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A new tool for fighting rural sprawl

It’s not sexy and it’s not part of this year’s green agenda, but it could save 500,000 acres of working farm and forest in central Puget Sound. Oh, and this dramatic new approach to preserving open space is probably constitutional.

The Cascade Land Conservancy has drafted — and Rep. Larry Springer and Sen. Scott White have introduced — legislation, HB1469 and SB 5253, that would set up a system to transfer development rights from working farms and forest — and, if counties choose, other rural land of ecological significance — to urban developers, who could, within willing cities, build at higher densities. The sale would take place either directly, perhaps through private brokers, or through a city or county that would bank the rights and then resell them.

Under these transfers, a common practice for preserving rural land, the landowner would get the money and thus not be tempted to turn rural land into real estate developments. The developer would profit from being able to build more units than the zoning in a city “receiving area” currently allowed. So far, it’s all pretty standard stuff, and it’s already being done, although not much.

The “not much” is the reason for the novel twist of this proposed legislation. The new incentive is this: The receiving cities could issue bonds against the increased property-tax revenue that denser development would generate in an area around the development. The city could use the bond proceeds to build infrastructure that would both accommodate new people and, potentially, ameliorate the effects on people who already live there.

Developers would still have to pay impact fees, but those fees — substantial though they are — don’t pay the full cost of serving new development. For counties, it would also avoid the expense of extending infrastructure and providing services to thinly populated outlying areas. King County supports the legislation.

Under the law as established 10 years ago by Tim Eyman’s Initiative 747, a taxing jurisdiction can increase its overall property tax revenue by no more than 1 percent a year, so that if it collects more taxes in one place, it must collect less, on average, everywhere else. New construction, however, allows the jurisdiction to bump the base up.

This mechanism for saving forests and farms would  require no new regulations, no new taxes, no new net government expenditures. Therefore, it avoids the resentment and backlash that regulation and new taxes currently provoke.  And it avoids the weakness of regulations, such as zoning restrictions, that tend to be undercut by economic and political pressuresover time, and circumvented by people and companies with large enough budgets for legal fees.

It wouldn’t work just anywhere — or any time. CLC president Gene Duvernoy and Seattle attorney Gerry Johnson, who chairs the CLC’s advisory council, explain that you need both population growth — you won’t get much interest in transfering development rights if there’s no development — and constraints on growth, so that the legal framework puts a premium on adding density in cities, rather than permitting low-density sprawl.

The proposed legislation assumes current zoning. The number of units available in each “sending area” would be based on the number that could be built now. The whole scheme works only under that assumption. At current zoning, cities would have to absorb only about 18,000 new dwelling units.  The development rights would cost no more than about $2 billion.  If one were to assume upzoning, both the number of new units and the cost would become prohibitive.

Current zoning permits only one house per 80 acres on east King County’s resource lands, but no one really thinks that even such low-density zoning by itself can hold the line. Experience shows that if houses are actually built in such places, new residents soon exert pressure on the farmers or timber owners to stop running tractors or chain saws in the early morning; landowners are expected to preserve the open space without generating any income from it. Then, the landowners themselves start generating pressure to upzone, and pretty soon, there goes the neighborhood.   A market for development rights enables current owners to keep doing what they’re doing, and may give them enough additional cash flow to justify the underlying value of their investment.

But most efforts to trade development rights across the rural-urban divide run into a problem: People who live in cities don’t want to take the higher density.  Some people have incorporated in the past 20 years to prevent King County from channeling growth their way. People who already live in city neighborhoods mostly don’t want more neighbors.

Can anyone change their minds? The CLC has certainly been working on it. Duvernoy suggests, based on anecdotal evidence, that at least some city dwellers will accept at least some extra density if they know it will preserve rural land. Adding density while sprawl continues unabated has little appeal. This legislation would provide some guarantee against sprawl.

More importantly, the proposal offers another inducement. Conventional wisdom for years has been that if extra amenities come along with the extra neighbors, most people will think it’s OK.  But extra amenities cost money, and they usually don’t appear.  The current legislation offers a way around that problem, by capturing for 20-30 years the additional property tax revenues in an area around the new development and using that money to create nearby amenities such as parks, sidewalks, and enhanced infrastructure.

People have certainly thought of this approach before.  But they have run up against a sizable barrier: “tax-increment financing” (TIF) in which a city pockets the difference in revenue between the current property value and the projected new one violates the Washington constitution. (The device is common in many other states and is, for example, one of the main devices that has created so many urban amenities in Portland.) TIF also raises political objections since that new tax money would otherwise flow into broader general funds, rather than being pledged temporarily to a narrow district.

