It All Come Tumbling Down?
Are you fed up with high property tax bills? Congested streets? An inadequate storm sewer system? Inadequate and crumbling water system? Inadequate and crumbling sewer system? Inadequate ball fields? Congested and dangerous schools? What is causing these problems?
Salem has experienced a growth spurt not seen since the '70s, 72% of which comes from out of state. What is growing besides the population? A casual glance tells you: new housing starts, new streets, and new businesses and industries.
What connects the phenomena of high taxes, crumbling infrastructure, and virtually unprecedented growth? The "growth at any cost" majority of Salem's City Council holds a key to this riddle. They don't want to "threaten" profit levels for developers with taxes or fees adequate to pay growth-related expenses. But somebody has to pay these real expenses if Salem's livability is to be preserved. Apparently, the Council majority prefers that "somebody" to be us, the taxpayers.
The City Council has at its disposal a simple and elegant instrument available to all communities to manage growth. System Development Charges (SDCs) provide a way for Salem to charge developers their fair share for the cost of expanding five systems (water, sewer, storm sewer, street, and park systems) that the developers' products entitle their buyers to use. Salem developers reap the full value of these systems in profits when they sell their products, yet currently pay as little as 10% of the expansion costs in SDCs.
The Salem City Council is not paying attention. It is generally known, as eminent Harvard economists Altshuler and Gomez-Ibanez report, that "the available evidence shows that development ... brings in less revenue for local governments than the price of servicing it." Yet the Council has set the SDCs so low on four of the systems, and outright failed to establish the fifth SDC, that most of the costs of growth fall to the general citizenry.
Why should the Council risk the wrath of their developer friends by making growth pay its way? We can only assume that they expect us, the people, to feel forced by circumstances to pay it. How? By passing new bond levies to protect our children's safety and our property values. After all, if we don't provide for growth necessitated expansions, the livability of Salem will continue to decline.
In the past, this extortion worked. Most of the citizens were prospering. Wages were going up. Businesses and the wealthy were paying a reasonable share of the taxes. But the times are changing. Since 1973, inflation- adjusted wages of 80% of Americans have decreased an average of 2 1 %. Two-income families have to work long hours just to survive, often leaving young children with underpaid and understaffed childcare. At day's end, some parents are left with little energy and time to enjoy family life. Some children, unguided by parents, and feeling unwanted, act out in the family and community, damaging themselves, the family, and society.
Falling wages were further hammered when a larger share of Oregon's tax burden (15%) was shifted from businesses to individuals. And the Federal government reduced the taxes on the wealthy up to 36%, shifting more of the tax burden to the non-wealthy.
Add to all this the tariff reductions since the '60s, and NAFTA, and GATT, all of which increased the flow of jobs overseas, reducing job security, and increasing the number of jobs that have become temp, with no fringe benefits. College education has become less relevant, as Suzanne Marta (Statesman journal) demonstrates: A third of all college graduates will go directly into underemployment or unemployment.
Under these conditions, people are less willing to tax themselves. Especially when they see special interests dipping their fingers into the tax pot, as developers do when they manipulate city government into giving them cheap access to street, park, storm water, water, sewer, school, library, fire, law enforcement, and government systems-all infrastructure for their properties.
The above systems are failing due to a lack of maintenance and a lack of funds to expand the systems' capacities to carry the burdens of growth. For example, during the transportation SDC (TSDC) farce, Salem's Public Works Department identified over $327 million in street projects necessary to correct for past deficiencies, and $183 million to provide for capacity expansion for the projected growth of the next 20 years. The streets were, and are, congested, rutted, and cracked. Some even have pot holes. For the future needs, to avoid impacting profits, the City Council considered broad-based revenue-raising sources (such as gasoline and utility taxes), but settled on raising only $55 million (over a 20 year period) from a transportation SDC. They could have raised all $183 million with it. Their action leaves $133 million of future growth-related needs (currently subject to SDCs) that will become pre-existing growth-related needs (not subject to SDCs) as growth occurs over the next 20 years. Who will pay those needs then? Our children?
Transportation problems are just the beginning. Parks are so congested that ball teams are forced to play out of town. Floods are exacerbated by storm water from parking lots, roofs and streets. Water lines leak, valves crumble if turned, and water shortages are not uncommon. Sewage overflows into the streams and backs up into basements. Schools and jails are overcrowded. Gangs fight for respect and over turf, sometimes blowing away innocent kids. Meanwhile, the Salem Economic Development Corporation pushes for more industries to locate here, including low and medium wage ones, drawing two new people to the city for every three jobs created. Most newcomers don't pay enough in taxes to offset the per-citizen cost of government-provided services, further draining city and state resources.
