Memorandum

 

 

To:            Tom Foley, Assistant County Executive

From:        Mark Graham, Director of Community Development

Date:         23 June 2008

Subject:    Option 2 Land Use Program

 

           

 

In considering Option 2, staff has tried to evaluate the program with respect to incidental or unintended consequences.  In many cases, it is not possible to accurately quantify the impacts, but I believe consideration is still important.   I have divided this into short term and long term impacts, then provided a short summary.          

 

 

Short Term Issues:

Staff’s identified impacts tend to fall into one of two categories:   Administrative and Property Values.     

 

1.      Administrative - Implementation of the program creates a need for staff to provide property owner assistance, process applications, and assist in the establishment of new A/F districts.  In estimating this effort, I have tried to make my estimates fairly conservative and the actual effort may be somewhat smaller. 

a.      Property Owner Assistance - This will be a new program for many property owners and they will undoubtedly have many questions about what is the best for their situation. It will likely prove confusing to many and frustrating for some. While staff can address most of the concerns, it is likely that the frustration will spill over into complaints.  For staff, this will translate into significant amounts of “handholding” while property owners struggle to understand the implications of the program.   Based on experience with recent ordinance amendments and the serious financial implications with this program, I estimate one-half of the property owners will require assistance in understanding the program and how a decision will impact their property.   Assuming the average assistance requires two hours of staff time and 1,500 property owners require this assistance, this is equivalent to 3,000 hours.  Rounding up from this estimate, this would be roughly equivalent to two FTEs working for a year.   

b.      Application processing, subdivisions - I anticipate that many property owners will make the decision to subdivide a few lots prior to “locking up” their property for a number of years.   This would cause a surge that requires staff to review many more subdivision plats than normally seen.  As part of this, it should be recognized that review timeframes are mandated.  During consideration of the recent Rural Areas ordinance amendments, we saw the number of submissions almost double the normal in the period before the public hearing.  If one-fourth of the 4,000+ parcels of land seeking land use agreements sought to subdivide lots prior to enrollment, this would equate to roughly 1,000 subdivision plats.  Using data from the recently completed Community Development fee study, an average of ten hours per plat should be estimated.  With 1,000 plats at ten hours per plat, this would be equivalent to 10,000 hours of staff time.  That is roughly equivalent to six FTEs working for a year. To reduce this impact, I note that properties in an A/F district are allowed family subdivisions.  Assuming this provision remains in place, the number of subdivisions would be dramatically reduced and I estimate the workload may be as small as two additional FTEs working for a year. 

c.      Application processing, A/F or Agreements - I anticipate there will be A/F applications or agreements for roughly 4,000 properties.   Even with a simplified process that uses a “fill in the blank” form, each application will need to be checked for compliance, consideration in a staff report, public hearings to allow addition of the property into A/F districts, and the information accurately recorded for tax records.   Estimating this will require at least four hours per application, which is equivalent to 16,000 hours.  That is roughly equivalent to nine FTEs working for a year.          

d.      Finally, I believe it will be necessary to create several new A/F districts to accommodate all of the properties seeking land use.   If it is assumed that creation of each new district requires 200 hours of staff time and if four new districts are created, this is equivalent to 800 hours or ½ FTE working for a year.  

    

In summary, the estimate of the administrative resources required to implement this new program would be in the range of 14-18 FTEs for a year.   Stepping back and looking at this effort comprehensively, I believe that the actual impact would probably be in the range of 7-8 FTEs working for a year.   Presumably, much of this work could be contracted rather than done by County staff, but there is still a cost.  I’d estimate the contracting expense as somewhere between $500,000 and $750,000 for 6-7 people working for a year.  If the program were implemented over a multi-year period, the peak could be reduced, but I anticipate a large number of property owners will always wait until the final few months to act.  Similar to the April 15th income tax deadline, I expect we would see a rush of applications right before the deadline and a need for staffing to meet this rush.   

 

2.      Property Values - I assume that all of the existing Rural Areas properties under land use will be able to continue in land use, but recognize some properties may elect not to enter into the new program or may decide to subdivide some lots as insurance before locking the remaining part of the property into an agreement.   Additionally, it is assumed the Development Areas properties with land use will not be allowed to continue in the program.   

a.      Rural Areas - In considering the possible impact on property values, I looked to the 1980 zoning of the Rural Areas for guidance.  In that situation, the County saw the number of lots on the market dramatically increase and lot prices for similar parcels decrease after the change. While additional lots represent additional assessed value, supply and demand could result in Rural Areas tax revenues decreasing rather than increasing in the short term.  A hypothetical example can illustrate this possibility.  If there are currently 10,000 homesites assessed at an average of $100,000 per homesite, this is an assessed value of $1 Billion.   If an additional 1,000 homesites are placed on the market without an increase in demand, the market might decrease the average selling price of homesites to $75,000.  The end result is 11,000 homesites with an average value of $75,000, which equates to a total assessed value of $825 Million.  To the County, this would represent a decrease in assessed values of $175 Million.  At the current tax rate of $0.71/$100 assessed value, this would equate to a $1.24 Million decrease in tax revenues. It should be noted this example also demonstrates this program could result in an increased rate of new home construction in the Rural Areas in the short term.  Staff recognizes this is a hypothetical situation and market conditions are not a constant. If this program was being proposed three years ago during the height of the housing boom, speculators might have purchased all of the new homesites with little, if any, impact on tax revenues.  Given the weakness of the housing market at this time, “dumping” a large number of new lots on the market might have an even more severe consequence to tax revenue.  Finally, staff notes there can be other consequences that are too complex to speculate on understanding.  For example, if a homebuilder is seeking construction financing for six lots he owns, a 25% decrease in property values may make it impossible for him to obtain the financing with the property as collateral. If that in turn means he most “dump” those lots back on the market, we could see an even larger drop in lot prices.   With the recent housing slump, I note that construction financing has become increasingly complicated and lending institutions are showing significant concern with any change to the collateral for existing loans.         

