Ultimate Open House

From The Portland Tribune, By Jim Redden, Nov 12, 2009

Future Portland-area plans are threatened by a dispute between regional land-use planners and a large segment of the construction industry.

At issue is a tax imposed on new construction to help local governments plan for building projects.

The construction excise tax was approved in March 2006 by Metro, the elected regional government charged with managing growth in most of the tri-county area. The tax was created to raise $6.3 million to help fund planning in outlying areas that recently had been brought into the urban growth boundary.

The Metro Council voted to renew the tax in June 2009. At that time, the council expanded the purpose of the tax to include planning in already-developed urban centers and transportation corridors.

“Most of the growth is occurring in centers and corridors, and that’s where most of the money is coming from to pay for the planning,” says Robert Liberty, the Metro councilor who chaired the committee that recommended the changes.

But now, the Home Builders Association of Metropolitan Portland has filed in Multnomah County Circuit Court a request for a legal review to overturn the renewal. Organization President David Nielson says the changes undermine the original purpose of the tax. The HBA was part of a coalition of interest groups that negotiated the tax with Metro in 2006.

“The bottom line is, when Metro proposed the tax three years ago, they got support from our industry and others by promising to use the money to fund planning in the expansion areas,” Nielson says. “Anybody should have a problem with the government creating a tax for one thing and then using it for something else.”

But Liberty says he is not sure there are enough votes on the Metro Council to renew the tax only for planning in the expansion areas.

“Only a few hundred homes have been built in the expansion areas in recent years,” Liberty says. “It doesn’t seem fair to make everyone else pay to plan for them.”

Liberty, however, concedes that without the tax, cash-strapped local governments could have a hard time planning for future growth anywhere within the region.

“It could slow everything down,” Liberty says.

Consensus breaks down

The dispute comes at an awkward time for Metro. The organization is working on an initiative called “Making the Greatest Place” that is intended to determine where and how the region will grow in coming decades. The effort is important because up to 1 million more people are expected to move to the seven-county Portland-Vancouver region by 2030 – with as many as 558,500 expected to live within the urban growth boundary.

But Metro Chief Operating Officer Michael Jordan has said the region must raise billions of dollars to pay for the infrastructure improvements needed to accommodate the additional people. In a report released on Sept. 15, Jordan said the region will need to spend $30 billion or more over the next 20 years to maintain and expand its infrastructure. According to Jordan, at least $10 billion in infrastructure funding must be raised through new taxes or by other means.

At the time, Jordan pointed to the construction excise tax as an example of how the region can come together to create new funding sources.

“The excise tax is a model we can follow,” Jordan said of the coalition that recommended it. In addition to members of the construction industry, that coalition included representatives from local governments and environmental organizations.

But now, that consensus no longer exists. The legal challenge asks the court to declare the ordinance renewing the tax invalid and to prevent Metro from collecting it. According to the filing, the renewal violates a law passed by the 2009 Oregon Legislature that prevents Metro and local governments from adopting new construction excise taxes. Although the law allows existing taxes to be extended, the filing alleges Metro changed the purpose of the tax too much.

But Metro Deputy Attorney Allison Kean Campbell argues that the changes do not violate the law.

“The purpose of the law is the same, planning for growth,” she says.

The challenge was filed on Aug. 7. It has not yet been set for trial.

Need still exists

The disagreement between Metro and the HBA is far different than the harmony that reigned when the tax was first enacted in 2006. At that time, both parties agreed that planning for growth in the so-called expansion areas was a top priority.

State law requires Metro to maintain a 20-year supply of buildable land within the urban growth boundary. From 1998 to 2005, Metro brought more than 23,000 acres of land into the urban growth boundary. But by 2007, less than 15 percent of that land had been developed.

A major obstacle was a lack of money to plan for the growth. State law requires local governments to adopt comprehensive land-use plans for areas to be urbanized. But many of the governments where the land had been added did not have enough planning staff to meet this requirement. As a result, development stalled in 25 specific areas around the region, including the North Bethany area in Washington County, the Bonny Slope area in Multnomah County and the new city of Damascus in Clackamas County.

Realizing the problem, Metro convened a stakeholders committee in 2005 to discuss solutions. Early discussions identified a need for $6.3 million to fund the planning needs in just those areas brought into the urban growth boudary in 2002 and 2005. An excise tax on building permits emerged as the preferred revenue source.

Following the stakeholder meetings, Metro created a Tax Study Committee to finalize the proposal. After three months of study, it recommended the creation of a 0.12 percent tax on the total value of the improvements for which the permit is sought. The committee recommended a flat fee of $12,000 for permits valued above $10 million, and exemptions for permits below $100,000 and for those permits sought for affordable housing projects or by nonprofit organizations.

The tax took effect on July 1, 2006. During the next three years, it raised and distributed around $6.3 million to help complete eight plans and start four others, according to an April 2009 performance review released by Metro. Six other have yet to start.

The tax was scheduled to sunset when it raised $6.3 million. As that time approached, Metro convened an informal advisory committee in April 2009 to consider renewing it. The committee, chaired by Councilor Liberty, met three times and recommended the tax be extended five years.

The committee also recommended that the scope of the planning money be expanded to include existing urban areas, such as urban centers, main streets, transportation corridors, mass transit stations and employment areas. The committee also recommended using the money to help plan the urban reserve areas that Metro is considering to be designated for long-term growth.

Liberty and Nielson agree that the HBA made its objections to expanding the purpose of the tax well known as the discussions unfolded. Nevertheless, the Metro Council approved the revised tax on June 11 of this year. The HBA filed its notice of intent to sue to overturn the tax less than two months later.