Copyright 8 1998 - by Richard H. Carson

In the Fall of 1972 the state of Oregon published a highly avant-guard document called The Willamette Valley: Choices for the Future. It began with a letter from then Governor of Oregon, Tom McCall, who said, AWill the valley fall prey to a now-familiar pattern of uncoordinated growth and urban sprawl? Or can its people, working in community, build a different future?@ Although few realized it at the time, this was the genesis of statewide land use planning in Oregon. As unique as this blueprint was, there was one chapter missing: how to pay for the cost of growth in Oregon.

This report addresses that specific issue. The report researches the financial scope of the problem; analyzes the options; presents alternatives that local government officials can implement; and makes specific recommendations on how to meet these challenges. The report looks at the most current legal and financial issues -- from Ballot Measure five to Ballot Measure 50 -- and also draws on the current literature. The report incorporates information from two other ongoing major research efforts dealing with growth. One is the 250 page Revised Research Plan for forthcoming publication of The Costs of Sprawl Revisited, and the other is the work of the Governor=s Task Force on Growth. The report also benefits from the advice of experienced professionals in and out of the state of Oregon.

This report is written for people who have varying levels of knowledge of the subject matter. Decision makers do not need to be professional engineers to make the decision to build, maintain and pay for infrastructure in Oregon. In fact, the actual decision to build local government infrastructure is usually made by elected officials who have little or no formal training in building or operating such facilities. Many of the participants in the decision process -- like citizens, developers and environmentalists -- also have little technical experience.

The goal of this report is to help local government officials and concerned citizens meet the challenge of paying for the infrastructure and service needs of their growing communities. The author has spent his 25-year career working in the planning and implementation of public policy to manage growth. His interest in this subject is to find fair and equitable ways to meet the demands of growth. If growth becomes a problem, then it is time to do growth management. Governor Kitzhaber=s Task Force on Growth efforts has reached a similar conclusion:

A recent survey reveals that there is a prevailing negative attitude among Oregonians about population growth. Many Oregonians are provincial and bemoan the influx of outsiders and the fact that growth is ruining our wonderful landscape and lifestyle. But we conveniently forget that we are all immigrants or the descendants of immigrants. When the first census was taken in 1850, there were 25,000 people living in Oregon; 50 percent were native Americans, and 50 percent were white settlers. In 1997 the population in Oregon was estimated to be 3,217,000 and the census revealed that the native Americans made up only 1 percent of the population.

The history of the social, economic and environmental costs of growth in Oregon begins more than 455 years ago when the first nonnative European people arrived in Oregon. Population growth through immigration was not far behind. Oregon=s landscape would be changed forever by the constant flow of immigrants and their descendants.

The exploits of Lewis and Clark, as well as the Oregon Trail survey expeditions of Colonel John Fremont and Kit Carson forever changed Oregon. The expedition reports were distributed widely and the result, according to one newspaper of the day, was that Aemigration poured like a torrent down upon the vale.@ More than 300,000 pioneer emigrants eventually made the trek, but some 10 percent did not survive the journey - this was a very real cost of growth.

Oregon=s history is not only about growth, but also about xenophobia and provincialism. Almost half a century ago, a Roosevelt era New Deal publication about Oregon said:

To discuss the substantive issues of growth Oregonians must first set aside their irrational fear of newcomers. The fact is, 30 percent of the growth since 1990 is not from people moving here, but from children born to Oregonians. It is time we talked about their future. Second, Oregonians must understand the actual monetary and budgetary facts about growth. The fact is that the cost of growth is an issue being used by different special interests to further their own political agendas.

The following ten people critiqued and/or provided information for this report. The author thanks them for helping make it more factual, readable and interesting. However, every conclusion and final editorial decision was made solely by the author.

Cover graphic by Tim Brinton

Richard Carson has more than 25 years public and private experience working on land use planning, environmental and development issues. This includes working in city, county, regional and state government.

Mr. Carson is currently the Director of Community Development for the City of Oregon City. He oversees all planning, engineering, building inspection, code enforcement, urban renewal, and new infrastructure construction. He was previously the Director of Planning for Metro (the Portland metropolitan area=s regional government), and a Senior Policy Analyst for the Oregon Economic Development Department. He is currently on the Board of Directors for the Kit Carson Historic Museums in Taos, New Mexico.

Mr. Carson is also the Managing Editor of the Oregon Planners= Journal which is published monthly, and has written more than 30 editorial articles for publications like The Business Journal, The Oregonian and Oregon Business Magazine. Mr. Carson has a Master of Public Administration degree from Lewis and Clark College and a Bachelor of Science degree from Portland State University. Mr. Carson can be reached by telephone at (503) 657-0891 or via the Internet at Arichcarson@msn.com@.

The New Oregon Meridian is the point at which Oregon=s planning, development and environmental issues converge as viable public policy. The New Oregon Meridian Press is committed to the endeavor of community building through the communication of public policy alternatives. In short, the New Oregon Meridian is independent, innovative and willing to take the publishing initiative. For more information about getting copies of this publication or about the publisher, write to: 732 NW 170th Drive, Beaverton, OR 97006. Additional copies of this report can be purchased for $10.25 per copy.

• There is 59 percent or $13,526 the cost of growth that is completely funded by the developer, and eventually the home buyer, through on-site improvements and off-site system development charges.
• There is 20 percent or $4,679 of the total cost of growth that is actually unfunded by local government. This cost could be levied against the development industry or could be paid by the local government through other means.
• There is 13 percent or $3,019 of the costs of growth that unfunded by the state that they need to pay for. These costs should be included in the state funding of schools since the voters created a state financed school system through Ballot Measure 5.
• There is about another 8 percent or $1,787 that may already be funded or is easily fundable by local government today. Local governments can collect these revenues through existing utility rates or system development charges.

Oregon=s current system of financing growth makes very little sense from a municipal budgeting point-of-view. Local governments levy system development charges on municipal utilities that already can be paid through a rate (i.e., water, sewer, storm, streets). On the other hand, they do not have a method of assessing a charge on those functions that cannot use a rate (i.e., fire, police, library, pool, general government). In the end, this practice drives up the cost of housing so high that our own children are priced out of the American dream of owning a home. This report suggests a major shift from the current political thought and financial practice in Oregon today.

• The developer should pay only for the on-site costs. This lowers the cost of housing surcharge by more than 50 percent and a new home buyer will actually pay $6,348 less.
• The state should assume responsibility for its fair share of school district improvement costs.
• Municipal and special district utilities (i.e., water, sewer, streets, storm water) should be mandated to collect 100 percent of the cost of doing business.
• General government and local school district costs finally gets funded by using an annexation charge, then about $18,000 per acre is collected (using 8,000 square foot lots).

This financial arrangement would do away with system development charges and not use a real estate transfer tax. Both have the effect of adding a surcharge and driving up the cost of housing.

This report:

• identifies and analyzes the issues of growth;
• discusses the issues from the multiple perspectives of different participants in the dialogue; and
• formulates solutions to the problem of paying for the costs of growth in Oregon.

In the process of identifying the costs associated with new property development Oregonians need to also identify what costs are not associated with growth. In other words, Oregonians will have to identify what costs are associated with its antithesis -- already developed property.

