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DEVELOPING A METHODOLOGY TO CAPTURE LAND VALUE UPLIFT AROUND TRANSPORT FACILITIES
APPENDIX 5: FUNDING METHOD ASSESSMENT
This appendix outlines the key inputs and assumptions used to arrive at the funding potential of the various funding methods, as applied to Aberdeen and Clackmannanshire. Each funding method is taken in turn, and the various methods used to derive funding levels are summarised. For each method the key steps are specified, along with details of the source of data or assumptions for completing each stage of the assessment.
Clearly, the funding levels produced for a particular funding method will be strongly influenced by the assumptions used. Cautious but realistic assumptions and inputs have therefore been used in assessing the various funding methods, but it is necessary to point out that major changes to assumptions can result in significant changes to potential levels of funding. In practice, an 'on-site' application of a funding approach to a transport scheme will have clear-cut definitions and input parameters that would enable more precise funding levels to be gauged.
In terms of some of the broad assumptions used, the following points should be noted:
- The funding figures quoted are gross. No account for potential operational costs has therefore been included. Generally these are likely to be relatively small, but will differ between methods.
- It has been assumed that the funding would be ring-fenced for 10 years for transport projects.
- The funding figures are in current prices, but have not been discounted in any way given uncertainties over various factors such as the timing of investments.
The funding figures are best seen as indicating the potential pool of resource that the funding method could generate relevant to the local authority areas. The application of the funding method should not, however, be seen as a precise measure of the funding levels that could be generated. Instead, the funding levels should be viewed as a reasonable indication of the potential of each method
Business Rate Levy
- Annual business rate revenue - based upon Treasury data
- Total gross revenue per annum based on increase in business rate of 1p using standard formula, checked against local authority rating list, and allocated to relevant local authority areas.
Local Authority Business Grant Incentive
- Identification of 'beneficiary' or 'incentive' zone. Taken as broadly 10% of local authority area.
- Estimate of future annual development rates (assuming 15% above past development rates due to benefits of transport scheme). The office, retail and industrial sectors used as the basis for calculation.
- Calculate additional rating tax revenue (UBR) new development will generate, based on assumption that average rent will be 60% of current prime rental levels.
- Total gross revenue per annum based on local authority retaining 50% of additional tax revenue, and using all of this for transport.
Business Improvement District
- Identification of 'beneficiary' or 'incentive' zone. Taken as maximum of 10% of local authority area.
- BID levy taken as 1% of rateable value of all non-domestic property in catchment area. (Based on discussions with ODPM and existing BID partnerships).
- Total gross revenue per annum based on BID zone allocating 75% of funds to transport.
Land Value Taxation/Site Value Rating
Funding Method Assumption A: Incremental Gain Value Increase approach
- Identification of positive impact zone - based on assumption that 10% of property in local authority will see increase in value.
- Estimate current capital value of commercial property in impact zone (based on 2004 rateable values and assumed average yield rate), de-capitalised to produce annual rental value for land. (Values checked against IPD commercial values based upon population levels).
- Estimate potential increase in values due to transport scheme (assumed 10% value uplift based on literature review evidence)
- Total gross turnover per annum based on 25% of uplift in property values that will be retained for transport funding.
- Option B
Greenfield Development Tax
- Identification of past development rates by office, retail and industrial sectors in Aberdeen and Clackmannanshire. Calculation of proportion of development on greenfield sites.
- Estimate capital value of greenfield development.
- Total gross turnover per annum based on (a) assumed tax rate on greenfield development (5% of capital value) and (b) assumed tariff rate (variable across commercial sectors).
Freehold Charge
- Identification of impact zone - assumed as 10% of commercial property in Aberdeen and Clackmannanshire.
- Estimate current capital value of commercial property in impact zone, and potential uplift in value due to a transport scheme (assumed as 10% based upon literature review evidence)
- Total gross turnover per annum - proportion of total increase in property values in impact zone that will be retained for transport funding (assumed 33% of value uplift).
- One-off charge, but discounted over a 10 year period.
Planning Gain
Funding Method Assumption A: Past contribution levels
- Estimate annual future development rates in study area, based on past trends.
- Estimate level of developer contributions that may arise from this development, based upon past contribution levels as proportion of capital values (2% assumed).
- Total gross revenue per annum - assume 50% of above contributions used for transport funding.
Funding Method Assumption B: Tariff based assessment
- Estimate annual future development rates in study area as above.
- Estimate level of developer contributions that may arise from this development, based upon assumed tariff rates per sq m. (Variables rates for different commercial sectors assumed - 25 psm Office; 400 psm Retail; 10 psm Industrial)
- Total gross revenue per annum - assume 50% of above contributions used for transport funding.
Buy-in Charge
Funding Method Assumption A: Density Bonusing
- Identification of impact zone - assumed as 10% of commercial property in Aberdeen and Clackmannanshire.
- Estimate annual future development rates in study area by sector resulting from transport schemes.
- Assume a 20% increase in development density allowed (within set distance of stations/facilities), and hence increase in property development.
- Additional floorspace is 'sold' based upon increase of planning tariff rates of 25%
- Total gross turnover per annum - basic planning gain revenue plus additional 25% increase on development in designated area.
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