Can a Virginia county adopt an enterprise zone tax-reduction program for a zone in a town that used to be an independent city?

Plain-English summary

The Bedford County Attorney asked an unusual layered question: a Virginia enterprise zone had been designated in 2009 inside what was then the independent City of Bedford. In 2013 the city reverted to town status and became the Town of Bedford, which (unlike a city) is part of the surrounding county. In 2014 the state Department of Housing and Community Development renewed the enterprise-zone designation, knowing the geography had changed. Now Bedford County wanted to adopt a local enterprise zone development taxation program. Did it have authority to do so?

Attorney General Mark R. Herring concluded yes. Section 58.1-3245.8(A) expressly gives "[t]he governing body of any county, city, or town" the power to adopt a program by ordinance "designating an enterprise zone located within its boundaries as a local enterprise zone." Because the Town of Bedford sits within Bedford County, the enterprise zone is "within [the county's] boundaries." Nothing in the Enterprise Zone Grant Act says a city-to-town reversion dissolves an existing enterprise zone, and the 2014 renewal happened after the reversion, so DHCD itself treated the zone as valid.

The Dillon Rule, which limits Virginia localities to powers expressly granted or necessarily implied, didn't change the analysis: § 58.1-3245.8(A) is an express grant of authority to counties. The Code also does not restrict the program-adoption power to the original applicant for enterprise-zone designation. So Bedford County could legally adopt the program, hold the required public hearing under § 58.1-3245.8(B), and direct a portion of zone tax revenue to the Local Enterprise Zone Development Fund.

Currency note

This opinion was issued in 2016. 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 Enterprise Zone Grant Act and the local enterprise zone taxation provisions in Title 58.1 have been amended in the years since this opinion. The 2009 designation referenced here would now be approaching the end of its possible 20-year window (10 initial + two 5-year renewals). Anyone relying on this analysis should re-check current statutory text and the current designation status of the specific zone.

Background and statutory framework

Virginia's Enterprise Zone Grant Act, §§ 59.1-538 to 59.1-549, lets counties and cities apply to DHCD for a "designation" that makes a defined area eligible for state grants intended to spur reinvestment in distressed areas (§ 59.1-545). Local applicants propose local incentives, often including reductions in property tax, permit fees, user fees, or BPOL tax (§ 59.1-543(A)). Initial designation runs 10 years, followed by two possible 5-year renewal periods (§ 59.1-542(E)).

The local enterprise zone development taxation program, codified at § 58.1-3245.8, is a separate but linked mechanism. It lets the governing body of any county, city, or town adopt an ordinance designating an enterprise zone within its boundaries as a local enterprise zone. Once adopted, a portion of the tax revenue derived from the zone is placed in a Local Enterprise Zone Development Fund (§ 58.1-3245.10) for statutorily enumerated revitalization purposes. The statute requires a public hearing before adoption.

The geography here mattered because Virginia cities and counties are exclusive of each other. An independent city is not part of the surrounding county. Towns are part of the surrounding county. So when Bedford reverted from city to town in 2013, the enterprise zone, previously outside Bedford County, fell inside it. The AG focused on the plain language of § 58.1-3245.8(A): the authority belongs to "any county, city, or town" with an enterprise zone "within its boundaries." Bedford County had a zone within its boundaries, so it had the statutory authority.

The Dillon Rule analysis was straightforward. Under Bd. of Zoning Appeals v. Bd. of Supvrs., 276 Va. 550 (2008), and Bd. of Supvrs. v. Horne, 216 Va. 113 (1975), Virginia local governments have only those powers expressly granted, necessarily implied, or essential and indispensable. Section 58.1-3245.8(A) is an express grant. The AG didn't need to reach implied-power arguments.

The opinion also noted what the Code does not say: it does not condition program-adoption authority on the locality having been the original applicant for enterprise-zone designation. So the fact that the City of Bedford applied in 2009, and that the entity now seeking to adopt the program is Bedford County (post-reversion), did not defeat the authority.

Common questions

Q: Can Bedford County adopt the program even though it was the City of Bedford that originally applied for the zone?
A: The AG concluded yes. Section 58.1-3245.8(A) does not limit program-adoption authority to the original zone applicant. As long as the zone is within the locality's boundaries, the governing body may adopt the program.

Q: Did the city-to-town reversion dissolve the enterprise zone?
A: No. Nothing in the Enterprise Zone Grant Act says a reversion dissolves a designation. And DHCD's 2014 renewal happened after the reversion, treating the zone as still valid.

Q: What is a "local enterprise zone development taxation program"?
A: It is an ordinance-adopted program under § 58.1-3245.8 that directs a portion of tax revenue from a designated zone into a Local Enterprise Zone Development Fund. The fund supports revitalization activities listed in § 58.1-3245.10.

Q: Are there procedural requirements before adopting the program?
A: Yes. Section 58.1-3245.8(B) requires a public hearing on the need for the program before passage of the ordinance.

