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Rules hold up factory growth.

Byline: Saul Hubbard The Register-Guard

Construction of a large plastics factory in northwest Eugene that would hire scores of workers has been held up for months because of a dispute between the company owner and city officials over the property's annexation into the city.

Fast-growing PakTech, a family owned business that makes handles for multi-packs of food and beverages at its two Eugene factories, hopes to build the additional factory, totaling 54,000 square feet, on land it owns near its existing facilities.

Over the next decade, PakTech says, it would hire 160 employees at the new plant, roughly doubling the firm's workforce. PakTech, which has operated out of its two Eugene factories since the mid-1990s, would spend up to $30 million on the new plant.

But the company has been tangling with Eugene officials for nearly a year over whether and how the vacant land would be annexed into city limits and become subject to city property taxes.

Eugene city officials say they won't let construction proceed unless the parcel, near Northwest Expressway and Irving Road, is annexed. Like much of the so-called northwest Eugene industrial corridor, PakTech's land is in unincorporated Lane County, within the city's urban growth boundary but outside the city limits.

The PakTech dispute is one of the first major flashpoints since the city tightened its annexation rules for the industrial corridor, a long triangle between Highway 99 and Northwest Expressway that runs from Randy Pap Beltline north to the Eugene Airport.

For decades, the companies and property owners in that industrial district - home to firms such as Seneca Sawmill, Murphy Co., and Glorybee Foods - have benefited from more relaxed annexation rules than the rest of the city, due to a hard-fought, 20-year-old agreement hammered out in the early 1990s between annexation-resistant businesses and the city.

Typically, the city requires annexation before businesses can build in unincorporated areas within the urban growth boundary and before they can hook up to public water and sewer lines.

Annexation ensures new development complies with city codes. It also increases the city's tax base to pay for the full raft of city services, from police and fire to parks and libraries. Once properties are annexed, the owners must pay city property taxes.

For businesses, annexation is a boon and a bane; it lets them build and access city sewer and water services, but it comes with the higher taxes.

For high-value industrial plants, such as those in the corridor, the tax-bill difference can be significant. PakTech's new fully built-out plant, for example, would pay about $520,000 annually in property taxes if annexed, versus $345,000 if not, according to tax rates provided by the Lane County assessor's office.

City building and development fees are usually higher than the county's, as well.

The nuts and bolts

Until 2012, the city gave businesses in the industrial corridor the practical benefits of annexation without having to pay the increased property taxes.

Businesses could obtain a so-called "annexation agreement," letting them build new industrial facilities and hook up to public sewer and water lines - if they were adjacent to them - without being formally annexed into the city and paying city property taxes.

The businesses then could keep paying their low county tax rates. In exchange, firms agreed to be annexed later, usually at a specific future date.

About 40 property owners in the corridor obtained annexation agreements during the past two decades to let them develop and to hook up to utilities. Few have been annexed into the city yet, however, in part because the city can legally annex properties only that border city limits or a city-controlled road.

Today, the vast majority of the properties in the corridor remain outside city limits.

After the 1991 agreement expired in 2011, the city tightened its rules, potentially creating a stream of new annexation-driven property tax revenue for the cash-crunched city government.

City officials say they won't grant any new annexation agreements to property owners, although the existing ones still stand for now.

Instead, the city will allow new development on vacant land in the corridor only if the owner annexes into the city. Upgrades or additions to existing facilities - such as a $60 million dollar project underway at Seneca Sawmill - do not require annexation, however, city staff has ruled repeatedly.

Steve Nystrom, Eugene's principal planner, said the new approach ended the city's "unique" treatment of companies in the industrial corridor.

"We are now operating under one set of rules for all areas within the urban growth boundary, whether it's the industrial corridor or Santa Clara," he said.

Even with the rule-tightening, Nystrom argued that Eugene's approach is lenient for property owners who don't want to annex.

"We depend on property owners to come forward when they're ready to develop to be that trigger" for annexation, he said. "That makes it harder for the city in the short-term, because it's incremental in nature."

Payment for services

Corridor businesses are resisting the change, and the higher taxes and new building regulations that go with it.

