The bipartisan infrastructure framework endorsed by President Biden in late June includes a remarkably diverse collection of revenue sources, ranging from boosted IRS enforcement to crackdowns on unemployment benefits fraud. With so many “pay-fors” that are completely unrelated to infrastructure, the proposal seems to ignore the very premise of the latest legislative push: Infrastructure provides large returns on investment. Tapping into the new value created by infrastructure projects, a funding mechanism called “value capture” should be part of the conversation as federal legislation takes shape.
Expensive transit projects in big cities often demonstrate the promise of value capture most clearly. The Second Avenue subway expansion in New York City, for example, has cost $1.7 billion per kilometer — far more than recent subway construction around the world. I recently found, alongside co-authors Stijn Van Nieuwerburgh of Columbia and Constantine Kontokosta of New York University, that the project lowered commute times and raised the value of local real estate dramatically. In fact, as I detail in a recent policy brief for the Manhattan Institute, the increase in land value alone would have been enough to pay for the entire subway construction.
Arpit Gupta is an adjunct fellow at the Manhattan Institute and an assistant professor of finance at the NYU Stern School of Business. You can follow him on Twitter here. Based on a recent MI issue brief.
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