Property Rights Under Fire in Virginia

Local government uses extortionist tactics to fill its coffers.

Here's the weird thing about a small developer's case against Chesterfield County, Virginia: The worse the county treated him, the better off the county will be.

Viridis, a company headed by Matt Sowers that owns a 22-acre plot called Forest Ridge, is suing because Chesterfield won't let it build four dozen homes off Courthouse Road. The county's Board of Supervisors turned down the company's rezoning request, evidently because Viridis balked at paying hundreds of thousands of dollars in cash proffers. Viridis already had offered to build a turning lane and spend almost $400,000 to improve stormwater drainage. Kicking in the proffers on top of that seemed too much.

If you're not involved with the Virginia housing industry nor morbidly obsessed with it, you might not be familiar with proffers, which some Virginia localities collect to help offset the costs of new development: more roads, bigger schools, etc. In exchange for rezoning approval, developers often agree to provide land for road construction, or make stormwater improvements, and so on. In some cases they simply offer cash. The theory behind the proffer system is that while ordinary taxes pay for operating costs, the locality needs something extra to pay for capital needs like libraries and fire stations.

In theory, proffers are voluntary. In practice they're about as voluntary as the money you fork over to a tow-truck company to get your car out of the impound lot. Localities don't always require them. But when they do, developers cough up. Moreover: The localities, not the developers, decide how much the developers should pay. In Chesterfield the maximum proffer amount is $18,966. In Northern Virginia the sum can be twice that or more.

Proffers are supposed to have some reasonable relationship to the projects being developed. But Viridis contends that the schools near its infill-development project were never going to fill up even if the area reached full residential capacity. Moreover, the company's legal complaint asserts that "the County Staff estimated that the impact of the Forest Ridge project on roads was $386,000 and that Viridis' offer to construct the right-hand turn lane at the intersection of Courthouse Road and Cherylann Road adequately addressed that impact." Therefore, "there exists no rational basis for the Board of Supervisors to have refused to reduce or eliminate the cash proffers" it wanted.

Chesterfield has been to court over proffers before. Two decades ago the National Association of Home Builders tried to have the entire system declared unconstitutional. A U.S. district court summarily dismissed the case, and the U.S. Court of Appeals for the 4th Circuit affirmed the decision. But last year the Supreme Court gave Davids like Viridis a new sling and a stone to wield against governmental Goliaths.

In Koontz v. St. Johns River Water Management District, the court extended rules laid out in two prior cases. In those cases (Nollan and Dolan), the court said government cannot use its legitimate interest in mitigating the effects of proposed development as an excuse to demand concessions that have neither an "essential nexus" nor a "rough proportionality" to the development's likely impact. So, for example, a locality cannot demand that the developer of a retirement community agree to build a new elementary school on the other end of town.

In the Koontz case, the Supreme Court ruled that the same standards from Nollan and Dolan apply even when a permit is denied—as well as in cases where the locality is demanding money instead of real property. Even though nothing is actually taken when a permit is denied, the court said, "extortionate demands for property in the land-use permitting context run afoul of the Takings Clause . . . because they impermissibly burden the right not to have property taken without just compensation."

"Extortionate demands" is strong language—but it is not necessarily wrong. Nor is it out of line with how builders themselves view the unique-to-Virginia proffer system. Mike Toalson, CEO of the Home Builders Association of Virginia, says the proffer system is "out of control. . . . because of local governments' knowledge of how much it costs to go to court and how long it takes to go to court." It is, he says, "legalized extortion . . . by local governments in their zeal to collect cash for capital improvements that they otherwise would have ignored."

You can hear government officials leaping to their feet with objections at this point. Without proffers, how will localities pay for new facilities that new residents require? Isn't it fair to expect newcomers to help underwrite the very schools, libraries and other facilities they will need to use?

To answer the first question, note that only a handful Virginia localities impose cash proffers of any significance—and many do not take cash proffers at all. Yet somehow they manage to build schools and fire stations anyway.

The second question carries more oomph, since in some respects a proffer resembles a user fee. But only some respects. A user fee applies to everyone who partakes of a service. Proffers, however, are levied only on residential developments. A user fee ceases to apply when the usage ceases. But localities don't rebate or even prorate proffers when a family moves away. The proffer, which gets built into the price of the house, doesn't get pulled out upon resale. And so on.

Toalson raises another point. He notes that the Shangdong Tranlin Paper Co. is building a $2 billion paper factory in Chesterfield. County officials worked hard to land the deal and were delighted when they did. The factory will add a lot to the county's tax coffers—and bring 2,000 jobs to the area.

Some of the new hires will be Chesterfield residents. Some might live in surrounding localities. But some of them will move to Chesterfield from elsewhere. In other words, when a locality pursues economic-development deals it ends up driving some of the very residential growth that it then says must be paid for by proffers. If the whole county benefits from a commercial or industrial project, then why should home-buyers bear a disproportionate share of the resulting costs?

That's an academic question for now; it certainly won't come up in the Viridis case, which turns on narrower issues. Whether it comes up at all could depend on how many developers around Virginia have gotten the same treatment as Viridis has.

Presumably, not many should have. The county's proffer policy stipulates that the proffer must have some "rough proportionality" to the development, and that "money proffered by an applicant [should be] used to fund the public facilities necessitated by the development."

But legal experts already are muttering that a win for Viridis could have a significant effect on Chesterfield and other localities. Why would that be, unless other developers were in the same boat?

Not only are proffers supposed to be voluntary, they also are supposed to be variable. But in Chesterfield, three out of four rezoning cases result in the maximum proffer available. And after one hotly contested case was pulled back in February, the chairman of the Board of Supervisors, Jim Holland, insisted that "I will not start a trend of waiving proffers, under no circumstances, unless we have sound policies."

All of which makes you wonder if other developers also have been asked to cough up the maximum proffer when it wasn't warranted. If they have, and if Viridis prevails in court, then we could soon find out.