New proffer law creates uncertainties for developers, localities
A new law recently enacted by the Virginia General Assembly, which goes into effect July 1, 2016, will dramatically change the way cities and counties address re-zonings for residential projects.
The law, known as Senate Bill 549, was signed by Governor McAuliffe in March. It restricts both the subject matter and manner in which localities may accept proffers in residential zoning actions. The new law is causing local governing bodies, such as the Albemarle County Board of Supervisors to revamp their policies on proffers – policies that had become fairly objective, even lending some predictability for investors and developers in recent years.
What are proffers? Proffers are essentially conditions that apply in a rezoning that are intended to mitigate a new project’s impacts to public infrastructure or facilities. For example, if a new development were projected to increase traffic at a particular intersection, a new traffic signal or lane widening could typically be expected from the developer of that project. Other frequent examples include improvements to schools and fire stations. Under current law, proffers have been used to help improve local transit, even to promote affordable housing. Proffers can be in the form of direct cash contributions, or physical improvements installed by the developer itself.
A creature created by the General Assembly, the proffer has become an essential planning tool for both localities and developers over the past 35 to 40 years. In Virginia, proffers always possessed a bit of a legal fiction in that the proffer must be proposed by a developer “voluntarily.” This concept of voluntariness distinguishes proffers from zoning conditions, encountered in actions involving a special use permit, which the locality may impose as part of the approval of a special use permit. Notwithstanding this legal fiction, it had become commonplace for developers and the County or City planners to engage in informal discussions about improvements or contributions prompted by a particular project request. Such improvements or contributions became ‘fair game’ for proffers. This practice eventually lead to the development of policies on proffers, intended in part to take the guess-work out of the voluntary aspect of the proffer process and to enable localities to treat similar projects in a similar fashion, thus reducing the likelihood of a challenge on equal protection grounds.
The Cash Proffer Policy. The development of clear and more objective policies on proffers lead to the cash proffer policy employed by many localities, including Albemarle, that have experienced rapid growth. The cash proffer policy in essence attempts to assign some proportionate cost of public infrastructure to new residential projects on a per unit (house, townhouse, etc.) basis. For example, a developer would be expected to contribute cash to the locality of $10,000 for each lot in a new subdivision as a ‘voluntary’ inducement to the locality to approve the re-zoning for such a subdivision. The cash proffer policy recognized the incremental effect of new residential growth, without the need to identify a specific impact that could be difficult to assess at a particular point in time. This approach had been generally accepted by the development community until the introduction of Senate Bill 549 in response to perceived, exorbitantly high cash proffer demands, particularly in Northern Virginia. The cash proffer in Loudoun County for example had risen to just under $60,000 for a single family home.
The Uniform Cash Proffer is Out. Under the new law, a proffered offsite improvement, and any cash proffered to be used for offsite improvements must address the specific need for that improvement, in excess of the capacity of the improvement at the time of the re-zoning request. So, rather than using a rough proportional estimate of costs to public infrastructure generally, in order for a proffer to be valid, there would have to be a showing of the need for additional capacity at the time of a re-zoning and a direct tie between the proposed project and the amount of capacity needed. This attribution requirement makes it virtually impossible for localities to rely on a blanket, one size fits all cash proffer policy.
The new law requirement that the proffered improvement be specifically attributable to the proposed development will require each project to be analyzed for its own unique impacts to public facilities. This standard of ‘specifically attributable’ suggests a level of certainty that just doesn’t exist in the world of public infrastructure and economic planning.
The new law also makes it more restrictive for localities to engage in the informal discussions on proffers with developers that had become customary. Now, a re-zoning denial could be challenged if a County planner even suggests a proffer and the developer can show that a reason for the denial was based upon the developer declining that suggestion.
Under the new law, cities and counties can no longer expect cash contributions to help subsidize affordable housing in the locality.
Uncertainties for All. Needless to say, the new law is causing cities and counties throughout Virginia to go back to the drawing board to address this dramatic change to doing business in land use regulation. Some of the actions by cities and counties that we may witness around the Commonwealth include:
Uncertainties and Unintended Consequences. Clearly the new law was intended to curb what had been perceived as undue burdens on new homeowners, to whom the cash proffer expense was being passed along as a cost of the new home. But what developers are sure to encounter is a process that is less certain than what had been in the past. We shall see whether the costs attributable to this uncertainty will overshadow the savings from repealing fixed cash proffer requirements.
ABOUT THE AUTHOR
Steven W. Blaine is the founding partner of the Charlottesville office of LeClairRyan where he focuses his practice on real estate finance and land use law. He has over 30 years experience in representing clients in commercial real estate ventures, including hotels, shopping centers, office buildings, research and industrial parks. [detailed bio]