Municipal RevenuesPost Office Box 1997 - Kalispell, Montana 59903
Telephone: (406) 758-7701 Fax: (406) 758-7758
April 22, 2009
TO: Mayor & City Council
FRM: Interim City Manager
Re: Municipal Revenue Workshop (April 27)
To facilitate the council's discussion I will give a short presentation on municipal revenues. The
first few slides of the presentation are attached.
In my experience I have found that it is useful to categorize revenues not by their source, but by
their use. Some revenues can be used for many different purposes and some are very restrictive in
use. Some revenues can be shifted between uses, but most cannot. As managers of public funds it
is important to know the differences between revenues and how they can or cannot be used.
On the attached "Municipal Revenues" slide I have the various revenues of the city sorted into the
categories of taxes, special revenues, assessments, and user fees. I will spend most of my time on
assessments and user fees, but I think it is important that the council have some knowledge of
taxes and special revenues.
On the "Assessments" slide I have the assessments listed that are charged by the city. I include
impact fees as an assessment because they are essentially assessments on growth. Also included
on the slide is the basis for the assessment, for example Lot Ft2= square footage of the lot, the
assessment for an average single family residence, the anticipated revenue for the present fiscal
year, and some comments.
On the "User Fees" slide I have the above information for user fees and the latecomer agreements
presently in effect in the city.
I will have much more to say during the workshop and some additional slides, but I wanted to
give you an initial idea of what I will be presenting.
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To Mayor, Council members and City Manager
From: Bob Hafferman 'OJ1
Subject: Developer Extension Agreement
Date: April 23, 2009
It was my understand, as per the Monday, April 20, meeting, that in the workshop on April 27
there would be a discussion on Developer Extension Agreements. Since I have been requesting this
meeting, I am enclosing a paper pertaining to such Agreement which I would like to have included in
the packet.
t/ Y Y pie, iJJTKIJ 04 p IDQVCI
History
The first Developer Extension Agrement was filed with the County Clerk and Recorder in
1981 in Book 726 beginning on page 900. It pertained to the extension of the main and installation of a
lift station to serve the Greenacres #4 and other tracts. The purpose of the document was to provide a
legal nsethod for others, i.e. "latecomers'; to "hook-up" to the extended main and lift station and pay
the developer their pro rata shate of the sewerage system.
A Connection fee was established by Ordinance I002, dated February 1,1982, at the behest of
DEQ when the City received grant funding for enlargement of the W WTP. The connection fee usage
was as per City Code as noted below. (note the "payment for enlargement of the existing system),
4 h W§4t!'
A. Required: Before the sewer drain of any public or private building
may be -connected with or hooked onto the City sewer system, a
connectionfee shallbe paid • to the CityTreasurer, and it is unlawful
havingfor any person to connect, attach or hook up the sewer service line
of any public or private structure to the City sewer system without
first• . •such
•shall , City Special Y. Sewer Capital
Improvement Fund interest bearing account. All connection fees
collected by the City pursuant to this Section shall be deposited Inti,
such account. fundsF : ':: •in suchaccountl'.::--.
retained therein and used by the City only for the purpose of helping
-to pay for the enlargement of the e4sting sanitary sewerage system
as it becomes inadequate andneeds
_ edt F:^ because ofadded
OversL__g of a main was part of Ordinance 3449, adopted December 20,1982, in Exhibit "B"
Rule = (4) as noted below.
(4) Qvx_sXng AJans If the Gxty �equz�ces thestomar
�' - - extending the m�n-�to install .a larger =5�.2e '�a33i _�a�' �e[p���.
by City Standards, the City sha1T paye difference in rest
between. the larger wain required by- the-: City and`�he size of I*
-main required by said Standards.
The only project I was involved with that had oversizing was on the Birchwood Apartments
along 18'h Street East where an 8" main needed for the project was required by the City to be increased
to 10" for future needs. I was not privy to the financial payments by the City to the developer, but I
simply had the project bid with two alternates — one for installing an 8" main and the other for
installing a I0"main. The difference between the two bids was what the City paid the developer.
