December 4, 2013  9:45 AM

Construction tax, planning grants up for discussion in 2014

Growth on the edge

A tax on new home construction pays for planning around the Portland region. Leaders are pondering whether to continue that tax in 2014, and how mont generated by the tax should be spent. (Photo by Bruce Forster)

New communities don't just sprout out of the ground, at least not in the Portland region. Years of planning and research shape how we build new homes.

But leaders at Metro have a choice next summer – do they continue a sometimes-controversial tax to pay for that planning, and if so, what should that planning money go towards?

On the surface, Metro's construction excise tax is decimal dust. If a new home has $200,000 in permitted improvements, the building's owner would pay $240 in taxes. It generated $2.4 million region-wide in the last fiscal year.

But homebuilders – particularly those who work on the edges of the region – have historically sought to have as much of that money as possible put into planning new communities, areas where the urban growth boundary has been expanded.

It's why the Home Builders Association of Metropolitan Portland originally supported the seven-year-old tax – and it's part of the reason why the association sued to stop the tax a couple of years ago.

In 2007, the Legislature passed a law putting a moratorium on new construction excise taxes until 2018. Lawyers from some developers and the Home Builders Association argued that by changing what the tax money paid for, Metro essentially created a new excise tax instead of simply extending the old one.

That lawsuit was rejected by the Oregon Court of Appeals in 2012. In August 2013, Metro awarded $4.2 million in planning grants from money generated by the excise tax, paying for planning projects from Forest Grove to Wilsonville to Gresham.

See a report with a list of tax-supported planning projects (PDF)

Metro's tax will sunset in autumn 2014 if the council doesn't vote by mid-2014 to extend it. If the tax sunsets, Metro would be prohibited from starting a new construction excise tax until after the Legislature's moratorium expires in 2018.

Home Builders Association CEO Dave Nielsen said he doesn't know whether his group will take a position on whether or not the tax should be extended. But, he said, "You see very few taxes that go away."

Metro staffers are assembling a committee of elected officials, city planners and advocacy groups to review the tax, and what it's used for, with a recommendation to the Metro Council targeted for April. Nielsen said his association will be looking for the committee, and Metro, to show whether the tax is needed, and what the money would be used for.

See the draft committee makeup (PDF)

One problem vexing developers, he said, is voter-approved annexation. Areas near Sherwood and Oregon City were brought into the urban growth boundary more than a decade ago, but voters in those cities have rejected attempts to annex them into city boundaries. With county governments reluctant to encourage urban development in unincorporated areas, those parcels have sat stagnant.

"I'm not sure there's a role for the construction excise tax for something like that, but obviously we'd be more supportive of something that addresses issues preventing development from happening in our region," Nielsen said.

But as the Home Builders Association is pulling for money to plan areas outside the core, officials from Portland are likely to point out where most of the money is coming from. At a work session last week, Metro chief operating officer Martha Bennett said 40 percent of the tax is being raised off new construction within Portland's city limits, but about 20 percent of the funding went to projects within Portland.

"I believe the City of Portland right now would say let the tax expire," Bennett said. They'll say "'There's no reason to tax our development so you can give it to the edge to make our job harder.'"

Giving a stakeholder committee time to address sub-regional issues would allow those dynamics to play out, Bennett said.

Nielsen said the issue needs a regional solution, saying that Portland residents weary of increasing density in that city would benefit from growth in areas further from the region's core.

"It can't be a strict dollar-for-dollar thing, because a regional tax is meant to solve a regional issue," Nielsen said.

The committee is scheduled to start meeting in January, with a recommendation expected to the Metro Council in April.

Metro News editor Nick Christensen can be reached at nick.christensen@oregonmetro.gov or 503-813-7583. Follow Metro on Twitter @oregonmetro.

Learn more about Community Planning and Development Grants

Learn more about the construction excise tax

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