The question is, how can Salem be kept from crumbling while improving the sustainability of our society? Even if the citizens were willing to pass bond issues, city staff says the city's bonding capacity is inadequate to address the needs. The Chapter 66 task force that met for the first time in May is charged with charting a solution to the city's funding problem. While we hope they can find a magic pill, the results will probably be similar to those of their predecessor. The task force has a couple of wonderful appointees, but the majority were appointed by Councilmen hostile to SDCs. So the Chapter 66 task force probably will look to broad-based revenue sources.
Citizens for Responsible Growth supports an initiative that would compel Salem's government to charge 100% on all SDCs allowed by state law. The advantages of SDCs are that they are self-limiting, they can lower true housing costs, they enable the city to collect the cost of providing some of the infrastructure for new development from the developers (instead of the taxpayers and the utility users), they do not force up housing prices, and they have no long-term impact on growth. SDCs are limited by state law to collect only the money needed to cover the costs of expanding the infrastructure to offset the impacts of growth. If growth slows, the amount collected is reduced. If it accelerates, the amount increases.
Under this system, SDCs become a production cost that the developers take into consideration when deciding how much to pay for vacant land or what to build. Developers will have to negotiate a better deal with the land owners, pass the cost on to other suppliers, reduce the amenities or size of the product, make less profit, or increase the product's price.
However the SDC cost gets spread, it will be paid by those directly involved in the production and consumption. It will not be paid by the taxpayers and utility users, nor by low income renters (who rarely become owners of new houses), nor by people who already own their homes and who have to pay for all the other infrastructure on which state law does not allow SDCs.
In Salem, the cost to create infrastructure for every new house is currently about $24,000, according to the Mayor; SDCs currently bring in a mere $2,200 to $4,300, depending on the house's location. Go figure.
It is unlikely that higher SDCs will force housing prices up. Homes cannot be sold for more than the buyer can afford, and Salem is one of the least affordable cities now. Homes generally sell for as much as the market will bear, regardless of whether the developer or the taxpayer pays their construction costs. Furthermore, in real estate, the balance between supply of, and demand for, housing is paramount. The connection between cost and market value of new homes is capricious because no builder controls enough of the supply to affect the market. In the re-sell market, it is even more tenuous because each seller controls less of the supply. And the buyer (demand) has many options. As an example of the disconnect between cost and market value, the Portland office of Housing & Urban Development did a study of the impact of a tax abatement, similar to one proposed for the Riverfront Park Condominiums, on a project in a Portland neighborhood. It found no change in market value due to the tax abatement.
With SDCs in the production stream, the producer must determine if the product is desirable enough to entice its truer cost from a consumer. And the consumer will know its truer cost so he can determine if the product is actually worth at least that much to him. He can't do that when the cost is hidden in taxpayer subsidies. Society is relieved of providing a subsidy and the economy becomes more efficient by the worthy use of all resources.
As much as one may or may not like growth, SDCs appear to have no long-term impact. Scott Burgess, City Manager of West Lynn, says their SDCs are as high as they can be, and the City Council pushes them higher when possible, at the request of the builders. Yet, he says, the city is growing rapidly.
Citizens For Responsible Growth urges that the first course of action to mitigate the negative impacts of growth be to amend the city charter to require the full utilization of all SDCs allowed by state law. As a funding source, they target those engaged in accommodating growth. They encourage efficiency and accurate valuation of the benefits of growth. They are self-limiting. They decrease the overall cost of housing, and do not necessarily increase the price of housing. And growth does not appear to slow. We are circulating an initiative to place this proposal on the ballot. If you want to assure that the SDC initiative gets on the ballot, call me at 588-5285 to volunteer. More people means a lighter work load for all, and more certainty of outcome.
Jerry Scott is a real estate appraiser with a degree in economics. He worked with the Sharon Scott for Congress Campaign (dedicated to reversing the failing real wages of American workers) and lives in Salem, Oregon.
