Is 'friendly' annexation too friendly?
Dozens of residents pushed back last week against a series of recommendations from Lake Oswego staff for changes to the City's annexation policy, telling members of the City Council they felt blindsided by proposals they believe are unfair and punitive.
The meeting also revealed sharp differences between the city councilors themselves about how to proceed — or whether to proceed at all.
The City's annexation policy impacts properties that are located in unincorporated Clackamas County outside of city limits, but which are still inside Lake Oswego's Urban Services Boundary (USB). That boundary was established with the assumption that all of the properties inside would eventually be annexed into the city.
Under Lake Oswego's current policy, referred to as "friendly annexation," City officials wait for individual homeowners to voluntarily annex, a move that often comes because of a need to switch from a septic tank to the municipal sewer system.
The approach has led to some inefficiencies, though, which is why the City Council added the topic to its list of goals for 2018 and commissioned a study from Portland State University last year to evaluate the effectiveness of the current policy and suggest possible alternatives.
There are still roughly 2,200 homes that haven't annexed into Lake Oswego, clustered primarily in the Lake Forest, Rosewood, Forest Highlands, Southwood, Birdshill and Skyland neighborhoods. The PSU study estimated that it would take centuries for the remainder to make the move voluntarily.
"The map didn't look much different 20 years ago," City Manager Scott Lazenby said, "and it probably wouldn't look too different 20 years from now."
In the meantime, the gradual approach has created some problems, Lazenby said. Residents outside of the city don't pay Lake Oswego property taxes, but they're still able to share some of the benefits that city residents enjoy, such as the library. The City also controls and maintains several parks and roads used by unincorporated residents, he said.
In a staff report, Lazenby estimated the value of those benefits to be $1.5 million annually.
The "friendly annexation" policy also means Lake Oswego has to extend its sewer system one property at a time, Lazenby said, which is more expensive than building a neighborhood-wide extension as a single project.
At last week's study session, Lazenby outlined a package of recommendations from City staff to update the annexation policy. The foremost would be to begin employing "island annexation," which allows officials to annex any contiguous group of properties that are surrounded by the city.
Interstate 5 runs along the western edge of Lake Forest and legally counts as the city limit, Lazenby said, so the entire unincorporated portion of Lake Forest could be included in a single island annexation. Most of the unincorporated properties in Forest Highlands could also be brought in using a series of island annexations, he said.
Current policy requires annexing properties to connect to the city's sewer system, but staff also recommended allowing newly annexed homes to remain on septic systems indefinitely in order to lower the costs for homeowners.
"There's no compelling need on our part for people to connect to the sewer as long as septic systems are functioning," Lazenby said. "We should disentangle that issue from annexation."
Island annextion wouldn't work for Southwood, Birdshill and Skyland because those neighborhoods are all at the far edges of the city, Lazenby said. But he did recommend that City officials seek to remove Birdshill from the USB, since Tryon Creek forms a natural barrier between the neighborhood and Lake Oswego.
The Rosewood neighborhood can't be island annexed either, Lazenby said, but staff recommended that the City stop allowing piecemeal annexations from the neighborhood and begin charging out-of-city rates for sewer connections.
The final staff recommendation called for the City to "consider the phasing out of the privileges and benefits of city residency, where practical, for non-city residents of properties that will not be part of Lake Oswego in the foreseeable future."
The audience response to the staff proposals was mixed but generally negative. During the citizen comment period, many of the residents expressed concern about the specific neighborhood strategies, as well as the idea of phasing out benefits for non-residents.
Lake Forest resident Carolyn Krebs was skeptical about some of the data from the PSU study, and Lake Forest Neighborhood Association Chair Kate Myers said the list of staff recommendations "effectively puts a gun on the table."
"This is not the collaborative, win-win approach we were hoping for," she said.
The Rosewood Neighborhood Association Board submitted a letter arguing that an island annexation would amount to a tax hike with no guaranteed benefit, and said the City was threatening non-annexed residents with "ghettoization" because of the proposed sewer policy.
During the subsequent council discussion, there were several moments where audience members attempted to interject with disagreements, and audible applause and groans could be heard in response to some of the councilors' comments.
Many of the neighbors appeared to be frustrated by the assertion that they benefit from services without paying taxes. Several of the commenters stressed that residents of the unincorporated areas pay separately for services such as fire and water.
The universal demand from all the commenters was that the affected residents be consulted before any policy change and given a voice in the discussion, and Mayor Kent Studebaker responded that the study session was not intended as a decision-making meeting.
"Before anything happens on annexation, there will be a lot more discussion," he said.
Studebaker opened the council discussion by saying he was concerned about the impact of City taxes on residents brought in through island annexations. During his presentation, Lazenby had stated that the average impact would be a roughly 10 percent increase in property taxes for annexed homes.
Councilor Skip O'Neill echoed Studebaker's concerns, arguing that Lazenby's estimate was inaccurate because roughly half of the property taxes go to the Lake Oswego School District, and residents of unincorporated areas already pay into the LOSD. A 10 percent increase on total property taxes is really a 20 percent increase on City taxes, he said.
Councilor John LaMotte stressed that the goal was not to forcibly annex properties simply for the sake of having them in the city; the intergovernmental agreement that created the USB is more than 20 years old, he said, and it's simply time to evaluate whether a different policy could be more efficient.
He advocated for larger-scale annexation as a means to address engineering and infrastructure problems comprehensively, such as by building out the sewer system as a large project. He also said that he'd heard complaints from people about the state of infrastructure in the unincorporated areas, where they have little recourse to find solutions.
"If we ignore the problem, it's just going to get worse," he said.
Councilor Joe Buck said he supported the idea of separating out the sewers as a distinct issue, but advocated for the City to pursue other options to help incentivize sewer connections and ease the financial burden on residents.
He said he supported a long-term policy change, with the expectation that all of the unincorporated areas would eventually annex. But he also called for more discussion with neighbors — a sentiment echoed by Councilor Jackie Manz.
"I'm very concerned that outreach needs to be performed first," she said. "I don't think it's a foregone conclusion that we're just going to annex everyone in, but without that process, we'll just slide backwards."
Councilor Theresa Kohlhoff also called for more outreach and separating the sewer issue, but said leaving the unincorporated properties outside of the city indefinitely would be unfair to the city's current taxpayers.
"We really have to face the fact that over time, it's not reasonable for there to be unincorporated parts," she said, adding that unincorporated residents would benefit from upgraded roads and stormwater management systems in their neighborhoods once the City takes over maintaining them.
Councilor Jeff Gudman said he looked at the issue by weighing the amount of new tax dollars the City would bring in against the cost of maintaining the roads that would be added to the City's jurisdiction.
"It doesn't pencil out," he said.
He added that if the City could conduct outreach and convince all the residents of the unincorporated areas to annex, then it should do so, but it should let the residents vote and decide for themselves rather than forcing the issue.
"Let them vote," Gudman said. "They'll figure it out."
No specific direction was given to staff at the end of the discussion, and Studebaker reiterated that the council was far from making any decision on the issue.
"We've got more work to do," he told the audience. "We'd like to hear from you, and we'll read any material you send to us, because this is not going to be a slam-dunk decision either way."