Committee Recommends Business Friendly SDC Model to City Council

The number of vacant storefronts in downtown Newberg felt as if they were multiplying in the post-pandemic fallout.

However, a group of citizens and city government officials may have developed a recommendation to remove one of the largest barriers for new and existing businesses to move or expand into these storefronts: a revised structure for System Development Charges, or SDCs.

Earlier this year, the City of Newberg City Council formed a task force to address the city’s SDCs, a fee levied on businesses and housing developers as they change the use of a piece of property, to make recommendations on how to make the fee more business-friendly without sacrificing fee revenue that goes toward public infrastructure projects.

Those recommendations in hand, they’re ready to share with the public and soon, the city council.

What are SDCs?

According to the City of Newberg website, “SDCs are one-time charges to individuals, developers, and projects who are developing a vacant piece of property, redeveloping a property, or changing what a property is used for.”

This means any piece of land would be subject to this charge, whether it be taking an empty lot and building a house or changing an existing business to a different kind of business.

For example, let’s say a new restaurant wants to move into a building that was previously operating as a bank. The bank would likely have one restroom, with one sink and one toilet. They may have a kitchen in the breakroom with one sink. It would have a handful of employees and moderate foot traffic each day.

Now, when the restaurant leases and wants to retrofit the existing location to match their business needs; they would likely build at least one more bathroom, meaning there would be another sink and toilet’s worth of strain on the city wastewater system. 

Then, the kitchen would need to install a dish pit, adding more strain to the wastewater system. For each sink, toilet, and drain, there is a fee levied on those to ensure the city has enough money in the coffers to repair and upgrade the city’s infrastructure to accommodate increased usage of the city’s wastewater, stormwater, and water master plans.

The transportation SDC, on the other hand, collects fee based on how many people would theoretically be visiting the new location between approximately 4 p.m. and 6 p.m. Changing from the bank to a restaurant would increase how many people visit that building on any given day, and the SDCs ensures the city can accommodate the increased usage of the roads and parking, and invest in capital improvements.

Rates for these SDCs were set by a Washington-based consulting group, which would set rates for the SDCs every two years based on their research and models. However, Newberg Mayor Bill Rosacker said the off-the-shelf options provided by the consultants were not working for Newberg — it’s a unique town with unique challenges that need to be addressed by those who know what’s happening here.

“Before this, Newberg and every other city in Oregon needed to hire consultants which cost $40,000 or more to update the fees every 5 years or so,” Rosacker said in an email. “This guaranteed that the charges were out of date and too high or low for several years before updating.”

The city started exploring a revised SDC strategy in 2020, led by late City Councilor Denise Bacon. Upon her passing in October 2021, the project was shelved until after the election, which saw a new mayor who had first-hand experience with the business-prohibitive fee.

Before running for Mayor, Rosacker said he considered starting a breakfast burrito food cart in Newberg. He checked with the city to see how much it would cost him to start the food cart, and with SDCs — even for a food cart — he would have owed $34,000.

“The fee was so outrageous that prospective businesses just walked away,” Rosacker said. “Some of the vacant buildings in Newberg are victims of this fee: The former use was low on the scale — the music store for example — and any new proposed business triggered high SDCs.”

Rosacker said he asked former city engineer, Kaaren Hoffman, how much the change of use transportation SDC generated. After researching, Hoffman said the city had not collected a single dollar from the change of use transportation SDC.

“It actually prevented commerce,” Rosacker said.

Local business owner, incoming Chehalem Valley Chamber of Commerce president, and SDC committee member Bubba King said Honey Pie Pizza, a company he formerly co-owned, considered expanding their restaurant to accommodate more guests. When they learned how much the SDC amounted to, he said they would have spent more money before breaking ground on the addition than what they spent building the entire business.

“That’s what got me involved,” he said.

The SDC Committee

In early 2023, Newberg City Council empowered a group of local business owners, city employees, and city council members, along with the mayor and City Manager Will Worthey, to explore SDC improvement solutions.

“For decades the City had paid outside consultants to give an ‘off the shelf’ solution for addressing the costs of growth,” said Philip Higgins, current Chehlaem Valley Chamber of Commerce president, local commercial real estate consultant, and owner of Pacific Crest Real Estate Advisors. “These solutions were generally inflexible and not tailored to the unique needs of Newberg. What was so special about this committee is that citizens, local business owners, city staff, city council members, and the mayor, all came together and asked if this ‘system’ was giving us the desired result and serving the actual community.”

Over eight months, the committee tossed around ideas that would work for all parties involved. The fund still needed revenue for capital improvement projects. However, the fund is underperforming because businesses are not only resistant to moving their operations to town, but the ones here are resistant to growing and expanding. So there is a need to strike a balance between business friendliness and still collecting enough to fund projects.

“The question was asked, ‘If we waive Change of Use, how does that impact the City’s budget?’ The answer was it didn’t,” Higgins said. “In part, because the requests are infrequent; but also because the price tags were so high, no one could or would pay the fees.

Because the city wasn’t giving up anything, Higgins said, removing the barrier could be a “catalyst for new businesses to consider Newberg.”

The committee is recommending the city repeal change of use transportation SDCs altogether, considering they didn’t provide any revenue for the city and acted as a barrier for new businesses opening in Newberg.

Also, in a move to change SDC utilization, the committee is proposing an SDC credit for larger firms that bring “family-wage jobs” to Newberg. This credit will undergo a case-by-case review. However, at its core, these firms must provide at least 20 semi-permanent jobs, be vetted by the Willamette Valley business organization SEDCOR, and be supported by a staff report.

A Boost for Daycare and Affordable Housing

The committee has also seized this opportunity to incentivize critical areas for the city: affordable housing and daycare.

The committee explored strategies to promote the development of smaller, more affordable houses (under 1,000 square feet) in the city. They settled on a plan that would reduce the SDC rate by 75 percent for such smaller houses while requiring larger houses (over 2,200 square feet) to cover the difference by paying an additional 25 percent SDC fee. Houses falling between these sizes (1,001 – 2,199 square feet) will be charged the standard rate.

Furthermore, the committee is recommending the complete removal of SDCs for state-licensed childcare and preschool facilities.

“We live in an area where there is a severe shortage of childcare options,” Higgins noted. “Childcare is vital for our citizens and workforce. It’s exceedingly challenging to attract new employers of any size to an area without sufficient childcare.”

Higgins added that one daycare client faced SDCs ranging from $50,000 to $80,000. The committee unanimously agreed that childcare was a top priority for Newberg, and the construction of childcare facilities should be a key focus.

“I believe this is a significant step in the right direction for the city to become more business-friendly,” King commented. “It’s also a move towards becoming more childcare-friendly, facilitating various businesses, including childcare, which is in high demand. With the necessary adjustments, it may lead to progress in building affordable housing. I’m eager to see what comes next.”

According to City Manager Will Worthey, the SDC recommendations are expected to come before the City Council in January or February, or as soon as the legal review is complete. If approved, these changes will take effect starting April 1, 2023. The SDC plan will undergo evaluation every two years to ensure the rates align with the current landscape of Newberg. While Chehalem Parks and Recreation District (CPRD) has some SDCs of their own, those are not in the scope of this reevaluation.

“I’m proud to report that Newberg is currently a city in motion and an excellent place for growth,” Worthey wrote in an opinion piece published by Pamplin News Papers in the region.