Are towns inside a Virginia county required to be parties to a revenue-sharing agreement between the county and an adjacent city?

Plain-English summary

The Covington City Attorney asked a structural Virginia local-government question. Alleghany County and the City of Covington had negotiated a Joint Economic Growth-Sharing Agreement under § 15.2-1301. The agreement established a "Development Area" in which tax growth above each locality's baseline would be split equally as "Tax Increment Revenue Sharing." Two towns sit inside Alleghany County (Clifton Forge and Iron Gate), and neither town was a party. The Commission on Local Government had reviewed and overall supported the agreement. Were the towns "affected localities" required to be parties?

Attorney General Mark R. Herring concluded no. The agreement preserved each town's full taxation rights over property within town borders, did not require either town to share revenue or contribute services, and did not affect either town's tax base or economic growth. If any part of the Development Area was later proposed to extend into either town, the town's prior concurrence would be required, but that contingency didn't make them current parties.

The reasoning ran through the statutory text and a comparison with how "affected localities" appears elsewhere in the Code. Section 15.2-1301(A) authorizes localities to enter "binding fiscal arrangements" to share economic-growth benefits. Section 15.2-1301(B) requires approval by "the affected localities" and the governing body of "each locality participating in the agreement." Because the towns weren't parties to any binding fiscal arrangement and weren't sharing in any economic-growth benefit, they weren't "affected localities" in the statute's operative sense.

The AG also examined how the same phrase appears in other parts of Title 15.2. In § 15.2-2907 (Commission on Local Government review of locality status transitions), the Code distinguishes "affected localities" from "any other localities likely to be affected by such proposed action." That distinction shows "affected localities" is often a term of art reaching only localities whose legal rights are altered. Other examples (§ 15.2-3108 boundary adjustments, § 15.2-3211 annexation, § 15.2-3534 consolidation referenda) follow the same pattern: "affected localities" means localities whose rights are directly impacted, not localities that might experience secondary effects.

Towns Clifton Forge and Iron Gate didn't fit that description. They could be "localities likely to be affected" in a downstream economic sense, but their legal rights weren't affected by the Covington-Alleghany agreement.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The revenue-sharing framework in § 15.2-1301 and the Commission on Local Government's review process are periodically updated. Anyone structuring a current city-county growth-sharing agreement should consult current text and current Commission guidance.

Background and statutory framework

Section 15.2-1301(A) authorizes any combination of counties, cities, and towns to enter voluntary agreements "for any purpose otherwise permitted, including the provision on a multi-jurisdictional basis of one or more public services or facilities or any type of economic development project, to enter into binding fiscal arrangements for fixed time periods, to exceed one year, to share in the benefits of the economic growth of their localities."

Section 15.2-1301(B) requires that the terms and conditions of such agreements be "determined by the affected localities and shall be approved by the governing body of each locality participating in the agreement." The phrase "affected localities" is the operative trigger for who must approve.

Reading subsections A and B together, an "affected locality" is one that has agreed to be part of a "binding fiscal arrangement" to share in the benefits of economic growth. A locality whose tax base and revenue are not part of the arrangement is not "affected" in the statutory sense.

The Code uses "affected localities" elsewhere as a term of art reaching only localities whose legal rights are directly impacted:

• Section 15.2-2907(B) requires the Commission on Local Government to report findings to "the affected localities, and any other localities likely to be affected by such proposed action," explicitly distinguishing the two categories.
• Section 15.2-3108 (boundary adjustments) uses "affected localities" to mean the localities whose boundaries are actually adjusted.
• Section 15.2-3211 (annexation) uses "affected localities" in subsection 5 to refer to arrangements between localities that would share public improvements in annexed areas.
• Section 15.2-3534(17) (consolidation referenda) uses "affected localities" to refer to localities whose interests would be directly impacted by the outcome of a referendum.

The pattern is consistent: "affected localities" identifies the localities whose legal status, fiscal arrangements, or service obligations change. Localities that might experience secondary or indirect effects are sometimes recognized as "likely to be affected" but are not full parties.

The Covington-Alleghany agreement was structured to preserve town autonomy. Section 3.2 of the agreement provided: "Taxes laid by the Towns of Clifton Forge and Iron Gate shall not be subject to this Agreement, and the Towns will continue to tax property within Development Areas as all other property within their borders." Section 2.2 of the agreement protected the towns' approval rights: if any part of the Development Area was to be within a town's incorporated area, the town council would have to adopt a concurring ordinance. Neither town raised objections or requested changes when the agreement was referred for review.

