Measure 49 Bulldozes Awareness of Other Building Legislation

New construction excise taxes and growth management laws pass below the radar

By Eugene L. Grant
As appeared in “Legal Ease,” our monthly column in the Daily Journal of Commerce

With Measure 49’s potential to roll back Measure 37 commanding Oregonians’ attention, other pieces of legislation that affect growth management are getting lost in the shuffle. Anyone involved in real estate development should understand these changes.

The 2007 Legislature enacted House Bill 2051 at Metro’s request, delaying until 2009 the next urban growth boundary expansion. Given the greatly reduced demand for new land to develop, this delay may not hurt developers much.

The delay gives Metro time to adopt urban and rural reserves in its potential expansion area pursuant to Senate Bill 1011. The goal is to avoid the many difficulties experienced when Metro last expanded the UGB. The last expansion generated heated support and opposition to many of the proposed expansion areas, and several parties fought Metro’s expansion plans with extensive and expensive litigation.

These twin bills attempt to minimize the contention and uncertainty in the UGB expansion process by means of Metro and the affected counties entering into agreements to determine which land is suitable for inclusion. The rural reserves will be lands better suited for long-term forest or farm use. The urban reserves will be lands better suited to accommodate up to 50 years of urban growth in metro Portland.

The UGB must contain enough land for 20 years of urban growth as well as another 20 to 30 years’ worth of land in urban reserves for a total 40- to 50-year land supply at the time reserves are established. Metro and Washington, Multnomah and Clackamas counties together will establish the reserves.

Although these urban and rural reserves may improve the UGB expansion process, all the contention and uncertainty will now simply advance to this new reserve designation process.

The extremely high stakes make dispute inevitable. Owners of lands designated as urban reserves will see market values increase dramatically; the opposite holds true for those with rural reserves.

With so much money at stake and so many environmental impacts, the Metro reserve designation will be just as intense as the last UGB expansion. The real benefit of the expansion postponement, however, may be that it provides enough time to get through this inevitable battle before the land is actually needed inside the UGB.

Schools gain right to tax

Another twin set of bills are SB 336 and SB 1036, which affect school development. For years, school districts and home builders battled in the Legislature over control of school district growth management and whether developers of new subdivisions should pay charges to finance new schools that accompany growth. Repeated efforts by the school districts and their supporters to impose school system development charges on new housing were opposed and defeated by the home builders in large part due to the Republican control of either or both of the legislative branches.

In 2007’s Democrat-held Legislature, the school districts didn’t get a system development charge. But they did win the right under SB 1036 to impose a construction excise tax of up to $1 per $1,000 of housing. That means a $400,000 house will pay $4,000 to the school district, regardless of whether a student occupies the new home. The rate is 50 cents per $1,000 up to a maximum of $25,000 per nonresidential building. Some exemptions apply, including ones for low-income housing.

The financial result of the construction excise tax is in many respects the same as a school system development charge. The main difference is the maximum dollar amount of the excise tax as opposed to the very complicated, expensive and often-contested fiscal impact analysis required to determine the maximum amount of a system development charge.

Of potentially greater impact on developers is SB 336, which gives school districts the power to effectively block development in addition to taxing it. The district can block development when it believes there is inadequate capacity to service the students expected from the new development.

Whenever a developer applies for local government approval of a proposed residential project, schools are asked whether they have any comments on the application. In the past, a school district statement of inadequate school capacity was not a legal criterion on which a city or county could deny a development application, unless the application would change the property’s zoning.

SB 336 makes school capacity relevant to all development applications, dramatically increasing the uncertainty as to whether land may be developed consistent with its present zoning. This legislation also requires school districts to coordinate their school growth planning with cities’ zoning and planning for new residential development.

Although cities and counties theoretically can approve developments over the objections of the school district, it would be rare for a city or county decision-maker to do so and face the wrath of soccer moms and other school supporters. The upshot is that school districts can now effectively block new residential development perceived to exceed school capacity.

For more information, please contact:

Eugene L. Grant Portland, Oregon (503) 241-2300 genegrant@dwt.com

This advisory is a publication of the Real Property Group of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may be given only in response to inquiries regarding particular situations. Attorney Advertising. Prior results do not guarantee a similar outcome. Thank you.

Copyright © 2007, Davis Wright Tremaine LLP.

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