310 43,350 3,040
Non manufacturing 124,650 150,840 26,190
Government 56,510 70,280 13,770
Other* 41,560 50,240 8,680
Retail 26,580 30,320 3,740
Source: Ref. 20

*Includes selected services and wholesale employment.
(Figure 20: Employment change 1980-1990

Based upon the additional demand of the employment categories
projected in Figure 20, additional land area required was computed for
each category. This process in Figure 20 is indicated in which accepted
norms for the areas have been used in columns 3 and 5.

The numbers given in Figure 20 suggest that the region will have
a demand for 86 acres of retail, 166 acres of services and wholesale,

47 acres for government, and 251 acres for industrial expansion in the next

decade.

The total market was then divided into three categories. The first,
the CORRIDOR MARKET AREA, is the same as defined in Logan corridor study
area. The second, or PRIMARY AREA, expands the corridor south to I-496

and east to the Grand River, or essentially adds downtown Lansing, state

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117

The third is the SECONDARY AREA, the whole Tri-County
region estimates given above in F.

The Harland Bartholomew study estimated that there existed
a market for each category of land use in each of these market seg-

ments. Their estimates are shown in Figure 23.

Market demand
Land Use Categories

 

 

 

Market Retail * Public
Segment Industrial Commercial Office Residential (Parks)_
Secondary 251 acres 3,740,000 2,170,000 - ‘ -
sft sft
Primary 200 acres - 651,000 l,700-2,000 90 acres
‘ sft units
Corridor 200 acres 719,000
sft 75,000 l,700-2,000 90 acres
sft units

 

t
For nongovernment, such as serv1ces, wholesale, and so forth.

Figure 23. Market Demand

Harland Bartholomew made several recommendations. First,
all industrial use will be restricted to vacant parcels in Segment
C. Second, retail/commercial usage is marketable in the corridor
as follows:

Soft site A: 175,000 sq. ft.
Soft site B: 75,000 sq. ft.
Soft site C: 55,000 sq. ft.
Soft site H: 414,000 sq. ft.

Total 719,000 sq. ft.

Third, office space is marketable in the corridor in soft site B'to
the extent of 75,000 sq. ft. (The 50-50 split between commercial

and office usage at soft site B was assumed to divide the total of

118

150,000 sq. ft.) Fourth, almost all the residential units are pro-
jected to be in Segment C, with the exception of a limited number of
townhouses on the west side of Logan Street in soft site B.

In making these projections, the Bartholomew study,
especially for retail/commercial and office usage, completely ignored
the variable of downtown Lansing. This is an extremely important
factor which would attract a major part of the retail and office
space projected by Bartholomew for soft sites A, B, and perhaps C.
This statement is supported by the City of Lansing's adopted policy
that such uses will be concentrated in the downtown area.

The other factor that the Bartholomew study could not con-.
sider was the effect of the design of the selected alternative on
the potential market for development. The selected alignment in-
cludes construction of noise berms on both sides of the new roadway,
except in areas which now are residential. Such berms are part of
the selected alignment in all of segment A and a very small portion
of segment B. While these berms would enhance liveability in the
residential areas behind the berms in segment A, they would also
limit the potential for development of roadside land into higher and
more intensive use. By coincidence, however, Bartholomew made no
recommendations for the marketing potential along the roadside which
may be affected by this factor. He did recommend the multiple use of
right-of—way land for parking from Kalamazoo Street to Shiawassee
Street on the east side of Logan Street.

Based on the above discussion, it is proposed to remove the

>75,000 sq. ft. for office and 75,000 sq. ft. for retail projected by

119

Bartholomew for soft site B. It is proposed, instead, to merge three
(#l,2,3) blocks of this area with capital commons for expansion of the
housing project, the rest of the northern two blocks to be traded with
the state government for their complex. In return, the state could
give the city the block south of Ionia that was purchased for a state

museum, no longer planned for that location, Figure 24.

     

 

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Figure 24. Modification in development plan.

Supply-Demand Analysis

 

The gound work has now been laid for this section, in which
the interface among alignments, soft areas, and marketable categories
of land use will be established. This analysis will be-presented
according to the three segments, for each has unique characteristics
and can be treated somewhat independently. A few points need to be

considered before proceeding.

120

First, for each segment, a large number of preliminary or
illustrative alternatives were conceived in the early phases of the
study. These were reduced to a few more feasible or practical
alternatives after initial screening for obvious anomalies. The
subsequent social, economic. and environmental impact analysis was
conducted in detail only for the final set of alternatives. In what
follows, only the practical alternatives or alignments have been con-
sidered. Application of Value Capture techniques to the conceptual
alternates since rejected would not have made any difference in
the selection of the final alternate.

Second, all the practical alignment alternatives, regardless
of the segment, include do nothing, minor improvements, and alternate
modes, in addition to the major improvement alternative. The first
three options would maintain the existing environment with various
degrees of change from minor to none at all. For example, the do
nothing option means normal maintenance; minor improvements include
intersectional traffic signals and similar low cost improvements,
with little or no pr0perty acquisition and relocation; alternate
modes could include anything from improvement in bus service to a
heavy, capital-intensive rail system. In each of the three segments,
all these Options were studied and rejected, for they did not pro-
vide the required traffic capacity, environmental improvements to
the residents on the road, and a resolution to the problem of traffic
in the neighborhoods.

A purist in the field of Value Capture may argue that, for
any of the first three options, upzoning in selected areas would open

the door for creation of unearned value which can then be captured.

121

However, such actions would lead to such developments as commercial
strips, office or multiple housing units at undesirable locations,
and more traffic chaos. The results would be blight and would be
counterproductive to the adopted policy_of preservation of residential
areas and quality housing stock.

It appears, then, that one cannot take a purist's view of
matters and make Value Capture "the goal.“ The situation must be
looked at in conjunction with several other factors. With this
in mind the three options will not be examined here.

Third, there is a list of soft areas for each segment,
discussed earlier in the chapter. These have the greatest potential
for change in land use development. However, in addition to the
soft areas there are hard areas. Although they have very little or
no potential for redevelopment, they may experience an increase in
land and pr0perty values due to the construction of the roadway.

For example, a neighborhood adjacent to the highway, classified as

a hard area, will remain residential even after the highway is built,
but it may increase in value due to an improvement in the quality of
life as neighborhood through traffic is reduced, thereby improving
safety, accessibility, and quality of the environment.

