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Thursday, May 13, 2010

Business people and experts agree: Stay away from Portland

An alert reader who was listening to NPR the other day caught an interesting exchange about Portland, which he kindly sent along. It was on the Talk of the Nation show. Professor Michael Shires of Pepperdine was a guest on a segment entitled "The Job Search: Have You Moved for Work?" Here's how it went (about 21 minutes in):

CONAN: Appreciate the phone call. Here's an email from Jenny in Utah. I'm ready to move to Oregon, maybe Portland, because I feel I'd fit in better there than in Utah. I'm interested in wildlife biology or animal rehabilitation. I'm wondering how the economy is in Oregon, as I've heard the job market is not so great there. Michael Shires, can you help her out?

Prof. SHIRES: Well, Oregon is kind of a mixed story. In Portland and some of the cities that have really targeted the knowledge class, you really have a situation where, you know, the information technology sector is just not carrying it along.

Portland is also highly regulated, and I mean, one of the keys to firms coming out of this recession is going to be their ability to be agile. And if you have a highly regulated environment like Portland, that's going to be a problem.

However, places like Salem actually do quite well. Salem placed 23rd in our mid-sized category, and you know, again it's government. It's college. You know, it's education. There's not a major university there, but you still have a pretty decent infrastructure for community colleges and the like.

So, you know, I'd say if you avoid the Portland-Vancouver, Washington area, you'd probably do okay.

Then there's this story in the Trib today, about a businessman who thought about locating a tavern in downtown Portland. But when the city bureaucrats told him he'd have to pay $42,000 in system development charges, he wisely walked.

Where and when did we go so wrong?

Comments (41)

Sadly, it's all about a gaggle of incompetents who shouldn't have been trusted to manage the night shift at a Dairy Queen working their way to the top. Chicago had the same problem back in the Sixties and Seventies, when "Boss" Daley ran pretty much everything. (Sam's recent coup just demonstrates that he's a half-assed Daley.) Mike Royko at the time noted that Chicago really needed the slogan "Where's Mine?", and it looks as if Portland is going that same way.

If there's any good news, it's that Chicago realized that it was throttling itself with excessive kickbacks, er, um, "system development charges," especially when Montgomery Ward shut down and took a lot of local jobs with it. Portland might learn from Chicago's plight a decade ago...or it could go back to making sure that it remains a perfect hipster playground and assume that all of its woes will be fixed by becoming more bike-friendly.

I think the basic problem is, starting with Goldschmidt, many of our electeds equate leadership with building things, rather than running things.

These SDC's and other fees are a MAJOR tax on those who own property and are increasing exponentially.

Take an example. A nice elderly couple own a small home with a few acres on a busy street zoned for 20 houses. These people are pillars of the community and have lived here for decades. It is too much for them now and they want to sell. The land was worth about $20,000 per unit or $400,000. But wait...the sewer dept. just raised SDC's by $4000 per unit and the Parks Dept. raised SDC's by $5000 per unit and the Transpiration dept. raised SDC's by $1000 per unit and the Water Dept, raised fees by $1000 per unit.

Now, almost overnight, the land is worth $11,000 per unit less. They just got hit with a 55% tax that no one really noticed but them.

Ask the government class and they will say "just pass it on to the buyer". That strategy aint working too well these days.

Want another example of SDCs?

Single-toilet small house on a large lot with 130 ft of curb and septic. If that septic goes out, to connect to the sewer SDCs would be $45K.

According to BES calculations:

130 ft curb x 300 ft (imputed drainfield no matter how shallow your property) * $1.15/sqft for surface water management.

Guess I should've asked for the eco-roof discount.

It's getting tired seeing Portland look at these services like profit centers (a la the arbitrary water rate increases.) Especially when you get a clown like Randy saying he should have raised rates faster and more - with a smile.

Another example here in West Linn.

City forces me to to pull a building permit because of an impending environmental overlay which would preclude the parcel from having a house built on it.

Go to city hall with plans. Total SDC & building permit: $44,000.00.

I didn't even want a house built on that parcel, but either that or have a vacant lot with no value. Grrrr.

More bike lanes, more light rail, more street cars, more debt = more jobs!? Welcome to Portland.

Steve, the $44,000 building tax makes your lot worth $44,000 less than it otherwise would be. Lots in nice areas are selling for $65,000-100,000 so your tax is around 50%.

Where and when did we go wrong? Somewhere right after Bud Clark retired.

The big killer with SDC's is PDOT, and it really does discourage businesses from locating within Portland city limits.

As an example, if a 2,000 sqft restaurant moves in, the PDOT assessment is $17.81 per square foot, or $35,620.

PDOT has a schedule you can look at here:


Portland voters simply don't realize that while bureaucrats might always spout off about how developers must "pay their own way", these are costs that are levied on to businesses after a building is constructed -- not before -- and must be paid before a business is allowed to operate; it is a direct tax on business just for the privelege of being in Porltand.