It is important to discuss the key issue of a growing population versus declining government revenues. This is especially true in Oregon because it has continued to be a magnet for attracting people from out of state. In the seven years since the 1990 census, the state has experienced a 12.6 percent increase in population. Oregon=s growth rate in the 1990s is a continuation of the rapid growth experienced in the late 1980s when it also grew at twice the national average. However, during this same time the state has been forced to live with declining revenues at all levels of government. Federal, state and local governments have been confronted with one legislative or initiative action after another that have ultimately resulted in shrinking revenues. After a while phrases like Are-engineering,@ Astreamlining@ and Aworking smarter@ start to sound a little hollow to local government officials.

Economic and population growth. Population and economic growth have a symbiotic relationship which is difficult, if not impossible, to separate. For most of Oregon=s history people have emigrated here in order to obtain a higher quality of life. They came in the 1860s by prairie schooner and in the 1960s by Volkswagen bus. For the most part they brought with them valuable skills, but did not always have a job waiting. This may be one of the reasons that Oregon is a state of small businesses. Some 95 percent of all Oregon businesses have 50 employees or less.

Economic and population growth require government infrastructure and services, and they both create direct costs to government. Business and residential development require streets, sewer, water, police, fire and schools for their children and employees. There are only a handful of services that businesses may not need directly (i.e., library, municipal pool, parks). For this reason, this report makes no distinction between business and residential development in terms of their need for services. It also makes no distinction whether property development results from economic or population growth.

Cost allocation. The cost allocations presented here follow the traditional method utilized by all local governments and special districts to pay for the costs of growth. The developer pays for the capital improvements and the new tenant or resident subsequently pays for the operation and maintenance of the capital improvements. This assumption will be hotly debated. The problem faced by local governments is that existing residents (and new residents) don=t like to pay taxes. The result is that taxpayers are constantly faced with making the choice -- through serial levies or general obligation bond elections -- of paying or not paying for a higher level of service by increasing their taxes.

It has been the ploy of many Ano growth@ advocates to try and offer up the development industry as a legitimate source of new revenue to reduce the burden on the taxpayer. For the most part, this is a disingenuous argument. Water, sewer, storm and solid waste disposal services solved this problem years ago by simply operating as utilities -- just like the private sector gas, electric, cable television and telephone companies -- and financing all capital construction through their rates. The suggestion made here is that public services such as libraries, police, fire, park and schools, need to be operated as utilities and paid for through a rate or user fee. In the past, they were paid for through property taxes. Ballot Measures 5 and 50 have forever limited these revenues as a legitimate source of funding. However, this does not mean the voters are home free. When it comes to government services, citizens will only get what they are willing (or not willing) to pay for. In the end, communities must decide what level of service they are willing to accept. It may simply mean they are going to have to accept a deterioration of their quality of life, their children=s education or even their own emergency response times.

Carrying capacity. Both the state of Oregon (through Statewide Planning Goal 6) and Metro (through its charter) talk about the need to consider the Acarrying capacity@ of the air, water and land when addressing growth. Unfortunately, no one has done a good job of letting local governments know exactly what this phrase means or how they are expected to address it. This report does not try to define what carrying capacity is or how to pay the costs that may be associated with it. The infrastructure costs discussed in this report are dictated by state and federal mandates that have been put in place to protect environmental resources, endangered species, and human health and safety.

Important note. This report presents estimates of municipal costs and revenues related to the development of a new single family residence. Do not automatically assume that a specific jurisdiction is or is not collecting sufficient revenues to pay for the cost of growth in that community. The report suggests that there may be financial issues in some communities relating to growth, provides some ideas on possible financing mechanisms, and outlines research methods that can be used to calculate what the true costs are. However, a separate cost-benefit analysis needs to be done for each and every local government entity.

We need to understand exactly what growth is before we discuss how to pay for it. The dictionary is a good place to start. Webster=s Dictionary defines Agrowth@ as:

It is especially interesting to juxtapose the two definitions: Aprogressive develop-ment@ and @an abnormal proliferation of tissue (as a tumor).@ This juxtaposition sums up the attitudes of many Oregonians about Agrowth.@ Growth comes in two forms: economic and population. People generally approve of the former and disapprove of the latter. Are they inseparable? That is the heart of the growth debate. The Ano-growth/slow growth@ factions believe that we can have economic prosperity (and livability) without growth. The Apro-growth@ constituency believes one without the other is tantamount to Akilling the goose that laid the golden egg.@

All of us -- the immigrants and descendants of immigrants -- have permanently changed the natural landscape in Oregon. The history of population settlement falls into three basic time periods: (1) the age of discovery took place from 1543-1843. (2) the opening of the Oregon Trail led to the early years of farming, mining and timber cutting from 1844-1944. (3) after World War II -- or from 1945 the present -- Oregon began a gradual shift from a resource-based economy to one that was much more diversified. From the first census in 1850 to the 1990 census (see Table 1), the state had grown to almost three million people. By the year 2020 the state is expected grow to more than four million people.

Population growth in Oregon (1543-1843). The state song -- AOregon, My Oregon@ -- begins with the line ALand of the Empire builders, Land of the Golden West, Conquered and held by freemen...@ Population and economic growth in Oregon are not a recent or even a postwar phenomenon. The impacts of growth have been a constant factor for 455 years. It started with the Spanish explorer Juan Rodriguez Cabrillo who reached the Rogue River in 1543. It continued with Captain John Gray who sailed his ship, the Columbia Redivis, into the great river of the west in 1792. However, the Oregon Territory became a national preoccupation once Meriwether Lewis and William Clark completed their land expedition in 1806, and Kit Carson and Colonel John Fremont surveyed the Oregon Trail in 1843. Up to 1842, fewer than 100 pioneers had attempted the difficult journey.

Population growth in Oregon (1844-1944). The first major change in Oregon=s population occurred with the opening of the Oregon Trail. The first census was taken in Oregon in 1850 and there were 25,000 people living here; of these 50 percent were native Americans and 50 percent were white settlers. Ninety-five percent lived in the Willamette Valley. By 1860 more than 300,000 emigrants made the trek west to Oregon. The chronicler of Portland=s history, E. Kimbark MacColl, says of the newcomers in 1917:

One of the predominant themes of those opposed to immigration was explicit racism or nativism. For a decade, starting in 1921, the Klu Klux Klan was very active in Oregon. The basic pledge to its middle class blue collar followers was to do battle against AKoons, Kikes and Katholics.@ In 1920, both houses of the Oregon legislature unanimously asked the U.S. Congress to enact a law that would exclude from citizenship the American-born children of aliens who could not be naturalized, i.e., Orientals. The issue of growth became a matter of debate at the turn of the century. MacColl says that,

Population growth in Oregon (1945-Present). As noted earlier, in the seven years since the 1990 census the state experienced a growth rate twice the national average, and 30 percent of that growth was from in state births and not from immigration. Today, 3,217,000 people live in Oregon.

The reasoning of the people who believed in Ano growth/slow growth@ changed in the postwar years. Public sentiment had moved away from excluding people from Oregon on the basis of race, religion or political beliefs. In the 1970s, a new slogan and bumper sticker appeared, ADon=t Californicate Oregon@ and a new group was publicly vilified. An outspoken Governor Tom McCall played to the national media and the fears of Oregonians, and a new message went out: AVisit, but don=t stay!@

Population growth in Oregon (in the future). The U.S. Bureau of the Census projects that Oregon will grow to more than four million people by the year 2020.

