Formula Update for Bend Growth-Related Infrastructure Sees Rates Rise Sharply
Hefty increases in fees to developers to support Bend’s rapid growth-related infrastructure — along with increased builder fees and all-around rising construction costs — have some wondering whether it could provide too high a hurdle for prospective commercial projects, and stymie business expansion hopes.
System Development Charges (SDC) are fees paid when new development occurs, for the cost of infrastructure needed to serve growth. The City of Bend says SDCs pay for crucial infrastructure that is “the backbone of the community:” transportation, water and sewer systems.
The existing SDC formula, or methodology, which sets the transportation, water and sewer charges for a particular development was designed more than a decade ago, when the city’s population was well under 100,000, and requires updating on a regular basis.
Bend’s current population is an estimated 106,275. Per the University of Portland’s 2023 estimates it is expected to grow to 155,806 by 2045.
Updating SDC methodologies is a recurrent activity typically following updates to master plans so that project lists, upon which SDC fees are calculated, align to master plan capital project lists.
The City of Bend updated its Transportation System Plan in 2020 and the Integrated Water System Master Plan in 2021, both of which involved extensive community engagement.
City leaders say the fees needed to be evaluated for “synergy” with current City Council goals and other local priorities.
The updated approach aims to advance housing affordability while still providing sufficient revenues to fund needed infrastructure. The update began in the summer 2022 and will have the new fee schedule, methodologies and project lists implemented effective July 1 this year.
Under the revised methodologies, water, sewer, and transportation SDCs for most residential developments are tiered by square footage for single-unit and middle housing, with higher square footage dwelling units assessed a higher SDC than lower square footage dwelling units.
SDCs for most non-residential developments are also charged based on the square footage of a development, according to formulas described in the methodologies.
The City proposed updates to the formula for these fees to “enhance transparency, recover growth costs and align with Council priorities, such as housing production, housing affordability and complete communities.”
But the end result is almost a doubling of SDC fees in some cases, and there are concerns that the change represents a daunting challenge in adding costs for new development that could deter business expansion or new development, with any increases incurred passed along to customers.
In the commercial arena, Walt Ramage, principal broker with NAI Cascade Commercial Real Estate Services, said the Central Oregon community should be alarmed about potential scenarios regarding limiting medical opportunities for a growing population. “If a medical professional wanted to build for their practice and own the real estate, initially developable land is already hard to find, and even if you do, the proposition is expensive,” Ramage said. “But this would be exacerbated by the City of Bend’s plan to significantly increase Systems Development Charges.
“Under the new methodology, for instance, the transportation SDC fee for some commercial construction would go from $15,000 per 1,000 sq. ft. to $39,382 per 1,000 sq. ft. — which represents a staggering 262% increase.
“If, say, you wanted to build a 7,000-square-foot medical building, the hard and soft costs involved, including increased SDC’s, would translate to the equivalent of around $5 per sq. ft. per month in rent. This is challenging at a time when we need more medical services, considering we have a growing, and aging, population.”
“It appears the City may be playing catch up regarding infrastructure, and the cost implications of past elected officials’ bad decisions will be put back on the private sector.”
A public meeting on the SDCs proposal will be held May 1, with the adoption of an increase set for July 1, though officials indicated they may be phased in.
Public comment included support for a tiered approach, while there was concern regarding projects’ feasibility in the non-residential sector and requests for phasing in of the higher rates.
A City of Bend staff PowerPoint presentation included the example of a potential 26,000-square-foot medical building with a value of $11.1 million and fees going from a current $467,300 to $905,974 under the new methodology. Together with building permit review and other fees, total charges would represent 10.8% of building evaluation, versus 6.7% under the previous framework.
In the example of a proposed stand-alone veterinary clinic use which would see increases in the higher range, transportation SDCs would go from $15,000 per 1,000 sq. ft. to $38,200/1,000 sq. ft.
The methodology and code updates would lower fees for some while increasing fees for others, based on factors such as house size and building types.
Building, planning, and engineering fees and other fees for some developments have already gone up some 60% so this is another tough pill to swallow for prospective developers.
