Financing urban rail projects: The case of Los Angeles

Abstract

This paper describes the potential use of the financing strategy of value capture or benefit assessment for an urban mass transportation project. The paper describes the legal background to the use of benefit assessment, and the process of implementation for the first construction phase of the Los Angeles Metro Rail project. The process of developing the benefit assessment structure was a consultative one, utilizing technical inputs from a team of specialist consultants, a task force consisting of major developers and property owners in the affected area, and politicians representing many of the interests in the region. The initial benefit assessment districts were set up to raise $130 million of the cost of the first 4.4 miles of the rail project, and are based on the benefits accruing to certain categories of property in the vicinity of stations. The assessment would be collected for about 18 years and bonding would be used to provide the capital at the time of construction.

The paper describes the procedure for setting boundaries, the structuring of the assessment rates, the definition of benefiting properties, and the uses and tenure of the assessment. In almost all cases, the theory of value capture indicated a different result than was achieved from a consensus of the task force, and the nature of these differences is explored in the paper. The establishment of the benefit assessment districts withstood early court challenges, but has subsequently been appealed and was overturned on appeal. Action is pending with the Supreme Court currently, and efforts are also underway to pass new legislation to deal with some of the issues raised in the court proceedings.