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DOES DEVELOPMENT PAY?

By Robert Burke
The investment that MCI WorldCom is making in Loudoun County is the kind of economic plum that most localities across the commonwealth can only dream about. The company is spending $200 million on a 1.3 million-square-foot headquarters that will be home to its subsidiary, UUNet Technologies. By 2001, about 4,000 people will be working there earning average annual salaries estimated at $54,700 per year. When the 530-acre campus is built out, it could hold a cluster of high-tech companies with up to 24,000 employees.
 
"The number of jobs [is] clearly going to be a benefit" for the county, says MCI WorldCom spokesman Dan Greenfield. "This is good for the whole region."
 
Envy MCI WorldCom's $200 million investment in Loudoun County? Scott York says success isn't always what it seems. York on the future site of UUNet's headquarters
photo by Mark Rhodes
But for some in Loudoun, the arrival of the MCI WorldCom project was like one of those bad vacation pitches. Congratulations, you've won a valuable prize! Now call this 900 number to see what it will cost you to claim it.

The state is the undisputed winner in the MCI WorldCom deal. It will rake in 10 times the $1.5 million the county expects to net each year from the project, according to a county study. Since Loudoun's unemployment rate is around 2 percent, the additional jobs will attract more residents, which will increase the demand for public education and other local government services.

Loudoun has had its fill of school construction. It has opened 18 schools since 1992. The county is overrun with residential development that has sent its population soaring 67 percent since 1990 to 143,900, making it the state's fastest-growing locality. It needs to build 22 schools in the next five years. Some county leaders predict an economic meltdown.

"The state is reaping the rewards of [growth], and Loudoun County is picking its nose, trying to figure out what to do," says Scott York, a member of the county's Board of Supervisors and a leader in a new effort to strengthen local government control over development. "What you have to do is start growing at a rate you can afford."

Citizen opposition to suburban sprawl is nothing new: It was a hot issue in the 1980s. What is different, though, is that today's advocates of controlled growth are better organized, and their ranks include more business people.

More than two dozen localities across the state have combined forces to form the Virginia Coalition of High Growth Communities. They're joined by the fledging New Dominion Business Council, a collection of corporate leaders headed by John B. Adams Jr., CEO of Spotsylvania County's Bowman Distilleries and chairman of the Virginia Manufacturers Association. At stake, say the growth-management forces, is the state's economic health, its quality of life and the tax burden on residents in high-growth counties.

Virginia's building industry rejects the latest growth-control movement as a predictable response to a long run of prosperity. Putting more restrictions on development will just drive up housing costs and slow down a healthy economy, says Michael Toalson, executive vice president of the Home Builders Association of Virginia. The only aspect of private-property development localities don't control is timing, he says. "That's been left to the marketplace, and we believe it should be."

But even Toalson acknowledges a key difference in this round of debate over development patterns. Real estate values, the driving force behind local tax revenues, haven't done as well as the rest of the economy. In some regions, property values still haven't recovered from the recession of eight years ago.

So while the state ponders what to do with a budget surplus of nearly $900 million, some fast-growing localities are sinking further into debt. So far, the high-growth coalition isn't pushing any particular proposal or offering any specific ideas for how to change the system. But the localities are crying for help, and they are taking their case to the General Assembly.

"We can't compete with the builders on lobbyist spending, but we're the voice for our people," says coalition Vice Chairman Rick Womble, a member of the Board of Supervisors in Spotsylvania County. "We're going to be a significant force to be dealt with."

* * *

One reason officials in fast-growing localities want more power to control growth is to correct the mistakes of their predecessors. Leaders in many places went overboard rezoning land for residential use, particularly during the recession of the late 1980s and early 1990s, they say. Then the robust economy of the past six years triggered a landslide of housing demand, and today many localities still have a backlog of approved developments waiting to be built. "You're powerless to go back and do something, regardless of what your growth patterns are," says Debbie Ritter, a city council member in Chesapeake, which is a coalition member.

