Oregon Public Broadcasting

Wednesday Portland City Council is set to vote on a unique plan to build a new school in one of the city's cash-poor districts. The plan has set the development community in an uproar, and may spill over to other parts of the state. April Baer reports.

Deborah Baker's on her way out for an evening walk around the neighborhood.

"Be careful, Angel. OK? It's getting darker. You watch for those cars...."

Nine years ago, Baker found she couldn't afford to live in North Portland any more. She moved here, to the Lents neighborhood in East Portland, and got  used to doing things herself. The street has no speed limit sign, so she and the neighbor kid spray-painted one right in the middle of the road.

Deborah Baker: "Had a little affect last summer...we saw the traffic pick back up. So I went out tonight and did it again."

This neighborhood has no sidewalks. No one plants flowers in the roundabouts. Her school district, David Douglas is also a sort of a DIY project. She volunteers in overcrowded schools where her three kids attend.

Baker's not sorry about the real estate boom that drove her out here.

Deborah Baker: "It did do things for east county. It brought people into our district, which we're happy about because it's bringing families here, but those families have children. We are busting at the seams, and in desperate need of facilities!"

David Douglas Schools have had chronic problems passing tax levies to build a new elementary school. There's just not as much revenue here as in tonier neighborhoods closer to downtown.

Rich Rodgers: "I think one of the central struggles Portland faces right now is how to align its plans and investments with these demographic shocks, I think, is the only way to describe them."

That's Rich Rodgers. He used to work at City Hall, in former Commissioner Erik Sten's office.

We're sitting in an elegant little Pearl District park, paid for with Urban Renewal funding. Kids splash in the fountains, and well-dressed parents lounge on stone benches.

When Rodgers was working on Sten's housing agenda, he started thinking about linking what this place has to what Deborah Baker's neighborhood doesn't. That linkage is the grain of the idea city council will vote on Wednesday.

The dynamo of downtown prosperity is a special tax arrangement called an urban renewal district.

Take Portland's Pearl District as an example.  Within its boundaries, cities and schools forgo tax money. The money is then diverted to pay for infrastructure like roads, sewers, and parks.

Think of it as a kind of "cheese". The cheese serves as a lure for developers, who in turn agree to pour cash into new homes, offices and shops.

In this case, Portland's idea of cheese is a new elementary school building, with a price tag of $19 million. To enact this plan, council will redraw the River District downtown to capture a piece of the David Douglas' turf 11 miles away - a satellite district.

Rodgers says it's not a perfect mechanism, but a good one, and pragmatic.

Rich Rodgers: "We're all in it together, like the 'rising tide lifts all boats thing'. This isn't merely a wealth re-distribution problem. It's solving the problems of our schools citywide."

Cities from Bend to Salem to Eugene use urban renewal districts, but tax diversions aren't always an easy sell.

Pat LaCrosse is a former director of the Portland Development Commission. He says the urban renewal  districts are great tools, but they're not ATMs.

Pat LaCrosse  "The way urban renewal is set up, when it gets to that point of being high performing, you close the district out, and the value goes back to the taxing districts. If you don't do it that way, if you simply continue to extend and borrow and extend and borrow, and use it for any special project the city wants to do anywhere in the city without regard for what the rules are, then you really don't have a system of laws."

LaCrosse is nervous that if Portland over-reaches, the state might throw up its hands and repeal the laws that make urban renewal possible.

There's a more subtle problem. If developers think Portland is using urban renewal dollars for projects that don't in some way benefit their investments - like schools - they may take their money elsewhere.

The debate over the satellite district plan has revealed a certain squeamishness over Portland's relatively new prosperity and who it really benefits.

Steve Pfeiffer is a lawyer who represents some developers watching the situation.

Steve Pfeiffer "Well it raises the question is it equitable to allow an area to become successful while other areas in the community may languish. I think there may be some discomfort in that, but I think the comfort that should be taken from every one of the success stories in urban renewal, is they will over time be repeated at other locations."

But only, he says, if the system's integrity remains intact. That's why some of his clients are threatening to sue, if council passes the satellite district plan.