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Cities around Oregon have been waiving or reducing system development charges to help spur development during the economic downturn. Portland, meanwhile, is preparing to adopt additional SDCs for the Portland State University and Central Eastside districts.

City Council on Monday approved a one-year contract with Redmond, Wash.-based consulting firm Henderson, Young & Co. The firm will help the Portland Bureau of Transportation create two overlay zones where transportation SDCs can be added to the citywide SDC fee. The fees help pay for transportation-related projects, which in this case is Portland-to-Milwaukie light rail.

SDCs help pay for parks, sewer improvements and other systems to support new development. While SDCs can help pay for public services, they can also scare away developers.

In the past year, Molalla, The Dalles, Grants Pass, Roseburg and Gresham all have either waived or reduced certain SDCs. Even Portland has eliminated the SDC for adding a second living unit onto a residential property.

“There is definitely a fair amount of controversy surrounding SDCs,” said Gerard Mildner, an associate professor of real estate finance at Portland State University’s Center for Real Estate. “On one side they make developments more expensive, but once the SDCs are used they theoretically make the development more valuable.”

Henderson, Young & Co., which previously helped Portland develop its citywide transportation SDC and its North Macadam overlay zone, will create a project list, develop a zone map and conduct trip-rate studies to determine the new fee. The first $5 million from the overlay zones will be combined with $10 million collected from the North Macadam overlay zone and go toward the Portland-to-Milwaukie light-rail project.

Art Pearce, project manager with the Portland Bureau of Transportation, understands the controversy and implications associated with adding a SDC in this economic climate. But the end benefit will outweigh the costs, he said.

“There’s always a balancing act between generating fees and creating a fee structure that hinders possible developments,” Pearce said. “But if this is done right, which we believe it will, it will be a benefit in the long term.”

Randy Young, a senior partner at Henderson, Young & Co., added that his firm has found that waiving SDCs hasn’t spurred development.

“A lot of jurisdictions heard from the development industry as the economy slowed down that they needed a break on SDCs,” Young said. “And since those jurisdictions have given them breaks, we now have evidence that SDC charges have little to no effect on developments.

“The economic troubles of developers are a result of tight credit, a large inventory and high unemployment. It has nothing to do with the few thousand dollars for SDCs.”

Mildner is aware of the benefits of additional public transportation infrastructure, but added that he doesn’t understand why the city is pursuing an SDC overlay zone rather than creating a new urban renewal area or a business improvement district.

“Normally they would use a URA or BID to help fund a light-rail project,” he said. “I have to believe they could get more money using one of those methods because SDCs are only one-time payments.”

Mildner said adding an SDC is most likely a tactical move. The city is not only bumping into its urban renewal area limits within the city, but URAs are also losing popularity because they divert money from schools and county governments. Also, a BID requires approval from all property owners in the district, but an SDC does not, he said.

Pearce said the loop-closing streetcar project would most likely be considered a priority for funding through the SDC overlay zones. PBOT and Henderson, Young & Co. will start holding stakeholder meetings for the projects this fall. The SDC overlay zones are slated to be adopted by the end of 2011.