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City's SDC funds unable to keep pace with inflation

Should development pay for itself?

You may be asked to answer that question in a general election next November.

At the City Council meeting on Monday, Nov. 25, City Manager Bill Elliott told the council that Estacada’s system development charges (SDCs) are not keeping up with inflation.

SDC funds allow for the future expansion of the city’s water, sanitary sewer, storm water sewers, parks and transportation systems.

The charges are determined through complicated formulas based on engineering studies and need analysis.

“There’s a huge thing you have to go through to be able to charge an SDC,” Elliott said.

The idea is that new customers will pay into the existing system, allowing the system to expand to make room for them and to be able to accommodate new construction.

The cost of each new housing permit includes SDCs for various city systems.

There are strict guidelines for how the city may spend the SDC funds.

“These funds are to be used to improve the system somehow,” Elliott said.

Elliott pulled out a thick binder containing Estacada’s water system SDC plan.

Each SDC plan details acceptable projects that the funds may be used for.

In order for SDC funds to work as intended, the charges have to keep up with inflation rates.

“If you don’t increase your SDCs to keep pace with that, you won’t have enough money in the fund,” Elliott said.

When, for example, the city’s sanitary sewer system hits capacity and is legally required to expand, the money would normally come entirely from the sanitary sewer SDC fund.

Not enough money in the SDC fund, and the difference comes out of the general fund.

In a case like this, citizens’ tax dollars would subsidize development.

Elliott warned the council that Estacada could face a problem like this down the road.

So why not increase the SDC fees to keep up with inflation?

In 2009, Estacada voters approved a city charter amendment that requires voter approval for any tax, fee or rate increase of more than 3 percent.

“Prior to the charter amendment the city had annually applied the (Engineering News Record Construction Cost Index) CCI to keep pace with inflation, and SDCs were increased accordingly,” Elliott wrote in a document prepared for the city council. “After the effective date of the charter amendment (December 2010) the SDCs have been increased only the 3 percent annually allowed by voters. The result has been favorable for developers in Estacada, but in the long run will transfer some of the costs for system expansion from the developers to the taxpayers of Estacada.”

“The mantra has been development should pay for development,” Elliott told the council. “But that’s not what’s been happening.”

Elliott included a table that showed the estimated effect over three years of the 3 percent cap on SDC charges for a typical house built in 2013.

The most dramatic effect appears to be for water system SDC fees.

With the the 3 percent limit over three years, a 2013 house would be expected to pay $4,074 in water system SDC fees.

When adjusted for inflation, the house would have been expected to pay $5,096.

That is a $1,022 difference.

Elliott explained that the SDCs are designed to be able to accommodate system growth without taking additional money from the general fund.

That $1,022 difference would likely come from the general fund when the water system was required to expand.

“The impact isn’t now,” Elliott told the council. “The impact is when we have to do a major project.”

Elliott hinted that the only way to correct the problem is to bring it back to voters in November.

Perhaps, he said, it will be in the form of a ballot measure that would exempt SDC charges from the 3 percent cap.

“I think the citizens at least need to be aware of it because I don’t think that’s what voters wanted when they voted that in,” Elliott said.

“I think that’s part of our job as councilors to look at the big picture in 10 years, 20 years — how is this going to impact our growth and development?” said Michele Conditt, city councilor.

Conditt indicated that she wanted to educate citizens so they could better understand the purpose of SDCs.

She would like to offer free “Government 101” classes to the public in late summer 2014.

“It is a complicated issue and I don’t think everybody understands it. It took me a while to understand it,” Conditt said. “I really do think it’s an educational issue. I hope they would see why it’s important to support us.”

While the classes are still in a brainstorming phase, Conditt said that she would like to offer quarterly Government 101 classes on a variety of topics.



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