Certain developments in Bend became more costly on July 1, when a sweeping update to the way the city collects fees to pay for infrastructure went into effect.

The Bend City Council in May approved changes to system development charges, or SDCs — fees the city applies to new development to pay for improvements to transportation, water and sewer systems.

The charges are one tool the city has to keep up with explosive growth, said Bend Chief Operations Officer Russell Grayson. The recent update lowered fees for some buildings and raised them for others.

The city’s goal is to have developers fund an equitable portion of the burden that population growth brings to infrastructure, said Grayson.

“It comes down to the question of who should pay for what improvement,” he said.

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Overall, developers are likely paying for a larger piece of the pie for infrastructure, though the city has no long-term analysis to support that, Grayson said.

That’s troubling for some homebuilders and business owners, who fear the new costs will slow the pace of development and stunt business growth.

But even with the increased fees, the city will still need to chase funding needed to pay for required infrastructure improvements over the next 20 years.

Changes to development charges are part of the blueprint for how the city will accommodate population growth in the next 20 years — from 105,000 to 155,000 people by 2045, according to city estimates.

Each of those newcomers will be flushing toilets, running water taps and taking trips to the store. At rush hour, 30,000 more people will be moving throughout the city — whether by car, bicycle or otherwise — than today, according to city estimates. By 2040, 17 million additional gallons of water will be flowing through Bend’s system.

Oregon does not allow cities to stop growth. Bend’s comprehensive plan lays the framework for when the city will need to upgrade transportation, sewer and water systems to accommodate more people.

Development fees collected under those three umbrellas can only be spent on a prioritized list of infrastructure that, at least in part, will be impacted by population growth.

Cost lower for smaller houses

The fee updates are not only a tool for the city to fund infrastructure, but a chance to shape future development.

With a new tiered system for single-family homes, the fees range from $11,623 for a housing unit smaller than 600 square feet to $31,675 for units greater than 3,000 square feet. Buildings with more than four units on a lot, such as apartments and multiplexes, are paying about $12,000 per unit.

That’s not including development fees from the Bend Park & Recreation District — a separate taxing district from the city — which range from $8,000 to $12,000.

The city used data to correlate the square footage of a house with the burden it puts on nearby infrastructure — bigger homes usually hold a higher number of people who, on average, use water and road systems more.

Affordable housing, child care facilities and temporary homeless shelters don’t have to pay at all. That structure aligns with the housing and land-use priorities of the Bend City Council.

The new fee structure is welcome for Jesse Russell, CEO of Hiatus Homes, which has created a business around building smaller-sized homes. He’d been hoping Bend would adopt the tiered SDC system since his company began building in Bend a decade ago, when the fees, which were the same across all sizes of housing, amounted to about 20% of the construction cost of a home built by Hiatus.

The new updates roughly cut that portion in half. Russell said that ensures his current projects will pencil out, and he plans to place an emphasis on smaller units to avoid higher fees.

Other types of developments saw a big jump in fees this month. Medical offices, athletic facilities and larger houses are among the most impacted.

The updates come at a tenuous time for Bend developers, said Katy Brooks, CEO of the Bend Chamber of Commerce. High construction and labor costs, daunting interest rates and other fee increases mean some projects may not pencil out, she said.

“The bottom line is that all of these factors are making construction less viable and most builders are seeing a slow down well into 2025,” she said in an email.

Housing prices

Oregon passed the state law regulating the way cities collect system development charges in 1989. The state created a tight structure for how cities create, collect and spend the fees, Grayson said.

Bend first started charging development fees in the 1990s, according to city spokesperson René Mitchell. The changes put Bend in the middle of the pack compared to other cities in the state, according to an analysis by the city of Bend.

But because builders are now responsible for a cost that didn’t apply to construction before the 1990s, developers now are overburdened with the cost of building infrastructure, said Brent Landels, a real estate broker and past president of the Central Oregon Association of Realtors.

He believes the increased fees will result in higher home prices as builders pass the cost through to buyers.

“If you raise the cost of something, the builder has to raise the cost to the end consumer,” he said in an interview.

Transportation funding

When it comes to funding Bend’s infrastructure growth, development fees are only one piece of the puzzle. When it comes to transportation, the puzzle is still incomplete.

The projects in Bend’s 20-year transportation plan will cost $1 billion in the next two decades. A funding source has been identified for only three-quarters of that total, including $219 million in projected transportation system development charges, Grayson said.

That will complement the $190 million taxpayer bond for transportation improvements passed by voters in 2020. Meanwhile, the transportation fee the city tacked on to customers’ utility bills earlier this year also went into effect this month. Federal and state grants have helped pay for some projects, such as the Hawthorne overpass.

“If we can find other ways to fund this infrastructure, then in theory, (the charges) will go down,” he said.

Other funding mechanisms, such as a fuel tax, sales tax or vehicle registration fee, have been floated but not fleshed out, Grayson said. They could come up again during council discussions at the beginning of next year.

But without an increase to the share paid by developers, other city taxes would be left to pick up the tab, Grayson said.

“We chase all the federal money and state money that we can, but most of it is borne on the backs of the communities to figure out how we’re going to fund this stuff,” Grayson said. “That’s the basic question.”