Chapter § 9.4 Transferable Development Rights
| Jurisdiction | Washington |
The transfer of development rights (TDR) concept represents another market-based technique to reconcile the dual problems of equity for landowners and effective land use regulation.
(1) The TDR theory
A TDR program is another tool available to local authorities to ensure that local decision makers provide fundamental fairness and comply with legal authority, but at the same time provides mechanisms to guide regional development away from places where maintenance of the status quo may be more beneficial than development to places where development may be better suited. As stated in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 123, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978), dealing with a development prohibition designed to protect architectural integrity, "the Fifth Amendment's guarantee ... [is] designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." (Internal citations omitted.) The Court in Penn Central upheld a landmark preservation law that prevented the developer from constructing an office tower above Grand Central Station (a historic landmark) against a Fifth Amendment challenge. In reaching its decision, the majority noted that a developer's ability to sell development rights under an existing TDR program may mitigate the economic impact of a development regulation and should be taken into account when considering the economic impact of the offending regulation. Id. at 137.
As with PDR programs, TDR programs are premised on the ability to separate development rights from the underlying fee simple interest. As the name suggests, TDR programs allow development rights to be transferred between parcels of land under different ownership. This allows the land transferring the development rights to remain at a lower density and allows the receiving land to achieve higher density. This ability to transfer between noncontiguous parcels under different ownership is the element that distinguishes TDR programs from PDR programs and other density-shifting concepts, such as planned unit developments and cluster zoning, which require common control and ownership. See Volume 6, Chapter 4 (PUDs, Binding Site Plans, and Other Innovative Land Use Controls), of this deskbook. This element also adds an additional layer of complexity absent from PDR programs.
TDR programs are generally an overlay on traditional zoning to achieve greater flexibility in effectuating the goals of the underlying zoning codes. To appreciate how, conceptualize traditional zoning as a large cube rising over and enveloping a piece of property. The cube defines the maximum development potential under the regulations for a jurisdiction prescribing height, bulk, and scale. In effect, these regulations define the optimum level of development. Development levels below optimum are "penalized," especially by property taxes, under a system that assumes maximum development.
TDR programs allow landowners to use their undeveloped envelope by allowing transfer of the excess to other envelopes where greater height, bulk, or scale are consistent with planning goals. Thus, TDR programs allow landowners to make individual assessments on the maximum potential for a piece of property without being limited to a standardized maximum set for all properties.
Generally, TDR programs operate to accomplish the same restrictions on development as PDR programs, but TDR programs often involve a private marketplace. Initially, the TDR program creates two zones. The first is a "sending" or "preservation" zone, encompassing whatever quality the program finds desirable that is capable of protection under the police power. Historically, sending zones have included such diverse areas as agricultural and open space lands, landmarked structures, air rights, and sensitive areas. Designation of the area or amenity within a sending zone limits development in that area that is inconsistent with its preservation.
The second zone the program creates is the "receiving" zone. The receiving zone is where further development is desirable and has been planned. The receiving zone has two levels of allowed development density. The first level is that which can be achieved without a transfer development certificate. The second, and higher, level is what is allowed with certificates.
| Example: | Janet's farm is in a sending area. She gets nine transfer development certificates when her 20-acre farm and home are downzoned from one residential unit per two acres to one residential unit per 20 acres. A nearby suburb area is designated as the receiving area and still allows one residential unit per two acres. However, with presentation of a transfer development certificate, a developer can build at one residential unit per acre. |
Development rights certificates are valuable to anyone in the receiving zone who wants to build at a density greater than that allowed without a certificate. In general, developers have an incentive to negotiate for and purchase development rights when their profits from the more dense development exceed the costs of the right to build it. In effect, the program forces developers who might have received vast economic profit if allowed to develop property to its maximum potential to compensate property owners who have been forced to forgo further development. By reallocating unearned profits to compensate undeserved losses, TDR programs are capable of protecting valuable resources without government money.