Last, each of the soft areas may have a market for more than
one possible land use under different alignments. Alignments would
qualify for differential credit for Value Capture potential during
the process of the evaluation of impacts.

The above discussion is reflected in the following analysis.

In general, let the following notation be used:

122

Ak = kth alternate alignment under consideration, where
k = l,2,3;
Dj = jth soft or potential development areas, where

j = 1:293,4,5,...; and

M ith marketable land use for the corridor, where

i = 1,2,3,....

Specifically, in the three segments, the parameters as presented
in Table 13 exist.

The next step is to match the feasible pairs of M's and 0's
before examining the impact of alignments on an M,D pair, this pairing
essentially means a feasible combination of a marketable land use at
a potentially developable soft site. The feasibility can be tested
by a simple "throttling" process, in which the throttle is the set of
adopted or prevalent policies of the local, regional, or state jurisdiction.
For example, pair EM102] , which is an industrial use at soft site 02
in segment A, when run through the "throttle" of accepted plans, policies,
and prevalent community goals may not be feasible. At the same time,
another pair [M107] may be welcome to the community.

The feasible (M,D) pairs can be assigned a notation of 1 and
the others 0 in a binary system. Thus, a feasibility test of [M,D]
pairs could be made:

[M1,Dj] = O, 1 for different values of i and j.

In the case of the Logan corridor under study, based on the city's adopted

polices of not encouraging industrial usage in the area, not permitting

123

commercial strips along Logan Street, and not allowing development of

office space along Logan Street, instead of downtown,

the following pairs are feasible:

Segment A Segment B Segment C
[M2, 011 ; [M]. 05] ; [M]. 071
[M2, 03] ; [M]. 06] ; [M2, D8]
[M4, 02] 3 [M4, 05] ; [M4, D71

Expressed mathematically,

M.D.
l J

1 for (i,j) = (l;5,6 or 7), (2; 1,2 or 8), (4; 2,5 or 7)

0 for (1.3) (l; 1,2,3,4,8). (2; 3.4.5.6.7), (3; 1 t0 8).

(4; 1,3. )

Determining the market feasiblility of a particular land use
at a given location, as discussed in the preceding paragraphs, leads to
the neXt step: evaluation of the strength of the impact exerted on this
market by various highway alignment alternatives. The strength or
weakness of the influence of an alignment on [MiDj] can be measured
by the ghgggg_in property value due to the highway alignment. A parcel
of land with agriculture as its present use may be affected by creating '
windfall profits by an alignment as a new [MiDj] becomes imminent.
In other cases, there may be no measurable change in property value,
although that [MiDj] is feasible, but too far from the zone of influence
of any alignment.

In some cases the impact on an [MiDj] pair exerted by the

alignment alternates would be the same. Such is the case in segment

124

 

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125

A, where the alignment for all the four alternates Ak is the same,
the only difference being the acquisition pattern of the properties.
However, of the three [MiDjJ pairs feasible in segment A, none appears
to have a significant differential advantage over another in inducing
a change in the property values of the three [MiDjj's. For example,
[M2,DIJ and [M2,D3] are retail/commercial highway oriented uses, and
regardless of the side acquired, these will have the same impact.
[M4,02] is a new residential use for location 02 (on both
sides of Logan Street), south of Allegan but excluding the Logan-Birch
triangle. For these areas to be viable residential areas with high
property value, it will be preferable to have residential development
buffered and screened for traffic noise, dust, and vibration. The only
alternates which can do this are A5 and A6, as they acquire properties
on both sides, making it possible to build berms. Alignment A3 for
the residential development to the east of Logan and Alignment A4 for

the development west of Logan would also permit construction of one berm.

This can be expressed as follows:

Ak[M2,D]] = l for k = 3,4,5,6
Ak[M2,D3] = l for k = 3,4,5,6
Ak[M4,02] = l for k = 3,5,6 for west side development of
land
= l for k = 4 for east side development of

land

Segment A

Alignments: There are four different alternatives for final
analysis in segment A, but all have the same alignments, the present
location of Logan Street. In fact, in all the alternatives conceived
in the earliest part of the study, Logan Street played an essential part.
The final four alternatives simply differ in how the widening of Logan

Street should take place:

A3 - east side acquisition;
A4 - west side acquisition;
A5 - both sides acquisition;
~A6 - blend acquisition.

SOFT AREAS: D Logan Birch Triangle;
D2 Logan-Butler—Allegan-I-496;
D3 Saginaw-Oakland-Butler-Logan.
MARKETABLE LAND USE: M2 Retail/Commercial;
M Residential.
Analysis: The analysis consists of examining the feasibility of the
application of recapture policy to the potential increase in value of
the properties, due to the alignment. As pointed out earlier, to
capture a certain portion of the created value, the first and fore-
most requirement is creation of value. If the alignment does not
confer windfall profits by creating an unearned value, there is no

value to capture.

Segment A, which is the inner city area, is fully developed:

96.1 percent residential, 2.3 percent commercial, 0.9 percent institutional,

127

and 0.7 percent other usage along Logan Street. While segment A does
contain soft areas, and thus offers potential for redevelopment, there
is no unearned profit of a windfall type or even a created value for
anyone due to the alignment.

Let us consider the seven-block area bounded on the west by
Logan Street, on the east by the proposed Capitol Commons housing pro-
ject, on the north by the state government land purchased and cleared
for the state capitol complex, and on the south by St. Joseph Street
(Figure 18). The area has been recommended for residential redevelop-
ment in the future, possible an extension of the Capitol Commons. The
area, in several aspects, is similar to that proposed for the Capitol
Commons. Some of the characteristics of the area are deteriorated and
poor housing, predominately rental properties (more than 80 percent)
with low rents, declining property values, and combined storm and sanitary
sewers.

The concept of the capitol complex was developed by the City
of Lansing to provide a greater and diversified choice in housing
opportunities in the central city, close to employment and businesses.
A secondary benefit was the redevelopment of a deteriorating area by
converting it into a stabilizing force. It was decided to acquire the
six block (32 acres), relocated the residents, clear the land, and place
it on the market for redevelopment as a housing complex. The cost-
revenue equation of the project is of interest here, as the area is
similar to soft area 02 which has been shown to have a market for residen-

tial development. The costs and revenues are shown below.

