What Does Economic Development Mean?

SON’s mission has always been to promote responsible growth and leadership. This means creating decent jobs for people who work in the community while at the same time preserving our rural lifestyles and our rural character.

Most recently, the Center for a Better Eastern Shore (CBES) published an article, called, “Economic Development:It’s time to face the hard realties!!”, which was a summary of an Economic Development Forum organized for residents, business owners and officials of Accomack and Northampton Counties by the Shore’s three Chambers of Commerce, on May 29. This forum echoed the same conclusions reached by the many planning meetings we have had in Accomack County that are the basis for the goals of our new Comprehensive Plan. The consensus is that Accomack should build on its unique assets even as it works hard to address its weaknesses. Accomack competes for businesses on an increasingly large stage – sometimes the East Coast, sometimes the entire United States, and sometimes even globally.

Counted among our County’s assets that we can leverage are the Wallops industrial park, clean water for aquaculture, an attractive eco-tourism environment and an economic base in diversified agriculture. The Forum’s suggestions for improvement centered on increasing the educational level of our workforce, maintaining environmental amenities, providing basic infrastructure for businesses, and expanding existing small enterprises. Implicit in any vision of a community that leverages its environmental amenities to create sustainable jobs, is a foundation of local regulations that protect scarce water supplies and fragile ecosystems, for example, that attract tourists and nourish fish and shellfish. This message resonates with SONs’ mantra that strong environmental ordinances and investment in basic infrastructure are necessary conditions for managed growth.

Too often, economic development means turning rural landscapes into suburban bedroom communities and malls. But SONs, along with the many citizens who showed up for the “visioning” sessions for the Comprehensive Plan, advocates that the County take control of its growth and come up with an alternate future that delivers decent jobs while preserving our rural community. If we don't protect and preserve our environmental assets, it will not be possible to grow or attract businesses in agriculture, aquaculture and eco-tourism.

If we pass wise ordinances before we are overrun by the suburban development machine, we will avoid runaway tax escalation. Tax escalation is the ugly underbelly of unplanned growth and a factor contributing to the flight of original homeowners out of their communities as these are “developed” by real estate speculators.

Take Control of Growth.

Taking control of growth means passing ordinances that protect resources that produce jobs. For the last year, SONs has advocated a stormwater ordinance. Such an ordinance currently languishes for attention in the County Planning Department but is based on a model for counties in Virginia. We urge the Board of Supervisors to adopt it soon.

Controlling growth also means that infrastructure gets built in a timely manner without impoverishing existing homeowners. The most effective means of controlling infrastructure costs is to collect proffers and/or impact fees from developers for each new residential house lot as it is sold. In this way, the costs of new infrastructure are born by the owners of new residences instead of being allocated among existing homeowners who do not benefit from the new homes. A complete discussion of how to take control of growth is included in Eben Fodor’s book, Better, Not Bigger (New Society Publishers, 1999)

Why Do We Need Impact Fees or Proffers?

Both proffers and impact fees are mechanisms used by counties and cities to collect the hidden costs of new development from the people that benefit from it, rather than spreading these marginal costs over all existing residents. Last month, we noted that residential tax payers are subsidized by agricultural, commercial and industrial taxpayers. The costs of services for residences are not covered by residential real estate taxes, while non-residential taxes are greater than the costs of services rendered by counties to businesses and agriculture. This results in the vicious cycle of escalating costs, degradation of services and ever-rising taxes as communities grow. In summary, counties cannot grow their way out of escalating taxes. The scenario plays out inexorably unless communities take serious steps to slow residential growth and balance it with non-residential economic development that can pay for needed infrastructure and services.

Proffers

Proffers are voluntary mitigation fees or real assets (land allocated for public use, for example) that developers offer in an effort to secure a rezoning from agricultural to residential use. Infrastructure costs are for the new facilities and capital equipment that is needed to service these new homes, such as schools, public safety and EMS equipment and buildings, water and sewer facilities and pipelines, and roads. This re-zoning is what will have to happen in Accomack County as the villages are expanded to contiguous areas as directed in the new Comprehensive Plan. Proffers are voluntary and the amount is variable, reflecting the local marginal costs of development. For example, road access is totally local and therefore highly variable.

