Growth spurs look at raising impact fees

Higher development charges would boost area housing costs, critics say

By Rachael Scarborough King / The Bulletin
Published: July 23. 2007 5:00AM PST

When Prineville announced it might double its sewer system development charges last month, builders, developers and residents turned up at a City Council meeting to protest the move.

Raising the impact fees more than 100 percent, from $4,089 to $8,677 per single-family house, would make Prineville’s SDC rates the highest in Central Oregon and could negatively impact an already cooling housing market, several speakers said.

Eventually, the City Council decided to raise the sewer SDCs to $6,508 and phase in the rest of the charge in the next few years.

While Prineville may be experiencing a moment in the spotlight as the latest target of builders’ ire, it’s unlikely to hold that title for long. Redmond is also looking at doubling all of its SDC fees in the next few years in order to serve a rapidly growing population, according to the city’s public works director.

“All in all, the cost of growth is just becoming expensive, and we’re seeing that some of the other cities are adjusting their plans and coming up with higher SDCs,” Redmond Public Works Director Chris Doty said.

“Ours have not been updated since 2005, but this latest update will certainly bring them into current times with respect to the cost of construction and the number of projects that we’re anticipating to serve the new UGB expansion.”

SDC fees, which cities levy on new construction to pay for expanding municipal infrastructure, are a perennial topic of debate among Central Oregon’s developers, real estate agents, city planners and City Council members. But the charges — which homebuyers see in higher housing prices — fluctuate from city to city and are calculated in a variety of ways.

A state statute in 1989 set up the framework for SDCs, which can only be used to build new systems or increase capacity in an existing system, and can be levied for water, wastewater, stormwater, transportation, and parks and recreation. Since then, all of the largest incorporated cities in Central Oregon — Bend, Redmond, Prineville, Madras and Sisters — have implemented the fees.

Bend’s total fees are currently the highest in the region, at $13,440 for a new single-family house. With its recent increase, Prineville — traditionally thought of as a spot for lower housing prices — ranks second, at $13,142, for a single-family house. Redmond, which has a comparatively low rate of $7,908 per single-family residence, would jump into first place if it decides to double all of its fees.

“I don’t think (Redmond’s SDCs) have been significantly lower — I think they’ve been a little lower,” Doty said. “We’re just about ready to publicize new master plans that will reflect new projects and new project costs, so we all leapfrog each other as we update our various master plans.”

Determining SDC rates

Doty and Prineville City Manager Robb Corbett said cities determine SDC rates by making detailed master plans and creating lists of the projects needed to meet projected growth. Then planners figure out the cost of those projects and when they need to be on line.

“They’re definitely not arbitrary; they definitely differ from community to community depending upon the projects that are required, and so they’re very site specific,” Doty said. “For every dollar in SDCs that we receive, each dollar is broken up into dozens of projects that are on all of our capital improvement plans. It pays for just its incremental share of each to serve the whole system.”

Corbett added that some of the projects Prineville has identified as needing SDC dollars include expanding the wastewater system and making some road improvements.

“You identify specific projects that address failures in your transportation system because of all these people that have moved here, and then the cost of those projects are divided by the number of people or (equivalent dwelling units) that are going to be coming, and that’s how you come up with the rate,” Corbett said. “It’s more complicated than that — there’s more variables that go into it — but essentially that’s it.”

Most cities in Central Oregon base their rates on equivalent dwelling units, or the impact that one single-family house can be expected to have on the water, sewer, road and parks systems. But Sisters recently changed its formula to reflect the difference between a large house and a smaller one in terms of water and sewer use.

Planning and Community Development Director Brian Rankin said the city “decided it was the most equitable approach.”

“We just recently changed our methodologies from a flat fee to the fixture-unit approach, and the fixture-unit approach allows for a finer tuning of the development charge,” Rankin said. “A smaller house with fewer fixtures would have a lower system development charge than a bigger house with more fixture units, or a restaurant with, say, larger commercial washers (and) more sinks would be charged more than a small restaurant with, let’s just say, a takeout.”

