COUNTY OF ALBEMARLE
TO: Fiscal Impact Advisory Committee
FROM: Steven A. Allshouse, Fiscal Impact Analyst
DATE: April 12, 2007
RE: PROFFERS CALCULATIONS FOR VARIOUS CATEGORIES OF DWELLING UNITS IN ALBEMARLE COUNTY.
At its February 22, 2007 meeting the County’s Fiscal Impact Advisory Committee approved a methodology for estimating the dollar value of proffers that the County could expect for new Single Family Detached residences (SFD’s), Single Family Attached/Townhouse/Condominium (SFA/TH) dwelling units, Multifamily/Apartment (MF) units, and Mobile Homes (MH’s). This memorandum outlines the methodology that the Committee approved, and lists the dollar values, per dwelling unit, that this approved methodology currently would render, based on Albemarle’s FY 2006/07 adopted budget. Please note that the dollar figures contained in this memorandum are subject to annual revision, and that these items represent numbers that the Board of Supervisors could include in a proffer policy but, by themselves, these dollar figures do not constitute a proffer policy.
As part of its preliminary work, the Committee surveyed proffer models from several Virginia counties, including Chesterfield, Greene, Hanover, Loudoun, Prince William, Spotsylvania, and Stafford. The Committee determined that these localities expect proffers to cover development-related capital costs only, as opposed to development-related capital and operating costs. The Committee learned, also, that the capital categories typically covered in the counties’ proffer models included transportation, schools, and parks/recreation/open space, and public safety. The Albemarle County Attorney, and outside experts who met with the Committee, noted that a viable proffers model for Albemarle should include estimates pertaining only to capital costs. The distinction between capital and operating expenditures is important since the County’s current Cost Revenue Impact Model (CRIM) includes estimates of operating costs along with estimates of debt service on capital costs in calculating the net fiscal impact of development. This situation suggests that CRIM, in its present form, would not be suitable as a proffers calculation model for Albemarle.
With this background information in mind, the Committee labored to establish a methodology that would estimate the capital costs that various types of dwelling units typically would generate in Albemarle County. Note that, of all the proffers calculation models that the Committee reviewed, the Chesterfield County model appeared especially attractive as a framework for the Committee’s efforts, since the methodology behind Chesterfield’s model appeared reasonable and, apparently, this jurisdiction’s proffers regime has survived at least one legal challenge. The following section, therefore, outlines a methodology that the Committee derived in substantial part from the Chesterfield proffers calculation model.
The essential task facing the Committee involved the estimation of capital costs and offsetting revenues. The Committee divided the County’s capital costs into the categories of transportation expenditures and non-transportation expenditures. This bifurcation of costs reflected a commonly-held sentiment among Committee members that, in the years to come, development-generated transportation infrastructure expenditures would represent, relative to all other categories of infrastructure costs, a particularly large portion of the County’s capital outlays, especially if the Commonwealth of Virginia does not provide adequate funding for transportation projects in Albemarle. The Committee was advised, however, that, for the purposes of proffers calculations, the County’s transportation cost estimates, along with the cost estimates for all other capital categories, should reflect only items for which Albemarle actually has budgeted dollar amounts. This advice, in practice, meant that the proffers calculations contained in this memorandum take into account only items found in the County’s currently-adopted Capital Improvements Program/Capital Needs Assessment (CIP/CNA), Strategic Plan, and Master Plan policy. After determining capital costs, the Committee then estimated the revenues that help offset these capital costs. The difference between the County’s capital costs and offsetting revenues rendered net cost figures. These net cost figures equal the dollar value that Albemarle should expect in proffers per dwelling unit.
Transportation Capital Costs
In order to calculate the County’s development-related transportation capital costs, the Committee needed to determine the total dollar value of currently-budgeted projects and then translate these total transportation expenditures into dollar amounts per dwelling unit, by type of dwelling unit. This section recounts the steps that the Committee took to derive unit costs from total costs.
Table I, on the following page, reveals the budgeted expenditures for Albemarle’s various transportation projects through FY 2015/16. Note that many of the items included in the County’s Master Plan policy and CIP/CNA are slated for construction several years into the future and, consequently, the construction costs that are found in Albemarle’s Master Plan policy and CIP/CNA typically are stated in inflated dollars.1 The total inflated cost of the County’s budgeted transportation projects comes to roughly $95,844,000. In FY 2006/07 dollars, however, Albemarle’s budgeted transportation costs come to approximately $82,408,000.2 The Committee made the assumption that this $82,408,000 in capital improvements would accommodate ten years’ worth of new development, both residential and non-residential, in a way that would maintain current levels of transportation service. In order to calculate unit costs, therefore, the Committee needed to estimate the total number of new dwelling units and non-residential square footage that the County could expect to gain over a ten year period, and then had to assign costs to each of these units.
