1. Proffers, Inclusionary Zoning, and Fair Housing Thomas Silverstein, Associate Counsel, Lawyers’ Committee for Civil Rights Under Law May 5, 2016

2. What is a proffer? A proffer is: An offer made by a developer to a local government, At the initiative of the developer or in response to a request from a local government, That propose the provision of certain amenities that are not otherwise required by law by the developer, In exchange for zoning and land use approvals by the local government, which the local government has the discretion to withhold. Amenities included in proffers often include affordable housing but may also address a variety of infrastructure and quality of life needs.

3. Why do proffers matter? Local governments operate in a severely resource constrained environment in which it is impossible to meet affordable housing and infrastructure needs through taxpayer-funded spending programs; In economic terms, the provision of discretionary zoning and land use approvals to developers arguably represents a windfall, the costs of which are shared societally. Thus, in the absence of an efficient system for taxing that windfall, it is reasonable and just to leverage the private development activity and the public’s regulatory investment in the activity to produce public benefits, like affordable housing and infrastructure; and With regard to proffers of affordable housing, particularly on-site or near the site of a development, proffers can promote residential racial integration thus affirmatively furthering fair housing, consistent with the obligations of most local governments in Virginia.

4. Are proffers the only way? No! Nor are they even the most common strategy for meeting affordable housing and infrastructure needs and promoting residential integration by leveraging the land use approval process. Alternatives include: Inclusionary zoning; Impact fees; and Dedications and exactions.

5. How do proffers compare to alternative models? ProffersInclusionary ZoningImpact FeesDedications and Exactions Funding Affordable Housing with Property Tax Revenue FlexibleRigid FlexibleRigid Low Level of Judicial Scrutiny (For Now?) Case Law Unsettled High Level of Judicial Scrutiny Low Level of Judicial Scrutiny Can Address Broad Range of Development Impacts Limited Application Outside of Housing Can Address Broad Range of Development Impacts Can Address Broad Range of Development Impacts But Unlikely to Be Used for Housing Can Address Broad Range of Development Impacts Can Further Civil Rights Goals Unlikely to Further Civil Rights Goals Untapped Potential to Further Civil Rights Goals Unlikely to Further Civil Rights Goals *Politically Difficult

6. Rigidity versus flexibility Flexibility in this context is not an unalloyed good. Although flexibility can ensure that the amenities provided do not render a development financially infeasible and can ensure that the nature of amenities is well tailored to local conditions and needs, flexibility can also have some negative consequences: A rigid system, if set-aside or fee requirements are reasonable, creates a predictable baseline that developers can take into account when obtaining financing and that can be priced into the cost of land thus reducing price increases for market rate households; and A rigid system, if devised in a manner that is cognizant of common fair housing challenges, should result in fewer opportunities for concessions to exclusionary NIMBY opponents, such as residency preferences.

7. The legal landscape Historically, dedications and exactions have been conceived of as ad hoc demands for amenities that local governments place on developers as conditions for the approval of discretionary land use approvals. In two key decisions, the U.S. Supreme Court held that in order for dedications and exactions to pass constitutional muster there must be an essential nexus between the impact of the proposed development and the dedication or exaction and that the dedication or exaction must be roughly proportional to the impact of the development. See Dolan v. City of Tigard, 512 U.S. 374, 391 (1994); Nollan v. California Coastal Commission, 483 U.S. 825, 837 (1987).

8. The legal landscape, cont’d In a more recent case, Justice Alito, writing for the majority, did not take up Justice Breyer’s invitation, in dissent, to have the Court clarify that its dedications and exactions jurisprudence applies only to ad hoc demands for amenities and not to ones that are provided for through general legislation. See Koontz v. St. John’s River Water Management District, 133 S. Ct. 2586, 2608 (2013) (Breyer, J., dissenting). If legislative impositions were subject to the essential nexus and rough proportionality tests, many impact fees may be constitutionally suspect. Inclusionary zoning could also be susceptible to attack, but the grounds for applying a higher level of scrutiny are weaker than for impact fees.

9. The legal landscape, cont’d The Supreme Court had an opportunity to resolve some of these legal issues in a case called California Building Industry Association v. City of San Jose but denied the writ of certiorari early this year. That case was a challenge to that city’s legislatively enacted inclusionary zoning program. In order to rule against the city, the Court would have had to have held that Nollan and Dolan apply to legislative exactions and that inclusionary zoning is a type of dedication or exaction rather than a land use regulation. In a concurrence to the order denying certiorari, Justice Thomas invited future challenges to the ad hoc v. legislative distinction but not to inclusionary zoning specifically. Proffers offer a unique space legally in relation to these cases. If the system is accepted at face value, proffers raise no significant issues. If proffers are viewed as a backdoor means of obtaining what cannot be legally obtained through dedications or exactions, it is theoretically possible that a future court could attempt to scrutinize proffers.

10. Changes to Proffer Law in Virginia This year, the General Assembly passed and Governor McAuliffe signed S. 549, which purports to reform proffer law in Virginia. The Act creates a new section of the Code of Virginia, § 15.2-2303.4. § 15.2-2303.4(B) states that localities shall not request or accept “unreasonable” proffers as a condition of approval for new residential developments or uses and shall not deny rezoning applications or proffer condition amendments because of an applicant’s failure to submit an “unreasonable” proffer or proffer condition amendment. This does not apply to developments in a number of specified types of geographic areas.

