Chapter I: Introduction

Ending the Endless Suburb

Many communities are not creating the future they want. They aren?t protecting streams, woodlands and wildlife habitat. They aren?t preserving their farmland or their historic landmarks. In short, they aren?t really implementing the land use plans that they labored for years to adopt.

Many communities rely entirely on zoning to implement their land use plans. But zoning is often ineffective. Many zoning districts designed to protect environmental areas and farmland actually allow low-density residential development that is incompatible with the protection of these resources. As homes spread across the landscape, members of the public are surprised to find out that recent sprawl did not require a zoning code amendment but is compliant with antiquated zoning adopted many years ago.

Even when zoning is effective, it is not permanent. Local governments must act on applications from property owners and developers to change the zoning of specific properties. And the zoning for entire cities and counties can change from one election to the next.

The acquisition of land or conservation easements is the best means of permanently protecting sensitive natural areas, farmland, historic landmarks, open space and other properties that are important to a community. But acquisition requires money. And the voting public in most communities is so focused on paying for basic services like transportation and schools that there is inadequate support for increased taxes, or even development fees, for new initiatives like open space or farmland preservation. So these communities have to be satisfied with saving an occasional property through a governmental grant, a private donation or the work of a non-profit organization. But meanwhile, statistics show that the larger war on sprawl is being lost. Over one million acres of farmland alone are converted to development every year.1 To some people, these statistics are not alarming since we still have lots of undeveloped land left. But when others view these numbers, they picture a future in which most Americans live in low-density, auto-dependent developments that have little or no relationship to any countryside. They see a nation that will eventually look and feel like an endless suburb.

Faced with this dilemma, some communities have turned to transfer of development rights, or TDR. TDR is an implementation tool that encourages the voluntary shift of development from places that communities want to save, called sending areas, to places that communities want to grow, called receiving areas. With TDR, the owners of environmentally sensitive land, farmland and other important sending areas receive compensation by selling their transferable development rights, or TDRs, in return for voluntarily restricting the future development of their properties. The TDRs are purchased by the developers of land in separate receiving areas, places that are appropriate for development. Specifically, receiving area developers are given a choice. They can build at a lower density without buying TDRs. Or, these developers can voluntarily choose to buy TDRs and build at a higher level of development thereby increasing their profits despite the extra cost of the TDR purchases. When TDR works, sending area property owners are compensated for the development value of their land and are often able to continuing owning the land and receiving non-development income from it. Similarly, receiving area developers enjoy extra return on their investment while contributing to the preservation of sending area land. And, finally, TDR allows communities to achieve their land use goals in a way that provides compensation to property owners yet does not require significant public expense.

But, if TDR is so wonderful, why doesn?t every community use it? One of the purposes of this book is to demonstrate that quite a few communities do use TDR. Not all of these existing TDR programs generate transfers. But some have achieved great success. For example, Montgomery County, Maryland has preserved over 40,000 acres of farmland to date and the New Jersey Pinelands TDR program has saved over 31,000 acres. Nevertheless, the 134 communities profiled in this book represent a small fraction of one percent of all the counties, cities, towns and villages in this country. As described below, Part One of this book encourages an increase in that percentage by promoting TDR as an alternative to the takings/givings stalemate (Chapter II), exploring TDR?s success factors (Chapter III) and addressing TDRs legal considerations (Chapter IV). Part Two offers a step-by-step guide to preparing your own TDR program. And Part Three includes case studies from 134 communities around the country.

Beyond Takings and Givings

As explored in Chapter II, many property rights activists argue that governments should be required to provide compensation for partial takings, or regulations that reduce but do not eliminate all economic use and value of a private property. At the other end of the spectrum, community rights advocates point out that governmental actions add private property value as well as reduce it, often with little or no compensation to the public. But it is difficult to use these so-called ?givings? to offset partial takings on the same property due to the need for complicated assumptions about how much value change was caused by multiple government actions and who owned the property when these impacts occurred. And even if all sides agreed with these calculations, the estimates are often likely to show that some property owners enjoy a net value increase while other property owners suffer a net value decrease as a result of government actions. If so, this leaves communities in no better position than before the givings effect was considered.

