Transportation funding – some history

There are two main categories of need in Portland’s transportation infrastructure: construction and maintenance. Some streets are unpaved and/or don’t have sidewalks, crosswalks, or traffic lights. Others may have those facilities but need preventive maintenance or upgrades. This post deals with construction, mostly of neighborhood streets.

One of the assertions of some citizens and elected officials is that in Portland, property owners on unimproved streets have always been responsible for paying for paving and sidewalks. Therefore, the argument goes, the City and other taxpayers should not be required to help those still/now living on dirt or gravel roads pay for upgrades. Property owners desiring full street improvements should form Local Improvement Districts (LIDs) and pay for them without government/taxpayer assistance, “because all the rest of us did”.

Yet the inability of many property owners to fund full street improvements results in several elements of unfairness. Property owners living on unimproved streets don’t see significant reductions in their property taxes compared with similar properties on paved roads, so they are paying their share for the maintenance of other property owners’ streets without seeing any return on their own. And other citizens may desire to walk or drive on the routes where streets are unimproved. If they do, there may be safety issues. If they don’t, other property owners may experience more traffic and congestion as drivers seek the roads least likely to damage their vehicle’s suspension.

The issue of how to pay for local street improvements is sometimes in, sometimes out, of Commissioner Sam’s proposal. But whether LIDs end up with a partial city subsidy or not, the following historical perspective is helpful. LIDs in some form will remain part of any long term transportation infrastructure plan. We find that in fact, citizens early in the 20th century did NOT always pay for their own street improvements, and only recently did huge administrative and overhead costs become part of the bill. As always in Guest Posts, emphasis mine.

The way the City of Portland does business has changed over the years, and the city now has a relatively good system for tracking revenues and expenditures. Using the private sector as a model, more and more bureaus operate as “enterprises”, expected to run in the black, and reliant on their own revenue streams outside of the General Fund.

This has its benefits to the citizens, providing for increased accountability of city resources. But it has also had the unintended consequence –I believe– of making programs like the Local Improvement District (LID) program excessively expensive. Not that it wasn’t in reality expensive before, but what we’ve done is peel away the large number of hidden –and sometimes not so hidden– subsidies that kept the cost passed on to property owners more reasonable.

Fifteen years ago, the operations of the Assessments & Liens Division, which handles the financing of LIDs, was half paid for by the General Fund, and half by the LID Fund. By 1999 that General Fund support is down to nothing. This means that the Division must now operate as an enterprise, and its fiduciary duty is to cover its own costs from its own revenues.

On top of that, over the last three fiscal years, the LID Fund has paid close to a half million dollars in General Fund Overhead. So the LID program has not only lost its general fund support, but now pays for the services provided by General Fund bureaus, such as payroll, accounting, and, of course, City Council. This overhead charge is calculated on ever-changing formulas that, for example, set the cost of bringing an ordinance to Council at several hundred dollars. These costs, of necessity, have to be passed on to property owners with assessments, rather than the general taxpayer base.

The Portland Office of Transportation faces the same challenges. It too has become an enterprise and, as such, has to pay General Fund overhead and run itself more like a business, and pass on those actual costs of doing business. Nowhere is the impact of this more apparent than in the cost of engineering.

In 1918, the City Council passed Resolution 10078, putting a charter amendment to the vote of the people. It called for eliminating the five percent charge to cover the cost of engineering, superintendence and advertising from the cost of local improvements. “Such cost of engineering, superintendence and advertising shall be borne by the City and paid out of the general fund.”

Reviewing the minutes of the Council meeting where this resolution was discussed sheds no light on its intent. The minutes show only that it was offered and approved by Council. Not surprisingly, it was also approved by the voters.

We do know that Portland was growing rapidly during this period time, and that between 1920 and 1928 some 26,000 residences were built, and $12 million spent on sewer and street construction. But most likely the 5% flat rate failed to cover the actual cost of engineering, advertising and superintendence. Eliminating it completely made clear the Council’s intent to subsidize all local improvements out of the General Fund. That is well worth highlighting. Such a subsidy today would be substantial. Instead we assess property owners with the actual costs of engineering, advertising, and the Auditor’s Office charge for superintendence all as separate line items.

Interesting enough, a different Council, in 1924, presented yet another Charter change to the voters, putting back in place the charge for engineering and superintendence:

“The contract price based upon the estimate of the City Engineer, the costs of rights of way and expenses of condemning land and the sum of six percent of the contract price as the cost of engineering and superintendence…shall be deemed the cost of every street and sewer improvement.”

This was passed by the voters. It was put before the voters a year after the New York Bureau of Municipal Research published a scathing report of the City’s Public Works Department which concluded, among other things, that the city engineer’s estimates were found to be seldom accurate.

A Charter amendment in 1966 would strike the language about the contract price being based upon the estimate of the City Engineer. It would also add back the cost of advertising and, most significantly, change the fixed rate of 6% to allowance for engineering and superintendence….(that) shall be fixed by the Council by general ordinance from time to time.

This significance of this to the affordability of LIDs cannot be overstated. Where had previously been a 5%, then zero percent, then 6% charge for engineering and superintendence, the costs were now fixed by the City Council, not by a vote of the people, and could be changed, at any time, by the Council. That rate would soon escalate to 10% and by today have evolved to a system where we charge those costs of engineering, and advertising as actual costs. Superintendence, which is paid to the Auditor’s Office for their share of LID processing costs, remains a fixed percentage of 0.049 %, and $40 per account established. The undeniable fact remains that there is no longer any containment of other overhead costs.