The Kafuffle Over Impact Fees.

Presently the State of Virginia allows counties to collect proffers. In the last session of the State Legislature, Bill SB 768 would have replaced the proffer system with very low impact fees that compensated for only a small fraction of the marginal cost of new development, shifting the burden to existing homeowners. The Bill was championed, of course, by real estate developers. In the last days of the session in Richmond, cities and counties with substantial undeveloped land managed to get the bill shelved. Expect the issue to rear its ugly head again this winter.

Proffers vs. Impact Fees

Local cities and towns can still enact impact fee ordinances. The problem with a fixed fee structure is that not all sites are equal. Some may require expensive traffic re-routing and open land reserves while others may require more connections to public water and waste water treatment. And the fee should escalate as more open space gets developed. Making a fee flexible enough to cover all site contingencies would probably result in a complex ordinance that would cause politicians’ heads to spontaneously combust. Proffers are more flexible and work only if local planning authorities can adequately calculate the marginal cost of new development as nuanced by local conditions while at the same time having the stamina to withstand political pressure from real estate developers and their allies.

SONs recommends that both tools be used. While impact fees can be useful to reflect County-wide infrastructure costs like schools and EMS, proffers are needed in addition to reflect site specific situations like transportation safety.

What IS the Marginal Cost of New Development in Accomack County?

Estimating the cost of new growth is simple conceptually, but requires a sharpened pencil in practice. Your SONs economist-at-large has estimated the cost of new infrastructure needed to support the new households that will be built between now and 2030 according to Chapter 6 of the recently adopted Comprehensive Plan. Estimates of infrastructure costs were found in the Accomack County FY 2009 budget as capital requests made by all the departments in the county as well as debt service on the principle amounts for County has borrowed to build infrastructure. This includes schools, health/welfare/social services, solid waste convenience centers, public works/storm drainage, general government, police/corrections, parks/recreation/cultural, landfill, fire and EMS, sanitary sewage, buildings and grounds, library, Wallops research park and the airport.

In all, the cost of building and maintaining the capital plant and equipment for the county comes in at $99,481,000. This is a reasonable marginal capital cost estimate since it is for expanding some facilities and maintaining others. (It is not the total value of all the infrastructure in the county.) This works out to be $6,745 for each household and is a reasonable starting point for an infrastructure fee for the County, assuming the character or quality of the infrastructure remains about the same to 2030. If we want County infrastructure to improve qualitatively, then this is a lower bound.

This is not all. Last month we discussed the fact that costs for residences are 19% greater, on average, than the revenues collected in real estate taxes. If these excess operating costs for new households are projected into the future and accumulated as new houses are built then new households cost the existing taxpayers an extra $7,305,000 under the Comprehensive Plan low growth scenario and $13, 886,000 under the modest growth scenario by 2030. Translating this into a present value per household, results in an additional impact fee of $2,585. Again, this is probably a lower bound if we expect County education, for example, to improve by paying teachers competitive salaries.

The bottom line is that the value of an impact fee or proffer that compensates for future infrastructure and excess operating costs occasioned by new households totals at least $9,330 for each new household in Accomack County.

And this is still not all. These fees/proffers are meant to be the same for the entire County. This estimate does not include fees to mitigate site-specific costs. For example, road or transportation costs needed to mitigate site-specific traffic safety and congestion issues are not included. These are proffers and not fees and need to be added to the pre-determined $9,330 in fees/proffers discussed above. Unfortunately, the County can do very little when it comes to directing VDOT to take appropriate action.

SONs advocates that the discussion begin now about the proper impact fees and proffers needed to compensate citizens for the hidden costs of development and avoid runaway taxes. As you can see from the above exercise, we are talking real money here.

The Executive Committee