Highway 93 South Utility Extension11
City of Kalispell
f a a Post Office Box 1997 - Kalispell, Montana 59903-1997 -Telephone (406) 758-7000 Fax - (406) 758-775$
REPORT TO: Honorable Mayor and City Council
FROM: Chris Kukulski, City Manager
SUBJECT: Municipal Water and Sewer Utility Extension to Four Corners
MEETING DATE: May 19, 2003
BACKGROUND: The first formal action taken by the City dealing with the extension of utilities
south to four corners was taken on April 21, 1997. A motion to award a $121,000 contract to Forsgren
Associates and Carver Engineering was passed by the Council (see attached minutes 4/21/97). This
contract was amended to include redesign work required by MDT inspired changes that relocated the
water mains. To date $129,490 has been spent by the City on this project. This does not include all of the
hours our staff have spent working on this project over the past six years.
Attached are copies of Resolution 4564 and Ordinance 1316. Both actions specifically deal with
extending utilities south to four corners. Even though the City had incurred cost for this project
($121,000 Forsgren bid) the State would not begin incurring costs for a project that included the City's
utility extensions until they received concrete assurances that the City components of the project was
officially a go. On July 10, 2000 the City Council passed Resolution 4564.
Section I - That the City Council hereby commits the City of Kalispell to funding the
extension of municipal water and sewer utilities South from the City limits to Four
Corners during the reconstruction of U.S. Highway 93 South.
Based on the commitment of Resolution 4564 the State began working directly with Forsgren (Forsgren
also holds the design contract for the highway project) on integrating the utility project into the overall
reconstruction of US — 93. The State has been purchasing right-of-way and has designed their project
being assured that the City is its partner. Specifically a minimum of four properties along the utility route
will be connected to city services by the State because their septic systems are being displaced by the
highway project. This commitment by the City has most definitely affected the State's negotiations with
property owners for compensation as a result of the construction project as well as the design and location
of all other private and public utilities (gas, electric, telephone etc.).
In addition to the motion awarding the design bid and the Resolution committing to the State that
the project will be built, the City Council adopted Ordinance 1316 on June 21, 1999. Ordinance 1316 was
written and approved for the sole purpose of;
"setting forth a method and formula for the recovery of costs associated with the extension
of water and sanitary sewer and sanitary sewer lift station facilities from property
anticipated to be benefited via their installation. "
This ordinance established a program for applying a surcharge to be added to the City's regular
utility connection fees. This formula has been used repeatedly to advise the State in their negotiations
with property owners who will eventually need access to City utilities once their existing systems have
been displaced by highway construction. Affected property owners will receive a cash settlement from the
State to pay the City's fees at the time of connection.
This critical project is essential to improving south Kalispell. The project ensures that future
urban development to the south is placed on city utilities within the city of Kalispell rather than septic
systems in the county. The project has been in the planning stages for over six years and the City is
obligated to build the project. Both the State of Montana and the City have already incurred a
considerable amount of cost in the pre -construction stages of this project. Also attached is a letter from
Tom Gould, Vice president of EES regarding the issue of "Back -Bone" utility extensions and how they
are funded within the utility industry. In speaking with the Department of Transportation I believe that
not only will the city compromise its working relationship with the State but will expose the City to a
sizable liability from a failure to follow through with the project.
RECOMMENDATION: The City Council re -affirm the action of previous Councils to extend water
and sewer utilities in conjunction with the US 93 highway improvement project
FISCAL EFFECTS: The cost for the project is estimated to be $2,644,730. The project is included
within the City's 2002 Facility Plan with financing as recommended in the 2003 Rate Study and analysis.
Respectfully submitted,
Chris A. Kukulski, City Manager Report Compiled: May 19, 2003
r, 1026
1026
The motion carried with Donahue, Kennedy and Rauthe voting against
and Collins, Nystul, Larson, Granmo voting in favor.
The twice amended motion carried upon roll call vote with Collins,
Granmo, Kennedy, Larson, Nystul and Rauthe voting in favor and
Donahue voting against.
Since amended there will be a second reading at the next regular
meeting.
Sykes' Sewer and Water Bill
Postponed from April 7, 1997 meeting to this date.
Krepps recommended to reimburse Syke's as per the City legal rules
and regulations. If new precedent is set, there may be a need to
re -analyze the policies. The responsibility for the private system
changes are shared by the private owner and their plumber. No
notification to the City was made until October, 1996.
Nystul moved that a refund for the water and sewer be made of all
but the minimum billing that is appropriate for the size of meter
that was in there and realizing the minimums changed with our rates
during that time. The motion was seconded.
