Charlie's Fee Fall

Early in his campaign for Portland mayor, Charlie Hales had a big money problem.

His chief foe, Eileen Brady, was pulling in far more contributions, and a lot of that campaign cash was coming from the very business interests Hales had hoped to win over. 

That's when Hales, a former city commissioner, floated an audacious idea: waiving fees called systems development charges for builders and business owners for two years—a giveaway city officials say is worth at least $28 million.

Hales' proposal got surprisingly little attention during the primary—except from the third major candidate, Rep. Jefferson Smith.

"I don't agree with Mr. Hales that we should give a sweeping break to the developers," Smith said during an April 30 televised debate. "Before we talk about spending new money, or even spending old money, let's make sure we don't give away the money we already have."

Developers and architecture firms, prime beneficiaries of such a fee waiver, donated more than $200,000 to Hales' campaign—about a quarter of his contributions.

That might have made it tough for Hales to explain why his proposal wasn't simply a sop to his backers.

Except that Hales has changed his mind.

He tells WW he's backed away from his proposal to waive development fees across the board. He says his plan all along was to help jump-start affordable housing and small businesses, which often pay onerous fees when they open, expand or remodel.

And Hales says he no longer supports waiving fees on big developers.

"I believed then, and I believe now, that we need to re-examine our systems development charges," Hales says. "Do we need a moratorium as the wake-up call? Maybe not."

Hales says he changed his mind about waiving these fees because the demand for city permits is growing without giving developers a big financial incentive.

"Reality is, construction's not flat on its back anymore," Hales says.

But city records show another reality—real-estate development had come back well before the primary.

Bureau of Development Services statistics show it received 3,503 permit applications for commercial properties in the fiscal year ending in June—nearly level with numbers before the recession. 

Residential construction is spiking too. The Oregonian reported last week that the city has issued permits to developers for more than 100 apartment buildings in the last 12 months. 

Proposals to build apartment buildings without on-site parking have attracted enough controversy that the Bureau of Development Services issued a FAQ sheet last month about the "sudden boom of upcoming multi-dwelling apartment projects in inner Portland.” 

The bureau has been so buoyed by the apartment-building spike that it's hired back 40 of the 150 employees it laid off in 2010.

And in March, Mayor Sam Adams used his State of the City address to brag about the "largest private-sector-only investment in years"—a 750-unit, four-tower project near the Rose Quarter called Lloyd Crossing. 

In other words, the only thing that's really changed since the primary is Hales' opponent.

Through most of the primary campaign, Brady—not Smith—was Hales' biggest worry. She landed the endorsement of the Portland Business Alliance—something Hales coveted.

What's more, Brady—with her business experience and ties to New Seasons Market—was making the case that she was the best candidate to create jobs in Portland.

Systems development charges have been a favorite target of business. (Hales often battled over them while a lobbyist for the Home Builders Association of Metropolitan Portland.)

They became especially controversial in 2002, when a Southeast Belmont Street restaurant, It's a Beautiful Pizza, was charged $36,000 to move across the street. That was Hales' last year on the City Council; the pizza parlor is now closed.

Hales says he decided to pursue the systems development fee freeze last winter after talking to a food-cart owner who couldn't afford a brick-and-mortar location. 

He presented his moratorium idea to the Building Owners and Managers Association of Oregon when he sought its endorsement over Brady in January.

"I think there's only one private-sector crane on the horizon in city of Portland today," Hales was quoted in the Daily Journal of Commerce. "The rest of the cranes you see are all public works jobs or university construction. We can get things stimulated by having construction be less of a daunting prospect than it is now."

Hales now tells WW that aiding such big developments was never the goal.

"They were not the source of this concern," he says. "The source of this concern was these small businesses. And if you look at what's happening in downtown right now with the big projects, they can bear the costs of these [fees]. We should not whack small business with that kind of a baseball bat."

But with Brady out of the race after the primary, Hales no longer needs to tack to the right of Brady on issues businesses hold dear. 

What's more, the candidate he now faces, Smith, has repeatedly criticized him for his proposal. 

"I think we want candidates to change their minds based on changing facts," Smith says. "The economy hasn't changed that much in the past three months. [Hales'] original proposal is just as bad."

City Commissioner Nick Fish, who oversees the parks bureau, says the city is starting a review of systems development charges, something it does every few years. He says city officials are willing to look at "tweaking" the fees, but that a wholesale exemption—even a temporary one—isn't part of the plan.

"Speaking for myself," Fish says, "I don't support a moratorium."

If Hales' proposal looked good to developers, it would have meant budget cuts in areas voters care about—for example, transportation and parks.

Continuing to push an across-the-board ban on the fees also would have opened Hales to the charge that he's penalizing the one area of the city where he's most vulnerable to Smith—East Portland. 

Portland Parks & Recreation Director Mike Abbate says his department projected Hales' plan would cost it $5 million to $6 million a year.

"[Systems development charges] help us fill in the gaps to build facilities where there aren't any," Abbate says. "The general fund doesn't supply anything for new construction. [A moratorium] would just limit our ability to do new things in those areas."

For example, systems development charges funded $4 million in parks bureau spending, including the building of Senn's Dairy Park at Northeast 122nd Avenue and Prescott Street, and buying 26 acres of land atop Clatsop Butte.

And Transportation spent $1.2 million from the fees on the Cully Boulevard Green Street project—sidewalks, cycle tracks and traffic signals over the five-way intersection at Northeast 60th Avenue—and another $1.4 million on paving sidewalks along Southeast 122nd Avenue between Harold and Raymond streets.

Hales is still backing a limited waiver aimed at smaller developments and can't say how much that might cost the city. But he's aware that, if he gets elected mayor, he faces a fight over any plan that takes away revenue from the city budget.

"My friends in the bureaus are very nervous about this discussion," Hales says. "The city has become very dependent on fees."

Smith says Hales is looking at the issue in the wrong way. "If we don't have the [systems development charge] money, we either don't do the projects or take the money out of the general fund," he says. "Either option is bad."

Smith also says the city's sewer and water projects—which also benefit from the fees—wouldn't stop. The city would just raise rates to cover the costs.

Hales says his position on development fees wasn't tied to the campaign contributions he received from real-estate and development interests. 

In June, he pledged to take contributions only from individuals and to cap the donations at $600—a move that blunts the impact of developer money. 

"I have, on development issues, been part of the Portland mainstream—the progressive mainstream—for a long time," Hales says. "I do take in new information. And I'll adjust my position on an issue to reflect reality, rather than just ideology.” 

WWeek 2015