Capturing the Value of Public Transportation

Julian Ware

Transport for London Commercial Finance,

London UK

Key Presentation Take-Aways

• Three schemes

• Supplement on commercial property tax - BRS

• New development tax - CIL

• A tax increment finance structure - EZ

• Should residents be asked to pay for Crossrail 2?

3

London

• 1,579 km2

• 30 million visitors a year, 28.4 million journeys per day

• 75 per cent of all UK rail journeys start or end in London or South East

• Mayor, Boris Johnson Chairman of TfL

• 32 boroughs and the ancient City

London’s growing

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Crossrail 1 - key facts

• Will increase total rail capacity by 8 –10%

• 8 new stations, plus 28 others upgraded

• 24 trains per hour in each direction

• Tunnelling now nearly complete

• Due to open at the end of 2018

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Route

• Will link shopping districts (West End), financial districts (City of London, Canary Wharf) and Heathrow Airport

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Funding Summary (£ billion)

Central Government 4.7

Business

- Business Rates Supplement 4.1

- Developer Contributions 1.1

(of which CIL is 0.3)

Fare payer 4.6

Total 14.5

($24 billion US)

Crossrail’s effect on property prices

Press coverage of GVA Grimley Study 15 June 2012

Crossrail could add £5.5bn in value to property along its route between 2012 and 2021, according to new research.

The report, conducted for Crossrail by GVA, said the value of commercial buildings near Crossrail stations would likely increase by 10% during the next decade, above already rising projections.

Residential values near the stations are projected to increase by 25% in London and 20% in the suburbs.

Battersea and the Northern Line Extension

• Part of Vauxhall, Nine Elms, Battersea (VNEB) regeneration area

• Two extra stations extension estimated to cost £1 billion

• One third from developer contributions

• Remainder from borrowing against future rates income

• Called enterprise zone

• EZ effectively a TIF

But the capacity will not be enough

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Crossrail 2

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• New capacity,

link to new

housing

• Cost at least the

same as

Crossrail 1

• Working on the

funding package

• Ready for 2030?

Key Presentation Take-Aways

• Three schemes

• Supplement on commercial property tax - BRS

• New development tax - CIL

• A tax increment finance structure - EZ

• Should residents be asked to pay for Crossrail 2?

Time

Risk and borrowing

Stakeholders

Hypothecation

Growing city

ADDITIONAL MATERIAL

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Crossrail 1 Financing Summary (£ billion)

Fare payer

- TfL Borrowing 1.9

- Network Rail works 2.3

- Canary Wharf Station 0.2

- Other 0.2

4.6Total

Network Rail: paid back over 30 years through access charges

TfL Borrowing: paid back through interest and principal payments

In addition:

£0.6bn of the Business Rates Supplement is to be raised during the construction period – the Greater London Authority will finance £3.5bn of capital works against the remaining BRS income due after the end of construction.

Financed ‘on balance sheet’

Sale of surplus land less residual costs

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Crossrail 1 Funding - Notes

• Business Rates Supplement

- Approx 5% increase in commercial property tax, for buildings with a rent of more than £55,000

• Developer contributions – £1.1 billion

- Community Infrastructure Levy £0.3 billion- Developer contributions (S106) £0.3 billion- City of London / BAA (Heathrow) £0.5 billion

• Plus over station development, say £0.5 billion treated as reduced costs

Mayor’s Community Infrastructure Levy

• Charged per square metre on new development –residential and commercial

• Exceptions – extensions, charities, social housing

• Three bands - £50, £35, £20 based on house prices

• About 1% of finished value

• To be spent on strategic transport

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Community Infrastructure Levy receipts

• Target £300 million by March 2019

• Collected over £50 million by April 2014

• Trend not yet clear

• Better result than contracted contributions (S106)

• Target probably achievable

• Large developments important

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Development mechanisms - notes

• Over station development

– In UK now about cost recovery (5/9ths for Crossrail)

– Constrained by normal planning processes

– Unlikely to see a second Metroland?

– Volatile

• Section 106

– Tariff policy in Central London and Docklands

– Individual decisions, contracted

– Commercial development

– £32 million after 6 years’ work

– Crowds out other social gains?

– Volatile

• CIL

– Much closer to a tax, regulations not policies

– All London, most uses

– Mayor has £52 million after 4 years’ work, but early days

Rates mechanisms - notes

• BRS

– Greater London

– Supplement on all rates, stable

– Low risk allows prudential borrowing by public sector

– Tax payer pays more

• TIF/EZ

– Battersea only

– Increment on rates from new commercial development

– Not such low risk, but borrowing by public sector still acceptable

– Tax payer pays what they would otherwise have paid