You may have noticed we are having a housing crisis in the Portland Metro Area. In fact, the City of Portland told everyone who would listen we were in a housing crisis when they duped the voting public into giving them $258 million dollars to build affordable housing in the last election. They continue to beat the drum for more “low income” affordable housing, despite having a quarter of a billion dollars to work with now.
Meanwhile, a recent document circulated at the Development Review Advisory Committee (DRAC) shows Portland’s Bureau of Development Services with an agency surplus now exceeding $90 million dollars or over 1/3 of the total the City asked tax payers for in the recently approved housing bond! These funds, paid by builders, developers and the public when pulling permits or gaining approvals for construction are languishing in an account with no immediate use or need assigned.
This is not a recently discovered issue either. The City of Portland didn’t just wake up and have $90 million in excess funds derived from permitting under its pillow. Way back in 2008, then Commissioner Randy Leonard used up what was then considered a large surplus of $10 million, keeping staff intact as he tried to wait out the recession. It was a battle Leonard would ultimately lose and he ended up borrowing $1.5 million from the City’s general fund to get back BDS back to zero.
Since hitting bottom in 2010, the fund has grown at record breaking rates. City leadership has watched the fund grow and grow, but hasn’t made any effort to liquidate the surplus or find a use for it. The one time BDS did access the fund it was for the now famous paperless permitting debacle, where BDS blew $10-12 million dollars on failed digital permitting software from 2011 to 2016. In reality, the fund should be over $100 million at this point.
Why is a surplus like this a story and how is it affecting housing affordability? Throughout Oregon, planning, engineering and building service departments like BDS pay for their existence using “cost recovery” fees. The idea behind these fees is to pay for the cost of staff at the City by charging an amount equal to the total cost of providing services. Cities are even allowed to create a cushion (as Portland did in 2008) for market fluctuations or unexpected expenses.
A City is supposed to right-size its fees to meet these needs, It is not supposed to over collect for half a dozen years and sit on the cash. In Portland, cost recovery fees are running on average right at 110% of the actual need and have been for several years, meaning the city is over collecting fees by at least 10% on average. In some months, it has run as high as 66%. Remember, all of this is collected from builders and developers who are trying to keep the price of housing competitive and in line with what the market will tolerate.
Here is another way to look at the number: According to Portland’s 2017-2018 Adopted Budget, the total budget for BDS is $60.2 million annually. So currently, the $90 million surplus sitting at BDS could operate the entire department, 407+ employees, for 18 months and not miss a beat.
City Leadership is well aware of the surplus, but does nothing about it. When pressed about the growing number a couple of years ago, Commissioner Amanda Fritz, who was the Commissioner of BDS for a large part of the growing surplus, claimed the city “was working on it.” Former BDS Director Paul Scarlett was befuddled by the surplus stating the City was sure their fees were right and that the surplus shouldn’t exist. Yet each month for years the surplus has continued to grow with BDS and the City Council just pretending nothing is wrong.
This is an inexcusable breach of public confidence and needs to be rectified as soon as possible. If the City of Portland was really committed to affordability, it would give all but 10% of their total budget ($6.6 million) back to either the developers and builders they over charged or, barring that, they should send a credit directly to the initial purchaser of the home who had the price of their home artificially jacked up by the City.
We all know that will never happen. The City of Portland will need to act at some point, but they are more likely to try and co-opt the money into a special project for the department or find some other way of skirting use restrictions put on the funds by the State of Oregon. However, it would be nice of the City of Portland’s elected officials would consider the following:
- The City is flat out bad with money. Financial scandals at BDS, the Housing Bureau, The Office of Neighborhood Involvement and the Portland Water Bureau have proven that. How about letting your auditor do her job and drop the hammer on bureaucrats who spend tax payer dollars with little regard. Better oversight for all the bureaus is needed and its not coming from the Council.
- Stop being hypocrites. The City declares a housing crisis and begs for hundreds of millions of dollars for affordable housing all while over charging the people who build the very housing they need. Their own fee structure is causing part of the problem! As a public body, you should be setting the example by lowering fees in high volume periods, doing your part to keep the cost of housing down.
- Make changes. The go to excuse every time the City of Portland gets caught doing something dumb with money goes like this: 1. Yep, we did it, 2. We won’t do it again and 3. This stuff happens in private business too, you just never hear about it (compliments of Commissioner Dan Saltzman). Meaningful change requires more than an admission, a tacit promise and a defensive, stupid retort. Show the public what you are doing to make change in internally.
The City of Portland is not a private business and doesn’t get to use the actions of private business as an excuse for bad behavior. It is a public institution funded with dollars entrusted to it from tax and fee payers both large and small. It needs to be a model for the region, showing fiscal responsibility and restraint. Portland voters aren’t getting their money’s worth and those who are looking for housing in Portland can expect the costs to continue rising because their local government only sees the housing crisis as a way to financially capitalize on its citizens and its customers.