Introduction

In light of the 1/16/03 GRID Working Group meeting at which Sending Area characteristics were prioritized, two alternative TDR systems are presented below for comment.  One alternative is a value-based system for which the value attributable to the density bonus in the Receiving Area is the engine that drives the system: there are no pre-allocated TDRs.  The other alternative is a unit-based system for which TDRs are pre-allocated.  Advantages and disadvantages of each alternative are discussed.

 

For now, both alternatives are limited to housing units only in the Receiving Area in order to simplify the different concepts between the value-based and unit-based systems.  Either system can eventually include commercial development in the Receiving Area.

Value-Based TDR System

Description of Value-Based TDR Alternative

A value-based system does not pre-allocate TDR units (housing units, acres or square feet).

The only variable that drives the system is the dollar value attributable to the density bonus, which determines the dollar value of development rights that must be purchased to achieve the density bonus.  A Receiving Area developer must only buy a certain dollar value of development rights.  He/she does not care from whom or where the development rights are bought (subject to the criteria described below).  The Sending Area can be larger for a value-based system compared to a unit-based system.  For a value-based system, supply and demand of TDRs is not a consideration because there is no finite number of pre-allocated TDRs.  In theory, a developer of a Receiving Area parcel can buy the required dollar value of development rights from anyone, anywhere in a countywide Sending Area.  However, it may be prudent to limit the size of the Sending Area based on political considerations – i.e. the residents of the Receiving Area who absorb higher densities may expect the public benefits of Sending Area preservation to be located nearby. 

 

Use a Weighted System to Achieve the Maximum Public Benefit

A weighted system for determining the dollar value of development rights bought and sold is proposed to reflect public benefits gained by preserving land in the Sending Area.  The GRID Working Group, at the meeting on 1/16/03, voted for five Sending Area characteristics:

¨      Preservation of scenic assets along highway corridors

¨      Parcels surrounding developed areas (i.e. greenbelts)

¨      Critical wildlife habitat and wildlife corridors

¨      Preservation of river corridors

¨      Productive or potentially productive agricultural parcels

 

All of these characteristics can be considered public benefits.  In general, preservation of parcels that have all or most of these characteristics would achieve more public benefits than preservation of parcels with only one characteristic.  Therefore, the following weighting system is proposed for calculating the value of development rights relative to full market land value:

¨      Parcels with all 5 characteristics: development rights are worth 100% of land value

¨      Parcels with 4 characteristics: development rights are worth 90% of land value

¨      Parcels with 3 characteristics: development rights are worth 80% of land value

¨      Parcels with 2 characteristics: development rights are worth 70% of land value

¨      Parcels with 1 characteristic: development rights are worth 60% of land value

 

Hopefully, owners of parcels with the most public benefits would have a greater incentive to sell development rights.  Given that development rights are typically valued between 30% and 70% of full land value, it may be quite an incentive to sell development rights worth full or nearly full land value and still retain land ownership.  Owners of parcels with only one benefit (worth 60% of full land value) could be allowed to have an appraisal.  If the appraisal determined that development rights are worth more than 60% of full land value, then they should be paid the higher value.

 

As to how the full land value is determined, parcel owners would have the choice of one of three methods:

¨      Appraisal

¨      La Plata County Assessor’s assessed valuation (imputed values for agricultural land using valuations of nearby non-agricultural land).

¨      Recent real estate sales in the area.

 

For the Receiving Area, the dollar value of development rights that must be purchased to qualify for a density bonus is determined by calculating the dollar value attributable to the density bonus.  As with the Sending Area, the dollar value can be weighted based on the public benefits achieved by purchasing and transferring development rights, thus preserving certain characteristics in the Sending Area.  The dollar amount of development rights that must be purchased can be discounted if the Sending Area parcel(s) from which development rights are bought has more than one of the five beneficial characteristics.  If the Sending Area parcel has:

¨      1 characteristic, development rights worth 100% of the value attributable to the density bonus must be bought

¨      2 characteristics, development rights worth  90% of the value attributable to the density bonus must be bought

¨      3 characteristics, development rights worth  80% of the value attributable to the density bonus must be bought

¨      4 characteristics, development rights worth  70% of the value attributable to the density bonus must be bought

¨      5 characteristics, development rights worth  60% of the value attributable to the density bonus must be bought

 

Thus, a Receiving Area developer would have a significant financial incentive to find a willing seller of a parcel with all or most of the public benefit characteristics.  In theory, the development rights for such parcels, which also have incentives for their owners, would be have the highest priority for purchase.

