As Latah Valley building pause ends, Spokane city leaders consider huge jump in fees for developers to pay for growth
Mon., March 13, 2023
Molly and Adam Marshall increasingly feel like they are risking their lives every time they drive from the Latah Valley into the rest of Spokane.
The Spokane couple have lived in the Grandview/Thorpe neighborhood for 27 years, and it didn’t always feel this way.
The area to the southwest of town is relatively low density, and despite its proximity to the metro area still has many of the trappings of a rural community, laced with small farms and wildlife corridors.
But development over the decades has brought new drivers onto transportation infrastructure that has not kept up with the times.
Routes into downtown Spokane are limited, with most traffic relying on a strained U.S. Highway 195, putting pressure on a roadway that is becoming “extraordinarily dangerous,” Molly Marshall said. Numerous chokepoints have cropped up over the years, where traffic overwhelms the design of the roadway, she added.
These problems should not have come as a surprise, she said. City leaders knew back in the early 2000s, when the first developments were coming into the area, that major improvements would be needed to area roads.
“But the city continued to just add more developments, and no one worked to fix the problem,” part of a pattern of city leaders neglecting the infrastructure needs of the area, Molly Marshall said.
The problems compounded over time. By 2015, the Spokane Fire Department reported that it took significantly longer than average for a fire truck to reach the Latah Valley from the nearest station than elsewhere in the city. In response, a temporary fire station was constructed, with a permanent one expected by 2020. To this day, the area still relies on a temporary fire station.
For decades, population growth in Spokane has outpaced investments in the services needed to sustain that growth, such as roads or water and sewer systems.
City leaders blame this attrition on insufficient fees paid by developers to mitigate the problems caused by growth. Those fees have not increased much over the years.
Just stopping the bleeding is likely going to be painful, let alone mending the harm done by years of neglect. But while both the mayor and the left- and right-leaning wings of the City Council agree on the problem, they disagree about how to cauterize the wound.
In September, the Spokane City Council voted to pause all residential construction in the Latah/Hangman and Grandview/Thorpe neighborhoods for six months.
At the time, Councilwoman Lori Kinnear, who co-sponsored the moratorium alongside Councilwoman Karen Stratton, said the state Department of Transportation and the Spokane Regional Transportation Council had identified infrastructure improvements for the area that are expected to cost the city tens of millions of dollars.
The pause gave city leaders a little breathing room to come up with a plan for improving infrastructure ahead of future growth in the area. That breathing room is almost gone.
On Monday, as that ban is set to expire, the Spokane City Council is expected to pass major fee increases for new developments, both slowing growth in certain areas and paying for the strain that growth puts on local infrastructure.
While the largest fee increases will be focused on the Latah Valley, where new services are most costly to build, the entire city is going to see increased development costs in the plan expected to pass by the council’s left-leaning supermajority.
Councilmembers Jonathan Bingle and Michael Cathcart have warned the proposal would discourage residential development while the city is already experiencing a housing crisis.
“The trouble is that these rates have been far lower than what they should have been for a very long time, so we’re in a position now where we need to take our medicine,” Bingle acknowledged in a recent meeting.
He argued his alternative would make the medicine a bit less bitter.
In a plan supported by Mayor Nadine Woodward, the conservative council minority calls for significantly smaller increases in the short-term and up to two years of additional study. If no agreement was reached, however, Bingle’s plan would leave the city back at square one.
Still, he argued that the alternative would be falling further behind in a race to build up housing stock.
“I think (Monday’s vote) could set us back years, if not decades,” Bingle said during a Friday news conference.
The ordinances being considered Monday will increase the cost of new developments throughout Spokane, especially in certain areas where expanding services is more expensive. The City Council proposes doing this with long overdue updates to transportation impact fees and general facilities charges that have been greatly outpaced by rising construction costs.
Transportation impact fees are one-time charges to developers that pay for the increased burden on area roads caused by the new development. However, impact fees cannot be used to maintain existing roadways, nor can they be used to make up for pre-existing deficiencies.
These fees differ depending on the type of development and the area of the city, which is split into a downtown area, where fees are by far the cheapest, as well as northwest, northeast, south and West Plains areas. Impact fees collected from a certain area can only go to improve that area’s roads and other transportation infrastructure.
While the City Council is considering a number of possible revisions to these districts, the option with the most support would greatly expand the low-fee downtown area, shrink the south area, and create a new Latah Valley area with the highest fees in the city.
Fees would increase throughout the city under the proposal. Downtown, the transportation impact fee for a single-family home or duplex would jump from around $105 to $236. Fees for a single-family home in the south district would jump from $1,230 to nearly $3,000.
Impact fees in the new Latah Valley district, which is currently within the south district, would balloon to nearly $7,500 for a single-family home. This has the dual effect of discouraging development in that area and slowing growth in a region with already strained roadways. What development does occur would help pay for costly capacity improvements in coming years.
While the Latah Valley building moratorium was focused on finding more money for roadway improvements, city officials also used the pause to look at an update to how Spokane pays for improvements to water and sewer systems.
General facilities charges are one-time fees charged to developers or property owners when they first connect to city sewer and water services. The costs are calculated to represent the building’s share of the system’s existing capacity.
For example, if a city with 100 utility ratepayers builds facilities that could support 200, the next 100 to connect to the system pay for that pre-existing extra capacity through a one-time general facility charge.
That fee can also fund the building of new facilities to further increase capacity. However, the general facilities charge cannot fund operations or maintenance, which is funded with utility charges.
