HomeMy WebLinkAbout2014-11-06 - TDC Advisory Committee Meeting April 3, 2006 LetterCommunity Development Department
Planning Division Building Safety Division Environmental Health Division
117 NW Lafayette Avenue Bend Oregon 97701-1925
(541)388-6575 FAX (541)385-1764
http://www.co.deschutes.or.us/cdd/
April 3, 2006
Mr. Vic Russell
Vic Russell Construction, Inc.
P.O. Box 2520
La Pine, OR. 97739
RE: Pollution Reduction Credits/New Neighborhood Development
Dear Vic:
This letter is in response to your letter of March 20, 2006, and the several phone
conversations we have had. I hope the following points will help express the County's
position and allow us to move closer to a resolution, allowing both you to begin
development of Area 1 and the County to proceed with discussions and hopefully approval
of the Pollution Reduction Credit Program and the Local Rule regarding use of new septic
system technologies.
First, let me say from the beginning that the County's number one goal is to solve the
groundwater pollution problem in southern Deschutes County and protect the drinking
water resource of it's residents. In 1998, through the work of those, including yourself,
involved in the Regional Problem Solving (RPS) project, the vision of the best way to
address the problem was to minimize additional nitrates entering. the groundwater by
transferring new development from buildable areas in the target (high water table) area, to
a receiving area on a sewer system. Thus, the County acquired the land through special
federal legislation from the Bureau of Land Management (BLM) along with the
Baldwin/Herndon property for inclusion in the La Pine Neighborhood Planning Area
(NPA), or New Neighborhood. The transferable development concept required that in
order for a developer to build in the New Neighborhood, sufficient transferable
development credits (TDCs) would first have to be acquired in the target area. A TDC
places a non -development covenant on a buildable piece of property, thereby eliminating
the potential for additional nitrates to enter the groundwater. The entire history and detailed
descriptions of these steps are outlined in the Deschutes County Comprehensive Plan --
County Code section 23.44, which I believe I sent you previously.
Development began in Area 2 of the New Neighborhood with the selection of Pahlisch
Homes, hie. Because the market was unknown at that time, in order to provide incentive to
Oualitu Services Perforined with Pride
the developer to invest in the project, the County agreed to dedicate TDCs as they were
acquired to Area 2 in order to allow for continuing development of the Area. The contract
between Pahlisch and the County required that a portion of the land sale proceeds from
Area 2 be dedicated to acquisition of TDCs for Area 2. This obligation forms the basis for
the additional credit recently_ granted to Pahlisch in continuingdeyelopment of Area 2
under the emerging Pollution Reduction Credit (PRC) program. I will come back to this
later in the letter.
Since the establishment of the TDC program, the USGS completed work on two scientific
models which calculate the cumulative effect of nitrates entering the groundwater in the
south county (the "3-D model" and the "optimization model'). The most significant
discovery the 3-D model revealed was that the TDC program alone would not be enough to
solve the groundwater pollution problem. Because groundwater moves so slowly in the
area, a more immediate and permanent reduction of nitrates entering the groundwater is
necessary. In response to this, the County formed the Technical Advisory Committee
(TAC) to help develop a new solution.
As you know from your participation, the recommendation of the TAC on the best way to
achieve that objective is to implement a Local Rule, which will require all new
development to utilize nitrogen reducing systems (including Alternative Treatment
Technology (ATT) systems), and to require all existing septic systems to be converted to
nitrogen reducing systems within a specified period of time. The successful testing of
several nitrogen reducing systems under a federal EPA grant (the La Pine National
Demonstration Project) had also occurred since the implementation of the TDC program.
The downside to a Local Rule is the financial burden it places on existing property owners
in the south county, many of whom exist at or below the poverty level. Since the main
purpose of the creation of the New Neighborhood was to solve the groundwater problem, it
is a natural extension to utilize it to assist in the implementation of the Local Rule. The
proposed Pollution Reduction Credit (PRC) program is therefore intended to augment the
TDC program by substituting pollution credits for TDCs, whereby developers would be
required either to effect system retrofits under the Local Rule or pay an established amount
in order to acquire a pollution credit and proceed with development. Money received under
the PRC program could then be used in the form of rebates or low interest loans to assist
property owners in meeting the requirements of the Local Rule.
The challenge is to develop an equitable allocation of required pollution credits among the
remaining undeveloped areas of the New Neighborhood. It was never intended that the
burden of replacing all 5,800 existing systems should be placed on the developers of the
New Neighborhood. Property owners can and should bear some of the financial burden in
order for them to recognize a new system as a personal asset which must be cared for. The
objective then is to provide some level of assistance to property owners while keeping the
cost of development in New Neighborhood within reason in the current market.
