Tuesday, May 27, 2008

Cash Proffers up Before Board, Again!

Well we seem to re-entering what I like to call the local government "twilight zone". It seems that the issue of impact fees and the Cash Proffer Policy continually come up year after year and come before the Board of Supervisors.

I recall the very same premise as to why we should not have these proffers raised on developers repeat year after year as if the more times the Home Building Association states them before the Board the more accurate they become.

In fact, this time the Association actually took out a half page ad in the Chesterfield Observer to promote its agenda to see proffers be maintained at current levels. Truth be told they would prefer not to have to pay them all together.

We must come to grips with the fact that on the one hand we cannot complain about Washington and insist on lobby reform and then not recognize the simply fact that the Home Building Association is doing nothing more than the bidding for developers before our Board of Supervisors. They are play economically based fear tactics upon citizens by claiming that such increases will result in:

Rising Home Prices as the proffer will be passed onto the consumer resulting in increased prices

Rising Tax Asssessments as the cost of the new home will increase, so shall the listing price and inevitably the assessment will be higher for property taxes.

Mind you we are already seeing home prices decline with the present inventory of New Homes, so it begs the question if the prices are already declining and the assessments are stabilizing what would the real cost to home buyers be if an addtional 8K was added to the proffer?

Would not the homes going forward be priced less than New Home starts in 2006/07? If the developers hope to sell these homes, they will certainly have some serious costs analysis done to determine the right home designs to be undertaken in the current market regardless of the cash proffer requirement.

Do we or do we not already have an excess inventory of new homes?

It would seem to me that if the current Board, made up of four new Supervisors, plans on actually delivering on the changes that they promised last Fall the proffer policy should be the beginning of implementing this change in local governance.

If I recall correctly, both Daniel Gecker and Marlene Durfee, ran a campaign targeting Republican incumbants pro-developer policies claiming that developers were not paying their fair share. Though one Republican incumbant retired in the Matoaca District, Durfee ran a campaign against three others based largely on the issue of growth policy and Gecker defeated Donald Sowder (R) in Midlothian in large part based on countless mailers describing the relationship between developers and Sowders positions on the issues.

Where then will these two Supervisors come down on Cash Proffers this time?

I have spoken with dozens of folks here in Midlothian and while our patience is beginning to run thin with the lack of definitive action on impact fees, Upper Swift Creek Plan, Roseland case, and Comprehensive Planning we now get an opportunity with cash proffers to see just how really serious these new Supervisors are about the change they proposed last Fall.

If they fail do raise the level, which is being raised virtually across the State by other localities, we will provided some real insight into the reality the Board will truly be bringing us and its intent for our future.

Added: Tuesday 11:00 PM

After countless emails and a few phone call you would have thought I would have opened pandoras box on this post. I find it striking just how limited some folks field of vision is on this issue and frankly how ill-informed many are with regard to the differecnes between impact fees and proffers as they are implemented across the State.

To be sure not all Virginia Counties use a proffer system, Henrico County I believe does not for one, but then Henrico has determined to generate much of its revenues from commercial development when compared to Chesterfield which has certainly permitted it to have lower property tax rates and since Henrico receives no money from the State for its roads much of that of course goes to roads and services. We can talk about budget differences at a later time.Now, there may be an arguement to be made as to how Henrico without a proffer system can accomplish what Chesterflied cannot, but I think the greater focus is why it is the homes are virtually set at the same median price point regardless of fees.

You see one thing the developers and the Home Building Association would have you think is without the proffers in place that the home starts prices would be lower if we had an impact fee structure. That is of course assuming that developers would lower the cost of each unit themselves. That is quite a leap of faith. In a free market structure, developers will price housing at such a point where they are confident they can sell it or at what the market will bear in terms of price. Hence, free market economy.

Case in point: Centex and other national builders sell some of the same model homes throughout the State but in different markets. Each County or market has differing fee structures or none in place so it begs the question how is it the developers come by way of the pricing structure for the homes they place in each market given they are the same model. Simple. Its less the proffers as much as it is the underlying land prices and zoning process costs for the development in the first place. Acreage and lot prices are drastically different from market to market or even County to County. Thats why the same model being built in Henrico costs more than Chesterfield even with a proffer in place in Chesterfield. Chesterfield County for years represented a high growth constituency with high adjusted gross income models but with reasonable land value pricing for developers. Compare say to Loudon County or Fairfax.

Another aspect that developers will argue is that the proffer burdens home buyers with added surtax of 15,600 built into the home price because of the proffer which in turn will cause a homeowners tax assessments to rise even though this amount is not truly reflective of the value of the actual structure in place. This may be true but what would happen if the proffers were low or did not keep up with the costs of services or any other inflationary condition?