Donahue moved to amend that compensation be based on the bi-monthly
charge of $365.46 rather than the other 3 different charges which
are higher than that so that will reduce the total amount to be
paid by $100 or more.
The amendment died for lack of a second.
Granmo moved to amend to withhold only the minimums for the water
system. The motion was seconded.
The amendment failed with a vote with Collins and Granmo voting in
,
favor and Kennedy, Larson, Nystul, Donahue and Rauthe voting
against.
Larson spoke against the motion and Rauthe spoke in favor.
The motion carried with a vote with Kennedy and Larson voting
against and Collins, Granmo, Nystul, Donahue and Rauthe voting in
favor.
Moved From Consent Agenda
E. Award Bid -Highway 93 South Sewer and Water
Bids were received from Forsgren Association and Carver
Engineering, Morrison & Maeirle, Billmayer and WMW-Whitefish for
the Highway 93 South Water and Sanitary Sewer Improvements project.
Asst. Engineer John Wilson recommended the award to Forsgren
Association and Carver Engineering in the amount of $121,000.
There was discussion.
Nystul moved the approval of the bid award to Forsgren Association
and Carver Engineering in the amount of $121,000. The motion was
seconded.
The motion carried upon vote.
Kennedy requested a budget schedule.
FOR YOUR INFORMATION
Next Work Session April 28, 1997 7:00 P.M.
Next Regular Meeting May 5, 1997 7:00 P.M.
Airport Advisory & Authority Meeting After May 5 Regular Meeting
RFQ Discussion -Airport Master Plan
RESOLUTION NO. 4564
A RESOLUTION COMMITTING THE CITY OF KALISPELL TO FUNDING THE
EXTENSION OF MUNICIPAL WATER AND SEWER UTILITIES FROM THE CITY LIMITS
TO FOUR CORNERS DURING THE RECONSTRUCTION OF U.S. HIGHWAY 93 SOUTH.
WHEREAS, the State of Montana, Department of Transportation, will
be reconstructing U.S. Highway 93 South from Seventh Street
within the City limits to an area commonly known as Four
Corners in the near future, and
WHEREAS, a portion of that reconstruction area, from the City limits
to Four Corners, is not currently served by City water and
sanitary sewer utilities, and
WHEREAS, the estimated cost of extending municipal water and
sanitary sewer utilities to the area is estimated to be
$2,335,000, and
WHEREAS, during reconstruction is the most desirous time to extend
the municipal utilities needed to Four Corners in order' to
take advantage of the reconstruction of U.S. Highway 93
South reconstruction.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
KALISPELL, AS FOLLOWS:
SECTION I. That the City Council hereby commits the City of
Kalispell to funding the extension of municipal
water and sanitary sewer utilities South from
the City limits to Four Corners during the
reconstruction of U.S. Highway 93 South.
SECTION 11. That the State of Montana, Department of
Transportation must request annexation of U.S.
Highway 93 from the City limits to Four Corners
prior to the completion of construction.
SECTION III. This Resolution shall become effective
immediately upon its passage by the City
Council.
PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF
THE CITY OF KALISPELL, MONTANA, THIS 10TH DAY OF JULY, 2000.
W0
m.F-•Bahar*i
Wm. E. Boharski
Mayor
Attest:
'Zz�-�
—
Theresa White
City Clerk
ORDINANCE NO. 1316
AN ORDINANCE ESTABLISHING A PROGRAM TO RECOVER UTILITY COSTS
ASSOCIATED WITH THE INSTALLATION OF MUNICIPAL UTILITIES IN
CONNECTION WITH THE RECONSTRUCTION OF U.S. HIGHWAY # 93 SOUTH.
