Development impact fees (DIFs) are one-time payments created to defray the cost of new or improved infrastructure required by new development (as determined by a formula). They are applied to privately-created building values. Thus, DIFs transfer privately-created value to the public sector. DIFs are more aptly characterized as “cost reimbursement” than as “value capture.” Note: A DIF makes development more expensive, thereby reducing the amount and raising its price. Would a community want to reduce development next to transit and make it more expensive? In this circumstance, a DIF would be counter-productive.

Exactions are negotiated, in-kind infrastructure donations required of developers in exchange for development permits. Like development impact fees, they should be based upon the infrastructure needs generated by the new development and are tied to the value of buildings. Exactions also transfer privately-created value to the public sector and are more aptly characterized as “cost avoidance” than as “value capture.”

Tax Increment Financing (TIF) is often referred to as value capture. TIFs are different in different jurisdictions. But most of them operate as follows:

A new infrastructure project is planned that will benefit nearby properties.

The legislature cannot justify spending everybody’s tax dollars to benefit a few property owners. So, instead of putting this project in the budget, they create an assumption. The assumption is that, but for the new infrastructure project, tax revenues in a defined area would be static.

One or more revenue streams in the defined area are benchmarked before the infrastructure project is started.

Thereafter, any increased revenue within the defined district is assumed to be the direct result of the infrastructure project. This “tax increment” does not go to the general fund, but is set aside into a dedicated account to pay for the infrastructure project.

NOTE: Under most TIFs, property owners pay the same rate of tax as they would if there was no TIF. So there is no more (and no less) value capture after the TIF is created than there was before. Thus TIF is more aptly described as “revenue segregation” than as “value capture.”

Transportation Utility Fees (TUFs) are generally assessed against building users (tenants) based upon assumed trip generation associated with various uses (restaurants, retail stores, offices, theaters, apartments, etc.). Each use has an estimated trip generation per square foot of developed space. Thus, each space user is assessed a fee (based on type of use and total square footage) that is intended to represent their impact on the transportation system. Thus TUFs are based on privately-created value – the type and size of occupied building spaces. Although a TUF might resemble a user fee, it is not. The fee is based on estimatedtrip generation and those who must pay have no opportunity to change their financial liability by changing their actual use of (or impact on) the transportation system. Because TUFs will be an additional expense for those who occupy space within a defined TUF district, it will tend to depress land values and rents within that area. If commercial tenants are locked into long-term leases when a TUF is applied, then these businesses might become less cost-competitive with rival businesses located outside of the TUF area. Depending on the level of the fee and the intensity of the competition, this could lead to lower profits and/or business closings within the TUF area. Unlike land value return, the cost of TUFs will be passed along to customers & employees. Thus, TUF is more aptly described as “value transfer” than as “value capture.”

Sale or Lease of Public Land or Air Rights if conducted through an arms-length transaction at market rates, will be a form of “value-capture.” Sale of public land or air rights results in a one-time infusion of cash. If public sector infrastructure improvements enhance that land after the sale, that enhancement will largely be a windfall to the subsequent private owner. Leasing of public land or air rights results in a continual stream of revenue and retains public control in the long term. Furthermore, if public sector infrastructure improvements enhance that land in the future, that enhanced value can be returned and recycled by future rent increases.

Joint development is a process whereby a private developer creates or pays for a public facility (like a transit station) in exchange for permission to create a private development above or adjacent to that public facility. If the infrastructure created by the developer has a cost roughly equivalent to the land value consumed by the private developer for its private development, then this too would be aptly characterized as “value capture.”

Land value tax is a property tax applied only to land value. As such, this is clearly land value return and recycling. This is accurately characterized as “value capture.” In the US, pure land value taxes are rare. However some communities employ a "split-rate property tax” whereby a higher tax rate is applied to land values and a lower tax rate is applied to building values.