A survey of Albemarle’s annual Development Activity Report for each of the years 1984 through 2003 inclusive reveals that, on average, the County experienced the construction of 508 SFD’s, 115 SFA/TH’s, 197 MF’s, and 33 MH’s annually between 1984 and 2003. During the course of ten years, therefore, Albemarle reasonably could expect to gain 5,080 SFD’s, 1,150 SFA/TH’s, 1,970 MF’s, and 330 MH’s.3 A study of the volume of non-residential site plan square footage that the County approved between 1984 and 2003 suggests that, in a ten year period, Albemarle could expect to gain 2,150,000 square feet of retail space, 1,060,000 square feet of taxable office space, 672,000 square feet of industrial space, and 1,590,000 square feet of institutional space.4 These ten year dwelling unit and non-residential square footage figures appear in the second column of Table II on the next page. Along with estimated dwelling unit and square footage data, this table contains the remaining set of information that the Committee needed in order to estimate unit transportation costs.
Note that transportation projects do not serve dwelling units and non-residential space per se but, rather, serve the vehicle trips generated by these categories of development. The third column of Table II reveals the average number of daily vehicle trips associated with each of the four types of dwelling units mentioned previously and shows, also, the average number of daily vehicle trips associated with a thousand square feet of each of the four types of non-residential space that are contained in the County’s Cost Revenue Impact Model.5 The average SFD, for example, generates 9.57 daily vehicle trips, while a thousand square feet of retail space produces, on average, 47.56 vehicle trips.
The fourth column of the Table II shows the estimated total number of daily vehicle trips that ten years’ growth would render for each category of residential and non-residential development. In the case of SFD’s, for example, the County could expect 5,080 new units in a ten year period, and this type of dwelling unit generates, on average, 9.57 daily vehicle trips. Ten years’ worth of growth in single family detached residences, therefore, renders an expected total of 5,080 x 9.57 = 48,616 daily vehicle trips. Albemarle, likewise, could expect a total of 2,150,000 square feet of new retail space during the course of a decade, and a thousand square feet of this type of non-residential space typically produces 47.56 daily vehicle trips. The equivalent of a decade’s worth of retail development, therefore, produces an expected 2,150 x 47.56 = 102,271 daily vehicle trips.
The sum of the numbers in the fourth column of Table II equals the total number of daily vehicle trips that would result from a decade’s worth of growth in Albemarle. This figure equals 213,149 and is found on the “Total Number of New Daily Vehicle Trips” line of Table II. Recall from Table I that the County has budgeted a total of $82,407,733 in transportation projects through FY 2015/16. Recall, also, that the Committee assumed that the transportation projects for which the County has budgeted through FY 2015/16 would accommodate ten years’ worth of growth in a way that would maintain present levels of transportation service. The cost of Albemarle’s budgeted transportation projects, per daily vehicle trip, therefore, equals $82,407,733/213,149 = $387. This amount is found on the “Total $ Cost of Projects Per Daily Veh. Trip” line of Table II.
This $387 figure provides the basis for calculating transportation costs per dwelling unit since the third column of Table II shows, for each of the four categories of residential development, the average number of daily vehicle trips per dwelling unit. As mentioned previously the typical SFD generates 9.57 daily vehicle trips, so the County’s transportation cost per SFD would be $387 x 9.57 = $3,700. This figure is found in the fifth column of Table II, as are figures for all the other categories of development.6 As a clarification, this $3,700 number represents the typical SFD’s share of the $82,497,733 in capital costs that the County has budgeted for transportation improvements. The corresponding transportation cost for an SFA/TH, MF, and MH equals $2,266, $2,598, and $1,929 respectively. Please note that these numbers, along with all of the other cost and revenue estimates in this memorandum, will undergo revision as Albemarle’s adopted budget changes from year to year.
Non-Transportation Capital Costs
In order to calculate the County’s development-related non-transportation capital costs, the Committee needed to determine the total dollar value of currently-budgeted projects and then translate these total non-transportation expenditures into dollar amounts per dwelling unit, by type of dwelling unit. This section recounts the steps that the Committee took to derive unit costs from total costs.