 

Third Party Buyers and Sellers of Development Rights

In lieu of a unit-based TDR system that treats TDRs as commodities that can be bought and sold on an open market, a value-based system can still accommodate third party buyers and sellers of development rights based on a countywide index of real estate values.  Just as the Consumer Price Index (CPI) is used to calculate annual increases in monetary benefits for many state and federal programs, a real estate index can be developed to calculate the increase in development rights over time.  Based on data that has already been collected by local real estate agents, appraisers and economists, an index can be developed to measure appreciation of land values, and thus development rights, from time of purchase to time of sale.  For example, assume that a third party paid $100,000 for development rights.  One year later, he decides to sell those development rights.  The real estate index shows that land has appreciated countywide by 10% during this one year period.  Therefore, he is entitled to sell the development rights for $110,000.  The next owner can also hold and eventually sell the development rights.  The development rights are finally “retired” when they are applied to a Receiving Area parcel to achieve the density bonus.

 

Advantages of Value-based TDR Alternative

¨      Value-based TDR, compared to traditional unit-based TDR programs, “custom fits” each transaction based on actual dollar values rather than on pre-determined TDR units, for which dollar values are usually negotiated by sellers and buyers or established by a government agency. 

¨      Value-based TDR is much more flexible and accurate than traditional approaches.   The dollar values determined for density bonuses and development rights reflect current land values and account for differences in values based on location, which may be significant.

¨      There is no need to translate densities, number of acres and ultimately land values into TDR units, as would be necessary under a traditional approach.  While traditional TDR eventually arrives at a dollar value for each TDR, value-based TDR cuts right to the chase because actual dollars are the sole basis for transactions, not intermediaries such as pre-allocated TDR units.

¨      Because the size of the Sending Area is not dependent on the supply and demand of a finite number of pre-allocated TDRs, the Sending Area can be much larger and diverse than the Sending Area of a unit-based TDR program.

 

Disadvantages of Value-based TDR Alternative

¨      Value-based TDR is a new concept and has not yet been tested.

¨      If either an appraisal or evaluation of recent real estate sales is the chosen method to determine Sending Area land values and/or the dollar value attributable to the density bonus, a TDR transaction could be delayed.

 

Unit-Based TDR System

 

Assumptions and Calculations

This alternative uses a one-to-one transfer ratio: one housing unit in the Sending Area equals one housing unit in the Receiving Area.  The pre-allocation of TDRs is based on the following assumptions and calculations:

1. The number of TDRs (expressed as number of housing units) that can be transferred from the Sending Area should approximately equal the number of TDRs (housing units) that can be absorbed in the Receiving Area if developers take full advantage of the allowable density bonus.  A large oversupply of Sending Area TDRs would devalue each TDR and probably reduce the financial incentive to sell TDRs.
2. Assume (optimistically) that the total TDR density bonus in all of Grandview equals 500 housing units.  The actual number will be decided as part of the Grandview Area Plan process.
3. Proposed Sending Area parcels are: parcels that are generally within one-half mile of US 160; parcels that are classified as agricultural by the La Plata County assessor; non-agricultural parcels that are large enough to be subdivided based on densities allowed by the Florida Mesa District Plan; or other parcels not within a subdivision that are undeveloped.
4. Allocate TDRs based on Florida Mesa District Plan Map densities.  Because sale of TDRs is considered a public benefit, use the upper end of the density ranges.  For the proposed Sending Area parcels (see Potential Sending Area Map and Table 1), two residential land use classifications are indicated on the District Plan Map: Agricultural/Rural Residential, which has a density range of one housing unit per 10 – 20 acres; and Suburban Density/Residential, which has a density limit of one housing unit per 0.5 acre.
5. For parcels classified as Agricultural/Rural Residential, the number of TDRs allocated to a parcel is calculated by dividing the parcel’s number of acres by 10 acres.  For parcels classified as Suburban Density/Residential, the number of TDRs allocated to a parcel is calculated by dividing the parcel’s number of acres by 0.5 acre.  Uneven numbers are rounded up to the next highest whole number.
6. Some parcels are split into two districts.  For such parcels, the number of acres within each of the Agricultural/Rural Residential and Suburban Density/Residential districts is estimated and the number of TDRs is allocated according to the procedure described in #5 above.
7. The number of TDRs allocated to each parcel is weighted to reflect different land values.  This weighted system is based on several assumptions and calculations:
   1. The land valuation for non-agricultural and agricultural parcels is based on records of the La Plata County Assessor.
   2. Since the land value for agricultural parcels is based on actual use, rather than development potential, the land value with development potential is imputed by calculating the average value per acre of non-agricultural parcels in the Sending Area and then multiplying this average value by the number of acres for each agricultural parcel.
   3. The land valuation per acre for each parcel is calculated by dividing the total land value (imputed value for agricultural parcels) by the parcel’s number of acres.
   4. The average valuation per acre for all parcels is calculated.
   5. For each parcel, a weight is calculated by dividing a parcel’s valuation per acre by the average valuation per acre.  A weighted number of TDRs is calculated by multiplying the weight by the original number of TDRs allocated.  (See Table 1, footnote 3 for an example.)

