The Difference on Development Fees

Evan Manvel

While Portland’s leading mayoral candidates have several similarities on policy, they also have some significant differences. In the final television debate and in his radio ads, Jefferson Smith raises a difference on system development charges (SDCs) – an issue near and dear to my heart.

From the debate:

"But one difference is that I don’t agree with Mr. Hales that we should give a sweeping break to the developers to allow them to build that infill housing without paying for those very basics. So before we talk about spending new money, or even spending old money, let’s make sure we don’t give away the money we already have.”

Politifact reviewed the claim and found it Mostly True. An excerpt:

Does Hales want to give “a sweeping break” to housing developers as Smith claims?

Apparently Hales does, but it’s not limited to housing developers. He’s called for a two-year moratorium on systems development charges, saying that they squash business, including the food cart operator looking for a solid building or the retailer who wants to move into bigger space. And yes, we need cheaper, more affordable homes in the city, his campaign says.

I worked on this issue for years while at 1000 Friends of Oregon, as developers continued to lobby legislators to impose additional limits on SDCs and 1000 Friends worked to make sure new development paid its way (residential development clearly doesn’t, as numerous academic studies show). My work included co-writing a primer that covers the basics for legislators as well as issues like tax incidence.

What’s this all about? Per the primer: “System development charges are levied on new development to recover all or part of the cost of building certain infrastructure needed to serve that development. Oregon law allows SDCs only for water, sewer, stormwater, transportation, and parks and recreation.” In some states laws perhaps more helpfully call SDCs "development impact fees."

Local governments cannot directly recoup the costs of all the infrastructure needed to serve new development — such as police and fire stations, libraries, and schools — nor, as Hales correctly points out, can they charge SDCs for maintenance.

But as Jefferson explained during the TV debate, not bringing in money from SDCs means a drop in overall revenue, leading existing ratepayers to subsidize new development. Those payments from existing development – from property taxes, sewer bills, and so on – can generally be used for maintenance, and would be used to fund new infrastructure instead.

The City of Portland collected over $14.5 million last year in SDCs, which would be lost if Council adopted the proposed moratorium. Over $3.1 million of that was for transportation -- much more than what The Oregonian recently complained about the City spending on safe transportation choices (like the $0.9 million for 13.5 miles of new bike routes). The Water Bureau collected over $1.3 million, Bureau of Environmental Services over $5.6 million, and Parks over $4.3 million.

Hales promotes a moratorium by saying it will be good for business and housing costs. These are common arguments, and perhaps some find them compelling. I would argue what would really happen is a shifting of cost burden from new development to existing homes and businesses (or to maintenance backlogs), not an overall decrease in costs. Hence, the moratorium isn't a proposal I would likely support.

Readers: what do you think?

Disclaimer: I co-chair Bike Walk Vote, which has endorsed Jefferson Smith for Mayor. I speak only for myself.

By Evan Manvel May 11, 2012