128

Capitol Commons Project

Total Area: 32 acres (approx.); 6 blocks

 

Land Use: 403 housing units and 2 commercial units
Cost _ Revenue
Acquisition $3.00 million By sale of land
to developer
Relocation 0.80 million
Demolition and clearance 0.30 million (expected) $562,000
Other, miscellaneous 0.97 million
Total $5.0 million

For this area, the cost of bringing the land to a point where redevelop-
ment can begin far exceeded the returns obtained from the sale of the
land. The high cost could not be recovered despite the demonstrated
strong market demand for the land.

The above discussion applies equally to soft area 02 due to the
obvious similarities in land use before and the potential market after
redevelopment. Using the assessed values of the blocks as a base, the
cost of acquisition of the properties alone would be approximately
$600,000 to $700,000 for each of these blocks. To this, the cost of
relocation, clearance, and other items to prepare the land for redevelop-
ment must be added. If we accept the existence of a market for redevelop-
ment of the soft area, it does not seem to make any significant difference
which of the alternatives is selected. For the four options, there will
be only a 19 percent difference in the area available for redevelopment.
The total area would have to be acquired in all cases, considering that

the right-or-way acquisition is part of the scope of the project.

129

In A-3, A-5, and A-6, the cost of the redevelopment project would
be approximately 19 percent less than in the case of A-4, but the revenues
expected by sale of the cleared land would also be proportionately reduced.
Thus, the selection of the alignment alternative is not affected by
the redevelopment value, and a value capture policy is not applicable
in this area.

Soft area 01, or the Logan-Birch triangle, will not affect
potential value because the Michigan Department of Transportation has
recently completed the reconstruction of the two legs of the new Logan
Street, which created the triangle. The properties within the triangle
have all been cleared. Moreover, the study area for the Logan corridor
project begins north of the vertex of the triangle at Kalamazoo Street,
and the alignment for Logan Street on both sides of the triangle has
already been estiablished.

The only other soft area in this segment is 03, bounded by
Saginaw, Oakland, Chicago, and Logan Street. There are three blocks
in this area containing 70 parcels of land. The distribution of current

uses among these parcels is:

Residential 50 Appraised value approx. $1.10 million
Commercial 12 Appraised value approx. $0.65 million
Other _33

Total 70

The land use market potential for the area is for shopping center/retail.
This area is on the east side of Logan Street. On the west side is the
six-story Medical Arts bulding with double the assessed value of approxi-

mately $1.0 million. The alignment, in this portion, will remain to

130

the east side due to the tremendously high cost difference in acquisition
of property ($1.0 million compared to $173,600).

The problems in this area are similar to those discussed for
the southern portion of the segment. There are no windfalls or unearned
values created for the property owner. An overview of the situation,
as given below makes it clear that the value capture policy will
not affect the decision to select an alignment in this location. To
influence the selection of an alternateive, the value capture policy
would have to rise substantially over $2.0 million more than the other

alignments. The possibilities of achieving this are extremely unlikely.

 

 

Approximate Approximate
Alternate R-O-W Acquisition Land Assemblage Total
Cost* Cost Cost

A-3: East

Acquisition $ 175,000 $3,500,000 $3,675,000
A-4: West

Acquisition $2,000,000 $3,675,000' $5,675,000
A-5: Both Sides

Acquisition $2,175,000 $3,500,000 $5,675,000
A-6: Blend

Acquisition $ 175,000 $3,500,000 $3,675,000

*
Does not include relocation and equipment appraisal wherever
applicable.

Figure 25: Comparative costs of acquisition for various alternatives;
Segment A.

Segment B
This segment is characterized by its diversity of land uses.

Approximately one-third is occupied by single family detached housing,

one-third is occupied by services and trade, and the remaining one-third

131

is underdeveloped The residential areas are separated by a complex
configuration of railroad tracks and major street rights-of—way. The
railroads, the river, and the major streets intersect to create land
parcels that are not very conducive to orderly development. The segment

has a total land area of 702 acres, divided as follows:

Industrial use 242 acres
Exempt 172 acres (84 acres owned by the
state health complex)

Undeveloped 60 acres

Residential and other 228 acres

Total 702 acres

The potential development for this area includes industrial
and service related uses. For each alignment, different sets of parcels
have relatively different potential for development. Some that can be
developed for better uses relative to one alignment will have to be
purchased for right-of-way for another alignment.

The alignment for this segment, a list of vacant parcels that
can be developed, and their present assessed values are given in Table 14.

The redevelopment of existing parcels already put to residential,
commercial, or other use will not be included here for the same reasons
discussed for segment A. The sequence of listing is from south to north.
Alignment. This is the first segment discussed in which the alternatives
call for different alignments. The alignments in this portion are:

33: existing Logan Street alignment;

B4: west of Jones Lake alignment; and

BS: east of Jones Lake alignment.

132

The cross-section for each of the alignments consists of a four-lane
road with a median 60 feet wide. For each of the alignments there are
grade separations at railroad crossings. This aspect of design, while
improving the accessibility to the area across the railroads, would
reduce access to several parcels of land due to the embankment and the
structure.

In Table 14, two items are shown: the present value of the de-
velopable parcels of land and the costs of construction of the three
different alignments. The differential cost of one alignment over another

(rounded off to the nearest million) is:

33-84: $9.6 - 7.6m

$2.0 million

B3-BS: $9.6 - 7.5m $2.1 million

84-85: $7.56 - 7.54m

$0.02 million
The difference in present value of the developable parcels are:
(rounded off to thousands)iS:

83-84: $341 - $273 = $68,000

B3-BS: $34l - $261 = $80,000

B4-BS: $273 - $261 = $12,000

From a cost viewpoint, alignment BS is the most attractive.
Of course, environmental factors are not considered here, as they would
be in any project evaluation. Here, the impact of the value capture
policy is the only consideration.

For B4 to be economically preferable to BS, property values
would have to increase due to the alignment B4 by 1.67 times

(20,000 : 12.000).However, the real increase will have to be more than

133

 

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135

1.67 times to take into account inflation and risk protection so that
the cost difference of $20,000 may be captured. For example, with
20 percent inflation and 50 percent risk protection for the owner, the
increase in the value of the property should be as follows from the
formula in Chapter IV. I

Captured Value R = (P2 - aPl)B
where a and B are the inflation and risk protection factors. We
need to make up the difference by capturing the desired increase of
$20,000 = (P2 - 1.2 x 12,000)O.5, which gives P2 = $54,400. In other
words, property values should rise by a factor of 4.53 (54,400 f 12,000),
or 353 percent!

