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Construction boom system development charges collected by city worth about $390 million

Building a $15 million development in Portland could result in government-imposed fees of around $1.5 million these days — and that's a stat that doesn't sit well with everyone in the industry.

Portland developers have expressed that these government-imposed fees can really take a toll on their finances in terms of getting new projects to pencil out — and bringing new residential units online. PAMPLIN MEDIA GROUP: FILE PHOTO - Streetcars, public transportation, smart intersections, water pipes and sewer lines are some of the pieces of infrastructure supported by system development charges imposed on new developments.

Of the total dollars a new real estate project costs, developers spend an average of 13-15 percent on system development charges (SDCs) — 13 percent according to the City, 15 percent according to Portland developers. As the building boom continues during this economic recovery, the amount of money the city collects in SDCs has also ramped up correspondingly.

The SDCs fund the building and maintainence of the city's parks, water pipes, sewer systems and public transportation, expanding and enhancing the grid as density increases and more residents use public services and utilities. According to Oregon laws 223.297 to 223.314, SDCs are authorized to be spent on capital improvements associated with the systems for which the fees are assessed, including debt repayment.

In April, the City Budget Office of Management and Finance issued a report on strategies for accelerating housing development in Portland. The SDCs represent the majority of government-imposed costs, hovering between 56.4 percent for single-family homes to 79.8 percent for average four-story multi-family developments. In total, according to the report, government-imposed fees represent roughly 13 percent of total costs on housing development projects.

Government-imposed costs to housing development projects include city review and permit fees for land use, building, public works and others, as well as system development charges for Environmental Services, the Water Bureau, the Parks Bureau and the Bureau of Transportation. City specific taxes include local transportation infrastructure charges (LTIC) and a 1 percent construction excise tax on affordable housing. There are also sometimes regional or state costs, and city development requirements. This study looks only at SDCs.

At first, the City told the Business Tribune in May that it's difficult to evaluate the total amount of money the City has collected in fees because the funds are spread across four different departments: Parks and Recreation, the Water Bureau, Environmental Services and the Bureau of Transportation.

The City has also waived a total of $9,678,487 in SDCs during fiscal year 2015-2016, for affordable housing projects (multi-dwelling and single-dwelling) and accessory dwelling units. The total counts fees waived by the Bureau of Transportation, Environmental Services, the Water Bureau and Parks and Recreation.

City Fiscal Years run from July 1 to June 30 annually, which is how the SDC amounts are calculated.

The Business Tribune called all four city bureaus that take in SDC fees to find out where that money goes, and how much they've collected during the building boom: it totals $391,172,965 across the four bureaus from 2007 to 2017.

Parks and Rec

Mark Ross, media and community relations with Portland Parks and Recreation, told the Business Tribune the Parks SDC program was adopted in 1998 and the first fees were collected in fiscal year 1999. The bureau updates its SDCs every five years, most recently in 2016.PAMPLIN MEDIA GROUP: FILE PHOTO - The largest chunk of SDC funds goes to the Parks and Rec department to expand and maintain the citys greenspace as it grows. Shown: a cyclist utilizes the Gateway Green.

"As new development occurs in Portland, our bureau — like others — collects SDC revenue," Ross said. "In our case, Parks SDC revenue to expand and enhouse our park system to meet the growing need generated by the new citywide development."

In the Parks bureau, SDCs cover a portion of the cost of providing specific types of public infrastructure required as a result of this development. Park SDCs help ensure that Portland's quality of life keeps pace with our growing and changing city by providing additional parks and recreation facilities needed to accommodate growth.

"The Parks SDC revenues are used to acquire new parkland, develop new parks and build new amenities on existing parks to handle increased use," Ross said. "We have acquired and developed a number of parks with the revenues from this program, and more are underway and planned over the next five years."

PP&R doesn't yet have a full list of all SDC-funded projects, but they include parks such as Luuwit View, Gateway Discovery, South Waterfront Greenway trail, Khunamokwst, Westmoreland, the Eagle Point acquisition, Gateway Green, Errol Heights, Thomas Cully, the Columbia Children's Arboretum and Parklane Park.

"System Development Charges (allow) us to help our park system keep pace with our City's growth," Ross said. Besides SDCs, Portland's Parks are also funded by proceeds from voter-approved general obligations bonds, limited urban renewal tax increment funds, limited City general fund contributions and other sources likes grants and donations.

From 2007 to 2017, the bureau expects to collect around $144,032,593 including the 2017 projected expectations: according to the graph, FY 2017 is expected to collect nearly $34,000,000 for the Parks bureau.

