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Dropoff in building fees squeezes city budgets

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Sunday, February 01, 2009

piggy.jpgDropoff in building fees squeezes city budgets

STATEWIDE Oregon cities big and small are grappling with a steep decline in all revenues, but none more alarming than dwindling building fees. When lending shriveled up over a year ago the building bubble burst, binding the hands of developers and stopping many new proposals dead in their tracks. The corresponding loss of fees is creating widening budget gaps for municipal governments already struggling to provide services.

The city of Ashland saw revenues through permit fees decrease from $4.1 million in fiscal year 2004-2005 to $2.1 million in fiscal year 2007-2008. Another 50% drop is expected for the current fiscal year, according to Ashland Permit Center manager Adam Hanks. As a result, one building inspector and two building and development department employees were laid off. What’s keeping Ashland afloat, Hanks says, is a $42 million school bond to update facilities.

In Portland, the slide arrived later. The total valuation of permits issued from July 1, 2008, through Dec. 31, 2008, dropped 26% from the year before. Portland’s building revenues had actually increased from $39.85 million in fiscal year 2006-2007 to $41.4 million in fiscal year 2007-2008, but that party ended abruptly. “We expect this year to be less than $41 million,” says Elshad Hajiyev, budget and finance section manager for Portland’s Bureau of Development Services. “It won’t even be enough to extend our expenditures.” As a result, 38 positions in the bureau have been left vacant, overtime has been eliminated and cost-saving measures are being studied.

In Baker City, permit activity is down 11% from last year, says planning director Don Chance. New housing development is slow, he says, but he’s still seeing some healthy business in remodels and additions. Baker City isn’t as fee-based as some, making it less vulnerable. And it actually runs a surplus, which it holds onto for such situations as this, says Chance.

Bend isn’t so lucky. Last year, as fee revenue trickled in slower and much less than planned, the city was forced to make budget cuts — three rounds of them to be precise. “But now we should be on track,” says Bend’s communications manager, Justin Finestone. “We cut deep early on.” A total of 44 workers were laid off in 2008, with another 55 positions left unfilled and a hiring freeze enacted.

Building fees have become increasingly vital to city governments since property taxes were limited in 1997 under Measure 50. Now that they are dwindling, municipalities are scrambling to find another cash cow to milk.   

“The long-term projections for cities are pretty bleak,” says former Hillsboro mayor Tom Hughes, past president of the League of Oregon Cities. “The amount the average city collects on the average home doesn’t pay for the costs of supplying services to that home. So we are all required to fall back on other revenues. Unfortunately, those other revenues aren’t holding up.”   


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