California Air Resources Board

I.       Objective

The objective of this project is to identify potential State roles in expanding use of transfer of development rights (TDR) as a tool to support greenhouse gas reduction through accelerated infill development and land conservation, with a particular focus on the potential for TDR to promote equitable outcomes and facilitate investment in disadvantaged communities.

The outcomes of this project will also inform potential changes to programs funded by the California Climate Investments programs, including the Affordable Housing and Sustainable Communities grant program, which supports infill affordable housing, and the Sustainable Agricultural Lands Conservation program, which supports conservation of agricultural lands. These competitive grant programs are scored using Quantification Methodologies to estimate potential greenhouse gas (GHG) reduction benefits of applicant projects. This project may also inform the calculations and assumptions that support the program scoring analysis.

To adequately address the goals of this project, the project team should include expertise in land use and housing development economics, including real estate development expertise and the ability to analyze the financial feasibility of TDR for accelerating infill housing production.

II.      Background

In recent years, the State has prioritized accelerating housing production as well as the conservation of natural and working lands (NWL) through numerous policy channels.

Recent policy and funding incentives for housing are designed to boost housing production in ways that align with GHG reduction targets, including the Governor’s recently stated commitment to downtown-oriented housing and proposed budget increases for several housing funding programs with infill development and GHG reduction requirements.

On the conservation side, initiatives include Executive Order N-82-20, which articulates a State goal of protecting 30% of the state’s lands and coastal waters by 2030 as well as the application of nature-based solutions in the fight against climate change.  Strategy documents toward the fulfillment of these outcomes have recently been released. Additionally, the upcoming AB 32 Scoping Plan Update will include a target GHG reduction for the NWL sector, indicating its importance as an area for advancing potential GHG reduction.

While achieving both housing and conservation goals is crucial, these priorities can often appear to conflict in practice when undeveloped land is viewed by some as an opportunity to expand housing production while others seek to conserve it for ecosystem and climate benefits.

Given the interconnected nature of land use, California needs solutions that balance our need to protect NWL, while encouraging more efficient growth in community cores. TDR is one such solution that incentivizes conservation of NWL without hampering housing production by transferring the development rights for priority conservation areas to areas prioritized for infill growth, allowing increased density and more efficient use of previously-developed land, and preventing greenfield growth.

Because of its potential to advance climate-smart development and conservation strategies in a coordinated fashion, CARB’s 2017 AB 32 Scoping Plan Update recommended that the State explore TDR as a potential GHG reduction strategy. Additionally, the California Natural Resource Agency’s Natural and Working Lands Climate Smart Strategy recommends researching potential State roles in TDR as a potentially valuable tool in advancing climate-smart land solutions.

The TDR concept builds upon existing State programs such as the Sustainable Agricultural Lands Conservation Program (SALC) and the Affordable Housing and Sustainable Communities Program (AHSC) – which are intended to provide complementary incentives for both infill housing and land conservation as mutually-reinforcing GHG reduction strategies – and the affordable housing density bonus law, which provides a mechanism for increased housing density as an incentive for provision of affordable housing.

TDR is not new to the California landscape. In fact, it is estimated that more than 30 TDR programs currently operate throughout the state, and many more exist throughout the country. However, California has not embraced TDR to the extent that other states have. Prior research suggests that successful TDR programs in California are limited to a handful of communities with unique features, such as the Tahoe TDR exchange, which has been successful in part because of both very strong development markets and strong conservation incentives and support. Elsewhere in the U.S., TDR programs have also been very effective. For instance, a successful TDR program in King County, Washingtonhas protected almost 150,000 acres of open space and farmland, while relocating 2,500 housing units from rural to urban areas.

This study will examine the extent to which TDR could be an effective tool in California for advancing State climate goals through accelerated housing production and NWL conservation, with a focus on equitable outcomes and investment in disadvantaged communities. The project will recommend potential State roles and actions to expand use of TDR throughout the state. This research will also identify potential avenues for TDR as a tool for advancing social and racial equity in both urban and rural areas, and on both the development and conservation sides of the TDR exchange.