In FY 2015-16, PP&R collected a total gross revenue of $23,312,444. In FY 2009-10, it collected $1,689,855, the Recession low. As for pre-Recession numbers, in FY 2006-07, it collected $4,555,955.

Bureau of Environmental Services

From 2007-2017, the Bureau of Environmental Services collected $142,542,961.

Diane Dulken, public information officer with the Bureau of Environmental Services, said the SDCs are not used for salaries or projects, but for debt service. During that ten-year time period, SDCs have paid for about nine percent of the bureau's debt service for projects including major facilities upgrades at the treatment plants, large diameter pipes, pump stations, and stormwater pipes and green facilities.

"New development pays, via SDCs, a share of the cost of expanding system capacity to accommodate growth," Dulken said. "If SDCs were not charged to new development, then ratepayers would pick up the full cost of system expansion."

The SDCs build out the system with store pipes, pump stations, green space and natural infrastructure. Homeowners and rents pay for it through the sewer bill, too.SUBMITTED: PORTLAND PARKS AND REC - Construction workers Elias Bustamante, left, and Robert Peacock weld together sections of streetcar rails in a staging area. PBOT puts some SDC funds toward streetcar maintainence, improvements and expansions.

"W're building it out in advance of future users so when future users come online, they're buying into the system. If you build out a new sewer every time everyone added a home, it'd be pretty absurd," Dulken said. "That's what the SDCs do: your cost of buy-in to the system already built for you. And then that money, because we've already built up a system, we're paying for it by taking out debt and ratepayers are paying us back over time, and the SDCs fees are paying it back — it's like we're taking out a mortgage and they're paying it back."

In the fiscal year 2000 (ending in June), the Bureau of Environmental Services collected $5,873,655 in SDC cash. In 2006, it collected $11,680,044. That was the pre-Recession peak

In 2010, it collected $4,250,121. That was the Recession low.

In 2013, it collected $12,140,697, surpassing the pre-Recession peak for the first time. In 2015, it collected $17,717,556, and it ramps up from here significantly: In 2016, it collected $21,999,143 and in 2017, it collected $28,927,565.

Bureau of Transportation

From 1997 to 2007, the Portland Bureau of Transportation collected a total revenue of $55,410,304 in its first 10-year program.

It spent $41,758,118 of that funding 21 projects including the Central City Streetcar, Hawthorn Fastlink, Lower Albina Overcrossing, North Marine Drive, the North Lombard Street Rail Overcrossing, S/N Light Rail Improvements, Southeast Tacoma Street, Southwest Capitol Highway in four places, Citywide ITS (Barbur ITS), the Columbia and MLK intersection, the Division Fastlink, the East End Columbia Connector at Northeast 82nd, the Gateway Regional Center, I-405/ North Kerby street improvements, Northeast 47th Avenue, Southeast Foster Road improvements, Foster/Woodstock improvements and North Macadam Street, all of which are complete and ranged from costing $8,838,364 (East End Columbia Connector) to $56,854 (Foster/Woodstock improvements).

"ITS stands for Intelligent Transportation Systems and it can mean a variety of technologies that can help improve the flow of traffic," said Dylan Rivera, public information officer at PBOT."The examples in our SDC list generally would consist of traffic signal improvements that could synchronize the signals and in some cases let engineers control them remotely, so we can adjust them as needed."

From 2007 to 2017, PBOT collected a total revenue of $74,568,401 in its second 10-year program. The bureau plans to spend $23,153,213 of that by the end of the year on at least 32 projects.PAMPLIN MEDIA GROUP: FILE PHOTO - Street car and light rail improvements are among PBOTs many transportation projects funded by SDCs. Shown: United Streetcar president Kevin Clarke chats with a technician working on a car in Portland's fleet.

Complete projects include the South Light Rail, Central Eastside Bridgehead, two phases of Burnside/Couch East, two phases of the Eastside Streetcar, improvements to Lombard and its overcrossing at the Columbia Slough, Northeast Cully Boulevard, Twenties Bikeway in both northeast and southeast, multi-modal improvements to Glisan Street, the NE/SE Fifties Bikeway, the Foster Fastlink, Powellhurst/Gilbert pedestrian improvements and Southwest Stephenson.

Projects in progress include street improvements to Moody and Bond avenues, two phases of Burnside/Couch, Flanders' bicycle facility, Burgard-Lombard street improvements, NE Columbia Blvd/MLK, Gateway Regional Center with local and collector streets, the Division Fastlink, Southeast 136th Avenue bikeway and Southwest Capitol Highway.

