By Sandhya Somashekhar
Washington Post Staff Writer
Friday, February 29, 2008

RICHMOND, Feb. 28 -- The Virginia General Assembly rejected a proposal Thursday to overhaul the way home builders contribute money to local governments for roads, schools and other services.

A House of Delegates committee rejected legislation opposed by Northern Virginia governments that would have thrown out the 30-year-old system of cash proffers, in which local officials coax millions of dollars from housing developers in exchange for approving their projects.

But lawmakers, who are expected to take up the issue again next year, said they hope to change a system that home builders and government officials say is uneven and sometimes abused.

"I can see some significant problems with the proffer system," Gov. Timothy M. Kaine (D) said, adding that he would be open to a more "uniform, rational" system that helps lower housing costs.

However, he said, he supports delaying the change so local governments can have a greater say in deciding what system comes next. On Thursday, local government groups, commercial developers, the real estate industry and others said they would try to write a compromise bill for consideration next year.

But Gerald E. Connolly (D), chairman of the Fairfax County Board of Supervisors, said Thursday night that he does not support changing the system, which he said has helped his county build dozens of schools and preserve land and trees.

"We will resist vigorously the loss of the proffer system or anything that weakens the proffer system," he said. "We think it provides maximum flexibility to protect the interests of our citizenry."

Under the original legislation, Northern Virginia governments would have been permitted to collect a flat impact fee of $12,500 for each new home in the region instead of negotiating an unspecified amount from developers. Elsewhere in the state, the cap would have been $7,500.

Currently, local governments negotiate proffers, which are cash donations from developers. Such fast-growing counties as Loudoun and Prince William -- which have struggled over the years to maintain roads, build schools and provide amenities for their swelling populations -- typically receive tens of thousands of dollars for each home.

The Home Builders Association of Virginia, which had long opposed impact fees, changed course this year and helped write the bill sponsored by Sen. John C. Watkins (R-Chesterfield). The group has said some communities would benefit from the new system because the impact fee would apply to more kinds of housing than proffers.

Housing developers have been unfairly saddled with the responsibility of paying for services that everyone uses, said Michael Toalson, executive vice president of the home builders association. One consequence, he said, has been the rising cost of housing.

"Every time we raise the cost of housing another thousand dollars, it means more Virginians who can't afford it," he said. "More and more in the past two decades, the responsibility of paying for public infrastructure has been transferred to the private sector. And every single penny of that . . . is going into the production of housing and eventually gets paid for by a new home buyer."

Officials in Northern Virginia said they were relieved by the decision of the House rules committee, which voted unanimously to carry the bill over for a year. They said it would have crippled their ability to manage growth and build enough roads, parks, schools, fire stations and other amenities in their communities.

"We are not in opposition to the concept of moving away from cash proffers, but the dollar levels of these caps" are too low, said Roger Wiley, an attorney for the Coalition of High-Growth Communities, a group of 25 of the state's fastest-growing communities.

Scott K. York (I), chairman of the Loudoun Board of Supervisors, estimated that the tax rate in his county would have risen by as much as 8 percent to account for the lost developer money if the legislation had gone through as proposed. The county collects an average of $47,000 for each new home, the highest rate in the state.

But York said he may support some version of an impact fee because the proffer system encourages "backroom deals" between developers and government officials. Local officials are often tempted to approve bad development projects in exchange for money for libraries or recreation centers.

"The merit of a project should be based on the land use itself, not some kind of poker game where there are bargaining chips," York said.

The home builders acceded to the compromise in part because House Speaker William J. Howell (R-Stafford) had indicated he would not support the change this year.

Howell agreed to take another look at the measure if local governments have more input during the next year. He also said he will write to local governments and urge them not to increase the proffers they charge to developers until a compromise can be reached next year.

In addition, the home builders are pushing for legislation this year that would freeze a road-impact fee approved last year as part of the state's $1.5 billion transportation package, preventing any new communities from adopting the fee before July 2009.