Growth presents Oregonians with social, economic and environmental changes and costs. The changes are real and psychological, but human beings have a hard time separating the two. When government agencies deal with growth by talking about increasing densities and achieving urban infill, and often push their citizens past the comfort level allowed by their genetic code.

The perception of growth. All of us are carrying around hundreds of thousands of years of genetic programming that has served our species well. Unfortunately, it makes us act and react in certain ways that may not be appropriate today. It is the lens through which we see change occur around us. Population growth presents us with two different human responses. We react with fear when confronted with strangers and we react pathologically to overcrowding. Ian McHarg, the guru of environmental planning, said in his book Design with Nature that as density increases so do social pressures which manifest themselves in stress diseases.

Carl Sagan and Ann Druyan, in their book Shadows of Forgotten Ancestors, reach a similar conclusion and state that there seems to be a reason at the heart of population genetics and evolution for xenophobia, ethnocentrism and territoriality. Sagan and Druyan point out that overcrowding is nature=s way of controlling population growth. They say that AAn unfocused inclination towards ethnocentrism and xenophobia can be particularized as needed in each generation. The groups to which loyalty is owed and the ones deserving special hatred and contempt may change from generation to generation.@

Humans still carry the genetic biases that are not easily rationalized away. The person who rants and raves about newcomers Ais heeding an ancient call that -- however dangerous, obsolete, and maladaptive it may be today -- once benefitted our species.@ In Oregon our collective fear of newcomers make us want to assign blame to some group of people. In the past, blame was put on the Chinese immigrants, Afro-Americans, Jews and Catholics. Today the newcomers from out-of-state are the enemy.

The real issues of growth. Every person who is born in, or emigrates to Oregon, puts an additional burden on our social, economic and environmental systems. Even the indigenous people of Oregon -- the native Americans -- emigrated to Oregon from Asia by boat as part of coastal explorations some 10,000 to 15,000 years ago. So all Oregonians, native or nonnative, need to stop looking for financial scapegoats and start talking about real issues.

The most important issue is how to determine, allocate and then pay for the costs of growth.

Before beginning the task of exploring solutions to the impacts of growth, it is important to first recognize that there are many different stakeholders and participants in the cost of growth debate. Each interest group -- neighbors, elected officials, environmentalists, government agencies, business people -- has a certain bias and perspective. However, it is worth noting that building is an age-old profession dating. The activity of building homes and government regulating them can be dated back to 1700 B.C. with Hammurabi=s Code.

The Voters. Who thinks growth is problem? A statewide poll of 1,002 registered voters was done by Davis & Hibbitts in September 1998 for Portland General Electric (see Figure 1). The poll ranked Agrowth@ as second only to Aschool financing@ as the biggest problem Oregon is facing. This was the third such poll in a series that began in 1996, 1997 and 1998. The ranking of growth as Abad@ versus Agood@ has been evenly divided over the last three years, but the idea that growth is Abad@ has increased slightly. The important fact of the poll is that half of all Oregonians think growth is a problem, but 1998 is the first year that those believing growth is bad have taken a slim majority. The polling also showed that southern Oregon voters feel more positive about growth (58 percent) and eastern Oregon voters feel more negative about growth (54 percent). The Portland metro area and the Willamette Valley were more evenly split.

Federal government. The federal government is no longer the primary source of financing infrastructure needs. This change has been profound in terms municipal financing:

The major exception is transportation funding, which includes funding for mass transit and highways. Although the federal government has retreated in its funding of most urban activities - such as redevelopment of cities -- it has not decided to reduce unfunded federal mandates (see Figure 2).

These federal laws regulate property and increase development costs. The point here is not whether we should protect the citizens or the ecosystems from the dangers the mandates set out to prevent. The question is AWho should pay for these requirements?@ Whether these mandates are good or bad does not change the fact that they cost money and that the federal government provides very few federal dollars to achieve their lofty and often expensive goals. The cost is imposed at the point of the activity -- and the activity is usually development of property, but we cannot assume that such costs are always fair.

State government. In Oregon, the state government follows the federal mandates by creating similar agencies to carry out these federal mandates. However, the state has also legislated its own mandates that often increase the development cost of dealing with the impacts of growth. Statewide land use planning should result in more cost-effective delivery of urban services -- especially when compared to sprawl. In recent years the initiative process has totally changed revenue sources. Schools and local governments once relied upon property taxes as their primary revenue source. Both enjoyed a high degree of local control, but today schools get 70 percent of their funding from the state. For this reason, local school boards must change their curriculum and priorities to serve the needs of the state legislature and not the needs of their local communities.

Local government. City and county governments became trapped between the pincers of two financial trends that began in the early 1980s. The federal government reduced General Revenue Sharing, and because of Oregon taxpayer initiatives (i.e., Ballot Measures 5, 47 and 50) the local property taxes have declined by as much as 50 percent as a revenue source. However, local government=s role as regulator and keep of the community standards has not changed.

School districts. Oregon statutes allow for both school districts and education service districts. Voter approval of Measure 5 in 1990 dramatically altered Oregon=s school finance system and phased in property tax limits for schools and reduced property taxes. The state now primarily funds the school system with income tax and lottery revenues, and virtually eliminated local control over school funding. State funding, less than 30 percent of school general operating revenue in 1990-91, increased to 70 percent in 1997-98.

Special districts. Oregon statutes allow for a variety of special districts (i.e, water supply, sanitary sewer, park and recreation, mass transit, port authority). Such districts can use either property taxes and/or a utility rate to pay for their services. They also compete with cities for the provision of services in urban areas and counties in rural areas.

Development industry. The professionals who work in the development industry include: developers, home builders, real estate agents, title companies and a variety of consultants who serve them (i.e., architects, engineers, planners). The home builder and real estate associations are the most organized and the most successful at trying to change opinions in the state legislature on matters involving growth. It is important to note that the industry is demand driven. This explains the tendency toward providing consumers what they want as opposed to providing the new and innovative products that those not directly working in residential development (i.e., planner, environmentalist, elected official) think consumers would like.

Business. Non-development business interests are spread across a vast array of associations that are more concerned with regulating their specific industry than with the growth debate.

Environmental groups. The environmental community has its own political interests that are spread across a vast array of associations. However, as a group they do have one similar interest when it comes to growth. They believe that the growth of human populations and economic development will damage the natural environment. For this reason, they are uniformly more negative about growth and support development that minimizes development impacts. In Oregon, this has translated to proposals for higher density development, not moving the urban growth boundary, acquiring natural areas and supporting increased mass transit.

The impact that these participants have on the costs of growth is played out through the political process at the city, county, regional, state and federal level. The result is that decisions are made about who pays for growth, how much is to be paid and who will pay for it.

State, regional, county and city legislative mandates are created by elected bodies or voters through the initiative and referendum process. Financing new development is a legislative battlefield where many powerful and well organized groups are participants. Governmental associations (i.e., League of Oregon Cities, Association of Oregon Counties, Special District Associations of Oregon) argue for easier access to revenue to build and maintain infrastructure. The state and metropolitan homebuilders= lobby fight to keep the costs from being tied to their product -- new homes. Land developers hold a middle ground between these two groups and do not have a strong presence. They need both the government infrastructure and the homebuilders= product to make a profit. In the background are different local and state citizen groups who specialize in fielding initiatives to limit the ability of government to finance the building or maintaining of infrastructure.