WHEREAS, the State of Montana, Department of Transportation,
anticipates reconstructing U.S. Highway # 93 from Seventh
Street within the City limits to an area commonly known
as Four Corners in the year 2000 or 2001, and
WHEREAS, MDOT and the City of Kalispell have agreed in principal
to a cost sharing program for the installation of water,
sanitary sewer and a sanitary sewer lift station upgrade
from the current City limits to the Four Corners area,
and
WHEREAS, the area potentially benefitted by the extension of said
utilities lies outside the boundaries of the City and
potentially benefitted property has not paid any of the
capitalization cost of the existing water delivery or
sewer collection and treatment facilities, and
WHEREAS, the costs for the installation of these new utilities is
estimated to be $1,874,500.00, and
WHEREAS, existing city policy contains no method by which the City
can recover the cost of utilities extended to an area not
within the boundaries of the City, and
WHEREAS, city policy does anticipate that, prior to the delivery
of utility services to areas outside the City,
benefitted property would petition for annexation to the
City, and
WHEREAS, the city Council has determined that the best interests
of City utility customers would be served by establishing
an ordinance setting forth a method and formula for the
recovery of costs associated with the extension of water,
sanitary sewer and sanitary sewer lift station facilities
from property anticipated to be benefitted via their
installation.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF
KALISPELL, AS FOLLOWS:
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SECTION-1. That the costs of water, sanitary sewer, and
sanitary sewer lift station installation
associated with the U.S. Highway #93
reconstruction shall be recovered from each
parcel of property benefitted from said
utility extension, at the time of its
connection, based upon the following formula:
1. 45% of the total cost shall be recovered
from the property owners connecting to
said utilities based upon that part of
the whole cost which their property's
area bears to the area of the service
area of 7,977,219 square feet; and
2. 45% of the total cost shall be recovered
from the property owners connecting to
said utilities by use of a surcharge on
the established connection fee, at the
time of connection, such surcharge shall
be an additional 35% of the connection
fee for water service, and an additional
37% of the connection fee for sewer
service, of the respective connection
fees then in effect; and
3. 10% of the total cost shall be recovered
from the property owners connecting to
said utilities based upon that part of
the whole cost which the frontage of
their property on US 93 bears to the
lineal feet within the service area of
10,722 lineal feet.
SECTION II.s- Determination as to the total cost of the cost
installation of the water, sanitary sewer
utility and sanitary sewer lift station shall
be based upon the successful bidder's final
installed price, together with reasonable
engineering costs, of said improvements as
calculated by the Department of Public Works.
SECTION III. Funds received as part of the cost recovery
program herein authorized shall be deposited
in the respective funds from which they were
H;\attsec\wp\ord\US93costrecovery
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___j
dedicated to pay for the utility improvements
in proportion to the total of those dedicated
from each fund.
PASSED AND APPROVED BY THE CITY COUNCIL P4D SIGNED BY THE MAYOR OF
THE CITY OF KALISPELL, MONTANA, THISOZ/!", �� DAY OF DUNE, 1999.
Attest:
Theresa White
City Clerk
H;\attsec\wp\ord\US93costrecovery
I I -
Wm. E. Boharskl"'-
Mayor
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May 16, 2003
Mr. James C. Hansz, P.E.
City of Kalispell
312 First Avenue East
Kalispell, Montana 59903-1997
Subject: Development and Financing of Utility Infrastructure
EES Project #3-02-252
Dear Jim:
The City Council is in the process of reviewing the proposed rate adjustments for the water,
sewer and storm water utility. EES has developed financial plans and recommended rate
adjustments for each of the utilities to support the City's adopted Water, Sewer and Storm
Drainage Facility Plan, as prepared by HDR Engineering, Inc. Included within the Facility Plan
were a substantial number of growth or capacity related projects.
The City Council is reviewing the issue of whether the growth/capacity related improvements
should be fully funded up -front by developers. This letter is intended to provide our opinion of
the typical financing approaches used by municipal utilities to fund growth related infrastructure.
It is important to understand in this discussion that EES is not taking a position on the
appropriateness of constructing any of the projects contained in the City's Facility Plan. Rather,
we are simply trying to provide our perspective of typical industry practices as it relates to the
financing of those projects.
Most utilities plan and construct their system to accommodate expanding capacity requirements.
Failure to have sufficient capacity available on the system leads to building moratoriums. In the
past, EES has worked with a very small number of clients that were in this position. In those
rare instances, the utilities were unable to obtain additional water supply resources to support
new development. Therefore, the vast majority of utilities plan and construct capacity related
infrastructure, well in advance of developer connections, to accommodate future growth. The
important issue is how these capacity expansions and extensions are financed and paid for.
The first distinction that EES makes is that capital projects may be divided between "on -site"
and "backbone" infrastructure improvements. An example of an on -site project is the
development of a subdivision. Utilities typically require the developer to provide and finance the
infrastructure, within the development site, to support that specific development. As you move
away from the development, "backbone" infrastructure provides the facilities necessary to
deliver or meet the customer's commodity requirements. For a water utility, the backbone
infrastructure includes the supply, treatment, storage and major transmission and distribution
Mr. James C. Hansz, P.E.
May 16, 2003
Page 2
lines of the system. For the wastewater utility, the "backbone" infrastructure includes the
wastewater treatment facilities and major interceptors and collection lines of the system.
