Managed Retreat Toolkit
Transfer of Development Rights
Introduction to TDR Programs
Transfer of Development Rights (TDR) programs create market incentives to shift development away from areas where it is discouraged (called “sending areas”) to areas where development is preferred (called “receiving areas”).See footnote 1 Sending areas typically include undeveloped areas with natural resource or agricultural value, and receiving areas are typically urban and suburban areas with existing services and infrastructure where additional growth and development can be accommodated. Local governments, like counties and towns, generally designate sending and receiving areas using zoning ordinances and maps. Under a TDR program, landowners in a sending area can choose to sever and sell some or all of their unused development rights from their property as “TDR credits.” In selling TDR credits, landowners agree to forgo development and preserve their property through a conservation easement. TDR credits can be bought and sold as a tradable commodity separate from the land itself. Separated TDR credits are typically sold to developers in receiving sites, who can then use the TDR credits to increase the density of proposed development above base zoning standards in the receiving area.
Property owners in sending areas are encouraged to participate in TDR programs because they can often receive two types of financial incentives: a payment (at the prevailing market price) for their extinguished development rights; and tax cuts or exemptions by dedicating parts or all of their land to conservation uses. Property owners in sending areas may also be motivated to participate due to the knowledge that they are contributing to conservation efforts in their communities. Developers in receiving areas can benefit from the purchase of TDR credits to maximize project outcomes and returns on investment. For example, by acquiring a requisite number of TDR credits, developers can increase the number of dwelling units or parking spaces in a housing development to provide more homes for people and increase their own profits. As envisioned, developers will ideally recoup the initial costs allocated to purchase TDR credits by enhancing the density or other features of their projects.
All TDR programs can require short-term start-up investments and long-term administration costs. Although most TDR programs share these common components, each program is different and tailored to meet local context. In addition, four programmatic differences are noted here for their application to thinking about managed retreat (see below). First, TDR programs can be managed by governments — typically at the county or municipal level — or third-party entities, like nonprofits or consultants. Second, TDR programs can operate on different scales, for example, within a single municipality or county jurisdiction, or across multiple jurisdictions. Third, TDR programs can be mandatory or voluntary; however, for purposes of this toolkit section on market-based — compared to regulatory — tools, only the latter will be discussed. Fourth, programs can be structured as “TDR banks” or through sales directly between property owners and developers seeking credits on a project-by-project basis. With a TDR bank, developers purchase TDR credits from a government or third-party entity instead of directly from landowners. A TDR bank can make programs more predictable and manageable for both landowners and developers. Government staff, however, are needed to administer both types of program structures.
TDR Programs in a Managed Retreat Context and Legal Considerations
In a managed retreat context, TDR programs could be used in two primary ways. First, governments could use TDR programs to transition or create disincentives for new development in vulnerable coastal sending areas by transferring TDR credits to increase density in more inland or higher ground receiving areas. The sale of TDR credits could also encourage property owners with already developed lots to remove or relocate structures that could act as barriers to the inland migration of coastal habitats being inundated by rising seas and unable to adapt in their current location. At present, however, there are few examples of TDR programs in the U.S. that were or are being created for the explicit purpose of managed retreat.
While there are some TDR programs that exist to protect coastal ecosystems, sea-level rise will present novel legal and policy questions that decisionmakers, particularly at the local level, will have to factor into the design of these programs to implement managed retreat. Importantly, local governments will have to evaluate whether they have the legal authority to create TDR programs for managed retreat. Most TDR enabling statutes were likely written before policymakers and communities started thinking about using them in a managed retreat context. Depending on how each statute is written, governments will have to determine whether current statutory language is broad enough to cover these types of programs; if not, statutory amendments may be needed. In addition to specific statutory authorizations in land-use and zoning enabling statutes, local governments, particularly in home rule compared to Dillon Rule states, may be able to rely on their plenary police powers to establish a TDR program. In Dillon Rule states, state legislatures must delegate specific powers to local governments compared to home rule states, where local governments may have broader powers.
Similarly, the coastal impacts of climate change will often extend across jurisdictional boundaries at the local level and may necessitate regional or cross-jurisdictional adaptation strategies, especially for managed retreat. Many existing examples of TDR programs only operate within a singular jurisdiction. Accordingly, state and local governments may have to evaluate how they can create programs that can operate at a regional or cross-jurisdictional level. State and local decisionmakers should first determine whether local governments have the authority to transfer TDR credits across jurisdictions; if not, potential statutory amendments may be needed.
