Development agreement creates extra expense for HOA, future homeowners

By Deborah Goonan, Independent American Communities

Today’s featured article highlights problems that occur when local governments engage in poorly thought out contracts with real estate developers, commonly known as developement agreements.

Homeowners in McCormick Creek recently learned that they could be legally obligated — via their homeowners’ association — to pay for maintenance of a new public parking lot, even though residents of the community won’t benefit from the added parking.

According to the News Tribune, former members of Gig Harbor City Council agreed to this onerous legal obligation, by way of a development agreement with Bryan Stowe. At the time, Stowe wanted to build 13 additional homes in McCormick Creek, and City Council decided to grant construction permits after Stowe offered to build a public parking lot near Cushman Trail and public ball fields.

The only problem: instead of paying for this concession himself, Stowe opted to pass the cost along to an unspecified HOA. Council members apparently did not care that current or future homeowners in McCormick Creek would be on the hook for keeping a public parking lot clean, well-lit, attractively landscaped, and properly insured.

Naturally, when homeowners learned that construction of the agreed-upon parking lot is in process, and that they’d be expected to pay for it, they were not pleased. Dozens of homeowners attended a recent meeting with Gig Harbor Council members, where they expressed their frustration, and asked the current Council to find a solution that is fair to homeowners in McCormick Creek.

Parking lot car convertible
(Unsplash.com

Hidden cost of side deals with developers frustrates Gig Harbor residents (Washington)

BY DANIELLE CHASTAINE
dchastaine@gateline.com

September 13, 2018 12:45 PM
A deal struck between the previous Gig Harbor City Council and a developer is causing new homeowners grief and fueling the current administration to fix what some see as a large loophole in the city’s code.

One of the campaign promises of Mayor Kit Kuhn and the council members elected in November was to look at Chapter 19 in the city code, titled “Development Agreements”, and make the code more restrictive.

“We were dead set to change development agreements,” Kuhn said. “Mostly Chapter 19.08. What section Chapter 19.08 says is a developer can deviate from the codes, regulation and ordinances if they give an amenity to the city. I ran on wanting to change that .. because it is opening Pandora’s box.”

Read more here:

Hidden cost of side deals with developers frustrates Gig Harbor residents

For readers who are unfamiliar with development agreements, they are essentially contracts between private developers and local governments. The Government Financial Officers Association recommends procedures to ensure fair agreements that benefit the public.

In general:

Economic development projects and infrastructure investment can present both tremendous opportunities and significant risks for governments. Negotiations can result in legally binding determinations of the most important aspects of a project, including performance metrics and the financial responsibilities of all parties. Government officials must ensure that agreements are negotiated to provide the greatest social, economic, and community benefits, while avoiding providing public benefits, considerations, or incentives that do not result in a substantial return on investment.

The ideal outcome for an economic development agreement is a contract that has been well-drafted and documented, is responsive to changing circumstances, and is fair to both parties. This outcome is most likely to be sustainable and mutually beneficial to all concerned.

Source:

https://www.gfoa.org/negotiating-economic-development-agreements

Harbor boats yachts snow capped mountain

Critics say that, no matter how well-intentioned, development agreements are private contacts that impede the democratic process of land use planning.

Although many local governments organize open hearings to allow the public to voice their concerns or objections to new development, the negotiation of a development agreement generally takes place in closed-door meetings, rather than in the public eye.

The obvious danger is that these typically non-transparent contract negotiations can be influenced by personal ambitions and preferences of real estate developers, planning commission members, or elected officials.

For that reason, several experts believe that development agreements should be abolished. Others see the need and potential benefits of such agreements, but acknowledge the need for much greater oversight of the process, in order to avoid unreasonable or unfair contract agreements.

There’s little question that local government officials must constantly be reminded of their duties to serve the public interest, first and foremost.

In a paper published in 2009 by Daniel P. Selmi, Loyola Law School of Los Angeles, entitled Land Use Regulation by Contract, Selmi explores the history and limitations of development agreements in setting Land Use policy. (See reference below for a link to the paper)

In his paper, Selmi concludes:

Land Use Regulation by Contract-Selmi
Land Use Regulation by Contract – Daniel P. Selmi, Loyola Law School, Los Angeles

McCormick Creek’s homeowners would undoubtedly agree with Selmi.

It’s time to rethink the status quo development agreement that spans a decade or more, especially when hundreds or thousands of future homeowners will have to live with the outcomes.

As a matter of public policy, we must not guarantee certainty for land developers, when it also creates uncertainty and/or onerous financial obligations for future property owners and residents.

Long term liabilities created by bad development agreements are particularly troublesome for homeowners in common interest communities, most of them subject to double taxation by multiple layers of government, including Special Districts as well as homeowners, condominium, and residential cooperative associations.

It’s hardly fair to help guarantee profitable investment by a private developer, while, at the same time, shifting virtually unlimited future costs and liabilities to homeowners and taxpayers.

Reference:

Land Use Regulation by Contract (Selmi, 2009)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1523427

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