Legislative mandates are as old as humanity. Russell Peterson, the chairman of the first president=s Council on Environmental Quality told this story in 1975:

The point being that no one knows -- or can know -- what all the likely impacts of any given program will be upon an urban area. Further, it is impossible -- or at best difficult -- to measure the magnitude of many impacts that are known. In some cases, they are inherently immeasurable, unless of course you have to pay for them. If you are a taxpayer or developer, then they become very measurable.

All growth must occur within a regulatory framework of laws established at the city, county, regional, state and federal level. These laws may have the impact of increasing or decreasing the cost of growth to the property owner, taxpayer or ratepayer.

Annexation law. State law specifies that, AA proposal for annexation of territory to a city may be initiated by the legislative body of the city... or by a petition to the legislative body of the city by property owners...@ Oregon law provides for a number of methods to accomplish annexation. Usually annexation takes place in response to a petition by a majority of property owners and registered voters in an area. Cities can also initiate annexations. Statute also allows for the development of annexation plans which can allow a single annexation of up to all the land within a jurisdiction=s urban growth boundary. The process requires the annexation to go to a vote of the people both in the city limits and in the area to be annexed.

However, in the last few years there has been a third option called voter-annexation whereby annexations of land must be approved through a vote of the people, and not merely by a City Council approval. In most cases, such a requirement has occurred through the initiative process. However, some have been by referendum from a city council. The argument for this process is that it puts local control of growth into the hands of the citizens. The argument against voter-annexation is that too many Ano@ votes will drive the demand for housing to neighboring jurisdictions. It is argued that such actions by the first jurisdiction to use voter annexation -- Corvallis in 1976 -- has driven housing demand and traffic congestion to the neighboring cities of Sweet Home, Lebanon and Albany. The 1997 Legislature and the Governor=s office both tried and failed to place a prohibition on the further use of voter annexation by local governments.

Ballot Measure 5. Approved by Oregon voters in November 1990, Measure 5 placed certain constitutional limits on property tax rates and made modifications to the system of property tax administration. The limits of Measure 5 remain in place despite the passage of Measure 50, which was designed as an addition to, rather than a replacement of, Measure five. Measure five separates into two categories, one to fund the public school system and community colleges, and another to fund government operations other than the education system. The combined tax rates for non school operations are limited to $10.00 per $1,000 of Real Market Value per county assigned tax code area. Similarly, the public school system is limited to $5 per $1,000 of Real Market Value per county assigned tax code area.

Ballot Measure 50.The Measure was passed on May 20, 1997 and the legislative implementing law was signed by the Governor on July 14, 1997. Ballot Measure 50 completely voided and replaced Ballot Measure 47. One of the greatest citizen misconceptions about local government had to do with the myth of the growing tax base. Prior to ballot Measure 50, most people believed that new development increased a local government=s tax base. In reality, the tax base was a fixed dollar amount and any new assessed value actually decreased the cost to the individual taxpayer. Ballot Measure 50 completely changed the property tax system from a tax base system to a rate base system. Under the new system the tax rate is fixed and cities that annex land or develop property will increase their assessed value and get more property taxes every year.

Capital improvement plans (CIP). A capital improvement plan is a multi-year strategic plan (typically five or six years) that maps out the major capital planning and development projects that a government agency will build. The CIP is updated annually and applies to all services the government is engaged in delivering. For a municipal government, these services include parks, streets, water, sewer, storm drainage, libraries, city administrative buildings (i.e., city council, municipal court, public works) and other major community facilities. The CIP is required by statute for both the setting of system development charges and as part of the comprehensive plan process under Goal 11 as a Apublic facility plan.@ CIPs often include level of service standards. A capital improvement plan or its equivalent is a precondition to establishing system development charges.

Comprehensive plans. All cities and counties are required by law to adopt and amend comprehensive plans periodically. All land use actions and decisions (i.e., zoning, land divisions, conditional use permits) must then comply with the adopted comprehensive plan. Such plans traditionally include sections that mimic the statewide planning goals, or the Metro planning goals if in the Portland metropolitan area, with which they must comply.

Coordination agreements. Senate Bill 122 created new standards for service delivery in urban and urbanizing areas, and mandated a coordinated approach between various government service providers. The basic premise of the legislation is to produce a more cost-effective delivery service system. These agreements are initiated at a county level.

Land supply. The 1997 Legislature enacted new statutory requirements (House Bill 2709) that mandates that cities must provide a 20-year land supply for housing within their urban growth boundaries. The legislative intent is to make it very difficult for a local government to propose increased residential densities as an alternative to expanding an urban growth boundary. The AAchilles Heel@ of this requirement is that, although a city may have to provide a 20-year land supply, it is not forced to actually annex such lands and serve them. Indeed, the trend toward voter-annexation could make such an available land supply virtually unusable.

Local budget law. All local governments are required to adopt balanced budgets, where revenues must equal expenditures. This mean that the government has four options to pay for increases in expenditures:

• Reduce or eliminate services (expenditures) to match existing revenues. Expenditures fall into three basic categories: mandatory (required), level of service (some adjustment possible) and completely discretionary.
• Contract services or combine functions. This can be done with other providers to lower the government=s direct costs. This generally happens through consolidating the administration and some of the more expensive equipment needs.
• Increase revenues to cover the costs. This can be done by increasing user fees and/or rates. It could also mean placing a serial levy before the voters for a maintenance or a bond measure for capital improvements.
• Subsidize programs by combining programs within the local government. For example, have the parking enterprise fund also cover street and sidewalk repair in the area where the vehicles are cited.

Metro=s functional planning. The Metropolitan Service District (Metro) is the regional planning authority for the Portland metropolitan area. Metro has a unique type of legislative Afunctional@ planning authority over the 24 cities and three county urban areas within its boundaries. These include, but are not limited to, authority over air quality, water quality, transportation, solid waste and the regional urban growth boundary.

Moratoria. A local government can declare a AMoratorium on construction or land development means engaging in a pattern of delaying or stopping issuance of permits necessary for the subdivision and partitioning of, or construction on, any land.@ Such a delay is only placed on new development until the required infrastructure is constructed or planned. The local government then has 60 days to adopt a program to correct the problem. The moratorium may then be extended in 6 month increments until the problem is finally remedied.

Statewide planning goals. All city and county comprehensive plans must be adopted and amended in compliance with the nineteen (19) statewide planning goals. These goals include requirements for citizen involvement, land use planning, agricultural and forest lands, air and water quality, recreation, economic development, housing, public facilities and services, transportation, energy and urbanization. The statewide planning program began in 1969 with the passage of Senate Bill 10 and was greatly expanded in 1973 with the passage of Senate Bill 100.

Transportation planning rule (TPR). The Land Conservation and Development Commission adopted the Transportation Planning Rule in 1991.The rule identifies how local governments shall comply with Statewide Planning Goal 12 (Transportation) and establishes coordination among jurisdictions for the development of Transportation System Plans. This rule requires new development to meet certain multi-modal transportation requirements.

The case law regarding the costs of growth has to do with the government intervening in the development process either through an action arguably resulting in a taking or by enacting a moratorium.