Look at the chart and do the math. If a 40,000 square foot industrial employer comes to Portland, $83,200 must be paid to PDOT first.

Looking at this, and other fee schedules from the City, is it really any wonder why Portland in particular has and will continue to have trouble attracting employment?

Portland voters just don't get this stuff, and history will reveal that these fees have increased an average of over 6% per year -- far outpacing inflation.

I'd really like Mary Volm to chime in here regarding her position on controlling, possibly reducing, or eventually eliminating job-killing SDC's. I still haven't voted yet.

People here assume that all "business people" are rich and evil, so it's okay to extort as much money as you can out of them. Afterall, if they weren't "rich" they wouldn't have a business, right?

The truth is that most new businesses have very low profit margins, and most fail within a few years, often leaving the owner with serious debts. These people need support to start the business and create jobs, not huge fees before they even open their doors.

I can't believe I ever seriously considered opening my new business in Portland. What was I thinking.

Thankfully, Salem leaves me alone.

When I talk about jobs for Portland, from the beginning, I have said that government doesn't create jobs, but it does create the environment that either encourages or discourages business development, expansion and retention.

Portland has become greedy, raising permit fees by 300% in the last five years, and piling on the SDC's business taxes for schools, and business license fees. Basically the City says 'you want to be in business - pay us first.' rather than ensuring a healthy economy that in turn produces more tax revenue for city services.

The permit/sdc thing has been a way for cities and service providers to get "their cut" of the real estate bubble. Land was going up so fast people didn't blink at the fees.

Now that the curtain has been pulled and removed by the down-tun the naked truth is staring at everyone. Unfortunately, the big bloated bureaucracy and its gold-plated buildings remain.

I'm glad I voted for you Mary.

Thanks Mary, those are the facts. If you were on city council, would you take action to make Portland a more business-friendly place such as lowering fees and SDC's?

We all know Portland is out of control and very unfriendly to business, and it's also clear that Portland has huge budget problems. It would take a city council with a lot of guts and vision to propose a reduction in fees and SDC's in order to build the future. Obviously our current mayor and council can't see beyond their own greed and personal objectives to foster growth in the private sector.

So, my question is: as a council member, will you quickly move to lower these fees and SDC's to foster business growth? Yes or no?

There's nothing hipsters and gentrifying yuppies love more than coffeeshops, food coops, small music venues, costume-jewelry shops, and all manner of funky, local, independent small businesses, and nothing they hate more than big, corporate chain stores. If they want the independents to thrive, besides patronizing them they should be lobbying City Hall and partnering with their neighborhood business associations to make it even easier for such entrepreneurs to get started and thrive. Like someone else said, not everyone who starts a business is rich. Many sink their life savings or mortgage their house or take on other debt to pursue their dream or idea, and many (maybe most) will fail. With red tape and SDCs getting more and more onerous, it will only be the big-pocketed chains that will be able to afford to set up shop.

I don't think it's entirely or even mostly the city's fault that many small businesses (and large ones) are dying. The recession does have something to do with it, and some owners fail after not doing appropriate due diligence or market research. And private landlords also feed the replacement of small businesses with corporate chains as they gradually raise their rents. The fun, funky stores on Alberta and Mississippi only need to look to NW Trendy-Third to see what the future holds for them.

But the city's pay-us-first inflexibility certainly doesn't help matters. Of course, businesses do put demands on public infrastructure, and it is fair to ask them to pay for it. But why not discount the SDCs and license and permit fees or waive them for a year or two to let new businesses get on their feet?

The city is trying to squeeze new businesses for the money for infrastructure it would have had had it not blown it on the Tram and other boondoggles and pet projects. Not only are they discouraging economic activity and killing jobs -- since most non-government employers around here are small businesses -- but they are helping Portland become just another bland, corporate, Anywhere, USA.

Eric - very well said.

Yes, we must pull fees in line with what is affordable or Portland will quickly become a place of the very rich and the very poor...no families, no small business, and we are headed inthat direction now.

“Of course, businesses do put demands on public infrastructure, and it is fair to ask them to pay for it.”

That’s why we pay property taxes. Look at your tax bill. A very big chunk of it goes to the City of Portland, presumably to cover costs associated with “demand”. When SDC’s are charged, that money goes directly to PDOT to their general fund, presumably to make payroll; it has nothing to do with and has no direct correlation to infrastructure needed to support the business that’s paying the SDC.

Eliminating SDC’s would be the biggest bang for the buck toward creating jobs. Portland voters, here’s the math:
According to PDOT’s own schedule, if a 40,000 square-foot manufacturing business located here, PDOT would collect $83,200. That money would most likely go to PDOT to fund a bureaucrat’s salary for a year (not including bennies).

