District to look at tax on construction

The Lebanon Community School District Board of Directors last week decided to form an ad hoc committee to consider the issue of SB 1036, which allows school districts to impose construction taxes to pay for school capital construction projects.

The Construction Excise Tax Committee will include two board members, two city representatives, three community members, LCSD Business Director Linda Darling and one additional school district staff member.

Darling initiated the most recent public conversation at the Lebanon City Council meeting on Aug. 9.

She had contacted City Mana-ger Gary Marks to let him know the school board would be discussing the tax at its Aug. 10 meeting.

The Oregon Legislature in 2007 passed SB 1036 to help Oregon school districts pay for a portion of the cost of new or expanded school facilities. The bill allows school boards, in cooperation with cities and counties, to tax new residential and non-residential development, in effect requiring developers to share the cost of growth with school districts.

The CET is a tax on new square footage. The maximum is $1.26 per square foot for residential construction. There is a maximum of 63 cents per square foot on non-residential construction, with a cap of $31,400.

“I presented this to our board in 2011,” Darling said at the city council meeting. “It was a discussion and they decided not to pursue it.”

Darling said board members are cognitive that the city of Lebanon and school district are tightly linked. “We are dependent on students and the number of students,” she said.
“If our city is not growing, we don’t have a growing population and we become stagnant.”

Quality education is part of the draw to the city she said, and that involves the school buildings as well as the instruction that happens inside them.

“Construction excise tax can be used for capital improvements,” Darling said. “That’s what it would be used for, I think, to continue to improve our facilities.”

Mayor Paul Aziz said LCSD Board Chair Tom Oliver called him about the issue. It’s the first communication Aziz has had with anyone on the board, he said.

“He explained they were looking at this,” Aziz said. “The nice thing about this is, (Oliver) has worked for the city. He understands it from both sides. Our goal was no matter what happens – we will discuss it with both boards. It is required by law if they want to do it.”
Councilor Wayne Rieskamp asked if it was common for school districts to implement the excise tax.

City Attorney Tre Kennedy said it is more common in larger cities, such as Portland, and less so in smaller communities.

Councilors expressed concerns about the impact of increased fees to builders as well as increased work for city staff and little return for the school district.

“The effort is disproportionate with the return,” said Councilor Robert Furlow. “In addition to the comments I made so far, the school district has a mechanism to fund capital construction through the school bond function.”

He said the excise tax is a back door.

Councilor Rebecca Grizzle said she struggles with the issue.

“If I were on the school board, I would have to seriously consider this,” she said.
Marks attended the Aug. 10 LCSD school board meeting for further discussion.

Russ Allen, business director for Greater Albany Public Schools, attended as well to talk about their district’s experience with CET.

Allen has been with GAPS for 14 years and has dealt with CET for 10 years. It took three years for GAPS to create intergovernmental agreements with all five entities in their district: Albany, Millersburg, Tangent, Benton County and Linn County.

When they started out, GAPS did community outreach.

He said the Mid Valley Builders Association was not enthusiastic but by the end of their meeting, they had agreed to at least not object to CET.

Some of the issues addressed were situations such as rebuilding a house that was burned down in a fire.

“We exempted all the original square footage that was lost,” Allen said.
The city of Albany was supportive of the CET but Linn County was on the other end of the spectrum, Allen said.

“To their credit, they understood this was the school district’s choice, not their choice,” Allen said.

He said the cities and counties have to collect the fees but if there is a disagreement, people should call the school district.

“A couple of times a year I’ll get a phone call,” Allen said. “It has been a minimum impact on me.”

Because the tax is dependent on construction, the income varies.

Over the last several years GAPS has received anywhere from $200,000 to $700,000, each year. GAPS anticipates about $500,000 a year, he said.

“Whatever they have with one school district, they’re going to want to have with other school districts,” Allen said.

Board member Russ McUne said he had read an article that stated the school district is not obligated to use the money all at once.

Because the money can add up over time, the district could use it to improve buildings, he said.

Board member Richard Borden asked Darling if she had looked at the permits to determine how much CET would generate.

She said she had not, but noted that the city had some examples at its council meeting the night before.

“None of us likes to sit up and talk about a new tax,” Oliver said. “It is not a small chunk of change for a developer.”

Oliver said the funding is potentially significant for the district, but the question is: What’s the cost?

“I’m not interested in doing this if this creates a problem with the city or really a concern with the community,” he said.

Marks said the city has not tracked building in terms of square footage.

“I think the comparison with Albany is not particularly helpful,” Marks said. “Please be aware that we are close to running out of residential lots.”

He added that Lebanon is one-third the population of Albany.

“As I look at this, we may get more feedback in a negative way than it would warrant,” Borden said.

He thanked Marks for his input.

“We all very much value our relationships between the district and the city,” Marks said.
“We don’t see that changing.”