The coalition wants localities to have the power to charge impact fees or to stop developments -- even after a rezoning -- in areas where existing infrastructure is inadequate. Using that power to slow the pace of new housing construction would give localities more time to build their commercial tax base and to save for inevitable infrastructure costs.

Womble and other local leaders say residential development doesn't pay for itself. A 1996 study in Spotsylvania estimated that each new residential unit was actually costing the county $1,400 a year. A similar study in Loudoun put that figure at $1,700. In Fauquier County, it was $2,600. The new houses increase the tax base, but not enough to pay for the new schools that new residents need. "That's a real concern of ours," says Womble. "We have a mandate to support public education. It's strangling the localities."

The coalition of high-growth localities was started last summer by York, who is running for chairman of the Loudoun County board. The coalition has members scattered around the state: Montgomery County in the New River Valley, Augusta and Rockingham counties in the Shenandoah Valley, and most of the counties around Richmond.

York hopes to double the coalition's membership in a year, but he expects skepticism from leaders in regions that haven't dealt with high-growth issues. "We're going to try to show them [that] if growth comes and you don't have the tools, you're setting yourself up for problems." York and other coalition leaders hope that the support they are getting from the New Dominion Business Council will keep critics from slapping them with an anti-business label. Adams formed the council last year to give business leaders outside the development industry a voice in the issue. Its seven-member executive committee includes Adams and Stephen Wolf, chairman of Arlington-based US Airways. Adams says the council expects to add new members soon, including representatives of several major corporations.

Council members aren't anti-growth, "but they're for smart growth," Adams says. "A lot of people are, quite frankly, in [business] for the bucks. Our group says that's fine if you want to make a living, but if the commonwealth is spoiled, is that good for Virginia?"

There's another reason Adams would like to cool off the pace of expansion: The state's rapid growth and low unemployment could force employers to start stealing workers from each other. "You don't want the pirating," he says, "and that can happen when there aren't enough employees to go around."

* * *

Fast-growing counties don't really want to manage growth, says Toalson of the Home Builders Association. They just want more money, and they're going after anyone they think has deep pockets.

"The home-building industry wants to pay its fair share" of local infrastructure costs," he says. "We just don't want to pay for all of it." The growth-management tools the localities want, such as impact fees and downzoning, will hurt the state by cutting the supply of housing and driving prices up, Toalson says. Impact fees would be passed along to the buyer, and the higher housing costs would discourage companies from coming here. Giving more growth-control powers to local governments "is the first step toward ending the economic growth cycle we're in today."

Doug Gray, public policy director of the Virginia Association of Realtors, says cutting the housing stock will actually create more road congestion by forcing more workers to commute. "You can't have it both ways," he says. "You can't be an economic center of employment and not provide housing." Toalson disputes the studies that localities say prove that residential growth doesn't pay. "They include in those formulas what factors they want to, to give them the result they want, which is a justification for more revenue," he says.

Because localities don't believe residential growth pays for itself, they would use growth tools as thinly disguised moratoriums on all but the highest-priced housing, Toalson predicts. That approach could lead to a shortage of moderately priced homes, which would hurt first-time buyers and senior citizens looking to downsize.

Local governments should manage growth with a well-designed comprehensive plan reinforced by sound zoning ordinances that are applied fairly, Toalson says. He cites Henrico County near Richmond, which is not part of the coalition, as an example of well-managed growth. Henrico doesn't seek proffers and has reasonable water and sewer rates, he says. Loudoun, on the other hand, just built a brand new government center. "How many schools could they have built with that [money]?"

Gray acknowledges that developers are partly responsible for creating the backlog of unbuilt homes. But he says local officials refuse to accept their share of the blame. "They make a valid point -- 'You all came and asked for the zoning.' Well, of course we did. That's what we do. The question is, 'Why didn't you say no?' They just didn't plan well, that's all there is to it."

