Financing a Crosstown Subway on 125th Street through Value Capture in New York City

Throughout the world, large scale transportation projects are increasingly being financed by levying charges on the direct beneficiaries of these projects. It is a known fact that increased accessibility to public transport not only benefits the local residents, but also substantially increases the value of land and real estate in the neighboring areas around the stations, in turn spurring local economic development. Value Capture uses taxes and fees levied on these expected increases in land value and new developments as potential sources of revenue. In 2005, the Bloomberg administration introduced this financing mechanism in New York City’s Far West Side. The expected tax and fee revenue generated by new developments in this neighborhood induced by the extension of the 7 Subway line was used to issue bonds backed by this revenue. This in turn financed nearly 88 percent[1] of the construction costs.

Based on this, Value Capture is increasingly being considered as a solution for all the under-funding faced by Transit authorities. In New York City, while the extended 7 line construction in Hudson Yards has justified the interest in one of the Value Capture mechanism- Tax Increment Financing (TIF), it does not help in proving the success of Value Capture in rest of the city.  For this purpose, the Capstone project focused on understanding the framework of Value Capture in a transit saturated neighborhood like 125th Street. This neighborhoods emulates characteristics of most of New York City neighborhoods that have access to transit- subway and buses- and have the potential for overall growth and development.

The Capstone project assessed the property value increase under different assumptions of growth and evaluated whether different mechanisms of Value Capture prove to be feasible sources of financing a transit improvement. The first section of the paper provided an in depth site analysis of the area surrounding the 125th street. For the purpose of this study, the team focused on the area five blocks north and south of the 125th street. The second section offered an estimate of current property values in the neighborhood and provided a model on which future increases in property values can be based. Future property increases are based on values in benchmark New York City secondary CBD.  The third section of the paper applied several value capture tools to the estimated property values of the study areas, including Tax Increment Financing, Business Assessment Fees and Impact Fees. This provided a clearer understanding of how much of this increase in property values can be captured and used towards a transit improvement. Lastly, the final section provided a cost breakdown of constructing the Crosstown Subway on 125th Street.

[1] RPA Report on Value Capture https://courseworks.columbia.edu/access/content/group/SIPAU9000_028_2015_1/hudsonyards2013%20ibo%20report.pdf