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Home My WebLink AboutItem 02 System Development Charge Discounts AGENDA ITEM SUMMARY Meeting Date: 5/28/2013 Meeting Type: Work Session Staff Contact/Dept.: Matt Stouder/DPW Staff Phone No: (541) 736-1035 Estimated Time: 30 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 DISCOUNTS ACTION REQUESTED: Discuss the current program of discounts on System Development Charges (SDC) and provide direction to staff. ISSUE STATEMENT: The temporary reduction of SDCs authorized by Council on February 6, 2012 will sunset on June 30, 2013. As of April 15, 2013, the City has forgone collection of $868,846 in otherwise eligible SDC’s as a result of this reduction policy. This lost revenue has impacted the City’s ability to fund future Capital projects. ATTACHMENTS Attachment 1: Council Briefing Memorandum Attachment 2: Value of SDC Reduction to Single Family Residential Development DISCUSSION/ FINANCIAL IMPACT: The SDC discounts authorized by Council involved three actions intended to stimulate growth including: 100 percent reductions in local SDCs for commercial and industrial development where more than 75,000 square feet of new space and new employment opportunities are created; 100 percent reduction in local SDCs for commercial and industrial development where more than 50,000 square feet of new space and 50 or more new full time jobs are created; and 50 percent reduction in local SDCs for all other development (small commercial and residential). On a related note, but under separate action, SEDA extended a program whereby SEDA assumes the obligation of City SDCs for development in Downtown and Glenwood in those cases where the development conforms to the requirements of the recently adopted Downtown and Glenwood Refinement Plans. During the time the reduction program has been in place the City processed 208 permits that met the threshold for the 50% local SDC reduction; As a result $868,846 of eligible charges were not collected. No development applications were submitted which met the criteria for 100% reduction. More detail on the qualifying developments can be found in Attachment 1. As discussed in previous Council work sessions, continued implementation of the SDC discount program will place funding of current and future capital projects at risk. Several capital projects currently budgeted or programmed in the 2014-2018 Capital Improvement Program rely on SDC revenue. Should the economic rebound which appears to be taking hold continue, need for some of these projects may become more urgent, but also more uncertain because of continued underperformance in SDC revenues. This may force the City to identify alternate funding sources such as user fees or new debt to advance projects such as those listed in Attachment 1. ATTACHMENT 1 - 1 M E M O R A N D U M City of Springfield Date: 5/28/2013 COUNCIL BRIEFING MEMORANDUM To: Gino Grimaldi, City Manager From: Len Goodwin, Development and Public Works Director Matt Stouder, Managing Civil Engineer Subject: SDC Program Reductions ISSUE: The temporary reduction of SDCs authorized by Council on February 6, 2012 will sunset on June 30, 2013. As of April 15, 2013, the City has forgone collection of $868,846 in otherwise eligible SDCs as a result of this reduction policy. This lost revenue has impacted the City’s ability to fund future Capital projects. COUNCIL GOALS/ MANDATE: Financially Responsible and Stable Government Services BACKGROUND: In February 2012, the City Council temporarily reduced City SDCs in an effort to provide stimulus to the local economy. The reduction program, which was scheduled to sunset on December 31, 2012, was extended by Council action until June 30, 2013 or until such time as an additional $500,000 in forgone revenue went uncollected by the City. The SDC discount involved three actions intended to stimulate growth, including: • 100 percent reductions in local SDCs for commercial and industrial development where more than 75,000 square feet of new space and new employment opportunities are created. • 100 percent reduction in local SDCs for commercial and industrial development where more than 50,000 square feet of new space and 50 or more new full time jobs are created. • 50 percent reduction in local SDCs for all other development (small commercial and residential). Since the inception of the reduction program the City has processed 208 permits that met the threshold for the 50% local SDC reduction. As a result a total of $868,846 in eligible charges was not collected. No development applications were submitted which met the criteria for 100% reduction. Springfield Economic Development Agency Under separate action on December 3, 2012, the Springfield Economic Development Agency (SEDA) extended a program under which SEDA assumed the obligation of City 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. Additionally, SEDA assumed the same obligation for the Glenwood Refinement Plan phase 1 area as part of the Glenwood Urban Renewal District. That program is also scheduled to sunset on June 30, 2013. To date, five businesses in the downtown have been able to take advantage of the SDC incentives offered through SEDA, including both NedCo and the Planktown Brewing Company. As of the date of this memorandum, no development in Glenwood has used the SEDA incentive program. DISCUSSION: The table below shows the number of permits and amount of City SDCs the City did not collect between February 7, 2012 and April 15, 2013. During that time, the City processed 172 residential permits and 129 commercial/industrial permits. Of the 129 commercial permits only 36 included activities that resulted in 5/22/2013 Page 2 ATTACHMENT 1 - 2 assessment of SDCs. The total uncollected local SDCs for residential permits was $578,419; approximately $165,000 came after December 1, 2012. The total amount of