(2) TDR programs outside Washington
Montgomery County, Maryland, is an urban county with almost 800,000 residents and lies just northwest of Washington, D.C. In 1980, the county designated 93,000 acres of land in the county as agricultural reserve (approximately one-third of the county). As of June 2010, Montgomery County has preserved approximately 72,000 acres of farmland using a variety of preservation techniques. TDR is credited with preserving over 52,000 of the 72,000 acres. Montgomery Cnty., Md., Agric. Pres. Adv. Bd., Montgomery County Farmland Preservation Annual Report: FY 1980-2013 (2013),http://www.montgomerycountymd.gov/agservices/Resources/Files/agpreservation/2013AGannualreport.pdf.
Under the Montgomery County program, landowners in the sending area were down-zoned from five acres per residential lot to 25 acres per residential lot. To compensate landowners for the down-zoning, owners were permitted to sell development rights as if their property were still zoned at five acres per residential lot. This established a significant incentive to sell development rights, as it allowed the landowner a better opportunity to recapture the loss in equity from the down-zoning. Id. This created a total of 1,880 net development rights in the sending zone. In the receiving zone, a formula determines how many extra units a builder can construct on a parcel. If all the developers in the receiving area were to attempt to build to the maximum allowed, a total of 2,137 development rights would be required. This demand for development rights is credited with giving the development rights real value, and TDR rights have increased in sale value over time. See Richard E. Tustian, Preserving Farming Through Transferable Development Rights: A Case Study of Montgomery County, Maryland, 4 Am. Land F. 63 (1983).
Perhaps the largest and most successful TDR program in the country is the one-million-acre New Jersey Pinelands program. Authorized by both federal and state legislation, the Pinelands program is located in southeastern New Jersey and comprises wetlands, creeks, rivers, and the largest pinelands in the world. See 16 U.S.C. § 471(i) (establishing Pinelands National Reserve); N.J. Stat. Ann. §§13:18A-1 to 13:18A-49 (N.J. Pinelands Protection Act). The TDR program is part of the Pinelands Comprehensive Management Plan, which restricts development densities in preservation, forest, and agricultural land and promotes growth in designated regional growth areas and Pineland villages and towns. N.J. Admin. Code tit. 7, ch. 50; see New Jersey Pinelands Commission, Pinelands Comprehensive Management Plan (Sept. 2, 2014), http://www.state.nj.us/pinelands/cmp/CMP.pdf. The program is managed by a commission that issues TDR credits based on a formula to owners of land in the preservation and agricultural areas, who must deed-restrict their land through conservation easements to the commission to prohibit future development. N.J. Admin. Code §§7:50-5.41 to 7:50-5.47. Developers can then purchase these credits from landowners to increase the permitted density of their developments by four additional credits per acre in designated regional growth areas. N.J. Admin. Code §7:50-5.45. The program has survived several court challenges. See, e.g., Hovsons, Inc. v. Sec'y of Interior, 519 F. Supp. 434 (D.N.J. 1981), aff'd, 711 F.2d 1208 (3d Cir. 1983) (Pinelands TDR program violates neither takings clause nor National Environmental Policy Act).
(3) TDR programs in Washington
Washington's Growth Management Act (GMA), Chapter 36.70A RCW, provides authority for adoption of TDR programs in Washington. The GMA mandates the adoption of comprehensive plans and authorizes the use of TDR programs in those plans. RCW 36.70A.090. In addition, cities and counties must adopt a purchase or transfer of development rights program prior to designating urban growth areas as forest land or agricultural land of long-term commercial significance. RCW 36.70A.060(4). Likewise, in 2011 the legislature created additional incentives for cities in King, Pierce, and Snohomish Counties to adopt TDR programs in Engrossed Substitute Senate Bill (ESSB) 5253. Laws of 2011, ch. 318 (codified as Ch. 39.108 RCW). ESSB 5253 ties the concept of tax increment financing for urban infrastructure with the transfer of development...
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