Planned projects include Sullivan's Crossing pedestrian and bike bridge, Going Street's ITS, the Rivergate Boulevard Overcrossing, NE 47th Ave corridor improvements, NE Seventies Bikeway and Walkway, NE/SE 122nd ITS, Foster Fastlink, SE Seventies Bikeway, and improvements to the Garden Home and Multnomah intersection.

Water Bureau

At the Portland Water Bureau, the SDC revenue is spent on capital improvements associated with the water system. The SDCs provide revenue to utilities from new-user hookups to recover the cost of existing system capacity. By charging SDCs for new or larger connections to the system, the Bureau assigned part of the costs of capital improvements to those who would potentially cause an increase in demand, rather than to existing customers through higher charges.

According to the AWWA 2016 Water and Wastewater Rate Survey, Portland and surrounding cities water charges are below the national average of $3,753.

Portland's rate is $2,577 for a 5/8'' water meter. Compared to other nearby cities, Eugene's rate is $2,276, Gresham's rate is $2,470, Beaverton's rate is $5,512, Lake Oswego's rate is $7,574, Tigard's rate is $8,273 and West Linn's rate is $10,003.

Over the past 10 years, Portland's rate for a 5/8" meter increased from $1,760 to $2,577. Different-sized meters' costs are calculated based on the equivalency ratio schedule.

The Water Bureau's buy-in SDC is essentially the cost per equivalent meter unit (the net value of the water system divided by the number of equivalent meter units served by the system) multiplied by the size of the meter added to the water system.

The SDC annual forecast from FY 2017-18 to FY 2021-22 averages $2.9 million — that's $0.7 million greater than the $2.2 million listed in the previous five-year forecast. From 2007 to 2017, the bureau collected $30,029,010.

From fiscal year 2004-05, the Water Bureau collected $2,854,725. In FY 09-10, it collected $1,215,306 - the Recession low. In FY 16-17, it collected $5,422,207.

The collected cash has gone to the Bull Run Watershed, conduits, customer billing meters, distribution storage, distribution transmission, distribution direct fire, groundwater, indirect, pipe, pumping, terminal storage, transmission, treatment and terminal PB.

The net book value of these projects is $1,204,870,753. Projects in progress are costing $107,621,021. Projects on the books are projected to cost $39,184,571.

By Jules Rogers
Reporter, The Business Tribune
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Parks and Rec

In FY 2006-07, PP&R collected a total of$4,555,955.

In FY 2007-08, it collected $5,304,862.

In FY 2008-09, it collected $5,796,441.

In FY 2009-10, it collected $1,689,855, the Recession low.

In FY 2010-11, it collected $4,390,557.

In FY 2011-12, it collected $7,487,142.

In FY 2012-13, it collected $13,671,631.

In FY 2013-14, it collected $21,725,190.

In FY 2014-15, it collected $22,098,516.

In FY 2015-16, it collected $23,312,444.

Bureau of Environmental Services

In the fiscal year 1999-2000, the Bureau of Environmental Services collected $5,873,655 in SDC cash.

In FY 2000-01, it collected $5,344,195.

In FY 2001-2002, it collected $6,947,501.

In FY 2002-2003, it collected $7,927,440.

In 2004, it collected $8,096,901.

In FY 2004-2005, it collected $8,699,478.

In FY 2005-2006, it collected $11,680,044. That was the pre-Recession peak.

In FY 2006-2007, it collected $10, 247,006.

In FY 2007-2008, it collected $10,113,535.

In FY 2008-2009, it collected $7,208,287.

In FY 2009-2010, it collected $4,250,121. That was the Recession low.

In FY 2010-2011, it collected $4,971,908.

In FY 2011-2012, it collected $7,523,084.

In FY 2012-2013, it collected $12,140,697, surpassing the pre-Recession peak for the first time.

In FY 2013-2014, it collected $17,444,077.

In FY 2014-2015, it collected $17,717,556, and it ramps up from here significantly:

In FY 2015-2016, it collected $21,999,143.

In FY 2016-2017, it collected $28,927,565.

Water Bureau

From fiscal year 2004-05, the Water Bureau collected $2,854,725.

In FY 05-06, it collected $4,633,487.

In FY 05-06, it collected $3,835,849.

In FY 06-07, it collected $3,730,598.

In FY 07-08, it collected $3,730,598.

In FY 08-09, it collected $2,065,321.

In FY 09-10, it collected $1,215,306.

In FY 10-11, it collected $1,321,238.

In FY 11-12, it collected $1,647,239.

In FY 12-13, it collected $2,544,975.

In FY 13-14, it collected $3,194,515.

In FY 14-15, it collected $4,477,346.

In FY 15-16, it collected $4,410,265.

In FY 16-17, it collected $5,422,207.

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