In 1989, the Oregon State legislature passed ORS 223.297–223.314, which regulates and standardizes the ability of local jurisdictions to charge developers a one-time fee on new development and certain types of redevelopment to pay for a portion of existing or planned infrastructure necessary to meet the needs of the development. These charges, known as System Development Charges (“SDCs”) are one mechanism local governments use to finance infrastructure growth through areas of new development. As development expands into new areas, many jurisdictions are opting to update their SDC schedules to help offset the costs of the increased infrastructure needs. Typically, SDCs are charged under the following scenarios:
- Change in use or occupancy
- An increase in the number of plumbing fixture units
- Addition of accessory dwelling units
- Increase in the size of the water meter
- Increase in impervious area
- New connections to sewer/stormwater
- Increase in volume to existing connections
- Increase in square footage of residential/ commercial occupancy
Under the statutory scheme, local governments can use SDCs for improvements to water supply treatment and distribution; wastewater collection, transmission, treatment, and disposal; drainage and flood control; transportation; and parks and recreation. The fees may be assessed as a reimbursement of unused infrastructure capacity or as an improvement fee for proposed infrastructure under the local government’s Capital Improvement Plan (“CIP”). However, the fees cannot include an improvement fee where sufficient capacity in the system exists at the time of the development application. Additionally, SDC revenue may be levied and used for capital costs but may not be used for ongoing maintenance or projects designed to fix existing deficiencies or replace existing capacity.
Local governments establish their SDCs by either ordinance or resolution, and adopt a methodology that sets forth the mechanism for calculating the SDC, provides a credit system for any qualified capital improvements financed by a developer, and establishes a mechanism for reviewing any challenged expenditure of SDC revenue. This methodology must be adopted via a public process allowing for involvement from stakeholders in the community. Prior to the imposition of the ordinance or resolution, the local government must have a CIP in place that outlines the local government’s long-term plan for the completion of CIP. In conjunction with the CIP, the local government must also have a public facilities plan, or a plan that is comparable in nature, that lists the infrastructure improvements that will be funded with the improvement fee portion of the SDC. Within these plans the local government must provide an estimate of the cost and timing for each of the listed improvements. These plans may be modified by the local government from time to time and create the ability for developers and local jurisdictions to forecast the improvements associated with the development of any given property.
The statutory scheme does not prescribe a specific mechanism for the calculation of SDC rates, but over time there has been significant standardization of the methodologies across jurisdictions. An example of one of the more standardized methodologies is that used for the calculation of transportation system improvements. Transportation SDCs are typically determined on a standard trip-generation count based on the type of dwelling, business, or facility being developed. The standard trip-generation count is then used to calculate a maximum charge, a percentage of which is charged to the developer.
Historically, the imposition of SDCs for the development of parks had been most commonly found under SDC ordinances at the county level. However, over the past several years an increasing number of cities are adopting and assessing SDCs for the development of park infrastructure and other less common SDCs. Along with this subtle expansion of categories, many local jurisdictions are in the process of updating their SDC methodologies to adjust for a variety of factors, including increased population and growth estimates and changes in traffic forecasting, which lead to an increased need for capacity in those jurisdictions. The process for increasing SDCs is public in nature, often requiring the creation of a committee tasked with evaluating the needs of the community against the existing fees and adjusting fees as necessary. Ordinarily, committee members will meet with builders and other stakeholders in the community during this stage of the process in order to refine earlier fee estimates. After this period of evaluation, the committee tasked with the evaluation and revision of the SDC methodology for the jurisdiction will hold a public hearing allowing the public to question or challenge the methodology and provide feedback to the jurisdiction. After the public hearing, the committee may revise the methodology to account for feedback from the community prior to a final vote by the local decision maker. The entire process takes a minimum of 90-days.
If you are looking into the development or redevelopment of property within Oregon, SDCs may represent a significant cost for your development. Many jurisdictions list their SDC ordinances and rates on their website for review by the public. For more information, please contact a member of our Real Estate & Land Use group.