Medical and veterinary offices are among the most impacted by the proposed changes. Public comment has advocated for the City to consider exemptions for medical facilities, with a proposed compromise on rates for Bend’s hospital campus and Medical Overlay District.
The Bend Chamber of Commerce, the Central Oregon Association of Realtors and the Central Oregon Business Association penned a letter with more than 60 signatures expressing support for some aspects of the proposed changes and strong opposition to others.
In particular, the organizations were “highly concerned by the potential impact of such a significant increase to commercial SDCs.”
The letter continued: “The cost of affordable housing initiatives should not be borne solely by Bend’s businesses and commercial property owners and tenants.”
To account for those concerns and others, the City Council extended the public hearing to approved an ordinance updating the city’s code to streamline internal SDC processes.
May 1 sees a continuation of the public hearing that began Jan. 17 for the public to provide additional comment on the revised reports or fee schedule, and for Council to consider for adoption.
On that January date, the Bend City Council held a first reading of code changes related to SDCs but continued the public hearing on adoption of the methodologies and fee schedule in response to an overwhelming call for additional public comment.
The changes to Bend Municipal Code went into effect March 7, 2024.
On February 21, 2024, Bend City Council held a work session to summarize public comments received and review recommended adjustments to the methodologies, project lists, and fee schedule. Council provided guidance to phase-in SDC rates over a three-year period for non-residential uses that would experience notable fee increases under the proposed methodology.
Sarah Hutson, Senior Management Analyst for the City of Bend, said these charges, and the way they were calculated was overdue for an update. Hutson stated: “What often precipitates a methodology update is infrastructure master plan updates,” with recently updated water and transportation master plans prompting the changes to SDCs, to “stay in line with the City’s goals.”
This update would change how residential SDCs are figured, basing fees on the size of a home. For housing, fees are currently the same across the board at $21,760. The update would create a tiered system, charging people with smaller homes lower rates and those with larger homes higher rates.
With the new code, a house between 600 and 1200 square feet would incur $16,139 in SDCs. For a home larger than 3,000 square feet, the charges would increase to $31,080. “By scaling it, we think that there will be alignment with Council’s priorities around housing production and affordability because less of that cost gets passed on to the consumer,” added Hutson.
The updates would give affordable housing developments a complete exemption from water, sewer, and transportation SDCs. They would also encourage denser, less car-dependent buildings by offering a 30% lower transportation SDC for these types of properties in the core part of the city.
The SDCs necessary to provide adequate funding for growth-related capital improvements vital to maintaining the city’s level of service in transportation, water and sewer also include Bend Metropolitan Parks & Recreation’s service in the city parks. “We realized it’s a pretty cumbersome system, so we’re making an effort to make it easier for folks and reduce some of that complexity and that administrative burden on both sides,” said Hutson.
“The goal of this update is to make System Development Charges more equitable overall,” said City Councilor Barb Campbell. “Our methodology updates aim to advance housing affordability while still providing sufficient revenue to fund needed infrastructure.
“SDCs allow development to pay for growth. New infrastructure is needed to support new housing.”
“There is a different methodology for residential versus commercial fee calculation. There is recognition we are in a housing crisis, so I think the City has tailored residential SDC’s quite well to stimulate further home building,” said Morgan Greenwood, VP of Government Affairs for Central Oregon Builders Association. “But some of the commercial sectors are disparately impacted, and in some cases, medical development would see a 230% increase. The Bend medical community has given a comprehensive coordinated response, and the City is taking a second look to see how costs may be offset or concessions considered.
“We do have some concern for how the project list was decided. It is very extensive and expensive and as a plan to develop over the next 20 years, we don’t think it is realistic.
“One of COBA’s goals is to seek a paring down or partial constraining of the project list. For instance, while bike and pedestrian projects are laudable, most are infill projects and because SDCs are related to growth, it does not make sense that they are eligible to be included.
“I think we are underbuilt in many areas, especially in commercial and medical to support the population, and to make that commercial development even more expensive undermines the goals of creating a thriving community.”
A list of proposed SDC changes is available at: bendoregon.gov/sdc
