by James A. Bacon

A new business-backed group in Chesterfield County has sprung up to fight the county’s cash proffer system for new houses, arguing that the fees make new houses more expensive, hinder development and hurt jobs. The group has hired Capital Results, a government affairs firm, and launched a website, Citizens Against Proffer Taxes.

As Bacon’s Rebellion readers know, I am a staunch believer in low taxes. But that does not make me a believer in zero taxes. As long as we live in a world in which local governments pay for infrastructure such as schools, roads, libraries, parks and public safety buildings, then we need to find a way to allocate equitably and efficiently the cost of building and maintaining that infrastructure.

According to Louis Llovio with the Times-Dispatch, Chesterfield sets the maximum cash proffer at $18,966 per house, the highest levy in the region. Thomas Winfree, CEO of Village Bank, blames the proffers for major losses to the bank over the past couple of years. The bank has had to foreclose on properties and take losses on loans because developers are unable to complete projects “in part due to proffers.”

I hate to sound unsympathetic, but whose fault is that? It’s not as if Chesterfield had imposed the proffers after the fact, adding a burden that the developer and bank had not anticipated when they decided to move forward with a development. They embarked upon the project knowing full well what the proffers would cost but misjudged market conditions. Things didn’t work out. I’m sorry. I feel bad for you. I wish you’d made a lot of money. If you had, I would not have castigated you as a greedy rich person or advocated raising your income tax rates. But your business losses are your problem, not the taxpayers’ problem.

Rare among local government reporters, Llovio made an astute observation. “Citizens Against Proffer Taxes,” he writes, “does not recommend how the county should replace the lost revenue.”

That gets to the philosophical nub of the issue. The money must come from somewhere. The question is, who pays? Mr. Winfree apparently believes that the taxpayers of Chesterfield County should pay. And where would that money come from? Presumably from property taxes, which are the main source of revenue for local governments in Virginia. Thus, under Mr. Winfree’s logic, people who previously purchased houses whose prices incorporate the costs of proffers now should help pay a second time for the infrastructure that Mr. Winfree doesn’t want his developer clients to pay for.

Here’s the underlying philosophical principle that every local government should hew to: People should pay the location-variable infrastructure costs associated with the purchase of a new house. Failure to do so imposes an obligation upon someone else to pay instead. It also amounts to a subsidy that encourages developers to build houses in locations that are costly to serve.

Yes, proffers might add 5% to 10% to the cost of a new housing unit — a cost that can be amortized over the 30-year life of a mortgage. Proffers might mean that people have to satisfy themselves with marginally smaller, cheaper houses, or houses on marginally smaller, cheaper lots. Is that a cruel, insensitive thing for me to say? Then what do you say to the people who have to pay a higher property tax for a benefit they never receive?

The main problem I have with the proffer system is that it charges a flat fee that applies to every house, no matter how location-efficient its location. Virginians should adopt a practice that is common in Canada of varying the development fee, depending upon how expensive it is to serve. Thus, if a developer builds houses in an area where schools and roads are under-utilized, they should pay a smaller fee. Virginia’s proffer system definitely needs work, but it would be folly — and unjust — to do away with it entirely.

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29 responses to “In Defense of Proffers”

  1. Further, I think that proffers should be cyclically variable. During the building boom, developers would ante up anything. Since the bust, proffers are a headwind for communities. If I were a city manager, I’d roll them away to draw new projects.

  2. reed fawell III Avatar
    reed fawell III

    Excellent article – they key and hard part is tying the proffer into the cost directly attributable to the home (or whatever). Far too often anti-business types use proffers for their own personal wish lists or as ways to soak “rich greedy developers” who build the houses they very angry folks live in.