Table III, on the next two pages, reveals Albemarle’s budgeted non-transportation capital costs, through FY 2014/15, for which the County will pay using borrowed funds. As was the case with transportation costs, the amounts listed in Table III have been deflated to year 2006 dollars.7 Note that the third column of Table III lists an “assumed demand base” for each project. In the County’s current Cost Revenue Impact Model, the dollar amount spent for each capital item in Albemarle’s budget is assumed to vary with changes in some underlying demand base. In the case of transportation projects, as already noted, costs are assumed to vary with the number of daily vehicle trips generated by new residential and non-residential development. In the case of non-transportation capital projects, however, a particular line item’s cost is assumed to vary with changes in a relevant demand base such as population, population plus jobs, elementary school enrollments, middle school enrollments, high school enrollments, and total school enrollments.
The “$ Grand Total” line in the yellow highlighted area of Table III shows the ten year grand total of the County’s non-transportation capital projects costs. The rest of the lines in this column of the table show the dollar portion of this grand total that is associated with each of the demand bases mentioned in the preceding paragraph. The ten year grand total comes to $160,734,339, while the portion of that grand total that is generated by a decade’s worth of growth in population, for example, equals $51,212,626. The fourth column of the yellow highlighted area of Table III reveals the expected total number of demand units that will result from a decade’s worth of new development in Albemarle.8 This data furnishes enough information to derive non-transportation capital costs per demand unit. In the case of the population demand base, for example, the total dollar value of a decade’s worth of capital costs comes to $51,212,626 and the County can expect to add 21,172 people over the course of ten years. The dollar cost per demand unit of this particular demand base, then, comes to $51,212,626/21,172 = $2,419. The dollar cost per demand unit of elementary school enrollment (ES), likewise, equals $30,597,549/1,300 = $23,528. A similar exercise renders dollar values for all of the other line items in the fifth column of the highlighted area, except that the $18,843 figure that appears on the “$ Grand Total” line of the table reflects the total non-transportation capital costs per new dwelling unit in Albemarle.
This $18,843 figure represents
a straight average and, consequently, does not distinguish the
non-transportation capital costs generated by dwelling units in the four
different categories of residential development. This
dollar amount, in other words, is not specific enough for the purposes of
proffers calculations and is presented for informational purposes only. The
next step in the calculation of proffers amounts, therefore, involves
translating the dollar amounts per demand unit that are found in Table III into
dollar amounts per dwelling unit, by type of dwelling unit.
Table IV, on the next four pages, accomplishes this task. Note that Table IV consists of four sections. Each page of the table pertains to one of the four categories of residential development in Albemarle. In order to understand the information contained in Table IV, think of a dwelling unit as being a “basket” of demand units. In the case of an SFD, for example, as shown in the “Dem. Units Per DU” column of the table, this “basket” contains 2.19 population demand units, 2.19 population plus jobs demand units, 0.1637 elementary school enrollment demand units, 0.1100 middle school enrollment demand units, 0.2737 elementary plus middle school enrollment demands units, 0.1300 high school enrollment demand units, and 0.4037 total school enrollment demand units. Each of these demand units, when multiplied by the corresponding dollars per demand unit (“$ Per Dem Unit”) from Table III, produces the relevant dollar amount per dwelling unit that is generated by the demand base under examination. This amount is found in the “$ per DU” column of the table.
Consider the case of the population demand base in an SFD. Each SFD is assumed to contain 2.19 people and, from Table III, we know that each SFD resident generates, on average, $2,419 in non-transportation capital costs. (This $2,419 amount appears again in the “$ Per Dem. Unit” column of Table IV). This situation means that the population demand units in the typical SFD generate a total of 2.19 x $2,419 = $5,297 in non-transportation capital expenditures. Similarly, the population portion of the population plus jobs demand base in an SFD renders $1,620 in non-transportation capital costs, while the corresponding elementary school enrollment demand base figure comes to $3,852. Note that the sum of the dollar amounts associated with the demand bases in an SFD comes to $18,714. This amount is found in the “Gross Total for Debt-Financed Infrastructure” line of the SFD section of Table IV and represents the total non-transportation infrastructure costs produced by a new SFD. Corresponding amounts for the other three categories of residential development are found on the same line of the SFA/TH, MF, and MH pages of the table.
Now, in order to calculate the total capital costs generated by a dwelling unit in a particular category of residential development, we simply add the dollar value of the unit’s non-transportation capital costs to the dollar value of the unit’s transportation capital costs. Recall that Table II shows this latter figure in the “Total $ Cost Per D.U. or 1,000 SF” column. This transportation dollar amount is listed again, in Table IV, on the “Gross Total for Transportation Infrastructure” line on each of the dwelling unit category pages of Table IV. In the case of an SFD the dwelling unit’s non-transportation capital costs total $18,714, while the dwelling unit’s transportation capital costs come to $3,700. The total capital expenditures associated with an SFD, therefore, equal $18,714 + $3,700 = $22,414. Table IV lists this last amount on the “Gross Total Cost Per SFD” line of the SFD page. The dollar amounts of $15,506, $13,746, and $20,584 appear on the corresponding lines on the SFA/TH, MF, and MH pages of the table.
