The Changing Landscape of SDCs

By Ed Trompke

System Development Charges (SDCs) have become a major source of funding for streets, sewers, parks, and other infrastructure. Property taxes are limited and can increase only at a slow rate. But the only limitation on SDCs is the actual cost of the project, so cities and counties have increased the amounts charged. Voting taxpayers have not resisted because the primary burden of paying SDCs falls on new homeowners and new businesses. However, there is no such thing as a "free lunch," and the cost is now coming home to roost with complaints and lawsuits by those who pay. The news has been filled with stories of charges of over $25,000 for a pizza parlor to move across the street. In addition, major SDC giveaways are being proposed for large industrial developers. If these proposed changes are instituted, only new home buyers and small businesses will foot the bill.

System Development Charges were standardized by the Oregon Legislature in 1989, when the League of Oregon Cities and two homebuilders' associations worked out their differences to enable both homebuilders and cities to pay the costs of services for new houses demanded by the public. There are two categories of SDCs. The first is a reimbursement for hooking up to existing urban infrastructure. For example, a sewer SDC is charged to pay a fair share of the cost of the existing sewer system. The second SDC is for improvements to the system required by the expanding population. These funds are set aside into a special fund that can be used only to provide expanded services.

The problems with SDCs arose almost immediately when the people adopted Measure 5 in November 1989 and Measure 50 in 1997. These property tax limitations seriously constrain the ability of cities not only to maintain existing infrastructure and services, but to construct new ones.

In addition, a political movement gained support, demanding that new development pay for itself or, put another way, that existing residents would not pay for any expansion of services to support an expanding economy.

The net result is that cities increased System Development Charges. In some cases SDCs doubled overnight. These charges make it difficult to build housing that is affordable to moderate and low income workers. As a result, homebuilders are unhappy. They have filed a lawsuit challenging the one city's SDC that recently doubled, and industrial developers have refused to locate in the area unless they are given special exemption from the charges.

The city of Portland, responding to an industrial developer, waived more than half of its SDC because the developer promised to spend approximately $100 million to develop an industrial site and to hire 500 workers. Scuttlebutt from the city of Portland says that this will become the standard. Large, often out of state companies will be able to reduce their SDCs by approximately 65 percent. Pizza parlor owners who move across the street will still pay their SDCs, although the city reduced the SDC that it charged the publicized pizza parlor owner who moved across the street.

Is this proposed system equitable? Probably not, but until Oregon's cities and counties have a stable funding source, SDCs are likely to remain a significant source of infrastructure development.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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