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HomeMy WebLinkAboutItem C: Systems Development Charges ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Work Session: Current Status of Systems Development Charges Meeting Date: July 13, 2009 Agenda Item Number: C Department: Public Works Staff Contact: Fred McVey www.eugene-or.gov Contact Telephone Number: 682-5216 ISSUE STATEMENT The purpose of the work session is to provide the City Council with information related to the current status of Systems Development Charges (SDC) in Eugene with respect to policy framework, purpose, use of funds, financial impacts on development projects, and efforts to provide relief for development during the current economic downturn. BACKGROUND Council Action History The last major update to Eugene SDCs was in May 2007, when the council adopted the SDC Methodologies by Resolution No. 4900, updating the parks SDC methodology and rates. Resolution No. 4900 has subsequently been amended by Resolution Nos. 4929 (inflationary adjustment to Parks SDC rates effective April 3, 2008) and 4943 (inflationary adjustment to regional wastewater SDC rates effective July 1, 2008). In addition, inflationary adjustments of SDC rates for the local wastewater, stormwater, and transportation systems were adopted by Administrative Order No. 58-08-02-F, effective April 3, 2008. On May 26, 2009, the council approved Resolution No. 4977 implementing administrative fee adjustments with an amended effective date of January 1, 2010. Purpose and Uses of SDCs SDCs are intended to provide an equitable means of funding capital improvements that provide capacity in infrastructure systems needed to serve growth. SDCs collected in Eugene fund capital projects in five primary infrastructure systems: wastewater, stormwater, parks, transportation and water. The wastewater SDC consists of both a local collection system and regional treatment system SDCs; the regional wastewater SDC is collected by the City with all revenues passed through to MWMC. The water system SDC is collected directly and administered by EWEB. Similar to SDCs, a construction excise tax is imposed by the Bethel School District to help fund capital improvements for school facilities. Two forms of SDCs, reimbursement and improvement fees, recognize that capacity to meet the needs of growth is provided in two forms – new capacity-increasing capital improvements, and reimbursement for extra capacity built in the past in systems and paid for by the general community. SDCs must be expended on capital projects related to the system for which they are collected. Improvement fee SDCs may be spent only on capacity-increasing projects. Reimbursement fees may also be spent on rehabilitation projects. The City has a combination of both reimbursement and improvement fee elements in each system’s SDC. Z:\CMO\2009 Council Agendas\M090713\S090713C.doc Examples of the types of projects funded in part by SDCs include the following: pavement preservation on arterial and collector streets; traffic signals and other intersection improvements; off-street bicycle paths; parks land acquisition and development; wastewater facilities rehabilitation; and, stormwater facilities construction. In recent years, SDC revenues and expenditures have averaged approximately $6.3 million per year. The amount of SDC revenue varies considerably from year to year, depending on the volume and nature of development, which are tied to local economic conditions. Expenditures also vary in relation to the types and SDC-eligible costs of capital projects funded as well as the amount of available funding. A significant decline in SDC revenue has occurred during the most recent fiscal year; for FY09, total revenues are estimated at approximately $2.9 million. This reduction in revenue has resulted in the delay of a number of planned capital projects. Financial Implications for Development Projects SDCs are one-time charges, often of a sizeable dollar amount, and can represent a significant percentage of a development project’s total cost, ranging from a few percent to 20 percent or more. The amount of SDCs for a development is variable, depending on several factors including size and type of development and available SDC exemptions or credits. SDCs are proportionate to a development’s claim on system capacity and thus vary by development type and size. For example, a restaurant may have a relatively large impact on wastewater system capacity as compared to an office building of the same size. Attachment A provides a comparison of SDCs to project construction value for several example development types, prior to any credits. SDCs are paid, or an agreement to pay is executed, at the time of issuance of a building permit as provided in Eugene Code section 7.720. City financing of SDCs allows for semi-annual payments over a 10-year period, with the first payment due approximately six months after permit issuance. Contracted payments are typically secured by a lien on the property being developed, with other forms of security allowable. SDC credits and exemptions provide some potential incentives for low-income housing, mixed-use, infill and redevelopment as well as development in the downtown core. In 1997, the council adopted an exemption of local SDCs to qualified projects providing housing to low-income persons. This exemption has provided approximately $815,000 in assistance to housing projects over the past 12 years. SDC credits account for reduced impacts of certain development projects as well as credits for improvements built