  3. What is being done is a good example of “astroturfing.” It is interesting that the Director of the Home Builders Association of Virginia, who is adamantly opposed to proffers, is on the Village Bank Board of Directors. Several other members of the board read like a “Who’s Who” of the development community in the Richmond area. Note that there is very little difference in the price of similar homes in Henrico County, which does not have cash proffers, and Chesterfield County. The large Magnolia Green development in Chesterfield paid absolutely NO cash proffers. Yet, one could find no housing for first or even second time home buyers offered for sale in the development. Indeed, when Magnolia Green got caught in the home market crash, an attempt to build homes in the development at a lesser cost was greeted with an uproar by the few residents in the subdivision. Finally, when you ask home builders why they don’t build more homes in a price range that is more affordable for first or second time home buyers, they say the “market” wants things like granite counter tops, upgraded cabinets, etc. and they want to cater to the market. Bosun

    1. phantomtwo Avatar

      ??? Interesting…why did the Magnolia Green folks NOT pay proffers…??
      What I love is the president of HOME a fair housing advocacy group being quoted as saying..”the changes will help reduce the cost of housing ….a crucial factor in the quality of life..” She has been in her job since December…lives in Richmond…and is now an instant expert on the “quality of life ” in Chesterfield County!!

  4. larryg Avatar

    localities are uniformly terrible at fiscal planning for roads and schools and they normally get away with it – as long as the growth rate stays low at around 1 or 2% then taxes can gradually creep up to catch up.

    but things come unglued when the growth rate accelerates.

    but there is one area where localities do pretty good (with the help of State laws and bond credit agencies) and that is planning for water/sewer.

    since the capital needs of water and sewer cannot be funded with general taxes but rather those who received the service, the bond agencies get persnickety when localities borrow money to expand water/sewer but neglect to adjust the rates to generate sufficient pay back revenues.

    that, in turn means, that the hook-up fees have to be sufficiently higher especially in higher growth scenarios to pay back the bonds. You won’t find any developers trying to outlaw water/sewer fees because in large part it’s easy to show the finances and the simple fact that those who get the hook-ups are the ones that should pay.

    Things get murkier with schools and even more so with roads.

    And the localities themselves are to blame because they do a crappy job of tying the need for the road to the need for a proffer and more than a couple have been found to be spending proffer money for things other than what they were collected for.

    While Va and Wall Street rules have no problem with the scope and size and geographic extent of a water/sewer district, Virginia takes a dim view of doing that for roads and schools and while they allow transportation districts with supplemental taxes to pay for new infrastructure – it is limited basically to the immediate area of the development except in certain cases that the GA made exceptions and which the localities that had that option have rejected it.

    so…. developers don’t like it …they stop it at the GA level (as they are pursuing with proffers)… then they “convince” a localities to give them a rezone without commitments to infrastructure and what happens is higher taxes to pay for things the law requires – schools – and degradation of other things that the state does not require funding of – roads.

    I do not blame the developers. They are doing what they should do to advocate for their business interests … but the localities are often feckless in their responsibilities to taxpayers and when push comes to shove – they’ll accede to the developers and let the taxpayer pick up the tab.

  5. reed fawell III Avatar
    reed fawell III

    This is an excellent discussion.

    Bosun is pointing out how rigidities built into housing track subdivisions can rise to surface when the market goes sour mid-construction. How everyone – owners, buyers, sellers and builders – can then get locked into bad results. And how the subdivisions rigid nature thwarts workable fixes.

    Larry meantime is pointing out some of vagaries built into the track subdivision model that too often pop to the surface during boom times. And the whole region suffers from earlier hidden flaws in the system.

    The model’s rigidities and flaws are many. Some of course can last a lifetime. Things like locking zoning up into big inefficient blocks of single priced uses that resist the change necessary to meet changing times. How great swathes of our land then become captive to every more obsolete uses, whether by reason of economic growth or decline, demographic change and/or cultural preferences, or most likely some mixture of all the forgoing.

    After all, the only constant in this country change and we’re changing faster yet now, so the track subdivision may see big and chronic trouble ahead.

    For example if there is long or mid term contraction (rather than halt) of outward suburban growth around our cities in our future, then the rigidity built into housing subdivisions will likely show itself with a vengeance. As the tide rolls out, many communities will likely suffer. Some could be left high and try. And this will not be the first time. Recall the great Exodus of homeowners from our cities after WW11. Fancy high priced auto served houses on 16th Street went from DC’s more prestigious addresses to vacant and falling apart in little over a generation. This time the tide might well be traveling in reverse.