Fifth Avenue Corp. v. Washington Co., 282 Or 591, 581 P2d 50 (1978). AThe Oregon Supreme Court recognizes that adopting and applying local land use regulations may result in a taking of property for which a local government must compensate a private property owner.@ However, the down zoning of land and the resulting decrease in land value is not a taking. A plaintiff challenging an regulation must show that the regulation deprives him or her of all Asubstantial beneficial use@ of the property. Further, if such a regulation will convert the property to a public use in the future, then this is not a taking as long as the owner can make some economic use of the property until the government is ready to acquire the property. However, this Oregon decision may be of limited utility because of subsequent federal cases cited here.

First English Evangelical Church v. County of Los Angeles, 482 US 304, 107 S Ct 2378, 96 L Ed2d 250 (1987). Few local land use regulations contain provisions that would allow a permanent ban on demolition of historic properties. A permanent ban would be constitutional, provided sufficient economic use could be made of the property without demolishing it. However, in the case of a dilapidated structure without economic value, a demolition delay could be construed as a temporary taking of property that would entitle the owner to compensation.

Dolan v. City of Tigard, 114 S.Ct. 2309 (1994). Dolan is the latest in a series of cases from the U.S. Supreme Court which are sympathetic to property owners and skeptical of non-traditional land use techniques. The case involves exactions of land imposed on the property owner/applicant as conditions of approval of a development permit. The plaintiff contended, and the court agreed, that the exactions were not sufficiently related to the impacts of the development and constituted a Ataking.@ The court=s finding basically means that a local government must establish a reasonable relationship between the degree of exaction demanded and the project=s actual impact. This has become known as the Arough proportionality@ test. This case is important to local governments because it requires them to make a determination on the relative impact and cost of growth on a project by project basis.

Nollan v. California Coastal Commission, 483 US 825, 107 S Ct 3141, 97 L Ed2d 677 (1987). A temporary taking under a moratorium is compensable. However, in Nollan v. California the Court held that a refusal to issue a permit is not a taking as long as a jurisdiction has the power to prevent construction. However, the courts have not decided what happens when a moratorium is imposed after a land use approval is made.

Price v. Arch Cape Water District, 22 OrLUBA 592 (1992). Special districts that proved water, sewer or other services may make decisions that slow or stop development that are not based on the moratorium statutes. This decision is superseded by changes to the moratorium law in 1995 (noted earlier in chapter).

New development requires an assortment of infrastructure support. These services are provided either by the private sector or the public sector, or in few cases by both. All infrastructure projects are paid for through five different types of financing methods: (1) street funding or gas tax, (2) general government, (3) municipal utility, (4) school financing, or as a (5) private utility. These financial groupings (see Table 2) are useful because the infrastructure types within each group are financed in a similar manner.

General government (general fund). The general fund gets revenue from three sources: property taxes, franchise fees and user fees. The money is spent on general government activities not tied to a rate or state funding. These includes police, fire, library, municipal pool and parks.

Municipal utility. The common financial thread for municipal utilities is that they are essentially rate based. In other words, the customer pays the utility based on the rate of usage. This generally applies to water supply, sanitary sewer and sometimes storm water runoff. Revenue also comes from system development charges, revenue bonds secured by the rates, or voter approved general obligation bonds.

Private utility. The private utilities are funded by user fees or rates. The fact they are not public agencies gives them more latitude in making decisions because they act outside any public forum. They also only respond to their shareholders to the regulatory authority of the state=s Public Utility Commission and a variety of federal oversight agencies.

School district. In fiscal year 1998-99 the education revenue budgeted statewide for kindergarten through the twelfth grade (K-12) was almost $3 billion. As noted earlier, Ballot Measures 5 and 50 have shifted the financing to the state. Fully 70 percent of all revenue now is paid for from state income tax and lottery revenues. The remaining 30 percent comes from local property tax dollars.

Streets. Transportation systems are generally financed from federal funds, state gas tax revenues and from local system development charges. They are not operated as a utility, but they could be. The city of Medford has implemented a street utility fee (see Chapter 9 - Street utility fund).

The infrastructure related revenues are also collected in three separate physical increments: on-site; collection, transmission and distribution; and at a final destination (see Table 3).

On site systems. These connect the businesses or residents in a development project to the larger system. In almost all cases the developer pays and builds all on site improvements. The exception is when a local government requires that an on-site water pipe, sewer pipe or road be Aoversized@ in order to serve some greater system purpose. For example, a Alocal street@ needs to be built as an Aarterial@ because it was planned to bring more traffic through an area. Another example would be a water main needing to be larger than what is needed for the development to help serve other users. Case law (Dolan vs. City of Tigard) prevents a developer from being required to pay 100 percent of the on-site infrastructure cost for a facility that also serves a system wide purpose. For this reason, local governments need to compensate the developer for the additional costs. This can be done through either a cash payment or an system development charge credit.

Collection or transmission systems. The infrastructure that connects the developed property to the ultimate source can be referred to as transmission or distribution. In general, these are water or sewer mains. These systems are usually paid for by developers through the use of system development charges. These charges are only for the portion of the system that the developer will be using.

Primary treatment (final destination). Most infrastructure systems have a primary intake or destination facility.

• Water is first obtained and treated from a water intake facility. The intake collects water from a stream or river, or from the ground water.
• Sanitary sewer treatment is just the opposite. Sewage is sent from the development site through the collection lines, usually through gravity, to a sewage treatment facility.
• Storm water is usually required to be detained on site for some period of time and then slowly released. This reduces the impact of greater volumes of water running off impervious surfaces (i.e., roof, street, sidewalk). The water is then transmitted downstream by culvert or ditch. The final destination is some body of water. Generally there is no final treatment of storm water.
• Transportation systems use a collection system that increases in capacity from the source of traffic like a residence or business. When a person leaves their house or job, they move from a local street in your neighborhood, to a collector street, to an arterial, to a highway and/or freeway.

When determining the costs and benefits of growth, it is important to separate the initial cost of the capital improvement (or the actual infrastructure construction) from the ongoing operation and maintenance (O & M) of the system. There are three good reasons for this approach. First, the developer is responsible for paying for the on site construction and the new residents become responsible for all future costs. Second, the method of paying for each phase is different. The capital improvement is usually a one-time cost and the O & M phase is paid for through some kind of ongoing rate or tax. Third, even the voter approval process is very different for increasing funding for each category. Capital improvement projects require a vote for a general obligation bond that is paid back over a long term of up to 30 years. The operation and maintenance voter approval process requires a serial levy that exists for a shorter period of three to five years.

General government (general fund). Local government property taxes, franchise fees and user fees usually pay for the ongoing operation and maintenance of services like police, fire, library, park maintenance, urban renewal, development regulation and a municipal pool. Ballot measure 50 took effect on July 1, 1997 and presents cities with a unique opportunity to establish a financial baseline by which to measure their future revenue needs. Most cities budgeted for the more devastating cuts that were mandated by the earlier Ballot Measure 47. Instead Ballot Measure 50 passed, and replaced Measure 47. In most cases, Measure 50 actually provided more revenue than initially expected. It is important to use July 1, 1997 as a baseline because:

(1) It is the first year of the new Arate-based@ taxing system. Under Measure 50 this dollar amount is what cities will continue to receive (plus up to 3 percent per year) unless they experience a change in assessments due to new development and growth. (2) It generally represents the minimum level of service most cities can presently provide.

