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HomeMy WebLinkAboutItem 03 System Development Charge Temporary Reductions AGENDA ITEM SUMMARY Meeting Date: 11/26/2012 Meeting Type: Work Session Staff Contact/Dept.: Len Goodwin/DPW Staff Phone No: (541)726-3685 Estimated Time: 20 minutes S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Provide Financially Responsible and Innovative Government Services ITEM TITLE: SYSTEM DEVELOPMENT CHARGE TEMPORARY REDUCTIONS ACTION REQUESTED: Provide staff direction with respect to options for extending the temporary reduction of Systems Development Charges. ISSUE STATEMENT: Council has extended certain reductions of Systems Development Charges (SDC) for larger commercial and industrial development, and requested that staff provide options for continuing similar reductions for other development. ATTACHMENTS Attachment 1: Council Briefing Memorandum Attachment 2: Value of the Reduction Program to Residential Development. Attachment 3: Summary of the Status of the Various Local SDC Capital Project Funds. DISCUSSION/ FINANCIAL IMPACT: Council extended certain reductions in Systems Development Charges with respect to large commercial and industrial developments on November 19, 2010. At a work session on November 3, council directed staff to prepare alternatives for temporary reductions on other types of development. Staff has developed a proposal which would extend the current 50 percent reduction through June 30, 2013, subject to a monetary limit of $500,000 total during the period January 1 through June 30, 2013. Staff has also proposed a revision to the Municipal Code to permit payment of such charges to be deferred until final occupancy, provided the applicant grants the city a lien on the affected property to secure payment of the fees. Staff will review those options with Council and seek direction in anticipation of presentation of a proposal for action at the December 3, 2012 Council meeting. ATTACHMENT 1 - 1 M E M O R A N D U M City of Springfield Date: 11/21/2012 COUNCIL BRIEFING MEMORANDUM To: Gino Grimaldi From: Len Goodwin, Development and Public Works Director Subject: SDC Reductions ISSUE: Council has extended certain reductions of Systems Development Charges (SDC) for larger commercial and industrial development, and requested that staff provide options for continuing similar reductions for other development. COUNCIL GOALS/ MANDATE: Financially Responsible and Stable Government Services BACKGROUND: In February the Council temporarily reduced SDCs in an effort to provide some local stimulus for the economy. That temporary program was scheduled to end December 31, 2012. At a work session on November 3, Council directed staff to prepare a resolution extending portions of that program through June 30, 2013. That action, which was presented to the Council for adoption on November 19, extended a 100 percent reduction in locally imposed SDCs for development which proposed new construction in excess of 75,000 square feet and created new job opportunities. At the same time a 100 percent reduction for development which proposed new construction in excess of 50,000 square feet which would be occupied by an employer committed to providing in excess of 50 new jobs within one year of occupancy was also extended. With respect to other development, which under the February program benefitted from a 50 percent reduction in SDCs, the Council, after discussion, directed staff to return with further options for extension of the program. During that discussion, Council indicated that it believed any extension of the reduction in other SDCs should be limited by a dollar maximum reduction, so as to avoid creating excessive risk to the ability of the SDC Capital Projects Funds to support capital activity that can be funded through SDCs. Council also indicated interest in reinstituting a policy under which the payment of certain SDCs could be deferred until building occupancy. This memorandum deals with options for implementing those proposals. Separately, Council also directed staff to pursue conversations with the Springfield Economic Development Agency about extending a program under which SEDA assumes the obligation of locally imposed SDCs for development in the area of the Downtown Urban Renewal District which conforms to the requirements of the recently adopted Downtown Urban Design and Implementation Plan. SEDA staff will be pursuing that conversation. Deferral of Payment. Currently the Code contemplates that SDCs will be paid at the time of building permit issuance. Two exceptions to that practice exist. First, SDCs on residences may be financed by the City and paid over a 10 year period under Municipal Code Section 3.412(4). Although the Council has discussed extending that option to cover other forms of development, Council has not elected to 11/21/2012 Page 2 ATTACHMENT 1 - 2 direct staff to expand that option. Second, by long-standing City policy, whenever total local SDCs exceed $10,000, the applicant has been allowed to enter into a short term deferral agreement under which $10,000 will be paid at issuance of the permit and the balance paid at occupancy. In each of these alternatives, the applicant has been asked to give the City a lien on the property affected, to secure payment of the SDCs. In 2009, the Council adopted Ordinance 6234, which allowed all applicants seeking to build one and two family homes to defer payment of local SDCs until final occupancy. Under that process, the applicant was likewise obliged to give the City a lein on the