by a developer that would otherwise have been funded by the City with SDC revenues. For redevelopment of existing sites, SDC credits are provided for prior uses at the site, reducing and sometimes eliminating SDCs for a project. Additionally, development in nodal or mixed- use development centers receives a 10 percent reduction in the street-related transportation SDC. For development in the downtown, redevelopment involving intensification of use of pre-existing spaces is not charged a transportation SDC. Current Measures to Provide Relief for Development The City Council and City Manager have implemented several measures to provide a degree of relief from SDC increases during the current economic situation. Recently, the council chose to ease the impact of a proposed July 1, 2009, administrative rate increase by postponing the effective date to January 1, 2010. Normally, SDC rates are adjusted annually, typically in April, to reflect the prior year’s changes in indexed infrastructure costs. Earlier this year, the City Manager directed that the Z:\CMO\2009 Council Agendas\M090713\S090713C.doc proposed annual indexed adjustment scheduled for April 2009, be postponed until January 2010. Existing provisions are available to provide for delayed payment of SDCs through City financing mechanisms. An additional administrative measure being pursued is to improve SDC financing provisions through adoption of a market-based interest rate for contracted payment options (the current rate is set at 8%). Financial Considerations SDCs provide a funding mechanism to account for the costs and value of infrastructure system capacity required by new development. The SDC Methodologies adopted by the council provide for periodic adjustments to SDCs to further account for changes in construction and land costs. Periodic adjustments allow SDCs to more closely reflect current costs of providing system capacity to new development. By postponing adjustments to rates, some reduction in overall SDC revenue is likely. To the extent that postponed rate increases provide an economic stimulus, some increase in revenue is possible due to increased development activity. Staff is regularly monitoring the health of the SDC capital and administrative funds in order to prepare and administer budgets with balanced revenues and expenditures. Council Goals/Action Priorities This agenda item relates to one of the council’s current goals, the Transportation Initiative, in that transportation SDC revenues help fund a portion of the transportation system capital needs, including preservation and rehabilitation of the existing system. Timing This item is time-sensitive insofar as efforts to provide relief or stimulus to development sectors of the local economy have urgency tied to current economic conditions. RELATED POLICIES Oregon has established statutory provisions for a uniform framework for the imposition of system development charges by local governments, to provide equitable funding for orderly growth and development in Oregon’s communities. Chapter 223 of the Oregon Revised Statutes prescribes the rights and responsibilities of local governments in developing and assessing SDCs, and for expenditure of SDC revenues. The Eugene Code, Chapter 7, sets forth local policy and the process for development, adoption and administration of SDCs, providing for adoption of methodologies related to SDCs consistent with statutory requirements. The council has adopted by resolution the SDC Methodologies which include detailed methods for establishing SDC rates and provide for periodic adjustment of Eugene’s SDCs based on adopted cost indices. Growth Management Policy 14, adopted by Resolution No. 4554, is directly related to implementation and modification of SDCs. The policy provides: Development shall be required to pay the full cost of extending infrastructure and services, except that the City will examine ways to subsidize the costs of providing infrastructure or offer other incentives that support higher-density, in-fill, mixed-use, and redevelopment. The council has also established policy for expenditure of transportation SDC reimbursement fee revenues through Resolution No. 4717, which provides: In preparing the proposed budget, the City Z:\CMO\2009 Council Agendas\M090713\S090713C.doc Manager shall allocate transportation SDC reimbursement fee revenue to SDC-eligible capital improvement costs associated with preservation and maintenance of Eugene’s arterial and collector streets. COUNCIL OPTIONS None, this is an information item only. CITY MANAGER’S RECOMMENDATION None, this is an information item only. SUGGESTED MOTION None, this is an information item only. ATTACHMENTS A. SDCs for Example Development Types FOR MORE INFORMATION Staff Contact: Fred McVey Telephone: 682-5216 Staff E-Mail: fred.mcvey@ci.eugene.or.us Z:\CMO\2009 Council Agendas\M090713\S090713C.doc Attachment A Comparison of SDC to Project Value for Example Development Types Total SDC* Estimated SDC as Example Development Types(assumes no Construction Percentage of credits) Value**Value Single-Family Dwelling - 1,900 sq. ft.$7,322$158,8014.61% Multi-Family - 60-unit Apartment$507,513$12,253,4284.14% Office Building - 20,000 sq. ft.$315,262$2,595,40012.15% Low Turnover Restaurant - 5,200 sq. ft.$127,842$677,35218.87% Supermarket 47,400 sq. ft.$283,583$4,384,9746.47% Notes: * Total SDC includes local & regional SDCs and administrative fees. EWEB water SDC not included. ** Estimated Construction Values based on mid-range of values per current building code standard valuation tables.