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Hanover County proffers a big tax change

Lena Price December 12, 2012 12

Building and buying a home in Hanover County is about to get a lot cheaper.

The Hanover County Board of Supervisors last month voted to eliminate all future proffers -– a tax on new homes developers pay once the county issues a certificate of occupancy and is then passed on to homebuyers. The county used the money to fund schools and other public facilities needed to keep pace with new development.

On Wednesday, builders with lots waiting to be built out might get even more good news, as the board is set to vote on how to handle any existing lots and their proffers. The board is expected to set a process for developers to either reduce or eliminate the $52.1 million worth of outstanding proffers on 4,300 pending lots in the county.

Wayne Hazzard

Wayne Hazzard

South Anna District Supervisor Wayne Hazzard said the board’s decision should translate into more development and lower housing costs for Hanover County.

“It was a bad policy that we never should have put in place,” Hazzard said. “There’s a lot more that goes into development than the proffer system, but removing that one stumbling block is a step in the right direction.”

Before the board eliminated its proffer system, Hanover’s $19,503-per-lot proffer was the highest in the region. Richmond and Henrico do not collect proffers, and Chesterfield has a rate of $18,966 per lot.

Todd Rogers, a residential real estate broker with Hometown Realty, said he has about eight properties with proffers of between $11,000 and $13,000. Once he can take out those fees, he said home buyers would see an immediate cost reduction of about 5 percent on a $250,000 home.

“I’ve been on the paying side of proffers since the system came out in 1990 and never liked it,” Rogers said. “It didn’t seem like there was any real motivation for the developers to pay these fees.”

Rogers said that he doesn’t expect a sudden boom in new development but that the decision should make the Hanover market more competitive with Richmond and Henrico.

“For the past four, five years, people have been very careful about choosing where they develop,” he said. “I think this is a great indication that Hanover County is open for business.”

Craig Toalson, CEO of the Home Building Association of Richmond, said the proffer system is outdated and detrimental to home buyers.

“If a builder spends $20,000 for a finished attic or basement, that’s an additional value the consumer can see,” Toalson said. “Consumers weren’t getting any added value out of the proffer system, and in some cases didn’t realize they were paying that extra tax.”

Hanover has collected more than $24.7 million in proffers since the system was instituted 22 years ago, according to the most recent data from the county. That amounts to an average of about $1.1 million a year. In January, the board will vote to replace the lost revenue from the proffer system with a mandatory $10 vehicle registration fee.

Angela Kelly-Wiecek

Angela Kelly-Wiecek

Chickahominy District Supervisor Angela Kelly-Wiecek voted against eliminating the proffer. She said that it will boost county growth but that the county hasn’t established a firm way to make up for the lost revenue.

“The question becomes, ‘How do we pay for that growth now that we’ve eliminated this source of revenue?” Kelly-Wiecek said. “The developers I’ve talked to are certainly delighted about the board’s decision. But they’ve also made it clear to me they would have supported a more measured, incremental approach to the elimination.”

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  1. William T. Didlake December 12, 2012 at 8:31 am - Reply

    I agree with Angela Kelly-Wiecek.

    I am a business person and I know my real estate clients like this but I think to remove this all at once is not fair to the current home owners who had to pay more for thier homes.

    This is loss revenue for the county and now to ask current home owners to pay for this with increased cost for auto licneses is not fair.

    The county does not need a lot more residential growth. Growth is not the answer to all our financial problems in this country. We need to plan how to cover our cost for the future with the tax base we have now.


  2. Jay December 12, 2012 at 8:55 am - Reply

    I don’t live in Hanover so I guess I don’t have a dog in this fight but:

    Removing the proffers all-together seems incredibly short-sighted. From what I understand, the proffer system was created to offset the costs of infrastructure improvements necessary to accommodate the additional growth. Theses costs don’t suddenly dissappear now that the proffer is gone. It’s only fair that the builder/new home owner would shoulder the costs of the increased burden caused on public utility. The expenses have to be paid somehow; by charging a registration fee they’re simply passing the costs on to other taxpayers.

    More than anything, this just seems like a handout to homebuilders and property developers. Now that the proffer is gone, will we see asking prices of new contruction decline across the board by the amount of the proffer? Will we see ‘added value’ equal to the proffer? Thats doubtful.

    Again, I don’t live in the county so my opinion is not worth much. I will say, however, that I would not be opposed to a similar proffer for new construction in Richmond.

  3. Andrew Moore December 12, 2012 at 9:11 am - Reply

    This is a senseless and short-sighted action for Hanover County. There is nothing wrong with growth, provided the long term economic equation works. When you eliminate ALL proffers, you stimulate short-term development, but fail to account for the short-term costs of expanded infrastructure and the long-term costs of maintenance. This will benefit a handful of developers and builders at the expense of all of the citizens of Hanover County.

  4. Doug B. December 12, 2012 at 9:49 am - Reply

    Sounds like its good for developers, bad for existing residents. Looks like my taxes are going up, and my home value is decreasing. Residential development is a drain on county resources. They need to promote commercial development.

  5. Charles Batchelor December 12, 2012 at 10:04 am - Reply

    That lower proffers will lower the price of homes is a myth. (And, if it were true, the headline for this article could be, “County to reduce all citizens’ asset values.” Ouch.) This is a good example why the Richmond Home Builder’s Association has lost much of their credibility with the county staffers and many elected leaders in the area. It’s fairly well understood that the price of residential real estate is mostly determined by the market. Supply and demand, not the cost of building the house, is mostly what drives the selling price.

