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HomeMy WebLinkAbout05/18/2026 - Proposed FY2027 Budget Committee Amendments - Additional CITY OF TIGARD— BUDGET COMMITTEE MOTION: Water SDC Fund— Bond Debt Service Policy Adoption FY 2026-2027 Budget Cycle I May 2026 BACKGROUND Since FY 2017-18, the City shifted from capitalizing to expensing bond interest, resulting in the Water Rate Fund paying 100% of annual bond debt service. The City's water SDC consultant, FCS Group, has confirmed (memo dated April 24, 2026, John Ghilarducci to Joe Barrett) that this approach was chosen as a default—specifically because no City policy existed directing SDC revenues to be applied toward bond debt service. Under the current net-equity method, new development pays a reduced SDC upfront, then pays its pro-rata share of bond debt service through ongoing water rates alongside existing ratepayers. Every comprehensive annual financial review pledges SDC revenue to debt service-"Net water system revenues and system development charges for the water system are pledged to the payment of principal and interest on the revenue bonds". The Budget Committee finds that while this approach is methodologically recognized, it results in existing ratepayers bearing 100% of annual bond debt service— including the portion attributable to system expansion capacity built for new development. The FCS study determined that 30% of water system capacity exists to serve growth. It is the committee's position that the 30% expansion-capacity share of bond debt service is appropriately a cost of new development, recoverable through Water SDC revenues, and that Council should formally adopt this as policy. FCS has confirmed that directing SDC revenues to bond debt service is legally permissible and would be reflected in a revised SDC rate study. Oregon statute imposes no requirement favoring either approach. CONFIRMED DEBT SERVICE FIGURES (FY 2017-18 through FY 2025-26) Sourced from adopted City of Tigard budget documents, FY 2017-18 through FY 2025-26 (nine fiscal years; excludes FY 2026-27 proposed): Total water bond debt service, FY17-18 through FY25-26: $69,735,735 Funding source in all years: 100% Water Rate Fund SDC contribution in any year: $0 At the adopted 30% expansion-capacity factor: Amount that should have been funded by Water SDC: $20,920,721 Cumulative excess charged to existing ratepayers: $20,920,721 Current outstanding bonds (CAFR FY 2025, pp. 74-76): 2020 Water Revenue Refunding Bonds $77,725,000 outstanding FY26 debt service: —$5,378,000 ($3,570,000 principal /$1,808,463 interest) 2015 Water Revenue Bonds (LO/Tigard) $29,140,000 outstanding FY26 debt service: —$1,668,000 ($225,000 principal/$1,443,000 interest) Total annual debt service: -V$7,046,000/yr 30% expansion-capacity share (annual): —$2,114,000/yr REGIONAL PRECEDENT The use of Water SDC revenues to service bond debt on growth-capacity infrastructure is standard practice among Oregon cities operating under the same ORS Chapter 223 framework. Tigard's current approach is the regional exception, not the rule. CITY OF GRESHAM, OREGON (neighboring city; same statute) Gresham's public SDC program explicitly states that the City uses SDC revenue to"pay for debt on already-built public facilities." Gresham's 2023 Water SDC Methodology Report(prepared by City staff; adopted by Council February 20, 2024; effective July 1, 2024) builds bond interest directly into the SDC fee calculation: Step 6: Divide the total future interest expense on water system long-term debt for SDC-funded projects by the total number of projected growth EDUs over the planning period (20 years). This is the future interest expense fee. Step 7: Add the future interest expense fee to the net reimbursement fee to determine the total water reimbursement fee. NOTE ON DEVELOPER RECEPTION— GRESHAM 2024 The Gresham SDC update raised the standard residential (3/4") water SDC from $5,603 to $8,963—a 60% increase—with bond interest included in the fee basis. The development community did not challenge the methodology or contest the inclusion of debt interest. Their sole request, as documented in the Council resolution, was a phase-in of the rate increase over multiple years. The Council accommodated this with a three-year phase-in at 16.94% per year. No ORS 223.302 challenge was filed. The methodology stands. This committee notes that a similar phase-in offer to Tigard's development community—as provided for in Part One, Item 3 below— is a reasonable accommodation consistent with regional practice. PART ONE —MOTION FOR FY 2026-27 BUDGET The Budget Committee moves: 1. POLICY DIRECTION TO COUNCIL—The Budget Committee formally recommends that City Council adopt a policy directing that Water SDC revenues be applied to the expansion-capacity share of water bond debt service, consistent with the 30% capacity-for-growth finding in the adopted SDC rate study. This policy would supersede the current default net-equity approach and align debt service allocation with the purpose for which SDCs are collected and with standard practice among Oregon peer cities. 