Similarly, it can be shown that for B3 to be preferred over B5,
property values should rise 27.45 times, or 2645 percent.

Application of the time series equation of Chapter IV to this
case will indicate the required increase in property values in a given

number of years. Case II, where A f 0, is applicable, and the formula

(R - A) + RlPt
Q2= (P+A)

 

will be used.

The data are as follows, using the notation of Chapter IV:

For 83, 85
R = $2.10 m
P = $0.261 m
= $0.080 m
01 = 0.10
t = l, 5, 10 yrs.

For t = 1 year

_ (2,10-.08) + .1X.26[X)

 

O
N
I

.261 + .080

600% in 1 year

For t = 5 years

Q = 2.02 + .13
2 .341

 

630% in 5 years or
126% in 1 year

 

For t = 10 years
0 3 2.02 + .26
2 .341

669% in 10 years or
66.9% in 1 year

 

 

 

For B4, B5
R = 0.020 m
P = 0.261 m
= 0.012
01 = 0.10
t = 1, 5, 10 yrs.
0 = (.02-.012) + .lX.26iX)
2 .261 + .012
= 12.45% in 1 year
Q = .008 + .13
2 .273
= 50.5% in 5 years or
10.1% in 1 year
Q = .008 + .26
2 .273

98% in 10 years or

9.8% in 1 year

The results show the sensitivity of the formulas discussed in the methodology
section (Chapter IV) remarkably well.

These computations assume that the values of properties associated
with the preferred alternative, 35 in this case, increase in value at

a constant rate of 10 percent, which is 01. Thus, for B3 or B4 to

 

 

 

 

137

 

 

 

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2100 ~ ,, ’ 753.51,- 2445/ PMEME/Vflif/JM 62%. 5
22%» tmmA
1 52‘5; 39‘5}
2200 12: 240 MI 12: 20,000
- P: Zéllow P: 291,000
2100 h a A : 8010a) A 1 12,000
20m, Q/Z/éayéé Q.:0.100 Q‘: 0-(0
(900‘ t: 1,6,101/26' 1; : 1,6,10 YES
180%
1700 ‘ pl: 630%
(600- //V5 775
”\{flvi
§
5 1400 R
1311) 92356975
82 m 0 Va;
33‘ 1200
a ”00 fl: Zr/O M/d/OA/
(B3 . 35)
(00‘
goo-4
w.
. may; 2% 4, WW;
700 02:939.; owm; 1 (34,3, 6445)
w, my. 5;) L
(I Q, : /0%
60):
A1900” .
((00 ' (53:35) / K: ZQMO [3%35)
.1 A: (2050 2: M67” M/5Kér
2‘” (5,3,) ””552
(ML
' E :5 t 1151026 "0

Figure 26 Graphical Representation of Segment B

138

become preferable over BS from a value capture standpoint, the properties
associated with them should appreciate at the calculated rates. In one
year, B3 should increase 600 percent and B4 12.45 percent. Similarly,
if the values need to be captured in five or ten years, the percentage
increases, normalized on an annual basis, for B3 and B4 should be

126 percent and 66.9 percent and 10.1 percent and 9.8 percent respectively.
Segment C

This segment lies in Dewitt Township and is bounded by Sheridan
Road on the south, the proposed I-69 on the north, and portions of land
owned by the Capital Regional Airport Authority for airport expansion
on the west and east.

The master plan for Capital City Airport recommends the acquisition
of additional land and also includes some major changes in the airport's
orientation. These (if and when implemented) would have significant
ramifications on the location of the new roadway. The master plan recommends
relocating the terminal building to the north of its present location,
building a new access road off the new Logan Street (Dewitt Road portion
between State and Stoll Roads), and, most important, relocating Dewitt
Road to an alignment approximately 1600 feet to the east of its present
alignment. This relocation of Dewitt Road within the proposed boundaries
of the airport property was recommended to provide the required vertical
clearance for landings and takeoffs on the extended runway.

The alignment for the southern length of the segment, which lies
almost entirely within the airport property, was thus kept 1600 feet to
the east of the present Dewitt Road. By doing so, acquisition of additional

land for a length of almost 1.4 miles will be saved.

139

In the segment north of the airport boundary, there were six
possible alignments, C3 to C8.

The segment is zoned single family residential south of Stoll
Road and agricultural north of Stoll Road. All the land north of State
Road is currently used for agricultural purposes. South of State Road,
is a mixture of residential and undeveloped land. The density of develop-
ment is rather low, averaging almost two acres per dwelling unit, compared
to 0.2 acres per dwelling unit in Lansing. The approximate distribution
of land in the segment, excluding the present and proposed airport land,

is as follows:

Total land area 779 acres
Agricultural 587 acres
Residential 179 acres

Included in the agricultural land area are 38 acres of a woodlot and 17
acres of a sand and gravel extraction area north of Stoll Road.

In this predominately agricultural area there are six different
alignments, all emanating from one alignment and converging into one,
but bulging out in between. The unique configuration was necessitated
by the fixed location of the Dewitt Road interchange on I-69, at which

all the alternate alignments must end.

Alignments:
C3 - follows the existing alignment of Dewitt Road north of
Stoll Road, with acquisition of properties on the west
side only;
C

4 - same as C3, but with acquisition of properties on the

east side only;

140

CS, C6, C7, C8 are shown in Figure 16. 05 generally bisects
the large parcels of land in the middle. C6 crosses through
the wet and marshy lands to the north of Stoll Road. C7
passes between two rather large marshy land areas. C8
completely avoids the marshy lands and swings to the east
near Turner Road before returning to the proposed 1-69
interchange.

The cross-section for each alignment is four lanes of roadway with a

median 60 feet wide, as in Segment B.
Marketable Land Uses:

M Industrial

—1

M2 Retail and commercial
M Residential

Soft Areas

The soft areas are more precisely defined in the following table of
developable parcels. The parcels inside the present and proposed air-
port land boundary are not included in the analysis, as there is only

one alignment in that protion.

The cost of construction of each alignment is as follows:

Alignment Igg§t_(construction and right-of-way)
C3 $7,209,205
c4 $6,994,530
C5 $6,747,600
C6 $7,672,212
C7 $7,094,687
C8 $6,223,686

141

The difference in the cost of the selected alternate (C5)

and the others is as follows:

C3 - C5 = $ 462,000
C4 - C5 = $ 247,000
C6 - C5 = $ 925,000
C7 - C5 = $ 347,000
C8 - C5 = (-)524,000

The developable parcels of land are the same for each align-
ment. This is because of the generally large parcels, which means a
significant area will be left for development even after acquisition
of the strip for right-of—way. The land between Turner Street on the
eastern boundary and the properties on the west side of Dewitt Road
is generally homogeneous, except for some localized marshy lands, wood-
lots, and a gravel pit.

