Public hearing on HB 2968: state guarantee proposed to let cities defer system development charges to ease housing finance

Representatives, municipal officials and housing advocates told the House Committee on Housing and Homelessness on March 12 that House Bill 2968 would reduce upfront development costs and improve financing feasibility by allowing local governments to defer systems development charges (SDCs) until after occupancy and by establishing a state guarantee and collection mechanism for unpaid charges.

Representative Mark Gamba, sponsor of HB 2968, told the committee the bill enables cities and developers to sign agreements to pay SDCs up to six months after receiving a certificate of occupancy, allowing developers time to lease units and move to lower permanent financing rates. "What this bill does is it allows the city and the developer to sign an agreement that says we will pay the system development charge 6 months after we receive our certificate of occupancy," Gamba said.

Under the proposal, once a city and developer sign the deferral agreement the developer is contractually responsible for the SDCs; if a developer defaults the state would make the city whole by paying SDCs from a dedicated fund and assess a civil penalty (proponents described a 20% fee) plus interest and assign nonpayment to the Department of Revenue for collection. A panel of witnesses told the committee this fund is intended to cover rare defaults while enabling many projects that currently do not "pencil" under high construction interest rates.

Housing officials and industry groups said SDCs are a meaningful development cost: Matthew Schawbold, director of Governor Kotek's Housing and Homelessness Initiative, cited the Oregon System Development Charge Study and said the average SDC in Oregon is about $15,000 and can be much higher in some areas. Jonathan Clay of Multifamily Northwest and Kevin Cronin of Housing Oregon said SDCs can equal 3–6% (and in denser low-rise apartments higher) of total development costs and that deferral with a state guarantee could reduce carrying costs and improve feasibility for affordable and market-rate projects.

Committee members asked several clarifying questions. Representative Mannix and others asked whether the state takes a security interest in the property; proponents said placing a lien is permissive, not required, and collection could include assigning debt to the Department of Revenue. Representatives also asked whether cities could already offer such deferrals; proponents said jurisdictions could defer SDCs now but often lack leverage and would prefer the guarantee to avoid local fiscal risk.

Proponents discussed fund sizing. Sponsors said constitutional constraints limit the state to guaranteeing only the money in the fund. Stakeholders reported calculations ranging from a low-end $5 million to a high-end $20 million pot; sponsors said they proposed an initial $10 million pilot to start and grow the program as cities opt in.

Supporters at the hearing included the governor's housing office, Multifamily Northwest, Housing Oregon, the League of Oregon Cities, Sideline Institute, the city manager of Lebanon, Habitat for Humanity affiliates, and the Oregon Housing Alliance. Local officials and developers said the measure would be voluntary for cities and would likely be used more for larger multifamily or subdivision projects than single-family permits.

No formal committee vote was taken on HB 2968 during the March 12 hearing; the committee closed testimony and did not advance the bill that day. The written record remained open and proponents said they were available to answer additional questions as the proposal moves through policy review.

Quotations in this article are taken directly from committee testimony and attributed to witnesses listed in the speaker roster below.