In order to estimate the net capital costs generated by the typical dwelling unit in each of the four categories of residential development, the Committee determined the net present value of a portion of the revenue that the typical dwelling unit in each category would generate over the course of twenty years, and then subtracted this amount from the relevant total capital cost in order to obtain the cash, or in-kind contribution, proffer amount that the County should expect per dwelling unit.
Note that the total capital cost amounts discussed in the last section reflect gross capital expenditures. The Chesterfield proffers model recognizes that the capital expenditures associated with a new dwelling unit are offset, to a certain degree, by the tax revenues generated by that dwelling unit. In the case of the Chesterfield model, however, the only tax revenue that the model takes into consideration, apparently for the sake of simplicity, is real property tax revenue. In the Case of Albemarle, however, the Cost Revenue Impact Model has estimates for fourteen different federal, state, and local revenue streams associated with a dwelling unit in each of the four residential categories. Table A-5 in the Appendix of this memorandum reveals the details of these revenue streams. In the case of an SFD, the typical dwelling unit generates $4,269 in annual revenue for Albemarle, while the typical SFA/TH renders a corresponding amount of $3,171 to the County. An MF, meanwhile, generates an average of $2,416 each year for Albemarle, while the typical MH produces $2,989 in annual revenue to the County.
The Chesterfield model assumes that Chesterfield will engage in debt financing in order to pay for the capital expenditures associated with a new dwelling unit and that the term of borrowing will equal twenty years. The Chesterfield model also assumes that, in each of the twenty years in question, Chesterfield will apply toward the service on this debt some fixed percentage of the revenues generated by the new dwelling unit and that the remainder of the revenues generated by the new dwelling unit will help fund operating costs associated with the unit. Note that, in this scheme, the revenues generated by the dwelling unit are assumed to increase annually by some fixed percentage. The Chesterfield model then totals the twenty years’ worth of revenues that would be applied toward debt service and calculates the net present value of this sum. This last amount subsequently is subtracted from the gross dollar cost of the capital projects that are generated by the dwelling unit. This difference equals the net capital expenditure associated with the dwelling unit, and represents the cash amount, or dollar value of the in-kind contribution, that Chesterfield would expect the developer to proffer for the dwelling unit in question. The Committee decided to follow this methodology in order to calculate Albemarle’s proffers amounts.
In practical terms, this methodology presents something of a dilemma, since Albemarle’s current debt service level, as a percentage of general fund and school revenues, stands at roughly 6%. The County’s debt service policy, however, would allow this debt service level to rise to as much as 10%. In order to calculate the dollar value of the development-related revenues that would be applied to debt service, the Committee elected to use the 10% figure. The dollar amounts that result annually from the use of this 10% figure are shown in the last column on each page of Table IV. In the case of an SFD, as previously mentioned, the Committee determined that this type of dwelling unit typically renders $4,269 in revenue to the County. In Year 1, then, if we assume that the debt service payment will equal 10% of this revenue, then this payment amount comes to $427. This number appears on the first line of the “10% of Tx. Rev. ($) Per DU” column of Table IV.
In subsequent years, this dollar number rises since the volume of revenue associated with an SFD is assumed to increase by a fixed annual percentage. The same situation applies to the three other categories of residential development.9 At the end of twenty years, 10% of the sum of the annual revenues generated by an SFD equals $13,350. Note that, assuming that revenues grew at a rate of 4.47% per annum for twenty years, the net present value (NPV) of $13,350 equals $8,173. This NPV amount is found on the “NPV” line of the SFD page of Table IV. The subtraction of this figure from $22,414 (the total present-day value of the capital costs associated with an SFD) renders $14,241. This figure represents the estimate of the cash amount, or dollar value of the in-kind contribution, that Albemarle would expect a developer to proffer per SFD. The corresponding number for an SFA/TH equals $9,441; the figure for an MF equals $11,435; and for an MH, the number comes to $17,717.