Three large parcels of land of 60 to 80 acres each are in the
central portion of the segment. In the eastern portion there are three
medium sized parcels of 17 to 26 acres. 0n the west there is a wide
range of parcel sizes, including one of 58.6 acres. South of Stoll
Road there are portions of three parcels outside the proposed airport
boundary ranging from 7 to 15 acres.

The total area can be generally categorized as follows from
the land development market point of view.

- Area to the west of Dewitt Road

and south of Stoll Road: For Industrial use

142

- Central area north of Stoll Road and

immediately east of Dewitt Road: For industrial or

office use
Next eastern strip: For residential use
- Far eastern parcels toward
Turner Street: For residential use

The northern portion of the segment is the land surrounding
the interchange with I-69. The land there will develop to the fullest
extent for commercial and other highway related uses, and it could be the
most valuable land in terms of a value capture policy. However, as all
the alternative alignments converge at the same point at the interchange,
the land would develop in the same pattern regardless of the alignment
selected to the south of the interchange. As we are interested in the
differential effect due to the alignments, the land development around
the interchange will not be included in the analysis.

In estimating the potential increase in land values, the effects
of factors such as size of parcel, distance from the highway, and land
use market for the parcel (such as industrial, commercial, or residential)
have not been taken into account. It is assumed that the increase in
value would be the same for any parcel within the area of impact of the
roadway, which is the corridor width. The differential effect of these
factors will be dealt with in more depth later in this chapter.

As in segment B, assuming an inflation rate of 20 percent and
risk protection of 50 percent, from the formula in section 4 of this
chapter we have:

A Captured value R = (P2 - aPl)B.

By substitution in the above formula to find P2;

143

TablerSValues of developable properties relative to alignments, Segment C

 

 

Parcels Assessed value Parcels Assessed value
489 12,364 311A-1 31,400
489A 10,000 310 10,000
480 17,000 ' 309 23,900
482 10,300 312A 16,600
466 3,855 ' 346E 14,100
466E 3,212 (est.) 346 17,900
316 7,000 312 12,500
317 1,995 3128 17,700
318 ' 8,600 312A 16,600
318A 1,300 335 25,700
319 5,400 336 56,000
320 . 5,400 349A 23,200
321 13,000 351 6,300
323 10,700 347 12,000
324 10,200 350 10,500
325 8,200 349 13,900
326 12,300 3510 , 12,400
327 17,115 351E 9,300
3288 7,200 $616,641
328A 5,300 Multiply by 1.12
328 2,900 for 1980 value _jg§§;gggg
329 ‘4'500 ”fiifilfil’viiui for $1,385,716
300 14’600 say $1,386,000
331A 1,800
331 19,500
332 12,600
332A 15,100
313A 14,900
313C 12,700
313 13,400

311 4,200

144

For C3 to be preferred, H3 = $462,000;
P1 = 1,386,000;
a = 1.2;
B = 0.5-

Hence 462,000 = (P2 - 1.2 x l,386,000)0.5, so ~P2 = $2,587,200, or 1.86
times the present value.

For other alignments, the value are as follows:

C R 247,000, P2 = 2,157,200 or 1.56 times;

4’ 4

06, R6 = 925,000, P2 = 3,513,200 or 2.53 times;

C7, R7 = 347,000, P2 = 2,357,200 or 1.70 times; and

C8, R8 = (-1)524,000, P2 = 615,200 or 0.44 times the present value.

These differences in the increased property values in the order given
above amount to 86 percent, 56 percent, 153 percent, 70 percent, and

for C8 an interesting (-)56 percent. This is because the cost of C8

is less than the selected alternate C5, and for it to remain a preferred
alternate the property values can drop 56 percent.

As shown at the end of the analysis for segment 8, these data
can be used in the time series equations of Chapter IV. The results
from would show what percentage increase at the end of a given time is
required for one alignment to become preferable over another due to
value capture policy.

In this case, as the properties are all the same in value for
each alignment, Case I will apply, where = 0. The formula used will
be:

In the above computations, it is assumed that the property

along alignment C5 increases at the rate of 20 percent per year and

Table 16.

The computation can be tabulated

145

Computations of 02, Segment C

Q2

R

= + Q,t for

R

1, 5, and 10 years

as follows:

 

 

 

 

 

 

Alignment
Pairs R P 01 t , R/P 0,1 02 Comments
0.462 1.386 0.20 1 .333 .20 .533 53.3% per year
C3,C5 5 1.0 .333 133% in 5 yrs.
or 26.5% per yr.
10 2.0 .33 233% in 10 yrs.
or 23.3% per yr.
0.247 1.386 0.20 1 .178 .20 .278 27.8% per year
C4,C5 5 1.0 .178 117.8% in 5 yrs.
or 23.56% per yr.
10 2.0 .178 217.8% in 10 yrs.
or 21.78% per yr.
0.925 1.386 0.20 1 .667 .20 .867. 86.7% per year
C6,C5 5 1.0 .667 166.7% in 5 yrs.
or 33.3 % per yr.
10 2.0 .667 266.7% in 10 yrs.
or 26.67% per yr.
0.347 1.386 0.20 1 0.250 .20 .450 45.0% per year
C7,C5 5 1.0 .250 125. % in 5 yrs.
or 31% per yr.
10 2.0 .25 22.5% in 10 yrs.
or 33.5% per_yr.
-0.524 1.386 0.20 1 -.378 .20 .178 may even de-
cline
C8,C5 5 .338
10 .358

 

558$.

