Big cost of doing small business in Portland: Salon owner's rezoning ...

John Hopkins has what many small-business owners want: the capital and space to grow. But he doesn't have the $28,560 the city of Portland would charge him to expand his garage salon into the rest of his house.

City planners say Hopkins must rezone his property and change the city's comprehensive map, a dizzying application process that's ultimately subject to a City Council vote. The fees launch the process without guarantee of approval, creating a risk Hopkins says he can't afford to take.

"I could put five people to work in the building," Hopkins said. "It's economic development, and they're hindering it."

An informal survey of about a dozen cities shows that Portland exacts the highest toll from developers looking to change the city's comprehensive map and rezone their property. In fact, it's 28 times more than Denver and 22 times higher than Minneapolis, where a small developer would pay $1,300. And officials there say the fee covers nearly all of their costs.

Portland charges every applicant, regardless of size, the same $28,560, though it's unclear how that breaks down in terms of real costs to the city. And other expenses could add several thousand dollars to that tally. With talk of job creation dominating the political landscape, such fees can block small-business owners like Hopkins from creating their own.

Small businesses drive Portland's economy, employing 254,000 people and representing nearly 95 percent of all companies in the city, according to the Portland Development Commission.

To be clear, zoning and comprehensive map changes are an intense undertaking. The documents govern Portland's growth, and amending them can affect entire neighborhoods. The lengthy public amendment process allows neighbors to weigh in on such potentially contentious issues as traffic and parking.

The city's costs
Portland's neighborhoods are especially active, creating a costly process for the city, said Portland City Commissioner Dan Saltzman, who leads the Bureau of Development Services. "I've had the sticker shock myself. But I think you have to balance that with what a comprehensive plan is all about."

Although every land-use review is different, the city establishes the fee upfront to help applicants gauge project costs, Rebecca Esau, who manages the land use division in the development bureau, wrote in an email.

The bureau takes the largest share of the $28,560 application fee. But it hasn't calculated its own input costs since a booming real estate market in fiscal 2006-07, bureau spokesman Ross Caron confirmed.

Yet, it has raised its price slightly more every year. Other city bureaus, including water and environmental services, have higher rates, too.

Officials process two or three of the complicated requests every year, Caron said, but there's no way to track how many people are deterred from applying.

Hopkins spent $50,000 transforming the garage of his home into Southeast Salon. The tiny space sits between Division and Clinton streets on Southeast 26th Avenue, a short connector road so busy that traffic lights govern the Division Street intersection. He and his wife work at the salon and alternate days to stay within city guidelines for home businesses.

They built up the capital to add several stations throughout their 1,380-square-foot home, enough room for a half-dozen more stylists. Their neighbors on one side and across the street are both commercially zoned. The decision made sense. "If I don't risk, who creates the jobs?" Hopkins asked on a recent afternoon between customers. "But I can't risk $30,000 with no guarantee."

Structured fees
Those costs can climb further because applicants often hire lawyers and consultants to coordinate the process. City planners analyze the project and its impact on city services. They weigh parking and environmental effects. They hold mandatory public meetings and notify neighbors about the development. They also must comply with Oregon's land-use laws.

"Things like comprehensive zone changes certainly don't fly under the radar," Saltzman said.

It takes hours to coordinate the parties involved, and the fee covers the bureau's time. The bureau is nearly fully funded through the revenue it brings in, meaning applicants must pay all application costs. Still, other cities distinguish between small neighborhood projects and large-scale developments. Minneapolis levies an incremental fee for the same process. For instance, applicants pay $1,300 for areas less than 10,000 square feet. That accounts for staff time and other costs, said Jason Wittenberg, a planning supervisor for Minneapolis.

"We don't structure the fees for full cost recovery, but we do come pretty close," he said.

In Portland, Hopkins' Southeast Salon would undergo the same application as the 2008 proposal to rezone most of Colwood National Golf Course's 138 acres into industrial space on Northeast Columbia Boulevard. The City Council voted it down after a hearings officer rejected the application: a 65-page staff report and more than 125 exhibits.

Hopkins wants to renovate his home on a standard 5,000-square-foot lot. He has no plans to build, and most of his customers live or work nearby and walk to the salon, he said.

Neighborhood development
Neighbors are always concerned about future development, said Linda Nettekoven, the acting chair of Hosford-Abernethy Neighborhood Development, which encompasses Southeast Salon. But they probably wouldn't take a stand on a specific project unless it's under city review. Still, she noted area residents have "a great deal of support for local businesses."

The neighborhood already supports a larger than average share of small businesses. Shops along inner Southeast Division Street employ 378 people in a 17-block stretch that includes Hopkins' salon, according to a recent city study. Nearly one in five buildings is a neighborhood business, a rate three times higher than Portland's average.

But the price of future development could block conversations to bring more businesses into the neighborhood.

"It doesn't make sense that you have a one-size-fits-all, or one-size-doesn't-fit-all kind of process," said Bernie Bottomly, the Portland Business Alliance's vice president of government affairs. ?

Hillsboro charges applicants about $6,825 to rezone and make minor comprehensive map adjustments. And there hasn't been a push to raise fees for several years in the current economic climate, planning manager Colin Cooper said.

Portland's Bureau of Development Services is just trying to make ends meet, and will probably raise its fees again next year, Saltzman said.

As long as it does, Southeast Salon's expansion won't happen anytime soon.

"I'm willing to take the calculated risk to grow," Hopkins said, "but I can't do it if I'm hindered from the get-go."

-- Molly Young

Source: http://www.oregonlive.com/business/index.ssf/2011/10/a_huge_cost_of_doing_small_bus.html

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