Some scholars conclude that we have not yet found a way of putting givings to practical use. However, this chapter argues that TDR has been demonstrating for more than 30 years how some of the extra value created when governments allow additional development can be recaptured and used to provide compensation to owners who voluntarily agree to permanently restrict the development potential of other properties. TDR avoids claims for partial takings because the property owners are not forced to preserve their properties but, rather, are encouraged to record conservation easements in order to be compensated through the sale of their transferable development rights. TDR also avoids disagreements from developers about the effect or extent of government-generated value enhancements. That?s because developer use of TDRs is voluntary. Developers who don?t believe that they will profit from using the TDR option can decline to use it. However, when they choose the TDR option, and buy TDRs, developers essentially demonstrate their expectation that the value increases made possible only by the TDR option will exceed the TDR option?s extra cost, the cost of buying TDRs and thereby providing compensation for off-site preservation.

Consequently, unlike many other implementation tools, TDR does not require taxpayer support or total reliance on grants and state/federal spending. Instead TDR addresses the critical need for preservation funding by recapturing a portion of the extra profits created when governments allow development and transferring those proceeds to compensate landowners who voluntarily choose to forego development on other properties.

Transfer of Development Rights and Density Transfer Charges

Chapter III explores various aspects of TDR in detail. The organization of this chapter offers sections that respond to the following ten questions.

A What is TDR? This section defines TDR, explains the TDR mechanism and offers an example of a successful TDR program.

B How Did TDR Evolve? This section traces the history of TDR in the United States from the 1968 New York City Landmark Preservation Law to recent innovations like the Density Transfer Fee program adopted by Berthoud, Colorado in 2000.

C What Can TDR Accomplish? This section categorizes the 142 TDR programs detailed in Part Three of this book according to their primary purpose. Most of these programs are designed to protect environmental resources, farmland and historic landmarks. But TDR has also been used to promote affordable housing, implement downtown revitalization, promote desirable urban form and provide flexibility in the concentration of development while maintaining an overall growth limit that can be accommodated by the infrastructure system.

D Where is TDR Used? This section lists the states with TDR programs, provides the number of TDR programs in each state and organizes TDR programs into six regions within the United States.

E Where Has TDR Worked Best? This section summarizes the case studies found in Part Three for those TDR programs that have achieved the greatest amount of transfer activity: Montgomery County, Maryland; New Jersey Pinelands; Calvert County, Maryland; Boulder County, Colorado; Dade County, Florida; Long Island Pine Barrens, New York; Cupertino, California; Los Angeles, California; Malibu Coastal Zone, California; New York, New York; San Francisco, California; San Luis Obispo County, California; Seattle, Washington; Palm Beach County, Florida and Pitkin County, Colorado.

F What Are TDR’s Success Factors? This section discusses those characteristics that the author believes are most important to the success of a TDR program. 1. Support for Preservation, 2. Comprehensive Plan Designed For Implementation By TDR, 3. Sending Area On-Site Development Disincentives, 4. Affordable TDRs/Adequate TDR Allocations To Sending Areas, 5. Optimal Receiving Areas, 6. Effective TDR Thresholds, 7. Extra Density Only By TDR, 8. TDRs As A Commodity/TDR Banks and 9. Monitoring and Program Adjustment.

G What Are TDRs Advantages and Disadvantages? This section discusses the pros and cons of TDR using the following evaluation criteria: 1. Fairness, 2. Permanence, 3. Cost, 4 Administration and Adoption.

H How Does TDR Compare With Other Implementation Tools? This section discusses the advantages and disadvantages of TDR in comparison with the following implementation tools: 1. Zoning, 2. Clustering, 3. Purchase of Development Rights Funded By Taxes and 4. Development Transfer Charges.