11. What does “unreasonable” mean? § 15.2-2303.4(C) states that a proffer or proffer condition amendment shall be deemed unreasonable unless it addresses an impact that is specifically attributable to the proposed development or use. Additionally, offsite proffers shall be deemed unreasonable unless they address an impact to an offsite public facility for which the development would create a need and the development would receive a direct and material benefit from the public facility improvement.

12. Unreasonable v. reasonable – onsite Reasonable: Data shows that in a particular housing market, the development of new market-rate housing predictably results in demand for new affordable housing because of increased economic activity in the service and retail sectors and that the resultant need is for one unit of affordable housing for every ten units of market-rate housing. A developer proffers to include a 10% set-aside of affordable units in its proposed development, and the locality accepts the proffer. Unreasonable: A developer proposes to develop senior housing development in a portion of a locality that is well served by existing public playgrounds. A locality requests that the developer proffer to provide a playground on the grounds of the senior housing development.

13. Unreasonable v. reasonable - offsite Reasonable: It is projected that a proposed residential development will result in 500 new children living in a locality, 200 of whom will regularly use the locality’s public playgrounds. Existing playgrounds are located across major arterial roads from the proposed development, but an appropriate site for new playground construction is located adjacent to the proposed development. The developer proffers to pay for the locality to build a playground on that site. Unreasonable: Assume the same facts as above but that the developer is already planning on including a playground onsite. The locality requests that the developer proffer to pay for the construction of a playground on the other side of town.

14. Reasonableness and Data The foregoing examples illustrate that, in determining what needs can be specifically attributed to a development, empirical data is helpful. We know that cultivating that data has a cost for localities. In California, the trial court decision in the San Jose case, which was reversed on appeal, applied Nollan/Dolan scrutiny to mandatory inclusionary zoning. In the aftermath of that decision, many municipalities in California commissioned nexus studies to support their ordinances. That was burdensome for municipalities, but, even at that, the scope of the study was restricted to generally applicable policies rather than an ad hoc system like the proffer system. Under § 15.2-2303.4(D)(2), the burden of showing that a proffer or proffer condition amendment was unreasonable is on the developer, but localities that do not evaluate data when the proffer is being negotiated would be in a weak position to litigate the issue.

15. Application to proffers that are not requested? § 15.2-2303.4(B)-(C) do not appear to distinguish between proffers that a developer proposes at its own initiative and those requested by localities. § 15.2-2303.4(D)(2), however, describes the developer’s burden as follows: that it has proven was suggested, requested, or required by the locality “In any action in which a locality has denied a rezoning or an amendment to an existing proffer and the aggrieved applicant proves by a preponderance of the evidence that it refused or failed to submit an unreasonable proffer or proffer condition amendment that it has proven was suggested, requested, or required by the locality, the court shall presume, absent clear and convincing evidence to the contrary, that such refusal or failure was the controlling basis for the denial.” Although the law may cast doubt on seemingly unreasonable proffers that were proposed proactively by developers, there does not appear to be any remedy for substantive violations of that type. That is appropriate as allowing developers to propose generous proffers and then turn around and sue raises serious equitable concerns.

16. Other aspects of the law Prospective only. After the developer proves that it failed to make an unreasonable proffer that was requested by the locality, the burden shifts to the locality to show, by clear and convincing evidence, that the failure was not the controlling basis for the denial of the conditional land use approval. Successful developers can get attorneys’ fees and costs. Only applicants or owners can sue. No third party beneficiaries or private attorneys general.

17. Geographic exceptions and fair housing The provisions of the law do not apply in the following areas: An approved small area comprehensive plan in which the delineated area is designated as a revitalization area, encompasses mass transit, and allows a density of at least 3.0 floor area ratio in a portion thereof; An approved small area comprehensive plan that encompasses an existing or planned Metrorail station, or is adjacent to a Metrorail station located in a neighboring locality, and allows additional density within the vicinity or planned station; or An approved service district that encompasses an existing or planned Metrorail station. Thinking exclusively about affordable housing and not other public facilities or infrastructure, the first exception is antithetical to fair housing goals. The General Assembly is essentially saying that it is acceptable for local governments to require the development of affordable housing in a set of areas that are likely to be disproportionately African American but not in areas that are comparatively likely to be predominantly white. This may be particularly true in Hampton Roads and the Richmond metro area. In Northern Virginia, transit-proximity is less likely to be correlated with residential segregation in that manner.

18. Takeaways on S. 549 Localities are on safer footing if they do not suggest, request, or require a specific proffer that a developer could then fail to make. The law incentivizes localities to be coy about their desires, which is inefficient but could be worked around. If localities choose to be blunt, it is helpful to have data showing the connection between new development and the types of needs that the proffer would address. There are many examples from California about what this type of study make look like. From the standpoint of federal Constitutional law, it arguably follows that such an analysis should occur because proffers are not generally applicable land use regulations.

19. Is this better than the alternatives? It depends on how successful developers are in enforcing their new protections and/or whether localities become timid in negotiating proffers, even in the absence of successful enforcement. If, in practice, the law means that robust proffers are a thing of the past, then the potentially valuable flexibility offered by the proffer system would not render it preferable to an alternative like inclusionary zoning. Of course, the scope of localities’ power to adopt inclusionary zoning ordinances may also have limits, particularly in rural areas.