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When Metro in 2006 introduced a construction excise tax that would fund planning throughout the region, it had the full support of the Home Builders Association of Metropolitan Portland. It backed the idea when cities and counties could not afford to pay for planning efforts that would lead to urban growth boundary expansions, said David Nielsen, CEO of the Lake Oswego-based organization.

“We supported that even though it was a tax on housing,” Nielsen said. “We understood that there was a need to get planning done in UGB areas.”

How that money gets spent is critical for builders who count on urban planning efforts as their projects move forward. Collections totaled $2.3 million in fiscal year 2013, which ended June 30; that total was the highest since 2008.

Funding, however, since 2009 has shifted from UGB expansion planning to more in-city planning, Metro officials say. The Home Builders Association wants to see that money allocated to its original purpose, and even took legal action last year to spur change.

The association argued that changing the use of the tax money effectively created a new tax on construction, which the Oregon Legislature banned in 2007. The Oregon Court of Appeals, however, sided with Metro, saying an extension of an existing tax was just under the 2007 law.

An extension of the tax will sunset in fall 2014; however, another extension will be considered, and the Home Builders Association would still like to see grant money from tax collections go to projects in the Portland region’s outlying areas.

“Our challenge with it is that we felt it had been put in place to support UGB expansion, not all that other stuff,” Nielsen said. “It has been diluted from what it was intended for. We were sold when we were told it would be for the UGB. There are already a lot of other financing tools for supporting in-city development.”

The tax applies to all projects with improvements greater than $100,000. Builders are assessed at 0.12 percent of the value of the improvements for which a permit is sought. For example, for improvements valued at $250,000, the tax is $300.

From July 1, 2006 through June 30, 2013, Metro collected $13 million from the tax and reallocated those dollars to projects throughout the region. A bulk of the collections, 37.8 percent, came from Portland, according to Metro data. The city also experienced the most year-over-year growth, followed by Hillsboro and Washington County.

Where that money will be spent in future grant cycles is still an open question subject to Metro review and a competitive application process, according to Ken Ray, a Metro spokesman

“As a region, we’ve made a commitment to investing in our existing communities to support new housing and jobs,” Ray said. “Providing resources for planning that enables development to serve future growth is in keeping with that commitment.”

In the third round of funding, which took place in August, Metro allocated $4.2 million for 19 projects – mostly planning in existing town centers or transportation corridors, including $300,000 for Oregon City’s Willamette Falls Legacy Project. That grant, which required a near match from Oregon City, allowed it to hire a consulting team to complete a master plan and rezoning for the former Blue Heron Paper Mill site.

Other grants went to planning for mixed-use developments in downtown Tigard and new zoning regulations in Portland to allow growth and development in mixed-use centers across the city.

Metro had set a goal that half of the grants in the third round of funding would be for planning urban reserve and UGB expansion areas, Ray said.

“We didn’t receive enough applications to hit that mark,” he said. “One of the questions Metro will look at in future grant cycles is whether or not to set a benchmark.”

How the money is spent matters for builders who want to attract buyers with livable and well-planned communities, said Tim Breedlove, chief operating officer of Lake Oswego-based Renaissance Homes.

Breedlove, who has served on the Home Builders Association’s board of directors, said he generally supports the construction tax for the purpose of long-range planning. The tax will be helpful moving forward as planning work is needed in future UGB expansion areas, he said.

Many builders, including Renaissance, bought sizable parcels in the UGB expansion areas before planning work was done, and then had to divest that land during the downturn.

Going forward, the UGB expansion process will have more requirements on planning being done up front, Breedlove said.

“My understanding is that the expansion process now takes into consideration whether or not the planning work has been done,” he said.

The grants, as they are allocated, have a macro impact on residential homebuilders, who count on community livability to boost home sales.

“If we have more jobs, if we maintain livability and that promotes growth in our region, then that’s what I’m for,” Breedlove said. “So long as they’re being used to promote environmental livability, then I’m happy.”

For the next round of funding, Metro has hired ECONorthwest, a land use planning consultant, to study program effectiveness, Ray said. The report should be completed by February or March, he said. An advisory committee, which will include the Home Builders Association, will review report results and make recommendations.

“We’re going to take a look at how the community planning and development grants program has done so far and if it continues, what should the program fund,” Ray said.