Well then every tax payer in Chesterfield would pay. You see if a developer pays a proffer for a development and spreads that fee across the units being built then the proffer figure was calculated based on the amount or costs of services that those units would place upon such things as police, fire, school, water, sewer, and yes roads and infrastructure. So the builder passes this along to the buyer because afterall the buyer will be the one requiring the above services. What is being said is that it will cost the County 15,600 to offset services directed for that unit or to create the capability to service that unit once it comes on line.

What if we lost the ability to charge a proffer or the amount of 15,600 was not enough? Well, the difference would be made up by all of us. Our taxes would have to be diverted from other uses and be directed at infrastructure services to offset the shortfalls created by not having to proffer or not having the proffer keep up with the actual costs of creating services.

Developers will have us believe that the proffer contributes to higher home prices when in fact it is the actions of consumers that contribute to high home prices. You do not see these developers building sub-200K home starts now do you? They are building homes to meet the demands of the consumer regardless of the proffer in place. You can bet that if the economy continues to grow very slowly over the next five years you will see the New Home pricing being reduced by these developers as it shift to meet the demands of the market.

Developers see proffers as a business burden. They feel as though proffers are nothing more than governmental interference in free markets but in the end they are still afforded the opportunity to deliver a product (the supplier) to the marketplace (the demand) at a point in which they determine through cost benefit analysis. The proffer system has not contributed to the excess inventory on the market today and no case can be made that it has. The developers are responsible for the product and the number in inventory and not local government nor the consumer.

Chesterfield in 2007 collected 5,323,634 in proffers. Of that figure:
62.7 went to Schools
13.7 to Roads
10.1 Parks and Rec
6.9 Fire/Rescue
6.6 Library

And by the way some of these developers, at least the national publicly traded ones are experiencing the following proffers elsewhere:

Prince William County 37K
Loudon County 47K
Spotsylvania46K

In comparison 15,600 seems relatively manageable to me folks.

12 comments:

Anonymous said...

If they fail do raise the level, which is being raised virtually across the State by other localities....

Oh, and which localities are those? I seem to recall that the Speaker of the House has actually asked local governments across VA to hold off on any proffer increases until the General Assembly can deal with Sen. Watkins' bill to replace cash proffers with an impact fee system.

Anonymous said...

You mean the Watkins Bill that the Supervisors of Chesterfield voiced opposition to as soon it it was proposed regarding impact fees.

The Counties by charter have the right to determine cash proffer levels independent of the State opinion until the State passes such measure.

The current BOCS is not in support of impact fees structure to begin with and the voting record bears that out.
Chesterfield has chosen the Cash Proffer System and has voted not to place impact fees on properties zoned prior to the 1989 introduction of proffers. They have vowed not to undoly penalize those 9K residents in Chesterfield that such a fee would be placed upon.

Anonymous said...

You are referring to SB 768 that indeed passed the Va Senate on 2/28/08 by a 21/19 vote but was killed thus far in committee in the House until 2009 in Rules.
I doubt the House will pass the bill.
If you believe that the bill will lesson the burden on citizens than you are vaery naive. You are assuming that developers will lower the cost of homes on the market if they do not have to pay the proffer of 15,600 and only a nominal 5k impact fee. The bill is being puished by developers (John Watkins is afterall a developer) for developers.
The Virginia Assoc. of Counties opposes the bill in its current form.

Anonymous said...

It seems that the HBA is argueing against proffers not just the increase.

It is apparent they are attempting to use this as a referendum on proffers themselves and not just the increase.

If the Supervisors do not support an increase it will prove the words last year were meaningless.

It seems as though they believe that citizens have a short memory and in the past that may have been true but now with the internet, blogs and streaming video of meetings I think those days may be over.

Prediction is Art Warren most likely will vote for the increase as well as Durfee, but Gecker and Jaeckle will not support an increase. Holland am not sure about. If durfee does not she will have "Some splaining to do" for sure to her base of support that got her elected.

Bob Olsen said...

The Developer Smoke Screen

The Chesterfield Board of Supervisors is scheduled to consider changes to the proffers for home construction.
As expected the development community is complaining that this will only put affordable housing further out of reach.

Yes,I believe there should be a proffer system based on more than one size fits all.
The point, at which the developer argument fails, is the fact that developers and builders have not built affordable homes for years in Chesterfield to any great degree.
For one reason, and one reason only, it’s not profitable to builders to build Affordable Housing.
Affordable housing, can be defined, as being such that a county employee can afford to live in the county where they work, with out having two incomes.
When builders begin to comply, then we can begin to listen. Otherwise it’s just smoke.

