Proffer Tax Exposed

Many of us have heard the word proffer passed around, but few of us know what a proffer is. Below is an article that does a great job describing what a proffer is and how it is really greasing of the political palm instead of acting as a valuable tax for true improvement. Read on, interesting stuff.

Politics and Proffers

By Tyler Craddock • Oct 14th, 2009 • Category: Feature, Land Use

Recently, the proffer system and its perceived strengths and weaknesses have been the source of much discussion. For the lay reader, the proffer system involves offering certain conditions in connection with a zoning case and is also referred to as conditional zoning.

While the majority of the discussion has centered on cash proffers, the payments that developers are asked to provide in support of a proposed project, and specified non-cash contributions, the proffer system goes further and can actually force choices on consumers, contribute to sprawl, drive up the cost of housing and distort market choices in what should be a free market. You see, the proffer system also involves local governments asking developers to accept a wide range of conditions in connection with a zoning case. While some of the requests are quite reasonable, others are simply driven by politics.

From the outset, it is imperative to point out something inherent in the proffer process: while the law may recognize any sort of proffers as voluntary conditions offered by the zoning applicant, in many instances they are anything but voluntary. Instead, they are the conditions to which a rezoning applicant must agree if the applicant hopes to have their case approved.

Here is how it works: as a rezoning application makes its way through the process, different departments and the public have the opportunity to review the application, and in doing so, ’suggested’ proffered conditions – items that would allay concerns – are presented to the applicant. It is at this point that cash is suggested to ease the concerns of the folks in planning and budget and other non-cash proffers are suggested for items like road improvements.

But cash and road improvements are not the only kinds of proffers ’suggested’ to applicants. Other, even more politically driven conditions are also part of the process. One such example would be architectural proffers, where the applicant is asked to proffer things such as minimum square footages or how many sides of each home are made of brick. In some instances developers have even been asked to proffer the colors permitted on signage or the type of windows, even down to the arrangement of the panes. While it is usually in an applicant’s political best interest to offer these types of conditions, they have nothing to do with the quality of the construction or with safety; they are simply options that would otherwise be options left to the builder and the buyer as they should be in a free market economy. Instead, consumer demand is replaced by government demand as the driver of production choices. Moreover, in residential cases, the resulting homes are usually more expensive, thereby affecting the supply of affordable housing choices for Virginia families.

A similar type of proffer involves density. Let us assume that someone is applying for a rezoning so that allowable densities for their parcel would yield up to 175,000 feet of commercial space. To make neighbors happy, the applicant may be ’asked’ by some in political leadership (read Supervisor, City Councilor or Planning Commissioner) to proffer that they will cap the floor space at 100,000 square feet or, as a way of trying to control the so-called big box retailers, to proffer that the largest tenant will take up only a certain percentage of floor space.

In addition to substituting government choices in place of market-driven choices, as all of theses types of proffers do, limits on overall square footage do two other things. First, by limiting the overall square footage on a given site, the cost of each square foot goes up, raising the cost of doing business.

Second, a developed parcel with a square footage yield that has been artificially limited will meet less of the community’s demand for commercial space, meaning that more land will have to be developed at some point to meet market demand, contributing to sprawl. Additionally, caps on the largest tenant will dilute the value of other space in the development as such a condition by its nature artificially limits the choices and types of anchor tenants instead of letting market demand dictate those decisions.

So, how do we address the issues raised by conditional zoning in Virginia? It depends on what you want to do. If the policy choice is to keep conventional, use-based conditional zoning as the preferred tool of choice for making land use decisions, one idea might be to look at these types of scenarios as part of the larger issue of proffer reform and give serious consideration to issues raised by architectural and other types of proffers as well as the conditional zoning process in general.
But, simply fixing conditional zoning may not solve the problem. Indeed, in the way conditional zoning is practiced in Virginia, the ability to be able to proffer these types of conditions is integral to being able to navigate the land use process. Perhaps it is time to look at a different method altogether for addressing land use. Certainly, we should take the discussion back to square one and see if we can develop a better, more market-based and less politically-driven way to make local land use decisions.

As Tyler says so eloquently, reform needs to happen at grass roots level starting with our locally greased palm. I encourage you to get involved. The price of new homes is artificially inflated by unnecessary taxes. These types of taxes force the price of the home unnecessarily out of reach. Get involved with your government.