CePACs and Their Value Capture Viability in the U.S. for Infrastructure Funding
CePAC is an innovative market-based land value capture tool used successfully in São Paulo, Brazil. By monetizing land-use entitlements through up-zoning, it generates significant revenues for infrastructure improvements. This paper examines the potential application of CePACs and their value capture viability in the U.S. for local infrastructure funding. On the upside, CePACs improve upon existing land value capture tools, in that they place no additional financial burden on local governments, taxpayers, or property owners, while offering added benefits for developers, real estate investors, and builders. CePACs are particularly suited for the U.S. in a smart growth setting that promotes concentrated and transit-oriented developments (TODs) where continued up-zoning may be needed. By engaging new private sector investments, CePACs could help make existing land value capture solutions much more robust in addressing the critical infrastructure funding problem in the U.S. On the downside, there are a number of practical implementation challenges that need to be overcome. CePACs may face political resistance, both from general lack of knowledge and misunderstanding on ideological pretext. CePACs must comply with the existing local planning and approval processes and need to pass muster on legal/constitutional grounds as relate to the takings doctrine. The scalability of CePACs could also be of concern, given that land use and zoning issues are inherently local and episodic. CePACs also require considerable expertise and may necessitate institutional capacity building, both legislatively and organizationally. One of the critical decisions at the outset would be how to classify CePACs—whether as a financial security subject to relevant federal and state securities regulations (as was done in Brazil) or simply as an innovative local tool that can help to capture the real value of land use entitlements as perceived by the market. The benefits from CePACs are sufficiently large, however, to merit a further examination, especially for their applications on publicly owned land and on TODs and transferable development right (TDR) undertakings where many of the challenges identified in this paper can be avoided.