b.      Development Areas - Staff found there are approximately 4,100 acres of land owned by 47 property owners.   While staff has assumed none of this land will be eligible for land use taxation under the proposed program, approximately two-thirds of this area is either land that is in floodplain and critical slopes (e.g. area next to Dunlora), land that has been recently rezoned but not yet reflected as such in the tax records (e.g. Biscuit Run), or land that is tied up in other uses for the foreseeable future (e.g.  Birdwood Golf Course).  The remaining property would see an immediate change to property taxes based on assessed values.  I believe a considerable number of these property owners would be either unwilling or unable to pay the higher property taxes, forcing them to sell the property.  If this had occurred three years ago during the height of the housing boom, that property would probably have been acquired with little, if any, affect to property values.  In the current market, I fear this situation becomes similar to the hypothetical example used for the Rural Areas.  Given the huge inventory of homesites with approved rezonings and the limited interest in new projects at this time, staff believes it is possible this could result in a significant decrease in the value on homesites for the short term.  As discussed above, it is possible this change in property values could affect construction financing or home mortgages for some property owners.    

 

 

Long Term Issues:    In considering the long term impacts of this program, I used a 20-50 year timeframe.    This would allow for multiple cycles where a property could come in or out of an A/F district or agreement to allow subdivision of property to occur.  Additionally, I assumed most property would be in A/F districts and allowed to create family subdivisions even when in the A/F program. Finally, it should be recognized there are currently over 7,500 existing properties in the Rural Areas with less than $20,000 in improvements.   At the average rate of Rural Areas development seen in the last five years, this suggests a 25 year inventory of new homesites without another subdivision being completed.   Putting these factors together, it appears Option 2 will not restrict the supply of new homesites in the Rural Areas over the long term.   It also appears that Option 2 would not cap the amount of Rural Areas development over an even longer timeframe.      

 

  1. Rural Areas - With the above stated background, I believe this program would not significantly affect the number of residential lots created in the Rural Areas over the long term.
    1. Family Subdivisions.  Family subdivisions are one of the most common way new lots are created in the Rural Areas.  Family subdivisions can be used to avoid the need for road improvements and used as a means to subdivide property that could otherwise not be subdivided.  As the A/F program currently allows family subdivisions even while the property is in the program, staff believes this program would not have any effect on those subdivisions.   
    2. Other Subdivisions.  For the remaining properties, the agreements would provide a limited time period where new lots are created. New lots would be created when the commitment to the A/F District expires and then the remainder of the property could reenter the program after lots are subdivided from the property. For each A/F District,  this would presumably lead to a spike in the number of available lots every ten years with a decrease in the inventory over the ten year period of the A/F district as the new lots are purchased.  Staff is unable to speculate on whether this pattern will encourage or discourage Rural Areas residential development.  The case for more subdivided lots would suggest that property owners always want to have an ability to quickly recover some part of the value of their property during the agreement period. This case would be more appropriate for property owners with higher financial uncertainty and lower risk tolerance over the ten year time period of the A/F district.  The property owner would maintain lots as insurance against financial uncertainty.  The tax burden of those lots then creates an incentive to sell the lots rather than to indefinitely hold the lots.  The case for fewer subdivided lots would suggest that property owners will tend to keep their property in the program until there is a need for cash, allowing them to minimize the taxes on the property and maximize property appreciation. This case would be more appropriate for property owners who have adequate financial reserves outside of their property’s value.  I am not able to speculate on whether the former or latter would be more representative of County property owners.   
    3. Administrative - I anticipate this program will create a need for more staff resources over the long term.   As noted above, staff cannot speculate on whether this program will create more or fewer subdivisions, but it is anticipated that there will be a workload increase associated with the A/F districts.  That workload will also tend to come in “surges” as property rolls out of A/F districts and property owners to place the property remnant back into the program as quickly as possible.  The administration will also include tracking properties coming out of the districts and properties reentering the program after subdividing lots.  For those properties that subdivide lots, there will need to be a new validation of the property remnant prior to reentering the program.    With no history, I am unable to provide a reliable estimate but anticipate this could require an additional FTE for administration of the A/F program.    
    4. Property Values - I believe this program would not significantly alter the number of lots created in the Rural Areas.   Thus, over the long term, it would appear this program will not significantly affect property values or tax revenues from property in the Rural Areas.        

 

  1. Development Areas - Once the initial inventory of property is absorbed, I do not believe this program will significantly affect property values or administrative workload for the Development Areas.   While it may be possible there would be some ripple effect from the number of Rural Areas lots, I could find no basis to expect this to be significant.    

 

 

Summary 

I believe this program could result in decreased property values for both the Development Areas and Rural Areas in the short term.  As noted above, market conditions will greatly affect this and I am not able to speculate on the strength of the real estate market over the next several years.  I also noted significant administrative costs associated with implementation of the Option 2 program and estimated this could be in the range of 7-8 FTEs for a year or up to $750,000 in contracted services.  In the long term, I believe the number of lots developed in either the Development Areas or Rural Areas will not be significantly altered by this program and, as such, property values should not be significantly affected.   I noted there will be a continuing administrative cost associated with this program and estimated this could require an FTE dedicated to administering the A/F program.           

 

Go to next attachment

Return to exec summary