System Development Charges

Systems Development Charges (SDC)

Systems Development Charges (SDC) are a financing mechanism for funding of Parks, Transportation, Water, Wastewater, and Stormwater systems that are needed to serve new developments. SDCs are collected from developers at the time of building permit issuance based on the relative impacts of each project and are used to pay for construction of new public infrastructure.

SDC methodology

An SDC methodology determines the relative impacts of each development project to the infrastructure systems serving the project so that SDCs are collected equitably. The methodology is summarized by the equation below:

​SDCs are collected from developers and then used to pay for infrastructure facilities City-wide. The methodology establishes fee amounts to be collected from each individual development project to ensure that adequate funds are available to provide the public infrastructure needed in developing areas.

State law has a specific provision related to SDCs that requires a methodology supporting an amended system development charge to be made available for public review at least 60 days prior to the first hearing. A hearing notice was sent in November 2018 as required by state law to individuals who requested to be notified about SDC methodology adoption, administrative rule promulgation, or land use procedures.

For a year and a half, a seven-member committee of interested stakeholders has been meeting to direct creation of the methodology. The committee includes two City councilors, a member of the Planning Commission, a member of the Salem Parks and Recreation Advisory Board, and three other citizen stakeholders. A team of City staff and consultants performed the analysis needed to complete the methodology.

Parks SDC Methodology

The proposed Parks SDC methodology has two main differences than the prior methodology:

• This methodology collects Parks SDCs from both residential and non-residential development, where the prior methodology collected SDCs from residential developments only. This approach accounts for park use of employees in non-residential areas, not just Salem residents.
• This methodology authorizes new parks to be funded entirely with SDCs, where the prior methodology generally required that other funds be used over and above SDCs when developing park land. This approach will result in more parks being developed because grants or other funding are not needed to augment SDC funds.

SDC Methodology Rates

SDC rates for residential developments are lowered because Parks SDCs are now being collected from both residential and non-residential developments. The difference between single-family and multi-family SDCs are based on average occupancy rates according to household census data.

Parks SDCs for residential developments are collected based on the number and type of dwelling units. Parks SDCs for non-residential developments are collected based on building square footage and zoning.

Parks SDC revenues

Public Works staff estimated the SDC amounts collected for development projects constructed in fiscal year 2017/18 based on the current and proposed SDCs. The proposed SDCs are anticipated to increase overall Parks SDC revenues by approximately 10 percent.

Transportation SDC Methodology

The proposed Transportation SDC methodology has two main differences than the prior methodology:

• The basis for calculating SDCs has changed to ensure that developers are funding transportation projects at levels commensurate with current users. This approach provides a more equitable basis to ensure consistency among all sources of transportation revenues.
• This methodology authorizes most new transportation projects to be funded entirely with SDCs, where the prior methodology generally required that other funds be used over and above SDCs when constructing street improvements. This approach will for greater flexibility in how transportation projects are funded.

The current Transportation SDC Methodology reduced SDC amounts below what was needed to meet the growth costs for transportation. The proposed methodology uses a different basis for calculating the SDCs than was used by the current methodology. The proposed methodology establishes SDCs based on the level of funding being expended for major transportation projects by current users. This approach assures that developers are funding transportation projects at levels commensurate with current users, which is approximately double the rate of the current SDCs.

By a four to three vote, the SDC Methodology Committee did not reach consensus regarding the basis for calculating Transportation SDC amounts. The methodology presents both options to the City Council for consideration.

Public Works staff estimated the SDC amounts collected for development projects constructed in fiscal year 2017/18 based on the current and proposed SDCs. The proposed SDCs are anticipated to increase overall Parks SDC revenues by approximately 96 percent for the majority opinion and 127 percent for the minority opinion.

Water/Wastewater SDC Methodology

There is one primary difference between the proposed Water/Wastewater SDC methodology are the prior one. This methodology collects an additional SDC for existing capacity in 8-inch pipes that was previously collected through a connection fee pursuant to Salem Revised Code (SRC) Chapter 21. This approach eliminates a disincentive to infill development that had occurred under SRC Chapter 21, by distributing costs to all development rather than a limited number of infill projects.

Two common types of area-based fees are used in conjunction with development projects: (1) temporary access fees are authorized pursuant to SRC  200.080; and (2) reimbursement district fees are authorized pursuant to SRC  200.350. These area-based fees are generally collected over and above SDCs. As a result, not all growth costs are attributed to SDCs in order to prevent duplication of funds from area-based fees.

In general, water/wastewater SDCs do not directly affect water/wastewater utility rates. However, a number of infrastructure projects are dual-funded by both utility rates and SDCs because the projects benefit both existing and future users. These dual-funded projects can provide a substantial cost savings for each fund in comparison to the cost of projects with only one fund source.

Public Works staff estimated the SDC amounts collected for development projects constructed in fiscal year 2017/18 based on the current and proposed SDCs. The proposed SDC revenues are not anticipated to change as a result of the new methodology.

Stormwater SDC Methodology

The Stormwater SDC methodology is based on the current Stormwater Master Plan adopted in year 2000. A new master plan is scheduled to be adopted in 2019. At that time, additional data may be available that warrants a modification to the Stormwater SDC methodology.