HD11 - Report on Annexation Alternatives

Executive Summary:

During the 2016 regular session of the General Assembly, the existing moratoria for city annexation, county immunity from city annexation, and the granting of new city charters was extended until 2024 (Appendix A). Additionally, the Commission on Local Government (CLG or the Commission) was directed to study and provide a report to the General Assembly by December 1, 2018, on the following:

1. Evaluate the structure of cities and counties in the Commonwealth;
2. Evaluate the impact of annexation upon localities;
3. Consider alternatives to the current moratorium on annexation by cities; and
4. Consult with and seek input from the Virginia Municipal League, Virginia Association of Counties, and localities directly affected by moratorium.

Pursuant to § 15.2-2900 of the Code of Virginia, the CLG was established as a way “to create a procedure whereby the Commonwealth will help ensure that all of its localities are maintained as viable communities in which their citizens can live." The CLG established a guiding principle for its evaluation and consideration of alternatives based on this charge. The CLG believes that healthy, viable local governments are critical to the well-being of the Commonwealth and that a harmonious and successful relationship between and among the Commonwealth and its localities ensures greater health, welfare, and prosperity for all of the Commonwealth’s citizens and businesses.

Virginia’s local government structure originated from a need to meet certain service needs of citizens at a more geographically proximate level. Counties were established as the general form of local government with the mandate to provide a standard level of service, while cities and towns originated to provide urban types of services, such as police and water and sewer infrastructure, in addition to other standard mandated services. While towns were established as component units of counties, thereby sharing some services and tax bases with counties, all of Virginia’s cities are independent, which means they do not – by default – share these responsibilities with counties. This feature distinguishes Virginia from every other state in the nation.

Because of their independent status, city annexation removes such area – including the tax base – from the affected county. Historically, annexation was usually perceived as reasonable and uncontested. Cities and towns annexed to encapsulate areas of extended or planned service delivery, especially urban services, and for future economic development. It allowed the city or town to grow its tax base and connect communities of interest. More recent circumstances, such as urbanization of counties and race relations, made annexation challenging and created a contentious environment. Some counties and towns consolidated to form new cities to prevent future annexation, while other eligible urbanized counties declared themselves statutorily immune from city annexation and the establishment of new independent cities. Meanwhile, other cities aggressively pursued final annexation efforts. Overall, these annexation disputes and other disagreements resulted in costly and lengthy legal battles and created a general spirit of distrust and hostility between many of Virginia’s cities and counties.

In an effort to address the controversial circumstances surrounding city annexation in Virginia, the Commonwealth commissioned a number of studies on this and other related matters. On two such occasions (1971 and 1987), temporary moratoria on annexation were enacted while the studies were underway. While some recommendations were implemented with varying degrees of success, others were left unaddressed, and the final temporary moratoria enacted in 1987 remain in effect today. Furthermore, despite including a compromise that would lift the moratoria if certain funds were not appropriated based on a statutory formula, exceptions to this requirement for 12 biennial cycles (including three future biennia) have been enacted.

Consequently, with a few exceptions, Virginia cities and counties have remained in the same geographic form for over 30 years. Conversely, nearly 50 town and county annexation-related matters have occurred, in part – due to the more harmonious, overlapping nature of town and county structures in the Commonwealth. Meanwhile, other issues have surfaced or grown in significance and present new challenges to the Commonwealth and its local governments. One issue of growing importance is local government fiscal stress, which is primarily concentrated in cities and the more rural regions of the Commonwealth. These communities are stressed due to their size and lack of a bigger tax base, small revenue bases make it more difficult to afford various local service demands – many of which are mandated at the state and federal level.