affected property to secure payment of the SDCs. That program continued through September 1, 2010. Options: Staff recommends that council consider two options for deferring the time of payment of SDCs. Option 1 would reinstitute that previous deferral program for one and two family residential and leave the short term deferral for large SDCs in place. Under this option, builders of one and two family residences could defer all local SDCs to time of occupancy by granting a lien on the property, and applicants building larger facilities could defer any SDCs in excess of $10,000 to the time of occupancy. Option 2 would simply provide that the payment of all local SDCs due could be deferred until final occupancy by granting a lien on the property affected. Temporary Reduction of Charges As mentioned, in the Council work session of November 3, several Councilors expressed concern about an unlimited 50 percent reduction in SDCs, because of the potential impact on the ability of the City to fund its capital program. There are several capital projects currently budgeted or programmed in the in the 2013-2017 Capital Improvement Program currently relying on SDC revenue for implementation. Any of these projects could be placed at risk by continued decline in SDC revenues.The following is a sample list of those projects: Project SDC Funds “A” Street Overlay $191,387, Transportation Reimbursement Thurston Rd. Overlay $142,626, Transportation Reimbursement Franklin NEPA $210,027, Transportation Improvement Mill Race Stormwater Facility $235,000, Stormwater Improvement S&T Drainage $74,000, Stormwater Reimbursement Glenwood Stormwater $240,000, Stormwater Improvement Wastewater Pump Station Upgrades $1,250,000, Wastewater Reimbursement Franklin Boulevard Expansion $614,000, Wastewater Improvement Options: If Council wishes to extend the 50 percent reductions temporarily it may do so either by limiting the period of time within which the discount is available, imposing a dollar limit on the amount of reductions authorized, or limiting the class of developments to which it applies. 11/21/2012 Page 3 ATTACHMENT 1 - 3 Time limit In considering a time period limit, it is important to keep in mind that, generally, there is limited development activity in the winter months, even in good economic times. Thus, for example, a three month extension (through March 31) is unlikely to either have much benefit or much financial impact, because the level of building activity will be low. A six month extension would not only likely impact more potential developments but might also accelerate the pace of development to some extent. Those who are considering developing in calendar year 2013 might choose to move their activity up to fit within a June 30 deadline, rather than defer their activity to later in the summer. This could have a positive economic effect in addition to the stimulative effect of inducing development this year as opposed to some future time. Class of Development In considering the class of development to which the discount might apply, staff notes that while much of the discussion at the November 3 work session related to residential development, the limited amount of commercial/industrial development activity that occurred since February, when the current reduction program went into effect, has been smaller scale development which qualified for the 50 percent reduction, not for the 100 percent reduction. It is, of course, unclear how much of this development would have occurred were the SDC reduction not in place. The value of this reduction program to residential development can be seen in Attachment 2, which shows the all-in fee and permitting costs for two example dwellings. In each case, the 50 percent reduction in SDCs reduces the total cost, including construction and all permits, by somewhere between 2.0 and 2.2 percent. Although there is much variability in the cost of commercial/industrial development and in the SDCs for that type of development, staff believes it is reasonable to assume that the cost reduction impact that would result from the continuation of the reduction program would be on the same order of magnitude. Dollar limit on reduction Attachment 3 summarizes the status of the various local SDC Capital project funds. While each of the funds is challenged financially, staff believe that a revenue loss of not more than $500,000, spread across the six funds, is manageable. Although some of the funds show negative balances for FY 2014 and 2015, the affects can be addressed by making modifications to the Capital program to slow the rate of delivery of projects by deferring some actions until later years. This strategy is probably sustainable for one or two years, but would not be appropriate as a long term strategy. One caveat to note is that most commercial or industrial development tends to be transportation intensive, while most residential development generally implicates the local wastewater funds more significantly. As a result, assuming the reductions are allowed for each component of the SDC the impact on each fund may be significantly different, depending on the type of development that occurs over the period of the reduction. An added complexity to a dollar limited reduction is that there will need to be some method to resolve what happens as the maximum limit is approached. There may be cases where multiple applications are submitted, and it becomes necessary to choose which one gets the benefit of the reduction. Staff proposes that in setting that priority we rely on that