Development Agreements

Development Agreements (DAs) are another mechanism used to capture increases in land value and provide benefits to a community. It is common for local agencies to enter into a development agreement when conferring long-term entitlements for a major project. As part of the negotiation process, developers may agree to provide extraordinary benefits, including infrastructure and other public facilities. These commitments are agreed upon at the discretion of negotiating parties and as such are not subject to the Mitigation Fee Act. The nature and magnitude of benefits provided will depend on local market conditions, the entitlements, and the development economics of the project. A DA may have the best chance of success when land values increase significantly (e.g., as part of annexation or significant zoning change). A DA is, however, a voluntary agreement among the parties, meaning that the jurisdiction and developer need to agree upon the terms.

Community organizations have also begun to get involved in land value capture through a more recent trend called community benefits agreements (CBA). A CBA is a contract signed by community groups and a developer that requires the developer to provide specific amenities and/or mitigations to the community. In exchange, the community groups agree to publicly support the project, or at least not oppose it. Examples of community benefits include local hiring efforts, funding for workforce development, apprenticeship programs, youth programs, affordable housing, and even physical space for community programs.

Opportunities and advantages. One of the primary advantages of a DA is that the terms or benefits that may be requested by the jurisdiction do not require a nexus (or reasonable relationship) to the impacts caused by the development (e.g., a request for a public facility that serves more than the development itself). A jurisdiction could also ask for a variety of items including land dedications beyond what is normally required of new development, public realm/material upgrades, financial contributions toward other public projects, etc. A jurisdiction may also incorporate timing goals for components of a project (e.g., construct the affordable units and/or retail component of the project in an early phase). As noted, developers will also want something in return from the jurisdiction; typically these can include longer-term approvals, agreement to provide subsequent streamlined review and/or dedicated staffing for follow-on permits to reduce holding costs, exemptions from any new fees, timely construction of a planned capital improvement project, commitment to staff a fire station, etc., that may benefit or be required to accommodate the project.

Procedural considerations. From a procedural point of view, DAs require public hearings and must ultimately be approved by the City Council or Board of Supervisors. Additionally, once established, they do require annual reviews to ensure that there is ongoing compliance with the terms of the agreement.

There are feasibility limits on the value capture, meaning the items/terms requested by the jurisdiction must be somewhat commensurate with the increased land value and any terms that benefit the developer. Given that community-based organizations have expressed interest in value capture, there could be additional or competing requests upon future development to incorporate other benefits as well. As such, care will need to be taken to balance a variety of community needs and desires with overall project feasibility.