Chapter 4.4

Let's Tax the Profits of Growth
(The Oregonian, October 12, 1995)

By Richard Carson

The idea came to me as I watched a verbal Ping-Pong match between Portland  Mayor Vera Katz at one end of the mayor's conference table and Metro Executive  Officer Mike Burton at the other end.

Burton was trying to explain to the mayor why he was proposing to expand the region's urban-growth boundary by some 5,000-7,000 acres.
Katz's consternation was that Burton had pledged to the region's voters that -- if he was elected -- he would not expand the boundary. She had been out telling Portland residents that they should accept higher neighborhood densities. In exchange, the urban-growth boundary would not be moved and farmland would be preserved.

Now Burton had kicked the stool out from under Portland's planning program.

As I watched this lively discussion, two thoughts came to me. First, I thought the voters of the metropolitan area had been sold out. Burton's whole campaign was about preserving urban livability and rural farmland, and not expanding the boundary. The proof of this wisdom is what I call the Oregon City Miracle.

Last year, Oregon City -- with a population of 17,500 -- had the fourth-highest number of new building permits in the region. Fourth out of 24 cities. We were ahead of Beaverton, which has a population of almost 70,000, and issued more multifamily permits than Portland.

Why is the first incorporated city in the American West booming? Because the urban-growth boundary has focused development on the remaining land inside the boundary.

Cities like Lake Oswego, Tigard, Portland and Milwaukie are being built out, and new growth is going to cities like Oregon City where land is still available. The urban-growth boundary has succeeded in getting available land developed before we start to consume farmland.

Second, I started doing a little math in my head. According to one top real estate appraisal firm in the region, urban land in the Portland metropolitan area (zoned for 10,000-square-foot lots) sells for around $45,000-$55,000 an acre. On the other hand, rural land (zoned for a single 5-acre lot) just outside the urban-growth boundary sells for around $7,000-$15,000 an acre.

So the lucky property owners who had their land moved inside the urban-growth boundary could realize on average about $40,000 an acre. That's a tidy profit.

Given the acreage being proposed, Burton is proposing a total windfall of some $240 million to these property owners. That's when it came to me.

The institution creating this new value is Metro, not the property owners. And the decision would be made by elected Metro councilors. So why aren't we, the voters, going to benefit from this government-created value?

Why not have the rural property owners annexing into the urban-growth boundary -- and the region  "buy into" the infrastructure we have been paying for all along. You know, buy into the growth management and transportation planning Metro has been doing for the past two decades? Why, growth could pay for itself. Call it "pay as you grow."

Why would our elected officials subsidize a $240-million windfall? The answer is that the property owners would cry foul if they didn't.  But let's be fair. When government regulates property that costs the property owner money, then the property owner can take government to court and call it a "taking." There is a now-famous U.S. Supreme Court case involving an Oregon property owner that just confirmed the idea -- that government should not take value without providing compensation.

So what do you call it when government regulation makes the property owner a profit? Is it a "giving?" Wouldn't the taxpayers expect compensation? If so, how much?

I think 25 percent is more than fair. That's $10,000 an acre. We can collect it after we designate the lands that can be annexed -- Metro calls them urban reserves -- and let the property owner pay the price of admission as part of the application process. Government would be acting "entrepreneurial" and the taxpayer would get an even break.

I knew I was thinking dangerous thoughts. Now, I admit that in some Clackamas County circles it is considered polite to spit when you mention Metro. However, as the former Metro planning director responsible for Region 2040, Metropolitan Greenspaces and the Regional Urban Growth Goals and Objectives, I believe no one could label me as against regional planning.

I have come to two conclusions. If Metro is going to sell us out, then we must demand that we not be sold cheap. It is also time that someone, maybe even an urban planner, tells the emperor he has no clothes on.

Richard H. Carson is Oregon City's community development director.

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Common Sense
by Richard H. Carson