After passing controversial fee increases for developers, Spokane City Council considers plan B

Building in Spokane got more expensive Monday after the City Council approved a controversial slate of development fee increases. But as builders sound alarm bells that development will crater, there is already talk about going back to the drawing board.

In three back-to-back votes earlier this week, the City Council approved increases in fees paid by developers to improve water and sewer services and roads that would be strained by population growth.

But before the end of the month, the City Council will vote on whether to temporarily adopt significantly lower fees, a version of an alternative from Councilman Jonathan Bingle that was supported by fellow conservative Councilman Michael Cathcart and earlier seemed dead in the water.

Rather than the complicated hikes approved Monday, which range from a roughly 300%-1,400% increase depending on the fee, Bingle suggested a temporary 66% increase. Rather than seriously considering allowing the fee increase to expire, the stopgap measure would allow more time to craft a better compromise, Bingle argued.

In a Tuesday interview, Council President Breean Beggs said he expected some version of a compromise would be enacted at the March 27 council meeting. Though he supported the higher fees and argued Bingle’s approach amounted to a subsidy for developers, he acknowledged that a majority of the Council seemed to want further compromise.

If passed, Beggs expected that the ordinance lowering the fees would include a sunset clause, after which the higher fees passed Monday would come back into effect unless another compromise was reached first.

The rollback would provide time for city leaders to meet with homebuilders and other stakeholders to try to craft a less controversial permanent rate increase.

Bingle originally proposed two years before it would sunset, then suggested it last until next June. Beggs and Councilwoman Karen Stratton suggested it end by the end of 2023, while Councilman Zack Zappone argued it should have until March 2024.

Stratton and Zappone, who had tried to forge a compromise before Monday’s vote, both expressed optimism Tuesday that an agreement could be reached.

“Bingle, and Kinnear and Beggs, both of their ordinances had some really good points in them,” Stratton said.

Bingle was not ready to celebrate an unexpected political victory Tuesday, however, noting that the compromise had not been fully negotiated.

Monday’s vote

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.

In September, the Spokane City Council voted to pause all residential construction for six months in the Latah-Hangman and Grandview-Thorpe neighborhoods, where old roads have been strained by population growth. City leaders blamed this strained infrastructure in large part on insufficient fees paid by developers to mitigate the problems caused by growth.

On Monday, as the Latah Valley building ban expired, the Spokane City Council passed major fee increases for new developments.

While the largest fee increases will be focused on the Latah Valley, where new services are most costly to build, the entire city will see increased development costs in the plan passed by the council’s left-leaning supermajority.

Specifically, the council approved updates to transportation impact fees and general facilities charges, which have both been greatly outpaced by rising construction costs. The fees cannot be used to fix preexisting problems with the infrastructure, however.

Transportation impact fees are one-time charges to developers that pay for the increased burden on area roads caused by the new development.

The fees differ depending on the type of development and the area of the city. Impact fees collected from a certain area can only go to improve that area’s infrastructure.

Monday’s vote greatly expanded the low-fee downtown area, shrank the south area and created a new Latah Valley area with the highest fees in the city.

By a 6-1 vote, with Bingle casting the sole vote in opposition, the City Council also significantly increased fees across the board.

Downtown, the transportation impact fee for a single-family home or duplex has jumped 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.

General facilities charges are one-time fees charged to developers or property owners when they first connect to city sewer and water services. These fees haven’t budged in more than 20 years.

Since 2002, the water connection fee has been $1,232 and the sewer connection fee has been $2,400 for a 1-inch water pipe or smaller, which account for 94% of all connections in the city. Charges for both water and sewer connections are calculated based on the size of the water tap pipe.

By a 5-2 vote, the City Council sharply increased both fees. Bingle and Cathcart voted against the measure.

Sewer fees for ¾-inch water connections, which are used in roughly 71% of construction in Spokane, will more than triple to $7,461. Under the new proposal, ¾-inch pipe connections would cost less than 1-inch pipes, where both sizes currently cost the same.

Water connection fees are now more complicated. The city has been split into two zones, upper and lower, roughly depending on elevation and the relative cost to provide water and wastewater services.

In the upper zone, including southern and northwestern Spokane, as well as a smattering of smaller areas to the east, fees will skyrocket.

From a cost of $1,232 for the smallest connection, a ¾-inch pipe connection will rise to $10,407. Connecting a 6-inch pipe for commercial or multifamily buildings will 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 be much lower than elsewhere and won’t take effect immediately. Fees will increase to $2,823 for a three-quarter-inch connection in 2024.

Some existing waivers of the connection fees are going away. Before Monday, both water and sewer fees were automatically waived if the development occurred in certain areas where infill is encouraged, primarily the central portion of town and land owned by the Spokane International 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.

Bingle and Cathcart have repeatedly warned in recent days that the ordinances 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.

But Bingle argued the council should pursue an alternative that would make the medicine less bitter.

In a plan supported by Mayor Nadine Woodward, the conservative council minority called for significantly smaller increases in the short-term and up to two years of additional study.

“I think (Monday’s vote) could set us back years, if not decades,” Bingle said during a Friday news conference.

Representatives from the Spokane Home Builders Association, Spokane Realtors and others, as well as independent developers, showed up to council chambers en masse prior to Monday’s vote, warning of dire consequences if the council didn’t choose Bingle’s alternative proposal.

Tom Hormel, president of the Spokane Realtors, pointed to a multi-million dollar project at the airport that would be partially paid for through transportation impact fees.

“It had better be a nice upgrade to the airport, because it’s going to be busy with all the citizens leaving Spokane to find a place that’s affordable to live,” Hormel said.

In a Tuesday press release, the Spokane Realtors projected that 2,000 projects that had not yet received permits would no longer be built because of the higher fees. That figure was based on a poll conducted last week of more than 100 builders and developers, Hormel said in a brief interview.

Like Bingle, Hormel said he was encouraged by the possibility of a compromise later this month, but added that he would not believe it until he saw it.