A 40,000 square foot manufacturing business would very typically create 100 jobs, but these SDC’s are very often the reason why businesses don’t locate here. So, in the end Portland voters, your trusted bureaucrats would rather fund the bureaucracy and forego real job creation.
This is why when the national economy starts to expand again, Portland will lag far behind. The cost of doing business in other cities (that are equally as nice) is far, far less and those are the cities that will see job creation first.

So, when that 40,000 square foot manufacturing business and those 100 jobs locates in Denver, at least the PDOT employee can keep his chair warm.
Not a good trade-off, is it Portlanders.

Mary, I’ll hold you to your word.

Wasn't there a pizza business on Belmont that was charged $20,000 in development fees when they moved across the street?

The issue I see and run into at large organizations is that it is difficult to distinguish yourself by being a quiet, thoughtful, and effective manager. In politics, I imagine that this motivates a lot of elected officials to value new projects over managing the core competencies of government. However, the core competencies of government typically are the areas that need the most attention and suffer from the more systemic problems.

Sam is particularly bad at focusing on the core competencies and is frequently stung by the "Good Idea Fairy." Which when it comes down to it, it takes no effort to come up with good ideas and it takes a lot of very hard work to manage the complex problems in the core competencies of government. In my opinion, I am tired of hearing about how many hours Sam works at the office because despite the hours in the chair, I view his failure to manage the difficult problems as a sign of chronic laziness.

Travis, you are right on. Most city councils are in charge of setting policy, and the bureaus have their own managers who (hopefully) have years of experience and competency in that particular field.

Our system of making elected officials the actual direct administrators over departments where they have zero experience is completely nuts. And we reap what we sow.

That's not the worst example of building permit costs I've ever seen but its pretty bad. Though it is in a lot of ways a direct outgrowth of all the property tax limitation measures of the 90's. The money to support infrastructure has to come from somewhere. If you want to see some outrageous permit fees take a look a the bankrupt state of California (property tax limitations since the 70's).

"Though it is in a lot of ways a direct outgrowth of all the property tax limitation measures of the 90's."

No, it's a "direct outgrowth" of having to pay the costs of an ever-expanding bureaucracy and the PERS / benefits the bureaucrats reward themselves with; it has nothing to do with the services the taxpayers and businesses actually receive.

"Wasn't there a pizza business on Belmont that was charged $20,000 in development fees when they moved across the street?"

"It's a beautiful pizza" on Belmont. across Belmont St from ho foods and Belmont Inn.They moved from where the blue monk is now, right next to the belmont inn.

I think they made enough of a stink to get that reduced to $5K or something thereabouts.

Bill McDonald is that correct? I read your take on that in a blueoregon post about the soccer deal year.

Good pizza BTW.

I believe Beautiful Pizza recently closed.


While I'm sure there are some overpaid bureaucrats and PERS is an expensive program there are still streets that need to be paved and repaired, sewer and water lines that need to repaired etc. The money has to come from somewhere and before the property tax limitation measures that's where it came from in large part. Since I was in middle school, when measure 5 was passed, the state and local have been in a perpetual scramble to find money and cut costs.

It's Beautiful Pizza's closed. And the owners of the building, the folks at Dixie Matress, shut up shop and have put the building up for sale.

Where and when did we go wrong?

Wacker Siltronix...1977-78. City of Portland takes on 'smokestack chasing' in an attempt to jumpstart a 'silicon forest' by offering up all sorts of tax abatements.

Oregon Lottery...1984. Dedicated at its inception to funding "economic development" for projects like golf courses in central Oregon and subsidizing Port of Portland efforts like polluting Ross Island, thanks to an exceedingly loos definition of 'economic development'.

So far as I can tell, that was the beginning of the debacle locally.

"...there are still streets that need to be paved and repaired, sewer and water lines that need to repaired etc. The money has to come from somewhere ..."

lige -

This is my point exactly. Businesses have been paying these out of control SDC's and fees, and Portland will continue to expect them to do so...and what do we have to show for it? streets with potholes, aging water and sewer infrastructure, crappy schools...but we have no shortage of overpaid bureaucrats with platinum retirement packages. Doesn't this seem strange to you?

Seriously, I have no problem with well-heeled retired bureaucrats, but they can't get there by bleeding the private sector dry with SDC's. If a successful bureaucracy was the product of a healthy, productive private tax base, i'd have no problem with it at all.

here's another reason some people may choose to stay away from Portland: over course of last number of years, it's sadly obvious to many of us retirees that Portland's officialdom community let PPB get out of control and all had become indifferent to a multitude of pleas to wake-up and see what is going on and put a stop to this madness and it sadly went unheeded.

So, a number of us realized while they could give a damned hoot what we as individuals had to say, they would care and listen to what those who had money and had invested heavily here had to say.