‘(ZQJ 1
L100? ‘
3900 1

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32m flz #3370 /

M6 #25

47, : 915% w 772

 

 

146

/
C; ’67 I: 462, am

// '7. 83mm

 

 

42: 725% //V m/flé’

47? 05% W 5725’

065 (C3,C5)AN0 (C7105)

 

DATA C5 0
1400- Ca' 07- 5
12: I462,000 R: 3‘1 9,000
1200‘ P:- l,386,000 17: 1.38610“)
A = 0 A:0
1W1 Q: 0'20 01‘0'20
‘ C: 1,2,6 V24 '6: 1,2,5 1’29
1 T T I
1 Z 5 ’0
t , V‘ 26
Figure 27: Graphical Representation of Segment C

 

147

 

    

 

/
6,000 1 / /
/ /
4.800 1 2174 a; ' I 7 ”my
“(600 . M 42W I
/
“If-(£09 /
4200' / ‘ 0,, .
l /
4,000~ / , 4.
/ o
. 0.40/0
3000 7
39°07 . 12.-925,000
A 320% /
8 3000- ,'
35 /
&Z.90°'* /
< 25m. [$33.70
3 ' 7 7w}? '
8 2400 . a, : 1/ 23% 77v 472;
2201‘
2,0001
1800
V
4' 02:27.93, 771/772
1.400~ CAGEG: (0.1 .(:6 ) A110 (CE, .09)
1 DATA
(w Cfl'CE Ce'Cg
‘ 12: 249.000 2: 925,000
17”399.000 P: 1,386,000
1 4" 0 A = o
. Q: 0.20 Q. -. 0.20
L= 1.2.6 was 13'- 1,26 V29
1
E E To
‘17. VEAEQ'
Figure 28: Graphical Representation of Segment C (continued)

148

constantly does so. The difference in the increase in property values
should then be captured in a given number of years to make any of the
other alignments preferred over C5. For the three assumed values of

t, that is, one, five, and ten years, the required increase in the
difference of the increases is computed. To capture value in any period,

C6 must increase most and C4 least.

Effect of Soft Area Characteristics on P2

 

In the preceding discussion, it was assumed for the calculation
of P2 that all developable parcels of land in the vicinity of an align-
ment increase in value at the same rate due to the highway facility.

In practice, however, one would expect to see somewhat different re-
sults. For example, a parcel closer to the highway would be expected
to increase at a different rate than one farther away. The increase
would also depend upon land use permissible on the parcel, with greater
values for industrial as opposed to residential, for example. The
change in value would depend on the size of the parcel as well. For

a larger parcel, so 80 acres, the potential for development is greater
flexibility than for a parcel of 0.3 acres, and hence the increase in
property value would be expected to be much higher.

For a developable parcel of land, it appears that the increase
in property value due to the impact of a highway alignment would depend
upon three factors:

permissible and planned land use 2

distance from the alignment d

size and shape of the parcel s

149

Thus, P2 = f(2,d,s). The variation of P2 with d and s can be pre-

dicted relatively simply as
P205

1
Pza-d-
Let Y represent a multiplier constant with specific values
for different land uses for which the parcel is planned. It could,
for example, have the following values:‘

for commercial development, Y = 3;

industrial development v 2; and

II
H
0

residential development Y

The relationship can be expressed as:

= C S y
P 2 d

where C is a constant of proportionality for a given area. This

 

constant would depend upon factors such as the growth potential for
the area, inflation rates, the state of the economy in the region, and
so forth.

The expression indicates that for a parcel of land of developable
characteristics, large size, proportionate geometrical shape, access
to the highway, and potential for commercial development, if the market
exists, would have a property value that would increase at the fastest
rate due to the improved or new alignment of the highway. Similarly,
the value would not increase as rapidly for a parcel farther away and
with a size and shape unsuitable (or less suitable) for development.

For a given alignment, the parcels of land under consideration
would have a set of l, d, and 5 values. For every parcel, with reference

to a given alignment, there will be specific 2, d, and 5 values. It

150

can be further argued that, for a given 1, d, and s, the value of P2
can be plotted against time for a dynamic situation. Although there
may be a one-time increase in the property value of a given parcel
(21,d1,sl), the increase may continue at rates different than those for
another parcel (£1,d1,sl).

However, for the sum of the parcels available with an align-
ment (A ), there will be a unique (£1,d1,sl) which will give a change
in P2. This rate of increase can be represented by the slope of the

line on the(P2,t) graph, shown in Figure 29.

     
    

_\_. ....

    

 

1?:
P, 1
72 ; E
P3 E g
0 ,1 1______

 

 

TIME ——>

{/63 29 (7; , z) — 664/4 6279717”; [/7757 y;
game/flie/Ir/W a; f/fofa)

151

Earlier, in Figure 3 the graph was presented to show the possible
change in property values for each alignment with time. The graph shown
in Figure 29 is a representation of the case in which the change in property
values after a given time, t1, is at the same percentage rate. In other
words, P2 increases from P1 to R1, 92 to R2, and P3 to R3 at time t1
and thereafter continues to increase at a constant rate per unit period
of time. In this case, the 2,d, and 5 factors have not played any role
yet. If they were taken into consideration, the rate of change would
be expected to be different for each alignment. The slop of the lines
for each alignment is R1/4t, R2/4t and R3/4t due to the rate of change
being assumed to be 0.25 R1, 0.25 R2, and 0.25 R3.

At any other time T in the dynamic case, the property values
are given by R', Ré, and R5 for alignments A1, A2, and A3, respectively.

For alignment A2 to be preferred over A3 at time T, the
difference in property value must be less than or equal to Ré - R5.

Now let us consider the factor of (22,d2,sz) for alignment~ A2.
The combination of land use, distances, and size of the parcels, it
planned correctly and for the best use, would change the slope of the
line representing the P2 for alignment A2 shown by line (22,d2,sz).

The formulation derived above can be represented at

Csv

P2 = t t or P2 = Qt,

where Q is the slope of the (t,d,s) line on the P2,t graph. The

 

(£2,d2,52) line has essentially shifted the time T (when the difference
in property value is reached for A2 to be preferred over A3) to an
earlier time To. At T0, (R5 - R3) is now equal to the desired inter-

cept (Ré - R3)

152

For a required difference in the property value, we can deter-
mine the required slope of the (£,d,s) line at a given time. Also,
for a given slope and desired change in property value, we can deter-
mine the time when the change in property value will take place.

Discussion of Results 0

1) In the analysis conducted in the preceding pages, it has
been assumed consistently that the degree of accessibility provided
by each alignment being evaluated is the same. For example, alignment

C C , 06 all have the four-lane cross section with a sixty feet

4’ 5

wide median. The cost of construction of each alignment has been com-
puted on this basis. However, it is entirely possible to compare the

two given alignments with different degrees of accessibility by providing
different levels of design and improvements. The estimate of change

in value of properties due to the different degree of accessibility

will add another complexity in the process which requires further
research.