The Fiscal Impact Advisory Committee has derived, for each of the four categories of residential development in Albemarle County, a set of dollar figures that the Board of Supervisors could include in a proffers policy. The BOS should be aware that these dollar values pertain only to FY 2006/07 and that, once the County has adopted a new budget, the cost and revenue figures presented in this memorandum will change. As a matter of practice, the County’s proffers numbers should be updated annually, as soon as the BOS adopts a new budget. The BOS should be aware, also, that the capital cost estimates contained in the transportation section of this memorandum reflect very preliminary numbers since the County does not yet have a clear idea of how much money several of the transportation projects listed on Table I will end up costing the County in coming years and, likewise, Albemarle does not yet have a clear idea of the extent to which the Commonwealth of Virginia will continue to fund roads in the County. Another issue which the BOS should keep in mind involves House Bill 2500, which Governor Kaine recently signed into law. This item likely will give the County additional flexibility with respect to the County’s ability to collect growth-related monies from the development community. Presently, however, Albemarle has only a very preliminary understanding of the implications of the new law and, in any case, according to the County Attorney, Albemarle would have to adopt a zoning text amendment in order to take advantage of the newly enabled authority granted by the law.
1. Albemarle currently uses a construction cost inflation rate of five percent per annum, non-compounded, so a project that would cost $1,000,000 to build this fiscal year is assumed to cost $1,050,000 if the item were to be built next year, $1,100,000 if it were to be constructed two years from now, etc.
2. The transportation costs listed in this paragraph reflect net transportation costs to Albemarle, i.e., the total cost of the County’s transportation projects minus any outside funding that the County presently expects to receive from other levels of government.
3. These ten year figures represent the gross increase in the number of dwelling units that the County could expect to experience over the course of a decade. The Committee made the assumption that there would be no loss of dwelling units during this time period, i.e., that the gross increase in the number of dwelling units equals the net increase in the number of dwelling units. The Committee should be aware that, as an alternative to using the “averages” approach in estimating the number of dwelling units that the County could expect to gain during a ten year period, the Committee could have used a “trend line” approach. This latter methodology represents a more sophisticated level of analysis than does the “averages” approach, and likely will be incorporated into Albemarle’s proffer calculation model in the future.
4. See Appendix Table A-2 for details about the methodology behind these estimated non-residential numbers. Note that, in the case of non-residential square footage, the Committee made the same assumption regarding gross increases versus net increases that the Committee made with respect to residential dwelling units. Please note that the “trend line” approach mentioned in Endnote 3 also could be used to estimate the number of square feet of non-residential space that the County could expect to gain during the course of a decade.
5. Average daily vehicle trips per dwelling unit, by type of dwelling unit, were taken directly from Trip Generation, 7th Edition, published by the Institute of Transportation Engineers. Please see Appendix Table A-3 for details about the derivation of the average daily vehicle trips per thousand square feet of non-residential space, by type of non-residential space.
6. Table II presents the transportation costs per thousand square feet of each of the four categories of non-residential space for informational purposes only. The Committee’s task involved estimating proffers amounts for dwelling units only, not for dwelling units and non-residential space.
7. See Table A-4 for the inflated dollar amounts and proposed timing of each project.
8. The total number of new demand units was calculated from the following information. Recall that Table II shows the number of new dwelling units and non-residential square footage that the County can expect to experience over the course of a decade. Note that Albemarle’s Cost Revenue Impact Model contains assumptions about the number of demand units, by type, that is generated by the typical dwelling unit in a particular category, or the typical thousand square feet of a particular category of non-residential space. These CRIM assumptions are shown on the next page.
In order to estimate the number of new demand units in, say, the category of population, the relevant equation is:
P = [(5,080 x 2.69) + (1,150 x 2.33) + (1,970 x 2.00) + (330 x 2.69)] = 21,172
where 5,080 equals the ten year expected number of SFD’s; 1,150 is the corresponding number of SFA/TH’s; 1,970 is the corresponding figure for MF’s; and 330 equals the ten year expected number of MH’s. A similar exercise yields the figures shown on each of the other lines in the fourth column in the yellow highlighted area of Table III, with the exception of the entry on the “$ Grand Total” line, which shows simply the total number of new dwelling units, not new demand units, that the County can expect to gain during the course of a decade.
9. The rate of the annual increase in the volume of revenue generated by a dwelling unit varies, however, among the different dwelling unit categories. This phenomenon results from differences in the relative size of the various revenues in each of the four dwelling unit categories. Please see Table A-5 for additional details. Note that, in the case of an SFD, revenue growth is estimated to equal 4.47% per annum, while revenue growth for an SFA/TH is calculated to come to 4.56% per annum. The respective figures for MF’s and MH’s are 4.52% and 4.26%.
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