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Developer Proffers and the Public Good: Part 1

July 5, 2012 by Blue Ridge Leader filed under Development, News No Comments

By Mary M. Bathory Vidaver

On June 6 the Virginia Housing Development Authority (VHDA) released its final rankings for the 2012 submissions to the federal Low-Income Housing Tax Credits program (LIHTC). Shreveport Ridge, a submission by Middleburg-based Windy Hill Development Company (WHDC) to construct and manage 98 affordable dwelling units (ADUs) proffered by the developer of Brambleton, received the highest ranking with a score of 750, providing the project with access to more than $1.4 million in federal income tax credits to underwrite construction.

So the question is …

As WHDC prepares to close on its $2.45 million land purchase from Brambleton for the project, a number of interesting questions arise. Does the use of tax credits provide developers who agree to construct ADUs or workforce housing with a means to transfer that financial liability back to the public? Does the importance of ensuring an adequate inventory of affordable work force housing outweigh the public’s expectation that the for-profit residential development community at least cover some of the infrastructure costs they create? Should density bonuses be retained by developers when fulfillment of a proffer is shifted to a third party or is this generally how proffer obligations are discharged?

Public discussion of these questions began last year at meetings of the County’s Joint Housing Trust Fund Committee. In March of this year, the Board of Supervisors gingerly touched on the subject in response to WHDC’s request for letters of support for Shreveport Ridge’s VHDA application. In a multi-part article, The Blue Ridge Leader will attempt to understand the implication of this new approach. This month, we focus on the County’s use of proffers as they relate to affordable housing. Next month, we will take a closer look at the WHDC model and its implications for affordable housing development and County proffer policy.

What is a “proffer?” …

Proffers are the mechanism by which the Virginia General Assembly allows localities to partially offset the capital costs associated with residential development. These costs include the construction and expansion of public facilities such as schools, playing fields, roads and other infrastructure to accommodate the service needs of the new residents.

Under this mechanism local governments can request capital contributions from a developer in return for approving additional density. Such contributions can take the form of a cash payment for each additional unit above the base zoning, in-kind contributions, such as acreage for a school or public safety center, or a combination of both. A legal document, running with the property, binds the County and landowners to the terms. Where a developer chooses cash contributions, the expectation is that the cost will either be passed through to the homebuyer in the purchase price or absorbed as a cost of business by the developer.

A change in county proffer policy …

Prior to 1993, developers could proffer affordable dwelling units, as the original owner of Brambleton did in its 1988 application. This reflected a belief that the construction of low-income housing could be considered a capital cost of the government.

In 1993 the Board of Supervisors revised the Zoning Ordinance mandating that most (but not all) land development projects proposing 50 or more residential units make at least five percent of the units affordable dwelling units. Developers who agree to higher percentage of ADUs receive a density bonus of 10-20 percent.

The Zoning Ordinance defines an ADU as “units for which the rental and/or sales price is regulated pursuant to the provisions contained in [the ordinance], as adopted by the Board of Supervisors.” The stated intent is to make homes available for purchase by households whose income is between 30 percent and 70 percent of the median income for the local statistical area and available for rental by households whose income is between 30 percent and 50 percent of the Washington Area Median Income (AMI). The current AMI is $107,500. This is a $1,100 increase over last year.­

Clearly, such housing will not fit into every development proposal. Thus, the ordinance offers developers the option of making a cash payment in lieu of building units. Developers, with the agreement of the Board of Supervisors, can also proffer an alternative housing mix to offset the ADU requirement. This is what the Kincora developer did in its 2010 application.

Who is paying the costs?” …

According to discussion between County staff and the Board of Supervisors, a significant number of developers in Loudoun choose to make cash payments rather than actually build units. In such cases, the financial liability clearly falls upon the developer. In the case of Shreveport Ridge, however, Brambleton will not only shift the cost of constructing the proffered ADUs to WHDC, while still retaining the additional density granted to it by the County, it will also receive $2.45 million from WHDC for the purchase of the 5.48 acres on which WHDC will construct the units.

The LIHTC program “encourages the development of affordable rental housing by providing owners a federal income tax credit.” According to the VHDA website, “It also provides incentives for private investors to participate in the construction and rehabilitation of housing for low-income families.” Federal tax credits, however, lower the total revenue received by the federal government. In offering such credits to create one public good, affordable housing, Congress must then either cut its budget correspondingly or make up the difference from other revenue sources.

According to documents submitted by WHDC to the County, this is not its first successful submission to the LIHTC program. It has secured such credits for two projects in Middleburg (Levis Hill House and Llewellyn Village Apartments) plus a third project in Fauquier County (Piedmont Lane in The Plains). However, it appears to be the first time the program will be used in Loudoun County to meet a developer’s legal obligation to provide the County with proffered affordable dwelling units.

NEXT MONTH: The Windy Hill model and its implications for the future.

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