Who should pay for everything this new household needs? Why, the developer that built their house, of course. That’s who created the expense — right?
That’s how Chesterfield County officials see things. They make developers pay thousands of dollars per new house on property that must be rezoned for residential use. (When land doesn’t have to be rezoned, this kind of bargaining doesn’t apply.) The hope is to control growth and use the money to pay for residential services such as schools and police, and for new infrastructure such as roads.
The fees, called proffers, are increasingly popular among officials in fast-growing counties because they help close the financial gap caused by spurts in residential growth. The taxes generated by each new resident alone — in property taxes and sales taxes, for example — aren’t enough to cover the cost of services the resident requires. Politically, proffers are more palatable than raising taxes to make up the difference.
Chesterfield is now considering raising its maximum proffer amount from $11,500 per house to $17,525, one of the highest rates in Virginia.
But do proffers work? Some say developers pass those fees on to homeowners, or they wind up cutting corners in the building process, resulting in cheaper housing. Home buyers may not get the features they would expect for the price they pay, such as “upgraded fixtures or plusher carpet, or crown molding,” says Tyler Craddock, director of public and government affairs for the Home Building Association of Richmond.
The end result, critics say, is that proffers do little to stunt growth and they wind up costing buyers of new homes.
Jesse Richardson, an associate professor of urban affairs at Virginia Tech, says proffers are an attempt to pay for dire infrastructure needs while appearing to be tough on growth.
“I think local governments like [proffers] because they can say it’s the evil developer that’s paying,” Richardson says. “But in the real world, the evil developer isn’t evil and doesn’t pay.”
Proffers won’t help anything, says Chesterfield resident and longtime Board of Supervisors watcher George Beadles. “If they raised it to $40,000,” he says, “it still wouldn’t solve the problem, which is that we keep building, and we really don’t have enough money to support it. We don’t have enough schools, we don’t have enough roads, we don’t have enough police and fire.”
Builders readily admit that the proffer money doesn’t come from their pockets, but is paid unwittingly by the people who buy new homes. And it’s not just the proffer amount that’s tacked onto the price of a house.
Suppose a builder requests a rezoning for a 100-house development and agrees to pay a proffer of $17,000 per house. Because the builder must pay the proffer upfront, before the house is sold, it typically asks its lender for 20 percent more to cover expenses, Craddock says. So the buyer of a new home would actually pay $20,400 to cover the proffer.
The winners in the equation are owners of existing homes, Richardson says, because they “are really triple-dipping” when it comes to proffers. One, newcomers pay for services that also benefit longtime county residents. Two, residents are spared higher taxes that otherwise would be needed to pay for additional infrastructure and services. And three, increases in new-house prices increase the assessment value of all homes.
Buyers of new homes don’t usually realize the effect of proffers on home costs, says builder Vernon McClure, “because I think generally us builders have hidden it in the price. What we should do probably is label it.” McClure is president of Main Street Homes, one of the biggest builders in Chesterfield.
Even though they don’t pay proffers themselves, developers vehemently protest the system. Craddock believes a proffer is “strictly a tax on the homebuyers” that’s “raised the cost of housing for everybody.”
Naturally, some aren’t pleased about Chesterfield’s proposed increase. “Raising cash proffers to the [fourth] highest in the state of Virginia is going to push any chance of homes under $250,000 out the window,” says Scott Camp of Base Camp Development Co., another Chesterfield developer.
The problem is that the county considers all new houses to be a drain on its resources, Craddock says. “We certainly believe that over the course of time, residential development is a net plus,” he says, because the county collects the real estate taxes and sales taxes for construction materials.
Urban planners say a strong housing market is an integral part of making communities whole. It also attracts industry and commercial developers that bring jobs and the more lucrative business and machinery taxes.
During the past two decades, however, residential development in Chesterfield has outpaced commercial development by a wide margin, and is straining the county’s tax base. The completion of Route 288 in the fall opened up thousands of acres along the roadway’s corridors that are already zoned for new housing, making matters worse.
Chesterfield County Administrator Lane B. Ramsey says the taxes from new residents may cover the recurring costs of adding necessary personnel, like police officers and teachers. But, he says, the county still has to build more schools and, especially, roads. “That’s the one area that we don’t see the infrastructure can keep up with growth,” Ramsey says.
Yet proffers are hardly the best way to pay for improvements, Ramsey says. They’re unpredictable, for one thing. Because builders don’t have to pay proffers until they apply for a building permit, the county has no way of knowing exactly when they’ll collect the cash.
Since 1990, when the county first adopted proffers, Chesterfield has collected $30 million from developers and spent $18.9 million. Still outstanding, however, is $126.8 million worth of proffers for nearly 16,000 homes that haven’t yet been built. When the money comes rolling in, so will thousands of people who need schools, roads and other services.
There are better ways to balance the cost of residential development, Ramsey says. The county has lobbied the state legislature for years to allow impact fees, for example. These are fees attached to every new residential building permit, instead of just those that require rezonings. If impact fees were allowed, Ramsey says, “We wouldn’t have the unfairness of some lots that have cash proffers and some that don’t.”
But the General Assembly has yet to permit impact fees, so county leaders have been meeting with developers to come up with alternatives. They’ll discuss their options at a public meeting on proffers and growth control Aug. 18, from 2:30 to 5:30 p.m. at the former Hecht’s in Cloverleaf Mall.
The Board of Supervisors is scheduled to decide Oct. 12 whether to adopt the new, $17,525 proffer level.
If the county does, it will set a record in the Richmond area. Industry-rich Henrico County, which has a more balanced tax base, decided against adopting any kind of proffer system in May. Goochland County has a maximum per-house proffer of $14,740. In Hanover County it’s $11,246; Powhatan’s is $7,236; Amelia’s is $5,970. Richmond is eligible to ask developers for proffers, but has chosen not to because residential growth has matured.
Ramsey thinks Chesterfield will remain a desirable place to build. It already has some of the most affordable housing in the region, he says: “I’m a firm believer that the market decides more than anything about where growth will happen.”
But the proffers in neighboring counties look pretty good to developers who are building in Chesterfield. “I think you’ll just see a lot less houses being built in the future,” McClure says. “I think we’ll be moving farther out, to Amelia and Powhatan and those kinds of places.”
Ironically, McClure says, residents there will still be using Chesterfield roads to get to work. And when development takes off in the more remote counties, the proffer debate will begin there anew. S
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