In a decision intended to move along a challenged housing project in Philomath, the City Council on Monday night approved the purchase of $185,000 in system development charge credits from Millpond Crossing as part of a supplemental budget.
The 6-1 vote followed a public hearing that went on for roughly 1 hour and 15 minutes — most of that time spent on deliberations involving developer Levi Miller’s project located in a section of town north of Chapel Drive and east of South 15th Street.
In short, the money will go toward Miller’s costs of finishing Phases 2 and 2B — a punch list that includes among others the construction of a detention basin flow control system to prevent flooding and erosion, filling the ditch on Willow Lane and putting in storm pipes across Chapel Drive.
The 2024-25 supplemental budget adopted Monday night by the council also included specific line items under expenditures, such as outfitting a police vehicle and the unanticipated need to purchase water from Corvallis.
A supplemental budget allows a governmental entity, such as the City Council, to adjust its budget during the fiscal year to account for new revenues, unexpected expenses or changes in priorities. The supplemental budget goes through the public process, which includes a hearing and a council vote.
“They’re little things that get fixed along the way,” City Manager Chris Workman said. “Some municipalities will do multiple supplemental budgets throughout the year … we typically have either not done a supplemental budget or we’ve done one towards the end of the year like now … so that what rolls into next year’s budget is accurate.”
Upon approval, the supplemental budget becomes part of the city’s overall budget and authorizes the revised spending.
“Twelve months ago, nobody was talking about purchasing SDC storm credits from Millpond Crossing, so it was not an expenditure in the budget — it just came up a month or so ago,” Workman explained. “The idea of purchasing storm SDC credits that Millpond Crossing owned, we purchased those back and it drops his balance down on what he has in credits and be able to infuse some cash into the project right now to finish some of the Phase 2 items that are still outstanding.”
Workman during the meeting made a point to councilors about how the move would help current residents.
“This is really about the residents living in Phase 2 of the development that still need their street to have a fresh overlay on it, they still need the trenches behind their house filled in, there’s a retaining wall out there that needs to be completed so the fence can be righted,” Workman said. “There’s these little projects out there and what we’re hearing from the developers is that there’s just not cash currently to do that.”
The credit purchase also allows the developer to avoid further delays with moving on to Phase 3.
“He made the argument that he can wait for his current houses that are on the market to sell and in a month or two or three months when those close, he’ll have the money to move forward,” Workman said, referring to Miller. “But by that time, he’s missed two or three months of construction season during the summer.”
Delays with Millpond’s construction plan led to Miller’s proposal to the city to sell his SDC credits.
System development charge credits are a financial tool used by municipalities to manage infrastructure funding and incentivize development. The credit is a way for developers to reduce or eliminate the amount of SDCs they owe by building qualifying public infrastructure as part of their own project. In the case of Millpond Crossing and the storm SDCs, the developer earned the credits for completing a $257,644 storm line installation on South 15th Street.
By the end of 2024, the balance on the storm SDC credits was down to $210,488.
The city’s finance director, Mike Murzynsky, said at the meeting that SDC credits have no real monetary value.
“The usual practice is the credit is applied to SDCs or SDC deferrals as the project moves forward,” he wrote in an agenda summary. “Once the project goes away, any remaining credit goes away with it — there is no final payout of any balance of credit at the end of the project.”
Although the credit purchase totaled $185,000, Millpond Crossing will receive $18,000 less to cover plan review fees.
“It’s the money we charge developers to review all of their plans and do the inspections of the (public) infrastructure,” Workman said.
An engineer of record, not a city employee, performs those tasks so the city receives a monthly bill on work that’s been completed.
“Right now, there’s a negative $15,000 balance there because they’ve been doing work and there’s not been money put into it,” Workman said. “So with this allocation for the purchase of the storm SDCs, we’re going to put roughly $15,000 to pay that negative balance off. We’re also going to put about $3,000 in there to inspect the street when it’s done and to inspect the storm drain when it’s done.”
Miller attended the meeting and spoke during the supplemental budget’s public hearing. During his 3 minutes to speak, Miller provided evidence of work that was being done, including a photo of progress made on a concrete gutter and a receipt for $20,000 in pipe that was purchased for the storm bypass.
“I just want to show the city that I follow through on my commitments and with the approval hopefully tonight of the remaining funds that I’m asking for, I can get everything else taken care of over the next couple of weeks and we can get some loose ends wrapped up,” Miller said.
The city during a May council meeting approved a refund of a little more than $39,000 which was related to money that the developer had overpaid on homes built between 2021 and 2024 after the city had implemented a new parks SDC methodology.
An issue that surfaced during the discussion involved lien transfers, a financing mechanism that had taken place under the city manager’s direction that allowed Millpond Crossing to refinance houses under construction. The city attorney approved the practice but Murzynsky discouraged it. The result was 12 liens on only seven properties.
“Ideally, these properties would have never needed to be refinanced, but the city manager directed to make the lien transfers in order to help move the housing project forward,” Murzynsky wrote in an agenda summary. “What started with three, later added three more, then added another four and into an area of concern for the management team.”
After those transactions, the city implemented a new policy in which SDC deferral lien transfers will no longer be allowed to prevent the same scenario from repeating.
“We’ve learned a lot of things in this experience of what not to do in the future,” Councilor Rich Saalsaa said, later adding, “In this public meeting, we are saying together as one voice that this is it, we’re done, then I would be happy to move forward.”
Mayor Christopher McMorran echoed Saalsaa’s comments and said that he appreciated how the dealings with Millpond Crossing had been cleaned up in preparation for the pending vote.
“What I keep saying and what I hear other people say about this project in general is we want to get it done in a way that does the current residents justice and does the future residents justice and does the entire community well,” he said. “I want to be able to go visit that neighborhood and have it be complete and visit the park and have a block party and not ever have to talk about SDCs in that neighborhood ever again.”
The final supplemental budget vote of 6-1 included a nay from Councilor Brent Kaseman. A follow-up motion that directs the city to withhold $18,000 from the payout to Millpond Crossing to cover plan review fees passed unanimously.