Jim said...

To expound on Bob's point, if a County school teacher and a County Police Officer were married they would have a combined income of around 75 to 80K.

Would this couple be able to qualify for a home say in Magnolia Green, Branner Station, Roseland (Hallesley), Charter Colony, Founders Bridge etc all new or relatively new or soon to be here developments? I think not.

Look at those sites and you will find homes north of 400K and some as high as 700K.

The "Affordable Housing" arguement is baseless because the only people building less expensive homes are individuals. Unless of course you buy the idea that Townhouses and condos count as affordable housing.

Anonymous said...

The argument regarding affordable housing is simple guys -
Chesterfield heretofore has not had any mixed-use zoning (with the exception of Chester Village Green). That means that every house has been built on an increasingly larger lot, because Chesterfield has consistently eliminated zoning categories that allowed for projects like Brandermill and Woodlake in favor of larger minimum lot sizes. It used to be that an affordable (IE starter) house could be built on an R-7 lot (7,000 s.f., 0.16 acre)but the county eleminated the zoning category because people didn't want to be near "starter homes". Then it was R-9 lots (0.20 acres), again, eliminated by the county). Now a 12,000 lot is the county minimum. At the same time the County continues to make it more expensive to develop a lot. Curb & gutter everywhere, increased development fees, utility impact fees of over $6,000, proffers, etc. Guess what - now your minimum house in Chesterfield must be built on a bigger, more expensive lot. THAT is the problem. Those costs have to be absorbed into a house and guess what - they cannot be absorbed in a lower priced house. Simple home building economics.

The notion that townhomes and condos are affordable is absolutely correct. Look at any established mixed-use community - they have a range of housing choices, including townhomes, condos, apartments, mansion flats, in addition to a variety of single family style options. Not just 12,000 s.f. minimum, or 25,000 s.f. minimum lots. But in Chesterfield that will not be the case. Why? Because a $15,000, or $20,000, or $25,000 proffer, in addition to the huge amount of other County fees, simply cannot ba absorbed unless it hits a particular price point that is most likely higher than the market will bear.

These are simple economics.

John said...

Simple Economics?
Do thee economics only apply to Chesterfield?
Why is it other localties have much higher proffers in place?
Does it really cost more to build in say Spotsylvania compared to Chesterfield?
The lot sizes ARE smaller in Fairafx, Loudon, Stafford etc than Chesterfield and yet the costs of housing are higher per square foot it appears.
Townhouses in Fairfax are listed at 400K? You consider this "affordable"?
These pricing scales are coming here. National builders have all but implied so.
Our baseline economics (household income) is very competitive tho these areas that have ven higher rates. This was the very reason we saw many new large scale builders begin to buy up land around seven years ago.
Look at the zonings. See if you had these large zoning applications from the likes of Centex and Ryan ten years ago.
This market provided great upside to the builders.
These homes were marketed to people living up North whose homes were much smaller and costs two and three times as much.
Many new residents have sold homes up North and purchased in Chesterfield using proceeds from the sale of homes priced dramatically higher than the new home price here. They get a larger house, lower tax base, milder climate anda lower housing payment.

The beauty of relocating to Chesterfield to be sure. But the honeymoon with regard to the builder/ developer profits is coming to an end. The costs, even without proffers (only 34 localities have them) are increasing due to commodity and labor issues as well as inflationary pressures resulting in builders having to build units north of the medium average home price.

Why not build smaller units that are less expensive? From the builder perspectives why bother. They can build those elsewhere like Dinwiddie, Prince George etc where the adjusted gross income is half as much as Chesterfield.

Builder will continue to build homes priced to meet the incomes of residents within the model. You see a 500,000 unit in Edgewater is "affordable" to someone, otherwise it would not be being built by the housing industry.

They know who their market is and are seeking to fill the demand. The could build cheaper homes, but why bother when there is no economic benefit or incentive to do so when the average income can support much larger units.

Mike Lanksky said...

The choice is simple-either recoup the cost of development from pro-offers or increase real estate taxes for all.

Affordable housing is buying a used home and waiting on buying the new Charter Col. home.

The cost of building a new home should fall since Dickie and Renny do not have to get a cut any longer.

Mike Lanksky said...

The choice is simple-either recoup the cost of development from pro-offers or increase real estate taxes for all.

Affordable housing is buying a used home and waiting on buying the new Charter Col. home.

The cost of building a new home should fall since Dickie and Renny do not have to get a cut any longer.

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