  6. Breckinridge Avatar

    Local government taxation is a fruit salad of unfairness and illogic, so why should proffers be any different? I’d prefer it was imposed as a tax on the buyer, like a point on the mortgage, so at least it would be deductible. The reality is the buyer ultimately pays it, but as has been noted, housing prices across the region are roughly the same. Hence the Chesterfield builders would have a harder time passing on the cost of the highest proffers in the region. That at least the locality should recognize.

    It has been a while since I followed this issue. My concern then, and with the level the proffer has reached in Chesterfield my concern is now a suspicion, is the county is charging more than the fair share of infrastructure costs. I think somebody above noted this, too.

    The single biggest concern of local politicians is keeping that headline real estate tax low, and they will move heaven and earth to shift the cost to somewhere the average taxpayer cannot see the cost. The cost of a proffer is buried deep in the accounting fine print on a new house sale. At the end of the day, uniform and transparent taxes applied across the board is my preference. If the school in my neighborhood is of value to me, so is the school at the other end of the county. The counties and cities can be commonwealths too.

    1. Valid point: Counties should not charge more for proffers than they need to cover their infrastructure costs. The question is: How do we know one way or the other? We don’t. Counties probably don’t either. They’re flying by the seat of their pants.

      1. A number of counties, including Prince William and Loudoun, do detailed studies that show the actual costs for constructing school capacity and adjust them up or down regularly. I believe they also grant some credit for the additional real estate tax revenue generated by the new construction.

  7. I suspect the organizing parties are unable to recover all of the costs for the proffers in their prices for new homes. There is a study from California in the early to mid-90s that showed builders could not always recover the costs of impact fees in home prices, especially in prices for low-end homes. I’ve seen other studies suggesting costs are: 1) only partially passed along in housing prices; 2) causing reduced prices for raw land; and 3) reducing builder profit margins. Is that a terrible result?

    A developer could always build what is allowed by right to avoid proffers. But few want that. Proffers don’t come up unless a developer/builder is seeking added density. So why shouldn’t it pay for the costs to support the added density? A builder could proffer to construct facilities, rather than pay for them. A number of Tysons landowners are doing this for certain infrastructure.

    The state supreme court has held that, if there is another reason to deny rezoning beyond a refusal to agree to proffers, a local government can do this should a builder/developer refuse to proffer money or in-kind facilities to address the added burdens placed on public facilities.

  8. reed fawell III Avatar
    reed fawell III

    Proffers should in all cases be limited to the reimbursement of the direct cost that the developers project will otherwise impose on the public.

    The violation of this rule opens up a Pandora’s Box of Horribles. Such violation if accepted practice is a sure dead end road leading to abject failure. Those who will suffer the most will be the innocent bystander citizen.

    1. reed fawell III Avatar
      reed fawell III

      Thus, for example, northern Virginia developers should build projects that decrease traffic. They should not be allowed to increase traffic in return for buying a wish list concocted for someone else to enjoy. Nothing is free.

    2. I don’t disagree. At least for Tysons, proffers have been tightly targeted to relieve those any only those costs imposed by the development. For example, additions to, or renovations of, parks and open space needed to serve additional residents and workers. As far as I’ve seen, the money and in-kind contributions are going to Tysons areas impacted by Tysons (e.g., schools that would educate Tysons children, but may be located outside Tysons, such as Marshall High School). Also, one landowner might provide more than is required for a facility type, but would receive relief on some other facilities. For example, a landowner building a fire station would not be required to build a library as well. CapOne is building a community center, while another developer is handling costs for athletic fields that would otherwise be assigned to CapOne.

      But growth at Tysons will increase traffic congestion. All the traffic studies show this. It’s also the reason major road improvements are tied to growth in Tysons.

      1. reed fawell III Avatar
        reed fawell III

        I sense its likely those Tysons Corner proffers do not work but rather prove my point. Think about it this way:

        R/B Corridor had 5 million sq. feet office, most in Rosyln in 1980. Today its got 25,000,000 ft of office. But traffic is same. Why? Because it drove traffic down with dense residential. (see last comment to Fiscal Fix.)

