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PDC hits financial turning point

As funds dry up, agency must change course to stay afloat


by: TRIBUNE PHOTO: CHRISTOPHER ONSTOTT - The Tin Seng Trading Co. Inc. is one of numerous Asian retailers in the budding Jade District along 82nd Avenue. Patrick Quinton says the city's modest effort to spur neighborhood revitalization there is a model for how the Portland Development Commission might function in coming years.  The gravy days are over for the Portland Development Commission, the urban renewal agency that helped revitalize downtown.

As the PDC begins shedding a third of its staff and faces loss of its primary funding source, agency leaders say it must reinvent itself to survive.

Mayor Charlie Hales hasn’t tipped his hand on his approach to urban renewal and neighborhood revitalization, but promises to make it a top priority this summer, once more-pressing issues like the city budget shortfall get resolved.

The agency’s new direction could help shape the future of many Portland neighborhoods — and the health of Portland’s economy.

Patrick Quinton, PDC executive director, says the era of big, spendy projects is over. He wants to focus on job creation, aiding small businesses and “improving the distribution of wealth and income across the city.” That means less preoccupation with downtown redevelopment and more attention to lower-income neighborhoods.

Think of it as Oakland As-style “small ball” instead of the New York Yankees’ free-spending swing-for-the-fences approach.

One thing is certain, Quinton says: The PDC can’t depend in the future on tax-increment financing, the urban renewal funding scheme that made it a powerhouse in city government the past half-century. For a variety of reasons — mostly city leaders’ own doing — the agency faces a dramatic drop-off in tax-increment financing next year. Then it faces a “TIF cliff” in 2022, when the PDC expects to exhaust most of its tax-increment financing, with little means to replace it for several years.

Unless the agency comes up with new ways of making money by then, the “PDC goes away,” Quinton says. “I don’t think people understand how fundamentally different the solution to this is than what we’ve done in the past.”

Tax-increment financing, pioneered by California in 1952, is a powerful tool to raise lots of money, but it’s often controversial. As practiced for decades in Portland, the PDC creates an urban renewal district, then the city sells bonds to pay for district improvements. To make interest payments on the bonds, the city siphons off property taxes accruing from increasing property values.

In the last decade or two, Portland maxed-out its urban renewal credit card. After record urban renewal spending in recent years, Portland has more than $5 billion in property value off the regular tax rolls. The bulk of the tax proceeds now must pay off past debt, rather than fund new urban renewal projects. The PDC has close to the maximum 15 percent of the city’s land tied up in urban renewal districts, so it can’t create more districts until it pays off urban renewal bonds, but that isn’t expected to occur until 2024 and beyond.

Retrench or regroup?

The League of Women Voters of Portland has long complained that the PDC keeps too much property off the tax rolls, diverting property taxes otherwise collected by public schools and Multnomah County, which funds many services for low-income people.

Shelley Lorenzen, a league member who monitors the PDC, says the agency should try to shrink its urban renewal districts to put more property back on the tax rolls.

City Commissioner Steve Novick says he leans in that direction. That would help the city’s general fund shortfall, Novick says, because the city also loses property taxes for its general operations when it ties up property in urban renewal districts.

“I think that we’ve put too much into urban renewal,” Novick says.

Pat LaCrosse, a retired former PDC executive director, agrees now is the time to hunker down, pay off debts and get property back on the tax rolls. “It’s kind of ‘get well’ time for local governments,” LaCrosse says.

Known as “Mr. Downtown” when he led the PDC, LaCrosse later criticized the city for keeping so much of the spiffy Pearl District tied up in the River District urban renewal area. “They were looking at that as a big bank,” he says.

Now LaCrosse sees ripe opportunities to create jobs in neighborhood business districts and other areas outside urban renewal districts, such as the Colwood National Golf Club, which might be rezoned to include a valuable industrial parcel next to Portland International Airport.

LaCrosse says the new PDC is stuck using a 1950s financing method more suited for downtown, when it needs to focus more on residential neighborhoods.

“There’s tons of jobs in neighborhoods,” LaCrosse says. “What’s not there is the flexibility to meet changing needs and demands.”

He suggests changing state law.

Olly Norville, the retired PDC attorney who helped write many of Oregon’s urban renewal laws, agrees tax-increment financing doesn’t work well in neighborhoods. But he doesn’t see an easy way to make it more flexible by changing state law.

“My guess is it’s unlikely the Legislature is going to liberalize the rules under tax-increment financing,” says city Commissioner Nick Fish. “If anything, we’ve seen a narrowing of the use of tax-increment financing over time. The trade winds are blowing the other way.”

In 2008, the Portland City Council provoked a backlash against urban renewal when it voted to spend tax-increment financing collected in the River District to build a new school in the David Douglas School District several miles away. After being sued, the city dropped the idea.

In 2011, the California State Assembly banned the future use of tax-increment financing.

New model?

Quinton and others are pinning their hopes on a new model for urban renewal in residential areas: the Neighborhood Prosperity Initiative.

Championed by former Mayor Sam Adams and Multnomah County Chairman Jeff Cogen, the initiative created six micro urban renewal districts last year, in areas oft-neglected by the city. Four are in East Portland, including the Jade District, an Asian-dominated commercial area along and near 82nd Avenue. Each was launched in collaboration with local residents and businesses, which must match seed funding provided by the PDC via the county.

“Now we think about our Neighborhood Prosperity Initiative as the wave of the future,” Quinton says.

In past years, critics contended that the PDC disregarded the state law that limits urban renewal to “blighted” areas. The six micro districts are seen as more befitting that definition.

Traditional urban renewal kept too much Portland property off the tax rolls, Cogen says, but the Neighborhood Prosperity Initiative model is different. The plan is not to sell urban renewal bonds, he says, but to spend modestly in each district, on a pay-as-you-go basis, using the slow accumulation of tax-increment financing. That way, the city could pull the plug on the districts at any time.

There still will be significant tax-increment funds for downtown redevelopment in the River District and the Education District around Portland State University, Cogen notes. But he says East Portland is where the city should be turning its attention now, and he lauds the PDC for devoting its energy to the Neighborhood Prosperity Initiative.

Other roles for PDC

Another growing role for the PDC has been economic development and job creation. Quinton says that new emphasis, starting in mid-2009, has been “transformational” for the agency. It started as a necessity when real estate development opportunities vanished in the Great Recession, but he’d like to continue that role for the agency.

The PDC has some of the most business-savvy people within Portland city government, but some question that economic development focus.

“If the city wants to do economic development generally, then the city should do that, not the PDC,” says Tom Linhares, executive director of the Tax Supervising & Conservation Commission, a budget and taxation watchdog for Multnomah County local governments. Linhares notes that the PDC gets most of its revenue from inside urban renewal districts, and must use the money it raises in those districts.

Lorenzen, of the League of Women Voters, has a different reason for opposing the agency’s role in economic development. The PDC spends 30 percent of the money it raises from urban renewal districts in “overhead,” she says. “Their overhead on these urban renewal districts is just outrageous,” she says. “It sounds like now they’re scrambling, trying to find the new face of PDC and justify their existence.”

But now the agency’s future direction will largely be up to Hales.