by James A. Bacon
A few days ago I published a post about the effort of a Chesterfield County business group to rid the county of proffers. It was a bad idea, I suggested. As long as government is responsible for road, water, sewer, fire and rescue, etc., someone has to pay for it. Property owners, I argued, should pay proffers in proportion to the obligation they impose upon the county for the new infrastructure. (See “In Defense of Proffers.”)
That was then. This is now. Yesterday, I had a long chat with Peter Katz, a New Urbanism author and planner whom I had profiled in “The Fiscal Fix.” Currently living in the D.C. area, he was in Richmond to buy a new bicycle. We caught up at a restaurant where, sitting on the front patio, we looked upon a most un-New Urbanism setting of an expansive parking lot.
With some hyperbole, Katz refers to as “evil” the proffers, impact fees, community amenity charges and other payments that local governments exact on the recognition that suburban growth does not pay its way. He enumerated a number of reasons why they are counterproductive.
- Proffers may pay the up-front costs of building new infrastructure but they don’t pay the full life-cycle costs. Local government still must tap general tax revenue for maintenance and replacement.
- The “rational nexus” legal doctrine maintains that impact-fee revenues must be spent on infrastructure projects related to the development project paying the proffers. Local officials may have other ways to spend the money to greater effect, such as supporting mass transit, but their hands are tied.
- Proffers have unintended consequences. To avoid paying proffers, developers sometimes hop, skip and jump to a locality that doesn’t charge them. Typically, such counties are farther from the urban core. People drive to job centers close to the core, stressing even more lane-miles of road than they would have otherwise and contributing nothing to upgrading them.
One possible alternative, Katz suggests, is a system used in some parts of Canada — “development charges.” These differ from proffers and impact fees in important ways. First, the charges cover full life-cycle costs. Second, the charges are determined with the benefit of intense input from a wide range of stakeholders. Third, they apply to everyone across the board; no one gets a sweetheart deal. Fourth, the charges are structured with the recognition that some locations require more infrastructure investment than others. In-fill development in a district already served by roads, water/sewer and public safety services, for example, would engender smaller charges in a district where the infrastructure had to be built from scratch.
On the other hand, Katz is also partial to the idea of simply paying for infrastructure with ordinary property tax revenues. The key is to approve only projects that fiscal analysis shows in advance will collect enough taxes to cover the life cycle costs and build up enough reserves to pay for new infrastructure when it’s required in 30 years or so down the road. As a practical matter, that means approving only projects with a small infrastructure imprint — with greater density.
I lean toward the old-fashioned property-tax approach for another reason. Local governments can either create economic value with well-chosen transportation investments or destroy value with ill-designed projects. The ability to soak developers for proffers and impact fees saves them the trouble of thinking very hard about whether they are creating value or destroying it, expanding the tax base or diminishing it.
Note: I have modified this post to better reflect Peter Katz’ thinking.