Q: How does the Dillon Rule affect this?
A: It does not change the result. The Dillon Rule limits localities to expressly or necessarily implied powers; here, the General Assembly expressly granted the power in § 58.1-3245.8(A).

Q: Could the Town of Bedford also adopt a program, in parallel with the county?
A: The statute speaks broadly to counties, cities, and towns. The opinion did not analyze parallel-program scenarios, and that question would depend on specific facts about overlapping ordinances and revenue allocation. Read the statute and consult counsel.

Citations and references

Virginia statutes:

• Va. Code Ann. § 58.1-3245.8 (local enterprise zone development taxation program)
• Va. Code Ann. § 58.1-3245.10 (Local Enterprise Zone Development Fund)
• Va. Code Ann. §§ 59.1-538 to 59.1-549 (Enterprise Zone Grant Act)
• Va. Code Ann. § 59.1-542 (designation and renewal)
• Va. Code Ann. § 59.1-543 (local incentives)
• Va. Code Ann. § 59.1-545 (purpose of EZGA)
• Va. Code Ann. § 2.2-505 (AG advisory opinion authority)

Cases:

• Bd. of Zoning Appeals v. Bd. of Supvrs., 276 Va. 550 (2008)
• Bd. of Supvrs. v. Horne, 216 Va. 113 (1975)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2016/16-026-Skelley-issued.pdf

Original opinion text

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

November 17, 2016

Patrick J. Skelley II, Esquire
Bedford County Attorney
122 East Main Street, Suite 201
Bedford, Virginia 24523

Dear Mr. Skelley:

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

Issue Presented

You inquire whether a county may establish a local enterprise zone development taxation program (a "program") in an enterprise zone located in a town within the county, where the town was a city when the enterprise zone was first established, and the city has since reverted to the status of a town.

Background

According to the information you provided, an area within what was then the City of Bedford received enterprise zone designation in 2009, pursuant to § 59.1-542 of the Code of Virginia. Because it was an independent city, it was not part of the County of Bedford, which surrounded it. In 2013, it reverted to town status, and it is now the Town of Bedford. Because towns, unlike cities, are part of the counties in which they are located, the Town of Bedford is part of Bedford County.

The Commonwealth renewed the enterprise zone designation in 2014, the year after the former city reverted to town status. The county now seeks to adopt a program in order to incentivize economic revitalization in the enterprise zone.

Applicable Law and Discussion

Localities use enterprise zones to revitalize distressed areas and combat unemployment. They are areas designated by the Governor as eligible for the benefits of the Enterprise Zone Grant Act (the "EZGA"). Upon the periodic announcement of competitions by the Department of Housing and Community Development ("DHCD"), the governing body of any county or city may submit an application to DHCD requesting enterprise zone designation for an area within the locality. The application is to include proposals for "local incentives ... [to] stimulate real property improvements and new job creation" within the potential enterprise zone. The EZGA provides that one such incentive may include a reduction of local taxes.

Once DHCD approves an enterprise zone application, the enterprise zone is created, and the locality may then adopt a program: the Code of Virginia provides that "[t]he governing body of any county, city, or town may adopt a ... program by passing an ordinance designating an enterprise zone located within its boundaries as a local enterprise zone ...." In other words, as long as there is an enterprise zone "within [the] boundaries" of a locality, the locality may establish a program.

The EZGA does not indicate that the reversion of an independent city into a town would dissolve enterprise zone designations within the former city. It is also significant that this enterprise zone was renewed by DHCD in 2014, a year after the former city reverted to town status. Because the town is located within the county, this means that when DHCD granted the 2014 renewal, it was aware that the enterprise zone was located in both the town and the county. In the absence of any facts or laws triggering termination or limitation of the enterprise zone designation, I conclude that the enterprise zone in question has valid existence within both the town of Bedford and the County of Bedford.

The Dillon Rule strictly construes local government authority in Virginia, such that "municipal corporations have only those powers that are expressly granted, those necessarily or fairly implied from granted powers, and those that are essential and indispensable." A corollary to the Dillon Rule provides that "the powers of [county] boards of supervisors are fixed by statute and are limited to those conferred expressly or by necessary implication." Therefore, the ability of a county to establish a program depends upon delegation of the requisite authority by the General Assembly.

Section 58.1-3245.8(A) explicitly gives counties, cities, and towns the authority to adopt programs within enterprise zones within their boundaries. It is therefore apparent that the General Assembly "expressly granted" to local governing bodies the power to establish these programs, and there is no need to determine whether such authority is "necessarily or fairly implied from granted powers." In addition, the Code of Virginia does not restrict the authority to enact a program for a particular enterprise zone to the original applicant for enterprise zone designation. Accordingly, I conclude that the governing body of the county may establish a program within the enterprise zone identified in your request.

Conclusion

For the reasons stated above, it is my opinion that § 58.1-3245.8(A) expressly empowers Bedford County to adopt a program for the enterprise zone in the Town of Bedford. The Code of Virginia does not indicate that the town's previous status as an independent city at the time of the initial enterprise zone designation limits or otherwise affects this authority.

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General