The intermunicipal transfer of TDR credits may also implicate other legal and policy considerations regarding potential revenue shifts across sending and receiving areas. Specifically, sending areas may experience a loss in property tax rateables (i.e., for properties protected by conservation easements), and receiving areas with increasing populations may need to fund investments in supporting infrastructure and community services. For receiving areas in particular, the price of TDR credits may not be sufficient to support these additional costs. State and local governments should consider ways to mitigate these potential impacts on both sending and receiving areas in order to encourage and facilitate their participation in TDR programs. Local governments — with either or both sending and receiving areas — will also have to assess whether TDR programs are compatible with their existing local plans (e.g., comprehensive plans, longer-term visioning or strategic plans) and land-use and zoning ordinances, or whether they can and should be amended to accommodate new zoning designations (e.g., for open space) and density requirements (e.g., upzoning receiving areas).
In addition to questions about legal authority and the intermunicipal transfer of TDR credits and revenue sharing, local decisionmakers should consider how they can structure effective financial incentives in this unique context. Most existing TDR programs have financial incentives that direct development away from more sparsely populated, presumably more affordable rural areas to denser, more expensive urban areas. This difference in property valuation and densities can create a demand for increased density that drives the sale of TDR credits. In contrast, coastal sending areas, while vulnerable to climate change, are likely highly desirable areas supported by strong real estate markets. It could be more challenging for governments to create the right types of and price for market incentives to encourage people to phase out development in more expensive areas with a greater demand for development and increase development in an area with a lesser demand for increased density. Moreover, many coastal properties, particularly in urban areas, are likely to have smaller lot sizes with less acreage to sever development rights from sending areas, unless TDR allocation ratios are adjusted to establish a meaningful incentive even for small lots with less development potential. For example, governments can choose to incentivize conservation by awarding more TDR credits than the number of development units a parcel would allow. In the absence of effective TDR ratios though, there could be potentially less of a supply for TDR credits in these sending areas.
Policy Tradeoffs of TDR Programs
- Local agencies will have to dedicate funding and staff resources over both the short term — for the design and set up of TDR programs — and the long term — for program management and administration, especially for government-run programs. Local agencies may also have to acquire staff with new expertise in economics, among other fields, or outside consultants.
- Local governments can consider different models and types of TDR programs — including whether the program will be government-run or administered by a nongovernmental partner — and can adapt a program’s design based on local needs and economic market conditions, among other factors.
- TDR programs for sea-level rise will necessitate localized data for physical impacts on the coast and inland areas that can accommodate increased density to identify and designate sending and receiving areas, respectively. If this data is not readily available, local governments will have to invest in or work with federal, state, university, and nongovernmental partners to produce and acquire this data at an appropriate scale.
- Local governments will have to amend land-use and zoning maps and regulations to designate sending and receiving areas and provide for a program’s rules of operation. Local governments may also prepare guidance and education and outreach documents to facilitate program awareness and uptake in both types of areas.
- TDR programs can generate and sustain an independent source of revenue to prevent future and remove existing development in vulnerable coastal areas.
- Property owners in sending areas are encouraged to participate in TDR programs because they can often receive two types of financial incentives: a payment (at the prevailing market price) for their extinguished development rights; and tax cuts or exemptions by dedicating parts or all of their land to conservation uses.
- By keeping some coastal areas free of development, state and local governments and property owners can save on costs associated with emergency response and recovery after damaging events like severe storms.
- New TDR programs for managed retreat will require startup costs. Long-term program management may also necessitate ongoing public costs until a program becomes self-sustainable by generating sufficient funds.
- It may be challenging to create the right financial incentives to drive supply and demand for TDR credits, particularly in changing markets.
- For regional or cross-jurisdictional TDR programs, local governments with sending areas may experience property tax losses.
- Receiving areas with significant increases in density and housing will likely need additional funding for investments in new supporting infrastructure and services. The sale of TDR credits, however, does not usually account for these costs.
- TDR programs can protect open spaces from future development and remove existing development in vulnerable coastal areas that are being impacted by sea-level rise, flooding, and land loss. These open spaces can provide multiple benefits including reducing flood risk, sequestering carbon, and preserving habitat for important natural resources, like migratory birds.