    But, yes, proffers stink. The big issue with proffers is that they are not applied fairly. It’s a myth, also, that new residential development has paid its way. The proffer system as it is run now is not giving citizens good value.

    If you’re building a house where there is plenty of room in the schools for most students (and there are places like this), water and sewer lines can handle more, roads can handle the additional traffic and the new homeowners will not burden other public services, then a new house can be a positive to the government as it pays its standard taxes, etc. Efficiency does happen in government.

    Proffers as they are often applied in Hanover and Chesterfield counties, however, are often not covering the cost of the development because many (most?) developers do not want to build infill. The reasons are many, but mostly it’s economy of scale–infill lots where sewer and water, schools, etc., are in place–will only take a few houses, whereas the countryside typically allows developers to construct dozens or hundreds of units.

    Thus, we have sprawl. And the proffers–as high as they are–have not covered the costs to the government. The result has been that existing taxpayers end up paying for the new schools, road, utilities they don’t use.

    In Chesterfield County, the comp plan data clearly showed how existing schools in established neighborhoods have not seen the upkeep they needed as cash was directed to the new schools. Likewise, parks and libraries, etc. So, existing taxpayers are screwed with higher taxes and fewer parks, poorer schools, etc., to pay for the new development.

    So, the proffer system stinks, but not for the reasons outlined here. But, what is going to replace it? In Chesterfield County, the gig is up. The Richmond Home Builder’s Association leaders’ absurd, self-interested economics are now seen for what they are. Hard core cost analysis on each proposed development should take its place.

  6. Sheryl Smith December 12, 2012 at 10:09 am - Reply

    I was appalled that there was no public comment period before eliminating proffers. This is a loss of revenue for the county, and one of the proposed methods of replacing it is by creating a vehicle tax. People should havehad a say in this before the board voted!

    I went to the Board of Supervisors’ meeting and was appalled that the public was not allowed to speak. Ms. Kelly-Wiecek did her best to stop the board from a hasty decision, to no avail. Mr. Hazzard scoffed at all the budget data showing the loss of future revenue, demanded to know the sources, and then appeared to pay no attention when it was explained to him. It was apparent that he had made up his mind before the meeting started.

  7. bobby December 12, 2012 at 10:25 am - Reply

    i think you all have forgotten one important part of this change. residents will be paying 10 dollars per car per year as an added tax to make up for the proffer removal.i think it makes sense to pay for roads by the users. if the proffer dollars were earmarked for specific spending , that would be one thing, but putting it in the general fund to be spent as wanted is incorrect. somehow we need to get government spending in line. i applaud Wayne in his effort to get it started at the local level. i hope the state and fed are learning from this approach!!

  8. Brian Glass December 12, 2012 at 4:23 pm - Reply

    In 2003 I wrote a Real Esate column on proffers for the Richmond times Dispatch. I was against them then and applaud Hanover County for finally removing them. Here’s why:

    The original definition of a proffer, was a “voluntary” contribution on the part of a developer. Hanover and Chesterfield Counties made them involuntary, and basically each new home owner paid the added cost to the price of a new home. That homeowner pays that price forever since it is not deducted from the appraised value of the house. Home owners in the area that didn’t pay proffers could, therefore ,also be affected since the cost of a home, ultimately in Hanover County was inflated by almost $20,000.

    Regardless of what the County used the money for, once the housing market tanked the proffer income dried up, so for about the past four years proffers became a budget issue in Hanover and Chesterfield County. Hanover has solved its problem, but Chesterfield hasn’t. Remember proffers also affect multi family developments, which are generally cash cows for taxing purposes. The reduced cost per units should enable more apartment building in Hanover County, and additional tax revenue to the County above what single family units generate.

    • Charles Batchelor December 12, 2012 at 8:04 pm - Reply

      Nonsense. The problem with the price of housing is the home builders and the real estate industry overall, not our local governments. The cost of construction hasn’t dropped as much as the values have here, and look at markets such as Atlanta.

      Developers–and, yes, the buyers–need to pay for the impact that their construction will have on the existing taxpayers. The citizens in Chesterfield County are fed up with these real estate developments that do not pay their way. The governments have put roads, schools and parks in place and there is often plenty of acres on which to build. But, it has been cheaper to build out and let the government services come to the new development. That’s got to end. It’s not fair.

  9. Rob December 12, 2012 at 8:30 pm - Reply

    I have a question: If I live in Hanover county, sell my house and build a new house, why should I have to pay a proffer? This is a case of “last one in and shut the door”. Change will always come. People move to Hanover because it is a great place to live. If you moved here 20 years ago, the same argument then stands today, more traffic, the need for more schools, etc, etc., same argument 40 years ago. If you want a rural feel, you can move out further. If you do not want more development, buy the land so it cannot be developed. Again, 10, 20, 30, 40 years ago many people did not want your new home in hanover, so why was it ok for you to move here? I grew up in Hanover, and I hope my kids will live in Hanover, and I do not want them to pay 19k just for the privilege of building a home here. Where is it ok to build a home? The answer is smart spending and a balance budget, no need for proffers and many other taxes we pay.

  10. Susan Amos Wilcox January 11, 2013 at 11:59 am - Reply

    How about helping the citizens that already have homes in Hanover that are struggling or the schools that have faced 60 million dollars in deficits since 2009. School programs and teachers are being cut and our children are losing out. Perhaps we cut a bunch of you and get our teachers back so our kids will have a better chance at a better education. Narrow minded and short cited – out for the mighty dollar bunch of people !!!

    • Ruben Foster January 11, 2013 at 2:57 pm - Reply

      you seem angry

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