2. FY 2026-27 BUDGET AMENDMENT— Direct staff to prepare, for Council consideration concurrent with FY 2026-27 budget adoption, a budget amendment reflecting the transfer of approximately $2,114,000 in annual bond debt service from the Water Rate Fund to the Water SDC Fund, contingent on Council adopting the policy in Item 1. 3. PHASE-IN ACCOMMODATION — In recognition of regional precedent and the development community's legitimate interest in cost predictability, the committee recommends that Council offer a phase-in of the revised SDC rate over two to three years, consistent with Gresham's approach. Staff shall model phase-in scenarios and present them to Council alongside the policy adoption. The ratepayer benefit shall begin accruing in FY 2026-27 regardless of the SDC phase-in schedule, with the Water Rate Fund relieved of the 30% expansion-capacity share immediately upon Council policy adoption. 4. SDC RATE STUDY UPDATE — Direct staff to engage update the planned water SDC rate study to incorporate bond debt service in the fee calculation basis, replacing the net-equity deduction with a debt- service-funded model, effective upon Council policy adoption. The revised SDC fee shall be presented to Council no later than [DATE —to be set], so that new development bears its appropriate share going forward. 5. RATEPAYER IMPACT DISCLOSURE— Direct staff to prepare a plain- language disclosure for the FY 2026-27 budget document quantifying: (a) the annual ratepayer savings resulting from the reallocation (-$2,114,000/yr going forward); (b) the cumulative amount paid by existing ratepayers attributable to the expansion-capacity share since FY 2017-18 ($20,920,721, confirmed from adopted budget documents); (c) the corresponding SDC fee adjustment for new development under each phase-in scenario modeled by staff. PART TWO —REFERRAL TO FINANCE COMMITTEE The Budget Committee refers the following to the Finance Committee for historical review, magnitude determination, and remedy options, with a report due date no later than [DATE]: A. HISTORY OF THE ACCOUNTING CHANGE Determine when and why the City shifted from capitalizing to expensing bond interest (identified as occurring at the start of FY 2017-18), whether that change was presented to Council with a rate impact analysis, and whether it was reflected in a contemporaneous SDC rate study update. The committee notes that had the 30% SDC allocation been applied from FY 2017-18 onward, existing ratepayers would have been relieved of approximately $20,920,721 in cumulative debt service charges over nine years. B. MAGNITUDE CONFIRMATION Total water bond debt service paid from the Water Rate Fund from FY 2017-18 through FY 2025-26 has been confirmed from adopted budget documents at$69,735,735, with $0 contributed by the Water SDC Fund in any year. The Finance Committee shall confirm this figure against CAFR actuals for each year and produce a year-by- year schedule. The ARRA Note annual debt service remains unconfirmed and must be added to the schedule once verified [PENDING]. Confirmed nine-year SDC-attributable share at 30%: $20,920,721. Finance Committee should confirm or revise this figure if ARRA Note amounts are material. C. REMEDY OPTIONS Identify and evaluate options for addressing the historical ratepayer burden, which may include: i. Prospective-only correction— no retroactive adjustment; ratepayers benefit from lower rates going forward. ii. Partial retroactive credit—apply a portion of accumulated SDC fund balance to a one-time rate reduction or capital offset for existing ratepayers. iii. SDC fee recalibration— revise future SDC fees to reflect that new development will now pay debt service directly, adjusting the per-connection fee while increasing the ongoing SDC fund contribution to debt service. iv. Any other remedy identified by the Finance Committee in consultation with the City Attorney. D. COORDINATION WITH SDC RATE STUDY Determine whether the SDC rate study update directed in Part One should be completed before or concurrent with the Finance Committee's remedy analysis, to avoid conflicting assumptions. CITY OF TIGARD— BUDGET COMMITTEE MOTION: Construction Excise Tax Allocation to Housing-Related Long-Range Planning and General Fund Library Position FY 2026-2027 Budget Cycle I May 2026 BACKGROUND The Construction Excise Tax (CET) Fund holds $4,961,046 in restricted Affordable Housing reserves with annual CET revenues of-$797,768 (CAFR FY 2025). ORS 320.192 permits CET revenues to be used for affordable housing purposes, which state guidance and legal precedent have interpreted to include long-range planning activities that directly increase residential development capacity—such as housing needs analyses, residential zone code amendments, and residential capacity modeling. The City currently funds long-range planning activities, including River Terrace 2.0, entirely from the General Fund. To the extent those activities are housing-related, they are eligible CET expenditures. Reallocating that cost to the CET Fund frees an equivalent