The Commission on Local Government issued an advisory report in May 2017 that was "overall supportive" of the agreement. While the Commission's review is part of the statutory process, the Commission's role is advisory; the question of which localities must be parties is determined by § 15.2-1301.

Common questions

Q: When two localities sign a growth-sharing agreement, do other nearby localities have to join?
A: The AG concluded no, unless their rights or fiscal arrangements are affected. Towns in the county whose tax base and services are untouched by the agreement are not necessary parties.

Q: What makes a locality an "affected locality" under § 15.2-1301?
A: One that has agreed to be part of the binding fiscal arrangement to share in economic-growth benefits, or whose legal rights are directly impacted by the agreement.

Q: What if part of the Development Area would extend into one of the towns?
A: The Covington-Alleghany agreement required the town council to adopt a concurring ordinance for that to happen. The opinion notes this contingent role: prior town concurrence is needed before any part of the Development Area can fall within town borders.

Q: Did the Commission on Local Government's review change anything?
A: The Commission's role is advisory. It supported the agreement. The Commission's review does not alter who is statutorily required to be a party.

Q: What about town residents who might pay county-level taxes that are subject to the sharing?
A: That's not addressed in the opinion. The relevant question for "affected locality" status is whether the town as a governmental entity is part of the binding fiscal arrangement, not whether its residents pay any of the shared taxes.

Q: Is there a downside to including towns as parties even if not required?
A: The opinion doesn't say. As a practical matter, more parties means more approvals and amendment friction. Excluding towns where their interests are protected makes the agreement simpler to manage.

Citations and references

Virginia statutes:
- Va. Code Ann. § 15.2-1301 (growth-sharing agreements)
- Va. Code Ann. § 15.2-2907 (Commission on Local Government review)
- Va. Code Ann. § 15.2-3108 (boundary adjustments)
- Va. Code Ann. § 15.2-3211 (annexation)
- Va. Code Ann. § 15.2-3534 (consolidation referenda)
- Va. Code Ann. § 2.2-505 (AG advisory opinion authority)

Other materials:
- Joint Economic Development & Growth-Sharing Agreement between Alleghany County and the City of Covington
- Commission on Local Government, Report on the City of Covington-County of Alleghany Voluntary Economic Growth-Sharing Agreement (May 2017)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2017/17-009_Fontana-revenue_sharing_agreement-for_issuance.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

September 1, 2017

Theresa J. Fontana, Esquire
Covington City Attorney
Guynn & Waddell, P.C.
415 S. College Avenue
Salem, Virginia 24153

Dear Ms. Fontana:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You ask what the criteria are for a locality to be an "affected locality" so as to be a necessary party to a revenue sharing agreement. You also ask whether two towns are necessary parties to such an agreement between Allegheny County and the City of Covington.

Background

You relate that Alleghany County (the "County") and the City of Covington (the "City") have approved, after negotiation, a joint economic growth-sharing agreement (the "Agreement"). It contemplates their creating a "Development Area" in which tax growth will, in general, be divided equally as "Tax Increment Revenue Sharing."[1] Other revenue obtained from properties in the Development Area will generally be divided equally. The Development Area is not identified in the Agreement. Instead, it is to be designated at some time in the future "by concurrent ordinance of the governing bodies" of these two localities.[2]

There are two incorporated towns, Clifton Forge and Iron Gate, located within the County. Neither town is a party to the Agreement. If any part of the Development Area is to be within either town, the town's prior concurrence is required:

[T]he County and the City may designate parcels as part of the Development Area that are within the incorporated areas of the Towns of Clifton Forge and Iron Gate [by concurrent ordinance], provided however that as a condition of such Ordinance going into effect, the Town Council of the relevant Town shall adopt an ordinance concurring in the designation.[3]

Should that occur, town taxes on property within the Development Area will not be affected:

Taxes laid by the Towns of Clifton Forge and Iron Gate shall not be subject to this Agreement, and the Towns will continue to tax property within Development Areas as all other property within their borders.[4]

The Agreement does not contemplate either town sharing with the City or the County its revenue, tax base, or any aspect of economic growth from the Development Area. If the revenue, tax base, or economic growth of either town is enhanced by the Development Area, the town retains the entire amount of that enhancement.

After the County and the City approved the Agreement, they referred it to the two towns for review and comment. You state that neither town has raised any objections or requested any changes to the Agreement.