General fund expenditures. There is a relatively simply method to determine if new growth will generate sufficient property tax revenues to cover the ongoing new General Fund expenditures. If a city has all of its non-general fund expenses on a user-pay basis (i.e., planning, engineering, building) or a rate-based utility approach (i.e., water, sewer, storm), then what remains is paid for by the General Fund through property taxes.

To determine your operation and maintenance baseline you need to determine the amount of acreage within the existing city limits today and net out all the non-taxable properties (i.e., street right-of-way, parks, schools, government facilities, state owned waterways), and then divide the total property tax revenue by the net acreage number. This will provides the dollars per acre baseline that it takes to provide the minimum level of service. The table below uses the City of Oregon City, in Clackamas County, as the model:

1997-98 Property tax for city government	Total net assessed land within city limits	Revenue per acre of city property taxes
$6,343,830	) 3,447 acres	= $1,840
1997-98 Property tax without tax increment	Total net assessed land within city limits	Revenue per acre of city property taxes
$5,229,416	) 3,447 acres	= $1,517

The same calculation can be done for a general fund and acreage amount from an earlier fiscal year than 1997-98. However, this is only recommended this if the 1997-98 fiscal year is too low and does not represent your basic minimum level of service.

One explanation for this considerable disparity is that new development is simply worth more (assessed higher) than existing development, and there is undeveloped and undervalued land within the city limits. However, this does not change the fundamental finding that on a per acre basis a city is actual getting a better return on investment for property annexed though growth.

General fund revenues. Ballot Measure 50 revenue calculations (see Figure 3) reveal that new development will permanently generate about $2,776 per acre per year for newly annexed land.

So for the example given, growth in Oregon City is paying more than 1-1/2 times or 51 percent more than the $1,840 per acre being generated by existing properties in the city today (see Table 4). By deducting the actual urban renewal tax increment, which will eventually end, the amount is nearly double the $1,517 per acre that would have been collected.

The policy discussion about General Fund services should focus on what is the minimum acceptable level of service (LOS). Increases in funding services means asking voters to increase their property tax rate.

Municipal utility. Water supply, sanitary sewer and storm water runoff are usually paid for through a rate. A good business practice is to pass through all cost increases -- such as new regulation or inflation -- to the rate payer. New development is anticipated and built into the rate so theoretically growth always pays its way.

School District. Single family residents, multi-family residents and businesses all make demands on schools. The costs of community schools, both capital and operation and maintenance, are projected on the basis of 11,000 pupils requiring 10 elementary schools and 2 high schools. In Oregon today about 70 percent of school funding comes from state and about 30 percent comes from local funds. The local property taxes available to all school entities are limited under Ballot Measure five to $5 per $1,000 of assessed value.

Any analysis of financing not only needs to separate capital improvements from the ongoing operation and maintenance, but it also needs to address the split funding sources. In terms of property taxes the issue of growth has the same answer as general government. Using the same type of Ballot Measure 50 calculation (see Figure 3) used earlier, produces the same result that growth pays more than 1-2 times more taxes than existing properties. Using the same Oregon City example, the total combined tax rate -- for the Oregon City School District, Clackamas County ESD and Clackamas Community College -- is $5.89. The result is that new development generates $2,790 per acre in taxes per year.

It is worth pointing out that the 70 percent of state proceeds comes from income taxes and lottery proceeds that are paid by all Oregonians -- including home owners, home buyers, home builders and developers. For this reason, at least 70 percent of all capital improvement and operational needs related to growth should not even be allocated though local development.

Streets. Growth changes the amount of money a municipality receives because the state gas tax is allocated through a per capita formula.

Private utilities. The private sector utilities operate on a rate based system which passes through all cost increases to the customer. The rates are used to fund day-to-day operations and to fund capital improvements.

A number of studies have been done on the cost of growth (see Table 5). Most of these studies have focused on the cost differential between planned development and sprawl. This report uses the costs associated with planned development. These studies basically show a total price tag of somewhere between $10,401 and $34,314 in municipal infrastructure costs for a single family dwelling.

The two studies done of the cost of growth in Oregon reaches similar conclusions that the growth related costs per new single family residence is $23,013-$24,502. The study by Fodor concludes that, AIt is reasonable to say that virtually every community in the United States subsidizes growth, most to a great extent.@ The problem with this statement is that there are no facts presented to support the contention. For example, the majority of this cost is paid for by the on-site infrastructure which is fully paid for by the developer (see Table 8). This fact is calculated into the work of Conder. Conder has identified both the on-site development costs and the broader community costs. This is important because it is impossible to make any judgement about subsidies unless we discuss municipal financing. It is financially irresponsible and fiscally imprudent to discuss Acosts@ or Asubsidies@ in a budgetary vacuum that ignores municipal revenues.

There are several other fiscal benefits the come with planned growth:

• The Rutger=s study notes that AWhere growth is controlled as opposed to managed, housing costs are higher.@
• Less controlled growth=s A...contribution to diversity in choice is the massive amount of reasonable alternatives... that it offers the... consumer.@ In other words, greater choice in the market place is a positive result.
• Growth creates jobs, taxes and fees to government, and income to local businesses.

The latter point is quantifiable per single family residence:

One of the more interesting development phenomena is the affordable housing paradox: The more we regulate our physical environment to make it livable, the less we can afford to live in it.

For example, all four of Oregon=s metropolitan areas (i.e., Portland, Eugene-Springfield, Salem-Keizer, Medford-Ashland) are now in the top 14 (or 7 percent) least affordable metropolitan areas in the nation. The National Association of Home Builders= publishes the Housing Opportunity Index of the 191 metropolitan areas in the country on a quarterly basis (see Appendix E). In passing along this information, a representative with the Oregon Building Industry Association stated,

Is the rising cost of housing due to over regulation in the pursuit of creating heaven on earth? What will happen if we decide that growth must pay even more? The problem with increasing the financial burden on developers and home builders is that they simply pass the increase on to the home buyer. Certainly some out-of-state immigrants will end up paying the bill, but so will the residents of the state. There is no exemption in state law that says we don=t have to pay these additional charges when we buy a new house. New houses also set the price for the sale of existing houses. So the price increase will be felt by everyone at some point. So in the end all of the costs of growth will be paid for by all of us in the market place.

This still leaves the question of why are all of the state metropolitan areas so expensive. It not caused by excessive property taxes or sales taxes. Ballot measures 5 and 50 have put Oregon at the bottom of the national taxation rankings. Therein may lie the answer. It is possible we have:

• Tied one too many user fees to new housing in order to make up for lost tax revenues.
• Subsidized our renowned Oregon lifestyle on the back of new development. Light rail, air quality vehicle inspections, wetland mitigation, farmland protection, endangered species preservation and natural area acquisition all cost money. These restrictions have decreased the value of some land and increased the cost to develop others.

Oregonians are consumers. Basic economics dictates that regulation costs money and in America the consumer pays the final bill.

The word subsidy is one used by both the no-growth and pro-growth factions when it serves their different political purposes. However, there is no subsidy. Subsidy is defined by Webster=s dictionary as Aa grant by a government to a private person or company to assist an enterprise deemed advantageous to the public.@ The basic economics of any free enterprise is to add profit to the cost of the product. Development is a highly competitive enterprise that gets no grants from government.

The fact is there are no subsidies. Citizens of a municipality will pay for all of the costs of growth and not the developer. It will be paid for all Oregonians as home buyers, home owners, renters, taxpayers or ratepayers. The science fiction writer Robert Heinlein said it best, AThere ain=t no such thing as a free lunch... anything free costs twice as much@.

