Capturing value to support public space and community
How Portland uses value capture to bolster its civic commons and mixed-income neighborhoods
American cities of all sizes face a conundrum. Many (if not most) are struggling to meet the demand for greater investment in civic assets like parks, trails, community centers and libraries, the social infrastructure that supports connected and resilient communities. At the same time, many cities are also managing severely constrained budgets. These two connected problems make it difficult to make transformative investments in our shared public assets, even though these investments can help cities achieve broad goals related to public health, environmental sustainability and access to economic opportunities.
And, even when resources are available for public space investments, local leaders are sometimes concerned that the benefit of these investments may flow to out-of-neighborhood investors, rather than being used to improve local livability for existing neighbors.
That’s where value capture comes in.
Value Capture in the Commons is a suite of financial tools available to civic leaders that capture some of the economic benefits created by civic asset investment to improve and sustain public places and create benefits for those who live nearby. One value capture tool in particular, tax increment financing, has the potential to generate the revenue needed to pay for major civic investments without pulling resources away from other priorities. Used in 49 states and the District of Columbia, tax increment financing (commonly known as TIF among economic development professionals) has the flexibility to generate significant funds for investments as different as public parks, street improvements, transit and affordable housing, sometimes all in the same neighborhood.
TIF leverages public investments to attract private investment and create additional land value in a specific geographic area. Here’s how it works: cities typically issue bonds to pay for the investments up front. The new property tax revenue that is generated above and beyond the baseline of pre-investment property tax revenue (known as the increment) is then used to pay back the bonds that funded the initial investment. Additional revenue created by the new incremental property tax revenue may be used to pay for additional civic priorities, including parks, libraries, community centers, transit and affordable housing.
After a set period of time (typically several decades), the TIF district expires, and all property tax revenue from the district is then allocated in the same way as the rest of the city.
While the basics of the policy remain consistent from one community to the next, TIF can be implemented in very different ways, which lead to very different results. As with all powerful policy tools, the use of TIF does not automatically help or harm a community. In planning for a TIF program, civic leaders need to consider carefully a variety of factors, including understanding the investments they plan to fund, how those investments will impact the larger community, what private sector investment might have happened without a TIF district, and what other opportunities might be forgone in the meantime. Used strategically, TIF can help ensure residents of all incomes benefit from neighborhood changes that are catalyzed by public investments. However, recent research from the Lincoln Institute of Land Policy shows that, when implemented poorly, TIF districts can actually divert revenue away from civic priorities and make cities’ financial decisions less transparent.
While specific goals, clear thinking and critical eyes are required of city leadership as they plan a TIF district, the potential for creating and capturing new value and widely shared benefits is significant. Few other economic development tools have the remarkable power of TIF to pair public investments and value capture together to benefit residents in a specific geographic area.
One city that has effectively used TIF to invest in improving its civic commons, support mixed income neighborhoods and spur private investment is Portland, Oregon. In addition to funding physical infrastructure, Portland leaders have used TIF for years to fund parks and public spaces and affordable housing, helping residents of all incomes share in the benefits of localized investments.
In redeveloping Portland’s Pearl District in the early 2000s — a former warehouse area north of the city’s downtown — Prosper Portland (the city’s urban renewal agency) used TIF funding to build three new parks, reconstruct streets and kickstart the Portland Streetcar, now the largest and most significant streetcar system in the country. Because of the rapid increase in value in the Pearl District once redevelopment started, the captured TIF funds supported $22 million in parks and open space investments, $24 million in public transit investments and $154 million in housing dollars, which helped create the city’s most dense area of affordable housing. This layered public investment has transformed a former rail yard into one of Portland’s most mixed income neighborhoods. High-end condo buildings sit right next to affordable housing, all with access to thriving local retail, as well as beautiful parks and public spaces utilized by residents of all ages and robust transit options that include the streetcar and frequent bus service.
In total, the River District TIF has funded three new parks over the course of 13 years in Portland’s Central City: Jamison Square, Tanner Springs, and The Fields. The sequence of parks was included in the urban design scheme early in the planning process for the urban renewal area. Prosper Portland and Portland Parks & Recreation entered into a public-private partnership with the land-owner, Hoyt Street Properties, to transfer the land from private to public ownership.
In addition to introducing new open spaces in a former industrial area, the Pearl District redevelopment was the first time Portland allocated TIF funds for affordable housing, and it was a resounding success. In 2006, Portland’s City Council agreed to dedicate 30 percent of the revenue from each the city’s active TIF districts to fund affordable housing for individuals and families earning 80 percent or less of the area’s median family income. And in 2015, it bumped the minimum amount of tax increment funding set aside for affordable housing to 45 percent.
Because of this foresight, Portland’s TIF districts have generated more than $375 million for investments to develop, preserve and rehabilitate affordable housing for the city’s low-income and workforce residents since 2006. In the Pearl District alone, TIF has generated $104 million, supporting the construction of almost 2,200 affordable housing units.
While TIF is no panacea, as Portland shows, when it is used with intention it offers a way to invest in new or existing civic assets alongside affordable housing for diverse neighborhoods with a civic commons that benefits all.
Reimagining the Civic Commons is a collaboration between The JPB Foundation, the John S. and James L. Knight Foundation, The Kresge Foundation, The Rockefeller Foundation and local partners.