The Agreement also was submitted to the Commission on Local Government for review. The Commission issued an advisory report in May of this year stating that it was overall supportive of the Agreement.[5]

Applicable Law and Discussion

The statutory authority for the Development Area is § 15.2-1301 of the Code of Virginia, which addresses binding agreements for economic growth-sharing:

A. Any county, city or town, or combination thereof, may enter voluntarily into an agreement with any other county, city or town, or combination thereof, whereby the locality may agree for any purpose otherwise permitted, including the provision on a multi-jurisdictional basis of one or more public services or facilities or any type of economic development project, to enter into binding fiscal arrangements for fixed time periods, to exceed one year, to share in the benefits of the economic growth of their localities.[6]

Under this statute, approval by the "affected localities" is required:

B. The terms and conditions of the revenue, tax base or economic growth-sharing agreement as provided in subsection A shall be determined by the affected localities and shall be approved by the governing body of each locality participating in the agreement ....[7]

Subsection A refers to localities that agree to enter into "binding fiscal arrangements ... to share in the benefits of the economic growth of their localities." Subsection B states that "the affected localities" of a subsection A agreement must enter into the agreement. Thus, the only locality that is "affected" (subsection B) is one that agrees to be part of a "binding fiscal arrangement[] ... to share in the benefits of ... economic growth" (subsection A). Under the facts you have presented, neither of the two towns in question will be part of a binding fiscal arrangement to share the benefits of economic growth. For that reason alone, neither of those towns is an "affected locality" within the meaning of this statute.

In addition, I note that the phrase "affected localities" appears several times elsewhere in the Code of Virginia. Most relevant are the places it appears in statutes dealing with local status and boundary transitions. For example, § 15.2-2907 requires the review of the Commission on Local Government when certain status transitions are sought. It provides in subsection B that the Commission must "report, in writing, its findings and recommendations to the affected localities, and any other localities likely to be affected by such proposed action."[8] The fact that this sentence distinguishes "affected localities" from "any other localities likely to be affected" indicates that the phrase "affected localities" often is a term of art referring to localities whose legal rights are affected.[9] Here, the proposed growth-sharing agreement would not affect the legal rights of the two towns in question. Thus, while they could possibly be described as "localities likely to be affected" by the growth-sharing agreement, they are not "affected localities," and thus are not necessary parties to the agreement.

Finally, I note that under the proposed agreement, each town is given the further right of approval or disapproval if any part of the Development Area is to be within its borders.

Conclusion

For the reasons set forth above, it is my opinion that the only "affected localities" who are required to be parties to a revenue-sharing agreement pursuant to § 15.2-1301 of the Code of Virginia are those that assume obligations arising from terms and conditions of the agreement affecting their rights regarding revenue, tax base, or economic growth. Based on the facts you have presented, neither Clifton Forge nor Iron Gate would be an "affected locality," and therefore neither locality is a required party to the proposed revenue-sharing agreement between Allegheny County and the City of Covington.

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General

[1] The "base tax" received by either locality from any property in the Development Area would continue to go to that locality, with only increased tax receipts above this baseline to be divided equally between the two localities. See Joint Economic Development & Growth-Sharing Agreement, by and between Alleghany County, Virginia and the City of Covington, Virginia, §§ 1.3, 1.4, 1.12, 1.18, 1.19, 3.1, 3.3. The County and City have agreed that the joint Industrial Development Authority of Covington-Alleghany County will manage properties in the Development Area and administer the division of non-tax revenues. See id. §§ 4.3, 4.6.

[2] Id. §§ 1.12, 2.1.

[3] Id. § 2.2.

[4] Id. § 3.2.

[5] Commission on Local Government, Report on the City of Covington-County of Alleghany Voluntary Economic Growth-Sharing Agreement at 17 (May 2017), available at http://www.dhcd.virginia.gov/index.php/commission-on-local-government/reports.html (last visited Aug. 31, 2017).

[6] VA. CODE ANN. § 15.2-1301(A) (Supp. 2016).

[7] Section 15.2-1301(B) (emphasis added).

[8] Emphasis added.

[9] See also VA. CODE ANN. § 15.2-3108 (Supp. 2016), dealing with boundary adjustments between localities. The term "affected localities" clearly refers only to the localities whose boundaries are being adjusted; § 15.2-3211 (2012), dealing with annexation by towns and cities. The term "affected localities" is used in subsection 5 to refer only to arrangements between localities that would share public improvements in annexed areas, even though there might be other parties to a special court action; § 15.2-3534(17) (2012), dealing with referenda on consolidation issues. The term "affected localities" refers only to the localities whose interests would be directly impacted by the outcome of a referendum.