by PWCBG’s Ralph Stephenson

17 April 2014 in Montclair, VA

Note: Financial documentation used in speech doclinked below, including PWCBG 2012 residential development breakeven analysis prepared by Bob Pugh, PWCBG 2010 residential breakeven analysis and “Fiscal Impact Analysis [of the] Proposed Avendale Development” prepared by Bob Pugh, 2010 “Comparison of Fauquier, Prince William, and Stafford County Proffer Guidance” by Citizens for Fauquier County (CFFC), and 2012-13 PW County School Board “Comparison of Local Monetary Proffer Contribution Guidelines” (for school proffers only).

1.  Greetings, fellow citizens. My name is Ralph Stephenson, I represent Prince William Citizens for Balanced Growth (PWCBG), which is an alliance of like-minded PW citizens. Our alliance works to ensure that Prince William’s county government balances residential growth with traffic, school, tax, economic, and quality-of-life issues. See http://pwcbg.org for more information.

I love the Biblical and Socratic learning method of asking questions. I’ve learned more from that teaching method both as a teacher and student than perhaps any other. So let me focus today on some very important questions that I think this county needs to ask itself, and then answer, in order to progress in an economically and socially healthy way.

2.   First, should ordinary Prince William County citizens and taxpayers care about proffers from residential developers, the purpose of which is to offset the public costs to taxpayers of residential development? You bet they should. Because if taxpayers don’t know or don’t care, their taxpayer $ will continue to end up indirectly subsidizing residential development. Even worse, they’ll be subsidizing the authorization and building of unnecessary residential development. (Note that the county already has 10s of thousands of legally approved but not yet built homes, so it has no immediate need to approve more homes.)

Some more fundamental questions: Should taxpayers subsidize unnecessary production by private businesses in one industry simply because those businesses and that industry are politically well-connected and finance many local political campaigns? Has anyone asked county taxpayers if they want to heavily subsidize the residential development industry, even when it overproduces? Specifically, do the citizens of Prince William County want their taxpayer dollars to be used to support and subsidize unneeded residential development that overcrowds their schools, congests their roads, increases their taxes, and ensures that the county continues to slide deeper into a low-wage service economy and tax-negative land development hole? Should the county continue its trend in recent years of rezoning increasingly scarce undeveloped land away from tax-positive commercial land development to tax-negative residential development?

3. The county’s current proffer system, by keeping Prince William’s proffers apparently the lowest among northern Virginia’s urban and suburban counties, has its own political logic, based on residential developers’ political activism and their unsurpassed campaign funding to Board of Supervisor and other local political campaigns. But this political logic is not to be confused with real fairness and real logic, the logic of market economics, fiscal conservatism, and government of, by, and for all the people. That logic, real logic, demands that local governments prohibit corporate welfare for certain privileged industries and private businesses – and not that they aid and abet corporate welfare at the expense of everyone else.

Let’s compare No VA proffers (using 2012 as our base year):

a. PW requires: $37,719 per single family home. In 2007, Chmn Stewart and Planning Staff advocated raising to $51K.
b. Loudoun requires: $51,709 per single family home (35% more than PW)
c. Stafford requires: $40,427 per single family home
d. While it’s difficult to find comparable rates per single family home for DC’s near suburbs in VA, nevertheless, using Fairfax Co as representative, proffer requirements and rates for developers appear to be significantly more stringent – and thus more expensive to developers — requiring, for example, major set-asides for affordable housing and other proffers and impact fees.

So Prince William’s proffers are apparently the lowest among northern Virginia’s urban and suburban counties.

Again I ask: Should county taxpayers subsidize residential developers and politically, not economically-driven residential development that overcrowds their schools, congests their roads, increases their taxes, and ensures a low-wage service, long-distance commuter economy?

Are county politicians, particularly the Board of Supervisors, willing to let the free market decide housing prices and supply, or do they consider that to be their prerogative, as in a centrally planned economy, using taxpayer subsidies that distort the market and promote waste, including waste of taxpayer funds and unnecessary building, unnecessary production that is politically-, not market-driven?

4. Now let me address the fiction often heard from developers that all residential development produces taxes and thus is tax-positive, meaning that it adds more to county coffers in revenues than it takes away in costs for county services.

PWCBG calculated back in 2012 that after accounting for all county government costs resulting from residential development (not just land and building expenses, but operational expenses as well, such as teachers, policemen, firemen, books, supplies, furniture, etc.) a house had to be assessed at $448,174 to generate as much in real estate tax revenue as it cost the county in services (for each house, on average.) So $448,174 was the tax breakeven value in 2012. Note that 2008-12, the county’s median home value was $331,700. Similar calculations in previous years have yielded similar results. In 2009-10, the tax breakeven value was $466,468. Of the 2012 tax gap of $116,474 for a home of median value, proffers even when uncustomarily paid in full, would make up less than a third of the tax gap.

But residential developers usually don’t even pay the required proffer amounts noted above. Monetary proffers are usually waived, or the developer gets phony, inflated credits to offset the monetary proffers it should be paying. An analysis PWCBG did of the 2010 Avendale development shows that, including land proffers, this development at its initial size of 295 units will produce in perpetuity a $463K annual tax shortfall (before adjusting for inflation.) The shortfall would increase if more units were added.

In other words, residential development does not pay for itself. Taxpayers have to make up the difference and thus subsidize residential developers’ housing projects and their profit margins – i.e., county taxpayers are forced to pay corporate welfare to residential developers.

5. I know someone, an aging youth in his 30s, who wanted to live rent-free in his grandparents’ basement while he continued his long career of working part-time and working on his bachelor’s degree. His grandparents agreed for him to live there but on the condition that he pay a minimal rent. He initially refused, but they insisted. When he finally agreed to pay the minimal rent, he acted as if he were doing his grandparents a favor and as if they should be thanking him.

Residential developer proffers in this county are a lot like that.

So in sum, here are the questions regarding proffers that this county needs to answer. Why should county taxpayers continue to subsidize residential development and developers’ profit margins because proffers are too low to offset costs to taxpayers? Why should county taxpayers continue to subsidize politically, not economically-driven residential development that overcrowds their schools, congests their roads, and increases their taxes? Why should county citizens allow the county to continue to support a low-wage service, long-distance commuter economy by allowing the BOCS to continue to rezone increasingly scarce undeveloped land away from tax-positive commercial to tax-negative residential development?

The answer to the above questions? They shouldn’t. They shouldn’t. And they shouldn’t. Instead, residential developer proffers should be increased to at least $51K per single family home and by similar ratios for townhouses and multi-family units. As Chairman Stewart said in an interview published 7 Sep 2007 in the Bull Run Observer: “Why should taxpayers pay the cost of new development? If development doesn’t pay, then the taxpayers subsidize.”

Note: Financial documentation used in speech doclinked here, including:

Also see this link for info on 2014 Stone Haven update of residential development breakeven analysis and cost of tax-negative residential development.

Q:   How was “residential development breakeven analysis” above calculated?

A:   Add up county general fund budget costs.  Subtract non-real estate revenue from new units so as not to overestimate cost.  Divide by county population.  This gives you the unadjusted per capita cost required from real estate taxes.  Now, multiply residential proportion of tax base (82%) — again, in order not to overestimate cost — then multiply by average household size (3.05).  Now take cost per household required from real estate taxes to pay for county services, divide by the tax rate of 1.215 for $100 of assessed value and then multiply by 100 to get the $448,174 breakeven house value.