Against this backdrop, nurtured by a desire for a sustainable society, a liveable Salem, and citizen involvement to define and achieve these goals, Citizens for Responsible Growth came into being. Richard Reid, President of Salem Fair Share, and a member of the TSDC task force, formed a coalition of concerned citizens in November, 1996. My experience as a citizen lobbyist for a 100% TSDC drew me to the effort. The League of Women Voters of Marion/Polk Counties (long-time supporters of 100% allowable SDCs) joined up. Our coalition grew as we invited individuals and organizations to help shape the effort.
The question is, how can Salem be kept from crumbling while improving the sustainability of our society? Even if the citizens were willing to pass bond issues, city staff says the city's bonding capacity is inadequate to address the needs. The Chapter 66 task force that met for the first time in May is charged with charting a solution to the city's funding problem. While we hope they can find a magic pill, the results will probably be similar to those of their predecessor. The task force has a couple of wonderful appointees, but the majority were appointed by Councilmen hostile to SDCs. So the Chapter 66 task force probably will look to broad-based revenue sources.
Citizens for Responsible Growth supports an initiative that would compel Salem's government to charge 100% on all SDCs allowed by state law. The advantages of SDCs are that they are self-limiting, they can lower true housing costs, they enable the city to collect the cost of providing some of the infrastructure for new development from the developers (instead of the taxpayers and the utility users), they do not force up housing prices, and they have no long-term impact on growth. SDCs are limited by state law to collect only the money needed to cover the costs of expanding the infrastructure to offset the impacts of growth. If growth slows, the amount collected is reduced. If it accelerates, the amount increases.
Under this system, SDCs become a production cost that the developers take into consideration when deciding how much to pay for vacant land or what to build. Developers will have to negotiate a better deal with the land owners, pass the cost on to other suppliers, reduce the amenities or size of the product, make less profit, or increase the product's price.
However the SDC cost gets spread, it will be paid by those directly involved in the production and consumption. It will not be paid by the taxpayers and utility users, nor by low income renters (who rarely become owners of new houses), nor by people who already own their homes and who have to pay for all the other infrastructure on which state law does not allow SDCs.
In Salem, the cost to create infrastructure for every new house is currently about $24,000, according to the Mayor; SDCs currently bring in a mere $2,200 to $4,300, depending on the house's location. Go figure.
It is unlikely that higher SDCs will force housing prices up. Homes cannot be sold for more than the buyer can afford, and Salem is one of the least affordable cities now. Homes generally sell for as much as the market will bear, regardless of whether the developer or the taxpayer pays their construction costs. Furthermore, in real estate, the balance between supply of, and demand for, housing is paramount. The connection between cost and market value of new homes is capricious because no builder controls enough of the supply to affect the market. In the re-sell market, it is even more tenuous because each seller controls less of the supply. And the buyer (demand) has many options. As an example of the disconnect between cost and market value, the Portland office of Housing & Urban Development did a study of the impact of a tax abatement, similar to one proposed for the Riverfront Park Condominiums, on a project in a Portland neighborhood. It found no change in market value due to the tax abatement.
With SDCs in the production stream, the producer must determine if the product is desirable enough to entice its truer cost from a consumer. And the consumer will know its truer cost so he can determine if the product is actually worth at least that much to him. He can't do that when the cost is hidden in taxpayer subsidies. Society is relieved of providing a subsidy and the economy becomes more efficient by the worthy use of all resources.
As much as one may or may not like growth, SDCs appear to have no long-term impact. Scott Burgess, City Manager of West Lynn, says their SDCs are as high as they can be, and the City Council pushes them higher when possible, at the request of the builders. Yet, he says, the city is growing rapidly.
Citizens For Responsible Growth urges that the first course of action to mitigate the negative impacts of growth be to amend the city charter to require the full utilization of all SDCs allowed by state law. As a funding source, they target those engaged in accommodating growth. They encourage efficiency and accurate valuation of the benefits of growth. They are self-limiting. They decrease the overall cost of housing, and do not necessarily increase the price of housing. And growth does not appear to slow. We are circulating an initiative to place this proposal on the ballot. If you want to assure that the SDC initiative gets on the ballot, call me at 588-5285 to volunteer. More people means a lighter work load for all, and more certainty of outcome.
Jerry Scott is a real estate appraiser with a degree in economics. He worked with the Sharon Scott for Congress Campaign (dedicated to reversing the failing real wages of American workers) and lives in Salem, Oregon.