Overhaul of Development Fees Advances in Senate

RICHMOND, Jan. 29 -- Virginia lawmakers took a step Tuesday toward throwing out the 30-year-old system that allows local governments to coax millions of dollars from developers to pay for roads, schools and other services affected by their projects.

If the measure, which advanced in the state Senate, is signed into law, local governments would have to end the practice of negotiating proffers, contributions made by developers to offset the cost of providing services to people drawn to a community by new homes. Instead, governments would be allowed to charge a flat fee for each house. Northern Virginia governments would be permitted to collect $8,000 per house.

The legislation was endorsed by the building industry, which abandoned support for the proffer system after defending it for years. To explain the turnabout, builders cited the slump in the housing market and the high fees charged by some fast-growing counties in Northern Virginia. Loudoun County, which charges the highest development fees in the state, collects about $47,000 for each new house.

"We sat back and gave it a lot of thought . . . and said, it's time for us to do some study," said Michael Toalson, a lobbyist for the Home Builders Association of Virginia, which helped write the bill. "Let's see if we can find an alternative to the proffer system that would be fair, that would benefit local governments, that would benefit existing residents and that would benefit future home buyers."

The legislation was opposed by slow growth advocates and local government officials, who complained that the complicated, far-reaching bill was introduced at the last minute. Moreover, they said, it could have devastating consequences in such places as Loudoun, the state's fastest-growing county, where local officials have struggled to keep up with development even with the high fees.

State Sen. Mark R. Herring (D-Loudoun) tried unsuccessfully to persuade his colleagues on the Senate's committee on local government to postpone voting on the bill for another year.

"What we would be doing here is taking 30 years of General Assembly policy and striking it out with 30 minutes of debate," he said. "I just think it would be irresponsible of us to take that kind of action."

But the panel on local government voted 10 to 3 to send the bill to the Senate Finance Committee, in part because it could include an increase in the grantor's tax -- a tax paid by home sellers -- for some communities. The local government committee struck that provision, but its sponsor, Sen. John C. Watkins (R-Chesterfield), and other supporters say they would like it reinserted. Without it, Toalson said, the bill's prospects could be dimmer.

Toalson said the new system would benefit home buyers most because builders typically pass the cost of proffers -- tens of thousands of dollars a house -- on to them.

At the peak of the Northern Virginia housing boom in 2006, Centex Homes, one of the nation's largest developers, offered the town of Warrenton the unusually large amount of $73,000 a house in exchange for approval to build a luxury subdivision for senior citizens. Centex later pulled out of the deal because of the sagging housing market.

According to a George Mason University study funded by the Home Builders Association of Virginia, some communities might collect more money under the new system because the fees would be assessed on every new house. Proffers are typically collected only when developers want to put more homes on a site than allowed under the existing zoning.

Critics of the study noted that it is based on two counties -- Prince William and Chesterfield. They said that more research is needed to determine whether other jurisdictions would benefit and that legislators should solicit more reaction from local governments.