Project results will inform State agencies’ next steps in potentially advancing the State’s role in TDR expansion as a tool for reducing GHG while providing equitable investments to communities. Additionally, results will inform potential changes to the Affordable Housing and Sustainable Communities grant program and the Sustainable Agricultural Lands Conservation grant program, and potentially other State programs.

III.     Scope of Work

Note: All meetings and interviews referenced are assumed to be virtual unless otherwise agreed upon by both Contractor and CARB project manager.

Summary

This project will investigate the applicability and potential benefits of a TDR program to State GHG reduction and land conservation efforts, with a focus on advancing equitable outcomes and prioritizing investments in disadvantaged communities.  It will also and identify options for effective State support of TDR statewide.

The contractor will perform quantitative and qualitative research, including facilitating structured conversations with an array of both public and private stakeholders, to assess:

• Potential benefits of scaling up TDR utilization across California, including potential impacts on GHG emissions, and potential to advance social and racial equity in both rural and urbanized contexts.
• TDR challenges and opportunities in the California context, based on prior and existing TDR programs nationally;
• The elements necessary for successful use of TDR throughout California, drawing from examples both in California and elsewhere;
• Financial feasibility of TDR in five California regions, including how incentives could be meaningfully structured to be attractive to developers of infill housing development in various regional economic markets. One of these regions must include a community with a planned California High-Speed Rail station;
• Potential State roles to facilitate expansion of TDR state-wide, including detailed analysis of the options for effective State engagement, and the cost-benefit analysis of alternative potential State actions. 

This project will examine the following questions:

• Potential benefits of TDR:
  • What is the potential for TDR to help accelerate:
    • Low-VMT infill housing production in priority housing growth areas^[1]
    • Conservation of NWL, in support of the goals of the Pathways to 30X30 strategy and NWL Climate Smart Strategy – and particularly for NWL that is under greatest development pressure.
  • What is the potential role of TDR to direct development away from areas of high natural hazard, such as fire- and flood-prone areas?
  • What is the potential for TDR to overcome political barriers to accelerating infill development in appropriate locations, including local resistance to infill growth?
  • What are the potential GHG reduction benefits of expanded use of TDR in California that could result from both increased infill development and NWL conservation?
  • What are the potential benefits of TDR for advancing social and racial equity in urban and rural disadvantaged communities?
  • What are the potential wildfire risk reduction and disaster avoidance benefits from the land use impacts from successful TDR implementation?
  • Are there other benefits that could accrue from expanded TDR use (e.g. fiscal, economic)?
• TDR Challenges and Opportunities:
  • What are common challenges (e.g. technical, financial, political hurdles) to successful TDR implementation in California?
  • What are the pros and cons of using TDR as a tool for advancing State climate goals?
  • How have TDR programs benefitted disadvantaged communities, either in California or nationally?
  • What is the appropriate geographic scale for a TDR program (e.g. jurisdiction-wide, regional, or state-wide)?
  • What potential unintended consequences of TDR programs could occur, on either housing production or conservation, and how might these be avoided?
• Financial Feasibility:
  • What are the economic conditions necessary for successful TDR programs?
  • What regions in California are most and least likely to possess the economic conditions amenable to a successful TDR program?
  • To what extent does the California context, with its unique property tax environment and local land use authority, present barriers to effective use of TDR, and how might these be overcome?
  • How should incentives for “receiving” sites be structured to be maximally attractive and effective in accelerating infill housing development?
• Potential State Roles:
  • What roles or actions could the State take to facilitate expanded use of TDR throughout the state in a way that advances GHG reduction as well as social and racial equity?
    • What are pros and cons of each potential State role?
    • What are the estimated costs associated with each role?
  • How could a TDR program best interact with the multitude of statewide housing and conservation laws in place?

Task 1 – Literature Review

Produce a background report detailing current scholarship on TDR programs, including potential links to climate change legislation and/or programs. The report will also provide case studies of 5-8 model TDR programs with potential applicability to California, to help identify the most promising approaches in the California context. The case studies need not be from California, and one must focus on King County, WA. A draft Literature Review should be completed prior to commencing interviews in Task 2.