I Why Doesn’t Everyone Use TDR? The first part of this section summarizes the reasons for not using TDR reported by respondents to a survey sent to 3,500 communities. The second part of this section describes how communities that use TDR resolved some of the issues cited by the survey respondents. For example, many respondents viewed TDR as an alternative to other implementation tools. Conversely, many communities that use TDR also employ other implementation tools. In other words, these communities see TDR as a way to supplement rather than replace other techniques.

J What are Density Transfer Charges? Density transfer charges, DTC, is the term used in this book to describe a simplified variation of TDR. Under DTC, the community may not identify either sending or receiving areas. The jurisdiction simply adopts an ordinance that attaches off-site preservation requirements to all future zoning code changes that would increase residential density, change residential zoning to non-residential zoning or increase the intensity of development within non-residential zones. The developer has the option of proposing the preservation of specific land to meet this requirement. But the ordinance allows the requirement to also be satisfied though the payment of a density transfer charge. The community keeps the proceeds from DTCs in a separate fund that is used to purchase land or development rights at locations that are important to the community. Like TDR, DTC is able to recapture a portion of the value created when local governments upzone properties. But DTC is easier to adopt than a traditional TDR ordinance because it postpones controversial actions like government-initiated rezoning of receiving areas and allocation of TDRs to predetermined sending areas. In other words, DTC offers an alternative for communities that may not have the time and public support needed to develop and adopt a traditional TDR program.

TDR’s Legal Considerations

Chapter IV was written by Donald I. Berger, a land use/real estate attorney and partner in the Los Angeles law firm of Morrison & Foerster. Mr. Berger begins by summarizing TDR?s legal framework, the authority of local governments to implement TDR regulations and the need for TDR programs to be consistent with planning and zoning laws.

Most of this chapter is devoted to the implications for TDR of U.S. Supreme Court decisions. In brief, the Court has recognized the ability of TDR to mitigate the impact of regulations on property value. However, the Court has not directly ruled on whether TDR would succeed as a legal defense against a constitutional taking. It should be remembered, however, that most TDR programs are not offered as the only form of compensation for properties that arguably have been deprived of all economic value by government regulations. Rather, most communities that use TDR continue to allow economic use of sending areas but offer TDR as an alternative. Specifically, the TDR alternative allows interested owners to voluntarily deed-restrict their properties against future development in return for the ability to sell transferable development rights.

In the final sections of Chapter VI, Mr. Berger reviews the tax implications of TDR programs and the need to document TDR transactions.

A Step By Step Guide to Creating A TDR Program

Part Two, Chapter V, provides a guide for developing a TDR program in the following 12 steps.

A Form Citizens Advisory Committee This step emphasizes the need to involve all stakeholders, since CAC members often become the most influential supporters of TDR program implementation as well as adoption.

B Assemble Information TDR programs can be developed from relatively simple data bases such as a community?s general plan and zoning code. Alternatively, they can be built from highly sophisticated GIS-based resource inventories where available.

C Develop Alternative Goals TDR programs can be based on current general plans. Alternatively, communities can use the process of developing a TDR ordinance to explore new alternatives for the community?s final pattern of development and preservation.

D. Receive Public Input This guide emphasizes that the development of a TDR program requires communities to refine working assumptions and change initial approaches based on public response.

E. Create Sending and Receiving Area Components In this step, CACs develop one scenario for the eight critical TDR program variables: sending area size, sending area density limits for on-site development, incentives for sending area owners to transfer development rights, receiving area size, receiving area density without TDR, receiving area density with TDR, TDR requirement per unit of density bonus and balancing TDR supply and demand.

F. Develop Alternative Scenarios In this step, the CAC develops alternative combinations of the eight critical variables identified in Step E.

G. Select Preferred Alternative In this step, the CAC members publicly present the alternatives studied as well as their preferred alternative.

H. Refine Preferred Alternative Once the preferred alternative has been selected, the CAC can make decisions regarding at least ten other components including sending site eligibility, preservation requirements, program procedures and TDR banks.