- Open space can prevent future development and remove existing development to facilitate the inland migration of coastal wetlands and forests that are unable to keep pace with sea-level rise, saltwater intrusion and salinization, and a loss of sediment to “adapt-in-place” on the coast.
- Voluntary TDR programs can garner greater public acceptance and encounter less political barriers than mandatory TDR programs to implement managed retreat.
- Local governments should engage communities before designating sending and receiving areas. In particular, current residents in receiving areas may be concerned about how their communities may change in response to increasing density and population (possible effects on neighborhood character and community cohesion, the capacity of infrastructure, and schools).
When implementing TDR programs in a managed retreat context, decisionmakers may consider the following practice tips to address and balance different policy tradeoffs:
- Innovate and be flexible at the local level: Local governments interested in coastal TDR programs for managed retreat should consider opportunities to pilot the design of programs and engage communities to inform their development and implementation. For example, Miami-Dade County conducted a TDR program study and the City of Norfolk, Virginia is piloting a new type of TDR program through its land-use permitting regulations. While local governments can look to existing TDR programs, like in King County, Washington, for transferable takeaways and lessons learned, TDR programs in this context may require some innovation, in addition to the flexibility to adapt to changing local needs, physical impacts, and market conditions. In particular, regional or cross-jurisdictional programs may require creative brainstorming to minimize administrative and economic costs.
- Work with state legislatures: Given the unique and somewhat novel context of coastal TDR programs for managed retreat, local governments should work with their state legislatures to consider updating or amending TDR program enabling statutes to give them the explicit power to create TDR programs to adapt to sea-level rise and other coastal and climate impacts. For many local governments, particularly in home rule states, police powers for actions that protect the public health, welfare, and safety of residents may be broad enough to cover this type of program; however, clear statutory authorizations can encourage governments to consider this type of market-based tool by eliminating uncertainty about a local government’s legal authority. New York State’s TDR program statute can serve as one example for other states. Local governments interested in designing regional or cross-jurisdictional TDR programs for managed retreat can also work with their state legislatures to evaluate potential legal options to transfer TDR credits across jurisdictions. Statutory solutions can possibly minimize the administrative and economic costs of TDR programs — particularly for property tax losses in sending jurisdictions and funding to support infrastructure investments in receiving communities — and maximize the economic and environmental benefits by enabling these programs to be implemented on a governmental scale that corresponds with an appropriate scale of physical risk.
- Plan for and make investments in receiving areas: Municipalities serving as receiving areas with increasing density and housing will necessitate long-term planning and investments in infrastructure and community services. Proactive planning efforts and dedicated funding to support these investments, like in Washington State, can help to minimize the administrative, economic, and social costs of TDR programs. For example, local governments can engage residents in planning and visioning exercises to allocate new growth in a way that is consistent with maintaining community character and enhancing community priorities. Since the money generated by the sale of TDR credits typically does not account for these costs, state and local governments should evaluate potential opportunities for additional revenue to advance these purposes, particularly on a regional level.
- Build public-private partnerships: Local governments can build various types of partnerships to offset some of the administrative, economic, and social costs of TDR programs for managed retreat. For example, regional partnerships with other municipalities or county or state governments to set up a TDR bank can lower costs by distributing them across more entities and creating larger-scale, more sustainable markets for TDR credits. In addition, public-private partnerships with universities or nonprofits could be used to collect localized data to identify and designate sending and receiving areas and engage communities in these discussions.
State of New York Senate Bill S6424A: Identifying Lands at Risk from Sea-Level Rise or Flooding as Eligible Sending Districts for Transfer of Development Rights (TDR) Programs
Managing the Retreat from Rising Seas — King County, Washington: Transfer of Development Rights Program
On November 20, 2019, the State of New York passed Senate Bill (S.B.) S6424A amending the state’s enabling statute for TDR programs to allow local governments to create a TDR program to mitigate risks from sea-level rise, storm surge, and flooding. This is the first example of a state statute that explicitly includes language authorizing a local government to create a TDR program and designate sending areas for managed retreat purposes. Through S.B. S6424A, the state added language to different local government statutes (General City Law § 20-f, Town Law § 261-a, and Village Law § 7-701) to allow municipalities (i.e., cities, towns, and villages) to create a TDR program “to protect lands at risk from sea level rise, storm surge or flooding.” S.B. S6424A also includes new language that allows local governments to designate sending areas in districts which consist of: “natural, scenic, recreational, agricultural or open land or sites of special historical, cultural, aesthetic or economic values sought to be protected or lands at risk from sea level rise, storm surge or flooding.” By including this language in these enabling statutes, local governments in New York State can consider using TDR programs as a managed retreat strategy for coastal adaptation by discouraging development in higher flood risk sending areas and encouraging the sale of TDR credits in lower flood risk receiving areas. Other states may consider including similar language in their TDR enabling statutes, or local governments in home rule states may also evaluate opportunities through their land-use and zoning powers.