Deliverable: Literature Review (10-30 pages including case studies)

Task 2 – First Round Interviews

Contractor shall conduct a series of interviews to identify potential opportunities and challenges of TDR programs, to what degree TDR holds potential as a GHG reduction, housing production, and conservation tool for California, and what potential roles or strategies the State could implement to expand their use.

Interviews shall include, at a minimum:

• Equity experts and advocates:
  • At least 10 individuals who research and advocate for equitable land use and development outcomes in both urban and rural areas throughout California. These interviews are intended to ascertain what kind of investments are most needed as part of a TDR package, with a focus on Disadvantaged Communities as defined by CalEnviroScreen.
• TDR experts and advocates:
  • At least 10 individuals who are TDR program administrators from existing California TDR programs
  • At least 10 individuals who represent NGO or research experts actively involved in studying, advocating for, and supporting TDR programs in California
• Planners and local/regional government:
  • At least 10 individuals representing municipal planning departments, MPOs, LAFCOs, and other local and regional governmental stakeholders. (This may include industry associations such as California Councils of Government, the California State Association of Counties, and the League of Cities.)
• Developers and economists:
  • At least 10 individuals who are infill housing developers – including those who have previously utilized development rights from TDR programs for housing projects in California, and those who have not – or economists with expertise in California’s housing market. (This may include industry associations such as the Building Industry Association and the Council of Infill Builders.) 
• Conservation practitioners:
  • At least 10 individuals who are affiliated with land trusts, conservation organizations, or other organizations actively engaged in conservation of natural and working lands in the private or nonprofit sectors
• Tribal governments and stakeholders:
  • At least 10 individuals representing tribal governments or tribal affairs to advise the study on how TDR models could be applied and adapted to tribal contexts.
• Regionally-focused stakeholders:
  • At least 10 individuals in each of the following five MPO regions: MTC/ABAG, SACOG, SANDAG, SCAG, Central Valley (combined MPOs). These regionally-focused interviews should tease out regional variation and conditions that would make uptake of TDR feasible or challenging. (Up to half of these may also count as individuals in other categories in this list.)

Interview subjects should represent both strong and weak market areas; rural, suburban, and urban communities; and multiple regions throughout the state.

Interviews may be conducted either individually or in small discussion/focus groups of up to 10 participants at a time. CARB Project Manager or designee shall have access to all interviews and the option to attend them as an observer.

Deliverable: Interview Summary Report #1 summarizing interviews conducted and notable findings.

Task 3 – Economic Analysis

Contractor shall perform an analysis of the economic conditions needed for successful utilization of TDR in California. This shall include:

• Regional analysis: Assessment of market conditions in different regions of the state and their likelihood to foster use of TDR. What regions of the state are most likely to benefit from TDR for land conservation? What regions are most likely to benefit from TDR for infill housing?
• Project-level analysis: Assessment of economic benefits of TDR for accelerating infill housing production.
  • Pro forma analysis of at least 5 development project scenarios representing: low, medium, and high market strength areas; rural, and urban infill housing. One must be within ½ mile of a planned California High-Speed Rail station.
  • Account for existing density bonus program and SB 35 streamlining requirements and potential benefits.
  • Economic analysis of “sending” properties for NWL conservation, including analysis of at least 3 conservation project scenarios.

Research questions to be addressed include:

• How financially viable is multi-family infill development using TDR in different areas?
• What additional incentives might facilitate increased use of TDR (e.g. streamlining, funding, technical assistance, additional density bonus, or other incentives that would increase economic feasibility on both sending and receiving sides)?
• What is the potential price of TDRs for housing development in weak, medium, and strong market areas?
• What is the potential value of TDRs for owners of “sending” areas that would make participation in a TDR program financially attractive?
• How might a TDR program use incentives or policies to foster equitable development without displacement in disadvantaged communities?
• What is the potential menu of TDR benefits, beyond housing, that could encourage cities to participate, particularly in disadvantaged and low-income communities?

Deliverable: Economic Analysis Technical Memo (10-20 pages)

Task 4 – Greenhouse Gas Emissions Reduction Analysis

Contractor shall perform an analysis of the potential GHG reductions that could occur if TDR was successfully scaled up in California, in consultation with the project manager and other CARB and State agency staff as determined by project manager.