Like impact fees, water and sewer facility charges cannot be used to catch up with prior deficiencies. The upcoming Thorpe Reservoir No. 2, for example, will be a new facility serving growing demand on the area’s water services, but only 75% of the project cost can be paid for with revenues from facility charges.
These fees haven’t budged in nearly 20 years, and the fees haven’t kept up with increased demand.
Since 2005, the water connection fee has been $1,232 and the sewer connection fee has been $2,400 for 1-inch pipes or smaller, by far the most common in the city. Larger connections cost roughly proportionally more.
Construction prices, meanwhile, have skyrocketed the past two decades – both fees would have more than doubled over that time if just pegged to inflation.
If the City Council majority’s proposal goes through Monday, fee increases will more than make up for lost time. Sewer fees for 3/4-inch connections, which are used in roughly 71% of construction in Spokane, will more than triple to $7,461. Under the new proposal, 3/4-inch pipe connections would cost less than 1-inch pipes, where both sizes currently cost the same amount.
Water connection fees would be more complicated. The city would be split into two zones, upper and lower, roughly depending on elevation and the relative cost to provide water and wastewater services to different areas.
In the upper zone, including southern and northwestern Spokane, as well as a smattering of smaller areas to the east, fees are going to skyrocket.
From a cost of $1,232 for the smallest connection, a 3/4-inch pipe connection would immediately start costing $10,407. Connecting a 6-inch pipe for commercial or multifamily buildings would jump from around $18,000 to nearly $470,000.
In the lower zone, which includes downtown Spokane and most of the low-lying city to the north or east, fees will not only be much, much lower, but they won’t take effect immediately. Fees would still increase to $2,823 for a three-quarter inch connection, but it would not take effect until 2024.
Some existing waivers of the connection fees would also go away under the proposal. Currently, both water and sewer fees are waived if the development occurs in certain areas where infill is encouraged, primarily the central portion of town and land owned by the Spokane Airport.
Instead of this geographically based waiver system, the City Council majority proposes a waiver for permanently affordable residential developments, where affordability requirements would be written into the deed. Building affordable housing would be an alternative to potentially huge fees, particularly for larger multifamily developments that could be slapped with as much as $500,000 in connection charges.
Outside of these waivers, the expected effect of the new rate is that developments will be encouraged in the city core and discouraged in outlying areas.
On Friday morning in a small conference room filled mostly by members of the Spokane Home Builders Association, Woodward and Bingle presented a slower and – they argue – less painful path forward.
“We agree that fees must be increased to afford the critical infrastructure that we need for growth and for housing,” Woodward said. “We also agree that new development needs to pay its fair share.”
But the proposal being voted on Monday would move too far and too fast, she argued, urging Council members to reconsider the costs it would suddenly tack onto much needed housing.
Under the plan crafted by Bingle and Cathcart, facility charges would temporarily only be increased by about 66%. The smallest connections would increase from around $1,200 to $2,000 for water services and from around $2,400 to $4,000 for sewer services.
Over the next two years, the city would meet with stakeholders to hammer out a permanent rate structure, possibly one with a longer onramp or with fewer projects that developers would have to help pay for. If no solution was agreed to, the rates would revert to what they are currently, a threatening cliff that Bingle said would encourage collaboration.
“Everybody understands we can’t go back to that and the rates need to increase,” Bingle said.
Though this temporary stopgap would be better than the status quo, Council President Breean Beggs argued that it doesn’t address a central problem: taxpayers and ratepayers are shouldering additional infrastructure costs that developers should be paying, a multimillion -dollar subsidy for homebuilders.
In the last five years, the city has collected around $9 million in facilities charges, Beggs added. Meanwhile, a single water tower out at the airport comes with a price tag of $14 million.
“We’re bankrupting the entire system,” he said.
Beggs questioned the argument that the increased fees would discourage new housing, noting that additional facilities are needed to build that housing. Building permits have stopped being processed out in the West Plains because the facilities aren’t sufficient to provide water, he notes.
“The only way to be able to build up this new housing is to have these facilities,” he said.
“The only question is who pays for them: the developers, who are very much the political allies and supporters of the mayor and Bingle, or everyday ratepayers,” Beggs said.
This is a false dichotomy, the mayor argued Friday: If a development doesn’t get built because of the higher costs, there’s not only no new housing, there’s also no new investment in local infrastructure. Woodward also noted that homeowners, not developers, would be the ones ultimately paying for the higher costs.
An unsatisfying step forward
For Adam and Molly Marshall, debates over impact fees and facilities charges are better than nothing, but don’t solve the bigger problem.
“We just see promises way out in the future, and no money and no action in the short term here,” Adam said.
While higher development fees may slow the pace of growth and pay for the infrastructure needed to serve the new residents still coming, they cannot be used to make up for lost time. And there’s been a lot of lost time.
“Now the price tag to catch up is overwhelming and outrageous, and I just don’t know how they’re going to come up with the money for that,” Adam added.
The Marshalls are sympathetic to the need for more housing in Spokane, but argue that failing transportation infrastructure in the area poses a safety risk to existing Latah Valley residents, let alone new ones.
“Every day we go out onto 195, we take our lives into our own hands,” Molly said. “Come summer and the threat of wildfire, we are in another public safety crisis.”
“There’s multiple issues and crisis in our city, and you can’t just say we can’t do this because there’s a housing crisis.”
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