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3. Latecomers AgreementsCity of Kalispell Post Ottice Box 1997 - Kalispell, Montana 59903 Telephone: (406) 758-7701 Fax: (406) 758-7758 May 19, 2009 TO: Mayor & City Council // FIRM: Interim City Managers - Z✓ RE: Extension Agreements An extension agreement is essentially a cost reimbursement agreement with a developer who has provided others access to an important city service, usually water and/or sewer, in the form of infrastructure the developer has built. Typically a developer building in a new area will extend water/sewer lines from the city's existing system to their development. MDEQ regulations and City standards require utility lines to be sized so they can serve other users in the growth area. The extension agreement stipulates that other users of the new facilities will pay a onetime user fee (a surcharge above the normal utility impact fee) for the privilege of using the lines. Since the city owns the completed line, the City administers the agreement, for a nominal fee, and forwards the payments to the developer. This is the usual pattern followed when developers construct new facilities that are not part of the City's current facility plan and therefore not factored into the City's current impact fee structure. At the present time the city has the following extension agreements: • OWL Corporation providing water and sewer to section 36 and Westview Estates. • Old School Station providing water and sewer from Four Corners south to Old School Station. • Silverbrook providing water and sewer north from the city to Silverbrook subdivision. • Lone Pine providing sewer from the city to Lone Pine Trails Subdivision. Extension agreements are an efficient way to: • Encourage developers to build City infrastructure that can be used by other developments. • Pay back a developer for his investment. There is only one payment from the new user, typically another developer, to the developer who built the infrastructure. There may be more than one new user but each new user typically makes only one payment. • Control the use of new infrastructure. Extension agreements are a relatively easy way for the city to administer the use of new infrastrnctnre. Impact fees could be used in place of or to supplement the repayment provisions of extension agreements. If a developer constructs growth -related infrastructure that is part of the City's planned system and the cost of this has been factored into the impact fee structure, then impact fees collected from new development are an appropriate mechanism for reimbursing the developer who built the facilities. An extension agreement would then be between the City and Developer with no provisions for any payment by others using the facilities because the impact fees paid by that later development would be the source of funds for the City to honor its extension agreement obligations. If a developer constructs growth -related facilities that are not in the City's current capital improvement plan (and therefore not factored into the impact fee structure), then impact fees may not be used to reimburse the developer until such time as the impact fees are revised to include the cost of the new facilities constructed by the developer. At that point impact fees collected from future development could be used by the City to reimburse the developer. The City would then become the sole agent reimhrirsing the developer and no additional payments to the developer by others coming later would be appropriate or required. DEVELOPER EXTENSION AGREEMENTS I-istory The first Developer Eztenaivn Afire enf was filed with the County Clerk and Recorder m 1981 in Book 726 berg on page 900. It perhdned to the extension of the main and installation of a lift station to serve the Q=acres #4 and othcs tracts. The purpose of the document was to provide a iegad method for others, i.e. "latecomers' , to "hook-up " to the extended main and lift station and pay the developer their pro rasa shate of the sewerage system.. A Connoction fee was established by Ordinawe,1.002, dated February 1,1982, at the behest of DEQ when time City received grant - fading for cnla�rut of the W W TP. The connection fee usage was as per city Code as noted below. (note the "payment for enlargement of the existing systeni), 23-40. CONMMON FEES: A. Required: Before the sewer drain of any public or private building may be -connected with or hooked onto the City sewer system, a connection fee shall be paid to the City Treasurer, and it is unlawful for any person to connect, attach or hook up the sewer service line of any public or primate structure to the City .sewer system without having first paid such fee. B. Fund: The ' City shall maintain a Special Sanitary Sewer Capital Improvement Fund interest bearing account. All connection fees collected by the City pursuant to this Section shall be deposited Into such account. The funds accumulated in such account shall be retained therein and used by the City only for the purpose of helping to pay for the erftMement of the existing sanitary sewerage system as it becomes inadequate and needs replacement because of added loads. (Ord. 1002 § 15) Oyorsi � of a main was part of Ordinance 3449, adopted December 20,198Z in Exbibit "B" Rule = (4) as noted below - Y e#e ding ..t h6 . Maas' -by� City Standards, the [pity sham pay3f€erencci.c:ost :• between. the Iargex- wain xequAxed bar. #he: zitY an - tTk0 , she0. main xeqiiired by said Standards., The only. project I was involvedwith that had oversizing was on the Birchwood Apartments along 18' 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 lo"blaim The direr bawcea the two bids was what the City paid the developer. Rationale All systems have components sized larger than actually needed to serge 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 generally 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- propot tionul 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 artd the cost of the oversized components Funded and Non -funded 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 tltc developer to assess what perccntag may possibly be recoverable and the remainder would have to be included in the lot sale price. The cost of oversizing must he.LuLly rehated to the developer as rapidly as Possible as this is a. dictate of the City, not a requirement of the project per se. Period of Agreement 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 feces. Following is a portion of Policios for the Cost of Future Services, Item 5 (underlining is mine): 5: _I°e ability of the City to increase ex'utility or road system capacities t6 ::meet the demands of growth is dependent upon the availability of g.. If the City's ability to finance the necessary -enlargement of utility road systems ` cannot keep pace with development, or if the .provement'schedule does not mesh with that of the developer, it shall the responsibility of the developer. to finance and construct City 7:-gproved -alterations to . the - e2stmg infrastructure sufficient to accommodate future development.- In- the event of this occurrence, the developer may be reimbursed for utility im rovements DZ the —City u 3m tztili1W service cot}necuori fees for -said clevelopent Said reimbufsement snail not exceed cost, in a g;. teres% of the unprovemeuts to the e tisting City systems nor_. shall th'e'-re imbursement . exceed the value of the co ction . maid cl .rid �*�p 'vvcusi at collected fz om the s if c • devel�men =� , I cannot find where payment specifically refers to oversiaime a new system. Why wouldn't oversiznng a new system be paid the same way as increasing the size of existing systems? I did not reali= iris was not the case until the 3ilverbrook Agreement come before the Council. Then I notice both the water and sewer systems rebates were FAR below the impact fees. I also noted some gymnastical method of figuring a charge for fire, flow where ONE future builder of a commercial subdivisiom could end up paying the to d roe for the water systemoversinng while builders that follow pff nathi to rebate Ike gjending dev�eluper. It must be remembered that developers can have hure sutras of money tied up in oversming whuh the Cii�r reazriras. This huge tie-up cart prevent the developer fram continuing to work on other prelim• 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 developers needs which excess capacity is proportionally paid by "latecomers" and (2) oversizing paid by the city from impact fees for each ERD connecting to the Vr%raded MtmL. The time period should be mutually agreed between the City and the developer A ki� : . JA ..+ter