Research questions to be addressed include:

• What would be the maximum potential of TDR utilization, if successfully scaled-up state-wide, in rural and urban contexts?
• Which region/s could most benefit from resultant GHG emissions reductions?
• What is the order of magnitude of potential GHG reduction benefits from:
  • Reduced emissions due to accelerated infill development (VMT, emissions from buildings, etc.)
  • Reduced emissions from wildfires due to shift in development away from the wildland-urban interface and towards infill areas.

Deliverable: Greenhouse Gas Emissions Reduction Technical Memo(10-20 pages)

Task 5 – Preliminary State Strategy Alternatives

Based on the findings from Tasks 1-3, Contractor shall examine potential roles for the State in expanding use of TDR as a tool for GHG reduction, infill housing production, land conservation, and investment in disadvantaged communities. This examination shall bear in mind the tremendous variation in contexts and markets across the state.

Contractor shall develop a preliminary set of alternative State approaches to expanding use of TDR. These may include, for instance: State support in establishing statewide or regional TDR programs, State funding or financing, technical support, administrative support, a State-run TDR “bank,” State ability to purchase conservation easements and sell or distribute development rights, and others.

State strategies may additionally include a mix of incentives and regulations that the State can use to encourage the use of TDRs, such as infrastructure finance or environmental remediation that receiving communities could access.

Alternatives should also address how to motivate both sending and receiving areas to participate (i.e., through market or regulatory mechanisms); how to ensure that development rights benefit disadvantaged communities; and how the alternative could be integrated with existing State frameworks.

At least one alternative shall include a statewide TDR marketplace in which the State would have the ability to purchase and sell development rights statewide.

For each alternative, outline:

• Summary of the State role/approach
• What barrier or challenge does this approach intend to overcome?
• What conditions (e.g. market, land use policy, capacity/expertise, political feasibility, or other) are necessary for success of this approach?
• Role of the State (e.g. financial, technical, legal, administrative, capacity-building, etc.)
  • Programmatic infrastructure needed at the State level to support this approach (e.g. staffing, technical capacity, funding allocation program, or other)
• Role of other public-sector partners, if applicable (e.g. local jurisdictions, MPOs, LAFCOs, or other)
• Estimated fiscal cost to the State
• How this approach fits within existing State frameworks (e.g. the affordable housing density bonus, the SALC and AHSC programs, SB 35 streamlining, or others)
• Summary of pros and cons of this approach

Deliverable: Preliminary State Strategy AlternativesTechnical Memo (10-30 pages)

Task 6 – Impact Analysis

The contractor shall assess the potential impacts of possible State approaches. The analysis shall include, at a minimum -- for low, medium, and high scenarios of TDR utilization:

• Potential to accelerate infill housing production in housing priority areas
  • Feasible range of market price for development rights in different regions of the state, and where this price would be advantageous for increasing feasibility of infill housing development
• Potential to accelerate NWL conservation
  • Which areas of the state would see the most gain in conservation due to incentives provided by TDR programs/supportive policies?
• Potential GHG reduction benefits of TDR due to shifting development away from greenfield areas and into priority housing growth areas
• Welfare Analysis: Potential to accelerate equitable economic and community investment outcomes for low-income households and disadvantaged communities.
  • Who are the winners and losers, in terms of land value and social equity? In which regions would the TDR program bring the greatest value from both an economic and social perspective?

Deliverable: Impact Analysis Technical Memo

Task 7 – Second Round Interviews

Following completion of Task 5, Contractor shall conduct a minimum of five small-group follow-up interviews with many or all of the interview subjects consulted in Task 2. The purpose of these follow-up interviews is to vet the preliminary recommendations and gain additional stakeholder feedback.

CARB Project Manager or designee shall have access to all interviews and the option to attend them as an observer.

Deliverable: Interview Summary Report #2 summarizing follow-up interviews conducted and notable findings.

