Transfer of Development Rights (TDRs)

While simple in concept, creation and administration of a TDR program can be complex. Adopting a TDR program involves designating sending and receiving areas, as well as establishing values and allocation rates for development rights. For the program to work, developers must realize value (extra profit) beyond the cost of the additional development rights. Additionally, landowners in sending areas must feel that they are adequately compensated for giving up the right to develop. For example, a TDR program may sell development rights at a rate of $10,000 per TDR, yet the added density would increase the value of the property or development by only $13,000; the $3,000 extra profit might not be enough incentive to promote the use of the program. Planners should consult with valuation experts to determine the appropriate rates and allocations to ensure that transactions will occur.

The community should follow the following basic steps:

• Define the purpose of the program. It is important that TDRs be tied to the goals and policies of a community’s comprehensive plan and its hazard risk reduction priorities.
• Identify where the TDRs are permitted. Consider whether the incentives should apply to all zoning districts, only areas meeting certain conditions, or on a case-by-case basis. Identify specific sending areas and receiving areas.
• Determine valuation and costs. Establish values and allocation rates for development rights. This could be done by researching existing programs in comparable jurisdictions, or conducing new research with landowners and economists.
• Establish procedures and institutions to administer the program. Communities must decide whether to work with an existing financial institution or develop their own internal systems and procedures to promote the program, bank development credits, and handle transactions.
• Develop the specifics of the program. Identify the degree to which incentives are issued, whether they are permitted by right or require a public hearing, and other conditions or agreements that must accompany the program.
• Adopt the ordinance. Draft and adopt an ordinance formally establishing the TDR program and covering basic information such as the program purpose, applicability, and other specifics addressed in the sample model language below. Ensure consistency with other land use regulations.

Summit County has a robust TDR program that protects environmentally sensitive areas from development. The program is divided into four geographically specific TDR areas, generally protecting rural backcountry parcels (sending areas) in exchange for more development in the urban (receiving) areas. Summit County’s program also includes “neutral areas” and “optional areas.” Neutral areas are parcels that are not suitable for either sending or receiving development rights, and are not eligible for sending or receiving density. Optional areas include parcels that are determined to be suitable for either sending or receiving density. Summit County recently explored options for directly addressing natural hazards, in particular wildfire, through the TDR program. Those discussions were still underway at the time of drafting this guide.

Routt County established a Purchase of Development Rights (PDR) Program in November 1996 and reauthorized the program in 2005 with increased funding through 2025. The program is intended to provide landowners a financially viable alternative to selling land for development by compensating them for the development rights on their land. Agricultural lands and natural areas (including wildlife habitat and riparian areas) have been the focus of the preservation efforts. An Advisory Board assists the County Commissioners in administering the program and selecting sites for acquisition (Routt County PDR, 2015).

TDR programs can be effective ways to not only reduce development in hazard areas, but also direct growth to the desirable areas throughout a community. Other benefits include:

• Increased opportunity for developers to boost their bottom line. By purchasing development rights, a developer can increase the number of units and realize a higher profit.
• Increased density where the community wants it. Densifying receiving areas can result in a more diverse housing stock, can help boost surrounding commercial areas, and could potentially result in development of affordable housing units not otherwise feasible without the added density bonus.

Administering a successful TDR program is not as simple as protecting one area and increasing the density elsewhere by means of a transaction. TDR programs are often highly political and can be difficult to both map and maintain over time. Other challenges include the following:

• Receiving areas can be potentially contentious. It might look good on paper, and the comprehensive plan might even state that additional density is appropriate in the vicinity; but officially designating an area as a receiving area can elicit mixed emotions related to density.
• Conversely to the receiving areas, designation of sending areas can be perceived as stripping a landowner’s right to develop and can result in legal challenges and lengthy negotiations.
• Values of a development right must be calculated and recalibrated to respond to market conditions.
• Not all sending or receiving areas are created equal. In larger counties or municipalities, the perceived values of TDRs could vary in different locations. For example, a sending area that is surrounded by encroaching development might be the basis for argument that the value of developing that land is greater than another less desirable sending area. These nuances can be addressed by adjusting allocations, but only add to the complexity of the program.
• A TDR program can be complex to administer without adequate staff training and education. Planners must strike a balance between a simplified approach that is easy to understand, yet responsive enough to development realities to act as an effective incentive.
• Intergovernmental agreements (IGAs) are needed to effectively implement a TDR program if multiple jurisdictions are involved. In Summit County, the TDR program within the Upper Blue Basin has been very effective due in large part to an IGA between the County and the Town of Breckenridge where many of the receiving areas are located.