Looking to open a deli to serve your grandmother’s famous sandwiches in that cute little space that used to be a retail store? Get ready to plunk another $33,000 onto the startup costs.
That’s the way things stand in Brookings, where people have complained that the System Development Charges (SDCs) charged to new businesses for the anticipated impact they will have on the city’s infrastructure is instead driving those businesses away.
According to City Building Official LauraLee Snook, about eight people a year ask about starting up a new restaurant.
“The ‘oh forget its,’ (represent) two to three of them, she said, “They others are, ‘We won’t be going in that building; let’s look at something else.’”
Four restaurants have opened in the past couple of years, including Superfly Martini Bar & Grill, The Vista Pub, Khun Thai and DoLittle Cafe – all of which debuted in buildings that had previously been used as restaurants and were therefore exempt from paying those fees a second time.
The city council agreed last week to conduct a study to reevaluate its SDCs and consider possible ways by which to lower them.
The last such study, conducted about four years ago, resulted in a $4,175 reduction per Equivalent Dwelling Unit, said City Manager Gary Milliman.
The reduction in SDCs costs in 2009 was due to two major factors, Snook said.
“Growth that had been predicted didn’t happen, so we were able to take capital improvement projects we didn’t need out of the mix,” she said. “And the annexed property at Lone Ranch (Borax); adding that many acres enabled us to distribute the load over that much bigger area.”
An EDU is a unit of measurement equal to the use a single-family dwelling would have on infrastructure. Those include water, sewer, streets, storm drains and, in residential units, parks.
The system fees are then based on the number of EDUs a building has. A single-family house, with 1 EDU, would cost $2,178 for water; $9,646 for sewer; $1,384 for streets and $940 for storm drains.
A residence would pay an additional $1,547 for parks, and a transportation fee is determined by the amount of traffic different kinds of businesses would attract.
“It’s a lot, but if you look at the big picture, a standard septic system for a three-bedroom house is running around $10 grand,” Snook said. “Maybe it’s really not so much.”
There are four methods by which the city can lower the wastewater SDCs, Milliman said.
One would be to reevaluate the debt the city now owes since it recently refinanced the Wastewater Treatment Plant.
The city could also discontinue its annual inflation increases or 2 percent administrative fees, calculated on the cost of the SDFs.
It could also consider decreasing the overall SDCs based on factors such as seasonal use or the amount of use of public infrastructure of other businesses in the area.
Or it could exempt all existing businesses from the fees.
Many are exempt anyway. And no property owner to date has appealed to the Urban Renewal Agency for relief of the SDCs, as was approved by the council in 2009.
From use to use
If a vacant building was formerly operated by a high-end restaurant, the previous owners would have paid the SDCs, thus letting the new owner off the hook regardless what they want to open in the space, as restaurants use more of the city infrastructure.
“If someone comes in and wants to start a new business, we’ll see what was there before,” Snook said. “We don’t do refunds, but you can get a credit.”
But, for example, if a 2,000-square-foot building designated as general office space is to be used as a restaurant, wastewater SDCs alone would cost the new owner $47,000. Transportation fees would tack on another $10,000, based on the anticipation of additional traffic. Water and storm drainage are one-time fees, Snook said, at just over $3,000 combined.
That’s why people walk away discouraged, she said.
Another common example is someone who wants to transform a general office space into a beauty salon. In one case, city officials were able to measure the space around the one chair in the salon – the rest was to be retail – and assess SDCs of $33,500. The office space cost an additional $1,297.
“Those are the big ones,” Snook said of restaurant and salons. “It’s still huge.”
A 2,000-square-foot office would cost $1,290 in wastewater SDCs alone. But convert that to Grandma’s deli and the owner must pay an additional $32,000 for sewer. Figuring that a deli will bring in more traffic than an office, the deli owner will pony up an additional $10,000 in SDCs, as well.
The high costs are due to various infrastructure projects that still need to be paid off and that city officials don’t want existing business owners or residents to pay the costs of expansion.
“It’s a tough, tough situation,” she said.