Sisters’ overall fees are now about $9,389 for the average house. Madras, meanwhile, is the only city in the region that also charges a stormwater system development charge. Its total SDC rate is $9,841 per single-family residence, according to the city planning department.

Most people feel the effect of SDCs through higher housing prices — developers say they pass the costs along to buyers. But new commercial structures can face hefty fees.

Figuring out how many single-family houses, or equivalent dwelling units, are equal to one supermarket, for example, is a complicated process. Rankin said water and sewer charges for businesses in Sisters will be based on how many fixtures are included in their plans and a follow-up inspection to make sure that many were actually installed. But other cities have varied methods for determining how much of an impact businesses and factories have on local infrastructure.

Prineville’s SDC resolution spells out how to convert different structures into the equivalent of one single-family residence. Each unit in a multi-family house or mobile home park is equal to 80 percent of a single-family home. Motels and hotels are half a home for each room. A gas station with a convenience store is equivalent to two single-family residences.

When a developer applies for a building permit, the building department would take those figures and multiply them by the SDC charges, which are based on a single-family house. Most cities have a system for reimbursing developers if they decide to go ahead and build new roads or other systems using private money.

In Redmond, the transportation SDCs are based on the average number of afternoon rush-hour trips generated by each new building. A single-family house is equal to one trip, for an SDC charge of $2,877. But a park and ride lot with bus service would have to pay 43.75 times that base rate for every acre it covers. A movie theater, on the other hand, would be charged based on the number of seats it has, with each seat being equivalent to 14 percent of the SDC for a single-family home.

“How we calculate the p.m. peak-hour trips is based on studies that have been done and published by the Institute of Transportation Engineers (in Washington, D.C.), so they know what a single-family dwelling unit generates in the peak hour versus an apartment unit or a condo unit, versus a 5,000-square-foot office building or a McDonald’s,” Doty said.

The development perspective

The varying SDC rates throughout the region can have a big impact on where developers choose to build, some local builders and economic development experts said.

“Some commercial projects are paying upward of $80,000 to $100,000 in SDCs, and if you can go to Redmond and do it for $40,000 and save some money, that’s a significant savings,” said Andy High, director of government affairs for the Central Oregon Builders Association. “(It’s) definitely considered in where you’re locating, especially as you try to compete with the land prices the way they are right now.”

And at a time when Central Oregon and the rest of the country are experiencing a widespread slump in the housing market, higher SDCs or home prices could have more of an impact on buyers.

“You’re starting to see somewhat of a breaking point in the prices throughout Central Oregon — there’s a lot of inventory … and we’re starting to see reductions in home prices,” High said. “SDCs do drive up the cost of housing across the board. Even if you build a bunch of new homes around an existing home and all those new homes sell for $300,000, it’s likely that that older home will sell for right around $300,000 as well.”

High pointed out that if homes are not selling and builders are not starting new projects, cities won’t see any income from SDCs.

While the system may not be perfect, planners and developers said they understand the need for “growth to pay for itself” — a common slogan in the SDC debate. Corbett, the Prineville city manager, said SDCs put the burden of the new systems needed because of growth on new residents in the community.

“Personally, I think that if a developer is looking out for the long-term interests of the community, I think that they would want to know that the city has a funding structure in place to ensure that the infrastructure is going to be there when they need it,” he said. “The alternative to SDCs is that all the ratepayers share in the cost of expanding the system, and that’s really kind of a difficult position for any elected body to be in — arguing that the (existing residents) ought to pay for growth.”

Roger Lee, executive director of Economic Development for Central Oregon, a nonprofit organization that promotes local economic growth, said SDC rates may be steadily increasing in Central Oregon, but they are still low enough to attract new businesses and homeowners from nearby states.

“We have so many companies and individuals locating here from larger areas … In California, for example, they have something called impact fees and sometimes impact fees down there for residential can be in excess of $50,000 to $100,000 before they start building,” Lee said. “I think they look up here and think it’s pretty affordable, (but) if you go to the Midwest, they haven’t heard of this and look at some of those things and think it’s highway robbery.”

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