Council considers developer subsidies

In other words, does it generate as much revenue as it costs in new services?

The answer usually proves to be as elusive as council harmony when it comes to the volatile issue of growth.

Now there are some hard figures that suggest the answer is no, development does not carry its own weight. And, ironically, the new data come in response to a question the building industry itself forced the city to ask by threatening a lawsuit a few years ago.

The specific question builders wanted to know then: Does the city’s Building Department overcharge them for such over-the-counter services as plan checks, related legal research, facility overhead and other help specific to development?

The answer to that question, according to a report by Maximus Consultants, is yes, the department does overcharge developers by some 125 percent. However, the findings also show that other city departments that also service developers do not fully recover their costs in the user fees they charge.

Altogether those departments—Planning, Development Engineering, Public Works Engineering and Building—cost the city some $4.8 million to run annually. Of that, $2.7 million (57 percent) goes to providing development services. But the user fees charged to those developers recover only 85 percent of that cost.

As Councilmember Dan Nguyen-Tan puts it, the city is subsidizing development to the tune of $427,753 per year. The money comes from the city’s General Fund to meet the four departments’ collective budget.

The subject came up at this week’s daylong city budget meeting held Tuesday.

“For the first time we have hard data,” Nguyen-Tan said of the report. “If anyone had any doubts about whether the city was subsidizing development through the General Fund, those people should have doubts no longer.”

Other councilmembers seemed to want to rework the numbers to make them more palatable. The Finance Committee, of which Nguyen is a member, along with Councilmembers Rick Keene and Larry Wahl, voted 2-1 to recommend the full council eliminate $75,000 of the city subsidy cited in Maximus’ calculations by not considering indirect costs or overhead like building use or City Council, city clerk and other personnel time as it relates to development.

The committee also suggested eliminating the remaining $231,000 in subsidy by “reducing hourly rates” city staffers are paid, at least on paper, to work on developers’ projects. Nguyen-Tan argued that would simply shift the costs to other departments because those employees would still be paid their regular hourly rates.

Nguyen-Tan said that was a poor way to do business and suggested a private enterprise would not last long using such a practice.

“If you’re going to reduce rates, you have to cut services. That’s how you control costs,” Nguyen-Tan said. He quickly apologized to Community Development Director Tony Baptiste, assuring him he was not looking to cut that department.

Councilmember Steve Bertagna argued the subsidy from the General Fund is well spent because “lots of fees come back to the community” when new housing subdivisions are built, including “property taxes and sales taxes.”

Nguyen-Tan said he found it incredible that some on the council “look at a $230,000 subsidy as fluffy numbers.”

But Mayor Dan Herbert dismissed Nguyen-Tan’s comment by saying, “Some of us want to reduce government, while others want to tax and spend.”

With six members present—Keene, an attorney, was tied up in court—the council could not reach a majority vote on where to go from here, so the matter will come back in May.

“[The Maximus study] was an effort to try to make an even playing field, to have the developers pay their own way—and this came at the request of the developers,” said Councilmember Coleen Jarvis. “But seeing no benefit to developers, the Finance Committee now wants to tweak the numbers.”

In other budget matters, the council voted to add five new law enforcement officers at a combined annual salary of $248,000, despite City Manager Tom Lando’s caution that it wait until the November budget projections were made. The council also hiked the utility users’ tax from 3.9 percent to 4.75 percent after lowering it from 5 percent last summer, when utility bills went through the roof, and it voted against funding a study into prevailing-wage issues (see "High-stakes game," CN&R, April 4).