amount of General Fund revenue that can be directed to maintain library staffing. CET FUND KEY FIGURES (CAFR FY 2025) Fund balance—Affordable Housing (restricted): $4,961,046 Annual CET revenue (FY 2025 actuals): $797,768 Total CET Fund assets: $5,020,081 Library positions at risk (annual cost): -$160,000 (2 headcounts) ALLOCATION SCENARIOS Allocation % Annual $ to Planning Notes 20% (minimum) -$159,554 Covers -1 library position 35% (maximum) -$279,219 Covers both library positions with -$119K General Fund surplus RECOMMENDED: Direct staff to apply the maximum allowable CET allocation to River Terrace 2.0 and other housing-related long-range planning. The resulting General Fund savings are designated to maintain two library headcounts. Any remaining reclaimed expenditures from River Terrace 2.0 revert to the General Fund to mitigate reserve impacts. RETROACTIVE REALLOCATION (subject to City Attorney review) If prior-year long-range planning work was housing-related (housing needs analyses, residential zone amendments, capacity modeling), a portion of FY 2024-25 and FY 2025-26 General Fund expenditures on those activities may be retroactively chargeable to the CET Fund under ORS 320.192, restoring General Fund dollars on a one-time basis. This must be confirmed by the City Attorney before the committee relies on it. LEGAL BASIS ORS 320.192—Authorizes CET use for affordable housing purposes, including long-range planning that increases residential development capacity MOTION The Budget Committee moves: 1. CITY ATTORNEY OPINION—Request a written City Attorney opinion on whether long-range planning activities related to housing supply and affordability—specifically River Terrace 2.0—qualify as eligible CET expenditures under ORS 320.192, to be delivered within 30 days. 2. STAFF IDENTIFICATION — Direct staff to identify and quantify the portion of FY 2024-25 and FY 2025-26 long-range planning expenditures that were housing-related and calculate the potential retroactive CET reallocation amount, subject to City Attorney confirmation. 3. CET EXPENDITURE POLICY— If the City Attorney opinion is favorable, direct staff to prepare a CET expenditure policy allocating the maximum allowable percentage (up to 35%) of annual CET revenues to housing-related long-range planning, effective FY 2026-27. 4. LIBRARY FUNDING DESIGNATION —Identify the two at-risk library positions as the designated beneficiary of the General Fund savings created by the CET reallocation. Direct that General Fund appropriations • for those positions be maintained in the FY 2026-27 adopted budget, offset by the CET transfer. 5. RESERVE MITIGATION — Direct that any surplus from the CET reallocation beyond what is required to fund library positions be returned to the General Fund to offset reserve impacts from River Terrace 2.0 and related planning costs. CITY OF TIGARD— BUDGET COMMITTEE MOTION: Referral to Finance Committee—Tigard Triangle Urban Renewal Fund Allocation to Red Rock Creek Projects Raised during FY 2026-27 Budget Presentation I May 2026 CONFIRMED FIGURES FOR THE RECORD Measure 34-275 (November 2017) named Red Rock Creek restoration as a TIF-funded obligation. Additionally, this measure promised "no new taxes"would be need to finance tigard triangle improvements. Actual funding across confirmed CIPs: CIP Total Cost Utility Funds TIF TIF CP94049 $9,187,210 $8,763,210 $424,000 4.6% CP94056 $7,885,000 $7,885,000 $0 0.0% TOTAL $17,072,210 $16,648,210 $424,000 2.3% No TIF has been spent to date. The $424,000 is budgeted FY27-28. MOTION The Budget Committee moves to formally refer the following question to the Finance Committee for investigation and report: Why are Tigard utility ratepayers funding 97.7% of Red Rock Creek restoration costs that Measure 34-275 identified as obligations of the Tigard Triangle Urban Renewal Fund —and what is the appropriate remedy going forward? The Finance Committee is directed to: 1. DOCUMENT THE HISTORY—Compile all expenditures on Red Rock Creek CIP projects since FY 2017-18, broken out by fund source, and determine what analysis— if any—was conducted at the time of each appropriation to evaluate the appropriate TIF vs. utility cost split. 2. REVIEW THE BALLOT COMMITMENT—Assess whether the current funding pattern is consistent with the intent of Measure 34-275 and ORS 457.190, with the assistance of the City Attorney. 3. EVALUATE REMEDY OPTIONS — Present options to the Budget Committee prior to any FY 2029 appropriation for CP94056 ($7,885,000), which has not yet begun and remains fully correctable. Options should include at minimum: (a) a revised CP94056 funding plan with a meaningful Urban Renewal Triangle contribution; (b) a framework for recognizing prior utility fund expenditures on ballot-cited projects as an advance to TCDA, repayable from TIF revenues; and (c) prospective-only correction with no retroactive adjustment. 4. REPORT BACK—The Finance Committee shall report its findings and recommended remedies to the City Council no later than [DATE—to be set by committee], in advance of the FY 2027-28 budget cycle.