Rod Kempf, a developer and president of the Industrial Corridor Community Organization, said the city's unique, long-standing annexation-agreement approach for the area was fair, because the city has built little sewer or stormwater infrastructure in place there.

The city "wants annexation," he said. "There's a (tax) dollar value out here for the city. But they're not willing to buck up and give us all the services we need to justify that."

Businesses in the area currently use a makeshift collection of water, sewer, septic and contracted fire services to meet their needs. They typically only want a very limited selection of formal municipal services - for example, connecting to the metro area's sanitary sewer and stormwater drainage systems.

Moreover, Kempf said, the heavy industry in the corridor doesn't mesh well with the city's development code. The code,, for example, requires sidewalks and paved, striped parking lots for properties being developed.

Many businesses feel those requirements are unnecessary costs for a "hardcore industrial area," Kempf said.

As a compromise, annexation agreements "helped everyone along the way," he said.

For its new development, PakTech initially sought an annexation agreement for the vacant land in mid-2015. So did Murphy, a plywood mill, for a property on Irving Road that it wants to hook up to existing city sewer lines.

In both cases, the city turned the applicants down, requiring outright annexation instead. Neither PakTech's nor Murphy's site touch existing city limits or a city road, however, which means they can't be annexed directly.

"If you can't annex and you can't get an annexation agreement, you can't get hooked up (to sewer and water lines), you can't develop ... you're stuck," said Bill Kloos, a Eugene land use attorney representing both PakTech and Murphy. "The city has basically taken temporary control of your property."

To solve that, city officials proposed the unusual move of annexing a half-mile chunk of county-owned Irving Road, which leads up to both properties. That would create the physical connection needed to the allow annexation to proceed.

But Kloos said the city's "new initiative" to start annexing portions of roads could have implications for surrounding properties as well.

"That makes (other property owners) annexable the next time they need anything from the city, like a building permit," he said. "'You have to annex, you're adjacent (to the city limits).' That's the model.

"The city wants people to annex."

Expansion on hold

PakTech's general manager, Scott Diehl, said the dragged-out land use dispute with the city jeopardized the company's expansion project. PakTech is now willing to have its new property fully annexed into Eugene, he said, but is increasingly worried about the city's time line to get that done.

"I just don't have the time to wait three months now, on top of the nine months we've already waited, to get to an answer before we can start filing for permits," he said. "I've got to start moving dirt this summer, or it waits till next summer and I have to find another place" for the new facility.

By the end of last week, however, Diehl said he was confident the city would help expedite PakTech's annexation process.

But the broader issue will likely surface again soon.

For several years, the Industrial Corridor Community Organization has been negotiating with the city over a new agreement that would replace the expired 1991 deal and possibly let companies continue to delay annexing into the city.

Kempf said the group's goal is for the city to agree to give new annexation agreements to property owners until the city builds up infrastructure in the area.

"You hate seeing something that worked fairly well getting cut off," he said.

Nystrom, the city planner, said talks are ongoing.

"Over time we expect these (areas) to become part of city of Eugene. That's the goal within your urban growth boundary," he said. "We're open to trying to make that as graceful a transition as we can."

Because the corridor is filled with big employers - some of whom are regular contributors to local political campaigns - it wields some clout.

"Having the PakTech and Murphy issues come up is nice," Kempf acknowledged. "They're a little bigger and they can fight (the city) a little bit more."

PakTech appealed to the Lane County Board of Commissioners in recent weeks, asking them to contest the city's annexation requirement.

The Lane County Board of Commissioners waded into the issue at its meeting last week, with several commissioners chastising the city of Eugene's handling of the matter.

Commissioner Pat Farr said it appeared Eugene was throwing up "obstacles" to PakTech's expansion "on a whim."

"We have a company that wants to put Lane County residents to work at pretty high wages. And it's being dragged out and dragged out and dragged out," he said. "How do we stop it from being dragged out?"

Added Commissioner Sid Leiken: "While I'm very excited about the budding high-tech industry that's going on in downtown (Eugene), the (northwest Eugene) industrial corridor pays the bills."

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Title Annotation:Economic Development; PakTech wants to expand, but Eugene wants the business to annex into city limits
Publication:The Register-Guard (Eugene, OR)
Date:Apr 15, 2016
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