commercial/industrial SDCs the City did not collect was $313,549. The combined total local SDCs not collected by the City from the 50% discount is $868,846. Permit Type Number of Permits Stormwater Local Wastewater Transportation Admin Total Residential 172 $91,596 $308,026 $129,232 $26,443 $555,297 Commercial 36 $11,481 $57,026 $230,112 $14,930 $313,549 Total 208 $103,080 $365,052 $359,344 $41,373 $868,846 It is worth noting that all of the residential development which qualified for local SDC reductions occurred on existing platted lots. During the time the reduction program has been available, the City has not received any development applications for new subdivisions. Of the 172 permits which generated SDCs, 67 were minor in nature (additions, carports, etc.), while 105 were new housing starts. Of the 105 new homes constructed, 68 were constructed by two large homebuilders. With respect to commercial SDCs, the Walmart redevelopment project of the former Circuit City building in Gateway accounted for over half of the uncollected commercial SDC revenue at approximately $171,000. Other significant developments that were able to take advantage of the reduction program included new construction projects for a Buffalo Wild Wings restaurant, the Guistina Resources Corporate Headquarters and the Panda Express Restaurant, all in the Gateway area. In general, it seems that the greatest benefit that has accrued to the City is stimulation of some development in the Downtown Urban Renewal Area. It also appears to be the case that several potential Glenwood developments have expressed great interest in the benefits of the discounts. In these two areas, however, the benefits to development could be achieved, with less risk to the City’s capital program, if SEDA were willing to continue its willingness to assume the obligation of City imposed SDCs. In that way, while the development would reap the benefits of full reduction in City SDCs, the City would still be able to rely on payment, at some future time, of the full value of the SDCs, from SEDA. Clearly, SEDA might wish to discuss appropriate limitations on the scope of the program to assure that it does not assume liability beyond its debt-carrying capacity. It also appears that the stimulative impact of the discounts as they affected residential development were quite limited. Given clear indications on a national and state level of a rebound in the housing sector, and the recent sharp declines in local residential inventory and consequent uptick in home prices, staff believes there is little further stimulative effect to be gained by continuing the discounts on residential activity. Capital Projects Impact As discussed in previous Council work sessions, funding for current and future capital projects is at risk with continued implementation of SDC reduction program. There are several capital projects currently budgeted or programmed in the 2014-2018 Capital Improvement Program which rely on SDC revenue for implementation. Any of these projects could be placed at risk by continued weakness in SDC revenues. The following is a sample list of those projects: Project SDC Funds Franklin NEPA $210,027, Transportation Improvement Mill Race Stormwater Facility $235,000, Stormwater Improvement S&T Drainage $74,000, Stormwater Reimbursement 5/22/2013 Page 3 ATTACHMENT 1 - 3 Glenwood Stormwater $240,000, Stormwater Improvement Wastewater Pump Station Upgrades $1,250,000, Wastewater Reimbursement Franklin Boulevard Expansion $614,000, Wastewater Improvement In developing the FY 2014 Capital Budget, the Transportation Reimbursement SDC Fund (446) is the first SDC fund to show extreme signs of stress from the recession and the 50% SDC reduction. In FY 2013, there was approximately $436,000 available for capital projects, compared to $24,000 for FY 2014. The chart below shows the funds available for programming for capital projects (budgeted projects and reserves) by SDC fund between 2006 and 2014. In the past several years, the City has completed several large projects utilizing SDC funds as a key component of the overall project funding (e.g., the Harlow Road Pump Station, Beltline/Gateway Intersection, and the Vera Street Pump Station). Of concern is the status of future projects that are SDC eligible, as continued underperformance in revenue collection may cause cancellation, postponement, , or the need to identify alternate funding sources (i.e., user fees) to advance projects such as those listed above. RECOMMENDED ACTION: Staff recommends that Council take no action with respect to the SDC reduction program and let the program sunset on June 30, 2013. Staff also recommends that Council discuss with SEDA the possibility that SEDA might continue to assume the obligation of City imposed SDCs for developments which conform to the requirements of the Downtown Urban Renewal District and Glenwood Refinement Plan areas. Fees for Typical SFR 2644 square foot 1764 square feet Value = $243,243 Value = S162,305 City Fees Plan Review 905.14 $ 674.53 $ Planning Plan Review 211.00 $ 211.00 $ Fire Fee (.05 Per sq foot) 132.20 $ 88.20 $ Electrical 326.50 $ 271.50 $ Plumbing 411.00 $ 411.00 $ Mechanical 188.00 $ 188.00 $ Land Drainage & Alteration Permit 472.50 $ 472.50 $ Building Permit Fees 1,392.52 $ 1,037.74 $ Addressing 42.00 $ 42.00 $ Technology Fee 118.00 $ 97.51 $ Sidewalk & curbcut 161.00 $ 161.00 $ Full Rate50% discount Full Rate50% discount 11,200.81 $ 5,638.73 $ 7,663.39 $ 3,831.70 $ City Fee sub tota l 15,560.67 $ 9,837.59 $ 11,318.37 $ 7,325.68 $ Other Jurisdictional Fees Willamalane 3,499.00 $ 3,499.00 $ Metro Wastewater SDC's 1,532.80 $ 1,532.80 $ State of Oregon 278.16 $ 228.98 $ Sub Total for other jurisdictions 5,309.96 $ 5,260.78 $ Grand Total 20,870.63 $ 15,147.55 $ 16,579.15 $ 12,586.46 $ *Assumes 3 bedroom 2 bath homes with the same fixture count. * Local SDC's Attachment 2-1