Area 1 Development
As you knew when you purchased the land, development of Area 1 will have an additional
credit burden placed on it. Right now, under the existing code, it would require the
acquisition of approximately l5 C' . When the County began purchasing TDCs in
2002, the market was established at $3,000 each, based on an analysis of land values at that
time. In addition, the $3,000 was intended to purchase the least expensive TDCs available.
If you had owned the land they a f&bc an a quiring TDCs at that price, the additional cost
of development would have been $468,00. The County stopped actively pursuing TDC's
when we learned that the TD�progra was not going to be the solution. However, the
market price for TDCs, given the increase in land prices since that time and the pressure
for development, assuredly has gone up substantially. Therefore, the cost of development
today under the TDC program would also be significantly higher.
When staff began discussing the allocation of pollution credits in Areas 1 and 2, for
simplicity's sake we equated one credit to one retrofit, and allocated 5,800 retrofits/credits
over all vacant developable acres in the New Neighborhood. This turned out to be 1,334
for Pahlisch and 812 for you. Our objectives were treat you and Pahlisch as much the same
as possible and offer a significant discount of the retrofit/credit burden for your being the
first to develop in the New Neighborhood and establishing the market. We began with a
50% discount on the credits to both of you -667 for Pahlisch and 406 to you. Pahlisch
agreed to 60%, however his burden was further reduced by the 34 TDCs already obligated
to Area 2 development under his contract with the County, and the 25 ATT retrofits which
have already occurred in the target area. As discussed earlier in this letter, the County
obligated itself to grant this additional benefit to Pahlisch long ago in exchange for their
risk in investing in the New Neighborhood, where no market had been established. In the
end, this works out to be a 74% discount to them on the original 1,334 credits established
under the allocation. Pahlisch also has the option of working directly with homeowners to
install low cost retrofits to earn a pollution credit, and save money in lieu of paying the
$7,500 credit fallback price. We understand that Pahlisch is actively pursuing that option.
We have offered you the same 60% discount on pollution credits, which equates to 325
retrofit/credits, or $2,436,000 if they are purchased instead of installed directly. In
addition, we have offered to allow you to pay the fallback amount at the time the lots sell,
rather than up front. We may also be able to allow you to shift the credit/retrofit burden to
specific sections of Area 1, thereby keeping the cost down in other areas.
Compared to the original TDC program, $2,436,000 equates to $15,575 per TDC, which
does not seem unreasonable given the change in land values since 2002. Further, the
$2,436,000 equates to $71,650 per net developable acre, and when combined with the price
you paid for your land in Area 1 equals approximately $109,000 per NDA. Although
appraisers are 6-8 weeks out on work, we have heard (fiom Pahlisch) that land may be
worth $150,000 per acre in the New Neighborhood in today's market. In addition, given
the allowance for greater density in the Neighbohood Center zoning contained in a portion
of Area 1, you may be able to generate a higher return per acre than Pahlisch.
51
Revised Offer
You have proposed to pay $1,170,000 for your retrofit/credit burden in order to develop
Area 1. So that we are comparing apples to apples with Pahlisch, at the credit purchase
price of $7,500, this translates to 156 retrofit/credits, or an 81% discount fiom the original
812. As stated above, this would be a much better deal than Pahlisch (74%), and is frankly
not one that we can agree to.
Affordable housing is a worthy objective, one that the County supports, and I commend
you for wanting to provide it. However, please remember that our objective is to assist the
property owners of southern Deschutes County in retrofitting septic systems and solving
the groundwater problem. So when we reduce the retrofit burden on you and by extension
the buyers of your homes, we are reducing the amount available to assist with retrofits.
You have stated that you intend to carefully select builders to whom you will sell lots,
where you can contactually ensure that the ultimate sales price of the house will remain
affordable. However, I am very concerned that the buyer can resell the home later at
market value and gain the profit. If the County were to reduce the credit/retrofit burden, in
this case not only have we lost funding to assist with retrofits, but the home is no longer
affordable to your original target buyers.
The only scenario in which the County could further reduce the 60% discount, would be if
you were to able to guarantee that the house could not be re -sold by the buyer at a profit,
similar to the contracts that Habitat for Humanity places on homes they produce for
eligible buyers. Perhaps a partnership with Habitat or the Cental Oregon Regional
Housing Authority may allow you to accomplish this. However, in no case could the
discount go below the 74% agreed to with Pahlisch. In other words, if the re -sale condition
above is met, we would apply the 74% discount, reducing the required credits to 211,
which at the fallback price of $7,500, equals $1,582,500. This offer is contingent on formal
approval by the Board of County Commissioners.
Sorry for the lengthy background with this Vic, most of which you probably already knew,
but I wanted to make sure you understood where we were coming from in all this. I look
forward to sitting down with you and discussing this further.
Sincerely,
Tom Anderson
Director