by James A. Bacon
A new business-backed group in Chesterfield County has sprung up to fight the county’s cash proffer system for new houses, arguing that the fees make new houses more expensive, hinder development and hurt jobs. The group has hired Capital Results, a government affairs firm, and launched a website, Citizens Against Proffer Taxes.
As Bacon’s Rebellion readers know, I am a staunch believer in low taxes. But that does not make me a believer in zero taxes. As long as we live in a world in which local governments pay for infrastructure such as schools, roads, libraries, parks and public safety buildings, then we need to find a way to allocate equitably and efficiently the cost of building and maintaining that infrastructure.
According to Louis Llovio with the Times-Dispatch, Chesterfield sets the maximum cash proffer at $18,966 per house, the highest levy in the region. Thomas Winfree, CEO of Village Bank, blames the proffers for major losses to the bank over the past couple of years. The bank has had to foreclose on properties and take losses on loans because developers are unable to complete projects “in part due to proffers.”
I hate to sound unsympathetic, but whose fault is that? It’s not as if Chesterfield had imposed the proffers after the fact, adding a burden that the developer and bank had not anticipated when they decided to move forward with a development. They embarked upon the project knowing full well what the proffers would cost but misjudged market conditions. Things didn’t work out. I’m sorry. I feel bad for you. I wish you’d made a lot of money. If you had, I would not have castigated you as a greedy rich person or advocated raising your income tax rates. But your business losses are your problem, not the taxpayers’ problem.
Rare among local government reporters, Llovio made an astute observation. “Citizens Against Proffer Taxes,” he writes, “does not recommend how the county should replace the lost revenue.”
That gets to the philosophical nub of the issue. The money must come from somewhere. The question is, who pays? Mr. Winfree apparently believes that the taxpayers of Chesterfield County should pay. And where would that money come from? Presumably from property taxes, which are the main source of revenue for local governments in Virginia. Thus, under Mr. Winfree’s logic, people who previously purchased houses whose prices incorporate the costs of proffers now should help pay a second time for the infrastructure that Mr. Winfree doesn’t want his developer clients to pay for.
Here’s the underlying philosophical principle that every local government should hew to: People should pay the location-variable infrastructure costs associated with the purchase of a new house. Failure to do so imposes an obligation upon someone else to pay instead. It also amounts to a subsidy that encourages developers to build houses in locations that are costly to serve.
Yes, proffers might add 5% to 10% to the cost of a new housing unit — a cost that can be amortized over the 30-year life of a mortgage. Proffers might mean that people have to satisfy themselves with marginally smaller, cheaper houses, or houses on marginally smaller, cheaper lots. Is that a cruel, insensitive thing for me to say? Then what do you say to the people who have to pay a higher property tax for a benefit they never receive?
The main problem I have with the proffer system is that it charges a flat fee that applies to every house, no matter how location-efficient its location. Virginians should adopt a practice that is common in Canada of varying the development fee, depending upon how expensive it is to serve. Thus, if a developer builds houses in an area where schools and roads are under-utilized, they should pay a smaller fee. Virginia’s proffer system definitely needs work, but it would be folly — and unjust — to do away with it entirely.
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