Whatchamacolumn: System development charges replace tax increases
Tax increase proposals, always controversial, can be defeated by voters. Local government tax increases for infrastructure development, also controversial, are being avoided with significant increases in “system development charges” (SDCs) that don’t require voter approval.
Statewide, we will see a major campaign this fall in opposition to Ballot Measure 118, which would create a 3 percent tax on gross revenues of large corporation for pro-rata distribution to every Oregonian. That estimated $7 billion annual tax would be passed along in higher consumer prices, while $1,600 would go to every man, woman and child regardless of need.
It’s going to be a lively campaign. Meanwhile, McMinnville and other jurisdictions are looking at SDCs.
Oregon law allows separate SDCs on new residential, commercial and industrial developments to finance five categories of capital improvements for public facilities: water supply, treatment and distribution; wastewater collection, transmission, treatment and disposal; drainage and flood control; transportation; parks and recreation.
A 2022 statewide study reported total SDCs averaging $15,000 on new homes. This year, the city of McMinnville SDC solely for parks is proposed at $6,042 for the tiniest residence, rising with house sizes up to $15,577 for homes of 4,000 or more square feet. McMinnville also has SDCs for sanitary sewer and transportation improvements.
Opponents of high SDCs cite a history of shared property owner costs for public infrastructure, which works in slow-growth communities. However, rapid population spurts create public opinion that favors assessments against new developments that require services from expensive new public infrastructure.
High SDCs can conflict with other public goals. For example, affordable housing projects suffer if residential SDCs approach $50,000, but some jurisdictions exempt qualifying projects from those SDCs.
The 2022 study, noting that some of Oregon’s smallest cities have no SDCs, said some Portland Metro area jurisdictions have residential SDCs nearing $50,000.
The 2021 Legislature directed Oregon Housing and Community Services to prepare the SDC study with a focus on history, fee methodology, fee level trends, relationship to other development costs, and ultimate impact on cost and production of housing. OHCS contracted the project to ECONorthwest with subcontractors FCS GROUP and Galardi Rothstein Group.
Local officials and citizens discussing SDCs should reference that deep-dive document in their discussions. For those wanting only the barest bones, here’s a digested summary of the report’s conclusions:
Reducing SDC funding to promote housing production and affordability would require other funding not necessarily available for mandated functionality and capacity of public infrastructure. So, SDCs “are likely to remain central to local funding for infrastructure, and most stakeholders agree that development should contribute to growth-related infrastructure costs at some level.”
However, “residential SDCs can be regressive, with higher impacts on lower-cost housing (especially when applied more uniformly to all housing).” Some alternatives, such as raising utility rates, also can be regressive, while carefully written policies can offset that impact on low-income households.
“Jurisdictions can identify locally appropriate measures to reduce or mitigate SDCs’ impact on housing development during SDC methodology updates, housing production strategies, infrastructure funding plans, or other policy discussions related to infrastructure and/or housing.”
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Jeb Bladine can be reached at jbladine@newsregister.com or 503-687-1223.
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