However, it should be pointed out that in a developed economy
like that of the United States, the property values are impacted by the
accessibility to the market more than the accessibility to a particular
road. This is borne by the conclusions in a study conducted by Vargha.45

If a road system is well developed, the entire system

serves this purpose. Thus the more highly refined and

developed the system, the less important is direct

access to any particular road.

The accessibility to a road would have relatively more significant
impact in a developing or an underdeveloped economy.

2) There is a need for further research in estimating the in-

crease in land values due to the factors (2,d,s) discussed in this chapter.

153

Vargha45 has concluded that the impact of distance on the agricultural
land values was not significant. Again his reasoning is that "the time
when one hard surfaced road more or less made a difference in farm land
values is past in this area (the area of study in that report)". However,
in our case, the issue iS‘UHechangein property values caused by the potential
for development of land created by the transportation facility alignment.
3) The case of a decline in values of certain properties
instead of an increase, can be considered in the model presented in the
dissertation simply by changing the algebraic sign to a negative instead
of positive. There may however be a situation where the impact of the
alignment may be identified outside the corridor, somewhere else. This
impact may be a lost opportunity for a close by suburb or the central
city. This situation has not been examined in the case study but would

require further research.

CHAPTER VII
SUMMARY AND CONCLUSIONS

A. Summary

Financing transportation facilities; construction or im-
provement projects, under limited resources and skyrocketing in-
flation is becoming extremely difficult. Alternate resources and
innovative approaches are needed more than ever before. With
special reference to the highway alignment selection process,
techniques have been described that can be considered for use in
transportation project financing.

One of the two main ideas examined in the thesis are:
first, the public at large has a right to share the increase in
value created solely by the use of its own moneys, and second, con-
sideration of a factor of capturing the unearned increment in value
of properties due to an alignment of a transportation facility, may,
under certain circumstances impact the decision to select the
alignment itself.

The philosophy of capturing a portion of unearned profits
created by a governmental action and the techniques available to
apply the Value Capture policy have been discussed. The techniques
differ when private ownership of land is involved rather than public

ownership.

154

155

Application of the principles developed in the thesis for
analysis of the effects of Value Capture policy on the selection of
alignments has been shown with reference to a case study. The
potential of impacting the facility alignment selection by the intro-
duction of a factor of Value Capture has been demonstrated. Although
the case study is for a highway alignment, during the development
of the approach care has been exercised to make it as general in

application as possible to alignments of other modes as well.

8. Conclusion
The following conclusions can be drawn from the application
of the model developed in the thesis. The diversity in the area
selected for a case study requires that the conclusions be divided
into three distinct environmental categories: a fully developed
urban area; a partially developed fringe area; and, an undeveloped

rural area on the outskirts of a major population center.

1. Land Development
1.1 Fully developed urban area

1.11 The existence of a market demand for redevelop-
ment of land is a necessary, but not a sufficient, condition for
capturing the values created by a facility alignment. The cost of
redevelopment far exceeds the created values. For areas like the one
in the case study, desperately trying to attract growth there are no
profits, let alone windfall profits -- even after huge amounts of
public money from federal or state grants are used to acquire, re-

locate and clear the existing development.

156

1.12 The number of alignments feasible for construc-
tion of major improvement, due to the fully developed areas, were
extremely small. In the case study while there were several alternate
treatments, there was only one feasible alignment. The relative im-
pact on the different alignments due to redevelopment, the main sub-
ject of the thesis, in such cases becomes a trivial point.

1.13 The case of increased tax revenues over an ex-
tended period of time is due more to redevelopment than to the
facility alignment. Such increase would take place even if the new
transportation facility were not built and, hence, falls outside the
purview of the thesis.

1.14 For an urban area with booming growth and economy,
the economics of the situation would be different. This may occur
due to the extremely high returns expected from the sale or lease
of the assembled and/or cleared properties. The facility alignment
would be expected to play a significant role in such cases due to
the flexibility it would bestow upon the potential development con-
cepts.

1.2 A partially developed fringe area

1.21 Such an area would be a relatively better setting
than the central city area in two respects: feasibility of relatively
greater number of alignments and potential for redevelopment; and
the factor for testing the potential value that can be captured due

to different alignments can play a more significant role in such areas.

1.3 An undeveloped rural area
1.31 At the other end of the development scale, is

the undeveloped rural area, which has the maximum potential for change

157

and possibilities of highway or facility alignments. The costs of
redevelopment are lower and the created values are at a maximum. It
is estimated that the land in the segment C, as a result of the
highway alignment, would increase in property value from 10 to 100
times.30 The impact of Value Capture on the selection of a highway

alignment is maximum in such areas.

2. Significance of Impact

 

The models presented in the study would enable an admin-
istrative entity to determine the significance of impact of the Value
Capture Policy, in a particular situation. If the impact deter-
mined is insignificant or if it is unrealistic to expect a signi-
ficant impact on the property values due to an alignment, the effort

to implement the Policy in that case can be saved.

3. Legislation

 

There is need to enact legislation to empower the state and
local highway, street, and transportation authorities to condemn land
or airspace necessary, through the exercise of the power of eminent
domain in excess of that necessary for the right-of—way to effectuate
a Value Capture Policy. The Model Airspace Act is the development in
such a direction. Land banking policy needs to be examined more

carefully after it is tailored to suit the American situation.

4. Translation of Experience
Experience in one country or society cannot be transferred
to another setting without side effects and legislative and political

support.

158

5. Further Research

 

5.1 The effect of permissible land use, lot size and dis-
tance of the parcel from the alignment, on the increase in pr0perty
value needs further research to refine the process.

5.2 The compensation of "wipeouts" or losses inflicted on
the property owners due to governmental action, such as selection of
a facility alignment need to be studied to provide a balanced and
equitable mechanism in pursuing the Value Capture Policy. If
society has a right to capture the benefits created by public moneys,
does it have the responsibility to compensate the losses inflicted
by the use of public actions?

5.3 Appraisal techniques to estimate the property values
due to anticipated actions, need to be refined to withstand legal

challenges.

BIBLIOGRAPHY

10.

11.

12.

. 13.

BIBLIOGRAPHY

National Transportation Report. U.S. Department of Transportation,
Washington, D.C., 1972.

 

Keith, E. Gordon. Concepts gf Exgess Profits Taxation, Exgess
Profits Taxation. Tax Institute Inc., Princeton, 1953, p. 19.

Buehler, Alfred G. Prgblem of the Excess Profits Tax, Exgess
Profits Taxation. Tax Institute Inc., Princeton, 1953, :p. 3.