Changes in the economy, population growth and development, service demands, and other issues have contributed to greater fiscal stress in some localities and problems have started to transcend boundary lines. The Commonwealth faces a growing landscape of regional issues, such as the opioid epidemic, uneven job growth, and suburban poverty. While opportunities for regional cooperation exist and have been implemented, a number of obstacles have prevented additional regional successes from occurring. Comparing measures of fiscal stress with other indicators suggests that additional efforts to assist with or incentivize interlocal cooperation, local transitions, and operational efficiencies in addition to more direct financial actions at the state level may be necessary and that such efforts could produce state and/or local costs savings and improved service delivery.

The Commission, through research and consultation with a variety of stakeholders, identified a variety of considerations that could help address these matters. While some are not directly related to annexation and cover significant topics that may warrant additional review, the Commission thought these matters were important to raise and perhaps could address issues indirectly related to the moratoria. The Commission believes these considerations will help ensure that all of the Commonwealth’s localities are viable places in which their citizens can live and that many of the hardships of fiscal stress, concentrated poverty, and others identified in this report can be alleviated.

Most importantly, given the historic volatility of city annexation relative to independent city structure in the Commonwealth, the Commission considers granting cities the ability to annex in the future to be a very low probability and an ineffective solution. If the moratoria were lifted, many counties eligible for full or partial annexation immunity would pursue such action and end annexation for some cities forever. Meanwhile, the few remaining cities would likely pursue annexation, which would be fiercely opposed and litigated. Furthermore, many of these cities are located in areas where fiscal stress is regional, so annexation would not likely solve fiscal matters. Similarly, many towns that could pursue transition to independent city status would probably face the same opposition and potentially threaten the fiscal viability of many counties. Consequently, these scenarios would lead to a significant disruption in the lives and operations of many of the Commonwealth’s citizens and businesses, respectively, and run counter to fostering positive intergovernmental relations in the Commonwealth. For these reasons, the Commission suggests that the Commonwealth may consider making the moratoria permanent especially relative to independent city structure. (*1)

Notwithstanding that assertion, the Commission believes that other structural and fiscal matters could be considered and implemented that would achieve more success and better promote and sustain the viability of all local governments in the Commonwealth through positive intergovernmental relations, regional efforts, and other more general matters. The Commission would like to emphasize that making the moratoria permanent should not (emphasis added) be the only outcome of this study. This report highlights many significant issues that the Commonwealth’s local governments are experiencing, especially those that resulted from the inability of the Commonwealth’s cities to grow and others that now transcend individual local boundaries, have migrated to counties, or are concentrated in certain regions. Comprehensive consideration of these matters is essential and would help ensure that all of the Commonwealth’s localities are maintained as viable communities in which their citizens can live.

Accordingly, the Commission has identified the following for consideration:

1. Modify reversion and consolidation statutes to remove obstacles.
2. Make reversion and consolidation more cost-effective through incentives.
3. Grant additional powers to counties through reversion and other interlocal agreements.
4. Evaluate mandated service delivery methods to identify appropriate service level.
5. Relax the requirements for the establishment of joint authorities and special districts.
6. Provide planning grants to explore interlocal agreements and other operational efficiencies.
7. Evaluate adequacy of local fiscal resources to identify enhancements.
8. Create or expand programs to reduce local fiscal stress.
9. Incentivize additional regional cooperation and regional programs.

The Commission recognizes the sensitivity of some of these issues and associated considerations. Despite this reality, the Commission believes they are far more attainable and practical solutions than what would be gained from lifting the annexation moratoria. It is our sincere hope that these options will be considered for implementation as a means to continue to foster the growing momentum among localities to foster regional collaboration which benefits the Commonwealth’s residents and businesses.
(*1) Additional consideration regarding the constitutionality of making the moratoria permanent may be necessary. Article VII, Section 2 of the Constitution of Virginia requires that “the General Assembly shall provide by general law for the…change of boundaries…of counties, cities, towns, and regional governments." Sections 15.2-3106 et seq. of the Code of Virginia, which provides for local boundary changes by agreement, may satisfy this requirement, but additional evaluation and interpretation may be necessary.