Johnson and Duvernoy think this financing scheme wouild be constitutional because the cities wouldn’t take it all. Specifically, they wouldn’t take a penny from the state’s portion pledged to public schools.  Every dollar of property tax collected represents a stack of jurisdictions: the state takes one share; the city takes another; the local school district a third; and so on.

Conventionally, a city that uses tax increment financing takes the whole difference between the revenue it would have collected without the extra development and the revenue it expects to collect when the development’s in place. That won’t work here. The state constitution says that the state’s share of property tax can be used only for the public schools.  And it says the “entire revenue derived from the common school fund and the state tax for common schools shall be exclusively applied to the support of the common schools.”

Sixteen years ago, in Leonard v. Spokane, the state supreme court noted that “the trial court concluded that the [state law on which the Spokane ordinance in question was based] diverts tax dollars from common schools to public improvements. We agree.” The court explained that the the legislation “effectively exempts the differential [between current tax revenues and the revenues anticipated from denser development] from school taxes, and thereby diverts taxes . . . away from the common schools in violation of article IX, section 2 of the state constitution.”

The plaintiff raised other constitutional questions, but the court saw no need to answer them. All the court has ruled on is the need to give the public schools their due. The current legislation would do just that. It would give the state and the local school district their regular cuts of the new revenue. Therefore, voila! it would be constitutional.

Or maybe not.  Obviously, if the law passes, some one who doesn’t like it will take it all the way to the state supreme court.  But Johnson is confident that it will pass constitutional muster. (A current law permits tax increment financing that may be constitutional — but a city can’t collect much unless the surrounding county voluntarily turns its share of increased tax revenue over to the city, which of course no county is willing to do.)

There is nothing novel about decoupling development rights from property on which one hopes to preserve a use (like farming) that generates relatively little cash flow.  Seattle has been transferring development rights to preserve affordable housing and historic structures — including the Paramount Theater — since 1985. Weyerhaeuser’s old Snoqualmie tree farm was preserved as working forest and open space when King County bought development rights to the land from Hancock Resources, which had acquired it from Weyerhaeuser.  (The Cascade Land Conservancy had tried and failed to arrange low-interest financing to buy the tree farm from Weyerhaeuser.  It subsequently brokered the deal between Hancock and King County.)

King County and the city of Bellevue have swapped rights to preserve a bit of open space.  Pierce County has passed an ordinance requiring anyone who wants to upzone an unincorporated area to buy development rights from other landownsers. However, the county has no mechanism that requires incorporated areas to take those rights, and in the current construction slump, there hasn’t been any real demand for upzoning, anyway.  The legislature has already passed a law allowing development rights to be traded across county lines in the central Puget Sound area. (CLC was involved in shaping both the legislation and the Pierce County ordinance.)

This region started separating development rights from underlying property in 1979, when King County voters approved $50 million worth of bonds to buy development rights to agricultural land. Farmers got chunks of money that they could use as working capital — or use to stop farming. The public got the land preserved for farming — or at least open space — in perpetuity. The agricultural bond campaign — led by Seattle icon Jim Ellis — failed twice before the voters said OK.

It wasn’t the nation’s first such effort — that honor went to a program in Suffolk County, on Long Island. But it may have been the second, and it has been used as a national example. Some of the land is still being farmed.  In other places (generally more isolated, one-off properties) farming has stopped, but the land remains as open space. Duvernoy, who now heads the Cascade Land Conservancy, was hired in 1982 as the farmland preservation project manager.

Duvernoy has been at this a long time, as has Johnson. They’ve both been pursuing market-based ways to save large chunks of land — an approach that they know part of the green community greets with skepticism or outright hostility — for many years.  This legislation would mark a signficant step in that journey.  But it would hardly be the end of the road.  The current legislation would apply only to King, Pierce, and Snohomish counties. Duvernoy says that people in other parts of the state have already expressed interest.

Certainly, many people who have thought about what it will take to restore Puget Sound recognize that land use is the key issue and that it’s way more cost-effective to preserve relatively intact habitat and natural water flows in rural areas than to “restore” streams in places that have already been paved over. Ultimately, jurisdictions where there are more people than salmon must pay to acquire land or development rights in places where there are still more salmon than people.

The legal mechanism that the CLC’s legislation would create seems a good fit for the Puget Sound basin as a whole. That’s not the underlying goal, but it wouldn’t disappoint the people at CLC. “We have tried to develop a system that could be exported elsewhere,” Duvernoy says. “But we don’t have a master plan.”

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