Is Raleigh Ready for PPPs?

Although it flew under the radar, the Raleigh City Council seemingly laid the foundation for expanding the use of public private partnerships (“PPP”) when it passed Text Change TC-9-21 (Development Agreements) last year.  TC-9-21 aligned the City’s Unified Development Ordinance (“UDO”) with the North Carolina General Statutes authorizing local governments to use Development Agreements (“DA”). So, what is a DA? In simple terms, a DA is a legislative land use tool that allows local governments to negotiate binding contractual agreements with developers as part of an entitlement process like a rezoning.   The goal of using the DA tool is to secure enhanced public amenities, infrastructure or other public benefits in exchange for expanded land use entitlements beyond those that could otherwise be secured through a conditional rezoning process or other land use regulatory tools like site plans or subdivision approvals.  

Raleigh has not used the DA tool since it was enacted by the General Assembly in 2005*, but with the passage of TC-9-21 and the addition of 4 new City Councilors, the door may now be open to using DAs as another option for implementing the City’s Comprehensive Plan, particularly along transit corridors, the proposed commuter rail line and possibly around public facilities like Dix Park and the PNC Arena. While DAs are not appropriate for every new development or land use entitlement process, they can be more effective under the right circumstances.

At the same time, it’s important not to confuse DAs with Community Benefit Agreements (“CBAs”). It’s becoming more common to hear residents involved in Raleigh rezoning cases refer to CBAs, particularly in the context of affordable housing.  While DAs and CBAs share some similarities, CBAs are not legal in North Carolina primarily because they typically involve a developer, a local government and one or more 3rd party nonprofits or local labor unions as a way of securing job training, a reservation of jobs for local residents and/or mandated minimum wages.  Those areas are simply off-limits to regulation in North Carolina by local governments.

Though more limited in scope than CBAs, the DA enabling statute (160D-1001-1012) does grant North Carolina local governments broad authority to enter into agreements associated with virtually any kind of development regardless of size or impact.  However, because there are additional public review requirements, DAs could be cost-prohibitive on small projects.  Here are some of the items that can be addressed in a DA:

• Allocating costs and/or responsibility for constructing public infrastructure like water, sewer and transit/transportation.

• Allocation of costs and construction responsibility related to constructing  and/or preserving affordable housing.

• Establishing expedited plan review and inspection processes for specific projects.

• Land dedications for public facilities including police, fire, schools, transit, parks and greenways.

• Allocation of financial commitments for the construction of public facilities, affordable housing and amenities including public art, recreation facilities and sports/entertainment venues, so long as they are publicly owned. 

• Enhanced stormwater facilities.

• Enhanced public transit facilities like BRT stations, bus facilities and stops.

• Green infrastructure including solar facilities, charging stations, etc.

What sets DAs apart from traditional entitlement processes like conditional use or planned development rezoning is that the DA legislation expressly allows for broad and explicit negotiations between developers and local governments.  Beyond a number of mandatory terms and conditions set forth in the legislation that must be addressed, the key statutory language states:

The development agreement also may cover any other matter, including defined performance standards, not inconsistent with this Chapter. The development agreement may include mutually acceptable terms regarding provision of public facilities and other amenities and the allocation of financial responsibility for their provision, provided any impact mitigation measures offered by the developer beyond those that could be required by the local government shall be expressly enumerated within the agreement, and provided the agreement may not include a tax or impact fee not otherwise authorized by law (N.C.G.S. 160D-1006(d)).

Pursuant to this language, Raleigh could explicitly agree to contribute financially to offset the cost of construction if a developer agreed to include affordable housing within a proposed development.  Similarly, the City could agree to build certain public facilities like a fire station, bus stop, greenway, public park or install public art within a proposed project on land dedicated by the developer.  The City and the developer could even allocate costs to facilitate enhanced aesthetic character of certain public facilities to be built within a proposed development. Under a traditional conditional rezoning process, such commitments are not permitted.  Similarly, a developer could agree to contribute financially toward the cost of off-site affordable housing units (or pay into a local land trust) as a way of addressing housing affordability in exchange for certain additional entitlements  In other words, the DA legislation allows developers and local governments to negotiate a wide array of issues and allocate costs in ways that benefit the general public as part of a complementary entitlement process like conditional or planned development rezoning.  

But that does not mean DAs are appropriate every time a developer files a rezoning or other land use entitlement application.  Negotiating a DA can be complex, so smaller projects are unlikely to justify the added expense.  The DA negotiation also needs to be part of an overall entitlement strategy from the start.  It’s much too difficult to try and start negotiating a DA once the entitlement process is in full swing.

So, what are some of the conditions that increase the likelihood of a successful DA negotiation?  While every project is unique and must be evaluated within the prevailing economic and political context, here are some considerations that can increase the chances of success:  

• DAs are viewed as an economic incentive tool by the local government rather than a regulatory cudgel.

• The local government and the developer identify synergies that can be gained (or enhanced) through a proposed development, but only with a level of coordination and shared risk allocation available using a DA.

• Where a local government has a DA policy and has tasked staff with seeking out DA opportunities independently and/or for identifying projects at the start of the entitlement process that fit within an approved DA policy.

While no land use tool is perfect, DAs offer a level of flexibility and customization that makes it more adaptable to the needs of complex real estate projects than any other land use tool available in North Carolina.  That is particularly true in fast-growing regions where residents demand high quality public infrastructure and complex mixed-use developments are the emerging land use. But like any contractual arrangement, negotiations must start from a position of trust and focus on securing a set of mutually beneficial outcomes in order to be successful.  

* The original statute required that a project include at least 25 acres of land before a DA could be used. That requirement was eliminated several years ago as cities began to see developers seeking to build more complex, urban mixed-use developments in their downtowns.