 

Description of Unit-Based TDR Alternative

The proposed Sending Area is quite small in order to avoid allocating an oversupply of TDRs in the Sending Area.  The geographic scope is limited to the US 160 corridor from SR 172/ CR 234 east to the eastern boundary of the moratorium area.  There are 28 parcels within the proposed Sending Area comprising a total of 1,551 acres.  Total number of unweighted TDRs is 652.  The number of weighted TDRs is 673.8.  Both numbers are slightly more than the assumed 500 TDRs that can eventually be used in the Receiving Area.  See Map of Potential Sending Area Parcels and Table 1.  The TDRs allocated to a parcel could be further weighted according to the public benefits provided by the Sending Area characteristics selected by the Working Group:

¨      Preservation of scenic assets along highway corridors

¨      Parcels surrounding developed areas (i.e. greenbelts)

¨      Critical wildlife habitat and wildlife corridors

¨      Preservation of river corridors

¨      Productive or potentially productive agricultural parcels

For parcels with only one characteristic, no additional weight is assigned.  For parcels with two characteristics, a weight of 1.1 is assigned, meaning that the number of TDRs allocated according to # 7.e. above would be multiplied by 1.1.  For parcels with three characteristics, a weight of 1.2 is assigned.  For parcels with four characteristics, a weight of 1.3 is assigned.  For parcels with all five characteristics, a weight of 1.4 is assigned.

 

TDR Values and Third Party Buyers and Sellers of Development Rights

If this alternative were adopted, a panel of real estate experts and appraisers should estimate the amount that developers of Receiving Area parcels would be willing to spend to buy one TDR.  This amount could be established as a suggested price, but the actual cost of one TDR would be determined by the market at the time of transaction.  TDRs could be treated as commodities, allowing third parties to buy and sell TDRs before “retiring” them when TDRs are sold to a developer in order to achieve the density bonus.

 

Advantages of Unit-Based TDR Alternative

¨      Each Sending Area land owner will know how many TDRs have been allocated to his or her parcel. 

¨      A one-to one ratio is easy to understand: simply forgo the right to build a house in one location for the right to build a house in another location.

¨      The Sending Area is compact and may be more suitable to a demonstration project than a larger Sending Area.

¨      The district plans provide a rational and politically acceptable basis for allocating a certain number of TDRs to a parcel because the plans were approved by citizens of those districts, the County Planning Commission and the County Commissioners.

 

Disadvantages of Unit-Based TDR Alternative

¨      Land values are likely to change rapidly in an appreciating real estate market that will probably exist in the small Sending Area east of Grandview.  To reflect these changing land values, the number of TDRs allocated to various parcels may have to be revised frequently.

¨      The Sending Area is very small relative to the desire by the Working Group to preserve major highway corridors and major river corridors in the County, as well as greenbelts around developed areas, critical wildlife habitat and wildlife corridors.  (Agricultural parcels are well-represented.)

¨      The size of a Sending Area necessary to avoid an oversupply of TDRs relative to their use in the Receiving Area is too small to include a greenbelt around Durango.  City officials are less likely to be receptive to a TDR program if the benefits of land preservation are not immediately evident in and near Durango.

¨      There is a drastic density difference between the two land use districts that are the primary basis for allocating TDRs.  The Agricultural/Rural Residential district allows a maximum density of only 1 housing unit per 10 acres, while the Suburban Density/Residential district allows a density up to 1 unit per 0.5 acres.  The allowable density of the latter is 20 times greater than the density of the former.  Given that some adjacent parcels are in different land use districts, with radically dissimilar densities, it may be difficult to convince Sending Area land owners that the TDR program treats all potential participants fairly and equitably.

¨      This method for allocating TDRs may be too complex for the public and Sending Area land owners to understand without a lot of effort, thus making them less likely to support or participate in the program.

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