Task 8 – Final Report

Synthesizing results from the literature review, both rounds of interviews, quantitative and qualitative analysis, contractor shall develop a final report that addresses the research questions listed in scope of work summary above.

The Final Report shall summarize findings and address the following:

• Explain the potential for TDR to accelerate progress toward State goals including GHG reduction, housing production, NWL conservation, and equitable outcomes.
• Summarize opportunities and challenges of TDR in California.
• Provide an overview of preferred program design, based on review of alternatives.
• Summarize recommended State roles/actions to expanding use of TDR in California, including specific policy and program recommendations and necessary next steps toward implementation.

Deliverable: Final Report

IV.    Deliverables

Peer-reviewed publications should aim to be open-access (budget appropriately). Include equity implications in white paper(s). Work with CARB to create plain-language deliverables for the public (in multiple languages and formats) (if applicable).

The project pre-proposal must address, at minimum, the following deliverables:

During Active Contract Period

• Work with CARB staff at the beginning of the project to create a 1-page plain-language outreach deliverable for the public describing the project’s goals, process, and planned deliverables (available in multiple languages, template will be provided).
• Quarterly Progress Reports including public-facing updates may be posted to CARB’s website.
• Quarterly Progress Meetings.
• Informal monthly progress update meetings with CARB contract manager.

Prior to Contract Close

• Literature Review
• Interview Summary Report #1
• Economic Analysis Technical Memo
• Greenhouse Gas Emissions Reduction Technical Memo
• Preliminary State Strategy AlternativesTechnical Memo
• Impact Analysis Technical Memo
• Interview Summary Report #2
• Final Report
• Presentation summarizing findings (may be public)
• Additional deliverables to be determined in consultation with CARB staff.

V.     Timeline and Budget

It is anticipated that this project will be completed no later than 18 months from the start date. The estimated budget for this project is up to $525,000.

Scoring Criteria

1. Responsiveness to the goals and objectives outlined in the pre-proposal solicitation (20 points)

The pre-proposal should explain—in adequate detail and clear, understandable language—how the proposed project satisfies the project objectives.

2. Policy relevance/benefits to the state (5 points)

The proposal should explain how the proposed project is relevant to and provides benefits to the state. The deliverables of the research should emphasize practical and implementable findings and recommendations, with have direct applicability to State agencies with clear and specific options for next steps and implementation. Reviewers will assess if the proposal describes how the project will provide data, information, and/or products to CARB, and how those project outputs will help CARB accomplish its mission. 

3. Work experience and subject matter expertise (30 points)

The proposal should demonstrate that the proposers have the work experience or subject matter expertise required to successfully carry out the proposed project as described. Additionally, the proposal should describe how the project will build upon previous relevant work that was funded by CARB, other regional, state, and federal agencies.

4. Expanding expertise (10 points)

The proposal should explain how the project team expands expertise such as by incorporating multidisciplinary expertise or perspectives, including members from various public universities, non-academic institutions, and/or community-based organizations, or providing opportunities to build skills and expertise for individuals from underrepresented groups. This project particularly relies on expertise of stakeholders and practitioners, including real estate developers with hands-on experience in coordinating and implementing development projects in California, especially high-density and affordable housing, and land use planners with local implementation experience to advise on the implementability of potential actions at a local and regional level. Reviewers will consider if key personnel contributing significantly to the project (i.e., a principal investigator, co-principal investigator or co-investigator, contributing 25 percent or more of their time to the project) have not worked with CARB in the past five years.

5. Explanation of technical or methodological approach (20 points)

The proposal should clearly explain the logic and feasibility of the project’s methodology, spell out the sequence and relationships of major tasks, and explain methods for performing the work. The proposal should include a clear description and plan for how each task will be completed.  

6. Level and quality of effort and cost effectiveness (15 points)

The proposal should describe how time and resources will be allocated and demonstrate how this allocation ensures the project’s success. Proposal reviewers will evaluate, for example: if the objectives of the project can be met given this allocation, if there is adequate supervision and oversight to ensure that the project will remain on schedule, if time and cost are appropriately divvied up across different project tasks and stages.

[1] Definition/parameters of priority growth areas will be provided by CARB and is not part of the scope of this research.