date when an application is approved, not the date of submission. Taking that approach will prevent anticipatory filing of incomplete applications as a way of locking in the discount, even though there is no immediate plan to construct. Similarly, staff proposes to prioritize among applications that are complete on the same date by favoring the last application filed. The net result would be, for those last few 11/21/2012 Page 4 ATTACHMENT 1 - 4 applications where prioritization needs to occur, those who submitted an application and promptly completed it would receive preference over those where the application was submitted but allowed to languish before it was deemed complete. RECOMMENDED ACTION: Staff recommends that Council direct that an ordinance be prepared for the December 3 regular session allowing for the deferral of payment of SDCs until final occupancy upon agreement granting the City a lien to secure payment. Staff recommends that this cover all SDCs for one and two family residential development and all SDCs in excess of $10,000 for commercial and industrial SDCs. Staff recommends that Council direct this ordinance be brought forward with an emergency clause to insure that there is no gap following the expiration of the reductions provided by Resolution 12-02, approved February 6, 2012. Staff further recommends that Council direct that a resolution be prepared temporarily reducing by 50 percent, through June 30, 2013, or until reductions totaling $500,000 have been granted pursuant to this resolution, whichever is sooner, all SDCs except those for which a 100 percent reduction was authorized by Resolution 12-xx. Fees  for Single Family Residences 2644 sq.  ft. 1764 sq.  ft. Value=$234,974.72 Value=$168,708.16 City Fees Plan Review 817.83 $                     643.23 $                     Planning  Plan Review 211.00 $                     211.00 $                     Fire Fee (.05 Per sq foot) 136.80 $                     105.85 $                     Electrical 234.00 $                     272.00 $                     Plumbing 374.00 $                     374.00 $                     Mechanical 195.00 $                     170.00 $                     Land  Drainage & Alteration Permit 472.50 $                     472.50 $                     Building   Permit Fees 1,258.20 $                  989.58 $                     Addressing 38.00 $                       38.00 $                        Technology  Fee 113.01 $                     95.43 $                        Sidewalk  & curbcut 161.00 $                      161.00 $                      * Local  SDC's Full  Rate 50% Off   Full  Rate 50% Off   11,200.08 $                5,638.73 $        7,663.39 $                  3,870.01 $        City Fee  sub tota l 15,211.42 $                9,650.07 $        11,195.98 $                7,402.60 $        Other  Jurisdictional Fees Willamalane 3,499.00 $                  3,499.00 $                  Metro Wastewater SDC's 1,532.80 $                  1,532.80 $                  State of Oregon 247.34 $                     224.47 $                     Sub Total  for other jurisdictions 5,279.14 $                  5,256.27 $                  Grand Totals 20,490.56 $             14,929.21 $     16,452.25 $              12,658.87 $     *This  is  a breakdown of two 3 bedroom 2 bath  homes with  the same fixture count.ATTACHMENT 2 SDC  Financials FY10FY11FY12 FY13 Estimate  Actual FY14  Projected FY15  Projected Storm ImprovementRevenues 2,515,838       1,874,730       1,794,091       1,776,268        866,078       745,161       Expenditures 728,019          165,297          90,550            1,036,310        316,253       333,738       Balance 1,787,819        1,709,432        1,703,540        739,958           549,825        411,423        Storm ReimbursementRevenues 8,280              41,898            63,682            87,494             117,232       47,997         Expenditures 4,30627,43621,17383,445263,915129,313 Balance 3,974                14,462             42,509             4,048                (146,683)      (81,316)         WW ReimbursementRevenues 926,791          1,090,478       1,297,385       1,327,898        1,372,398   1,567,474   Expenditures 82,865            97,230            189,087          262,901           379,548       1,506,699   Balance 843,926             993,248           1,108,298        1,064,997        992,850        60,775          WW ImprovementRevenues 406,401          439,664          500,071          491,057           563,711       176,508       Expenditures 98,798            82,597            137,254          109,855           697,291       457,276       Balance 307,604           357,067           362,818           381,202           (133,580)      (280,768)      Transp ReimbursementRevenues 554,926          442,949          457,421          461,313           331,275       233,710       Expenditures 189,004          83,418            83,045            251,310           402,036       298,181       Balance 365,922           359,532           374,376           210,003           (70,761)           (64,471)         Transp ImprovementRevenues 3,305,085       3,130,342       1,597,111       1,659,184        1,364,412   715,843       Expenditures 461,288          1,916,521       192,892          553,596           905,999       899,619       Balance 2,843,797        1,213,820        1,404,218        1,105,588        458,413        (183,777)      FY14 and  FY15 are  at 100%  SDCs Capital  Projects will  need to be reduced each year to meet budget.ATTACHMENT 3