As the inevitable crisis reeled from crisis at PPB and especially when they arrogantly killed yet another fellow citizen after another, we'd write up a short FACT SHEET that daftly put Portland's Police, business community, and authority figures in as bad a light as possible and then mass e-mail 'em out to a large list of small town newspapers, small company newsletters, any venue we could find that might be looking for short "filler story" and be caught by Portland's erstwhile reputation as a "bastion of liberality" and the clash between what was once the "perception" and what had become our "reality" due to an out-of-control Police force and indifferent officialdom and it

Well, maybe such had an affect, for we got far more usage of our FACT SHEET than we expected, and most especially after a citizen killing, as all we ever asked was if they used it in whole or part, was simply e-mail us to let us know. So, were we willing to throw a wrench in Portland's economy in order to force chances that should clearly been so obvious to those in authority...you better bet we were and we will do it yet again if the change forward momentum is lost and things lapse back to the old days of the rogue cops dominating PPB.

Salem metro's unemployment rate is only marginally better (0.4%) than the state average and it's still a half a point higher than the country as a whole. The only metro area in the state with a relatively healthy unemployment rate is Corvallis, at 7.6% (figures from March).

As for the guy from Pepperdine's claim that Portland's "highly regulated" environment is the reason for our high 10.7% unemployment rate, perhaps he could explain away Medford (11.7%) or Bend (13.3%)?

Or, better yet, since the Oregon counties with significant populations that are included in the metro area (Multnomah, Clackamas, and Washington) have unemployment rates lower than the metro average (10.1%, 10.4%, and 9.0%, respectively) he could describe how Portland's and Oregon's taxes and regulations caused March's (not seasonally adjusted) 14.6% unemployment rate across the river in Clark County, Washington.

Things aren't good here, I've been looking for steady work since I was laid off three years ago this month, but the idea that the root of the problem is over-regulation by the City of Portland ignores the fact that those regs aren't causing the problems in Vancouver. They may be a problem but they're the cause of the region's unemployment woes.

Sort of blew that last line: They're not the cause of the region's unemployment woes.

You may or may not be right, darrel.

The argument is, however, that the presence of these fees, SDC's, and regulations are going to be what prevents Portland from emerging from the crapper so you can get a job.

It will take visionary leadership and a bureaucracy that is willing to "take one for the team" by reducing these barriers and costs to attract new employment if things are going to get better faster.

I and several partners are looking at properties in and out of PDX to start a new retail biz , and we will not [NOT] cough up 40k for SDC charges. I know you read this blog Commish Randy , time for a SDC Holiday if you want my new business in the City.

billb -

I've got news for you. "Two-Scoops, Hit-Squad" Randy Leonard doesn't give two sh**s about your new retail business. His attitude, along with Sam's, is that they are doing you the favor by letting you open your business. On top of that, because you're rich enough to start a business to begin with, so you must "pay your way".

Goooooood luck with all that.

Let me do the math...

New or expanding businesses generate trips, sewer, water demand, etc so they have to pay for the growth of infrastructure. Since new business has to "pay its own way" with SDC's, does a business that leaves or closes get a check from the city since it removes demands from infrastructure saving the city the cost of expansion?

I think not.

but the idea that the root of the problem is over-regulation by the City of Portland ignores the fact that those regs aren't causing the problems in Vancouver.

I wouldn't discount that idea just yet. Many of the people who are currently unemployed in Vancouver may have been people who formerly held employment in the donut-hole now known as CoP. That would be an example of a contagion effect.

To evaluate the effect of the regulations more thoroughly, you would need to look at the unemployment rates over time to see if there are persistent effects on unemployment, similar to the "Eurosclerosis" that is often cited to explain the persistently high unemployment rates in many Western European states.

Whatever happened to the "creative class" folks who were supposed to form the backbone of Portland's economy? Shouldn't they be "creating" jobs to help lift the region out of the recession right now?

Many of the people who are currently unemployed in Vancouver may have been people who formerly held employment in the donut-hole now known as CoP.

In a 2001 survey, about a third of workers in Clark County commuted to Oregon. Much as people might want to complain about the failure of the City of Portland to lure companies here, imagine a land where there's so little native industry that a third of the people have to cross a border and spend hours a day in lines just to get a job. How screwed-up is that land when the economy they've been sucking on shrivels up? Why didn't companies move there instead?

But seriously, while one in three of Clark County's workers might come across to Oregon, nearly all Oregonians in the metro area work in Oregon. Mathematically, any change in employment within the City of Portland is going to affect people in Washington, Clackamas, and Multnomah counties more greatly than it does people coming from Clark.

You can turn that around: imagine a land that has so badly botched the job of providing quality schools and family housing that a large portion of its workers buy houses out of state and slog through a grinding daily commute rather than squeeze their children into overpriced shoeboxes.

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