* * *

Both sides agree on one point: The state should funnel more tax revenue back to the localities that generate it. When the state amasses a budget surplus of nearly $900 million while fast-growing localities pile up debt, something must be wrong, York insists. At the Realtors association, Gray accepts that idea. "If we got somewhere on that road," he says, "it would do a lot to deal with the problems."

Gov. Jim Gilmore says he's willing to study a revenue-sharing solution, but he's careful not to make any promises. "I'll look at all issues with an open mind," he says. "But that's going to be a long-term discussion."

Gilmore is determined to fund his car-tax phaseout, and members of the General Assembly have their own pet projects to protect. But plenty of money is still up for grabs. Revenues from individual income taxes have risen from about $3.5 billion in 1993 to nearly $5.4 billion in 1998, according to the Virginia Department of Taxation.

The problem local governments are facing is that real estate values haven't rebounded from the market slump of the early 1990s, says Stephen Ziony, an economist with the state Commission on Local Government. Northern Virginia was hit especially hard. Even the recovery that has occurred since 1994 has been modest, he says. "The real property recession in this state goes a long way toward explaining the hit local governments took," Ziony says.

Another expert, however, believes that the revenue gap may soon begin to shrink. John Knapp, director of business and economics research at the University of Virginia's Weldon Cooper Center for Public Service, says the state has gotten a shot in the arm lately from capital gains taxes on stock market profit-taking. That trend can't last forever, he says. Real estate values, meanwhile, have been improving. "They won't grow as fast as income, but they will be growing, and that will help the localities."

In the meantime, a Loudoun County business group wants the state to return 5 percent of individual income tax revenues to the localities that generated them, plus half of the annual increase in those collections. Revenue-sharing proposals such as this one are much more palatable to developers than downzoning subdivisions or charging impact fees. Developers aren't the bad guys, Toalson says. "We are simply responding to the demand being created by the tremendous job growth in Virginia."

* * *

Environmental groups have been fighting suburban sprawl for years. They've even fought battles in some of the counties that are joining the new managed-growth campaign. They're glad to have new allies. Sprawl "is one of the most significant environmental issues in the country," says Glen Besa, director of the Sierra Club's Virginia chapter. "It's to our advantage that it's also an important fiscal issue." Besa and others say the involvement of business and local government leaders is proof that the growth-management movement is stronger than ever.

"People are concerned about quality-of-life impacts, and they're concerned about the pocketbook issues. The combination of the two is potent," says Chris Miller, president of the Piedmont Environmental Council, which is based in Warrenton. A recent poll by Virginia Commonwealth University put support among Virginians for growth management as high as 70 percent. Also, growth-control candidates have won a handful of local elections in the past year in the city of Chesapeake and in the counties of Prince William and Fauquier.

"Perhaps [public opinion] will translate itself into new legislators and new supervisors who are responsive to people's concerns," Besa says. If the economy stays hot, Miller predicts that growth-management issues could swing some elections in November. He says the building and real estate industries aren't taking public sentiment seriously. "They trivialize it, and they're going to get run over."

Judging by the adverse reaction to MCI WorldCom's $200 million complex in Loudoun County, Miller could be right. Most bedroom communities would view a major corporate complex as part of the solution instead of part of the problem. It increases the commercial tax base and gives local residents better job opportunities closer to home. But those benefits are long-term, while the project's impact on the school system is immediate.

"Eventually, many bedroom communities become employment centers," says Knapp, the economist. But, "it takes time. ... These are transitory, painful developments."

COALITION MEMBERS

Counties: Albemarle, Augusta, Bedford, Chesterfield, Culpeper, Dinwiddie, Fauquier, Franklin, Gloucester, Goochland, Hanover, Isle of Wight, James City, Loudoun, Montgomery, Powhatan, Rockingham, Spotsylvania, Stafford

Cities: Chesapeake, Fredericksburg, Manassas, Suffolk

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© March 1999, Media General Business Communications Inc., publisher of Virginia Business