I. Environmental Review and Plan Recommendation Prior to consideration for adoption, planners should analyze the potential environmental effects of the preferred alternative. At a minimum, this analysis would ensure that infrastructure can accommodate the amount of development allowed under the TDR alternative.

J. Implementation This guide strongly encourages communities to actively implement TDR ordinances with public information programs, marketing, funding, facilitation and administrative support.

K. Monitor Transfers and Overall Development Once adopted and implemented, TDR programs should also be monitored to evaluate whether or not they are meeting expectations. L. Refine Program As Needed Based on the results of monitoring, communities should consider program improvements on an as needed basis.

Selected Case Studies

Part Three of this book consists of case studies of 142 TDR programs in 134 communities around the country. Chapter VI includes case studies that are particularly important for various reasons. Most are placed in this chapter because they have generated significant transfers: Montgomery County, Maryland, the New Jersey Pinelands, Calvert County, Maryland, San Francisco, California and Los Angeles, California. Others were added because they demonstrate a substantial public commitment to succeeding, such as King County, Washington, Larimer County, Colorado and the Long Island Pine Barrens, New York. Some, like Collier County, Florida, were added because they were pioneering TDR programs. But most are included because they demonstrate the diverse ways that TDR can be used or the different ways that a TDR program can be successful. Boulder County, Colorado leads the nation in inter jurisdictional agreements that allow development rights to be transferred from rural county land to receiving sites within incorporated cities. Cupertino, California adopted the first TDR program designed to allow flexibility in development concentration while maintaining an overall limit on growth. Dade County, Florida has strict environmental regulations that motivate sending site owners to transfer their rights rather than build in the Everglades. The Malibu Coastal Zone program in California has instituted several innovations including the use of donated TDRs. New York, New York uses TDR to preserve live-performance theater as well as historic buildings. In San Luis Obispo County, California, the land trust running the County?s TDR program used a modest loan as seed money for a revolving fund that has doubled in size while preserving a rare species of tree. The Tahoe Regional Planning Agency has four distinct TDR techniques including one that encourages the owners of sensitive environmental lands to remove existing structures. And Washington DC uses TDR to achieve a wide range of urban design and land use goals as well as historic preservation.

Case Studies of Other Good TDR Models

Chapter VII includes case studies of a wide spectrum of TDR programs. Some of these programs have generated only a few transfers. Nevertheless, these programs all provide valuable lessons for TDR program development. For example, Palm Beach County, Florida has monitored and modified its TDR program over the years and used a bond measure to buy critical environmental properties; the resulting TDRs are being sold through the County?s TDR bank. Manheim Township, Lancaster County, Pennsylvania is a relatively small community that has committed substantial funding to TDR acquisitions. Pitkin County/Aspen, Colorado requires developers to buy TDRs when building mega-mansions. And Thurston County, Washington requires developers to buy TDRs when they want to build below as well as above certain threshold density ranges.

Case Studies of Additional TDR Programs

Most of the TDR programs included in Chapter VIII have not experienced a single transfer. However, communities can still learn from these communities. In addition, some success stories can be found in this chapter as well. Santa Barbara, California has recently experienced transfers in a program designed to encourage the removal of buildings that exceed the city?s new urban design standards. Lumberton Township, Burlington County, New Jersey, was so successful in its first TDR program that it has created a second TDR program for the other side of the community. And the development of the TDR program in Monterey County, California helped the general public understand the need for scenic view restrictions along Highway 1 through the Big Sur coastline.

Summaries of State Takings Laws

The appendix summarizes state takings laws in the following 22 states: Arizona, Colorado, Delaware, Florida, Idaho, Indiana, Kansas, Louisiana, Maine, Michigan, Missouri, Mississippi, Montana, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming. These summaries are quite brief for most of the laws. However, the Appendix includes a complete copy of the two Florida laws since some experts believe that these laws may become models for future state legislation.

© Copyright 2003 by Rick Pruetz