Hagman, Donald G. Windfalls for Wipeouts, American Soc. of
Planning Officials, Chicago, 1978, p. 492.

. ”Value Capture and Joint Development Applications, Final Report.

U.S. Dept. of TranSportation, DOT-TST-77-72, 1977, p. 1.

Value Capture Poligy: Financial. U.S. Dept. of Transportation,
Report no. DDT-TST-75-85,1974, p. 3.

HR 3919, The Crude Oil Windfall Profit Tax Act of 1979 as passed
by the Houge, U.S. Govt. Printing Office, Washington, D.C.,
979, p. .

Summary of HR 3919: The Crude Oil Windfall Profit Tax Act of

 

1979 as reported by the Senate Committee on Finance, U. S.
Govt. Printing Office, Washington, D. C, 1979, p. 5.

Sloan, Alan K. et a1. ,Enhancing the Public Share of Highway
Benefits, U. S. DOT Report No. FHWH/SES- 75/04, Nov. 1974,
p. 81.

American Association of State Highways and Transportation
Officials, "A Poligy on Design of Urban Highways and Arterial
Streets, Washington, D.C., 1973.

Carter, Everett C. et al., An Informational Report on Techniques
for Evaluatinngactors Relevant to Decision Makianon Highway
Locations, U. 5. DOT, Washington, D. C, Dec. 1972.

Robert, Paul et al., Highway_Lgcatjgn_Analysjs, Massachusetts
Institute of Technology Press, Cambridge, Massachusetts, 1966.

Proceedings of the American Soc. of Civil Engineers, Highway Div. ,

Criteria for LocatianMajor Streest and Urban Freeways, Report
by the Committee on Urban Transportation, June 1968, p.24.

159

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

160

Barkan, Benedict G. Latest Methods of Detennining Urban Highway
Routes, Journal of ASCE, Urban Planning and Dev. Div., Dec.
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U.K. Ministry of Works and Planning, Expert Committee on Com-
pensation and Betterment (Uthwatt).

Clawson, Marion. Cry California. Vol. II, No. 1, San Francisco,
1966.

Bryant, R.W.G. Land Private Property Public Control, Harvest
House, Montreal, 1972.

Netherton, Ross 0., antrgl of Highway Access. The University of
isconsin Press, Madison, 1963.

' ' , U.S. Dept. of Transportation, Report
No. DDT-TST-75-83, 1974.

(Land Use Plan and Marketability Study Task IV Report, Logan

Corridor Study, Harland Bartholomew and Associates, St. Louis,
Missouri, 1977.

, U.S. Department of
Transportation Federal Highway Administration, Washington,
D.C., 1976.

Rams, Edwin M. Erjneiples Qf City Land Value , Academdy
Publishing Company, Worthington, Ohio, 1964.

Lemly, James H. Expressway Influence on Land Use and Value,
Bureau of Business and Economic Research, School of Business
Administration, Georgia State College of Business Administra-
tion, Atlanta, GA, 1958.

Economic and Social Effects of Highways, U.S. Department of
Transportation, Federal Highway Administration, Washington,
D.C., 1972.

Rives, W.R. et al. Severance Damage Study, U,S. 167, Cases 42-
47, Louisiana Department of Highways and Louisiana Polytechnic

Institute, Ruston, Louisiana, 1965.

Ve]ue Irene Stugjes, Residential Subdivisions along Suburban
Freeways, Greater Portland Area, Oregon State Highway Dept.,

Portland, Oregon, 1961.

Land Economic Study, No.14, 1-94 Interehenge Study, Michigan
State Highway Department Right-of-Way Division, Appraisal

Section, Oct. 1964.

161

28. Highways and Eeengmie and Social Changes, U.S. Department of

Commerce, Bureau of Public Roads, 1964.

29. Gamble, Hays B. et al., [Communilx_£££ects_of Highways Re-
flected by Property Values', US DOT-FH-11-7800, Pennsylvania
State University, University Park, PA, 1973.

 

30. Logan Corridor Joint Development Study, Reconnaissance Report,
Lansing Planning Dept., Lansing, Michigan, 1976.

31. U.S. Office of Management and Budget, The Budget of the United

States Government,gAnnual; Table 428 Statistical Abstract,
1979. ' '

 

32. Logan Corridor Joint Development Study, Draft Environmental
Impact Statement, Lansing Planning Dept., Lansing, Michigan,
1977.

33. Logan Corridor Joint Development Study, "Studnyesign Report",
Lansing Planning Dept., Lansing, Michigan, 1975.

34. Logan Corridor Joint Development Study, "Preliminary Alignment
<51ternatiyes", Lansing Planning Dept., Lansing, Michigan,
1976.

35. Logan Corridor Joint Development Study, Preliminarnyvaluation
of Aliggment Alternatives," Lansing Planning Dept., Lansing,
Michigan, 1976.

 

 

36. Capital Commons, Final Environmental Impact Statement, Lansing
Planning Dept., Lansing, Michigan, 1978.

37. Logan Corridor Joint Development Study, Final Environmental
‘ Imgact Statement, Lansing Planning Dept., Lansing, Michigan
(Unpublished till the date of the thesis).

 

38. Strong, Ann L. Land Banking,Eur0pean Reality American Prospect,
The Johns Hopkins University Press, Baltimore, 1979.

39. Kamm, Sylvan, Land Banking: Public Policy Alternatives and
Dilemmas, The‘Urbah InstitUte,lwashington, D.Cl,‘l970.

 

40. Smith, Halbert C., Tschappat, Carl J., Racster, Ronald L. Rea

1
Estate and Urban Development (First edition). Homewood, 111.:
Richard D. Irwin, Inc., 1973.

41. Marshall, Alfred. Principals of Economics (Eighth edition).
London: Macmillan and Co. Ltd., 1920.

42- Brigham. Eugene F. We
41 Land Economics, 325, 1965.

 

43.

44.

45.

162

Smith, Halbert C. et a1. Real Estate and Urban Development.
Homewood, 111.: Richard D. Irwin, Inc., 1973.

Vargha, Louis A.. Effects of Highway Development on Rural Lands.
Michigan State University Highway Traffic Safety Center
and Departments of Agricultural Economics and Resource
Development, East Lansing, Michigan, 1960.

Capital Commons Neighborhood Development Area Plan City of
Lansing, Michigan, 1979.

APPENDIX

 

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