All systems have components sized larger than actually needed to serve a particular
development. A minimum size sewer pipe was historically sized for equipment and manpower used in
maintenance. The minimum size of water mains is generally based majorly on fire flow with domestic
consumption often a fraction of fire flow needs. Many other elements of design are involved like
friction loss in water mains and ground slope for sewers.
Therefore, it can genera lly be stated that each extended sewer and water system has additional
capacity that others can hook onto and use. That additional capacity is what "latecomers" are to pay
their proportional share of the extension to the developer in order to hook on.
If the City requires component sizing larger than required for the development, the City pays
the difference between the cost needed for the development and the cost of the oversized components
It was never assumed that a developer would get 100% pay back over a reasonable time period
on the additional capacity available. Nor when both water and sewer are extended to a development, it
would be rare if both the water and sewer extensions had the same ERUs available excess capacity for
both systems, hence, unless other factors prevail, the lesser of the two ERUs could be the only
additional capacity recoverable. It has to be left to the developer to assess what percentag may possibly
be recoverable and the remainder would have to be included in the lot sale price.
The cost of oversizing must be fully rebated to the developer as rapidly as possible as this is a
dictate of the City, not a requirement of the project per se.
A 10 year time period originally selected was arbitrary and intended for rebating the developer
on the excess capacity. Ten years was considered a reasonable time for recovering some of the cost,
but 10 years was mainly to discourage freeloaders, who, without the Agreement, could have hooked -up
to the extended system without rebating the developer for using some of the excess capacity.
Is 10 years too short a period for enough impact fees to be collected from people hooking -up to
the extended system? Could be. Assume the cost of oversizing a water system was $1,000,000 and the
water impact fee was $2,500, it would take 400 homes hooking to the extended line to rebate the
developer for the water system oversizing.
Problems with the way the Agreements are now being administered
Our Extension of Services Plan addresses enlargement of existing utility systems which may
require the developer to make necessary enlargements with the City rebating the developer 'through
utility service connection fees, i.e. impact fees. Following is a portion of Policies for the Cost of Future
Services, Item 5 (underlining is mine):
5. 1°e ability of the City to increase existin -utility or road system capacities
to . meet the demands of growth is dependent upon the availability of
funding. If the City's ability to finance the necessary- enlargement of utility
road systems' cannot keep pace with development, or if the
= iiiiprovements - schedule does not mesh with that of the developer, it shall
.be the responsibility of the a developer. to finance and construct City-
appioved alterations to. the existing infrastructure sufficient to
accommodate future development.- In. the event of this occurrence, the
developer may be reimbursed for utility improvements the City thmuli
utili y service coi7riectiori fees for said development. Said reimbursement
s not excee cost, M u g.:. terest, of the improvements to the
existing City system. nor_. shall the -re mbursement _exceed the value of the
:.con coon f .for Wd cias of�mpzovement collected from the specific
developmen
I cannot find where payment specifically refers to ®vers' ' a new system, Why wouldn't
I did not realize this was not the case until the Silverbrook Agreement come before the Council.
i'� eta :� •� i- , t� a •. - r' �� i` err. - 0 i• Ma
iuld end up paying the total rebate fors:..,. water system oversizing while 1 - :.1...
follow M meg= to rebatef, i g Lkwlo <
It must be remembered fliat developers can have hw—e sums of rtoe. tied ra in oversizing
which the Cd7v equ
dum This a r can wevent the oiDSri continumiz to work on other
E � a
Recommendations
It is recommended that Developer Extension Agreements be written for rebating the developer
for two distinct elements — (1) -for excess capacity available in the system after subtracing out the
developer's needs which excess capacity is proportionally paid by "latecomers" and (2) oversizing paid
by the city from impact fees for each EIZU connecting to the wm&d sue.
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