Once a municipality determines what the costs of growth are, then they need to decide an equitable way to assess the costs. When they widen streets, build a water or sewer main or acquire a new park, they must ask how much of the cost-benefit is attributable to the:

• Property owner who annexes the land first to an urban growth boundary and later to an incorporated city.
• Developer of the new subdivision or planned unit development who buys the land and then constructs the on site infrastructure.
• Builder who builds a home on the newly created lot.
• Buyer who buys the house or commercial building.
• Resident who may be advantaged by a new park, an oversized water or sewer main, or improved storm water management system.
• Existing businesses which benefit from the new income.

Traditional development practices and municipal financing structures assume that the property owner, developer and builder pay for all of the on-site capital improvement costs and guarantees the improvements for some period of time. When the residences or commercial buildings are sold and the new tenants (buyer/resident) take over the financial responsibility to pay for the private and public operation and maintenance of the infrastructure and services. Therefore, it makes sense to pay the costs of growth within the existing structures and practices.

The process of development is a value added process. The Oregonian recently reported that property values can increase tenfold once inside the urban growth boundary through the land development process. Actually, it works out to be 9.25 time its original value ($154,350)$16,678=9.25). In the example in Table 6, the end product is a single family dwelling built on a 8,000 square foot lot in an average subdivision.

If there is a financial windfall, then it is the legislative act of annexing land to both the urban growth boundary and an incorporated city by itself that more than quadruples the land=s value.

In the Portland metropolitan area an acre of land increases in value by about $53,332. This value is added with no improvements being made by the property owner. The only cost is the annexation process. The process of building the subdivision infrastructure (i.e., streets, water, sewer, storm water runoff, street lights and trees, sidewalks) are expensive, as is adding the actual residence.

Should those who benefit from new property development pay the associated infrastructure costs? The federal and state government once subsidized new property development by reallocating the state and federal revenues of all taxpayers (and developers) back to local governments to pay for the infrastructure. However, the level of subsidy is significantly less than in past years. It can be argued that since the developer and builder simply pass along such savings or added costs, that the new home buyer was the one being subsidized.

How much of the cost of growth should be covered by the new residents or the existing residents of the municipality? This question is made more difficult by the fact that some people within a city buy a new residence and sell existing residence to people from outside the city. Which is which now? Should the long-term resident, who remains in the city, pay for the new infrastructure? What if that resident moves out of the city and a new person buys their home? Has this new person created growth? It is, after all, the same residence.

Much of the research done to date on the costs of growth has one major flaw. The studies all focus on the costs of growth and prematurely lead the reader to the conclusion that none of these costs are paid for by the development industry. This report began with the premise that all costs (expenditures) require a source of revenue to pay for them. That is Oregon budget law. However, there are a number of groups responsible for paying for the cost of infrastructure in Oregon. The fiscal model presented here provides a rational methodology to answer the monetary question of how much is actually being paid and how much is not.

A more accurate reflection of the real fiscal answer to AHow much is not being paid?@ is shown in Table 8. Using the Oregon cost of growth and revenue data, developed by Conder, it is possible to identify where potential revenues may be needed per single family dwelling.

By using this financial framework, the debate can be focused on three costs of growth funding categories: funded growth, fundable growth and unfunded growth.

Funded growth (developer). Most of the costs of growth for a single family residence, which comes to 59% or $13,526, is paid for by the development industry. $7,178 is paid for as on-site improvements and $6,348 is paid for as off-site improvements through system development charges (see Appendix D).

Fundable growth (local). The fundable costs of growth for streets and utilities comes to $1,787, but may or may not be paid for. It is possible that these costs are already being paid for through a utility rate. The utility portion of this costs is up to $1,034 and can be paid through system development charges, or by amortizing such costs through a utility rate. This cost includes municipal utilities of water, sewer and storm.

The street portion of this cost is $753 and could also easily be paid for by increasing street system development charges. The fact is that many jurisdictions are unfunded by their own decision. It is important to note that less than 50 percent of the jurisdictions evaluated in this report (see Table D) actually levy all five legally allowed system development charges. In those cases where they are levied, there are substantial differentials. For example, the city of Beaverton charges $2,257 for streets. Some jurisdictions charge nothing. This difference alone would cover the estimated street shortfall for some jurisdictions.

Unfunded growth (state). Fully 70 percent of the school district money now comes from the state and not from local taxes. If the schools are not fully funded, then the state needs to reallocate personal and corporate income tax revenues. These are revenues generated by all Oregonians. To require that 70 percent be paid locally amounts to double taxation. For this reason, only 30 percent of any shortfall can be considered a local government or a developer cost.

There are three important caveats to keep in mind about school costs (1) Enrollment growth may not be directly related to development growth. School districts enrollment trends are more sensitive to demographic changes in populations, than in population growth. For example, the city of Oregon City is one of the fastest growing cities in the state. From 1990-1996 the population grew by 38.9 percent. However, school enrollment grew by only 2.5 percent. An Oregon City School District report says that, ANationally and in Oregon, births declined in the early 1990s as the baby boomers aged out of their child-bearing years. Declining births foreshadow slower elementary growth in the future than in the recent past for most districts.@ (2) Local policies to restrict development for the purpose of slowing public school enrollment may actually increase the per pupil costs. Enrollment growth can result in the optimal use of school facilities through economies of scale. (3) The Oregon costs for schools estimated by Conder were $4,313 and is closer to the finding of a separate study which determined that the costs of education (K-12) in the western United States was $5,410.

Unfunded growth (local). That leaves $4,679 that is potentially an unfunded cost of growth that has very limited financial remedies. These are (1) $3,385 in general fund activities (AGeneral Government@) such as parks, libraries, police and fire, and (2) $1,294 for the 30 percent of the potential school district costs. These costs cannot be amortized through a rate system, are prohibited by state statute from using system development charges, and are difficult to fund through the property tax system because of Ballot Measure 5 and 50 limitations.

Municipal facilities can be paid for through the use of a general obligation bond paid for by additional property taxes. Ballot Measure 50 requires a vote on such financing. The fact that new properties are paying 1-1/2 times the property taxes of existing properties should make this a more than equitable proposition to the existing residents of a municipality. The fact is that this is the only method that municipal governments currently have to fund general government capital improvements.

The recent U.S. Supreme Court decision, Dolan v. City of Tigard, provides a significant policy path. All on-site costs are paid for by the developer. However, any off-site requirements put on the developer need to demonstrate a reasonable relationship to the development=s impact on the community. The best way to levy such off-site exactions is through the Capital Improvement Plan and the use of system development charges, and not directly on the individual developer.

For the purpose of this paper, organizational solutions are those that rearrange jurisdictional responsibilities and let someone else pay for the cost of growth or pay for it differently.

Consolidation. There are economies of scale that can be realized by consolidating units of government, especially when they have similar functions. The savings come from reducing the need for administration and sometimes by reducing the amount of equipment. For example, if two cities merged their public works or fire protection functions, then they would theoretically only need half the managers. They also might not need two of every piece of specialized equipment.

Intergovernmental agreements. Some of the cost savings of consolidation can be realized simply through the use of agreements between governmental units. For example, each group does not need the same piece of specialized equipment if they are all willing to jointly purchase and share its use.