"Backbone" infrastructure is typically developed by the utility in advance of on -site development
connections, and developers are not expected to fully fund in advance the "backbone"
improvements. The purpose of system development charges is to "reimburse" the existing
customers for the investment made in those "backbone" improvements (i.e. capacity).
The key reason that "backbone" improvements are constructed and financed in this manner is
that these improvements are typically large expansions of capacity, such that it supports large
increments of growth on the system. As an example, the wastewater treatment plant is expanded
in this manner. Therefore, it would be impractical to expand the wastewater treatment plant to
accommodate the expanded capacity requirements of a new development with 10 homes.
Instead, a wastewater treatment plant is, for example, expanded in increments to support 1,000
new homes. At the same time, it would also seem difficult to have a group of developers "band
together" at one time, to finance an expansion of the plant to support capacity requirements over
the next five to ten years. System development charges solve that dilemma, and reimburse the
existing rate payers for the investment in excess capacity that they have made.
The City Council has noted that the implementation strategy associated with the City's Growth
Policy requires developers to install infrastructure needed to serve their development. This
statement, taken to the extreme would require the developer to install sufficient facilities from
source of supply to the customer's tap within a development. Therefore, the key question that
arises from the City's policy statement is whether this requires the developer to install the
"backbone" infrastructure to serve a new development (e.g. expand the City's water supply and
wastewater treatment plant). Based upon our very limited knowledge of the policy and how it
was developed, EES would likely conclude that was not the intent of the City's policy. Rather,
the policy, in our opinion, was intended to mirror the traditional utility financing approach of the
developer installing the "on -site" infrastructure needed to serve their development, with the City
constructing and financing the "backbone" infrastructure, and being reimbursed via an SDC.
In some cases, developers may be required to pay for extensions of mains beyond the subdivision
that serves only their needs. As an example, a developer may request service which requires the
extension of a main past a number of vacant parcels. The City may require the developer to pay
for that entire extension, and then through a "latecomer or reimbursement agreement" the
developer is reimbursed for the excess capacity built into that extension as the other parcels
connect to that specific distribution main. In this example, the developer does assume the risk
associated with the extension of the distribution main and whether additional parties will
eventually connect to that specific main. In our opinion, the typical application of this approach
is entirely different than the City's planned Highway 93 South project.
In summary, the financing approach proposed by EES for the City is commonly used by water,
sewer and storm sewer utilities across the U.S. If it were not the financing approach commonly
used, and developers were required to install all infrastructure needed to serve their development,
Mr. James C. Hansz, P.E.
May 16, 2003
Page 3
then logically, there wouldn't be the need for system development charges. Given that the vast
majority of utilities have system development charges, we can only conclude that the utility
finances and constructs the "backbone" infrastructure and provides excess capacity in that
system in anticipation of development.
Our final observation is that within the internal discussion at the City Council level, it appears
that there is not disagreement about the general financing approach outlined above and utilized
within the rate study. Rather, from our perspective, there appears to be two associated issues
directly connected with the above discussion that is driving the Council's concerns. The first
issue is whether certain specific projects are, or should be considered, "on -site" or "back -bone"
improvements. In other words, within the rate study, has the City included projects as "back-
bone" infrastructure that more appropriately should be financed up -front by the developer (i.e.
on -site improvements)? Specifically, this discussion appears to be focused on the Highway 93
South project. Simply stated, in our opinion, the Highway 93 South project appears to be a
"back -bone" project, and financed by the City, with reimbursement via SDC's.. Having said
that, the second issue that appears to be driving the City Council's concern is whether it is
"prudent" for the City to construct the Highway 93 South project and extend services to that
area. The answer to that question is a policy decision of the City Council and EES does not have
an opinion regarding the appropriateness of constructing that project. However, I will share my
perspective about the extension of utility services that I have gained from working with
numerous other municipal entities. I have seen instances of utility services extended to outlying
areas for a variety of justifiable reasons. Among these reasons may be growth management and
the encouragement of development in certain areas and minimization of urban sprawl,
minimizing the use of septic tanks and individual water wells, environmental considerations,
encouragement of economic development, and health/safety issues (e.g. fire protection).
I hope that this brief letter has helped to explain the typical financing approach that is used to
meet the capacity requirements of water, sewer and storm sewer utilities. Should you have any
questions about this letter, please do not hesitate to call me.
Sincerely,
ECONOMIC AND ENGINEERING SERVICES, INC.
Thomas E. Gould
Vice President
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