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COUNTY OF ALBEMARLE**

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MEMORANDUM**

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TO:** Fiscal Impact
Advisory Committee

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FROM: **Steven A. Allshouse,
Fiscal Impact Analyst

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DATE:** April 12, 2007

**RE: PROFFERS
CALCULATIONS FOR VARIOUS CATEGORIES OF DWELLING UNITS IN ALBEMARLE COUNTY. **

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__Background__

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.

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__Methodology__

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.

*Revenues*

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*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.**

__Conclusions__

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.

SAA/saa

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**ENDNOTES**

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, 7^{th} 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.

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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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APPENDIX**