Privatization. There has been a lot written about the privatization of government. There are actually very few things a government does that the private sector can not do. In America=s past the private sector has done what government does today. Roads and fire battalions once were privately owned and operated. Today municipalities contract out towing, storage and even correctional facilities. The City of Sherwood recently stopped providing municipal pool services by developing an agreement to have the YMCA build a new facility. The only real issue about privatization has to do with government=s ability to provide:

• a democratic process to responsibly manage an activity or service. For example, most voters are very leery of contracting out police, fire or even library services.
• a service the private sector will not. For example, disaster relief and homeless housing are usually provided only by government or nonprofit agencies.

Special district versus general purpose government. Government services can be provided either by a general purpose government (i.e., city, county) or by a special district. Both can provide a quality service at a fair price. However, local governments must balance their budgets among competing needs. This results in some programs getting more funding and others getting less. A special district is a sole purpose government which only needs to budget for the one service it manages. A special district also get a lot less public attention or participation in its budget process.

There are generally four financial options available to government that can be used to pay the costs of growth:

• Cut services to match revenues and expenditures with resources. This may be achieved across the board or selectively.
• Contract services or combine functions with regional providers to lower the local government costs by spreading the administrative burden or equipment redundancy over a larger base .
• Increase revenue to cover the difference between available resources and the actual cost to deliver at a desired level of service.
• Transfer programs from general fund types of sources to enterprise fund sources.

A study done of 221 city and county government managers after the passage of Ballot Measure five was not encouraging. APerhaps the most striking aspect of these results is the low level at which any of these strategies are expected to be used.@ The report said, AThese results support the view that the typical response to fiscal stress is to maintain the status quo politically and programmatically, even while the selected course of action is contrary to efficiency and effectiveness.@ The method of choice was cutback management, since the managers saw no revenue relief coming. The elimination of non-essential services and reducing personnel was at the top of their list.

There are a variety of financing mechanisms available to cities and counties and the private sector to use to underwrite the cost of growth. The following section describes some of the more likely fund sources. A complete listing of fund sources is shown in Table 9. There also is a complete listing of specific state and federal fund programs in Appendix - B.

Business license fee. Most cities charge a fee for the privilege of doing business in their community.

Certificates of participation (COP). This allows municipalities to obtain capital facilities without issuing bonded debt or asking approval of the voters. The most familiar to local government is the traditional operating lease, the arrangements often used to acquire the use of office equipment without direct purchase. The practical limitation on leasing is that it is best suited to revenue producing facilities, such as water, sewer, or buildings that charge rent.

CMAQ funds. The program provide federal transportation funding assistance for air quality improvement projects in areas designated as non-attainment and maintenance (i.e., Portland, Klamath Falls, La Grande, Lakeview, Oakridge, Medford, Grants Pass). For 1998-2001, the state CMAQ committee recommended 25 percent of the $19,982,001 allocation for support of the Eugene to Portland high-speed rail line, and 75 percent for local air quality improvement projects.

Community Development Block Grants (CDBG). Local governments can access federal entitlement funds for community development projects that benefit low- and moderate income households. The benefit test associated with these funds is very strict and competition with social service agencies has led to a decline in the use of these funds for capital projects.

Economic improvement district. These are limited solely to commercial or industrial zoned land and they must specifically benefit the included properties. The assessments levied are limited to five years. The district may finance (1) planning or management of development or improvement activities, (2) landscaping or maintenance of public areas, (3) promotion of commercial activities or events, (4) activities in support of business recruitment or development, and (5) improvements in parking.

Enterprise funds (utility rates). An enterprise fund is used to support an activity or service that is intended to be self supporting. Examples of municipal utilities are water, sewer and storm drainage.

Exactions. Local governments can require a developer to pay for or build off-site improvements related to a development project or on-site improvements not related to such a project. However, such additional requirements must pass the Arough proportionality@ test of Dolan v. City of Tigard (see Chapter 4).

Franchise fees. Cities are empowered to collect franchise fees as compensation from all public utilities that use public right of way to locate their facilities. The fees are levied on a percentage of the utility provider=s gross revenue generated in the city -- typically three to five percent. The franchise is levied on energy providers (electricity and gas), cable television, telephone and garbage. Traditionally, this is the second biggest revenue source in the general fund after property taxes.

General obligations bonds. General obligation bonds are the most commonly used method of financing capital improvements. The bonds are backed by the full faith and credit of the issuing jurisdiction, are usually sold at very low interest rates, and the debt service can be spread over a long period of twenty years or more. Voters must approve the bond sale.

Local improvement districts (LID). A LID is a special assessment against real property that is used to finance public improvements that benefit all property owners in a specific geographic area. The method for allocating the improvement costs to benefited property owners is established by ordinance. LIDs are often used to finance street and utility improvement upgrades in developed areas where facilities are substandard.

Local gas tax. A local government is allowed to get voter approval of an additional local gas tax.

Oregon Department of Transportation (ODOT). ODOT has a variety of funding programs (see Appendix B). However, most of the money for local government come through the prorated share of state gasoline tax.

Oregon Economic Development Department (OEDD). OEDD also has many different funding programs (see Appendix B). The mainstay of the department has been lottery proceeds.

Port authority. In Oregon, Port Authorities have special financing and development abilities that make the proposition of creating one worthwhile. Ports have raised more capital through revenue bonds (see Industrial Development Revenue Bonds) than any other source revenue bonds issues in the state. The basic process is to formally request the ports formation with the Oregon Economic Development Commission, with this approval go to the county=s Board of Commissioners, and then go directly to the voters. It is possible to create a dry land port in Oregon.

Property taxes. The property tax is used by Oregon cities, counties, schools and other special districts to raise revenue. The state also has the authority to levy property taxes, however it has not done so since 1941. The Oregon Constitution places certain limits on property tax rates for general purposes (see Ballot Measures 5 and 50 discussions in Chapter 4). However, the Constitution does not limit property taxes for general obligation bonds for capital construction and improvements approved in accordance with voting requirements or used to refund certain outstanding general obligation bonds. Under the partial payment schedule, taxes are payable in three equal installments on the fifteenth of November, February and May of the same fiscal year.

Public-private partnerships. These can take any number of forms in terms of responsibilities, financing and purposes. The basic point is that the private sector developer can and will come up with funds when he or she wants a project built badly enough.

Real estate transfer tax. Another rarely used source of revenue is the real estate transfer tax. Although this growth tax is allowed for use by cities and counties, only Washington County currently uses it. The tax is on the actual transaction and sales value of residential, commercial and industrial property. It is a growth tax because it generates funds primarily from new development.

Real estate investment trust (REIT). A publicly traded Real Estate Investment Trust could be created for the purpose of purchasing and accumulating properties and either developing them, or reselling them to individual developers in a more developable form. For a public offering to work it must be constantly fed positive publicity and possess the promise of profit yet to be realized. When the REIT acquires properties, it becomes debt free. If the properties are developed they generate rental income which in turn is paid to the investors as dividends. The profit from the resale of properties is treated the same. The sellers of the properties can also take their profits from the property sale and purchase REIT stock. The REIT members can sell stock or reinvest their dividends as they choose. The REIT itself can trade stock for property in lieu of cash.

Revenue bonds. These bonds are sold by the municipality and repaid with revenue from an enterprise fund which has a ste