        Today Tyson’s can REDUCE its traffic (and many other peoples traffic) far more than Arlington did building its downtown, by Tysons taking all its office commuters off Interstate 495 simply by giving its workers the space to live and work in Tysons. That way they can walk to work every day instead of putting everybody’s I-495 and Toll Road in gridlock every day. And free of Tyson’s Corner from its own gridlock everyday too.

        The beneficial results of this use change in Tysons will be huge.

        But tyson’s doesn’t want to do it apparently. Likely that is why it paid those big proffers — so as not to reduce traffic right way but rather to increase it the wrong way by building as many new office buildings as it can ultimately get away with and end up with.

        I haven’t the details to be sure about this, but that is my sense of it.

        1. I’m not sure what you mean by Tysons “reducing its traffic.” Clearly, the availability of more transit, ped & bike-friendly improvements & high-quality mixed use development will allow for more residents and workers without a concomitant increase in car trips. Building residential density in the immediate TOD areas will give more people the ability to live and work at Tysons. And the County’s 20% affordable/workforce housing requirement is beneficial as well. So too is the Georgelas Group’s decision to make workforce housing identical to market-rate housing.

          But housing at Tysons will be expensive, whether it’s condos or apartments. I’ve seen some plans that contemplate townhouses, but they too look to be pricey. And multi-family housing doesn’t appeal to everyone.

          Finally, the Plan presumes not only a major increase in residents – 17 K to c. 100K – but also an increase in workers to c. 200K. Not all of them will take transit, bike or walk. That’s one of the main reasons, Tysons needs so many road improvements. So too is the need for landowners to be competitive with the competition. The free parking available at many other NoVA locations puts pressure on Tysons. Tysons will always have crushing traffic, even as it offers alternatives.

          1. re: ” but also an increase in workers to c. 200K. Not all of them will take transit, bike or walk. That’s one of the main reasons, Tysons needs so many road improvements.”

            and these folks will not only need roads in and around Tysons but roads to commute on to Tysons.

            Isn’t that a valid criticism of how Fairfax develops and externalizes impacts?

          2. reed fawell III Avatar
            reed fawell III

            TMT says: “and these folks will not only need roads in and around Tysons but roads to commute on to Tysons.

            Larry replies: “Isn’t that a valid criticism of how Fairfax develops and externalizes impacts?”

            Of course Larry is correct. And I suggest Tyson’s Corner is the poster child for how often proffers twist the market to achieve bad results. Developers do not give away money for public good. They pay money to get results that make them more money. Here in the Tyson’s Corner example, they paid money in proffers to buy the right to build far more office space than multi-family space near the Metro than otherwise possible. Unenforceable caps was the fig leaf to cover up that very bad planning. Like so many bad decisions that have gone before, the result will haunt our region for generations.

            This cynical policy will gridlock the interstate beltway north of Tyson’s Corner for some to 10 to 15 miles north into Maryland for the next 50 years. An interstate has in effect been shut down to interstate traffic in both directions by the use of proffers. So developers used proffers as a tool to buy the interstate I 495. This allows them to build yet more office buildings in Tysons without building anywhere near enough residential nearby to make their new development traffic neutral. Thus, perversely, proffers can be use by developers and public officials to promote bad planning that results in highly adverse negative affects throughout a region.

            I suspect one reason for this awful result may be that Fairfax has no other way to get the money for mass transit, other then by “cutting a deal with the devil.” Thus the legislators in Richmond have a hand in the game. Too bad that the 2 billion that might be spent on the North South Connector could not have been spent on Tyson’s and other northern Virginia close in mass transit projects. This money then could be used to gain the leverage to insure responsible development in Tyson’s Corner. Instead the proffer systems reversed the leverage, giving it to private developers. S0 proffers gave the developers the advantage, not the reverse.