Exploring Transfer of Development Rights as a Possible Climate Adaptation Strategy - Urban Land Institute Resilience Panel Focus Group with Miami-Dade County
The King County TDR Program in Washington State uses a unique market-based tool to achieve long-term planning goals and incentivize development in strategic areas that can be coupled with other legal and policy tools as a part of comprehensive coastal retreat strategies. King County created the TDR Program in response to state growth area management requirements and objectives. Municipalities and unincorporated areas across the county can voluntarily choose to participate in the program. Municipal programs are then administered individually according to local laws and an interlocal legal agreement with King County. Between 2000 and July 2019, 144,290 acres of rural and resource lands were conserved and protected through the King County TDR Program. As a result, more than 2,400 potential dwelling units have been relocated from rural to urban areas. Washington State also created the Landscape Conservation and Local Infrastructure Program to support TDR Programs like King County’s by financing infrastructure development and other improvements in receiving communities to ensure these areas can keep pace with population growth. In a managed retreat context, TDR Programs modeled after King County can be used to preserve lands for ecological benefits through conservation easements, while ensuring new development is concentrated in areas that are less vulnerable to flooding and coastal hazards, such as sea-level rise and storm surges.
Building a Better Norfolk: A Zoning Ordinance of the 21st Century - Norfolk, Virginia
In November 2017, the Urban Land Institute’s Southeast Florida/Caribbean District Council (ULI) published a report in partnership with Miami-Dade County’s Office of Resilience exploring the possibility of creating a Transfer of Development Rights (TDR) program in the county as a possible climate adaptation strategy. The report was the result of the work of a ULI Resilience Panel Focus Group — established by ULI and Miami-Dade County’s Office of Resilience — to assess the feasibility of a TDR program and whether one could facilitate the voluntary retreat of people and vulnerable development away from flood-prone areas at the county or municipal level. In addition to documenting the Focus Group’s process, the report presents the important components and functions of a TDR program, what a TDR program might look like in a coastal context, what factors or “lessons learned” from existing programs should be avoided, and recommendations for potential next steps. This report can inform the development of TDR programs for climate resilience or sea-level rise throughout Southeast Florida and in other coastal jurisdictions.
Transfer of Development Rights in U.S. Communities: Evaluating Program Design, Implementation, and Outcomes
In 2018, the City of Norfolk, Virginia adopted a new zoning ordinance to enhance flood resilience and direct new more intense development to higher ground, including through an informal TDR program created by the city’s permitting system. The ordinance contains a permitting system called the “Resilience Quotient System” where developers earn points for adopting different resilient measures that promote flood risk reduction, stormwater management, and energy resilience, among other practices. One way developers can earn points is by extinguishing development in the city’s Coastal Resilience Overlay (CRO) zone, which includes higher flood risk areas of the city, and increasing density in the Upland Resilience Overlay (URO) zone, which includes areas of Norfolk with a lower risks of flooding. While not a traditional TDR program, Norfolk is piloting an informal approach by sending development away from the CRO and incentivizing development in the URO as a receiving area. Norfolk provides an innovative example of TDR program in a sea-level rise and managed retreat context for other local governments.
In September 2007, Resources for the Future and University of Maryland–Baltimore County partnered to publish a report evaluating the design, implementation, and outcomes of different Transfer of Development Rights (TDR) programs in communities across the U.S. The report is the result of a comprehensive research study involving conversations with local planners, consultants, land-use attorneys, and land trusts in the case study of several communities. The report offers an overview of land preservation, zoning, and TDRs in the U.S and how TDRs can be implemented, and an in-depth analysis of ten different TDR program case study examples — summarizing the background, key features, and results of each program — that assesses the successes and challenges of each based on specific factors.