Developer: Offset rail costs with special fee for companies

Developer: Offset rail costs with fee for entities poised to profit from project

HONOLULU (HawaiiNewsNow) - A well-known local developer has a new plan to pay for Honolulu's mass transit project, and the Honolulu City Council is slated to consider it.

The concept is called value capture, and Hawaii developer Peter Savio said it could mean a new revenue stream for the cash-strapped rail project.

The theory is simple: If the publicly-funded rail project is benefitting private entities, why not require them to help pay for a portion of it?

"Rail shouldn't cost us anything. It should be free," Savio said. "Because the land owners are going to reap the benefits. They should be willing to pay a large percentage of the cost."

He says his "obvious" solution would not only reimburse taxpayers for rail's current $6.8 billion dollar price tag, but would also create a revenue stream to help cover its operational cost.

"Mass transit creates land value, landowners should pay a portion of that value back as a tax to get the zoning," he said. "If the land is presently zoned ag, the owners are entitled to the ag zoning value. If it's presently zoned residential, he's entitled to the residential value. And if the city changes it to high-rise apartment and they create more value, that's what we're going to tax. The additional value."

Legal experts say it's value capture is a perfectly workable solution for rail. In fact, a state statute that would allow the practice already exists, but it's never been used.

"We already have a special benefit assessment statute that permits any county to pass an ordinance to assess part or all of the cost of a public facility against land owners who specially benefit," said David Callies, a government finance professor at the University of Hawaii at Manoa's Richardson School of Law.

Callies says California used similar legislation to build its rapid transit system. It formed assessment districts in concentric rings around the mass transit stops -- and used proximity to the station to determine the fee.

But Callies cautions, the devil is in the details.

"If I were a landowner I wouldn't be crazy about being assessed, and if the assessment level got too high it would be a development killer. It's got to pencil out," Callies said.

At this point, developers along the rapid transit line are not expected to contribute anything toward the rail project's costs.

Honolulu Zoning and Planning Committee Chairman Ikaika Anderson will introduce legislation to change that.

"It's time that they pay their fair share and many of them to date have not and that bothers me greatly," he said.

Anderson cites, in particular, the developers in Kakaako, who will profit not just from the rail line, but all the other city paid improvements to infrastructure in the area.

"I strongly believe that the developers in that region need to contribute to Honolulu's mass transit project -- not just the line, but even with station construction and we need to look for a mechanism to do that to ensure that everyone -- especially those in Kaka'ako who have the means to pay -- are paying their fair share," Anderson said.

So how would this work?

According to Savio, land value is created once zoning is established and rail construction is completed.

He says the city should say they're willing to change zoning in areas that are currently ag or residential into commercial or high-rise, as long as the land owner or developer is willing to pay a special assessment fee.

"Every land owner should be happy to pay a portion of their increase in value, because otherwise the increase would not be there. The value would not be there," Savio said.. "There's no way we we should burden taxpayers with the cost of this system or burden them with the cost of operation by giving all of the value away to the landowners for free."

Callies added that it's important that the fee not be called a tax, which counties don't have the authority to levy.

Instead, call it a special assessment, he said.

Callies added that as property values rise, the county will get an increase in revenue through collecting real property taxe. To call it a tax would open the county up to complaints from developers who might argue it's double taxation.

He also said that it's vital that the fee pencil out for developers.

"The more public facilities and workforce housing you require of a developer already doing a project, the smaller the bottom line," he said. "So if you throw in a heavy assessment on top of that, the developer may say, 'Thanks, but no thanks.' And now you've just made the project unworkable."

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