      2. larryg Avatar

        to a certain extent – the type and density of development in a given location starts with water and sewer which means before you start putting stuff up, you have to know what size pipes to bury and of course, you gotta have the money to put those pipes in plus the additional storage tanks and insure the interceptors that they flow to are sized big enough to receive the additional load.

        At that point, you’re starting to get some idea of the RANGE of infrastructure and facility needs of the area as per the Comp Plan.

        the question is where will the money come from to buy it.

        with water and sewer, there is a known and mandatory fee schedule for hookups ranging from commercial to residential and no one gets them for free except the govt facilities.

        There is no discussion of what is “fair” or “reasonable given the current economy”. It’s a simple discussion about what what it will cost to have water/sewer “available” to that future structure.

        Unfortunately, we do not and have not traditionally planned our roads like we plan water/sewer infrastructure or to put it in a different perspective, if we did water/sewer like we did roads – we’d be worrying about capacity and digging up the utilities every time a new development came in.

        Schools, libraries, fire/rescue are easily logistically to add but the money issue is still there.

        how many folks would be okay with existing taxpayers paying for the water/sewer of a new development?

        no many I suspect. Yet that’s the premise for the other needed infrastructure sometimes.

        I do not blame developers. They are meeting a demand and like the rest of us will evade costs that they can evade.

        so ….why do the water/sewer folks not let the developers evade those costs?

  9. larryg Avatar

    re: adjusting proffers for the economy

    which is just as bizarre and arbitrary as many other reasons for raising or lowering them. – probably worse – because infrastructure costs don’t vary (hugely) with the economy.

    if you want to expand water/sewer – it’s going to cost money. the best the locality can do – or should do – is let the county credit rating assist in the borrowing but no one in their right mind would say that the other county taxpayers should buy the new/additional water/sewer infrastructure.

    but then this seems to be the exact logic when we talk about schools and roads for new growth…..

    new homes require new water, sewer, schools, roads, fire/rescue, libraries, etc.

    we can’t wish those costs away by saying the economy is hurting….

    aren’t we essentially saying that if the economy is weak and we are going to grow that we’ll put the tax on the existing citizens instead?

    I just don’t see the logic behind varying the proffers – it’s almost alice-in-wonderland logic.

    Now I DO believe that HOW proffers are computed – from county to county in a highly variable and arbitrary way is JUST as alice-in-wonderland and to be honest, I don’t see an easy way to fix this without the State getting involved and requiring a more standardized approach – but if the State gets involved, that virtually guarantees the developer lobby critters will play a huge role in it and probably not to the benefit of the counties.

  10. “A number of counties, including Prince William and Loudoun, do detailed studies that show the actual costs for constructing school capacity and adjust them up or down regularly. I believe they also grant some credit for the additional real estate tax revenue generated by the new construction.” State law requires all counties to do the studies mentioned by TMT and to grant credits for things like the infrastructure the developer builds, dedicated land, affordable housing, etc.
    Loudoun did a presentation in the fall about its proffer policy. With a max proffer of $60K for SF detached, the county is pointed to by developers as the ‘poster child’ for proffer abuse. The details show something different. Their proffers are applied only to units above base zoning density and credits mentioned above are given, so few, if any, developments pay the max proffer. They also noted that in a county where population growth 2000-2010 was 84% [compared to state average of 13%], proffer income makes up only 3% of CIP; which is about average for other proffer counties. Bosun

  11. DJRippert Avatar

    The only argument against proffers is that they overly-penalize new home buyers without fairly taxing owners of existing homes. If we recognize that property taxes are insufficient for total infrastructure costs then it would seem more fair to charge new occupants of an existing house an “occupancy fee” in addition to charging developers proffers. In a densely populated county like Fairfax the occupancy fee would be refunded if the new owners could demonstrate that they had spent an equivalent amount in renovations to the house over the first three years of occupancy. This would encourage people to renovate older homes rather than building new ones.

    1. what share of “new” infrastructure necessitated to meet the need of new residents should be paid for by existing residents?

      what share of water/sewer hookups should existing residents pay for new residents that need water/sewer?

  12. reed fawell III Avatar
    reed fawell III

    Maybe too we can go back to funding roads the old fashioned way.

  13. again.. in 46 other states – a county like Fairfax would be financially responsible for all roads not interstate and not US or State signed.

    that would make a whale of a difference in how development proposals were analyzed and agreed to.

    and again – people and planners and others forget that interstates and US and State signed roads were built to connect places – not provide development venues.

    When you look at US 29 or US 50 in Fairfax or US 1 in Arlington – remember why these roads were built originally with US funds.

    they were not built to provide excellent commercial opportunities for KFC or Billy’s Gun Shop. They were built so that people in Lynchburg could to to Philadelphia in a day or so without having to stop for 55 KFCs.

    so those roads were one by one, city and town by city and town – co-opted for development and yes …co-opted for “smart growth”.

    the localities essentially took something away from other taxpayers that had been built to connect the country and used it to benefit their own locality.

  14. reed fawell III Avatar
    reed fawell III

    Exactly, and those who got the huge benefit paid not a dime. Public theft.

    1. reed fawell III Avatar
      reed fawell III

      You’re right, Larry. Generally speaking, that is too harsh. But it’s continued now more that 60 years. And become common accepted practice. Harsh words are needed to wake us all up to what we are doing. Just like had to happen with the fact that cigarettes kill people. Same thing is going on here.

      1. well “harsh” is usually counter-productive in terms of convincing others but sometimes just telling the truth or facing the reality is not much better but that is problem for all of us these days in my view.

        we all have our biases – and amazingly we all like to CONFIRM our biases and in the age of the internet, it is so easy to just search for the things that satisfy your own views!

        that’s why I advocate seeking the truth and I attribute no special virtual to that phrase on my part or anyone elses – it only means to strive to look at both or all aspects of something to better understand the how and why of now – and history of how we got to “now”.

        I tend to believe if you get the history right – not just the parts that appeal to us – but the rest of it, even the stuff that we don’t like or disagree with – you develop a better understanding of what we have now and why.

        That’s why I’ve gone into the history of roads with respect to ones that are “signed” US and State – and the how and why they are that way.

        Highways & Roads are ultra important because they are literally the arteries and veins of the country physically, eat up a lot of money, and are perennially the subject of disputes and disagreements.

        so here is (what I believe) is a useful reference:

        United States Numbered Highways

        and of course, my favorite part: History

        1. reed fawell III Avatar
          reed fawell III

          Then BEWARE OF BIG DATA!

  15. well… I’m not that harsh. If you think about it .. many towns had some kind of road before the US and states came along and “connected” them with “signed” (designated) US/State routes that they chose to, in many cases, connect to the existing roads through the downtown.

    so it was not just “evil” cities co-opted a totally state/federal built road and the Feds/State certainly did not foresee what would would eventually happen to those roads and in many cases, they did built “bypasses”.

    On the other hand – the localities did not want those roads to ‘go around’ their communities initially either because they saw economic benefit to having travellers stop for services.

    In fact, many DOTs have traditionally and even currently cite one of the purposes of roads as economic development…

    there is no question, however, that when the Feds (and some states) changed the game and started designing “limited-access” roads that their goal was to preserve and protect the road for transportation purposes – first – ergo no curb-cuts and no at-grade intersections, etc. , just a road – no commercial or residential abuting it.

    what they did not anticipate was that such roads themselves – at the interchanges – became generators of growth (as opposed to growth occurring independently offsite without needing/using the interchanges).

    FHWA to this day has exceptionally strict requirements for new interchanges and things like on and off ramps – and C/D lanes when the interchange starts to have so much traffic that it causes “weaving” .

    The State is now in the process of “backfitting” access-management on State /Fed signed roads – where they can and often when improvements are scheduled.

    they will:

    1. get rid of median crossovers
    2. extend and even double left turn lanes
    3. prioritize the mainline through traffic especially at peak hour
    4. force local businesses to allow intra-parcel connections to get rid
    of multiple curb-cuts…

    the access-management is actually at odds with localities who want the road prioritized to serve the needs of the locality – not the need of the through traveler.

    that’s in part some of the conflict in Charlottesville.

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